XSTATE RESOURCES LIMITED

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ABN 96 009 217 154

21 December 2016

ASX Release

Electronic lodgement

ASX Code: XST

DISPATCH OF NOTICE OF GENERAL MEETING

Attached is copy of a Notice of General Meeting, Explanatory Statement and Proxy Form for a General Meeting of shareholders to be held on Tuesday, 31 January 2017. This information has been dispatched to shareholders today.

A copy of the Notice of General Meeting will also be available on our website www.xstate.com.au

On behalf of the Board of Directors

Level 2, 55 Carrington Street, Nedlands WA 6009 | Tel + 61 8 9423 3200 | Fax +61 8 9389 8327 www.xstate.com.au

ACN 009 217 154

NOTICE OF GENERAL MEETING

Notice is given that the Meeting will be held at:

TIME : 10.00am (WST) DATE : Tuesday, 31 January 2017 PLACE : Level 2, 55 Carrington Street Nedlands, WA 6009

The business of the Meeting affects your shareholding and your vote is important.

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.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the Meeting are those who are registered Shareholders at 4.00pm (WST) on 29 January 2017.

BUSINESS OF THE MEETING

AGENDA

1. RESOLUTION 1 – PLACEMENT – SHARES

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

“That, for the purposes of ASX Listing Rule 7.1 and for all other purposes, approval is given for the Company to issue up to 657,894,736 Shares on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion : The Company will disregard any votes cast on this Resolution by any person who may participate in the proposed issue and a person who might obtain a benefit, except a benefit solely in the capacity of a holder of ordinary securities, if the Resolution is passed and any associates of those persons. However, the Company need not disregard a vote if it is cast by a person as a 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.

2. RESOLUTION 2 – ADOPTION OF EMPLOYEE INCENTIVE OPTION PLAN

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

“That, for the purposes of ASX Listing Rule 7.2 (Exception 9(b)) and for all other purposes, approval is given for the Company to adopt an employee incentive scheme titled Employee Incentive Option Plan and for the issue of securities under that Plan, on the terms and conditions set out in the Explanatory Statement.”

Voting Exclusion : The Company will disregard any votes cast on this Resolution by any Director except one who is ineligible to participate in any employee incentive scheme in relation to the Company, and any associates of those Directors. However, the Company need not disregard a vote if it is cast by a person as a 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.

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either: (i) a member of the Key Management Personnel; or (ii) a Closely Related Party of such a member; and (b) the appointment does not specify the way the proxy is to vote on this Resolution. However, the above prohibition does not apply if:

(a) the proxy is the Chair; and (b) the appointment expressly authorises the Chair to exercise the proxy even though this Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

3. RESOLUTION 3 – ISSUE OF SHARES TO RELATED PARTY – MR COSIMO DAMIANO

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

“That, for the purposes of section 195(4) and section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue up to 5,000,000 Shares to Mr Cosimo Damiano (or his nominee) on the terms and conditions set out in the Explanatory Statement.”

ASX Voting Exclusion : The Company will disregard any votes cast on this Resolution by Mr Cosimo Damiano (or his nominee) and any of their associates. However, the Company need not disregard a vote if it is cast by a person as a 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.

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either:

(i) a member of the Key Management Personnel; or

(ii) a Closely Related Party of such a member; and (b) the appointment does not specify the way the proxy is to vote on this Resolution.

However, the above prohibition does not apply if:

(a) the proxy is the Chair; and

(b) the appointment expressly authorises the Chair to exercise the proxy even though this Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

4. RESOLUTION 4 – ISSUE OF OPTIONS TO RELATED PARTY – MR COSIMO DAMIANO

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

“That, for the purposes of section 195(4) and section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue up to 13,000,000 Options to Mr Cosimo Damiano (or his nominee) on the terms and conditions set out in the Explanatory Statement.”

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

However, the above prohibition does not apply if: (a) the proxy is the Chair; and

(b) the appointment expressly authorises the Chair to exercise the proxy even though this Resolution is connected directly or indirectly with remuneration of a member of the Key Management Personnel.

5. RESOLUTION 5 – ISSUE OF OPTIONS TO RELATED PARTY – MR CHRIS HODGE

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

“That, for the purposes of section 195(4) and section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue up to 9,000,000 Options to Mr Chris Hodge (or his nominee) on the terms and conditions set out in the Explanatory Statement.”

ASX Voting Exclusion : The Company will disregard any votes cast on this Resolution by Mr Chris Hodge (or his nominee) and any of their associates. However, the Company need not disregard a vote if it is cast by a person as a 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.

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

However, the above prohibition does not apply if:

6. RESOLUTION 6 – ISSUE OF OPTIONS TO RELATED PARTY – MR IAN TCHACOS

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

“That, for the purposes of section 195(4) and section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue up to 9,000,000 Options to Mr Ian Tchacos (or his nominee) on the terms and conditions set out in the Explanatory Statement.”

