Document:

EXHIBIT 4(a)(1)

 

 

Exclusive Licence Agreement

 

PharmaSynth Pty Ltd

PharmaSynth

 

Global Transbiotech Inc

GTB

 

Clayton Utz

Lawyers

Level 28 Riparian Plaza  71 Eagle Street  Brisbane 
QLD  4000  Australia

GPO Box 55  Brisbane 
QLD  4001

T + 61 7 3292 7000  F + 61 7 3221 9669

 

www.claytonutz.com

 

Our reference
15314/12192/80092067

 

 

Table of
contents

 

	
  1.

  	
  Definitions and interpretations

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
  1.2

  	
  Interpretation

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Term of the agreement

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Licence of PharmaSynth IP

  	
  4

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Exclusive Licence

  	
  4

  
	
   

  	
  3.2

  	
  Use by PharmaSynth

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Developed IP

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Developed IP Owned by GTB

  	
  5

  
	
   

  	
  4.2

  	
  Rights to IP developed by PharmaSynth

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Sublicensing

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Liability for sublicensee

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Licence fees

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Royalties

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Royalties where valid Patent

  	
  6

  
	
   

  	
  7.2

  	
  Royalties where no Patent

  	
  7

  
	
   

  	
  7.3

  	
  Reports

  	
  7

  
	
   

  	
  7.4

  	
  Sales of Products outside the Territory

  	
  7

  
	
   

  	
  7.5

  	
  Accrual and payment of royalties

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  GTB to Exploit

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  GTB to produce Products

  	
  8

  
	
   

  	
  8.2

  	
  Commencement of Phase 3 Trial

  	
  8

  
	
   

  	
  8.3

  	
  Exploitation of Products

  	
  8

  
	
   

  	
  8.4

  	
  Quality

  	
  9

  
	
   

  	
  8.5

  	
  Notification of adverse event

  	
  9

  
	
   

  	
  8.6

  	
  Insurance

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Protection of Intellectual
  Property

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Notification of infringement

  	
  9

  
	
   

  	
  9.2

  	
  Infringement of PharmaSynth IP

  	
  9

  
	
   

  	
  9.3

  	
  Maintenance of IP

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Warranties and indemnities

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  PharmaSynth warranties

  	
  10

  
	
   

  	
  10.2

  	
  GTB warranties

  	
  10

  
	
   

  	
  10.3

  	
  Exclusion of warranties

  	
  11

  
	
   

  	
  10.4

  	
  GTB’s acknowledgments

  	
  11

  
	
   

  	
  10.5

  	
  PharmaSynth’s acknowledgements

  	
  11

  
	
   

  	
  10.6

  	
  GTB to indemnify PharmaSynth

  	
  11

  
	
   

  	
  10.7

  	
  PharmaSynth to indemnify GTB

  	
  12

  
	
   

  	
  10.8

  	
  Liability for costs of Infringement Claim

  	
  12

  
	
   

  	
  10.9

  	
  General mutual representations and warranties

  	
  12

  
	
   

  	
  10.10

  	
  Indemnities

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Confidentiality

  	
  13

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  No use or disclosure

  	
  13

  
	
   

  	
  11.2

  	
  Further obligations

  	
  13

  

 

i

 

	
   

  	
  11.3

  	
  Legal requirements

  	
  13

  
	
   

  	
  11.4

  	
  Return of Confidential Information

  	
  14

  
	
   

  	
  11.5

  	
  Retention for legal advice

  	
  14

  
	
   

  	
  11.6

  	
  Survival of clause

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Audit

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Records

  	
  14

  
	
   

  	
  12.2

  	
  Audit

  	
  14

  
	
   

  	
  12.3

  	
  Security

  	
  15

  
	
   

  	
  12.4

  	
  Co-operation

  	
  15

  
	
   

  	
  12.5

  	
  Copies of materials

  	
  15

  
	
   

  	
  12.6

  	
  Costs of the Audit

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Termination

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  13.1

  	
  Reasons for termination by either party

  	
  15

  
	
   

  	
  13.2

  	
  Reasons for termination by PharmaSynth

  	
  15

  
	
   

  	
  13.2

  	
  Consequences of termination

  	
  15

  
	
   

  	
  13.3

  	
  Termination due to default by PharmaSynth

  	
  16

  
	
   

  	
  13.4

  	
  Accrued rights and survival

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Dispute resolution

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Negotiation

  	
  16

  
	
   

  	
  14.2

  	
  Referral to arbitration

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  Arbitration

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Reference to arbitration

  	
  17

  
	
   

  	
  15.2

  	
  Award final and binding

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  Force Majeure

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Event of Force Majeure

  	
  17

  
	
   

  	
  16.2

  	
  Remedy of Force Majeure

  	
  17

  
	
   

  	
  16.3

  	
  Extension of Term

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  Notices

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  General

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  18.1

  	
  Governing law

  	
  19

  
	
   

  	
  18.2

  	
  Jurisdiction

  	
  19

  
	
   

  	
  18.3

  	
  Assignment

  	
  19

  
	
   

  	
  18.4

  	
  Amendments

  	
  19

  
	
   

  	
  18.5

  	
  Waiver

  	
  19

  
	
   

  	
  18.6

  	
  Further acts and documents

  	
  19

  
	
   

  	
  18.7

  	
  No representation or reliance

  	
  19

  
	
   

  	
  18.8

  	
  Expenses

  	
  19

  
	
   

  	
  18.9

  	
  Entire agreement

  	
  20

  
	
   

  	
  18.10

  	
  Sub-contracting

  	
  20

  
	
   

  	
  18.11

  	
  Relationship of the parties

  	
  20

  
	
   

  	
  18.12

  	
  Remedies cumulative

  	
  20

  
	
   

  	
  18.13

  	
  Severability of provisions

  	
  20

  
	
   

  	
  18.14

  	
  Change in control

  	
  20

  
	
   

  	
  18.15

  	
  Publicity

  	
  20

  
	
   

  	
  18.16

  	
  Counterparts

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1 -
  PharmaSynth IP

  	
  22

  

 

ii

 

	
  Exclusive
  Licence Agreement made on

  	
  2009

  

 

Parties                                                                                         PharmaSynthPharmaSynth Pty Ltd, ABN 48 074 656 509, of 2806 Ipswich Road, Darra, QLD, Australia (“PharmaSynth”),
a wholly-owned subsidiary of Progen Pharmaceuticals Ltd

 

Global
Transbiotech, Inc of 3550 Wilshire Blvd., Suite 1747,
Los Angeles, CA 90010 USA (“GTB”)

 

Introduction

 

A.                                                   PharmaSynth
is the holder of patent and other intellectual property rights in a
multi-targeted cytostatic cancer therapeutic product known as PI-88, a mixture of highly sulfated,
monophosphorylated, mannose oligosaccharides.

 

B.                                                     GTB
is a developer, manufacturer and marketer of pharmaceutical products.

 

C.                                                     PharmaSynth
and GTB executed a Binding Term Sheet on 14 May 2009 under which the
parties agreed to negotiate an Exclusive Licence Agreement for the product
known as PI-88.

 

D.                                                    GTB
has had access to such information and personnel of PharmaSynth as requested by
GTB to enable it to carry out due diligence on the product known as PI-88.

 

E.                                                      GTB
has satisfied itself as to its ability to successfully exploit PI-88 if granted
a licence from PharmaSynth.

 

F.                                                      Pursuant
to the terms and conditions contained in this agreement, PharmaSynth licenses
GTB to develop, manufacture, use, sell, market and sublicense the product known as PI-88 in exchange for
the licence fees and royalties set out in this agreement.

 

Operative
provisions

 

1.                                                      Definitions and
interpretations

 

1.1                                               Definitions

 

The following definitions apply unless the context requires otherwise.

 

Affiliate means with
respect to a party, any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with such party,
where control means possession of the power to direct, or cause the direction
of the management and policies of a corporation or other entity whether through
ownership of voting securities, by contract or otherwise and includes without
limitation any related body corporate of a party as defined under section 50 of
the Corporations Act 2001 (Cth).

 

Commencement Date means 1 July 2009,
or the data of the execution of a definitive version of this agreement if this
comes earlier.

 

Confidential Information means
all confidential and proprietary information, know how and trade secrets of a
party (including, without limitation, the terms of this agreement, all business
or financial information, all information, biological materials and samples
relating to any Product, medical chemical and other scientific data, processes
and analytic methodology used in the development, testing, clinical trials and
analysis of any Product, and packaging, manufacturing, advertising and
marketing data relating to the Product but excluding any information which:

 

(a)                                                   was in the public domain at the time of its
disclosure;

 

1

 

(b)                                                  came into the hands of the receiving party by lawful
means and without breach of any obligation of confidentiality by any third
party; or

 

(c)                                                   was in fact known to the receiving party prior to its
disclosure to that party.

 

End User means a third
party which is supplied a Product by GTB or its Affiliates or its sublicensees
but does not distribute, resell or otherwise supply the Product to others
(other than patients) in all countries in the Territory except for Mainland
China, where the End User may be, as the case may be, a distributor to whom GTB
or its Affiliates or its sublicensees  sells the
Product.

 

Event of Insolvency
means:

 

(a)                                                   filing by a Party in any court pursuant to any statute
of a petition in bankruptcy or insolvency, or for reorganization or
arrangement, or for the appointment of a receiver of all or a portion of the
Party’s property;

 

(b)                                                  the filing against a Party of any such petition, or
the commencement of a proceeding for the appointment of a trustee, receiver or
liquidator for the Party, or of any of the property of the Party, or a
proceeding by any governmental authority for the dissolution or liquidation of
the Party, if such proceeding shall not be dismissed or trusteeship
discontinued within thirty (30)  days after
commencement of such proceeding or the appointment of such trustee or receiver;

 

(c)                                                   the making by a Party of an assignment for the benefit
of creditors; or

 

(d)                                                  a Party is or admits in writing that it is, or is
taken under any applicable law to be, insolvent or unable to pay its debts.

 

Exploit includes:

 

(a)                                                   in respect of a product - to make, hire, market, sell
or otherwise dispose of it, use it, import or export it, modify, improve or
keep it for the purpose of doing any of those things; or

 

(b)                                                  in respect of a method or process - use the method or
process, improve or modify the process or do any act mentioned in paragraph (a) in
respect of a product resulting from such use,

 

and Exploitation has a corresponding
meaning.

 

Force Majeure means an act of
God, strike, lockout or other interference with work, war (declared or
undeclared), blockade, disturbance, lightning, fire, earthquake, storm, flood,
explosion, governmental or quasi governmental restraint, expropriation,
prohibition, intervention, direction or embargo, unavailability or delay in
availability of equipment or transport, inability or delay in obtaining
governmental or quasi governmental approvals, consents, permits, licences,
authorities or allocations, and any other cause, whether of the kind
specifically enumerated above or otherwise which is not reasonably within the
control of the party affected but does not include general economic conditions.

 

Government Agency  means any government or governmental,
semi-governmental, administrative, fiscal or judicial body, department,
commission, authority, tribunal, agency or entity including, without
limitation, the Unites States Food and Drug Administration.

 

GTB Developed IP means all Intellectual
Property developed or otherwise coming into existence directly as a result of
or in the course of GTB carrying out this agreement (including any new patents)
but, for the avoidance of doubt, excludes all PharmaSynth IP.

 

2

 

Intellectual Property  includes
all present and future rights in relation to copyright, industrial and
intellectual property rights of whatever nature in whatever country, including
without limitation all rights in relation to Confidential Information, inventions,
innovations, plant varieties, registered and unregistered patents, registered
and unregistered trade marks (including service marks), registered designs, and
circuit layouts, and all other rights resulting from intellectual activity in
the industrial, scientific, literary or artistic fields whether created before
or after the Commencement Date and whether existing in Australia or otherwise.

