PYC THERAPEUTICS LIMITED — Proxy Solicitation & Information Statement 2011

Apr 7, 2011

Phylogica Limited ACN 098 391 961

Notice of General Meeting and Explanatory Statement

General Meeting to be held at

Seminar Room Telethon Institute for Child Health Research 100 Roberts Road Subiaco WA 6008

at 9:30 am WST, Tuesday, 10 May 2011

The Notice of General Meeting, Explanatory Statement and Proxy Form should be read in their entirety. If you are in doubt as to how you should vote, you should seek advice from your accountant, solicitor or other professional adviser prior to voting.

Notice of General Meetin g

Notice is hereby given that the fourth General Meeting of Phylogica Limited ACN 098 391 961 ( Phylogica or Company ) will be held at the Seminar Room, Telethon Institute for Child Health Research , 100 Roberts Road, Subiaco, Western Australia at 9:30 am WST on Tuesday, 10 May 2011 .

The Explanatory Statement, which accompanies and forms part of this Notice, describes the various matters to be considered.

Terms used in this Notice will, unless the context otherwise requires, have the same meaning given to them in the Glossary as set out in the Explanatory Statement.

Agenda

Resolution 1 – Ratification of Tranche 1 Placement

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

“That for the purposes of Listing Rule 7.4 and for all other purposes, the Shareholders hereby approve and ratify the allotment and issue of:

• (a) 28,000,000 Shares ( Tranche 1 Shares ) by way of placement to sophisticated and institutional investors at an issue price of $0.059 per Share to raise $1,652,000; and

• (b) 14,000,000 Options ( Tranche 1 Options ) (being one free attaching Option for every 2 Tranche 1 Shares subscribed for) exercisable at $0.09 on or before 30 June 2016, on the terms and conditions set out in Schedule 1 to the Explanatory Statement (each a Tranche 1 Option ),

( Tranche 1 Placement ) in the manner and on the terms and conditions described in the Explanatory Statement.”

Voting exclusion: In accordance with Listing Rule 14.11, the Company will disregard any votes cast on Resolution 1 by those persons who were issued Securities pursuant to the Tranche 1 Placement and by an Associate of those persons. However, the Company need not disregard a vote if it is cast by a person as 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.

Resolution 2 – Approval of Tranche 2 Placement

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

"That, for the purposes Listing Rule 7.1 and for all other purposes, the Shareholders hereby approve the issue of up to:

• (a) 60,135,594 Shares ( Tranche 2 Shares ) by way of placement to sophisticated and institutional investors at an issue price of $0.059 per Share to raise $3,548,000.05; and

• (b) 30,067,797 Options ( Tranche 2 Options ) (being one free attaching Option for every 2 Tranche 2 Shares subscribed for) exercisable at $0.09 on or before 30 June 2016, on the terms and conditions set out in Schedule 1 to the Explanatory Statement (each a Tranche 2 Option ),

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( Tranche 2 Placement ) in the manner and on the terms and conditions described in the Explanatory Statement.”

Voting exclusion: In accordance with Listing Rule 14.11, the Company will disregard any votes cast on Resolution 2 by those persons who are entitled to participate in the Tranche 2 Placement or who might obtain a benefit if the Resolution is passed, except a benefit solely in the capacity of a Shareholder if the Resolution is passed, and any Associate of such a person. However, the Company need not disregard a vote if it is cast by a person as 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.

Resolution 3 – Approval for Dr Paul Watt and Nicholas Woolf to participate in the Tranche 2 Placement

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

“That, subject to the passing of Resolution 2 and for the purposes Listing Rule 10.11 and section 208 of the Corporations Act, and for all other purposes, the Shareholders hereby approve the issue and allotment of Securities to Dr Paul Watt and Nicholas Woolf, Directors of the Company, under the Tranche 2 Placement, being a related party transaction pursuant to section 208 of the Corporations Act, in the manner and on the terms and conditions described in the Explanatory Statement.”

Voting exclusion: In accordance with Listing Rule 14.11, the Company will disregard any votes cast on Resolution 3 by Dr Watt and Mr Woolf and any Associate of Dr Watt and Mr Woolf. However, the Company need not disregard a vote if it is cast by a person as 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.

