CSL Ltd. — Call Transcript 2006

Oct 22, 2006

Monday 23 October 2006

576 Swan Street Richmond Victoria Australia 3121 Telephone (61 3) 9208 4000 Facsimile (61 3) 9208 4350 www.zenyth.com.au

Zenyth Chairman's Address: CSL Acquisition Proposal Scheme Meetings and General Meeting

Good afternoon ladies and gentlemen and welcome to these three very important meetings in the history of Zenyth. My name is Ian Davis and, as Chairman of the Company, I will be chairing each of the three meetings to be held today.

I would like to begin by introducing your Directors. Seated to my immediate left is Dr Andrew Nash, Zenyth's Chief Executive Officer. Next to Dr Nash are your two non-executive directors, Professor Silviu Itescu and Mr James MacKenzie. Next to Mr MacKenzie is Ms Robyn Fry, our General Counsel and Company Secretary.

Share Scheme Meeting

The business of this Share Scheme Meeting is set out in the Notice of Share Scheme Meeting which forms Section 10 of the Explanatory Booklet distributed to shareholders on 21 September 2006.

The proposed resolution for consideration at this meeting is to approve a scheme of arrangement between Zenyth and its shareholders. The Share Scheme is essentially a proposal under which all shareholders are being asked to transfer all of their Zenyth shares to CSL Limited for \$0.82 cash per share. The Share Scheme has been proposed to enable CSL to acquire 100% ownership and control of Zenyth. If all of the conditions and approvals for the Share Scheme are satisfied or waived (as applicable), Zenyth will become a wholly-owned subsidiary of CSL and will be delisted from the Australian Stock Exchange.

In addition to the \$0.82 per share cash payment from CSL under the proposed Share Scheme, if the Share Scheme is approved by Zenyth shareholders, Zenyth proposes to make a pro-rata, in specie distribution to Zenyth shareholders of all of the shares that Zenyth holds in Avexa Limited, representing approximately 10.6% of the issued capital of Avexa Limited. This proposed Special

Distribution is conditional on the approval of a capital reduction by a simple majority of Zenyth shareholders. This constitutes the business of the General Meeting which will commence at 2.30pm this afternoon or as soon as reasonably practicable after this Share Scheme Meeting concludes or is adjourned. If the Special Distribution is duly approved, eligible Zenyth shareholders will receive approximately one Avexa share for every six Zenyth shares they hold.

Finally, to assist CSL in maintaining 100% ownership and control of Zenyth if the Share Scheme is approved and implemented, Zenyth optionholders will be asked to consider a scheme of arrangement to cancel all the Zenyth options on issue for a cash consideration ranging from \$0.0100 to \$0.5196 cash per option, depending on the terms of the relevant options. The meeting of option holders to consider the proposed option scheme constitutes the business of the Option Scheme Meeting which will commence at 3.00pm this afternoon or as soon as reasonably practicable after the General Meeting concludes or is adjourned.

The proposed Share Scheme, Special Distribution of Avexa shares and the Option Scheme are collectively referred to in the Explanatory Booklet as the 'CSL Acquisition Proposal'. Full particulars of these three proposed transactions are set out in the Explanatory Booklet. It is important to note that the Share Scheme is not conditional on either the Special Distribution or the Option Scheme proceeding. In other words, if the conditions of the Share Scheme are satisfied. the Share Scheme will proceed whether or not the Special Distribution or the Option Scheme is approved.

Conditions

The Share Scheme is conditional on the satisfaction or waiver (as applicable) of various conditions that are set out in full on pages 62 and 63 of the Explanatory Booklet and summarised at pages 9 and 10 of the booklet. If each of these conditions is satisfied or waived (as applicable), the Share Scheme will bind all shareholders, including those who vote against it and those who do not vote at all. I will take this opportunity to brief the meeting on the status of the principal conditions of the Share Scheme, which are as follows.

• $(a)$ (Shareholder approval) The first key condition is that Zenyth shareholders approve the Share Scheme at this Share Scheme Meeting, in accordance with the requirements of the Corporations Act. A vote by poll will be taken after my address and once discussion of the proposed resolution has concluded.
• $(b)$ (Court approval) The second key condition is that the Court approves the Share Scheme in accordance with section $411(4)$ (b) of the Corporations Act. If the Share Scheme is

approved at this meeting, Zenyth will apply to the Court on 31 October for orders approving the Share Scheme.

