10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-34540

UNILIFE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization) 27-1049354
(I.R.S. Employer
Identification No.)

250 Cross Farm Lane, York, Pennsylvania 17406
(Address of principal executive offices)

Telephone: (717) 384-3400
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 4, 2011, 64,368,703 shares of the registrant’s common stock were outstanding.

Table of Contents

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of September 30, 2011 and June 30, 2011		3
Unaudited Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010		4
Unaudited Consolidated Statement of Stockholders’ Equity and Comprehensive Loss for the three months ended September 30, 2011		5
Unaudited Consolidated Statements of Cash Flows for the three months ended September 30, 2011 and 2010		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3. Quantitative and Qualitative Disclosures About Market Risk		20
Item 4. Controls and Procedures		20
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 6. Exhibits		21
Signatures		22
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNILIFE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)

	September 30, 2011			June 30, 2011
	(in thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents	$	17,383		$	17,910
Restricted cash		2,400			2,400
Accounts receivable		20			13
Inventories		708			626
Prepaid expenses and other current assets		374			381
Total current assets		20,885			21,330
Property, plant and equipment, net		53,881			54,020
Goodwill		12,285			13,265
Intangible assets, net		37			42
Other assets		1,025			821
Total assets	$	88,113		$	89,478
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	2,286		$	2,405
Accrued expenses		2,021			2,696
Current portion of long-term debt		5,879			2,274
Deferred revenue		2,501			2,706
Total current liabilities		12,687			10,081
Long-term debt, less current portion		25,431			20,413
Deferred revenue		4,376			5,412
Total liabilities		42,494			35,906
Contingencies (Note 9)
Stockholders’ Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized as of September 30, 2011; none issued or outstanding as of September 30, 2011 and June 30, 2011		—			—
Common stock, $0.01 par value, 250,000,000 shares authorized as of September 30, 2011; 64,300,313 and 63,924,403 shares issued, and 64,274,703 and 63,905,053 shares outstanding as of September 30, 2011 and June 30, 2011, respectively		643			639
Additional paid-in-capital		171,952			169,590
Accumulated deficit		(130,037	)		(120,332	)
Accumulated other comprehensive income		3,187			3,775
Treasury stock, at cost, 25,610 and 19,350 shares as of September 30, 2011 and June 30, 2011, respectively		(126	)		(100	)
Total stockholders’ equity		45,619			53,572
Total liabilities and stockholders’ equity	$	88,113		$	89,478

See accompanying notes to the consolidated financial statements.

3

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited)

	Three Months Ended
	September 30,
	2011			2010
	(in thousands, except per share data)
Revenues:
Industrialization fees	$	1,440		$	1,350
Licensing fees		672			577
Product sales and other		18			1,616
Total revenues		2,130			3,543
Cost of product sales		74			1,175
Gross profit		2,056			2,368
Operating expenses:
Research and development		4,298			1,776
Selling, general and administrative		6,183			7,241
Depreciation and amortization		993			787
Total operating expenses		11,474			9,804
Operating loss		(9,418	)		(7,436	)
Interest expense		283			32
Interest income		(30	)		(122	)
Other expense (income), net		34			(100	)
Net loss	$	(9,705	)	$	(7,246	)
Loss per share:
Basic and diluted loss per share	$	(0.16	)	$	(0.14	)

See accompanying notes to the consolidated financial statements.

4

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity and Comprehensive Loss

(unaudited)

										Accumulated
					Additional-					Other
	Common Stock				Paid-In		Accumulated			Comprehensive			Treasury
	Shares		Amount		Capital		Deficit			Income			Stock			Total
	(in thousands except share data)
Balance as of July 1, 2011		63,924,403	$	639	$	169,590	$	(120,332	)	$	3,775		$	(100	)	$	53,572
Comprehensive loss:
Net loss		—		—		—		(9,705	)		—			—			(9,705	)
Foreign currency translation		—		—		—		—			(588	)		—			(588	)
Comprehensive loss																	(10,293	)
Issuance of options to purchase common stock		—		—		702		—			—			—			702
Issuance of restricted stock, net of forfeitures		90,000		1		1,197		—			—			—			1,198
Issuance of common stock upon exercise of stock options		285,910		3		463		—			—			—			466
Purchase of treasury stock		—		—		—		—			—			(26	)		(26	)
Balance as of September 30, 2011		64,300,313	$	643	$	171,952	$	(130,037	)	$	3,187		$	(126	)	$	45,619

See accompanying notes to the consolidated financial statements.

5

UNILIFE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended
	September 30,
	2011			2010
	(in thousands)
Cash flows from operating activities:
Net loss	$	(9,705	)	$	(7,246	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		993			787
Share-based compensation expense		1,900			2,550
Changes in assets and liabilities:
Accounts receivable		(7	)		(444	)
Inventories		(83	)		(325	)
Prepaid expenses and other current assets		7			(38	)
Other assets		(205	)		16
Accounts payable		513			(1,039	)
Accrued expenses		(388	)		(158	)
Deferred revenue		(672	)		(577	)
Net cash used in operating activities		(7,647	)		(6,474	)
Cash flows from investing activities:
Purchases of property, plant and equipment		(1,797	)		(7,009	)
Net cash used in investing activities		(1,797	)		(7,009	)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt		9,087			—
Principal payments on long-term debt and capital lease obligations		(483	)		(101	)
Proceeds from the issuance of note payable		—			6,900
Proceeds from the exercise of options to purchase common stock		466			1,124
Purchase of treasury stock		(26	)		—
Increase in restricted cash		—			(7,000	)
Net cash provided by financing activities		9,044			923
Effect of exchange rate changes on cash		(127	)		800
Net decrease in cash and cash equivalents		(527	)		(11,760	)
Cash and cash equivalents at beginning of period		17,910			20,750
Cash and cash equivalents at end of period	$	17,383		$	8,990
Supplemental disclosure of non-cash activities
Purchases of property, plant and equipment in accounts payable and accrued expenses	$	285		$	361
Purchases of property, plant and equipment pursuant to capital lease agreements	$	19		$	41

See accompanying notes to the consolidated financial statements.

6

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

1. Description of Business and Unaudited Financial Statements

Unilife Corporation (collectively with its consolidated subsidiaries, the “Company”) and subsidiaries is a U.S.-based developer and manufacturer of advanced drug delivery systems. The primary target customers for the Company’s products include pharmaceutical and biotechnology companies seeking to optimize drug lifecycles and generate differentiation for their brand in competitive therapeutic markets through the use of innovative devices that can improve patient care, protect healthcare workers and prevent disease. Customers also include suppliers of medical equipment to healthcare facilities and distributors to patients who self-administer prescription medication.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements contain all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented as required by Rule 10-01 of Regulation S-X. Interim results may not be indicative of results for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the fiscal year ended June 30, 2011 contained in its Annual Report on Form 10-K.

References to A$ mean the lawful currency of the Commonwealth of Australia. References to € or euros are to the lawful currency of the European Union.

2. Liquidity

The Company incurred recurring losses from operations during the year ended June 30, 2011 and the three months ended September 30, 2011 and anticipates incurring additional losses until such time that it can generate sufficient sales of its proprietary range of advanced drug delivery systems. Management estimates that cash and cash equivalents of $17.4 million as of September 30, 2011 are sufficient to sustain planned operations through the third quarter of fiscal 2012.

Therefore, additional funding will be needed in fiscal 2012 by the Company to support its operations and capital expenditure requirements. Management has identified several possible funding strategies which may be available. In addition to sales of its Unitract and Unifill syringe products to pharmaceutical companies with which the Company has existing commercial relationships, the Company is also in discussions with additional pharmaceutical companies pertaining to the Unifill syringe and other pipeline products. Should the Company enter into commercial relationships relating to the industrialization, commercial supply or preferred use of a device within a particular therapeutic market, the Company may receive additional funding or revenue streams. The Company may seek to raise additional funds through the sale of additional equity or debt securities. There can be no assurance that any such funding will be available when needed or on acceptable terms. These various factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Subsequent to September 30, 2011, the Company received the final $1.0 million of financing from Varilease Finance, Inc., in connection with its secured lending facility.

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Unilife Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates are principally in the areas of revenue recognition and share-based compensation expense. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

7

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Inventories

Inventories consist primarily of plastic syringe components and include direct materials, direct labor and manufacturing overhead. Inventories are stated at the lower of cost or market, with cost determined using the first in, first out method. The Company routinely reviews its inventory for obsolete, slow moving or otherwise impaired inventory and records estimated impairments in the periods in which they occur. Inventories consist of the following:

	September 30, 2011		June 30, 2011
	(in thousands)
Raw materials	$	599	$	387
Work in process		109		210
Finished goods		—		29
Total inventories	$	708	$	626

Share-Based Compensation

The Company grants stock options, restricted stock and common stock as compensation to its employees, directors and consultants. Certain employee and director awards vest over stated vesting periods and others also require achievement of specific performance or market conditions. The Company expenses the grant-date fair value of awards to employees and directors over their respective vesting periods. To the extent that employee and director awards vest only upon the achievement of a specific performance condition, expense is recognized over the period from the date management determines that the performance condition is probable of achievement through the date they are expected to be met. Awards granted to consultants are sometimes granted for past services, in which case their fair value is expensed on their grant date, while other awards require future service, or the achievement of performance or market conditions. Timing of expense recognition for consultant awards is similar to that of employee and director awards; however, aggregate expense is re-measured each quarter-end based on the then fair value of the award through the vesting date of the award. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, with the exception of market-based grants, which are valued based on Barrier and Monte Carlo option pricing models. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility. See Note 4 for additional information regarding share-based compensation.

Revenue Recognition

The Company recognizes revenue from licensing fees, industrialization efforts and product sales.

In June 2008, the Company entered into an exclusive licensing arrangement to allow its pharmaceutical partner to use certain of the Company’s intellectual property in order and solely to develop in collaboration with the Company, the Company’s Unifill syringe for use in and sale to the pre-filled syringe market. The €10.0 million up-front, non-refundable fee paid for this license is being amortized over the 5 year expected life of the related agreement. In late fiscal 2009, the Company entered into an industrialization agreement with its pharmaceutical partner, under which specific payment amounts and completion dates were established for achievement of certain pre-defined milestones in its development of the Unifill syringe. Revenue is recognized upon achievement of the “at risk” milestone events, which represents the culmination of the earnings process related to such events. Milestones include specific phases of the project such as product design, prototype availability, user tests, manufacturing proof of principle and the various steps to complete the industrialization of the product. Revenue recognized is commensurate with the milestones achieved and the Company has no future performance obligations related to previous milestone payments as each milestone payment is non-refundable when received.

The Company recognizes revenue from sales of products at the time of shipment and when title passes to the customer. Product sales from B. Braun, a customer which accounted for 10% or more of the Company’s revenue during the three months ended September 30, 2010 was $1.5 million.

Reclassifications

Certain amounts in the consolidated statements of operations for the three months ended September 30, 2010 were reclassified from selling, general and administrative expenses to research and development expenses. Management has determined that activities performed by certain employees were more closely associated with research and development activities and has reclassified those items on the accompanying consolidated statements of operations.

8

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

This reclassification did not affect the consolidated balance sheets or consolidated statements of cash flows. Additionally, the reclassification did not affect operating loss or net loss on the consolidated statements of operations. The following table summarizes the as reported and as adjusted amounts related to the reclassification discussed above:

	Three Months Ended
	September 30, 2010
	(in thousands)
Research and development — as reported	$	1,005
Research and development — as adjusted	$	1,776
Selling, general and administrative — as reported	$	8,012
Selling, general and administrative — as adjusted	$	7,241

Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2011-05, “Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 removes certain presentation options and requires entities to report components of net income and comprehensive income in either one continuous statement of comprehensive income or two separate but consecutive statements. There is no change to the items that are reported in other comprehensive income. ASU 2011-05 is effective for annual and interim periods beginning after December 15, 2011. Other than additional presentation of other comprehensive loss outside of the statements of stockholders’ equity and comprehensive loss, the adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 allows for assessment of qualitative factors to determine if it is more likely than not that goodwill might be impaired and whether or it is necessary to perform the two-step goodwill impairment test required under current accounting standards. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not believe that the adoption of ASU 2011-08 will have a material impact on its consolidated financial statements.

4. Share-Based Compensation and Warrants

The Company recognized share-based compensation expense related to stock options and grants of restricted stock to employees, directors and consultants of $1.9 million and $2.6 million during the three months ended September 30, 2011 and 2010, respectively.

Stock Options

The Company has granted stock options to certain employees and directors under the Employee Share Option Plan (the “Plan”). The Plan is designed to assist in the motivation and retention of employees and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain consultants outside of the Plan. The majority of the options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to three years. Additionally, certain stock options vest upon the closing price of the Company’s common stock reaching certain minimum levels, as defined in the agreements. Share-based compensation expense related to options granted to employees is recognized on a straight-line basis over the related vesting term. Share-based compensation expense related to options granted to consultants is recognized ratably over each vesting tranche of the options.

In November 2009, the Company adopted the 2009 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan provides for a maximum of 6,000,000 shares of common stock to be reserved for the issuance of stock options and other stock-based awards. Commencing on January 1, 2011, and on each January 1st thereafter, through January 1, 2019, the share reserve automatically adjusts so that it equals 12.5% of the weighted average number of shares of common stock outstanding reduced by the sum of any shares of common stock issued under the Stock Incentive Plan and any shares of common stock subject to outstanding awards under the Stock Incentive Plan.

In January 2010, the Company issued 1,000,000 options to purchase common stock to a consultant under the Stock Incentive Plan in consideration for various services to be performed for the Company. The options to purchase common stock are exercisable at A$6.33 per share and vest upon the trading price of the Company’s CDIs reaching certain minimum levels on the Australian Securities Exchange, which range from A$1.75 to A$3.22 per share. The options are re-measured each reporting date and as of September 30, 2011 were valued at $1.55 per option, which is being expensed ratably over the vesting period of each tranche, which ranges from 1.6 years to 2.0 years. The options are re-valued on a quarterly basis and marked to market until exercised.

9

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

During the three months ended September 30, 2011, the Company granted 270,000 options to purchase common stock to certain employees under the Stock Incentive Plan. The weighted average exercise price of the options was $4.24 per share. The majority of the options will vest upon the meeting of certain performance targets, as defined in the agreement, the achievement of which the Company considers to be probable. The weighted average grant date fair value of the options was $2.27 per share.

In April and May 2011, the Company granted 300,000 options to purchase common stock to certain employees under the Stock Incentive Plan, with a weighted average exercise price of $5.02 per share for which the performance-based vesting terms have not been mutually agreed upon between the parties. Due to the fact that material terms have not been mutually agreed upon between the grantees and the Company, the criteria for establishing a grant date under Accounting Standards Codification (“ASC”) Topic 718, “Compensation —Stock Compensation” has not been met. As a result, share-based compensation expense recorded during the three months ended September 30, 2011 does not include any amounts related to these awards.

The following is a summary of activity related to stock options held by employees and directors during the three months ended September 30, 2011:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Contractual		Aggregate Intrinsic
	Options			Exercise Price		Life (in years)		Value
								(in thousands)
Outstanding as of July 1, 2011		4,699,211		$	4.37
Granted		270,000			4.24
Exercised		(12,000	)		1.94
Cancelled		(77,967	)		5.77
Outstanding as of September 30, 2011		4,879,244		$	4.35		4.2	$	4,363
Exercisable as of September 30, 2011		2,171,836		$	2.56		2.1	$	4,282

The following is a summary of activity related to stock options and warrants held by non-employees during the three months ended September 30, 2011:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Contractual		Aggregate Intrinsic
	Options			Exercise Price		Life (in years)		Value
								(in thousands)
Outstanding as of July 1, 2011		8,126,609		$	7.96
Exercised		(273,910	)		1.55
Outstanding as of September 30, 2011		7,852,699		$	8.18		2.0	$	709
Exercisable as of September 30, 2011		6,852,699		$	8.48		1.8	$	709

The aggregate intrinsic value is defined as the difference between the market value of the Company’s common stock as of the end of the period and the exercise price of the in-the-money stock options. The total intrinsic value of stock options exercised during the three months ended September 30, 2011 and 2010 was $0.7 million and $2.5 million, respectively. Of the 3,707,408 non-vested options, 1,000,000 are held by a consultant.

The Company used the following weighted average assumptions in calculating the fair value of options granted during the three months ended September 30, 2011 and 2010:

	Three Months Ended			Three Months Ended
	September 30, 2011			September 30, 2010
Number of stock options granted		270,000			314,000
Expected dividend yield		0	%		0	%
Risk-free interest rate		1.54	%		1.47	%
Expected volatility		57	%		61	%
Expected life (in years)		6.0			4.3

10

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Subsequent to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions, which were valued using a Monte Carlo option pricing model. The Company has not historically paid dividends to its stockholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of U.S. Treasury bonds with a term equal to the expected term of the option. Due to the Company’s limited Nasdaq trading history, the expected volatility used to value options granted after January 27, 2010 is based upon a blended rate of the historical share price of the Company’s stock on the Australian Securities Exchange and the volatility of peer companies traded on U.S. exchanges operating in the same industry as the Company. The expected term of the options to purchase common stock issued to employees and directors is based upon the simplified method, which is the mid-point between the vesting date of the option and its contractual term unless a reasonable alternate term is estimated by management. The expected term of the options to purchase common stock issued to consultants is based on the contractual term of the awards.

Prior to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions which were valued based on a Barrier option pricing model. The Company has not historically paid dividends to its shareholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of Australian bonds with a term equal to the expected term of the option. The expected volatility is based upon the historical share price of the Company’s common stock on the Australian Securities Exchange. The expected term of the stock options to purchase common stock is based upon the outstanding contractual term of the stock option on the date of grant.

Restricted Stock

The Company has granted shares of restricted stock to certain employees and consultants under the Stock Incentive Plan. During the period prior to vesting, the holder of the non-vested restricted stock will have the right to vote and the right to receive all dividends and other distributions declared. All non-vested shares of restricted stock are reflected as outstanding; however, they have been excluded from the calculation of basic earnings per share.

For employees, the fair value of restricted stock is measured on the date of grant using the price of the Company’s common stock on that date. Share-based compensation expense for restricted stock issued to employees is recognized on a straight-line basis over the requisite service period, which is generally the longest vesting period. For restricted stock granted to consultants, the fair value of the awards is re-valued on a quarterly basis and marked to market until vested. Share-based compensation expense for restricted stock issued to consultants is recognized ratably over each vesting tranche.

The following is a summary of activity related to restricted stock awards during the three months ended September 30, 2011:

	Number of Restricted			Weighted Average
	Stock Awards			Grant Date Fair Value
Unvested as of July 1, 2011		1,957,000		$	6.19
Granted		90,000			4.27
Vested		(20,000	)		5.28
Unvested as of September 30, 2011		2,027,000		$	6.11

11

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

5. Property, Plant and Equipment and Construction-in-Progress

Property, plant and equipment consist of the following:

	September 30,			June 30,
	2011			2011
	(in thousands)
Building	$	32,153		$	31,866
Machinery and equipment		16,032			16,130
Computer software		2,457			2,457
Furniture and fixtures		323			323
Construction in progress		5,969			5,734
Land		2,036			2,036
		58,970			58,546
Less: accumulated depreciation and amortization		(5,089	)		(4,526	)
Property, plant and equipment, net	$	53,881		$	54,020

Construction in progress as of September 30, 2011 and June 30, 2011 consisted primarily of amounts incurred in connection with machinery and equipment.

6. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill during the three months ended September 30, 2011 are as follows:

	(in thousands)
Balance as of July 1, 2011	$	13,265
Foreign currency translation		(980	)
Balance as of September 30, 2011	$	12,285

Intangible assets consist of patents acquired in a business acquisition of $0.1 million. Related accumulated amortization as of both September 30, 2011 and June 30, 2011 was $0.1 million. Future amortization expense is scheduled to be $7,000 annually, excluding the impact of foreign currency exchange.

7. Long-Term Debt

Long-term debt consists of the following:

	September 30, 2011		June 30, 2011
	(in thousands)
Mortgage loans	$	18,000	$	17,940
Secured lending facility		8,668		—
Bank term loans		2,028		2,095
Commonwealth of Pennsylvania financing authority loan		2,216		2,227
Other		398		425
		31,310		22,687
Less: current portion of long-term debt		5,879		2,274
Total long-term debt	$	25,431	$	20,413

Mortgage Loans

In October 2010, Unilife Cross Farm LLC, a wholly owned subsidiary of the Company (“Cross Farm”) entered into a loan agreement with Metro Bank (“Metro”), pursuant to which Metro provided Cross Farm with two loans in the amounts of $14.25 million and $3.75 million. The proceeds received were used to finance the purchase of land and construction of the Company’s new corporate headquarters and manufacturing facility in York, Pennsylvania, including the repayment of a $6.9 million bridge construction loan.

12

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

The $14.25 million term note matures in December 2031 and the $3.75 million term note matures in October 2020. During construction, Cross Farm paid only interest on both term notes at the Prime Rate plus 1.50% per annum, with a floor of 4.50% per annum. For a period of five years subsequent to construction, Cross Farm will pay principal and interest on both term notes, with interest at a fixed rate based on the 5 year Treasury-bill plus 300 basis points per annum, with a floor of 6.0% per annum. Commencing five years subsequent to construction through the maturity dates for each term note, Cross Farm will pay principal and interest on both term notes, with interest at a rate to be negotiated by the parties, or if no rate is negotiated, based upon the Prime Rate plus 1.0% per annum, with a floor not to exceed 250 basis points over the Prime Rate. Cross Farm will also pay one final payment of principal and interest upon the maturity of each term note.

