<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1997
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BARBEQUES GALORE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
AUSTRALIAN CAPITAL
TERRITORY, AUSTRALIA 5722 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
327 CHISHOLM ROAD, AUBURN, SYDNEY, NSW 2144, AUSTRALIA
(61-2-9704-4177)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SYDNEY SELATI
BARBEQUES GALORE LIMITED
15041 BAKE PARKWAY, #A
IRVINE, CALIFORNIA 92718
(714) 597-2400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
THOMAS A. BEVILACQUA, ESQ. SARAH BESHAR, ESQ.
CURTIS L. MO, ESQ. DAVIS POLK & WARDWELL
VALERIE RUSSELL, ESQ. 450 LEXINGTON AVENUE
BROBECK, PHLEGER & HARRISON LLP NEW YORK, NEW YORK 10017
TWO EMBARCADERO PLACE (212) 450-4000
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303-0913
(415) 424-0160
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ordinary Shares, A$3.64
par value per share,
each represented by
one American
Depositary Share(3)..... 2,702,500 shares US$16.00 US$43,240,000 US$13,104
==============================================================================================================
</TABLE>
(1) Includes 352,500 Ordinary Shares subject to an over-allotment option
granted to the Underwriters.
(2) Estimated solely for the purposes of computing the registration fee.
(3) American Depositary Shares evidenced by American Depositary Receipts
issuable upon deposit of the Ordinary Shares registered hereby are being
registered pursuant to a separate Registration Statement on Form F-6. The
securities are not being registered for sale outside the United States.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion
Dated October 6, 1997
[BARBEQUES GALORE LOGO]
2,350,000 American Depositary Shares,
each representing One Ordinary Share
The American Depositary Shares (the "ADSs") offered hereby are being offered
(the "Offering") by the Underwriters named herein. Each ADS represents one
ordinary share ("Ordinary Share") of Barbeques Galore Limited ("Barbeques
Galore" or the "Company"), a public limited company organized under the laws of
Australia. The ADSs are evidenced by American Depositary Receipts ("ADRs"). See
"Description of Ordinary Shares" and "Description of American Depositary
Receipts."
Of the 2,350,000 ADSs offered in the Offering, 1,900,000 ADSs represent
Ordinary Shares being sold by the Company and 450,000 ADSs represent Ordinary
Shares being sold by certain shareholders of the Company named herein (the
"Selling Shareholders"). See "Principal Shareholders" and "Selling
Shareholders." Prior to the Offering, there has been no public market in the
United States for the Ordinary Shares or the ADSs. It is currently estimated
that the initial public offering price of the ADSs will be between $14.00 and
$16.00 per share. See "Underwriting" for information relating to the factors to
be considered in determining the initial public offering price of the ADSs.
Application has been made for quotation of the ADSs on the Nasdaq National
Market under the symbol "BBQZY."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE ADSS OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per ADS US$ US$ US$ US$
- ---------------------------------------------------------------------------
Total(3) US$ US$ US$ US$
- ---------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at US$1,100,000.
(3) The Selling Shareholders have granted to the Underwriters a 30-day option
to purchase up to an additional 352,500 ADSs on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Shareholders will be US$ , US$ and US$ ,
respectively. See "Underwriting."
The ADSs are offered by the several Underwriters named herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of ADRs evidencing the ADSs
will be made against payment therefor at the offices of J.P. Morgan Securities
Inc., New York, New York on or about , 1997.
J.P. MORGAN & CO. SBC WARBURG DILLON READ INC.
, 1997
<PAGE>
[BARBEQUES GALORE LOGO]
[DEPICTIONS OF INTERIORS OF THE COMPANY'S U.S. STORES]
[MAP OF THE COMPANY'S U.S. STORE LOCATIONS]
[MAP OF THE COMPANY'S AUSTRALIAN STORE LOCATIONS]
USA
[Company Logo]
Barbecues
Accessories
Fireplace
[Photo of couple employing barbecue and related accessories in a healthy
outdoor lifestyle]
[Picture of fireplace]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE ADSS OR THE ORDINARY
SHARES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, ADSS IN THE OPEN MARKET. IN ADDITION,
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEM-
BERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE ADSS ON NASDAQ IN
ACCORDANCE WITH RULE 103 UNDER REGULATION M. FOR A DESCRIPTION OF THESE ACTIVI-
TIES, SEE "UNDERWRITING."
2
<PAGE>
USA
[Photograph of interior
of store]
[Photograph of exterior
of stand-alone store]
[Map of United States listing
company owned and franchised
stores by state]
<PAGE>
[Map of Australia listing
company owned and licensee
stores by state]
["Australia"
written
vertically
up the side]
<PAGE>
No person has been authorized to give any information or to make any represen-
tation other than those contained in this Prospectus, and if given or made,
such information or representation must not be relied upon as having been
authorized by the Company, the Selling Shareholders or by any of the Underwrit-
ers. This Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, the ADSs or the Ordinary Shares in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any cir-
cumstances, create any implication that there has been no change in the affairs
of the Company since the date hereof.
No action has been or will be taken in any jurisdiction by the Company, the
Selling Shareholders or any Underwriter that would permit a public offering of
the ADSs or the Ordinary Shares or possession or distribution of this Pro-
spectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company, the Selling Shareholders and the Underwriters to
inform themselves about and to observe any restrictions as to the offering of
the ADSs or the Ordinary Shares and the distribution of this Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Enforceability of Civil Liabilities
Under the Federal Securities Laws... 4
Available Information................ 4
Financial Statement Presentation..... 5
Trademarks........................... 5
Prospectus Summary................... 6
The Company.......................... 6
The Offering......................... 7
Summary Consolidated Financial Data.. 8
Unaudited Summary Additional
Consolidated Financial Data......... 10
Risk Factors......................... 12
Exchange Rates....................... 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Consolidated Financial
Data................................ 24
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Unaudited Selected Additional
Consolidated Financial Data......... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business............................. 37
Management........................... 48
Certain Transactions................. 52
Principal Shareholders............... 54
Selling Shareholders................. 56
Description of Ordinary Shares....... 58
Description of American Depositary
Receipts............................ 61
Certain Tax Considerations........... 67
Shares Eligible for Future Sale...... 70
Underwriting......................... 71
Legal Matters........................ 73
Experts.............................. 73
Index to Defined Terms............... 74
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE ADSS, WHETHER OR NOT PARTICIPATING IN THIS DIS-
TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS
Barbeques Galore is a public company limited by shares and is registered and
operates under the Corporations Law of the Commonwealth of Australia. Since
most of the Company's directors and officers and certain of the experts named
in the Registration Statement on Form F-1 (together with all exhibits and
amendments thereto, the "Registration Statement") reside outside the United
States, it may not be possible to effect service on such persons in the United
States or to enforce, in foreign courts, judgments against such persons
obtained in U.S. courts and predicated on the civil liability provisions of
the Federal securities laws of the United States. Furthermore, since all
directly owned assets of the Company are outside the United States, any judg-
ment obtained in the United States against the Company may not be collectible
within the United States. The Company has been advised by its Australian coun-
sel, Freehill, Hollingdale & Page, that there is doubt as to the enforce-
ability in the Commonwealth of Australia, in original actions or in actions
for enforcement of judgments of United States courts, of civil liabilities
predicated solely upon federal or state securities laws of the United States,
especially in the case of enforcement of judgments of United States courts
where the defendant has not been properly served in Australia.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "Com-
mission") a Registration Statement on Form F-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the ADSs offered
hereby. This Prospectus, which constitutes a part of the Registration State-
ment, omits certain of the information contained in the Registration Statement
and the exhibits and schedules thereto on file with the Commission pursuant to
the Securities Act and the rules and regulations of the Commission thereunder.
The Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the Com-
mission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies may be
obtained at prescribed rates from the Public Reference Section of the Commis-
sion at its principal office in Washington, D.C. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registra-
tion Statement, each such statement being qualified in all respects by such
reference to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Upon consummation of the Offering, the Company will be subject to the informa-
tion requirements of the Securities Exchange Act of 1934, as amended (the "Ex-
change Act"), applicable to foreign private issuers, and in accordance there-
with will file reports, including annual reports on Form 20-F, and other
information with the Commission. In addition, the Company has agreed in the
Underwriting Agreement relating to the offering to submit to the Commission
quarterly reports, which will include unaudited quarterly consolidated finan-
cial information on Form 6-K for the first three quarters of each fiscal year,
and file its annual report on Form 20-F within the time period prescribed
under Section 13 of the Exchange Act for the filing by domestic issuers of
quarterly reports on Form 10-Q and annual reports on Form 10-K, respectively.
Such reports and other information filed by the Company can also be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511; and 13th Floor, 7 World
Trade Center, New York, New York 10048. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. The Commission main-
tains a World Wide Web internet site that contains reports, proxy and informa-
tion statements and other information regarding registrants that file elec-
tronically with the Commission. The address of such site is
http://www.sec.gov. As a foreign private issuer, the Company is exempt from
the rules under the Exchange Act prescribing the furnishing and the content of
proxy statements.
The Company will furnish the Depositary referred to under "Description of
American Depositary Receipts" with annual reports which will include a review
of operations and annual audited consolidated financial statements prepared in
accordance with generally accepted accounting principles in the United States
("U.S. GAAP"). The Company will also furnish the Depositary with quarterly
reports which will include unaudited quarterly consolidated financial informa-
tion prepared in accordance with U.S. GAAP. The Depositary has agreed with the
Company that, upon receipt of such reports, it will promptly mail such reports
to all registered holders of ADSs. The Company will also furnish to the Depos-
itary all notices of shareholders' meetings and other reports and communica-
tions that are made generally available to shareholders. The Depositary will
arrange for the mailing of such documents to record holders of ADSs.
4
<PAGE>
FINANCIAL STATEMENT PRESENTATION
The Company publishes its consolidated financial statements in Australian dol-
lars. In this Prospectus, references to "$" or "US$" or "U.S. dollars" or "dol-
lars" are to United States dollars and references to "A$" are to Australian
dollars. For the convenience of the reader, this Prospectus contains transla-
tions of certain Australian dollar amounts into U.S. dollars at the rate indi-
cated. Translations of Australian dollars into U.S. dollars have been made at
the noon buying rate in New York City on the relevant date for cable transfers
in Australian dollars as certified by the Federal Reserve Bank of New York (the
"Noon Buying Rate"). Unless otherwise indicated, the date of translation was
(i) for amounts calculated as of a date, such date and (ii) for amounts calcu-
lated for a period, an average rate during the period. Any translation should
not be construed as a representation that the Australian dollar amounts actu-
ally represent such U.S. dollar amounts or could be converted into U.S. dollars
at the rate indicated. On October 3, 1997, the Noon Buying Rate was US$0.7293=
A$1.00. See "Exchange Rates."
Prior to 1997, the Company's fiscal year ended on June 30. Effective as of
April 9, 1997, the Company changed its fiscal year end from June 30 to January
31 (beginning with the fiscal year ended January 31, 1997). As used in this
Prospectus, each fiscal year of the Company is identified by the calendar year
in which it ends. For example, references to "fiscal year 1996" or "fiscal
1996" shall mean the fiscal year ended June 30, 1996, and due to the change in
fiscal year end, references to "fiscal year 1998" or "fiscal 1998" shall mean
the fiscal year ended January 31, 1998. Because of the change in fiscal year,
fiscal 1997 was a seven-month period.
Unless the context otherwise requires, references herein to "share" or "shares"
are references to both the ADSs and the Ordinary Shares.
TRADEMARKS
BARBEQUES GALORE(R), TURBO(R), CAPT N COOK(R), COOK-ON(R) and BAR-B-CHEF(R) are
federally registered trademarks and/or service marks in the United States. The
Company also uses the phrase AMERICA'S LARGEST CHAIN OF BARBECUE STORES(TM) as
a common-law trademark in the United States. BARBEQUES GALORE and COOK-ON are
also registered with the State of California. In Australia, the Company or its
subsidiaries have registered, among others, the names NORSEMAN and KENT, and
additionally use the phrase YOUR OUTDOOR COOKING AND CAMPING STORE as a common-
law trademark. This Prospectus contains other trade names, trademarks and
service marks of the Company and other organizations.
5
<PAGE>
PROSPECTUS SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events affecting the Company or the markets or industries in
which it operates or the future financial performance of the Company. Prospec-
tive investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors identi-
fied in this Prospectus, including the matters set forth under the caption
"Risk Factors," which could cause events or actual results to differ materially
from those indicated by such forward-looking statements. The following summary
is qualified in its entirety by the more detailed information, including "Risk
Factors" and the Consolidated Financial Statements and Notes thereto, appearing
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, the terms "Barbeques Galore" and "Company" include
Barbeques Galore Limited and its consolidated subsidiaries and their respective
operations. Except as otherwise specified, all information in this Prospectus
(i) is adjusted to reflect a 18.223-for-1 reverse share split of all out-
standing Ordinary Shares immediately prior to consummation of the Offering (the
"Reverse Share Split"), (ii) assumes the conversion of all outstanding convert-
ible notes of the Company ("Convertible Notes") into an aggregate of 1,197,926
Ordinary Shares immediately prior to consummation of the Offering and (iii)
assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
Barbeques Galore is the leading specialty retail chain of barbecue and barbecue
accessory stores in Australia and the United States. Barbeques Galore stores
carry a wide assortment of barbecues and related accessories which are dis-
played in an open and inviting store format that emphasizes social activities
and healthy outdoor lifestyles. The Company's stores also carry a comprehensive
line of fireplace products and, in Australia, home heating products, camping
equipment and outdoor furniture. As of July 31, 1997, the Company owned and
operated 32 stores in all six states in Australia and 32 stores (including
three U.S. Navy concession stores) in six states in the United States. In addi-
tion, as of such date, there were 45 licensed stores in Australia and six
franchised stores in the United States, all of which operate under the
"Barbeques Galore" name.
The Company's unique retailing concept differentiates Barbeques Galore from its
competitors by (i) offering an extensive selection of barbecues and related
accessories to suit all consumer lifestyles, preferences and price points, (ii)
showcasing these products at convenient store locations in an exciting shopping
environment that promotes the total barbecuing experience and (iii) providing
exceptional customer service through well-trained sales associates who have in-
depth knowledge of the products and understanding of customer needs. These com-
petitive strengths are enhanced by the Company's barbecue and home heater manu-
facturing operations, which enable the Company to realize higher margins, con-
trol product development and improve inventory flexibility and supply.
The Company's growth strategy is to substantially expand its U.S. store base
and to refurbish existing stores in Australia (through relocating or
remodelling). In the United States, since January 31, 1994, the Company has
grown from 17 to 32 Company-owned stores (including three U.S. Navy concession
stores), representing an 88% increase in the number of owned stores. The Com-
pany currently plans to open approximately 10 new stores in the United States
in 1997, of which five have been opened, four are under construction and one is
in lease negotiation. The Company also currently intends to open 15 to 20 new
stores in the United States in each of 1998 and 1999. In addition, the Company
has initiated a major refurbishment plan for its Australian store base to
enhance store productivity. Since January 31, 1994, 14 stores have been refur-
bished in Australia, resulting in an approximately 45% average increase in
sales through July 1997 for those stores. The Company currently plans to refur-
bish 12 to 15 stores and to open up to six new stores in Australia from 1997
through 1999.
The Company's net sales increased by A$13.6 million to A$148.4 million for the
twelve months ended January 31, 1997 (A$41.0 million in the United States and
A$107.4 million in Australia) from A$134.8 million for the twelve months ended
January 31, 1995 (A$29.1 million in the United States and A$105.7 million in
Australia). For the six-month period ended July 31, 1997, the Company's net
sales increased by A$10.8 million, to A$70.4 million (A$32.5 million in the
United States and A$37.9 million in Australia) from A$59.6 million (A$22.2 mil-
lion in the United States and A$37.4 million in Australia) for the six-month
period ended July 31, 1996. This growth resulted primarily from the opening of
nine new stores and growth in comparable store sales during the periods. The
comparable store sales increase for the six months ended July 31, 1997 was
17.8% in the United States and 6.8% in Australia.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
ADSS OFFERED(1):
By the Company............. 1,900,000 ADSs
By the Selling
Shareholders.............. 450,000 ADSs
TOTAL OFFERING............... 2,350,000 ADSs
ORDINARY SHARES OUTSTANDING
AFTER THE OFFERING(1)(2).... 4,941,652 Ordinary Shares
USE OF PROCEEDS TO THE
COMPANY..................... To repay approximately A$23.5 million in
outstanding debt and for capital expenditures
related to the expansion and refurbishment of
the Company's operations, working capital and
other general corporate purposes. See "Use of
Proceeds."
STOCK OPTIONS GRANTED
CONCURRENTLY WITH THE
OFFERING(3)................. 200,000 Ordinary Shares
DIVIDEND POLICY.............. The Company anticipates that it will not pay
regular dividends on the ADSs in the foreseeable
future. See "Dividend Policy."
PROPOSED NASDAQ NATIONAL
MARKET SYMBOL............... BBQZY
</TABLE>
- -------
(1) Assumes the Underwriters' over-allotment option for up to 352,500 ADSs is
not exercised. See "Underwriting."
(2) Excludes an aggregate of 203,038 Ordinary Shares issuable upon the exercise
of stock options granted to certain executives of the Company in January 1997,
but not exercisable until February 1999, except under certain circumstances.
Also excludes 200,000 Ordinary Shares issuable upon the exercise of stock
options. See "Management--Executive Share Option Plan" and Note (3).
(3) The Company intends to grant under the 1997 Share Option Plan, concurrently
with the Offering, options to purchase an aggregate of 200,000 Ordinary Shares
with an exercise price equal to the initial public offering price set forth on
the cover page of this Prospectus. The stock options will become exercisable in
three equal installments on the third, fourth and fifth anniversaries of the
Offering. See "Management--1997 Share Option Plan."
--------------
Comparable store sales data presented herein for any period consists of sales
in such period by stores which were open during the corresponding period of the
immediately preceding calendar or fiscal year, as applicable. However, sales
for three U.S. Navy concession stores have been excluded from such calculations
as these three concession stores are operated at the Navy's discretion. The
Navy provides the Company space on three Navy bases under an at will arrange-
ment and directly purchases the inventory for resale in two of the three con-
cession stores. The Company owns the inventory at the third concession store
and owns the fixtures installed in all three concession stores.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
SEVEN MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1)
In thousands, except per 1992 1993 1994 1995 1996 1996 1996 1997 1997
share data --------- --------- --------- --------- --------- ---------- ----------- --------- ---------
(US$) (UNAUDITED) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... A$127,298 A$114,973 A$124,635 A$138,057 A$141,691 US$113,027 A$ 92,074 A$ 98,752 US$78,212
Cost of goods sold(2)... 80,785 82,630 84,104 92,290 98,158 78,301 62,789 67,955 53,820
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
Gross profit............ 46,513 32,343 40,531 45,767 43,533 34,726 29,285 30,797 24,392
Selling, general and
administrative
expenses............... 40,185 27,992 35,462 40,058 39,339 31,381 24,328 25,740 20,386
Store pre-opening
costs.................. -- 205 135 64 153 122 114 200 158
Relocation and closure
costs(3)............... -- -- -- -- 875 698 -- 461 365
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
Operating income
(loss)................. 6,328 4,146 4,934 5,645 3,166 2,525 4,843 4,396 3,483
Equity in income of
affiliates, net
of tax................. 449 412 660 963 836 667 709 252 200
Interest expense........ 3,728 2,526 1,999 2,230 2,262 1,804 1,619 1,593 1,262
Other expense
(income)(4)............ 3,747 -- -- -- (2,303) (1,837) (2,303) 1,132 897
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
Income (loss) before
income tax............. (698) 2,032 3,595 4,378 4,043 3,225 6,236 1,923 1,524
Income tax expense
(benefit).............. 229 176 1,278 573 98 78 1,286 366 290
--------- --------- --------- --------- --------- ---------- --------- --------- ---------
Net income (loss)....... A$ (927) A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 US$ 3,147 A$ 4,950 A$ 1,557 US$ 1,234
========= ========= ========= ========= ========= ========== ========= ========= =========
Net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(5).......... A$ (0.22) A$ 0.44 A$ 0.52 A$ 0.83 A$ 0.86 US$ 0.69 A$ 1.08 A$ 0.37 US$ 0.29
========= ========= ========= ========= ========= ========== ========= ========= =========
Pro forma supplemental
net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(s)(6)....... A$ 0.90 US$ 0.72 A$ 0.41 US$ 0.32
========= ========== ========= =========
Weighted average shares
outstanding(5)......... 4,166 4,166 4,481 4,570 4,570 4,570 4,570 4,193 4,192
========= ========= ========= ========= ========= ========== ========= ========= =========
In thousands
BALANCE SHEET DATA:
Working capital......... A$ 15,056 A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 US$ 19,093 A$ 25,139 A$ 22,552 US$17,191
Total assets............ 58,977 55,400 60,538 67,624 66,562 51,432 67,544 67,970 51,814
Total long-term debt.... 12,314 10,223 16,988 17,690 15,819 12,223 11,631 34,276 26,129
Shareholders' equity.... 19,284 21,316 24,385 26,326 27,817 21,494 30,349 10,165 7,749
SELECTED U.S. OPERATING
DATA:
Stores open at period-
end.................... 17 17 21 21 19 25 25
Average net sales per
store
(in thousands)(7)...... A$ 1,389 A$ 1,630 A$ 1,572 US$ 1,254 A$ 862 A$ 822 US$ 651
Comparable store sales
increase(8)........... -- 21.2% 10.0% 10.0% 10.0% 4.1% 4.1%
Selling square feet
(in thousands)......... 49.3 51.3 59.5 59.5 55.7 72.7 72.7
Sales per selling square
foot................... A$ 437 A$ 519 A$ 489 US$ 390 A$ 279 A$ 251 US$ 199
SELECTED AUSTRALIAN
OPERATING DATA:
Stores open at period-
end.................... 32 31 31 31 32 32 32
Average net sales per
store
(in thousands)(7)...... A$ 1,719 A$ 1,844 A$ 2,081 US$ 1,660 A$ 1,446 A$ 1,658 US$ 1,313
Comparable store
sales increase(9)...... -- 4.3% 8.1% 8.1% 6.0% 10.6% 10.6%
Selling square feet
(in thousands)......... 275.3 273.9 279.9 279.9 159.2 164.0 164.0
Sales per selling square
foot................... A$ 206 A$ 216 A$ 230 US$ 183 A$ 281 A$ 312 US$ 247
</TABLE>
8
<PAGE>
(1) As of April 9, 1997, the Company changed its fiscal year end from June 30
to January 31 (effective January 31, 1997).
(2) Cost of goods sold includes the cost of merchandise sold during the
periods, distribution and store-level occupancy costs.
(3) Includes A$262,000 incurred during the year ended June 30, 1996 in connec-
tion with the restructuring of the Company's Australian licensing division,
A$613,000 incurred in June 1996 in connection with the relocation of the
Company's barbecue manufacturing operations and a A$369,000 provision accrued
in January 1997 in connection with the planned relocation of the Company's
enamelling facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Overview."
(4) Includes a A$3.7 million loss related to the Company's divestment of its
Optics business (which was discontinued), a A$2.3 million gain related to the
Company's sale of its equity interest in GLG New Zealand and a A$1.1 million
charge incurred in December 1996 in connection with the Capital Reduction and
delisting. See "Certain Transactions--Recent Delisting Transaction."
(5) Based on the weighted average number of Ordinary Shares outstanding after
giving effect to (i) the Reverse Share Split and (ii) 120,322 of net Ordinary
Shares issuable upon the exercise of stock options outstanding under the Execu-
tive Share Option Plan calculated using the treasury stock method. Net income
(loss) per ordinary share and ordinary share equivalent and weighted average
shares outstanding reflect the Reverse Share Split for all periods presented.
The outstanding Convertible Notes were not taken into account in the calcula-
tion of earnings per share, as they were antidilutive.
(6) The pro forma supplemental net income (loss) per Ordinary Share and Ordi-
nary Share equivalent are computed by assuming proceeds from the Offering,
which will be utilized to repay debt subsequent to the Offering, were utilized
to repay the debt at the beginning of the applicable period to which earnings
(loss) per share relates. The weighted average number of Ordinary Shares out-
standing is increased for the number of Ordinary Shares issued to enable repay-
ment of such debt.
(7) For stores open at beginning of period indicated.
(8) The number of comparable stores used to compute such percentages was 17 for
each of fiscal 1995 and 1996 and 16 and 19 for the seven-month periods ended
January 31, 1996 and 1997, respectively.
(9) The number of comparable stores used to compute such percentages was 32 and
31 for fiscal 1995 and 1996, respectively, and 31 and 33 for the seven-month
periods ended January 31, 1996 and 1997, respectively.
9
<PAGE>
UNAUDITED SUMMARY ADDITIONAL CONSOLIDATED FINANCIAL DATA
As of April 9, 1997, the Company changed its fiscal year end from June 30 to
January 31. The following summary additional consolidated financial data has
been restated to conform the financial presentation to a January 31 fiscal year
end, and are qualified by reference to and should be read in conjunction with
"Unaudited Selected Additional Consolidated Financial Data" and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto
included elsewhere in this Prospectus. Management believes that the data pre-
sented below provide a more meaningful basis of comparison between prospective
and historical reporting periods, as the Company will continue to report finan-
cial information in the future on the basis of its current January 31 fiscal
year end. All summary additional consolidated financial data for the six-month
and twelve-month periods presented below is unaudited but in the opinion of
management, has been prepared on the same basis as the audited consolidated
financial statements of the Company and reflects all adjustments necessary for
a fair presentation of such data. The summary additional unaudited financial
data as of and for the twelve months ended January 31, 1995, 1996 and 1997 has
been derived from the unaudited consolidated financial statements of the Com-
pany as of such dates and for the periods then ended, to which KPMG has
reported that it has applied limited procedures in accordance with professional
standards for a review of such information. These unaudited consolidated finan-
cial statements and the review report thereon are included in the Registration
Statement of which this Prospectus is a part. Operating results for the six
months ended July 31, 1997 are not necessarily indicative of the results that
may be expected for the entire year.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
TWELVE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
In thousands, except per 1995 1996 1997 1997 1996 1997 1997
share data --------- --------- --------- ---------- --------- --------- ---------
(US$) (US$)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... A$134,794 A$138,877 A$148,369 US$117,137 A$ 59,620 A$ 70,394 US$53,612
Cost of goods sold(1)... 90,477 94,899 103,324 81,574 43,086 48,420 36,877
--------- --------- --------- ---------- --------- --------- ---------
Gross profit............ 44,317 43,978 45,045 35,563 16,534 21,974 16,735
Selling, general and
administrative
expenses............... 37,081 38,921 40,751 32,173 18,312 21,728 16,548
Store pre-opening
costs.................. 109 178 239 189 64 209 159
Relocation and closure
costs(2)............... -- -- 1,336 1,055 875 -- --
--------- --------- --------- ---------- --------- --------- ---------
Operating income
(loss)................. 7,127 4,879 2,719 2,146 (2,717) 37 28
Equity in income of
affiliates, net of
tax.................... 696 1,205 379 299 167 188 143
Interest expense........ 2,005 2,428 2,236 1,765 848 1,760 1,340
Other expense
(income)(3)............ -- (2,303) 1,132 894 -- -- --
--------- --------- --------- ---------- --------- --------- ---------
Income (loss) before
income tax............. 5,818 5,959 (270) (214) (3,398) (1,535) (1,169)
Income tax expense
(benefit).............. 1,478 496 (822) (649) (1,767) (649) (494)
--------- --------- --------- ---------- --------- --------- ---------
Net income (loss)....... A$ 4,340 A$ 5,463 A$ 552 US$ 435 A$ (1,631) A$ (886) US$ (675)
========= ========= ========= ========== ========= ========= =========
Net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(4).......... A$ 0.95 A$ 1.19 A$ 0.13 US$ 0.10 A$ (0.36) A$ (0.45) US$ (0.34)
========= ========= ========= ========== ========= ========= =========
Pro forma supplemental
net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(5).......... A$ 0.30 US$ 0.23 A$ (0.03) US$ (0.02)
========= ========== ========= =========
Weighted average shares
outstanding(4)......... 4,570 4,570 4,348 4,348 4,570 1,963 1,963
========= ========= ========= ========== ========= ========= =========
In thousands
BALANCE SHEET DATA:
Working capital......... A$ 21,087 A$ 25,139 A$ 22,552 US$ 17,191 A$ 24,123 A$ 21,563 US$16,125
Total assets............ 61,945 67,544 67,970 51,814 67,641 78,764 58,900
Total long-term debt.... 10,563 11,631 34,276 26,129 15,922 35,089 26,239
Shareholders' equity.... 26,686 30,349 10,165 7,749 26,924 8,960 6,700
SELECTED U.S. OPERATING
DATA:
Stores open at period-
end.................... 16 19 25 25 21 29 29
Average net sales per
store (in
thousands)(6).......... A$ 1,457 A$ 1,655 A$ 1,579 US$ 1,247 A$ 905 A$ 1,016 US$ 774
Comparable store sales
increase(7)............ 16.5% 14.2% 6.5% 6.5% 6.4% 17.8% 17.8%
Selling square feet (in
thousands)............. 51.2 54.8 70.2 70.2 61.4 86.9 86.9
Sales per selling square
foot................... A$ 456 A$ 517 A$ 469 US$ 370 A$ 291 A$ 251 US$ 191
SELECTED AUSTRALIAN
OPERATING DATA:
Stores open at period-
end.................... 32 32 32 32 31 32 32
Average net sales per
store (in
thousands)(6).......... A$ 1,835 A$ 1,924 A$ 2,222 US$ 1,754 A$ 731 A$ 796 US$ 606
Comparable store sales
increase(8)............ 8.2% 1.4% 11.6% 11.6% 9.8% 6.8% 6.8%
Selling square feet (in
thousands)............. 276.2 267.1 276.6 276.6 139.9 144.2 144.2
Sales per selling square
foot................... A$ 219 A$ 231 A$ 256 US$ 202 A$ 167 A$ 177 US$ 135
</TABLE>
10
<PAGE>
(1) Cost of goods sold includes the cost of merchandise sold during the peri-
ods, distribution and store-level occupancy costs.
(2) Includes A$354,000 (of which A$262,000 was incurred during the year ended
June 30, 1996 and the remainder was accrued in January 1997) in connection with
the restructuring of the Company's Australian licensing division, A$613,000
incurred in June 1996 in connection with the relocation of the Company's bar-
becue manufacturing operations and a A$369,000 provision accrued in January
1997 in connection with the planned relocation of the Company's enamelling
facilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation--Overview."
(3) Includes a A$2.3 million gain related to the Company's sale of its equity
interest in GLG New Zealand and A$1.1 million charge incurred in December 1996
in connection with the Capital Reduction and delisting. See "Certain Transac-
tions--Recent Delisting Transaction."
(4) Based on the weighted average number of Ordinary Shares outstanding after
giving effect to (i) the Reverse Share Split and (ii) 120,332 of net Ordinary
Shares issuable upon the exercise of stock options outstanding under the Execu-
tive Share Option Plan calculated using the treasury stock method. Net income
(loss) per Ordinary Share and Ordinary Share equivalent and weighted average
shares outstanding reflect the Reverse Share Split for all periods presented.
The outstanding Convertible Notes were not taken into account in the calcula-
tion of earnings per share, as they were antidilutive.
(5) The pro forma supplemental net income (loss) per Ordinary Share and Ordi-
nary Share equivalent are computed by assuming proceeds from the Offering,
which will be utilized to repay debt subsequent to the Offering, were utilized
to repay the debt at the beginning of the applicable period to which earnings
(loss) per share relates. The weighted average number of Ordinary Shares out-
standing is increased for the number of Ordinary Shares issued to enable repay-
ment of such debt.
(6) For stores open at beginning of period indicated.
(7) The number of comparable stores used to compute such percentages was 14, 16
and 19 for the twelve-month periods ended January 31, 1995, 1996 and 1997,
respectively, and 17 and 21 for the six-month periods ended July 31, 1996 and
1997, respectively.
(8) The number of comparable stores used to compute such percentages was 32, 31
and 33 for the twelve-month periods ended January 31, 1995, 1996 and 1997,
respectively, and 31 and 32 for the six-month periods ended July 31, 1996 and
1997.
11
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. Prospective investors should carefully consider the factors set
forth below, as well as other information contained in this Prospectus, in
evaluating an investment in the Ordinary Shares and the ADSs.
IMPLEMENTATION OF GROWTH STRATEGY
The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its Company-owned store expansion program in
the United States and its store refurbishment plan in Australia. Pursuant to
the U.S. store expansion program, the Company currently plans to open approxi-
mately 10 new stores in 1997, of which five have been opened, four are under
construction and one is in lease negotiation. The Company also currently
intends to open 15 to 20 new stores in the United States in each of 1998 and
1999. The Company expects to incur capital expenditures relating to this pro-
gram in the United States of approximately US$1.8 million in 1997 and approxi-
mately US$2.5 million to US$3.2 million in each of 1998 and 1999. Pursuant to
the Company's Australian store refurbishment program, in 1997, the Company
plans to remodel five existing stores, open one new store, relocate one store
and close one store. The Company further intends to refurbish five stores and
open three new stores in 1998, and refurbish two stores and open two new stores
in 1999. The Company expects to incur capital expenditures relating to this
program in Australia of approximately A$2.5 million in 1997 and approximately
A$2.0 million to A$3.0 million in each of 1998 and 1999. The proposed expansion
is substantially more rapid than the Company's historical growth. The success
of these store expansion and refurbishment efforts will be dependent upon,
among other things, the identification of suitable markets and sites for new
stores, negotiation of leases on acceptable terms, construction or renovation
of sites, receipt of all necessary permits and governmental approvals therefor,
and, if necessary, obtaining additional financing for those sites. In addition,
the Company must be able to hire, train and retain competent managers and per-
sonnel and manage the systems and operational components of its growth. There
can be no assurance that the Company will be able to locate suitable store
sites or enter into suitable lease agreements. In addition, there can be no
assurance that, as the Company opens new stores in existing markets, these new
stores will not have an adverse effect on comparable store net sales at
existing stores in these markets. The failure of the Company to open new stores
or relocate or remodel existing stores on a timely basis, obtain acceptance in
markets in which it currently has limited or no presence, attract qualified
management and personnel or appropriately adjust operational systems and proce-
dures would adversely affect the Company's future operating results. See "Busi-
ness--Growth Strategy."
The success of the Company's growth strategy may also depend upon factors
beyond its immediate control. The Company has retained outside real estate con-
sultants to assist in site selection and lease negotiations, and may depend, to
an increasing extent, on the services of such consultants and other real estate
experts as it accelerates the rate of new store expansion. The failure of any
such consultants or experts to render needed services on a timely basis could
adversely affect the Company's new store expansion. Similarly, changes in
national, regional or local real estate and market conditions could limit the
ability of the Company to expand into target markets or sites.
As part of its growth strategy, the Company intends to open stores in new mar-
kets where it will not initially benefit from knowledge of local market condi-
tions, pre-existing retail brand name recognition or marketing, advertising,
distribution and regional management efficiencies made possible by its store
networks in existing markets. Expansion into new markets may present operating
and marketing challenges that are different from those encountered in the past
by the Company in its existing markets. As a result of its expansion program
and its entry into new markets, primarily in the United States, and its refur-
bishment program in Australia, the Company has experienced, and expects to con-
tinue to experience, an increase in store pre-opening costs and refurbishment-
related expenses. There can be no assurance that the Company will anticipate
all of the challenges and changing demands that its expansion will impose on
its management or operations, and the failure to adapt thereto would adversely
affect the Company's implementation of its growth strategy.
The Company has, on several past occasions, withdrawn from new businesses in
which it encountered unanticipated factors. For example, from 1987 to 1994, the
Company owned and operated Pool Patio & Things, a chain of outdoor furniture
stores in Northern California. After concluding that Pool Patio & Things was
incompatible with its U.S. Barbeques Galore store operations, the Company dis-
posed of its interests in the business in a series of transactions from 1990 to
1994. Under a joint venture with a subsidiary of Grand Metropolitan plc, the
Company opened a Barbeques Galore store in London in 1986, which was subse-
quently closed in 1987 due to lower than expected consumer demand and sales
results. In addition, between August 1988 and June 1993, the Company operated
Optics Express Pty. Ltd. ("Optics"), a company which devel-
12
<PAGE>
oped a chain of optical superstores. In part because of intense competition
from participants in the industry with greater financial resources, the Com-
pany sold Optics at a substantial loss in June 1993 to a major competitor in
that industry. Moreover, if the Company determined to, or was required to,
close a Barbecues Galore store, the Company would attempt to sublet the
vacated store space in order to cover ongoing lease costs. Even if the Company
were able to sublet such store, the Company may incur significant costs in
writing off leasehold improvements.
In addition, the Company's proposed expansion plans will result in increased
demand on the Company's managerial, operational and administrative resources.
As a result of the foregoing, there can be no assurance that the Company will
be able to successfully implement its growth strategies, continue to open new
stores or maintain or increase its current growth levels. The Company's
failure to achieve its expansion plan could have a material adverse effect on
its future business, operating results and financial condition. See "--Manage-
ment of Operational Changes" and "--Reliance on Systems."
EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS
The success of the Company's operations depends upon a number of factors
related to consumer spending, including future economic conditions affecting
disposable consumer income such as employment, business conditions, interest
rates and taxation. If existing economic conditions were to deteriorate, con-
sumer spending may decline, thereby adversely affecting the Company's business
and results of operations. Such effects may be exacerbated by the significant
current regional concentration of the Company's business in the Australian and
Southern California markets.
The success of the Company depends on its ability to anticipate and respond to
changing merchandise trends and consumer demands in a timely manner. The Com-
pany believes it has benefitted from a lifestyle trend toward consumers
spending more quality time together in outdoor family gatherings and social
activities. Any change in such trend could adversely affect consumer interest
in the Company's major product lines. Moreover, the Company's products must
appeal to a broad cross-section of consumers whose preferences (as to product
features such as colors, styles, finishes and fuel types) cannot always be
predicted with certainty and may change between sales seasons. If the Company
misjudges either the market for its merchandise or its customers' purchasing
habits, it may experience a material decline in sales or be required to sell
inventory at reduced margins. The Company could also suffer a loss of customer
goodwill if its manufacturing operations or stores do not adhere to its
quality control or service procedures or otherwise fail to ensure satisfactory
quality of the Company's products. These outcomes may have a material adverse
effect on the Company's business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
MANAGEMENT OF OPERATIONAL CHANGES
The Company has identified a number of areas for improvement in its operations
which will have a significant impact on the implementation of its growth
strategy. The Company has, in recent years, replaced or upgraded its manage-
ment information systems and integrated its central inventory management sys-
tems with point-of-sale terminals in Barbeques Galore stores, and currently
plans to introduce automated replenishment of store inventory in Australia in
the near term. The total expected capital expenditure for such project is not
expected to be significant (less than A$50,000). In the United States, the
Company intends to transfer its general ledger and accounts payable functions
from its existing computer system to its new and more powerful system in the
near future. The Company also plans to relocate its enamelling operations
(which are currently located 10 miles away) to the same facilities as its bar-
becue and home heater manufacturing operations adjacent to its Australian
headquarters, add an in-line powder coating operation and rearrange the assem-
bly, warehouse and Australian distribution operations to further improve its
production flow, inventory control and distribution management. These changes
are currently scheduled to occur in 1998. The planned relocation of the
Company's enamelling operations and related changes will cost approximately
A$454,000 (of which A$369,000 has already been accrued), will require addi-
tional capital expenditures of approximately A$2.2 million and will require
the Company to obtain a number of building, environmental and other govern-
mental permits. In addition, as the Company expands into new regions or accel-
erates the rate of its U.S. store expansion, the Company may need additional
warehouse capacity. In order to meet such needs, the Company intends to secure
another distribution center or expand its current warehouse facilities in the
United States or utilize public warehousing space, in each case depending on
availability and cost at such time. There can be no assurance as to whether or
when the Company will be able to effect its systems upgrades, enamelling plant
relocation plans, any expansion or replacement of distribution facilities, or
any other necessary operational changes that may arise, or that the Company
will not incur cost overruns or disruptions in its operations in connection
therewith. The failure of the Company to effect these and any other necessary
operational changes on a timely basis would adversely affect the ability of
the Company to implement its growth strategy and, therefore, its business,
financial condition and operating results. See "Business--Manufacturing,"
"Business--Distribution" and "Business--Management Information Systems."
13
<PAGE>
COMPETITION
The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and Austra-
lia. The Company's retail operations compete against a wide variety of retail-
ers, including mass merchandisers, discount or outlet stores, department
stores, hardware stores, home improvement centers, specialty patio, fireplace
or cooking stores, warehouse clubs and mail order companies. The Company's man-
ufacturing and wholesale operations compete with many other manufacturers and
distributors throughout the world, including high-volume manufacturers of bar-
becues and home heaters. Barbeques Galore competes for retail customers pri-
marily based on its broad assortment of competitively priced, quality products
(including proprietary and exclusive products), convenience, customer service
and the attractive presentation of merchandise within its stores. Many of the
Company's competitors have greater financial, marketing, distribution and other
resources than the Company, and particularly in the United States, may have
greater name recognition than the Company. Furthermore, the lack of significant
barriers to entry into the Company's segment of the retail industry may also
result in new competition in the future.
SEASONALITY; WEATHER; FLUCTUATIONS IN RESULTS
The Company's business is subject to substantial seasonal variations which have
caused, and are expected to continue to cause, its quarterly results of opera-
tions to fluctuate significantly. Historically, the Company has realized a
major portion of its net sales and a substantial portion of its net income for
the year during summer months and holiday seasons when consumers are more
likely to purchase barbecue products, camping equipment and outdoor furniture.
In anticipation of its peak selling seasons (late spring and early summer), the
Company substantially increases its inventory levels and hires a significant
number of part-time and temporary employees. In non-peak periods, such as late
winter and early fall, the Company has regularly experienced monthly losses.
Since the Company has historically derived a greater portion of its sales from
its larger Australian store base, these seasonal trends have generally resulted
in increased sales and income during the Australian summer months of November
through January and substantially lower-than-average sales and income during
the months of February, March, May and July. The Company believes this is the
general pattern associated with its segment of the Australian retail industry
and expects this pattern will continue in the future. Partially offsetting the
effects of seasonality, the Company operates in both the Southern and Northern
hemispheres, which have opposite seasons, and offers fireplace products and (in
Australia) home heaters in the fall and winter months. However, sales of any of
the Company's major product lines (in particular, home heaters) may vary widely
in peak seasons depending on, among other things, prevailing weather patterns,
local climate conditions, actions by competitors and shifts in timing of holi-
days. The Company's quarterly and annual results of operations may also fluc-
tuate significantly as a result of a variety of other factors, including the
timing of new store openings, releases of new products and changes in merchan-
dise mix throughout the year. The Company has in the past experienced quarterly
losses, particularly in its fiscal first quarter, and expects that it will
experience such losses in the future. Because of these fluctuations in oper-
ating results, the results of operations in any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year or any
future quarter. If for any reason the Company's sales or gross margins during
peak seasons or periods were substantially below expectations, the Company's
quarterly and annual results would be adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RELIANCE ON SYSTEMS
The Company relies upon its existing management information systems in oper-
ating and monitoring all major aspects of the Company's business, including
sales, gross margins, warehousing, distribution, purchasing, inventory control,
financial, accounting and human resources. The Company's reliance upon such
systems will likely increase upon the anticipated introduction of automated
store replenishment in Australia. Any disruption in the operation of the
Company's management information systems, or the Company's failure to continue
to upgrade, integrate or expend capital on such systems as its business
expands, could have a material adverse effect upon the Company's business,
operating results and financial condition. Like many computer systems, the
Company's Wang computer system in Australia uses two digit data fields which
recognize dates using the assumption that the first two digits are "19" (i.e.,
the number 97 is recognized as the year 1997). Therefore, in the Australian
system, the Company's date critical functions relating to the year 2000 and
beyond, such as sales, distribution, purchasing, inventory control, financial
and human resource systems, may be adversely affected unless changes are made
to this computer system. The Company expects to resolve these issues in a
timely manner and is currently engaged in a review of all existing computer
systems in order to implement the required changes, which may entail replacing
the existing system. The Company expects that upgrades to its computer systems
with respect to the year 2000 problem will require capital expenditures of
approximately A$1.0 million. However, no assurance can be given that these
issues can be resolved in a cost-effective or timely manner or that the Company
will not incur significant expense in resolving these issues. The Company's
newly installed computer system in the United States has been designed to avoid
the occurrence of such problems with the year 2000. See "Business--Management
Information Systems."
14
<PAGE>
DEPENDENCE ON KEY EMPLOYEES
The Company's success is largely dependent on the efforts and abilities of its
executive officers, particularly, Sam Linz, Chairman of the Board, Robert
Gavshon, Deputy Chairman of the Board, John Price, Head of Research and Product
Development and Director, and Sydney Selati, President of The Galore Group
(USA), Inc. and Director. These individuals have an average of 15 years of
experience with the Company and have chief responsibility for the development
of the Company's current business and growth strategies. The Company does not
have employment contracts with any of its executive officers. The loss of the
services of these individuals or other key employees could have a material
adverse effect on the Company's business, operating results and financial con-
dition. The Company's success is also dependent upon its ability to continue to
attract and retain qualified employees to meet the Company's needs for its new
store expansion program in the United States and its store refurbishment plans
in Australia. In August 1997, the Company appointed a chief operating officer
for its U.S. operations to manage daily operations in the United States, per-
mitting Mr. Selati to concentrate on the Company's U.S. growth strategy. See
"Business--Growth Strategy" and "Management."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; DEPENDENCE ON SIGNIFICANT
VENDORS AND SUPPLIERS
Barbeques Galore, with its headquarters, manufacturing, enamelling, wholesale
and non-U.S. store operations in Australia, transacts a majority of its busi-
ness in Australia and obtains a significant portion of its merchandise, parts
and raw materials from China, Taiwan, Indonesia, Thailand, Italy and other mar-
kets outside of the United States and Australia. There are risks inherent in
doing business in international markets, including tariffs, customs, duties and
other trade barriers, difficulties in staffing and managing foreign operations,
political instability, expropriation, nationalization and other political
risks, foreign exchange controls, technology export and import restrictions or
prohibitions, delays from customs brokers or government agencies, seasonal
reductions in business activity, subjection to multiple taxation regimes and
potentially adverse tax consequences, any of which could materially adversely
affect the Company's business, operating results and financial condition.
The Company purchases certain of its finished inventory and manufacturing parts
and all of its raw materials from numerous vendors and suppliers and generally
has no long-term purchase contracts with any vendor or supplier. During the
twelve months ended January 31, 1997, the Company purchased inventory from over
400 vendors in the United States, Australia and the Far East. In such period,
approximately 25% of the Company's merchandise purchases were obtained from the
Company's ten largest vendors. Although no vendor accounted for more than 5% of
the Company's merchandise purchases in such period (other than Horan's Steel,
an Australian steel distributor, and Bromic), the Company considers certain
barbecue brands to be significant to its business, especially in the United
States. Also during such period, the Company purchased barbecue and home heater
parts from over 50 suppliers in Asia, Australia and North America. Horan's
Steel and Bromic supplied the Company with approximately 19% and 21%, respec-
tively, of the Company's factory parts and raw material purchases, and approxi-
mately 73% of the Company's factory parts and raw material purchases were
obtained from the Company's ten largest suppliers. The Company's results of
operations could be adversely affected by a disruption in purchases from any of
these key vendors or suppliers or from volatility in the prices of such parts
or raw materials, especially the price of steel, which has fluctuated in the
past. In addition, some of the Company's key suppliers currently provide the
Company with certain incentives, such as volume and trade discounts as well as
other purchasing incentives. A reduction or discontinuance of these incentives
could have an adverse effect on the Company. Although the Company believes that
its relationships with its vendors and suppliers are good, any vendor or sup-
plier could discontinue selling to the Company at any time.
PRODUCT LIABILITY AND GOVERNMENTAL AND OTHER REGULATION
Many of the Company's products use gas and flame and, consequently, are subject
to regulation by authorities in both the United States and Australia in order
to protect consumers, property and the environment. For example, the Company's
products and the personal use thereof are subject to regulations relating to,
among other things, the use of fire in certain locations (particularly restric-
tions relating to the availability or frequency of use of wood heating in homes
and barbecues in apartments), restrictions on the sale or use of products that
enhance burning potential such as lighter fluid, restrictions on the use of gas
in specified locations (particularly restrictions relating to the use of gas
containers in confined spaces) and restrictions on the use of wood burning
heaters. Compliance with such regulations has not in the past had, and is not
anticipated to have, a material adverse effect on the Company's business, oper-
ating results and financial condition. Nonetheless, such regulations have had,
and can be expected to have, an increasing influence on product claims, manu-
facturing, contents, packaging and heater usage. In addition, failure of a
product could give rise to product liability claims if customers, employees or
third parties are injured or any of their property is damaged while using a
Company product. Such injury could be caused, for example, by a gas valve mal-
function, gas leak or an unanticipated flame-up resulting in injury to
15
<PAGE>
persons and/or property. Even if such circumstances were beyond the Company's
control, the Company's business, operating results and financial condition
could be materially adversely affected. In the event of such an occurrence, the
Company could incur substantial litigation expense, receive adverse publicity,
suffer a loss of sales or all or any of the foregoing. Although the Company
maintains liability insurance in both Australia and the United States, there
can be no assurance that such insurance will provide sufficient coverage in any
particular case. In Australia, the limit of the Company's product liability
coverage is A$20 million. In the United States, the Company's U.S. operating
subsidiary is covered by a policy having general liability coverage limited at
US$12 million and third party liability coverage limited at US$11 million.
There is no assurance that certain jurisdictions in which the Company operates
will not impose additional restrictions on the sale or use of the Company's
products.
In addition, the Company's barbecue and home heater manufacturing and enamel-
ling operations are subject to regulations governing product safety and qual-
ity, the discharge of materials hazardous to the environment, water usage,
workplace safety and labor relations. The Company's distribution facilities are
also subject to workplace safety and labor relations regulations. The Company
believes that it is in substantial compliance with such regulations. The sale
of certain products by the Company may result in technical violations of cer-
tain of the Company's leases. These or other regulations and restrictions could
have a material adverse effect on the Company's business, operating results or
financial condition. See "Business--Properties" and "Business--Governmental
Regulation."
UNCERTAINTIES REGARDING MANUFACTURING AND DISTRIBUTION OF MERCHANDISE
The Company manufactures a substantial portion of the barbecues and home
heaters sold in its stores and distributes merchandise to Barbeques Galore
stores primarily from its distribution centers located at its headquarters in
Australia and Irvine, California. Throughout the manufacturing process, the
Company utilizes heavy machinery and equipment to produce and assemble barbe-
cues and home heaters from parts and raw materials supplied from numerous third
party suppliers. In distributing merchandise, the Company relies upon third
party sea carriers to ship its manufactured products from Australia to the
United States, as well as third party surface freight carriers to transport all
its merchandise from its distribution centers and warehouses to stores. Accord-
ingly, the Company is subject to numerous risks associated with the manufac-
turing and distribution of its merchandise, including supply interruptions,
mechanical risks, labor stoppages or strikes, inclement weather, import regula-
tion, changes in fuel prices, changes in the prices of parts and raw materials,
economic dislocations and geopolitical trends. In addition, the Company
believes that, while its distribution facilities are sufficient to meet
Barbeques Galore's current needs, the Company may need another distribution
center or larger facilities in the United States or Australia to support the
further growth and expansion of stores. See "--Product Liability and Govern-
mental and Other Regulation," "Business--Manufacturing" and "Business--Distri-
bution."
RISKS RELATED TO FRANCHISED AND LICENSED STORES
As of July 31, 1997, there were 45 licensed stores in Australia and six
franchised stores in the United States, all of which are operated under the
"Barbeques Galore" name by independent licensees or franchisees who purchase
proprietary and other store products, and receive support services, from the
Company. The licensees and franchisees operate such stores pursuant to agree-
ments which typically permit licensees and franchisees to assign the agreements
to their immediate family and provide the licensees and franchisees with exclu-
sive geographical sales territories. The Company monitors its licensed and
franchised stores to assure their conformity to Barbeques Galore's standards
and image and requires the licensees and franchisees to comply with Barbeques
Galore's merchandising and advertising guidelines. Although the Company
believes that its licensees and franchisees are presently in substantial com-
pliance with Company guidelines and that its license and franchise arrangements
have not been problematic in any material respect in the past, serious or pro-
tracted failures by licensees or franchisees to adhere to Company standards
could adversely affect customer loyalty and diminish the Company's brand name
or reputation for quality products and services, and could require the Company
to devote significant management attention and resources to enforcing its
rights under such agreements. Conversely, if the Company fails to provide ade-
quate support services or otherwise breaches its contractual obligations to any
licensee or franchisee, such failure or breach could result in termination of,
or litigation relating to, the relevant licensing or franchise agreement and
the loss of fees and sales revenue thereunder. The licensing agreements in Aus-
tralia are terminable at will (absent fraud) by the licensees only, generally
upon sixty days' notice. See "Business--Licensing and Franchising."
CURRENCY FLUCTUATIONS
The Company intends to publish its consolidated financial statements in Austra-
lian dollars, but a substantial portion of the Company's revenues and expenses
are denominated in U.S. dollars and, to a lesser extent, other foreign curren-
cies. Accord-
16
<PAGE>
ingly, the Company is subject to risks of currency exchange to the extent of
currency fluctuations between the Australian dollar and the U.S. dollar or
other currencies in which the Company transacts its business. This currency
imbalance has resulted in, and may continue to result in, foreign currency
transaction gains and losses. In the past, the Company's Australian operations
have hedged a major portion of its imports against exchange rate fluctuations
with respect to the Australian dollar. However, in its U.S. operations, the
Company has not, and it currently does not, actively hedge against exchange
rate fluctuations, although it may elect to do so in the future. Accordingly,
changes in exchange rates may have a material adverse effect on the Company's
net sales, cost of goods sold, gross margin and net income, any of which alone
or in the aggregate may in turn have a material adverse effect on the Company's
business, operating results and financial condition. Such currency issues
could, thus, affect the market price for the ADSs. Although the Company does
not anticipate paying any regular cash dividends on the Ordinary Shares or the
ADSs in the foreseeable future, the above exchange rate fluctuations would
affect the conversion into U.S. dollars (for payment to holders of ADSs) by the
Depositary of any cash dividends paid in Australian dollars on the Ordinary
Shares represented by the ADSs. See "Exchange Rates," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Description
of American Depositary Receipts."
CONTROL OF THE COMPANY
Immediately prior to the Offering, Messrs. Sam Linz, Robert Gavshon, Sydney
Selati and John Price will beneficially own 42.5%, 7.3%, 4.8% and 2.4%, respec-
tively, of the outstanding Ordinary Shares of the Company (assuming conversion
of the Convertible Notes). Immediately after giving effect to the Offering,
Messrs. Linz, Gavshon, Selati and Price will beneficially own 26.2%, 4.5%, 3.0%
and 1.5%, respectively, of the outstanding Ordinary Shares of the Company. If
these individuals as a group were to vote in the same manner on any matter
requiring approval of a majority of the outstanding Ordinary Shares of the Com-
pany, such shareholders would likely control the outcome of such vote. Accord-
ingly, these shareholders may be able to control the election of the Company's
directors and the outcome of corporate actions requiring shareholder approval,
such as mergers and acquisitions, regardless of how many other shareholders of
the Company may vote. From time to time, the Company has entered into transac-
tions with certain of these shareholders or with companies controlled by them.
The Company believes that these transactions were completed on terms at least
as favorable to the Company as could have been obtained from unaffiliated third
parties. Such transactions and any future transactions between the Company and
its directors, executive officers and other affiliates must be approved by a
majority of the Company's disinterested directors. See "Certain Transactions,"
"Principal Shareholders," "Selling Shareholders" and "Description of Ordinary
Shares" and Note 16 to the Consolidated Financial Statements.
RESTRICTIONS ON FOREIGN OWNERSHIP; ANTITAKEOVER RESTRICTIONS
Under Australian law, foreign persons are prohibited from acquiring more than a
limited percentage of the shares in an Australian company without approval from
the Australian Treasurer or in certain other limited circumstances. These limi-
tations are set forth in the Australian Foreign Acquisitions and Takeovers Act
(the "Takeovers Act"). Under the Takeovers Act, as currently in effect, any
foreign person, together with associates, is prohibited from acquiring 15% or
more of the outstanding shares of the Company. In addition, if a foreign person
acquires shares in the Company and as a result the total holdings of all for-
eign persons and their associates exceeds 40% in the aggregate without the
approval of the Australian Treasurer, then the Treasurer may make an order
requiring the acquiror to dispose of those shares within a specified time. The
Company has been advised by its Australian counsel, Freehill, Hollingdale &
Page, that under current foreign investment policy, however, it is unlikely
that the Treasurer would make such an order where the level of foreign owner-
ship exceeds 40% in the ordinary course of trading, unless the Treasurer finds
that the acquisition is contrary to the national interest. The same rule
applies if the total holdings of all foreign persons and their associates
already exceeds 40% and a foreign person (or its associate) acquires any fur-
ther shares, including in the course of trading in the secondary market of the
ADSs. If all of the ADSs offered hereby are acquired by foreign persons or
their associates, then the level of foreign ownership of the Company's equity
securities will be approximately 51.6% (or approximately 58.3% if the Under-
writers' over-allotment option is exercised in full). The level of foreign own-
ership could also increase in the future if existing Australian investors
decide to sell their shares into the U.S. market or if the Company were to sell
additional Ordinary Shares or ADSs in the future. The Company has additionally
provided that all stock options outstanding under the Company's Executive Share
Option Plan at such time as the Company becomes subject to a takeover bid pur-
suant to which the offeror acquires at least thirty percent (30%) of the out-
standing Ordinary Shares of the Company shall become immediately exercisable
for a period of up to 120 days, measured from the date the Board notifies the
optionee of the takeover bid. Similarly, the Company has provided that all
stock options outstanding under the Company's 1997 Share Option Plan at such
time as the Company is acquired by merger or asset sale pursuant to which such
stock options are not assumed or replaced by the successor corporation shall
17
<PAGE>
become immediately exercisable for a period of one (1) year (or until the expi-
ration of the stock option term, if earlier). There are 203,038 Ordinary Shares
underlying stock options outstanding pursuant to the Executive Share Option
Plan, which, barring acceleration, will become exercisable on February 1, 1999
and 200,000 Ordinary Shares underlying stock options to be granted concurrently
with the Offering under the 1997 Share Option Plan, which, barring accelera-
tion, will become exercisable according to the terms of the 1997 Share Option
Plan. Such investment restrictions and dilutive acceleration events could have
a material adverse effect on the Company's ability to raise capital as needed
and could make more difficult or render impossible attempts by certain entities
(especially foreign entities, in the case of the Takeovers Act) to acquire the
Company, including attempts that might result in a premium over market price to
holders of ADSs. See "Management--Executive Share Option Plan," "Management--
1997 Share Option Plan" and "Description of Ordinary Shares--Australian Take-
over Laws."
The Memorandum and Articles of Association of the Company (collectively, the
"Articles") contain certain provisions that could impede any merger, consolida-
tion, takeover or other business combination involving the Company or dis-
courage a potential acquiror from making a tender offer or otherwise attempting
to obtain control of the Company. Provisions contained in the Articles, among
other things, (i) in effect divide the Board of Directors of the Company into
three classes, which serve for staggered three-year terms, (ii) provide that
the shareholders may amend or repeal special resolutions, including changes to
the Articles and extraordinary transactions, only by a vote of at least 75% of
the votes cast at a meeting at which a quorum is present, (iii) require
extended notice (of up to 21 days) for special resolutions considered by the
Board of Directors, and (iv) authorize the Board of Directors, without any vote
or action by shareholders of the Company, to issue, out of the Company's autho-
rized and unissued capital shares, shares in different classes, or with spe-
cial, preferred or deferred rights, which may relate to voting, dividend,
return of capital or any other matter. Although the Company currently has no
plans to issue any preferred shares, the rights of the holders of Ordinary
Shares or ADSs will be subject to, and may be adversely affected by, the rights
of the holders of any preferred or senior share that may be issued in the
future. The issuance of any preferred or senior shares, and the other provi-
sions of the Articles referred to above, could have the effect of making it
more difficult for a third party to acquire control of the Company. See "De-
scription of Ordinary Shares."
Australian law requires the transfer of shares in the Company to be made in
writing, and stamp duty at the rate of 0.6% is payable in relation to any
transfer of shares. No stamp duty will be payable in Australia on the transfer
of ADSs provided that any instrument by which the ADSs are transferred is exe-
cuted outside Australia.
In certain circumstances, nonresidents of Australia may be subject to Austra-
lian tax on capital gains made on the disposal of shares or ADSs. These circum-
stances are described in "Certain Tax Considerations--Australian Taxation."
ENFORCEABILITY OF CIVIL LIABILITIES
The Company is an Australian public limited company. Most of its directors and
executive officers reside outside the United States (principally in the Common-
wealth of Australia). All or a substantial portion of the assets of these per-
sons and of the Company are located outside the United States (principally in
the Commonwealth of Australia). As a result, it may not be possible for
investors to effect service of process within the United States upon such per-
sons or the Company or to enforce against such persons or the Company in for-
eign courts judgments obtained in United States courts predicated upon the
civil liability provisions of the Federal securities laws of the United States.
The Company has been advised by its Australian counsel, Freehill, Hollingdale &
Page, that there is doubt as to the enforceability in the Commonwealth of Aus-
tralia, in original actions or in actions for enforcement of judgments of U.S.
courts, of civil liabilities predicated upon federal or state securities laws
of the United States, especially in the case of enforcement of judgments of
U.S. courts where the defendant has not been properly served in Australia. See
"Description of Ordinary Shares."
SHARES ELIGIBLE FOR FUTURE SALE
The Company has granted stock options to purchase up to an aggregate of 203,038
Ordinary Shares (the "Options") under the Company's Executive Share Option Plan
to Sam Linz, Robert Gavshon, Sydney Selati and John Price (or companies con-
trolled by them), and will grant concurrently with the Offering stock options,
with an exercise price equal to the initial public offering price set forth on
the cover page of this prospectus, to purchase up to an aggregate of 200,000
Ordinary Shares under the 1997 Share Option Plan. Each of the options granted
concurrently with the Offering will generally become exercisable in three equal
installments on the third, fourth and fifth anniversaries of the Offering. The
Company has also reserved an additional 129,254 authorized and unissued Ordi-
nary Shares to grant pursuant to stock options to
18
<PAGE>
directors, officers, employees and independent contractors of the Company at a
future date under the 1997 Share Option Plan. The Company may in the future
issue these or other equity or equity derivative securities. See "Management--
Executive Share Option Plan" and "Management--1997 Share Option Plan."
After giving effect to the Offering and assuming no exercise of any of the
Options subsequent to July 31, 1997, existing shareholders (including those
who held Convertible Notes until immediately prior to the Offering) of the
Company will continue to own 2,591,652 Ordinary Shares (2,239,152 Ordinary
Shares if the Underwriters' over-allotment option is exercised in full), in
the aggregate representing 52.4% of the Company's then outstanding Ordinary
Shares (or 45.3% if the Underwriters' over-allotment option is exercised in
full). Immediately after the Offering, all of the ADSs offered hereby will be
freely tradable, an additional 1,706,537 Ordinary Shares will be eligible for
sale in the public market, without any holding period, subject to compliance
with Rule 144 ("Rule 144") under the Securities Act of 1933, as amended (the
"Securities Act") and an additional 885,115 Ordinary Shares (532,615 Ordinary
Shares if the Underwriters' over-allotment option is exercised in full),
including the Ordinary Shares issued upon conversion of the Convertible Notes
and not sold in the Offering, will be eligible for sale in the public, subject
to compliance with Rule 144, after completion of a one-year holding period in
December 1997. All holders of restricted shares have agreed with the repre-
sentatives of the Underwriters that they will not offer, sell, contract to
sell or otherwise dispose of any Ordinary Shares or ADSs, or securities con-
vertible into or exchangeable or exercisable for Ordinary Shares or ADSs for a
period of 180 days after the date of this Prospectus without the written con-
sent of J.P. Morgan Securities Inc., which consent may be given in such insti-
tution's sole discretion. Sales of substantial amounts of such Ordinary Shares
or ADSs or other securities, or the prospect of such sales, could adversely
affect the market price of the Ordinary Shares or the ADSs and the Company's
ability to raise capital through an offering of securities. See "Shares Eli-
gible for Future Sale."
ABSENCE OF PUBLIC MARKET FOR ORDINARY SHARES OR ADSS; POSSIBLE VOLATILITY OF
ADS PRICE
In April 1987, the Company listed its Ordinary Shares on the Australian Stock
Exchange Limited (the "ASE"). In October 1996, as part of its plan to accel-
erate its new store expansion in the United States, the Company announced its
intention to repurchase shares from the public and delist from the ASE pur-
suant to a transaction which was consummated on December 31, 1996. At such
time, the Company repurchased an aggregate of 2,743,872 Ordinary Shares at
A$7.29 per share, or A$20,000,677 in the aggregate. In addition, all out-
standing stock options under the Company's prior share option plan were can-
celled in exchange for an aggregate payment of A$77,500, including the cancel-
lation of stock options to purchase an aggregate of 74,082 Ordinary Shares at
A$0.91 per share and the cancellation of stock options to purchase an aggre-
gate of 27,437 Ordinary Shares at A$0.36 per share. From such time until the
consummation of the Offering, there has been no public market for the
Company's Ordinary Shares, and at no time has there been a public market for
the ADSs. Although application has been made to have the ADSs approved for
quotation on the Nasdaq National Market, there can be no assurance that an
active trading market will develop or, if one does develop, that it will be
maintained. The initial public offering price of the Company's ADSs will be
determined by negotiation between the Company and the representatives of the
Underwriters. In addition, the market price of the ADSs may be significantly
affected by such factors as quarter to quarter variations in the Company's
results of operations and general market conditions or market conditions spe-
cific to the industries in which the Company operates. In addition, the stock
market in recent years has experienced price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of com-
panies. These fluctuations, as well as general economic and market conditions,
may adversely affect the market price of the Ordinary Shares or ADSs. There
can be no assurance that the Depositary will be able to effect any currency
conversion or to sell or otherwise dispose of any distributed or offered prop-
erty, subscription or other rights, Ordinary Shares or other securities
related to the ADSs in a timely manner or at a specified rate or price, as the
case may be. See "Certain Transactions--Recent Delisting Transaction," "De-
scription of American Depositary Receipts" and "Underwriting."
DILUTION
The public offering price of the ADSs (on a per underlying Ordinary Share
basis) is substantially higher than the book value per share of the out-
standing Ordinary Shares. Investors purchasing ADSs in this Offering will
therefore incur immediate, substantial dilution. The dilution per share to new
investors, after giving effect to the Offering at an assumed initial public
offering price of US$15.00 per share, would have been US$7.14 as of July 31,
1997. See "Dilution."
19
<PAGE>
EXCHANGE RATES
The Australian dollar is convertible into U.S. dollars at freely floating
rates, and there are currently no restrictions on the flow of Australian cur-
rency between Australia and the United States. On October 3, 1997, the Noon
Buying Rate was US$0.7293 = A$1.00. The following table sets forth, for the
periods indicated, certain information concerning Noon Buying Rates for Austra-
lian dollars.
<TABLE>
<CAPTION>
-----------------------------------
TWELVE MONTHS ENDED JANUARY 31, AVERAGE(1) HIGH LOW PERIOD END
------------------------------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C>
1993
First Quarter........................ 0.7582 0.7705 0.7457 0.7550
Second Quarter....................... 0.7525 0.7644 0.7425 0.7441
Third Quarter........................ 0.7209 0.7440 0.6952 0.6958
Fourth Quarter....................... 0.6852 0.7013 0.6689 0.6802
1994
First Quarter........................ 0.7020 0.7217 0.6692 0.7073
Second Quarter....................... 0.6837 0.7095 0.6655 0.6900
Third Quarter........................ 0.6639 0.6916 0.6450 0.6665
Fourth Quarter....................... 0.6782 0.7108 0.6569 0.7086
1995
First Quarter........................ 0.7143 0.7248 0.7016 0.7155
Second Quarter....................... 0.7312 0.7452 0.7041 0.7395
Third Quarter........................ 0.7400 0.7458 0.7303 0.7425
Fourth Quarter....................... 0.7649 0.7780 0.7404 0.7566
1996
First Quarter........................ 0.7383 0.7590 0.7229 0.7282
Second Quarter....................... 0.7248 0.7442 0.7088 0.7385
Third Quarter........................ 0.7508 0.7704 0.7312 0.7595
Fourth Quarter....................... 0.7427 0.7607 0.7339 0.7463
1997
First Quarter........................ 0.7717 0.7915 0.7483 0.7875
Second Quarter....................... 0.7926 0.8025 0.7727 0.7727
Third Quarter........................ 0.7895 0.7998 0.7731 0.7917
Fourth Quarter....................... 0.7908 0.8162 0.7623 0.7623
1998
First Quarter........................ 0.7786 0.7982 0.7574 0.7806
Second Quarter....................... 0.7572 0.7866 0.7349 0.7478
Third Quarter (through October 3,
1997)............................... 0.7320 0.7513 0.7150 0.7293
</TABLE>
- -------
(1) Determined by averaging the closing price for each date in the period.
Fluctuations in the exchange rate between the Australian dollar and the U.S.
dollar may affect the Company's earnings, the book value of its assets and its
shareholders' equity as expressed in Australian and U.S. dollars, and conse-
quently may affect the market price for the ADSs. Such fluctuations will also
affect the conversion into U.S. dollars by the Depositary of cash dividends, if
any, paid in Australian dollars on the Ordinary Shares represented by the ADSs.
See "Dividend Policy" and "Description of American Depositary Receipts--Distri-
butions on Deposited Securities."
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,900,000 ADSs being
offered by the Company hereby at an assumed initial public offering price of
US$15.00 per ADS (the midpoint of the range on the cover of this Prospectus),
after deducting estimated underwriting discounts and commissions and offering
expenses, are estimated to be US$25.4 million. The Company will not receive any
proceeds from the sale of the 450,000 ADSs (802,500 ADSs if the Underwriters'
over-allotment option is exercised in full) by the Selling Shareholders.
The Company intends to use the net proceeds to the Company from the Offering as
follows: (i) approximately A$21.0 (approximately US$15.3 million) million to be
used for repayment of outstanding indebtedness (including A$11.2 million of
indebtedness incurred in connection with the Capital Reduction) under the
credit facility (the "ANZ Facility") by and between the Company and the
Australian and New Zealand Banking Group Limited ("ANZ"), (ii) approximately
US$1.8 million to be used for repayment of all outstanding indebtedness under a
term loan and revolving line of credit facility (the "Merrill Lynch Facility")
by and between Barbeques Galore, Inc., the Company's U.S. operating subsidiary
(along with its U.S. parent, The Galore Group (USA), Inc., "Galore USA"), and
Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), and (iii)
approximately A$11.4 million (approximately US$8.3 million) to be used for
expansion of the Company's operations in the United States. The Company's
borrowing under the ANZ Facility relating to its real property loan (in the
aggregate, A$2.2 million at an interest rate of 9.35% per annum) provides for a
variable prepayment penalty depending on the term of the loan. As of October
1997, the penalty would be approximately A$100,000. In light of recent declines
in interest rates, the Company will periodically assess whether prepayment is
economically advantageous. The majority of the remainder of the Company's
borrowings under the ANZ Facility are commercial paper borrowings bearing
interest, as of October 1997, at approximately 5.1% per annum plus an
additional percentage fee to ANZ of approximately 1.25%. There are no
significant prepayment penalties associated with these loans. The Company
anticipates that approximately A$10.7 million will be outstanding under the ANZ
Facility subsequent to the application of the net proceeds of the Offering, of
which, approximately A$8.5 million will constitute outstanding trade financing
which typically matures within six months of draw down. The Company may use
proceeds from the Offering to repay the outstanding trade financing as it
becomes due. The revolving line and the term loan under the Merrill Lynch
Facility accrue interest at the 30-day commercial paper rate plus 2.65% and
2.70%, respectively. There are no prepayment penalties associated with the
Merrill Lynch Facility. Any remaining net proceeds of the Offering are expected
to be used for working capital and general corporate purposes. Pending such
uses, the Company intends to apply the net proceeds of the Offering to repay
short-term debt or invest the net proceeds in short-term, interest-bearing
investment grade securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Liquidity and Capital Resources"
and "Certain Transactions--Recent Delisting Transaction."
DIVIDEND POLICY
Since the Ordinary Shares were delisted from the ASE on December 31, 1996, the
Company has not declared or paid any cash dividends on its Ordinary Shares
other than a dividend in an aggregate amount equal to A$500,000 paid on April
21, 1997. Following the Offering, the Company currently intends to retain any
earnings for use in its business and does not anticipate paying any regular
dividends on the Ordinary Shares or ADSs in the foreseeable future. The ANZ and
Merrill Lynch Credit Facilities contain restrictions on the declaration or pay-
ment of dividends by the Company.
21
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of July 31, 1997, as adjusted to (i) reflect the Reverse Share
Split, (ii) reflect the conversion of the outstanding Convertible Notes of the
Company into 1,197,926 Ordinary Shares upon consummation of the Offering and
(iii) give effect to the sale of the 1,900,000 ADSs offered by the Company
hereby at an assumed initial public offering price of US$15.00 per ADS, after
deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company, and the application of the estimated net pro-
ceeds therefrom. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
-------------------------------
AS OF
JULY 31, 1997
AS AS
ACTUAL ADJUSTED ADJUSTED(2)
Dollars in thousands -------- -------- -----------
<S> <C> <C> <C>
Current portion of long-term debt............. A$ 8,567 A$ 4,662 US$ 3,486
======== ======== =========
Long-term debt................................ 21,745 2,150 1,608
Convertible Notes............................. 10,042 -- --
Shareholders' equity:
Ordinary Shares, A$3.64 par value: 27,437,853
shares authorized; 1,843,726 shares issued
and outstanding, actual; 4,941,652 shares
issued and outstanding, as adjusted(1)...... 6,720 17,988 13,451
Additional paid-in capital.................... 4,613 38,215 28,577
Foreign currency translation adjustment....... 380 380 284
Retained deficit.............................. (2,753) (2,753) (2,059)
-------- -------- ---------
Total shareholders' equity.................. 8,960 53,830 40,253
-------- -------- ---------
Total capitalization........................ A$40,747 A$55,980 US$41,861
======== ======== =========
</TABLE>
- -------
(1) Excludes an aggregate of 203,038 Ordinary Shares issuable upon the exercise
of stock options granted to certain executives of the Company in January 1997,
but not exercisable until February 1999, except under certain circumstances.
Also excludes 200,000 Ordinary Shares issuable upon the exercise of stock
options granted under the Company's 1997 Share Option Plan concurrently with
the Offering, but not exercisable until the third anniversary of the Offering.
See "Management--Executive Share Option Plan" and "Management--1997 Share
Option Plan."
(2) Amounts translated at the Noon Buying Rate on July 31, 1997 of US$0.7478 =
A$1.00.
22
<PAGE>
DILUTION
The following table presents certain information concerning the pro forma net
tangible book value per share of the Ordinary Shares as of July 31, 1997 (i) as
adjusted to reflect the Reverse Share Split, (ii) assuming the conversion of
each outstanding Convertible Note of the Company into 1,197,926 Ordinary Shares
upon consummation of the Offering and (iii) as adjusted to reflect the sale of
1,900,000 ADSs by the Company in the Offering, at an assumed initial public
offering price of US$15.00 per share, after deducting the estimated offering
expenses and underwriting discounts and commissions:
<TABLE>
<CAPTION>
----------------
<S> <C> <C>
Assumed initial public offering price......................... US$15.00
Net tangible book value per Ordinary Share before the
Offering(1)................................................ US$2.96
Increase per share attributable to new investors............ 4.90
-------
Pro forma net tangible book value per Ordinary Share after the
Offering..................................................... 7.86
--------
Dilution per share to new investors(2)........................ US$ 7.14
========
</TABLE>
- -------
(1) Net tangible book value per Ordinary Share is determined by dividing the
Company's tangible net worth at July 31, 1997 (translated into US$5,454,000
solely for the convenience of the reader at the rate of A$1.00 = US$0.7478, the
Noon Buying Rate on July 31, 1997) by the aggregate number of Ordinary Shares
outstanding. See "Exchange Rates."
(2) Dilution is determined by subtracting net tangible book value per Ordinary
Share after the Offering from the initial public offering price per ADS.
The following table summarizes on a pro forma basis, as of July 31, 1997, the
difference between existing shareholders and the purchasers of ADSs in the
Offering (at an assumed initial public offering price of US$15.00 per ADS) with
respect to the number of Ordinary Shares purchased from the Company, the total
consideration paid and the average price per Ordinary Share paid by existing
shareholders and by purchasers of the ADSs offered hereby (before deducting
estimated underwriting discounts and commissions and offering expenses payable
by the Company).
---------------
<TABLE>
<CAPTION>
-------------------------------------------------------------------
ORDINARY
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER ORDINARY SHARE
--------- -------- ------------ ---------- ------------------
In thousands, except per
share data
<S> <C> <C> <C> <C> <C>
Existing shareholders... 3,042 62% US$15,984 36% US$ 5.25
New investors........... 1,900 38 28,500 64 15.00
--------- ------- ------------ ------ --------
Total................. 4,942 100% US$44,484 100%
========= ======= ============ ======
</TABLE>
The foregoing tables assume no exercise of stock options outstanding as of July
31, 1997. As of such date, there were stock options outstanding to purchase an
aggregate of 203,038 Ordinary Shares at a weighted average exercise price of
A$8.38 per share under the Executive Share Option Plan. The foregoing table
also excludes stock options outstanding to purchase an aggregate of 200,000
Ordinary Shares at a weighted average exercise price equal to the initial
public offering price per share set forth on the cover page of this Prospectus
under the 1997 Share Option Plan and 129,254 stock options reserved for grant
thereunder. Stock options under the Executive Share Option Plan are not exer-
cisable until February 1999, at which time they will become fully exercisable.
Stock options granted concurrently with the Offering under the 1997 Share
Option Plan will become exercisable in three equal installments on the third,
fourth and fifth anniversaries of the Offering. To the extent that any such
stock option is exercised, there will be further dilution to new investors in
the Offering. Assuming all stock options outstanding on the date of completion
of the Offering were exercised in full, the dilution per share to new investors
in the Offering would have been US$7.73 as of July 31, 1997.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this Prospectus. The statement of oper-
ations data for the fiscal years ended June 30, 1994, 1995 and 1996 and the
balance sheet data as of such dates were derived from the consolidated finan-
cial statements of the Company for the fiscal years ended June 30, 1994, 1995
and 1996, which have been audited by Horwath Sydney Partnership, independent
auditors, and are included elsewhere in this Prospectus. The statement of oper-
ations data for the fiscal year ended June 30, 1993 and the balance sheet data
as of such date were derived from the consolidated financial statements of the
Company for the fiscal years ended June 30, 1992 and 1993, which have been
audited by Horwath Sydney Partnership, but are not included herein. The state-
ment of operations data for the seven months ended January 31, 1997 and the
balance sheet data as of such date have been derived from the consolidated
financial statements of the Company for the seven months ended January 31,
1997, which have been audited by KPMG, independent auditors, and are included
elsewhere herein. The selected consolidated financial data for the seven months
ended January 31, 1996 and the balance sheet data as of such date were derived
from the foregoing consolidated financial statements of the Company for the
fiscal year ended June 30, 1996 and are unaudited, and in the opinion of man-
agement include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the information included therein.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
SEVEN MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1)
In thousands, except per 1992 1993 1994 1995 1996 1996 1996 1997 1997
share data --------- --------- --------- --------- --------- ---------- ----------- --------- ---------
(US$) (UNAUDITED) (US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... A$127,298 A$114,973 A$124,635 A$138,057 A$141,691 US$113,027 A$ 92,074 A$ 98,752 US$78,212
Cost of goods sold(2)... 80,785 82,630 84,104 92,290 98,158 78,301 62,789 67,955 53,820
--------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Gross profit............ 46,513 32,343 40,531 45,767 43,533 34,726 29,285 30,797 24,392
Selling, general and
administrative
expenses............... 40,185 27,992 35,462 40,058 39,339 31,381 24,328 25,740 20,386
Store pre-opening
costs.................. -- 205 135 64 153 122 114 200 158
Relocation and closure
costs(3)............... -- -- -- -- 875 698 -- 461 365
--------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Operating income
(loss)................. 6,328 4,146 4,934 5,645 3,166 2,525 4,843 4,396 3,483
Equity in income of
affiliates, net
of tax................. 449 412 660 963 836 667 709 252 200
Interest expense........ 3,728 2,526 1,999 2,230 2,262 1,804 1,619 1,593 1,262
Other expense
(income)(4)............ 3,747 -- -- -- (2,303) (1,837) (2,303) 1,132 897
--------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Income (loss) before
income tax............. (698) 2,032 3,595 4,378 4,043 3,225 6,236 1,923 1,524
Income tax expense
(benefit).............. 229 176 1,278 573 98 78 1,286 366 290
--------- --------- --------- --------- --------- ---------- ---------- --------- ---------
Net income (loss)....... A$ (927) A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 US$ 3,147 A$ 4,950 A$ 1,557 US$ 1,234
========= ========= ========= ========= ========= ========== ========== ========= =========
Net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(5).......... A$ (0.22) A$ 0.44 A$ 0.52 A$ 0.83 A$ 0.86 US$ 0.69 A$ 1.08 A$ 0.37 US$ 0.29
========= ========= ========= ========= ========= ========== ========== ========= =========
Pro forma supplemental
net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(s)(6)....... A$ 0.90 US$ 0.72 A$ 0.41 US$ 0.32
========= ========== ========= =========
Weighted average shares
outstanding(5)......... 4,166 4,166 4,481 4,570 4,570 4,570 4,570 4,193 4,192
========= ========= ========= ========= ========= ========== ========== ========= =========
In thousands
BALANCE SHEET DATA:
Working capital......... A$ 15,056 A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 US$ 19,093 A$ 25,139 A$ 22,552 US$17,191
Total assets............ 58,977 55,400 60,538 67,624 66,562 51,432 67,544 67,970 51,814
Total long-term debt.... 12,314 10,223 16,988 17,690 15,819 12,223 11,631 34,276 26,129
Shareholders' equity.... 19,284 21,316 24,385 26,326 27,817 21,494 30,349 10,165 7,749
SELECTED U.S. OPERATING
DATA:
Stores open at period-
end.................... 17 17 21 21 19 25 25
Average net sales per
store (in
thousands)(7).......... A$ 1,389 A$ 1,630 A$ 1,572 US$ 1,254 A$ 862 A$ 822 US$ 651
Comparable store
sales increase(8)...... -- 21.2% 10.0% 10.0% 10.0% 4.1% 4.1%
Selling square feet (in
thousands)............. 49.3 51.3 59.5 59.5 55.7 72.7 72.7
Sales per selling square
foot................... A$ 437 A$ 519 A$ 489 US$ 390 A$ 279 A$ 251 US$ 199
SELECTED AUSTRALIAN
OPERATING DATA:
Stores open at period-
end.................... 32 31 31 31 32 32 32
Average net sales per
store (in
thousands)(7).......... A$ 1,719 A$ 1,844 A$ 2,081 US$ 1,660 A$ 1,446 A$ 1,658 US$ 1,313
Comparable store
sales increase(9)...... -- 4.3% 8.1% 8.1% 6.0% 10.6% 10.6%
Selling square feet (in
thousands)............. 275.3 273.9 279.9 279.9 159.2 164.0 164.0
Sales per selling square
foot................... A$ 206 A$ 216 A$ 230 US$ 183 A$ 281 A$ 312 US$ 247
</TABLE>
24
<PAGE>
- -------
(1) As of April 9, 1997, the Company changed its fiscal year end from June 30
to January 31 (effective January 31, 1997).
(2) Cost of goods sold includes the cost of merchandise sold during the
periods, distribution and store-level occupancy costs.
(3) Includes A$262,000 incurred during the year ended June 30, 1996 in connec-
tion with the restructuring of the Company's Australian licensing division,
A$613,000 incurred in June 1996 in connection with the relocation of the
Company's barbecue manufacturing operations and a A$369,000 provision accrued
in January 1997 in connection with the planned relocation of the Company's
enamelling facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Overview."
(4) Includes a A$3.7 million loss related to the Company's divestment of its
Optics business (which was discontinued), a A$2.3 million gain related to the
Company's sale of its equity interest in GLG New Zealand and a A$1.1 million
charge incurred in December 1996 in connection with the Capital Reduction and
delisting. See "Certain Transactions--Recent Delisting Transaction."
(5) Based on the weighted average number of Ordinary Shares outstanding after
giving effect to (i) the Reverse Share Split and (ii) 120,332 of net Ordinary
Shares issuable upon the exercise of stock options outstanding under the Execu-
tive Share Option Plan calculated using the treasury stock method. Net income
(loss) per ordinary share and ordinary share equivalent and weighted average
shares outstanding reflect the Reverse Share Split for all periods presented.
The outstanding Convertible Notes were not taken into account in the calcula-
tion of earnings per share, as they were antidilutive.
(6) The pro forma supplemental net income (loss) per Ordinary Share and Ordi-
nary Share equivalent are computed by assuming proceeds from the Offering,
which will be utilized to repay debt subsequent to the Offering, were utilized
to repay the debt at the beginning of the applicable period to which earnings
(loss) per share relates. The weighted average number of Ordinary Shares out-
standing is increased for the number of Ordinary Shares issued to enable repay-
ment of such debt.
(7) For stores open at beginning of period indicated.
(8) The number of comparable stores used to compute such percentages was 17 for
each of fiscal 1995 and 1996 and 16 and 19 for the seven-month periods ended
January 31, 1996 and 1997, respectively.
(9) The number of comparable stores used to compute such percentages was 32 and
31 for fiscal 1995 and 1996, respectively, and 31 and 33 for the seven-month
periods ended January 31, 1996 and 1997, respectively.
25
<PAGE>
UNAUDITED SELECTED ADDITIONAL CONSOLIDATED FINANCIAL DATA
As of April 9, 1997, the Company changed its fiscal year end from June 30 to
January 31. The following selected additional financial data has been restated
to conform the financial presentation to a January 31 fiscal year end, and are
qualified by reference to and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Selected Consolidated Financial Data of the Company and the consolidated finan-
cial statements and notes thereto included elsewhere in this Prospectus. Man-
agement believes that the data presented below provide a more meaningful basis
of comparison between prospective and historical reporting periods, as the
Company will continue to report financial information in the future on the
basis of its current January 31 fiscal year end. All selected conformed addi-
tional financial data for the six-month and twelve-month periods presented
below is unaudited but, in the opinion of management, has been prepared on the
same basis as the audited consolidated financial statements of the Company and
reflects all adjustments necessary for a fair presentation of such data. The
selected additional unaudited financial data as of and for the twelve months
ended January 31, 1995, 1996 and 1997 has been derived from the unaudited con-
solidated financial statements of the Company as of such dates and for the
periods then ended, to which KPMG has reported that it has applied limited pro-
cedures in accordance with professional standards for a review of such informa-
tion. These unaudited consolidated financial statements and the review report
thereon are included in the Registration Statement of which this Prospectus is
a part. Operating results for the six months ended July 31, 1997 are not neces-
sarily indicative of the results that may be expected for the entire year.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
TWELVE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
In thousands, except per 1995 1996 1997 1997 1996 1997 1997
share data --------- --------- --------- ---------- --------- --------- ---------
(US$) (US$)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... A$134,794 A$138,877 A$148,369 US$117,137 A$ 59,620 A$ 70,394 US$53,612
Cost of goods sold(1) .. 90,477 94,899 103,324 81,574 43,086 48,420 36,877
--------- --------- --------- ---------- --------- --------- ---------
Gross profit............ 44,317 43,978 45,045 35,563 16,534 21,974 16,735
Selling, general and
administrative
expenses............... 37,081 38,921 40,751 32,173 18,312 21,728 16,548
Store pre-opening
costs.................. 109 178 239 189 64 209 159
Relocation and closure
costs(2)............... -- -- 1,336 1,055 875 -- --
--------- --------- --------- ---------- --------- --------- ---------
Operating income
(loss)................. 7,127 4,879 2,719 2,146 (2,717) 37 28
Equity in income of
affiliates, net of
tax.................... 696 1,205 379 299 167 188 143
Interest expense........ 2,005 2,428 2,236 1,765 848 1,760 1,340
Other expense
(income)(3)............ -- (2,303) 1,132 894 -- -- --
--------- --------- --------- ---------- --------- --------- ---------
Income (loss) before
income tax............. 5,818 5,959 (270) (214) (3,398) (1,535) (1,169)
Income tax expense
(benefit).............. 1,478 496 (822) (649) (1,767) (649) (494)
--------- --------- --------- ---------- --------- --------- ---------
Net income (loss)....... A$ 4,340 A$ 5,463 A$ 552 US$ 435 A$ (1,631) A$ (886) US$ (675)
========= ========= ========= ========== ========= ========= =========
Net Income (loss) per
Ordinary Share and
Ordinary Share
equivalent(4).......... A$ 0.95 A$ 1.19 A$ 0.13 US$ 0.10 A$ (0.36) A$ (0.45) US$ (0.34)
Pro forma supplemental
net income (loss) per
Ordinary Share and
Ordinary Share
equivalent(5).......... A$ 0.30 US$ 0.23 A$ (0.03) US$ (0.02)
========= ========== ========= =========
Weighted average shares
outstanding(4)......... 4,570 4,570 4,348 4,348 4,570 1,963 1,963
========= ========= ========= ========== ========= ========= =========
In thousands
BALANCE SHEET DATA:
Working capital......... A$ 21,087 A$ 25,139 A$ 22,552 US$ 17,191 A$ 24,123 A$ 21,563 US$16,125
Total assets............ 61,945 67,544 67,970 51,814 67,641 78,764 58,900
Total long-term debt.... 10,563 11,631 34,276 26,129 15,922 35,089 26,239
Shareholders' equity.... 26,686 30,349 10,165 7,749 26,924 8,960 6,700
SELECTED U.S. OPERATING
DATA:
Stores open at period-
end.................... 16 19 25 25 21 29 29
Average net sales per
store (in
thousands)(6).......... A$ 1,457 A$ 1,655 A$ 1,579 US$ 1,247 A$ 905 A$ 1,016 US$ 774
Comparable store sales
increase(7)............ 16.7% 14.2% 6.5% 6.5% 6.4% 17.8% 17.8%
Selling square feet (in
thousands)............. 51.2 54.8 70.2 70.2 61.4 86.9 86.9
Sales per selling square
foot................... A$ 456 A$ 517 A$ 469 US$ 370 A$ 291 A$ 251 US$ 191
SELECTED AUSTRALIAN
OPERATING DATA:
Stores open at period-
end.................... 32 32 32 32 31 32 32
Average net sales per
store (in
thousands)(6).......... A$ 1,835 A$ 1,924 A$ 2,222 US$ 1,754 A$ 731 A$ 796 US$ 606
Comparable store sales
increase(8)............ 8.2% 1.4% 11.6% 11.6% 9.8% 6.8% 6.8%
Selling square feet (in
thousands)............. 276.2 267.1 276.6 276.6 139.9 144.2 144.2
Sales per selling square
foot................... A$ 219 A$ 231 A$ 256 US$ 202 A$ 167 A$ 177 US$ 135
</TABLE>
26
<PAGE>
- -------
(1) Cost of goods sold includes the cost of merchandise sold during the periods
and distribution and store-level occupancy costs.
(2) Includes A$354,000 (of which A$262,000 was incurred during the year ended
June 30, 1996, and the remainder was accrued in January 1997) in connection
with the restructuring of the Company's Australian licensing division,
A$613,000 incurred in June 1996 in connection with the relocation of the
Company's barbecue manufacturing operations and a A$369,000 provision accrued
in January 1997 in connection with the planned relocation of the Company's
enamelling facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Overview."
(3) Includes a A$2.3 million gain related to the Company's sale of its equity
interest in GLG New Zealand and A$1.1 million charge incurred in December 1996
in connection with the Capital Reduction and delisting. See "Certain Transac-
tions--Recent Delisting Transaction."
(4) Based on the weighted average number of Ordinary Shares outstanding after
giving effect to (i) the Reverse Share Split and (ii) 120,332 of net Ordinary
Shares issuable upon the exercise of stock options outstanding under the Execu-
tive Share Option Plan calculated using the treasury stock method. Net income
(loss) per Ordinary Share and Ordinary Share equivalent and weighted average
shares outstanding reflect the Reverse Share Split for all periods presented.
The outstanding Convertible Notes were not taken into account in the calcula-
tion of earnings per share, as they were antidilutive.
(5) The pro forma supplemental net income (loss) per Ordinary Share and Ordi-
nary Share equivalent are computed by assuming proceeds from the Offering,
which will be utilized to repay debt subsequent to the Offering, were utilized
to repay the debt at the beginning of the applicable period to which earnings
(loss) per share relates. The weighted average number of Ordinary Shares out-
standing is increased for the number of Ordinary Shares issued to enable repay-
ment of such debt.
(6) For stores open at beginning of period indicated.
(7) The number of comparable stores used to compute such percentages was 14, 16
and 19 for the twelve-month periods ended January 31, 1995, 1996 and 1997,
respectively, and 17 and 21 for the six-month periods ended July 31, 1996 and
1997, respectively.
(8) The number of comparable stores used to compute such percentages was 32, 31
and 33 for the twelve-month periods ended January 31, 1995, 1996 and 1997,
respectively, and 31 and 32 for the six-month periods ended July 31, 1996 and
1997, respectively.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
OVERVIEW
Barbeques Galore is the leading specialty retail chain of barbecue and bar-
becue accessory stores in Australia and the United States. The Company opened
its first store in Sydney, Australia in 1977 and opened its first U.S. store
in Los Angeles in 1980. Barbeques Galore stores carry a wide assortment of
barbecues and related accessories, a comprehensive line of fireplace products
and, in Australia, home heating products, camping equipment and outdoor furni-
ture. As of July 31, 1997, the Company owned and operated 32 stores in all six
states in Australia and 32 stores (including three U.S. Navy concession
stores) in six states in the United States. In addition, as of such date,
there were 45 licensed stores in Australia and six franchised stores in the
United States, all of which operate under the "Barbeques Galore" name.
The Company derives its revenue primarily from four categories: Australian
retail, United States retail (including royalties and sales to franchisees),
Australian licensing (including license fees and sales to licensees) and Aus-
tralian wholesale. These categories represented 47.6%, 27.5%, 11.1% and 13.0%,
respectively, of the Company's net sales for the twelve months ended January
31, 1997, representing a 15.1%, 13.6%, 7.2% and (14.5)% increase (or
decrease), over their respective net sales levels for the twelve months ended
January 31, 1996.
The Company believes the majority of its future growth will result from the
continuing expansion of its U.S. retail business, primarily through the
opening of new stores, and the refurbishment of its Australian store base. In
the United States, the Company has embarked upon a major program to expand
Company-owned stores, and plans to open, approximately 10 new stores in 1997,
of which five have opened, four are under construction and one is in lease
negotiation, and 15 to 20 new stores in each of 1998 and 1999. The Company
expects to incur capital expenditures relating to this program in the United
States of approximately US$1.8 million in 1997 and approximately US$2.5 mil-
lion to US$3.2 million in each of 1998 and 1999. In Australia, the Company has
undertaken a refurbishment program to relocate or remodel existing stores.
Since initiating its store refurbishment program in April 1994, the Company
has refurbished 14 stores (resulting in an approximately 45% average increase
in sales through July 1997 for those stores) and opened four new stores. The
Company currently plans to refurbish 12 to 15 stores and to open six new
stores in Australia from 1997 through 1999. The Company expects to incur cap-
ital expenditures relating to this program in Australia of approximately A$2.5
million in 1997 and approximately A$2.0 million to A$3.0 million in each of
1998 and 1999. As a result of its store expansion and refurbishment programs,
the Company has experienced, and expects to continue to experience, increases
in store pre-opening costs and refurbishment-related expenses. See "Risk Fac-
tors--Implementation of Growth Strategy."
A number of the Company's existing licensees have elected to refurbish their
stores in accordance with the Company's established criteria although no
licensee is required to do so. The Company maintains an assistance program to
provide advice relating to these enhancements. No financial incentives are
offered directly by the Company to encourage licensee refurbishment, although
the Company believes its new store concept provides a more consumer-friendly
shopping environment. The Company expects that Australian licensing will pro-
vide moderate growth in revenues if the economy of rural Australia continues
to revitalize. The Company may license additional Barbeques Galore stores in
Australia on a selective basis, although it does not intend to franchise any
additional stores in the United States (except within geographical territories
as required under existing franchise agreements). The Company does not expect
its wholesale operations to experience significant revenue growth in the
future and currently has no plans to operate a wholesale distribution business
in the United States. See "Risk Factors--Effect of Economic Conditions and
Consumer Trends," "Business--Licensing and Franchising" and "Business--Store
Environment."
Through its vertically integrated operations, the Company manufactures a pro-
prietary line of barbecues and home heaters for its retail stores and
licensees as well as other barbecue and home heater products for its wholesale
customers. By controlling its own manufacturing operations, the Company
believes it is able to realize higher margins, control product development and
improve inventory flexibility and supply. The Company estimates that, during
the twelve months ended January 31, 1997, 40% of its barbecue sales were
derived from sales of its proprietary barbecues, and 65% of its home heating
sales were derived from sales of its proprietary home heating lines. The Com-
pany believes that its existing manufacturing and enamelling operations are
sufficient to meet presently anticipated production increases that may arise
from the
28
<PAGE>
Company's store expansion and refurbishment program. See "Risk Factors--Man-
agement of Operational Changes" and "Business--Manufacturing."
In connection with the implementation of its United States and Australian
growth strategy, the Company incurred several one-time expenses during 1996.
The Company relocated and combined its barbecue manufacturing operations from
11 separate off-site buildings to a single facility at its corporate headquar-
ters and distribution center in Sydney, Australia at an expense of approxi-
mately A$613,000 plus additional capital expenditures of approximately A$2.3
million. This relocation has resulted in initial cost savings of approximately
A$515,000 through the end of July 1997. In a further effort to improve its
production flow, inventory control and distribution management, the Company
plans to relocate its enamelling operations to the same facility, add an in-
line powder coating operation and rearrange the assembly, warehouse and dis-
tribution operations. These changes are scheduled to occur in the first half
of 1998 at an expected cost of A$454,000, against which the Company has
already accrued A$369,000. The Company believes these changes will result in
estimated initial cost savings of A$350,000 to A$450,000 in the first full
twelve months after completion. The planned relocation of the Company's enam-
elling operations and related changes will involve an additional A$2.2 million
in capital expenditures and will require the Company to obtain a number of
building, environmental and other governmental permits. See "Risk Factors--
Management of Operational Changes" and "Business--Manufacturing."
In December 1996, the Company completed its delisting from the ASE, which
included the repurchase of Ordinary Shares from the public. These transactions
were financed through A$11.2 million in borrowings under the ANZ Facility and
A$10.0 million in proceeds from the sale of the Convertible Notes, which are
convertible into an aggregate of 1,197,926 Ordinary Shares in connection with
the Offering. In connection with such transactions, the Company incurred var-
ious one-time charges (primarily financing, underwriting and legal fees)
aggregating approximately A$1.1 million. For the six months ended July 31,
1997, interest accrued on the debt incurred in relation to the Capital Reduc-
tion totalled approximately A$900,000. In connection with the Offering, the
Company is required to repay this portion of the ANZ Facility and the holders
(the "Noteholders") of all of the Convertible Notes have agreed to convert the
Convertible Notes into Ordinary Shares immediately prior to the Offering. See
"Certain Transactions--Recent Delisting Transaction."
In addition, the Company incurred approximately A$354,000 of one-time charges
relating to the restructuring of its Australian licensing division (of which
A$262,000 was incurred during the year ended June 30, 1996 and the remainder
was accrued in January 1997), in which the licensing division's management and
administration were integrated into the Company's retail and wholesale divi-
sions. The restructuring has resulted in an estimated annual cost savings of
A$400,000. See "Risk Factors--Management of Operational Changes" and "Busi-
ness--Licensing and Franchising."
The Company's business is subject to substantial seasonal variations which
have caused, and are expected to continue to cause, its quarterly results of
operations to fluctuate significantly. Historically, the Company has realized
a major portion of its net sales and net income for the year during the Aus-
tralian summer months (fiscal fourth quarter). The Company expects that its
net income during U.S. summer months (fiscal second quarter) will increase
with the Company's planned U.S. store expansion. See "Risk Factors--
Seasonality; Weather; Fluctuations in Results" and "--Quarterly Results and
Seasonality."
The Company recognizes income from affiliates representing its one-third
equity interest in Bromic and its 50% equity interest in GLG Taiwan. The Com-
pany also received income from its 50% equity interest in GLG New Zealand. The
Company sold its equity interest in GLG New Zealand in December 1995.
In 1997, the Company changed its fiscal year-end from June 30 to January 31 in
order to conform to the conventional fiscal year for the U.S. retail industry.
The Company is subject to a corporate tax rate of 36% in Australia and 34% in
the United States (excluding state taxes). Historically, the Company's tax
rate has been lower than these stated rates as a result of the exclusion of
affiliate income items from Australian taxation and the realization of net
operating loss carryforwards against U.S. income.
29
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected
statement of operations data as a percentage of net sales:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
SEVEN MONTHS
TWELVE MONTHS ENDED SIX MONTHS ENDED
ENDED JUNE 30, JANUARY 31, JULY 31,
1994 1995 1996 1996 1997 1996 1997
----- ----- ----- ----------- ----- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... 100.0% 100.0% 100.0 % 100.0 % 100.0% 100.0 % 100.0 %
Cost of goods sold,
warehouse, distribution
and occupancy costs.... 67.5 66.8 69.3 68.2 68.8 72.3 68.8
----- ----- ----- ----- ----- ----- -----
Gross profit............ 32.5 33.2 30.7 31.8 31.2 27.7 31.2
Selling, general and
administrative
expenses............... 28.5 29.0 27.8 26.4 26.1 30.7 30.9
Store pre-opening
costs.................. 0.1 0.0 0.1 0.1 0.2 0.1 0.3
Relocation and closure
costs.................. 0.0 0.0 0.6 0.0 0.5 1.5 0.0
----- ----- ----- ----- ----- ----- -----
Operating income
(loss)................. 3.9 4.2 2.2 5.3 4.4 (4.6) 0.0
Equity in income of
affiliates, net of
tax.................... 0.5 0.7 0.6 0.8 0.3 0.3 0.3
Interest expense........ 1.6 1.6 1.6 1.8 1.6 1.4 2.5
Other expense (income).. 0.0 0.0 (1.6) (2.5) 1.1 0.0 0.0
Income (loss) before
income tax............. 2.8% 3.3% 2.8 % 6.8 % 2.0% (5.7)% (2.2)%
----- ----- ----- ----- ----- ----- -----
Income tax expense
(benefit).............. 1.0 0.4 0.1 1.4 0.4 (3.0) (0.9)
Net income.............. 1.8% 2.9% 2.7 % 5.4 % 1.6% (2.7)% (1.3)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
Six Months Ended July 31, 1997 (Unaudited) Compared to Six Months Ended July
31, 1996 (Unaudited)
Net sales increased approximately A$10.8 million, or 18.1%, to A$70.4 million
for the six months ended July 31, 1997 from A$59.6 million for the six months
ended July 31, 1996. Four new stores were opened in the United States during
the six months ended July 31, 1997 contributing A$1.7 million to the increase
in net sales. In Australia, no stores were refurbished and no new stores were
opened during this period. Comparable store sales increased 13.4% and contrib-
uted A$5.4 million to the increase in net sales. Comparable store sales
increased 17.8% in the United States and 6.8% in Australia. The increase in the
United States was primarily due to heightened awareness of the Barbeques Galore
name in both existing and new markets. The balance of the increased sales was
primarily attributable to six new stores opened in the United States and one
new store opened in Australia in the preceding half year. This increase was
partially offset by declining Australian wholesale revenues, primarily due to
the loss in February 1996 of a major Australian wholesale account.
Gross profit increased approximately A$5.4 million, or 32.9%, to A$22.0 million
for the six months ended July 31, 1997 from A$16.5 million for the six months
ended July 31, 1996. Gross margin (gross profit as a percentage of sales)
increased to 31.2% during the six months ended July 31, 1997, from 27.7% during
the comparable period in 1996. The increase in gross margin was primarily due
to production efficiencies gained from the relocation of the Company's manufac-
turing operation in Australia, partially offset by a minor reduction in gross
margin in the United States as a result of a change in sales mix.
Selling, general and administrative expenses (which excludes store pre-opening
expenses) increased approximately A$3.4 million, or 18.7%, to A$21.7 million
for the six months ended July 31, 1997 from A$18.3 million for the six months
ended July 31, 1996. As a percentage of net sales, selling, general and admin-
istrative expenses increased to 30.9% during the six months ended July 31, 1997
from 30.7% during the comparable period in 1996. This increase was primarily
due to an increase in marketing expenses accrued in Australian retail and
higher costs related to refurbished stores in Australia.
Store pre-opening expenses increased A$145,000 to A$209,000 for the six months
ended July 31, 1997 from A$64,000 for the six months ended July 31, 1996 due to
the opening of four new stores in the United States in the six months ended
July 31, 1997 versus one new store in the previous period.
Operating income (loss) (excluding relocation and closure costs) increased
A$1.8 million to A$37,000 for the six months ended July 31, 1997, from a loss
of approximately A$1.8 million for the six months ended July 31, 1996.
30
<PAGE>
Interest expense increased A$912,000 to A$1.8 million in the six months ended
July 31, 1997 from A$848,000 in the six months ended July 31, 1996 as a result
of increased borrowings to finance the Capital Reduction.
The Company's effective tax rate was approximately 42.3% in the six months
ended July 31, 1997 and 52.0% in the six months ended July 31, 1996. The dif-
ference in rates is a result of the mix of pre-tax earnings/losses between the
Australian and the United States operations.
Seven Months Ended January 31, 1997 (Audited) Compared to Seven Months Ended
January 31, 1996 (Unaudited)
Net sales increased approximately A$6.7 million, or 7.3%, to A$98.8 million for
the seven months ended January 31, 1997, from A$92.1 million for the seven
months ended January 31, 1996. Four new stores were opened in the United
States, refurbishment was completed for two stores in Australia and one new
store opened in Australia during the seven months ended January 31, 1997, con-
tributing approximately A$941,000, A$1.1 million and A$610,000, respectively,
to the increase in net sales. Comparable store sales increased 7.2% and con-
tributed A$4.3 million of the increase in net sales for the seven months ended
January 31, 1997. Comparable store sales increased 4.1% in the United States
and 10.6% in Australia. A generally poor U.S. retail environment during the
1996 Olympic season impacted U.S. comparable store sales. The remaining portion
of the increase in sales was attributable to sales resulting from two new
stores opened in the United States in the preceding two quarters, a one-time
close-out sale of woodheaters to Australian licensees and an increase in bar-
becue sales to Australian licensees. This increase in sales was partially
offset by the loss of a major Australian wholesale customer and the Company's
decision to discontinue third party enamelling work.
Gross profit increased approximately A$1.5 million, or 5.2%, to A$30.8 million
for the seven months ended January 31, 1997 from A$29.3 million for the seven
months ended January 31, 1996. Gross margin decreased to 31.2% during the seven
months ended January 31, 1997 from 31.8% during the comparable period in 1996.
The decrease in gross margin was primarily due to the Company's pursuit of
increased market share in the high-volume, low-margin end of the Australian
barbecue market. In addition, sales by new U.S. stores include a large portion
of lower-margin sales during initial periods of operation. This, combined with
increased freight costs for new stores located outside of California, also con-
tributed to the decrease in gross margin.
Selling, general and administrative expenses increased approximately A$1.4 mil-
lion, or 5.8%, to A$25.7 million for the seven months ended January 31, 1997
from A$24.3 million for the seven months ended January 31, 1996. As a per-
centage of net sales, selling, general and administrative expenses decreased to
26.1% for the seven months ended January 31, 1997 from 26.4% for the seven
months ended January 31, 1996. The decrease was primarily due to improved oper-
ating leverage in the Australian store base and cost savings in the Australian
licensee and wholesale divisions brought about by the restructuring of the
licensee division. This decrease was partially offset by increased infrastruc-
ture spending in the United States related to Company expansion.
Store pre-opening expenses increased A$86,000 to A$200,000 for the seven months
ended January 31, 1997 from A$114,000 for the seven months ended January 31,
1996, primarily due to the opening of four new stores in the United States.
Relocation and closure costs increased to A$461,000 for the seven months ended
January 31, 1997 from A$0 for the seven months ended January 31, 1996 in con-
nection with the organizational restructuring of the licensee and wholesale
divisions and the provision for certain costs for the planned relocation of its
enamelling plant in 1998.
Operating income (excluding relocation and closure costs) increased by A$14,000
to A$4,857,000 for the seven months ended January 31, 1997 from A$4,843,000 for
the seven months ended January 31, 1996. As a percentage of net sales, oper-
ating income (excluding relocation and closure costs) decreased to 4.9% in the
seven months ended January 31, 1997 from 5.3% in the comparable period in 1996.
Income from affiliates decreased by A$457,000 to A$252,000 in the seven months
ended January 31, 1997 from A$709,000 in the seven months ended January 31,
1996. This decrease resulted from the Company's sale of its equity interest in
its New Zealand affiliate in December 1995.
Interest expense remained constant at approximately A$1.6 million for the seven
months ended January 31, 1997 and the seven months ended January 31, 1996.
31
<PAGE>
Other expense (income) increased to an expense of A$1.1 million for the seven
months ended January 31, 1997 from income of A$2.3 million for the seven months
ended January 31, 1996. In the 1997 period, the Company incurred expenses of
approximately A$1.1 million related to the Capital Reduction, while in the 1996
period, the Company recognized a gain of A$2.3 million from the sale of its
equity interest in its New Zealand affiliate, as described above.
The Company's effective tax rate was 19.0% in the seven months ended January
31, 1997 and 20.6% in the seven months ended January 31, 1996. The difference
in rates compared to the expected rate of 36% is a result of the exclusion from
Australian taxation of equity in income from affiliates, the gain on sale of
its equity in a New Zealand affiliate and a reduction in the valuation allow-
ance in relation to the net deferred tax asset of the United States operation.
The valuation allowance was fully written back in the seven months ended Jan-
uary 31, 1997 because the Company believes that it will recoup the benefit of
the tax losses and temporary differences which gave rise to the net deferred
tax asset. Excluding the effect of these items, the effective tax rate would
have been 43.9% in the seven months ended January 31, 1997 and 37.1% in the
seven months ended January 31, 1996. This difference is mainly attributable to
increased state taxes in the United States for the seven months ended January
31, 1997.
Twelve Months Ended June 30, 1996 (Audited) Compared to Twelve Months Ended
June 30, 1995 (Audited)
Net sales increased approximately A$3.6 million, or 2.6%, to A$141.7 million
for the fiscal year ended June 30, 1996 from A$138.1 million for the fiscal
year ended June 30, 1995. Comparable store sales increased 5.0% and contributed
approximately A$4.1 million of the increase in net sales for the 1996 fiscal
year. Comparable store sales increased 10.0% in the United States and 8.1% in
Australia. The combined comparable store sales increase was impacted by a
decrease in the US$/A$ exchange rate of approximately 13.0% in that period.
Sales during fiscal 1996 also increased as a result of the opening of four new
Company-owned stores and two franchised stores in the United States, the
opening of one new store in Australia and increases in other stores not
included in the comparable store calculation. The combined sales increases were
partially offset by decreases in the Australian licensee and wholesale divi-
sions, primarily due to the declining woodheating market and overall softness
in the Australian rural economy.
Gross profit decreased approximately A$2.3 million, or 4.9%, to A$43.5 million
for fiscal 1996 from A$45.8 million for fiscal 1995. As a percentage of net
sales, gross margin decreased to 30.7% during fiscal 1996 from 33.2% during
fiscal 1995. The decrease in gross margin in the 1996 period was primarily due
to an increase in the cost of the Company's manufactured products as a result
of the factory relocation, the one-time close-out sales of the Company's
woodheating inventory and general pressure on margins in the Australian retail
sector. In the United States, gross margin increased as a result of a change in
sales mix towards higher margin proprietary products.
Selling, general and administrative expenses decreased approximately A$719,000,
or 1.8%, to A$39.3 million for fiscal 1996 from A$40.1 million for fiscal 1995.
As a percentage of net sales, selling, general and administrative expenses
decreased to 27.8% during fiscal 1996 from 29.0% during fiscal 1995. The
decrease was primarily due to increased operating leverage in its Australian
store base resulting from store refurbishment and the restructuring of the Aus-
tralian licensee division. This decrease was partially offset by infrastructure
spending related to the opening of five new U.S. stores, including new hiring
and staff training expenses.
Store pre-opening expenses increased A$89,000 to A$153,000 during fiscal 1996
from A$64,000 for fiscal 1995, primarily due to the opening of four new stores
in the United States.
Relocation and closure costs increased to A$875,000 for fiscal 1996 from A$0
for fiscal 1995, primarily due to the relocation of the Company's manufacturing
operation and the restructuring of the Company's Australian licensing division.
Operating income (excluding relocation and closure costs) decreased A$1.6 mil-
lion to A$4.0 million for fiscal 1996 from A$5.6 million for fiscal 1995. As a
percentage of net sales, operating income (excluding relocation and closure
costs) decreased to 2.8% in fiscal 1996 from 4.2% in fiscal 1995.
Income from affiliates decreased A$127,000 to A$836,000 in fiscal 1996 from
A$963,000 in fiscal 1995, due to the loss of income from the GLG New Zealand
after the Company sold its equity interest therein in December 1995.
Interest expense increased by A$32,000 to A$2,262,000 in fiscal 1996 from
A$2,230,000 in fiscal 1995.
Other income increased to A$2.3 million in fiscal 1996 from A$0 in fiscal 1995,
due to the gain on the sale of the Company's New Zealand affiliate.
32
<PAGE>
The Company's effective tax rate was 2.4% in fiscal 1996 and 13.1% in fiscal
1995. The difference in rates is primarily the result of the exclusion from
Australian taxation of both equity in income from affiliates and gain on the
sale of its New Zealand affiliate as well as a reduction in the valuation
allowance for deferred tax assets due to the realization of net operating loss
carryforwards against U.S. taxes. Excluding these items, the effective tax rate
would have been 39.1% for the year ended June 30, 1996 and 30.1% for the year
ended June 30, 1995.
Twelve Months Ended June 30, 1995 (Audited) Compared to Twelve Months Ended
June 30, 1994 (Audited)
Net sales increased approximately A$13.4 million, or 10.8%, to A$138.1 million
for the fiscal year ended June 30, 1995 from A$124.6 million for the fiscal
year ended June 30, 1994. Comparable store sales increased 8.2% and contributed
approximately A$6.0 million of the increase in net sales for the 1995 fiscal
year. Comparable store sales increased 21.2% in the United States and 4.3% in
Australia. The Company believes the increase in U.S. comparable store sales was
primarily due to the heightened awareness of the Barbeques Galore name in both
existing and new markets. The balance of the increased sales during fiscal 1995
was attributable to sales from five new franchise stores in the United States
and three new licensee stores in Australia as well as the addition of a major
Australian wholesale account.
Gross profit increased approximately A$5.2 million, or 12.9%, to A$45.8 million
for fiscal 1995 from A$40.5 million for fiscal 1994. Gross margin increased to
33.2% during fiscal 1995 from 32.5% during fiscal 1994. The increase in gross
margin was primarily due to an improved retail margin in the United States and
the closure of a warehouse in Northern California.
Selling, general and administrative expenses increased approximately A$4.6 mil-
lion, or 13.0%, to A$40.1 million for fiscal 1995 from A$35.5 million for
fiscal 1994. As a percentage of net sales, selling, general and administrative
expenses increased to 29.0% during fiscal 1995 from 28.5% during fiscal 1994.
The increase was primarily due to increases in staff related costs including
training in Australian retail in conjunction with the refurbishment program.
Store pre-opening expenses decreased A$71,000 to A$64,000 for fiscal 1995 from
A$135,000 for fiscal 1994, primarily due to the opening of one new store in the
United States in 1995, as compared to two new stores in 1994.
Operating income increased approximately A$711,000 to A$5.6 million for fiscal
1995 from A$4.9 million for fiscal 1994. As a percentage of net sales, oper-
ating income increased to 4.2% in fiscal 1995 from 3.9% in fiscal 1994.
Income from affiliates increased by A$303,000 to A$963,000 in fiscal 1995 from
A$660,000 in fiscal 1994 as a result of increased profitability at the
Company's New Zealand affiliate.
Interest expense increased approximately A$231,000 to A$2.2 million in fiscal
1995 from A$2.0 million in fiscal 1994. The increase related mainly to the
interest portion of capital leases for the refurbishment of Australian stores.
The Company's effective tax rate was approximately 13.1% for fiscal 1995 and
35.5% for fiscal 1994. The difference in the rates is primarily the result of
the exclusion from Australian taxation equity in income of affiliates as well
as a reduction in the valuation allowance for deferred tax assets as net oper-
ating loss carryforwards against U.S. taxes have been deemed to be more likely
than not to be realized. Excluding these items, the effective tax rate would
have been 30.1% for the year ended June 30, 1995 and 41.6% for the year ended
June 30, 1994.
