Notice of Annual General Meeting

NOTICE is given that the 2004 annual general meeting of Gale Pacific Limited ("Company") will be held at 145 Woodlands Drive. Braeside, Victoria on 15 November 2004 at 11.00 am

Business

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

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

To lay before the annual general meeting the financial report of the Company and its controlled entities and the related directors' and auditor's reports for the year ended 30 June 2004 for shareholders to receive and consider

$2.$ Re-election of directors

Mr Daryl Reilly retires as a director of the Company by rotation in accordance with rule 7.1(f) of the $(a)$ constitution of the Company and, being eligible, offers himself for re-election.
Mr Peter McDonald retires as a director of the Company by rotation in accordance with rule 7.1(f) $(b)$ of the constitution of the Company and, being eligible, offers himself for re-election.
Mr George Richards, a director of the Company appointed by the directors in accordance with rule $(c)$ 7.1(d) of the constitution of the Company on 17 May 2004, retires as a director of the Company in accordance with that rule and, being eligible, offers himself for re-election.

$3.$ 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 Company's employee $(a)$ option plan established by the directors on 13 November 2000 and amended by resolution of the directors on 22 September 2004, the terms and conditions of which are summarised in the explanatory notes to the notice convening this annual general meeting ("Plan"); 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."

4. Issue of options to executive directors under the Plan

To consider and if thought fit pass 2 resolutions as ordinary resolutions approving, for the purpose of ASX listing rule 10.14, the acquisition by each of the directors named below of up to the number of options, and fully paid ordinary shares in the Company to be issued on exercise of the options (as those numbers may be adjusted in accordance with the terms of issue of options) set out opposite the director's name in accordance with the Plan and otherwise on the terms and conditions described in the explanatory notes to the notice convening this annual general meeting:

ordinary shares in the Company.

Gary Gale (managing director); up to 320,000 options to subscribe for up to 320,000 fully paid

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Peter McDonald (chief operating officer); up to 240,000 options to subscribe for up to 240,000 fully $(b)$ paid ordinary shares in the Company.

Dated 24 September 2004

$(a)$

By order of the Board of Gale Pacific Limited

Sophie Karzis Company Secretary

Explanatory notes to notice of annual general meeting

$\mathbf{1}$ Voting by proxy

$(a)$ A shareholder entitled to attend and vote at the annual general meeting may appoint one proxy or, if the shareholder is entitled to cast 2 or more votes at the meeting. 2 proxies, to attend and vote instead of the shareholder
$(b)$ Where 2 proxies are appointed to attend and vote at the meeting, each proxy may be appointed to represent a specified proportion or number of the shareholder's voting rights at the meeting.
$(c)$ A proxy need not be a shareholder of the Company.
A proxy form accompanies this notice. For the proxy form to be valid it must be received together with the $(d)$ 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 13 November 2004 at the share registry, being the office of Computershare Investor Services Pty Ltd:
by post at GPO Box 242, Melbourne, Victoria 3001; or
by personal delivery at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067; or
by facsimile: (03) 9473 2555.

$2.$ 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 11.00 am on 13 November 2004 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).

$\overline{3}$ . Re-election of directors

Please refer to page 20 of the 2004 annual report accompanying this notice of meeting for information about each of the directors standing for re-election (being Mr Daryl Reilly, Mr Peter McDonald and Mr George Richards).

$\overline{\mathbf{4}}$ . Proposed resolution 3 – Approval of the Company's emplovee option plan

$4.1$ 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 approved by shareholders at last year's annual general meeting held on 13 November 2003 for the purpose of exception 9(b) of listing rule 7.2.

The Plan is an "employee incentive scheme" for the purpose of exception 9(b) of listing rule 7.2. Since last year's annual general meeting, the Company has issued options to subscribe for fully paid shares and shares as a consequence of the exercise of those options.

On 22 September 2004, the directors resolved to amend the rules of the Plan (refer to section 4.2(b) below). As a result of that amendment, 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 is necessary for future issues of options and shares under the Plan to be covered by that exception. Proposed resolution 3 of the notice of meeting provides for the requisite approval to be given. If approval is given, future issues of options or shares under the Plan (including the proposed issue of options to the executive directors of the Company described in section 5 below) 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.

$4.2$ 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.

General $(a)$

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.

Participants in the Plan are not required to pay any amount to be granted options, 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 6% of the total number of fully paid ordinary shares then on issue (the limit was increased from 4% to 6% by a resolution of directors dated 22 September 2004).

$(c)$ 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.

$(2)$ Ranking

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;

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 Pro-rata Issue.