ASX Voting Exclusion : The Company will disregard any votes cast on this Resolution by Mr Ian Tchacos (or his nominee) and any of their associates. However, the Company need not disregard a vote if it is cast by a person as a 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.

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either: (i) a member of the Key Management Personnel; or (ii) a Closely Related Party of such a member; and

(b) the appointment does not specify the way the proxy is to vote on this Resolution.

However, the above prohibition does not apply if:

7. RESOLUTION 7 – ISSUE OF OPTIONS TO RELATED PARTY – MR DAVID MCARTHUR

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

“That, for the purposes of section 195(4) and section 208 of the Corporations Act, ASX Listing Rule 10.11 and for all other purposes, approval is given for the Company to issue up to 9,000,000 Options to Mr David McArthur (or his nominee) on the terms and conditions set out in the Explanatory Statement.”

ASX Voting Exclusion : The Company will disregard any votes cast on this Resolution by Mr David McArthur (or his nominee) and any of their associates. However, the Company need not disregard a vote if it is cast by a person as a 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.

Voting Prohibition Statement:

A person appointed as a proxy must not vote, on the basis of that appointment, on this Resolution if:

(a) the proxy is either:

(i) a member of the Key Management Personnel; or (ii) a Closely Related Party of such a member; and (b) the appointment does not specify the way the proxy is to vote on this Resolution. However, the above prohibition does not apply if:

Dated: 15 December 2016

By order of the Board

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David M McArthur Company Secretary

Voting in person

To vote in person, attend the Meeting at the time, date and place set out above.

Voting by proxy

To vote by proxy, please complete and sign the enclosed Proxy Form and return by the time and in accordance with the instructions set out on the Proxy Form.

In accordance with section 249L of the Corporations Act, Shareholders are advised that:

each Shareholder has a right to appoint a proxy;
the proxy need not be a Shareholder of the Company; and
a Shareholder who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. If the member appoints 2 proxies and the appointment does not specify the proportion or number of the member’s votes, then in accordance with section 249X(3) of the Corporations Act, each proxy may exercise one-half of the votes.

Shareholders and their proxies should be aware that changes to the Corporations Act made in 2011 mean that:

if proxy holders vote, they must cast all directed proxies as directed; and
any directed proxies which are not voted will automatically default to the Chair, who must vote the proxies as directed.

Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary, Mr David McArthur on +61 8 9423 3200.

EXPLANATORY STATEMEN T

This Explanatory Statement has been prepared to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolutions.

1. RESOLUTION 1 – PLACEMENT – SHARES

1.1 Background

On 4 November 2016, the Company announced that it had entered into a letter of intent ( LOI ) to acquire a working interest in a producing conventional oil field located in the Los Angeles Basin, onshore California ( Acquisition ).

As previously announced, the Acquisition is subject to the Company undertaking due diligence which is structured in two phases. Under phase 1, the Company has a 30 day period to complete its due diligence. Under phase 2, the Company has until 3 February 2017 to complete financial close of the Acquisition.

As announced on 7 December 2016, the period for completing phase 1 of the due diligence has been extended due to a delay in securing available field data and direct engagement with Matrix Oil Corp (the operator of the oil field). The Company is continuing to conduct due diligence with a view to completing phase 1 by 16 December 2016 and is committed to closing the Acquisition by 3 February 2017.

The Company has agreed, subject to raising the necessary funds, to pay US$13,125,000 (approximately $18,500,000) to a private investor group for a 24.5% gross working interest in both the Sansinena oil field located in the city of La Habra and the East Los Angeles oil field located in downtown Los Angeles.

Refer to the Company’s ASX announcements on 4 November 2016, 15 November 2016 and 7 December 2016 for further information in relation to the Acquisition.

1.2 General

Resolution 1 seeks Shareholder approval for the issue of up to 657,894,736 Shares at an issue price of $0.038 per Share to raise up to approximately $25,000,000 ( Placement ).

ASX Listing Rule 7.1 provides that a company must not, subject to specified exceptions, issue or agree to issue more equity securities during any 12 month period than that amount which represents 15% of the number of fully paid ordinary securities on issue at the commencement of that 12 month period.

The effect of Resolution 1 will be to allow the Company to issue the Shares pursuant to the Placement during the period of 3 months after the Meeting (or a longer period, if allowed by ASX), without using the Company’s 15% annual placement capacity.

