investment statement

Lead Manager Goldman Sachs JBWere (NZ) Limited prospectus for offers of shares and options registration This Prospectus is dated 14 May 2004. A copy of this Prospectus signed by or on behalf of the Directors of Pumpkin Patch Limited (“Pumpkin Patch” or the “Company”) and having endorsed thereon or attached thereto all documents, information, certificates and other matters required to be so endorsed or attached by section 41 of the Securities Act 1978, has been delivered to the Registrar of Companies for registration under section 42 of the Securities Act 1978. investment statement An investment statement for the purposes of the Securities Regulations 1983 has been prepared in connection with offers of securities in New Zealand which are contained in this Prospectus. Copies of the investment statement (which includes application forms for the offers) can be obtained from Goldman Sachs JBWere (NZ) Limited (see inside back cover for contact details) or selected Primary Market Participants. key dates Share Offer Event Opening Date of the Offer Closing Date of the Offer Pricing Allocation and Allotment Date Dispatch of Statements Quotation on the NZX and trading expected to commence (on a “delayed delivery” basis) Expected first dividend1 Expected subsequent dividends1 Key Date 17 May 2004 4 June 2004 8 June 2004 Between 8 June and 15 June 2004 From 8 June 2004 9 June 2004 April 2005 Interim dividend in approximately April each year starting 2005 and final dividend in approximately November each year starting 2005 This timetable is indicative only and investors are encouraged to submit their applications as early as possible. The Company reserves the right to extend the closing date (in which case the Key Dates referred to above may change correspondingly). Option Offer Directors and senior managers with Pumpkin Patch and its Subsidiaries (together “Senior Managers”) selected to participate in the Option Offer will receive individual offers of Options in the Company. Public investors are not being offered Options. The Senior Managers who receive Option Offers will be advised of the number of Options for which they will be entitled to apply. This Option Offer will be on the basis of the following timetable: Event Opening Date of the Offer Closing Date of the Offer Setting the Exercise Price Allocation and Allotment Date Dispatch of Option Certificates Key Date Upon receipt of the individual offer, expected to be made on or about 17 May 2004 12 Business Days following receipt of the individual offer 8 June 2004 By 8 June 2004 By 12 June 2004 The Options will not be quoted on the NZX and cannot be traded. No Dividends will be payable in respect of the Options. 1 Pumpkin Patch can give no assurance about the amount or frequency of future dividends or other distributions, if any, payable on the Shares. table of contents Investment overview Description of the company’s business The offering Shareholding structure Directors & senior management Corporate governance & business strategy Risk and special trade factors Financial information Prospective financial information Group financial statements Summary historical financial statements Statutory and other information Glossary of certain terms Application instructions Rules relating to the Pumpkin Patch 2004 share option scheme Directory and advisers 93 Inside back cover 2 5 14 20 22 25 27 33 36 44 67 73 86 89 1 investment overview 2 strong Australasian and growing international brand Established in New Zealand in 1990, Pumpkin Patch has built an enviable reputation for fashionable childrenswear throughout New Zealand and Australia. Pumpkin Patch is also increasingly recognised internationally. Pumpkin Patch has Company-owned retail stores in New Zealand, Australia and the United Kingdom and it has distribution agreements in Ireland and the Middle East. The Company also sells in high profile department stores in Australia and the United States, on the internet – www.pumpkinpatch.co.nz – and via a mail order catalogue. Pumpkin Patch plans to continue growing its already extensive chain of retail stores in Australia and New Zealand. The Pumpkin Patch strategy is to deliver continued profit growth from its Australasian expansion over the next two to three years, while continuing to develop markets further afield. management with extensive industry experience The team at Pumpkin Patch has demonstrated its ability to grow the business over successive years. The design team, led by Chrissy Conyngham, has a consistent history of producing exceptional ranges that are at the forefront of children’s fashion. Pumpkin Patch’s strong management team has the expertise and capabilities to ensure that the complex apparel, design, manufacture and retail business that is Pumpkin Patch will continue to grow. The Pumpkin Patch Board of Directors has extensive retail, apparel and corporate experience which complements the skills of the management team. Sales Composition $300,000 $250,000 Aggregated Sales NZ Retail Aust Retail UK Retail Other NZ$ Sales (000) $200,000 $150,000 $100,000 $50,000 0 1991 Dec 1992 Dec 1993 Dec 1994 Dec 1995 Dec 1996 Dec 1997 Dec 1998 Dec 1999 Dec 2000 Dec 2001 July 2002 July 2003 July 2004 July 2005 July (Pro forma) (Pro forma) (Audited) (Forecast) (Forecast) Note: The December 2000 bar represents the 12 month period from 1 January 2000 to 31 December 2000. The July 2001 (pro forma) bar represents the 12 month period from 1 August 2000 to 31 July 2001. 3 strong infrastructure and systems Pumpkin Patch has delivered growth through an effective core of infrastructure and an ability to continually develop new systems for emerging markets. From its 13,395m2 distribution centre in Auckland, Pumpkin Patch responds daily to the inventory requirements of its retail stores in New Zealand, Australia and the UK, and to its department store, internet and mail order sales. Pumpkin Patch has a commitment to embracing new technology and has developed its own forecasting and inventory systems. The resulting modern software platforms enable flexibility and integration with all facets of design, manufacture, distribution, sales and accounting. Pumpkin Patch is well known throughout the New Zealand and Australian apparel industries as a company that is able to efficiently and effectively adopt new technology to its benefit. significant earnings growth Established in 1990 as a mail order company, Pumpkin Patch has a history of revenue and earnings growth. Pumpkin Patch believes that it has the potential to further develop its home market in New Zealand and Australia through new store openings and brand expansion. Pumpkin Patch also believes that there are significant growth opportunities available internationally. Forecast EBITDA before non-recurring items is expected to increase to $26.7 million in the 2004 financial year, more than double its level of $11.0 million in the 2001 pro forma financial year. The Directors expect the positive earnings growth trend to continue with forecast EBITDA for 2005 forecast at $31.2 million, an increase of 17% on 2004. This forecast growth in EBITDA is the result of sales growth in all of Pumpkin Patch’s key markets during the 2005 financial year. 4 description of the company’s business 5 description of the company’s business Pumpkin Patch: A Platform for Growth Pumpkin Patch intends to continue increasing its sales and earnings by using strategies similar to those that it has successfully used during the past five years. Pumpkin Patch’s strategy is based around selling leading edge kids’ fashion through a range of channels including its own retail stores, selected department stores, wholesale distribution arrangements, the internet – www.pumpkinpatch.co.nz – and via mail order catalogues. Through these avenues, Pumpkin Patch sees its key growth coming from the following: • Continued development of its home market in New Zealand and Australia through new store openings; • Expansion of its pre and early teen brands; • Continued incremental revenue growth in Pumpkin Patch’s United Kingdom retail chain; • Expansion of overseas third party retailing through department stores in the United States; and • Extension of existing operations in Europe and the Middle East in conjunction with our third party retailers. Pumpkin Patch Company Owned Stores The core of the Company’s sales growth in the last few years has come from developing the Australian market and strengthening our presence in New Zealand. Pumpkin Patch currently has 64 stores in Australia and 37 in New Zealand. Pumpkin Patch management is confident that the market can be further developed in both countries by establishing stores in catchments that are not already covered. Based on past experience, Pumpkin Patch believes this strategy can be successfully implemented through 2004, 2005 and beyond. It is expected that New Zealand and Australian store openings will generate the bulk of the sales growth during the next two years. Wholesaling: Third Party Retailers Pumpkin Patch has developed relationships with a number of third party retailers, including David Jones in Australia and independent department stores in the United States, Ireland and the Middle East. These relationships are expected to continue to contribute to sales growth in 2005 and beyond. Brand Extensions On 3 May 2004, Pumpkin Patch acquired the New Zealand retail chain HBK Girl. HBK Girl specialises in pre and early teen girlswear which is similar to Pumpkin Patch’s Urban Angel label. The HBK Girl chain has 14 stores throughout New Zealand. The chain was acquired to widen the distribution of the Urban Angel brand. Management have not forecast for the new chain to make any financial contribution in the next two years. bedlinen created for kids 6 Pumpkin Patch... the brand Founded in 1990 by Sally Synnott, Pumpkin Patch has become an iconic brand in the childrenswear market. Innovative design is fundamental to Pumpkin Patch’s success and the ongoing recognition both in Australasia and further afield signifies the underlying strength of the brand. The Company has a large design team led by Chrissy Conyngham, with extensive experience in childrenswear and other apparel markets. The in-house design team produces more than 1,500 styles per season using a tightly controlled process that ensures all garments are fresh and coordinated. Product development includes conceptual artwork, style creation, product sourcing and control of quality. Pumpkin Patch has nurtured its brand ensuring that all product design, shop merchandising, catalogues and marketing to the customer are developed in-house. This delivers a consistent approach to branding which increases brand recognition amongst customers. Today, Pumpkin Patch’s employees are focused on the same aspirations of brand quality that our design team have built into the product. Utilising a fully integrated process, the Company has developed software and information systems that track products from design/origination through to sale. design • origination • shared story • style creation sales & marketing • retail stores • wholesale • internet • catalogue product sourcing • quality control • final product warehousing & distribution 7 design Pumpkin Patch provides one-stop clothes shopping – arguably every parent’s dream! The coordinated collection offers quality kidswear with a cutting edge – the junior version of current looks with a fresh, young twist – ‘seriously fun’ clothes that have wide appeal. The design philosophy encompasses the entire collection – from babywear to kidswear, which also includes nightwear, accessories, rainwear and footwear, as well as bedroom linen coordinates. For the mums-to-be who are determined to retain their fashion style there’s a great maternity collection and there’s also a developing pre and early teen girls offer. Department Babies Toddler girls Toddler boys Big girls Big boys Pre and early teen girl Maternity Underwear Nightwear Swimwear Accessories Footwear Kids’ bedroom co-ordinates Ages Newborn to 9 months 6 months to 4 years 6 months to 4 years 5 years to 11 years 5 years to 11 years Girls 8 to 14 years Label Baby Patch Pumpkin Patch Pumpkin Patch Pumpkin Patch Pumpkin Patch Urban Angel Girl Patch Maternity Baby to 14 years Baby to 14 years Baby to 14 years Baby to 14 years Baby to 14 years Pumpkin Patch & Urban Angel [Girl] Pumpkin Patch & Urban Angel [Girl] Pumpkin Patch & Urban Angel [Girl] Pumpkin Patch & Urban Angel [Girl] Pumpkin Patch & Urban Angel [Girl] patch@home Pumpkin Patch’s success has come as a result of a clear design focus and emphasis on distinctive fashion styling, combined with strong customer and supplier relationships. Pumpkin Patch’s innovative design team has a wealth of experience in the kidswear industry, both within the buying/retail sector and the design/manufacturing side of the business. The broad knowledge base combined with a sound understanding of the marketplace results in design-driven collections comprising over 1,500 styles per season. In order to keep abreast of emerging fashion ideas, the design team spends considerable time researching the market and absorbing and interpreting international artistic and fashion trends. This results in the design of Pumpkin Patch childrenswear collections appealing to wide socio-economic and demographic ranges of customers. New ranges based on emerging fashion trends are introduced throughout the season to keep the stores looking fresh and to encourage return visits by parents to make further purchases throughout each season. Pumpkin Patch uses historic data to predict sales trends enabling it to develop future ranges with increased confidence. 8 product sourcing Pumpkin Patch’s continuous design philosophy results in regular orders to its manufacturers. Manufacturers are largely based overseas, supplemented by New Zealand manufacturers, and are selected based on their skills, product quality, timeliness and cost. Many of the suppliers have long-standing relationships with Pumpkin Patch and this assists the Company’s quality aspirations while still meeting the demanding production timelines of an apparel company. warehousing and distribution Pumpkin Patch operates a 13,395m2 distribution centre attached to its head office in East Tamaki, Auckland. The distribution centre serves as the global warehouse for all of Pumpkin Patch’s stores and sales. The distribution centre receives substantially all manufactured garments and product ranges and is responsible for the daily dispatch of the products to its stores in New Zealand, Australia and the United Kingdom to its international wholesale customers and to fill its internet and catalogue orders. The distribution centre receives, picks, packs and distributes approximately 70,000 garments per day. Existing facilities are expected to be sufficient for the foreseeable future. The distribution centre employs approximately 70 staff. It utilises a paperless management system which enables Pumpkin Patch to receive daily sales information from each Pumpkin Patch store, individual catalogue purchases and internet sales. These are then usually dispatched the following day. The management system also allows packages that are sent internationally from the distribution centre to be tracked and electronically processed through various countries’ customs departments. The distribution centre is capable of handling over 30,000 SKUs (discrete lines of stock) in any given period enabling the Southern and Northern hemispheres to be serviced simultaneously despite differing seasons and ranges. The distribution centre was leased in August 1999 for an initial term of approximately 10 years with rights of renewal for a further 15 years. To provide for future development of the distribution centre, should the need arise, Pumpkin Patch has acquired approximately 20,300m2 of undeveloped land surrounding its East Tamaki site. 9 sales and marketing Pumpkin Patch’s sales are forecast to reach $213.5 million in the 2004 financial year, a forecast increase of more than 42% over the 2001 pro forma financial year. This consistent and strong sales growth is expected to result from the Company using a range of sales channels including: • Pumpkin Patch retail stores; • International wholesaling; — Department stores; — Pumpkin Patch branded stores owned by third parties; and • Catalogue and Internet. Forecast FY04 Unit Sales Composition Direct NZ / Aust 3% Wholesale NZ / Aust 2% Retail Aust 64% Wholesale EU 1% Wholesale USA 2% Retail UK 7% Retail NZ 21% 10 Pumpkin Patch stores Pumpkin Patch currently has 111 stores in New Zealand, Australia and the United Kingdom and employs approximately 1,700 staff (including both full time and part time staff). 37 of these stores are located in New Zealand with 64 in Australia and 10 in the United Kingdom – and a further 2 stores will be opened in New Zealand by the end of the 2004 financial year. Each of these stores sells the comprehensive Pumpkin Patch collections and is designed to be open, inviting and exciting. The Pumpkin Patch shopping experience is fresh and unique – when people walk into one of the stores they are meant to get a real sense of the passion that the Company has put into the clothes. Every store has a toy-filled play area to keep even the smallest shoppers amused, and lots of room for parents and kids to move around. Given that the unique stores are perceived by some parents as a shopper’s heaven with specially designed areas for boys and girls and a cool mini-store for the Urban Angel brand, it is not surprising that several stores have been voted by shopping centre customers as the best in the centre. The fixtures and fittings throughout our stores reflect the commitment to quality that is evident throughout the business. Special interior effects and hand-painted finishes are used to create a warm and friendly ‘designer store’ atmosphere. Pumpkin Patch carefully evaluates the location for new stores. The Company undertakes reviews with external consultants that analyse customer catchments, customer demographics, availability and cost of retail space, proximity of competitors and proximity to other existing Pumpkin Patch stores. Pumpkin Patch’s in-house design and fitout teams enable the Company to quickly design and build new stores. Generally a store is open within eight to ten weeks from the receipt of final plans and approvals. Most stores are between 250m2 and 350m2 (the largest is 500m2) with standard leases having initial durations of approximately five years. Pumpkin Patch has identified specific store expansion opportunities in both New Zealand and Australia and expects to open an additional 2 stores in New Zealand and 7 stores in Australia during the 2005 financial year. Pumpkin Patch Store Numbers 140 122 120 NZ HBK Aust UK 113 100 84 80 71 56 40 27 20 1 1992 1 1993 2 1994 4 1995 8 11 14 60 40 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (Financial Year End) 11 wholesale sales Pumpkin Patch has identified wholesaling opportunities as a way of: • introducing the Pumpkin Patch brand and ranges to countries that are not currently serviced by Pumpkin Patch stores; and • supplementing the accessibility of the Pumpkin Patch brand and ranges in countries that do have Pumpkin Patch stores. Pumpkin Patch’s wholesaling relationships are at a relatively early stage of development and at present predominantly involve department stores in Australia, the United States, Ireland and the Middle East. Currently Pumpkin Patch supplies 10 international retailers with the three largest being Nordstrom (United States), David Jones (Australia) and Roches (Ireland). Department stores agree in advance, season by season, to acquire a given quantity of Pumpkin Patch apparel and accessories. They display the merchandise either: • in a Pumpkin Patch branded area of the department store (i.e. visually similar to a Pumpkin Patch retail store) called a “store in store”; or • on generic sales racks but with Pumpkin Patch branding surrounding the racks. Pumpkin Patch has a specific sales team that is responsible for pursuing and servicing international wholesaling opportunities. Pumpkin Patch direct Pumpkin Patch has specific websites for New Zealand (www.pumpkinpatch.co.nz),Australia (www.pumpkinpatch.com.au) and the United Kingdom (www.pumpkinpatch.co.uk). On average in 2003, Pumpkin Patch’s websites received (in total) approximately 121,000 visits per month. The internet sites, which are predominantly developed by Pumpkin Patch’s in-house team of specialists, are regularly refreshed to include the latest available ranges and remove items where stock is low. During the past 12 years Pumpkin Patch has built up a significant database of customers who have either bought merchandise from stores, over the internet or out of the catalogue. The database is regularly updated and analysed to ensure that customer details are up-to-date and that “non-responsive” entries are deleted. Each season Pumpkin Patch sends out approximately over 750,000 catalogues to customers in New Zealand, Australia and the UK. The catalogues are designed in-house and feature the latest fashion ranges. Any sales orders received from the catalogue are processed by Pumpkin Patch’s in-house call centre (located at its head office) and dispatched by the distribution centre. The Pumpkin Patch call centre in Auckland is operated seven days a week and has facilities for 20 operators at any one time. 12 Pumpkin Patch... our people Pumpkin Patch employs approximately 1,700 people (34% in New Zealand, 59% in Australia and 7% in the United Kingdom). Approximately 68% of Pumpkin Patch’s staff work part time. When hiring staff Pumpkin Patch endeavours to identify people who share its vision and who are passionate about kidswear and committed to meeting, and exceeding, customers’ expectations of excellent service. One of Pumpkin Patch’s core philosophies is integrity – within the Pumpkin Patch team, with suppliers, and towards customers. This integrity is intended to create a platform of trust and commitment, and a foundation for all of Pumpkin Patch’s business relationships. Pumpkin Patch believes family life and strong family values are integral to the wellbeing of our people and therefore the Company. Family-friendly work policies encourage flexibility, adaptability and balance. People are rewarded for loyalty and long service, and families with young children are supported with in-house crèche facilities or childcare subsidies. Pumpkin Patch recognises that employee retention and succession planning are vital to a successful organisation. As such the Company has always ensured that key employees have been rewarded with equity interests in the Company, and the Company has established a number of employee share schemes which have allowed employees to share in our success. The share schemes are being restructured prior to the listing of the Company and details of the restructuring are set out on page 84. In addition to these current schemes, the Directors of Pumpkin Patch agree with the philosophy of rewarding employees with equity interests in the Company and have established two new schemes to allow employees to share in the success of the Company. One of these schemes is the DF7 Scheme, which will give all permanent employees working more than 10 hours a week the opportunity to acquire Shares. The details of that Scheme are set out on page 85. The other is the Pumpkin Patch 2004 Share Option Scheme, under which the Option Offer is made. This Scheme is intended to give Eligible Senior Managers an additional incentive to strive to create shareholder value by aligning their interests with those of Pumpkin Patch shareholders. Pumpkin Patch intends to establish similar schemes in subsequent years. This Prospectus is issued in respect of the 2004 Share Option Scheme and further details of the Scheme can be found on pages 93 and 98. This Prospectus is not issued in respect of either the DF7 Scheme or the schemes to be established in subsequent years although Pumpkin Patch anticipates that these schemes will be on similar terms. 13 the offering 14 the offering This Prospectus relates to an offer of Shares and an offer of Options. Public investors are not being offered Options. Options are only being offered to certain Senior Managers. Share Offer Offer Description Pumpkin Patch is offering for issue up to 81,027,200 new ordinary fully paid shares (“Shares”) in Pumpkin Patch Limited. Pumpkin Patch has entered into conditional repurchase agreements (“Repurchase Agreements”) with some of its existing shareholders (“Selling Shareholders”) to repurchase and cancel between 28,770,400 and 49,027,200 Shares currently held by those shareholders. Some of the proceeds of the Share Offer may be paid to the Selling Shareholders (as the purchase price) on repurchase and cancellation of those Shares. Further details are contained on pages 81 and 82 of this Prospectus. Any residual shares not repurchased by the Company and held by shareholders, other than employees or trustees of employee share schemes, will be the subject of arrangements placing restrictions on their transferability for a period of 12 months from 9 June 2004. Those arrangements are more fully described at page 83 of this Prospectus. The Shares are not guaranteed by any person. Pricing The price per Share will be set via a book build process involving institutional and professional investors. An Indicative Price Range of $1.20 to $1.40 per Share has been set to assist institutional investors in the bidding process. When the book build process is complete a Final Price will be set. The Final Price for institutional and professional investors participating in the book build may exceed $1.40, but the Final Price set for other investors will be capped at $1.40. The value of Shares applied for by investors under firm allocation will be divided by the applicable Final Price to calculate the number of Shares they will be allocated.The number of Shares allocated to an investor will be rounded down to the nearest whole Share, and no refund will be given for any difference resulting solely from rounding. The Company, in association with the Lead Manager, will set the Final Price(s) before noon on 8 June 2004 following the completion of the book build process described in the section “Book Build Process”. As referred to above, for institutional and professional investors participating in the book build process, the Company reserves the right to set the Final Price outside the Indicative Price Range. All Shares allocated under the Share Offer will be sold or issued at the relevant Final Price. All applications for Shares under the Share Offer should be made on a dollar value basis. The Final Price will be set and notified before noon on Tuesday 8 June 2004. The Final Price will be: • Announced to the New Zealand Exchange (“NZX”); and • Available from any Primary Market Participant. Share Allocation There is no public pool. No over-subscriptions will be accepted. Approximately $60 million of Shares have been reserved for firm allocation to clients of selected Primary Market Participants. Institutional and professional investors will have the opportunity to submit bids in accordance with book build procedures set out by the Lead Manager. 