Agreement of Merger

EXHIBIT 2.1

AGREEMENT OF MERGER

DATED JANUARY 18, 2005

AMONG

SURMODICS, INC.,

SIRX, INC.,

INNORX, INC.,

THE STOCKHOLDERS OF INNORX, INC.

AND

DR. EUGENE DE JUAN, JR.,

AS STOCKHOLDERS’ REPRESENTATIVE

TABLE OF CONTENTS

 i 

Exhibit A — Listing of Percentage Equity Interests (excluding shares of SurModics)
Exhibit B — Registration Rights Agreement
Exhibit C — Escrow Agreement
Exhibit D – Form of Press Release
Exhibit E – Stockholders’ Representative Agreement

 ii 

AGREEMENT OF MERGER

     THIS AGREEMENT OF MERGER, dated as of January 18, 2005 (this “Agreement”), is entered into by and among SurModics, Inc., a Minnesota corporation (“SurModics”), SIRx, Inc., a Delaware corporation and a wholly-owned subsidiary of SurModics (“Merger Sub”), InnoRx, Inc., a Delaware corporation (“InnoRx”), all of the stockholders of InnoRx other than SurModics (the “Stockholders”) and Dr. Eugene de Juan, Jr., as Stockholders’ Representative (the “Stockholders’ Representative”).

RECITALS

     WHEREAS, the Boards of Directors of SurModics, Merger Sub and InnoRx have determined, subject to the satisfaction of certain conditions precedent, that it is advisable and in the best interests of each corporation and their respective stockholders that SurModics and InnoRx combine in order to advance the long-term business interests of SurModics and InnoRx;

     WHEREAS, the combination of SurModics and InnoRx will be effected by the terms of this Agreement through a transaction in which Merger Sub will merge with and into InnoRx, and the Stockholders will become stockholders of SurModics (the “Merger”) and where InnoRx, as the surviving corporation of the Merger, shall shortly after the Merger merge with and into SurModics (the “Second Merger” and, together with the Merger and other transactions contemplated by this Agreement, the “Contemplated Transactions”);

     WHEREAS, the Merger and Second Merger are together intended to qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”); and

     WHEREAS, the Closing (defined below) shall not occur unless and until, among other events, all of the Stockholders have signed this Agreement.

     NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:

ARTICLE I.

     1.1 Closing. Subject to, and in accordance with, the terms and conditions of this Agreement, the closing of the Merger (the “Closing”) will take place at the offices of Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, Minnesota, at 10:00 a.m., local time, on the date of signing of this Agreement by the last party to sign, or at such other time and place as SurModics, Merger Sub and InnoRx may agree (the “Closing Date”).

     1.2 Effective Time of the Merger. Subject to the provisions of this Agreement, on the Closing Date, InnoRx and Merger Sub shall duly execute and deliver for filing a Certificate of Merger in a mutually acceptable form as required by the relevant provisions of the Delaware General Corporation Law (“DGCL”) with the Secretary of State of the State of Delaware. The Merger shall become effective upon the due and valid filing and acceptance of the Certificate of Merger with and by the Secretary of State of the State of Delaware, or at such time thereafter as is provided in Certificate of Merger (the “Effective Time”).

-1-

     1.3 Effects of the Merger.

     1.4 Directors and Officers. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation, and the officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective successors are duly elected or appointed.

     1.5 Second Merger. As soon as practicable after the Effective Time, SurModics hereby covenants and agrees that it shall adopt and shall cause the Surviving Corporation to adopt an agreement and plan of merger and reorganization pursuant to which the Surviving Corporation shall be merged with and into SurModics, with SurModics being the surviving entity of such merger. Upon the effectiveness of the Second Merger, all of the property, rights, privileges, powers and franchises of the Surviving Corporation (including, but not limited to, the net operating losses of InnoRx) will vest in SurModics and all debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation will become the debts, liabilities, obligations, restrictions, disabilities and duties of SurModics. It is intended that, absent a change in facts or law subsequent to the date hereof, the Second Merger shall occur and that the Merger and the Second Merger together qualify as a reorganization under the provisions of Section 368(a) of the Code, and that this Agreement constitute a “plan of reorganization” within the meaning of section 1.368-2(g) of the regulations promulgated under the Code.

ARTICLE II.

     2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any securities of InnoRx or Common Stock, $0.01 par value, of Merger Sub:

-2-

     (i) Each Stockholder shall be entitled to receive, for each share of InnoRx Common Stock owned by such Stockholder immediately prior to Effective Time (excluding shares cancelled in accordance with Section 2.1(b)), cash equal to $10.2241 as follows:

     (A) $9.9767 of such $10.2241 per share cash amount shall be paid to each Stockholder at the Closing; and

     (B) Per the direction and agreement of each such Stockholder as set forth in the Stockholders’ Representative Agreement and the Escrow Agreement, $0.2474 of such $10.2241 per share cash amount shall be deposited into the Stockholder Expense Account (as defined in the Escrow Agreement) and paid or distributed therefrom in accordance with the Stockholders’ Representative Agreement and the Escrow Agreement.

     (ii) Subject to Section 2.2, each Stockholder shall additionally be entitled to receive, for each share of InnoRx Common Stock owned by such Stockholder immediately prior to the Effective Time (excluding shares cancelled in accordance with Section 2.1(b)), 1.484443 shares of SurModics common stock.

-3-

     (iii) On the Closing Date, SurModics shall issue to the Stockholders in accordance with the terms and conditions of this Agreement: (A) the cash portion of the Merger Consideration in accordance with Section 2.1(d)(i)(A); (B) the shares of SurModics Common Stock issuable as Merger Consideration pursuant to Section 2.1(d)(ii); and (C) cash in an amount sufficient to permit payment of cash in lieu of fractional shares pursuant to Section 2.2 and shall deposit into the Stockholder Expense Account the cash in accordance with Section 2.1(d)(i)(B).

     2.2 No Fractional Shares. No certificate or scrip representing fractional shares of SurModics Common Stock shall be issued, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of SurModics. Notwithstanding any other provision of this Agreement, each holder of shares of InnoRx Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of SurModics Common Stock shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of SurModics Common Stock multiplied by Twenty-Seven Dollars And Fifty-Five Cents ($27.55).

     2.3 Milestone Payments.

     (i) Milestone 1: 60,007 shares of SurModics Common Stock upon the approval of an investigational new drug (“IND”) application with the United States Food & Drug Administration (“FDA”).

     (ii) Milestone 2: 60,007 shares of SurModics Common Stock upon the implantation of a device into the final patient (i.e., so that 100% of enrolled patients have been implanted with a device) included in the Phase I clinical trial, as such study has been approved by the FDA as a result of the approved IND.

     (iii) Milestone 3: 60,007 shares of SurModics Common Stock upon the implantation of a device into the final patient (i.e., so that 100% of enrolled patients have been implanted with a device) in the Phase II clinical trial, as such study has been approved by the FDA as a result of the approved IND.

-4-

     (iv) Milestone 4: 60,007 shares of SurModics Common Stock upon the implantation of a device into the final patient (i.e., so that 100% of enrolled patients have been implanted with a device) in the Phase III clinical trial, as such study has been approved by the FDA as a result of the approved IND.

     (v) Milestone 5: 120,015 shares of SurModics Common Stock upon the filing of a new drug application (“NDA”) with the FDA in a form expected, in good faith, to result in FDA approval of the NDA.

     (vi) Milestone 6: 120,015 shares of SurModics Common Stock upon the receipt of FDA approval of an NDA and the first bona fide commercial sale in the U.S. to an unaffiliated party of any coil or subretinal drug delivery product subsequent to such approval.