By order of the Board

==> picture [172 x 85] intentionally omitted <==

Graeme Boden

Company Secretary

7 April 2011

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Proxy, Voting and Meeting Instructions

Lodgement of a Proxy Form

The Proxy Form (and any power of attorney or other authority, if any, under which it is signed) must be received at an address given below by 9:30 am WST, Sunday, 8 May 2011 being not later than 48 hours before the commencement of the Meeting. Any Proxy Form received after that time will not be valid for the scheduled General Meeting.

Proxy Forms may be lodged:

In person: Suite 3, 257 York Street, Subiaco, WA 6008 By mail: Company Secretary, Phylogica Limited, PO Box 8207, Subiaco East, WA 6008 By fax: (08) 9382 1766 or (08) 9284 3801 (within Australia)

+61 8 9382 1766 or +61 8 9284 3801 (outside Australia)

By email: n.forde@snacapital.com.au

Appointment of a proxy

A member of the Company entitled to attend and vote at the Meeting is entitled to appoint a proxy. The proxy may, but need not be, a Shareholder of the Company.

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box. If the person you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the name of that person. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a Shareholder of the Company.

You are entitled to appoint up to two persons as proxies to attend the Meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the Company on +61 8 9382 8888 or you may photocopy the Proxy Form.

To appoint a second proxy you must on each Proxy Form state (in the appropriate box) the percentage of your voting rights which are the subject of the relevant proxy. If both Proxy Forms do not specify that percentage, each proxy may exercise half your votes. Fractions of votes will be disregarded.

Corporate Shareholders

Corporate Shareholders should comply with the execution requirements set out on the proxy form or otherwise with the provisions of section 127 of the Corporations Act. Section 127 of the Corporations Act provides that a company may execute a document without using its common seal if the document is signed by:

• two directors of the company;

• a director and a company secretary of the company; or

• for a proprietary company that has a sole director who is also the sole company secretary – that director.

Votes on Resolution

You may direct your proxy how to vote by placing a mark in one of the boxes opposite the Resolutions. All your shareholding will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on the Resolutions by inserting the percentage or number of Shares you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on the Resolutions, your proxy may vote as he or she chooses. If you mark more than one box on a Resolution your vote on the Resolutions will be invalid.

Voting entitlement (snapshot date)

For the purposes of determining voting and attendance entitlements at the General Meeting, Shares will be taken to be held by the persons who are registered as holding the Shares at 9:30 am WST, Sunday , 8 May 2011 . Accordingly, transactions registered after that time will be disregarded in determining entitlements to attend and vote at the meeting.

Corporate representatives

A corporation may elect to appoint an individual to act as its representative in accordance with section 250D of the Corporations Act, in which case the Company will require a certificate of appointment of the corporate representative executed in accordance with the Corporations Act. The certificate of appointment must be lodged with the Company and/or the Company’s share registry before the General Meeting or at the registration desk on the day of the General Meeting.

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Ex lanator Statement p y

1. Introduction

This Explanatory Statement has been prepared for the information of Shareholders in relation to the business to be conducted at the Company’s General Meeting.

The purpose of this Explanatory Statement is to provide Shareholders with all information known to the Company which is material to a decision on how to vote on the Resolutions in the accompanying Notice of General Meeting.

This Explanatory Statement should be read in conjunction with the Notice of General Meeting. Capitalised terms in this Explanatory Statement are defined in the Glossary.

2.

Capital raising

On 25 March 2011, the Company announced a $5.2 million capital raising ( Capital Raising ).

A copy of the Company’s announcement accompanies this Explanatory Statement.

The Capital Raising comprises:

• (a) Tranche 1 Placement: 28,000,000 Shares have been issued by way of placement to institutional and sophisticated investors in Australia and the United States at a price of $0.059 per Share to raise $1,652,000. The Company has also issued 14,000,000 free attaching Options to these investors on the basis of one Option granted for every 2 Shares issued.

• (b) Tranche 2 Placement: Subject to Shareholder approval, the Company has arranged the placement of a further 60,135,594 Shares and 30,067,797 Options by way of placement to institutional and sophisticated investors in Australia and the United States at an issue price of $0.059 per Share to raise $3,548,000.05, with one free attaching Option granted for every 2 Shares issued.

The Capital Raising has been arranged by RBS Morgans Limited in Australia and Caris & Company in the United States.