QUARTERLY RESULTS AND SEASONALITY
The Company's quarterly results of operations have fluctuated, and are expected
to continue to fluctuate materially, primarily because of the seasonality asso-
ciated with the barbecue and fireplace industries and related item sales. The
timing of new store openings and related pre-opening and other startup
expenses, net sales contributed by new stores, increases or decreases in compa-
rable store sales, changes in the Company's merchandise mix and overall eco-
nomic conditions also contribute to fluctuations in the Company's quarterly
results. The Company believes this is the general pattern associated with its
segment of the retail industry and expects this pattern will continue in the
future. In order to partially offset the effects of seasonality, the Company
operates in both the Southern and Northern hemispheres, which have opposite
seasons, and offers fireplace products and (in Australia) home heaters in the
fall and winter months. In anticipation of its peak selling season, the Company
substantially increases its inventory levels and hires a significant number of
part-time and temporary employees. In non-peak periods, such as late winter and
early fall, the Company has regularly experienced monthly losses. Because of
these fluctuations in net sales and net income (loss), the results of opera-
tions of any quarter are not necessarily indicative of the results that may be
achieved for a full fiscal year or any future quarter. See "Risk Factors--
Seasonality; Weather; Fluctuations in Results."
33
<PAGE>
The following table sets forth, for the periods indicated, certain selected
statement of operations and operating data for each of the Company's last eight
fiscal quarters and the percentage of net sales represented by the line items
presented (except in the case of share and per share amounts and operating
data). The quarterly statement of operations data and selected operating data
set forth below were derived from unaudited financial statements of the Com-
pany, which in the opinion of management of the Company contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair presen-
tation thereof.
UNAUDITED ADDITIONAL QUARTERLY
CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
QUARTER ENDED
OCT 31, JAN 31, APR 30, JUL 31, OCT 31, JAN 31, APR 30, JUL 31,
In thousands, except per 1995 1996 1996 1996 1996 1997 1997 1997
share data -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales............... A$33,521 A$48,303 A$27,653 A$31,967 A$35,255 A$53,494 A$30,366 A$40,028
Cost of goods sold,
warehouse, distribution
and occupancy costs.... 22,685 32,774 20,207 22,879 24,249 35,989 20,891 27,529
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit............ 10,836 15,529 7,446 9,088 11,006 17,505 9,475 12,499
Selling, general and
administrative
expenses............... 9,933 11,402 8,736 9,576 10,088 12,351 9,798 11,930
Store pre-opening
costs.................. 82 32 -- 64 79 96 114 95
Relocation and closure
costs.................. -- -- -- 875 -- 461 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. 821 4,095 (1,290) (1,427) 839 4,597 (437) 474
Equity in income of
affiliates............. 153 539 80 87 103 109 50 138
Interest expense........ 788 603 410 438 678 710 879 881
Other expense (income).. -- (2,303) -- -- 36 1,096 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income tax............. 186 6,334 (1,620) (1,778) 228 2,900 (1,266) (269)
Income tax expense
(benefit).............. (31) 1,511 (437) (1,330) 98 847 (566) (83)
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)....... A$ 217 A$ 4,823 A$(1,183) A$ (448) A$ 130 A$ 2,053 A$ (700) A$ (186)
======== ======== ======== ======== ======== ======== ======== ========
Net income (loss) per
Ordinary Share and
Ordinary Share
equivalent............. A$ 0.05 A$ 1.05 A$ (0.26) A$ (0.10) A$ 0.03 A$ 0.56 A$ (0.36) A$ (0.10)
======== ======== ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding ........... 4,570 4,570 4,570 4,570 4,576 3,688 1,963 1,963
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been to finance store openings and
refurbishment projects, relocate the Company's manufacturing and distribution
facilities, purchase merchandise inventories and complete the Capital Reduction
and subsequent delisting from the ASE. The Company has satisfied its working
capital requirements for certain store-related expenditures and merchandise
purchases principally from cash flows from operations. The Capital Reduction
was funded by a combination of A$11.2 million in borrowings under the ANZ
Facility and A$10.0 million in proceeds from the sale of the Company's Convert-
ible Notes, which are convertible into an aggregate of 1,197,926 Ordinary
Shares in connection with the Offering. The Company believes that cash gener-
ated from operations, net proceeds received by the Company from the Offering
and funds available under credit facilities will be sufficient to satisfy its
cash requirements through the end of fiscal 1999. See "Certain Transactions--
Recent Delisting Transaction."
In July 1994, the Company and ANZ entered into the ANZ Facility. Under the ANZ
Facility as currently in effect, the Company and its subsidiaries have credit
facilities aggregating up to A$53.7 million, including a real property loan in
principal amount of A$2.2 million, a multi-purpose facility in principal amount
of A$30.0 million, a trade finance facility in principal amount of A$10.0 mil-
lion and a standby credit facility in principal amount of A$12.0 million, pri-
marily used to fund the Capital Reduction (the "Standby Facility"). Indebted-
ness under the property loan bears interest at 9.35% per annum and is subject
to a variable prepayment penalty depending on the term of the loan. As of
October 1997, the penalty would be approximately A$100,000. The majority of the
remainder of the Company's borrowings under the ANZ Facility are currently in
the form of 90- to 180-day bills, bearing interest, as of October 1997, at
approximately 5.1% per annum plus an additional percentage fee to ANZ of
approximately 1.25%. There are no significant prepayment penalties associated
with these loans. The ANZ Facility is secured by a first security interest in
all present and future assets of the Company located in Australia. The Company
has agreed to grant to ANZ, and ANZ is currently in the process of creating, a
second security interest (subordinate to a lien under the Merrill Lynch Facil-
ity) in all assets of the Company located in the United States. The ANZ
Facility is further guaranteed by each subsidiary of the Company, including
Galore USA. The Company intends to use a portion of the net proceeds of the
Offering to repay the A$11.2 million outstanding indebtedness
34
<PAGE>
under the Standby Facility, as required by the terms of the ANZ Facility,
intends to repay A$9.8 million and US$1.8 million of outstanding indebtedness
under other portions of the ANZ Facility and the Merrill Lynch facility,
respectively, and intends to leave approximately A$10.7 million outstanding
under the ANZ Facility until such loans become due in accordance with their
terms. Of this A$10.7 million, approximately A$8.5 million constitutes trade
financing which typically matures within six months of being drawn down. The
Company may use proceeds from the Offering to repay these amounts as they
become due. The ANZ Facility is subject to annual review and modification, in
accordance with standard Australian practice.
In February 1995, Galore USA entered into a five year credit facility with
Merrill Lynch. As currently in effect, such facility includes a term loan in
aggregate principal amount of US$600,000 (the "Term Loan") and a revolving line
of credit in aggregate principal amount of US$1,250,000 (the "Revolving Line,"
and collectively with the Term Loan, the "Merrill Lynch Facility").
Indebtedness under the Revolving Line and Term Loan accrues interest at the 30-
day commercial paper rates plus 2.65% or 2.70%, respectively, and is payable
monthly. The Merrill Lynch Facility is secured by a first security interest in
all Galore USA present and future assets. The Merrill Lynch Facility is
guaranteed by the Company. The Company will repay outstanding indebtedness
under the Merrill Lynch Facility in full with the proceeds of this Offering.
For the six-month period ended July 31, 1997, the seven-month period ended
January 31, 1997 and the twelve-month period ended June 30, 1996, cash flow
(used in) provided by operating activities was A$(8.5) million, A$7.2 million
and A$4.6 million, respectively. For the six-month period ended July 31, 1997,
the seven-month period ended January 31, 1997 and the twelve-month period ended
June 30, 1996, the Company's cash flow used in investing activities was
A$1.4 million, A$2.8 million and A$0.06 million, respectively. For the six-
month period ended July 31, 1997, the seven-month period ended January 31, 1997
and the twelve-month period ended June 30, 1996, the Company's cash flow
provided by (used in) financing activities was A$9.9 million, A$(4.4) million
and A$(4.4) million, respectively.
For the twelve months ended January 31, 1997, the Company's total capital
expenditures were approximately A$6.6 million, including A$2.8 million of
capital expenditures in the United States and A$3.8 million of capital
expenditures in Australia. The Company's average capital expenditures to open a
new store in the United States were approximately A$196,000 and the Company's
average capital expenditures to refurbish a store in Australia were
approximately A$400,000. In fiscal 1998, the Company anticipates that it will
spend an aggregate of approximately A$5.9 million, of which approximately A$2.2
million will be spent on U.S. store expansion and approximately A$2.5 million
will be spent on the Australian store refurbishment program. In fiscal 1999,
the Company currently anticipates that it will spend an aggregate of
approximately A$9.0 million, of which approximately A$3.9 million will be spent
on U.S. store expansion and approximately A$2.9 million will be spent on the
Australian store refurbishment program. The Company currently expects to fund
the foregoing capital expenditures in the United States and Australia using a
portion of the net proceeds from the Offering and net cash flow from
operations. The actual costs that the Company will incur in connection with the
opening and refurbishment of future stores cannot be predicted with precision
because such costs will vary based upon, among other things, geographic
location, the size of the stores and the extent of remodelling required at the
selected sites. See "Use of Proceeds" and "Business--Store Expansion and
Refurbishment."
In October 1996, the Company, SBC Warburg Dillon Read Australia Limited ("SBC
Warburg Australia"), as representative of the Noteholders, and certain
principal shareholders of the Company entered into certain debt instruments,
pursuant to which the Company issued and sold A$10.0 million in aggregate
principal amount of Convertible Notes in December 1996. By their terms, the
Company has the power to redeem the debt instruments upon a listing of the
Company's securities on a recognized stock exchange or securities market, a
condition which will be satisfied upon consummation of the Offering. The
holders of all of the Convertible Notes have agreed to convert such notes into
1,197,926 Ordinary Shares of the Company immediately prior to consummation of
this Offering. Certain holders of Ordinary Shares acquired upon conversion of
the Convertible Notes are Selling Shareholders in the Offering, selling an
aggregate of 450,000 Ordinary Shares (802,500 Ordinary Shares if the
Underwriters' over-allotment option is exercised in full) acquired upon
conversion of the Convertible Notes. See "Certain Transactions--Recent
Delisting Transaction" and "Selling Shareholders."
The Company enters into foreign currency forward contracts as a means of
offsetting fluctuations in the dollar value of foreign currency accounts.
Typically these are U.S. dollar-denominated contracts with major financial
institutions and have settlement dates of less than one year. At January 31,
1997 and June 30, 1996, the estimated notional amount of these contracts was
A$4.2 million and A$6.2 million, respectively.
NEW PRONOUNCEMENTS BY FINANCIAL ACCOUNTING STANDARDS BOARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 specifies new standards designed to improve the earnings per share
35
<PAGE>
("EPS") information provided in financial statements by simplifying the
existing computational guidelines, revising the disclosure requirements and
increasing the comparability of EPS data on an international basis. Some of the
changes made to simplify the EPS computations include: (a) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
differences being that common stock equivalents are not considered in computing
basic EPS, (b) eliminating the modified treasury stock method and the three
percent materiality provision and (c) revising the contingent share provisions
and the supplemental EPS data requirements. SFAS No. 128 also makes a number of
changes to existing disclosure requirements. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company estimates that the implementation of
SFAS No. 128 will not have a material impact on the Company's financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial state-
ments. SFAS No. 130 is effective for financial statements issued for periods
beginning after December 15, 1997. The Company has not determined the impact of
SFAS No. 130 on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997. The Company has not determined the impact of SFAS No. 131 on its con-
solidated financial statements.
36
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
GENERAL
Barbeques Galore is the leading specialty retail chain of barbecue and barbecue
accessory stores in Australia and the United States. Barbeques Galore stores
carry a wide assortment of barbecues and related accessories which are dis-
played in an open and inviting store format that emphasizes social activities
and healthy outdoor lifestyles. Its stores also carry a comprehensive line of
fireplace products and, in Australia, home heating products, camping equipment
and outdoor furniture. As of July 31, 1997, the Company owned and operated 32
stores in all six states in Australia and 32 stores (including three U.S. Navy
concession stores) in six states in the United States. In addition, as of such
date, there were 45 licensed stores in Australia and six franchised stores in
the United States, all of which operate under the "Barbeques Galore" name.
The Company's net sales have increased by A$13.6 million to A$148.4 million for
the twelve months ended January 31, 1997 (A$41.0 million in the United States
and A$107.4 million in Australia) from A$134.8 million for the twelve months
ended January 31, 1995 (A$29.1 million in the United States and A$105.7 million
in Australia). For the six-month period ended July 31, 1997, the Company's net
sales increased by A$10.8 million, to A$70.4 million (A$32.5 million in the
United States and A$37.9 million in Australia) from A$59.6 million (A$22.2 mil-
lion in the United States and A$37.4 million in Australia) for the six-month
period ended July 31, 1996. This growth resulted primarily from the opening of
nine new stores and growth in comparable store sales during the periods
involved. The comparable store sales increase for the six months ended July 31,
1997 was 17.8% in the United States and 6.8% in Australia.
The Company's growth strategy is to substantially expand its U.S. store base
and to refurbish (through relocating or remodelling) existing stores in Austra-
lia. In the United States, since January 31, 1994, the Company has grown from
17 to 32 Company-owned stores (including three U.S. Navy concession stores),
representing an 88% increase in the number of owned stores. The Company cur-
rently plans to open approximately 10 new stores in the United States in 1997
of which five have opened, four are under construction and one is in lease
negotiation. The Company also currently intends to open 15 to 20 new stores in
the United States in each of 1998 and 1999. In addition, the Company has initi-
ated a major refurbishment plan for its Australian store base to enhance store
productivity. Since January 31, 1994, 14 stores have been refurbished in Aus-
tralia, resulting in an approximately 45% average increase in sales through
July 1997 for those stores.
COMPANY HISTORY
Barbeques Galore opened its first store in Sydney, Australia in 1977 to serve
an unfilled niche in the retail market for versatile, well-designed barbecues.
Since then, the Company has become the leading barbecue retailer in Australia,
with an estimated 90% consumer awareness level and an approximately 30% retail
market share. In 1980, the Company opened its first U.S. store in Los Angeles
to assess U.S. market opportunities.
During the 1980s, the Company vertically integrated its operations by expanding
into barbecue manufacturing in order to capture higher margins, control product
development and improve inventory flexibility and supply. Fireplace products
and, in Australia, home heaters were added to take advantage of the winter
selling season. In Australia, the Company further diversified its product line
through the addition of camping equipment and outdoor furniture, both of which
complement the Company's main barbecue line.
In April 1987, the Company listed its Ordinary Shares on the ASE. In October
1996, as part of its plans to accelerate new store expansion in the United
States, the Company announced its intention to repurchase shares from the
public and delist from the ASE (pursuant to a transaction which was consummated
as of December 31, 1996) and to seek capital in the United States. The Company
believes that as a result of these actions it will be better positioned to suc-
cessfully implement its growth strategy, particularly in the United States. See
"Certain Transactions--Recent Delisting Transaction."
BARBECUE INDUSTRY OVERVIEW
Industry sources estimate that the barbecue market (excluding accessory sales)
generated approximately US$1.3 billion in retail sales in the United States
during 1996 (approximately 10.0 million barbecue units) and approximately
A$136.2 million in retail sales in Australia during the 1996 summer sales
season (approximately 425,000 barbecue units). These
37
<PAGE>
sources estimate that total barbecue sales volume in Australia grew at an
average annual rate of 4.0% between the 1993 and 1996 summer sales seasons and
that U.S. barbecue sales have increased from approximately 9.2 million to 10.0
million units annually during such period. In particular, gas barbecues are
gaining popularity, with annual sales increasing from US$0.9 billion to US$1.1
billion during the same period. The Company believes that nearly half of all
barbecues are purchased to replace an existing grill, and that the barbecue
market serves as a platform for sales of barbecue accessories in both the
United States and Australia.
The Company believes that various demographic trends have led to the increased
popularity of outdoor cooking. Specifically, the Company believes that there
has been a shift toward consumers wanting to spend more quality time together
in family gatherings and social activities around the home, as well as an
increased desire to be outdoors. As a pleasant and inexpensive outdoor activ-
ity, barbecuing is increasing in popularity due to its convenience (especially
in the case of gas barbecues), great flavors and easy clean-up. Furthermore, as
consumers are turning decks, patios and other outdoor spaces into entertainment
centers and "virtual" outdoor kitchens, they are increasingly seeking barbecues
with enhanced features along with a wide array of barbecue accessories. The
Company believes that its strong focus on barbecues and related accessories
positions it to capitalize on these trends and provides significant opportuni-
ties for future growth.
BUSINESS STRENGTHS
Barbeques Galore is the leading specialty retail chain of barbecue and barbecue
accessory stores in Australia and the United States. The Company believes that
the following business strengths have contributed significantly to its success
in the past and intends to further capitalize on these strengths in executing
its growth strategy:
Extensive Selection of Merchandise. Barbeques Galore offers an extensive selec-
tion of quality barbecues and barbecue accessories designed to suit all con-
sumer lifestyles, preferences and price points. Its stores offer a wide variety
of barbecues, with a full range of styles, finishes and special features,
including the Company's proprietary brands as well as more than 60 other barbe-
cues under different brand names. Accompanying these barbecues are a wide
assortment of barbecue replacement parts and accessories which generate high
margins. As the leading retail chain specializing in barbecues and related mer-
chandise, Barbeques Galore offers consumers one-stop shopping convenience for
virtually all of their barbecue cooking needs.
Exciting Store Environment. The Company's stores offer an exciting shopping
environment which is consistent with its outdoor lifestyle image and promotes
the total barbecuing experience. The Company's newer stores generally have high
ceilings, wide aisles and extensively use natural materials such as wood and
stone. Merchandise is attractively displayed to convey the breadth and depth of
the Company's product lines. A wide array of barbecues are displayed on the
selling floor complete with accessories to provide the consumer the opportunity
to compare and contrast different models. Store presentation is based on a
detailed and comprehensive store plan regarding visual merchandising to assure
that all stores provide a consistent portrayal of the Barbeques Galore image.
Average store retail selling area is approximately 3,300 square feet in the
United States and 8,400 square feet in Australia.
Exceptional Customer Service. The Company recognizes that exceptional customer
service is fundamental to its success. The Company has a "satisfaction guaran-
teed" return policy and honors all manufacturer warranties for products sold at
its stores. Store managers and sales associates undergo extensive product and
sales training programs which enable them to recommend merchandise that satis-
fies each customer's lifestyle and needs. The Company monitors each store's
service performance and rewards high quality customer service both on a team
and individual level. The Company believes that its employees' extensive knowl-
edge of its product offerings and the overall barbecue market, and their under-
standing of customer needs, are critical components of providing excellent cus-
tomer service and distinguish it from its competitors.
Convenient Store Locations. The Company positions its stores in locations that
maximize convenience and accessibility. Stores are typically situated at highly
visible locations and in close proximity to middle to upper-income residential
neighborhoods or areas of new housing construction. Stores generally feature
ample customer parking space and ready access to major thoroughfares. Many
stores are situated in retail power centers or close to complementary retail
stores, further attracting customer traffic. As a result of its site selection
criteria, the Company believes it has been highly effective in identifying suc-
cessful new store locations.
38
<PAGE>
Integrated Manufacturing Operation; New Product Development. Through its verti-
cally integrated operations, the Company manufactures a proprietary line of
barbecues and home heaters for its retail stores. In addition, the Company has
an experienced in-house research and development team dedicated to barbecue and
home heater market analysis and product development that can quickly identify
and respond to changing consumer trends. The Company believes that controlling
its own manufacturing operations allows it to realize higher margins, control
product development and improve inventory flexibility and supply.
Experienced Management Team. The Company's senior management team has an
average of more than 28 years of retail industry experience. Since the current
executive management team assumed responsibility in 1982, the number of
Barbeques Galore stores has grown from 12 stores (including one licensed store)
as of June 30, 1982 to 116 stores (including 51 licensed or franchised stores)
as of July 31, 1997. The Company believes that management's substantial experi-
ence strongly positions it to execute its business and growth strategies. Upon
completion of the Offering, the executive officers of the Company will benefi-
cially own approximately 35.1% of the Company's outstanding Ordinary Shares.
See "Principal Shareholders."
GROWTH STRATEGY
The Company is implementing the following growth strategy to further capitalize
on its business strengths:
U.S. New Store Expansion. The Company believes it has a strong opportunity to
significantly expand its store presence in the United States and is imple-
menting a program for substantial new Company-owned store expansion to capi-
talize on its unique retail concept. The Company currently plans to open
approximately 10 new stores in 1997 of which five have opened, four are under
construction and one is in lease negotiation. The Company also currently
intends to open 15 to 20 new stores in each of 1998 and 1999. The Company's
store expansion strategy is to penetrate selected new markets while simultane-
ously expanding existing markets to increase market share and operating lev-
erage without cannibalizing the productivity of existing stores. Although a
major portion of the initial store expansion is being targeted at large metro-
politan markets in Sunbelt states (from California to the Carolinas), the Com-
pany believes that its retail concept has national potential and may consider
entering markets in the Pacific Northwest, Mid-Atlantic and Northeast regions.
The Company's ability to implement its expansion plans will depend upon a
number of factors further discussed in "Risk Factors--Implementation of Growth
Strategy."
Refurbishment of Existing Australian Stores. The Company believes that it can
continue to enhance store productivity in Australia through further refurbish-
ment of its existing Australian store base. Since initiating its store refur-
bishment program in April 1994, the Company has refurbished 14 stores (re-
sulting in an approximately 45% average increase in sales through July 1997 for
those stores) and opened four new stores. In 1997, the Company plans to remodel
five existing stores, open one new store, relocate one store and close one
store. Under its current plans, the Company intends to refurbish five stores
and open one new store in 1998 and refurbish two stores and open two new stores
in 1999. The Company intends to relocate a number of these stores in retail
power centers or close to complementary retail stores which fit the Company's
desired demographics and other site selection standards. Refurbished stores
will be upgraded to replicate the Company's new prototype store environment.
MERCHANDISING
Merchandise Categories. Barbeques Galore's unique merchandising concept differ-
entiates the Company from its competitors by offering a breadth and depth of
high quality, competitively-priced proprietary and other brand name barbecues
and barbecue accessories which management believes is generally not available
from any other single retailer.
Barbeques Galore offers an extensive selection of barbecues and barbecue acces-
sories designed to suit all consumer lifestyles, preferences and price points.
Its stores offer a wide variety of gas, charcoal and electric barbecues,
including barbecues manufactured by the Company under its proprietary Turbo,
Capt N Cook, Cook-On and Bar-B-Chef brands as well as more than 60 other barbe-
cues under different brands, including those made by Weber-Stephen Products
Co., Sunbeam, Rinnai, Onward Multi-Corp. (Broil King and Broil Mate), Meco,
DCS, Fiesta and other grill manufacturers. The Company's proprietary barbecues
generally generate higher gross margins than barbecues of other manufacturers.
For the twelve months ended January 31, 1997, proprietary barbecue retail sales
represented approximately 33% and 34% of the Company's total net sales in the
United States and Australia, respectively.
39
<PAGE>
Customers can choose among barbecues with a full range of styles (kettle,
table-top, patio-bases, carts, built-in, portable and others), finishes (from
stainless steel to colorful porcelain-enamelled steel) and special features
(such as side burners, multiple burners, warming racks, rotisseries, griddle
plates and electronic ignition and other touch controls). Accompanying these
barbecues are a wide assortment of barbecue replacement parts (including many
hard-to-find items) and accessories, including tools, grill brushes, utensils,
covers, smokers, rotisseries, griddles, fryers, kabob racks, cleaners, char-
coal, wood chips and custom barbecue "islands," as well as a variety of bar-
becue sauces, marinades, spices, rubs, aprons, mitts, cookbooks, cooking video-
tapes and other grill novelties. In general, accessories not only generate
impulse purchases and encourage repeat business, but also command higher mar-
gins than barbecues. Accordingly, as part of its ongoing merchandising strat-
egy, the Company intends to increase sales of barbecue accessories as a percent
of total retail sales. Under a cross-branding arrangement, certain stores in
the United States also offer gourmet steaks and food products made and distrib-
uted by Omaha Steaks International, Inc., a national mail order vendor.
In addition, to complement the Company's main barbecue and related accessory
line and to take advantage of the winter selling season, Barbeques Galore
stores also carry a comprehensive line of fireplace products and, in Australia,
a full line of gas and wood home heaters. Australian stores also offer camping
equipment (including tents, sleeping bags, coolers and outdoor cookware) and
outdoor furniture (including deck furniture, picnic tables, standing umbrellas
and lounge chairs) to benefit from of the lack of any dominant national
retailer of such merchandise. These products broaden customer appeal, generate
additional customer traffic and repeat business and improve overall store pro-
ductivity.
The following table sets forth the Company's five major merchandise categories
as an approximate percentage of net sales in the United States and Australia
for the twelve months ended January 31, 1997:
<TABLE>
<CAPTION>
-------------------------------
UNITED STATES AUSTRALIA TOTAL
------------- --------- -----
<S> <C> <C> <C>
Barbecues.............................. 70.3% 55.0% 59.2%
Barbecue Accessories................... 21.0 6.2 10.3
Home Heaters and Fireplace Products.... 8.7 13.7 12.3
Camping Equipment...................... -- 17.6 12.8
Outdoor Furniture...................... -- 7.5 5.4
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>
Competitive Pricing. The Company's stores and advertisements guarantee that
Barbeques Galore will beat any advertised price for the same product. In addi-
tion, through its manufacturing capabilities, the Company offers a high quality
proprietary line of barbecues that generates higher margins than other manufac-
turers' products. The Company believes that it maintains its price-competitive-
ness and higher margins by benefitting from its in-depth knowledge of the bar-
becue market and its size and purchasing power, resulting in volume discounts
and special vendor arrangements. As a result, the Company is able to focus on
providing an exciting store environment and superior customer service, while
maintaining competitive prices.
STORE ENVIRONMENT
The Company's stores offer an exciting shopping environment which is consistent
with its outdoor lifestyle image and promotes the total barbecuing experience.
The Company's newer stores generally have high ceilings, wide aisles and exten-
sively use natural materials such as wood and stone. Merchandise is attrac-
tively displayed to convey the breadth and depth of the Company's product
lines. A wide array of barbecues are displayed on the selling floor complete
with accessories to provide the consumer the opportunity to compare and con-
trast different models. Colorful signage identifies "store-within-stores" fea-
turing accessories, fireplace and do-it-yourself replacement parts. In many
stores, large and colorful lifestyle photographs depict the products being used
in family gatherings and social events. Certain barbecue accessories and sea-
sonally popular merchandise are displayed in wooden bulk bins and near store
counters to promote impulse purchases. Store presentation is based on a
detailed and comprehensive store plan regarding visual merchandising to assure
that all stores provide a consistent portrayal of the Barbeques Galore image.
Management believes that its store design encourages customers to browse in
Barbeques Galore stores at a comfortable pace and shop for longer periods of
time, thereby exposing customers to more product offerings.
The Company continuously updates its store design to keep up with changing
trends. The Company has developed a new generation of prototype designs for its
stores with many of the elements described above, and has incorporated such
designs in new U.S. stores (Austin, Dallas (Grapevine), Houston (Stafford),
Pasadena and San Antonio) as well as new or refurbished Australian stores. See
"--Store Expansion and Refurbishment--New Store Expansion."
40
<PAGE>
STORE EXPANSION AND REFURBISHMENT
New Store Expansion. The Company believes it has a strong opportunity to sig-
nificantly expand its store presence in the United States and is implementing
a program for substantial new Company-owned store expansion to capitalize on
its unique retail concept. The Company currently plans to open approximately
10 new stores in 1997, of which five have opened, four are under construction
and one is in lease negotiation. The Company also currently intends to open 15
to 20 new stores in the United States in each of 1998 and 1999. The Company's
store expansion strategy is to penetrate selected new markets while simultane-
ously expanding existing markets to increase market share and operating lev-
erage without cannibalizing the productivity of existing stores. Although a
major portion of the initial store expansion is being targeted at large metro-
politan markets in Sunbelt states (from California to the Carolinas), the Com-
pany believes that its retail concept has national potential and may consider
entering markets in the Pacific Northwest, Mid-Atlantic and Northeast regions.
In evaluating potential markets and specific store locations, the Company con-
siders demographic factors such as population, income levels, number of single
family homes and housing starts, as well as other factors such as visibility,
accessibility, lot size, proximity to heavy traffic and ample parking. Many
stores are situated in retail power centers or close to complementary retail
stores, further attracting customer traffic. Given its rapid store expansion
strategy, the Company has retained outside real estate consultants to assist
in site selection and lease negotiations. Once a site has been determined and
becomes available, the Company is generally able to open a store within six to
eight weeks due to its standardization of store design, merchandise displays
and store operations. As a result of its site selection criteria, the Company
believes it has been highly effective in identifying successful new store
locations. The Company's ability to implement its expansion plans will depend
upon a number of factors further discussed in "Risk Factors--Implementation of
Growth Strategy."
The following table highlights the existing and planned U.S. store expansion
in 1997:
<TABLE>
<CAPTION>
----------------------------------------
NEW STORE LOCATION(1) SELLING SQUARE FEET CURRENT STATUS
--------------------- ------------------- --------------------
<S> <C> <C>
Pearl Harbor, HI(2)........... 2,000 Opened in March 1997
Mandarin (Jacksonville),
FL(3)........................ 3,000 Opened in March 1997
Stafford (Houston), TX........ 3,600 Opened in April 1997
Pasadena, CA.................. 3,500 Opened in April 1997
San Antonio, TX............... 3,600 Opened in May 1997
Valencia (Los Angeles), CA.... 3,600 Under construction
Encinitas (San Diego), CA..... 3,600 Under construction
Houston, TX................... 3,600 Under construction
Lewisville (Dallas), TX....... 3,600 Under construction
Atlanta, GA(4)................ 3,500 Under construction
San Rafael, CA................ 3,300 Finalizing lease
</TABLE>
- -------
(1) In addition to those listed above, the Company plans to open or execute
leases for at least three more stores during the remainder of 1997 and expects
to open these stores in 1998.
(2) Navy concession store.
(3) Assumed from franchisee.
(4) Franchise store.
The implementation of the U.S. store expansion program is subject to a number
of variables. See "Risk Factors--Implementation of Growth Strategy."
U.S. Store Economics. For the twelve months ended April 30, 1997, the
Company's owned stores in the United States (that were open for at least 12
months) averaged US$1.3 million in net sales and produced approximately US$398
of net sales per selling square foot. The average cost of leasehold improve-
ments, furniture and fixtures acquired for these stores during the period was
approximately US$7,400 per store after taking into account landlord contribu-
tions. Inventory holdings at such stores averaged US$124,000. These stores
generated an average store level contribution (store operating income after an
allocation of distribution expenses but before store pre-opening expenses and
non-cash items such as depreciation) of approximately US$150,000 in that
period. For the twelve months ended July 31, 1997, the Company's United States
net sales were derived 90% from existing stores and 10% from the eight new
stores opened in the period.
For new stores in the United States, the Company estimates that the average
cost of leasehold improvements, furniture and fixtures will range from approx-
imately US$100,000 to US$160,000 per store, after taking into account landlord
contribu-
41
<PAGE>
tions, depending on the condition of the site. Start-up inventory purchases for
new stores are estimated at between US$120,000 and US$150,000 per store and
pre-opening costs (which are expensed in the period in which the store opens)
are estimated to be US$40,000 per store. New Barbeques Galore stores opened in
the United States from March 1, 1994 to April 30, 1996 generated an average of
US$90,000 of store level contributions (before store pre-opening expenses and
non-cash items such as depreciation) during their first twelve months of opera-
tion.
Refurbishment of Existing Australian Stores. The Company believes that its
strong brand name recognition and infrastructure position it to enhance store
productivity in Australia through further refurbishment of its existing Austra-
lian store base. Since initiating its store refurbishment program in April
1994, the Company has refurbished 14 stores (resulting in an approximately 45%
average increase in sales through July 1997 for those stores) and opened four
new stores. In 1997, the Company plans to remodel five existing stores, open
one new store, relocate one store and close one store. Under its current plans,
the Company intends to refurbish five stores and open three new stores in 1998
and refurbish two stores and open two new stores in 1999. The Company intends
to relocate a number of these stores in retail power centers or close to com-
plementary retail stores which fit the Company's desired demographics and other
site selection standards. Refurbished stores will be upgraded to replicate the
Company's new prototype store environment. For the twelve months ended July 31,
1997, 78% of Australian retail sales were derived from existing stores, 20%
from refurbished or relocated stores, and 2% from the one new store opened in
the period.
The Company estimates that the cost of such store relocations or remodellings
will generally range from approximately A$350,000 to A$450,000 per store,
depending on the required level of leasehold improvements and replacement fur-
niture, fixtures and inventory. Management believes that such store relocations
will position the Company within potentially significant new markets in Austra-
lia, and that such store remodellings will increase customer traffic and compa-
rable store sales.
The following table highlights the modifications the Company plans to make to
its Australian store base in 1997:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SELLING
STORE LOCATION (STATE) SQUARE FEET MODIFICATION CURRENT STATUS
- ---------------------- ----------- --------------------------- -----------------------------------
<S> <C> <C> <C>
Richmond 21,600 Refurbishment--Stage 2 Completed
(Victoria)
Osborne Park 9,700 New Completed
(Western
Australia)
Modbury 9,200 Relocation of Holden Hill Completed
(South
Australia)
Woolloongabba 8,500 Refurbishment Completed
(Queensland)
Moore Park 3,300 Minor refurbishment Completed
(New South
Wales)
Northland 10,800 Expansion and refurbishment Under construction
(Victoria) (close Thomastown store) (expected completion: October 1997)
</TABLE>
The implementation of the Australian store refurbishment program is subject to
a number of variables. See "Risk Factors --Implementation of Growth Strategy."
CUSTOMER SERVICE
The Company believes that its employees' extensive knowledge of its product
offerings and the overall barbecue market, and their understanding of customer
needs, are critical components of providing excellent customer service and dis-
tinguish it from its competitors. Store managers and sales associates undergo
extensive product and sales training programs, receiving instruction in all
aspects of the Company's products and store operation, as well as cooking clas-
ses. In order to attract and retain highly motivated employees committed to
providing exceptional customer service, the Company emphasizes competitive
wages, bonuses and commissions, and career path development. Sales associates
are expected to greet each customer, discuss the customer's needs, suggest mer-
chandise that satisfies the customer's lifestyle and barbecuing preferences,
and recommend accessories that enhance the use and enjoyment of such merchan-
dise. The Company centralizes many key aspects of its operations such as its
distribution, inventory, human resource functions and management
42
<PAGE>
information systems, in order to allow store employees to focus their efforts
and attention on customer service. The Company monitors each store's perfor-
mance on an on-going basis through customer comment forms, anonymous spot-check
visits by outside consultants, focus group sessions and regular customer care
surveys. The Company also rewards high quality customer service through cash
awards, special incentives such as free dinners and vacations and commendation
plaques.
Barbeques Galore stores offer barbecue assembly, home delivery and repair serv-
ices. The Company's "satisfaction guaranteed" return policy permits customers
who are not completely satisfied with their purchases to return items for an
exchange, credit or refund. The Company also honors all manufacturer warranties
for products sold at its stores.
MARKETING AND PROMOTION
The Company's principal marketing strategy is to capitalize on the growing
interest in leisure, entertainment and family quality time by emphasizing the
fun and healthy outdoor lifestyle aspects of its products in its marketing and
promotional campaigns.
The Company promotes this image in a variety of media. Catalogs and sales bro-
chures containing color pictures of products and accessories being used in
social settings are made available to customers at each store and are sent to
customers on store mailing lists and in direct mail campaigns. In order to
attract first-time customers and increase repeat store visits, the Company reg-
ularly runs highly visible newspaper advertisements in selected markets. Tele-
vision and radio commercials appear periodically during peak seasonal periods
or to publicize promotional events. Barbeques Galore also promotes its store
grand openings, conducts in-store barbecue and cooking demonstrations where
permissible, and appears at home, garden and trade shows. In the past, the Com-
pany has sponsored cross-promotions with other popular retail chains. Total
retail advertising expenditures represented 5.9% of net retail sales during the
twelve months ended January 31, 1997.
STORE OPERATIONS
The Company has five district managers in the United States and four regional
supervisors in Australia, each of whom is responsible for the store operations
within his or her district or region. The district managers report to the Vice
President and Director of Operations in the United States and the regional
supervisors report to the General Manager of Retail/Licensees in Australia.
Each district manager or regional supervisor trains, develops and works
directly with store managers to monitor store performance and ensure adherence
to the Company's merchandising guidelines and operating standards. Incentive
compensation for district managers and regional supervisors is tied to the
achievement of specified sales and operating profit targets.
The typical staff of a Barbeques Galore store consists of a store manager, an
assistant store manager, up to five hourly sales associates and a service tech-
nician. Part-time sales associates, cashiers and technicians are added during
peak seasons or busy periods as necessary. The Company seeks to recruit and
retain highly motivated employees who are committed to providing friendly and
knowledgeable service. The Company recruits its store employees primarily
through on-campus interviews, professional recruiters and referrals, and con-
ducts four to eight-week training programs. In order to emphasize career
advancement opportunities, the Company has established defined career paths for
store employees and generally promotes district managers and store managers
from within the ranks of its sales force. In the United States, store managers
are paid a salary plus commissions based on gross sales volume and a bonus
based on store profit performance, while sales associates receive commissions
only. Australian store managers and sales associates receive a salary and par-
ticipate in store bonus pools based on store profit performance. See "--Cus-
tomer Service."
The Company has centralized many key aspects of its operations, including
development of merchandising policies and procedures, accounting systems,
hiring and training, purchasing and marketing, at its headquarters in both Aus-
tralia and Irvine, California. The Company also plans to centralize store
inventory replenishment through the integration of its central distribution
system with its point-of-sale ("POS") terminals. As a result, store employees
will be able to focus their efforts and attention on customer service, while
ensuring that stores meet the high quality standards set by Barbeques Galore.
MANUFACTURING
In its Australian factory facilities, the Company manufactures barbecues under
its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands and certain
private label brands, as well as home heaters under its proprietary Norseman
and Kent brands. During the twelve months ended January 31, 1997, approximately
33% of the Company's net sales in the United States, and approximately 34% of
the Company's net sales in Australia, were represented by barbecues manufac-
43
<PAGE>
tured by the Company. The Company believes that controlling its own manufac-
turing operations allows it to realize higher margins, control product devel-
opment and improve inventory flexibility and supply, without affecting its
relationships with third party vendors. The Company's manufacturing operations
are closely coordinated with its research and development activities. The Com-
pany has a research and development team which is dedicated to barbecue market
analysis and product development. The ten members of this research and devel-
opment team have an average of over 10 years of industry experience. The team
continuously studies sales data, customer feedback, consumer trends and
product designs, working closely with the Company's other departments (in both
the United States and Australia) and suppliers to develop the annual Barbeques
Galore product line. The Company expended approximately A$1.2 million, A$1.1
million and A$1.1 million during the twelve-month periods ended January 31,
1995, 1996 and 1997, respectively, on research and development activities.
In the manufacturing process, metal barbecue frames are constructed at the
Company's factory, located at its headquarters in Sydney, Australia, before
being shipped off-site to its enamelling operations or third party painting
facilities, where they are coated and finished or painted before being re-
delivered to the factory floor. Gas barbecue manifolds are assembled by hand
and tested individually at the factory for compliance with Australian Gas
Association and American Gas Association standards. Barbecues are then assem-
bled in the factory's automated production line from the completed frames,
burners and other parts (or, in certain cases, shipped to the Company's U.S.
distribution center for assembly). While keeping the same breadth of product
line, the Company has recently rationalized the number of frames it manufac-
tures from 19 to 12 to extend production runs, improve inventory control and
promote efficiency. Barbeques Galore maintains strict quality control stan-
dards and its barbecues are under limited warranty for one to ten years from
the date of retail purchase, depending on the part being warranted.
Management believes that the Company's existing manufacturing and enamelling
operations are sufficient to meet anticipated production increases that may
arise from its current store expansion and refurbishment programs. The Company
estimates that its plants currently have the capacity to increase barbecue
output by approximately 30% without any material capital expenditures, and
believes this is sufficient to meet its expansion needs through 1999. The Com-
pany further believes it could approximately double current output through the
addition of six new steel presses (at an aggregate cost of A$1.5 million to
A$2.0 million) and extra worker shifts.
In order to streamline its manufacturing operations to enhance production
efficiencies, in July 1996, the Company relocated its barbecue manufacturing
operations to the location of its corporate headquarters and distribution
center in Sydney, Australia. The Company currently plans to relocate its enam-
elling operations to the same facilities, add an in-line powder coating opera-
tion and rearrange the assembly, warehouse and distribution operations to
improve production flow, inventory control and distribution management. These
changes are scheduled to occur in the first half of 1998 and will cost an
estimated A$454,000 (against which A$369,000 has already been accrued) and
will require capital expenditures of approximately A$2.2 million. See "Manage-
ment's Discussion and Analysis of Financial Condition and Results of Opera-
tions" and "Risk Factors--Management of Operational Changes."
PURCHASING
The Company believes that it has good relationships with its merchandise ven-
dors and suppliers of parts and raw materials and does not anticipate that, as
the number of its stores or its manufacturing volume increases, there will be
any significant difficulty in obtaining adequate sources of supply in a timely
manner and on satisfactory economic terms.
Retail. The Company deals with its merchandise vendors principally on an
order-by-order basis and does not maintain any long-term purchase contracts
with any vendor. Merchandise mix is purchased for its U.S. and Australian
stores by the Company's central buying staffs in its respective headquarters.
In selecting merchandise, the buying staffs obtain input from a variety of
sources, including the Company's research and development team, store employ-
ees, focus groups, customer surveys, industry conventions and trade shows.
During the twelve months ended January 31, 1997, the Company purchased its
inventory from over 400 vendors in the United States, Australia and the Far
East. No single vendor accounted for more than 5% of merchandise purchases
during this period, although the Company considers certain brands to be sig-
nificant to its business, especially in the United States. Approximately 25%
of the Company's merchandise purchases were obtained in such period from the
Company's ten largest vendors. See "Risk Factors--Risks Associated with Inter-
national Operations; Dependence on Significant Vendors and Suppliers."
Manufacturing. The Company also purchases parts and raw materials for use in
its manufacturing and enamelling operations. During the twelve months ended
January 31, 1997, the Company's buying staffs purchased barbecue and home
heater parts from over 50 suppliers in Asia, Australia and North America. No
single supplier accounted for more than 5% of factory parts and raw material
purchases during this period, other than Horan's Steel (an Australian steel
distributor) and
44
<PAGE>
Bromic Pty. Ltd. ("Bromic"), an Australian gas components importer, which
accounted for approximately 19% and 21% of these purchases, respectively.
Other major suppliers of barbecue components include G.L.G. Trading Pte. Ltd.
("GLG Taiwan"), a Taiwanese company that purchases grills, burners and other
products directly from factories in China and Taiwan. The Company has a 50%
ownership interest in GLG Taiwan and a one-third ownership interest in Bromic.
Approximately 73% of the Company's factory parts and raw material purchases
were obtained in such twelve-month period from the Company's ten largest sup-
pliers. In order to set production budgets, the price of certain parts and raw
materials such as steel are negotiated and fixed well in advance of production
usage. The Company uses back-up suppliers to ensure competitive pricing. In
addition, some of the Company's key suppliers currently provide the Company
with certain purchasing incentives, such as volume rebates and trade dis-
counts. See "Risk Factors-- Risks Associated with International Operations;
Dependence on Significant Vendors and Suppliers" and "--Manufacturing."
DISTRIBUTION
The Company maintains a 44,000 square foot distribution center at its U.S.
headquarters in Irvine, California and a 121,000 square foot distribution
center at its Australian headquarters. The Company also uses smaller ware-
houses in Perth (operated by an independent distributor) and Brisbane, Austra-
lia, for its wholesale and licensee distribution operations and leases addi-
tional public warehouse space in Sydney and Texas as necessary.
Merchandise is delivered by vendors and suppliers to the Company's distribu-
tion facilities and, in certain instances, directly to stores, where it is
inspected and logged into the Company's centralized inventory management sys-
tems. Merchandise is then shipped by Company trucks or third party surface
freight weekly or twice weekly, providing stores with a steady flow of mer-
chandise. Shipments by the Company's Australian operations to its Irvine dis-
tribution center are made by third party sea freight, so that its Irvine dis-
tribution center can maintain about two to three months of Company-manufac-
tured inventory at all times, which the Company believes is sufficient to meet
expected U.S. store requirements for such products.
The Company maintains separate inventory management systems in Australia and
the United States which allows it to closely monitor sales and track in-store
inventory. Current plans include the introduction of an automated store inven-
tory replenishment system in order to better manage its inventory. The Company
estimates that its inventory shrinkage represents no more than 0.5% of its
aggregate retail sales.
As the Company expands into new regions or accelerates the rate of its U.S.
store expansion, it may eventually need additional warehouse capacity. In
order to meet such needs and to minimize the impact of freight costs, the Com-
pany intends to secure another distribution center, expand its current ware-
house facilities in the United States or utilize public warehousing space.
Management believes that there is an ample supply of warehousing space avail-
able at commercially reasonable rates. Wherever possible, the Company also
solicits the cooperation of its vendors, through drop shipments to public
warehouses and/or stores, in order to reduce its freight and handling costs.
The Company believes that its existing Australian distribution arrangements,
together with public warehousing space as needed, are sufficient to meet its
current needs.
MANAGEMENT INFORMATION SYSTEMS
In the United States, the Company has installed a JDA Software Group Inc.
("JDA") system on an IBM AS400 platform, which allows it to manage distribu-
tion, inventory control, purchasing, sales analysis, warehousing and financial
applications. The Company currently runs its general ledger and accounts pay-
able applications on its pre-existing computer system, but intends to transfer
these functions to the more powerful JDA system in the near future. At the
store level, the Company has installed POS computer terminals as its cash reg-
isters in all stores. Each POS terminal is equipped with a bar code scanner
for ease of product input and validation. Each store's transaction data is
captured by its POS terminals and transferred into the main JDA system daily.
The JDA system provides extensive reporting and inquiry capability at both the
store and corporate levels, including daily transaction data, margin informa-
tion, exception analysis and stock levels. Additionally, the system permits
inventory and pricing updates to be electronically transmitted to the stores
on a daily basis.
In Australia, Barbeques Galore has installed a system which runs on a proprie-
tary Wang VS software environment, together with a Novell network utilizing
Microsoft applications. This software processes all distribution, warehouse
management,
45
<PAGE>
inventory control, purchasing, merchandising, financial and office automation
applications. As in the United States, each store in Australia is equipped with
POS terminals that receive pricing and inventory information and permit the
Company to poll sales transaction data daily. The Australian system provides a
range of reporting and inquiry capability at both the store and corporate
levels similar to that in the United States. The Company believes that its man-
agement information systems are an important factor supporting its growth and
is committed to utilizing technology to maintain its competitive position.
WHOLESALE OPERATIONS
In Australia, the Company distributes proprietary and private brand name prod-
ucts and other imported merchandise, on a wholesale basis, through a wholly-
owned Australian subsidiary, Pricotech Leisure Brands Pty Ltd. ("Pricotech").
Wholesale products offered by Pricotech include Cook-On barbecues, Companion
gas camping equipment, Igloo coolers and Kent home heaters. Pricotech distrib-
utes these products primarily to Australian mass merchants, chains and buying
groups. Customers typically buy these products based on price. In the twelve
months ended January 31, 1997, the five largest customers of Pricotech
accounted for approximately 52% of its net sales of A$19.4 million. The
Company's wholesale operations, in which its investment consists primarily of
inventory and receivables, currently fill excess production capacity at the
Company's manufacturing and enamelling plants. The Company currently has no
plans to operate a wholesale distribution business in the United States.
LICENSING AND FRANCHISING
As of July 31, 1997, the Company licensed 45 Barbeques Galore stores, generally
in rural areas of Australia, and franchised six Barbeques Galore stores in the
United States. The Company receives annual licensing fees and franchising roy-
alties, and benefits primarily from these arrangements through the sale of
Barbeques Galore merchandise to the licensees and franchisees. Independent
licensees and franchisees operate such stores pursuant to agreements which
require them to comply with Barbeques Galore's merchandising and advertising
guidelines and conform to the Barbeques Galore image. These agreements typi-
cally provide the licensees and franchisees with exclusive geographical sales
territories. Most of the Australian licensing agreements have an indefinite
term but permit licensees to terminate their arrangements at will, while fran-
chisees in the United States are generally contractually bound for fixed
periods with renewal options. During the twelve months ended January 31, 1997,
total net sales to licensee and franchisee stores was A$16.2 million and US$4.5
million, respectively. The Company estimates that the total retail sales of
Barbeques Galore products by licensees and franchisees was approximately A$48.3
million and US$3.7 million, respectively, in the same period. A number of the
Company's existing licensees have refurbished their stores in accordance with
the Company's established criteria (although no licensee is required to do so),
and the Company maintains an assistance program to provide advice relating to
these enhancements. See "Management's Discussion and Analysis of Financial Con-
dition and Results of Operations--Overview."
In fiscal 1997, in order to realize management efficiencies, the Company con-
solidated the administration of its Australian licensing division into its
retail and wholesale divisions. The Company incurred approximately A$354,000 of
one-time charges relating to the restructuring of its Australian licensing
division. The restructuring has resulted in an estimated annual cost savings of
A$400,000. The Company may license additional Barbeques Galore stores in Aus-
tralia on a selective basis, although it does not intend to franchise any addi-
tional stores in the United States (except within geographical territories as
required under existing franchising agreements).
COMPETITION
The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and Austra-
lia. The Company's retail operations compete against a wide variety of retail-
ers, including mass merchandisers, discount or outlet stores, department
stores, hardware stores, home improvement centers, specialty patio, fireplace
or cooking stores, warehouse clubs and mail order companies. The Company's man-
ufacturing and wholesale operations compete with many other manufacturers and
distributors throughout the world, including high-volume manufacturers of bar-
becues and home heaters. Many of the Company's competitors have greater finan-
cial, marketing, distribution and other resources than the Company, and partic-
ularly in the United States, may have greater name recognition than the Com-
pany. Furthermore, the lack of significant barriers to entry into the retail
market which the Company services may also result in new competition in the
future. Barbeques Galore competes for retail customers primarily based on its
broad assortment of competitively priced, quality products (including proprie-
tary and exclusive products), convenience, customer service and the attractive
presentation of merchandise within its stores. The Company believes that it
competes successfully on each of these factors.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 825 persons, of whom
495 were store employees, including 209 part-time store employees. The number
of part-time employees fluctuates depending on seasonal needs. None of the
46
<PAGE>
Company's employees is covered by a collective bargaining agreement, although
to the Company's knowledge 12 workers in its enamelling plant belong to a labor
union. The Company considers its relations with its employees to be good and
believes that its employee turnover rate is low.
PROPERTIES
The Company currently leases all of its stores and expects that its policy of
leasing, rather than owning, store properties will continue as it expands.
Existing store leases provide for original lease terms that generally range
from two to ten years, with single or multiple renewal options that range from
three to ten years at increased rents. Certain of the leases provide for sched-
uled rent increases or for contingent rent (based upon store sales exceeding
stipulated amounts). The Company guarantees two franchised store leases, one of
which is secured by the franchisee's rights in its Barbeques Galore franchise.
In Sydney, Australia, the Company owns its headquarters and a 76,000 square
foot portion of its distribution center. The Company leases the remaining
45,000 square foot portion of such distribution center (under a five-year lease
with one five-year renewal option) and the adjacent 75,000 square foot barbecue
and home heater factory (under a five-year lease with four successive five-year
renewal options for a total maximum lease term of 25 years), and leases a
20,000 square foot wholesale and licensee store distribution center in Brisbane
(under a five-year lease with one five-year renewal option). In addition, the
Company leases its enamelling plant. This lease will expire in June 1998 and,
prior to expiration, the Company intends to move its enamelling operations to
its main factory. The Company is also able to, and periodically does, lease
space for short terms in public warehouses in Australia. In Irvine, California,
the Company leases its home office and 44,000 square foot U.S. distribution
center under leases scheduled to expire in 2000 (subject to a two-year renewal
option). As in Australia, additional public warehouse space is leased for short
terms. See "--Manufacturing."
TRADEMARKS AND PATENTS
"Barbeques Galore," "Turbo," "Capt N Cook," "Bar-B-Chef" and "Cook-On" are fed-
erally registered trademarks and/or service marks in the United States. In
addition, the Company owns a federal trademark registration for the distinctive
configuration of its Turbo grill. The Company also uses the phrase "America's
Largest Chain of Barbecue Stores" as a common-law trademark in the United
States. "Barbeques Galore" and "Cook-On" are registered trademarks with the
State of California. In Australia only, the Company uses the phrase "Your Out-
door Cooking and Camping Store" as a common-law trademark and, among others,
the names "Norseman" and "Kent" as registered trademarks. The Company further
utilizes a number of different trademarks relating to various barbecues, bar-
becue accessories, home heaters, camping equipment and outdoor furniture manu-
factured or offered by the Company. The Company is not presently aware of any
claims of infringement or other challenges to the Company's right to use its
marks and the Company's name in the United States.
The Company owns an Australian patent with respect to a weighing stand appa-
ratus for gas containers. The Company has a patent application pending in Aus-
tralia for its "Flamethrower" gas grill ignition system. The Company also owns
a number of copyrighted works, including brochures and other literature about
its products and many drawings and designs that it uses in marketing those
products.
GOVERNMENTAL REGULATION
Many of the Company's products use gas and flame and, consequently, are subject
to regulation by authorities in both the United States and Australia in order
to protect consumers, property and the environment. For example, the Company's
barbecue and home heater manufacturing and enamelling operations are subject to
regulations governing product safety and quality, the discharge of materials
hazardous to the environment, water usage, workplace safety and labor rela-
tions. The Company believes that it is in substantial compliance with such reg-
ulations. The Company's products or personal use thereof are subject to regula-
tions relating to, among other things, the use of fire in certain locations
(particularly restrictions relating to the availability or frequency of use of
wood heating in homes and barbecues in apartments), restrictions on the sale or
use of products that enhance burning potential such as lighter fluid, restric-
tions on the use of gas in specified locations (particularly restrictions
relating to the use of gas containers in confined spaces) and restrictions on
the use of wood burning heaters. See "Risk Factors--Product Liability and Gov-
ernmental and Other Regulation."
LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company. The Com-
pany is involved in various claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the business, results
of operations or financial condition of the Company.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as fol-
lows:
<TABLE>
<CAPTION>
----------------------------------------------------
NAME AGE POSITION
- ---- --- ------------------------------------------------
<S> <C> <C>
Directors and Executive
Officers of the Company
Sam Linz................. 57 Chairman of the Board
Robert Gavshon(1)........ 50 Deputy Chairman of the Board and General Counsel
John Price............... 47 Head of Research and Product Development and
Director
Sydney Selati............ 58 President--Galore USA and Director
Philip Gardiner(2)....... 50 Director
Gordon Howlett(1)(2)..... 56 Director
David Glaser............. 48 Company Secretary
David James.............. 37 Chief Financial Officer
Kevin Ralphs............. 43 Chief Financial Officer--Galore USA
Key Employees--Australia
William Lyons............ 55 Managing Director of Manufacturing--Park-Tec
Engineering Pty Limited and Australian
Enamellers Pty Limited
Ian Redmile.............. 45 General Manager--Pricotech Leisure Brands Pty
Limited
Peter Spring............. 38 General Manager of Retail/Licensees--Barbeques
Galore Australia Pty Limited
Gary Whitehouse.......... 47 General Manager of Logistics
Key Employees--United
States
L.D. "Chip" Brown........ 36 Chief Operating Officer--Galore USA
Michael Varley........... 49 Vice President of Purchasing, Distribution and
Product Development
Austin Yeh............... 51 Vice President and Director of Operations
</TABLE>
- -------
(1) Member of the Audit Committee
(2) Member of the Remuneration Committee
Sam Linz has served as Chairman of the Board since joining the Company in May
1982. Until July 1997, Mr. Linz served as non-executive Chairman of the Board
of Rebel Sport Limited ("Rebel"), a leading national sports superstore chain in
Australia. Mr. Linz was one of the founders of Rebel and was a major share-
holder until he sold his interest in July 1997. Prior to joining the Company,
Mr. Linz developed and managed a large chain of liquor stores and hotels in
South Africa in association with Mr. Selati. Mr. Linz has over 30 years experi-
ence in the retail industry.
Robert Gavshon joined the Company in January 1983 as General Counsel and has
also served as Deputy Chairman of the Board since August 1993. Until July 1997,
Mr. Gavshon served as a non-executive Director of Rebel. Mr. Gavshon was one of
the founders of Rebel and was a shareholder until he sold his interest in July
1997. Prior to joining the Company, Mr. Gavshon acted as group counsel and
director of corporate affairs for a multinational corporation based in Sydney,
Australia and prior thereto as a partner in a large commercial law firm in
South Africa. Mr. Gavshon has over 15 years experience in the retail industry.
John Price joined the Company in 1981 as General Manager of Wholesale and has
served as Head of Research and Product Development since June 1989, and as
Director of the Company since November 1989. Prior to joining the Company, Mr.
Price helped found and was Managing Director of Cook-On-Gas Products Pty Lim-
ited, a developer and manufacturer of consumer gas products which was acquired
by the Company in 1981. Mr. Price has over 24 years experience in the develop-
ment and marketing of consumer gas products.
Sydney Selati has served as Director of the Company since July 1997 and Presi-
dent of Galore USA since May 1988. From 1984 until 1988, Mr. Selati was Presi-
dent of Sussex Group Limited, a chain of retail furniture stores including
Huffman-Koos, Colby's and Barker Brothers. Prior to that, Mr. Selati developed
and managed a large chain of liquor stores and hotels in South Africa in asso-
ciation with Mr. Linz. Mr. Selati has over 30 years experience in the retail
industry.
Philip Gardiner has served as a non-executive Director of the Company since
April 1987. Mr. Gardiner also serves as a director for several other Australian
companies related to agriculture and mining and has, since 1994, been a Member
and
48
<PAGE>
Chairman of the Western Australian Ministers for Primary Industry and Fisheries
Wool Strategy Group (a state-government-appointed position). In addition, from
1979 to 1994, Mr. Gardiner served both as an executive and non-executive
director for Macquarie Bank Limited, a prominent Australian banking institu-
tion. Currently, Mr. Gardiner is the full-time manager of his farm in Western
Australia.
Gordon Howlett has served as a non-executive Director of the Company since
August 1991. Since April 1997, Mr. Howlett has served as Managing Director of
Adshel Street Furniture Pty Ltd., specializing in advertising-related outdoor
furniture such as bus shelters. Prior to that, from March 1994 to February
1997, Mr. Howlett served as the Executive General Manager of national and
international operations at Qantas Airways Limited. From 1981 to 1994, Mr.
Howlett was Managing Director of Avis Australia and Vice President of Avis
throughout the Asia-Pacific region.
David Glaser has served as Company Secretary since March 1994. Mr. Glaser has
also provided retail management accounting services for the retail subsidiary
of the Company since February 1996 and, from July 1989 to February 1994, was
the financial administrator to certain other of the Company's subsidiaries.
Prior to joining the Company, Mr. Glaser was a partner at Arthur Andersen in
South Africa. Mr. Glaser has extensive commercial experience in retail, manu-
facturing and service industries both locally and overseas.
David James joined the Company in January 1992, serving the Company in several
group financial roles, ultimately as General Manager--Finance & Administration
until his departure in September 1996. From September 1996 to July 1997, Mr.
James was employed by HMV Australia Pty Ltd., a subsidiary of EMI plc, as
Finance Director. He rejoined the Company in July 1997 as Chief Financial
Officer of the Company. Prior to 1992, Mr. James served as a Senior Audit Man-
ager for KPMG in Australia.
Kevin Ralphs has served as Chief Financial Officer of Galore USA since February
1989. From May 1988 to February 1989, Mr. Ralphs served as Controller of Galore
USA. Mr. Ralphs has also served as controller for American Digital Products,
Inc., a distributor of computer peripherals in the Northeast United States,
treasurer for Hosken Intermediaries, Inc., a reinsurance broker, and financial
manager for Royal Beech-Nut (Pty) Ltd., a foreign subsidiary of Nabisco.
William Lyons has served as Managing Director of Manufacturing for Park-Tec
Engineering Pty Limited, an operating subsidiary of the Company since September
1987. Prior to joining the Company, Mr. Lyons served as the Manager of Quintrex
Marine, a division of Alcan, and as the Manager of Vass Electrical Engineering.
Prior to managing Quintrex Marine and Vass Electrical Engineering, Mr. Lyons
was involved in Design, Production and Factory Management of Cope Allman for 17
years.
Ian Redmile joined the Company in August 1992 as a State Manager for an Austra-
lian state and has served as General Manager of Pricotech, the Company's whole-
saling subsidiary, since February 1997. Prior to joining the Company, Mr.
Redmile has served as Key Account/Sales Manager for Unilever Australia for 12
years.
Peter Spring has served as General Manager of Retail/Licensees for Barbeques
Galore Australian Pty Limited, an operating subsidiary of the Company since
October 1995. Prior to that, Mr. Spring served as General Manager of the Opera-
tions of Pricotech and has served the Company since its inception in 1977.
Gary Whitehouse joined the Company in May 1990 as National Warehouse Manager
and has served as General Manager of Logistics for the Company since July 1996.
Prior to joining the Company, Mr. Whitehouse served as Financial Systems
Accountant for Qantas Airways. Prior to that, Mr. Whitehouse held managerial
positions, including commercial manager, state branch manager and
warehousing/distribution manager.
L.D. "Chip" Brown joined Galore USA in August 1997 as Chief Operating Officer
of Galore USA. Prior to joining the Company, from September 1993 to July 1997,
Mr. Brown served in a variety of operations including retail and technology-
related positions at PepsiCo, Inc., in the capacities of Senior
Director/Product Manager from November 1995 to July 1997, Process Team Leader
from March 1995 to November 1995 and Market Manager from September 1993 to
March 1995. Mr. Brown was a Division President with DeLoitte & Touche from 1991
to July 1993 and, prior to that, held a variety of positions at Ford Motor Com-
pany and General Electric Company.
Michael Varley joined the Company in January 1982 and served in a variety of
sales- and buying-related positions, until May 1989 when he was appointed Vice
President of Operations and Purchasing. Mr. Varley has served as Vice President
of Purchasing, Distribution and Product Development since May 1994. From 1978
to 1981, Mr. Varley served as manufacturing/production manager for Mistral
Fans, Inc., a manufacturing company, in both the United States and Australia.
Prior to that, Mr. Varley worked as a product engineer and technical sales-
person for several companies in the United Kingdom, South Africa and Australia.
49
<PAGE>
Austin Yeh has served as Vice President and Director of Operations for Galore
USA since May 1994. Prior to joining Galore USA, Mr. Yeh served for 15 years as
Director of Operations for C&R Clothiers, a major menswear retailer.
At least one-third of the Board of Directors of the Company is elected at each
annual meeting of shareholders. No director may serve for a period in excess of
three years without submitting himself for re-election. The Board of Directors
has a Remuneration Committee comprised of Messrs. Gardiner and Howlett that
reviews and makes recommendations for remuneration packages for executive
directors and senior executives, and an Audit Committee comprised of Messrs.
Gavshon and Howlett that advises on the establishment and maintenance of
internal controls and ethical standards as well as on the quality and relia-
bility of financial information provided by the Company's independent auditors.
Shortly after the Offering, the Company intends to elect an additional indepen-
dent director, residing in the United States. This new director will serve on
the Audit Committee in place of Mr. Gavshon.
EXECUTIVE SHARE OPTION PLAN
On January 31, 1997, the Company adopted the Executive Share Option Plan (the
"Executive Plan"). Under the Executive Plan, a total of 203,038 Ordinary Shares
were reserved for issuance. On January 31, 1997, the Board granted stock
options comprising the entire share reserve under the Executive Plan. Each such
stock option has an exercise price of A$8.38 per Ordinary Share. No additional
stock options will be granted under the Executive Share Option Plan. For more
information on these stock option grants, see the "Options to Purchase Securi-
ties" section below.
All stock options granted under the Executive Plan will become exercisable on
February 1, 1999. The stock options will generally lapse thirty days after the
cessation of the employment of the optionee (or the executive controlling the
optionee, if the optionee is an entity (an "Entity Optionee")), whether or not
exercisable. In addition, the stock options will automatically lapse (i) if the
optionee or Entity Optionee transfers, assigns, or encumbers any right or
interest in the options without the Company's consent (except for a one-time
exemption for a transfer by a director or Entity Optionee controlled by a
director to an employee of the Company or its related entities) or (ii) for
Entity Optionees, if the Entity Optionee ceases to be controlled by the
employee or director of the Company who controlled the Entity Optionee on the
date of grant. If the stock options do not earlier lapse or are not earlier
exercised, each stock option will terminate five years after the grant date
(the "Expiry Date"). The stock options will automatically accelerate and become
immediately exercisable, for the 30 days prior to their lapse, in the event the
optionee (or executive controlling the Entity Optionee ceases to be employed by
the Company or a related entity due to death, permanent disability or ill
health. In addition, the Board, in its sole discretion, may accelerate any out-
standing stock option or extend the period until lapse, even if expired (but in
no event to a date later than the Expiry Date), upon any other event termi-
nating the employment of the optionee or the executive controlling the Entity
Optionee. In the event the Company is subject to a takeover bid pursuant to
which the offeror acquires at least thirty percent of the outstanding Ordinary
Shares of the Company, the Board may accelerate stock options outstanding at
that time for a period of up to 120 days measured from the date the Board noti-
fies the optionee of the takeover bid. Any stock option exercise under the
Executive Plan must be for a minimum of twenty percent of the stock options
included in the relevant grant.
In the event of changes to the Company's capital structure, appropriate adjust-
ments will be made to the stock option exercise price and the number of shares
subject to each outstanding stock option.
The Board may not amend the Executive Plan in any respect, except to comply
with laws or regulations governing the Executive Plan. The Company may amend
the Executive Plan by special resolution of shareholders. The Executive Plan
will terminate on the earlier of December 31, 1997, or the date upon which all
shares authorized for issuance are issued pursuant to the exercise of stock
options granted under the Executive Plan.
1997 SHARE OPTION PLAN
The Company's 1997 Share Option Plan (the "1997 Plan") was adopted by the Board
of Directors on October 1, 1997, and was approved by the shareholders on
October 7, 1997. A total of 329,254 Ordinary Shares have been authorized for
issuance under the 1997 Plan, of which stock options to purchase up to an
aggregate of 200,000 Ordinary Shares at the initial public offering price set
forth on the cover page of this Prospectus have been granted concurrently with
the Offering. Each of the options granted concurrently with the Offering will
generally become exercisable in three equal installments on the third, fourth
and fifth anniversaries of the Offering. The number of Ordinary Shares reserved
for issuance under the 1997 Plan will automatically increase on the first
trading day of each calendar year, beginning with the 1999 calendar year,
during the term of the 1997 Plan by an amount equal to one percent (1%) of the
Ordinary Shares outstanding on December 31st of the immediately preceding cal-
endar year. In no event may any one participant in the 1997 Plan receive stock
option grants for more than 27,438 Ordinary Shares per calendar year.
The 1997 Plan consists of the Option Grant Program, under which eligible indi-
viduals in the Company's employ or service (including officers and other
employees, non-employee Board members, consultants and other independent advi-
sors of the Company, or any parent or subsidiary) may, at the discretion of the
Plan Administrator, be granted stock options to purchase Ordinary Shares at an
exercise price not less than eighty-five percent (85%) of their fair market
value on the option grant date.
50
<PAGE>
The 1997 Plan will be administered by the Compensation Committee. The Plan
Administrator will have complete discretion, within the scope of its adminis-
trative jurisdiction under the 1997 Plan, to determine which eligible individ-
uals are to receive stock option grants, the time or times when such grants are
to be made, the number of shares subject to each such grant, the exercise and
vesting schedule to be in effect for the grant, the maximum term for which any
granted stock option is to remain outstanding and the status of any granted
stock option as either an incentive stock option or a non-statutory stock
option under the U.S. Federal tax laws.
The exercise price for outstanding stock option grants under the 1997 Plan may
be paid in cash or in Ordinary Shares valued at fair market value on the exer-
cise date. Each stock option may also be exercised through a same-day sale pro-
gram without any cash outlay by the optionee. In addition, the Plan Adminis-
trator may provide financial assistance to one or more optionees in the exer-
cise of their outstanding stock options by allowing such individuals to deliver
a full-recourse, interest-bearing promissory note in payment of the exercise
price and any associated withholding taxes incurred in connection with such
exercise.
In the event that the Company is acquired by merger or asset sale, each out-
standing stock option under the 1997 Plan will immediately accelerate and
become fully exercisable for all of the shares subject to such outstanding
options, unless such stock options are to be assumed or replaced by the suc-
cessor corporation (or parent thereof). Any stock options that do not automati-
cally accelerate upon the occurrence of a merger or asset sale of the Company,
will immediately accelerate, and such repurchase rights will accordingly lapse,
upon the involuntary termination of the optionee within 18 months after the
effective date of the merger or asset sale. Stock options accelerated in con-
nection with such involuntary termination will be exercisable as fully-vested
shares until the earlier of (i) the expiration of the stock option term or (ii)
a one (1)-year period measured from the effective date of the involuntary ter-
mination.
The Plan Administrator has the authority to effect, with the consent of the
affected option holders, the cancellation of outstanding stock options under
the 1997 Plan in return for the grant of new stock options for the same or a
different number of shares with an exercise price per share based upon the fair
market value of the Ordinary Shares on the new grant date.
The Board may amend or modify the 1997 Plan at any time. However, no such
amendment or modification shall adversely affect the rights of any optionee
without his or her consent. The 1997 Plan will terminate on October 1, 2007,
unless sooner terminated by the Board.
COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate annual compensation paid by the Company to all directors and
executive officers of the Company (nine persons) as a group for (i) the last
fiscal year ending June 30, 1996 was A$1,258,896, and (ii) the twelve-month
period ending January 31, 1997 was A$1,277,085. These amounts do not include
any stock options granted to such individuals as more fully described below in
the "Options to Purchase Securities" section.
The total amount set aside by the Company and its subsidiaries to provide
superannuation benefits for such officers and directors (i) during the last
fiscal year ending June 30, 1996 was A$73,777, and (ii) during the twelve-month
period ending January 31, 1997 was A$78,627.
On February 1, 1997, the Company instituted an incentive program whereby cer-
tain executives will receive a bonus if certain budget objectives are attained
during fiscal year 1998. Under this program, Mr. Linz, Mr. Gavshon, Mr. Price,
and Mr. James will each receive a bonus of 20%, and Mr. Selati, Mr. Lyons, Mr.
Spring, Mr. Redmile and Mr. Whitehouse will each receive a bonus of 10%, of
their respective base salaries if the Company achieves its budgeted pre-tax
profit before trading contingencies for the fiscal year ending January 31,
1998. Mr. Selati, Mr. Lyons, Mr. Spring and Mr. Redmile will each receive an
additional bonus of 10% of his base salary if his division achieves its bud-
geted operating contribution, regardless of whether or not the Company's budget
is achieved. Additionally, Mr. Whitehouse will receive a bonus of 10% of his
base salary if the Company's inventory level budget for fiscal 1998 is
attained.
OPTIONS TO PURCHASE SECURITIES
As of July 15, 1997, the following stock options to purchase Ordinary Shares
were outstanding:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
NUMBER OF
ORDINARY SHARES EXERCISE
UNDER OPTION PRICE(1) EXPIRY DATE(1)
--------------- -------- --------------
<S> <C> <C>
203,038 A$8.38 February 1, 2002
</TABLE>
- -------
(1) Stock options will generally expire on the earlier of the Expiry Date or 30
days after the cessation of employment of the optionee or the executive con-
trolling the Entity Optionee.
All of the outstanding stock options listed above were held by directors and
officers of the Company and were granted pursuant to the Executive Share Option
Plan. For more information, see the "Executive Share Option Plan" section
above.
51
<PAGE>
CERTAIN TRANSACTIONS
RECENT DELISTING TRANSACTION
In April 1987, the Company listed its Ordinary Shares for trading on the ASE.
In October 1996, the Company announced its intention to delist from the ASE
pursuant to a capital reduction transaction (the "Capital Reduction") which was
consummated on December 31, 1996. The Capital Reduction was approved by holders
of 74.1% of the outstanding Ordinary Shares entitled to vote thereon. Pursuant
to the Capital Reduction, the Company repurchased 2,743,878 Ordinary Shares and
cancelled stock options to purchase 101,520 Ordinary Shares, for a total con-
sideration, excluding transaction costs, of A$20.1 million. The Company
financed the Capital Reduction through (i) the issuance and sale of A$10.0 mil-
lion in aggregate principal amount of its Convertible Notes, and (ii) the bor-
rowing of A$11.2 million under the Standby Facility. After giving effect to the
Capital Reduction, the issued and outstanding capital of the Company was
reduced to A$6,219,661.40 divided into 1,706,542 Ordinary Shares of A$3.64
each. The Convertible Notes are convertible into 1,197,926 post-split Ordinary
Shares. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources."
In connection with the issuance and sale of the Convertible Notes, the Company,
SBC Warburg Australia, as representative of the Noteholders, and certain prin-
cipal shareholders of the Company entered into certain debt instruments con-
taining the terms and conditions of the Convertible Notes. The Company has the
power to redeem these instruments upon a listing of the Company's securities on
a recognized stock exchange or securities market, a condition which will be
satisfied upon consummation of the Offering, and quotation of the ADSs for
trading on the Nasdaq National Market. The Company will, however, be required
to indemnify each Noteholder as to matters relating to the issuance of the
Ordinary Shares into which the Convertible Notes are convertible. While these
instruments are outstanding, SBC Warburg Australia is entitled to elect a rep-
resentative of the Noteholders to the Company's Board of Directors. In addi-
tion, SBC Warburg Australia received underwriting and advising fees of
A$750,000 and a one-time fee of A$15,000 in connection with the original issu-
ance of the Convertible Notes, and SBC Warburg Australia will continue to
receive an annual fee of A$15,000 on each anniversary of the issue date of the
Convertible Notes until all of the Convertible Notes have been redeemed or con-
verted. Moreover, in connection with the issuance and sale of the Convertible
Notes, the Company granted stock options to purchase up to an aggregate of
203,038 Ordinary Shares under the Executive Share Option Plan to four executive
officers of the Company. See "Management--Executive Share Option Plan."
TRANSACTIONS WITH AFFILIATES
The Company holds a one-third ownership interest in Bromic, which supplies gas
valves and related products to the Company. Bromic receives approximately 20%
of its revenues from sales to the Company, which in turn is Bromic's largest
customer. In fiscal 1996 and fiscal 1997, the Company purchased approximately
A$3.8 million and A$2.3 million, respectively, of products from Bromic. The
Company guaranteed A$900,000 indebtedness of Bromic to ANZ, which was repaid in
full in February 1997, releasing the guarantee.
In addition, the Company holds a 50% equity interest in GLG Taiwan, which sup-
plies the Company with grills, burners and other products. GLG Taiwan receives
approximately 80% of its revenues from sales to the Company, which in turn is
GLG Taiwan's largest customer. In fiscal 1996 and fiscal 1997, the Company pur-
chased approximately A$5.4 million and A$3.3 million, respectively, of products
from GLG Taiwan.
SHAREHOLDERS AGREEMENT
Certain shareholders of the Company have in the past been party to a Share-
holders Agreement providing for certain preemptive rights and other rights. The
Shareholders Agreement was terminated prior to consummation of the Offering.
TRANSACTIONS INVOLVING PRINCIPAL SHAREHOLDERS
Immediately prior to the Offering, Messrs. Sam Linz, Robert Gavshon, Sydney
Selati and John Price will beneficially own 42.5%, 7.3%, 4.8% and 2.4%, respec-
tively, of the Ordinary Shares of the Company outstanding on a fully diluted
basis (assuming conversion of all Convertible Notes). Immediately after giving
effect to the Offering, Messrs. Linz, Gavshon, Selati and Price will benefi-
cially own 26.2%, 4.5%, 3.0% and 1.5%, respectively, of the outstanding Ordi-
nary Shares of the Company. Accordingly, these individuals have in the past
controlled the business and affairs of the Corporation, and following the
Offering will continue to have substantial influence over the business and
affairs of the Corporation, including the election of the Company's directors
and the outcome of corporate actions requiring shareholder approval. See "Prin-
cipal Shareholders."
52
<PAGE>
From time to time in the past, Messrs. Linz, Gavshon and Selati and certain
members of their respective families have advanced funds, re-payable on demand,
to the Company to be used for general corporate purposes. As of January 31,
1997, the aggregate balance of these advances was A$1,231,000. Over the fiscal
year ended January 31, 1997, the Company paid A$50,000 in interest on these
advances. Through these advances, the Company has been able to obtain funds at
relatively attractive short-term borrowing rates of approximately 2% per annum
below the overdraft rate received by the Company. As of July 31, 1997, the Com-
pany had repaid all amounts owing on such advances and terminated these bor-
rowing arrangements. The Company may reinstate these or similar arrangements in
the future if its Board of Directors determines that to do so would be in the
best interests of the Company.
The Company purchases labels for certain of its products from a relative of Mr.
Price's wife. On an average yearly basis, the Company purchases approximately
A$551,000 of such labels. Mr. and Mrs. Price receive no monetary benefit from
this relationship.
The Company leases cars for the use of Messrs. Linz, Gavshon, Price and Selati,
at a rate of approximately A$2,272, A$1,916, A$1,620 and US $650 per month per
car.
The Company pays the premiums on a disability insurance policy naming Mr.
Selati as the insured. If benefits were paid to Mr. Selati under this policy,
he would receive approximately $7,900 per month until he reaches age 65.
In connection with the Capital Reduction, the Company acquired from Mr. Selati,
who is the President of Galore USA and a Director of the Company, his 15%
interest in that company, in exchange for the issuance to Mr. Selati of 137,189
Ordinary Shares, valued at A$1,000,000. The Company elected Mr. Selati to its
Board of Directors on July 21, 1997. Mr. Linz's sister, together with her hus-
band in one instance and her husband and son in the other instance, owns two
entities ("Related Franchisors"), each of which operates one franchised
Barbeques Galore store in Orange County, California. The Related Franchisors'
franchise agreements provide the Related Franchisors with the exclusive right
to open, upon Company approval, additional Barbeques Galore stores within a
specified territory in Orange County.
A portion of the Ordinary Shares and stock options repurchased or cancelled in
connection with the Capital Reduction were repurchased from or cancelled in
exchange for payment to principal shareholders of the Company. The Company
repurchased or cancelled stock options, as applicable: 8,231 Ordinary Shares
beneficially owned by Gordon Howlett, a director of the Company, for an aggre-
gate of A$60,000; 37,107 Ordinary Shares beneficially owned by Philip Gardiner,
a director of the Company, for an aggregate of A$270,482; stock options granted
to Mr. Price for the purchase of 27,437 shares in exchange for A$10,000; and
stock options granted to David Glaser, the Secretary of the Company, and
Kevin Ralphs, the Chief Financial Officer of Galore USA, each for the purchase
of 2,743 Ordinary Shares in exchange for A$2,500 each. These transactions were
on terms the same as or less favorable than those provided to other share-
holders or option holders whose interests were repurchased or cancelled.
The Company leases certain retail facilities to Rebel under an arms-length
landlord-tenant relationship. For the twelve months ended June 30, 1996 and the
seven months ended January 31, 1997, Rebel reimbursed the Company A$703,000 and
A$352,000 for these leases. Until July 10, 1997, Messrs. Linz and Gavshon were
directors and significant shareholders of Rebel.
COMPANY POLICY CONCERNING TRANSACTIONS WITH AFFILIATES
Under the Australian Corporations Law, directors are prohibited from entering
into transactions with the Company conferring a benefit on any director which
are not on "arms-length" commercial terms, except where limited exemptions
apply or detailed approval procedures are first observed. The Company has
adopted a more stringent policy based on the Australian Corporations Law that
requires that all transactions with directors, executive officers and other
affiliates will be on terms that are believed to be at least as favorable to
the Company as could be obtained from unaffiliated third parties and that such
transactions must be approved by a majority of the Company's disinterested
directors.
The Company believes that the foregoing transactions with directors, executive
officers and other affiliates were completed on terms as favorable to the Com-
pany as could have been obtained from unaffiliated third parties.
53
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the Ordinary Shares
as of September 30, 1997 (as if all Convertible Notes had been converted into
Ordinary Shares as of such date) and as adjusted to reflect the sale of the
shares pursuant to the Offering with respect to (i) each person or entity known
by the Company to beneficially own 5% or more of the outstanding Ordinary
Shares, (ii) each of the Company's directors, (iii) each of the Company's exec-
utive officers who own Ordinary Shares, and (iv) all directors and executive
officers of the Company as a group. None of the Company's principal share-
holders or their affiliates will sell shares in the Offering.
<TABLE>
<CAPTION>
--------------------------------------
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
NUMBER OF SHARES ---------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- ---- ---------------- -------- --------
<S> <C> <C> <C>
Sam Linz(2)............................ 1,293,895 42.5% 26.2%
Robert Gavshon(3)...................... 223,498 7.3% 4.5%
John Price(4).......................... 71,880 2.4% 1.5%
Philip Gardiner(5)..................... 23,596 * *
Gordon Howlett(6)...................... 13,718 * *
Sydney Selati(7)....................... 147,008 4.8% 3.0%
Wispjune Pty Limited(8)................ 162,210 5.3% 3.3%
Level 10
1 Market Street
Sydney, NSW 2000
Geblon Pty Limited(9) ................. 167,402 5.5% 3.4%
Level 10
1 Market Street
Sydney, NSW 2000
Sarwill Pty Limited(10) ............... 149,016 4.9% 3.0%
Suite 6
10-12 Woodville Street
Hurstville, NSW 2000
All directors and executive officers as
a group (9 persons)(11)............... 1,773,595 58.3% 35.9%
</TABLE>
- -------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the Com-
mission and generally includes voting or investment power with respect to secu-
rities. Ordinary Shares subject to stock options, warrants and convertible
notes currently exercisable or convertible, or exercisable or convertible
within sixty (60) days of the date hereof, are deemed outstanding for computing
the percentage of the person holding such stock options but are not deemed out-
standing for computing the percentage of any other person. Except as indicated
by footnote, the persons named in the table have sole voting and investment
power with respect to all Ordinary Shares shown as beneficially owned by them.
Prior to the Offering, the percentages calculated are based on 3,041,652 shares
issued and outstanding as of July 31, 1997. Excludes 203,038 Ordinary Shares
issuable upon the exercise of stock options granted under the Executive Share
Option Plan and 200,000 Ordinary Shares issuable upon the exercise of stock
options to be granted under the 1997 Share Option Plan concurrently with the
Offering. There are an additional 129,254 authorized and unissued Ordinary
Shares reserved for the grant of stock options under the 1997 Share Option
Plan.
(2) Includes 162,210 Ordinary Shares held by Wispjune Pty Limited ("Wispjune"),
a company in which Mr. Linz owns a 72.5% interest, with Mr. Gavshon and Mr.
Price owning the remaining 22.5% and 5%, respectively, and 167,402 Ordinary
Shares held by Geblon Pty Limited ("Geblon"), a company in which Mr. Linz and
Mr. Gavshon each have a 50% ownership interest, with Mr. Linz retaining voting
control of the company. See Notes (8) and (9) below. Excludes 88,459 Ordinary
Shares held by ANZ Nominees Limited on behalf of members of Mr. Linz's imme-
diate family, and 14,322 Ordinary Shares held by Bosmana Pty Limited
("Bosmana"), a trustee of one of the Company's Superannuation Funds, of which
Mr. Linz is one of the three directors. Mr. Linz disclaims beneficial ownership
of the foregoing Ordinary Shares held by ANZ Nominees Limited and Bosmana,
except to the extent of his pecuniary interest therein.
(3) Includes 149,016 outstanding Ordinary Shares held by Sarwill Pty Limited
("Sarwill"), a corporation owned by Mr. Gavshon and his wife. See Note (10).
Also includes 1,207 outstanding Ordinary Shares held by Mr. Gavshon's resident
54
<PAGE>
children. Excludes 162,210 Ordinary Shares held by Wispjune, in which Mr.
Gavshon has a 22.5% interest, and 167,402 Ordinary Shares held by Geblon, a
company in which Mr. Gavshon holds a 50% interest. See Notes (2), (8) and (9).
Excludes 14,322 Ordinary Shares held by Bosmana, of which Mr. Gavshon is one of
three directors. Mr. Gavshon disclaims beneficial ownership of the Ordinary
Shares held by Wispjune, Geblon and Bosmana, except to the extent of his pecu-
niary interest therein.
(4) Excludes 162,210 outstanding Ordinary Shares held by Wispjune, in which Mr.
Price has a 5% interest. Mr. Price disclaims beneficial ownership of the Ordi-
nary Shares held by Wispjune, except to the extent of his pecuniary interest
therein. See Notes (2) and (8).
(5) Includes 23,596 Ordinary Shares issuable upon conversion of the Convertible
Notes held by Macquarie Investment Management Limited. Mr. Gardiner disclaims
beneficial ownership of such Ordinary Shares, except to the extent of his pecu-
niary interest therein. Certain Ordinary Shares previously held by Mr. Gardiner
were repurchased by the Company in the Delisting transaction. See "Certain
Transactions--Recent Delisting Transaction."
(6) Includes 13,718 Ordinary Shares issuable upon conversion of the Convertible
Notes held by Fagume Pty. Limited. Certain Ordinary Shares previously held by
Mr. Howlett were repurchased by the Company in the Delisting transaction. See
"Certain Transactions--Recent Delisting Transaction."
(7) Includes 68,595 Ordinary Shares owned by the Selati Living Trust dated June
30, 1984, of which Mr. Selati and his wife are trustees. Also includes 68,594
Ordinary Shares held by the Selati Family Partnership L.P., of which Mr. Selati
is the sole general partner. Also includes 9,819 Ordinary Shares held by Mr.
Selati's wife. Excludes 4,664 Ordinary Shares held by Mr. Selati's three adult
children. Mr. Selati disclaims beneficial ownership of all Ordinary Shares held
by his children.
(8) Mr. Linz, Mr. Gavshon and Mr. Price, Directors of the Company, own 72.5%,
22.5% and 5.0%, respectively, of Wispjune. As such, Mr. Linz is deemed to have
voting and investment power with respect to these Ordinary Shares. Mr. Gavshon
and Mr. Price have disclaimed beneficial ownership of the Ordinary Shares held
by Wispjune, except to the extent of their pecuniary interest in such Ordinary
Shares. See Notes (2), (3) and (4).
(9) Mr. Linz and Mr. Gavshon, Directors of the Company, each own 50% of the
Ordinary Shares of Geblon, with Mr. Linz retaining voting control of the Com-
pany. Mr. Gavshon disclaims his beneficial ownership of the Ordinary Shares
held by Geblon except to the extent of his pecuniary interest in such Ordinary
Shares. See Notes (2) and (3).
(10) Mr. Gavshon, a Director of the Company, jointly with his wife, is the
owner of Sarwill. See Note (3) above.
(11) See Notes (2) through (10).
55
<PAGE>
SELLING SHAREHOLDERS
The Selling Shareholders listed in the table below have agreed to sell the
number of Ordinary Shares set forth opposite their respective names. The
Selling Shareholders are selling an aggregate of 450,000 Ordinary Shares
(802,500 Ordinary Shares if the Underwriters' over-allotment option is exer-
cised in full). The table sets forth information with respect to beneficial
ownership of the Ordinary Shares by the Selling Shareholders as of September
30, 1997 (as if all Convertible Notes had been converted into Ordinary Shares
as of such date) and as adjusted to reflect the sale of shares pursuant to the
Offering. Each Selling Shareholder's position, office or other material rela-
tionship with the Company for the last three years, if any, is also stated. All
information with respect to beneficial ownership has been furnished by the
respective Selling Shareholders.
<TABLE>
<CAPTION>
---------------------------------------------------------
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) SHARES TO AFTER OFFERING(1)(2)
BE SOLD IN
NAME NUMBER PERCENT OFFERING(2) NUMBER PERCENT
- ---- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Blaironia Pty Limited... 59,647 2.0% 23,459 36,188 *
Halcyon Pty Limited(3).. 23,859 * 9,384 14,475 *
Timewalk Pty Limited.... 59,647 2.0% 23,459 36,188 *
RG Investments
(Australia) Pty
Limited................ 59,647 2.0% 23,459 36,188 *
Navarra Investments Pty
Ltd.(3)................ 2,385 * 938 1,447 *
Depofo Pty Ltd.(3)...... 2,982 * 1,173 1,809 *
Talbot Pty Limited(3)... 11,929 * 4,692 7,237 *
Scelara Pty Ltd......... 23,859 * 9,384 14,475 *
Borlas Pty Limited...... 59,647 2.0% 23,459 36,188 *
Dalbrun Pty Ltd.(3)..... 23,859 * 9,384 14,475 *
Pesas Pty Ltd. (A/C
Super Fund)(3)......... 23,859 * 9,384 14,475 *
Rupert Baroona Pty Ltd--
the Carter Account(3).. 14,911 * 5,865 9,046 *
Nassa Investments Pty
Limited(3)............. 11,929 * 4,692 7,237 *
Shane D. Finemore(3).... 11,929 * 4,692 7,237 *
Warana Holdings Pty
Ltd.(3)................ 35,788 1.2% 14,076 21,712 *
Kelstan Pty Ltd.(3)..... 59,647 2.0% 23,459 36,188 *
Kahuna Investments Pty
Ltd.(3)................ 59,647 2.0% 23,459 36,188 *
A/C WP Gurry
PADF/VIC(3)............ 29,823 1.0% 11,730 18,093 *
Potter Warburg Nominees
Pty Limited(3)......... 11,929 * 4,692 7,237 *
Todizo Pty Limited(3)... 55,472 1.8% 21,817 33,655 *
AJA Investments Pty
Limited(3)............. 47,717 1.6% 18,767 28,950 *
National Nominees
Limited................ 71,576 2.4% 28,151 43,425 *
ANZ Nominees Limited.... 106,291 3.5% 41,804 64,487 1.3%
Conargo Plains Pty
Ltd.(3)................ 11,929 * 4,692 7,237 *
RJR Capital Pty
Ltd.(3)................ 59,647 2.0% 23,459 36,188 *
Chirico Pty Ltd.(3)..... 59,647 2.0% 23,459 36,188 *
P.K. Capital Pty
Ltd.(3)................ 15,508 * 6,099 9,409 *
Exim Nominees Pty Ltd... 13,718 * 5,395 8,323 *
Dennis Hoffman.......... 548 * 216 332 *
Joyce Hoffman........... 548 * 216 332 *
David Katz.............. 9,328 * 3,669 5,659 *
Robert & Ann Patricia
McLeod(4).............. 5,487 * 2,158 3,329 *
Keith Abrahams.......... 5,487 * 2,158 3,329 *
Richard Wunsh........... 2,743 * 1,079 1,664 *
Patjon Pty Ltd.(4)...... 29,573 1.0% 11,631 17,942 *
Alney Pty Ltd.(4)....... 14,117 * 5,552 8,565 *
GDL Investments Pty
Ltd.(4)................ 15,455 * 6,079 9,376 *
Australip Pty Ltd....... 13,718 * 5,395 8,323 *
Jack Sack............... 5,487 * 2,158 3,329 *
Dresner Investments Pty
Ltd.................... 5,487 * 2,158 3,329 *
Jokari Pty Ltd.......... 2,743 * 1,079 1,664 *
David Schnaid........... 3,577 * 1,407 2,170 *
Lawrence Oster.......... 1,426 * 562 864 *
</TABLE>
56
<PAGE>
- -------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the Com-
mission and generally includes voting or investment power with respect to secu-
rities. Ordinary Shares subject to stock options, warrants and convertible
notes currently exercisable or convertible, or exercisable or convertible
within sixty (60) days of the date hereof, are deemed outstanding for computing
the percentage of the person holding such stock options but are not deemed out-
standing for computing the percentage of any other person. Except as indicated
by footnote, the persons named in the table have sole voting and investment
power with respect to all Ordinary Shares shown as beneficially owned by them.
Prior to the Offering, the percentages calculated are based on 3,041,652 shares
issued and outstanding as of July 31, 1997.
(2) Assumes the Underwriters' over-allotment option is not exercised. In the
event that the Underwriters' over-allotment option is exercised in full, the
Selling Shareholders will sell an aggregate of 352,500 additional ADSs (with
each Selling Shareholder selling Ordinary Shares on a pro rata basis in propor-
tion to the number of Ordinary Shares being sold by such Selling Shareholder in
the Offering).
(3) The Selling Shareholder is affiliated with an officer or director of SBC
Warburg Australia, an affiliate of a co-manager in the Offering. Under the
terms of the Convertible Notes, SBC Warburg Australia is the representative of
the Noteholders and received certain underwriting and advising fees in connec-
tion with the original issuance of the Convertible Notes. See "Certain Transac-
tions--Recent Delisting Transaction."
(4) Robert McLeod is a licensee of the Company. Patjon Pty Ltd., Alney Pty Ltd.
and GDL Investments Pty Ltd. are associated with financial and corporate advi-
sors to the Company. None of the foregoing persons or entities is considered an
affiliate of the Company.
57
<PAGE>
DESCRIPTION OF ORDINARY SHARES
The rights afforded the Ordinary Shares underlying the ADSs are governed by
the Articles of the Company and the laws applicable in the Commonwealth of
Australia. This includes in particular the Australian Corporations Law. The
following description summarizes those rights and is qualified in its entirety
by reference to the Articles, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
General. The Company has authorized capital of A$100,000,000 divided into
27,437,853 shares of A$3.64 each (rounded to the nearest cent). At July 31,
1997 there were 1,843,726 fully paid Ordinary Shares issued and outstanding.
The Directors of the Company have the power to issue authorized but unissued
shares in different classes, or with special, preferred or deferred rights and
restrictions, or on deferred terms for payment of the subscription amount.
These rights may relate to voting, dividend, return of capital or any other
matter, and may include redeemable preference shares.
Voting. Each shareholder present in person, by proxy or by properly appointed
representative shall have one vote at a meeting of shareholders unless a poll
is called. If a poll of shareholders is called, then each shareholder shall
have one vote per share, subject to any special rights attaching to shares at
the time of issue and to provisos that (i) a shareholder shall not be entitled
to vote unless all calls and other sums presently payable by that shareholder
in respect of shares in the Company have been paid, and (ii) partly paid
shares, which have not been offered pro rata to other shareholders, shall only
confer a proportional vote per share. At this time there are no partly paid
shares authorized or outstanding. A poll may be called by the chairman, any
five shareholders, or any shareholder or shareholders holding 10% of the paid-
up capital or the total votes of persons entitled to vote.
At least 14 days notice must be given of any meeting, with the requirement
extending to 21 days if any special resolution is to be voted on at the meet-
ing. The quorum for a meeting shall be three members, with a proviso that if a
quorum does not attend, then, unless it is a meeting convened on a shareholder
request, the meeting shall be adjourned to such day as the directors deter-
mine, or if no determination, to the same day, time and place in the next
week. If a quorum does not attend the adjourned meeting, the meeting shall be
dissolved. If a quorum does not attend a meeting that was convened on a share-
holder request, the meeting shall be dissolved without any later adjourned
meeting.
An annual general meeting of shareholders must be convened to consider the
financial accounts and to vote on directors, with at least one third of the
directors presenting themselves for re-election. No director may serve for a
period in excess of three years without submitting himself for re-election,
provided, however, that a retiring director may be re-appointed. This Board
re-election procedure could delay shareholders from removing a majority of the
Board for a period of three years, unless they are able to obtain the requi-
site vote to remove a director. The foregoing may have a significant effect in
delaying, deferring or preventing a change in control of the Company, even
though such change might be beneficial to the Company and its shareholders,
and may adversely affect the voting and other rights of other holders of
Common Stock.
Four of the Company's officers and directors will beneficially own an aggre-
gate of 35.1% of the Company's outstanding Ordinary Shares immediately fol-
lowing this Offering. Accordingly, these shareholders will be able to signifi-
cantly influence the election of the Company's directors and the outcome of
corporate actions requiring shareholder approval, such as mergers and acquisi-
tions, regardless of how many other shareholders of the Company may vote. See
"Risk Factors--Control of the Company."
Resolutions. There are two main types of shareholder resolutions under Austra-
lian corporate law, ordinary resolutions, which must be approved by more than
50% of the votes case (with the chairman having a vote), and special resolu-
tions, which must be approved by at least 75% of the votes cast. Appointment
of directors and most general business is decided by ordinary resolution,
while matters such as changes to the Articles and liquidation require a spe-
cial resolution.
Class Rights. If at any time the Company has more than one class of shares on
issue then the rights attaching to a class cannot be varied without the
approval of a special resolution passed at a meeting of those shareholders.
Transfer of Shares. Shares in the Company may be transferred by any usual form
of transfer or other form approved by the Directors of the Company, but the
certificate for the shares must be filed with the Company. Currently, appli-
cable law requires transfers to be made in writing and stamp duty of 0.6% must
be paid in relation to any transfer. The Directors may refuse to register any
transfer of shares where any of the following apply: (i) the Company has a
lien on the shares; (ii) where the transfer is of a partly paid share in
respect of which the directors have required the transferee or an authorized
officer of the transferee to complete a statutory declaration stating that the
transferee is financially able to meet any unpaid
58
<PAGE>
liability in respect of the share and such a declaration has not been received
by the Company; (iii) where the Company may refuse to register the transfer
under the Official Listing Rules of the ASE; or (iv) the Company is required to
refuse to register the transfer in accordance with a law relating to stamp duty
or pursuant to a court order.
There are no preemptive rights. However, contingent upon the occurrence of the
Offering, the Company expects the Noteholders to convert the entire principal
balance of such Convertible Notes into the Company's Ordinary Shares according
to the Note Subscription Agreement by and between the Company and SBC Warburg
Australia. Upon the consummation of a listing of the Company's securities on a
recognized stock exchange or securities market, such as is the case with the
Offering, the Noteholders are entitled to cause the Company to apply for offi-
cial quotation of their converted Ordinary Shares on such stock exchange or
securities market. All Noteholders will have waived their rights to have their
Ordinary Shares (excluding those to be sold in the Offering by the Selling
Shareholders) listed in connection with the Offering.
Buyback. There is a general limitation under the Australian Corporations Law on
the Company purchasing or providing financial assistance in relation to the
acquisition of shares in the Company. However, there is a specific exemption
allowing the Company to make limited buybacks of shares in the Company. Any
buyback must satisfy a range of conditions, which conditions vary depending on
whether the buyback involves the acquisition of more than 10% of the capital of
the Company and/or whether all shareholders have the opportunity to participate
equally in that buyback. These restrictions do not apply to debt securities.
Australian Takeover Laws. Under Australian law, foreign persons are prohibited
from acquiring more than a limited percentage of the shares in an Australian
company without approval from the Australian Treasurer or in certain other lim-
ited circumstances. These limitations are set forth in the Takeovers Act. Under
the Takeovers Act, as currently in effect, any foreign person, together with
associates, is prohibited from acquiring 15% or more of the outstanding shares
of the Company. In addition, if a foreign person acquires shares in the Company
and as a result the total holdings of all foreign persons and their associates
exceeds 40% in aggregate without the approval of the Australian Treasurer, then
the Treasurer may make an order requiring the acquiror to dispose of those
shares within a specified time. The Company has been advised by its Australian
counsel, Freehill, Hollingdale & Page, that under current foreign investment
policy, however, it is unlikely that the Treasurer would make such an order
where the level of foreign ownership exceeds 40% in the ordinary course of
trading, unless the Treasurer finds that the acquisition is contrary to the
national interest. The same rule applies if the total holdings of all foreign
persons and their associates already exceeds 40% and a foreign person (or its
associate) acquires any further shares, including in the course of trading in
the secondary market of the ADSs. If all of the ADSs offered hereby are
acquired by foreign persons or their associates, then the level of foreign own-
ership of the Company's equity securities will be approximately 51.6% (or
approximately 58.3% if the Underwriters' over-allotment option is exercised in
full). The level of foreign ownership could also increase in the future if
existing Australian investors decide to sell their shares into the U.S. market
or if the Company were to sell additional Ordinary Shares or ADSs in the
future. Such investment restrictions could have a material adverse effect on
the Company's ability to raise capital as needed and could make more difficult
or render impossible attempts by foreign entities to acquire the Company,
including attempts that might result in a premium over market price to holders
of ADSs.
Dividends. Holders of Ordinary Shares are entitled to receive, on a pro rata
basis in proportion to the capital paid upon on such shares, such dividends as
may be recommended by the Directors and approved by shareholders in a general
meeting, subject to such other preferential or special rights as may be
attached to any new shares issued by the Company. The ability of U.S. persons
who hold ADSs to participate in rights offerings or share dividend alternatives
which the Company may undertake in the future will be restricted if the Company
decides not to register such offerings pursuant to the Securities Act. While
the Company is not currently planning any such action, no assurance can be
given that such action will not be taken in the future or that, if any such
action is taken by the Company, it will be feasible to include U.S. persons.
Liquidations. On a liquidation, the liquidator may divide among the share-
holders the whole or any part of the assets of the Company and may vest the
whole or any part of such assets upon trust for the benefit of the sharehold-
ers. Such action requires the approval of a special resolution and is at the
discretion of the liquidator. No shareholder shall be compelled to accept any
shares or other securities where there is any liability.
Related Party Provisions. Under the Corporations Law, directors are prohibited
from entering into transactions with the Company conferring a benefit on any
director which are not on "arms-length" commercial terms, except where limited
exemptions apply or detailed approval procedures are first observed.
59
<PAGE>
Enforceability of Civil Liabilities. The Company is an Australian public lim-
ited company. Almost all of its current directors and executive officers reside
outside the United States (principally in the Commonwealth of Australia). All
or a substantial portion of the assets of these persons and of the Company are
located outside the United States (principally in the Commonwealth of Austra-
lia). As a result, it may not be possible for investors to effect service of
process within the United States upon such persons or the Company or to enforce
against such persons or the Company in foreign courts judgments obtained in
U.S. courts predicated upon the civil liability provisions of the Federal secu-
rities laws of the United States. The Company has been advised by its Austra-
lian counsel, Freehill, Hollingdale & Page, that there is doubt as to the
enforceability in the Commonwealth of Australia, in original actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon federal or state securities laws of the United States, especially in the
case of enforcement of judgments of U.S. courts where the defendant has not
been properly served under Australian law.
60
<PAGE>
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS
The following is a summary of certain provisions of the Deposit Agreement (in-
cluding any exhibits thereto, the "Deposit Agreement") dated as of , 1997
among the Company, Morgan Guaranty Trust Company of New York, as depositary
(the "Depositary"), and the holders (the "Holders") from time to time of the
ADRs issued thereunder. The following description summarizes all material pro-
visions of the Deposit Agreement and is qualified in its entirety by reference
to the Deposit Agreement. Copies of the Deposit Agreement are available for
inspection at the principal office of the Depositary in New York (the "Prin-
cipal New York Office"), which is presently located at 60 Wall Street, New
York, New York 10260. Terms used herein and not otherwise defined shall have
the respective meanings set forth in the Deposit Agreement.
ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms of
the Deposit Agreement. Each ADS represents, as of the date hereof, the right to
receive one Ordinary Share deposited under the Deposit Agreement (together with
any additional Ordinary Shares deposited thereunder and all other securities,
property and cash received and held thereunder at any time in respect of or in
lieu of such deposited Ordinary Shares, the "Deposited Securities") with the
Custodian under the Deposit Agreement (together with any successor or succes-
sors thereto, the "Custodian"). An ADR may evidence any number of ADSs. Only
persons in whose names ADRs are registered on the books of the Depositary will
be treated by the Depositary and the Company as Holders.
DEPOSIT, TRANSFER AND WITHDRAWAL
In connection with the deposit of Ordinary Shares under the Deposit Agreement,
the Depositary or the Custodian may require the following in form satisfactory
to it: (a) a written order directing the Depositary to execute and deliver to,
or upon the written order of, the person or persons designated in such order an
ADR or ADRs evidencing the number of ADSs representing such deposited Ordinary
Shares (a "Delivery Order"); (b) proper endorsements or duly executed instru-
ments of transfer in respect of such deposited Ordinary Shares; (c) instruments
assigning to the Custodian or its nominee any distribution on or in respect of
such deposited Ordinary Shares or indemnity therefor; and, (d) proxies enti-
tling the Custodian to vote such deposited Ordinary Shares. As soon as practi-
cable after the Custodian receives Deposited Securities pursuant to any such
deposit or pursuant to the form of ADR, the Custodian shall present such Depos-
ited Securities for registration of transfer into the name of the Custodian or
its nominee, to the extent such registration is practicable, at the cost and
expense of the person making such deposit (or for whose benefit such deposit is
made) and shall obtain evidence satisfactory to it of such registration. Depos-
ited Securities shall be held by the Custodian for the account and to the order
of the Depositary at such place or places and in such manner as the Depositary
shall determine. Deposited Securities may be delivered by the Custodian to any
person only under the circumstances expressly permitted in the Deposit Agree-
ment.
After any such deposit of Ordinary Shares, the Custodian shall notify the
Depositary of such deposit and of the information contained in any related
Delivery Order by letter, first class airmail postage prepaid, or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. After receiving such notice from the Custodian, the
Depositary, subject to the terms and conditions of the Deposit Agreement, shall
execute and deliver at the Transfer Office (the "Transfer Office") which is
presently located at the Principal New York Office, to or upon the order of any
person named in such notice, an ADR or ADRs registered as requested and evi-
dencing the aggregate ADSs to which such person is entitled.
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may so issue ADRs for delivery at the Transfer Office only against deposit with
the Custodian of: (a) Ordinary Shares in form satisfactory to the Custodian;
(b) rights to receive Ordinary Shares from the Company or any registrar,
transfer agent, clearing agent or other entity recording Ordinary Share owner-
ship or transactions; or, (c) other rights to receive Ordinary Shares (until
such Ordinary Shares are actually deposited pursuant to (a) or (b) above, "Pre-
released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked
to market daily) with cash or U.S. government securities held by the Depositary
for the benefit of Holders (but such collateral shall not constitute "Deposited
Securities"), (ii) each recipient of Pre-released ADRs agrees in writing with
the Depositary that such recipient (a) owns such Ordinary Shares, (b) assigns
all beneficial right, title and interest therein to the Depositary, (c) holds
such Ordinary Shares for the account of the Depositary and (d) will deliver
such Ordinary Shares to the Custodian as soon as practicable and promptly upon
demand therefor and (iii) all Pre-released ADRs evidence not more than 20% of
all ADSs (excluding those evidenced by Pre-released ADRs), provided that the
Depositary reserves the right to change or disregard such limit from time to
time as it deems appropriate. The Depositary may retain for its own account any
earnings on collateral for Pre-released ADRs and its charges for issuance
thereof. At the request, risk and expense of the person depositing Ordinary
Shares, the Depositary may accept deposits for forwarding to the Custodian and
may deliver ADRs at a place other than its office. Every person depositing
Ordinary Shares under the
61
<PAGE>
Deposit Agreement is deemed to represent and warrant that such Ordinary Shares
are validly issued and outstanding, fully paid, nonassessable and free of pre-
emptive rights, that the person making such deposit is duly authorized so to do
and that such Ordinary Shares (A) are not "restricted securities" as such term
is defined in Rule 144 under the Securities Act of 1933 unless at the time of
deposit they may be freely transferred in accordance with Rule 144(k) and may
otherwise be offered and sold freely in the United States or (B) have been reg-
istered under the Securities Act of 1933. Such representations and warranties
shall survive the deposit of Ordinary Shares and issuance of ADRs.
Subject to the terms and conditions of the Deposit Agreement, upon surrender of
an ADR in form satisfactory to the Depositary at the Transfer Office, the
Holder thereof is entitled to delivery at the Custodian's office of the Depos-
ited Securities at the time represented by the ADSs evidenced by such ADR. At
the request, risk and expense of the Holder thereof, the Depositary may deliver
such Deposited Securities at such other place as may have been requested by the
Holder. Notwithstanding any other provision of the Deposit Agreement or the
ADR, the withdrawal of Deposited Securities may be restricted only for the rea-
sons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions
may be amended from time to time) under the Securities Act of 1933.
DISTRIBUTIONS ON DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, to the extent
practicable, the Depositary will distribute by mail to each Holder entitled
thereto on the record date set by the Depositary therefor at such Holder's
address shown on the ADR Register, in proportion to the number of Deposited
Securities (on which the following distributions on Deposited Securities are
received by the Custodian) represented by ADSs evidenced by such Holder's ADRs:
(a) Cash: Any U.S. dollars available to the Depositary resulting from a
cash dividend or other cash distribution or the net proceeds of sales of
any other distribution or portion thereof authorized in the Deposit Agree-
ment ("Cash"), on an averaged or other practicable basis, subject to (i)
appropriate adjustments for taxes withheld, (ii) such distribution being
impermissible or impracticable with respect to certain Holders, and (iii)
deduction of the Depositary's expenses in (1) converting any foreign cur-
rency to U.S. dollars by sale or in such other manner as the Depositary may
determine to the extent that it determines that such conversion may be made
on a reasonable basis, (2) transferring foreign currency or U.S. dollars to
the United States by such means as the Depositary may determine to the
extent that it determines that such transfer may be made on a reasonable
basis, (3) obtaining any approval or license of any governmental authority
required for such conversion or transfer, which is obtainable at a reason-
able cost and within a reasonable time and (4) making any sale by public or
private means in any commercially reasonable manner.
(b) Ordinary Shares: (i) Additional ADRs evidencing whole ADSs representing
any Ordinary Shares available to the Depositary resulting from a dividend
or free distribution on Deposited Securities consisting of Ordinary Shares
(a "Ordinary Share Distribution") and (ii) U.S. dollars available to it
resulting from the net proceeds of sales of Ordinary Shares received in a
Ordinary Share Distribution, which Ordinary Shares would give rise to frac-
tional ADSs if additional ADRs were issued therefor, as in the case of
Cash.
(c) Rights: (i) Warrants or other instruments in the discretion of the
Depositary representing rights to acquire additional ADRs in respect of any
rights to subscribe for additional Ordinary Shares or rights of any nature
available to the Depositary as a result of a distribution on Deposited
Securities ("Rights"), to the extent that the Company timely furnishes to
the Depositary evidence satisfactory to the Depositary that the Depositary
may lawfully distribute the same (the Company has no obligation to so fur-
nish such evidence), or (ii) to the extent the Company does not so furnish
such evidence and sales of Rights are practicable, any U.S. dollars avail-
able to the Depositary from the net proceeds of sales of Rights as in the
case of Cash, or (iii) to the extent the Company does not so furnish such
evidence and such sales cannot practicably be accomplished by reason of the
nontransferability of the Rights, limited markets therefor, their short
duration or otherwise, nothing (and any Rights may lapse); and
(d) Other Distributions: (i) Securities or property available to the Depos-
itary resulting from any distribution on Deposited Securities other than
Cash, Ordinary Share Distributions and Rights ("Other Distributions"), by
any means that the Depositary may deem equitable and practicable, or (ii)
to the extent the Depositary deems distribution of such securities or prop-
erty not to be equitable and practicable, any U.S. dollars available to the
Depositary from the net proceeds of sales of Other Distributions as in the
case of Cash. Such U.S. dollars available will be distributed by checks
drawn on a bank in the United States for whole dollars and cents (any frac-
tional cents being withheld without liability for interest and added to
future Cash distributions).
To the extent that the Depositary determines in its discretion that any distri-
bution is not practicable with respect to any Holder, the Depositary may make
such distribution as it so determines is practicable, including the distribu-
tion of foreign
62
<PAGE>
currency, securities or property (or appropriate documents evidencing the right
to receive foreign currency, securities or property) or the retention thereof
as Deposited Securities with respect to such Holder's ADRs (without liability
for interest thereon or the investment thereof).
There can be no assurance that the Depositary will be able to effect any cur-
rency conversion or to sell or otherwise dispose of any distributed or offered
property, subscription or other rights, Ordinary Shares or other securities in
a timely manner or at a specified rate or price, as the case may be.
U.S. SECURITIES LAWS
The ability of U.S. persons who hold ADSs to participate in rights offerings or
share dividend alternatives which the Company may undertake in the future will
be restricted if the Company decides not to register such offerings under the
Securities Act. While the Company is not currently planning any such action, no
assurance can be given that such action will not be taken in the future or
that, if any such action is taken by the Company, it will be feasible to
include U.S. persons.
DISCLOSURE OF INTERESTS
To the extent that the provisions of or governing any Deposited Securities may
require disclosure of or impose limits on beneficial or other ownership of
Deposited Securities, other Ordinary Shares and other securities and may pro-
vide for blocking transfer, voting or other rights to enforce such disclosure
or limits, Holders and all persons holding ADRs agree to comply with all such
disclosure requirements and ownership limitations and to cooperate with the
Depositary in the Depositary's compliance with any Company instructions in
respect thereof, and, in the Deposit Agreement, the Depositary has agreed to
use reasonable efforts to comply with such Company instructions.
RECORD DATES
The Depositary will, after consultation with the Company if practicable, fix a
record date (which shall be as near as practicable to any corresponding record
date set by the Company) for the determination of the Holders who shall be
entitled to receive any distribution on or in respect of Deposited Securities,
to give instructions for the exercise of any voting rights, to receive any
notice or to act in respect of other matters and only such Holders shall be so
entitled.
VOTING OF DEPOSITED SECURITIES
As soon as practicable after receipt from the Company of notice of any meeting
or solicitation of consents or proxies of holders of Ordinary Shares or other
Deposited Securities, the Depositary shall mail to Holders a notice stating (a)
such information as is contained in such notice and any solicitation materials,
(b) that each Holder on the record date set by the Depositary therefor will be
entitled to instruct the Depositary as to the exercise of the voting rights, if
any, pertaining to the Deposited Securities represented by the ADSs evidenced
by such Holder's ADRs and (c) the manner in which such instructions may be
given, including instructions to give a discretionary proxy to a person desig-
nated by the Company. Upon receipt of instructions of a Holder on such record
date in the manner and on or before the date established by the Depositary for
such purpose, the Depositary shall endeavor insofar as practicable and per-
mitted under the provisions of or governing Deposited Securities to vote or
cause to be voted (or to grant a discretionary proxy to a person designated by
the Company to vote in accordance with (c) above) the Deposited Securities rep-
resented by the ADSs evidenced by such Holder's ADRs in accordance with such
instructions. The Depositary will not itself exercise any voting discretion in
respect of any Deposited Securities. If no instructions are received by the
Depositary from any Holder with respect to any of the Deposited Securities rep-
resented by the ADSs evidenced by such Holders' ADRs on or before the date
established by the Depositary for such purpose, the Depositary shall deem such
Holder to have instructed the Depositary to give a discretionary proxy to a
person designated by the Company with respect to such Deposited Securities and
the Depositary shall give a discretionary proxy to a person designated by the
Company to vote such Deposited Securities, provided, that no such instruction
shall be deemed given and no such discretionary proxy shall be given with
respect to any matter as to which the Company informs the Depositary (and the
Company agrees to provide such information as promptly as practicable in writ-
ing) that (i) the Company does not wish such proxy given, (ii) substantial
opposition exists or (iii) such matter materially and adversely affects the
rights of holders of Ordinary Shares; provided, further, that the Depositary
shall not be obligated to give any such proxy unless and until the Depositary
has been provided with an opinion, which shall be given at the time of entering
into the Deposit Agreement and prior to each vote in which a discretionary
proxy is to be provided, of counsel to the Company, in form and substance sat-
isfactory to the Depositary, to the effect that (i) the granting of such proxy
does not subject the Depositary to any reporting obligations in the Common-
wealth of Australia, including any states thereof, (ii) the granting of such
proxy will not result in a violation of any of the laws of either the Common-
wealth of
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Australia or any states thereof and (iii) the voting arrangement and proxy as
contemplated herein will be given effect under Australian law.
There can be no assurance that the Holders generally or any Holder in partic-
ular will receive the notice described in this subheading sufficiently prior
to the date established by the Depositary for the receipt of instructions to
ensure that the Depositary will in fact receive such instructions on or before
such date. Neither the Depositary nor the Company shall be responsible for any
failure to carry out any instructions to vote any of the Deposited Securities,
or for the manner in which any such vote is cast or the effect of any such
vote.
INSPECTION OF TRANSFER BOOKS
The Deposit Agreement provides that the Depositary will keep books at its
Transfer Office for the registration, registration of transfer, combination
and split-up of ADRs, which at all reasonable times will be open for inspec-
tion by the Holders and the Company for the purpose of communicating with
Holders in the interest of the business of the Company or a matter related to
the Deposit Agreement.
REPORTS AND OTHER COMMUNICATIONS
The Depositary shall make available for inspection by Holders at the Transfer
Office any reports and communications received from the Company which are both
(a) received by the Depositary as the holder of the Deposited Securities and
(b) made generally available to the holders of such Deposited Securities by
the Company. The Depositary shall also send to the Holders copies of such
reports when furnished by the Company. Any such reports and communications
furnished to the Depositary by the Company shall be furnished in English.
