HYDROCARBON DYNAMICS LIMITED — AGM Information 2020

Apr 22, 2020

HYDROCARBON DYNAMICS LIMITED ABN 75 117 387 354 NOTICE OF ANNUAL GENERAL MEETING

TIME: 10.00am (Melbourne time) DATE: Friday, 29 May 2020 PLACE: By webcast/teleconference

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting. Should you wish to discuss the matters in this Notice of Meeting please contact the Company Secretary on +61 3 9642 0655.

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NOTICE OF ANNUAL GENERAL MEETING

Notice is given that the Annual General Meeting (AGM) of the Shareholders of Hydrocarbon Dynamics Limited (HCD or the Company) will be held via a live webcast/teleconference on Friday, 29 May 2020 at 10.00am (Melbourne Time). The meeting is being held in this manner due to the continuing developments in relation to COVID-19. As the Australian Government’s ban on public gatherings has been implemented, HCD is not able to allow shareholders to physically attend the Annual General Meeting.

The Annual General Meeting will be made accessible to shareholders via a live webcast/teleconference which will include the facility for shareholders to ask questions and vote in relation to the business of the meeting. The meeting will operate on the basis that such participation will constitute all Shareholders being present for all purposes of the meeting.

To join the meeting register your interest with the Company Secretary at info@hydrocarbondynamics.com.

You are encouraged to lodge a proxy form. To be effective, your proxy form must be received at the share registry of the Company no later than 10.00am (Melbourne time) on 27 May 2020, being 48 hours before the AGM.

The Explanatory Statement to this Notice of Meeting provides additional information on the matters to be considered at the AGM. The Explanatory Statement and the Proxy Form are part of this Notice of Meeting.

A. CONSIDERATION OF REPORTS

To receive and consider the Financial Report, the Directors’ Report and the Independent Auditor’s Report of the Company for the financial year ended 31 December 2019.

Unless the Company’s Share Registry has been notified otherwise, Shareholders have not been sent a hard copy of the Annual Report. All Shareholders can view the Annual Report, which contains the Financial Report for the year ended 31 December 2019, on the Company’s website (www.hydrocarbondynamic.com); go to “Announcements and Reports” and then “Annual Reports”.

Following consideration of the Reports, the Chairman will give Shareholders a reasonable opportunity to ask questions about or comment on the management of the Company.

The Chairman will also give Shareholders a reasonable opportunity to ask the Auditor questions relevant to the conduct of the audit, the preparation and content of the Independent Auditor’s Report, the accounting policies adopted by the Company in relation to the preparation of the financial statements; and the independence of the Auditor in relation to the conduct of the audit.

The Chairman will also give the Auditor a reasonable opportunity to answer written questions submitted by Shareholders that are relevant to the content of the Independent Auditor’s Report or the conduct of the audit. A list of written questions, if any, submitted by Shareholders will be made available at the start of the AGM and any written answer tabled by the Auditor at the AGM will be made available as soon as practicable after the AGM.

B. ITEMS FOR APPROVAL

1. Election of Director - Mr Stephen Mitchell

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

"That Mr Stephen Mitchell is elected as a director."

2. Election of Director - Mr Ray Shorrocks

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

"That Mr Ray Shorrocks is elected as a director."

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3. Issue of Shares in lieu of Remuneration to Mr Andrew Seaton

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

“That, for the purposes of ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue Directors’ Shares in the Company up to the value of $54,000 to Mr Andrew Seaton (or his nominee) on the terms and conditions set out in the Explanatory Statement, subject to an ASX waiver being granted on the basis that the shares to be issued to Mr Seaton are in lieu of a cash payment for director's fees.”

In addition to any voting exclusion required under section 250BD of the Corporations Act, the Company will disregard any votes cast in favour of the resolution by or on behalf of Mr Andrew Seaton and his associates and any other person who will obtain a material benefit as a result of the issue of the securities (except a benefit solely by reason of being a holder of ordinary securities in the entity).

