GALE PACIFIC LIMITED — Proxy Solicitation & Information Statement 2006

May 30, 2006

29 May 2006

Dear Shareholder

As you may be aware from recent announcements by the Company to the Australian Stock Exchange, directors are proposing to restructure the capital base of the Company to reduce debt and increase equity. Enclosed with this letter are documents setting out details of proposed resolutions of the shareholders to approve the issue up to 23,529,412 ordinary shares in the capital of the Company at \$0.85 per share via a placement and Share Purchase Plan, and a variation and conversion of Convertible Notes issued by the Company in December 2004 and September 2005.

An Extraordinary General Meeting of shareholders has been called for Friday 30 June 2006 at the offices of Pitcher Partners, Level 19, 15 William Street Melbourne Victoria 3000, commencing at 9.00am to vote on the resolutions.

Further details regarding the resolutions are set out in the Explanatory Statement which is attached to, and forms part of, the enclosed Notice of Meeting. Your directors encourage shareholders to read the material set out in the Explanatory Statement and to vote on the resolutions set out in the Notice of Meeting.

If you cannot attend the meeting, please complete the enclosed Proxy Form and return it as soon as possible and in any event by no later than 9.00am Melbourne time on Wednesday 28 June 2006. A self addressed stamped envelope is enclosed with this letter for this purpose.

Also enclosed with this letter are documents setting out the details of the Company's Share Purchase Plan under which shareholders are offered the opportunity to purchase shares in the Company at 85 cents. Please read these documents carefully to assess whether you wish to participate in the Share Purchase Plan.

Yours sincerely

Gale Pacific Limited

Harry Boon Chairman

Gale Pacific Limited ACN 082 263 778

Notice of meeting

Notice is hereby given that a meeting of members of the Company will be held at 9.00 am on Friday 30 June 2006 at the offices of Pitcher Partners at Level 19, 15 William Street Melbourne Victoria 3000.

The purpose of the meeting will be to consider and if thought fit pass the following resolutions:

Resolution 1 - Share Issue: Listing Rule 7.1

"Pursuant to Australian Stock Exchange Listing Rule 7.1, and subject to Resolution 2 of this Notice being duly passed, to approve the issue of up to 23,529,412 ordinary shares in the capital of the Company at \$0.85 per share to persons to whom shares may be offered without disclosure under Part 6D.2 of the Corporations Act 2001."

Voting Exclusion Statement

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

• $\mathbf{1}$ . a person who may participate in the proposed issue;
• a person who might obtain a benefit, except a benefit solely in the capacity of a $2.$ holder of ordinary securities, if the resolution is passed; or
• $\overline{3}$ . an associate of that person or those persons.

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 $4.$ with the directions on the proxy form; or
• 1. it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form to vote as the proxy decides.

Resolution 2 – Variation and Conversion of Convertible Notes: Listing Rule 7.1

"Pursuant to Australian Stock Exchange Listing Rule 7.1, and subject to Resolution 1 of this Notice being duly passed, to approve:

the variation of the terms of issue of each of the convertible notes issued by $(a)$ the Company on or about:

14 December 2004: consisting of 1,999,999 notes with a face value and conversion price of \$3.25; and

9 September 2005, consisting of 4,864,865 notes with a face value and conversion price of \$1.85,

so that each note holder will have the option at any time before 31 July 2006. to convert their notes at a conversion price of 85 cents (instead of the current terms which only allow conversion at a price of either \$3.25 or \$1.85 as the case may be) and which may result in the issue of up to 18,235,291 ordinary fully paid shares.

Voting Exclusion Statement

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

• $\mathbf{1}$ . the note holders or the parties that will hold fully paid ordinary shares in the Company upon conversion of their notes should the amendment be approved by shareholders:
• a person who might obtain a benefit, except a benefit solely in the capacity of a $2₁$ holder of ordinary securities, if the resolution is passed; or
• $3₁$ an associate of that person or those persons.

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 $4.$ 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 5. vote, in accordance with the directions on the proxy form to vote as the proxy decides.

