Kalina Power : Supplementary Prospectus 2016-08-24

This Supplementary Prospectus is dated 23 August 2016 and is supplementary to the Prospectus issued by Kalina Power Limited (Kalina) dated 2 August 2016 in relation to a non- renounceable pro rata rights issue (Prospectus).

This Supplementary Prospectus was lodged with ASIC on 24 August 2016. ASIC takes no responsibility for the content of this Supplementary Prospectus.

This Supplementary Prospectus must be read together with the Prospectus. If there is a conflict between the Prospectus and this Supplementary Prospectus, this Supplementary Prospectus will prevail.

Terms defined in the Prospectus have the same meaning when used in this Supplementary Prospectus.

1. Underwriting Agreement with Harrington Global Limited

   Harrington Global Limited entered into an Underwriting Agreement with the Company on 1 August 2016 in relation to the Offer. After discussions with ASIC, it has been agreed that Shareholder approval will be sought for the acquisition by Harrington of any Shortfall Shares in excess of those which Harrington may take up in accordance with item 9 of section 611 of the Corporations Act. (The Corporations Act prohibits a shareholder holding voting power of more than 20% in a listed company from increasing its voting power, except in certain circumstances. Item 9 allows such a Shareholder to increase its voting power by not more than 3% above that which it held 6 months earlier).

   Harrington will be able to apply, without shareholder approval, for a maximum of approximately 24,742,600 shares ($1,237,130) assuming only the minimum subscription is raised, taking its voting power from the 24.7% it held 6 months ago to 27.6%. The actual number of Shares which Harrington will be able to apply for will depend on whether the minimum subscription is satisfied or exceeded, and if the minimum subscription is not satisfied, whether Pan Andean decides to waive the minimum subscription condition. The maximum number of shares for which shareholder approval may subsequently be sought to enable Harrington to satisfy its underwriting obligation is approximately 25,257,380 ($1,262,869), based on only the minimum subscription being raised by the Offer, and the underwriting by Pan Andean. In the event the Shortfall Shares are placed and the $1,050,000 placement is completed prior to the date of the Notice of Meeting to seek Shareholder approval, the number of shares for which approval may need to be sought will be reduced.

   In no circumstance will Harrington's voting power increase beyond 27.6% without Shareholder approval.

   In addition to the approval for the issue of the shares to Harrington, the Company will seek Shareholder approval for the exercise of the Options that will be issued to Harrington under the terms of the Offer.

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2. Proposed Grant of Options to Harrington Global Limited

   The Company will seek Shareholder approval to grant 17,500,000 options exercisable at $0.05 cents each until 28 April 2017 (the "Options"). Pursuant to the Corporations Act and the ASX Listing Rules, shareholder approval will be sought for the Options at the AGM of the Company to be held in November.

   The exercise price of the Options represents the same price as the options to be issued under the Rights Issue and placement, although with a shorter exercise period.

   The board proposes to grant these options in consideration of the continued support of the Company demonstrated by Harrington as the Company's largest shareholder. The support provided by Harrington has allowed the Group to progress with its re-alignment of focus and business plans and includes:

   • Underwriting the Company's Rights Issue when sufficient external underwriting could not be obtained.

   • Providing a $2,500,000 loan to the Company ahead of this underwriting commitment.

   • Extending the time under the loan agreement in which the Rights Issue was to be completed on multiple occasions to allow the Rights Issue to proceed.

3. Updated Timetable

   The updated timetable to include Shareholder approval for the placement of up to approximately 25,257,380 Shortfall shares with Harrington is:

   Closing date for receipt of acceptances and payment	1 September 2016
   Shares and Options quoted on ASX on deferred settlement basis	2 September 2016
   Shortfall notification date to ASX	6 September 2016
   Issue of Offer shares and Options (other than those to Harrington requiring Shareholder approval)	8 September 2016
   Deferred settlement trading ends	8 September 2016
   Issue of Shortfall shares and Options to Harrington requiring Shareholder approval	28 November 2016
   Closing date by which the Shortfall shares remaining after the Offer has completed may be placed by the directors	30 November 2016

   The Company reserves the right to extend the Closing Date, in which case subsequent dates will alter accordingly. The ASX Listing Rules require at least 3 Business Days' notice to be given of any extension to the Closing Date.

4. First Right of Refusal to Place Shortfall

   As announced to the ASX on 1 August 2016, Hartleys Limited (Hartleys) has a first right of refusal to place the first $1,050,000 of any Shortfall. Hartleys will receive a fee of 6% of the amount raised by any Shortfall placed by it.

5. Proposed Issue of Options to Key Management, including Directors

   The Company will seek Shareholder approval to grant 45,405,000 options, which will represent 10% of the fully diluted capital of the Company, vesting on grant and exercisable at

   $5.5 cents each for a period of 3 years (the "Options"). Pursuant to the Corporations Act and the ASX Listing Rules, Shareholder approval will be sought for the Options at the AGM of the Company to be held in November.

   The exercise price of the Options represents a 10% premium to the Rights Issue and placement price of 5c.

   The new Options granted will represent 10% of the fully diluted capital of the Company on the basis each of the Rights Issue and placement are completed. In the event the placement is not completed or the Rights Issue, including placement of any Shortfall, raises less than the total amount of $5.5 million, the number of new Options will be reduced so that the number of new Options will not exceed 10% of the Company's capital. Any such adjusted amount will be reflected in the Notice of Meeting issued in relation the AGM.

   Mr Ross MacLachlan, currently an executive director, is proposed to be appointed to the role of CEO upon completion of the fundraisings and is proposed to receive 23,300,000 Options.

   Mr Timothy Horgan, an executive director, is proposed to receive 7,800,000 Options.

   Mr Jeffry Myers, the proposed non-executive director, is proposed to receive 5,200,000 Options.

   Mr John Byrne, the current chairman of the Company, is proposed to receive 2,600,000 Options.

   Dr Malcolm Jacques, a non-executive director, is proposed to receive 1,000,000 Options Other Key Personnel are proposed to receive a total of 5,505,000 Options.

6. Updates to the Prospectus

The table in section 2 on page 19 of the Prospectus headed "Key Offer Statistics" is updated as follows:

111,251,440 Ordinary Shares with 55,625,720 attaching options

conclusion of the offer 259,586,693 Ordinary Shares

63,125,720 exercisable at $0.05 on or before 30 August 2017

140,000 @ $0.075

21,600,000 @ $0.11

45,405,000 @ $0.055*

The Company intends to use the funds raised from the Offer as follows:

# Harrington has underwritten $2,500,000 of the Offer, subject as to part to Shareholder approval. If the Harrington loan, the funds from which were received in January 2016 is not fully offset against its underwriting obligation, or Shareholder approval is not obtained, any amount not offset will be repaid in cash.

*This represents the proposed issue of options to Key Personnel, including to directors that is subject to shareholder approval.

*The above use of funds assumes full subscription. The directors reserve the right to place any Shortfall and the above is based on the assumption any Shortfall is placed. In addition the directors intend to place a further $1,050,000 (21,000,000 shares) on the same terms as the Offer. In this event the working capital available to the Company would increase to approximately $3,800,000 inclusive of the current cash balance in the Company.