The loan agreement contains certain customary covenants, including the maintenance of a Debt Service Reserve Account in the amount of $2.4 million, classified as restricted cash on the consolidated balance sheet, which will remain in place until Cross Farm and Metro agree on the financial covenants. The Company was in compliance with its debt covenants as of September 30, 2011. However, the Company is not certain that it will be able to maintain the Debt Service Reserve Account balance for a period of 12 months from September 30, 2011. Cross Farm may prepay the loan, but will incur a prepayment penalty of 2.0% during the first three years. The U.S. Department of Agriculture has guaranteed $10.0 million of the loan.

The loans are guaranteed by the Company and by Unilife Medical Solutions, Inc. (“USMI”). The Company and USMI pledged certain assets to secure their obligations under their respective guarantees, including a pledge by the Company of all of its membership interests in Cross Farm and 65% of its ownership interest in Unilife Medical Solutions (PTY) Ltd., a subsidiary of the Company and the parent entity of USMI.

As of September 30, 2011, Cross Farm was fully drawn on both the $14.25 million and $3.75 million notes.

Secured Lending Facility

In August 2011, the Company entered into a Master Lease Agreement with Varilease Finance, Inc. (“Varilease”) for up to $10.0 million of secured financing for production equipment for the Unifill syringe. Based on the Company’s continuing involvement throughout the term of the agreement and the integral nature of the production equipment, the transaction is being accounted for under the financing method. Over the term of the agreement, the Company will make 24 monthly installments based upon the amount drawn. This facility has an effective interest rate of 12.85%. As of September 30, 2011 Varilease has provided $9.0 million. Subsequent to September 30, 2011, the Company received the final $1.0 million of financing from Varilease in connection with this agreement. At the end of the 24 month initial term, the Company has the option to (i) return the equipment; (ii) extend the term for 12 months followed by optional 6 month extensions terminable by either party; or (iii) repurchase the equipment for a price to be agreed upon by both lessor and lessee. The secured lending facility contains covenants and provisions for events of default customarily found in lease agreements.

The aggregate maturities related to amounts outstanding as of September 30, 2011 under this secured lending facility will be $3.7 million and $5.0 million for the twelve months ending September 30, 2012 and 2013, respectively.

Bank Term Loans

Bank term loans consist of three term loans payable. The loans bear interest at a rate of prime (3.25% as of September 30, 2011) plus 1.50%. (4.75% as of September 30, 2011) per annum and mature on dates ranging from December 2020 through August 2021. The borrowings under the bank term loans are collateralized by the Company’s accounts receivable, inventories and certain machinery and equipment. In February 2011, the bank term loan agreements were amended so that the covenants are consistent with those under the Company’s mortgage loans as discussed above, thus removing the covenants that were in violation as of June 30, 2010. Due to the previous violation of the bank term loan covenants as of June 30, 2010 and the uncertainty of being able to maintain the Debt Service Reserve Account balance for a period of 12 months from September 30, 2011, the $1.2 million long-term portion outstanding as of September 30, 2011 under these bank term loans is classified in the current portion of long-term debt.

Commonwealth of Pennsylvania Financing Authority Loan

In October 2009, the Company accepted a $5.45 million offer of assistance from the Commonwealth of Pennsylvania which included up to $2.25 million in financing for land and the construction of its new manufacturing facility. In December 2010, Unilife Cross Farm LLC, a subsidiary of the Company (“Cross Farm”), received the $2.25 million loan which bears interest at a rate of 5.0% per annum, matures in January 2021 and is secured by a third mortgage on the facility. In connection with the loan agreement, Cross Farm entered into an intercreditor agreement by which the Commonwealth of Pennsylvania agreed that it would not exercise its rights in the event of a default by Cross Farm without the consent of Metro, which holds the first and second mortgages on the facility.

13

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

8. Loss Per Share

The Company’s net loss per share is as follows:

	Three Months Ended September 30,
	2011			2010
	(in thousands, except share and per share data)
Numerator
Net loss	$	(9,705	)	$	(7,246	)
Denominator
Weighted average number of shares used to compute basic loss per share		62,082,396			53,190,043
Effect of dilutive options to purchase common stock		—			—
Weighted average number of shares used to compute diluted loss per share		62,082,396			53,190,043
Basic and diluted loss per share	$	(0.16	)	$	(0.14	)

Due to the Company’s net losses, unvested shares of restricted stock (participating securities) totaling 1,984,935 and 1,863,000 were excluded from the calculation of basic and diluted loss per share during the three months ended September 30, 2011 and 2010, respectively.

In addition, stock options (non-participating securities) totaling 9,990,013 and 9,867,246 during the three months ended September 30, 2011 and 2010, respectively, were excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive. Certain of these stock options were excluded solely due to the Company’s net loss position. Had the Company reported net income during the three months ended September 30, 2011 and 2010, these shares would have had an effect of 1,353,703 and 1,915,176 diluted shares, respectively, for purposes of calculating diluted loss per share.

9. Contingencies

From time to time, the Company is involved in various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, management believes that these claims, suits and complaints are adequately provided for, covered by insurance, without merit or not probable that an unfavorable outcome will result.

10. Business Alliances

Sanofi

The Company signed an exclusive licensing agreement and an industrialization agreement with Sanofi, a multinational pharmaceutical company, between June 2008 and July 2009. Under the terms of these agreements, Sanofi has agreed to pay the Company an aggregate of approximately $36.4 million in exclusivity fees and industrialization milestone payments for the exclusive right to negotiate the purchase of the Unifill ready-to-fill (prefilled) syringe (Unifill syringe or product).

Pursuant to the exclusive licensing agreement, Sanofi has paid the Company a €10.0 million ($13.0 million) up front non-refundable one-time fee. During the year ended June 30, 2009, the Company recognized $2.5 million of this up-front payment as revenue and deferred $10.6 million, which is being recognized on a straight-line basis over the remaining term of the agreement.

Pursuant to the industrialization agreement, Sanofi has agreed to pay the Company up to €17.0 million in milestone-based payments to fund the completion of the Company’s industrialization program for the Unifill syringe. During the three months ended September 30, 2011 the Company received and recognized as revenue the final €1.0 million milestone payment under the industrialization agreement.

This exclusive right for Sanofi to negotiate for the purchase of the Unifill syringe is limited to the therapeutic drug classes of anti-thrombotic agents, vaccines and four confidential sub-classes until June 30, 2014 (exclusivity list). The Company is able to negotiate with other pharmaceutical companies seeking to utilize the Unifill syringe with drugs targeted for use in therapeutic drug classes outside of those retained by Sanofi under its exclusivity list. Upon mutual agreement by both parties, Sanofi may add additional therapeutic sub-classes to the exclusivity list for the Unifill syringe provided the Company has not previously signed exclusive terms for the product to a third party. The Company is not obligated to sell more than 30% of its annual production capacity for the Unifill syringe to Sanofi without written notification up to two years in advance.

14

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

Stason Pharmaceuticals

In March 2010, the Company signed an exclusive five year agreement with Stason Pharmaceuticals; a U.S.-based pharmaceutical company to market its Unitract 1mL syringe in Japan, China and Taiwan. Under the agreement, Stason Pharmaceuticals is required to purchase a minimum of 1.0 million units of the Unitract 1 mL syringe per year during the term of the contract, subject to regulatory approval of the Unitract 1 mL syringe in those markets, which is currently pending.

11. Financial Instruments

The Company does not hold or issue financial instruments for trading purposes. The estimated fair values of the Company’s financial instruments are as follows:

	September 30, 2011				June 30, 2011
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in thousands)
Assets:
Cash equivalents — certificates of deposit	$	1,001	$	1,001	$	1,000	$	1,000

The carrying amount of the Company’s cash equivalents, which includes certificates of deposit, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short term maturities of these items. The estimated fair value of the Company’s debt approximates its carrying value based upon the rates that the Company would currently be able to receive for similar instruments of comparable maturity.

The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The levels in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the Company’s assets that are measured at fair value on a recurring basis for the periods presented:

	Fair Value Based On
	Quoted Market
	Prices in Active		Significant		Significant
	Markets for		Other		Unobservable		Total
	Identical Assets		Observable Inputs		Inputs		Fair Value
	(Level 1)		(Level 2)		(Level 3)		Measurements
	(in thousands)
Cash equivalents — certificates of deposit (September 30, 2011)	$	—	$	1,001	$	—	$	1,001
Cash equivalents — certificates of deposit (June 30, 2011)	$	—	$	1,000	$	—	$	1,000

15

Unilife Corporation and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

12. Subsequent Event

Effective October 1, 2011, the Company signed a new employment agreement with its Chief Executive Officer. The agreement provides, subject to stockholder approval, for the issuance of 1,166,000 shares of restricted stock and 750,000 options to purchase common stock under the Stock Incentive Plan. The vesting of the restricted stock is conditioned on the satisfaction of certain performance milestones. The options to purchase common stock will vest equally over a period of three years annually and will be exercisable at the NASDAQ closing price of the Company’s stock on the date of grant.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Information

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties and assumptions. You should review the “Risk Factors” section of our Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements.

Certain statements in this Quarterly Report on Form 10-Q may constitute forward looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on management’s beliefs and assumptions and on information currently available to our management. Our management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results, events and developments to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K and those described from time to time in other reports which we file with the Securities and Exchange Commission.

Overview

We are a U.S.-based developer and manufacturer of a diverse portfolio of advanced drug delivery systems. We collaborate with pharmaceutical and biotechnology companies seeking to optimize drug lifecycles and generate differentiation for their brand in competitive therapeutic markets through the use of innovative devices that can improve patient care, protect healthcare workers and prevent disease. We have developed a broad portfolio of drug delivery systems in direct response to unmet market needs for injectable drugs including macromolecule biologics.

Our main product is the Unifill ready-to-fill syringe, which is designed to be supplied to pharmaceutical manufacturers in a form that is ready for filling with their injectable drugs and vaccines. We have a strategic alliance with Sanofi, a large global pharmaceutical company, pursuant to which Sanofi has paid us a €10.0 million exclusivity fee and has paid us €17.0 million to fund our industrialization program for the Unifill syringe. We are also in discussions with other pharmaceutical companies that are seeking to obtain access to the Unifill syringe.

In addition, we manufacture our Unitract 1mL insulin syringes at our FDA-registered manufacturing facility in Pennsylvania, which are designed primarily for use in healthcare facilities and by patients who self-administer prescription medication such as insulin.

Recent Developments

Secured Lending Facility

In August 2011, we entered into a Master Lease Agreement with Varilease Finance, Inc. (“Varilease”) for up to $10.0 million of secured financing for production equipment for the Unifill syringe. Based on our continuing involvement throughout the term of the agreement and the integral nature of the production equipment, the transaction is being accounted for under the financing method. Over the term of the agreement, we will make 24 monthly installments based upon the amount drawn. This facility has an effective interest rate of 12.85%. As of September 30, 2011 Varilease has provided $9.0 million. Subsequent to September 30, 2011, we received the final $1.0 million of financing from Varilease in connection with this agreement. At the end of the 24 month initial term, we have the option to: (i) return the equipment; (ii) extend the term for 12 months followed by optional 6 month extensions terminable by either party; or (iii) repurchase the equipment for a price to be agreed upon by both lessor and lessee. The secured lending facility contains covenants and provisions for events of default customarily found in lease agreements.

Compensation to Chief Executive Officer

Effective October 1, 2011, we signed a new employment agreement with our Chief Executive Officer. The agreement provides, subject to stockholder approval, for the issuance of 1,166,000 shares of restricted stock and 750,000 options to purchase common stock under the 2009 Stock Incentive Plan. The vesting of the restricted stock is conditioned on the satisfaction of certain performance milestones. The options to purchase common stock will vest equally over a period of three years annually and will be exercisable at the NASDAQ closing price of our stock on the date of grant.

17

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. This requires management to make certain estimates, judgments and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes.

Our critical accounting policies and estimates are described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” of our Annual Report on Form 10-K. There have been no changes in critical accounting policies in the current year from those described in our Annual Report on Form 10-K.

Results of Operations

The following table summarizes our results of operations for the three months ended September 30, 2011 and 2010:

	Three Months Ended
	September 30,
	2011			2010
	(in thousands, except per share data)
Revenues:
Industrialization fees	$	1,440		$	1,350
Licensing fees		672			577
Product sales and other		18			1,616
Total revenues		2,130			3,543
Cost of product sales		74			1,175
Gross profit		2,056			2,368
Operating expenses:
Research and development		4,298			1,776
Selling, general and administrative		6,183			7,241
Depreciation and amortization		993			787
Total operating expenses		11,474			9,804
Operating loss		(9,418	)		(7,436	)
Interest expense		283			32
Interest income		(30	)		(122	)
Other expense (income), net		34			(100	)
Net loss	$	(9,705	)	$	(7,246	)
Loss per share:
Basic and diluted loss per share	$	(0.16	)	$	(0.14	)

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

Revenues. Revenues decreased by $1.4 million or 40%. During both the three months ended September 30, 2011 and 2010, we recognized $1.4 million related to the achievement of one milestone under our industrialization agreement with Sanofi. The milestone met during the three months ended September 30, 2011 was the last remaining milestone under the agreement. Revenues from our exclusive licensing agreement with Sanofi increased from $0.6 million to $0.7 million. We have recognized and will continue to recognize revenue from the exclusive licensing agreement on a straight-line basis over the remaining term of the agreement. Since these revenues are based in euros, fluctuations in the amount of revenue recognized will result from fluctuations in foreign currency translation rates. Revenues from product sales of our contract manufacturing business decreased by $1.6 million, as we discontinued our contract manufacturing activities in December 2010 in order to focus our efforts on the Unifill syringe and other advanced drug delivery systems.

Cost of product sales. Our cost of product sales decreased by $1.1 million or 94% as a result of the associated decrease in our contract manufacturing revenue. Our cost of product sales during the three months ended September 2011 includes amounts related to the write-off of obsolete inventory.

18

Research and development expenses. Research and development expenses increased by $2.5 million due to expenditures related to the development of additional advanced drug delivery systems.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased by $1.1 million or 15%. During the three months ended September 30, 2011, we recorded $1.8 million of share-based compensation expense, a decrease of $0.8 million compared to the same period last year. The decrease in share-based compensation expense was attributable to a decline in the fair value of certain non-employee options to purchase common stock which are revalued each reporting period using the Monte Carlo option pricing model. Additionally, during the three months ended September 30, 2011, our payroll expenses and recruitment fees declined by $0.4 million, primarily as a result of amounts incurred to recruit and relocate certain members of our management team during the three months ended September 30, 2010, which did not recur during the current year.

Depreciation and amortization expense. Depreciation and amortization expense increased by $0.2 million or 26%, primarily as a result of the completion of construction of our new headquarters and manufacturing facility, as well as equipment placed into service during fiscal 2011. We expect our depreciation and amortization expense to increase in the future as a result of our purchases of machinery to manufacture the Unifill syringe.

Interest expense. Interest expense increased by $0.3 million, primarily as a result of interest related to our $18.0 million in debt financing obtained in October 2010 for the construction of our new headquarters and manufacturing facility.

Interest income. Interest income decreased by $0.1 million, primarily as a result of fluctuations in interest rates.

Net loss and loss per share. Net loss during the three months ended September 30, 2011 and 2010 was $9.7 million and $7.2 million, respectively. Basic and diluted loss per share was $0.16 and $0.14, respectively, on weighted average shares outstanding of 62,082,396 and 53,190,043, respectively. The increase in the weighted average shares outstanding was primarily due to the issuance of common stock in connection with our December 2010 equity financing.

Liquidity and Capital Resources

To date, we have funded our operations primarily from a combination of equity issuances, borrowings under our bank mortgage and term loans, an external secured financing and payments from Sanofi under our exclusive licensing and industrialization agreements. As of September 30, 2011, cash and cash equivalents were $17.4 million, restricted cash was $2.4 million and our long-term debt was $31.3 million. As of June 30, 2011, cash and cash equivalents were $17.9 million, restricted cash was $2.4 million and our long-term debt was $22.7 million. The $2.4 million of restricted cash relates to amounts that must remain in cash deposits under our loan agreement with Metro.

During August 2011, we entered into an agreement which will provide for up to $10.0 million of secured financing from Varilease Finance Inc. (“Varilease”) for production equipment for the Unifill syringe. As of September 30, 2011 we received $9.0 million under the agreement and subsequent to September 30, 2011, have received the remaining $1.0 million.

During September 2011, we received €1.0 million from Sanofi related to the achievement of the final milestone under the industrialization agreement.

We believe that our cash and cash equivalents on hand will be sufficient to sustain planned operations through the third quarter of fiscal 2012.

Our recurring losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. We anticipate incurring additional losses until such time that we can generate significant revenue from product sales.

The following table summarizes our cash flows during the three months ended September 30, 2011 and 2010:

	Three Months Ended September 30,
	2011			2010
	(in thousands)
Net cash provided by (used in):
Operating activities	$	(7,647	)		(6,474	)
Investing activities		(1,797	)		(7,009	)
Financing activities		9,044			923

19

Net Cash Used In Operating Activities

Net cash used in operating activities during the three months ended September 30, 2011 was $7.6 million compared $6.5 million during the three months ended September 30, 2010. The increase in net cash used in operations was primarily due to increased operating expenses leading to $2.9 million of higher net loss after adding back depreciation and amortization and share-based compensation expense.

Net Cash Used in Investing Activities

Net cash used in investing activities was $1.8 million during the three months ended September 30, 2011, primarily as a result of costs incurred in connection with the purchase of machinery and related equipment, compared to $7.0 million during the three months ended September 30, 2010, primarily resulting from construction costs incurred in connection with our new headquarters and manufacturing facility.

Net Cash Provided by Financing Activities

Net cash provided by financing activities during the three months ended September 30, 2011 was $9.0 million compared to $0.9 million during the three months ended September 30, 2010. During the three months ended September 30, 2011, we received $9.0 million in proceeds associated with our secured lending facility agreement with Varilease. During the three months ended September 30, 2010, we received $1.1 million in proceeds upon the exercise of stock options.

Contractual Obligations

The aggregate maturities related to amounts outstanding as of September 30, 2011 under our secured lending facility will be $3.7 million and $5.0 million during the twelve months ending September 30, 2012 and 2013, respectively.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from changes in interest rates and foreign currency exchange rates. Changes in these factors could cause fluctuations in our results of operations and cash flows.

Interest Rate Risk

Our exposure to interest rate risk is limited to our cash and cash equivalents that are invested in money market funds with highly liquid short term investments and our variable interest rate term loans. We currently do not utilize derivative instruments to mitigate changes in interest rates.

Foreign Currency Exchange Rate Fluctuations

Certain of our revenues are derived from payments under our industrialization agreement received in euros while we incur most of our expenses in U.S. dollars and Australian dollars. In addition, a portion of our cash and cash equivalents and investments are held at Australian banking institutions and are denominated in Australian dollars. We are exposed to foreign currency exchange rate risks on these amounts. We currently do not utilize options or forward contracts to mitigate changes in foreign currency exchange rates. For U.S. reporting purposes, we translate all assets and liabilities of our non-U.S. entities into U.S. dollars using the exchange rate as of the end of the related period and we translate all revenues and expenses of our non-U.S. entities using the average exchange rate during the applicable period.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such terms is defined in Rules 13a-15(e) under the Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

20

Changes in Internal Control

There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information about repurchases of Unilife Corporation common stock made by us during the first quarter of fiscal year 2012.

					Total Number		Maximum
					of Shares		Number of
					Purchased as		Shares that
					Part of		May Yet Be
					Publicly		Purchased
	Total Number		Average Price		Announced		Under the
	of Shares		Paid Per		Plans or		Plans or
Date	Purchased		Share		Programs		Programs
September 2, 2011		6,260	$	4.15		—		—

The number of shares reported as purchased are attributable to shares surrendered to Unilife Corporation by employees in payment of tax obligations relating to vesting of restricted shares.

Item 6. Exhibits

The exhibits to this report are listed in the Exhibit Index below.

Exhibit			Included
No.		Description of Exhibit	Herewith
	10.1	Amendment to Executive Employment Agreement, dated July 18, 2011 between Unilife Corporation and Alan D. Shortall	X
	10.2	Master Lease Agreement dated August 15, 2011 between Unilife Medical Solutions, Inc. and Varilease Finance, Inc.	X
	10.3	Guaranty to Varilease Finance, Inc. from Unilife Corporation, dated August 15, 2011	X
	10.4	Employment Agreement, effective October 1, 2011 between Unilife Corporation and Alan D. Shortall	X
	10.5	Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and R. Richard Wieland	X
	10.6	Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and J. Christopher Naftzger	X
	10.7	Letter Amendments to Employment Agreement, dated November 4, 2011 between Unilife Corporation and Mark Iampietro	X
	31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer	X
	31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer	X
	32.1	Section 1350 Certification	X
	32.2	Section 1350 Certification	X
	101.INS	XBRL Instance Document	X
	101.SCH	XBRL Taxonomy Extension Schema	X
	101.CAL	XBRL Taxonomy Extension Calculation Linkbase	X
	101.LAB	XBRL Taxonomy Extension Label Linkbase	X
	101.PRE	XBRL Taxonomy Extension Presentation Linkbase	X
	101.DEF	XBRL Taxonomy Extension Definition Linkbase	X

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	UNILIFE CORPORATION
Date: November 9, 2011	/s/ R. Richard Wieland II
	R. Richard Wieland II
	Chief Financial Officer

22

EX-10.1

Exhibit 10.1

AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT

THIS AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT (“Amendment”) is made between UNILIFE CORPORATION, and its wholly owned subsidiaries, including UNILIFE MEDICAL SOLUTIONS, INC. and UNILIFE MEDICAL SOLUTIONS (PTY) LIMITED of 250 Cross Farm Lane, York, Pennsylvania, USA, 17406 (collectively, “Unilife” or “Company”); and ALAN D. SHORTALL (“Executive”).

