<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
______________________________
For the quarter ended July 31, 1998
BARBEQUES GALORE LIMITED
ACN 008 577 759
327 Chisholm Road, Auburn, New South Wales, 2144, Australia
Registrant's telephone number, including area code 61-2-9704-4177
--------------
[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F ______________
-----------
______________________________
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes _______________ No X
----------------
1
<PAGE>
FORM 6-K
FOR THE QUARTER ENDED JULY 31, 1998
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
--------
<S> <C>
ITEM 1. Condensed Consolidated Balance Sheets as of July 31, 1998 and January 31, 1998 3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended
July 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended
July 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II. OTHER INFORMATION 23
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities and Use of Proceeds 23
ITEM 3. Default Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 25
ITEM 6. Exhibits and Current Reports on Form 6-K 26
SIGNATURES
</TABLE>
2
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
In A$ thousands, except share and per share data
ASSETS
Current assets:
Cash and cash equivalents $ 166 $ 50
Accounts receivable, net of allowance of $387 at
July 31, 1998 and $497 at January 31, 1998 9,862 8,960
Receivables from affiliates 143 -
Inventories (Note 2) 43,030 56,412
Deferred income taxes 2,031 2,324
Prepaid expenses and other current assets 1,079 1,873
---------- ----------
Total current assets $ 56,311 $ 69,619
Non-current assets:
Receivables from affiliates 642 792
Property, plant and equipment, net of accumulated depreciation of
$18,307 at July 31, 1998 and $16,741 at January 31, 1998 21,038 30,162
Goodwill, net of accumulated amortization of $338 at July 31, 1998
and $293 at January 31, 1998 1,507 1,462
Deferred income taxes 1,194 1,367
Other non-current assets 1,382 1,444
---------- ----------
Total assets $ 82,074 $104,846
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft - 4,949
Accounts payable and accrued liabilities 16,648 20,532
Payables to related parties - 53
Payables to affiliates - 381
Current maturities of long-term debt 198 103
Current portion of obligations under capital leases 1,729 2,023
Income taxes payable 819 -
---------- ----------
Total current liabilities $ 19,394 $ 28,041
Non-current liabilities:
Long-term debt 14,716 26,115
Obligations under capital leases, excluding current portion 3,405 4,684
Other long-term liabilities 632 908
---------- ----------
Total liabilities $ 38,147 $ 59,748
---------- ----------
Shareholders' equity: Ordinary Shares, $3.64 par value; 27,437,853
authorized shares; 4,541,652 shares issued and outstanding 16,532 16,532
Additional paid-in capital 24,554 24,204
Foreign currency translation adjustment 1,177 2,209
Retained earnings 1,664 2,153
---------- ----------
Total shareholders' equity $ 43,927 $ 45,098
---------- ----------
Total liabilities and shareholders' equity $ 82,074 $104,846
========== ==========
</TABLE>
3
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1998 1997 1998
----- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
In A$ thousands, except share and per share data
Net sales $40,028 $54,433 $70,394 $91,177
Cost of goods sold, warehouse, distribution and
occupancy costs 27,529 36,492 48,420 61,609
------- ------- ------- -------
Gross profit 12,499 17,941 21,974 29,568
Selling, general and administrative expenses 11,930 15,273 21,728 27,735
Store pre-opening costs 95 282 209 429
Relocation and closure costs - - - 15
------- ------- ------- -------
Operating income 474 2,386 37 1,389
Equity in income of affiliates, net of tax 138 138 188 234
Interest expense 881 446 1,760 834
------- ------- ------- -------
(Loss) income before income taxes (269) 2,078 (1,535) 789
Income tax (benefit) expense (83) 802 (649) 300
------- ------- ------- -------
Net (loss) income (186) 1,276 (886) 489
======= ======= ======= =======
Basic earnings per share $(0.10) $0.28 $(0.48) $0.11
======= ======= ======= =======
Diluted earnings per share $(0.10) $0.28 $(0.48) $0.11
======= ======= ======= =======
Weighted average shares outstanding (in thousands) 1,844 4,542 1,844 4,542
======= ======= ======= =======
</TABLE>
4
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1998 1997 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
In A$ thousands
Cash flows from operating activities:
Net (loss) income $ (186) $ 1,276 $ (886) $ 489
Non-cash charges, net 443 117 572 1,042
Changes in operating assets and liabilities
Receivables and prepaid expenses (406) (1,481) (786) 99
Inventories (4,621) (9,009) (8,309) (13,256)
Other assets (112) 566 (130) (24)
Accounts payable and accrued liabilities (66) 3,243 1,075 4,997
------- ------- ------- --------
Net cash used in operating activities (4,948) (5,288) (8,464) (6,653)
------- ------- ------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 75 - 75 11
Capital expenditures (1,461) (3,649) (1,565) (8,618)
Loan repayments received - 135 50 97
------- ------- ------- --------
Net cash used in investing activities (1,386) (3,514) (1,440) (8,510)
------- ------- ------- --------
Cash flows from financing activities:
Repayment of long-term debt (5,177) (1,205) (6,389) (8,997)
Proceeds from long-term debt 7,654 8,354 13,019 20,354
Initial public offering costs - (211) - (367)
Bank overdraft proceeds 4,082 2,339 4,358 4,949
Principal payments under capital leases (231) (456) (588) (892)
Dividend paid - - (499) -
------- ------- ------- --------
Net cash provided by financing activities 6,328 8,821 9,901 15,047
------- ------- ------- --------
Effects of exchange rate fluctuations 6 - 6 -
------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents - 19 3 (116)
Cash and cash equivalents at beginning of period 33 31 30 166
------- ------- ------- --------
Cash and cash equivalents at end of period $ 33 $ 50 $ 33 $ 50
======= ======= ======= ========
</TABLE>
5
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States for interim financial information and Rule 10-01 of Regulation S-
K.
As a result, the information contained in these unaudited consolidated financial
statements and footnotes is condensed from that which would appear in annual
consolidated financial statements and does not contain all of the information
and footnotes required by United States generally accepted accounting principals
for complete financial statements. Accordingly, these condensed consolidated
financial statements should be reviewed in conjunction with the audited
consolidated financial statements and related notes contained in Amendment No. 1
to the Annual Report on Form 20-F/A (File No. 333-37259) for the fiscal year
ended January 31, 1998, filed by Barbeques Galore Limited (the "Company") with
the Securities and Exchange Commission (the "Commission") on May 20, 1998. The
unaudited condensed consolidated financial statements as of July 31, 1998 and
for the three and six months ended July 31, 1998 and 1997 include all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The results of operations for interim periods are not
necessarily indicative of the results that may be expected for the entire year.
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those
estimates.
2 INVENTORIES
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
In A$ thousands
Finished goods $37,999 $50,807
Work in progress 1,328 1,664
Raw materials 4,222 4,334
------- -------
43,549 56,808
Less: Reserve for obsolescence (519) (393)
------- -------
$43,030 $56,412
======= =======
</TABLE>
3 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed by dividing net income (loss) by
the weighted average number of Ordinary Shares. Diluted earnings (loss) per
share are computed by dividing net income (loss) available to holders of
Ordinary Shares by the weighed average of Ordinary Shares and dilutive Ordinary
Share equivalents for the period.
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.
6
<PAGE>
4 SUBSEQUENT EVENTS
On September 1, 1998, Mr. Edgar Berner was appointed a director of the Company
until the next annual general meeting, pursuant to Articles 65 (1) & (2) of the
Company's Articles of Association, to fill the vacancy brought about by the
resignation of Mr. Philip Gardiner, on August 13, 1998.
5 REGISTRATION STATEMENT ON FORM F-1
On June 12, 1998, pursuant to an agreement with certain holders of convertible
notes (all of which were converted into Ordinary Shares in connection with the
Company's initial public offering in the United States (the "IPO") in November
1997), the Company filed a Registration Statement on Form F-1 (the "Resale F-1")
relating to a public offering, which was not underwritten, of up to 1,044,845
Ordinary Shares, each having a par value of A$3.64, and each represented by one
American Depositary Share (each, a "Resale ADS"). All of the resale ADSs may be
sold by certain shareholders of the Company. 997,926 of these Ordinary Shares
were received upon the conversion of the convertible notes. The remainder of
these Ordinary Shares are being registered voluntarily by the Company and are
presently held by long-term shareholders of the Company who may wish to divest
all or portion of their holdings in the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, 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" at the end of this section and
elsewhere in (i) Amendment No. 1 to the Company's Annual Report on Form 20-F/A
(File No. 333-37259) for the fiscal year ended January 31, 1998, filed with the
Commission on May 20, 1998 and (ii) the Company's Registration Statement on Form
F-1 filed with the Commission on June 12, 1998. Factors that could cause or
contribute to such differences include those discussed herein as well as those
included in the documents that the Company files from time to time with the
Commission.