However, the Company need not disregard a vote cast in favour of the resolution by:

• a person as proxy for a person who is entitled to vote, in accordance with the directions given to the proxy or attorney to vote on the resolution in that way; or

• the person chairing the meeting as proxy or attorney for a person who is entitled to vote, in accordance with directions given to the chair vote on the resolution as the chair decides; or

• a holder acting solely in a nominee, trustee, custodial or other fiduciary capacity on behalf of a beneficiary provided the following conditions are met:

• the beneficiary provides written confirmation to the holder that the beneficiary is not excluded from voting, and is not an associate of the person excluded from voting on the resolution; and

• the holder votes on the resolution in accordance with directions given by the beneficiary to the holder to vote in that way.

4. Remuneration Report

To consider and, if thought fit, to pass the following as an Advisory Resolution of the Company:

“That, the Company’s Remuneration Report for the financial year ended 31 December 2019 (set out in the Directors’ Report) be adopted.”

The Remuneration Report is set out in the 2019 Annual Report. Please note that, in accordance with section 250R(3) of the Corporations Act 2001 (Cth), the vote on this resolution is advisory only, and does not bind the Directors or the Company.

A vote on the resolution must not be cast (in any capacity) by or on behalf of any of the following persons a member of the key management personnel ( KMP ), details of whose remuneration are included in the Remuneration Report or a closely related party of a KMP. However, a person described above may cast a vote on the resolution if the vote is not cast on behalf of the persons described above and:

• the person does so as a proxy appointed by writing that specifies how the proxy is to vote on the proposed resolution; or

• the vote is cast by the Chairman and the proxy does not specify the way the proxy is to vote but the Chairman is expressly authorised to exercise the proxy even if the resolution is connected directly or indirectly with the remuneration of a KMP.

Shareholders who intend to appoint the Company’s Chairman as proxy (including an appointment by default) should have regard to the important information below under the heading “Important information concerning proxy votes on Resolution 4”. The proxy form sets out the manner in which the Chairman intends to cast undirected proxies. The proxy form also contains the authority for the Chairman to cast undirected proxies.

By order of the Board

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Julie Edwards Company Secretary 22 April 2020

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ENTITLEMENT TO ATTEND AND VOTE

In accordance with Reg 7.11.37 of the Corporations Regulations 2001, the Board has determined that persons who are registered holders of shares of the Company as at 7:00pm (Melbourne time) on 27 May 2020 will be entitled to attend the AGM via webcast/teleconference as a shareholder.

The Annual General Meeting will be made accessible to shareholders via a live webcast/teleconference which will include the facility for shareholders to ask questions and vote in relation to the business of the meeting. The meeting will operate on the basis that such participation will constitute all Shareholders being present for all purposes of the meeting.

To join the meeting register your interest with the Company Secretary at info@hydrocarbondynamics.com.

You are encouraged to lodge a proxy form. To be effective, your proxy form must be received at the share registry of the Company no later than 10.00am (Melbourne time) on 27 May 2020, being 48 hours before the AGM as follows:

By post: Hydrocarbon Dynamics Limited C/- Automic Registry Services PO Box 2226 Strawberry Hills NSW 2012 By delivery: Automic Registry Services Level 5, 126 Phillip Street Sydney NSW 2000

Shareholder questions

If you wish to put a question to the Chairman of the Meeting or Auditor and you are not able to attend the AGM, please email your question to the Company Secretary at info@hydrocarbondynamics.com. To allow time to collate questions and prepare answers, questions are to be received by the Company Secretary by 5:00pm (Melbourne time) 22 May 2020.

Questions submitted in writing to the Company Secretary will be put to the Chairman or Auditor at the Board’s discretion.

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EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of the Shareholders of the Company in connection with the business to be conducted at the AGM to be held by webcast/teleconference at 10.00am (Melbourne time) on Friday 29 May 2020.

The purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions at the AGM.

RESOLUTION 1: ELECTION OF DIRECTOR – MR STEPHEN MITCHELL

In accordance with clause 13.4 of the Company’s Constitution, Mr Mitchell retires and, being eligible, offers himself for election as a Director.

