Document:

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.

 

47

 

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)

 

48

 

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

  

 

49Exhibit 10.4

 

UST # 205

 

LETTER AGREEMENT

 

UNITED STATES DEPARTMENT OF THE TREASURY

1500 PENNSYLVANIA AVENUE, NW

WASHINGTON, D.C. 20220

 

Dear Ladies and Gentlemen:

 

The company set forth on the signature page hereto (the “Company”) intends to issue in a private
placement the number of shares of a series of its preferred stock set forth on
Schedule A hereto (the “ Preferred Shares
”) and a warrant to purchase the number of shares of its common stock set forth
on Schedule A hereto (the “ Warrant
” and, together with the Preferred Shares, the “ Purchased Securities ”) and the United States Department of
the Treasury (the “ Investor ”)
intends to purchase from the Company the Purchased Securities.

 

The purpose of this letter agreement is to confirm the terms and
conditions of the purchase by the Investor of the Purchased Securities. Except
to the extent supplemented or superseded by the terms set forth herein or in
the Schedules hereto, the provisions contained in the Securities Purchase
Agreement – Standard Terms attached hereto as Exhibit A (the “ Securities Purchase Agreement ”) are
incorporated by reference herein. Terms that are defined in the Securities
Purchase Agreement are used in this letter agreement as so defined. In the
event of any inconsistency between this letter agreement and the Securities
Purchase Agreement, the terms of this letter agreement shall govern.

 

Each of the Company and the Investor hereby confirms its agreement with
the other party with respect to the issuance by the Company of the Purchased
Securities and the purchase by the Investor of the Purchased Securities
pursuant to this letter agreement and the Securities Purchase Agreement on the
terms specified on Schedule A hereto.

 

This letter agreement (including the Schedules hereto) and the
Securities Purchase Agreement (including the Annexes thereto) and the Warrant
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, between
the parties, with respect to the subject matter hereof. This letter agreement
constitutes the “Letter Agreement” referred to in the Securities Purchase
Agreement.

 

This letter agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an
original instrument, and all such counterparts will together constitute the
same agreement. Executed signature pages to this letter agreement may be
delivered by facsimile and such facsimiles will be deemed as sufficient as if
actual signature pages had been delivered.

 

* * *

 

 

UST # 205

 

In witness whereof, this letter agreement has been duly executed and
delivered by the duly authorized representatives of the parties hereto as of
the date written below.

 

	
  UNITED STATES DEPARTMENT OF THE TREASURY

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Neel Kashkari

  	
   

  
	
  Name:

  	
  Neel Kashkari

  
	
  Title:

  	
  Interim Assistant Secretary of Financial Stability

  
	
   

  	
   

  
	
   

  	
   

  
	
  OAK VALLEY BANCORP

  
	
   

  	
   

  
	
  By:

  	
  /s/ Ronald C. Martin

  	
   

  
	
  Name:

  	
  Ronald C. Martin

  
	
  Title:

  	
  Chief Executive Officer

  

 

Date:
December 5, 2008

 

 

UST # 205

EXHIBIT A

 

 

 

SECURITIES PURCHASE AGREEMENT

 

STANDARD TERMS

 

 

 

 

UST # 205

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
   

  	
  Article I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Purchase; Closing

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Purchase

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.2

  	
  Closing

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.3

  	
  Interpretation

  	
  4

  
	
   

  	
   

  	
   

  
	
   

  	
  Article II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Disclosure

  	
  4

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Representations
  and Warranties of the Company

  	
  5

  
	
   

  	
   

  	
   

  
	
   

  	
  Article III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Commercially
  Reasonable Efforts

  	
  13

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Expenses

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Sufficiency
  of Authorized Common Stock; Exchange Listing

  	
  15

  
	
   

  	
   

  	
   

  
	
  3.4

  	
  Certain
  Notifications Until Closing

  	
  15

  
	
   

  	
   

  	
   

  
	
  3.5

  	
  Access,
  Information and Confidentiality

  	
  15

  
	
   

  	
   

  	
   

  
	
   

  	
  Article IV

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Additional Agreements

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Purchase
  for Investment

  	
  16

  
	
   

  	
   

  	
   

  
	
  4.2

  	
  Legends

  	
  16

  
	
   

  	
   

  	
   

  
	
  4.3

  	
  Certain
  Transactions

  	
  18

  
	
   

  	
   

  	
   

  
	
  4.4

  	
  Transfer
  of Purchased Securities and Warrant Shares; Restrictions on Exercise of the
  Warrant

  	
  18

  
	
   

  	
   

  	
   

  
	
  4.5

  	
  Registration
  Rights

  	
  19

  

 

 

UST # 205

 

	
  4.6

  	
  Voting
  of Warrant Shares

  	
  30

  
	
   

  	
   

  	
   

  
	
  4.7

  	
  Depositary
  Shares

  	
  31

  
	
   

  	
   

  	
   

  
	
  4.8

  	
  Restriction
  on Dividends and Repurchases

  	
  31

  
	
   

  	
   

  	
   

  
	
  4.9

  	
  Repurchase
  of Investor Securities

  	
  32

  
	
   

  	
   

  	
   

  
	
  4.10

  	
  Executive
  Compensation

  	
  33

  
	
   

  	
   

  	
   

  
	
  4.11

  	
  Bank
  and Thrift Holding Company Status

  	
  33

  

 

i

 

UST # 205

 

	
  4.12

  	
  Predominantly
  Financial

  	
  34

  
	
   

  	
   

  	
   

  
	
   

  	
  Article V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Miscellaneous

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Termination

  	
  34

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Survival
  of Representations and Warranties

  	
  35

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Amendment

  	
  35

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  Waiver
  of Conditions

  	
  35

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Governing Law: Submission to Jurisdiction, Etc.

  	
  35

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  Notices

  	
  35

  
	
   

  	
   

  	
   

  
	
  5.7

  	
  Definitions

  	
  36

  
	
   

  	
   

  	
   

  
	
  5.8

  	
  Assignment

  	
  36

  
	
   

  	
   

  	
   

  
	
  5.9

  	
  Severability

  	
  36

  
	
   

  	
   

  	
   

  
	
  5.10

  	
  No
  Third Party Beneficiaries

  	
  37

  

 

ii

 

UST # 205

 

LIST OF ANNEXES

 

	
  ANNEX
  A:

  	
   

  	
  FORM OF
  CERTIFICATE OF DESIGNATIONS FOR PREFERRED STOCK

  
	
  ANNEX
  B:

  	
   

  	
  FORM OF
  WAIVER

  
	
  ANNEX
  C:

  	
   

  	
  FORM OF
  OPINION

  
	
  ANNEX
  D:

  	
   

  	
  FORM OF
  WARRANT

  

 

iii

 

UST # 205

 

INDEX OF DEFINED TERMS

 

	
   

  	
   

  	
  Location of

  
	
  Term

  	
   

  	
  Definition

  
	
  Affiliate

  	
   

  	
  5.7(b)

  
	
  Agreement

  	
   

  	
  Recitals

  
	
  Appraisal Procedure

  	
   

  	
  4.9(c)(i)

  
	
  Appropriate Federal Banking Agency

  	
   

  	
  2.2(s)

  
	
  Bank Holding Company

  	
   

  	
  4.11

  
	
  Bankruptcy Exceptions

  	
   

  	
  2.2(d)

  
	
  Benefit Plans

  	
   

  	
  1.2(d)(iv)

  
	
  Board of Directors

  	
   

  	
  2.2(f)

  
	
  Business Combination

  	
   

  	
  4.4

  
	
  business day

  	
   

  	
  1.3

  
	
  Capitalization Date

  	
   

  	
  2.2(b)

  
	
  Certificate of Designations

  	
   

  	
  1.2(d)(iii)

  
	
  Charter

  	
   

  	
  1.2(d)(iii)

  
	
  Closing

  	
   

  	
  1.2(a)

  
	
  Closing Date

  	
   

  	
  1.2(a)

  
	
  Code

  	
   

  	
  2.2(n)

  
	
  Common Stock

  	
   

  	
  Recitals

  
	
  Company

  	
   

  	
  Recitals

  
	
  Company Financial Statements

  	
   

  	
  2.2(h)

  
	
  Company Material Adverse Effect

  	
   

  	
  2.1(a)

  
	
  Company Reports

  	
   

  	
  2.2(i)(i)

  
	
  Company Subsidiary; Company Subsidiaries

  	
   

  	
  2.2(i)(i)

  
	
  control; controlled by; under common
  control with

  	
   

  	
  5.7(b)

  
	
  Controlled Group

  	
   

  	
  2.2(n)

  
	
  CPP

  	
   

  	
  Recitals

  
	
  EESA

  	
   

  	
  1.2(d)(iv)

  
	
  ERISA

  	
   

  	
  2.2(n)

  
	
  Exchange Act

  	
   

  	
  2.1(b)

  
	
  Fair Market Value

  	
   

  	
  4.9(c)(ii)

  
	
  Federal Reserve

  	
   

  	
  4.11

  
	
  GAAP

  	
   

  	
  2.1(a)

  
	
  Governmental Entities

  	
   

  	
  1.2(c)

  
	
  Holder

  	
   

  	
  4.5(k)(i)

  
	
  Holders’ Counsel

  	
   

  	
  4.5(k)(ii)

  
	
  Indemnitee

  	
   

  	
  4.5(g)(i)

  
	
  Information

  	
   

  	
  3.5(b)

  
	
  Initial Warrant Shares

  	
   

  	
  Recitals

  
	
  Investor

  	
   

  	
  Recitals

  
	
  Junior Stock

  	
   

  	
  4.8(c)

  
	
  knowledge of the Company; Company’s
  knowledge

  	
   

  	
  5.7(c)

  
	
  Last Fiscal Year

  	
   

  	
  2.1(b)

  

 

iv

 

UST # 205

 

	
   

  	
   

  	
  Location of

  
	
  Term

  	
   

  	
  Definition

  
	
  Letter Agreement

  	
   

  	
  Recitals

  
	
  officers

  	
   

  	
  5.7(c)

  
	
  Parity Stock

  	
   

  	
  4.8(c)

  
	
  Pending Underwritten Offering

  	
   

  	
  4.5(l)

  
	
  Permitted Repurchases

  	
   

  	
  4.8(a)(ii)

  
	
  Piggyback Registration

  	
   

  	
  4.5(a)(iv)

  
	
  Plan

  	
   

  	
  2.2(n)

  
	
  Preferred Shares

  	
   

  	
  Recitals

  
	
  Preferred Stock

  	
   

  	
  Recitals

  
	
  Previously Disclosed

  	
   

  	
  2.1(b)

  
	
  Proprietary Rights

  	
   

  	
  2.2(u)

  
	
  Purchase

  	
   

  	
  Recitals

  
	
  Purchase Price

  	
   

  	
  1.1

  
	
  Purchased Securities

  	
   

  	
  Recitals

  
	
  Qualified Equity Offering

  	
   

  	
  4.4

  
	
  register; registered; registration

  	
   

  	
  4.5(k)(iii)

  
	
  Registrable Securities

  	
   

  	
  4.5(k)(iv)

  
	
  Registration Expenses

  	
   

  	
  4.5(k)(v)

  
	
  Regulatory Agreement

  	
   

  	
  2.2(s)

  
	
  Rule 144; Rule 144A;
  Rule 159A; Rule 405; Rule 415

  	
   

  	
  4.5(k)(vi)

  
	
  Savings and Loan Holding Company

  	
   

  	
  4.11

  
	
  Schedules

  	
   

  	
  Recitals

  
	
  SEC

  	
   

  	
  2.1(b)

  
	
  Securities Act

  	
   

  	
  2.2(a)

  
	
  Selling Expenses

  	
   

  	
  4.5(k)(vii)

  
	
  Senior Executive Officers

  	
   

  	
  4.10

  
	
  Share Dilution Amount

  	
   

  	
  4.8(a)(ii)

  
	
  Shelf Registration Statement

  	
   

  	
  4.5(a)(ii)

  
	
  Signing Date

  	
   

  	
  2.1(a)

  
	
  Special Registration

  	
   

  	
  4.5(i)

  
	
  Stockholder Proposals

  	
   

  	
  3.1(b)

  
	
  subsidiary

  	
   

  	
  5.8(a)

  
	
  Tax; Taxes

  	
   

  	
  2.2(o)

  
	
  Transfer

  	
   

  	
  4.4

  
	
  Warrant

  	
   

  	
  Recitals

  
	
  Warrant Shares

  	
   

  	
  2.2(d)

  

 

v

 

UST # 205

 

SECURITIES PURCHASE AGREEMENT - STANDARD TERMS

 

Recitals:

 

WHEREAS,
the United States Department of the Treasury (the Investor”) may from time to time agree to purchase shares of
preferred stock and warrants from eligible financial institutions which elect
to participate in the Troubled Asset Relief Program Capital Purchase Program ( CPP ”);

 

WHEREAS,
an eligible financial institution electing to participate in the CPP and issue
securities to the Investor (referred to herein as the  Company
”) shall enter into a letter agreement (the  Letter Agreement ”) with the
Investor which incorporates this Securities Purchase Agreement - Standard
Terms;

 

WHEREAS,
the Company agrees to expand the flow of credit to U.S. consumers and
businesses on competitive terms to promote the sustained growth and vitality of
the U.S. economy;

 

WHEREAS,
the Company agrees to work diligently, under existing programs, to modify the
terms of residential mortgages as appropriate to strengthen the health of the
U.S. housing market;

 

WHEREAS,
the Company intends to issue in a private placement the number of shares of the
series of its Preferred Stock ( Preferred
Stock ”) set forth on Schedule A to the Letter Agreement (the
 Preferred Shares ”) and a warrant
to purchase the number of shares of its Common Stock ( Common Stock ”) set forth on Schedule
A to the Letter Agreement (the  Initial Warrant Shares ”) (the  Warrant
” and, together with the Preferred Shares, the  Purchased Securities ”) and the
Investor intends to purchase (the  Purchase ”) from the Company the
Purchased Securities; and

 

WHEREAS,
the Purchase will be governed by this Securities Purchase Agreement - Standard
Terms and the Letter Agreement, including the schedules thereto (the  Schedules
”), specifying additional terms of the Purchase. This Securities Purchase
Agreement - Standard Terms (including the Annexes hereto) and the Letter
Agreement (including the Schedules thereto) are together referred to as this
Agreement”. All references in this Securities Purchase Agreement - Standard
Terms to Schedules” are to the Schedules attached to the Letter Agreement.

 

NOW, THEREFORE, in consideration of the premises, and of the representations,
warranties, covenants and agreements set forth herein, the parties agree as
follows:

 

Article I

Purchase; Closing

 

1.1       Purchase.
On the terms and subject to the conditions set forth in this Agreement, the
Company agrees to sell to the Investor, and the Investor agrees to purchase
from the Company, at the Closing (as hereinafter defined), the Purchased
Securities for the price set forth on Schedule A (the Purchase Price ”).

 

1

 

UST # 205

 

1.2     Closing.

 

(a)       On
the terms and subject to the conditions set forth in this Agreement, the
closing of the Purchase (the Closing
”) will take place at the location specified in Schedule A , at the time
and on the date set forth in Schedule A or as soon as practicable
thereafter, or at such other place, time and date as shall be agreed between the
Company and the Investor. The time and date on which the Closing occurs is
referred to in this Agreement as the  Closing Date ”.

 

(b)       Subject
to the fulfillment or waiver of the conditions to the Closing in this Section 1.2,
at the Closing the Company will deliver the Preferred Shares and the Warrant,
in each case as evidenced by one or more certificates dated the Closing Date
and bearing appropriate legends as hereinafter provided for, in exchange for
payment in full of the Purchase Price by wire transfer of immediately available
United States funds to a bank account designated by the Company on Schedule
A .

 

(c)       The
respective obligations of each of the Investor and the Company to consummate
the Purchase are subject to the fulfillment (or waiver by the Investor and the
Company, as applicable) prior to the Closing of the conditions that (i) any
approvals or authorizations of all United States and other governmental,
regulatory or judicial authorities (collectively, Governmental Entities ”) required for the consummation of
the Purchase shall have been obtained or made in form and substance reasonably
satisfactory to each party and shall be in full force and effect and all
waiting periods required by United States and other applicable law, if any,
shall have expired and (ii) no provision of any applicable United States
or other law and no judgment, injunction, order or decree of any Governmental
Entity shall prohibit the purchase and sale of the Purchased Securities as
contemplated by this Agreement.

 

(d)       The
obligation of the Investor to consummate the Purchase is also subject to the
fulfillment (or waiver by the Investor) at or prior to the Closing of each of
the following conditions:

 

(i)        (A) the
representations and warranties of the Company set forth in (x) Section 2.2(g) of
this Agreement shall be true and correct in all respects as though made on and
as of the Closing Date, (y) Sections 2.2(a) through (f) shall be
true and correct in all material respects as though made on and as of the
Closing Date (other than representations and warranties that by their terms
speak as of another date, which representations and warranties shall be true
and correct in all material respects as of such other date) and (z) Sections
2.2(h) through (v) (disregarding all qualifications or limitations
set forth in such representations and warranties as to materiality”, Company
Material Adverse Effect” and words of similar import) shall be true and correct
as though made on and as of the Closing Date (other than representations and
warranties that by their terms speak as of another date, which representations
and warranties shall be true and correct as of such other date), except to the
extent that the failure of such representations and warranties referred to in
this Section 1.2(d)(i)(A)(z) to be so true and correct, individually
or in the aggregate, does not have and would not reasonably be expected to have
a Company Material Adverse Effect and (B) the Company shall have

 

2

 

UST # 205

 

performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing;

 

(ii)       the
Investor shall have received a certificate signed on behalf of the Company by a
senior executive officer certifying to the effect that the conditions set forth
in Section 1.2(d)(i) have been satisfied;

 

(iii)      the Company
shall have duly adopted and filed with the Secretary of State of its
jurisdiction of organization or other applicable Governmental Entity the
amendment to its certificate or articles of incorporation, articles of
association, or similar organizational document ( Charter ”) in substantially the form attached hereto as Annex
A (the  Certificate of Designations ”) and
such filing shall have been accepted;

 

(iv)      (A) the
Company shall have effected such changes to its compensation, bonus, incentive
and other benefit plans, arrangements and agreements (including golden
parachute, severance and employment agreements) (collectively,  Benefit Plans
”) with respect to its Senior Executive Officers (and to the extent necessary
for such changes to be legally enforceable, each of its Senior Executive
Officers shall have duly consented in writing to such changes), as may be necessary,
during the period that the Investor owns any debt or equity securities of the
Company acquired pursuant to this Agreement or the Warrant, in order to comply
with Section 111(b) of the Emergency Economic Stabilization Act of
2008 ( EESA ”) as implemented by
guidance or regulation thereunder that has been issued and is in effect as of
the Closing Date, and (B) the Investor shall have received a certificate
signed on behalf of the Company by a senior executive officer certifying to the
effect that the condition set forth in Section 1.2(d)(iv)(A) has been
satisfied;

 

(v)       each of
the Company’s Senior Executive Officers shall have delivered to the Investor a
written waiver in the form attached hereto as Annex B releasing the
Investor from any claims that such Senior Executive Officers may otherwise have
as a result of the issuance, on or prior to the Closing Date, of any
regulations which require the modification of, and the agreement of the Company
hereunder to modify, the terms of any Benefit Plans with respect to its Senior
Executive Officers to eliminate any provisions of such Benefit Plans that would
not be in compliance with the requirements of Section 111(b) of the
EESA as implemented by guidance or regulation thereunder that has been issued and
is in effect as of the Closing Date;

 

(vi)      the Company
shall have delivered to the Investor a written opinion from counsel to the
Company (which may be internal counsel), addressed to the Investor and dated as
of the Closing Date, in substantially the form attached hereto as Annex C
;

 

(vii)     the Company shall
have delivered certificates in proper form or, with the prior consent of the
Investor, evidence of shares in book-entry form, evidencing the Preferred
Shares to Investor or its designee(s); and

 

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(viii) the Company shall have duly executed the
Warrant in substantially the form attached hereto as Annex D and
delivered such executed Warrant to the Investor or its designee(s).

 

1.3       Interpretation.
When a reference is made in this Agreement to Recitals,” Articles,” Sections,”
or Annexes” such reference shall be to a Recital, Article or Section of,
or Annex to, this Securities Purchase Agreement - Standard Terms, and a
reference to Schedules” shall be to a Schedule to the Letter Agreement, in each
case, unless otherwise indicated. The terms defined in the singular have a
comparable meaning when used in the plural, and vice versa. References to
herein”, hereof”, hereunder” and the like refer to this Agreement as a whole
and not to any particular section or provision, unless the context requires
otherwise. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words include,” includes” or including” are used in this Agreement, they shall
be deemed followed by the words without limitation.” No rule of
construction against the draftsperson shall be applied in connection with the
interpretation or enforcement of this Agreement, as this Agreement is the
product of negotiation between sophisticated parties advised by counsel. All
references to $” or dollars” mean the lawful currency of the United States of
America. Except as expressly stated in this Agreement, all references to any
statute, rule or regulation are to the statute, rule or regulation as
amended, modified, supplemented or replaced from time to time (and, in the case
of statutes, include any rules and regulations promulgated under the
statute) and to any section of any statute, rule or regulation include any
successor to the section. References to a  business day “ shall mean any day
except Saturday, Sunday and any day on which banking institutions in the State
of New York generally are authorized or required by law or other governmental
actions to close.

 

Article II

Representations and Warranties

 

2.1          Disclosure.

 

(a)       Company Material Adverse Effect” means a
material adverse effect on (i) the business, results of operation or
financial condition of the Company and its consolidated subsidiaries taken as a
whole; provided , however , that Company Material Adverse
Effect shall not be deemed to include the effects of (A) changes after the
date of the Letter Agreement (the  Signing Date ”) in general
business, economic or market conditions (including changes generally in
prevailing interest rates, credit availability and liquidity, currency exchange
rates and price levels or trading volumes in the United States or foreign
securities or credit markets), or any outbreak or escalation of hostilities,
declared or undeclared acts of war or terrorism, in each case generally
affecting the industries in which the Company and its subsidiaries operate, (B) changes
or proposed changes after the Signing Date in generally accepted accounting
principles in the United States ( GAAP
”) or regulatory accounting requirements, or authoritative interpretations
thereof, (C) changes or proposed changes after the Signing Date in
securities, banking and other laws of general applicability or related policies
or interpretations of Governmental Entities (in the case of each of these
clauses (A), (B) and (C), other than changes

 

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or
occurrences to the extent that such changes or occurrences have or would
reasonably be expected to have a materially disproportionate adverse effect on
the Company and its consolidated subsidiaries taken as a whole relative to
comparable U.S. banking or financial services organizations), or (D) changes
in the market price or trading volume of the Common Stock or any other equity,
equity-related or debt securities of the Company or its consolidated
subsidiaries (it being understood and agreed that the exception set forth in
this clause (D) does not apply to the underlying reason giving rise to or
contributing to any such change); or (ii) the ability of the Company to
consummate the Purchase and the other transactions contemplated by this
Agreement and the Warrant and perform its obligations hereunder or thereunder
on a timely basis.