     (vii) Milestone 7: 120,015 shares of SurModics Common Stock upon the bona fide cumulative commercial sale in the U.S. of all coil and all subretinal drug delivery devices to unaffiliated parties following NDA approval that results in cumulative net revenues from all such bona fide end-user sales in the U.S. following NDA approval to unaffiliated parties to equal or exceed $25 million.

-5-

     (i) all internal and external amounts, costs and expenses which SurModics causes to be expended with respect to the Key Technology, including in connection with research and development efforts, animal and clinical studies, prototype development and refinement, regulatory compliance and all other necessary and appropriate efforts to develop and commercialize the Key Technology, whether performed internally or externally, shall be applied toward the satisfaction of SurModics’ Development Funds obligation;

     (ii) SurModics shall not be required to adjust its ordinary accounting methods or restrict or limit its ability to allocate costs and expenses to projects, including the projects involving Key Technology, as it would in the ordinary course of its business;

     (iii) SurModics may cause its Development Fund obligation to be satisfied in installments of any amount without regard to minimum or maximum limits for any period and from time to time at any time as determined in SurModics’ sole discretion;

     (iv) amounts, costs and expenses expended by development partners engaged by SurModics or InnoRx with respect to development and commercialization efforts for Key Technology shall be deemed to have been expended by SurModics for purposes of this Section 2.3(e) to the same extent as if expended directly by SurModics;

     (v) SurModics’ obligation to expend the Development Funds as described above represents SurModics’ only obligation to continue development efforts for the Key Technology, and so long as SurModics so satisfies such obligation with respect to the Development Funds (subject to the qualification of Section 2.3(e)(vi) below), there shall be no liability to any Stockholder with respect thereto, and the Stockholders agree that they shall not assert any claim with respect thereto or use as a basis for any claim that SurModics failed to undertake reasonable and good faith efforts to pursue commercialization of the Key Technology or acted in bad faith to frustrate the achievement of any milestones; and

-6-

     (vi) notwithstanding the foregoing, if SurModics determines in good faith in its sole discretion that a Material Adverse Effect (defined below) has occurred that makes further development of or commercialization efforts for Key Technology not in the best interests of SurModics or its stockholders, SurModics shall not be obligated to continue expending funds for or allocating resources to the continued development of or commercialization efforts for Key Technology regardless of the actual amount of Development Funds theretofore expended and SurModics’ obligation to cause the Development Funds to be expended shall terminate and have no further force or effect, and all obligations to make any subsequent Milestone Payments shall thereupon cease and terminate and be of no further force or effect. As used in this Section 2.3(e) only, “Material Adverse Effect” shall mean any event, change or effect that, when taken individually or together with all other adverse changes and effects, is or is reasonably likely in the good faith judgment of SurModics’ board of directors to have a materially adverse impact on the likelihood that devices or related technology to be developed from Key Technology will receive final regulatory approval or clearance from the FDA to market or sell such devices in the United States, on the commercial viability of any devices being developed from Key Technology or on projected financial results from sales of devices being developed from Key Technology, including but not limited to adverse results in clinical testing and data, injuries, side effects or other complications or adverse reactions in administering or utilizing the product, unsatisfactory efficacy levels, or similar occurrences of developments.

-7-

     2.4 Closing Documents. At the Closing:

     (i) the Escrow Agreement (defined below), executed by the Stockholders’ Representative and by the Stockholders, or on their behalf by the Stockholders’ Representative;

     (ii) the Registration Rights Agreement (defined below), executed by the Stockholders and the Stockholders’ Representative;

     (iii) letters of transmittal (“Letters of Transmittal”), executed by each of the Stockholders, together with such Stockholders’ InnoRx share certificates;

     (iv) the opinion of Oppenheimer Wolff & Donnelly LLP dated as of the Closing Date, in the form previously approved by SurModics;

     (v) a copy of the signed written consent resolutions of the Stockholders and InnoRx’s Board of Directors certified by its Secretary, authorizing and approving the execution, delivery and performance of this Agreement and the Contemplated Transactions and the acts of the officers and employees of InnoRx in carrying out the terms and provisions hereof;

     (vi) the resignations of all of the members of InnoRx’s Board of Directors and all of InnoRx’s officers and employees;

     (vii) certificates of good standing from the Secretaries of the States of Delaware and Alabama dated no earlier than three (3) business days prior to the Closing Date;

     (viii) consulting agreements (in the form previously approved by SurModics), executed on behalf of Dr. Eugene de Juan, Jr. and K.W. Michael Chambers;

     (ix) a copy of each consent identified in Section 3.2(c) of the InnoRx Disclosure Schedule;

     (x) a certificate executed by Dr. Eugene de Juan, Jr. and K.W. Michael Chambers certifying that to their knowledge no Person has made or threatened to make any claim asserting that such Person (a) is the holder or the beneficial owner of any stock of InnoRx (other than the ownership amounts of InnoRx’s existing Stockholders as set forth in Section 3.3 of the InnoRx Disclosure Schedule), (b) has the right to acquire or to obtain beneficial ownership of, any stock of, or any other voting, equity, or ownership interest in, InnoRx, or (c) is entitled to all or any portion of the Merger Consideration;

     (xi) a copy of the addenda executed by The Johns Hopkins University (“JHU”), in substantially the form previously approved by SurModics;

     (xii) a copy of the clarification or amendment entered into by InnoRx with the Doheny Eye Institute to that certain Development and Payment Agreement between InnoRx and Doheny Eye Institute, in substantially the form previously approved by SurModics;

     (xiii) a copy of the extension of the License Agreement between InnoRx and Protein Technologies International, Inc. and a copy of the payment made and note executed in connection with such extension, all in substantially the forms previously approved by SurModics;

-8-

     (xiv) all requisite paperwork and certifications necessary or appropriate to remove as of the Closing Date any and all authorized signors on InnoRx’s financial accounts (including any and all persons who may have discretionary authority over such accounts) and to authorize such persons as have been designated by SurModics to be the authorized signors on each such account;

     (xv) a copy of the most recent statements received from financial institutions for each account held at financial institutions maintaining accounts on behalf of InnoRx, together with account reconciliations necessary or appropriate to reconcile the balances on such account statements to the most recent balance sheet of InnoRx identified in Section 3.4 of this Agreement;

     (xvi) a copy of the Development and Manufacturing Agreement executed by Peregrine Surgical, Ltd. and InnoRx, in substantially the form previously approved by SurModics;

     (xvii) evidence of payment by InnoRx prior to the Effective Time of insurance premiums, salary severance and payment in lieu of a 2005 contribution to the retirement plan for K.W. Michael Chambers (in the aggregate amount of $161,811.20) pursuant to his current Amendment No. 2 to Employment Agreement dated July 28, 2004, between K.W. Michael Chambers and InnoRx, which payment amount Mr. Chambers shall acknowledge in writing as satisfying in full all InnoRx obligations thereunder;

     (xviii) such other documents as SurModics may reasonably request for the purpose of (A) evidencing the accuracy of any representation or warranty of Stockholders or InnoRx, (B) evidencing the performance by Stockholders or InnoRx of, or the compliance by Stockholders or InnoRx with, any covenant or obligation required to be performed or complied with by Stockholders or InnoRx, or (C) otherwise facilitating the consummation of any of the Contemplated Transactions.