15 Shares will be able to be traded from 9 June to 16 June 2004 on a “delayed delivery” basis. None of Pumpkin Patch, the Lead Manager nor any of their respective directors, officers, employees or advisors accepts any liability or responsibility should any person attempt to sell or otherwise deal with the Shares before the statements confirming allotment are received by the applicants for the Shares and the “delayed delivery” designation is lifted. Book Build Process The Indicative Price Range for the Shares is $1.20 to $1.40 per Share. Between Wednesday 2 June 2004 and Friday 4 June 2004 the Lead Manager will undertake a book build process inviting institutional and professional investors in New Zealand and Australia to submit bids indicating the number of Shares they wish to purchase at a range of prices. This book building process, in addition to demand indicated from other investor classes prior to and during the book build process, will be used to assist the Company and the Lead Manager to determine the Final Price(s). There is no assurance that any particular institutional or professional investor participating in the book build process will be allocated the Shares for which it has bid. In determining the final price(s) and allocations the Company and Lead Manager will take account of: • The overall demand profile for Shares at various prices; • Pricing indications from institutional and other investors under the book build process; • The desire of the Company to have an orderly and successful aftermarket for the Shares; and • Any other factors the Company considers relevant. Application for Shares Additional information on how to apply for Shares appears on page 90 and further details appear in the back of the Investment Statement. Investors must complete the Share Application Form in full to be eligible to be allocated Shares. This includes providing the applicant’s IRD number. Failure to include any of the required details may disqualify the application. All applications by way of firm allocation under the Share Offer must include a cheque for the total application moneys. Applications under the Share Offer must be lodged in time for such applications to be forwarded and received by BK Registries Limited no later than 5.00pm on 4 June 2004. The Company reserves the right to extend the Closing Date (in which case the key dates referred to on the inside front cover may change correspondingly). The Company reserves the right to decline any Share Application in whole or in part, without giving any reason. Money received in respect of applications which are declined in whole or part will be refunded in whole or in part (as the case may be). Interest will not be paid on any application money refunded. Minimum Application Applications under the Share Offer must be made for a minimum of $5,000 worth of shares and in increments of $500 thereafter. Payment Institutional investors or professional investors that are allocated Shares under the book build process must settle their allocation prior to 5:00pm on Tuesday 8 June 2004 via Austraclear or in cleared funds under notification to the Lead Manager. Other investors must make payment of the Share Application Price in full upon application under the Share Offer. All cheques in payment of application moneys must be denominated in New Zealand dollars and made payable to “The Pumpkin Patch Share Offer” and crossed “Not Transferable.” Cheques will be banked as they are received and must not be post-dated. 16 Underwriting This Offer is not underwritten. Repurchase It is intended that if: • All 81,027,200 Shares offered by the Company are subscribed for, the Company will repurchase and cancel 49,027,200 Shares of the Selling Shareholders; • 60,770,399 Shares or fewer are subscribed for, the Company will not repurchase any Shares from the Selling Shareholders and may, in its discretion, refund any subscription proceeds received in excess of $40 million; and • More than 60,770,399 Shares, but less than 81,027,200 Shares are subscribed for, the Company will repurchase and cancel between 28,770,400 and 49,027,200 Shares from the Selling Shareholders. Repurchase Agreements are set out on page 81. Stock Exchange Listing Application has been made to NZX for permission to list the Shares. All requirements of the NZX relating to listing the Shares that can be complied with on or before the date of this Prospectus have been duly complied with. However, the NZX accepts no responsibility for any statement in this Prospectus. New Zealand and Australian Institutional Only Share Offer The Share Offer described in this section is an offer only to New Zealand resident investors, and eligible Australian institutional and professional investors invited to participate in the book build process. This Prospectus is only intended for use in connection with these offers and the Option Offer, and is not to be sent or given to any person outside New Zealand or Australia in any circumstances in which the Share Offer or use of the Prospectus would be unlawful. Use of Proceeds of Share Offer The subscription proceeds from the issue of Shares under the Share Offer are intended to be used by Pumpkin Patch to fund: Details of the • Continued development and store rollout in New Zealand and Australia; • Expansion of overseas third party retailing through department stores in the United States; • Extension of existing operations in Europe and the Middle East; • The retirement of up to $13.1 million of existing debt facilities; and • The repurchase of Shares from the Selling Shareholders in accordance with the Repurchase Agreements described on pages 81 and 82. Although it is intended that these proceeds will be used as set out above, they may be applied to any undertaking in which Pumpkin Patch may lawfully engage. Based upon the Indicative Price Range for the book build the subscription proceeds will total $97.2 million (at a Final Price of $1.20 per share), or $113.4 million (at a Final Price of $1.40 per Share) assuming all 81,027,200 Shares are subscribed for. 17 Option Offer (Employees Only) Offer Description Pumpkin Patch is offering a total of 2,274,000 Options to purchase Shares pursuant to the terms of the Pumpkin Patch 2004 Share Option Scheme (the “Scheme”). Each Option will entitle the holder to purchase one Share on the terms and conditions of the Scheme which have been set out in full on pages 93-98. Assuming all offers of Options are accepted, the Company will have on issue 2,274,000 Options, which may convert into 2,274,000 Shares in the Company no earlier than 9 June 2007. On the basis of the post listing shareholdings set out in the table on page 21 and assuming all Options convert into Shares, this would represent 1.35% of the Company. The Options will only be offered to selected Senior Managers. Each Senior Manager selected to participate in the Option Offer will receive, together with the Investment Statement and this Prospectus, an individual offer specifying the number of Options being offered to that Senior Manager. Included in the Option Offer will be an offer of 870,000 Options to executive Directors. Application for Options There is no application fee or other sum payable for Options offered under the Option Offer. Eligible Senior Managers wishing to accept the Option Offer need to complete the Option Application Form personally provided to them in full and return it to the address below no later than 5.00pm on the 12th Business Day after receipt of their individual offer or such later date as may be advised by Pumpkin Patch in writing. The Option Application Form contains an undertaking to comply with the terms and conditions of the Scheme and must be signed before a witness. Eligible Senior Managers will be notified of the number of Options being offered to them. Eligible Senior Managers wishing to apply for Options pursuant to the Option Offer must apply for the full number of Options offered to them. The completed Option Application Form must be returned to: Managing Director Pumpkin Patch Limited 439 East Tamaki Road East Tamaki Auckland NEW ZEALAND Allocation of Options Once Pumpkin Patch receives a completed Option Application Form from an Eligible Senior Manager it will : • Grant to that Eligible Senior Manager the number of Options applied for forthwith; and • Issue an Option Certificate in the name of that Eligible Senior Manager by 12 June 2004. Exercise of Options An Exercise Price will apply for Option Holders wishing to exercise their Options. The Exercise Price will be equivalent to the Final Price per Share for investors other than institutional and professional investors participating in the book build process as determined pursuant to the Share Offer. The Options can only be exercised on written notice to Pumkin Patch within an Exercise Period commencing on 9 June 2007 and ending on 9 June 2009 (“Exercise Period”) (although the Company may permit earlier exercise in certain extraordinary circustances). The Options will lapse if they are not exercised by the end of the Exercise Period or if certain other circumstances exist (these are set out in full on pages 93-98). In addition the Options are not able to be exercised unless certain conditions are met. In particular the Shares must have been quoted on the NZX for at least one day in the period prior to the commencement of the 18 Exercise Period, and the Market Price at Exercise Date must exceed the Benchmark Price (as defined in the glossary) set by Pumpkin Patch. This performance benchmark has been determined by the Company in order to encourage Eligible Senior Managers to add to shareholder value and will be calculated taking into account the return investors require given the risk associated with an equity investment in the Company less the expected returns from dividends. The conditions are set out in full on pages 93 to 98. Option Holders may exercise their Options by giving a written notice to Pumpkin Patch detailing the Options to be exercised. This notice must be accompanied by: • a cheque made payable to Pumpkin Patch in payment of the Exercise Price for the Options exercised under that notice (unless the Option Holder has made prior arrangements with Pumpkin Patch for alternative means of payment); and • the Option Certificate issued in respect of the Options. Option Holders may exercise either all or part of their Options but the minimum number of Options that may be exercised on any one occasion is the lesser of 1,000 Options or the balance of Options then remaining (where an Option Holder exercises only some of their Options, Pumpkin Patch will issue a new Option Certificate for the balance of Options remaining). Minimum Application Applications must be for the total number of Options offered to the selected Senior Manager. Allocation of Shares Each Option will, upon exercise, convert into one Share ranking equally in all respects with all other Shares on issue at the date on which it is exercised, except for any dividend in respect of which the Record Date occurred prior to the date of exercise. Pumpkin Patch will issue, transfer or procure the transfer of the appropriate number of Shares to the Option Holder within 5 Business Days of receiving payment of the relevant Exercise Price. Listing Pumpkin Patch does not intend to list the Options on the NZX. Application has been made to NZX for permission to list the Shares. All requirements of the NZX relating to listing the Shares that can be complied with on or before the date of this Prospectus have been duly complied with. However, the NZX accepts no responsibility for any statement in this Prospectus. New Zealand and Australian-Only Option Offer The Option Offer described in this section is an offer to Eligible Senior Managers in New Zealand and Australia. This Prospectus is intended for use only in connection with the Option Offer in New Zealand and Australia and is not to be sent or given to any person outside New Zealand or Australia in any circumstances in which the Offer or use of this Prospectus would be unlawful. This Prospectus will be distributed to Eligible Senior Managers in Australia together with a separate document containing additional disclosures as required by Australian law. Notwithstanding this, the Company intends to make offers of Options to certain Eligible Senior Managers as generally specified in section “Offer Description” above who reside in other countries, predominantly the United Kingdom. Use of Proceeds of Option Offer Pumpkin Patch will not receive any proceeds from the allotment of the Options under the Option Offer but will receive proceeds from the issue of Shares upon exercise of the Options. It is intended that these proceeds will be used for general business purposes of Pumpkin Patch, however they may be made be applied to any undertaking in which Pumpkin Patch may lawfully engage. 19 shareholding structure 20 shareholding structure On the Allocation and Allotment Date following the issue of new Shares under the Share Offer (assuming that all 81,027,200 new Shares are subscribed for and all proposed share repurchases from Selling Shareholders have occurred) Pumpkin Patch will have 166,513,000 Shares on issue. Of these Shares, approximately 42% will be owned by the existing Shareholders, approximately 9% will be owned by (or held on behalf of or for allocation to) management and other employees of the Company and 49% will be owned by institutional investors and members of the public. The following table provides a summary of the shareholdings in the Company prior to the Share Offer and approximates what the register of the Company may look like after the Share Offer. Immediately prior to listing Post-listing (assuming 32,000,000 Shares are subscribed for) Post-listing (assuming 81,027,200 Shares are subscribed for and all proposed share repurchases have occurred) Shares Feruza Trust Quadrant Capital Fund Simdec Trust Kezza Family Trust The Opito Family Trust Punchestown Family Trust Muir Trust Shares Issued Under Employee Share Schemes DF7 Scheme Trustee Institutions and retail investors Total 48,780,000 24,000,000 20,037,200 13,400,000 10,400,000 1,200,000 1,111,100 % 36.3 17.8 14.9 10.0 7.7 0.9 0.8 Shares 48,780,000 24,000,000 20,037,200 13,400,000 10,400,000 1,200,000 1,111,100 % 29.3 14.4 12.0 8.0 6.2 0.7 0.7 Shares 24,390,000 12,000,000 7,400,000 13,400,000 10,400,000 1,200,000 1,111,100 % 14.6 7.2 4.4 8.0 6.2 0.7 0.7 13,584,700 2,000,000 N/a 134,513,000 10.1 1.5 N/a 100.00% 13,584,700 2,000,000 32,000,000 166,513,000 8.2 1.2 19.2 100.00% 13,584,700 2,000,000 81,027,200 166,513,000 8.2 1.2 48.7 100.00% Notes: 1. If between 32,000,000 and 81,027,200 Shares are subscribed for, the Company will repurchase between 28,770,400 and 49,027,200 Shares from the Selling Shareholders. If fewer than 60,770,400 Shares are subscribed for, the Company may, in its discretion, refund any subscription proceeds in excess of $40 million and no part of the subscriptions received will be used to repurchase Shares. 2. All of the shares in the Company on issue as at the date of this Investment Statement are fully paid, except some Shares issued under employee share schemes, which will be fully paid upon listing. Immediately following listing and the repurchase (assuming full subscription) an additional $42.2 million will be credited as paid up in respect of new Shares (assuming an issue price of $1.32 per Share). 3. The Feruza Trust is associated with interests of Setar Motani. 4. The Simdec Trust is associated with interests of Stephen Sher. 5. The Kezza Family Trust is associated with interests of Managing Director, Maurice Prendergast. 6. The Opito Family Trust and the Punchestown Family Trust are associated with the interests of Sally Synnott. 7. The Muir Trust is associated with interests of Executive Chairman, Greg Muir. 8. Shares held under the current employee share schemes are held by trustees on behalf of a number of employees of the Company. These are currently B Class and C Class shares (which do not confer voting rights) which will convert to fully paid ordinary shares (all ranking equally for dividends and voting rights) immediately prior to listing. 3,795,467 will be retained by the trustees and will be progressively released over three years to the individual employees. The remainder will be released to the employees on whose behalf they are held. Certain of the Directors currently, and will upon listing, hold Shares under the employee share schemes. 9. Post-listing (on at or about 9 June 2004), the Company will have on issue up to 2,274,000 Options, which may convert into 2,274,000 Shares in the Company no earlier than 9 June 2007. On the basis of the post listing shareholdings set out above and assuming all Options convert into Shares, this would represent 1.35% of the Company. 10. Prior to listing, certain share transfers have occurred between the shareholders. The Simdec Trust has received 700,000 Shares from the Opito Family Trust and 4,537,200 Shares from the trustees of the employee share schemes (3 million of which were transferred for and on behalf of Maurice Pendergast and 1,537,200 of which were transferred for and on behalf of Chrissy Conyngham). The Simdec Trust is obliged to pay an amount for those shares equal to the repurchase price per share it receives under the Repurchase Agreements described on page 81-82. 11. As at January 2004, the Company had 1,282,911 shares on issue (as described on page 56). Since then, the Company has carried out a 100:1 share split, issued an aggregate of 3,110,800 B and C Class shares to the trustees of the employee share schemes, issued 2,000,000 A Class shares to the trustees of the DF7 scheme and issued 1,111,100 A Class shares to the Muir Trust, bringing the total number of shares issued (as at 14 May 2004) to 134,513,000. 21 directors & senior management 22 directors and senior management Directors Greg Muir Executive Chairman BA, MBA Greg Muir was appointed Executive Chairman in February 2004. Prior to joining Pumpkin Patch he was Chief Executive Officer of The Warehouse Group Ltd and held senior management roles with TNT Australia Pty Ltd, Enerco New Zealand Ltd and Lion Nathan Ltd. Greg is a Director of the Auckland Rugby Union Inc., Chairman of the Blues Super 12 Franchise and a member of the Eden Park Board of Control. Greg lives in Auckland. Maurice Prendergast Managing Director Maurice Prendergast has been Managing Director of Pumpkin Patch since 1993. Maurice has held executive positions in accounting, distribution and property development in both New Zealand and Australian companies. Maurice is a Director of two apparel companies – Bendon Ltd and Sports Resources Ltd. Maurice lives in Auckland. Chrissy Conyngham Design and Marketing Director Chrissy Conyngham joined Pumpkin Patch as Design Director in 1993. Chrissy leads the design and marketing teams and is responsible for bringing together comprehensive ranges, product sourcing and brand promotion. Chrissy has 17 years of experience in the fashion industry, and was previously the childrenswear product manager for Kmart. She draws inspiration from her three daughters who are keen product testers and aspiring fashionistas! Chrissy lives in Auckland. Jane Freeman Independent Non-Executive Director BCom Chairman of the Remuneration committee and member of the Audit, Risk Management and Compliance Committee. Jane has held senior marketing and management positions at Telecom’s esolutions, BankDirect, Clear Communications Ltd and ASB Bank Ltd. Jane is currently a director of Air New Zealand Ltd, Sheffield Consulting Ltd, St George Bank New Zealand Ltd and Albert St Dental Ltd. Jane lives in Auckland. David Jackson Independent Non-Executive Director MCom (Hons), FCA Chairman of the Audit, Compliance and Risk Management Committee and member of the Remuneration Committee. David was appointed as a Director of Pumpkin Patch in March 2004 and is a Senior Audit Partner with and former Chairman of Ernst & Young. Since 2001 David has been Chairman of the Dame Malvina Major Foundation and is a member of the Executive Board of the Institute of Chartered Accountants in New Zealand. David lives in Auckland. Sally Synnott Non-Executive Director Member of the Remuneration and the Audit, Compliance and Risk Management Committees. Sally Synnott founded Pumpkin Patch in 1990 and held an executive role within the Company until 1993. Since then Sally has undertaken specialist assignments and has been a non-executive Director. Sally started her career in the apparel industry as a production planner and marketing assistant before moving to Kmart NZ as childrenswear buyer. By the time she left Kmart in 1990 she was a group buyer responsible for a number of apparel categories. These days Sally enjoys mentoring a number of small NZ business start-ups in between running after three boys and playing golf. Sally lives in Auckland. 23 Senior Management Mike Arand General Manager – Business Development BMS (Intl) Mike joined Pumpkin Patch in 1999 as General Manager – Business Development. Mike was with Canterbury International Ltd before joining Pumpkin Patch, with his last position being International Manager responsible for global development of the Canterbury of New Zealand brand. Mike speaks Japanese having been awarded Monbusho Research Scholarships to study Japanese at Osaka University of Foreign Language and Japanese Business Studies at Chuo University in Japan. Lyn Bryant General Manager – Operations Lyn joined Pumpkin Patch as Customer Service Supervisor. She was appointed to her current position as General Manager-Operations in 2003. Before joining Pumpkin Patch Lyn was the Office Manager at an insurance brokerage where she was responsible for managing the customer service, payroll and telemarketing teams. Lyn is a member of the Institute of Logistics and Transport. Marilyn Crocker General Manager – Human Resources BA, MBA, RGON, MIHRMNZ Marilyn joined Pumpkin Patch in 2003 as Global Human Resources Manager responsible for developing procedures for managing Pumpkin Patch’s 1,700 or so employees worldwide. Before joining Pumpkin Patch Marilyn spent over four years at Fletcher Building Ltd and prior to that four years as New Zealand Human Resources Manager for Country Road (New Zealand) Ltd. She is a certificate member of the Institute of Human Resource Managers of NZ, and accredited Zenger Miller Trainer, a registered Hay job evaluator and a registered Saville and Holdsworth Psychometric tester. Kay Gillard General Manager – Retail Kay joined Pumpkin Patch in 1996 as Operations Manager to head the retail initiative into Australia. In 1997 Kay was appointed General Manager – Australia and in 1999 was appointed General Manager – Retail with responsibility for Pumpkin Patch’s global retail operation. Before Kay joined Pumpkin Patch she was Business Director at Three Bears and Route 66 Ltd and prior to that she was General Manager at Saks Newmarket. Zarina Thesing General Manager – Information Technology BCom Zarina joined Pumpkin Patch in 2000 as an IT Development Manager and was appointed as General Manager-IT in 2002. Zarina has been involved in the IT industry for 9 years prior to joining Pumpkin Patch including: Wilson & Horton Ltd, Vodafone New Zealand Ltd, Accident Compensation Corporation and Southern Regional Health Authority. Bruce Walkley General Manager – Business Development (Europe and UK) BCom Bruce joined Pumpkin Patch in 1993 as Finance Director. In 2000 he was appointed General Manager – United Kingdom with responsibility for managing Pumpkin Patch’s international expansion in the United Kingdom and Europe. Before joining Pumpkin Patch Bruce was the financial controller for a joint venture developing multi-use property development in London and prior to that he worked as an accountant in London. Matthew Washington Group Financial Controller BCom, CA Matthew joined Pumpkin Patch in 2000 as Group Financial Controller. He has over 16 years accounting and commercial experience of which eight years were with Ernst & Young most recently as a Senior Manager, and a further three years were with Fletcher Wood Panels Ltd as Finance Manager. 