 

(b)       Previously Disclosed” means information
set forth or incorporated in the Company’s Annual Report on Form 10-K for
the most recently completed fiscal year of the Company filed with the
Securities and Exchange Commission (the  SEC ”) prior to the Signing Date
(the  Last Fiscal Year ”) or in its other
reports and forms filed with or furnished to the SEC under Sections 13(a), 14(a) or
15(d) of the Securities Exchange Act of 1934 (the  Exchange Act
”) on or after the last day of the Last Fiscal Year and prior to the Signing
Date.

 

2.2       Representations
and Warranties of the Company. Except as Previously Disclosed, the Company
represents and warrants to the Investor that as of the Signing Date and as of
the Closing Date (or such other date specified herein):

 

(a)       Organization,
Authority and Significant Subsidiaries. The Company has been duly
incorporated and is validly existing and in good standing under the laws of its
jurisdiction of organization, with the necessary power and authority to own its
properties and conduct its business in all material respects as currently
conducted, and except as has not, individually or in the aggregate, had and
would not reasonably be expected to have a Company Material Adverse Effect, has
been duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such qualification;
each subsidiary of the Company that is a significant subsidiary” within the
meaning of Rule 1-02(w) of Regulation S-X under the Securities Act of
1933 (the  Securities Act ”) has been duly
organized and is validly existing in good standing under the laws of its
jurisdiction of organization. The Charter and bylaws of the Company, copies of
which have been provided to the Investor prior to the Signing Date, are true,
complete and correct copies of such documents as in full force and effect as of
the Signing Date.

 

(b)       Capitalization.
The authorized capital stock of the Company, and the outstanding capital stock
of the Company (including securities convertible into, or exercisable or
exchangeable for, capital stock of the Company) as of the most recent fiscal
month-end preceding the Signing Date (the  Capitalization Date ”) is set forth
on Schedule B . The outstanding shares of capital stock of the Company
have been duly authorized and are validly issued and outstanding, fully paid
and nonassessable, and subject to no preemptive rights (and were not issued in
violation of any preemptive rights). Except as provided in the Warrant, as of
the Signing Date, the Company does not have outstanding any securities or other
obligations providing the holder the right to acquire Common Stock that is not
reserved for issuance as

 

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specified
on Schedule B, and the Company has not made any other commitment to
authorize, issue or sell any Common Stock. Since the Capitalization Date, the
Company has not issued any shares of Common Stock, other than (i) shares
issued upon the exercise of stock options or delivered under other equity-based
awards or other convertible securities or warrants which were issued and
outstanding on the Capitalization Date and disclosed on Schedule B and (ii) shares
disclosed on Schedule B .

 

(c)       Preferred
Shares. The Preferred Shares have been duly and validly authorized, and,
when issued and delivered pursuant to this Agreement, such Preferred Shares
will be duly and validly issued and fully paid and non-assessable, will not be
issued in violation of any preemptive rights, and will rank pari passu with or senior to all other
series or classes of Preferred Stock, whether or not issued or outstanding,
with respect to the payment of dividends and the distribution of assets in the
event of any dissolution, liquidation or winding up of the Company.

 

(d)       The
Warrant and Warrant Shares. The Warrant has been duly authorized and, when
executed and delivered as contemplated hereby, will constitute a valid and
legally binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors’ rights generally and general equitable
principles, regardless of whether such enforceability is considered in a
proceeding at law or in equity ( Bankruptcy
Exceptions ”). The shares of Common Stock issuable upon exercise of
the Warrant (the  Warrant Shares ”) have been duly
authorized and reserved for issuance upon exercise of the Warrant and when so
issued in accordance with the terms of the Warrant will be validly issued, fully
paid and non-assessable, subject, if applicable, to the approvals of its
stockholders set forth on Schedule C .

 

	
   

  	
  (e)

  	
  Authorization,
  Enforceability.

  

(i)        The
Company has the corporate power and authority to execute and deliver this
Agreement and the Warrant and, subject, if applicable, to the approvals of its
stockholders set forth on Schedule C , to carry out its obligations
hereunder and thereunder (which includes the issuance of the Preferred Shares,
Warrant and Warrant Shares). The execution, delivery and performance by the
Company of this Agreement and the Warrant and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company and its stockholders, and
no further approval or authorization is required on the part of the Company,
subject, in each case, if applicable, to the approvals of its stockholders set
forth on Schedule C . This Agreement is a valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to the Bankruptcy Exceptions.

 

(ii) The execution, delivery and performance by
the Company of this Agreement and the Warrant and the consummation of the
transactions contemplated hereby and thereby and compliance by the Company with
the provisions hereof and

 

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thereof,
will not (A) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration of, or result in the creation of, any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any Company Subsidiary under any of the terms, conditions or
provisions of (i) subject, if applicable, to the approvals of the Company’s
stockholders set forth on Schedule C , its organizational documents or (ii) any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any Company Subsidiary
is a party or by which it or any Company Subsidiary may be bound, or to which
the Company or any Company Subsidiary or any of the properties or assets of the
Company or any Company Subsidiary may be subject, or (B) subject to
compliance with the statutes and regulations referred to in the next paragraph,
violate any statute, rule or regulation or any judgment, ruling, order,
writ, injunction or decree applicable to the Company or any Company Subsidiary
or any of their respective properties or assets except, in the case of clauses
(A)(ii) and (B), for those occurrences that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect.

 

(iii)      Other than
the filing of the Certificate of Designations with the Secretary of State of
its jurisdiction of organization or other applicable Governmental Entity, any
current report on Form 8-K required to be filed with the SEC, such filings
and approvals as are required to be made or obtained under any state blue sky”
laws, the filing of any proxy statement contemplated by Section 3.1 and
such as have been made or obtained, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any Governmental Entity is
required to be made or obtained by the Company in connection with the
consummation by the Company of the Purchase except for any such notices,
filings, exemptions, reviews, authorizations, consents and approvals the
failure of which to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.

 

(f)        Anti-takeover
Provisions and Rights Plan. The Board of Directors of the Company (the Board of Directors ”) has taken all
necessary action to ensure that the transactions contemplated by this Agreement
and the Warrant and the consummation of the transactions contemplated hereby
and thereby, including the exercise of the Warrant in accordance with its
terms, will be exempt from any anti-takeover or similar provisions of the
Company’s Charter and bylaws, and any other provisions of any applicable
moratorium”, control share”, fair price”, interested stockholder” or other
anti-takeover laws and regulations of any jurisdiction. The Company has taken
all actions necessary to render any stockholders’ rights plan of the Company
inapplicable to this Agreement and the Warrant and the consummation of the
transactions contemplated hereby and thereby, including the exercise of the
Warrant by the Investor in accordance with its terms.

 

(g)       No
Company Material Adverse Effect. Since the last day of the last completed
fiscal period for which the Company has filed a Quarterly Report on Form 10-Q
or an Annual

 

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Report
on Form 10-K with the SEC prior to the Signing Date, no fact,
circumstance, event, change, occurrence, condition or development has occurred
that, individually or in the aggregate, has had or would reasonably be expected
to have a Company Material Adverse Effect.

 

(h)       Company
Financial Statements. Each of the consolidated financial statements of the
Company and its consolidated subsidiaries (collectively the  Company
Financial Statements ”) included or incorporated by reference in the
Company Reports filed with the SEC since December 31, 2006, present fairly
in all material respects the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates indicated therein (or if amended
prior to the Signing Date, as of the date of such amendment) and the consolidated
results of their operations for the periods specified therein; and except as
stated therein, such financial statements (A) were prepared in conformity
with GAAP applied on a consistent basis (except as may be noted therein), (B) have
been prepared from, and are in accordance with, the books and records of the
Company and the Company Subsidiaries and (C) complied as to form, as of
their respective dates of filing with the SEC, in all material respects with
the applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto.

 

	
   

  	
  (i)

  	
  Reports.

  

(i)        Since
December 31, 2006, the Company and each subsidiary of the Company (each a Company Subsidiary ” and, collectively,
the  Company Subsidiaries ”) has timely
filed all reports, registrations, documents, filings, statements and
submissions, together with any amendments thereto, that it was required to file
with any Governmental Entity (the foregoing, collectively, the  Company
Reports ”) and has paid all fees and assessments due and payable in
connection therewith, except, in each case, as would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect. As of their respective dates of filing, the Company Reports complied in
all material respects with all statutes and applicable rules and
regulations of the applicable Governmental Entities. In the case of each such
Company Report filed with or furnished to the SEC, such Company Report (A) did
not, as of its date or if amended prior to the Signing Date, as of the date of
such amendment, contain an untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, and (B) complied
as to form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act. With respect to all other Company Reports,
the Company Reports were complete and accurate in all material respects as of
their respective dates. No executive officer of the Company or any Company
Subsidiary has failed in any respect to make the certifications required of him
or her under Section 302 or 906 of the Sarbanes-Oxley Act of 2002.

 

(ii)       The records,
systems, controls, data and information of the Company and the Company
Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or the

 

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Company
Subsidiaries or their accountants (including all means of access thereto and
therefrom), except for any non-exclusive ownership and non-direct control that
would not reasonably be expected to have a material adverse effect on the
system of internal accounting controls described below in this Section 2.2(i)(ii).
The Company (A) has implemented and maintains disclosure controls and
procedures (as defined in Rule 13a-15(e) of the Exchange Act) to
ensure that material information relating to the Company, including the
consolidated Company Subsidiaries, is made known to the chief executive officer
and the chief financial officer of the Company by others within those entities,
and (B) has disclosed, based on its most recent evaluation prior to the
Signing Date, to the Company’s outside auditors and the audit committee of the
Board of Directors (x) any significant deficiencies and material
weaknesses in the design or operation of internal controls over financial
reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are
reasonably likely to adversely affect the Company’s ability to record, process,
summarize and report financial information and (y) any fraud, whether or
not material, that involves management or other employees who have a
significant role in the Company’s internal controls over financial reporting.

 

(j)        No
Undisclosed Liabilities. Neither the Company nor any of the Company
Subsidiaries has any liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) which are not properly reflected or reserved
against in the Company Financial Statements to the extent required to be so reflected
or reserved against in accordance with GAAP, except for (A) liabilities
that have arisen since the last fiscal year end in the ordinary and usual
course of business and consistent with past practice and (B) liabilities
that, individually or in the aggregate, have not had and would not reasonably
be expected to have a Company Material Adverse Effect.

 

(k)       Offering
of Securities. Neither the Company nor any person acting on its behalf has
taken any action (including any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of any of the Purchased Securities under the Securities Act, and the rules and
regulations of the SEC promulgated thereunder), which might subject the
offering, issuance or sale of any of the Purchased Securities to Investor
pursuant to this Agreement to the registration requirements of the Securities
Act.

 

(l)        Litigation
and Other Proceedings. Except (i) as set forth on Schedule D or
(ii) as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, there is no (A) pending
or, to the knowledge of the Company, threatened, claim, action, suit,
investigation or proceeding, against the Company or any Company Subsidiary or
to which any of their assets are subject nor is the Company or any Company
Subsidiary subject to any order, judgment or decree or (B) unresolved
violation, criticism or exception by any Governmental Entity with respect to
any report or relating to any examinations or inspections of the Company or any
Company Subsidiaries.

 

(m)      Except
as would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect, the Company and the

 

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Company
Subsidiaries have all permits, licenses, franchises, authorizations, orders and
approvals of, and have made all filings, applications and registrations with,
Governmental Entities that are required in order to permit them to own or lease
their properties and assets and to carry on their business as presently
conducted and that are material to the business of the Company or such Company
Subsidiary. Except as set forth on Schedule E , the Company and the
Company Subsidiaries have complied in all respects and are not in default or
violation of, and none of them is, to the knowledge of the Company, under
investigation with respect to or, to the knowledge of the Company, have been
threatened to be charged with or given notice of any violation of, any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license, rule, regulation, policy or guideline, order, demand, writ,
injunction, decree or judgment of any Governmental Entity, other than such
noncompliance, defaults or violations that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
Except for statutory or regulatory restrictions of general application or as
set forth on Schedule E , no Governmental Entity has placed any
restriction on the business or properties of the Company or any Company
Subsidiary that would, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.

 

(n)       Employee
Benefit Matters. Except as would not reasonably be expected to have, either
individually or in the aggregate, a Company Material Adverse Effect: (A) each
employee benefit plan” (within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ( ERISA ”)) providing benefits to any
current or former employee, officer or director of the Company or any member of
its  Controlled Group ” (defined as any
organization which is a member of a controlled group of corporations within the
meaning of Section 414 of the Internal Revenue Code of 1986, as amended
(the  Code ”)) that is sponsored,
maintained or contributed to by the Company or any member of its Controlled
Group and for which the Company or any member of its Controlled Group would
have any liability, whether actual or contingent (each, a  Plan
”) has been maintained in compliance with its terms and with the requirements
of all applicable statutes, rules and regulations, including ERISA and the
Code; (B) with respect to each Plan subject to Title IV of ERISA
(including, for purposes of this clause (B), any plan subject to Title IV of
ERISA that the Company or any member of its Controlled Group previously
maintained or contributed to in the six years prior to the Signing Date), (1) no
reportable event” (within the meaning of Section 4043(c) of ERISA),
other than a reportable event for which the notice period referred to in Section 4043(c) of
ERISA has been waived, has occurred in the three years prior to the Signing
Date or is reasonably expected to occur, (2) no accumulated funding
deficiency” (within the meaning of Section 302 of ERISA or Section 412
of the Code), whether or not waived, has occurred in the three years prior to
the Signing Date or is reasonably expected to occur, (3) the fair market
value of the assets under each Plan exceeds the present value of all benefits
accrued under such Plan (determined based on the assumptions used to fund such
Plan) and (4) neither the Company nor any member of its Controlled Group
has incurred in the six years prior to the Signing Date, or reasonably expects
to incur, any liability under Title IV of ERISA (other than contributions to
the Plan or premiums to the PBGC in the ordinary course and without default) in
respect of a Plan (including any Plan that is a multiemployer plan”, within the
meaning of Section 4001(c)(3) of ERISA); and (C) each Plan that
is intended to be qualified under Section 401(a) of the Code has
received a favorable

 

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determination
letter from the Internal Revenue Service with respect to its qualified status
that has not been revoked, or such a determination letter has been timely
applied for but not received by the Signing Date, and nothing has occurred,
whether by action or by failure to act, which could reasonably be expected to
cause the loss, revocation or denial of such qualified status or favorable
determination letter.

 

(o)       Taxes.
Except as would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect, (i) the Company and the Company
Subsidiaries have filed all federal, state, local and foreign income and
franchise Tax returns required to be filed through the Signing Date, subject to
permitted extensions, and have paid all Taxes due thereon, and (ii) no Tax
deficiency has been determined adversely to the Company or any of the Company
Subsidiaries, nor does the Company have any knowledge of any Tax deficiencies.  Tax
” or  Taxes ” means any federal, state,
local or foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add on minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest or penalty, imposed by any Governmental Entity.

 

(p)       Properties
and Leases. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, the Company
and the Company Subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances, claims and defects that would affect the value
thereof or interfere with the use made or to be made thereof by them. Except as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, the Company and the Company Subsidiaries hold
all leased real or personal property under valid and enforceable leases with no
exceptions that would interfere with the use made or to be made thereof by
them.

 

(q)       Environmental
Liability. Except as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect:

 

(i)        there
is no legal, administrative, or other proceeding, claim or action of any nature
seeking to impose, or that would reasonably be expected to result in the
imposition of, on the Company or any Company Subsidiary, any liability relating
to the release of hazardous substances as defined under any local, state or
federal environmental statute, regulation or ordinance, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
pending or, to the Company’s knowledge, threatened against the Company or any
Company Subsidiary;

 

(ii)       to the
Company’s knowledge, there is no reasonable basis for any such proceeding,
claim or action; and

 

(iii)      neither the
Company nor any Company Subsidiary is subject to any agreement, order, judgment
or decree by or with any court, Governmental Entity or third party imposing any
such environmental liability.

 

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(r)        Risk
Management Instruments. Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect,
all derivative instruments, including, swaps, caps, floors and option
agreements, whether entered into for the Company’s own account, or for the
account of one or more of the Company Subsidiaries or its or their customers,
were entered into (i) only in the ordinary course of business, (ii) in
accordance with prudent practices and in all material respects with all
applicable laws, rules, regulations and regulatory policies and (iii) with
counterparties believed to be financially responsible at the time; and each of
such instruments constitutes the valid and legally binding obligation of the
Company or one of the Company Subsidiaries, enforceable in accordance with its
terms, except as may be limited by the Bankruptcy Exceptions. Neither the
Company or the Company Subsidiaries, nor, to the knowledge of the Company, any
other party thereto, is in breach of any of its obligations under any such
agreement or arrangement other than such breaches that would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.

 

(s)        Agreements
with Regulatory Agencies. Except as set forth on Schedule F, neither
the Company nor any Company Subsidiary is subject to any material
cease-and-desist or other similar order or enforcement action issued by, or is
a party to any material written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any capital directive by, or since December 31,
2006, has adopted any board resolutions at the request of, any Governmental
Entity (other than the Appropriate Federal Banking Agencies with jurisdiction
over the Company and the Company Subsidiaries) that currently restricts in any
material respect the conduct of its business or that in any material manner
relates to its capital adequacy, its liquidity and funding policies and
practices, its ability to pay dividends, its credit, risk management or
compliance policies or procedures, its internal controls, its management or its
operations or business (each item in this sentence, a  Regulatory
Agreement ”), nor has the Company or any Company Subsidiary been
advised since December 31, 2006 by any such Governmental Entity that it is
considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement. The Company and each Company Subsidiary are in compliance in all
material respects with each Regulatory Agreement to which it is party or
subject, and neither the Company nor any Company Subsidiary has received any
notice from any Governmental Entity indicating that either the Company or any
Company Subsidiary is not in compliance in all material respects with any such
Regulatory Agreement.  Appropriate Federal Banking Agency ”
means the appropriate Federal banking agency” with respect to the Company or
such Company Subsidiaries, as applicable, as defined in Section 3(q) of
the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)).

 

(t)        Insurance.
The Company and the Company Subsidiaries are insured with reputable insurers
against such risks and in such amounts as the management of the Company
reasonably has determined to be prudent and consistent with industry practice.
The Company and the Company Subsidiaries are in material compliance with their
insurance policies and are not in default under any of the material terms thereof,
each such policy is outstanding and in full force and effect, all premiums and
other payments due under any material policy have been paid, and all claims
thereunder have been filed in due and timely fashion, except, in each case, as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.

 

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(u)       Intellectual
Property. Except as would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect, (i) the Company and
each Company Subsidiary owns or otherwise has the right to use, all
intellectual property rights, including all trademarks, trade dress, trade
names, service marks, domain names, patents, inventions, trade secrets,
know-how, works of authorship and copyrights therein, that are used in the
conduct of their existing businesses and all rights relating to the plans,
design and specifications of any of its branch facilities ( Proprietary Rights ”) free and clear of
all liens and any claims of ownership by current or former employees,
contractors, designers or others and (ii) neither the Company nor any of
the Company Subsidiaries is materially infringing, diluting, misappropriating
or violating, nor has the Company or any or the Company Subsidiaries received
any written (or, to the knowledge of the Company, oral) communications alleging
that any of them has materially infringed, diluted, misappropriated or
violated, any of the Proprietary Rights owned by any other person. Except as
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect, to the Company’s knowledge, no other person is
infringing, diluting, misappropriating or violating, nor has the Company or any
or the Company Subsidiaries sent any written communications since January 1,
2006 alleging that any person has infringed, diluted, misappropriated or
violated, any of the Proprietary Rights owned by the Company and the Company
Subsidiaries.

 

(v)       Brokers
and Finders. No broker, finder or investment banker is entitled to any
financial advisory, brokerage, finder’s or other fee or commission in
connection with this Agreement or the Warrant or the transactions contemplated
hereby or thereby based upon arrangements made by or on behalf of the Company
or any Company Subsidiary for which the Investor could have any liability.

 

Article III

Covenants

 

	
   

  	
  3.1

  	
  Commercially
  Reasonable Efforts.

  

(a)       Subject
to the terms and conditions of this Agreement, each of the parties will use its
commercially reasonable efforts in good faith to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Purchase as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall use commercially reasonable
efforts to cooperate with the other party to that end.

 

(b)       If
the Company is required to obtain any stockholder approvals set forth onSchedule
C, then the Company shall comply with this Section 3.1(b) and Section 3.1(c).
The Company shall call a special meeting of its stockholders, as promptly as
practicable following the Closing, to vote on proposals (collectively, the  Stockholder
Proposals ”) to (i) approve the exercise of the Warrant for
Common Stock for purposes of the rules of the national security exchange
on which the Common Stock is listed and/or (ii) amend the Company’s
Charter to increase the number of authorized shares of Common Stock to at least
such number as shall be sufficient to permit the full exercise of the Warrant
for Common Stock and comply with the

 

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other
provisions of this Section 3.1(b) and Section 3.1(c). The Board
of Directors shall recommend to the Company’s stockholders that such
stockholders vote in favor of the Stockholder Proposals. In connection with
such meeting, the Company shall prepare (and the Investor will reasonably
cooperate with the Company to prepare) and file with the SEC as promptly as
practicable (but in no event more than ten business days after the Closing) a
preliminary proxy statement, shall use its reasonable best efforts to respond
to any comments of the SEC or its staff thereon and to cause a definitive proxy
statement related to such stockholders’ meeting to be mailed to the Company’s
stockholders not more than five business days after clearance thereof by the
SEC, and shall use its reasonable best efforts to solicit proxies for such
stockholder approval of the Stockholder Proposals. The Company shall notify the
Investor promptly of the receipt of any comments from the SEC or its staff with
respect to the proxy statement and of any request by the SEC or its staff for
amendments or supplements to such proxy statement or for additional information
and will supply the Investor with copies of all correspondence between the
Company or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to such proxy statement. If at any time
prior to such stockholders’ meeting there shall occur any event that is
required to be set forth in an amendment or supplement to the proxy statement,
the Company shall as promptly as practicable prepare and mail to its
stockholders such an amendment or supplement. Each of the Investor and the
Company agrees promptly to correct any information provided by it or on its
behalf for use in the proxy statement if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company shall as promptly as practicable prepare and mail to its
stockholders an amendment or supplement to correct such information to the
extent required by applicable laws and regulations. The Company shall consult
with the Investor prior to filing any proxy statement, or any amendment or
supplement thereto, and provide the Investor with a reasonable opportunity to
comment thereon. In the event that the approval of any of the Stockholder
Proposals is not obtained at such special stockholders meeting, the Company
shall include a proposal to approve (and the Board of Directors shall recommend
approval of) each such proposal at a meeting of its stockholders no less than
once in each subsequent six-month period beginning on January 1, 2009
until all such approvals are obtained or made.