 

Net Sales  means
the full invoice price plus the value of any other consideration paid or given
by any person (including by contra arrangements, product swaps or other
arrangements) for Products sold by GTB, its Affiliates and sublicensees to End
Users less:

 

(a)                                                  any
discounts given to End Users;

 

(b)                                                     sales and excise taxes, customs duty, or  other compulsory payments to Government
Agencies, to the extent included in the invoice price,  provided they are actually paid or deducted
and relate to the sale; and

 

(c)                                                  credits given to End Users for rejects or returns of
Products.

 

Products means any
products produced from or based on the PharmaSynth IP, including improvements,
modifications and variations made by GTB or its Affiliates during the Term.

 

PharmaSynth IP means the
Intellectual Property owned or licensed by PharmaSynth which is necessary to
Exploit the product known as PI-88 and includes the patents and patent
applications set out in Schedule 1 and the Confidential Information of
PharmaSynth related to those patents and patent applications.

 

Territory  means
the world excluding Australia.

 

Term means the period
commencing on the Commencement Date and expiring 15 years after the
Commencement Date, unless earlier terminated in accordance with this agreement.

 

1.2                                               Interpretation

 

In this agreement:

 

(a)                                headings are for convenience only and
do not affect interpretation,

 

and unless the context indicates
a contrary intention:

 

(b)                               an obligation or liability assumed by,
or a right conferred on, 2 or more persons binds or benefits them jointly and
severally;

 

(c)                                “person”
includes an individual, the estate of an individual, a corporation, an
authority, an association or a joint venture (whether incorporated or
unincorporated), a partnership and a trust;

 

(d)                               a reference to a party includes that
party’s executors, administrators, successors and permitted assigns, including
persons taking by way of novation and, in the case of a trustee, includes a
substituted or an additional trustee and further includes any person claiming
on behalf of or under or through a party to this agreement;

 

(e)                                a reference to a document (including
this agreement) is to that document as varied, novated, ratified or replaced
from time to time;

 

3

 

(f)                                  a reference to a statute or statutory
provision includes a statutory modification or re-enactment of it or a
statutory provision substituted for it, and each ordinance, by-law, regulation,
rule and statutory instrument (however described) issued under it;

 

(g)                               a word importing the singular includes
the plural (and vice versa), and a word indicating a gender includes every
other gender;

 

(h)                               a reference to a party, clause,
schedule, exhibit, attachment or annexure is a reference to a party, clause,
schedule, exhibit, attachment or annexure to or of this agreement, and a
reference to this agreement includes all schedules, exhibits, attachments and
annexures to this agreement;

 

(i)                                   if a word or phrase is given a defined
meaning, any other part of speech or grammatical form of that word or phrase
has a corresponding meaning;

 

(j)                                   “includes”
in any form is not a word of limitation; and

 

(k)                                a reference to “$” or “dollar”
is to US currency.

 

2.                                                      Term of the agreement

 

This agreement commences on the Commencement Date and continues for the
Term.

 

3.                                                      Licence of PharmaSynth
IP

 

3.1                                               Exclusive Licence

 

(a)                                                   Subject to the terms of this agreement,
PharmaSynth hereby grants and GTB accepts, an exclusive licence, including the
right to grant sublicences, to Exploit the PharmaSynth IP in the Territory
during the Term.

 

(b)                                                  To the extent that the PharmaSynth IP
includes a patent, the licence granted under clause 3.1(a) ceases in
respect of that patent on the expiry of that patent and the expiry of any
patent extensions.

 

(c)                                                   After the Commencement Date,
PharmaSynth will, at the request of GTB, provide samples of any Products it has
which are relevant to the Field, including any intermediate forms and copies of
the Products and any related Confidential Information.

 

(d)                                                  For the purpose of assisting GTB to
carry out its clinical trial PharmaSynth will if requested by GTB:

 

(i)                                                     Supply
two (2) kg of the PI-88 bulk Active Pharmaceutical Ingredient (API) at no
cost to GTB;

 

(ii)                                                  At
the request of GTB, transfer ownership to GTB of a minimum of 20,000 vials of
pre-filled lyophilised PI-88 (the equivalent of approximately 5 kg bulk API of
PI-88), each containing 210 mg of PI-88 and a minimum of 20,000 vials of the
lyophilised placebo, each containing 210 mg of the placebo, a minimum of 40,000
syringes prefilled with 1 ml of saline, associated needles and product
packaging. Such GTB request of PharmaSynth to occur within 60 (sixty) days of
the Execution of this Agreement. If GTB requests this transfer, the costs
associated with the storage and further handling, including possible shipment
of the material, upon the issue of this GTB request is assumed 

 

4

 

by GTB. The material is stored at Fischer Clinical in Allentown,
Pennsylvania, USA.

 

(iii)                                               supply
up to a further 30 kg of API at $17,500 per kg; and

 

(iv)                                              supply
any further API at $25,000 per kg.

 

GTB to pay for the API within 30 days of the request by GTB.

 

(e)                                                   PharmaSynth will not sell Products
relevant to the Field to End Users in the Territory nor supply Products
relevant to the Field to any person who PharmaSynth has reasonable grounds to
believe is likely to export the Products into the Territory.

 

(f)                                                     All enquiries PharmaSynth receives in
respect of Products relevant to the Field to be delivered to End Users in the
Territory will be referred to GTB.

 

3.2                                               Use by PharmaSynth

 

(a)                                                   For the avoidance of doubt, this
agreement does not limit PharmaSynth’s ability to Exploit the PharmaSynth IP
outside the Territory.

 

(b)                                                  GTB and its Affiliates will not:

 

(i)                                                     sell
Products to End Users outside the Territory; or

 

(ii)                                                  supply
Products to any third party who PharmaSynth has reasonable grounds to believe
is likely to export the Products outside the Territory.

 

(c)                                                   PharmaSynth may require GTB to take all
reasonable actions within its legal rights and powers (including conducting
litigation) to cause third parties to cease such exportation or use.

 

(d)                                                  All enquiries GTB receives in respect
of Products to be delivered to End Users outside the Territory will be referred
to PharmaSynth.

 

4.                                                      Developed IP

 

4.1                                               Developed IP Owned by
GTB

 

The parties acknowledge that all right, title and interest in and to
all of the GTB Developed IP is owned by GTB.

 

If, in the course of commercial development efforts related to the
Product outside the territory, PharmaSynth can negotiate with GTB to access GTB
Developed IP as relates to the Product.

 

4.2                                               Rights to IP developed
by PharmaSynth

 

(a)                                                   If in the course of complying with its
obligations under this agreement, PharmaSynth develops modifications to the
Product and the Product IP which result in the creation of new Intellectual
Property, then GTB will have a right of first refusal to Exploit that
Intellectual Property on terms specified by PharmaSynth.

 

(b)                                                  If GTB does not exercise its first
right of refusal within 30 days of receiving the terms provided by PharmaSynth
pursuant to 4.2(a) , PharmaSynth may license that Intellectual Property to
a third party on terms which are no more favourable than those offered to GTB
under clause 4.2(a).

 

5

 

(c)                                                   If GTB exercises its right of first
refusal, the parties will either vary this agreement or enter into a new
agreement, in each case to reflect the terms offered under clause 4.2(a).

 

4.3                                                   For
clarification, with regards to any non-clinical and clinical data that may be
developed by the Parties during the Term, the Parties agree to share that data
freely, with no additional obligation, and make it available to the other
Party.

 

5.                                                      Sublicensing

 

5.1                                               Liability for
sublicensee

 

GTB acknowledges and agrees that the use of a sublicensee does not
relieve GTB of any of its obligations, duties or limitations under this
agreement and any act or omission of a sublicensee will have the same
consequences or effect as if such action or omission was GTB’s own.

 

6.                                                      Licence fees

 

In consideration of the licence granted to GTB under this agreement, in
respect of each Product GTB will pay a total of $5,000,000 to PharmaSynth the following
licence fees within 30 days of the occurrence of the following events:

 

(a)                                                   a payment of $500,000 after the approval by any Government Agency
within the Territory to commence the first Phase 3 or Pivotal Registration
Clinical Trial Protocol of a Product;

 

(b)                                                  a payment of $500,000 after the commencement of the first Phase 3
or Pivotal Registration Clinical Trial for a Product;

 

(c)                                                   a payment of $1,000,000 after the completion of the first Phase 3 or
Pivotal Registration Clinical Trial for a Product;

 

(d)                                                  a payment of $1,000,000 after the submission of a Product to any Government Agency for regulatory
approval for use in the first  country
in the Territory; and

 

(e)                                                   a payment of $2,000,000 after a relevant Government Authority first
giving approval for use of a Product.

 

Payment will be in US dollars to
a US dollar account in Australia, the details of which are as notified by
PharmaSynth to GTB from time to time.

 

7.                                                      Royalties

 

7.1                                               Royalties where valid
Patent

 

If GTB or its Affiliates or its sublicensees sell Product into a
country where there is a valid enforceable and unexpired patent(s) or patent extension(s) or patent application(s) active at the time of commencement, in
respect of some or all of the Product or its method of manufacture, GTB will
pay the following royalties:

 

(a)                                                   8% of the Net Sales made by GTB and its
Affiliates and its sublicensees from that country, until Net Sales in the
Territory during each one-year annual period exceed $500,000,000 per year;

 

6

 

(b)                                                  9% of the Net Sales made by GTB and its
Affiliates and its sublicensees from that country, if Net Sales in the
Territory during each one-year annual period exceed $500,000,000 per year but are less than or equal to
$1,000,000,000 per year, assessed on the net sales; and

 

(c)                                                   10% of the Net Sales made by GTB and
its Affiliates and its sublicensees from that country if Net Sales in the
Territory during the Term exceed $1,000,000,000 per year, assessed on the net
sales.

 

7.2                                               Royalties where no
Patent

 

If GTB or its Affiliates or its sublicensees sell Product into a
country where there is no or there is no longer any patent application,
registered patent, or patent extension in respect of the Product or its method
of manufacture, GTB will pay the following royalties:

 

(a)                                                   4% of the Net Sales made by GTB and its
Affiliates and its sublicensees from that country, until Net Sales in the
Territory during each one-year annual period exceed $500,000,000 per year;

 

(b)                                                  5% of the Net Sales made by GTB and its
Affiliates and its sublicensees from that country, if Net Sales in the
Territory during each one-year annual period exceed $500,000,000 per year but are less than or equal to
$1,000,000,000 per year, assessed on the net sales; and

 

(c)                                                   6% of the Net Sales made by GTB and its
Affiliates and its sublicensees from that country if Net Sales in the Territory
during each one-year annual period exceed $1,000,000,000 per year,
assessed on the net sales.

 

7.3                                               Reports

 

Within 14 days of the anniversary of each Commencement Date, GTB will
send PharmaSynth a report setting out:

 

(a)                                                   a summary of progress being made to
obtain Government Agency approvals in the Territory;

 

(b)                                                  the details of royalties, fees or other
amounts received for each month of the previous year from sublicensees; and

 

(c)                                                   the details of the total sales in each
country (including a breakdown of sales by GTB, Affiliates and sublicensees)
and the Net Sales in each country for each month of the previous year.

 

7.4                                               Sales of Products
outside the Territory

 

If GTB, its Affiliates or sublicensees sell any Products outside the
Territory, the royalty payable to PharmaSynth is the full amount of any Net
Sales for those Products.

 

If PharmaSynth,
its Affiliates or sublicensees sell any Products inside the Territory, the
royalty payable to GTB  will be the full amount of any
Net Sales for those Products.

 

7.5                                               Accrual and payment of
royalties

 

(a)                                                   All royalties accrue when
actually received from an End User by GTB or its sublicensee.

 

7

 

(b)                                                  GTB will pay all royalties due to
PharmaSynth under this clause 7 on a 6 monthly basis commencing on the
Commencement Date, each payment to be made within 30 days of the end of the
relevant 6 monthly period, with the first 6-month period beginning on the first
day of the month following the Commencement Date.

 

(c)                                                   Payment will be in US dollars to a USA
bank account, the details of which are as notified by PharmaSynth to GTB from
time to time.

 

8.                                                      GTB to Exploit

 

8.1                                               GTB to produce
Products

 

(a)                                                   GTB is free to establish any technical,
pre-clinical or clinical program at GTB’s expense, for the purposes of
preparing any new drug application using the PharmaSynth IP with any Government
Agency in the Territory.

