GR ENGINEERING SERVICES LIMITED — AGM Information 2016

Oct 3, 2016

ABN 12 121 542 738

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NOTICE OF ANNUAL GENERAL MEETING AND EXPLANATORY MEMORANDUM TO SHAREHOLDERS

Date of Meeting

Tuesday, 15 November 2016

Time of Meeting

11:00am (AWST)

Place of Meeting

Empire Bar Function Room 220 Great Eastern Highway, Lathlain, Western Australia

A Proxy Form is enclosed

Please read this Notice and Explanatory Memorandum carefully.

If you are unable to attend the Meeting please complete and return the enclosed Proxy Form in accordance with the specified directions.

GR Engineering Services Ltd ABN 12 121 542 738

NOTICE OF ANNUAL GENERAL MEETING

Notice is given that the Annual General Meeting of Shareholders of GR Engineering Services Limited ABN 12 121 542 738 ("Company") will be held at Empire Bar Function Room, 220 Great Eastern Highway, Lathlain on 15 November 2016 at 11:00am (AWST) for the purpose of transacting the following business referred to in this Notice of Annual General Meeting.

AGENDA

ITEMS OF BUSINESS

Financial Reports

To receive and consider the financial statements of the Company for the year ended 30 June 2016, together with the Directors' Report and the Auditor's Report as set out in the Annual Report.

1. Resolution 1 – Non Binding Resolution to adopt Remuneration Report

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

" That the Remuneration Report as set out in the Annual Report be adopted."

Note: The vote on this resolution is advisory only and does not bind the Directors or the Company. Shareholders are encouraged to read the Explanatory Memorandum for further details on the consequences of voting on this Resolution.

Voting Exclusion: The Company will disregard any votes cast on Resolution 1 by or on behalf of a member of the Key Management Personnel whose remuneration details are included in the Remuneration Report, or their Closely Related Parties. However, the Company need not disregard a vote if:

• (a) it is cast by a person as a proxy appointed by writing that specifies how the proxy is to vote on the proposed Resolution or the proxy is the Chair of the Meeting and the appointment of the Chair as proxy does not specify the way the proxy is to vote on the resolution and expressly authorises the Chair to exercise the proxy

even if the resolution is connected directly or indirectly with the remuneration of a member of the Key Management Personnel; and

• (b) it is not cast on behalf of a member of the Key Management Personnel whose remuneration details are included in the Remuneration Report, or their Closely Related Parties.

Further, a Restricted Voter who is appointed as a proxy will not vote on Resolution 1 unless:

• (a) the appointment specifies the way the proxy is to vote on Resolution 1; or

• (b) the proxy is the Chair of the Meeting and the appointment expressly authorises the Chair to exercise the proxy even though the Resolution is connected directly or indirectly with the remuneration of a member of the Key Management Personnel. Shareholders should note that the Chair intends to vote any undirected proxies in favour of Resolution 1.

Shareholders may also choose to direct the Chair to vote against Resolution 1 or to abstain from voting.

If you purport to cast a vote other than as permitted above, that vote will be disregarded by the Company (as indicated above) and you may be liable for breaching the voting restrictions that apply to you under the Corporations Act.

2. Resolution 2 – Re-election of Tony Patrizi as a Director

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

“That, Tony Patrizi, who retires in accordance with clause 13.2 of the Constitution and, being eligible for reelection, be re-elected in accordance with clause 13.3 of the Constitution as a Director. "

3. Resolution 3 – Election of Phil Lockyer as a Director

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

“That, Phil Lockyer, who was appointed as a Director pursuant to clause 13.5 of the Constitution to fill a casual vacancy and being eligible for re-election, be re-elected in accordance with clause 13.3 of the Constitution as a Director. "

4. Resolution 4 – Issue of Share Appreciation Rights to Geoff Jones

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

"That, for the purposes of section 208 of the Corporations Act and Listing Rule 10.14 and all other purposes the Directors are authorised to issue:

• (a) 650,000 Class F Share Appreciation Rights vesting on 30 June 2019 with an Initial Market Value of $0.89 and a minimum required share price of $1.36 at vesting; and

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• (b) 500,000 Class G Share Appreciation Rights vesting on 30 June 2020 with an Initial Market Value of $0.89 and a minimum required share price of $1.50 at vesting,

for no consideration to the Company’s Managing Director, Mr Geoff Jones (or his nominee(s)), on the terms and conditions set out in the Explanatory Memorandum."

Voting Exclusion: The Company will disregard any votes cast on Resolution 4 by any Director and their Associates. However, the Company need not disregard a vote if:

• (a) it is cast by a person as a proxy for a person who is entitled vote, in accordance with the directions on the proxy form; or

• (b) 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.

In accordance with section 224 of the Corporations Act, the Company will also disregard any votes cast on Resolution 4 by Geoff Jones and an Associate of Geoff Jones. However, the Company need not disregard a vote if it is cast by:

• (a) a person as a proxy appointed in writing that specifies how the proxy is to vote on Resolution 4; and

OTHER BUSINESS

To deal with any other business which may be brought forward in accordance with the Constitution and the Corporations Act.