On or before the first date on which the Company makes any communication
available to holders of Deposited Securities or any securities regulatory
authority or stock exchange, by publication or otherwise, the Company shall
transmit to the Depositary a copy thereof in English or with an English trans-
lation or summary. In connection with any registration statement under the
Securities Act of 1933 relating to the ADRs or with any undertaking contained
therein, the Company and the Depositary shall each furnish to the other and to
the United States Securities and Exchange Commission or any successor govern-
mental agency such information as shall be required to make such filings or
comply with such undertakings. The Company has delivered to the Depositary,
the Custodian and any Transfer Office, a copy of all provisions contained in
the Articles or any other charter document of or governing the Shares and any
other Deposited Securities which are issued or adopted by the Company or any
affiliate of the Company (other than copies of Australian laws, rules and reg-
ulations) and, promptly upon any change thereto, the Company shall deliver to
the Depositary, the Custodian and any Transfer Office, a copy (in English or
with an English translation) of such provisions as so changed. The Depositary
and its agents may rely upon the Company's delivery thereof for all purposes
of the Deposit Agreement.
CHANGES AFFECTING DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may, in its discretion, amend the form of ADR or distribute additional or
amended ADRs (with or without calling the ADRs for exchange) or cash, securi-
ties or property on the record date set by the Depositary therefor to reflect
any change in par value, split-up, consolidation, cancellation or other
reclassification of Deposited Securities, any Ordinary Share Distribution or
Other Distribution not distributed to Holders or any cash, securities or prop-
erty available to the Depositary in respect of Deposited Securities from (and,
in the Deposit Agreement, the Depositary is authorized to surrender any Depos-
ited Securities to any person and to sell by public or private sale any prop-
erty received in connection with) any recapitalization, reorganization,
merger, consolidation, liquidation, receivership, bankruptcy or sale of all or
substantially all the assets of the Company, and to the extent the Depositary
does not so amend the ADR or make a distribution to Holders to reflect any of
the foregoing, or the net proceeds thereof, whatever cash, securities or prop-
erty results from any of the foregoing shall constitute Deposited Securities
and each ADS shall automatically represent its pro rata interest in the Depos-
ited Securities as then constituted.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The ADRs and the Deposit Agreement may be amended by the Company and the
Depositary, provided that any amendment that imposes or increases any fees or
charges (other than stock transfer or other taxes and other governmental
charges, transfer or registration fees, cable, telex or facsimile transmission
costs, delivery costs or other such expenses), or that shall otherwise preju-
dice any substantial existing right of Holders, shall become effective 30 days
after notice of such amendment shall have been given to the Holders. Every
Holder of an ADR at the time any amendment to the Deposit Agreement
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so becomes effective shall be deemed, by continuing to hold such ADR, to con-
sent and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby. In no event shall any amendment impair the right of the Holder
of any ADR to surrender such ADR and receive the Deposited Securities repre-
sented thereby, except in order to comply with mandatory provisions of appli-
cable law.
The Depositary may (upon written notice to the Company if, any time after 60
days have expired after the Depositary will have delivered to the Company a
written notice of its election to resign, a successor depositary will not have
been appointed and accepted its appointment in accordance with the Deposit
Agreement), and shall at the written direction of the Company, terminate the
Deposit Agreement and the ADRs by mailing notice of such termination to the
Holders at least 30 days prior to the date fixed in such notice for such termi-
nation. After the date so fixed for termination, the Depositary and its agents
will perform no further acts under the Deposit Agreement and the ADRs, except
to advise Holders of such termination, receive and hold (or sell) distributions
on Deposited Securities and deliver Deposited Securities being withdrawn. As
soon as practicable after the expiration of six months from the date so fixed
for termination, the Depositary shall sell the Deposited Securities and shall
thereafter (as long as it may lawfully do so) hold in a segregated account the
net proceeds of such sales, together with any other cash then held by it under
the Deposit Agreement, without liability for interest, in trust for the pro
rata benefit of the Holders not theretofore surrendered. After making such
sale, the Depositary shall be discharged from all obligations in respect of the
Deposit Agreement and the ADRs, except to account for such net proceeds and
other cash. After the date so fixed for termination, the Company shall be dis-
charged from all obligations under the Deposit Agreement except for its obliga-
tions to the Depositary and its agents.
CHARGES OF DEPOSITARY
The Depositary may charge each person to whom ADRs are issued against deposits
of Ordinary Shares including deposits in respect of Ordinary Share Distribu-
tions, Rights and Other Distributions and each person surrendering ADRs for
withdrawal of Deposited Securities, US$5.00 for each 100 ADSs (or portion
thereof) evidenced by the ADRs delivered or surrendered. The Company will pay
all other charges and expenses of the Depositary and any agent of the Deposi-
tary (except the Custodian) pursuant to agreements from time to time between
the Company and the Depositary, except (i) stock transfer or other taxes and
other governmental charges (which are payable by Holders or persons depositing
Ordinary Shares), (ii) cable, telex and facsimile transmission and delivery
charges incurred at the request of persons depositing, or Holders delivering
Ordinary Shares, ADRs or Deposited Securities (which are payable by such per-
sons or Holders), (iii) transfer or registration fees for the registration of
transfer of Deposited Securities on any applicable register in connection with
the deposit or withdrawal of Deposited Securities (which are payable by persons
depositing Ordinary Shares or Holders withdrawing Deposited Securities; there
are no such fees in respect of the Ordinary Shares as of the date of the
Deposit Agreement) and (iv) expenses of the Depositary in connection with the
conversion of foreign currency into U.S. dollars (which are paid out of such
foreign currency).
LIABILITY OF HOLDERS FOR TAXES
If any tax or other governmental charge shall become payable by or on behalf of
the Custodian or the Depositary with respect to the ADRs, any Deposited Securi-
ties represented by the ADRs evidenced thereby or any distribution thereon,
such tax or other governmental charge shall be paid by the Holder thereof to
the Depositary. The Depositary may refuse to effect any registration, registra-
tion of transfer, split-up or combination thereof or, subject to the terms and
conditions of the Deposit Agreement, any withdrawal of such Deposited Securi-
ties until such payment is made. The Depositary may also deduct from any dis-
tributions on or in respect of Deposited Securities, or may sell by public or
private sale for the account of the Holder thereof any part or all of such
Deposited Securities (after attempting by reasonable means to notify the Holder
thereof prior to such sale), and may apply such deduction or the proceeds of
any such sale in payment of such tax or other governmental charge, the Holder
thereof remaining liable for any deficiency, and shall reduce the number of
ADSs evidenced thereby to reflect any such sales of Deposited Securities. In
connection with any distribution to Holders, the Company will remit to the
appropriate governmental authority or agency all amounts (if any) required to
be withheld and owing to such authority or agency by the Company; and the
Depositary and the Custodian will remit to the appropriate governmental
authority or agency all amounts (if any) required to be withheld and owing to
such authority or agency by the Depositary or the Custodian. If the Depositary
determines that any distribution in property other than cash (including Ordi-
nary Shares or rights) on Deposited Securities is subject to any tax that the
Depositary or the Custodian is obligated to withhold, the Depositary may dis-
pose of all or a portion of such property in such amounts and in such manner as
the Depositary deems necessary and practicable to pay such taxes, by public or
private sale, and the Depositary shall distribute the net proceeds of any such
sale or the balance of any such property after deduction of such taxes to the
Holders entitled thereto.
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GENERAL LIMITATIONS
The Depositary, the Company, their agents and each of them shall: (a) incur no
liability (i) if law, regulation, the provisions of or governing any Deposited
Security, act of God, war or other circumstance beyond its control shall pre-
vent, delay or subject to any civil or criminal penalty any act which the
Deposit Agreement or the ADRs provides shall be done or performed by it, or
(ii) by reason of any exercise or failure to exercise any discretion given it
in the Deposit Agreement or the ADRs; (b) assume no liability except to perform
its obligations to the extent they are specifically set forth in the ADRs and
the Deposit Agreement without gross negligence or bad faith; (c) except in the
case of the Company and its agents, be under no obligation to appear in, prose-
cute or defend any action, suit or other proceeding in respect of any Deposited
Securities or the ADRs; (d) in the case of the Company and its agents hereunder
be under no obligation to appear in, prosecute or defend any action, suit or
other proceeding in respect of any Deposited Securities or the ADRs, which in
its opinion may involve it in expense or liability, unless indemnity satisfac-
tory to it against all expense (including fees and disbursements of counsel)
and liability be furnished as often as may be required; or (e) not be liable
for any action or inaction by it in reliance upon the advice of or information
from legal counsel, accountants, any person presenting Ordinary Shares for
deposit, any Holder, or any other person believed by it to be competent to give
such advice or information. The Depositary, its agents and the Company may rely
and shall be protected in acting upon any written notice, request, direction or
other document believed by them to be genuine and to have been signed or pre-
sented by the proper party or parties. The Depositary and its agents will not
be responsible for any failure to carry out any instructions to vote any of the
Deposited Securities, for the manner in which any such vote is cast or for the
effect of any such vote. The Depositary and its agents may own and deal in any
class of securities of the Company and its affiliates and in ADRs. The Company
has agreed to indemnify the Depositary and its agents under certain circum-
stances and the Depositary has agreed to indemnify the Company against losses
incurred by the Company to the extent such losses are due to the negligence or
bad faith of the Depositary.
Prior to the issue, registration, registration of transfer, split-up or combi-
nation of any ADR, the delivery of any distribution in respect thereof, or,
subject to the terms and conditions of the Deposit Agreement, the withdrawal of
any Deposited Securities, the Company, the Depositary or the Custodian may
require: (a) payment with respect thereto of (i) any stock transfer or other
tax or other governmental charge, (ii) any stock transfer or registration fees
in effect for the registration of transfers of Ordinary Shares or other Depos-
ited Securities upon any applicable register, and (iii) any applicable charges
as provided in the Deposit Agreement; (b) the production of proof satisfactory
to it of (i) the identity and genuineness of any signature and (ii) such other
information, including without limitation, information as to citizenship, resi-
dence, exchange control approval, beneficial ownership of any securities, com-
pliance with applicable law (including, but not limited to evidence of compli-
ance with the Corporations Law, the Banking (Foreign Exchange) Regulations or
the Foreign Acquisitions and Takeovers Act 1975 of Australia), regulations,
provisions of or governing Deposited Securities and terms of the Deposit Agree-
ment and the ADRs, as it may deem necessary or proper; and (c) compliance with
such regulations as the Depositary may establish consistent with the Deposit
Agreement. The issuance of ADRs, the acceptance of deposits of Ordinary Shares,
the registration, registration of transfer, split-up or combination of ADRs or,
subject to the terms of the Deposit Agreement, the withdrawal of Deposited
Securities may be suspended, generally or in particular instances, when the ADR
Register or any register for Deposited Securities is closed or when any such
action is deemed advisable by the Depositary or the Company.
GOVERNING LAW
The Deposit Agreement is governed by and shall be construed in accordance with
the laws of the State of New York.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
The Depositary is Morgan Guaranty Trust Company of New York, a New York banking
corporation, which has its principal office located in New York, New York.
Morgan Guaranty Trust Company of New York is a commercial bank offering a wide
range of banking and trust services to its customers in the New York metropol-
itan area, throughout the United States and around the world.
The Consolidated Balance Sheets of J.P. Morgan & Co. Incorporated ("J.P. Mor-
gan"), the parent corporation of Morgan Guaranty Trust Company of New York, are
set forth in its most recent Annual Report and Form 10-Q. The Annual Report,
Form 10-K and Form 10-Q of J.P. Morgan are on file with the Commission.
The Articles of Association of Morgan Guaranty Trust Company of New York and
By-Laws together with the annual report, Form 10-K and Form 10-Q of J.P. Morgan
will be available for inspection at the Principal New York Office of the Depos-
itary. J.P. Morgan Securities Inc., the lead managing underwriter in the Offer-
ing, is an affiliate of Morgan Guaranty Trust Company.
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CERTAIN TAX CONSIDERATIONS
The following summary describes the material Australian tax and U.S. Federal
income tax consequences of the acquisition, ownership and disposition of Ordi-
nary Shares or ADSs by U.S. Holders (as defined below). This summary does not
deal with the tax consequences to U.S. Holders who carry on a business in Aus-
tralia through a permanent establishment. For purposes of this discussion,
"U.S. Holder" means a beneficial owner of Ordinary Shares or ADSs that (i) for
U.S. federal income tax purposes is a U.S. resident, a U.S. citizen, a domestic
corporation, a domestic partnership, or a nonforeign estate or trust and (ii)
does not own directly, indirectly or constructively 10% or more of the voting
stock of the Company ("10% U.S. Shareholder"). This summary does not purport to
be a complete technical analysis or listing of all potential tax effects to
holders of Ordinary Shares or ADSs. Except as otherwise noted, the statements
of Australian and U.S. tax laws set forth below are based on the laws in force
as of the date of this Prospectus, including the bilateral taxation convention
between Australia and the United States (the "Treaty"), and are subject to any
changes in Australian and U.S. law occurring after such date. The summary is
based on the opinion of Brobeck, Phleger & Harrison LLP as to U.S. Federal
income tax matters and on the opinion of Freehill, Hollingdale & Page as to
Australian tax matters. No arrangements exist or are proposed under which the
Company will assume liability for, or reimburse to shareholders, any tax that
the Company may withhold in respect of dividends in accordance with tax legis-
lation. Purchasers of ADSs or Ordinary Shares should consult their tax advisors
concerning the Australian tax and U.S. Federal income tax consequences of their
ownership of the ADSs or Ordinary Shares. Further, purchasers who are residents
of jurisdictions other than the United States should consult their tax advisors
as to the tax consequences of investing in the ADSs or Ordinary Shares under
the laws of their jurisdictions of residence.
AUSTRALIAN TAXATION
In the opinion of Freehill, Hollingdale & Page, the following discussion of
Australian tax matters reflects the material consequences to U.S. Holders of
the acquisition, ownership and disposition of ADSs and Ordinary Shares.
Dividends. Fully franked dividends (i.e., dividends paid out of the Company's
profits which have been subject to tax at the maximum corporate tax rate) which
are paid to shareholders who are not residents of Australia will not be subject
to Australian income or Australian withholding taxes. Unfranked dividends
(i.e., dividends that are paid out of profits that have not been subject to
Australian income tax) are subject to Australian withholding tax when paid to
shareholders who are non-residents of Australia. Dividends may be partially
franked, in which case shareholders will be subject to tax on the unfranked
portion. Pursuant to the Treaty, the withholding tax imposed on dividends paid
by the Company to a U.S. resident is limited to 15%.
Certain non-portfolio dividends received by the Company from non-Australian
companies are exempt from Australian income tax and may be referred to as "for-
eign dividends." Unfranked dividends paid out of the Company's profits relating
to these foreign dividends may (with limitations) be paid to shareholders who
are non-residents of Australia free of Australian withholding tax.
The Company anticipates that all dividends, if any, to be paid in the foresee-
able future will be fully franked. Dividend statements will be sent to all
Ordinary Share shareholders which will indicate the extent to which dividends
are franked and the amount of any tax withheld.
Sales of ADSs or Ordinary Shares. Nonresidents of Australia who do not hold and
have not at any time in the five years preceding the date of disposal held (for
their own account or together or together with associates) 10% or more of the
issued share capital of a public Australian company are not liable for Austra-
lian capital gains tax on the disposal of shares or ADSs of such company.
Nonresidents of Australia are subject to Australian capital gains tax on the
disposal of shares or ADSs of a private Australian company where the disposal
consideration exceeds the cost basis (indexed for inflation where the shares or
ADSs are held for 12 months or more). The rate of Australian tax or taxable
capital gains realized by nonresidents of Australia is 36% for companies. For
individuals, the rate of tax increases from 29% to a maximum of 47%. Nonresi-
dents of Australia who are subject to Australian tax on capital gains made on
the disposal of shares or ADSs are required to file an Australian income tax
return for the year in which the disposal occurs.
A company listed on a stock exchange (a "Listed Company") may be treated as a
private company for Australian tax purposes if, at any time during its fiscal
year, not less than 75% of the paid up capital of the Company, voting power or
dividend rights is held by 20 or fewer persons (the "Ownership Test"), unless
the Australian Commissioner of Taxation (the
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"Commissioner"), pursuant to the discretion granted to him, rules that such
company will be treated as a public company for such fiscal year.
On July 9, 1997, the Commissioner ruled that the Company will be treated as a
public company for Australian tax purposes for the year ending January 31,
1998. Such ruling is based on the Company's expectation that it will not sat-
isfy the Ownership Test at any time after the Offering. The Company expects
that, in subsequent years, it will continue not to satisfy the Ownership Test,
and, therefore, that it will continue to be a public company for Australian tax
purposes. However, because the Ownership Test is applied on a continuous basis,
there can be no assurance that the Company will not satisfy the Ownership Test
at any time. The Company will monitor its share register and, if the need
arises, seek a further exercise of the Commissioner's discretion. The Company
will notify its shareholders in the event the Company is unsuccessful in main-
taining its status as a public company.
Non-residents who are securities dealers or who otherwise hold ADSs or Ordinary
Shares as revenue assets (e.g., financial institutions including banks and
insurance companies) may be subject to Australian income tax on Australian
source profits arising on the disposal of the ADSs or Ordinary Shares.
Pursuant to the Treaty, capital gains or profits arising on the disposal of
ADSs or Ordinary Shares which constitute "business profits" of an enterprise
carried on by a resident of the United States who does not carry on business in
Australia through a permanent establishment are exempt from Australian tax. Any
capital gains or profits derived by a resident of the United States from the
disposal of the ADSs or Ordinary Shares held as revenue assets (including gains
derived by a securities dealer) should constitute business profits under the
Treaty and, thus be exempt from Australian tax, provided that such holder does
not carry on business in Australia through a permanent establishment.
Non-residents with no taxable capital gains or income from sources in Australia
other than dividends with respect to the Ordinary Shares or ADSs are not
required to file an Australian income tax return.
Stamp Duty. Stamp duty is imposed in New South Wales on any transfer of shares
(or interest in shares) in a company incorporated in New South Wales except in
certain limited circumstances and will be payable on the transfer of Ordinary
Shares in the Company. As Ordinary Shares are not listed on the Australian
Stock Exchange, the rate of duty is A$0.06 for each A$10.00 of the considera-
tion paid to acquire the Ordinary Shares in the case of an arms-length sale, or
the higher of the consideration or market value in any other case and will be
payable by the person acquiring the Ordinary Shares. No stamp duty will be pay-
able in Australia on the transfer of ADSs or of ADRs provided that any instru-
ment by which the ADSs or ADRs are transferred is executed outside Australia.
UNITED STATES TAXATION
In the opinion of Brobeck, Phleger & Harrison LLP, the following discussion of
U.S. Federal income tax matters reflects the material consequences to U.S.
Holders other than 10% U.S. Shareholders of the acquisition, ownership and dis-
position of the ADSs and Ordinary Shares.
Holders of ADSs Deemed to be Owners of Ordinary Shares. For purposes of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), a U.S. Holder of
ADSs will be treated as the owner of the underlying Ordinary Shares represented
by such ADSs. Exchanges, deposits and withdrawals of Ordinary Shares for ADSs
or ADSs for Ordinary Shares by a U.S. Holder will not result in recognition of
gain or loss for U.S. Federal income tax purposes.
Cash Dividends. Distributions (other than certain pro rata distributions of
Ordinary Shares) made by the Company with respect to the Ordinary Shares,
including Ordinary Shares represented by ADSs (including the amount of any Aus-
tralian taxes withheld therefrom), will generally be includable in the gross
income of a U.S. Holder as foreign source dividend income to the extent such
distributions are made from the current or accumulated earnings and profits of
the Company, as determined in accordance with U.S. Federal income tax princi-
ples. Such dividends will not be eligible for the dividends received deduction
otherwise allowed to corporations. To the extent, if any, that the amount of
any such distribution exceeds the Company's current and accumulated earnings
and profits as so computed, it will be treated first as a tax-free return of
the U.S. Holder's tax basis in its ADSs to the extent thereof, and then, to the
extent in excess of such tax basis, as capital gain. Dividends paid in Austra-
lian dollars will be includable in income in a U.S. dollar amount based on the
prevailing U.S. dollar-Australian dollar exchange rate on the date of receipt
by the Depositary or the date of receipt by the U.S. Holder of Ordinary Shares,
whether or not the payment is converted into U.S. dollars at that time. Any
gain or loss recognized upon a subsequent sale or conversion of the Australian
dollars will be U.S. source ordinary income or loss. Subject to certain complex
limitations, any Australian tax withheld from a dividend will be treated as a
foreign income tax that may be claimed as a credit against the U.S. Federal
income tax liability of the U.S. Holder. Amounts creditable against U.S. tax
may instead be deducted at the election of the U.S. Holder. Under the Code, the
limitation on foreign taxes
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eligible for credit is calculated separately with respect to specific classes
of income. For this purpose, dividends paid by the Company will generally be
"passive income" or, in the case of certain holders, "financial services
income."
Sale of ADSs or Ordinary Shares. Upon a sale or exchange of ADSs or Ordinary
Shares, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized upon the disposition and such holder's adjusted tax
basis in the ADSs or Ordinary Shares. Such gain or loss will be a capital gain
or loss if the holder has held his ADSs or Ordinary Shares as capital assets.
Recently enacted legislation includes substantial changes to the federal income
taxation of capital gains by individuals, including a 28% maximum tax rate for
certain gains from the sale of capital assets held for more than one year but
not more than 18 months and a 20% maximum tax rate for certain gains from the
sale of capital assets held for more than 18 months. The deduction of capital
losses is subject to certain limitations. Prospective investors should consult
their own tax advisors in this regard.
No Australian Tax is imposed on the capital gains of a U.S. Holder arising from
the sale or exchange of ADSs or Ordinary Shares provided that the Company con-
tinues to be treated as a public company for Australian tax purposes. See--Aus-
tralian Taxation Sales of ADSs or Ordinary Shares. In the event that the Com-
pany is not treated as a public company and, consequently, Australian tax is
imposed on the sale or exchange of ADSs or Ordinary Shares, U.S. Holders should
consult their own tax advisors with respect to their ability to credit such tax
against their U.S. federal income taxes.
Passive Foreign Investment Company. A Passive Foreign Investment Company
("PFIC") is a foreign corporation in which either (1) 75% or more of its gross
income in a tax year is passive or (2) at least 50% of the average percentage
of its assets (by value or, if the corporation so elects, by adjusted tax
basis) produce or are held for the production of passive income. As of the date
of this Prospectus, the Company is not a PFIC and does not anticipate becoming
a PFIC as a result of the sale of the ADSs. If the Company becomes a PFIC, the
U.S. Federal income tax consequences to a U.S. Holder of the purchase, owner-
ship, disposition or deemed disposition of ADSs will change significantly from
the consequences presented in this discussion.
69
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In April 1987, the Company listed its Ordinary Shares for trading on the ASE.
In October 1996, the Company announced its intention to delist from the ASE
pursuant to a transaction which was consummated as of December 31, 1996. From
the time of such delisting until the consummation of this Offering, there has
been no public market for the Ordinary Shares or ADSs and there can be no
assurance that a significant public market for the Ordinary Shares or ADSs will
develop or be sustained after this Offering. Sales of substantial amounts of
Ordinary Shares or ADSs in the public market or the prospect of such sales
could adversely affect the market price of the Ordinary Shares of ADSs.
The Company has granted stock options to purchase up to an aggregate of 203,038
Ordinary Shares under the Executive Share Option Plan to Sam Linz, Robert
Gavshon, Sydney Selati and John Price and has additionally reserved a pool of
329,254 authorized and unissued Ordinary Shares to grant to directors, offi-
cers, employees and independent contractors of the Company, of which stock
options to purchase up to an aggregate of 200,000 Ordinary Shares have been
granted concurrently with the Offering. The Company may in the future issue
these or other equity or equity derivative securities. See "Management--1997
Share Option Plan" and "Management--Executive Share Option Plan."
Upon completion of this Offering, assuming no exercise of outstanding stock
options after July 31, 1997, the Company will have 4,941,652 Ordinary Shares
outstanding (including those represented by the ADSs and 1,197,926 Ordinary
Shares issued upon conversion of outstanding Convertible Notes). Of such Ordi-
nary Shares, 2,350,000 will be sold in the Offering and an additional 352,500
Ordinary Shares will be sold by the Selling Shareholders if the Underwriters'
over-allotment option is exercised in full. All Ordinary Shares sold in the
Offering will be freely tradable without restriction or further registration
under the Securities Act. See "Underwriting."
The remaining 2,591,652 Ordinary Shares (2,239,152 Ordinary Shares if the
Underwriters' over-allotment option is exercised in full) outstanding upon com-
pletion of the Offering (including Ordinary Shares issued upon conversion of
the Convertible Notes and not sold in the Offering) were issued in private
transactions not involving a public offering, and are thus "restricted" securi-
ties within the meaning of Rule 144 and cannot be resold except upon registra-
tion under the Securities Act or pursuant to an exemption from registration. Of
these Ordinary Shares, 1,706,537 Ordinary Shares will be immediately eligible
for sale in the public market, without any holding period, subject to compli-
ance with Rule 144 and the remaining 885,115 Ordinary Shares (532,615 Ordinary
Shares if the Underwriters' over-allotment option is exercised in full),
including Ordinary Shares issued upon conversion of the Convertible Notes and
not sold in the Offering, will be eligible for sale in the public market after
completion of a one-year holding period in December 1997 and subject to compli-
ance with Rule 144. All holders of restricted shares have agreed that they will
not offer, sell, contract to sell or otherwise dispose of any Ordinary Shares
or other equity or equity derivative securities of the Company for a period of
180 days after the date of this Prospectus without the prior consent of J.P.
Morgan Securities Inc.
In general, under Rule 144, as in effect on the date of this Prospectus, an
affiliate of the Company, or person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year, will be
entitled to sell in any three-month period commencing at least 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding Ordinary Shares (approximately 49,417 shares
immediately after the Offering) or (ii) the average weekly trading volume of
the Company's Ordinary Shares (as represented by ADSs) on the Nasdaq National
Market during the four calendar weeks immediately preceding the date on which
notice of the sale is filed with the SEC. Sales pursuant to Rule 144 are sub-
ject to certain requirements relating to manner of sale, notice and avail-
ability of current public information about the Company. In addition, affili-
ates of the Company must comply with the restrictions and requirements of Rule
144, other than the one-year holding period requirement, in order to sell Ordi-
nary Shares which are not "restricted securities" (such as Ordinary Shares
acquired by affiliates in the Offering). A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned restricted shares for at least two years is entitled to sell such shares
immediately following the consummation of the Offering pursuant to Rule 144(k)
without regard to the limitations described in this paragraph. For purposes of
calculating the holding periods under Rule 144, the holders of Ordinary Shares
issued upon conversion of Convertible Notes are deemed to have acquired their
Ordinary Shares when they acquired their Convertible Notes.
Under the terms of the Note Agreements, if the Company consummates a listing of
the Company's securities on a recognized stock exchange or securities market,
such as is the case with this Offering, the Noteholders are entitled to cause
the Company to apply for official quotation of their converted Ordinary Shares
on such stock exchange or securities market. The Noteholders will have waived
such requirement in connection with the Offering (except as to those Ordinary
Shares to be sold in the Offering by the Selling Shareholders).
70
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Company and
the Selling Shareholders have agreed to sell to the Underwriters named below,
and each of such Underwriters, for whom J.P. Morgan Securities Inc. and SBC
Warburg Dillon Read Inc. are acting as representatives, have severally agreed
to purchase from the Company and the Selling Shareholders, the respective
number of ADSs set forth opposite their names below:
<TABLE>
<CAPTION>
--------------
UNDERWRITERS NUMBER OF ADSS
- ------------ --------------
<S> <C>
J.P. Morgan Securities Inc. .....................................
SBC Warburg Dillon Read Inc. ....................................
---------
Total.......................................................... 2,350,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several Under-
writers to purchase ADSs are subject to the approval of certain legal matters
by counsel and certain other conditions. Under the terms and conditions of the
Underwriting Agreement, the Underwriters are obligated to take and pay for all
such ADSs, if any are taken.
The Underwriters propose initially to offer the ADSs directly to the public at
the public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per ADS.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per ADS to certain other dealers. After the initial public
offering of the ADSs, the public offering price and such concession may be
changed.
The Selling Shareholders have granted to the Underwriters an option, expiring
at the close of business on the 30th day after the date of this Prospectus, to
purchase up to 352,500 additional ADSs from the Selling Shareholders at the
initial public offering price, less the underwriting discount. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any. To the extent that the Underwriters may exercise their option, each Under-
writer will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of such additional ADSs as the number set
forth next to such Underwriters' name in the preceding table bears to the total
number of ADSs initially offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the Under-
writers against certain liabilities, including liabilities under the Securities
Act.
The ADSs have not been and will not be qualified for distribution under the
securities legislation of Australia or the Australian state of New South Wales.
Accordingly, the ADSs may not be distributed in Australia, except pursuant to a
prospectus exemption under applicable securities legislation. Each Underwriter
has agreed that it will not distribute ADSs in Australia, except in accordance
with a prospectus exemption under applicable securities legislation.
Each of the Company and its directors and executive officers and certain of its
shareholders have agreed, with certain limited exceptions, not to offer, sell,
contract to sell or otherwise dispose of any Ordinary Shares or ADSs, any
options for the sale of Ordinary Shares or ADSs, or any securities convertible
into or exchangeable or exercisable for any such shares, for a period of 180
days after the date of this Prospectus, without the consent of J.P. Morgan
Securities Inc.
Prior to this Offering, there has been no public market for the Ordinary Shares
or the ADSs. On December 31, 1996, the Company repurchased 2,743,878 Ordinary
Shares at A$7.29 per share, for an aggregate purchase price of A$20,000,677,
and cancelled stock options to purchase 101,520 Ordinary Shares in exchange for
aggregate consideration of A$77,500 in the Capital Reduction. The initial
public offering price for the ADSs offered hereby will be determined by agree-
ment among the Company, the Selling Shareholders and the Underwriters. Among
the factors to be considered in making such determination will be the consider-
ation paid for the repurchase of the Ordinary Shares in the Capital Reduction,
the history of and the prospects for the industry in which the Company com-
petes, an assessment of the Company's management, the present operations of the
Company, the historical results of operations of the Company and the trend of
its revenues and earnings, the prospects for future earnings of the Company,
the general condition of the securities markets at the time of the offering and
the prices of similar securities of generally comparable companies.
In order to facilitate the offering of the ADSs, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the ADSs
or the Ordinary Shares. Specifically, the Underwriters may over-allot in con-
nection with the Offering, creating a short position in the ADSs for their own
account. In addition, to cover over-allotments or to
71
<PAGE>
stabilize the price of the ADSs, the Underwriters may bid for, and purchase,
ADSs in the open market. Finally, the underwriting syndicate may reclaim con-
cessions allowed to an underwriter or a dealer for distributing the ADSs in the
Offering, if the syndicate repurchases previously distributed ADSs in transac-
tions to cover syndicate short positions, in stabilization transactions or oth-
erwise. Any of these activities may stabilize or maintain the market price of
the ADSs above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The Company has made an application to have the Ordinary Shares quoted on the
Nasdaq National Market under the symbol "BBQZY." There can be no assurance that
an active trading market will develop for the ADSs or that the ADSs will trade
in the public market subsequent to the offering at the initial public offering
price.
J.P. Morgan Securities Inc. is an affiliate of Morgan Guaranty Trust Company of
New York, the Depositary for the ADSs. SBC Warburg Inc. is an affiliate of SBC
Warburg Australia. Certain of the Selling Shareholders, holding approximately
A$4,815,000 aggregate principal amount of the Convertible Notes prior to the
Offering (574,396 Ordinary Shares upon conversion), are employees, or family
members of employees, of SBC Warburg Australia. Such Selling Shareholders, who
will convert their Convertible Notes into Ordinary Shares immediately prior to
the closing of the Offering, are selling an aggregate of 225,913 ADSs in the
Offering and will continue to hold 348,483 Ordinary Shares after the Offering.
In addition, SBC Warburg Australia acted as underwriter of the initial offering
of the Convertible Notes and continues to act as a representative of the Con-
vertible Noteholders pursuant to the terms of the Convertible Notes. SBC
Warburg Australia received certain fees in connection with the initial offering
of the Convertible Notes and receives annual fees until all of the Convertible
Notes have been redeemed or converted. See "Certain Transactions--Recent
Delisting Transaction," "Selling Shareholders" and "Description of American
Depositary Receipts--Morgan Guaranty Trust Company of New York."
72
<PAGE>
LEGAL MATTERS
The validity of the ADSs offered hereby under Australian law will be passed
upon for the Company and the Selling Shareholders by Freehill, Hollingdale &
Page, Solicitors & Attorneys, Sydney, Australia. Certain legal matters relating
to the ADSs will be passed upon by Brobeck, Phleger & Harrison LLP, Palo Alto,
California, special U.S. counsel for the Company and the Selling Shareholders.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The Consolidated Balance Sheets of the Company as of June 30, 1994, 1995 and
1996 and the Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended June 30, 1996
included herein have been audited by Horwath Sydney Partnership, independent
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
auditing and accounting. The Consolidated Balance Sheets of the Company as of
June 30, 1992 and 1993 and the Consolidated Statements of Operations, Share-
holders' Equity and Cash Flows for each of the two years in the period ended
June 30, 1993 have been audited by Horwath Sydney Partnership and are not
included herein.
The Consolidated Financial Statements of Barbeques Galore Limited and subsidi-
aries as of January 31, 1997 and for the seven-month period ended January 31,
1997 have been included herein and in the Registration Statement in reliance
upon the report of KPMG, independent accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing. With
respect to the unaudited interim financial information for the annual periods
ended January 31, 1995, 1996, and 1997 included in the Registration Statement
of which this Prospectus is a part, KPMG has reported that they applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report states that they did not audit and
they do not express an opinion on this interim financial information. Accord-
ingly, the degree of reliance on their report on such information should be
restricted in light of the limited nature of the review procedures applied. The
accountants are not subject to the liability provisions of section 11 of the
Securities Act for their report on the unaudited interim financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by the accountants within the meaning of sections 7 and
11 of the Securities Act.
73
<PAGE>
INDEX TO DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM LOCATION
------------ --------
<C> <S>
10% U.S. Shareholder "Certain Tax Considerations"
1997 Plan "Management--1997 Share Option Plan"
ADRs Cover Page
ADSs Cover Page
ANZ "Use of Proceeds"
ANZ Facility "Use of Proceeds"
Articles "Risk Factors--Restrictions on Foreign Ownership;
Antitakeover Restrictions"
ASE "Risk Factors--Absence of Public Market for Ordinary
Shares or ADSs; Possible Volatility of ADS Price"
Barbeques Galore Cover Page
Bosmana "Principal Shareholders"--Note 3 to Table
Bromic "Business--Manufacturing"
Capital Reduction "Certain Transactions--Recent Delisting Transaction"
Cash "Description of American Depositary Receipts--
Distributions on Deposited Securities"
Code "Certain Tax Considerations--United States Taxation--
Holders of ADSs Deemed to be Owners of Ordinary Shares"
Commission "Available Information"
Commissioner "Certain Tax Considerations--Australian Taxation"
Company Cover Page
Convertible Notes "Prospectus Summary"
Custodian "Description of American Depositary Receipts"
Delivery Order "Description of American Depositary Shares--Deposit,
Transfer and Withdrawal"
Deposit Agreement "Description of American Depositary Receipts"
Depositary "Description of American Depositary Receipts"
Deposited Securities "Description of American Depositary Receipts"
Entity Optionee "Management--Executive Share Option Plan"
Exchange Act "Available Information"
Expiry Date "Management--Executive Share Option Plan"
EPS "Management's Discussion and Analysis of Financial
Condition and Results of Operations--New Pronouncements
by Financial Accounting Standards Board"
Executive Plan "Management--Executive Share Option Plan"
Galore USA "Use of Proceeds"
Geblon "Principal Shareholders"--Note 3 to Table
GLG Taiwan "Business--Manufacturing"
Holders "Description of American Depositary Receipts"
JDA "Business--Management Information Systems"
JP Morgan "Description of American Depositary Receipts--Morgan
Guaranty Trust Company of New York"
Listed Company "Certain Tax Considerations--Australian Taxation"
Merrill Lynch "Use of Proceeds"
Merrill Lynch Facility "Use of Proceeds"
Noon Buying Rate "Financial Statement Presentation"
Noteholders "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview"
</TABLE>
74
<PAGE>
<TABLE>
<C> <S>
Offering Cover Page
Optics "Risk Factors--Implementation of Growth Strategy"
Options "Risk Factors--Shares Eligible for Future Sale"
Ordinary Share Cover Page
Ordinary Share Distribution "Description of American Depositary Receipts--
Distributions on Deposited Securities"
Other Distributions "Description of American Depositary Receipts--
Distributions on Deposited Securities"
Ownership Test "Certain Tax Considerations--Australian Taxation--
Sales of ADSs or Ordinary Shares"
PFIC "Certain Tax Considerations--United States
Taxation--Passive Foreign Investment Company"
POS "Business--Store Operations"
Pre-released ADRs "Description of American Depositary Receipts--
Deposit, Transfer and Withdrawal"
Pricotech "Business--Wholesale Operations"
Principal New York Office "Description of American Depositary Receipts"
Rebel "Management--Executive Officers, Directors and Key
Employees"
Registration Statement "Enforceability of Civil Liabilities Under the
Federal Securities Laws"
Related Franchisors "Certain Transactions--Transactions Involving
Principal Shareholders"
Reverse Share Split "Prospectus Summary"
Revolving Line "Management's Discussion and Analysis--Liquidity
and Capital Resources"
Rights "Description of American Depositary Receipts--
Distributions on Deposited Securities"
Rule 144 "Risk Factors--Shares Eligible for Future Sale"
Sarwill "Principal Shareholders--Note 3 to Table"
SBC Warburg Australia "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources"
Securities Act "Available Information"
Selling Shareholders Cover Page
SFAS "Management's Discussion and Analysis of Financial
Condition and Results of Operations--New
Pronouncements by Financial Accounting Standards
Board"
Standby Facility "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources"
Takeovers Act "Risk Factors--Restrictions on Foreign Ownership;
Antitakeover Restrictions"
Term Loan "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and
Capital Resources"
Transfer Office "Description of American Depositary Receipts--
Deposit, Transfer and Withdrawal"
Treaty "Certain Tax Considerations"
Underwriting Agreement "Underwriting"
U.S. GAAP "Available Information"
U.S. Holder "Certain Tax Considerations"
Wispjune "Principal Shareholders"--Note 3 to Table
</TABLE>
75
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Reports ............................................. F-2
Consolidated Balance Sheets ............................................... F-4
Consolidated Statements of Operations ..................................... F-5
Consolidated Statements of Shareholders' Equity ........................... F-6
Consolidated Statements of Cash Flows ..................................... F-7
Notes to Consolidated Financial Statements ................................ F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORTS
The Board of Directors and Shareholders
Barbeques Galore Limited:
We have audited the accompanying consolidated balance sheet of Barbeques
Galore Limited and subsidiaries as of January 31, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the seven months then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Australia, that are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Barbeques
Galore Limited and subsidiaries as of January 31, 1997 and the results of their
operations and their cash flows for the seven months then ended in conformity
with generally accepted accounting principles in the United States.
KPMG
August 8, 1997
Sydney, Australia
F-2
<PAGE>
The Board of Directors and Shareholders
Barbeques Galore Limited:
SCOPE
We have audited the accompanying consolidated financial statements of Barbeques
Galore Limited and subsidiaries incorporating consolidated balance sheets as of
June 30, 1996 and June 30, 1995, and consolidated statements of operations,
shareholders' equity and cash flows for the years ended June 30, 1996, June 30,
1995 and June 30, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Australia, that are substantially equivalent to auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
AUDIT OPINION
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Barbeques Galore
Limited and subsidiaries as of June 30, 1996 and June 30, 1995, and the results
of their operations and their cash flows for the years ended June 30, 1996,
June 30, 1995 and June 30, 1994, in conformity with generally accepted
accounting principles in the United States.
Horwath Sydney Partnership
August 8, 1997
Sydney, Australia
F-3
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1995 1996 1996 1997 1996 1997
-------- -------- ----------- ----------- ----------- -----------
In A$ thousands, except
share and per share data (UNAUDITED) (UNAUDITED) (UNAUDITED)
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equiva-
lents.................. $ 519 $ 26 $ 2,441 $ 30 $ 29 $ 33
Accounts receivable,
net.................... 8,074 7,835 8,201 7,350 7,813 7,219
Receivables from affili-
ates................... 621 119 304 362 -- 229
Inventories............. 38,761 36,933 36,708 33,928 36,949 42,414
Deferred income taxes... 790 1,113 1,063 2,472 1,873 3,233
Prepaid expenses and
other current assets... 706 742 1,136 1,131 1,273 2,297
------- ------- ------- ------- ------- -------
Total current assets.... 49,471 46,768 49,853 45,273 47,937 55,425
Non-current assets:
Receivables from affili-
ates................... 1,546 697 412 696 697 667
Property, plant and
equipment, net......... 13,960 16,457 14,519 18,348 16,481 18,836
Goodwill, net........... 438 628 474 1,476 505 1,432
Deferred income taxes... 628 841 486 871 583 823
Other non-current as-
sets................... 1,581 1,171 1,800 1,306 1,438 1,581
------- ------- ------- ------- ------- -------
Total assets............ $67,624 $66,562 $67,544 $67,970 $67,641 $78,764
======= ======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQ-
UITY
Current liabilities:
Bank overdraft.......... $ -- $ 1,445 $ -- $ 1,826 $ 5,086 $ 6,184
Accounts payable and
accrued liabilities.... 15,729 14,388 10,625 13,693 12,301 17,578
Payables to related par-
ties................... 136 942 1,347 1,231 876 --
Payables to affiliates.. -- -- 99 -- 160 --
Current maturities of
long-term debt......... 5,194 3,848 9,949 2,964 4,143 8,567
Current portion of
obligations under
capital leases......... 685 999 829 1,395 969 1,533
Income taxes payable.... 871 436 1,865 1,612 279 --
------- ------- ------- ------- ------- -------
Total current liabili-
ties................... 22,615 22,058 24,714 22,721 23,814 33,862
Non-current liabilities:
Long-term debt.......... 15,326 12,772 8,547 20,718 12,753 21,745
Convertible notes....... -- -- -- 10,042 -- 10,042
Obligations under
capital leases,
excluding current
portion................ 2,364 3,047 3,084 3,516 3,169 3,302
Other long-term liabili-
ties................... 993 868 850 808 981 853
------- ------- ------- ------- ------- -------
Total liabilities....... 41,298 38,745 37,195 57,805 40,717 69,804
------- ------- ------- ------- ------- -------
Shareholders' equity:
Ordinary shares, $3.64
par value; authorized
27,437,853 shares...... 16,220 16,220 16,220 6,720 16,220 6,720
Additional paid-in capi-
tal.................... 14,113 14,113 14,113 4,613 14,113 4,613
Foreign currency trans-
lation adjustment...... 632 3 313 200 142 380
Retained deficit........ (4,639) (2,519) (297) (1,368) (3,551) (2,753)
------- ------- ------- ------- ------- -------
Total shareholders' eq-
uity................... 26,326 27,817 30,349 10,165 26,924 8,960
------- ------- ------- ------- ------- -------
Total liabilities and
shareholders' equity... $67,624 $66,562 $67,544 $67,970 $67,641 $78,764
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
SEVEN MONTHS ENDED SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1994 1995 1996 1996 1997 1996 1997
--------- -------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
In A$ thousands, except
share and per share data
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 124,635 $138,057 $141,691 $92,074 $98,752 $59,620 $70,394
Cost of goods sold,
warehouse, distribution
and occupancy costs.... 84,104 92,290 98,158 62,789 67,955 43,086 48,420
--------- -------- -------- ------- ------- ------- -------
Gross profit............ 40,531 45,767 43,533 29,285 30,797 16,534 21,974
Selling, general and
administrative
expenses............... 35,462 40,058 39,339 24,328 25,740 18,312 21,728
Store pre-opening costs. 135 64 153 114 200 64 209
Relocation and closure
costs.................. -- -- 875 -- 461 875 --
--------- -------- -------- ------- ------- ------- -------
Operating income (loss). 4,934 5,645 3,166 4,843 4,396 (2,717) 37
--------- -------- -------- ------- ------- ------- -------
Equity in income of
affiliates, net of tax. 660 963 836 709 252 167 188
Interest expense........ 1,999 2,230 2,262 1,619 1,593 848 1,760
Other expenses (income). -- -- (2,303) (2,303) 1,132 -- --
--------- -------- -------- ------- ------- ------- -------
Income (loss) before
income taxes........... 3,595 4,378 4,043 6,236 1,923 (3,398) (1,535)
Income tax expense
(benefit).............. 1,278 573 98 1,286 366 (1,767) (649)
--------- -------- -------- ------- ------- ------- -------
Net income (loss)....... $ 2,317 $ 3,805 $ 3,945 $ 4,950 $ 1,557 $(1,631) $ (886)
========= ======== ======== ======= ======= ======= =======
Earnings per share:
Net income (loss) per
ordinary share and
ordinary share
equivalent (A$ per
share)................. $ 0.52 $ 0.83 $ 0.86 $ 1.08 $ 0.37 $ (0.36) $ (0.45)
Weighted average shares
outstanding (in
thousands)............. 4,481 4,570 4,570 4,570 4,193 4,570 1,963
========= ======== ======== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
FOREIGN
ADDITIONAL CURRENCY TOTAL
SHARES ORDINARY PAID-IN TRANSLATION RETAINED SHAREHOLDERS'
OUTSTANDING SHARES CAPITAL ADJUSTMENT DEFICIT EQUITY
----------- -------- ---------- ----------- -------- -------------
In thousands, except per
share data
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30,
1993................... 4,047 14,750 $ 13,458 $ 928 $(7,959) $ 21,177
Net income.............. -- -- -- -- 2,317 2,317
Dividend of $0.0911 per
share.................. -- -- -- -- (369) (369)
Issuance of ordinary
shares, net of issue
costs.................. 403 1,470 655 -- -- 2,125
Dividend of $0.0911 per
share.................. -- -- -- -- (405) (405)
Foreign currency
translation adjustment. -- -- -- (460) -- (460)
------ ------- -------- ----- ------- --------
Balances at June 30,
1994................... 4,450 16,220 14,113 468 (6,416) 24,385
Net income.............. -- -- -- -- 3,805 3,805
Dividend of $0.4560 per
share.................. -- -- -- -- (2,028) (2,028)
Foreign currency
translation adjustment. -- -- -- 164 -- 164
------ ------- -------- ----- ------- --------
Balances at June 30,
1995................... 4,450 16,220 14,113 632 (4,639) 26,326
Net income.............. -- -- -- -- 4,950 4,950
Dividend of $0.1367 per
share.................. -- -- -- -- (608) (608)
Foreign currency
translation adjustment. -- -- -- (319) -- (319)
------ ------- -------- ----- ------- --------
Balances at January 31,
1996 (unaudited)....... 4,450 16,220 14,113 313 (297) 30,349
Net loss................ -- -- -- -- (1,005) (1,005)
Dividend of $0.2733 per
share.................. -- -- -- -- (1,217) (1,217)
Foreign currency
translation adjustment. -- -- -- (310) -- (310)
------ ------- -------- ----- ------- --------
Balances at June 30,
1996................... 4,450 16,220 14,113 3 (2,519) 27,817
Net loss................ -- -- -- -- (626) (626)
Dividend of $0.0911 per
share.................. -- -- -- -- (406) (406)
Foreign currency
translation adjustment. -- -- -- 139 -- 139
------ ------- -------- ----- ------- --------
Balances at July 31,
1996 (unaudited)....... 4,450 16,220 14,113 142 (3,551) 26,924
Net income.............. -- -- -- -- 2,183 2,183
Foreign currency
translation adjustment. -- -- -- 58 -- 58
Repurchase of ordinary
shares................. (2,744) (10,000) (10,000) -- -- (20,000)
Issuance of ordinary
shares................. 137 500 500 -- -- 1,000
------ ------- -------- ----- ------- --------
Balances at January 31,
1997................... 1,843 6,720 4,613 200 (1,368) 10,165
Net loss................ -- -- -- -- (886) (886)
Dividend of $0.2715 per
share.................. -- -- -- -- (499) (499)
Foreign currency
translation adjustment. -- -- -- 180 -- 180
------ ------- -------- ----- ------- --------
Balances at July 31,
1997 (unaudited)....... 1,843 6,720 $ 4,613 $ 380 $(2,753) $ 8,960
====== ======= ======== ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
SEVEN MONTHS ENDED SIX MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, JANUARY 31, JULY 31,
1994 1995 1996 1996 1997 1996 1997
--------- -------- -------- ---------- ------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
In A$ thousands
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... $ 2,317 $ 3,805 $ 3,945 $ 4,950 $ 1,557 $(1,631) $ (886)
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:............
Depreciation and
amortization........... 2,374 2,755 3,080 1,682 2,633 1,470 1,500
Deferred income taxes... 711 (365) (536) (131) (1,389) (1,338) (713)
Amounts set aside to
provisions............. (272) 70 270 704 (269) 930 67
Gain on sale of
affiliate.............. -- -- (2,303) (2,303) -- -- --
Undistributed income of
affiliates............. (270) 4 124 (122) (252) 170 (231)
Loss (gain) on sale of
property, plant and
equipment.............. (51) 250 76 32 663 99 (51)
Debt issue costs........ -- -- -- -- 1,132 -- --
Changes in operating
assets and liabilities:
Receivables and prepaid
expenses............... 1,281 (1,959) 275 (1,438) (421) 111 (786)
Inventories............. (5,040) (4,942) 1,547 1,727 3,219 (476) (8,309)
Other assets............ (172) (203) (6) 38 (1) (21) (130)
Accounts payable and
accrued liabilities.... 482 2,326 (1,901) (3,994) 332 (746) 1,075
--------- -------- -------- ------- ------- ------- ------
Net cash provided by
(used in) operating
activities............. 1,360 1,741 4,571 1,145 7,204 (1,432) (8,464)
--------- -------- -------- ------- ------- ------- ------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
affiliate.............. -- -- 2,222 2,222 173 -- --
Proceeds from sale of
property, plant and
equipment.............. 1,806 189 63 30 51 759 75
Capital expenditures.... (2,828) (2,242) (4,609) (1,208) (3,201) (3,726) (1,565)
Loan repayments
received............... 536 181 2,270 2,090 140 180 50
--------- -------- -------- ------- ------- ------- ------
Net cash provided by
(used in) investing
activities............. (486) (1,872) (54) 3,134 (2,837) (2,787) (1,440)
--------- -------- -------- ------- ------- ------- ------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of long-term
debt................... (10,936) (19,305) (12,661) (12,254) (4,304) (6,182) (6,389)
Proceeds from long-term
debt................... 10,893 21,135 9,429 11,441 21,534 4,582 13,019
Debt issue costs........ -- -- -- -- (1,132) -- --
Bank overdraft proceeds
(repayments)........... (1,337) -- 1,445 -- 381 5,086 4,358
Principal payments under
capital leases......... (456) (670) (827) (396) (443) (462) (588)
Dividends paid.......... (774) (2,028) (1,825) (608) (406) (1,217) (499)
Repurchase of ordinary
shares................. -- -- -- -- (20,000) -- --
Proceeds from issuance
of ordinary shares..... 2,125 -- -- -- -- -- --
--------- -------- -------- ------- ------- ------- ------
Net cash provided by
(used in) financing
activities............. (485) (868) (4,439) (1,817) (4,370) 1,807 9,901
--------- -------- -------- ------- ------- ------- ------
Effects of exchange rate
fluctuations........... 266 (26) (60) (29) 7 -- 6
--------- -------- -------- ------- ------- ------- ------
Net increase (decrease)
in cash and cash
equivalents............ 655 (1,025) 18 2,433 4 (2,412) 3
Cash and cash
equivalents at
beginning of period.... 889 1,544 519 519 26 2,441 30
Adjustment to opening
cash balance arising
from deconsolidation of
former subsidiary...... -- -- (511) (511) -- -- --
--------- -------- -------- ------- ------- ------- ------
Cash and cash
equivalents at end of
period................. $ 1,544 $ 519 $ 26 $ 2,441 $ 30 $ 29 $ 33
========= ======== ======== ======= ======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of business
Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an
Australian resident company which is involved in the manufacture of
barbecues and heaters, and wholesale and retail sales of barbecues,
heaters, camping equipment, outdoor furniture, leisure products and related
accessories through company-owned and licensed stores in Australia. The
Company is also involved in the retailing, through Company-owned and
franchised stores, of barbecues, fireplace equipment and accessories in the
United States of America. The Company's manufacturing operations are
located in Australia.
(b) Principles of consolidation
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated on consolidation.
(c) Inventories
Inventories are comprised of raw materials and stores, work in progress and
finished goods. Inventories are valued at the lower of cost or market using
the first-in, first-out ("FIFO") method.
(d) Derivative financial instruments
The Company uses foreign currency forward contracts to offset earnings
fluctuations from anticipated foreign currency cash flows. These
instruments are marked to market and the results recognized immediately as
income or expense.
(e) Investments in affiliated companies
Investments in the ordinary shares of 20% to 50% owned companies are
accounted for by the equity method using the investees' fiscal year end.
(f) Property, plant and equipment
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are initially recorded at the present value of minimum lease
payments. The method of depreciation and estimable useful lives over which
property, plant and equipment are depreciated are as follows:
<TABLE>
<CAPTION>
-------------------
METHOD YEARS
------------- -----
<S> <C> <C>
Buildings............................................... Straight line 40
Machinery and equipment................................. Straight line 8-12
Leasehold improvements.................................. Straight line 5-20
Leased plant and equipment.............................. Straight line 3-5
</TABLE>
Plant and equipment held under capital leases and leasehold improvements
are amortized on a straight line basis over the shorter of the lease term
or estimated useful life of the asset.
(g) Goodwill
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight line basis over
the expected periods to be benefited, generally 20 years. The Company
assesses the recoverability of this intangible asset by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows, using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
F-8
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Research and development, and advertising
Research and development, and advertising costs are expensed as incurred.
Amounts expensed were as follows:
<TABLE>
<CAPTION>
-------------------------------------
FISCAL YEAR SEVEN MONTHS
ENDED JUNE 30, ENDED JANUARY 31,
1994 1995 1996 1996 1997
------- ----- ----- ----------- -----
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Research and development.............. $ 1,231 996 1,260 731 541
Advertising........................... $ 6,499 7,161 7,478 5,177 5,319
======= ===== ===== ===== =====
</TABLE>
(i) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases as well as operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income (loss) in
the period that includes the enactment date.
(j) Share option plan
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, in 1996, under which the
Company elected to continue following the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations for its share option plan. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying share exceeded the exercise price.
(k) Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
(l) Use of estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(m) Impairment of long-lived assets and long-lived assets to be disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
undiscounted operating cash flows expected to be generated by the asset. If
such assets are considered to be impaired, impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
F-9
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Rent expense, surplus leased space and lease incentives
The Company leases certain store locations under operating leases which
provide for annual payments that increase over the lives of the leases.
Total payments under the leases are expensed as incurred over the lease
terms.
Where premises under a non-cancellable operating lease become vacant during
the lease term, a charge is recognized on that date equal to the present
value of the expected future lease payments less any expected future sub-
lease income.
If the Company receives incentives provided by a lessor to enter into an
operating lease agreement, these incentives are brought to account as
reductions in rent expense over the term of the lease on a straight-line
basis.
(o) Revenue recognition
Revenue (net of estimated returns and allowances) is recognized at the
point of shipment for wholesale sales to external customers and the point
of sale for retail goods.
(p) Cash and cash equivalents
Cash includes cash on hand and at bank. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(q) Store pre-opening costs
Store pre-opening costs are expensed when incurred.
(r) Earnings (loss) per share
Earnings (loss) per share are computed by dividing net earnings (loss)
available to ordinary shareholders by the weighted average number of
ordinary shares and as appropriate, dilutive ordinary share equivalents
outstanding for the period. The calculation of fully diluted earnings per
share did not differ significantly from primary earnings per share and has
therefore not been presented.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. This statement is effective
for both interim and annual reporting periods ending after December 15,
1997. Had SFAS No. 128 been in effect, "basic" and "diluted" earnings per
share would not have been significantly different to those reported in the
Consolidated Statements of Operations and hence have not been presented.
Pro forma supplementary earnings (loss) per share are computed by assuming
proceeds from the public offering which will be utilized to repay debt
subsequent to the public offering were utilized to repay the debt at the
beginning of the applicable period to which earnings (loss) per share
relates. The weighted average number of ordinary shares outstanding is
increased for the number of ordinary shares issued to enable repayment of
such debt. Pro forma supplementary earnings (loss) per share and weighted
average shares outstanding were:
<TABLE>
<CAPTION>
--------------------------------------------
SEVEN MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
JUNE 30, 1996 JANUARY 31, 1997 JULY 31, 1997
------------- ---------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Pro forma supplementary net
income (loss) per ordinary share
and ordinary share equivalent
(A$ per share).................. $0.90 $0.41 $(0.03)
Pro forma weighted average shares
outstanding (in thousands)...... 5,610 5,453 4,234
===== ===== ======
</TABLE>
F-10
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(s) Foreign currency translation
Foreign currency transactions are converted to Australian currency at the
rates of exchange applicable at the dates of the transactions. Amounts
receivable and payable in foreign currencies at balance date are converted
at the year end rates. Gains and losses from conversion of monetary assets
and liabilities, whether realized or unrealized, are included in income or
loss before income taxes as they arise.
Assets and liabilities of overseas subsidiaries are translated at year end
rates and operating results at the average rates ruling during the year.
2 DERIVATIVE FINANCIAL INSTRUMENTS
The notional amount of foreign currency forward contracts used as a means
of offsetting fluctuations in the dollar value of foreign currency accounts
payable totalled:
<TABLE>
<CAPTION>
-----------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Foreign exchange contracts........ $ 7,528 $6,236 $1,013 $4,232
======= ====== ====== ======
</TABLE>
The fair value of these contracts at each period end is not significant.
All of the currency derivatives expire within one year and are for United
States dollars. The counterparties to the contracts are major financial
institutions. The risk of loss to the Company in the event of non-
performance by a counterparty is not significant.
3 ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
--------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Trade accounts receivable.... $ 7,156 $7,087 $7,258 $6,903
Less: Reserve for doubtful
accounts.................... (250) (350) (241) (377)
------- ------ ------ ------
6,906 6,737 7,017 6,526
Receivables from related
parties..................... 92 67 53 125
Other receivables............ 1,076 1,031 1,131 699
------- ------ ------ ------
$ 8,074 $7,835 $8,201 $7,350
======= ====== ====== ======
</TABLE>
F-11
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1995 1996 1996 1997 1996 1997
-------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C> <C>
Finished goods.......... $33,560 $32,602 $32,427 $29,470 $32,101 $36,333
Work in progress........ 1,697 1,565 2,055 1,778 1,683 1,772
Raw materials........... 3,660 3,196 2,693 3,116 3,624 4,789
------- ------- ------- ------- ------- -------
38,917 37,363 37,175 34,364 37,408 42,894
Less: Reserve for
obsolescence........... (156) (430) (467) (436) (459) (480)
------- ------- ------- ------- ------- -------
$38,761 $36,933 $36,708 $33,928 $36,949 $42,414
======= ======= ======= ======= ======= =======
</TABLE>
5 INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 33 1/3% of the ordinary
shares of Bromic Pty Limited and subsidiaries ("Bromic"), an Australian
Group which imports and distributes componentry to the gas and appliance
industries, and 50% of the ordinary shares of GLG Trading Pte Limited
("GLG"), a Singapore company which acts as a buying office for Barbeques
Galore and other third parties. The shareholding in this company was
originally 100% but was reduced to 50% on July 1, 1995 by issuing shares in
that company to a Director of GLG who is also the General Manager of that
company.
The Company also previously held a 50% interest in GLG (NZ) Limited ("GLG
NZ"). This investment was sold in December 1995 for total consideration of
A$2,395,000. A gain on sale of A$2,303,000 has been recognized in the
income statement and is included in other expenses (income).
Bromic provides liquid petroleum gas cylinders and related products such as
manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG
supplies cast iron used in the manufacture of burners, hot plates and
grills, small assembled barbecues and certain accessories such as tongs and
warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits,
spare parts and other heating equipment.
Sales to affiliated companies are not significant. Interest is also charged
on amounts owing from affiliates at commercial rates but is not
significant. Amounts owing from affiliates are in relation to cash
advances.
Prices charged between the Company and its affiliates are set at the level
of prices that are charged to unrelated parties. Trading with affiliates
for each period and amounts outstanding at each period end are as follows:
<TABLE>
<CAPTION>
---------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Purchases from affiliates:
Bromic............................ $3,260 $3,953 $3,769 $2,613 $2,320
GLG NZ............................ 149 197 188 -- --
GLG Pte Ltd....................... -- -- 5,446 3,952 3,336
------ ------ ------ ------ ------
$3,409 $4,150 $9,403 $6,955 $5,656
====== ====== ====== ====== ======
Dividends received or due and
receivable from affiliates:
Bromic............................ $ 130 $ 250 $ 175 $ -- $ --
GLG NZ............................ 260 717 495 495 --
GLG Pte Ltd....................... -- -- 198 -- --
------ ------ ------ ------ ------
$ 390 $ 967 $ 868 $ 495 $ --
====== ====== ====== ====== ======
</TABLE>
F-12
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
<TABLE>
<CAPTION>
-----------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Owing to affil-
iates:
GLG NZ........ $ -- $ -- $ 99 $ --
====== ==== ==== ======
Receivable from
affiliates:
Bromic........ $ 218 $619 $716 $ 863
GLG NZ........ 1,949 -- -- 195
GLG Pte Ltd... -- 197 -- --
------ ---- ---- ------
$2,167 $816 $716 $1,058
====== ==== ==== ======
Investment in
affiliates... $ 492 $368 $638 $ 491
====== ==== ==== ======
</TABLE>
Investments in affiliates are included in the balance sheet as other non-
current assets. As the shares of these entities are not traded, the
investment in these companies is carried at the equity accounted value
representing cost plus the Company's share of undistributed profits. The
balance date of all affiliates is June 30. Combined summarized financial
data at their most recent balance dates are as follows:
<TABLE>
<CAPTION>
----------------------------
JUNE 30, JUNE 30, JUNE 30,
1995 1996 1997
-------- -------- --------
In A$ thousands
<S> <C> <C> <C>
Current assets................................ $ 13,974 $ 7,229 $ 6,925
Current liabilities........................... 13,734 4,778 3,666
-------- ------- -------
Working capital............................... 240 2,451 3,259
Property, plant and equipment, net............ 6,131 1,307 1,215
Other assets.................................. 389 549 408
Long-term debt................................ (4,261) (2,498) (2,412)
-------- ------- -------
Shareholders' equity.......................... $ 2,499 $ 1,809 $ 2,470
======== ======= =======
Sales......................................... $ 37,049 $22,926 $18,034
======== ======= =======
Gross profit.................................. $ 11,983 $ 9,025 $ 4,637
======== ======= =======
Net income.................................... $ 2,131 $ 1,484 $ 963
======== ======= =======
</TABLE>
F-13
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
----------------------------------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1995 1996 1996 1997 1996 1997
-------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C> <C>
Land and buildings...... $ 3,190 $ 3,198 $ 3,198 $ 3,198 $ 3,198 $ 3,218
Machinery and equipment. 13,106 14,420 14,023 15,453 14,334 16,691
Leasehold improvements.. 3,216 5,066 2,902 6,110 5,127 6,510
Assets under capital
leases................. 3,813 5,501 5,036 6,912 5,626 7,439
------- -------- -------- -------- -------- --------
23,325 28,185 25,159 31,673 28,285 33,858
Less: Accumulated
depreciation/
amortization........... (9,365) (11,728) (10,640) (13,325) (11,804) (15,022)
------- -------- -------- -------- -------- --------
$13,960 $ 16,457 $ 14,519 $ 18,348 $ 16,481 $ 18,836
======= ======== ======== ======== ======== ========
</TABLE>
7 GOODWILL
<TABLE>
<CAPTION>
----------------------------------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31,
1995 1996 1996 1997 1996 1997
-------- -------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C> <C>
Goodwill................ $ 572 $ 800 $ 654 $1,704 $ 704 $1,704
Less: Accumulated
amortization........... (134) (172) (180) (228) (199) (272)
----- ----- ----- ------ ----- ------
$ 438 $ 628 $ 474 $1,476 $ 505 $1,432
===== ===== ===== ====== ===== ======
</TABLE>
8 LEASES
The Company is obligated under various capital leases for store
improvements and certain machinery and equipment that expire at various
dates during the next five years. The capital leases for store improvements
relate to the purchase of furniture and fixtures installed in retail
stores. These retail stores are all managed under operating leases.
Machinery and equipment under capital leases includes leased machinery,
office furniture and fixtures and certain motor vehicles. All capital lease
liabilities are secured by the asset to which the lease relates. The gross
amount of store improvements and machinery and equipment and related
accumulated amortization recorded under capital leases are as follows:
<TABLE>
<CAPTION>
--------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Store improvements........... $ 967 $ 1,193 $ 2,106 $ 3,119
Machinery and equipment...... 2,846 4,308 2,930 3,793
------ ------- ------- -------
3,813 5,501 5,036 6,912
Less: Accumulated
amortization................ (868) (1,645) (1,268) (2,216)
------ ------- ------- -------
$2,945 $ 3,856 $ 3,768 $ 4,696
====== ======= ======= =======
</TABLE>
F-14
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 LEASES (CONTINUED)
The Company also has entered into non-cancellable operating leases,
primarily for retail stores. These leases generally contain renewal options
for periods ranging from three to five years and require the Company to pay
all executory costs such as maintenance and insurance. Rental expense for
operating leases (except those with lease terms of a month or less that
were not renewed) consisted of the following:
<TABLE>
<CAPTION>
---------------------------------------
FISCAL YEAR SEVEN MONTHS ENDED
ENDED JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Rental expense...................... $9,515 $9,609 $9,867 $5,935 $6,181
====== ====== ====== ====== ======
</TABLE>
Future minimum lease payments under non-cancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of January 31, 1997 are:
<TABLE>
<CAPTION>
------------------
CAPITAL OPERATING
LEASES LEASES
------- ---------
In A$ thousands
<S> <C> <C>
Year ending January 31,
1998.................................................... $ 1,908 $ 9,541
1999.................................................... 1,720 8,308
2000.................................................... 1,231 6,896
2001.................................................... 1,042 5,098
2002.................................................... 249 3,887
Years subsequent to 2002................................ -- 10,822
------- -------
Total minimum lease payments............................ 6,150 $44,552
=======
Less: Amount representing interest (at rates ranging
from 9.5% to 12.0%).................................... (1,239)
-------
Present value of net minimum capital lease payments..... 4,911
-------
Less: Current portion of obligations under capital
leases................................................. (1,395)
-------
Obligations under capital leases, excluding current
portion................................................ $ 3,516
=======
</TABLE>
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
-----------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Trade accounts payable............ $ 8,670 $ 6,265 $ 3,736 $ 4,968
Accrued liabilities............... 4,653 5,459 4,419 5,887
Employee benefits................. 1,912 1,784 1,942 1,745
Other............................. 494 880 528 1,093
-------- ------- ------- -------
$ 15,729 $14,388 $10,625 $13,693
======== ======= ======= =======
</TABLE>
F-15
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (CONTINUED)
Included in other liabilities at January 31, 1997 is an amount of $369,000
in respect of the planned relocation of the enamelling facilities. The
accrual relates to future lease costs on the vacated premises, the
writedown of plant that will be scrapped (allowing for future depreciation
charges until the planned exit date) and costs to make good the premises.
An exit plan was established and approved by the Board of Directors prior
to January 31, 1997. The implementation of the plan has commenced, work is
continuing and the exit strategy remains unchanged.
10 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
-----------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Current:
Bank bills........................ $ 3,094 $ 3,848 $9,949 $ 2,964
Mortgage loan..................... 2,100 -- -- --
-------- ------- ------ -------
$ 5,194 $ 3,848 $9,949 $ 2,964
======== ======= ====== =======
Non-current:
Bank bills........................ $ 15,326 $10,622 $6,447 $18,568
Mortgage loan..................... -- 2,150 2,100 2,150
-------- ------- ------ -------
$ 15,326 $12,772 $8,547 $20,718
======== ======= ====== =======
</TABLE>
The Company and its subsidiaries have access to a facility with the
Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ
Facility") with credit facilities aggregating up to A$53,700,000. This
includes a multi-purpose facility of A$31,700,000, a trade finance facility
of A$10,000,000 and a stand-by credit facility of A$12,000,000. The stand-
by credit facility is a current facility as it is repayable at the date of
the Company's Initial Public Offering. As at January 31, 1997 the Company
had not utilized A$30,422,000 of the total facility. The ANZ Facility is
secured by a first security interest over the assets of the Company's
present and future Australian assets. The Company has agreed to grant to
ANZ, and ANZ is in the process of creating, a second security interest
(subordinate to a lien under the Merrill Lynch Facility detailed below) in
all the Company's assets in the United States. The ANZ Facility is further
guaranteed by each subsidiary of the Company.
Bank bills are generally taken out over a 90 day period and rolled over at
the end of their respective terms. As at January 31, 1997, the weighted
average interest rate accruing on the bank bills utilized under the ANZ
Facility was 7.2% per annum. Under the terms of the agreement, the bank
bills may be repaid at the Company's option provided the facility limit is
not breached other than the stand-by facility. For this reason, the
majority of the outstanding balance relating to bank bills and term loans
is classified as a non-current liability. The stand-by facility is
repayable on the earlier of the date of the Company's Initial Public
Offering or December 31, 1998.
The property loan is accruing interest at a rate of 9.35% per annum and is
secured by a registered first mortgage over the freehold property of the
Company.
As the borrowings under the ANZ facility are subject to renegotiation on
December 31, 1998, non-current long-term debt matures during the financial
year ending January 31, 1999. The Company has historically renegotiated its
credit facilities on similar terms and conditions and expects the current
facility to be extended subsequent to December 31, 1998.
F-16
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10 LONG-TERM DEBT (CONTINUED)
All committed facilities are provided subject to the standard Australian
practice of regular annual review of required limits, the Company's
performance and the normal terms and conditions, including financial
covenants, applicable to bank lending. The Company was in compliance with
the financial covenants set out in the ANZ Facility agreement as at January
31, 1997.
In addition, in February 1995, the Company's US subsidiary ("Galore USA")
entered into a five year credit facility with Merrill Lynch. This facility
includes a term loan of US$600,000 and a revolving line of credit of
US$1,250,000. Indebtedness under the term loan and the revolving line of
credit accrues interest at the 30 day commercial paper rates plus 2.7% or
2.65%, respectively, and is payable monthly. The Merrill Lynch facility is
secured by a first security interest in all Galore USA present and future
assets. As of January 31, 1997 Galore USA had not utilized US$942,000 of
this facility.
The Company's total long-term debt matures as follows:
<TABLE>
<CAPTION>
In A$ thousands
<S> <C>
Year ending January 31,
1998................................................................. $ 2,964
1999................................................................. 20,691
2000................................................................. 22
2001................................................................. 5
-------
$23,682
=======
</TABLE>
In conjunction with the Capital Reduction in December 1996 (detailed in
Note 12 to the consolidated financial statements), the Company issued
unsecured convertible notes with a face value of A$8.38 amounting to
A$10,041,952. The notes carry an interest rate of 10.25% per annum, include
financial covenants and confer rights to the noteholders as creditors and
not as shareholders.
The notes are convertible into fully paid shares by the noteholder at any
time after the first anniversary of issue but prior to the eighth
anniversary. If a stock exchange listing occurs, the Company may redeem the
notes providing certain conditions are met, failing which the Company must
repay the principal outstanding on each note on the eighth anniversary.
Upon conversion, the notes will convert at a ratio of one ordinary share
for each convertible note held. If all notes are converted, this will
result in an additional 1,197,926 ordinary shares being issued.
11 INCOME TAXES
Income (loss) before income taxes was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
-----------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Australia........................ $3,961 $2,905 $2,730 $6,576 $3,091
United States.................... (366) 1,473 1,313 (340) (1,168)
------ ------ ------ ------ ------
$3,595 $4,378 $4,043 $6,236 $1,923
====== ====== ====== ====== ======
</TABLE>
F-17
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 INCOME TAXES (CONTINUED)
The expense (benefit) for income taxes is presented below:
<TABLE>
<CAPTION>
--------------------------------------
FISCAL YEAR
ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ---- ---- ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Current:............................
Australia........................... $ 550 $906 $477 $1,409 $1,670
United States....................... 17 32 157 8 85
------ ---- ---- ------ ------
567 938 634 1,417 1,755
------ ---- ---- ------ ------
Deferred:
Australia........................... 711 (365) (536) (131) (499)
United States....................... -- -- -- -- (890)
------ ---- ---- ------ ------
$1,278 $573 $ 98 $1,286 $ 366
====== ==== ==== ====== ======
</TABLE>
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the Australian federal
income tax rate to pretax income from continuing operations as a result of
the following:
<TABLE>
<CAPTION>
------------------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ------------ --------
In A$ thousands, except
share and per share data (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax
expense................. $1,186 $1,445 $1,455 $2,245 $ 692
Increase (reduction) in
income taxes resulting
from:
State taxes, net of
federal tax benefit..... 17 32 157 5 56
Change in the valuation
allowance............... 117 (474) (663) 58 (388)
Equity in earnings of
affiliates not subject
to taxation (218) (318) (301) (255) (91)
Capital profit on sale of
affiliate............... -- -- (829) (829) --
Other, net............... 176 (112) 279 62 97
------ ------ ------ --------- --------
$1,278 $ 573 $ 98 $ 1,286 $ 366
====== ====== ====== ========= ========
</TABLE>
F-18
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
--------------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Deferred tax assets:
Provisions not presently
deductible................... $ 1,071 $1,676 $ 1,316 $1,482
Plant and equipment, due to
differences in depreciation.. 496 404 287 424
Inventories, due to
capitalized costs............ 222 189 211 195
Borrowing expenses capitalized
for tax purposes............. -- -- -- 302
Leases, due to differences in
lease payments, interest and
amortization................. 37 68 52 136
Unearned income............... 58 61 105 116
Net operating loss
carryforward................. 669 70 745 562
Other......................... (8) (36) 89 432
------- ------ ------- ------
Total gross deferred tax
assets....................... 2,545 2,432 2,805 3,649
Less: Valuation allowance..... (1,051) (388) (1,109) --
------- ------ ------- ------
$ 1,494 $2,044 $ 1,696 $3,649
======= ====== ======= ======
Deferred tax liabilities:
Prepayments................... $ 76 90 147 178
Rebates receivable............ -- -- -- 128
------- ------ ------- ------
Total gross deferred tax
liabilities.................. 76 90 147 306
------- ------ ------- ------
Net deferred tax asset........ $ 1,418 $1,954 $ 1,549 $3,343
======= ====== ======= ======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. The change in the valuation allowance for deferred tax assets
between January 31, 1996 and June 30, 1996 is due to the recoupment of net
operating loss carryforwards. The change in the valuation allowance between
June 30, 1996 and January 31, 1997 is due to management's assessment that
the tax benefits related to the gross deferred tax assets were more likely
than not to be realized. In order to fully realize the deferred tax asset,
the company will need to generate future taxable income of approximately
A$1,413,000 prior to the expiration of the net operating loss carryforwards
in 2012. Based upon projections for future taxable income over the periods
which the deferred tax assets are deductible, management believes it is
more likely that not the company will realize the benefits of these
deductible differences. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carry forward period are reduced.
12 SHAREHOLDERS' EQUITY
On December 31, 1996, the Company consummated a series of transactions to
effect a reduction in the ordinary shares of the Company (the "Capital
Reduction"). Pursuant to the Capital Reduction, the Company repurchased and
cancelled 2,743,878 fully paid ordinary shares and 101,520 options to
purchase ordinary shares, for a total consideration of A$20,078,000. The
Company financed the Capital Reduction through:
(i) the issuance and sale of A$10,041,952 in Convertible Notes; and
F-19
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 SHAREHOLDERS' EQUITY (CONTINUED)
(ii) the provision of an additional standby facility of A$12,000,000 from
the Company's bankers, ANZ. This standby facility will only be
available to the Company until the earlier of the Company's Initial
Public Offering or December 31, 1998.
The effect of the Capital Reduction was to reduce the ordinary shares of
the Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares
of A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary
shares of A$3.64 each). Subsequent to the consummation of the Capital
Reduction, all outstanding ordinary shares were owned by the executive
directors of the Company and their related interests and the Company's
pension plan. The Company was delisted from the Australian Stock Exchange
following the Capital Reduction.
The Company incurred transaction costs in connection with the Capital
Reduction of approximately A$1,132,000. These amounts have been expensed
and are included in other expenses (income) in the consolidated statement
of operations for the seven month period to January 31, 1997.
Additionally, in connection with the Capital Reduction, the Company also
acquired the remaining 15% interest in The Galore Group (USA) Inc. ("Galore
USA") from Mr Sydney Selati, President of Galore USA, for consideration of
A$1,000,000. The transaction was effected by the issuance of 137,189
ordinary shares (A$7.29 per share) of the Company. Mr Sydney Selati was
subsequently appointed a director of Barbeques Galore on July 21, 1997.
13 SHARE OPTION PLANS
EXECUTIVE SHARE OPTION PLAN
Effective January 31, 1997, the Company adopted an executive share option
plan (the "Executive Plan") under which the Board of Directors granted
certain members of management options to purchase ordinary shares in the
Company. A total of 203,038 options were issued under the Executive Plan
with an exercise price of A$8.38 per share. The options do not vest until
February 1, 1999 after which each Optionholder is entitled to subscribe for
one fully paid ordinary share. The options are not quoted and are due to
expire on the earlier of the 5th anniversary from the issue date or,
subject to certain conditions, on cessation of employment.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its share options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its share options under SFAS
No. 123, the Company's earnings per share for the 7 month period ended
January 31, 1997 would have been A$0.02 per ordinary share.
The fair value of each share option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: weighted average risk-free interest rate of 6.49%; no dividend
yield; expected lives of 2.5 years and volatility of 17.97%. The fair value
of the options as at January 31, 1997 has been calculated to be A$182,000.
1997 SHARE OPTION PLAN
Under the terms of the Company's 1997 share option plan (the "1997 Plan"),
a total of 329,254 Ordinary Shares will be authorized for issuance. The
1997 Plan received approval from the Board of Directors of the Company on
October 1, 1997.
The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in the Company's employ or service (including officers and
other employees, non-employee Board members and independent consultants)
may, at the discretion of the Plan Administrator, be granted options to
purchase ordinary shares at an exercise price not less than eighty-five
percent (85%) of their fair market value on the grant date.
F-20
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13 SHARE OPTION PLANS (CONTINUED)
The Plan Administrator will have complete discretion, within the scope of
its administrative jurisdiction under the 1997 Plan, to determine which
eligible individuals are to receive option grants, the time or times when
such option grants are to be made, the number of shares subject to each
such grant, the vesting schedule to be in effect for the option grant, the
maximum term for which any granted option is to remain outstanding and the
status of any granted option as either an incentive stock option or a non-
statutory stock option under the Federal tax laws.
TERMINATED PLAN
On November 25, 1993, the Company adopted a share option plan ("the 1993
Plan") pursuant to which the Company's Board of Directors could grant share
options to officers and key employees. The Company granted 128,958 options
with an exercise price of A$5.83 on November 25, 1993. On November 28,
1995, the Company granted a further 27,438 options with an exercise price
of A$5.65.
On December 31, 1996 and in connection with the Capital Reduction, all
outstanding options were repurchased by the Company from the Optionholders.
Compensation for the cancellation of the 101,520 options amounted to
A$78,000.
The total compensation paid by the Company to cancel the options has been
expensed during the seven months to January 31, 1997 and is included in
selling, general and administrative expenses.
14 COMMITMENTS AND CONTINGENCIES
Product liability claims have been made against certain companies in the
group which are not expected to result in any material loss to the Company.
The Company entered into a joint and several guarantee together with the
directors of Bromic Pty Limited in favor of ANZ in respect of a A$900,000
facility. On February 25, 1997, ANZ released the Company from this
guarantee.
15 GEOGRAPHIC SEGMENT INFORMATION
Financial information by geographic region is summarized below:
<TABLE>
<CAPTION>
--------------------------
UNITED
AUSTRALIA STATES TOTAL
--------- ------- -------
<S> <C> <C> <C>
In A$ thousands
SEVEN MONTHS ENDED JANUARY 31, 1997
Net revenues..................................... $75,997 $22,755 $98,752
======= ======= =======
Operating income (loss).......................... $ 5,537 $(1,141) $ 4,396
======= ======= =======
Identifiable assets.............................. $53,162 $14,808 $67,970
======= ======= =======
SEVEN MONTHS ENDED JANUARY 31, 1996 (UNAUDITED)
Net revenues..................................... $73,101 $18,973 $92,074
======= ======= =======
Operating income (loss).......................... $ 5,117 $ (274) $ 4,843
======= ======= =======
Identifiable assets.............................. $56,509 $11,035 $67,544
======= ======= =======
</TABLE>
F-21
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
--------------------------
UNITED
AUSTRALIA STATES TOTAL
--------- ------- --------
<S> <C> <C> <C>
In A$ thousands
FISCAL YEAR ENDED JUNE 30, 1996
Net revenues.................................... $104,737 $36,954 $141,691
======== ======= ========
Operating income................................ $ 1,828 $ 1,338 $ 3,166
======== ======= ========
Identifiable assets............................. $ 53,225 $13,337 $ 66,562
======== ======= ========
FISCAL YEAR ENDED JUNE 30, 1995
Net revenues.................................... $104,051 $34,006 $138,057
======== ======= ========
Operating income................................ $ 4,206 $ 1,439 $ 5,645
======== ======= ========
Identifiable assets............................. $ 55,337 $12,287 $ 67,624
======== ======= ========
</TABLE>
16 RELATED PARTY TRANSACTIONS
The directors of the Company believe that transactions with related parties
are on normal terms and conditions no more favourable than those available
to other third parties unless otherwise stated.
Amounts are advanced to the Company by the directors at a commercial rate
of interest.
The company shares premises and incurs rent and operating expenses on
behalf of Rebel Sport Limited. Mr Linz and Mr Gavshon were directors of
Rebel Sport Limited until July 10, 1997. These amounts are payable to the
Company on 30 day terms.
The above related party transactions and amounts outstanding at each period
end are as follows:
<TABLE>
<CAPTION>
-----------------------------------------
JUNE 30, JUNE 30, JANUARY 31, JANUARY 31,
1995 1996 1996 1997
-------- -------- ----------- -----------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C>
Amounts owing to directors or
director related entities....... $136 $942 $1,347 $1,231
Amounts owing from Rebel Sport
Limited......................... 92 67 53 125
==== ==== ====== ======
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
----- ----- ----- ------------ ---------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Interest costs incurred in
respect of amounts advanced
by directors or director
related entities............. $ 28 $ 22 $ 97 $ 51 $ 50
Amounts advanced to Rebel
Sport Limited................ 743 683 678 375 410
Amounts reimbursed by Rebel
Sport Limited................ 815 597 703 414 352
===== ===== ===== ========= =========
</TABLE>
F-22
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
<TABLE>
<CAPTION>
---------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Interest............................ $1,944 $2,418 $2,327 $1,423 $1,528
Income taxes........................ 11 559 968 579 423
====== ====== ====== ====== ======
</TABLE>
During the period ended January 31, 1997 the Company acquired Mr Sydney
Selati's 15% interest in Galore USA for consideration of A$1,000,000. The
transaction was effected by the issuance of 137,189 ordinary shares (A$7.29
per share) of the Company.
During the periods, the Company acquired plant and equipment by means of
capital leases which are not reflected in the consolidated statements of
cash flows with an aggregate fair value of:
<TABLE>
<CAPTION>
---------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
------ ------ ------ ----------- ------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Equipment acquired under capital
leases............................ $1,513 $1,883 $1,682 $1,260 $1,471
====== ====== ====== ====== ======
</TABLE>
On July 1, 1995, the Company's interest in GLG Trading Pte Limited was
reduced from 100% to 50% by the issue of additional shares in GLG Trading
Pte Limited. The deconsolidation of GLG Trading Pte Limited has resulted in
the reversal of the opening cash balance of GLG Trading Pte Limited in the
Statement of Cash Flows as the Company has accounted for its investment on
an equity basis from July 1, 1995.
18 PENSION PLANS
The Company and its Australian subsidiaries have established defined
contribution pension plans for the provision of benefits to their
Australian employees on retirement, death or disability. Benefits provided
under the plans are based on contributions for each employee. Company
contributions are 6% or gross salary for all employees except for certain
executives for whom the Company contributes 10%.
The Company and employees contribute various percentages of gross income.
The plans are of an accumulation type and as such, the Company has:
. no commitment to fund retirement benefits other than the percentage of
each employee's salary as prescribed by the relevant trust deed; and
. no legal obligation to cover any shortfall in the funds' obligations to
provide benefits to employees on retirement.
The pension plans comply with Australian regulatory provisions set by the
Insurance and Superannuation Commission. The Company has complied with the
provisions of the Superannuation Guarantee Charge Act.
The Company also sponsors a defined contribution plan in the United States
covering substantially all employees who meet specified age and service
requirements. Company contributions are discretionary. The Company has not
contributed and does not anticipate contributing to the plan for the 7
month period ended January 31, 1997.
F-23
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
18 PENSION PLANS (CONTINUED)
Contributions expensed under these plans were as follows:
<TABLE>
<CAPTION>
----------------------------------------------
FISCAL YEAR ENDED SEVEN MONTHS ENDED
JUNE 30, JANUARY 31,
1994 1995 1996 1996 1997
----- ----- ------- ------------ ---------
(UNAUDITED)
In A$ thousands
<S> <C> <C> <C> <C> <C>
Contribution expense......... $ 830 $ 919 $ 1,015 $ 617 $ 600
===== ===== ======= ========= =========
</TABLE>
19 SUBSEQUENT EVENT
The Board of Directors has authorized the filing of a registration
statement for an Initial Public Offering (the "Offering") of the Company's
ordinary shares. Upon successful consummation of the Offering, the Company
intends to use the proceeds to repay outstanding debt and procure the
conversion or redemption of the convertible notes (refer note 10). In
addition the proceeds will be used to fund capital expenditures related to
the expansion of the Company's operations.
The Company's Board and shareholders have approved an 18.223-for-one
reverse stock split of the Company's Ordinary Shares, thereby adjusting the
authorized share capital to 27,437,853 shares immediately prior to the
Offering. All share, per share and share option data for all periods
presented have been restated to reflect the stock split.
F-24
<PAGE>
[Photograph of
Barbecue with food
being prepared]
[Photograph of outdoor
table with empty chairs
set for outdoor meal]
[Photograph of
couple in front
of fireplace]
[Photograph of couple in
front of camping equipment
making a fire]
Barbecues
Home Heating
Accessories
Camping
Outdoor Furniture
[Company logo] Australia
<PAGE>
[BACK COVER PAGE]
[BARBEQUES GALORE LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the Company in
connection with the sale of ADSs being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market Listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
------------
<S> <C>
SEC registration fee........................................... US$ 13,104
NASD filing fee................................................ 4,824
Nasdaq National Market listing fee............................. 17,500
Printing and engraving......................................... 150,000
Legal fees and expenses........................................ 400,000
Accounting fees and expenses................................... 300,000
Directors' and officers' insurance............................. 150,000
Blue sky fees and expenses..................................... 10,000
Transfer agent and registrar fees.............................. 5,000
Depositary fees................................................ 10,000
Miscellaneous.................................................. 39,572
------------
Total.................................................... US$1,100,000
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Memorandum and Articles of Association provide that subject to
the laws of Australia, every Director or other officer shall be entitled to be
indemnified by the Company against all losses or liabilities incurred by him in
the execution and discharge of his duties, or in relation thereto, including
any liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of the Company and (i) in which judgment is given in his
favor, (ii) in which he is acquitted or (iii) in connection with an application
in relation to such proceedings in which the court grants relief to the person
under the Corporations Law. The Underwriting Agreement to be filed as Exhibit
1.1 hereto, will contain provisions indemnifying officers and directors of the
Company against certain liabilities.
The Company's Memorandum and Articles of Association further provide that no
director or other officer shall be liable, except in the case of his own negli-
gence, default, breach of duty or breach of trust, for (i) the acts or omis-
sions of any other director or officer, (ii) joining in any act for conformity,
(iii) losses due to inadequacy of title to property or securities acquired on
behalf of the Company, (iv) losses due to insolvency or tortious acts of per-
sons with whom monies, property or securities are deposited or (v) losses due
to errors of judgment, omissions or oversights.
The Company maintains a policy of directors' and officers' liability insurance
with an Australian insurer for the Company and all subsidiaries protecting
against all losses for which directors and officers are not otherwise indemni-
fied by the Company. Such insurance has a A$5 million policy limit and excludes
(i) fines and penalties imposed by law, (ii) claims made by entities owning 10%
or more of the outstanding Ordinary Shares of the Company, (iii) claims based
on pollution, bodily injury, property damage or loss, insider trading, the
receipt of illegal or improper benefit, deliberately fraudulent acts or omis-
sions or violation of fiduciary duties with respect to pension or benefit
plans, (iv) certain insured versus insured actions and, specifically in the
United States and Canada, (v) claims relating to violations of securities laws
or the Employee Retirement Income Security Act of 1974 (ERISA) or any similar
federal, state or local law. Prior to the consummation of the Offering, the
Company intends to obtain a policy of directors' and officers' liability insur-
ance that will insure United States directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances,
including certain violations of the securities laws.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has issued and sold the following securities (on a post-split
basis) within the past three (3) years:
1. In December 1996, the Registrant issued and sold 137,189 Ordinary
Shares to Mr. Sydney Selati in exchange for the acquisition by the Regis-
trant of Mr. Selati's 15% equity interest in Galore Group (USA), Inc.
2. On January 31, 1997 the Registrant granted stock options to four of
its executives to purchase up to an aggregate of 203,038 Ordinary Shares at
a purchase price of A$8.38.
3. In December 1996, the Registrant underwent a capital reduction
transaction, pursuant to which 101,520 outstanding stock options to
purchase the Registrant's Ordinary Shares were cancelled in exchange for up
to A$0.05 per stock option. In particular, stock options to purchase an
aggregate of 27,437 Ordinary Shares were cancelled in exchange for
aggregate consideration of A$10,000 paid to Mr. John Price and stock
options to purchase an aggregate of 2,743 Ordinary Shares each were
cancelled in exchange for aggregate consideration of A$2,500 to each of
Mr. Kevin Ralphs and Mr. David Glaser. In addition, 2,743,878 fully paid
Ordinary Shares were repurchased for aggregate consideration of
A$20,000,677. In particular, the Company repurchased 8,231 Ordinary Shares
from an entity affiliated with Mr. Gordon Howlett for aggregate
consideration of A$60,000 and 37,107 Ordinary Shares from an entity
affiliated with Mr. Philip Gardiner. All such repurchases and option
cancellations with officers and directors of the Company were made on terms
no more favorable than those that could be obtained in transactions with
non-affiliates of the Company.
4. In December 1996, the Registrant issued and sold Convertible Notes in
the aggregate principal amount of A$10,042,000. The purchasers of the
Convertible Notes consisted primarily of the persons identified in the
"Selling Shareholders" section of this Registration Statement. Subject to
adjustments for certain dilutive events, the Convertible Notes are
convertible into an aggregate of 1,197,926 Ordinary Shares of the
Registrant.
The issuances of the above securities were not required to be registered under
the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Memorandum and Articles of Association.
*4.1 Form of Specimen of American Depositary Share Certificate.
*4.2 Form of Specimen of American Depositary Receipt.
*4.3 Form of Deposit Agreement to be entered into among the Registrant,
Morgan Guaranty Trust Company of New York, as Depositary, and
holders from time to time of ADSs issued thereunder.
*5.1 Opinion of Freehill, Hollingdale & Page.
*5.2 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Executive Share Option Plan.
10.2 1997 Share Option Plan.
10.3 Terms and Conditions of Convertible Notes and Shareholder's Deed
Poll relating to Convertible Notes.
10.4 Major Agreements relating to the Registrant's Credit Facility with
Australia and New Zealand Banking Corporation Group Limited ("ANZ"),
including Deed of Charge by and between the Registrant and ANZ, as
successor in interest to Westpac Banking Corporation as agent; Offer
Letter dated July 14, 1994 from ANZ to the Registrant re: lines of
credit; Variation Letter dated December 12, 1996 from ANZ to the
Registrant modifying terms of certain lines of credit.
10.5 Major Agreements relating to the Registrant's U.S. Operating
Subsidiary's Credit Facility with Merrill Lynch Business Financial
Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and
Security Agreement No. 9502340701, dated as of February 23, 1995 by
and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and
Security Agreement No. 231-07T10, dated as of February 23, 1995 by
and between Galore USA and Merrill Lynch; Unconditional Guaranty by
the Registrant relating to Term WCMA(R) Loan and Security Agreement
No. 9502340701; Unconditional Guaranty by the Registrant relating to
WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term
WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from
Merrill Lynch to Galore USA re: WCMA line of credit variation.
10.6 Deed of purchase of Registrant's headquarters facility.
10.7 Lease dated as of March 6, 1992 by and between Galore USA and
Phoenix Business Center Partners re: Irvine, California U.S.
headquarters and distribution facility.
11.1 Statement regarding computation of per share earnings.
15.1 Unaudited Additional Consolidated Financial Data of the Registrant
for the twelve months ended January 31, 1995, 1996 and 1997,
together with review report of KPMG relating thereto.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Horwath Sydney Partnership.
23.2 Consent of KPMG.
*23.3 Consent of Freehill, Hollingdale & Page (included in Exhibit 5.1).
*23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.2).
24.1 Power of Attorney (included on signature pages hereof).
</TABLE>
- -------
* To be supplied by amendment.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial state-
ments or notes thereto.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Regis-
trant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securi-
ties being registered hereunder, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be gov-
erned by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this Regis-
tration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING OF FORM F-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHO-
RIZED, IN SYDNEY, AUSTRALIA ON THIS 6TH DAY OF OCTOBER, 1997.
Barbeques Galore Limited
By: /s/ Sam Linz
------------------------------------
TITLE: CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Robert Gavshon and
Sydney Selati and each one of them, his attorneys-in-fact, each with the power
of substitution, for him in any and all capacities, to sign any and all amend-
ments to this Registration Statement (including post-effective amendments and
any related registration statement pursuant to Rule 462(b) under the Securi-
ties Act of 1933, as amended), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange Com-
mission, hereby ratifying and confirming all that each of said attorneys-in-
fact, or his substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Sam Linz Chairman of the October 6, 1997
- ----------------------------------- Board and
SAM LINZ Director
(Principal
Executive
Officer)
/s/ David James (Principal October 6, 1997
- ----------------------------------- Financial and
DAVID JAMES Accounting
Officer)
/s/ Robert Gavshon Deputy Chairman of October 6, 1997
- ----------------------------------- the Board and
ROBERT GAVSHON Director
/s/ John Price Director October 6, 1997
- -----------------------------------
JOHN PRICE
/s/ Philip Gardiner Director October 6, 1997
- -----------------------------------
PHILIP GARDINER
/s/ Gordon Howlett Director October 6, 1997
- -----------------------------------
GORDON HOWLETT
/s/ Sydney Selati Director and October 6, 1997
- ----------------------------------- Authorized U.S.
SYDNEY SELATI Representative
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Memorandum and Articles of Association.
*4.1 Form of Specimen of American Depositary Share Certificate.
*4.2 Form of Specimen of American Depositary Receipt.
*4.3 Form of Deposit Agreement to be entered into among the Registrant,
Morgan Guaranty Trust Company of New York, as Depositary, and
holders from time to time of ADSs issued thereunder.
*5.1 Opinion of Freehill, Hollingdale & Page.
*5.2 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Executive Share Option Plan.
10.2 1997 Share Option Plan.
10.3 Terms and Conditions of Convertible Notes and Shareholder's Deed
Poll relating to Convertible Notes.
10.4 Major Agreements relating to the Registrant's Credit Facility with
Australia and New Zealand Banking Corporation Group Limited ("ANZ"),
including Deed of Charge by and between the Registrant and ANZ, as
successor in interest to Westpac Banking Corporation as agent; Offer
Letter dated July 14, 1994 from ANZ to the Registrant re: lines of
credit; Variation Letter dated December 12, 1996 from ANZ to the
Registrant modifying terms of certain lines of credit.
10.5 Major Agreements relating to the Registrant's U.S. Operating
Subsidiary's Credit Facility with Merrill Lynch Business Financial
Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and
Security Agreement No. 9502340701, dated as of February 23, 1995 by
and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and
Security Agreement No. 231-07T10, dated as of February 23, 1995 by
and between Galore USA and Merrill Lynch; Unconditional Guaranty by
the Registrant relating to Term WCMA(R) Loan and Security Agreement
No. 9502340701; Unconditional Guaranty by the Registrant relating to
WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term
WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from
Merrill Lynch to Galore USA re: WCMA line of credit variation.
10.6 Deed of purchase of Registrant's headquarters facility.
10.7 Lease dated as of March 6, 1992 by and between Galore USA and
Phoenix Business Center Partners re: Irvine, California U.S.
headquarters and distribution facility.
11.1 Statement regarding computation of per share earnings.
15.1 Unaudited Additional Consolidated Financial Data of the Registrant
for the twelve months ended January 31, 1995, 1996 and 1997,
together with review report of KPMG relating thereto.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Horwath Sydney Partnership.
23.2 Consent of KPMG.
*23.3 Consent of Freehill, Hollingdale & Page (included in Exhibit 5.1).
*23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.2).
24.1 Power of Attorney (included on signature pages hereof).
</TABLE>
- -------
* To be supplied by amendment.
<PAGE>
EXHIBIT 3.1
ARTICLES OF ASSOCIATION
OF
THE GALORE GROUP LIMITED
FREEHILL, HOLLINGDALE & PAGE
SOLICITORS & NOTARIES
MLC CENTRE, MARTIN PLACE
SYDNEY N.S.W. 2000
AUSTRALIA
<PAGE>
AUSTRALIAN CAPITAL TERRITORY
Companies Act 1981
Company Limited by Shares
-----------------------------------------
ARTICLES OF ASSOCIATION
OF
THE GALORE GROUP LIMITED
-----------------------------------------
Interpretation
--------------
1. (1) In these articles -
"Business days" means those days on which the home exchange is open.
"Code" means the Companies Act 1981 as varied or amended from time to
time or such equivalent code of such other State or Territory in which
the Company may be incorporated from time to time;
"the Company" means The Galore Group Limited;
"home exchange" means the Sydney Stock Exchange Limited or any other
exchange so designated by the Australian Associated Stock Exchanges;
"seal" means the common seal of the Company and includes any official
seal of the Company;
"secretary" means any person appointed to perform the duties of a
secretary of the Company; and
"State" means the Australian Capital Territory or such other State or
Territory in which the Company may be incorporated from time to time.
(2) Section 40 of the Companies and Securities (Interpretation and
Miscellaneous Provisions) Act 1980 applies in relation to these
articles as if they were an instrument made by an authority under a
power conferred by the Code as in force on the date on which these
articles became binding on the Company.
<PAGE>
2
(3) An expression used in a particular Part or Division of the Code that
is given by that Part or Division a special meaning for the purposes
of that Part or Division has, in any of these articles that deals with
a matter dealt with by that Part or Division, unless the contrary
intention appears, the same meaning as in that Part or Division.
(4) The regulations contained in Table A in Schedule 3 to the Code are
excluded and shall not apply to the Company.
Share Capital and Variation of Rights
-------------------------------------
2. (1) The share capital of the Company is one hundred million dollars
($100,000,000) divided into five hundred million (500,000,000) shares
of twenty cents ($0.20) each.
(2) Without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares but subject to the
Code and to these articles, shares in the Company may be issued by the
directors in such manner as they think most beneficial to the Company,
and any such share may be issued with such preferred, deferred or
other special rights or such restrictions whether with regard to
dividend, voting, return of capital or otherwise as the directors,
subject to any resolution, determine.
3. Subject to the Code, any preference shares may, with the sanction of a
resolution, be issued on the terms that they are, or at the option of the
Company are liable, to be redeemed.
4. (1) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by
the terms of issue of the shares of that class) may, whether or not
the Company is being wound up, be varied with the consent in writing
of the holders of three-quarters of the issued shares of that class,
or with the sanction of a special resolution passed at a separate
meeting of the holders of the shares of the class.
(2) The provisions of these articles relating to general meetings apply so
far as they are capable of application and mutatis mutandis to every
such separate meeting except that -
<PAGE>
3
(a) a quorum is constituted by 2 persons who, between them,
hold, or represent a corporation or corporations that hold,
or represent by proxy or power of attorney, one-third of
the issued shares of the class; and
(b) a poll may be demanded -
(i) by not less than 5 holders of shares of the class
present in person or by proxy or attorney;
(ii) by a holder or holders of shares of the class
present in person or by proxy or attorney and
representing not less than one-tenth of the total
voting rights of all the holders of shares of the
class; or
(iii) by a holder or holders of shares of the class
present in person or by proxy or attorney, being
shares on which an aggregate sum has been paid up
equal to not less than one-tenth of the total sum
paid up on all the shares of the class.
5. (1) The Company may exercise the power to pay commissions conferred by the
Code if -
(a) the rate or the amount of the commission paid or agreed to be
paid is disclosed in the manner required by the Code; and
(b) the commission does not exceed 10% of the price at which the
shares in respect of which the commission is paid are issued.
(2) The commission may be satisfied by the payment of cash or by the
allotment of fully or partly paid shares or partly by the payment of
cash and partly by the allotment of fully or partly paid shares.
(3) The Company may, on any issue of shares, also pay such brokerage as is
lawful.
6. (1) Except as required by law, the Company shall not recognise a person as
holding a share upon any trust.
<PAGE>
4
(2) The Company is not bound by or compelled in any way to recognise
(whether or not it has notice of the interest or rights concerned) any
equitable, contingent, future or partial interest in any share or unit
of a share or (except as otherwise provided by these articles or by
law) any other right in respect of a share except an absolute right
of ownership in the registered holder.
7. (1) A person whose name is entered as a member in the register of members
is entitled without payment to receive a certificate in respect of the
share under the seal of the Company in accordance with the Code but,
in respect of a share or shares held jointly by several persons, the
Company is not bound to issue more than one certificate.
(2) Delivery of a certificate for a share to one of several joint holders
is sufficient delivery to all such holders.
8. (1) where several persons are jointly entitled to any share or shares -
(a) in the absence of any express direction from those persons to the
contrary, the Company shall enter the names of those persons as
members in the register of members in the order in which their
names appear on the application for shares or the instrument of
transfer or the notice of death or bankruptcy given to the
Company to establish those persons' entitlement to the share or
shares;
(b) notwithstanding anything to the contrary contained in these
articles, in any circumstances and for all purposes it shall be a
sufficient discharge of any of the Company's obligations to those
persons if the Company discharges that obligation in relation to
the firstnamed holder of the share or shares in the register of
members; and
(c) those persons shall be jointly and severally liable to pay all
calls, interest and other amounts in respect of the share or
shares.
(2) Nothing in sub-article (1) shall prevent the Company from
differentiating between the joint
<PAGE>
5
holders of any share or shares in any respect as provided for in these
articles.
9. Subject to the provisions of the Code, the Company may establish a scheme
or schemes for the allotment of shares or other interests in the Company
directly or indirectly to any persons selected by the board of directors
from time to time to participate in such scheme or schemes including but
not limited to executives, directors, consultants to, franchisees,
licensees, management and other employees of the Company and related
corporations generally or interests nominated by them.
Lien
----
10. (1) The Company has a first and paramount lien on every share (not being a
fully paid share) for all money (whether presently payable or not)
called or payable at a fixed time in respect of that share.
(2) The Company also has a first and paramount lien on all shares (not
being fully paid shares) registered in the name of a sole holder for
all moneys as the Company may be called upon by law to pay in respect
of those shares.
(3) The directors may at any time exempt a share wholly or in part from
the provisions of this Article.
(4) The Company's lien (if any) on a share extends to all dividends
payable in respect of the share.
11. (1) Subject to sub-article (2), the Company may sell, in such manner as
the directors think fit, any shares on which the Company has a lien.
(2) A share on which the Company has a lien shall not be sold unless -
(a) a sum in respect of which the lien exists is presently payable;
and
(b) the Company has, not less than 14 days before the date of the
sale, given to the registered holder for the time being of the
share or the person entitled to the share by reason of the death
or bankruptcy of the registered holder a
<PAGE>
6
notice in writing setting out, and demanding payment of,
such part of the amount in respect of which the lien exists
as is presently payable.
12. (1) For the purpose of giving effect to a sale mentioned in Article 11,
the directors may authorise a person to transfer the shares sold to
the purchaser of the shares.
(2) The Company shall register the purchaser as the holder of the shares
comprised in any such transfer and the purchaser is not bound to see
to the application of the purchase money.
(3) The title of the purchaser to the shares is not affected by any
irregularity or invalidity in connection with the sale.
13. The proceeds of a sale mentioned in Article 11 shall be applied by the
Company in payment of such part of the amount in respect of which the lien
exists as is presently payable, and the residue (if any) shall (subject to
any like lien for sums not presently payable that existed upon the shares
before the sale) be paid to the person entitled to the shares at the date
of the sale.
Calls on Shares
---------------
14. (1) The directors may subject to these articles and to any conditions of
allotment from time to time make such calls upon the members in
respect of any money unpaid on the shares of the members (whether on
account of the nominal value of the shares or by way of premium).
(2) Each member shall, upon receiving at least 14 days' notice specifying
the time or times and place of payment, pay to the Company at the time
or times and place so specified the amount called on his shares.
(3) The directors may revoke or postpone a call.
15. A call shall be deemed to have been made at the time when the resolution of
the directors authorising the call was passed and may be required to be
paid by instalments.
16. The joint holders of a share are jointly and severally liable to pay all
calls in respect of the share.
<PAGE>
7
17. If a sum called in respect of a share is not paid before or on the day
appointed for payment of the sum, the person from whom the sum is due shall
pay interest on the sum from the day appointed for payment of the sum to
the time of actual payment at such rate as the directors determine, but the
directors may waive payment of that interest wholly or in part.
18. Any sum that, by the terms of issue of a share, becomes payable on
allotment or at a fixed date, whether on account of the nominal value of
the share or by way of premium, shall for the purposes of these articles be
deemed to be a call duly made and payable on the date on which by the terms
of issue the sum becomes payable, and, in case of non-payment, all the
relevant provisions of these articles as to payment of interest, forfeiture
or otherwise apply as if the sum had become payable by virtue of a call
duly made and notified.
19. The directors may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment.
20. (1) The directors may accept from a member the whole or a part of the
amount unpaid on a share although no part of that amount has been
called up.
(2) The directors may authorise payment by the Company of interest upon
the whole or any part of an amount so accepted, until the amount
becomes payable, at such rate as is agreed upon between the directors
and the member paying the sum.
Transfer of Shares
------------------
21. (1) Subject to these articles, a member may transfer all or any of his
shares by instrument in writing in any usual or common form or in any
other form that the directors approve.
(2) An instrument of transfer referred to in sub-article (1) shall be
executed by or on behalf of the transferor (but need not be executed
by the transferee) or may be executed otherwise in accordance with the
Code.
(3) A transferor of shares remains the holder of the shares transferred
until the transfer is registered and the name of the transferee is
entered in the register of members in respect of the shares.
<PAGE>
8
22. The instrument of transfer shall be left for registration at the registered
office of the Company accompanied by the certificate of the shares to which
it relates and such other information as the directors properly require to
show the right of the transferor to make the transfer, and thereupon the
Company shall, subject to the powers vested in the directors by these
articles, register the transferee as a shareholder
23. The directors may decline to register any transfer of shares on which the
Company has a lien and may also decline to register any transfer of
shares -
(a) where the transfer is of a partly paid share in respect of which the
directors have required the transferee or an authorised officer of the
transferee to complete a statutory declaration stating that the
transferee is financially able to meet any unpaid liability in respect
of the share and such a declaration has not been received by the
Company; or
(b) where the Company may refuse to register the transfer under the
Official Listing Requirements of the Australian Associated Stock
Exchanges.
24. The registration of transfers may be suspended at such times and for such
periods as the directors from time to time determine not exceeding in the
whole 30 days in any year.
Transmission of Shares
----------------------
25. In the case of the death of a member, the survivor or survivors where the
deceased was a joint holder, and the legal personal representatives of the
deceased where he was a sole holder, shall be the only persons recognised
by the Company as having any title to his interest in the shares, but this
Article does not release the estate of a deceased joint holder from any
liability in respect of a share that had been jointly held by him with
other persons.
26. (1) Subject to the Bankruptcy Act 1966, a person becoming entitled to a
share in consequence of the death or bankruptcy of a member may, upon
such information being produced as is properly required by the
directors, elect either to be registered himself as holder of the
share or to have some other person nominated by him registered as the
transferee of the share.
<PAGE>
9
(2) If the person becoming entitled elects to be registered himself, he
shall deliver or send to the Company a notice in writing signed by him
stating that he so elects.
(3) If he elects to have another person registered, he shall execute a
transfer of the share to that other person.
(4) All the limitations, restrictions and provisions of these articles
relating to the right to transfer, and the registration of transfers
of, shares are applicable to any such notice or transfer as if the
death or bankruptcy of the member had not occurred and the notice or
transfer were a transfer signed by that member.
27. (1) Where the registered holder of a share dies or becomes bankrupt, his
personal representative or the trustee of his estate, as the case may
be, is, upon the production of such information as is properly
required by the directors, entitled to the same dividends and other
advantages, and to the same rights (whether in relation to meetings of
the Company, or to voting or otherwise), as the registered holder
would have been entitled to if he had not died or become bankrupt.
(2) Where 2 or more persons are jointly entitled to any share in
consequence of the death of the registered holders they shall, for the
purpose of these articles, be deemed to be joint holders of the share.
Forfeiture of Shares
--------------------
28. (l) If a member fails to pay a call or instalment of a call on the day
appointed for payment of the call or instalment, the directors may, at
any time thereafter during such time as any part of the call or
instalment remains unpaid, serve a notice on him requiring payment of
so much of the call or instalment as is unpaid, together with any
interest that has accrued.
(2) The notice shall name a further day (not earlier than the expiration
of 14 days from the date of service of the notice) on or before which
the payment required by the notice is to be made and shall state that,
in the event of non-payment at or before the time appointed,
<PAGE>
10
the shares in respect of which the call was made will be liable to be
forfeited.
29. (1) If the requirements of a notice served under Article 28 are not
complied with, any share in respect of which the notice has been given
may at any time thereafter, before the payment required by the notice
has been made, be forfeited by a resolution of the directors to that
effect.
(2) Such a forfeiture shall include all dividends declared in respect of
the forfeited shares and not actually paid before the forfeiture.
30. A forfeited share may be sold or otherwise disposed of on such terms and in
such manner as the directors think fit, and, at any time before a sale or
disposition the forfeiture may be canceled on such terms as the directors
think fit.
31. A person whose shares have been forfeited ceases to be a member in respect
of the forfeited shares. Such a person remains liable however to pay to the
Company all money that, at the date of forfeiture, was payable by him to
the Company in respect of the shares (including interest at such rate as
the directors determine from the date of forfeiture on the money for the
time being unpaid, if the directors think fit to enforce payment of the
interest). The liability of such a person ceases if and when the Company
receives payment in full of all the money (including interest) so payable
in respect of the shares.
32. A statutory declaration in writing declaring that the declarant making the
statement is a director or a secretary of the Company, and that a share in
the Company has been duly forfeited on a date stated in the declaration,
shall be conclusive evidence of the facts therein stated as against all
persons claiming to be entitled to the share.
33. (1) The Company may receive the consideration (if any) given for a
forfeited share on any sale or disposition of the share and may
execute a transfer of the share in favour of the person to whom the
share is sold or disposed of.
(2) Upon the execution of the transfer, the transferee shall be registered
as the holder of the share and is not bound to see to the application
of any money paid as consideration.
(3) The title of the transferee to the share is not affected by any
irregularity or invalidity in
<PAGE>
11
connection with the forfeiture, sale or disposal of the share.
34. The provisions of these articles as to forfeiture apply in the case of non-
payment of any sum that, by the terms of issue of a share, becomes payable
at a fixed time, whether on account of the nominal value of the share or by
way of premium, as if that sum had been payable by virtue of a call duly
made and notified.
Conversion of Shares into Stock
-------------------------------
35. The Company may, by ordinary resolution, convert all or any of its shares
into stock and re-convert any stock into shares of any nominal value.
36. (1) Subject to sub-article (2), where shares have been converted into
stock, the provisions of these articles relating to the transfer of
shares apply, so far as they are capable of application, to the
transfer of the stock or of any part of the stock.
(2) The directors may fix the minimum amount of stock transferable and
restrict or forbid the transfer of fractions of that minimum, but the
minimum shall not exceed the aggregate of the nominal values of the
shares from which the stock arose.
37. (1) The holders of stock have, according to the amount of the stock held
by them, the same rights, privileges and advantages as regards
dividends, voting at meetings of the Company and other matters as they
would have if they held the shares from which the stock arose.
(2) No such privilege or advantage (except participation in the dividends
and profits of the Company and in the property of the Company on
winding up) shall be conferred by any amount of stock that would not,
if existing in shares, have conferred that privilege or advantage.
38. The provisions of these articles that are applicable to shares apply to
stock, and references in those provisions to share and shareholder shall be
read as including references to stock and stockholder, respectively.
<PAGE>
12
Alteration of Capital
---------------------
39. The Company may by ordinary resolution -
(a) increase its authorised share capital by the creation of new shares of
such amount as is specified in the resolution;
(b) consolidate and divide all or any of its authorised share capital into
shares of larger amounts than its existing shares;
(c) subdivide all or any of its shares into shares of smaller amount than
is fixed by the memorandum but so that in the subdivision the
proportion between the amount paid and the amount (if any) unpaid on
each such share of a smaller amount is the same as it was in the case
of the share from which the share of a smaller amount is derived; and
(d) cancel shares that, at the date of passing of the resolution, have not
been taken or agreed to be taken by any person and reduce its
authorised share capital by the amount of the shares so cancelled.
40. Unless otherwise provided by these articles or by the terms of issue, new
shares created upon an increase in the Company's authorised share capital
shall rank equally with and carry the same rights as the existing shares.
41. Subject to the Code, the Company may, by special resolution, reduce its
share capital, any capital redemption reserve fund or any share premium
account.
General Meetings
----------------
42. The directors may whenever they think fit convene a general meeting.
43. (1) A notice of a general meeting shall specify the place, the day and the
hour of meeting and shall state the general nature of the business to
be transacted at the meeting.
(2) A general meeting, other than a meeting for the passing of a special
resolution, shall be convened by notice in writing of not less than 14
days or by shorter notice if it is so agreed -
<PAGE>
13
(a) in the case of a meeting convened as the annual general meeting -
by all the members entitled to attend and vote at the meeting; or
(b) in the case of any other meeting - by a majority in number of the
members having a right to attend and vote at the meeting, being
a majority that together hold not less than 95% in nominal value
of the shares giving a right to attend and vote.
44. The accidental omission to give notice of any general meeting to, or the
non-receipt of any such notice by, any person entitled to be so notified
shall not invalidate any resolution passed at that meeting.
45. (1) A resolution is a special resolution of the Company if -
(a) it is passed at a meeting of the Company, being a meeting of
which not less than 21 days' written notice specifying the
intention to propose the resolution as a special resolution has
been duly given; and
(b) it is passed at a meeting referred to in paragraph (a) by a
majority of not less than three quarters of such members of the
Company as, being entitled to do so, vote in person or by proxy
or attorney, at that meeting.
(2) A resolution is a special resolution of the holders of any class of
shares in the Company if -
(a) it is passed at a meeting of the holders of shares of that class,
being a meeting of which not less than 21 days' written notice
specifying the intention to propose the resolution as a special
resolution has been duly given; and
(b) it is passed at a meeting referred to in paragraph (a) by a
majority of not less than three quarters of such holders of
shares of that class as, being entitled to do so, vote in person
or by proxy or attorney, at that meeting.
(3) Notwithstanding the provisions of sub-article (1) or (2), if it is so
agreed by a majority in
<PAGE>
15
48. The chairman, if any, of the board of directors shall preside as chairman
at every general meeting of the Company, or if there is no such chairman,
or if he is not present within 15 minutes after the time appointed for the
holding of the meeting or is unwilling to act, the members present shall
elect one of their number to be chairman of the meeting.
49. The chairman's ruling on all matters relating to the order of business,
procedure and conduct of a general meeting shall be final and no motion of
dissent therefrom shall be accepted.
50. (1) The chairman may with the consent of any meeting at which a quorum is
present (and shall if so directed by the meeting) adjourn the meeting
from time to time and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
(2) When a meeting is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original
meeting.
(3) Except as provided by sub-article (2), it is not necessary to give any
notice of any adjournment or of the business to be transacted at an
adjourned meeting.
51. (1) At any general meeting a resolution put to the vote of the meeting
shall be decided on a show of hands unless a poll is (before or on the
declaration of the result of the show of hands) demanded -
(a) by the chairman;
(b) by at least 5 members present in person or by proxy or attorney;
(c) by a member or members present in person or by proxy or attorney
and representing not less than one-tenth of the total voting
rights of all the members having the right to vote at the
meeting; or
(d) by a member or members holding shares in the Company conferring a
right to vote at the meeting being shares on which an aggregate
sum has been paid up equal to not less than one-tenth of the
total sum paid up on all the shares conferring that right.