1.3 Technical information required by ASX Listing Rule 7.1

Pursuant to and in accordance with ASX Listing Rule 7.3, the following information is provided in relation to the Placement:

(a) the maximum number of Shares to be issued is 657,894,736;

(b) the Shares will be issued no later than 3 months after the date of the Meeting (or such later date to the extent permitted by any ASX waiver or modification of the ASX Listing Rules) and it is intended that issue of the Shares will occur on the same date;
(c) the issue price will be $0.038 per Share;
(d) the Shares will be issued to sophisticated and professional investors pursuant to section 708 of the Corporations Act. None of these subscribers are related parties of the Company;
(e) the Shares issued will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares; and
(f) the Company intends to use the funds raised from the Placement as follows;
(i) $18,500,000 for the consideration payable pursuant to the Acquisition;
(ii) $2,300,000 for capital expenditure to increase the Company’s production flow;
(iii) $550,000 for drilling at the Company’s Dempsey Well;
(iv) $720,000 for re-entry drilling at the Company’s Avares Project;
(v) $1,930,000 in relation to capital raising fees; and
(vi) $1,000,000 for working capital purposes; and
(g) assuming no Options are exercised or other Shares issued and the maximum number of Shares as set out above are issued, the number of Shares on issue would increase from 621,792,718 (being the number of Shares on issue as at the date of this Notice) to 1,279,687,454 and the shareholding of existing Shareholders would be diluted by 51.41%.

2. RESOLUTION 2 – APPROVAL OF EMPLOYEE INCENTIVE OPTION PLAN

Resolution 2 seeks Shareholders approval for the adoption of the employee incentive scheme titled Employee Incentive Option Plan ( Plan ) in accordance with ASX Listing Rule 7.2 (Exception 9(b)).

A summary of ASX Listing Rule 7.1 is set out in section 1.2 above.

ASX Listing Rule 7.2 (Exception 9(b)) sets out an exception to ASX Listing Rule 7.1 which provides that issues under an employee incentive scheme are exempt for a period of 3 years from the date on which shareholders approve the issue of securities under the scheme as an exception to ASX Listing Rule 7.1.

If Resolution 2 is passed, the Company will be able to issue Options under the Plan to eligible participants over a period of 3 years without impacting on the Company’s ability to issue up to 15% of its total ordinary securities without Shareholder approval in any 12 month period.

The Company’s Shareholders have not previously approved the Company’s adoption of the Plan and, as such, no securities have been issued under the Plan to date.

The objective of the Plan is to attract, motivate and retain key employees and it is considered by the Company that the adoption of the Plan and the future issue of Options under the Plan will provide selected employees with the opportunity to participate in the future growth of the Company.

Any future issues of Options under the Plan to a related party or a person whose relation with the Company or the related party is, in ASX’s opinion, such that approval should be obtained will require additional Shareholder approval under ASX Listing Rule 10.14 at the relevant time.

A summary of the key terms and conditions of the Plan is set out in Schedule 1. In addition, a copy of the Plan is available for review by Shareholders at the registered office of the Company until the date of the Meeting. A copy of the Plan can also be sent to Shareholders upon request to the Company Secretary, Mr David McArthur on +61 8 9423 3200. Shareholders are invited to contact the Company if they have any queries or concerns.

3. RESOLUTIONS 3 TO 7 – ISSUE OF SHARES AND OPTIONS TO RELATED PARTIES

3.1 General

The Company has agreed, subject to obtaining Shareholder approval, to issue a total of 5,000,000 Shares ( Related Party Shares ) and 40,000,000 Options ( Related Party Options ) (together, the Related Party Securities ) to Messrs Cosimo Damiano, Chris Hodge, Ian Tchacos and David McArthur ( Related Parties ) on the terms and conditions set out below.

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 grant of the Related Party Securities constitutes giving a financial benefit and Messrs Cosimo Damiano, Chris Hodge, Ian Tchacos and David McArthur are related parties of the Company by virtue of being Directors of the Company.

In addition, ASX Listing Rule 10.11 also 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 ASX’s opinion, such that approval should be obtained unless an exception in ASX Listing Rule 10.12 applies.

It is the view of the Company that the exceptions set out in sections 210 to 216 of the Corporations Act and ASX Listing Rule 10.12 do not apply in the current circumstances. Accordingly, Shareholder approval is sought for the grant of Related Party Securities to the Related Parties.

3.2 Section 195 of the Corporations Act

Shareholder approval is also being sought under section 195 of the Corporations Act which provides that a director of a public company may not vote or be present during meetings of directors when matters in which that director holds a “material personal interest” are being considered, except in certain circumstances or unless non-interested directors pass a resolution approving the interested director’s participation.

If there is not a quorum of directors who are eligible to vote on a matter because of the operation of section 195(1) of the Corporations Act, one or more directors may call a general meeting and the general meeting may deal with the matter (section 195(4) of the Corporations Act).

Each of the Directors, being Messrs Cosimo Damiano, Chris Hodge, Ian Tchacos and David McArthur have a material personal interest in the outcome of this Resolution as they will be receiving the Related Party Securities.

In the absence of the approval under section 195(4) sought by this Resolution, the Directors will not be able to form a quorum at any Directors’ meetings necessary to implement the issue of the Related Party Securities.

