Reject Shop : Notice of Meeting & Proxy Form

The Annual General Meeting ("AGM") of The Reject Shop Limited ("Company") will be held at Bridge Room No.2, Crowne Plaza, 1-5 Spencer Street, Melbourne, at 3.30pm (Melbourne time) Wednesday 19 October 2016.

ORDINARY BUSINESS

1. Financial Statements and Reports

   To receive and consider the Directors' Report, Financial Statements and Independent Audit Report for the financial period ended 3 July 2016.

   Note: There is no requirement for shareholders to approve these reports.

2. Adoption of Remuneration Report

   To consider and, if thought fit, to pass the following resolution as an ordinary resolution: "That the Remuneration Report for the financial period ended 3 July 2016 be adopted".

   Note: The vote on this resolution is advisory only and does not bind the directors or the Company.

3. Re-election of a Director - Mr Kevin Elkington

   To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

   "That Mr Kevin Elkington, who will retire at the close of the meeting in accordance with article 9.3 of the Company's Constitution and being eligible, be re-elected as a director of the Company."

4. Re-election of a Director - Mr Denis Westhorpe

   To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

   "That Mr Denis Westhorpe, who will retire at the close of the meeting in accordance with article 9.3 of the Company's Constitution and being eligible, be re-elected as a director of the Company."

   SPECIAL BUSINESS

5. Approval of the Grant of Performance Rights to Managing Director

   To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

   "That, for the purposes of Listing Rule 10.14 of the ASX Limited (ASX) and for all other purposes, approval be and is hereby given to grant performance rights to Mr Ross Sudano, a director of the Company, to subscribe for up to 32,700 shares in the Company for an aggregate exercise price of $1 pursuant to and in accordance with the terms and conditions summarised in the Explanatory Notes and that approval be given to Mr. Sudano exercising these performance rights accordingly."

   OTHER BUSINESS

   To deal with any other business that may be brought in accordance with the Constitution and the Corporations Act 2001 (Cth).

   By Order of the Board

   Darren Briggs Company Secretary 14 September, 2016

   EXPLANATORY NOTES

   Item 1 Financial Statements and Reports

   The Directors' Report, Financial Statements and Independent Audit Report for the financial period ended 3 July 2016 will be laid before the AGM.

   During this item of business, there will be an opportunity for shareholders to ask questions and comment on the Directors' Report, Financial Statements and Independent Audit Report for the financial period ended 3 July 2016.

   Shareholders will also be provided a reasonable opportunity to ask questions about the Company generally.

   Item 2 Adoption of Remuneration Report

   The Board submits its Remuneration Report to shareholders for consideration and adoption by way of non-binding resolution.

   This resolution is advisory only and does not bind the directors of the Company. However, if 25% or more of votes that are cast are voted against the adoption of the Remuneration Report at two consecutive AGMs, shareholders will be required to vote at the second of those AGMs on a resolution (a "spill resolution") that another meeting be held within 90 days of the AGM (a "spill meeting") at which all of the Company's directors (other than the Managing Director) cease to hold office immediately before the end of the spill meeting and resolutions to appoint persons to the vacated offices will be put to vote at the spill meeting.

   The Remuneration Report is set out on pages 28 to 38 of The Reject Shop Limited 2016 Annual Report. The Remuneration Report:

   • Explains the Board's policies in relation to the nature and level of remuneration paid to directors, secretary, and executives;

   • Provides a summary of performance conditions;

   • Sets out remuneration details for each director and for the key management personnel and other officers of the Company;

   • Makes clear that the basis for remunerating non-executive directors is distinct from the basis for remunerating executives, including executive directors.

     A reasonable opportunity will be provided for discussion of the Remuneration Report at the AGM. The Board unanimously recommends that shareholders vote in favour of Item 2.

     Voting Exclusion Statement

     A vote must not be cast (in any capacity) on Item 2 by or on behalf of a member of the Company's key management personnel (including the Directors and the Chairman, where applicable) ("KMP"), details of whose remuneration are included in the Remuneration Report, and their closely related parties.

     However, a vote may be cast on Item 2 by a KMP, or a closely related party of a KMP, if:

   • the vote is cast as a proxy;

   • the appointment is in writing and specifies how the proxy is to vote on Item 2; and

   • the vote is not cast on behalf of a KMP or a closely related party of a KMP.

     In addition, a vote may be cast on Item 2 by the Chairman of the meeting if:

   • the vote is cast as a proxy;

   • the appointment is in writing and the shareholder expressly authorizes the Chairman to exercise the proxy, even if the resolution is connected directly or indirectly with the remuneration of a KMP; and

   • the vote is not cast on behalf of a KMP or a closely related party of a KMP.