<PAGE>
16
(2) Unless a poll is so demanded, a declaration by the chairman that a
resolution has on a show of hands been carried or carried
unanimously, or by a particular majority, or lost, and an entry to
that effect in the book containing the minutes of the proceedings
of the Company, is conclusive evidence of the fact without proof of
the number or proportion of the votes recorded in favour of or
against the resolution.
(3) The demand for a poll may be withdrawn.
(4) The demand of a poll shall not prevent the continuance of a meeting
for the transaction of any business other than the question on
which a poll has been demanded.
52. (1) If a poll is duly demanded, it shall be taken in such manner and
(subject to sub-article (2)) either at once or after an interval or
adjournment or otherwise as the chairman directs, and the result of
the poll shall be the resolution of the meeting at which the poll
was demanded.
(2) A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith.
53. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman of the meeting at which the show of hands takes place
or at which the poll is demanded shall be entitled to a second or casting
vote.
54. (1) Subject to sub-article (2), an entitlement to receive notice of
general meetings shall confer on members the right to attend and
vote thereat.
(2) Subject to any rights or restrictions for the time being attached
to any class or classes of shares -
(a) at meetings of members or classes of members each member
entitled to vote may vote in person or by proxy or attorney;
and
(b) on a show of hands every person present who is a member or a
representative of a member has one vote, and, subject to
paragraphs (c) and (d), on a poll every member present in
person or by proxy or
<PAGE>
17
attorney and every person present who is a representative of
a member has one vote for each share he holds or represents
as the case may be;
(c) where a member holds a partly paid share subscribed for as a
result of an offer of partly paid shares made pro-rata to
all shareholders, on a poll every such member present in
person or by proxy or attorney and every person present who
is a representative of such a member has one vote for each
such share held; and
(d) where a member holds a partly paid share subscribed for as a
result of an offer of partly paid shares made other than
pro-rata to all shareholders, on a poll every such member
present in person or by proxy or attorney and every person
present who is a representative of such a member has that
fraction of a vote for each such share held as equals the
fraction generated by dividing the total amount paid on the
share by the issue price of the share.
55. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy or by attorney, shall be accepted to the
exclusion of the votes of the other joint holders and, for this purpose,
seniority shall be determined by the order in which the names stand in the
register of members, but the other or others of the joint holders are
entitled to be present at general meetings.
56. If a member is of unsound mind or is a person whose person or estate is
liable to be dealt with in any way under the law relating to mental
health, his committee or trustee or such other person as properly has the
management of his estate may exercise any rights of the member in relation
to a general meeting as if the committee, trustee or other person were the
member.
57. A member is not entitled to vote at a general meeting unless all calls and
other sums presently payable by him in respect of shares in the Company
have been paid.
58 (1) An objection may be raised to the qualification of a voter only at
the meeting or adjourned meeting at which the vote objected to is
given or tendered.
<PAGE>
18
(2) Any such objection shall be referred to the chairman of the
meeting, whose decision is final.
(3) A vote not disallowed pursuant to such an objection is valid for
all purposes.
59. (1) An instrument appointing a proxy shall be in writing under the hand
of the appointer or of his attorney duly authorised in writing or,
if the appointer is a corporation, either under the seal of the
corporation or under the hand of an officer or attorney duly
authorised in writing.
(2) A proxy may but need not be a member.
(3) An instrument appointing a proxy may specify the manner in which
the proxy is to vote in respect of a particular resolution and,
where an instrument of proxy so provides, the proxy is not entitled
to vote on the resolution except as specified in the instrument.
(4) An instrument appointing a proxy shall, unless the instrument
expressly provides otherwise, be deemed to confer authority to
agree to a meeting being convened by shorter notice than is
required by the Code or by these articles and to a resolution being
proposed and passed as a special resolution at a meeting of which
less than 21 days' notice has been given and authority to demand or
join in demanding a poll.
(5) An instrument appointing a proxy shall be in the following form or
in a form that is as similar to the following form as the
circumstances allow or in such other common form as the directors
may from time to time prescribe or approve in particular cases:
<PAGE>
20
Appointment, Removal and Remuneration of Directors
--------------------------------------------------
62. (1) Until otherwise determined by the Company by ordinary resolution,
the number of the directors shall be not less than 3 nor more than
15.
(2) The Company may, by ordinary resolution, increase or reduce the
number of directors, and may also determine in what rotation the
increased or reduced number is to vacate office.
(3) A director is not required to have any share qualification.
63. (1) Subject to Articles 65, 66 and 85, at the annual general meeting of
the Company held in every year one-third of the directors for the
time being, or, if their number is not 3 or a multiple of 3, then
the number rounded down nearest one-third, shall retire from
office.
(2) The directors to retire at an annual general meeting are those who
have been longest in office since their last election, but, as
between persons who became directors on the same day, those to
retire shall (unless they otherwise agree among themselves) be
determined by lot.
(3) A director retiring under this Article or Article 65 shall be
eligible for re-election and shall act as a director throughout the
meeting at which he retires.
(4) No director (except a managing director) shall remain in office for
a period in excess of 3 years without submitting himself for re-
election.
64. (l) Subject as hereinafter provided the Company may, at the meeting at
which a director so retires, by ordinary resolution fill the
vacated office by electing a person to that office.
(2) If the vacated office is not so filled, the retiring director
shall, if offering himself for re-election and not being
disqualified under the Code or these articles from holding office
as a director, be deemed to have been re-elected unless at that
meeting -
<PAGE>
21
(a) it is expressly resolved not to fill the vacated office; or
(b) a resolution for the re-election of that director is put and
lost.
(3) No person (not being a director retiring by rotation) shall be
eligible for election to the office of director at any general
meeting unless he or some other member intending to propose him
has, not less than thirty (30) Business days before the meeting,
left at the registered office of the Company a notice in writing
duly signed by such nominee consenting to nomination and signifying
his candidature or the intention of such member to propose him.
Notice of every candidature shall, not less than five (5) Business
days before the meeting at which an election is to take place, be
given to all members.
65. (1) The directors may at any time appoint any person to be a director,
either to fill a casual vacancy or as an addition to the existing
directors but so that the total number of directors does not at any
time exceed the number determined in accordance with these
articles.
(2) Any director so appointed holds office only until the next
following annual general meeting and is then eligible for re-
election but shall not be taken into account in determining the
directors who are to retire by rotation at that meeting.
66. (1) The Company may by ordinary resolution remove any director before
the expiration of his period of office, and may by ordinary
resolution and subject to these Articles appoint another person in
his stead.
(2) Any person so appointed is subject to retirement at the same time
as if he had become a director on the day on which the director in
whose place he is appointed was last elected a director.
67. (1) The directors shall be paid by way of fees for their services such
aggregate sum as may be determined from time to time by the Company
in general meeting and that sum shall be divided amongst the
directors in such proportions and manner as they shall from time to
time agree or in default of agreement equally. The fees
<PAGE>
22
payable by the Company to directors other than executive directors
shall not be by way of commission on or a percentage of profits or
turnover. The aggregate sum of the directors fees shall not be
increased except with the prior approval of the Company in general
meeting and notice of any proposed increase and the new maximum
aggregate sum that may be paid shall be given to members in the
notice convening the meeting.
(2) All directors' fees shall be deemed to accrue from day to day.
(3) The directors may also be paid all travelling, accommodation and
other expenses properly incurred by them in attending and returning
from meetings of the directors or any committee of the directors or
general meetings of the Company or otherwise in connection with the
exercise of their powers and the discharge of their duties or the
business of the Company.
(4) If any director, being willing, renders or is called upon to
perform extra services or to make any special exertions in going or
residing abroad or otherwise for any business or purposes of the
Company, the directors may arrange with that director for a special
remuneration by the payment of a stated sum of money and that
special remuneration may be either in addition to or in
substitution for his share in the remuneration provided in these
articles.
68. In addition to any other remuneration otherwise provided by these
articles, on or after a director, who is not engaged in the full time
employment of the Company or of a subsidiary of the Company, ceasing to
hold office by reason of death or otherwise howsoever the directors shall
have power to pay to him, or in case of his death to his widow, dependents
or legal personal representatives in respect of him, such sum as the
directors shall think fit but in any event not exceeding the sum permitted
by section 233 of the Code, and any such payments may be in the form of a
lump sum or be paid by instalments.
69. In addition to the circumstances in which the office of a director becomes
vacant by virtue of the Code, the office of a director becomes vacant if
the director -
(a) becomes an insolvent under administration;
<PAGE>
23
(b) becomes prohibited from being a director by reason of an order made
under the Code;
(c) becomes of unsound mind or a person whose person or estate is
liable to be dealt with in any way under the law relating to mental
health;
(d) resigns his office by notice in writing to the Company;
(e) is absent without the consent of the directors from meetings of the
directors held during a continuous period of 6 months and the board
resolves that his office be vacated; or
(f) reaches age 72.
Powers and Duties of Directors
------------------------------
70. (1) Subject to the Code and to any other provision of these articles,
the business of the Company shall be managed by the directors, who
may exercise all such powers of the Company as are not, by the Code
or by these articles, required to be exercised by the Company in
general meeting.
(2) Without limiting the generality of sub-article (1), the directors
may exercise all the powers of the Company to borrow or raise or
secure the payment of money, to charge any property or business of
the Company or all or any of its uncalled capital and to issue
debentures or give any other security for a debt, liability or
obligation of the Company or of any other person.
71. (1) The directors may, by power of attorney, appoint any person or
persons to be the attorney or attorneys of the Company for such
purposes, with such powers, authorities and discretions (being
powers, authorities and discretions vested in or exercisable by the
directors), for such period and subject to such conditions as they
think fit.
(2) Any such power of attorney may contain such provisions for the
protection and convenience of persons dealing with the attorney as
the directors think fit and may also authorise the attorney to
delegate all or any of the powers, authorities and discretions
vested in him.
<PAGE>
24
72. All cheques, promissory notes, bankers drafts, bills of exchange and other
negotiable instruments, and all receipts for money paid to the Company,
shall be signed, drawn, accepted, endorsed or otherwise executed, as the
case may be, by any 2 directors or in such other manner as the directors
shall from time to time by resolution determine.
73. If the directors or any of them or any other person becomes or is about to
become personally liable for the payment of any sum primarily due from the
Company, the directors may execute or cause to be executed any mortgage,
charge or security over or affecting the whole or any part of the assets
of the Company by way of indemnity to secure the directors or persons so
becoming liable from any loss in respect of such liability.
74. (1) The directors shall cause minutes of all proceedings of general
meetings and of meetings of the directors to be entered, within one
month after the relevant meeting is held, in books kept for that
purpose.
(2) Except in the case of documents that are deemed to constitute
minutes by virtue of Article 83, those minutes shall be signed by
the chairman of the meeting at which the proceedings took place or
by the chairman of the next succeeding meeting.
Disposal of Main Undertaking
----------------------------
75. The directors shall not authorise a sale or disposal of, or an agreement
to sell or dispose of, the Company's main undertaking unless the Company
has by ordinary resolution authorised the sale or disposal or unless the
sale or disposal, or the agreement, is subject to ratification by the
Company by ordinary resolution.
Proceedings of Directors
------------------------
76. (1) The directors may meet together for the despatch of business and
adjourn and otherwise regulate their meetings as they think fit.
(2) At a meeting of directors, the number of directors whose presence
is necessary to constitute a quorum is such number as is determined
by the directors and, unless so determined, is 2.
<PAGE>
25
(3) A director may at any time, and a secretary shall on the
requisition of a director, convene a meeting of the directors,
(4) Without limiting the discretion of the directors to regulate their
meetings under sub-article (1), the directors may, if they think
fit, confer by radio, telephone closed circuit television or other
electronic means of audio or audio-visual communication and a
resolution passed by such a conference shall, notwithstanding the
directors are not present together in one place at the time of the
conference, be deemed to have been passed at a meeting of the
directors held on the day on which and at the time at which the
conference was held. The provisions of these articles relating to
proceedings of directors apply so far as they are capable of
application and mutatis mutandis to such conferences.
77. (1) Subject to these articles, questions arising at a meeting of
directors shall be decided by a majority of votes of directors
present and voting and any such decision shall for all purposes be
deemed a decision of the directors.
(2) In case of an equality of votes, the chairman of the meeting, in
addition to his deliberative vote, has a casting vote unless only 2
directors are present at the meeting or only 2 directors are
competent to vote on the question at issue, in either of which
cases the chairman shall not have a casting vote in addition to his
deliberative vote.
78. (1) A director may hold any other office or place of profit (except
that of auditor) in the Company in conjunction with the office of
director and on such terms as to remuneration and otherwise as the
directors may determine.
(2) A director of the Company may be or become a director or other
officer of or otherwise interested in any corporation promoted by
the Company or in which the Company may be interested as a
shareholder or otherwise and he shall not be accountable to the
Company for any remuneration or other benefits received by him as a
director or officer of or from his interest in the other
corporation.
(3) Subject to sub-article (6) -
<PAGE>
26
(a) a director shall not be disqualified by his office from
contracting with the Company either as vendor, purchaser or
otherwise;
(b) such a contract, and any contract or arrangement entered
into by or on behalf of the Company in which a director is
in any way, whether directly or indirectly, interested,
shall not be avoided; and
(c) a director shall not be liable, by reason of holding his
office or of the fiduciary relations thereby established, to
account to the Company for any profit arising from such a
contract or from such contracts or arrangements.
(4) A director shall not vote in respect of any contract or arrangement
or proposed contract or arrangement in which he has, whether
directly or indirectly a material interest nor in respect of any
matter arising out of such a contract or arrangement or proposed
contract or arrangement.
(5) Notwithstanding sub-article (4), a director may sign or countersign
a contract or other document to which the seal is affixed and in
which he has, whether directly or indirectly, a material interest.
(6) A director who has, whether directly or indirectly, an interest in
a contract or proposed contract with the Company shall declare the
nature of his interest at a meeting of the directors, and a
director who holds any office or possesses any property whereby,
whether directly or indirectly, duties or interests might be
created in conflict with his duties or interests as director shall
declare at a meeting of the directors the fact and the nature,
character and extent of the conflict.
79. (1) A director may, with the approval of a majority of the other
directors, appoint a person (whether a member of the Company or
not) to be an alternate director in his place during such period as
he thinks fit.
(2) An alternate director is entitled to notice of meetings of the
directors and, if the appointor is not present at such a meeting,
is entitled to attend and vote in his stead.
<PAGE>
27
(3) An alternate director may exercise any powers that the appointor
may exercise and the exercise of any such power by the alternate
director shall be deemed to be the exercise of the power by the
appointor.
(4) An alternate director is not required to have any share
qualification.
(5) The appointment of an alternate director may be terminated at any
time by the appointor notwithstanding that the period of the
appointment of the alternate director has not expired, and
terminates in any event if the appointor vacates office as a
director.
(6) An appointment, or the termination of an appointment, of an
alternate director shall be effected by a notice in writing signed
by the director who makes or made the appointment and served on the
Company.
80. In the event of a vacancy or vacancies in the office of a director or
offices of directors, the remaining directors may act but, if the number
of remaining directors is not sufficient to constitute a quorum at a
meeting of directors, they may act only for the purposes of increasing the
number of directors to that number or of convening a general meeting of
the Company or in emergencies but not for any other purpose.
81. The directors may elect a chairman of their meetings and a deputy chairman
and determine the periods for which they are respectively to hold office.
The chairman or in his absence the deputy chairman shall preside at every
meeting of the directors but if at the time of any meeting no such
chairman or deputy chairman has been elected and is in office or if at any
meeting neither the chairman nor deputy chairman is present within fifteen
minutes of the time appointed for holding it the directors present shall
choose someone of their number to be chairman of such meeting.
82. (1) The directors may delegate any of their powers to a committee or
committees consisting of such of their number as they think fit.
Such a committee or committees may consist of only one director.
(2) A committee to which any powers have been so delegated shall
exercise the powers delegated in accordance with any directions of
the directors and a power so exercised shall be deemed to have been
exercised by the directors.
<PAGE>
28
(3) The members of such a committee may elect one of their number as
chairman of their meetings.
(4) Where such a meeting is held and -
(a) a chairman has not been elected as provided by sub-article
(3); or
(b) the chairman is not present within 10 minutes after the time
appointed for the holding of the meeting or is unwilling to
act,
the members present may elect one of their number to be chairman of
the meeting.
(5) A committee may meet and adjourn as it thinks proper.
(6) Questions arising at a meeting of a committee shall be determined
by a majority of votes of the members present and voting.
(7) In the case of an equality of votes, the chairman, in addition to
his deliberative vote, has a casting vote.
83. (1) If all the directors have signed a document containing a statement
that they are in favour of a resolution of the directors in the
terms set out in the document, a resolution in those terms shall be
deemed to have been passed at a meeting of the directors held on
the day on which the document was signed and at the time at which
the document was last signed by a director or, if the directors
signed the document on different days, on the day on which, and at
the time at which, the document was last signed by a director and,
where a document is so signed, the document shall be deemed to
constitute a minute of that meeting.
(2) For the purposes of sub-article (1), 2 or more separate documents
containing statements in identical terms each of which is signed by
one or more directors shall together be deemed to constitute one
document containing a statement in those terms signed by those
directors on the respective days on which they signed the separate
documents.
(3) A reference in sub-article (1) to all the directors does not
include a reference to a director who, at a meeting of directors,
would not be entitled to vote on the resolution, or a
<PAGE>
29
reference to an alternate director whose appointor has signed the
document mentioned in sub-article (1).
84. All acts done by any meeting of the directors or of a committee of
directors or by any person acting as a director are, notwithstanding that
it is afterwards discovered that there was some defect in the appointment
of a person to be a director or a member of the committee, or to act as a
director, or that a person so appointed was disqualified, as valid as if
the person had been duly appointed and was qualified to be a director or
to be a member of the committee.
Managing Directors
------------------
85. (1) The directors may from time to time appoint one or more of their
number to be managing director or managing directors for such
period and on such terms as they think fit, and, subject to the
terms of any agreement entered into in a particular case, may
revoke any such appointment.
(2) A managing director's appointment automatically terminates if he
ceases from any cause to be a director.
(3) A managing director appointed under this Article shall not, while
he continues to hold that office, be subject to retirement by
rotation or be taken into account in determining the rotation of
directors; but he shall subject to the provisions of any contract
between him and the Company be subject to the same provisions as to
resignation and removal as the other directors of the Company.
86. A managing director shall, subject to the terms of any agreement entered
into in a particular case, receive such remuneration (whether by way of
salary, bonus, commission or participation in profits, or partly in one
way and partly in another) as the directors determine provided that the
said remuneration shall not be by way of commission on or percentage of
turnover.
87. (1) The directors may, upon such terms and conditions and with such
restrictions as they think fit, confer upon a managing director any
of the powers exercisable by them.
<PAGE>
30
(2) Any powers so conferred may be concurrent with the powers of the
directors.
(3) The directors may at any time withdraw or vary any of the powers so
conferred on a managing director.
Secretary
---------
88. (1) The directors shall appoint at least one secretary of the Company
and may terminate any such appointment or appointments.
(2) A secretary of the Company holds office on such terms and
conditions, as to remuneration and otherwise, as the directors
determine.
Seal
----
89. (1) The directors shall provide for the safe custody of the seal.
(2) The seal may be used in any place where the Company carries on
business.
(3) The seal shall be used only by the authority of the directors, or
of a committee of the directors authorised by the directors to
authorise the use of the seal, and every document to which the seal
is affixed shall be signed by a director and be countersigned by
another director, a secretary or another person appointed by the
directors to countersign that document or a class of documents in
which that document is included.
(4) The Company may have for use outside the State in place of its
common seal one or more official seals, each of which shall be a
facsimile of the common seal of the Company with the addition on
its face of the name of every place where it is to be used.
(5) The Company may have a duplicate common seal, which shall be a
facsimile of the common seal of the Company with the addition on
its face of the words "Share Seal" or "Certificate Seal" and a
certificate referring to or relating to securities of the Company
sealed with such a duplicate seal shall be deemed to be sealed with
the common seal of the Company.
<PAGE>
31
(6) Certificates referring to or relating to securities of the Company
may be issued bearing a printed impression of the duplicate common
seal referred to in sub-article (5) together with printed
impressions of the signature of a director and the countersignature
of another director, a secretary or another person appointed by the
directors to countersign such certificates, and such certificate
shall be deemed to be sealed with the common seal of the Company.
Inspection of Records
---------------------
90. The directors shall determine whether and to what extent, and at what time
and places and under what conditions, the accounting records and other
documents of the Company or any of them will be open to the inspection of
members other than directors, and a member other than a director does not
have the right to inspect any document of the Company except as provided
by law or authorised by the directors or by the Company in general
meeting.
Dividends and Reserves
----------------------
91. (1) The Company in general meeting may declare a dividend if, and only
if, the directors have recommended a dividend.
(2) A dividend shall not exceed the amount recommended by the
directors.
92. The directors may authorise the payment by the Company to the members of
such interim dividends as appear to the directors to be justified by the
profits of the Company.
93. No dividend shall be payable except out of profits or pursuant to section
119 of the Code.
94. Interest is not payable by the Company in respect of any dividend.
95. (1) The directors may, before recommending any dividend, set aside out
of the profits of the Company such sums as they think proper as
reserves, to be applied, at the discretion of the directors, for
any purpose for which the profits of the Company may be properly
applied.
<PAGE>
32
(2) Pending any such application, the reserves may, at the discretion
of the directors, be used in the business of the Company or be
invested in such investments as the directors think fit.
(3) The directors may carry forward so much of the profits remaining as
they consider ought not to be distributed as dividends without
transferring those profits to a reserve.
96. (1) Subject to the rights of persons (if any) entitled to shares with
special rights as to dividend, all dividends shall be declared and
paid according to the amounts paid or credited as paid on the
shares in respect of which the dividend is paid.
(2) All dividends shall be apportioned and paid proportionately to the
amounts paid or credited as paid on the shares during any portion
or portions of the period in respect of which the dividend is paid,
but, if any share is issued on terms providing that it will rank
for dividend as from a particular date, that share ranks for
dividend accordingly.
(3) An amount paid or credited as paid on a share in advance of a call
shall not be taken for the purposes of this Article to be paid or
credited as paid on the share.
97. The directors may deduct from any dividend payable to a member all sums of
money (if any) presently payable by him to the Company on account of calls
or otherwise in relation to shares in the Company.
98. (1) Any general meeting declaring a dividend may, by ordinary resolution,
direct payment of a dividend wholly or partly by the distribution of
specific assets, including paid up shares in, or debentures of, any
other corporation, and the directors shall give effect to such a
resolution.
(2) Where a difficulty arises in regard to such a distribution, the
directors may settle the matter as they consider expedient and fix
the value for distribution of the specific assets or any part of
those assets and may determine that cash payments will be made to any
members on the basis of the value so fixed in order to adjust the
rights of all parties, and may vest any such specific assets in
trustees as the directors consider expedient.
<PAGE>
33
(3) A share issued in pursuance of sub-article (1) shall unless
otherwise provided by the terms of issue only rank for dividend as
from the date of allotment thereof.
99. (1) Any dividend, interest or other money payable in cash in respect of
shares may be paid by cheque sent through the post directed to -
(a) the address of the holder as shown in the register of
members, or in the case of joint holders, to the address
shown in the register of members as the address of the joint
holder first named in that register; or
(b) to such other address as the holder or joint holders in
writing directs or direct.
(2) Any one of 2 or more joint holders may give effectual receipts for
any dividends or other money payable in respect of the shares held
by them as joint holders.
Capitalisation of Profits
-------------------------
100. (1) Subject to sub-article (2), the Company in general meeting may
resolve that it is desirable to capitalise any sum, being the whole
or a part of the amount for the time being standing to the credit
of any reserve account or the profit and loss account or otherwise
available for distribution to members, and that that sum be
applied, in any of the ways mentioned in sub-article (3), for the
benefit of members in the proportions to which those members would
have been entitled in a distribution of that sum by way of
dividend.
(2) The Company shall not pass a resolution as mentioned in sub-article
(1) unless the resolution has been recommended by the directors.
(3) The ways in which a sum may be applied for the benefit of members
under sub-article (1) are -
(a) in paying up any amounts unpaid on shares held by members;
(b) in paying up in full unissued shares or debentures to be
issued to members as fully paid; or
<PAGE>
34
(c) partly as mentioned in paragraph (a) and partly as mentioned
in paragraph (b).
(4) The directors shall do all things necessary to give effect to the
resolution and in particular, to the extent necessary to adjust
the rights of the members among themselves, may -
(a) issue fractional certificates or make cash payments in cases
where shares or debentures become issuable in fractions; and
(b) authorise any person to make, on behalf of all the members
entitled to any further shares or debentures upon the
capitalisation, an agreement with the Company providing for
the issue to them, credited as fully paid up, of any such
further shares or debentures or for the payment up by the
Company on their behalf of the amounts or any part of the
amounts remaining unpaid on their existing shares by the
application of their respective proportions of the sum
resolved to be capitalised,
and any agreement made under an authority referred to in paragraph
(b) is effective and binding on all the members concerned.
101. The directors may in their discretion implement and maintain on such terms
and conditions as they may determine from time to time a dividend
reinvestment plan for cash dividends paid by the Company to be reinvested
by way of subscription for shares in the Company to be allotted by the
Company such shares to rank from the date of allotment equally in all
respects (including in respect of dividends for the period in which they
are allotted) with other such existing fully paid shares of the Company
and participation in the plan is to be available to such members of the
Company as wish to participate therein and are eligible to do so under the
terms and conditions of the plan. The directors may in their discretion
terminate any plan which may be in existence from time to time on
reasonable written notice to all members of the Company.
<PAGE>
35
Notices
-------
102. (1) A notice may be given by the Company to any member either by
serving it on him personally or by sending it by post to him at his
address as shown in the register of members or the address supplied
by him to the Company for the giving of notices to him. In the case
of overseas shareholders, documents shall be forwarded by air.
(2) Where a notice is sent by post, service of the notice shall be
deemed to be effected by properly addressing, prepaying, and
posting a letter containing the notice, and to have been effected,
in the case of a notice of a meeting, on the day after the date of
its posting and, in any other case, at the time at which the letter
would be delivered in the ordinary course of post.
(3) A notice may be given by the Company to the joint holders of a
share by giving the notice to the joint holder first named in the
register of members in respect of the share.
(4) A notice may be given by the Company to a person entitled to a
share in consequence of the death or bankruptcy of a member by
serving it on him personally or by sending it to him by post
addressed to him by name, or by the title of representative of the
deceased or assignee of the bankrupt, or by any like description,
at the address (if any) within the State supplied for the purpose
by the person or, if such an address has not been supplied, at the
address to which the notice might have been sent if the death or
bankruptcy had not occurred.
103. (1) Notice of every general meeting shall be given in the manner
authorised by Article 101 to -
(a) every member;
(b) every person entitled to a share in consequence of the death
or bankruptcy of a member who, but for his death or
bankruptcy, would be entitled to receive notice of the
meeting; and
(c) the auditor for the time being of the Company.
<PAGE>
36
104. Every person who by operation of law or by transfer or otherwise becomes
entitled to any share shall be bound by every notice in respect of that
share which previously to his name and address being entered in the
register of members in respect of that share has been duly given to the
member from whom he derived his title to that share.
Winding Up
----------
105. (1) If the Company is wound up, the liquidator may, with the sanction of
a special resolution, divide among the members in kind the whole or
any part of the property of the Company and may for that purpose set
such value as he considers fair upon any property to be so divided
and may determine how the division is to be carried out as between
the members or different classes of members.
(2) The liquidator may, with the sanction of a special resolution, vest
the whole or any part of any such property in trustees upon such
trusts for the benefit of the contributories as the liquidator thinks
fit, but so that no member is compelled to accept any shares or other
securities in respect of which there is any liability.
(3) If an order is made for the winding up of the Company or if it is
resolved by special resolution of the members in general meeting to
wind up the Company within twelve (12) months of the shares of the
Company being quoted for the first time on the home exchange, shares
issued for cash to members of the public shall rank in priority to
share capital (if any) classified by the home exchange as "vendor
securities".
Indemnity
---------
106. Every officer, auditor or agent of the Company shall be indemnified out of
the property of the Company against any liability incurred by him in his
capacity as officer, auditor or agent in defending any proceedings,
whether civil or criminal, in which judgment is given in his favour or in
which he is acquitted or in connection with any application in relation to
any such proceedings in which relief is under the Code granted to him by
the Court.
<PAGE>
37
107. No auditor or director or other officer of the Company shall be liable
for -
(l) the acts, receipts, neglects or defaults of any other director or
officer;
(2) joining in any receipt or other act for conformity;
(3) any loss or expense happening to the Company through the
insufficiency or deficiency of title to any property acquired by
order of the directors or on behalf of the Company;
(4) the insufficiency or deficiency of any security in or upon which any
of the moneys of the Company shall be invested;
(5) any loss or damage arising from the bankruptcy, insolvency or
tortious act of any person with whom any moneys, securities or
effects shall be deposited;
(6) any loss occasioned by any error of judgment, omission or oversight
on his part; or
(7) any other loss, damage or misfortune whatever which shall happen in
relation thereto,
unless the same happen through his own negligence, default, breach of
duty or breach of trust.
Members Not Entitled to Discovery
---------------------------------
108. No member shall be entitled to require discovery of or any information
respecting any detail of the Company's trading, or any matter which is or
may be in the nature of a trade secret, mystery of trade, or secret
process which may relate to the conduct of the business of the Company if,
in the opinion of the directors, it would be contrary to the interests of
the members of the Company to communicate such information.
I hereby certify that the Articles of Association contained in the foregoing
pages 1 to 37 inclusive comprise the Articles of Association of THE GALORE GROUP
----------------
LIMITED adopted by special Resolution passed on March, 1987.
- -------
/s/ Signature appears here
--------------------------
Director
<PAGE>
agent number (02)644-4177 ----------------------------
agent name DAVID M. GLASER
address 327 Chisholm Road
AUBURN NSW 2144
telephone (02)644-4177
facsimile (02)644-9828 ----------------------------
DX
================================================================================
---
Australian Securities Commission form 205
---
Notification of Corporations Law
RESOLUTION 256(1)
================================================================================
company name: THE GALORE GROUP LIMITED
-----------
A.C.N.: 008 577 759
-----------
=================
SUBJECT OF RESOLUTION
176(1) alteration to Articles of Association (K) REFER ANNEXURE A
=================
DETAILS OF THE GENERAL MEETING
date (d/m/y): 28/11/1995
place of meeting: 327 Chisholm Road, Auburn
=================
DETAILS OF THE RESOLUTION
type of resolution: Special
result: Passed
=================
SIGNATURE
Name: DAVID MAURICE GLASER
Capacity: Secretary
Sign Here: /s/ David Maurice Galser Date: 28/11/1995
- --------------------------------------------------------------------------------
---
page 1
---
<PAGE>
THIS ANNEXURE A OF 1 PAGE REFERRED TO
INFORM 205 "NOTIFICATION OF RESOLUTION"
THE GALORE GROUP LIMITED ACN 008 577 759
Resolution Signed:/s/ David Maurice Glaser DATE: 28/11/95
To consider and, if thought fit, to pass the following resolution as a special
resolution:
"That the Articles of Association of the company be amended by inserting
the following Article as a new Article 9A:
'(a) The company may buy shares in itself in any manner permitted by the
Corporations Law,
(b) Unless Article 9A(c) applies, Article 9A(a) ceases to have effect at
the end of 3 years beginning on the date that this Article was
inserted in the Articles of Association of the company.
(c) If the Corporations Law ceases to:
(1) require that a buy-back authorisation be contained in a
company's Articles as a condition of the company being able to
buy back its ordinary shares; or
(2) provide that a buy-back authorisation in a company's Articles
ceases to have effect unless renewed,
then Article 9Ab) ceases to have effect'."
Explanatory memorandum
The Corporations Law contains provisions giving a company the ability to buy
back its own shares. In order for a company to take advantage of the new
provisions the Corporations Law requires the Articles of Association of the
company to contain an appropriate authorisation to that effect. The proposed
special resolution which inserts a new Article 9A into the Articles of
Association of the company will provide such an authorisation.
In essence the buy-back provisions of the Corporations Law aim to ensure that
the ability of a company to buy back shares is not misused and that the
approval of shareholders is obtained where appropriate. The consequences of the
amendment to the Articles is that the company will be permitted to buy back
ordinary shares in itself in certain circumstances and subject to certain
conditions as provided under the Corporations Law.
The reason for proposing the special resolution is to enable the company to take
advantage of future opportunities to purchase shares in itself within the
guidelines of the Corporations Law.
The advantage for the company, the directors and the shareholders in adopting
the new article 9A is that it will give the company greater flexibility in
structuring its capital base to take account of its changing circumstances and
requirements in the future. There do not appear to be any potential
disadvantages in adopting the new article 9A.
<PAGE>
THE GALORE GROUP LIMITED Passed by Special Resolution At
------------------------ The AGM Held on 24/11/94 Page 1 of 1
ACN 008 577 759
--------------- Annexure A
----------
ALTERATION TO ARTICLES OF ASSOCIATION
-------------------------------------
To consider and, if thought fit, to pass the following resolution as a special
resolution:
"That the Articles of Association of the Company are amended by:
(a) deleting Article 78(4) and replacing it with the following new Article
78(4):
"Except as permitted by law or the Listing Rules of the
Australian Stock Exchange Limited prevailing for the time being
to the extent applicable or by Article 107, a director who has a
material personal interest in a matter that is being considered
at a meeting of directors must not vote on the matter, nor be
present at, nor otherwise participate in, the meeting while the
matter is being considered at the meeting.";
(b) deleting Articles 106 and 107 and replacing them with the following new
Articles:
"106. Articles 106A and 106B apply:
(a) to each person who is or has been a director, alternate
director or executive officer (as defined in the
Corporations Law) of the company; and
(b) to such other officers or former officers or the company
or of its related bodies corporate as the directors in
each case determine.
106A. The Company must indemnify, on a full indemnity basis and to
the full extent permitted by law, each person to whom this
Article 106A applies for all losses or liabilities incurred by
the person as an officer of the company or of a related body
corporate including, but not limited to, a liability for
negligence or for reasonable costs and expenses incurred:
(a) in defending proceedings, whether civil or criminal, in
which judgment is given in favour of the person or in
which the person is acquitted; or
(b) in connection with an application in relation to such
proceedings, in which the Court grants relief to the
person under the Corporations Law.
106B. The Company may, to the extent permitted by law:
(a) purchase and maintain insurance; or
(b) pay or agree to pay a premium for instance,
for any person to whom this Article 106B applies against any
liability incurred by the person as an officer of the Company
or of a related body corporate including, but not limited to, a
liability for negligence or for reasonable costs and expenses
incurred in defending proceedings, whether civil or criminal
and whatever their outcome.
107. Subject to section 232A of the Corporations Law, a director may
be present at a meeting of the directors of the Company while a
matter relating to an existing or proposed contract of
insurance of a kind permitted by Article 106B is being
considered and may vote on the matter and on a resolution in
relation to it notwithstanding that the director may have an
interest in or benefit under the insurance contract."
THIS IS ANNEXURE A OF ONE PAGE REFERRED TO IN
----------------------------------------------
FORM 205 "NOTIFICATION OF RESOLUTION"
------------------------------------
SIGNED: /s/ David Maurice Glaser
<PAGE>
AUSTRALIAN CAPITAL TERRITORY
----------------------------
Companies Ordinance 1962
A Company Limited by Shares
-------
MEMORANDUM OF ASSOCIATION
of
SUNBO PTY. LIMITED
The name of the Company is Sunbo Pty. Limited.
The provisions of the Third Schedule to the Companies Ordinance 1962 (as
amended) are hereby excluded.
The objects for which the Company is formed are:
(a) To invest whether by purchase or subscription or otherwise in real or
personal property of any tenure or shares stock debentures or units in
any company or trust whatsoever or in any interest therein whatsoever.
(b) To supply all or any of the following services:
(i) financial services
(ii) use by lease licence or otherwise or shops offices factories
homes home units or any other reals estate whatsoever
(iii) technical and expert services of any nature whatsoever including
but not limited to secretarial, bookkeeping, insurance broking, or
building consultancy services.
(c) To carry on business as a merchant, shopkeeper, exporter, trader,
importer or dealer in or manufacturer or producer of raw processed or
<PAGE>
manufactured goods materials or products of any description whatsoever.
(d) To conduct hotels, motels, restaurants, cafes, kiosks, services stations
or garages.
(e) To buy, apply for, lease, give or accept options over, acquire by
licence or hire and to develop, manage, sell, exchange, let on lease,
licence or hire, and otherwise deal with property, and in particular:-
(i) Shares stock bonds debentures notes and securities of any
company government or local authority
(ii) Lands buildings easements and all other rights in respect of
real estate
(iii) Personal property chattels real or personal choices in action
book debts liabilities
(iv) Patent rights inventions copyrights designs charters trade marks
formulae; licences franchises and concessions.
(f) To build repair alter maintain and/or manage buildings wharves roads
plant machinery equipment and furnishings.
(g) To pay for the acquisition of any rights or property or services by
inter alia the issue of shares (fully or partly paid up) debentures or
other securities of this or of any other company or by cash instalments
of cash or any other form of consideration.
(h) To sell the undertaking and/or any or all of the assets of the Company
in return for:-
(i) Cash,
(ii) Instalments of cash,
(iii) Shares or debentures of any other company,
(iv) Real or personal property or any interest therein,
(v) Guarantees liens charges or other securities over the assets of
any other company or person.
<PAGE>
(i) To pay costs and expenses preliminary and/or incidental to the
promotion establishment and incorporation of the Company, and to
reimburse and indemnify persons who have advanced or paid money
for those purposes.
(j) To make gifts of property whether real or personal for any
purpose and to any person firm or corporation whatsoever.
(k) To carry on any of the businesses or act in the respective
capacities specified herein for or on behalf of or as trustee for
others.
(1) Subject to section 125 of the Ordinance to lend money with or
without accepting security for loans.
(m) To receive money on deposit and/or to borrow money.
(n) To guarantee and/or indemnify the contracts or liabilities of
others.
(o) To furnish security by way of mortgage debentures lien charges or
other hypothecation of the Company's rights and property
including uncalled capital.
(p) To draw issue accept endorse execute discount and negotiate
negotiable and/or transferable instruments.
(q) To enter into partnership or other arrangements for profit-
sharing with any person or company engaged in any business which
this Company is authorised to carry on.
(r) To grant pensions retiring allowances super- annuation benefits
long-serve leave and general benefits to employees and Directors
(past and present) of the Company or of subsidiary, holding, or
related companies, or of its predecessors in business by:-
(i) Grants of money insurance or other aid to them and
their dependents and connections,
(ii) Establishing and/or subsidising funds and trusts,
<PAGE>
(iii) Medical educational housing recreational and other
amenities.
(s) To promote Companies for any purpose.
(t) To appoint attorneys, agents, brokers or trustees on such
conditions (including remuneration) as the Company shall
determine.
(u) To distribute in specie any of the assets of the Company provided
that if a reduction of capital is involved thereby then section
64 of the Ordinance shall be complied with.
(v) To procure registration as a foreign and/or recognised company
and/or to establish agencies branch registers and local boards
anywhere in the world.
AND IT IS HEREBY DECLARED that the objects specified in each of the
-------------------------
paragraphs of this clause shall be regarded as independent objects,
and accordingly shall not be limited or restricted by reference to or
inference from the terms of any other objects but may be carried out
in the widest sense and no objects herein specified shall be deemed
subsidiary or ancilliary to any other object.
4. The liability of the members of the Company is limited.
5. The capital of the Company is One hundred thousand dollars ($100,000)
divided into One hundred thousand (100,000) shares of One dollar
($1.00) each with power for the Company to increase or reduce the said
capital. The shares in the capital for the time being whether
original or increased may be divided into several classes with any
preferential special qualified or deferred rights privileges or
conditions attached thereto.
6. The full names and addresses and occupations of the subscribers to the
Memorandum of Association of the Company and the number of shares they
respectively agree to take are as follows:-
<TABLE>
<CAPTION>
Name, Address and Occupation Number of Shares
---------------------------- ----------------
<S> <C>
Ydeet Winter-Irving One (1) Ordinary
6 Supply Place Share
RED HILL ACT
------------
Solicitor
Christopher Tyrrel One (1) Ordinary
59 McNicoll Street Share
HUGHES ACT
------
Solicitor
</TABLE>
<PAGE>
WE, the several persons whose names and addresses are subscribed hereto are
desirous of being formed into a Company in pursuant of this Memorandum of
Association and we agree to take the number of shares in the capital of the
Company set out opposite our respective names.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Names, Addresses and No. of Shares Witness to
Occupations of taken by each Signatures
Subscribers Subscriber
- --------------------------------------------------------------------------------
<S> <C> <C>
Ydeet Winter-Irving One (1) Susan G. Page,
6 Supply Place Ordinary 21 Batchelor Street,
RED HILL ACT Share TORRENS. A.C.T.
Solicitor Secretary
Christopher Tyrrell One (1) Susan G. Page,
59 McNicoll Street Ordinary 21 Batchelor Street,
HUGHES ACT Share TORRENS. A.C.T.
Solicitor Secretary
</TABLE>
- --------------------------------------------------------------------------------
DATED: this third day of June , 1982
- -----
<PAGE>
---- AUSTRALIAN CAPITAL TERRITORY ----
Companies Act 1981
Companies Form 27
[Sub-section 72(9)]
NATIONAL COMPANIES AND SECURITIES COMMISSION
Registered No.
CL 19011
--------------
CERTIFICATION OF INCORPORATION ON
CHANGE OF NAME OF COMPANY
This is to certify that BARBEQUES GALORE HOLDINGS LIMITED ORIGINALLY CALLED
SUNBO PTY. LIMITED AND FORMERLY NAMED BARBECUES GALORE HOLDINGS PTY. LIMITED
which was on the SIXTEENTH day of JUNE 1982
incorporated under COMPANIES ORDINANCE as a PROPRIETARY
1962
company, on the TWENTY-THIRD day of MARCH 1987
changed its name to THE GALORE GROUP LIMITED
and that the company is a PUBLIC company,
and is a company limited by shares.
Given under the seal of the National Companies and Securities Commission at
Canberra on this TWENTY-THIRD day of MARCH 1987
[LOGO OF NATIONAL COMPANIES AND SECURITIES COMMISSION APPEARS HERE]
[SIGNATURE APPEARS HERE]
A person authorised by the Corporate
Affairs Commission - Delegate of the
National Companies and Securities Commission.
<PAGE>
EXHIBIT 10.1
SCHEDULE
THE GALORE GROUP LIMITED
ACN 008 577 759
EXECUTIVE SHARE OPTION PLAN
TERMS AND CONDITIONS OF OPTIONS
1. DEFINITIONS
In these terms and conditions, unless the context otherwise requires:
"BOARD" means the board of directors of the Company;
"BONUS DATE" means any date after the Issue Date and before exercise or expiry
of the Outstanding Options, on which entitlements are determined for holders of
Ordinary Shares to participate in any bonus issue by way of capitalisation of
profits, reserves or share premium account;
"BUSINESS DAY" means a day on which banks are open for business in Sydney
excluding a Saturday, Sunday or public holiday;
"COMPANY" means The Galore Group Limited;
"DEAL WITH" means to sell, transfer, assign, alienate or otherwise dispose of or
deal with the legal or beneficial interest in the Options or any rights or
interests relating to the Options, or to mortgage, charge, pledge, encumber,
create a lien, right of set-off or create or permit to arise any other security
or other rights or interests over or in respect of the Options;
"EXERCISE NOTICE" means a notice substantially in the form set out in the
schedule;
"EXERCISE PERIOD" means the period commencing on 1 February 1999 or the Issue
Date, whichever is the later and ending on the Expiry Date, provided that if:
(a) the Optionholder is an individual and the Optionholder ceases to be
employed by or related to the Company or any Related Body Corporate due to
death, permanent disability or ill health; or
(b) the Optionholder is an entity and the individual who controls that entity
ceases to be employed by or related to the Company or any Related Body
Corporate due to death, permanent disability or ill health,
then the period will commence on the date of the cessation of employment and end
on the Expiry Date;
"EXERCISE PRICE" means $0.46 per Option;
"EXPIRY DATE" means the fifth anniversary of the Issue Date;
"ISSUE DATE" means the date upon which the Options are issued to the
Optionholder as set out in the Option Certificate;
"OPTIONS" means the Options over Ordinary Shares referred to in the Option
Certificate;
"OPTION CERTIFICATE" means the certificate issued by the Company to the
Optionholder setting out the number of Options issued to the Optionholder and
the Issue Date;
<PAGE>
2
"OPTIONHOLDER" means the person registered in the Company's option register as
the holder of the Options;
"ORDINARY SHARES" means fully paid ordinary shares of 20 cents each in the
capital of the Company or the ordinary shares into which fully paid ordinary
shares of 20 cents each are consolidated or subdivided or otherwise adjusted
from time to time;
"OUTSTANDING OPTIONS" means Options which remain unexercised from time to time;
"RELATED BODY CORPORATE" has the same meaning as defined in the Corporations
Law;
"STOCK EXCHANGE" means any recognised stock exchange or securities market in the
United States or Australia;
"SUBSIDIARY" means a subsidiary of the Company as determined in accordance with
the Corporations Law;
"TAKEOVER BID" has the same meaning as defined in the Corporations Law;
"$" means Australian dollars.
2. INTERPRETATION
In these terms and conditions, unless the context otherwise requires:
(a) headings and underlinings are for convenience only and do not affect the
interpretation of these terms and conditions;
(b) words importing the singular include the plural and vice versa;
(c) words importing a gender include any gender;
(d) an expression importing a natural person includes any company,
partnership, joint venture, association, corporation or other body
corporate;
(e) a reference to any thing includes a part of that thing;
(f) a reference to a clause or schedule is a reference to a clause of, and a
schedule to, these terms and conditions;
(g) a reference to any statute, regulation, proclamation, ordinance or by-law
includes all statutes, regulations, proclamations, ordinances or by-laws
varying, consolidating or replacing them, and a reference to a statute
includes all regulations, proclamations, ordinances and by-laws issued
under that statute;
(h) a reference to a document includes an amendment or supplement to, or
replacement or novation of, that document;
(i) a reference to a party to a document includes that party's successors and
permitted assigns;
(j) where the day on or by which any thing is to be done is not a Business Day,
that thing must be done on or by the following Business Day.
3. OPTION ENTITLEMENT
Subject to the provisions of these terms and conditions, upon grant and exercise
each Option entitles the Optionholder to subscribe for one Ordinary Share at the
Exercise Price.
4. DURATION OF OPTIONS
(a) The Options expire at 5:00 pm on the Expiry Date.
<PAGE>
3
(b) Options not exercised on or before the Expiry Date will automatically
lapse.
5. EXERCISE OF OPTIONS
(a) Subject to clause 6, an Optionholder may exercise its Outstanding Options
from time to time, in whole or in part, by lodging with the Company at its
registered office during the Exercise Period:
(1) the Option Certificate;
(2) a duly completed and signed Exercise Notice; and
(3) the subscription monies for the relevant Ordinary Shares, being the
number of Options specified in the Exercise Notice multiplied by the
Exercise Price.
(b) If while any Options remain unexercised:
(1) an offer is made to ordinary shareholders of the Company to purchase
or otherwise acquire their shares pursuant to a Takeover Bid; and
(2) as a result of or pursuant to the Takeover Bid the offeror acquires a
relevant interest (as defined in the Corporations Law) in not less
than 30% of the issued ordinary shares in the Company,
then the Company may, at the sole discretion of the directors, give written
notice of the facts to the Optionholder within 14 days of the offeror
acquiring the relevant interest and the Options may then be exercised in
whole or in part within the period of 120 days (or such other period of
between 30 days and 120 days as the directors of the Company may determine
in their absolute discretion) from the date of that notice.
(c) Upon allotment to the Optionholder of the Ordinary Shares specified in the
Exercise Notice, the Option Certificate lodged with the Company by the
Optionholder pursuant to clause 5(a) must:
(1) if all the Outstanding Options have been exercised, be cancelled by
the Company;
(2) if some only of the Outstanding Options have been exercised, be
appropriately endorsed by the Company and then returned to the
Optionholder.
6. EXERCISE PERIOD
Subject to clauses 5(b) and (c), the Options are exercisable at any time during
the Exercise Period provided that at any one time the Optionholder must exercise
at least 20% of the Options.
7. TIME FOR ALLOTMENT AND ISSUE
The Company must allot to the Optionholder on the date upon which the
Optionholder validly exercises Options, and issue to the Optionholder within 10
Business Days of that date, the number of Ordinary Shares which corresponds with
the number of Options being exercised as specified in the Exercise Notice.
<PAGE>
4
8. ADJUSTMENTS UPON RECONSTRUCTION
Subject to clause 12(a), if at any time or times prior to the exercise by the
Optionholder of any Outstanding Options the Company implements a reconstruction
of its share capital, then the Outstanding Options shall be treated in the
following manner:
(a) in the event of a consolidation of the share capital of the Company, the
number of Outstanding Options shall be consolidated in the same ratio as
the Ordinary Share capital and the Exercise Price shall be amended in
inverse proportion to that ratio;
(b) in the event of a subdivision of the share capital of the Company, the
number of Outstanding Options shall be sub-divided in the same ratio as the
Ordinary Share capital and the Exercise Price shall be amended in inverse
proportion to that ratio;
(c) in the event of a reduction of par value by return of share capital, the
number of Outstanding Options shall remain the same and the Exercise Price
shall be reduced by the same amount as the reduction of the par value of
each Ordinary Share;
(d) in the event of a reduction of par value of each Ordinary Share by a
cancellation of share capital that is either lost or not represented by
available assets, the number of Outstanding Options and the Exercise Price
shall remain unaltered;
(e) in the event of a pro-rata cancellation of shares, the number of
Outstanding Options shall be reduced in the same ratio as the ordinary
share capital and the Exercise Price shall be amended in inverse proportion
to that ratio;
(f) in the event of any other reconstruction of that issued capital of the
Company, the number of Outstanding Options or the Exercise Price or both
shall be reconstructed (as appropriate) in a manner which will not result
in any benefits being conferred on the Optionholder which are not conferred
on shareholders; and
(g) in each case all adjustments shall be rounded down to the nearest whole
number and fractions shall be disregarded,
provided that the Exercise Price must not be reduced below the par value of an
Ordinary Share.
9. BONUS ISSUES
Subject to clause 12(a), on each Bonus Date each Option will immediately confer
on the Optionholder the right:
(a) to receive upon exercise of those Outstanding Options, not only an
allotment of one Ordinary Share for each of the Outstanding Options
exercised but also an allotment of such additional shares and/or other
securities as it would have received had it exercised those Outstanding
Options immediately before that Bonus Date; and
(b) to have profits, reserves or share premium account, as the case may be,
applied in paying up in full those additional shares.
10. RIGHTS ISSUE
(a) If prior to the date of exercise of any of the Options any offer or
invitation is made by the Company for subscription for cash with respect to
shares, options or other securities of the Company or of any other Company
to the holders for the time being of the Ordinary Shares of the Company,
the Company must give the Optionholder notice of its intention to make such
offer or invitation at least 12 Business Days prior to the commencement of
the offer or invitation.
<PAGE>
5
(b) If at the date of the notice the Options are exercisable in accordance with
their terms, then if the Optionholder exercises the Options prior to the
books closing date, the Optionholder is entitled to participate in the
rights issue to the extent of the resulting Ordinary Shares.
(c) If, at the date of the notice, the Options are not exercisable in
accordance with their terms, the Optionholder is not entitled to
participate in the rights issue.
11. PARI PASSU RANKING
(a) Subject to the provisions of clause 11(b), any Ordinary Shares allotted
pursuant to any exercise of the Options shall rank pari passu in all
respects with other Ordinary Shares of the Company on issue at the date of
such allotment.
(b) Where any Ordinary Shares are allotted during a period in respect of which
a dividend is declared, the holder of such shares shall only be entitled to
receive a dividend where the Option pursuant to which such shares were
issued was exercised on or before the relevant dividend entitlement date.
12. CALCULATIONS
(a) If the Board in its absolute discretion determines that an adjustment
prescribed by clause 8 or 9 (or the fact that no adjustment is prescribed
in respect of a particular reconstruction) would not be fair and equitable
to all of the Optionholders and the holders of Ordinary Shares having
regard to the circumstances of the particular capital reconstruction or
bonus issue and the capital structure of the Company at that time, then the
Board may substitute another adjustment, provided that the Board reasonably
considers that the substitute adjustment is fair and equitable.
(b) Any calculations or adjustments which are required to be made for the
purposes of these Options will be made by the auditors of the Company for
the time being and will, in the absence of manifest error be final and
conclusive and binding on the Optionholder.
(c) The Company must notify each Optionholder of any adjustments made to the
Exercise Price or the number of Outstanding Options within 10 Business Days
of the date of the adjustment.
13. REPLACEMENT OF CERTIFICATES
If any Option Certificate is lost, stolen, mutilated, defaced or destroyed it
may be replaced at the registered office of the Company upon payment by the
claimant of the expenses incurred in connection with that replacement and on
such terms as to evidence, indemnity and security as the Company may reasonably
require. Mutilated or defaced Option Certificates must be surrendered before
replacements will be issued.
14. NOTICES
Any notice regarding the Options will be sent to the registered address of the
Optionholder as recorded in the register of options maintained by the Company.
15. GOVERNING LAW
The Options are governed by and construed in accordance with the laws of New
South Wales.
<PAGE>
6
16. DUTIES AND TAXES
The Company is not responsible for any duties or taxes which may become payable
in connection with the issue and allotment of Ordinary Shares pursuant to an
exercise of the Options or any other dealing with the Options.
17. ASSIGNMENT OF OPTIONS
(a) Subject to clause 17(c), the Options will automatically lapse if the
Optionholder Deals with any of the Options without the prior written
consent of the Company.
(b) If the Optionholder is an entity, the Options will automatically lapse if
that entity ceases to be controlled by the employee of the Company who
controlled that entity at the date of granting of the Options, without the
prior written consent of the Company.
(c) If the Options are initially granted to a director of the Company or of a
=======
Related Body Corporate or an entity controlled by a director of the Company
======================
or of a Related Body Corporate, then that director or entity may transfer
==============================
all or any of the Options to any other employee of the Company or of a
=======
Related Body Corporate or entity controlled by an employee of the Company
======================
or of a Related Body Corporate, provided that upon any such transfer
==============================
occurring this clause 17(c) will cease to apply as an exception to clause
17(a).
18. CESSATION OF EMPLOYMENT
(a) Notwithstanding anything to the contrary herein contained, the Options
shall automatically lapse 30 days after:
(1) if the Optionholder is an individual, the Optionholder ceases, for any
reason, to be employed by or related to the Company or any Related
Body Corporate; or
(2) if the Optionholder is an entity, the individual who controls that
entity ceases for any reason to be employed by or related to the
Company or any Related Body Corporate,
PROVIDED HOWEVER THAT the directors of the Company may in their sole
discretion and irrespective of whether or not the 30 day period will have
passed do all or any of the following:
(1) extend the 30 day period to such date as the directors may determine
being a date not later than the Expiry Date;
(2) bring forward the Exercise Date of any or all of the Outstanding
Options to such date as the directors may determine,
to the intent that such number of those Options as determined by the
directors shall be deemed not to have lapsed and shall be capable of
exercise by the Optionholder or his legal representative, as the case may
be, within a time period stipulated by the directors.
(b) For the purposes of this clause, any Optionholder or individual "related"
to the Company or any Related Body Corporate refers to the person's
relationship with the Company or body corporate as a licensee, franchisee
or such other position as the directors consider gives rise to a person
being related to the Company for the purposes of this clause.
<PAGE>
7
SCHEDULE
NOTICE OF EXERCISE OF OPTION
To: The Galore Group Limited (the "Company")
I
of
being the registered holder of the options specified in the attached Option
Certificate hereby give notice of the exercise of my options to subscribe for
Ordinary Shares in the capital of the Company and enclose subscription
monies of $ .
I authorise you to register me as the holder of the shares to be allotted to me
and agree to be bound by the Memorandum and Articles of Association of the
Company.
DATED the day of 199 .
THIS NOTICE OF EXERCISE OF OPTION, WITH THE APPROPRIATE REMITTANCE, SHOULD BE
LODGED AT THE COMPANY'S REGISTERED OFFICE.
<PAGE>
THE GALORE GROUP LIMITED
(ACN 008 577 759)
327 Chisholm Road, Auburn, New South Wales
EMPLOYEE SHARE OPTION PLAN
OPTION CERTIFICATE
EXPIRY DATE [ ]
- --------------------------------------------------------------------------------
Number of Name and Address Certificate Issue Date
Options Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This is to certify that the person named above is the registered holder of the
number of Options specified on this certificate (and not yet exercised) to apply
for and be issued the same number of fully paid ordinary shares in THE GALORE
GROUP LIMITED on the terms and conditions attached to this certificate, and
subject to the Memorandum and Articles of Association of the Company.
-------------------------
For Office Use Only
-------------------------
No. of Date of
Options Exercise
Exercised
-------------------------
-------------------------
ANY OPTIONS NOT EXERCISED BY THE EXPIRY DATE ( ) WILL LAPSE.
THE COMMON SEAL
of the Company was affixed
to this document by authority
of the Board:
- ----------------------------- ---------------------------
Secretary Director
NOTE: This certificate must be surrendered on exercise of the whole or any part
of the Options, for endorsement or cancellation, as the case may be.
<PAGE>
Exhibit 10.2
BARBEQUES GALORE LIMITED
ACN 008 577 759
1997 SHARE OPTION PLAN
----------------------
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1997 Share Option Plan is intended to promote the interests of
Barbeques Galore Limited, a corporation organized under the laws of New South
Wales, Australia, by providing eligible persons with the opportunity to acquire
a proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in the service of the
Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Plan and to make
such determinations under, and issue such interpretations of, the Plan and any
outstanding options as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option or shares issued thereunder.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
<PAGE>
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. The Plan Administrator shall have full authority (subject to the
provisions of the Plan) to determine, (i) which eligible persons are to receive
option grants, the time or times when such option grants are to be made, the
number of shares to be covered by each such grant, the status of the granted
option as either an Incentive Option or a Non-Statutory Option, the time or
times at which each option is to become exercisable, the vesting schedule (if
any) applicable to the option shares and the maximum term for which the option
is to remain outstanding.
C. The Plan Administrator shall have the absolute discretion to
grant options in accordance with the Plan.
IV. STOCK SUBJECT TO THE PLAN
A. The maximum number of Ordinary Shares which may be issued over
the term of the Plan shall initially not exceed 6,000,000 shares. Such
authorized share reserve shall be drawn from the Corporation's authorized but
unissued Ordinary Shares.
B. The number of Ordinary Shares available for issuance under the
Plan shall automatically increase on the first trading day of each calendar year
during the term of the Plan, beginning with the 1999 calendar year, by an amount
equal to one percent (1%) of the Ordinary Shares outstanding on December 31 of
the immediately preceding calendar year. No Incentive Options may be granted on
the basis of the additional Ordinary Shares resulting from such annual
increases.
C. No one person participating in the Plan may receive options and
separately exercisable stock appreciation rights for more than 500,000 Ordinary
Shares in the aggregate per calendar year, beginning with the 1997 calendar
year.
D. Ordinary Shares subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
All Ordinary Shares issued under the Plan shall reduce on a share-for-share
basis the number of Ordinary Shares available for subsequent issuance under the
Plan.
E. Should any change be made to the Ordinary Shares by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Ordinary Shares as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of
2.
<PAGE>
securities issuable under the Plan and (ii) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
3.
<PAGE>
ARTICLE TWO
OPTION GRANT PROGRAM
--------------------
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
--------
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per Ordinary Share on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Three
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) Ordinary Shares held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (a)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state, local and foreign income and employment taxes required to
be withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
4.
<PAGE>
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be exercised subsequently by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(v) In the event of an Involuntary Termination following a
Corporate Transaction, the provisions of Section III of this Article Two
shall govern the period for which the outstanding options are to remain
exercisable following the Optionee's cessation of Service and shall
supersede any provisions to the contrary in this section.
5.
<PAGE>
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
Ordinary Shares for which such option is exercisable at the time of the
Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested under the
option had the Optionee continued in Service.
D. Shareholder Rights. The holder of an option shall have no
------------------
shareholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested Ordinary Shares.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall, subject to limitations imposed under Australian law, have the
right to repurchase, at the exercise price paid per share, any or all of those
unvested shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory
Option may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate.
6.
<PAGE>
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Three shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
---
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per Ordinary Share on
the option grant date.
C. U.S. Dollar Limitation. The aggregate Fair Market Value of the
----------------------
Ordinary Shares (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one (1) calendar year
shall not exceed the sum of One Hundred Thousand U.S. Dollars (US$100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% Shareholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Shareholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per Ordinary
Share on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the Ordinary Shares at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
Ordinary shares. However, an outstanding option shall not so accelerate if and
to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
7.
<PAGE>
B. All outstanding repurchase rights shall also terminate
automatically, and the Ordinary Shares subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the Ordinary Shares subject to
those rights) upon the occurrence of a Corporate Transaction, whether or not
those options are to be assumed or replaced (or those repurchase rights are to
be assigned) in the Corporate Transaction. The Plan Administrator shall also
have the discretion to grant options which do not accelerate whether or not such
options are assumed (and to provide for repurchase rights that do not terminate
whether or not such rights are assigned) in connection with a Corporate
Transaction.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction, (ii) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
--------
securities shall remain the same and (iii) the maximum number of securities
and/or class of securities for which any one person may be granted stock
options, and separately exercisable stock appreciation rights under the Plan per
calendar year.
F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the Ordinary Shares subject to those terminated
rights shall immediately vest in full) in the event the Optionee's Service
should subsequently terminate by reason of an Involuntary Termination within
eighteen (18) months following the effective date of such Corporate Transaction.
Any options so accelerated shall remain exercisable for fully-vested shares
until the earlier of (i) the expiration of the option term or (ii) the
-------
expiration of the one (1)-year period measured from the effective date of the
Involuntary Termination.
8.
<PAGE>
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the Ordinary Shares subject to
those rights) upon the occurrence of a Change in Control or (ii) condition any
such option acceleration (and the termination of any outstanding repurchase
rights) upon the subsequent Involuntary Termination of the Optionee's Service
within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration or sooner termination of the
option term.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand U.S.
Dollar (US$100,000) limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Option Grant Program
and to grant in substitution new options covering the same or different number
of Ordinary Shares but with an exercise price per share based on the Fair Market
Value per Ordinary Share on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights.
B. One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for Ordinary Shares and the surrender of that
option in exchange for a distribution from the Corporation in an amount equal to
the excess of (a) the Fair Market Value (on the option surrender date) of the
number of shares in which the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof) over (b) the aggregate
exercise price payable for such shares.
9.
<PAGE>
C. No such option surrender shall be effective unless it is approved
by the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in Ordinary
Shares valued at Fair Market Value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall in its sole
discretion deem appropriate.
D. If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
-----
(a) five (5) business days after the receipt of the rejection notice or (b) the
last day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such rights
be exercised more than five (5) years after the option grant date.
10.
<PAGE>
ARTICLE THREE
MISCELLANEOUS
-------------
I. FINANCING
A. Subject to compliance with applicable law, the Plan Administrator
may permit any Optionee to pay the option exercise price by delivering a
promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee may not exceed the sum of (i) the
aggregate option exercise price or purchase price payable for the purchased
shares plus (ii) any Federal, state, local and foreign income and employment tax
liability incurred by the Optionee in connection with the option exercise or
share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver Ordinary Shares upon the
exercise of options or upon the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state,
local and foreign income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested Ordinary Shares under the Plan with
the right to use Ordinary Shares in satisfaction of all or part of the Taxes
incurred by such holders in connection with the exercise of their options or the
vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the Ordinary Shares otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Non-Statutory Option is exercised or the shares vest, one
or more Ordinary Shares previously acquired by such holder (other than in
11.
<PAGE>
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective on the Plan Effective Date.
Options may be granted under the Plan at any time on or after the Plan Effective
Date. However, no options granted under the Plan may be exercised, and no
shares shall be issued under the Plan, until the Plan is approved by the
Corporation's shareholders. If such shareholder approval is not obtained within
twelve (12) months after the date the Plan is adopted by the Board, then all
options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) October 1,
--------
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options or the issuance
of shares (whether vested or unvested) under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction. Upon
such Plan termination, all outstanding options and unvested stock issuances
shall continue to have force and effect in accordance with the provisions of the
documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect any rights and obligations with respect
to options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee consents to such amendment or
modification. In addition, certain amendments may require shareholder approval
pursuant to applicable law or regulation.
B. Options to purchase Ordinary Shares may be granted under the Plan
that are in excess of the number of shares then available for issuance under the
Plan, provided any excess shares actually issued under that program are held in
escrow until there is obtained shareholder approval of an amendment sufficiently
increasing the number of Ordinary Shares available for issuance under the Plan.
If such shareholder approval is not obtained within twelve (12) months after the
date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate
and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees the exercise or purchase price paid for any excess shares issued
under the Plan and held in escrow, together with interest (at the applicable
Short Term Federal Rate) for the period the shares were held in escrow, and such
shares shall thereupon be automatically cancelled and cease to be outstanding.
12.
<PAGE>
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
Ordinary Shares under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any Ordinary Shares
upon the exercise of any option or stock appreciation right shall be subject to
the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the options and stock
appreciation rights granted under it and the Ordinary Shares issued pursuant to
it.
B. No Ordinary Shares or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with (i) all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the Ordinary
Shares issuable under the Plan, (ii) all applicable listing requirements of any
stock exchange (or the Nasdaq National Market, if applicable) on which Ordinary
Shares (or the American Depositary Shares representing the Ordinary Shares) are
then listed for trading, and (iii) all applicable requirements of Australian
law.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
13.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
-----
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's shareholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMITTEE shall mean a committee of two (2) or more board members
---------
appointed by the Board to administer the Plan with respect to eligible persons.
E. CORPORATE TRANSACTION shall mean either of the following shareholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
14.
<PAGE>
F. CORPORATION shall mean Barbeques Galore Limited, a corporation
-----------
organized under the laws of New South Wales, Australia, and any corporate
successor to all or substantially all of the assets or voting stock of Barbeques
Galore Limited which shall by appropriate action adopt the Plan.
G. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
I. FAIR MARKET VALUE per Ordinary Share on any relevant date shall be
-----------------
determined in accordance with the following provisions:
(i) If the Ordinary Share (or any American Depositary Share
representing the Ordinary Share) is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per Ordinary Share (or American Depositary Share) on the date in
question, as such price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any successor system.
If there is no closing selling price for the Ordinary Share (or American
Depositary Share) on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Ordinary Share (or any American Depositary Share) is
at the time listed on any Stock Exchange, then the Fair Market Value shall
be the closing selling price per Ordinary Share (or American Depositary
Share) on the date in question on the Stock Exchange determined by the Plan
Administrator to be the primary market for the Ordinary Share (or American
Depositary Share), as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price for
the Ordinary Share (or American Depositary Share) on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the Plan
Effective Date, the Fair Market Value shall be deemed to be equal to the
price per share at which the Ordinary Share (or American Depositary Share)
is sold in the initial public offering pursuant to the Underwriting
Agreement.
J. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.
15.
<PAGE>
K. INVOLUNTARY TERMINATION shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and participation in
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such change,
reduction or relocation is effected by the Corporation without the
individual's consent.
L. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
O. OPTIONEE shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant Program.
P. OPTION GRANT PROGRAM shall mean the option grant program in effect
--------------------
under the Plan.
Q. ORDINARY SHARE shall mean the Corporation's ordinary share, par value
--------------
of A$0.20 per share.
R. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
S. PLAN shall mean the Corporation's 1997 Share Option Plan, as set forth
----
in this document.
T. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Committee or the Board which is authorized to administer the Plan with respect
to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under that program with respect to the
persons under its jurisdiction.
U. PLAN EFFECTIVE DATE shall mean the date on which the Underwriting
-------------------
Agreement is executed and the initial public offering price of both the Ordinary
Shares and American Depositary Shares is established.
V. SERVICE shall mean the performance of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
W. STOCK EXCHANGE shall mean either the American Stock Exchange, the New
--------------
York Stock Exchange, or the Australian Stock Exchange.
X. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
Y. TAXES shall mean the Federal, state, local and foreign income and
-----
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested Ordinary Shares in connection with the exercise of those options or the
vesting of those shares.
Z. 10% SHAREHOLDER shall mean the owner of stock (as determined under Code
---------------
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
AA. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Ordinary Share (or American Depositary Share).
16.
<PAGE>
EXHIBIT 10.3
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF CONVERTIBLE NOTES
- --------------------------------------------------------------------------------
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In these Terms unless the context otherwise requires:
"Anniversary" means an anniversary of the Issue Date;
"Business Day" means a day (except a Saturday, Sunday or a public
holiday) on which banks are open for business in Sydney;
"Conversion Date" means the date specified in a Conversion Notice as
being the date on which conversion of the relevant Notes is to occur
under clause 7;
"Conversion Factor" means the number as last determined in accordance
with clause 8;
"Conversion Notice" means a notice substantially in the form of schedule
3;
"Default Rate" means, on any day, the sum of 2% and the Interest Rate on
that day;
"Distribution" means:
(a) a dividend (which, without limitation, includes an issue of shares
in lieu of a cash dividend and credited as fully or partly paid
out of profits or reserves); or
(b) any other distribution (which, without limitation, includes a
capital distribution, a cash distribution, a distribution of
property or rights or any other benefit whatever),
given or made available to any Shareholder in its capacity as such by
the Issuer or any other person and made, paid or credited in respect
of any Shares;
"Early Redemption Event" means:
(a) if the Issuer fails to pay within 20 Business Days after notice
any amount (including any interest) which is due and payable by it
under a Note;
(b) if the Issuer fails to perform any material provision of these
Terms (other than a failure referred to elsewhere in this
definition or, in the case of a breach of clause 15.3(a), where
security is granted to the Noteholders in accordance with clause
15.3(b)) and that failure is incapable of remedy or, if capable of
remedy, continues for 20 Business Days after the Issuer has
received notice of that failure (including, for example, if the
Issuer fails to issue any conversion Shares within 20 Business
Days as required by these Terms);
(c) if a Winding Up occurs;
(d) if a receiver, receiver and manager, or any analogous person is
appointed to any property of the Issuer; and
(e) if, prior to Listing, a change of control of the Issuer occurs
and, for this purpose a change of control shall only be taken to
have occurred at the time when all or any of the Nominated
Shareholders cease to hold beneficially, in aggregate, 50.1% of
all the issued Shares;
"Face Value" means $0.46 per Note;
----------------------
Page 1 of 27
----------------------
<PAGE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
"Galore Shareholders Deed Poll" means the deed poll so entitled and
entered into before the Issue Date by certain Shareholders;
"Interest Payment Date" means the first day after the last day of each
Interest Period, being either 30 June, 31 December or the date on which a
Note is repaid in full or converted (as applicable);
"Interest Period" means, for each Note:
(a) the period from and including the Issue Date to, but excluding, 30
June 1997 or (if earlier) the date on which that Note is repaid in
full or converted; and
(b) each subsequent period of 6 months from and including an Interest
Payment Date to, but excluding, the next Interest Payment Date or
(if earlier) the date on which that Note is repaid in full or
converted;
"Interest Rate" means 10.25% per annum;
"Issue Date" means the date of issue of the Notes;
"Issuer" means The Galore Group Limited ACN008577759;
"Listing" means one or both of the following:
(a) the listing of the Shares on the Stock Exchange; or
(b) the listing of shares or other securities in an entity other than
the Issuer on the Stock Exchange where those shares or other
securities represent all or substantially all of the economic
value of the Issuer and each Subsidiary;
"Nominated Shareholders" means each person (other than the Issuer) who
has entered into the Galore Shareholders Deed Poll;
"Note Certificate" means a certificate substantially in the form of
schedule 1 issued by the Issuer in accordance with these Terms evidencing
that the person named in it is the holder of the number of Notes shown in
it;
"Noteholder" means a person whose name is for the time being entered in
the Register as the holder of a Note;
"Notes" means the convertible notes issued by the Issuer on terms and
conditions identical to these Terms and evidenced by a Note Certificate;
"Principal Outstanding" means, in respect of a Note, at any time, the
amount of the Principal Sum remaining outstanding on that Note at that
time;
"Principal Sum" means in respect of a Note the total amount paid up on
the issue of the Note (being its Face Value);
"Redemption" means redemption of the Notes in accordance with clause 6;
"Redemption Date" means, in respect of the redemption of any Notes, the
date on which the Notes are redeemed under clause 6;
"Repayment Notice" means a notice substantially in the form of
schedule 2;
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Page 2 of 27
----------------------
<PAGE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
"Register" means the register of Noteholders kept and maintained in
accordance with clause 13;
"SBC Warburg" means SBC Warburg Australia Limited ACN008582705;
"Senior Indebtedness" means secured obligations of the Issuer ranking
ahead of the Notes in favour of:
(a) the Senior Creditor; and
(b) in relation to any assets of the Issuer or any Subsidiary located
in the United States, Merrill Lynch Business Financial Services
Inc. (or any related entity of Merrill Lynch).
"Senior Creditor" means Australia and New Zealand Banking Group Limited
ACN005357522 and ANZ Capel Court Limited or any bank or other major
financial institution which provides secured finance to the Issuer in
order to refinance the amount owing to Australia and New Zealand Banking
Group Limited and as notified by the Issuer to the Noteholders;
"Share" means an issued ordinary share in the capital of the Issuer;
"Shareholder" means each holder of a Share;
"Stock Exchange" means any recognised stock exchange or securities market
in the United States, Australia or any other country approved by SBC
Warburg;
"Subsidiary" means a subsidiary of the Issuer, determined in accordance
with the Corporations Law;
"Terms" means these terms and conditions;
"Unpaid Amount" means an amount which is not paid on the day on which it
is due and payable under these Terms, other than an amount deferred in
accordance with clause 5.2; and
"Winding Up" means:
(a) an order being made that the Issuer or any Subsidiary should be
wound up;
(b) a liquidator, an official manager or an administrator being
appointed in respect of the Issuer or any Subsidiary;
(c) a provisional liquidator being appointed in respect of the Issuer
or any Subsidiary and the provisional liquidator being ordered or
required to admit all debts to proof or pay all debts capable of
being admitted to proof proportionately;
(d) the Issuer or any Subsidiary entering into or resolving to enter
into a scheme of arrangement, deed of company arrangement, or
composition or assignment for the benefit of all or any class of
its creditors; or
(e) the Issuer or any Subsidiary being otherwise wound up or otherwise
dissolved or liquidated,
other than for the purposes of or as part of a solvent reconstruction of
the capital of the Issuer or any Subsidiary (as applicable).
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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1.2 Interpretation
In these Terms, unless the contrary intention appears:
(a) a reference to any legislation or legislative provision includes
any statutory modification or re-enactment of, or legislative
provision substituted for, and any subordinate legislation under,
that legislation or legislative provision;
(b) the singular includes the plural and vice versa;
(c) a reference to an individual or person includes a corporation,
firm, partnership, joint venture, association, authority,
trust, state or government and vice versa;
(d) a reference to any gender includes all genders;
(e) a reference to a clause or schedule is to a clause or schedule in
these Terms,
(f) a schedule forms part of these Terms;
(g) a reference to any agreement or document is to that agreement or
document (and; where applicable, any of its provisions) as
amended, novated, restated or replaced from time to time;
(h) a reference to any person includes that person's executors,
administrators, substitutes, successors and permitted assigns;
(i) where an expression is defined, another part of speech or
grammatical form of that expression has a corresponding meaning;
and
(j) "$" means Australian dollars.
1.3 Headings
In these Terms, headings are for convenience of reference only and do not
affect interpretation.
1.4 Business Day
If the day on which any act, matter or thing is to be done under or
pursuant to these Terms is not a Business Day, that act, matter or thing:
(a) if it involves a payment, other than a payment which is due on
demand, shall be done on the preceding Business Day; and
(b) in all other cases, shall be done no later than the next Business
Day.
2. ACKNOWLEDGMENT OF DEBT
The Issuer acknowledges in respect of each Note:
(a) that it has received from the Noteholder the Principal Sum; and
(b) that it is indebted to the Noteholder to the extent of the
Principal Sum.
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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3. TITLE
3.1 Certificate
The Issuer must give a Note Certificate to each Noteholder when Notes are
issued.
3.2 Transfer of Title
Title to a Note passes when it is registered in the name of the
transferee in the Register.
3.3 Interests in Notes
Except as required by law, the Issuer:
(a) may treat the Noteholder as the absolute owner of the Notes
entered in the Register in the Noteholder's name (notwithstanding
any notice or writing on the Note or any notice of previous loss
or theft or of any trust or any other interest);
(b) is not required to obtain any proof of ownership and is not
required to verify the identity of the Noteholder; and
(c) is not required to recognise or give effect to any legal or
equitable interest in any Note not entered on the Register even if
it has actual or constructive notice of that interest.
4 STATUS AS CREDITORS
4.1 Status - No Shareholder Rights
The Notes confer rights in the Noteholders as creditors of the Issuer and
do not confer on Noteholders any right to receive Distributions or to
attend or vote at general meetings of the Issuer.
4.2 Noteholder Obligations
Each Noteholder by accepting an issue or transfer of Notes:
(a) agrees to be bound by these Terms;
(b) acknowledges that it is a creditor of the Issuer and that the
Notes do not confer rights as a Shareholder; and
(c) shall be taken to have agreed to sell, without any further action
required to be taken by the Noteholder, the Noteholder's Notes in
accordance with clause 2 of the Galore Shareholders Deed Poll.
4.3 Ranking
The Notes are unsecured and unsubordinated obligations of the Issuer
ranking, on a Winding Up:
(a) ahead of Shares;
(b) at least equally with all other unsecured and unsubordinated
creditors of the Issuer; and
(c) behind the Senior Indebtedness.
<PAGE>
TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
4.4 Specialty Debt
The debt created by these Terms and the Notes is for all purposes a
specialty debt.
5. INTEREST
5.1 Payment of Interest
(a) Interest accrues on a daily basis on the outstanding principal
amount of each Note, from and including the first day of each
Interest Period and up to the last day of that Interest Period, at
the Interest Rate for that Interest Period, calculated on the basis
of the actual number of days elapsed and a 365 day year.
(b) Subject to Clause 5.2, the Issuer shall pay the interest which
accrues on a Note in arrears on each Interest Payment Date.
5.2 Deferral of Interest Payments
(a) If:
(i) the payment of interest on an Interest Payment Date under
clause 5.1(b) would cause the Issuer to be in breach of any
financial covenant given in favour of the Senior Creditor;
or
(ii) the Issuer is otherwise in breach of any financial covenant
given in favour of the Senior Creditor,
the Issuer must, unless the Senior Creditor otherwise consents,
defer the payment of interest under clause 5.1(b) until the earlier
of:
(iii) the date on which the deferred interest amount (and any
interest thereon) can be paid without causing the Issuer to
be in breach of any financial covenant given in favour of
the Senior Creditor and the Issuer is not otherwise in
breach of any financial covenant; and
(iv) the date on which the Notes in respect of which interest is
deferred are redeemed or converted.
(b) Any amount of interest (the "Deferred Interest Amount") which is
not paid on an Interest Payment Date and in respect of which
payment is deferred in accordance with paragraph (a), will itself
accrue additional interest at the Interest Rate, capitalised on a 6
monthly basis. Such additional interest must be paid when the
Deferred Interest Amount is due to be paid in accordance with
paragraph (a).
(c) The deferral of the payment of interest in accordance with this
clause 5.2 will not constitute an Early Redemption Event.
5.3 Overdue Interest
(a) Default interest accrues on a daily basis on each Unpaid Amount,
from and including the date on which it fell due for payment to but
excluding the date on which the Unpaid Amount is paid in full, at
the Default Rate, calculated on the basis of the actual number of
days elapsed and a 365 day year.
(b) The Issuer shall pay the default interest which accrues under
paragraph (a) on the date on which the Unpaid Amount is paid in
full.
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
6. REDEMPTION
6.1 Partial Repayment Option
(a) At least 120 days prior to the 5th Anniversary, the 6th
Anniversary and the 7th Anniversary, the Issuer must notify
the Noteholder of its partial repayment rights under
paragraphs (b), (c) and (d) respectively.
(b) By giving the Issuer a Repayment Notice at least 90 days
prior to the 5th Anniversary, the Noteholder may require the
Issuer to repay up to a maximum of 25% of the Principal
Outstanding on each Note held by the Noteholder on the 5th
Anniversary.
(c) By giving the Issuer a Repayment Notice at least 90 days
prior to the 6th Anniversary, the Noteholder may require the
Issuer to repay up to a maximum of 33.3% of the Principal
Outstanding on each Note held by the Noteholder on the 6th
Anniversary.
(d) By giving the Issuer a Repayment Notice at least 90 days
prior to the 7th Anniversary, the Noteholder may require the
Issuer to repay up to a maximum of 50% of the Principal
Outstanding on each Note held by the Noteholder on the 7th
Anniversary.
(e) If the Issuer has received a Repayment Notice in accordance
with paragraphs (b), (c) or (d), the Issuer must repay the
percentage of the Principal Outstanding on each Note as
specified in the relevant Notice on the applicable
Anniversary.
(f) Any partial repayment of Notes under this clause 6.1 does not
extinguish the Noteholder's right to convert those Notes into
fully paid Shares under clause 7.1 provided that the partial
repayment proceeds received by the Noteholder are paid to the
Issuer at the time that a Conversion Notice is given. The
preservation of the Noteholder's right to convert following
partial repayment under this clause 6.1 does not apply in the
case of redemptions made in accordance with clauses 6.2, 6.3
and 6.4.
6.2 Final Redemption
On the 8th Anniversary the Issuer must repay the Principal Outstanding
on each Note (which has not been converted or redeemed).
6.3 Early Redemption Event
(a) If an Early Redemption Event occurs, the Issuer must, within
20 Business Days after a resolution of Noteholders requiring
early redemption has been passed, redeem all Notes by
repaying the outstanding principal amount for each Note. A
Noteholder may not take action against the Issuer to enforce
early redemption of the Notes following an Early Redemption
Event until 20 Business Days after a resolution of
Noteholders requiring early redemption has been passed.
(b) Without prejudice to the Issuer's obligations, the Issuer
must give a copy of any resolution under paragraph (a) to the
Senior Creditor.
6.4 Issuer Redemption on Listing
(a) If Listing is to occur and:
(i) the subscription or sale price per Share is at least
$0.55 (or the equivalent in US dollars), escalated
at 10% per annum and compounded annually after the
Issue Date (the "Minimum Application Price"); or
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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(ii) the subscription or sale price per Share is less than
the Minimum Application Price, but the existence of
the Notes will be a material impediment to the
Listing occurring; or
(iii) a resolution of Noteholders is passed to the effect
that the Issuer may give a notice under paragraph
(A).
the Issuer may redeem all the Notes on the date of Listing
provided that:
(A) the Issuer has given the Noteholders written notice
at least 90 days prior to the date of Listing that it
intends to enforce its rights under this clause and
of the proposed subscription or sale price per Share
(the "Specified Application Price");
(B) the actual subscription or sale price per Share is at
least equal to the Specified Application Price; and
(C) Listing occurs within 120 days after the Issuer has
given notice under this clause.
(b) If the Issuer gives a notice under paragraph (A), any
Noteholder may convert some or all of the Notes held by that
Noteholder provided that the Noteholder gives a Conversion
Notice within 30 days after receiving the notice from the
Issuer. The conversion will occur (if at all) on the date of
Listing and conversion is subject to:
(i) the actual subscription or sale price per Share being
at least equal to the Specified Application Price;
and
(ii) Listing occurring within 120 days after the Issuer
has given notice under paragraph (A).
6.5 Certificates
(a) On final redemption of a Note at any time, the Noteholder must
deliver the Note Certificate for the Note to the Issuer for
cancellation.
(b) On partial repayment of a Note at any time, the Noteholder
must deliver the Note Certificate for the Note to the Issuer
for cancellation and the Issuer must issue a new Note
Certificate for that Note which states the amount of the
Principal Outstanding at that time.
7. CONVERSION
7.1 Noteholder Conversion
The Noteholder may at any time after the 1st Anniversary but before
the 8th Anniversary, upon giving at least 3 Business Day's notice to
the Issuer, convert some or all of its Notes (including any Notes that
have been partially repaid under clause 6.1) into fully paid Shares by
delivering to the Issuer a duly completed Conversion Notice.
7.2 Conversion Mechanics
(a) On the Conversion Date, the Issuer must:
(i) redeem the Notes specified in the Conversion Notice
and represented by Note Certificates delivered to
the Issuer;
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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(ii) subject to clause 7.2(c), issue to the Noteholder or
its nominee the number of fully paid Shares having the
same par value as fully paid ordinary shares then on
issue in the Issuer) determined in accordance with the
formula:
S = N x CF
where:
S is the number of fully paid Shares to be
issued;
N is the number of Notes being converted; and
CF is the Conversion Factor as at the Conversion
Date;
(iii) on behalf of the Noteholder, apply the proceeds of
redemption (together with any further amount paid in
accordance with clause 6.1(f)) as follows:
(A) first, towards the par value of the Shares
until those Shares are paid up to the same
extent as Shares on issue immediately prior
to the Conversion Date; and
(B) second, in payment of the premium payable in
respect of those Shares; and
(iv) pay to the Noteholder any accrued but unpaid interest
on the Notes.
(b) If not previously delivered to the Issuer, on the Conversion
Date, the relevant Noteholder must deliver to the Issuer the
Note Certificates for the Notes to be converted and notify to
whom statements of shareholding are to be sent.
(c) If on conversion the aggregate number of Shares to which a
Noteholder is entitled includes a fraction of a Share, that
fraction must be disregarded and the Noteholder has no further
claim or right to that fraction of a Share.
(d) Subject to the Issuer's articles of association and any
applicable laws or regulations, the Issuer must within 15
Business Days of the relevant Conversion Date dispatch, free
of charge, to the person nominated under clause 7.2(b)
statement of shareholding for the Shares issued on conversion.
(e) Shares issued under this clause 7 rank equally and form one
class with the Shares on issue on the Conversion Date.
(f) If Listing has occurred, the Issuer must apply for official
quotation on the Stock Exchange of Shares issued under this
clause 7 forthwith after the issue of those Shares.
7.3 First Right of Refusal
Subject to clause 7.3A, the Issuer and, failing the Issuer, each
Nominated Shareholder (pro rata to their respective shareholdings)
has, subject to compliance with the Corporations Law, a first right of
refusal over all the Shares issued under this clause 7. Accordingly:
(a) the Noteholder (in its capacity as a Shareholder) cannot
transfer all or any of its Shares issued under this clause 7
(Transfer Shares") unless it has first given the Issuer at
least 2 Business Days prior notice of the proposed transfer,
including details of the transfer price ("Transfer Price") and
the transfer date ("Transfer Date");
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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(b) the Noteholder (in its capacity as a Shareholder) must
transfer the Transfer Shares at the Transfer Price on the
Transfer Date to the Issuer or any person notified in writing
by the Issuer (as directed by a majority of Nominated
Shareholders) at least 1 Business Day prior to the Transfer
Date; and
(c) if the Issuer has not notified of a person to acquire the
Transfer Shares or if the person notified by the Issuer does
not acquire the Transfer Shares on the Transfer Date, the
Noteholder (in its capacity as a Shareholder) may transfer the
Transfer Shares, subject to the option referred to in clause
7.4, to any other person at the Transfer Price on or after the
Transfer Date.
7.3A Conditions
The right of first refusal of the Issuer and each Nominated
Shareholder under clause 7.3 will be of no force and effect if the
existence of such right would prohibit or restrict a Noteholder
converting its Notes by reason of the acquisition of a Share resulting
from the conversion of the Note being in contravention of Chapter 6 of
the Corporations Law.
7.4 Option over Shares
If Listing has not occurred by the 8th Anniversary, the Issuer and,
failing the Issuer, each Nominated Shareholder (pro rata to their
respective shareholdings) has an option to buy all the Shares issued
under this clause 7 on the following terms:
(a) the option must be exercised by the Issuer giving the
Noteholder (or any transferee of the Shares), written notice
at least 30 days prior to the 8th Anniversary;
(b) unless the Noteholder (or transferee) and the Issuer otherwise
agree, the price per Share will be the fair market value of
the Shares, as determined by an independent professional
valuer appointed by, and at the cost of, the Issuer and
approved by the Noteholder (or transferee) or, if not
approved, an independent professional valuer appointed by the
President for the time being of the Institute of Chartered
Accountants in Australia; and
(c) the completion date for the sale of the Shares will be the
later of:
(i) the 8th Anniversary; and
(ii) the date 5 Business Days after receipt of the
valuation referred to in paragraph (b).
8. CONVERSION FACTOR
8.1 Initial Entitlement
Subject to the adjustments provided for in this clause 8, the
Conversion Factor for each Note is 1.
8.2 Consideration and Sub-Division
If at any time prior to the Conversion Date the nominal (par) value of
the issued Shares is reconstructed as a result of consolidation or
sub-division, then immediately after that consolidation or
sub-division, the Conversion Factor must be adjusted in accordance
with the following formula:
CF = VB x CFB
--
VA
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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where:
CF is the Conversion Factor immediately after the consolidation or
sub-division;
VB is the nominal value of a Share before the consolidation or
sub-division;
VA is the nominal value of a Share after the consolidation or
sub-division; and
CFB is the Conversion Factor immediately before the consolidation or
sub-division.
9 ADDITIONAL ENTITLEMENTS
9.1 Options and Rights
(a) Subject to paragraph (c), if at any time prior to the Conversion Date
the Issuer grants any options, rights or placements to any Shareholders
entitling them to subscribe for or purchase any securities (in this
clause 9 called "Additional Share Securities"), then as and from the
date that the entitlement to the grant of those options, rights or
placements is determined, each Noteholder is entitled to be granted
options, rights or placements in the form of or in respect of Notes (in
this clause 9 called "Additional Note Securities") at such prices and
on such terms and conditions (taking into account the relevant
Conversion Factor) as the auditor of the Issuer determines to be as
equivalent as practicable to those offered to the Shareholders and the
number of Additional Note Securities offered to each Noteholder must be
calculated in accordance with the following formula:
N = S x Z
--
NS
where:
N is the number of Additional Note Securities to be offered to each
Noteholder;
NS is the total number of Shares on issue as at the date the
entitlement to the issue of Additional Share Securities is
determined;
S is the total number of Additional Share Securities offered to
Shareholders; and
Z is the number of Notes held by that Noteholder immediately before
the entitlement to that Additional Share Security arose:
(b) For the purposes of this clause 9, the auditor acts as expert and not
as arbitrator and its determination is final and binding upon the
Issuer and the Noteholders.
(c) Paragraph (a) does not apply to the grant of options to employees of
the Issuer or any Subsidiary for up to a maximum of 3,700,000 unissued
Shares.
9.2 Bonus Issues
(a) If at any time prior to the Conversion Date the Issuer capitalizes any
amount of profits or reserve and applies that amount in paying up in
full the nominal value of any Shares to be issued to all Shareholders,
the Issuer must as at the date of issue of the additional Shares, at
no cost to the Noteholder, issue to each Noteholder the number of
additional Notes, credited as fully paid out of profits or appropriate
reserves, calculated in accordance with the following formula:
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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S
N = -- x Z
NS
where:
N is the number of Notes to be issued to each Noteholder;
S is the total number of Shares issued to Shareholders
pursuant to the bonus issue;
NS is the total number of Shares on issue as at the date the
entitlement to the issue of Shares is determined; and
Z is the number of Notes held by that Convertible Noteholder
immediately before the entitlement to that issue of Shares
arose.
(b) Clause 9.2(a) does not apply to Shares issued in lieu of a cash
dividend credited as fully paid out of profits or reserves.
(c) The Issuer may not prior to the Conversion Date capitalise any
amount of profits or reserve and apply that amount in paying up in
full the nominal value of any Shares unless such Shares are to be
issued to all Shareholders.
9.3 Placement
Prior to the Conversion Date the Issuer may not make a placement of any
securities to a person who is not a Shareholder without the prior consent
of the Noteholders which consent may not be unreasonably withheld. It is
reasonable for the Noteholders to withhold their consent if the placement
would diminish the relative values of the Notes and the Shares.
9.4 Fractions
Where the number of Notes or other securities to which a Noteholder is
entitled under this clause 9 is a number which includes a fraction of a
Note or security, that fraction must be disregarded and the Noteholder
has no further claim or right to that fraction of a Note or security.
10. PAYMENTS
(a) Manner of Payment
All payments to be made by the Issuer in relation to any Note will
be made:
(i) without any deduction or withholding for or on account of
Australian taxes unless such withholding and deduction is
required by law; and
(ii) by cheque drawn on a bank and mailed to the Noteholder or
to the first named of joint holders of such Note at its
address appearing in the Register, unless the Noteholder
nominates an account with a bank into which such payments
are to be made in which case payments will be made by bank
transfer of cleared funds into that bank account.
(b) Withholding Taxes
The Issuer must pay and must indemnify the Noteholder for any
amounts payable by the Noteholder in respect of Australian taxes
where that amount has been deducted by the Issuer but not paid or
remitted to the Commissioner for Taxation within the period that
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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the Issuer is obliged under Australian law to pay or remit that
amount, including any amounts of additional tax by way of penalty.
Where such withholding or deduction is required by law the Issuer
will pay the relevant amounts to the Commissioner of Taxation and
promptly deliver a copy of the receipt of such payment to the
Noteholder.
11. CALCULATIONS
(a) Unless otherwise specified, any calculations which are required to
be made for the purposes of those Terms will be made by the
auditors of the Issuer for the time being and will, in the absence
of manifest error be final, conclusive and binding on the
Noteholders.
(b) The Issuer must notify each Noteholder of any adjustments made to
the Conversion Factor under clause 8 within 10 Business Days of
the date of the adjustment.
12. TRANSFER
12.1 Transfer
(a) Subject to paragraphs (b) and (c), the Noteholder may transfer all
or any of its Notes to any person if the Noteholder has lodged
with the Issuer a duly signed, stamped and completed instrument
of transfer.
(b) The Issuer has a first right of refusal over all the Notes.
Accordingly:
(i) the Noteholder cannot transfer all or any of its Notes
("Transfer Notes") unless it has first given the Issuer at
least 5 Business Days prior notice of the proposed
transfer, including details of the transfer price
("Transfer Price") and the transfer date ("Transfer Date");
(ii) the Noteholder must transfer the Transfer Notes at the
Transfer Price on the Transfer Date to any person nominated
in writing by the Issuer at least 1 Business Day prior to
the Transfer Date; and
(iii) if the Issuer has not nominated a person to acquire the
Transfer Notes or if the person nominated by the Issuer
does not acquire the Transfer Notes on the Transfer Date,
the Noteholder may transfer the Transfer Notes to any other
person at the Transfer Price on or after the Transfer Date.
(c) Following Listing, the Noteholder may not transfer all or any of
its Notes except with the prior consent of the Issuer, such
consent not to be unreasonably withheld.
12.2 Registration
Where the Issuer receives an instrument of transfer in accordance with
clause 12.1, the Issuer must enter the named transferee into the Register
and re-issue Note Certificates for the relevant Notes in the name of that
transferee.
12.3 Owner
The transferor remains the owner of the Notes the subject of a transfer
until the name of the transferee is notified by the transferor to the
Issuer and entered into the Register.
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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13. REGISTRATION
13.1 Issuer to Maintain a Register
The Issuer must establish and maintain a register of the Notes. The
Issuer may establish and maintain a branch Register at such places as the
Issuer may determine.
13.2 Issuer to Update Register
The Issuer must enter on the Register in respect of each Noteholder:
(a) the name and address;
(b) the number of Notes held;
(c) the Principal Outstanding in respect of each Note; and
(d) the date of transfer (if any) of the Notes to or from the
Noteholder.
13.3 Noteholders to Notify Issuer of Changes in Details
A Noteholder must promptly give notice to the Issuer of any change of its
name or registered address accompanied by such evidence as the Issuer may
reasonably require.
13.4 Joint Holders
The Issuer's obligations to registered joint holders of any Notes may be
effectively discharged by performance to any one or more of those
registered joint holders.
14. FORM OF NOTE CERTIFICATES
14.1 Form
The form of the Note Certificates will be substantially as set out in
schedule 1.
14.2 Execution of Note Certificates
A Note Certificate must be executed by the Issuer, its attorney or such
other person authorised by the directors of the Issuer.
14.3 Replacement Note Certificates
The Issuer may issue replacement Note Certificates in replacement of
any worn-out, defaced, lost or destroyed Note Certificates upon proof
of that to the satisfaction of the Issuer and upon receiving such
indemnity as the Issuer may require to be given.
15. OBLIGATIONS OF THE ISSUER
15.1 Shareholder Documents
The Issuer will procure that at all times the Noteholders are given
copies of all documents sent by the Issuer to the Shareholders (whether
in connection with a general meeting of Shareholders or otherwise).
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
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15.2 Negative Pledge
Except with the approval of the director of the Issuer who was nominated
by SBC Warburg (if appointed), prior to the date of Listing the Issuer
must not:
(a) (Senior Indebtedness) incur any prior ranking financial
indebtedness (excluding any liability under a finance lease and
any liability under a letter of credit, bank guarantee, foreign
exchange, interest rate swap or other derivative product or
transactional banking arrangement, in each case incurred or
entered into in the ordinary course of the Issuer's trading
business) in excess of $52 million (in this regard, the
Noteholders acknowledge that the Senior Creditor may take security
over assets in the US after the Issue Date);
(b) (Distributions) make Distributions in any financial year in excess
of 55% of the lower of:
(i) PAT; and
(ii) Free Cash Flow after CAPEX,
where:
PAT is the consolidated net profit after tax of the Issuer and its
Subsidiaries for that financial year; and
Free Cash Flow after CAPEX is the consolidated free cash flow of
the Issuer and its Subsidiaries for that financial year less the
consolidated capital expenditure by the Issuer and each Subsidiary
for that financial year not funded "off-balance sheet" and, if
required by SBC Warburg, classified by the auditor of the Issuer
as capital expenditure; and
(c) (asset transfers) transfer any assets of the Issuer or any
Subsidiary to any person other than:
(i) in the ordinary course of business;
(ii) to a wholly owned Subsidiary;
(iii) if the assets are shares in, or assets owned by, Pricotech
Leisure Brands Pty Limited ACN 002 060 273 or are assets
which are related to the business conducted by that
company;
(iv) if the assets are shares in Bromic Pty Limited ACN 001 648
979; or
(v) any other assets during any rolling 12 month period which
have an aggregate value of less than 5% of the aggregate of
the shareholders funds of the Issuer and each Subsidiary
provided that those assets are not transferred to an
associate of a Nominated Shareholder.
15.3 Total Liabilities Undertaking
(a) The Issuer must ensure that as at the end of any financial year or
half-year prior to the date of Listing:
(i) the ratio of Total Liabilities to Total Tangible Assets
does not exceed 0.75:1; and
(ii) the ratio of Trade Creditors to Total Sales does not exceed
0.15:1,
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
where:
"GAAP" means Australian Accounting standards or generally accepted
accounting principles;
"Total Intangible Assets" means, at any time, the aggregate of all
items treated as intangible assets under GAAP at that time in relation
to the Issuer and each Subsidiary other than:
(i) any items listed as intangibles in the audited balance sheet of
the Issuer for the financial year ending on 30 June 1996; and
(ii) any intangibles incurred by the Issuer in acquiring the minority
interests in The Galore Group (U.S.A.), Inc.;
"Total Liabilities" means, at any time, the aggregate of all items
treated as liabilities under GAAP at that time in relation to the
Issuer and each Subsidiary (including the liabilities of the Issuer
under the Notes);
"Total Sales" means, at any time, the aggregate of all items treated
as sales under GAAP at that time in relation to the Issuer and each
Subsidiary;
"Total Tangible Assets" means, at any time, the aggregate of all
items treated as assets under GAAP at that time in relation to the
Issuer and each Subsidiary less Total Intangible Assets; and
"Trade Creditors" means, at any time, the aggregate of all items
treated as trade creditors under GAAP at that time in relation to the
Issuer and each Subsidiary.
(b) A failure by the Issuer to comply with paragraph (a) will not
constitute an Early Redemption Event if, within 20 Business Days of
such failure occurring either:
(i) the failure is remedied; or
(ii) the Issuer grants in favour of all Noteholders first or second
ranking security or, in the case of any assets in the USA, first,
second or third ranking security, over all its assets and all the
assets of each Subsidiary, and appropriate priority arrangements
are entered into, in each case in a form reasonably acceptable to
the Noteholders (such acceptance to be given by a resolution of
Noteholders) and the Senior Creditor. It is intended that the
form of the security will not give the Noteholders any greater
rights, other than rights as secured, rather than unsecured,
creditors and will not contain early redemption events which are
more extensive than the Early Redemption Events. The Noteholders
and the Senior Creditor must accept or enter into a security and
appropriate priority arrangements (as applicable) if they are in
a form which is reasonably acceptable to them. Following
execution, stamping and registration of such security and
appropriate priority arrangements, the Noteholders will be taken
to have waived any breach of clause 15.3(a).
15.4 Listing other than the Issuer
If the Shares are not listed on the Stock Exchange but the Issuer procures
the listing on the Stock Exchange of shares or other securities in another
entity and those shares or other securities represent all or substantially
all of the economic value of the Issuer and each Subsidiary, the Issuer
must procure that each Noteholder is entitled to convert its Notes into
those shares or other securities, as if those shares or other securities
were Shares and on the basis that each
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
Noteholder is no worse off than it would have been if the Shares had been
listed on the Stock Exchange.
15.5 Meetings of Noteholders
Meetings of Noteholders must be convened and conducted as set out in
schedule 4.
15.6 Financial Accounts
The Issuer must ensure that:
(a) its financial accounts and the financial accounts of each Subsidiary
are audited by external auditors; and
(b) copies of the audited consolidated financial accounts of the Issuer
and its Subsidiaries are delivered to each Noteholder as soon as
possible, and in any event within 120 days, after the end of each
financial year-end.
16. ROLE OF SBC WARBURG
(a) The Issuer and the Noteholders acknowledges that SBC Warburg:
(i) is entitled to nominate a person to be a director of the
Issuer in accordance with the Galore Shareholders Deed Poll;
(ii) will facilitate any discussions and meetings between
Noteholders and the Issuer in relation to these Terms and the
Galore Shareholders Deed Poll; and
(iii) will otherwise undertake the roles and activities where SBC
Warburg is specifically referred to in these Terms and the
Galore Shareholders Deed Poll,
but in doing so, SBC Warburg will not be acting as a trustee, agent
or fiduciary for any person.
(b) In consideration for SBC Warburg undertaking the roles specified in
paragraph (a), the Issuer will pay SBC Warburg a non-refundable fee
of $15,000 in advance on the Issue Date and each Anniversary until
all the Notes have been redeemed or converted.
(c) Other than a claim relating to fraud by SBC Warburg, the Issuer and
the Noteholders are not entitled to make any claim against, and
irrevocably waive any right to make any claim against, SBC Warburg
for any act or inaction by SBC Warburg in undertaking the roles
specified in paragraph (a).
17. NOTICES
Unless expressly provided otherwise all consents, approvals and notices
from one party to another must be in writing and addressed to the
recipient as follows:
(a) in the case of the Issuer, to its registered office (with a copy to
the Senior Creditor); and
(b) in the case of a Noteholder, its address in the Register (with a copy
to SBC Warburg),
or at such other place as the recipient from time to time notifies the
sender by notice in writing.
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
Notices are deemed to be served on the third day (seventh day, if
overseas) after they have been mailed by certified or registered mail by
placing in a post box or posting at a post office under the control of
Australia Post.
18. GOVERNING LAW
These Terms are governed by the laws of the Australian Capital Territory.
The Issuer and each Noteholder submits to the non-exclusive jurisdiction
of courts exercising jurisdiction there.
19. DUTIES AND TAXES
The Issuer must bear any stamp duty payable on or in connection with the
issue of the Notes or these Terms but the Issuer is not responsible for
any duties or taxes which may subsequently become payable in connection
with the transfer, conversion, redemption or any other dealing with the
Notes or the payment of interest in accordance with these Terms.
20. AMENDMENT
These Terms may only be amended or supplemented by a resolution of the
Noteholders and with the prior written consent of the Issuer and the
Senior Creditor.
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
SCHEDULE 1
FORM OF NOTE CERTIFICATE
THE GALORE GROUP LIMITED
ACN 008 577 759
CONVERTIBLE NOTES
Noteholder : (Name of Noteholder]
Issue Price per Note : $0.46
No. of Notes : [No. of Notes]
Principal Amount : $[Total Subscription Price]
Principal Outstanding : $[Principal Outstanding]
Terms : See attached Terms
Issue Date : [Date of Issue]
EXECUTED as a deed in Canberra.
SIGNED, SEALED AND DELIVERED for and )
on behalf of THE GALORE GROUP LIMITED )
by its attorney in the presence of: )
....................................... .....................................
Witness Signature
Name (printed): Name (printed):
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
SCHEDULE 2
REPAYMENT NOTICE
To: The Directors
The Galore Group Limited
ACN 008 577 759
(the "Issuer")
We [NAME OF NOTEHOLDER] of [ADDRESS OF NOTEHOLDER], registered as the holder of
[ ] Convertible Notes (the "Notes"), give notice under clause 6.1 of the Terms
of the Notes that we wish to be repaid [SPECIFY %] of the principal amount of
each Note on the next Anniversary, being [ ].
Definitions in the Notes apply in this notice.
DATED 199
SIGNED for and on behalf of [NAME OF )
NOTEHOLDER] by its authorised )
representative in the presence of: )
.................................... ......................................
Witness Signature
Name (printed): Name (printed):
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<PAGE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
SCHEDULE 3
CONVERSION NOTICE
To: The Directors
The Galore Group Limited
ACN 008 577 759
(the "Issuer")
We [NAME OF NOTEHOLDER] of [ADDRESS OF NOTEHOLDER], registered as the holder of
Convertible Notes (the "Notes"), give notice that we wish to convert [ ]
Notes to [ ] Shares on [ ], in accordance with the
Terms of the Notes. We agree to accept the Shares to be issued on the conversion
of these Notes.
Attached are Note Certificates representing the Notes to be converted.
Definitions in the Notes apply in this notice.
DATED 199
SIGNED for and on behalf of [NAME OF )
NOTEHOLDER] by its authorised )
representative in the presence of: )
.................................. .................................
Witness Signature
Name (printed): Name (printed):
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------
SCHEDULE 4
MEETINGS OF NOTEHOLDERS
1. DEFINITIONS
In this schedule, unless the context requires otherwise,
"representative" includes a duly appointed attorney.
2. CONVENING MEETINGS
2.1 Entitlement to Convene a Meeting
(a) The Issuer may convene a meeting of Noteholders in accordance
with clause 2.2 of this schedule.
(b) The Issuer, if required to do so in writing by at least 10
Noteholders or by a Noteholder or Noteholders holding in
aggregate at least 50% of the outstanding principal amount of
Notes, shall convene a meeting of Noteholders in accordance
with clause 2.2 of this schedule.
(c) The Issuer must convene a meeting of Noteholders whenever
an Early Redemption Event occurs and otherwise whenever
required to do so by law.
2.2 Method of Convening a Meeting
(a) The Issuer may convene a meeting of Noteholders by notice
given in accordance with clause 17 of these Terms at least 10
Business Days before the date for the meeting.
(b) A notice under paragraph (a) must:
(i) state the date, commencement time and location of the
meeting;
(ii) describe the nature of the business to be considered;
and
(iii) provide that Noteholders may attend personally or
through a representative or proxy appointed and
notified to the Issuer in accordance with clause 3.2
of this schedule.
(c) A copy of any notice given to convene a meeting to consider an
Early Redemption Event must be given, at the same time, to the
Senior Creditor.
2.3 Failure to Notify Noteholder need not Invalidate a Meeting
A meeting may be validly convened notwithstanding:
(a) any accidental omission to give notice to, or the non-receipt
of notice by, any person other than the Issuer; or
(b) any change in the identity of Noteholders (as shown in the
Register or otherwise) from that shown in the Register on the
Business Day before the notice of meeting is given.
<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
2.4 Noteholders may Waive Requirement of Notice
The Noteholders may unanimously waive the requirement that they be given
notice of a meeting:
(a) by a statement or statements to that effect signed by them; or
(b) by unanimous resolution (including, without limitation, at that
meeting).
3. ATTENDANCE AT MEETINGS
3.1 Issuer
The Issuer (through its representatives or legal advisers) and its
financial and legal advisers and, in relation to any Early Redemption
Event, the Senior Creditor (through its representatives or legal
advisers), may attend and speak at any meeting of Noteholders.
3.2 Noteholders
(a) A Noteholder (whether it received notice of the meeting or not)
may attend, and speak and vote at, a meeting either personally or
through its representative or proxy appointed and notified to the
Issuer in accordance with this subclause.
(b) A Noteholder that is a body corporate, by an instrument under its
common seal, may authorise a person specified in the instrument to
act as its representative at a specified meeting, or at meetings
generally, of Noteholders.
(c) A Noteholder (whether a body corporate or not), by an instrument:
(i) if a body corporate, under its common seal;
(ii) if a natural person, under the Noteholder's hand; or
(iii) in either case, under the hand of its attorney,
may appoint a proxy to attend, speak and vote on the Noteholder's
behalf at a specified meeting, or at meetings generally, of
Noteholders.
(d) An instrument appointing a representative or a proxy must be:
(i) in a form acceptable to the Issuer;
(ii) lodged with the Issuer at least 48 hours before the
meeting, adjourned meeting or taking of a poll at which it
is to be relied on; and
(iii) in the case of an instrument appointing a proxy which is
under the hand of an attorney, accompanied by proof
acceptable to the Issuer of the attorney's authority.
(e) The Issuer may in its sole discretion waive any of the
requirements in relation to the appointment of a representative or
a proxy and approve as valid any instrument appointing a
representative or proxy notwithstanding that it does not comply
with those requirements or is received or produced at the wrong
place or the wrong time.
(f) Unless the instrument provides otherwise, an instrument appointing
a representative or a proxy is valid for the meeting to which it
relates and for any adjournment of that meeting.
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<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
(g) A representative or proxy need not be a Noteholder.
(h) Action taken at a meeting, adjourned meeting or on the taking of
a poll by a representative or proxy appointed and notified to
the Issuer in accordance with this subclause is valid
notwithstanding:
(i) any death, unsoundness of mind or dissolution of the
Noteholder;
(ii) any revocation of the instrument of appointment (or of
the authority under which it was executed); or
(iii) any transfer of the Note in respect of which the
appointment was made,
unless the Issuer is made actually aware of this before the
meeting or adjourned meeting commences.
(i) Subject to paragraph (j), only the person registered in the
Register as the Noteholder of a Note and no other person may be
treated as the legal owner of that Note, whether that person is
the beneficial owner of that Note or not, and only that person
is entitled to vote (in person or by representative or proxy) in
respect of that Note.
(j) If a Note is registered in the names of more than one person,
those persons taken together count as a single Noteholder in
respect of that Note. Without limiting this, only the vote of
the most senior such person who tenders a vote (whether in
person or by representative or proxy) may be accepted as a vote,
to the exclusion of any attempted votes of the other joint
holders of that Note (which may not be regarded as valid votes
for any purpose). For this purpose, seniority is determined by
the order in which names are recorded in the Register in respect
of that Note.
(k) An objection may only be raised to the entitlement of a person
to attend or vote at a meeting of Noteholders at the meeting (or
adjournment of it) in question. Any such objection is to be
considered by the chairman of the meeting whose decision will be
final and conclusive.
3.3 Attendance by Telephone
If the Issuer so determines, a person (or its representative or proxy)
entitled to attend a meeting of Noteholders may do so by telephone or
other instantaneous means of conferring (or by any combination of
those means), provided that those means allow each person entitled to
attend and speak at the meeting to hear and be heard by each other
person attending the meeting, and a person entitled to attend and
speak at the meeting who can so hear and be heard is to be taken for
all purposes to be present at that meeting. In the case of a vote by a
show of hands, a person attending the meeting may indicate by voice
whether his hand is raised or not, and is to be counted accordingly. 4
4. PROCEDURE AT MEETINGS
4.1 Quorum
(a) No business may be transacted at a meeting of Noteholders unless
a quorum is present at the time the meeting proceeds to business.
<PAGE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
(b) The quorum for a meeting of Noteholders, which is to be
calculated by reference to Noteholders who:
(i) are present in person or by representative or proxy
(even if by the same representative or proxy); and
(ii) are entitled to vote at that meeting,
is not less than 40% in number of the Noteholders who between
them hold not less than 50% of the outstanding principal
amount of Notes.
(c) If a quorum is not present within 15 minutes of the announced
commencement time for a meeting, the meeting:
(i) if convened pursuant to clause 2.1(b) of this
schedule, is dissolved; or
(ii) in any other case, stands adjourned to such day, and
to such time and place, as the Issuer determines and
notifies in accordance with clause 2.2(a) of this
schedule to the persons entitled to attend.
4.2 Chairman
(a) The Issuer may appoint a person to be chairman at a meeting
of Noteholders.
(b) If the Issuer does not appoint a person to be chairman of a
meeting, or the person is not present within 15 minutes of
the announced commencement time for a meeting or is unwilling
to act the Noteholders shall appoint a person by resolution
to be chairman of that meeting.
(c) The chairman need not be a Noteholder.
(d) The chairman does not have a casting vote.
4.3 Voting Procedure
(a) Every question submitted to a meeting must be decided in the
first instance by a show of hands of Noteholders or their
representatives or proxies. Unless a poll is demanded in
accordance with this subclause, a declaration by the chairman
that a resolution has been carried, carried by a particular
majority, lost or not carried is conclusive evidence of that
fact without proof of the number or proportion of the votes
recorded in favour of or against that resolution.
(b) Each of:
(i) the chairman;
(ii) the Issuer;
(iii) any 10 or more Noteholders (or their representatives
or proxies); or
(iv) a Noteholder or Noteholders holding in aggregate at
least 50% of the outstanding principal amount of
Notes (or its or their representatives or proxies),
may call for a poll on a resolution before or on the declaration of the
result of the show of hands. A demand for a poll may be
withdrawn.
Page 25 of 27
<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
(c) A poll on the election of a chairman or a question of
adjournment must be taken immediately. A poll on other matters
must be taken in the manner, at the time and in the place
determined by the chairman. The result of a poll is to be
taken to be the resolution of the meeting at which the poll
was demanded, passed on the day the poll is taken.
(d) The demand for a poll may not prevent the continuance of a
meeting for the transaction of any business other than the
question on which the poll has been demanded.
(e) In the case of a vote:
(i) on a show of hands, each person present and entitled to
vote has one vote; and
(ii) on a poll, each person who is present and entitled to
vote has one vote in respect of each $1,000
outstanding principal amount of Notes of which that
person is the Noteholder or in respect of which that
person is otherwise entitled to vote.
Without prejudice to the obligations (if any) imposed by a
Noteholder on its representative or proxy, any person entitled to
more than one vote need not exercise all those votes in the same
way.
(f) The Issuer is not entitled to vote, whether on a show of hands
or on a poll, even if a Noteholder.
4.4 Resolutions
(a) A resolution may only be passed by an affirmative vote by at
least 50% of the votes able to be cast by those present and
entitled to vote except that any resolution in relation to an
Early Redemption Event may only be passed at a meeting of
Noteholders and by an affirmative vote by Noteholders who between
them:
(i) hold not less than 50.1% of the outstanding principal
amount of all the Notes; and
(ii) constitute not less than 50.1% in number of all the
Noteholders.
(b) A resolution passed at a meeting of Noteholders convened and held
in accordance with this schedule binds all Noteholders whether
present at the meeting or not.
(c) A resolution passed at a meeting may be reconsidered at that
meeting and rescinded by another resolution.
(d) Notwithstanding anything to the contrary in these Terms
(including this schedule), the Noteholders do not have the power
(whether by special resolution or otherwise):
(i) to change the rate at which interest accrues on the
Notes;
(ii) to bring forward the date on which any amount of
interest or principal is payable on the Notes;
(iii) to amend clause 20; or
(iv) to require a Noteholder to covert its Notes.
<PAGE>
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TERMS AND CONDITIONS OF CONVERTIBLE NOTES (cont'd)
- --------------------------------------------------------------------------------
(e) The Issuer;
(i) shall give effect to any resolution passed at a
meeting of Noteholders convened and held in
accordance with this schedule; and
(ii) will be taken for all purposes to have been
authorised to give effect to that resolution by all
Noteholders and will have no liability to any
Noteholder for any act or omission done or omitted in
the course of doing so,
unless:
(iii) to do so would be unlawful;
(iv) the resolution contravenes paragraph (d); or
(v) the resolution would require the Issuer to breach a
provision of these Terms.
4.5 Adjournment
(a) Each of:
(i) the chairman; or
(ii) the Noteholders (or their representatives or proxies)
by resolution,
may adjourn a meeting (including an adjourned meeting) to such
time and place as the chairman or that resolution (as
appropriate) determines. The only business which may be
transacted at an adjourned meeting is business which might
lawfully have been transacted at the meeting from which the
adjournment took place.