24 corporate governance & business strategy 25 corporate governance The Board of Pumpkin Patch has the responsibility of ensuring Pumpkin Patch is properly managed to protect and enhance shareholders’ interests. The Directors take this responsibility seriously and to this end, the Board of Directors has adopted what it believes to be appropriate corporate governance policies and practices. The main corporate governance policies incorporate: • Appointment and retirement of Directors; • Directors’ access to independent professional advice; • Board committees: — Audit, Compliance and Risk Management Committee; and — Remuneration Committee. The Board has undertaken to regularly review the corporate governance policies to ensure that Pumpkin Patch’s responsibilities and obligations are met. business strategy Purpose of the Issue It is intended that the proceeds of the Share Offer will be used as described at page 17. There will not be any proceeds from the allocation of Options under the Option Offer, but proceeds from the exercise of Options will be used by the Company for its general business purposes. Any proceeds may also be applied to any undertaking in which the Company may lawfully engage. Directors’ Plans The Directors’ plans for the following twelve months are to focus on growth in sales and earnings through: • Continued development of Pumpkin Patch in New Zealand and Australia through new store openings; • Expansion of pre and early teen brands; • Continued incremental growth in Pumpkin Patch’s United Kingdom retail chain; • Expansion of overseas third party retailing through department stores in the United States; and • Extension of existing operations in Europe and the Middle East in conjunction with our third party retailers. Forecasts Forecast financial statements including cash flows (and the notes and assumptions upon which the statements are based), for the years commencing on 1 August 2003 and 1 August 2004 are set out at pages 36 to 43. Dividend Policy The dividend policy of the Board of Pumpkin Patch is to target a dividend payout ratio of approximately 50% of the net profit after tax of the Company, subject to a number of factors including the level of expenditure required to pursue growth opportunities and the Company’s objective to provide shareholders with appropriate returns. In each financial year the Directors expect to pay an interim dividend in April and a final dividend in November. Pumpkin Patch can give no assurances as to the level or frequency of any future dividend (or other distributions, if any) payable on Shares or as to the level of imputation credits, if any, attached to any dividends. Option Holders under the Option Offer are not entitled to any dividends in respect of their Options. 26 risk and special trade factors 27 risk and special trade factors Principal Risks Shares The principal risk to investors under the Share Offer is that they may not be able to recoup their original investment or they may not receive the returns they expect. This could happen for a number of reasons including that: • The price at which the Shares trade may be lower than the price paid for them; • There is no ready market for Pumpkin Patch shares; • Pumpkin Patch does not have funds available to pay dividends; • Pumpkin Patch becomes insolvent or does not have sufficient assets to pay returns to holders of the Shares; • The operational and financial performance of Pumpkin Patch falls below expectation; and/or • The Company is placed in receivership or liquidation. The Shares will be ordinary fully paid shares and holders of Shares will have no liability to Pumpkin Patch for any further payment in respect of the Shares. Risk factors exist that are both specific to Pumpkin Patch’s business activities and of a general nature. These factors may, individually or in combination, affect the future operating performance of Pumpkin Patch and the value of a holder’s investment in Pumpkin Patch. Many factors will affect the price of the Shares including economic conditions in New Zealand and elsewhere, the operational and financial performance of Pumpkin Patch, changes in government policies and regulations in countries where Pumpkin Patch operates and movements in interest rates or currency exchange rates. An investor in Shares will also face the business risks arising from the assets and undertakings of the Pumpkin Patch Group. Options The principal risk to holders of Options under the Option Offer is that the Options cannot be exercised because the Share price does not meet the stipulated performance benchmark. This could happen for a number of reasons including those set out above in relation to Shares. In addition once a holder of Options has paid the Exercise Price and had the Options converted to Shares, he or she is subject to the same risks as any shareholder, as set out generally in this section. Exchange Rates Pumpkin Patch is exposed to movements in exchange rates (in particular the exchange rates between the Australian dollar, the New Zealand dollar and the United States dollar) as: • In excess of 75% of Pumpkin Patch’s inventory is purchased internationally in United States dollars; and • The majority of Pumpkin Patch’s stock is sold in currencies other than New Zealand dollars with approximately 60% of the Company’s sales denominated in Australian dollars. Exchange rate movements affecting these currencies will impact the financial performance and financial position of Pumpkin Patch to the extent the foreign exchange rate is not hedged. 28 System Risks Pumpkin Patch’s business is reliant on information technology systems to manage stock, costs, stock despatch, a retail database and retail sales. These computer based systems are essential to managing the business. Pumpkin Patch is exposed to a number of risks, including: • Complete or partial failure or sabotage of the information technology systems; • Inadequacy of information technology systems used by Pumpkin Patch due to, among other things, failure to keep pace with developments; • Capacity of the existing systems to effectively accommodate Pumpkin Patch’s growth and business development; and • Inability of separate systems to successfully integrate and communicate with each other. To mitigate some of these risks, Pumpkin Patch has disaster recovery, system development and strategic plans in place. However, any failure or inadequacy in Pumpkin Patch’s systems could result in business interruption, the loss of customers, damaged reputation and weakening of Pumpkin Patch’s competitive position and could therefore adversely affect the business. No assurances can be given that Pumpkin Patch’s information technology systems will, in the future, be adequate to manage the business or that its disaster recovery and system development plans will be adequate. Public and Product Liability Pumpkin Patch markets its products in several countries. Regulations relating to product quality and safety, and public and product liability differs in each of these countries. Pumpkin Patch has procedures in place to ensure that relevant requirements are reviewed and evaluated prior to supplying product to these countries, and, where appropriate, insurance cover is obtained. There is a risk, however, that notwithstanding these procedures, Pumpkin Patch may be liable in respect of its product supplied in New Zealand and internationally. Key Personnel Pumpkin Patch’s performance is dependent on the efforts and abilities of its executive management (see pages 23 and 24). While each of these executives is party to an employment contract, under the terms of the contracts each executive is permitted to terminate the contract upon notice. Pumpkin Patch’s success is also dependent on its ability to hire additional personnel as necessary to meet its business needs. Whilst every effort is made to retain key employees, plan for succession and recruit new personnel as the need arises, the loss of one or more key personnel may adversely affect Pumpkin Patch’s business and earnings or growth prospects. Reputation or Brand Damage Pumpkin Patch’s reputation and brand are valuable components of its business. Pumpkin Patch has in place procedures to set relevant terms of trade with suppliers and buying agents to ensure that the quality of the product is maintained and also to deal with other activities of suppliers which could affect the quality of the product or the reputation or brand of Pumpkin Patch. Notwithstanding these efforts, it is possible that customers’ perceptions of a reduction in quality in Pumpkin Patch products or a perceived association by Pumpkin Patch with socially irresponsible behaviour or supply practices may damage Pumpkin Patch’s reputation or brand and thereby adversely affect its earnings or growth prospects. Logistics Pumpkin Patch is reliant on third parties to deliver its stock to its distribution centre in New Zealand and stores in various markets around the world. Industrial relations at sea ports and airports in New Zealand and overseas are traditionally volatile. There is a risk that delivery of product to the distribution centre and stores may be delayed by reason of industrial dispute or other factors affecting the transport arrangements. This may adversely affect Pumpkin Patch’s ability to deliver stock to the stores which may adversely affect business and earnings. 29 Head Office Pumpkin Patch’s head office and distribution centre are located on the one site in Auckland from which all the business operations are managed and from which all stock is distributed. Pumpkin Patch has in place procedures to ensure that disruption to business in the event of a disaster affecting the site is minimal and in particular holds general insurance over the site. However, a major disaster affecting the site may adversely affect the ability of Pumpkin Patch’s personnel to manage the business and may adversely affect Pumpkin Patch’s earnings and financial position. Fashion Trends The long term success of Pumpkin Patch depends on its ability to interpret trends in the children’s clothing market. While this has been successful in the past there is a risk that new designs will not be well received by these markets resulting in Pumpkin Patch having to clear inventory at a discount which would affect its earnings. Competition The Company may encounter higher levels of competition than it currently experiences. Any increase in the competitive environment may have an adverse effect on Pumpkin Patch’s business, earnings and growth. Third Party Retailer Arrangements Pumpkin Patch’s future strategy involves selling a greater proportion of its products through arrangements with agents and distributors. There can be no assurance that these arrangements, once established, will continue. In the event that one or more of these arrangements ends or proves unsatisfactory, the Company would seek to negotiate acceptable alternative arrangements, or to open its own stores. Management of Growth Opportunities Pumpkin Patch is pursuing new initiatives, including expansion within existing markets and into new markets and new distribution models. Pumpkin Patch expects that growth and increased operating complexity will place additional demands on its systems and its personnel given the additional time and space needed to service the greater demand for product and to anticipate and meet the particular requirements of new markets and new initiatives. If the Company’s systems, personnel or distribution networks are unable to keep pace with these demands, the business, operating results and financial condition of Pumpkin Patch may be adversely affected. If new initiatives cannot be implemented satisfactorily, or once implemented, fail to perform satisfactorily, Pumpkin Patch may need to withdraw from an activity which may adversely affect earnings and assets. Pumpkin Patch may find that it cannot continue to expand its business in the New Zealand and Australian market. This may result in lower growth or decreased earnings from this market. 30 Stock Market Investment The price of the Shares on the NZX may rise or fall due to numerous factors which may affect the market price of Pumpkin Patch Shares, including: • General economic conditions, including performance of the New Zealand dollar on world markets, inflation rates and interest rates; • Variations in the general market for listed stocks, in general, or for New Zealand stocks, in particular; • Changes to government policy, legislation or regulation; and • General operational and business risks. In particular, the share prices for many companies have in recent times been subject to wide fluctuations, which in many cases may reflect a diverse range of non-company specific influences such as global hostilities, acts of terrorism and the general state of the world economy. Such market fluctuations may adversely affect the market price of the Shares. No assurances can be made that Pumpkin Patch’s market performance will not be adversely affected by any such market fluctuations or factors. Liquidity and Realisation Risk There can be no guarantee that an active market in the Shares will develop or that the price of the Shares will increase. There may be relatively few or many potential buyers or sellers of the Shares on the NZX at any time. This may increase the volatility of the market price of the Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price that Shareholders paid. Investors should also seek professional guidance from their stockbrokers, solicitors, accountants and other professional advisers before deciding whether to invest. Consequences of Insolvency and/or Winding Up Shares In the event of insolvency of Pumpkin Patch, Shareholders will not be liable to anyone for payment of any money. In these circumstances, Shareholders would not receive any return of money in respect of shares until Pumpkin Patch had paid all its other creditors,both secured and unsecured,including the costs of liquidation or receivership. Any assets remaining after the payments of debt would be distributed to Pumpkin Patch shareholders in proportion to their respective shareholdings and may not be sufficient to repay Shareholders in full. Options In the event of insolvency of Pumpkin Patch, Option Holders would not be liable to anyone for payment of any money. Option Holders are not entitled to share in any assets of the Company. 31 32 financial information 33 financial summary The financial summary below has been prepared to enable investors to compare forecast financial information with the three year historical performance of the underlying business of Pumpkin Patch. Financial Performance for 12 months ended 31 July 2001 $000 (Pro forma) (Unaudited) 150,238 11,038 4,403 6,635 2 6,635 5 1 6,635 2002 $000 (Pro forma) (Unaudited) 174,534 14,096 5,631 8,465 1,538 6,927 6,927 2003 $000 (Audited) 193,510 16,655 6,536 10,119 10,119 10,119 2004 $000 (Forecast) 213,524 26,717 7,224 19,493 19,493 7,450 12,043 2,610 9,433 5,397 4,036 2005 $000 (Forecast) 246,774 31,199 8,164 23,035 23,035 23,035 490 22,545 7,214 15,331 Note Operating Revenue Group EBITDA Before Costs of Restructuring Employee Share Schemes Depreciation Group EBITA Before Costs of Restructuring Employee Share Schemes Amortisation/Impairment of UK goodwill Group EBIT Before Costs of Restructuring Employee Share Schemes Costs of restructuring employee share schemes Group EBIT Net interest expense* Operating Profit Before Income Tax* Income tax expense* Net Profit After Income Tax* Cash Flow Summary Operating Cash Flow Capital expenditure Operating Cash Flow After Capital Expenditure 3 4 (13,293) 9,906 (23,199) 5,809 5,065 744 13,109 7,972 5,137 12,452 5,421 7,031 22,099 4,450 17,649 * Pro forma (31 July 2001 and 31 July 2002) and audited (31 July 2003) historical financial performance numbers are not included for these items as they are not relevant following the completion of the Share Offer. EBIT means earnings before interest and tax; EBITA means earnings before interest, tax and amortisation; EBITDA means earnings before interest, tax, depreciation and amortisation. Summary Statement of Financial Position Note Current assets Non-current assets Total Assets Jan 2004 $000 (Audited) 43,593 30,292 73,885 July 2004 $000 (Forecast) 52,379 33,105 85,484 July 2005 $000 (Forecast) 67,137 27,811 94,948 Borrowings (including overdraft facility) Other current liabilities Non-current liabilities Total Liabilities Net Assets 6 32,093 14,886 2,316 49,295 24,590 1,652 15,294 3,959 20,905 64,579 15,525 1,913 17,438 77,510 34 Basis of Preparation Pro forma historical financial information used on page 34 for the financial years ended 31 July 2001and 2002 is extracted from the audited historical financial statements and management accounts of Pumpkin Patch and adjusted for the change in balance date from 31 December to 31 July effective 31 July 2003 and the change in the accounting policy in 2001 relating to the treatment of landlord contributions; so that the historical results are comparable with the Pumpkin Patch forecast performance. Accordingly the pro forma figures presented on page 34 differ from the summary historical information set out on page 67. The amounts included for 31 July 2003 have been taken from special purpose audited financial statements for the 12 months then ended and differ from the summary historical financial information set out on page 67 as that information includes the historical financial information for the 7 months ended 31 July 2003. Pages 36 to 43 contain the prospective financial information, including the principal assumptions applied in arriving at the forecasts. Notes: 1. United Kingdom Retail The Financial Performance summary includes the following results for the United Kingdom retail operation Financial Performance for 12 months ended 31 July 2001 $000 (Pro forma) (Unaudited) Operating Revenue EBITDA (Loss) Depreciation EBIT (Loss) 5,384 (999) 188 (1,187) 2002 $000 (Pro forma) (Unaudited) 12,413 (852) 436 (1,288) 2003 $000 (Audited) 14,480 (1,870) 716 (2,586) 2004 $000 (Forecast) 17,323 (1,673) 799 (2,472) 2005 $000 (Forecast) 17,841 (1,547) 811 (2,358) 2. In 2002 the group acquired 100% of the shares in Pumpkin Patch Limited (UK). The 2002 results include amortisation/impairment of goodwill of $1,537,886 on the purchase of Pumpkin Patch Limited (UK). The charge was deemed necessary by the Directors after they reviewed the carrying value of the subsidiary and recognising that the purchase was made primarily as part of overall restructuring of group ownership structures. 3. Operating cash flow in 2001 was impacted primarily by an increase in the value of inventory resulting from: increased store numbers and the timing of deliveries from suppliers. 4. Capital Expenditure is disclosed after deducting landlord contributions. Capital expenditure in 2001 reflects the 17 stores opened during the year; 2002 reflects lower store openings but higher than average landlord contributions; 2003 includes the purchase of land adjoining the East Tamaki Road distribution centre. 5. The Directors have decided to restructure all existing employee share schemes prior to listing on the NZX at an estimated cost of $7,450k. This will be recognised in the period ended 31 July 2004. Full details of the schemes can be found on page 84. A portion of the $7,450k is not deductible for tax purposes in 2004. 6. January 2004 borrowings include bank overdraft of $3,955k, short term borrowings of $11,000k, current portion of term liabilities of $763k, term liabilities of $13,875k and loans and advances from shareholders of $2,500k. Forecast July 2004 borrowings only comprise the bank overdraft of $1,652k. 35 prospective financial information 36 prospective financial information The prospective financial information consists of forecast financial information and the underlying assumptions for the years ending 31 July 2004 and 31 July 2005 presented on pages 40 to 43. The prospective financial information has been the subject of due diligence by the Directors. Although due care and attention has been taken in preparing the prospective financial information, the Directors cannot provide assurance that the prospective financial information will be achieved. Actual results may vary from the prospective financial information due to the non-occurrence of anticipated events or alternatively events occurring that were not anticipated and any variations may be material. The prospective financial information has been prepared under NZ GAAP International Financial Reporting Standards are . required to be implemented by July 2007 and therefore any potential impact has not been incorporated in the prospective financial information as they will not be in place for the 31 July 2004 or 31 July 2005 financial year ends. FORECAST STATEMENTS OF FINANCIAL PERFORMANCE Group 12 Months 31 July 2004 $000 Operating Revenue Group Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) and Costs of Restructuring Employee Share Schemes Depreciation Group Earnings Before Interest, Tax and Costs of Restructuring Employee Share Schemes Costs of restructuring employee share schemes Group Earnings Before Interest and Tax (‘EBIT’) Net interest expense Operating Profit Before Income Tax Income tax expense Net Profit after Income Tax (‘NPAT’) 213,524 26,717 7,224 19,493 7,450 12,043 2,610 9,433 5,397 4,036 Group 12 Months 31 July 2005 $000 246,774 31,199 8,164 23,035 23,035 490 22,545 7,214 15,331 FORECAST STATEMENTS OF MOVEMENTS IN EQUITY Group 12 Months 31 July 2004 $000 Equity at Beginning of Year Net profit after income tax Dividends to ordinary shareholders Issue of ordinary shares prior to listing on NZX Issue of ordinary shares on listing on NZX Issue costs arising on issue of ordinary shares Repurchase of ordinary shares on listing on NZX Issue of ordinary shares under wound up employee share schemes Issue of ordinary shares under DF7 Scheme Movement in Equity for the Year Equity at End of Year 20,330 4,036 (9,500) 1,000 106,956 (1,335) (64,716) 5,708 2,100 44,249 64,579 12,931 77,510 Group 12 Months 31 July 2005 $000 64,579 15,331 (2,400) - 37 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) FORECAST STATEMENTS OF FINANCIAL POSITION Group 31 July 2004 $000 Current Assets Cash and bank balances Accounts receivable Inventories Income tax receivable Total Current Assets Non-Current Assets Property, plant and equipment Accounts receivable Intangible assets Investments Total non-Current Assets Total Assets Current Liabilities Bank overdraft Payables, accruals, and provisions Total Current Liabilities Non-Current Liabilities Payables, accruals, and provisions Total Term Liabilities Total Liabilities Net Assets Equity Share capital Retained earnings Total Equity 60,620 3,959 64,579 60,620 16,890 77,510 3,959 3,959 20,905 64,579 1,913 1,913 17,438 77,510 1,652 15,294 16,946 15,525 15,525 28,597 4,266 237 5 33,105 85,484 25,483 2,133 190 5 27,811 94,948 7,633 42,911 1,835 52,379 14,297 8,133 42,987 1,720 67,137 Group 31 July 2005 $000 38 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) FORECAST STATEMENTS OF CASH FLOWS Group 12 Months 31 July 2004 $000 Cash Flows from Operating Activities Receipts from customers Payment to suppliers and employees Interest and other costs of finance paid Income taxes paid Net Cash Inflows (Outflows) from Operating Activities Cash Flows from Investing Activities DF7 advances repaid Payments for property, plant and equipment Net Cash Inflows (Outflows) from Investing Activities Cash Flows from Financing Activities Dividends to ordinary shareholders Repayment of bank borrowings Issue of ordinary shares prior to float Issue of ordinary shares on float Repurchase of ordinary shares on float Costs of share issue Net Cash Inflows (Outflows) from Financing Activities Net increase (decrease) in cash held Cash at beginning of year Cash at End of Year (9,500) (36,636) 1,000 106,956 (64,716) (1,335) (4,231) 2,800 (4,452) (1,652) (2,400) (2,400) 15,949 (1,652) 14,297 (5,421) (5,421) 700 (4,450) (3,750) 212,116 (191,804) (2,610) (5,250) 12,452 246,274 (216,585) (490) (7,100) 22,099 Group 12 Months 31 July 2005 $000 39 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) Principal assumptions underlying the prospective financial information The principal assumptions upon which the forecast financial information is based are summarised below and should be read in conjunction with ‘Risk and special trade factors’ on pages 27 to 31. The prospective financial information for the years ending 31 July 2004 (“FY04”) and 31 July 2005 (“FY05”) on pages 36 to 43 constitutes a forecast as defined by the New Zealand Financial Reporting Standard No. 29, ‘Prospective Financial Information’ and has been prepared on the basis of assumptions as to future events that the Directors reasonably expect to occur associated with the actions the Directors reasonably expect to take as at the date the information was prepared. The forecast was prepared as at 8 April 2004 for use in this Offer Document. Actual audited results for the 6 month period to 31 January 2004 and actual unaudited results for February 2004 and March 2004 have been incorporated into the forecast for the year ending 31 July 2004. The forecast information has been prepared for the purposes of this prospectus and may not be suitable for any other purpose. There is no present intention to update this prospective financial information or to publish prospective financial information in the future. In preparing the forecast financial information, the accounting policies set out on pages 49 to 52 as part of the Group financial information have been applied without change. There is no expectation of any change to the accounting policies that would require a material change in the reporting of Pumpkin Patch’s activities in the future. General assumptions across all countries in which Pumpkin Patch operates Economic Environment There will be no material change in the general economic environment Legislative and regulatory Environment There will be no material change to the legislative and regulatory environment in which Pumpkin Patch operates. Competitive Environment There will be no material changes to the competitive markets in which Pumpkin Patch operates and no new entrants that will materially change the competitive environment. Industry Conditions There will be no material change to the competitive activity, industry structure, unanticipated fashion trends, general industry conditions, third party retailer relationships or the employee environment. Other assumptions Income Tax There will be no change to the tax regime in New Zealand, Australia or the UK, including no change to the company tax rate of 33%, 30% and 30% respectively. Management of Pumpkin Patch Pumpkin Patch’s senior management and other key people will continue in their current roles. Disruptions to Operations There will be no material disruptions to Pumpkin Patch’s operations or brand arising from long term IT or power failures, natural disasters, fires and explosions, and major disruptions to freight distribution networks. 