IT IS AGREED:

1.	DEFINITIONS AND INTERPRETATION
1.1	Definitions
	In this Amendment:
	“Agreement” shall mean the Executive Employment Agreement entered into by the Company (as Unilife Medical Solutions Limited) and the Executive on October 26, 2008, as amended or substituted with the agreement of the relevant parties and in force at any relevant time;
	“Parties” shall mean the Company and the Executive.
	All other defined terms not otherwise defined in this Amendment shall have the meaning ascribed to them in the Agreement.
1.2	Interpretation
	This Amendment shall be subject to the interpretation provisions set forth in Clause 24.2 of the Agreement.
2.	PURPOSE
2.1	Background
	The Company has employed the Executive as its Chief Executive Officer pursuant to the Agreement, which will expire on June 30, 2011. The Parties wish to extend the expiration date of the Agreement until December 31, 2011.

2.2	Amendments
	The Parties have agreed to amend clause 1.1 of the Agreement by deleting it in its entirety and replacing it with the following:
	“The Executive’s employment commences on the Commencement Date and will continue until December 31, 2011 unless terminated earlier by either party pursuant to clause 15 of this Agreement.”
3.	EFFECT
	This Amendment shall be effective as of June 30, 2011. All other provisions of the Agreement not amended by this Amendment shall continue in full force and effect.

NOW, THEREFORE, in consideration of the promises and covenants set forth above, and intending to be legally bound hereby, the Parties sign as follows, on this 18^th day of July 2011.

UNILIFE CORPORATION
By:	/s/ J. Christopher Naftzger
	J. Christopher Naftzger
	Vice President, General Counsel, Corporate Secretary & Chief Compliance Officer

ALAN D. SHORTALL
 

/s/ Alan D. Shortall  

Signature of Alan D. Shortall 

/s/ Deborah Milbourne  

Witness 

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EX-10.2

Exhibit 10.2

Varilease Finance, Inc.
6340 South 3000 East, Suite 400
Salt Lake City, UT 84121
www.varilease.com
tel 801.733.8100
fax 801.733.8900

MASTER LEASE AGREEMENT

MASTER LEASE AGREEMENT (“Master Agreement”) made as of August 15, 2011, between VARILEASE FINANCE, INC., a Michigan corporation, having its chief executive offices at 6340 South 3000 East, Suite 400, Salt Lake City, UT 84121 (“Lessor”) and UNILIFE MEDICAL SOLUTIONS, INC., a Delaware corporation, having its chief executive offices at 250 Cross Farm Lane, York, PA 17406 (“Lessee”).

1. LEASE

On the terms and conditions of this Master Agreement, Lessor shall lease to Lessee, and Lessee shall hire from Lessor, the items of personal property described in the Schedule(s) (collectively the “Equipment”, and individually an “Item”) which shall incorporate this Master Agreement. Subject to Section 16(a)(viii), each Schedule shall constitute a separate and independent lease and contractual obligation of Lessee. The term “Lease” shall refer to an individual Schedule that incorporates this Master Agreement. In the event of a conflict between this Master Agreement and any Schedule, the language of the Schedule shall prevail. The Lease shall be effective upon execution by Lessor at its offices.

2. TERM

(a) The term of the Lease may be comprised of a Progress Funding Term, Installation Term and Base Term. The Progress Funding Term for each Item, if applicable, shall commence on the date the Authorization for Progress Payment (“Authorization”) is executed and shall end on the date specified on the Installation Certificate (the “Installation Date”). The Installation Term shall commence on the Installation Date, and terminate on the first day of the calendar quarter following the Installation Date (the “Base Term Commencement Date”). The Base Term of the Lease shall begin on the Base Term Commencement Date, and shall, subject to Section 19(b), end on the last day of the last month of the Base Term. The date of installation for any Item shall be the earlier of either (i) the Installation Date, or (ii) if Lessee does not, for any reason, sign an Installation Certificate the date shall be the date Lessee received the Equipment.

(b) In the event Lessee requests, for its benefit, that Lessor advance payments to supplier(s) or manufacturer(s) of the Equipment (collectively “Supplier(s)”) during the period prior to Lessee’s delivery of the Installation Certificate and make progress payments to such Supplier(s) or otherwise reimburse Lessee for deposits, if any, made to such Supplier(s) (all such Lessor payments and reimbursements collectively referred to as “Progress Payments”), Lessor may, in its sole discretion, accommodate such requests by Lessee, and make such Progress Payments pursuant to the terms provided for in this Section 2(b). Lessee shall pay to Lessor a daily pro rata rental fee (“Rental Fee”) from the date of execution of the Authorization for each Item of Equipment through the Installation Date calculated by multiplying the Base Lease Rate Factor specified in the applicable Schedule times the amount of such Progress Payment divided by 30. This Rental Fee will be billed monthly to Lessee. If all of the Equipment to be included in the applicable Schedule is not accepted by Lessee within 90 days of the date of Lessor’s execution of the applicable Schedule (the “Funding Cut-Off Date”), Lessor may, at its sole option, pursue any one of the following options: (i) commence the term of any Schedule (using the Funding Cut-Off Date as the Installation Date) based on the portion of the Equipment that has been delivered to Lessee and paid for by Lessor as of the Funding Cut- Off Date; (ii) extend the Installation Term and establish a new Funding Cut-Off Date; or (iii) demand that the Lessee pay to Lessor a total amount equal to all Progress Payments paid to Supplier(s) on behalf of Lessee, plus all pro rata rentals, taxes, late fees and other payments which are due and owing under this Master Agreement. Should such demand be made by Lessor, Lessee hereby unconditionally agrees to reimburse said amounts to Lessor in full within three (3) business days of said demand, and upon receipt of said payment in full, Lessor shall release Lessee from further payment obligations under the applicable Schedule. Lessor hereby reserves the right to terminate the Installation Term at any time if Lessor determines, at Lessor’s reasonable discretion, that there has been a material adverse change in Lessee’s financial condition, at which time Lessor may elect either (i), (ii), or (iii) above. Notwithstanding anything to the contrary in the Lease, for purposes of this Section 2(b)(iii), in the event such demand for reimbursement is made by Lessor and Lessee fails to reimburse Lessor in accordance with the terms herein, such failure shall automatically constitute an Event of Default, Lessee shall waive any right to cure or remedy the default as otherwise provided in Section 16(a), and Lessor shall be entitled to pursue all of its available remedies under the Lease.

3. RENTAL

(a) The rental amount payable to Lessor by Lessee for the Equipment will be as set forth on the Schedule (“Base Monthly Rental”). As rent for Equipment, Lessee shall pay Lessor in immediately available funds and in advance on the Base Term Commencement Date and on the first day of each calendar month during the Base Term of the Lease the Base Monthly Rental, and upon receipt of an invoice, an amount equal to 1/30th of the Base Monthly Rental for each Item times the number of days which will elapse from the date such Item was installed to the Base Term Commencement Date of the Lease. Each remittance from Lessee to Lessor shall contain information as to the Lease for which payment is made. In the event of a partial installation of less than all the Equipment prior to the Base Term Commencement Date, Lessee shall pay pro rata rental for such Items of Equipment upon receipt of invoice for same.

(b) For any payment of rent or other amount due under a Lease which is past due, interest shall accrue at the rate of 1.5% per month, from the date such payment was due until payment is received by Lessor, or if such rate shall exceed the maximum rate of interest allowed by law, then at such maximum rate. SUBJECT TO THE PROVISIONS OF SECTION 19(b), THIS IS A NON-CANCELABLE, NON-TERMINABLE LEASE OF EQUIPMENT FOR THE ENTIRE LEASE TERM AS PROVIDED IN EACH SCHEDULE HERETO.

4. TAXES

Lessee shall immediately reimburse Lessor for (or pay directly, but only if instructed by Lessor) all taxes, fees, and assessments that may be imposed by any taxing authority on the Equipment, on its purchase, ownership, delivery, possession, operation, rental, return to Lessor or its purchase by Lessee (collectively, Taxes); provided, however, that Lessee shall not be liable for any such Taxes (whether imposed by the United States of America or by any other domestic or foreign taxing authority) imposed on or measured by Lessor’s net income or tax preference items. Lessee’s obligation includes, but is not limited to, the obligation to pay all license and registration fees, recycling fees, and all sales, use, personal property, recordation and other taxes and governmental charges, together with any penalties, fines and interest thereon, that may be imposed during the Base Term and any extension or renewal term of the applicable Schedule, including reasonable administrative costs incurred by Lessor in connection with the set-up, revisions, reporting, filing and payment of any taxes due hereunder or in connection with the Equipment. Lessor shall report and file any and all Taxes and shall invoice Lessee for same. Lessee shall promptly reimburse Lessor for all Taxes and hold Lessor harmless with respect to any non-payment thereof.

5. NET LEASE

The Lease is a net lease, it being the intention of the parties that all costs, expenses and liabilities associated with the Equipment or its lease shall be borne by Lessee. Lessee’s agreement to pay all obligations under the Lease, including but not limited to Base Monthly Rental, is absolute and unconditional and such agreement is for the benefit of Lessor and its Assignee(s). Lessee’s obligations shall not be subject to any abatement, deferment, reduction, setoff, defense, counterclaim or recoupment for any reason whatsoever. Except as may be otherwise expressly provided in the Lease, it shall not terminate, nor shall the obligations of Lessee be affected by reason of any defect in or damage to, or any loss or destruction of, or obsolescence of, the Equipment or any Item from any cause whatsoever, or the interference with its use by any private person, corporation or governmental authority, or as a result of any war, riot, insurrection or an Act of God. It is the express intention of Lessor and Lessee that all rent and other sums payable by Lessee under the Lease shall be, and continue to be, payable in all events throughout the term of the Lease. The Lease shall be binding upon the Lessee, its successors and permitted assigns and shall inure to the benefit of Lessor and its Assignee(s).

6. INSTALLATION, RETURN AND USE OF EQUIPMENT

(a) Upon delivery of the Equipment to Lessee, Lessee shall pay all transportation, installation, rigging, packing and insurance charges with respect to the Equipment. In the case of a sale and leaseback transaction, Lessee shall, upon the request of Lessor, certify the date the Equipment was first put into use. Lessee will provide the required electric current and a suitable place of installation for the Equipment with all appropriate facilities as specified by the manufacturer. No cards, tapes, disks, data cells or other input/output and storage media may be used by Lessee to operate any Item unless it meets the specifications of the manufacturer. Lessee agrees that it will not install, or permit the installation of, the Equipment without Lessor’s consent.

(b) Provided that no Event of Default shall have occurred, Lessee shall, at all times during the term of the Lease, be entitled to unlimited use of the Equipment. Lessee will at all times keep the Equipment in its sole possession and control. The Equipment shall not be moved from the location stated in the Schedule without the prior written consent of Lessor and in no event shall the Equipment be moved outside the continental, contiguous United States. Lessee will comply with all laws, regulations, and ordinances, and all applicable requirements of the manufacturer of the Equipment that apply to the physical possession, use, operation, condition, and maintenance of the Equipment. Lessee agrees to obtain all permits and licenses necessary for the operation of the Equipment.

(c) Lessee shall not without the prior written consent of Lessor, which consent shall not be unreasonably withheld, affix or install any accessory, feature, equipment or device to the Equipment or make any improvement, upgrade, modification, alteration or addition to the Equipment (any such accessory, feature, equipment, device or improvement, upgrade, modification, alteration or addition affixed or installed is an “Improvement”). Title to all Improvements shall, without further act, upon the making, affixing or installation of such Improvement, vest solely in Lessor, except such Improvements as may be readily removed without causing material damage to the Equipment and without in any way affecting or impairing the originally intended function, value or use of the Equipment. Removal of the Improvement shall be at the sole expense of Lessee. Provided the Equipment is returned to Lessor in the condition required by the Lease, including, but not limited to coverage under the manufacturer’s standard maintenance contract, title to the Improvement shall vest in the Lessee upon removal. Any Improvement not removed from the Equipment prior to return shall at Lessor’s option remain the property of Lessor and shall be certified for maintenance by the manufacturer, at Lessee’s expense.

Lessee shall notify Lessor in writing no less than sixty (60) days prior to the desired installation date of the type of Improvement Lessee desires to obtain. Lessor may, at any time within ten (10) days after receipt of the notice offer to provide the Improvement to Lessee upon terms and conditions to be mutually agreed upon. Lessee shall notify Lessor of any third party offers and shall lease the Improvement from Lessor if Lessor meets the terms of the third party offer.

If Lessee leases an Improvement from Lessor, such lease shall be under a separate Schedule, the Improvement shall not be placed in service by Lessee prior to acquisition by Lessor, and Lessee shall execute and deliver any document necessary to vest title to such Improvement in Lessor.

During the term of the Lease and any renewal term, Lessee shall cause all Improvements to be maintained, at Lessee’s expense, in accordance with the requirements of Section 7. Unless otherwise agreed to by Lessor, upon the expiration or earlier termination of the term of the Lease, any Improvement shall be de-installed and removed from the Equipment by the manufacturer, at Lessee’s expense. If the Improvement is removed, the Equipment shall be restored to its unmodified condition and shall be certified for maintenance by the manufacturer, at Lessee’s expense.

In the event an Improvement is provided to Lessee by a party other than Lessor, Lessee shall cause such party to execute and deliver to Lessor such documents as shall be required by Lessor to protect the interests of Lessor and any Assignee in the Equipment, this Master Agreement and any Schedule.

(d) Subject to Section 19(b), Lessee shall, at the termination of the Lease, at its expense, cause the Equipment to be decontaminated and remove all proprietary data from any and all memory storage devices from the Equipment, by the manufacturer or other entity approved by Lessor, in accordance with manufacturer specifications and all applicable laws, rules and regulations, if any (and provide to Lessor documentation verifying such decontamination and proprietary data removal), de-install, pack and return the Equipment to Lessor at such location within the continental United States as shall be designated by Lessor in the same operating order, repair, condition and appearance as of the date the Equipment was installed, reasonable wear and tear excepted, with all current engineering changes prescribed by the manufacturer of the Equipment or a maintenance contractor approved by Lessor (the “Maintenance Organization”) incorporated in the Equipment. Until the return of the Equipment to Lessor, Lessee shall be obligated to pay the Base Monthly Rental and all other sums due under the Lease. Upon redelivery to Lessor, Lessee shall arrange and pay for such repairs (if any) as are necessary for the manufacturer of the Equipment to accept the Equipment under a maintenance contract at its then standard rates.

(e) Lessee shall comply with all present and future federal, state, regional and municipal laws, statutes, ordinances, regulations, rules, judicial and similar requirements of all federal, state, regional and municipal governmental agencies, bodies or officials or other governmental entities with legal authority pertaining to the protection of human or wildlife health and safety or the environment, including, without limitation, any such laws, statutes, ordinances, regulations, rules, judicial and administrative orders and decrees, permits, licenses, approvals, authorizations and similar requirements regulating or relating to Hazardous Materials (defined below) or to the generation, use, storage, release, presence, disposal, transport, or handling of any other substance, oil, oil byproducts, gas element, or material which has the potential to pollute, contaminate or harm any land, subsurface area, water source or watercourse, air or other natural resource, hereinafter referred to as “Environmental Laws”.

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“Hazardous Materials” is defined as any hazardous or toxic substance, material or waste that is or becomes regulated under any applicable local, state or federal law, including, but not limited to, those substances, materials, and waste listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) or defined by the Environmental Protection Agency (“EPA”) as “any material that poses a threat to human health and/or the environment. Typical Hazardous substances are toxic, corrosive, ignitable, explosive, or chemically reactive”.

7. MAINTENANCE AND REPAIRS

Lessee shall, during the term of the Lease, maintain in full force and effect a contract with the manufacturer of the Equipment or Maintenance Organization covering at least prime shift maintenance of the Equipment. Lessee upon request shall furnish Lessor with a copy of such maintenance contract as amended or supplemented. During the term of the Lease, Lessee shall, at its expense, keep the Equipment in good working order, repair, appearance and condition and make all necessary adjustments, repairs and replacements, all of which shall become the property of Lessor. Lessee shall not use or permit the use of the Equipment for any purpose for which, the Equipment is not designed or intended.

8. OWNERSHIP, LIENS AND INSPECTIONS

(a) Lessee shall keep the Equipment free from any marking or labeling which might be interpreted as a claim of ownership by Lessee or any party other than Lessor and its Assignee(s), and shall affix and maintain tags, decals or plates furnished by Lessor on the Equipment indicating ownership and title to the Equipment in Lessor or its Assignee(s). Upon reasonable notice to Lessee, Lessor or its agents shall have access to the Equipment and Lessee’s books and records with respect to the Lease and the Equipment at reasonable times for the purpose of inspection and for any other purposes contemplated by the Lease, subject to the reasonable security requirements of Lessee.

(b) Lessee shall execute and deliver such instruments, including Uniform Commercial Code financing statements, as are required to be filed to evidence the interest of Lessor and its Assignee(s) in the Equipment or the Lease. Lessee has no interest in the Equipment except as expressly set forth in the Lease, and that interest is a lease-hold interest. Lessor and Lessee agree, and Lessee represents for the benefit of Lessor and its Assignee(s) that the Lease is intended to be a “finance lease” and not a “lease intended as security “ as those terms are used in the Uniform Commercial Code; and that the Lease is intended to be a “true lease” as the term is commonly used under the Internal Revenue Code of 1986, as amended.

(c) LESSEE SHALL KEEP THE LEASE, THE EQUIPMENT AND ANY IMPROVEMENTS FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES OF WHATSOEVER KIND (EXCEPT THOSE CREATED BY LESSOR) AND LESSEE SHALL NOT ASSIGN THE LEASE OR ANY OF ITS RIGHTS UNDER THE LEASE OR SUBLEASE ANY OF THE EQUIPMENT OR GRANT ANY RIGHTS TO THE EQUIPMENT WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. No permitted assignment or sublease shall relieve Lessee of any of its obligations under the Lease and Lessee agrees to pay all costs and expenses Lessor may incur in connection with such sublease or assignment. Lessee grants to Lessor the right of first refusal on any sublease or other grant of Lessee’s rights to the Equipment.

9. DISCLAIMER OF WARRANTIES

(a) LESSOR LEASES THE EQUIPMENT “AS IS,” AND BEING NEITHER THE MANUFACTURER OF THE EQUIPMENT NOR THE AGENT OF EITHER THE MANUFACTURER OR SELLER, LESSOR DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE CONDITION OR PERFORMANCE OF THE EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR WITH RESPECT TO PATENT INFRINGEMENTS OR THE LIKE. LESSOR SHALL HAVE NO LIABILITY TO LESSEE OR ANY OTHER PERSON FOR ANY CLAIM, LOSS OR DAMAGE OF ANY KIND OR NATURE WHATSOEVER, NOR SHALL THERE BE ANY ABATEMENT OF RENTAL FOR ANY REASON INCLUDING CLAIMS ARISING OUT OF OR IN CONNECTION WITH (i) THE DEFICIENCY OR INADEQUACY OF THE EQUIPMENT FOR ANY PURPOSE, WHETHER OR NOT KNOWN OR DISCLOSED TO LESSOR, (ii) ANY DEFICIENCY OR DEFECT IN THE EQUIPMENT, (iii) THE USE OR PERFORMANCE OF THE EQUIPMENT, OR (iv) ANY LOSS OF BUSINESS OR OTHER CONSEQUENTIAL LOSS OR DAMAGE, WHETHER OR NOT RESULTING FROM ANY OF THE FOREGOING.

(b) For the term of the Lease, Lessor assigns to Lessee (to the extent possible), and Lessee may have the benefit of, any and all manufacturer’s warranties, service agreements and patent indemnities, if any, with respect to the Equipment; provided, however, that Lessee’s sole remedy for the breach of any such warranty, indemnification or service agreement shall be against the manufacturer of the Equipment and not against Lessor, nor shall any such breach have any effect whatsoever on the rights and obligations of Lessor or Lessee with respect to the Lease.

(c) NO REPRESENTATIONS OR WARRANTIES OF THE MANUFACTURER OR DISTRIBUTOR OF THE EQUIPMENT, OR ANY OTHER THIRD PARTY, CAN BIND LESSOR, AND LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR SHALL HAVE NO OBLIGATIONS WITH RESPECT TO THE EQUIPMENT EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR OTHER DOCUMENT EXECUTED BY LESSOR.

10. ASSIGNMENT

(a) Lessee acknowledges and understands that Lessor may assign to a successor, financing lender and/or purchaser (the “Assignee”), all or any part of the Lessor’s right, title and interest in and to the Lease and the Equipment and Lessee hereby consents to such assignment(s). In the event Lessor transfers or assigns, or retransfers or reassigns, to an Assignee all or part of Lessor’s interest in the Lease, the Equipment or any sums payable under the Lease (including any extension rentals, purchase sums or new schedule rentals which may become due at the end of the Base Term), whether as collateral security for loans or advances made or to be made to Lessor by such Assignee or otherwise, Lessee covenants that, upon receipt of notice of any such transfer or assignment and instructions from Lessor,

(i) Lessee shall, if so instructed, pay and perform its obligations under the Lease to the Assignee (or to any other party designated by Assignee), and shall not assign the Lease or any of its rights under the Lease or permit the Lease to be amended, modified, or terminated without the prior written consent of Assignee; and

(ii) Lessee’s obligations under the Lease with respect to Assignee shall be absolute and unconditional and not be subject to any abatement, reduction, recoupment, defense, offset or counterclaim for any reason, alleged or proven, including, but not limited to, defect in the Equipment, the condition, design, operation or fitness for use of the Equipment or any loss or destruction or obsolescence of the Equipment or any part, the prohibition of or other restrictions against Lessee’s use of the Equipment, the interference with such use by any person or entity, any failure by Lessor to perform any of its obligations contained in the Lease, any insolvency or bankruptcy of Lessor, or for any other cause; and

(iii) Lessee shall, upon request of Lessor, submit documents and certificates as may be reasonably required by Assignee to secure and complete such transfer or assignment, including but not limited to the documents set forth in Section 15(c) of this Master Agreement.

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(iv) Lessee shall deliver to Assignee copies of any notices which are required under the Lease to be sent to Lessor; and

(v) Lessee shall, if requested, restate to Assignee the representations, warranties and covenants contained in the Lease (upon which Lessee acknowledges Assignee may rely) and shall make such other representations, warranties and covenants to Assignee as may be reasonably required to give effect to the assignment.

