disconnect, page-3

Wayne - It makes this year critical for PYC to achieve it's objectives & while that can be a seen as a positive sign "this is the year it will come together" that's also been the view for the last few years. To put it simply if management fails to follow through with guidance as has been seen repeatedly then these convertible notes will end up coming at a great cost.

- sophisticated investors are prepared to pay up to 5.3 cents per share in a market where sellers are prepared to sell for half that amount.

I'm not sure if that is so fitting, if they where prepared to pay that price they would of payed it - the convertible notes have so many clauses linked in that on their end it really is relatively risk free exposure with potential to reward greatly if they hit they hit the rainbow. The 5.3c will only really be seen if the company does in fact make it big this year that 5.3c will be incredibly cheap to market price they're not paying that now - if 2013 becomes a "missing year" much like 2011/2012 & the share price remains around the same levels without objectives maturing then the discount becomes signicant.


The Issue Price per share will be the lesser of:

· $0.053; and

· the price determined by applying the Specified Discount (see below) to the average of the daily volume weighted average price of shares over the 30 trading days preceding and not including the conversion date of the Converting Notes.

The Specified Discount will be:

· 40% if the Company has not entered into any binding research and development
collaborations on similar financial terms to the Company’s existing agreement with
Janssen Biotech;

· 35% if the Company has entered into one binding research and development
collaboration on similar financial terms to the Company’s existing agreement with
Janssen Biotech or any number of binding research and development collaborations,
which in aggregate provide the Company an equivalent financial outcome;

· 30% if the Company has either i) entered into two binding research and development
collaborations on similar financial terms to the Company’s existing agreement with
Janssen Biotech; or ii) entered into two or more binding research and development
collaborations which in aggregate provide the Company a financial outcome equal to
or greater than having entered into two binding research and development
collaborations on similar financial terms to the Company’s existing agreement with
Janssen Biotech; or

· 25% if the Company has either i) entered into three or more binding research and
development collaborations on similar financial terms to the Company’s existing
agreement with Janssen Biotech; or ii) entered into three or more binding research
and development collaborations which in aggregate provide the Company a financial
outcome equal to or greater than having entered into three binding research and
development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech,

The maximum Issue Price per share will be 5.3 cents, which is a premium of 104% to the closing price of the Company’s shares on 15 October 2012, while the minimum issue price per share will be determined by how many binding new drug discovery alliances the Company has entered into as specified above, together with the market price of shares leading into the conversion date of the Converting Notes.


In addition to the shares, the Converting Note holders may be entitled to new PYCOA
options in a ratio to the number of shares issued to them on the conversion date. If, the
average of the daily volume weighted average price of Phylogica’s shares over the five
trading days up to but excluding the day of the annual general meeting is:

· below 3.3 cents, the Converting Note holders will be issued two PYCOA options for
every three shares issued to the Converting Note holders on the conversion date;

· equal to or above 3.3 cents but below 4 cents, the Converting Note holders will be
issued one PYCOA option for every two shares issued to the Converting Note holders
on the conversion date; and

· equal to or above 4 cents, the Converting Note holders will not receive any PYCOA
options.