40 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) Company Specific Assumptions Foreign Exchange Actual rates to March 2004 have been included in the FY04 forecasts and the following exchange rates have been utilised in the prospective financial information: FY04 April to July 04 AUD USD GBP EUR 0.8750 0.6150 0.3703 0.5000 FY05 0.8750 0.6150 0.3700 0.5000 The Company’s policy is to take out forward cover for a percentage of future forecast cashflow requirements depending on the time till the forecasted cashflow. FY04 is 100% hedged at an average rate of AUD0.8740 and USD0.6207 and hedging programmes will be in place for FY05. Currently the Company has 20% and 62% of FY05’s AUD and USD requirements hedged at an average rate of AUD0.8700 and USD0.6280. Revenue FORECAST OPERATING REVENUE CONSISTS OF: Group 12 Months 31 July 2004 $000 Australia retail New Zealand retail United Kingdom retail Other 133,911 47,390 17,323 14,900 213,524 Group 12 Months 31 July 2005 $000 149,812 61,314 17,841 17,807 246,774 Other consists of mail order, internet, and wholesale sales. (i) Retail (a) The following new store openings have been forecast for the remainder of FY04 and for FY05, wiith forecast revenues in line with historical averages for new stores: FY04 remainder Australia retail New Zealand retail UK retail 2 FY05 7 2 - (b) (c) Forecast sales for those stores that are in existence at 8 April 2004 are expected to be at the same trading levels for the remainder of FY04 and for FY05. 14 stores arising from the HBK acquisition as at 3 May 2004 have been included in the prospective financial information. (ii) Wholesale Forecast sales for the remainder of FY04 are based on actual orders received. The sales for the first half of FY05 are based on actual orders received while the second half FY05 are forecast at similar levels to that of the first half of FY05. 41 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) United Kingdom Retail The forecast Statements of Financial Performance include the following forecasts for the United Kingdom retail operation. Group 12 Months 31 July 2004 $000 Operating Revenue Earnings Before Interest, Tax, Depreciation and Amortisation (‘EBITDA’) (Loss) Depreciation Earnings Before Interest and Tax (‘EBIT’) (Loss) 17,323 (1,673) 799 (2,472) Group 12 Months 31 July 2005 $000 17,841 (1,547) 811 (2,358) Cost of Sales Forecast Cost of Sales (excluding the effect of foreign exchange) for the remainder of FY04 are anticipated at the percentage levels experienced to March 2004 and FY05 at those levels forecast for FY04. Retail, Wholesale, and Head Office Overheads Actual costs to March 2004 have been included in the forecasts for FY04 with the remaining period forecast at similar levels adjusted for new stores and other anticipated changes. FY05 costs are forecast at similar levels forecast for FY04, again adjusted for new stores and other anticipated changes. Costs of restructuring employee share schemes The Directors have decided to restructure all existing employee share schemes upon or immediately prior to listing on the NZX at an estimated cost of $7,450k. This been recognised in the period ended 31 July 2004. Full details of the restructuring of the schemes can be found on page 84. A portion of the $7,450k is not deductible for tax purposes in FY04. Interest Interest expense for the remainder of FY04 and FY05 has been forecast based on an average interest rate of 7.5% which includes all margins and other costs of borrowing paid to lenders. Dividends The Directors forecast that approximately 50% of net profit after tax will be paid as dividends subsequent to listing on the NZX. The Directors propose to declare fully imputed dividends, forecast at $2.4m in April 2005, payable April 2005, being an interim dividend for FY05, and $4.8m in November 2005, being the final dividend for FY05. In addition to the above an interim dividend was paid in March 2004 and a further dividend of NZ$8.3m is forecast to be declared and paid in June 2004, prior to listing on the NZX. Working Capital Working capital (inventory, accounts payable, and accounts receivable) has been forecast based on the forecasted inventory purchases by season and forecast changes in purchase costs (e.g. foreign exchange changes), forecasted wholesale sales, and forecasted other expenditure. Property, plant and equipment Capital expenditure forecast is based on new store openings and other general capital expenditure requirements. No other material or one-off capital expenditure has been forecast. 42 PROSPECTIVE FINANCIAL INFORMATION (CONTINUED) Term Debt The forecast assumes that all existing term debt at May 2004 is repaid in full. Finance Facilities It is forecast that there are adequate finance facilities in place and available to the Company to cover its anticipated funding requirements for the forecast periods. Current finance facilities in place with the company’s bankers are three year facilities and are due for renewal in May 2007. Capital Structure It is forecast that $107.0m will be received from the issue of ordinary shares on listing, based on an assumed issue price of $1.32 per Share. Significant outflows from the proceeds are forecast to include the repurchase of ordinary shares from existing shareholders of $64.7m and the repayment of bank loans of $13.1m. Offer Costs The Company will pay its share of the costs (forecast to be $1,335k) directly attributable to the Offer and will be accounted for as a reduction in equity. 43 group financial statements for the 6 months ended 31 January 2004 44 group financial statements P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENTS OF FINANCIAL PERFORMANCE FOR THE 6 MONTHS ENDED 31 JANUARY 2004 Group 6 months 31 Jan 2004 $000 99,730 2 3 8,229 2,766 5,463 7 months 31 July 2003 $000 111,750 2,639 1,482 1,157 12 months 31 Dec 2002 $000 181,919 5,646 3,296 2,350 Notes Operating Revenue Operating Profit Before Income Tax Income tax expense Net Profit Attributable to the Shareholders of the Parent Company P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENTS OF MOVEMENTS IN EQUITY FOR THE 6 MONTHS ENDED 31 JANUARY 2004 Group 6 months 31 Jan 2004 $000 20,330 5,463 4 4 6 (1,203) 24,590 7 months 31 July 2003 $000 20,974 1,157 (1,801) 20,330 12 months 31 Dec 2002 $000 20,983 2,350 73 (31) (2,401) 20,974 Notes Equity at Beginning of Period Net profit for period Shares issued during the period Shares repurchased during the period Dividends Paid Equity at the End of Period 45 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENTS OF FINANCIAL POSITION AS AT 31 JANUARY 2004 Group Notes Equity Share capital Retained earnings Total Equity Equity Represented by: Current Assets Accounts receivable Advances to employee share scheme and employees Other receivables and prepayments Inventories Income tax receivable Total Current Assets Current Liabilities Bank overdraft Short term borrowings Trade creditors Income tax payable Accruals and provisions Current portion of term liabilities Total Current Liabilities Net Working Capital Non-Current Assets Property, plant and equipment Intangible assets Other investments Deferred taxation Total Non-Current Assets Non-Current Liabilities Term liabilities Loan and advances from shareholders Accruals and provisions Deferred taxation Total Non-Current Liabilities Net Assets 8 9 10 15 13,875 2,500 2,316 18,691 24,590 15,430 2,500 2,146 20,076 20,330 18,020 2,500 2,126 402 23,048 20,974 12 20 14 15 29,341 202 4 745 30,292 29,652 207 4 446 30,309 29,202 201 3 29,406 3 10 8 8 8 3,955 11,000 5,515 836 8,535 763 30,604 12,989 4,452 17,000 7,910 7,418 1,707 38,487 10,097 5,048 12,000 6,381 8,845 2,199 34,473 14,616 11 3 19 980 1,721 2,992 37,900 43,593 1,360 1,647 2,824 41,216 1,537 48,584 266 1,647 5,310 39,237 2,629 49,089 4 6 10,907 13,683 24,590 10,907 9,423 20,330 10,907 10,067 20,974 31 Jan 2004 $000 31 July 2003 $000 31 Dec 2002 $000 46 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENTS OF CASHFLOWS FOR THE 6 MONTHS ENDED 31 JANUARY 2004 Group 6 months 31 Jan 2004 $000 Cash Flow From Operating Activities Cash was provided from: Receipts from customers Interest received Cash was applied to: Payment to suppliers and employees Net GST paid Income tax paid Interest paid Net Cash Flow from Operating Activities Cash Flow From Investing Activities Cash was provided from: Proceeds from sale of property, plant and equipment Purchase of subsidiary Cash was applied to: Purchase of property, plant and equipment Purchase of patents and trade marks Net Cash Used in Investing Activities Cash Flow From Financing Activities Cash was provided from: Proceeds of short term debt issued (net) * Proceeds of mortgage receivable Proceeds of issue of shares Cash was applied to: Repayment of term debt Purchase of shares Dividends paid Net Cash Used in Financing Activities Net Increase / (Decrease) In Cash Held Add opening cash brought forward Effect of exchange rate changes on cash Ending Cash Carried Forward (2,499) (1,203) (9,702) 514 (4,452) (17) (3,955) (3,082) (1,801) 117 633 (5,048) (37) (4,452) (5,330) (31) (2,401) (7,314) (2,490) (2,540) (18) (5,048) (6,000) 5,000 375 73 (3,243) (36) (3,185) (4,276) (37) (4,272) (9,965) (59) (9,312) 94 41 206 506 (81,789) (2,655) (694) (1,335) 13,401 (99,253) (3,506) (1,238) (1,871) 4,788 (159,669) (1,251) (2,109) (2,570) 14,136 99,867 7 110,656 179,717 18 7 months 31 July 2003 $000 12 months 31 Dec 2002 $000 * Proceeds from short term borrowings have been netted against payments of short term borrowings. These borrowings are covered by an arranged finance facility. 47 RECONCILIATION OF NET SURPLUS AFTER TAXATION TO CASHFLOW FROM OPERATING ACTIVITIES Group 6 months 31 Jan 2004 $000 5,463 7 months 31 July 2003 $000 1,157 12 months 31 Dec 2002 $000 2,350 Notes Net Profit For Period Add/(Less) Non-cash items: Depreciation (Increase)/Decrease in deferred taxation Amortisation of goodwill on purchase of subsidiary Amortisation expense Impairment charge Add/(Less) movements in working Capital items: (Increase)/Decrease in receivables and prepayments Increase in creditors and provisions (Increase)/Decrease in inventories Net Cash Flow From Operating Activities 2 2 2 3,497 (299) 24 - 3,821 (848) 30 - 6,012 972 308 1,230 137 1,263 3,316 13,401 1,392 1,215 (1,979) 4,788 (2,202) 6,457 (991) 14,136 48 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENT OF ACCOUNTING POLICIES FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) Entities Reporting The financial statements for the “Group” are for the economic entity comprising Pumpkin Patch Limited and its subsidiaries. Statutory Base Pumpkin Patch Limited is a company registered under the Companies Act 1993. The financial statements have been prepared in accordance with the requirements of the Securities Regulations 1983. Measurement Base The financial statements have been prepared on the historical cost basis. Accounting Policies The financial statements are prepared in accordance with New Zealand generally accepted accounting practice. The accounting policies that materially affect the measurement of financial performance, financial position and cash flows are set out below. Group Financial Statements The Group financial statements consolidate the financial statements of subsidiaries, using the purchase method. Subsidiaries are entities that are controlled, either directly or indirectly, by the Parent. All material transactions between subsidiaries or between the Parent and subsidiaries are eliminated on consolidation. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of financial performance from the date of acquisition or up to the date of disposal. Operating Revenues Goods and Services Revenue comprises the amounts received and receivable for goods and services supplied to customers in the ordinary course of business. Investment income Dividend income is recognised in the period the dividend is declared. Interest and rental income are accounted for as earned. Income Tax The income tax expense recognised for the year is based on the accounting surplus, adjusted for permanent differences between accounting and tax rules. The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method. A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised. Goods and Services Tax (GST) The statement of financial performance and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the statement of financial position are stated net of GST, with the exception of receivables and payables, which include GST invoiced. 49 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENT OF ACCOUNTING POLICIES FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) Foreign Currencies Transactions Transactions denominated in a foreign currency are converted to New Zealand dollars at the exchange rates in effect at the date of the transaction, except when forward currency contracts have been taken out to cover short-term forward currency commitments. Where short-term forward currency contracts have been taken out, the transaction is translated at the rate contained in the contract. Monetary assets and liabilities arising from trading transactions, such as inventory, trade debtors, cash and trade creditors, or overseas borrowings are translated at closing rates from the following currencies at the closing rate as at the financial period end: 31 January 2004 Australian Dollar US Dollar British Pound 0.8808 0.6710 0.3703 31 July 2003 0.8929 0.5822 0.3699 31 December 2002 0.9300 0.5247 0.3269 Gains and losses due to currency fluctuations on these items are included in the statement of financial performance. Foreign operations The results of integrated foreign operations are translated in the same way as if the underlying transactions had been entered into by the reporting entity. Exchange differences arising from the translation of integrated foreign operation are recognised in the statement of financial performance. Share Schemes and Employee Ownership Plans The Company operates employee share ownership plans for certain employees. The initial purchase of shares by the scheme is funded by advances from the company, the advances being recognised as assets in the statement of financial position. Where shares are issued in lieu of bonus, the expense is recognised in the statement of financial performance. The Company operates share schemes for certain executive employees. No compensation expense is recognised in the statement of financial performance. Deferred Landlord Contributions Landlord contributions to fit-out costs are capitalised as deferred contributions and amortised to the statement of financial performance over the lesser of the minimum period of the lease or the useful life of the asset. Property, Plant and Equipment The cost of purchased property, plant and equipment is the value of the consideration given to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended service. 50 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENT OF ACCOUNTING POLICIES FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) The cost of assets constructed by the Group includes the cost of all materials used in construction, direct labour on the project and financing costs that are directly attributable to the project. Costs cease to be capitalised as soon as the asset is ready for productive use. Depreciation Depreciation on property, plant and equipment, other than freehold land, has been calculated on a straight line basis so as to expense the cost of the assets to their residual values over their useful lives as follows: Shop fit out Office equipment Point of sale equipment Computer equipment & software Motor vehicles Plant and machinery Furniture and fittings Leasehold improvements Building 10-29% 10-29% 33% 20-36% 21.6% 7-48% 10% 15% 2.5-3% Leased Assets Operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are charged to the statements of financial performance in the periods in which they are incurred. Landlord contributions to fit-out costs are recognised in the statement of financial performance over the minimum period of the lease, as a reduction in operating lease costs. Investments Investments are stated at the lower of cost or net realisable value. Intangibles The excess of cost over the fair value of the net assets of the subsidiary entities is recognised as goodwill and is amortised to the statements of financial performance on a straight line basis over the shorter of its estimated life or five years. Other intangibles comprise of the cost of registering trademarks. These are amortised over their anticipated useful lives which range between 5 and 10 years. Inventories Raw materials and finished goods are stated at the lower of average weighted cost and net realisable value. Cost is determined on a first in, first out basis. Accounts Receivable Accounts receivable are carried at estimated realisable value after providing against debts where collection is doubtful. 51 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S STATEMENT OF ACCOUNTING POLICIES FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) Impairment Annually, the directors assess the carrying value of each asset. Where the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statements of financial performance. Employee Entitlements Employee entitlements to salaries and wages, annual leave, long service leave and other benefits are recognised when they accrue to employees. The liability for employee entitlements is carried at the present value of the estimated future cash outflows. Financial Instruments Recognised Financial instruments carried on the statement of financial position include cash and bank balances, investments, receivables, trade creditors and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Forward exchange contracts entered into as hedges of foreign exchange assets and liabilities are valued at exchange rates prevailing at period end. Any unrealised gains or losses are offset against foreign exchange gains and losses on the related asset or liability. Premiums paid on currency options are amortised over the period to maturity. Unrecognised Financial instruments with off-balance sheet risk, have been entered into for the primary purpose of reducing exposure to fluctuations in foreign exchange rates and interest rates. While financial instruments are subject to risk that market rates may change subsequent to acquisition, such changes would generally be offset by opposite effects on the items hedged. Financial instruments purchased with the intention to be held for the long term or until maturity are recorded at original cost, adjusted for amortisation of premiums and discounts to maturity. Statements of Cashflows The following are the definitions of the terms used in the Statements of Cashflows: (i) (ii) Cash is considered to be cash on hand and current accounts in the bank, net of bank overdrafts. Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the definition of cash. Financing activities are those activities which result in changes in the size and composition of the capital structure of the Group. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. Operating activities include all transactions and other events that are not investing or financing activities. (iii) (iv) Changes in Accounting Policies There were no changes to accounting policies during the period. 52 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 1. Segment Information 6 months 31 Jan 2004 $000 7 months 31 July 2003 $000 New Zealand Retail Assets Segment Consolidated Revenue Segment Consolidated Result Segment Consolidated 13,602 13,602 20,444 20,444 3,467 3,467 14,507 14,507 24,359 24,359 2,301 2,301 14,347 14,347 42,407 42,407 5,049 5,049 41,017 41,017 62,783 62,783 6,722 6,722 44,501 44,501 70,246 70,246 3,107 3,107 Other 9,369 9,369 12,916 12,916 (2,352) (2,352) 3,522 3,522 6,448 6,448 912 912 3,964 3,964 9,018 9,018 2,170 2,170 2,331 2,331 11,211 11,211 2,346 2,346 46,751 46,751 115,385 115,385 6.840 6,840 12 months 31 Dec 2002 $000 6 months 31 Jan 2004 $000 7 months 31 July 2003 $000 Australia Retail 12 months 31 Dec 2002 $000 United Kingdom Retail Assets Segment Consolidated Revenue Segment Consolidated Result Segment Consolidated 11,269 11,269 10,055 10,055 (1,204) (1,204) 10,330 10,330 8,127 8,127 (2,742) (2,742) Total Assets Segment Unallocated and other Consolidated Revenue Segment Consolidated Result Segment Interest expense Unallocated Consolidated 69,410 4,475 73,885 99,730 99,730 9,897 (1,335) (333) 8,229 73,302 5,591 78,893 111,750 111,750 4,836 (1,871) (326) 2,639 72,798 5,697 78,495 181,919 181,919 11,883 (2,570) (3,667) 5,646 “Other” represents wholesale, mail order and internet sales. The result is that of the Group before income tax. The Group operates in one industry being the retailing and wholesaling of children’s clothing. Intersegment sales are on an arms length basis. 53 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 2. Operating Profit Before Income Tax The operating profit before income tax is stated after charging/(crediting): Group 6 months 31 Jan 2004 $000 Depreciation: - Leasehold improvements - Computer equipment - Shop fitouts - POS equipment - Plant and machinery - Office equipment - Motor vehicles - Furniture and fittings Total Depreciation Foreign currency losses Rental and operating lease costs Bad debts written off Interest expense Gain on sale of property plant and equipment Interest received Amortisation expense Amortisation of goodwill on purchase of subsidiary Impairment charge Directors’ fees Donations Audit fees (PricewaterhouseCoopers) Other auditors Other services: PricewaterhouseCoopers 26 24 349 2,317 56 238 46 9 458 3,497 816 11,370 15 1,335 (6) (6) 24 105 22 80 28 415 2,488 48 282 53 14 493 3,821 1,413 12,256 1,871 (17) 30 118 66 103 24 156 764 3,819 99 782 79 62 251 6,012 1,095 18,850 48 2,570 (23) (18) 308 1,230 180 100 102 18 7 months 31 July 2003 $000 12 months 31 Dec 2002 $000 54 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 3. Taxation The Income Tax Expense has been calculated as follows: Group 6 months 31 Jan 2004 $000 Surplus for the Period: Income tax on the surplus for the period at 33% Plus/(Less): Prior period adjustment Foreign tax credits not utilised Tax effect of permanent differences Income Tax Expense The income tax expense is represented by: Current taxation Prior period adjustment Deferred taxation Foreign tax credits not utilised Income Tax Expense Income Tax Receivable Opening Balance Current taxation Withholding tax paid Income tax paid Income tax refunded Prior period adjustment Foreign investor tax credit Foreign tax credits not utilised Closing Balance (1,537) 3,241 (228) (1,719) 1,408 (174) (155) 836 (2,629) 2,237 (230) (697) 13 (231) (1,537) (2,842) 2,202 (347) (1,510) 16 (309) 161 (2,629) 3,241 (175) (300) 2,766 2,237 6 (761) 1,482 2,202 49 883 162 3,296 8,229 2,716 (174) 224 2,766 6 606 1,482 49 162 1,222 3,296 7 months 31 July 2003 $000 2,639 870 12 months 31 Dec 2002 $000 5,646 1,863 The group has estimated losses of $6,799,834 (2003: $6,240,695, 2002: $4,948,347) available to carry forward arising from Pumpkin Patch Limited (UK). 55 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 4. Share Capital Group 31 Jan 2004 $000 Issued and paid up capital Movement in shares held as treasury stock Balance at the End of the Period 10,907 10,907 31 July 2003 $000 10,907 10,907 31 Dec 2002 $000 10,865 42 10,907 As at 31 January 2004 there were 1,282,911 shares on issue (2003: 1,248,850, 2002: 1,201,500) as follows: 31 Jan 2004 A Class B Class C Class 1,132,800 70,861 79,250 1,282,911 A Class shares carry full voting rights and full dividend rights. B Class shares carry no voting rights unless fullly paid and full dividend rights. C Class shares carry no voting rights and no dividend rights unless fully paid. Share issue: B Class: During the period, 2,161 B Class shares were issued to the Pumpkin Patch Limited Employee Share Scheme Trust to be held in trust for certain employees in recognition of their long service or to assist them in becoming shareholders. C Class: During the period, 31,900 C Class shares were issued under the provisions of the employee share scheme. The shares were issued to Pumpkin Patch Nominees Limited for nil consideration to hold in trust for certain employees who were invited by the Board of Directors to participate in a share scheme. C Class share scheme: The total shares issued under the scheme to the end of 31 January 2004 have an exercise value totalling $5,980,940 and may be paid for at various times from 1 April 2003 to 31 December 2008. The issue price has been set based upon the estimated market value of ordinary A shares. Unpaid shares under the C Class share scheme outstanding at balance date have the following terms: Exercise Date 1/01/2003 1/04/2003 1/01/2004 1/04/2004 1/01/2005 1/04/2005 1/01/2006 1/04/2006 1/01/2007 Expiry Date 31/12/2004 31/03/2005 31/12/2005 31/03/2006 31/12/2006 31/03/2007 31/12/2007 31/03/2008 31/12/2008 Number 31 Jan 2004 6,000 5,200 6,000 13,650 6,000 14,200 6,000 16,200 6,000 79,250 Number Number Exercise Price 31 July 2003 31 Dec 2002 $ 6,000 5,200 6,000 5,950 6,000 6,200 6,000 6,000 47,350 55.00 67.00 63.25 70.00 72.74 70.00 83.65 90.00 96.20 31 Jan 2004 $ 330,000 348,400 379,500 955,500 436,440 994,000 501,900 1,458,000 577,200 5,980,940 31 July 2003 31 Dec 2002 $ $ 330,000 348,400 379,500 416,500 436,440 434,000 501,900 577,200 3,423,940 31 July 2003 1,132,800 68,700 47,350 1,248,850 31 Dec 2002 1,132,800 68,700 1,201,500 56 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 4. Share Capital (Continued) The shares are subject to put and call options at the exercise price in the event of a participatory employee ceasing employment; or a receiver or liquidator being appointed; or shares in the company being publicly listed; or more than 50% of the voting shares in the company (or the assets/business of the Pumpkin Patch Group) being sold. There have been no put or call rights exercised during the period. Treasury Stock During the 2002 period Pumpkin Patch Limited acquired 374 shares from shareholders at a total cost of $31,401, reissued 288 Treasury Stock shares to employees under the Pumpkin Patch Limited Employee Share Scheme at $20,160, and sold 759 Treasury Stock shares to employees at $53,130. As at 31 January 2004 no shares are being held as Treasury stock. 