OVERVIEW
Barbeques Galore believes that it is the leading specialty retail chain of
barbecue and barbecue accessory stores in Australia and the United States, based
on number of stores and sales volume. The Company's belief is based on its
years of experience in the barbecue retail industry as well as its contacts with
other industry retailers, suppliers and trade associations. 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
furniture. As of July 31, 1998, the Company owned and operated 33 stores in all
six states in Australia and 41 stores (including three U.S. Navy concession
stores) in nine states in the United States. In addition, as of such date,
there were 46 licensed stores in Australia and seven 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
Australian wholesale. For the six months ended July 31, 1998, these categories
represented 30.2%, 56.7%, 5.9% and 6.7% respectively, of the Company's net sales
for such period, representing a 8.0%, 58.8%, (6.5)% and 3.6% increase (decrease)
over their respective net sales levels for the six months ended July 31, 1997.
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. Through its
vertically integrated operations, the Company manufactures a proprietary 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.
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated operating results of the
Company as a percentage of net sales for the three and six months ended July 31,
1998 and 1997. Given the degree of seasonality to which the Company's business
is subject, the Company's quarterly results and comparisons of such quarterly
results to prior years' quarters are not necessarily indicative of future
results.
8
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1997 1998 1997 1998
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, warehouse, distribution and
occupancy costs 68.8 67.0 68.8 67.6
----- ----- ----- -----
Gross profit 31.2 33.0 31.2 32.4
Selling, general and administrative expenses 29.8 28.1 30.9 30.4
Store pre-opening costs 0.2 0.5 0.3 0.5
----- ----- ----- -----
Operating income 1.2 4.4 0.0 1.5
Equity in income of affiliates, net of tax 0.3 0.2 0.3 0.2
Interest expense 2.2 0.8 2.5 0.9
----- ----- ----- -----
(Loss) income before income taxes (0.7) 3.8 (2.2) 0.8
Income tax (benefit) expense (0.2) 1.5 (0.9) 0.3
----- ----- ----- -----
Net (loss) income (0.5)% 2.3% (1.3)% 0.5%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JULY 31, 1998 (UNAUDITED) COMPARED TO THREE MONTHS ENDED JULY
31, 1997 (UNAUDITED)
Net sales increased by approximately A$14.4 million, or 36.0%, to A$54.4 million
for the three months ended July 31, 1998 from A$40.0 million for the three
months ended July 31, 1997. Four new stores were opened in the United States
during the three months ended July 31, 1998. In Australia no new store was
opened nor was any store refurbished during this period. Comparable store sales
increased 22.9% and contributed A$6.8 million to the increase in net sales.
Comparable store sales increased 12.7% in the United States and 1.6% in
Australia. The combined comparable store sales increase was impacted by an
increase in the US$/A$ exchange rate of approximately 22.7% in that period.
Increased sales of A$6.0 million also resulted from ten new stores which opened
in the United States in the previous twelve months and which did not form part
of the comparative store sales. The balance of the increased sales was
primarily attributable to two new stores opened and one store refurbished in
Australia which did not form part of comparable store sales, and increased
wholesale revenues.
Gross profit increased approximately A$5.4 million, or 43.5% to A$17.9 million
for the three months ended July 31, 1998 from A$12.5 million for the three
months ended July 31, 1997. Gross margin (gross profit as a percentage of sales
) increased to 33.0% during the three months ended July 31, 1998 from 31.2%
during the comparable period in 1997. The increase in gross margin is mainly
attributable to the reduced cost of goods purchased from Australia as a result
of the weak Australian dollar and an increased Australian sales content in
stores moving into their second year of operation. This was partially offset by
the newer stores in the United States, the margins of which are typically lower
in their first year of operation.
Selling, general and administrative expenses (which exclude store pre-opening
expenses) increased approximately A$3.3 million, or 28.0%, to A$15.3 million for
the three months ended July 31, 1998 from A$11.9 million for the three months
ended July 31, 1997. As a percentage of net sales, selling, general and
administrative expenses decreased to 28.1% during the three months ended July
31, 1998 from 29.8% during the comparable period in 1997. This decrease was
primarily due to a higher operating leverage from
9
<PAGE>
the greater number of stores open in the United States in the second quarter of
1998 during a period when sales are at their seasonal high. This was partially
offset by increased payroll costs related to the expansion of the infrastructure
in the United States.
Store pre-opening expenses increased by A$187,000 to A$282,000 due to the number
and timing of United States' store opening expenditure.
Operating income increased by A$1.9 million to A$2.4 million for the three
months ended July 31, 1998 from A$474,000 for the three months ended July 31,
1997. This increase resulted mainly from an increase in profitability from the
Company's U.S. operation.
Income from affiliates was unchanged from A$138,000 in the three months ended
July 31, 1998 compared to the three months ended July 31, 1997.
Interest expense decreased by A$435,000 to A$446,000 in the three months ended
July 31, 1998 from A$881,000 for the three months ended July 31, 1997. The
decrease reflects the reduced debt requirements of the Company subsequent to the
capital raising as a result of its IPO in November 1997.
The Company's effective tax rate was 38.6% in the three months ended July 31,
1998 and 30.9% (benefit) in the three months ended July 31, 1997. The benefit
in the comparable period in 1997 relates to a loss before tax.
SIX MONTHS ENDED JULY 31, 1998 (UNAUDITED) COMPARED TO SIX MONTHS ENDED JULY 31,
1997 (UNAUDITED)
Net sales increased by approximately A$20.8 million, or 29.5%, to A$91.2 million
for the six months ended July 31, 1998 from A$70.4 million for the six months
ended July 31, 1997. Five new stores were opened in the United States during
the six months ended July 31, 1998. In Australia one new store was opened and
no stores were refurbished during this period. Comparable store sales increased
19.7% and contributed A$10.1 million to the increase in net sales. Comparable
store sales increased 11.7% in the United States and 3.9% in Australia. The
combined comparable store sales increase was impacted by an increase in the
US$/A$ exchange rate of approximately 20.5% in that period. Increased sales of
A$7.3 million also resulted from ten new stores which opened in the United
States in the previous twelve months and which did not form part of the
comparative store sales. The balance of the increased sales was primarily
attributable to two new stores opened and one store refurbished in Australia
which did not form part of comparable store sales, and increased wholesale
revenues.
Gross profit increased approximately A$7.6 million, or 34.6% to A$29.6 million
for the six months ended July 31, 1998 from A$22.0 million for the six months
ended July 31, 1997. Gross margin (gross profit as a percentage of sales )
increased to 32.4% during the six months ended July 31, 1998 from 31.2% during
the comparable period in 1997. The increase in gross margin is mainly
attributable to the reduced cost of goods purchased from Australia as a result
of the weak Australian dollar and an increased Australian sales content in
stores moving into their second year of operation. This was partially offset by
product sales mix in Australia and the United States, including the newer stores
in the United States, the margins of which are typically lower in their first
year of operation.
Selling, general and administrative expenses (which exclude store pre-opening
expenses) increased approximately A$6.0 million, or 27.6%, to A$27.7 million for
the six months ended July 31, 1998 from A$21.7 million for the six months ended
July 31, 1997. As a percentage of net sales, selling, general and
administrative expenses decreased to 30.4% during the six months ended July 31,
1998 from 30.9% during the comparable period in 1997. This decrease was
primarily due to a higher operating leverage from the greater number of stores
open in the United States in the second quarter of 1998 during a period when
sales are at their seasonal high. This was partially offset by increased
payroll costs related to the expansion of the infrastructure in the United
States.
Store pre-opening expenses increased by A$220,000 to A$429,000 due to the number
and timing of United States' store opening expenditure.
10
<PAGE>
Operating income increased by A$1,352,000 to A$1,389,000 for the six months
ended July 31, 1998 from A$37,000 for the six months ended July 31, 1997. This
increase resulted mainly from an increase in profitability from the Company's
U.S. operation.
Income from affiliates increased by A$46,000 to A$234,000 in the six months
ended July 31, 1998 from A$188,000 for the six months ended July 31, 1997.
Interest expense decreased by A$926,000 to A$834,000 in the six months ended
July 31, 1998 from A$1.76 million for the six months ended July 31, 1997. The
decrease reflects the reduced debt requirements of the Company subsequent to the
capital raising as a result of its IPO in November 1997.
The Company's effective tax rate was 38.0% in the six months ended July 31, 1998
and 42.3% (benefit) in the six months ended July 31, 1997. The benefit in the
comparable period in 1997 relates to a loss before tax.
THE COMPANY'S STATE OF READINESS FOR YEAR 2000 ISSUES
The Company established a Year 2000 compliance team in 1997, under the guidance
of the Chief Financial Officer, which reports periodically to the Board of
Directors and Audit Committee. To date, a full evaluation of potential Year 2000
risks has been completed and a comprehensive compliance program developed.