• $(c)$ (No regulatory prohibitions) The third key condition is that no prohibitions, including restraining orders or injunctions, are issued by any court of competent jurisdiction or the Takeovers Panel. No such prohibitions have been issued as at 2.00pm today.
• $(d)$ (No material changes) The final key condition is that no material corporate transaction, no material adverse change and no prescribed occurrences arise in respect of Zenyth. These terms are defined in the merger implementation agreement between Zenyth and CSL which is reproduced in Section 15 of the Explanatory Booklet. Since the date the merger implementation agreement was entered into and as at 2.00 pm today, no material corporate transaction, no material adverse change and no prescribed occurrences have arisen in respect of Zenyth

Directors' recommendation and intentions

Your Directors have carefully considered the CSL Acquisition Proposal and have taken extensive professional advice in relation to it.

Having considered the expected advantages and possible disadvantages of the CSL Acquisition Proposal and other relevant considerations, your Directors unanimously believe that the CSL Acquisition Proposal is in your best interests. Furthermore, each of your Directors intends to vote in favour of the proposal in respect of all Zenyth shares held by him or in which he otherwise has a relevant interest.

There are six reasons why your Directors support the CSL Acquisition Proposal: These reasons are fully explained in Section 2.3 of the Explanatory Booklet, but I will briefly outline each of these reasons below.

(Substantial premium) First, the total consideration offered under the Share Scheme and the Special Distribution represents a substantial premium to the prices at which Zenyth shares traded prior to Zenyth's and CSL's joint announcement on 17 July 2006 of the CSL Acquisition Proposal. The implied value of the Share Scheme and the Special Distribution, as at 4 September 2006, was \$0.855 per Zenyth Share. This represents a 78% premium to the \$0.48 price of Zenyth Shares, being the volume weighted average price at which Zenyth Shares were traded on ASX in the one month period before 14 July 2006.

• (Immediate and certain fair value) Secondly, subject to all of the conditions and approvals being satisfied or waived, the Share Scheme consideration provides certainty of value and near certainty of timing because the Share Scheme consideration of \$0.82 cash per Zenyth share will be paid to Zenyth shareholders approximately four weeks after this Share Scheme meeting. Your Directors unanimously believe that the immediate and certain value of the Share Scheme consideration represents fair value given the potential upside and risks associated with Zenyth's project portfolio.
• (Zenyth shareholders receive Avexa shares) Thirdly, if the Special Distribution Resolution is approved and if the Share Scheme becomes legally effective, Zenyth shareholders (other than ineligible Scheme Shareholders) will receive approximately one Avexa share for every six Zenyth shares they hold. This will enable Zenyth shareholders (other than ineligible Scheme Shareholders) to have a direct investment in Avexa.
• (Positive conclusion from expert) Fourthly, the independent expert, Deloitte, has concluded that, in the absence of a more favourable proposal from another party, the Share Scheme and the Special Distribution are in the best interests of Zenyth shareholders. The independent expert has assessed the fair value of Zenyth shares to be in the range of \$0.77 to \$0.98 per share. The implied value of the Share Scheme consideration and the Special Distribution is \$0.855 per Zenyth share as at 4 September 2006. This is just below the mid point of the independent expert's valuation range of \$0.77 to \$0.98 per Zenyth share.
• (No more favourable proposal) Fifthly, no more favourable proposal from another party has emerged. Since the announcement of the CSL Acquisition Proposal on 17 July 2006, this is the only proposal that has been received for consideration by your Board. As at 2.00pm today, no more favourable proposal from another party has been forthcoming for your Zenyth Shares.
• (No sale costs) Finally, Zenyth Shareholders will not be required to pay any brokerage or other costs in connection with the disposal of their Zenyth Shares under the Share Scheme or the receipt of Avexa shares under the Special Distribution. Certain Zenyth shareholders who are not eligible to receive Avexa shares under the Special Distribution will instead receive the net sale proceeds of the Avexa shares to which they would otherwise be entitled. The net sale proceeds may include brokerage charges.

General Meeting

In accordance with the notice of meeting for the General Meeting which advised that that meeting would commence at 2.30 pm this afternoon or as soon as reasonably practicable after this Share Scheme Meeting has concluded or been adjourned (whichever time is later), I will now move to the second of today's shareholder meetings.

In my introductory remarks to the Share Scheme Meeting, I mentioned that if the Share Scheme is approved by the requisite majority of Zenyth shareholders, shareholders would then be asked to approve Zenyth undertaking a pro rata in specie distribution of all of the shares that Zenyth holds in Avexa Limited, which represent approximately 10.6% of the issued share capital of Avexa. This special distribution, if approved, will require Zenyth to reduce its issued capital by an amount equal to the market value of all Avexa shares held by Zenyth as at the Share Scheme Record Date. The Corporations Act permits Zenyth to reduce its issued capital to give effect to the proposed special distribution if a simple majority of Zenyth shareholders resolve at a general meeting to approve an equal reduction of capital.