The Options to be granted under the Tranche 1 and Tranche 2 Placements will be exercisable at $0.09 on or before 30 June 2016, and will be granted on the terms set out in Schedule 1.

Phylogica’s strategy of collaborative drug discovery utilising its Phylomer® peptide libraries aims to drive revenue growth and to build long-term value. The Company has signed three partnerships to-date with Roche, AstraZeneca and Pfizer respectively, generating revenue of $2.5 million in the last 12 months. Phylogica anticipates at least three new alliances in 2011 and is well positioned to achieve its goal of cash sustainability in FY 2012. The new funds raised through the Placements will be used to enhance the Company’s drug discovery platform, including the purchase of new capital equipment, and to support operational activities.

The funds raised will also strengthen the Company’s balance sheet.

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3. Purpose of General Meeting

The purpose of the General Meeting is to enable Shareholders to:

• (a) ratify the issue of the Tranche 1 Shares and Tranche 1 Options that have already been issued (Resolution 1);

• (b) approve the issue of the Tranche 2 Shares and Tranche 2 Options (Resolution 2); and

• (c) approve the issue of Shares and Options to Dr Paul Watt and Mr Nicholas Woolf, Directors of the Company, under the Tranche 2 Placement (Resolution 3).

4. Effect of Capital Raising on Phylogica’s capital structure

The table below illustrates the effect of the Capital Raising on the Company’s share capital structure assuming maximum subscription pursuant to the Tranche 1 and 2 Placements:

Securities currently on issue	Securities issued under the Tranche 1 Placement	Securities issued under the Tranche 2 Placement	Securities on issue upon completion of Capital Raising*
283,561,752 Shares 70,984,017 Options	28,000,000 Shares 14,000,000 Options	60,135,594 Shares 30,067,797 Options	371,697,346 Shares 115,051,814 Options

• Assuming none of the Options issued pursuant to the Capital Raising are exercised.

With the share capital of the Company increasing by 88,135,594 Shares through the Capital Raising process, the total diluting effect on the shareholdings of existing Shareholders is 31.08%.

Convertible Notes of $1,340,000 are redeemable by the Company at 125% of face value or convertible by the holders at $0.05 per Share, or, absent either of these events, convert at $0.04 per Share on 30 April 2011. The potential conversion to Shares is not included in the numbers above.

5. Resolution 1 – Ratification of Tranche 1 Shares and Tranche 1 Options

Ratification of the issue of the Tranche 1 Shares and Tranche 1 Options pursuant to the Tranche 1 Placement is now being sought.

The effect of Shareholders passing Resolution 1 will be to “refresh” the number of Securities which the Company can issue within any 12 month period in accordance with Listing Rule 7.1. This will allow the Company to raise further working capital of up to a maximum of 15% of the Company’s total issued Shares, without the need to obtain members’ approval prior to the Capital Raising.

Listing Rules information requirements

Listing Rule 7.1 provides that prior approval of shareholders is required for an issue of securities if the securities will, when aggregated with the securities issued by a company during the previous 12 months, exceed 15% of the number of securities on issue at the commencement of that 12 month period.

Listing Rule 7.4 states that an issue by a company of securities made without approval under Listing Rule 7.1 is treated as having been made with approval for the purpose of Listing Rule 7.1 if the issue did not breach Listing Rule 7.1 and the company’s members subsequently approve it.

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Under Resolution 1, the Company seeks Shareholder approval for, and ratification of, the issue of the Tranche 1 Shares and Tranche 1 Options as set out below so as to restore the Company’s capacity under Listing Rule 7.1 to issue further Securities representing up to 15% of the Company’s issued capital in the next 12 months.

For the purposes of the information requirements of Listing Rule 7.5, the following matters are noted:

• (a) the Company issued 28,000,000 Tranche 1 Shares and 14,000,000 free attaching Tranche 1 Options on 30 March 2011;

• (b) the Tranche 1 Shares will be issued at an issue price of $0.125 per Share; the Tranche 1 Options were issued for nil cash consideration;

• (c) all Tranche 1 Shares issued rank equally with all other Shares on issue;

• (d) the full terms of the Tranche 1 Options are set out in Schedule 1 to this Explanatory Statement;

• (e) the Tranche 1 Shares and Tranche 1 Options were issued to Investors as arranged by RBS Morgans Limited and Caris & Company ( Lead Managers ), including Ascent Biomedical Holdings LP;

• (f) none of the persons to whom Tranche 1 Shares or Tranche 1 Options have been granted is a Director or an Associate of a Director;

• (g) funds raised on the exercise of the Tranche 1 Options (if exercised) will be applied to general working capital purposes; and

• (h) the placement of the Tranche 1 Shares raised a total of $1,652,000 in capital before costs and expenses of the Tranche 1 Placement, and it is proposed that the funds raised by the Tranche 1 Placement will be used to provide working capital for the purchase of new capital equipment and product development.