___________

Certain abbreviations and other defined terms are used throughout this Notice. Defined terms are generally identifiable by the use of an upper case first letter. Details of the definitions and abbreviations are set out in the Glossary to the Explanatory Memorandum.

By order of the Board

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Joe Totaro Company Secretary

Dated: 4 October 2016

• (b) it is not cast on behalf of Geoff Jones or any of his Associates.

Further, a Restricted Voter who is appointed as a proxy will not vote on Resolution 4 unless:

• (a) the appointment specifies the way the proxy is to vote on Resolution 4; or

• (b) the proxy is the Chair of the Meeting and the appointment expressly authorises the Chair to exercise the proxy even though the Resolution is connected directly or indirectly with the remuneration of a member of Key Management Personnel. Shareholders should note that the Chair intends to vote any undirected proxies in favour of Resolution 4.

Shareholders may also choose to direct the Chair to vote against Resolution 4 or to abstain from voting.

If you are a Restricted Voter and purport to cast a vote other than as permitted above, that vote will be disregarded by the Company (as indicated above) and you may be liable for breaching the voting restrictions that apply to you under the Corporations Act.

Please Note: If the Chair is a person referred to in section 224 of the Corporations Act voting exclusion statement above, the Chair will only be able to cast a vote as proxy for a person who is entitled to vote if the Chair is appointed in writing and Proxy Form specifies how the proxy is to vote on Resolution 4.

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How to vote

Shareholders can vote by either:

• attending the Meeting and voting in person or by attorney or, in the case of corporate Shareholders, by appointing a corporate representative to attend and vote; or

• appointing a proxy to attend and vote on their behalf using the proxy form accompanying this Notice of Meeting or by submitting their proxy appointment and voting instructions by person, post, courier or facsimile.

Voting in person (or by attorney)

Shareholders, or their attorneys, who plan to attend the Meeting are asked to arrive at the venue 15 minutes prior to the time designated for the meeting, if possible, so that their holding may be checked against the Company's Share register and attendances recorded. A properly executed original (or certified copy) of an appropriate power of attorney under which an attorney has been authorised to attend and vote at the Meeting must be received by the Company’s share registry by 11.00am (AWST) on 13 November 2016 (48 hours before the commencement of the Meeting) in the same manner as outlined for proxy forms below to be effective.

Voting by a Corporation

A Shareholder that is a corporation may appoint an individual to act as its representative and vote in person at the meeting. The appointment must comply with the requirements of section 250D of the Corporations Act. The representative should bring to the Meeting evidence of their appointment, including any authority under which it is signed unless previously given to the Company's Share Registry.

Voting by proxy

• A Shareholder entitled to attend and vote is entitled to appoint not more than two proxies. Each proxy will have the right to vote on a poll and also to speak at the Meeting.

• The appointment of the proxy may specify the proportion or the number of votes that the proxy may exercise. Where more than one proxy is appointed and the appointment does not specify the proportion or number of the Shareholder's votes each proxy may exercise, the votes will be divided equally among the proxies (i.e. where there are two proxies, each proxy may exercise half of the votes).

• A proxy need not be a Shareholder.

• The proxy can be either an individual or a body corporate.

• If a proxy is not directed how to vote on an item of business, the proxy may vote, or abstain from voting, as they think fit.

• Should any resolution, other than those specified in this Notice, be proposed at the meeting, a proxy may vote on that resolution as they think fit.

• If a proxy is instructed to abstain from voting on an item of business, they are directed not to vote on the Shareholder's behalf on the poll and the Shares that are the subject of the proxy appointment will not be counted in calculating the required majority.

• Shareholders who return their proxy forms with a direction how to vote but do not nominate the identity of their proxy will be taken to have appointed the Chairman of the meeting as their proxy to vote on their behalf. If a proxy form is returned but the nominated proxy does not attend the Meeting, the Chairman of the Meeting will act in place of the nominated proxy and vote in accordance with any instructions. Proxy appointments in favour of the Chairman of the Meeting, the secretary or any Director that do not contain a direction how to vote will be used where possible to support each of the resolutions proposed in this Notice.

• To be effective, proxies must be received by 11:00am (AWST) on 13 November 2016. Proxies received after this time will be invalid.

• Proxies may be lodged using any of the following methods:

• by returning a completed proxy form in person or by post using the pre-addressed envelope provided with this Notice; or

• by faxing a completed proxy form to 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia); or

• for Intermediary Online Subscribers only (custodians) please visit www.intermediaryonline.com to submit your voting intentions.

The proxy form must be signed by the Shareholder or the Shareholder's attorney. Proxies given by corporations must be executed in accordance with the Corporations Act. Where the appointment of a proxy is signed by the appointer's attorney, a certified copy of the power of attorney, or the power itself, must be received by the Company at the above address, or by facsimile, and by 11:00am (AWST) on 13 November 2016. If facsimile transmission is used, the power of attorney must be certified.

Shareholders who are entitled to vote

In accordance with Regulations 7.11.37 and 7.11.38 of the Corporations Regulations 2001, the Board has determined that a person's entitlement to vote at the Meeting will be the entitlement of that person set out in the register of Shareholders as at 4.00pm (AWST) 13 November 2016.