 

(c)       None
of the information supplied by the Company or any of the Company Subsidiaries
for inclusion in any proxy statement in connection with any such stockholders
meeting of the Company will, at the date it is filed with the SEC, when first
mailed to the Company’s stockholders and at the time of any stockholders
meeting, and at the time of any amendment or supplement thereof, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.

 

3.2       Expenses.
Unless otherwise provided in this Agreement or the Warrant, each of the parties
hereto will bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated under this Agreement and the
Warrant, including fees and expenses of its own financial or other consultants,
investment bankers, accountants and counsel.

 

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  3.3

  	
  Sufficiency
  of Authorized Common Stock; Exchange Listing.

  

(a)       During
the period from the Closing Date (or, if the approval of the Stockholder
Proposals is required, the date of such approval) until the date on which the
Warrant has been fully exercised, the Company shall at all times have reserved
for issuance, free of preemptive or similar rights, a sufficient number of
authorized and unissued Warrant Shares to effectuate such exercise. Nothing in
this Section 3.3 shall preclude the Company from satisfying its
obligations in respect of the exercise of the Warrant by delivery of shares of
Common Stock which are held in the treasury of the Company. As soon as
reasonably practicable following the Closing, the Company shall, at its
expense, cause the Warrant Shares to be listed on the same national securities
exchange on which the Common Stock is listed, subject to official notice of
issuance, and shall maintain such listing for so long as any Common Stock is
listed on such exchange.

 

(b)       If
requested by the Investor, the Company shall promptly use its reasonable best efforts
to cause the Preferred Shares to be approved for listing on a national
securities exchange as promptly as practicable following such request.

 

3.4       Certain
Notifications Until Closing. From the Signing Date until the Closing, the
Company shall promptly notify the Investor of (i) any fact, event or
circumstance of which it is aware and which would reasonably be expected to
cause any representation or warranty of the Company contained in this Agreement
to be untrue or inaccurate in any material respect or to cause any covenant or
agreement of the Company contained in this Agreement not to be complied with or
satisfied in any material respect and (ii) except as Previously Disclosed,
any fact, circumstance, event, change, occurrence, condition or development of
which the Company is aware and which, individually or in the aggregate, has had
or would reasonably be expected to have a Company Material Adverse Effect; provided , however , that delivery of any notice pursuant to this Section 3.4
shall not limit or affect any rights of or remedies available to the Investor; provided , further , that a failure to comply with this Section 3.4
shall not constitute a breach of this Agreement or the failure of any condition
set forth in Section 1.2 to be satisfied unless the underlying Company
Material Adverse Effect or material breach would independently result in the
failure of a condition set forth in Section 1.2 to be satisfied.

 

	
   

  	
  3.5

  	
  Access,
  Information and Confidentiality.

  

(a)       From
the Signing Date until the date when the Investor holds an amount of Preferred
Shares having an aggregate liquidation value of less than 10% of the Purchase
Price, the Company will permit the Investor and its agents, consultants,
contractors and advisors (x) acting through the Appropriate Federal
Banking Agency, to examine the corporate books and make copies thereof and to
discuss the affairs, finances and accounts of the Company and the Company
Subsidiaries with the principal officers of the Company, all upon reasonable notice
and at such reasonable times and as often as the Investor may reasonably
request and (y) to review any information material to the Investor’s
investment in the Company provided by the Company to its Appropriate Federal
Banking Agency. Any investigation pursuant to this Section 3.5 shall be
conducted during normal business hours and in such manner as not to interfere
unreasonably with the conduct of the business of the Company, and nothing
herein shall require the Company or any Company Subsidiary to disclose any
information to the Investor to the extent (i) prohibited by applicable law
or regulation, or (ii) that such disclosure would reasonably be

 

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expected
to cause a violation of any agreement to which the Company or any Company
Subsidiary is a party or would cause a risk of a loss of privilege to the
Company or any Company Subsidiary ( provided
that the Company shall use commercially reasonable efforts to make appropriate
substitute disclosure arrangements under circumstances where the restrictions
in this clause (ii) apply).

 

(b)       The
Investor will use reasonable best efforts to hold, and will use reasonable best
efforts to cause its agents, consultants, contractors and advisors to hold, in
confidence all non-public records, books, contracts, instruments, computer data
and other data and information (collectively,  Information ”) concerning the
Company furnished or made available to it by the Company or its representatives
pursuant to this Agreement (except to the extent that such information can be
shown to have been (i) previously known by such party on a
non-confidential basis, (ii) in the public domain through no fault of such
party or (iii) later lawfully acquired from other sources by the party to
which it was furnished (and without violation of any other confidentiality
obligation)); provided that
nothing herein shall prevent the Investor from disclosing any Information to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process.

 

Article IV

Additional Agreements

 

4.1       Purchase
for Investment. The Investor acknowledges that the Purchased Securities and
the Warrant Shares have not been registered under the Securities Act or under
any state securities laws. The Investor (a) is acquiring the Purchased
Securities pursuant to an exemption from registration under the Securities Act
solely for investment with no present intention to distribute them to any
person in violation of the Securities Act or any applicable U.S. state
securities laws, (b) will not sell or otherwise dispose of any of the
Purchased Securities or the Warrant Shares, except in compliance with the
registration requirements or exemption provisions of the Securities Act and any
applicable U.S. state securities laws, and (c) has such knowledge and
experience in financial and business matters and in investments of this type
that it is capable of evaluating the merits and risks of the Purchase and of
making an informed investment decision.

 

	
   

  	
  4.2

  	
  Legends.

  

(a)       The
Investor agrees that all certificates or other instruments representing the
Warrant and the Warrant Shares will bear a legend substantially to the
following effect:

 

THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION
STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR
SUCH LAWS.”

 

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UST # 205

 

(b)       The
Investor agrees that all certificates or other instruments representing the
Warrant will also bear a legend substantially to the following effect:

 

THIS
INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. ANY
SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE VOID.”

 

(c)       In
addition, the Investor agrees that all certificates or other instruments
representing the Preferred Shares will bear a legend substantially to the
following effect:

 

THE
SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

 

THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED
OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS. EACH PURCHASER OF THE SECURITIES
REPRESENTED BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING
ON THE EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE
144A THEREUNDER. ANY TRANSFEREE OF THE SECURITIES REPRESENTED BY THIS
INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT IT IS A QUALIFIED
INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES
THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THE SECURITIES REPRESENTED
BY THIS INSTRUMENT EXCEPT (A) PURSUANT TO A REGISTRATION STATEMENT WHICH
IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR SO LONG AS THE
SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (C) TO
THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION

 

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UST # 205

 

REQUIREMENTS
OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO
WHOM THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.”

 

(d)       In
the event that any Purchased Securities or Warrant Shares (i) become
registered under the Securities Act or (ii) are eligible to be transferred
without restriction in accordance with Rule 144 or another exemption from
registration under the Securities Act (other than Rule 144A), the Company
shall issue new certificates or other instruments representing such Purchased
Securities or Warrant Shares, which shall not contain the applicable legends in
Sections 4.2(a) and (c) above;
provided that the Investor surrenders to the Company the previously
issued certificates or other instruments. Upon Transfer of all or a portion of
the Warrant in compliance with Section 4.4, the Company shall issue new
certificates or other instruments representing the Warrant, which shall not
contain the applicable legend in Section 4.2(b) above; provided that the Investor surrenders to
the Company the previously issued certificates or other instruments.

 

4.3       Certain
Transactions. The Company will not merge or consolidate with, or sell,
transfer or lease all or substantially all of its property or assets to, any
other party unless the successor, transferee or lessee party (or its ultimate
parent entity), as the case may be (if not the Company), expressly assumes the
due and punctual performance and observance of each and every covenant,
agreement and condition of this Agreement to be performed and observed by the
Company.

 

4.4       Transfer
of Purchased Securities and Warrant Shares; Restrictions on Exercise of the
Warrant. Subject to compliance with applicable securities laws, the
Investor shall be permitted to transfer, sell, assign or otherwise dispose of ( Transfer ”) all or a portion of the
Purchased Securities or Warrant Shares at any time, and the Company shall take
all steps as may be reasonably requested by the Investor to facilitate the
Transfer of the Purchased Securities and the Warrant Shares; provided that the Investor shall not
Transfer a portion or portions of the Warrant with respect to, and/or exercise
the Warrant for, more than one-half of the Initial Warrant Shares (as such
number may be adjusted from time to time pursuant to Section 13 thereof)
in the aggregate until the earlier of (a) the date on which the Company
(or any successor by Business Combination) has received aggregate gross
proceeds of not less than the Purchase Price (and the purchase price paid by
the Investor to any such successor for securities of such successor purchased
under the CPP) from one or more Qualified Equity Offerings (including Qualified
Equity Offerings of such successor) and (b) December 31, 2009.  Qualified
Equity Offering ” means the sale and issuance for cash by the
Company to persons other than the Company or any of the Company Subsidiaries
after the Closing Date of shares of perpetual Preferred Stock, Common Stock or
any combination of such stock, that, in each case, qualify as and may be
included in Tier 1 capital of the Company at the time of issuance under the
applicable risk-based capital guidelines of the Company’s Appropriate Federal
Banking Agency (other than any such sales and issuances made pursuant to
agreements or arrangements entered into, or pursuant to financing plans which
were publicly announced, on or prior to October 13,

 

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UST # 205

 

2008).
Business Combination” means a
merger, consolidation, statutory share exchange or similar transaction that
requires the approval of the Company’s stockholders.

 

	
   

  	
  4.5

  	
  Registration
  Rights.

  
	
   

  	
  (a)

  	
  Registration.

  	 

						

(i)        Subject
to the terms and conditions of this Agreement, the Company covenants and agrees
that as promptly as practicable after the Closing Date (and in any event no
later than 30 days after the Closing Date), the Company shall prepare and file
with the SEC a Shelf Registration Statement covering all Registrable Securities
(or otherwise designate an existing Shelf Registration Statement filed with the
SEC to cover the Registrable Securities), and, to the extent the Shelf
Registration Statement has not theretofore been declared effective or is not
automatically effective upon such filing, the Company shall use reasonable best
efforts to cause such Shelf Registration Statement to be declared or become
effective and to keep such Shelf Registration Statement continuously effective
and in compliance with the Securities Act and usable for resale of such
Registrable Securities for a period from the date of its initial effectiveness
until such time as there are no Registrable Securities remaining (including by
refiling such Shelf Registration Statement (or a new Shelf Registration
Statement) if the initial Shelf Registration Statement expires). So long as the
Company is a well-known seasoned issuer (as defined in Rule 405 under the
Securities Act) at the time of filing of the Shelf Registration Statement with
the SEC, such Shelf Registration Statement shall be designated by the Company
as an automatic Shelf Registration Statement. Notwithstanding the foregoing, if
on the Signing Date the Company is not eligible to file a registration
statement on Form S-3, then the Company shall not be obligated to file a
Shelf Registration Statement unless and until requested to do so in writing by
the Investor.

 

(ii)       Any
registration pursuant to Section 4.5(a)(i) shall be effected by means
of a shelf registration on an appropriate form under Rule 415 under the
Securities Act (a  Shelf Registration Statement ”). If
the Investor or any other Holder intends to distribute any Registrable
Securities by means of an underwritten offering it shall promptly so advise the
Company and the Company shall take all reasonable steps to facilitate such distribution,
including the actions required pursuant to Section 4.5(c); provided that the Company shall not be
required to facilitate an underwritten offering of Registrable Securities
unless the expected gross proceeds from such offering exceed (i) 2% of the
initial aggregate liquidation preference of the Preferred Shares if such
initial aggregate liquidation preference is less than $2 billion and (ii) $200
million if the initial aggregate liquidation preference of the Preferred Shares
is equal to or greater than $2 billion. The lead underwriters in any such
distribution shall be selected by the Holders of a majority of the Registrable
Securities to be distributed; provided
that to the extent appropriate and permitted under applicable law, such Holders
shall consider the qualifications of any broker-dealer Affiliate of the Company
in selecting the lead underwriters in any such distribution.

 

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UST # 205

 

(iii)      The Company
shall not be required to effect a registration (including a resale of
Registrable Securities from an effective Shelf Registration Statement) or an
underwritten offering pursuant to Section 4.5(a): (A) with respect to
securities that are not Registrable Securities; or (B) if the Company has
notified the Investor and all other Holders that in the good faith judgment of
the Board of Directors, it would be materially detrimental to the Company or
its securityholders for such registration or underwritten offering to be
effected at such time, in which event the Company shall have the right to defer
such registration for a period of not more than 45 days after receipt of the
request of the Investor or any other Holder;
provided that such right to delay a registration or underwritten
offering shall be exercised by the Company (1) only if the Company has
generally exercised (or is concurrently exercising) similar black-out rights
against holders of similar securities that have registration rights and (2) not
more than three times in any 12-month period and not more than 90 days in the
aggregate in any 12-month period.

 

(iv)      If during any
period when an effective Shelf Registration Statement is not available, the
Company proposes to register any of its equity securities, other than a
registration pursuant to Section 4.5(a)(i) or a Special Registration,
and the registration form to be filed may be used for the registration or
qualification for distribution of Registrable Securities, the Company will give
prompt written notice to the Investor and all other Holders of its intention to
effect such a registration (but in no event less than ten days prior to the
anticipated filing date) and will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within ten business days after the date of the Company’s
notice (a  Piggyback Registration ”). Any such
person that has made such a written request may withdraw its Registrable
Securities from such Piggyback Registration by giving written notice to the
Company and the managing underwriter, if any, on or before the fifth business
day prior to the planned effective date of such Piggyback Registration. The
Company may terminate or withdraw any registration under this Section 4.5(a)(iv) prior
to the effectiveness of such registration, whether or not Investor or any other
Holders have elected to include Registrable Securities in such registration.

 

(v)       If the
registration referred to in Section 4.5(a)(iv) is proposed to be underwritten,
the Company will so advise Investor and all other Holders as a part of the
written notice given pursuant to Section 4.5(a)(iv). In such event, the
right of Investor and all other Holders to registration pursuant to Section 4.5(a) will
be conditioned upon such persons’ participation in such underwriting and the
inclusion of such person’s Registrable Securities in the underwriting if such
securities are of the same class of securities as the securities to be offered
in the underwritten offering, and each such person will (together with the
Company and the other persons distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company; provided that the Investor (as opposed to
other Holders) shall not be required to indemnify any person in connection with
any registration. If any participating person disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice

 

20

 

UST # 205

 

to
the Company, the managing underwriters and the Investor (if the Investor is
participating in the underwriting).

 

(vi)      If either (x) the
Company grants piggyback” registration rights to one or more third parties to
include their securities in an underwritten offering under the Shelf
Registration Statement pursuant to Section 4.5(a)(ii) or (y) a
Piggyback Registration under Section 4.5(a)(iv) relates to an
underwritten offering on behalf of the Company, and in either case the managing
underwriters advise the Company that in their reasonable opinion the number of
securities requested to be included in such offering exceeds the number which
can be sold without adversely affecting the marketability of such offering
(including an adverse effect on the per share offering price), the Company will
include in such offering only such number of securities that in the reasonable
opinion of such managing underwriters can be sold without adversely affecting
the marketability of the offering (including an adverse effect on the per share
offering price), which securities will be so included in the following order of
priority: (A) first, in the case of a Piggyback Registration under Section 4.5(a)(iv),
the securities the Company proposes to sell, (B) then the Registrable
Securities of the Investor and all other Holders who have requested inclusion
of Registrable Securities pursuant to Section 4.5(a)(ii) or Section 4.5(a)(iv),
as applicable, pro rata on the
basis of the aggregate number of such securities or shares owned by each such
person and (C) lastly, any other securities of the Company that have been
requested to be so included, subject to the terms of this Agreement; provided, however, that if the Company
has, prior to the Signing Date, entered into an agreement with respect to its
securities that is inconsistent with the order of priority contemplated hereby
then it shall apply the order of priority in such conflicting agreement to the
extent that it would otherwise result in a breach under such agreement.

 

(b)       Expenses
of Registration. All Registration Expenses incurred in connection with any
registration, qualification or compliance hereunder shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the aggregate
offering or sale price of the securities so registered.

 

(c)       Obligations
of the Company. The Company shall use its reasonable best efforts, for so
long as there are Registrable Securities outstanding, to take such actions as
are under its control to not become an ineligible issuer (as defined in Rule 405
under the Securities Act) and to remain a well-known seasoned issuer (as
defined in Rule 405 under the Securities Act) if it has such status on the
Signing Date or becomes eligible for such status in the future. In addition,
whenever required to effect the registration of any Registrable Securities or
facilitate the distribution of Registrable Securities pursuant to an effective
Shelf Registration Statement, the Company shall, as expeditiously as reasonably
practicable:

 

(i)        Prepare
and file with the SEC a prospectus supplement with respect to a proposed
offering of Registrable Securities pursuant to an effective registration
statement, subject to Section 4.5(d), keep such registration statement
effective and keep

 

21

 

UST # 205

 

such
prospectus supplement current until the securities described therein are no
longer Registrable Securities.

 

(ii)       Prepare
and file with the SEC such amendments and supplements to the applicable
registration statement and the prospectus or prospectus supplement used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

 

(iii)      Furnish to
the Holders and any underwriters such number of copies of the applicable
registration statement and each such amendment and supplement thereto
(including in each case all exhibits) and of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned or to be distributed
by them.

 

(iv)      Use its
reasonable best efforts to register and qualify the securities covered by such
registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders or any managing
underwriter(s), to keep such registration or qualification in effect for so
long as such registration statement remains in effect, and to take any other
action which may be reasonably necessary to enable such seller to consummate
the disposition in such jurisdictions of the securities owned by such Holder; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.

 

(v)       Notify
each Holder of Registrable Securities at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening
of any event as a result of which the applicable prospectus, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.

 

(vi)      Give written
notice to the Holders:

 

(A)      when any
registration statement filed pursuant to Section 4.5(a) or any
amendment thereto has been filed with the SEC (except for any amendment
effected by the filing of a document with the SEC pursuant to the Exchange Act)
and when such registration statement or any post-effective amendment thereto
has become effective;

 

(B)       of any
request by the SEC for amendments or supplements to any registration statement
or the prospectus included therein or for additional information;

 

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UST # 205

 

(C)       of the
issuance by the SEC of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that purpose;

 

(D)      of the receipt
by the Company or its legal counsel of any notification with respect to the
suspension of the qualification of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose;

 

(E)       of the
happening of any event that requires the Company to make changes in any
effective registration statement or the prospectus related to the registration
statement in order to make the statements therein not misleading (which notice
shall be accompanied by an instruction to suspend the use of the prospectus
until the requisite changes have been made); and

 

(F)       if at
any time the representations and warranties of the Company contained in any
underwriting agreement contemplated by Section 4.5(c)(x) cease to be
true and correct.

 

(vii)     Use its reasonable
best efforts to prevent the issuance or obtain the withdrawal of any order
suspending the effectiveness of any registration statement referred to in Section 4.5(c)(vi)(C) at
the earliest practicable time.

 

(viii)    Upon the occurrence of
any event contemplated by Section 4.5(c)(v) or 4.5(c)(vi)(E),
promptly prepare a post-effective amendment to such registration statement or a
supplement to the related prospectus or file any other required document so
that, as thereafter delivered to the Holders and any underwriters, the
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If the Company
notifies the Holders in accordance with Section 4.5(c)(vi)(E) to
suspend the use of the prospectus until the requisite changes to the prospectus
have been made, then the Holders and any underwriters shall suspend use of such
prospectus and use their reasonable best efforts to return to the Company all
copies of such prospectus (at the Company’s expense) other than permanent file
copies then in such Holders’ or underwriters’ possession. The total number of
days that any such suspension may be in effect in any 12-month period shall not
exceed 90 days.

 

(ix)      Use
reasonable best efforts to procure the cooperation of the Company’s transfer
agent in settling any offering or sale of Registrable Securities, including
with respect to the transfer of physical stock certificates into book-entry
form in accordance with any procedures reasonably requested by the Holders or
any managing underwriter(s).

 

(x)       If an
underwritten offering is requested pursuant to Section 4.5(a)(ii), enter
into an underwriting agreement in customary form, scope and substance and take
all such

 

23

 

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other
actions reasonably requested by the Holders of a majority of the Registrable
Securities being sold in connection therewith or by the managing
underwriter(s), if any, to expedite or facilitate the underwritten disposition
of such Registrable Securities, and in connection therewith in any underwritten
offering (including making members of management and executives of the Company
available to participate in road shows”, similar sales events and other
marketing activities), (A) make such representations and warranties to the
Holders that are selling stockholders and the managing underwriter(s), if any,
with respect to the business of the Company and its subsidiaries, and the Shelf
Registration Statement, prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, in customary
form, substance and scope, and, if true, confirm the same if and when
requested, (B) use its reasonable best efforts to furnish the underwriters
with opinions of counsel to the Company, addressed to the managing
underwriter(s), if any, covering the matters customarily covered in such
opinions requested in underwritten offerings, (C) use its reasonable best
efforts to obtain cold comfort” letters from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any business acquired by the Company for which financial
statements and financial data are included in the Shelf Registration Statement)
who have certified the financial statements included in such Shelf Registration
Statement, addressed to each of the managing underwriter(s), if any, such
letters to be in customary form and covering matters of the type customarily
covered in cold comfort” letters, (D) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
customary in underwritten offerings (provided that the Investor shall not be
obligated to provide any indemnity), and (E) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority of the
Registrable Securities being sold in connection therewith, their counsel and
the managing underwriter(s), if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.

 

(xi)      Make
available for inspection by a representative of Holders that are selling
stockholders, the managing underwriter(s), if any, and any attorneys or
accountants retained by such Holders or managing underwriter(s), at the offices
where normally kept, during reasonable business hours, financial and other
records, pertinent corporate documents and properties of the Company, and cause
the officers, directors and employees of the Company to supply all information
in each case reasonably requested (and of the type customarily provided in
connection with due diligence conducted in connection with a registered public
offering of securities) by any such representative, managing underwriter(s),
attorney or accountant in connection with such Shelf Registration Statement.