Directors’ recommendation

The Directors unanimously recommend that Shareholders vote in favour of Resolution 1 in order to provide the Company with the flexibility to raise additional funds in the future as and when required.

6. Resolution 2 – Approval of Tranche 2 Placement

Subject to Shareholder approval the Company is proposing to make a further placement to Investors of 60,135,594 Shares at an issue price of $0.059 per Share ( Tranche 2 Shares ), with one free attaching Option for every two Shares issued, exercisable at $0.09 on or before 30 June 2016 ( Tranche 2 Options ) ( Tranche 2 Placement ).

Listing Rules information requirements

Listing Rule 7.1 provides that a listed company may not issue equity securities in any 12 month period which exceeds 15% of the number of issued securities of the company held at the beginning of the 12 month period, except with the prior approval of shareholders of the company in general meeting unless another exception to Listing Rule 7.1 applies.

Resolution 2 requires Shareholder approval pursuant to Listing Rule 7.1.

The effect of Resolution 2, if passed, will be that the Tranche 2 Options granted will be exempt from the 15% limit under Listing Rule 7.1. This will allow the Company to

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grant the Tranche 2 Options and provide flexibility during the next 12 month period to issue further equity Securities in order to raise further capital, if required.

For the purposes of the information requirements of Listing Rule 7.3, the following matters are noted:

• (a) the maximum number of Tranche 2 Shares the Company proposes to issue is 60,135,594, raising $3,548,000.05 before costs and expenses of the Tranche 2 Placement;

• (b) it is proposed that one free attaching Tranche 2 Option exercisable at $0.09 on or before 30 June 2016 will be granted for every two Tranche 2 Shares issued;

• (c) the maximum number of Tranche 2 Options the Company proposes to grant is 30,067,797; no funds will be raised on the issue of the Tranche 2 Options, however a total of $2,553,559.38 will be raised if all Tranche 2 Options are exercised at $0.09 each;

• (d) the Tranche 2 Securities will be issued on a date that is no later than 3 months after the date of the General Meeting;

• (e) the Tranche 2 Securities will be issued to Investors as determined and arranged by the Lead Managers, including Ascent Biomedical Holdings LP;

• (f) the Tranche 2 Shares will be issued as fully paid ordinary Shares, ranking equally with the Company’s existing Shares;

• (g) the Tranche 2 Options will be granted on the terms set out in Schedule 1 to this Explanatory Statement;

• (h) the Company will apply for the Tranche 2 Shares and the Tranche 2 Options to be quoted on ASX; and

• (i) it is proposed that the funds raised from the Tranche 2 Placement will be used to enhance the Company’s drug discovery platform, including the purchase of new capital equipment, and to support operational activities.

Directors’ recommendation

The passing of Resolution 2 will:

• (a) enable the Company to raise additional funds from the substantial new Shareholders who have committed to participate in the Tranche 2 Placement;

• (b) provide the Company with additional working capital which is, in the Directors’ view, prudent given that the current market is experiencing significant volatility and fluctuation;

• (c) strengthen the Company’s balance sheet and provide the Company with additional working capital to enhance the Company’s drug discovery platform, including the purchase of new capital equipment, and to support operational activities; and

• (d) provide flexibility for the Company to raise additional funds in the future as and when required.

For these reasons, the Directors unanimously recommend that Shareholders vote in favour of Resolution 2.

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7. Resolution 3 – Approval for Directors to participate in Tranche 2 Placement

The Company is seeking Shareholder approval for Dr Paul Watt and Mr Nicholas Woolf, Directors of the Company, to participate in the Tranche 2 Placement.

Dr Watt and Mr Woolf have indicated a desire to participate in the Tranche 2 Placement.