5. Employee Share Ownership Plans Pumpkin Patch Limited Employee Share Scheme Trust The Pumpkin Patch Limited Employee Share Scheme Trust was established by Pumpkin Patch Limited in 1999 to recognise the long service of employees and to assist them in becoming shareholders. Employees who have six years continuous service and certain other employees determined by the directors can participate in the scheme. Neither the Company nor its related parties have any rights with respect to the shares issued under the scheme. During the period 2,161 B Class shares were issued to the Pumpkin Patch Limited Employee Share Scheme Trust. The scheme held the following shares at balance date: 31 January 2004 B Class shares: 70,861 % of total ordinary shares 5.5% 31 July 2003 68,700 % of total ordinary shares 5.5% 31 December 2002 68,700 % of total ordinary shares 5.7% Shares held by the scheme carry no voting rights and full dividend rights. The issue price has been set based upon the estimated market value of ordinary A shares. MJ Prendergast, a director of Pumpkin Patch Limited, is one of three trustees of the scheme. The trustees are appointed by the scheme’s Trustees. Advances of $1,720,740 (2003: $1,647,240, 2002: $1,647,240) have been made to the Trust and to employees to assist in the purchase of shares under the scheme. These advances are interest free and repayable on demand. Executive Employee Share Scheme Trust The Pumpkin Patch Limited Executive Employee Share Scheme Trust was established by Pumpkin Patch Limited in 2003. The shares are issued to Pumpkin Patch Nominees Limited for nil consideration to hold in trust for certain employees who were invited by the Board of Directors to participate in a share option scheme. Pumpkin Patch Limited or its subsidiaries have no ownership in Pumpkin Patch Nominees Limited nor do they have any ability to appoint its directors. During the period, 31,900 C Class shares were issued under the provisions of the employee share scheme. This scheme held the following shares at the end of the period: 31 January 2004 C class shares unallocated to employees % of total ordinary shares 6.2% 31 July 2003 % of total ordinary shares 3.8% 31 December 2002 % of total ordinary shares - 79,250 47,350 - The shares carry no voting rights and no dividends rights unless fully paid. 57 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 6. Retained Earnings Group 6 months 31 Jan 2004 $000 Opening Balance Surplus for the period Dividends paid Closing Balance 9,423 5,463 (1,203) 13,683 7 months 31 July 2003 $000 10,067 1,157 (1,801) 9,423 12 months 31 Dec 2002 $000 10,118 2,350 (2,401) 10,067 The dividends are fully imputed. Supplementary dividends of $154,553 (2003: $231,829, 2002: $309,106) were paid to shareholders not tax resident in New Zealand for which the Group received a foreign investor tax credit entitlement. 7. Imputation Credit Account Parent 31 Jan 2004 $ Opening Balance Correction to opening balance Plus income tax paid Imputation credits attached to dividends received Withholding tax credits Less imputation credits attached to dividends paid to shareholders Transfer to Group companies Tax refund Closing Balance 742,964 592,666 (438,011) 897,619 31 July 2003 $ 511,067 887,008 23 (655,134) 742,964 31 Dec 2002 $ 49,232 2,276 271,004 1,182,761 157 (873,357) (120,143) (863) 511,067 8. Borrowings Group 31 Jan 2004 $000 Bank overdraft Short term borrowings Current portion of term liabilities Term loans 3,955 11,000 763 13,875 29,593 Term liabilities fall due for repayment in the following periods: Bank Loans Group 31 Jan 2004 $000 One to two years 13,875 31 July 2003 $000 15,430 31 Dec 2002 $000 18,020 31 July 2003 $000 4,452 17,000 1,707 15,430 38,589 31 Dec 2002 $000 5,048 12,000 2,199 18,020 37,267 58 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 8. Borrowings (continued) Bank Loans – The bank borrowings are secured by first mortgage over certain assets of the group. Refer to note 16 – Contingent Liabilities. Interest Rates – Refer to Note 21 for effective interest rates on borrowings. 9. Loans and Advances Advances have been made to the Group in the amount of $2,500,000 (2003: $2,500,000, 2002: $2,500,000) by the following shareholders: Feruza Trust Simdec Trust Kezza Family Trust The Opito Family Trust These advances are interest free, repayable within a period not less than 5 years of the date of the advance being made. 10. Accruals and Provisions Group 31 Jan 2004 $000 Current Sundry accruals Employee entitlements GST payable Deferred landlord contributions 5,804 1,278 182 1,271 8,535 Non Current Deferred landlord contributions 2,316 10,851 2,146 9,564 2,126 10,971 3,220 1,281 1,887 1,030 7,418 5,188 1,229 1,540 888 8,845 31 July 2003 $000 31 Dec 2002 $000 11. Inventories Group 31 Jan 2004 $000 Inventories Comprise: Finished goods Raw materials 35,105 2,795 37,900 38,941 2,275 41,216 36,672 2,565 39,237 31 July 2003 $000 31 Dec 2002 $000 59 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 12. Property, Plant and Equipment 31 January 2004 Cost $000 Leasehold improvements Computer equipment Shop fit out Point of sale equipment Plant and machinery Office equipment Motor vehicles Furniture and fittings Land Total 1,836 5,606 33,103 922 4,142 740 143 6,957 1,964 55,413 Acc Depn $000 619 4,527 15,002 685 2,588 409 102 2,140 26,072 31 July 2003 Cost or Valuation $000 Leasehold improvements Computer equipment Shop fit out Point of sale equipment Plant and machinery Office equipment Motor vehicles Furniture and fittings Land Total 1,767 5,332 30,367 785 4,136 714 170 6,829 1,964 52,064 Acc Depn $000 505 4,178 12,586 629 2,351 363 118 1,682 22,412 31 December 2002 Cost or Valuation $000 Leasehold improvements Computer equipment Shop fit out Point of sale equipment Plant and machinery Office equipment Motor vehicles Furniture and fittings Land Total 1,656 5,156 31,520 692 3,396 701 373 2,393 1,964 47,851 Acc Depn $000 369 3,855 10,774 581 1,882 330 287 571 18,649 Book Value $000 1,287 1,301 20,746 111 1,514 371 86 1,822 1,964 29,202 Book Value $000 1,262 1,154 17,781 156 1,785 351 52 5,147 1,964 29,652 Book Value $000 1,217 1,079 18,101 237 1,554 331 41 4,817 1,964 29,341 Property Valuation The Directors, having taken into consideration purchase offers, independent and government valuations and other known factors, have assessed the fair value of freehold land to be $3.05 million. 60 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 13. Investments in Subsidiaries Investments in subsidiaries are as follows: Interest held by the group 31 January 2004 Torquay Enterprises Limited Pumpkin Patch Originals Limited Pumpkin Patch Pty Limited Pumpkin Patch Limited (UK) The Catalogue Studio Pty Limited 100% 100% 100% 100% 100% 31 July 2003 100% 100% 100% 100% 100% 31 December 2002 100% 100% 100% 100% 100% PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers Audited By All subsidiary entities have a balance date of 31 July. Pumpkin Patch Pty Limited and The Catalogue Studio Pty Limited are incorporated in Australia. Pumpkin Patch Limited (UK) is incorporated in the United Kingdom. All other subsidiary entities are incorporated in New Zealand. The principal activities of the subsidiaries are: Torquay Enterprises Limited Pumpkin Patch Originals Limited Pumpkin Patch Pty Limited Pumpkin Patch Limited (UK) The Catalogue Studio Pty Limited Investment company Clothing retailer Holding/Administration functions Clothing retailer Non trading Acquisition of Subsidiary On 1 January 2002 the Group acquired 100% of the shares of Pumpkin Patch Limited (UK) for cash consideration of $40,789. From 1 January 2002 the operating results of Pumpkin Patch Limited (UK), consisting of an operating deficit after taxation of $2,210,349, were included in the Group statements of financial performance for the year ended 31 December 2002. Summary of the effect of acquisition of Subsidiary Group 31 Jan 2004 $000 Net assets acquired: Bank balances Net current assets Fixed assets Borrowings Goodwill on acquisition Consideration paid Bank balances acquired Net Cash Impact of Acquisition 547 2,797 2,699 (7,540) (1,497) 1,538 41 547 506 31 July 2003 $000 31 Dec 2002 $000 61 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 14. Other Investments Investments are stated at quoted market value and comprise: Group 31 Jan 2004 $000 Quoted Market Value 4 31 July 2003 $000 4 31 Dec 2002 $000 3 15. Deferred Taxation Group 31 Jan 2004 $000 Deferred taxation opening Prior Period adjustment For the period Deferred Taxation Closing 446 299 745 31 July 2003 $000 (402) 87 761 446 31 Dec 2002 $000 570 (89) (883) (402) 16. Contingent Liabilities Group The Company has guaranteed, together with subsidiary companies, the indebtedness of Pumpkin Patch Limited and subsidiaries at 31 January 2004, together with, in all cases, interest thereon under a deed of guarantee dated 18 April 1996. The deed with the ANZ Banking Group (NZ) Limited and Australia and New Zealand Banking Group Limited provides for the constitution and issue of securities in respect of indebtedness from time to time of Pumpkin Patch and/or any guaranteeing subsidiary. At 31 January 2004 the total indebtedness guaranteed by the deed amounted to $29,689,745 (2003: $32,202,508, 2002: $35,002,526). The repayment terms are by instalment and are due over more than three years. Other guarantees held by the ANZ Banking Group include rent guarantees to certain landlords amounting to $1,129,362 (2003: $1,030,390, 2002: $917,212) and rent guarantees provided to the landlords of a subsidiary, Pumpkin Patch Limited (UK), amounting to $1,216,646 (2003: $1,250,442, 2002: $1,377,054). The amount of outstanding liabilities under Letters of Credit at 31 January 2004 amounted to $377 (2003: $34,421, 2002: $444,098). 17. Capital Expenditure Commitments The Group has commitments for future capital expenditure at 31 January 2004 amounting to $1,188,500 (2003: $418,000, 2002: $20,500). 62 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 18. Operating Lease Obligations Obligations payable after balance date on non-cancellable operating leases as follows: Group 31 Jan 2004 $000 Not Later than One Year Later than one year and not later than two years Later than two years and not later than five years Later than five years 21,890 16,910 20,651 1,094 60,545 31 July 2003 $000 19,865 16,486 20,509 1,606 58,466 31 Dec 2002 $000 19,149 16,459 25,518 2,484 63,610 19. Related Party Transactions The Group has entered into certain transactions in the form of recharging of expenses and overheads with its subsidiaries. Details of the identity of subsidiaries are disclosed in Note 13 – Investments in subsidiaries. The Group has paid management fees of $53,270 (2003: $54,211, 2002: $36,036) to Emery Hill Limited which is owned by a Director. These were made on normal commercial terms and there are no outstanding balances at period end. The Group has paid rent to One Fine Day Limited of $28,380 (2003: $33,110, 2002: $56,760). One Fine Day is owned equally by three shareholders (Kezza Family Trust, Simdec Trust and The Opito Family Trust) of Pumpkin Patch Limited. These were made on normal commercial terms and there are no outstanding balances at period end. The Group has made purchases from Espies Shopfitters Limited of $1,071,700. Espies Shopfitters is 48.75% beneficially owned by Kezza Family Trust, a shareholder of Pumpkin Patch Limited. These were made on normal commercial terms. At period end $529,781 was outstanding. The Group has advanced funds to The Pumpkin Patch Limited Employee Share Scheme Trust. The amount outstanding at period end is $1,199,240 (2003: $1,199,240, 2002: $1,199,240). The parent company has also advanced funds to selected employees. The amount outstanding at period end is $521,500 (2003: $448,000, 2002: $448,000). 63 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 20. Intangible Assets Group 31 Jan 2004 $000 Patents and Trademarks Patents and trademarks at beginning of period Acquisitions Current period amortisation Patents and trademarks at end of period Goodwill on Consolidation Goodwill (gross) at beginning of the period Amortisation charge Unamortised balance at beginning of the period Goodwill arising on acquisition of subsidiary Current period amortisation Impairment charge Goodwill at end of the period Total Intangible Assets 1,538 (1,538) 202 1,538 (1,538) 207 1,538 (308) (1,230) 201 207 19 (24) 202 201 36 (30) 207 142 59 201 31 July 2003 $000 31 Dec 2002 $000 21. Financial Instruments (a) Currency and Interest Rate Risk Nature of activities and management policies with respect to financial instruments: 1. Currency The Group undertakes transactions denominated in foreign currencies from time to time, and resulting from these activities, exposures in foreign currency arise. It is the Group’s policy to hedge foreign currency risks as they arise except for foreign currency risks authorised by the Board. To manage these exposures, the Group uses forward foreign exchange contracts and foreign currency options. The notional principal or contract amounts of foreign exchange instruments outstanding at balance date are: 31 Jan 2004 $000 Forward foreign exchange contracts Forward options Total 38,971 5,276 44,247 31 July 2003 $000 22,627 11,009 33,636 31 Dec 2002 $000 28,442 9,529 37,971 The cash settlement requirements of the forward foreign exchange contracts and options approximates the notional amount shown above. 2. Interest Rate The Group has long-term fixed rate borrowings which are used to fund on-going activities. Management monitors the levels of interest rates on an on-going basis and periodically will lock in fixed rates on the next floating reset, when they are of the view that interest rates may increase. 64 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) 3. Repricing Analysis Trade debtors, other debtors, trade creditors, other creditors and dividends payable have not been included in the table below as they are not interest rate sensitive. Group Repricing Maturities 31 January 2004 Effective Interest Rates Liabilities Bank overdraft Short & long term borrowings Term liabilities Total Liabilities Repricing Gap 8.35% 6.05% 7.50% 3,955 11,000 763 15,718 15,718 13,875 13,875 13,875 3,955 24,875 763 29,593 29,593 <6 Months $000 6-12 Months $000 1-2 Years $000 2-5 Years $000 >5 Years $000 Total $000 Group Repricing Maturities 31 July 2003 Effective Interest Rates Liabilities Bank overdraft Short & long term borrowings Term liabilities Total Liabilities Repricing Gap 8.35% 5.99% 7.50% 4,452 17,000 21,452 21,452 1,707 1,707 1,707 15,345 85 15,430 15,430 4,452 32,345 1,792 38,589 38,589 <6 Months $000 6-12 Months $000 1-2 Years $000 2-5 Years $000 >5 Years $000 Total $000 Group Repricing Maturities 31 December 2002 Effective Interest Rates Liabilities Bank overdraft Short & long term borrowings Term liabilities Total Liabilities Repricing Gap 7.60% 6.61% 8.05% 5,048 12,000 17,048 17,048 2,199 2,199 2,199 17,060 960 18,020 18,020 5,048 29,060 3,159 37,267 37,267 <6 Months $000 6-12 Months $000 1-2 Years $000 2-5 Years $000 >5 Years $000 Total $000 4. Concentration of Credit Risk In the normal course of business, the Group incurs credit risk from trade debtors and transactions with financial institutions. The Group has a credit policy which is used to manage this risk. The Group has no significant concentrations of credit risk. The Group does not require any collateral or security to support financial instruments due to the quality of financial institutions and trade debtors dealt with. 65 P U M P K I N PA T C H L I M I T E D & S U B S I D I A R I E S N O T E S T O A N D F O R M I N G PA R T O F T H E F I N A N C I A L S T A T E M E N T S FOR THE 6 MONTHS ENDED 31 JANUARY 2004 (CONTINUED) (b) Fair Values The estimated fair values of the Group’s financial assets and liabilities which differ from the carrying values are noted below: 31 January 2004 Carrying Value $000 Assets Investments Unrecognised Foreign exchange contracts (1,814) (1,369) (2,988) 4 4 4 4 3 3 Fair Value $000 31 July 2003 Carrying Value $000 Fair Value $000 31 December 2002 Carrying Value $000 Fair Value $000 The Group anticipates that Term Liabilities will be held to maturity and that settlement at fair value is unlikely. The following methods and assumptions were used to estimate the fair values for each class of financial instrument. Debtors, Trade Creditors and Bank Overdraft The carrying value of these items is equivalent to their fair value and therefore they are excluded from the table shown above. Investments The fair value of listed investments is estimated based on quoted market prices at balance date. The fair value of unlisted investments is estimated to be the net asset backing, as there are no quoted market prices available. Term Liabilities The fair value of the Group’s term liabilities is estimated based on current market rates available to the Group for debt of similar maturity. Foreign Exchange Contracts The fair value of these instruments is estimated based on the quoted market price of these instruments. Guarantees and Overdraft Facilities The fair value of these instruments is estimated on the basis that management do not expect settlement at face value to arise. The carrying value and fair value of these instruments is nil. 22. Significant Events After Balance Date Since balance date the company has entered into an agreement to purchase the inventory, fixed assets, and certain employee related obligations of the HBK Girl retail operation. In addition the company is also taking over the ongoing lease obligations of the operations. Settlement date was 3 May 2004. 66 summary historical financial information Basis of preparation The historical financial information summarised below is derived from the audited consolidated financial statements of Pumpkin Patch Limited for the financial years ended 31 December 1999, 2000, 2001, 2002, the seven months ended 31 July 2003, and the six months ended 31 January 2004. Pumpkin Patch changed its financial year end from December to July in 2003. Therefore the 2003 financial statements are only for a seven month period. The accounting policies as set out on pages 49 to 52 have been consistently applied [except where stated below] for all the financial periods presented. Audited 31 December 12 Months 1999 $000 Operating revenue Other revenue Total revenue (excluding interest) Expenditure (excluding depreciation) Group EBITDA (earnings before interest, tax, depreciation and amortisation) Depreciation Group EBIT (earnings before interest and taxation) Net interest expense Net profit before tax and extraordinary items Income tax expense Net profit before extraordinary items Extraordinary items Net profit Minority interest Dividends paid or payable Net profit (deficit) retained in group Dividends – cents per share 103,033 3,006 106,039 94,873 11,166 2,737 8,429 1,385 7,044 1,658 5,386 5,386 305 3,409 1,672 284.0 2000 $000 132,890 5 132,895 119,630 13,265 2,997 10,268 970 9,298 3,240 6,058 6,058 3,596 2,462 299.8 2001 $000 161,293 34 161,327 149,776 11,551 4,833 6,718 2,725 3,993 1,090 2,903 2,903 1,499 1,404 125.0 Audited 31 December 12 Months 1999 $000 Total tangible assets Total assets Total liabilities Total equity Net tangible assets (‘NTA’) Number of ordinary shares issued (000s) NTA backing per share – cents Adjusted NTA Adjusted and diluted NTA 37,416 38,329 20,723 17,606 16,693 1,200 1,391 N/A N/A 2000 $000 53,280 53,400 33,873 19,526 19,407 1,199 1,619 N/A N/A 2001 $000 74,098 74,240 53,257 20,983 20,841 1,199 1,738 N/A N/A 2002 $000 78,294 78,495 57,521 20,974 20,772 1,202 1,728 N/A N/A 31 July 7 Months 2003 $000 78,686 78,893 58,563 20,330 20,123 1,249 1,611 N/A N/A 31 January 6 Months 2004 $000 73,683 73,885 49,295 24,590 24,389 1,283 1,901 N/A N/A 2002 $000 181,919 23 181,942 167,732 14,210 6,012 8,198 2,552 5,646 3,296 2,350 2,350 2,401 (51) 200.0 31 July 7 Months 2003 $000 111,750 17 111,767 103,436 8,331 3,821 4,510 1,871 2,639 1,482 1,157 1,157 1,801 (644) 144.2 31 January 6 Months 2004 $000 99,730 6 99,736 86,681 13,055 3,497 9,558 1,329 8,229 2,766 5,463 5,463 1,203 4,260 93.8 67 SUMMARY HISTORICAL FINANCIAL INFORMATION (CONTINUED) Notes 1. Number of ordinary shares issued at 31 July 2003 and 31 January 2004 include C Class shares that are not entitled to receive dividends. There were 47,350 and 79,250 C Class shares on issue at 31 July 2003 and 31 January 2004 respectively. Excluding the C Class shares the dividends paid in cents per share were 150 and 100 cents per share in 2003 and 2004, respectively. In accordance wiith clause 8(5) of the First Schedule to the Regulations, set out below is the adjusted and diluted net tangible asset backing per share as at 31 January 2004. Proceeds From 32,000,000 shares (a) Assumed Final Price $1.20 $1.30 $1.40 Adjusted NTA Backing Per Share $0.37 $0.39 $0.41 Adjusted and Diluted NTA Backing Per Share $0.38 $0.40 $0.42 Proceeds From 60,770,399 shares (b) Adjusted NTA Backing Per Share $0.49 $0.52 $0.55 Adjusted and Diluted NTA Backing Per Share $0.50 $0.53 $0.56 2. The above table has been calculated based on the following assumptions: (a) All new shares (81,027,200) have been allotted and the maximum number of shares have been repurchased (49,027,200), assuming Final Price of $1.20, $1.30 and $1.40. The Board reserves the right to set the Final Price outside of the Indicative Price Range; 60,779,399 shares are subscribed for by investors and the Company, at its discretion, retains all proceeds rather than returning proceeds from all shares over 32,000,000 to investors (i.e. the number of shares subscribed for is less than the repurchase threshold described on pages 81 and 82); The 100:1 share split (described on page 79) has occurred, offer related costs of $1,335k were incurred which reduced equity; The shares to be issued under the DF7 Share Scheme had been allotted and the proceeds received before that date; and The adjusted and diluted NTA backing per share assumes, in addition to (a) to (d) above, the Options have been allotted and proceeds received. (b) (c) (d) (e) 3. 4. The other revenue in 1999 largely comprises a profit on sale of the current head office, warehouse and logistics facility at 439 East Tamaki Road, Auckland. The property was sold to a third party. During 1999, PPL Group exited the Studio Works stores. Below is a table of the historical discontinuing activities details. Some costs associated with exiting the stores, such as the write-off of inventory and fixed assets, were recognised in the 1999 results, with the remainder of the exiting costs being incurred in 2000 with the completion of the exiting process. 31 December 12 Months Discontinued Activities Revenue (included in operating revenue) Expenditure (included in expenditure) Cost of exiting activity (included in expenditure) Income tax benefit (included in tax expense) Net Loss from Discontinued Activities 1999 $000 5,827 (7,493) (830) 823 (1,673) 2000 $000 2,124 (2,124) (361) (361) 2001 $000 2002 $000 31 July 31 January 7 Months 6 Months 2003 $000 2004 $000 - 5. Amounts presented for net interest above include both interest income and interest expenses. The individual interest income and interest expense amounts for each period are presented below. The higher interest charges from 2001 are a consequence of higher debt used to fund additional growth in the business. 31 December 12 Months Net Interest Interest revenue Interest expense Net Interest 1999 $000 10 (1,395) (1,385) 2000 $000 38 (1,008) (970) 2001 $000 257 (2,982) (2,725) 2002 $000 18 (2,570) (2,552) 31 July 31 January 7 Months 6 Months 2003 $000 (1,871) (1,871) 2004 $000 6 (1,335) (1,329) 68 SUMMARY HISTORICAL FINANCIAL INFORMATION (CONTINUED) 6. During the 2000 and 2001 periods the group entered into transactions with a related company, Pumpkin Patch Limited (UK). A summary of these transactions are presented below. 31 December 12 Months Related party transactions Statement of Financial Performance Sale of inventory to Pumpkin Patch Limited (UK) Franchise royalties charged to Pumpkin Patch Limited (UK) Management fees charged to Pumpkin Patch Limited (UK) Statement of Financial Position Receivable from Pumpkin Patch Limited (UK) 3,948 7,737 1,678 37 6,621 301 630 2000 $000 2001 $000 7. In 2001 the Group changed its accounting policy regarding fit-out contributions received from landlords. Prior to 2001 contributions were either capitalised and taken to income at a later date or taken to income in full upon receipt of the contribution. The new policy required that all contributions must be initially capitalised and then recognised in the statement of financial performance over the minimum period of the lease as a reduction in operating lease costs. The lease periods average 5 years. The table below summarises the net impact on the reported results of the company resulting from the change in accounting policy. 31 December 12 Months 1999 $000 Net impact of change in policy 2000 $000 (1,058) 2001 $000 318 2002 $000 (170) 31 July 31 January 7 Months 6 Months 2003 $000 (381) 2004 $000 (2) 8. In 2002 the group acquired 100% of the shares in Pumpkin Patch Limited (UK) for cash consideration of $40,789. The table below details the transaction. The 2002 results not only include amortisation of goodwill of $307,577 but also a write-off of $1,230,309 relating to the balance of goodwill on the purchase of Pumpkin Patch Limited (UK). The charge was deemed necessary by the Directors after they reviewed the carrying value of the subsidiary and recognising that the purchase was made primarily as part of overall restructuring of group ownership structures. Acquisition of PPL (UK) NZ$’000 Cash & bank Net current assets Fixed assets Borrowings Net Liabilities Acquired Cash consideration Goodwill on Acquisition 2002 547 2,797 2,699 (7,540) (1,497) 41 1,538 9. The results include trading losses attributable to Pumpkin Patch Limited (UK). 