GALE PACIFIC LIMITED — AGM Information 2003

Oct 7, 2003

Gale Pacific Limited ABN 80 082 263 778

Notice of annual general meeting

Notice is given that the annual general meeting of Gale Pacific Limited ("Company") will be held at 145 Woodlands Drive, Braeside, Victoria on 13 November 2003 at 11,00am.

Business

Shareholders are invited to consider the following items of business at the annual general meeting:

$\mathbf{1}$ . Financial and related reports

To lay before the annual general meeting the financial report of the Company and the related directors' report and auditor's report for the year ended 30 June 2003 for shareholders to receive and consider.

$\overline{2}$ . Election of director

Mr Theo Eversteyn retires as a director of the Company by rotation in accordance with the constitution of the Company and, being eligible, offers himself for re-election.

$3₁$ Employee option plan $-$ approval for exception $9(b)$ , listing rule 7.2

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

"That:

• the issue of options to subscribe for ordinary shares in the Company under the $(a)$ Company's employee option plan established by the directors on 13 November 2000, the terms and conditions of which are summarised in the explanatory notes to the notice convening this annual general meeting; and
• (b) the issue of ordinary shares on exercise of such options,

be approved as an exception to ASX listing rule 7.1 in accordance with exception $9(b)$ of ASX listing rule 7.2."

Dated 6 October 2003

By order of the board of Gale Pacific Limited

'Me_

. . . . . . . . . . . . . . . . . . . . Rod House Company secretary

Explanatory notes to notice of annual general meeting

$\mathbf{1}$ . Voting by proxy

• A shareholder entitled to attend and vote at the annual general meeting may $(a)$ appoint one proxy or, if the shareholder is entitled to cast 2 or more votes at the meetings, 2 proxies, to attend and vote instead of the shareholder.
• Where 2 proxies are appointed to attend and vote at the meeting, each proxy may $(b)$ be appointed to represent a specified proportion or number of the shareholder's voting rights at the meeting.
• A proxy need not be a shareholder of the Company. $(c)$
• A proxy form accompanies this notice. For the proxy form to be valid it must be $(d)$ received together with the power of attorney or other authority (if any) under which the form is signed, or a (notarially) certified copy of that power or authority not less than 48 hours before the time for holding the annual general meeting, namely, by 11.00 am on 11 November 2003 at the share registry, being the office of Computershare Investor Services Pty Ltd:
• at GPO Box 242 Melbourne Vic 3000
• by facsimile: (03) 9473 2555 $\bullet$

$2.$ Voting and other entitlements at annual general meeting

A determination has been made by the board of the Company under regulation 7.11.37 of the Corporations Regulations 2001 that shares in the Company which are on issue at 7.00 pm on 11 November 2003 will be taken to be held by the persons who held them at that time for the purposes of the annual general meeting (including determining voting entitlements at the meeting).

Proposed resolution $3 -$ Approval of the Company's employee option plan $3₁$

$3.1$ General

Listing rule 7.1 prohibits the Company from issuing or agreeing to issue more securities than the number calculated in accordance with a formula set out in that listing rule. The formula effectively prohibits issues of equity securities (including shares and options to subscribe for shares) exceeding 15% of the number of issued ordinary shares in the Company in any 12 month period (the "15%/12 month limit") unless prior shareholder approval is obtained.

Listing rule 7.2 sets out a number of exceptions to the prohibition in listing rule 7.1, being circumstances in which securities may be issued without shareholder approval even if that results in an entity exceeding its 15%/12 month limit. Relevantly, one of those exceptions (exception 9(b)) covers an issue of securities under an "employee

incentive scheme" if, within 3 years before the issue date, ordinary shareholders approved the issue, and the notice of meeting contained certain information.

The directors of the Company established an employee option plan ("Plan") on 13 November 2000. The terms and conditions of the Plan were summarised in the prospectus for the Company's initial public offering dated 13 November 2000.

The Plan is an "employee incentive scheme" for the purpose of exception 9(b) of listing rule 7.2. Since the Plan was established, the Company has issued options to subscribe for fully paid shares and shares as a consequence of the exercise of those options. Those issues of options and shares did not count towards the Company's 15%/12 month limit because they were covered by another exception to the prohibition in listing rule 7.1, being exception $9(a)$ of listing rule 7.2. That exception allows issues of securities under an employee incentive scheme the terms of which have been summarised in a prospectus within 3 years prior to the issues. That 3 year period will expire on 12 November 2003.