Accordingly, the Directors have exercised their right under section 195(4) of the Corporations Act to put the issue to Shareholders to resolve upon.

3.3 Shareholder Approval (Chapter 2E of the Corporations Act and Listing Rule 10.11)

Pursuant to and in accordance with the requirements of section 219 of the Corporations Act and ASX Listing Rule 10.13, the following information is provided in relation to the proposed grant of Related Party Securities:

(a) the related parties are Messrs Cosimo Damiano, Chris Hodge, Ian Tchacos and David McArthur and they are related parties by virtue of being Directors of the Company;
(b) the maximum number of Related Party Securities (being the nature of the financial benefit being provided) to be granted to the Related Parties is 5,000,000 Related Party Shares and 40,000,000 Related Party Options, being:
(i) 5,000,000 Related Party Shares to Mr Cosimo Damiano;
(ii) 13,000,000 Related Party Options to Mr Cosimo Damiano;
(iii) 9,000,000 Related Party Options to Mr Chris Hodge;
(iv) 9,000,000 Related Party Options to Mr Ian Tchacos; and
(v) 9,000,000 Related Party Options to Mr David McArthur;
(c) the Related Party Securities will be granted to the Related Parties no later than 1 month after the date of the Meeting (or such later date as permitted by any ASX waiver or modification of the ASX Listing Rules) and it is anticipated the Related Party Securities will be issued on one date;
(d) the Related Party Securities will be granted for nil cash consideration, accordingly no funds will be raised;

(e) the Related Party Shares will be fully paid ordinary shares in the capital of the Company issued on the same terms and conditions as the Company’s existing Shares;
(f) the terms and conditions of the Related Party Options are set out in Schedule 2;
(g) the deemed issue price of the Related Party Shares is $0.019 per Share and accordingly, the value of the Related Party Shares is $95,000;
(h) the value of the Related Party Options is $588,000 and the pricing methodology is set out in Schedule 3;
(i) the relevant interests of the Related Parties in securities of the Company as at the date of this Notice are set out below:

Related Party	Shares	Options
Mr Cosimo Damiano	3,734,333	Nil
Mr Ian Tchacos	4,532,019	Nil
Mr Chris Hodge	7,617,3391	Nil
Mr David McArthur	15,000,0002	Nil

Notes:

1 Comprised of 764,839 Shares held directly and 6,852,500 Shares held indirectly.

2 Comprised of 5,280,337 Shares held directly and 9,719,663 Shares held indirectly.

(j) the remuneration and emoluments from the Company to the Related Parties for the previous financial year and the proposed remuneration and emoluments for the current financial year are set out below:

Related Party	Current Financial Year5	Previous Financial Year5
Mr Cosimo Damiano	$100,000	$6,0001
Mr Ian Tchacos	$32,500	$32,5002
Mr Chris Hodge	$32,500	$32,5003
Mr David McArthur	$80,0004	$80,0004

Notes:

1 Mr Damiano was appointed on 27 October 2015.

2 In addition, a company associated with Mr Tchacos received fees of $17,250.

3 In addition, a company associated with Mr Hodge received fees of $32,500.

4 This amount includes company secretary fees. In addition, a company associated with Mr McArthur received a fee of $72,000 for the provision of corporate and accounting services in the previous financial year and will receive a fee of $72,000 for the provision of corporate and accounting services for the current financial year.

5 Salary and fees (exclusive of superannuation). Subject to rounding.

(k) if the Related Party Options granted to the Related Parties are exercised, a total of 40,000,000 Shares would be issued. This will increase the number of Shares on issue from 1,284,687,454 to 1,324,687,454 (assuming that no other Options are exercised and no shares other than those contemplated by the Resolutions of this Notice are issued) with

the effect that the shareholding of existing Shareholders would be diluted by an aggregate of 3.12%.

The market price for Shares during the term of the Related Party Options would normally determine whether or not the Related Party Options are exercised. If, at any time any of the Related Party Options are exercised and the Shares are trading on ASX at a price that is higher than the exercise price of the Related Party Options, there may be a perceived cost to the Company.

(l) the trading history of the Shares on ASX in the 12 months before the date of this Notice is set out below:

	Price	Date
Highest	$0.019	14 December 2016 and 15 December 2016
Lowest	$0.003	12 February 2016
Last	$0.019	15 December 2016

(m) the Board acknowledges the grant of Related Party Securities to the Related Parties is contrary to Recommendation 8.3 of The Corporate Governance Principles and Recommendations (3[rd] Edition) as published by The ASX Corporate Governance Council. However, the Board considers the grant of Related Party Securities to the Related Parties reasonable in the circumstances for the reason set out in paragraphs (o) and (p);
(n) the primary purpose of the grant of the Related Party Shares to Mr Cosimo Damiano is to provide a performance linked incentive component in the remuneration package for Mr Damiano to motivate and reward his performance in his role as Managing Director. More specifically, on 21 October 2015, the Board resolved to offer Mr Damiano the position of Managing Director of the Company. As part of the terms of his engagement, the Board resolved to issue a total of 5,000,000 Shares subject to the following performance hurdles:
(i) source, evaluate, negotiate and assist in securing finance for an asset or assets which are secured by the Company that leads to a 300% increase in the Company’s market capitalisation; and
(ii) source an excess of $3,000,000 in new equity capital on terms acceptable to the Company.