Proposed Resolution

The proposed capital reduction resolution to give effect to the in specie distribution of Avexa shares is referred to in the Explanatory Booklet as the 'Special Distribution Resolution'.

Full details of the Special Distribution Resolution are provided in Section 11 of the Explanatory Booklet, but I will now take this opportunity to summarise the key points.

The Special Distribution Resolution is proposed as an ordinary resolution. Accordingly, for this resolution to be passed, the approval of at least 50% of the votes cast by Zenyth shareholders present and voting at this meeting (in person, by proxy, by corporate representative or by attorney) is required. The Special Distribution Resolution will only take effect if the Share Scheme takes effect. If approved at this meeting, the Special Distribution Resolution will bind all Zenyth Shareholders, including those who do not vote on the resolution at this meeting and those who vote against it.

If the Special Distribution Resolution is approved, the issued share capital of Zenyth will be reduced by an amount equal to the market value of all the Avexa shares registered in Zenyth's name as at the Share Scheme Record Date, which is presently scheduled to be 5.00 pm (AEST) on 8 November 2006. The capital reduction will then be implemented by Zenyth distributing in specie to Zenyth shareholders participating in the Share Scheme all of the Avexa shares registered in Zenyth's name as at the Share Scheme Record Date, in proportion to the number of Scheme Shares held by each Scheme Shareholder. This proportion represents approximately one Avexa share for every six Zenyth shares held. In the case of an entitlement of 0.5 of an Avexa share or over, the entitlement will be rounded up to the nearest whole number of Avexa shares. In the case of an entitlement of less than 0.5 of an Avexa share, the entitlement will be ignored.

As disclosed in the Explanatory Booklet, certain Zenyth shareholders will not be eligible to receive Avexa shares under the Special Distribution. They will instead receive the net sale proceeds of the Avexa shares to which they would otherwise be entitled.

Option Scheme Meeting

The proposed resolution for consideration at this meeting is to approve a scheme of arrangement between Zenyth and its optionholders. The Option Scheme is essentially a proposal under which all Zenyth options will be cancelled and Zenyth optionholders will receive consideration of between \$0.0100 and \$0.5196 cash per Zenyth option depending on the issue date, exercise price, expiry date and other terms of the options on issue. The Option Scheme consideration has been negotiated with CSL and calculated using the widely accepted Black-Scholes option valuation model.

The Option Scheme has been proposed to assist CSL in maintaining 100% ownership and control of Zenyth following the approval and implementation of the Share Scheme. Full particulars of the proposed Option Scheme are set out in the Explanatory Booklet.

Conditions

The Option Scheme is conditional on the satisfaction of the conditions set out on page 62 of the Explanatory Booklet and summarised at page 10 of the booklet. If each of these conditions is satisfied, the Option Scheme will bind all optionholders, including those who vote against it and those who do not vote at all. I will take this opportunity to brief the meeting on the status of the principal conditions in relation to the Option Scheme, which are as follows.

• $(a)$ (Share Scheme becoming effective) The first key condition is that the requisite majority of Zenyth shareholders approve the Share Scheme at the Share Scheme Meeting held earlier, in accordance with the requirements of the Corporations Act.
• $(b)$ (Optionholder approval) The second key condition is that the requisite majority of Zenyth optionholders approve the Option Scheme at this Option Scheme Meeting, in accordance with the requirements of the Corporations Act. A vote by poll will be taken after my address and once discussion of the proposed resolution has concluded.

$(c)$ (Court approval) The third key condition is that the Court approves the Option Scheme in accordance with section 411(4) (b) of the Corporations Act. If the Option Scheme is approved at this meeting. Zenyth will apply to the Court on 31 October 2006 for orders approving the Option Scheme.

Directors' recommendation and intentions

Your Directors have carefully considered the Option Scheme and have taken extensive professional advice in relation to it.

Having considered the expected advantages and possible disadvantages of the Option Scheme and other relevant considerations, your Directors unanimously believe that the Option Scheme is in your best interests. Furthermore, Dr Nash, being the only one of your Directors that holds options, intends to vote in favour of the Option Scheme in respect of all Zenyth options held by him or in which he otherwise has a relevant interest.

There are three reasons why your Directors unanimously support the Option Scheme: These reasons are fully explained in Section 2 of the Explanatory Booklet, but I will briefly outline these reasons now.