(b) Lessor shall not make an assignment or transfer to any Assignee who shall not agree that, so long as Lessee is not in default under the Lease, such Assignee shall take no action to interfere with Lessee’s quiet enjoyment and use of the Equipment in accordance with the terms of the Lease. No such assignment or conveyance shall relieve Lessor of its obligations under the Lease and Lessee agrees it shall not look to any Assignee to perform any of Lessor’s obligations under the Lease. No such assignment shall increase Lessee’s obligations nor decrease Lessee’s rights hereunder.

11. QUIET ENJOYMENT

Lessor covenants that so long as Lessee is not in default under a Lease, Lessor shall take no action to interfere with Lessee’s possession and use of the Equipment subject to and in accordance with the provisions of the Lease.

12. INDEMNIFICATION

Except for the gross negligence or willful misconduct of Lessor or Assignee, Lessee shall and does agree to indemnify, protect, defend, save and keep harmless Lessor and its Assignee(s) from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, or expenses of any kind and nature whatsoever, including but not limited to attorneys fees (including without limitation attorneys fees in connection with the enforcement of this indemnification) which may be imposed upon, incurred by or asserted against Lessor or its Assignee(s) in any way relating to or arising out of the Lease, the manufacture, ownership, lease, possession, use, condition, operation, accident in connection with the Equipment (including, without limitation, those claims based on latent and other defects, whether or not discoverable, or claims based on strict liability, or any claim for patent, trademark or copyright infringement, or claims for any damages to any person or property, any costs associated with, or any fines caused by violation of any Environmental Laws) or Lessee’s failure to protect or remove proprietary data from memory storage devices. Lessor’s and its Assignee’s rights arising from this Section shall survive the expiration or other termination of the Lease. Nothing in this Section shall limit or waive any right of Lessee to proceed against the manufacturer of the Equipment.

13. RISK OF LOSS

(a) Lessee assumes and shall bear the entire risk of loss and damage, whether or not insured against, of the Equipment from any and every cause whatsoever, and damage caused by the Equipment to the environment, any person or property, as of the date the Equipment is delivered to Lessee.

(b) In the event of loss or damage of any kind to any Item, Lessee shall use all reasonable efforts to place the Item in good repair, condition and working order to the reasonable satisfaction of Lessor within sixty (60) days of such loss or damage, unless the Lessor, in its sole discretion, determines in writing within twenty (20) days of receiving notice from the Lessee of such damage that such Item has been irreparably damaged, in which case Lessee shall, within ten (10) days of the Lessor’s determination of irreparable loss, make its election to either pay Lessor the Stipulated Loss Value for the irreparably damaged Item or replace the irreparably damaged Item, all as provided in this Section. The Stipulated Loss Value will start at 110% of the Total Equipment Cost listed on each Schedule and decline by 1.25% per month during the Base Term and will not decline any further after the expiration of the Base Term. To the extent that the Item is damaged but not irreparably damaged and if Lessee is entitled, pursuant to the insurance coverage, to obtain proceeds from such insurance for the repair of the Item, Lessee (provided no Event of Default has occurred under the Lease) may arrange for the disbursement of such proceeds to the manufacturer or other entity approved by Lessor to perform the repairs to pay the cost of repair. However, Lessee’s obligation to timely repair the damaged Item is not contingent upon receipt of such insurance proceeds.

(c) In the event that Lessee elects to pay Lessor the Stipulated Loss Value for the irreparably damaged Item, Lessee shall (i) pay such amount (computed as of the first day of the month following the determination of the irreparable damage by the Lessor) to Lessor on the first day of the month following the election by Lessee as provided in (b) above, (ii) pay all Base Monthly Rental for the Item up to the date that the Stipulated Loss Value is paid to Lessor; and (iii) arrange with the applicable insurance company (with the consent of Lessor) for the disposition of the irreparably damaged Item. If not all the Equipment is irreparably damaged, the Value for Calculation of Stipulated Loss Value (“Value”) as set forth on the Schedule for the irreparably damaged Item shall be multiplied by the applicable Stipulated Loss Value percentage to compute the Stipulated Loss Value for such irreparably damaged Item, and the Base Monthly Rental for the undamaged Equipment remaining due (after payment of the Stipulated Loss Value for the irreparably damaged Item) shall be that amount resulting from multiplying the original Base Monthly Rental by the ratio of the Value of the undamaged Equipment divided by the Value for all the Equipment prior to the damage.

(d) If Lessee elects to replace the irreparably damaged Item, Lessee shall continue all payments under the Lease without interruption, as if no such damage, loss or destruction had occurred, and shall replace such irreparably damaged Item, paying all such costs, associated with the replacement, and Lessee shall be entitled to insurance proceeds up to the amount expended by Lessee in effecting the replacement. Lessee shall within twenty (20) days following the date of determination of irreparable damage by the Lessor, effect the replacement by replacing the irreparably damaged Item with a “Replacement Item” so that Lessor has good, marketable and unencumbered title to such Replacement Item. The Replacement Item shall have a fair market value equal to or greater than the Item replaced, and anticipated to have a fair market value at the expiration of the Base Term equal to the fair market value that the replaced Item would have had at the end of the Base Term, and be the same manufacture, model and type and of at least equal capacity to the Item for which the replacement is being made. Upon delivery, such Replacement Item shall become subject to all of the terms and conditions of the Lease and, for the avoidance of doubt, ownership of such Replacement Item shall immediately vest in Lessor free and clear of all claims, liens and encumbrances. Lessee shall execute all instruments or documents necessary to effect the foregoing.

(e) For purposes of this Section 13, the term “fair market value” shall mean the price of the Equipment delivered and installed at Lessee’s location that would be obtained in an arm’s-length transaction between an informed and willing buyer-lessee under no compulsion to buy or lease and an informed and willing seller-lessor under no compulsion to sell or lease. If Lessor and Lessee are unable to agree upon fair market value, such value shall be determined, at Lessee’s expense, in accordance with the foregoing definition, by three independent appraisers, one to be appointed by Lessee, one to be appointed by Lessor and the third to be appointed by the first two.

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14. INSURANCE

During the term of the Lease, Lessee, at its own expense, shall maintain in regard to the Equipment all risk insurance (in an amount not less than the Stipulated Loss Value) and comprehensive public liability insurance, including any claims caused from the breach of any Environmental Laws involving the Equipment, in amounts and with carriers reasonably satisfactory to Lessor. Any such insurance shall name Lessor and the Assignee(s) as additional insured and, as for the all risk insurance, loss payees as their interests may appear. All such insurance shall provide that it may not be terminated, canceled or altered without at least thirty (30) days’ prior written notice to Lessor and its Assignee(s). Coverage afforded to Lessor shall not be rescinded, impaired, or invalidated by any act or neglect of Lessee. Lessee agrees to supply to Lessor, upon request, evidence of such insurance.

15. REPRESENTATIONS AND WARRANTIES OF LESSEE; FINANCIAL STATEMENTS

(a) Lessee represents and warrants to Lessor and its Assignee(s) (i) that the execution, delivery and performance of this Master Agreement and the Lease was duly authorized and that upon execution of this Master Agreement and the Lease by Lessee and Lessor, this Master Agreement and the Lease will be in full force and effect and constitute a valid legal and binding obligation of Lessee, and enforceable against Lessee in accordance with their respective terms; (ii) the Equipment is accurately described in the Lease and all documents of Lessee relating to the Lease; (iii) that Lessee is in good standing in the jurisdiction of its incorporation and/or organization and in any jurisdiction in which any of the Equipment is located; (iv) that no consent or approval of, giving of notice to, registration with, or taking of any other action in respect of, any state, federal or other government authority or agency is required with respect to the execution, delivery and performance by the Lessee of this Master Agreement or the Lease or, if any such approval, notice, registration or action is required, it has been obtained; (v) that the entering into and performance of this Master Agreement and the Lease will not violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee’s Articles of Incorporation, Bylaws, Articles of Organization and/or Operating Agreements or result in any breach of, or constitute a default under, or result in the creation of any lien, charge, security interest or other encumbrance upon any assets of Lessee or upon the Equipment pursuant to any instrument to which Lessee is a party or by which it or its property may be bound; (vi) there are no actions, suits or proceedings pending, or to the knowledge of Lessee, threatened, before any court or administrative agency, arbitrator or governmental body which will, if determined adversely to Lessee, materially adversely affect its ability to perform its obligations under the Lease or any related agreement to which it is a party; (vii) that aside from this Master Agreement and the Lease there are no additional agreements between Lessee and Lessor relating to the Equipment, and (viii) that any and all financial statements and other information with respect to Lessee supplied to Lessor at the time of execution of the Lease and any amendment, are true and complete. The foregoing representations and warranties shall survive the execution and delivery of the Lease and any amendments hereto and shall upon the written request of Lessor, be made to Lessor’s Assignee(s).

(b) Prior to and during the term of the Lease, Lessee will furnish Lessor with Lessee’s annual audited financial statements no later than ninety (90) days after its fiscal year end, and a copy of its quarterly unaudited financial statements within forty-five (45) days after the end of each fiscal quarter. If Lessee is a subsidiary of another company, Lessee shall supply such company’s financial statements and guarantees as are reasonably acceptable to Lessor. Lessor’s obligations to perform under any Lease is subject to the condition that the financial statements furnished to Lessor by Lessee present the financial condition and results of operations of Lessee and its affiliated corporations and/or companies, if any, and any guarantor of Lessee’s obligations under any Lease, as of the date of such financial statements, and that since the date of such statements there have been no material adverse changes in the assets or liabilities, the financial condition or other condition which in Lessor’s or Assignee(s) reasonable discretion are deemed to be materially adverse. Lessee shall also provide Lessor with such other statements concerning the Lease and the condition of the Equipment as Lessor may from time to time request.

(c) Upon Lessor’s request, Lessee shall, with respect to each Lease, deliver to Lessor (i) a certificate of a secretarial officer of Lessee certifying the bylaw, resolution (specific or general) or corporate action authorizing the transactions contemplated in the Lease; (ii) an incumbency certificate certifying that the person signing this Master Agreement and the Lease holds the office the person purports to hold and has authority to sign on behalf of Lessee; (iii) an opinion of Lessee’s counsel with respect to the representations in Section 15(a); (iv) an agreement with Lessor’s Assignee with regard to any assignment as referred to in Section 10; (v) the purchase documents if Lessee has sold or assigned its interest in the Equipment to Lessor; (vi) an insurance certificate evidencing the insurance provided by Lessee pursuant to Section 14; and (vii) an Installation Certificate duly executed by Lessee. Failure by Lessee to deliver any of these documents when due shall operate, at Lessor’s option, to continue the Installation Term for the Lease thus delaying the Base Term Commencement Date, or to increase the Base Monthly Rental to recover costs incurred by Lessor consequent to the delay or the termination of the Lease as provided in Section 16.

16. DEFAULT, REMEDIES

(a) The following shall be deemed “Events of Default” under the Lease:

(i) Lessee fails to pay any installment of rent or other charge or amount due under the Lease when the same becomes due and payable and such failure continues for ten (10) days after its due date; or

(ii) Except as expressly permitted in the Lease, Lessee attempts to remove, sell, encumber, assign or sublease or fails to insure any of the Equipment, or fails to deliver any documents required of Lessee under the Lease; or

(iii) Any representation or warranty made by Lessee or Lessee’s guarantor in the Lease or any document supplied in connection with the Lease or any financial statement is misleading or materially inaccurate; or

(iv) Lessee fails to observe or perform any of the other obligations required to be observed by Lessee under the Lease and such failure continues uncured for thirty (30) days after its occurrence thereof; or

(v) Lessee or Lessee’s guarantor ceases doing business as a going concern; makes an assignment for the benefit of creditors; admits in writing its inability to pay its debts as they become due; files a voluntary petition in bankruptcy; is adjudicated a bankrupt or an insolvent; files a petition seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar arrangement under any present or future statute, law or regulation or files an answer admitting or fails to deny the material allegations of a petition filed against it in any such proceeding; consents to or acquiesces in the appointment of a trustee, receiver, or liquidator for it or of all or any substantial part of its assets or properties, or if it or its trustee, receiver, liquidator or shareholders shall take any action to effect its dissolution or liquidation;

(vi) If within sixty (60) days after the commencement of any proceedings against Lessee or Lessee’s guarantor seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceedings shall not have been dismissed, or if within thirty (30) days after the appointment (with or without Lessee’s or Lessee’s guarantor’s consent) of any trustee, receiver or liquidator of it or all of or any substantial part of its respective assets and properties, such appointment shall not be vacated.

(vii) Lessee or any guarantor of Lessee shall suffer a material adverse change in its financial condition after the date hereof as determined by Lessor in its reasonable discretion, or there shall occur a substantial change in ownership of the outstanding stock of the Lessee which results in a material adverse change in its financial condition.

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(viii) Lessee shall be in default of any other Schedule or agreement executed with Lessor or under any agreement with any other party that in Lessor’s sole opinion is a material agreement; or shall fail to sign and deliver to Lessor any document requested by Lessor in connection with this Master Agreement or shall fail to do anything determined by Lessor to be necessary or desirable to effectuate the transaction contemplated by this Master Agreement or to protect Lessor’s rights and interest in this Master Agreement and Equipment; or shall fail to provide financial statements to Lessor as provided for in Section 15 (b) hereof.

(ix) Lessee breaches any license or other agreement for software.

(x) Failure of Lessee to promptly execute and deliver to Lessor any document required under Section 10 of this Master Agreement.

(b) Lessee shall immediately notify Lessor of the occurrence of an Event of Default or any event that would become an Event of Default. Upon the happening of any Event of Default, Lessor may declare the Lessee to be in default. Upon a declaration of default, Lessor may immediately apply the Security Deposits (as defined and set forth in Section 18) to any one or more of the obligations of Lessee to Lessor, including unpaid rent, fees, costs, charges, expenses and/or the Stipulated Loss Value or as otherwise provided for in any Schedule to this Master Agreement. The application of the Security Deposits shall not be in lieu of, but shall be in addition to all other remedies available to Lessor under the Master Agreement and applicable law. Lessee authorizes Lessor at any time thereafter, with or without terminating the Lease, to enter any premises where the Equipment may be and take possession of the Equipment. Lessee shall, upon such declaration of default, without further demand, immediately pay Lessor an amount which is equal to (i) any unpaid amount due on or before Lessor declared the Lease to be in default, plus (ii) as liquidated damages for loss of a bargain and not as a penalty, an amount equal to the Stipulated Loss Value for the Equipment computed as of the date the last Base Monthly Rental payment was due prior to the date Lessor declared the Lease to be in default, together with interest, as provided herein, plus (iii) all attorney and court costs incurred by Lessor relating to the enforcement of its rights under the Lease. The exercise of any of the foregoing remedies by Lessor shall not constitute a termination of the Lease unless Lessor so notifies Lessee in writing. After an Event of Default, at the request of Lessor and to the extent requested by Lessor, Lessee shall immediately comply with the provisions of Section 6(d) and Lessor may sell the Equipment at private or public sale, in bulk or in parcels, with or without notice, without having the Equipment present at the place of sale; or Lessor may lease, otherwise dispose of or keep idle all or part of the Equipment, subject, however, to its obligation to mitigate damages. The proceeds of sale, lease or other disposition, if any, of the Equipment shall be applied: (1) to all Lessor’s costs, charges and expenses incurred in taking, removing, holding, repairing and selling, leasing or otherwise disposing of the Equipment including actual attorney fees; then (2) to the extent not previously paid by Lessee, to pay Lessor the Stipulated Loss Value for the Equipment and all other sums owed by Lessee under the Lease, including any unpaid rent which accrued to the date Lessor declared the Lease to be in default and indemnities then remaining unpaid under the Lease; then (3) to reimburse to Lessee Stipulated Loss Value previously paid by Lessee as liquidated damages; and (4) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (1) and (2) immediately. If Lessee breaches Section 19(l) of this Master Agreement with regard to Software (as hereinafter defined), Lessee shall be liable to Lessor for additional damages in an amount equal to the original purchase price paid by Lessor for the Software, and in addition, at Lessor’s option, Lessor shall be entitled to injunctive and other equitable relief. Lessor may also proceed by appropriate court action, either at law or in equity to enforce performance by Lessee of the applicable covenants of the Lease or to recover damages for the breach of the Lease.

Upon the happening of an Event of Default by Lessee with regard to Software under Section 19(l) of this Lease, Lessor may elect any of the following remedies: (i) by notice to Lessee, declare any License agreement with respect to Software terminated, in which event the right and License of Lessee to use the Software shall immediately terminate and Lessee shall thereupon cease all use of the Software and return all copies thereof to Lessor or original Licensor; (ii) have access to and disable the Software by any means deemed necessary by Lessor, for which purposes Lessee hereby expressly consents to such access and disablement, promises to take no action that would prevent or interfere with Lessor’s ability to perform such access and disablement, and waives and releases any and all claims that it has or might otherwise have for any and all losses, damages, expenses, or other detriment that it might suffer as a result of such access and disablement. Lessee agrees that the detriment that Lessor will suffer as a result of a breach by Lessee of the obligations contained in this Master Agreement cannot be adequately compensated by monetary damages, and therefore Lessor shall be entitled to injunctive and other equitable relief to enforce the provisions of this paragraph. LESSEE AGREES THAT LESSOR SHALL HAVE NO DUTY TO MITIGATE LESSOR’S DAMAGES UNDER ANY SCHEDULE BY TAKING LEGAL ACTION TO RECOVER THE SOFTWARE FROM LESSEE OR ANY THIRD PARTY, OR TO DISPOSE OF THE SOFTWARE BY SALE, RE-LEASE OR OTHERWISE.

(c) The waiver by Lessor of any breach of any obligation of Lessee shall not be deemed a waiver of any future breach of the same or any other obligation. The subsequent acceptance of rental payments under the Lease by Lessor shall not be deemed a waiver of any such prior existing breach at the time of acceptance of such rental payments. The rights afforded Lessor under Section 16 shall be cumulative and concurrent and shall be in addition to every other right or remedy provided for the Lease or now or later existing in law (including as appropriate all the rights of a secured party or lessor under the Uniform Commercial Code) or in equity and Lessor’s exercise or attempted exercise of such rights or remedies shall not preclude the simultaneous or later exercise of any or all other rights or remedies.

(d) In the event Lessee shall fail to perform any of its obligations under the Lease, then Lessor may perform the same, but shall not be obligated to do so, at the cost and expense of Lessee. In any such event, Lessee shall promptly reimburse Lessor for any such costs and expenses incurred by Lessor.

(e) Upon an Event of Default as defined herein, which continues uncured for thirty (30) days after prior written notice is received from Lessor, (“Trigger Event”), Lessee hereby grants to Lessor a security interest in all currently existing and hereafter acquired or arising assets, property and proceeds thereof belonging to Lessee, including any and all goods, chattels, fixtures, equipment, assets, accounts receivable, contract rights, general intangibles and property of every kind wherever located in which Lessee has any interest and proceeds thereof (the “Additional Collateral”), to secure prompt payment and performance of all its obligations under the Master Agreement and Lease. Upon the occurrence of a Trigger Event, the foregoing grant shall automatically be effective and Lessor shall have the right to file financing statements (e.g. UCC-1) under the applicable Uniform Commercial Code. Lessee hereby authorizes Lessor to make such filings immediately upon the occurrence of a Trigger Event and will, upon Lessor’s request, take such further actions and execute and deliver such other documents, at its expense, as Lessor may request to perfect and protect its security interest granted hereby. Lessee acknowledges and agrees that the foregoing grant of security interest is in addition to and shall in no way affect or alter any existing security interest(s) granted to Lessor under this Master Agreement. Lessor acknowledges and agrees that its security interest in the Additional Collateral is and shall be subject to and subordinate in all respects to the security interest of Metro Bank, and Lessor shall not exercise any of its rights or remedies under the Uniform Commercial Code or any applicable law with respect to the Additional Collateral without the prior written consent of Metro Bank.

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17. LESSOR’S TAX BENEFITS

Lessee acknowledges that Lessor shall be entitled to claim all tax benefits, credits and deductions related to the Equipment for federal income tax purposes including, without limitation: (i) deductions on Lessor’s cost of the Equipment for each of its tax years during the term of the Lease under any method of depreciation or other cost recovery formula permitted by the Internal Revenue Code of 1986, as amended (hereinafter called the “Code”), and (ii) interest deductions as permitted by the Code on the aggregate interest paid to any Assignee (hereinafter collectively “Lessor’s Tax Benefits”). Lessee agrees to take no action inconsistent (including the voluntary substitution of Equipment) with the foregoing or which would result in the loss, disallowance, recapture or unavailability to Lessor of Lessor’s Tax Benefits. Lessee hereby indemnifies Lessor and its Assignee(s) from and against (a) any loss, disallowance, unavailability or recapture of Lessor’s Tax Benefits resulting from any action or failure to act of Lessee, including replacement of the Equipment, plus (b) all interest, penalties, costs, (including actual attorney fees), or additions to tax resulting from such loss, disallowance, unavailability or recapture.

18. SECURITY DEPOSIT

Lessor acknowledges receipt of the security deposit(s) identified on each of the Schedules to this Master Agreement or otherwise provided to Lessor (the “Security Deposits”). Lessee hereby grants to Lessor a security interest in each of the Security Deposits, to secure all obligations of Lessee under this Master Agreement and all Schedules hereto, including but not limited to, all payment obligations and all other obligations of Lessee to Lessor for which Lessee is now or may in the future become liable. Lessee authorizes Lessor to file all financing statements, amendments to financing statements and other documents as may be required, if any, with any public filing agency in any jurisdiction, to advise of Lessor’s interest in the Security Deposits. Lessee agrees to execute such additional documents or instruments as may be deemed advisable or necessary by Lessor in order to maintain and continue such security interest.

