IMUGENE LIMITED — Proxy Solicitation & Information Statement 2003

May 18, 2003

IMUGENE LIMITED

ABN 99 009 179 551

Notice of General Meeting

Proxy Form

Explanatory Memorandum

and

Independent Expert's Report

Date of Meeting: 23 June 2003

Place:

Level 6 BGC Centre 28 The Esplanade Perth, Western Australia

Time: $10.00$ am

Stanton Partners Corporate Pty Ltd has concluded that the transaction which is the subject of Resolution 1 is, on balance, reasonable to the shareholders of Imugene not associated with Charles Morgan (a VectoGen Vendor). For the reasons outlined in paragraph 9.3 of their report, they are unable to determine a fair value for VectoGen and therefore as the ASX requires them to report on whether the proposal is fair or not fair, have concluded that the proposal is not fair. However, on a market based approach, that takes into account the matters noted in paragraph 7.7.2 of their report and Imugene share prices subsequent to 15 April 2003, the market considers the proposal to be fair.

This is an important document. Please read it carefully.

If you are unable to attend the General Meeting, please complete the form of proxy enclosed and return it in accordance with the instructions set out on that form.

Dear Shareholder

Your board announced in mid April that it had entered into a number of agreements to acquire the balance of shares that it does not already own in VectoGen Limited.

Imugene's initial 40% equity interest in VectoGen was acquired in August 2002 and represents our principal production animal (pig and poultry) biopharmaceutical products company.

Over the past 6 months, Imugene and VectoGen have achieved significant progress in the development and commercialisation of a range of productivity enhancing and disease protective vaccines for chickens and pigs.

Your board and senior management have continued to carefully evaluate VectoGen, particularly the product portfolio and the respective global markets, and now consider the acquisition of the balance of VectoGen an important step forward in the achievement of the commercial ambitions of Imugene.

Importantly, by moving to full ownership of VectoGen, Imugene can maximise its commercial returns from the poultry and pig health products, directly control the commercial development process and directly access the resultant cash flows arising from commercialisation.

The recent senior appointments to Imugene's commercial and scientific team provide your Board with the confidence that the acquisition of 100% of VectoGen can be efficiently absorbed and managed within the Company's existing operations.

Subject to Imugene shareholders approval at the forthcoming General Meeting, the minority VectoGen shareholders will be issued with new Imugene shares and Convertible Preference Shares that, subject to the achievement of certain business milestones, will result in further new Imugene shares being issued to the minority VectoGen shareholders. Full details regarding these transactions are enclosed within the Notice of Meeting and Explanatory Memorandum.

The Board of Imugene and their associates, who collectively own in excess of 22% of the issued capital of Imugene, have indicated their full support for the transactions contained herein.

Yours sincerely

GRAHAM DOWLAND Executive Chairman

IMUGENE LIMITED

ABN 99 009 179 551

NOTICE OF A GENERAL MEETING

NOTICE IS HEREBY GIVEN that a General Meeting of members of Imugene Limited ("Imugene" or "Company") will be held at Level 6, BGC Centre, 28 The Esplanade, Perth, Western Australia on 23 June 2003 at 10.00 am.

The accompanying Explanatory Memorandum, Proxy Form and Independent Expert's Report provide additional information relating to matters to be considered at the meeting, and form part of this Notice of General Meeting ('Notice").

Certain terms and abbreviations used in this Notice of Meeting and the accompanying Explanatory Memorandum have defined meanings which are explained in the accompanying Explanatory Memorandum.

AGENDA

SPECIAL BUSINESS

1. APPROVAL FOR THE ACQUISITION OF VECTOGEN SHARES

To consider and if thought fit, to pass with or without amendment, the following resolution as an ordinary resolution:

"That, subject to Resolution 4 being passed, pursuant to and in accordance with Listing Rules 7.1 and 10.1, and for all other purposes, the Company:

• $(a)$ agrees to the execution by the Company of agreements whereby the Company will acquire 5,323,261 VectoGen Limited ("VectoGen") Shares (being 59% of the issued capital of VectoGen not owned by the Company) from the VectoGen Vendors as more particularly described in the Explanatory Memorandum accompanying this Notice of Meeting and the performance by the Company of its obligations under those agreements; and
• approves and authorises the directors to allot and issue to the $(b)$ VectoGen Vendors, in accordance with the agreements referred to in paragraph (a) of this Resolution, a total of 14,763,494 Shares at a deemed issue price of 15 cents per share and 8,872 Convertible Preference Shares at a deemed issue price of \$1.00 per share, each convertible into 1,662 Shares for each Convertible Preference Share, subject to certain milestones being met as more particularly described in the Explanatory Memorandum accompanying this Notice of Meeting."

The Company will disregard any votes cast on Resolution 1 by the VectoGen Vendors and any other person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the resolution is passed and an associate of that person. However the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is east by a person chairing the meeting as proxy for a person entitled to vote, in accordance with a direction on the proxy .
form to vote as the proxy decides.

$\overline{2}$ . RATIFICATION OF SECURITY ISSUES

To consider, and if thought fit, to pass with or without amendment the following resolutions as ordinary resolutions:

$(a)$ Ratification of the Prior Issue of Performance Securities

"That, pursuant to and in accordance with Listing Rule 7.4, and for all other purposes, the Shareholders approve and ratify the prior issue and allotment by the Directors of 100,000 Shares for nil consideration, 266,667 Options for nil consideration and 4,633,333 Performance Options for nil consideration on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice of Meeting."

Ratification of the Prior Issue of Securities to Australian Pork Limited (b)

"That, pursuant to and in accordance with Listing Rule 7.4, and for all other purposes, the Shareholders approve and ratify the prior issue and allotment by the Directors of 330,525 Shares to Australian Pork Limited in consideration for the acquisition of 107,165 VectoGen Shares and 90,304 VectoGen Options held by Australian Pork Limited on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice of Meeting."

The Company will disregard any votes cast on Resolutions $2(a)$ and $2(b)$ by a person who participated in the issue and an associate of that person. However the Company need not disregard a vote if it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form, or it is cast by a person chairing the meeting as proxy for a person entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

$3₁$ DIRECTORS' DEEDS OF INDEMNITY AND ACCESS

To consider, and if thought fit, to pass with or without amendment the following resolution as an ordinary resolution:

"That pursuant to sections 200B and 208 of the Corporations Act and for all other purposes Shareholders authorise the Company to:

• $(a)$ indemnify each director, during the period of directorship and after the cessation of directorship, in respect of certain claims should any be made against that director whilst acting in his or her capacity as a director of the Company;
• $(b)$ use its best endeavours to procure an insurance policy and pay the premiums of insurance as assessed at market rates applicable from time to time for each such director in respect of certain claims made against that director acting in his or her capacity of a director of the Company (except to the extent such insurance cannot be procured at a reasonable cost or is otherwise unavailable to the Company);
• $(c)$ ensure that an insurance policy for the director is at all times covered under an insurance policy during the Insurance Run-Off Period, which will be on terms not materially less favourable to each director than the terms of insurance applicable at the date of termination of his or her directorship and to continue to pay those premiums during that Insurance Run-Off Period (except to the extent such insurance cannot be procured at a reasonable cost or is otherwise unavailable to the Company); and

$(d)$ provide each such director with access, upon the cessation for any reason of his or her directorship and for a period of not less than 7 years following that cessation, to any Company records which are either prepared or provided to the director during the period of directorship,

upon and subject to the terms and conditions as set out in the Explanatory Memorandum accompanying this Notice of Meeting."

The Company will, in accordance with section 224 the Corporations Act disregard any votes cast on Resolution 3 by Directors of the Company and any associates of the Directors of the Company. However, the Company need not disregard a vote if it is east by the Director or his associate as proxy appointed by writing that specifies how the proxy is to vote on Resolution 6 and it is not cast on behalf of a Director or his associate.

ADOPTION OF A NEW CONSTITUTION $\mathbf{4}$ .

To consider and if thought fit, to pass with or without amendment, the following resolution as a special resolution:

"That, with effect from the passing of this Resolution and in accordance with section 136 of the Corporations Act, the regulations contained in the printed document produced to this Meeting and signed by the chairman for identification purposes are hereby approved and adopted as the Constitution of the Company in substitution for and to the exclusion of the existing Constitution of the Company"

BY ORDER OF THE BOARD

MARK PEARCE Company Secretary

Dated: 16 May 2003

Voting Entitlement

For the purposes of regulation 7.11.37 of the Corporations Regulations, all Shares of the Company that are quoted on the Australian Stock Exchange Limited at the end of Day on 20 June 2003 shall, for the purposes of determining voting entitlements at the General Meeting, be taken to be held by the persons registered as holding the shares at that time.

Proxies

A member entitled to attend and vote at the General Meeting of the Company may appoint a natural person as the member's proxy to attend and vote for the member at that meeting. If the member is entitled to cast 2 or more votes at the General Meeting the member may appoint not more than 2 proxies. Where the member appoints more than one proxy the member may specify the proportion or number of votes each proxy is appointed to exercise. If such proportion or number of votes is not specified each proxy may exercise half of the member's votes. A proxy may, but need not be, a member of the Company.

Proxy Forms (and the power of attorney or other authority, if any, under which the Proxy Form is signed) or a copy or facsimile which appears on its face to be an authentic copy of the Proxy Form (and the power of attorney or other authority) must be deposited at or received by facsimile transmission at the Perth office of the Company, Level 9, 28 The Esplanade, Perth, Western Australia, 6000, or by post to PO Box Z5083, Perth, Western Australia, 6831 or Facsimile (08) 9322 6558 if faxed from within Australia or +618 9322 6558 if faxed from outside Australia, not less than 48 hours prior to the time of commencement of the General Meeting in the place where the General Meeting is being convened.

For the convenience of members a Proxy Form is enclosed with this Notice of General Meeting.

Interdependent Resolutions

Resolutions I and 4 are interdependent and neither of them will be given effect to unless both Resolutions are passed by the requisite majority.

PROXY FORM

The Company Secretary Imugene Limited

By delivery: Level 9, 28 The Esplanade PERTH WA 6000	By post: PO Box Z5083 PERTH WA 6831	By facsimile: +61893226558
-I/We
οf			being a
member/members of Imugene Limited and entitled to

votes in the Company, hereby appoint $2\degree$

or failing him the Chairman of the meeting as my/our proxy to vote for me/us on my/our behalf at the General Meeting of the Company to be held at Level 6, BGC Centre, 28 The Esplanade, Perth, Western Australia on 23 June 2003 at 10.00 am and at any adjournment thereof in the manner indicated below or, in the absence of indication, as he thinks fit. If 2 proxies are appointed, the proportion or number of votes of this proxy is authorised to exercise is $*$ [ $\frac{10}{2}$ of of the member's votes. (An additional Proxy Form will be supplied by the Company, the member's votes*/ [ on request).

INSTRUCTIONS AS TO VOTING ON RESOLUTIONS

The proxy is to vote for or against the resolutions referred to in the notice convening the General Meeting, as follows:

If you do not wish to direct your proxy how to vote, please place a mark in each of the boxes under the heading "Chair". The Chair will be voting for the resolutions. By marking these boxes, you acknowledge that the Chair may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of that interest.

		For	Against	Abstain	Chair
Resolution 1	Approval of acquisition of VectoGen Shares
Resolution $2(a)$	Ratification of prior security issues - Performance Securities
Resolution 2(b)	Ratification of prior security issue - Australian Pork Ltd
Resolution 3	Directors' Deeds of Indemnity and Access
Resolution 4	Adoption of new Constitution

Authorised signature/s This section must be signed in accordance with the instructions overleaf to enable your voting instructions to be implemented.

Individual or Shareholder I	Shareholder 2	Shareholder 3
Sole Director and Sole Company Secretary	Director	Director/Company Secretary
Contact Name	Contact Daytime Telephone	Date
Insert name and address of shareholder	Insert name and address of proxy	*Omit if not applicable

Proxy Notes:

A member entitled to attend and vote at the General Meeting of the Company may appoint a natural person as the member's proxy to attend and vote for the member at that meeting. If the member is entitled to cast 2 or more votes at the General Meeting the member may appoint not more than 2 proxies. Where the member appoints more than one proxy the member may specify the proportion or number of votes each proxy is appointed to exercise. If such proportion or number of votes is not specified each proxy may exercise half of the member's votes. A proxy may, but need not be, a member of the Company.

You must sign this form as follows in the spaces provided:

Joint Holding: where the holding is in more than one name all of the holders must sign.

• Power of Attorney: if signed under a Power of Attorney, you must have already lodged it with the registry, or alternatively, attach a certified photocopy of the Power of Attorney to this Proxy Form when you return it.
• Companies: a Director can sign jointly with another Director or a Company Secretary. A sole Director who is also a sole Company Secretary can also sign. Please indicate the office held by signing in the appropriate space.

If a representative of the corporation is to attend the meeting the appropriate "Certificate of Appointment of Representative" should be produced prior to admission. A form of the certificate may be obtained from the Company's Share Registry.

Proxy Forms (and the power of attorney or other authority, if any, under which the Proxy Form is signed) or a copy or facsimile which appears on its face to be an authentic copy of the Proxy Form (and the power of attorney or other authority) must be deposited at or received by facsimile transmission at the Perth office of the Company (Level 9, 28 The Esplanade, Perth, WA, 6000, or by post to PO Box Z5083, Perth, WA, 6831 or Facsimile (08) 9322 6558 if faxed from within Australia or $+61893226558$ if faxed from outside Australia) not less than 48 hours prior to the time of commencement of the General Meeting in the place where the General Meeting is being convened.

IMUGENE LIMITED

ABN 99 009 179 551

EXPLANATORY MEMORANDUM

$1₁$ INTRODUCTION

This Explanatory Memorandum has been prepared for the information of members in Imugene Limited ('Imugene" or "Company") in connection with the business to be conducted at the General Meeting of members to be held at Level 6, BGC Centre, 28 The Esplanade, Perth, Western Australia, on 23 June 2003 at 10.00 am ('Meeting").

This Explanatory Memorandum should be read in conjunction with the accompanying Notice of Meeting.

This Explanatory Memorandum deals with the following matters to be considered at the Meeting:

• Acquisition of the outstanding issued capital in VectoGen Limited (Resolution 1); ٠
• Ratification of prior security issues Issue of Performance Securities (Resolution $\bullet$ $2(a)$ :
• Ratification of prior security issue $-$ Issue to Australian Pork Ltd (Resolution 2(b));
• Provide the Company with the authority to enter into Deeds of Indemnity and Access with each Director (Resolution 3); and
• Adoption of a new Constitution (Resolution 4). ٠

An Independent Expert's Report prepared by Stanton Partners Corporate Pty Ltd comments on whether the transaction the subject of Resolutions 1 is fair and reasonable to the non-associated shareholders of Imugene and has been prepared to comply with the requirements of Listing Rule 10.1.

Stanton Partners Corporate Pty Ltd has concluded that the transaction which is the subject of Resolution 1 is, on balance, reasonable to the shareholders of Imugene not associated with Charles Morgan (a VectoGen Vendor). For the reasons outlined in paragraph 9.3 of their report, they are unable to determine a fair value for VectoGen and therefore as the ASX requires hem to report on whether the proposal is fair or not fair, have concluded that the proposal is not fair. However, on a market based approach, that takes into account the matters noted in paragraph 7.7.2 of their report and Imugene share prices subsequent to 15 April 2003, the market considers the proposal to be fair.

$2.$ ACQUISITION OF VECTOGEN - SUMMARY OF THE TRANSACTION

$2.1$ Summary of the Agreements

The principal features of the proposed transaction are as follows:

$(a)$ The Company will acquire, pursuant to seven separate acquisition agreements, all the issued capital of VectoGen which it does not already own (representing 59% of all the issued capital of VectoGen) in consideration for the issue and

allotment of 14,763,494 Shares at a deemed issue price of 15 cents per share (the "Initial Consideration").

In addition to the Initial Consideration, Convertible Preference Shares will also be issued as Deferred Consideration. These shares will be issued in three tranches on satisfaction of the milestones as detailed in section 4 of this Explanatory Memorandum.

• $(b)$ The conditions precedent in the acquisition agreements include:
• The shareholders of Imugene approving in a general meeting the issue of $(i)$ shares forming the consideration for the acquisition pursuant Listing Rules 7.1 and 10.1: and
• Imugene obtaining any other shareholder approvals that may be required. $(ii)$

ASX may determine that some or all of the Shares being issued pursuant to the transaction will be classified as restricted securities for the purposes of the Listing Rules. In any case, the Shares will be subject to a voluntary escrow until 31 May 2004.

Further details on the terms and conditions of the acquisition agreements are outlined in section 3 below.

$2.2$ Details of VectoGen Limited

VectoGen develops and commercialises biologically based animal health products for the production animal market worldwide. VectoGen products improve the health and welfare of animals and reduce or eliminate the use of antibiotics, chemicals and drugs.

Within the VectoGen product portfolio there are many individual products at various stages of the development process, from products in the early research stage, through to others in the commercialisation and marketing stage.

2.2.1 Highlights

• Three commercial contracts signed with Merial world's largest animal health $\bullet$ company;
• Sub-Licence agreement for one pig product signed with Intervet, the animal health $\bullet$ subsidiary of Akzo Nobel;
• Secondment from Imugene of an internationally recognized management team, $\bullet$ including recently retired Global R&D Director for Pfizer;
• $\bullet$ VectoGen's Livestock treatments win prestigious Australian Science award; and
• Continued Patent coverage granted worldwide. $\bullet$

2.2.2 Products and Development

VectoGen Limited has acquired exclusive worldwide and licences from the Commonwealth Scientific and Industrial Research Organisation (CSIRO) to develop a range of biological products including vaccines and biotherapeutic productivity enhancers for the pig and poultry markets.

The biotherapeutic products (cytokines) are productivity enhancers that can replace the current use of antibiotics, drugs or chemicals to control important diseases in production pigs and poultry. There is also a range of vaccines to protect against specific infectious diseases currently being developed to target specific diseases with major economic importance worldwide.

The intellectual property that forms the basis for many of these products stems from several years of research at the CSIRO. The products developed utilise a core delivery system, The Adenoviral Vector technology, to deliver the range of vaccines and biological productivity enhancers.

This Adenoviral Vector delivery system is robust, effective and economically viable to produce. Two Adenoviral Vector delivery systems have been successfully developed, one for poultry (FAV) and one for pigs (PAV). VectoGen's biological productivity enhancers function by enhancing the natural immune system, providing increased protection against disease, thereby improving health and productivity.

Cytokines are a group of substances naturally produced in the body, which are involved in fighting disease and modulating responses of the immune system. These products are a realistic and commercially viable alternative to in feed antibiotic additives, and offer the advantage of being residue free.

The recombinant adenovirus used as the vector does not cause disease in the animal or bird and is proven in trials to be residue free. To date, the Adenoviral Vector has been used successfully to deliver more than four different vaccine materials and several cytokines for productivity enhancement. This proven ability to deliver a range of desirable material emphasises the broad utility of the vector.

The development of vaccines against several important diseases, utilising the Adenoviral Vector delivery system, is well advanced. Research trials to date have indicated the efficacy of several products that are now ready to move forward for commercialisation. Several other products are under construction or evaluation. Other diseases may be identified that can be prevented using vaccines developed with this Adenoviral Vector delivery system.

Importantly, the Adenoviral Vector delivery system also allows for the vaccines and biological productivity enhancers to be delivered orally, by aerosol or by injection. These alternative routes of administration offer significant advantages over other delivery mechanisms, in particular, injection, in terms of ease of administration, cost of administration and efficacy.

2.2.3 Poultry Products

Poultry Productivity Enhancers

VectoGen has trialled and developed a cytokine based productivity enhancer delivered by the Adenoviral Delivery system that enhances poultry growth and weight gain by up to 10% with unchanged or improved feed conversion rates. VectoGen, via its licence agreement with CSIRO, holds patent rights to this product in all major territories, including the USA.