By order of the board

Dated 25 May 2006

Sophie Karzis Company Secretary

Notes:

• $\blacksquare$ A member entitled to attend and vote at this meeting is entitled to appoint one proxy or, if the member is entitled to cast two or more votes at the meeting, two proxies to attend and vote on behalf and instead of the member.
• $2₁$ Where two proxies are appointed and the appointment does not specify the proportion or number of the member's votes each proxy may exercise, each proxy may exercise half of the votes.
• A proxy need not be a member. $3₁$
• $4¹$ A proxy form accompanies this notice. To be valid it must be received together with the authority (if any) under which the form is signed, or a certified copy of that authority, not less than 48 hours before the time for holding the meeting, namely by 9 am on 28 June 2006 at the share registry, being the office of Computershare Investor Services Pty Ltd:
• by post at GPO Box 242, Melbourne, Victoria 3001; or $(a)$
• by personal delivery at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067; $(b)$ or
• by facsimile: (03) 9473 2555. $(c)$
• Regulation 7.11.37 determination: A determination has been made by the board of $5₁$ directors of the Company under regulation 7.11.37 of the Corporations Regulations 2001 of the Commonwealth of Australia that those persons who are registered as the holders of shares in the Company up to 7.00 pm on 28 June 2006 will be taken to be the holders of shares for the purposes of determining voting entitlements at the meeting.

Explanatory Statement

Introduction

Following a thorough review of the Company's debt and capital structure for the short and medium term. Directors have determined to restructure the Company's balance sheet with a view to reducing debt and increasing shareholders' capital. To achieve these objectives the Company proposes to:

• raise \$20,000,000 by the issue of 23,529,412 ordinary fully paid shares at an issue price of $1$ \$0.85 per share via a combination of private placement and a Share Purchase Plan:
• $2.$ convert a large portion of the existing 1,999,999 convertible notes issued on 14 December 2004 with a face value and conversion price of \$3.25 and the 4,864,865 convertible notes issued on 9 September 2005 with a face value and conversion price of \$1.85, into ordinary shares in the Company.

The Company has negotiated a variation to the terms of these notes so that each note holder has the option before 31 July 2006 to convert the notes held by them into a number of ordinary shares equal to the total face value of those notes divided by \$0.85, instead of \$3.25 and \$1.85 respectively. A note holder will only have the opportunity to convert at the special conversion price of 85 cents if they elect to convert their notes before 31 July 2006, after which time any notes which have not been converted will only be able to be converted at a conversion price equal to their face value, i.e. \$3.25 or \$1.85 (as the case may be).

Resolution 1: Share Issue - Listing Rule 7.1

Reasons: Australian Stock Exchange Listing Rule 7.1 generally limits the number of shares a Company may issue during any 12 month to 15% of the Company's issued shares, unless the shareholders approve the issue. Since the proposed issue of 23,529,412 shares would exceed the limit set by Listing Rule 7.1 the Company is seeking the approval of shareholders to proceed with the issue.

Offers: The Company proposes to offer the shares as follows:

• 2,352,941 of the shares will be offered to shareholders under the terms of the Share $1¹$ Purchase Plan which is attached to this notice of meeting. Each shareholder will have the opportunity to participate up to a maximum value of \$5000, however if subscription exceeds \$2 million in aggregate, each shareholder's subscription will be reduced pro rata.
• A further 21,176,471 shares and any shares not taken up by members under the Share $2.$ Purchase Plan will be placed by the Company with persons to whom offers may be made without a disclosure document under Part 6D.2 of the Corporations Act 2001.

Tricom Equities Limited (Tricom) has agreed to wholly underwrite the subscription of \$20 million representing 23,529,412 shares at an issue price of \$0.85. Tricom will receive an underwriting fee of 2.9% for underwriting the capital raising.

The offer under the Share Purchase Plan is non renounceable and therefore the right to take up shares under the Share Purchase Plan is not transferable.

Use of funds: The Company believes that the recapitalisation of the Company effected by the proposed issue will significantly strengthen the Company's balance sheet and put it in a better position to implement its business growth strategy in Australia, New Zealand, China, the United States, the Middle East and Europe.

Therefore, the Company proposes to use the funds to be raised by the issue, after meeting the costs of the issue (estimated to be \$650,000), to repay debt and for general working capital purposes.

Terms of Offers: The shares to be issued under the Share Purchase Plan and the placement will be ordinary shares of the same class as those currently on issue in the capital of the Company. Accordingly the new shares will participate in dividends equally in all respects with the existing ordinary shares of the Company.

