CADOUX LIMITED — AGM Information 2005

Nov 2, 2005

Dear Shareholder

Enclosed is Solbec's 2005 Annual Report together with the Notice of this year's AGM scheduled for 17 November 2005.

The Annual Report includes a comprehensive review of Solbec's operations over the last year and the stage it is at in its drug development. I commend the Report to you.

Amongst the items to be considered at this year's AGM is the cancellation of Options in consideration for Shares which was announced to ASX in September 2005. The reasons for this cancellation are set out in the Explanatory Memorandum accompanying the Notice but in summary is being done to improve the capital structure of the Company and to assist it in future partnering and capital related events. To that end I would refer you to the Explanatory Memorandum which expands upon this.

I see the cancellation of Options in consideration for the issue of Shares to be an extremely important matter for Solbec and in the best interests of both Shareholders and Optionholders and strongly urge and recommend all Shareholders support the appropriate resolutions. The option overhang has been an irritant to the Company generally and has led to criticism of our capital structure.

Shareholders are also being asked to authorise the Directors to issue additional Shares in the Company for the purposes of raising capital to further our drug development program. Again particulars of this resolution are set out in the Notice and the Explanatory Memorandum.

The Company is entering into an exciting phase and I would welcome as many Shareholders as possible to attend this year's AGM and support the resolutions proposed.

I would be happy to discuss any particular matters with Shareholders both prior to and during the AGM.

Kind regards

Tony Kiernan Chairman

Notice of Annual General Meeting Explanatory Memorandum Proxy Form

Date of Meeting: Time of Meeting: Place of Meeting:

17 November 2005 10.30am (WST) 8^th Floor Australian Stock Exchange Building 2 The Esplanade Perth Western Australia

This is an important document. Please read it carefully. If there is any matter that you do not understand, you should contact your financial adviser, stockbroker or solicitor.

INSTRUCTIONS TO SHAREHOLDERS

Venue

The General Meeting of the shareholders of Solbec Pharmaceuticals Ltd will be held at:

8^th Floor Australian Stock Exchange Building 2 The Esplanade Perth Western Australia

Commencing at 10.30 am (WST) on 17 November 2005

How to Vote

You may vote by attending the meeting in person, by proxy or authorised representative.

Voting in Person

To vote in person, attend the meeting on the date and at the place set out above. The meeting will commence at 10.30am.

Voting by Proxy

To vote by proxy, please complete and sign the proxy form enclosed with this notice as soon as possible and either:

• return the proxy form by post to Solbec Pharmaceuticals Ltd, C/- PO Box 2142, Churchlands, Western ٠ Australia. 6018: or
• send the proxy by facsimile to the Company on facsimile number $(+618)$ 9446 8777

so that it is received not later than 10.30 am (WST) on 15 November 2004.

Your proxy form is enclosed.

Bodies Corporate - Corporate Representation

A body corporate may appoint an individual as its representative to exercise any of the powers the body may exercise at the meeting of Shareholders. The appointment may be a standing one.

Enquiries

The Company welcomes enquiries in respect of matters covered in this Notice of Meeting and Explanatory Memorandum and attendance of shareholders at the Annual General Meeting proposed. Should you require further information please contact:

Stephen Carter		or.	The Company Secretary
	Phone: $(+618)94467555$		John Sendziuk
Fax:	$(+618)94468777$		Phone: $(+618)$ 9336 1266
Email:	stephen.carter@solbec.com.au		Fax: $(+618)94306744$
			Email: john.sendziuk@rsmi.com.au

Notice is given that the Annual General Meeting of shareholders of Solbec Pharmaceuticals Ltd ("Solbec" or "the Company") will be held at 8^th Floor, Australian Stock Exchange Building, 2 The Esplanade, Perth, Western Australia at 10.30am (WST) on 17 November 2005.

The Explanatory Memorandum accompanying this Notice of Meeting forms part of and is deemed to be incorporated in the Notice of meeting and should be read with the Notice. There is a Glossary towards the end of the Explanatory Memorandum that defines various words and phrases used in this Notice and Explanatory Memorandum.

AGENDA

Annual Accounts

To receive and consider the annual financial report of the Company, the Directors' Report and the Independent Audit Report for the year ended 30 June 2005.

Resolution 1 - Election of Dr Graeme Howie as a Director

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

"To elect as a Director of the Company, Dr Graeme Howie, who automatically retires in accordance with the Company's Constitution and, being eligible, offers himself for re-election."

The Company will disregard any votes cast on this Resolution by Dr Graeme Howie and any associates of his. However, the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 2 - Re-election of Michael Grant as a Director

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

"To elect as a Director of the Company, Michael Grant, who retires by rotation in accordance with the Company's Constitution and, being eligible, offers himself for re-election."