Infectious Bronchitis Vaccine

Infectious Bronchitis (IB) is a widespread damaging respiratory disease that plagues poultry flocks and causes considerable commercial meat and egg production losses. It is a highly contagious disease and a problem for chicken farmers around the globe.

VectoGen's FAV-IB vaccine has been found to have 92-100% efficacy rate and is effective against multiple strains of this lethal disease. Research continues on six other strains of the disease.

2.2.4 Pig Products

Pig Productivity Enhancers

Much like the poultry enhancer, VectoGen is currently looking at three productivity enhancing cytokines that are delivered by the Adenoviral Vector system. Trials to date have shown growth improvements of up to 8%.

These productivity enhancers will not only increase productivity, but also boost the animal's natural immune system to help fend off costly diseases.

Pig Circovirus

The Pig Circovirus disease affects newborn pigs and has been implicated as a cause of the damaging wasting syndrome in weaning pigs. VectoGen, using its Adenoviral Vector, has developed a commercial vaccine candidate that could protect pigs from this disease. This disease causes massive losses to pig producers globally and there is currently no commercial vaccine available.

Classical Swine Fever

Also known as 'hog cholera,' Classical Swine Fever is a highly contagious disease that can wipe out whole herds of pigs with one outbreak. Loss of appetite, skin discolouration and extremely high fever are all symptoms of this damaging disease. The commercial losses due to this disease are enormous.

VectoGen is currently undertaking field trials with a new vaccine that will provide pig farmers with a cost effective product that provides complete protection from this harmful disease.

Pig Respiratory and Reproductive Virus Vaccine

This new disease, discovered in the US in 1986 and in Europe in 1990, is extremely infectious and can cause fertility and respiratory problems and death. This disease has serious economic implications for the pig industry.

VectoGen is currently trialling new vaccines by insertion of key genes in its Adenoviral Vector. Results from the trials are expected soon.

Actinobacillus Porcine Pleuropneumonia (APP)

APP is a bacterial respiratory disease that affects pig herds around the world. The global economic impact of this disease is large, representing the single most common reason for depopulation of swine in the United States.

VectoGen has responded with the development of an APP vaccine. The vaccine is highly advanced as it protects against multiple strains of the disease.

VectoGen has signed a commercial agreement with Intervet, the world's fourth largest animal health company. This contract grants sublicense for the evaluation and marketing of the new 'Actinobacillus pleuropneumonia' vaccine world wide.

$2.2.5$ Patents

Patents have been granted or filed by CSIRO in most major markets for the core Adenoviral Vector delivery technology. These markets include the USA, Europe, Canada, Japan, China, Mexico and Australia. These patents secure monopolistic rights in various territories for the commercial exploitation of the VectoGen range of products.

2.2.6 Commercial Partner Contracts

Merial

Three commercial contracts were signed with Merial over two of VectoGen's poultry products, and one pig product.

The poultry product contracts are evaluation and sublicense option agreements for products utilizing VectoGen's patented adenoviral vector delivery technology to treat or prevent several important diseases of poultry. The pig product contract is for the evaluation of the adenoviral vector delivery technology to deliver a Merial owned gene as a vaccine for the prevention of a pig viral disease.

The contracts provide for the evaluation of VectoGen's biologically based products including productivity enhancers and vaccines to prevent economically important diseases relating to poultry and pig respiratory infections. The products are residue free and do not contribute to the emerging worldwide problem of antibiotic resistance.

Merial are currently evaluating the products and have previously stated that, given the large increases in productivity evidenced from the initial CSIRO trials, the market potential for these products can be very large, both in terms of providing an alternative to in-feed antibiotics and safely improving profitability for producers.

Whilst the commercial terms relating to the evaluation and sublicense agreements are confidential, VectoGen has received the initial signing fee payments from Merial.

Milestone based sublicense fees and royalty payments will be paid following exercise of the sublicense.

Merial is a world leading animal health company, with a presence in more than 150 countries worldwide. Merial's 2001 sales were in excess of US\$1.6 billion (1.7 billion Euros).

Intervet

In November 2002 a sublicense for the use of VectoGen's worldwide rights to patents and know-how for an 'Actinobacillus pleuropneumoniae' (APP) live vaccine was granted to Intervet, a division of Akzo Nobel.

The agreement included an upfront signing fee which has been received, three future milestone based payments, and thereafter royalty payments to VectoGen for the life of the patents. An additional benefit of the sublicense agreement is that Intervet is responsible for the costs of progressing the vaccine through the regulatory process worldwide as well as financing all marketing, development, production and distribution expenditure.

The worldwide sublicense grants Intervet the rights to commercialise VectoGen's vaccine for prevention of respiratory disease caused by APP, which is of major economic This disease is prevalent in most pig producing countries of the world, importance. including the USA, Europe and Australia.

Current APP disease control relies on antibiotics (given both in-feed as a preventative measure and by injection to affected pigs), and inactivated vaccines. An effective live vaccine has the potential to eliminate the need for in-feed antibiotics and to dramatically reduce the use of antibiotics given by injection, thereby reducing the development of "Superbugs" (bacteria resistant to antibiotics that may cause serious or fatal disease in people).

Intervet is a global leader in animal health research and is dedicated to the development, production and marketing of innovative, high quality animal health products. Intervet's sales for 2001 were in excess of 1 billion EURO.

The Intervet sublicense and the Merial evaluation and option to sublicense agreements are part of VectoGen's commercialisation strategy to sublicense certain developed products to gain early cash flow.

2.2.7 Management Team

VectoGen is managed by a uniquely qualified personnel with international experience via secondment from Imugene, capable of achieving and delivering the commercial ambitions of VectoGen.

Graham Dowland - Executive Director

For the past 15 years Mr Dowland has been involved as either a significant shareholder, director or senior consultant / advisor with a number of public companies listed on Stock Exchanges in Australia, Canada and the United Kingdom with operations internationally. These companies continue to be involved in various industries including pharmaceutical research and development - specifically human and animal biotechnology, gold mining and exploration, oil and gas exploration and production, manufacturing, and industrial technology development and marketing.

Mr Dowland has been involved in the development phase of numerous businesses that have achieved listings on various major international Stock Exchanges and completed capital and debt raisings. Since returning to Australia from London in July 2000, Mr Dowland has been involved in evaluating business opportunities in the veterinary and animal services industries.

Dr Warwick A Lamb - Executive Director

Dr Lamb is a specialist veterinarian with experience at all levels of his profession. He has the rare combination of having worked in private general practice, private specialist practice and University practice both in Australia and the USA. He is a registered specialist in canine and feline medicine and a Fellow of the Australian College of Veterinary Scientists. Dr Lamb has experience in research and obtained a Masters Degree by thesis from the University of Sydney in 1992. He has had extensive involvement in the veterinary community as a teacher, speaker and examiner for the Australian College of Veterinary Scientists, and has provided research and technical services to several major veterinary pharmaceutical companies.

Dr Lamb developed and continues to own Australia's first referral-only, multi-discipline specialist veterinary hospital in Australia. This practice has a reputation as one of the leading private referral practices in the country, employing 12 veterinarians and providing 24-hour emergency and critical care facilities. In recognition of his contribution to the veterinary profession, Dr Lamb was awarded the Small Animal Practitioner of the Year 2001 by the Australian Small Animal Veterinary Association. Dr Lamb is currently the Director, Superintendent and Head of Small Animal Medicine of the Veterinary Specialist Centre in Sydney.

Dr Kevin Fahey - Chairman Commercialisation and Scientific Advisory Board

Dr Fahey has been appointed Chairman to the Commercialisation and Scientific Advisory Board. Dr Fahey is an internationally recognised animal health expert in both the research and development of new vaccines and biopharmaceutical products.

Dr Fahey has worked in the USA and Australia during the last decade, with SmithKline Beecham Animal Health (now Glaxo Smith Kline) and recently with Pfizer, the world's largest pharmaceutical company, where he became the Executive Director - Biological Discovery for Pfizer Global Research & Development.

Having been involved with the initial stages of the CSIRO research in the late 1980's whilst working with CSIRO, Dr Fahey has a detailed understanding of VectoGen's product range.

Dr Mike Sheppard - Chief Scientific Officer

Dr Mike Sheppard has recently been appointed as Chief Scientific Officer on secondment from Imugene. In this role he will manage the research projects, ensuring commercial milestones are met and research is focused on the successful progression of products to market. Dr Sheppard has also joined the Commercial and Scientific Advisory Board and will be responsible for the coordination of the development of products contracted to Merial and Intervet.

Dr Sheppard is a molecular biologist with a distinguished international scientific and corporate career. Having worked in various research organizations, both overseas and in Australia, including 5 years with the CSIRO, Dr Sheppard, along with Dr Kevin Fahey was a key initiator of the research projects that have progressed to the stage of production of animal products currently being commercialised.

Dr Sheppard also has years of international research and development experience in the USA with the major pharmaceutical company Smith Kline Beecham (now Glaxo Smith Kline), and the world's largest pharmaceutical company, Pfizer, as the Director of Biological Discovery.

Dr Colin Hort - Commercial Manager

Dr Hort, Imugene's commercial manager, is providing valuable assistance to VectoGen's product development and commercialisation. Over the past 10 years Dr Hort has worked with Novartis Animal Health (one of the world's Top 10 veterinary pharmaceutical companies) and has gained valuable experience in the practical realities of the development, manufacturing, distribution and marketing of new pharmaceutical products.

It is anticipated that certain VectoGen products will be manufactured, or manufactured under contract, for distribution throughout the world. Dr Hort will oversee the regulatory process, and manage the sales and marketing strategies of products as they proceed towards production.

Dr Hort, a veterinarian with private practice experience, was assigned various roles within Novartis Animal Health, the most recent and senior being Technical Services Director, with responsibilities for all technical and regulatory matters in Australia and New Zealand.

Dr Hort has a detailed knowledge of the animal health industries and animal health regulatory environment in Australasia. He has an in depth knowledge of the marketing and sales strategies of large multinational animal health companies.

2.2.8 CSIRO Award

In December 2002 Higher Education Minister Brendan Nelson and Science Minister Peter McGauran presented several of the scientists developing the VectoGen products with a CSIRO Medal, one of Australia's most prestigious scientific prizes, at Parliament House in Canberra.

The CSIRO Medal was awarded to the scientific researchers for developing the innovative, poultry productivity enhancer including an economic method for delivery of the treatment for the US\$2 billion a year poultry market.

$3₁$ RESOLUTION 1- ACQUISITION OF VECTOGEN

Resolution 1 seeks shareholder approval for:

• the Company completing the purchase from the VectoGen Vendors (noted below) all the issued Shares and Options in VectoGen not held by Imugene;
• the issue of 14,763,494 new Imagene Shares; and ٠
• the issue of 8.872 Imugene Convertible Preference Shares.

Refer section 2.4 of the Independent Expert's Report for the pro-forma capital structure.

The terms of the acquisition agreements are as follows:

$3.1$ Shares

Imagene will issue Shares in exchange for the acquisition of 5,323,261 VectoGen Shares payable as follows:

• Initial Consideration Imagene will issue 2.77 Shares for every VectoGen Share $(a)$ acquired, payable on receipt of all necessary (ASX & ASIC related) Imagene shareholder approvals; and
• $(b)$ Deferred Consideration - Imugene will issue Convertible Preference Shares that subject to various pre-determined Milestones being met (see below) will convert into a total of 1,662 Shares per Convertible Preference Share.

The Milestones for the Deferred Consideration are as follows:

Upon the Imugene market capitalisation achieving a market weighted average of \$33 million for a period of 20 consecutive Trading Days on ASX within 12 months from the date of issue of the Initial Consideration, the following Deferred Consideration will be payable, (each sub-paragraph below being treated independently of the others):

• $(a)$ 8,848,488 Shares (conversion of 5,324 Convertible Preference Shares - Series A) will be issued upon Merial having executed the "FAV Gamma" Sublicense Agreement within 18 months from the date of issue of the Initial Consideration Shares pursuant to the conditions contained in Annexure C; and
• $(b)$ 2.948.388 Shares (conversion of 1.774 Convertible Preference Shares – Series B) will be issued upon Merial having executed the "FAV IB" Sublicense Agreement within 18 months from the date of issue of the Initial Consideration Shares pursuant to the conditions contained in Annexure D; and
• $(c)$ 2,948,388 Shares (conversion of 1,774 Convertible Preference Shares - Series C) will be issued upon Merial having executed a sublicense agreement for the "PAV Respiratory Product" within 18 months from the date of issue of the Initial Consideration Shares pursuant to the conditions contained in Annexure E.

The VectoGen Vendors have entered into a voluntary escrow over the Initial Consideration Shares. The escrow period ceases on the 31 May 2004, unless a greater period is imposed by ASX in accordance with Chapter 9 of the ASX Listing Rules.

$3.2$ Options

In exchange for the acquisition of VectoGen Options, the VectoGen Optionholders will receive 1 Share for every 10 VectoGen Options acquired by Imugene which will result in a further 18,061 Shares issued.

The VectoGen Vendors on completion of the transactions which are the subject of this resolution will be issued the following securities:

Name	Imugene Shares	Imugene Convertible Preference Shares 'Series A'	Imugene Convertible Preference Shares 'Series A'	Imugene Convertible Preference Shares 'Series A'
Charles Morgan	6,731,100	2,430	810	810
Techstart Australia Pty Ltd	3,985,338	1,440	480	480
McRae Investments Pty Ltd	2,770,000	1,000	333	333
Inovax Limited	*636,493	223	74	74
Adrian Hodgson	277,000	100	33	$\overline{33}$
Greg Johnston	280,463	101	34	34
Chris Langoulant	83,100	30	10	10
Total	14,763,494	5,324	1,774	1,774

* includes 18,061 Shares for VectoGen Options

$3.3$ Listing Rule 10.1 - Acquisition of VectoGen Shares from a Substantial Shareholder

Listing Rule 10.1 provides that shareholder approval is required for a listed company to acquire an asset valued at greater than 5% of the equity interests of the company from a substantial holder (being where a person and the person's associates have or had within the preceding 6 month period a voting interest in the company of at least $10\%$ ).

Mr Charles Morgan, a former substantial shareholder of VectoGen, has held 10.1% of the total votes attached to voting securities in the Company in the last six months. The deemed acquisition price for the acquisition of Mr Morgan's VectoGen shareholding is valued at more than 5% of the Company's equity interests as set out in the last accounts given to ASX by the Company. Accordingly, the Company is seeking shareholder approval for the acquisition of 2,430,000 VectoGen Shares held by Mr Charles Morgan.

For the purposes of Listing Rule 10.10, the Company has commissioned an Independent Expert's Report by Stanton Partners Corporate Pty Ltd.

A copy of this Independent Expert's Report is attached to and forms part of this Explanatory Memorandum.

Stanton Partners Corporate Pty Ltd has concluded that the transaction which is the subject of Resolution 1 is, on balance, reasonable to the shareholders of Imugene not associated with Charles Morgan (a VectoGen Vendor). For the reasons outlined in paragraph 9.3 of their report, they are unable to determine a fair value for VectoGen and therefore as the ASX requires them to report on whether the proposal is fair or not fair, have concluded that the proposal is not fair. However, on a market based approach, that takes into account the matters noted in paragraph 7.7.2 of their report and Imugene share prices subsequent to 15 April 2003, the market considers the proposal to be fair.

$3.4$ Listing Rule 7.1 - Shareholder Approval to Issue Shares to the VectoGen Vendors

Listing Rule 7.1 requires shareholder approval to the proposed issue of Shares to the VectoGen Vendors. Listing Rule 7.1 broadly provides, subject to certain exceptions, that shareholders approval is required for any issue of shares by a listed company, where the shares proposed to be issued represent more than 15% of the Company's shares then on issue. Given the Shares to be issued under Resolution 1 will exceed this 15% threshold, such approval is required.

The following information is provided to Shareholders for the purposes of Listing Rule $7.3:$

• the maximum number of Shares the Company can issue under Resolution 1 $(a)$ is 29,508,758 Shares;
• 14.763.494 Shares will be issued no later than three (3) months after the $(b)$ date of this General Meeting or such later date as approved by ASX;
• the Preference Shares will be issued immediately with conversion required $(c)$ within 18 months:
• $(d)$ the deemed issue price of the Shares to be issued under Resolution 1 is 15 cents each:
• $(e)$ the allottees are the VectoGen Vendors as noted in the table above;
• $(f)$ the Shares are ordinary fully paid shares in the capital of the Company; and
• no funds will be raised from the issue, because the issue comprises part of $\left( \varrho \right)$ the consideration for the purchase by the Company of the issued capital of VectoGen not already held by the Company.

$\overline{4}$ . RESOLUTION 2- RATIFICATION OF SECURITIES PREVIOUSLY ISSUED

$4.1$ Resolution 2(a) – Ratification of Prior Issues of Performance/Incentive Securities

Shareholder ratification for the previous issues of securities is now sought pursuant to ASX Listing Rule 7.4 to reinstate the Company's capacity to issue up to 15% of its issued capital, if required, in the next 12 months without shareholder approval.

ASX Listing Rule 7.5 requires that the following information be provided to shareholders for the purpose of obtaining shareholder approval pursuant to ASX Listing Rule 7.4:

the parties to whom the Shares were allotted and issued and the number of $(a)$ Shares which they receive is set out in the schedule below:

Name	Position	Shares	Options	Performance
				Options
Dr Michael Sheppard	Chief Scientific Officer			250,000
Dr Colin Hort	Commercial Manager	-	266,667	133,333
Dr Kevin Fahey	Chairman - Advisory Board	100,000		250,000
Southern Cross Equities Limited	Stockbroker to the Company			4,000,000
Total		100,000	266,667	4,633,333

• the Options were issued at an exercise price of 11.25 cents per share exercisable $(b)$ up to 31 December 2004, and otherwise on the terms and conditions set out in Annexure B of this Explanatory Statement.
• $(c)$ the Performance Options were issued at an exercise price of 22.5 cents per share which vest on 31 December 2003 subject to the performance terms and, once vested, are exercisable up to 31 October 2007, and otherwise on the terms and conditions set out in Annexure A of this Explanatory Statement.
• $(d)$ the Shares were issued for nil consideration:
• $(e)$ the Shares were issued on the same terms as the Company's existing Shares;
• $(f)$ the securities were issued as the Directors consider that the incentives to the recipients, represented by the issue of these securities, are a cost effective and efficient reward and incentive for the Company, as opposed to alternative forms of incentive, such as the payment of additional cash compensation to the recipients; and
• there will be no funds raised by the issue of securities to the parties above, as $(g)$ the securities are being issued for nil consideration.

$4.2$ Resolution 2(b) - Ratification of Share Issue to Australian Pork Ltd

The Company has recently issued 330,525 Shares in relation to the acquisition of 107,165 VectoGen Shares and 90,304 VectoGen Options from Australian Pork Limited.

Resolution 2(b) seeks ratification of the issue of these securities pursuant to Listing Rule 7.4 for the purpose of effectively re-instating the maximum limit under the Listing Rules on the number of securities that the Company may issue in any 12 month period without shareholder approval.

For the purposes of Listing Rule 7.5, the Shares issued were credited as fully paid and on the same terms as the Company's existing fully paid shares. The shares were issued at a deemed price of 11 cents each. There will be no funds raised by the issue of shares to Australian Pork Ltd, as the Shares were issued as consideration for the acquisition of the VectoGen Shares and VectoGen Options held by Australian Pork Ltd.

5. RESOLUTION 3- DEEDS OF INDEMNITY AND ACCESS

$5.1$ Background

The purpose of Resolution 3 is to enable the Company to provide each Director with a reasonable level of protection in relation to claims made against a Director acting as a director of the Company.

Given their duties and responsibilities as directors of a public company and their potential liabilities, the Directors consider it appropriate that they be suitably protected from certain claims made against them. The proposed protection will not extend to the extent it is prohibited by the Corporations Act.