While the Company cannot be certain that the consequences of Year 2000
compliance issues will not have a material effect on its business, results of
operation or financial condition, it has established and is well advanced with,
a rigorous program aimed at minimizing or negating any such effects. As part of
the ongoing Year 2000 compliance process, the Company has examined the key risk
areas and considered the degree of application to its business activities and
future operations.
Information Technology ("IT") Systems: In Australia, the Company is currently
replacing its entire core IT system, along with the majority of peripheral
hardware and software components such as personal computers, printers and
desktop applications. The replacement core IT system has been certified Year
2000 compliant and should be operational by mid-1999.
In the USA, the Company's recently installed computer system has been designed
to avoid the occurrence of Year 2000 problems. Minor modifications and upgrades
are currently being undertaken and full compliance is anticipated by the end of
1998.
Non-IT Systems: As with any modern business operation, the Company expects that
some degree of non-compliance will be identified in certain technology assets
such as telephone systems, office equipment and security systems. All potential
systems at risk have been identified and an inventory of equipment and the
vendors involved, compiled. The Company is currently in the process of
contacting these vendors to ascertain whether each item of equipment is Year
2000 compliant or, if necessary, what remedial action (and cost) is required to
achieve compliance.
Products: The Company's products do not utilize embedded technology and the
risk, therefore, associated with holding or repairing non-compliant products, is
negligible. The Company does not believe it will encounter any significant
product warranty costs or obsolete inventory write-offs arising from Year 2000
issues.
Third Party Relationships: The majority of the Company's customers and,
therefore, revenue base, is from retail sales from which little credit risk
arises. Those customers to whom credit facilities are provided are currently
being contacted by mail questionnaire, to allow the Company to assess their
state of readiness in relation to Year 2000 issues. This program is expected to
be completed by the end of 1998. Further follow-up may be required in cases
where the Company is not satisfied with a customer's level of compliance.
11
<PAGE>
The Company is dependent on a large number of vendors from various countries for
a significant proportion of its merchandise, parts and raw materials. While
there are generally no long term purchase contracts, (and no vendor accounts
for more than 5% of the Company's merchandise), its results from operations
could be adversely affected by a disruption of supply from key vendors. It has
been widely reported that such disruptions could occur if a vendor was to
experience major Year 2000 compliance problems. A mail questionnaire program is
also being conducted to assess the level of compliance of all current vendors.
This program is expected to be completed by the end of 1998. Again, Company
policy will be to discontinue supply arrangements with any vendor who is unable
to demonstrate adequate compliance after mid-1999.
The Company has also included service providers and other key business partners
such as banks, telecommunication providers, transport and shipping companies in
the compliance program. While the Company expects that most of this group is
likely to achieve compliance, its status will be monitored for any adverse
indications of risk to the Company.
Costs to Address the Company's Year 2000 Issues
Based on the preceding evaluation of the Company's state of readiness and having
regard to the most likely outcomes in relation to each area of risk, the Company
has estimated that the total cost to address Year 2000 issues will be
approximately A$0.9 million. The vast majority of this estimate relates to the
replacement of the Australian IT systems and also includes allowances for minor
non-IT systems remediation.
To date, less than A$0.2 million of the above estimate has been expended. There
has been no material impact on the Company's results from operations to date.
Risks of the Company's Year 2000 Issues
The risks which the Company faces in relation to Year 2000 issues have been
referred to above. Although the Company has no reason to expect that any
significant third party impact will arise, given the compliance program now in
place, no assurance can be made that the impact of these risk areas will not be
greater than currently identified, nor that no other risk issues may arise. The
Company is unable to estimate whether there will be any additional significant
costs arising from Year 2000 issues.
The Company's Contingency Plans for Year 2000 Issues
At the present time the Company has not developed a detailed contingency plan.
As the outcome of its compliance programs becomes known, the Company will re-
evaluate the need for, and extent of, any contingency plans.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through cash flow from
operations and bank borrowings. In November 1997, the Company completed its
IPO, raising net proceeds of approximately US$13.8 million (approximately A$19.7
million). A portion of these funds have been used to fund (i) the repayment of
approximately A$12 million (approximately US$8.4 million) of indebtedness
incurred under the credit facility between the Company and the Australian and
New Zealand Banking Group Limited ("ANZ"), and (ii) the repayment of
approximately US$1.8 million, being all indebtedness outstanding as of the
completion of the IPO in November 1997 under a term loan and revolving line of
credit facility with Merrill Lynch Business Financial Services, Inc. ("Merrill
Lynch"). The remaining US$3.6 million (approximately A$5.1 million) is being
used to fund a portion of the Company's operations and investing activities and
to continue the expansion of the Company's operations in the United States.
The Company has used cash flows from operations in the six months ended July 31,
1998 and 1997 of
12
<PAGE>
A$6.7 million and A$8.5 million, respectively. The cash used by operations
primarily reflects the increase in inventory levels related to the Company's
build-up of inventories and the increased number of stores in the United States.
Net cash flows used in investing activities in the six months ended July 31,
1998 and 1997 were A$8.5 million and A$1.4 million respectively. The cash flows
used in investing activities have resulted primarily from capital expenditures
related to new store openings in the United States, store refurbishments in
Australia and the acquisition of two properties as detailed hereafter. During
the quarter ended April 30, 1998, the Company acquired a 45,000 square foot
property for approximately A$3.5 million to relocate its enameling operations to
the same facilities as its barbecue and home heater manufacturing operations
adjacent to the Company's Australian headquarters. During the quarter ended
July 31, 1998, the Company acquired a 60,000 square foot property near its
Australian headquarters for its warehousing and distribution operations at a
cost of approximately A$1.75 million, with an additional approximately A$1.25
million capital expenditure (including A$320,000 for racking) required to
upgrade the facility before use. The Company anticipates that it will continue
to incur significant capital commitments in connection with further expansion.
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 remodeling required at the selected sites.
The cash flows used in operations and investing activities have been largely
sourced from long term borrowings under the ANZ and Merrill Lynch Facilities
(defined below) and from the Company's IPO.
At July 31, 1998 the Company had working capital of A$41.6 million. At July 31,
1998 the Company maintained minimal amounts in cash and cash equivalents,
relying instead on undrawn facilities under its borrowing arrangements with ANZ
and Merrill Lynch (the "ANZ Facility" and the "Merrill Lynch Facility,"
respectively). In June 1998, the Company and ANZ entered into the ANZ Facility,
revised from a previous facility entered into in July 1994. The ANZ Facility is
subject to annual review and modification, in accordance with standard
Australian practice. Under this revised facility, the Company and its
subsidiaries have access to a facility with ANZ with facilities up to A$49.8
million comprising a multi-purpose facility in principal amount of A$36.6
million, a trade finance facility in principal amount of A$11.0 million and a
real property loan in principal amount of A$2.2 million. The ANZ Facility is
secured by a first security interest over the Company's present and future
Australian assets and a second security interest (subordinate to a lien under
the Merrill Lynch Facility) in all the Company's assets in the United States.
The ANZ Facility is further guaranteed by each subsidiary of the Company
including The Galore Group (USA), Inc. and Barbeques Galore Inc. (referred to
collectively as "Galore USA"). The property loan accrues interest at a rate of
9.6% per annum, and is secured by a registered first mortgage over the freehold
property of the Company.
In February 1995, Barbeques Galore Inc., the Company's U.S. operating
subsidiary, entered into a five year credit facility with Merrill Lynch. As of
July 31, 1998, such facility includes a term loan in aggregate principal amount
of US$225,000 (the "Term Loan") and a revolving line of credit in aggregate
principal amount of US$300,000 (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%,
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 and The Galore Group (USA), Inc.,
the parent of Barbeques Galore, Inc.
The Company believes the proceeds raised from the IPO and the remaining ANZ and
Merrill Lynch Facilities are sufficient to meet its presently anticipated
working capital and capital expenditure requirements for at least the next
twelve months.
13
<PAGE>
RISK FACTORS
The following are certain factors that should be considered in evaluating the
business, financial conditions and results of operations of the Company.
However, these factors should not be considered to be exclusive, and readers are
urged to consider the statements made elsewhere herein.
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 opened 10 new stores in calendar 1997.
The Company also currently intends to open approximately 15 new stores in the
United States in calendar 1998, of which five have opened, six are under
construction and the remaining four are in lease negotiation. The Company also
currently intends to open 15 new stores in the United States in calendar 1999.
The Company incurred capital expenditures relating to this program in the United
States of approximately US$1.8 million in 1997 and expects to incur
approximately US$2.5 million in each of calendar 1998 and 1999. Pursuant to the
Company's Australian store refurbishment program, in calendar 1997, the Company
remodeled five existing stores, opened one new store, relocated one store and
closed one store. The Company intends to refurbish one store and relocate two
stores and, in March, opened its one planned new store in calendar 1998. The
Company further intends to refurbish two stores and relocate two stores in
calendar 1999. The Company incurred capital expenditures relating to this
program in Australia of approximately A$2.5 million in 1997 and expects to incur
approximately A$1.5 million to A$2.5 million in each of calendar 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 personnel 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
procedures would adversely affect the Company's future operating results.
