MEMPHASYS LIMITED. — Capital/Financing Update 2007

May 9, 2007

6. CONDITIONS OF ISSUE OF OPTIONS

Defined Meanings $\mathbf{1}$ .

Words used in these conditions and the rules of interpretation that apply are set out and explained in Section 9 of this Prospectus.

$\overline{2}$ . Issue of Options

The Directors on behalf of the Company may issue Options pursuant to this Prospectus subject to these conditions and to the provisions of the Constitution and the Corporations Act. The Directors may, subject to the provisions of the Constitution and the Corporations Act, from time to time, issue further options, including Directors, Employees and Consultants Options on terms and conditions of issue as they shall think fit.

Entitlement on Issue of Options $\overline{\mathbf{3}}$ .

Subject to the conditions set out below each Eligible Shareholder will be allotted 1 Option for every 4 Shares subscribed for pursuant to the offer of Shares set out in clause $2.1(a)$ of Section 2 of this Prospectus.

Terms of the Options $\overline{4}$ .

The Options issued under this Prospectus have the following general terms:

limi	Doank
Exercise Price	\$0.50 per Option
Option Expiry Date	31 st March 2008
Exercise Dates	Any time up to and including the Option Expiry Date of 31 st March 2008.
Publicly Tradable	NuSep intends to apply to the ASX for these Options to be listed as part of the listing process.
Exercise Ratio	1 Option converts into 1 fully paid Share

$\overline{5}$ . Exercise of Options

• 5.1 The Option Holder of an Option may at any time and from time to time during the Exercise Period give an Exercise Notice to the Company requiring the Company to issue fully paid Shares on exercise of one or more of the Options.
• 5.2 An Exercise Notice must be in writing, in the form attached to this Prospectus and must be delivered to the Company at Frenchs Forest together with the payment of \$0.50 per Option to be exercised.

• 5.3 An Exercise Notice does not have effect until the Company has received and cleared a cheque for the full amount of the Exercise Price for all of the Options exercised.

• 5.4 The Company must within 10 Business days after it receives and clears a cheque in payment of the Exercise Price, allot and issue to the Option Holder the number of resulting Shares.

• 5.5 The Company must send or cause to be sent to the Option Holder a holding statement in respect of the Options held, any Shares issued on exercise of an Option and any unexercised Options after the Holder has exercised an Option within the time and in accordance with the time prescribed by the ASX Listing Rules after the first holding statement or other statement is sent.
• 5.6 If required by the ASX Listing Rules, the Company must tell the Option Holder in writing of the Exercise Price and Option Expiry Date of the Options within the time prescribed by the ASX Listing Rules after the first holding statement or other statement is sent.
• 5.7 Shares allotted upon exercise of Options will rank equally in all respects with other issued Shares from the date of allotment and will be held subject to the Constitution.
• 5.8 Any Option which has not been exercised by 5,00pm on the expiry date of 31^st March 2008 lapses. Any Exercise Notice received after this date will be rejected.
• 5.9 The rights of an Option Holder may and will be changed to the extent necessary to comply with the ASX Listing Rules that apply to the reorganisation of capital at the time of any reorganisation.

6. Ouotation of Shares

The Company will make application to ASX for admission to the official list of any Shares issued as the result of the exercise of any Option within 10 Business Days of the allotment of those Shares.

$7.$ New and Pro-Rata Issues

• $7.1$ (a) Option Holders cannot participate in a new rights issue of securities in the Company without first exercising the relevant Options. However, the Company will send a notice to each Option Holder at least 9 Business Days before the record date applicable to that new This will give Option Holders the opportunity to rights issue. exercise their Options prior to the date for the determination of entitlements to participate in that new rights issue.
• Option Holders who exercise their Options before the applicable (b) record date for the new issue will be entitled to participate in that new rights issue.
• Except as expressly set out in these conditions, an Option Holder $\left( \mathbf{c} \right)$ does not have any right to change the Exercise Price of an Option or the number of Shares over which an Option can be exercised.
• 7.2 If the Company offers Shares by way of a Pro-rata Issue (except a bonus Issue) to the holders of Shares (whether renounceable or not), then either the Exercise Price of an Option will be reduced in accordance with the

formula set out in ASX Listing Rule 6.22.2 or, if the Options are not quoted on the official list of the ASX and were issued with the approval of the holders of the ordinary Shares, then the Exercise Price or the number of Shares to be issued on exercise of the Option may be changed by an amount or number which in the opinion of the Directors provides a fair adjustment for the Pro rata Issue and as set out in ASX Listing Rule 6.22.2A.