As a person may be called to account for his or her actions several years after ceasing to be a director of a company, it is considered reasonable that suitable protection should extend for a period of time after a Director has ceased to be a director of the Company.

It is generally recognised that a director or former director of a company may face considerable difficulty in properly answering or defending any claim made against him or her, particularly, as is often the case, where the claim is brought after the director ceases to hold office. Difficulties may arise by reason of the following:

No indemnity after directorship ends $(a)$

While a company's constitution provides directors with an indemnity in respect of claims made while they remain directors arguably, that indemnity ceases when the directorship ends. Without the benefit of an indemnity, the cost of defending such a claim in respect of the actions of a director or former director, even if the claim is ultimately proven to be without merit, can be considerable and beyond the financial resources of the individual director.

$(b)$ Maintenance of insurance policies

Directors' and officers' insurance policies generally only provide cover for claims made during the currency of the insurance policy, ie, while insurance premiums continue to be paid on the policy. Generally, unless insurance premiums continue to be paid after the time a person ceases to be a director, claims made after cessation of the directorship will not be covered by the insurance policy. The cost to a former director of personally maintaining insurance cover after ceasing to be a director can be prohibitive, particularly given the number of years for which insurance must be maintained and given the former director will no longer be receiving any income from the Company.

$(c)$ Access to board papers

Directors have a statutory right to inspect the books of the Company:

• $(i)$ whilst they hold office; and
• for a period of 7 years after the director ceases to hold office, $(ii)$

at all reasonable times for the purpose of a legal proceeding to which the director is a party, that the director proposes in good faith to bring or that the director has reason to believe will be brought against him or her.

Despite this statutory right, directors may require access to company documents which are relevant to the director's holding office as a director of the Company and not strictly required for the purpose of anticipated, threatened or commenced legal proceedings. Furthermore, although a proceedings may be instituted within six years after a cause of action arises, that six year period is calculated from the date the damage is found to have occurred $-$ this may be long after the conduct in question, from which the later damage arose, actually occurred.

Given these difficulties a person may be unwilling to become or to remain as a director of a public company without suitable protection being provided by the Company. The benefit to the Company in providing such protection is that it will continue to be able to attract persons of suitable expertise and experience to act as directors.

$5.2$ Summary of the Directors' Indemnity and Access Deed

To provide Directors with a suitable level of protection, the Company proposes to enter into a Deed of Indemnity and Access with each Director. In summary, under each deed:

• the Company will indemnify each Director during the period of his or her $(a)$ directorship and after the cessation of his directorship, in respect of certain claims made against that director in his or her capacity as a director of the Company to the extent allowable under the Corporations Act;
• the Company will use its best endeavours (subject to cost and availability) to $(b)$ maintain an insurance policy and pay the premiums of insurance as assessed at market rates applicable from time to time, to the extent available under the Corporations Act, for each Director in respect of certain claims made against him or her in his or her capacity as a director of the Company and to continue to pay those premiums for a period of up to 7 years following the termination of his directorship; and
• $(c)$ the Company will provide each Director with access, upon ceasing for any reason to be a director of the Company and for a period of up to 7 years following that cessation, to any Company records which are either prepared or provided to the Director during the period during which the person was a director of the Company.

5.3 Summary of indemnity and insurance provisions in the Corporations Act

In considering Resolution 3, members should be aware of the following limitations in the Corporations Act concerning the provision of indemnities and insurance to Company officers. The deed for which member approval is sought under Resolution 3, complies with these limitations.

$(a)$ Section 199A of the Corporations Act

The Corporations Act now sets out specific prohibitions to the Company's ability to grant indemnities for liabilities and legal costs. Any matter that does not fall within those prohibitions are, therefore, permitted.

The Company is prohibited from indemnifying its officers against a liability if it is a liability:

• to the Company or any of its related bodies corporate; $(i)$
• $(ii)$ to a third party that arose out of conduct involving a lack of good faith; or
• for a pecuniary penalty order or a compensation order under the $(iii)$ Corporations Act (such orders being made for breaches such as breaches of director's duties, the related party rules and insolvent trading rules).

The Company is also prohibited from indemnifying its officers against legal costs incurred:

• in defending actions where an officer is found liable for a matter for which $(i)$ he or she cannot be indemnified by the Company as set out immediately above:
• $(ii)$ in defending criminal proceedings where the officer is found guilty;
• in defending proceedings brought by the ASIC or a liquidator for a court $(iii)$ order if the grounds for making the order are found by the court to be established: or
• $f(x)$ in connection with proceedings for relief to the director under the Corporations Act where the court denies the relief.
• $(b)$ Section 199B of the Corporations Act

If the Company, or a related body corporate of the Company, pays the premium on an insurance policy in favour of a director, then section 199B of the Corporations Act requires the Company to ensure that the relevant contract of insurance does not cover liabilities incurred by the officer arising out of conduct involving either:

• $(i)$ a wilful breach of duty in relation to the Company; or
• contravention of the provisions relating to an officer making improper use $(ii)$ of information or improper use of his or her position for his or her advantage or gain, or to the detriment of the Company.

5.4 Member approval

To enable the Company to enter into Deeds of Indemnity and Access with each Director, Resolution 3 seeks member approval in accordance with the following provisions of the Corporations Act:

Section 200B of the Corporations Act $(a)$

Section 200B of the Corporations Act relevantly provides that the Company cannot give a benefit to a Director in connection with the retirement of that Director from his or her office, without member approval.

The Directors consider that as the:

• $(i)$ proposed payment of insurance premiums;
• $(ii)$ benefit of the indemnity in relation to liabilities incurred during the period a Director holds office; and
• $(iii)$ Director's access to Company records.

continues for a period of up to 7 years after the Director ceases to hold office, this may be viewed as the provision of a benefit given "in connection with" the Director's retirement from the board for the purposes of section 200B of the Corporations Act.

The insurance premiums under each Deed of Indemnity and Access will be calculated at the market rates applicable from time to time.

A copy of all company documents will be kept at the Company's registered office and made available for inspection and copying by each Director for a period of 7 years after he or she ceases to hold office, for whatever reason.

$(b)$ Section 208 of the Corporations Act

Chapter 2E of the Corporations Act prohibits a company from giving a financial benefit to a related party of the company unless either:

• $(i)$ the giving of the financial benefit falls within one of the nominated exceptions to the provision (eg section 212); or
• $(ii)$ prior shareholder approval is obtained to the giving of the financial benefit.

For the purposes of Chapter 2E, each of the Directors of the Company is considered to be a related party of the Company.

The provision of insurance and indemnity to existing Directors may involve the provision of a financial benefit to related parties of the Company within the prohibition provided by Chapter 2E of the Corporations Act. The Directors consider that, although the payment of insurance premiums and the provision of indemnities by the Company may constitute "reasonable remuneration" of a related party and may therefore be excepted from the prohibition in Chapter 2E of the Corporations Act, consideration of the reasonable nature of the provision of any indemnity or insurance is an appropriate matter for the shareholders of the Company.

In accordance with section 219 of the Corporations Act, the following information is provided to shareholders to allow them to assess the proposed resolution:

• $(i)$ The Company proposes to take out an insurance policy which will provide insurance cover for Directors against all permitted liabilities incurred by Directors acting as a director of the Company.

• $(ii)$ The insurance premiums payable each will be calculated at market rates applicable from time to time with an indicative range of \$4,000 - \$6,000 per Director per annum.

• $(iii)$ The following Directors are each related parties of the Company to whom the proposed resolutions would permit the giving of benefits:

• $(A)$ Graham Dowland;
• $(B)$ Dr Warwick Lamb: and
• $(C)$ Roger Steinepreis.
• $(iv)$ The nature of the benefit to be given to each of the Directors is as follows:
• $(A)$ the Company undertakes to indemnify each Director against liabilities incurred in relation to acts or omissions occurring during the period of his directorship on the board of the Company; and
• $(B)$ the Company undertakes to use its best endeavours (subject to cost and insurance availability) to enter into appropriate insurance policies and to pay the premiums of those insurance policies. thereby insuring each Director against certain liabilities incurred in relation to acts occurring during the period of his or her directorship on the board of the Company.
  • None of the Directors are entitled to or wish to make a $(1)$ recommendation to shareholders about the proposed resolution as each holds an interest in the benefit proposed to be given by the Company to each of them, as each is a proposed party to the Deed of Indemnity and Access.
  • $(2)$ Neither the Directors nor the Company are aware of any other information that would be reasonably required by shareholders to make a decision in relation to the benefits contemplated by the proposed resolution.

$(c)$ Section 195 of the Corporations Act

Section 195 of the Corporations Act provides, in essence, that a director of a public company may not vote or be present during meetings of directors when matters in which that director holds a "material personal interest" are being considered.

Resolution 3 seeks approval to allow Imugene to enter into Deeds of Indemnity and Access with each of the Directors. As each Director is considered to hold a material personal interest in the consideration of the matter, a quorum cannot be formed to consider the matter at Board level. However, by reason of section 195(4), the Directors are permitted in such instances to put the matter before the shareholders to consider and resolve.

The Directors have accordingly exercised their right under section 195(4) of the Corporations Act and have resolved to place this matter before shareholders to consider and resolve upon.

6. RESOLUTION 4-ADOPTION OF A NEW CONSTITUTION

Resolution 4 seeks the approval of shareholders to the adoption of a new Constitution for Imugene that accords with the requirements of, and incorporates recent amendments to, the Corporations Act and ASX Listing Rules with respect to limited liability companies.

A copy of the proposed new Constitution will be sent to any member upon request and will also be available for inspection at the Company's registered office during normal business hours prior to the Meeting and available for inspection at the Meeting.

Resolution 4 is a Special Resolution and requires the approval of 75% of the votes cast by members.

In summary, the proposed new Constitution includes provisions to the following effect:

Shares

The issue of shares and options by the Company is under the control of the Directors, subject to the Corporations Act, ASX Listing Rules and any rights attached to any special class of shares.

Preference Shares

The Corporations Act requires certain rights of preference shares to be either set out in the Company's Constitution or approved in general meeting by special resolution before preference shares are issued.

The new Constitution sets out a framework of rights for preference share issues from which the Board can determine to allot and issue preference shares, without the need to obtain further member approval every time an allotment of preference shares is proposed. Schedule 6 to the Constitution contains the framework as well as specific rights of preference shares as to the repayment of capital, requirements for redemption (if the preference shares are redeemable), participation in surplus assets and profits, voting rights and priority of payment of capital and Other specific terms, including the dividend amount, the redemption date (if dividends. applicable) and redemption amount (if applicable), would be set by the issuing resolution of the Directors.

Details of the preference share provisions are contained in Schedule 3 of this Explanatory Memorandum.

Reductions of Capital

The proposed Constitution removes the requirement for Court confirmation of any reduction of capital not specifically authorised by a provision of the Constitution and is consistent with the new Corporations Act requirements which must be satisfied by the Company in undertaking an alteration of capital.

Liens

If Imugene issues partly paid shares and a call made on those shares is unpaid, the Company will have a lien over the shares on which the call is unpaid. The lien may be enforced by a sale of those shares.

Transfer of Shares

Imugene may participate in any clearing and settlement facility provided under the Corporations Act, the Listing Rules and the ASX Settlement & Transfer Corporation Ptv Ltd ("ASTC") Operating Rules. Transfers through ASTC are effected electronically in ASTC's Clearing House Electronic Sub register System (CHESS). For the purposes of the Company's participation in the CHESS, the Company may issue holding statements in lieu of share certificates. The Company will not charge any fee for registering a transfer of shares. The Directors may refuse to register a transfer of shares in the circumstances permitted or required under the Corporations Act and Listing Rules.

Proportional Takeovers

A proportional takeover bid is one in which the offeror offers only to buy a specified proportion of each shareholders' shares.

The Constitution provides for shareholder approval of any proportional takeover bid for the Company's shares. Subject to the Listing Rules and ASTC Operating Rules, the provisions require the Directors to refuse to register any transfer of shares made in acceptance of a proportional takeover offer until the requisite shareholder approval has been obtained.

The perceived advantages of including proportional takeover provisions in the Constitution are that such provisions may:

• $(a)$ enhance the bargaining power of Directors in connection with any potential sale of the Company:
• $(b)$ improve corporate management by eliminating the possible threat of a hostile takeover through longer term planning:
• $(c)$ make it easier for Directors to discharge their fiduciary and statutory duties to Imugene and its members to advise and guide in the event of a proportional bid occurring; and
• $(d)$ strengthen the position of members of the Company in the event of a takeover, assuming the takeover will result in a sharing of wealth between the offeror and shareholders, as the more cohesive members are in determining their response the stronger they are. A requirement for approval can force members to act in a more cohesive manner. Where members know that a bid will only be successful if a specified majority of members accept the offer, they have less to fear by not tendering to any offer which they think is too low.

The perceived disadvantages of including proportional takeover provisions in the Constitution include the following matters:

• (a) a vote on approval of a specific bid suffers from a bias in favour of the incumbent Board:
• $(b)$ the provisions are inconsistent with the principle that a share in a public company should be transferable without the consent of other shareholders; and
• a shareholder may lack a sufficient financial interest in any particular company to $(c)$ have an incentive to determine whether the proposal is appropriate.

To comply with the Corporations Act, the proportional takeover provisions must be renewed by members in general meeting at least every 3 years to remain in place.

Details of the proportional takeover provisions are contained in Schedule 1 of this Explanatory Memorandum.

Alterations of share capital

Shares may be converted or cancelled with member approval and Imugene's share capital may be reduced in accordance with the requirements of the Corporations Act and the Listing Rules.

Buv Backs

Imugene may buy back shares in itself on terms and at such times determined by the Directors.

Disposal of less than a Marketable Parcel

For the sake of avoiding excessive administration costs, the Constitution contains provisions enabling the Company to procure the disposal of shares where the member holds less than a marketable parcel of shares within the meaning of the Listing Rules (being a parcel of shares with a market value of less than \$500). To invoke this procedure, the Directors must first give notice to the relevant member holding less than a marketable parcel of shares, who may then elect not to have his or her shares sold by notifying the Directors.

The proposed disposal of unmarketable parcel provisions of the Constitution are set in Schedule 2 of this Explanatory Memorandum.

Variation of class rights

Class rights attaching to a particular class of shares may be varied or cancelled with the consent in writing of holders of 75% of the shares in that class or by a special resolution of the holders of shares in that class.

Meetings of members

Directors may call a meeting of members whenever they think fit. Members may call a meeting as provided by the Corporations Act. The Constitution contains provisions prescribing the content requirements of notices of meetings of members and all members are entitled to a notice of meeting. Consistent with the new Corporations Act provisions, a meeting may be held in two or more places linked together by audio-visual communication devices. A quorum for a meeting of members is 2 eligible voters.

Imugene will hold annual general meetings in accordance with the Corporations Act and the Listing Rules.

Voting of members

Resolutions of members will be decided by a show of hands unless a poll is demanded. On a show of hands each eligible voter present has one vote. On a poll each eligible member has one vote for each fully paid share held and a fraction of a vote for each partly paid share determined by the amount paid up on that share.

Proxies

An eligible member may appoint a proxy to attend and vote at the meeting on the member's behalf. The Constitution contains provisions specifying the form and manner of lodgement of proxy instruments. A member which is a corporation may appoint an individual to act as its representative.

Directors

Unless changed by Imugene in general meeting, the minimum number of directors is 3 and the maximum is 10. The existing directors and Imugene may appoint a new Director to fill a casual vacancy or as an addition to the board. Any such Director must retire at the next following Annual General Meeting of the Company (at which meeting he or she may be eligible for election as director). No Director other than the Managing Director may hold office for longer than 3 years without submitting himself or herself for re-election.

Powers of Directors

The business of Imugene is to be managed by or under the direction of the Directors.

Remuneration of Directors

The fees payable to non-executive Directors must not exceed the aggregate fixed sum determined by members in general meeting and must not be by way of commission on, or percentage of, profits or operating revenue.

The remuneration of executive Directors will be subject to the provisions of any contract between each of them and the Company and may be by way of commission on, or percentage of, profits of the Company, but will not be by way of commission on, or percentage of, operating revenue.

Execution of documents

In accordance with the recent amendments to the Corporations Act, the Constitution provides for execution of documents by the Company without the use of Imugene's company seal.

Dividends

The Directors may fx the amount, the time for payment and the method of payment of a dividend. Subject to any special rights attaching to shares (such as preference shares), dividends will be paid proportionately. Imagene is not required to pay any interest on dividends.

Indemnities and insurance

To the extent permitted by law, Imugene indemnifies every person who is or has been a Director or Secretary of the Company against a liability incurred by that person in his or her capacity as a Director or Secretary provided that the liability does not arise out of conduct involving a lack of good faith (otherwise referred to as an excluded liability). A similar indemnity is provided in respect of legal proceedings. Imagene may also pay the premiums on directors' and officers' liability insurance.

Directors' Recommendation

The Directors unanimously recommend that members vote in favour of the adoption of the new Constitution for Imugene as outlined above.

$\overline{7}$ . GLOSSARY OF TERMS

In this Explanatory Memorandum the following expressions have the following meanings:

"ASIC" means the Australian Securities and Investments Commission.

"ASX" means Australian Stock Exchange Limited.

"Business Day" has the meaning ascribed to that term in the Listing Rules.

"Convertible Preference Share" means a convertible preference share issued pursuant to section 4 of this Explanatory Memorandum on the terms and conditions contained in Annexure A.

"Corporations Act" means the Corporations Act (2001).

"Deferred Consideration" has the meaning ascribed in section 4 of this Explanatory Memorandum.

"Directors" means the directors of Imugene from time to time.

"FAV Gamma Sublicense" means the agreement between VectoGen and Merial in regard to the further utilisation of FAV ("Fowl Adenovirus Vector") Gamma technology.

"FAV IB Sublicense" means the agreement between VectoGen and Merial in regard to the further utilisation of FAV-IB ("Fowl Adenovirus Vector Infectious Bronchitis") technology.

"Imugene" means Imugene Limited ABN 99 009 179 551.

"Imugene Option" means an option to acquire a fully paid share in the capital of Imugene.

"Imugene Share" means a fully paid ordinary share in the capital of Imugene.

"Independent Expert's Report" means the report by Stanton Partners Corporate Pty Ltd accompanying this Explanatory Memorandum.

"Initial Consideration" has the meaning ascribed in section 4 of this Explanatory Memorandum.

"Insurance Run-Off Period" means the period commencing on the date the director ceases to be a director of the Company and expiring on:

• on the date 7 years after the director ceases to be a director of the $(a)$ Company; or
• $(b)$ where run-off insurance cannot be procured at reasonable policy premiums for the full period in paragraph (a), the latest date to which run-off insurance can be procured.

"Intervet" means Intervet International B.V.

"Listing Rules" means the listing rules of ASX.

"Market Capitalisation" means a weighted average market capitalisation achieved over a period of 20 consecutive trading days on the ASX.

"Meeting" means the general meeting of shareholders of Imugene convened by this Notice.

"Merial" means Merial Limited, a company limited by shares registered in England and Wales (registered number 3332751).

"Notice" or "Notice of Meeting" means the notice of general meeting that accompanies this Explanatory Memorandum.

"Option" means an option to subscribe for one Share exercisable at 11.25 cents each on or before 31 December 2004 and otherwise upon the terms and conditions contained in Annexure B.

"PAV Respiratory Product" means Porcine Adenovirus Respiratory technology.

"Performance Option" means an option to subscribe for one Share exercisable at 22.5 cents each on or before 31 October 2007 and otherwise upon the terms and conditions contained in Annexure A.

"Resolution" means a resolution referred to in the Notice of Meeting.

"Share" or "Shares" means a fully paid ordinary share in the capital of Imugene.

"Trading Day" has the meaning ascribed to that term in the Listing Rules.