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GR Engineering Services Ltd ABN 12 121 542 738

EXPLANATORY MEMORANDUM

This Explanatory Memorandum is intended to provide Shareholders with sufficient information to assess the merits of the Resolutions contained in the accompanying Notice of Annual General Meeting of GR Engineering Services Limited (" GR Engineering " or the " Company ").

FINANCIAL REPORTS

The first item of the Notice deals with the presentation of the consolidated annual financial report of the Company for the financial year ended 30 June 2016 together with the Directors' declaration and report in relation to that financial year and the auditor's report on those financial statements. Shareholders should consider these documents and raise any matters of interest with the Directors when this item is being considered.

No resolution is required to be moved in respect of this item.

Shareholders will be given a reasonable opportunity at the Meeting to ask questions and make comments on the accounts and on the business, operations and management of the Company.

The Chairman will also provide Shareholders a reasonable opportunity to ask the Auditor questions relevant to:

• the conduct of the audit;

• the preparation and content of the independent audit report;

• the accounting policies adopted by the Company in relation to the preparation of accounts; and

• the independence of the auditor in relation to the conduct of the audit.

The Chair will also allow a reasonable opportunity for the Auditor or their representative to answer any written questions submitted to the Auditor under section 250PA of the Corporations Act.

RESOLUTION 1 – NON BINDING RESOLUTION TO ADOPT REMUNERATION REPORT

Section 250R(2) of the Corporations Act requires the Company to put to its Shareholders a resolution that the Remuneration Report as disclosed in the Company's 2016 Annual Report be adopted.

The Remuneration Report is set out in the Company’s 2016 Annual Report and is also available on the Company’s website (www.gres.com.au).

The vote on Resolution 1 is advisory only and does not bind the Directors or the Company.

However, if at least 25% of the votes cast are against adoption of the Remuneration Report at two consecutive annual general meetings, the Company will be required to put a resolution to the second annual general meeting ( Spill Resolution ), to approve calling a general meeting ( Spill Meeting ). If more than 50% of Shareholders vote in favour of the Spill Resolution, the Company must then convene a Spill Meeting within 90 days of the second annual general meeting. All of the Directors who were in office when the applicable Directors’ Report was approved, other than the Managing Director, will need to stand for re-election at the Spill Meeting if they wish to continue as Directors.

The Remuneration Report for the financial year ended 30 June 2015 did not receive a vote of more than 25% against its adoption at the Company’s last general meeting held on 10 November 2015. Accordingly, if at least 25% of the votes cast on Resolution 1 are against adoption of the Remuneration Report it will not result in the Company putting a Spill Resolution to Shareholders. However, a Spill Resolution will be required if the Remuneration Report at the 2017 annual general meeting receives a vote of more than 25% against its adoption.

The Remuneration Report explains the Board policies in relation to the nature and level of remuneration paid to Directors, sets out remuneration details for each Director and any service agreements and sets out the details of any equity based compensation.

The Chair will give Shareholders a reasonable opportunity to ask questions about, or make comments on, the Remuneration Report.

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Voting

Note that a voting exclusion applies to Resolution 1 in the terms set out in the Notice. In particular, the directors and other Restricted Voters may not vote on this Resolution and may not cast a vote as proxy, unless the appointment gives a direction on how to vote or the proxy is given to the Chair and expressly authorises the Chair to exercise your proxy even if the Resolution is connected directly or indirectly with the remuneration of a member of the Key Management Personnel. The Chair intends to use any such proxies to vote in favour of Resolution 1.

Shareholders are urged to carefully read the proxy form and provide a direction to the proxy on how to vote on this Resolution.

RESOLUTION 2 – RE-ELECTION OF TONY PATRIZI AS A DIRECTOR

Clause 13.2 of the Constitution provides that at every annual general meeting of the Company, onethird of the Directors (excluding any alternate Directors and the Managing Director), or, if their number is not a multiple of 3, then such number as is appropriate to ensure no Director holds office for more than 3 years, shall retire from office. A retiring Director is eligible for re-election.

Pursuant to Clause 13.2 of the Company's Constitution, Mr Tony Patrizi retires by way of rotation and, being eligible, offers himself for reelection as a Director.

Mr Patrizi co-founded the Company. He is a mechanical engineer with over 30 years’ experience in the mining and mineral processing industry as a company director, operations manager, project manager and maintenance engineer. Mr Patrizi was previously the operations manager of JR Engineering which had over 300 personnel and provided workshop, maintenance, engineering and construction services to mining and mineral processing project in Western Australian and interstate.

Tony is also a Non-Executive Director of Primary Gold Limited.

The Board does not consider Mr Patrizi to be an independent director by virtue of his executive management role within the Company. The Directors (other than Mr Patrizi) support the reelection of Mr Patrizi and recommend shareholders vote in favour of this resolution.

Clause 13.5 of the Constitution provides that the Directors may at any time appoint a person to be a Director, either to fill a casual vacancy, or as an addition to the existing Directors, but so that the total number of Directors does not at any time exceed the maximum number specified by the Constitution. Any Director so appointed holds office only until the next following Annual General Meeting and is then eligible for election, but shall not be taken into account in determining the Directors who are to retire by rotation (if any) at that meeting.