$(5)$ Reconstruction of share capital

Ħ.

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 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 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
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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.

$(6)$ Options not assignable

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

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.

4.3 Options and shares issued under the Plan since 13 November 2003

Since 13 November 2003, being the date the Plan was last approved by shareholders, and up to the date of this notice of meeting:

50,000 options to subscribe for an equivalent number of fully paid ordinary shares at an exercise $(a)$ price of \$1.50 for each option were issued to an executive of a subsidiary of the Company under the Plan. Those options expire on 1 December 2006. The options may be exercised in specified proportions on or after 1 September 2005, and subject to the Company's ordinary shares trading on ASX at or higher than specified prices (ranging from \$3.20 to \$3.95) on each day for a consecutive period of 30 days on which there is a sale of the Company's shares on ASX; and
$(b)$ 217,500 options previously issued under the Plan were exercised, resulting in the Company issuing an equivalent number of fully paid ordinary shares for an issue price of \$1.00 for each share.

4.4 Directors' recommendation

The directors, other than Mr Gary Gale and Mr Peter McDonald (who were absent and did not vote). ("Independent 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 Independent 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 Plan) could be fettered 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 Independent Directors recommend that shareholders vote in favour of proposed resolution 4.

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. It is proposed that additional options be issued to them under the Plan, as described in section 5 below.

$5.$ Proposed resolutions 4(a) and (b) - issue of options to executive directors under the Plan

$5.1$ General

Under listing rule 10.14, the Company must not permit its directors, their associates and others to acquire securities under an employee incentive scheme (such as options under the Plan) without shareholder approval.

The Independent Directors (see note 4.4 above) have consulted with market analysts about a proposal to offer to the executive directors of the Company. Gary Gale and Peter McDonald (each an "Executive Director"). options under the Plan. Based on those consultations, the Independent Directors have resolved that subject to obtaining shareholder approval for the purpose of listing rule 10.14, it is appropriate that further options be offered to Messrs Gale and McDonald under the Plan on the terms described below.

Proposed resolutions 4(a) and (b) provide for the requisite approvals to be given in relation to the proposed acquisition of options by, respectively, Mr Gale and Mr McDonald.

$5.2$ Terms of issue of options

The options proposed to be offered to each of Mr Gale and Mr McDonald will be issued on the terms and conditions of the Plan, which are summarised in note 4. The exercise price, the periods during which options may be exercised by the Executive Directors and the conditions for exercise are described in notes 5.4 and 5.5.

$5.3$ Maximum number of options

The maximum number of options proposed to be issued to each Executive Director under the Plan, if he accepts the Company's offer of options, is as follows:

Gary Gale (managing director): 320,000 options. $(a)$
$(b)$ Peter McDonald (chief operating officer): 240,000 options.

Each option will, if issued and exercised by an Executive Director in accordance with and subject to the terms of the Plan, entitle him to acquire one fully paid ordinary share in the Company.

In certain circumstances, the number of options proposed to be issued to each Executive Director may be adjusted in accordance with the terms of the Plan: refer to note 4.2(c)(5). Furthermore, each Executive Director may, by virtue of his holding of options, become entitled to receive bonus shares in the Company: note 4.2(c)(3).

$5.4$ Issue price and exercise price of options

Neither Executive Director will be required to pay an amount of money for the issue of options to him under the Plan. However, if an Executive Director becomes entitled to exercise options, he will be liable to pay the Company \$3.00 for each option that he exercises, subject to the qualification referred to in this note 5.4.

The exercise price of \$3.00 is higher than the weighted average market price of the Company's shares on ASX for the month prior to the Independent Directors resolving to offer options to the Executive Directors (which was \$2.75).

In certain circumstances, the exercise price of options may be adjusted in accordance with the terms of the Plan: refer to notes $4.2(c)(4)$ and $4.2(c)(5)$ .

5.5 Exercise of options

Mr Gale and Mr McDonald will only be entitled to exercise options if and when certain performance hurdles determined by the Independent Directors have been satisfied. The performance hurdles have been set by reference to the "Adjusted Weighted Average Earnings Per Share", which means:

for the financial year ended 30 June 2004, 17.85 cents. This is diluted earnings per share of the $(a)$ Company as disclosed in the Company's audited financial statements for that financial year. adjusted by increasing the earnings specified in those audited financial statements as having been used in the calculation of reported diluted earnings per share by \$1.3 million, being the amount of costs determined by the directors to be "one off" costs incurred by the Company in the financial year ended 30 June 2004 (as disclosed in the directors' statement to the stock exchange, results and final dividend for the year ended 30 June 2004 announced to ASX on 25 August 2004); and
for each of the financial years ended 30 June 2005, 30 June 2006, 30 June 2007 and 30 June $(b)$ 2008, the diluted earnings per share of the Company as disclosed in the Company's audited financial statements for that financial year. However, if:
$(1)$ there is any change to the accounting standards, including without limitation, as a result of the adoption of International Financial Reporting Standards; and
$(2)$ that change results in the earnings specified in the audited financial statements as having been used in the calculation of diluted earnings per share ("Total Earnings") for the relevant financial vear being determined on a basis different from that on which Total Earnings for the financial year immediately preceding that financial year ("Prior Year Total Earnings") was determined.

then, in determining Adiusted Weighted Average Earnings Per Share for the relevant financial vear (or whether it has increased over the previous financial year). Total Earnings for the relevant financial year or Prior Year Total Earnings must be adjusted to the extent necessary to ensure that Total Earnings for the relevant financial year and Prior Year Total Earnings are determined on the same or a comparable basis.

Each Executive Director will become entitled to exercise up to 25% of the number of options issued to him in each of calendar years 2005, 2006, 2007 and 2008 (each a "Relevant Year") if the Adjusted Weighted Average Earnings Per Share for the financial year ended 30 June in the Relevant Year increases by 15% or more over the Adjusted Weighted Average Earnings Per Share for the previous financial year. However, if the Adjusted Weighted Average Earnings Per Share for a financial year ended 30 June in a Relevant Year increases by 25% or more over the Adjusted Weighted Average Earnings Per Share for the previous financial year, the Executive Directors will be entitled to exercise up to 50% of the number of options issued to them, thereby effectively bringing forward the time the Executive Directors are able to exercise options. If, for instance, the Adjusted Weighted Average Earnings Per Share for each of the financial years ended 30 June 2005 and 30 June 2006 increased by 25% or more over that for financial vears ended 30 June 2004 and 30 June 2005 respectively, the Executive Directors would become entitled to exercise all of their options in 2006.

If the required increase in Adiusted Weighted Average Earnings Per Share is achieved in a Relevant Year. the options the Executive Directors will be entitled to exercise as a result will be exercisable on and from 1 November in that Relevant Year, or the date on which the Company lodges its audited financial statements for the financial year ended in that Relevant Year with ASX, whichever is later.

All options not exercised by an Executive Director on or before the expiry date of 31 December 2008 will expire and thereafter will not be able to be exercised.

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5.6 Proposed date of issue of options

If resolutions 4(a) and 4(b) are passed, options will be issued to, respectively. Mr Gale and Mr McDonald by no later than 31 December 2004.

$5.7$ No Ioans

The Company will not make any loan to an Executive Director in connection with the acquisition of options issued under the Plan or of shares to be issued on the exercise of options.

$5.8$ Previous issues of options

The Executive Directors were issued with options under the Plan in November 2000, as disclosed in the Company's prospectus dated 13 November 2000. In summary, in November 2000:

Mr Gale was issued with 427.942 options to subscribe for an equivalent number of fully paid ordinary $(a)$ shares at an exercise price of \$1.00 for each option. As at the date of this notice of meeting. Mr Gale is entitled to exercise all of those options. If he does not exercise them on or before 1 December 2004, they will expire on that date.
$(b)$ Mr McDonald was issued with 332.843 options to subscribe for an equivalent number of fully paid ordinary shares at an exercise price of \$1.00 for each option. Mr McDonald has since become entitled to exercise. and has exercised, all of those options, and as a result has been issued with 332,843 fully paid ordinary shares in the Company for a total price of \$332,843.

No other options or shares have been issued by the Company under the Plan to the directors or their associates.

5.9 Directors entitled to participate in the Plan

Under the Plan, the directors of the Company may issue options to the directors (including to any of the current directors, being Messrs T Eversteyn, D Reilly, G Richards, G Gale and P McDonald) and employees of the Company and its subsidiaries, and to their associated entities: refer to note 4.1 above.

There is currently no proposal by the board to issue any options under the Plan to any director or his associates, other than to the Executive Directors as described in this note 5. Any such issue would also require the approval of shareholders under listing rule 10.14.

5.10 Directors' recommendation

The Independent Directors recommend that you vote in favour of resolutions 4(a) and 4(b).

The Executive Directors have an interest in the proposed issue of options to them under the Plan and decline to make a recommendation.

6. Voting exclusion statement

The Company will disregard any votes cast on resolutions 3, 4(a) and 4(b) by:

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

However, the Company need not disregard a vote if:

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