 

(b)                                                  GTB will use reasonable efforts to
carry out, at its own expense, all product development, including without
limitation, regulatory and clinical work, testing, or studies relating to
Products, reasonably required to obtain all regulatory approvals needed to
Exploit the Products in the Territory.

 

(c)                                                   GTB will use its reasonable efforts to
file, prosecute and maintain during the Term, all necessary and appropriate
applications, submissions and filings to the appropriate Government Agency, to
obtain approval to Exploit the Products in each country within the Territory.

 

(d)                                                  GTB will advise PharmaSynth immediately
on obtaining any approval from a Government Authority in respect of a Product.

 

(e)                                                   PharmaSynth will provide reasonable
assistance to GTB to the extent of making available, without charge, Technical
Personnel to assist GTB in both technical and clinical issues, and in making
any necessary submissions or filings for approvals in each country within the
Territory, including provision of relevant documentation which is in the
possession of PharmaSynth for submissions, applications or filings, but
PharmaSynth will not be obliged to commit to any particular expenditure in
providing such assistance..

 

8.2                                               Commencement of Phase
3 Trial

 

If GTB has not commenced a Phase 3 or Pivotal Registration Clinical
Trial within 9 months of the Commencement Date, PharmaSynth may at any time
thereafter immediately terminate this agreement by written notice to GTB.

 

8.3                                               Exploitation of
Products

 

If GTB has not commenced the Exploitation of a Product in a country in
which a valid enforceable and unexpired patent application(s), patent(s) or
patent extension(s) covering the Product exists  within the Territory within five (5) years of the
Commencement Date, then PharmaSynth may by written notice, advise GTB that
unless it commences Exploitation of a Product in that country within 6 months
(or such longer period set out in the notice), that country will be removed
from the definition of Territory in this agreement.  A notice may include more than one country
and will be taken to be a notice in respect of each country specified in the
notice.  Should Exploitation not occur
during that 6 month or longer stipulated period, the country will be removed
from the Territory.

 

8

 

8.4                                               Quality

 

GTB is responsible for maintaining commercially acceptable quality
control standards in all manufacturing related to a Product, including meeting
the manufacturing standards required by any Government Agency and good
manufacturing practice.

 

8.5                                               Notification of
adverse event

 

Each party agrees to report to the other within 3 days of receipt of
the information, any serious adverse event which is reported to occur as a
result of the use of the Products.  Such
events must be reported in as much detail as possible, whether or not there is
proof of a causal connection between events and use of Products.  A serious adverse event includes any
experience relating to the Products which is reasonably regarded to be
medically significant.

 

8.6                                               Insurance

 

GTB will procure and maintain at its own expense for the Term, product
liability insurance in the amount of not less than $10,000,000, insuring GTB from and against all loss
arising from or incidental to the Exploitation (commercial manufacturing and
marketing) of the commercial
Products.

 

9.                                                      Protection of
Intellectual Property

 

9.1                                               Notification of
infringement

 

Each party shall promptly give the other notice of:

 

(a)                                                   any claim or allegations that the
exercise of the rights under the agreement constitute an infringement of the
rights of any third party; and

 

(b)                                                  any third party’s infringement or
threatened infringement of the PharmaSynth IP or the Developed IP,

 

of which it becomes aware.

 

9.2                                               Infringement of
PharmaSynth IP

 

(a)                                                   PharmaSynth has the sole right to
determine what action should be taken in respect of any infringement of
PharmaSynth IP, and GTB will cooperate in the conduct of any action brought by
PharmaSynth.  PharmaSynth shall bear all
the costs and expenses of any action it takes.

 

(b)                                                  If PharmaSynth does not bring suit
against a third party who is infringing the PharmaSynth IP in the Territory,
then GTB may give notice in writing to PharmaSynth that it wishes to commence
action.  If PharmaSynth does not advise
that it will commence action within 14 days of that notice, GTB may elect to
bring action.

 

(i)                                                     If
GTB brings an action against a third party, it will do so at its own cost and
expense and within 6 months of the notice given under clause 9.2(b).

 

(ii)                                                  In
exercising its rights under clause 9.2(b)(i), GTB must ensure that it does not
perform any acts or omissions that in any way adversely effect:

 

A.                                                   the
validity of any PharmaSynth IP;

 

B.                                                     the
reputation of PharmaSynth as the owner of the PharmaSynth IP.

 

9

 

(iii)                                               All
costs and expenses (including attorney’s fees) of any actions or proceedings taken
by GTB (including where PharmaSynth is joined as a party) will be borne
exclusively by GTB, and, in such a case, GTB shall retain the damages and other
remedies as relate to the Territory received from the infringing party.

 

(c)                                                   GTB indemnifies PharmaSynth from and
against any costs, fees, damages or accounts of profits awarded against
PharmaSynth in any action commenced by GTB under this clause 9.2.

 

9.3                                               Maintenance of IP

 

(a)                                                   GTB will during the Term take all
reasonable and necessary steps and pay all necessary expenses to obtain
registration of Intellectual Property relating to any improvements made by or
on behalf of PharmaSynth to PharmaSynth IP in any country in the Territory in
which PharmaSynth IP is registered as at the Commencement Date.

 

(b)                                                  GTB will take all reasonable steps and
pay all necessary expenses to prosecute any patent application in the Territory
in respect of PharmaSynth IP.

 

(c)                                                   GTB will during the Term take all
reasonable steps and pay all necessary expenses to maintain for the full life
of, and any extension that may be available, all Intellectual Property which is
PharmaSynth IP in the Territory.

 

(d)                                                  GTB may, in consultation with
PharmaSynth, file on behalf of and as agent for PharmaSynth all applications
and filings and take all actions necessary to obtain the benefits of
registration, and PharmaSynth will sign any authorisations and instruments
reasonably requested by GTB to enable GTB to comply with its obligations under
this clause 9.2.

 

(e)                                                   Should GTB not comply with its obligations
under this clause 9.2, PharmaSynth is hereby appointed as agent for GTB to
perform all such obligations on GTB’s behalf. 
Where PharmaSynth performs an obligation of GTB, the cost and expense of
such performance is due and payable by GTB to PharmaSynth and GTB is not
relieved from its failure to perform the obligation.

 

10.                                               Warranties and
indemnities

 

10.1                                        PharmaSynth warranties

 

PharmaSynth warrants and represents to GTB that to the best of
PharmaSynth’s knowledge:

 

(a)                                                   it is either the sole and beneficial
owner or the exclusive licensee of the PharmaSynth IP and that the PharmaSynth
IP is not encumbered nor licensed to a third party in any way inconsistent with
the exploitation of the rights granted pursuant to this agreement; and

 

(b)                                                  it is entitled to grant the rights
contained in this agreement in relation to the PharmaSynth IP to GTB.

 

10.2                                        GTB warranties

 

GTB warrants and represents to PharmaSynth that:

 

(a)                                                   to the best of GTB’s knowledge it will
be is either the sole and beneficial owner or the exclusive licensee of the GTB
Developed IP and that the GTB Developed IP will not 

 

10

 

be encumbered nor licensed to a
third party in any way inconsistent with the exploitation of the rights granted
pursuant to this agreement;

 

(b)                                                  to the best of GTB’s knowledge it is
entitled to grant the rights contained in this agreement in relation to the
Developed IP to PharmaSynth; and

 

(c)                                                   it has and will maintain adequate
insurance in accordance with prudent business practice and, to the best of GTB’s
knowledge, it has not failed to comply with any of the conditions contained in an adequate insurance policy.

 

10.3                                        Exclusion of
warranties

 

Except for the express warranties in this agreement, to the full extent
permitted by law, any conditions or warranties imposed by legislation
applicable to this agreement are hereby excluded.

 

10.4                                        GTB’s acknowledgments

 

GTB hereby acknowledges and agrees that:

 

(a)                                                   PharmaSynth has not made and does not
by entering into this agreement make any representations or give any warranties
other than those set out in this clause regarding the suitability of
PharmaSynth IP or GTB Developed IP for any purpose; and

 

(b)                                                  it will not knowingly do, or assist any
third party to do, anything to imperil or challenge the validity of, or
PharmaSynth’s ownership of, any of the PharmaSynth IP.

 

10.5                                        PharmaSynth’s
acknowledgements

 

PharmaSynth hereby acknowledges and agrees that:

 

(a)                                                   GTB has not made and does not by
entering this agreement make any representations or give any warranties other
than those set out in this clause regarding the suitability of the GTB
Developed IP for any purpose; and

 

(b)                                                  it will not knowingly do, or assist any
third party to do, anything to imperil or challenge the validity of, or
ownership by GTB of, any of the GTB Developed IP.

 

10.6                                        GTB to indemnify
PharmaSynth

 

GTB shall defend, indemnify and hold harmless PharmaSynth, its
officers, employees and agents from and against all actions, suits, claims,
proceedings, causes of action, judgments or demands (including those brought by
third parties) which may be brought against it or them, whether on their own or
jointly with PharmaSynth and whether at common law, in equity or pursuant to
statute or otherwise, in respect of any loss, death, injury, illness or damage
(whether personal or property) which arises out of:

 

(a)                                                   any Exploitation of any of the
PharmaSynth IP or the GTB Developed IP in the Territory;

 

(b)                                                  any Product or use of any Product;

 

(c)                                                   a breach of this agreement by GTB or
its Affiliates;

 

(d)                                                  the failure of any representation or
warranty of GTB set forth in this agreement; or

 

(e)                                                   the negligence or wilful misconduct of
GTB or its Affiliates or their employees, agents or officers,

 

11

 

except in each
case to the extent any such claim results or arises from breach by PharmaSynth
of any term of this agreement or the negligence or wilful misconduct of
PharmaSynth or any of its employees, agents or officers.

 

10.7                                        PharmaSynth to
indemnify GTB

 

PharmaSynth
shall defend, indemnify and hold harmless GTB, its officers, employees and
agents from and against all actions, suits, claims, proceedings, causes of
action, judgments or demands (including those brought by third parties) which
may be brought against it or them, whether on their own or jointly with
PharmaSynth and whether at common law, in equity or pursuant to statute or
otherwise, in respect of any loss, death, injury, illness or damage (whether
personal or property) which arises out of a breach of clause 10.1 or 11, except
to the extent that such claim results or arises from breach by GTB of any term
of this agreement or the negligence or wilful misconduct of GTB and its
Affiliates, or their employees, agents or officers.

 

10.8                                        Liability for costs of
Infringement Claim

 

(a)                                                  Notwithstanding
clauses 10.6 and 10.7, in the case of any claim of infringement of PharmaSynth
IP or infringement of a third party’s Intellectual Property by the Products,
which is brought by a third party against GTB in a country in the
Territory (whether alone or together with PharmaSynth) (the “Infringement Claim”):

 

(i)                                                     GTB will appoint lawyers acceptable to PharmaSynth to conduct the defence of the Infringement Claim;

 

(ii)                                                  GTB will be responsible for the legal expenses and for all actions
taken by GTB’s lawyers;

 

(iii)                                               GTB will not settle or compromise any case without the prior written
consent of PharmaSynth, which will not be
unreasonably withheld; and

 

(iv)                                              PharmaSynth will provide GTB with such assistance
and information as GTB reasonably requests.

 

(v)                                                 Both Parties agree to share the
cost at 20/80 (PharmaSynth/GTB).

 

10.9                                        General mutual
representations and warranties

 

Each of the
parties represents and warrants to the other party that each of the following
statements is true and correct in all material respects:

 

(a)                                                  it has full power and
authority to enter into, perform and observe its obligations under this
agreement, and that its execution, delivery and performance of this agreement
has been duly and validly authorised by all necessary corporate action; and

 

(b)                                                  this agreement and
the transactions contemplated by it do not contravene its constituent documents
or any law, regulation or official directive or any of its obligations or
undertakings by which it or any of its assets are bound or cause a limitation
on its powers or those of its directors to be exceeded.