Subject to Shareholders approving Resolution 1, Mr Damiano will have met both performance criteria for the issue of the Related Party Shares.

The Share price at the time the Board entered into the agreement with Mr Damiano was $0.003 per Share, and the market capitalisation of the Company was approximately $714,182.

(o) the primary purpose of the grant of the Related Party Options to the Related Parties is to provide a performance linked incentive component in the remuneration package for the Related Parties to motivate and reward the performance of the Related Parties in their respective roles as Directors;

(p) Mr Cosimo Damiano declines to make a recommendation to Shareholders in relation to Resolutions 3 and 4 due to his material personal interest in the outcome of Resolutions 3 and 4 on the basis that he is to be granted Related Party Securities in the Company should Resolutions 3 and 4 be passed. However, in respect of Resolutions 5 to 7, Mr Damiano recommends that Shareholders vote in favour of those Resolutions for the following reasons:
(i) the grant of the Related Party Securities will align the interests of the Related Parties with those of Shareholders;
(ii) the grant of the Related Party Securities is a reasonable and appropriate method to provide cost effective remuneration as the non-cash form of this benefit will allow the Company to spend a greater proportion of its cash reserves on its operations than it would if alternative cash forms of remuneration were given to the Related Parties; and
(iii) it is not considered that there are any significant opportunity costs to the Company or benefits foregone by the Company in granting the Related Party Securities upon the terms proposed;
(q) Mr Chris Hodge declines to make a recommendation to Shareholders in relation to Resolution 5 due to his material personal interest in the outcome of the Resolution on the basis that he is to be granted Related Party Options in the Company should Resolution 5 be passed. However, in respect of Resolutions 3, 4, 6 and 7, Mr Hodge recommends that Shareholders vote in favour of those Resolutions for the reasons set out in paragraph (p);
(r) Mr Ian Tchacos declines to make a recommendation to Shareholders in relation to Resolution 6 due to his material personal interest in the outcome of the Resolution on the basis that he is to be granted Related Party Options in the Company should Resolution 6 be passed. However, in respect of Resolutions 3 to 5 and 7, Mr Tchacos recommends that Shareholders vote in favour of those Resolutions for the reasons set out in paragraph (p);
(s) Mr David McArthur declines to make a recommendation to Shareholders in relation to Resolution 7 due to his material personal interest in the outcome of the Resolution on the basis that he is to be granted Related Party Options in the Company should Resolution 7 be passed. However, in respect of Resolutions 3 to 6, Mr McArthur recommends that Shareholders vote in favour of those Resolutions for the reasons set out in paragraph (p);
(t) in forming their recommendations, each Director considered the experience of each other Related Party, the current market price of Shares, the current market practices when determining the number of Related Party Securities to be granted as well as the exercise price and expiry date of the Related Party Options; and
(u) the Board is not aware of any other information that would be reasonably required by Shareholders to allow them to make a decision whether it is in the best interests of the Company to pass Resolutions 3 to 7.

Approval pursuant to ASX Listing Rule 7.1 is not required in order to issue the Related Party Securities to the Related Parties as approval is being obtained under ASX Listing Rule 10.11. Accordingly, the issue of Related Party Securities to the Related Parties will not be included in the 15% calculation of the Company’s annual placement capacity pursuant to ASX Listing Rule 7.1.

GLOSSARY

$ means Australian dollars.

ASIC means the Australian Securities & Investments Commission.

ASX means ASX Limited (ACN 008 624 691) or the financial market operated by ASX Limited, as the context requires.

ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of directors of the Company.

Business Day means Monday to Friday inclusive, except New Year’s Day, Good Friday, Easter Monday, Christmas Day, Boxing Day, and any other day that ASX declares is not a business day.

Chair means the chair of the Meeting.

Company means Xstate Resources Limited (ACN 009 217 154).

Constitution means the Company’s constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors means the current directors of the Company.

Explanatory Statement means the explanatory statement accompanying the Notice.

General Meeting or Meeting means the meeting convened by the Notice.

Notice or Notice of Meeting means this notice of meeting including the Explanatory Statement and the Proxy Form.

Option means an option to acquire a Share with the terms and conditions set out in Schedule 2.

Optionholder means a holder of an Option.

Proxy Form means the proxy form accompanying the Notice.