The success of the Company's growth strategy may also depend upon factors beyond
its immediate control. The Company has retained outside real estate consultants
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
markets where it will not initially benefit from knowledge of local market
conditions, 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
refurbishment program in Australia, the Company has experienced, and expects to
continue to experience,
14
<PAGE>
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.
If the Company determined to, or was required to, close a Barbeques 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.
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, consumer
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 Australia and the
Pacific West and Southwestern U.S. 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
Company believes it has benefited 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.
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 management
information systems and integrated its central inventory management systems 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. In the United States, the Company is currently upgrading to the latest
version of software by JDA Software Group Inc. ("JDA") and is using both outside
consultants and the vendor to assist with the process. The total expected
capital expenditure for such project is not expected to be significant. In
addition, the Company intends to transfer its general ledger and accounts
payable functions from its existing computer system to the above-mentioned JDA
software system in the near future. The Company has substantially completed the
relocation of its
15
<PAGE>
enameling operations which are now operational, to the same facilities as its
barbecue and home heater manufacturing operations adjacent to its Australian
headquarters, with the in-line powder coating operation scheduled for completion
in late September 1998. In addition, the Company rearranged the assembly,
warehouse and Australian distribution operations to further improve its
production flow, inventory control and distribution management. The relocation
of the Company's enameling operations and related changes resulted in the
incurring of approximately A$454,000 in costs (of which A$369,000) had already
been accrued), required additional capital expenditures of approximately A$2.8m
and the obtaining of a number of building, environmental and other governmental
permits. In addition, as the Company expands into new regions or accelerates 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, enameling 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.
COMPETITION
The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and
Australia. The Company's retail operations compete against a wide variety of
retailers, 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
manufacturing and wholesale operations compete with many other manufacturers and
distributors throughout the world, including high-volume manufacturers of
barbecues and home heaters. Barbeques Galore competes for retail customers
primarily 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
operations 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
16
<PAGE>
timing of holidays. The Company's quarterly and annual results of operations may
also fluctuate significantly as a result of a variety of other factors,
including the timing of new store openings, releases of new products and changes
in merchandise 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
operating 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.
RELIANCE ON 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 distribution,
inventory control, purchasing, sales analysis, warehousing and financial
applications. The Company currently runs its general ledger and accounts
payable 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
registers 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
information, 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, the existing Wang VS system is being replaced by a SUN Systems
Ultra 60 running a UNIX environment. The Company has also installed a Microsoft
NT Server for all its desktop applications which in the future will be the
Microsoft suite of software.
The Company's Head Office Information Systems process all distribution,
warehouse management, inventory control, purchasing, merchandising, financial
and office automation applications. Each store has PC-based Point of Sale
registers which manage all sales transactions and store based purchasing
transactions. At the end of each day's processing, the data from each register
is consolidated onto one register which has an attached modem and which is
polled daily to upload the data to the head office system. The Company relies
upon its existing management information systems in operating and monitoring all
major aspects of the Company's business, including sales, gross margins,
warehousing, distribution, purchasing, inventory control, financial accounting
and human resources. 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.
As the head office system was not able to handle dates beyond January 1, 2000
the Company has decided to replace its existing hardware and software rather
than reworking the existing software to be Year 2000 compatible. See "Part I -
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations - The Company's State of Readiness for Year 2000 Issues". The
Company has appointed Berger Software, an Australian software house,
specializing in distribution and warehousing management software to supply the
main business application software. The new system will also handle financial
accounting functions and the Company will also be integrating an Executive
Information system to provide additional interrogation capabilities. The
existing store Point of Sale software is Year 2000 compatible and runs in a DOS
environment on stand alone store-based PCs, some of which will need replacement.
The store systems will continue to be polled on a daily basis and the data
transmitted back to head office, for loading into the new Berger software
system, producing all the necessary management reporting.
The Company expects that the Information Systems replacement and upgrade will
require capital expenditures of approximately A$0.9 million. Work is currently
underway and will be completed by mid 1999, although no assurance can be given
that these issues can be resolved in a cost-effective or timely
17
<PAGE>
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.
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 Barbeques Galore,
Inc., the Company's U.S. operating subsidiary, 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. L.D. "Chip" Brown's employment terminated on August 24, 1998 and
Galore USA is now seeking a suitable replacement to take on the functions of
Chief Operating Officer for the Company's U.S. operations. 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
condition. 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.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; DEPENDENCE ON SIGNIFICANT
VENDORS AND SUPPLIERS
Barbeques Galore, with its headquarters, manufacturing, enameling, wholesale and
non-U.S. store operations in Australia, transacts a majority of its business in
Australia and obtains a significant portion of its merchandise, parts and raw
materials from China, Taiwan, Indonesia, Thailand, Italy and other markets
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, 1998, the Company purchased inventory from over
400 vendors in the United States, Australia and Asia. 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 Pty
Ltd., an Australian steel distributor ("Horan's Steel"), and Bromic Pty Ltd., an
Australian gas components importer ("Bromic")), the Company considers certain
barbecue brands to be significant to its business, especially in the United
States. In December 1997, the Company appointed Sheet Metal Supplies Pty Ltd as
its steel supplier, to replace Horan's Steel, with full effect from May 1998.
During the twelve months ended January 31, 1998, 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 20%
and 21%, respectively, of the Company's factory parts and raw material purchases
and approximately 80% 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
18
<PAGE>
suppliers are good, any vendor or supplier 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
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, 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,
operating results and financial condition. Nonetheless, such regulations have
had, and can be expected to have, an increasing influence on product claims,
manufacturing, 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
malfunction, gas leak or an unanticipated flame-up resulting in injury to
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$50 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 enameling
operations are subject to regulations governing product safety and quality, 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 certain
of the Company's leases which prohibit the sale of flammable materials in or on
the leased premises. As a barbecue and barbecue accessories store, the Company
sells lighter fluid, lighters, matches and similar products which may be
considered flammable when in contact with open flame or activated. The Company
does not store containers of gas for barbecue grills in its stores. The Company
stores matches, lighters and the like in closed containers or in displays where
the chance of activation is remote, and does not store such items near open
flames. Over the Company's operating history, the Company's landlords have been
made aware that the Company sells such products. To date, no landlord has
terminated or threatened termination of any lease due to such sales.
The foregoing regulations and restrictions could have a material adverse effect
on the Company's business, operating results or financial condition.
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
19
<PAGE>
headquarters in Australia and Irvine, California. Throughout the manufacturing
process, the Company utilizes heavy machinery and equipment to produce and
assemble barbecues 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. Accordingly, the Company is subject to numerous risks associated with
the manufacturing and distribution of its merchandise, including supply
interruptions, mechanical risks, labor stoppages or strikes, inclement weather,
import regulation, 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.
RISKS RELATED TO FRANCHISED AND LICENSED STORES
As of July 31, 1998, there were 46 licensed stores in Australia and seven
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
agreements which typically permit licensees and franchisees to assign the
agreements to their immediate family and provide the licensees and franchisees
with exclusive 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
compliance with Company guidelines and that its license and franchise
arrangements have not been problematic in any material respect in the past,
serious or protracted 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 adequate 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 Australia are terminable at will (absent fraud) by the
licensees only, generally upon sixty days' notice.
CURRENCY FLUCTUATIONS
The Company prepares its consolidated financial statements in Australian
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 currencies.
Accordingly, 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. Prior to the current fiscal year, 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 US 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.
20
<PAGE>
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
limitations 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 (or else the Treasurer may make an
order requiring the acquiror to dispose of those shares within a specified
period of time). 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 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 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. In addition, if the level of
foreign ownership exceeds 40% at any time, the Company would be considered a
foreign person under the Takeovers Act. In such event, the Company would be
required to obtain the approval of the Treasurer for the Company, together with
its associates, to acquire (i) more than 15% of an Australian company or
business with assets totaling over A$5 million or (ii) any direct or indirect
ownership interest in Australian residential real estate. In addition, the
percentage of foreign ownership of the Company would also be included in
determining the foreign ownership of any Australian company or business in which
it may choose to invest. Since the Company has no current plans for any such
acquisitions and only owns commercial property, any such approvals required to
be obtained by the Company as a foreign person under the Takeovers Act will not
affect the Company's current or future ownership or lease of property in
Australia. However, there would be no material tax consequence to shareholders
of the Company (including holders of ADSs) resulting from the Company being
deemed a foreign person under the Takeovers Act. If all of the ADSs offered
are acquired by foreign persons or their associates, then the level of foreign
ownership of the Company's equity securities will be approximately 64.8%. The
level of foreign ownership could also increase in the future if additional
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 pursuant to which the offeror acquires at least thirty
percent (30%) of the outstanding 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 become immediately exercisable for a period of one
(1) year (or until the expiration 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 184,600 Ordinary Shares underlying stock
options granted concurrently with the Company's IPO, consummated on November 7,
1998, under the 1997 Share Option Plan, which, barring acceleration, will become
exercisable in three equal installments on November 7, 2000, November 7, 2001
and October 7, 2002 according to the terms of the 1997 Share Option Plan.