 

10.10                                 Indemnities

 

(a)                                                  Each indemnity in
this agreement is a continuing
obligation, separate and independent from the other obligations of the parties,
and survives termination, completion or expiration of this agreement.

 

12

 

(b)                                                  It is not necessary
for a party to incur expense or to make any payment before enforcing a right of
indemnity conferred by this agreement.

 

(c)                                                   A party must pay on
demand any amount it must pay under an indemnity in this agreement.

 

11.                                               Confidentiality

 

11.1                                        No use or disclosure

 

Neither of the
parties shall, unless specifically authorised in this agreement or with the
prior written consent of the other party:

 

(a)                                                  disclose any
Confidential Information of the other party;

 

(b)                                                  disclose any
Confidential Information relating to a Product relevant to the Field;

 

(c)                                                   make use of any
Confidential Information of the other party for any purpose other than for the
purposes set forth in or in furtherance of this agreement; or

 

(d)                                                  make use of any
Confidential Information relating to a Product relevant to the Field for any
purpose other than for the purposes set forth in or in furtherance of this
agreement.

 

11.2                                        Further obligations

 

Each of the
parties must:

 

(a)                                                  use its best
endeavours to keep the Confidential Information of the other party safe and
secure and prevent unauthorised use, reproduction or disclosure of the
Confidential Information of the other party;

 

(b)                                                  restrict the
disclosure of the Confidential Information of the other party to only those
employees who require the Confidential Information for the purposes of
fulfilling that party’s obligations under this agreement;

 

(c)                                                   not make, assist or
permit any person (including its representatives) to make any unauthorised use,
disclosure or reproduction of any of the other party’s Confidential
Information;

 

(d)                                                  take reasonable steps
to enforce the confidentiality obligations imposed or required to be imposed by
this agreement including diligently prosecuting at its cost any breach or
threatened breach of such confidentiality obligations by a person to whom it
has disclosed such Confidential Information and, where appropriate, making applications
for interim or interlocutory relief; and

 

(e)                                                   co-operate with the
other party in any action which it may take to protect the confidentiality of
its Confidential Information.

 

11.3                                        Legal requirements

 

A party may
disclose anything in respect of this agreement or a Product:

 

(a)                                                  as required by
applicable law, rules of any stock exchange, Government Agency or
ministerial directive;

 

(b)                                                  necessary to be
disclosed to a Government Agency to comply with the party’s obligations under
clause 8.1;

 

13

 

(c)                                                   to its professional
advisors including, without limitation, accountants, financial advisors,
insurers, patent attorneys and legal advisors, subject to that party agreeing
to keep the Confidential Information confidential in accordance with this
clause;

 

(d)                                                  in order to do
anything which the party is entitled to do in respect of a Product under this
agreement.

 

11.4                                        Return of Confidential
Information

 

Subject to
clauses 11.5 and 13.2(d)(ii), all Confidential Information whether in hard
copy, electronic or any other form will (at the option of the discloser of that
Confidential Information) be destroyed or returned to the party who disclosed
the Confidential Information within thirty (30) days of termination of the
agreement and each party will cease all use of the other party’s Confidential
Information.

 

11.5                                        Retention for legal
advice

 

Each party’s
legal representative may retain one copy of such Confidential Information
solely for the purpose of determining the scope of that party’s obligations
under this clause.

 

11.6                                        Survival of clause

 

The
obligations of confidentiality imposed by this agreement survive the
termination of this agreement.  Each
party may enforce this clause 11 in favour of its Affiliates.

 

12.                                               Audit

 

12.1                                        Records

 

(a)                                                  GTB will keep full
and accurate books and records setting forth Net Sales and any other
information sufficient in detail to allow the calculation of royalties and
licence fees to be paid by GTB.

 

(b)                                                  GTB will keep such
books and records for a minimum of 7 years from the date that they are created.

 

12.2                                        Audit

 

GTB will, upon
7 days notice and during normal business hours or as otherwise agreed, permit
and provide persons (“Auditors”) nominated by
PharmaSynth, supervised access to GTB’s and its Affiliates’ premises, books,
records, documents, computer systems, equipment and other property relevant to
the performance of this agreement to verify compliance by GTB with its
obligations under this agreement and its likely capacity to continue to comply
with its obligations in the future (“Audit”).  Without limiting the foregoing, an Audit may
include:

 

(a)                                                  review of materials
relating to royalties and licence fees;

 

(b)                                                  review of
arrangements and payments with End Users, sublicensees and other third parties;

 

(c)                                                   legal compliance; and

 

(d)                                                  quality assurance
practices.

 

14

 

12.3                                        Security

 

In undertaking
the Audit, PharmaSynth will procure that the Auditors comply with reasonable
security and confidentiality requirements of GTB made known to PharmaSynth.

 

12.4                                        Co-operation

 

GTB will do
things reasonably necessary to facilitate a prompt and efficient Audit.

 

12.5                                        Copies of materials

 

The Auditors
may make copies of books, records, documents and other materials they have
access to as part of an Audit, and GTB will provide the Auditors with the
necessary facilities to enable them to do so.

 

12.6                                        Costs of the Audit

 

Should the
audit reveal an underpayment discrepancy of five percent (5%) or more between
any payment reported and any payment actually due to PharmaSynth, GTB shall pay
all fees and expenses incurred in conducting the audit; otherwise PharmaSynth
shall pay the fees and expenses incurred in conducting the audit and
inspection.  Underpayment discrepancies
shall be paid promptly by GTB to PharmaSynth and overpayment discrepancies
shall be credited to GTB’s account in connection with the next subsequent
payment of royalties.

 

13.                                               Termination

 

13.1                                        Reasons for
termination by either party

 

In addition to
any other provisions set out in this agreement which allow a party to terminate
this agreement, either party may terminate this agreement immediately by
written notice to the other party in the event of:

 

(a)                                                  a failure to pay any
amounts due under this agreement within the periods required, provided that the
breach is not cured within one month after written notice thereof is received
from the non-defaulting party;

 

(b)                                                  the other party
having committed a breach of this agreement on three occasions and having
received written notice of those breaches from the non-defaulting party, even
if the breaches have been remedied; or

 

(c)                                                   the other party being
subject to an Event of Insolvency.

 

13.2                                        Reasons for
termination by PharmaSynth

 

PharmaSynth
may terminate this agreement immediately by written notice to GTB if GTB
Exploits a product which competes with the Products in the Territory.

 

13.2                                        Consequences of
termination

 

Upon
termination of this agreement under Paragraph 13.1 due to a material breach by GTB:

 

(a)                                                  any licence fee or
royalty which has accrued to PharmaSynth but which is not yet payable, will
become immediately due and payable;

 

(b)                                                  GTB will promptly
destroy all marketing, labelling or advertising materials relating to the
Products or the PharmaSynth IP;

 

15

 

(c)                                                   GTB will promptly
execute whatever documents are necessary and take whatever steps are necessary
to transfer to PharmaSynth or its nominee, free of charge except for out-of
pocket expenses, all of GTB and its Affiliates and sublicensee’s right title
and interest in and to any approvals given by a Government Agency including NDA’s,
product licence, drug identification numbers or other health registration
approvals in effect in the Territory;

 

(d)                                                  PharmaSynth may elect
to:

 

(i)                                                     grant GTB 3 months to sell off its existing stocks of the Products
provided that GTB continues to pay the royalties payable under this agreement
and at the end of that period GTB destroys or delivers any remaining stock to
PharmaSynth; or

 

(ii)                                                  purchase any stock from GTB.

 

13.3                                        Termination due to
default by PharmaSynth

 

In the event
of the termination of this Agreement due to a material default by PharmaSynth,
GTB shall have a right to continue to Exploit the PharmaSynth IP in the Licensed
Territory and to renegotiate
a reduced licensing fees and royalties payments commensurate with the impact of
the breach for the remainder of the Term Period.

 

13.4                                        Accrued rights and
survival

 

Termination or
expiry of this agreement will not affect:

 

(a)                                                  any rights or
remedies of the parties which may have accrued before the date of termination;

 

(b)                                                  the rights and
obligations of the parties which by their nature survive termination, including
clauses 10, 11 and 13.

 

14.                                               Dispute resolution

 

14.1                                        Negotiation

 

(a)                                                  If there is a dispute
between the parties in connection with this agreement, then within ten business
days of a party notifying the other party of a dispute, a senior representative
authorised to resolve the dispute from each party must meet and use all
reasonable endeavours acting in good faith to resolve the dispute (the “Initial Meeting”).

 

(b)                                                  If the dispute is not
resolved under clause 14.1(a) within ten business days of the Initial
Meeting, then the Chief Executive Officers of GTB and PharmaSynth will, within
30 days of the Initial Meeting, meet and use all reasonable endeavours acting
in good faith to resolve the dispute (the “Subsequent
Meeting”).

 

14.2                                        Referral to
arbitration

 

If any dispute
is not resolved through good faith negotiations between the Chief Executive
Officers of each party within 5 days after the date of the Subsequent Meeting,
the parties must refer the dispute to arbitration in accordance with clause 15.

 

16

 

15.                                               Arbitration

 

15.1                                        Reference to
arbitration

 

Any dispute or
controversy arising out of or connected with, or relief sought pursuant to,
this Agreement shall be finally settled by binding arbitration under the Rules of
Arbitration of the International Chamber of Commerce by one or more arbitrators
appointed in accordance with said Rules. 
The venue of any such arbitration shall be San Francisco.  Judgment upon any arbitration award may be
entered in any court having jurisdiction. 
The proceedings shall be conducted in the English language.  Each party shall bear its own costs in any
arbitration hereunder.  The official and
governing text of this Agreement shall be English.

 

15.2                                        Award final and
binding

 

Any award will
be final and binding upon the parties.

 

16.                                               Force Majeure

 

16.1                                        Event of Force Majeure

 

If a party is
prevented in whole or in part from carrying out its obligations under this
agreement (other than an obligation to pay money) as a result of Force Majeure,
it must promptly notify the other party accordingly.  The notice must:

 

(a)                                                  specify the
obligations it cannot perform;

 

(b)                                                  fully describe the
event of Force Majeure;

 

(c)                                                   estimate the time
during which the Force Majeure will continue; and

 

(d)                                                  specify the measures
proposed to be adopted to remedy or abate the Force Majeure.

 

Following this
notice, and while the Force Majeure continues, the obligations which cannot be
performed because of the Force Majeure will be suspended except for the
obligation to pay money.

 

16.2                                        Remedy of Force Majeure

 

The party that
is prevented from carrying out its obligations under this agreement as a result
of Force Majeure must:

 

(a)                                                  remedy the Force
Majeure to the extent reasonably practicable and resume performance of its
obligations as soon as reasonably possible; and

 

(b)                                                  take all action
reasonably practicable to mitigate any loss suffered by a party as a result of
its failure to carry out its obligations under this agreement.

 

(c)                                                  The Parties shall
hold discussions following an event of Force Majeure to arrive at mutually
acceptable alternative approaches to replace the actions which are prevented by
the Force Majeure.

 

16.3                                        Extension of Term

 

The Term of
this agreement shall be extended by the period of the Force Majeure.

 

17

 

17.                                               Notices

 

Each
communication (including each notice, consent, approval, request and demand)
under or in connection with this agreement:

 

(a)                                                  must be in writing;

 

(b)                                                  must be addressed as
follows (or as otherwise notified by that party to each other party from time
to time):

 

	
  PharmaSynth

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  PharmaSynth Pty Ltd

  
	
  Address:

  	
  2806 Ipswich Road, Darra, QLD
  4076, Australia

  
	
  Fax:

  	
  (+61) 7 3720 9624

  
	
  For
  the attention of:

  	
  Chief Executive Officer

  

 

	
  GTB

  	
   

  
	
   

  	
   

  
	
  Name:

  	
  Global Transbiotech Inc.