 

(xii)     Use reasonable
best efforts to cause all such Registrable Securities to be listed on each
national securities exchange on which similar securities issued by the Company
are then listed or, if no similar securities issued by the Company are then
listed on any national securities exchange, use its reasonable best efforts to
cause all such

 

24

 

UST # 205

 

Registrable
Securities to be listed on such securities exchange as the Investor may
designate.

 

(xiii)    If requested by Holders
of a majority of the Registrable Securities being registered and/or sold in
connection therewith, or the managing underwriter(s), if any, promptly include
in a prospectus supplement or amendment such information as the Holders of a
majority of the Registrable Securities being registered and/or sold in
connection therewith or managing underwriter(s), if any, may reasonably request
in order to permit the intended method of distribution of such securities and
make all required filings of such prospectus supplement or such amendment as
soon as practicable after the Company has received such request.

 

(xiv)    Timely provide to its
security holders earning statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.

 

(d)       Suspension
of Sales. Upon receipt of written notice from the Company that a
registration statement, prospectus or prospectus supplement contains or may
contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or that circumstances exist that make inadvisable use of
such registration statement, prospectus or prospectus supplement, the Investor
and each Holder of Registrable Securities shall forthwith discontinue
disposition of Registrable Securities until the Investor and/or Holder has
received copies of a supplemented or amended prospectus or prospectus
supplement, or until the Investor and/or such Holder is advised in writing by
the Company that the use of the prospectus and, if applicable, prospectus
supplement may be resumed, and, if so directed by the Company, the Investor
and/or such Holder shall deliver to the Company (at the Company’s expense) all
copies, other than permanent file copies then in the Investor and/or such
Holder’s possession, of the prospectus and, if applicable, prospectus
supplement covering such Registrable Securities current at the time of receipt
of such notice. The total number of days that any such suspension may be in
effect in any 12-month period shall not exceed 90 days.

 

(e)       Termination
of Registration Rights. A Holder’s registration rights as to any securities
held by such Holder (and its Affiliates, partners, members and former members)
shall not be available unless such securities are Registrable Securities.

 

	
   

  	
  (f)

  	
  Furnishing
  Information.

  

 

(i)        Neither
the Investor nor any Holder shall use any free writing prospectus (as defined
in Rule 405) in connection with the sale of Registrable Securities without
the prior written consent of the Company.

 

(ii)       It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to Section 4.5(c) that Investor and/or the selling
Holders and the underwriters, if any, shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of

 

25

 

UST # 205

 

disposition
of such securities as shall be required to effect the registered offering of
their Registrable Securities.

 

	
   

  	
  (g)

  	
  Indemnification.

  

 

(i)        The
Company agrees to indemnify each Holder and, if a Holder is a person other than
an individual, such Holder’s officers, directors, employees, agents,
representatives and Affiliates, and each Person, if any, that controls a Holder
within the meaning of the Securities Act (each, an  Indemnitee”), against
any and all losses, claims, damages, actions, liabilities, costs and expenses
(including reasonable fees, expenses and disbursements of attorneys and other
professionals incurred in connection with investigating, defending, settling,
compromising or paying any such losses, claims, damages, actions, liabilities,
costs and expenses), joint or several, arising out of or based upon any untrue
statement or alleged untrue statement of material fact contained in any
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto or any
documents incorporated therein by reference or contained in any free writing
prospectus (as such term is defined in Rule 405) prepared by the Company
or authorized by it in writing for use by such Holder (or any amendment or
supplement thereto); or any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided , that the Company shall not be
liable to such Indemnitee in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon (A) an untrue statement or omission
made in such registration statement, including any such preliminary prospectus
or final prospectus contained therein or any such amendments or supplements
thereto or contained in any free writing prospectus (as such term is defined in
Rule 405) prepared by the Company or authorized by it in writing for use
by such Holder (or any amendment or supplement thereto), in reliance upon and
in conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the
Company by such Indemnitee for use in connection with such registration
statement, including any such preliminary prospectus or final prospectus
contained therein or any such amendments or supplements thereto, or (B) offers
or sales effected by or on behalf of such Indemnitee by means of” (as defined
in Rule 159A) a free writing prospectus” (as defined in Rule 405)
that was not authorized in writing by the Company.

 

(ii)       If the
indemnification provided for in Section 4.5(g)(i) is unavailable to
an Indemnitee with respect to any losses, claims, damages, actions,
liabilities, costs or expenses referred to therein or is insufficient to hold
the Indemnitee harmless as contemplated therein, then the Company, in lieu of
indemnifying such Indemnitee, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, actions,
liabilities, costs or expenses in such proportion as is appropriate to reflect
the relative fault of the Indemnitee, on the one hand, and the Company, on the
other hand, in connection with the statements or omissions which resulted in
such losses, claims, damages, actions, liabilities, costs or expenses as well
as any other relevant

 

26

 

UST # 205

 

equitable
considerations. The relative fault of the Company, on the one hand, and of the
Indemnitee, on the other hand, shall be determined by reference to, among other
factors, whether the untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company or by the
Indemnitee and the parties’ relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission; the Company
and each Holder agree that it would not be just and equitable if contribution
pursuant to this Section 4.5(g)(ii) were determined by pro rata allocation or by any other
method of allocation that does not take account of the equitable considerations
referred to in Section 4.5(g)(i). No Indemnitee guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from the Company if the
Company was not guilty of such fraudulent misrepresentation.

 

(h)       Assignment
of Registration Rights. The rights of the Investor to registration of
Registrable Securities pursuant to Section 4.5(a) may be assigned by
the Investor to a transferee or assignee of Registrable Securities with a
liquidation preference or, in the case of Registrable Securities other than
Preferred Shares, a market value, no less than an amount equal to (i) 2%
of the initial aggregate liquidation preference of the Preferred Shares if such
initial aggregate liquidation preference is less than $2 billion and (ii) $200
million if the initial aggregate liquidation preference of the Preferred Shares
is equal to or greater than $2 billion;
provided , however ,
the transferor shall, within ten days after such transfer, furnish to the Company
written notice of the name and address of such transferee or assignee and the
number and type of Registrable Securities that are being assigned. For purposes
of this Section 4.5(h), market value” per share of Common Stock shall be
the last reported sale price of the Common Stock on the national securities
exchange on which the Common Stock is listed or admitted to trading on the last
trading day prior to the proposed transfer, and the market value” for the
Warrant (or any portion thereof) shall be the market value per share of Common
Stock into which the Warrant (or such portion) is exercisable less the exercise
price per share.

 

(i)        Clear
Market. With respect to any underwritten offering of Registrable Securities
by the Investor or other Holders pursuant to this Section 4.5, the Company
agrees not to effect (other than pursuant to such registration or pursuant to a
Special Registration) any public sale or distribution, or to file any Shelf
Registration Statement (other than such registration or a Special Registration)
covering, in the case of an underwritten offering of Common Stock or Warrants,
any of its equity securities or, in the case of an underwritten offering of
Preferred Shares, any Preferred Stock of the Company, or, in each case, any
securities convertible into or exchangeable or exercisable for such securities,
during the period not to exceed ten days prior and 60 days following the
effective date of such offering or such longer period up to 90 days as may be
requested by the managing underwriter for such underwritten offering. The
Company also agrees to cause such of its directors and senior executive
officers to execute and deliver customary lock-up agreements in such form and
for such time period up to 90 days as may be requested by the managing
underwriter.  Special Registration ”means the
registration of (A) equity securities and/or options or other rights in
respect thereof solely registered on Form S-4 or Form S-8 (or
successor form) or (B) shares of equity securities and/or options or other
rights in respect thereof to be offered to directors, members of management,
employees, consultants,

 

27

 

UST # 205

 

customers,
lenders or vendors of the Company or Company Subsidiaries or in connection with
dividend reinvestment plans.

 

(j)        Rule 144;
Rule 144A. With a view to making available to the Investor and Holders
the benefits of certain rules and regulations of the SEC which may permit
the sale of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable best efforts to:

 

(i)        make
and keep public information available, as those terms are understood and
defined in Rule 144(c)(1) or any similar or analogous rule promulgated
under the Securities Act, at all times after the Signing Date;

 

(ii)       (A) file
with the SEC, in a timely manner, all reports and other documents required of
the Company under the Exchange Act, and (B) if at any time the Company is
not required to file such reports, make available, upon the request of any
Holder, such information necessary to permit sales pursuant to Rule 144A
(including the information required by Rule 144A(d)(4) under the
Securities Act);

 

(iii)      so long as
the Investor or a Holder owns any Registrable Securities, furnish to the
Investor or such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
under the Securities Act, and of the Exchange Act; a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as the Investor or Holder may reasonably request in availing itself of any rule or
regulation of the SEC allowing it to sell any such securities to the public
without registration; and

 

(iv)      take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act.

 

(k)       As
used in this Section 4.5, the following terms shall have the following
respective meanings:

 

(i)        Holder” means the Investor and any other
holder of Registrable Securities to whom the registration rights conferred by
this Agreement have been transferred in compliance with Section 4.5(h) hereof.

 

(ii)       Holders’ Counsel” means one counsel for
the selling Holders chosen by Holders holding a majority interest in the
Registrable Securities being registered.

 

(iii)      Register,” registered,” and registration”
shall refer to a registration effected by preparing and (A) filing a
registration statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of effectiveness of
such registration statement or (B) filing a prospectus and/or

 

28

 

UST # 205

 

prospectus
supplement in respect of an appropriate effective registration statement on Form S-3.

 

(iv)      Registrable Securities” means (A) all
Preferred Shares, (B) the Warrant (subject to Section 4.5(p)) and (C) any
equity securities issued or issuable directly or indirectly with respect to the
securities referred to in the foregoing clauses (A) or (B) by way of
conversion, exercise or exchange thereof, including the Warrant Shares, or
share dividend or share split or in connection with a combination of shares,
recapitalization, reclassification, merger, amalgamation, arrangement,
consolidation or other reorganization,
provided that, once issued, such securities will not be Registrable
Securities when (1) they are sold pursuant to an effective registration
statement under the Securities Act, (2) except as provided below in Section 4.5(o),
they may be sold pursuant to Rule 144 without limitation thereunder on
volume or manner of sale, (3) they shall have ceased to be outstanding or (4) they
have been sold in a private transaction in which the transferor’s rights under
this Agreement are not assigned to the transferee of the securities. No
Registrable Securities may be registered under more than one registration
statement at any one time.

 

(v)       Registration Expenses” mean all expenses
incurred by the Company in effecting any registration pursuant to this
Agreement (whether or not any registration or prospectus becomes effective or
final) or otherwise complying with its obligations under this Section 4.5,
including all registration, filing and listing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses,
expenses incurred in connection with any road show”, the reasonable fees and
disbursements of Holders’ Counsel, and expenses of the Company’s independent
accountants in connection with any regular or special reviews or audits
incident to or required by any such registration, but shall not include Selling
Expenses.

 

(vi)      Rule 144”, Rule 144A”, Rule 159A”,
Rule 405” and Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as the same shall be
amended from time to time.

 

(vii)     Selling Expenses” mean all discounts,
selling commissions and stock transfer taxes applicable to the sale of
Registrable Securities and fees and disbursements of counsel for any Holder
(other than the fees and disbursements of Holders’ Counsel included in
Registration Expenses).

 

(l)        At
any time, any holder of Securities (including any Holder) may elect to forfeit
its rights set forth in this Section 4.5 from that date forward; provided , that a Holder forfeiting such
rights shall nonetheless be entitled to participate under Section 4.5(a)(iv) -
(vi) in any Pending Underwritten Offering to the same extent that such
Holder would have been entitled to if the holder had not withdrawn; and provided , further , that no such forfeiture shall terminate a Holder’s
rights or obligations under Section 4.5(f) with respect to any prior
registration or Pending Underwritten Offering.  Pending Underwritten Offering”
means , with respect to any
Holder forfeiting its rights pursuant to this Section 4.5(l), any
underwritten offering of

 

29

 

UST # 205

 

Registrable
Securities in which such Holder has advised the Company of its intent to
register its Registrable Securities either pursuant to Section 4.5(a)(ii) or
4.5(a)(iv) prior to the date of such Holder’s forfeiture.

 

(m)      Specific
Performance. The parties hereto acknowledge that there would be no adequate
remedy at law if the Company fails to perform any of its obligations under this
Section 4.5 and that the Investor and the Holders from time to time may be
irreparably harmed by any such failure, and accordingly agree that the Investor
and such Holders, in addition to any other remedy to which they may be entitled
at law or in equity, to the fullest extent permitted and enforceable under
applicable law shall be entitled to compel specific performance of the
obligations of the Company under this Section 4.5 in accordance with the
terms and conditions of this Section 4.5.

 

(n)       No
Inconsistent Agreements. The Company shall not, on or after the Signing
Date, enter into any agreement with respect to its securities that may impair
the rights granted to the Investor and the Holders under this Section 4.5
or that otherwise conflicts with the provisions hereof in any manner that may
impair the rights granted to the Investor and the Holders under this Section 4.5.
In the event the Company has, prior to the Signing Date, entered into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Investor and the Holders under this Section 4.5 (including
agreements that are inconsistent with the order of priority contemplated by Section 4.5(a)(vi))
or that may otherwise conflict with the provisions hereof, the Company shall
use its reasonable best efforts to amend such agreements to ensure they are
consistent with the provisions of this Section 4.5.

 

(o)       Certain
Offerings by the Investor. In the case of any securities held by the
Investor that cease to be Registrable Securities solely by reason of clause (2) in
the definition of Registrable Securities,” the provisions of Sections
4.5(a)(ii), clauses (iv), (ix) and (x)-(xii) of Section 4.5(c), Section 4.5(g) and
Section 4.5(i) shall continue to apply until such securities
otherwise cease to be Registrable Securities. In any such case, an underwritten”
offering or other disposition shall include any distribution of such securities
on behalf of the Investor by one or more broker-dealers, an underwriting
agreement” shall include any purchase agreement entered into by such
broker-dealers, and any registration statement” or prospectus” shall include
any offering document approved by the Company and used in connection with such
distribution.

 

(p)       Registered
Sales of the Warrant. The Holders agree to sell the Warrant or any portion
thereof under the Shelf Registration Statement only beginning 30 days after
notifying the Company of any such sale, during which 30-day period the Investor
and all Holders of the Warrant shall take reasonable steps to agree to
revisions to the Warrant to permit a public distribution of the Warrant,
including entering into a warrant agreement and appointing a warrant agent.

 

4.6       Voting
of Warrant Shares. Notwithstanding anything in this Agreement to the
contrary, the Investor shall not exercise any voting rights with respect to the
Warrant Shares.

 

30

 

UST # 205

 

4.7       Depositary
Shares. Upon request by the Investor at any time following the Closing
Date, the Company shall promptly enter into a depositary arrangement, pursuant
to customary agreements reasonably satisfactory to the Investor and with a
depositary reasonably acceptable to the Investor, pursuant to which the
Preferred Shares may be deposited and depositary shares, each representing a
fraction of a Preferred Share as specified by the Investor, may be issued. From
and after the execution of any such depositary arrangement, and the deposit of
any Preferred Shares pursuant thereto, the depositary shares issued pursuant
thereto shall be deemed Preferred Shares” and, as applicable, Registrable
Securities” for purposes of this Agreement.

 

	
   

  	
  4.8

  	
  Restriction
  on Dividends and Repurchases.

  

 

(a)       Prior
to the earlier of (x) the third anniversary of the Closing Date and (y) the
date on which the Preferred Shares have been redeemed in whole or the Investor
has transferred all of the Preferred Shares to third parties which are not
Affiliates of the Investor, neither the Company nor any Company Subsidiary
shall, without the consent of the Investor:

 

(i)        declare
or pay any dividend or make any distribution on the Common Stock (other than (A) regular
quarterly cash dividends of not more than the amount of the last quarterly cash
dividend per share declared or, if lower, publicly announced an intention to
declare, on the Common Stock prior to October 14, 2008, as adjusted for
any stock split, stock dividend, reverse stock split, reclassification or
similar transaction, (B) dividends payable solely in shares of Common
Stock and (C) dividends or distributions of rights or Junior Stock in
connection with a stockholders’ rights plan); or

 

(ii)       redeem,
purchase or acquire any shares of Common Stock or other capital stock or other
equity securities of any kind of the Company, or any trust preferred securities
issued by the Company or any Affiliate of the Company, other than (A) redemptions,
purchases or other acquisitions of the Preferred Shares, (B) redemptions,
purchases or other acquisitions of shares of Common Stock or other Junior
Stock, in each case in this clause (B) in connection with the
administration of any employee benefit plan in the ordinary course of business
(including purchases to offset the Share Dilution Amount (as defined below)
pursuant to a publicly announced repurchase plan) and consistent with past practice; provided that any purchases to offset the
Share Dilution Amount shall in no event exceed the Share Dilution Amount, (C) purchases
or other acquisitions by a broker-dealer subsidiary of the Company solely for
the purpose of market-making, stabilization or customer facilitation
transactions in Junior Stock or Parity Stock in the ordinary course of its
business, (D) purchases by a broker-dealer subsidiary of the Company of
capital stock of the Company for resale pursuant to an offering by the Company
of such capital stock underwritten by such broker-dealer subsidiary, (E) any
redemption or repurchase of rights pursuant to any stockholders’ rights plan, (F) the
acquisition by the Company or any of the Company Subsidiaries of record
ownership in Junior Stock or Parity Stock for the beneficial ownership of any
other persons (other than the Company or any other Company Subsidiary),
including as trustees or custodians, and (G) the exchange or conversion of
Junior Stock for or into

 

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UST # 205

 

other
Junior Stock or of Parity Stock or trust preferred securities for or into other
Parity Stock (with the same or lesser aggregate liquidation amount) or Junior
Stock, in each case set forth in this clause (G), solely to the extent required
pursuant to binding contractual agreements entered into prior to the Signing
Date or any subsequent agreement for the accelerated exercise, settlement or
exchange thereof for Common Stock (clauses (C) and (F), collectively, the  Permitted
Repurchases”).  Share Dilution Amount” means the
increase in the number of diluted shares outstanding (determined in accordance
with GAAP, and as measured from the date of the Company’s most recently filed
Company Financial Statements prior to the Closing Date) resulting from the
grant, vesting or exercise of equity-based compensation to employees and
equitably adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

 

(b)       Until
such time as the Investor ceases to own any Preferred Shares, the Company shall
not repurchase any Preferred Shares from any holder thereof, whether by means
of open market purchase, negotiated transaction, or otherwise, other than
Permitted Repurchases, unless it offers to repurchase a ratable portion of the
Preferred Shares then held by the Investor on the same terms and conditions.

 

(c)       Junior Stock”means Common Stock and any
other class or series of stock of the Company the terms of which expressly
provide that it ranks junior to the Preferred Shares as to dividend rights
and/or as to rights on liquidation, dissolution or winding up of the Company.  Parity Stock”
means any class or series of stock of the Company the terms of which do not
expressly provide that such class or series will rank senior or junior to the
Preferred Shares as to dividend rights and/or as to rights on liquidation,
dissolution or winding up of the Company (in each case without regard to
whether dividends accrue cumulatively or non-cumulatively).

 

	
   

  	
  4.9

  	
  Repurchase
  of Investor Securities.

  

 

(a)       Following
the redemption in whole of the Preferred Shares held by the Investor or the
Transfer by the Investor of all of the Preferred Shares to one or more third
parties not affiliated with the Investor, the Company may repurchase, in whole
or in part, at any time any other equity securities of the Company purchased by
the Investor pursuant to this Agreement or the Warrant and then held by the
Investor, upon notice given as provided in clause (b) below, at the Fair
Market Value of the equity security.

 

(b)       Notice
of every repurchase of equity securities of the Company held by the Investor
shall be given at the address and in the manner set forth for such party in Section 5.6.
Each notice of repurchase given to the Investor shall state: (i) the
number and type of securities to be repurchased, (ii) the Board of
Director’s determination of Fair Market Value of such securities and (iii) the
place or places where certificates representing such securities are to be
surrendered for payment of the repurchase price. The repurchase of the
securities specified in the notice shall occur as soon as practicable following
the determination of the Fair Market Value of the securities.

 

32

 

UST # 205

 

(c)       As used
in this Section 4.9, the following terms shall have the following
respective meanings:

 

(i)        Appraisal Procedure” means a procedure
whereby two independent appraisers, one chosen by the Company and one by the
Investor, shall mutually agree upon the Fair Market Value. Each party shall
deliver a notice to the other appointing its appraiser within 10 days after the
Appraisal Procedure is invoked. If within 30 days after appointment of the two
appraisers they are unable to agree upon the Fair Market Value, a third
independent appraiser shall be chosen within 10 days thereafter by the mutual
consent of such first two appraisers. The decision of the third appraiser so
appointed and chosen shall be given within 30 days after the selection of such
third appraiser. If three appraisers shall be appointed and the determination
of one appraiser is disparate from the middle determination by more than twice
the amount by which the other determination is disparate from the middle
determination, then the determination of such appraiser shall be excluded, the
remaining two determinations shall be averaged and such average shall be
binding and conclusive upon the Company and the Investor; otherwise, the
average of all three determinations shall be binding upon the Company and the
Investor. The costs of conducting any Appraisal Procedure shall be borne by the
Company.

 

(ii)       Fair Market Value” means, with respect to
any security, the fair market value of such security as determined by the Board
of Directors, acting in good faith in reliance on an opinion of a nationally
recognized independent investment banking firm retained by the Company for this
purpose and certified in a resolution to the Investor. If the Investor does not
agree with the Board of Director’s determination, it may object in writing
within 10 days of receipt of the Board of Director’s determination. In the
event of such an objection, an authorized representative of the Investor and
the chief executive officer of the Company shall promptly meet to resolve the
objection and to agree upon the Fair Market Value. If the chief executive
officer and the authorized representative are unable to agree on the Fair
Market Value during the 10-day period following the delivery of the Investor’s
objection, the Appraisal Procedure may be invoked by either party to determine
the Fair Market Value by delivery of a written notification thereof not later
than the 30th  day
after delivery of the Investor’s objection.

 

4.10     Executive
Compensation. Until such time as the Investor ceases to own any debt or
equity securities of the Company acquired pursuant to this Agreement or the
Warrant, the Company shall take all necessary action to ensure that its Benefit
Plans with respect to its Senior Executive Officers comply in all respects with
Section 111(b) of the EESA as implemented by any guidance or
regulation thereunder that has been issued and is in effect as of the Closing
Date, and shall not adopt any new Benefit Plan with respect to its Senior
Executive Officers that does not comply therewith.  Senior Executive Officers”
means the Company’s senior executive officers” as defined in subsection 111(b)(3) of
the EESA and regulations issued thereunder, including the rules set forth
in 31 C.F.R. Part 30.