2002 2003 12 Months 7 Months $000 $000 Trading losses attributed to Pumpkin Patch (UK) 1,445 1,958 2004 6 Months $000 599 10. The growth in total assets and liabilities over the periods relate to growth in store numbers, their associated working capital items (e.g. inventory, accounts payable), and use of debt to fund asset growth. 69 Auditors’ Letter The Directors Pumpkin Patch Limited Private Bag 94310, East Tamaki Pakuranga, AUCKLAND 14 May 2004 Auditors’ report for inclusion in the Prospectus Dear Directors As auditors of Pumpkin Patch Limited (“the Company”) we have prepared this report pursuant to clause 42 of the First Schedule of the Securities Regulations 1983 for inclusion in a Prospectus to be dated 14 May 2004. Directors’ responsibilities The Company’s Directors are responsible for the preparation and presentation of: (a) the financial statements which give a true and fair view of the state of affairs of Pumpkin Patch Limited and its subsidiaries (“the Group”) as at 31 January 2004 and 31 July 2003 and its financial performance and cash flows for the periods ended on that date, as required by clauses 23 to 38 of the First Schedule of the Securities Regulations 1983; (b) the summary of financial statements of the Group for the years ended 31 December 1999, 2000, 2001 and 2002, for the seven months ended 31 July 2003 and for the six months ended 31 January 2004, as required by clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983; and (c) the prospective financial information of the Group for the years ending 31 July 2004 and 31 July 2005, including the assumptions on which they are based. Auditors’ responsibilities We are responsible for expressing an independent opinion on the financial statements of the Group for the six months ended 31 January 2004 and for the seven months ended 31 July 2003 presented by the Directors and reporting our opinion in accordance with clause 42(1) of the First Schedule of the Securities Regulations 1983. We are also responsible for reporting, in accordance with clauses 42(1)(g) and 42(2) of the First Schedule of the Securities Regulations 1983, on the following matters which have been prepared and presented by the Directors: (a) the amounts included in the summary of financial statements of the Group for the years ended 31 December 1999, 2000, 2001 and 2002, for the seven months ended 31 July 2003 and for the six months ended 31 January 2004; and (b) the prospective financial information of the Group for the years ending 31 July 2004 and 31 July 2005. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as auditors and accounting advisers. Basis of opinion on the financial statements An audit of the financial statements includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies used and described on pages 49 to 52 are appropriate to the circumstances of the Group and Company, consistently applied and adequately disclosed. We have conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the information in the financial statements. 70 Basis of opinion on the summary of financial statements We have undertaken procedures to provide reasonable assurance that the amounts set out in the summary of financial statements of the Group on page 67, pursuant to clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983, have been correctly taken from the audited financial statements of the Group for the years ended 31 July 1999, 2000, 2001 and 2002, for the seven months ended 31 July 2003 and for the six months ended 31 January 2004. Basis of opinion on the prospective financial information To meet our reporting responsibilities we have examined the prospective financial information for the years ending 31 July 2004 and 31 July 2005 as set out on pages 37 to 39 to confirm that, so far as the accounting policies and calculations are concerned, the prospective financial information has been properly compiled on the footing of the assumptions made or adopted by the Directors as set out on pages 40 to 43 of this Prospectus and are presented on a basis consistent with the accounting policies normally adopted by the Group. Unqualified opinion on the financial statements and the summary of financial statements We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Group as far as appears from our examination of those records; the financial statements of the Group, on pages 45 to 66 of this Prospectus, as required by clauses 23 to 38 of the First Schedule of the Securities Regulations 1983, and that are required to be audited, have been drawn up to: (i) (ii) comply with the Regulations; subject to those Regulations, comply with generally accepted accounting practice in New Zealand; and give a true and fair view of the state of affairs of the Group as at 31 January 2004 and 31 July 2003 and its financial performance and cash flows for the periods ended on that date; (b) (iii) (c) the amounts or details set out in the summary of financial statements, on page 67 of this Prospectus, as required by clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983, have been correctly taken from the audited financial statements of the Group from which they were extracted. Unqualified opinion on the prospective financial information In our opinion, the prospective financial information for the years ending 31 July 2004 and 31 July 2005 as set out on pages 37 to 39, so far as the accounting policies and calculations are concerned, have been properly compiled on the footing of the assumptions made or adopted by the Directors of the Company as set out on pages 40 to 43 of this Prospectus and are presented on a basis consistent with the accounting policies normally adopted by the Group. Actual results are likely to be different from the prospective financial information since anticipated events frequently do not occur as expected and the variation could be material. Accordingly, we express no opinion as to whether the prospective financial information will be achieved. Yours faithfully Chartered Accountants Auckland 71 statutory information 72 statutory and other information The following includes, but is not limited to, particulars given pursuant to the First Schedule of the Securities Regulations 1983. Statutory Index as required by Regulation 5(6) of the Securities Regulations 1. 2. 3. 4. 5. 5a. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22-38. 39. 40. 41. 42. Main Terms of Offer Name and Addresses of Offeror Details of Incorporation of Issuer Principal Subsidiaries of Issuer Directorate and Advisers Restrictions of Directors’ Powers Substantial Equity Securities Holders of Issuer Description of Activities of Issuing Group Summary of Financial Statements Prospects and Forecasts Provisions Relating to Initial Flotations Acquisition of Business and Subsidiary Securities Paid Up Otherwise than in Cash Options to Subscribe for Securities of Issuing Group Appointment and Retirement of Directors Directors’ Interests Promoters’ Interests Material Contracts Pending Proceedings Preliminary and Issuing Expenses Restrictions on Issuing Group Other Terms of Offer and Securities Financial Statements Places of Inspection of Documents Other Material Matters Directors’ Statements Auditors’ Report page 74 74 74 74 74 75 75 78 78 78 78 79 79 79 79 80 80 80 80 80 81 81 81 81 81 85 70 73 1. Main Terms of Offer Pumpkin Patch Limited is the issuer of the Shares and the Options which are offered pursuant to this Prospectus and has its registered office at 439 East Tamaki Road, East Tamaki, Auckland. A description of the Shares and Options offered under this Prospectus including their maximum number and price to be paid for them is set out on page 14 to 19. 2. Name and Address of the Offeror Pumpkin Patch Limited is both the issuer and the offeror of the Shares and the Options. 3. Details of Incorporation of the Issuer Pumpkin Patch Limited was incorporated under the provisions of the Companies Act 1993 (New Zealand) on 27 June 1994 in Auckland under company number 637120. The public file relating to the incorporation of the Company is kept by the Companies Office, and is available for inspection on the Companies Office electronic register at www.companies.govt.nz. 4. Principal Subsidiaries of the Issuer At the date of registration of this Prospectus the Company had the following wholly owned subsidiaries whose total tangible assets exceed 5% of the amount of the total tangible assets of Pumpkin Patch and its subsidiaries: • Pumpkin Patch Originals Limited; • Pumpkin Patch Limited (registered in the United Kingdom); and • Torquay Enterprises Limited. 5. Directorate and Advisors The names, addresses and technical or professional qualifications of every Director are set out on page 23. The names of the Directors employed directly by the Company are: • Greg Muir – Executive Chairman; • Maurice Prendergast – Managing Director; and • Chrissy Conyngham – Director of Design and Marketing. No Director has been adjudged bankrupt during the five years preceding the date of this Prospectus. The names of the Company’s auditors, securities registrar and any sharebrokers, bankers and solicitors who have been involved in the preparation of this Prospectus are set out in page 99. There are no experts named in this Prospectus, and the offers of Shares and Options made under this Prospectus are not underwritten. 74 5A. Restrictions of Directors’ Powers There are no other modifications, exceptions or limitations on the powers of the Board imposed by the Constitution, other than those limitations and other requirements that apply to every company registered under the Companies Act 1993, or pursuant to the NZX Listing Rules, which require the approval of shareholders to various matters including major transactions, material transactions and related party transactions. The Companies Act 1993 contains a number of provisions which would have the effect or consequence, in certain circumstances, of restricting the powers of Directors. Such provisions are common to all companies registered under that Act, and include requirements that: • A major transaction (as defined in the Companies Act 1993) must have the approval of a special resolution of shareholders; • Any action by the Company affecting the rights attached to any shares must be approved by special resolution of each interest group (as defined in the Companies Act 1993) affected; • Distributions (including dividends) may not occur if the solvency test (as defined in the Companies Act 1993) is not satisfied; and • The Board of Directors may not delegate certain powers conferred on it as specified in the Second Schedule of the Companies Act 1993. 6. Substantial Equity Security Holders of Issuer The following table sets out names of all registered holders of Shares as at the date of registration of this Prospectus. None of these persons undertake any liability in respect of, or guarantee, the Shares or Options offered pursuant to this Prospectus. Holder No of shares held As at date of Prospectus 1,2 Wynyard Wood Trustee Services Ltd and Nigel P Smith (as trustees of the Feruza Trust) Perpetual Trustee Limited (as trustee of the Quadrant Trust) Wynyard Wood Trustee Services Ltd and Nigel P Smith (as trustees of the Simdec Trust) Maurice J Prendergast, Kerry D Prendergast and Stuart G Callender (as trustees of the Kezza Family Trust) Mark J Synnott, Sally R Synnott and The Gale Trustee Co Limited (as trustees of The Opito Family Trust) Adam L Ryall, Judith M Ryall and Stanley A Carwardine (as trustees of the Punchestown Family Trust) Gregory J Muir, Debra J Muir and Geoffrey A Lawrie (as trustees of the Muir Trust) Pumpkin Patch Nominees Limited (as trustee for various PPL employee share schemes) Maurice J Prendergast, Nigel P Smith and Trustee Services No 4 Limited (as trustees of various PPL employee share schemes) Public, including institutional and professional investors 48,780,000 24,000,000 20,037,200 13,400,000 10,400,000 1,200,000 1,111,100 9,875,000 (C shares) 5,709,700 (B shares) 0 Post-listing 3 Between 48,780,000 and 24,390,000 (number depends on number of shares repurchased) Between 24,000,000 and 12,000,000 (number depends on number of shares repurchased) Between 20,037,200 and 7,400,000 (number depends on number of shares repurchased) 13,400,000 10,400,000 1,200,000 1,111,100 9,875,000 4 5,709,700 Between 0 and 81,027,200 (number depends on the level of subscriptions received under the Share Offer). 75 NOTES 1. The numbers of shares stated in this column include the result of a 100:1 share split carried out prior to listing. Note however that the numbers stated do not include any Options to be allocated as part of the Option Offer. 2. As at the date of this Prospectus, all of the shares in Pumpkin Patch (except those held by the trustees of the various Pumpkin Patch employee share schemes which are a combination of Class B and Class C shares) are designated as Class A shares and confer full dividend and voting rights on the holders. Class B and Class C shares typically do not confer voting rights and contain restrictions on their transferability and, in addition, the Class C shares do not confer dividend rights. Immediately prior to listing, however, all Pumpkin Patch shares will be re-classified as ordinary shares ranking equally with respect to dividends and voting rights. 3. The Company proposes, immediately after listing, to repurchase certain shares from the Selling Shareholders. Post-listing, the numbers of shares held by each Selling Shareholder will depend on the level of shares repurchased from them by Pumpkin Patch which, in turn, will depend on the level of subscriptions received under the Share Offer (see pages 81 and 82). Prior to listing, certain share transfers will have occurred between shareholders. The Simdec Trust has received 700,000 shares from the Opito Family Trust and 4,537,200 shares from the trustees of the employee share schemes (3 million of which were transferred for and on behalf of Maurice Prendergast and 1,537,200 of which were transferred for and on behalf of Chrissy Conyngham). The Simdec Trust is obliged to pay an amount for these shares equivalent to the repurchase price per share it will receive under the Repurchase Agreements (see pages 81 and 82). Pumpkin Patch has issued 2,000,000 Shares to Pumpkin Patch Nominees Limited in its capacity as trustee of the DF7 Scheme. 4. As required by Listing Rule 7.1.15, Pumpkin Patch has, not earlier than two months prior to the date of this Prospectus, made a written request pursuant to sections 28 and 29 of the Securities Markets Act 1988 (as though Pumpkin Patch was listed) requiring all registered and other holders of relevant interests (as defined in that Act) of 5% or more of voting securities in Pumpkin Patch to provide disclosure of: • any relevant interest; • the nature of that relevant interest; and • where the relevant interest is beneficial ownership, the consideration and other terms and conditions of any transaction under which that interest was acquired before the date of this Prospectus. No person who received a request for disclosure has failed to provide the information requested. The following table shows, as at 7 April 2004, the holders of relevant interests of 5% or more of the voting securities in Pumpkin Patch and the nature of their relevant interests, and where the relevant interest is beneficial ownership that was acquired within 2 years prior to 7 April 2004, the consideration and other terms and conditions of transaction(s) relating to such beneficial ownership. 76 Relevant Interest Holder Perpetual Trustee Limited (as trustee of the Quadrant Trust) No of shares 1 240,000 Nature of Interest held Legal and registered title. Beneficial interest in the shares is held by the unit holders of the Quadrant Capital Fund No 2 (being CSS Board, Fabemu Pty Limited (as trustee for Gibbon Superannuation Fund), Health Super Pty Limited (as trustee for Health Super Fund), ING Private Capital Pty Limited (as trustee for ING Private Capital Fund 1), Perpetual Trustee Company Limited (as trustee for Macquarie Alternative Investment Trust), MLC Limited, National Australia Financial Management Limited, PSS Board, Unisuper, Westpac Banking Corporation and Westpac Staff Superannuation Fund). Legal and registered title. Beneficial interest in the shares is held by those beneficiaries (being unstated relatives of Setar Motani and trusts for the benefit of such relatives) in favour of whom the trustees may exercise their discretion from time to time. Legal and registered title. Beneficial interest in the shares is held by those beneficiaries (being unstated relatives of Steven Sher and trusts for the benefit of such relatives) in favour of whom the trustees may exercise their discretion from time to time. Legal and registered title. Beneficial interest in the shares is held by those beneficiaries (being unstated relatives of MJ and KD Prendergast and trusts for the benefit of such relatives) in favour of whom the trustees may exercise their discretion from time to time. Legal and registered title. Beneficial interest in the shares is held by those beneficiaries (being unstated relatives of MJ and SR Synnott and trusts for the benefit of such relatives) in favour of whom the trustees may exercise their discretion from time to time. Legal and registered title. Beneficial interest in the shares is held by those beneficiaries (being unstated relatives of MJ and SR Synnott and trusts for the benefit of such relatives) in favour of whom the trustees may exercise their discretion from time to time. Wynyard Wood Trustee Services Ltd and Nigel P Smith (as trustees of the Feruza Trust) Wynyard Wood Trustee Services Ltd and Nigel P Smith (as trustees of the Simdec Trust) Maurice J Prendergast, Kerry D Prendergast and Stuart G Callender (as trustees of the Kezza Family Trust) Mark J Synnott, Sally R Synnott and The Gale Trustee Co Limited (as trustees of The Opito Family Trust) Adam L Ryall, Judith M Ryall and Stanley A Carwardine (as trustees of the Punchestown Family Trust). 487,800 148,000 134,000 111,000 12,000 NOTES: 1. The above information is stated as at 7 April 2004 and, as such, precedes (and so does not take account of): (i) (ii) the 100:1 share split to be carried out prior to listing (see page 79); the re-designation, immediately prior to listing, of all shares as ordinary shares (ranking equally as to dividends and voting rights). Currently, the shares are all Class A shares (which confer full dividend and voting rights), except those held by the trustees of the various employee share schemes which are a combination of Class B and Class C shares (and which typically do not confer voting rights and contain restrictions on their transferability and, in respect of the Class C shares, do not confer dividend rights); the share repurchases to be carried out immediately following listing in accordance with the Repurchase Agreements, as described in more detail on pages 81 and 82; (iv) (v) the issue of shares to PPNL as the trustee of the DF7 scheme (to be carried out on listing, as described in more detail on page 85); and allocation of options under the Option Offer (to be carried out prior to listing, as described in more detail on page 93). (iii) 2. The above information does not refer to the shares held by the trustees of the various Pumpkin Patch employee share schemes as such shares do not confer voting rights and so are not voting securities of Pumpkin Patch. As described further in Note 1(ii) above, however, such shares will immediately prior to listing be re-designated as ordinary shares, carrying full voting rights. 77 7. Description of the Activities of the Issuing Group The business activities of the Company and its Subsidiaries carried out in the five years preceding the date of registration of this Prospectus include the design, manufacture and distribution of apparel through its own retail stores, wholesale arrangements and a mail order catalogue system. For more details on the activities of the Company and its Subsidiaries in the five years preceding the date of this Prospectus, refer to page 67. The principal fixed assets of Pumpkin Patch and its subsidiaries are the fixtures and fittings in its retail stores and at its principal place of business at 439 East Tamaki Road in Auckland. These assets are owned by Pumpkin Patch (or a Subsidiary) and are used in its business. 8. Summary of Financial Statements Summary financial information for Pumpkin Patch and its Subsidiaries prepared for the purposes of clause 8 of the First Schedule to the Securities Regulations 1983, and the information required by that clause, is set out on pages 67 to 69. 9. Prospects and Forecasts The trading prospects of Pumpkin Patch and its Subsidiaries, together with any material information relevant to those prospects, are described generally on page 26, and more particularly in the Prospective Financial Information set out on pages 36 to 43 of this Prospectus. Risk and special trade factors which could materially affect the prospects of Pumpkin Patch and its Subsidiaries are described on pages 28 to 31. 10. Provisions Relating to Initial Flotations The plans of the Directors of Pumpkin Patch and its subsidiaries during the twelve month period commencing on the date of this Prospectus are set out on pages 26. The sources of funds required for the implementation of these plans will be funds on hand (including funds raised under the Share Offer) funds generated in the normal course of business and, if required, borrowed funds. The intended use of the proceeds of the Share Offer and the Option Offer is set out on page 17. However those proceeds may, notwithstanding the stated Directors’ plans, be applied towards any undertaking that the Company may lawfully engage in. A prospective statement of cash flows of Pumpkin Patch and its Subsidiaries (including the principal assumptions on which it is based) which the Directors expect to occur for the years commencing 1 August 2003 and 1 August 2004 are set out on pages 39 to 43. There is no minimum amount that, in the opinion of the Directors, must be raised by the issue of the Shares offered under this Prospectus in order to provide for any of the following: • The purchase price of any property purchased or to be purchased which is to be defrayed in whole or in part from the proceeds of the offer; • Any preliminary expenses or commission so payable to any person in consideration of such person agreeing to subscribe for, or procuring or agreeing to procure subscriptions for, any of the Shares; • Working capital; • The repayment of money borrowed by the Company in respect of any of the foregoing matters. 78 11. Acquisition of Business or Subsidiary On 3 May 2004 the Company acquired, from Hallensteins Bros Limited, the business known as “HBK Girl” and associated assets. The consideration paid for that acquisition was not more than one-fifth of the amount of the total tangible assets in the statement of financial position as at 31 July 2003 appearing on page 46. No other business, subsidiary or body corporate has been acquired by the Company from any person at any time in the period of two years immediately preceding the date of registration of this Prospectus, where the consideration paid or payable for that acquisition was more than one-fifth of the amount of the total tangible assets of the Company as at 31 July 2003. 12. Securities Paid Up Otherwise than in Cash Prior to the date of this Prospectus the Company has undertaken a share sub-division in respect of every share on issue in the Company prior to that sub-division. Each such share was sub-divided into 100 shares, for no additional consideration. No other equity or participatory securities have been, within the five years preceding the date of this Prospectus, issued or allotted, or subscribed for and are to be so allotted, as fully or partly paid up otherwise than in cash. 13. Options to Subscribe for Securities of Issuing Group The Option Offer is an offer of Options to acquire Shares upon the terms and conditions described on pages 93 to 98. Subject to those terms and conditions each Option entitles the Option Holder upon exercise to acquire one Share ranking equally in all respects with all other Shares on issue at the date on which the Option is exercised, except for any dividend in respect of which the Record Date occurred prior to that date. No consideration is payable for the Options but an Exercise Price will apply for Option Holders wishing to exercise their Options. The Exercise Price will be equivalent to the Final Price per Share for investors other than institutional and professional investors as determined pursuant to the Share Offer. The Options can only be exercised within the Exercise Period (commencing on 9 June 2007 and ending on 9 June 2009) (although the Company may permit earlier exercise in certain extraordinary circumstances). The Options will lapse if they are not exercised by the end of the Exercise Period. All Options will be granted to persons who are employees or Directors of Pumpkin Patch or its Subsidiaries. The total number of Shares under option will be 2,274,000, of which: • 1,415,000 will be granted to Principal Officers of Pumpkin Patch or its subsidiaries; and • 859,000 will be granted to other employees (i.e. excluding the Principal Officers of Pumpkin Patch or its subsidiaries, who are also employees). 14. Appointment and Retirement of Directors No Director has been appointed in a manner that is materially different from that specified in sections 153 and 155 of the Companies Act 1993. There are no rules in the Constitution relating to the retirement age of Directors. No person (other than the members of the Company in general meeting or Directors acting as a Board) has the right to appoint a Director or Directors. Directors have the power to appoint alternate directors under the Constitution, subject to approval by a majority of the other Directors. No alternate directors have been appointed as at the date of this Prospectus. 