"VectoGen" means VectoGen Limited ABN 40 089 058 284.

"VectoGen Option" means an option to acquire a fully paid share in the capital of VectoGen.

"VectoGen Share" means a fully paid ordinary share in the capital of VectoGen.

"VectoGen Vendors" includes Charles Morgan, Techstart Australia Pty Ltd, McRae Investments Pty Ltd, Inovax Limited, Adrian Hodgson, Greg Johnston and Chris Langoulant.

ANNEXURE A

Performance Options - Summary Terms and Conditions

• $(a)$ each option entitles the holder, when exercised, to one (1) Share;
• $(b)$ Dr Michael Sheppard and Dr Kevin Fahev $\Omega$ 50% of the options are exercisable during the period from 1 December 2003 to 31 October 2007, the balance of the options are exercisable during the period from 1 December 2004 to 31 October 2007:
• Southern Cross Equities Pty Ltd $(ii)$ the options are exercisable during the period from 1 January 2004 to 31 October 2007:
• $(c)$ the exercise price of the options is 22.5 cents each;
• the options are exercisable by delivering to the registered office or share register of the $(d)$ Company a notice in writing stating the intention of the option holder to exercise a specified number of options, accompanied by an option certificate, if applicable, and a cheque made payable to the Company for the subscription monies due, subject to the funds being duly cleared funds. The exercise of only a portion of the options held does not affect the holder's right to exercise the balance of any options remaining:
• $(e)$ all shares issued upon exercise of the options will rank pari passu in all respects with the Company's then issued shares. The options will be unlisted;
• $(f)$ there are no participating rights or entitlements inherent in the options and holders will not be entitled to participate in new issues of options to shareholders during the currency of the options. However, the Company will ensure that, for the purpose of determining entitlements to any issue. Option holders will be notified of the proposed issue at least seven (7) business days before the record date of any proposed issue. This will give option holders the opportunity to exercise the options prior to the date for determining entitlements to participate in any such share;
• in the event of any reconstruction (including consolidation, subdivision, reduction or $\left( \mathbf{g} \right)$ return of capital) of the issued capital of the Company prior to the expiry date of the options, all rights of the option holder will be varied in accordance with the ASX Listing Rules: and
• $(h)$ in the event the Company makes a pro rata issue of securities, the exercise price of the options wil change in accordance with the formula set out in ASX Listing Rule 6.22.2.

Additional Performance Criteria for Southern Cross Equities Pty Ltd ("SCE")

• $(1)$ The options granted to SCE are exercisable, subject to paragraph (b), on the first business day after which all of the following conditions have been satisfied:

• (i) SCE has acted as Underwriter or sponsoring broker for a capital raising by the Company; and

• (ii) the Company successfully completes the capital raising by 31 December 2003 for an amount to be determined by the Directors of the Company (together, the Conditions Precedent); and

• $(2)$ if the Conditions Precedent are not satisfied by 31 December 2003, then all options granted to SCE shall immediately expire. However, in the event the Company does not instruct SCE in sufficient time to undertake a capital raising by 31 December 2003, the Conditions Precedent terminate and the options remain exercisable by SCE.

Options - Summary Terms and Conditions

• $(a)$ The Options will expire on 31 December 2004 ("Expiry Date").
• $(b)$ The exercise price of each Option is 11.25 cents each ("Exercise Price").
• Each Option exercised will entitle the holder to one Share in the capital of the Company. $(c)$
• The Options may be exercised at any time prior to the Expiry Date, in whole or in part. $(d)$ upon payment of the Exercise Price per option.
• The Company will provide to each option holder a notice that is to be completed when $(e)$ exercising the Options ("Notice of Exercise"). Options may be exercised by the option holder in whole or in part by completing the Notice of Exercise and forwarding the same to the Secretary of the Company to be received prior to the Expiry Date. The Notice of Exercise must state the number of Options exercised, the consequent number of Shares to be allotted and the identity of the proposed allottee. The Notice of Exercise by an option holder must be accompanied by payment in full for the relevant number of Shares being subscribed, being an amount of the Exercise Price per Share.
• $(f)$ All Shares issued upon exercise of the options will rank pari passu in all respects with the Company's then existing Shares.
• There are no participating rights or entitlements inherent in the options and holders will not $\left( \mathbf{g} \right)$ be entitled to participate in new issues of securities offered to shareholders of the Company during the currency of the options. Subject to paragraph h), an option holder is required to exercise the options in order to participate in any new issue of securities offered to shareholders by the Company for subscription on a pro rata basis. Option holders will be provided written notice of the terms of the pro rata offer to shareholders and afforded that period of time as required by the Listing Rules of ASX before the record date to determine entitlements to the offer to exercise their options.
• If from time to time on or prior to the Expiry Date the Company makes a bonus issue of $(h)$ securities to the holders of Shares in the Company (a "bonus issue"), then upon exercise of his or her options an option holder will be entitled to have issued to him or her (in addition to the shares which he or she is otherwise entitled to have issued to him or her upon such exercise) that number of securities which would have been issued to him or her under that bonus issue ("bonus securities") if the options had been exercised before the record date for the bonus issue.
• In the event of any reconstruction (including consolidation, subdivision, reduction or return) $(i)$ of the issued capital of the Company, on or prior to the Expiry Date, the options will be reorganised in accordance with the Listing Rules of ASX.

• Options are transferable, subject to the requirements of the Listing Rules of ASX $(i)$ concerning any options classified as restricted securities.

• $(k)$ Shares allotted and issued pursuant to the exercise of an Option will be allotted and issued not more than 15 Business Days after the receipt of a properly executed notice of exercise of the Option and the application monies. The Company will apply for, and use its best endeavours to obtain, Official Quotation of shares issued pursuant to the exercise of the Options, in accordance with the Listing Rules.

• $\left( \mathbf{l} \right)$ Application will not be made for Official Quotation of the Options on ASX.

ANNEXURE C

Series A Convertible Preference Shares - Terms and Conditions

$\mathbf{1}$ DEFINITIONS

In these terms and conditions:

ASX Listing Rules means the Listing Rules of Australian Stock Exchange Limited.

Completion means completion of any one of the share sale agreements between Imugene and the VectoGen Vendors.

Converting Preference Shareholder means a holder of Series A Converting Preference Shares.

Corporations Act means the Corporations Act 2001 (Cth).

FAV Gamma Milestone means Merial Limited executing a "FAV Gamma" sub-licence agreement with VectoGen within 18 months from the date of Completion.

Imugene or Company means Imugene Limited (ABN 99 009 179 551).

Imugene Shares means a fully paid ordinary share in the capital of Imugene.

Imugene Shareholder means aholder of Imugene Shares.

Market Capitalisation Target means a weighted average market capitalisation of \$33,000,000 achieved over a period of 20 consecutive trading days on Australian Stock Exchange Limited at any time during the 12 months from the date of Completion.

$\overline{2}$ . TYPE AND PRICE

$2.1$ Type of Preference Share

Imugene may issue a preference share to be termed a "Series A Converting Preference Share" on the terms and conditions set out below.

$2.2$ Price

The issue price of each Series A Converting Preference Share will be deemed to be \$1.00.

3. DIVIDENDS

$3.1$ Entitlement to Dividends

A Converting Preference Shareholder is entitled to receive a 5% fixed dividend in priority to Imugene Shareholders, on the terms set out in this section 3 (Dividend).

$3.2$ Payment of Dividend

Dividends attributable to the Series A Converting Preference Share shall be paid if a dividend is declared by the Directors and there are funds of Imugene legally available to pay the Dividend.

3.3 Cumulative

The right to a Dividend is cumulative.

3.4 Books Closing Date

• $(a)$ Dividends are payable to the registered holder of Series A Converting Preference Shares as they appear in the register for Series A Converting Preference Shares on the books closing date set for this purpose by Imugene.
• $(b)$ The Series A Converting Preference Shares shall rank pari passu for all Dividends with all other preference shares issued by the company.

3.5 Method of Payment

Dividends shall be deemed paid if paid by cheque or direct debit on (or as soon as practicable after) the date determined by the Directors that a Dividend is to be paid or the Conversion Date (as applicable) to the account or address nominated by the Converting Preference Shareholder.

CONVERSION 4.

4.1 Non Redeemable

The Series A Converting Preference Shares are not redeemable, and will be converted into Imugene Shares in accordance with this section 4.

$4.2$ Conversion Condition

In the event the market capitalisation of the Purchaser achieves the Market Capitalisation Target (Conversion Condition), the Series A Converting Preference Share will be eligible for conversion upon the occurrence of the milestone set out in clauses 4.3.

4.3 FAV Gamma Milestone

Subject to clause 4.2, the Series A Converting Preference Share will automatically convert to Imugene Shares in accordance with the formula set out in clause 5.1 in the event the FAV Gamma Milestone is achieved.

4.4 Statements

As soon as practicable after conversion of the Series A Converting Preference Share, Imugene shall dispatch statements or certificates in respect of the Imugene Shares resulting from the conversion.

5. CONVERSION TO ORDINARY SHARES

5.1 Number of Ordinary Shares

The holder of a Series A Converting Preference Share which is the subject of conversion due to the achievement of a Milestone, will be allotted on conversion, Imugene Shares on the basis of 1,662 Imugene Shares for every one (1) Series A Converting Preference Share held.

5.2 Milestone not achieved

In the event that either:

• the Conversion Condition is not satisfied; and/or $(a)$
• the FAV Gamma Milestone is not achieved. (b)

then the number of Series A Converting Preference Share that have not been converted due to (a) and/or (b) above shall automatically convert to one (1) Imugene Share for every one (1) Series A Converting Preference Share held by the Converting Preference Shareholder upon the expiry of the period for satisfaction of the Conversion Condition and/or the FAV Gamma Milestone.

RIGHT TO PARTICIPATE IN RETURN OF CAPITAL 6.

Converting Preference Shareholders have the right to participate in returns of capital to holders of Imugene Shares in preference to the holders of Ordinary Shares and as set out in paragraph 3.

CAPITAL RECONSTRUCTION 7.

If Imugene's share capital is reconstructed, consolidated or divided into (respectively) a lesser or greater number of securities the Board shall reconstruct, consolidate or divide the Series A Converting Preference Share on the same basis.

ISSUE OF ORDINARY SHARES FOR NO CONSIDERATION 8.

Imugene shall allot the Imugene Shares the subject of the conversion of the Series A Converting Preference Share, for no consideration and shall record the allotment in the manner required by the Corporations Act.

9. REDEMPTION

Series A Converting Preference Share are not redeemable.

10. RANKING AND RIGHTS ON LIQUIDATION

Prior to conversion: $10.1$

$(a)$ Series A Converting Preference Share rank pari passu with Imugene Shares for the payment of Dividends; and

• $(b)$ if there is a return of capital on liquidation of Imagene, first, Converting Preference Shareholders will be entitled to receive out of the assets of Imugene in priority to the holders of Imugene Shares, but pro rata with all other preference shareholders:
• an amount equal to any Dividend accrued but not paid; and
• an amount of \$1.00 for each Series A Converting Preference Share,

and second, Imugene Shareholders shall be entitled to receive out of the surplus assets an amount equal to any Dividend accrued but not paid and the paid up amount for each Imugene Share and thereafter the Converting Preference Share shall participate in any final distribution of surplus assets on a pro rata basis with Imugene Shareholders or any other class of shares ranking after Series A Converting Preference Share. If, upon such return of capital, there are insufficient funds to pay in full these priority amounts and the amounts payable in respect of any other shares in Imugene ranking as to any such distribution equally with Series A Converting Preference Share on liquidation, then the Converting Preference Shareholders and the holders of any such other equally ranking shares, will share in any such distribution of assets of Imugene in proportion to the full respective preferential amounts to which they are entitled.

10.2 Following Conversion

Following conversion, as and from 5.00pm (WST) on the allotment date of the Imugene Shares arising from conversion, those Imugene Shares rank equally with and confer rights identical with all other fully paid Imugene Shares then on issue.

11. TRANSFER

Series A Converting Preference Share are not transferable.

$12$ NOTICE OF REPORTS

Converting Preference Shareholders have the same right as Imugene Shareholders to receive notices, reports and audited accounts and to attend general meetings of Imugene, and are entitled to vote in the circumstances set out in paragraph 13.

VOTING RIGHTS 13.

The Converting Preference Shareholder shall have no right to vote save for those circumstances listed in ASX Listing Rule 6.3.

14. RESTRICTIONS

Prior to conversion of all the Series A Converting Preference Share, Imugene shall if a takeover bid (within the meaning of the Corporations Act) is made for the Imugene Shares (and the Series A Converting Preference Shares have not been converted) which is recommended by the Board, use reasonable endeavours to procure that equivalent offers are made to the Converting Preference Shareholders.

ANNEXURE D

Series B Convertible Preference Shares - Terms and Conditions

$\mathbf{1}$ DEFINITIONS

In these terms and conditions:

ASX Listing Rules means the Listing Rules of Australian Stock Exchange Limited.

Completion means completion of any one of the share sale agreements between Imugene and the VectoGen Vendors.

Converting Preference Shareholder means a holder of Series B Converting Preference Shares.

Corporations Act means the Corporations Act 2001 (Cth).

FAV IB Milestone means Merial Limited executing a "FAV IB" sub-licence within 18 months from the date of Completion.

Imugene or Company means Imugene Limited (ABN 99 009 179 551).

Imugene Shares means a fully paid ordinary share in the capital of Imugene.

Imugene Shareholder means a holder of Imugene Shares.

Market Capitalisation Target means a weighted average market capitalisation of \$33,000,000 achieved over a period of 20 consecutive trading days on Australian Stock Exchange Limited at any time during the 12 months from the date of Completion.

$\overline{2}$ . TYPE AND PRICE

$2.1$ Type of Preference Share

Imugene may issue a preference share to be termed a "Series B Converting Preference Share" on the terms and conditions set out below.

$2.2$ Price

The price of each Series B Converting Preference Share will be deemed to be \$1.00.

3. DIVIDENDS

$3.1$ Entitlement to Dividends

A Converting Preference Shareholder is entitled to receive a 5% fixed dividend in priority to Imugene Shareholders, on the terms set out in this section 3 (Dividend).

$3.2$ Payment of Dividend

Dividends attributable to the Series B Converting Preference Share shall be paid if a dividend is declared by the Directors and there are funds of Imugene legally available to pay the Dividend.

3.3 Cumulative

The right to a Dividend is cumulative.

3.4 Books Closing Date

• $(a)$ Dividends are payable to the registered holder of Series B Converting Preference Shares as they appear in the register for Series B Converting Preference Shares on the books closing date set for this purpose by Imugene.
• $(b)$ The Series B Converting Preference Shares shall rank pari passu for all Dividends with all other preference shares issued by the company.

3.5 Method of Payment

Dividends shall be deemed paid if paid by cheque or direct debit on (or as soon as practicable after) the date determined by the Directors that a Dividend is to be paid or the Conversion Date (as applicable) to the account or address nominated by the Converting Preference Shareholder.

CONVERSION 4.

4.1 Non Redeemable

The Series B Converting Preference Shares are not redeemable, and will be converted into Imugene Shares in accordance with this section 4.

4.2 Conversion Condition

In the event the market capitalisation of the Purchaser achieves the Market Capitalisation Target (Conversion Condition), the Series B Converting Preference Share will be eligible for conversion upon the occurrence of the milestone set out in clauses 4.3.

4.3 FAB IB Milestone

Subject to clause 4.2, the Series B Converting Preference Share will automatically convert to Imugene Shares in accordance with the formula set out in clause 5.1 in the event the FAV IB Milestone is achieved.

4.4 Statements

As soon as practicable after conversion of the Series B Converting Preference Share, Imagene shall dispatch statements or certificates in respect of the Imagene Shares resulting from the conversion.

CONVERSION TO ORDINARY SHARES 5.

Number of Ordinary Shares 5.1

The holder of a Series B Converting Preference Share which is the subject of conversion due to the achievement of a Milestone, will be allotted on conversion, Imugene Shares on the basis of 1,662 Imugene Shares for every one (1) Series B Converting Preference Share held.

$5.2$ Milestone not achieved

In the event that either:

• the Conversion Condition is not satisfied; and/or $(a)$
• $(b)$ the FAB IB Milestone is not achieved,

then the number of Series B Converting Preference Share that have not been converted due to (a) and/or (b) above shall automatically convert to one (1) Imugene Share for every one (1) Series B Converting Preference Share held by the Converting Preference Shareholder upon the expiry of the period for satisfaction of the Conversion Condition and/or the FAB IB Milestone.

RIGHT TO PARTICIPATE IN RETURN OF CAPITAL 6.

Converting Preference Shareholders have the right to participate in returns of capital to holders of Imugene Shares in preference to the holders of Ordinary Shares and as set out in paragraph 10.

7. CAPITAL RECONSTRUCTION

If Imugene's share capital is reconstructed, consolidated or divided into (respectively) a lesser or greater number of securities the Board shall reconstruct, consolidate or divide the Series B Converting Preference Share on the same basis.

ISSUE OF ORDINARY SH ARES FOR NO CONSIDERATION 8.

Imugene shall allot the Imugene Shares the subject of the conversion of the Series B Converting Preference Share, for no consideration and shall record the allotment in the manner required by the Corporations Act.

9. REDEMPTION

Series B Converting Preference Share are not redeemable.

RANKING AND RIGHTS ON LIQUIDATION 10.

10.1 Prior to conversion:

$(a)$ Series B Converting Preference Share rank pari passu with Imugene Shares for the payment of Dividends; and

• $(b)$ if there is a return of capital on liquidation of Imagene, first, Converting Preference Shareholders will be entitled to eceive out of the assets of Imugene in priority to the holders of Imugene Shares, but pro rata with all other preference shareholders:
• an amount equal to any Dividend accrued but not paid; and
• an amount of \$1.00 for each Series B Converting Preference Share,

and second, Imugene Shareholders shall be entitled to receive out of the surplus assets an amount equal to any Dividend accrued but not paid and the paid up amount for each Imugene Share and thereafter the Converting Preference Share shall participate in any final distribution of surplus assets on a pro rata basis with Imugene Shareholders or any other class of shares ranking after Series B Converting Preference Share. If, upon such return of capital, there are insufficient funds to pay in full these priority amounts and the amounts payable in respect of any other shares in Imugene ranking as to any such distribution equally with Series B Converting Preference Share on liquidation, then the Converting Preference Shareholders and the holders of any such other equally ranking shares, will share in any such distribution of assets of Imugene in proportion to the full respective preferential amounts to which they are entitled.

10.2 Following Conversion

Following conversion, as and from 5.00pm (WST) on the allotment date of the Imugene Shares arising from conversion, those Imugene Shares rank equally with and confer rights identical with all other fully paid Imugene Shares then on issue.

11. TRANSFER

Series B Converting Preference Share are not transferable.

$12$ NOTICE OF REPORTS

Converting Preference Shareholders have the same right as Imugene Shareholders to receive notices, reports and audited accounts and to attend general meetings of Imugene, and are entitled to vote in the circumstances set out in paragraph 13.

VOTING RIGHTS 13.

The Converting Preference Shareholder shall have no right to vote save for those circumstances listed in ASX Listing Rule 6.3.

14. RESTRICTIONS

Prior to conversion of all the Series B Converting Preference Share, Imugene shall if a takeover bid (within the meaning of the Corporations Act) is made for the Imugene Shares (and the Series B Converting Preference Shares have not been converted) which is recommended by the Board, use reasonable endeavours to procure that equivalent offers are made to the Converting Preference Shareholders.

ANNEXURE E

Series C Convertible Preference Shares - Terms and Conditions

$\mathbf{1}$ DEFINITIONS

In these terms and conditions:

ASX Listing Rules means the Listing Rules of Australian Stock Exchange Limited.

Completion means completion of any one of the share sale agreement between Imugene and the VectoGen Vendors.