Directors are related parties of the Company by virtue of them being a Director, and as such, section 208 and associated provisions regulating related party transactions apply in respect of this transaction.

As such the approval of Shareholders is sought to approve the participation of Dr Watt and Mr Woolf in the Tranche 2 Placement.

Additionally, Listing Rule 10.11 requires shareholder approval to be obtained where an entity issues, or agrees to issue, securities to a related party, or a person whose relationship with the entity or a related party is, in the opinion of ASX, such that approval should be obtained. It is the view of the Directors that the exceptions set out in Listing Rule 10.12 do not apply in the current circumstances for the reasons set out below.

Accordingly, Shareholder approval is sought for the purposes of Listing Rule 10.11 and section 208 of the Corporations Act for Dr Watt and Mr Woolf to subscribe for Securities under the Tranche 2 Placement.

Corporations Act – related party transaction

For a public company, or an entity that the public company controls, to give a financial benefit to a related party of the public company, the public company or entity must:

• (a) obtain the approval of the public company’s members in the manner set out in sections 217 to 227 of the Corporations Act; and

• (b) give the benefit within 15 months following such approval,

unless the giving of the financial benefit falls within an exception set out in sections 210 to 216 of the Corporations Act.

The Directors are related parties of the Company by virtue of being Directors of the Company by application of section 228 of the Corporations Act.

The issue of Securities under the Tranche 2 Placement to Dr Watt and Mr Woolf therefore constitutes the giving of a financial benefit to a related party pursuant to the Corporations Act.

Corporations Act and Listing Rule requirements

In accordance with the requirements of Chapter 2E of the Corporations Act, and in particular with section 219 of the Corporations Act, and Listing Rule 10.13, the following information is provided in relation to Resolution 3:

• (a) Dr Watt and Mr Woolf are the only Directors who will participate in the issue of Tranche 2 Securities, subject to the passing of this Resolution 3;

• (b) the maximum number of Securities that may be issued to Dr Watt is 338,932 Shares and 169,466 free attaching Options;

• (c) the maximum number of Securities that may be issued to Mr Woolf is 847,456 Shares and 423,728 free attaching Options;

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• (d) the relevant interests of Dr Watt and Mr Woolf in Securities as at the date of this Notice, and the maximum number of Securities that may be held by Dr Watt and Mr Woolf upon completion of the Tranche 2 Placement is as follows:

Director	Securities held pre- Tranche 2 Placement	Maximum Securities issued under Tranche 2 Placement	Maximum Securities held post Tranche 2 Placement
Paul Watt	5,954,798 Shares 3,987,767 Options 20,000 Convertible Notes	338,932 Shares 169,466 Options Nil Convertible Notes	6,293,730 Shares 4,157,233 Options Nil Convertible Notes*
Nicholas Woolf	1,124,500 Shares 1,400,000 Options	847,456 Shares 423,728 Options	1,971,956 Shares 1,823,728 Options

• Convertible Notes will either be redeemed or converted on 30 April 2011 (See section 4 above).

• (e) the relevant remuneration details of Dr Watt and Mr Woolf for FY09/10 and FY10/11 (comprising salary, fees and superannuation) is set out below:

Director	FY09/10	FY10/11**
Paul Watt	$239,800	$267,050
Nicholas Woolf*	$5,147	$110,702

• Mr Woolf was appointed a Director on 22 April 2010.

• ** These figures comprise the total amounts paid to Dr Watt and Mr Woolf during this FY up until 28 March 2011.

• (f) Dr Watt currently holds 987,767 Options which are listed on ASX and 3,000,000 unlisted Options issued for nil consideration under the Employee Share Option Plan;

• (g) Mr Woolf currently holds 1,400,000 unlisted Options, issued for nil consideration under an employee share option plan;

• (h) the free attaching Options issued pursuant to the Tranche 2 Placement will be granted to Dr Watt and Mr Woolf for nil consideration; accordingly no funds will be raised;

• (i) the free attaching Options to be granted to Dr Watt and Mr Woolf will be granted on the terms set out in Schedule 1 of this Explanatory Statement;

• (j) the fair value of the free attaching Options to be granted to Dr Watt and Mr Woolf has been calculated as being $30,134 (with a net value of $0.0508 per Option) as at 28 March 2011, using the Black & Scholes option valuation methodology, based on the following assumptions and parameters:

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Assumptions
Market price of Shares	$0.068
Exercise price	$0.09
Risk free interest rate	5.18%
Annualised time to expiry	5.25 years
Volatility of asset	100%

Notes: (1) Assumes no early exercise of Options.