  
	
  Address:

  	
  3550 Wilshire Blvd. suite 1747,
  Los Angeles, CA 90010, United States of America

  
	
  Fax:

  	
  (+1)
  213 637 5653

  
	
  For
  the attention of:

  	
  Chief
  Executive Officer

  

 

(c)                                                   must be signed by the
party making it or (on that party’s behalf) by the solicitor for, or any
attorney, director, secretary or authorised agent of, that party;

 

(d)                                                  must be delivered by
hand or posted by prepaid post to the address, or sent by fax to the number, of
the addressee, in accordance with clause 17(b); and

 

(e)                                                   is taken to be
received by the addressee:

 

(i)                                                     (in the case of prepaid post sent to an address in the same country)
on the third day after the date of posting;

 

(ii)                                                  (in the case of prepaid post sent to an address in another country)
on the fifth day after the date of posting by airmail;

 

(iii)                                               (in the case of fax) at the time in the place to which it is sent
equivalent to the time shown on the transmission confirmation report produced
by the fax machine from which it was sent; and

 

(iv)                                              (in the case of delivery by hand) on delivery,

 

but if the
communication is taken to be received on a day that is not a working day or
after 5.00 pm, it is taken to be received at 9.00 am on the next
working day (“working day” meaning a day that is
not a Saturday, Sunday or public holiday and on which banks are open for
business generally, in the place to which the communication is posted, sent or
delivered).

 

18

 

18.                                               General

 

18.1                                        Governing law

 

This Agreement
shall be construed pursuant to the laws of the State of California without
regard to conflicts of laws provisions thereof.

 

18.2                                        Jurisdiction

 

All matters
arising from or related to this Agreement shall be brought only in the federal
or state courts in Los Angeles County, California.

 

18.3                                        Assignment

 

A party cannot
assign, novate or otherwise transfer any of its rights or obligations under
this agreement without the prior consent of each other party, which in the case
of PharmaSynth cannot be unreasonably withheld or delayed by GTB.

 

18.4                                        Amendments

 

This agreement
may only be varied by a document signed by or on behalf of each party.

 

18.5                                        Waiver

 

(a)                                                  Failure to exercise
or enforce, or a delay in exercising or enforcing, or the partial exercise or
enforcement of, a right, power or remedy provided by law or under this agreement by a party does not preclude, or
operate as a waiver of, the exercise or enforcement, or further exercise or
enforcement, of that or any other right, power or remedy provided by law or
under this agreement.

 

(b)                                                  A waiver or consent
given by a party under this agreement is
only effective and binding on that party if it is given or confirmed in writing
by that party.

 

(c)                                                   No waiver of a breach
of a term of this agreement operates as a
waiver of another breach of that term or of a breach of any other term of this agreement.

 

18.6                                        Further acts and
documents

 

Each party
must promptly do all further acts and execute and deliver all further documents
(in form and content reasonably satisfactory to that party) required by law or
reasonably requested by another party to give effect to this agreement.

 

18.7                                        No representation or
reliance

 

(a)                                                  Each party
acknowledges that no party (nor any person acting on a party’s behalf) has made
any representation or other inducement to it to enter into this agreement, except for representations or
inducements expressly set out in this agreement.

 

(b)                                                  Each party
acknowledges and confirms that it does not enter into this agreement in reliance on any representation or
other inducement by or on behalf of any other party, except for representations
or inducements expressly set out in this agreement.

 

18.8                                        Expenses

 

Except as
otherwise provided in this agreement,
each party must pay its own costs and expenses in connection with negotiating,
preparing, executing and performing this agreement.

 

19

 

18.9                                        Entire agreement

 

To the
extent permitted by law, in relation to its subject matter, this agreement:

 

(a)                                                  embodies the entire
understanding of the parties, and constitutes the entire terms agreed by the
parties; and

 

(b)                                                  supersedes any prior
written or other agreement of the parties.

 

18.10                                 Sub-contracting

 

Unless
expressly authorised by this agreement, a party may not sub-contract any of its
obligations under this agreement without the prior written consent of the other
party which consent must not be unreasonably withheld but may be given subject
to such reasonable terms as may be necessary to protect the consenting party’s
rights or interests under this agreement.

 

18.11                                 Relationship of the
parties

 

(a)                                                  Each party to this
agreement represents and warrants to the other party that it has the legal
capacity to enter into this agreement.

 

(b)                                                  Nothing in this
agreement is intended or will be construed as constituting a partnership,
agency or joint venture relationship between the parties. All activities by the
parties hereunder will be performed by them as independent contractors.

 

(c)                                                   Neither party will
act in a manner inconsistent with clause 18.11(b) without the express
informed written consent of the other party and, in particular, will not pledge
the credit of the other party nor receive money on behalf of the other party
nor enter into any agreements or make any representation on behalf of the other
party.

 

18.12                                 Remedies cumulative

 

The rights,
powers and remedies provided to the parties  in this
agreement are in addition to, and do not exclude or limit, any right, power or
remedy provided by law or equity or by any agreement.

 

18.13                                 Severability of
provisions

 

Any provision
of this agreement that is prohibited or unenforceable in any jurisdiction is
ineffective as to that jurisdiction to the extent of the prohibition or
unenforceability.  That does not
invalidate the remaining provisions of this agreement nor affect the validity
or enforceability of that provision in any other jurisdiction.

 

18.14                                 Change in control

 

All rights and
liabilities under this agreement continue in force notwithstanding any change
in the equity ownership of either of the parties.

 

18.15                                 Publicity

 

Neither party
may use the name or logo of the other party in any public document or
disclosure whether written, oral or otherwise communicated without the prior
written consent of the other party.

 

20

 

18.16                                 Counterparts

 

This agreement
may be executed in any number of counterparts. 
All counterparts together will be taken to constitute one instrument.

 

21

 

 

Schedule 1 -
PharmaSynth IP

 

1.             Patents and Patent Applications

 

	
  COUNTRY

  	
   

  	
  OFFICIAL

  NO.

  	
   

  	
  TITLE

  	
   

  	
  CASE

  STATUS

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  AUSTRALIA

  	
   

  	
  702500

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BRAZIL

  	
   

  	
  PI9608041-8

  	
   

  	
  Sulfated Oligosaccharide, Process for the
  Anti-Angiogenic, Anti-Metastatic and/or Anti-Inflammatory Treatment of a
  Human Patient or Other Warm/Blooded Animal Patient, use of an Oligosaccharide
  and Pharmaceutical or Veterinary Composition for Anti-Angiogenesis

  	
   

  	
  Pending

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CANADA

  	
   

  	
  2218872

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CHINA

  	
   

  	
  ZL96193563.4

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EUROPE

  	
   

  	
  96910861.2

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Pending

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ISRAEL

  	
   

  	
  118047

  	
   

  	
  Sulfated Oligosaccharides, Pharmaceutical
  Compositions Containing Them and Preparation of Sulfated Hexopyranose
  Homooligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  JAPAN

  	
   

  	
  532038/96

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Pending

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  REPUBLIC OF KOREA

  	
   

  	
  0591960

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  MEXICO

  	
   

  	
  243061

  	
   

  	
  Preparation and use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NEW ZEALAND

  	
   

  	
  305815

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  POLAND

  	
   

  	
  184357

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  RUSSIAN FEDERATION

  	
   

  	
  001199

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SINGAPORE

  	
   

  	
  48558

  	
   

  	
  Preparation and Use of Sulfated Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TAIWAN

  	
   

  	
  138332

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  UNITED STATES OF AMERICA

  	
   

  	
  6143730

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  

 

22

 

	
  COUNTRY

  	
   

  	
  OFFICIAL

  NO.

  	
   

  	
  TITLE

  	
   

  	
  CASE

  STATUS

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SOUTH AFRICA

  	
   

  	
  96/3339

  	
   

  	
  Preparation and Use of Sulfated
  Oligosaccharides

  	
   

  	
  Registered

  

 

	
  2.

  	
  Trade marks

  
	
   

  	
   

  
	
  2.1

  	
  Registered

  
	
   

  	
   

  
	
   

  	
  Nil.

  
	
   

  	
   

  
	
  2.2

  	
  Unregistered

  
	
   

  	
   

  
	
   

  	
  PI-88

  
	
   

  	
   

  
	
   

  	
  Muparfostat

  
	
   

  	
   

  
	
   

  	
  Muparfostat sodium

  

 

23

 

Executed as an agreement

 

 

	
  Executed by PharmaSynth Pharmaceuticals
  Inc 

  	
   

  	
   

  
	
  by or in the presence of:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Director

  	
   

  	
  Signature of Secretary/other Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Director in full

  	
   

  	
  Name of Secretary/other Director in full

  

 

 

	
  Executed by GLOBAL TRANSBIOTECH, INC

  	
   

  	
   

  
	
  by its authorised officers:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature of Director

  	
   

  	
  Signature of Secretary/other Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name of Director in full

  	
   

  	
  Name of Secretary/other Director in full

  

 

24Exhibit 4.1

 

ARTICLES
OF INCORPORATION

OF

BREWING
VENTURES INC.

 

The following Articles of
Incorporation are adopted pursuant to Minnesota Statutes, Chapter 302A in
accordance with Section 302A.133, by Brewing Ventures Inc., a corporation
organized and existing under the laws of the State of Minnesota (the “Corporation”).

 

ARTICLE 1

 

Name:  The name of this Corporation shall be Brewing
Ventures Inc.

 

ARTICLE  2

 

Registered Office:  The address of the Corporation’s registered
office in the State of Minnesota shall be 2400 IDS Center, Minneapolis,
Minnesota 55402.

 

ARTICLE  3

 

Authorized Shares:  The total authorized shares of all classes
which the Corporation shall have authority to issue is 100,000,000, consisting
of: 10,000,000 shares of preferred stock of the par value of one cent ($0.01)
per share (hereinafter the “preferred shares”); and 90,000,000 shares of common
stock of the par value of one cent ($0.01) per share (hereinafter the “common
shares”).

 

3.1           The Board of Directors of
the Corporation (hereinafter referred to as the “Board of Directors” or “Board”)
may, from time to time, establish by resolution, different classes or series of
preferred shares and may fix the rights and preferences of said shares in any
class or series.  Specifically, preferred
shares of the Corporation may be issued from time to time in one or more
series, each of which series shall have such designation or title and such
number of shares as shall be fixed by resolution of the Board of Directors
prior to the issuance thereof.  Each such
series of preferred shares shall have such voting powers, full or limited, or
no voting powers, and such preferences and relative, participating, optional or
other special rights, and such qualifications, limitations or restrictions
thereof as shall be stated and expressed in the resolution or resolutions
providing for the issuance of such series of preferred shares as may be adopted
from time to time by the Board of Directors prior to the issuance of any shares
thereof pursuant to the authority hereby expressly vested in the Board.

 

3.2           Except as provided or
required by law, or as provided in the resolution or resolutions of the Board
of Directors creating any series of preferred shares, the common shares shall
have the exclusive right to vote, on a noncumulative basis, for the election
and removal of directors and for all other purposes.  Unless otherwise provided by resolution or
resolutions of the Board of Directors, each holder of common shares shall be entitled
to one vote for each share held.

 

3.3           The Board of Directors shall
have the authority to issue shares of a class or series, shares of which may
then be outstanding, to holders of shares of another class or series to
effectuate share dividends, splits, or conversion of its outstanding shares.

 

3.4           The Board of Directors is
authorized to accept and reject subscriptions for and to dispose of authorized
shares of the Corporation, including the granting of stock options, warrants
and other rights to purchase shares, without action by the shareholders and
upon such terms and conditions as may be 

 

 

deemed
advisable by the Board of Directors in the exercise of its discretion, except
as otherwise limited by law.

 

3.5           The Board of Directors is
authorized to issue, sell or otherwise dispose of bonds, debentures,
certificates of indebtedness and other securities, including those convertible
into shares of stock, without action by the shareholders and for such
consideration and upon such terms and conditions as may be deemed advisable by
the Board of Directors in the exercise of its discretion, except as otherwise
limited by law.

 

ARTICLE 4

 

Certain Shareholder Rights:  No shareholder shall be entitled to any
preemptive right to purchase, subscribe for or otherwise acquire any new or
additional securities of the Corporation, or any options or warrants to
purchase, subscribe for or otherwise acquire any such new additional securities
before the Corporation may offer them to other persons.  No shareholder shall be entitled to any
cumulative voting rights.