Pursuant to the appointment of Edgar Berner as a non-executive Director of the
Company on September 1, 1998, options to purchase a total of 17,646 Ordinary
Shares at a price of US$8.50 per Ordinary Share were granted by the Company
under the 1997 Share Option Plan, exercisable in three equal installments on
September 1, 2001, September 1, 2002 and August 1, 2003. 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
21
<PAGE>
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.
The Memorandum and Articles of Association of the Company (collectively, the
"Articles") contain certain provisions that could impede any merger,
consolidation, takeover or other business combination involving the Company or
discourage 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
authorized and unissued capital shares, shares in different classes, or with
special, 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
provisions 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.
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
executed outside Australia.
In certain circumstances, nonresidents of Australia may be subject to Australian
tax on capital gains made on the disposal of shares or ADSs. The rate of
Australian tax on taxable gains realized by non-residents of Australia is 36%
for companies. For individuals, the rate of tax increases from 29% to a maximum
of 47%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
22
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On November 3, 1997, the Company's Registration Statement on Form F-1 (File No.
333-37259) for its initial public offering became effective and on November 7,
1998, the Company began trading under this Registration Statement, selling
1,500,000 Ordinary Shares at US$11.00 per share. Except for approximately
US$165,000 of expenses relating to the demand registration of 1,044,845 Ordinary
Shares on Form F-1, filed with the Commission on June 12, 1998, all registration
expenses, underwriting expenses and other related expenses relating to the IPO
were incurred prior to the period to which this quarterly report on Form 6-K
applies. The Company's net proceeds from the IPO were approximately A$19.7
million (approximately US$13.8 million). Certain selling shareholders also sold
200,000 Ordinary Shares at US$11.00 per share thereunder, and none of such
proceeds were retained by the Company. The IPO was underwritten, with J.P.
Morgan & Co. and SBC Warburg Dillon Read Inc. acting as co-managers. The
Company's use of proceeds from its IPO in November 1997 is set forth in "Part I
- - Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" and incorporated by
reference into Part II. See "Part II- Item 5- Other Information."
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company convened a duly noticed annual general meeting of shareholders on
June 26, 1998 at which a quorum was present. Mr. Sam Linz retired by rotation
in accordance with the provisions of Article 63 of the Company's Articles of
Association and being eligible, offered himself for re-election and was duly
elected with 3,464,867 votes in favor, 0 votes against, and 0 abstentions. Mr.
John Price retired by rotation in accordance with the provisions of Article 63
of the Company's Articles of Association and being eligible, offered himself for
re-election and was duly elected with 3,464,867 votes in favor, 0 votes against,
and 0 abstentions. Mr. Robert Gavshon, Mr. Gordon Howlett, Mr. Philip Gardiner
and Mr. Sydney Selati continued in office as directors of the Company.
ITEM 5. OTHER INFORMATION.
On September 1, 1998, Mr. Edgar Berner was appointed a director of the Company
until the next annual general meeting, pursuant to Articles 65 (1) & (2) of the
Company's Articles of Association, to fill the vacancy brought about by the
resignation of Mr. Philip Gardiner on August 13, 1998.
On June 12, 1998, pursuant to an agreement with certain holders of convertible
notes (all of which were converted into Ordinary Shares in connection with the
Company's IPO), the Company filed a Registration Statement on Form F-1 (the
"Resale F-1") relating to a public offering, which was not underwritten, of up
to 1,044,845 Ordinary Shares, each having a par value of A$3.64, and each
represented by one American Depositary Share (each, a "Resale ADS"). All of the
resale ADSs may be sold by certain shareholders of the Company. 997,926 of
these Ordinary Shares were received upon the conversion of the convertible
notes. The remainder of these Ordinary Shares are being registered voluntarily
by the Company and are presently held by long-term shareholders of the Company
who may wish to divest all or portion of their holdings in the Company.
23
<PAGE>
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 6-K.
(a) Exhibits
EXHIBIT
NUMBER
------
10.1 Major Agreements relating to the Registrant's credit
facility with Australia and New Zealand Banking Corporation
Group Limited ("ANZ"), including the formal letter of offer
from ANZ to Directors of the Company, dated May 25, 1998;
resolutions of the Directors of Barbeques Galore Limited,
dated June 26, 1998, approving the Letter of Offer from ANZ
to the Company.
22.1(1) Materials distributed to shareholders with respect to the
Company's Annual General Meeting to be held on June 26, 1998
at 9:30 a.m. (Sydney, Australia time), including (i) Notice
of Annual General Meeting, (ii) form of proxy for holders of
ADRs, which represent ADSs, which in turn, represent
Ordinary Shares, (iii) form of proxy for holders of Ordinary
Shares, (iv) letter dated May 27, 1998 from Mr. Sam Linz,
Chairman of the Board, and Mr. Sydney Selati, President of
the Company's U.S. operating subsidiary.
_______________
(1) Previously filed as a part of Exhibit 22.1 to the Company's Report of
Foreign Issuer on Form 6-K, filed with the Commission on June 15, 1998.
(b) There were no current reports on Form 6-K filed during the quarter
ended July 31, 1998.
24
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES
EXCHANGE ACT OF 1934
BARBEQUES GALORE LIMITED
(Registrant)
By: /s/ Robert B. Gavshon
------------------------------
Robert B. Gavshon
Executive Deputy Chairman
Date:
September 14, 1998
25
<PAGE>
EXHIBIT 10.1
[LETTERHEAD OF ANZ APPEARS HERE]
25 May, 1998
The Directors
Barbeques Galore Limited
327 Chisholm Road
Auburn NSW 2144
Dear Sirs,
Following our recent discussions I am pleased to enclose our formal letter of
offer.
The attached documents include:
. The LETTER OF OFFER - detailing the facilities, security and conditions.
. A COPY of the LETTER OF OFFER - this copy is for you to sign and return to
accept the offer. The covering customer information sheet details the steps
you need to take to accept this offer and satisfy those things required
before the facilities will be made available.
. DRAFT EXTRACT OF MINUTES OF A MEETING OF DIRECTORS - this is an example of
what is required for the minutes of a meeting of directors to approve
acceptance of our offer.
. GENERAL CONDITIONS - specifies the general conditions of use for ANZ
facilities.
. SPECIFIC CONDITIONS - details additional conditions specific to facilities
which are part of this offer and for which Specific Conditions apply.
For your information, clause 23 of the General Conditions clarifies the meaning
of many of the words and legal expressions used in the documents.
Any future changes will be covered by variation letters.
Should you have any questions about the offer, please contact me on 9227 1705. I
suggest you contact your solicitor for any detailed legal queries.
To accept this offer please sign and return the copy of the letter of offer to
me. Please note that this offer expires on 30 June 1998.
Yours sincerely,
/s/ Neil Shilbury /s/ Jason Mares
NEIL SHILBURY JASON MARES
SENIOR MANAGER MANAGER
CORPORATE BANKING CORPORATE BANKING
<PAGE>
================================================================================
LETTER OF OFFER
TO
BARBEQUES GALORE LIMITED
GROUP
DATED 25 MAY, 1998
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED
ACN 005 357 522
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
LETTER OF OFFER
- --------------------------------------------------------------------------------
ISSUING OFFICE: Corporate Banking
Level 13, 20 Martin Place SYDNEY NSW 2000
We are pleased to offer the facilities set out below to Barbeques Galore
Limited.
The facilities made available are fully interchangeable between all companies
listed as Participants.
CUSTOMER ACN
- -------- ---
Barbeques Galore Limited 008 577 759
PARTICIPANTS
- ------------
Barbeques Galore Limited 008 577 759
Vilbrent Pty Limited 002 055 567
Barbeques Galore Australia 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
For the purposes of this offer document we will refer to the above Customer and
Participants collectively as the Barbeques Galore Limited Group.
The Facilities specified below are available to the Barbeques Galore Limited
Group and for the sake of record we have detailed the facilities as per their
current allocation. The provision of future variation offer documents will occur
should your overall facilities be increased however movement between individual
like facilities can occur at your discretion without the need of formal
documentation. Each year at the specified annual review time we will provide an
annual review letter of offer which will summarise the Barbeques Galore Limited
Group allocation of facilities.