Mr Lockyer was appointed as a Non-Executive Director of the Company on 23 September 2016 to fill the vacancy left by Mr Joe Ricciardo.

Mr Lockyer retires from office in accordance with the requirements of clause 13.5 of the Constitution and submits himself for election in accordance with article 13.5 of the Constitution.

Mr Lockyer is a Mining Engineer and Metallurgist who has over 50 years’ experience in the mineral industry, with a focus on gold and nickel in both underground and open pit operations. He was employed by WMC Resources for 20 years and as General Manager for Western Australia was responsible for WMC’s nickel division and gold operations. Mr Lockyer also held the position of Director Operations for Dominion Mining Limited and Resolute Limited. He holds a Diploma of Metallurgy from the Ballarat School of Mines, an Associateship of Mining Engineering from the Western Australian School of Mines and a Masters of Minerals Economics from Curtin University.

Mr Lockyer has formerly served on the boards of Perilya Limited, Focus Minerals Limited and CGA Mining Limited. He is currently a Non-Executive Director of Swick Mining Services Limited.

The Directors (other than Mr Lockyer):

• consider that Mr Lockyer, if elected, will qualify as an independent Director; and

• support the election of Mr Lockyer and recommend shareholders vote in favour of this resolution.

RESOLUTION 4 – ISSUE OF SHARE APPRECIATION RIGHTS TO GEOFF JONES

Background to Resolution 4

RESOLUTION 3 – ELECTION OF PHIL LOCKYER AS A DIRECTOR

Resolution 3 seeks approval for the election of Mr Phil Lockyer as a Director with effect from the end of the Meeting.

Resolution 4 seeks approval for the issues of Share Appreciation Rights to the Company’s Managing Director, Mr Geoff Jones (or his nominee(s)) pursuant to the GR Engineering Services Limited Equity Incentive Plan ( Plan ).

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Share appreciation rights are rights to receive a future issue of payment in shares, equal to the amount of the increase in market value of shares in a specified period between the grant of the right and the exercise of that right.

The key terms of the Share Appreciation Rights proposed to be granted pursuant to Resolution 4 are set out in the table below:

Class	Number	Vesting Date	Vesting Conditions
F	650,000	30/06/19	 Mr Jones being employed as Managing Director on Vesting Date  Share price is at least $1.36 on Vesting Date
G	500,000	30/06/20	 Mr Jones being employed as Managing Director on Vesting Date  Share price is at least $1.50 on Vesting Date

On 30 November 2012, Mr Jones was issued with 3,269,337 Share Appreciation Rights pursuant to the 2012 Plan adopted by the Company on 28 March 2012. As at the date of the Notice, 2,759,706 of those Share Appreciation Rights had vested, resulting in the issue of 940,253 Shares to Mr Jones.

Of those Share Appreciation Rights issued on 30 November 2012, 509,631 Share Appreciation Rights remain on issue, with 296,297 vesting on 30 June 2017 (Class D) and 213,334 vesting on 30 June 2018 (Class E), subject to the achievement of the associated Share price and service based Vesting Conditions.

The Board considers that Share Appreciation Rights have been a suitable basis for providing long term incentive based remuneration to the Company’s Managing Director and is of the view that it is in the interests of Shareholders for Mr Jones to continue to participate in a long term equity related plan which is aligned with Shareholder value creation.

More broadly, Share Appreciation Rights have been recommended by the Company as a long term incentive instrument for reasons including:

• Share Appreciation Rights provide greater alignment with share price growth than other forms of deferred share grants (i.e. Performance Rights);

• the value of Share Appreciation Rights may, at the determination of the Board, be delivered by way of cash; and

• Share Appreciation Rights have value only if the share price has increased.

Accordingly, the Company proposes to grant Share Appreciation Rights to Geoff Jones or his nominee(s) to establish long term equity based incentives for the financial years ending 30 June 2019 and 30 June 2020, with performance and service based Vesting Conditions consistent with those Share Appreciation Rights granted to Mr Jones to date.

Summary of the Plan

The key terms of the Plan are set out below. Capitalised terms in this section that are not defined in this Notice have the meaning given to them in clause 1.1 of the Plan Rules.

• (a) Eligibility: The Board may from time to time, invite eligible employees, directors and contractors of the Company (or its associated bodies corporate), to be eligible to receive Incentive Securities under the Plan (Eligible Employees).

• (b) Offers: The Board may, from time to time, at its absolute discretion, determine the number and value of any Incentive Securities to be granted under the Plan. Without limiting its discretion, the Board may also determine the vesting conditions, the performance hurdles, the exercise conditions and any other terms applicable to a particular grant of Incentive Securities in an offer made to an Eligible Employee.

• (c) Rights of Incentive Security holders: Incentive Securities do not entitle the holder to notice of, or to vote or attend at, a meeting of Shareholders, or, receive any dividends declared by the Company.

• (d) Transferability: Incentive Securities may not be assigned, transferred, encumbered, or otherwise disposed of unless that assignment or transfer occurs by force of law upon the death of the holder to the holder’s legal representative.

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• (e) Incentive Securities: Awards of both “Performance Rights” and/or “Share Appreciation Rights” may be made to Eligible Employees under the Plan.