 

ARTICLE  5

 

Written Action by Board:  An action required or permitted to be taken
by the Board of Directors may be taken by written action signed by the number
of directors that would be required to take the same action at a meeting of the
Board at which all directors are present, except as to those matters which
require shareholder approval, in which case the written action must be signed
by all members of the Board of Directors.

 

ARTICLE  6

 

Nonliability of Directors for Certain Actions:  To the fullest extent permitted by the
Minnesota Business Corporation Act, Minnesota Statutes, Chapter 302A, as it
exists on the date hereof or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.  No amendment to or repeal of this Article shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.

 

ARTICLE  7

 

Initial Director:  The name and
address of the person constituting the first member of the Company’s Board of
Directors is:

 

Steven
J. Wagenheim

5831
Cedar Lake Road

St.
Louis Park, MN 55416

 

ARTICLE 8

 

Incorporator:  The name and address of the incorporator is:

 

Avron
L. Gordon

2400
IDS Center

Minneapolis,
MN 55402

 

2

 

ARTICLE  9

 

Indemnification of Directors and Officers:  The
Corporation shall indemnify and may, in the discretion of the Board of
Directors, insure current and former directors, officers and employees of the
Corporation in the manner and to the fullest extent permitted by law.

 

IN WITNESS WHEREOF, the undersigned has
hereunto set his hand as of 25th day of June, 1997.

 

	
   

  	
  /s/
  Avron L. Gordon

  
	
   

  	
  Avron
  L. Gordon

  
	
   

  	
  Incorporator

  

 

Drafted
By:

 

Briggs and Morgan, Professional Association

Attention: 
Avron L. Gordon, Esq.

2400
IDS Center

80
South Eighth Street

Minneapolis,
MN  55402

 

3

 

ARTICLES
OF AMENDMENT TO ARTICLES OF INCORPORATION OF

 

BREWING
VENTURES INC.

 

The undersigned officer, on
behalf of Brewing Ventures Inc., a Minnesota corporation (the “Corporation”),
hereby certifies an amendment to the Corporation’s Articles of Incorporation
which has been duly approved by the Corporation’s Board of Directors in
accordance with Sections 302A.239 and 302A.133, of the Minnesota Statutes.  Accordingly, the Articles of Incorporation of
the Corporation are hereby amended as follows:

 

Article 1 of the
Articles of Incorporation of the Corporation shall read in its entirety as
follows:

 

ARTICLE
1

 

Name: The name of this Corporation shall be Founders Food &
Firkins Ltd.

 

IN WITNESS WHEREOF, the Corporation has caused
these Articles of Amendment to the Articles of Incorporation of the Corporation
to be executed this 26th day of June, 1997.

 

	
   

  	
  Brewing Ventures Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Steven J. Wagenheim

  
	
   

  	
  Its:   Chief
  Executive Officer

  

 

4

 

ARTICLES
OF AMENDMENT

TO
THE

ARTICLES
OF INCORPORATION OF

FOUNDERS
FOOD & FIRKINS LTD.

 

The undersigned, Mitchel I
Wachman, Secretary of Founders Food & Firkins Ltd., a Minnesota
corporation (the “Corporation”) with the purpose of amending the Corporation’s
Articles of Incorporation under the provisions of Minnesota Statutes Sections
302A.135 and 302A.139, hereby certifies that:

 

1.             The name of the
corporation is Founders Food & Firkins Ltd.

 

2.             Article 1 of the
Articles of Incorporation of the Corporation shall read in its entirety as
follows:

 

Article 1

 

Name: The name of
the Corporation shall be Granite City Food & Brewery Ltd.

 

IN
WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 5th day of September 2002.

 

	
   

  	
  Founders
  Food & Firkins Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Mitchel I. Wachman

  
	
   

  	
  Mitchel I. Wachman,
  Secretary

  

 

5

 

GRANITE
CITY FOOD & BREWERY LTD.

 

CERTIFICATE
OF DESIGNATION OF RIGHTS AND PREFERENCES

OF

SERIES A CONVERTIBLE PREFERRED STOCK

 

Granite City Food &
Brewery Ltd., a Minnesota corporation (the “Corporation”), does hereby certify
that pursuant to authority vested in it by the provisions of the Articles of
Incorporation, as amended, of the Corporation, the Board of Directors of the
Corporation by action in writing by the Board of Directors taken pursuant to Section 302A.239
of the Minnesota Business Corporation Act, did adopt the following resolution
authorizing the creation and issuance of a series of preferred stock designated
as Series A Convertible Preferred Stock:

 

RESOLVED that, pursuant to
authority expressly granted to the Board of Directors of the Corporation by the
provisions of the Articles of Incorporation of the Corporation, the Board of
Directors of the Corporation hereby creates and authorizes the issuance of a
series of shares of preferred stock of the Corporation (such series being
hereinafter called “this Series” or the “Series A Preferred”) and hereby
fixes, in addition to the relative rights, voting power, preferences and
restrictions stated in the Articles of Incorporation of the Corporation, the
following designation and number of shares of this Series and the
following voting, dividend rate, liquidation preference, redemption, conversion
right and other rights, preferences and restrictions with respect to the Series A
Preferred:

 

1.             Designation of Series of
Preferred Stock.

 

Of the 10,000,000 shares of
preferred stock which the Corporation is authorized to issue pursuant to its
Articles of Incorporation, 60,000 of such shares are designated as shares of Series A
Convertible Preferred Stock of the Corporation, par value $.01 per share.  Shares of the Series A Preferred shall
have a stated value of $100.00 per share (the “Stated Value”).  Such shares of Series A Preferred,
together with the 90,000,000 shares of authorized common stock of the
Corporation, the remaining balance of the undesignated shares of preferred
stock of the Corporation and any other common stock or preferred stock that may
hereafter be authorized in or pursuant to the Articles of Incorporation of the
Corporation, are sometimes hereinafter collectively referred to as the “capital
stock.”

 

2.             Voting Privileges.

 

(a)   General.  Each holder of Series A Preferred shall
have that number of votes on all matters submitted to the shareholders that is
equal to the number of shares of common stock into which such holder’s shares
of Preferred Stock are then convertible, as hereinafter provided; provided,
however, that (1) such number shall not exceed the Stated Value divided by
100% of the average inside bid price of the common stock for the five trading
days preceding the closing date, and (2) no additional votes shall accrue
pursuant to any adjustment of the Conversion Price pursuant to subparagraph 6(d) hereof.  Each holder of common stock shall have one
vote on all matters submitted to the shareholders for each share of common
stock standing in the name of such holder on the books of the Corporation.  Except as otherwise provided herein, and
except as otherwise required by agreement or law, all shares of capital stock
of the Corporation shall vote as a single class on all matters submitted to the
shareholders.

 

(b)   Additional Class Votes
by Series A Preferred.  Without the affirmative vote or written
consent of the holders (acting together as a class) of a majority of the shares
of Series A Preferred at the time outstanding, the Corporation shall not: (i) authorize
or issue any shares of stock having priority over Series A Preferred as to
the payment of dividends or the payment or distribution of assets upon the
liquidation or dissolution, voluntary or involuntary, of the Corporation; or (ii) amend
the Articles of 

 

6

 

Incorporation of the
Corporation or this Certificate of Designation so as to alter adversely any
existing provision relating to Series A Preferred or the holders thereof
or waive any of the rights granted to the holders of the Series A
Preferred by the Articles of Incorporation of the Corporation or this
Certificate of Designation.

 

3.             Dividends.

 

(a)   The holders of shares of Series A
Preferred shall be entitled to receive cumulative cash dividends, out of funds
legally available therefor, at a rate of $8.00 per share per annum and no more,
before any dividend or distribution in cash or other property on common stock
or any class or series of stock of the Corporation ranking junior to the Series A
Preferred as to dividends or on liquidation, dissolution or winding-up shall be
declared or paid or set apart for payment.

 

(b)   Dividends on the Series A
Preferred shall be payable on September 30, December 31, March 31
and June 30 of each year (each such date being hereinafter individually a “Dividend
Payment Date” and collectively the “Dividend Payment Dates”), except that if
such date is a Saturday, Sunday or legal holiday then such dividend shall be
payable on the first immediately preceding calendar day which is not a
Saturday, Sunday or legal holiday, to holders of record as they appear on the
books of the Corporation on such respective dates, not exceeding sixty (60)
days preceding such Dividend Payment Date, as may be determined by the Board of
Directors in advance of the payment of each particular dividend.  Dividends in arrears may be declared and paid
at any time, without reference to any regular Dividend Payment Date, to holders
of record on such date as may be fixed by the Board of Directors of the
Corporation.  Dividends declared and paid
in arrears shall be applied first to the earliest dividend period or periods
for which any dividends remain outstanding. 
The amount of dividends payable per share of this Series for each
dividend period shall be computed by dividing the annual rate of $8.00 by
four.  Dividends payable on this Series for
the initial dividend period and for any other period less than a full quarterly
period shall be computed and prorated on the basis of a 360-day year of twelve
30-day months.

 

(c)   Dividends on the Series A
Preferred shall be cumulative and accrue from and after the date of original
issuance thereof, whether or not declared by the Board of Directors.  Accrued dividends shall bear interest at a
rate of ten percent (10%) per annum.

 

(d)   No cash dividend may be
declared on any other class or series of stock ranking on a parity or junior
with the Series A Preferred as to dividends in respect of any dividend
period unless there shall also be or have been declared and paid on the Series A
Preferred accrued, unpaid dividends for all quarterly periods coinciding with
or ending before such quarterly period, ratably in proportion to the respective
annual dividend rates fixed therefor.

 

(e)   Dividends may, at the option
of the Corporation, be paid in shares of fully-paid and nonassessable common
stock of the Corporation, valued at the then applicable Conversion Price of the
Series A Preferred, as hereinafter defined.  Any portion of a dividend that would result
in issuance of a fractional share of common stock shall be paid in cash at the
dividend rate.  Such securities may be “restricted
securities” of the Corporation as that term is defined under Rule 501(a) of
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.

 

4.             Liquidation Preference.

 

(a)   In the event of an
involuntary or voluntary liquidation or dissolution of the Corporation at any
time, the holders of shares of Series A Preferred shall be entitled to
receive out of the assets of the Corporation an amount per share equal to the
Stated Value, plus dividends unpaid and accumulated or 

 

7

 

accrued thereon, and any
interest due thereon if any.  In the
event of either an involuntary or a voluntary liquidation or dissolution of the
Corporation, payment shall be made to the holders of shares of Series A
Preferred in the amounts herein fixed before any payment shall be made or any
assets distributed to the holders of the common stock or any other class of
shares of the Corporation ranking junior to the Series A Preferred with
respect to payment upon dissolution or liquidation of the Corporation.  If upon any liquidation or dissolution of the
Corporation, the assets available for distribution shall be insufficient to pay
the holders of all outstanding shares of Series A Preferred and any
liquidation preference on any other class or series of preferred stock of the
Corporation ranking on a parity with the Series A Preferred, to which they
respectively shall be entitled, the holders of such shares of Series A
Preferred and the holders of any such other class or series of preferred stock
of the Corporation ranking on a parity with the Series A Preferred shall
share pro rata in any such distribution in proportion to full amounts to which
they would otherwise be respectively entitled.

 

(b)   Nothing hereinabove set
forth shall affect in any way the right of each holder of shares of Series A
Preferred to convert such shares at any time and from time to time in
accordance with Section 6 below.