The Company will disregard any votes cast on this Resolution by Michael Grant and any

associates of his. However, the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form: or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 3 - Cancellation of Options

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, for the purposes of ASX Listing Rule 6.23.2, the Company approves the cancellation of up to 148,664,831 Options in the Company in consideration for the issue to Optionholders of 1 Share for every 7 Options cancelled, and otherwise on the terms and conditions set out in the Explanatory Memorandum accompanying this Notice."

The Company will disregard any votes cast on this Resolution by a Shareholder who is an Optionholder or an associate of that person. However, the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 4 - Approval to the Issue of Shares for Cancellation of Options

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, subject the passing of Resolution 3 and for the purpose of ASX Listing Rule 7.1, the Company approves the issue of up to a maximum of $21.237.833$ Shares in the Company in consideration for the cancellation of Options contemplated by Resolution 3, such Shares to be issued on the terms and conditions described in the Explanatory Memorandum accompanying this Notice."

The Company will disregard any votes cast on this Resolution by a Shareholder who is an Optionholder or an associate of that person. However, the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 5 - Cancellation of Options by Anthony Kiernan to enable Participation

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, subject to the passing of Resolutions 3 and 4, approval be given for the purpose of ASX Listing Rule 7.1 and 10.11 and for all other purposes, for the issue to Anthony Kiernan, a Director of the Company, of Shares on identical terms and conditions to those in which Shares are to be offered to other Optionholders in consideration of the cancellation of Options and to be issued by the Company pursuant to Resolutions 3 and 4 which terms and conditions are set out in the Explanatory Memorandum accompanying this Notice."

The Company will disregard any votes cast on this Resolution by Anthony Kiernan and any associates of his. However, the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form: or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 6 - Cancellation of Options by Michael Grant to enable Participation

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, subject to the passing of Resolutions 3 and 4, approval be given for the purpose of ASX Listing Rule 7.1 and 10.11 and for all other purposes, for the issue to Michael Grant, a Director of the Company, of Shares on identical terms and conditions to those in which Shares are to be offered to other Optionholders in consideration of the cancellation of Options and to be issued by the Company pursuant to Resolutions 3 and 4 which terms and conditions are set out in the Explanatory Memorandum accompanying this Notice."

The Company will disregard any votes cast on this Resolution by Michael Grant and any associates of his. However, the Company will not disregard a vote if:

• (a) it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 7 - Cancellation of Options by Stephen Carter to enable Participation

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, subject to the passing of Resolutions 3 and 4, approval be given for the purpose of ASX Listing Rule 7.1 and 10.11 and for all other purposes, for the issue to Stephen Carter, a Director of the Company, of Shares on identical terms and conditions to those in which Shares are to be offered to

other Optionholders in consideration of the cancellation of Options and to be issued by the Company pursuant to Resolutions 3 and 4 which terms and conditions are set out in the Explanatory Memorandum accompanying this Notice."

The Company will disregard any votes cast on this Resolution by Stephen Carter and any associates of his. However, the Company will not disregard a vote if:

• (a) it is cast by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is cast by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 8 - Authority to Issue Shares

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, for the purpose of ASX Listing Rule 7.1 and all other purposes, the Company approves the issue, within 3 months after the date of this meeting, at the discretion of the Directors of the Company. of up to $40,000,000$ Shares at no less than $80\%$ of the weighted average closing price for the relevant Share:

• calculated over the last 5 days in which sales in the relevant Shares were recorded on ASX $(i)$ before the date of issue; or
• if the issue is to be made under a prospectus then calculated over the last 5 days in which sales $(ii)$ in the relevant Shares were recorded on ASX before the date the relevant prospectus is signed."

For the purpose of ASX Listing Rule 7.3.8 the Company will disregard any votes cast on this Resolution by any person or entity or any of their associates that may participate in an issue of Shares under this Resolution or any other party who may obtain a benefit except a benefit solely in the capacity of a Shareholder, if the resolution is passed. However the Company will not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is east by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 9 - Approval for Non-Executive Director's Fees in the Aggregate

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, the aggregate fees for Non-Executive Directors of the Company, acting in the capacity as Directors be set at \$200,000 per annum to be divided amongst the Directors as they deem fit."

The Company will disregard any votes cast on this Resolution by any Director of the Company or any of their associates. However, the Company need not disregard a vote if:

• (a) it is east by a person as a proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is cast by the person chairing the meeting as proxy for the person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Resolution 10 - Adoption of Remuneration Report (Non-Binding)

To consider and, if thought fit, to pass the following resolution as a non-binding resolution:

"That, for the purpose of Section 250R(2) of the Corporations Act and for all other purposes, the Company adopts the Remuneration Report as set out in the Annual Report for the year ended 30 June $2005."$

Short Explanation:

The Corporations Act provides that a resolution that the Remuneration Report be adopted must be put to a vote at a listed company's annual general meeting. The vote on Resolution 10 is advisory only and does not bind the Directors of the Company.

General Business

To transact any other business that may be lawfully be brought before this meeting.

Explanatory Memorandum

The Explanatory Memorandum which accompanies and forms part of this Notice describes the matters to be considered at this Annual General Meeting.