 

4.11     Bank
and Thrift Holding Company Status. If the Company is a Bank Holding Company
or a Savings and Loan Holding Company on the Signing Date, then the Company
shall

 

33

 

UST # 205

 

maintain
its status as a Bank Holding Company or Savings and Loan Holding Company, as
the case may be, for as long as the Investor owns any Purchased Securities or
Warrant Shares. The Company shall redeem all Purchased Securities and Warrant
Shares held by the Investor prior to terminating its status as a Bank Holding
Company or Savings and Loan Holding Company, as applicable.  Bank Holding
Company” means a company registered as such with the Board of
Governors of the Federal Reserve System (the  Federal Reserve”) pursuant to 12
U.S.C. §1842 and the regulations of the Federal Reserve promulgated thereunder.
 Savings and Loan Holding Company”
means a company registered as such with the Office of Thrift Supervision
pursuant to 12 U.S.C. §1467(a) and the regulations of the Office of Thrift
Supervision promulgated thereunder.

 

4.12     Predominantly
Financial. For as long as the Investor owns any Purchased Securities or
Warrant Shares, the Company, to the extent it is not itself an insured
depository institution, agrees to remain predominantly engaged in financial
activities. A company is predominantly engaged in financial activities if the
annual gross revenues derived by the company and all subsidiaries of the
company (excluding revenues derived from subsidiary depository institutions),
on a consolidated basis, from engaging in activities that are financial in
nature or are incidental to a financial activity under subsection (k) of Section 4
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)) represent at least
85 percent of the consolidated annual gross revenues of the company.

 

Article V

Miscellaneous

 

	
   

  	
  5.1

  	
  Termination. This Agreement may be terminated at any
  time prior to the Closing:

  

 

(a)       by
either the Investor or the Company if the Closing shall not have occurred by
the 30th calendar day following the Signing Date; provided , however , that in the event the Closing has not occurred by
such 30th calendar day, the parties will consult in good
faith to determine whether to extend the term of this Agreement, it being
understood that the parties shall be required to consult only until the fifth
day after such 30th calendar day and not be under any obligation
to extend the term of this Agreement thereafter; provided , further
, that the right to terminate this Agreement under this Section 5.1(a) shall
not be available to any party whose breach of any representation or warranty or
failure to perform any obligation under this Agreement shall have caused or
resulted in the failure of the Closing to occur on or prior to such date; or

 

(b)       by
either the Investor or the Company in the event that any Governmental Entity
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
by this Agreement and such order, decree, ruling or other action shall have
become final and nonappealable; or

 

(c)       by
the mutual written consent of the Investor and the Company.

 

34

 

UST # 205

 

In
the event of termination of this Agreement as provided in this Section 5.1,
this Agreement shall forthwith become void and there shall be no liability on
the part of either party hereto except that nothing herein shall relieve either
party from liability for any breach of this Agreement.

 

5.2       Survival
of Representations and Warranties. All covenants and agreements, other than
those which by their terms apply in whole or in part after the Closing, shall
terminate as of the Closing. The representations and warranties of the Company
made herein or in any certificates delivered in connection with the Closing
shall survive the Closing without limitation.

 

5.3       Amendment.
No amendment of any provision of this Agreement will be effective unless made
in writing and signed by an officer or a duly authorized representative of each
party; provided that the Investor
may unilaterally amend any provision of this Agreement to the extent required
to comply with any changes after the Signing Date in applicable federal
statutes. No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative of any rights or remedies provided by law.

 

5.4       Waiver
of Conditions. The conditions to each party’s obligation to consummate the
Purchase are for the sole benefit of such party and may be waived by such party
in whole or in part to the extent permitted by applicable law. No waiver will
be effective unless it is in a writing signed by a duly authorized officer of
the waiving party that makes express reference to the provision or provisions
subject to such waiver.

 

5.5       Governing Law: Submission to Jurisdiction, Etc. This Agreement will be governed by and construed in
accordance with the federal law of the United States if and to the extent such
law is applicable, and otherwise in accordance with the laws of the State of
New York applicable to contracts made and to be performed entirely within such
State. Each of the parties hereto agrees (a) to submit to the exclusive
jurisdiction and venue of the United States District Court for the District of
Columbia and the United States Court of Federal Claims for any and all civil
actions, suits or proceedings arising out of or relating to this Agreement or
the Warrant or the transactions contemplated hereby or thereby, and (b) that
notice may be served upon (i) the Company at the address and in the manner
set forth for notices to the Company in Section 5.6 and (ii) the
Investor in accordance with federal law. To the extent permitted by applicable
law, each of the parties hereto hereby unconditionally waives trial by jury in
any civil legal action or proceeding relating to this Agreement or the Warrant
or the transactions contemplated hereby or thereby.

 

5.6       Notices.
Any notice, request, instruction or other document to be given hereunder by any
party to the other will be in writing and will be deemed to have been duly
given (a) on the date of delivery if delivered personally, or by
facsimile, upon confirmation of receipt, or (b) on the second business day
following the date of dispatch if delivered by a recognized next day courier
service. All notices to the Company shall be delivered as set forth in
Schedule A , or pursuant to such other instruction as may be designated in
writing by the Company to the

 

35

 

UST # 205

 

Investor.
All notices to the Investor shall be delivered as set forth below, or pursuant
to such other instructions as may be designated in writing by the Investor to
the Company.

 

	
   

  	
  If
  to the Investor:

  
	
   

  	
   

  
	
   

  	
  United
  States Department of the Treasury

  
	
   

  	
  1500
  Pennsylvania Avenue, NW, Room 2312

  
	
   

  	
  Washington,
  D.C. 20220

  
	
   

  	
  Attention:
  Assistant General Counsel (Banking and Finance) Facsimile: (202) 622-1974

  
			

 

	
  5.7       Definitions

  

 

(a)       When
a reference is made in this Agreement to a subsidiary of a person, the term “subsidiary” means any corporation,
partnership, joint venture, limited liability company or other entity (x) of
which such person or a subsidiary of such person is a general partner or (y) of
which a majority of the voting securities or other voting interests, or a
majority of the securities or other interests of which having by their terms
ordinary voting power to elect a majority of the board of directors or persons
performing similar functions with respect to such entity, is directly or
indirectly owned by such person and/or one or more subsidiaries thereof.

 

(b)       The
term Affiliate “means, with
respect to any person, any person directly or indirectly controlling,
controlled by or under common control with, such other person. For purposes of
this definition, control”
(including, with correlative meanings, the terms “controlled by”
and  “under common control with”) when used with respect to any person, means the possession,
directly or indirectly, of the power to cause the direction of management
and/or policies of such person, whether through the ownership of voting
securities by contract or otherwise.

 

(c)       The
terms “knowledge of the “Company” or “Company’s knowledge” mean the actual knowledge after
reasonable and due inquiry of the “officers”
(as such term is defined in Rule 3b-2 under the Exchange Act, but
excluding any Vice President or Secretary) of the Company.

 

5.8       Assignment.
Neither this Agreement nor any right, remedy, obligation nor liability arising
hereunder or by reason hereof shall be assignable by any party hereto without
the prior written consent of the other party, and any attempt to assign any
right, remedy, obligation or liability hereunder without such consent shall be
void, except (a) an assignment, in the case of a Business Combination
where such party is not the surviving entity, or a sale of substantially all of
its assets, to the entity which is the survivor of such Business Combination or
the purchaser in such sale and (b) as provided in Section 4.5.

 

5.9       Severability.
If any provision of this Agreement or the Warrant, or the application thereof
to any person or circumstance, is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
hereof, or the application of such

 

36

 

UST # 205

 

provision
to persons or circumstances other than those as to which it has been held
invalid or unenforceable, will remain in full force and effect and shall in no
way be affected, impaired or invalidated thereby, so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination, the parties
shall negotiate in good faith in an effort to agree upon a suitable and
equitable substitute provision to effect the original intent of the parties.

 

5.10     No
Third Party Beneficiaries. Nothing contained in this Agreement, expressed
or implied, is intended to confer upon any person or entity other than the
Company and the Investor any benefit, right or remedies, except that the
provisions of Section 4.5 shall inure to the benefit of the persons
referred to in that Section.

 

*.*.*

 

37

 

UST # 205

 

SCHEDULE A

 

ADDITIONAL TERMS AND CONDITIONS

 

Company
Information:

 

Name
of the Company: Oak Valley Bancorp

 

Corporate
or other organizational form: Corporation

 

Jurisdiction
of Organization: California

 

Appropriate
Federal Banking Agency: Federal Reserve Bank, San Francisco

 

	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Notice Information:

  	
   

  	
  Richard
  A. McCarty

  	
   

  	
  Matteo
  G. Daste

  
	
   

  	
   

  	
  Chief
  Financial Officer

  	
   

  	
  Leland
  Parachini Steinberg Matzger & Melnick, LLP

  
	
   

  	
   

  	
  Oak
  Valley Bancorp

  	
   

  	
  199
  Fremont Street,

  
	
   

  	
   

  	
  125
  N. Third Ave.

  	
   

  	
  21st Floor

  
	
   

  	
   

  	
  Oakdale,
  CA 95361

  	
   

  	
  San
  Francisco, CA 94105

  
	
   

  	
   

  	
  Telephone:
  (209) 848-2265

  	
   

  	
  Telephone:
  (415) 957.1800

  
	
   

  	
   

  	
  Facsimile:

  	
   

  	
  Facsimile:
  (415)974-1520

  

 

Terms
of Purchase:

 

Series of
Preferred Stock Purchased: Fixed Rate Cumulative Perpetual Preferred Stock, Series A

 

Per
Share Liquidation Preference of Preferred Stock: One thousand dollars
($1,000.00)

 

Number
of Shares of Preferred Stock Purchased: 13,500

 

Dividend
Payment Dates on the Preferred Stock: February 15, May 15, August 15,
and November 15

 

Number
of Initial Warrant Shares: 350,346

 

Exercise
Price of the Warrant: $5.78 per share

 

Purchase
Price: $13,500,000

 

Closing:

 

Location
of Closing: to be determined by the parties.

 

Time
of Closing: to be determined by the parties.

 

Date
of Closing: December 5, 2008

 

	
   

  	
   

  	
   

  
	
  Wire Information for Closing:

  	
   

  	
  ABA Number: 121142119

  
	
   

  	
   

  	
  Bank: Oak Valley Community Bank

  
	
   

  	
   

  	
  Account Name: Oak Valley Bancorp

  
	
   

  	
   

  	
  Account Number: 1996522

  
	
   

  	
   

  	
  Beneficiary: Oak Valley Bancorp

  

 

 

UST #
205

 

SCHEDULE B

 

CAPITALIZATION

 

Capitalization
Date: November 30, 2008

 

Common
Stock

 

Par
value: None.

 

Total
Authorized: 50,000,000  shares

 

Outstanding:
7,661,627  shares

 

Subject
to warrants, options, convertible securities, etc.: 506,564 shares

 

Reserved
for benefit plans and other issuances: 1,500,000 shares

 

Remaining
authorized but unissued: 40,335,184 shares

 

Shares
issued after Capitalization Date (other than pursuant to warrants, options,
convertible securities, etc. as set forth above): None.

 

Preferred
Stock

 

Par
value: None

 

Total
Authorized: 10,000,000  shares

 

Outstanding
(by series): 13,500 Series A Preferred(1)

 

Reserved
for issuance: None

 

Remaining
authorized but unissued: 9,986,500 shares

 

(1) This
issuance was approved on December 2, 2008 for issuance to the United
States Department of Treasury (“Investor”)

 

 

UST #
205

 

SCHEDULE C

 

REQUIRED STOCKHOLDER APPROVALS

 

	
   

  	
   

  	
  Required(1)

  	
   

  	
  % Vote Required

  	
   

  
	
  Warrants — Common Stock Issuance

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Charter Amendment

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock Exchange Rules

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

If
no stockholder approvals are required, please so indicate by checking the box:  x.

 

(1) 
If stockholder approval is
required, indicate applicable class/series of capital stock that are required
to vote.

 

 

UST #
205

 

SCHEDULE D

 

LITIGATION

 

List
any exceptions to the representation and warranty in Section 2.2(l) of
the Securities Purchase Agreement — Standard Terms.

 

If
none, please so indicate by checking the box:  x.

 

 

UST #
205

 

SCHEDULE E

 

COMPLIANCE WITH LAWS

 

List
any exceptions to the representation and warranty in the second sentence of Section 2.2(m) of
the Securities Purchase Agreement — Standard Terms.

 

If
none, please so indicate by checking the box:  x.

 

List
any exceptions to the representation and warranty in the last sentence of Section 2.2(m) of
the Securities Purchase Agreement — Standard Terms.

 

If
none, please so indicate by checking the box:  x.

 

 

UST #
205

 

SCHEDULE F

 

REGULATORY AGREEMENTS

 

List
any exceptions to the representation and warranty in Section 2.2(s) of
the Securities Purchase Agreement — Standard Terms.

 

If none, please so indicate by checking the
box:  x.

 

 

UST # 205

 

A0685176

 

ENDORSED-FILED

In the office of the Secretary of State

Of the State of California

December 2,
2008

 

ANNEX A

 

CERTIFICATE OF
DETERMINATION

 

OF

 

FIXED RATE CUMULATIVE PERPETUAL PREFERRED
STOCK, SERIES A

 

OF

 

OAK VALLEY BANCORP

 

Pursuant to Section 401 of the
Corporations Code of the State of California:

 

We, Ronald C. Martin and Arne
J. Knudsen, Chief Executive Officer and Secretary, respectively, of Oak Valley Bancorp,  a corporation organized under the laws of the State of
California (hereinafter called the “Corporation”), do hereby certify as
follows:

 

1.             On
December 2, 2008, the Board
of Directors of the Corporation adopted a resolution designating 13,500  shares of Preferred Stock as Fixed Rate
Cumulative Perpetual Preferred Stock, Series A.

 

2.             No
shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A  have been issued.

 

3.             Pursuant to the
authority conferred upon the Board of Directors by the Articles of
Incorporation of the Corporation, the following resolution was duly adopted by
the Board of Directors on December 2,
2008 creating the series of Preferred Stock designated as Fixed Rate
Cumulative Perpetual Preferred Stock, Series A:

 

RESOLVED, that pursuant to the provisions of the
Articles of Incorporation of the Corporation and applicable law, a series of
Preferred Stock of the Corporation be and hereby is created, and that the
designation and number of shares of such series, and the voting and other
powers, preferences and relative, participating, optional or other rights, and
the qualifications, limitations and restrictions thereof, of the shares of such
series are as follows:

 

 

UST
# 205

 

Part 1.     Designation
and Number of Shares. There is hereby created out of the authorized and
unissued shares of preferred stock of the Corporation a series of preferred
stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series A”
(the “Designated Preferred Stock”). The authorized number of shares of
Designated Preferred Stock shall be 13,500.

 

Part 2.     Standard Provisions.
The Standard Provisions contained in Exhibit A attached hereto are
incorporated herein by reference in their entirety and shall be deemed to be a
part of this Certificate of Determination to the same extent as if such
provisions had been set forth in full herein.

 

Part 3.     Definitions. The
following terms are used in this Certificate of Determination (including the
Standard Provisions in Exhibit A hereto) as defined below:

 

(a)           “Common Stock”
means the common stock of the Corporation.

 

(b)           “Dividend Payment
Date” means February 15, May 15, August 15 and November 15
of each year.

 

(c)           “Junior Stock”
means the Common Stock and any other class or series of stock of the
Corporation the terms of which expressly provide that it ranks junior to
Designated Preferred Stock as to dividend rights and/or as to rights on
liquidation, dissolution or winding up of the Corporation.

 

(d)           “Liquidation Amount”
means $1,000 per share of
Designated Preferred Stock.

 

(e)           “Minimum Amount”
means $3,375,000.

 

(f)            “Parity Stock”
means any class or series of stock of the Corporation (other than Designated
Preferred Stock) the terms of which do not expressly provide that such class or
series will rank senior or junior to Designated Preferred Stock as to dividend
rights and/or as to rights on liquidation, dissolution or winding up of the
Corporation (in each case without regard to whether dividends accrue
cumulatively or non-cumulatively).

 

(g)           “Signing Date”
means December 5, 2008

 

4.             Certain Voting
Matters. Holders of shares of Designated Preferred Stock will be entitled
to one vote for each such share on any matter on which holders of Designated
Preferred Stock are entitled to vote, including any action by written consent.

 

[Remainder of Page Intentionally Left Blank]

 

2

 

UST
# 205

 

We further
declare under penalty of perjury under the laws of the State of California that
the matters set forth in this certificate are true and correct to their own
knowledge.

 

Date:  December 2, 2008

 

	
   

  	
  /s/ Ronald
  C. Martin

  
	
   

  	
  Name:

  	
   Ronald
  C. Martin

  
	
   

  	
  Title:

  	
   Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Arne J.
  Knudsen

  
	
   

  	
  Name:

  	
   Arne
  J. Knudsen

  
	
   

  	
  Title: 

  	
  Secretary

  

 

3

 

UST
# 205

 

EXHIBIT A

 

STANDARD PROVISIONS

 

Section 1. General
Matters. Each share of Designated Preferred Stock shall be identical in all
respects to every other share of Designated Preferred Stock. The Designated
Preferred Stock shall be perpetual, subject to the provisions of Section 5
of these Standard Provisions that form a part of the Certificate of
Determination. The Designated Preferred Stock shall rank equally with Parity
Stock and shall rank senior to Junior Stock with respect to the payment of
dividends and the distribution of assets in the event of any dissolution,
liquidation or winding up of the Corporation.

 

Section 2. Standard
Definitions. As used herein with respect to Designated Preferred Stock:

 

(a)           “Applicable Dividend Rate” means (i) during the period from
the Original Issue Date to, but excluding, the first day of the first Dividend
Period commencing on or after the fifth anniversary of the Original Issue Date,
5% per annum and (ii) from and after the first day of the first Dividend
Period commencing on or after the fifth anniversary of the Original Issue Date,
9% per annum.

 

(b)           “Appropriate Federal Banking Agency” means the “appropriate
Federal banking agency” with respect to the Corporation as defined in Section 3(q) of
the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any
successor provision.

 

(c)           “Business Combination” means a merger, consolidation, statutory
share exchange or similar transaction that requires the approval of the
Corporation’s stockholders.

 

(d)           “Business Day” means any day except Saturday, Sunday and any day
on which banking institutions in the State of New York generally are authorized
or required by law or other governmental actions to close.

 

(e)           “Bylaws” means the bylaws of the Corporation, as they may be
amended from time to time.

 

(f)            “Certificate of Determination” means
the Certificate of Determination or comparable instrument relating to the
Designated Preferred Stock, of which these Standard Provisions form a part, as
it may be amended from time to time.

 

(g)           “Charter” means the Corporation’s certificate or articles of
incorporation, articles of association, or similar organizational document.

 

(h)           “Dividend Period” has the meaning set forth in Section 3(a).

 

(i)            “Dividend Record Date” has the meaning
set forth in Section 3(a).

 

(j)            “Liquidation Preference” has the
meaning set forth in Section 4(a).

 

1

 

UST
# 205

 

(k)           “Original Issue Date” means the date on which shares of
Designated Preferred Stock are first issued.

 

(l)            “Preferred Director” has the meaning
set forth in Section 7(b).

 

(m)          “Preferred Stock” means any and all series of preferred stock of
the Corporation, including the Designated Preferred Stock.

 

(n)           “Qualified Equity Offering” means the sale and issuance for cash
by the Corporation to persons other than the Corporation or any of its
subsidiaries after the Original Issue Date of shares of perpetual Preferred
Stock, Common Stock or any combination of such stock, that, in each case,
qualify as and may be included in Tier 1 capital of the Corporation at the time
of issuance under the applicable risk-based capital guidelines of the
Corporation’s Appropriate Federal Banking Agency (other than any such sales and
issuances made pursuant to agreements or arrangements entered into, or pursuant
to financing plans which were publicly announced, on or prior to October 13,
2008).

 

(o)           “Share Dilution Amount” has the meaning set forth in Section 3(b).

 

(p)           “Standard Provisions” mean these Standard Provisions that form a
part of the Certificate of Determination relating to the Designated Preferred
Stock.

 

(q)           “Successor Preferred Stock” has the meaning set forth in Section 5(a).

 

(r)            “Voting Parity Stock” means, with
regard to any matter as to which the holders of Designated Preferred Stock are
entitled to vote as specified in Sections 7(a) and 7(b) of these
Standard Provisions that form a part of the Certificate of Determination, any
and all series of Parity Stock upon which like voting rights have been
conferred and are exercisable with respect to such matter.

 

Section 3. Dividends.

 

(a)           Rate. Holders of Designated Preferred Stock shall be entitled to receive,
on each share of Designated Preferred Stock if, as and when declared by the
Board of Directors or any duly authorized committee of the Board of Directors,
but only out of assets legally available therefor, cumulative cash dividends
with respect to each Dividend Period (as defined below) at a rate per annum
equal to the Applicable Dividend Rate on (i) the Liquidation Amount per
share of Designated Preferred Stock and (ii) the amount of accrued and
unpaid dividends for any prior Dividend Period on such share of Designated
Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative
from the Original Issue Date, shall compound on each subsequent Dividend
Payment Date (i.e., no dividends
shall accrue on other dividends unless and until the first Dividend Payment
Date for such other dividends has passed without such other dividends having
been paid on such date) and shall be payable quarterly in arrears on each
Dividend Payment Date, 

 

2

 

UST # 205

 

commencing with the first
such Dividend Payment Date to occur at least 20 calendar days after the
Original Issue Date. In the event that any Dividend Payment Date would
otherwise fall on a day that is not a Business Day, the dividend payment due on
that date will be postponed to the next day that is a Business Day and no
additional dividends will accrue as a result of that postponement. The period
from and including any Dividend Payment Date to, but excluding, the next
Dividend Payment Date is a “Dividend Period”, provided that the initial
Dividend Period shall be the period from and including the Original Issue Date
to, but excluding, the next Dividend Payment Date.

 

Dividends that are payable
on Designated Preferred Stock in respect of any Dividend Period shall be
computed on the basis of a 360-day year consisting of twelve 30-day months. The
amount of dividends payable on Designated Preferred Stock on any date prior to
the end of a Dividend Period, and for the initial Dividend Period, shall be
computed on the basis of a 360-day year consisting of twelve 30-day months, and
actual days elapsed over a 30-day month.