Converting Preference Shareholder means a holder of Series C Converting Preference Shares.

Corporations Act means the Corporations Act 2001 (Cth).

Imugene or Company means Imugene Limited (ABN 99 009 179 551).

Imugene Shares means a fully paid ordinary share in the capital of Imugene.

Imugene Shareholder means a holder of Imugene Shares.

Market Capitalisation Target means a weighted average market capitalisation of \$33,000,000 achieved over a period of 20 consecutive trading days on Australian Stock Exchange Limited at any time during the 12 months from the date of Completion.

PAV Respiratory Milestone means Merial Limited executing a sub-licence agreement with VectoGen for the PAV Respiratory Product within 18 months from the date of Completion.

$2_-$ TYPE AND PRICE

$2.1$ Type of Preference Share

Imugene may issue a preference share to be termed a "Series C Converting Preference Share" on the terms and conditions set out below.

$2.2$ Price

The price of each Series C Converting Preference Share will be deemed to be \$1.00.

3. DIVIDENDS

3.1 Entitlement to Dividends

A Converting Preference Shareholder is entitled to receive a 5% fixed dividend in priority to Imugene Shareholders, on the terms set out in this section 3 (Dividend).

$3.2$ Payment of Dividend

Dividends attributable to the Series C Converting Preference Share shall be paid if a dividend is declared by the Directors and there are funds of Imugene legally available to pay the Dividend.

3.3 Cumulative

The right to a Dividend is cumulative.

Books Closing Date 3.4

• $(a)$ Dividends are payable to the registered holder of Series C Converting Preference Shares as they appear in the register for Series C Converting Preference Shares on the books closing date set for this purpose by Imugene.
• $(b)$ The Series C Converting Preference Shares shall rank pari passu for all Dividends with all other preference shares issued by the company.

3.5 Method of Payment

Dividends shall be deemed paid if paid by cheque or direct debit on (or as soon as practicable after) the date determined by the Directors that a Dividend is to be paid or the Conversion Date (as applicable) to the account or address nominated by the Converting Preference Shareholder.

CONVERSION 4.

4.1 Non Redeemable

The Series C Converting Preference Shares are not redeemable, and will be converted into Imugene Shares in accordance with this section 4.

$4.2$ Conversion Condition

In the event the market capitalisation of the Purchaser achieves the Market Capitalisation Target (Conversion Condition), the Series C Converting Preference Share will be eligible for conversion upon the occurrence of the milestone set out in clauses 4.3.

4.3 PAV PCV Milestone

Subject to clause 4.2, the Series C Converting Preference Share will automatically convert to Imugene Shares in accordance with the formula set out in clause 5.1 in the event the PAV PCV Milestone is achieved.

4.4 Statements

As soon as practicable after conversion of the Series C Converting Preference Share, Imugene shall dispatch statements or certificates in respect of the Imugene Shares resulting from the conversion.

5. CONVERSION TO ORDINARY SHARES

5.1 Number of Ordinary Shares

The holder of a Series C Converting Preference Share which is the subject of conversion due to the achievement of a Milestone, will be allotted on conversion, Imugene Shares on the basis of 1,662 Imugene Shares for every one (1) Series C Converting Preference Share held.

5.2 Milestone not achieved

In the event that either:

• the Conversion Condition is not satisfied; and/or $(a)$
• $(b)$ the PAV PCV Milestone is not achieved,

then the number of Series C Converting Preference Share that have not been converted due to (a) and/or (b) above shall automatically convert to one (1) Imugene Share for every one (1) Series C Converting Preference Share held by the Converting Preference Shareholder upon the expiry of the period for satisfaction of the Conversion Condition and/or the PAV PCV Milestone.

RIGHT TO PARTICIPATE IN RETURN OF CAPITAL 6.

Converting Preference Shareholders have the right to participate in returns of capital to holders of Imugene Shares in preference to the holders of Ordinary Shares and as set out in paragraph 10.

CAPITAL RECONSTRUCTION 7.

If Imugene's share capital is reconstructed, consolidated or divided into (respectively) a lesser or greater number of securities the Board shall reconstruct, consolidate or divide the Series C Converting Preference Share on the same basis.

ISSUE OF ORDINARY SHARES FOR NO CONSIDERATION 8.

Imugene shall allot the Imugene Shares the subject of the conversion of the Series C Converting Preference Share, for no consideration and shall record the allotment in the manner required by the Corporations Act.

9. REDEMPTION

Series C Converting Preference Share are not redeemable.

10. RANKING AND RIGHTS ON LIQUIDATION

Prior to conversion: 10.1

$(a)$ Series C Converting Preference Share rank pari passu with Imugene Shares for the payment of Dividends; and

• $(b)$ if there is a return of capital on liquidation of Imagene, first, Converting Preference Shareholders will be entitled to receive out of the assets of Imugene in priority to the holders of Imugene Shares, but pro rata with all other preference shareholders:
• an amount equal to any Dividend accrued but not paid; and
• an amount of \$1.00 for each Series C Converting Preference Share,

and second, Imugene Shareholders shall be entitled to receive out of the surplus assets an amount equal to any Dividend accrued but not paid and the paid up amount for each Imugene Share and thereafter the Converting Preference Share shall participate in any final distribution of surplus assets on a pro rata basis with Imugene Shareholders or any other class of shares ranking after Series C Converting Preference Share. If, upon such return of capital, there are insufficient funds to pay in full these priority amounts and the amounts payable in respect of any other shares in Imugene ranking as to any such distribution equally with Series C Converting Preference Share on liquidation, then the Converting Preference Shareholders and the holders of any such other equally ranking shares, will share in any such distribution of assets of Imugene in proportion to the full respective preferential amounts to which they are entitled.

10.2 Following Conversion

Following conversion, as and from 5.00pm (WST) on the allotment date of the Imugene Shares arising from conversion, those Imugene Shares rank equally with and confer rights identical with all other fully paid Imugene Shares then on issue.

11. TRANSFER

Series C Converting Preference Share are not transferable.

$12$ NOTICE OF REPORTS

Converting Preference Shareholders have the same right as Imugene Shareholders to receive notices, reports and audited accounts and to attend general meetings of Imugene, and are entitled to vote in the circumstances set out in paragraph 13.

VOTING RIGHTS 13.

The Converting Preference Shareholder shall have no right to vote save for those circumstances listed in ASX Listing Rule 6.3.

14. RESTRICTIONS

Prior to conversion of all the Series C Converting Preference Share, Imugene shall if a takeover bid (within the meaning of the Corporations Act) is made for the Imugene Shares (and the Series C Converting Preference Shares have not been converted) which is recommended by the Board, use reasonable endeavours to procure that equivalent offers are made to the Converting Preference Shareholders.

Proportional Takeover Bid Approval

$\mathbf{1}$ Definitions

In this Schedule:

"Approving Resolution" means a resolution to approve a proportional takeover bid in accordance with this Schedule.

"Deadline" means the 14th day before the last day of the bid period for a proportional takeover bid.

"Voter" means a person (other than the bidder under a proportional takeover bid or an associate of that bidder) who, as at the end of the day on which the first offer under that bid was made, held bid class securities for that bid.

$\overline{2}$ Refusal of transfers

$2.1$ Requirement for an Approving Resolution

• $(a)$ The Company must refuse to register a transfer of Shares giving effect to a takeover contract for a proportional takeover bid unless and until an Approving Resolution is passed in accordance with this Schedule 1.
• $(b)$ This Schedule 1 ceases to apply on the 3rd anniversary of its last adoption, or last renewal, in accordance with the Corporations Act.

$2.2$ Voting on an Approving Resolution

• $(a)$ Where offers are made under a proportional takeover bid, the Directors must, subject to the Corporations Act, call and arrange to hold a meeting of Voters for the purpose of voting on an Approving Resolution before the Deadline.
• $(b)$ The provisions of this Constitution concerning meetings of Members (with the necessary changes) apply to a meeting held under paragraph $2.2(a)$ .
• Subject to this Constitution, every Voter present at the meeting held under $(c)$ paragraph $2.2(a)$ is entitled to one vote for each Share in the bid class securities that the Voter holds.
• $(d)$ To be effective, an Approving Resolution must be passed before the Deadline.
• An Approving Resolution that has been voted on is taken to have been $(e)$ passed if the proportion that the number of votes in favour of the resolution bears to the total number of votes on the resolution is greater than 50%, and otherwise is taken to have been rejected.
• $(f)$ If no Approving Resolution has been voted on as at the end of the day before the Deadline, an Approving Resolution is taken, for the purposes of this Schedule, to have been passed in accordance with this Schedule.

Unmarketable Parcels

$\mathbf{1}$ Definitions

In this Schedule:

"Sale Share" means a Share which is sold or disposed of in accordance with this Schedule.

$\overline{2}$ Power to sell unmarketable parcels

$2.1$ Existing unmarketable parcels

• $(a)$ Subject to the Applicable Law, the Company may sell the Shares of a Member if:
• $(i)$ the total number of Shares of a particular class held by that Member is less than a marketable parcel;
• the Company gives that Member notice in writing stating that the $(ii)$ Shares are liable to be sold or disposed of by the Company; and
• $(iii)$ that Member does not give notice in writing to the Company, by the date specified in the notice of the Company (being not less than 42 days after the date of the Company giving that notice), stating that all or some of those Shares are not to be sold or disposed of.
• $(b)$ The Company may only exercise the powers under paragraph $2.1(a)$ , in respect of one or more Members, once in any 12 month period.
• $(c)$ The power of the Company under paragraph $2.1(a)$ lapses following the announcement of a takeover bid. However, the procedure may be started again after the close of the offers made under the takeover bid.

$2.2$ New unmarketable parcels

• Subject to the Applicable Law, the Company may sell the Shares of a $(a)$ Member if:
• $(i)$ the Shares of a particular class held by that Member are in a new holding created by a transfer on or after 1 September 1999; and
• $(ii)$ that transfer is of a number of Shares of that class that was less than a marketable parcel at the time the transfer document was initiated, or in the case of a paper based transfer document, was lodged with the Company.
• $(b)$ The Company may give a Member referred to in paragraph 2.2(a) notice in writing stating that the Company intends to sell or dispose of the Shares.

$\overline{3}$ . Exercise of power of sale

$3.1$ Extinguishment of interests and claims

The exercise by the Company of its powers under paragraph 2 extinguishes, subject to this Schedule 2:

• all interests in the Sale Shares of the former Member: and $(a)$
• all claims against the Company in respect of the Sale Shares by that Member. $(b)$ including all Dividends determined to be paid in respect of those Share and not actually paid.

$3.2$ Manner of sale

• $(a)$ Subject to the Applicable Law, the Company may sell or dispose of any Shares under paragraph 2 at any time:
• $\ddot{\textbf{u}}$ using a financial services licensee on the basis that person obtains the highest possible price for the sale of the Shares; or
• $(ii)$ in any other manner and on any terms as the Directors resolve.
• $(b)$ The Company may:
• exercise any powers permitted under the Applicable Law to enable the $\mathbf{u}$ sale or disposal of Shares under this Schedule;
• $(ii)$ receive the purchase money or consideration for Sale Shares;
• $(iii)$ appoint a person to sign a transfer of Sale Shares; and
• $(iv)$ enter in the Register the name of the person to whom Sale Shares are sold or disposed.
• $(c)$ The person to whom a Sale Share is sold or disposed need not enquire whether the Company:
• properly exercised its powers under this Schedule in respect of that $\rm(i)$ Share; or
• $(ii)$ properly applied the proceeds of sale or disposal of those Shares,

and the title of that person is not affected by those matters.

• $(d)$ The remedy of any person aggrieved by a sale or disposal of Sale Shares is in damages only and against the Company exclusively.
• A certificate in writing from the Company signed by a Director or Secretary $(e)$ that a Share was sold or disposed of in accordance with this Schedule 4 is sufficient evidence of those matters.

$3.3$ Application of proceeds

• $(a)$ If the Company exercises the powers under paragraph 2.1, either the Company or the person to whom a Sale Share is sold or disposed of must pay the expenses of the sale or disposal.
• $(b)$ The Company must apply the proceeds of any sale or disposal of any Sale Shares in the following order:
• $(i)$ in the case of an exercise of the powers under paragraph 2.2, the expenses of the sale or disposal;
• the amounts due and unpaid in respect of those Shares; and $(ii)$
• the balance (if any) to the former Member or the former Member's $(iii)$ Personal Representative, on the Company receiving the certificate (if any) for those Shares or other evidence satisfactory to the Company regarding the ownership of those Shares.

$3.4$ Voting and dividend rights pending sale

• $(a)$ If the Company is entitled to exercise the powers under paragraph 2.2, the Company may by resolution of the Directors remove or change either or both:
• $(i)$ the right to vote; and
• $(ii)$ the right to receive Dividends.

of the relevant Member in respect of some or all of the Shares liable to be sold or disposed of.

$(b)$ After the sale of the relevant Sale Shares, the Company must pay to the person entitled any Dividends that have been withheld under paragraph 3.4(a).

Terms and Conditions of Preference Shares

$\mathbf{1}$ Definitions

In this Schedule, unless the context otherwise requires:

"Conversion Circumstances" means, in respect of a Converting Preference Share, whether the Preference Share is liable to be converted or convertible:

• at the option of the Holder, or of the Company, or both; $(a)$
• upon the happening of a particular event; or $(b)$
• at a fixed time. $(c)$

"Conversion Date" means, in respect of a Converting Preference Share, the date (if any) specified in the Issue Resolution for the conversion of that Preference Share or the date upon which an event specified in the Issue Resolution occurs which results in the conversion of that Preference Share

"Conversion Number" means the number, or formula for determining the number, of ordinary Shares into which a Converting Preference Share will convert upon conversion.

"Converting Preference Share" means a Preference Share which is specified in the Issue Resolution as being liable to be converted or convertible into ordinary Shares in a manner permitted by the Corporations Act, whether at the option of the Holder or otherwise

"Dividend" means any distribution of any property (including without limitation, money, Paid Up shares, debentures, debenture stock or other securities of the Company or of any other Corporation) to a Holder in respect of a Preference Share as a dividend, whether interim or final.

"Dividend Date" means, in respect of a Preference Share, a date specified in the Issue Resolution on which a Dividend in respect of that Preference Share is payable.

"Dividend Rate" means, in respect of a Preference Share, the terms specified in the Issue Resolution for the calculation of the amount of Dividend to be paid in respect of that Preference Share on any Dividend Date, which calculation may be wholly or partly established by reference to an algebraic formula.

"Franked Dividend" has the meaning given in section 160APA of the Income Tax Assessment Act 1936 (Cth)

"Holder" means, in respect of a Preference Share, the registered holder of that Share.

"Issue Resolution" means the resolution specified in paragraph 3.

"Preference Share" means a Share issued under paragraph 2.2.

"Redeemable Preference Share" means a Preference Share which is specified in the Issue Resolution as being liable to be redeemed in a manner permitted by the Corporations Act.

"Redemption Amount" means, in respect of a Redeemable Preference Share, the amount specified in the Issue Resolution to be paid on redemption of the Redeemable Preference Share.

"Redemption Circumstances" means, in respect of a Redeemable Preference Share. whether the Preference Share is liable to be redeemed:

• $(a)$ at the option of the Holder, or of the Company, or both;
• $(b)$ upon the happening of a particular event; or
• $(c)$ at a fixed time.

"Redemption Date" means, in respect of a Redeemable Preference Share, the date specified in the Issue Resolution for the redemption of that Preference Share or the date upon which an event specified in the Issue Resolution occurs which results in the redemption of that Preference Share.

"Specified Date" means, in respect of a Redeemable Preference Share, the date (if any) specified in the Issue Resolution before which that Redeemable Preference Share may not be redeemed by the Holder.

$\overline{2}$ Rights of Holders

Each Preference Share confers upon its Holder:

• $(a)$ the rights referred to in paragraph's $2.2(b)$ and $2.2(c)$ ;
• $(b)$ the right in winding up to payment in cash of the amount then paid up on it, and any arrears of Dividend in respect of that Preference Share in priority to any other class of Shares;
• $(c)$ the right in priority to any payment of a Dividend to any other class of Shares, to a cumulative preferential dividend payable on each Dividend Date in relation to that Preference Share calculated in accordance with the Dividend Rate in relation to that Preference Share; and
• no right to participate beyond the extent elsewhere specified in this $(d)$ paragraph 2 in surplus assets or profits of the Company, whether in winding up or otherwise.

$\overline{3}$ Issue Resolution

• $(a)$ The Directors may allot a Preference Share by a resolution of the Directors specifying:
• $(i)$ the Dividend Date;
• $(ii)$ the Dividend Rate:
• $(iii)$ whether the Preference Share is or is not a Redeemable Preference Share:
• if the Preference Share is a Redeemable Preference Share, the $(iv)$ Redemption Amount, the Redemption Date, the Redemption Circumstances and any Specified Date for that Redeemable

Preference Share;

• $(v)$ whether the Preference Share is or is not a Converting Preference Share:
• if the Preference Share is a Converting Preference Share, the $(v_i)$ Conversion Circumstances, the Conversion Number and any Conversion Date: and
• $(vii)$ any other terms and conditions to apply to that Preference Share.
• $(b)$ The Issue Resolution in establishing the Dividend Rate for a Preference Share may specify that the Dividend is to be:
• $(i)$ fixed:
• $(ii)$ variable depending upon any variation of the respective values of any factors in an algebraic formula specified in the Issue Resolution; or
• $(iii)$ variable depending upon such other factors as the Directors may specify in the Issue Resolution,

and may also specify that the Dividend is to be a Franked Dividend or not a Franked Dividend.

• $(c)$ Where the Issue Resolution specifies that the Dividend to be paid in respect of the Preference Share is to be a Franked Dividend the Issue Resolution may also specify:
• the extent to which such Dividend is to be franked; and $(i)$
• the consequences of any Dividend paid not being so franked, $(ii)$ which may include a provision for an increase in the amount of the Dividend to such an extent or by reference to such factors as may be specified in the Issue Resolution.

4. Redemption

• Subject to the Corporations Act, the Company must redeem a Redeemable $(a)$ Preference Share on issue:
• $(i)$ in the case where the Redeemable Preference Share is liable to be redeemed at the option of the Company, on the specified date where the Company, not less than 10 Business Days before that date, has given a notice to the Holder of that Redeemable Preference Share stating that the Redeemable Preference Share will be redeemed on the specified date;
• $(ii)$ in the case where the Redeemable Preference Share is liable to be redeemed at the option of the Holder, on the specified date where the Holder of that Redeemable Preference Share, not less than 10 Business Days before that date, has given a notice to the Company stating that the Redeemable Preference Share will be redeemed on the specified date; and

$(iii)$ in any event, on the Redemption Date,

but no Redeemable Preference Share may be redeemed by the Holder before the Specified Date unless the Redemption Date occurs before that date.

• $(b)$ On redemption of a Redeemable Preference Share, the Company, after the Holder has surrendered to the Company the Certificate (if any) in respect of that Redeemable Preference Share, must pay to the Holder the Redemption Amount by:
• directly crediting the account nominated in writing by the Holder $(i)$ from time to time: or
• $(ii)$ cheque made payable to the Holder or such other person nominated in writing by the Holder sent through the post to:
  • Á. in the case where the Holder is a joint holder of the Redeemable Preference Share, the address in the Register of the person whose name stands first on the Register in respect of the joint holding; or
  • $\mathbf{B}$ otherwise, to the address of the Holder in the Register.