     (i) cash payable in accordance with Section 2.1(d)(i)(A) and certificates in the name of each Stockholder evidencing that number of shares of SurModics Common Stock as each Stockholder is entitled to receive in accordance with Section 2.1(d)(ii) and, if any milestones are achieved before Closing, Section 2.3(d) (with respect to Milestone Payments);

     (ii) cash in an amount sufficient to permit payment of cash in lieu of fractional shares pursuant to Section 2.2;

     (iii) cash in an amount equal to One Hundred Thousand Nine Dollars and Twenty-two Cents ($100,009.22) payable to the Escrow Agent in accordance with Section 2.1(d)(i)(B);

     (iv) to the Stockholders’ Representative, the Registration Rights Agreement, executed on behalf of SurModics;

     (v) to the other party thereto, the Consulting Agreements, executed on behalf of SurModics;

-9-

     (vi) to the Stockholders’ Representative, the Escrow Agreement, executed on behalf of SurModics;

     (vii) an opinion of Fredrikson & Byron, P.A. dated the Closing Date, in the form previously approved by InnoRx; and

     (viii) such other documents as InnoRx may reasonably request for the purpose of (A) evidencing the accuracy of any representation or warranty of SurModics or Merger Sub, (B) evidencing the performance by SurModics or Merger Sub of, or the compliance by SurModics or Merger Sub with, any covenant or obligation required to be performed or complied with by SurModics or Merger Sub, or (C) otherwise facilitating the consummation of any of the Contemplated Transactions.

ARTICLE III.

     Each of the Stockholders, severally (not jointly) and on a pro rata basis in accordance with their respective percentage equity interest in InnoRx (and excluding SurModics’ equity interest) as reflected on Exhibit A, represents and warrants to SurModics and Merger Sub that the statements contained in this Article III are true and correct as to the date of this Agreement and as of the Closing Date, except as set forth in the disclosure schedule delivered by InnoRx to SurModics on or before the date of this Agreement (the “InnoRx Disclosure Schedule”). The InnoRx Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III (provided, however, that InnoRx and the Stockholders will be deemed to have adequately disclosed with respect to any section or subsection any matters that are clearly described elsewhere in such document if the applicability of such disclosure to such non-referenced sections or subsections is clearly apparent). Whenever the term “to InnoRx’s knowledge,” “InnoRx is not aware” or a similar expression appears in any representation or warranty in this Article III, it means either to the actual knowledge of Dr. Eugene de Juan, Jr. or K.W. Michael Chambers or that which a prudent individual in the position of such persons should be expected to discover or otherwise become aware of in the course of conducting a reasonable investigation concerning the existence of such fact or other matter. Whenever the term “InnoRx has received no notice” or like expression appears in any representation or warranty in this Article III, it means that neither Dr. Eugene de Juan, Jr. nor K.W. Michael Chambers has received actual oral or written notice of the matter to which such term is applied.

     Except as otherwise indicated, as used herein, the term “InnoRx Material Adverse Effect” shall mean any event, change, circumstance, condition or effect that has or is reasonably likely to have a materially adverse effect on: (i) the business (including its current products or products identified for development), operations, assets, properties, results of operations, or financial condition of InnoRx considered as a whole; or (ii) the ability of the Surviving Corporation or SurModics to conduct such business (as presently conducted or proposed to be conducted) following the Effective Time; or (iii) the ability of SurModics to exercise full rights of ownership of InnoRx or its assets or business; provided, however, any adverse event, change, circumstance, condition or effect in the industries in which InnoRx operates, or in the economy generally, that do not affect InnoRx disproportionately more than other companies, shall not be deemed to constitute, and shall not be taken into account in determining whether there has been, or is reasonably likely to be, an InnoRx Material Adverse Effect.

     3.1 Organization and Good Standing.

-10-

     3.2 Authority; No Conflict.

     (i) contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of InnoRx, or (B) any resolution adopted by the board of directors or the stockholders of InnoRx;

     (ii) contravene, conflict with, or result in a violation of, or give any Governmental Body (defined below) or other Person (defined below) the right to challenge the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement (defined below) or any Order (defined below) to which InnoRx or any Stockholder, or any of the assets owned or used by InnoRx, may be subject, except for those that, individually or in the aggregate, would not have, or be reasonably likely to have, an InnoRx Material Adverse Effect. “Legal Requirement” shall mean any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, statute or treaty. “Order” shall mean any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator. “Governmental Body” shall mean any nation, state, county, city, town, village, district, or other jurisdiction of any nature; federal, state, local, municipal, foreign or other government; governmental or quasi-governmental authority of any nature (including

-11-

any governmental agency, branch, department, official, or entity and any court or other tribunal); multi-national organization or body; or body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature; and “Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated association, corporation, limited liability company, other entity or Governmental Body;

     (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization (defined below) that is held by InnoRx or that otherwise relates to the business of, or any of the assets owned or used by, InnoRx;

     (iv) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract (defined below); or

     (v) result in the imposition or creation of any Encumbrance upon or with respect to any of the assets owned or used by InnoRx. “Encumbrance” shall mean any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

     3.3 Capitalization. The authorized equity securities of InnoRx consist of 15,000,000 shares of common stock, par value $0.001 per share, of which 421,199 shares are issued and outstanding immediately prior to the Effective Time and constitute all of the InnoRx Common Stock (16,958 of which are owned by SurModics and are cancelled in the Merger in accordance with Section 2.1(b)), and 3,000,000 shares of preferred stock, par value $0.001 per share, of which 272,000 are designated Series A Convertible Preferred Stock, of which 67,830 shares are issued and outstanding and constitute all of the Series A Stock (all of which Series A Stock are owned by SurModics and are cancelled in the Merger in accordance with Section 2.1(b)), and of which 2,728,000 are undesignated preferred stock. Section 3.3 of the InnoRx Disclosure Schedule contains a true and correct copy of the list of Stockholders and holders of Series A Stock, including the number of such securities held by each. All of the outstanding equity securities of InnoRx have been duly authorized and validly issued and are fully paid and nonassessable. Other than the Series A Stock and as contemplated by this Agreement, there are no options, warrants or other Contracts relating to the issuance, sale, or transfer of any equity securities or other securities of InnoRx. None of the outstanding equity securities or other securities of InnoRx was issued in violation of the Securities Act of 1933, as amended (the “Securities Act”), or any other Legal Requirement. There are no outstanding obligations of InnoRx to register under the Securities Act any shares of its capital stock or to include in any registration of its capital stock shares held by others, other than as set forth in that certain Registration Rights Agreement dated January 26, 2004 between InnoRx, SurModics and the Stockholders.

     3.4 Financial Statements. InnoRx has delivered to SurModics: (a) unaudited balance sheets of InnoRx as of December 31 in each of the years 2000 through 2003, and the related unaudited

-12-

statements of income and cash flow for each of the fiscal years then ended; and (b) the unaudited balance sheet of InnoRx as of December 31, 2004 (the “Balance Sheet”) and statements of income and cash flow for the fiscal year then ended. Except as otherwise disclosed in such financial statements or as set forth in Section 3.4 of the InnoRx Disclosure Schedule, such financial statements fairly present the financial condition and the results of operations, changes in stockholders’ equity, and cash flow of InnoRx as of the respective dates of and for the periods referred to in such financial statements, all in accordance with generally accepted accounting principles (“GAAP”), and the financial statements referred to in this Section 3.4 reflect the consistent application of such accounting principles throughout the periods involved. To InnoRx’s knowledge, no financial statements of any Person other than InnoRx are required by GAAP to be included in the consolidated financial statements of InnoRx.

     3.5 Books And Records. The books of account, minute books, stock record books, and other records of InnoRx, all of which have been made available to SurModics, are complete and correct in all material respects. The minute books of InnoRx and its Subsidiaries contain in all material respects accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the Boards of Directors, and committees of the Boards of Directors of InnoRx, and no meeting of any such stockholders, Board of Directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of those books and records will be in the possession of InnoRx.

