MESOBLAST LIMITED
ABN 68 109 431 870

CORPORATE GOVERNANCE

The Board of Directors of Mesoblast Limited is responsible for the corporate governance of the Company. The Board guides and monitors the business and affairs of the Company on behalf of the shareholders by whom they are elected and to whom they are accountable. The Company is committed to implementing the highest standards of corporate governance.

In setting its standards the Company has considered the ASX Corporate Governance Council's Principles of Good Corporate Governance and Best Practice Recommendations (“ASXCGC recommendations”) which were released in March 2003.

Details of these recommendations can be found on the ASX website at http://www.asx.com.au/supervision/governance/ index.htm. Whilst the Company continues to develop and improve its corporate governance processes and standards, the Board is pleased to advise that Mesoblast's practices are largely consistent with the ASXCGC recommendations. The Board will continue to ensure that the model is relevant, efficient and cost effective to the Company and its shareholders.

In accordance with the ASXCGC recommendations, the corporate governance statement that follows contains certain specific information and discloses the extent to which the Company has followed the guidelines during the 2007 year.

Any departures to the guidelines have been fully explained.

Mesoblast's corporate governance statement is structured with reference to the ASXCGC principles and recommendations.

1. Lay solid foundations for management and oversight

In general, the Board is responsible for, and has authority to determine, all matters relating to the policies, practices, management and operations of the Company.

Specifically the Board's functions include:

• setting the overall Company financial goals;

• approving strategies, objectives and plans for the Company's businesses to achieve these goals;

• reporting to shareholders on the Company's strategic direction and performance including constructive engagement in the development, execution and modification of the Company's strategies;

• ensuring risks to the business are identified, and approving systems and controls to manage these risks and monitor compliance;

• meeting statutory and regulatory requirements and overseeing the way in which business risks and the assets of the Company are managed.

• approving the Company's major human resources (HR) policies and overseeing the development strategies for senior and high performing executives;

• monitoring executive management and business performance in the implementation and achievement of strategic and business objectives;

• ratifying and approving the appointment and removal of executives;

• approving financial plans and annual budgets;

• monitoring financial results on an on-going basis;

• determining that satisfactory arrangements are in place for auditing the Company's financial affairs;

• approving key management recommendations (such as major capital expenditure, acquisitions, divestments, restructuring and funding); and;

•  overseeing the management of occupational health and safety and environmental performance.

2. Structure the Board to add value

2.1 Board composition and independence

During the 2007 year, the Board of Directors comprised four Directors – two executives and two non-executives.

The term in office held by each Director in office as at 30 June 2007 is as follows:

Name Term as Director 30 June 2007 Position held:

Michael Spooner 2 yrs 9 months Executive Chairman

Silviu Itescu 3 yrs 1 months Executive Director

Byron McAllister 2 yrs 9 months Independent Director

Donal O'Dwyer 2 yrs 9 months Independent Director

The skills, experience and expertise relevant to their position for all Directors is contained in the Directors' Report.

Directors are appointed to the Board based on the specific governance skills required by the Company and on the independence of their decision making and judgement. The skills, experience and expertise relevant to the position of Director held by each Director in office at the date of the annual report is included in the Directors' Report of the 2007 Annual Report. Each member of the Board is committed to spending sufficient time to enable them to carry out their duties as a Director of the Company.

Directors of Mesoblast are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with, or could reasonably be perceived to materially interfere with, the exercise of their unfettered and independent judgement. In the context of director independence, “materiality” is considered from both the Company's and an individual Director's perspective. The determination of materiality requires consideration of both quantitative and qualitative elements. An item is presumed to be quantitatively immaterial if it is equal or less than 2% of the Company's gross revenue or expenditure (whichever is the greater). In accordance with the definition of independence above, and the materiality thresholds set by the Board, the following Directors of Mesoblast were considered to be independent:

•  Donal O'Dwyer (Deputy Chairman and Chairman of the Audit & Risk Committee)

•  Byron McAllister

There are procedures in place, agreed by the Board, to enable Directors, in furtherance of their duties, to seek independent professional advice at the Company's expense.

2.2 Independent Chairman

The Executive Chairman was appointed to the position in 2005 and confirmed at the Company's 2005 Annual General Meeting. On 8th August 2007, the Executive Chairman resigned from this role, and will remain as a non-executive Chairman until a suitable replacement is found at which time he will then continue as a non-executive Director. From this date, the Chairman is considered to be independent. The Board is currently pursuing a global search for a new non-executive Chairman.

 2.3 Role of the CEO (or equivalent)

At the date of this annual report, the equivalent role to that of CEO for the Company is not held by the Chairman, which is in accordance with the ASXCGC recommendations.