79 15. Directors’ Interests Maurice Prendergast, Greg Muir and Chrissy Conyngham are employed by Pumpkin Patch as Managing Director, Executive Chairman and Director of Design and Marketing respectively. Maurice, Greg and Chrissy provide executive and management services to Pumpkin Patch and Chrissy additionally provides fashion design services. Each is entitled to salary and other remuneration and benefits in respect of their employment by Pumpkin Patch. Each are also entitled to termination of their employment by not more than 12 months notice (and the Company may make a payment in lieu of notice) and, in the case of redundancy, each are entitled to a further payment of 6 months total remuneration. No other compensation on termination is payable. Each of Maurice, Greg and Chrissy will be offered Options pursuant to the Option Offer (870,000 Options, in aggregate) and will be entitled to participate in the DF7 Scheme as set out on page 85. The Company has granted indemnities, to the fullest extent permitted by the Companies Act 1993, in favour of each of its Directors. The Company also maintains insurance for its Directors and officers to support such indemnities to the extent permitted by the Companies Act 1993. Directors are entitled to be paid reasonable travelling, accommodation and other expenses incurred in the course of performing duties or exercising powers as Directors. No material transaction has been entered into in the five years preceding the date of this Prospectus or is to be entered into between Pumpkin Patch and any of its Directors or between any of the persons specified in paragraph 15 of the First Schedule to the Securities Regulations Act 1983. 16. Promoters’ Interests There are no promoters of the Shares or the Options the subject of the offers set out in this Prospectus, other than the Company as the issuer of the Shares and the Options. 17. Material Contracts Pumpkin Patch has entered into the Repurchase Agreements with the Selling Shareholders. The terms of these agreements are as described on pages 81 and 82. There are no other material contracts (other than contracts in the ordinary course of business) which have been entered into by the Company or any of its Subsidiaries at any time in the last two years preceding the date of registration of this Prospectus. 18. Pending Proceedings There are no legal proceedings or arbitration pending at the date of the registration of this Prospectus that may have a material adverse effect on the Company or its Subsidiaries. 19. Preliminary and Issuing Expenses Issue expenses, including lead management fees, legal and accounting fees, advertising, printing and other costs incurred by the Company in making the Share Offer and the Option Offer are estimated at $2,700,000, of which approximately $1,335,000 is to be paid by the Company and the remainder to be paid by or on behalf of the Selling Shareholders. The lead management fees include brokerage fees (payable by the Lead Manager) of 1.75% of the subscription price for Shares issued under firm allocation to retail investors and 1% of the subscription price for Shares issued to institutional investors. 80 20. Restrictions on the Issuing Group It is intended that Pumpkin Patch and its Subsidiaries will obtain secured debt funding on new terms prior to the Closing Date, and it currently has secured debt funding in place. The secured debt funding (both existing and new) will be on terms which contain the usual financial covenants as to debt/equity levels and restrictions on additional borrowings and on pledging any assets as security for additional borrowing without approval. Other than those, there are no restrictions on Pumpkin Patch or its Subsidiaries from making a distribution, or borrowing, the restrictions that result from any undertaking to them, or contract or deed entered into, by Pumpkin Patch or its Subsidiaries. 21. Other Terms of Offer and Securities All other terms of the Share Offer and all the terms of the Shares being offered are set out in this Prospectus except for those implied by law or set out in a document that is registered with a public official and is available for public inspection and is referred to in this Prospectus. The full terms and conditions relating to the Option Offer are set out at pages 93 to 98. 22-38. Financial Statements The information required by clauses 22 to 38 (inclusive) of the First Schedule to the Securities Regulations 1978 (for the seven month period ending 31 July 2003 (and for the six month period ending 31 January 2004)) is contained in section “Group Financial Statements”. 39. Places of Inspection of Documents The Constitution of the Company and the material contracts referred to in paragraph 17 of this Statutory Information section are available for public inspection either on the Companies Office electronic register at www.companies.govt.nz or at the registered office of the Company (without payment of any fee) until the date on which the Share Offer closes (at the offices of Pumpkin Patch Limited, 439 East Tamaki Road, East Tamaki, Auckland). The Companies Office may charge a fee for inspection of certain documents. 40. Other Material Matters Share Repurchase Pumpkin Patch has entered into Repurchase Agreements under which it has conditionally agreed to repurchase between 28,770,400 and 49,027,200 shares from the Selling Shareholders (free of all liens, charges, mortgages, encumbrances and security interests of any kind) set out below: Selling Shareholder Minimum Number of Shares to be Repurchased 7,041,903 7,415,828 14,312,669 28,770,400 Maximum Number of Shares to be Repurchased 12,000,000 12,637,200 24,390,000 49,027,200 Perpetual Trustees Limited as Trustee of Quadrant Trust Wynyard Wood Trustee Services and Nigel Philip Smith as Trustees of the Simdec Trust Wynyard Wood Trustee Services and Nigel Philip Smith as Trustees of the Feruza Trust Total 81 If: • all 81,027,200 of the Shares offered by Pumpkin Patch pursuant to the Share Offer are subscribed for the Company will (subject to the conditions set out below) repurchase and cancel the maximum number of Shares from the Selling Shareholders as set out in the table on page 81; • 60,770,399 or fewer of the Shares offered pursuant to the Share Offer are subscribed for no Shares held by the Selling Shareholders will be repurchased and the Company may, in its discretion, refund any subscription proceeds received in excess of $40 million; and • more than 60,770,399 but fewer than 81,027,200 of the Shares offered pursuant to the Share Offer are subscribed for then the Company will (subject to the conditions set out below) repurchase and cancel between the minimum and the maximum number of Shares from the Selling Shareholders as set out in the table on page 81. The agreement to repurchase Shares from the Selling Shareholders is conditional upon successful completion of the Share Offer and allotment of Shares to investors. The Shares will be repurchased and cancelled effective immediately upon the allotment of Shares under the Share Offer. The consideration for each Share repurchased will be the subscription proceeds of the Share Offer after deducting certain expenses associated with the Share Offer and the Option Offer, divided by the total number of Shares issued pursuant to the Share Offer. This consideration will be paid to the Selling Shareholders immediately following allotment of the Shares under the Share Offer, registration of the transfer of the Selling Shareholders’ shares to Pumpkin Patch and cancellation of those Shares. Prior to listing, certain transfers of shares have occurred between the shareholders. The Simdec Trust has received 700,000 shares from the Opito Family Trust and 4,537,200 shares from the trustees of the employee share schemes (3 million of which were transferred for and on behalf of Maurice Prendergast and 1,537,200 of which were transferred for and on behalf of Chrissy Conyngham). The Simdec Trust will be obliged to pay an amount for those shares equal to the repurchase price per share it will receive under the Repurchase Agreements. To give effect to the repurchase of shares from the Selling Shareholders, Pumpkin Patch will secure the approval of all Entitled Persons (as that term is defined in the Companies Act 1993) to: • repurchase shares from the Selling Shareholders pursuant to section 107(1)(c) of the Companies Act 1993; and • repurchase shares from Wynyard Wood Trustee Services Limited and Nigel P Smith as trustees of the Simdec Trust (as one of the Selling Shareholders) notwithstanding that Maurice Prendergast, Chrissy Conyngham and Sally Synnott are Directors, have relevant interests in such repurchase for the purposes of sections 140 and 141 of the Companies Act 1993) pursuant to section 107(3) of that Act. The Share Application Form is expressly stated to constitute an irrevocable and binding agreement on the part of each applicant under the Share Offer to approve the repurchase of shares from the Selling Shareholders for the purposes of sections 107(1)(c) and 107(3) of the Companies Act 1993. As a further prerequisite to the repurchase, the Directors must be satisfied on reasonable grounds that Pumpkin Patch will, immediately after the repurchase, satisfy the solvency test prescribed by the Companies Act 1993 and, pursuant to section 108(2) of that Act, sign a certificate to that effect. Securities Act Exemptions Pumpkin Patch has applied for and has been granted exemptions from Regulation 12(1)(a) of the Securities Regulations 1983 and from clauses 1(4), 8(5), 13(a)(iii) and 10(1)(c) of the First Schedule to those Regulations. 82 Regulation 12 The Securities Commission has granted an exemption from Regulation 12(1)(a) of the Securities Regulations 1983 to allow Pumpkin Patch to include in the Investment Statement summary historical financial statements showing the amount of total assets held by Pumpkin Patch divided into current and fixed assets. Clauses 1(4) and 13(a)(iii) of Schedule 1 The Securities Commission has granted an exemption from Clauses 1(4) and 13(a)(iii) of Schedule 1 to the Securities Regulations 1983. The exemptions from clause 1(4) and 13(a)(iii) are necessary as Pumpkin Patch is using a book build process to determine the Final Price for Shares and is using that Final Price as the Exercise Price for Options, rather than specifying a fixed dollar value for the subscription price for the Shares and the Exercise Price of the Options issued pursuant to the Share Offer and the Option Offer respectively. This Prospectus instead: states the Indicative Price Range and the Company's right to fix the Final Price outside the Indicative Price Range; describes how investors can ascertain the Final Price, the procedures for holding subscription moneys, how over-subscriptions will be treated and the procedure for making refunds; that the Company has applied to the NZX for permission to list the Shares. Clause 8(5) of Schedule 1 The Securities Commission has granted an exemption from clause 8(5) of Schedule 1 to the Securities Regulations 1983. This exempts Pumpkin Patch from the necessity to provide historical summary financial statements of the net tangible asset backing per Share calculated on the basis that the subscription money has been received. Given that the Final Price of the Shares will not be determined before the date of this Prospectus, it is not possible to comply with Clause 8(5). This Prospectus instead shows the information required by clause 8(5) calculated as if the number of Shares on which the assumptions are based are calculated by reference to the maximum number of specified securities that would be allotted if the subscription price of the Shares was at the high point, at the mid point and at the low point of the indicative price range stated in the Prospectus. Clause 10(1)(c) of Schedule 1 The Securities Commission has granted an exemption from Clause 10(1)(c) of Schedule 1. This exempts Pumpkin Patch from the necessity to provide a prospective statement of cash flows expected during the year commencing on the date the Prospectus is delivered to the Registrar of Companies in registrable form. This Prospectus instead contains consolidated prospective statements of cashflows for Pumpkin Patch and its subsidiaries in each of the following periods: • the period of 12 months commencing on 1 August 2003 and ending on the close of 31 July 2004; and • the period of 12 months commencing on 1 August 2004 and ending on the close of 31 July 2005. The financial statements for Pumpkin Patch for the 12 month periods commencing on 1 August 2003 and 1 August 2004 will include a comparison of the actual cashflows for the same periods as stated in the Prospectus, in the manner required under paragraph 5.4 of the Financial Reporting Standard No. 9 (as if those statements were required to comply with that standard). Standstill Agreements Pumpkin Patch and the following shareholders: • Perpetual Trustee Limited as trustee of the Quadrant Trust; • Wynyard Wood Trustee Services Limited and Nigel Philip Smith as trustees of the Simdec Trust; • Wynyard Wood Trustee Services Limited and Nigel Philip Smith as trustees of the Feruza Trust; • Maurice John Prendergast, Kerry Donna Prendergast and Stuart Gavin Callender as trustees of the Kezza Family Trust; 83 • Adam Lindsay Gordon Ryall, Judith Mabel Ryall and Stanley Alexander Carwardine as trustees of the Punchestown Family Trust; • Mark Joseph Synnott, Sally Rene Synnott and the Gale Trustee Company Limited as trustees of The Opito Family Trust; and • Gregory John Muir, Debra Jane Muir and Geoffrey Alistair Lawrie as trustees of the Muir Trust; have entered into a deed in favour of the Lead Manager, whereby those shareholders have agreed that, for a minimum period of 12 months from the date on which Pumpkin Patch is quoted on the NZX, they will not: • Dispose of, or agree or offer to dispose of, Shares they hold; • Create, or agree or offer to create, any security interest (including the sale or purchase of options or similar financial instruments) in their Shares; and/or • Do, or omit to do, any act or omission which would have the effect of transferring effective ownership or control of their Shares. If the shareholder takes any of the steps set out above: • Pumpkin Patch will take such reasonable steps that are within its control to give effect to the terms of the deed or to rectify the matter giving rise to the breach; • Pumpkin Patch will (to the extent reasonably permitted by law) refuse to acknowledge, deal with, accept or register any sale, assignment, transfer or conversion of any of the relevant Shares; • Pumpkin Patch will, for as long as the breach continues, not pay any dividends or distributions to any person in respect of the relevant shares and will not count any votes cast in respect of those Shares, in any shareholder resolution; and • The relevant shareholder acknowledges that it will cease to be entitled to any dividends, distributions or voting rights in respect of its Shares while the breach continues. Employee Share Scheme Restructuring The Company has established a number of employee share schemes which have allowed employees (including executive Directors) to purchase shares in the Company. The Company has committed to restructure these schemes, such restructuring taking effect prior to or upon the allotment of Shares under the Share Offer. The effect of the restructuring will be: • All shares allocated under these schemes prior to listing will be fully paid, and the Company will have provided interest free loans in aggregate of $7,202,861 to pay for any shares under these schemes not already purchased by the relevant employee in cash; • All shares allocated under these schemes will be ordinary fully paid shares in Pumpkin Patch, ranking equally in all respects with all other shares; • Pumpkin Patch must pay grossed up bonuses to employees (in some cases over three years, and in some cases payable immediately) to enable the employees (including executive Directors) to fully or substantially discharge the amount of these loans and the full cost of this has been fully provided for in the 31 July 2004 forecast financial information. • Approximately one third of each employee’s shares issued under the employee share schemes will be held by a trustee as security for the payment of the loans owing to the Company, and will typically be released progressively over three years to employees as their loans are progressively discharged. Different arrangements are in place for the executive Directors, Maurice Prendergast, Greg Muir and Chrissy Conyngham. Greg Muir will have 512,000 Shares held in escrow and progressively released over three years. Maurice Prendergast will procure the provision to the trustees of the scheme of 1,500,000 Shares which will be held (by way of security) and progressively released over three years. Chrissy Conyngham will have 570,000 Shares held in escrow and progressively released over three years. 84 DF7 Share Scheme The Company has established an Employee Share Scheme under section DF7 of the Income Tax Act 1994. Under this Scheme Pumpkin Patch will, immediately prior to listing, issue 2,000,000 Shares to Pumpkin Patch Nominees Limited (the “Trustee”) and intends to procure the Trustee to offer those Shares to its employees as soon as possible (taking into account certain practical matters) after Pumpkin Patch is quoted on the NZX. It is intended that Shares will be offered to employees at a price 25% less than the Final Price for investors (other than institutional or professional investors) determined under the Share Offer. All permanent employees in New Zealand who have been with the Company for at least six months and who work 30 hours or more per week (including Directors) will be eligible to purchase $2,340 of Shares at this discounted rate. All permanent employees in New Zealand who have been with the Company for at least six months and who work between 10 and 30 hours per week (including Directors) will be eligible to subscribe for up to $1,170 worth of Shares at the discounted rate. Pumpkin Patch will, prior to listing, give the Trustee an interest free loan for the aggregate purchase price to enable it to purchase the Shares issued to it for this scheme. Pumpkin Patch has agreed that the Trustee is, in turn, entitled to novate a portion of that loan to individual employees to assist them to purchase Shares under the DF7 Share Scheme. Pumpkin Patch intends to implement similar schemes for its employees in the United Kingdom and in Australia within the next 12 to 24 months and to this end has issued the appropriate number of Shares (and made the associated loan) to the Trustee and has made provision for additional Shares which may be offered to these employees. Offers of Shares under the DF7 Share Scheme are not required to comply with the Securities Act 1978 and are not part of either the Share Offer or the Option Offer. There are no other material matters relating to the offer of Shares and Options in this Prospectus other than matters elsewhere set out in this Prospectus and contracts entered into in the ordinary course of business of the Company or its subsidiaries. 41. Directors’ Statement The Directors, after due enquiry by them in relation to the period between the date of the latest balance sheet set out in this Prospectus and the date of registration of this Prospectus are of the opinion that no circumstances have arisen that materially adversely affect the trading or profitability of the Company or its subsidiaries, the value of the assets of the Company or its subsidiaries, or the ability of the Company or its subsidiaries to pay its liabilities due within the next 12 months. 42. Auditors’ Report A copy of the auditors’ report required by clause 42 of the First Schedule to the Securities Regulations is set out on pages 70 and 71. This Prospectus was signed by or on behalf of the Directors of the Company when it was delivered to the Registrar of Companies for registration. Greg Muir (Executive Chairman) Maurice Prendergast (Managing Director) Chrissy Conyngham Jane Freeman David Jackson Sally Synnott 85 glossary of certain terms 86 glossary of certain terms Term Allocation and Allotment Date Assumed Annual Dividend Definition Between 8 June and 12 June 2004 For each of the years commencing 9 June 2004, 9 June 2005 and 9 June 2006 the assumed dividend which will be paid by the Company in each of those years (which will be determined by the Company in its discretion after taking such independent advice (if any) as it considers desirable, based on the expected dividend in those three years) The price set by the Company after taking such independent advice (if any) as it considers desirable and calculated in accordance with the following formula: Exercise Price x [(1+ Cost of Equity) - Assumed Annual Dividend for the year commencing 9 June 2004] x [(1+ Cost of Equity) - Assumed Annual Dividend for the year commencing 9 June 2005] x [(1+ Cost of Equity) - Assumed Annual Dividend for the year commencing 9 June 2006] Day on which the NZX is open for trading For the Share Offer 4 June 2004 For the Option Offer the 15th Business Day following receipt of an individual offer of Options The constitution of Pumpkin Patch to be adopted prior to listing A factor, selected by the Company in its discretion after taking such independent advice (if any) as it considers desirable and calculated in accordance with the following formula: Re = Rƒ(1-T1) + ße (PTMRP) Where: Rƒ = Risk free rate of return, based on the yield on New Zealand government stock. T1 = New Zealand investors’ effective tax rate on interest and dividend income relative to capital gains. ße = Equity beta, a measure of the volatility of returns from the Company compared to returns from the investment market. PTMRP = Post tax market risk premium, or expected return, measured after New Zealand investor taxes, on the market portfolio of equity investments, derived from PricewaterhouseCoopers research on New Zealand equity market returns Members of the Board of Directors of Pumpkin Patch Earnings Before Interest and Tax Earnings Before Interest Tax Depreciation and Amortisation A Senior Manager that has been offered Options pursuant to the Option Offer The period during which Options issued pursuant to the Option Offer can be exercised, being the period between 9 June 2007 and 9 June 2009 The Exercise Price for Options issued pursuant to the Option Offer, which shall be the Final Price for investors other than institutional and professional investors participating in the book build For institutional and professional investors participating in the book build the price set by the Company on or prior to 8 June 2004 and payable by institutional and professional investors participating in the book build under the Share Offer in respect of a Share; For other investors the price set by the Company on or prior to 8 June 2004 and payable by investors other than investors who are institutional and professional investors participating in the book build under the Share Offer in respect of a Share The indicative price range per Share set out on page 15 The Investment Statement issued in respect of the Share Offer and the Option Offer dated 14 May 2004 Goldman Sachs JBWere (NZ) Limited Volume weighted average selling price per Share traded on the NZX during the 10 Business Days prior to exercise (adjusted as Pumpkin Patch may determine in its sole discretion to take account of the Shares going ex-dividend and to ensure that such weighted average does not take into account any purchase or sale of Shares by an Option Holder) Benchmark Price Business Day Closing Date Constitution Cost of Equity Directors EBIT EBITDA Eligible Senior Manager Exercise Period Exercise Price Final Price Indicative Price Range Investment Statement Lead Manager Market Price at Exercise Date 87 Term NZX Opening Date Definition New Zealand Exchange Limited For the Share Offer 17 May 2004 For the Option Offer, upon receipt by an Eligible Senior Manager of an individual offer of Options pursuant to the Option Offer, being approximately 17 May 2004 An option to acquire one Share issued pursuant to the Option Offer An application by an Eligible Senior Manager under the Option Offer Option Application form provided by Pumpkin Patch to Eligable Senior Managers An Eligible Senior Manager who has accepted an offer of Options under the Option Offer The offer of Options to Eligible Senior Managers under this Prospectus Any company, firm, organisation or corporation designated as a Primary Market Participant from time to time by the NZX pursuant to Rule 3.18 of the NZX Participant Rules A Director or any person in accordance with whose directions or instructions the Directors are accustomed to act (except any person in accordance with whose directions or instructions any or all of the Directors are accustomed to act by reason only that the Directors act on advice given by him or her solely in a professional capacity) as more particularly defined in the Securities Act 1978 This Prospectus Pumpkin Patch Limited The agreements between the Company and the Selling Shareholders to repurchase certain Shares, as set out on pages 81 and 82. Pumpkin Patch 2004 Share Option Scheme Perpetual Trustees Limited as Trustee of Quadrant Capital Fund No 2; and Wynyard Wood Trustee Services and Nigel Philip Smith as Trustees of the Simdec Trust and the Feruza Trust A Director or a senior manager of Pumpkin Patch or any of its Subsidiaries An application by an investor for Shares under the Share Offer Share Application form on page 61 of the Investment Statement The offer of Shares under this Prospectus Ordinary fully paid shares in Pumpkin Patch Stock Keeping Unit Subscription for Shares under the Share Offer Pumpkin Patch (Australia) Pty Limited; Pumpkin Patch Originals Limited; Pumpkin Patch Limited (U.K.); Studio Works Limited; The Catalogue Studio Pty Limited; Torquay Enterprises Limited. Option Option Application Option Application Form Option Holder Option Offer Primary Market Participant Principal Officer Prospectus Pumpkin Patch or the Company Repurchase Agreements Scheme Selling Shareholders Senior Manager Share Application Share Application Form Share Offer Shares SKU Subscription Subsidiaries 88 application instructions 89 application instructions Share Offer 1. Applications to subscribe for the Shares must be made on the Share Application Form included with and forming part of the Investment Statement, and in accordance with the Application Terms set out on the back of the Share Application Form. 2. Applications must be accompanied by payment in full for the Shares. Cheques should be made payable to “The Pumpkin Patch Share Offer”. Cheques must not be post dated. 