(b) Except as provided in clause 4.1(c)(ii) of this schedule, it
is not necessary to give notice of an adjourned meeting.
(c) A resolution passed at an adjourned meeting is to be taken to
be passed on the day it is actually passed.
5. MINUTES OF MEETINGS
5.1 Issuer to Keep Minutes
The Issuer shall keep minutes of all meetings of Noteholders.
5.2 Minutes Conclusive
The minutes of a meeting of Noteholders as kept by the Issuer, if
signed by the chairman of that meeting or the chairman of the next
succeeding meeting of Noteholders, are conclusive evidence, unless the
contrary is proved, that the meeting was duly convened and held and
that the resolutions and other business to which it refers were duly
passed or transacted.
Page 27 of 27
<PAGE>
1996
---------------------------------
GALORE SHAREHOLDERS DEED POLL
---------------------------------
BLAKE DAWSON WALDRON
Solicitors
Grosvenor Place
225 George Street
SYDNEY NSW 2000
Tel: (02) 9258 6000
Fax: (02) 9258 6999
Ref: DSE 468819
<PAGE>
DEED POLL
CONTENTS
<TABLE>
<CAPTION>
Clause Page
<S> <C> <C>
1. INTERPRETATION............................................ 1
1.1 Definitions......................................... 1
1.2 General............................................. 3
1.3 Headings............................................ 3
1.4 Business Day........................................ 3
1.5 Inconsistency with Articles......................... 4
2. UNDERTAKINGS BY EACH SHAREHOLDER.......................... 4
2.1 Sale of Shares...................................... 4
2.2 Terms of Offer to Buy Notes......................... 4
2.3 Noteholders Obliged to Accept Offer................. 4
2.4 Determination of Note Sale Price.................... 4
3. RIGHT TO APPOINT A DIRECTOR............................... 5
4. UNDERTAKING BY THE ISSUER................................. 6
5. NO LISTING BY 5TH ANNIVERSARY............................. 6
6. TERMINATION............................................... 6
6A. WARRANTY AND INDEMNITY.................................... 6
7. NOTICES................................................... 7
7.1 Method of Giving Notices............................ 7
7.2 Time of Receipt..................................... 7
7.3 Address for Notices................................. 7
8. LAW AND JURISDICTION...................................... 7
8.1 Governing Law....................................... 7
8.2 Submission to Jurisdiction.......................... 8
9. COSTS..................................................... 8
</TABLE>
<PAGE>
ii.
<TABLE>
<CAPTION>
Clause Page
<S> <C> <C>
10. GENERAL................................................... 8
10.1 Amendment........................................... 8
10.2 No Assignment or Security Interests................. 8
10.3 Severability........................................ 8
10.4 Counterparts........................................ 9
10.5 Attorneys........................................... 9
SCHEDULE
1. NOMINATED SHAREHOLDERS.................................... 11
</TABLE>
<PAGE>
DEED POLL made 1996
BY:
(1) EACH PERSON LISTED IN SCHEDULE 1 (each a "Nominated Shareholder");
and
(2) THE GALORE GROUP LIMITED ACN 008 577 759 (the "Issuer").
IN FAVOUR OF:
EACH NOTEHOLDER
RECITALS:
A. The Shareholders are shareholders in the Issuer.
B. The execution of this deed is a condition precedent to the issue of the
Notes.
OPERATIVE PROVISIONS:
1. INTERPRETATION
1.1 Definitions
Definitions in the Note Subscription Agreement and in the terms of the
Notes (which are set out in annexure A to the Note Subscription Agreement)
apply in this deed and, unless the context otherwise requires:
"Change of Control" means a change of control of the Issuer prior to
Listing and, for this purpose, a change of control shall only be taken to
have occurred at the time when all or any of the Shareholders cease to hold
beneficially, directly or indirectly, in aggregate, 50.1% of all the issued
Shares;
"Note Subscription Agreement" means the agreement so entitled dated 25
October 1996 between SBC Warburg and the Issuer;
"Noteholder" means, at any time, each person who is registered at that time
as the holder of Notes;
"Related Party" means, in relation to any Shareholder:
(a) if the Shareholder is an individual:
(i) a spouse or de facto spouse of such Shareholder;
(ii) a parent, son or daughter of such Shareholder, spouse or
de facto spouse;
(iii) a brother or sister of such Shareholder; and
<PAGE>
2.
(iv) an entity over which:
(A) a person of a kind referred to in paragraph (i), (ii) or (iii)
has control; or
(B) 2 or more such persons together have control; and
(b) if the Shareholder is a body corporate, a related party of such
Shareholder within the meaning of the term "related party" in section
243F of the Corporations Law (for this purpose, assuming that such body
corporate is a public company),
and for the purposes of this definition the definitions and interpretation
provisions contained in sections 243C, 243D and 243F of the Corporations Law
shall apply;
"SBC Warburg" means SBC Warburg Australia Limited ACN 008 582 705;
"Security Interest" means:
(a) a mortgage, pledge, lien, charge. assignment by way of security,
hypothecation, secured interest, title retention arrangement (other
than a title retention arrangement which does not constitute a charge),
preferential right, trust arrangement or other arrangement (including,
without limitation, any set-off or "flawed-asset" arrangement) having
the same or equivalent commercial effect as a grant of security; or
(b) an agreement to create or give any arrangement referred to in paragraph
(a) of this definition;
"Shareholder" means:
(a) each Nominated Shareholder; and
(b) each Related Party of any Nominated Shareholder which, either:
(i) held shares prior to the date of this deed; or
(ii) acquires Shares after the date of this deed,
and in each case, has executed a deed in the same terms as this deed
and has delivered a stamped executed original to SEC Warburg; and
"Tax" means any present or future tax, levy, impost, deduction, charge, duty,
compulsory loan or withholding (together with any related interest, penalty,
fine or expense in connection with any of them) levied or imposed by any
government agency, other than any imposed on overall net income.
<PAGE>
3.
1.2 General
In this deed, unless the context otherwise requires:
(a) a reference to any legislation or legislative provision
includes any statutory modification or re-enactment of, or
legislative provision substituted for, and any subordinate
legislation under, that legislation or legislative provision;
(b) the singular includes the plural and vice versa;
(c) a reference to an individual or person includes a corporation,
firm, partnership, joint venture, association, authority, trust,
state or government and vice versa;
(d) a reference to any gender includes all genders;
(e) a reference to a recital, clause, schedule or annexure is to a
recital, clause, schedule or annexure of or to this deed;
(f) a recital, schedule or annexure forms part of this deed;
(g) a reference to any agreement or document is to that agreement or
document (and, where applicable, any of its provisions) as
amended, novated, restated or replaced from time to time;
(h) a reference to any party to this deed or any other document or
agreement includes that party~s executors, administrators,
substitutes, successors and permitted assigns; and
(i) where an expression is defined, another part of speech or
grammatical form of that expression has a corresponding meaning.
1.3 Headings
In this deed, headings are for convenience of reference only and do not
affect interpretation.
1.4 Business Day
If the day on which any act, matter or thing is to be done under or
pursuant to this deed is not a Business Day, that act, matter or thing:
(a) if it involves a payment, other than a payment which is due on demand,
shall be done on the preceding Business Day; and
(b) in all other cases, shall be done no later than the next Business Day.
<PAGE>
4.
1.5 Inconsistency with Articles
In the event of any conflict or inconsistency between any of the provisions
contained in the articles of association of the Issuer and the provisions
of this deed, the provisions of this deed shall prevail and the
Shareholders must cause the articles to be amended, if necessary, so as to
remove the conflict or inconsistency.
2. UNDERTAKINGS BY EACH SHAREHOLDER
2.1 Sale of Shares
A Shareholder (the "Vendor") may only agree to sell, assign, declare a
trust of or otherwise dispose of any Shares (the "Sale Shares") if:
(a) it is to a bona fide, arms length third party (other than another
Shareholder) (the "Purchaser") and completion of that sale is
conditional on the Vendor procuring the Purchaser to buy all the Notes
held by each Noteholder; or
(b) if the completion of the sale of the Sale Shares would not result in a
Change of Control.
Once a Change of Control has occurred, this clause does not apply to any
subsequent sale of Shares.
2.2 Terms of Offer to Buy Notes
Unless a Noteholder otherwise consents, any acquisition of the Notes
required by clause 2.1 must be on terms including terms to the effect that:
(a) completion of the sale of all the Notes must occur on or before
the completion of the sale of the Sale Shares; and
(b) the sale price for each Note (the "Note Sale Price") must be
equivalent having regard to the prevailing Conversion Factor, to the
sale price for each Sale Share, as determined in accordance with
clause 2.4.
2.3 Noteholders Obliged to Accept Offer
By the terms of the Notes, each Noteholder is obliged to sell its Notes to
the Purchaser in accordance with this clause 2.
2.4 Determination of Note Sale Price
(a) Unless the Noteholders and the Purchaser otherwise agree, the Note
Sale Price will be determined by an independent accountant (the
"Independent Accountant") nominated by the Vendor and approved by the
Noteholders, or if not approved by the Noteholders, by an independent
accountant nominated by the President for the time being
<PAGE>
5.
of the Institute of Chartered Accountants in Australia. Subject to
paragraph (c), the determination of the Note Sale Price will be based
simply on an arithmetic calculation of an equivalent price.
(b) The Vendor must notify each Noteholder and SBC Warburg of the
determination of the Note Sale Price (the "First Determination").
(c) If the Noteholders resolve that they do not consider that the
Purchaser is a bona fide, arms length third party within 5 Business
Days of receiving notification of the First Determination, the Vendor
must require a further determination of the Note Sale Price to be made
by the Independent Accountant, this time on the basis of a fair and
reasonable price for each Note. In determining a fair and reasonable
price the Independent Accountant must have regard to the valuation
principles set out by the Australian Securities Commission in Policy
Statement 75 and Practice Note 43 (or any Policy Statement or Practice
Note which is issued by the Australian Securities Commission in place
of Policy Statement 75 or Practice Note 43).
(d) The Vendor must notify each Noteholder and SBC Warburg of the further
determination of the Note Sale Price (the "Second Determination").
(e) For the purposes of clause 2.2(b), the Note Sale Price will be:
(i) if paragraph (c) does not apply, the price per Note specified
in the First Determination; and
(ii) if paragraph (c) applies, the price per Note specified in the
Second Determination.
(e) The Independent Accountant will act as an expert and not as an
arbitrator and the First Determination or the Second Determination (as
applicable) of the Note Sale Price will be final and conclusive.
(f) The Shareholders must pay the costs of the Independent Accountant.
3. RIGHT TO APPOINT A DIRECTOR
Until all the Notes have been repaid in full or converted, each Shareholder
and the Issuer shall ensure that:
(a) SBC Warburg is at all times entitled to have one person nominated
by it from time to time as a director of the Issuer; and
(b) if the person nominated by SEC Warburg from time to time is
approved by each Shareholder (such approval not to be unreasonably
withheld or delayed), such person is appointed as a director of
the Issuer.
<PAGE>
6.
4. UNDERTAKING BY THE ISSUER
The Issuer shall procure that the Shareholders comply with the terms of
this deed.
5. NO LISTING BY 5TH ANNIVERSARY
If Listing has not occurred by the 5th Anniversary and SBC Warburg makes a
proposal reasonably acceptable to the Issuer for a Listing at a price per
Share of $0.55 escalated annually after the Issue Date at 10% per annum
compound (the "Listing Proposal"), the Shareholders must use their best
endeavurs to effect a Listing in accordance with the Listing Proposal.
6. TERMINATION
(a) Subject to paragraphs (b) and (c) but despite any other provision in
this deed, the obligations of each Shareholder and the Issuer under
this deed terminate once Listing has occurred.
(b) Termination of the obligations of each Shareholder and the Issuer
under paragraph (a) does not affect any rights of the Noteholders
which have arisen due to a breach of this deed prior to the date of
Listing.
(c) The indemnity given by the Issuer pursuant to clause 6A is a
continuing obligation, separate and independent from the other
obligations of the Issuer under this deed, and survives termination of
the obligations of the Issuer under paragraph (a).
6A. WARRANTY AND INDEMNITY
(a) The Issuer Represents and warrants that the rights of each Noteholder
to convert Notes into unissued Shares in accordance with the terms of
the Notes are not void by virtue of section 216 of the Corporations
Law.
(b) Notwithstanding that the Issuer may not be obliged to issue any Shares
to the Noteholders under clause 7 of the terms of the Notes due to
section 216 of the Corporations Law, the Issuer indemnifies each
Noteholder on demand against any liability or loss the Noteholder
incurs or suffers as a result of:
(i) the representation and warranty given in paragraph (a) being
false;
(ii) the Issuer not issuing Shares to the Noteholder in accordance
with the terms of the Notes; or
(iii) the Noteholder forfeiting or otherwise not enjoying the benefit
of any Shares issued to it under clause 7 of the Notes due to
section 216 of the Corporations Law.
<PAGE>
7.
7. NOTICES
7.1 Method of Giving Notices
A notice, consent, approval or other communication (each a "Notice") under
this deed shall be in writing, signed by or on behalf of the person giving
it, addressed to the person to whom it is to be given and:
(a) delivered;
(b) sent by pre-paid mail; or
(c) transmitted by facsimile,
to that person's address.
7.2 Time of Receipt
A Notice given to a person in accordance with this clause is treated as
having been given and received:
(a) if delivered, on the day of delivery if delivered before 4:00 pm
(local time in the place of receipt) on a Business Day, otherwise on
the next Business Day;
(b) if sent by pre-paid mail, on the day of actual delivery if delivered
before 4:00 pm (local time in the place of receipt) on A Business Day,
otherwise on the next Business Day; and
(c) if transmitted by facsimile and the transmission report states that it
was sent in full and without error, on the day of transmission if that
report states that the transmission was completed before 4:00 pm
(local time in the place of receipt) on a Business Day (or the
equivalent in another time zone), otherwise on the next Business Day.
7.3 Address for Notices
For the purposes of this clause, a person (the "sender") may take the
address and facsimile number of another person (the "recipient") to be:
(a) the address and number set out below in schedule 1; or
(b) where the recipient notifies the sender of another address or number,
the last address or number so notified to it.
8. LAW AND JURISDICTION
8.1 Governing Law
This deed is governed by the law in force in the Australian Capital
Territory.
<PAGE>
8.
8.2 Submission to Jurisdiction
The parties submit to the non-exclusive jurisdiction of the courts
exercising jurisdiction in the Australian Capital Territory and any courts
that may hear appeals from those courts in respect of any proceedings in
connection with this deed.
9. COSTS
Each Shareholder indemnifies each Noteholder against, and shall pay each
Noteholder on demand the amount of, all losses, liabilities, costs and
expenses (including, without limitation, Legal expenses on a full indemnity
basis) and Taxes in connection with:
(a) the negotiation, preparation, execution and stamping of this deed;
(b) the administration, enforcement or attempted enforcement or
preservation or attempted preservation of any rights under this deed;
(c) any amendment to, or any consent, approval, waiver, release or
discharge of or under, this deed; and
(d) in the case where a Shareholder is a Vendor in accordance with clause
2, negotiation, preparation, execution and stamping of any documents
required by a Purchaser of any Notes, where the purchase is made in
accordance with clause 2.
10. GENERAL
10.1 Amendment
This deed may only be amended or supplemented in writing signed by the
parties.
10.2 No Assignment or Security Interests
(a) Each Shareholder may not assign or transfer all or any part of its
rights or obligations under this deed without the prior consent of
each Noteholder.
(b) Each Shareholder may not grant, create or suffer to exist a Security
Interest in any Shares without the prior consent of SBC Warburg unless
the holder of the Security Interest executes a deed in substantially
the same terms as this deed and has delivered a stamped executed
original to SBC Warburg.
10.3 Severability
Any provision in this deed which is invalid or unenforceable in any
jurisdiction is to be read down for the purposes of that jurisdiction, if
possible,
<PAGE>
9.
so as to be valid and enforceable, and is otherwise capable of being
severed to the extent of the invalidity or unenforceability, without
affecting the remaining provisions of this deed or affecting the validity
or enforceabilitv of that provision in any other jurisdiction.
10.4 Counterparts
The deed may be executed in any number of counterparts and all of those
counterparts taken together constitute one and the same instrument.
10.5 Attorneys
Each attorney who executes this deed on behalf of a party declares that the
attorney has no notice of any revocation, suspension or variation of the
power of attorney under the authority of which the attorney executes this
deed.
<PAGE>
10.
EXECUTED as a deed poll.
THE COMMON SEAL of THE ) [COMMON SEAL OF THE GALORE GROUP
GALORE GROUP LIMITED was ) LIMITED A.C.N. APPEARS HERE]
affixed in the presence of, and the )
sealing is witnessed by: )
/s/ Robert B. Gavshon
/s/ David M. Glaser ----------------------------------
- ---------------------------------- Director
Secretary Name (printed): ROBERT B. GAVSHON
Name (printed): DAVID M. GLASER
THE COMMON SEAL of WISPJUNE ) [COMMON SEAL OF WISPJUNE PTY. LTD.
PTY LIMITED was affixed in the ) APPEARS HERE]
presence of, and the sealing is )
witnessed by: )
/s/ Robert B. Gavshon
/s/ Sam R. Linz ----------------------------------
- ---------------------------------- Director
Director Name (printed): ROBERT B. GAVSHON
Name (printed): SAM R. LINZ
THE COMMON SEAL of GEBLON ) [COMMON SEAL OF GEBLON PTY. LIMITED
PTY LIMITED was affixed in the ) A.C.N. APPEARS HERE]
presence of, and the sealing is )
witnessed by: )
/s/ Sam R. Linz
/s/ Robert B. Gavshon ----------------------------------
- ---------------------------------- Director
Director Name (printed): SAM R. LINZ
Name (printed): ROBERT B. GAVSHON
<PAGE>
11.
THE COMMON SEAL of SARWILL ) [COMMON SEAL OF SARWILL PTY. LIMITED
PTY LIMITED was affixed in the ) A.C.N. APPEARS HERE]
presence of, and the sealing is )
witnessed by: )
/s/ Robert B. Gavshon
----------------------------------
/s/ Janet E. Shields Director
- ---------------------------------- Name (printed): Robert B. Gavshon
Secretary
Name (printed): JANET E. SHIELDS
SIGNED SEALED AND DELIVERED ) /s/ Sam R. Linz
by SAM LINZ in the presence of: ) ----------------------------------
/s/ Janet E. Shields
- ----------------------------------
Witness
Name (printed): JANET E. SHIELDS
SIGNED SEALED AND DELIVERED ) /s/ Robert B. Gavshon
by ROBERT GAVSHON in the ) ----------------------------------
presence of:
/s/ Janet E. Shields
- ----------------------------------
Witness
Name (printed): JANET E. SHIELDS
<PAGE>
12.
SIGNED SEALED AND DELIVERED ) /s/ John Price
by JOHN PRICE in the ) ----------------------------------
presence of:
/s/ Janet E. Shields
- ----------------------------------
Witness
Name (printed): JANET E. SHIELDS
SIGNED SEALED AND DELIVERED ) /s/ Sydney Selati
by SYDNEY SELATI in the ) ----------------------------------
presence of:
/s/ Clement H. Porter
- ----------------------------------
Witness
Name (printed): CLEMENT H. PORTER
<PAGE>
13.
SCHEDULE 1
NOMINATED SHAREHOLDERS
Name Address
Sam Linz 20B New South Head Road, Vaucluse, NSW 2030
Fax: 9704 4170
Robert Gavshon 67 Portland Street, Dover Heights, NSW 2030
Fax: 9704 4170
John Price 19 Beatty Street, Balgowlah Heights, NSW 2093
Fax: 9704 4170
Wispjune Pty Limited Level 10, l Market Street, Sydney, NSW 2000
ACN 061 285 854 Fax: 9704 4170
Geblon Pty Limited Level 10, l Market Street, Sydney, NSW 2000
ACN 002 495 561 Fax: 9704 4170
Sarwill Pty Limited Suite 6, 10-12 Woodville Street, Hurstville, NSW 2000
ACN 002 412 795 Fax: 9388 2060
Sydney Selati 1265 La Jolla Rancho Road, La Jolla, California 92037
Fax: 0011 l 714 581 4822
<PAGE>
EXHIBIT 10.4
THE COMPANIES LISTED IN SCHEDULE ONE
------------------------------------
(Mortgagors)
AND
WESTPAC BANKING CORPORATION
----------------------------
(Agent)
-----------------
DEED OF CHARGE
-----------------
Victorian property
COPYRIGHT RESERVED
ALLEN ALLEN & HEMSLEY
Level 46, MLC Centre,
19-29 Martin Place,
SYDNEY NSW 2000
Tel: 229 8765
Doc. Ref: MEB3RYD3
Ref: PJC 817534 MEB
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Clause Page
------ ----
<S> <C> <C>
1. INTERPRETATION
--------------
1.1 Definitions
1.2 General
1.3 Document or agreement
1.4 Joint and several obligations
2. CHARGE
------
2.1 Charge
2.2 Prospective liability
2.3 Increase in prospective liability
3. NATURE OF CHARGE
----------------
3.1 Priority
3.2 Nature of charge
3.3 Dealing with Mortgaged Property
3.4 Crystallisation
3.5 De-crystallisation
3.6 Dealing with proceeds
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Representations and warranties
4.2 Reliance on representations and warranties
5. COVENANTS
---------
5.1 Covenants
5.2 General covenants
5.3 Covenants relating to Mortgaged Property
5.4 Term of covenants
5.5 Financial undertakings
5.6 Definitions
6. FURTHER ASSURANCES
------------------
6.1 Further assurances
6.2 Interest in land
6.3 Title documents
7. EVENTS OF DEFAULT
-----------------
7.1 Events of Default
7.2 Consequences
</TABLE>
<PAGE>
(ii)
<TABLE>
<CAPTION>
Clause Page
------ ----
<S> <C> <C>
8. APPOINTMENT OF RECEIVER
-----------------------
8.1 Appointment
8.2 Agent of Mortgagors
8.3 Receiver's powers
8.4 Receiver appointed after commencement
of winding up
8.5 Powers exercisable by the Agent
8.6 Withdrawal
9. POWER OF ATTORNEY
-----------------
10. COMPLETION OF BLANK SECURITIES
------------------------------
11. PERFORMANCE OF MORTGAGORS' OBLIGATIONS
--------------------------------------
12. STATUTORY POWERS
----------------
12.1 Powers in augmentation
12.2 Leasing
12.3 Notice not required
13. APPLICATION OF MONEYS RECEIVED
------------------------------
13.1 Order
13.2 Moneys actually received
13.3 Amounts contingently due
13.4 Notice of subsequent Security Interests
13.5 Conversion of currencies on application
14. OTHER SECURITY INTERESTS OVER MORTGAGED PROPERTY
------------------------------------------------
15. PROTECTION OF AGENT, RECEIVER AND ATTORNEY
------------------------------------------
16. PROTECTION OF THIRD PARTIES
---------------------------
16.1 No Enquiry
16.2 Receipt
17. EXPENSES, INDEMNITY
-------------------
17.1 Expenses
17.2 Indemnity
17.3 Amounts in foreign currency
18. FOREIGN CURRENCY INDEMNITY
--------------------------
19. STAMP DUTIES
------------
</TABLE>
<PAGE>
(iii)
<TABLE>
<CAPTION>
Clause Page
------ ----
<S> <C> <C>
20. INTEREST ON OVERDUE AMOUNTS
---------------------------
20.1 Interest
20.2 Rate
20.3 Foreign currency basis
21. CERTIFICATE AS TO AMOUNT OF SECURED MONEYS
------------------------------------------
22. SURVIVAL OF REPRESENTATIONS AND INDEMNITIES
-------------------------------------------
23. CONTINUING SECURITY
-------------------
24. OTHER SECURITIES
----------------
25. WAIVERS, REMEDIES CUMULATIVE
----------------------------
26. CONSENTS AND OPINION
--------------------
27. SEVERABILITY OF PROVISIONS
--------------------------
28. MORATORIUM LEGISLATION
----------------------
29. ASSIGNMENTS
-----------
30. NOTICES
-------
31. AUTHORISED OFFICERS
-------------------
32. GOVERNING LAW AND JURISDICTION
------------------------------
33. THIRD PARTY PROVISIONS
----------------------
33.1 Security not to be affected
33.2 Principal and independent obligation
33.3 No marshalling
33.4 No competition
33.5 Suspense account
33.6 Rescission of payment
33.7 Variation
33.8 Indemnity
34. SET OFF
-------
35. COUNTERPARTS
------------
36. ACKNOWLEDGEMENT BY MORTGAGOR
----------------------------
37. ATTORNEYS
---------
EXECUTION PAGE
--------------
</TABLE>
<PAGE>
THIS DEED is made on 5 April 1991
- ---------
BETWEEN:
- -------
1. THE COMPANIES LISTED IN SCHEDULE ONE (each a "Mortgagor"); and
------------------------------------
2. WESTPAC BANKING CORPORATION A.R.B.N. 007-457-141 of 60 Martin Place,
------------------------------------------------
Sydney (the "Agent").
WHEREAS:
- -------
A. From time to time a Mortgagor may wish the Mortgagees to provide advances
and accommodation to a Mortgagor or another person.
B. This charge is given to the Agent as trustee for itself and any other
Mortgagee.
NOW THIS DEED WITNESSES and it is agreed as follows.
- -----------------------
1. INTERPRETATION
- -------------------
1.1 Definitions
- ----------------
When used in this Deed the following terms have the following meanings unless
the context requires otherwise.
"Agency Agreement" means the agreement so entitled dated on or about the date of
----------------
this Deed between (among others) the Agent, certain banks and financial
institutions and the Mortgagors.
"Associate" means:
---------
(a) a Related Body Corporate of a Mortgagor;
(b) any person, or the trustee or manager of any trust, which has a Controlling
Interest in a Mortgagor or a Related Body Corporate of a Mortgagor;
(c) a Related Body Corporate of any corporation or trust included in paragraph
(b) or (e);
(d) any director of any corporation included in paragraph (a), (b) or (c) or
of the manager or of the trustee of any trust included in paragraph (a),
(b) or (c) or any spouse, child, parent or sibling of any such director;
(e) any corporation, or the trustee or manager of any trust, in which any one
or more persons or trusts mentioned in paragraph (a), (b), (c), (d), (e),
(f) or (g) alone or together has a Controlling Interest;
(f) the trustee of any discretionary trust of which any person included in
paragraph (a), (b), (c), (d), (e) or (g) is a beneficiary (whether or not
through one or more other discretionary trusts); or
(g) any corporation of which a director of a Mortgagor or a Related Body
Corporate of a Mortgagor is also a director.
For the purposes of this definition:
<PAGE>
2
(i) where a person is a beneficiary of a discretionary trust, that person
shall be deemed to own, and control, all the assets of that trust;
(ii) "director" has the meaning given in the Corporations Law; and
(iii) a person has a "Controlling Interest" in a corporation or trust if:
(A) the corporation or its directors, or the trustee or manager of the
trust or its directors, are accustomed or under an obligation,
whether formal or informal, to act in accordance with the
directions, instructions or wishes of that person or of that person
in concert with others; or
(B) the person has a relevant interest as defined in the Corporations
Law in aggregate in more than 20% of the issued or voting shares,
units or other interests in the corporation or trust (in number,
voting power or value), or would have such a relevant interest if
any rights were exercised to subscribe for, or acquire or convert
into, shares, units or other interests which are issued or unissued
were exercised. The definition of relevant interest will apply as if
units or other interests were shares.
"Attorney" means any attorney appointed under this Deed or any Collateral
--------
Security.
"Authorisation" includes:
-------------
(a) any consent, authorisation, registration, filing, agreement, notarisation,
certificate, permission, licence, approval, authority or exemption from,
by or with a Governmental Agency; or
(b) in relation to anything which will be prohibited or restricted in whole or
part by law if a Governmental Agency intervenes or acts in any way within
a specified period after lodgement, filing, registration or notification,
the expiry of such period without such intervention or action.
"Authorised Officer" means:
------------------
(a) in respect of a Mortgagor, any director or secretary, or any person from
time to time nominated as an Authorised Officer by that Mortgagor by a
notice to the Agent accompanied by certified copies of signatures of all
new persons so appointed; and
(b) in respect of the Agent, any person whose title includes the word
"Manager" or "President" or cognate expressions (including any person
acting in any such office) or any secretary or director.
"Borrower" means The Galore Group Limited, GLG Australia Limited, The Galore
--------
Group (USA) Inc., Vilbrent Pty. Limited or any other Charging Group Member which
incurs Financial Indebtedness to a Mortgagee.
"Business Day" means a day (not being a Saturday or a Sunday) on which banks are
------------
open for general banking business in Sydney.
"Charging Group Member" means:
---------------------
(a) a Mortgagor; or
(b) any Related Body Corporate of a Mortgagor which has granted a first charge
over all its assets and undertaking to the Agent satisfactory to the Agent
to secure the Secured Moneys.
<PAGE>
3
"Collateral Security" means any Security Interest, Guarantee or other document
-------------------
or agreement at any time created or entered into by a Mortgagor under this Deed
or otherwise as security for any Secured Moneys, satisfactory to the Agent.
"Core Business" means:
-------------
(a) the manufacture, wholesaling and retailing of barbecues, heaters, camping
equipment, leisure products and related accessories;
(b) the distribution of domestic LP gas and leisure products; and
(c) the retailing of prescription glasses and frames and other optical
products through dispensing units whether or not with on-site laboratories
established under the name "Optic Express".
"Event of Default" means any of the events specified in Clause 7.
----------------
"Excluded Taxes" means any Tax imposed by any jurisdiction on the net income of
--------------
a Mortgagee as a consequence of the Mortgagee being a resident of or organised
or doing business in that jurisdiction but not any Tax:-
(a) which is calculated on or by reference to the gross amount of any payments
derived by a Mortgagee under any Transaction Document or any other
document referred to in any Transaction Document (without the allowance of
any deduction); or
(b) which is imposed as a result of a Mortgagee being considered a resident of
that jurisdiction or organised or doing business in that jurisdiction
solely as a result of it being a party to any Transaction Document or any
transaction contemplated by any Transaction Document.
"Financial Indebtedness" means any indebtedness, present or future, actual or
----------------------
contingent, in respect of moneys borrowed or raised or any financial
accommodation whatsoever. It includes without limitation any indebtedness under
or in respect of any bill, acceptance, endorsement, Guarantee, interest, gold or
currency exchange, hedge or other arrangement, redeemable share, discounting
arrangement, finance or capital Lease, hire purchase, deferred purchase price
(for more than 90 days) of any asset or service, any obligation to deliver goods
or other property or to provide services paid for in advance by any financier or
in relation to any other financing transaction.
"Galore Guarantee" means any guarantee and indemnity agreement entered into
----------------
between the Guarantor and the Agent.
"Governmental Agency" means any government or any governmental, semi-
-------------------
governmental or judicial entity or authority.
"Guarantee" means any guarantee, indemnity, letter of credit, legally binding
---------
letter of comfort or suretyship or any other obligation (whatever called and of
whatever nature):
(a) to pay or to purchase;
(b) (whether by the advance of money, the purchase of or subscription for
shares or other securities, the purchase of assets, rights or services, or
otherwise) to provide funds for the payment or discharge of;
(c) to indemnify against the consequences of default in the payment of; or
(d) otherwise to be responsible for,
<PAGE>
4
any obligation or indebtedness, any dividend, capital or premium on shares or
stock, or the insolvency or financial condition of any other person.
"Guarantor" means Cook-On Gas Products (Australia) Pty. Limited (A.C.N. 001 532
---------
912).
"Holding Company" means The Galore Group Limited incorporated in the Australian
---------------
Capital Territory.
"Intellectual Property" means any intellectual or industrial property including
---------------------
without limitation:
(a) any patent, trade mark or service mark, copyright, registered design,
trade secret, or confidential information; or
(b) any licence or other right to use or to grant the use of any of them or to
be the registered proprietor or user of any of them.
"Lease" means:
-----
(a) any lease, licence, charter, hire purchase or hiring arrangement of any
asset;
(b) any other agreement or arrangement under which any asset is or may be used
or operated by a person other than the owner; or
(c) any agreement or arrangement under which any asset is or may be managed or
operated for or on behalf of the owner or another person by a person other
than the owner, and the operator or manager or its Related Body Corporate
or associate (whether in the same or another agreement or arrangement) is
required to make or assure minimum, fixed and/or floating rate payments of
a periodic nature,
(other than agreements under which the manager of a joint venture uses assets
owned by the joint venturers on behalf of the joint venture),
and where used as a verb is defined accordingly.
"Licenced Optometrist" means a optometrist which has a subsisting agreement or
--------------------
arangement for a licence of facilities with Optic Express Pty. Limited.
"Liquidation" includes official management, compromise, receivership,
-----------
amalgamation, administration, reconstruction, winding up, dissolution,
assignment for the benefit of creditors, arrangement or compromise with
creditors, bankruptcy or death.
"Marketable Security" has the meaning given in the Corporations Law, but also
-------------------
includes:
(a) a right or an option in respect of unissued Marketable Securities;
(b) a document referred to in the exceptions to the definition of debenture in
the Corporations Law, or a right or option in respect of issued or
unissued such documents;
(c) a unit or other interest in a trust or a right or option in respect of
issued or unissued units or other interests in a trust; and
(d) a negotiable instrument or a right or option in respect of issued or
unissued negotiable instruments.
<PAGE>
5
"Material Adverse Effect" means, in the opinion of the Agent a material adverse
-----------------------
effect upon the ability of any Relevant Company to perform its obligations under
any Transaction Document or upon the security of any Mortgagee or the financial
condition or business of any Relevant Company.
"Material Document" means:
-----------------
(a) any Lease (including, without limitation, any right to use Intellectual
Property or any franchise); or
(b) any other document or agreement which is material to the business of a
Mortgagor, the Mortgaged Property or the security of any Mortgagee, or
which is reasonably specified by the Agent as being so.
"Mortgaged Property" means all assets and undertaking of a Mortgagor charged or
------------------
mortgaged under this Deed or any Collateral Security.
"Mortgagee" means:
---------
(a) the Agent;
(b) any company, bank or financial institution for which the Agent is acting
as agent or trustee under the Agency Agreement;
(c) any other person which the Mortgagors and the Agent agree is to be a
Mortgagee for the purposes of this Deed; or
(d) any successor or assignee of any of the above.
"Nominated Account" means any bank account opened by a Mortgagor before or after
-----------------
the execution of this Deed at the request of the Agent.
"Potential Event of Default" means any event which with the passage of time
--------------------------
and/or the giving of notice would be an Event of Default.
"Power" means any power, right, authority, discretion or remedy which is
-----
conferred on any Mortgagee or any Receiver or Attorney:
(a) by this Deed or any Collateral Security; or
(b) by law in relation to this Deed or any Collateral Security.
"Receiver" means any receiver or receiver and manager appointed under this Deed
--------
or any Collateral Security.
"Related Body Corporate" has the meaning given in the Corporations Law but on
----------------------
the basis that "Subsidiary" when used in the Corporations Law has the meaning
given in this Deed and "corporation" includes trusts.
"Relevant Company" means a Mortgagor, a Borrower or any of their Subsidiaries or
----------------
any person who gives or creates a Guarantee or Security Interest in respect of
any of the Secured Moneys.
"Secured Moneys" means all moneys which the Guarantor (whether alone or with any
--------------
other person) is or at any time may become actually or contingently liable to
pay to or for the account of a Mortgagee (whether alone or with any other
person) under a Galore Guarantee.
<PAGE>
6
"Security Interest" means any mortgage, pledge, lien or charge or any security
-----------------
or preferential interest or arrangement of any kind, or any other right of or
arrangement with any creditor to have its claims satisfied prior to other
creditors with, or from the proceeds of, any asset (including, without
limitation, retention of title other than in the course of day-to-day trading
and any deposit of money by way of security) but excluding any charge or lien
arising in favour of any Governmental Agency by operation of law provided there
is no default in payment of the moneys secured by such charge or lien.
"Subsidiary" has the meaning given in the Corporations Law but so that:
----------
(a) a corporation shall also be deemed to be a Subsidiary of another
corporation if that other corporation has appointed or is in a position to
appoint a director or directors who are in a position to cast, or control
the casting of, more than one-half of the maximum number of votes that
might be cast at a meeting of the board of directors of the first-mentioned
corporation;
(b) a trust may be a Subsidiary, for the purposes of which any units or other
beneficial interests will be deemed shares; and
(c) a corporation or trust may be a Subsidiary of a trust if it would have
been a Subsidiary if that trust were a corporation.
"Tax" includes any tax, levy, impost, deduction, charge, rate, duty, compulsory
---
loan or withholding which is levied or imposed by a Governmental Agency,
including (without limitation) any withholding, income, stamp or transaction
tax, duty or charge together with any related interest, penalty, charge, fee or
other amount.
"Transaction Document" means:
--------------------
(a) this Deed, the Agency Agreement, any Galore Guarantee or any Collateral
Security;
(b) (i) any agreement for or relating to the provision of financial
accommodation to or for the account of a Borrower by a Mortgagee,
whether alone or with any other person, including without limitation
a Security Interest;
(ii) any document or agreement defined as a Transaction Document in such
agreement; or
(iii) any other document or agreement which a Mortgagor and the Agent at
any time agree is to be a Transaction Document for the purposes of
this Deed;
(c) any document or agreement:
(i) to which a Mortgagor and/or a Borrower is or becomes party (whether
or not with others) and either:
(A) the Agent (whether or not with others) is or becomes a party;
or
(B) rights under that document or agreement are assigned to the
Agent (whether or not with others); or
(ii) which in any way relates to or requires the payment of any Secured
Moneys; or
<PAGE>
7
(d) any document or agreement entered into under, or for the purpose of
amending or novating, any of them (including, without limitation, any
undertaking by or to a party or its lawyers).
"Treasury Facility' means any transaction or arrangement relating to the
-----------------
purchase (whether spot or forward), exchange, hedging, fixing, adjustment or
indemnification in respect of interest, currency or financial instruments,
indebtedness or indicators of any kind or any other treasury operation.
"Unpaid Capital" means any uncalled or unpaid share capital or premiums of a
--------------
Mortgagor.
"US Subsidiary" means Barbeques Galore Inc. (incorporated in California), Pool
-------------
Patio 'n Things Inc. (incorporated in California) or Galore Group (USA) Inc.
(incorporated in Delaware).
1.2 General
- ------------
In this Deed headings are for convenience only and do not affect interpretation.
Except to the extent that the context requires otherwise:
(a) references to any legislation or to any provision of any legislation
include any modification or re-enactment of it, or any provision
substituted for it, and all statutory instruments issued under such
legislation or provision;
(b) the singular includes the plural and vice versa;
(c) any gender includes all genders;
(d) words denoting an individual include a corporation and vice versa;
(e) references to Clauses and Schedules are references to clauses and
schedules of this Deed;
(f) references to any document or agreement (including this Deed) include
references to that document or agreement as amended, novated, supplemented
or replaced from time to time;
(g) references to any party to this Deed or any other document or agreement
include its successors or permitted substitutes or assigns;
(h) "writing" and cognate expressions include all means of reproducing words
in a tangible and permanently visible form;
(i) "asset" includes any real or personal, present or future, tangible or
intangible property or asset (including, without limitation, any
Intellectual Property), and any right, revenue or benefits and any right
or interest in, under or derived from any of the foregoing;
(j) a limited partnership will be regarded as a corporation;
(k) an Event of Default will be deemed to be "subsisting" unless and until it
has been waived in writing by the Agent or remedied to the satisfaction of
the Agent; and
(l) without limiting the meaning of the term, references to amounts for which
a person is contingently liable or which are contingently owing by a
person include amounts which that person may become actually or
contingently liable to pay on the occurrence of a contingency whether or
not that liability will arise because of an obligation existing at the
relevant time.
<PAGE>
8
1.3 Document or agreement
- --------------------------
In this Deed references to an "agreement" include any Security Interest,
Guarantee, undertaking, deed, agreement or legally enforceable arrangement
whether or not in writing and references to a "document" include any agreement
(as so defined) in writing, or any certificate, notice, instrument or document
of any kind.
1.4 Joint and Several obligations
- ----------------------------------
The obligations of each Mortgagor under this Deed are joint and several and this
Deed will be binding on each Mortgagor notwithstanding anything done or omitted
to be done by any other Mortgagor or by the Agent in relation to any Mortgagor.
2. CHARGE
- -----------
2.1 Charge
- -----------
(a) Each Mortgagor charges to the Agent for itself and as trustee for the
Mortgagees all its present and future assets and undertaking including,
without limitation, Unpaid Capital but excluding any such assets or
undertaking of a Mortgagor on the date of this Deed and on the date of any
notice under Clause 31 which are on such date situate in the Australian
Capital Territory, the Northern Territory or any State of Australia other
than Victoria.
(b) The charge secures the due and punctual payment of the Secured Moneys.
(c) The charge is given in consideration of the Mortgagees entering the
Transaction Documents and/or providing or continuing to provide advances
and financial accommodation from time to time to the Guarantor under any
Galore Guarantee and/or for other valuable consideration received.
2.2 Prospective liability
- --------------------------
Subject to Clause 2.3, for the purposes of the Corporations Law alone the
maximum prospective liability (as defined in the Corporations Law) secured by
this Deed is A$200,000,000 or its equivalent but this Clause does not limit the
amount of actual liability at any time secured by or recoverable under this
Deed.
2.3 Increase in prospective liability
- --------------------------------------
The Agent may from time to time lodge a notice under section 268(2) of the
Corporations Law on behalf of the Mortgagors specifying an increase in the
maximum prospective liability secured by this Deed. From the date of lodgement
the sum specified in Clause 2.2 will be deemed to be varied to the sum specified
in the notice.
3. NATURE OF CHARGE
- ---------------------
3.1 Priority
- -------------
The charge is a first charge and takes priority over all Security Interests
except those described in Schedule Two and ranks pari passu with each Collateral
Security.
3.2 Nature of charge
- ---------------------
The charge operates:
(a) as a fixed charge as regards all present and future:
<PAGE>
9
(i) freehold and leasehold property or any other interest in real
property;
(ii) Unpaid Capital;
(iii) machinery (other than stock-in-trade), plant, any item of equipment
having a value in excess of A$50,000 or its equivalent;
(iv) insurance policies, and any proceeds of any policy of an amount
exceeding A$50,000;
(v) books of account, registers, minute books, statements, invoices,
accounting and other records (including without limitation those
recorded electronically) and all software;
(vi) interests in any partnership;
(vii) Intellectual Property and goodwill;
(viii) Marketable Securities;
(ix) Authorisations;
(x) documents and agreements of any kind;
(xi) book and other debts and the proceeds of such debts (other than
proceeds which may be dealt with by a Mortgagor under Clause
3.6(a));
(xii) accounts opened in the name of a Mortgagor or for the benefit of a
Mortgagor under any Transaction Document (including the Nominated
Accounts);
(xiii) other assets that are not acquired for disposal in the ordinary
course of a Mortgagor's business.
and all right, title and interest of a Mortgagor in under or derived from
the above (except as expressly provided); and
(b) subject to Clause 3.4, as a floating charge only as regards all other
assets charged.
All sub-paragraphs of paragraph (a) are to be construed independently. None
limits the generality of any other.
3.3 Dealing with Mortgaged Property
- ------------------------------------
(a) Except with the prior written consent of the Agent, no Mortgagor may:
(i) create or allow to exist any Security Interest over any Mortgaged
Property which ranks in priority to, equally with or after this
security; or
(ii) in any other way:
(A) dispose of;
(B) create or allow any interest in; or
(C) part with possession of,
any Mortgaged Property, except:
<PAGE>
10
(D) as expressly permitted in Clause 5 or any Transaction Document;
(E) subject to any Transaction Document (including this Deed):
(I) any disposal of or dealing with any asset for the time
being subject to the floating charge in the ordinary
course of its ordinary business; or
(II) any disposal of or dealing with any asset for the time
being subject to the fixed charge the value of which is,
or during any one calendar month the aggregate values of
which are, less than A$50,OOO; or
(b) Where by law the Agent may not restrict the creation of any Security
Interest over an asset ranking after the charge created by this Deed, then
paragraph (a) will not restrict that creation, but each Mortgagor shall
ensure that before any such Security Interest is created the holder of
such Security Interest enters into a deed of priority in form and
substance specified by the Agent.
3.4 Crystallisation
- --------------------
The floating charge referred to in Clause 3.2 will automatically and immediately
crystallise and operate as a fixed charge:
(a) in respect of any asset:
(i) upon notice to the relevant Mortgagor from the Agent (which it may
only give following the occurrence of an Event of Default which is
subsisting);
(ii) if the relevant Mortgagor:
(A) creates or allows any Security Interest over;
(B) sells, Leases or otherwise disposes of;
(C) creates or allows any interest in; or
(D) parts with possession of,
that asset, in breach of any Transaction Document or agrees or
attempts to do so or takes any step towards doing so without the
prior written consent of the Agent;
(iii) upon any step being taken with a view to levying or enforcing any
distress, attachment or other execution on that asset or to
enforcing any Security Interest in respect of that asset;
(iv) upon the Commissioner of Taxation or its successor signing a notice
under:
(A) section 218 or section 255 of the Income Tax Assessment Act
1936;
(B) section 38 of the Sales Tax Assessment Act 1930; or
(C) any similar legislation,
which will affect that asset; or
<PAGE>
that asset, in breach of any Transaction Document or agrees or
attempts to do so or takes any step towards doing so without the
prior written consent of the Agent;
(iii) upon any step being taken with a view to levying or enforcing any
distress, attachment or other execution on that asset or to
enforcing any Security Interest in respect of that asset;
(iv) upon the Commissioner of Taxation or its successor signing a notice
under:
(A) section 218 or section 255 of the Income Tax Assessment Act
1936;
(B) section 38 of the Sales Tax Assessment Act 1930; or
(C) any similar legislation, which will affect that asset; or
(v) upon any Governmental Agency taking any step which may result in any
amount of any Tax or any amount owing to a Governmental Agency
ranking ahead of the floating charge with respect to that asset; or
(b) in respect of all the Mortgaged Property:
(i) if an order is made or a resolution is passed for the winding up of
any Mortgagor; or
(ii) upon the security constituted by this Deed being enforced in any way.
Except where expressly stated no notice or action by the Agent is necessary for
the charge to crystallise.
3.5 De-crystallisation
- -----------------------
The Agent may at any time, by notice to the relevant Mortgagor, release from the
fixed charge any asset which has become subject to a fixed charge under Clause
3.4. That asset will then again be subject to the floating charge and to the
further operation of that Clause.
3.6 Dealing with proceeds
- --------------------------
(a) Subject to any Transaction Document (including this Deed) a Mortgagor may
deal with the proceeds of any book or other debt as it thinks fit where:
(i) the book or other debt arose in the ordinary course of its business;
(ii) the proceeds do not arise from the sale or other disposal of, Lease
of, or grant of any interest in, an asset the subject of the fixed
charge;
(iii) the proceeds are received before the floating charge crystallises
in respect of all the Mortgaged Property and before anything occurs
as described in Clause 3.4(a) with respect to the debt or those
proceeds; and
<PAGE>
12
(d) Each Mortgagor shall give notices and directions necessary or requested by
the Agent to ensure paragraphs (b) and (c) are complied with.
(e) Failure by the Agent to require a Mortgagor to comply with this Clause
will not constitute a waiver.
(f) Without prejudice to paragraph (e), if for any reason the Agent waives or
is deemed to have waived the requirements of this Clause, the charge
created by this Deed will still operate as a fixed charge in respect of
the relevant debt or other asset under which the relevant moneys or
proceeds are payable or receivable.
(g) In this clause "proceeds" includes moneys or consideration payable whether
or not received by a Mortgagor.
4. REPRESENTATIONS AND WARRANTIES
- -----------------------------------
4.1 Representations and warranties
- -----------------------------------
Each Mortgagor makes the following representations and warranties on the date of
this Deed.
(a) (Status): It is a corporation validly existing under the laws of the place
------
of its incorporation specified above.
(b) (Corporate power): It has the corporate power to enter into and perform
---------------
its obligations under the Transaction Documents to which it is expressed
to be a party, to carry out the transactions contemplated by those
documents and to carry on its business as now conducted or contemplated.
(c) (Corporate authorisations): It has taken all necessary corporate action to
------------------------
authorise the entry into and performance of the Transaction Documents to
which it is expressed to be a party, and to carry out the transactions
contemplated by those documents.
(d) (Documents binding): Each Transaction Document to which it is expressed to
-----------------
be a party is, subject to any necessary stamping and registration, its
valid and binding obligation enforceable in accordance with its terms.
This Deed is effective security over the Mortgaged Property with the
priority stated in Clause 3.1.
(e) (Transactions permitted): Neither the execution and performance by it of
----------------------
the Transaction Documents to which it is expressed to be a party nor any
transaction contemplated under any such document will violate in any
respect any provision of:
(i) any law or treaty or any judgment, ruling, order or decree of any
Governmental Agency binding on it;
(ii) its memorandum or articles of association or other constituent
documents; or
(iii) any other document or agreement which is binding upon it or its
assets,
and, except as may be provided by the Transaction Documents, did not and
will not result in:
(iv) the creation or imposition of any Security Interest on any of its
assets under any of the foregoing; or
<PAGE>
(v) the acceleration of or cancellation of any obligation with respect
to any Financial Indebtedness, or anything which constitutes (or
which, with the giving of notice and/or lapse of time would
constitute) an event of default, cancellation event, prepayment
event or similar event (whatever called) under any agreement
relating to Financial Indebtedness.
(f) (Accounts):
--------
(i) Its most recent consolidated and unconsolidated audited accounts
give a true and fair view of its and its Subsidiaries' state of
affairs as at the date to which they relate and the results of its
and its Subsidiaries' operations for the accounting period ended on
that date.
(ii) There has been no change in its and its Subsidiaries' state of
affairs since that date which may have a material adverse effect
upon it or its ability to perform its financial or other obligations
under any Transaction Document.
(iii) Those accounts have been prepared in accordance with all applicable
laws and accounting principles and practices generally accepted in
Australia consistently applied, except to the extent of departures
from such principles and practices disclosed in such accounts.
(iv) There is no material Financial Indebtedness or any other material
contingent liability which is not disclosed in those accounts.
(v) No indemnity has been executed by any Relevant Company for the
purposes of obtaining an exemption, order or relief under section
313 of the Corporations Law.
(g) (No litigation): No litigation, arbitration, Tax claim, dispute or
-------------
administrative proceeding is presently current or pending or, to its
knowledge, threatened, which is likely to have a material adverse effect
upon it or its Subsidiaries or its ability to perform its financial or
other obligations under any Transaction Document or upon the security of
the Agent.
(h) (No default): Other than as disclosed to the Agent in writing prior to the
----------
date of this Deed:
(i) no Relevant Company is in default under any document or agreement
(including without limitation any Authorisation) binding on it or
its assets which default relates to Financial Indebtedness or is
material.
(ii) nothing has occurred which is or would with the giving of notice
and/or lapse of time constitute an event of default, cancellation,
prepayment event or similar event (whatever called) under any such
document or agreement (and which is subsisting).
(i) (Authorisations): All Authorisations, if any, required in relation to the
--------------
execution, delivery or performance by it and the validity and
enforceability of the Transaction Documents to which it is a party and the
transactions contemplated by such documents have been obtained or effected
and are in full force and effect.
(j) (No misrepresentation): All information provided by it to the Agent in
--------------------
relation to the Transaction Documents is true in all material respects as
at the date of this Deed and is not, by the omission of information or
otherwise, misleading.
<PAGE>
14
(k) (No undisclosed agreements): There are in existence no documents or
-------------------------
agreements which have not been disclosed to any Mortgagee and which are
material to the security constituted by this Deed or which have the effect
of varying any of the Transaction Documents.
(l) (Copies of documents): All copies of documents and agreements (including,
-------------------
without limitation, its latest audited accounts and all Authorisations)
given by it or on its behalf to the Agent constitute true and complete
copies. Such documents and agreements are in full force and effect.
(m) (Title):
-----
(i) It is and will be the sole beneficial owner of the Mortgaged
Property purported to be charged or mortgaged by it and all material
assets included in its latest audited accounts free and clear of any
other third party right or interest whatsoever including any
Security Interest other than any Security Interest created or
permitted by any Transaction Document.
(ii) None of its or its Subsidiaries' assets is subject to any Security
Interest which is pot permitted by Clause 5.2(f) or any agreement to
give such a Security Interest.
(iii) None of its Subsidiaries (other than the US Subsidiaries or a
Subsidiary which has given a first charge over all of its assets to
secure the Secured Moneys) has any Financial Indebtedness save for
Galore US Inc. to Sanwa Bank California for a maximum principal
amount of US$500,000 and save for any Collateral Security.
(iv) Paragraph (m)(i) is correct with respect to each Subsidiary as if
references to "it" were to the Subsidiary.
(n) (Subsidiaries). All its Subsidiaries (other than the US Subsidiaries and
------------
G.L.G. Pte Trading Limited) are party to this Deed.
(o) (Trust): It does not hold any assets as the trustee of any trust.
-----
4.2 Reliance on representations and warranties
- -----------------------------------------------
Each Mortgagor acknowledges that the Agent has entered the Transaction Documents
in reliance on the representations and warranties in this Clause.
5. COVENANTS
- -------------
5.1 Covenants
- --------------
(a) Each Mortgagor shall duly and punctually pay the Secured Moneys payable by
it. After an Event of Default which is subsisting it will pay all Secured
Moneys on demand by the Agent.
(b) Each Mortgagor shall ensure that no Event of Default occurs.
(c) Each Mortgagor shall duly and punctually comply with its obligations under
the Transaction Documents and ensure that its and each Borrower's
representations and warranties in the Transaction Documents are true and
ensure that each Borrower duly and punctually complies with its
obligations under the Transaction Documents.
<PAGE>
15
5.2 General covenants
- ----------------------
Each Mortgagor covenants with the Agent as follows, except to the extent that
the Agent consents otherwise.
(a) (Corporate reporting and information): It will furnish to the Agent:
------------------------------------
(i) (annual accounts): in the case of the Holding Company only, as soon
---------------
as practicable (and in any event not later than 120 days) after the
close of each of its financial years copies of its consolidated
audited balance sheet and profit and loss account;
(ii) (semi-annual accounts): in the case of the Holding Company only, as
--------------------
soon as practicable (and in any event not later than 90 days) after
the first half of each of its financial years copies of its
consolidated unaudited balance sheet and profit and loss account in
respect of that half-year;
(iii) (quarterly management accounts): in the case of the Holding Company
-----------------------------
only, as soon as practicable (and in any event not later than 45
days) after the close of each quarter of its financial year copies
of its consolidated unaudited management accounts in respect of
that quarter;
(iv) (ratios): in the case of the Holding Company only, at the time it
------
delivers the financial statements under sub-paragraphs (i) or (ii),
a certificate of two of its directors that the requirements of
Clause 5.5 have been met at the last day of the last six or 12
month period ended 30 June or 31 December, as the case may be;
(v) (documents issued to shareholders): promptly, all documents issued
--------------------------------
by it as required by applicable law to its shareholders, debenture
holders or holders of any other Marketable Securities issued by it;
(vi) (litigation): promptly, written particulars of any litigation,
----------
arbitration, Tax claim, dispute or administrative proceeding in
relation to the Mortgaged Property or it and its Subsidiaries
involving a claim of A$50,000 or its equivalent if the claim is for
liquidated damages, or, if the claim is for unliquidated damages is
likely in the opinion of the directors of the Holding Company to
result in an award of at least that amount, other than a claim for
worker's compensation;
(vii) (Governmental Agency): promptly, any notice, order or material
-------------------
correspondence from or with a Governmental Agency relating to the
Mortgaged Property or its use which may, or compliance with which
may, in the reasonable opinion of the directors of the Holding
Company adversely affect the value of the Mortgaged Property; and
(viii) (other information): upon request, any financial and other
-----------------
information in relation to the Mortgaged Property or its and its
Subsidiaries' financial condition or business which the Agent may
reasonably request.
(b) (Accounting principles): In the case of the Holding Company only, it will
---------------------
ensure that each balance sheet and profit and loss account furnished under
paragraph (a) will:
(i) be prepared in accordance with all applicable laws and accounting
principles and practices generally accepted in Australia
consistently applied except to the extent disclosed in such
accounts; and
<PAGE>
16
(ii) give a true and fair view of its consolidated and unconsolidated
state of affairs and the result of its consolidated operations, as
at the date, and for the period ending on the date, to which such
accounts are prepared.
(c) (Authorisations): It will use its best endevours to ensure that all
--------------
Authorisations required for:
(i) the validity, enforceability and performance of its obligations
under the Transaction Documents and the effectiveness and priority
of this charge;
(ii) the validity, enforceability and performance of the Material
Documents; and
(iii) it and its Subsidiaries to carry on their business,
are obtained and promptly renewed and maintained in full force and effect.
It will comply with them. It will provide copies promptly to the Agent
when they are obtained or renewed.
(d) (Notice to Agent): It will give notice to the Agent as soon as it becomes
---------------
aware of:
(i) any Event of Default or Potential Event of Default;
(ii) any proposal by any Governmental Agency to acquire compulsorily any
of the Mortgaged Property or the whole or a substantial part of its
or any of its Subsidiaries' assets or business or of any asset;
(iii) any substantial dispute between it or any of its Subsidiaries and
any Governmental Agency; and
(iv) any change in its Authorised Officers, giving specimen signatures
of any new Authorised Officer so appointed, and, where requested by
the Agent, evidence satisfactory to the Agent of the authority of
those Authorised Officers.
(e) (Disposal of assets): It will not sell or otherwise dispose of, part with
------------------
possession of, or create any interest in, any of the Mortgaged Property or
all or a substantial part of its assets or agree or attempt to do so
(whether in one or more related or unrelated transactions) except, in the
case only of assets over which this charge is floating:
(i) as permitted by paragraph (f);
(ii) disposals of assets in exchange for other assets comparable in
value (other than a factoring on recourse terms or a sale and Lease
back or similar transaction); and
(iii) disposals in the ordinary course of day-to-day trading.
Where a Subsidiary issues shares and its holding company does not acquire
all the shares or (as the case may be) a ratable portion of those shares
according to its then shareholding it will be deemed a disposal by the
holding company.
(f) (Negative pledge): It will not create or allow to exist any Security
---------------
Interest over its assets other than:
<PAGE>
17
(i) this Deed or any Collateral Security;
(ii) liens arising by operation of law in the ordinary course of day-to-
day trading;
(iii) in the case of Vilbrent Pty Limited, the first ranking Real
Property Act mortgage registered number W415483 to Permanent
Custodians Limited over the whole of the land contained in
Certificate of Title Folio Identifier 10/533334 at Auburn;
(iv) by a US Subsidiary for so long as it has not given a Security
Interest over the relevant asset to the Agent or otherwise in
favour of a Charging Group Member where the chargor executes a deed
of priority subordinating such Security Interest to this Deed and
the Collateral Security on terms satisfactory to the Agent.
(g) (Security deposit): It will not deposit or lend money on terms that it
----------------
will not be repaid unless or until its or any other person's obligations
or indebtedness are performed or discharged, other than as a condition of
a Lease where such condition is a usual commercial term. It will not
deposit money with or lend money to any person to whom it is, or is likely
to become, actually or contingently indebted other than a Mortgagee, a
Charging Group Member, Bromic Pty Limited, G.L.G. (NZ) Pty Limited or a
Licensed Optometrist and will furnish to the Agent at the time the Holding
Company furnishes quarterly management accounts to the Agent under Clause
5.2(a) (iii) a statement of its accounts with Bromic Pty Limited and
G.L.G. (NZ) Pty Limited as at the end of the quarter.
(h) (Title retention): It will not enter into any agreement with respect to
---------------
the acquisition of assets on title retention terms except in the ordinary
course of day-to-day trading.
(i) (Sale and Lease back): It will not sell or otherwise dispose of any of its
-------------------
assets to any person where under the terms of such sale or disposal, or
under a related transaction, such asset is or may be Leased to or used,
chartered, hired, operated or managed by any Relevant Company or Associate
under any Lease.
(j) (Partnership and joint ventures): It will not enter into any partnership,
------------------------------
franchise arrangement or joint venture with any other person in relation
to the Mortgaged Property unless the nature of its rights and liabilities
under such partnership, franchise arrangement or joint venture has been
disclosed to the Agent or is substantially similar to those previously
disclosed to the Agent and any material difference has been previously
disclosed to the Agent.
(k) (Corporate existence):
-------------------
(i) It will do all things necessary to maintain its corporate existence
in good standing.
(ii) It will not transfer its jurisdiction of incorporation or enter any
merger or consolidation except in the case of a transfer within
Australia with the consent of the Agent not to be unreasonably
withheld.
(l) (Compliance with law): It will comply duly and punctually with all laws
-------------------
binding upon it in all material respects.
(m) (Pay Taxes):
---------
(i) It will pay when due all Taxes payable by it.
<PAGE>
18
(ii) It need not pay Taxes for which it has set aside sufficient
reserves and which are being contested in good faith except where
failure to pay such Taxes may have a material adverse effect upon
it or its ability to perform any of its financial or other
obligations under any Transaction Document or may prejudice the
Mortgaged Property or the security of the Agent.
(iii) It will pay such contested Taxes after the final determination or
settlement of any such contest.
(n) (Commercial dealings):
-------------------
(i) It will not deal in any way with any person who is not a Charging
Group Member except at arms' length in the ordinary course of
business for valuable commercial consideration or as disclosed to
the Agent with the Agent's prior written consent or except with a
US Subsidiary, Bromic Pty Limited, G.L.G. (NZ) Pty Limited or a
Licensed Optometrist on terms previously disclosed to the Agent.
(ii) Subject to paragraph (iii) where the other party to the dealing is
an Associate (other than Bromic Pty Limited or G.L.G. (NZ) Pty
Limited) the adequacy of the consideration and the terms of the
dealing must be supported by an independent valuation or other
verification of compliance with sub-paragraph (i) specified by the
Agent, in each case by a person satisfactory to the Agent.
(iii) It will immediately notify the Agent of any dealing with Rebel
Sports Pty Limited, Rebel Concepts Pty Limited, Rebel Sports
(Bankstown) Pty Limited, Rebel Sports (Bondi) Pty Limited, Rebel
Sports (Miranda) Pty Limited or Rebel Sports (Penrith) Pty Limited,
however an independent valuation is only required if requested by
the Agent.
(iv) It will obtain a fair market rent or licence fee under any Lease
granted by it in respect of any of the Mortgaged Property.
(v) It will not enter into any Treasury Facility other than for the
sole purpose of creating a hedge for interest rate or currency
movement risks associated with the ordinary course of its business.
(o) (Financial assistance): It will not:
--------------------
(i) advance money or make available any financial accommodation to or
for the benefit of; or
(ii) give any Guarantee or Security Interest in connection with any
indebtedness, obligation or liability of,
any person other than;
(iii) a Charging Group Member;
(iv) a US Subsidiary (on terms previously disclosed to the Agent); or
(v) the Guarantees given in connection with Bromic Pty. Limited and
G.L.G. (NZ) Pty. Limited prior to the date of this Deed,
but it may:
<PAGE>
19
(vi) deposit funds with a bank in the ordinary course of its business
unless, where the bank is not a Mortgagee, it owes Financial
Indebtedness to that bank;
(vii) allow its customers to acquire goods and services on extended terms
in the ordinary course of trading; and
(viii) make a loan to any person (other than a director of the Holding
Company) engaged in the full-time employment of a Charging Group
Member, but so that the aggregate amount owing by such person shall
not at any time exceed A$120,000.
(p) (Distributions): It will not make any payment or distribution (including
-------------
without limitation by management or other fee, interest, dividend, return
of capital, repayment or redemption) to or for the benefit of any
Associate or its shareholders in their capacity as shareholders except:
(i) dividends in the ordinary course of business paid out of trading
profits (excluding extraordinary items) and paid when there is no
Event of Default subsisting and the aggregate amount of which
during the previous 12 month period does not exceed 50% of Earnings
(as defined in Clause 5.6(c)) for that 12 month period;
(ii) reasonable directors' fees and salaries and other emoluments;
(iii) payments under dealings permitted under paragraph (n); and
(iv) payments to a Charging Group Member or a US Subsidiary, Bromic Pty
Limited or G.L.G. (NZ) Pty Limited on terms previously disclosed to
the Agent.
(q) (Change of business): It will not cease or materially change any Core
-------------------
Business. It will not take any action whether by acquisition or otherwise
which would constitute or result in an alteration to the nature of a Core
Business of a Mortgagor or a Mortgagor's Subsidiaries and if such
alteration or such alterations in the aggregate would constitute a
material alteration to the nature of a Core Business of a Mortgagor and a
Mortgagor's Subsidiaries taken as a whole.
(r) (Subsidiaries)
------------
(i) It will not create or acquire a Subsidiary unless at the time of
becoming a Subsidiary the Subsidiary gives a first charge over all
its assets and undertaking to secure the Secured Moneys
satisfactory to the Agent.
(ii) It will ensure that each of its Subsidiaries complies with
paragraphs (e) to (r) inclusive as if binding on each of them and
as if references to "it" were to the Subsidiary.
(iii) It will ensure that none of its Subsidiaries (other than a
Subsidiary which has given a first charge over all its assets to
secure the Secured Moneys satisfactory to the Agent) incurs any
Financial Indebtedness except to:
(A) a Mortgagee; or
(B) a Mortgagor or any other person who has given a first charge
over all its assets and undertaking to secure the Secured
Moneys satisfactory to the Agent.
<PAGE>
20
(s) (Further security): It will procure that any Subsidiary provides:
----------------
(a) a Security Interest over any asset located in Australia and any
asset of the type described in Clause 3.2(a) of this Deed located
outside Australia to secure; or
(b) a Guarantee of,
any Secured Moneys, at the request of the Agent in form and substance
acceptable to the Agent within 30 days of the date of the request.
5.3 Covenants relating to Mortgaged Property
- ---------------------------------------------
Each Mortgagor covenants with the Agent as follows, except to the extent that
the Agent otherwise consents.
(a) (Pay outgoings):
-------------
(i) Subject to sub-paragraph (ii), it will pay when due all outgoings
payable by it in respect of the Mortgaged Property (including
without limitation rent and Taxes).
(ii) It need not pay outgoings which are being contested in good faith
except where failure to pay such outgoings may have a material
adverse effect upon it or its ability to perform any of its
financial or other obligations under any Transaction Document or
may prejudice the Mortgaged Property or any Security Interest held
by the Agent.
(iii) It will pay such contested outgoings after the final determination
or settlement of such contest.
(iv) On request by the Agent it will immediately hand to the Agent
evidence of every payment covered by the request.
(b) (Maintenance):
-----------
(i) It will maintain each item of the Mortgaged Property which has a
value in excess of A$50,000 in a good state of repair and in good
working order and condition.
(ii) On being required to do so by the Agent it will immediately amend
every defect in the repair and condition of any item of the
Mortgaged Property which has a value in excess of A$50,000 (fair
wear and tear excepted).
(c) (Insurance):
---------
(i) (General obligation): In its name and in the name of the Agent on
------------------
behalf of each Mortgagee it will:
(A) insure and keep insured the Mortgaged Property which is
of an insurable nature to the full replacement or re-
instatement value; and
(B) take out and keep in force other insurance with respect to
the Mortgaged Property and each business in which the
Mortgaged Property is used (including, without limitation,
any insurance reasonably requested by the Agent and public
risk, worker's compensation, product liability and business
interruption insurance),
<PAGE>
21
in the manner and to the extent which the Agent acting on the
advice of substantial and reputable brokers determines to be
reasonable and customary for a business enterprise engaged in a
similar business and in a similar locality, and for property of the
nature of the Mortgaged Property.
(ii) (Alternative obligation): If the Agent makes no determination or
----------------------
request under sub-paragraph (i), the relevant Mortgagor shall take
out and keep in force insurance in the amount and against the risks
which a business enterprise holding property and engaged in a
business in a locality similar to that of the relevant Mortgagor
would prudently insure against.
(iii) (Payment of premiums): It will pay when due all premiums,
-------------------
commissions, levies, stamp duties, charges and other expenses
necessary for effecting each such insurance policy and maintaining
it in force.
(iv) (Insurers): It will take out each such insurance policy with
--------
substantial and reputable insurers approved by the Agent, located
in jurisdictions approved by the Agent. The approval in each case
is not to be unreasonably withheld.
(v) (Information): On request it will deliver to the Agent certificates
-----------
of currency in respect of all such insurance policies, and all
other details as to the insurance policies which the Agent
requires.
(vi) (Annual report): At least once every year it will provide to the
-------------
Agent a report as to such insurance policies as at the date of the
report and claims and other material events with respect to such
insurances during the previous twelve months.
(vii) (No prejudicial action): It will not do anything nor permit
---------------------
anything to be done which may prejudice any such policy or omit to
do anything where omission may prejudice any such insurance policy.
(viii) (Contents of policy): Without limiting sub-paragraphs (i) or (ii)
------------------
it will ensure that each such insurance policy with respect to the
Mortgaged Property is on terms and conditions satisfactory to the
Agent acting on the advice of reputable and substantial brokers and
without limitation provides that:
(A) the Agent (on behalf of the Mortgagees) is named as loss
payee;
(B) the proceeds of any loss in respect of insurance of the
Mortgaged Property will be paid to the Agent other than
claims of less than A$50,000 or its equivalent and claims
under any public liability policy in each case made before
notice by the Agent to the insurer that this Deed has become
enforceable and except where the proceeds are used by way of
replacement or reinstatement in accordance with the relevant
policy;
(C) the amount of any excess or deductible payable by the insured
in respect of any claim will not exceed the customary amount
for similar policies in the reasonable opinion of the Agent
acting on the advice of reputable and substantial brokers;
<PAGE>
22
(D) the insurer waives its right to set off or counter claim or
to make any other deduction or withholding as against the
Agent and all persons claiming under the Agent except for his
rights under section 54 of the Insurance Contracts Act 1984;
and
(E) the insurer will not terminate the insurance policy unless it
has given not less than 14 days prior notice to the Agent
specifying the default or breach and the relevant default or
breach has not been rectified before the expiry of the period
of the notice.
(ix) (Remedy of default): If:
-----------------
(A) any default is made by a Mortgagor in effecting or keeping up any
such insurance policy;
(B) any fact or circumstance arises which in the reasonable opinion of
the Agent may entitle the insurer to cancel or avoid any such
insurance policy; or
(C) in the reasonable opinion of the Agent the insurer under any such
policy may not be capable of meeting a claim,
the Agent may do anything which in its opinion is advisable or necessary
to effect or keep up that insurance policy or take out a new policy
complying with this Clause, in each case at the cost of the relevant
Mortgagor and either in its name or in the name of the relevant Mortgagor.
The Agent is not under any obligation to do so.
(x) (Enforcement by Agent): It will do everything necessary and provide all
--------------------
documents, evidence and information necessary to enable the Agent to make
a claim, and to collect or recover any moneys due in respect of any such
insurance policy.
(xi) (Notice of claims): As soon as possible it will notify:
----------------
(A) (1) the Agent; and
(2) (when it is required or it is advisable to do so) the
relevant insurer,
of the occurrence of any event which does or may give rise to
any claim of A$50,000 or its equivalent or more under any
such insurance policy; and
(B) the Agent of;
(1) any cancellation, change or reduction in any such insurance
policy which has a value in excess of A$50,000;
(2) any such insurance policy becoming void or voidable; or
(3) any other material circumstance or correspondence
relating to any such insurance policy.
(xii) (Use of insurance proceeds): It will use the proceeds of all such
-------------------------
insurance policies received by it for the following purposes.
<PAGE>
23
(A) If no Event of Default is subsisting:
(1) to the extent necessary, in the replacement, repair or
reimbursement of the relevant Mortgaged Property; or
(2) in discharging the relevant liability or in making good the
relevant loss covered by the insurance policy,
as the case may be. The Agent will make available for those
purposes to the relevant Mortgagor all proceeds received by the
Agent as and when the proceeds are actually required to pay amounts
due and payable for those purposes. Each Mortgagor will apply any
surplus in reduction of the Secured Moneys unless the Agent agrees
otherwise.
(B) if an Event of Default is subsisting:
(1) for any of the purposes described in sub-paragraph (A); or
(2) towards payment of the Secured Moneys,
at the option of the Agent.
(c) (Alterations): It will not make or permit any person to make material
-----------
alterations to any real property comprised in the Mortgaged Property
without the prior written consent of the Agent.
(d) (Preservation and protection of security):
---------------------------------------
(i) It will do promptly everything necessary and everything reasonably
required by the Agent to:
(A) preserve and protect the value of the Mortgaged Property; and
(B) protect and enforce its title and the Agent's title as
mortgagee to the Mortgaged Property.
(ii) Without limiting the generality of sub-paragraph (i), no Mortgagor
will permit lodgment of a caveat forbidding the recording of any
interest of it or a Mortgagee in the Mortgaged Property.
(iii) If any such caveat is lodged (other than a caveat lodged by the
relevant Mortgagee) the relevant Mortgagor will promptly do
everything in its power to remove it.
(iv) The generality of this paragraph does not limit nor is it limited
by the generality of any other paragraph of this Clause 5.
(e) (Other Security Interests): It will duly and punctually comply with all
------------------------
Security Interests affecting the Mortgaged Property and the obligations
secured by those Security Interests.
<PAGE>
24
(f) (Acquisition of assets): It will notify the Agent:
---------------------
(i) immediately of the creation or acquisition of a Subsidiary or of
any, agreement for the purchase of, or other acquisition of, any
estate or interest in, any land it enters into (other than an
interest dealt with in paragraph (ii));
(ii) at the time the Holding Company furnishes the annual accounts under
Clause 5.2(a)(i) of each agreement for lease or lease of any land
it has entered into during the immediately preceding financial
year.
5.4 Term of covenants
- ----------------------
Each covenant in this Clause continues from the date of this Deed until the
Secured Moneys are fully and finally repaid.
5.5 Financial undertakings
- ---------------------------
Each Mortgagor undertakes to the Agent on behalf of each Mortgagee as follows,
except to the extent that the Agent consents otherwise.
(a) (Gearing ratio): It will ensure that Total Liabilities do not as at 30
-------------
June or 31 December in any year exceed 70% of Total Tangible Assets as at
that time.
(b) (Current ratio): It will ensure that Total Current Assets as at 30 June or
-------------
31 December in any year are not less than 125% of Total Current
Liabilities as at that time.
(c) (Interest cover): It will ensure that Interest Expense for the six month
--------------
period ended 30 June 1991 and then for each 12 month period ending 31
December and 30 June is not greater than 50% of Earnings for that period.
(d) (Overseas Subsidiary): It will ensure that the aggregate amount of all
-------------------
assets of the Subsidiaries of the Holding Company which are incorporated
outside Australia as shown by such financial statements or other evidence
required by the Agent at no time exceeds US$10,000,000.00 or its
equivalent.
5.6 Definitions
- ----------------
In Clause 5.5 the following terms have the following meanings.
(a) "Accounts" means at any time the then latest audited consolidated balance
--------
sheet and profit and loss account of the Holding Company and its
Subsidiaries or any other accounts prepared in the manner approved by the
Agent and provided to the Agent under this Agreement and in the case of
any interim accounts includes, where necessary to make a determination
over a 12 month period, so much of the last audited financial statements
as is necessary.
(b) "Auditors" means Horwath & Horwath or such other firm of accountants
--------
appointed by the Holding Company to audit its accounts with the approval
of the Agent.
(c) "Earnings" means, for any period of 12 months, the aggregate amount of
--------
consolidated pre-tax profit excluding extraordinary items plus Interest
Expense and depreciation and amortisation of goodwill, other intangibles
and non-cash items of the Holding Company and its Subsidiaries for that
period, as shown by the Accounts.
<PAGE>
25
(d) "Interest Expense" means, for any period of 12 months, all interest and
----------------
amounts in the nature of interest or of similar effect to interest
(including amounts other than principal payable under this Agreement) paid
or payable by the Holding Company and its Subsidiaries in that period, as
shown in the Accounts including, without limitation:
(i) any dividend payable on any stock or share included as Financial
Indebtedness;
(ii) the non-capital component of rentals in respect of finance or
capitalised Lease obligations;
(iii) the face value of bills of exchange or other financial instruments
(but not reliquefication bills drawn under any Transaction
Document) drawn, issued, endorsed or accepted by the Holding
Company or any of its Subsidiaries less their net proceeds after
discount or issue and payment of any acceptance, endorsement,
underwriting or similar fee; and
(iv) all line, facility, letter of credit, guarantee and similar fees
and all fees and other amounts of a regular or recurring nature
payable in relation to Financial Indebtedness but not:
(A) unused line fees; and
(B) establishment, arrangement and other fees payable once only
on the initial provision of financial accommodation,
but excluding all transactions between any two of the Holding Company and
its Subsidiaries.
(e) "Tangible Assets" means all assets other than goodwill, patents,
---------------
trademarks, design rights, franchises, future Tax benefits, underwriting
and formation expenses and any other items which according to generally
accepted Australian accounting principles and practices are regarded as
intangible assets.
(f) "Total Current Assets" means at any time the aggregate amount of the
--------------------
current assets of the Holding Company and its Subsidiaries as shown by the
Accounts, adjusted as necessary to include:
(i) (new Subsidiaries): the aggregate amount of all current assets of
----------------
any corporation that has become a Subsidiary of the Holding Company
since the date of the Accounts,
after:
(ii) (former Subsidiaries): deducting the aggregate amount of all
-------------------
current assets of any Subsidiary that has ceased to be a Subsidiary
since the date of the Accounts to the extent they were reflected in
the Accounts; and
(iii) (further adjustments): making any further adjustments which in
-------------------
the reasonable opinion of the Auditors are appropriate to make a
proper determination of the total current assets of the Holding
Company and its Subsidiaries on a consolidated basis in accordance
with the Corporations Law and, to the extent not inconsistent,
generally accepted Australian accounting principles and practices
including without limitation any adjustment to include the
difference, if any, in the value between the cost of stock
manufactured by any Subsidiary of the Holding Company and the value
at which such stock is acquired by any other Subsidiary in the
ordinary course of business between such Subsidiaries.
<PAGE>
26
(g) "Total Current Liabilities" means at any time the aggregate amount of all
-------------------------
current liabilities of the Holding Company and its Subsidiaries in respect
of Financial Indebtedness or otherwise (but excluding any Financial
Indebtedness (less interest or any amount in the nature of interest) under
any Facility Document as defined in the Agency Agreement), as shown by the
Accounts, adjusted as necessary to include (without limitation or
duplication):
(i) (maturing obligations): all Financial Indebtedness and other
--------------------
obligations of the Holding Company and its Subsidiaries payable
within 12 months of the date of determination (excluding any
Financial Indebtedness (less interest or any amount in the nature
of interest) under any Facility Document as defined in the Agency
Agreement);
(ii) (new subsidiaries): the aggregate amount of all current liabilities
----------------
of any corporation that has become a Subsidiary of the Holding
Company since the date of the Accounts;
after:
(iii) (former subsidiaries): deducting the aggregate amount of all
-------------------
current liabilities of any Subsidiary that has ceased to be a
Subsidiary since the date of the Accounts to the extent they were
reflected in the Accounts;
(iv) (eliminations): eliminating all inter-company balances between any
------------
two of the Holding Company and its Subsidiaries; and
(v) (further adjustments): making any further adjustments which in the
-------------------
reasonable opinion of the Auditors are appropriate to make a proper
determination of the total current liabilities of the Holding
Company and its Subsidiaries on a consolidated basis in accordance
with the Corporations Law and, to the extent not inconsistent,
generally accepted Australian accounting principles and practices.
(1) "Total Liabilities" means at any time the aggregate amount of all secured
-----------------
and unsecured direct liabilities excluding Contingent Liabilities of the
Holding Company and its Subsidiaries in respect of Financial Indebtedness
or otherwise, as shown by the Accounts, adjusted as necessary to include
(without limitation or duplication):
(i) (new subsidiaries): the aggregate amount of all secured and
----------------
unsecured liabilities of any corporation that has become a
Subsidiary of the Holding Company since the date of the Accounts;
(ii) (provisions): all provisions for estimated liabilities for Tax and
----------
long service leave and for dividends recommended, declared or
accrued but not paid since the date of the Accounts;
(iii) (new accommodation): the unrepaid principal (including the
-----------------
principal component of such liability in respect of any finance
Lease) of any liability in respect of Financial Indebtedness when
the proceeds or the benefits of the same have been received by the
Holding Company or any of its Subsidiaries since the date of the
Accounts, but excluding the amount of any such proceeds which have
been applied in reduction of any liabilities otherwise included in
the definition,
<PAGE>
27
after:
(iv) (former subsidiaries): deducting the aggregate of all secured and
-------------------
unsecured liabilities of any corporation that has ceased to be a
Subsidiary since the date of the Accounts to the extent they were
reflected in the Accounts;
(v) (deferrals): deducting any provision for deferred income Tax
---------
appearing as a liability in the Accounts;
(vi) (eliminations): eliminating all inter-company balances between any
------------
two of the Holding Company and its Subsidiaries (including any
Subsidiary which has become one since the date of the Accounts);
and
(vii) (further adjustments): making any further adjustments which in the
-------------------
reasonable opinion of the Auditors are appropriate to make a proper
determination of the total liabilities of the Holding Company and
its Subsidiaries on a consolidated basis in accordance with the
Corporations Law and, to the extent not inconsistent, generally
accepted Australian accounting principles and practices.
(i) "Total Tangible Assets" means at any time the aggregate of the book values
---------------------
of all tangible assets of the Holding Company and its Subsidiaries, as
shown by the Accounts, adjusted as necessary to include (without
limitation or duplication):
(i) (new subsidiaries): the aggregate amount of all Tangible Assets of
----------------
any corporation that has become a Subsidiary of the Holding Company
since the date of the Accounts;
(ii) (new issues): the aggregate proceeds of any issue of shares or
----------
other securities by the Holding Company received since the date of
the Accounts;
(iii) (revaluations): the excess (if any) of the value of any asset of
------------
the Holding Company or a Subsidiary over the book value shown in
the Accounts for that asset as assessed by a qualified independent
valuer approved by the Agent;
after:
(iv) (provisions): deducting the amount shown in the Accounts of any
----------
income yet to mature at the date of adjustment and any provisions
for depreciation and for bad and doubtful debts appearing in the
books of the Holding a Company or any of its Subsidiaries;
(v) (revaluations): deducting any amount by which the book value of any
------------
asset is written up after the date of this Agreement in excess of
its cost, except where it has been written up in accordance with a
valuation by a qualified independent valuer approved by the Agent;
(vi) (former subsidiaries): deducting the aggregate amount (disclosed by
-------------------
the latest audited balance sheet of the relevant corporation) of
the book value of tangible assets of any corporation which has
ceased to be a Subsidiary of the Holding Company since the date of
the Accounts;
(vii) (eliminations): eliminating all inter-company balances between any
------------
two of the Holding Company and its Subsidiaries; and
<PAGE>
28
(viii) (further adjustments): making any further adjustments which in the
--------------------
reasonable opinion of the Auditors are appropriate to make a
proper determination of the total tangible assets of the Holding
Company and its Subsidiaries on a consolidated basis in accordance
with the Corporations Law and, to the extent not inconsistent,
generally accepted Australian accounting principles and practices.
(j) "Contingent Liabilities" means at any time the aggregate amount of the
----------------------
contingent liabilities of the Holding Company and its Subsidiaries in
respect of Financial Indebtedness or otherwise, as shown by the Accounts,
but excluding any Guarantee, adjusted as necessary to include:
(i) (new subsidiaries): the aggregate amount of contingent liabilities
-----------------
of any corporation that has become a Subsidiary of the Holding
Company since the date of the Accounts,
after:
(ii) (former subsidiaries): deducting the aggregate of contingent
--------------------
liabilities of any Subsidiary that has ceased to be a Subsidiary
since the date of the Accounts to the extent they were reflected
in the Accounts; and
(iii) (further adjustments): making any further adjustments which in the
--------------------
reasonable opinion of the Auditors are appropriate to make a
proper determination of the contingent liabilities of the Holding
Company and its Subsidiaries on a consolidated basis in accordance
with the Corporations Law and, to the extent not inconsistent,
generally accepted Australian accounting principles and practices.
6. FURTHER ASSURANCES
- ----------------------
6.1 Further assurances
- -----------------------
Whenever the Agent requests a Mortgagor to do anything:
(a) for more satisfactorily mortgaging, assuring or securing the Mortgaged
Property to the Agent in a manner not inconsistent with this Deed or any
Collateral Security; or
(b) for aiding in the execution or exercise of any Power,
that Mortgagor shall do it immediately at its own cost. It may include (without
limitation) registering this Deed, the execution or registering of any other
document or agreement, the delivery of documents or evidence of title and the
execution and delivery of blank transfers.
6.2 Interest in land
- ----------------------
(a) Without limiting Clause 6.1, if requested by the Agent, upon acquiring any
fee simple interest in real property comprised in the Mortgaged Property a
Mortgagor shall execute a legal or statutory mortgage over that interest
securing the Secured Moneys in the form and substance required by the
Agent. The relevant Mortgagor shall use its best endeavours to register
that mortgage.
(b) The mortgage may not contain any obligation more onerous than in the
relevant Transaction Documents.
<PAGE>
29
6.3 Title documents
- --------------------
Without limiting Clause 6.1. each Mortgagor will forthwith deliver to the Agent
all documents of title held or received by it to:
(a) any interest in real property; or
(b) any Marketable Securities other than:
(i) scrip for any shares it holds in a Subsidiary, Bromic Pty Ltd or
G.L.G. (NZ) Pty Ltd;
(ii) negotiable instruments in aggregate face value at any time of
A$50,000; and
(iii) a Marketable Security, the subject of a notice from the Agent to
the relevant Mortgagor,
which it may retain, unless delivery is specifically requested by the
Agent at any time.
7. EVENTS OF DEFAULT
- ---------------------
7.1 Events of Default
- ----------------------
Each of the following is an Event of Default (whether or not it is in the
control of a Mortgagor).
(a) (Obligations under Transaction Documents): A Mortgagor or any Relevant
----------------------------------------
Company fails:
(i) to pay when due or within any applicable grace period any amount
payable by it under any Transaction Document;
(ii) to comply with any of its other obligations under any Transaction
Document and, if that failure can be remedied in that period, does
not remedy the failure within a further 14 days; or
(iii) to satisfy within the stipulated time any condition subject to
which the Agent or a Mortgagee has waived compliance with any
condition precedent in any Transaction Document.
(b) (Misrepresentation): Any representation, warranty or statement by or on
-----------------
behalf of any Relevant Company in any Transaction Document, or in any
document provided under or in connection with any Transaction Document, is
not true or is misleading in any material respect when made or repeated.
(c) (Cross default):
-------------
(i) Any Financial Indebtedness of any Relevant Company aggregating to
at least $500,000 or its equivalent:
(A) is not paid when due (or within any applicable grace period);
or
(B) becomes due and payable or capable of being declared due and
payable before its stated maturity or expiry;
(ii) any facility or obligation granted or owed by any person to any
Relevant Company to provide financial accommodation or to acquire
or underwrite Financial Indebtedness aggregating to at least
A$500,000 or its equivalent is prematurely terminated; or
<PAGE>
30
(iii) an event of default as defined in any other Transaction Document
(other than an event of default disclosed in writing to the Agent
prior to the date of this Deed) occurs and is not remedied or
waived within 3 Business Days.
For the purposes of this paragraph, if a person is required to provide
cash cover for Financial Indebtedness it will be deemed to be due and
payable.
(d) (Winding up, arrangements, insolvency etc.):
-----------------------------------------
(i) Except for the purposes of a solvent reconstruction or
amalgamation previously approved by the Agent:
(A) an application (other than a frivolous or vexatious
application) or an order is made, proceedings are
commenced, a resolution is passed or proposed in a notice
of meeting or an application to a court or other steps are
taken for:
(I) the winding up, dissolution, official management or
administration of any Relevant Company; or
(II) any Relevant Company entering into any arrangement,
compromise or composition with or assignment for the
benefit of its creditors or any class of them; or
(B) any Relevant Company ceases or suspends the conduct of all
or a substantial part of a Core Business or disposes of or
threatens to dispose of a substantial part of its assets or
threatens to do so.
(ii) any Relevant Company is, or is deemed under any applicable
legislation to be, unable to pay its debts when they fall due
(other than as a result of a failure to pay a debt or claim the
subject of a good faith dispute) or stops or suspends or
threatens to stop or suspend payment of all or any class of its
debts.
(e) (Enforcement against assets): With respect to any of the assets and
--------------------------
undertaking of any Relevant Company:
(i) a receiver, receiver and manager, administrative receiver or
similar officer is appointed;
(ii) any Security Interest becomes enforceable or is enforced; or
(iii) a distress, attachment or other execution for an amount in excess
of A$50,000 is levied or enforced or applied for.
(f) (Reduction of capital): Without the prior consent of the Agent (which
--------------------
shall be withheld, if, without limitation, in the opinion of the Agent
such action will reduce the value to the Mortgagees of this Deed or any
Collateral Security), any Relevant Company:
(i) reduces its capital (except by the redemption of redeemable
shares);
(ii) passes a resolution to reduce its capital or a resolution under
section 188(2) or 205(10) of the Corporations Law or any
equivalent provision, or calls a meeting to consider such a
resolution; or
<PAGE>
31
(iii) applies to a court to call any such meeting or to sanction any
such resolution or reduction.
(g) (Inspector): An inspector is appointed under any companies legislation to
---------
investigate all or any part of the affairs of any Relevant Company in
circumstances material to its financial condition.
(h) (Analogous process): Anything which is analogous to anything referred to
-----------------
in paragraphs (d) to (g) inclusive, or which has substantially similar
effects with respect to any Relevant Company occurs under any applicable
law.
(i) (Vitiation of Transaction Documents):
----------------------------------
(i) All or any part of any Transaction Document is terminated (other
than with the consent of all parties to the document, as a result of
due performance or as a result of closing out a treasury contract)
or is or becomes void, illegal, invalid, unenforceable or of limited
force and effect;
(ii) any party becomes entitled to terminate, rescind or avoid all or any
part of any Transaction Document; or
(iii) any Relevant Company alleges or claims that an event described in
sub-paragraph (i) has occurred or that it is entitled as described
in sub-paragraph (ii).
(j) (Amendment of articles): The memorandum or articles of association or
---------------------
other constituent documents of any Relevant Company are amended in a
material respect without the prior written consent of the Agent (which will
not be withheld unreasonably).
(k) (Revocation of Authorisation): Any Authorisation which is material to the
---------------------------
performance by any Relevant Company of any Transaction Document, or to the
validity and enforceability of any Transaction Document or to the security
of the Agent, is repealed, revoked or terminated or expires, or is modified
or amended in a manner reasonably unacceptable to the Agent, and is not
replaced by another Authorisation acceptable to the Agent.
(l) (Material adverse change): Any other event or series of events, whether
-----------------------
related or not, occurs (including, without limitation, any material adverse
change in the business, assets or financial condition of any Relevant
Company) which in the opinion of the Agent may adversely affect the
security of the Agent or the ability or willingness of any Relevant Company
to comply with any of its obligations under any Transaction Document.
(m) (Control of Mortgagor and Borrower):
---------------------------------
(i) A Mortgagor or a Borrower becomes a Subsidiary of another person;
(ii) any person, being entitled (within the meaning of Section 609 of the
Corporations Law to less than 20% of the shares or stock (as to
votes or paid up capital) of a Mortgagor or a Borrower at the date
of this Deed becomes entitled to 20% or more of the shares or stock
(as to votes or paid up value) of a Borrower or a Mortgagor (as the
case may be);
<PAGE>
32
(iii) any person, being entitled (as so defined) to less than 50% of the
voting shares or stock (as to votes or paid up capital) of a
Borrower or a Mortgagor at the date of this Deed becomes entitled to
more than 50% of the voting shares or stock (as to votes or paid up
capital) of a Borrower or a Mortagor (as the case may be);
(iv) in the reasonable opinion of the Agent there is a material change
in:
(A) the ownership or control of a Mortgagor or a Borrower; or
(B) the management of the Charging Group Members taken as a whole.
(n) (Compulsory acquisition):
----------------------
(i) All or any part of the Mortgaged Property or other assets of any
Relevant Company, with a value in aggregate in excess of A$50,0O0,
is compulsorily acquired by or by order of any Governmental Agency
or under any law without the Relevant Company receiving assets of
equivalent value;
(ii) any Governmental Agency orders the sale, vesting or divesting of all
or any part of the Mortgaged Property, or other assets of any
Relevant Company, with a value in aggregate in excess of A$50,000,
without the Relevant Company receiving assets of equivalent value;
or
(iii) any Governmental Agency takes any step for the purpose of any of the
above or proposes or threatens to do any of the above.
(o) (Governmental interference): Any law or anything done by any Governmental
-------------------------
Agency wholly or partially to a material extent renders illegal, prevents
or restricts the performance or effectiveness of any Transaction Document
or otherwise has a Material Adverse Effect.
(p) (Share buy-backs): Without the prior consent of the Agent, a Relevant
---------------
Company:
(i) effects a buy back (as defined in the Corporations Law) of any of
its shares (including, without limitation, a buy-back, an employee-
share purchase or an odd-lot purchase (all of which are defined in
the Corporations Law));
(ii) passes a resolution to buy back (as defined in the Corporations Law)
any of its shares (including, without limitation, a buy-back, an
employee-share purchase or an odd-lot purchase (all of which are
defined in the Corporations Law)) or passes a resolution under
Section 206GC, Section 206HB, Section 206JA or Section 206JB of the
Corporations Law or any equivalent provision, or calls a meeting to
consider such a resolution; or
(iii) applies to a court to call any such meeting or to sanction any such
resolution or reduction.
7.2 Consequences
- -----------------
In addition to any other rights provided by this Deed or any other Transaction
Document, upon the occurrence of an Event of Default, and at any time
subsequently, the Agent may and shall if so directed by the Mortgagees by notice
to the Mortgagors:
<PAGE>
33
(a) declare the Secured Moneys immediately payable; and/or
(b) terminate any obligation of the Agent or a Mortgagee under the Transaction
Documents; and/or
(c) at the joint and several cost of the Borrowers appoint a firm of
independent accountants or other experts to review and report to the Agent
and the Mortgagees on the affairs, financial condition and business of any
Mortgagor at which time the Mortgagors shall ensure that such party is
given access to all records and information of a Mortgagor as it shall
from time to time require.
8. APPOINTMENT OF RECEIVER
- ----------------------------
8.1 Appointment
- ----------------
To the extent permitted by law, at any time after an Event of Default (whether
or not it is continuing) the Agent or any Authorised Officer of the Agent may:
(a) appoint any person or any two or more persons jointly and/or severally to
be a receiver or receiver and manager of all or any of the Mortgaged
Property;
(b) remove any Receiver;
(c) appoint another Receiver in addition to or in place of any Receiver; and
(d) fix the remuneration of any Receiver.
8.2 Agent of Mortgagors
- ------------------------
Subject to Clause 8.4, every Receiver will be the agent of the relevant
Mortgagor. The relevant Mortgagor alone will be responsible for his acts and
defaults.
8.3 Receiver's powers
- ----------------------
In addition to any powers granted by law, and except to the extent specifically
excluded by the terms of his appointment, every Receiver will have power to
do anything in respect of the Mortgaged Property that a Mortgagor could do,
including (without limitation):
(a) (to take possession and collect): to take possession of, collect, get in
------------------------------
and manage the Mortgaged Property;
(b) (to Lease): to Lease any of the Mortgaged Property for any term (whether or
--------
not the Receiver has taken possession);
(c) (to carry on business): to carry on or concur in carrying on any business;
--------------------
(d) (to acquire any asset): to acquire in any manner any asset (including
--------------------
without limitation to take it on Lease), after that acquisition it will be
included in the Mortgaged Property;
(e) (to maintain and improve the Mortgaged Property): to do anything for the
----------------------------------------------
maintenance, protection or improvement of any of the Mortgaged Property or
for obtaining income or returns from any of the Mortgaged Property
(including, without limitation, by development, sub-division, construction,
alteration, or repair of any property or by pulling down, dismantling or
scrapping any property);
<PAGE>
34
(f) (to raise money):
--------------
(i) to borrow or raise any money from the Agent or any other person
approved by the Agent; and
(ii) to grant any Security Interest over any of the Mortgaged Property to
secure such money, such Security Interest may rank in priority to or
equally with or after the security created by this Deed, it may be
given in the name of a Mortgagor or otherwise;
(g) (to sell):
-------
(i) to sell any of the Mortgaged Property (whether or not the Receiver
has taken possession); and
(ii) without limitation any sale may be made:
(A) by public auction, private treaty, or tender;
(B) for cash or on credit;
(C) in one lot or in parcels;
(D) either with or without special conditions or stipulations as to
title or time or mode of payment of purchase money or
otherwise;
(E) with power to allow the whole or any part of the purchase money
to be deferred (whether with or without any security); and
(F) whether or not in conjunction with the sale of any property by
any person;
(h) (options): to grant or take put or call options;
-------
(i) (to sever fixtures): to sever fixtures;
-----------------
(j) (to employ): to employ or discharge any person as employee, contractor,
---------
agent, professional adviser, consultant or auctioneer for any purpose;
(k) (to compromise): to make or accept any arrangement or compromise;
-------------
(1) (to give receipts): to give receipts for all moneys and other assets which
----------------
may come into the hands of the Receiver; and
(m) (to perform and enforce agreements):
---------------------------------
(i) to perform or enforce;
(ii) to exercise or refrain from exercising a Mortgagor's rights and
powers under; or
(iii) to obtain the benefit in other ways of,
any documents or agreements or rights which form part of the Mortgaged
Property and any documents or agreements entered into in exercise of any
Power;
(n) (to vary and terminate agreements): to vary, rescind or terminate any
--------------------------------
document or agreement (including without limitation to surrender or accent
the surrender of Leases);
<PAGE>
35
(o) (to take insolvency proceedings): to make debtors bankrupt and to wind up
------------------------------
companies and to do any thing in relation to any bankruptcy, winding up
official management, scheme of arrangement or receivership or other
administration (including without limitation to attend and vote at meetings
of creditors and appoint proxies for such meetings);
(p) (to take proceedings): to commence, defend, prosecute, settle, discontinue
-------------------
and compromise proceedings in the name of a Mortgagor or otherwise;
(q) (to execute documents): to enter into and execute documents or agreements
--------------------
on behalf of itself or a Mortgagor for any of the purposes of this Deed
(including, without limitation, to sign, accept or endorse cheques,
promissory notes and bills of exchange);
(r) (to operate bank accounts): to operate any bank account comprising part of
------------------------
the Mortgaged Property and to open and operate any further bank account;
(s) (to surrender Mortgaged Property): to surrender, release or transfer any of
-------------------------------
the Mortgaged Property;
(t) (to exchange Mortgaged Property): to exchange with any person any of the
------------------------------
Mortgaged Property for other property;
(u) (to promote companies): to promote the formation of companies with a view
--------------------
to purchasing all or any of the Mortgaged Property or assuming a
obligations of the Mortgagor or otherwise;
(v) (to delegate): to delegate to any person approved by the Agent any of the
-----------
powers conferred upon the Receiver (including delegation);
(w) (to have access): to have access to and make use of the premises, plant,
--------------
equipment and accounting and other services of a Mortgagor and the services
of its staff;
(x) (to vote): to exercise any voting or other rights or powers in respect of
-------
any of the Mortgaged Property and to do anything in relation to Marketable
Securities;
(y) (to make calls): to make calls on the members of a Mortgagor in respect of
-------------
any Unpaid Capital;
(z) (to insure): to take out insurance;
---------
(aa) (insurance claims): to make, enforce, compromise and settle all claims in
----------------
respect of insurance; and
(bb) (incidental power): to do anything incidental to the exercise of any other
----------------
Power.
All of the above paragraphs are to be construed independently. None limits the
generality of any other.
Any dealing under any such power will be on the terms and conditions the
Receiver thinks fit.
8.4 Receiver appointed after commencement of winding up
- --------------------------------------------------------
The power to appoint a Receiver may be exercised notwithstanding that:
(a) an order may have been made or a resolution may have been passed for the
winding up of a Mortgagor; and
<PAGE>
36
(b) a receiver appointed in those circumstances may not, or may not in some
respects, act as the agent of a Mortgagor.
8.5 Powers exercisable by the Agent
- ------------------------------------
Whether or not a Receiver has been appointed, to the extent permitted by law the
Agent may exercise any Power of a Receiver at any time after an Event of Default
(whether or not it is continuing) in addition to any Power of the Agent and
without giving notice. It may exercise those Powers and its Powers without
taking possession or being liable as mortgagee in possession.
8.6 Withdrawal
- ---------------
The Agent may at any time give up possession of the Mortgaged Property and may
at any time withdraw any receivership.
9. POWER OF ATTORNEY
- ----------------------
9.1 For valuable consideration and by way of security each Mortgagor
- ------
irrevocably appoints each Authorised Officer of the Agent severally its
attorney to do anything which:
(a) that Mortgagor is obliged to do under or in relation to any Transaction
Document; or
(b) the Agent or any Receiver is authorised or empowered to do under any
Transaction Document or any law but it may only do something at the times
that the Agent or a Receiver (if a Receiver had been appointed) would have
been able to do it.
9.2 Without limitation, the Attorney may:
- ------
(a) at any time, do anything necessary or considered expedient by the Agent or
the Attorney for securing, preserving or perfecting the security contained
in this Deed (including, without limitation, anything under Clause 10 or
11) and for this purpose he may execute legal mortgages, transfers,
assignments and other assurances in favour of the Agent of any of the
Mortgaged Property; and
(b) for any purpose from time to time delegate his powers (including
delegation).
9.3 No Attorney appointed under this Deed may act, nor has power to act,
- ------
inconsistently with this Deed or any other Transaction Document.
10. COMPLETION OF BLANK SECURITIES
- -----------------------------------
The Agent, any Authorised Officer of the Agent, any Receiver or any Attorney may
complete any document which at any time is executed by or on behalf of a
Mortgagor and deposited with the Agent under or as collateral security to this
Deed or any Collateral Security. It may complete it in favour of the Mortgagees,
the Agent on behalf of the Mortgagees, any appointee of the Mortgagee or any
purchaser.
11. PERFORMANCE OF MORTGAGORS' OBLIGATIONS
- -------------------------------------------
If a Mortgagor at any time fails duly to perform any obligation in any
Transaction Document the Agent may do anything which in its opinion is necessary
or expedient to make good or to attempt to make good that failure to its
satisfaction.
<PAGE>
37
12. STATUTORY POWERS
- ---------------------
12.1 Powers in augmentation
- ---------------------------
The powers conferred on a mortgagee by any law:
(a) are in augmentation of the powers conferred by this Deed or any Collateral
Security;
(b) (to the extent permitted by law) may be exercised by the Agent immediately
upon the occurrence of an Event of Default; and
(c) are excluded or varied only so far as they are inconsistent with the
express terms of this Deed or any Collateral Security.
12.2 Leasing
- ------------
Each Mortgagor shall furnish the Agent at the time the Holding Company furnishes
the annual accounts under Clause 5.2(a)(i) with details of any Lease it has
surrendered or had surrendered or become entitled to surrender during the
immediately preceding financial year. No Mortgagor shall exercise any power of
Leasing conferred on a Mortgagor by or under any law except as expressly
permitted or contemplated in any Transaction Document.
12.3 Notice not required
- ------------------------
To the extent permitted by law each Mortgagor dispenses with any notice or lapse
of time required by any law before enforcing this Deed or any Collateral
Security or exercising any Power and agrees that:
(a) neither the Agent nor any Mortgagee will be required to give notice to any
person before any such enforcement or exercise; and
(b) any law requiring the giving of any notice or the compliance with any
procedure or the lapse of time before any such enforcement or exercise is
excluded.
13. APPLICATION OF MONEYS RECEIVED
- -----------------------------------
13.1 Order
- ----------
Subject to any law which applies notwithstanding any agreement to the contrary,
all moneys received by any Receiver, any Attorney or Mortgagee under or by
virtue of this Deed shall be applied in the manner and order determined by the
Agent or, if the Agent does not make any such determination, in the following
order:
(a) First: all costs, charges and expenses of any Mortgagee or any Receiver or
Attorney which are incurred in or are incidental to the exercise or
performance or attempted exercise or performance of any Power or otherwise
in relation to this Deed or any Collateral Security.
(b) Second: any other outgoings which the Receiver, Attorney or the Agent
thinks fit to pay.
(c) Third: the Receiver's remuneration.
(d) Fourth: to each holder of a Security Interest of which the Agent is aware
and which has priority over this Deed in relation to the relevant Mortgaged
Property, to the extent, and in order, of priority.
<PAGE>
38
(e) Fifth: to the Agent for the account of the Mortgagees towards satisfaction
of the Secured Moneys.
(f) Sixth: to each holder of a Security Interest of which the Agent is aware
and which ranks after this Deed in relation to the relevant Mortgaged
Property, to the extent, and in order, of priority.
(g) Seventh: the surplus (if any) belongs to the relevant Mortgagor:
(i) the surplus will not carry interest; and
(ii) upon paying the surplus to the credit of an account in the name of
that Mortgagor with any bank carrying on business within the
Commonwealth of Australia, the Receiver, Mortgagee or Attorney (as
the case may be) will be under no further liability in respect of
it.
13.2 Moneys actually received
- -----------------------------
In applying any moneys towards satisfaction of the Secured Moneys a Mortgagor is
to be credited only with the money available for that purpose which is actually
received by the relevant Mortgagee. The credit will date from the time of
receipt.
13.3 Amounts contingently due
- -----------------------------
If, at the time of a distribution of an amount under Clause 13.1, any of the
Secured Moneys is contingently owing to any Mortgagee, the Agent may retain any
of that amount. If it does, it shall place the amount retained on short term
interest bearing deposit until the relevant Secured Moneys become actually due
or cease to be contingently owing, and the Agent shall then:
(a) pay that Mortgagee itself the amount which does become actually due to it;
and
(b) apply the balance of the amount retained (together with interest earned on
the deposit) in accordance with Clause 13.1.
13.4 Notice of subsequent Security Interests
- --------------------------------------------
(a) If any Mortgagee receives actual or constructive notice of any subsequent
Security Interest affecting any of the Mortgaged Property that Mortgagee
may open a separate account in the name of the relevant Mortgagor or the
Borrower in its books.
(b) If the Mortgagee does not open such a new account it will be treated as if
it had done so at the time it received actual or constructive notice of the
Security Interest.
(c) From the time the new account is opened or is deemed to be opened:
(i) all advances and accommodation made available by the Mortgagee to
that Mortgagor or the Borrower;
(ii) all payments and repayments made by that Mortgagor or the Borrower
to the Mortgagee, and
(iii) moneys to be applied towards the Secured Moneys under Clause
13.1(e),
<PAGE>
39
will be or be deemed to be debited or credited, as appropriate, to the new
account. Payments, repayments and other moneys will only be applied in
reduction of other Secured Moneys if, and to the extent that, there is no
debit balance in that account.
13.5 Conversion of currencies on application
- --------------------------------------------
For the purposes of making an application under Clause 13.1 any Mortgagee, any
Receiver or any Attorney may purchase one currency with another, whether or not
through an intermediate currency, whether spot or forward, in the manner and at
the time it thinks fit.
14. OTHER SECURITY INTERESTS OVER MORTGAGED PROPERTY
- -----------------------------------------------------
(a) For all the purposes of this Deed any Mortgagee and any Receiver or
Attorney may rely on the certificate of a holder of another Security
Interest affecting or purporting to affect the Mortgaged Property as to the
amount and property secured by the Security Interest.
(b) The Agent may at any time pay the amount certified by the holder of a prior
ranking Security Interest or purported prior ranking Security Interest as
necessary to discharge it. From the date of payment that amount will be
part of the Secured Moneys and each Mortgagor will indemnify the Agent on
demand against that amount, whether or not that Security Interest or
purported Security Interest was valid or prior ranking or the property or
moneys stated in the certificate were secured by it.
15. PROTECTION OF AGENT, RECEIVER AND ATTORNEY
- -----------------------------------------------
Subject to any law which applies notwithstanding any agreement to the contrary,
no Mortgagee nor any Receiver or Attorney will be liable in respect of:
(a) any act, omission, delay, negligence or breach of duty in the exercise or
non-exercise of any Power; nor
(b) for any loss (including consequential loss) which results,
except where it arises from fraud or wilful default on the part of the Agent,
Receiver or Attorney.
16. PROTECTION OF THIRD PARTIES
- --------------------------------
16.1 No enquiry
- ---------------
No party to any Dealing (as defined below) and no person asked to register a
Dealing:
(a) is bound to enquire:
(i) as to whether an Event of Default has occurred or whether this Deed
has become enforceable;
(ii) as to whether a person who is or is purported to be a Receiver or
Attorney is duly appointed;
(iii) as to the amount of Secured Moneys and as to whether Secured Moneys
are due and payable; or
(iv) in any other way as to the propriety or regularity of the Dealing;
or
<PAGE>
40
(b) is affected by express notice that the Dealing is unnecessary or improper.
Notwithstanding any irregularity or impropriety in any Dealing, as regards the
protection of any party to the Dealing or a person registering a Dealing, it
will be deemed to be authorised by this Deed and will be valid accordingly.
In this Clause a "Dealing" is:
(a) any payment or delivery or handing over of an asset to; or
(b) any acquisition, incurring of Financial Indebtedness, receipt, sale, Lease,
disposal or other dealing, by
the Agent or any Receiver or Attorney, or person who is purported to be a
Receiver or Attorney.
16.2 Receipt
- ------------
The receipt of any Authorised Officer of the Agent or any Attorney or Receiver
(or person who is purported to be a Receiver or Attorney) for any moneys or
assets payable to or receivable or received by it exonerates discharges the
person paying those moneys or handing over that asset from being concerned to
see to their application, or being liable or accountable for their loss or
misapplication.
17. EXPENSES,INDEMNITY
- -----------------------
17.1 Expenses
- -------------
On demand each Mortgagor shall reimburse the Agent for the expenses of the Agent
in relation to:
(a) the preparation, execution and completion of the Transaction Documents and
any subsequent consent, approval, waiver or amendment; and.
(b) (i) the actual or contemplated enforcement of the Transaction Documents,
or the actual or contemplated exercise, preservation or consideration
of any right or powers under, the Transaction Documents; and
(ii) any enquiry by a Governmental Agency converning a transaction or
activity for which or in connection with which finance or funds
raised under a Transaction Document are used or provided,
including without limitation any expenses incurred in retaining consultants
to evaluate matters of material concern to the Agent and administrative
costs including any time of its executives (such time and costs to be
charged at reasonable rates),
and including in each case reasonable legal costs and expenses on a full
indemnity basis before an Event of Default has occurred, and after an Event of
Default has occurred, including all legal costs and expenses on a full indemnity
basis.
17.2 Indemnity
- --------------
On demand, each Mortgagor shall indemnify the Agent and each Receiver and
Attorney against all losses, costs, charges, expenses, liabilities, outgoings
and payments which the Agent or any Receiver or Attorney pays, is liable to pay
or sustains in any way:
<PAGE>
41
(a) in relation to the Mortgaged Property or the exercise or attempted exercise
of any Power; or
(b) as a consequence of the occurence of an Event of Default or Potential Event
of Default,
except where it arises from the fraud or wilful default on the part of the
Agent, Receiver or Attorney.
17.3 Amounts in foreign currency
- --------------------------------
Where an amount to be reimbursed or indemnified against is denominated in
another currency, if the Agent so requests, each Mortgagor will reimburse or
indemnify it against the amount of Australian dollars which the Agent certifies
that it used to buy the relevant amount of the other currency in accordance with
its normal procedures. If the Agent does not so request, each Mortgagor will
reimburse or indemnify it in the relevant currency.
18. FOREIGN CURRENCY INDEMNITY
- -------------------------------
Whenever:
(a) any amount payable by a Mortgagor is received or recovered by the Agent or
a Mortgagee in a currency (the "Payment Currency") other than the currency
in which payment was to be made (the "Relevant Currency") for any reason
(including without limitation as a result of any judgment or order, or the
Liquidation of that Mortgagor or any proof or claim in relation to that
Liquidation); and
(b) the amount actually received by the Agent or a Mortgagee in accordance with
its normal practice by converting the Payment Currency into the Relevant
Currency is less than the relevant amount in the Relevant Currency,
then as an independent obligation that Mortgagor shall indemnify the Agent or a
Mortgagee, as appropriate against the deficiency upon demand.
19. STAMP DUTIES
- -----------------
19.1 Each Mortgagor shall pay all stamp, transaction, registration and similar
- -------
Taxes (including fines and penalties, other than arising from the wilful default
of the Agent) other than Excluded Taxes which may be payable or determined to be
payable in relation to the execution, delivery, performance or enforcement of
any Transaction Document or any payment or receipt or any other transaction
contemplated by any Transaction Document.
19.2 Such Taxes include any financial institutions duty, debits tax or other
- ------
Taxes payable by return and any such Taxes passed on to the Agent by any bank or
financial institution.
19.3 Each Mortgagor shall indemnify the Agent on demand against any liabilities
- ------
resulting from delay or omission to pay such Taxes.
20. INTEREST ON OVERDUE AMOUNTS
- --------------------------------
20.1 Interest
- -------------
On demand by the Agent each Mortgagor shall pay interest on any of the Secured
Moneys which are due and payable by it and unpaid (including without limitation
interest payable under this Clause).
<PAGE>
42
20.2 Rate
- ---------
Unless any Transaction Document provides otherwise, interest accrues from day to
day from the due date (or in the case of amounts to be reimbursed or indemnified
against under Clause 17 or 18, from the date of disbursement or loss) up to the
date of actual payment, before and (as a separate and independent obligation)
after judgment, in the currency of the relevant amount at the rate which is the
higher of:
(a) the rate (if any) applicable to the Secured Moneys under any Transaction
Document immediately prior to the due date; and
(b) the aggregate of 2% per annum and:
(i) if the amount is denominated in Australian dollars, the indicator
lending rate of the Agent in respect of loans of A$100,000 and over
from time to time calculated on a daily basis and a year of 365 days;
or
(ii) if the amount is denominated in any other currency, the rate which is
determined by the Agent to be:
(A) the arithmetic mean of the rates displayed on the Reuters screen
LIBO page (in the case of US dollars or the equivalent page for
other currencies) for the making of deposits in the currency
concerned for funding periods not exceeding three months selected
by the Agent from time to time and for the value date which is the
date of default, disbursement or loss as the case may be (or, as
appropriate, the expiry of any relevant funding period referred to
above). That arithmetic mean will be rounded upwards, if
necessary, to the nearest 1/16th of one percent; or
(B) if no such rates are available, the Agent's cost of funds in that
currency from time to time.
If no earlier demand is made for its payment, accrued interest under this Clause
will be deemed to be demanded at the end of each calendar quarter (and will
start to accrue interest accordingly).
20.3 Foreign currency basis
- ---------------------------
Interest on amounts other than Australian dollars or Sterling will be calculated
on a daily basis and a year of 360 days.
21. CERTIFICATE AS TO AMOUNT OF SECURED MONEYS
- -----------------------------------------------
A certificate signed by any Authorised Officer of the Agent will be conclusive
evidence any against any Mortgagor, in the absence of manifest error:
(a) as to the amount of Secured Moneys stated in that certificate; and
(b) that a document specified in that certificate is a Transaction Document.
22. SURVIVAL OF REPRESENTATIONS AND INDEMNITIES
- ------------------------------------------------
22.1 All representations and warranties in any Transaction Document will
- ------
survive the execution and delivery of the Transaction Documents and the
provision of advances and accommodation.
<PAGE>
43
22.2 Each indemnity in any Transaction Document:
- ------
(a) is a continuing obligation;
(b) is a separate and independent obligation of the party giving the indemnity
from its other obligations under the Transaction Documents; and
(c) will survive termination or discharge of the relevant Transaction Document.
23. CONTINUING SECURITY
- -----------------------
This Deed and each Collateral Security is a continuing security notwithstanding
any settlement of account, intervening payment or anything whatsoever until a
final discharge of this Deed and each Collateral Security has been given to each
Mortgagor.
24. OTHER SECURITIES
- ---------------------
No Power and nothing in this Deed or any Collateral Security merges in, or in
any other way prejudicially affects or is prejudicially affected by:
(a) any other Security Interest; or
(b) any judgment, right or remedy against any person,
which the Agent or any person claiming through the Agent may have at any
time.
25. WAIVERS, REMEDIES CUMULATIVE
- ---------------------------------
25.1 No failure to exercise and no delay in exercising any Power operates as a
- ------
waiver. Nor does any single or partial exercise of any Power preclude any other
or further exercise of that Power, or the exercise of any other Power.
25.2 The rights, powers and remedies provided to the Agent in this Deed are
- ------
cumulative and not exclusive of any rights, powers or remedies provided by law.
26. CONSENTS AND OPINION
- -------------------------
Except where expressly stated the Agent may give or withhold, or give
conditionally, approvals and consents be satisfied or unsatisfied, and form
opinions, at its absolute discretion.
27. SEVERABILITY OF PROVISIONS
- -------------------------------
(a) Any provision of this Deed or any Collateral Security which is prohibited
or unenforceable in any jurisdiction will be ineffective as to that
jurisdiction to the extent of the prohibition or unenforceability. That
will not invalidate the remaining provisions of this Deed or any Collateral
Security nor affect the validity or enforceability of that provision in any
other jurisdiction.