2.4 Nomination committee

The Board has established a nomination committee comprising four Directors as follows:

Name Position held during the year

Michael Spooner Executive Chairman*

Silviu Itescu Executive member

Byron McAllister Independent member

Donal O'Dwyer Independent member

• Resigned from an executive position on 8th August 2007.

Whilst the committee has been formed, given the size and nature of the Company's operations to date the Board has chosen to discuss those matters usually considered by the nomination committee at the full Board during its regular meetings. Details of meetings attended are found in the Directors' Report of the 2007 Annual Report.

3. Promote ethical and responsible decision-making

3.1 Code of conduct

As part of its commitment to recognising the legitimate interests of stakeholders, the Company has established certain Codes of Conduct to guide all employees, particularly Directors, the Chief Financial Officer (CFO) and other senior executives in respect of ethical behavior expected by the Company. These Codes of Conduct cover conflicts of interest, confidentiality, fair dealing, protection of assets, compliance with laws and regulations; whistle blowing, security trading and commitments to stakeholders.

3.2 Trading policy applied to Directors, officers and employees

The Board of Directors is committed to a free and open market for the Company's securities. Accordingly, the Board fully supports the spirit and letter of the law and the listing rules concerning adequate and reasonable disclosure of information

relevant to the Company and its securities in line with contemporary continuous disclosure requirements.

The Board is also mindful that trading by Directors and other employees of the Company at certain times may not be in the best interests of the above commitment. Accordingly, the Board has established and promulgated to all Directors, staff

and key consultants, a Security Trading Code of Conduct to guide those officers in their responsibilities in respect of trading in the Company's and other companies' securities.

Trading restrictions

The Directors, employees and key consultants are permitted to trade in the Company's securities at any time subject to the following approval procedures:

• A request to trade is submitted to the Company Secretary who circulates this request to the executive Directors;

• The executive Directors have 7 days to respond and either approve or deny the request; and

• At the end of this 7 day period, if there is no objection, then that person has a trading window of 7 calendar days from the deemed approval date, provided they do not hold any price sensitive information.

Reporting of trading

The Company Secretary is committed to reviewing regularly the contents of the share register, which is currently maintained by Link Market Services Limited. Any significant share trading by officers of the Company is duly noted and shall be reported to the Board in a timely manner.

Price sensitive information

The Company has published for officers' guidance an exhaustive definition and explanation of what may amount to price sensitive information.

Trading in other companies' securities

The Company's Security Trading Code of Conduct is also expressly applied to other companies with which the Company may have dealings where an officer may have, or be perceived to have, price sensitive information.

4. Safeguard integrity in financial reporting

4.1 Chief Scientific Adviser (CSA) and Chief Financial Officer (CFO) declarations

The Company has processes in place designed to ensure the truthful and factual presentation of the Company's financial position, and prepares and maintains its accounts fairly and accurately in accordance with the generally accepted accounting and financial reporting standards. In accordance with the Board's policy and the requirements of the Corporations Act 2001, the CSA and the CFO made the attestations recommended by the ASX Corporate Governance Council Best Practice Recommendation 4.1 as to the Company's financial condition and its operating results prior to the Board signing the 2007 Annual Report.

4.2 Audit and risk committee establishment

The Board has established an audit and risk committee, to which it has delegated the responsibility for ensuring that an effective internal control framework exists within the entity.

This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper

accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators.

4.3 Audit and risk committee structure

As at 30 June 2007, the audit and risk committee comprised of at least three members, the majority of whom are independent Directors and the chairperson of the committee is not the chairperson of the Board. The members of the audit and risk committee during the year and their qualifications can be found in the Directors' Report of the 2007 Annual Report.

4.4 Formal charter

The audit and risk committee operates under a formal charter approved by the Board.

Details of the number of meetings of the audit and risk committee held during the year and the attendees at those meetings can be found in the Directors' Report. In line with best practice the audit and risk committee is charged with the selection, independence and rotation of the external auditor.

The audit and risk committee reports to the Board the following information:

• an assessment of whether the external reporting is consistent with committee members' information and knowledge and is adequate for shareholder needs;

• an assessment of the management processes supporting external reporting;

• procedures for the selection and appointment of the external auditor and for the rotation of external audit engagement partners;

• recommendations for the appointment or removal of an auditor;

• an assessment of the performance and independence of the external auditors and whether the audit committee is satisfied that independence has been maintained, particularly with reference to any non-audit services provided; and

• results of its review of risk management and internal compliance and control systems.

5. Make timely and balanced disclosure

The Board has established a policy governing continuous disclosure and has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the

ASX. In accordance with the ASX Listing Rules, the Company immediately notifies the ASX of information:

• concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company's securities; and

• that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company's securities.