19. GENERAL

(a) The Lease shall be deemed to have been made and delivered in the State of Michigan and shall be governed in all respects by the laws of such State. LESSEE AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL COURTS IN THE STATE OF MICHIGAN IN ALL MATTERS RELATING TO THE LEASE, THE EQUIPMENT, AND THE CONDUCT OF THE RELATIONSHIP BETWEEN LESSOR AND LESSEE. THE PARTIES HERETO AGREE THAT IN THE EVENT OF AN ALLEGED BREACH OF THIS MASTER AGREEMENT OR ANY DOCUMENTS RELATING THERETO BY EITHER PARTY, OR ANY CONTROVERSIES ARISE BETWEEN THE PARTIES RELATING TO THIS MASTER AGREEMENT OR ANY DOCUMENTS RELATING THERETO, SUCH CONTROVERSIES SHALL BE TRIED BY A JUDGE ALONE BEFORE THE FEDERAL OR STATE COURTS IN OAKLAND COUNTY, MICHIGAN. THE PARTIES, HAVING HAD THE OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOOSING, HEREBY KNOWINGLY AND VOLUNTARILY CONSENT TO MICHIGAN JURISDICTION AS SET FORTH HEREIN AND WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY MATTER RELATING TO THIS MASTER AGREEMENT OR ANY DOCUMENTS RELATED THERETO.

(b) Provided no Event of Default has occurred and is continuing, and provided no Event of Default or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default has occurred and is continuing, upon the completion of the Base Term of any Schedule, Lessee shall, upon giving one hundred eighty (180) days prior written notice to Lessor by certified mail, elect one of the following options: (i) purchase all, but not less than all, of the Items of Equipment on the applicable Schedule for a price to be agreed upon by both Lessor and any applicable Assignee and Lessee, (ii) extend the Schedule for all, but not less than all, of the Items of Equipment on the applicable Schedule for an additional twelve (12) months at the Base Monthly Rental then in effect or (iii) return all, but not less than all of the Items of Equipment on the applicable Schedule to Lessor at Lessee’s expense to a destination within the Continental United States as directed by Lessor, provided that for option (iii) to apply, Lessee shall have paid all late charges, interest, taxes, penalties due under the Lease, Lessee agrees to pay to Lessor an additional per diem rent (“Hold Over Rent”) in an amount equal to one hundred twenty five percent (125%) of the Base Monthly Rental then in effect divided by thirty (30) until all Items of Equipment are received by Lessor, Lessee shall have complied with Sections 6 (a), (b), (c) and Section 7 hereof, and Lessee shall immediately pay to Lessor a Terminal Rental Adjustment Cost (“TRAC”) in an amount equal to subsection (ii) above. Provided that Lessee selects option (iii), Lessor shall use its best efforts to remarket the Equipment and remit to Lessee any amount collected by Lessor less its reasonable remarketing costs which shall include, without limitation, costs of repossession, reconfiguration, de-installation and installation, refurbishment, storage, and freight charges and legal fees, whether in house or to third parties. With respect to option (i) and option (iii), both Lessor and Lessee shall have absolute and sole discretion regarding the terms and conditions of the agreement to the purchase price of the Equipment. In the event that Lessor and Lessee have not agreed to either option (i) or option (iii) by the conclusion of the Base Term, or if Lessee fails to provide notice of its election via certified mail at least one hundred eighty (180) days prior to the termination of the Base Term, then option (ii) shall automatically apply at the end of the Base Term. At the conclusion of option (ii) above, the Lease shall continue for successive six (6) month renewals at the payment specified on the respective Schedule until either Lessee or Lessor provide the other party with at least ninety (90) days written notice of their desire to terminate the agreement.

(c) This Master Agreement and the Lease constitute the entire and only agreement between Lessee and Lessor with respect to the lease of the Equipment, and the parties have only those rights and have incurred only those obligations as specifically set forth herein. The covenants, conditions, terms and provisions may not be waived or modified orally and shall supersede all previous proposals, both oral and written, negotiations, representations, commitments or agreements between the parties. The Lease may not be amended or discharged except by a subsequent written agreement entered into by duly authorized representatives of Lessor and Lessee. A photocopy or facsimile or scanned reproduction of an original signature of a party to this Agreement shall bind that party to the terms, conditions and covenants of the Agreement as if it were the original.

(d) All notices, consents or requests desired or required to be given under the Lease shall be in writing and shall be delivered in person or sent by certified mail, return, receipt requested, or by courier service to the address of the other party set forth in the introduction of this Master Agreement or to such other address as such party shall have designated by proper notice.

(e) Each Schedule shall be executed with one original. To the extent, if any, that a Schedule constitutes chattel paper (as such term is defined in the Uniform Commercial Code) a security interest in the Schedule may only be created through the transfer or possession of the Schedule marked “Original”. This Master Agreement, in the form of a photocopy, is Exhibit A to the Schedule and is not chattel paper by itself.

(f) Section headings are for convenience only and shall not be construed as part of the Lease.

(g) It is expressly understood that all of the Equipment shall be and remain personal property, notwithstanding the manner in which the same may be attached or affixed to realty, and, upon Lessor’s request, Lessee shall secure from its mortgagee, landlord or owner of the premises a waiver in form and substance reasonably satisfactory to Lessor.

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(h) Lessor may upon written notice to Lessee advise Lessee that certain Items supplied to Lessee are leased to Lessor and supplied to Lessee under the Lease as a sublease. Lessee agrees to execute and deliver such acknowledgements and assignments in connection with such a Lease as are reasonably required. If, at any time during the term of the Lease, Lessor’s right to lease such Equipment expires, Lessor may remove such Equipment from Lessee’s premises and shall promptly provide identical substitute Equipment. All expenses of such substitution, including de-installation, installation and transportation expenses, shall be borne by Lessor.

(i) Prior to the delivery of any Item, the obligations of Lessor hereunder shall be suspended to the extent that it is hindered or prevented from complying therewith because of: labor disturbances, including strikes and lockouts; acts of God; fires; storms; accidents; failure to deliver any Item; governmental regulations or interferences or any cause whatsoever not within the sole control of Lessor.

(j) Lessee hereby acknowledges and agrees that it has had a full and fair opportunity to read each of the terms and conditions of this Master Agreement, specifically Sections 2, 16 and 19, and that Lessee fully understands the terms and conditions herein, having had the opportunity to consult with an attorney of its own choosing prior to executing this Master Agreement and any related documents.

/s/ R.R.W.  

LESSEE INITIALS 

(k) Any provision of this Master Agreement or any Schedule prohibited by or unlawful or unenforceable under any applicable law of any jurisdiction shall be ineffective as to such jurisdiction without invalidating the remaining provisions of this Master Agreement and such Schedule.

(l) In the event the Equipment includes software (which Lessee agrees shall include all documentation, later versions, updates, upgrades, and modifications) (herein “Software”), the following shall apply: (i) Lessee shall possess and use the Software in accordance with the terms and conditions of any license agreement (“License”) entered into with the owner/vendor of such Software and shall not breach the License (at Lessor’s request, Lessee shall provide a complete copy of the License to Lessor); (ii) Lessee agrees that Lessor shall have an interest in the License and Software arising out of its payment of the price thereof and is an assignee or third party beneficiary of the License; (iii) as due consideration of Lessor’s payment of the License and Software and for providing the Software to Lessee at a lease rate (as opposed to a debt rate), Lessee agrees that Lessor is leasing (and not financing) the Software to Lessee; (iv) except for the original price paid by Lessor, Lessee shall, at its own expense, pay promptly when due all servicing fees, maintenance fees update and upgrade costs, modification cost, and all other costs and expenses relating to the Software and maintain the License in effect during the term of this Master Agreement; and (v) the Software shall be deemed Equipment for all purposes under this Master Agreement.

(m) The parties agree that this is a “Finance Lease” as defined by section 2A-103(g) of the Uniform Commercial Code (“UCC”). Lessee acknowledges either (a) that Lessee has reviewed and approved any written Supply Contract (as defined by UCC 2-A-103(y)) covering the Equipment purchased from the Supplier (as defined by UCC 2A-103(x)) thereof for lease to Lessee or (b) that Lessor has informed or advised Lessee, in writing, either previously or by this Lease of the following: (i) the identity of the Supplier, (ii) that the Lessee may have rights under the Supply Contract; and (iii) that the Lessee may contact the Supplier for a description of any such rights Lessee may have under the Supply Contract.

Lessee hereby waives any and all rights and remedies granted to Lessee by Sections 303 and 508 through 522 of Articles 2A of the Uniform Commercial Code (although no such waiver shall constitute a waiver of any of Lessee’s rights or remedies against the manufacturer of the Equipment).

(n) The parties acknowledge that serial numbers and/or other identifiable information for one or more Items may be unavailable prior to execution of the applicable Schedule. In the event a Schedule fails to indicate serial numbers or other identifiable information or incorrectly identifies serial numbers or other identifiable information, for one or more Items after execution of the applicable Schedule, Lessee expressly consents to Lessor’s unilateral amendment of the applicable Schedule to insert or correct serial numbers or other identifiable information therein.

(o) Lessee hereby authorizes and appoints Lessor and Lessor’s agents and assigns as Lessee’s attorney-in-fact to execute acknowledgement letters and other documents required to be executed by Lessee to effect any underwriting or perfect any security interest with regard to a Schedule.

The parties have executed this Master Lease Agreement as of the date first written above.

LESSOR:		LESSEE:
VARILEASE FINANCE, INC.		UNILIFE MEDICAL SOLUTIONS, INC.
By: Name:	/s/ Nancy Eggan Nancy Eggan	By: Name:	/s/ R. Richard Wieland R. Richard Wieland
Title:	Vice President	Title:	Executive Vice President and Chief Financial Officer

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EX-10.3

Exhibit 10.3

Varilease Finance, Inc.
6340 South 3000 East, Suite 400
Salt Lake City, UT 84121
www.varilease.com
tel 801.733.8100
fax 801.733.8900

GUARANTY

THIS GUARANTY is made and effective on this 15th day of August, 2011 by UNILIFE CORPORATION, a Delaware corporation, having its chief executive offices at 250 Cross Farm Lane, York, PA 17406 (the “Guarantor”) to VARILEASE FINANCE, INC., a Michigan corporation, having its chief executive offices at 6340 South 3000 East, Suite 400, Salt Lake City, UT 84121 (the “Lessor”) on behalf of UNILIFE MEDICAL SOLUTIONS, INC., a Delaware corporation, having its chief executive offices at 250 Cross Farm Lane, York, PA 17406 (the “Lessee”).

R E C I T A L S:

WHEREAS, Lessor and Lessee have or intend to enter into Master Lease Agreement dated August 15, 2011, including all riders, amendments, supplements or other attachments now or hereafter executed in connection therewith (collectively, the “Master Agreement”). In connection with the Master Agreement, Lessor and Lessee have or intend to enter into one or more Schedules (the “Schedule” or “Schedules”) for the purpose of leasing equipment and other property listed thereon. Each Schedule shall incorporate the terms and conditions of the Master Agreement and shall constitute a separate and independent “Lease” for the equipment and other property listed thereon (collectively, the “Equipment”).

WHEREASE, Lessor is unwilling to enter into one or more Leases with Lessee without Guarantor’s unconditional guarantee of all of Lessee’s obligations under each Lease; and

WHEREAS, by Lessor’s execution of each Lease, Guarantor will receive reasonably equivalent value for this Guaranty; and

WHEREAS, in consideration of benefits to accrue to Guarantor by Lessor’s execution of each Lease, Guarantor is willing to induce Lessor to enter into one or more Leases.

NOW, THEREFORE, in consideration of the foregoing and as an inducement to Lessor to enter into one or more Leases with Lessee, Guarantor hereby unconditionally guarantees Lessee’s performance of all of its obligations under each Lease and hereby represents, warrants and agrees as follows:

1.	Guarantor hereby absolutely, unconditionally and irrevocably guarantees Lessee will fully and promptly pay any payment of rent or other amount due under a Lease and perform all of its obligations under each Lease, including without limitation any payment resulting from Lessee’s breach or non-performance thereof. Guarantor agrees that this is an irrevocable, continuing guaranty and that Guarantor shall perform its obligations hereunder notwithstanding any renewal, extension, modification or discharge of any of Lessee’s obligations under the Lease.
2.	Guarantor represents and warrants to Lessor that all information concerning Guarantor furnished to Lessor is true and correct in all material respects.
3.	This Guaranty shall apply to all Schedules executed in connection with the Master Agreement, including, without limitation, any and all future Schedules entered into after the making and execution of this Guaranty. Lessor shall not be required to notify Guarantor of Lessee’s execution of each such Schedule before, at the time of, or after it is executed and delivered.
4.	Guarantor waives notice of acceptance hereof, presentment, demand, protest and notice of nonpayment or protest as to any Lease; any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution or any other claim which the Guarantor may now or hereafter have against the Lessee or any other person directly or contingently liable for the obligations guaranteed hereunder; or against or with respect to the Lessee’s property (including without limitation, any property that may collateralize its obligations to Lessor), arising from the existence or performance of this guaranty; all exemptions, all demands and notices required by law, notice of dishonor and any other notice otherwise required with respect to Lessee’s failure to perform under the Lease; all setoffs and counterclaims; and any duty on Lessor’s part (should such duty exist) to disclose to Guarantor any matter, fact or item related to the business operations or condition (financial or otherwise) of Lessee or its affiliates or property, whether now or hereafter known by Lessor. Guarantor also waives any defense or disability available to Lessee that might save or release it from liability including, without limitation, defect in or unenforceability of any Lease. No delay on the part of Lessor in exercising any rights under this Guaranty or failure to exercise the same shall operate as a waiver of such rights. No modification or waiver of the provisions of this Guaranty shall be effective unless in writing signed by Lessor, and no such waiver shall be applicable and effective except in the specific instance for which it is given.
5.	In accordance with the provisions of the Master Agreement, without causing a release of Guarantor from its obligations hereunder, and without being required to notify Guarantor of any of the following modifications made, Lessor shall be authorized to:

a. renew, extend (including extensions beyond the original term of any Lease), modify, release or discharge any obligations of Lessee, its customers, of co-guarantors (whether hereunder or under a separate instrument) or of any other party at any time directly or contingently liable for the payment of Lessee’s obligations under any Lease;

b.	accept partial payments of Lessee’s obligations under any Lease;
c.	accept new or additional documents, instruments or agreements relating to or in substitution of Lessee’s obligations under any Lease;
d.	settle, release (by operation of law or otherwise), compound, compromise, collect or liquidate any of Lessee’s obligations under any Lease, the Equipment and/or any security therefor in any manner;
e.	consent to the transfer or return of the Equipment, and take and hold additional security or guaranties for Lessee’s obligations under any Lease;
f.	amend, exchange, release or waive any security or guaranty; or
g.	bid and purchase at any sale of the Equipment or other security, and direct the order and manner of sale.

6.	Guarantor hereby represents and warrants that this Guaranty has been duly authorized and approved by all necessary corporate action. Guarantor acknowledges that its obligations hereunder are separate and independent of Lessee’s obligations under any Lease. Guarantor hereby waives any right to require Lessor to proceed first against Lessee, against the Equipment or against any additional security under any Lease, or to pursue any other remedy available to it under the Lease.
7.	If any payment applied to Lessee’s obligations is thereafter set aside, recovered, rescinded or required to be returned for any reason (including on account of a preference in the bankruptcy of Lessee), the obligation to which such payment was applied shall for the purposes of this Guaranty be deemed to have continued in existence notwithstanding such application, and this Guaranty shall be enforceable as to such obligation as fully as if such application had never been made.
8.	Guarantor agrees to pay all reasonable costs, expenses and legal fees paid or incurred by Lessor in connection with enforcing any obligation of Lessee and this Guaranty.
9.	Guarantor agrees that this Guaranty shall be governed by and construed in accordance with the laws of the State of Michigan and that jurisdiction for any dispute shall be in the Michigan state or federal courts. Guarantor agrees that it shall reimburse Lessor for all costs and expenses incurred by Lessor in connection with the enforcement of this Guaranty, including without limitation court costs and actual attorneys fees. THE PARTIES HERETO AGREE THAT IN THE EVENT OF AN ALLEGED BREACH OF THIS GUARANTY OR ANY DOCUMENTS RELATING THERETO BY EITHER PARTY, OR ANY CONTROVERSIES ARISE BETWEEN THE PARTIES RELATING TO THIS GUARANTY OR ANY DOCUMENTS RELATING THERETO, SUCH CONTROVERSIES SHALL BE TRIED BY A JUDGE ALONE BEFORE THE FEDERAL OR STATE COURTS IN OAKLAND COUNTY, MICHIGAN. THE PARTIES, HAVING HAD THE OPPORTUNITY TO CONSULT WITH INDEPENDENT COUNSEL OF THEIR OWN CHOOSING, HEREBY KNOWINGLY AND VOLUNTARILY CONSENT TO MICHIGAN JURISDICTION AS SET FORTH HEREIN AND WAIVE THEIR RIGHTS TO A TRIAL BY JURY IN ANY MATTER RELATING TO THIS GUARANTY OR ANY DOCUMENTS RELATED THERETO.
10.	Nothing shall discharge or satisfy Guarantor’s obligations hereunder except the full payment, performance and observance of all of Lessee’s obligations under each Lease. Lessor may assign this Guaranty to a successor, financing lender and/or purchaser without notice to or the consent of Guarantor. This Guaranty shall be binding upon the Guarantor, its successors and assigns and shall inure to the benefit of Lessor, its successors and assigns, including any successor assignees.
11.	The covenants, conditions, terms and provisions of this Guaranty may not be waived or modified orally and shall supersede all previous, representations, commitments or agreements between the parties. In the event that any provision of this Guaranty shall be held to be invalid or unenforceable, the remaining provisions shall continue in full force and effect.

GUARANTOR:
UNILIFE CORPORATION

By: Name:	/s/ R. Richard Wieland R. Richard Wieland
Title:	Executive Vice President and Chief Financial Officer

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of this 30^th day of September 2011, by and between Unilife Corporation (“Unilife”) and Alan D. Shortall (“Shortall”). The term “Unilife” shall include its subsidiaries, affiliates, assigns and successors in interest under Sections 7, 8, and 13.

WHEREAS, Unilife and Shortall are parties to an existing employment agreement that expires effective as of December 31, 2011 (the “Former Agreement”);

WHEREAS, Unilife wishes to continue to employ Shortall as its Chief Executive Officer beyond the expiration of the Former Agreement, and Shortall wishes to enter into this Agreement to formalize the terms of his employment beyond the expiration of the Former Agreement; and

WHEREAS, Unilife is engaged in the business of designing, developing, manufacturing and supplying innovative healthcare safety products for medical device and pharmaceutical industries; and

WHEREAS, Shortall will develop valuable relationships by virtue of his employment with Unilife, and Shortall will have access to valuable confidential and proprietary information and trade secrets belonging to Unilife; and

WHEREAS, Unilife and Shortall desire to set forth the terms of their employment relationship in this Agreement as a successor to the Former Agreement;

NOW, THEREFORE, in consideration of the promises and covenants set forth herein, and intending to be legally bound hereby, the parties agree as follows:

1. Term. This Agreement shall be effective as of October 1, 2011 and shall expire on December 31, 2014. This Agreement will automatically renew for one-year periods annually thereafter, unless either party gives the other party thirty (30) days written notice in advance of the relevant expiration date of its intention not to renew the Agreement. Upon expiration or earlier termination of this employment relationship, the parties will be relieved of their duties and obligations under this Agreement, except that the rights and obligations of Unilife under Section 6 below shall remain in full force and effect until all appropriate payments have been made to Shortall and the rights and obligations of Shortall set forth in Sections 7 and 8 below shall remain in full force and effect and shall survive the expiration or termination of this Agreement, regardless of the reason(s) for termination.

2. Position and Duties.

(a) Unilife will employ Shortall as Chief Executive Officer and Shortall agrees to serve in such capacity for Unilife with responsibility for the overall management of Unilife and such other duties as are assigned to him by the Board of Directors of Unilife, and shall have vested in him the authority and duties typically held by an employee in such position. Shortall shall report to the Board of Directors of Unilife, with respect to the performance of these duties. In the performance of these duties, Shortall shall devote his knowledge, skill, attention, energies and all of his business time, and shall comply

with all of Unilife’s policies, rules, and procedures, as they may be amended from time to time. Shortall shall not engage in any endeavor that would conflict with the rendition of his services to Unilife, either directly or indirectly, without the prior written consent of Unilife; provided, however, Shortall may participate in civic, charitable, educational, industry and professional organizations, to the extent that such participation does not unreasonably interfere with the performance of his duties hereunder; and Shortall may also serve on corporate boards and committees, but only with the prior written consent of the Board of Directors of Unilife.

(b) Notwithstanding the responsibilities and duties contained in Section 2(a) above, Shortall acknowledges that all material decisions relating to the management of Unilife’s business will be made by the Board of Directors of Unilife. In addition, any decisions which have the capacity to affect significantly the financial standing of Unilife must be referred to the Board of Directors of Unilife which will have ultimate control in respect of these matters.

3. Compensation.

(a) Base Salary. Shortall shall be paid an annual base salary of Four Hundred and Twenty Thousand Dollars ($420,000.00), which will be payable in twelve (12) equal monthly installments. Shortall’s base salary will be subject to the customary withholding and employment taxes, as required by law, with respect to compensation paid by an employer to an employee. At the discretion of the Board of Directors of Unilife, Shortall shall be eligible for increases in base salary. Further, Unilife will not reduce Shortall’s base salary to less than what is agreed to herein.

(b) Bonus. Shortall shall be eligible to participate in Unilife’s Incentive Bonus Plan in amounts and percentages as annually determined by Unilife’s Board of Directors. Shortall’s annual target cash bonus shall be fifty percent (50%) of base salary. Bonuses are subject to achievement of such goals and objectives as the Compensation Committee of the Board of Directors determines in a set of Key Performance Indicators. Any bonus payable for a calendar or fiscal year shall be paid in a lump-sum payment in the following calendar or fiscal year, as applicable, on or before the date that is two and one-half months after the close of such calendar or fiscal year, as applicable. Shortall’s bonuses will be subject to the customary withholding and employment taxes, as required by law, with respect to compensation paid by an employer to an employee.

