ARC FUNDS LIMITED — Capital/Financing Update 2017

Mar 20, 2017

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Pro-Rata Non-Renounceable Entitlement

Notice under section 708AA(2)(f) of the Corporations Act

Australian Rural Capital Limited ( ASX:ARC ) ( ARC or Company ) advises that it proposes to undertake a prorata non-renounceable entitlement issue of approximately 3,218,660 ordinary fully paid shares ( New Shares ) on the basis of 1 New Share for every 2.85 existing Shares held in ARC as at 7.00pm (Sydney time) on 24 March 2017 ( Record Date ) at 50 cents per New Share to raise approximately $1,600,000 (before costs) ( Entitlement Offer ).

New Shares issued under the Entitlement Offer will rank equally with existing Shares on issue and the company will apply for official quotation of the New Shares.

Option holders are not entitled to participate in the Entitlement Offer without first exercising their options.

The general terms of the Entitlement Offer are set out below:

Type of Offer	Pro-rata non-renounceable entitlement Offer
Eligible Shareholders	Shareholders on the Record Date whose registeredaddresses are in Australia and New Zealand
Basis of entitlement	1 New Share for every 2.85 exiting Shares
Number of existing Shares	9,173,181
Number of Shares on issue after completionof Entitlement Offer	12,391,841
Record Date to determine entitlements	7.00pm (Sydney time) 24 March 2017
Issue price	50 cents per share
Underwriting	The Entitlement Offer is fully underwritten

A detailed timetable and more information on the terms for the Entitlement Offer are contained in the Offer Document which has been released on the ASX platform at the same time as this announcement.

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Notice under Section 708AA(2)(f) of the Corporations Act (Notice)

The Company hereby confirms, as per the requirements of section 708AA(2)(f) of the Corporations Act 2001 ( Act ):

1. ARC will offer the New Shares under the Entitlement Offer without disclosure to investors under Part 6D.2 of the Act.

2. ARC is providing this notice under section 708AA2(f) of the Act.

3. As at the date of this Notice, ARC has complied with:

   • (a) the provisions of Chapter 2M of the Act as they apply to the Company; and

   • (b) section 674 of the Act.

4. As at the date of this announcement, there is no information:

   • (a) that has been excluded from a continuous disclosure notice in accordance with the ASX Listing Rules; and

   • (b) that investors and their professional advisers would reasonably require for the purpose of making an informed assessment of:

     • (i) the assets and liabilities, financial position and performance, profits and losses and prospects of the Company; or

     • (ii) the rights and liabilities attaching to the New Shares.

5. The potential effect the Entitlement Offer will depend on a number of factors, including:

   • (a) ( Pro rata issue ) As the Entitlement Offer is a pro rata issue, if all Eligible Shareholders take up their entitlement there will be no change in control. The Directors of ARC have all confirmed their commitment to subscribe for their full entitlement ( Directors Entitlement Shares ).

   • (b) ( Eligible Shareholders not take up full entitlement ) if Eligible Shareholders do not take up their full entitlement then those Shareholders will be diluted relative to Shareholders who subscribe for some or all of their entitlement under the Entitlement Offer or other investors who subscribe for any shortfall through any underwriting or sub-underwriting arrangement;

   • (c) ( Top Up Facility ) in respect of the shortfall, Eligible Shareholders who have applied for their full entitlement will be offered the opportunity to apply for additional New Shares ( Additional Shares ) under the shortfall top up facility ( Top Up Facility ). If one or more of the Eligible Shareholders apply for Additional Shares under the Top Up Facility, then the voting power in the Company of those Shareholders will increase. The amount of the increase will depend on the number of Additional Shares applied for under the Top Up Facility. Refer to the Offer Document for further details.

No Additional Shares will be issued to any Eligible Shareholders if in the view of the Directors the issue would increase that eligible shareholder's voting power above 19.9% or to any eligible shareholder whose voting power is already above 19.9%. Accordingly, the issue of additional shares under the top-up offer is not expected to have any effect on the control of the Company.

(d) ( Underwriter’s obligations ) As the Entitlement Offer is fully underwritten, and in accordance with the underwriting agreement, the Underwriter is obliged only to subscribe for the number of New Shares which are not taken up under the Offer or under the Top Up Facility, except for the Directors

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Entitlement Shares. Therefore, the Underwriter is not obliged to subscribe for the Directors Entitlement Shares, being those shares for which the directors of ARC have undertaken to do subscribe, but for whatever reason have not subscribed, which together is approximately 23% of ARC.

While the Underwriter does not hold any Shares in ARC directly, the Underwriter holds through related parties of the Underwriter 1,748,651 Shares in ARC.

To the extent that a shortfall remains after the allocation of the Additional Shares, then the Underwriter will be required to subscribe for the remaining shortfall shares, which under the underwriting agreement is a maximum of up to 2,478,368 New Shares.

The Underwriter has advised ARC that the Underwriter’s obligations under the underwriting agreement are to be sub-underwritten by a number of sub-underwriters. As the Underwriter’s obligations are to be subunderwritten, ARC is of the view that the Entitlement Offer will not affect the control of ARC.

However, it is possible that if Eligible Shareholders fail to take up their full entitlement and the Underwriter elects to directly subscribe for these shares instead of allocating Shares to sub-underwriters, then the Underwriter could increase its interests (both direct and indirect) in ARC from 19% to 34%, giving it significantly increased voting power. Notwithstanding, the Directors of ARC do not believe there would be any significant consequence arising if the Underwriter were to increase its voting power to 34%.

(e) ( Shareholders who are not Eligible Shareholders ) The proportional interests of Shareholders who are not Eligible Shareholders will be diluted because those Shareholders are not entitled to participate in the Offer. Having regard to the composition of the Company's share register and the terms of the Offer, ARC does not believe that any person will increase their voting power in the Company pursuant to the Entitlement Offer in a way that will have any material impact on the control of the Company.

Further details regarding the Entitlement Offer are set out in the Offer Document.

Yours sincerely

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Chris Lobb Company Secretary

chrisl@mertons.com.au

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