     3.6 Title To Properties; Encumbrances. InnoRx owns no real property. Section 3.6 of the InnoRx Disclosure Schedule sets forth a complete and accurate list of all machinery, equipment, tools, dies, furniture, fixtures, spare parts, vehicles, computers, product prototypes, devices, inventory, drug samples, supplies and other similar personal property owned or leased by InnoRx and indicates the location of each item so listed. Section 3.6 of the InnoRx Disclosure Schedule also indicates which, if any, property is leased by InnoRx. InnoRx owns all the properties and assets (whether personal or mixed with real property and whether tangible or intangible) reflected as owned in the books and records of InnoRx, including all of the assets reflected in Section 3.6 of the InnoRx Disclosure Schedule or in the Balance Sheet but excluding assets held under capitalized leases and personal property purchased or sold since the date of the Balance Sheet in the Ordinary Course of Business (as defined below). All assets reflected in the books and records of InnoRx, Section 3.6 of the InnoRx Disclosure Schedule and the Balance Sheet are free and clear of all Encumbrances except, with respect to all such properties and assets, (a) security interests securing specified liabilities or obligations shown on the Balance Sheet or the Balance Sheet, with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists, (b) security interests incurred in connection with the purchase of assets after the date of the Balance Sheet (such security interests being limited to the assets so acquired), with respect to which no default (or event that, with notice or lapse of time or both, would constitute a default) exists, (c) liens for current taxes not yet due, and (d) immaterial or technical Encumbrances that would not, either individually or in the aggregate, have an InnoRx Material Adverse Effect.

     As used herein, an action taken by a Person will be deemed to have been taken in the “Ordinary Course of Business” only if (a) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person; and (b) such action is not required to be specifically authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority).

     3.7 No Undisclosed Liabilities. Except as set forth in Section 3.7 of the InnoRx Disclosure Schedule, InnoRx has no material liabilities or obligations of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against in the Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the date thereof.

-13-

     3.8 Taxes.

     3.9 No Material Adverse Effect. Since November 30, 2004, no event has occurred or circumstance has arisen that has had, or that could reasonably be expected to have, an InnoRx Material Adverse Effect.

     3.10 Employee Benefits.

     “InnoRx Other Benefit Obligation” means an Other Benefit Obligation owed, adopted, or followed by InnoRx.

     “InnoRx Plan” means all Plans of which InnoRx is or was a Plan Sponsor, or to which InnoRx otherwise contributes or has contributed, or in which InnoRx otherwise participates or has participated. All references to Plans are to InnoRx Plans unless the context requires otherwise.

     “Other Benefit Obligations” means all obligations, arrangements, or customary practices, whether or not legally enforceable, to provide benefits, other than salary, as

-14-

compensation for services rendered, to present or former directors, officers, employees, or agents, other than obligations, arrangements, and practices that are Plans. Other Benefit Obligations include consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, and fringe benefits within the meaning of Code §132.

     “Plan” has the meaning given in ERISA §3(3).

     “Plan Sponsor” has the meaning given in ERISA §3(16)(B).

     “Qualified Plan” means any Plan that meets or purports to meet the requirements of Code §401(a).

     (i) InnoRx has performed all of its obligations under all InnoRx Plans and InnoRx Other Benefit Obligations, except for such nonperformance as would not, individually or in the aggregate, have an InnoRx Material Adverse Effect. InnoRx has made appropriate entries in its financial records and statements for all obligations and liabilities under such InnoRx Plans and InnoRx Other Benefit Obligations that have accrued but are not due, except where the failure to do so would not have an InnoRx Material Adverse Effect.

     (ii) To InnoRx’s knowledge, no statement, either written or oral, has been made by InnoRx to any Person with regard to any InnoRx Plan or InnoRx Other Benefit Obligation that was not in accordance with the InnoRx Plan or InnoRx Other Benefit Obligation and that could have an adverse economic consequence to InnoRx or to SurModics.

     (iii) InnoRx, with respect to all InnoRx Plans and InnoRx Other Benefits Obligations, is, and each InnoRx Plan and InnoRx Other Benefit Obligation is, in full compliance with ERISA, the Code, and other applicable Laws including the provisions of such Laws expressly mentioned in this Section 3.10, except for such non-compliance as would not have an InnoRx Material Adverse Effect.

     (iv) Each InnoRx Plan can be terminated within thirty (30) days, without payment of any additional contribution or amount and without the vesting or acceleration of any benefits promised by such InnoRx Plan.

     (v) No event has occurred or circumstance exists that is reasonably expected to result in a material increase in premium costs of InnoRx Plans and InnoRx Other Benefit Obligations that are insured, or a material increase in benefit costs of such Plans and Obligations that are self-insured.

     (vi) The consummation of the Contemplated Transactions will not result in the payment, vesting, or acceleration of any benefit under any InnoRx Plan or Other Benefit Obligation.

-15-

     3.11 Compliance With Legal Requirements; Governmental Authorizations.

     (i) InnoRx is, and at all times has been, in compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its assets, except for such non-compliance as would not, individually or in the aggregate, have an InnoRx Material Adverse Effect;

     (ii) InnoRx has not received, at any time, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (B) any actual, alleged, possible, or potential obligation on the part of InnoRx to undertake, or to bear all or any portion of the cost of, any remedial action of any nature, except for such remedial actions as would not, individually or in the aggregate, have an InnoRx Material Adverse Effect; and

     (iii) all documentation, correspondence, reports, data, analyses and certifications relating to or regarding any product or proposed product of InnoRx filed with or delivered by or on behalf of InnoRx to any Governmental Body were in all material respects true and accurate when so filed or delivered, and, to InnoRx’s knowledge, remain true and accurate. Each study conducted by or on behalf of InnoRx with respect to InnoRx current or proposed products has been conducted or is being conducted such that the resulting data will be acceptable for use in InnoRx’s regulatory filings, and to InnoRx’s knowledge, there is nothing included in such data currently in existence that would cause any regulatory submission to be disallowed or delayed or that would indicate that the relevant product will not perform as intended or be suitable for its intended purposes and efficacy levels.

     (i) InnoRx is, and at all times has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified in Section 3.11 of the InnoRx Disclosure Schedule, except for such non-compliance as would not have an InnoRx Material Adverse Effect;

     (ii) To InnoRx’s knowledge, no event has occurred or circumstance exists that may (with or without notice or lapse of time) (A) constitute or could reasonably be expected to result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed in Section 3.11 of the InnoRx Disclosure Schedule, or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed or required to be listed in Section 3.11 of the InnoRx Disclosure Schedule;

-16-

     (iii) InnoRx has not received, at any time, any notice or other communication (whether oral or written) from any Governmental Body or any other Person regarding (A) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Governmental Authorization; and

     (iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed in Section 3.11 of the InnoRx Disclosure Schedule have been duly filed on a timely basis with the appropriate Governmental Bodies, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Bodies.

     3.12 Legal Proceedings; Orders.

     (i) that has been commenced by or against InnoRx or that, to InnoRx’s knowledge, otherwise relates to or could reasonably be expected to materially adversely affect the business of, or any of the assets owned or used by, InnoRx; or

     (ii) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions.

     (i) there is no Order to which InnoRx, or any of the assets owned or used by InnoRx, is subject;

     (ii) to the knowledge of InnoRx, no Stockholder is subject to any Order that relates to the business of, or any of the assets owned or used by, InnoRx; and

     (iii) no officer, director, agent, or employee of InnoRx is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of InnoRx.