4. Benefits.

(a) Benefits Generally Available to Unilife Employees. Shortall shall be eligible to participate in Unilife’s benefits programs (including any equity incentive plan of Unilife or its affiliates), as they may change from time to time. The benefits provided to Shortall will be the same as the benefits provided to other similarly situated Unilife employees, and may be changed upon expiration or other termination of the current benefits contracts. For further information, Shortall should review any applicable benefit plan documents, which will govern the terms of the benefits.

(b) Vacation. Shortall shall also receive six (6) weeks of paid vacation per calendar year. Any unused vacation days may be carried over up to one (1) year.

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(c) Equity Plans. In connection with this Agreement, Shortall shall, subject to shareholder approval of the proposed grant and shareholder approval of an amendment of Unilife’s stock incentive plan to increase the number of shares of common stock authorized for issuance to an amount sufficient to fulfill the proposed grant, receive an equity grant of (i) 1,166,000 shares of restricted stock, and (ii) options for the purchase of 750,000 shares of Unilife common stock on such terms and conditions as may be determined by the Compensation Committee of Unilife’s Board of Directors. Such equity grant shall be issued to Shortall on January 3, 2012, subject to shareholder approval or such later date upon which the requisite shareholder approval is obtained, and shall be governed by the applicable, underlying equity award agreement. If Unilife’s shareholders, upon presentation of the proposed grant and amendment of Unilife’s stock incentive plan to expand the shares issuable thereunder to an amount sufficient to fulfill the grant, fail to provide the requisite approval, Unilife shall have no further obligation to make the proposed grant or to pay other compensation in lieu thereof. All incentive compensation and stock-based compensation that Shortall may receive from Unilife shall be subject to any policy adopted by Unilife, now or hereafter existing, that imposes on Shortall stock ownership requirements, stock holding requirements, stock liquidation restrictions or recoupment provisions, provided that such requirements, restrictions and recoupment provisions also apply to similarly situated members of senior management.

(d) Car Allowance. Unilife shall pay Shortall a car allowance of Three Thousand Dollars ($3,000.00) per month, which shall be payable to Shortall at the same time as his base salary.

(e) Home Leave. Unilife shall reimburse Shortall for one (1) trip per calendar year to Australia or Ireland for home leave, including the cost of (i) first-class, round-trip air travel for Shortall, his spouse, and dependant children; and (ii) reasonable housing and meals while on home leave.

(f) Expenses. Unilife shall reimburse Shortall for all reasonable and necessary expenses incurred by him in carrying out his duties under this Agreement in accordance with Unilife’s business expense policies, including without limitation, requirements with respect to reporting, documentation and payment of such expenses. All such expenses shall be paid promptly after submission in accordance with Unilife’s polices, but no later than December 31^st of the calendar year following the year in which such expenses were incurred.

5. Indemnification. Unilife agrees to provide Shortall with indemnification equivalent to that provided to other members of senior management and coverage pursuant to Unilife’s Directors and Officers insurance policies, as amended from time to time.

6. Termination and Pay upon Termination.

(a) General Rule. In the event that Unilife terminates this Agreement and Shortall’s employment without Cause or due to a Change in Control as defined herein, including employment termination due to Unilife’s election not to renew this Agreement where Shortall was willing and able to continue performing services under the terms of this Agreement, Unilife will pay Shortall:

(i) his base salary, at the rate in effect immediately before the date that Shortall’s employment terminates, for twelve (12) months, which shall be paid in a single sum payment within forty-five (45) days after the date that Shortall’s employment terminates and the General Release provided for in Section 10 of this Agreement becomes irrevocable, provided that if such forty-five (45) day period begins in one calendar year and ends in another, Shortall shall not have the right to designate the taxable year of payment;

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(ii) payment of a lump-sum amount, equal to the amount of the bonus, if any, earned by and paid to Shortall for the last completed calendar or fiscal year, as applicable, prior to the year in which his employment terminates, which shall be paid in a single sum payment within forty-five (45) days after the date that Shortall’s employment terminates and the General Release provided for in Section 10 of this Agreement becomes irrevocable, provided that if such forty-five (45) day period begins in one calendar year and ends in another, Shortall shall not have the right to designate the taxable year of payment; and

(iii) provided that Shortall is eligible for and timely elects to receive COBRA health care continuation coverage, the cost of Shortall’s health care continuation coverage premiums for twelve (12) months, commencing on the first of the month immediately after the month which includes the date that Shortall’s employment terminates and the General Release provided for in Section 10 of this Agreement becomes irrevocable.

In the event that Shortall terminates this Agreement for any reason, including Shortall’s election not to renew the Agreement, Shortall shall not receive any compensation or benefits from the time that he ceases to devote full time and attention to Unilife’s business. In addition, Shortall agrees to provide Unilife with ninety (90) days advance written notice of his intent to terminate his employment, whether during the initial term or any renewal thereof. Upon termination of this Agreement, the parties will be relieved of their duties and obligations, except that the rights and obligations of Unilife under this Section 6(a) shall remain in full force and effect until all appropriate payments have been made to Shortall, if applicable, and the rights and obligations of Shortall set forth in Sections 7 and 8 below shall remain in full force and effect and shall survive the expiration or termination of this Agreement, regardless of the reason(s) for termination. Shortall shall resign from the Board of Directors of Unilife and all other offices that Shortall may hold with Unilife and its affiliates in the event of Shortall’s termination of employment hereunder upon the request of the Board of Directors. Upon termination of this Agreement, Shortall shall not have any further contact with any customers of Unilife on behalf of a competing entity until the expiration of the conditions of Section 8 of this Agreement.

(b) Definitions.

(i) Definition of “Cause”. “Cause” will mean any one or more of the following:

(A) material neglect of assigned duties, willful misconduct in connection with the performance of duties, or refusal to perform assigned duties (other than by reason of disability) which continues uncured for thirty (30) days following receipt of written notice of such deficiency from Unilife, specifying the scope and nature of the deficiency;

(B) an act of dishonesty;

(C) engaging in illegal conduct or committing a crime;

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(D) being barred from working in a Food and Drug Administration (“FDA”) regulated industry by the FDA or otherwise being sanctioned by the FDA or any similar international body;

(E) engaging in any act of moral turpitude that causes material harm to Unilife or its reputation;

(F) breaching, in any material respect, the terms of this Agreement or any other agreement with Unilife; or

(G) commencement of employment with any other employer while an employee of Unilife without the prior written consent of the Board of Directors of Unilife.

Any determination of “Cause” as used herein will be made in good faith by the Board of Directors of Unilife.

(ii) Definition of “Change in Control”. “Change in Control” means a: (1) Change in Ownership of Unilife Corporation, (2) Change in Effective Control of Unilife Corporation, or a (3) Change in the Ownership of Assets of Unilife Corporation, all as described herein and construed in accordance with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

(A) A Change in Ownership of Unilife Corporation shall occur on the date that any one Person acquires, or Persons Acting as a Group (or Group) acquire, ownership of the capital stock of Unilife Corporation that, together with the stock held by such Person or Group, constitutes more than fifty percent (50%) of the total voting power of the capital stock of Unilife Corporation. However, if any one Person is, or Persons Acting as a Group are, considered to own more than fifty percent (50%) of the total voting power of the capital stock of Unilife Corporation, the acquisition of additional stock by the same Person or Persons Acting as a Group is not considered to cause a Change in Ownership of Unilife Corporation or to cause a Change in Effective Control of Unilife Corporation. An increase in the percentage of capital stock owned by any one Person, or Persons Acting as a Group, as a result of a transaction in which Unilife Corporation acquires its stock in exchange for property will be treated as an acquisition of stock.

(B) A Change in Effective Control of Unilife Corporation shall occur on the date a majority of members of the Board of Directors of Unilife Corporation is replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors of Unilife Corporation before the date of the appointment or election.

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(C) A Change in the Ownership of Assets of Unilife Corporation shall occur on the date that any one Person acquires, or Persons Acting as a Group acquire (or has or have acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such Person or Persons), assets (including tangible/real property and intangible property (such as goodwill)) from Unilife Corporation the total gross fair market value of which is more than fifty percent (50%) of the total gross fair market value of all of the assets of Unilife Corporation immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of Unilife Corporation, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(D) The following rules of construction apply in interpreting the definition of Change in Control:

(I) A Person means any individual, entity or group within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended, other than employee benefit plans sponsored or maintained by Unilife Corporation and by entities controlled by Unilife Corporation or an underwriter of the capital stock of Unilife Corporation in a registered public offering.

(II) Persons will be considered to be Persons Acting as a Group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the corporation. If a Person owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock, or similar transaction, such shareholder is considered to be acting as a Group with other shareholders only with respect to the ownership in that corporation before the transaction giving rise to the change and not with respect to the ownership interest in the other corporation. Persons will not be considered to be acting as a Group solely because they purchase assets of the same corporation at the same time or purchase or own stock of the same corporation at the same time, or as a result of the same public offering.

(III) For purposes of this Section 6(b), fair market value shall be determined in accordance with Code Section 409A.

(IV) A Change in Control shall not include a transfer to a related person as described in Code section 409A or a public offering of capital stock of Unilife Corporation.

(E) For purposes of this Section 6(b), Code section 318(a) applies to determine stock ownership. Stock underlying a vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for stock that is not substantially vested (as defined by Treasury Regulation §1.83-3(b) and (j)), the stock underlying the option is not treated as owned by the individual who holds the option.

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7. Confidential Information.

(a) Shortall acknowledges that Unilife has a valuable property interest in all aspects of its business relationships with its customers, clients, vendors and suppliers. In the course of Shortall’s work with Unilife, Shortall will become aware of and familiar with secret and confidential information of Unilife relating to its customers, clients, vendors and suppliers, and its internal business operations. Secret and confidential information includes, but is not limited to, Unilife’s business plans, customer lists, customer data, marketing plans, supplier and vendor lists and cost information, software and computer programs, data processing systems and information contained therein, financial statements, financial data, acquisition and divestiture plans, and any other trade secrets or confidential or proprietary information, documents, reports, plans, or data, of or about Unilife that is not already available to the public or was known to Shortall prior to his employment with Unilife.

(b) Shortall agrees that he will not, without the written consent of Unilife, during the term of this Agreement or thereafter, disclose or make any use of secret and confidential information, except as may be required in the performance of his duties under Section 2 of this Agreement. Shortall agrees that, following the termination of his employment with Unilife for any reason, he will never use secret and confidential information to compete with Unilife in any manner, and he will never disclose any secret and confidential information to any other business or individual, unless such secret or confidential information is: (i) publicly known through no breach of the provisions of this Section 7 by either party, (ii) lawfully disclosed by a third party, or (iii) disclosed pursuant to legal requirement or court order. In no event shall any disclosure made to investment banking firms or private equity firms at the request of Unilife and as part of Shortall’s duties ever be considered a violation of this Section 7.

(c) Upon termination of this Agreement, Shortall shall surrender to Unilife all records and all paper and/or electronic copies made of those records that pertain to any aspect of the business of Unilife, including all secret and confidential information.

8. Agreement Not To Compete.

(a) In consideration for employment by Unilife and the benefits of this Agreement, Shortall agrees to be bound by the covenant not to compete as set forth in Section 8 of this Agreement below.

(b) Shortall agrees that during the term of his employment and for a period of two (2) years following the termination of his employment for any reason, he will not, directly or indirectly:

(i) render services to, become employed by, be engaged as a consultant by, own, or have a financial or other interest in (either as an individual, partner, joint venture, owner, manager, employee, partner, officer, director, independent contractor, or other similar role) any business that is engaged in any business activity that is in competition with the activities of Unilife, as of the date of the termination of this Agreement.

(ii) induce, offer, assist, encourage, or suggest that another business or enterprise offer employment to or enter into a consulting arrangement with any individual who is employed by Unilife, or induce, offer, assist, encourage, or suggest that any Unilife employee terminate his employment with Unilife, or accept employment with any other business or enterprise.

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(c) In the event that Shortall commits any breach of Section 8(b) above, Shortall acknowledges that Unilife would suffer substantial and irreparable harm and damages. Accordingly, Shortall hereby agrees that in such event, Unilife shall be entitled to temporary and/or permanent injunctive relief, without the necessity of proving damage, to enforce the provisions of this Section, all without prejudice to any and all other remedies that Unilife may have at law or in equity and that Unilife may elect or invoke. Shortall agrees that if any of the provisions of this Section are or become unenforceable, the remainder hereof shall nevertheless remain binding upon him to the fullest extent possible, taking into consideration the purposes and spirit of this Agreement. Any invalid or unenforceable provision is to be reformed to the maximum time, geographic and/or business limitations permitted by applicable laws, so as to be valid and enforceable.

(d) Shortall expressly acknowledges and agrees that the restrictive covenants set forth in Sections 7 and 8 above are absolutely necessary to protect the legitimate business interests of Unilife, because he is employed in a position of trust and confidence and is provided with extensive access to Unilife’s most confidential and proprietary trade secrets, and has significant involvement in important business relationships, which constitute the goodwill of Unilife.

(e) In the event that Unilife must bring legal action to enforce or seek a remedy for any breach of the provisions of Sections 7 or 8 of this Agreement, the losing party agrees to reimburse the prevailing party for any and all expenses, including attorneys’ fees and court costs.

9. Relocation to Australia upon Termination. Upon expiration or termination of this Agreement either by Shortall or by Unilife with or without Cause or following a Change in Control, Unilife shall reimburse Shortall for all reasonable relocation expenses incurred by Shortall and his family for repatriation to Australia, including the cost of one-way, first-class airline tickets for Shortall, his spouse, and dependent children to Australia, so long as the return trip occurs within twelve (12) months after Shortall’s termination of employment.

10. General Release. As a condition of receiving the severance compensation and benefits described in Section 6, Unilife and Shortall will execute a mutual general release of claims that is in a form acceptable to Unilife (“General Release”). Unilife will provide to Shortall the form of General Release within seven (7) days after his employment terminates. Such General Release would not include rights to previously vested options or claims for any compensation earned (including, without limitation, accrued vacation), or reimbursement of expenses incurred, through the date of termination. Such release must be agreed to, executed and irrevocable no later than 30 days following Shortall’s termination date. Notwithstanding anything to the contrary herein, in the event that the period measured from Shortall’s separation from service with Unilife through the eighth day after the expiration of the statutory period within which Shortall may consider and execute the General Release described above falls within two calendar years, then payment of the lump sum amounts payable pursuant to Section 6 of this Agreement shall occur during the portion of the 45-day period that falls within such second calendar year.

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11. Dispute Resolution. Any controversy, claim or dispute involving the parties (or their affiliated persons) directly or indirectly concerning this Agreement shall be finally settled by binding arbitration held in Harrisburg, Pennsylvania by one arbitrator (who is mutually acceptable to both parties as well as licensed to practice law in the Commonwealth of Pennsylvania) in accordance with the rules of employment arbitration then followed by the American Arbitration Association or any successor to the functions thereof. The arbitrator shall apply Pennsylvania law in the resolution of all controversies, claims and disputes and shall have the right and authority to determine how his or her decision or determination as to each issue or matter in dispute may be implemented or enforced. Any decision or award of the arbitrator shall be final and conclusive for both Shortall and Unilife (and its affiliates), and there shall be no appeal there from other than causes of appeal allowed by the Federal Arbitration Act. Unilife shall bear all costs of the arbitrator in any action brought under this Agreement. The arbitrator shall have the power to award attorney’s fees and arbitration costs to the prevailing party, if the award of attorney’s fees and litigation costs would be permitted by a court. The parties hereto agree that any action to compel arbitration may be brought in the appropriate Pennsylvania state or federal court, and in connection with such action to compel, the laws of the Commonwealth of Pennsylvania and the Federal Arbitration Act shall control. Application may also be made to such court for confirmation of any decision or award of the arbitrator, for an order of the enforcement and for any other remedies, which may be necessary to effectuate such decision or award. The parties hereto hereby consent to the jurisdiction of the arbitrator and of such court and waive any objection to the jurisdiction of such arbitrator and court.

12. Non-waiver. A waiver of any provision of this Agreement by either party shall not prevent either party from enforcing that provision or any other provision hereof.

13. Assignment. This Agreement is personal and may not be assigned by Shortall. Any assignment of this Agreement between Unilife (or its successor) and its affiliates (and their successors) shall not constitute a termination of Shortall’s employment hereunder. This Agreement (including the Restrictive Covenants set forth in Sections 7 and 8) shall inure to the benefit of and be binding upon any successor to Unilife. The parties specifically understand and agree that the non-compete provisions of Section 8 will inure to the benefit of a successor and that Shortall will remain bound by these provisions in the event of a sale or corporate reorganization of Unilife.

14. Severability. Each provision of this Agreement is severable and distinct from, and independent of, every other provision hereof. If one provision hereof is declared void, the remaining provisions shall remain in effect. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

15. Entire Agreement. This Agreement contains the entire agreement of the parties concerning the subject matter hereof and supersedes any prior agreements or understandings between the parties concerning the terms and conditions of Shortall’s employment on and after January 1, 2012, whether oral or written; provided, however, that Shortall’s equity grants shall be governed by the equity grant documents; provided further, that any stock options or other stock-based awards provided to Shortall shall be governed by Unilife’s stock incentive plans as they are amended from time to time, except as provided herein. For the avoidance of doubt, Unilife and Shortall agree that the Former Agreement, if not sooner terminated, shall expire on the effective date of this Agreement and shall thereafter have no bearing on Shortall’s terms of employment. The parties acknowledge, in entering into this Agreement that they have not relied upon any promise or inducement not specifically set forth herein. Any changes to this Agreement must be in writing and signed by both parties.

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16. Section 409A.

(a) This Agreement is intended to comply with, or otherwise be exempt from, Code section 409A and any regulations and Treasury guidance promulgated thereunder, and Unilife shall be required to interpret the terms of this Agreement as necessary to comply with the requirements of Code section 409A.

(b) Unilife shall undertake to administer, interpret, and construe this Agreement in a manner that does not result in the imposition on Shortall of any additional tax, penalty, or interest under Code section 409A.

(c) Unilife and Shortall agree that they will execute any and all amendments to this Agreement permitted under applicable law as they mutually agree in good faith may be necessary to ensure compliance with the distribution provisions of Code section 409A or as otherwise needed to ensure that this Agreement complies with that section.

(d) The preceding provisions, however, shall not be construed as a guarantee by Unilife of any particular tax effect to Shortall under this Agreement. Unilife shall not be liable to Shortall for any payment made under this Agreement that is determined to result in an additional tax, penalty, or interest under Code section 409A, nor for reporting in good faith any payment made under this Agreement as an amount includible in gross income under that section.

(e) For purposes of Code section 409A, the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

(f) With respect to any reimbursement of future expenses of, or any provision of in-kind benefits to, Shortall, as specified under this Agreement, such reimbursement of expenses or provision of in-kind benefits shall be subject to the following conditions: (i) the expenses eligible for reimbursement or the amount of in-kind benefits provided in one taxable year shall not affect the expenses eligible for reimbursement or the amount of in-kind benefits provided in any other taxable year, except for any medical reimbursement arrangement providing for the reimbursement of expenses referred to in Code section 105(b); (ii) the reimbursement of an eligible expense shall be made no later than the end of the year after the year in which such expense was incurred; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit. Any tax gross-up payment shall be made by no later than the end of the calendar year following the year in which Shortall remits the taxes.

(g) “Termination of employment,” “resignation,” or words of similar import, as used in this Agreement means, for purposes of any payments under this Agreement that are payments of deferred compensation subject to Code section 409A, Shortall’s “separation from service” as defined in that section.

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(h) If a payment obligation under this Agreement arises on account of Shortall’s separation from service while Shortall is a “specified employee” (as defined under Code section 409A and determined in good faith by the Unilife), any payment of “deferred compensation” (as defined under Treasury regulation section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury regulation sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue without interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of Shortall’s estate following his death.

(i) Nothing herein shall be construed as having modified the time and form of payment of any amounts or payments of “deferred compensation” (as defined under Treas. Reg. § 1.409A-1(b)(1), after giving effect to the exemptions in Treas. Reg. §§ 1.409A-1(b)(3) through (b)(12)) that were otherwise payable pursuant to the terms of any agreement between Unilife and Shortall in effect on or after January 1, 2005 and prior to the date of this Agreement.

17. Excise Tax on Parachute Payments.

(i) Notwithstanding any other provision herein or any provision in an employment, severance, change in control or similar agreement to the contrary, in the event it shall be determined that any payment in the nature of compensation by Unilife to Shortall or for Shortall’s benefit, whether paid, payable, distributed or distributable pursuant to this Agreement or otherwise (including, without limitation, any severance payment or accelerated vesting of stock options or restricted stock granted by Unilife) (each, a “Payment” and collectively, the “Total Payments”) would be subject to the excise tax imposed by Section 4999 of the United States Internal Revenue Code of 1986, as amended (“Code”) (or any successor provision) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to in this Agreement as the “Excise Tax”), then the Total Payments shall be reduced (the “Reduction”) to the minimum extent necessary (but not below zero) so that no portion thereof shall be subject to the Excise Tax; provided, however, that such Reduction shall be made only if, by reason of such Reduction, the net after-tax benefit received by Shortall (or for Shortall’s benefit) shall exceed the net after-tax benefit that would be received by Shortall (or for Shortall’s benefit) if no such Reduction was made and Shortall bore the Excise Tax payment liability.

(ii) If a Reduction is required pursuant to the terms of Section 17(i), the Total Payments shall be reduced in the following order: any Payments constituting cash severance shall be reduced first, any other Payments in the nature of cash compensation shall be reduced second, the number or accelerated vesting of outstanding equity awards other than stock options shall be reduced third, and lastly, the number or accelerated vesting of outstanding stock options shall be reduced.