(b) Without limiting the generality of paragraph (a):
(i) the definition of Secured Moneys does not include any obligation so
long as and to the extent that the inclusion of that obligation would
avoid or invalidate or render ineffective Clauses 2 and 3 or the
security constituted Deed; and
<PAGE>
44
(ii) the definition of the Mortgaged Property does not include any property
so long as and to the extent the inclusion of that property would
invalidate or avoid or render ineffective the security constituted by
this Deed,
but each Mortgagor shall use its best endeavours to satisfy any condition
or obtain any consent which may be necessary to include such obligation or
property validly under this Deed.
28. MORATORIUM LEGISLATION
- ---------------------------
To the full extent permitted by law all legislation which at any time directly
or indirectly:
(a) lessens; varies or affects in favour of a Mortgagor any obligation under
this Deed or any Collateral Security; or
(b) delays; prevents or prejudicially affects the exercise of any Power,
is excluded from this Deed and any Collateral Security.
29. ASSIGNMENTS
- -----------------
Subject to the other Transaction Documents, any Mortgagee may assign its rights
under this Deed and each Collateral Security. If this Deed is assigned, the
Secured Moneys will include all actual and contingent liability of each
Mortgagor and the Borrower to the assignee, whether or not it was incurred
before the assignment or in contemplation of it.
30. NOTICES
- ------------
All notices, requests, demands, consents, approvals, agreements or other
communications to or by a party to this Deed shall:
(a) be in writing;
(b) be signed by an Authorised Officer of the sender; and
(c) be deemed to be duly given or made:
(i) (in the case of delivery in person or by post, facsimile transmission
or cable) when delivered, received or left at the address of the
recipient shown in this Deed or to any other address it may have
notified the sender; or
(ii) (in the case of telex) on receipt by the sender of the answerback code
of the recipient at the end of transmission,
but if delivery or receipt is on a day on which business is not generally
carried on in the place to which such communication is sent or is later
than 4 p.m. (local time), it will be deemed to have been duly given or made
at the commencement of business on the next such day or which business is
generally carried on in that place.
31. AUTHORISED OFFICERS
- ------------------------
Each Mortgagor irrevocably authorises the Agent to rely on a certificate by any
person purporting to be a director or secretary of that Mortgagor as to the
identity and signatures of its Authorised Officers. The relevant Mortgagor
warrants that those persons have been authorised to give notices and
communications under or in connection with the Transaction Documents.
<PAGE>
45
32. GOVERNING LAW AND JURISDICTION
- -----------------------------------
This Deed is governed by the laws of New South Wales. Each Mortgagor submits to
the non-exclusive jurisdiction of its courts.
33. THIRD PARTY PROVISIONS
- ---------------------------
33.1 Security not to be affected
- --------------------------------
None of this Deed, any Collateral Security, any Power nor the obligations of any
Mortgagor under this Deed will be affected by anything which but for this
provision might operate to release, prejudicially affect or discharge them or in
any way exonerate a Mortgagor from any of its obligations including, without
limitation:
(a) the grant to any person of any time, waiver or other indulgence, or the
discharge or release of any person;
(b) any transaction or arrangement that may take place between any Mortgagee
and person;
(c) the Liquidation of any person;
(d) any Mortgagee becoming a party to or bound by any compromise, moratorium,
assignment of property, scheme of arrangement, composition of debts or
scheme of reconstruction by or relating to any person;
(e) any Mortgagee exercising or delaying or refraining from exercising any
other security or any of the rights, powers or remedies conferred on it by
law or by any Transaction Document or by any other document or agreement
with any person;
(f) the amendment, variation, novation, replacement, rescission, invalidity,
extinguishment, repudiation, avoidance, unenforceability, frustration,
failure, expiry, termination, loss, release, discharge, abandonment,
assignment or transfer either in whole or in part and either with or
without consideration of any Transaction Document, or of any other
Guarantee, Security Interest or other document or agreement now or in the
future held by a Mortgagee from any person or of any right, obligation,
power or remedy;
(g) the taking or perfection of or failure to take or perfect any Security
Interest or Guarantee;
(h) the failure by any Relevant Company or any Mortgagee to notify a Mortgagor
of any default by any Relevant Company under any Transaction Document or
any other agreement with any Mortgagee;
(i) any Mortgagee obtaining a judgment against any person for the payment of
any Secured Moneys;
(j) any legal limitation, disability, incapacity or other circumstances
relating to any person; or
(k) any change in the members or constitution of any partnership or of any
person;
(l) any Guarantee or Security Interest to secure all or part of the Secured
Moneys not being valid or executed by or binding upon any person.
<PAGE>
46
33.2 Principal and independent obligation
- -----------------------------------------
This Deed and each Collateral Security is a principal and independent obligation
and except for stamp duty purposes it is not to be treated as ancillary or
collateral to any other Security Interest, right or obligation.
33.3 No marshalling
- -------------------
No Mortgagee shall be under any obligation to marshal or appropriate in favour
of a Mortgagor, or to exercise, apply or recover:
(a) any Security Interest or Guarantee (including, without limitation, any
Transaction Document) held by that Mortgagee at any time; or
(b) any of the funds or assets that Mortgagee may be entitled to receive or
have a claim upon.
33.4 No competition
- -------------------
Until the Secured Moneys have been irrevocably paid and discharged in full no
Mortgagor is entitled on any grounds whatsoever:
(a) to be subrogated to any Mortgagee or to claim the benefit of any Security
Interest or Guarantee held by that Mortgagee at any time; or
(b) either directly or indirectly to prove in, to claim or to receive the
benefit of, any distribution, dividend or payment arising out of or
relating to the Liquidation of the Borrower or the Guarantor or any other
person who gives a Guarantee or Security Interest in respect of any of the
Secured Moneys.
The receipt of any distribution, dividend or other payment by any Mortgagee out
of or relating to such Liquidation will not prejudice the right of the Agent to
recover the Secured Moneys by enforcement of this Deed and each Collateral
Security.
33.5 Suspense account
- ---------------------
In the event of the Liquidation of a Mortgagor or any other person, each
Mortgagor authorises the Agent:
(a) to prove for all moneys received by any Receiver, Attorney or Mortgagee
under or by virtue of this Deed or any Collateral Security or any other
Guarantee or Security Interest in or towards satisfaction of the Secured
Moneys payable to the Mortgagees by the relevant Mortgagor; and
(b) (i) to retain and carry to a suspense account; and
(ii) to appropriate at the discretion of the Agent;
any dividends received in the Liquidation of the relevant Mortgagor or any
other person and all other moneys received in respect of the Secured
Moneys,
until the Mortgagees have been paid in full in respect of the Secured Moneys.
33.6 Rescission of payment
- --------------------------
Whenever for any reason (including without limitation under any law relating to
Liquidation, fiduciary obligations or the protection of creditors):
<PAGE>
47
(a) all or part of any transaction of any nature (including without limitation
any payment or transfer) made during the term of this Deed which affects or
relates in any way to the Secured Moneys is void set aside or voidable;
(b) any claim that it is so is upheld, conceded or compromised; or
(c) any Mortgagee is required to return or repay money or assets received by it
under any such transaction or the equivalent for value of that money or
asset,
the Mortgagees will immediately become entitled against each Mortgagor to all
rights in respect of the Secured Moneys and the Mortgaged Property which it
would have had if all or the relevant part of the transaction or receipt had not
taken place. Each Mortgagor will indemnify the Mortgagees on demand against any
resulting loss, costs or expenses. This clause continues to apply after the
discharge of this Deed.
33.7 Variation
- --------------
(a) Subject to any other Transaction Document, any Mortgagee may from time to
time:
(i) amend any Transaction Document to which it is a party;
(ii) provide further accommodation to the Borrower or the Guarantor; or
(iii) increase the limit (if any) of accommodation to be made available by
it,
at its absolute discretion and without notice to or consent by any
Mortgagor.
(b) This Deed extends to cover all Transaction Documents and all agreements
from time to time in force between any Mortgagee and a Mortgagor as
contemplated by paragraph (a).
33.8 Indemnity
- --------------
If any of the Secured Moneys (including moneys which would have been Secured
Moneys if they were recoverable) are not recoverable from a Mortgagor for any
reason, including without limitation any legal limitation, disability or
incapacity affecting a Mortgagor and whether or not:
(a) any transaction relating to the Secured Moneys was void or illegal or has
been subsequently avoided; or
(b) any matter or fact relating to any such transaction was or ought to have
been within the knowledge of any Mortgagee,
each Mortgagor shall indemnify each Mortgagee on demand in respect of such
moneys and agrees to pay such moneys to the Agent for the account of the
relevant Mortgagees on demand.
34. SET OFF
- ------------
34.1 Each Mortgagor authorises any Mortgagee to apply any credit balance in any
- ------
currency (whether or not matured) in any of its accounts with any branch of that
Mortgagee towards satisfaction of any sum at any time due and payable by it to
the Agent under or in relation to any Transaction Document. No Mortgagee is
obliged to make the application.
<PAGE>
48
34.2 Each Mortgagee may effect any currency exchanges appropriate to implement
- ------
that application.
35. COUNTERPARTS
- -----------------
This Deed may be executed in any number of counterparts. All counterparts taken
together will be deemed to constitute one instrument.
36. ACKNOWLEDGMENT BY MORTGAGORS
- ---------------------------------
Each Mortgagor confirms that:
(a) it has not entered into this Deed in reliance on, or as a result of, any
statement or conduct of any kind of or on behalf of any Mortgagee or any
Related Body Corporate of any Mortgagee (including, without limitation, any
advice, warranty, representation or undertaking); and
(b) neither any Mortgagee nor any Related Body Corporate of any Mortgagee is
obliged to do anything (including, without limitation, disclose anything or
give advice), except as expressly set out in the Transaction Documents.
37. ATTORNEYS
- --------------
Each of the attorneys executing this Deed states that he has no notice of the
revocation of his power of attorney.
<PAGE>
49
SCHEDULE ONE
------------
MORTGAGORS
----------
<TABLE>
<CAPTION>
NAME A.C.N. REGISTERED
- ---- ------ ----------
ADDRESS
-------
<S> <C> <C>
The Galore Group Limited 008 577 759 c/-Sly and Weigall
4th Floor
54 Marcus Clarke Street
Canberra City ACT 2601
Vilbrent Pty. Ltd. 002 055 567 327 Chisholm Road
Auburn NSW 2144
Barbeques Galore Pty. Ltd. 001 354 454 327 Chisholm Road
Auburn NSW 2144
Optic Express Pty. Ltd. 001 819 852 327 Chisholm Road
Auburn NSW 2144
The Galore Group
(International) Pty. Ltd. 001 753 073 327 Chisholm Road
Auburn NSW 2144
Bosmana Pty. Ltd. 002 060 335 327 Chisholm Road
Auburn NSW 2144
Pricotech Leisure Brands 002 060 273 327 Chisholm Road
Pty. Ltd. Auburn NSW 2144
Redgun Pty. Ltd. 002 065 330 327 Chisholm Road
Auburn NSW 2144
G.L.G. Australia Pty. Ltd. 001 185 002 327 Chisholm Road
Auburn NSW 2144
Park-Tee Engineering Pty. Ltd. 001 387 382 327 Chisholm Road
Auburn NSW 2144
Douglas Manufacturing Pty. 002 177 424 327 Chisholm Road
Ltd. Auburn NSW 2144
Australian Enamellers Pty. 002 909 864 327 Chisholm Road
Ltd. Auburn NSW 2144
Cook-on-Gas Products 001 532 912 327 Chisholm Road
(Australia) Pty. Ltd. Auburn NSW 2144
Cougar Leisure Products 005 669 198 327 Chisholm Road
Pty. Ltd. Auburn NSW 2144
Galore Group Services 007 903 022 U5 1181 Churchill Road
Pty. Ltd. Cavan, SA 5094
Galore Steel Industries 003 352 949 327 Chisholm Road
Pty. Ltd. Auburn NSW 2144
</TABLE>
<PAGE>
50
SCHEDULE TWO
------------
Nil
IN WITNESS the parties have executed and delivered this Deed in the Australian
- ----------
Capital Territory.
THE MORTGAGORS
- --------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
THE GALORE GROUP LIMITED ) /s/ BETTIE ANNE McNEE
- ------------------------ ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
VILBRENT PTY. LIMITED ) /s/ BETTIE ANNE McNEE
- -------------------- ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
BARBEQUES GALORE PTY. LTD ) /s/ BETTIE ANNE McNEE
- ------------------------- ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
OPTIC EXPRESS PTY. LTD ) /s/ BETTIE ANNE McNEE
- ------------------------ ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
<PAGE>
51
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
THE GALORE GROUP )
- ---------------- )
(INTERNATIONAL) PTY. LTD ) /s/ BETTIE ANNE McNEE
- ------------------------ ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of ) /s/ BETTIE ANNE McNEE
BOSMANA PTY. LTD ) ---------------------------
- ---------------- ) BETTIE ANNE McNEE
by its attorney: )
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
PRICOTECH LEISURE BRANDS PTY ) /s/ BETTIE ANNE McNEE
- ---------------------------- ) ---------------------------
LTD by its attorney: ) BETTIE ANNE McNEE
- ---
[SIGNATURE APPEARS HERE]
- --------------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
REDGUN PTY. LTD ) /s/ BETTIE ANNE McNEE
- --------------- ) ---------------------------
by its attorney: ) BETTIE ANNE McNEE
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of ) /s/ BETTIE ANNE McNEE
G.L.G. AUSTRALIA PTY. LTD ) ---------------------------
- ------------------------- ) BETTIE ANNE McNEE
by its attorney: )
[SIGNATURE APPEARS HERE]
- --------------------------
<PAGE>
52
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
PARK-TEC ENGINEERING PTY. ) /s/ BETTIE ANNE McNEE
- ------------------------- ) ---------------------------
LTD by its attorney: ) BETTIE ANNE McNEE
- ---
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
DOUGLAS MANUFACTURING PTY. ) /s/ BETTIE ANNE McNEE
- -------------------------- ) ---------------------------
LTD by its attorney: ) BETTIE ANNE McNEE
- ---
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
AUSTRALIAN ENAMELLERS PTY. ) /s/ BETTIE ANNE McNEE
- -------------------------- ) ---------------------------
LTD by its attorney: ) BETTIE ANNE McNEE
- ---
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
COOK-ON-GAS PRODUCTS ) /s/ BETTIE ANNE McNEE
- -------------------- ) ---------------------------
(AUSTRALIA) PTY. LTD ) BETTIE ANNE McNEE
- -------------------- )
by its attorney: )
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of ) /s/ BETTIE ANNE McNEE
COUGAR LEISURE PRODUCTS ) ---------------------------
- ----------------------- ) BETTIE ANNE McNEE
PTY. LTD by its attorney: )
- --------
[SIGNATURE APPEARS HERE]
- --------------------------
<PAGE>
53
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
GALORE GROUP SERVICES PTY. /s/ BETTIE ANNE McNEE
- -------------------------- ---------------------------
LTD by its attorney: BETTIE ANNE McNEE
- ---
[SIGNATURE APPEARS HERE]
- --------------------------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
GALORE STEEL INDUSTRIES ) /s/ BETTIE ANNE McNEE
- ----------------------- ) ---------------------------
PTY. LTD by its attorney: ) BETTIE ANNE McNEE
- --------
[SIGNATURE APPEARS HERE]
- --------------------------
THE AGENT
- ---------
SIGNED SEALED AND DELIVERED )
- --------------------------- )
for and on behalf of )
WESTPAC BANKING CORPORATION )
- --------------------------- )
by its attorney ) /s/ JAMES GRANT
in the presence of: ) ---------------------------
Attorney
[SIGNATURE APPEARS HERE] Print name: JAMES GRANT
- --------------------------
Witness
Print name:
<PAGE>
[LETTERHEAD OF ANZ BANK APPEARS HERE]
14 July, 1994.
The Directors
The Galore Group Limited
327 Chisholm Road
AUBURN NSW 2144
Dear Sirs,
LETTER OF OFFER
- ---------------
THE GALORE GROUP LIMITED A.C.N. 008 577 759 ("THE CUSTOMER")
- ------------------------------------------------------------
Australia and New Zealand Banking Group Limited (the "Bank") is pleased to offer
the availability of the Facilities listed below to each company listed as a
Customer in Schedule 1 to this letter.
The Facilities are offered on the terms set out in this Letter of Offer, the
General Conditions and the Specific Conditions for each Facility as at the date
of this Letter of offer (together the "Agreement").
A summary of the Facilities is as follows:
<TABLE>
<CAPTION>
Facility Limit
--------------
Facility AUD
-------- ---
<S> <C>
1. Interchangeable Facility
i. Variable Rate Commercial Bill Acceptance/Discount Facility
ii. Fixed Rate Commercial Bill Facility
Total Facility Limit for the Interchangeable Facility 5,400,000
2. Multi Option Facility
i. Variable Rate Commercial Bill Acceptance/Discount Facility
ii. Documentary Credit/Documents Surrendered Facility (Local or Overseas)
iii. Bills Negotiated Not Under Credit Facility (Bills Payable Overseas)
Total Facility Limit for the Multi Option Facility 9,600,000
3. Overdraft Facility 2,400,000
4. Indemnity/Guarantee Facility 150,000
5. Encashment Facility/Payroll 850,000
6. Foreign Currency Dealing Facility 2,000,000
7. Foreign Currency Settlement Facility (1,000,000)
-----------
Total Facility Limits $20,400,000
===========
</TABLE>
LIMIT APPROVAL FEE $20,000
<PAGE>
- 2 -
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
1. INTERCHANGEABLE FACILITY
------------------------
Total Facility Limit: $5,400,000
Termination Date: 30 June, 1997
Purpose: Term debt.
Total Facility Limit for
Interchangeable Facility
(and separate Facility Limits): The Customer may only make a Drawing under
or otherwise make use of a particular
Facility included in the Interchangeable
Facility if, on the Drawdown Date (or the
date when the relevant amount of Principal
Outstanding is to be made available), the
Principal Outstanding under both the
Facilities included in the Interchangeable
Facility does not exceed the Total Facility
Limit for the Interchangeable Facility.
Line Fee: 0.75% p.a. on the Facility Limit, payable
in advance on the date of the Agreement and
afterwards quarterly.
(i) Variable Rate Commercial Bill
Acceptance/Discount Facility:
Yield Rate: For each Drawing of Bills, a rate quoted by
the Bank in respect of the face value of
the Bills for the relevant tenor.
Fees: Acceptance Fee:
For each Bill, an amount equal to 0.75%
p.a. on the face amount of the Bill payable
on the Drawdown Date for the Bill.
Specific Conditions: Apply.
(ii) Fixed Rate Commercial Bill
Facility
Yield Rate: For each Drawing of Bills, a rate fixed for
all rollovers up until the last day of the
term.
Fees: Acceptance Fee:
For each Bill, an amount equal to 0.75%
p.a. on the face amount of the Bill payable
on the Drawdown Date for the Bill.
Specific Conditions: Apply.
<PAGE>
- 3 -
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
2. MULTI OPTION FACILITY
---------------------
Total Facility Limit: $9,600,000
Termination Date: Not before the next Annual Review Date.
Purpose: Trade Finance.
Total Facility Limit for
Multi Option Facility
(and separate Facility Limits): The Customer may only make a Drawing under
or otherwise make use of a particular
Facility included in the Multi Option
Facility if, on the Drawdown Date (or the
date when the relevant amount of Principal
Outstanding is to be made available), the
Principal Outstanding under all the
Facilities included in the Multi Option
Facility does not exceed the Total
Facility Limit for the Multi Option
Facility.
(i) Variable Rate Commercial
Bill Acceptance/Discount
Facility (Trade)
Yield Rate: For each Drawing of Bills, a rate quoted
by the Bank in respect of the face value
of the Bills for the relevant tenor.
Acceptance Fee:
For each Bill, an amount equal to 1.5%
p.a. on the face amount of the Bill
payable on the Drawdown Date for the Bill.
Specific Conditions: Apply.
(ii) Documentary Credit /
Documents Surrendered Facility
(Local or Overseas):
Subject to Bank's Agreement: The Customer is only entitled to have the
Bank open a Documentary Credit if the Bank
agrees to the terms of the Customer's
application and if the Customer executes
all documents required by the Bank.
Fees: Bank's standard charges to apply.
Specific Conditions: Do not apply.
(iii) Bills Negotiated Not Under
Credit Facility (Bills Payable
Overseas)
Subject to Bank's Agreement: The Customer is only entitled to have the
Bank negotiate a Bill or trade documents
under the Facility if the Bank agrees to
the terms of the Customer's Lodgement
Letter and if the Customer executes all
documents required by the Bank.
Fees: Bank's standard charges to apply.
Specific Conditions: Do not apply.
<PAGE>
- 4 -
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
3. OVERDRAFT FACILITY
------------------
Total Facility Limit: $2,400,000
Termination Date: Not before the next Annual Review date.
Purpose: Working capital.
Interest Rate: Bank Reference Rate (currently 9.0% p.a.)
for amounts up to the Facility Limit.
Interest Payment: Monthly in arrears on the first Business
Day of each calendar month, accruing daily
starting on the first day of overdraft
(interest payable monthly).
Fees: Line Fee:
0.75% p.a. on the Facility Limit, payable
quarterly in arrears on the 15th day of
each February, May, August and November,
in respect of the calendar quarter which
ended on the last day of the preceding
month.
Specific Conditions: Do not apply.
4. INDEMNITY / GUARANTEE FACILITY
------------------------------
Facility Limit: $150,000
Termination Date: Not before the next Annual Review date.
Fee Rate for each 1.0% p.a. subject to Minimum Fee of $50
Bank Guarantee per half year. The Minimum Fee is subject
to variation any time during the term of
the Facility.
Fee Payment: For each Bank Guarantee, the fee is
payable on the date of drawdown and
afterwards half yearly.
Specific Conditions: Apply.
5. ENCASHMENT FACILITY / PAYROLL
-----------------------------
Facility Limit: $850,000
Termination Date: Not before the next Annual Review date.
Purpose: To allow each Customer specified in
Schedule 1 to cash cheques at specified
branches.
Fees: Establishment Fee:
$50.00 for each encashment arrangement.
This charge is subject to variation at any
time during the term of the Facility.
Renewal Fee:
$50.00 p.a. for each encashment
arrangement. This charge is subject to
variation at any time during the term of
the Facility.
Specific Conditions: Do not apply.
<PAGE>
- 5 -
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
6. FOREIGN CURRENCY
----------------
DEALING FACILITY
----------------
Facility Limit: AUD2,000,000
(For this purpose the Bank adjusts the
face value of the Customer's obligation
under each transaction by a multiplier
(determined by the Bank). The process
includes conversion of any foreign
currency amount to the equivalent amount
in AUD.)
Termination Date: Not before the next Annual Review date.
Purpose: Spot and forward exchange dealing
(including currency swaps).
No Pay Away Exposure except
under Foreign Currency
Settlement Facility: The Bank does not assume any pay away
exposure under this Facility unless and to
the extent that it links this Facility
with a Foreign Currency Settlement
Facility. Except to that extent the Bank
can have no obligation to deliver currency
under a contract until it is satisfied
that counter funds have been lodged by or
on behalf of the Customer.
Subject to Bank's Agreement: The Customer may only enter into a foreign
currency contract with the Bank if the
Bank agrees to the terms of the contract
and if the Customer executes all other
documents required by the Bank.
Maximum contract term: The maximum term for a Foreign Currency
Dealing contract is 6 months.
Specific Conditions: Do not apply.
7. FOREIGN CURRENCY
----------------
SETTLEMENT FACILITY
-------------------
Facility Limit: (AUD1,000,000)
(For this purpose the Bank will determine
the prevailing market rates to convert
foreign currency amounts to the equivalent
amounts in AUD.)
The Facility is linked to the Foreign
Currency Dealing Facility. The Facility
Limit represents the extent to which the
Bank will assume pay away exposure, on any
one settlement day, in respect of foreign
exchange contracts maturing on that day.
Termination Date: Not before the next Annual Review date.
Purpose: To allow delivery of currency under
foreign exchange contracts before the Bank
has received confirmation that counter
funds have been lodged by or on behalf of
the Customer.
Subject to Bank's Agreement: The Bank will only assume pay away
exposure in respect of the Customer's
obligation under a foreign exchange
contract, if the Bank has agreed to the
terms of the contract and the Customer has
executed all documents required by the
Bank.
Specific Conditions: Do not apply.
<PAGE>
- 6 -
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
SECURITY: Conditions precedent to use of the Facilities
- ------- include provision of the following securities in
favour of the Bank, each in the form furnished by,
and approved by the Bank:
(a) Cross Deed of Covenant (standard ANZ Bank
document) between and on account of each
Company which is a Customer;
(b) Joint and Several Guarantee (standard ANZ Bank
document), unlimited as to amount by:
The Galore Group Limited
Vilbrent Pty Limited
Barbecues Galore Pty Limited
Galore Pty Limited (formerly Optic Express
Pty Ltd)
The Galore Group (Int'l) Pty Limited
Bosmana Pty Limited
Pricotech Leisure Brands Pty Limited
Redgun Pty Limited
G.L.G. Australia Pty Limited
Park-tec Engineering Pty Limited
Douglas Manufacturing Pty Limited
Australian Enamellers Pty Limited
Cook-on-Gas Products (Aust.) Pty Limited
Cougar Leisure Products Pty Limited
Galore Group Services Pty Limited
Galore Group Nominees Pty Limited
G.L.G. Trading Pte Ltd
The Galore Group (USA)
Barbecues Galore Inc.
Pool Patio 'n Things Inc.
(c) First ranking Registered Mortgage Debenture
over all the assets and undertaking of The
Galore Group Limited and its wholly owned
subsidiaries (excluding US corporations).
(This to be a fixed and floating charge over
all present and future assets, undertaking
(including goodwill) and unpaid/uncalled
capital of the company).
(d) First Registered Guarantee Mortgage by
Vilbrent Pty Limited being the Registered
Proprietor over the property situated at
345 Chisholm Road, Auburn.
(e) Second Registered Guarantee Mortgage by
Vilbrent Pty Limited being the Registered
Proprietor over property situated at
327 Chisholm Road, Auburn.
(The costs for which the Customer is liable
under the General Conditions include costs of
preparing security documents and costs of any
property valuations required by the Bank in
connection with the securities).
ANNUAL REVIEW: The facilities are subject to Annual Review
- ------------- so that (in accordance with the General
Conditions and with the exclusion of the
Interchangeable Facility) the Bank may
terminate them and require repayment, or amend
the terms on which the facilities are
available, by giving 30 days' notice to the
Customer.
<PAGE>
-7-
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July 1994.
- --------------------------------------------------------------------------------
ANNUAL REVIEW
- -------------
DATE: 31 July in each year.
- ----
GOVERNMENT DUTIES/
- ------------------
TAXES/CHARGES: Subject to any applicable law, the Customer
- ------------- indemnifies the Bank in respect of and shall on
demand pay to the Bank all transaction charges (such
as financial institutions duty and debits tax).
CHANGE OF CONTROL: For the purposes of the Agreement, a Change of
- ----------------- Control occurs if, in the opinion of the Bank, there
is a change in the control of the Customer, directly
or indirectly (whether by change of ownership or
voting power) and the Bank determines that the
change is unacceptable for the purposes of the
Agreement.
OTHER CONDITIONS: In addition to the provisions of the General
- ---------------- Conditions, the following conditions shall apply:
(a) Split Banking Arrangements
--------------------------
The Bank's provision of Facilities aggregating
$20,400,000 is conditional upon the total bank
facilities requirements not exceeding
$33,200,000 and reducing by $2,800,000 by
31/12/94. The balance of the requirements
(maximum $12,800,000) will be provided by St.
George Bank on common terms and conditions.
The St. George Bank Facility will reduce by
$2,800,000 by 31/12/94.
(b) Security Arrangements
---------------------
The mortgage security proposed shall secure
the Bank and St. George Bank parri passu in
proportion to the actual level of utilisation
of their respective facilities. The security
arrangements shall be governed by a security
structure under which the Bank shall be
appointed the security agent.
(c) Structure and Documentation
---------------------------
The Split Banking Arrangements and the
Security Arrangements shall be structured and
documented according to legal advice to be
obtained by and satisfactory to the Bank.
(d) Existing First Mortgage Borrowing
---------------------------------
The Customer agrees that the fixed rate loan
(AUD2.1M.) relating to the 327 Chisholm Road
property will be fully repaid from cashflow
accumulation upon expiry in 1996, so that the
existing first mortgage is discharged.
(e) United States Subsidiaries and Assets
-------------------------------------
Galore Group's business and trading assets in
the United States may not be pledged or
otherwise encumbered without the prior written
consent of the Bank. The subsidiaries may not
be sold or otherwise disposed of without the
Bank's consent.
<PAGE>
-8-
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
(f) Restriction on Provision of Accommodation to
--------------------------------------------
Others
------
Other than under normal terms of trade, the
Customer may not:
(i) provide financial accommodation for the
benefit of or to; or
(ii) give any guarantee or security interest
in connection with any indebtness of;
any party other than a mortgagor company, with
the exception of the guarantees currently
provided in connection with Bromic Pty Limited
and GLG (NZ) Pty Limited.
(g) Financial Performance Covenants
-------------------------------
The Customer shall observe the following
financial performance covenants:
<TABLE>
<CAPTION>
Gearing Ratio (max.) 30/6/94 30/6/95 30/6/96
------- ------- -------
<S> <C> <C> <C>
-Total Liabilities/
Shareholders Funds
as at 30/6 and 31/12 1.2X 1.2X 1.2X
Current Ratio (min.)
-Total Tangible Current
Assets/Total Current
Liabilities as at 30/6
and 31/12 1.20X 1.20X 1.20X
Interest Cover (min.)
-EBIT/Int. 2.0X 2.0X 2.0X
Overseas Subsidiary (max.)
-Aggregate amount of all
assets of subsidiaries
incorporated outside
Australia USD10M. USD10M. USD10M.
</TABLE>
and an Authorised Representative shall certify
compliance to the Bank as at the dates shown.
(h) Management Accounts
-------------------
The Customer will provide to the Bank monthly
management accounts covering group operations
within 45 days of each month.
(i) Dividend Payout Limitation
--------------------------
Dividends paid to shareholders in respect to a
financial year may not exceed 50% of the
Customer's net profit after tax during the
relevant year.
(j) Convertibility
--------------
The Customer may convert undrawn capacity
under the Multi Option Facility (minimum
parcel $1M) to the Interchangeable Facility.
Conversion shall be a permanent reduction in
the Multi Option Facility and amounts
converted shall be subject to a line fee of
0.75% p.a. and an acceptance fee of 0.95% p.a.
<PAGE>
-9-
LETTER OF OFFER
THE GALORE GROUP LIMITED 14 July, 1994.
- --------------------------------------------------------------------------------
OFFER PERIOD: This offer is available for acceptance until
the close of business on 15 July, 1994.
ACCEPTANCE: The Customer may accept this offer by:
(a) executing or, if it is a corporation, having
its Authorised Representative execute on its
behalf, in each case in the place indicated
for execution:
(i) the enclosed copy of this Letter of
Offer; and
(ii) the confirmation of the General
Conditions and the Specific Conditions
on the duplicate cover page of the
enclosed copy of the General Conditions
titled "Australia and New Zealand
Banking Group Limited - General
Conditions Credit Facilities"; and
(b) returning the executed documents to the Bank,
together with a cheque made out to the Bank
for the Limit Approval Fee.
If you have any questions in relation to this Letter of Offer or the Conditions,
please do not hesitate to contact Peter Meares on telephone number 227 1808.
Yours sincerely,
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
/s/ Peter D. Meares
PETER D. MEARES
SENIOR MANAGER - MARKETING
- --------------------------
BUSINESS BANKING
- ----------------
MARTIN PLACE REGION.
- -------------------
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
CUSTOMER A.C.N. FACILITIES FACILITIES LIMIT
- -------- ------ ---------- ----------------
AUD
---
<S> <C> <C> <C>
The Galore Group Limited 008 577 759 TBA TBA
Vilbrent Pty Limited 002 055 567 TBA TBA
Barbecues Galore Pty Limited 001 354 454 TBA TBA
Pricotech Leisure Brands Pty Limited 002 060 273 TBA TBA
G.L.G. Australia Pty Limited 001 185 002 TBA TBA
Park-tec Engineering Pty Limited 001 387 382 TBA TBA
Australian Enamellers Pty Limited 002 909 864 TBA TBA
Galore Group Services Pty Limited 002 060 335 TBA TBA
</TABLE>
<PAGE>
The Customer confirms that it and (if it is a corporation) its directors are
aware of, understand and agree to the terms of this Letter of Offer and of the
General Conditions and the Specific Conditions, if any, which are contained in
separate documents, in the case of the Specific Conditions, if any, bearing the
same reference at the foot of their first pages as that appearing at the foot of
the first page of this letter.
Each of:
The Galore Group Limited
Vilbrent Pty Limited
Barbeques Galore Pty Limited
Pricotech Leisure Brands Pty Limited
G.L.G. Australia Pty Limited
Park-tec Engineering Pty Limited
Australian Enamellers Pty Limited
Galore Group Services Pty Limited
gives the confirmation set out above and accepts the Bank's offer as set out in
this Letter of Offer, in the General Conditions and in the Specific Conditions
for each Facility.
Dated
------- ------------ 199..
[day] [month] [year]
Signed for and on behalf of each Customer
by its Authorised Representative )
) --------------------------
Name (printed):
Signed by ) --------------------------
in the presence of: )
)
)
- ---------------------------- )
Witness
Name (printed):
<PAGE>
The following Sureties confirm that they and (if they are companies) their
directors are aware of and understand the terms of this Letter of Offer and of
the General Conditions and the Specific Conditions contained in separate
documents and described above, all of which make up the Agreement between the
Customer and the Bank.
Signed for and on behalf of )
The Galore Group Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Vilbrent Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Barbecues Galore Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Galore Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
The Galore Group (Int'l) Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Bosmana Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Pricotech Leisure Brands Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Redgun Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
G.L.G. Australia Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Park-Tec Engineering Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Douglas Manufacturing Pty Ltd ) ----------------------------------
by its director ) Name (printed):
<PAGE>
Signed for and on behalf of )
Australian Enamellers Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Cook-on-Gas Products (Aust) Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Cougar Leisure Products Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Galore Group Services Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Galore Group Nominees Pty Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
G.L.G. Trading Pte Ltd ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
The Galore Group (USA) Inc. ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Barbecues Galore, Inc. ) ----------------------------------
by its director ) Name (printed):
Signed for and on behalf of )
Pool Patio 'n Things, Inc. ) ----------------------------------
by its director ) Name (printed):
<PAGE>
================================================================================
VARIATION LETTER
to
THE GALORE GROUP LIMITED
Dated 12th December 1996
Australia and New Zealand Banking Group Limited
ACN 005 357 522
====[LOGO OF AUTSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED APPEARS HERE]=====
- --------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF ANZ CORPORATE BANKING APPEARS HERE]
12 December 1996
The Directors
The Galore Group
327 Chisholm Road
AUBURN NSW 2144
Dear Sirs,
VARIATION LETTER
THE GALORE GROUP LIMITED
Following our recent discussions we are pleased to offer additional facilities
and variations to some of the conditions on which the existing facilities are
provided as follows.
<TABLE>
<CAPTION>
Customer ACN
- -------- ---
<S> <C>
The Galore Group Limited ("Galore") 008 577 759
Vilbrent Pty Limited 002 055 567
Barbecues Galore Pty Limited 001 354 454
Pricotech Leisure Brands Pty Limited 002 060 273
G.L.G. Australia Pty Limited 001 185 002
Park-tec Engineering Pty Limited 001 387 382
Australian Enamellers Pty Limited 002 909 864
Galore Group Services Pty Limited 002 060 335
</TABLE>
(each a "Customer" and collectively
referred to as the "Galore Group")
Summary of facilities
- ---------------------
Except where specifically stated to the contrary, the facilities to be provided
and specified below may be drawn by each Customer, provided the aggregate
drawings of the Galore Group under any facility does not exceed the Facility
limit for that facility.
<TABLE>
<CAPTION>
Facility Facility Limit
-------- --------------
AUD
---
<S> <C>
1. Interchangeable Facility
i. Variable Rate Commercial Bill Acceptance/Discount Facility
ii. Fixed Rate Commercial Bill Facility
Total Facility Limit for the Interchangeable Facility 7,550,000
2. Multi Option Facility
i. Variable Rate Commercial Bill Acceptance/Discount Facility
ii. Documentary Credit/Documents Surrendered Facility (Local
or Overseas)
iii. Bills Negotiated Not Under Credit Facility (Bills Payable
Overseas)
Total Facility Limit for the Multi Option Facility 14,100,000
3. Documentary Credit Facility (Local or Overseas) 5,000,000
4. Overdraft Facility 2,400,000
</TABLE>
<PAGE>
2
<TABLE>
<S> <C>
5. Indemnity/Guarantee Facility 300,000
6. Encashment Facility/Payroll 850,000
7. Foreign Currency Dealing Facility 2,500,000
8. Foreign Currency Settlement Facility 3,000,000
9. Lease Finance Facility 1,000,000
10. Seasonal Trade Facility 5,000,000
11. Standby Facility 12,000,000
(Variable Rate Commercial Bill
Acceptance/Discount Facility)
----------
Total Facility Limits 53,700,000
----------
</TABLE>
The varied facilities are as follows:
2. MULTI OPTION FACILITY
---------------------
Total facility limit: $14,100,000
Termination date: Not before the next review date.
Purpose: Trade Finance.
Total facility limit for
Multi Option Facility
(and separate facility limits): You may only make a drawing under or
otherwise make use of a particular
facility included in the Multi Option
Facility so long as the making of the
drawing would not cause:
(i) the amount outstanding under
both the facilities included in the
Multi Option Facility to exceed the
total facility limit for the Multi
Option Facility; and
(ii) the amount of the outstanding
drawings under the particular facility
under which the drawing is made to
exceed the facility limit, if any, for
that particular facility.
(i) Variable Rate Commercial Bill Acceptance/Discount Facility (Trade)
------------------------------------------------------------------
Facility Limit: $1,000,000
Yield Rate: For each drawing of bills, a rate
quoted by us in respect of the face
value of the bills for the relevant
tenor.
Line Fee: 0.50% p.a. This fee is payable
quarterly in arrears.
Acceptance Fee: For each bill, an amount equal to
0.625% p.a. on the face amount of the
bill payable on the drawdown date for
the bill.
Conditions: Specific Conditions are attached for
this facility.
<PAGE>
3
(ii) Interchangeable
---------------
Documentary Credit/Documents Surrendered
----------------------------------------
(Local or Overseas)
-------------------
Bills Negotiated Not Under Credit Facility
------------------------------------------
(Bills Payable Overseas)
------------------------
Facility limit: AUD13,100,000 (for this purpose we
will determine prevailing market rates
to convert foreign currency amounts to
the equivalent amounts in AUD).
Conditions Precedent: You are only entitled to use this
facility if we agree to the terms of
your application and if you execute
all documents required by us.
Purpose: Establishment of documentary credits
at sight or at term.
Fees: Drawings are to be discounted at the
bank bill buying rate plus a margin of
1.125% p.a for AUD amounts or in the
case of foreign currency amounts, our
cost of funds (as determined by us)
plus a margin of 1.125%.
Specific Conditions: There are no Specific Conditions which
apply to this facility except that
drawings are to be refinanced on
finance terms not exceeding 180 days
including the term of the letter of
credit.
3. DOCUMENTARY CREDIT FACILITY
---------------------------
(Local or Overseas)
-------------------
Facility limit: AUD5,000,000 (for this purpose we will
determine prevailing market rates to
convert foreign currency amounts to
the equivalent amounts in AUD.)
Termination date: Not before the next review date.
Purpose: Establishment of documentary credits
at sight.
Condition precedent: You are only entitled to use the
facility if we agree to the terms of
your application and if you execute
all documents required by us.
Fees: As advised by us from time to time.
Specific Conditions: There are no Specific Conditions which
apply to this facility.
11. STANDBY FACILITY
----------------
Variable Rate Commercial Bill
Acceptance/Discount Facility:
Facility limit: $12,000,000 (representing the
aggregate face value of the bills).
Termination date: (a) If by 30 September 1998 an
underwriting arrangement, acceptable
to us, has not been entered into for
the listing of Galore or any other
[LOGO OF ANZ APPEARS HERE]
<PAGE>
4
associated entity of Galore in the
United States of America ("US") under
the Initial Public Offering ("IPO"),
30 September 1998; or
(b) If an underwriting arrangement,
acceptable to us, has been entered
into for the listing of Galore or any
other associated entity of Galore
under the IPO, the date which is the
earlier of:
(i) 31 December 1998; or
(ii) the date on which the
listing of Galore or any other
associated entity of Galore
occurs in the US.
Purpose: To assist Galore in funding its
proposed selective share reduction.
Repayment arrangement: Unless repaid earlier, this facility
will be repaid from either:
(a) the proceeds of the IPO; or
(b) if the IPO is delayed, from the
proceeds of the sale of the assets of
Pricotech Leisure Brands Pty Limited;
or
(c) any other external resources.
Yield rate: For each drawing of bills, a rate
quoted by us for the face value of the
bills for the relevant tenor.
Fees: Establishment Fee:
$25,000 payable on acceptance of this
variation letter.
Line Fee:
1.0% pa on the facility limit, payable
quarterly in advance, commencing on
the date notified to you by us.
Acceptance Fee:
For each bill, an amount equal to 0.5%
pa on the face value amount of the
bill calculated on the tenor of the
bill and payable on the drawdown date
for the bill.
Conditions precedent: You will only be entitled to use the
facility if:
(a) you are fully drawn under
facilities 1, 2, 4 and 10 provided to
you by us and provided we are
satisfied, from the cashflow forecast
provided by you, that the Galore Group
cashflow:
(i) requires a drawing, and
[LOGO OF ANZ APPEARS HERE]
<PAGE>
5
(ii) will be sufficient to enable
you to meet all your obligations
to us; and
(b) Galore to have raised not less
than $10,000,000 pursuant to the issue
of unsecured and unsubordinated
convertible notes (the "Notes") issued
pursuant to the terms of a Note
Subscription Agreement dated 25
October, 1996 (the "Note Subscription
Agreement") between Galore and SBC
Warburg Australia Limited; and
(c) you have provided us with
evidence (to our satisfaction) that
the proposed selective share reduction
as detailed in the Notice of Annual
General Meeting and Information
Memorandum dated 25 October, 1996 has
been approved by the shareholders and
the courts as required under the
Corporations Law or such other
regularity requirements; and
(d) we must have received a valuation
of Galore by Ernst & Young, verifying
that the price offered for the
selective share reduction is a fair
and reasonable price; and
(e) we must have received a
certificate signed by the directors of
Galore stating that the asset value of
Pricotech Leisure Brand Pty Limited
during the period between November
1996 and January 1997 will be between
$8,000,000 and $10,000,000; and
(f) we must have received the
additional security referred to below
and any other documentation in
connection with the security, in a
form satisfactory to us and our legal
advisers; and
(g) we and our legal advisers, must
be satisfied that all legal
requirements in relation to the
selective share reduction are in
order; and
(h) we have received a certification,
to our satisfaction, that your stock
(or any part thereof) is not subject
to any retention of title arrangement
in favour of any third party (the
certification must be provided by one
of your directors and by one other
person, being a director or secretary
of you); and
(i) you must present to us an
interest rate management policy and
that policy must be acceptable to us;
and
(j) the terms of the Notes and the
Note Subscription Agreement are
acceptable to us.
Special Conditions: Specific conditions are attached for
this facility.
[LOGO OF ANZ APPEARS HERE]
<PAGE>
6
This facility may only be drawn by
Galore.
Further Security
The existing security held by us is to remain in full force and together with
the further security now to be taken, will extend to cover the existing
facilities currently being provided to you by us and the additional facilities
in this letter.
(f) Mortgage debentures (the "US Debentures") over all the assets and
undertaking of Galore and its subsidiaries in the United States or its
equivalent security under the laws of the United States of America, as
advised by our US legal advisers, ranking second to a mortgage debenture
granted in favour of Merrill Lynch Business Financial Services Inc.
(g) Cross Guarantee between all members of the Galore Group and including all
your US subsidiaries.
(h) A Deed of Priority between us and Merrill Lynch Business Financial
Services Inc, in a form satisfactory to us, granting them a USD 2,150,000
priority (which priority will reduce in accordance with the terms of the
repayment arrangements under part of the facilities which it secures) in
relation to our US Debentures. The Deed of Priority must have reduced to
USD1,500,000.00 prior to any drawdown under the Standby Facility beyond
$11 million. And if requested by us:
(i) Issuing and stamping of additional new debenture certificates in our
favour; and
(j) completion of a Statutory Declaration which outlines the value of total
assets in each state (previously forwarded to you).
We will engage Gadens Ridgeway to prepare the necessary security documentation
to complete our security position.
The security arrangements are governed by a security structure under which ANZ
Capel Court Limited has been appointed security agent.
Other Conditions
- ----------------
Negative Pledge
You undertake not to:
(a) create or permit an encumbrance over your assets or give any guarantee or
indemnity or similar security to any third party for any obligation
without our prior written consent, except for a second ranking charge,
upon terms acceptable to us and granted to the holders of the Notes (the
"Noteholders"), pursuant to the terms of the Notes and subject to a
priority agreement (acceptable to us), between us and the Noteholders or
their representative (as the case may be); and
(b) make any payments under the Notes where there subsists, or upon payment,
will occur, an event of default or potential event of default under the
terms and conditions of this agreement or the terms and conditions of the
Notes.
Cross Default
In addition to any other event of default under this agreement, it is an event
of default under this agreement if an Early Redemption Event (as that term is
defined in the terms of the Notes) occurs or if you breach any of the terms of
the Notes.
[LOGO OF ANZ APPEARS HERE]
<PAGE>
7
Listing in the US
Galore undertakes not to make the IPO unless we have given our prior written
consent to the terms of the IPO. Such consent will not be unreasonably withheld.
All proceeds raised from the IPO must be deposited into an account opened with
us, named "Galore IPO account" unless prohibited by any relevant legislation or
regulatory requirement or an underwriting agreement entered into in relation to
the IPO provided we are reasonably satisfied that our security will extend to
those proceeds or that those proceeds form part of our security. If the proceeds
are deposited into an account named "Galore IPO account" no money or amount may
be withdrawn from that account until all money owing to us, whether actual or
contingent, under the Standby Facility has been unconditionally repaid to us in
full and in priority to the Noteholders.
Acknowledgment
We acknowledge that you have the right to issue up to 3,700,000 share options
under an executive employee option scheme provided the documentation for the
scheme is acceptable to us and our legal advisers.
Capital Expenditure Budget
The Galore Group's annual capital expenditure budget is to be presented to us
and approved by us prior to the commencement of the next financial year. You
will not, without our prior written consent, spend or incur any capital expenses
in aggregate in excess of $500,000 of your budget for that year.
Further Financial Performance Covenants
For the avoidance of doubt, with respect to the financial covenants, "you" or
"your" means Galore and all its subsidiaries.
Previous references to "Gearing Ratio" are deleted.
You shall observe the following financial performance covenants:
Leverage Ratio is not to exceed 2.0:1. (To be monitored on a monthly basis).
Shareholders Funds, including the principal outstanding under the Notes (but
excluding any capitalised or deferred interest under the Notes) is not to fall
below $20,000,000.
Current Ratio not to fall below 1.50:1 (being Total Tangible Current Assets
divided by Total Current Liabilities) (To be monitored monthly).
For any financial year, dividends declared and loans made to shareholders are
not to exceed 50% of NPAT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Other Ratios 30/6/97 30/6/98
- ------------ ------- -------
- --------------------------------------------------------------
<S> <C> <C>
Effective Gearing Ratio (being 2.85:1 2.85:1
Shareholders Funds less
Intangible Assets divided by
Total Liabilities)
- --------------------------------------------------------------
Interest Cover (being EBIT 1.5X 1.5x
divided by Gross Interest).
- --------------------------------------------------------------
</TABLE>
<PAGE>
8
"Accounting Standards" means:
(a) the accounting standards prescribed under the Corporations Law, the
Corporations Regulations and, where not inconsistent with those Accounting
Standards and regulations, generally accepted principles and practices in
Australia consistently applied by you as between your members; or
(b) such other standards, principles and practices that we may otherwise agree
to in writing from time to time.
"EBIT" means earnings before income tax and before Gross Interest, being your
gross income less costs and expenses incurred by you during the same period as
disclosed by the profit and loss account excluding any income tax expense and
Gross Interest.
"Intangible Assets" means:
(a) patents, patent rights, trademarks, trade names, franchises, copyrights,
licences, permits, goodwill, and other intangible assets classified as such
in accordance with generally accepted Accounting Standards; and
(b) all prepayments; and
(c) future income tax benefits being the estimated amount of future saving in
income tax likely to arise as a result of:
(i) the reversal of timing differences; and
(ii) the recoupment of carried forward tax losses, calculated in
accordance with Accounting Standards.
"Gross Interest" means the aggregate of interest and amounts in the nature of
interest incurred (including without limitation payments in the nature of
interest under any finance leases) or paid or for which provision has been made
during the relevant accounting period, including without limitation such
payments under the Notes, determined on a gross (not net) basis.
"Leverage Ratio" means the total funded debt divided by Shareholders Funds,
where Shareholders Funds include the principal outstanding under the Notes.
"NPAT" means your net income on a consolidated basis equal to the gross revenues
and other income, less the aggregate of:
a) operating expenses;
b) selling, administrative and general expense;
c) taxes;
d) contingency and other reserves;
e) depreciation, depletion and amortisation of properties;
and including abnormal and extraordinary items of income or expense, all
computed and consolidated in accordance with Accounting Standards.
[LOGO OF ANZ APPEARS HERE]
<PAGE>
9
"Shareholders Funds" means the total consolidated net book value of your assets
after all appropriate deductions in accordance with generally accepted
Accounting Standards (including without limitation, reserves for doubtful
receivable, obsolescence, depreciation and amortisation) less the consolidated
liabilities (including tax and other proper accruals, and any deferred income)
calculated in accordance with Accounting Standards.
"Total Tangible Current Assets" means, at any time, the aggregate of all your
assets calculated on a consolidated basis which would be classified as current
assets, in accordance with Accounting Standards, less Intangible Assets.
"Total Current Liabilities" means, at any time, the aggregate of all your
liabilities calculated on a consolidated basis which would be classified as
current liabilities, in accordance with Accounting Standards.
"Total Liabilities" means the total of all your liabilities (including
provisions, tax and other accruals, dividends declared or accrued but not paid,
and any deferred income) calculated in accordance with Accounting Standards and
computed on a consolidated basis.
Financial Information
You must ensure that all Financial Information provided to us complies with all
relevant Accounting Standards and gives a true and fair view of the financial
condition and the result of your operations as at the date and in relation to
the period in respect of which they were prepared.
"Financial Information" includes without limitation profit and loss accounts and
balance sheets (including any statements, reports and notes attached OR issued
in relation to those accounts and balance sheets).
Certificate of Compliance with Financial Undertakings
You must provide a certificate of compliance with the financial ratios specified
in this letter, including reasonable details of the methodology used to
calculate the ratios, and certify that all Financial Information provided to us
gives a true and fair view of your financial condition and the result of your
operations as at the date and in relation to the period in respect of which they
were prepared.
The certificate referred to in the preceding paragraph must be signed by one of
your directors and by one other person, being a director or secretary of you.
These certificates must be provided within 45 days of the end of each financial
half year.
Undertakings in Relation to the Notes
With respect to the Notes, Galore agrees:
(a) to provide us with a copy of any notice or demand it receives under the
terms and conditions of the Notes, immediately once that notice or demand
is received by Galore including without limitation any notice to convene a
meeting of Noteholders to discuss or consider any action following the
occurrence of an Early Redemption Event;
(b) to immediately notify us if it has or is likely to breach any term or
condition of the Notes (and provide us with reasonable details of the
breach or the likely breach); and
(c) not to agree to amend the terms and conditions of the Notes without our
prior written consent.
[LOGO OF ANZ APPEARS HERE]
<PAGE>
10
Additional Event of Default
You will commit an event of default if you complete:
(a) a selective share reduction without first having raised $10,000,000 from
the issue of the Notes; or
(b) any other form of share reduction.
If you commit the event of default referred to in the preceding paragraph, then
in addition to any other rights or remedies we may have under this agreement, we
may cancel all your facilities and demand immediate payment of all outstanding
money.
Costs
All costs and fees, including legal expenses and stamp duty, associated with the
preparation, negotiation and execution of this letter and the further securities
are to be paid by you or to be debited to your account.
In addition, subject to any applicable law, you indemnify us in respect of and
on demand will pay to us all transaction charges (such as financial institutions
duty and debits tax).
No Retention of Title
We must receive a certification, to our satisfaction, that your stock (or any
part thereof) is not subject to any retention of title arrangement in favour of
any third party.
The certification referred to in the preceding paragraph must be provided by one
of your directors and by one other person, being a director or secretary of you,
within 45 days of the end of each financial year.
Renegotiation of Facilities
All terms and conditions relevant to all your facilities will be subject to
renegotiation prior to 31 December 1998. If the terms and conditions of all your
facilities cannot be agreed upon between us on or before 31 December 1998, then
despite any provision to the contrary you will repay or pay to us on 31 December
1998 all outstanding money under all facilities provided to you and at the same
time you agree to pay to us all other amounts outstanding but unpaid under any
transaction document.
No Other Variations
Except as indicated in this letter, no other existing arrangements and
conditions for the Facilities are varied or replaced, and those arrangements and
conditions for the Facilities continue despite the variations in this letter.
Conditions Continue
Until you accept our offer and have complied with all conditions precedent, the
arrangements for the facilities that we are making available to you, including
the conditions on which the facilities are being made, continue.
Annual Review
Our next annual review of your facilities will be on 16 February 1997.
[LOGO OF ANZ APPEARS HERE]
<PAGE>
11
Offer Period
Our offer is available for acceptance until the close of business on 31 December
1996 unless otherwise extended by us in writing.
We may withdraw our offer at any time before you accept it if we become aware of
anything which, in our opinion, adversely alters the basis on which we made our
offer.
Acceptance
To accept this offer, please sign the duplicate of this letter where indicated
and return it to us.
If you wish to discuss these or any other arrangements, please feel free to
contact myself on 9227 1478 or Jason Mares on 9227 1705.
Your faithfully,
/s/ Neil Shilbury
Neil Shilbury
Senior Manager Corporate Banking
[LOGO OF ANZ APPEARS HERE]
<PAGE>
7
<TABLE>
<S> <C>
SIGNED on behalf of BARBECUES GALORE INC. )
by its authorised representative in the )
presence of: )
)
) [SIGNATURE APPEARS HERE]
- ----------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representatives
- ----------------------------------------------- )
Name of witness - please print )
)
- ----------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of POOL PATIO'N THINGS, INC. )
by its authorised representative in the )
presence of: )
) [SIGNATURE APPEARS HERE]
- ----------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ----------------------------------------------- )
Name of witness - please print )
)
- ----------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of COOK-ON GAS PRODUCTS (AUST) )
PTY LTD by its authorised representative )
in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ----------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ----------------------------------------------- )
Name of witness - please print )
)
- ----------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
To accept our offer:
[_] SIGN the attached duplicate variation letter and extract where indicated.
[_] RETURN the signed variation letter to the Bank at our address shown in the
letter by 31st December 1996.
<PAGE>
2
<TABLE>
<S> <C>
SIGNED on behalf of VILBRENT PTY LTD by its )
authorised representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------------------- )
Name of witness - please print )
)
- ------------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of BARBECUES GALORE PTY LTD by )
its authorised representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------------------- )
Name of witness - please print )
)
- ------------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of PRICOTECH LEISURE BRANDS PTY )
LTD by its authorised representative )
in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------------------- )
Name of witness - please print )
)
- ------------------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
3
<TABLE>
<S> <C>
SIGNED on behalf of G.L.G. AUSTRALIA PTY )
LTD by its authorised representative in the )
presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of PARK-TEC )
ENGINEERING PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
SIGNED on behalf of AUSTRALIAN )
ENAMELLERS PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
SIGNED on behalf of GALORE GROUP )
SERVICES PTY LIMITED by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
</TABLE>
<PAGE>
SURETY ACKNOWLEDGMENT
To: Australia and New Zealand Banking Group Limited
Surety acknowledgment to Variation Letter dated 12th December 1996.
Each of the following sureties acknowledges that the securities given, or to be
given by us secure all present and future obligations of the customer(s) to the
Bank, including obligations in respect of the facilities as varied by the
variation letter and in respect of the additional facilities detailed in the
variation letter.
<TABLE>
<S> <C>
SIGNED on behalf of THE GALORE GROUP )
LTD by its authorised representative in the )
presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
SIGNED on behalf of VILBRENT PTY LTD by its )
authorised representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
2
<TABLE>
<S> <C>
SIGNED on behalf of BARBECUES GALORE )
PTY LTD by its authorised representative in the )
presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representatives
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
SIGNED on behalf of PRICOTECH LEISURE )
BRANDS PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
SIGNED on behalf of G.L.G. AUSTRALIA PTY )
LIMITED by its authorised representative
in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
</TABLE>
<PAGE>
3
<TABLE>
<S> <C>
SIGNED on behalf of PARK-TEC )
ENGINEERING PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representatives
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of AUSTRALIAN )
ENAMELLERS PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of GALORE GROUP )
SERVICES PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
</TABLE>
<PAGE>
4
<TABLE>
<S> <C>
SIGNED on behalf of GALORE PTY LTD by its )
authorised representative in the )
presence of: )
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of THE GALORE GROUP )
(INT'L) PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of BOSMANA PTY LTD )
by its authorised representative in )
the presence of: )
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
5
<TABLE>
<S> <C>
SIGNED on behalf of REDGUN PTY LTD )
by its authorised representative in )
the presence of: )
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of Witness Name of authorised representative -
please print
SIGNED on behalf of DOUGLAS )
MANUFACTURING PTY LTD by its )
authorised representative in )
the presence of: )
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
SIGNED on behalf of COUGAR LEISURE )
PRODUCTS PTY LTD by its authorised )
representative in the presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
ACCEPTANCE
To: Australia and New Zealand Banking Group Limited
Acceptance of offer
Variation Letter dated 12th December 1996.
We accept the additional facilities and variations detailed in this letter.
We each state that each of the additional facilities in this variation letter is
for commercial purposes and that the financial accommodation made available by
the Bank under each of the additional facilities will not be used wholly and
exclusively for the personal, domestic or household use by any person.
Dated: 1996.
<TABLE>
<S> <C>
SIGNED on behalf of THE GALORE GROUP )
LTD by its authorised representative in the )
presence of: )
)
) [SIGNATURE APPEARS HERE]
- ------------------------------------- ) ----------------------------------
Signature of witness ) Signature of authorised
) representative
- ------------------------------------- )
Name of witness - please print )
)
- ------------------------------------- ) ----------------------------------
Address of witness Name of authorised representative -
please print
</TABLE>
<PAGE>
EXHIBIT 10.5
[LOGO OF MERRILL LYNCH APPEARS HERE] No.9502340701
- --------------------------------------------------------------------------------
TERM WCMA(R) LOAN AND SECURITY AGREEMENT
This Term WCMA Loan and Security Agreement ("Loan Agreement") is entered into as
of February 23, 1995, between BARBEQUES GALORE, INC., a corporation organized
and existing under the laws of the State of California having its principal
office at 15041 Bake Parkway, Ste. A, Irvine, CA 92718, Attn: Sydney Selati,
Chairman. ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a
corporation organized and existing under the laws of the State of Delaware
having its principal office at 33 West Monroe Street, Chicago, IL 60603
("MLBFS").
In accordance with that certain Working Capital Management/(R)/ Account
Agreement No. 231-07T11 ("WCMA Agreement") between Customer and MLBFS'
affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"),
Customer has subscribed to the WCMA Program described in the WCMA Agreement. The
WCMA Agreement is by this reference incorporated as a part hereof. In
conjunction therewith, Customer has requested that MLBFS make the Term WCMA Loan
hereinafter described (the "Loan"); and, subject to the terms and conditions
herein set forth, MLBFS has agreed to make the Loan to Customer.
The Loan combines the equivalent of 5 successive one-year term loans, each equal
to that portion of the Loan that will be fully amortized in one year, with a
line of credit under the WCMA Program ("WCMA Line of Credit") equal to that
portion of the Loan that will not be amortized in the ensuing year. Subject to
the terms hereof, each year after the initial funding there will be an
additional funding on account of the term portion of the Loan, with the proceeds
deposited into Customer's WCMA Account concurrently with a corresponding
reduction in the maximum WCMA Line of Credit.
This structure provides Customer with substantially the same funding and
amortization as a conventional term loan. However, unlike most conventional term
loans, it permits both a prepayment in whole or in part at any time without
penalty, and, subject to the terms and conditions herein set forth, a
re-borrowing on a revolving basis of any such amounts prepaid on account of the
WCMA Line of Credit portion of the Loan. The structure therefore enables
Customer at its option to use its free cash balances to reduce term loan
interest expense without impairing working capital.
Contemporaneously herewith, MLBFS is entering into a WCMA Note, Loan and
Security Agreement with Customer for a $500,000.00 line of credit for working
capital purposes. All references to the WCMA Line of Credit in this Loan
Agreement shall refer only to the WCMA Line of Credit hereunder and not to that
under the WCMA Note, Loan and Security Agreement dated as of the date hereof.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
Article I. DEFINITIONS
1.1 Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(a) "Account Debtor " shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(b) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement which are contemplated hereby or
otherwise reasonably required by MLBFS, and relate to this Loan agreement or
evidence the creation, guaranty or collateralization of the Obligations or the
granting
<PAGE>
or perfection of security interests upon the Collateral or any other collateral
for the Obligations, and shall include, without limitation, the Term WCMA Note.
(c) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(d) "Closing Date" shall mean the date upon which all conditions precedent to
MLBFS' obligation to make the Loan shall have been met to the satisfaction of
MLBFS.
(e) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all books and
records (including computer records) in any way related thereto, all proceeds
thereof, and the additional collateral described in Section 4.6 (b) hereof.
(f) "Commitment Expiration Date" shall mean March 23, 1995.
(g) "Commitment Fee" shall mean a fee of $7,500.00 due to MLBFS in connection
with this Loan Agreement.
(h) "General Funding Conditions" shall mean each of the following conditions to
any loan or advance by MLBFS hereunder: (i) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of any WCMA Loan hereunder by MLBFS; (ii) there shall not have occurred
any material adverse change in the business or financial condition of Customer
or any Guarantor; (iii) all representations and warranties of Customer or any
Guarantor herein or in any Additional Agreements shall then be true and correct
in all material respects; (iv) no other event shall then have occurred and be
continuing which shall have reasonably caused MLBFS to in good faith believe
that the prospect of payment or performance by Customer or any Guarantor has
been materially impaired; (v) MLBFS shall have received this Loan Agreement and
all Additional Agreements, duly executed and filed or recorded where applicable,
all of which shall be in form and substance reasonably satisfactory to MLBFS;
(vi) the Commitment Fee shall have been paid in full; (vii) MLBFS shall have
received evidence reasonably satisfactory to it as to the ownership of the
Collateral and the perfection and priority of MLBFS' liens and security
interests thereon, as well as the ownership of and the perfection and priority
of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (viii) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (ix) any additional
conditions specified in an Approval Letter or Commitment Letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
(i) "Guarantor" shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(j) "Interest Rate" shall mean a fluctuating per annum rate equal to the sum of
(i) 2.70%, and (ii) the interest rate from time to time published in the "Money
Rates" section of The Wall Street Journal for 30-day high-grade unsecured notes
sold though dealers by major corporations (the "30-Day Commercial Paper Rate").
The Interest Rate will change as of the date of publication in The Wall Street
Journal of a 30-Day Commercial Paper Rate that is different from that published
on the preceding Business Day. In the event that The Wall Street Journal shall,
for any reason, fail or cease to publish the 30-Day Commercial Paper Rate, MLBFS
will choose a reasonably comparable index or source to use as the basis for the
Interest Rate.
(k) "Loan Amount" shall mean $1,500,000.00.
(l) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan
will be used; to wit: to refinance existing debt owed to The Galore Group
Limited and to provide financing for expansion purposes,
-2-
<PAGE>
including, without limitation, expansion of Customer's commercial division and
for purchase of inventory, fixtures, equipment, leasehold improvements, and
lease acquisition costs for company owned and franchised stores, and as working
capital for Customer.
(m) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(n) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of
credit which MLBFS will extend to Customer subject to the terms and conditions
hereof, as the same shall be reduced from time to time in accordance with the
terms hereof.
(o) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without limiting the foregoing, include all present and future liabilities,
indebtedness and obligations of Customer under this Loan Agreement and the Term
WCMA Note.
(p) "Permitted Liens" shall mean (i) liens for current taxes not delinquent
and, if MLBFS' rights to and interest in the Collateral are not materially and
adversely affected thereby, liens for taxes being contested in good faith by
appropriate proceedings; (ii) liens arising in the ordinary course of business
for sums not due; (iii) liens in favor of MLBFS; (iv) liens which will be
discharged with the proceeds of the Loan; (v) and those liens set forth on
Schedule 1 attached hereto; and (vi) any other liens expressly permitted in
writing by MLBFS.
(q) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed by
Customer and dated as of the date hereof which incorporates both a WCMA Note
evidencing amounts owing on account of the WCMA Line of Credit portion of the
Loan, and a Term Note evidencing amounts owing on account of the term portion of
the Loan.
(r) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as WCMA Account No. 231-07T11.
(s) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line
of Credit.
(t) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid
principal balance of all WCMA Loans.
1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.
Article II. THE LOAN
2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees
to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from
MLBFS. Unless otherwise hereafter agreed by MLBFS, the entire proceeds of the
Loan will be disbursed either directly to the applicable third party or parties
on account of the Loan Purpose or to reimburse Customer for amounts directly
expended by it; all as directed by Consumer in a Closing Certificate to be
executed and delivered to MLBFS prior to the date of funding.
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2.2 Operation of Loan.
(a) Term WCMA Note. The Loan will be evidenced by and shall be repayable in
accordance with the terms of the Term WCMA Note and this Loan Agreement. The
Term WCMA Note combines two promissory notes, one evidencing the term portion of
the Loan (the "Term Note") and the other evidencing the WCMA Line of Credit
portion of the Loan (the "WCMA Note"). The balance owing by Customer on account
of the Loan at any time shall be an amount equal to the sum of the then
outstanding balances under the WCMA Note and the Term Note included in the Term
WCMA Note. The Term WCMA Note is hereby incorporated as a part hereof.
(b) Term Note Principal. The principal balance owing under the Term Note at any
time shall be an amount equal to the difference between (i) the Loan Amount less
the aggregate principal paid by Customer on account of the Term Note; and (ii)
the WCMA Line of Credit. So long as there shall be any moneys owing by Customer
to MLBFS hereunder or there shall be a WCMA Line of Credit, no reduction in the
unpaid principal balance of the Term Note to zero shall be deemed a payment of
the Term Note in full or an extinguishment of any of the obligations of Customer
thereunder or hereunder.
(c) Term Note Funding. Subject to the terms hereof, the Term Note will be
funded by MLBFS in 5 annual installments, each equal to 1/5th of the Loan
Amount. The first 1/5th installment funded by MLBFS will be funded on the
Closing Date and applied on account of the Loan Purpose, as aforesaid.
Subsequent installments will be funded on a date chosen by MLBFS in its sole
discretion which will be on or within two weeks before or after each subsequent
anniversary of the last day of the calendar month in which the Closing Date
occurs (each, a "Subsequent Funding Date"). Each Term Note funding after the
first shall be deposited into Customers WCMA Account.
(d) Activation of WCMA Line. On the Closing Date, MLBFS will activate and make
available as an integral part of the Loan a WCMA Line of Credit equal to 4/5ths
of the Loan Amount, all of which will be immediately disbursed on account of the
Loan Purpose as part of the Loan in accordance with the directions of Customer
set forth in the Closing Certificate, as aforesaid.
(e) Subsequent Fundings. On the first Subsequent Funding Date, concurrently
with MLBFS' funding of the second installment of the debt evidenced by the Term
Note into the WCMA Account, the WCMA Line of Credit will be reduced to an amount
equal to 3/5ths of the Loan Amount. On the second Subsequent Funding Date, the
WCMA Line of Credit will be reduced to an amount equal to 2/5ths of the Loan
Amount; and on the third Subsequent Funding Date the WCMA Line of Credit will be
reduced to an amount equal to 1/5th of the Loan Amount.
(f) Final WCMA Maturity Date. On the fourth Subsequent Funding Date (the "WCMA
Maturity Date"), the WCMA Line of Credit will be terminated and the WCMA
Account, at the option of Customer, will either be converted to a WCMA Cash
Account (subject to any requirements of MLPF&S) or terminated.
2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to
make the Loan on the Closing Date are subject to the prior fulfillment of each
of the following conditions; (a) MLBFS shall have received a written request
from Customer that the Loan be funded in accordance with the terms hereof,
together with a written direction from Customer as to the method of payment and
payee(s) of the proceeds of the Loan, which request and direction shall have
been received by MLBFS not less than two Business Days prior to any requested
funding date; (b) MLBFS shall have received a copy of invoices, bills of sale,
payoff letters or other applicable evidence reasonably satisfactory to it that
the proceeds of the Loan will satisfy the Loan Purpose; (c) the Commitment
Expiration Date shall not then have occurred; Purpose; (c) the Commitment
Expiration Date shall not then have occurred; and (d) each of the General
Funding Conditions shall have been met or satisfied to the reasonable
satisfaction of MLBFS.
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2.4 Conditions of Subsequent Fundings; Termination.
(a) Conditions of Subsequent Fundings. The obligation of MLBFS to fund
installments of the term portion of the Loan on any Subsequent Funding Date
shall be subject to each of the conditions specified in Section 2.3 hereof being
met at such date, and the further condition that all payments due under the Term
Note on or prior to any Subsequent Funding Date shall have been paid in full;
provided, however, that notwithstanding the failure of any such conditions to
have been met, MLBFS may in its sole discretion fund such installment and/or any
other installments, and no such funding shall constitute a waiver by MLBFS of
any of its rights hereunder or under any of the Additional Agreements. Without
limiting the foregoing, it is understood that no funding by MLBFS of any sum
hereunder while an Event of Default shall have occurred and is continuing shall
under any circumstances be deemed a waiver by MLBFS of such Event of Default, or
a waiver of any of MLBFS' rights hereunder.
2.5 Commitment Fee. In consideration of the agreement by MLBFS to extend the
Loan to Customer in accordance with and subject to the terms hereof, Customer
has paid or shall, on or before the Closing Date pay, the Commitment Fee to
MLBFS. The Commitment Fee shall not be refundable under any circumstances.
2.6 Acknowledgments of Customer. Customer acknowledges, covenants and agrees
that:
(a) Payment of WCMA Interest; Additional Deposits. Under the terms of this Loan
Agreement, interest accrued on amounts outstanding on the Term WCMA Line of
Credit each month will, subject to the terms hereof, ordinarily be paid from the
proceeds of a borrowing of an additional sum under the Term WCMA Line of Credit.
Since substantially the entire Term WCMA Line of Credit may be drawn on the
Closing Date, Customer agrees that it will, without demand, invoicing or the
request of MLBFS, from time to time make sufficient deposits into the WCMA
Account in order to assure that the Maximum WCMA Line of Credit is not exceeded.
Installments of principal and interest under the Term Note shall be paid
directly to MLBFS in accordance with the terms of the Term Note.
(b) Additional Interest Charges. SUBJECT TO THE TERMS HEREOF, ON EACH
SUBSEQUENT FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA
ACCOUNT. DUE TO POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN
RECOGNITION OF DEPOSITS INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE
CREDIT FOR THE AMOUNT DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN
AN INTEREST CHARGE FOR THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA
ACCOUNT. ON THE OTHER HAND, BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF
THE FUNDS THAT IT LENDS ON THE DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE
AMOUNT FUNDED ON EACH SUBSEQUENT FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO
THE WCMA ACCOUNT, WHETHER OR NOT SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE
TIMING DIFFERENCES BETWEEN THE DATE OF DEPOSIT AND DATE OF RECOGNITION OF THE
DEPOSIT IN THE WCMA ACCOUNT WILL THEREFORE RESULT IN EXTRA INTEREST CHARGES TO
CUSTOMER, WHICH CUSTOMER ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND
HEREBY UNCONDITIONALLY AGREES TO PAY.
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Article III. THE WCMA LINE OF CREDIT
3.1 WCMA Note.
All amounts owing under the WCMA Line of Credit shall be deemed owing under and
evidenced by the WCMA Note included in the Term WCMA Note.
3.2 WCMA Loans.
(a) Loan Commitment and Requests. Subject to the terms and conditions hereof;
(i) on the Closing Date, MLBFS will make a WCMA Loan to Customer in an amount
equal to the Maximum WCMA Line of Credit, the entire proceeds of which will be
disbursed on account of the Loan Purpose, as aforesaid; and (ii) during the
period from and after the Closing Date to the WCMA Maturity Date; (x) Customer
may repay said WCMA Loan and any other WCMA Loans in whole or in part at any
time without premium or penalty, and request a re-borrowing of amounts repaid on
a revolving basis, and (y) MLBFS will make such additional WCMA Loans as
Customer may from time to time request in accordance with the terms hereof,
provided that, without limiting any of the other conditions hereof, the making
of any such WCMA Loan shall not cause the WCMA Loan Balance to exceed the
Maximum WCMA Line of Credit. Customer may request WCMA Loans by use of WCMA
Checks, FTS, Visa(R) charges, wire transfers, or such other means of access to
the WCMA Line of Credit as may be permitted by MLBFS from time to time; it being
understood that so long as the WCMA Line of Credit shall be in effect, any
charge or debit to the WCMA Account which but for the WCMA Line of Credit would
under the terms of the WCMA Agreement result in an overdraft, shall be deemed a
request by Customer for a WCMA Loan.
(b) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of Customers request; (i) the making of such
WCMA Loan would cause the Maximum WCMA Line of Credit to be exceeded; or (ii)
the Maturity Date shall have occurred, or the WCMA Line of Credit shall have
otherwise been terminated in accordance with the terms hereof; or (iii) an event
shall have occurred and is continuing which shall have caused any of the General
Funding Conditions to not then be met or satisfied to the reasonable
satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any
one or more of said conditions shall not have been met shall not in any event be
construed as a waiver of said condition or conditions or of any Event of
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(c) Force Majeure. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(d) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any other provision in this Loan
Agreement or any Additional Agreements to the contrary, in no event shall the
Interest Rate exceed the highest rate permissible under any applicable law. In
the event that any court having jurisdiction determines that MLBFS has received
excess interest hereunder, MLBFS will promptly refund such excess interest to
Customer, without charge or penalty. Except as otherwise provided herein,
accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on
the last Business Day of the calendar month in which the Closing Date shall
occur. Customer hereby irrevocably authorizes and directs MLPF&S to pay MLBFS
such accrued interest from any available free credit balances in the WCMA
Account, and if such available free credit
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balances are insufficient to satisfy any interest payment due, to liquidate any
investments in the Money Accounts (other than any investments constituting any
Minimum Money Accounts Balance) in an amount up to the balance of such accrued
interest, and pay to MLBFS the available proceeds on account thereof. If
available free credit balances in the WCMA Account and available proceeds of the
Money Accounts are insufficient to pay the entire balance of accrued interest,
and Customer otherwise fails to make such payment when due, MLBFS may, in its
sole discretion, make a WCMA Loan in an amount equal to the balance of such
accrued interest and pay the proceeds of such WCMA Loan to itself on account of
such interest. The amount of any such WCMA Loan will be added to the WCMA Loan
Balance. If MLBFS declines to extend a WCMA Loan to Customer under these
circumstances, Customer hereby authorizes and directs MLPF&S to make all such
interest payments to MLBFS from any Minimum Money Accounts Balance. If there is
no Minimum Money Accounts Balance, or it is insufficient to pay all such
interest, MLBFS will invoice Customer for payment of the balance of the accrued
interest, and Customer shall pay such interest as directed by MLBFS within 5
Business Days of receipt of such invoice.
(e) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. The acceptance by or on behalf of MLBFS of a check or other payment
for a lesser amount than shall be due from Customer, regardless of any
endorsement or statement thereon or transmitted therewith, shall not be deemed
an accord and satisfaction or anything other than a payment on account, and
MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment
without prejudice to the rights of MLBFS to recover the balance actually due or
to pursue any other remedy under this Loan Agreement or applicable law for such
balance. All checks accepted by or on behalf of MLBFS in connection with the
Loan and WCMA Line of Credit are subject to final collection.
(f) Exceeding the Maximum WCMA Line of Credit. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the WCMA Line of Credit, deposit sufficient funds into
the WCMA Account to reduce the WCMA Loan Balance below the Maximum WCMA Line of
Credit.
(g) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
Article IV. GENERAL PROVISIONS
4.1 Representations and Warranties.
Customer represents and warrants to MLBFS that:
(a) Due Organization, etc. Customer is a corporation, duly organized, validly
existing and in good standing under the laws of the State of California, and if
any Guarantor is a corporation, partnership or limited liability company, such
Guarantor is, duly organized, validly existing and in good standing under the
laws of the State of its incorporation or formation.
(b) Execution, Delivery and performance. The execution, delivery and
performance by Customer of this Loan Agreement and the Term WCMA Note and by
Consumer and each Guarantor of such of the other
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Additional Agreements to which it is a party; (i) have been duly authorized by
all requisite action, (ii) do not and will not violate or conflict with any law
or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it is bound.
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement, the Term WCMA Note and the other
Additional Agreements to which it is a party.
(d) Enforceability. This Loan Agreement, the Term WCMA Note and such of the
other Additional Agreements to which it is a party are the legal, valid and
binding obligations of Customer or the Guarantors, enforceable against it or
them, as the case may be, in accordance with their respective terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting the
rights of creditors generally or by general principals of equity.
(e) Collateral. Except for Permitted Liens; (i) Customer has good and
marketable title to the Collateral, (ii) none of the Collateral is subject to
any lien, encumbrance or security interest other than the liens and security
interests of MLBFS, and (iii) upon the filing of all Uniform Commercial Code
financing statements executed by Customer with respect to the Collateral in the
appropriate jurisdiction(s) and/or the completion of any other action required
by applicable law to perfect its liens and security interests, MLBFS will have
valid and perfected first liens and security interests upon all of the
Collateral.
(f) Financial Statements. Except as expressly set forth in Customers or any
Business Guarantors financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct, and fairly present, the financial condition of it as at such dates
and the results of its operations for the periods then ended; and since the most
recent date covered by such financial statements, there has been no material
adverse change in any such financial condition or operation. All financial
statements furnished to MLBFS of any Guarantor other than a Business Guarantor
are true and correct and fairly represent such Guarantors financial condition as
of the date of such financial statements, and since the most recent date of such
financial statements, there has been no material adverse change in such
financial condition.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Customer or any Guarantor, which
would, if adversely determined, materially and adversely affect the financial
condition of Customer or any such Guarantor or the continued operations of
Customer or any Business Guarantor.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(i) Collateral Location. All of the tangible Collateral is located at a
Location of Tangible Collateral.
Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer on the Closing Date, on each Subsequent Funding Date
and concurrently with each request for a WCMA Loan.
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4.2 Financial and Other Information.
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited,
Customer shall furnish or cause to be furnished to MLBFS a copy of the annual
audited financial statements of Customer, The Galore Group (U.S.A.), Inc. and
The Galore Group Limited consisting of at least a balance sheet as at the close
of such fiscal year and related statements of income, retained earnings and cash
flows, certified by its current independent certified public accountants or
other independent certified public accountants reasonably acceptable to MLBFS
or, in the case of The Galore Group, Limited, a nationally recognized,
Australian independent certified public accounting firm.
(b) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS:
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter, all in reasonable detail
and certified by its chief financial officer. Within 45 days after the close of
each fiscal semi-annual period of Customer, Customer shall furnish or cause to
be furnished to MLBFS, a statement of profit and loss for the fiscal semi-annual
period then ended for each Customer-owned retail location.
(c) Aging of Accounts and Inventory Reports. Within 20 days after the close of
each fiscal month of Customer, Customer shall furnish or cause to be furnished
to MLBFS an aging of its Accounts and any Chattel Paper and an Inventory report,
certified by its chief financial officer.
(d) Other Information. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer, any Guarantor or the Collateral.
Customer acknowledges that (i) timely receipt of all such information is
critical to the ability of MLBFS to prudently extend and monitor the Loan, and
(ii) the failure to provide any such information within the time required will
constitute a material breach by Customer of this Loan Agreement.
4.3 Other Covenants. Customer further covenants and agrees during the term of
this Loan Agreement that:
(a) Financial Records; Inspection. Customer and each Business Guarantor will:
(i) maintain complete and accurate books and records, and maintain all of its
financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS, upon reasonable notice and
at reasonable times, to inspect its properties (both real or personal),
operations, books and records.
(b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
(c) Compliance With Laws. Neither Customer nor any Guarantor will violate any
law, regulation or other governmental requirement, or any judgment or order of
any court or governmental agency or authority if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor, or the continued operations of Customer or any
Business Guarantor.
(d) Use of Loan Proceeds; Securities Transactions. The proceeds of the Loan
(including the initial WCMA Loan) shall be used by Customer solely for the Loan
Purpose, or, with the prior written consent of
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MLBFS, for other lawful business purposes of Customer not prohibited hereby. The
proceeds of each WCMA Loan other than the initial WCMA Loan shall be used by
Customer solely for working capital in the ordinary course of Customers
business, or, with the prior written consent of MLBFS, for other lawful business
purposes of Customer not prohibited hereby. Customer agrees that under no
circumstances will the Loan or funds borrowed from MLBFS through WCMA Line of
Credit be used; (i) for personal, family or household purposes of any person
whatsoever, (ii) to purchase, carry or trade in securities, including shares of
the Money Accounts, or (iii) to repay debt incurred to purchase, carry or trade
in securities; nor will any such funds be remitted, directly or indirectly, to
MLPF&S or any other broker or dealer in securities, by WCMA Check, check, FTS,
wire transfer, or otherwise.
(e) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld; (i) neither Customer nor any Business
Guarantor will be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets or stock of, or any
material partnership or joint venture interest in, any person or entity, or
sell, transfer or lease all or any substantial part of its assets if any such
action causes a material change in its control or principal business, or a
material adverse change in its financial condition or operations; (ii) Customer
and each Business Guarantor that is a corporation, partnership or limited
liability company will preserve its existence and good standing in the
jurisdictions of establishment and operation, and will not operate in any
material business other than a business substantially the same as its business
as of the date of application by Customer for credit from MLBFS; and (iii)
neither Customer nor any Business Guarantor will cause or permit any material
change in its controlling ownership, controlling senior management or, except
upon not less than 30 days prior written notice to MLBFS, its name or principal
place of business.
(f) Tangible Net Worth. Beginning March 31, 1995, the "tangible net worth" of
Customer, consisting of net worth as shown on Customers regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer, shall at all times exceed
$2,500,000.00.
(g) Debt to Worth. The ratio of Customers total debt to Customers tangible net
worth, determined as aforesaid, shall not at any time exceed 2 to 1.
(h) Minimum Cash Flow. The "Net Cash Flow" of Customer as of the end of each of
its fiscal years shall not be less than $400,000.00. As used herein, "Net Cash
Flow" shall mean the sum of Customers annual net after-tax income, depreciation
and any non-recurring expenses, less any non-recurring income and the current
portion of long-term debt due to parties other than MLBFS; all as shown on
Customers regular financial statements prepared in a manner consistent with the
terms hereof.
(i) Distributions and Transfers. Customer shall not without the prior written
consent of MLBFS directly or indirectly pay any cash dividends or other
distributions on account of its stock, lend any moneys to, or transfer any
assets or property, in excess of $250,000.00, to The Galore Group (U.S.A.),
Inc., Pool Patio 'N Things, Inc. or The Galore Group Limited (other than arms
length transfers for fair consideration in the ordinary course of business).
(j) Additional Debt Guaranties. Except upon the prior written consent of MLBFS,
Customer shall not directly or indirectly guaranty any additional debt of The
Galore Group (U.S.A.), Inc. or Pool Patio 'N Things, Inc., except for debt of
such entities existing as of the date of and reflected on the last financial
statements of each submitted to MLBFS. Customer shall not directly or indirectly
guaranty any additional debt of The Galore Group Limited in excess of the 29
million Australian dollars of debt currently in force for said entity.
(k) Note Receivable from The Galore Group (U.S.A.), Inc. Except upon the prior
written consent of MLBFS, Customer shall not directly or indirectly permit to
exist any debt of The Galore Group (U.S.A.), Inc. to Customer exceeding
$1,500,000.00, beginning March 31, 1995.
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4.4 Collateral
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
(b) Liens. Customer shall not create or permit to exist any lien, encumbrance or
security interest upon or with respect to any Collateral now owned or hereafter
acquired, except for any Permitted Liens. Customer shall further perform any and
all acts reasonably requested by MLBFS to establish, perfect, maintain and
continue MLBFS' security interests and liens upon the Collateral, including, but
not limited to: (i) executing financing statements and any and all other
instruments and documents when and as reasonably requested by MLBFS, and (ii) if
in the reasonable judgment of MLBFS it is required by local law, causing the
owners and/or mortgagees of the real property on which any Collateral may be
located to execute and deliver to MLBFS waivers or subordinations reasonably
satisfactory to MLBFS with respect to any rights in such Collateral.
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customers said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business: (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption. (iii)
sell or dispose of any Fixtures or Equipment so long as same is replaced by
Fixtures or Equipment of comparable value, and (iv) collect all of its Accounts.
Customer shall take such action with respect to protection of the Inventory and
the other Collateral and the collection of the Accounts as MLBFS may from time
to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
the premises where any Collateral is or may be located, except for any such
obligations being contested by Customer in good faith by appropriate
proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall
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<PAGE>
maintain such other insurance as may be required by law or is customarily
maintained by companies in a similar business or otherwise reasonably required
by MLBFS. All such insurance shall provide that MLBFS will receive not less than
10 days prior written notice of any cancellation, and shall otherwise be in form
and amount and with an insurer or insurers reasonably acceptable to MLBFS.
Customer shall furnish MLBFS with a copy or certificate of each such policy or
policies and, prior to any expiration or cancellation, each renewal or
replacement thereof.
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $75,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customers option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
prepay the Loan by an amount equal to the actual cash value of such Collateral
as determined by either the insurance company's payment (plus any applicable
deductible) or, in absence of insurance payment, as reasonably determined by
MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event
of Loss or any time thereafter prior to replacement or prepayment, as aforesaid,
an Event of Default shall occur hereunder, then MLBFS may at its sole option,
exercisable at any time while such Event of Default shall be continuing, require
Customer to either replace such Collateral or prepay the Loan, as aforesaid. Any
prepayment of the Loan pursuant to this Section shall be applied first to
installments on account of the then "Term Note Balance" (as defined in the Term
WCMA Note) in inverse order of maturity; with any prepayment in excess of the
then Term Note Balance applied on account of the WCMA Note concurrently with:
(i) a like permanent reduction in the WCMA Line of Credit, and (ii) a like
reduction in the obligation of MLBFS to fund future installments on account of
the Term Note in inverse order of funding. No amount prepaid pursuant to this
Section may be re-borrowed by Customer.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$75,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
4.5 Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement or the Term WCMA Note, and such failure shall continue for
more than 5 Business Days after written notice thereof shall have been given by
MLBFS to Customer.
(b) Failure to Perform. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements (not constituting an Event of Default under any
other
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<PAGE>
clause of this Paragraph) and such default shall continue unremedied for 10
Business Days after written notice thereof shall have been given by MLBFS to
Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement, the Term WCMA Note or any of the
other Additional Agreements shall at any time prove to have been incorrect in
any material respect when made.
(d) Default Under Other Agreement. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of MLBFS, MLPF&S or any of their
affiliates, and any required notice shall have been given and required passage
of time shall have elapsed.
(e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer or any Guarantor, or any such proceeding shall be
filed against Customer or any Guarantor and shall not be dismissed or withdrawn
within 60 days after filing, or Customer or any Guarantor shall make an
assignment for the benefit of creditors, or Customer or any Guarantor shall
become insolvent or generally fail to pay, or admit in writing its inability to
pay, its debts as they become due.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer or any Guarantor has been materially impaired.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $1,000,000 or more of
Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(h) Seizure or Abuse of Collateral. The Collateral. or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.
4.6 Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of any
Event of Default, MLBFS may at its sole option do any one or more or all of the
following, at such time and in such order as MLBFS may in its sole discretion
choose:
(i) Termination. MLBFS may without notice terminate its obligation to make the
Loan (if any portion of the Loan has not then been funded), or fund any further
amount on account of the Term WCMA Note, or make or continue to make the WCMA
Line of Credit available to Customer, or otherwise extend any credit to or for
the benefit of Customer; and upon any such termination MLBFS shall be relieved
of all such obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest on the Term
Note and WCMA Note included in the Term WCMA Note, and all other Obligations to
be forthwith due and payable, whereupon all such amounts shall be immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient, or may take possession of the Collateral
and the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Customer.
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<PAGE>
(v) Sale. MLBFS may sell any or all of the Collateral at public or private
sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS
may purchase any Collateral at any such public sale. The net proceeds of any
such public or private sale and all other amounts actually collected or received
by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the Obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and the Guarantors remaining jointly and severally liable for
any amount remaining unpaid after such application.
(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith
upon receipt, transmit and deliver to MLBFS in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by MLBFS) which
may be received by Customer at any time in full or partial payment of any
Collateral, and require that Customer not commingle any such items which may be
so received by Customer with any other of its funds or property but instead hold
them separate and apart and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customer's name on any item of payment on or proceeds of
the Collateral.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and securities therein or controlled
thereby, and all proceeds thereof. Customer hereby grants to MLBFS a security
interest in all such property as additional Collateral.
(c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Term WCMA Note, the other Additional Agreements, at
law or in equity, and any one or more of such rights and remedies may be
exercised simultaneously or successively.
(d) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption from any such sale. Any
notices required under applicable law shall be reasonably and properly given to
Customer if given by any of the methods provided herein at least 5 Business Days
prior to taking action. MLBFS shall have the right to postpone or adjourn any
sale or other disposition of Collateral at any time without giving notice of any
such postponed or adjourned date. In the event MLBFS seeks to take possession of
any or all of the Collateral by court process, Customer further irrevocably
waives to the fullest extent permitted by law any bonds and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession, and any demand for possession prior to the
commencement of any suit or action.
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<PAGE>
4.7 Miscellaneous.
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or
any of the other Additional Agreements shall operate as a waiver thereof, and no
single or partial exercise of any such right, power or remedy shall preclude any
other or further exercise thereof, or the exercise of any other right, power or
remedy. Neither any amendment, modification, supplement, termination or waiver
of any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements, nor any consent to any departure by Customer therefrom,
shall be effective unless the same shall be in writing and signed by MLBFS. Any
waiver of any provision of this Loan Agreement, the Term WCMA Note or any of the
other Additional Agreements and any consent to any departure by Customer from
the terms thereof shall be effective only in the specific instance and for the
specific purpose for which given. Except as otherwise expressly provided herein,
no notice to or demand on Customer shall in any case entitle Customer to any
other or further notice or demand in similar or other circumstances.
(b) Disclosure. Customer and each Guarantor hereby irrevocably authorizes MLBFS
and each of its affiliates, including without limitation MLPF&S, to at any time
(whether or not an Event of Default shall have occurred) obtain from and
disclose to each other any and all financial and other information about
Customer or any Guarantor.
(c) Communications. All notices and other communications required or permitted
hereunder or in connection with any of the Additional Agreements shall be in
writing, and shall be either delivered personally, mailed by postage prepaid
certified mail or sent by express overnight courier or by facsimile. Such
notices and communications shall be deemed to be given on the date of personal
delivery, facsimile transmission or actual delivery of certified mail, or one
Business Day after delivery to an express overnight courier. Unless otherwise
specified in a notice sent or delivered in accordance with the terms hereof,
notices and other communications in writing shall be given to the parties hereto
at their respective addresses set forth at the beginning of this Loan Agreement,
or, in the case of facsimile transmission, to the parties at their respective
regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the enforcement of this Loan Agreement or any of the
Additional Agreements or the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and expenses of MLBFS' employees. The
obligations of Customer under this paragraph shall survive the expiration or
termination of this Loan Agreement and the discharge of the other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 Business Days written
notice is sent to Customer, do the same or cause it to be done or remedy any
such breach, and may expend its funds for such purpose. Any and all reasonable
amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon
demand, with interest at the Interest Rate during the period from and including
the date funds are so expended by MLBFS to the date of repayment, and all such
amounts shall be additional Obligations.
(f) Late Charges. Any payment required to be made by Customer pursuant to this
Loan Agreement or any of the Additional Agreements not paid within 5 Business
Days of the applicable due date shall be subject to a late charge in an amount
equal to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount
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<PAGE>
permitted by applicable law. Such late charges shall be payable on demand, or,
without demand, may in the sole discretion of MLBFS be paid by a WCMA Loan and
added to the WCMA Loan Balance in the same manner as provided herein for accrued
interest with respect to the WCMA Line of Credit.
(g) Further Assurances. Customer agrees to do such further acts and things and
to execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, or to confirm unto MLBFS its rights, powers and
remedies under this Loan Agreement, the Term WCMA Note and the other Additional
Agreements.
(h) Binding Effect. This Loan Agreement, the Term WCMA Note and the other
Additional Agreements shall be binding upon, and shall inure to the benefit of
MLBFS, Customer and their respective successors and assigns. Customer shall not
assign any of its rights or delegate any of its obligations under this Loan
Agreement, the Term WCMA Note or any of the other Additional Agreements without
the prior written consent of MLBFS. Unless otherwise expressly agreed to in a
writing signed by MLBFS, no such consent shall in any event relieve Customer of
any of its obligations under this Loan Agreement, the Term WCMA Note or any of
the other Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Loan Agreement
and the Additional Agreements are inserted only as a matter of convenience, and
shall not affect the interpretation hereof.
(j) Governing Law. This Loan Agreement, the Term WCMA Note and, unless otherwise
expressly provided therein, each of the other Additional Agreements, shall be
governed in all respects by the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement, the Term WCMA Note and the other Additional Agreements shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Loan Agreement, the Term WCMA Note or any of the other
Additional Agreements which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Loan Agreement, the Term WCMA Note and the other Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(l) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as either MLBFS shall be obligated
to make the Loan, or, after the Closing Date, there shall be any moneys
outstanding under the Term Note or WCMA Note included in the Term WCMA Note or
under this Loan Agreement, or there shall be any other Obligations outstanding.
(m) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS
THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without limiting
the foregoing, Customer acknowledges that: (i) no promise or commitment has been
made to it by MLBFS, MLPF&S or any of their respective employees, agents or
representatives to make the Loan on any terms other than as expressly set forth
herein and in the Term WCMA Note, or to make any other loan or otherwise extend
any other credit to Customer or any other party; and (ii) except as otherwise
expressly provided herein, this Loan Agreement supersedes and replaces any and
all proposals, letters of intent and approval and commitment letters from MLBFS
to Customer, non of which shall be considered an Additional Agreement.
(n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE
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<PAGE>
DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE
OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN
ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER
WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER
FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND
CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER
ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
BARBEQUES GALORE, INC.
By: /s/ Sydney Selati /s/ Kevin Ralphs
-----------------------------------------------------------------------
Signature (1) Signature (2)
Sydney Selati Kevin Ralphs
-----------------------------------------------------------------------
Printed Name Printed Name
Chairman Chief Financial Officer
-----------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: /s/ B. Jensen, AVP
-----------------------------
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<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF TERM WCMA LOAN AND SECURITY AGREEMENT NO.
9502340701 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND BARBEQUES
GALORE, INC.
- --------------------------------------------------------------------------------
Locations of Tangible Collateral:
15041 Bake Parkway, Ste. A, Irvine, CA 92718
2246 Sunrise Blvd., Ste. 7, Rancho Cordova, CA 95670
11073 W. Pico Blvd., Los Angeles, CA 90064
ll24 Sunset Rd., Henderson, NV 89015
6412 Tupelo Drive, Citrus Heights, CA 95621
18255 Hawthorne Blvd., Torrance, CA 90503
7450 Clairemont Mesa Blvd., San Diego, CA 92111
1286 B Auto Parkway, Escondido, CA 92025
311 E. Camelback Rd., Phoenix, AZ 85012
201 N. Central Ave., Glendale, CA 91203
9010 E. Indian Bend, Ste. 2, Scottsdale, AZ 85250
18922 Ventura Blvd., Tarzana, CA 91356
14040 E. Firestone Blvd., Santa Fe Springs, CA 90670
324 S. Mountain Ave., Upland, CA 91786
10495 Magnolia Ave., Riverside, CA 92505
2580 S. Decatur Blvd., Las Vegas, NV 89102
7307 Roseville Rd., Ste. 10, Sacramento, CA 95842
c/o Tropitone, 5 Marconi Dr., Irvine, CA 52798
<PAGE>
SCHEDULE 1
================================================================================
C O V E R
FAX
BARBEQUES GALORE, 15041 BAKE PARKWAY, SUITE A
IRVINE CA 92718 PHONE (714) 581-1753, FAX (714) 581-4822
S H E E T
================================================================================
To: Larry Sherman
Fax #: 619-231-8770
Subject: Leased and Other Secured Assets
Date: March 9, 1995
Pages: 5, including this cover sheet.
COMMENTS:
Dear Larry,
1. Listed below are the assets that we have on lease:
Asset Lessor Termination Date
----- ------ ----------------
El Dorado Cadillac GMAC 4/96
Nissan 240SX Nissan Motor Acceptance 7/96
Canon NP2120 Copier Canon 4/96
Canon Fax L700 Canon 4/96
1994 Isuzu Rodeo GE Capital 5/98
1994 Ford Cargo Van Ford Motor Credit 7/97
1994 Ford Cargo Van Ford Motor Credit 7/97
1995 Ford Cargo Van Ford Motor Credit 10/97
1995 Ford Cargo Van Ford Motor Credit 10/97
1995 Ford Cargo Van Ford Motor Credit 3/98
None of the above leases are capitalized in our books.
2. We have purchased a Clark TM15 forklift truck through Clark Credit
Corporation. The original purchase price was $21,208.00. This loan will
be paid off by July 1995.
3. The attached Exhibit A is a listing by location of all of the computer
equipment financed by Warrior Bank and covered by a UCC filing in favor
of that bank. The invoiced value of these assets was $73,513.64. This
loan will be paid off by August 1997.
Regards,
/s/ Kevin J. Ralphs
Kevin J. Ralphs
<PAGE>
EXHIBIT A
---------
PAGE 1 of 4
-----------
<TABLE>
<CAPTION>
Location: 2246 Sunrise Blvd. Suite 7
- --------- Rancho Cordova, Ca. 95670
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/20 23DC168
1 Mono Monitor VGA 9411612B
1 2400 Baud Modem 931223
1 American Power 250 UPS 931223
1 Okidata 931223
1 Star SP312 Roll Printer RKP-300 450130401236
1 Aim Cash Drawer
1 PC Anywhere Software Package
1 Remote System - Infocorp
1 SW Purchase Order Control - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller W/I/O Port
- --------------------------------------------------------------------------------
<CAPTION>
Location: 1700 East Ventura Blvd, Suite D
- --------- Oxnard, California 93030
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/20 23BV692
1 Mono Monitor VGA 12112092
1 2400 Baud Modem 301C0906904
1 American Power 250 UPS 301C0906904
1 Okidata 320 Printer 301C0906904
1 Star SP312 Roll Printer RKP-300 450130100995
1 Aim Cash Drawer
1 PC Anywhere Software Host
1 Remote System - Infocorp
1 SW Purchase Order Control - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller W/I/O Port
- --------------------------------------------------------------------------------
<CAPTION>
Location: 14040 E. Firestone Blvd.
- --------- Santa Fe Springs, Ca. 90670
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 486 23PVR43
1 Mono Monitor VGA 23112160
1 2400 Baud Modem 960551
1 American Power 250 UPS 960551
1 Okidata 320 Printer 960551
1 Star SP312 Roll Printer 450130000535
1 M-S Cash Drawer
1 PC Anywhere Software
1 Remote software/POS
1 Purchase Order Management - Infocorp
2 Cable IBM Printer
1 Hard Disk Controller
- --------------------------------------------------------------------------------
</TABLE>
BARBEQUES GALORE INC.
BY:/s/ [SIGNATURE APPEARS HERE]
-----------------------------
ITS: C.F.O.
----------------------------
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE] No. 231-07T10
- --------------------------------------------------------------------------------
WCMA(R) NOTE, LOAN AND SECURITY AGREEMENT
WCMA Note, Loan and Security Agreement ("Loan Agreement") dated as of February
23, 1995, between BARBECUES GALORE, INC., a corporation organized and existing
under the laws of the State of California having its principal office at 15041
Bake Parkway, Ste. A, Irvine, CA 92718, Attn: Sydney Selati, Chairman,
("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS").
In accordance with that certain Working Capital Management(R) Account Agreement
No. 231-07T10 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed
to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by
this reference incorporated as a part hereof. In conjunction therewith and as
part of the WCMA Program, Customer has requested that MLBFS provide, and subject
to the terms and conditions herein set forth MLBFS has agreed to provide, a
commercial line of credit for Customer (the "WCMA Line of Credit").
Contemporaneously herewith, MLBFS is entering into a Term WCMA Loan and Security
Agreement with Customer for an aggregate amount of $1,500,000.00. All references
to the WCMA Line of Credit in this Loan Agreement shall refer only to the WCMA
Line of Credit hereunder and not to that under the Term WCMA Loan and Security
Agreement dated as of the date hereof.
Accordingly, and in consideration of the premises and of the mutual covenants of
the parties hereto, Customer and MLBFS hereby agree as follows:
1. DEFINITIONS
(a) Specific Terms. In addition to terms defined elsewhere in this Loan
Agreement, when used herein the following terms shall have the following
meanings:
(i) "Account Debtor" shall mean any party who is or may become obligated with
respect to an Account or Chattel Paper.
(ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA
Line of Credit to be fully activated under MLPF&S' computer system as part of
the WCMA Program.
(iii) "Additional Agreements" shall mean all agreements, instruments, documents
and opinions other than this Loan Agreement which are contemplated hereby or
otherwise reasonably required by MLBFS, and relate to this Loan Agreement or
evidence the creation, guaranty or collateralization of the Obligations or the
granting or perfection of security interests upon the Collateral or any other
collateral for the Obligations.
(iv) "Business Day" shall mean any day other than a Saturday, Sunday, federal
holiday or other day on which the New York Stock Exchange is regularly closed.
(v) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights,
Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents
and Instruments of Customer, howsoever arising, whether now owned or existing or
hereafter acquired or arising, and wherever located; together with all books and
records (including computer records) in any way related thereto, all proceeds
thereof, and the additional collateral described in Section 9 (b) hereof.
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(vi) "Commitment Expiration Date" shall mean March 23,1995.
(vii) "General Funding Conditions" shall mean each of the following conditions
to any WCMA Loan by MLBFS hereunder; (A) no Event of Default, or event which
with the giving of notice, passage of time, or both, would constitute an Event
of Default, shall have occurred and be continuing or would result from the
making of any WCMA Loan hereunder by MLBFS; (B) there shall not have occurred
any material adverse change in the business or financial condition of Customer
or any Guarantor; (C) all representations and warranties of Customer or any
Guarantor herein or in any Additional Agreements shall then be true and correct
in all material respects; (D) no other event shall then have occurred and be
continuing which shall have reasonably caused MLBFS to in good faith believe
that the prospect of payment or performance by Customer or any Guarantor has
been materially impaired; (E) MLBFS shall have received this Loan Agreement and
all Additional Agreements, duly executed and filed or recorded where applicable,
all of which shall be in form and substance reasonably satisfactory to MLBFS;
(F) MLBFS shall have received evidence reasonably satisfactory to it as to the
ownership of the Collateral and the perfection and priority of MLBFS' liens and
security interests thereon, as well as the ownership of and the perfection and
priority of MLBFS' liens and security interests on any other collateral for the
Obligations furnished pursuant to any of the Additional Agreements; (G) MLBFS
shall have received evidence reasonably satisfactory to it of the insurance
required hereby or by any of the Additional Agreements; and (H) any additional
conditions specified in an Approval Letter or Commitment Letter executed by
MLBFS with respect to the transactions contemplated hereby shall have been met
to the reasonable satisfaction of MLBFS.
(viii) "Guarantor' shall mean a person or entity who has either guaranteed or
provided collateral for any or all of the Obligations; and "Business Guarantor"
shall mean any such Guarantor that is a corporation, partnership,
proprietorship, limited liability company or other entity regularly engaged in a
business activity.
(ix) "Interest Rate" shall mean a fluctuating per annum rate of interest equal
to the sum of 2.65% and the 30-Day Commercial Paper Rate. The "30-Day Commercial
Paper Rate" shall mean, as of the date of any determination, the interest rate
from time to time published in the "Money Rates" section of The Wall Street
Journal for 30-Day high-grade unsecured notes sold though dealers by major
corporations. The Interest Rate will change as of the date of publication in The
Wall Street Journal of a 30-Day Commercial Paper Rate that is different from
that published on the preceding Business Day. In the event that The Wall Street
Journal shall, for any reason, fail or cease to publish the 30-Day Commercial
Paper Rate, MLBFS will choose a reasonably comparable index or source to use as
the basis for the Interest Rate.
(x) "Line Fee" shall mean a fee of $2,500.00 due to MLBFS in connection with the
WCMA Line of Credit for the period prior to the current Maturity Date.
(xi) "Location of Tangible Collateral" shall mean the address of Customer set
forth at the beginning of this Loan Agreement, together with any other address
or addresses set forth on an exhibit hereto as being a Location of Tangible
Collateral.
(xii) "Maturity Date" shall mean March 31,1996, or such later date as may be
consented to in writing by MLBFS.
(xiii) "Maximum WCMA Line of Credit" shall mean an amount equal to the lesser of
(A) the sum of (i) 70% of Customer's Non-Government Accounts and Chattel Paper
(excluding Accounts over 90 days old, Chattel Paper with installments or other
sums more than 90 days past due, and Accounts and Chattel Paper directly or
indirectly due from any shareholder, officer or employee of Customer or any
affiliated entity) and (ii) 50% of Customer's Inventory, all as shown on
Customers regular books and records, less the aggregate of (x) then outstanding
balance of principal and interest under the Term WCMA Note made by Customer and
payable to MLBFS and (y) the remaining availability under the WCMA Line of
Credit portion of the Term WCMA facility, or (B) $500,000.00.
(xiv) "Obligations" shall mean all liabilities, indebtedness and other
obligations of Customer to MLBFS, howsoever created, arising or evidenced,
whether now existing or hereafter arising, whether direct or indirect, absolute
or contingent, due or to become due, primary or secondary or joint or several,
and, without
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limiting the foregoing, include all present and future liabilities, indebtedness
and obligations of Customer under this Loan Agreement.
(xv) "Permitted Liens" shall mean (A) liens for current taxes not delinquent
and, if MLBFS' rights to and interest in the Collateral are not materially and
adversely affected thereby, liens for taxes being contested in good faith by
appropriate proceedings; (B) liens arising in the ordinary course of business
for sums not due; (C) liens in favor of MLBFS; (D) liens which will be
discharged with the proceeds of the initial WCMA Loan; (E) those liens set forth
on Schedule 1, attached hereto; and (F) any other liens expressly permitted in
writing by MLBFS.
(xvi) "WCMA Account" shall mean and refer to the Working Capital Management
Account of Customer with MLPF&S identified as Account No. 231-07T10.
(xvii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan
Agreement.
(b) Other Terms. Except as otherwise defined herein: (i) all terms used in this
Loan Agreement which are defined in the Uniform Commercial Code of Illinois
("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms
used herein which are defined in the WCMA Agreement shall have the meaning set
forth in the WCMA Agreement.
2. WCMA PROMISSORY NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in this Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the Maturity Date, the aggregate unpaid principal amount of
all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on
the outstanding WCMA Loan Balance, from and including the date on which the
initial WCMA Loan is made until the date of payment of all WCMA Loans in full;
and (c) on demand, all other sums payable pursuant to this Loan Agreement,
including, but not limited to, the Line Fee and any late charges. Except as
otherwise expressly set forth herein, Customer hereby waives presentment, demand
for payment, protest and notice of protest, notice of dishonor, notice of
acceleration, notice of intent to accelerate and all other notices and
formalities in connection with this WCMA Promissory Note and this Loan
Agreement.
3. WCMA LOANS
(a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not
then have occurred, and (ii) Customer shall have subscribed to the WCMA Program
and its subscription to the WCMA Program shall then be in effect, the Activation
Date shall occur on or promptly after the date, following the acceptance of this
Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of
the General Funding Conditions shall have been met or satisfied to the
reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of
Credit for a nominal amount shall be deemed evidence of the satisfaction of any
of the conditions herein set forth, or a waiver of any of the terms or
conditions hereof.
(b) WCMA Loans. Subject to the terms and conditions hereof, during the period
from and after the Activation Date to the Maturity Date: (i) MLBFS will make
WCMA Loans to Customer in such amounts as Customer may from time to time request
in accordance with the terms hereof, up to an aggregate outstanding amount not
to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA
Loans in whole or in part at any time without premium or penalty, and request a
re-borrowing of amounts repaid on a revolving basis, provided that the aggregate
amount outstanding at any time shall not exceed the Maximum WCMA Line of Credit.
Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges,
wire transfers, or such other means of access to the WCMA Line of Credit as may
be permitted by MLBFS from time to time; it being understood that so long as the
WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account
which but for the WCMA Line of Credit would under the terms of the WCMA
Agreement result in an overdraft, shall be deemed a request by Customer for a
WCMA Loan.
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(c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be
obligated to make any WCMA Loan, and may without notice refuse to honor any such
request by Customer, if at the time of Customer's request: (i) the making of
such WCMA Loan would cause the Maximum WCMA Line of Credit to be exceeded; or
(ii) the Maturity Date shall have occurred, or the WCMA Line of Credit shall
have otherwise been terminated in accordance with the terms hereof; or (iii) an
event shall have occurred and is continuing which shall have caused any of the
General Funding Conditions to not then be met or satisfied to the reasonable
satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any
one or more of said conditions shall not have been met shall not in any event be
construed as a waiver of said condition or conditions or of any Event of
Default, and shall not prevent MLBFS at any time thereafter while any condition
shall not have been met from refusing to honor any request by Customer for a
WCMA Loan.
(d) Force Majeure. MLBFS shall not be responsible, and shall have no liability
to Customer or any other party, for any delay or failure of MLBFS to honor any
request of Customer for a WCMA Loan or any other act or omission of MLBFS,
MLPF&S or any of their affiliates due to or resulting from any system failure,
error or delay in posting or other clerical error, loss of power, fire, Act of
God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of
their affiliates unless directly arising out of the willful wrongful act or
active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer
or any other party for any incidental or consequential damages arising from any
act or omission by MLBFS, MLPF&S or any of their affiliates in connection with
the WCMA Line of Credit or this Loan Agreement.
(e) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate.
Interest shall be computed for the actual number of days elapsed on the basis of
a year consisting of 360 days. Notwithstanding any other provision in this Loan
Agreement or any Additional Agreements to the contrary, in no event shall the
Interest Rate exceed the highest rate permissible under any applicable law. In
the event that any court having jurisdiction determines that MLBFS has received
excess interest hereunder, MLBFS will promptly refund such excess interest to
Customer, without charge or penalty. Except as otherwise provided herein,
accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on
the last Business Day of each calendar month, commencing with the last Business
Day of the calendar month in which the Activation Date shall occur. Customer
hereby irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued
interest from any available free credit balances in the WCMA Account, and if
such available free credit balances are insufficient to satisfy any interest
payment due, to liquidate any investments in the Money Accounts (other than any
investments constituting any Minimum Money Accounts Balance) in an amount up to
the balance of such accrued interest, and pay to MLBFS the available proceeds on
account thereof. If available free credit balances in the WCMA Account and
available proceeds of the Money Accounts are insufficient to pay the entire
balance of accrued interest, and Customer otherwise fails to make such payment
when due, MLBFS may, in its sole discretion, make a WCMA Loan in an amount equal
to the balance of such accrued interest and pay the proceeds of such WCMA Loan
to itself on account of such interest. The amount of any such WCMA Loan will be
added to the WCMA Loan Balance. If MLBFS declines to extend a WCMA Loan to
Customer under these circumstances, Customer hereby authorizes and directs
MLPF&S to make all such interest payments to MLBFS from any Minimum Money
Accounts Balance. If there is no Minimum Money Accounts Balance, or it is
insufficient to pay all such interest, MLBFS will invoice Customer for payment
of the balance of the accrued interest, and Customer shall pay such interest as
directed by MLBFS within 5 Business Days of receipt of such invoice.
(f) Payments. All payments required or permitted to be made pursuant to this
Loan Agreement shall be made in lawful money of the United States. Unless
otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be
made by the delivery of checks (other than WCMA Checks), or by means of FTS or
wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S
for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA
Agreement to the contrary, Customer hereby irrevocably authorizes and directs
MLPF&S to apply available free credit balances in the WCMA Account to the
repayment of the WCMA Loan Balance prior to application for any other purpose.
Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by
Customer upon the same basis and schedule as funds are made available for
investment in the Money Accounts in accordance with the terms of the WCMA
Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid
authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance.
The acceptance by or
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on behalf of MLBFS of a check or other payment for a lesser amount than shall be
due from Customer, regardless of any endorsement or statement thereon or
transmitted therewith, shall not be deemed an accord and satisfaction or
anything other than a payment on account, and MLBFS or anyone acting on behalf
of MLBFS may accept such check or other payment without prejudice to the rights
of MLBFS to recover the balance actually due or to pursue any other remedy under
this Loan Agreement or applicable law for such balance. All checks accepted by
or on behalf of MLBFS in connection with the WCMA Line of Credit are subject to
final collection.
(g) Exceeding the Maximum WCMA Line of Credit. In the event that the WCMA Loan
Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall
within 1 Business Day of the first to occur of (i) any request or demand of
MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA
Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient
funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum
WCMA Line of Credit.
(h) Line Fee; Extensions. In consideration of the extension of the WCMA Line of
Credit by MLBFS to Customer during the period prior to the current Maturity
Date, Customer has paid or shall pay the Line Fee to MLBFS. If such fee has not
heretofore been paid by Customer, Customer hereby authorizes MLBFS, at its
option, to either cause said fee (and any renewal Line Fee) to be paid with a
WCMA Loan which is added to the WCMA Loan Balance, or invoice Customer for said
fee (in which event Customer shall pay said fee within 5 Business Days after
receipt of such invoice). No delay in the Activation Date, howsoever caused,
shall entitle Customer to any rebate or reduction in the Line Fee or extension
of the Maturity Date. In the event MLBFS and Customer, in their respective sole
discretion, agree to renew the WCMA Line of Credit beyond the current Maturity
Date, Customer agrees to pay a renewal Line Fee in the amount then set forth in
the writing signed by MLBFS which extends the Maturity Date; it being understood
that any request by Customer for a WCMA Loan or failure of Customer to pay any
WCMA Loan Balance outstanding on the immediately prior Maturity Date, after the
receipt by Customer of a writing signed by MLBFS extending the Maturity Date,
shall be deemed a consent by Customer to both the renewal Line Fee and the new
Maturity Date. If no renewal Line Fee is set forth in the writing signed by
MLBFS extending the Maturity Date, the renewal Line Fee shall be deemed to be
the same as the immediately preceding Line Fee.
(i) Statements. MLPF&S will include in each monthly statement it issues under
the WCMA Program information with respect to WCMA Loans and the WCMA Loan
Balance. Any questions that Customer may have with respect to such information
should be directed to MLBFS; and any questions with respect to any other matter
in such statements or about or affecting the WCMA Program should be directed to
MLPF&S.
(j) Use of Loan Proceeds; Securities Transactions. The proceeds of each WCMA
Loan shall be used by Customer solely for working capital in the ordinary course
of its business, or, with the prior written consent of MLBFS, for other lawful
business purposes of Customer not prohibited hereby. Customer agrees that under
no circumstances will funds borrowed from MLBFS through the WCMA Line of Credit
be used: (i) for personal, family or household purposes of any person
whatsoever, (ii) to purchase, carry or trade in securities, including shares of
the Money Accounts, or (iii) to repay debt incurred to purchase, carry or trade
in securities; nor will any such funds be remitted, directly or indirectly, to
MLPF&S or any other broker or dealer in securities, by WCMA Check, check, FTS,
wire transfer, or otherwise.
4. REPRESENTATIONS AND WARRANTIES
Customer represents and warrants to MLBFS that:
(a) Due Organization, etc. Customer is a corporation, duly organized, validly
existing and in good standing under the laws of the State of California, and if
any Guarantor is a corporation, partnership or limited liability company, such
Guarantor is, duly organized, validly existing and in good standing under the
laws of the State of its incorporation or formation.
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(b) Execution, Delivery and Performance. The execution, delivery and performance
by Customer of this Loan Agreement and by Customer and each Guarantor of such of
the Additional Agreements to which it is a party: (i) have been duly authorized
by all requisite action, (ii) do not and will not violate or conflict with any
law or other governmental requirement, or any of the agreements, instruments or
documents which formed or govern Customer or any such Guarantor, and (iii) do
not and will not breach or violate any of the provisions of, and will not result
in a default by Customer or any such Guarantor under, any other agreement,
instrument or document to which it is a party or by which it is bound.