• (f) Performance Right: a Performance Right is an entitlement to be issued or transferred (as determined by the Board) one Share on exercise of the Performance Right, subject to the satisfaction of any vesting conditions, performance hurdles and/or exercise conditions.

• (g) Share Appreciation Right: a Share Appreciation Right is a right to be issued or transferred (as determined by the Board) that number of Shares on exercise of the Share Appreciation Right (rounded down to the nearest whole Share) calculated as follows:

Quantity of Shares to be issued/transferred on exercise =

Quantity of exercised Share Appreciation Rights x (Subsequent Market Value – Initial Market Value)

Subsequent Market Value

Where:

Initial Market Value means the Market Value of Share as at the grant date of a Share Appreciation Right (or another date determined by the Board and specified in the offer (plus a premium if applicable and specified in the offer));

Subsequent Market Value means the Market Value of a Share as at the date of exercise of a Share Appreciation Right; and

Market Value means the volume weighted average price of the Shares over a 5 day period, or otherwise as determined by the Board.

• (h) Vesting Conditions / Performance Hurdles / Exercise Conditions: The Incentive Securities will be subject to the vesting conditions, performance hurdles and exercise conditions as determined by the Board at the time of grant. In certain circumstances, the Board may in its discretion determine that any unvested Incentive Securities will become vested and may be exercised in any period, whether or not any or all of the applicable vesting conditions and exercise conditions have been satisfied, including if an Eligible Employee becomes a good leaver (for example, ceases to be an executive director or employee due to death or incapacity) or there is a change of control of the Company. The Board may, in its discretion and as an alternative to issuing

Shares upon the vesting of Incentive Securities, pay a cash amount of equivalent value to the Eligible Employee.

• (i) Exercise and issue/transfer of Shares: An Incentive Security may only be exercised by a holder following vesting of that Incentive Security. An offer must specify whether an Incentive Security will either be deemed to automatically have been exercised by the holder on vesting or whether the holder must manually exercise the Incentive Security by delivering a notice of exercise to the Company within a period specified in the offer.

• (j) Shares: Any Shares allotted and issued, or transferred, to an Eligible Employee following the exercise of an Incentive Security (Plan Share) will rank equally with all existing Shares on and from the date of issue or transfer, subject to any disposal restrictions notified at the time of the offer of the Incentive Security. Shares, or any beneficial or legal interest in Plan Shares, may not be transferred, encumbered or otherwise disposed of unless all restrictions on the transfer, encumbrance or disposal of the Plan Shares have been met, the Board has waived any such restrictions, or prior consent of the Board is obtained which consent may impose such terms and conditions on such transfer, encumbrance or disposal as the Board sees fit.

• (k) Forfeiture: Unless otherwise determined by the Board, an Eligible Employee’s Incentive Securities will generally be forfeited in the circumstances set out in the Plan Rules, and include where:

• (i) an Eligible Employee’s employment or office or engagement with the Company (or an associated body corporate of the Company) ceases, unless the Board has determined that the leaver may retain their Incentive Securities. For example, where the leaver has ceased employment or office with the Company due to becoming a good leaver (e.g. due to death or incapacity), the Board may determine that Eligible Employee may retain their Incentive Securities;

• (ii) the relevant vesting conditions, performance hurdles or exercise conditions are not satisfied or cannot be satisfied by the relevant expiry date of the Incentive Securities;

• (iii) an Eligible Employee acts fraudulently or dishonestly or in breach of his or her obligations to the Company; or

• (iv) an Eligible Employee becomes insolvent.

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• (l) Change of control: If a change of control event occurs, which is defined in the rules of the Plan, the Board may in its absolute discretion determine the manner in which all vested and unvested Incentive Securities are dealt with (including without limitation in a manner that allows the Eligible Employee to benefit from the change of control event).

• (m) Amendment: The Board has the ability to amend the rules of the Plan at any time, including with retrospective effect, except that any amendments which affect an Eligible Employee’s existing entitlements or obligations require an Eligible Employee’s consent unless the amendment is primarily necessitated to ensure compliance with the Constitution or laws or to correct manifest errors or for other limited reasons set out in the Plan rules.

The Plan Rules are available on the Company’s website at www.gres.com.au.

Vesting Conditions and Shares issued upon vesting

If the respective Vesting Conditions of each Class are met on the relevant Vesting Dates, Mr Jones or his nominee(s) will be granted with a number of Shares determined as follows:

Number of Shares = (Share price at Vesting Date – Initial Market Value) x number of Share Appreciation Rights / Share price at Vesting Date

The Initial Market Price for Class F and Class G Share Appreciation Rights is $0.89 which is the approximate median closing price of Shares for the financial year ending 30 June 2016. This was determined by the Board and the Company’s remuneration committee to be an appropriate base on which to assess Mr Jones’ contribution to Share price performance.