The Company will apply for shares issued under the Share Purchase Plan and placement to be quoted on the ASX within the period required by the Listing Rules.

The Company proposes to issue the shares under the Share Purchase Plan and placement by no later than 28 July 2006.

Terms of Share Purchase Plan: Attached to this Notice of Meeting are:

• Your Share Purchase Plan Offer; and $1.$
• Your Share Purchase Plan Acceptance Form. $\overline{2}$ .

You may accept the Share Purchase Plan Offer for any number of shares up to the maximum number indicated in the enclosed offer, subject to accepting for a minimum of 1000 shares. The issue price of the Share Purchase Plan represents a discount of 9.4% to the weighted average closing price of ordinary shares on the last five days on which sales of shares were recorded before 19 May 2006, being the date the Company announced its intention to issue shares under a Share Purchase Plan.

If you wish to accept the Offer under the Share Purchase Plan you should complete the enclosed Acceptance Form and return it so that it is received by the share registry, together with payment of the subscription amount, at 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; before the Offer closes at 5.00 pm. Melbourne time on 19 June 2006. A stamped self addressed share plan acceptance envelope has been enclosed.

Voting Exclusion Statement: The persons identified in the Voting Exclusion Statement which appears at the foot of resolution 1 are prohibited from voting on the resolution.

Resolution 2 – Variation and Conversion of Convertible Notes

Reasons: Your Directors have determined to restructure the Company's balance sheet with a view to reducing debt and increasing shareholders' capital.

To achieve these objectives, the Company negotiated a variation to the terms of the December 2004 and September 2005 convertible notes which will enable the conversion of the aggregate debt of \$15,499,997 represented by the converting notes into 18,235,291 ordinary fully paid shares of \$0.85. The Convertible Note Deeds under which the convertible notes were issued allow conversion at \$3.25 and \$1.85 respectively and only at certain intervals during the terms and at the end of each 5 year term. In light of the Company's recent share price and the pricing agreed in respect of the \$20 million underwritten capital raising, the Directors feel it is appropriate to allow the note holders to convert at a price closer reflecting the recent market price of the shares in order to facilitate conversion and thereby reduce the amount of debt carried by the Company in the form of the notes.

Terms: The terms of the variation to the convertible notes negotiated by the Company gives each note holder the right at any time before 31 July to convert all of the notes held by the note holder into a number of ordinary fully paid shares in the capital of the Company equal to the total face value of the notes to be converted divided by \$0.85. If every note holder chose to convert all of its notes, 18,235,291 ordinary fully paid shares would be issued and \$15,499,997 of debt would be eliminated. However, a note holder does not have to convert the notes held by them and it is expected that some note holders will not convert their notes during the period up until 31 July 2006. If a note holder elects NOT to convert their notes during the period to 31 July 2006. such note holder would continue to hold the notes on the existing terms and conditions, i.e. the notes would only be convertible at a price equal to their face value being \$3.25 or \$1.85 as the case may be and the Company would be required to continue to pay interest on such notes at a rate of 8.75% and 8.5% per annum respectively.

The Company must issue shares to note holders within 30 days of members agreeing to approve the issue of the shares upon conversion in accordance with resolution 2.

The shares to be issued upon conversion of the convertible notes will be ordinary shares of the same class as those currently on issue in the capital of the Company. Accordingly the new shares will participate in dividends equally in all respects with the existing ordinary shares of the Company.

The Company will apply for shares issued upon conversion of the convertible notes to be quoted on the ASX within the period required by the Listing Rules.

Conversion: As the change to the terms of the convertible notes is extensive and could potentially result in an issue of 18,235,291 ordinary fully paid shares being issued, the Company is treating the amendment as a new issue and seeking approval of shareholders to proceed with the amendment under Australian Stock Exchange Listing Rule 7.1 which generally limits the number of shares a Company may issue during a 12 month period to 15% of the Company's issued shares, unless the shareholders approve the issue.

Voting exclusion statement: The persons identified in the Voting Exclusion Statement which appears at the foot of resolution 2 are prohibited from voting on the resolution.