<PAGE>
SUMMARY OF FACILITIES
A summary of facilities is as follows:
FACILITY FACILITY LIMIT
AUD
BARBEQUES GALORE LIMITED GROUP
A. Overdraft $ 2,400,000
B. Documentary Credit/Documents Surrendered/Fixed-Variable $20,000,000
Rate Commercial Bill Acceptance-Discount Facility
C. Payroll $ 900,000
D. Encashment $ 50,000
E. Indemnity/Guarantee Facility $ 300,000
F. Foreign Currency Dealing Facility $ 2,500,000
G. Foreign Currency Settlement $ 3,000,000
H. Seasonal Trade $ 6,000,000
I. Fixed/Variable Rate Commercial Bill Acceptance/Discount $ 5,000,000
Facility
J. Fixed/Variable Rate Commercial Bill Acceptance/Discount $ 3,450,000
Facility
K. Lease Finance Facility $ 4,000,000
TOTAL $47,600,000
Details of the facilities are set out in the facilities schedule to this letter
of offer.
EXISTING SECURITY
Details of existing security are set out in the security schedule on this letter
of offer.
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.
. Mortgage debentures (the "US DEBENTURES") over all the assets and
undertaking of Barbeques Galore Limited 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.
1. Cross Guarantee between all members of the Barbeques Galore Limited and
including all your US subsidiaries.
2. A Deed of Priority between us and Merrill Lynch Business Financial Services
Inc, in a form satisfactory to us, granting them a USD 1,000,000 priority.
<PAGE>
3. First RM Freehold Charge over property at 45 Princes Road, Regents Park.
This is to be accompanied by a professional valuation by JLW addressed to
Australia and New Zealand Banking Group for mortgagee purposes and is to be
acceptable to us.
We will engage Gadens Ridgeway to prepare the necessary security documentation
to complete our security position with such costs being for your account.
The completion of item 1, 2 & 3 above is to be by 30/06/98.
The security arrangements are governed by a security structure under which ANZ
Capel Court Limited has been appointed security agent.
And if requested by us you will complete the following:
. Issuing and stamping of additional new debenture certificates in our
favour; and
. Completion of a Statutory Declaration which outlines the value of total
assets in each Australian state to be completed each 6 month period ending
May and January.
OTHER CONDITIONS
- ----------------
INTEREST ON CURRENT ACCOUNTS
The interest rate applicable on creditor funds is currently based on the
Calculated Cash Rate (CCR) less 0.50% pa. This rate fluctuates daily and can be
verified in the interest rate section of the Australian Financial Review.
INTEREST RATE ON EXCESSES AND OVERDUE AMOUNTS
For the purposes of Clause 8 of the General Conditions, the applicable rate of
interest is our Reference Rate (currently 7.95%) plus 2.0% pa.
REVISED PRICING STRUCTURE
We reserve our rights to reintroduce the pricing structure which was applicable
to your facilities immediately prior to the issuance of this letter of offer
should the Interest Cover covenant as detailed herein not be adhered to.
NEGATIVE PLEDGE
You undertake not to:
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.
CAPITAL EXPENDITURE BUDGET
Barbeques Galore Limited 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,
<PAGE>
without our prior written consent, spend or incur any capital expenses in
aggregate in excess of $500,000 of your budget for that year.
FINANCIAL PERFORMANCE COVENANTS
For the avoidance of doubt, with respect to the financial covenants, "you" or
"your" means Barbeques Galore Limited and all its subsidiaries.
You shall observe the following financial performance covenants:
. Shareholders Funds are not to fall below $40,000,000.
. Current Ratio not to fall below 1.50:1 (being Total Tangible Current Assets
divided by Total Current Liabilities).
. Effective Gearing Ratio [being Total Liabilities divided by (Shareholders
Funds less Intangible Assets)] to be less than 1.25:1 as at 31/01 and
1.50:1 as at 31/07.
. Interest Cover (being EBIT divided by Gross Interest) to be at least
2.50:1. The verification of compliance of this covenant is to be made
against the Group's last 12 months P&L statements. i.e. a rolling 12 month
P&L statement.
All financial covenants will be tested against 31/07 and 31/01 half-yearly
accounts.
The following definitions apply to the above financial covenants.
"ACCOUNTING STANDARDS" means:
(a) financial statements prepared in accordance with generally accepted
accounting principles in the United States ("US GAAP"); 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,
licenses, 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
<PAGE>
(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.
"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 Current Intangible Assets.
"TOTAL CURRENT LIABILITIES" means, at any time, the aggregate of all your
liabilities calculated on a consolidated basis which would be classified
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.
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. These
certificates must be provided within 60 days of the half year to 31 July and 90
days of the full year end to 31 January.
RETENTION OF TITLE
Director's certificate confirming the actual Australian dollar level of your
stock (or any part thereof) which is subject to any retention of title
arrangement in favour of any third party.
The certification referred to in the preceding paragraph must be signed by a
Director and Chief Financial Officer and provided annually within 90 days of
the 31 January year end balance date.
<PAGE>
CHANGE OF CONTROL
If a change of control occurs it is an event of default unless waived by us.
For the purposes of this agreement, a change of control occurs if, without our
prior written consent, effective control of Barbeques Galore Limited or any
surety or any of Barbeques Galore Limited's subsidiaries or any surety's
subsidiaries is, in our opinion altered to any material extent from that
subsisting at the date of our letter of offer and that alteration will in our
opinion materially adversely affect your ability to comply with your obligations
to us.
"Effective control of a corporation means:
(a) control of the composition of the board of directors of that corporation;
(b) control of 40% or more of the voting rights attaching to shares in that
corporation;
(c) control of 40% or more of the issued share capital of that corporation".
FINANCIAL MONITORING
You agree to provide us with:
. Your Form 20-F (US GAAP) audited financial statements as soon as they are
available, but not later than 120 days after balance date.
. Your quarterly Nasdaq financial reporting package with budget comparisons
within 60 days of the quarter end. This package is to include balance
sheet and profit & loss statement. Budget comparisons are also to include
the Group's original full 12 month cash flow forecast against which the
current actual cash flow can be compared.
. Annual budget information upon Board ratification but not later than 60
days after the financial year end.
. Statutory Declaration evidencing the Australian dollar level of assets held
in each Australian state to be provided with annual audited accounts.
. Any other information as required by ANZ.
ANNUAL REVIEW
The facilities are subject to annual review. The next review date will be on 16
June 1998.
GENERAL CONDITIONS AND SPECIFIC CONDITIONS
Our General Conditions (Second Edition 1995) apply to the facilities as well as
any applicable Specific Conditions (Second Edition 1995) to the facilities. Both
the General Conditions and any applicable Specific Conditions are enclosed with
this letter of offer.
<PAGE>
CONDITIONS PRECEDENT
Our obligations to make any facilities available is subject to our being
satisfied that you have complied with Clause 4 of the General Conditions.
VALUATIONS
You agree that the properties listed in the attached security schedule and also
the property at 45 Princes Road, Regents Park will be valued for us at least
once each 3 years at your cost while facilities continue to be provided by us.
Each valuation must be undertaken by a reputable licensed property valuer
acceptable to us and must be addressed to Australia and New Zealand Banking
Group Limited for mortgagee purposes and acknowledge that we are relying on the
valuation provided.
YEAR 2000 ISSUES
In accordance with clause 6 of the General Conditions, we may require you to
provide information on how you are dealing with risks associated with Year 2000
Issues.
If, in our opinion, Year 2000 Issues may have a material adverse effect on:
(i) your business, assets or financial position; or
(ii) your ability to perform your obligations under any transaction documents,
you agree that we may appoint an independent consultant as agreed with you, or
if we can not agree then a consultant as selected by us, and at your cost to
assess such risks and to gather such information as may reasonably be required.
You also agree that if we do appoint an independent consultant, you will
co-operate with the consultant and allow such assess to your business, including
your information technology systems, as shall be reasonably necessary.
Year 2000 Issues are any Issues which relate to the possible impact to your
business of any fact or circumstance caused by the way dates and times are
processed prior to or after 1/1/2000.
OFFER PERIOD
Our offer is available for acceptance until the close of business on 30 June
1998, unless otherwise extended by the Bank 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.
<PAGE>
ACCEPTANCE
To accept this offer, please sign the duplicate of this letter of offer where
indicated and return it to us at this office.
Yours faithfully,
/s/ Neil Shilbury /s/ Jason Mares
- ----------------------- -----------------------
NEIL SHILBURY JASON MARES
SENIOR MANAGER MANAGER
CORPORATE BANKING CORPORATE BANKING
<PAGE>
- --------------------------------------------------------------------------------
FACILITIES SCHEDULE
- --------------------------------------------------------------------------------
FACILITIES SCHEDULE to letter of offer dated 28 May, 1998.
A. OVERDRAFT
Gross Limit:$2,400,000
Facility limit:
Net Limit: $2,000,000
The overdraft has been provided with set-off for
interest purposes between accounts conducted by
you with us. This arrangement is in place on the
understanding that you acknowledge our right to
apply the whole or part of any credit balances in
any of your accounts held with us in payment of
any debit balances of any of your accounts held
with us.
Termination date: Not before the next review date.
Purpose: Working capital requirements.