3. Completed Share Application Forms must be sent so as to be received by BK Registries Limited at: The Pumpkin Patch Share Offer C/- BK Registries Limited 138 Tancred Street PO Box 384 ASHBURTON no later than 5.00pm on 4 June 2004. 4. Investors may also lodge applications with: Any Primary Market Participant or Goldman Sachs JBWere (NZ) Limited Level 38, Vero Centre 48 Shortland Street PO Box 887 AUCKLAND in time to enable forwarding to the Registrar prior to 5.00pm on 4 June 2004. 5. Applications for Shares may be lodged from the opening date of the Share Offer on 17 May 2004. The Share Offer will remain open until 4 June 2004 or such later date as the Directors may determine. An Application will constitute an irrevocable offer by the applicant to acquire the number of Shares specified on the Share Application Form (or such lesser number as Pumpkin Patch and the Lead Manager may determine) on the terms and conditions set out in this Prospectus and on the Share Application Form. 7. Money received in respect of applications that are declined in whole or in part will be refunded in whole or in part (as the case may be). Refunds will be posted within five business days after allocation of Shares to successful applicants. Interest will not be paid on any application moneys refunded to applicants. 8. None of Pumpkin Patch, the Lead Manager, or any of their respective officers, employees, or advisors accepts any liability or responsibility should any person attempt to sell or otherwise deal with Shares before the statements confirming allotment are received by the applicants and the “delayed delivery” designation is lifted. 6. 90 9. If your Share Application Form is not completed correctly, or if the accompanying payment is for the wrong amount, your Application may still be treated as valid. The Company’s decision as to whether to treat your application as valid, and how to construe, amend or complete your Share Application Form, shall be final. The Company’s decision on the number of Shares to be allotted to you shall also be final. Applicants will not, however, be treated as having applied to purchase more Shares than the number indicated on the Share Application Form, or more Shares than those for which payment has been made. 10. 11. The Company reserves the right to refuse any application in whole or in part, without giving any reason. Further details of how to apply are set out in the section titled “How to Apply” (on page 60 of the Investment Statement). Payment 1. Payment must accompany each Share Application Form. Payment must be made by a cheque drawn on a New Zealand bank, for New Zealand dollars, for value immediately. Post-dated cheques will not be accepted. Please ensure that the total of the cheque equals the amount payable. Make the cheque payable to “The Pumpkin Patch Share Offer” and cross it “Not Transferable”. Sufficient cleared funds should be held in your account, as cheques returned unpaid are likely to result in your application being rejected or your allocation being cancelled. Staple your cheque to the Share Application Form. Institutional investors or professional investors that are successfully allocated Shares under the book build process must settle their allocation prior to 5.00pm on Tuesday 8 June 2004 via Austraclear or in cleared funds under notification to the Lead Manager. 2. 3. 4. Minimum Applications 5. Applications must be for a minimum of $5,000 worth of Shares and in increments of $500 thereafter. Closing Date 6. Applications must be received by no later than 5.00pm New Zealand time on 4 June 2004 unless this date is varied by Pumpkin Patch. Pumpkin Patch has the right to extend the Offer period. Delivery 7. 8. Applications cannot be revoked or withdrawn. Share Application Forms must be mailed or delivered (with payment) to “The Pumpkin Patch Share Offer” c/- BK Registries Limited (see address below) to arrive on or before 4 June 2004. You may lodge your application with any Primary Market Participant or Goldman Sachs JBWere (NZ) Limited (as Lead Manager) or any other channel approved by the NZX, but must deliver it in time to enable the application to be forwarded to BK Registries Limited before the relevant closing time. Please lodge your application AS SOON AS POSSIBLE. 9. 10. 91 Option Offer – Employees Only 1. Applications for Options must be made on the Option Application Form included with and forming part of this Prospectus, and in accordance with the Application Terms set out on the back of the Option Application Form. 2. Completed Option Application Forms must be sent so as to be received by Pumpkin Patch at: Managing Director Pumpkin Patch Limited 439 East Tamaki Road East Tamaki AUCKLAND no later than 5.00pm on the 12th Business Day following receipt of an individual offer of Options pursuant to the Option Offer. 3. An Application will constitute an irrevocable acceptance by the applicant to acquire the number of Options offered to the applicant by Pumpkin Patch on the terms and conditions set out in this Prospectus and on the Option Application Form. 4. If your Option Application Form is not completed correctly, your Application may still be treated as valid. The Company’s decision as to whether to treat your application as valid, and how to construe, amend or complete your Application Form, shall be final. 5. Further details of how to apply are set out in the section titled “How to Apply” (on page 56 of the Investment Statement). Closing Date 6. Applications must be received no later than 5.00pm New Zealand time on the 12th Business Day following receipt of an individual offer of Options pursuant to the Option Offer unless this date is varied by Pumpkin Patch. Delivery 7. 8. Applications cannot be revoked or withdrawn. Application forms must be mailed or delivered to Pumpkin Patch (see address below) to arrive by 5.00pm on the 12th Business Day following receipt of an individual offer of Options pursuant to the Option Offer. Please lodge your application AS SOON AS POSSIBLE. 9. 92 rules relating to the Pumpkin Patch 2004 share option scheme 1. Introduction 1.1 1.2 Name: The name of this scheme is the Pumpkin Patch 2004 Share Option Scheme. Purpose: The Scheme is intended to create incentives for, and enable the Company and its Subsidiaries to attract and/or retain, key persons connected to the Company and its Subsidiaries, by conferring on them a right to participate in the equity of the Company. Defined Terms: Further definitions specific to this Scheme are set out in clause 8. 1.3 2. Offer of Options 2.1 Content of Offer: The Company may make an offer of Options to an Eligible Person. Each offer shall: 2.1.1 be in writing; 2.1.2 enclose details of the Scheme; 2.1.3 specify the number of Options to be granted to the Eligible Person; 2.1.4 specify the Exercise Period or Exercise Periods for exercise of the Options, including tranches (if any) of the Options; 2.1.5 specify the conditions (if any) which must be satisfied before the Options may be exercised; 2.1.6 specify the Exercise Price or Exercise Prices for exercise of the Options; 2.1.7 specify the minimum number or multiple of a number of Options for exercise of the Options; 2.1.8 specify the date by which the offer of Options must be accepted; and 2.1.9 provide a form of Option Certificate setting out certain of the details referred to above. 2.2 Maximum Number: The maximum number of Options to be offered to any Eligible Person under the Scheme in any 12 month period shall be determined by the Company. 3. Acceptance of Offer of Options 3.1 Response: An Eligible Person who wishes to accept an offer of Options must return to the Company a completed acceptance of the letter of offer and completed Scheme Member Undertaking, by 5.00pm on the 12th Business Day following the date of the offer or such later date as the Company advises in writing. 3.2 Acknowledgement: In accepting an offer of Options, an Eligible Person acknowledges that: 3.2.1 the terms of the Scheme are binding on him or her; and 3.2.2 participation in the Scheme does not affect the terms of the Eligible Person’s employment (if any) or prospective employment (if any). In no event shall the Company be deemed, by making an offer of Options, to have represented that any employment or prospective employment shall continue until, during and/or beyond the Exercise Period. 3.3 Grant: On receipt of acceptance of an offer of Options from an Eligible Person the Company shall grant Options, and send an Option Certificate, as soon as practicable to the Scheme Member. 93 4. Exercise of Options 4.1 Exercise: Subject to clauses 4.2 and 4.3, Options may be exercised on any Business Day during the Exercise Period, unless: 4.1.1 the Company considers that the exercise is not permitted by the Rules; or 4.1.2 there has been a Lapse Event prior to the Exercise Period or any conditions that must be satisfied before exercise have not been satisfied; or 4.1.3 the Market Price at Exercise Date is less than the Benchmark Price; or 4.1.4 the Ordinary Shares were not quoted on the NZX for at least one day in the period prior to the commencement of the Exercise Period; or 4.1.5 the Options have expired under clause 5. 4.2 Change of Control: Notwithstanding clause 4.1, and subject to clause 4.3, the Company may, by notice to all Scheme Members, permit the Options to be exercised before the Exercise Period where a person (excluding the Company) or a group of associated persons acquires a beneficial (or legal and beneficial) interest in at least 50% of the total voting rights (as defined in the Takeovers Code Approval Order 2000) in the Company, provided that: 4.2.1 the exercise of any Options pursuant to such notice shall take place within 30 Business Days of the date of that notice; 4.2.2 for the avoidance of doubt, the failure of a Scheme Member to exercise any Options pursuant to clause 4.2.1 shall not prejudice that Scheme Member's right to exercise those Options during the Exercise Period pursuant to clause 4.1; 4.2.3 the Options shall be exercisable pursuant to such notice unless: (a) the Company considers that the exercise is not permitted by the Rules; or (b) there has been a Lapse Event prior to the date of the notice; or (c) the Market Price at Exercise Date is less than the lower of: (i) the Benchmark Price; or (ii) the price per Ordinary Share paid by the person or group of associated persons so acquiring the beneficial (or legal and beneficial) interest in at least 50% of the total voting rights in the Company (whichever is lower), or if there is more than one such price, the highest such price in the six month period preceding the date of the notice; or (d) the Ordinary Shares were not quoted on the NZX at any time prior to the date of the notice; or (e) the Options have expired pursuant to clause 5; and 4.2.4 any such notice given under this clause 4.2 may not be subsequently withdrawn by the Company including under a reconstituted Board. 4.3 Insider Trading: Notwithstanding clauses 4.1 and 4.2, Options may only be exercised in the periods contemplated by the Insider Trading (Approved Procedure for Company Officers) Notice 1996, or other relevant insider trading laws. If the final day in the Exercise Period does not fall within one of these periods, then the final date for exercise shall be extended to the fifth Business Day after the commencement of the next such period. 4.4 Exercise Notice: Subject to clause 5 and the terms of grant of Options, a Scheme Member may exercise 94 part or all of the Options (subject to any minimum number or multiple of a number of Options prescribed by the Company from time to time and advised in the offer of Options), by a notice in writing to the Company in such form as the Company may from time to time specify, detailing the Options exercised. 4.5 Payment: Contemporaneously with the exercise notice provided under clause 4.4, on the Exercise Date the Scheme Member shall remit to the Company the Exercise Price and surrender the relevant Option Certificate. If fewer than all the Options comprised in a certificate are exercised, a replacement Option Certificate shall be issued for the remaining Options. 4.6 Minimum Number: The minimum number of Options that may be exercised on any one occasion shall be the lesser of 1,000 Options or the balance then remaining. Issue: Subject to the provisions of clause 6, within 5 Business Days after the date on which the Company receives payment of the relevant Exercise Price and the relevant Option Certificate under this clause 4, the Company shall issue, transfer, or procure the transfer of Ordinary Shares to the Scheme Member, unless this clause 4 precludes the exercise of Options (in which case, the Company shall give notice to the Scheme Member accordingly, refund the Exercise Price (without interest) and return the Option Certificate). Company’s Notice: The Company shall give a further notice to a Scheme Member who has been precluded pursuant to clause 4.2 from exercising an Option, as soon as it considers that the exercise would no longer be precluded. Ranking: Subject to the provisions of clause 6, Ordinary Shares issued or transferred to a Scheme Member pursuant to the exercise of an Option shall be credited as fully paid and shall rank equally in all respects with all other Ordinary Shares on issue at the Exercise Date, except for any dividend in respect of which the Record Date occurred prior to the Exercise Date. 4.7 4.8 4.9 4.10 Rights Issue: In the event that there is a rights issue prior to the Exercise Date, the Exercise Price of the Options shall be reduced in accordance with the formula stipulated by Listing Rule 8.1.7. 4.11 Bonus Issues etc: If there is a bonus issue to the holders of the Ordinary Shares, the number of Ordinary Shares to be received on the exercise of an Option shall be increased (or additional Ordinary Shares may be reserved for issue on exercise of an Option) by the number of Ordinary Shares which the Scheme Member would have received if that Option had been exercised before the Record Date for the issue. 4.12 Proportionate Reconstruction: If there is a consolidation or subdivision or similar proportionate reconstruction of the Ordinary Shares, the number of Ordinary Shares to be received on the exercise of an Option may be consolidated or subdivided in the same ratio and the Exercise Price amended in inverse proportion to that ratio. 4.13 Notice: The Company shall give notice of any adjustment to the number of Ordinary Shares to be received on the exercise of Options to all Scheme Members affected. 5. Expiration of Options 5.1 Exercise Period Passed: Subject to clause 4.3, an Option shall expire on the expiry of the Exercise Period for such Option. Lapse Event: An Option shall expire (subject to a determination by its Board to the contrary) on the occurrence of a Lapse Event. After Exercise: Nothing in this Scheme as to expiry of an Option shall apply to an Option which has been exercised. 5.2 5.3 95 6. Vesting and Resumption of Shares Ordinary Shares issued or transferred as the result of the exercise of an Option shall immediately vest in and be transferred to the Scheme Member and shall not in any way be subject to the provisions of the Scheme. 7. Miscellaneous 7.1 Amendment: The Company may from time to time modify or amend all or any of the provisions of the Scheme or the Rules and any such modification or amendment shall be embodied in a Deed executed by the Company and forwarded to all Scheme Members, provided that no modification or amendment may be made which shall substantially adversely affect the financial position of any Scheme Member unless that Scheme Member consents to the modification or amendment or the modification or amendment is consented to in writing by at least 75% of all then current Scheme Members holding Options under the relevant Scheme. 7.2 Spirit of the Scheme: If any circumstance arises which might result in the spirit and intent of the Scheme not being fulfilled, the Company shall use all reasonable endeavours to effect any modification to the Scheme required to preserve that spirit and intent. Fractions: If a calculation or adjustment under the Scheme produces a fraction of a cent or Ordinary Share, the product shall be rounded to the nearest whole number favourable to the Scheme Member. Delay: No failure, delay or indulgence by the Company in exercising any power or right conferred on it under the Scheme shall operate as a waiver of that power or right nor shall a single exercise of a power or right preclude further exercises of or the exercise of any other power or right under the Scheme. 7.5 Quotation: The Company shall not apply, or be required to apply, for quotation of an Option on the NZX nor does the Company undertake to remain listed on the NZX and/or have Ordinary Shares quoted on the NZX. Disputes: Any dispute or difference affecting the issue or exercise of the Options shall be determined by the Company whose decision shall be final and binding in all respects. Dispute Resolution: 7.7.1 Written Notice: In the event of a dispute concerning the provisions of this Scheme or any Rules arising between a Scheme Member and the Company, then the person claiming that a dispute has arisen must give written notice to the other specifying the nature of the dispute (“Dispute Notice”). 7.7.2 Mediation: Any person sending or receiving a Dispute Notice (“Party”) may require any dispute, which has not been resolved within 10 Business Days of the date of the Dispute Notice, to be referred to mediation. The mediator shall be appointed by both Parties, or failing agreement within 5 Business Days of the date of reference to mediation, appointed by the Chairperson of the New Zealand Chapter of Lawyers engaged in Alternative Dispute Resolution. The mediator shall conduct the mediation in accordance with the guidelines agreed between the Parties or, if the Parties cannot agree within 10 Business Days following appointment of the mediator, in accordance with the guidelines set by the mediator. The costs and expenses of the mediator shall be shared by the Parties equally. 7.7.3 Arbitration: In the event that the dispute is not resolved by mediated agreement or otherwise within 30 Business Days of the date of the Dispute Notice, either Party may by written notice served on the other Party require the dispute to be determined by the arbitration of a single arbitrator. The 7.3 7.4 7.6 7.7 96 arbitrator shall be appointed by the Parties or, failing agreement within 5 Business Days of service of the date of reference to arbitration, shall be appointed at the request of either Party by the president or vice-president for the time being of the Auckland District Law Society. The arbitration shall be conducted as soon as possible in accordance with, and subject to the provisions of, the arbitration statutes for the time being in force in New Zealand. 7.8 Correspondence: Any correspondence from a Scheme Member to the Company or the Board concerning the Options shall be delivered or posted to the registered office of the Company or to such other address as may be notified by the Board in writing. Any correspondence from the Company or the Board to a Scheme Member concerning the Options shall be delivered to the Scheme Member or posted to the Scheme Member’s last known residential address. 7.9 Employment: If a Scheme Member is an Employee, he or she acknowledges in acceptance of an offer of Options that nothing in the Scheme or issue of the Options is relevant to his or her employment terms. 7.10 Employment Rights: A Scheme Member waives any rights to compensation or damages in consequence of the termination of his or her employment (if any) with the Company or any Subsidiary for any reason whatsoever insofar as those rights arise, or may arise, from his or her ceasing to be entitled to any Options as a result of such termination. 8. Notices 8.1 Method of Delivery: Any notice or other communications required or permitted under this Scheme and any Rules shall be sufficiently given if in writing and personally delivered or sent by facsimile, post, or by courier, addressed, if to the Company, as follows, or to such other address as the Company shall have given notice of under this Scheme: If to the Company: Address: Pumpkin Patch Limited 439 East Tamaki Road East Tamaki Auckland Managing Director 09 274 7088 09 274 1122 Attention: Telephone number: Facsimile number: 8.2 Change of Details: The notice details given in clause 8.1 may be varied by the Company as appropriate at any time by notice given in accordance with that clause. 8.3 Receipt: Any notice or demand given by either party to the other shall be conclusively deemed to be received by the intended recipient: 8.3.1 in the case of delivery by hand, when actually delivered; 8.3.2 in the case of delivery by post, on the third Business Day after posting; 8.3.3 in the case of facsimile, on the Business Day on which it is despatched or, if despatched on a NonBusiness Day or after 5pm (in the place of receipt) on a Business Day, on the next Business Day after the date of despatch. 97 9. Interpretation In this Schedule, unless the context otherwise requires: “Assumed Annual Dividend” for each of the three years commencing 9 June 2004, 9 June 2005 and 9 June 2006, the assumed dividend which will be paid by the Company in each of those years (which will be determined by the Company in its discretion after taking such independent advice (if any) as it considers desirable, based on the expected dividend in those three years); “Benchmark Price” means the price set by the Company after taking such independent advice (if any) as it considers desirable and calculated in accordance with the following formula: Exercise Price x [(1+ Cost of Equity) - Assumed Annual Dividend for the year commencing 9 June 2004] x [(1+ Cost of Equity) - Assumed Annual Dividend for the year commencing 9 June 2005] x [(1+ Cost of Equity) – Assumed Annual Dividend for the year commencing 9 June 2006] “Cost of Equity” means a factor, selected by the Company in its discretion after taking such independent advice (if any) as it considers desirable and calculated in accordance with the following formula: Re = Rƒ (1-T1) + ße (PTMRP) Where: Rƒ = Risk free rate of return, based on the yield on New Zealand government stock. T1 = New Zealand investors’ effective tax rate on interest and dividend income relative to capital gains. ße = Equity beta, a measure of the volatility of returns from the Company compared to returns from the investment market. PTMRP = Post tax market risk premium, or expected return, measured after New Zealand investor taxes, on the market portfolio of equity investments. Derived from PricewaterhouseCoopers research on New Zealand equity market returns; “Employee” means a person who, at the date of offer of Options, is an employee of the Company or any Subsidiary; “Exercise Date” means the date on which an Option is exercised; “Exercise Period” means the period commencing on 9 June 2007 and ending on 9 June 2009; “Exercise Price” means the price per Share payable by investors other than institutional and professional investors participating in the book build pursuant to the 2004 Initial Public Offering of Shares in the Company; “Lapse Event” means the occurrence of an event by which a Scheme Member who (at the date of offer of the relevant Option) is an Employee ceases to be an Employee for any reason whatsoever (including but without limitation, death, normal retirement or resignation, ill health, accident or redundancy, or termination by the Company for cause) provided that the Board may, in its absolute discretion, determine that any given circumstances do not constitute a Lapse Event; “Listing Rules” means the Listing Rules of the NZX; “Market Price at Exercise Date” means the volume weighted average selling price per share of all of the Shares in the Company traded on the NZX during the 10 Business Days prior to the date that the Company receives an Exercise Notice pursuant to clause 4.3, adjusted as the Company may determine in its sole discretion, to take account of the Shares going ex–dividend in that period and to ensure, as far as practicable, that such weighted average does not take into account any purchase or sale of Shares by or on behalf of the Scheme Member; “Option Certificate” means a certificate evidencing Options, including the Schedule (if any) to such certificate; “Record Date” bears the same meaning as it bears in the Listing Rules; 98 directory and advisers Directors Chrissy Conyngham Jane Freeman David Jackson Greg Muir (Executive Chairman) Maurice Prendergast Sally Synnott The Directors of Pumpkin Patch can be contacted: c/- Pumpkin Patch Limited Private Bag 94-310 Pakuranga AUCKLAND Registered Office Pumpkin Patch Limited 439 East Tamaki Road East Tamaki AUCKLAND Share Registrar BK Registries Limited 138 Tancred Street PO Box 384 ASHBURTON Telephone: 03 308 8887 Facsimile: 03 308 1311 Email: info@bkregistries.co.nz Lead Manager Goldman Sachs JBWere (NZ) Limited Free Phone: 0800 555 555 Auckland Level 38 Vero Centre 48 Shortland Street PO Box 887 AUCKLAND Telephone: 09 357 3200 Facsimile: 09 357 3248 Wellington Level 8 IAG Tower 1 Willis Street WELLINGTON Telephone: 04 471 6260 Facsimile: 04 471 6261 Christchurch Level 1 HSBC House 141 Cambridge Terrace CHRISTCHURCH Telephone: 03 477 8800 Facsimile: 03 364 5611 Solicitors Simpson Grierson Simpson Grierson Building 92-96 Albert Street Private Bag 92518 Wellesley Street AUCKLAND Telephone: 09 358 2222 Facsimile: 09 307 0331 Auditors PricewaterhouseCoopers PricewaterhouseCoopers Tower 188 Quay Street Private Bag 92126 AUCKLAND Telephone: 09 355 8000 Facsimile: 09 355 8001 102