As an example of the number of Shares Mr Jones may be entitled to have issued to him (or his nominee(s)) upon vesting of Share Appreciation Rights, in respect of the Class F Share Appreciation Rights, if the Share price is exactly $1.80 on 30 June 2019, Mr Jones or his nominee(s) will be entitled to 328,611 Shares, calculated as follows:

(Share price at Vesting Date ($1.80) – Initial Market Value ($0.89)) x number of Share Appreciation Rights (650,000) / Share price at Vesting Date ($1.80) = 328,611 Shares

Using the example above, if the Share price is less than $1.36 on 30 June 2019, the Class F Share Appreciation Rights will not vest and will lapse in accordance with their terms.

Therefore, provided the minimum Share price is

achieved on the Vesting Date, the higher the Share price is at the Vesting Date, the more Shares Mr Jones (or his nominee(s)) will be entitled to receive.

The Share Appreciation Rights will be granted under the Plan on the terms and conditions set out in the Plan.

Related Party Transactions Generally

Chapter 2E of the Corporations Act prohibits a public company from giving a financial benefit to a related party of the public company unless either:

• (a) the giving of the financial benefits falls within one of the nominated exceptions to the provision; or

• (b) shareholder approval is obtained prior to the giving of the financial benefit and the benefit is given within 15 months after obtaining such approval.

Mr Jones is a Director and is therefore a related party of the Company for the purposes of Chapter 2E of the Corporations Act.

Resolution 4 relates to the proposed grant of Share Appreciation Rights to Mr Jones or his nominee(s), which is a financial benefit that requires shareholder approval for the purposes of section 208 of the Corporations Act.

Information Requirements – Chapter 2E of the Corporations Act

For the purposes of Chapter 2E of the Corporations Act, the following information is provided.

The related parties to whom the proposed Resolutions would permit the financial benefit to be given and the nature of the financial benefit

Subject to Shareholder approval, the Share Appreciation Rights will be granted to Mr Jones or his nominee(s). The proposed financial benefit to be given is the grant of Share Appreciation Rights for no consideration to Mr Jones.

The details of the financial benefit including reasons for giving, the type and quantity of the benefit

The grant of Share Appreciation Rights encourages Mr Jones to have a greater involvement in the achievement of the Company’s objectives and provides an incentive for him to drive the Company’s growth and Share price by enabling him to participate in the future growth and prosperity of the Company through Share ownership. In the Company’s current circumstances, the Directors (in the absence of Mr Jones) consider that the incentives

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intended for Mr Jones represented by the grant of the Share Appreciation Rights are a cost effective and efficient means for the Company to provide a reward and an incentive, as opposed to alternative forms of incentive, such as the payment of additional cash compensation.

The quantum and the terms of the Share Appreciation Rights proposed to be granted to Mr Jones has been determined after consideration of the following:

• (a) that the Share Appreciation Rights will provide an incentive to Mr Jones to deliver operational performance and align his interests to those of Shareholders;

• (b) the determination of the Initial Market Price for Class F and Class G Share Appreciation Rights is $0.89 which is the approximate median closing price of Shares for the financial year ending 30 June 2016; and

• (c) the determination of the two Vesting Conditions for each Class of Share Appreciation Rights, being that:

• (i) Mr Jones is employed as Managing Director at the Vesting Date for that Class. The Board considers the retention of Mr Jones in this capacity to be important to the Company’s ongoing success; and

• (ii) the Share price is at least the applicable minimum specified price on the Vesting Date (Class F: $1.36, Class G: $1.50). The Company’s remuneration committee considered that this was a reasonable basis for determining the specified minimum price to establish a vesting point, as it reflects a sustainable base to assess the achievement of annual Share price gains over a 4 year period.

Mr Jones’ Current Holdings

As at the date of this Notice, Mr Jones has a relevant interest in 440,253 Shares. In addition, Mr Jones has a relevant interest in the following Share Appreciation Rights:

• (a) 296,297 Share Appreciation Rights, vesting on 30 June 2017 subject to vesting conditions being met; and

• (b) 231,334 Share Appreciation Rights, vesting on 30 June 2018 subject to vesting conditions being met.

Dilution effect of grant of Share Appreciation Rights on existing members’ interests

If passed, Resolution 4 will give the Directors power to grant a total of 1,150,000 Share Appreciation Rights on the terms and conditions set out in the Plan Rules and as otherwise mentioned above in this Explanatory Memorandum.

The Company currently has 152,871,308 Shares and the following other equity securities on issue:

Number	Vesting Date
Performance Rights
187,500	31 March 2017
127,500	31 March 2018
127,500	31 March 2019
Share Appreciation Rights1
296,297	30 June 2017
213,334	30 June 2018

1. Class D and Class E Share Appreciation Rights are subject to performance and service based Vesting Conditions and were issued to Mr Geoff Jones with Shareholder approval obtained 12 November 2013.

The number of Shares which will be issued on exercise of the Share Appreciation Rights the subject of Resolution 4 will be determined in accordance with the Plan Rules as a function of the Share price on the Vesting Date. Assuming:

• the Share price of the Company on the Vesting Dates for each class of Share Appreciation Rights is exactly the minimum price required for that Class of Share Appreciation Rights to vest (for example, for the Class F Share Appreciation Rights, the Share price is $1.36 on 30 June 2019);

• Class D and Class E Share Appreciation Rights vest on the basis that the Share price of the Company on the Vesting Dates for each class of Share Appreciation Rights is exactly the minimum price required for that Class of Share Appreciation Rights to vest; and

• all existing Performance Rights on issue vest,

the effect of the issue of Shares upon vesting of the Share Appreciation Rights would be to dilute the shareholding of existing Shareholders by 0.3%.