• (2) Assumes no dividends paid prior to maturity date.

• (3) Assumes future volatility of 100% a reasonably practicable estimate.

• (k) assuming the maximum amount of free attaching Options to be granted to Dr Watt and Mr Woolf are exercised, a total of 593,194 Shares would be issued and allotted; this would increase the number of Shares on issue after completion of the Capital Raising from 371,697,346 Shares to 372,290,540 Shares (assuming none of the other Options offered under the Capital Raising have been exercised); this issue would effectively dilute the shareholdings of existing Shareholders by approximately 0.77%;

• (l) the Directors, other than Dr Watt and Mr Woolf, have determined the value of the 1,186,388 Shares that may be issued to Dr Watt and Mr Woolf under the Tranche 2 Placement to be $80,674.40 based on the closing price of the Company’s Shares on ASX on 28 March 2011;

• (m) the Securities will be issued to Dr Watt and Mr Woolf no later than 1 month after the date of the General Meeting (or such later date as permitted by ASX waiver or modification of the Listing Rules) and it is anticipated the Securities will be allotted on one date;

• (n) the Shares will be issued for consideration of $0.059 per Share, with one free attaching Option for every 2 Shares issued; accordingly a maximum of $69,996.89 will be raised from the issue of up to 1,186,388 Shares to Dr Watt and Mr Woolf, which will be dealt with in the same manner as other funds raised under the Tranche 1 and 2 Placements as outlined in section 2 of this Explanatory Memorandum;

• (o) the Shares the subject of Resolution 3 are fully paid ordinary Shares and will rank equally with existing Shares, and will be quoted by ASX;

• (p) the primary purpose of enabling Dr Watt and Mr Woolf to participate in the issue of Securities under the Tranche 2 Placement is to provide key executives of the Company with the opportunity to increase their respective investments in the Company which will provide further incentive to work towards the stated objectives of the Company;

• (q) other than as disclosed in this Explanatory Statement, the Directors do not consider that from an economic and commercial perspective, there are any costs or detriments of any significance (including opportunity or taxation costs) for the Company or benefits foregone by the Company in issuing Securities to Dr Watt and Mr Woolf under the Tranche 2 Placement on the terms set out in this Explanatory Statement; and

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(r) the most recent available data concerning the price of the Company’s Shares traded on ASX over the last 12 months is as follows:

	High	Low	Last
Price	$0.10	$0.044	$0.068
Date	7-8 April 2010	19-20 October 2010	28 March 2011

Directors’ recommendation

The Directors, other than Dr Watt and Mr Woolf who have a material personal interest in the outcome of this Resolution, unanimously recommend that Shareholders vote in favour of this Resolution 3 so as to provide key executives of the Company with the opportunity to increase their respective investments in the Company which will provide further incentive to work towards the stated objectives of the Company.

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Glossar y

In this Explanatory Statement, the following terms have the following meaning unless the context otherwise requires:

$	Australian dollars.
ASIC	The Australian Securities and Investment Commission.
Associate	Has the meaning given to it by Division 2 of Part 1 of the
	Corporations Act 2001(Cth).
ASX	The Australian Securities Exchange.
Board	The Board of Directors of the Company.
Capital Raising	The Tranche 1 and 2 Placements, to raise up to $5.2 million.
Companyor	Phylogica Limited ACN 098 391 961.
Phylogica
Company Secretary	The company secretary of the Company at the time of the
	General Meeting, Mr Graeme Boden.
Convertible Note	The convertible notes issued by the Company which may be
	converted to Shares at the election of the holder.
Corporations Act	_Corporations Act_2001 (Cth).
Director	A Director of the Company.
Explanatory Statement	This document, which accompanies and forms part of the Notice
	of Meeting.
FY	Financial Year.
General Meetingor	General Meeting of Shareholders of the Company or any meeting
Meeting	adjourned thereof, convened by the Notice.
Glossary	This glossary of terms.
Investors	The sophisticated and institutional investors that have participated
	in the Tranche 1 Placement, or who will participate in the Tranche
	2 Placement, as arranged by the Lead Managers.
Lead Managers	RBS Morgans Limited in Australia and Caris & Company in the
	United States who are managing the Tranche 1 Placement and
	the Tranche 2 Placement.
Listing Rules	The Listing Rules published by the ASX.
Meeting	The General Meeting that is the subject of this Notice of Meeting.
Member	A person entered in the register as a member of the Company.
NoticeorNotice of	The notice of General Meeting which accompanies this
Meeting	Explanatory Statement.
Option	An option to subscribe for a Share.
Placements	Both the Tranche 1 Placement and the Tranche 2 Placement.
Proxy Form	The proxy form accompanying this Notice of Meeting.
Resolution	A resolution set out in the Notice.
Schedule 1	Schedule 1 to this Explanatory Statement.
Securities	A Share or an Option.
Share	Fully paid ordinary share in the capital of the Company.
Shareholder	A holder of Shares.

