GALE PACIFIC LIMITED — Capital/Financing Update 2004

Feb 9, 2004

Gale Pacific announces European acquisition and related capital raising -Secures substantial strategic distribution channels in Europe to facilitate growth

Gale Pacific Ltd (Gale) has received an irrevocable offer from the shareholders of the German based private company Jung Garten & Freizeit Vertriebsgesellschaft mbH ("Jung"), under which its shareholders have offered to sell 100% of the issued shares in Jung to Gale for $63.47$ million (equating to \$A5.7 million).

In addition, upon Gale's acceptance of the offer, Gale will pay down the outstanding balances of shareholder loans and a working capital facility, net of receipts from the sale of premises by Jung referred to below. As at 31 August 2003 (Jung's balance date), the net amount of shareholder and working capital loans was $63.9$ million (\$A6.4 million). The amount of the working capital requirement varies during the year according to the seasonality of the business which peaks in the first quarter of the calendar year.

The Board of Gale Pacific has decided to accept the irrevocable offer, subject to:

• $\mathbf{L}$ Jung selling the existing premises from which it operates its business for a price of $\epsilon$ 3.0 million (\$A4.9 million) and arranging a lease-back of the premises to Jung on terms already agreed to by Gale; and
• $\overline{2}$ . Gale receiving the proceeds of the share placement described below.

The Board of Gale expects that these 2 events will occur, and anticipates the transaction will complete by the end of February 2004.

The Jung acquisition will establish Gale in Europe with effective customer service, a distribution network and strong established relationships with the key retailers. It will provide an effective, low risk platform to generate strong organic growth from Gale's product range in the large European market. Gale's China procurement expertise also offers significant potential to enhance margins on Jung's established product lines.

Jung

Jung is a leading and well respected supplier to major home improvement retailers in Germany, Austria, Switzerland and the Czech Republic. Jung's product range focuses on garden fabrics and shades, garden tools and related products, and complements those of Gale. Furthermore, Jung's sales and distribution network will provide Gale with a strong base from which to launch its full range of consumer and industrial products into the European market.

10% of the equity in Jung will be made available to its managing director, who leads an experienced management team. Jung's warehouse and distribution centre has ample capacity to accommodate a full range of Gale products. Its location in Saarland in southwest Germany is close to the French border and is one of the lower cost regions of Europe, with excellent access to the key ports of Rotterdam and Antwerp.

In Jung's fiscal year ending 31 August, 2004, the company is expected to generate sales in excess of A\$40 million from its established product lines. The business is expected to be profitable, cash flow positive and will enhance Gale's earnings per share after taking into account the capital raising.

The launch of Gale products through the Jung network will be implemented progressively through calendar 2004, utilizing synergies between the companies, which is expected to result in enhanced earnings. Gale will also use the Jung base to service customers in France, Holland, Belgium and Italy in the near to medium term.

Gale has already established distributors for its products in Spain and Greece who will be serviced directly from Gale's China manufacturing plant and supported through the Jung customer service and distribution centre.

Capital raising

Gale will fund the acquisition from part of a A\$15 million capital raising to be managed by Bell Potter Securities Limited, with the balance being used to fund working capital requirements, new product development initiatives and reduce gearing. Commitments to subscribe for A\$11 million have been received by the Company under a share placement to institutional investors with the balance of A\$4 million coming from a fully underwritten share purchase plan. In total 5.77 million new shares will be issued at a price of \$2.60.

Gale will apply to have the placement shares quoted on the official list of ASX. The placement shares will rank equally in all respects with all other fully paid shares in Gale as from the date of issue and will carry the same voting rights and dividend rights including the right to participate fully in any dividends with a record date after allotment.

Share purchase plan

The share purchase plan has been established by Gale's Board. Under the plan, eligible shareholders will each be entitled to apply for up to 1,923 fully paid ordinary shares in Gale at the \$2.60 per share issue price. The issue price meets the requirements of ASIC class order relief for share purchase plans, pursuant to which a company is able to offer shares to existing shareholders without a disclosure document under the Corporations Act up to a total subscription price of \$5,000 per shareholder in any 12 month period.

All registered holders of ordinary shares in Gale on the record date of 11 February 2004, with a registered address in Australia or New Zealand will be eligible to participate in the share purchase plan.

An entitlement form and a copy of the terms and conditions of the plan will be mailed to eligible shareholders on 16 February 2004. Shareholders will need to use the

entitlement form to apply for shares under the plan. The closing date for the receipt of applications is 9 March 2004.

The key terms of the plan are as follows:

• Participation in the plan is optional. Applicants will not pay brokerage or ٠ commission.
• Offers under the plan are non-renounceable, which means shareholders cannot ٠ transfer their right to apply for shares under the plan to anyone else.
• Gale reserves the right to reject any application for shares if it believes the ٠ shareholder in question has not complied with the terms and conditions of the plan.
• Shares issued under the plan will rank equally in all respects with all other fully $\bullet$ paid shares in Gale as from the date of issue and will carry the same voting rights and dividend rights including the right to participate fully in any dividends with a record date after allotment.
• Gale will apply for quotation of all shares issued under the share purchase plan on ٠ the official list of ASX.

The offer of shares under the share purchase plan will be underwritten by Bell Potter Securities Limited and will be capped at 1,538,461 shares to raise approximately \$4,000,000. If Gale receives acceptances under the plan greater than the capped amount. Gale will scale back all acceptances by the same proportion.

The market price of Gale shares may rise or fall between the date of offers under the plan and the date shares are issued under the plan. This means the price shareholders pay for shares under the plan may exceed, or be less than, the market price of Gale shares at the time of issue. Gale recommends that shareholders take their own financial advice in relation to the plan offer and their participation in the plan.

Gale is due to release its half year results on 26 February 2004.

For further information concerning the Jung acquisition, please contact the Managing Director, Mr. Gary Gale, on (03) 9518 3312. Shareholders having questions about the share purchase plan should contact Gale's share registry, Computershare, on 03 9611 5711, or the Company on (03) 9518 3300.

$\mathscr{J}$

GARY S GALE MANAGING DIRECTOR

10 February 2004