Mr Elkington retires by rotation in accordance with the Constitution and, being eligible, offers himself for re-election.

Mr Elkington has provided the following information in support of his re-election:

Mr Kevin Elkington is an independent, non-executive director, Chairman of the Audit and Risk Committee and also a member of the Remuneration Committee. Mr Elkington has had a 29 year career as a corporate lawyer and company secretary in some of Australia's leading public companies including Coles Myer. Mr Elkington currently provides legal services and corporate advice to several large commercial clients and is also a director of the Myer Stores Community Fund Ltd. He is also currently a member and regular lecturer with the Governance Institute of Australia in the area of corporate governance.

Mr Elkington joined the Board in February 2008.

The board unanimously recommends that shareholders vote in favour of this Item 3 for the re-election of Mr Elkington.

Mr Westhorpe retires by rotation in accordance with the Constitution and, being eligible, offers himself for re-election.

Mr Westhorpe has provided the following information in support of his re-election:

Ms Denis Westhorpe is an independent, non-executive director, member of the Audit and Risk Committee and also a member of the Remuneration Committee. Mr Westhorpe has significant experience in senior executive retail roles including 14 years as an Executive Director of Target Australia Pty Ltd. During this time Mr Westhorpe occupied the roles of Store Operations Director, Buying Director and 2 years as Managing Director of Target Specialty Stores. Mr Westhorpe has previously been Chairman of Charles Parsons (Holdings) Pty Ltd where he was a Director for 8 years.

Mr Westhorpe joined the Board in August 2010.

The Board unanimously recommends that shareholders vote in favour of this Item 4 for the re-election of Mr Westhorpe.

Under ASX Listing Rule 10.14, a director of the Company may only participate in an employee share or option incentive scheme where such participation is approved by a resolution of the Company in general meeting. Accordingly, shareholder approval is sought for the grant to Mr Sudano of 32,700 performance rights over 32,700 shares in the Company.

It is proposed to grant the performance rights to Mr Ross Sudano, who is the Managing Director of the Company, pursuant to The Reject Shop Performance Rights Plan ("TRS Plan"). Under the TRS Plan, subject to the vesting conditions, Mr Sudano will be entitled to subscribe for up to 32,700 shares in the Company. This represents the long term incentive component of Mr Sudano's remuneration package.

There has been no other performance rights granted to directors under the TRS Plan since the Company's prior year annual general meeting and non-executive directors are not entitled to participate in the TRS Plan or any other employee incentive scheme of the Company. Mr Sudano, as an executive director, is entitled to participate in the TRS Plan (along with other relevant employees of the Company).

The performance rights will be granted to Mr Sudano pursuant and subject to the TRS Plan. Under the TRS Plan, the key terms of the performance rights granted to Mr Sudano are summarized as follows:

1. The exercise price for the performance rights to be granted is $1 (in aggregate); irrespective of the number of fully paid ordinary shares that may ultimately be issued.

2. There are no loans applicable to the granting of these performance rights.

3. If shareholders approve Item 5, the performance rights will be granted no later than 12 months after the meeting, and as soon as practicable after the meeting.

4. The maximum number of shares that may be acquired by Mr Sudano as a result of exercise of the proposed grant of 32,700 performance rights is 32,700 fully paid shares in the Company. Achievement of specified performance hurdles detailed in (vi) below will only result in 50%, or 16,400, of these rights being awarded. The remaining balance of 16,300 performance rights will only be awarded if performance hurdles are materially over achieved, based on the absolute discretion of the Board.

5. In addition to the performance hurdles set out in point (vi) below, Mr. Sudano must remain employed by the Company until 1 July 2019 before he is entitled to exercise any performance rights proposed to be granted under this resolution.

6. The financial hurdles established for this grant which apply over a three year vesting period are as follows:

   • Earnings Per Share (EPS) Growth of a compound 10% per annum on FY16 underlying EPS (72.8cps) (50% Weighting);

   • Improved Earnings Before Income Tax, Depreciation and Amortisation ("EBITDA") to Sales ratio of at least 0.15% per annum (25% Weighting); and

   • Return on Average Capital Employed of at least 20% (25% Weighting).

7. The Board retains the right to assess all aspects of the vesting conditions for the performance rights granted in light of any unforeseen material changes in circumstances.

Voting Exclusion Statement

Pursuant to ASX Listing Rule 14.11.1, the Company will disregard any votes cast on this resolution by Mr Sudano or any of his associates.

However, the Company need not disregard a vote if:

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

2. it is cast by the person chairing the Annual General Meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.