5. Conversion

• $(a)$ Subject to the Corporations Act, the Company must convert a Converting Preference Share on issue:
• $(i)$ in the case where the Converting Preference Share is liable to be redeemed at the option of the Company, on the specified date where the Company, not less than 10 Business Days before that date, has given a notice to the Holder of that Converting Preference Share stating that the Converting Preference Share will be converted on the specified date;
• $(ii)$ in the case where the Converting Preference Share is liable to be redeemed at the option of the Holder, on the specified date where the Holder of that Converting Preference Share, not less than 10 Business Days before that date, has given a notice to the Company stating that the Converting Preference Share will be converted on the specified date; and
• $(iii)$ in any event, on the Conversion Date.
• $(b)$ On conversion of a Converting Preference Share the Company must allot to the Holder additional ordinary Shares such that following conversion the Holder holds that number of ordinary Shares in accordance with the Conversion Number. Conversion of a Converting Preference Shares does not constitute a cancellation, redemption or termination of a Converting Preference Share or the issue, allotment or creation of a new Share.
• $(c)$ The allotment of additional ordinary Shares on Conversion does not constitute a cancellation, redemption or termination of a Converting Preference Share. Conversion is the taking effect of existing rights of a Converting Preference Share and the ending of the special rights attached to

the Converting Preference Share.

$(d)$ Following Conversion, each Converting Preference Share will rank equally with and will confer rights identical with and impose obligations identical with all other fully paid ordinary Shares then on issue.

6. Certificate

The Certificate (if any) issued by the Company in relation to any Preference Share, must specify in relation to that Preference Share:

• $(a)$ the date of issue of the Preference Share;
• the Dividend Rate and Dividend Dates; $(b)$
• $(c)$ whether the Preference Share is a Redeemable Preference Share;
• if the Preference Share is a Redeemable Preference Share, the: $(d)$
• Redemption Circumstances; $(i)$
• $(ii)$ Redemption Amount; and
• Redemption Date to the extent possible or if not, the event which $(iii)$ if it occurs will result in redemption of that Redeemable Preference Share: and
• if the Preference Share is a Converting Preference Share, the: $(e)$
• $(i)$ Conversion Circumstances;
• $(ii)$ Conversion Number; and
• $(iii)$ Conversion Date to the extent possible or if not, the event which if it occurs will result in conversion of that Concerting Preference Share; and

Any other matter the Directors determine.

STANTON PARTNERS CORPORATE PTY LTD

A.C.N 063 036 331

1 HAVELOCK STREET WEST PERTH 6005 WESTERN AUSTRALIA

TELEPHONE: (08) 9481 3188 FACSIMILE: (08) 9321 1204

e-mail: jvideren@stanton.com.au

7 May 2003

The Directors Imugene Limited 9^th Floor, BGC Centre 28 The Esplanade PERTH WA 6000

Dear Sirs

IMUGENE LIMITED ("IMUGENE" OR "COMPANY") (ABN 99 009 179 $RF:$ 551) MEETING OF SHAREHOLDERS PURSUANT TO LISTING RULE 10.10 OF THE AUSTRALIAN STOCK EXCHANGE LTD ("ASX") ON THE PROPOSAL TO ACOUIRE 2,430,000 SHARES IN VECTOGEN LIMITED FROM CHARLES WAITE MORGAN

$\mathbf{1}$ . Introduction

$1.1$ Currently, Imugene owns 100% of Brightsun Investments Pty Ltd ("Brightsun") who in turn owns 41.05% of VectoGen Limited ("VectoGen") and 30% of Paragen Pty Ltd ("Paragen"). It is proposed that Imugene will acquire the remaining 58.95% of the issued capital of VectoGen from those shareholders who hold the 58.95% interest in VectoGen ("Vendors") and acquire 180,609 share options from a VectGen option holder.

There are 9,030,426 shares on issue in VectoGen and the Vendors own a total of 5,323,261 of which Charles Waite Morgan ("Morgan") owns 2,430,000 shares, representing approximately 26.91% of VectoGen.

Morgan until 17 April 2003 was a substantial shareholder in Imugene, representing a then 10.08% of the issued capital of Imugene.

• $1.2$ The proposal to acquire the remaining 58.95% interest (5,323,261 shares in VectoGen) of VectoGen is to be made by the issue of:
• 14,763,494 fully paid shares in Imugene upon the approval of the shareholders of Imugene to approve the acquisition of Morgan's 26.91% interest in VectoGen (14,745,433 to the VectoGen shareholders and 18,061 to a VectoGen option holder).
• The issue of 5,324 Series A Converting Preference Shares ("A Class CPS"); $\blacksquare$
• The issue of 1,774 Series B Converting Preference Shares ("B Class CPS");
• The issue of 1,774 Series C Converting Preference Shares ("C Class CPS").

• All of the Converting Preference Shares can only be converted if the market $1.3$ capitalisation of Imugene exceeds \$33,000,000 for a continuous period of 20 trading days on ASX at any time during the 12 months from the date of Completion ("Market Capitalisation Target"). Completion means completion of the share sale agreements between Imugene and the Vendors (signed 16 April 2003). The Completion Date is effective, once the 14,763,494 ordinary shares and the 8,872 CPS's are issued pursuant to resolution 1. As the shareholders will not vote on the proposal until approximately mid to late June 2003, the Market Capitalisation Target must be reached by approximately mid to late June 2004.
• $1.4$ In addition, there are other conditions ("Milestones") applying to each for the classes of Converting Preferences Shares before they can be converted to ordinary shares in Imugene (on the basis of 1.662 ordinary shares for every 1 Converting Preference Share).
• A Class CPS the FAV Gamma Milestone means Merial Limited (a London animal health company) executing a "FAV Gamma" sub-licence agreement with VectoGen within 18 months from date of Completion.
• B Class CPS the FAV 1B Milestone means Merial Limited executing a "FAV IB" sub-licence agreement within 18 months from the date of Completion.
• C Class CPS the PAV CPV Milestone means Merial Limited executing a sublicence agreement on the PAV PCV product within 18 months from the date of Completion.
• The terms and conditions of the Converting Preference Shares (all clauses) are outlined $1.5$ in further detail in the Explanatory Memorandum to Shareholders accompanying the Notice of Meeting ("Notice") (as Annexures C, D and E).

All of the Converting Preference Shares are non redeemable, however if not automatically converted to ordinary shares as a result of meeting the Market Capitalisation Target and the applicable Milestones referred to above under paragraph 1.4, the Convertible Preference Shares shall automatically convert to 1 ordinary share in Imugene for every 1 Converting Preference Shares held by the Vendors. Thus, if no conversion to ordinary shares under the Milestone scenarios, the maximum number of ordinary shares issued would be 8,872.

If all of the Milestones are reached, the number of ordinary shares in Imugene that 1.6 would be issued to the Vendors on conversion of the Converting Preference Shares would be $14,745,264$ (this is in addition to the original issue of $14,763,494$ ordinary shares referred to in paragraph 1.2).

	Ordinary Shares Upon Conversion
A Class CPS	8.848.488
B Class CPS	2.948.388
C Class CPS	2,948,388
	14,745,264

Morgan would receive the following ordinary shares if the Converting Preference Shares issued to him pursuant to resolution 1, are converted to ordinary shares upon the achieving of the Milestones:

	Ordinary Shares Upon Conversion
A Class CPS	4,038,660
B Class CPS	1,346,220
C Class CPS	1,346,220
	6.731.100

Furthermore, there are two option holders in VectoGen holding 280,609 share options. Imugene is to offer 1 Imugene ordinary share for every 10 VectoGen options. We have been advised that one of the option holders has accepted the offer, totalling 180,609 share options. Thus, Imugene will also issue a further 18,061 ordinary shares to one VectoGen option holder.

• $1.7$ Technically, we do not need to report on the proposal to acquire the whole of the 58.95% interest in VectoGen pursuant to the Listing Rules of the ASX or the Listing Rule 10.10 of the ASX only requires an Corporation Act ("TCA"). independent expert to report on related party transactions. In this case, Morgan, although not a director of Imugene was a substantial shareholder of Imugene as interests of Morgan held a 10.08% interest in Imugene (7,800,001 ordinary shares) until 17 April 2003. At the time of signing the share sale agreement, Morgan was a substantial shareholder of Imugene. Under ASX Listing Rules, a substantial shareholder is deemed a related party. Thus, our report technically is only reporting on the fairness and reasonableness of the proposal for Imugene to acquire the 26.91% interest of Morgan in VectoGen for the consideration of 6.731.100 ordinary shares in Imugene payable immediately after the approval of shareholders (resolution 1) and the issue of 2,430 A Class CPS, 810 B Class CPS and 810 C Class CPS that upon reaching various Milestones, would be converted to up to $6,731,100$ ordinary shares in Imugene (refer paragraph 1.6 above). However, in order to report on the fairness and reasonableness on the proposals with Morgan, we need to assess whether it is fair and reasonable for Imugene to acquire all of the remaining 59.85% of VectoGen from the Vendors.
• 1.8 For the purpose of takeovers, policy Statement 75 issued by the Australian Securities and Investments Commission ("ASIC") determines "fair and reasonable" as follows:
• Fair: an offer is fair if the value of the offer price or consideration is equal to or less than the value for the securities the subject of the offer; and
• Reasonable: an offer is reasonable if it is fair however it may also be reasonable, if despite not being fair after considering other significant factors, members accept the offer on absence of any higher bid before the closure of the offer.
• 1.9 Apart from this introduction, this report considers the following:
• Summary of opinion $\blacksquare$
• Implications of the proposals
• Corporate history and nature of business of Imugene and VectoGen
• Future directions of Imugene $\bullet$
• $\bullet$ Basis of valuation of Imugene shares
• $\bullet$ Value of consideration
• Basis of valuation of VectoGen

• Combined statement of financial position $\ddot{\phantom{a}}$
• Conclusion as to fairness $\ddot{\phantom{a}}$
• $\bullet$ Reasonableness of the offer
• $\blacksquare$ Conclusion as to reasonableness
• Sources of information
• Appendix A $\bullet$
• $1.10 -$ In our opinion, the proposals as outlined in resolution 1 are, on balance, reasonable to the shareholders of Imugene not associated with Morgan. For the reasons outlined in paragraph 9.3 of this report, we are unable to determine a fair value for VectoGen and therefore as the ASX requires us to report on whether the proposal is fair or not fair, we conclude that the proposal is not fair. However, on a market based approach, that takes into account the matters noted in paragraph 7.7.2 and Imugene share prices subsequent to 15 April 2003, the market considers the proposal to be fair.

The opinions expressed above must be read in conjunction with the more detailed analysis and comments made in this report.

$2.$ Implications of the Proposals

$2.1$ As at 1 May 2003, there were 77,693,859 ordinary fully paid shares on issue in Imugene. The significant fully paid shareholders at that date were believed to be:

	No. of fully paid shares	% of issued fully paid
		shares
Equifast Nominees Pty Ltd	7,570,000	9.74
Dr Warwick Lamb	6,133,334	7.89
Blueknight Corporation Pty Ltd	5,202,937	6.70
Mrs Treffina Dowland	5,086,667	6.55
Techstart Australia Pty Ltd (a VectoGen	3,400,000	4.38
Vendor)
Eurasia Pty Ltd	1.466.667	1.88
	28,859,605	37.14

The top 40 shareholders at 1 May 2003 owned approximately 59.71% of the Company.

• $2.2^{\circ}$ As at 1 May 2003, there are 4,313,340 unlisted share options, exercisable at 11.25 cents each, on or before 31 December 2004. In addition, there are 4,633,333 unlisted performance options that expire on 31 October 2007 and are exercisable at 22.5 cents each.
• $2.3$ If resolution 1 is passed and consummated, VectoGen will become an indirect wholly owned subsidiary of Imugene.

The group structure would be as follows:

$2.4$ The issued capital of the Company will increase as follows:

Current issued ordinary shares	77.693.859
Issues of ordinary shares to Vendors	14.745.433
Issue of ordinary shares to Vendor option
holder	18.061
	92.457.353

In addition, there will be 8,872 Convertible Preference Shares on issue upon consummation of resolution 1. If the Milestones are reached, (including the Market Capitalisation Target), the number of ordinary shares would increase as follows:

As above	92.457.353
Conversion of A Class CPS	8,848,488
Conversion of B Class CPS	2.948.388
Conversion of C Class CPS	2.948.388
	107,202,617

Morgan would control 6,731,100 ordinary shares (representing 7.28% of the ordinary share capital) before Converting Preference Shares are converted to ordinary shares under the Milestone conversion scenarios and 13,462,200 ordinary shares (representing 12.55% of the ordinary capital) assuming the conversion of all of the Converting Preference Shares under the Milestone conversion scenarios.

• $2.5$ In the event that Milestones are not reached, the Converting Preference Shares convert to a total of 8,872 ordinary shares at the end of the maximum period allowed (12 months from Completion for the A Class CPS, B Class and C Class CPS). Thus, the number of ordinary shares would then be 92,466,225 (before issue of any other ordinary shares and before conversion of any share options).
• 2.6 The current Board of Directors is comprised of Graham Dowland, Dr Warwick Lamb and Roger Steinepreis. There is no immediate plan to increase the Board numbers.

3. Corporate History and Nature of Business

Imugene

$3.1$ The Company was originally formed in 1993 to commercialise the VOS frying process. This has proved commercially unsuccessful (to date) and on 14 May 2001, the Following a successful recapitalisation, the Company went into Administration. Company was released from Administration and reinstated to trading on the ASX in February 2002.

On 5 July 2002, the Company announced a proposal to acquire 100% of Brightsun Investments Pty Ltd, an animal health biotechnology investment company and raise The Company changed its name from Vostech Limited to Imugene further capital. Limited on 22 August 2002. On 30 August 2002, the acquisition of Brightsun was finalised. The focus of Imugene is now on the plan to commercialise the research and development of the animal product development of VectoGen (now owned 41.05% by Brightsun) and Paragen (now owned 30% by Brightsun). Further details on VectoGen are outlined below and in the Information Memorandum to Shareholders accompanying the Notice.

Paragen is currently 23% owned by Brightsun and 70% by Murdoch University of Western Australia ("Murdoch"). Brightsun can increase its interest to 50% by subscriptions for further shares in Paragen by the payment of \$546,700 in accordance with certain milestones. Paragen is directing research to develop a vaccine that kills adult fleas, is parasitic safe, safe for humans and animals, residue free and long lasting. By agreement dated 4 July 2002, between Murdoch, Brightsun and Paragen, Murdoch and Brightsun agreed to incorporate Paragen to take a transfer of all of the intellectual property rights in the Project that comprises the flea vaccine, a diagnostic kit for flea allergy dermatitis in dogs with a secondary application to cats and an immunotherapeutic treatment for flea allergy dermatitis. The Project also includes any other related commercial products arising directly from the research Project. $\mathbf{A}$ research team has been seconded by Murdoch to Paragen. Brightsun was granted the right to subscribe for up to 50% of the issued capital of Paragen in consideration of the total subscription sum of \$781,000. The subscription sum is payable by milestone payments and Brightsun may elect to make any of the payments prior to the due date. Brightsun may select not to make a milestone payment in which even Brightsun will forfeit 33% of its shares in Paragen as held at that time.

VectoGen

• $3.2$ The following is an edited extract from Imugene's 2002 Annual report and provided to shareholders in October 2002.
• $3.3$ Production Animals - Poultry and Pig Industries

"VectoGen Limited is developing a range of innovative biological products including productivity enhancers and vaccines for the pig and poultry markets worldwide. The intellectual property that forms the basis of these products stems from initial research conducted by CSIRO.

The productivity enhancers are biological alternatives to antibiotics currently used to control important diseases in production pigs and poultry and hence promote safe animal growth. The range of vaccines under development target diseases with major economic and animal welfare significance, not only in Australia, but worldwide.

The proposed products utilise a core vaccine delivery system - An Adenoviral Vector or Delivery System.

The productivity enhancer vaccines use 'cytokines' (produced by the animal) which are delivered using the Adenoviral Vector, to supplement the animal's own immune system and thereby enhance natural growth. These products are not specific to any one disease, but increase the animal's ability to resist infection from many types of diseases. The result is healthier pigs and poultry, with improved survival, productivity and growth rates.

The vaccine products under development utilise the Adenoviral Vector to delivery one or more proteins from the particular disease causing organism. Once delivered, the protein material, which is safe and non-harmful to the animal, stimulates an immune response to protect the animal against any future nature or 'farm site' challenge by the disease causing organism.

Product Portfolio

Adenoviral Vector Delivery Technology

The Adenoviral Vector delivery system forms the basis of the portfolio of products for the poultry and pig markets and has the potential to delivery genetic material from The current range of products under development, while extensive, is many sources. VectoGen will continue to construct new vaccines and products just the beginning. using the Adenoviral Vector delivery system. The scientific expertise of our research team allows the construction of new vaccines within a relatively short timeframe. Research is currently underway to use the technology to develop vaccines against diseases such as Foot and Mouth Disease.

Poultry Products

Merial, a world's leading animal health company, has signed two contracts for poultry products using VectoGen's evaluation and sub-licence option agreements cover products that potentially provide economical solutions to important diseases of poultry world-wide.

Merial is evaluating these products and following exercise of their sub-licence option, the registration process for their licensed territories will begin. Importantly, manufacturing and distribution rights for the productivity enhancer product have been retained by VectoGen for Australia, New Zealand and Japan.

Merial is a recognised world lader in animal vaccine and pharmaceutical production, operating in more than 150 countries world-wide with sales in excess of US\$1.6 billion in 2001.

Poultry Productivity Enhancer

A cytokine vaccine has been developed and trialled as a productivity enhancer for poultry. Trials to date have increase poultry growth or weight by up to 10% with the same or better food conversion ratio. Placing this result in perspective, it is reported that the current growth gains from antibiotic growth promotants is in the vicinity of 3-4%. The result of these trials have been published in international scientific journals.

VectoGen holds the patent rights to both the Adenoviral Vector and the cytokine components of the product. Both patents have been granted in the USA.

Using the Adenoviral Vector this vaccine can be delivered as a spray or orally via drinking water. Safety trials have confirmed the product is residue-free and independent analysis of the meat produced showed no changes in meat proportions, with correct percentages of breast meat, etc.

Given the substantial productivity increase achieve din the initial trials, the market potential for this product as an alternative to in-feed antibiotics is very large. -The increased productivity will also flow through to produces by increasing profitability.

Infectious Bronchitis Vaccine

Infectious bronchitis ("IB") is a widespread viral respiratory disease in poultry flocks that causes large commercial meat and egg production losses. It is considered the most contagious of all poultry diseases and is a worldwide problem..

The research on the 'FAV-IB' vaccine is almost finished. Vaccination trials in commercial broilers confirmed the efficacy of the vaccine with a 92-100% protection rate.

Unlike existing IB vaccines, FAV-IB alone has provided significant protection against more than one of the many IB strains.

The vaccine is currently being evaluated and tested against a further six different strains of the disease world-wide.

Coccidiosis Vaccine

Coccidiosis is one of the most common and costly diseases in poultry production and is prevalent worldwide. The US\$500 million annual sales of feed additives (chemicals and drugs) to control coccidiosis reflect the magnitude of the problem and the value of the market for coccidiosis treatments.

It is likely that continued use of chemicals to control coccidiosis will come under increasing pressure from regulator authorities and consumers, due to concerns about chemical residues in production meat and the constant emergency of resistant coccidian strains. However, since coccidiosis has such a dramatic impact on commercial poultry production it is unlikely that poultry industries will be forced to cease chemical use unless there is a credible alternative treatment. This creates a market opportunity for a highly efficacious FAV-cocci vaccine.

Pig Products

VectoGen recently signed an additional contract with Merial Limited for the evaluation of its Adenoviral Vector to delivery antigens for the treatment of viral pig diseases.

Pig Productivity Enhancers

Three cytokine or productivity enhancer vaccines are currently under evaluation for their ability to enhance the natural immune system and protect pigs against a wide This protection against infectious diseases increases range of infectious diseases.

productivity by improving and maintaining animal health. In trials to date, growth improvements of up to 8% have been achieved with a single cytokine in comparison to the 3-4% attributed to in-feed antibiotics. Trials are planned to evaluate the additional benefits of combining several combinations of cytokines.