Unless the Company obtains fresh shareholder approval for issues of options and shares (on exercise of options) under the Plan pursuant to exception $9(b)$ of listing rule 7.2. after 12 November 2003 the Company will no longer be able to rely on exception $9(a)$ of listing rule 7.2 for those issues. Proposed resolution 3 of the notice of meeting provides for the requisite approval to be given. If approval is given, an issue of options or shares under the Plan after 12 November 2003 will either not affect the Company's 15%/12 month limit, or will increase it. That will give the Company additional capacity and flexibility to issue securities (for example, by way of placement) where the directors consider it to be appropriate and necessary without the need to obtain prior shareholder approval at a general meeting under listing rule 7.1.

The information set out in notes $3.2 - 3.4$ is given in accordance with exception 9(b) of listing rule 7.2.

$3.2$ Summary of terms of Plan

Set out below is a summary of the terms and conditions of the Plan, including those on which options may be issued under the Plan.

$(a)$ General

The Plan authorises the directors of the Company to issue invitations to directors and employees of the Company and its subsidiaries, and to certain entities of those participants, to apply for options to subscribe for fully paid ordinary shares in the Company.

Options are issued for free, unless the directors determine otherwise.

The directors have the power to determine the number of options, the exercise price of the options, the period during which they may be exercised, the expiry date and the terms of options issued under the Plan.

$(b)$ Limit

The directors must not issue options under the Plan if, following the issue of options, the number of options held by participants under the Plan would be more than 4% of the total number of fully paid ordinary shares then on issue.

$(c)$ Terms and conditions attaching to options

The key terms and conditions of options previously issued under the Plan, and any that will be issued in the future, are as follows:

$(1)$ Exercise

If any option is validly exercised, the Company must issue to the holder 1 fully paid ordinary share for each option exercised within 30 days from the date of receipt by the Company of payment of the exercise price in cleared funds.

Ranking $(2)$

Shares issued pursuant to the exercise of options rank equally from their date of issue with all other fully paid ordinary shares in the Company then on issue.

$(3)$ Bonus issues

If there is a pro-rata issue of bonus ordinary shares (namely shares for which no consideration is payable to the Company) to the ordinary shareholders in the Company, and if after that time the option holder validly exercises any options, the Company must issue to the option holder (in addition to the number of shares to which the holder is entitled on exercise) the number of bonus ordinary shares which the option holder would have received if before the bonus issue they had held the shares they would have been entitled to had the options been exercised.

$(4)$ Rights issue

If there is an issue ("Pro-rata Issue") of ordinary shares for which consideration is payable to the Company and which has first been offered to all ordinary shareholders on a pro-rata basis (other than an issue of shares in lieu or in satisfaction of dividends or by way of dividend reinvestment), the exercise price of each option existing on the record date for determining entitlements in relation to the Pro-rata Issue will be reduced according to the following formula:

$$
O = O - \frac{E \times [P - (S + D)]}{N + 1}
$$

where:

$O'$ is the new exercise price of the option;

$\overline{O}$ is the old exercise price of the option:

$E$ is 1 or such other number of shares into which the option is exercisable:

$P$ is the average closing price per fully paid ordinary share (weighted by reference to volume) during the 5 trading days ending on the day before the "ex rights date" or "ex entitlements date" in relation to the Pro-rata Issue:

$S$ is the subscription price for a fully paid ordinary share under the Pro-rata Issue:

$D$ is the dividend (if any) due by the Company but not yet paid on existing fully paid ordinary shares (except those to be issued under the Pro-rata Issue); and

$N$ is the number of fully paid ordinary shares with rights or entitlements that must be held to receive a right to 1 new ordinary share pursuant to the Prorata Issue.