-17-

     3.13 Absence Of Certain Changes And Events. Except as set forth in Section 3.13 of the InnoRx Disclosure Schedule, since November 30, 2004 InnoRx has conducted its business only in the Ordinary Course of Business and there has not been any:

(b) amendment to the Organizational Documents of InnoRx;

     3.14 Contracts; No Defaults.

     (i) Contract that involves performance of services or delivery of goods or materials of an amount or value in excess of $20,000;

     (ii) Contract that involves performance of services or delivery of goods or materials by InnoRx of an amount or value in excess of $20,000;

     (iii) Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of one or more company in excess of $20,000;

     (iv) each lease, rental or occupancy agreement, license, installment and conditional sale agreement, and other Contract affecting the ownership of, leasing of, title to, use of, or

-18-

any leasehold or other interest in, any real or personal property (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $20,000 and with terms of less than one year);

     (v) each licensing agreement or other Contract with respect to patents, trademarks, copyrights, or other intellectual property, including agreements with current or former employees, consultants, or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets;

     (vi) each Contract containing covenants that in any way purport to restrict the business activity of InnoRx or any affiliate entity of InnoRx or limit the freedom of InnoRx or any affiliate entity of InnoRx to engage in any line of business or to compete with any Person;

     (vii) each Contract providing for payments to or by any Person based on sales, purchases, or profits, other than direct payments for goods;

     (viii) each power of attorney given by or on behalf of InnoRx that is currently effective and outstanding;

     (ix) each Contract for capital expenditures in excess of $20,000;

     (x) each written warranty, guaranty, and or other similar undertaking with respect to contractual performance extended by InnoRx;

     (xi) each mortgage, promissory note, evidence of indebtedness, loan or credit agreement or other obligation or instrument for money borrowed or amounts owed, written or otherwise; and

     (xii) each amendment, supplement, and modification (whether oral or written) in respect of any of the foregoing.

     (i) To the knowledge of InnoRx, no Stockholder (and no Related Person of any Stockholder, defined below) has or may acquire any rights under, and no Stockholder has or may become subject to any obligation or liability under, any Contract that relates to the business of, or any of the assets owned or used by, InnoRx. As used herein, “Related Person” shall mean (a) each individual who is, or who has at any time been, an officer or director of InnoRx; (b) each member of the immediate family of each of the individuals referred to in clause “(a)” above; and (c) any entity (other than InnoRx) in which any one of the individuals referred to in clauses “(a)” or “(b”) above holds or held (or in which more than one of such individuals collectively hold or held), beneficially or otherwise, at least ten percent (10%) of the voting stock or other proprietary or equity interest in such entity.

     (ii) To the knowledge of InnoRx, no officer, director, agent, employee, consultant, or contractor of InnoRx is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor to (A) engage in or continue any conduct, activity, or practice relating to the business of InnoRx, or (B) assign to InnoRx or to any other Person any rights to any invention, improvement, or discovery.

-19-

     (i) InnoRx is, and at all times has been, in full compliance with all applicable terms and requirements of each Contract under which InnoRx has or had any obligation or liability or by which InnoRx or any of the assets owned or used by InnoRx is or was bound, except for such non-compliance as would not have an InnoRx Material Adverse Effect;

     (ii) Each other Person that has or had any obligation or liability under any Contract under which InnoRx has or had any rights is, and at all times has been, in full compliance with all applicable terms and requirements of such Contract, except for such non-compliance as would not have an InnoRx Material Adverse Effect;

     (iii) To InnoRx’s knowledge, no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a material violation or breach of, or give InnoRx or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Contract; and

     (iv) InnoRx has not given to or received from any other Person, at any time, any notice or other communication (whether oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract.

     3.15 Insurance.

-20-

     (i) all policies of insurance to which InnoRx is a party or under which InnoRx, or any director of InnoRx, is or has been covered at any time within the five (5) years preceding the date of this Agreement; and

     (ii) of all pending applications for policies of insurance.

     (i) any self-insurance arrangement by or affecting InnoRx, including any reserves established thereunder;

     (ii) any contract or arrangement, other than a policy of insurance, for the transfer or sharing of any risk by InnoRx; and

     (iii) all obligations of InnoRx to third parties with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided.

     (i) All policies to which InnoRx is a party or that provide coverage to InnoRx, or any director or officer of InnoRx are sufficient for compliance with all Legal Requirements and Contracts to which InnoRx is a party or by which it is bound and do not provide for any retrospective premium adjustment or other experienced-based liability on the part of InnoRx.

     (ii) InnoRx has not received (A) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (B) any notice of cancellation or, to InnoRx’s knowledge, any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder.

     (iii) InnoRx has paid all premiums due, and have otherwise performed all of their respective obligations, under each policy to which InnoRx is a party or that provides coverage to InnoRx or director thereof.

     (iv) InnoRx has given notice to the applicable insurer of all claims that may be insured thereby and Section 3.15(c) of the InnoRx Disclosure Schedule describes each claim, including the amount thereof and the resolution thereof, made by InnoRx during the period since September 30, 2003.

     3.16 Environmental Matters. Except as set forth in Section 3.16 of the InnoRx Disclosure Schedule, InnoRx is, and at all times has been, in compliance with, and InnoRx has not been and is not in violation of or liable under, any Environmental Law (as defined below), except for such non-compliance, violation or liability as, individually or in the aggregate, would not have an InnoRx Material Adverse Effect. To InnoRx’s knowledge, there is no basis to expect, nor has InnoRx or any other Person for whose conduct InnoRx is or may be held to be responsible received, any actual or threatened Order, notice, or other communication from any Governmental Body or private citizen acting in the public interest of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or threatened obligation to undertake or bear the cost of any liability relating to Environmental Law (as defined below) with respect to any properties or assets (whether real, personal, or mixed) in which InnoRx has or had an interest, or with respect to any property or facility at or to which Hazardous Materials (as defined below) were generated, manufactured, refined, transferred, imported, used, or

-21-

processed by InnoRx or any other Person for whose conduct it is responsible, or from which Hazardous Materials have been transported, treated, stored, handled, transferred, disposed, recycled, or received. “Environmental Law” shall mean any legal requirement that requires or relates to:

     3.17 Employees and Consultants. To InnoRx’s knowledge, no employee, director, agent or consultant of InnoRx is a party to, or is otherwise bound by, any agreement or arrangement, including any confidentiality, noncompetition, or proprietary rights agreement (collectively, “Proprietary Rights Agreement”), between such employee, director, agent or consultant and any other Person that in any way adversely affects or will adversely affect (i) the performance of his duties as an employee, director, agent or consultant of InnoRx, or (ii) the ability of InnoRx to conduct its business, including any Proprietary Rights Agreement between InnoRx and any such employee, director, agent or consultant. Section 3.17 of the InnoRx Disclosure Schedule contains a complete and accurate list of the name, title, current salary or compensation rate or each director, officer, employee or consultant of InnoRx together with a summary of the bonuses, additional compensation and other benefits, if any, paid or payable to such persons as of the date hereof or in the future. There are no persons who have been offered employment or consulting with InnoRx except as indicated in Section 3.17 of the InnoRx Disclosure Schedule and the material terms of any such offer of employment or consulting are set forth in such Section.

     3.18 Intellectual Property.

     (i) all actual and fictional business names, trading names, registered and unregistered trademarks, service marks, and applications owned, used, or licensed by InnoRx as licensee or licensor (collectively, “Marks”);

-22-

     (ii) all patents, patent applications, and inventions and discoveries that may be patentable owned, used, or licensed by InnoRx as licensee or licensor (collectively, “Patents”);

     (iii) all copyrights in both published works and unpublished works owned, used, or licensed by InnoRx as licensee or licensor (collectively, “Copyrights”); and

     (iv) all know-how, trade secrets, confidential information, software, technical information, data, process technology, plans, drawings, and blue prints owned, used, or licensed by InnoRx as licensee or licensor (collectively, “Trade Secrets”).

     (i) To the knowledge of InnoRx, the Intellectual Property Assets are all those necessary for the operation of InnoRx’s businesses as they are currently conducted and as currently proposed to be conducted and for the manufacture, marketing, distribution, use or sale of any current or proposed product or service of InnoRx. InnoRx is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all liens, security interests, charges, encumbrances, equities, and other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets, except as set forth in Section 3.18(b) of the InnoRx Disclosure Schedule. To the knowledge of InnoRx, neither the use of the Intellectual Property Assets by InnoRx in the present or proposed conduct of its business nor the manufacture, marketing, distribution, use or sale of any current or proposed product or service of InnoRx infringes on the intellectual property rights of any person.