 

5.             Redemption.

 

The Corporation shall have
the right to redeem all of the Series A Preferred on the following terms
and conditions:

 

(a)   The Series A Preferred
shall be redeemable by the Corporation at its sole option at any time on or
after the third anniversary of the first issuance of the Series A
Preferred.  The Corporation shall redeem
such shares out of funds legally available for redemptions.  Immediately prior to authorizing or making
any such redemption with respect to the Series A Preferred (and in no event
later than the date specified for redemption in the redemption notice described
below), the Corporation, by resolution of its Board of Directors, shall declare
a dividend on the Series A Preferred to be redeemed, which shall be in an
amount equal to any accrued and unpaid dividends on such Series A
Preferred up to and including the date designated for such redemption (the “Redemption
Date”).  Redemption shall be made on the
Redemption Date at a redemption price per share equal to two hundred percent (200%)
of the Stated Value plus an amount in cash equal to all dividends unpaid,
accumulated or accrued thereon and any interest due thereon.

 

(b)   Notice of any redemption
pursuant to this Section 5 shall be mailed at least twenty (20) days in
advance of the Redemption Date to the holders of record of Series A
Preferred to be redeemed at their respective addresses shown in the books of
the Corporation.  Each such notice shall
state:  (i) the Redemption Date; (ii) the
redemption price; (iii) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (iv) that
dividends on the shares to be redeemed will cease to be paid or accrue on the
Redemption Date.  To facilitate the
redemption of the Series A Preferred, the Board of Directors may fix a
record date for the determination of holders of Series A Preferred to be
redeemed not more than sixty (60) days prior to the Redemption Date.

 

(c)   On or before the Redemption
Date, each holder of Series A Preferred shall surrender to the Corporation
the certificates representing the shares redeemed, duly endorsed or assigned to
the Corporation, and the holder shall thereafter be entitled to receive payment
of the redemption price.

 

(d)   On the Redemption Date and
subject to the complete satisfaction by the Company of its obligations due to
the holders of the Series A Preferred, (i) dividends on the Series A
Preferred called for redemption shall cease to accrue, (ii) such shares
shall be deemed no longer outstanding, and (iii) all rights of such holder
as a holder of Series A Preferred (except the right to receive from the
Corporation 

 

8

 

the amounts payable upon
redemption upon surrender of the certificates evidencing such shares),
including the right to convert the Series A Preferred, shall cease.  Notwithstanding the delivery to any holder of
Series A Preferred of a redemption notice described above, if, prior to
the close of business on the business day preceding the Redemption Date, such
holder gives written notice to the Corporation of its election to convert,
pursuant to Section 6 below, any or all of the shares to be redeemed held
by such holder (accompanied by a certificate or certificates for such shares,
duly endorsed or assigned to the Corporation), then the conversion of such
shares which would otherwise have been redeemed shall become effective as
provided in Section 6 hereof.

 

(e)   The Corporation shall, on or
after any Redemption Date, deposit with its transfer agent or other redemption
agent selected by the Board of Directors, as a trust fund, a sufficient sum to
redeem, on the date fixed for redemption thereof, the shares then called for
redemption, with instructions and authority to such transfer agent or other
redemption agent to pay the redemption price on or after the Redemption Date or
prior thereto upon the surrender of the certificates representing the shares
then being redeemed, then and from and after the date of such deposit, and
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, the shares so called for redemption
shall no longer be deemed to be outstanding and all rights with respect thereto
shall forthwith cease and terminate, except only the right of the holders
thereof to receive from such transfer agent or other redemption agent, at any
time after the date of such deposit, the sum so deposited.  Any funds so deposited and unclaimed at the end
of two (2) years from such Redemption Date shall be released or repaid to
the Corporation, after which the holders of the shares so called for redemption
shall be entitled to receive payment of the redemption price only from the
Corporation.  Any interest accrued on any
funds deposited shall belong to the Corporation, and shall be paid to it from
time to time on demand.

 

6.             Conversion Right.

 

(a)   The holder of any shares of
this Series may at any time (except that if any such shares shall have
been called for redemption, then, as to such shares, such right shall terminate
at the close of business on the Redemption Date, unless default shall be made
by the Corporation in providing money for the payment of the redemption price
of the shares called for redemption) convert any or all of the shares of this Series into
fully paid and non-assessable shares of Common Stock at the rate of 63.291139
shares of Common Stock for each share of this Series, equivalent to a
conversion price of $1.58 per share (the “Conversion Price”), subject to
adjustment pursuant to the provisions of subparagraph (c) of this
paragraph 6.  Subject to the provisions
of the next sentence, shares of this Series surrendered for conversion
during the period from the close of business on any record date for the payment
of dividends next preceding any Dividend Payment Date to the opening of
business on such Dividend Payment Date shall (except in the case of shares
which have been called for redemption on a Redemption Date within such period)
be accompanied by payment of an amount equal to the dividend payable on such
Dividend Payment Date on the shares being surrendered for conversion.  A holder of Convertible Preferred Stock on
the record date preceding a Dividend Payment Date who (or whose transferee)
converts shares of Convertible Preferred Stock on a Dividend Payment Date, will
receive the dividend payable on such Convertible Preferred Stock by the
Corporation on such Dividend Payment Date, and the converting holder need not
include payment in the amount of such dividend upon surrender of shares of
Convertible Preferred Stock for conversion.

 

(b)   In order to convert shares
of Series A Preferred into shares of common stock of the Corporation, the
holder thereof shall surrender at the office hereinabove mentioned the
certificate or certificates therefor, duly endorsed to the Corporation or in
blank, and give written notice to the Corporation at such office that such
holder elects to convert such shares. 
Shares of Series A Preferred shall be deemed to have been converted
immediately prior to the close of business on the day of the surrender of such
shares for conversion as herein provided, and the person entitled to receive
the shares of 

 

9

 

common stock of the
Corporation issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of common stock at such time.  As promptly as practicable on or after the
conversion date, the Corporation shall issue and deliver or cause to be issued
and delivered a certificate or certificates for the number of shares of common
stock of the Corporation issuable upon such conversion.

 

(c)   The Conversion Price shall
be subject to adjustment from time to time as hereinafter provided.  Upon each adjustment of the Conversion Price
each holder of shares of Series A Preferred shall thereafter be entitled
to receive the number of shares of common stock of the Corporation obtained by
multiplying the Conversion Price in effect immediately prior to such adjustment
by the number of shares issuable pursuant to conversion immediately prior to
such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment.

 

(d)   Except for (i) options,
warrants or other rights to purchase securities outstanding on the date of the
first issuance of this Series (provided there is no adjustment to the
terms of such options, warrants or other securities on or after the date of
issuance of the Series A Preferred); (ii) options to purchase shares
of common stock and the issuance of awards of common stock pursuant to stock
option or employee stock purchase plans adopted by the Corporation and shares
of common stock issued upon the exercise of such options granted pursuant to
such plans (provided there is no adjustment to the terms of such options,
awards or other securities on or after the date of issuance of the Series A
Preferred) (appropriately adjusted to reflect stock splits, combinations, stock
dividends, reorganizations, consolidations and similar changes); or (iii) common
stock issued to holders of the Series A Preferred or upon conversion or in
lieu of cash dividends on the Series A Preferred, if and whenever the
Corporation shall issue any additional securities, warrants or rights or any
security convertible or exchangeable into equity, securities, warrants or
rights (collectively, “Convertible Securities”) without consideration or for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then, forthwith upon such issue or
sale, the Conversion Price shall be adjusted to a price determined by
multiplying such Conversion Price by a fraction, the numerator of which shall
be the number of shares of common stock outstanding immediately prior to such
issuance plus the number of shares of common stock that the aggregate
consideration received by the Corporation for such issuance would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of such additional common stock and the number of shares of common stock
outstanding prior to such issuance.  For
the purpose of the above calculation, the number of shares of common stock
immediately prior to such issuance shall be calculated on a fully-diluted
basis, as if all shares of Series A Preferred had been fully converted
into shares of common stock and any outstanding warrants, options or other
rights for the purchase of shares of stock or Convertible Securities had been
fully exercised as of such date.  Except
as provided in Section 6(g) below, no further adjustments of the
Conversion Price shall be made upon the actual issuance of common stock or of
any Convertible Securities upon the exercise of such rights or options or upon
the actual issue of such common stock upon conversion or exchange of such
Convertible Securities.

 

(e)   For purposes of this Section 6:

 

(i)    in case any shares of common stock or Convertible
Securities or any rights or options to purchase any such common stock or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Corporation
therefor, without deducting therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the Corporation in
connection therewith.  In case any shares
of common stock or Convertible Securities or any rights or options to purchase
any such common stock or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the

 

10

 

Corporation, without deducting therefrom any expenses incurred or any
underwriting commissions, discounts or concessions paid or allowed by the
Corporation in connection therewith.  In
case any shares of common stock or Convertible Securities or any rights or
options to purchase such common stock or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Corporation is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value as determined by the Board of Directors of the Corporation of
such portion of the assets and business of the non-surviving corporation or
corporations as such Board shall determine to be attributable to such common
stock, Convertible Securities, rights or options, as the case may be.  In the event of any consolidation or merger
of the Corporation in which the Corporation is not the surviving corporation or
in the event of any sale of all or substantially all of the assets of the
Corporation for stock or other securities of any other corporation, the
Corporation shall be deemed to have issued a number of shares of its common
stock for stock or securities of the other corporation computed on the basis of
the actual exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such transaction of
such stock or securities of the other corporation, and if any such calculation
results in adjustment of the Conversion Price, the determination of the number
of shares of common stock issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of Section 6(h) below, shall
be made after giving effect to such adjustment of the Conversion Price.

 

(f)    In case the Corporation shall
at any time subdivide its outstanding shares of common stock into a greater
number of shares, the Conversion Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of common stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.

 

(g)   If (i) the purchase
price provided for in any right or option referred to in Section 6(d), or (ii) the
additional consideration, if any, payable upon the conversion or exchange of
Convertible Securities, or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for common stock, shall change
at any time (other than under or by reason of provisions designed to protect
against dilution), or any Convertible Securities shall terminate, expire or
cease to be outstanding without exercise thereof, the Conversion Price then in
effect hereunder shall forthwith be increased or decreased to such Conversion
Price as would have applied had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of (a) the
issuance of the number of shares of common stock theretofore actually delivered
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities, and the total consideration received therefor,
and (b) the issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for the consideration,
if any, received by the Corporation therefor and to be received on the basis of
such changed price; and on the expiration of any such option or right or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
increased to such Conversion Price as would have been obtained had the
adjustments made upon the issuance of such rights or options or Convertible
Securities been made upon the basis of the issuance of the shares of common
stock theretofore actually delivered (and the total consideration received
therefor) upon the exercise of such rights or options or upon the conversion or
exchange of such Convertible Securities. 
If the purchase price provided for in any right or option referred to in
Section 6(d), or the rate at which any Convertible Securities referred to
in Section 6(d) are convertible into or exchangeable for common stock,
shall decrease at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the delivery of
common stock upon the exercise of any such right or option or upon conversion
or exchange of any such Convertible Security, the Conversion Price then in
effect hereunder shall forthwith be decreased to such Conversion Price as would
have applied had the adjustments made upon the issuance of such right, option 

 

11

 

or Convertible Security been
made upon the basis of the issuance of (and the total consideration received
for) the shares of common stock delivered as aforesaid.

 

(h)   If any capital
reorganization or reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with another corporation, or the
sale of all or substantially all of its assets to another corporation shall be
effected in such a way that holders of common stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for common stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, and except as otherwise provided herein, lawful and adequate
provision shall be made whereby the holders of Series A Preferred shall
thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the common stock of
the Corporation immediately theretofore receivable upon the conversion of Series A
Preferred, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately theretofore
receivable upon the conversion of Series A Preferred had such
reorganization, reclassification, consolidation, merger or sale not taken
place, plus all dividends unpaid and accumulated or accrued thereon to the date
of such reorganization, reclassification, consolidation, merger or sale, and in
any such case appropriate provision shall be made with respect to the rights
and interests of the holders of Series A Preferred to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Conversion Price and of the number of shares receivable upon the conversion
of Series A Preferred) shall thereafter be applicable, as nearly as may be
in relation to any shares of stock, securities or assets thereafter receivable
upon the conversion of Series A Preferred. 
The Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed to the registered holders of Series A Preferred, at the last
addresses of such holders appearing on the books of the Corporation, the
obligation to deliver to such holders such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to receive.