 

Dividends that are payable
on Designated Preferred Stock on any Dividend Payment Date will be payable to
holders of record of Designated Preferred Stock as they appear on the stock
register of the Corporation on the applicable record date, which shall be the
15th calendar day immediately preceding such Dividend Payment Date or such
other record date fixed by the Board of Directors or any duly authorized
committee of the Board of Directors that is not more than 60 nor less than 10
days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any
such day that is a Dividend Record Date shall be a Dividend Record Date whether
or not such day is a Business Day.

 

Holders of Designated
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, securities or other property, other than dividends (if any) declared and
payable on Designated Preferred Stock as specified in this Section 3
(subject to the other provisions of the Certificate of Determination).

 

(b)           Priority of Dividends. So long as any share of Designated
Preferred Stock remains outstanding, no dividend or distribution shall be
declared or paid on the Common Stock or any other shares of Junior Stock (other
than dividends payable solely in shares of Common Stock) or Parity Stock,
subject to the immediately following paragraph in the case of Parity Stock, and
no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly,
purchased, redeemed or otherwise acquired for consideration by the Corporation
or any of its subsidiaries unless all accrued and unpaid dividends for all past
Dividend Periods, including the latest completed Dividend Period (including, if
applicable as provided in Section 3(a) above, dividends on such
amount), on all outstanding shares of Designated Preferred Stock have been or
are contemporaneously declared and paid in full (or have been declared and a
sum sufficient for the payment thereof has been set aside for the benefit of
the holders of shares of Designated Preferred Stock on the applicable record
date). The foregoing limitation shall not apply to (i) redemptions,
purchases or other acquisitions of shares of Common Stock or other Junior Stock
in connection with the administration of any employee benefit plan in the
ordinary course of business (including purchases to offset the Share Dilution
Amount (as defined below) pursuant to a publicly 

 

3

 

UST # 205

 

announced repurchase plan)
and consistent with past practice, provided that
any purchases to offset the Share Dilution Amount shall in no event exceed the
Share Dilution Amount; (ii) purchases or other acquisitions by a
broker-dealer subsidiary of the Corporation solely for the purpose of
market-making, stabilization or customer facilitation transactions in Junior
Stock or Parity Stock in the ordinary course of its business; (iii) purchases
by a broker-dealer subsidiary of the Corporation of capital stock of the
Corporation for resale pursuant to an offering by the Corporation of such
capital stock underwritten by such broker-dealer subsidiary; (iv) any
dividends or distributions of rights or Junior Stock in connection with a
stockholders’ rights plan or any redemption or repurchase of rights pursuant to
any stockholders’ rights plan; (v) the acquisition by the Corporation or
any of its subsidiaries of record ownership in Junior Stock or Parity Stock for
the beneficial ownership of any other persons (other than the Corporation or
any of its subsidiaries), including as trustees or custodians; and (vi) the
exchange or conversion of Junior Stock for or into other Junior Stock or of
Parity Stock for or into other Parity Stock (with the same or lesser aggregate
liquidation amount) or Junior Stock, in each case, solely to the extent
required pursuant to binding contractual agreements entered into prior to the
Signing Date or any subsequent agreement for the accelerated exercise,
settlement or exchange thereof for Common Stock. “Share Dilution Amount” means
the increase in the number of diluted shares outstanding (determined in
accordance with generally accepted accounting principles in the United States,
and as measured from the date of the Corporation’s consolidated financial
statements most recently filed with the Securities and Exchange Commission
prior to the Original Issue Date) resulting from the grant, vesting or exercise
of equity-based compensation to employees and equitably adjusted for any stock
split, stock dividend, reverse stock split, reclassification or similar
transaction.

 

When dividends are not paid
(or declared and a sum sufficient for payment thereof set aside for the benefit
of the holders thereof on the applicable record date) on any Dividend Payment
Date (or, in the case of Parity Stock having dividend payment dates different
from the Dividend Payment Dates, on a dividend payment date falling within a
Dividend Period related to such Dividend Payment Date) in full upon Designated
Preferred Stock and any shares of Parity Stock, all dividends declared on
Designated Preferred Stock and all such Parity Stock and payable on such
Dividend Payment Date (or, in the case of Parity Stock having dividend payment
dates different from the Dividend Payment Dates, on a dividend payment date
falling within the Dividend Period related to such Dividend Payment Date) shall
be declared pro rata so that the
respective amounts of such dividends declared shall bear the same ratio to each
other as all accrued and unpaid dividends per share on the shares of Designated
Preferred Stock (including, if applicable as provided in Section 3(a) above,
dividends on such amount) and all Parity Stock payable on such Dividend Payment
Date (or, in the case of Parity Stock having dividend payment dates different
from the Dividend Payment Dates, on a dividend payment date falling within the
Dividend Period related to such Dividend Payment Date) (subject to their having
been declared by the Board of Directors or a duly authorized committee of the
Board of Directors out of legally available funds and including, in the case of
Parity Stock that bears cumulative dividends, all accrued but unpaid dividends)
bear to each other. If the Board of Directors or a duly authorized committee of
the Board of Directors determines not to pay any dividend or a full 

 

4

 

UST # 205

 

dividend on a Dividend
Payment Date, the Corporation will provide written notice to the holders of
Designated Preferred Stock prior to such Dividend Payment Date.

 

Subject to the foregoing,
and not otherwise, such dividends (payable in cash, securities or other
property) as may be determined by the Board of Directors or any duly authorized
committee of the Board of Directors may be declared and paid on any securities,
including Common Stock and other Junior Stock, from time to time out of any funds
legally available for such payment, and holders of Designated Preferred Stock
shall not be entitled to participate in any such dividends.

 

Section 4. Liquidation
Rights.

 

(a)           Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution
or winding up of the affairs of the Corporation, whether voluntary or
involuntary, holders of Designated Preferred Stock shall be entitled to receive
for each share of Designated Preferred Stock, out of the assets of the
Corporation or proceeds thereof (whether capital or surplus) available for
distribution to stockholders of the Corporation, subject to the rights of any
creditors of the Corporation, before any distribution of such assets or
proceeds is made to or set aside for the holders of Common Stock and any other
stock of the Corporation ranking junior to Designated Preferred Stock as to
such distribution, payment in full in an amount equal to the sum of (i) the
Liquidation Amount per share and (ii) the amount of any accrued and unpaid
dividends (including, if applicable as provided in Section 3(a) above,
dividends on such amount), whether or not declared, to the date of payment
(such amounts collectively, the “Liquidation Preference”).

 

(b)           Partial Payment. If in any distribution described in Section 4(a) above
the assets of the Corporation or proceeds thereof are not sufficient to pay in
full the amounts payable with respect to all outstanding shares of Designated
Preferred Stock and the corresponding amounts payable with respect of any other
stock of the Corporation ranking equally with Designated Preferred Stock as to
such distribution, holders of Designated Preferred Stock and the holders of
such other stock shall share ratably in any such distribution in proportion to
the full respective distributions to which they are entitled.

 

(c)           Residual Distributions. If the Liquidation Preference has been paid
in full to all holders of Designated Preferred Stock and the corresponding
amounts payable with respect of any other stock of the Corporation ranking
equally with Designated Preferred Stock as to such distribution has been paid
in full, the holders of other stock of the Corporation shall be entitled to
receive all remaining assets of the Corporation (or proceeds thereof) according
to their respective rights and preferences.

 

(d)           Merger, Consolidation and Sale of Assets Not
Liquidation. For purposes of
this Section 4, the merger or consolidation of the Corporation with any
other corporation or other entity, including a merger or consolidation in which
the holders of Designated Preferred Stock receive cash, securities or other
property for their shares, or 

 

5

 

UST # 205

 

the sale, lease or exchange
(for cash, securities or other property) of all or substantially all of the
assets of the Corporation, shall not constitute a liquidation, dissolution or
winding up of the Corporation.

 

Section 5. Redemption.

 

(a)           Optional Redemption. Except as provided below, the Designated
Preferred Stock may not be redeemed prior to the first Dividend Payment Date
falling on or after the third anniversary of the Original Issue Date. On or
after the first Dividend Payment Date falling on or after the third anniversary
of the Original Issue Date, the Corporation, at its option, subject to the
approval of the Appropriate Federal Banking Agency, may redeem, in whole or in
part, at any time and from time to time, out of funds legally available
therefor, the shares of Designated Preferred Stock at the time outstanding,
upon notice given as provided in Section 5(c) below, at a redemption
price equal to the sum of (i) the Liquidation Amount per share and (ii) except
as otherwise provided below, any accrued and unpaid dividends (including, if
applicable as provided in Section 3(a) above,
dividends on such amount) (regardless of whether any dividends are actually
declared) to, but excluding, the date fixed for redemption.

 

Notwithstanding the
foregoing, prior to the first Dividend Payment Date falling on or after the
third anniversary of the Original Issue Date, the Corporation, at its option,
subject to the approval of the Appropriate Federal Banking Agency, may redeem,
in whole or in part, at any time and from time to time, the shares of
Designated Preferred Stock at the time outstanding, upon notice given as
provided in Section 5(c) below, at a redemption price equal to the
sum of (i) the Liquidation Amount per share and (ii) except as
otherwise provided below, any accrued and unpaid dividends (including, if
applicable as provided in Section 3(a) above, dividends on such
amount) (regardless of whether any dividends are actually declared) to, but
excluding, the date fixed for redemption; provided
that (x) the Corporation (or any successor by Business
Combination) has received aggregate gross proceeds of not less than the Minimum
Amount (plus the “Minimum Amount” as defined in the relevant certificate of
determination for each other outstanding series of preferred stock of such
successor that was originally issued to the United States Department of the
Treasury (the “Successor Preferred Stock”) in connection with the Troubled
Asset Relief Program Capital Purchase Program) from one or more Qualified
Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the
aggregate redemption price of the Designated Preferred Stock (and any Successor
Preferred Stock) redeemed pursuant to this paragraph may not exceed the
aggregate net cash proceeds received by the Corporation (or any successor by
Business Combination) from such Qualified Equity Offerings (including Qualified
Equity Offerings of such successor).

 

The redemption price for any
shares of Designated Preferred Stock shall be payable on the redemption date to
the holder of such shares against surrender of the certificate(s) evidencing
such shares to the Corporation or its agent. Any declared but unpaid dividends
payable on a redemption date that occurs subsequent to the Dividend Record Date
for a Dividend Period shall not be paid to the holder entitled to receive the

 

6

 

UST # 205

 

redemption price on the
redemption date, but rather shall be paid to the holder of record of the
redeemed shares on such Dividend Record Date relating to the Dividend Payment
Date as provided in Section 3 above.

 

(b)           No Sinking Fund. The Designated Preferred Stock will not be
subject to any mandatory redemption, sinking fund or other similar provisions.
Holders of Designated Preferred Stock will have no right to require redemption
or repurchase of any shares of Designated Preferred Stock.

 

(c)           Notice of Redemption. Notice of every redemption of shares of
Designated Preferred Stock shall be given by first class mail, postage prepaid,
addressed to the holders of record of the shares to be redeemed at their
respective last addresses appearing on the books of the Corporation. Such
mailing shall be at least 30 days and not more than 60 days before the date
fixed for redemption. Any notice mailed as provided in this Subsection shall be
conclusively presumed to have been duly given, whether or not the holder
receives such notice, but failure duly to give such notice by mail, or any
defect in such notice or in the mailing thereof, to any holder of shares of
Designated Preferred Stock designated for redemption shall not affect the
validity of the proceedings for the redemption of any other shares of
Designated Preferred Stock. 
Notwithstanding the foregoing, if shares of Designated Preferred
Stock are issued in book-entry form through The Depository Trust Corporation or
any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at
such time and in any manner permitted by such facility. Each notice of
redemption given to a holder shall state: (1) the redemption date; (2) the
number of shares of Designated Preferred Stock to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such
shares to be redeemed from such holder; (3) the redemption price; and (4) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price.

 

(d)           Partial Redemption. In case of any redemption of part of the
shares of Designated Preferred Stock at the time outstanding, the shares to be
redeemed shall be selected either pro rata or
in such other manner as the Board of Directors or a duly authorized committee
thereof may determine to be fair and equitable. Subject to the provisions
hereof, the Board of Directors or a duly authorized committee thereof shall have
full power and authority to prescribe the terms and conditions upon which
shares of Designated Preferred Stock shall be redeemed from time to time. If
fewer than all the shares represented by any certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares without charge
to the holder thereof.

 

(e)           Effectiveness of Redemption. If notice of redemption has been duly given
and if on or before the redemption date specified in the notice all funds
necessary for the redemption have been deposited by the Corporation, in trust
for the pro rata benefit of the
holders of the shares called for redemption, with a bank or trust company doing
business in the Borough of Manhattan, The City of New York, and having a
capital and surplus of at least $500 million and selected by the Board of
Directors, so as to be and continue to be available solely therefor, then,
notwithstanding that any certificate for any

 

7

 

UST # 205

 

share so called for redemption has not been surrendered for
cancellation, on and after the redemption date dividends shall cease to accrue
on all shares so called for redemption, all shares so called for redemption
shall no longer be deemed outstanding and all rights with respect to such
shares shall forthwith on such redemption date cease and terminate, except only
the right of the holders thereof to receive the amount payable on such
redemption from such bank or trust company, without interest. Any funds
unclaimed at the end of three years from the redemption date shall, to the
extent permitted by law, be released to the Corporation, after which time the
holders of the shares so called for redemption shall look only to the
Corporation for payment of the redemption price of such shares.

 

(f)                                    Status of Redeemed Shares. Shares of Designated Preferred Stock that
are redeemed, repurchased or
otherwise acquired by the Corporation shall revert to authorized but unissued
shares of Preferred Stock (provided that
any such cancelled shares of Designated Preferred Stock may be reissued only as
shares of any series of Preferred Stock other than Designated Preferred Stock).

 

Section 6. Conversion.
Holders of Designated Preferred Stock shares shall have no right to exchange or
convert such shares into any other securities.

 

Section 7. Voting
Rights.

 

(a)                                  General. The holders of Designated Preferred Stock shall not have any voting
rights except as set forth below or as otherwise from time to time required by
law.

 

(b)                                 Preferred Stock Directors. Whenever, at any time or times, dividends
payable on the shares of Designated Preferred Stock have not been paid for an
aggregate of six quarterly Dividend Periods or more, whether or not
consecutive, the holders of the Designated Preferred Stock shall have the
right, with holders of shares of any one or more other classes or series of
Voting Parity Stock outstanding at the time, voting together as a class, to
elect two directors (hereinafter the “Preferred
Directors” and each a “Preferred Director”) at the Corporation’s next annual
meeting of stockholders (or at a special meeting called for that purpose prior
to such next annual meeting) and at each subsequent annual meeting of
stockholders until all accrued and unpaid dividends for all past Dividend
Periods, including the latest completed Dividend Period (including, if
applicable as provided in Section 3(a) above, dividends on such
amount), on all outstanding shares of Designated Preferred Stock have been
declared and paid in full at which time such right shall terminate with respect
to the Designated Preferred Stock, except as herein or by law expressly
provided, subject to revesting in the event of each and every subsequent
default of the character above mentioned; provided
that it shall be a qualification for election for any Preferred
Director that the election of such Preferred Director shall not cause the
Corporation to violate any corporate governance requirements of any securities
exchange or other trading facility on which securities of the Corporation may
then be listed or traded that listed or traded companies must have a majority
of independent directors. Upon any termination of the right of the holders of
shares of Designated Preferred Stock and Voting Parity Stock as a class to vote
for 

 

8

 

UST # 205

 

directors as provided above,
the Preferred Directors shall cease to be qualified as directors, the term of
office of all Preferred Directors then in office shall terminate immediately
and the authorized number of directors shall be reduced by the number of
Preferred Directors elected pursuant hereto. Any Preferred Director may be
removed at any time, with or without cause, and any vacancy created thereby may
be filled, only by the affirmative vote of the holders a majority of the shares
of Designated Preferred Stock at the time outstanding voting separately as a
class together with the holders of shares of Voting Parity Stock, to the extent
the voting rights of such holders described above are then exercisable. If the
office of any Preferred Director becomes vacant for any reason other than
removal from office as aforesaid, the remaining Preferred Director may choose a
successor who shall hold office for the unexpired term in respect of which such
vacancy occurred.

 

(c)                                  Class Voting Rights as to Particular
Matters. So long as any
shares of Designated Preferred Stock are outstanding, in addition to any other
vote or written consent of stockholders required by law or by the Charter, the
vote or written consent of the holders of at least 66 2/3% of the shares of
Designated Preferred Stock at the time outstanding, voting as a separate class,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating:

 

(i) Authorization
of Senior Stock. Any amendment or alteration of the Certificate of Determination for the
Designated Preferred Stock or the Charter to authorize or create or increase
the authorized amount of, or any issuance of, any shares of, or any securities
convertible into or exchangeable or exercisable for shares of, any class or
series of capital stock of the Corporation ranking senior to Designated
Preferred Stock with respect to either or both the payment of dividends and/or
the distribution of assets on any liquidation, dissolution or winding up of the
Corporation;

 

9

 

UST # 205

 

(ii)                                  Amendment of Designated Preferred Stock. Any amendment, alteration or repeal of any
provision of the Certificate of Determination for the Designated Preferred
Stock or the Charter (including, unless no vote on such merger or consolidation
is required by Section 7(c)(iii) below, any amendment, alteration or
repeal by means of a merger, consolidation or otherwise) so as to adversely
affect the rights, preferences, privileges or voting powers of the Designated
Preferred Stock; or

 

(iii)                               Share Exchanges, Reclassifications, Mergers
and Consolidations. Any
consummation of a binding share exchange or reclassification involving the
Designated Preferred Stock, or of a merger or consolidation of the Corporation
with another corporation or other entity, unless in each case (x) the
shares of Designated Preferred Stock remain outstanding or, in the case of any
such merger or consolidation with respect to which the Corporation is not the
surviving or resulting entity, are converted into or exchanged for preference
securities of the surviving or resulting entity or its ultimate parent, and (y) such
shares remaining outstanding or such preference securities, as the case may be,
have such rights, preferences, privileges and voting powers, and limitations
and restrictions thereof, taken as a whole, as are not materially less
favorable to the holders thereof than the rights, preferences, privileges and
voting powers, and limitations and restrictions thereof, of Designated
Preferred Stock immediately prior to such consummation, taken as a whole;

 

provided, however,
that for all purposes of this Section 7(c), any increase in the amount of
the authorized Preferred Stock, including any increase in the authorized amount
of Designated Preferred Stock necessary to satisfy preemptive or similar rights
granted by the Corporation to other persons prior to the Signing Date, or the
creation and issuance, or an increase in the authorized or issued amount,
whether pursuant to preemptive or similar rights or otherwise, of any other
series of Preferred Stock, or any securities convertible into or exchangeable
or exercisable for any other series of Preferred Stock, ranking equally with
and/or junior to Designated Preferred Stock with respect to the payment of
dividends (whether such dividends are cumulative or non-cumulative) and the distribution
of assets upon liquidation, dissolution or winding up of the Corporation will
not be deemed to adversely affect the rights, preferences, privileges or voting
powers, and shall not require the affirmative vote or consent of, the holders
of outstanding shares of the Designated Preferred Stock.

 

(d)                                 Changes after Provision for Redemption. No vote or consent of the holders of
Designated Preferred Stock shall be required pursuant to Section 7(c) above
if, at or prior to the time when any such vote or consent would otherwise be
required pursuant to such Section, all outstanding shares of the Designated
Preferred Stock shall have been redeemed, or shall have been called for
redemption upon proper notice and sufficient funds shall have been deposited in
trust for such redemption, in each case pursuant to Section 5 above.

 

10

 

UST # 205

 

(e)                                  Procedures for Voting and Consents. The rules and procedures for calling
and conducting any meeting of the holders of Designated Preferred Stock
(including, without limitation, the fixing of a record date in connection
therewith), the solicitation and use of proxies at such a meeting, the
obtaining of written consents and any other aspect or matter with regard to
such a meeting or such consents shall conform to the requirements of the Charter, the Bylaws, and applicable
law and the rules of any national securities exchange or other trading
facility on which Designated Preferred Stock is listed or traded at the time.

 

Section 8. Record
Holders. To the fullest extent permitted by applicable law, the  Corporation and the transfer agent for
Designated Preferred Stock may deem and treat the record holder of any share of
Designated Preferred Stock as the true and lawful owner thereof for all
purposes, and neither the Corporation nor such transfer agent shall be affected
by any notice to the contrary.

 

Section 9. Notices.
All notices or communications in respect of Designated Preferred Stock shall be
sufficiently given if given in writing and delivered in person or by first
class mail, postage prepaid, or if given in such other manner as may be
permitted in this Certificate of Determination, in the Charter or Bylaws or by
applicable law. Notwithstanding the foregoing, if shares of Designated
Preferred Stock are issued in book-entry form through The Depository Trust
Corporation or any similar facility, such notices may be given to the holders
of Designated Preferred Stock in any manner permitted by such facility.

 

Section 10. No
Preemptive Rights. No share of Designated Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Corporation, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities, or such warrants, rights or options, may be designated,
issued or granted.

 

Section 11. Replacement
Certificates. The Corporation shall replace any mutilated  certificate at the holder’s expense upon
surrender of that certificate to the Corporation. The Corporation shall replace
certificates that become destroyed, stolen or lost at the holder’s expense upon
delivery to the Corporation of reasonably satisfactory evidence that the
certificate has been destroyed, stolen or lost, together with any indemnity
that may be reasonably required by the Corporation.

 

Section 12. Other
Rights. The shares of Designated Preferred Stock shall not have any rights,
preferences, privileges or voting powers or relative, participating, optional
or other special rights, or qualifications, limitations or restrictions
thereof, other than as set forth herein or in the Charter or as provided by
applicable law.

 

11

 

UST # 205

 

ANNEX B

 

FORM OF WAIVER

 

In consideration for the benefits I will receive as a result of my
employer’s participation in the United States Department of the Treasury’s TARP
Capital Purchase Program, I hereby voluntarily waive any claim against the
United States or my employer for any changes to my compensation or benefits
that are required to comply with the regulation issued by the Department of the
Treasury as published in the Federal Register on October 20, 2008.

 

I acknowledge that this regulation may require modification of the
compensation, bonus, incentive and other benefit plans, arrangements, policies
and agreements (including so-called “golden parachute” agreements) that I have
with my employer or in which I participate as they relate to the period the
United States holds any equity or debt securities of my employer acquired
through the TARP Capital Purchase Program.

 

This waiver includes all claims I may have under the laws of the United
States or any state related to the requirements imposed by the aforementioned
regulation, including without limitation a claim for any compensation or other
payments I would otherwise receive, any challenge to the process by which this
regulation was adopted and any tort or constitutional claim about the effect of
these regulations on my employment relationship.