Resolutions means the resolutions set out in the Notice, or any one of them, as the context requires.

Section means a section of the Explanatory Statement.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a registered holder of a Share.

WST means Western Standard Time as observed in Perth, Western Australia.

SCHEDULE 1 – SUMMARY OF EMPLOYEE INCENTIVE OPTION PLA N

The material terms and conditions of the Employee Incentive Option Plan are as follows:

(a) Eligibility and Grant of Plan Options : The Board may grant Plan Options to any full or part time employee or Director of the Company or an associated body corporate or subject to, and in accordance with, any necessary ASIC relief being obtained, a casual employee or contractor of the Company or any or an associated body corporate ( Eligible Participant ). Plan Options may be granted by the Board at any time.
(b) Consideration : Each Plan Option issued under the Plan will be issued for nominal cash consideration.
(c) Conversion : Each Plan Option is exercisable into one Share in the Company ranking equally in all respect with the existing issued Shares in the Company.
(d) Exercise Price and Expiry Date : The exercise price and expiry date for Plan Options granted under the Plan will be determined by the Board prior to the grant of the Plan Options.
(e) Vesting Conditions : The Plan Options granted under the Plan may be subject to vesting conditions on exercise as may be fixed by the Directors prior to grant of the Plan Options ( Vesting Conditions ). Any restrictions imposed by the Directors must be set out in the offer for the Plan Options.
(f) Renounceability : Eligible Participants may renounce their offer in favour of a nominee (the Eligible Participants and their nominees are each Participants).
(g) Lapsing of Plan Options : Subject to the terms of the offer made to a Participant, an unexercised Plan Option will lapse on the earlier to occur of:
(i) an unauthorised dealing in, or hedging of, the Plan Option;
(ii) a Vesting Condition in relation to the Plan Option is not satisfied by the due date, or becomes incapable of satisfaction, as determined by the Board in its absolute discretion, unless the Board exercises its discretion to waiver the Vesting Condition and vest the Plan Option;
(iii) in respect of unvested Plan Options only, a Eligible Participant ceases to be an Eligible Participant, unless the Board:
- (A) exercises its discretion to vest the Plan Option; or
- (B) in its absolute discretion, resolves to allow the unvested Plan Options to remain unvested after the Eligible Participant ceases to be an Eligible Participant;
(iv) in respect of vested Plan Options only, a Eligible Participant ceases to be an Eligible Participant and the Plan Option granted in respect of that Eligible Participant is not exercised within one (1) month (or such later date as the Board determines) of the date the Eligible Participant ceases to be an Eligible Participant;
(v) the Board deems that a Plan Option lapses due to fraud, dishonesty or other improper behaviour of the holder/Eligible Participant;

(vi) the Company undergoes a Change of Control or a winding up resolution or order is made, and the Plan Option does not vest; and
(vii) the Expiry Date of the Plan Option.
(h) Share Restriction Period : Shares issued on the exercise of Plan Options may be subject to a restriction that they may not be transferred or otherwise dealt with until a restriction period has expired, as specified in the offer for the Plan Options.
(i) Disposal of Options : Plan Options will not be transferable and will not be quoted on the ASX, unless the offer provides otherwise or the Board in its absolute discretion approves.
(j) Participation : There are no participating rights or entitlements inherent in the Plan Options and holders will not be entitled to participate in new issues of capital offered to Shareholders during the currency of the Plan Options.
(k) Change in exercise price : A Plan Option will not confer a right to a change in exercise price or a change in the number of underlying Shares over which the Plan Option can be exercised.
(l) Reorganisation : If at any time the capital of the Company is reorganised (including consolidation, subdivision, reduction or return), all rights of a Participant are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reorganisation.
(m) Limitations on Offers : The Company must have reasonable grounds to believe, when making an Offer, that the number of Shares to be received on exercise of Plan Options offered under an Offer, when aggregated with the number of Shares issued or that may be issued as a result of offers made in reliance on the Class Order at any time during the previous 3 year period under an employee incentive scheme covered by the Class Order or an ASIC exempt arrangement of a similar kind to an employee incentive scheme, will not exceed 5% of the total number of Shares on issue at the date of the Offer.