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Mr Jones’ total remuneration package

Mr Jones’ fees per annum (including superannuation and other equity based payments) and the total financial benefit to be received by him in this current period, being the financing year ending 30 June 2017, as a result of the grant of the Share Appreciation Rights the subject of Resolution 4, is as follows:

Fees (per annum)1	Value of Share Appreciation Rights	Total Remuneration
$706,884	$569,000	$1,275,884

1. Includes cash salary, superannuation and existing equity based remuneration.

The value of $331,500 ascribed to the Share Appreciation Rights is a theoretical valuation using the binomial option pricing model, adjusted for the barrier price.

Valuation of Share Appreciation Rights

For valuation purposes, the Share Appreciation Rights behave similarly to a barrier option, with the Initial Market Value being akin to an exercise price. A barrier option is similar to a normal vanilla option except the option does not vest until the share price hurdle (or barrier) is met. In the case of the Share Appreciation Rights, the barrier is tested at the Vesting Date. The valuation of a barrier option has been performed using a form of binomial option pricing model, adjusted for the barrier price.

Based on the assumptions noted above, it is considered that the estimated average value of each Class of the Share Appreciation Rights to be granted to Mr Jones is as follows:

Class	Value
F	$331,500
G	$237,500

Company’s historical Share price

The following table gives details of the highest, lowest and latest closing prices of the Company’s Shares trading on ASX over the past 12 months ending on 3 October 2016 (being the latest date practicable for inclusion prior to the dispatch of the Notice):

Highest Price	Lowest Price	Latest Price
($)/Date	($/Date)	($)/Date
$1.67 29/06/16	$0.735 11/01/16	$1.615 03/10/16

Other Information

Under the Australian Equivalent of the International Financial Reporting Standards ( IFRS ), the Company is required to expense the value of the Share Appreciation Rights in its statement of financial performance for the current financial year.

Other than as disclosed in this Explanatory Memorandum, the Directors do not consider that from an economic and commercial point of view, there are any costs or detriments including opportunity costs or taxation consequences for the Company or benefits foregone by the Company in granting the Share Appreciation Rights pursuant to Resolution 4.

Neither the Directors nor the Company are aware of other information that would be reasonably required by Shareholders to make a decision in relation to the financial benefits contemplated by Resolution 4.

Directors’ recommendation

All the Directors were available to make a recommendation.

Messrs Hood, Patrizi, Patterson, Strapp and Lockyer (who have no interest in the outcome of Resolution 4) recommend that Shareholders vote in favour of Resolution 4. The Board approved the proposal to put Resolution 4 to Shareholders and recommend that Shareholders vote in favour of Resolution 4 for the reasons set out in this Explanatory Memorandum to Resolution 4. The Board is also of the opinion that the grant of Share Appreciation Rights is not excessive or unusual for an executive of the calibre of Mr Jones.

Mr Jones abstained from any deliberation and voting in relation to Resolution 4 and declines to make a recommendation about Resolution 4 as he has a material personal interest in the outcome of that particular Resolution as it relates to the proposed grant of Share Appreciation Rights to him or his nominee(s).

Information Requirements - Listing Rules 10.14 and 10.15

Listing Rule 10.14 requires Shareholder approval by ordinary resolution for any issue of securities by a listed company to a related party under an employee incentive scheme. Accordingly, Listing Rule 10.14 requires Shareholders to approve the issue of Share Appreciation Rights under the Plan to Mr Jones.

The following information is provided to Shareholders in relation to Resolution 4 for the purposes of Listing Rule 10.15:

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• (a) the Share Appreciation Rights will be granted to Mr Jones, the Managing Director of the Company, or his nominees(s);

• (b) the maximum number of Share Appreciation Rights to be granted is 1,150,000;

• (c) the Share Appreciation Rights will be granted for no consideration;

• (d) no funds will be raised by the grant of the Share Appreciation Rights;

• (e) none of the persons referred to in Listing Rule 10.14 (being Directors and their associates) have received securities under the Plan since it was last approved by Shareholders at the Company’s 2015 annual general meeting held on 10 November 2015;

• (f) all Directors are entitled to participate in the Plan;

• (g) no loan will be provided in relation to the grant of the Share Appreciation Rights to Mr Jones or his nominee(s); and

• (h) the Share Appreciation Rights will be granted on a date which will be no later than 12 months after the date of the Meeting, unless otherwise extended by way of ASX granting a waiver to the Listing Rules.

If approval is given for the grant of the Share Appreciation Rights under Listing Rule 10.14, approval is not required under Listing Rule 7.1.

Voting

Note that a voting exclusion applies to Resolution 4 in the terms set out in the Notice of Meeting. In particular, the Directors and their Associates may not vote on this Resolution. Further, a Restricted Voter may not cast a vote as proxy, unless the appointment gives a direction on how to vote or the proxy is given to the Chair and expressly authorises the Chair to exercise your proxy, even if the Resolution is connected directly or indirectly with the remuneration of a member of the Key Management Personnel. The Chair will use any such proxies to vote in favour of the Resolution.