Proxies

A Shareholder who is entitled to vote at the meeting has the right to appoint a proxy and should use the proxy form enclosed with this Notice. The proxy need not be a shareholder of the Company.

A proxy's authority to speak and vote for a member at the meeting is suspended if the member is present at the meeting.

A proxy form accompanies this Notice and is to be completed in accordance with the Notes accompanying the same.

Bodies Corporate – Corporate Representation

A Body Corporate may appoint an individual as its representative to exercise any of the powers the body may exercise at the meetings of the Company's Shareholders. The appointment may be a standing one. Unless the appointment states otherwise, the representative may exercise all of the powers that the appointing body could exercise at the meeting or in voting on a resolution.

Voting Entitlements

Pursuant to Regulation 7.11.37 of the Corporations Regulations 2001, the Directors have determined that the shareholding of each Shareholder for the purpose of ascertaining the voting entitlements for the purposes of the Corporations Act, have set a snapshot date and that the identity of those entitled to attend and vote at the General Meeting will be as they appear in the Company's Share Register at 5.00 pm (WST) on 15 November 2005.

Dated this 14th day of October 2005 BY ORDER OF THE BOARD

John Sendziuk COMPANY SECRETARY

Explanatory Memorandum

This Explanatory Memorandum has been prepared for the information of Shareholders in relation to the business to be conducted at the Company's Annual General Meeting to be held on 17 November 2005.

The Directors recommend that Shareholders read this Explanatory Memorandum before determining whether to support the resolutions or otherwise.

There is a Glossary towards the end of this Explanatory Memorandum which further defines certain words and phrases used in the Notice and this Explanatory Statement.

$\mathbf{I}$ . INTRODUCTION

At this Meeting the Annual Accounts for the year ended 30 June 2005 together with the Directors' Report and the Independent Audit Report will be laid before the meeting for the purposes of discussion.

In addition to the Annual Accounts, Shareholder approval is being sought for the following:

• the election of Dr Graeme Howie as a Director of the Company who was appointed as a $(a)$ Director during the year (Resolution 1):
• the re-election of Michael Grant as a Director of the Company and who has retired by $(b)$ rotation in accordance with the Constitution of the Company (Resolution 2);
• $(c)$ the cancellation of Options in consideration for the issue of Shares which is proposed to be made to Optionholders pursuant to an offer (Resolution 3);
• $(d)$ approval for the issue of Shares to facilitate the cancellation of Options (Resolution 4):
• the participation in the cancellation of the Options in exchange for Shares as is the $(e)$ subject of Resolutions 3 and 4 by Directors Anthony Kiernan, Michael Grant and Stephen Carter each of whom hold listed Options in the Company (Resolutions 5, 6 and $7);$
• the issue of Shares to facilitate a possible future capital raising of the Company $(f)$ (Resolution 8);
• that the aggregate of fees to Non-Executive Directors be set at \$200,000 (Resolution 9). $(g)$

Further information on these matters is set out below.

$2.$ INFORMATION ON RESOLUTIONS

2.1 Resolution 1 - Election of Dr Graeme Howie as a Director

Resolution 1 seeks approval for the election of Dr Graeme Howie as a Director of the Company with effect from the end of the meeting. Dr Howie was appointed a Director of the Company in October 2005 to fill a casual vacancy.

As a consequence of this and as required by the Constitution any director appointed in this manner automatically retires at the next General Meeting and is eligible for election.

Explanatory Memorandum

Dr Howie has offered himself for re-election and the Directors (other than Dr Howie) recommend shareholders elect him accordingly.

$2.2$ Resolution 2 - Re-election of Michael Grant as a Director

Resolution 2 seeks approval for the re-election of Michael Grant as a Director of the Company with effect from the end of the meeting.

Under the Company's Constitution, at each Annual General Meeting one third (or if that is not a whole number, the whole number nearest to one third) of the Company's directors (excluding any Managing Director) must retire from office and seek re-election.

Mr Grant has retired in accordance with the Constitution and therefore needs to seek reelection. Mr Grant offers himself for re-election and the Directors of the Company (other than Mr Grant) recommend shareholders approve his re-election.

Resolutions 3 and 4 - Cancellation of Options in exchange for the Issue of Shares $2.3$

Background

These two Resolutions seek Shareholder approval to the cancellation of Options in consideration for the issue of Shares. Two separate resolutions are required, firstly for the cancellation of the Options and then secondly for the approval to issue Shares if Optionholders accept the offer of the Company to cancel their respective Options.

ASX Listing Rule 6.23

ASX Listing Rule 6.23 provides that options in a company listed on ASX can be cancelled for consideration only if a majority of shareholders at general meeting approve the cancellation. If Resolution 3 is passed, the Company will be authorised to cancel up to a maximum of 148,664,831 Options in consideration for the issue of 1 Share for each 7 Options held by Optionholders at the Record Date the cancellation of which has been accepted by the relevant Optionholder. The final number of Options to be cancelled will be determined by the level of acceptance of Optionholders to the offer of cancellation. The cancellation will be done pursuant to an offer to be made to Optionholders under a prospectus which will be issued by the Company. There will be no compulsion on Optionholders to accept the cancellation, either in whole or in part.