Upon confirmation of receipt from the ASX, the Company posts all information disclosed in accordance with this policy on the Company's website at www.mesoblast.com

6. Respect the rights of shareholders

6.1 Communications strategy

The Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to:

• communicating effectively with shareholders through releases to the market via the ASX, the Company's website, information mailed and emailed to shareholders and the general meetings of the Company;

• giving shareholders ready access to balanced and understandable information about the Company and corporate proposals;

• making it easy for shareholders to participate in general meetings of the Company.

The Company also makes available a telephone number and e-mail address for shareholders to make enquiries of the Company.

6.2 External auditor requested to attend annual general meeting

The Board has requested the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor's report.

7. Recognise and manage risk

7.1 Establish policies on risk oversight and management

As mentioned above the Board has established an audit and risk committee (“the committee”) to inter alias, review and monitor management's risk management and internal compliance and control systems.

On a continuous basis the Board has charged the committee with responsibility to:

• clearly describe the respective roles of the Board, the committee, management and the internal audit function; and

• prescribe the necessary elements of an effective risk management system, namely, oversight, risk profile, risk management, compliance and control, and assessment of system effectiveness.

7.2 Establish policies on risk oversight and management

The Chief Scientific Adviser and the Chief Financial Officer in providing written certifications in accordance with the requirements of Section 295A (2) of the Corporations Act 2001 have also certified in writing to the Board that such certification is founded on a sound system of risk management and internal compliance and control, which implement the policies adopted by the Board, and the Company's risk management and internal compliance and control systems are operating efficiently and effectively in all material respects.

8. Encourage enhanced performance

The performance of key executives of the Company is reviewed annually and assessed against the overall Company objectives and specific milestones where applicable. This review is used in the majority of cases to determine annual bonuses and remuneration packages for the ensuing year.

Review of performance of the Board of Directors, both individually and collectively, is currently being progressed by the remuneration committee. The remuneration committee will endeavour to complete its review by the end of the calendar year.

9. Remunerate fairly and responsibly

9.1 Disclosure of remuneration policy and procedures

The Board is responsible for determining and reviewing compensation arrangements for the Directors themselves, the Chairman, the Chief Scientific Adviser and the executive team. Details of the nature and amount of each element of remuneration, including both monetary and non-monetary components, for each Director and the five highest-paid executives during the year can be found in the Directors' Report.

9.2 Remuneration committee

Composition and charter

The Board has established a remuneration committee, comprising three directors, the majority of which are non-executive Directors, and Chairperson of the remuneration committee is not the Chairperson of the Board. The remuneration committee operates under a formal charter approved by the Board. Whilst the committee has been formed, given the size and nature of the Company's operations to date the Board has chosen to discuss those matters usually considered by the remuneration committee at the full Board during its regular meetings.

Responsibilities

The responsibilities of the remuneration committee include providing a review and recommendation to the Board of:

• executive remuneration and incentive policies;

• remuneration packages of senior management;

• the Company's recruitment, retention and termination policies and procedures for senior management;

• incentive schemes; and

• the remuneration framework for directors.

Remuneration policies

The expected outcomes of the remuneration structure are to retain and motivate key executives, attract quality management and provide performance incentives which align performance and company success in a manner that is market competitive, consistent with best practice and in the interests of shareholders.

Executives are given limited salary packaging options for their base salary including superannuation. It is intended that the manner of payment is optimal for the recipient without increasing the cost to the Company. Executive performance

and remuneration includes an “at-risk” component, the payment of which is dependent upon individual and team performance relative to specific targets.

Details of the nature and amount of each element of remuneration for each director and the Company's highest paid executives during the year can be found in the remuneration report section of the Directors' Report.

9.3 Directors remuneration framework

Executive Directors are remunerated in the same manner as other executives of the Company, as described above. Non- executive Directors are paid a director's fee only, and are not paid bonuses or provided with retirement benefits other than statutory superannuation.

During the first period following listing of the Company on the ASX, it was considered appropriate to align the interests of the Directors with the long-term goals of the Company by granting options to non-executive Directors. At the last annual general

meeting held on 23 November 2006, the shareholders approved the issue of share options to one non-executive Director on his appointment as Deputy Chairman of the Company. No further share options have been issued to non-executive Directors.

9.4 Share-based executive remuneration

Long-term incentive arrangements have been provided by participation in the Executive Share Option Plan, which has been approved by shareholders, to ensure key employees maintain a long-term interest in the growth and value of the Company.

10. Recognise the legitimate interests of stakeholders

The Board recognises the legitimate interests of wider stakeholders in the Company and has, in its Code of Conduct, made specific commitments to these respective stakeholders.

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