Shareholders are urged to carefully read the Proxy Form and provide a direction to the proxy on how to vote on these Resolutions.

GLOSSARY

“ 2012 Plan ” means the GR Engineering Services Limited Equity Incentive Plan adopted on 28 March 2012;

" Accounting Standards " has the meaning given to that term in the Corporations Act;

" Annual Report " means the annual report of the Company for the year ended 30 June 2016;

" AWST " means Australian Western Standard Time;

" Board " means the board of Directors of the Company;

" Closely Related Party " has the meaning given in the Corporations Act;

" Company " means GR Engineering Services Limited ABN 12 121 542 738;

" Constitution " means the constitution of the Company, as amended from time to time;

" Corporations Act " means the Corporations Act 2001 (Cth);

" Director " means a director of the Company;

" Eligible Employee " has the meaning given to it in the Plan Rules;

“ Incentive Security ” means a Performance Right or a Share Appreciation Right issued pursuant to the Plan;

" Key Management Personnel " has the meaning given to it in the Accounting Standards;

" Meeting " means the 2016 annual general meeting the subject of the Notice;

" Notice " means the notice of annual general meeting which accompanies this Explanatory Memorandum;

“ Performance Rights ” has the meaning given to it in the Plan Rules;

“ Plan ” means the GR Engineering Services Limited 2015 Equity Incentive Plan approved by Shareholders on 10 November 2015;

“ Plan Rules ” means the rules of the Plan;

" Resolution " means a resolution proposed pursuant to the Notice of Annual General Meeting;

“ Restricted Voter ” means Key Management Personnel and their Closely Related Parties; “ Share ” means a fully paid ordinary share in the Company;

“ Share Appreciation Right ” has the meaning defined in the Plan Rules; and

“ Shareholder ” means a holder of Shares.

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Lodge your vote:

By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

GNG

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only (custodians) www.intermediaryonline.com

For all enquiries call:

(within Australia) 1300 850 505 (outside Australia) +61 3 9415 4000

Proxy Form

XX

 For your vote to be effective it must be received by 11:00am (AWST) Sunday, 13 November 2016

How to Vote on Items of Business

All your securities will be voted in accordance with your directions.

Appointment of Proxy

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote or abstain as they choose (to the extent permitted by law). If you mark more than one box on an item your vote will be invalid on that item.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

A proxy need not be a securityholder of the Company.

Signing Instructions

Individual: Where the holding is in one name, the securityholder must sign.

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles as applicable.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate “Certificate of Appointment of Corporate Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.investorcentre.com under the help tab, "Printable Forms".

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

 Turn over to complete the form

 www.gres.com.au

View the annual report, 24 hours a day, 7 days a week:

Your secure access information is:

To view and update your securityholding:

www.investorcentre.com

SRN/HIN: I9999999999

 PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

Samples/000001/000001/i12

MR SAM SAMPLE FLAT 123 123 SAMPLE STREET THE SAMPLE HILL SAMPLE ESTATE SAMPLEVILLE VIC 3030

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

Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a  broker (reference number commences with ’ X ’) should advise your broker of any changes. I 9999999999 I ND

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Proxy Form

Please mark

to indicate your directions

Appoint a Proxy to Vote on Your Behalf

XX

I/We being a member/s of GR Engineering Services Limited hereby appoint

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the Chairman of the Meeting

 PLEASE NOTE: Leave this box blank if OR you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the Meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, and to the extent permitted by law, as the proxy sees fit) at the Annual General Meeting of GR Engineering Services Limited to be held at the Empire Bar Function Room, 220 Great Eastern Highway, Lathlain, Western Australia on Tuesday, 15 November 2016 at 11:00am (AWST) and at any adjournment or postponement of that Meeting.

Chairman authorised to exercise undirected proxies on remuneration related resolutions : Where I/we have appointed the Chairman of the Meeting as my/our proxy (or the Chairman becomes my/our proxy by default), I/we expressly authorise the Chairman to exercise my/our proxy on Resolutions 1 and 4 (except where I/we have indicated a different voting intention below) even though Resolutions 1 and 4 are connected directly or indirectly with the remuneration of a member of key management personnel, which includes the Chairman.

Important Note: If the Chairman of the Meeting is (or becomes) your proxy you can direct the Chairman to vote for or against or abstain from voting on Resolutions 1 and 4 by marking the appropriate box in step 2 below.

Items of Business  PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

			For	Again	st Abstain
Resolution	1	Non Binding Resolution to adopt Remuneration Report
Resolution	2	Re-election of Tony Patrizi as a Director
Resolution	3	Election of Phil Lockyer as a Director
Resolution	4	Issue of Share Appreciation Rights to Geoff Jones

The Chairman of the Meeting intends to vote undirected proxies in favour of each item of business. In exceptional circumstances, the Chairman of the Meeting may change his/her voting intention on any resolution, in which case an ASX announcement will be made.

SIGN

Signature of Securityholder(s) This section must be completed.

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Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact
Contact Daytime / /
Name Telephone Date
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