The offer relates only to listed Options and not to Options that are not listed Options.

Further Information

On 16 September 2005 the Directors provided details on the proposed offer to be made to Optionholders to exchange listed Options in Solbec for Shares in Solbec. The essence of the 16 September 2005 announcement was:

• $(i)$ subject to Shareholder approval the Company would offer 1 Share in exchange for every 7 listed Options held by Optionholders at the appropriate Record Date;
• Optionholders would be able to choose whether to accept the offer for all or part $(ii)$ of their Options;

Explanatory Memorandum

• $(iii)$ the Record Date to decide entitlements to the offer would be 7 business days after the Shareholders' meeting called to approve the exchange of Options for Shares. The Record Date accords with the requirements of Listing Rule 7.15 which provides that if a Company must get the approval of Shareholders to make an offer or issue, then the Record Date to decide appropriate entitlements must be at least 7 business days after the date of the meeting.
• if Shareholders were to approve the exchange of Options for Shares, the offer to $(iv)$ Optionholders would be made pursuant to a prospectus which would be issued by the Company.

As at the date of this Notice the Company has on issue 168,372,334 Shares and 148,664,831 Options which are listed on ASX.

As noted by the Directors in the ASX announcement of 16 September 2005 the offer to exchange Options for Shares is designed to improve the capital structure of the Company and remove an extremely large "option overhang" on the market. The Directors have been advised by a number of stockbrokers and others familiar with the capital markets that the high number of Options on issue in the Company relative to the issued Shares most probably acts as a deterrent to a stronger share price. The logic is that if people are to buy the Shares and those shares suddenly improve in value, their's and the overall Shareholding of other Shareholders would be diluted by the conversion of Options. Whilst the conversion of Options would bring capital into the Company the overhang does present difficulties in achieving a stronger share price.

Whilst the conversion of Options to Shares may result in a dilution to Shareholders in the short term, the Directors are firmly of the view that a more attractive capital structure would benefit Shareholders in the medium to long term and will greatly assist the Company in future partnering and capital related events.

It is unusual for a Company listed on ASX to have such a high number of listed Options relative to the number of Shares on issues.

The maximum number of Shares that could be issued if all Optionholders accepted the offer for all their Options held by them is 21,237,833.

Optionholders will have the right to accept the offer to exchange their Options for Shares in whole or in part and set out below is the number of Shares that would be issued by the Company if the proposal is approved by Shareholders and a certain percentage is accepted:

Percentage Takeup by Optionholders	Number of Shares to be Issued
0	O
25	5,309,458
50	10,618,916
75	15,928,374
100	21,237,833

Explanatory Memorandum

The announcement to ASX on 16 September 2005 stated that the average price for Solbec Shares for the last 3 months from 14 June 2005 to 14 September 2005 had been 8.93 cents whereas for the listed Options it had been 0.99 cents. The last sale and bid prices respectively for the Shares and Options prior to 16 September 2005 was Shares – 10 cents sale and 10 cents bid and Options - 1.2 cents sale and 1.5 cents bid.

Prior to determining the ratio the Directors took independent advice as to the value of the Options based upon the Black and Scholes Option Valuation Model. This valuation was conducted on 15 September 2005 by HLB Mann Judd, Chartered Accountants, in which the author advised the Company as follows:

"Ordinarily, the value of listed Options is the current quoted price on ASX. 1 understand that Solbec's Options are currently trading at 1.2 cents. However to check this, I have run a Black and Scholes Option Pricing Model in relation to the Options using the following inputs:

• valuation date $-15$ September 2005
• expiry date of Options $-19$ September 2006 ٠
• $\bullet$ current price of Shares 11 cents
• $\bullet$ exercise price of Options 30 cents
• risk free rate $-15.16\%$ (based on a Commonwealth 3 year Bond)
• volatility $89\%$ $\bullet$

In relation to the volatility, which is the most subjective part of any Black and Scholes Valuation, I have used the ASX trading history of the Company's Shares over the last 12 months and run a normal standard deviation over the price movements to arrive at a volatility factor (normal practice).

The model calculates a value for the Options of 1.1 cents which is consistent with the current ASX price."

In determining the ratio of Options for Shares, the Directors, in the interest of the Company, were keen to ensure that as many Optionholders as possible accepted the offer so that the objective of substantially improving the capital structure of the Company could be achieved. It is for this reason that the offer is pitched slightly more favourable to Optionholders than based on the valuation of the Options under the Black and Scholes Option Pricing Model as on 15 September 2005.

Notwithstanding this, the Directors consider the Company should be prepared to offer these more favourable terms to ensure, in the interest of the Company and its Shareholders, that the objective of improving the capital structure and removing the option overhang is achieved.