SCHEDULE 2 – TERMS AND CONDITIONS OF RELATED PARTY OPTIONS

The terms and conditions of the Related Party Options are as follows:

(a) The Options will be unlisted.
(b) The Options are exercisable at $0.05 each at any time on or before 31 December 2020 ( Expiry Date ).
(c) Each Option exercised will entitle the holder to one Share in the capital of the Company.
(d) The notice attached to the certificate has to be completed when exercising the Options ( Notice of Exercise ).
(e) Options may be exercised by the holder completing and forwarding to the Company a Notice of Exercise and payment of the exercise price for each Option being exercised prior to the Expiry Date.
(f) All Shares issued upon exercise of the Options will rank pari passu in all respects with the Company’s then existing Shares.
(g) Shares allotted and issued pursuant to the exercise of Options will be allotted and issued not more than 15 business days after the receipt of a properly executed Notice of Exercise and payment for the Exercise Price of each Option being exercised. The Company will apply for official quotation on ASX of Shares issued pursuant to the exercise of Options.
(h) The holder of Options cannot participate in new issues of securities to holders of Shares unless the Options have been exercised and the Shares have been allotted and registered in respect of the Options before the record date for determining entitlements to the issue. The Company must give notice to the holder of the Options of any new issue before the record date for determining entitlements to the issue in accordance with the ASX Listing Rules. Options can only be exercised in accordance with these terms and conditions.
(i) If the Company makes a pro rata bonus issue of Shares to holders of Shares (other than an issue in lieu or in satisfaction of dividends or by way of dividend reinvestment) and no Shares have been allotted and registered in respect of the exercise of Options before the record date for determining entitlements to the bonus issue, then the number of Shares or other securities for which the holder of the Options is entitled to subscribe on exercise of the Options is increased by the number of Shares or other securities that the holder of the Options would have received if the Options had been exercised before the record date for the bonus issue. No change will be made to the Exercise Price.
(j) If at any time the capital of the Company is reconstructed, all rights of an Option holder are to be changed in a manner consistent with the Corporations Act and the ASX Listing Rules at the time of the reconstruction.

SCHEDULE 3 – VALUATION OF RELA TED PARTY OPTIONS

The Related Party Options to be issued to the Related Parties pursuant to Resolutions 4 to 7 have been valued by internal management.

Using Black-Scholes option model and based on the assumptions set out below, the Related Party Options were ascribed the following value:

Assumptions:

Valuation date	2 December 2016
Market price of Shares	$0.015
Exercise price	$0.05
Expiry date (length of time from issue)	31 December 2020
Risk free interest rate	2.5%
Volatility	250%

Indicative value per Related Party Option	$0.0147

Total Value of Related Party Options	$588,000

Note:

The valuation noted above is not necessarily the market price that the Related Party Options could be traded at and is not automatically the market price for taxation purposes.

CERTIFICATE OF APPOINTMENT OF CORPORATE REPRESENTATIVE

SHAREHOLDER DETAILS

This is to certify that by a resolution of the directors of:

………………………………………………………………………….…….….………...( Company ), Insert name of Shareholder Company

the Company has appointed:

……………………..……………………………………………………………………….……….…, Insert name of corporate representative

in accordance with the provisions of section 250D of the Corporations Act, to act as the body corporate representative of that Company at a general meeting of the members of Xstate Resources Limited to be held at 10.00am (WST) on Tuesday, 31 January 2017 and at any adjournments of that general meeting.

DATED ………………………………………………………. 2017

PLEASE SIGN HERE

Executed by the Company ) ) in accordance with its constituent documents )

............................................….………….….….. .................................................…………………….... Signed by authorised representative Signed by authorised representative ............................................................……...….. .................................................………………….…... Name of authorised representative (print) Name of authorised representative (print) .....................................................…….…..….. ............................................….………………..…….. Position of authorised representative (print) Position of authorised representative (print)

INSTRUCTIONS FOR COMPLETION

Insert name of appointing Shareholder Company and the name or position of the appointee corporate representative (eg “John Smith” or “each director of the Company”).
Execute the Certificate following the procedure required by your Constitution or other constituent documents.
Print the name and position (eg director) of each authorised company officer who signs this Certificate on behalf of the Company.
Insert the date of execution where indicated.
Prior to the Meeting, send or deliver the Certificate to the registered office of Xstate Resources Limited at Level 2, 55 Carrington Street, Nedlands WA 6009 or fax the Certificate to the registered office at +61 8 9389 8327.

PROXY FORM

XSTATE RESOURCES LIMITED ACN 009 217 154

GENERAL MEETING

I/We of: being a Shareholder entitled to attend and vote at the Meeting, hereby appoint:

Name:

OR: the Chair of the Meeting as my/our proxy.

or failing the person so named or, if no person is named, the Chair, or the Chair’s nominee, to vote in accordance with the following directions, or, if no directions have been given, and subject to the relevant laws as the proxy sees fit, at the Meeting to be held at 10.00am (WST), on Tuesday, 31 January 2017 at Level 2, 55 Carrington Street, Nedlands WA 6009, and at any adjournment thereof.

AUTHORITY FOR CHAIR TO VOTE UNDIRECTED PROXIES ON REMUNERATION RELATED RESOLUTIONS

Where I/we have appointed the Chair as my/our proxy (or where the Chair becomes my/our proxy by default), I/we expressly authorise the Chair to exercise my/our proxy on Resolutions 2 to 7 (except where I/we have indicated a different voting intention below) even though Resolutions 2 to 7 are connected directly or indirectly with the remuneration of a member of the Key Management Personnel, which includes the Chair.