Trials of one of the cytokine products have demonstrated complete protection against a major respiratory disease of pigs that is currently controlled by in-feed antibiotics.

Pig Circovirus Vaccine

This disease affects newborn pigs and has been implicated as a cause of the damaging wasting syndrome in weaners. These diseases cause substantial losses to pig producers and no commercial vaccines are currently available.

Using its patented Adenoviral Vector, VectoGen is developing a potentially protective vaccine for commercial use.

Three constructs are being developed through an evaluation process that will demonstrate the utility of the Adenovirus Vector delivery technique using genetic material owned by other companies. There are many opportunities for partnerships with other companies who currently own genes that can be effectively delivered using VectoGen's Adenovirus Vector.

Classical Swine Fever Vaccine

The new potential vaccine for Classical Swine Fever has shown 100% protection of pigs from lethal challenges in several laboratory trials. Classical Swine Fever is one of the most economically damaging viral pig diseases in the world. Many countries adopt strict policies for control of the disease including compulsory vaccination or slaughter and eradication programs.

This new vaccine, currently the subject of overseas trials, has several advantages (eg. cost, efficacy) over vaccines currently available.

Pig Respiratory and Reproductive Virus Vaccine

This recently discovered, highly infectious virus causes disease throughout the USA, Europe, Asia and South America. Infection causes death, fertility problems and respiratory disease in affected pigs. There has been significant difficulty in developing safe and effective vaccines using existing scientific methodology. However, the Pig Adenoviral Vector delivery system offers new potential to develop a vaccine. Insertion of the key genes into the Adenoviral Vector is under way, with trials to follow.

Actinobacillus Porcine Pleuropneumonia

Actinobacillus Porcine Pleuropneumonia ("APP") is a bacterial respiratory disease of maior economic importance in pig herds around the world. Antibiotics are currently added to feed to prevent this disease. Though technology similar to that used to create the Adenoviral Vector, a potential new vaccine against Actinobacillus has been The vaccine has significant advantages over existing vaccines because it developed. provides protection against multiple variants of the bacteria. Patent applications for this product have been filed."

End of edited extract from the Imugene 2002 Annual Report. Further details on VectoGen are outlined in section 2.2 of the Explanatory Memorandum to Shareholders.

$\overline{4}$ . Future Directions of Imugene

• 4.1 We have been advised by the directors and management of Imugene that:
• There are no proposals currently contemplated either whereby Imugene will acquire other property or assets from the Vendors (however Imugene will issue shares to the Vendor shareholders) or where Imugene would transfer any of its property or assets to the Vendors;
• The composition of the Board will not change in the short term. Later on other directors may be appointed, particularly if the Projects of VectoGen and/or Paragen are successfully exploited.
• The Company may undertake a capital raising later this year utilising the 15% rule under ASX Listing Rules:
• No dividend policy has been set and it is not proposed to be set until such time as the Company is profitable and has a positive cash flow; and
• The Company may lend and /or invest additional funds to VectoGen and Paragen to meet VectoGen and Paragen's expansive plans (including ongoing research and development), particularly in the next twelve to eighteen months.

$5.$ Basis of Valuation of Imugene Shares

$5.1$ Shares

• $5.1.1$ In considering the proposals to acquire the VectoGen shares from the Vendors, we have sought to determine if the consideration payable by Imugene to the Vendors are fair and reasonable to the existing non-associated shareholders of Imugene.
• $5.1.2$ The offers would be fair to the existing non-associated shareholders if the value of the assets (shares in VectoGen) being acquired by Imugene is greater than the implicit value of the shares being offered as consideration. Accordingly, we have sought to determine a value that could reasonably be placed on Imugene shares for the purposes of this report.
• $5.1.3$ The valuation methodologies we have considered in determining a theoretical value of a Imugene share are:
• Capitalise maintainable earnings/discounted cash flow;
• Takeover bid the price at which an alternative acquirer might be willing to offer: $\bullet$
• Adjusted net backing and windup value; and $\blacksquare$
• The weighted average market price of Imugene ordinary shares.
• $5.2$ Capitalise maintainable earnings and discounted cash flows.
• $5.2.1$ To 31 December 2002, Imugene has not been profitable and has a negative cash flow from operations. Accumulated bsses (unaudited) total approximately \$28.7 million.

We do not believe it relevant for the purposes of this report to attempt to assess a "technical" value of a Imugene share based on disclosing future cash flows for the reasons outlined in paragraphs 5.4.2 and 9.3 of this report. The ordinary shares to be issued to the Vendors will be booked in the ledger of Imugene at market value (as quoted on the ASX) in accordance with Australian accounting standards.

• $5.3$ Takeover Bid
• $5.3.1$ It is possible that a potential bidder for Imugene could purchase all or part of the existing shares, however no certainty can be attached to this occurrence.
• To our knowledge, there are no current bids in the market place and the directors of $5.3.2$ Imugene have formed the view that there is unlikely to be any takeover bids made for Imugene in the immediate future.
• 5.4 Net Asset Backing
• We set out below an unaudited consolidated Statement of Financial Position of $5.4.1$ Imugene as at 31 December 2002.

	Imugene Consolidated 31 December 2002 \$'000's
Current Assets
Cash	1,323
Receivables	62
	1,385
Non Current Assets
Plant	14
Intangible - Technology	2,176
Investments - Paragen	241
	2,431
Total Assets	3,816
Current Liabilities
Payables	302
Provisions	4
	306
Total Liabilities	306
Net Assets	3,510

Equity
Contributed Equity (Issued capital)	31.955
Accumulated losses	(28,703)
Parent entity equity interest in equity	3.252
Outside equity interests (minority interests)	258
Net Equity	3.510

5.4.2 Based on the book values, this equates to a value per fully paid ordinary share of approximately 4.5 cents (ignoring the value, if any, of non-booked tax benefits).

We note that the market has been informed of all of the current projects and joint ventures entered into between Imugene and other parties by releasing various statements and notices to the ASX. We also note it is not the present intention of the directors of Imugene to liquidate the Company and therefore any theoretical value based upon wind up value or even net book value (as adjusted), is just that, theoretical. The shareholders, existing and future, must acquire shares in Imugene based on the market perceptions of what the market considers a Imugene share to be worth.

We also note that there is an orderly market for Imugene shares and the market is kept fully informed of the activities of the Company. Furthermore, for accounting purposes, the consideration for the issue of Imugene ordinary shares to acquire the remaining 59.85% of VectoGen will be booked at market value (in accordance with Australian Accounting Standards) and not any perceived technical value. Accordingly, for the reasons outlined above, we believe that for the purpose of this report, it is not appropriate to use any technical value of an Imugene ordinary share in assessing whether the proposals pursuant to resolution 1 are fair and reasonable. We believe a market- based approach is a more suitable basis of assessing whether the proposals are fair and/or reasonable.

• $5.5$ Weighted Average Market Price of Imugene Fully Paid Shares
• We set out below a summary of the fully paid share prices of Imugene since 1 $5.5.1$ September 2002 to the date immediately prior to the announcement (16 April 2003) of the proposal to acquire the remaining 59.85% interest in VectoGen.

2002	High Cents	Low Cents	Last Sale Cents	Volume Trade (000's)
September	18.0	12.0	18.0	110,071
October	22.0	14.0	19.0	144.147
November	24.0	13.0	14.5	84,710
December	17.5	14.0	15.5	4,360
2003
January	16.5	12.5	13.0	4,681
February	13.5	9.0	9.2	2,270
March	13.0	9.0	12.0	2,689
April (to $15^{\text{th}}$ )	12.5	10.5	11.0	1,443

Since the announcement, Imugene shares have traded in the 10 cents to 13 cents range (last sale 5 May 2003, 14.0 cents, bid 14.0 cents, ask 14.5 cents). The 10 cents price was achieved when Morgan sold 7,800,000 shares on 17 April 2003.

$5.5.2$ Generally, the market is a fair indicator of what a share is worth, however the theoretical technical value based on the underlying value of assets and liabilities may be lower or higher.

In the case of Imugene, the monthly volume of trades on the ASX since December 2002, although not high, is enough to argue that an orderly market exists for the The "market" arguably is fully informed of the Company's Company's shares. activities. It is our opinion appropriate to use a range of recent trading market values

as fair values to attribute to 14,763,494 ordinary shares to be issued to the VectoGen Vendors.

• $5.5.3$ The future value of an Imugene share will depend upon, inter alia:
• The future commercialisation of its technologies and the commercial success of $\bullet$ VectoGen and/or Paragen:
• The state of Australian and overseas stock markets: $\blacksquare$
• Membership of the Board:
• General economic and environmental conditions; and ¥
• $\bullet$ Liquidity of shares in Imugene.
• Using the last two months trading prices before the announcement, the value lies in the $5.5.4$ range of 9.0 cents to 13.0 cents and a last market value (15 April 2002) prior to the VectoGen announcement of 11 cents. As noted above, we are of the opinion that the market based approach is more appropriate to use for the purposes of this report.
• $5.5.5$ The above values apply to the 14,763,494 ordinary shares to be issued to the Vendors pursuant to resolution 1. Arguably the shares to be issued to the Vendors have a lesser value, as the vast majority are to be restricted from trading for a period of one or two years. A discount of 10% to 15 % per annum is commonly applied to shares that have a restriction on trading and if a 10% per annum discount was applied to all the 14,763,494 ordinary shares, the discounted market value (at 10% per annum discount rate) would approximate 8.1 cents to 11.70 cents assuming an 9.0 cents to 13.0 cents non - restricted pre VectoGen announcement share price. 6,731,100 of the 14,763,494 shares may be escrowed for two years and 8,042,394 may be escrowed for one year. The ASX will determine the number of ordinary shares to be escrowed and the term of the escrow. A voluntary escrow period has been agreed to with the Vendors of a minimum period to 31 May 2004.
• 5.6 The 8,872 converting preference shares to be issued to the Vendors carry limited voting rights in total. For details on conditions to convert to ordinary shares refer sections 1.3 to 1.5 of this report and the Explanatory Memorandum to Shareholders (Annexures C, $D$ and $E$ ).
• 5.7 The converting preference shares are to some extent akin to a share option (although there are definite differences) although the converting preference shares do not require further contributions by the holders of the converting preference shares, as is the case with share options. However, using the Black Scholes methodology to value a share option is not relevant for this report. The value of the potential issue of the first tranche of up to 8,848,488 ordinary shares (conversion of up to 5,324 A Class CPS), up to 2,948,388 ordinary shares (by conversion of 1,774 B class CPS) and up to 2,948,388 ordinary shares (by conversion of 1,774 C Class CPS) is dependent upon:
• Imugene having a market capitalisation of at least \$33,000,000 for 20 consecutive days at any time during the 12 months from the date of Completion (expected to be mid 2004):
• In the case of the 5.324 Class A CPS meeting the FAV Gamma Milestone within 18 months of Completion.
• In the case of the 1,774 B Class CPS meeting the FAV B Milestone within 18 months of Completion;
• In the case of the 1,774 C Class CPS meeting the PAV PCV Milestone within 18 months of Completion.

To achieve the market capitalisation of \$33,000,000 and assuming there would be 92,457,353 ordinary shares on issue and deemed to be quoted (although the 14,763,494 shares will be voluntarily escrowed for 12 months), the share price of an ordinary share would need to be 35.69 cents. This compares with a range of values of Imugene shares since September 2002 of between 9.0 cents and 24.0 cents (and less than 16.5 cents since early January 2003). The trading price to achieve a market capitalisation of \$33,000,000 may be lower if further hares are issued to existing or future shareholders by way of rights issues or placements. For instance, if 14,000,000 shares were placed to private investors, the share price to achieve a \$33,000,000 market capitalisation may fall to around 30.99 cents.

If it was assumed that the probability of achieving the targets was between 25% and 40% and assuming a 31 March 2003 share price of 12.0 cents, the probable range of values of an option to acquire an ordinary share in Imugene may be in the range of 3.0 cents to 4.8 cents.

• 5.8 We do not believe it is possible to place an accurate value (or range of values) on the converting preference shares (in effect the option to convert to up to 14,745,264 ordinary shares). However using the 3.0 cents to 4.8 cents figures above, the possible existing value could be disclosed as \$442,000 to \$706,000 (for the right to convert to up to 14,745,264 ordinary shares). However, if no converting preference shares are converted based on meeting the Milestones and Market Capitalisation Target, then the value of such shares are the value of the ordinary shares at the time of conversion to ordinary shares. However conversely, if Milestones ascribed above were achieved and ordinary shares in Imugene issued, the value at the time of allotment of such ordinary shares may be far higher than the current market value (market value at date of conversion to ordinary shares times number of ordinary shares issued from conversion of the convertible preference shares).
• 5.10 It is noted that following the announcement of the proposal to acquire the remaining 59.85% of VectoGen, including the terms (14.763,494 ordinary shares and up to approximately 14,745.264 ordinary shares, dependent upon Market Capitalisation Targets and Milestones being achieved), the share price of Imugene shares has traded in the main from 10 cents to 12.5 cents and is trading as 12.5 cents at 22 April 2003. Thus, it could be argued that (albeit on low turnover) the market is placing a total value of Imugene owing 100% of VectoGen in the range of:

At 12.5 cents, the market capitalisation approximates \$9.711 million 77.693,859 + 14.745,433 + 18,061 + 14,745,264 shares $= 107,202,617$ potential ordinary shares on issue.

Thus, the 14,745,264 shares (from conversion to all of converting preferences shares) equates to approximately 9.05 cents per share - total value approximately \$1,335,000.

At 12 cents, the market capitalisation approximates \$9.323 million $=107,202,617$ potential ordinary shares on issue.

Thus, the 14,744,264 shares (after conversion) equates to approximately 8.69 cents total value approximately \$1,282,000.

At 10.0 cents the total "value" of the convertible preference shares approximate \$1,068,000.

The achieving of firstly the Market Capitalisation Target and secondly the Milestone

targets, cannot be determined with any degree of accuracy. Thus, to place a value on the converting preference shares at this stage would be guess work. Notwithstanding our prior comments, it is our view that at this point of time (net present values), it would be appropriate to value all of the converting preference shares at minimal value.

6. Value of Consideration

Using our range of values of the ordinary shares to be issued to the Vendors, results in $6.1$ a consideration payable by Imugene to be in the range as follows:

	Low	Preferred	High
14,763,494 Ordinary shares	1,195,843	1,771,619	2,435,965
5,324 A Class CPS
1,774 B Class CPS	$\overline{\phantom{a}}$	$\qquad \qquad$
$1,774$ C Class CPS
	1,195,843	1,771,619	2,435,965

The low consideration uses the 8.1 cent escrowed value referred to in paragraph $5.5.5.$ The preferred consideration uses 12 .0 cents, being the last trade price on 31 March 2003, being a date several weeks before the announcement and at a date that negotiations commenced. We have used this date to eliminate any speculation in the share price leading up to the announcement of the proposal and the majority of the shares in March 2003 traded at around 12 cents. The high consideration uses the high share price of 16.5 cents in January 2003. The accounting consideration (to be reflected in the ledger of Imugene) will be the share price at the date of issue of the 14,763,494 shares. Based on the 5 May 2003 share price, the booked consideration may be \$2,066,889.

As discussed elsewhere in this report, the ascribed price attributable to the converting preference shares is nil. Conversely, the ordinary shares from conversion of the converting preference shares may have a market value in excess of the current market value of an Imugene share (although the ordinary shares issued as a result of conversion may be escrowed for twelve months).

$\overline{7}$ . Basis of Valuation of VectoGen

The usual approach to the valuation of an asset is to seek to determine what an $7.1$ informed, willing but not anxious buyer would pay to an informed, willing but not anxious seller in an open market.

To estimate the fair market value of the shares in VectoGen, we have considered valuation methodologies recommended by ASIC Practice Note 43 regarding valuation reports of independent experts and common market practice. These are discussed below.

$7.2$ Market based methods.

Market based methods estimate a company's fair market value by considering the market price of transactions in its shares or market value of comparable companies. Market based methods include:

Capitalisation of maintainable earnings;

• Analysis of a company's recent share trading history; and
• Industry specific methods.

The capitalisation of maintainable earnings methods estimates fair market value based upon the company's future maintainable earnings and an appropriate earnings multiple. An appropriate earnings multiple is derived from market transactions involving The capitalisation of maintainable earnings is appropriate comparable companies. where the Company's earnings are relatively stable.

The most recent share trading history provides evidence on the fair market value of the shares in a company where they are publicly traded in an informed and liquid market.

Industry specific methods estimate market value using rules of thumb for a particular industry. Generally rules of thumb provide less persuasive evidence on market value of a company, as they may not account for company specific factors.

$7.3$ Discounted cash flow method

The discounted cash flow method estimates market value by discounting a company's future cash flows to their present value. This method is appropriate where a projection or forecast of future cash flows can be made with a reasonable degree of confidence. The discounted cash flow method is commonly used to value early stage companies or projects with a finite life.

$7.4$ Asset based methods

Asset based methods estimate the market value of a company's shares based on the realisable value of its identifiable net assets.

Asset based methods include:

• Orderly realisation of assets methods;
• Liquidation of assets method; and
• Net asset on a going concern basis.

The orderly realisation of assets method estimates fair market value by determining the amount that would be distributed to shareholders, after payment of all liabilities, including realisation costs and taxation charges that arise, assuming the company is wound up in an orderly manner. The liquidation method is similar to the orderly realisation of assets method except the liquidation method assumes the assets are sold in a shorter time frame. Since wind up or liquidation of the company may not be contemplated, these methods in their strictest form may not necessarily be appropriate. The net assets on a going concern basis estimates the market values of the net assets of the company but does not take account of realisation costs.

These approaches ignore the possibility that the company's value could exceed the realisable value of its assets. Asset based methods are appropriate when companies are not profitable or a significant proportion of a company's assets are liquid.

$7.5$ Selection of Valuation Methodologies

All of the valuation methodologies considered above have significant limitations or restrictions in their application to VectoGen.

Capitalisation of maintainable earnings is not appropriate due to VectoGen presently not being profitable. Recent share trading is not reliable due to the market being illiquid and no assurances regarding the market, which exists for VectoGen shares being informed.

The discounted cash flow method is not applicable as no reliable prospective financial information is available. An asset based method is limited by the fact that VectoGen's primary asset being intellectual property which is not a liquid asset.

We have had regard to indicators of value identified in section 7.7.

• 7.6 In this section we consider the valuation of VectoGen. We have considered the valuation of VectoGen in assessing whether or not the proposals outlined in resolution 1 are fair and reasonable for Imugene non-associated shareholders. In forming our opinion on the value of VectoGen we have:
• Considered the stage of development of the Intellectual Property and the prospective financial information available;
• Considered the appropriateness of the valuation methodologies available; and
• Considered the ability of VectoGen to continue as a going concern without $\blacksquare$ additional funding.
• $7.7$ Valuation of the VectoGen Intellectual Property

As discussed in section 7.5 of this report, the capitalisation of maintainable earnings, discounted cash flow and asset-based methodologies have limitations in their application to VectoGen.

7.7.1 Expenditure incurred to date on the Intellectual Property

VectoGen has been funded since formation in 1999 by shareholders funds. This includes funds lent by Imugene to Brightsun who then subscribed for shares in VectoGen (and Paragen). The 31 March 2003 unaudited financial statements disclose that VectoGen has accumulated losses of approximately \$1,393,000 since formation. Management advise that these losses are primarily attributable to expenditure on labour, hardware and patent applications to develop the intellectual property (animal health biological solutions).

7.7.2 Recent share issues and trading

VectoGen is an unlisted public company, however, it only has eight shareholders (of which Imugene, via Brightsun, holds 41.05%. It has never been listed on the ASX and there has been no active trading in the shares of VectoGen. The last significant transactions including VectoGen shares were:

In August 2002, Morgan sold $1,000,000$ (then $10\%$ of the shares in VectoGen for \$320,000 (32 cents per share). Thus, a 100% interest on this basis would amount to \$3,200,000 (and a 58.85% interest, \$1,915,000).