The highest and lowest trading prices for Shares and listed Options in the 3 month period immediately preceding the Notice of meeting period were:

Shares	Options

	Price	Date	Price	Date
High	$13.5$ cents	23/9/05	1.9 cents	26/9/05
Low	7.1 cents'	3/8/05	$0.2$ cents	25/8/05
Last	12 cents	7/10/05	1.9 cents	7/10/05

Explanatory Memorandum

For the purpose of the Listing Rules the following further information is provided in relation to Resolution 4:

• the maximum number of Shares that could be issued if all Optionholders accepted $(a)$ the offer for all their Options is 21,237,833. This is based on the formula of 1 Shares for each 7 Options, the cancellation of which has been accepted by the relevant Optionholder. Above in this Explanatory Memorandum is a table setting out the number of Shares that would be issued based on percentage takeup by Optionholder from 0% through to 100%. Fractions will be rounded to the nearest whole number;
• the Shares on cancellation of Options will be issued no later than 3 months after the $(b)$ date of the meeting:
• the allottees of the Shares will be those Optionholders as at the Record Date that $(c)$ accept the offer of the Company to have their Options cancelled in consideration of Shares:
• the Shares to be issued on cancellation of Options will rank equally from the date of $(d)$ issue with all the existing Shares in the Company;
• no funds will be raised from the conversion. $(e)$

Terms of Options

The listed Options which were issued in September 2003 were issued on the following terms and conditions:

• Each Option entitles the holder to subscribe for and be allotted one Share at prices $(i)$ set out in (ii) depending on when the Option is exercised.
• The Options are exercisable at any time prior to 5.00pm WST on 19 September $(i)$ 2006 ("Expiry Date") by notice in writing to the Company accompanied by payment of the exercise price, being
• $\blacksquare$ 12 cents within 12 months of the date of issue of the Options;
• 20 cents within 24 months of the date of issue of the Options; or
• 30 cents within 36 months of the date of issue of the Options.
• The Options may be exercised in whole or in part. If the Options are exercised in part, each notice $(iii)$ of exercise must be for not less than 5,000 Shares and thereafter in multiples of 1,000 Shares.
• Application will be made to ASX for Official Quotation of the Options (which $(iv)$ was made and which was approved);

Explanatory Memorandum

• Shares will be allotted and issued pursuant to the exercise of Options not more $(v)$ than ten (10) Business Days after receipt of a properly executed notice of exercise of the Options and payment of the requisite application moneys.
• $(vi)$ Shares issued upon exercise of the Options will rank equally in all respects with the Company's then existing ordinary fully paid shares. The Company will apply for official quotation by ASX of all Shares issued upon exercise of the Options.
• $(vii)$ There are no participating rights or entitlements inherent in the Options and holders will not be entitled to participate in new issues of capital offered or made to shareholders during the currency of the Options. However, the Company will ensure that for the purposes of determining entitlements to any such issue, the record date will be at least ten (10) Business Days after the issue is announced. This will give Optionholders the opportunity to exercise their Options prior to the date for determining entitlements to participate in any such issue.
• $(viii)$ In the event of any new or bonus issues, there are no rights to a change in the exercise price or the number of underlying securities over which the Options can be exercised.
• $(ix)$ In the event of any reorganisation (including a consolidation, sub-division, reduction or return) of the issued capital of the Company on or prior to the Expiry Date, the rights of the optionholder will be changed to the extent necessary to comply with the applicable Listing Rules at the time of the reorganisation.
• The Company will, at least twenty (20) Business Days before the expiry date of $(x)$ the Options, send notices to the optionholders stating the name of the optionholder, the number of Options held and the number of shares to be issued on exercise of the Options, the exercise price, the due date for payment, and the consequences of non-payment.

Other Options on Issue (Not listed)

The Company also has on issue 11,000,000 Options which are held as between the Directors and which are not listed on ASX. 7,000,000 of these expire on 9 June 2007 and of that 7,000,000, 4,000,000 have an exercise price of 22 cents and 3,000,000 an exercise price of 20 cents. The remaining 4,000,000 options have an exercise price of 22 cents and expire 25 November 2007. These unlisted Options are not the subject of Resolutions 3 and 4 and will remain on the same terms and conditions and the Directors do not contemplate in having the Company make an offer for these.

Recommendation

As noted above the offer is designed to improve the capital structure of the Company and in the opinion of the Directors will provide a vastly improved capital structure which will be to the benefit of the Company in the medium to long term and will greatly assist it in future partnering and capital related events. In relation to Optionholders, the Directors consider the exchange of Options for Shares will be to their benefit on the basis that the issue of Shares will provide longevity in their investment whereas the relevant Options expire in September 2006.