Mr Mitchell has a Master's Degree in International Economics and Foreign Policy from John Hopkins University in Washington DC. following which he spent 10 years as a natural resources specialist at investment banks and advisory firms in the US and Australia. From 1999-2011 Stephen was the Managing Director of Molopo Energy Ltd, an ASX-listed oil and gas Company that held assets in Australia, Canada, USA, China, India and South Africa. Under his stewardship, Molopo generated a 10 fold increase in shareholder value and expanded its market capitalisation from less than $1 million into an ASX 200 company.

The Directors, with Mr Mitchell abstaining, unanimously recommend that Shareholders vote in favour of this Resolution.

RESOLUTION 2: ELECTION OF DIRECTOR – MR RAY SHORROCKS

In accordance with clause 13.4 of the Company’s Constitution, Mr Shorrocks retires and, being eligible, offers himself for election as a Director.

Mr Shorrocks has more than 22 years' experience in corporate finance and has advised a diverse range of mining and resource companies during his career at Patersons Securities Limited, one of Australia's largest full-service stockbroking and financial services firms. He has been instrumental in managing and structuring equity capital raisings as well as having advised extensively in the area of mergers and acquisitions.

Mr Shorrocks also holds directorships in the following ASX listed companies:

• Auteco Minerals (appointed 28 January 2020)

• Galilee Energy Limited (appointed 2 December 2013).

The Directors, with Mr Shorrocks abstaining, unanimously recommend that Shareholders vote in favour of this Resolution.

RESOLUTION 3: ISSUE OF SHARES IN LIEU OF REMUNERATION TO MR ANDREW SEATON

In accordance with the terms of the Remuneration Share Plan set out in Schedule 1, Mr Andrew Seaton has agreed to his remuneration through the issue of shares in lieu of cash remuneration, in order to maximise available cash for the company’s future development.

The Company has agreed, subject to an ASX waiver being obtained and Shareholder approval, to allot and issue shares to Mr Andrew Seaton on the terms and conditions set out below. The purpose of the proposed issue of the shares is to provide share-based remuneration in lieu of what would otherwise have been cash remuneration due and payable to Mr Seaton as salary or fees.

Listing Rule 10.1 allows Shareholders to approve the issue of shares to directors.

The directors seek approval for the share issue to Mr Seaton who is entitled to receive a fee of $54,000 per annum.

Subject to Shareholder approval being obtained and ASX waiver being granted the issue will cover from 1 April 2020 to 31 March 2021.

This is in lieu of the Company making a cash payment.

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The Company is in the process of applying for a waiver in accordance with Listing Rule 10.13.5 in order to allow the dates for which the Company will issue the shares will be 12 months rather than 1 month after the date of the meeting. If that waiver application is not successful then the resolution will not take effect.

The share issue is proposed on the following basis:

• (a) The directors consider that the issue of shares represents reasonable remuneration in the circumstances of the Company as if they were dealing at arm's length and hence does not require Shareholder approval under section 208 of the Corporations Act.

• (b) The number of shares to be issued to Mr Seaton will be determined by dividing the Mr Seaton’s remuneration that the Company has agreed to pay by the deemed issue price of the shares calculated in accordance with paragraph (d) below, provided that the maximum number of shares to be issued shall be 3,375,000. The maximum number of shares is based on 100% of cash remuneration for the period 1 April 2020 to 31 March 2020 at an issue price of $0.016. However as noted in (d) and (j) below, the shares will be issued quarterly, on the basis of remuneration owing to Mr Seaton at the time, and at an issue price no less than the volume weighted average price of Shares sold on the ASX in the 90 days prior to expiration of the corresponding calendar quarter in which Mr Seaton’s remuneration was incurred.

• (c) The value of the shares that could be issued to Mr Seaton is equal to 100% of the annual remuneration payable to Mr Seaton. As such, the maximum value of the shares would be $54,000.

• (d) The shares will be issued for nil cash consideration, in lieu of a Mr Seaton’s agreed cash remuneration, at quarterly intervals. No funds will be raised from the issue of the shares.

• (e) A voting exclusion statement is included in the Notice in relation to the resolution.

• (f) The Company has not previously had, and no shares have previously been issued, under the Directors’ Remuneration Share Plan.

• (g) the shares issued to the Mr Seaton will be fully paid ordinary shares in the Company issued on the same terms and conditions as the Company’s existing shares.

