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1 CML Group Limited ACN (Company) Notice of General Meeting Notice is given that a General Meeting of the Shareholders of the Company will be held at Level 4, 61 Lavender Street, Milsons Point, NSW, 2061 on Friday 26 June 2015 at 11:00 a.m. The Directors have determined pursuant to Regulation of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company at 11:00 a.m. on 24 June The Explanatory Memorandum which accompanies and forms part of this Notice describes the matters to be considered that the General Meeting. Defined terms used in this Notice of Meeting have the meanings given to them in the Glossary accompanying the Notice of Meeting. 1. Agenda 1.1 Resolution - approval of financial assistance under section 260A of the Corporations Act To consider and, if thought fit, pass the following Resolution as a special resolution: For the purposes of sections 260B(1) and 260B(2) of the Corporations Act 2001 (Cth), approval is given for the financial assistance to be provided by the Cashflow Finance Australia Pty Ltd, a subsidiary of the Company, in connection with the Acquisition as described in the Explanatory Memorandum accompanying the Notice of the Meeting. By order of the Board Greg Riley Chairman Dated: 25 May 2015

2 Explanatory Memorandum This Explanatory Memorandum has been prepared in connection with a resolution proposed to be passed as a special resolution of CML Group Limited ACN (Company) pursuant to section 260B of the Corporations Act 2001 (Cth) (the Corporations Act) to approve the giving by Cashflow Finance Australia Pty Ltd ACN (CFA), a subsidiary of the Company, of financial assistance within the meaning of section 260A of the Corporations Act and in connection with resolutions of CFA to approve the financial assistance (Financial Assistance Resolution). This Explanatory Memorandum and the other attachments to the notice of general meeting (the Notice) which it accompanies are important documents. Please read them carefully. 1. Background to the requirement for financial assistance resolution 1.1 Restrictions on companies giving financial assistance Under section 260A(1) of the Corporations Act a company may financially assist a person to acquire shares (or units of shares) in the company or a holding company of the company only if: (a) giving the assistance does not materially prejudice: (i) (ii) the interests of the company or its shareholders; or the company s ability to pay its creditors; or (b) (c) the assistance is approved by shareholders under section 260B of the Corporations Act (as to which see clause 1.2 below); or the assistance is exempted under section 260C of the Corporations Act. Financial assistance is defined very broadly and may include giving security over a company's assets and giving a guarantee and indemnity in respect of another person's liability. Under section 260A(2) of the Corporations Act, the financial assistance may be given before or after the acquisition of shares. 1.2 Shareholder approval of financial assistance For a company to financially assist a person to acquire shares (or units of shares) in itself or a company of which it is a subsidiary, section 260B(1) of the Corporations Act states that the financial assistance must be approved by its shareholders by: Page 1

3 (a) (b) a special resolution passed at a general meeting of the company, with no votes being cast in favour of the resolution by the person acquiring the shares (or units of shares) or by their associates; or a resolution agreed to, at a general meeting, by all ordinary shareholders. If the company will be a subsidiary of a listed domestic corporation (Listed Australian Holding Company) immediately after the acquisition, then section 260B(2) requires that the financial assistance must also be approved by a special resolution passed at a general meeting of that Listed Australian Holding Company. If, immediately after the acquisition, the company will have a holding company that is a domestic corporation that is not listed in Australia and is not itself a subsidiary of another domestic corporation (Ultimate Australian Holding Company), then section 260B(3) requires that the financial assistance must also be approved by a special resolution passed at a general meeting of that Ultimate Australian Holding Company. 1.3 Approval under section 260B(1) and section 260B(2) The purpose of this Explanatory Memorandum is to explain in further detail the proposed Financial Assistance Resolution set out in the Notice which must be passed under section 260B(1) and section 260B(2) of the Corporations Act to enable the giving of the financial assistance in connection with the Acquisition (as described below). 2. The Acquisition and description of involved companies 2.1 The Acquisition CML has acquired the entire issued share capital of CFA on 20 May 2015 under the terms of a contract dated 14 April 2015 (the Acquisition). On completion of the Acquisition CFA became a wholly owned subsidiary of the Company. The Company is listed and is a domestic corporation which is not itself a subsidiary of another domestic corporation. 2.2 Resolution required in connection with the Financial Assistance CFA must have the financial assistance outlined in this Explanatory Memorandum approved by a resolution agreed to, at a general meeting, by all its ordinary shareholders in accordance with section 260B(1)(b) of the Corporations Act. Since the Company is a Listed Australian Holding Company the financial assistance outlined in this Explanatory Memorandum must also be approved by a special resolution at a general meeting of the Company in accordance with section 260B(2) of the Corporations Act. Page 2