(c) Notices and Approvals. Except as may have been given or obtained, no notice
to or consent or approval of any governmental body or authority or other third
party whatsoever (including, without limitation, any other creditor) is required
in connection with the execution, delivery or performance by Customer or any
Guarantor of such of this Loan Agreement and the Additional Agreements to which
it is a party.
(d) Enforceability. this Loan Agreement and such of the Additional Agreements to
which it is a party are the legal, valid and binding obligations of Customer or
the Guarantors, enforceable against it or them, as the case may be, in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy and other similar laws affecting the rights of creditors generally
or by general principals of equity.
(e) Collateral. Except for Permitted Liens: (i) Customer has good and marketable
title to the Collateral, (ii) none of the Collateral is subject to any lien,
encumbrance or security interest other than the liens and security interests of
MLBFS, and (iii) upon the filing of all Uniform Commercial Code financing
statements executed by Customer with respect to the Collateral in the
appropriate jurisdiction(s) and/or the completion of any other action required
by applicable law to perfect its liens and security interests, MLBFS will have
valid and perfected first liens and security interests upon all of the
Collateral.
(f) Financial Statements. Except as expressly set forth in Customer's or any
Business Guarantor's financial statements, all financial statements of Customer
and each Business Guarantor furnished to MLBFS have been prepared in conformity
with generally accepted accounting principles, consistently applied, are true
and correct, and fairly present the financial condition of it as at such dates
and the results of its operations for the periods then ended; and since the most
recent date covered by such financial statements, there has been no material
adverse change in any such financial condition or operation. All financial
statements furnished to MLBFS of any Guarantor other than a Business Guarantor
are true and correct and fairly represent such Guarantor's financial condition
as of the date of such financial statements, and since the most recent date of
such financial statements, there has been no material adverse change in such
financial condition.
(g) Litigation. No litigation, arbitration, administrative or governmental
proceedings are pending or threatened against Customer or any Guarantor, which
would, if adversely determined, materially and adversely affect the financial
condition of Customer or any such Guarantor or the continued operations of
Customer or any Business Guarantor.
(h) Tax Returns. All federal, state and local tax returns, reports and
statements required to be filed by Customer and each Guarantor have been filed
with the appropriate governmental agencies and all taxes due and payable by
Customer and each Guarantor have been timely paid (except to the extent that any
such failure to file or pay will not materially and adversely affect either the
liens and security interests of MLBFS hereunder or under any of the Additional
Agreements, the financial condition of Customer or any Guarantor, or the
continued operations of Customer or any Business Guarantor).
(i) Collateral Location. All of the tangible Collateral is located at a Location
of Tangible Collateral.
Each of the foregoing representations and warranties are continuing and shall be
deemed remade by Customer concurrently with each request for a WCMA Loan.
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5. FINANCIAL AND OTHER INFORMATION
Customer shall furnish or cause to be furnished to MLBFS during the term of this
Loan Agreement all of the following:
(a) Annual Financial Statements. Within 120 days after the close of each fiscal
year of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited,
Customer shall furnish or cause to be furnished to MLBFS a copy of the annual
audited financial statements of Customer, The Galore Group (U.S.A.), Inc. and
The Galore Group Limited consisting of at least a balance sheet as at the close
of such fiscal year and related statements of income, retained earnings and cash
flows, certified by its current independent certified public accountants or
other independent certified public accountants reasonably acceptable to MLBFS,
or in the case of The Galore Group Limited, a nationally recognized, Australian
independent certified public accounting firm.
(b) Interim Financial Statements. Within 45 days after the close of each fiscal
quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS;
(i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a
balance sheet as at the close of such fiscal quarter; all in reasonable detail
and certified by its chief financial officer. Within 45 days after the close of
each fiscal semi-annual period of Customer, Customer shall furnish or cause to
be furnished to MLBFS, a statement of profit and toss for the fiscal semi-annual
period then ended for each Customer-owned retail location.
(c) Aging of Accounts and Inventory Reports. Within 20 days after the close of
each fiscal month of Customer, Customer shall furnish or cause to be furnished
to MLBFS an aging of its Accounts and any Chattel Paper and an Inventory report,
certified by its chief financial officer
(d) Other Information. Customer shall furnish or cause to be furnished to MLBFS
such other information as MLBFS may from time to time reasonably request
relating to Customer, any Guarantor or the Collateral.
Customer acknowledges that timely receipt of all such information is critical to
the ability of MLBFS to prudently offer the WCMA Line of Credit, and that the
failure to provide any such information within the time required will constitute
a material breach by Customer of this Loan Agreement.
6. OTHER COVENANTS
Customer further agrees during the term of this Loan Agreement that;
(a) Financial Records; Inspection. Customer and each Business Guarantor will;
(i) maintain complete and accurate books and records, and maintain all of its
financial records in a manner consistent with the financial statements
heretofore furnished to MLBFS, or prepared on such other basis as may be
approved in writing by MLBFS; and (ii) permit MLBFS, upon reasonable notice and
at reasonable times, to inspect its properties (both real or personal),
operations, books and records.
(b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments
and other governmental charges, howsoever designated, and all other liabilities
and obligations, except to the extent that any such failure to pay will not
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor or the continued operations of Customer or any
Business Guarantor.
(c) Compliance With Laws. Neither Customer nor any Guarantor will violate any
law, regulation or other governmental requirement, or any judgment or order of
any court or governmental agency or authority if any such violation will
materially and adversely affect either the liens and security interests of MLBFS
hereunder or under any of the Additional Agreements, the financial condition of
Customer or any Guarantor, or the continued operations of Customer or any
Business Guarantor.
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(d) Continuity. Except upon the prior written consent of MLBFS, which consent
will not be unreasonably withheld: (i) neither Customer nor any Business
Guarantor will be a party to any merger or consolidation with, or purchase or
otherwise acquire all or substantially all of the assets or stock of, or any
material partnership or joint venture interest in, any person or entity, or
sell, transfer or lease all or any substantial part of its assets if any such
action causes a material change in its control or principal business, or a
material adverse change in its financial condition or operations; (ii) Customer
and each Business Guarantor that is a corporation, partnership or limited
liability company wilt preserve its existence and good standing in the
jurisdictions of establishment and operation, and will not operate in any
material business other than a business substantially the same as its business
as of the date of application by Customer for credit from MLBFS; and (iii)
neither Customer nor any Business Guarantor will cause or permit any material
change in its controlling ownership, controlling senior management or, except
upon not less than 30 days prior written notice to MLBFS, its name or principal
place of business.
(e) Tangible Net Worth. Beginning March 31, 1995, the "tangible net worth" of
Customer, consisting of net worth as shown on Customer's regular financial
statements prepared in a manner consistent with the terms hereof, but excluding
an amount equal to (i) any assets which are ordinarily classified as
"intangible" in accordance with generally accepted accounting principles, and
(ii) any amounts now or hereafter directly or indirectly owing to Customer by
officers, shareholders or affiliates of Customer, shall at all times exceed
$2,500,000.00.
(f) Debt to Worth. The ratio of Customer's total debt to Customer's tangible net
worth, determined as aforesaid, shall not at any time exceed 2 to 1.
(g) Minimum Cash Flow. The "Net Cash Flow" of Customer as of the end of each of
its fiscal years shall not be less than $400,000.00. As used herein, "Net Cash
Flow" shall mean the sum of Customer's annual net after-tax income, depreciation
and any non-recurring expenses, less any non-recurring income and the current
portion of long-term debt due to parties other than MLBFS; all as shown on
Customer's regular financial statements prepared in a manner consistent with the
terms hereof.
(h) Annual Clean-Up. Prior to each Maturity Date, Customer shall cause the WCMA
Loan Balance to be fully paid off and remain at zero for at least one
consecutive 60-day period.
(i) Distributions and Transfers. Customer shall not without the prior written
consent of MLBFS directly or indirectly pay any cash dividends or other
distributions on account of its stock, lend any moneys to, or transfer any
assets or property, in excess of $250,000.00, to The Galore Group (U.S.A.),
Inc., Pool Patio 'N Things, Inc. or The Galore Group Limited (other than arms
length transfers for fair consideration in the ordinary course of business).
(j) Additional Debt Guaranties. Except upon the prior written consent of MLBFS,
Customer shall not directly or indirectly guaranty any additional debt of The
Galore Group (U.S.A.), Inc. or Pool Patio 'N Things, Inc., except for debt of
such entities existing as of the date of and reflected on the last financial
statements of each submitted to MLBFS. Customer shall not directly or indirectly
guaranty any additional debt of The Galore Group Limited in excess of the 29
million Australian dollars of debt currently in force for said entity.
(k) Note Receivable from The Galore Group (U.S.A.), Inc. Except upon the prior
written consent of MLBFS, Customer shall not directly or indirectly permit to
exist any debt of The Galore Group (U.S.A.), Inc. to Customer exceeding
$1,500,000.00, beginning March 31, 1995.
7. COLLATERAL
(a) Pledge of Collateral. To secure payment and performance of the Obligations,
Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants
to MLBFS first liens and security interests in and upon all of the Collateral,
subject only to Permitted Liens.
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(b) Liens. Customer shall not create or permit to exist any lien, encumbrance or
security interest upon or with respect to any Collateral now owned or hereafter
acquired, except for any Permitted Liens. Customer shall further perform any and
all acts reasonably requested by MLBFS to establish, perfect, maintain and
continue MLBFS' security interests and liens upon the Collateral, including, but
not limited to; (i) executing financing statements and any and all other
instruments and documents when and as reasonably requested by MLBFS, and (ii) if
in the reasonable judgment of MLBFS it is required by local law, causing the
owners and/or mortgagees of the real property on which any Collateral may be
located to execute and deliver to MLBFS waivers or subordinations reasonably
satisfactory to MLBFS with respect to any rights in such Collateral.
(c) Performance of Obligations. Customer shall perform all of its obligations
owing on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or
otherwise, shall be deemed an assumption by MLBFS of any of Customer's said
obligations.
(d) Sales and Collections. So long as no Event of Default shall have occurred
and is continuing, Customer may in the ordinary course of its business; (i) sell
any Inventory normally held by Customer for sale, (ii) use or consume any
materials and supplies normally held by Customer for use or consumption, (iii)
sell or dispose of any Fixtures or Equipment so long as same is replaced by
Fixtures or Equipment of comparable value, and (iv) collect all of its Accounts.
Customer shall take such action with respect to protection of the Inventory and
the other Collateral and the collection of the Accounts as MLBFS may from time
to time reasonably request.
(e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable
time or times hereafter, Customer shall deliver to MLBFS, in addition to the
other information required hereunder, a schedule identifying, for each Account
and all Chattel Paper subject to MLBFS' security interests hereunder, each
Account Debtor by name and address and amount, invoice or contract number and
date of each invoice or contract. Customer shall furnish to MLBFS such
additional information with respect to the Collateral, and amounts received by
Customer as proceeds of any of the Collateral, as MLBFS may from time to time
reasonably request.
(f) Alterations and Maintenance. Except upon the prior written consent of MLBFS,
Customer shall not make or permit any material alterations to any tangible
Collateral which might materially reduce or impair its market value or utility.
Customer shall at all times keep the tangible Collateral in good condition and
repair and shall pay or cause to be paid all obligations arising from the repair
and maintenance of such Collateral, as well as all obligations with respect to
the premises where any Collateral is or may be located, except for any such
obligations being contested by Customer in good faith by appropriate
proceedings.
(g) Location. Except for movements required in the ordinary course of Customer's
business, Customer shall give MLBFS 30 days' prior written notice of the placing
at or movement of any tangible Collateral to any location other than a Location
of Tangible Collateral. In no event shall Customer cause or permit any material
tangible Collateral to be removed from the United States without the express
prior written consent of MLBFS.
(h) Insurance. Customer shall insure all of the tangible Collateral under a
policy or policies of physical damage insurance providing that losses will be
payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable
Endorsement and containing such other provisions as may be reasonably required
by MLBFS. Customer shall further provide and maintain a policy or policies of
comprehensive public liability insurance naming MLBFS as an additional party
insured. Customer and each Business Guarantor shall maintain such other
insurance as may be required by law or is customarily maintained by companies in
a similar business or otherwise reasonably required by MLBFS. All such insurance
shall provide that MLBFS will receive not less than 10 days prior written notice
of any cancellation, and shall otherwise be in form and amount and with an
insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS
with a copy or certificate of each such policy or policies and, prior to any
expiration or cancellation, each renewal or replacement thereof.
-9-
<PAGE>
(i) Event of Loss. Customer shall at its expense promptly repair all repairable
damage to any tangible Collateral. In the event that any tangible Collateral is
damaged beyond repair, lost, totally destroyed or confiscated (an "Event of
Loss") and such Collateral had a value prior to such Event of Loss of $75,000.00
or more, then, on or before the first to occur of (i) 90 days after the
occurrence of such Event of Loss, or (ii) 10 Business Days after the date on
which either Customer or MLBFS shall receive any proceeds of insurance on
account of such Event of Loss, or any underwriter of insurance on such
Collateral shall advise either Customer or MLBFS that it disclaims liability in
respect of such Event of Loss, Customer shall, at Customer's option, either
replace the Collateral subject to such Event of Loss with comparable Collateral
free of all liens other than Permitted Liens (in which event Customer shall be
entitled to utilize the proceeds of insurance on account of such Event of Loss
for such purpose, and may retain any excess proceeds of such insurance), or
consent to a reduction in the WCMA Line of Credit in an amount equal to the
actual cash value of such Collateral as determined by either the applicable
insurance company's payment (plus any applicable deductible) or, in absence of
insurance payment, as reasonably determined by MLBFS. Notwithstanding the
foregoing, if at the time of occurrence of such Event of Loss or any time
thereafter prior to replacement or line reduction, as aforesaid, an Event of
Default shall occur hereunder, then MLBFS may at its sole option, exercisable at
any time while such Event of Default shall be continuing, require Customer to
either replace such Collateral or, on its own volition and without the consent
of Customer, reduce the WCMA Line of Credit, as aforesaid.
(j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any
attachment, lien, judicial process, encumbrance or claim affecting or involving
$75,000.00 or more of the Collateral.
(k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless
from and against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses) of any
nature whatsoever which may be asserted against or incurred by MLBFS arising out
of or in any manner occasioned by (i) the ownership, collection, possession, use
or operation of any Collateral, or (ii) any failure by Customer to perform any
of its obligations hereunder; excluding, however, from said indemnity any such
claims, liabilities, etc. arising directly out of the willful wrongful act or
active gross negligence of MLBFS. This indemnity shall survive the expiration or
termination of this Loan Agreement as to all matters arising or accruing prior
to such expiration or termination.
8. Events of Default.
The occurrence of any of the following events shall constitute an "Event of
Default" under this Loan Agreement:
(a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA
Account when due any amount owing or required to be deposited by Customer under
this Loan Agreement, and such failure shall continue for more than 5 Business
Days after written notice thereof shall have been given by MLBFS to Customer.
(b) Failure to Perform. Customer or any Guarantor shall default in the
performance or observance of any covenant or agreement on its part to be
performed or observed under this Loan Agreement or any of the Additional
Agreements (not constituting an Event of Default under any other clause of this
Paragraph), and such default shall continue unremedied for 10 Business Days
after written notice thereof shall have been given by MLBFS to Customer.
(c) Breach of Warranty. Any representation or warranty made by Customer or any
Guarantor contained in this Loan Agreement or any of the Additional Agreements
shall at any time prove to have been incorrect in any material respect when
made.
(d) Default Under Other Agreement. A default or Event of Default by Customer or
any Guarantor shall occur under the terms of any other agreement, instrument or
document with or intended for the benefit of
-10-
<PAGE>
MLBFS, MLPF&S or any of their affiliates, and any required notice shall have
been given and required passage of time shall have elapsed.
(e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt or receivership law or statute
shall be filed by Customer or any Guarantor, or any such proceeding shall be
filed against Customer or any Guarantor and shall not be dismissed or withdrawn
within 60 days after filing, or Customer or any Guarantor shall make an
assignment for the benefit of creditors, or Customer or any Guarantor shall
become insolvent or generally fail to pay, or admit in writing its inability to
pay, its debts as they become due.
(f) Material Impairment. Any event shall occur which shall reasonably cause
MLBFS to in good faith believe that the prospect of payment or performance by
Customer or any Guarantor has been materially impaired.
(g) Acceleration of Debt to Other Creditors. Any event shall occur which results
in the acceleration of the maturity of any indebtedness of $100,000.00 or more
of Customer or any Guarantor to another creditor under any indenture, agreement,
undertaking, or otherwise.
(h) Seizure or Abuse of Collateral. The Collateral, or any material part
thereof, shall be or become subject to any material abuse or misuse, or any
levy, attachment, seizure or confiscation which is not released within 10
Business Days.
9. Remedies.
(a) Remedies Upon Default. Upon the occurrence and during the continuance of
any Event of Default, MLBFS may at its sole option do any one or more or all of
the following, at such time and in such order as MLBFS may in its sole
discretion choose:
(i) Termination. MLBFS may without notice terminate the WCMA Line of Credit and
all obligations to provide the WCMA Line of Credit or otherwise extend any
credit to or for the benefit of Customer; and upon any such termination MLBFS
shall be relieved of all such obligations.
(ii) Acceleration. MLBFS may declare the principal of and interest on the WCMA
Loan Balance, and all other Obligations to be forthwith due and payable,
whereupon all such amounts shall be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived.
(iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the
remedies of a secured party under applicable law, including, but not limited to,
the UCC, and any or all of its other rights and remedies under this Loan
Agreement and the Additional Agreements.
(iv) Possession. MLBFS may require Customer to make the Collateral and the
records pertaining to the Collateral available to MLBFS at a place designated by
MLBFS which is reasonably convenient, or may take possession of the Collateral
and the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Customer.
(v) Sale. MLBFS may sell any or all of the Collateral at public or private sale
upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may
purchase any Collateral at any such public sale. The net proceeds of any such
public or private sale and all other amounts actually collected or received by
MLBFS pursuant hereto, after deducting all costs and expenses incurred at any
time in the collection of the Obligations and in the protection, collection and
sale of the Collateral, will be applied to the payment of the obligations, with
any remaining proceeds paid to Customer or whoever else may be entitled thereto,
and with Customer and the Guarantors remaining jointly and severally liable for
any amount remaining unpaid after such application.
-11-
<PAGE>
(vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon
receipt, transmit and deliver to MLBFS in the form received, all cash, checks,
drafts and other instruments for the payment of money (properly endorsed, where
required, so that such items may be collected by MLBFS) which may be received by
Customer at any time in full or partial payment of any Collateral, and require
that Customer not commingle any such items which may be so received by Customer
with any other of its funds or property but instead hold them separate and apart
and in trust for MLBFS until delivery is made to MLBFS.
(vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that
its Account or Chattel Paper has been assigned to MLBFS and direct such Account
Debtor to make payment directly to MLBFS of all amounts due or becoming due with
respect to such Account or Chattel Paper; and MLBFS may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.
(viii) Control of Collateral. MLBFS may otherwise take control in any lawful
manner of any cash or non-cash items of payment or proceeds of Collateral and of
any rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Customers name on any item of payment on or proceeds of
the Collateral.
(b) Set-Off. MLBFS shall have the further right upon the occurrence and during
the continuance of an Event of Default to set-off, appropriate and apply toward
payment of any of the Obligations, in such order of application as MLBFS may
from time to time and at any time elect, any cash, credit, deposits, accounts,
securities and any other property of Customer which is in transit to or in the
possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or
affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account
and any Money Accounts, and all cash and securities therein or controlled
thereby, and all proceeds thereof. Customer hereby grants to MLBFS a security
interest in all such property as additional Collateral.
(c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS
herein are severable and cumulative and in addition to all other rights and
remedies available in the Additional Agreements, at law or in equity, and any
one or more of such rights and remedies may be exercised simultaneously or
successively.
(d) Notices. To the fullest extent permitted by applicable law, Customer hereby
irrevocably waives and releases MLBFS of and from any and all liabilities and
penalties for failure of MLBFS to comply with any statutory or other requirement
imposed upon MLBFS relating to notices of sale, holding of sale or reporting of
any sale, and Customer waives all rights of redemption from any such sale. Any
notices required under applicable law shall be reasonably and properly given to
Customer if given by any of the methods provided herein at least 5 Business Days
prior to taking action. MLBFS shall have the right to postpone or adjourn any
sale or other disposition of Collateral at any time without giving notice of any
such postponed or adjourned date. In the event MLBFS seeks to take possession of
any or all of the Collateral by court process, Customer further irrevocably
waives to the fullest extent permitted by law any bonds and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession. and any demand for possession prior to the
commencement of any suit or action.
10. Miscellaneous.
(a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any
right, power or remedy pursuant to this Loan Agreement or any of the Additional
Agreements shall operate as a waiver thereof, and no single or partial exercise
of any such right, power or remedy shall preclude any other or further exercise
thereof, or the exercise of any other right, power or remedy. Neither any
amendment, modification, supplement, termination or waiver of any provision of
this Loan Agreement or any of the Additional Agreements, nor any consent to any
departure by Customer therefrom, shall be effective unless the same shall be in
writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement
or any of the Additional Agreements and any consent to any departure by Customer
from the terms of this Loan Agreement or any of the Additional Agreements shall
be effective only in the specific instance and for the specific purpose for
which
-12-
<PAGE>
given. Except as otherwise expressly provided herein, no notice to or demand on
Customer shall in any case entitle Customer to any other or further notice or
demand in similar or other circumstances.
(b) Disclosure. Customer and each Guarantor hereby irrevocably authorizes MLBFS
and each of its affiliates, including without limitation MLPF&S, to at any time
(whether or not an Event of Default shall have occurred) obtain from and
disclose to each other any and all financial and other information about
Customer or any Guarantor.
(c) Communications. All notices and other communications required or permitted
hereunder shall be in writing, and shall be either delivered personally, mailed
by postage prepaid certified mail or sent by express overnight courier or by
facsimile. Such notices and communications shall be deemed to be given on the
date of personal delivery, facsimile transmission or actual delivery of
certified mail, or one Business Day after delivery to an express overnight
courier. Unless otherwise specified in a notice sent or delivered in accordance
with the terms hereof, notices and other communications in writing shall be
given to the parties hereto at their respective addresses set forth at the
beginning of this Loan Agreement, or, in the case of facsimile transmission, to
the parties at their respective regular facsimile telephone number.
(d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS
for: (i) all Uniform Commercial Code filing and search fees and expenses
incurred by MLBFS in connection with the verification, perfection or
preservation of MLBFS' rights hereunder or in the Collateral or any other
collateral for the Obligations; (ii) any and all stamp, transfer and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery and/or recording of this Loan Agreement or any of the Additional
Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including,
but not limited to, reasonable fees and expenses of outside counsel) incurred by
MLBFS in connection with the enforcement of this Loan Agreement or any of the
Additional Agreements or the protection of MLBFS' rights hereunder or
thereunder, excluding, however, salaries and expenses of MLBFS' employees. The
obligations of Customer under this paragraph shall survive the expiration or
termination of this Loan Agreement and the discharge of the other Obligations.
(e) Right to Perform Obligations. If Customer shall fail to do any act or thing
which it has covenanted to do under this Loan Agreement or any representation or
warranty on the part of Customer contained in this Loan Agreement shall be
breached, MLBFS may, in its sole discretion, after 5 days written notice is sent
to Customer, do the same or cause it to be done or remedy any such breach, and
may expend its funds for such purpose. Any and all reasonable amounts so
expended by MLBFS shall be repayable to MLBFS by Customer upon demand, with
interest at the Interest Rate during the period from and including the date
funds are so expended by MLBFS to the date of repayment, and all such amounts
shall be additional Obligations.
(f) Late Charges. Any payment required to be made by Customer pursuant to this
Loan Agreement not paid within 5 Business Days of the applicable due date shall
be subject to a late charge in an amount equal to the lesser of: (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by applicable law. Such
late charges shall be payable on demand, or, without demand, may in the sole
discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in
the same manner as provided herein for accrued interest.
(g) Further Assurances. Customer shall do such further acts and things and
execute and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to effectuate the
purposes of this Loan Agreement, or to confirm unto MLBFS its rights, powers and
remedies under this Loan Agreement and the Additional Agreements.
(h) Binding Effect; Assignment. This Loan Agreement and the Additional
Agreements shall be binding upon, and shall inure to the benefit of MLBFS,
Customer and their respective successors and assigns. Customer shall not assign
any of its rights or delegate any of its obligations under this Loan Agreement
or any of the Additional Agreements without the prior written consent of MLBFS.
Unless otherwise expressly
-13-
<PAGE>
agreed to in a writing signed by MLBFS no such consent shall in any event
relieve Customer of any of its obligations under this Loan Agreement or the
Additional Agreements.
(i) Headings. Captions and section and paragraph headings in this Loan Agreement
and the Additional Agreements are inserted only as a matter of convenience, and
shall not affect the interpretation hereof.
(j) Governing Law. This Loan Agreement, and, unless otherwise expressly provided
therein, each of the Additional Agreements, shall be governed in all respects by
the laws of the State of Illinois.
(k) Severability of Provisions. Whenever possible, each provision of this Loan
Agreement and the Additional Agreements shall be interpreted in such manner as
to be effective and valid under applicable law. Any provision of this Loan
Agreement or any of the Additional Agreements which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remaining provisions of this Loan Agreement and the Additional Agreements or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(I) Term. This Loan Agreement shall become effective on the date accepted by
MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof,
shall continue in effect so long thereafter as the WCMA Line of Credit shall be
in effect or there shall be any other Obligations outstanding.
(m) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT
BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS OF THE PARTIES. Without limiting the foregoing, Customer acknowledges
that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any
of their respective employees, agents or representatives to extend the
availability of the WCMA Line of Credit or the due date of the WCMA Loan Balance
beyond the current Maturity Date, or to increase the Maximum WCMA Line of
Credit, or otherwise extend any other credit to Customer or any other party;
(ii) no purported extension of the Maturity Date, increase in the Maximum WCMA
Line of Credit or other extension or agreement to extend credit shall be valid
or binding unless expressly set forth in a written instrument signed by MLBFS;
and (iii) except as otherwise expressly provided herein, this Loan Agreement
supersedes and replaces any and all proposals, letters of intent and approval
and commitment letters from MLBFS to Customer, none of which shall be considered
an Additional Agreement.
(n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS
BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN
ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL
AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE
CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS
TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT
IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS
TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO
COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF
COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY
AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY
MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF
CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE
TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT.
-14-
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year
first above written.
BARBEQUES GALORE, INC.
By: /s/ Sydney Selati /s/ Kevin Ralphs
----------------------------------------------------------------
Signature (1) Signature (2)
Sydney Selati Kevin Ralphs
- -------------------------------------------------------------------
Printed Name Printed Name
Chairman Chief Financial Officer
- -------------------------------------------------------------------
Title Title
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By /s/ [SIGNATURE APPEARS HERE]
------------------------------------
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<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF WCMA NOTE, LOAN AND SECURITY AGREEMENT NO.
231-07T10 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND BARBEQUES
GALORE, INC.
- --------------------------------------------------------------------------------
Locations of Tangible Collateral:
15041 Bake Parkway, Ste. A, Irvine, CA 92718
2246 Sunrise Blvd., Ste. 7, Rancho Cordova, CA 95670
11073 W. Pico Blvd., Los Angeles, CA 90064
1124 Sunset Rd., Henderson, NV 89015
6412 Tupelo Drive, Citrus Heights, CA 95621
18255 Hawthorne Blvd., Torrance, CA 90503
7450 Clairemont Mesa Blvd., San Diego, CA 92111
1286 B Auto Parkway, Escondido, CA 92025
311 E. Camelback Rd., Phoenix, AZ 85012
201 N. Central Ave., Glendale, CA 91203
9010 E. Indian Bend, Ste. 2, Scottsdale, AZ 85250
18922 Ventura Blvd., Tarzana, CA 91356
14040 E. Firestone Blvd., Santa Fe Springs, CA 90670
324 S. Mountain Ave., Upland, CA 91786
10495 Magnolia Ave., Riverside, CA 92505
2580 S. Decatur Blvd., Las Vegas, NV 89102
7307 Roseville Rd., Ste. 10, Sacramento, CA 95842
c/o Tropitone, 5 Marconi Dr., Irvine, CA 52798
<PAGE>
SCHEDULE 1
================================================================================
[LETTERHEAD OF FAX COVERSHEET APPEARS HERE]
================================================================================
To: Larry Sherman
Fax#: 619-231-8770
Subject: Leased and Other Secured Assets
Date: March 9, 1995
Pages 5, including this cover sheet.
COMMENTS:
Dear Larry,
1. Listed below are the assets that we have on lease:
<TABLE>
<CAPTION>
Asset Lessor Termination Date
- ----- ------ ----------------
<S> <C> <C>
El Dorado Cadillac GMAC 4/96
Nissan 240SX Nissan Motor Acceptance 7/96
Canon NP2120 Copier Canon 4/96
Canon Fax L700 Canon 4/96
1994 Isuzu Rodeo GE Capital 5/98
1994 Ford Cargo Van Ford Motor Credit 7/97
1994 Ford Cargo Van Ford Motor Credit 7/97
1995 Ford Cargo Van Ford Motor Credit 10/97
1995 Ford Cargo Van Ford Motor Credit 10/97
1995 Ford Cargo Van Ford Motor Credit 3/98
</TABLE>
None of the above leases are capitalized in our books.
2. We have purchased a Clark TM15 forklift truck through Clark Credit
Corporation. The original purchase price was $21,208.00. This loan will be
paid off by July 1995.
3. The attached Exhibit A is a listing by location of all of the computer
equipment financed by Warrior Bank and covered by a UCC filing in favor of
that bank. The invoiced value of these assets was $73,513.64. This loan will
be paid off by August 1997.
Regards,
/s/ Kevin J. Ralphs
Kevin J. Ralphs
<PAGE>
EXHIBIT A
---------
PAGE 1 of 4
-----------
<TABLE>
<CAPTION>
Location: 2246 Sunrise Blvd. Suite 7
- --------- Rancho Cordova, Ca 95670
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/20 23DC168
1 Mono VGA 94116128
1 2400 Baud Modem 931223
1 American Power 250 UPS 931223
1 Okidata 931223
1 Star SP312 Roll Printer RKP-300 450130401236
1 Aim Cash Drawer
1 PC Anywhere Software Package
1 Remote System - Infocorp
1 SW Purchase Order Control - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller W/I/O Port
- --------------------------------------------------------------------------------
<CAPTION>
Location: 1700 East Ventura Blvd, Suite D
- -------- Oxnard, California 93030
Quantity Item Serial #
- --------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/20 23BV692
1 Mono Monitor VGA 12112092
1 2400 Baud Modem 301C0906904
1 American Power 250 UPS 301C0906904
1 Okidata 320 Printer 301C0906904
1 Star SP312 Roll Printer RKP-300 450130100995
1 Aim Cash Drawer
1 PC Anywhere Software Host
1 Remote System - Infocorp
1 SW Purchase Order Control - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller W/I/O Port
- --------------------------------------------------------------------------------
<CAPTION>
Location: 14040 E. Firestone Blvd.
- --------- Santa Fe Springs, Ca 90670
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM PS/Value Point 486 23PVR43
1 Mono Monitor VGA 23112160
1 2400 Baud Modem 960551
1 American Power 250 UPS 960551
1 Okidata 320 Printer 960551
1 Star SP312 Roll Printer 450130600535
1 M-S Cash Drawer
1 PC Anywhere Software
1 Remote software/POS [xx] Sign Here 4 pages
1 Purchase Order Management - Infocorp [ ] Initial Here
2 Cable IBM Printer [ ] Notarize Here
1 Hard Disk Controller [ ] Return
- ------------------------------------------------- [xx] Sign 4 pages (to be
</TABLE> -------------------
recorded in Alabama)
BARBEQUES GALORE, INC.
BY: /s/ [SIGNATURE APPEARS HERE]
----------------------------
ITS: CFO
----------------------------
<PAGE>
EXHIBIT A
---------
PAGE 2 of 4
-----------
<TABLE>
<CAPTION>
Location: 10495 Magnolia Ave., Suite A
- --------- Riverside, Ca. 92505
Quantity Item Serial #
- --------- ---- --------
<S> <C> <C>
1 IBM PS/Value Point 486 23FWL24
1 Mono Monitor VGA 64130104
1 2400 Baud Modem 931095
1 American Power 250 UPS 931095
1 Okidata 320 Printer 931095
1 Star SP312 Roll Printer 450130600560
1 M-S Cash Drawer
1 PC Anywhere Software
1 Remote software/POS
1 SW Purchase order management - Infocorp
2 Cable IBM Printer
1 Hard Disk Controller
- --------------------------------------------------------------------------------
<CAPTION>
Location: 1286 B. Auto Parkway
- -------- Escondido, Ca. 92025
Quantity Item Serial #
- --------- ---- --------
<S> <C> <C>
1 IBM Value Point 486 23FWH18
1 Mono Monitor VGA 64130067
1 2400 Baud Modem
1 American Power 250 UPS
1 Okidata 320 Printer
1 Star SP312 Roll Printer 450130600559
1 M-S Cash Drawer
1 PC Anywhere software
1 Remote System - Infocorp
1 SW Purchase Order - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller
- --------------------------------------------------------------------------------
<CAPTION>
Location: 18225 Hawthorne Blvd.
- --------- Torrance, Ca. 90504
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM 486 PS/Value Point 23GAC54
1 Mono Monitor VGA 23112400
1 2400 Baud Modem 307C1030366
1 American Power 450 UPS 307C1030366
1 Okidata 320 Printer 307C1030366
1 Star SP312 Roll Printer 450130600166
1 Cash Drawer
1 PC Anywhere software
1 Remote software/POS - Infocorp
1 Purchase Order Management - Infocorp
1 Cable IBM Printer
1 Hard disk controller W/I/O Port
</TABLE>
- --------------------------------------------------------------------------------
BARBEQUES GALORE, INC. WARRIOR SAVINGS BANK
BY:[SIGNATURE APPEARS HERE] BY:
------------------------- --------------------------
ITS: CFO ITS:
------------------------ --------------------------
<PAGE>
EXHIBIT A
---------
PAGE 3 0F 4
-----------
<TABLE>
<CAPTION>
Location: 11073 W. Pico Blvd.
- --------- Los Angeles, Ca. 90064
Quantity Item Serial #
- --------- ---- --------
<S> <C> <C>
1 IBM 486 PS/Value Point 23FZY64
1 Mono Monitor VGA 64135441
1 2400 Baud Modem G.V.C. 307C1030903
1 American Power 450 UPS 307C1030903
1 Star SP312 Roll Printer 307C1030903
1 M-S Cash Drawer
1 PC Anywhere Software
1 Software POS, Remote (Store System)
1 Purchase order management
2 Cable IBM Printer
1 Hard Disk Controller
- --------------------------------------------------------------------------------
<CAPTION>
Location: 18922 Venture Blvd.
- --------- Tarzana, Ca. 91356
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM 486 PS/Value Point 23GAB06
1 Mono Monitor VGA 23112348
1 2400 Baud Modem G.V.C. 307C1030304
1 American Power 450 UPS 307C1030304
1 Okidata 320 Printer 307C1030304
1 Star SP312 Roll Printer 450130600529
1 M-S Cash Drawer
1 PC Anywheres oftware
1 Purchase order management
2 Cable IBM Printer
1 Hard Disk ControllerW/I/O Port
- --------------------------------------------------------------------------------
<CAPTION>
Location: 311 East Camelback Road
- --------- Camelback Terrace
Phoenix, Arizona 85012
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/120 2BM729
1 Mono Monitor VGA 12112004
1 2400 Baud Modem 301C0906909
1 American Power 250 UPS 301C0906909
1 Okidata 320 Printer 301C0906909
1 Star SP312 Roll Printer RKF-300 450121100037
1 Aim Cash Drawer
1 PC Anywhere Softward Host
1 Remote System - Infocorp.
1 SW Purchase Order Control - Infocorp.
1 Cable IBM Printer
- --------------------------------------------------------------------------------
</TABLE>
BARBEQUES GALORE INC. WARRIOR SAVINGS BANK
BY:/s/ SIGNATURE APPEARS HERE] BY:
----------------------------- ---------------------------
ITS: CFO. ITS:
---------------------------- --------------------------
<PAGE>
EXHIBIT A
---------
PAGE 4 OF 4
-----------
<TABLE>
<CAPTION>
Location:
- --------- 2580 South Decatur Avenue
Las Vegas, Nevada 89102
and
1124 Sunset Road
Henderson, Nevada 89015
Quantity Item Serial #
- -------- ---- --------
<S> <C> <C>
1 IBM Value Point 386SX/20 23BP598
1 Mono Monitor VGA 94116303
1 2400 Baud Modem 112C0636794
1 American Power 250 UPS 112C0636794
1 Okedata 320 Printer 112CO636794
1 Star SP312 Roll Printer
RKP-300 112C0636794
1 Aim Cash Drawer 450130101229
1 PC Anywhere Software Package
1 Remote System - Infocorp
1 SW Purchase Order Control - Infocorp
1 Cable IBM Printer
1 Hard Disk Controller W/I/O Port
</TABLE>
- --------------------------------------------------------------------------------
BARBEQUES GALORE, INC. WARRIOR SAVINGS BANK
BY:[SIGNATURE APPEARS HERE] BY:
----------------------------- ------------------------------
ITS: CFO ITS:
---------------------------- -----------------------------
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
No. 9502340701
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
to or for the benefit of BARBEQUES GALORE, INC., a corporation organized and
existing under the laws of the State of California (with any successor-in
interest, including, without limitation, any successor by merger or by operation
of law, herein collectively referred to as "Customer") under (a) that certain
TERM WCMA LOAN AND SECURITY AGREEMENT No. 9502340701 between MLBFS and Customer
(the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined
in the Loan Agreement (including, without limitation, the TERM WCMA NOTE
incorporated by reference into the Loan Agreement), and (c) all present and
future amendments and other evidences of any extensions, increases, renewals and
other changes of or to the Loan Agreement or Additional Agreements
(collectively, the "Guaranteed Documents"), the undersigned, THE GALORE GROUP
(U.S.A.), INC., a corporation duly organized and validly existing under the laws
of the State of Delaware ("Guarantor"), hereby unconditionally guarantees to
MLBFS:(i) the prompt and full payment when due, by acceleration or otherwise, of
all sums now or any time hereafter due from Customer to MLBFS under the
Guaranteed Documents; (ii) the prompt, full and faithful performance and
discharge by Customer of each and every other covenant and warranty of Customer
set forth in the Guaranteed Documents, and (iii) the prompt and full payment and
performance of all other indebtedness, liabilities and obligations of Customer
to MLBFS howsoever, created or evidenced, and whether now existing or hereafter
arising (collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully paid, performed and
discharged. Upon the occurrence and during the continuance of any Event of
Default under the Guaranteed Documents, any or all of the indebtedness hereby
guaranteed then existing shall, at the option of MLBFS, become immediately due
and payable from Guarantor. Notwithstanding the occurrence of any such event,
this Guaranty shall continue and remain in full force and effect.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any renewals, extensions, forbearances, compromises or releases of
any of the Obligations or any of MLBFS, rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantors of any of the Obligations; (c) any failure, neglect or omission
on the part of MLBFS to realize upon or protect any of the Obligations, or any
collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any application of
payments or credits by MLBFS; (e) the granting of credit from time to time by
MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents;
or (f) any other act of commission or omission of any kind or at any time upon
the part of MLBFS or any of its affiliates or any of their respective employees
or agents with respect to any matter whatsoever. MLBFS shall not be required at
any time, as a condition of Guarantor's obligations hereunder, to resort to
payment from Customer or other persons or entities whatsoever, or any of their
properties or estates, or resort to any collateral or pursue or exhaust any
other rights or remedies whatsoever.
<PAGE>
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been fully paid and discharged. Guarantor expressly
waives presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of advancement of funds under the Guaranteed
Documents and all other notices and formalities to which Customer or Guarantor
might be entitled, by statute or otherwise, and, so long as there are any
Obligations or MLBFS is committed to extend credit to Customer, waives any right
to revoke or terminate this Guaranty without the express written consent of
MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or other Guaranteed
Documents or in respect of any of the Obligations, in its sole discretion and
without demand or notice of any kind, to appropriate, hold, set off and apply
toward the payment of any amount due hereunder, in such order of application as
MLBFS may elect, all moneys, credits and other property belonging to or in the
name of Guarantor at any time held or controlled by MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
affiliates, whether now being held or controlled or held or controlled in the
future, on deposit or otherwise, and MLBFS is hereby granted a lien and security
interest upon all such moneys, credits and other property. Guarantor further
hereby irrevocably authorizes MLBFS and each of its affiliates, including
without limitation MLPF&S, to at any time (whether or not an Event of Default
shall have occurred) obtain from and disclose to each other any and all
financial and other information about Guarantor.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request.
No delay on the part of MLBFS in the exercise of any right or remedy under any
agreement (including, but not limited to, this Guaranty) shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there is more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. Guarantor
agrees that this Guaranty may be enforced by MLBFS in any jurisdiction and venue
in which the Loan Agreement may be enforced. Guarantor and MLBFS hereby each
expressly waive any and all rights to a trial by jury in any action, proceeding
or counterclaim brought by either of the parties against the other party in any
way related to or arising out of this Guaranty or the Obligations. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS.
-2-
<PAGE>
Each signatory on behalf of Guarantor warrants that he has authority to sign on
behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of February 28, 1995.
THE GALORE GROUP (U.S.A.), INC.
By: /s/ Sydney Selati /s/ Kevin Ralphs
----------------------------------------------------------
Signature (1) Signature (2)
Sydney Selati Kevin Ralphs
----------------------------------------------------------
Printed Name Printed Name
President Chief Financial Officer
----------------------------------------------------------
Title Title
Address of Guarantor:
15041 Bake Parkway, Suite A
Irvine, CA 92718
-3-
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE] Ref. No. 231-07T10
================================================================================
UNCONDITIONAL GUARANTY
FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit
to or for the benefit of BARBEQUES GALORE, INC., a corporation organized and
existing under the laws of the State of California (with any successor-in
interest, including, without limitation, any successor by merger or by operation
of law, herein collectively referred to as "Customer") under (a) that certain
WCMA NOTE, LOAN AND SECURITY AGREEMENT No. 231-07T10 between MLBFS and Customer
(the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined
in the Loan Agreement, and (c) all present and future amendments and other
evidences of any extensions, increases, renewals and other changes of or to the
Loan Agreement or Additional Agreements (collectively, the "Guaranteed
Documents"), the undersigned, THE GALORE GROUP (U.S.A.), INC., a corporation
duly organized and validly existing under the laws of the State of Delaware
("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the prompt and
full payment when due, by acceleration or otherwise, of all sums now or any time
hereafter due from Customer to MLBFS under the Guaranteed Documents: (ii) the
prompt, full and faithful performance and discharge by Customer of each and
every other covenant and warranty of Customer set forth in the Guaranteed
Documents, and (iii) the prompt and full payment and performance of all other
indebtedness, liabilities and obligations of Customer to MLBFS, howsoever
created or evidenced, and whether now existing or hereafter arising
(collectively, the "Obligations"). Guarantor further agrees to pay all
reasonable costs and expenses (including, but not limited to, court costs and
reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect
or enforce performance of any of the Obligations, or in enforcing this Guaranty.
This Guaranty is absolute, unconditional and continuing and shall remain in
effect until all of the Obligations shall have been fully paid, performed and
discharged. Upon the occurrence and during the continuance of any Event of
Default under the Guaranteed Documents, any or all of the indebtedness hereby
guaranteed then existing shall, at the option of MLBFS, become immediately due
and payable from Guarantor. Notwithstanding the occurrence of any such event,
this Guaranty shall continue and remain in full force and effect.
The liability of Guarantor hereunder shall in no event be affected or impaired
by any of the following, any of which may be done or omitted by MLBFS from time
to time, without notice to or the consent of Guarantor: (a) any renewals,
amendments, modifications or supplements of or to any of the Guaranteed
Documents, or any renewals, extensions, forbearances, compromises or releases of
any of the Obligations or any of MLBFS' rights under any of the Guaranteed
Documents; (b) any acceptance by MLBFS of any collateral or security for, or
other guarantors of, any of the Obligations; (c) any failure, neglect or
omission on the part of MLBFS to realize upon or protect any of the Obligations,
or any collateral or security therefor, or to exercise any lien upon or right of
appropriation of any moneys, credits or property of Customer or any other
guarantor, possessed by or under the control of MLBFS or any of its affiliates,
toward the liquidation or reduction of the Obligations; (d) any application of
payments or credits by MLBFS; (e) the granting of credit from time to time by
MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents;
or (f) any other act of commission or omission of any kind or at any time upon
the part of MLBFS or any of its affiliates or any of their respective employees
or agents with respect to any matter whatsoever. MLBFS shall not be required at
any time, as a condition of Guarantor's obligations hereunder, to resort to
payment from Customer or other persons or entities whatsoever, or any of their
properties or estates, or resort to any collateral or pursue or exhaust any
other rights or remedies whatsoever.
<PAGE>
No release or discharge in whole or in part of any other guarantor of the
Obligations shall release or discharge Guarantor unless and until all of the
Obligations shall have been fully paid and discharged. Guarantor expressly
waives presentment, protest, demand, notice of dishonor or default, notice of
acceptance of this Guaranty, notice of advancement of funds under the Guaranteed
Documents and all other notices and formalities to which Customer or Guarantor
might be entitled, by statute or otherwise, and, so long as there are any
Obligations or MLBFS is committed to extend credit to Customer, waives any right
to revoke or terminate this Guaranty without the express written consent of
MLBFS.
So long as there are any Obligations, Guarantor shall not have any claim, remedy
or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right, or remedy of MLBFS
against Customer or any security which MLBFS now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law, or otherwise.
MLBFS is hereby irrevocably authorized by Guarantor at any time during the
continuance of an Event of Default under the Loan Agreement or other Guaranteed
Documents or in respect of any of the Obligations, in its sole discretion and
without demand or notice of any kind, to appropriate, hold, set off and apply
toward the payment of any amount due hereunder, in such order of application as
MLBFS may elect, all moneys, credits and other property belonging to or in the
name of Guarantor at any time held or controlled by MLBFS or Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective
affiliates, whether now being held or controlled or held or controlled in the
future, on deposit or otherwise, and MLBFS is hereby granted a lien and security
interest upon all such moneys, credits and other property. Guarantor further
hereby irrevocably authorizes MLBFS and each of its affiliates, including
without limitation MLPF&S, to at any time (whether or not an Event of Default
shall have occurred) obtain from and disclose to each other any and all
financial and other information about Guarantor.
Guarantor agrees to furnish to MLBFS such financial information concerning
Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may
otherwise from time to time reasonably request.
No delay on the part of MLBFS in the exercise of any right or remedy under any
agreement (including, but not limited to, this Guaranty) shall operate as a
waiver thereof, and, without limiting the foregoing, no delay in the enforcement
of any security interest, and no single or partial exercise by MLBFS of any
right or remedy shall preclude any other or further exercise thereof or the
exercise of any other right or remedy. This Guaranty may be executed in any
number of counterparts, each of which counterparts, once they are executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Guaranty. This Guaranty
shall be binding upon Guarantor and its successors and assigns, and shall inure
to the benefit of MLBFS and its successors and assigns. If there is more than
one guarantor of the Obligations, all of the obligations and agreements of
Guarantor are joint and several with such other guarantors.
This Guaranty shall be governed by the laws of the State of Illinois. Guarantor
agrees that this Guaranty may be enforced by MLBFS in any jurisdiction and venue
in which the Loan Agreement may be enforced. Guarantor and MLBFS hereby each
expressly waive any and all rights to a trial by jury in any action, proceeding
or counterclaim brought by either of the parties against the other party in any
way related to or arising out of this Guaranty or the Obligations. Wherever
possible each provision of this Guaranty shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Guaranty shall be prohibited by or invalid under such law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty. No modification or waiver of any of the provisions of this Guaranty
shall be effective unless in writing and signed by both Guarantor and an officer
of MLBFS.
-2-
<PAGE>
Each signatory on behalf of Guarantor warrants that he has authority to sign on
behalf of Guarantor, and by so signing, to bind Guarantor hereunder.
Dated as of February 23, 1995.
THE GALORE GROUP (U.S.A), INC.
By: /s/ Sydney Selati /s/ Kevin Ralphs
-----------------------------------------------------
Signature (1) Signature (2)
Sydney Selati Kevin Ralphs
- --------------------------------------------------------
Printed Name Printed Name
President Chief Financial Officer
- --------------------------------------------------------
Title Title
Address of Guarantor:
15041 Bake Parkway, Suite A
Irvine, CA 92718
-3-
<PAGE>
[LOGO OF MERRILL LYNCH APPEARS HERE]
No. 9502340701
================================================================================
$1,500,000,00 February 23, 1995
TERM WCMA(R) NOTE
FOR VALUE RECEIVED, BARBEQUES GALORE, INC., a corporation organized and existing
under the laws of the State of California ("Customer"), hereby promises to pay
to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware ("MLBFS"), in
lawful money of the United States, the principal sum of $1,500,000.00, or, if
less, an amount equal to the sum of the balances from time to time outstanding
under the "Term Note" and "WCMA Note" included herein.
TERM NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in
lawful money of the United States, an amount equal to the difference between (i)
the principal sum of $1,500,000.00 or, if less, the aggregate amount advanced by
MLBFS to Customer pursuant to the "Loan Agreement," as herein defined (the "Loan
Amount"), and (ii) the sum of (x) the aggregate amount paid by Customer on
account of the principal hereof, and (y) the WCMA Line of Credit (said
difference being herein called the "Term Note Balance"); together with interest
on the Term Note Balance, from the date of advancement of funds hereunder until
payment, at the Interest Rate.
Said indebtedness shall be payable in 61 consecutive monthly installments
commencing on the first day of the calendar month following the calendar month
in which funds are advanced hereunder, and continuing on the first day of each
calendar month thereafter until this Note shall be paid in full. The first such
installment shall be in an amount equal to accrued interest at the Interest Rate
and installments 2 through 61, both inclusive, shall be in an amount equal to
the sum of (i) accrued interest at the Interest Rate and (ii) 1/60th of the Loan
Amount. Each payment received hereunder shall be applied first to interest at
the Interest Rate, with the balance applied on account of the Term Note Balance.
All sums payable hereunder shall be payable at the office of MLBFS at 33 West
Monroe Street, Chicago, Illinois 60603, or at such other place or places as the
holder hereof may from time to time appoint in writing.
Customer may prepay this Term Note at any time in whole or in part without
premium or penalty. Any partial prepayment shall be applied to installments of
the Loan Amount in inverse order of maturity. Customer shall not have the right
to re-borrow amounts prepaid on account of this Term Note.
WCMA NOTE
FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at
the times and in the manner set forth in the Loan Agreement, or in such other
manner and at such place as MLBFS may hereafter designate in writing, the
following: (a) on the WCMA Maturity Date, the then WCMA Loan Balance; and (b)
interest at the Interest Rate on the outstanding WCMA Loan Balance, from and
including the date on which the initial WCMA Loan is made until the date of
payment of all WCMA Loans in full. Interest shall be payable in the manner and
on the dates specified in, or determined in accordance with, the Loan Agreement.
PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE
As used herein, the term "Interest Rate" shall mean a fluctuating per annum rate
equal to the sum of (i) 2.70%, and (ii) 30-Day Commercial Paper Rate. The "30-
Day Commercial Paper Rate" shall mean, as of the date of any determination, the
interest rate from time to time published in the "Money Rates" section of
<PAGE>
The Wall Street Journal for 30-day high-grade unsecured notes sold through
dealers by major corporations. The Interest Rate will change as of the date of
publication in The Wall Street Journal of a 30-Day Commercial Paper Rate that is
different from that published on the preceding Business Day. In the event that
The Wall Street Journal shall, for any reason, fail or cease to publish the 30-
Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or
source to use as the basis for the Interest Rate. Any part of the principal
hereof or interest hereon not paid within S Business Days of the applicable due
date shall be subject to a late charge equal to the lesser of (i) 5% of the
overdue amount, or (ii) the maximum amount permitted by law. All interest shall
be computed on the basis of actual days elapsed over a 360-day year.
This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA
Note" referred to in, and is entitled to all of the benefits of that certain
TERM WCMA LOAN AND SECURITY AGREEMENT No. 9502340701 between Customer and MLBFS
(the "Loan Agreement"). Capitalized terms used herein and not defined herein
shall have the meaning set forth in the Loan Agreement. The Loan Agreement is by
this reference hereby incorporated as a part hereof.
If Customer shall fail to pay when due any installment or other sum due
hereunder, and any such failure shall continue for more than 5 Business Days
after written notice thereof from the holder hereof to Customer, or if any other
"Event of Default", as that term is defined in the Loan Agreement, shall occur,
then at the option of the holder hereof, and in addition to all other rights and
remedies available to such holder under the Loan Agreement and otherwise, an
amount equal to the sum of the WCMA Loan Balance and the Term Note Balance at
such time remaining unpaid, together with accrued interest thereon, and all
other sums then owing by Customer under the Loan Agreement, may be declared to
be and thereby become immediately due and payable.
It is expressly understood, however, that nothing contained in the Loan
Agreement, any other agreement, instrument or document executed by Customer, or
otherwise, shall affect or impair the right, which is unconditional and
absolute, of the holder hereof to enforce payment of all sums due under this
Term WCMA Note at or after maturity, whether by acceleration or otherwise, or
shall affect the obligation of Customer, which is also unconditional and
absolute, to pay the sums payable under this Term WCMA Note in accordance with
its terms.
Except as otherwise expressly set forth herein or in the Loan Agreement,
Customer hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor, notice of acceleration, notice of intent to
accelerate and all other notices and formalities in connection with this Term
WCMA Note. Wherever possible each provision of this Term WCMA Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Term WCMA Note shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Term WCMA Note. Notwithstanding anything
herein to the contrary, in no event shall any interest charged hereunder exceed
the highest rate permissible under any law which a court of competent
jurisdiction shall, in a final determination, deem applicable hereto. In the
event that such a court determines that MLBFS has received interest hereunder in
excess of the highest rate applicable hereto, MLBFS shall promptly refund such
excess interest to Customer without charge or penalty. This Term WCMA Note shall
be construed in accordance with the laws of the State of Illinois and may be
enforced by the holder hereof in any jurisdiction in which the Loan Agreement
may be enforced.
-2-
<PAGE>
IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the
day and year first above written.
BARBEQUES GALORE, INC.
By: /s/ Sydney Selati /s/ Kevin Ralphs
------------------------------------------------------------
Signature (1) Signature (2)
Sydney Selati Kevin Ralphs
------------------------------------------------------------
Printed Name Printed Name
Chairman Chief Financial Officer
------------------------------------------------------------
Title Title
-3-
<PAGE>
Private Client Group
Merrill Lynch Business
Financial Services Inc.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
312/845-1020
[LOGO OF MERRILL LYNCH APPEARS HERE] FAX 312/845-9093
November 27, 1996
Mr. Sydney Selati
Barbeques Galore, Inc.
15041 Bake Parkway
Irvine, CA 92718
Re: WCMA Line of Credit Increase
Dear Mr. Selati,
I am pleased to advise you that the request of Barbeques Galore, Inc. for an
increase of its WCMA Line of Credit has been approved upon the terms set forth
in the enclosed Letter Agreement.
Note that, among other conditions in said Letter Agreement, in order for this
increase to become effective, one copy of the enclosed Letter Agreement and the
other documents enclosed herewith must be fully executed and returned to me
within 14 days from the date hereof. Please note further that because of
inherent system and administrative delays that it may take several days after
such execution and return before the increased line of credit is actually
available. Accordingly, I recommend that you call me if you have need to
immediately use the increased portion of the line.
If you have such an immediate need or have any questions, please call me at
(312) 269-5426.
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: /s/ Heather J. Wise
----------------------------------
Heather J. Wise
Credit Services Account Manager
cc: David Polster
<PAGE>
Private Client Group
Merrill Lynch Business
Financial Services Inc.
33 West Monroe Street
22nd Floor
Chicago, Illinois 60603
312/269-5426
[LOGO OF MERRILL LYNCH APPEARS HERE] FAX 312/201-0210
November 27,1996
Barbeques Galore, Inc.
15041 Bake Parkway
Irvine, CA 92718
Re: WCMA Line of Credit Increase
Ladies And Gentlemen:
This Letter Agreement will serve to confirm certain agreements of Merrill Lynch
Business Financial Services Inc. ("MLBFS") and Barbeques Galore, Inc.
("Customer") with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY
AGREEMENT NO. 231-07T10 between MLBFS and Customer (including any previous
amendments and extensions thereof), and (ii) all other agreements between MLBFS
and Customer or any party who has guaranteed or provided collateral for
Customer's obligations to MLBFS (a "Guarantor") in connection therewith
(collectively, the "Loan Documents"). Capitalized terms used herein and not
defined herein shall have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date" the Loan
Documents are hereby amended as follows:
1. The term "Maximum WCMA Line of Credit" shall mean: (A) during the period
between the Effective Date and June 30, 1997, an amount equal to the lesser of:
(i) the sum of (x) 70% of Customer's Non-Government Accounts and Chattel Paper
(excluding Accounts over 90 days old, Chattel Paper with installments or other
sums more than 90 days past due, and Accounts and Chattel Paper directly or
indirectly due from any shareholder, officer or employee of Customer or any
affiliated entity) and (y) 50% of Customer's Inventory, all shown on Customer's
regular books and records, less the aggregate of (a) the outstanding balance of
principal and interest under the Term WCMA Note made by Customer and payable to
MLBFS and (b) the availability under the WCMA Line of Credit portion of the Term
WCMA facility, or (ii) $1,250,000.00; and (B) from and after July 1,1997 to the
Maturity Date, $650,000.00.
2. The "Line Fee" for the period ending September 30,1997, is hereby increased
to $6,250.00, of which $3,750.00 (the "Additional Fee") is now due and owing.
Customer hereby authorizes and directs MLBFS to charge the Additional Fee to
WCMA Account No. 231-07T10 on or at any time after the Effective Date.
3. Within 15 days after the close of each fiscal month of Customer, Customer
shall furnish or cause to be furnished to MLBFS: (i) a statement of profit or
loss for the fiscal month then ended, and (ii) a balance sheet as at the close
of such fiscal month; all in reasonable detail and certified by its chief
financial officer. In addition, within 15 days after the close of each fiscal
month of Customer, Customer shall furnish or cause to be furnished to MLBFS, a
statement of profit and loss for the fiscal month then ended for each Customer-
owned retail location.
<PAGE>
Barbeques Galore, Inc.
November 27, 1996
Page No. 2
4. The following are now additional "Locations of Tangible Collateral":
Cooper Street Plaza, 4605 S. Cooper St., Arlington, TX 76017
9010 E. Indian Bend, Suite 2, Scottsdale, AZ 85012
7635 W. Bell Road, Suite #101, Peoria, AZ 85382
390 McKinley #108, Corona, CA 91719
2080 El Camino Real, Palo Alto, CA 94306
Camelback Terrace, 311 E. Camelback Road, Phoenix, AZ 85012
1801 Preston Road, Suite A, Plano TX 75093
1875 S. Bascorn Avenue, Campbell, CA 95008
4360 Lovers Lane, Dallas, TX 75205
1539 Botelho Drive, Walnut Creek, CA 94596
Mariner Village / Miracle Mile 6429 Westheimer, Houston, TX 77057
1419 State Highway, 114 West, Suite 412, Grapevine, TX 76051
5. The ratio of Customer's total debt to Customer's tangible net worth,
determined as aforesaid, shall not at any time exceed 1.75:1.
6. The "Net Cash Flow" of Customer as of the end of each of its fiscal years
shall not be less than $750,000.00. As used herein, "Net Cash Flow" shall mean
the sum of Customer's annual net after-tax income, depreciation and any non-
recurring expenses, less any non-recurring income and the current portion of
long-term debt due to parties other than MLBFS; all as shown on Customer's
regular financial statements prepared in a manner consistent with the term
hereof.
7. Customer shall no longer be required to reduce the WCMA Loan Balance to zero
at any time.
8. The "tangible net worth" of Customer, consisting of net worth as shown on
Customer's regular financial statements prepared in a manner consistent with the
term hereof, but excluding an amount equal to (i) any assets which are
ordinarily classified as "intangible" in accordance with generally accepted
accounting principles, and (ii) any amounts now or hereafter directly or
indirectly owing to Customers by officers, shareholders or affiliates of
Customer, shall on and at all times after June 30, 1997 exceed $5,000,000.00.
Except as expressly modified hereby, the Loan Documents shall continue in full
force and effect upon all of their terms and conditions. Nothing herein shall be
deemed to extend the Maturity Date of the WCMA Line of Credit.
By their execution of this Letter Agreement, the below-named Guarantors hereby
consent to the foregoing modifications to the Loan Documents, and hereby agree
that the "Obligations" under their Unconditional Guaranty shall extend to and
include the Obligations of Customer under the Loan Documents, as amended hereby.
Customer and said Guarantors acknowledge, warrant and agree, as a primary
inducement to MLBFS to enter into this Agreement, that: (i) no default or Event
of Default has occurred and is continuing under the Loan Documents; (ii) each of
the warranties of Customer in the Loan Documents are true and correct as of the
date hereof and shall be deemed remade as of the date hereof; (iii) neither
Customer nor any of said Guarantors have any claim against MLBFS or any of its
affiliates arising out of or in connection with the Loan Documents or any other
matter its affiliates arising out of or in connection with the Loan Documents or
any other matter whatsoever; and (iv) neither Customer nor any of said
Guarantors have any defense to payment of any amounts owing, or any right of
counterclaim for any reason under, the Loan Documents.
<PAGE>
Barbeques Galore, Inc.
November 27,1996
Page No. 3
The amendments and agreements in this Letter Agreement will become effective on
the date (the "Effective Date") upon which: (i) Customer and the Guarantors
shall have executed and returned the duplicate copy of this Letter Agreement and
the other documents enclosed herewith; (ii) an officer of MLBFS shall have
reviewed and approved this Letter Agreement and such other documents as being
consistent in all respects with the original internal authorization hereof; and
(iii) to the extent applicable, MLBFS shall have entered such amendments and
agreements in its computer system (which MLBFS agrees to do promptly after the
receipt of such executed duplicate copy and other documents). Notwithstanding
the foregoing, if for any reason other than the sole fault of MLBFS the
Effective Date shall not occur within 14 days from the date of this Letter
Agreement, then all of said amendments and agreements herein will, at the sole
option of MLBFS, be void.
MLBFS requests that as soon as feasible Customer furnish to MLBFS the following
items (however, the Effective Date of this Letter Agreement is not conditioned
upon the receipt of such items):
(1) The finalized 6/30/96 year end statements from The Galore Group
(2) The Landlord Subordinations from each store location in Arizona and
Texas
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: /s/ Heather J. Wise
-------------------------------------
Heather J. Wise
Credit Services Account Manager
Accepted:
Barbeques Galore, Inc.
By: /s/ Sydney Selati
-------------------------------------
Printed Name: SYDNEY SELATI
--------------------------
Title: PRESIDENT
----------------------------------
(Additional Acceptance and Approval Signatures on Page 4)
<PAGE>
Barbeques Galore, Inc.
November 27,1996
Page No. 4
Approved:
The Galore Group (USA), Inc.
By: /s/ Sydney Selati
-------------------------------------
Printed Name: SYDNEY SELATI
--------------------------
Title: PRESIDENT
----------------------------------
Pool Patio'n Things, Inc.
By: /s/ Sydney Selati
-------------------------------------
Printed Name: SYDNEY SELATI
--------------------------
Title: PRESIDENT
----------------------------------
<PAGE>
BOX 745 Exhibit 10.6
(EI66006)
NEW SOUTH WALES
CERTIFICATE OF TITLE
REAL PROPERTY ACT, 1900
TORRENS TITLE
[SEAL] REFERENCE TO FOLIO OF THE REGISTER
?????? 9/8757
EDITION DATE OF ISSUE
1 24.12.1991
I certify that the person described in the First Schedule is the registered
proprietor of an estate in fee simple (or such other estate or interest as is
set forth in that Schedule) in the land within described subject to such
exceptions, encumbrances, interests and entries as appear in the Second Schedule
and to any additional entries in the Folio of the Register.
/s/ K. METTLE
K. Mettle
DEPUTY REGISTRAR GENERAL [SEAL]
LAND
- ----
LOT 9 IN DEPOSITED PLAN 8757
MUNICIPALITY OF AUBURN
PARISH OF LIBERTY PLAINS COUNTY OF CUMBERLAND
TITLE DIAGRAM: DP8757
FIRST SCHEDULE
- --------------
VILBRENT PTY LIMITED (T X82485)
SECOND SCHEDULE
- ---------------
1. RESERVATIONS AND CONDITIONS IN THE CROWN GRANT(S)
2. E158006 MORTGAGE TO WESTPAC BANKING CORPORATION
[ALONG SIDE OF CERTIFICATE] PERSONS ARE CAUTIONED AGAINST ALTERING OR ADDING TO
THIS CERTIFICATE OR ANY NOTIFICATION HEREON.
<PAGE>
BOX 745
(EI66006)
NEW SOUTH WALES
CERTIFICATE OF TITLE
REAL PROPERTY ACT, 1900
TORRENS TITLE
[SEAL] REFERENCE TO FOLIO OF THE REGISTER
10/8757
EDITION DATE OF ISSUE
1 24.12.1991
I certify that the person described in the First Schedule is the registered
proprietor of an estate in fee simple (or such other estate or interest as is
set forth in that Schedule) in the land within described subject to such
exceptions, encumbrances, interests and entries as appear in the Second Schedule
and to any additional entries in the Folio of the Register.
/s/ K. METTLE
K. Mettle
DEPUTY REGISTRAR GENERAL [SEAL]
LAND
- ----
LOT 10 IN DEPOSITED PLAN 8757
MUNICIPALITY OF AUBURN
PARISH OF LIBERTY PLAINS COUNTY OF CUMBERLAND
TITLE DIAGRAM: DP8757
FIRST SCHEDULE
- --------------
VILBRENT PTY LIMITED (T X82485)
SECOND SCHEDULE
- ---------------
1. RESERVATIONS AND CONDITIONS IN THE CROWN GRANT(S)
2. E158006 MORTGAGE TO WESTPAC BANKING CORPORATION
WARNING: BEFORE DEALING WITH THIS LAND SEARCH THE CURRENT FOLIO OF THE REGISTER
[ALONG SIDE OF CERTIFICATE] PERSONS ARE CAUTIONED AGAINST ALTERING OR ADDING TO
THIS CERTIFICATE OR ANY NOTIFICATION HEREON.
<PAGE>
EXHIBIT 10.7
Phoenix Business Center
Multi-Tenant Net Lease
LANDLORD: PHOENIX BUSINESS CENTER PARTNERS,
a California Limited Partnership
TENANT: Barbeques Galore, Inc.,
a California corporation
Date of Lease: March 6, 1992
<PAGE>
Basic Lease Information
1. Lease Date: March 6, 1992
2. Landlord: PHOENIX BUSINESS CENTER PARTNERS,
a California Limited Partnership
3. Address c/o McLachlan Investment Company
of Landlord: 4141 MacArthur Boulevard
Newport Beach, CA 92660
4. Tenant: Barbeques Galore, Inc.,
a California corporation
5. Address 15041 Bake Parkway, Suite A
of Tenant: Irvine, California 92718
6. Contact: Sydney Selati, Chairman Telephone: ______
Kevin J. Ralphs, Company Secretary
7. Section 1.1 Building: 15041 Bake Parkway - Building 1
Suite(s): A and a portion of B
8. Section 1.3 Parking Spaces: 38
9. Section 1.4 Rentable Area of Premises: 27,322 square feet
10. Section 2.1 Term: sixty-five (65) months
Estimated Term Commencement Date: July 15, 1992
Actual: 8/22/92
Estimated Term Expiration Date: December 14, 1997
Actual: 1/21/98
11. Section 3.1 Monthly Rental: $ 11,748.46
Annual Rental: $140,981.52
12. Section 4.1.2 Tenants Share: 7.6%
13. Section 6.1 Use: warehousing, assembly, research and development,
and general administrative offices, for barbecues,
fireplaces, wood burning stoves, and related products
14. Section 29 Security Deposit: $ 11,748.46 (with interest at money
market rates)
15. Section 27.1 Tenant's Broker: CB Commercial Real Estate Group
Dan Sweet - Anaheim office
The foregoing Basic Lease Information is hereby incorporated into and made
a part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information hereinabove set forth and
shall be construed to incorporate all of the terms provided under the particular
Lease section pertaining to such information. In the event of any conflict
between any Basic Lease Information and the Lease, the latter shall control.
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By: /s/ Sydney Selati
------------------------
Sydney Selati
Its: Chairman
By: /s/ Donald E. Russell
-----------------------
Donald E. Russell
Its: general partner
By:/s/ Kevin J. Ralphs
------------------------
Kevin J. Ralphs
Its: Company Secretary
<PAGE>
<TABLE>
<S> <C> <C> <C>
13.5. Period of Limitations...................................12
13.6. Remedies Cumulative.....................................12
13.7. Expenses and Legal Fees.................................12
13.8. Landlord's Defaults.....................................12
14. CONDEMNATION.........................................................12
14.1. Definitions.............................................12
14.2. Total Taking............................................12
14.3. Partial Taking..........................................13
15. HOLDING OVER.........................................................13
16. ASSIGNMENT AND SUBLETTING............................................13
16.1. Assignment and Subletting Prohibited....................13
16.2. Information Required....................................13
16.3. Landlord's Options......................................13
16.4. Tenant Merger, Acquisition, Associated Entities.........14
16.5. No Release of Tenant....................................14
17. TRANSFERS AND REFINANCING............................................14
17.1. Conveyance of Landlord's Interest.......................14
17.2. Estoppel Certificate....................................14
18. SURRENDER............................................................15
18.1. Surrender of Lease Not Merger...........................15
18.2. Redelivery of Premises to Landlord .....................15
18.3. Survival of Obligations.................................15
19. SIGNS................................................................15
20. NOTICES..............................................................15
21. MISCELLANEOUS........................................................16
21.1 Integration.............................................16
21.2. Time is of the Essence..................................16
21.3. Joint and Several.......................................16
21.4. Captions................................................16
21.5. Governing Law...........................................16
21.6. Landlord's Liability....................................16
21.7. Interest and Late Charges...............................16
21.8. Inurement...............................................16
21.9. Relationship............................................17
21.10. Waivers.................................................17
21.11. Severability............................................17
21.12. Miscellaneous...........................................17
21.13. Authority...............................................17
21.14. No Offer................................................17
21.15. Force Majeure...........................................17
21.16. Broker's Commission.....................................17
21.17. Recording...............................................17
21.18. Furnishing of Financial Statements......................17
21.19. Safety and Health.......................................17
21.20. Interstate Land Sales Act...............................18
21.22. Changes Requested by Lender.............................18
21.23. Nondiscrimination.......................................18
21.24. Entire Agreement........................................18
22. SPECIAL PROVISIONS...................................................18
</TABLE>
ii
<PAGE>
Phoenix Business Center
Multi-Tenant Net Lease
This Lease is made as of March 6, 1992 by and between PHOENIX BUSINESS
CENTER PARTNERS, a California Limited Partnership ("Landlord") and Barbeques
Galore, Inc., a California corporation ("Tenant").
In Consideration of the mutual promises herein, Landlord and Tenant agree
as follows:
1. PREMISES
1.1. Definition of Premises
Landlord leases to Tenant, and Tenant hires from Landlord, pursuant
to the provisions of this Lease, a portion (the "Premises") of the improved real
property (the "Master Premises") known as Phoenix Business Center and Crow
Irvine Development, located at 15041 and 15091 Bake Parkway and 1 Marconi, in
the City of Irvine, Orange County, California. The Master Premises include the
building or buildings (the "Building") which contains the Premises, certain
other premises and certain Common Areas inside and outside the Building, which
Master Premises are located on that certain real property leased by Landlord
from The Irvine Company, a Michigan corporation ("Owner") pursuant to that
certain ground lease dated December 1, 1980 (the "Ground Lease"). The Premises
consist of approximately 27,322 square feet inside the Building. The Premises
are leased and shall be used and occupied subject to all terms and conditions of
the Ground Lease, any and all existing restrictive covenants, encumbrances,
conditions, rights, covenants, easements, restrictions and rights-of-way of
record, and other matters of record, if any, applicable zoning and building
laws, regulations and codes, and such matters as may be disclosed by inspection.
The Premises, as shell warehouse and office space, are not in conflict with the
foregoing; to the best of Landlord's knowledge. Tenant's proposed use
contemplated at the commencement of the lease term, as described in Paragraph
4.1. is not in conflict with the foregoing. Landlord's representations do not
extend to, and Tenant assumes all responsibility for, compliance with all
health, safety, fire, and similar requirements as they may apply from time to
time to Tenant's use and occupancy of the Premises and the Master Premises.
Exhibit "A" hereto, which is incorporated herein by reference, includes a
description of the Master Premises and shows the location of the Premises within
the Master Premises.
1.2. Common Areas
The Common Areas include those areas and facilities (collectively
"Common Areas") within the Master Premises which Landlord provides and
designates for the general non-exclusive use and convenience of Landlord,
Tenant, other tenants of Landlord and their respective employees and invitees.
Common Areas include, without limitation: parking and loading areas; access
roads and driveways; spur track; ramps and stairways; common loading docks; and
landscaping and all areas outside the Building. Tenant's right to use Common
Areas shall terminate upon the termination of this Lease. Landlord shall
operate, manage and maintain all the Common Areas and determine expenditures
("Common Area Expenses", which term is defined more fully in Paragraph 5.2) for
the Common Areas.
1.3. Acceptance of Premises
To the best of Landlord's knowledge, at the date of this Lease, the
Premises generally are not in violation of applicable zoning ordinances;
Landlord makes no representations or warranties as to the suitability of the
Premises for the specific purposes for which Tenant intends to use the Premises.
1.4. Changes to Building Facilities, Name
1.4.1. Landlord may adopt any name for the Building and Landlord
reserves the right to change the name and/or address of the Building at any
time, subject to compliance with the sign program in effect for the Master
Premises.
1.4.2. Provided Landlord does not unreasonably interfere with
Tenant's use or operation of the Premises or Master Premises, Landlord reserves
the right, at any time before or after completion of the Building, without
incurring any liability to Tenant therefor, to make such changes in or to the
building and the fixtures and equipment thereof, as well as in or to the street
entrances, halls, passages and other improvements thereof, as it may deem
necessary or desirable, and Landlord shall at all times have the right and
privilege of determining the nature and extent of and the rules and regulations
governing the use of the Common areas, if any, and of making such changes
therein and additions thereto from time to time which in its opinion are deemed
to be desirable and for the best interest of all persons using the common areas,
if any, including the location and relocation of driveways, entrances and exits,
the direction and flow of traffic; installation of prohibited areas or
landscaped areas; the addition of other buildings or facilities thereto; and
additions to the total land areas of the Building.
<PAGE>
2. TERM
2.1. Initial Period; Commencement Date
The term of this Lease shall be for a period of sixty-five (65)
months beginning on the Commencement Date. The Commencement Date shall mean the
earlier of (a) one (1) day after substantial completion of construction of the
items described on Exhibit C, provided such date is not prior to July 15, 1992,
or (b) the date on which Tenant first takes possession of the Premises
("Commencement Date"). Landlord agrees that the Premises will be substantially
complete and approved for occupancy on or before September 15, 1992, subject to
delays from causes beyond Landlord's reasonable control, including, but not
limited to, acts of God, strike or labor troubles, fuel or energy shortages,
governmental decree or failure of any governmental agency to act in a reasonable
time. The term "Lease Year" shall mean the 12-month period beginning with the
Commencement Date of the term of this Lease as determined above, and each
successive 12-month period thereafter during the term of this Lease, provided
that if the Commencement Date is other than the first day of a calendar month,
then the first Lease Year shall commence on the first day of the next succeeding
calendar month, but shall include the first such partial month from the
Commencement Date. At the request of either party, each party shall execute a
memorandum in the form attached hereto as Exhibit "B" confirming the
Commencement Date for the term hereto, but failure of the parties to so confirm
the Commencement Date shall not affect the determination thereof by Landlord
pursuant to this Paragraph 2.1.
2.2. In the event this Lease pertains to premises for which construction
is to be performed by Landlord, the provisions of this Subparagraph 2.2 shall
apply in lieu of the provisions of Subparagraph 1.3 above, and supplement the
provisions of 2.1 above, and the "Commencement Date" shall be the date upon
which the improvements erected and to be erected shall have been substantially
completed in accordance with the plans and specifications described on Exhibit
"C" attached hereto and incorporated herein by reference (the "Construction
Addendum"). Landlord shall notify Tenant in writing as soon as Landlord deems
said improvements to be completed and ready for occupancy. In the event that
said improvements have not in fact been substantially completed, Tenant shall
notify Landlord in writing of its objections. Landlord shall have a reasonable
time after delivery of such notice in which to take corrective action as may be
necessary, and shall notify Tenant in writing as soon as it deems such
corrective action has been completed so that said improvements are completed and
ready for occupancy. Taking of possession by Tenant shall be deemed conclusively
to establish that said improvements have been completed in accordance with the
plans and specifications and that the Premises are in good and satisfactory
condition, as of when possession was so taken. Tenant acknowledges that no
representations as to the repair of the Premises have been made by Landlord,
unless such are expressly set forth in this Lease. After such "Commencement
Date" tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises. In the event of any dispute as to
substantial completion or work performed or required to be performed by
Landlord, the certificate of Landlord's architect or general contractor shall be
conclusive. Notwithstanding the foregoing, following Tenant's acceptance of the
Premises, Landlord shall have the obligation to complete items which are not
complete in accordance with the requirements of Exhibit One to Exhibit C (the
plans and specifications) as of the date Tenant takes possession of the
Premises. Said incomplete items shall be described on a "punchlist" to be
created in good faith by Landlord and Tenant prior to occupancy by Tenant.
Landlord shall endeavor to complete the items described on the punchlist within
thirty (30) days following occupancy by Tenant.
2.3. Delay and Delivery
If Landlord is unable to deliver possession of the Premises to tenant
for any cause, then (a) Landlord shall not have any liability to Tenant for any
consequential loss or damage, nor shall this Lease be void or voidable, but this
Lease shall remain valid and continue in full force and effect, and (b) rent
shall not be payable until Landlord does deliver possession of the Premises to
Tenant, subject to the provisions of Paragraph 2.1.
3. RENT AND SECURITY DEPOSIT
3.1. Manner of Payment
Tenant shall pay Landlord all amounts due from Tenant to Landlord
hereunder, whether for rent or otherwise, in lawful money of the United States,
without any deduction or offset, at the address set forth herein for delivery of
notices to Landlord or at such other address as Landlord may designate in
writing.
3.2. Rent
Tenant shall pay Landlord minimum annual rent for the initial period
of the term hereof, in advance, in the amount of one hundred forty thousand nine
hundred eighty-one and 52/100 Dollars ($140,981.52), in monthly installments of
eleven thousand seven hundred forty-eight and 46/100 Dollars ($11,748.46) each,
commencing on the first day of the calendar month first commencing after the
Commencement Date, and on or before the first day of each successive calendar
month during the term hereof. Unless the Commencement Date is the first day of a
calendar month, rent for the partial month which begins on the Commencement Date
shall be prorated and Tenant shall pay the rent for said partial month with the
first regular installment of rent hereunder. The first calendar month's rent
shall be due and payable upon execution of this Lease. (See First Addendum to
Lease - Paragraph 23)
3.3. Cost of Living Increase
2
<PAGE>
3.4. Security Deposit
Upon executing this Lease, Tenant shall make a deposit (the "Security
Deposit") with Landlord of eleven thousand seven hundred forty-eight and 46/100
Dollars ($11,748.46). The Security Deposit shall secure Tenant's obligations
hereunder to pay rent and other money amounts, to maintain the Premises and
repair damages thereto, to surrender the Premises to Landlord in clean condition
and good repair upon termination of this Lease and timely to discharge Tenant's
other obligations hereunder. Landlord shall place the Security Deposit in an
account in the name of Tenant, for the benefit of Landlord, which account shall
be held by, and controlled by, McLachlan Investment Company or its successor, if
any, as property manager of the Master Premises. The account shall be held
separate from other funds of Landlord, and may be drawn upon as provided herein.
Said account shall earn interest, which shall accrue and increase the Security
Deposit. If Tenant fails to perform Its obligations hereunder, then Landlord
may, but without any obligation so to do, apply all or any portion of the
Security Deposit toward fulfillment of Tenant's unperformed obligations. If
Landlord does so apply any portion of the Security Deposit Tenant, upon demand
by Landlord, shall immediately pay Landlord a sufficient amount in cash to
restore the Security Deposit to its full original amount. On termination of this
Lease, if Tenant has then fully performed all its obligations hereunder,
Landlord shall return the Security Deposit (including any interest which has not
been applied by Landlord) to Tenant. But if Landlord earlier sells or otherwise
transfers Landlord's rights or interest under this Lease, Landlord may deliver
the Security Deposit to the transferee, whereupon, provided that Landlord
complies with any applicable requirements of Section 1950.5 of the civil Code of
the State of California and of any similar or successor statute, Landlord shall
have no further liability to Tenant concerning the Security Deposit. Tenant
shall have the right to deposit a letter of credit, in the amount specified
above for the security deposit, in lieu of making a cash security deposit. Said
letter of credit shall be in a form reasonably acceptable to Landlord, and shall
incorporate an expiration date of at least thirty (30) days following the
expiration of the lease term.
4. USE
4.1. Permitted Use
Throughout the term hereof Tenant shall continuously occupy and use
the Premises only for the following purpose, namely: warehousing, assembly,
research and development, and general administrative offices, for barbecues,
fireplaces, wood burning stoves, and related products. In the event Tenant
desires to occupy and/or use the Premises for a purpose other than that
described in the preceding sentence, Tenant shall first obtain the written
consent of Landlord, which consent shall not be unreasonably withheld. The
Premises shall be used only for the purpose of receiving, storing, shipping and
selling (other than retail as more fully prohibited below) products, materials
and merchandise made and/or distributed by Tenant, and for such other lawful
purposes as may be incidental thereto. Outside storage is prohibited without
Landlord's prior written consent. Tenant shall, at its own cost and expense,
obtain any and all licenses and permits necessary for any such use. Tenant shall
comply with all governmental laws, ordinances and regulations and all recorded
covenants, conditions and restrictions applicable to the use of the Premises,
including, but not limited to, all applicable provisions of (i) the City of
Irvine Planned Community District Regulations, including but not limited to, the
general Development Standards contained therein, without regard to any amendment
or abolition thereof by such city at any time hereafter, (ii) the Declaration of
Restrictions recorded on September 29, 1978 at Book 12864, Page 63 of Official
Records of Orange County, California and any amendments thereto, without regard
to any expiration thereof, and (iii) the Architectural and Landscape Standards,
all as set forth in the booklet entitled Development Standards - Irvine
Industrial Complex East - Phase I and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of nuisances in or upon, or connected with the Premises, all at Tenant's sole
expense, provided, however, that Tenant shall not be obligated to spend more
than $1,000.00 per annum to comply with the foregoing unless the reason for
necessity to comply results from Tenant's particular use; the Premises, as shell
warehouse and office space, are not in conflict with the foregoing, to the best
of Landlord's knowledge, Tenant's proposed use contemplated at the commencement
of the lease term, as described in Paragraph 4.1, is not in conflict with the
foregoing. Landlord's representations do not extend to, and Tenant assumes all
responsibility for, compliance with all health, safety, fire, and similar
requirements as they may apply from time to time to Tenant's use and occupancy
of the Premises and the Master Premises. Unless expressly approved by both Owner
and Landlord, which approvals may be withheld by Owner and Landlord, in their
sole discretion, Tenant shall not:
(a) Use, develop or attempt to use or develop the Premises or any
portion thereof for any purpose other than those purposes expressly allowed
(without the benefit of a conditional use permit, zone variance, exception or
amendment) under the City of Irvine Planned Community District Regulations;
(b) Change or attempt any change in zoning, or the obtaining of or
application for a conditional use permit, zoning variance or exception or other
similar approval with respect to the use or development of the Premises or any
portion thereof not expressly allowed under such existing zoning;
(c) Develop or allow the use of more than 50% of the Premises, or any
portion thereof sublet in accordance with the provisions hereof, for office
purposes;
(d) Construct or maintain any structure or improvements in the
Premises not in full compliance with all requirements of law or as contained
herein or in any recorded covenants, conditions and restrictions existing from
time to time covering the Premises;
(e) Operate any retail business or activity on the Premises, or use
the Premises or any facilities thereon as a point of customer (or intermediate
or ultimate user) pick-up or delivery of products or services for a retail
activity; or
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(f) Effect any change or amendment to any parcel or final map
covering the Premises or record any further parcel or final map of the Premises
or any portion thereof or facilities thereon, pursuant to California Government
Code Sections 66410 et seq., or any similar statute hereafter enacted, and any
-- ---
local ordinances adopted pursuant thereto, or file any applications with any
governmental agency with respect thereto unless expressly approved by Landlord,
which approval may be withheld by Landlord in its sole discretion.
Tenant shall not permit any objectionable or unpleasant odors, smoke, dust,
gas, noise or vibrations to emanate from the Premises, nor take any other action
which would constitute a nuisance or would disturb or endanger any other tenants
of the building in which the Premises are situated or unreasonably interfere
with their use of their respective premises. Without Landlord's prior written
consent, Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive or highly inflammable. Tenant will
not permit the Premises to be used for any purpose or in any manner (including
without limitation any method of storage) which would render the Insurance
thereon void or the insurance risk more hazardous or cause the state Board of
Insurance or other insurance authority to disallow any sprinkler credits. Tenant
shall not use the Premises for any other purpose without Landlord's prior
written consent.
5. COMMON AREA EXPENSES
5.1. Payment of Tenant's Share of Common Area Expenses
Tenant shall pay Landlord, as additional rent, Tenant's Share of
Common Area Expenses during the term hereof, in monthly installments as billed
by Landlord. As use herein the term "Tenant's Share" shall mean seven and 6/10
percent (7.6%); the parties acknowledge that Tenant's Share, as used herein, is
the ratio of the square footage of Premises to the square footage of all tenant
premises in the Master Premises, as the Master Premises are constituted from
time to time. Landlord shall maintain accurate records of Common Area Expenses
which tenant may examine, during Landlord's normal business hours at landlord's
office, not more frequently than quarterly.
5.2 Common Area Expenses
As used herein, the term "Common Area Expenses" shall mean the sum of
the following items:
5.2.1. Taxes and Assessments. The amount of all Taxes. As used
herein the term "Taxes" shall mean and include, without limitation: (i) all real
and personal property taxes and assessments and all other taxes, charges, levies
and license and permit fees of any kind or nature whatsoever, foreseen or
unforeseen, general or special, which are levied or assessed with respect to all
or any portion of the Master Premises and the improvements, fixtures, equipment
and other property of Landlord therein; (ii) any taxes (of whatsoever nature and
however characterized) which become payable by Landlord, whether or not now
customary or within the contemplation of Landlord or Tenant, which are levied in
addition to or in lieu of such real or personal property taxes or assessments
(a) upon, allocable to or measured by rent or other amounts payable to Landlord
hereunder, (b) with respect to the receipt of such rents or amounts by Landlord,
or (c) with respect to any activity or right of Tenant in the leasing,
possession, occupancy, use, operation, management, repair, maintenance,
alteration, or improvement of the Premises; and (iii) any costs incurred by
Landlord In contesting any taxes. Taxes shall include the annual installments
under any general or special assessment against the Master Premises whether
first imposed prior to or during the term hereof, which annual installments fall
due during the term hereof. Taxes shall be reduced by any refunds, reductions,
etc. obtained by Landlord. Notwithstanding the foregoing, to the extent that any
such taxes are attributable to Tenant, Landlord may, at its option, exclude such
amounts from the Taxes and bill such amounts directly to Tenant who shall
promptly pay them. Taxes shall not include: any taxes or assessments against the
personal property of Tenant or any other tenant of the Master Premises, which
taxes and assessments are separately billed to Tenant or such other tenant by
the tax collecting authority; or any income tax franchise tax or transfer tax
for which Landlord may be or become personally liable.
5.2.2. Operating and Maintenance Expenses for Common Areas. The
amount of (i) the cost of the structural and nonstructural maintenance and
repairs Landlord performs hereunder directly or through independent contractors
(excluding structural repairs resulting from damage from causes other than use
or ordinary wear and tear of the Master Premises); (ii) the cost of any
alteration of or work upon the Master Premises required by any governmental
authority which requirement is not attributable primarily to the particular use
which a particular tenant or occupant makes of the Master Premises amortized as
hereinafter described; (iii) the cost of utilities not separately metered to
particular tenants; premiums for casualty, liability and other insurance on the
Master Premises carried by Landlord as required or permitted herein; periodic
painting of the exterior of the Building; service contracts; and such other
items as are customarily included in the cost of maintaining and repairing the
Building and Common Areas; and (iv) the cost of any capital improvements made
after the date of this Lease for purposes of saving labor or otherwise reducing
applicable operating costs, not to exceed the aggregate estimated cost savings
annualized on a straight line basis over the useful life of the capital
improvements as reasonably determined by Landlord. Notwithstanding the
foregoing, maintenance and repairs which are the result of latent defects of the
Premises or Master Premises shall not be included in Common Area Expenses, nor
shall Tenant be required to pay more than seven thousand five hundred dollars
($7,500.00) over the sixty-five (65) month lease term for repairs to the
structure, foundation, and roof which are not caused by Tenant's use and/or
occupancy of the Premises or Master Premises.
5.3. Contests
Tenant, at its cost, in good faith and lawful manner, may contest the
legality or amount of any tax or assessment against the Premises or Master
Premises. In furtherance of any such contest, Landlord, if Tenant requests,
shall declare to the tax collecting authority that contested payments are paid
under protest. Tenant shall indemnify and hold Landlord harmless against any
cost, expense (including, without limitation, attorneys' fees) loss or damage
resulting from any such contest. If Landlord deems it necessary to prevent a
sale of the Premises or Master Premises or other loss or damage to Landlord, or
to prevent the imposition or accrual of any interest, penalties or delinquency
charges Landlord may require that the entirety of any contested tax or
assessment be paid under protests or that Tenant take such other steps as
Landlord may reasonably deem necessary to prevent sale of the Premises or loss
or damage to landlord. If any contest
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is adjudicated adversely to Tenant, Tenant shall promptly pay tenant's Share IF
any unpaid portion of the contested tax or assessment, as well as any increased
tax or other charge which may result therefrom.
5.4. Substituted Taxes
If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or for any future building or
buildings on the Premises, then all such taxes, assessments, levies or charges,
or the part thereof so measured or based, shall be deemed to be included within
the term Taxes for purposes hereof.
5.5. Taxes on Tenant's Personal Property
Tenant shall pay before delinquency, directly to the tax collecting
authority, all taxes, assessments, license fees and public charges which become
due during the term of this Lease upon Tenant's personal property at the
Premises.
6. PAYMENT BY TENANT
Tenant shall pay for gas, heat, light, water, power, telephone and other
communication service, sanitary and sewer charges, janitorial services,
scavenger services, and all other utilities and services consumed on or supplied
to the Premises, any of which are separately metered to the Premises or are
charged directly to Tenant or the Premises by the supplier of the utility
service together with any taxes, penalties, surcharges or the like pertaining
thereto, and maintenance charges for utilities and shall furnish all electric
light bulbs and tubes. If any such services are not separately metered to
Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord, of
all charges jointly metered with other premises. Tenant shall pay any costs
arising from the hook-up or connection of such utilities or services to the
Premises. Landlord shall have no liability to Tenant for any lack of or failure
in such utilities and services, whether such failure or lack results from
accidents, repairs, strikes, labor disturbances or disputes, or from any other
cause (excepting only breaches of this Lease by Landlord). No such lack or
failure shall constitute an eviction. Landlord shall not be liable to Tenant for
any loss or damage Tenant may sustain from any such lack or failure or in
connection with such utilities and services, unless such loss or damage is
caused by Landlord's intentional affirmative acts or gross negligence. In the
event that utilities are not available to the Premises for more than fifteen
(15) consecutive days, and such unavailability of utilities has not been caused
by Tenant, Tenant's agents, employees, visitors, vendors, etc. and such
unavailability of utilities makes it impractical for Tenant to conduct its
business in the ordinary course from the Premises, then the payment of rent
shall abate for the period of unavailability of utilities.
7. MAINTENANCE, REPAIRS AND ALTERATIONS
7.1. Landlord's Obligations
Landlord, throughout the term of this Lease, shall keep and maintain
in good and sanitary order and repair: Common areas and the exterior surface of
sidewalls of the Building and the roof of the Building. The cost of the
foregoing work to be performed by Landlord shall be included as a Common Area
Expense. Landlord shall have no obligation to maintain or repair the Premises
except as this Lease explicitly provides. Tenant expressly waives all rights it
would otherwise have pursuant to California Civil Code Sections 1932(2),
1933(4), 1941 and 1942, and any successor or other law, statute or ordinance
hereafter in effect of similar importance or otherwise affecting the rights and
obligations of the parties as otherwise provided herein.
7.2. Tenant's Obligations
At all times after the Commencement Date, Tenant, at its cost, shall
maintain the entirety of the Premises in good and sanitary order, condition and
repair excepting only damage caused by fire or other casualty or which this
Lease does not otherwise obligate Tenant to repair. Tenant hereby waives any
right it may have to make repairs at Landlord's expense under Section 1942 of
the Civil Code of the State of California and all rights under Section 1941 of
said Civil Code or under any other similar law now or hereafter in effect.
Tenant's obligations of maintenance under this Paragraph shall be inclusive and
shall extend, without limitation, to both structural and non-structural ordinary
and extraordinary repairs (excluding structural repairs resulting from damage
from causes other than use or ordinary wear and tear); floors and floor
coverings; walls and finish work; foundation (excluding structural repairs
resulting from damage from causes other than use or ordinary wear and tear);
downspouts, gutters; loading doors; loading docks and pads; entryways, doors
and locks; all glazing (including skylights); Tenant's signs; plumbing systems,
electrical systems and heating and air conditioning systems and equipment in the
Premises; and any damage to the Master Premises or Premises directly or
indirectly caused by tenant or tenant's employees and invitees. Tenant, at its
cost, shall comply with all the requirements of any governmental authorities,
whether now or hereafter in effect, involving (a) either the structure or
physical condition of all or any portion of the Premises or work to satisfy
applicable code requirements, which, in either case, are attributable primarily
to the particular use which Tenant makes of the Premises, or (b) the California
Occupational Safety and Health Act of 1973, all subject to Landlord's
obligations and representations herein. Notwithstanding the foregoing, Tenant
shall not be required to pay more than seven thousand five hundred dollars
($7,500.00) over the sixty-five (65) month lease term under this Paragraph 7.2
or Paragraph 5.2.2 hereof for repairs to the structure, foundation, and roof
which are not caused by Tenant's use and/or occupancy of the Premises or Master
Premises.
7.3. Common Walls
The cost of maintenance and repair (other than latent defects) of any
common party wall (any wall, divider, partition or any other structure
separating the Premises from any adjacent premises occupied by other tenants)
shall be shared equally by Tenant and the tenant occupying adjacent premises.
Tenant shall not damage any party wall or disturb the integrity and support
provided by any party wall and shall, at its sole cost and expense, promptly
repair any damage or injury to any party wall caused by Tenant or its employees,
agents or invitees.
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7.4. Landlord's Reservations
Landlord reserves the right to perform the roof, paving, and
landscape maintenance, exterior painting and common sewage line plumbing and any
maintenance and repair obligations which are otherwise Tenant's under Paragraph
7.2 above, and Tenant shall, in lieu of the obligations set forth under
Paragraph 7.2 above with respect to such items, be liable for Tenant's Share (as
defined in Paragraph 5.1 above) of the cost and expense of the care for the
grounds around the building, including but not limited to, the mowing of grass,
care of shrubs, general landscaping, maintenance of parking areas, driveways and
alleys, roof maintenance, exterior repainting and common sewage line plumbing;
provided that if tenant or any other particular tenant of the building can be
clearly identified as being responsible for obstruction or stoppage of the
common sanitary sewage line, then Tenant, if Tenant is responsible, or such
other responsible tenant shall pay the entire cost thereof, upon demand, as
additional rent. Tenant shall pay the entire cost thereof, upon demand, as
additional rent. Tenant shall pay when due its share, determined as aforesaid,
of such costs and expenses along with the other tenants of the Building to
Landlord upon demand, as additional rent, in the event Landlord elects to
perform or cause to be performed such work. If Tenant fails to promptly perform
any maintenance or repair obligation(s) resulting from damage caused in part or
in whole, directly or indirectly, by any intentional or negligent act or
omission on the part of Tenant and/or Tenant's directors, officers, employees,
agents, contractors, invitees or licensees, Landlord shall have the right to
perform such obligations at Tenant's cost.
7.5. Rail Use
Landlord shall be responsible for coordinating any repairs and other
maintenance of any rail tracks serving or to serve the Building, and the cost of
such work shall be included as a Common Area Expense. Such cost to Tenant
shall not exceed one thousand dollars ($1,000.00) per annum unless the costs are
the result of Tenant's use of the rail tracks or the result of actions by Tenant
or Tenant's employees, agents, vendors, visitors, etc.
7.6. Warranties
If Tenant requests, Landlord shall assign to Tenant any equipment or
appliance warranties running to Landlord, enforcement of which would reduce the
cost or facilitate the performance of tenant's maintenance and repair
obligations hereunder. Tenant shall reassign such warranties to Landlord on
termination of this Lease.
7.7. Exterior Portions of the Premises
Tenant shall maintain the aesthetic appearance of the Premises in
neat and attractive condition. Tenant shall not store supplies, work in process,
Inventory or other materials, or waste or garbage outside the building or in
Common areas without Landlord's prior consent, which Landlord may condition upon
compliance with applicable recorded restrictions and upon installation, at
tenant's cost, of suitable storage facilities including aesthetic screening.
Such facilities shall constitute Tenant's Alterations (as said term is defined
herein).
7.8. Service Contracts
Tenant shall use independent contractors to discharge its obligations
hereunder to maintain and repair portions of the Premises such as air
conditioning and heating systems, or other mechanical equipment. Tenant shall,
at its own cost and expense, enter into a regularly scheduled preventive
maintenance/service contract with a maintenance contractor for servicing all
heating and air conditioning systems and equipment within the Premises. The
maintenance contractor and the contract must be approved by Landlord and
Mortgagee as defined below in Paragraph 12.2. The service contract must include
all services suggested by the equipment manufacturer within the
operation/maintenance manual and must become effective (and a copy thereof
delivered to Landlord and Mortgagee) within thirty (30) days of the date Tenant
takes possession of the premises. Tenant shall notify Landlord of any subsequent
independent contractors and of the service contract terms. Each such service
contract shall provide (a) for automatic termination if for any reason this
Lease terminates and (b) for the assignment to Landlord, upon termination of
this Lease, of any causes of action arising under the service contract against
the independent contractor.
7.9. Personal Property of Tenant
Tenant, at its sole cost and expense, may install in the Premises
furniture, fixtures, equipment and machinery (collectively, "Tenant's Trade
Fixtures") necessary for the business which this Lease permits Tenant to conduct
in the Premises. Tenant's Trade Fixtures shall be and remain the personal
property of Tenant, which Tenant may replace and remove during the term of this
Lease, and which Tenant shall remove at the termination of this Lease. Tenant,
at its cost, shall repair all damage to the Premises which installation,
replacement or removal of Tenant's Trade Fixtures may cause. From time to time,
if and as Landlord requests, Tenant shall furnish Landlord a written itemization
of tenant's Trade Fixtures in the Premises.
7.10. Alterations
7.10.1. Landlord's Approval. Tenant shall not make or suffer any
alterations, improvement or addition ("Tenant's Alterations") to the Premises
without first obtaining Landlord's written consent, which consent shall not be
unreasonably withheld or delayed. Tenant's Alterations shall include any work by
Tenant which affects the Premises, such as, without limitation, any work which
affects the exterior of the Premises or any structural, plumbing, electrical or
mechanical component of the Premises, but shall exclude (a) Tenant's Trade
Fixtures, which are governed by Paragraph 7.9 and (b) maintenance and repairs
performed by tenant under Paragraph 7.2. Tenant may, without consent of
Landlord, but at its own cost and expense and in a good workmanlike manner make
such minor alterations, additions or improvements or erect, remove or alter such
partitions, or erect such shelves, bins, machinery and trade fixtures as it may
deem advisable, without altering the basic character of the building or
improvements and without overloading or damaging such Building or improvements
and in each case complying with all applicable governmental laws, ordinances,
regulations and other requirements. Tenant's Alterations shall be deemed part of
the Premises for purposes of Tenant's obligations hereunder to maintain and
repair the Premises. Upon completion, tenant's alterations shall become
Landlord's property, which upon termination of the lease, Tenant shall surrender
with the Premises unless Landlord, by written notice to tenant, requires
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Tenant to remove Tenant's Alterations, in which case Tenant, at Tenant's cost,
shall remove Tenant's Alterations, repair any damage such removal causes, and
restore the Premises to their condition prior to installation of Tenant's
Alterations. In default thereof, Landlord may effect said removals and repairs
at Tenant's expense.
7.10.2. Owner's Approval. In addition to compliance with the
requirements imposed in Subparagraph (a) above and otherwise pursuant to this
Lease, Tenant shall comply with the provisions of this subparagraph. As used in
this subparagraph, the terms "Improvements" shall mean and include without
limitation all buildings, outbuildings, parking or loading areas, roadways or
walkways, separate display or storage areas, trackage, fences, walls, poles,
signs, exterior lighting, canopies, awnings, antennas, billboards, marquees,
hedges, mass or large plantings, and all other structures of any kind located
above the ground level of any site, and any replacements, additions, repairs or
alterations thereto of any kind whatsoever. No Improvement of any nature
whatsoever (including, but not limited to, any alteration or addition to any
improvements existing from time to time) shall be constructed, placed or
assembled and maintained on the Premises until Owner has first approved the
exterior design, density, size, appearance and location thereof. Before
commencing any work of Improvement or applying for any governmental permit or
approval with respect thereto, Tenant shall first deliver or cause to be
delivered to Owner for approval as provided below, two sets of schematic plans
and preliminary specifications including at least grading and drainage plans,
exterior elevations, roof plans and site plans, to the extent applicable,
showing in reasonable detail existing topography and proposed type of use, size,
land coverage, shape, height, location, material, color scheme and elevation of
each proposed Improvement, all proposed ingress and egress to public or private
streets or roads, all utilities and service connections, and all proposed
landscaping, parking, exterior lighting, signs, cut and fill, finished grade,
run-off and concentration points. After such approval by Owner but prior to
commencing any such work, Tenant shall also submit to Owner for approval final
plans and specifications for any proposed Improvements in the same manner as
provided in this paragraph with respect to schematic plans and preliminary
specifications. All plans and specifications for grading or Improvements to be
submitted to Owner hereunder shall be prepared by a duly licensed or registered
architect or engineer, as the case may be. Owner shall not unreasonably withhold
its approval of any such plans or specifications. Owner shall be conclusively
deemed to have given Its approval therefor unless, within 30 days after all such
plans and specifications have been received, by Owner's project manager or
another person designated by Owner, Owner shall give Tenant written notice
specifying in reasonable detail each item which Owner disapproves. Unless so
disapproved, Owner shall endorse its approval on at least one set of plans and
return the same to Tenant. Without limiting the generality of the foregoing,
Owner may disapprove any plans which are not in harmony or conformity with other
existing or proposed Improvements on or in the vicinity of the Premises, or with
Owner's master utility, circulation or general aesthetic or architectural plans
and criteria for the Premises, the Master Premises and the general area in which
the premises are located, Including, but not limited to such matters as adequacy
of site and Improvement dimensions, external appearance, relation of topography,
grade and elevation of the site being improved with neighboring sites and nearby
streets, and the effect of location and use of Improvements on neighboring
sites, Improvements or operations. Notwithstanding the foregoing, Tenant may
repair, replace, alter or reconstruct any Improvement on the Premises for which
plans were previously approved by Owner as provided above, but only if such
repair, replacement, alteration or reconstruction is substantially identical to
the Improvement previously so approved. Nothing herein shall be deemed to grant
Tenant any right to make any Improvements not otherwise expressly permitted by
this Lease. As of the execution of this Lease, Landlord represents that all
approvals required to be obtained from Owner for the work to be performed by
Landlord hereunder have been, or will be, obtained from Owner.
7.11. Mechanic's Liens
Tenant shall notify Landlord at least fifteen (15) days prior to
commencing any work affecting the Premises, regardless whether this Lease
requires Tenant to obtain Landlord's consent for such work, if Tenant can
reasonably expect such work to cost in excess of $1,000, so Landlord has a
reasonable amount of time to post notices of nonresponsibility. Tenant shall
keep the Premises and Tenant's leasehold hereunder free of any lien (or stop
notice, claim or other charge or encumbrance) which may arise out of any work
affecting the Premises or any materials or labor furnished to the Premises for
or at the behest of Tenant. If Landlord requests, Tenant shall furnish Landlord
with such security, including a labor and materials bond and/or a performance
bond, as Landlord may deem reasonable to protect the Premises against the
attachment or foreclosure of any such lien.
Tenant shall have no authority, express or implied, to create or
place any lien or encumbrance, of any kind or nature whatsoever upon, or in any
manner to bind, the interest of Landlord in the premises or to charge the
rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs. Tenant covenants and agrees that it will pay or cause
to be paid all sums legally due and payable by it on account of any labor
performed or materials furnished in connection with any work performed on the
Premises on which any connection with any work performed on the Premises on
which any lien is or can be validly and legally asserted and that it will save
and hold Landlord harmless from any and all claim, loss, cost or expense,
including, without limitation, attorneys' fees, based on or arising out of
assented claims or liens against the leasehold estate or against the right,
title and interest of the Landlord in the Premises or under the terms of this
Lease.
8. ENTRY BY LANDLORD
8.1. Entry by Landlord
Landlord, Landlord's agents, Owner and Owner's agents, may enter the
Premises at all reasonable times upon reasonable notice to Tenant, except in the
case of emergency, to perform Landlord's obligations hereunder, to inspect
Tenant's performance of Tenant's obligations hereunder and to exhibit the
Premises to actual or prospective lenders, purchasers and tenants and for any
other reasonable purpose. Landlord shall have the right to place "for sale"
signs at any time during the term and "for rent" signs during the last 180 days
of the term on the Premises, which Tenant shall neither molest nor obscure. The
performance of work on the Premises by Landlord, whether to discharge Landlord's
obligations hereunder or to prevent waste or deterioration, including the
placement in the Premises of supplies and materials necessary for such work,
shall not be deemed to constitute a partial or total eviction of Tenant and
neither rent nor any other obligation of Tenant hereunder shall abate while any
entry or work by Landlord hereunder is underway. Landlord shall, however, use
its best efforts in the conduct of any such entry or work to minimize any
interference with Tenant's use of the Premises. In no case of entry shall
Landlord have any liability to tenant and tenant shall have no claim against
Landlord hereunder. None of Landlord's rights under this section shall be deemed
to impose on Landlord any obligation for the maintenance or repair of the
Premises in addition to the obligations which other paragraphs of this Lease
explicitly impose on Landlord. Tenant shall give written notice to Landlord at
least thirty (30) days prior to vacating the Premises and shall arrange to meet
with
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Landlord for a joint inspection of the Premises at the time of vacating. In
the event of Tenant's failure to give such notice or arrange such joint
inspection, Landlord's inspection at or after Tenant's vacating the Premises
shall be conclusively deemed correct for purposes of determining Tenant's
responsibility for repair and restoration.
9. INSURANCE
9.1. Tenant's Liability Insurance and Fire and Extended Coverage of
Fixtures
Tenant agrees, at its sole expense, to maintain in full force during
the term of this Lease, a policy or policies of Comprehensive General Liability
Insurance, which will insure Tenant, and name Mortgagee(s), Landlord, Landlord's
property manager, agents and/or Owner, as additional insureds against
liabilities for injury to persons and/or property occurring in, on or about the
Premises. The limits of liability under such insurance shall not be less than a
$1,000,000 primary policy with an umbrella policy of $5,000,000 per occurrence
for bodily/personal injury and/or property damage. Such coverage shall also
include at least personal injury, independent contractors, broad form property
damage, products liability and completed operations, contractual liability, host
liquor liability and liquor law liability if Tenant engages in serving or in the
sale of alcoholic beverages, with respect to alterations, improvements and the
like required or permitted to be made by Tenant hereunder, contingent liability
and builder's risk insurance, in amounts satisfactory to Landlord and
Mortgagee, boiler and machinery insurance, if applicable; Tenant also agrees to
maintain insurance against fire, extended coverage vandalism, malicious mischief
and such other additional perils as now are or hereafter may be included in an
"All Risk" extended coverage endorsement, covering Tenant's leasehold
improvements, merchandise, trade fixtures, furnishings, equipment and all other
items of personal property of Tenant located on or in the Premises, in an amount
equal to not less than 90% of the actual replacement cost thereof, including
property of others which is in Tenant's possession, worker's compensation
coverage as required by law, including employer's liability, and business
interruption insurance, in amounts reasonably satisfactory to Landlord and
Mortgagee. Landlord or Mortgagee may, in their reasonable discretion, require
Tenant to increase the limits of the comprehensive general liability policy
required in this Paragraph, but not beyond that deemed appropriate in the
general area.
9.2. Fire and Extended Coverage
Throughout the term of this Lease Landlord shall cause the Building
(but not Tenant's Trade Fixtures and Tenant's other personal property in the
Premises) to be insured in an amount not less than 80% of the replacement cost
thereof against loss or damage by fire and such other risks as are now or
hereafter included under "All Risk" coverage in common use for commercial
structures in the vicinity of the Building, including, if Landlord deems
necessary flood and/or other types of insurance. The cost of said insurance
shall be a Common Area Expense; but if such insurance cost is increased due to
Tenant's use of the Premises, Tenant shall pay Landlord the full amount of such
increase. Tenant, shall have no interest in nor any right to the proceeds of
said insurance. All proceeds thereunder shall be paid to Landlord (a) to be
disbursed by Landlord if the damage is repaired and the affected improvements
restored, in accordance with such progress payment schedule as Landlord may
approve, or (b) to be retained in full by Landlord if this Lease is terminated
on account of the casualty giving rise to such proceeds.
9.3. Form of Policies
Tenant shall carry all insurance which this Lease requires Tenant to
maintain with Insurance companies which are satisfactory to Landlord and
Mortgagee and licensed to do business in the State of California. All policies
evidencing such coverage shall provide that: (i) any loss shall be payable
notwithstanding any act or negligence of Landlord which might otherwise result
in a forfeiture of coverage; (ii) the carrier waives the right of subrogation
against Landlord, Mortgagee and against Landlord's agents and representatives;
(iii) the policies evidencing such coverage are primary and noncontributing with
any insurance that may be carried by Landlord; (iv) such coverage cannot be
cancelled, modified, reduced or otherwise materially changed except after thirty
(30) days' prior written notice to Landlord; and (v) with respect to general
liability policies only, Landlord and Mortgagee shall be included as additional
insureds as their interests may appear. Tenant shall furnish Landlord and
Mortgagee with copies of all policies evidencing such coverage promptly on
receipt of them, or, if Landlord and Mortgagee expressly agree, with
certificates evidencing such coverage. Tenant may effect for its own account any
insurance not required under this Lease. Tenant may provide by blanket
insurance, covering the Premises and any other location or locations, any
insurance required or permitted under this Lease.
9.4. Procedures and Remedies
Tenant shall deliver to Landlord, in the manner required for notices,
(a) certificates evidencing, and a copy of, all insurance policies and
endorsements this Lease requires Tenant to carry, and (b) proof satisfactory to
Landlord that Tenant has fully paid the premiums for the procurement and
maintenance of such coverage, all within the following time limits:
(i) For insurance required at the commencement of the term of
this Lease, upon execution hereof.
(ii) For insurance required at a later date, at least thirty (30)
days before the requirement takes effect; and
(iii) For any renewal or replacement of a policy already in
existence, at least thirty (30) days before expiration or other termination of
the existing policy.
If Tenant fails or refuses to procure or to maintain the insurance coverage
required hereunder, or fails or refuses to furnish Landlord with proof that said
coverage has been procured and is in force and paid for, Landlord shall have the
right, at Landlord's election and without notice to Tenant, but without any
obligation so to do, to procure and maintain such coverage. Tenant shall
reimburse Landlord on demand for any premiums Landlord so pays.
9.5. Waiver of Subrogation
Each of Landlord and Tenant hereby releases the other from any and
all liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused
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by fire or any other perils insured in policies of insurance covering such
property, even if such loss or damage shall have been caused by the fault or
negligence of the other party, or anyone for whom such party may be responsible;
provided, however, that this release shall be applicable and in force and effect
only with respect to loss or damage occurring during such times as the
releasor's policies shall contain a clause or endorsement to the effect that any
such release shall not adversely affect or impair said policies or prejudice the
right of the releasor to recover thereunder and then only to the extent of the
insurance proceeds payable under such policies. Each of Landlord and Tenant
agrees that it will request its insurance carriers to include in its policies
such a clause or endorsement. If extra cost shall be charged therefor, each
party shall advise the other thereof and of the amount of the extra cost, and
the other party, at its elections, may pay the same, but shall not be obligated
to do so.
10. INDEMNITY
10.1. Waiver of Damages
Landlord shall not be liable to Tenant, and Tenant hereby waives any
claim against Landlord, for injury to or death of any person or damage to any
property that may result from negligence or any cause whatsoever in connection
with the Premises and the Master Premises other than directly and solely from
the gross negligence or intentional affirmative act of Landlord. Except as
aforesaid, Tenant hereby fully assumes all risk of damage, from any source, to
any property in the Premises.
10.2. Indemnification
Tenant shall indemnify, defend and hold Landlord harmless against any
and all claims or liability for the death of or any injury to any person and for
damage to any property whatsoever, at the Premises or any part thereof, if any
such death, injury or damage is caused in part or in whole, directly or
indirectly, by any intentional or negligent act or omission on the part of
Tenant and/or Tenant's directors, officers, employees, agents, contractors,
invitees or licensees, unless caused by Landlord's intentional affirmative acts
or gross negligence. Tenant's waiver in Paragraph 10.1 and the indemnity
obligation in this Paragraph 10.2 shall particularly include, without
limitation, any death, injury or damage caused by water leakage of any character
(including from roof, walls, floor or basement) or caused by gas, oil,
electricity or any other matter. If any action or proceeding based on any such
death, injury or damage is brought against Landlord, then, upon written request
from Landlord, Tenant, at Tenant's cost, shall defend such action or proceeding
and, if appropriate, file such counteraction's or counter-proceedings as the
circumstances require, all through legal counsel reasonably acceptable to
Landlord.
11. DAMAGE AND DESTRUCTION
If the Premises are destroyed in whole from any cause, Landlord may elect
either to restore the Premises or to terminate this Lease. If the Premises are
destroyed in part from any cause, Landlord may elect to restore, or, to
terminate this Lease if (1) the Building, the Premises, or the Master Premises
are uneconomic to restore, or (2) the cost of restoration materially exceeds the
proceeds of insurance required to be carried hereunder, or (3) the restoration
cannot be substantially completed within one hundred eighty days after
Landlord's notice of election to Tenant. Landlord shall notify Tenant of its
election within sixty days after the casualty. Landlord shall be obligated to
restore in all other instances.
11.1. Restoration
If Landlord elects, or is obligated, to restore, Landlord shall
promptly restore the Premises to their prior condition, provided that such
restoration can be completed within one hundred eighty days (which period shall
be extended one day for each day of delay resulting from causes beyond
Landlord's control) (the "Restoration Period") after Landlord's notice of
election to Tenant. Tenant hereby expressly waives the provisions of Subdivision
2 of Section 1932, Subdivision 4 of Section 1933, Section 1941 and Section 1942
of the California Civil Code, and any successor or other law, statute or
ordinance hereafter in effect of similar importance or otherwise provided
herein. Rent shall abate from the date of casualty in the proportion that Tenant
is actually deprived of use of the Premises. In the event that such restoration
cannot be completed within such Restoration Period, Tenant may elect to
terminate this Lease.
11.2. Termination
If Landlord elects to terminate, rent shall terminate as of the date
of the casualty, and from the date of the notice of election the parties shall
have no further obligations under this Lease except for obligations which arose
prior to such notice of election.
12. COMPLIANCE WITH LAW AND QUIET POSSESSION
12.1. Compliance with the Law
Throughout the term of this Lease, subject to the provisions of this
Lease, Tenant shall faithfully observe and promptly comply with all present and
future requirements of all governmental authorities with jurisdiction over the
Premises and with all presently existing recorded covenants, conditions and
restrictions which are applicable to the Premises. Tenant shall not permit its
vehicles to interfere with the use of Common Areas.