CHAIR’S VOTING INTENTION IN RELATION TO UNDIRECTED PROXIES

The Chair intends to vote undirected proxies in favour of all Resolutions. In exceptional circumstances the Chair may change his/her voting intention on any Resolution. In the event this occurs an ASX announcement will be made immediately disclosing the reasons for the change.

Voting on business of the Meeting	Voting on business of the Meeting	FOR	AGAINST	ABSTAIN
Resolution 1	Placement - Shares
Resolution 2	Adoption of Employee Incentive Option Plan
Resolution 3	Issue of Shares to Related Party – Mr Cosimo Damiano
Resolution 4	Issue of Options to Related Party – Mr Cosimo Damiano
Resolution 5	Issue of Options to Related Party – Mr Chris Hodge
Resolution 6	Issue of Options to Related Party – Mr Ian Tchacos
Resolution 7	Issue of Options to Related Party – Mr David McArthur

Please note : If you mark the abstain box for a particular Resolution, you are directing your proxy not to vote on that Resolution on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

If two proxies are being appointed, the proportion of voting rights this proxy represents is:

Signature of Shareholder(s): Individual or Shareholder 1 Sole Director/Company Secretary Date: Contact name: E-mail address:	Signature of Shareholder(s): Individual or Shareholder 1 Sole Director/Company Secretary Date: Contact name: E-mail address:	Shareholder 2 Shareholder 3 Director Director/Company Secretary Contact ph (daytime): Consent for contact by e-mail in relation to this Proxy Form: YES NO

Instructions for completing Proxy Form

1.

( Appointing a proxy ): A Shareholder entitled to attend and cast a vote at the Meeting is entitled to appoint a proxy to attend and vote on their behalf at the Meeting. If a Shareholder is entitled to cast 2 or more votes at the Meeting, the Shareholder may appoint a second proxy to attend and vote on their behalf at the Meeting. However, where both proxies attend the Meeting, voting may only be exercised on a poll. The appointment of a second proxy must be done on a separate copy of the Proxy Form. A Shareholder who appoints 2 proxies may specify the proportion or number of votes each proxy is appointed to exercise. If a Shareholder appoints 2 proxies and the appointments do not specify the proportion or number of the Shareholder’s votes each proxy is appointed to exercise, each proxy may exercise one-half of the votes. Any fractions of votes resulting from the application of these principles will be disregarded. A duly appointed proxy need not be a Shareholder.

2.

( Direction to vote ): A Shareholder may direct a proxy how to vote by marking one of the boxes opposite each item of business. The direction may specify the proportion or number of votes that the proxy may exercise by writing the percentage or number of Shares next to the box marked for the relevant item of business. Where a box is not marked the proxy may vote as they choose subject to the relevant laws. Where more than one box is marked on an item the vote will be invalid on that item.

3. ( Signing instructions ):

( Individual ): Where the holding is in one name, the Shareholder must sign.
( Joint holding ): Where the holding is in more than one name, all of the Shareholders should sign.
( Power of attorney ): If you have not already provided the power of attorney with the registry, please attach a certified photocopy of the power of attorney to this Proxy Form when you return it.
( Companies ): Where the company has a sole director who is also the sole company secretary, that person must sign. Where the company (pursuant to Section 204A of the Corporations Act) does not have a company secretary, a sole director can also sign alone. Otherwise, a director jointly with either another director or a company secretary must sign. Please sign in the appropriate place to indicate the office held. In addition, if a representative of a company is appointed pursuant to Section 250D of the Corporations Act to attend the Meeting, the documentation evidencing such appointment should be produced prior to admission to the Meeting. A form of a certificate evidencing the appointment may be obtained from the Company.

4.

( Attending the Meeting ): Completion of a Proxy Form will not prevent individual Shareholders from attending the Meeting in person if they wish. Where a Shareholder completes and lodges a valid Proxy Form and attends the Meeting in person, then the proxy’s authority to speak and vote for that Shareholder is suspended while the Shareholder is present at the Meeting.
( Return of Proxy Form ): To vote by proxy, please complete and sign the enclosed Proxy Form and return by:
(a) post to Xstate Resources Limited, PO Box 985, Nedlands WA 6909; or
(b) facsimile to the Company on facsimile number +61 8 9389 8327; or
(c) email to the Company at [email protected],

so that it is received not less than 48 hours prior to commencement of the Meeting.

Proxy Forms received later than this time will be invalid.

AI assistant

XSTATE RESOURCES LIMITED — Proxy Solicitation & Information Statement 2016

66107_rns_2016-12-20_1d89296c-2bc8-4795-924c-890233942109.pdf

DISPATCH OF NOTICE OF GENERAL MEETING

On behalf of the Board of Directors