4 3. Relevant financial accommodation 3.1 General On or about 18 May 2015 the Company and the Initial Guarantors entered into the Note Transaction Documents with the Note Trustee and the Security Trustee for the purpose of issuing secured notes to Noteholders, raising $25,000,000 to be used for general corporate purposes of the Group and the acquisition of CFA. Under the terms of the Note Transaction Documents, the Note Trustee and the Security Trustee requires that after an Acquisition, the subsidiary is to enter into a Deed of Accession effecting the subsidiary as an additional guarantor to guarantee and indemnify the Company's obligations under the Note Transaction Documents and to grant a general security interest of the subsidiary's assets and undertaking in favour of the Note Trustee and Security Trustee. 3.2 Reasons for giving financial assistance The reason for the giving of the financial assistance described above is to enable the Company and the Initial Guarantors to comply with certain of their obligations under the Note Transaction Documents and to ensure no Event of Default under the Note Transaction Documents occurs. If such obligations are not complied with, the Company will be in default of the Note Transaction Documents which could result in the Note Trustee making a demand for repayment of the Notes. Such a demand for repayment would result in an insufficiency of the funding needs of the Company to develop the growth opportunities available to it and to CFA. 3.3 Effect of financial assistance As the Company and the Initial Guarantors are already liable for the amounts payable under the Note Transaction Documents, the giving of the financial assistance by CFA is unlikely to have any adverse effect on the Company, except that the operations of CFA will be restricted by the representations, warranties and undertakings given by CFA under the Note Transaction Documents. The Conditions to the Notes require that CFA become a guarantor through a Deed of Accession no later than 60 days from the date of the issue of the Notes, that is by 17 July Pursuant to the terms of the Note Transaction Documents, CFA as a subsidiary is required to become a guarantor of all moneys owing by the Company under the Note Conditions. The substantial effect of the financial assistance on CFA is that it will have guaranteed all amounts payable under the Note Transaction Documents and have granted security for such obligations. The operations of CFA will also be restricted by the representations and undertakings given by it under the Note Transaction Documents. Page 3

5 The Directors of the Company and CFA do not currently believe that either the Company or any of the Initial Guarantors under the Note Transaction Documents are likely to default in their obligations under the Note Transaction Documents or in respect of the Notes. 4. Financial Assistance Resolutions 4.1 Advantages of the proposed resolution The advantages to the Company of the proposed resolution is that CFA will be able to provide the guarantee, representations and warranties set out in the Note Transaction Documents and give security which is a condition to the continuance of the Notes and ensuring that the Company and the Initial Guarantors will not be in default of the Note Transaction Documents. The advantages of the proposed resolution to CFA include: (a) the Notes will not be required to be repaid before their maturity date. The directors of CFA believe this is in the interest of CFA because: (i) (ii) CFA will have access to more flexible capital and growth opportunities as a result of integration with the Company; CFA will benefit from synergies, cost savings and greater growth potential through its integration with the Company; (b) (c) the directors of CFA and the Company believe that the Notes are the most efficient form of financing available to finance the ongoing financial requirements of the Company; and CFA will have access to additional capital to grow its loan book and contribute to the revenue of the Company. The directors of CFA and the Company believe that the transactions contemplated by this Explanatory Memorandum are in the interests of CFA and of the Company. 4.2 Disadvantages to the Company of the proposed resolution As the Company has already entered into the Note Transaction Documents and has provided security, the Directors of the Company do not believe that there are any disadvantages to the Company of the proposed resolution, except that the operations of its subsidiary CFA will be restricted by the undertakings and representatives and warranties given by CFA through its accession to the Note Transaction Documents. 4.3 Disadvantages to CFAof the proposed resolution The disadvantages of the proposed resolution for CFA include the following: (a) it will become liable for the amounts due under the Note Transaction Documents; Page 4

6 (b) (c) (d) (e) its assets will be subject to security and their operations will be restricted by the representations and undertakings given by them under the Note Transaction Documents; the Company or any of the Initial Guarantors may default under the Note Transaction Documents; the Note Trustee may make a demand under the guarantee provided by it requiring immediate repayment of the amounts due under the Note Transaction Documents; and the Security Trustee may enforce the guarantee and/or Security granted by it to recover the amounts due. A demand made under the Note Transaction Documents may result in the winding up of any of the Company or the Initial Guarantors and a sale of any such assets of the Company or the Initial Guarantors by the Security Trustee upon an enforcement of the security or execution of a judgment for moneys owing under the guarantee. This may result in a return to the Company (and ultimately its shareholders) significantly lower than could have been achieved had those assets been sold in the ordinary course of business or had the Company or CFA continued trading. 4.4 Passing the Financial Assistance Resolution The Financial Assistance Resolution under consideration is set out in the Notice that accompanies this Explanatory Memorandum. The Financial Assistance Resolution of CFA will be passed if all shareholders of CFA vote in favour of the resolution. The Financial Assistance Resolution of the Company will be passed if it is passed as a special resolution. Shareholders may vote either for or against any of the Financial Assistance Resolutions on which they have a vote. 5. Recommendation The directors of the Company and of CFA unanimously recommend that the shareholders vote in favour of the relevant Financial Assistance Resolution to approve the giving of financial assistance. 6. Notice to ASIC As required by section 260B(5) of the Corporations Act, copies of this Notice and this Explanatory Memorandum as sent to Shareholders were lodged with ASIC before they were sent to the shareholders. Page 5