12.2. Quiet Enjoyment and Subordination
So long as no uncured default on the part of Tenant exists
hereunder, Landlord shall secure to Tenant the quiet and peaceful possession of
the Premises against any persons who clam paramount title to the premises or an
interest in the Premises through or under Landlord. Tenant acknowledges that
Landlord holds the Building as a tenant under the Ground Lease and that Tenant
is subject to all of the terms and conditions of the Ground Lease. Tenant
further acknowledges that the Master Premises are subject to a deed of trust for
the benefit of Weyerhaeuser Mortgage Company (which entity and any successor
shall be referred to herein as "Mortgagee"). Tenant accepts this Lease subject
and
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subordinate to the Ground Lease and any mortgage(s) and/or deed(s) of trust
now or at any time hereafter constituting a lien or charge upon the Premises or
the Building; provided, however, that if the mortgagee, trustee or holder of any
such mortgage or deed of trust elects to have Tenant's interest in this Lease
superior to any such instrument, then by notice to Tenant from such mortgagee,
trustee or holder, this Lease shall be deemed superior to such lien, whether
this Lease was executed before or after said mortgage or deed of trust. This
Lease shall automatically be subordinate to any mortgage, deed of trust or any
other hypothecation for security, whether existing at the date hereof or
subsequently placed upon the Premises (or property of Landlord of which the
Premises are a part), to any and all advances made on the security thereof and
to all renewals, modifications, consolidations, replacements and extensions
thereof. If, however, the holder of any such security shall elect to have this
lease prior to the lien of such holder's security, such holder may give written
notice to Tenant and thereupon this Lease shall be deemed prior to such
security, whether this Lease is dated (and any memorandum of this Lease
recorded) prior or subsequent to the date of execution or recordation of such
security and regardless of the priority of recordation. Tenant shall at any time
hereafter, on demand, execute any instruments, releases or other documents which
may be required by any mortgagee for the purpose of subjecting and subordinating
this Lease to the lien of any such mortgage. Tenant agrees that in the event
that any proceedings are brought for the foreclosure of any such mortgage or
deed of trust, Tenant shall attorn to the purchaser at such foreclosure sale, if
requested to do so by such purchaser, and shall recognize such purchaser as the
Landlord under this Lease, and Tenant waives the provisions of any statute or
rule of law, now or hereafter in effect, which may give or purport to give
Tenant any right to terminate or otherwise adversely affect this Lease and the
obligations of tenant hereunder in the event that any such foreclosure
proceeding is prosecuted or completed. Tenant further agrees that in the event
the landlord under the Ground Lease becomes the Landlord under this Lease,
Tenant shall attorn to such ground landlord and recognize such ground landlord
as Landlord under this Lease, if requested to do so by such ground landlord. In
addition, if a leasehold mortgagee shall acquire Landlord's interest in this
Lease under a new ground lease made to such leasehold mortgagee, Tenant shall
attorn to such leasehold mortgagee and recognize such leasehold mortgagee as the
Landlord under this Lease, if requested to do so by such leasehold mortgagee.
This Lease shall be subject to any new ground lease made to the leasehold
mortgagee.
13. DEFAULT
13.1. Events of Default
Any of the following events or occurrences shall constitute a
material breach of this Lease by Tenant and after the expiration of any
applicable grace period, shall constitute an "Event of Default" hereunder. Upon
the occurrence of an event of Default, Landlord shall have all the rights and
remedies set forth in Paragraphs 13.2 through 13.6 as well as any other rights
or remedies available at law or in equity. The following occurrences shall each
constitute and Event of Default:
(a) The failure by Tenant to make any payment of rent,
additional rent or other payment required to be made by Tenant hereunder, as and
when due, where such failure shall continue for a period of five days after
written notice thereof from Landlord to Tenant; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure (S)1161, as amended.
(b) The failure by Tenant to perform any other obligation
hereunder, if the failure has continued for a period of thirty (30) days after
Landlord demands in writing that Tenant cure such failure; provided, if by its
nature the failure cannot be cured within thirty (30) days, Tenant may have such
longer period as is necessary to cure the failure upon the condition that Tenant
shall have promptly commenced to cure within said thirty (30) day period and
shall thereafter diligently prosecute the cure to completion; provided, further,
that any such notice shall be in lieu of, and not in addition to, any notice
required under California Code of Civil Procedure (S)1161, as amended; Tenant
shall indemnify, defend and hold Landlord harmless against any liability, claim,
damage, loss or penalty which may be threatened or may in fact arise during the
period any such failure is uncured;
(c) A general assignment by Tenant for the benefit of Tenant's
creditors; any voluntary filing, petition or application by Tenant under any law
relating to insolvency or bankruptcy, whether for a declaration of bankruptcy, a
reorganization, an arrangement or otherwise; the abandonment or vacation or
surrender of the Premises by Tenant except as provided in Paragraph 13.1(f); or
the dispossession of Tenant from the Premises (other than by Landlord) by
process of law or otherwise;
(d) The involuntary filing against tenant (or any general
partner of Tenant if Tenant is a partnership) of (i) a petition to have tenant
(or any partner of Tenant if tenant is a partnership) declared a bankrupt, or
(ii) a petition of reorganization or arrangement of Tenant under any law
relating to insolvency or bankruptcy, unless in the case of any such involuntary
filing, the same is dismissed within sixty (60) days; the appointment of a
trustee or receiver to take possession of all or substantially all Tenant's
assets, or the attachment, execution or other judicial seizure of all or
substantially all of Tenant's assets located at the Premises, or of Tenant's
interest in this Lease, unless such appointment, attachment, execution or
seizure is discharged within thirty (30) days.
(e) Tenant shall desert or vacate any substantial portion of the
Premises for ten (10) or more business days while otherwise in violation of any
of its obligations hereunder.
(f) Tenant shall desert or vacate any substantial portion of the
Premises for ten or more business days even if not otherwise in violation of any
of its obligations hereunder, without giving Landlord at least thirty (30) days
notice in advance in the manner provided hereunder.
13.2. Landlord's Remedies Upon an Event of Default
(a) Termination. Upon occurrence of an Event of Default,
Landlord, in addition to any other rights or remedies available to Landlord at
law or in equity, shall have the right immediately to terminate this Lease and
all rights of tenant hereunder by giving Tenant written notice that this Lease
is terminated. If Landlord so terminates this Lease, then Landlord may recover
from Tenant the sum of:
(i) the worth at the time of award of any unpaid rent which had
been earned at the time of termination;
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(ii) the worth at the time of award of the amount by which (A) the
unpaid rent which would have been earned after termination until the
time of award exceeds (B) the amount of such rental loss, if any, as
Tenant affirmatively proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which (A)
the unpaid rent for the balance of the term after the time of award
exceeds (B) the amount of such rental loss, if any, as Tenant
affirmatively proves could be reasonably avoided;
(iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
Tenant's obligations hereunder or which, in the ordinary course of
things, would be likely to result therefrom; and
(v) all such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable
California law.
(b) Definitions.
(i) "Worth at the Time of Award." As used in Subparagraphs (a)(i)
and (a)(ii) of this Paragraph, the "worth at the time of award" is
computed by allowing interest at the rate of ten percent (10%) per
annum. As used in Subparagraph (a)(iii) of this Paragraph, the
"worth at the time of award" is computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%).
(ii) Rent. As used in this article, the term "rent" shall include
both charges equivalent to rent and any other period payments (such
as Tenant's Share of Common Area Expenses) by Tenant hereunder.
(c) Continuation of Lease. If Tenant vacates, abandons or surrenders
the Premises without Landlord's consent, or if Landlord re-enters the Premises
as provided in Subparagraph (d) of this Paragraph or takes possession of the
Premises pursuant to legal proceedings or through any notice procedure provided
by law, then, if Landlord does not elect to terminate this Lease, Landlord may,
from time to time, without terminating this Lease, either (i) recover all rent
and other amounts payable hereunder as they become due or (ii) relet the
Premises or any part thereof on behalf of Tenant for such term or terms, at such
rent or rents and pursuant to such other provisions as Landlord, in its sole
discretion, may deem advisable, all with the right, at Tenant's cost, to make
alterations and repairs to the Premises.
(d) Re-entry. Upon an Event of Default, Landlord shall also have the
right, with or without terminating this Lease, to re-enter the Premises and
remove all persons and property from the Premises. Landlord may cause property
so removed from the Premises to be stored in a public warehouse or elsewhere at
the expense and for the account of Tenant.
(e) No constructive Termination. None of the following remedial
actions, singly or in combination, shall be construed as an election by Landlord
to terminate this Lease unless Landlord has in fact given Tenant written notice
that this Lease is terminated or unless a count of competent jurisdiction
decrees termination of this Lease; any act by Landlord to maintain or preserve
the Premises; any efforts by Landlord to relet the Premises; any re-entry,
repossession or reletting of the Premises by Landlord pursuant to this
Paragraph; or the appointment of a receiver, upon the initiative of Landlord, to
protect Landlord's interest under this Lease. If Landlord takes any of the
foregoing remedial action without terminating this Lease, Landlord may
nevertheless at any time after taking any such remedial action terminate this
Lease by written notice to Tenant.
(f) Allocation of Income from Reletting. If Landlord relets the
Premises, Landlord shall apply the revenue therefrom as follows: first, to the
payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; second, to the payment of any reasonable cost of reletting (including,
without limitation, finder's fees and leasing commissions); third, to the
payment of the cost of any reasonable alterations, improvements, maintenance and
repairs to the Premises; and fourth, to the payment of rent and other amounts
due and unpaid hereunder. Should revenue from reletting during any month, after
application pursuant to the foregoing provisions, be less than the sum of (i)
Landlord's expenditures for the Premises during such month and (ii) the amounts
due from Tenant hereunder during such month or theretofore, Tenant shall pay the
deficiency to Landlord immediately upon demand therefor.
13.3. Landlord's Right to Cure
After an Event of default, Landlord, in addition to or in lieu of
exercising other remedies, may (but without any obligation so to do) cure the
breach underlying the Event of Default for the account and at the expense of
Tenant; provided that Landlord by prior notice shall first allow Tenant a
reasonable opportunity to cure, except in cases of emergency, where Landlord may
proceed without prior notice to tenant. Tenant shall, upon demand, immediately
reimburse Landlord for all costs (including costs of settlements, defense, count
costs and attorneys' fees) which Landlord may incur in the course of any such
cure.
13.4. Security No Bar
No security or guaranty for the performance of Tenant's obligations
hereunder, which Landlord may now or hereafter hold, shall in any way constitute
a bar or defense to any action initiated by Landlord for unlawful detainer or
for the recovery of the premises, for enforcement of any obligation of tenant
hereunder or for the recovery of damages caused by a breach of this Lease by
Tenant or by an Event of Default.
13.5. Period of Limitations
Any claim, demand, right or defense of any kind by tenant, which is
based upon or arises in any connection with this Lease or the negotiations prior
to its execution, shall be barred unless tenant commences an action thereon, or
interposes in a legal proceeding a defense by reason thereof, within six (6)
months after the date of the inaction or omission or the date of the occurrence
of the event or of the action to which the claim, demand, right, or defense
relates, whichever applies.
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13.6. Remedies Cumulative
The rights, privileges, elections and remedies of landlord herein are
cumulative. Landlord may exercise them at any time and from time to time singly
and in combination. No provision of this section shall be deemed to limit or
negate Landlord's rights under this Lease to indemnification from Tenant (or
tenant's insurance carriers) for any liability asserted against or imposed upon
Landlord, whether before or after termination of this lease, which liability is
directly or indirectly based upon deaths, personal injuries, property damage or
other matters first occurring prior to the termination of this Lease.
13.7. Expenses and Legal Fees
If either party incurs any expense, including reasonable attorneys'
fees, in connection with any action or proceeding instituted by either party by
reason of any default or alleged default of the other party hereunder, the party
prevailing in such action or proceeding shall be entitled to recover, as an
element of costs of suit and not as damages, its said reasonable expenses from
the other party. Such reasonable expenses, including attorneys' fees, shall be
deemed to have accrued on the commencement of such action and shall be paid
whether or not such action is prosecuted to judgment for purposes of this
provision, in any unlawful detainer or other action or proceeding instituted by
Landlord based upon any default or alleged default by tenant hereunder Landlord
shall be deemed the prevailing party if (i) judgment is entered in favor of
Landlord or (ii) prior to trial or judgment Tenant shall pay or agree to pay all
or any portion of the rent and charges claimed by Landlord, eliminate the
condition, cease any act or otherwise cure any omission claimed by Landlord to
constitute a default by Tenant hereunder.
13.8. Landlord's Defaults
Landlord shall not be in default unless Landlord fails to perform
obligations required of Landlord within a reasonable time, but in no event later
than thirty (30) days after notice by Tenant to Landlord and Mortgagee or to the
holder of any other first mortgage or deed of trust covering the Premises, whose
name and address shall have theretofore been furnished to tenant, in writing
specifying wherein Landlord has failed to perform such obligation; provided,
however, that if the nature of Landlord's obligation is such that more than
thirty (30) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion. Mortgagee or the holder
of any other first mortgage or deed of trust covering the Premises shall have
the same rights as Landlord to cure Landlord's default within the aforesaid time
periods. In no event shall tenant have the right to terminate this Lease as a
result of landlord's default, and Tenant's remedies shall be limited to damages
and/or an injunction.
14. CONDEMNATION
14.1. Definitions
For the purpose of this Lease:
(a) The term "Taking" shall mean a taking of the Premises or
damage related to the exercise of the power of eminent domain and shall include
a voluntary conveyance, in lieu of court proceedings, to any agency, authority,
public utility, person or corporate entity empowered to condemn property.
(b) The term "Total Taking" shall mean the taking of the entire
Premises or so much of the Premises as prevents or substantially impairs the use
thereof by Tenant for the uses herein specified. Landlord acknowledges that
Tenant requires at least 27,000 square feet, and adequate parking, in which to
conduct its business.
(c) The term "Partial taking" shall mean the taking of a portion
of the Premises which does not constitute a Total Taking.
(d) The term "Date of Taking" shall mean the date upon which
title to the Premises, or a portion thereof, passes to and vests in the
condemnor or the effective date of any order for possession if issued prior to
the date title vests in the condemnor.
(e) The term "Award" shall mean the amount of any award made,
consideration paid, or damages ordered as a result of a Taking.
14.2. Total Taking
In the event of a Total Taking during the term hereof (a) the rights
of Tenant under the Lease and the leasehold estate of tenant in and to the
Premises shall terminate as of the Date of Taking; (b) Landlord shall refund to
Tenant any prepaid rent; (c) Tenant shall pay to Landlord any rent or charges
due Landlord under the Lease, each prorated as of the Date of Taking; and (d)
the total Award shall be paid to and be the property of Landlord and Tenant
shall not have any claims against Landlord for any portion of said award. Tenant
will be entitled to any award made directly to Tenant for loss of or damage to
Tenant's trade fixtures and removable personal property and for reasonable
expenses incurred in moving.
14.3. Partial Taking
In the event of a Partial Taking of more than one thousand (1,000)
square feet during the term hereof, Tenant shall have the option to terminate
the Lease by so notifying Landlord in writing within thirty (30) days following
the Date of Taking, and said termination shall be effective sixty (60) days
after the date Tenant notifies Landlord. In the event Tenant does not elect to
terminate the Lease, (a) the rights of Tenant under the Lease and leasehold
estate of tenant in and to the portion of the Premises taken shall terminate as
of the Date of Taking; (b) from and after the Date of Taking the monthly rent
shall be reduced in the proportion that the square footage of the Premises taken
bear to the original square footage of the Premises and (c) the total Award
shall be paid to and be the property of Landlord and Tenant shall not have any
claims
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against Landlord for any portion of said award. Tenant will be entitled to any
award made directly to Tenant for loss of or damage to Tenant's trade fixtures
and removable personal property. Landlord shall restore the Premises to a
complete architectural unit at its sole cost and expense.
15. HOLDING OVER
Tenant will, at the termination of this Lease by lapse of time or
otherwise, yield up immediate possession to Landlord. In the event of any
holding over by Tenant or any of its successors in interest after the expiration
or termination of this Lease, unless the parties hereto otherwise agree in
writing, the holdover tenancy shall be subject to termination by Landlord at any
time upon not less than five (5) days advance written notice, or by Tenant at
any time upon not less than thirty (30) days advance written notice, and all of
the other terms and provisions of this Lease shall be applicable during that
period, except that Tenant shall pay Landlord from time to time upon demand, as
rental for the period of any holdover, an amount equal to 150% of the rent in
effect on the termination date, computed on a daily basis for each day of the
holdover period. No holding over by Tenant, whether with or without consent of
Landlord, shall operate to extend this Lease except as otherwise expressly
provided.
16. ASSIGNMENT AND SUBLETTING
16.1. Assignment and Subletting Prohibited
Notwithstanding any provision herein to the contrary or reference
herein to subtenants or otherwise, neither Tenant nor any trustee, receiver or
other successor to tenant may assign, sell, encumber, pledge or in any manner
transfer this Lease or any estate or interest herein, or sublet the Premises or
any part or parts thereof or any right or privilege appurtenant thereto, or
allow anyone to conduct business at, upon or from the Leased Premises (whether
as franchisee, licensee, permittee, subtenant, or otherwise), or to come in, by,
through or under it, in all cases either by voluntary or involuntary act or by
operation of law or otherwise, without Landlord's prior written consent in each
instance. The sale, issuance or transfer of any voting capital stock of Tenant
or Tenant's Guarantor, if any (if Tenant or Tenant's Guarantor, if any, is a
corporation the stock of which Is not traded on the New York Stock Exchange or
the American Stock Exchange), which results in a change in the voting control of
Tenant, or Tenant's Guarantor, if any, shall be deemed to be an assignment of
this Lease, and any purported such act shall be null and void. Any such
prohibited act by Tenant (or any attempt at same), either voluntarily or
involuntarily or by operation of law or otherwise, shall at Landlord's option
terminate this Lease, and any purported such act shall be null and void. The
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation
thereof, shall not work a merger and shall, at the option of Landlord, terminate
all or any existing franchises, concessions, licenses, permits, subleases,
subtenancies, departmental operating arrangements or the like, or may, at the
option of Landlord, operate as an assignment to Landlord of the same. Nothing
contained elsewhere in this Lease shall authorize Tenant to enter into any
franchise, license, permit, subtenancy, or the like except pursuant to the
provisions of this Paragraph. The consent by Landlord to any assignment or
subletting shall not constitute a waiver of the necessity for such consent to
any subsequent assignment or subletting. If this Lease be assigned, or if the
Premises or any part thereof be sublet or occupied by anyone other than Tenant,
Landlord may collect rent from the assignee, subtenant or occupant and apply the
net amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of this covenant or
the acceptance of the assignee, subtenant or occupant as tenant, or a release of
tenant from the further performance of covenants on the part of Tenant herein
contained. Any one or more of the foregoing prohibited acts, without Landlord's
prior written consent, shall be void and, at the option of Landlord, shall
terminate this Lease.
16.2. Information Required
If Tenant desires at any time to assign this Lease or to sublet the
Premises or any portion thereof, it shall first notify Landlord of its desire to
do so and shall submit in writing to Landlord (i) the name of the proposed
subtenant or assignee; (ii) the nature of the proposed subtenant's or assignee's
business to be carried on in the Premises; (iii) the terms and provisions of the
proposed sublease or assignment; and (iv) such reasonable financial information
as Landlord may request concerning the proposed subtenant within ninety (90)
days of the request for Landlord's consent.
16.3. Landlord's Options
At any time within fifteen (15) days after Landlord's receipt of the
information specified in Paragraph 16.2 above, Landlord may by written notice to
tenant elect to (i) consent to the subletting or assignment upon the terms and
to the subtenant or assignee proposed; (ii) refuse to give its consent; (iii)
sublease the Premises or the portion thereof so proposed to be subleased by
Tenant or take an assignment of tenant's leasehold estate hereunder or such part
thereof as shall be specified in said notice upon the same terms (excluding
terms relating to the use of Tenant's name or the continuation of Tenant's
business) as those offered to the proposed subtenant or assignee, as the case
may be; or (iv) terminate this Lease as to the portion (including all) of the
Premises proposed to be subleased or assigned with a proportionate abatement in
the rent payable hereunder. Tenant agrees that Landlord may refuse to consent to
any proposed assignment or subletting for any reason or reasons deemed
sufficient by Landlord without regard to any objective standard of
reasonableness and may consent to a proposed subletting or assignment subject to
such conditions as Landlord, in its sole discretion, deems appropriate. Tenant
further agrees that Landlord may condition its consent upon the payment of any
rentals to be received by Tenant in excess of any rental's fairly allocable to
the applicable space payable by Tenant to Landlord. Tenant further agrees that
no assignment or subletting consented to by Landlord shall impair or diminish
any covenant, condition or obligation imposed upon Tenant by this Lease or any
right, remedy or benefit afforded Landlord by this Lease. If Landlord consents
to such assignment or subletting, Tenant may, within ninety (90) days after the
date of Landlord's consent, enter into a valid assignment or sublease of the
Premises or portion thereof upon the terms and conditions described in the
information required to be furnished by tenant to Landlord pursuant to Paragraph
12.2 above, or upon other terms not more favorable to Tenant; provided, however,
that any material change in such terms shall be subject to Landlord's consent as
provided in this Paragraph 16. Failure of Landlord to exercise any option set
forth in clauses (i) through (iv) above within such fifteen (15) day period
shall be deemed refusal of Landlord to consent to the proposed subletting or
assignment. In the event that Landlord shall consent to a sublease or
assignment, Tenant shall pay Landlord's reasonable attorney's fees incurred in
connection with giving such consent.
13
<PAGE>
16.4 Tenant Merger, Acquisition, Associated Entities
Notwithstanding anything in the Lease to the contrary, Landlord's
consent shall not be required nor shall any excess rent be payable and the
foregoing provisions of Paragraph 16 shall not apply to an assignment of the
Lease or sublease of the Premises by Tenant to any corporation:
(a) with which it may merge or consolidate or which acquires
(i) a majority of Tenant's stores, or which acquires
(ii) all or substantially all of the shares of stock or assets of
Tenant,
(b) which is a parent or subsidiary of Tenant, or
(c) which is the successor corporation in the event of a corporate
reorganization
provided such corporation, in Landlord's reasonable judgment, has the financial
capacity to satisfy Tenant's obligations under this Lease. However, if such
corporation does not, in Landlord's reasonable judgement, have the financial
capacity to satisfy Tenant's obligations under this Lease, Landlord may, but
shall not be obligated to, elect to terminate this Lease by giving Tenant
written notice of Landlord's election to terminate at least one hundred eighty
(180) days in advance of the effective date of the termination of the Lease. If
this Lease is so terminated, Tenant's obligation to pay rent and common area
expenses shall cease to accrue on the later of (a) the effective date of the
termination, or (2) vacation of the Premises by Tenant. If Landlord does not
elect to terminate this Lease, Landlord shall consent to such assignment.
Public offering or private placement of Tenant's stock or transfer of less than
a majority of Tenant's stock shall not be deemed an Assignment provided Tenant,
in Landlord's reasonable judgement, has the financial capacity to satisfy
Tenant's obligations under this Lease. However, if Tenant does not, in
Landlord's reasonable judgement, have the financial capacity to satisfy Tenant's
obligations under this Lease, Landlord may, but shall not be obligated to, elect
to terminate this Lease by giving Tenant written notice of Landlord's election
to terminate at least one hundred eighty (180) days in advance of the effective
date of the termination of the Lease. If this Lease is so terminated, Tenant's
obligation to pay rent and common area expenses shall cease to accrue on the
later of (a) the effective date of the termination, or (2) vacation of the
Premises by Tenant. If Landlord does not elect to terminate this Lease,
Landlord shall consent to such assignment.
Tenant shall not, however, by reason of any assignment or sublease, be relieved
of any responsibility, liability, or obligation to Landlord under the terms of
this Lease. As a condition precedent to any effective assignment or sublease,
the assignee or sublessee shall agree, in writing, to assume all of the terms,
covenants, and conditions of Tenant under this Lease. An executed original copy
of the assignment or sublease shall be delivered to Landlord prior to said
assignment or sublease becoming effective.
16.5. No Release of Tenant
No subletting or assignment, even with Landlord's consent, shall
relieve Tenant of its duty to pay the rent and to perform all its other
obligations hereunder.
17. TRANSFERS AND REFINANCING
17.1 Conveyance of Landlord's Interest
Landlord may sell, assign or otherwise transfer, in whole or in part,
its interest in this Lease and its reversion hereunder. Landlord shall require
the transferee to accept the interest transferred subject to this lease. The
transfer shall release Landlord from any further liability to Tenant hereunder
and, after any such transfer, Tenant shall look solely to the transferee for
the performance of the obligations of the party who from time to time is the
landlord under this Lease for events occurring after such transfer. Paragraph
3.4 hereof shall govern disposition of the Security Deposit. If Landlord
transfers to such a transferee any other security Landlord holds for performance
of Tenant's obligations hereunder and so notifies Tenant, Landlord shall have no
further liability to Tenant concerning such security and Tenant shall henceforth
look solely to the transferee.
17.2. Estoppel Certificate
Within ten (10) days after written request from either party (the
"Notifying Party"), the other party (the "Receiving Party") shall execute,
acknowledge and deliver to the Notifying Party a statement in writing (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect), the dates to which rent and
any other charges payable by Tenant hereunder are paid in advance, if any, and
the amount of the Security Deposit, (b) if Tenant is the Receiving Party,
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder or specifying such defaults if any are claimed,
and (c) in case of a transfer of Landlord's interest, attorning to the
transferee. Tenant hereby acknowledges that prospective purchasers and
encumbrancers of the Premises (or of property of Landlord of which the Premises
are a part) may incur obligations or extend credit in reliance upon the
representations of Tenant contained in such statement. Landlord hereby
acknowledges that prospective purchasers of Tenant and/or encumbrancers of
Tenant's property may incur obligations or extend credit in reliance upon the
representations of Landlord contained in such statement. Tenant's failure to
deliver such statement to Landlord within said ten (10) day period shall
conclusively evidence Tenant's representation and agreement that: this Lease is
in full force and effect, without modification, except as Landlord may
represent; there are no uncured defaults in Landlord's performance hereunder;
and Tenant has not paid more than one month's rent in advance nor made a
Security Deposit in excess of one month's rent. It is understood and agreed that
Tenant's obligation to furnish such estoppel certificates in a timely fashion is
a material inducement for Landlord's execution of this Lease.
18. SURRENDER
18.1. Surrender of Lease Not Merger
A surrender of this Lease by Tenant, a cancellation of this Lease by
mutual agreement between Landlord and Tenant, or a termination of this Lease for
any reason, shall not automatically work a merger. After such a surrender,
14
<PAGE>
cancellation or termination, Landlord may (a) terminate any or all then existing
subtenancies and/or (b) treat such surrender, cancellation or assignment as
effecting an assignment to Landlord of any or all existing subtenancies. This
Paragraph shall not be deemed to give Tenant any right to surrender, cancel or
terminate this Lease without Landlord's consent.
18.2. Redelivery of Premises to Landlord
Upon termination of this Lease for any reason, Tenant shall
surrender the Premises to Landlord in the same condition in which Tenant
received them excepting only (a) reasonable wear and damage by fire or other
casualty (except as otherwise provided herein) and (b) such of Tenant's
Alterations as Landlord does not require Tenant to remove. Tenant shall promptly
discharge Its obligations hereunder to remove Tenant's Trade Fixtures and to
repair any damage which removals from or restoration of the Premises may cause,
any personal property of Tenant which Tenant fails to remove from the Premises
shall be deemed abandoned.
18.3. Survival of Obligations
All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the Premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
Premises, Tenant shall pay to Landlord any amount reasonably estimated by
Landlord as necessary to put the Premises, including without limitation all
heating and air conditioning systems and equipment herein, in good condition and
repair. Tenant shall also, prior to vacating the Premises, pay to Landlord the
amount, as estimated by Landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which the Lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional costs therefor upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as the case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this Paragraph 18.
19. SIGNS
Tenant may install, at Its sole cost and expense, on the Premises signs
which identify Tenant and the business Tenant conducts in the premises, provided
Tenant's signs comply with (a) applicable requirements of governmental
authorities, (b) applicable recorded restrictions and (c) Landlord's
requirements for coordinating (i) Tenant's signs with the signs of other tenants
in the Master Premises, in which respect Landlord may limit the location, size
and type of Tenant's signing and (ii) any common directory, accessible to the
general public, of all tenants and occupants in the Master Premises. Tenant
shall maintain its signs in neat condition and repair throughout the term of
this Lease. Tenant shall repair any damage which maintenance, alterations or
renovation of its signs may cause during or at the expiration of the term
hereof. Tenant shall remove its signs from the Premises at the expiration of the
term hereof. Such installations and removals shall be made in such manner as to
avoid injury to or defacement of the Building and other improvements, and tenant
shall repair any injury or defacement including without limitation
discoloration, caused by such installation or removal. Approval by Landlord of
a sign submittal by Tenant shall not constitute approval by governmental
authorities, which approval(s) shall be obtained by Tenant.
20. NOTICES
Any notice required or desired to be given under this Lease shall be in
writing with copies directed as indicated and shall be personally served or may
be deposited in the United States mail, duly registered or certified, postage
prepaid, return receipt requested. If any notice or other document is sent by
mail as aforesaid, the same shall be deemed served or delivered 48 hours after
the mailing thereof. All copies required to be delivered to Landlord shall also
be delivered to Mortgagee. Notices shall be addressed as indicated below or as a
party may otherwise require by notice given pursuant to this Paragraph:
LANDLORD: PHOENIX BUSINESS CENTER PARTNERS,
a California Limited Partnership
c/o
McLachlan Investment Company
4141 MacArthur Boulevard, Suite 100
Newport Beach, CA 92660
Attention: Donald E. Russell
MORTGAGEE: Weyerhaeuser Mortgage Company
6320 Canoga Avenue
Woodland Hills, California 91637
Attention: Joseph J. Hemmens
TENANT: Barbeques Galore, Inc.,
a California corporation
15041 Bake Parkway, Suite A
Irvine, California 92718
Attention: Sydney Selati
15
<PAGE>
21. MISCELLANEOUS
21.1. Integration
This Lease, together with any exhibits hereto, constitutes the sole
agreement between Landlord and Tenant and supersedes all prior written or oral
agreements or understandings between them pertaining to the transactions
contemplated herein. Neither party has made to the other any representations,
warranties or inducements, express or implied, except as set forth herein. All
modifications hereof must be in writing and signed by the parties hereto.
21.2. Time is of the Essence
Time is and shall be of the essence of this Lease except as to
delivery of possession of the Premises.
21.3. Joint and Several
Where a party hereto consists of more than one person, each such
person shall be jointly and severally liable for the performance of such party's
obligations hereunder.
21.4. Captions
The captions in this Lease are for convenience only, are not a part
of this Lease and do not in any way limit or amplify the provisions hereof.
21.5. Governing Law
This Lease shall be interpreted and enforced in accordance with the
laws of the State of California in effect on the date hereof.
21.6. Landlord's Liability
With respect to any of the covenants or conditions of this Lease,
Tenant hereby acknowledges that it shall look solely to the equity of Landlord
in the master Premises for any satisfaction, assertion or remedy Tenant may have
against Landlord in the event of breach by Landlord of any covenants or
conditions of this Lease, even if said Landlord or any successor in interest to
Landlord shall be an individual, joint venture, tenant-in-common, trustee or
partnership.
21.7. Interest and Late Charges
(a) Any amount payable from Tenant to Landlord hereunder which is
not paid when due shall bear interest, to the extent legally enforceable, at the
rate not exceeding the higher of (i) ten percent (10%) per annum or (ii) five
percent (5%) per annum plus the rate prevailing on the 25th day of the month
preceding the date of execution of this Lease established by the Federal Reserve
Bank of San Francisco on advances to member banks under Section 13 or 13(a) of
the Federal Reserve Act as in effect as of such date from the date due and
payable until the same shall have been fully paid. Neither the accrual nor the
payment of any such interest shall be deemed to excuse or cure any breach or
Event of Default under this Lease on the part of Tenant.
(b) TENANT HEREBY ACKNOWLEDGES THAT THE LATE PAYMENT BY TENANT TO
LANDLORD OF RENT AND OTHER SUMS DUE HEREUNDER WILL CAUSE LANDLORD TO INCUR COSTS
NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY
DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE, BUT ARE NOT LIMITED TO,
ADMINISTRATIVE, PROCESSING AND ACCOUNTING CHARGES, AND LATE CHARGES WHICH MAY BE
IMPOSED ON LANDLORD BY THE TERMS OF ANY GROUND LEASE, MORTGAGE OR TRUST DEED
COVERING THE PREMISES. ACCORDINGLY, IF ANY INSTALLMENT OF RENT, ADDITIONAL RENT,
OR ANY OTHER SUM DUE FROM TENANT SHALL NOT BE RECEIVED BY LANDLORD OR LANDLORD'S
DESIGNEE WITHIN THREE (3) DAYS AFTER NOTICE (VERBAL OR WRITTEN) FROM LANDLORD,
THEN TENANT SHALL PAY TO LANDLORD, IN ADDITION TO THE INTEREST PROVIDED ABOVE, A
LATE CHARGE IN THE AMOUNT OF $150.00 AS LIQUIDATED DAMAGES. THE PARTIES AGREE
THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COST
LANDLORD WILL INCUR BY REASON OF LATE PAYMENT BY TENANT. ACCEPTANCE OF SUCH LATE
CHARGE BY LANDLORD SHALL IN NO EVENT CONSTITUTE A WAIVER OF TENANT'S DEFAULT
WITH RESPECT TO SUCH OVERDUE AMOUNT, NOR PREVENT LANDLORD FROM EXERCISING ANY OF
THE OTHER RIGHTS AND REMEDIES GRANTED HEREUNDER.
[INITIALS APPEAR HERE] [INITIALS APPEAR HERE]
----------------------- -----------------------
Tenant's Initials Landlord's Initials
21.8. Inurement
The provisions of this Lease shall bind and inure to the benefit of
the parties originally named herein and their successors and assigns. The
foregoing sentence shall not be deemed to authorize any succession, assignment,
subletting or other transfer of Tenant's interest herein in violation of
Paragraph 16 hereof.
21.9. Relationship
The parties intend by this Lease to establish the relationship of
landlord and tenant only, and do not intend to create a partnership, joint
venture, joint enterprise, or any business relationship other than that of
landlord and tenant.
16
<PAGE>
21.10. Waivers
No waiver or failure by Landlord or Tenant to enforce any provision
of this Lease shall be deemed to be a waiver of any other provision of this
Lease or of any subsequent breach of the same or any other provision. If
Landlord accepts rent or performance of any other obligation by Tenant, Landlord
shall not be deemed to waive or forgive any breach or Event of Default unless
Landlord expressly so states in writing.
21.11. Severability
If any provision of this Lease, or the application thereof to any
person or circumstance, shall to any extent be or become invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each provision of this Lease
shall be valued and enforced to the fullest extent permitted by law.
21.12. Miscellaneous
Words of any gender used in this Lease shall be held and construed
to include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires.
21.13. Authority
Tenant agrees to furnish Landlord, promptly upon demand, a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the authorization of Tenant to enter into
this Lease.
21.14. No Offer
Because the Premises are on the open market and are presently being
shown, this Lease shall not be treated as an offer, but the Premises shall be
subject to prior lease and offer subject to withdrawal or nonacceptance by
Landlord or to other use of the Premises without notice, and this Lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
21.15. Force Majeure
If either party, except as otherwise herein specifically provided,
shall be delayed or hindered in or prevented from the performance of any act
required hereunder by reason of strikes, lock-outs, labor troubles, inability to
procure materials, failure of power, restrictive governmental laws or
regulations, riots, insurrection, war or other reason of a like nature not the
fault of the party delayed in performing work or doing acts required under the
terms of this Lease, then performance of such act shall be excused for the
period of delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay. The provisions of
this paragraph shall not operate to excuse Tenant from the prompt payment of
minimum rent, additional rent or any other payments required by the terms of
this Lease.
21.16. Broker's Commission
Tenant represents and warrants that there are no claims for
brokerage commissions or finders' fees incurred by it in connection with the
execution of this Lease, except for the commission payable to CB Commercial Real
Estate Group, Inc., if any, upon execution and delivery of this Lease, which
fees shall be payable by Landlord, and each of the parties agrees to indemnify
the other against and hold it harmless from all liabilities arising from any
other such claim incurred by it.
21.17. Recording
Tenant shall not record this Lease; however, a short-form
memorandum of lease may be recorded with the written consent of Landlord.
21.16. Furnishing of Financial Statements
Upon Landlord's written request, Tenant shall promptly furnish
Landlord, from time to time as reasonably required by a Mortgagee, prospective
Mortgagee, or prospective purchaser of Landlord's interest in the Master
Premises, with financial statements reflecting Tenant's current financial
condition. Landlord agrees to keep financial statements furnished by Tenant in
strict confidence. Landlord will not, without the prior consent of Tenant,
release, or divulge the contents of, Tenant's financial statements to anyone
other than Landlord's authorized management agents, Mortgagee(s), potential
Mortgagees authorized by Landlord, and potential purchasers of the Master
Premises, authorized by Landlord, with which Landlord has a Purchase and Sale
Agreement which is subject to approval by the Purchaser of the financial
condition of the tenants of the Master Premises.
21.19. Safety and Health
Tenant covenants at all times during the term of the Lease to
comply with the requirements of the Occupational Safety and Health Act of 1970,
20 U.S.C. Section 651 et seq. and any analogous legislation in California
(collectively, the "Act"), to the extent that the act applies to the Premises
and any activities therein. Without limiting the generality of the foregoing,
Tenant covenants to maintain all working areas, all machinery, structures,
electrical facilities and the like upon the Premises in a condition that fully
complies with the requirements of the Act, including such requirements as would
be applicable with respect to agents, employees or contractors of landlord who
may from time to time be present upon the Premises, and Tenant agrees to
indemnify and hold harmless Landlord from any liability, claims or damages
arising as a result of a breach of the foregoing covenant and from all costs,
expenses and charges arising therefrom, including, without limitation,
attorneys' fees and court costs incurred by Landlord in connection therewith,
which indemnity shall survive the expiration or termination of this Lease.
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<PAGE>
21.20. Interstate Land Sales Act
Landlord, recognizing that the Premises consist of space in an
industrial building and that the Leased Premises are either completed or that
Landlord has herein obligated itself to complete construction of the Premises
within a two-year period from the date of this Lease (except for such Tenant's
work, furniture, furnishings and fixtures as Tenant is to supply), believes that
this Lease is exempt from the Interstate Land Sales Full Disclosure Act (see, 15
---
USC (S)(S) 1701-1720) pursuant to the exemption provided by paragraph 1403(a)(3)
thereof, which reads as follows:
The provisions of this chapter shall not apply (to) . . . (3)
the sale or lease of any improved land on which there is a
residential, commercial, or industrial building, or to the
sale or lease of land under a contract obligating the seller
to erect such a building thereon within a period of two
years...
Tenant, by its signature hereto, acknowledges that it has read
and understands such section.
21.21. Nondisclosure of Lease Terms
Tenant acknowledges and agrees that the terms of this Lease are
confidential and constitute proprietary information. Disclosure of the terms
hereof could adversely affect the ability of Landlord to negotiate other leases
with respect to the building and impair Landlord's relationship with other
tenants of the Building. Tenant agrees that it, and its partners, officers,
directors, employees and attorneys shall not disclose the terms and conditions
of this Lease to any other person without the prior written consent of Landlord.
It is understood and agreed that damages would be an inadequate remedy for the
breach of this provision by any party hereto and each of the parties hereto
shall have the right to specific performance of this provision and to injunctive
relief to prevent its breach or continued breach.
21.22. Changes Requested by Lender
Tenant shall not unreasonably withhold its consent to changes or
amendments to this Lease requested by Mortgagee, so long as such changes do not
alter the basic business terms of this Lease or otherwise materially diminish
the rights or materially increase the obligations of Tenant.
21.23. Nondiscrimination
Tenant herein covenants by and for itself, its heirs, executors,
administrators, personal representatives, successors and assigns, and all
persons claiming under or through it, and this Lease is made and accepted upon
and subject to the following conditions: That there shall be no discrimination
against or segregation of any person or group of persons, on account of race,
religion, color, creed, sex, national origin, or ancestry, in the leasing,
subleasing, transferring, use, occupancy, tenure or enjoyment of the Premises
herein leased nor shall tenant himself, or any person claiming under or through
him, establish or permit any such practice or practices of discrimination or
segregation with reference to the selection, location, number, use or occupancy
of tenants, lessees, subtenants, sublessees or vendees of the Leased Premises.
21.24. Entire Agreement
This Lease and the Exhibits hereto contain all agreements of the
parties with respect to any matter mentioned herein or therein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may not be altered, changed or amended except by an instrument in
writing signed by both parties in interest at the time of the modification, any
such modification to be subject to the express written consent of the first
mortgagee.
22. SPECIAL PROVISIONS
Special provisions of this Lease (in the form of addenda) are
attached hereto and made a part hereof as follows:
(1) Basic Lease Information
(2) First Addendum to Lease
(3) Exhibit A - Description of Master Premises
(4) Exhibit B - Memorandum Confirming Commencement
(5) Exhibit C - Construction Addendum
(6) Exhibit D - Sign Criteria
Landlord and Tenant, respectively, have executed this Lease as of
the date first above written
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California Corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By: /s/ Sydney Selati
-------------------------
Sydney Selati
Its: Chairman
By: /s/ Donald E. Russell
--------------------------
Donald E Russell
Its: general partner
By: /s/ Kevin J. Ralphs
-------------------------
Kevin J. Ralphs
Its: Company Secretary
18
<PAGE>
First Addendum to Lease
This First Addendum to Lease by and between PHOENIX BUSINESS CENTER PARTNERS, a
California Limited Partnership ("Landlord") and Barbeques Galore, Inc., a
California corporation ("Tenant"), amends as follows that certain Lease
Agreement dated March 6, 1992, by and between Landlord and Tenant, all relating
to the real property located in Orange County, California, described in the
Lease, as:
23. RENT
Tenant shall pay rent, in the manner described in Paragraph 3.2, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Month(s) Rate per square foot
-------- --------------------
<S> <C>
1 $ 0.00 NNN
2 - 22 $ 0.43 NNN
23 - 30 $ 0.215 NNN
31 - 65 $ 0.46 NNN
</TABLE>
24. OPTION TO EXTEND
Provided Tenant is not then in default, and has not been in monetary
default beyond the cure period(s) provided in the Lease during the lease
term, Tenant shall have the right to extend the lease term for one (1)
period of five (5) additional years. Tenant shall exercise this option to
extend by delivering written notice (of its election to exercise the
option) to Landlord at least one hundred twenty (120) days in advance of
the expiration of the lease term. Any extension of the lease term shall be
subject to all of the terms and conditions set forth in the Lease, except
that the base monthly rent schedule shall be adjusted to reflect the market
terms and conditions prevailing at the commencement of the extension
period.
This option to extend is personal to Tenant, and may not be (1) assigned
voluntarily or involuntarily by Tenant to any other entity or person, nor
(2) exercised by any other entity or person, without the prior written
consent of Landlord, which consent may be withheld in Landlord's sole
discretion, provided, however, this option shall automatically be assigned
to the assignee in an assignment of the Lease which Landlord consents to,
or in an assignment of the Lease to which Landlord's consent is not
required under this Lease.
25. HAZARDOUS SUBSTANCES
Tenant shall use the Premises solely for the uses set forth in the Basic
Lease Information on page 1 and shall not use the Premises for any other
purpose without obtaining the prior written consent of Landlord. Tenant
warrants that it shall not make any use of the Premises which may cause
contamination of the soil, the subsoil or ground water. Tenant shall not
do, bring, or keep anything in or about the Premises that will cause a
cancellation of any insurance covering the Premises. If the rate of any
insurance carried by Landlord is increased as a result of Tenant's use,
Tenant shall pay to Landlord within thirty (30) days before the date
Landlord is obligated to pay a premium on the insurance, or within ten (10)
days after Landlord delivers to Tenant a certified statement from
Landlord's insurance carrier stating that the rate increase was caused
solely by an activity of Tenant on the premises as permitted in this Lease,
whichever date is later, a sum equal to the difference between the original
premium and the increased premium.
Tenant will not use, generate, manufacture, produce, store, release,
discharge or dispose of, on, under or about the Premises or transport to or
from the Premises any Hazardous Material (as defined below) or allow its
employees, agents, contractors, invitees or any other person or entity to
do so.
Tenant shall keep and maintain the Premises in compliance with, and shall
not cause or permit the Premises to be in violation of any Environmental
Law (any and all federal, state or local laws, ordinances, rules or
regulations pertaining to health, industrial hygiene or the environmental
conditions on, under or about the Premises including without limitation the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601 et. seq., ("CERCLA"), the Resource
--------
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et. seq.
-------
("RCRA"), the Clean Air Act, 42 U.S.C. Section 7401 et. seq., the Porter
--------
Cologne Water Quality Control Act, California Water Code Section 13000 et.
---
seq., California Hazardous Waste Control Act, Health and Safety Code
----
Section 25100 et. seq., Carpenter-Presley-Tanner Hazardous Substance
Account Act, California Health and Safety Code Section 25300 et. seq.,
--------
those laws described in paragraph 11 hereof and implementing regulations
and rules, all as amended, are herein collectively referred to as
"Environmental Laws") (the "Environmental Laws" and the "Plan" are
hereinafter collectively referred to as the "Regulations"). Tenant shall
surrender the Premises in as good a condition as when received by Tenant,
reasonable wear and tear excepted, it being specifically agreed to by
Landlord and Tenant that the presence at expiration or termination of this
Lease of Hazardous Materials which are generated, released, discharged or
disposed of by Tenant on, under or about the Premises, shall not be
"reasonable wear and tear" as that term is used in this lease.
Landlord and its representatives shall have the right, at the following
time to enter the Premises and to conduct any testing, monitoring and
analysis for Hazardous Materials:
19
<PAGE>
(i) Once every three (3) months for the first year after Tenant introduces
Hazardous Materials to the Premises pursuant to this Addendum and once in every
twelve (12) months thereafter;
(ii) At any time during the term of this Lease if, in Landlord's reasonable
judgment, Tenant is breaching its obligations under this provision.
Tenant shall give immediate written notice to Landlord of:
a. Any action, proceeding or inquiry by any governmental authority
(including, without limitation, the California State Department of Health
Services, the State of any Regional Water Quality Control Board, the Bay Area
Air Quality Management District or any local governmental entity) with respect
to the presence of any Hazardous Material on the Premises or the migration
thereof from or to other property;
b. All demands or claims made or threatened by any third party against
Tenant or the Premises relating to any loss or injury resulting from any
Hazardous Materials; and
c. Any spill, release, discharge or nonroutine disposal of Hazardous
Materials that occurs with respect to the Premises or Tenant's operations,
including, without limitation, those that would constitute a violation of Health
and Safety Code Section 25249.5 or any other Environmental Law;
d. All matters of which Tenant is required to give notice of pursuant to
Section 25359.7 of the California Health and Safety Code; and
e. Tenant's discovery of any occurrence or condition on, under or about
the Premises or any real property adjoining or in the vicinity of the Premises
or any part thereof to be subject to any restrictions on the ownership,
occupancy, transferability or use of the Premises under any Environmental Law
including without limitation, Tenant's discovery of any occurrence or conditions
on any real property adjoining or in the vicinity of the Premises that could
cause the Premises or any part thereof to be classified as "border-zone
property" under the provisions of California Health and Safety Code Sections
25220 et.seq. or any regulation adopted in accordance therewith, or to be
-------
otherwise subject to any restrictions on the ownership, occupancy,
transferability or use of the Premises under any Environmental Law.
Landlord shall have the right to join and participate in, as a party if it so
elects, any legal proceedings or actions affecting the Premises initiated in
connection with any Environmental Law and have its attorneys' fees in connection
therewith paid by Tenant.
Tenant shall indemnify and hold harmless Landlord, its directors, officers,
employees, agents, successors and assigns (collectively "Landlord") from and
against any and all claims arising from Tenant's use of the Premises for the
conduct of its business or from any activity, work or other things done or
suffered by the Tenant in or about the Buildings and shall further indemnify and
hold harmless Landlord against and from any and all claims directly arising from
breach or default in performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any act or negligence
of the Tenant, or any officer, agent, employee, guest or invitee of Tenant, and
from all and against all costs, attorneys' fees, expenses and liabilities
incurred in or about any such claim or any action or proceeding brought thereon,
including, with limitation, claims, fines, judgments, penalties, losses,
damages, costs, expenses or liabilities (including attorneys' fees and costs)
directly or indirectly arising, in any manner whatsoever, out of or attributable
to the use, generation, manufacture, production, storage, release, threatened
release, discharge, disposal or presence of a Hazardous Material on, under or
about the premises (collectively a "Release") including, without limitation, (i)
all foreseeable consequential damages including without limitation loss of
rental income and diminution in property value; and (ii) the costs of any
investigation, monitoring, removal, restoration, abatement, repair, cleanup,
detoxification or other ameliorative work of any kind or nature required by any
governmental agency having jurisdiction thereof or Landlord (collectively
"Remedial Work") and the preparation and implementation of any closure, remedial
or other required plans. This Indemnity shall survive the expiration or
termination of this Lease. In any action or proceeding brought against Landlord
by reason of any such claim, Tenant upon notice from Landlord shall defend the
same at Tenant's expense by counsel reasonably satisfactory to Landlord. In
addition, Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk or damage to property or injury to persons, in upon or about
the Premises, except those resulting from the acts or omissions of Landlord or
its authorized representatives.
In the event of the occurrence of a Release, Tenant shall, at its sole expense
and within thirty (30) days after demand by lessor (or such shorter period of
time as may be required under applicable laws or by any governmental entity
having jurisdiction thereof) commence to perform and thereafter diligently
prosecute to completion such Remedial Work as is necessary to restore the
Premises to the condition existing prior to the introduction of any Hazardous
Materials. All such Remedial Work shall be performed in conformance with the
requires of Landlord and all applicable Environmental Laws. All Remedial Work
shall be performed by one or more contractors, approved in advance in writing by
Landlord, and under the supervision of a consulting engineer approved in
advance in writing by Landlord. All costs and expenses of such Remedial Work
shall be paid by Tenant including, without limitation, to the charges of such
contractor(s) and/or the consulting engineer, and Landlord's reasonable
attorneys' fees and costs incurred in connection with monitoring or review of
such Remedial Work. In the event Tenant shall fail to timely commence, or cause
to be commenced, or fail to diligently prosecute to completion such Remedial
Work, Landlord may, but shall not be required to, cause such Remedial Work to be
performed and all costs and expenses thereof, or incurred in connection
therewith, shall become immediately due and payable.
The term "Hazardous Material" shall include without limitation:
20
<PAGE>
a. Those substances included within the definitions of "hazardous
substances", "hazardous materials", "toxic substances", or "solid waste" in
CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Sections
1801 et. seq. and in the regulations promulgated pursuant to said laws;
-------
b. Those substances defined as "hazardous wastes" in Section 25117 of the
California Health & Safety Code, or as "hazardous substances" in Section 25316
of the California Health & Safety Code, and in the regulations promulgated
pursuant to said laws;
c. Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency (or successor agency) as hazardous substances
(40 CFR Part 302 and amendments thereto);
d. Such other substances, materials and wastes which are or become
regulated under applicable local, state or federal law, or the United States
government, or which are classified as hazardous or toxic under federal, state
or local laws or regulations Including without limitation California Health and
Safety Code, Division 20, and California Administrative Code, Division 4;
e. Any material, waste or substance which is (A) petroleum, (B) asbestos,
(C) polychlorinated biphenyls, (D) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections 1251 et. seq.
-------
(33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. Section 1317); (E) flammable explosives; or (F) radioactive
materials.
Landlord agrees to hold harmless Tenant from any claims, costs, or damages,
including without limitation reasonable attorneys fees, caused by any hazardous
materials existing within the Master Premises as of the date of execution of
this Lease.
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By: /s/ Sydney Selati
-------------------------
Sydney Selati
Its: Chairman
By: /s/ Donald E. Russell
------------------------
Donald E. Russell
Its: general partner By: /s/ Kevin J. Ralphs
-------------------------
Kevin J. Ralphs
Its: Company Secretary
21
<PAGE>
Exhibit A
Description of Premises
Legal Description of Master Premises:
Parcels 8 and 12, as per Map filed in Book 112, Pages 17 through 25, inclusive,
of Parcel Maps, in the Office of the County Recorder of Orange County,
California, and now known as Parcel 1, in the City of Irvine, County of Orange,
State of California, as shown on Parcel Map filed in Book 159, Pages 14 through
15, inclusive, of Parcel Maps in the Office of the County Recorder of said
County.
Site Plan of Master Premises:
[DIAGRAM OF 15041 BAKE PARKWAY APPEARS HERE]
Description of Premises: 15041 Bake Parkway (Building 1)
Suite A and a portion of Suite B
Irvine, California
Landlord [INITIALS APPEAR HERE] Tenant [INITIALS APPEAR HERE]
----------------------- -----------------------
22
<PAGE>
Exhibit B
Memorandum Confirming Commencement Date
PHOENIX BUSINESS CENTER PARTNERS, a California limited partnership ("Landlord")
and Barbeques Galore, Inc., a California Corporation ("Tenant") have executed a
Lease dated March 6, 1992 for premises located at 15041 Bake Parkway, Suite A,
Irvine, California.
As of __________, Tenant has completed an inspection of the Premises. Tenant has
taken receipt of keys to the Premises, and has taken possession of the premises
as of _________. Tenant hereby accepts the Premises, with the exception of the
incompleted items, latent defects and unsatisfactory punch list items specified
during inspection which shall be corrected by Landlord's contractor. Said
parties hereby confirm that the commencement date for the Lease is ________ and
that this instrument is the confirmatory memorandum.
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By:
--------------------------
Sydney Selati
By: /s/ Donald E. Russell Its: Chairman
---------------------------
Donald E. Russell
Its: general partner By:
--------------------------
Kevin J. Ralphs
Its: Company Secretary
To be initialed at lease execution:
Landlord: [INITIALS APPEAR HERE] Tenant: [INITIALS APPEAR HERE]
--------------------------- --------------------------
23
<PAGE>
Exhibit C
Construction Addendum
The terms and conditions set forth in this Construction Addendum to the Lease
dated March 6, 1992 by and between PHOENIX BUSINESS CENTER PARTNERS, a
California limited partnership ("Landlord") and Barbeques Galore, Inc., a
California corporation ("Tenant") shall prevail should there be any conflict
between the terms and conditions set forth in the attached Lease.
1. DEFINITION OF LANDLORD'S WORK
As used herein the term "Landlord's Work" shall mean construction or
installation of the improvements for the Premises described on the
preliminary plans and outline specifications, which are attached hereto as
Exhibit One to Exhibit C and incorporated herein by reference.
Landlord shall construct Landlord's Work according to plans and
specifications to be approved in writing by Landlord and Tenant in
accordance with Paragraph 2 of this Exhibit C, which plans and
specifications shall be substantially in accordance with Exhibit One to
Exhibit C unless otherwise agreed in writing by Landlord and Tenant.
2. APPROVAL OF PLANS
a. Cooperation
Throughout the process of preparing plans and specifications and of
obtaining necessary governmental permits and approval, each party shall
act diligently and in good faith and shall cooperate in whatever manner
may be required with the other and with governmental agencies, to the
end that the procedures this Section 2 prescribes are completed as
smoothly and quickly as possible.
b. Approval of Final Plans and Specifications
Tenant at its cost shall furnish Landlord the information Landlord
requires to prepare plans and specifications for the improvements
Tenant desires for the Premises. After receipt of Tenant's information,
Landlord shall cause plans and specifications to be prepared and submit
them to Tenant for approval. Tenant shall then have two (2) business
days in which to notify Landlord of any changes Tenant desires. If
Landlord receives no such notice within said period, Tenant's approval
shall be conclusively presumed.
c. Distribution of Approved Final Plans and Specifications
When Landlord and Tenant agree upon the final plans and specifications,
each party shall sign the pages of four (4) sets thereof and one (1)
set shall be delivered to Tenant and three (3) delivered to Landlord.
d. Changes
(i) If any changes of a material nature are required by any
governmental authority to the plans and specifications approved
by Landlord and Tenant, whether or not as a prerequisite to the
granting of any permit necessary for the construction of the
improvements or the issuance of an occupancy permit for the
Premises, Landlord shall promptly notify Tenant in writing of the
required changes. If Tenant does not object in writing to such
changes within two (2) business days Tenant's approval thereof
shall be conclusively presumed.
(ii) If Tenant requests any changes to the approved plans and
specifications at any time after they have been signed by the
parties as set forth in Section 2(c) above, and Landlord agrees
in writing to such changes, Tenant shall reimburse Landlord for
Landlord's Costs related to such changes. Tenant shall pay such
amount within ten (10) business days of approval by Landlord of
such changes. As used herein "Landlord's Costs" shall include,
without limitation: (a) all architectural and engineering
expenses; (b) the cost of all permits and inspection fees
relating to such change(s); (c) Landlord's contractor's price for
effectuating the changes plus ten percent (10%) of said price.
3. DELAY BY TENANT
If the completion of Landlord's Work in Tenant's Premises is delayed by
Tenant's failure to comply with the provisions of this Exhibit C, or by
Tenant's requirement of unusual materials or installations, or by changes
in the work ordered by Tenant or by extra work ordered by Tenant, then the
rent shall commence to accrue on the Commencement Date as specified in Item
#10 of the Basic Lease Information and in Paragraph 2.1 of the Lease.
4. CONSTRUCTION AND COMPLETION
Promptly following the signing of final plans and specifications by
Landlord and Tenant, Landlord shall apply for and use its best efforts to
obtain the necessary building permits for construction of the improvements.
Promptly following issuance of the necessary building permits, Landlord
shall commence construction in accordance with the final plans and
specifications and shall use its best efforts substantially to complete
Landlord's Work and to tender delivery of the Premises to Tenant on the
Commencement Date.
24
<PAGE>
5. ACCEPTANCE OF PREMISES
By entry into the Premises, Tenant shall be deemed to have acknowledged
that Landlord's Work substantially conforms to Exhibit One to Exhibit C,
and that the Premises are in good condition and repair and are suitable for
Tenant's intended use. Landlord, however, at its cost, will correct any
defects or deficiencies in Landlord's Work if Tenant notifies Landlord
thereof within thirty (30) days after the Commencement Date.
6. EARLY ENTRY
If, prior to substantial completion of Landlord's Work, Tenant desires to
enter the Premises in order to install trade fixtures or otherwise prepare
the Premises for use, Tenant shall so notify Landlord, specifying the
nature of the work ("Tenant's Work") Tenant desires to undertake. If
Landlord, in Landlord's sole discretion, determines that prosecution of
tenant's Work will not interfere with the prosecution of Landlord's Work,
Landlord shall permit Tenant (and Tenant's contractors and agents) to
perform Tenant's Work in the Premises. Tenant shall then follow whatever
instructions Landlord may give concerning unloading and storage of
materials, scheduling phases of work, coordination of trade and cleaning
up. Tenant shall pay Landlord on demand whatever amount Landlord equitably
determines is chargeable to Tenant for utilities used or consumed in the
performance of Tenant's Work. If at any time Landlord determines that the
prosecution of Tenant's Work interferes with the conduct of Landlord's
Work, Tenant shall suspend Tenant's Work until completion of Landlord's
Work.
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By: /s/ Sydney Selati
------------------------
Sydney Selati
Its: Chairman
By: /s/ Donald E. Russell
--------------------------
Donald E Russell
Its: general partner By: /s/ Kevin J. Ralphs
------------------------
Kevin J. Ralphs
Its: Company Secretary
25
<PAGE>
Exhibit One to Exhibit C
Barbeques Galore
Phoenix Business Center
General Notes & Outline Specifications
1. All existing floorcovering to be removed and slab prepared for new
floorcovering as follows:
Office areas: 30 ounce, 10 year rated carpet over carpet pad
Room 105: Vinyl Composition Tile (VCT)
Restrooms: Sheet vinyl
Stairs: Vinyl Composition Tile (VCT)
Warehouse: Concrete
2. Existing ceiling tile to be removed and replaced. Existing ceiling
grid to be painted, and repaired/replaced as required.
3. Existing light fixtures and H.V.A.C. grills to be removed, cleaned, and
re-installed.
4. All new and existing partitions in the office area shall be sanded to
a smooth finish prior to receiving flat paint to cover.
5. All existing fixtures, windows, window mullions, hardware, etc. to be
cleaned, and repaired if necessary.
6. New +/-40' truck ramp to be installed at existing truck dock position.
(not shown on floor plan)
7. (2) @ +/-12' x 12' cased openings to be installed in existing 24' high
wall adjacent to truck docks.
[INITIALS [INITIALS
Landlord: APPEAR HERE] Tenant: APPEAR HERE]
-------------- --------------
26
<PAGE>
[INITIALS [INITIALS
Landlord: APPEAR HERE] Tenant: APPEAR HERE]
-------------- --------------
[DIAGRAM APPEARS HERE]
27
<PAGE>
[INITIALS [INITIALS
Landlord: APPEAR HERE] Tenant: APPEAR HERE]
-------------- --------------
[DIAGRAM APPEARS HERE]
28
<PAGE>
Exhibit D
Sign Criteria
This criteria establishes the uniform policies for all Tenant identification
signs visible outside of the Premises. This criteria has been established for
the purpose of maintaining the overall appearance of Phoenix Business Center.
Conformance will be strictly enforced. Any sign installed that does not conform
to the sign criteria will be brought into conformity at the expense of the
Tenant.
A. General Requirements
1. A drawing of all proposed Tenant signs indicating copy, sizes, color,
and locations shall be submitted to Landlord, prior to fabrication of
any sign. Landlord shall respond to Tenant within ten (10) business
days of Landlord's receipt of a sign submittal from Tenant. In the
event Landlord does not respond within said period, Tenant's sign will
be deemed approved by Landlord provided it meets the requirements
stated in Paragraph B 1, 2, 3 and 5 of this Exhibit D.
2. Landlord shall approve all copy and/or logo design and color, prior to
the fabrication of the sign.
3. Landlord shall direct the placement of all Tenant signs and the method
of attachment to the building.
4. Tenant shall be responsible for the fulfillment of requirements for
this criteria.
5. Sign fabrication and installation shall be paid for by the Tenant.
B. General Specifications
1. Tenant shall be allowed one sign regardless of size of occupancy.
2. All signs to be of individual letters and logos with a minimum of 2"
depth. No cans, frames or panels are permitted. Materials to be
polystyrene backs with plexiglass or high impact faces or equal.
3. No electrical or audible signs will be allowed.
4. Upon the removal of any sign, any damage to the building will be
repaired by the Tenant.
5. Except as provided herein, no advertising placards, banners, pennants,
names, insignia, trademarks, or other descriptive material shall be
affixed or maintained upon any automated machine, glass panes of the
building, landscaped areas, streets, or parking areas.
Please contact Landlord for approvals and for assistance in the fabrication and
installation of signs.
LANDLORD: TENANT:
PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc.,
a California Limited Partnership a California corporation
By: Russell/Sutro,
a California limited partnership
Its: general partner By: /s/ Sydney Selati
-------------------
Sydney Selati
By: /s/ Donald E. Russell Its: Chairman
------------------------
Donald E Russell
Its: general partner By: /s/ Kevin J. Ralphs
-------------------
Kevin J. Ralphs
Its: Company Secretary
29
<PAGE>
FIRST AMENDMENT TO LEASE
BETWEEN WEYERHAEUSER MORTGAGE COMPANY
AND BARBEQUES GALORE, INC.
This First Amendment to Lease (this "Amendment") is dated as of April 11,
1995, by and between WEYERHAEUSER MORTGAGE COMPANY, a California corporation
("Landlord"), as successor in interest to Phoenix Business Center Partners, and
BARBEQUES GALORE, INC., a California corporation ("Tenant").
RECITALS
--------
A. Landlord and Tenant entered into that certain Lease dated March 6, 1992 in
that project known as the Phoenix Business Center, located at 15041 Bake
Parkway, Irvine, California 92718 (the "Lease").
B. Landlord and Tenant desire to amend the Lease as hereinafter provided.
AGREEMENT
---------
Capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Lease. Now, therefore, Landlord and Tenant hereby covenant and
agree as follows:
1. Rentable Area of Premises. Section 1.4 of the Lease. Effective May 1, 1995,
-------------------------
or upon completion of tenant improvements, the Rentable Area of Premises shall
be increased to 33,756 square feet.
2. Lease Term. Section 2.1 of Lease. The term of the Lease is hereby extended
----------
to January 31, 2000.
3. Monthly Rental Rate. Section 3.1 of Lease. Effective May 1, 1995 or upon
-------------------
completion of tenant improvements the new base rental rate for the Premises
shall be as follows:
May 1, 1995 - January 31, 1998 $15,527.76 NNN
May 1, 1996 - January 31, 2000 $16,148.78 NNN
4. Tenant's Share (of Taxes and Common Expenses). Section 4.1.2. of Lease.
---------------------------------------------
Effective May 1, 1995 or upon completion of tenant improvements and in
accordance with item 12 of the Basic Lease Information made a part of the Lease,
Tenant's Share shall be 9.48%.
5. Security Deposit Section 29 of Lease. Effective February 1, 1998, Landlord
----------------
agrees to refund tenant's security deposit in the amount of $11,748.46.
6. Tenant Improvements Landlord will provide the following tenant
-------------------
improvements; 1) new carpet and paint in Suite B, expansion premises, 2) secure
premises from Suite C, 3) demise warehouse and office, 4) create an opening into
warehouse and office from Suite A and 5) Landlord provides that additional
leased space and construction work will meet all current government regulations
and codes.
7. Option to Expand Tenant shall have an option to expand into the adjacent
----------------
10,497 square feet currently occupied by Western Digital, upon the expiration of
Western Digital's lease - estimated to be March 31, 1998. Tenant must give
Landlord written notice of intent to exercise said option no later than
September 30, 1997. If the space becomes available prior to the estimated
expiration date, Landlord will offer the space to Tenant at the same rate then
being paid by the Tenant on their existing space. Tenant shall have five
business days to respond to Landlord's offer in writing. If no response is
received, it will be deemed a rejection of Landlord's offer and the Landlord
will have the right to market the space with no further obligation to Tenant.
<PAGE>
First Amendment to Lease
between WMC and BBQ
Page 2
8. Miscellaneous. This Amendment may be executed in any number of
-------------
counterparts, each of which shall he considered an original, but all of which
together shall constitute one and the same instrument. Each party hereto shall
execute such further instruments as may he necessary to give full effect to the
agreements set forth in this Amendment.
Except as set forth in this First Amendment to Lease, all provisions of the
Lease shall remain unchanged and in full force and effect.
In witness whereof, Landlord and Tenant have executed this First Amendment
to Lease as of the year and date first above written.
LANDLORD TENANT
WEYERHAEUSER MORTGAGE COMPANY, BARBEQUES GALORE, INC.,
a California corporation a California corporation
By: /s/ E A Gallagher By: /s/ John Damiano
-------------------------- ------------------------
Elizabeth A. Gallagher Name: John Damiano
Vice President ----------------------
Title: President
---------------------
<PAGE>
4. Description of Premises. Provided Landlord delivers Suite C to Tenant
-----------------------
in accordance with Section 7 below, Exhibit A of the Base Lease shall be deleted
---------
in its entirety and replaced with Exhibit A-1 attached hereto.
-----------
5. Option to Expand- Provided Landlord delivers Suite C to Tenant in
----------------
accordance with Section 7 below, Section 7 of Amendment No.1 shall be deleted in
--------- ---------
its entirety.
6. Option to Extend.
----------------
6.1 Landlord hereby grants to Tenant one (1) option to extend (the
"Option to Extend") the Term of this Lease for a period of two (2) years and
four (4) months (the "Extended Term"), commencing February 1, 2000 (the
"Extended Term Commencement Date") and terminating May 31, 2002, on the same
terms and conditions contained in this Lease, except that (a) there shall be no
further option to extend the term of this Lease, (b) rent for the Extended Term
shall be adjusted as described hereinbelow and (c) the Additional Payment shall
be applied to rent due for the month immediately following the month in which
Tenant timely delivers to Landlord the Extension Notice (as defined and pursuant
to Section 6.2 below).
-----------
6.2 Tenant shall deliver to Landlord prior written notice (the
"Extension Notice") of Tenant's election to exercise its Option to Extend no
later than October 1, 1997.
6.3 All rights of Tenant under the provisions of this Section 6 shall
---------
terminate and be of no further force or effect, notwithstanding Tenant's due and
timely exercise of the Option to Extend, if at any time during the Term of this
Lease Tenant defaults in the performance of any covenant, obligation or
agreement to be performed by Tenant under this Lease.
6.4 In the event Tenant timely exercises the Option to Extend as
herein provided, rent for the Premises shall be adjusted as of the Extended Term
Commencement Date to be equal to Twenty-Three Thousand Eight Hundred Ninety-Six
and 62/100 Dollars ($23,896.62)($0.54 per square foot per month - $0.54 x
44,253).
6.5 In the event Tenant timely exercises its Option to Extend, then
Landlord shall (i) apply the Additional Payment against all rent due for the
month immediately following the month in which Tenant timely exercised its
Option to Extend, and (ii) abate Three Hundred Fifteen and 21/100 Dollars
($315.21) from Tenant's monthly rent with respect to Unit C, reducing such rent
from Five Thousand Three Hundred Fifty-Three and 77/100 ($5,353.77) per month to
Five Thousand Thirty-Eight and 56/100 Dollars ($5,038.56) per month for the
period commencing on the first (1st) day of the first calendar month following
Tenant's timely exercise of its Option to Extend through January 31, 2000.
During the Extended Term rent for Suite C shall be adjusted pursuant to Section
-------
6.4 above.
- ---
6.6 The Option to Extend is personal to Tenant and shall
automatically terminate upon any assignment, transfer, hypothecation or
encumbrance of this Lease by Tenant or upon any sublease of all or a part of the
Premises.
6.7 In the event that Tenant fails to timely exercise its Option to
Extend, Tenant shall be conclusively deemed to have elected not to exercise its
Option to Extend and Tenant shall have no further rights under this Section 6.
---------
6.8 Section 24 of the Base Lease is deleted in its entirety.
----------
7. Delivery of Suite C. Landlord and Tenant acknowledge that Suite C is
-------------------
currently occupied by another tenant (the "Other Tenant"). Landlord shall use
reasonable efforts to relocate the Other Tenant to the alternative space in the
Phoenix Business Center. In the event that Landlord in its reasonable
discretion, determines at any time, that Landlord is unable to relocate the
Other Tenant, Landlord shall have no liability to Tenant as a result thereof and
this Amendment No.2 shall remain in full force and effect, except for such
provisions relating to
3
<PAGE>
Suite C. Upon relocating the Other Tenant, Landlord shall deliver Suite C to
Tenant in As-Is condition, broom swept.
8. General.
-------
8.1 Effect of Amendments. Landlord and Tenant acknowledge that the
--------------------
Original Lease, as hereby amended, remains in full force and effect in
accordance with its terms.
8.2 Entire Agreement. The Original Lease, as modified herein,
----------------
constitutes the entire understanding between Landlord and Tenant, and can be
changed only by a writing executed by Landlord and Tenant.
8.3 Counterparts. If this Amendment No.2 is executed in counterparts,
------------
each is hereby declared to be an original; all, however, shall constitute but
one and the same agreement.
8.4 Corporate and Partnership Authority. If Tenant is a corporation
-----------------------------------
or partnership, or is comprised of either or both of them, each individual
executing this Amendment No.2 for the corporation or partnership represents that
he or she is duly authorized to execute and deliver this Amendment No.2 on
behalf of the corporation or partnership and that this Amendment No.2 is binding
upon the corporation or partnership in accordance with its terms.
8.5 Effective Date. The effective date (the "Effective Date") shall
--------------
be the date Landlord delivers possession of Unit C to Tenant in broom swept
condition pursuant to Section 7 above.
---------
EXECUTION
---------
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No.2
as of the date first written above.
"LANDLORD": "TENANT":
BUCKHEAD INDUSTRIAL PROPERTIES, INC. BARBEQUES GALORE, INC.,
a Maryland corporation a California corporation
By: Equitable Real Estate Investment By: /s/ Kevin Ralphs
Management Inc., as its agent ---------------------------
Name: Kevin Ralphs
----------------------
By: /s/ John Schafer Title: CFO
----------------------------- ---------------------
John Schafer
Asset Manager
4
<PAGE>
EXHIBIT "A-1"
DESCRIPTION OF PREMISES
SITE PLAN
Phoenix Business Center
1 Marconi & 15041 Bake Pkwy + Irvine Spectrum, California
[DIAGRAM OF SITE PLAN APPEARS HERE]
EXHIBIT "A-1"
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease (this "Amendment No.2") is made as of the
14th day of April, 1997, by and between BUCKHEAD INDUSTRIAL PROPERTIES, INC., a
- ----
Maryland corporation ("Landlord"), as successor-in-interest to PHOENIX BUSINESS
CENTER PARTNERS, a California limited partnership (the "Original Landlord") and
BARBEQUES GALORE, INC., a California corporation ("Tenant"). This Amendment No.2
amends and modifies the terms and conditions of that certain Phoenix Business
Center Multi-Tenant Net Lease dated March 6, 1992, by and between Original
Landlord and Tenant (the "Base Lease"), as amended by that certain First
Amendment to Lease dated April 11, 1995 ("Amendment No. I"). The Base Lease as
amended by Amendment No. I is hereinafter referred to as the "Original Lease."
The Original Lease, as hereby amended, is referred to herein as the "Lease."
R E C I T A L S
---------------
A. Landlord and Tenant previously entered into the Original Lease, which
sets forth the terms and conditions relating to Tenant's occupancy of certain
premises consisting of thirty-three thousand seven hundred fifty-six (33,756)
rentable square feet (the "Premises") located in the Phoenix Business Center,
15041 Bake Parkway, Units A and B, Irvine, California.
B. Landlord and Tenant desire to (i) expand the Premises to include an
additional ten thousand four hundred ninety-seven (10,497) rentable square feet,
(ii) provide an option to extend the term of the Lease, and (iii) to set forth
certain other matters of agreement between Landlord and Tenant.
C. Capitalized terms which are not otherwise defined in this Amendment
No.2 shall have the meanings ascribed to such terms in the Original Lease.
A G R E E M E N T
-----------------
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. Basic Lease Information. As of the Effective Date (as defined in
-----------------------
Section 7.5 below), Items 2, 3, 7 and 9 through 12, inclusive, of the Basic
- -----------
Lease Information contained in the Original Lease are hereby deleted and
replaced in their entirety as follows:
<TABLE>
<S> <C> <C>
"2. Landlord: The Equitable Life Assurance Society of
the United States, a New York
corporation
3. Address of Landlord: c/o Compass Management and Leasing
19900 MacArthur Boulevard, Suite 190
Irvine, California 92612
Attention: Stephen R. Lane
7. Section 1.1 Building: 15041 Bake Parkway - Building 1
Suites: A, B and C
9. Section 1.4 Rentable Area of Premises: 44,253
square feet
Suite A & B: 33,756
Suite C: 10,497
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Section 2.1 Term: The term of this Lease commenced
on August 22, 1992, and shall expire
on January 31,2000.
11. Section 3 1 RENTAL RATE
</TABLE>
<TABLE>
<CAPTION>
Suite A and B
-------------
Effective Period Monthly Rental (per Annual Rental (per
of Rental Rate rentable square foot) rentable square foot)
---------------- --------------------- ---------------------
<S> <C> <C>
August 22, 1992 - April $11,748.46 ($0.43) $140,981.52 ($5.16)
30, 1995
May 1, 1995 - January
31, 1998 $15,527.76 ($0.46) $186,333.12 ($5.52)
February 1, 1998 - January $16,148.78 ($0.48) $193,785.36 ($5.74)
31, 2000
<CAPTION>
Suite C
-------
Effective Period Monthly Rental (per Annual Rental (per
of Rental Rate rentable square foot) rentable square foot)
---------------- --------------------- ---------------------
<S> <C> <C>
Effective Date - January $ 5,353.47 ($0.51) $ 64,241.64 ($6.12)
31, 2000
(See Section 6 of
Amendment No.2)
12. Section 4.1.2 Tenant's Share: 12.3%"
</TABLE>
2. Rent. Section 23 of the Base Lease is hereby deleted in its entirety.
----- ----------
3. Additional Payment. As consideration for Landlord to enter into this
------------------
Amendment, Tenant shall deliver to Landlord the sum of Ten Thousand and no/100
Dollars ($10,000.00)(the "Additional Payment"), as additional rent for Unit C,
concurrent with Tenant's execution of this Amendment No.2. Notwithstanding the
foregoing, in the event that Landlord is unable to deliver Suite C to Tenant in
accordance with Section 7 below, a portion of the Additional Payment shall be
---------
applied to Tenant's basic monthly rental obligation as set forth herein. In the
event Landlord is unable to deliver Suite C to Tenant by June 15,1997, the
Additional Payment shall be reduced to Nine Thousand and no/100 Dollars
($9,000.00) and Landlord shall apply One Thousand and no/100 Dollars ($1,000.00)
to Tenant's current basic rental obligation. In the event that Landlord is
unable to deliver Suite C to Tenant by July 15, 1997, the Additional Payment
shall be reduced to Six Thousand and no/100 Dollars ($6,000.00) and Landlord
shall apply an additional Three Thousand and no/100 Dollars ($3,000.00) to
Tenant's then current basic rental obligation. In the event that Landlord is
unable to deliver Suite C to Tenant by September 15, 1997, the Additional
Payment shall be reduced to Three Thousand and no/100 Dollars ($3,000.00) and
Landlord shall apply an additional Three Thousand and no/100 Dollars ($3,000.00)
to Tenant's then current basic rental obligation.
2
<PAGE>
EXHIBIT 11.1
Barbeques Galore Limited and subsidiaries
COMPUTATION OF EARNINGS PER ORDINARY SHARE
<TABLE>
<CAPTION>
Year ended Year ended Year ended 7 months to 7 months to 6 months to 6 months to
June 30, June 30, June 30, January 31, January 31, July 31, July 31,
1994 1995 1996 1996 1997 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
PRIMARY EARNINGS
Net income 2,317 3,805 3,945 4,950 1,557 (1,631) (886)
======= ======= ======= ======= ======= ======= =======
Shares:
Weighted average number
of ordinary shares
outstanding 4,357 4,450 4,450 4,450 4,073 4,450 1,843
Additional shares assuming
conversion of share options
under treasury stock method 124 120 120 120 120 120 120
------- ------- ------- ------- ------- ------- -------
Weighted average number of
ordinary and ordinary
equivalent shares
outstanding as adjusted 4,481 4,570 4,570 4,570 4,193 4,570 1,963
======= ======= ======= ======= ======= ======= =======
Primary earnings per
ordinary and ordinary
equivalent share 0.52 0.83 0.86 1.08 0.37 (0.36) (0.45)
======= ======= ======= ======= ======= ======= =======
FULLY DILUTED EARNINGS
Net income 2,317 3,805 3,945 4,950 1,557 (1,631) (886)
======= ======= ======= ======= ======= ======= =======
Shares:
Weighted average number
of ordinary shares
outstanding 4,357 4,450 4,450 4,450 4,073 4,450 1,843
Additional shares assuming
conversion of share options
under treasury stock method 124 120 120 120 120 120 120
------- ------- ------- ------- ------- ------- -------
Weighted average number of
ordinary and ordinary
equivalent shares
outstanding as adjusted 4,481 4,570 4,570 4,570 4,193 4,570 1,963
======= ======= ======= ======= ======= ======= =======
Fully diluted earnings per
ordinary and ordinary
equivalent share 0.52 0.83 0.86 1.08 0.37 (0.36) (0.45)
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 15.1
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
[KPMG LOGO APPEARS HERE]
CHARTERED ACCOUNTANTS
The KPMG Centre
111 Phillip Street PO Box 207 Telephone: (02) 9895 6444
Parramatta NSW 2150 Parramatta NSW 2124 Facsimile: (02) 9633 2589
Australia Australia DX 8297 PARRAMATTA
INDEPENDENT REVIEW REPORT
The Board of Directors
Barbeques Galore Limited:
We have reviewed the accompanying consolidated financial statements of Barbeques
Galore Limited and subsidiaries as of January 31, 1997, 1996 and 1995 and for
the years then ended. These consolidated financial statements are the
responsibility of the company's management.
We conducted our review in accordance with auditing standards generally accepted
in Australia applicable to review engagements, that are substantially equivalent
to standards established by the American Institute of Certified Public
Accountants. A review consists principally of applying analytical procedures to
financial data and inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles in the United States.
/s/ KPMG
August 8, 1997
Sydney, Australia
[LOGO OF KPMG APPEARS HERE]
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
ASSETS (unaudited) (unaudited)
(in A$ thousands, except share and per
share data)
<S> <C> <C> <C>
Current assets:
Cash and cash
equivalents $ 35 2,441 30
Accounts receivable,
net 7,782 8,201 7,350
Receivables from
affiliates 1,556 304 362
Inventories 33,571 36,708 33,928
Deferred income taxes 689 1,063 2,472
Prepaid expenses and
other current assets 1,083 1,136 1,131
------- ------- -------
Total current assets 44,716 49,853 45,273
Non-current assets:
Receivables from
affiliates 400 412 696
Property, plant and
equipment, net 13,810 14,519 18,348
Goodwill, net 404 474 1,476
Deferred income taxes 425 486 871
Other non-current
assets 2,190 1,800 1,306
------- ------- -------
Total assets $61,945 67,544 67,970
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 836 - 1,826
Accounts payable and
accrued liabilities 11,099 10,625 13,693
Payables to related
parties 494 1,347 1,231
Payables to affiliates - 99 -
Current maturities of
long-term debt 8,844 9,949 2,964
Current portion of
obligations under
capital leases 495 829 1,395
Income taxes payable 1,861 1,865 1,612
------- ------- -------
Total current
liabilities 23,629 24,714 22,721
Non-current liabilities:
Long-term debt 8,574 8,547 20,718
Convertible notes - - 10,042
Obligations under
capital leases,
excluding current
portion 1,989 3,084 3,516
Other long-term
liabilities 1,067 850 808
------- ------- -------
Total liabilities 35,259 37,195 57,805
------- ------- -------
Shareholders' equity:
Ordinary shares, $3.64
par value; authorized
27,437,853 shares 16,220 16,220 6,720
Additional paid-in
capital 14,113 14,113 4,613
Foreign currency
translation adjustment 280 313 200
Retained deficit (3,927) (297) (1,368)
------- ------- -------
Total shareholders'
equity 26,686 30,349 10,165
------- ------- -------
Total liabilities and
shareholders' equity $61,945 67,544 67,970
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands, except share and per
share data)
<S> <C> <C> <C>
Net sales $ 134,794 138,877 148,369
Cost of goods sold,
warehouse, distribution
and occupancy costs 90,477 94,899 103,324
--------- -------- --------
Gross profit 44,317 43,978 45,045
Selling, general and
administrative
expenses 37,081 38,921 40,751
Store pre-opening costs 109 178 239
Relocation and closure
costs - - 1,336
--------- -------- --------
Operating income 7,127 4,879 2,719
--------- -------- --------
Equity in income of
affiliates, net of tax 696 1,205 379
Interest expense 2,005 2,428 2,236
Other expenses (income) - (2,303) 1,132
--------- -------- --------
Income (loss) before
income taxes 5,818 5,959 (270)
Income tax expense
(benefit) 1,478 496 (822)
--------- -------- --------
Net income $ 4,340 5,463 552
========= ======== ========
Earnings per share:
Net income (loss) per
ordinary share and
ordinary share
equivalent ($A per
share) $ 0.95 $ 1.19 $ 0.13
Weighted average shares
outstanding (in
thousands) 4,570 4,570 4,348
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Foreign
Additional Currency Total
Shares Ordinary Paid-In Translation Retained Shareholders'
Outstanding Shares Capital Adjustment Deficit Equity
----------- -------- ---------- ----------- -------- -------------
('000) (in A$ thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 31,
1994 (unaudited) 4,450 $16,220 14,113 638 (7,050) 23,921
Net income - - - - 4,340 4,340
Dividends of $0.0911
and $0.1822 per share - - - - (1,217) (1,217)
Foreign currency
translation adjustment - - - (358) - (358)
------ ------- -------- ----- ------- --------
Balances at January 31,
1995 (unaudited) 4,450 16,220 14,113 280 (3,927) 26,686
Net income - - - - 5,463 5,463
Dividends of $0.2733
and $0.1385 per share - - - - (1,833) (1,833)
Foreign currency
translation adjustment - - - 33 - 33
------ ------- -------- ----- ------- --------
Balances at January 31,
1996 (unaudited) 4,450 16,220 14,113 313 (297) 30,349
Net income - - - - 552 552
Dividends of $0.2733
and $0.0911 per share - - - - (1,623) (1,623)
Foreign currency
translation adjustment - - - (113) - (113)
Repurchase of ordinary
shares (2,744) (10,000) (10,000) - - (20,000)
Issuance of ordinary
shares 137 500 500 - - 1,000
------ ------- -------- ----- ------- --------
Balances at January 31,
1997 1,843 6,720 4,613 200 (1,368) 10,165
====== ======= ======== ===== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 4,340 5,463 552
Adjustments to reconcile
net income (loss) to
net cash provided by
operating
activities:
Depreciation and
amortization 2,392 2,596 4,031
Deferred income taxes (659) (435) (1,794)
Amounts set aside to
provisions 156 (160) (703)
Gain on sale of
affiliate - (2,303) -
Undistributed income of
affiliates (271) 476 (6)
Loss (gain) on sale of
property, plant and
equipment 46 279 707
Debt issue costs - - 1,132
Changes in operating
assets and liabilities:
Receivables and prepaid
expenses (2,206) (1,623) 1,292
Inventories (1,537) (3,062) 3,039
Other assets 780 121 (45)
Accounts payable and
accrued liabilities 1,722 1,062 2,425
--------- -------- --------
Net cash provided by
operating activities 4,763 2,414 10,630
--------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
affiliate - 2,222 173
Proceeds from sale of
property, plant and
equipment 602 480 84
Capital expenditures (2,094) (2,120) (6,602)
Loan repayments
received 524 2,170 320
--------- -------- --------
Net cash provided by
(used in) investing
activities (968) 2,752 (6,025)
--------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of long-term
debt (18,926) (9,884) (4,711)
Proceeds from long-term
debt 15,417 10,962 19,522
Debt issue costs - - (1,132)
Bank overdraft proceeds
(repayments) 273 (836) 1,826
Principal payments under
capital leases (389) (662) (874)
Dividends paid (1,217) (1,833) (1,623)
Repurchase of ordinary
shares - - (20,000)
--------- -------- --------
Net cash (used in)
financing activities (4,842) (2,253) (6,992)
--------- -------- --------
Effects of exchange rate
fluctuations (14) 4 (24)
--------- -------- --------
Net increase (decrease)
in cash and cash
equivalents (1,061) 2,917 (2,411)
Cash and cash
equivalents at
beginning of the year 1,096 35 2,441
Adjustments to opening
cash balance arising
from deconsolidation of
former subsidiary - (511) -
--------- -------- --------
Cash and cash
equivalents at end of
the year $ 35 $ 2,441 $ 30
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an
Australian resident company which is involved in the manufacture of
barbecues and heaters, and wholesale and retail sales of barbecues, heaters,
camping equipment, outdoor furniture, leisure products and related
accessories through company-owned and licensed stores in Australia. The
Company is also involved in the retailing, through Company-owned and
franchised stores, of barbecues, fireplace equipment and accessories in the
United States of America. The Company's manufacturing operations are located
in Australia.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated on consolidation.
(c) INVENTORIES
Inventories are comprised of raw materials and stores, work in progress and
finished goods. Inventories are valued at the lower of cost or market using
the first-in, first-out ("FIFO") method.
(d) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses foreign currency forward contracts to offset earnings
fluctuations from anticipated foreign currency cash flows. These
instruments are marked to market and the results recognized immediately as
income or expense.
(e) INVESTMENTS IN AFFILIATED COMPANIES
Investments in the ordinary shares of 20% to 50% owned companies are
accounted for by the equity method.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are initially recorded at the present value of minimum lease
payments. The method of depreciation and estimable useful lives over which
property, plant and equipment are depreciated are as follows:
<TABLE>
<CAPTION>
Method Years
<S> <C> <C>
Buildings Straight line 40
Machinery and equipment Straight line 8-12
Leasehold improvements Straight line 5-20
Leased plant and equipment Straight line 3-5
</TABLE>
Plant and equipment held under capital leases and leasehold improvements
are amortized on a straight line basis over the shorter of the lease term
or estimated useful life of the asset.
(g) GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight line basis over
the expected periods to be benefited, generally 20 years. The Company
assesses the recoverability of this intangible asset by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows, using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
5
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) RESEARCH AND DEVELOPMENT, AND ADVERTISING
Research and development, and advertising costs are expensed as incurred.
Amounts expensed were as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Research and development $ 1,229 1,093 1,070
Advertising $ 6,745 7,218 7,547
======= ====== ======
</TABLE>
(i) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases as well as operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income (loss) in
the period that includes the enactment date.
(j) SHARE OPTION PLAN
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, in 1996, under which the
Company elected to continue following the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations for its share option plan. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying share exceeded the exercise price.
(k) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this Statement
did not have a material impact on the Company's financial position, results
of operations, or liquidity.
(n) RENT EXPENSE, SURPLUS LEASED SPACE AND LEASE INCENTIVES
The Company leases certain store locations under operating leases which
provide for annual payments that increase over the lives of the leases.
Total payments under the leases are expensed as incurred over the lease
terms.
Where premises under a non-cancellable operating lease become vacant during
the lease term, a charge is recognized on that date equal to the present
value of the expected future lease payments less any expected future sub-
lease income.
If the Company receives incentives provided by a lessor to enter into an
operating lease agreement, these incentives are brought to account as
reductions in rent expense over the term of the lease on a straight-line
basis.
6
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) REVENUE RECOGNITION
Revenue (net of estimated returns and allowances) is recognized at the point
of shipment for wholesale sales to external customers and the point of sale
for retail goods.
(p) CASH AND CASH EQUIVALENTS
Cash includes cash on hand and at bank. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(q) STORE PRE-OPENING COSTS
Store pre-opening costs are expensed when incurred.
(r) EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings available to
ordinary shareholders by the weighted average number of ordinary shares and
as appropriate, dilutive ordinary share equivalents outstanding for the
period. The calculation of fully diluted earnings per share did not differ
significantly from primary earnings per share and has therefore not been
presented.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. This statement is effective
for both interim and annual reporting periods ending after December 15,
1997. Had SFAS No. 128 been in effect, "basic" and "diluted" earnings per
share would not have been significantly different to those reported in the
Consolidated Statements of Operations and hence have not been presented.
Pro-forma supplementary earnings per share are computed by assuming proceeds
from the public offering which will be utilised to repay debt subsequent to
the public offering were repaid at the beginning of the applicable period to
which earnings per share relates.
Pro forma supplementary earnings (loss) per share are computed by assuming
proceeds from the public offering which will be utilized to repay debt
subsequent to the public offering were utilized to repay the debt at the
beginning of the applicable period to which earnings (loss) per share
relates. The weighted average number of ordinary shares outstanding is
increased for the number of ordinary shares issued to enable repayment of
such debt. Pro forma supplementary earnings (loss) per share and weighted
average shares outstanding were:
<TABLE>
<CAPTION> Seven Months Six Months
Year ended Ended Ended
June 30, 1996 January 31, 1997 July 31, 1997
------------- ---------------- -------------
<S> <C> <C> <C>
Pro-forma unaudited supplementary
net income (loss) per ordinary share
and ordinary share equivalent
(A$ per share)........................ $0.90 $0.41 $(0.03)
Pro-forma unaudited weighted average
shares outstanding (in thousands)..... 5,610 5,453 4,234
===== ===== =====
</TABLE>
(s) FOREIGN CURRENCY TRANSLATION
Foreign currency transactions are converted to Australian currency at the
rates of exchange applicable at the dates of the transactions. Amounts
receivable and payable in foreign currencies at balance date are converted
at the year end rates.
Gains and losses from conversion of monetary assets and liabilities, whether
realized or unrealized, are included in income or loss before income taxes
as they arise.
Assets and liabilities of overseas subsidiaries are translated at year end
rates and operating results at the average rates ruling during the year.
7
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 DERIVATIVE FINANCIAL INSTRUMENTS
The notional amount of foreign currency forward contracts used as a means
of offsetting fluctuations in the dollar value of foreign currency accounts
payable totalled:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Foreign exchange contracts $ 3,789 1,013 4,232
======= ====== ======
</TABLE>
The fair value of these contracts at each period end is not significant.
All of the currency derivatives expire within one year and are for United
States dollars. The counterparties to the contracts are major financial
institutions. The risk of loss to the Company in the event of non-
performance by a counterparty is not significant.
3 ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Trade accounts receivable $ 7,487 7,258 6,903
Less: Reserve for doubtful
accounts (216) (241) (377)
------- ------ ------
7,271 7,017 6,526
Receivables from related
parties 58 53 125
Other receivables 453 1,131 699
------- ------ ------
$ 7,782 8,201 7,350
======= ====== ======
</TABLE>
4 INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Finished goods $ 29,692 32,427 29,470
Work in progress 1,326 2,055 1,778
Raw materials 2,733 2,693 3,116
-------- ------- -------
33,751 37,175 34,364
Less: Reserve for
obsolescence (180) (467) (436)
-------- ------- -------
$ 33,571 36,708 33,928
======== ======= =======
</TABLE>
8
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 33 1/3 percent of the
ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an
Australian Group which imports and distributes componentry to the gas and
appliance industries, and 50 percent of the ordinary shares of GLG Trading
Pte Limited ("GLG"), a Singapore company which acts as a buying office for
Barbeques Galore and other third parties. The shareholding in this company
was originally 100 percent but was reduced to 50 percent on July 1, 1995 by
issuing shares in that company to a Director of GLG who is also the General
Manager of that company.
The Company also previously held a 50 percent interest in GLG (NZ) Limited
("GLG NZ"). This investment was sold in December 1995 for total
consideration of A$2,395,000. A gain on sale of A$2,303,000 has been
recognized in the income statement and is included in other expenses
(income).
Bromic provides liquid petroleum gas cylinders and related products such as
manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG
supplies cast iron used in the manufacture of burners, hot plates and
grills, small assembled barbecues and certain accessories such as tongs and
warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits,
spare parts and other heating equipment.
Sales to affiliated companies are not significant. Interest is also charged
on amounts owing from affiliates at commercial rates but is not
significant. Amounts owing from affiliates are in relation to cash
advances.
Prices charged between the Company and its affiliates are set at the level
of prices that are charged to unrelated parties. Trading with affiliates
for each period and amounts outstanding at each period end are as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Purchases from affiliates:
- Bromic $ 3,579 3,616 3,467
- GLG NZ 14 77 188
- GLG Pte Ltd - 4,627 3,840
------- ------ ------
3,593 8,320 7,504
======= ====== ======
Dividends received or due and
receivable from affiliates
- Bromic $ 130 250 175
- GLG NZ 260 1,212 -
- GLG Pte Ltd - - 198
------- ------ ------
390 1,462 373
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Owing to affiliates:
- GLG NZ $ - 99 -
======= ====== ======
Receivable from affiliates:
- Bromic $ 522 716 863
- GLG NZ 1,434 - 195
------- ------ ------
$ 1,956 716 1,058
======= ====== ======
</TABLE>
9
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Investment in affiliates $ 1,052 638 491
======= ====== ======
</TABLE>
Investments in affiliates are included in the balance sheet as other
non-current assets. As the shares of these entities are not traded, the
investment in these companies is carried at the equity accounted value
representing cost plus the Company's share of undistributed profits. The
balance date of all affiliates is June 30. Combined summarized financial
data at their most recent balance dates are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1995 1996 1997
(in A$ thousands)
<S> <C> <C> <C>
Current assets $ 13,974 7,229 6,925
Current liabilities 13,734 4,778 3,666
-------- ------- -------
Working capital 240 2,451 3,259
Property, plant and equipment, net 6,131 1,307 1,215
Other assets 389 549 408
Long-term debt (4,261) (2,498) (2,412)
-------- ------- -------
Shareholders' equity $ 2,499 1,809 2,470
======== ======= =======
Sales $ 37,049 22,926 18,034
======== ======= =======
Gross profit $ 11,983 9,025 4,637
======== ======= =======
Net income $ 2,131 1,484 963
======== ======= =======
</TABLE>
6 PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Land and buildings $ 3,198 3,198 3,198
Machinery and equipment 13,363 14,023 15,453
Leasehold improvements 2,581 2,902 6,110
Assets under capital
leases 2,981 5,036 6,912
-------- -------- --------
22,123 25,159 31,673
Less: Accumulated
depreciation/amortization (8,313) (10,640) (13,325)
-------- -------- --------
$ 13,810 14,519 18,348
======== ======== ========
</TABLE>
10
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 GOODWILL
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Goodwill $ 543 654 1,704
Less: Accumulated amortization (139) (180) (228)
----- ---- -----
$ 404 474 1,476
===== ==== =====
</TABLE>
8 LEASES
The Company is obligated under various capital leases for store improvements
and certain machinery and equipment that expire at various dates during the
next five years. The capital leases for store improvements relate to the
purchase of furniture and fixtures installed in retail stores. These retail
stores are all managed under operating leases. Machinery and equipment under
capital leases includes leased machinery, office furniture and fixtures and
certain motor vehicles. All capital lease liabilities are secured by the asset
to which the lease relates. The gross amount of store improvements and
machinery and equipment and related accumulated amortization recorded under
capital leases are as follows:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Store improvements $ 817 2,106 3,119
Machinery and equipment 2,164 2,930 3,793
------ ------ ------
2,981 5,036 6,912
Less: Accumulated amortization (584) (1,268) (2,216)
------ ------ ------
$2,397 3,768 4,696
====== ====== ======
</TABLE>
The Company also has entered into non-cancellable operating leases, primarily
for retail stores. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
(except those with lease terms of a month or less that were not renewed)
consisted of the following:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Rental expense $9,446 10,078 10,153
====== ====== ======
</TABLE>
11
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 LEASES (CONTINUED)
Future minimum lease payments under non-cancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of January 31, 1997 are:
<TABLE>
<CAPTION>
Capital Operating
leases leases
(in A$ thousands)
<S> <C> <C>
Year ending January 31,
1998 $1,908 $ 9,541
1999 1,720 8,308
2000 1,231 6,896
2001 1,042 5,098
2002 249 3,887
Years subsequent to 2002 - 10,822
------ -------
Total minimum lease payments 6,150 $44,552
=======
Less: Amount representing interest (at rates ranging from 9.5% to 12.0%) (1,239)
------
Present value of net minimum capital lease payments 4,911
------
Less: Current portion of obligations under capital leases (1,395)
------
Obligations under capital leases, excluding current portion $3,516
======
</TABLE>
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Trade accounts payable $ 4,156 3,736 $ 4,968
Accrued liabilities 4,401 4,419 5,887
Employee benefits 2,025 1,942 1,745
Other 517 528 1,093
------ ------- -------
$11,099 10,625 $13,693
======= ======= =======
</TABLE>
Included in other liabilities at January 31, 1997 is an amount of $369,000
in respect of the planned relocation of the enamelling facilities. The
accrual relates to future lease costs of the vacated premises, the
writedown of plant that will be scrapped (allowing for future depreciation
charges until the planned exit date) and costs to make good the premises.
An exit plan was established and approved by the Board of Directors prior
to January 31, 1997. The implementation of the plan has commenced, work is
continuing and the exit strategy remains unchanged.
12
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10 LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Current:
Bank bills $ 8,844 9,949 2,964
Property loan - - -
-------- -------- --------
$ 8,844 9,949 2,964
======== ======== ========
Non-current:
Bank bills $ 6,474 6,447 18,568
Property loan 2,100 2,100 2,150
-------- -------- --------
$ 8,574 8,547 20,718
======== ======== ========
</TABLE>
The Company and its subsidiaries have access to a facility with the
Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ
Facility") with credit facilities aggregating up to A$53,700,000. This
includes a multi-purpose facility of A$31,700,000, a trade finance
facility of A$10,000,000 and a stand-by credit facility of A$12,000,000.
The stand-by credit facility is classified as a current facility as it is
repayable on the earlier of the date of the Company's Initial Public
Offering or December 31, 1998. As at January 31, 1997 the Company had not
utilized A$30,422,000 of the total facility. The ANZ Facility is secured by
a first security interest over the assets of the Company's present and
future Australian assets. The Company has agreed to grant to ANZ, and ANZ
is in the process of creating, a second security interest (subordinate to a
lien under the Merrill Lynch Facility detailed below) in all the Company's
assets in the United States. The ANZ Facility is further guaranteed by each
subsidiary of the Company.
Bank bills are generally taken out over a 90 day period and rolled over at
the end of their respective terms. As at January 31, 1997, the weighted
average interest rate accruing on the bank bills utilized under the ANZ
Facility was 7.2% per annum. Under the terms of the agreement, the bank
bills may be repaid at the Company's option provided the facility limit is
not breached other than the stand-by facility. For this reason, the
majority of the outstanding balance relating to bank bills and term loans
is classified as a non-current liability.
The property loan is accruing interest at a rate of 9.4% per annum and is
secured by a registered first mortgage over the freehold property of the
Company. The borrowings have a maturity dated of April 30, 1999.
As the borrowings under the ANZ facility are subject to renegotiation on
December 31, 1998, non-current long-term debt matures during the financial
year ended January 31, 1999. The Company has historically renegotiated its
credit facilities on similar terms and conditions and expects the current
facility to be extended subsequent to December 31, 1998.
All committed facilities are provided subject to the standard Australian
practice of regular annual review of required limits, the Company's
performance and the normal terms and conditions, including financial
covenants, applicable to bank lending. The Company was in compliance with
the financial covenants set out in the ANZ Facility agreement as at
January 31, 1997.
In addition, in February 1995, the Company's US subsidiary ("Galore USA")
entered into a five year credit facility with Merrill Lynch. This facility
includes a term loan of US$600,000 and a revolving line of credit of
US$1,550,000. Indebtedness under the term loan and the revolving line of
credit accrues interest at the 30 day commercial paper rates plus 2.7% or
2.65% respectively, and is payable monthly. The Merrill Lynch facility is
secured by a first security interest in all Galore USA present and future
assets. As of January 31, 1997 Galore USA had not utilized US$942,000 of
this facility.
13
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
The Company's total long-term debt matures as follows:
<TABLE>
<CAPTION>
(in A$ thousands)
<S> <C>
Year ending January 31,
1998 $ 2,964
1999 20,691
2000 22
2001 5
-------
$23,682
=======
</TABLE>
In conjunction with the Capital Reduction in December 1996 (detailed in
Note 12 to the consolidated financial statements), the Company issued
unsecured convertible notes with a face value of A$8.38 amounting to
A$10,041,952. The notes carry an interest rate of 10.25% per annum, include
financial covenants and confer rights to the noteholders as creditors and
not as shareholders.
The notes are convertible into fully paid shares by the noteholder at any
time after the first anniversary of issue but prior to the eighth
anniversary. If a stock exchange listing occurs, the Company may redeem the
notes providing certain conditions are met, failing which the Company must
repay the principal outstanding on each note on the eighth anniversary.
Upon conversion, the notes will convert at a ratio of one ordinary share
for each convertible note held. If all notes are converted, this will
result in an additional 1,197,955 ordinary shares being issued.
11 INCOME TAXES
Income (loss) before income taxes was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Australia $5,296 4,970 (755)
United States 522 989 485
------ ------ -----
$5,818 5,959 (270)
====== ====== =====
</TABLE>
The expense (benefit) for income taxes is presented below:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Current:
Australia $2,122 898 738
United States 15 33 234
------ ------ -----
2,137 931 972
------ ------ -----
Deferred:
Australia (659) (435) (904)
United States - - (890)
------ ------ -----
$1,478 496 (822)
====== ====== =====
</TABLE>
14
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 INCOME TAXES (CONTINUED)
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the Australian federal
income tax rate to pretax income from continuing operations of the
following:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Computed "expected" tax expense $1,920 2,145 (97)
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal tax benefit 31 60 208
Change in the valuation allowance (194) (406) (1,109)
Equity in earnings of affiliates not subject to
taxation (230) (434) (136)
Capital profit on sale of affiliate - (829) -
Other, net (49) (40) 314
------ ----- ------
$1,478 496 (822)
====== ===== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Deferred tax assets:
Provisions not presently deductible $ 1,191 1,316 1,482
Plant and equipment, due to differences in
depreciation 215 287 424
Inventories, due to capitalized costs 208 211 195
Borrowing expenses capitalized for tax purposes 29 - 302
Leases, due to differences in lease payments,
interest and amortization 29 52 136
Unearned income 91 105 116
Net operating loss carryforward 1,156 745 562
Other - 89 432
------- ------ ------
Total gross deferred tax assets 2,890 2,805 3,649
------- ------ ------
Less: Valuation allowance (1,515) (1,109) -
------- ------ ------
1,375 1,696 3,649
Deferred tax liabilities:
Prepayments 261 147 178
Rebates receivable - - 128
------- ------ ------
Total gross deferred tax liabilities 261 147 306
------- ------ ------
Net deferred tax asset $ 1,114 1,549 3,343
======= ====== ======
</TABLE>
15
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
The change in the valuation allowance for deferred tax assets between
January 31, 1996 and January 31, 1997 is due to the recoupment of net
operating loss carryforwards and management's assessment that the realization
of the net operating loss carryforwards was more likely than not to be
realized. In order to fully realize the deferred tax asset, the company will
need to generate future taxable income of approximately A$1,413,000 prior to
the expiration of the net operating loss carryforwards in 2012. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely that not the
Company will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
12 SHAREHOLDERS' EQUITY
On December 31, 1996, the Company consummated a series of transactions to
effect a reduction in the ordinary shares of the Company (the "Capital
Reduction"). Pursuant to the Capital Reduction, the Company repurchased and
cancelled 2,743,878 fully paid ordinary shares and 101,520 options to
purchase ordinary shares, for a total consideration of A$20,078,000. The
Company financed the Capital Reduction through:
(i) the issuance and sale of A$10,041,952 in Convertible Notes; and
(ii) the provision of an additional standby facility of A$12,000,000 from
the Company's bankers, ANZ. This standby facility will only be
available to the Company until the earlier of the Company's Initial
Public Offering or December 31, 1998.
The effect of the Capital Reduction was to reduce the ordinary shares of the
Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of
A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary
shares of A$3.64 each). Subsequent to the consummation of the Capital
Reduction, all outstanding ordinary shares were owned by the executive
directors of the Company and their related interests and the Company's
pension plan. The Company was delisted from the Australian Stock Exchange
following the Capital Reduction.
The Company incurred costs in connection with the Capital Reduction of
approximately $1,132,000. These amounts have been expensed and are included
in other expenses (income) in the consolidated statements of operations for
the seven month period to January 31, 1997.
Additionally, in connection with the Capital Reduction, the Company also
acquired the remaining 15% interest in The Galore Group (USA) Inc. ("Galore
USA") from Mr. Sydney Selati, President of Galore USA, for consideration of
A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary
shares ($7.29 per share) of the Company. Mr. Sydney Selati was subsequently
appointed a director of Barbeques Galore on July 21, 1997.
16
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13 SHARE OPTION PLAN
EXECUTIVE SHARE OPTION PLAN (CONTINUED)
Effective January 31, 1997, the Company adopted an executive share option
plan (the "Executive Plan") under which the Board of Directors granted
certain members of management options to purchase ordinary shares in the
Company. A total of 203,040 options were issued under the Executive Plan with
an exercise price of A$8.38 per share. The options do not vest until February
1, 1999 after which each Optionholder is entitled to subscribe for one fully
paid ordinary share. The options are not quoted and are due to expire on the
earlier of the 5th anniversary from the issue date or, subject to certain
conditions, on cessation of employment.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its share options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its share options under SFAS
No. 123, the Company's earnings per share for the 7 month period ended
January 31, 1997 would have been A$0.02 per ordinary share.
The fair value of each share option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rate of 6.49%; no dividend yield;
expected lives of 2.5 years and volatility of 17.97%. The fair value of the
options as at January 31, 1997 has been calculated to be A$182,000.
1997 SHARE OPTION PLAN
Under the terms of the Company's 1997 share option plan (the "1997 Plan"), a
total of 329,254 ordinary shares will be authorized for issuance. The 1997
Plan received approval from the Board of Directors of the Company on October
1, 1997.
The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in the Company's employ or service (including officers and other
employees, non-employee Board members and independent consultants) may, at
the discretion of the Plan Administrator, be granted options to purchase
ordinary shares at an exercise price not less than eighty-five percent (85%)
of their fair market value on the grant date.
The Plan Administrator will have complete discretion, within the scope of its
administrative jurisdiction under the 1997 Plan, to determine which eligible
individuals are to receive option grants, the time or times when such option
grants are to be made, the number of shares subject to each such grant, the
vesting schedule to be in effect for the option grant, the maximum term for
which any granted option is to remain outstanding and the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws.
TERMINATED PLAN
On November 25, 1993, the Company adopted a share option plan ("the 1993
Plan") pursuant to which the Company's Board of Directors could grant share
options to officers and key employees. 128,958 options were granted with an
exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the
Company granted a further 27,438 options with an exercise price of A$5.65.
On December 31, 1996, and in connection with the Capital Reduction, all
outstanding options were repurchased by the Company from the Optionholders.
Compensation for the cancellation of the 101,520 options amounted to
A$78,000.
The total compensation paid by the Company to cancel the options has been
expensed during the 7 months to January 31, 1997 and is included in selling,
general and administrative expenses.
14 COMMITMENTS AND CONTINGENCIES
Product liability claims have been made against certain companies in the
group which are not expected to result in any material loss to the Company.
The Company entered into a joint and several guarantee together with the
directors of Bromic Pty Limited in favour of ANZ in respect of a A$900,000
facility. On February 25, 1997, ANZ released the Company from this guarantee.
17
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 GEOGRAPHIC SEGMENT INFORMATION
Net income (loss) by geographic region is summarized below (in thousands):
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Australia $ 3,833 4,507 (589)
United States 507 956 1,141
--------- --------- --------
$ 4,340 5,463 552
========= ========= ========
</TABLE>
16 RELATED PARTY TRANSACTIONS
The directors of the Company believe that transactions with related parties
are on normal terms and conditions no more favourable than those available
to other third parties unless otherwise stated.
Amounts are advanced to the Company by the directors at a commercial rate
of interest.
The company shares premises and incurs rent and operating expenses on
behalf of Rebel Sport Limited. Mr. Linz and Mr. Gavshon were directors of
Rebel Sport Limited up until July 10, 1997. These amounts are payable to
the Company on 30 day terms.
The above related party transactions and amounts outstanding at each period
end are as follows:
<TABLE>
<CAPTION>
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Amounts owing to directors or director related
entities $ 494 1,347 1,231
Amounts owing from Rebel Sport Limited 58 53 125
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1996 1996 1997
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Interest costs incurred in respect of amounts
advanced by directors or director related entities $ 6 62 96
Amounts advanced to Rebel Sport Limited 427 720 713
Amounts reimbursed by Rebel Sport Limited (471) (725) (641)
======== ========= =========
</TABLE>
18
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1996 1996 1997
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Interest $ 2,035 2,470 2,432
Income taxes 276 927 812
======== ===== =====
</TABLE>
During the period ended January 31, 1997 the Company acquired Mr. Sydney
Selati's 15% interest in Galore USA for consideration of A$1,000,000. The
transaction was effected by the issuance of 137,189 ordinary shares (A$7.29 per
share) of the Company.
During the periods, the Company acquired plant and equipment by means of capital
leases which are not reflected in the consolidated statements of cash flows with
an aggregate fair value of:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
<S> <C> <C> <C>
Equipment acquired under capital
leases $ 1,668 2,091 1,893
======== ===== =====
</TABLE>
On July 1, 1995, the company's interest in GLG Trading Pte Limited was reduced
from 100% to 50% by the issue of additional shares in GLG Trading Pte Limited.
The deconsolidation of GLG Trading Pte Limited has resulted in the reversal of
the opening cash balance of GLG Trading Pte Limited in the Statement of Cash
Flows as the Company has accounted for its investment on an equity basis from
July 1, 1995.
18 PENSION PLANS
The Company and its Australian subsidiaries have established defined
contribution pension plans for the provision of benefits to their Australian
employees on retirement, death or disability. Benefits provided under the plans
are based on contributions for each employee. Company contributions are 6% or
gross salary for all employees except for certain executives for whom the
Company contributes 10%.
The Company and employees contribute various percentages of gross income. The
plans are of an accumulation type and as such, the Company has:
. no commitment to fund retirement benefits other than the percentage of each
employee's salary as prescribed by the relevant trust deed; and
. no legal obligation to cover any shortfall in the funds' obligations to
provide benefits to employees on retirement.
The pension plans comply with Australian regulatory provisions set by the
Insurance and Superannuation Commission. The Company has complied with the
provisions of the Superannuation Guarantee Charge Act.
The Company also sponsors a defined contribution plan in the United States
covering substantially all employees who meet specified age and service
requirements. Company contributions are discretionary. The Company has not
contributed and does not anticipate contributing to the plan for the year ended
January 31, 1997.
19
<PAGE>
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 PENSION PLANS (CONTINUED)
Contributions expensed under these plans were as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Contribution expense $ 911 974 996
====== === ===
</TABLE>
19 SUBSEQUENT EVENTS
The Board of Directors has authorized the filing of a registration statement
for an Initial Public Offering (the "Offering") of the Company's ordinary
shares. Upon successful consummation of the Offering, the Company intends to
use the proceeds to repay outstanding debt and procure the conversion or
redemption of the convertible notes (refer note 10). In addition the
proceeds will be used to fund capital expenditures related to the expansion
of the Company's operations and for working capital and other general
corporate purposes.
The Company's Memorandum of Association will be amended to allow an
effective 18.223 for one reverse stock split of the Company's ordinary
shares and to adjust the authorized share capital to 27,437,853 shares
immediately prior to the Offering. All share, per share and stock option
data for all periods presented have been restated to reflect the stock
split.
20
<PAGE>
EXHIBIT 21.1
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
Vilbrent Pty Limited (incorporated under the laws of New South Wales, Austra-
lia)
Barbeques Galore Pty Limited (incorporated under the laws of New South Wales,
Australia)
Galore Pty Limited (incorporated under the laws of New South Wales, Austra-
lia)/(1)/
The Galore Group (International) Pty Limited (incorporated under the laws of
New South Wales, Australia)/(1)/
The Galore Group (U.S.A.), Inc. (a California company)/(2)/
Barbeques Galore, Inc. (a California company)/(3)/
Pool Patio 'N Things, Inc. (a California company)/(3)/
Galore Group Services Pty Limited (incorporated under the laws of New South
Wales, Australia)
Pricotech Leisure Brands Pty Limited (incorporated under the laws of New South
Wales, Australia)/(4)/
Redgun Pty Limited (incorporated under the laws of New South Wales, Austra-
lia)/(4)/
G.L.G. Australia Pty Limited (incorporated under the laws of New South Wales,
Australia)/(4)/
Australian Enamellers Pty Limited (incorporated under the laws of New South
Wales, Australia)/(5)/
Douglas Manufacturing Pty Limited (incorporated under the laws of New South
Wales, Australia)/(5)/
Park-Tec Engineering Pty Limited (incorporated under the laws of New South
Wales, Australia)/(5)/
Cook-on-Gas Products (Australia) Pty Limited (incorporated under the laws of
New South Wales, Australia)/(4)/
Bosmana Pty Limited (incorporated under the laws of New South Wales, Austra-
lia)/(6)/
Cougar Leisure Products Pty Limited (incorporated under the laws of New South
Wales, Australia)/(6)/
Galore Group Nominees Pty Limited (incorporated under the laws of New South
Wales, Australia)
/(1)/ A subsidiary of Barbeques Galore Pty Limited
/(2)/ A subsidiary of The Galore Group (International) Pty Limited
/(3)/ A subsidiary of The Galore Group (U.S.A.), Inc.
/(4)/ A subsidiary of Galore Group Services Pty Limited
/(5)/ A subsidiary of G.L.G. Australia Pty Limited
/(6)/ A subsidiary of Cook-on-Gas Products (Australia) Pty Limited
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF HORWATH CHARTERED ACCOUNTANTS]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Barbeques Galore Limited
327 Chisholm Road
AUBURN NSW 2144
FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1993
We consent to the use in the above document of our audit report dated August 8,
1997 on the consolidated financial statements of Barbeques Galore Limited and
subsidiaries incorporating consolidated balance sheets as of 30 June 1996 and
30 June, 1995 and consolidated statements of operations, shareholders' equity
and cashflows for the years ended 30 June 1996, 30 June 1995 and 30 June 1994.
We further consent to the reference to our firm as "Horwath Sydney Partnership"
under the headings "Selected Consolidated Financial Data" and "Experts" in the
document.
/s/ Horwath Sydney Partnership
HORWATH
SYDNEY PARTNERSHIP
/s/ Michael Stibbard
MICHAEL STIBBARD
Partner
October 6, 1997
Sydney, Australia
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF KPMG]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Barbeques Galore Limited:
We consent to the use of our audit report dated August 8, 1997 on the consoli-
dated financial statements of Barbeques Galore Limited and subsidiaries as of
January 31, 1997 and for the seven months then ended included herein and to the
reference to our firm under the headings "Unaudited Summary Additional Consoli-
dated Financial Data", "Unaudited Selected Additional Consolidated Financial
Data" and "Experts" in such Prospectus.
/s/ KPMG
October 6, 1997
Sydney, Australia