Interest rate: ANZ's reference rate (currently 7.95% pa) for
amounts up to the facility limit.
ANZ's reference rate is published weekly (usually
each Monday) in the Australian Financial Review.
Interest payment: Monthly in arrears on the first business day of
each month, accruing daily starting on the first
day of overdraft (interest is charged and payable
monthly).
Fees: Line fee:
0.05% pa on the highest facility limit recorded
for your accounts. This fee is payable quarterly
in arrears on the 15th day of each February, May,
August and November, for the quarter ended
January, April, July and October respectively.
Set-off fee
$150 per account per quarter. This fee is payable
quarterly in arrears on the last day of the
quarter ended January, April, July and October
respectively.
<PAGE>
Transfer fee
A daily transfer fee of $10.00 per transfer
exists for transactions between the ODTD and
STA with your main operating account.
Prepayment: Prepayment or cancellation of the facility
(in whole or in part) may be effected without
penalty at any time at the election of the
customer.
Specific Conditions There are no Specific Conditions which apply
to this facility.
B. DOCUMENTARY CREDIT/DOCUMENTS SURRENDERED/FIXED-VARIABLE
RATE COMMERCIAL BILL ACCEPTANCE-DISCOUNT FACILITY - FULLY INTERCHANGEABLE
Facility limit: AUD $20,000,000
(For this purpose we will determine exchange
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
or at term and refinance of trade documents.
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: Our standard fees apply to establishment and
documentary handling of your documentary
credits.
Inward documents refinanced will be at the
relative commercial bill rate plus a margin
of 1.0% p.a.
Specific Conditions Should the trade documents be refinanced via
Fixed/Variable Commercial Bill
Acceptance/Discount then the same terms,
conditions and pricing are applicable as
those detailed in Facilities H, I or J
detailed herein. There are no other Specific
Conditions which apply to this facility
except that any drawing is to be refinanced
on finance terms not exceeding 180 days
including the term of the letter of credit.
<PAGE>
C. PAYROLL
Facility limit: $900,000
Termination date: Not before the next review date.
Purpose: Enable processing of payroll via ANZ OnLine.
Specific Conditions: There are no Specific Conditions which apply
to this facility.
D. ENCASHMENT
Facility limit: $50,000
Termination date: Not before the next review date.
Purpose: Enable the encashment of cheques at various
Branches.
Fees: Establishment fee:
$45 for each encashment arrangement. This
charge is subject to variation at any time
during the term of the facility.
Renewal fee:
$45 for each encashment arrangement. This
charge is subject to variation at any time
during the term of the facility.
Specific Conditions: There are no Specific Conditions which apply
to this facility.
E. INDEMNITY/GUARANTEE FACILITY
Facility limit: $300,000
Termination date: Not before the next review date.
Purpose: Rental bonds
Fee rate for each Bank Guarantee: 1.0% pa subject to a minimum fee of $80 per
half year. The minimum fee is subject to
variation at any time during the term of the
facility.
<PAGE>
Fee payment: For each Bank Guarantee, the fee is payable
on the date of drawdown and afterwards half
yearly.
Specific Conditions: Specific Conditions for the facility are
enclosed.
F. FOREIGN CURRENCY DEALING FACILITY
Facility limit: AUD 2,500,000
(For this purpose we adjust the face value of
the customer's obligation under each
transaction by a multiplier (determined by
us). The process includes conversion of any
foreign currency amount to the equivalent
amount in AUD).
Termination date: Not before the next review date.
Purpose: Spot and forward exchange dealing (including
currency swaps).
No pay away exposure except We do not assume any pay away exposure under
under Foreign Currency Settlement this facility unless and to the extent that
Facility limit: it links this facility with a Foreign
Currency Settlement Facility. Except to that
extent we can have no obligation to deliver
currency under a contract until we are
satisfied that counter funds have been lodged
by you or on your behalf.
Condition precedent: You may only enter into a foreign currency
contract with us if we agree to the terms of
the contract and if you execute all other
documents required by us.
Maximum contract term: The maximum term for a foreign currency
dealing contract is 12 months.
Specific Conditions: There are no Specific Conditions which apply
to this facility.
G. FOREIGN CURRENCY SETTLEMENT FACILITY
Facility limit: AUD 3,000,000
(For this purpose we will determine the
exchange 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 we will assume
pay away exposure, on any one settlement day,
for foreign
<PAGE>
exchange contracts maturing on that day.
Termination date: Not before the next review date.
Purpose: To allow delivery of currency under foreign exchange
contracts before we have received confirmation that
counter funds have been lodged by you or on your
behalf.
Condition precedent: We will only assume pay away exposure for your
obligation under a foreign exchange contract, if we
have agreed to the terms of the contract and you have
executed all documents required by us.
Specific Conditions: There are no Specific Conditions which apply to this
facility.
H. VARIABLE RATE COMMERCIAL BILL ACCEPTANCE/ DISCOUNT FACILITY - SEASONAL TRADE
Facility limit: $6,000,000 - available only between 1/7 and 31/01 of
each year unless otherwise agreed.
Termination date: Not before the next review date.
Purpose: Working capital requirements during peak
import/manufacturing periods.
Yield rate: For each drawing of bills, our cost of funds rate
quoted for the face value of the bills for the relevant
tenor.
Fees: Line Fee:
0.50% pa on the facility limit, payable quarterly in
advance.
Acceptance fee:
For each drawing an amount equal to 0.50% pa on the
amount of the drawing.
Specific Conditions: Specific Conditions (Second Edition 1995) for the
facility are enclosed.
<PAGE>
I. FIXED/VARIABLE RATE COMMERCIAL BILL ACCEPTANCE/DISCOUNT FACILITY
Facility limit: $5,000,000
Termination date: 1 February 2001
Purpose: Purchase of capital equipment and any permanent
working capital requirements.
Yield rate: For each drawing of bills, our cost of funds rate
quoted for the face value of the bills for the
relevant tenor. Currently this facility is drawn
to $2,150,000 at a rate of 8.60% p.a.maturing
06/05/99.
Fees: Line Fee:
0.50% pa on the facility limit, payable quarterly
in advance commencing on the date of acceptance of
our offer.
Acceptance Fee:
For each bill, an amount equal to 0.50% pa on the
face amount of the bill calculated on the tenor of
the bill and payable on the drawdown date for the
bill.
Specific Conditions Specific Conditions (Second Edition 1995) for the
facility are enclosed.
J. FIXED/VARIABLE RATE COMMERCIAL BILL ACCEPTANCE/DISCOUNT FACILITY
Facility limit: $3,450,000
Termination date: 1 February 2001
Purpose: Purchase of 45 Princes Road, Regents Park NSW.
Yield rate: For each drawing of bills, our cost of funds rate
quoted for the face value of the bills for the
relevant tenor.
<PAGE>
Fees: Line Fee:
0.50% pa on the facility limit, payable
quarterly in advance commencing on the date
of acceptance of our offer.
Acceptance Fee:
For each bill, an amount equal to 0.50% pa on
the face amount of the bill calculated on the
tenor of the bill and payable on the drawdown
date for the bill.
Specific Conditions Specific Conditions (Second Edition 1995) for
the facility are enclosed.
K. LEASE FINANCE FACILITY
Facility limit: $4,000,000
Termination date: Not before the next review date.
Purpose: To fund plant and equipment and store fitout
purchases.
Subject to execution of Lease You are entitled to a lease only upon
Acknowledgment acceptance by us, and execution by the
parties (in the standard form provided by
us), of a Lease Acknowledgment in terms of
the Master Lease Agreement which constitute
the Specific Conditions for the
facility/leases already drawn under the
facility before your acceptance of our offer.
Specific Conditions Specific Conditions (Second Edition 1995) for
the facility are enclosed.
<PAGE>
BARBEQUES GALORE LIMITED
(ACN 008 577 759)
Directors' Resolution made pursuant to Article 83 (1)
We, being all the directors of BARBEQUES GALORE LIMITED at the time this
document is last signed, are in favour of the following resolution:
THAT THE DOCUMENTS NUMBERED 1-6 (the "Documents") AND THE LETTER OF OFFER DATED
25 MAY 1998 ("the Letter of Offer") AND THE SECURITIES NUMBERED 2-5 (the
"Securities") AS SUMMARISED IN THE EXTRACTS OF BOARD MINUTES (ATTACHED HERETO
FOR EASE OF REFERENCE) BE APPROVED IN THEIR ENTIRETY IN THE MANNER CONTEMPLATED
BY THE AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED
Director Date of Signing
Sam Linz /s/ Sam Linz 26/6/98
------------ ---------------
Robert Gavshon /s/ Robert Gavshon 26/6/98
------------------ ---------------
John Price /s/ John Price 26/6/98
-------------- ---------------
Gordon Howlett /s/ Gordon Howlett 26/6/98
------------------ ---------------
Philip Gardiner /s/ Philip Gardiner 26/6/98
------------------- ---------------
Sydney Selati _________________ _______________
<PAGE>
BARBEQUES GALORE LIMITED
(ACN 008 577 759)
Directors' Resolution trade pursuant to Article 83(1)
We, being all the directors of BARBEQUE GALORE LIMITED at the time this document
is last signed, are in favour of the following resolution:
THAT THE DOCUMENTS NUMBERED 1-6 (the "Documents") AND THE LETTER OF OFFER DATED
25 MAY 1998 ("the Letter of Offer") AND THE SECURITIES NUMBERED 2-5 (the
"Securities") AS SUMMARISED IN THE EXTRACTS OF BOARD MINUTES (ATTACHED HERETO
FOR EASE OF REFERENCE) BE APPROVED IN THEIR ENTIRETY IN THE MANNER CONTEMPLATED
BY THE AUSTRALIAN AND NEW ZEALAND BANKING GROUP LIMITED.