• (Most options substantially 'out of the money') First, most Zenyth options have exercise prices of between \$0.62 and \$2.02 per option. This is significantly above the prices at which Zenyth shares traded immediately prior to the announcement of the CSL Acquisition Proposal on 17 July 2006 and for a number of months prior to that announcement. Based on the last traded price of Zenyth shares prior to the announcement of the CSL Acquisition Proposal on 17 July 2006, being \$0.54, most Zenyth options were 'out of the money'.
• (Immediate value) Secondly, the Option Scheme offers optionholders an opportunity to receive immediate payment even though some options may not become exercisable for some time or may not become exercisable at all given their exercise price relative to the price of Zenyth shares prior to the announcement of the CSL Acquisition Proposal and relative to the price of Zenyth shares as at the date of the Explanatory Booklet.
• (Expert has concluded that Option Scheme is on balance in the best interests of optionholders)

The Independent Expert has concluded that, in the absence of a higher offer, the Option Scheme is reasonable and, on balance, is in the best interest of Zenyth Optionholders as a whole. The Independent Expert has also applied the Black Scholes valuation methodology but has used different inputs to those used by your Directors in their negotiations with CSL. The different inputs used by the Independent Expert produced:

• a value higher than the Option Scheme consideration in the case of six of the 14 series of options;
• a value lower than the Option Scheme consideration in the case of another six series; and
• the same value as the Option Scheme consideration in the case of the remaining two series.

This has led the Independent Expert to conclude that the Option Scheme is not fair. However, the Independent Expert has concluded that the Option Scheme is nevertheless reasonable and that, on balance, it is in the best interests of optionholders as a whole. In reaching this conclusion, the Independent Expert notes that:

• for all but one series of Options, the Option Scheme consideration is higher than the intrinsic value of the Options (based on the excess of the Zenyth Share price under the Share Scheme and the Special Distribution over the exercise price of the Option), and
• the Option Scheme provides optionholders with an opportunity to realise a value for their Options, the majority of which were 'out of the money' before the announcement of the CSL Acquisition Proposal.

In the case of the series of options issued on 14 November 2001, the Independent Expert has stated that holders of those options could achieve a better return by exercising their options and participating in the Share Scheme and the Special Distribution.

July 2006 Management Options

On 6 July 2006, the Zenyth Board resolved to issue 1,000,000 Zenyth options exercisable at \$0.62 per Option to certain senior executives of Zenyth (July 2006 Management Options). The July 2006 Management Options were issued as part of the relevant senior executives' annual performance reviews for the financial year ended 30 June 2006 and consistent with Zenyth's practice in previous financial years. The decision to issue the July 2006 Management Options was

taken by the Board in consideration of all relevant circumstances, including the performance of the senior executives in achieving objectives and targets set by the Company for the financial year ended 30 June 2006, the desirability of providing incentives to the senior executives for their ongoing performance and loyalty and the then incomplete negotiations with CSL surrounding the CSL Acquisition Proposal.

Each senior executive to whom July 2006 Management Options were issued has entered into an agreement with the Company under which they will each exercise those options in accordance with their terms so that they are issued with Zenyth shares on such exercise prior to the Share Scheme Record Date. The Zenyth shares issued to the senior executives on exercise of their July 2006 Management Options will be eligible to participate in the Share Scheme on the same terms as the holders of other Zenyth shares.

It is important to note that no votes in respect of the 1,000,000 July 2006 Management Options will be eligible to be cast at this Option Scheme meeting. Accordingly, the issue of the July 2006 Management Options will have no bearing on the outcome of this Option Scheme meeting.

Other considerations

Before submitting the Option Scheme to your vote, it is pertinent to make two concluding observations.

The first is that neither the Share Scheme nor the Special Distribution are dependent on the Option Scheme being approved and implemented. Accordingly, each of these other two transactions will proceed, whether or not the Option Scheme proceeds.

Secondly, as disclosed at page 50 of the Explanatory Booklet, if the Option Scheme is not approved by the requisite majorities of optionholders at today's meeting, CSL intends to deal privately with each optionholder. CSL has indicated that it intends to offer each optionholder the same amount of cash for the cancellation of their options as they would have otherwise received under the Option Scheme. Following this private treaty process, CSL has indicated that it then intends to compulsorily acquire any outstanding Zenyth options in accordance with the requirements in Chapter 6A of the Corporations Act.

Robyn M Fry General Counsel & Company Secretary

For further information contact: Mr Ian Davis Chairman +61 3 8608 2962