• 7.3 If there is a bonus Issue to the holders of Shares in the Company then the number of Shares over which each Option is exercisable will be increased by the number of Shares which the Option Holder would have received under the bonus Issue if the Option had been exercised before the record date for the bonus Issue
• 7.4 In the event of any reorganisation including subdivision, consolidation, reduction, return or cancellation of the issued capital of the Company on or prior to the Option Expiry Date, the rights of an Option Holder will be changed to the extent necessary to comply with the applicable ASX Listing Rules governing reorganisations in force at the time of the reorganisation.

Maintenance of Register and Transfers of Options 8.

• 8.1 The Company will keep and maintain, or cause to be kept and maintained, a register of holders of Options. The Company must ensure that the register is managed and maintained so as to comply with the Corporations Act and the ASX Listing Rules.
• 8.2 Subject to the Constitution, ASX Listing Rules and SCH Business Rules, all Options are transferable. The provisions of the Constitution relating to a transfer of Shares apply, with necessary alterations, to a transfer of Options.
• 8.3 The Company must tell new Option Holders in writing of the Exercise Price and the Option Expiry Date. This information must be included in the holding statement or other statement in respect of the Options sent to Option Holders.
• Except as required by law, the Company will not recognise a person $8.4$ (a) as holding an Option on any trust.
• Whether or not it has notice of the rights or interests concerned, the (b) Company is not bound to recognise:
  • any equitable, contingent, future or partial claim to, or interest $(i)$ in, any Option; or
  • (ii) any other right in respect of the Option,

except an absolute right of ownership of the Option Holder or as otherwise provided by these conditions or by law.

General Provisions $9₁$

9.1 Severance

If a provision of these conditions or its application to any person or $(a)$ circumstance is or becomes invalid, illegal or unenforceable then the provision must, as far as possible, be interpreted as narrowly as possible to ensure that it is not illegal, invalid or unenforceable.

(b) If any provision or part of it cannot be so interpreted, then the provision or its part is taken to be void and severable. The remaining provisions of these conditions are not affected or impaired in any way.

9.2 Option Holders bound by Constitution

An Option Holder is bound by these conditions and by the Constitution to the extent that the Constitution relates to or governs the Options.

9.3 Waiver and Variation

• Subject to the ASX Listing Rules, SCH Business Rules and the $(a)$ Constitution, the Directors may by resolution:
• waive strict compliance with any of these conditions; or $(i)$
• $(ii)$ add to, vary or otherwise change any of these conditions for any reason including to ensure compliance with the ASX Listing Rules either generally in relation to all Option Holders or as they apply to a particular Option Holder.
• $(b)$ Any waiver, addition, variation or other change under clause $9.3(a)$ must not be made unless:
• $(i)$ any Option Holder affected by the waiver, addition, variation or other change so consents in writing; or
• $(ii)$ the Directors reasonably consider that the waiver, addition, variation or other change is required to ensure compliance with the ASX Listing Rules or any law or requirement binding on the Company or does not adversely affect an Option Holder's rights under these conditions.

9.4 Notice of Expiry

The Company must send an Option Holder before the Option Expiry Date of the Options any notice required by Appendix 6A.6 of the ASX Listing Rules to be sent to Option Holders.

9.5 Dividends and voting

An Option does not confer on its Option Holder:

• any entitlement to any dividends or other distributions by the $(a)$ Company: or
• any right to attend or vote at any general meeting of the Company. $(b)$

9.6 Governing law

These conditions are to be construed according to and are governed by the laws of the State of New South Wales, Australia. Each of the Company and the Option Holder submits to the non-exclusive jurisdiction of the Courts in and of the State of New South Wales in relation to any dispute arising under these conditions.

9.7 Foreign Exchange

Subject to the ASX Listing Rules, the Directors may in respect of Options offered, issued or granted to or held by an overseas person denominate the

Exercise Price in a currency other than Australian dollars. The Directors may make such arrangements as they see fit concerning any foreign currency gains or losses arising from such denomination of the Exercise Price in a currency other than Australian dollars including the retention of any foreign currency gains by the Company or the bearing of any foreign currency losses by the Company.