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Tranche 1 Options The proposed placement of one free attaching Option granted for every two Tranche 1 Shares subscribed for under the Tranche 1 Placement as set out in the Explanatory Statement. Tranche 1 Placement The placement of 28,000,000 Tranche 1 Shares at an issue price of $0.059, each with one free attaching Tranche 1 Option for every two Tranche 1 Shares subscribed for under the placement as set out in the Explanatory Statement. Tranche 1 Shares The placement of 28,000,000 Shares pursuant to the Tranche 1 Placement on the terms set out in the Explanatory Statement. Tranche 2 Options The proposed placement of one free attaching Option granted for every two Tranche 2 Shares subscribed for under the Tranche 2 Placement as set out in the Explanatory Statement.

Tranche 2 Placement The placement of 60,135,594 Tranche 2 Shares at an issue price of $0.059, each with one free attaching Tranche 2 Option for every two Tranche 2 Shares subscribed for under the placement as set out in the Explanatory Statement. Tranche 2 Securities The Tranche 2 Shares and the Tranche 2 Options. Tranche 2 Shares The placement of 60,135,594 Shares pursuant to the Tranche 2 Placement as set out in the Explanatory Statement. WST Western Standard Time, being the time in Perth, Western Australia.

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Schedule 1

Terms and conditions of Options

All Options issued pursuant to Resolutions 1, 2 and 3 will be issued on the following terms and conditions:

1. Each option ( Option ) entitles the holder to subscribe for one (1) fully paid ordinary share ( Share ) in Phylogica Limited ( Company ) at an exercise price of $0.09 each.

2. The Options shall expire on or before 30 June 2016. Any Option not exercised by the expiry date will automatically expire.

3. The Company must give the optionholder a certificate or holding statement stating the:

4. (a) number of Options issued to the optionholder;

5. (b) exercise price of the Options; and

6. (c) date of issue of the Options.

7. The Options are transferable. Subject to the ASX Listing Rules and the Corporations Act 2001 (Cth) ( Corporations Act ), the optionholder may transfer some or all of the Options at any time before they expire by a:

8. (a) proper ASTC transfer or any other method permitted by the Corporations Act; or

9. (b) prescribed instrument of transfer.

10. An instrument of transfer of an Option must be: in writing; in any usual form or in any other form approved by the directors that is otherwise permitted by law; subject to the Corporations Act, executed by or on behalf of the transferor, and if required by the Company, the transferee; and delivered to the Company, at the place where the Company’s register of optionholder is kept, together with the certificate (if any) of the Option to be transferred and any other evidence as the directors require to prove the title of the transferor to that Option, the right of the transferor to transfer that Option and the proper execution of the instrument of transfer.

12. The Company will apply to ASX for official quotation of the Options.

13. The Company will apply to ASX for quotation of the Shares issued on exercise of the Options.

14. The optionholder is not entitled to participate in any new issue to existing shareholders of securities in the Company unless they have exercised their Options before the “record date” for determining entitlements to the new issue of securities and participate as a result of holding shares. The Company must give the optionholder notice of the proposed terms of the issue or offer in accordance with the ASX Listing Rules.

15. If the Company makes a bonus issue of shares or other securities to shareholders (except an issue in lieu of dividends or by way of dividend reinvestment) and no Share has been issued in respect of the Option before the record date for determining entitlements to the issue, then the number of underlying shares over which the Option is exercisable is increased by the number of shares which the optionholder would have received if the optionholder had exercised the Option before the “record date’ for determining entitlements to the issue.