 

Dated:  December 5, 2008.

 

	
  OAK VALLEY BANCORP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Ronald C. Martin

  	
   

  
	
  Name:

  	
  Ronald C. Martin

  	
   

  
	
  Title:

  	
  Chief Executive Officer

  	
   

  

 

12

 

UST # 205

 

FORM OF WAIVER

 

In consideration for the benefits I will receive as a result of my
employer’s participation in the United States Department of the Treasury’s TARP
Capital Purchase Program, I hereby voluntarily waive any claim against the
United States or my employer for any changes to my compensation or benefits
that are required to comply with the regulation issued by the Department of the
Treasury as published in the Federal Register on October 20, 2008.

 

I acknowledge that this regulation may require modification of the
compensation, bonus, incentive and other benefit plans, arrangements, policies
and agreements (including so-called “golden parachute” agreements) that I have
with my employer or in which I participate as they relate to the period the
United States holds any equity or debt securities of my employer acquired
through the TARP Capital Purchase Program.

 

This waiver includes all claims I may have under the laws of the United
States or any state related to the requirements imposed by the aforementioned
regulation, including without limitation a claim for any compensation or other
payments I would otherwise receive, any challenge to the process by which this
regulation was adopted and any tort or constitutional claim about the effect of
these regulations on my employment relationship.

 

Dated:  December 5, 2008.

 

	
  OAK VALLEY BANCORP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Richard A. McCarty

  	
   

  
	
  Name:

  	
  Richard A. McCarty

  	
   

  
	
  Title:

  	
  Executive Vice President &

  Chief Financial Officer

  	
   

  

 

13

 

UST # 205

 

FORM OF WAIVER

 

In consideration for the benefits I will receive as a result of my
employer’s participation in the United States Department of the Treasury’s TARP
Capital Purchase Program, I hereby voluntarily waive any claim against the
United States or my employer for any changes to my compensation or benefits
that are required to comply with the regulation issued by the Department of the
Treasury as published in the Federal Register on October 20, 2008.

 

I acknowledge that this regulation may require modification of the
compensation, bonus, incentive and other benefit plans, arrangements, policies
and agreements (including so-called “golden parachute” agreements) that I have
with my employer or in which I participate as they relate to the period the
United States holds any equity or debt securities of my employer acquired
through the TARP Capital Purchase Program.

 

This waiver includes all claims I may have under the laws of the United
States or any state related to the requirements imposed by the aforementioned
regulation, including without limitation a claim for any compensation or other
payments I would otherwise receive, any challenge to the process by which this
regulation was adopted and any tort or constitutional claim about the effect of
these regulations on my employment relationship.

 

Dated:  December 5, 2008.

 

	
  OAK VALLEY BANCORP

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Christopher M. Courtney

  	
   

  
	
  Name:

  	
  Christopher M. Courtney

  	
   

  
	
  Title:

  	
  President 

  	
   

  

 

14

 

UST # 205

 

ANNEX C

 

December 5, 2008

 

VIA
FACSIMILE AND FEDEX

 

	
  United States
  Department of Treasury

  1500 Pennsylvania Avenue., NW

  Washington DC, 20020

  

 

	
  Re:

  	
   

  	
  Oak Valley Bancorp Private Placement of 13,500
  Shares of Preferred Stock & a Warrant to Purchase 350,346 Shares of
  Common Stock UST # 205

  

 

Ladies and Gentlemen:

 

We are counsel for Oak Valley Bancorp (the “Company”)
in connection with the private placement of 13,500 shares of Fixed Rate
Cumulative Perpetual Preferred Stock, Series A (the “Preferred Shares”)
and a warrant to purchase 350,346 shares of its common stock (the “Warrant”
and, together with the Preferred Shares, the “Purchased Securities”), pursuant
to the terms of the Securities Purchase Agreement- Standard Terms (the “Securities
Purchase Agreement”) and the Letter Agreement (the “Letter Agreement”), dated
as of December 5, 2008 (together referred to as the “Agreement”), between
the Company and you. This opinion is furnished to you pursuant to Section 1.2(d)(vi) of
the Securities Purchase Agreement. Capitalized terms have the respective
meanings given them in the Agreement unless otherwise defined herein.

 

For
purposes of the opinions expressed in this letter, we have examined copies of
the following documents (the “Documents”):

 

	
   

  	
  (1)

  	
   

  	
  an executed copy of the
  Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (2)

  	
   

  	
  an executed copy of the
  Warrant;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (3)

  	
   

  	
  a copy of the specimen
  certificate for the Preferred Shares;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (4)

  	
   

  	
  the Company’s Articles
  of Incorporation, as amended to date;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (5)

  	
   

  	
  the Company’s Bylaws;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (6)

  	
   

  	
  a certificate of the
  Company regarding compliance with Section 111 (b) of the Emergency
  Economic Stabilization Act of 2008 (“EESA”);

  

 

15

 

UST # 205

 

	
   

  	
  (7)

  	
   

  	
  the Certificate of
  Designation as filed with the Secretary State of California on
  December 3, 2008;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (8)

  	
   

  	
  waivers executed by the
  top three senior executive officers of the Company regarding changes to
  compensation and benefits to comply with Section 111 (b) of EESA;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (9)

  	
   

  	
  a
  certificate regarding no modification of Documents;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (10)

  	
   

  	
  certain resolutions of
  the Board of Directors of the Company adopted at meetings held on
  December 2, 2008, certified by the President and Secretary of the
  Company as being complete, accurate and in effect, relating to, among other
  things, authorization of the Agreement and matters related thereto.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (11)

  	
   

  	
  a
  certificate re: Bring Down of Representations (§1.2(d)(ii))

  

 

We have reviewed such other documents as deemed
necessary for rendering our opinions. The opinions are qualified in all
respects by the scope of such document examination. As to facts material to the
opinions, statements and assumptions expressed herein, we have relied upon oral
or written statements and representations of officers and other representatives
of the Company, including the representations and warranties of the Company in
the Agreement. We have not independently verified such factual matters.

 

In our examination of the Documents, we have assumed but not verified (i) the
genuineness of all signatures, (ii) the authenticity of all documents
submitted to us as originals, (iii) the conformity with the originals of
all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents, certificates and
statements of fact, in each case given or made available to us by the Company.
We have no knowledge of any fact that would render such assumptions incorrect.

 

We are
opining herein as to the effects on the subject transactions only of the
federal securities and banking laws of the United States of America, the laws
of the State of California and, as to paragraphs (c) and (g) below,
the laws of the State of New York. We express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any state or other
jurisdiction or as to any matters of municipal law or the laws of any local
agencies within any state.

 

On the
basis of the foregoing and the other matters set forth herein, we hereby are of
the opinion that:

 

(a) The
Company has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the state of its incorporation.

 

(b) The
Preferred Shares have been duly and validly authorized, and, when issued and
delivered pursuant to the Agreement, the Preferred Shares will be duly and
validly issued and fully paid and non-assessable, will not be issued in
violation of any 

 

16

 

UST # 205

 

preemptive rights, and
will rank pari passu with or senior to all other series or classes of Preferred
Stock issued on the Closing Date with respect to the payment of dividends and
the distribution of assets in the event of any dissolution, liquidation or
winding up of the Company.

 

(c) The
Warrant has been duly authorized and, when executed and delivered as
contemplated by the Agreement, will constitute a valid and legally binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally and general equitable principles,
regardless of whether such enforceability is considered in a proceeding at law
or in equity.

 

(d) The
shares of Common Stock issuable upon exercise of the Warrant have been duly
authorized and reserved for issuance upon exercise of the Warrant and when so
issued in accordance with the terms of the Warrant will be validly issued,
fully paid and non-assessable.

 

(e) The
Company has the corporate power and authority to execute and deliver the
Agreement and the Warrant and to carry out its obligations thereunder (which
includes the issuance of the Preferred Shares, Warrant and Warrant Shares).

 

(f) The
execution, delivery and performance by the Company of the Agreement and the Warrant
and the consummation of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of the Company and its
stockholders, and no further approval or authorization is required on the part
of the Company.

 

(g) The
Agreement is a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and general equitable
principles, regardless of whether such enforceability is considered in a
proceeding at law or in equity; provided, however, we express no opinion with
respect to Section 4.5(g) or the severability provisions of the
Agreement insofar as Section 4.5(g) is concerned.

 

We
assume no obligation to advise you of any events that occur subsequent to the
date of this opinion. This opinion is being furnished to you solely for your
benefit and may not be relied upon by any other person without our prior
express written consent.

 

17

 

UST # 205

 

 

	
   

  	
  Very truly yours,  

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Leland, Parachini,
  Steinberg, Matzger &

  Melnick, LLP

  
	
   

  	
   

  
	
   

  	
  LELAND, PARACHINI, STEINBERG,

  MATZGER & MELNICK, LLP

  

 

18

 

UST # 205

 

ANNEX D

 

WARRANT TO PURCHASE COMMON STOCK

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A
REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS. THIS INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS
ON TRANSFER AND OTHER PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE
ISSUER OF THESE SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF
WHICH IS ON FILE WITH THE ISSUER. THE SECURITIES REPRESENTED BY THIS INSTRUMENT
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH SAID
AGREEMENT. ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT
WILL BE VOID.

 

WARRANT

to purchase

350,346

Shares of Common Stock

 

of  Oak Valley Bancorp

 

Issue Date: December 5, 2008

 

1.        Definitions. Unless the context otherwise requires,
when used herein the following terms shall have the meanings indicated.

 

“Affiliate” has the
meaning ascribed to it in the Purchase Agreement.

 

“Appraisal Procedure”
means a procedure whereby two independent appraisers, one chosen by the Company
and one by the Original Warrantholder, shall mutually agree upon the
determinations then the subject of appraisal. Each party shall deliver a notice
to the other appointing its appraiser within 15 days after the Appraisal
Procedure is invoked. If within 30 days after appointment of the two appraisers
they are unable to agree upon the amount in question, a third independent
appraiser shall be chosen within 10 days thereafter by the mutual consent of
such first two appraisers. The decision of the third appraiser so appointed and
chosen shall be given within 30 days after the selection of such third
appraiser. If three appraisers shall be appointed and the determination of one
appraiser is disparate from the middle determination by more than twice the
amount by which the other determination is disparate from the middle
determination, then the determination of such appraiser shall be excluded, the
remaining two determinations shall be averaged and such average shall be binding
and conclusive upon the Company and the 

 

19

 

UST # 205

 

Original Warrantholder;
otherwise, the average of all three determinations shall be binding upon the
Company and the Original Warrantholder. The costs of conducting any Appraisal
Procedure shall be borne by the Company.

 

“Board of Directors”
means the board of directors of the Company, including any duly authorized
committee thereof.

 

“Business Combination”
means a merger, consolidation, statutory share exchange or similar transaction
that requires the approval of the Company’s stockholders.

 

“business
day” means any day except Saturday, Sunday and any day on which
banking institutions in the State of New York generally are authorized or
required by law or other governmental actions to close.

 

“Capital Stock” means (A)
with respect to any Person that is a corporation or company, any and all
shares, interests, participations or other equivalents (however designated) of
capital or capital stock of such Person and (B) with respect to any Person that
is not a corporation or company, any and all partnership or other equity
interests of such Person.

 

“Charter” means, with
respect to any Person, its certificate or articles of incorporation, articles
of association, or similar organizational document.

 

“Common Stock” has the
meaning ascribed to it in the Purchase Agreement.

 

“Company” means the
Person whose name, corporate or other organizational form and jurisdiction of
organization is set forth in Item 1 of Schedule A hereto.

 

“conversion” has the
meaning set forth in Section 13(B).

 

“convertible securities”
has the meaning set forth in Section 13(B).

 

“CPP” has the meaning
ascribed to it in the Purchase Agreement.

 

“Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the rules
and regulations promulgated thereunder.

 

“Exercise Price” means
the amount set forth in Item 2 of Schedule A hereto.

 

“Expiration Time” has the
meaning set forth in Section 3.

 

“Fair Market Value”
means, with respect to any security or other property, the fair market value of
such security or other property as determined by the Board of Directors, acting
in good faith or, with respect to Section 14, as determined by the Original
Warrantholder acting in good faith. For so long as the Original Warrantholder
holds this Warrant or any portion thereof, it may object in writing to the
Board of Director’s calculation of fair market value within 10 days of receipt
of written notice thereof. If the Original Warrantholder and the Company are
unable to agree on fair 

 

20

 

UST # 205

 

market value during the 10-day period following the
delivery of the Original Warrantholder’s objection, the Appraisal Procedure may
be invoked by either party to determine Fair Market Value by delivering written
notification thereof not later than the 30th day after delivery of the Original
Warrantholder’s objection.

 

“Governmental Entities”
has the meaning ascribed to it in the Purchase Agreement.

 

“Initial Number” has the
meaning set forth in Section 13(B).

 

“Issue Date” means the date set forth in Item 3 of Schedule A
hereto.

 

“Market Price” means,
with respect to a particular security, on any given day, the last reported sale
price regular way or, in case no such reported sale takes place on such day,
the average of the last closing bid and ask prices regular way, in either case
on the principal national securities exchange on which the applicable
securities are listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
ask prices as furnished by two members of the Financial Industry Regulatory
Authority, Inc. selected from time to time by the Company for that purpose. “Market
Price” shall be determined without reference to after hours or extended hours
trading. If such security is not listed and traded in a manner that the
quotations referred to above are available for the period required hereunder,
the Market Price per share of Common Stock shall be deemed to be (i) in the
event that any portion of the Warrant is held by the Original Warrantholder,
the fair market value per share of such security as determined in good faith by
the Original Warrantholder or (ii) in all other circumstances, the fair market
value per share of such security as determined in good faith by the Board of
Directors in reliance on an opinion of a nationally recognized independent
investment banking corporation retained by the Company for this purpose and
certified in a resolution to the Warrantholder. For the purposes of determining
the Market Price of the Common Stock on the “trading day” preceding, on or
following the occurrence of an event, (i) that trading day shall be deemed to
commence immediately after the regular scheduled closing time of trading on the
New York Stock Exchange or, if trading is closed at an earlier time, such
earlier time and (ii) that trading day shall end at the next regular scheduled
closing time, or if trading is closed at an earlier time, such earlier time
(for the avoidance of doubt, and as an example, if the Market Price is to be
determined as of the last trading day preceding a specified event and the
closing time of trading on a particular day is 4:00 p.m. and the specified
event occurs at 5:00 p.m. on that day, the Market Price would be determined by
reference to such 4:00 p.m. closing price).

 

“Ordinary Cash Dividends”
means a regular quarterly cash dividend on shares of Common Stock out of surplus
or net profits legally available therefor (determined in accordance with
generally accepted accounting principles in effect from time to time),  provided
that Ordinary Cash Dividends shall not include any cash dividends paid
subsequent to the Issue Date to the extent the aggregate per share dividends
paid on the outstanding Common Stock in any quarter exceed the amount set forth
in Item 4 of Schedule A hereto, as adjusted for any stock split, stock
dividend, reverse stock split, reclassification or similar transaction.

 

21

 

UST # 205

 

“Original Warrantholder”
means the United States Department of the Treasury. Any actions specified to be
taken by the Original Warrantholder hereunder may only be taken by such Person
and not by any other Warrantholder.

 

“Permitted Transactions”
has the meaning set forth in Section 13(B).

 

“Person” has the meaning
given to it in Section 3(a)(9) of the Exchange Act and as used in
Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

 

“Per Share Fair Market Value”
has the meaning set forth in Section 13(C).

 

“Preferred Shares” means the perpetual preferred stock issued to the
Original Warrantholder on the Issue Date pursuant to the Purchase Agreement.

 

“Pro Rata Repurchases”
means any purchase of shares of Common Stock by the Company or any Affiliate
thereof pursuant to (A) any tender offer or exchange offer subject to Section 13(e)
or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (B) any
other offer available to substantially all holders of Common Stock, in the case
of both (A) or (B), whether for cash, shares of Capital Stock of the Company,
other securities of the Company, evidences of indebtedness of the Company or
any other Person or any other property (including, without limitation, shares
of Capital Stock, other securities or evidences of indebtedness of a
subsidiary), or any combination thereof, effected while this Warrant is
outstanding. The “ Effective Date ” of a Pro Rata Repurchase shall mean
the date of acceptance of shares for purchase or exchange by the Company under
any tender or exchange offer which is a Pro Rata Repurchase or the date of
purchase with respect to any Pro Rata Repurchase that is not a tender or
exchange offer.

 

“Purchase Agreement”
means the Securities Purchase Agreement – Standard Terms incorporated into the
Letter Agreement, dated as of the date set forth in Item 5 of Schedule A
hereto, as amended from time to time, between the Company and the United States
Department of the Treasury (the “ Letter
Agreement ”), including all annexes and schedules thereto.

 

“Qualified Equity Offering”
has the meaning ascribed to it in the Purchase Agreement.

 

“Regulatory Approvals”
with respect to the Warrantholder, means, to the extent applicable and required
to permit the Warrantholder to exercise this Warrant for shares of Common Stock
and to own such Common Stock without the Warrantholder being in violation of
applicable law, rule or regulation, the receipt of any necessary approvals and
authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder.

 

“SEC” means the U.S.
Securities and Exchange Commission.

 

22

 

UST # 205

 

“Securities Act” means
the Securities Act of 1933, as amended, or any successor statute, and the rules
and regulations promulgated thereunder.

 

“Shares” has the meaning
set forth in Section 2.

 

“trading day” means (A) if the shares of Common Stock are not
traded on any national or regional securities exchange or association or
over-the-counter market, a business day or (B) if the shares of Common Stock
are traded on any national or regional securities exchange or association or
over-the-counter market, a business day on which such relevant exchange or
quotation system is scheduled to be open for business and on which the shares
of Common Stock (i) are not suspended from trading on any national or regional
securities exchange or association or over-the-counter market for any period or
periods aggregating one half hour or longer; and (ii) have traded at least once
on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the
shares of Common Stock.

 

“U.S. GAAP” means United
States generally accepted accounting principles.

 

“Warrantholder” has the
meaning set forth in Section 2.

 

“Warrant” means this
Warrant, issued pursuant to the Purchase Agreement.

 

2.        Number of Shares; Exercise Price. This certifies that,
for value received, the United States Department of the Treasury or its
permitted assigns (the “ Warrantholder ”) is entitled, upon the terms and
subject to the conditions hereinafter set forth, to acquire from the Company,
in whole or in part, after the receipt of all applicable Regulatory Approvals,
if any, up to an aggregate of the number of fully paid and nonassessable shares
of Common Stock set forth in Item 6 of Schedule A hereto, at a purchase price
per share of Common Stock equal to the Exercise Price. The number of shares of
Common Stock (the “ Shares ”) and
the Exercise Price are subject to adjustment as provided herein, and all
references to “Common Stock,” “Shares” and “Exercise Price” herein shall be
deemed to include any such adjustment or series of adjustments.

 

3.        Exercise of Warrant; Term. Subject to Section 2, to
the extent permitted by applicable laws and regulations, the right to purchase
the Shares represented by this Warrant is exercisable, in whole or in part by
the Warrantholder, at any time or from time to time after the execution and
delivery of this Warrant by the Company on the date hereof, but in no event
later than 5:00 p.m., New York City time on the tenth anniversary of the Issue
Date (the “ Expiration Time ”),
by (A) the surrender of this Warrant and Notice of Exercise annexed hereto,
duly completed and executed on behalf of the Warrantholder, at the principal
executive office of the Company located at the address set forth in Item 7 of
Schedule A hereto (or such other office or agency of the Company in the United
States as it may designate by notice in writing to the Warrantholder at the
address of the Warrantholder appearing on the books of the Company), and (B) payment
of the Exercise Price for the Shares thereby purchased:

 

(i)         by having the Company withhold, from
the shares of Common Stock that would otherwise be delivered to the Warrantholder
upon such exercise, shares 

 

23

 

UST # 205

 

of Common stock issuable upon exercise of the Warrant
equal in value to the aggregate Exercise Price as to which this Warrant is so
exercised based on the Market Price of the Common Stock on the trading day on
which this Warrant is exercised and the Notice of Exercise is delivered to the
Company pursuant to this Section 3, or

 

(ii)        with the consent of both the Company and
the Warrantholder, by tendering in cash, by certified or cashier’s check
payable to the order of the Company, or by wire transfer of immediately
available funds to an account designated by the Company.

 

If the Warrantholder does not exercise this Warrant in its entirety,
the Warrantholder will be entitled to receive from the Company within a
reasonable time, and in any event not exceeding three business days, a new
warrant in substantially identical form for the purchase of that number of
Shares equal to the difference between the number of Shares subject to this
Warrant and the number of Shares as to which this Warrant is so exercised.
Notwithstanding anything in this Warrant to the contrary, the Warrantholder
hereby acknowledges and agrees that its exercise of this Warrant for Shares is
subject to the condition that the Warrantholder will have first received any
applicable Regulatory Approvals.

 

4.        Issuance of Shares; Authorization; Listing.
Certificates for Shares issued upon exercise of this Warrant will be issued in
such name or names as the Warrantholder may designate and will be delivered to
such named Person or Persons within a reasonable time, not to exceed three
business days after the date on which this Warrant has been duly exercised in
accordance with the terms of this Warrant. The Company hereby represents and
warrants that any Shares issued upon the exercise of this Warrant in accordance
with the provisions of Section 3 will be duly and validly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and charges
(other than liens or charges created by the Warrantholder, income and franchise
taxes incurred in connection with the exercise of the Warrant or taxes in
respect of any transfer occurring contemporaneously therewith). The Company
agrees that the Shares so issued will be deemed to have been issued to the
Warrantholder as of the close of business on the date on which this Warrant and
payment of the Exercise Price are delivered to the Company in accordance with
the terms of this Warrant, notwithstanding that the stock transfer books of the
Company may then be closed or certificates representing such Shares may not be
actually delivered on such date. The Company will at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate number of
shares of Common Stock then issuable upon exercise of this Warrant at any time.
The Company will (A) procure, at its sole expense, the listing of the Shares
issuable upon exercise of this Warrant at any time, subject to issuance or
notice of issuance, on all principal stock exchanges on which the Common Stock
is then listed or traded and (B) maintain such listings of such Shares at all
times after issuance. The Company will use reasonable best efforts to ensure
that the Shares may be issued without violation of any applicable law or
regulation or of any requirement of any securities exchange on which the Shares
are listed or traded.