• In July 2002, Brightsun agreed to subscribe an amount of \$1,000,000 for a then 40.31% interest in VectoGen. On such a basis, a 100% interest equates to approximately \$2,480,000 (and a 59.85% interest, \$1,484,000).
• Pursuant to the July 2002 subscription agreement, two entities had the right $\blacksquare$ to subscribe for 330,426 shares in VectoGen at 56 cents per share (giving them the combined rights to 3.659% of VectoGen). On such a basis, 100% of VectoGen equates to approximately \$5,057,000 (and a 59.85% interest, \$3,026,000).
• On 15 April 2003, agreement was reached with a shareholder of VectoGen for the shareholder (an entity controlled by the Australian Government) to sell 107,165 shares and 90,304 options in VectoGen to Imugene (via Brightsun) for the consideration of 330,525 shares. The shares in Imugene on 15 April 2003 traded at around 11 cents. This placed a value of 100% of VectoGen at around \$2,065,000 (and a 59.85% interest, \$1,235,000).
• $7.7.3$ Fire sale

We are unable to determine the value of VectoGen on a fire sale, as we cannot assess with any degree of accuracy, the realisable value of the intellectual property.

The unaudited Statement of Financial Position of VectoGen as at 31 March 2003 is as follows:

Current Assets
Cash assets	173,520
Receivables (GST)	46,495
	220,015
Non Current Assets
Intellectual property and research and
development (all expensed)
Total Assets	220,015
Current Liabilities
Payables	162,582
Provisions
	162,682
Total Liabilities	162,582
Net Assets	57,333
Represented by:
Equity
Contributed equity	1,450,010
Accumulated losses	(1,392,677)
Net Equity	57,333

Based on 9,030,426 shares on issue in VectoGen, the book values (not necessarily fair values or fire sale values) per share equates to 0.63 cents. A

59.85% interest (to be acquired by Imugene from the Vendors) equates to a share of the book value of the net assets of \$34,313.

$7.7.4$ Comparable transactions

We have not been able to identify any recent transactions that are comparable to the animal health technology and provide an indicative value for the intellectual property. Chemeq Limited is a company that is in the animal health industry and is listed on the ASX. Chemeq has developed an antibacterial drug and is currently developing a production plant in Rockingham, Western Australia. Chemeq was first listed on 25 August 1999 as a developer of an antibacterial drug for use mainly by pigs and chickens. At the time of listing it was undertaking research and development and was not in production and had no regulatory approvals. Chemeq in April 2003 is trading at over \$3 per share as the market considers that its antibacterial drug has commercial merit. Market capitalisation of Chemeq at 10 April 2003 was \$252 million. VectoGen is in its early stages of development and it is not appropriate to compare Chemeq (and its share price) with VectoGen to determine a fair value for VectoGen.

$7.7.5$ Summary of valuation methods and conclusion

We are unable to conclude upon a meaningful valuation range of the VectoGen Intellectual Property, and therefore VectoGen itself, due to the infancy stage of the Intellectual Property and the lack of readily available, reliable financial projections and information. This includes information regarding the commercialisation of the Intellectual Property.

• $7.8$ We have relied on Imugene undertaking the necessary due diligence to satisfy themselves on:
• Ownership of VectoGen;
• No unrecorded liabilities in the books of VectoGen; $\bullet$
• Current legal directors VectoGen: $\bullet$
• Ownership and interest of VectoGen in patents, trademarks and designs and intellectual property:
• Extent of debts due to other parties; and
• Other factors that may affect ultimate ownership and value of VectoGen.
• 7.9 We have been informed that all necessary due diligence has been completed to the best ability of the Imugene directors. However, no guarantee can be given as to the longterm value of Imugene. This will depend upon many factors, including inter-alia:
• Future commercial success, or otherwise of Imugene's animal health care technologies (via VectoGen and Paragen):
• Future research and development costs; $\bullet$
• Foreign and Australian stock exchange markets; $\ddot{\phantom{a}}$
• Future costs of production; and
• Ouality of management

8. Combined Consolidated Statement of Financial Position

• 8.1 We set out below a combined (consolidated) pro forma Statement of Financial Position of the Imugene group (un-audited) as at 31 December 2002 assuming:
• (a) The issue of $330,525$ shares in Imagene to acquire $107,165$ shares and $90,304$ options in VectoGen in April 2003 at a deemed cost of \$363,577;
• (b) The acquisition of the remaining 59.85% of VectoGen by way of the issue of 14,763,494 ordinary shares at a deemed total cost of \$1,771,619 and the issue of 8,872 converting preference shares at a deemed cost of \$nil - total cost of 59.85% acquisition of VectoGen of \$1,771,619;
• (c) Accounting for the increase in goodwill on consolidation of \$2,330,000 as interest in VectoGen intellectual property;
• (d) The expensing (against contributed equity) of the share issue costs (including the issue of shares to the Vendors of VectoGen) estimated at \$60,000; and
• (e) The payment of further operating costs for Imugene of \$180,000 to 31 March 2003.

	Pro-forma Un-audited Statement of Financial Position Imugene Consolidated 31 December 2002 \$'000's (Including 100% of VectoGen)
Current Assets
Cash	638
Receivables	78
Total Current Assets	716
Non Current Assets
Intangibles	4,506
Plant and equipment at net written down value	14
Investments - Paragen	241
Total Non Current Assets	4,761
Total Assets	5,477
Current Liabilities
Payables	325
Provisions	4
Total Current Liabilities	329
Total Liabilities	329

	Pro-forma Un-audited Statement of Financial Position Imugene Consolidated 31 December 2002 \$'000's (Including 100% of VectoGen)
Net Assets	5,148
Equity
Contributed equity	34,031
Accumulated losses	(28, 883)
Total Equity	5,148

8.2 The number of fully paid ordinary shares on issue in Imugene after the issue of shares to the Vendor shareholders and option holder would be 92,457,353. This equates to a theoretical book value per Imugene fully paid ordinary share (assuming 100% ownership of VectoGen) of approximately 5.5 cents compared with a 31 December 2003 un-audited book value of a Imugene ordinary share of 4.5 cents. On a fully diluted basis, if all of the converting preference shares were converted to 14,745,264 ordinary shares (but ignoring the exercise of share options), the net book asset backing per share would be 4.8 cents. All of the net asset backings referred to in this report include intangible assets relating to the acquisition of VectoGen. The ultimate realisation value of the intangibles cannot be quantified with any degree of accuracy.

$9₁$ Conclusion as to Fairness

$9.1$ The proposals pursuant to resolution 1 are believed fair to Imugene's non-associated shareholders if the value of the consideration offered is equal to or less than the value of the shares in VectoGen being acquired.

Due to the nature of the business of Imugene and VectoGen, valuations are dependent upon the value placed on the technology interests of the companies. The valuation of technology interests and valuing future profitability and cash flows is extremely subjective as it involves assumptions regarding future events that are not capable of independent substantiation.

• 9.2 We have been unable to determine a fair value for VectoGen. In arriving at our view that we are unable to form an opinion on the value of VectoGen, we have referred to the following factors.
• A medium term budget for VectGen's business plan has not been prepared, and therefore no reliable financial information including timing and amounts of revenue, costs and capital expenditure is available;
• An inability to rely on research and development costs to date as an indication of value as they have no bearing on the future income potential of the asset:
• VectoGen relies heavily on equity finance from its shareholders and may not be a going concern without shareholder support; and
• VectoGen's assets principally comprise patents and provisional patents and commercialisation of the intellectual property has not yet commenced. Therefore the ability of VectoGen to develop the intellectual property through to commercialisation is highly uncertain.

• $9.3.1$ As we cannot determine a fair value for VectoGen, we have, under ASX Listing Rules that requires us to conclude whether the proposal is fair or not fair, concluded that the proposals pursuant to resolution 1 are not fair.
• 9.4 Based on May 2003 Imugene share prices (subsequent to the announcement of the proposal), the market capitalisation that assumes 92,457,353 ordinary shares will be on issue has risen from around \$9.3 million to around \$12.9 million and thus the market is placing a value on the proposal of around \$3.6 million. The preferred consideration and the possible booked consideration is \$1.772 million and \$2.067 million respectively. On a market base approach, including taking into account the matters noted under paragraph 7.7.2 and Imugene share prices subsequent to 15 April 2003, the market is considering the proposal to be fair.

10. Reasonableness of the Offer

We set out below some of the advantages and disadvantages and other factors $10.1$ pertaining to the proposals pursuant to resolution 1.

Advantages

• $10.2$ The value of Imugene is highly dependent on the value of VectoGen and Paragen. Under the proposal with the Vendors, 8,872 converting preference shares will be issued to them that are convertible to up to 14.745.264 ordinary shares in Imugene upon reaching certain Milestones outlined in this report. More importantly, none of the converting preference shares may be converted under the Milestone regime unless the market capitalisation of Imugene exceeds \$33,000,000 for 20 consecutive days within 1 year of Completion. As noted, the share price of an Imugene share would need to be over 30 cents and arguably over 35 cents in the absence of any future share issues to existing shareholders or new investors. Thus, all non-associated shareholders would have benefited from a rise in the share price and a substantial increase in chances of the commercialisation of the technology interest of VectoGen (and/or Paragen).
• In the event that the commercialisation of VectoGen's intellectual property interests are $10.3$ successful, having a 100% interest in VectoGen would be an advantage to Imugene, and thus all shareholders. The cost to achieve 100% control of VectoGen is by way of an issue of shares and not cash, although further funds will need to be advanced to or invested in VectoGen to continue its research and development programmes.
• Based on very limited share dealings in VectoGen in mid 2002, the implied value of $10.4$ 100% of VectoGen lies between \$2,480,000 and \$5,057,000. A 59.85% interest (being sold by the Vendors) is thus implied to be in the range of \$1,484,000 to \$3,026,000. This compares with the initial probable accounting cost of acquiring the VectoGen shares at around $$1,772,000$ and up to $$2,436,000$ . It is also noted that the market capitalisation of Imugene is around \$9,300,000. How much of this is attributable to the 40.15% interest in VectoGen as compared with the 30% interest in Paragen is not able However, in all probability, at least 50% is attributable to the to be determined. 40.15% interest in VectoGen that implies a value of a 59.85% interest in VectoGen at nearing \$7 million. The \$1,484,000 figure was an implied value when Imugene (via Brightsun) acquired a 40.13% interest in VectoGen (refer paragraph 7.7.2) and therefore was not strictly a third party transaction by way of a transfer of shares (the initial acquisition was a subscription for new shares). Since acquiring the initial interest in VectoGen, further research has been undertaken and conditional contracts entered into with Merial that arguably has added value to VectoGen. Thus, we believe that notwithstanding that the low implied value is less than the cost of the consideration

the other advantageous factors referred to in this report are more persuasive in arriving at our reasonableness conclusion.

Disadvantages

$10.5$ The number of fully paid ordinary shares in Imugene initially rises from 77,693,859 to 92,457,353 and the existing shareholder interests are diluted to 84%, albeit, having an interest in an expanded Imugene owing 100% of VectoGen.

Furthermore up to 14,745,264 ordinary shares may be issued to the Vendor shareholders (by converting the converting preference shares if Market Capitalisation Targets and Milestones are reached) that will further dilute the interests of the existing shareholders.

10.6 There is always a risk that VectoGen will not perform to expectations and that, in the event that further losses are incurred by VectoGen, the share price of an ordinary share in VectoGen may fall. Furthermore, Imagene may be required to lend substantial funds to VectoGen that could be at considerable risk.

Other Factors

• $10.7$ There will be a significant non-associated shareholding in Imugene after the passing of resolution 1 and the Company will continue to have its shares quoted on the ASX. In addition, shareholders are not required to sell or dispose of their shares but are given the opportunity to retain a shareholding in a company (Imugene) that is obtaining additional interests in animal health technologies that may have significant upside potential.
• $10.8$ Under the Subscription Agreement between Brightsun, VectoGen, Morgan and Techstart Australia Pty Ltd of July 2002, Brightsun has the option to acquire further shares in VectoGen as follows:
• First option shares (500,000) at a cost of \$200,000
• Second option shares (2,100,000) at a cost of \$600,000
• Third option shares (1,000,000) at a cost of \$560,000

Thus for a total of a further 3,600,000 shares at a cost of \$1,360,000, Brightsun could increase its percentage interest in VectoGen by 17.13% to 57%. Thus if a 17.13% interest was to cost \$1,360,000. a 100% implied interest is approximately \$7,939,000 (and a 59.85% interest, \$4.751,000).

11. Conclusion as to Reasonableness

$11.1$ After taking into account the factors referred to in 10 above and elsewhere in this report and noting the potential risks pertaining to future loan funds, we are of the opinion that the proposals as outlined in resolution 1 may, on balance be considered reasonable to the non-associated shareholders of Imugene.

$12.$ Sources of Information

$12.1$ In making our assessment as to whether the proposals under resolution 1 are fair and reasonable, we have reviewed relevant published available information and other

unpublished information of the Company and VectoGen that is relevant to the current circumstances. In addition, we have held discussions with the management of Imugene and VectoGen about the present and future operations of Imugene and VectoGen. Statements and opinions contained in this report are given in good faith but in the preparation of this report, we have relied in part on information provided by the directors and management of Imugene and VectoGen.

• $12.2$ Information we have received includes, but is not limited to:
• Draft Notice of General Meeting of Shareholders of Imugene and draft $\bullet$ Explanatory Memorandum To Shareholders prepared in April and May 2003;
• Discussions with management and directors of Imugene and VectoGen:
• Details of historical market trading of Imugene ordinary fully paid shares recorded by ASX (to 5 May 2003);
• Shareholding details of Imugene as supplied by the Company's share registry at 31 March 2003:
• Annual Report of Imugene for the year ended 30 June 2002; $\bullet$
• Announcements made by Imugene to the ASX from 1 July 2002 to 5 May 2003;
• Various correspondence between Imugene and VectoGen relating to the proposed 59.85% acquisition of VectoGen;
• The Agreements between Imagene and the VectoGen Vendors to acquire the shares and option in VectoGen;
• Prospectus of Imugene of July 2002;
• Website of Imugene and information from such site;
• Shareholding details of VectoGen as at 31 March 2003;
• Summary of rights pertaining to the converting preference shares;
• Unaudited financial statements of Imugene, Paragen and VectoGen for the six months ended 31 December 2002 and nine months ended 31 March 2003 for VectoGen:
• The Implementation Agreement between Imugene, Graham Dowland, Dr Warwick Lamb and Brightsun of 5 July 2002 (re acquisition of Brightsun);
• Subscription agreement of 5 July 2002 between Brightsun, VectoGen, Morgan and Techstart Australia Ptv Ltd:
• Technology Licence Agreement of 5 June 2002 between CSIRO and VectoGen;
• Technology Licence and sub-licence agreement between VectoGen and Intervet International B.V.

• $\blacksquare$ Subscription and Shareholder Agreement between Murdoch University, Brightsun and Paragen dated 4 July 2002; and
• Material Evaluation and Licence Option agreements and Contract Research $\bullet$ Agreement between VectoGen, CSIRO and Merial Ltd.
• $12.3$ Our report includes Appendix A attached to this report.

Yours faithfully STANTON PARTNERS CORPORATE PTY LTD

grande

J P Van Dieren Director

AUTHOR INDEPENDENCE AND INDEMNITY

This annexure forms part of and should be read in conjunction with the report of Stanton Partners Corporate Pty Ltd dated 7 May 2003, relating to resolution 1 outlined in the Notice of Meeting of Shareholders of Imugene.

At the date of this report, Stanton Partners Corporate Pty Ltd does not have any interest in the outcome of the proposal. There are no relationships with Imugene or VectoGen other than acting as an independent expert for the purposes of this report. There are no existing relationships between Stanton Partners Corporate Pty Ltd and the parties participating in the transaction detailed in this report which would affect our ability to provide an independent opinion. The fee to be received for the preparation of this report is based on the time spent at normal professional rates plus out of pocket expenses and is estimated at \$16,000. The fee is payable regardless of the outcome. With the exception of that fee, neither Stanton Partners Corporate Pty Ltd or John P Van Dieren have received, nor will or may they receive, any pecuniary or other benefits, whether directly or indirectly for or in connection with the making of this report.

Stanton Partners Corporate Pty Ltd does not hold any securities in Imugene or VectoGen. There are no pecuniary or other interests of Stanton Partners Corporate Pty Ltd that could be reasonably argued as affecting its ability to give an unbiased and independent opinion in relation to the proposal. Stanton Partners Corporate Pty Ltd and Mr J Van Dieren have consented to the inclusion of this report in the form and context in which it is included as an annexure to the Notice.

OUALIFICATIONS

We advise Stanton Partners Corporate Pty Ltd is the holder of an Investment Advisers Licence under the Corporations Act relating to advice and reporting on mergers, takeovers and acquisitions. Stanton Partners Corporate Pty Ltd has extensive experience in providing advice pertaining to mergers, acquisitions and strategic and financial planning for both listed and unlisted companies or businesses.

Mr John P Van Dieren, FCA, the person responsible for the preparation of this report, has extensive experience in the preparation of valuations for companies and in advising corporations on takeovers generally and in particular on the valuation and financial aspects thereof, including the fairness and reasonableness of the consideration offered. Mr Van Dieren also holds an Investment Advisers Licence relating to the provision of expert reports on mergers, takeovers and acquisitions.

The professionals employed in the research, analysis and evaluation leading to the formulation of opinions contained in this report have qualifications and experience appropriate to the task they have performed.

DECLARATION

This report has been prepared at the request of the Directors of Imugene in order to assist the shareholders of Imugene to assess the merits of the proposals (resolution x) to which this report relates. This report has been prepared for the benefit of Imugene and those persons only who are entitled to receive a copy for the purposes of Listing Rule 10.1 of the ASX Listing Rules and does not provide a general expression of Stanton Partners Corporate Pty Ltd's opinion as to the longer term value of Imugene, VectoGen or Paragen. Stanton Partners Corporate Pty Ltd does not imply, and it should not be construed, that is has carried out any form of audit on the accounting or other records of Imugene, VectoGen or Paragen. Neither the whole or any part of this report, nor any reference thereto may be included in or with or attached to any document, circular, resolution, letter or statement, without the prior written consent of Stanton Partners Corporate Pty Ltd to the form and context in which it appears.

DISCLAIMER

This report has been prepared by Stanton Partners Corporate Pty Ltd with due care and diligence. However, except for those responsibilities, which by law cannot be excluded, no responsibility arising in any way whatsoever for errors or omission (including responsibility to any person for negligence) is assumed by Stanton Partners Corporate Pty Ltd, Stanton Partners, its partners, employees or consultants for the preparation of this report.

DECLARATION AND INDEMNITY

Recognising that Stanton Partners Corporate Pty Ltd may rely on information provided by Imugene and VectoGen and its officers (save whether it would not be reasonable to rely on the information having regard to Stanton Partners Corporate Pty Ltd experience and qualifications). Imugene has agreed:

• To make no claim by it or its officers against Stanton Partners Corporate Pty Ltd to a) recover any loss or damage which Imugene may suffer as a result of reasonable reliance by Stanton Partners Corporate Pty Ltd on the information provided by Imugene and VectoGen; and
• (b) To indemnify Stanton Partners Corporate Pty Ltd against any claim arising (wholly or in part) from Imugene or any of its officers providing Stanton Partners Corporate Pty Ltd any false or misleading information or in the failure of Imugene or its officers in providing material information, except where the claim has arisen as a result of wilful misconduct or negligence by Stanton Partners Corporate Pty Ltd.

A draft of this report was presented to Imugene directors for a review of factual information contained in the report. Comments received relating to factual matters were taken into account, however the valuation methodologies and conclusions did not alter.