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1. If there is a reorganisation (including consolidation, sub-division, reduction or return) of the share capital of the Company, then the rights of the optionholder (including the number of Options to which the optionholder is entitled to and the exercise price) is changed to the extent necessary to comply with the ASX Listing Rules applying to a reorganisation of capital at the time of the reorganisation.

2. Any calculations or adjustments which are required to be made will be made by the Company’s board of directors and will, in the absence of manifest error, be final and conclusive and binding on the Company and the optionholder.

3. The Company must, within a reasonable period, give to the optionholder notice of any change to the exercise price of any Options held by the optionholder or the number of shares which the optionholder is entitled to subscribe for on exercise of an Option.

4. To exercise Options, the optionholder must give the Company or its share registry, at the same time:

5. (a) a written exercise notice (in the form approved by the board of the Company from time to time) specifying the number of Options being exercised and shares to be issued;

6. (b) payment of the exercise price for the shares, the subject of the exercise notice, by way of bank cheque or by other means of payment approved by the Company; and

7. (c) any certificate for the Options.

8. The optionholder may only exercise Options in multiples of 5,000 Options unless the optionholder exercises all Options held by the optionholder.

9. Options will be deemed to have been exercised on the date the exercise notice is lodged with the directors of the Company.

10. If the optionholder exercises less than the total number of Options registered in the optionholder’s name:

11. (a) the optionholder must surrender their Option certificate (if any); and

12. (b) the Company must cancel the Option certificate (if any) and issue the optionholder a new Option certificate or holding statement stating the remaining number of Options held by the optionholder.

13. Within ten (10) days after receiving an application for exercise of Options and payment by the optionholder of the exercise price, the Company must issue the optionholder the number of Shares specified in the application.

14. Subject to the Company’s constitution, all Shares issued on the exercise of Options will rank in all respects (including rights relating to dividends) equally with the existing ordinary Shares of the Company at the date of issue.

15. These terms and the rights and obligations of the optionholder are governed by the laws of Western Australia. The optionholder irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of Western Australia.

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PHYLOGICA LIMITED

ACN 098 391 961

PROXY FORM

I/We (name of Shareholder) …………………………………………………………………..................................

of (address) ……………………………………………………………………………………………………………..

being a member/members of Phylogica Limited HEREBY APPOINT:

(name)………………………………………………………………………………................................................... of (address) ...……………………………………………………………………….................................................. and/or failing him/her (name) …..…………….………………………………………............................................

of (address) ………………………………………………………………………………….………….......................

or failing that person then the Chairman of the General Meeting as my/our proxy to act generally for me/us and to vote in accordance with the following directions or, if no directions are given, as the proxy sees fit at the General Meeting of the Company to be held at 9:30 am WST, Tuesday, 10 May 2011 at the Seminar Room, Telethon Institute for Child Health Research, 100 Roberts Road, Subiaco WA and at any adjournment of the meeting.

Important: If the Chairman of the General Meeting is your nominated proxy, or may be appointed by default, and you have not directed your proxy how to vote on Resolutions 1 to 3 below, please place a mark in this box. By marking this box you acknowledge that the Chairman of the General Meeting may exercise your proxy in respect of a Resolution even if he has an interest in the outcome of that Resolution, and that the votes cast by him, other than as proxy holder, would be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the Meeting will not cast your votes and your votes will not be counted in computing the required majority if a poll is called on a Resolution. The Chairman of the Meeting intends to vote all undirected proxies in favour of all Resolutions.

Should you so desire to direct the proxy how to vote, you should place a cross in the appropriate boxes below:

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

For Against Abstain

Resolution 1 Ratification of Tranche 1 Placement Resolution 2 Approval of Tranche 2 Placement Approval for directors to participate in Tranche 2 Resolution 3 Placement

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

This Proxy is appointed to represent _____% of my voting right, or if two proxies are appointed Proxy 1 represents _____% and Proxy 2 represents _____% of my/our total votes. My/our total voting right is __________ shares.

By:

Individuals and joint holders Signature Signature Signature

Companies (affix common seal if appropriate) Director Director/Company Secretary Sole Director

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