 

(i)    Upon any adjustment of the
Conversion Price, the Corporation shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holders of Series A
Preferred, at the addresses of such holders as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
receivable at such price upon the conversion of Series A Preferred,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.  No
adjustment to the conversion rate shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in such
rate; provided, however, that any adjustments which by reason of this Section 6(i) are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment; and, provided further, that adjustment shall be required
and made in accordance with the provisions of this Section 6 (other than
this Section 6(i)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders of shares of
common stock.  All calculations under
this Section 6 shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. 
Anything in this Section 6 to the contrary notwithstanding, the
Corporation shall be entitled to make such increases in the conversion rate in
addition to those required by this Section 6 as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivisions of
shares, distribution of rights to purchase stock or securities, or distribution
of securities convertible into or exchangeable for stock hereafter made by the
Corporation to its stockholders shall not be taxable.

 

(j)    In case at any time: (i) there
shall be any capital reorganization, or reclassification of the capital stock
of the Corporation, or consolidation or merger of the Corporation with, or sale
of all or 

 

12

 

substantially all of its
assets to, another Corporation; or (ii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; then, in
any one or more of said cases, the Corporation shall give written notice, by
first-class mail, postage prepaid, addressed to the registered holders of Series A
Preferred at the addresses of such holders as shown on the books of the
Corporation, of the date on which (a) the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or
subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall take
place, as the case may be.  Such notice
shall also specify the date as of which the holders of common stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their common stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding up, as the case may be.  Such written notice shall be given at least
twenty (20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Corporation’s transfer
books are closed in respect thereto.

 

(k)   If any event occurs as to
which in the opinion of the Board of Directors of the Corporation the other
provisions of this Section 6 are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders of Series A
Preferred in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.

 

(l)    As used in this Section 6
the term “common stock” shall mean and include the Corporation’s presently
authorized common stock and any additional common stock that may be authorized
by due action of the Corporation’s Board of Directors and shareholders entitled
to vote thereon.

 

(m)  No fractional shares of
common stock shall be issued upon conversion, but, instead of any fraction of a
share which would otherwise be issuable, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the market price per share of common stock as of the close of business on
the day of conversion.  “Market price”
shall mean if the common stock is traded on a securities exchange or on the
NASDAQ Stock Market, the closing sale price of the common stock on such
exchange or the NASDAQ Stock Market, or, if the common stock is otherwise
traded in the over-the-counter market, the closing bid price, in each case
averaged over a period of twenty (20) consecutive trading days prior to the
date as of which “market price” is being determined.  If at any time the common stock is not traded
on an exchange or the NASDAQ Stock Market, or otherwise traded in the over-the-counter
market, the “market price” shall be deemed to be the higher of (i) the
book value thereof as determined by any firm of independent public accountants
of recognized standing selected by the Board of Directors of the Corporation as
of the last day of any month ending within sixty (60) days preceding the date
as of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Corporation
as of a date which is within fifteen (15) days of the date as of which the
determination is to be made.

 

(n)   The Corporation covenants
that it will at all times reserve and keep available, solely for the purpose of
issue upon conversion of the shares of this Series, such number of shares of
common stock as shall be issuable upon the conversion of all such outstanding
shares; provided, that nothing contained herein shall be construed to preclude
the Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of common stock of the
Corporation.  For the purpose of this Section 6(n),
the full number of shares of common stock issuable upon the conversion of all
outstanding shares of this Series shall be computed as if at the time of
computation of such number of shares of common stock all outstanding shares of
this Series were held by a single holder.

 

13

 

(o)   The Corporation covenants
that if any shares of common stock required to be reserved for purposes of
conversion of the shares of this Series require registration with or
approval of any governmental authority under any federal or state law, before
such shares may be issued upon conversion, the Corporation will cause such
shares to be duly registered or approved, as the case may be.

 

(p)   The Corporation covenants
that all shares of common stock issued upon conversion of the shares of this Series will
upon issue be fully paid and nonassessable and not subject to any preemptive
rights.

 

7.             Automatic Conversion.

 

(a)   The Series A Preferred
shall automatically be converted into shares of common stock of the
Corporation, without any act by the Corporation or the holders of the Series A
Preferred, at any time after the second anniversary of the initial issuance of Series A
Preferred (i) when the market price of the common stock for twenty (20)
consecutive trading days exceeds two hundred percent (200%) of the Conversion
Price and the common stock has an average daily trading volume of at least ten
thousand (10,000) shares during such consecutive twenty (20) day period; or (ii) upon
the closing of a public offering by the Corporation in which (1) the
aggregate public offering price of the securities sold for cash by the
Corporation in the offering is at least $8,000,000 (exclusive of any
overallotment amount); (2) the public offering price per share is at least
$4.00; and (3) the offering is underwritten on a firm commitment basis by
an underwriter or a group of underwriters represented by an underwriter or
underwriters, that is a member of the National Association of Securities
Dealers, Inc.; provided that in the case of (i) or (ii), a
registration statement has been filed and has become effective with the U.S.
Securities and Exchange Commission and applicable “blue sky” laws of each state
in which a holder of the Series A Preferred resides with respect to the
common stock underlying the Series A Preferred to permit resale of the
shares received upon conversion.

 

(b)   Upon such conversion, each
holder of certificates for shares of Series A Preferred shall immediately
surrender such certificates in exchange for appropriate stock certificates
representing a share or shares of common stock of the Corporation.  Each holder of a share of Series A
Preferred so converted shall be entitled to receive the full number of shares
of common stock into which such share of Series A Preferred held by such
holder could be converted if such holder had exercised its conversion right at
the time of closing of such public offering.

 

(c)   As used herein, the term “closing”
shall mean the delivery by the Corporation to the underwriters of certificates
representing the shares of common stock of the Corporation offered to the
public against delivery to the Corporation by such underwriters of payment
therefor.  The term “firm commitment
basis” with respect to the underwriting of such public offering shall mean a
commitment pursuant to a written underwriting agreement under which the nature
of the underwriters’ commitment is such that all securities must be purchased
by such underwriters, if any shares are purchased.

 

8.             Relative Rights of Series A Preferred
Stock.

 

So long as any of the Series A
Preferred is outstanding the Corporation will not without the affirmative vote
or written consent of the holders of at least a majority of the Series A
Preferred at the time outstanding, voting separately as a class:  (i) declare, or pay, or set apart for
payment, any dividends (other than dividends payable in stock ranking junior to
the Series A Preferred as to dividends and upon liquidation, dissolution
or winding-up) or make any distribution in cash or other property on any other
class or series of stock of the Corporation ranking junior to the Series A
Preferred either as to dividends or upon liquidation, dissolution or winding-up
and will not redeem, purchase or otherwise acquire any shares of any such
junior class or series if at the time of making such declaration, payment,
distribution, 

 

14

 

redemption,
purchase or acquisition the Corporation shall be in default with respect to any
dividend payable on, or any obligation to retire shares of, Series A
Preferred; or (ii) authorize, create or issue, or increase the authorized
or issued amount, of any class or series of stock ranking senior to the Series A
Preferred as to payment of dividends, as to payment or distribution of assets
upon the liquidation or dissolution of the corporation, or as to voting rights
(on an as-if-converted basis or otherwise); or (iii) amend, alter or
repeal (whether by merger, consolidation or otherwise) any of the provisions of
the Corporation’s Articles of Incorporation, or of this Certificate of
Designation of Rights and Preferences, so as to adversely affect the
preferences, rights, privileges or powers of the Series A Preferred;
provided, however, that any increase in the number of authorized preferred
stock or the creation and issuance of other series of preferred stock ranking
in a parity with or junior to the Series A Preferred shall not be deemed
to affect such preferences, rights, privileges or powers.

 

IN WITNESS WHEREOF, the
undersigned has executed this Certificate of Designation of Rights and
Preferences on behalf of the Corporation as of the 30th day of September, 2002.

 

	
   

  	
  GRANITE
  CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Steven J. Wagenheim

  
	
   

  	
   

  	
  Steven J. Wagenheim

  
	
   

  	
  Its

  	
  President and Chief
  Executive Officer

  

 

15

 

ARTICLES OF
AMENDMENT

TO

ARTICLES OF INCORPORATION

OF

GRANITE CITY FOOD & BREWERY LTD.

 

The undersigned
officer of Granite City Food & Brewery Ltd., a corporation organized
and existing under the laws of the state of Minnesota (the “Corporation”),
hereby certifies that:

 

FIRST:  The name of the Corporation is Granite City Food &
Brewery Ltd.

 

SECOND:  In accordance with Section 302A.402 of
the Minnesota Business Corporation Act, the board of directors of the
Corporation duly adopted a resolution setting forth the proposed amendment to Article 3
of the Articles of Incorporation, as amended, of the Corporation to reflect a
one (1) for six (6) share combination of common shares, and directing
that such amendment be effected via filing of these Articles of Amendment with
the office of the Minnesota Secretary of State.

 

THIRD:  Article 3, first paragraph, of the
Corporation’s Articles of Incorporation, as amended, is hereby amended to read
in its entirety as follows:

 

“ARTICLE 3

 

Authorized Shares:  The total authorized shares of all classes
which the Corporation shall have authority to issue is 25,000,000, consisting
of: 10,000,000 shares of preferred stock of the par value of one cent ($0.01)
per share (hereinafter the “preferred shares”); and 15,000,000 shares of common
stock of the par value of one cent ($0.01) per share (hereinafter the “common
shares”).

 

The remainder of Article 3 is unaffected by this Amendment.

 

FOURTH:  The combination giving rise to the amendment
set forth above concerns a one (1) for six (6) combination of the
shares of common stock of the Corporation. 
Pursuant to a resolution of the Board of Directors of the Corporation
effective December 29, 2009, every six (6) shares of common stock of
the Corporation, par value $0.01 per share, outstanding on January 13,
2010 (the “Record Date”) will be combined and converted into one (1) share
of common stock of the Corporation, par value $0.01 per share.  The authorized shares of the Corporation
after this share combination shall be as set forth in the amendment above.  No fractional shares shall be issued as a
result of the foregoing share combination, and any holder of common shares of
record upon the effective time of such share combination shall be entitled,
upon surrender to the Corporation of certificates representing such fractional
interests, to receive a cash payment in an amount equal to the product obtained
by multiplying the fractional interest by the fair market of a share of common
stock on the Record Date as determined by the Board.  As soon as practicable following the Record
Date, the Corporation will notify its shareholders of record on the Record Date
to transmit outstanding share certificates to the Corporation’s transfer agent
and registrar (“Transfer Agent”) and the Corporation will cause the Transfer
Agent to issue new certificates representing one share of common stock for
every six shares transmitted and held of record on the Record Date and to
deliver or mail such certificates to each such holder; and in settlement of
fractional interests that may arise as a result of such combination on the Record
Date, cause the Transfer Agent to disburse to such holders a cash payment in an
amount equal to the product obtained by multiplying the fractional interest by
the fair market of a share of common stock on the Record Date as determined by
the Board.

 

 

FIFTH:  These Articles of Amendment will not
adversely affect the rights or preferences of the holders of outstanding shares
of any authorized class or series of the Corporation’s shares and will not
result in the percentage of authorized shares of any class or series that
remains unissued after the combination approved by these Articles of Amendment
exceeding the percentage of authorized shares of that class or series that were
unissued before the combination.

 

SIXTH:  These Articles of Amendment to the Corporation’s
Articles of Incorporation, as amended, shall be effective at 5:00 PM (Eastern
Standard Time) on January 13, 2010.

 

This amendment has been
approved pursuant to Minnesota Statutes chapter  302A.  I certify that I am authorized to execute
this amendment and I further certify that I understand that by signing this
amendment, I am subject to the penalties of perjury as set forth in section
609.48 as if I had signed this amendment under oath.

 

December 29, 2009

 

	
   

  	
  GRANITE
  CITY FOOD & BREWERY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James G. Gilbertson

  
	
   

  	
  Name:

  	
  James
  G. Gilbertson

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
				

 

2

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