Explanatory Memorandum

The Directors recommend to Shareholders that they approve Resolutions 3 and 4. In making this Recommendation Shareholders should note that the following Directors (and their respective associates) hold the following listed Options namely:

Directors	Options (Listed)
Anthony Kiernan	1,537,500
Stepehen Carter	1,185,414
Michael Grant	2,882,169

2.4 Resolutions 5, 6 and $7$ – Participation in the Cancellation of Options by Directors Kiernan, Grant and Carter

Background

The Company is seeking Shareholder approval to permit Anthony Kiernan, Michael Grant and Stephen Carter each of whom are Directors of the Company and hold listed Options, to participate in the cancellation of the Options and the issue of Shares proposed by Resolutions 3 and 4.

The number of listed Options held by each of those Directors are as follows:

Directors	Options (Listed)
Anthony Kiernan	1,537,500
Michael Grant	2,882,169
Stephen Carter	1,185,414

Listing Rules

ASX Listing Rule 10 requires a listed company to obtain shareholder approval prior to the issue of securities to a related party. The Listing Rules define a "related party" as having the same meaning given to the term in the Corporations Act. The definition includes directors so therefore each of Messrs Kiernan, Carter and Grant are related parties to Solbec.

Listing Rule 10.13 sets out a number of matters which must be included in a notice of meeting to obtain shareholder approval under Listing Rule 10.11. For the purpose of the Listing Rules, the following information is provided in relation to Resolutions 5, 6 and 7:

the allottees of the Shares will be each of Messrs Kiernan, Carter and Grant (or the $(a)$ particular entities associated with them that may hold the listed Options) who, if Resolutions 3 and 4 are passed, will be entitled to be allotted that number of Shares as is calculated using the identical formula as will be used to allot Shares to other Optionholders following the cancellation of Options, ie 1 Share for every 7 Options the cancellation of which is accepted;

Explanatory Memorandum

(b) the maximum number of Shares that may be issued to each of Messrs Kiernan, Carter and Grant if Resolutions 3 and 4 are passed assuming there was a 100% acceptance by them is as follows:

Directors	Shares
Anthony	219,643
Kiernan
Michael Grant	411,738
Stephen Carter	169,345

• the Shares allotted and issued to Messrs Kiernan, Carter and Grant will rank equally $(c)$ in all respects with the existing Shares;
• Listing Rule 10.13.3 requires the Shares to be issued no later than 1 month after the $(d)$ date of the Meeting, or by such later time as may be approved by ASX. As noted elsewhere the offer to the Optionholders will be made pursuant to a prospectus to be issued by the Company at about the time of the Meeting. This prospectus will contain a timetable pursuant to which Optionholders need to accept the offer to cancel their Options for Shares. The Shares which will be issued in consideration of the Options may fall outside the 1 month period as required under Listing Rule 10.13.3 if the timetable, as approved by ASX, requires the same. If the timetable will see the Shares being issued outside this 1 month period, application will be made to ASX to enable the Shares to be issued to the Directors to accord with the timetable. In any event the Shares would not be issued later than 3 months after the date of the Meeting unless approved otherwise by ASX;
• $(e)$ none of Messrs Kiernan, Carter or Grant will be compelled to accept either in whole or in part the offer to be made by the Company to exchange their Options for Shares although each Director has advised the Company that they will accept the offer to exchange no less than 80% of their listed Options for Shares;
• $(f)$ no funds will be raised from the cancellation of Options and the issue of Shares under Resolutions 5, 6 and 7.

The ability of Directors Kiernan, Grant and Carter to participate in the Option cancellation in exchange for Shares is exactly the same as being afforded to all other Optionholders.

Recommendation

Professor John Papadimitriou, Graeme Howie and David Hung (all being Directors of the Company) recommend Shareholders approve each of Resolutions 5, 6 and 7. None of these recommending Directors have an interest in any of those Resolutions as they do not hold listed Options.

Directors Kiernan, Carter and Grant do not wish to make a recommendation to Shareholders about Resolutions 5, 6 and 7 because each of them has an interest therein, with the interest arising because they, or associates of theirs, hold listed Options.

Explanatory Memorandum

$2.5$ Resolution $8 -$ Authority for Share Issue

ASX Listing Rule 7.1 prohibits a company from issuing shares representing more than 15% of its share capital in any 12 month period without shareholder approval (subject to certain exceptions).

Resolution 8 seeks Shareholder approval to issue up to 40,000,000 Shares at no less than 80% of the weighted average closing price for the relevant Shares calculated over the last 5 days in which sales in the relevant Shares were recorded before the date of issue was made, on the ASX. An issue under this Resolution would not be taken into consideration in calculating the 15% referred to in the immediately preceding paragraph.

If this Resolution is approved it will enable the Directors of the Company to issue up to 40,000,000 Shares within 3 months from the date of meeting.

At the date of this Notice the Directors have made no decision to issue the Shares however consider it appropriate they have the opportunity to issue Shares in this amount if circumstances arise warranting such issue. In the absence of such approval, the Directors would be limited to issuing shares representing less than 15% of Solbec's share capital in any 12 month period without approval.