Director Date of Signing
Sam Linz /s/ Sam Linz 26/6/98
----------------------- ---------------
Robert Gavshon /s/ Robert Gavshon 26/6/98
----------------------- ---------------
John Price /s/ John Price 26/6/98
----------------------- ---------------
Gordon Howlett ----------------------- ---------------
Philip Gardiner ----------------------- ---------------
Sydney Selari /s/ Sydney Selari 7/1/98
----------------------- ---------------
<PAGE>
- --------------------------------------------------------------------------------
EXTRACT OF BOARD MINUTES
- --------------------------------------------------------------------------------
BARBEQUES GALORE LIMITED A.C.N. 008 577 759 (the "COMPANY")
EXTRACT OF MINUTES OF A MEETING OF DIRECTORS OF THE COMPANY HELD AT 327 CHISHOLM
ROAD AUBURN NEW ZEALAND ON THE 1ST DAY OF JULY 1998 AT AM/PM AGREEMENT WITH
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (the "BANK")
The following documents were tabled:
1. Letter of Offer dated 25 May 1998 from the Bank to the Customer in relation
to certain facilities (the "Letter of Offer");
2. the Bank's General Conditions (Section Edition 1995);
3. the Bank's Specific Conditions for Variable Rate Commercial Bill
Acceptance/Discount Facility (Second Edition 1995);
4. the Bank's Specific Conditions for Fixed Rate Commercial Bill
Acceptance/Discount Facility (Second Edition 1995);
5. the Bank's Specific Conditions for Indemnity/Guarantee Facility (Second
Edition 1995);
6. the Bank's Specific Conditions for Lease Finance Facility (Second Edition
1995);
(Documents 1-6 inclusive collectively are called the "Documents").
AFTER DUE DISCLOSURE OF ALL DISCLOSABLE INTERESTS IT WAS RESOLVED THAT:
(a) each of the documents is approved for acceptance by execution or
confirmation of acceptance by the means (as required by the Bank)
substantially in the form produced at the meeting or with any additions,
variations and amendments approved by an Authorised Representative;
(b) the exercise of the Company's rights and the performance of its obligations
under which each Transaction Document is approved;
(c) each Authorised Representative of the Company is jointly and severally
authorised to act fully and effectually on behalf of the Company in all
dealings, matters and transactions with the Bank now or in the future,
including:
<PAGE>
(i) to act in terms of and for the purposes of the Letter of Offer and
any other documents relevant to the facilities; and
(ii) to complete, execute, deliver, confirm, accept or otherwise effect
the entry by the Company into any Transaction Document, including any
documents supplemental to or varying a facility or in relation to new
or additional facilities; and
(iii) to complete, execute and deliver to the Bank on behalf of the Company
any surety acknowledgment of changes in the facilities provided by
the Bank to the Customers and any confirmation that any security,
guarantees or indemnity given by the Company continues to secure
facilities provided to the Customers despite any change in
arrangements between the Bank and the Customers;
(e) in these resolutions "Transaction Documents" has the same meaning as in the
Bank's General Conditions and include the Documents; and
(f) in these resolutions
"Authorised Representative" means:
(i) each person named in any Account Operating Authority (which has
previously been given by the Company to the Bank) as being able
to act severally on behalf of the Company; or
(ii) if the Account Operating Authority does not permit each of the
named persons to act severally, two or more persons named in that
Account Operating Authority acting jointly in accordance with any
restrictions contained in the Account Operating Authority;
"Account Operating Authority" has the same meaning as in the
Bank's General Conditions.
I, David Glaser, certify that:
*(1) I am a secretary of the Company;
(2) this is a complete, correct and up to date copy of an extract from the
minutes of a properly held meeting of the Board of Directors held on
the date shown above; and
(3) the resolutions described above were validly passed and have not been
amended or revoked.
DATED JULY 1, 1998
/s/ David Glaser
------------------------------
Signature
*delete as appropriate
<PAGE>
- --------------------------------------------------------------------------------
EXTRACT OF BOARD MINUTES
- --------------------------------------------------------------------------------
BARBEQUES GALORE LIMITED A.C.N. 008 577 759 (the "COMPANY")
EXTRACT OF MINUTES OF A MEETING OF DIRECTORS OF THE COMPANY HELD AT 327 CHISHOLM
ROAD AUBURN NEW ZEALAND ON THE 1st DAY OF JULY 1998 AT AM/PM
SECURITIES IN FAVOUR OF AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (the
"BANK")
The following documents were tabled:
1. Letter of Offer dated 25 May 1998 from the Bank to Barbeques Galore Limited
in relation to certain facilities (the "letter of offer").
Existing Securities
2 Refer attached Security Appendix detailing same.
Further Securities
3. Mortgage debentures (the "US DEBENTURES") over all the assets and
undertaking of Barbeques Galore Limited Group 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.
4. Cross Guarantee between all members of the Barbeques Galore Limited Group
and including all your US subsidiaries.
5. 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.
(Documents 2-5 inclusive collectively are called the "Securities").
AFTER DUE DISCLOSURE OF ALL DISCLOSUABLE INTERESTS IT WAS RESOLVED THAT:
(a) the Company acting in its own capacity agrees to provide the Securities to
the Bank for the obligations to the Bank of the customers named in the
Letter of Offer (the "customers");
<PAGE>
(b) it was noted that:
(i) under the Securities the Company is liable to the Bank for all
moneys which the Customers may owe the Bank now or in the future
(including, but not limited to, any money which may be owned to
the Bank under the facilities referred to in the Letter of
Offer); and
(ii) the amount of this liability may exceed the amount of the
facilities set out in the Letter of Offer.
(c) each of the documents is approved for acceptance by execution or
confirmation of acceptance by the means (as required by the Bank)
substantially in the form produced at the meeting, together with all other
deeds and documents (the "ancillary documents") which may be required by
the Bank in order to give an effective security;
(d) the exercise of the Company's rights and the performance of its obligations
acting in its own capacity under each of the Securities and the ancillary
documents is approved;
(e) where the form of any of the Securities or the ancillary documents requires
execution under the Common Seal of the Company, the Common Seal of the
Company be affixed to the relevant document in accordance with the Articles
of Association of the Company;
(f) the directors first considered whether the execution of the Securities was
of commercial benefit to the Company. Having decided that it was of
commercial benefit to the Company to execute the Securities, the directors
passed this resolution; and
(g) each [Authorised Representative]/[director] of the Company is jointly and
severally authorised on behalf of the Company to act fully and effectually
in all dealings, matters and transactions with the Bank about the
Securities now or in the future, including;
(i) to act in terms of and for the purposes of the Securities and any
other document relevant to the facilities provided by the Bank to
the Customers; and
(ii) to complete, execute and deliver to the Bank on behalf of the
Company any acknowledgement of changes in the facilities provided
by the Bank to the Customers (including increased or additional
facilities) and any confirmation that the Securities and any
other security, guarantee or indemnity which may be given by the
company its own continue to secure facilities provided to the
Customers despite any changes in arrangements between the Bank
and the Customers; and
(h) in these resolutions
"Authorised Representative" means:
<PAGE>
(i) each person named in any Account Operating Authority (which has
previously been given by the Company to the Bank) as being able
to act severally on behalf of the Company; or
(ii) if an Account Operating Authority does not permit each of the
named persons to act severally, two or more persons named in that
Account Operating Authority acting jointly in accordance with any
restrictions contained in that Account Operating Authority;
"Account Operating Authority" has the same meaning as in the
Bank's General Conditions which are incorporated in the Letter of
Offer.
I, David Maurice Glaser, certify that:
--------------------
(Insert Secretary's full name)
*(1) I am a secretary of the Company;
(2) this is a complete, correct and up to date copy of an extract from the
minutes of a properly held meeting of the Board of Directors held on
the date shown above; and
(3) the resolutions described above were validly passed and have not been
amended or revoked.
DATED July 1, 1998
/s/ David Maurice Glaser
- ------------------------
Signature
*delete as appropriate.