     (ii) Except as set forth in Section 3.18(c) of the InnoRx Disclosure Schedule, all former and current employees and consultants of InnoRx have executed written Contracts with InnoRx that assign to InnoRx all rights to any inventions, improvements, discoveries, or information relating to the business of InnoRx. To the knowledge of InnoRx, no employee of InnoRx has entered into any Contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than InnoRx.

     (i) Section 3.18(d) of the InnoRx Disclosure Schedule contains a complete and accurate list and summary description of all Patents (including all issued patents, patent applications, provisional or otherwise, and invention disclosures), which description also indicates which are owned by InnoRx and which are licensed to InnoRx.

-23-

     (ii) To InnoRx’s knowledge, all of the issued Patents are currently in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use), to InnoRx’s knowledge, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date.

     (iii) No Patent has been or is now involved in any interference, reissue, reexamination, or opposition proceeding. Except as set forth in Section 3.18(d) of the InnoRx Disclosure Schedule, to InnoRx’s knowledge, there is no potentially interfering patent or patent application of any third party. To InnoRx’s knowledge, no Patent is infringed or has been challenged or threatened in any way.

     (i) Section 3.18(e) of the InnoRx Disclosure Schedule contains a complete and accurate list and summary description of all Marks, including but not limited to the name “InnoRx.”

     (ii) To InnoRx’s Knowledge, all Marks that have been registered with the United States Patent and Trademark Office are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications), to InnoRx’s knowledge, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date.

     (iii) No Mark has been or is now involved in any opposition, invalidation, or cancellation and, to InnoRx’s knowledge, no such action is threatened with the respect to any of the Marks. To InnoRx’s knowledge, there is no potentially interfering trademark or trademark application of any third party. To InnoRx’s knowledge, no Mark is infringed or has been challenged or threatened in any way.

     (i) Section 3.18(f) of the InnoRx Disclosure Schedule contains a complete and accurate list and summary description of all registered Copyrights.

     (ii) To InnoRx’s knowledge, all such registered Copyrights are currently in compliance with formal legal requirements, to InnoRx’s knowledge, are valid and enforceable, and are not subject to any maintenance fees or taxes or actions falling due within ninety days after the Closing Date. To InnoRx’s knowledge, no Copyright is infringed or has been challenged or threatened in any way.

     (i) With respect to each significant Trade Secret, the documentation relating to such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the knowledge or memory of any individual, and a brief description of each such significant Trade Secret is set forth in Section 3.18(g) of the InnoRx Disclosure Schedule. To InnoRx’s knowledge, InnoRx has taken all reasonable precautions to protect the secrecy, confidentiality, and value of its Trade Secrets.

-24-

     3.19 Certain Payments. Neither InnoRx nor any director, officer, or, to InnoRx’s knowledge, agent, employee or other Person associated with or acting for or on behalf of InnoRx, has directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, (iii) to obtain special concessions or for special concessions already obtained, for or in respect of InnoRx or any affiliate of InnoRx, or (iv) in each case in violation of any Legal Requirement, or (b) established or maintained any fund or asset that has not been recorded in the books and records of InnoRx.

     3.20 Brokers Or Finders. Neither InnoRx nor any of its agents has incurred any obligation or liability of InnoRx, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

     3.21 Tax-Free Merger Certifications. Solely for purposes of furthering SurModics’ and InnoRx’s mutual intention that the Merger together with the Second Merger qualify as a tax-free reorganization pursuant to Section 368 of the Code, to the knowledge of InnoRx:

     3.22 Disclosure. The representations and warranties of InnoRx contained in this Article III do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make such representations and warranties, in light of the circumstances under which they were made, not misleading.

-25-

ARTICLE IV.

     SurModics and the Merger Sub represent and warrant to InnoRx that the statements contained in this Article IV are true and correct, except as set forth in the disclosure schedule delivered by SurModics to InnoRx on or before the date of this Agreement (the “SurModics Disclosure Schedule”). SurModics Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article IV. Disclosure in any paragraph of SurModics Disclosure Schedule shall constitute disclosure for other sections of this Article IV where the applicability of such disclosure to such other section is obvious. Whenever the term “to SurModics’ knowledge,” “SurModics is not aware” or a similar expression appears in any representation or warranty in this Article IV, it means either to the actual knowledge of Bruce J. Barclay or Philip D. Ankeny or that which a prudent individual in the position of such persons should be expected to discover or otherwise become aware of in the course of conducting a reasonable investigation concerning the existence of such fact or other matter. Whenever the term “SurModics has received no notice” or like expression appears in any representation or warranty in this Article IV, it means that none of such persons has received actual oral or written notice of the matter to which such term is applied. Unless otherwise expressly stated or indicated by the context, when used here, the term “SurModics” refers to SurModics and its Subsidiaries on a consolidated basis, and the term “SurModics Material Adverse Effect” shall mean any event, change, circumstance, condition or effect that has or is reasonably likely to have a materially adverse effect on the business, operations, assets, properties, results of operations or financial condition of SurModics considered as a whole; provided, however, any adverse event, change, circumstance, condition or effect in the industries in which SurModics operates, or in the economy generally, that do not affect SurModics disproportionately more than other companies, and any that result from the Contemplated Transactions, shall not be deemed to constitute, and shall not be taken into account in determining whether there has been, or is reasonably likely to be, a SurModics Material Adverse Effect.

     4.1 Organization And Good Standing. Each of SurModics and Merger Sub is a corporation duly organized validly existing and in good standing under the laws of the state of jurisdiction of incorporation, with full corporate power and authority to conduct its business as it is now being conducted and to own or use the properties and assets that it purports to own or use, and is duly qualified and in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to so qualify would not have a SurModics Material Adverse Effect.

     4.2 Authority; No Conflict.

-26-

     (i) any provision of SurModics’ Organizational Documents;

     (ii) any resolution adopted by the board of directors or the stockholders of SurModics;

     (iii) any Legal Requirement or Order to which SurModics may be subject except those that, individually or in the aggregate, would not have, or be reasonably likely to have, a SurModics Material Adverse Effect; or

     (iv) any Contract to which SurModics is a party or by which SurModics may be bound.

Except as set forth in Section 4.2 of SurModics Disclosure Schedule, SurModics is not and will not be required to obtain any Consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions.

     4.3 Certain Proceedings. There is no pending Proceeding that has been commenced against SurModics and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To SurModics’ knowledge, no such Proceeding has been threatened.

     4.4 SurModics Subsidiaries; Merger Sub Common Stock. SurModics owns, beneficially and of record, all of the issued and outstanding shares of Merger Sub, all of which are validly issued and outstanding, fully paid and nonassessable, free and clear of all liens and encumbrances. SurModics has taken all such actions as may be required in its capacity as the sole stockholder of Merger Sub to authorize the Contemplated Transactions.

     4.5 SurModics SEC Filings. SurModics has filed all forms, reports and documents required to be filed by SurModics with the SEC or furnished by SurModics to the SEC since September 30, 2004, and has made available to InnoRx all such forms, reports and documents in the form filed with or furnished to the SEC. All such required forms, reports and documents are referred to herein as the “SurModics SEC Reports.” As of their respective dates, SurModics SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations thereunder, and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements contained in SurModics SEC Reports, together with the notes thereto, have been prepared in accordance with GAAP consistently applied throughout the periods indicated (except as may be indicated in the notes thereto, or, in the case of the unaudited financial statements, as permitted by Form 10-Q), and present fairly the consolidated financial condition of SurModics at their respective dates and the consolidated results of operations and cash flows of SurModics for the periods then ended. The

-27-

consolidated balance sheet of SurModics contained in SurModics’ Form 10-K for the year ended September 30, 2004, as included in SurModics SEC Reports, is herein referred to as the “SurModics Balance Sheet”).