As the Company is to continue its clinical trials of Coramsine®, the Company will need to raise capital to meet the costs of these trials and it is for this reason that this approval is sought. The proposed clinical trials are Phase II in Coramsine® and this in itself is an expensive exercise given the number of patients that need to be enrolled, the different number of hospitals and venues to be used and the time involved in the trials.

If an issue of Shares were to take place under this Resolution, no issue would be made to Directors or any associates or related entities thereto.

For the purpose of ASX Listing Rule 7.3.3 the following further information is provided:

• the Shares would not be issued for a price less than 80% of the weighted average $(a)$ ASX price for the relevant shares with that average calculated over the last 5 days on which sales in the Shares were recorded on ASX before the day on which the issue was made:
• the maximum number of Shares that would be issued under this Resolution is $(b)$ 40,000,000:
• no entity or person has been identified as an allottee of these Shares however if an $(c)$ issue were to be made, the allottees would be identified or selected on the basis of those considered by the Directors to be appropriate. As noted above the allottees would not include Directors of the Company, any associates or related parties thereto:
• $(d)$ the Shares would rank equally from the date of issue with all existing Shares in the Company;

Explanatory Memorandum

• funds raised from such an issue would be applied to further clinical trials of $(e)$ Coramsine® for cancers and in particular Phase II activity trials. It is proposed that the trials would in the first instance be commenced in Australia at a cost of between A\$4.5 and \$5.0 million with the actual cost depending upon final trial design and patient enrolment; and
• as noted above no decision has been made in relation to any allotment, and if an $(f)$ allotment were to be made pursuant to this Resolution it would be made within 3 months of the Meeting, and it may either be in one lump amount or made progressively within that 3 month period.

Recommendation

The Directors unanimously recommend Shareholders approve this Resolution 8.

2.6 Resolution 9 – Approval for Non-Executive Directors Fees in the Aggregate

The Constitution of the Company requires Shareholders to approve the maximum fees payable to Non-Executive Directors for acting in their capacity as Non-Executive Directors of the Company. This does not include salary or consultancy fees paid to directors when providing services to the Company other than in their capacity as Directors.

Due to a significant increase in the Company's activities and the need to ensure best possible persons to be directors, the Directors consider it appropriate to seek Shareholder approval to increase the aggregate to \$200,000 to be divided amongst the Directors as they consider fit. Currently the aggregate of Director's fees is \$100,000 which amount was set over 3 years ago. Since then the Company has moved forward with the need to expand its number of Directors and as at the date of this Notice there are 6 directors 2 of whom currently perform executive functions.

2.7 Resolution 10 - Adoption of Remuneration Report (Non-Binding)

In accordance with Section $250R(2)$ of the Corporations Act, the Company must put a resolution that the Director's Remuneration as set out in the Directors' Report be adopted, to the vote at the Annual General Meeting. The vote on Resolution 10 is advisory only and does not bind the Directors or the Company.

The Remuneration Report as set out in the Annual Report includes all of the information required by Section 300A of the Corporations Act, including:

• Board policy for determining, or in relation to, the nature and amount (or value as $(a)$ appropriate) of remuneration of directors, secretaries and senior managers of the Company; and
• $(b)$ the prescribed details in relation to the remuneration of each Director.

A reasonable opportunity will be provided for discussion of the Remuneration Report at the Annual General Meeting.

3. SCRUTINEER and QUESTIONS and COMMENTS BY SHAREHOLDERS

Explanatory Memorandum

AT THE MEETING

Scrutineer

A representative of Solbec's external auditor, Ernst & Young, will act as a scrutineer for any polls that may be required at the meeting.

Questions and Comments by Shareholders at the Meeting

In accordance with the Corporations Act 2001, a reasonable opportunity will be given to shareholders $-$ as a whole $-$ to ask questions or make comments on the management of the Company at the meeting.

Similarly, a reasonable opportunity will be given to shareholders $-$ as a whole $-$ to ask questions to Solbec's external auditor. Ernst & Young, questions relevant to:

• the conduct of the audit: $(a)$
• $(b)$ the preparation and contents of the audit report:
• the accounting policies adopted by Solbec in relation to the preparation of the financial $(c)$ statements; and
• the independence of the auditor in relation to the conduct of the audit. $(d)$

Shareholders may also submit written questions to Ernst $\&$ Young if the question is relevant to the contents of Ernst & Young's audit report or the conduct of its audit of Solbec's financial report for the year ended 30 June 2005.

Written question for Ernst & Young must be received no later than 5pm (WST) on Wednesday 15 November 2005. A list of those relevant questions will be made available to Shareholders attending the meeting. Ernst & Young will either answer questions at the meeting or table written answer to them at the meeting. If written answers are tabled at the meeting, they will be made available to shareholders as soon as practicable after the meeting.

Please send any written questions for Ernst & Young:

• by post to Solbec, PO Box 2142, Churchlands WA 6018; or $(a)$
• $(b)$ by facsimile to Solbec on facsimile number $(+618)$ 9446 8777.