$(5)$ Reconstruction of share capital

If:

• the Company's ordinary shares are converted into a larger or smaller number of shares, the number of options immediately prior to the conversion will be converted in the same ratio as the shares and the exercise price will be adjusted in inverse proportion to that ratio;
• the Company reduces its share capital by a return of capital to the $\bullet$ ordinary shareholders, the number of options will remain the same but the exercise price will be reduced by the same amount as the return of capital on each ordinary share;
• the Company reduces its share capital by a cancellation of capital that $\bullet$ is either lost or not represented by available assets, the number of options and the exercise price will remain unaltered:
• there is a pro-rata cancellation of ordinary shares, the number of options will be reduced in the same ratio as the shares and the exercise price will be amended in inverse proportion to that ratio; or
• there is any other reconstruction or reorganisation of the Company's share capital, the number of options or the exercise price or both will be reorganised in such manner as the directors of the Company consider necessary so that the option holder will not receive a benefit that the ordinary shareholders do not receive in connection with the reconstruction or reorganisation;

All entitlements arising in connection with any such reconstruction or reorganisation will be rounded down to the nearest whole number and fractions will be disregarded (subject to the provisions with respect to rounding the entitlements as sanctioned by the meeting of shareholders approving the reconstruction or reorganisation of the shares) and in all other respects the terms for exercise of the options will remain unchanged as a consequence of any reconstruction or reorganisation.

Options not assignable $(6)$

Unless the directors determine otherwise, options are not assignable other than by operation of law.

$(7)$ Expiry date

All options remaining unexercised by 11.59pm on the expiry date for options determined by the directors will lapse and terminate after that time.

$(8)$ Early expiry

Unless the directors determine otherwise, if:

• an employee ceases to be an employee of the Company or a $(A)$ subsidiary due to:
• termination of the employee's employment because of a breach by the employee of the terms of the employee's employment; $\alpha$ ^r
• resignation of the employee for a reason other than death, $\bullet$ illness, injury or retirement: or
• a director of the Company or it subsidiaries ceases to be a director for (B) a reason other than death, illness, injury or retirement,

any options held by the employee or director that the employee or director could not at the time exercise lapse and terminate, but not any option which the employee or the director could at that time have exercised.

$(9)$ Early exercise

Notwithstanding any restrictions on the exercise of options which would otherwise apply, options may be exercised if:

• $\bullet$ the Company sells its major undertaking;
• the Company enters into a compromise or arrangement under part 5.1 of the Corporations Act 2001; or
• the Company is the subject of a takeover bid under chapter 6 of the Corporations Act 2001.

$3.3²$ Options and shares issued under the Plan since 13 November 2000

Since 13 November 2000, being the date of the Company's prospectus for its initial public offering in which the terms and conditions of the Plan were summarised, and up to 13 November 2003, 650,000 options to subscribe for an equivalent number of fully paid ordinary shares at an exercise price of \$1.00 for each option were issued to senior executives of the Company and its subsidiaries (none of whom were directors) under the Plan. Those options expire on 1 December 2004.

The options may be exercised in specified proportions, and subject to the Company's ordinary shares trading on ASX at or higher than specified prices (ranging from \$1.75) to \$2.75) on each day for a consecutive period of 30 days on which there is a sale of the Company's shares on ASX.

90,000 of those options have since been exercised (because the above performance hurdles were met or exceeded), resulting in the Company issuing an equivalent number of fully paid ordinary shares for an issue price of \$1.00 for each share; and

155,000 of those options lapsed due to executives to whom they were issued leaving the Company.

Voting exclusion statement $3.4$

The Company will disregard any votes cast on resolution 3 by:

• $(a)$ a director of the Company; and
• $(b)$ an associate of any director of the Company.

However, the Company need not disregard a vote if:

• it is cast by a person as proxy for a person who is entitled to vote, in accordance $(c)$ with the directions on the proxy form; or
• it is cast by the person chairing the meeting as proxy of the person who is entitled $(d)$ to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

Directors' recommendation $3.5$

The directors consider it to be in the best interests of the Company to issue options under the Plan to senior executives of the Company and its subsidiaries from time to time. The directors believe that options provide senior executives with an incentive to perform in their positions and help retain key staff.

If proposed resolution 3 is not passed, the directors' ability to issue options (and shares resulting from the exercise of options issued under the Phn) could be fettered after 12 November 2003 because any such issue may, if it would result in the Company exceeding its 15%/12 month limit, require shareholder approval under listing rule 7.1 at another general meeting of the Company.

Accordingly, the directors recommend that shareholders vote in favour of proposed resolution 3.

Mr Gary Gale and Mr Peter McDonald, who are executive directors of the Company, were issued with options under the Plan in November 2000, as disclosed in the Company's prospectus dated 13 November 2000. There is no current proposal by the board to issue further options to Mr Gale, Mr McDonald or any other director under the Plan. An issue of options to a director of the Company would require shareholder approval under ASX listing rule 10.14.