     4.6 No Undisclosed Liabilities. Neither SurModics nor any of its Subsidiaries has obligations or liabilities of any material nature (matured or unmatured, fixed or contingent) other than (i) as disclosed in the SurModics SEC Reports or in the Disclosure Document (defined below) referenced in Section 5.1(b) or as set forth or adequately provided for in SurModics Balance Sheet, (ii) those incurred in the Ordinary Course of Business and not required to be set forth in SurModics Balance Sheet under GAAP, (iii) those incurred in the Ordinary Course of Business since the date of SurModics Balance Sheet and consistent with past practice, (iv) those incurred in connection with the execution of this Agreement, and (v) those, if not set forth or adequately provided for in SurModics Balance Sheet, as would not have a SurModics Material Adverse Effect on SurModics.

     4.7 No Material Adverse Effect. Since the date of SurModics Balance Sheet, there has been no SurModics Material Adverse Effect not disclosed in the SurModics SEC Reports or the Disclosure Document (defined below).

     4.8 Financing; Issuance of SurModics Common Stock. SurModics has a sufficient number of shares of authorized but unissued shares of SurModics Common Stock to allow it to issue all shares of SurModics Common Stock required to be issued or reserved for issuance pursuant to Sections 2.1 and 2.3, which upon issuance will be validly issued, fully paid and nonassessable. SurModics has sufficient cash on hand or committed financing to make the cash payments required pursuant to Section 2.1.

     4.9 Tax-Free Certifications. Solely for purposes of furthering SurModics’ and InnoRx’s mutual intention that the Merger together with the Second Merger qualify as a tax-free reorganization pursuant to Section 368 of the Code, to the knowledge of SurModics:

-28-

     4.10 Disclosure. The representations and warranties of SurModics contained in this Article IV do not contain any untrue statement of a material fact and do not omit to state any material fact necessary to make such representations and warranties, in light of the circumstances under which they were made, not misleading.

     4.11 No Brokers Or Finders. Neither SurModics nor the Merger Sub nor any of their respective employees or agents has incurred any obligation or liability of SurModics, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement, other than SurModic’s obligation to Greene Holcomb & Fisher, LLC.

ARTICLE V.

     5.1 Registration Statement; Disclosure Document.

-29-

     5.2 Termination of All Series A Investment Agreements. SurModics and InnoRx agree that all agreements, certificates and written instruments of every kind delivered by the parties that relates to the closing of the Series A Preferred Stock investment by SurModics and InnoRx, including without limitation that certain Series A Stock Purchase Agreement dated as of January 26, 2004 by and among InnoRx, Inc. and the Investors as defined therein, shall be cancelled and terminated, and shall be of no further force and effect, from and after the Closing Date.

     5.3 Covenants as to Post-Closing Tax Matters.

ARTICLE VI.

     6.1 Survival; Right To Indemnification Not Affected By Knowledge.

-30-

     6.2 Indemnification by the Stockholders and Payment of Damages. Subject to the provisions of this Article VI, solely through reduction of Milestone Payments as and to the maximum extent set forth in Section 6.3 and provided that an indemnification claim is properly asserted on or before the Cutoff Date in accordance with Section 6.1(a), SurModics, the Surviving Corporation, and their respective successors, officers, directors, stockholders and affiliates (collectively, the “SurModics Indemnitees”) shall be indemnified and held harmless from, against and in respect of, any demand, loss, liability, claim, damage, expense, cost (including costs of investigation and defense and reasonable attorneys’ fees), fine, action, suit, judgment or diminution of value, whether or not involving a third-party claim, each to the extent incurred (collectively, “Damages”) by a SurModics Indemnitee, arising, directly or indirectly, from:

     If the Closing occurs, the remedies provided in this Section 6.2 will be the exclusive remedies that may be available to SurModics or the other SurModics Indemnitees, except with respect to claims based upon fraud. To the extent any Stockholder is or may be entitled, under certificate of incorporation, bylaws, contract or otherwise, to indemnification, contribution, advancement of expenses, or similar payment (collectively, “Indemnification”) from InnoRx (or its successors) as a result of any activities of such Stockholder occurring at or prior to the Effective Time, such right to such Indemnification is hereby waived and shall have no further force or effect.

     6.3 Set-Off Procedures; Maximum Set-Off Amount.

-31-

     By way of example, if SurModics notifies the Stockholders’ Representative of indemnification claims for aggregate Damages estimated to be Three Million Dollars ($3.0 million) after SurModics Common Stock for the achievement of the third milestone has been

-32-

issued but prior to the issuance required in connection with the achievement of the fourth milestone, upon the achievement of the fourth milestone SurModics will be entitled to issue into Escrow as Escrowed Shares pursuant to the Escrow Agreement rather than issuing such number of shares to the Stockholders pursuant to the fourth milestone such number of Escrowed Shares of SurModics Common Stock as equals $2.9 Million ($3.0 Million less the Deductible Amount pursuant to Section 6.4) divided by the Milestone Date Stock Price for the fourth milestone. Up to 100% of the fourth milestone’s Maximum Milestone Stock Number may be issued into Escrow. If such 100% does not (using the Milestone Date Stock Price for the fourth milestone) have a value of $2.9 Million, then SurModics can have any shortfall covered by issuing into Escrow such number of shares from the fifth milestone, up to 90% of such fifth milestone, or from any subsequent milestone (subject to the percentage limit noted in the table above) as is equal to the shortfall divided by the Milestone Date Stock Price for the fifth milestone (or the Milestone Date Stock Price for the subsequent milestone if a subsequent milestone is used to satisfy such shortfall). Shares of SurModics Common Stock issued into Escrow and made subject to the Escrow Agreement shall only be available for the particular indemnification claims for Damages made prior to the distribution of such Escrowed Shares from such escrow by SurModics pursuant to Sections 6.2 and 6.3, and Escrowed Shares that have a fair market value in excess of the Damages actually incurred upon resolution of a particular indemnification claim shall be released from the Escrow Account in the manner provided in the Escrow Agreement.

     6.4 Limitations On Amount. For any claims for Damages made pursuant to Section 6.2, SurModics shall be entitled to set-off as provided in Section 6.3 only in the event that the aggregate cumulative amount of Damages under the current or past claims exceeds Two Hundred Fifty Thousand Dollars ($250,000) (the “Threshold Amount”) and, once the Threshold Amount has been reached or exceeded, SurModics shall be entitled to set-off as provided in Section 6.3 only to the extent that the aggregate cumulative amount of Damages under the current or past claims exceeds One Hundred Thousand Dollars ($100,000) (the “Deductible Amount”). For clarification, it is understood that the Threshold Amount and the Deductible Amount need be satisfied only on a cumulative basis as measured against the cumulative Damages incurred and are not required to be satisfied on a per claim basis or more than once on the cumulative basis.

     6.5 Notice to Stockholders’ Representative and Escrow Agent.

-33-

     6.6 Net Damages. All claims for indemnification of Damages incurred by any SurModics Indemnitee will be decreased by (i) any proceeds of insurance actually received by such person with respect to such claim and (ii) any tax benefit realized by such person resulting from the claim, and will be increased by (i) any tax detriment suffered by such person resulting from the receipt of any indemnification.