Glossary

ASX means Australian Stock Exchange Limited (ACN 008 129 164).

Board means the board of Directors of the Company duly appointed in accordance with the Constitution of the Company.

Company means Solbec Pharmaceuticals Ltd (ACN 061 289 218).

Constitution means the constitution (formerly articles of association) of the Company.

Directors means directors of the Company.

Explanatory Statement means the explanatory statement in this Memorandum.

listed Options means Options which are quoted on ASX.

Listing Rules means the official listing rules of ASX.

Meeting means the meeting convened by the Notice.

Memorandum means this document, comprising of the Notice, the Explanatory Statement and the Proxy Form.

Notice means the notice of meeting accompanying this Memorandum.

Options means options to acquire shares in the company.

Optionholder means a person registered in the Company's register as the holder of an Option as at the Record Date.

Record Date means a date being no less than 7 days following the Meeting the subject of the Notice which date will be further advised by the Directors by announcement to ASX.

Remuneration Report means the Remuneration Report as set out on page 26 through to 29 of the 2005 Annual Report.

Share means an ordinary fully paid share in the capital of the Company.

Shareholder means a person registered in the Company's register as the holder of a Share.

WST means Western Australian standard time.

PROXY FORM

The Share Registrar SOLBEC PHARMACEUTICALS LTD	Facsimile: $(+61) 8 9446 8777$
PO Box 2142
Churchlands WA 6018
I/We (name of shareholder)
of (address)
being a member/members of Solbec Pharmaceuticals Ltd hereby appoint
$(name)$
of (address)
and/or failing that person (name)
$of (address)$
or failing that person then the Chairperson of the Meeting as my/our proxy to vote for me/us and on my/our
behalf at a General Meeting of the Company to be held at 8 th Floor, Australian Stock Exchange Building, 2
The Esplanade, Perth, Western Australia on 17 November 2005 at 10.30 am and at any adjournment of the meeting.
Should you so desire to direct the Proxy how to vote, you should place a cross in the appropriate box(es) below:

I/We direct my/our Proxy to vote in the following manner:

	For	Against	Abstain
RESOLUTION 1 Election of Dr Graeme Howie as a Director		1
RESOLUTION 2 Election of Michael Grant as a Director
RESOLUTION 3 Cancellation of Options
RESOLUTION 4 Approval to the Issue of Shares for Cancellation of Options
RESOLUTION 5 Cancellation of Options by Anthony Kiernan		1
RESOLUTION 6Cancellation of Options by Michael Grant
RESOLUTION 7 Cancellation of Options by Stephen Carter		$\mathbf{r}$
RESOLUTION 8 Authority to Issue Shares
RESOLUTION 9Approval for Non-Executive Director's Fees in the Aggregate
RESOLUTION 10 Adoption of Remuneration Report

If no directions are given my proxy may vote as the proxy thinks fit or may abstain.

If you do not wish to direct how your proxy is to vote, please place a mark in the box. By

marking this box, you acknowledge that the Chairperson may exercise your proxy even if he has an interest in the outcome of the resolution. Votes cast by him other than as proxy holder will be disregarded because of that interest.

The Chairman intends to vote in favour of all Resolutions except for Resolution 5.

This Proxy is appointed to represent or if two proxies are appointed Proxy No. 1 represents	% of my voting rights, % and Proxy No. 2 represents	% of $m\gamma$
total votes.
My total voting rights are	shares.

If the shareholder is an individual:

Continued over page...

$Signature:$ ____________________________________

Name:

If the shareholder is a company: Affix common seal (if required by Constitution)

Director/Sole Director and Secretary

Director/Secretary

NOTES:

• A shareholder of the Company entitled to attend and vote is entitled to appoint not more than two proxies. Where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the shareholder's voting rights. If the shareholder appoints two proxies and the appointment does not specify this proportion, each proxy may exercise half of the votes. A proxy need not be a shareholder of the Company.
• Where a voting exclusion applies, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the directions on the proxy form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

• For the purposes of Regulation 7.11.37 of the Corporations Regulations, the Directors have set a snapshot date to determine the identity of those entitled to attend and vote at the meeting. The snapshot date is 10.30 am (WST), 15 November 2005.

• To be effective, the proxy form (and any power of attorney) must be lodged at the registered office of the Company not less than 48 hours before the time of holding the meeting. The proxy may be lodged by facsimile transmission to the facsimile number at the Company's principal place of business, being $(+618)$ 9446 8777.

• A copy of the power of attorney must be lodged for any proxy appointed under a power of attorney, together with evidence of non-revocation of the power of attorney.
• A proxy for a corporation must be appointed under the common seal of the corporation or signed in accordance with the requirements of Section 127 of the Corporations Act.
• A proxy form is enclosed. If required it should be completed, signed and returned to the Company's principle place of business in accordance with the Instructions to Shareholders at the beginning of this Notice..