(iii) If it shall be determined that any Payment would be subject to the Excise Tax and applying the Reduction would not result in a greater net after-tax benefit to Shortall than if no such Reduction was made and Shortall bore the Excise Tax payment liability, then Shortall shall be entitled to receive from Unilife an additional payment (a “Gross-Up Payment”) in an amount such that after the payment by Shortall of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Shortall retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. In all events, the Gross-Up Payment, if any, shall be made by no later than the December 31st following the calendar year in which Shortall remits the Excise Tax.

Page 11 of 14

(iv) For purposes of this Section 17, “net after-tax benefit” shall mean (A) the total of all payments and the value of all benefits which Shortall receives or is then entitled to receive from Unilife that would constitute “excess parachute payments” within the meaning of Code section 280G, less (B) the amount of all federal, state, local and foreign income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid to Shortall (based on the rate in effect for such year as set forth in the Code or other applicable tax law as in effect at the time of the first payment of the foregoing), less (C) the amount of excise taxes imposed with respect to the payments and benefits described in (A) above by Code section 4999.

(v) All determinations required under this Section 17, including without limitation whether a Reduction shall be applied, the amount of such Reduction, and/or the amount of any Gross-Up Payment, shall be made by a nationally recognized accounting firm selected by Unilife and reasonably acceptable to Shortall (which may be, but will not be required to be, Unilife’s independent auditors) and such determinations shall be binding on Unilife and Shortall. The Firm shall submit its determination and detailed supporting calculations to both Shortall and Unilife within fifteen (15) days after receipt of a notice from either Unilife or Shortall that Shortall may receive payments which may be “parachute payments.” If the Firm determines that none of the Total Payments, after taking into account any Reduction required by this Section 17, constitutes a “parachute payment” within the meaning of Code section 280G, it will, at the same time as it makes such determination, furnish Shortall and Unilife an opinion that Shortall has substantial authority not to report any excise tax under Code section 4999 on his federal income tax return.

(vi) Shortall and Unilife shall each provide the Firm access to and copies of any books, records, and documents in the possession of Shortall or Unilife, as the case may be, reasonably requested by the Firm, and otherwise cooperate with the Firm in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 17. The fees and expenses of the Firm for its services in connection with the determinations and calculations contemplated by this Section 17 shall be borne by Unilife.

18. Counterparts. This Agreement may be executed on separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

19. Interpretation. The captions and headings of this Agreement are not part of the provisions hereof and shall have no force or effect.

20. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if hand delivered, sent by overnight courier, or sent by registered or certified mail to Shortall at the last address he has filed in writing with Unilife or, in the case of Unilife, to Unilife’s General Counsel and Corporate Secretary at Unilife’s principal executive offices.

21. Governing Law. The terms of this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to provisions thereof regarding conflict of laws.

Page 12 of 14

22. Legal Counsel. Shortall has been advised to seek independent counsel with respect to this Agreement and is entering into this Agreement with full knowledge of its terms and conditions.

23. Representations and Warranties. Shortall represents and warrants to Unilife that he is not bound by any restrictive covenants and has no prior or other obligations or commitments of any kind that would in any way prevent, restrict, hinder or interfere with Shortall’s acceptance of employment or the performance of all duties and services hereunder to the fullest extent of Shortall’s ability and knowledge, except for the duty of confidentiality owed to former employers. If Shortall has misrepresented the representation and warranty provided herein, then Shortall would be liable to Unilife for all damages incurred as a consequence thereof, including attorney’s fees and costs of court.

[Remainder of the page left blank]

Page 13 of 14

IN WITNESS WHEREOF, and wishing to be legally bound, the parties have executed this Agreement as of the date first above written.

UNILIFE CORPORATION:		ALAN D. SHORTALL
By:	/s/ J. Christopher Naftzger J. Christopher Naftzger	/s/ Alan D. Shortall
	Vice President, General Counsel,
	Corporate Secretary & Chief Compliance Officer

Page 14 of 14

EX-10.5

Exhibit 10.5

November 4, 2011

Dear Rich:

Your employment agreement dated June 8, 2011 contains severance provisions. One of the conditions to receiving severance compensation is the execution of a release in a form acceptable to Unilife. Under the Older Workers Benefits Protection Act, we are required to provide you with a mandated period of time to consider the release, as well as a seven day revocation period. The current wording of your employment agreement may be inconsistent with the IRS’s most recent interpretive guidance regarding severance provisions, releases and Section 409A.

Accordingly, we would like to clarify certain terms of your employment agreement, dated June 8, 2011 (the “Agreement”), between you and Unilife Corporation (the “Company”), to reflect the parties’ original intent to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), as follows:

Timing of Severance Pay After Execution of a Release. If under the terms of the Agreement the execution of a general release of claims is a condition to your receiving severance or other benefits under the Agreement, the Company will provide you with the form of release agreement within seven days after your separation from service. To be entitled to the severance or other benefits, you must execute and deliver to the Company the release agreement on or before the last day of the minimum required waiver consideration period provided under the Age Discrimination in Employment Act or other applicable law or such other date as may be specified in the release agreement. If you timely deliver an executed release agreement to the Company, and you do not revoke the release agreement during the minimum revocation period required under applicable law, if any, the severance or other benefits shall be paid or commence being paid, as applicable, on or after the date on which the release agreement becomes effective as specified in the Agreement. If, however, the period during which you have discretion to execute or revoke the release agreement straddles two calendar years, no such payment shall be made or benefit provided earlier than the first day of the second such calendar year, regardless of within which calendar year you actually deliver the executed release agreement to the Company. Consistent with Section 409A, you may not, directly or indirectly, designate the calendar year of payment. Nothing in this letter agreement shall be construed to alter the terms of the Agreement that condition your entitlement to any severance or other benefits upon your compliance with the restrictive covenants and any other terms and conditions specified in the Agreement.

No Other Changes. You agree that the terms and conditions of the Agreement, to the extent not modified hereby, will continue to apply as specified in the Agreement.

Unilife Corporation

250 Cross Farm Lane, York, PA 17406     T + 1 717 384 3400     F + 717 384 3401     E info@unilife.com     W www.unilife.com

To indicate your acceptance of these updated terms and conditions of your employment, please sign and return one copy of this letter to me by no later than November 4, 2011.

Sincerely, Unilife Corporation
By:	/s/ J. Christopher Naftzger
	Name:	J. Christopher Naftzger
	Title:	General Counsel, Corporate Secretary and Chief Compliance Officer

Agreed to and accepted:

/s/ R. Richard Wieland R. Richard Wieland

Dated: November 4, 2011

EX-10.6

Exhibit 10.6

November 4, 2011

Dear Chris:

Your employment agreement dated July 6, 2011 contains severance provisions. One of the conditions to receiving severance compensation is the execution of a release in a form acceptable to Unilife. Under the Older Workers Benefits Protection Act, we are required to provide you with a mandated period of time to consider the release, as well as a seven day revocation period. The current wording of your employment agreement may be inconsistent with the IRS’s most recent interpretive guidance regarding severance provisions, releases and Section 409A.

Accordingly, we would like to clarify certain terms of your employment agreement, dated July 6, 2011 (the “Agreement”), between you and Unilife Corporation (the “Company”), to reflect the parties’ original intent to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), as follows:

Timing of Severance Pay After Execution of a Release. If under the terms of the Agreement the execution of a general release of claims is a condition to your receiving severance or other benefits under the Agreement, the Company will provide you with the form of release agreement within seven days after your separation from service. To be entitled to the severance or other benefits, you must execute and deliver to the Company the release agreement on or before the last day of the minimum required waiver consideration period provided under the Age Discrimination in Employment Act or other applicable law or such other date as may be specified in the release agreement. If you timely deliver an executed release agreement to the Company, and you do not revoke the release agreement during the minimum revocation period required under applicable law, if any, the severance or other benefits shall be paid or commence being paid, as applicable, on or after the date on which the release agreement becomes effective as specified in the Agreement. If, however, the period during which you have discretion to execute or revoke the release agreement straddles two calendar years, no such payment shall be made or benefit provided earlier than the first day of the second such calendar year, regardless of within which calendar year you actually deliver the executed release agreement to the Company. Consistent with Section 409A, you may not, directly or indirectly, designate the calendar year of payment. Nothing in this letter agreement shall be construed to alter the terms of the Agreement that condition your entitlement to any severance or other benefits upon your compliance with the restrictive covenants and any other terms and conditions specified in the Agreement.

No Other Changes. You agree that the terms and conditions of the Agreement, to the extent not modified hereby, will continue to apply as specified in the Agreement.

Unilife Corporation

250 Cross Farm Lane, York, PA 17406     T + 1 717 384 3400     F + 717 384 3401     E info@unilife.com     W www.unilife.com

To indicate your acceptance of these updated terms and conditions of your employment, please sign and return one copy of this letter to me by no later than November 4, 2011.

Sincerely, Unilife Corporation
By:	/s/ Cynthia M. Lighty
	Name:	Cynthia M. Lighty
	Title:	Vice President, Human Resources and Assistant Secretary

Agreed to and accepted:

/s/ J. Christopher Naftzger J. Christopher Naftzger

Dated: November 4, 2011

EX-10.7

Exhibit 10.7

November 4, 2011

Dear Mark:

Your employment agreement dated November 10, 2009 contains severance provisions. One of the conditions to receiving severance compensation is the execution of a release in a form acceptable to Unilife. Under the Older Workers Benefits Protection Act, we are required to provide you with a mandated period of time to consider the release, as well as a seven day revocation period. The current wording of your employment agreement may be inconsistent with the IRS’s most recent interpretive guidance regarding severance provisions, releases and Section 409A.

Accordingly, we would like to clarify certain terms of your employment agreement, dated November 10, 2009 (the “Agreement”), between you and Unilife Corporation (the “Company”), to reflect the parties’ original intent to comply with the requirements of section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), as follows:

Timing of Severance Pay After Execution of a Release. If under the terms of the Agreement the execution of a general release of claims is a condition to your receiving severance or other benefits under the Agreement, the Company will provide you with the form of release agreement within seven days after your separation from service. To be entitled to the severance or other benefits, you must execute and deliver to the Company the release agreement on or before the last day of the minimum required waiver consideration period provided under the Age Discrimination in Employment Act or other applicable law or such other date as may be specified in the release agreement. If you timely deliver an executed release agreement to the Company, and you do not revoke the release agreement during the minimum revocation period required under applicable law, if any, the severance or other benefits shall be paid or commence being paid, as applicable, on or after the date on which the release agreement becomes effective as specified in the Agreement. If, however, the period during which you have discretion to execute or revoke the release agreement straddles two calendar years, no such payment shall be made or benefit provided earlier than the first day of the second such calendar year, regardless of within which calendar year you actually deliver the executed release agreement to the Company. Consistent with Section 409A, you may not, directly or indirectly, designate the calendar year of payment. Nothing in this letter agreement shall be construed to alter the terms of the Agreement that condition your entitlement to any severance or other benefits upon your compliance with the restrictive covenants and any other terms and conditions specified in the Agreement.

No Other Changes. You agree that the terms and conditions of the Agreement, to the extent not modified hereby, will continue to apply as specified in the Agreement.

Unilife Corporation

250 Cross Farm Lane, York, PA 17406     T + 1 717 384 3400     F + 717 384 3401     E info@unilife.com     W www.unilife.com

To indicate your acceptance of these updated terms and conditions of your employment, please sign and return one copy of this letter to me by no later than November 4, 2011.

Sincerely, Unilife Corporation
By:	/s/ J. Christopher Naftzger
	Name:	J. Christopher Naftzger
	Title:	General Counsel, Corporate Secretary and Chief Compliance Officer

Agreed to and accepted:

/s/ Mark Iampietro Mark Iampietro

Dated: November 4, 2011

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Alan Shortall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Unilife Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2011

/s/ Alan Shortall Name: Alan Shortall

Title: Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, R. Richard Wieland II, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Unilife Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2011

/s/ R. Richard Wieland II Name: R. Richard Wieland II

Title: Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Unilife Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Shortall, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2011

/s/ Alan Shortall Name: Alan Shortall

Title: Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Unilife Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, R. Richard Wieland II, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2011

/s/ R. Richard Wieland II

Name: R. Richard Wieland II

Title: Chief Financial Officer

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2011	Jun. 30, 2011
Stockholders' Equity:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	64,300,313	63,924,403
Common stock, shares outstanding	64,274,703	63,905,053
Treasury stock, shares	25,610	19,350

XML

Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Industrialization fees	$ 1,440	$ 1,350
Licensing fees	672	577
Product sales and other	18	1,616
Total revenues	2,130	3,543
Cost of product sales	74	1,175
Gross profit	2,056	2,368
Operating expenses:
Research and development	4,298	1,776
Selling, general and administrative	6,183	7,241
Depreciation and amortization	993	787
Total operating expenses	11,474	9,804
Operating loss	(9,418)	(7,436)
Interest expense	283	32
Interest income	(30)	(122)
Other expense (income), net	34	(100)
Net loss	$ (9,705)	$ (7,246)
Loss per share:
Basic and diluted loss per share	$ (0.16)	$ (0.14)

XML

Document and Entity Information (USD $) In Millions, except Share data	3 Months Ended
	Sep. 30, 2011	Nov. 04, 2011	Dec. 31, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	Unilife Corp
Entity Central Index Key	0001476170
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--06-30
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 310.4
Entity Common Stock, Shares Outstanding		64,368,703

XML

Goodwill and Intangible Assets

3 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets [Abstract]

Goodwill and Intangible Assets

6. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill during the three months ended September 30, 2011 are as follows:

	(in thousands)
Balance as of July 1, 2011	$	13,265
Foreign currency translation		(980	)
Balance as of September 30, 2011	$	12,285

Intangible assets consist of patents acquired in a business acquisition of $0.1 million. Related accumulated amortization as of both September 30, 2011 and June 30, 2011 was $0.1 million. Future amortization expense is scheduled to be $7,000 annually, excluding the impact of foreign currency exchange.

XML

Financial Instruments

3 Months Ended

Sep. 30, 2011

Financial Instruments [Abstract]

Financial Instruments

11. Financial Instruments

The Company does not hold or issue financial instruments for trading purposes. The estimated fair values of the Company’s financial instruments are as follows:

	September 30, 2011				June 30, 2011
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(in thousands)
Assets:
Cash equivalents — certificates of deposit	$	1,001	$	1,001	$	1,000	$	1,000

The carrying amount of the Company’s cash equivalents, which includes certificates of deposit, accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short term maturities of these items. The estimated fair value of the Company’s debt approximates its carrying value based upon the rates that the Company would currently be able to receive for similar instruments of comparable maturity.

The Company categorizes its assets and liabilities measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The levels in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The following table presents the Company’s assets that are measured at fair value on a recurring basis for the periods presented:

	Fair Value Based On
	Quoted Market
	Prices in Active		Significant		Significant
	Markets for		Other		Unobservable		Total
	Identical Assets		Observable Inputs		Inputs		Fair Value
	(Level 1)		(Level 2)		(Level 3)		Measurements
	(in thousands)
Cash equivalents — certificates of deposit (September 30, 2011)	$	—	$	1,001	$	—	$	1,001
Cash equivalents — certificates of deposit (June 30, 2011)	$	—	$	1,000	$	—	$	1,000

XML

Liquidity

3 Months Ended

Sep. 30, 2011

Liquidity [Abstract]

Liquidity

2. Liquidity

The Company incurred recurring losses from operations during the year ended June 30, 2011 and the three months ended September 30, 2011 and anticipates incurring additional losses until such time that it can generate sufficient sales of its proprietary range of advanced drug delivery systems. Management estimates that cash and cash equivalents of $17.4 million as of September 30, 2011 are sufficient to sustain planned operations through the third quarter of fiscal 2012.

Therefore, additional funding will be needed in fiscal 2012 by the Company to support its operations and capital expenditure requirements. Management has identified several possible funding strategies which may be available. In addition to sales of its Unitract and Unifill syringe products to pharmaceutical companies with which the Company has existing commercial relationships, the Company is also in discussions with additional pharmaceutical companies pertaining to the Unifill syringe and other pipeline products. Should the Company enter into commercial relationships relating to the industrialization, commercial supply or preferred use of a device within a particular therapeutic market, the Company may receive additional funding or revenue streams. The Company may seek to raise additional funds through the sale of additional equity or debt securities. There can be no assurance that any such funding will be available when needed or on acceptable terms. These various factors raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Subsequent to September 30, 2011, the Company received the final $1.0 million of financing from Varilease Finance, Inc., in connection with its secured lending facility.

XML

Loss Per Share

3 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Loss Per Share

8. Loss Per Share

The Company’s net loss per share is as follows:

	Three Months Ended September 30,
	2011			2010
	(in thousands, except share and per share data)
Numerator
Net loss	$	(9,705	)	$	(7,246	)
Denominator
Weighted average number of shares used to compute basic loss per share		62,082,396			53,190,043
Effect of dilutive options to purchase common stock		—			—
Weighted average number of shares used to compute diluted loss per share		62,082,396			53,190,043
Basic and diluted loss per share	$	(0.16	)	$	(0.14	)

Due to the Company’s net losses, unvested shares of restricted stock (participating securities) totaling 1,984,935 and 1,863,000 were excluded from the calculation of basic and diluted loss per share during the three months ended September 30, 2011 and 2010, respectively.

In addition, stock options (non-participating securities) totaling 9,990,013 and 9,867,246 during the three months ended September 30, 2011 and 2010, respectively, were excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive. Certain of these stock options were excluded solely due to the Company’s net loss position. Had the Company reported net income during the three months ended September 30, 2011 and 2010, these shares would have had an effect of 1,353,703 and 1,915,176 diluted shares, respectively, for purposes of calculating diluted loss per share.

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Contingencies

3 Months Ended

Sep. 30, 2011

Contingencies [Abstract]

Contingencies

9. Contingencies

From time to time, the Company is involved in various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, management believes that these claims, suits and complaints are adequately provided for, covered by insurance, without merit or not probable that an unfavorable outcome will result.

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Long-Term Debt

3 Months Ended

Sep. 30, 2011

Long-Term Debt [Abstract]

Long-Term Debt

7. Long-Term Debt

Long-term debt consists of the following:

	September 30, 2011		June 30, 2011
	(in thousands)
Mortgage loans	$	18,000	$	17,940
Secured lending facility		8,668		—
Bank term loans		2,028		2,095
Commonwealth of Pennsylvania financing authority loan		2,216		2,227
Other		398		425
		31,310		22,687
Less: current portion of long-term debt		5,879		2,274
Total long-term debt	$	25,431	$	20,413

Mortgage Loans

In October 2010, Unilife Cross Farm LLC, a wholly owned subsidiary of the Company (“Cross Farm”) entered into a loan agreement with Metro Bank (“Metro”), pursuant to which Metro provided Cross Farm with two loans in the amounts of $14.25 million and $3.75 million. The proceeds received were used to finance the purchase of land and construction of the Company’s new corporate headquarters and manufacturing facility in York, Pennsylvania, including the repayment of a $6.9 million bridge construction loan.

The $14.25 million term note matures in December 2031 and the $3.75 million term note matures in October 2020. During construction, Cross Farm paid only interest on both term notes at the Prime Rate plus 1.50% per annum, with a floor of 4.50% per annum. For a period of five years subsequent to construction, Cross Farm will pay principal and interest on both term notes, with interest at a fixed rate based on the 5 year Treasury-bill plus 300 basis points per annum, with a floor of 6.0% per annum. Commencing five years subsequent to construction through the maturity dates for each term note, Cross Farm will pay principal and interest on both term notes, with interest at a rate to be negotiated by the parties, or if no rate is negotiated, based upon the Prime Rate plus 1.0% per annum, with a floor not to exceed 250 basis points over the Prime Rate. Cross Farm will also pay one final payment of principal and interest upon the maturity of each term note.

The loan agreement contains certain customary covenants, including the maintenance of a Debt Service Reserve Account in the amount of $2.4 million, classified as restricted cash on the consolidated balance sheet, which will remain in place until Cross Farm and Metro agree on the financial covenants. The Company was in compliance with its debt covenants as of September 30, 2011. However, the Company is not certain that it will be able to maintain the Debt Service Reserve Account balance for a period of 12 months from September 30, 2011. Cross Farm may prepay the loan, but will incur a prepayment penalty of 2.0% during the first three years. The U.S. Department of Agriculture has guaranteed $10.0 million of the loan.

The loans are guaranteed by the Company and by Unilife Medical Solutions, Inc. (“USMI”). The Company and USMI pledged certain assets to secure their obligations under their respective guarantees, including a pledge by the Company of all of its membership interests in Cross Farm and 65% of its ownership interest in Unilife Medical Solutions (PTY) Ltd., a subsidiary of the Company and the parent entity of USMI.

As of September 30, 2011, Cross Farm was fully drawn on both the $14.25 million and $3.75 million notes.

Secured Lending Facility

In August 2011, the Company entered into a Master Lease Agreement with Varilease Finance, Inc. (“Varilease”) for up to $10.0 million of secured financing for production equipment for the Unifill syringe. Based on the Company’s continuing involvement throughout the term of the agreement and the integral nature of the production equipment, the transaction is being accounted for under the financing method. Over the term of the agreement, the Company will make 24 monthly installments based upon the amount drawn. This facility has an effective interest rate of 12.85%. As of September 30, 2011 Varilease has provided $9.0 million. Subsequent to September 30, 2011, the Company received the final $1.0 million of financing from Varilease in connection with this agreement. At the end of the 24 month initial term, the Company has the option to (i) return the equipment; (ii) extend the term for 12 months followed by optional 6 month extensions terminable by either party; or (iii) repurchase the equipment for a price to be agreed upon by both lessor and lessee. The secured lending facility contains covenants and provisions for events of default customarily found in lease agreements.