7 7. Disclosure The Directors of the Company and CFA consider that this Explanatory Memorandum contains all information known to the Company that would be material to the Shareholders in deciding how to vote on the proposed resolution other than information which it would be unreasonable to require the Company to include because it has previously been disclosed to shareholders 8. Glossary The following definitions are used in the Notice of General Meeting and the Explanatory Memorandum: Acquisition is defined in paragraph 2.1. ASIC means the Australian Securities and Investments Commission. ASX means Australian Securities Exchange Limited ACN of the securities exchange marked operated by the it, as the context requires. Board or Board of Directors means the board of Directors of the Company CFA means Cashflow Australia Pty Ltd ACN Company means CML Group Limited ACN Directors Explanatory Memorandum Initial Guarantors means the directors of the Company. means the explanatory memorandum set out in the body of this document. means each of the following wholly owned subsidiaries of the Company: (a) CMLPayroll Pty Ltd ACN ; (b) Lester Associates Business Services Pty Ltd ACN ; (c) Lester Associates God Migration Pty Ltd ACN ; (d) Lester Payroll Services Pty Ltd ACN ; (e) Lester Plus Pty Ltd ACN ; (f) The Lester Partnership Pty Ltd ACN ; and (g) Zenith Management Services Group Pty Ltd ACN Page 6

8 Note Conditions Note Transaction Documents means the conditions to the Notes as set out in the Information Memorandum issued to noteholders and released to the ASX by the Company on 18 May means the documents entered into by the Company and the Initial Guarantors on 18 May 2015 comprising: (a) (b) (c) (d) (e) (f) the Information Memorandum and any accompanying pricing supplement; Subscription Agreement between FIIG Securities Limited, the Company and the Initial Guarantors; Note Trust Deed between the Note Trustee, the Company and the Initial Guarantors; Security Trust Deed between the Security Trustee, the Company and the Initial Guarantors; General Security Agreement between the Security Trustee, the Company and the Initial Guarantors; Agency and Registry Services Agreement between BTA Institutional Services Australia Limited ACN , the Company and the Initial Guarantors. Note Trustee Notes Notice of General Meeting or Notice Resolution Security Trustee Share Shareholder means BNY Trust Company of Australia Limited ACN or such other person appointed under the Note Trust Deed as trustee of the CML Group Note Trust from time to time. means the senior secured notes issued by the Company pursuant to the Note Transaction Documents on 18 May means the notice of General Meeting set out in the body of this document. means a resolution passed by the requisite majority of Shareholders of the Company on a show of hands or by the requisite majority of votes given on a poll. means Permanent Custodians Limited ACN or such other person appointed under the Security Trust Deed as trustee of the CML Group Security Trust from time to time. means a fully paid ordinary share in the issued capital of the Company and Shares means any two or more of them. means a holder of a Share. Page 7

9 9. Voting 9.1 Voting in person To vote in person, attend the General Meeting on the date and at the place set out above. 9.2 Voting by proxy To vote by proxy, please complete and sign the enclosed Proxy Form and return by the time and in accordance with the instructions set out on the Proxy Form. In accordance with section 249L of the Corporations Act, Shareholders are advised that: (a) (b) (c) each Shareholder has a right to appoint a proxy; the proxy need not be a Shareholder of the Company; and a Shareholder who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. If the Shareholder appoints 2 proxies and the appointment does not specify the proportion or number of the Shareholders' votes, then in accordance with section 249X(3) of the Corporations Act, each proxy may exercise one half of the votes. Shareholders and their proxies should be aware that changes to the Corporations Act made in 2001 mean that: (d) (e) if proxy holders vote, they must cast all directed proxies as directed; and any directed proxies which are not voted will automatically default to the Chair, who must vote the proxies as directed. Further details on these changes are set out below. Proxy vote is appointment specifies way to vote Section 250BB(1) of the Corporations Act provides that an appointment of proxy may specify the way the proxy is to vote on a particular resolution and, if it does: (f) (g) (h) (i) the proxy need not vote on a show of hands, but if the proxy does so, the proxy must vote that way (i.e. as directed); and if the proxy has 2 or more appointments that specify different ways to vote on the resolution, the proxy must not vote on a show of hands; and if the proxy is the chair of the meeting at which the resolution is voted on, the proxy must vote on a poll, and must vote that way (i.e. as directed); and if the proxy is not the chair, the proxy need not vote on the poll, but if the proxy does so, the proxy must vote that way (i.e. as directed). Page 8

10 Transfer of non-chair proxy to chair in certain circumstances Section 250BC of the Corporations Act provides that, if: (j) (k) (l) (m) an appointment of a proxy specifies the way the proxy is to vote on a particular resolution at a meeting of the Company's members; and the appointed proxy is not the chair of the meeting; and at the meeting, a polly is duly demanded on the resolution; and either of the following applies: (i) (ii) the proxy is not recorded as attending the meeting; or the proxy does not vote on the resolution, the chair of the meeting is taken, before voting on the resolution closes, to have been appointed as the proxy for the purposes of voting on the resolution at the meeting. Page 9

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