Share capital

The Company currently has on issue 55,069,815 ordinary fully paid shares. Following the issue of 23,529,412 ordinary shares under the Share Purchase Plan and placement and the issue of up to 18,235,291 ordinary shares on conversion of the convertible notes the Company would have on issue 96,834,518 ordinary fully paid shares.

FYO7 and FYO8 Budgets

The Company has reviewed the Company's financial estimates for the years ending 30 June 2007 and 30 June 2008. The estimates have been prepared on the assumption that the Company raises \$20,000,000 by the proposed issue and applies those funds in the manner set out above and on the assumption that all of the convertible notes are varied and converted into ordinary shares at a conversion price of \$0.85.

The estimating process involves a significant element of subjective judgement and assumptions as to future events which may or may not be correct, and there are usually differences between estimated and actual results because events and actual circumstances frequently do not occur as anticipated, and these differences may be material.

Taking the above into account, the Company currently estimates a net profit after tax of \$7.2 million for the year ending 30 June 2007 and \$10.3 million for the year ending 30 June 2008.

Directors' Recommendation

Your Directors recommend that shareholders vote to approve both resolutions 1 and 2. If resolution 1 is passed the Company will be able to retire debt, obtain much needed working capital and strengthen its balance sheet. If resolution 2 is passed the Company will be able to convert up to \$15,499,997 of debt into equity further strengthening the Company's balance sheet. Resolutions 1 and 2 are interdependent and so for approval under either of them to be effective, both resolutions must be passed.

To approve the resolutions you should either:

• Attend the meeting of the Company on 2006 and vote for each resolution; or $1.$
• Complete the enclosed proxy form by marking the "For" box for each of the resolutions, $2.$ sign it and return it in the enclosed stamped and addressed voting envelope so that it is received by the Company (together with any authority under which it is signed) by no later than 9 am on 28 June 2006.

29 May 2006

Dear Shareholder

Share purchase plan offer

On behalf of the board of directors of Gale Pacific Limited ("Gale"), it is my pleasure to invite you to apply for additional ordinary shares in Gale. This offer is being made in accordance with Gale's share purchase plan dated 16 May 2006.

This offer is made on the following terms:

$\mathbf{1}$ . Number of shares offered

The maximum number of shares that you are offered is 5,882 at a total cost of \$4,999.70 (being 85 cents per share). You may accept this offer for any number of shares up to the maximum number, subject to a minimum acceptance for 1000 shares, however if subscriptions exceed \$2 million in aggregate, your subscription will be reduced pro rata.

$2.$ Issue price

The issue price of each share is 85 cents which represents a discount of 9.4% to the weighted average closing price of ordinary shares in Gale on the last 5 days on which sale of shares were recorded before 19 May 2006, being the day Gale announced its intention to offer shares under the share purchase plan.

3. Issue and quotation of shares

Gale will issue the accepted shares on as soon as reasonably practicable after the closing date. Gale will apply for those shares to be quoted on the stock market of the ASX within the period required by the ASX listing rules.

4. Ranking

Each share issued in respect of this offer will rank for dividend equally with the shares in the capital of Gale currently on issue from the date they are issued and will otherwise rank equally in all respects with all other shares then on issue.

5. Risk

The market price of Gale's shares may rise or fall between the date of this offer and the date when the shares are issued to you under this offer. This means that the price you pay for the shares may exceed the market price of the shares at the time of their issue under this offer. You are encouraged to seek your own financial advice. We also recommend that you consult relevant newspapers in relation to share price movements of the shares in Gale prior to accepting this offer.

6. Acceptance

1. If you wish to accept this offer, you much complete the enclosed acceptance form and return it to Computershare Investor Services Pty Ltd at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067, together with payment of the subscription amount and certification required by clause 7 of this offer, so that it is received before the close of the offer at 5:00pm (Melbourne time) on 19 June 2006.

8. Certification

By accepting this offer, you will certify to Gale that the aggregate subscription amount for:

• $(a)$ the shares accepted by you under this offer; and
• $(b)$ any other shares in Gale or interests in shares in Gale you applied for under the share purchase plan or any similar arrangement in the 12 months prior to the acceptance, does not exceed \$5,000.

9. Non-renounceable offer

This offer is non-renounceable.

If you have any questions regarding this offer, please contact Sophie Karzis on (613) 9518 3369.

Yours sincerely

Sophie Karzis Company Secretary

Gale Pacific Limited