     6.7 Right of Stockholders’ Representative to Milestone Payments. Each of the parties to this Agreement understands, acknowledges and agrees that pursuant to the terms of the Stockholders’ Representative Agreement and the Escrow Agreement, the Stockholders have authorized the creation of a Stockholder Expense Account and the deposit by SurModics of $100,009.22 of the cash portion of the Merger Consideration into the Stockholder Expense Account, which funds shall be used to satisfy any indemnification rights of the Stockholders’ Representative pursuant to Section 6 of the Stockholders’ Representative Agreement and the payment of any expenses incurred by the Stockholders’ Representative after the Effective Time pursuant to Section 8 of Stockholders’ Representative Agreement. If in the judgment of the Stockholders’ Representative there are at any time insufficient funds in the Stockholder Expense Account for the satisfaction of all current and reasonably foreseeable indemnification claims pursuant to Section 6 of the Stockholders’ Representative Agreement and expenses of the Stockholders’ Representative pursuant to Section 8 of the Stockholders’ Representative Agreement, the Stockholders’ Representative may direct, pursuant to the terms and conditions of the Escrow Agreement, that Escrowed Shares be transferred into the Stockholder Expense Account from the Escrow Account, to the extent that (a) the Escrow Account is not then subject to any pending Claims (as such terms are defined in the Escrow Agreement), and (b) funds remain available in the Escrow Account after satisfaction in full of any prior Claims (as such terms are so defined) or may direct that all or a portion of any of the Milestone Payments to be made by SurModics pursuant to this Agreement be transferred into the Stockholder Expense Account to the extent that SurModics has not exercised its right to Escrow such Milestone Payment pursuant to Section 6.3 of this Agreement. The Stockholders will severally and not jointly, in proportion to their respective ownership percentages reflected on Exhibit A hereto, indemnify and hold harmless SurModics Indemnitees, without regard to or application of the Cutoff Date, the Threshold Amount, the Deductible Amount, or any other restriction or limitation set forth in this Agreement on such SurModics Indemnitees, against, and in respect of, any Damages, including claims by any Stockholder or the Escrow Agent, arising out of or relating in any way to any actions or inactions taken by the Stockholders’ Representative, any actions or inactions taken by SurModics at the direction of the Stockholders’ Representative, or any expenses, charges, indemnifications or other amounts claimed by the Escrow Agent relating to activities involving the Stockholder Expense Account or the Stockholder Expense Fund.

-34-

ARTICLE VII.

     7.1 Expenses. Each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and the Contemplated Transactions, including all fees and expenses of agents, representatives, counsel, and accountants. SurModics will pay all such expenses of Merger Sub. InnoRx shall pay all such expenses of InnoRx. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by another party.

     7.2 Public Announcements. SurModics will use reasonable efforts to consult with InnoRx prior to any public announcement or similar publicity with respect to this Agreement or the Contemplated Transactions. Attached as Exhibit D is substantially the form of the press release to be issued by SurModics announcing the consummation of the Merger. Unless consented to by SurModics in advance or required by Legal Requirements, InnoRx shall keep this Agreement strictly confidential and may not make any disclosure of this Agreement to any Person (other than on a confidential basis to the Stockholders and any representatives of such Stockholders). InnoRx and SurModics will consult with each other concerning the means by which InnoRx’s employees, customers, and suppliers and others having dealings with InnoRx will be informed of the Contemplated Transactions, and SurModics will have the right to be present for any such communication.

     7.3 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when received (or refused) and (a) delivered by hand (with written confirmation of receipt), (b) sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by certified or registered mail, postage prepaid and return receipt requested, or (c) if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):

-35-

     7.4 Jurisdiction; Service Of Process. It is expressly contemplated that the provisions of Section 7.17 shall be construed to limit and restrict the provisions of this Section 7.4, and that Section 7.17 shall govern to the fullest extent appropriate to give full effect to Section 7.17 in the event of any conflicts between this Section 7.4 and Section 7.17. Subject to the foregoing, any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Minnesota, County of Hennepin, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Minnesota, and each of the parties consents to the non-exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world. The parties hereto irrevocably and unconditionally waive any objection to the laying of venue of any action arising out of this Agreement or the Contemplated Transactions in (i) the Minnesota State Courts or (ii) the United States District Court for the District of Minnesota, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action brought in any such court has been brought in an inconvenient forum. Each of the parties hereto irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort, or otherwise) arising out of or relating to this Agreement, the Contemplated Transactions or the actions of the parties hereto in the negotiation, administration, performance or enforcement hereof.

-36-

     7.5 Stockholders’ Representative.

     (i) effect any amendment to this Agreement, the Escrow Agreement or the Registration Rights Agreement which the Stockholders’ Representative deems necessary or desirable;

     (ii) execute and deliver on their behalf all documents and instruments which may be executed and delivered pursuant to this Agreement, the Escrow Agreement or the Registration Rights Agreement, except that the documents with respect to the transfer of InnoRx Common Stock shall be personally executed by the Stockholders;

     (iii) make and receive notices and other communications pursuant to this Agreement, the Escrow Agreement or the Registration Rights Agreement and service of process in any legal action or other proceeding arising out of or related to this Agreement, the Escrow Agreement or the Registration Rights Agreement or any of the transactions hereunder or thereunder;

     (iv) defend, settle or compromise any dispute, claim, action, suit or proceeding arising out of or related to this Agreement, the Escrow Agreement or the Registration Rights Agreement or any of the transactions hereunder or thereunder, including, without limitation, the calculation of the Merger Consideration or the defense, settlement or compromise of any claim, action or proceeding for which SurModics has claimed that it is entitled to indemnification or payment of Damages;

     (v) pay expenses incurred or which may be incurred by or on behalf of the Stockholders in connection with this Agreement, the Escrow Agreement or the Registration Rights Agreement or any of the transactions hereunder or thereunder; and

     (vi) take all action necessary or appropriate in connection with enforcing the obligations of SurModics, Merger Sub and InnoRx to the Stockholders under this Agreement, the Registration Rights Agreement and the Escrow Agreement and to take any and all action necessary or appropriate in connection therewith.

-37-

     7.6 Further Assurances. The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

     7.7 Waiver. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

     7.8 Entire Agreement And Modification. This Agreement supersedes all prior agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by SurModics, InnoRx and the Stockholders’ Representative.

     7.9 Disclosure Schedule. In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Schedule (other than an exception expressly set forth as such in the Disclosure Schedule with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control.

-38-

     7.10 Assignments, Successors, And No Third-Party Rights. Neither SurModics nor InnoRx may assign any of its rights under this Agreement without the prior consent of the other, except that SurModics may assign all of its rights and obligations under this Agreement to any wholly-owned subsidiary. This Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. Except as expressly provided herein, this Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns and it is not the intention of the parties hereto to confer third-party beneficiary rights upon any other person. No person, other than the parties hereto, is entitled to rely on any of the representations, warranties and agreements of the parties hereto contained in this Agreement. The parties hereto assume no liability to any person, other than the parties hereto, because of any reliance on the representations, warranties and agreements of the parties contained in this Agreement.

     7.11 Severability. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

     7.12 Section Headings, Construction. The headings of Sections in this Agreement are provided for convenience only and will not affect its construction or interpretation. All references to “Section” or “Sections” refer to the corresponding Section or Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “including” does not limit the preceding words or terms.

     7.13 Time Of Essence. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence.

     7.14 Governing Law. This Agreement will be governed by the laws of the State of Minnesota without regard to conflicts of laws principles.

     7.15 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

     7.16 Joint Preparation. This Agreement has been prepared and extensively negotiated by parties hereto with the assistance and input of their respective attorneys, and therefore no ambiguity herein shall be construed for or against any party based upon the identity of the author of this Agreement or any portion hereof.

     7.17 Dispute Resolution.

-39-

[remainder of page intentionally blank]

-40-

     IN WITNESS WHEREOF, the parties have duly caused this Agreement to be executed as of the date first set forth above.

-41-

Signature Page to Agreement of Merger

-42-

Signature Page to Agreement of Merger

-43-

Signature Page to Agreement of Merger

-44-

Signature Page to Agreement of Merger