• (h) Mr Seaton is eligible to participate in the Directors’ Remuneration Share Plan.

• (i) No loan has been provided in relation to the issue of the shares.

• (j) The shares will be issued to Mr Seaton no later than 12 months after the date of the Meeting and will be issued on a quarterly basis according to the remuneration owing to Mr Seaton at that time and the amount of salary elected to convert.

• (k) Mr Seaton currently holds 2,225,350 fully paid ordinary shares and 2,000,000 incentive rights.

• (l) Mr Seaton’s current annual director’s fees are $54,000. Mr Seaton commenced with the Company as a Non-Executive Director on 16 August 2019. Mr Seaton received equity-based payments to the value of $3,054 for the year ended 31 December 2019 and is expected to received equity-based payments of $55,736 for the year ended 31 December 2020.

• (m) Based on a deemed issue price of $0.016 per Share, the indicative total number of shares to be issued to Mr Seaton is 3,375,000 shares. This would increase the number of Shares on issue from 282,077,778 to 285,452,778 (assuming no other Shares are issued and no Options are exercised) with the effect of diluting shareholdings of existing shareholders by an aggregate of 1.2%. The volume weighted average price of Shares at the time of issue may be lower than the above deemed issue price resulting in additional Shares being issued.

• (n) The trading history of the Shares on the ASX in the 12 months before the date of this Notice is:

Share Price Date Highest $0.094 17 December 2019 Lowest $0.013 3 April 2020 Closing $0.02 17 April 2020

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The Directors (excluding Mr Seaton) recommend that Shareholders vote in favour of this resolution for the following reasons:

• (a) The issuing of the shares to Mr Seaton further aligns his interests with that of shareholders

• (b) The issue of the shares is a cost effective and reasonable form of non-cash remuneration which may allow the Company to invest a greater proportion of its cash on core operational activities.

• (c) There are no apparent significant opportunity costs to, or benefits foregone, by the Company in issuing the shares in lieu of cash-based remuneration on the terms proposed.

In forming their recommendation, each director considered the expected contribution of Mr Seaton to the Company, the effect on the Company, its future performance and financial position, the market price of the Company’s shares and current market practices.

The Board is not aware of any other information that would reasonable be needed or required by a Shareholders in relation to, and to allow them to make a decision on the best interest of the Company about the resolution.

RESOLUTION 4: REMUNERATION REPORT

Section 250R(2) of the Corporations Act requires that the section of the Directors' Report dealing with the remuneration of director and key management personnel (Remuneration Report) be put to the vote of shareholders for adoption by way of a non-binding vote.

The Remuneration Report details the remuneration policy for the Company and:

• reports the remuneration arrangements for Company Executives and Non-Executive Directors (HCD

• Personnel);

• explains Board policies in relation to the nature and value of remuneration paid to HCD Personnel; and

• discusses the relationship between the policy and Company performance.

The Remuneration Report is available within the Directors’ Report in the Company’s 2019 Annual Report (which has been made available on the HCD website, under “Announcements and Reports” and then “Annual Reports”). The Chairman will give Shareholders a reasonable opportunity to ask questions about or make comments on the Report.

Resolution 4 is an advisory resolution only (as stipulated by Section 250R(3) of the Corporations Act) and does not bind the Directors or the Company.

A voting exclusion statement is set out in the Notice of Meeting.

The Directors abstain, in the interests of corporate governance, from making a recommendation in relation to this Resolution.

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SCHEDULE 1: HYDROCARBON DYNAMICS LIMITED DIRECTORS’ REMUNERATION SHARE PLAN

The Hydrocarbon Dynamics Limited Directors Share Plan ( Plan ) is set out below:

1. Objectives of the Plan

From time to time, and subject to shareholder approval, the Board may seek to reduce their cash remuneration through the issue of fully paid ordinary shares in the Company ( Shares ), in lieu of cash remuneration, to Directors. In doing so, the Board must be satisfied that there are no significant opportunity costs to, or benefits lost by the Company and that:

• (a) The issuing of the Shares to Directors, in lieu of the Directors’ cash remuneration, is a cost effective and reasonable form of non-cash remuneration which will allow the Company to invest a greater proportion of its cash on core operational activities; and

• (b) The issuing of the Shares to Directors, in lieu of the Directors’ cash remuneration, is consistent with maintaining and/or furthering alignment of Directors’ interests with the interests of other shareholders.