The aggregate maturities related to amounts outstanding as of September 30, 2011 under this secured lending facility will be $3.7 million and $5.0 million for the twelve months ending September 30, 2012 and 2013, respectively.

Bank Term Loans

Bank term loans consist of three term loans payable. The loans bear interest at a rate of prime (3.25% as of September 30, 2011) plus 1.50%. (4.75% as of September 30, 2011) per annum and mature on dates ranging from December 2020 through August 2021. The borrowings under the bank term loans are collateralized by the Company’s accounts receivable, inventories and certain machinery and equipment. In February 2011, the bank term loan agreements were amended so that the covenants are consistent with those under the Company’s mortgage loans as discussed above, thus removing the covenants that were in violation as of June 30, 2010. Due to the previous violation of the bank term loan covenants as of June 30, 2010 and the uncertainty of being able to maintain the Debt Service Reserve Account balance for a period of 12 months from September 30, 2011, the $1.2 million long-term portion outstanding as of September 30, 2011 under these bank term loans is classified in the current portion of long-term debt.

Commonwealth of Pennsylvania Financing Authority Loan

In October 2009, the Company accepted a $5.45 million offer of assistance from the Commonwealth of Pennsylvania which included up to $2.25 million in financing for land and the construction of its new manufacturing facility. In December 2010, Unilife Cross Farm LLC, a subsidiary of the Company (“Cross Farm”), received the $2.25 million loan which bears interest at a rate of 5.0% per annum, matures in January 2021 and is secured by a third mortgage on the facility. In connection with the loan agreement, Cross Farm entered into an intercreditor agreement by which the Commonwealth of Pennsylvania agreed that it would not exercise its rights in the event of a default by Cross Farm without the consent of Metro, which holds the first and second mortgages on the facility.

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net loss	$ (9,705)	$ (7,246)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	993	787
Share-based compensation expense	1,900	2,550
Changes in assets and liabilities:
Accounts receivable	(7)	(444)
Inventories	(83)	(325)
Prepaid expenses and other current assets	7	(38)
Other assets	(205)	16
Accounts payable	513	(1,039)
Accrued expenses	(388)	(158)
Deferred revenue	(672)	(577)
Net cash used in operating activities	(7,647)	(6,474)
Cash flows from investing activities:
Purchases of property, plant and equipment	(1,797)	(7,009)
Net cash used in investing activities	(1,797)	(7,009)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt	9,087
Principal payments on long-term debt and capital lease obligations	(483)	(101)
Proceeds from the issuance of note payable		6,900
Proceeds from the exercise of options to purchase common stock	466	1,124
Purchase of treasury stock	(26)
Increase in restricted cash		(7,000)
Net cash provided by financing activities	9,044	923
Effect of exchange rate changes on cash	(127)	800
Net decrease in cash and cash equivalents	(527)	(11,760)
Cash and cash equivalents at beginning of period	17,910	20,750
Cash and cash equivalents at end of period	17,383	8,990
Supplemental disclosure of non-cash activities
Purchases of property, plant and equipment in accounts payable and accrued expenses	285	361
Purchases of property, plant and equipment pursuant to capital lease agreements	$ 19	$ 41

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Summary of Significant Accounting Policies

3 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Unilife Corporation and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The estimates are principally in the areas of revenue recognition and share-based compensation expense. Management bases its estimates on historical experience and various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Inventories

Inventories consist primarily of plastic syringe components and include direct materials, direct labor and manufacturing overhead. Inventories are stated at the lower of cost or market, with cost determined using the first in, first out method. The Company routinely reviews its inventory for obsolete, slow moving or otherwise impaired inventory and records estimated impairments in the periods in which they occur. Inventories consist of the following:

	September 30, 2011		June 30, 2011
	(in thousands)
Raw materials	$	599	$	387
Work in process		109		210
Finished goods		—		29
Total inventories	$	708	$	626

Share-Based Compensation

The Company grants stock options, restricted stock and common stock as compensation to its employees, directors and consultants. Certain employee and director awards vest over stated vesting periods and others also require achievement of specific performance or market conditions. The Company expenses the grant-date fair value of awards to employees and directors over their respective vesting periods. To the extent that employee and director awards vest only upon the achievement of a specific performance condition, expense is recognized over the period from the date management determines that the performance condition is probable of achievement through the date they are expected to be met. Awards granted to consultants are sometimes granted for past services, in which case their fair value is expensed on their grant date, while other awards require future service, or the achievement of performance or market conditions. Timing of expense recognition for consultant awards is similar to that of employee and director awards; however, aggregate expense is re-measured each quarter-end based on the then fair value of the award through the vesting date of the award. The Company estimates the fair value of stock options using the Black-Scholes option-pricing model, with the exception of market-based grants, which are valued based on Barrier and Monte Carlo option pricing models. Option pricing methods require the input of highly subjective assumptions, including the expected stock price volatility. See Note 4 for additional information regarding share-based compensation.

Revenue Recognition

The Company recognizes revenue from licensing fees, industrialization efforts and product sales.

In June 2008, the Company entered into an exclusive licensing arrangement to allow its pharmaceutical partner to use certain of the Company’s intellectual property in order and solely to develop in collaboration with the Company, the Company’s Unifill syringe for use in and sale to the pre-filled syringe market. The €10.0 million up-front, non-refundable fee paid for this license is being amortized over the 5 year expected life of the related agreement. In late fiscal 2009, the Company entered into an industrialization agreement with its pharmaceutical partner, under which specific payment amounts and completion dates were established for achievement of certain pre-defined milestones in its development of the Unifill syringe. Revenue is recognized upon achievement of the “at risk” milestone events, which represents the culmination of the earnings process related to such events. Milestones include specific phases of the project such as product design, prototype availability, user tests, manufacturing proof of principle and the various steps to complete the industrialization of the product. Revenue recognized is commensurate with the milestones achieved and the Company has no future performance obligations related to previous milestone payments as each milestone payment is non-refundable when received.

The Company recognizes revenue from sales of products at the time of shipment and when title passes to the customer. Product sales from B. Braun, a customer which accounted for 10% or more of the Company’s revenue during the three months ended September 30, 2010 was $1.5 million.

Reclassifications

Certain amounts in the consolidated statements of operations for the three months ended September 30, 2010 were reclassified from selling, general and administrative expenses to research and development expenses. Management has determined that activities performed by certain employees were more closely associated with research and development activities and has reclassified those items on the accompanying consolidated statements of operations.

This reclassification did not affect the consolidated balance sheets or consolidated statements of cash flows. Additionally, the reclassification did not affect operating loss or net loss on the consolidated statements of operations. The following table summarizes the as reported and as adjusted amounts related to the reclassification discussed above:

	Three Months Ended
	September 30, 2010
	(in thousands)
Research and development — as reported	$	1,005
Research and development — as adjusted	$	1,776
Selling, general and administrative — as reported	$	8,012
Selling, general and administrative — as adjusted	$	7,241

Recently Issued Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2011-05, “Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 removes certain presentation options and requires entities to report components of net income and comprehensive income in either one continuous statement of comprehensive income or two separate but consecutive statements. There is no change to the items that are reported in other comprehensive income. ASU 2011-05 is effective for annual and interim periods beginning after December 15, 2011. Other than additional presentation of other comprehensive loss outside of the statements of stockholders’ equity and comprehensive loss, the adoption of ASU 2011-05 will not have an impact on the Company’s consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 allows for assessment of qualitative factors to determine if it is more likely than not that goodwill might be impaired and whether or it is necessary to perform the two-step goodwill impairment test required under current accounting standards. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company does not believe that the adoption of ASU 2011-08 will have a material impact on its consolidated financial statements.

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Share-Based Compensation and Warrants

3 Months Ended

Sep. 30, 2011

Share-Based Compensation and Warrants [Abstract]

Share-Based Compensation and Warrants

4. Share-Based Compensation and Warrants

The Company recognized share-based compensation expense related to stock options and grants of restricted stock to employees, directors and consultants of $1.9 million and $2.6 million during the three months ended September 30, 2011 and 2010, respectively.

Stock Options

The Company has granted stock options to certain employees and directors under the Employee Share Option Plan (the “Plan”). The Plan is designed to assist in the motivation and retention of employees and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain consultants outside of the Plan. The majority of the options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to three years. Additionally, certain stock options vest upon the closing price of the Company’s common stock reaching certain minimum levels, as defined in the agreements. Share-based compensation expense related to options granted to employees is recognized on a straight-line basis over the related vesting term. Share-based compensation expense related to options granted to consultants is recognized ratably over each vesting tranche of the options.

In November 2009, the Company adopted the 2009 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan provides for a maximum of 6,000,000 shares of common stock to be reserved for the issuance of stock options and other stock-based awards. Commencing on January 1, 2011, and on each January 1st thereafter, through January 1, 2019, the share reserve automatically adjusts so that it equals 12.5% of the weighted average number of shares of common stock outstanding reduced by the sum of any shares of common stock issued under the Stock Incentive Plan and any shares of common stock subject to outstanding awards under the Stock Incentive Plan.

In January 2010, the Company issued 1,000,000 options to purchase common stock to a consultant under the Stock Incentive Plan in consideration for various services to be performed for the Company. The options to purchase common stock are exercisable at A$6.33 per share and vest upon the trading price of the Company’s CDIs reaching certain minimum levels on the Australian Securities Exchange, which range from A$1.75 to A$3.22 per share. The options are re-measured each reporting date and as of September 30, 2011 were valued at $1.55 per option, which is being expensed ratably over the vesting period of each tranche, which ranges from 1.6 years to 2.0 years. The options are re-valued on a quarterly basis and marked to market until exercised.

During the three months ended September 30, 2011, the Company granted 270,000 options to purchase common stock to certain employees under the Stock Incentive Plan. The weighted average exercise price of the options was $4.24 per share. The majority of the options will vest upon the meeting of certain performance targets, as defined in the agreement, the achievement of which the Company considers to be probable. The weighted average grant date fair value of the options was $2.27 per share.

In April and May 2011, the Company granted 300,000 options to purchase common stock to certain employees under the Stock Incentive Plan, with a weighted average exercise price of $5.02 per share for which the performance-based vesting terms have not been mutually agreed upon between the parties. Due to the fact that material terms have not been mutually agreed upon between the grantees and the Company, the criteria for establishing a grant date under Accounting Standards Codification (“ASC”) Topic 718, “Compensation —Stock Compensation” has not been met. As a result, share-based compensation expense recorded during the three months ended September 30, 2011 does not include any amounts related to these awards.

The following is a summary of activity related to stock options held by employees and directors during the three months ended September 30, 2011:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Contractual		Aggregate Intrinsic
	Options			Exercise Price		Life (in years)		Value
								(in thousands)
Outstanding as of July 1, 2011		4,699,211		$	4.37
Granted		270,000			4.24
Exercised		(12,000	)		1.94
Cancelled		(77,967	)		5.77
Outstanding as of September 30, 2011		4,879,244		$	4.35		4.2	$	4,363
Exercisable as of September 30, 2011		2,171,836		$	2.56		2.1	$	4,282

The following is a summary of activity related to stock options and warrants held by non-employees during the three months ended September 30, 2011:

						Weighted
						Average
				Weighted		Remaining
	Number of			Average		Contractual		Aggregate Intrinsic
	Options			Exercise Price		Life (in years)		Value
								(in thousands)
Outstanding as of July 1, 2011		8,126,609		$	7.96
Exercised		(273,910	)		1.55
Outstanding as of September 30, 2011		7,852,699		$	8.18		2.0	$	709
Exercisable as of September 30, 2011		6,852,699		$	8.48		1.8	$	709

The aggregate intrinsic value is defined as the difference between the market value of the Company’s common stock as of the end of the period and the exercise price of the in-the-money stock options. The total intrinsic value of stock options exercised during the three months ended September 30, 2011 and 2010 was $0.7 million and $2.5 million, respectively. Of the 3,707,408 non-vested options, 1,000,000 are held by a consultant.

The Company used the following weighted average assumptions in calculating the fair value of options granted during the three months ended September 30, 2011 and 2010:

	Three Months Ended			Three Months Ended
	September 30, 2011			September 30, 2010
Number of stock options granted		270,000			314,000
Expected dividend yield		0	%		0	%
Risk-free interest rate		1.54	%		1.47	%
Expected volatility		57	%		61	%
Expected life (in years)		6.0			4.3

Subsequent to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions, which were valued using a Monte Carlo option pricing model. The Company has not historically paid dividends to its stockholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of U.S. Treasury bonds with a term equal to the expected term of the option. Due to the Company’s limited Nasdaq trading history, the expected volatility used to value options granted after January 27, 2010 is based upon a blended rate of the historical share price of the Company’s stock on the Australian Securities Exchange and the volatility of peer companies traded on U.S. exchanges operating in the same industry as the Company. The expected term of the options to purchase common stock issued to employees and directors is based upon the simplified method, which is the mid-point between the vesting date of the option and its contractual term unless a reasonable alternate term is estimated by management. The expected term of the options to purchase common stock issued to consultants is based on the contractual term of the awards.

Prior to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions which were valued based on a Barrier option pricing model. The Company has not historically paid dividends to its shareholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of Australian bonds with a term equal to the expected term of the option. The expected volatility is based upon the historical share price of the Company’s common stock on the Australian Securities Exchange. The expected term of the stock options to purchase common stock is based upon the outstanding contractual term of the stock option on the date of grant.

Restricted Stock

The Company has granted shares of restricted stock to certain employees and consultants under the Stock Incentive Plan. During the period prior to vesting, the holder of the non-vested restricted stock will have the right to vote and the right to receive all dividends and other distributions declared. All non-vested shares of restricted stock are reflected as outstanding; however, they have been excluded from the calculation of basic earnings per share.

For employees, the fair value of restricted stock is measured on the date of grant using the price of the Company’s common stock on that date. Share-based compensation expense for restricted stock issued to employees is recognized on a straight-line basis over the requisite service period, which is generally the longest vesting period. For restricted stock granted to consultants, the fair value of the awards is re-valued on a quarterly basis and marked to market until vested. Share-based compensation expense for restricted stock issued to consultants is recognized ratably over each vesting tranche.

The following is a summary of activity related to restricted stock awards during the three months ended September 30, 2011:

	Number of Restricted			Weighted Average
	Stock Awards			Grant Date Fair Value
Unvested as of July 1, 2011		1,957,000		$	6.19
Granted		90,000			4.27
Vested		(20,000	)		5.28
Unvested as of September 30, 2011		2,027,000		$	6.11

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Subsequent Event

3 Months Ended

Sep. 30, 2011

Subsequent Event [Abstract]

Subsequent Event

12. Subsequent Event

Effective October 1, 2011, the Company signed a new employment agreement with its Chief Executive Officer. The agreement provides, subject to stockholder approval, for the issuance of 1,166,000 shares of restricted stock and 750,000 options to purchase common stock under the Stock Incentive Plan. The vesting of the restricted stock is conditioned on the satisfaction of certain performance milestones. The options to purchase common stock will vest equally over a period of three years annually and will be exercisable at the NASDAQ closing price of the Company’s stock on the date of grant.

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Property, Plant and Equipment and Construction-in-Progress

3 Months Ended

Sep. 30, 2011

Property, Plant and Equipment and Construction-in-Progress [Abstract]

Property, Plant and Equipment and Construction-in-Progress

5. Property, Plant and Equipment and Construction-in-Progress

Property, plant and equipment consist of the following:

	September 30,			June 30,
	2011			2011
	(in thousands)
Building	$	32,153		$	31,866
Machinery and equipment		16,032			16,130
Computer software		2,457			2,457
Furniture and fixtures		323			323
Construction in progress		5,969			5,734
Land		2,036			2,036
		58,970			58,546
Less: accumulated depreciation and amortization		(5,089	)		(4,526	)
Property, plant and equipment, net	$	53,881		$	54,020

Construction in progress as of September 30, 2011 and June 30, 2011 consisted primarily of amounts incurred in connection with machinery and equipment.

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Consolidated Statements of Stockholders' Equity and Comprehensive Loss (Unaudited) (USD $) In Thousands, except Share data	Total	Common Stock Shares	Additional Paid In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income	Treasury Stock
Beginning balance at Jun. 30, 2011	$ 53,572	$ 639	$ 169,590	$ (120,332)	$ 3,775	$ (100)
Beginning balance, shares at Jun. 30, 2011		63,924,403
Comprehensive loss:
Net loss	(9,705)			(9,705)
Foreign currency translation	(588)				(588)
Comprehensive loss	(10,293)
Issuance of options to purchase common stock	702		702
Issuance of restricted stock, net of forfeitures, shares		90,000
Issuance of restricted stock, net of forfeitures	1,198	1	1,197
Issuance of common stock upon exercise of stock options, shares		285,910
Issuance of common stock upon exercise of stock options	466	3	463
Purchase of treasury stock	(26)					(26)
Ending balance at Sep. 30, 2011	$ 45,619	$ 643	$ 171,952	$ (130,037)	$ 3,187	$ (126)
Ending balance, shares at Sep. 30, 2011		64,300,313

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Description of Business and Unaudited Financial Statements

3 Months Ended

Sep. 30, 2011

Description of Business and Unaudited Financial Statements [Abstract]

Description of Business and Unaudited Financial Statements

1. Description of Business and Unaudited Financial Statements

Unilife Corporation (collectively with its consolidated subsidiaries, the “Company”) and subsidiaries is a U.S.-based developer and manufacturer of advanced drug delivery systems. The primary target customers for the Company’s products include pharmaceutical and biotechnology companies seeking to optimize drug lifecycles and generate differentiation for their brand in competitive therapeutic markets through the use of innovative devices that can improve patient care, protect healthcare workers and prevent disease. Customers also include suppliers of medical equipment to healthcare facilities and distributors to patients who self-administer prescription medication.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements contain all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation for the periods presented as required by Rule 10-01 of Regulation S-X. Interim results may not be indicative of results for a full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the fiscal year ended June 30, 2011 contained in its Annual Report on Form 10-K.

References to A$ mean the lawful currency of the Commonwealth of Australia. References to € or euros are to the lawful currency of the European Union.

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Business Alliances

3 Months Ended

Sep. 30, 2011

Business Alliances [Abstract]

Business Alliances

10. Business Alliances

Sanofi

The Company signed an exclusive licensing agreement and an industrialization agreement with Sanofi, a multinational pharmaceutical company, between June 2008 and July 2009. Under the terms of these agreements, Sanofi has agreed to pay the Company an aggregate of approximately $36.4 million in exclusivity fees and industrialization milestone payments for the exclusive right to negotiate the purchase of the Unifill ready-to-fill (prefilled) syringe (Unifill syringe or product).

Pursuant to the exclusive licensing agreement, Sanofi has paid the Company a €10.0 million ($13.0 million) up front non-refundable one-time fee. During the year ended June 30, 2009, the Company recognized $2.5 million of this up-front payment as revenue and deferred $10.6 million, which is being recognized on a straight-line basis over the remaining term of the agreement.

Pursuant to the industrialization agreement, Sanofi has agreed to pay the Company up to €17.0 million in milestone-based payments to fund the completion of the Company’s industrialization program for the Unifill syringe. During the three months ended September 30, 2011 the Company received and recognized as revenue the final €1.0 million milestone payment under the industrialization agreement.

This exclusive right for Sanofi to negotiate for the purchase of the Unifill syringe is limited to the therapeutic drug classes of anti-thrombotic agents, vaccines and four confidential sub-classes until June 30, 2014 (exclusivity list). The Company is able to negotiate with other pharmaceutical companies seeking to utilize the Unifill syringe with drugs targeted for use in therapeutic drug classes outside of those retained by Sanofi under its exclusivity list. Upon mutual agreement by both parties, Sanofi may add additional therapeutic sub-classes to the exclusivity list for the Unifill syringe provided the Company has not previously signed exclusive terms for the product to a third party. The Company is not obligated to sell more than 30% of its annual production capacity for the Unifill syringe to Sanofi without written notification up to two years in advance.

Stason Pharmaceuticals

In March 2010, the Company signed an exclusive five year agreement with Stason Pharmaceuticals; a U.S.-based pharmaceutical company to market its Unitract 1mL syringe in Japan, China and Taiwan. Under the agreement, Stason Pharmaceuticals is required to purchase a minimum of 1.0 million units of the Unitract 1 mL syringe per year during the term of the contract, subject to regulatory approval of the Unitract 1 mL syringe in those markets, which is currently pending.

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands	Sep. 30, 2011	Jun. 30, 2011
Current Assets:
Cash and cash equivalents	$ 17,383	$ 17,910
Restricted cash	2,400	2,400
Accounts receivable	20	13
Inventories	708	626
Prepaid expenses and other current assets	374	381
Total current assets	20,885	21,330
Property, plant and equipment, net	53,881	54,020
Goodwill	12,285	13,265
Intangible assets, net	37	42
Other assets	1,025	821
Total assets	88,113	89,478
Current Liabilities:
Accounts payable	2,286	2,405
Accrued expenses	2,021	2,696
Current portion of long-term debt	5,879	2,274
Deferred revenue	2,501	2,706
Total current liabilities	12,687	10,081
Long-term debt, less current portion	25,431	20,413
Deferred revenue	4,376	5,412
Total liabilities	42,494	35,906
Contingencies (Note 9)
Stockholders' Equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized as of September 30, 2011; none issued or outstanding as of September 30, 2011 and June 30, 2011
Common stock, $0.01 par value, 250,000,000 shares authorized as of September 30, 2011; 64,300,313 and 63,924,403 shares issued, and 64,274,703 and 63,905,053 shares outstanding as of September 30, 2011 and June 30, 2011, respectively	643	639
Additional paid-in-capital	171,952	169,590
Accumulated Deficit	(130,037)	(120,332)
Accumulated other comprehensive income	3,187	3,775
Treasury stock, at cost, 25,610 and 19,350 shares as of September 30, 2011 and June 30, 2011, respectively	(126)	(100)
Total stockholders' equity	45,619	53,572
Total liabilities and stockholders' equity	$ 88,113	$ 89,478