 

24

 

UST # 205

 

5.        No Fractional Shares or Scrip. No fractional Shares or
scrip representing fractional Shares shall be issued upon any exercise of this
Warrant. In lieu of any fractional Share to which the Warrantholder would
otherwise be entitled, the Warrantholder shall be entitled to receive a cash
payment equal to the Market Price of the Common Stock on the last trading day
preceding the date of exercise less the pro-rated Exercise Price for such
fractional share.

 

6.        No Rights as Stockholders; Transfer Books. This
Warrant does not entitle the Warrantholder to any voting rights or other rights
as a stockholder of the Company prior to the date of exercise hereof. The
Company will at no time close its transfer books against transfer of this Warrant
in any manner which interferes with the timely exercise of this Warrant.

 

7.        Charges, Taxes and Expenses. Issuance of certificates
for Shares to the Warrantholder upon the exercise of this Warrant shall be made
without charge to the Warrantholder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificates, all of
which taxes and expenses shall be paid by the Company.

 

8.        Transfer/Assignment.

 

(A)  Subject to compliance with
clause (B) of this Section 8, this Warrant and all rights hereunder are
transferable, in whole or in part, upon the books of the Company by the
registered holder hereof in person or by duly authorized attorney, and a new
warrant shall be made and delivered by the Company, of the same tenor and date
as this Warrant but registered in the name of one or more transferees, upon
surrender of this Warrant, duly endorsed, to the office or agency of the
Company described in Section 3. All expenses (other than stock transfer taxes)
and other charges payable in connection with the preparation, execution and
delivery of the new warrants pursuant to this Section 8 shall be paid by the
Company.

 

(B)  The transfer of the Warrant
and the Shares issued upon exercise of the Warrant are subject to the restrictions
set forth in Section 4.4 of the Purchase Agreement. If and for so long as
required by the Purchase Agreement, this Warrant shall contain the legends as
set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

 

9.        Exchange and Registry of Warrant. This Warrant is
exchangeable, upon the surrender hereof by the Warrantholder to the Company,
for a new warrant or warrants of like tenor and representing the right to
purchase the same aggregate number of Shares. The Company shall maintain a
registry showing the name and address of the Warrantholder as the registered
holder of this Warrant. This Warrant may be surrendered for exchange or
exercise in accordance with its terms, at the office of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.

 

10.      Loss, Theft, Destruction or Mutilation
of Warrant. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or 

 

25

 

UST # 205

 

mutilation of this Warrant, and in the case of any
such loss, theft or destruction, upon receipt of a bond, indemnity or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of this Warrant, the Company shall make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of Shares as provided for in such lost, stolen, destroyed or mutilated
Warrant.

 

11.      Saturdays, Sundays, Holidays, etc.
If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall not be a business day, then such
action may be taken or such right may be exercised on the next succeeding day
that is a business day.

 

12.      Rule 144 Information. The Company
covenants that it will use its reasonable best efforts to timely file all
reports and other documents required to be filed by it under the Securities Act
and the Exchange Act and the rules and regulations promulgated by the SEC
thereunder (or, if the Company is not required to file such reports, it will,
upon the request of any Warrantholder, make publicly available such information
as necessary to permit sales pursuant to Rule 144 under the Securities Act),
and it will use reasonable best efforts to take such further action as any
Warrantholder may reasonably request, in each case to the extent required from
time to time to enable such holder to, if permitted by the terms of this
Warrant and the Purchase Agreement, sell this Warrant without registration
under the Securities Act within the limitation of the exemptions provided by (A)
Rule 144 under the Securities Act, as such rule may be amended from time to
time, or (B) any successor rule or regulation hereafter adopted by the SEC.
Upon the written request of any Warrantholder, the Company will deliver to such
Warrantholder a written statement that it has complied with such requirements.

 

13.      Adjustments and Other Rights. The
Exercise Price and the number of Shares issuable upon exercise of this Warrant
shall be subject to adjustment from time to time as follows;  provided,
that if more than one subsection of this Section 13 is applicable to a single
event, the subsection shall be applied that produces the largest adjustment and
no single event shall cause an adjustment under more than one subsection of
this Section 13 so as to result in duplication:

 

(A)  Stock Splits, Subdivisions,
Reclassifications or Combinations. If the Company shall (i) declare and pay
a dividend or make a distribution on its Common Stock in shares of Common
Stock, (ii) subdivide or reclassify the outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify the outstanding
shares of Common Stock into a smaller number of shares, the number of Shares
issuable upon exercise of this Warrant at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the Warrantholder
after such date shall be entitled to purchase the number of shares of Common
Stock which such holder would have owned or been entitled to receive in respect
of the shares of Common Stock subject to this Warrant after such date had this
Warrant been exercised immediately prior to such date. In such event, the
Exercise Price in effect at the time of the record date for 

 

26

 

UST # 205

 

such dividend or distribution or the effective date of
such subdivision, combination or reclassification shall be adjusted to the
number obtained by dividing (x) the product of (1) the number of Shares
issuable upon the exercise of this Warrant before such adjustment and (2) the
Exercise Price in effect immediately prior to the record or effective date, as
the case may be, for the dividend, distribution, subdivision, combination or
reclassification giving rise to this adjustment by (y) the new number of Shares
issuable upon exercise of the Warrant determined pursuant to the immediately
preceding sentence.

 

(B)  Certain Issuances of
Common Shares or Convertible Securities. Until the earlier of (i) the date
on which the Original Warrantholder no longer holds this Warrant or any portion
thereof and (ii) the third anniversary of the Issue Date, if the Company shall
issue shares of Common Stock (or rights or warrants or other securities
exercisable or convertible into or exchangeable (collectively, a “ conversion ”) for shares of Common Stock)
(collectively, “ convertible securities
”) (other than in Permitted Transactions (as defined below) or a transaction to
which subsection (A) of this Section 13 is applicable) without consideration or
at a consideration per share (or having a conversion price per share) that is
less than 90% of the Market Price on the last trading day preceding the date of
the agreement on pricing such shares (or such convertible securities) then, in
such event:

 

(A)  the number of Shares
issuable upon the exercise of this Warrant immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) (the “ Initial Number ”) shall be increased to
the number obtained by multiplying the Initial Number by a fraction (A) the
numerator of which shall be the sum of (x) the number of shares of Common Stock
of the Company outstanding on such date and (y) the number of additional shares
of Common Stock issued (or into which convertible securities may be exercised
or convert) and (B) the denominator of which shall be the sum of (I) the number
of shares of Common Stock outstanding on such date and (II) the number of
shares of Common Stock which the aggregate consideration receivable by the
Company for the total number of shares of Common Stock so issued (or into which
convertible securities may be exercised or convert) would purchase at the
Market Price on the last trading day preceding the date of the agreement on
pricing such shares (or such convertible securities); and

 

(B)  the Exercise Price payable
upon exercise of the Warrant shall be adjusted by multiplying such Exercise
Price in effect immediately prior to the date of the agreement on pricing of
such shares (or of such convertible securities) by a fraction, the numerator of
which shall be the number of shares of Common Stock issuable upon exercise of
this Warrant prior to such date and the denominator of which shall be the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately after the adjustment described in clause (A) above.

 

For purposes of the foregoing, the aggregate consideration receivable
by the Company in connection with the issuance of such shares of Common Stock
or 

 

27

 

UST # 205

 

convertible securities shall be deemed to be equal to
the sum of the net offering price (including the Fair Market Value of any
non-cash consideration and after deduction of any related expenses payable to third
parties) of all such securities plus the minimum aggregate amount, if any,
payable upon exercise or conversion of any such convertible securities into
shares of Common Stock; and “ Permitted
Transactions ” shall mean issuances (i) as consideration for or to
fund the acquisition of businesses and/or related assets, (ii) in connection
with employee benefit plans and compensation related arrangements in the
ordinary course and consistent with past practice approved by the Board of
Directors, (iii) in connection with a public or broadly marketed offering and
sale of Common Stock or convertible securities for cash conducted by the
Company or its affiliates pursuant to registration under the Securities Act or Rule
144A thereunder on a basis consistent with capital raising transactions by
comparable financial institutions and (iv) in connection with the exercise of
preemptive rights on terms existing as of the Issue Date. Any adjustment made
pursuant to this Section 13(B) shall become effective immediately upon the date
of such issuance.

 

(C)  Other Distributions.
In case the Company shall fix a record date for the making of a distribution to
all holders of shares of its Common Stock of securities, evidences of
indebtedness, assets, cash, rights or warrants (excluding Ordinary Cash
Dividends, dividends of its Common Stock and other dividends or distributions
referred to in Section 13(A)), in each such case, the Exercise Price in effect
prior to such record date shall be reduced immediately thereafter to the price
determined by multiplying the Exercise Price in effect immediately prior to the
reduction by the quotient of (x) the Market Price of the Common Stock on the
last trading day preceding the first date on which the Common Stock trades
regular way on the principal national securities exchange on which the Common
Stock is listed or admitted to trading without the right to receive such
distribution, minus the amount of cash and/or the Fair Market Value of the
securities, evidences of indebtedness, assets, rights or warrants to be so
distributed in respect of one share of Common Stock (such amount and/or Fair
Market Value, the “ Per Share Fair Market
Value ”) divided by (y) such Market Price on such date specified in
clause (x); such adjustment shall be made successively whenever such a record
date is fixed. In such event, the number of Shares issuable upon the exercise
of this Warrant shall be increased to the number obtained by dividing (x) the
product of (1) the number of Shares issuable upon the exercise of this Warrant
before such adjustment, and (2) the Exercise Price in effect immediately prior
to the distribution giving rise to this adjustment by (y) the new Exercise
Price determined in accordance with the immediately preceding sentence. In the
case of adjustment for a cash dividend that is, or is coincident with, a
regular quarterly cash dividend, the Per Share Fair Market Value would be
reduced by the per share amount of the portion of the cash dividend that would
constitute an Ordinary Cash Dividend. In the event that such distribution is
not so made, the Exercise Price and the number of Shares issuable upon exercise
of this Warrant then in effect shall be readjusted, effective as of the date
when the Board of Directors determines not to distribute such shares, evidences
of indebtedness, assets, rights, cash or warrants, as the case may be, to the
Exercise Price that would then be in effect and the number of Shares that would
then be issuable upon exercise of this Warrant if such record date had not been
fixed.

 

28

 

UST # 205

 

(D)  Certain Repurchases of Common Stock. In case the
Company effects a Pro Rata Repurchase of Common Stock, then the Exercise Price
shall be reduced to the price determined by multiplying the Exercise Price in
effect immediately prior to the Effective Date of such Pro Rata Repurchase by a
fraction of which the numerator shall be (i) the product of (x) the
number of shares of Common Stock outstanding immediately before such Pro Rata
Repurchase and (y) the Market Price of a share of Common Stock on the
trading day immediately preceding the first public announcement by the Company
or any of its Affiliates of the intent to effect such Pro Rata Repurchase,
minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and of
which the denominator shall be the product of (i) the number of shares of
Common Stock outstanding immediately prior to such Pro Rata Repurchase minus
the number of shares of Common Stock so repurchased and (ii) the Market
Price per share of Common Stock on the trading day immediately preceding the
first public announcement by the Company or any of its Affiliates of the intent
to effect such Pro Rata Repurchase. In such event, the number of shares of
Common Stock issuable upon the exercise of this Warrant shall be increased to
the number obtained by dividing (x) the product of (1) the number of
Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the
Exercise Price in effect immediately prior to the Pro Rata Repurchase giving
rise to this adjustment by (y) the new Exercise Price determined in
accordance with the immediately preceding sentence. For the avoidance of doubt,
no increase to the Exercise Price or decrease in the number of Shares issuable
upon exercise of this Warrant shall be made pursuant to this Section 13(D).

 

(E)  Business Combinations. In case of any Business
Combination or reclassification of Common Stock (other than a reclassification
of Common Stock referred to in Section 13(A)), the Warrantholder’s right
to receive Shares upon exercise of this Warrant shall be converted into the
right to exercise this Warrant to acquire the number of shares of stock or
other securities or property (including cash) which the Common Stock issuable
(at the time of such Business Combination or reclassification) upon exercise of
this Warrant immediately prior to such Business Combination or reclassification
would have been entitled to receive upon consummation of such Business
Combination or reclassification; and in any such case, if necessary, the provisions
set forth herein with respect to the rights and interests thereafter of the
Warrantholder shall be appropriately adjusted so as to be applicable, as nearly
as may reasonably be, to the Warrantholder’s right to exercise this Warrant in
exchange for any shares of stock or other securities or property pursuant to
this paragraph. In determining the kind and amount of stock, securities or the
property receivable upon exercise of this Warrant following the consummation of
such Business Combination, if the holders of Common Stock have the right to
elect the kind or amount of consideration receivable upon consummation of such
Business Combination, then the consideration that the Warrantholder shall be
entitled to receive upon exercise shall be deemed to be the types and amounts
of consideration received by the majority of all holders of the shares of
common stock that affirmatively make an election (or of all such holders if
none make an election).

 

(F)  Rounding of Calculations; Minimum Adjustments. All
calculations under this Section 13 shall be made to the nearest one-tenth
(1/10th) of a cent or to the nearest 

 

29

 

UST # 205

 

one-hundredth (1/100th) of a share, as the case
may be. Any provision of this Section 13 to the contrary notwithstanding,
no adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable shall be made if the amount of such adjustment would be
less than $0.01 or one-tenth (1/10th) of a share of Common Stock, but any
such amount shall be carried forward and an adjustment with respect thereto
shall be made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate $0.01 or 1/10th of a share of Common Stock, or more.

 

(G)  Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this Section 13
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of such
event (i) issuing to the Warrantholder of this Warrant exercised after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such exercise by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such exercise before giving effect to such adjustment and (ii) paying to
such Warrantholder any amount of cash in lieu of a fractional share of Common
Stock; provided ,  however
, that the Company upon request shall deliver to such Warrantholder a due bill
or other appropriate instrument evidencing such Warrantholder’s right to
receive such additional shares, and such cash, upon the occurrence of the event
requiring such adjustment.

 

(H)  Completion of Qualified Equity Offering. In the event
the Company (or any successor by Business Combination) completes one or more
Qualified Equity Offerings on or prior to December 31, 2009 that result in the
Company (or any such successor ) receiving aggregate gross proceeds of not less
than 100% of the aggregate liquidation preference of the Preferred Shares (and
any preferred stock issued by any such successor to the Original Warrantholder
under the CPP), the number of shares of Common Stock underlying the portion of
this Warrant then held by the Original Warrantholder shall be thereafter
reduced by a number of shares of Common Stock equal to the product of (i) 0.5
and (ii) the number of shares underlying the Warrant on the Issue Date
(adjusted to take into account all other theretofore made adjustments pursuant
to this Section 13).

 

(I)  Other Events. For so long as the Original
Warrantholder holds this Warrant or any portion thereof, if any event occurs as
to which the provisions of this Section 13 are not strictly applicable or,
if strictly applicable, would not, in the good faith judgment of the Board of
Directors of the Company, fairly and adequately protect the purchase rights of
the Warrants in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make such adjustments in the
application of such provisions, in accordance with such essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of the
Board of Directors, to protect such purchase rights as aforesaid. The Exercise
Price or the number of Shares into which this Warrant is exercisable shall not
be adjusted in the event of a change in the par value of the Common Stock or a
change in the jurisdiction of incorporation of the Company.

 

(J)  Statement Regarding Adjustments. Whenever the Exercise
Price or the number of Shares into which this Warrant is exercisable shall be
adjusted as provided in 

 

30

 

UST # 205

 

Section 13, the Company shall forthwith file at
the principal office of the Company a statement showing in reasonable detail
the facts requiring such adjustment and the Exercise Price that shall be in
effect and the number of Shares into which this Warrant shall be exercisable
after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each
Warrantholder at the address appearing in the Company’s records.

 

(K)  Notice of Adjustment Event. In the event that the
Company shall propose to take any action of the type described in this Section 13
(but only if the action of the type described in this Section 13 would
result in an adjustment in the Exercise Price or the number of Shares into
which this Warrant is exercisable or a change in the type of securities or
property to be delivered upon exercise of this Warrant), the Company shall give
notice to the Warrantholder, in the manner set forth in Section 13(J),
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place. Such
notice shall also set forth the facts with respect thereto as shall be reasonably
necessary to indicate the effect on the Exercise Price and the number, kind or
class of shares or other securities or property which shall be deliverable upon
exercise of this Warrant. In the case of any action which would require the
fixing of a record date, such notice shall be given at least 10 days prior to
the date so fixed, and in case of all other action, such notice shall be given
at least 15 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity
of any such action.

 

(L)  Proceedings Prior to Any Action Requiring Adjustment.
As a condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 13, the Company shall take any action
which may be necessary, including obtaining regulatory, New York Stock Exchange
or stockholder approvals or exemptions, in order that the Company may
thereafter validly and legally issue as fully paid and nonassessable all shares
of Common Stock that the Warrantholder is entitled to receive upon exercise of
this Warrant pursuant to this Section 13.

 

(M)  Adjustment Rules. Any adjustments pursuant to this Section 13
shall be made successively whenever an event referred to herein shall occur. If
an adjustment in Exercise Price made hereunder would reduce the Exercise Price
to an amount below par value of the Common Stock, then such adjustment in
Exercise Price made hereunder shall reduce the Exercise Price to the par value
of the Common Stock.

 

14.      Exchange. At any time following the
date on which the shares of Common Stock of the Company are no longer listed or
admitted to trading on a national securities exchange (other than in connection
with any Business Combination), the Original Warrantholder may cause the
Company to exchange all or a portion of this Warrant for an economic interest
(to be determined by the Original Warrantholder after consultation with the
Company) of the Company classified as permanent equity under U.S. GAAP having a
value equal to the Fair Market Value of the portion of the Warrant so
exchanged. The Original Warrantholder shall calculate any Fair Market Value
required to be calculated pursuant to this Section 14, which shall not be
subject to the Appraisal Procedure.

 

31

 

UST # 205

 

15.      No Impairment. The Company will
not, by amendment of its Charter or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Warrant and in taking of all such action as may be necessary or
appropriate in order to protect the rights of the Warrantholder.

 

16.      Governing Law. This Warrant
will be governed by and construed in accordance with the federal law of the
United States if and to the extent such law is applicable, and otherwise in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State. Each of the Company and the
Warrantholder agrees (a) to submit to the exclusive jurisdiction and venue
of the United States District Court for the District of Columbia for any
action, suit or proceeding arising out of or relating to this Warrant or the
transactions contemplated hereby, and (b) that notice may be served upon
the Company at the address in Section 20 below and upon the Warrantholder
at the address for the Warrantholder set forth in the registry maintained by
the Company pursuant to Section 9 hereof. To the extent permitted by
applicable law, each of the Company and the Warrantholder hereby
unconditionally waives trial by jury in any legal action or proceeding relating
to the Warrant or the transactions contemplated hereby or thereby.

 

17.      Binding Effect. This Warrant shall
be binding upon any successors or assigns of the Company.

 

18.      Amendments. This Warrant may be
amended and the observance of any term of this Warrant may be waived only with
the written consent of the Company and the Warrantholder.

 

19.      Prohibited Actions. The Company
agrees that it will not take any action which would entitle the Warrantholder
to an adjustment of the Exercise Price if the total number of shares of Common
Stock issuable after such action upon exercise of this Warrant, together with
all shares of Common Stock then outstanding and all shares of Common Stock then
issuable upon the exercise of all outstanding options, warrants, conversion and
other rights, would exceed the total number of shares of Common Stock then
authorized by its Charter.

 

20.      Notices. Any notice, request,
instruction or other document to be given hereunder by any party to the other
will be in writing and will be deemed to have been duly given (a) on the
date of delivery if delivered personally, or by facsimile, upon confirmation of
receipt, or (b) on the second business day following the date of dispatch
if delivered by a recognized next day courier service. All notices hereunder
shall be delivered as set forth in Item 8 of Schedule A hereto, or
pursuant to such other instructions as may be designated in writing by the
party to receive such notice.

 

32

 

UST # 205

 

21.      Entire Agreement. This Warrant, the
forms attached hereto and Schedule A hereto (the terms of which are
incorporated by reference herein), and the Letter Agreement (including all
documents incorporated therein), contain the entire agreement between the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or undertakings with respect thereto.

 

[Remainder of page intentionally left blank]

 

33

 

UST
# 205

 

[Form of Notice of Exercise]

 

Date:                       

 

TO:             Oak Valley Bancorp

 

RE:             Election to
Purchase Common Stock

 

The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of
the Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the
aggregate Exercise Price for such shares of Common Stock in the manner set
forth below. A new warrant evidencing the remaining shares of Common Stock
covered by such Warrant, but not yet subscribed for and purchased, if any,
should be issued in the name set forth below.

 

Number of Shares of Common Stock                        

 

Method of Payment of Exercise Price (note if cashless exercise pursuant
to Section 3(i) of the Warrant or cash exercise pursuant to Section 3(ii) of
the Warrant, with consent of the Company and the Warrantholder)                                       

 

Aggregate Exercise Price:                    

 

	
   

  	
  Holder:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  

 

34

 

UST # 205

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by a duly authorized officer.

 

Dated: December 5, 2008

 

 

	
   

  	
  OAK VALLEY BANCORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald C. Martin

  
	
   

  	
  Name:

  	
  Ronald C. Martin

  
	
   

  	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard A. McCarty

  
	
   

  	
  Name:

  	
  Richard A. McCarty

  
	
   

  	
  Title:

  	
  Executive Vice President

  
	
   

  	
   

  	
  and Chief Financial Officer

  

 

[Signature Page to Warrant]

 

35

 

UST
# 205

 

SCHEDULE A

 

Item 1

 

Name: Oak Valley Bancorp.

Corporate or other organizational form: Corporation

Jurisdiction of organization: California

 

Item 2

 

Exercise Price: $5.78 per share

 

Item 3

 

Issue Date: December 5, 2008

 

Item 4

 

Amount of last dividend declared prior to the Issue Date: $ 0.05 per
share

 

Item 5

 

Date of Letter Agreement between the Company and the United States
Department of the Treasury: December 5, 2008

 

Item 6

 

Number of shares of Common Stock: 7,658,252

 

Item 7

 

Company’s address:

 

125 N. Third Ave.,

Oakdale, CA 95361

 

Item 8

 

Notice information:

 

If to the Company:

Richard A. McCarty

Chief Financial Officer

Oak Valley Bancorp

125 N. Third Ave.

Oakdale, CA 95361

Telephone: (209) 848-2265

 

36

 

UST # 205

 

Facsimile: (863) 419-7798

 

with a copy to:

 

Matteo G. Daste, Esquire

Leland Parachini et al., LLP

199 Fremont Street, 21st Floor

San Francisco, CA 94105

Telephone: (415) 957-2800

Facsimile: (415) 974-1520

 

If to the
Warrantholder:

 

37

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