2. Participants in the Plan

From time to time, the Board may, in its absolute discretion and subject to the terms and conditions of the Plan (including inter alia shareholder approval), offer the opportunity to subscribe for the Company’s Shares, in lieu of cash remuneration owing to an Executive or Non-Executive Director of the Company (or any of the Company’s subsidiaries) ( Participant ).

3. Operations, Deemed Issue Price and Other Provisions of the Plan

• (a) From time to time, and subject to Shareholder approval, the Board may offer a Participant the opportunity to subscribe for Shares in the Company, in lieu of cash remuneration owing by the Company to the Participant, and upon such terms and conditions as the Board determines (including, inter alia, that a Participant continues to be a Director of the Company at the relevant time) (Offer).

• (b) The Participant can forego 100% of their cash remuneration in return for the issue of Shares in lieu of their cash remuneration.

• (c) A Participant may accept an Offer by giving written notice to the Company Secretary (Notice) at least two working days prior to the commencement of each financial quarter (being the 3-month periods ending 30 September, 31 December, 31 March and 30 June in each financial year) (Quarter).

• (d) A Notice must clearly indicate:

• (i) the date of the Notice; (ii) that the Participant accepts the Offer; and

• (iii) the percentage of the Participant’s Quarterly remuneration (up to 100%) ( Percentage ) that the participant wishes to forego in return for the issue of Shares in lieu of their cash remuneration.

• (e) Where a Participant has provided a Notice then, prior to Shares being issued in relation to that Notice and pursuant to the Plan, a Participant may amend the Notice (Amendment Notice) but such amendment may only reduce the Percentage in the original Notice and, to be effective, the Amendment Notice must:

• (i) be provided in writing to the Company Secretary at least twenty business days prior to the expiry of the relevant Quarter;

• (ii) clearly indicate that it is an Amendment Notice amending a Notice (identified by its date and the Quarter to which it applies); and must

• (iii) clearly indicate the amended Percentage of the Participant’s Quarterly cash remuneration that the Participant wishes to forego in return for the issue of Shares in lieu of their cash remuneration.

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• (f) Shares issued pursuant to the Plan will be issued on a Quarterly basis, for nil cash consideration, and in lieu of cash remuneration, net of PAYG, GST or other taxes related to the cash remuneration, owing by the Company to, and foregone by the Participant.

• (g) Shares shall not be issued pursuant to the Plan in lieu of PAYG, GST or other taxes related to the cash remuneration owing by the Company to the Participant.

• (h) The deemed issue price of the Shares shall be determined by the Board at the time of issue of the Shares but shall be no less than the volume weighted average share price (VWAP) of Shares sold on ASX during the 90 days prior to the expiration of the relevant Quarter.

• (i) Shares issued pursuant to the Plan shall rank equally in all respects with the then issued class of fully paid ordinary shares of the Company.

• (j) Shares issued pursuant to the Plan shall satisfy the relevant remuneration owing by the Company to a Participant.

• (k) Shares issued pursuant to the Plan shall have no restrictions with respect to transfer.

4. Shareholder Approval

Shares shall not be issued under the Plan without the requisite shareholder approval pursuant to the ASX Listing Rules and the Corporations Act.

5. Non-Residents

The Board may adopt additional rules for the Plan, applicable in any jurisdiction outside Australia, under which rights offered under the Plan may be subject to additional or modified terms, having regard to any securities, exchange control or taxation laws or regulations or similar factors which may apply to the Participant or to the Company in relation to the rights. Any additional rule must be entirely consistent with the principles and objectives of Plan.

6. Amending the Operations or Provisions of the Plan

Subject to compliance with the ASX Listing Rules and the Corporations Act, the Board may at any time amend all or any term, condition or provision of the Plan provided that, after making such amendment, the Board notifies, in writing, any Participant affected or likely to be affected by the amendment and provides such written notice within 5-business days of the Board’s decision to amend the Plan.

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