-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oulkr/74/Php94xu0onnmNXHT9fEB67IR061waOxMyybY6J1XoFhAkQP/ypjkCLs 4ysT3VHm1R+4mHT+4ywI0A== 0000898430-98-002294.txt : 19980616 0000898430-98-002294.hdr.sgml : 19980616 ACCESSION NUMBER: 0000898430-98-002294 CONFORMED SUBMISSION TYPE: F-1 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19980612 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARBEQUES GALORE LTD CENTRAL INDEX KEY: 0001047326 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1 SEC ACT: SEC FILE NUMBER: 333-56805 FILM NUMBER: 98647794 BUSINESS ADDRESS: STREET 1: 15041 STREET 2: BAKE PARKWAY #A CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7145972400 MAIL ADDRESS: STREET 1: 15041 BAKE PARKWAY A CITY: IRVINE STATE: CA ZIP: 92718 F-1 1 FORM F-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998 REGISTRATION NO. 333- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- BARBEQUES GALORE LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) AUSTRALIAN CAPITAL 5722 NOT APPLICABLE TERRITORY, AUSTRALIA (PRIMARY STANDARD (I.R.S. EMPLOYER (STATE OR OTHER INDUSTRIAL IDENTIFICATION NUMBER) JURISDICTION OF CLASSIFICATION CODE INCORPORATION OR NUMBER) ORGANIZATION) 327 CHISHOLM ROAD, AUBURN, SYDNEY, NSW 2144, AUSTRALIA (61-2-9704-4177) (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SYDNEY SELATI BARBEQUES GALORE LIMITED 15041 BAKE PARKWAY, #A IRVINE, CALIFORNIA 92718 (714) 597-2400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: THOMAS A. BEVILACQUA, ESQ. CURTIS L. MO, ESQ. VALERIE RUSSELL, ESQ. HELEN FIELDS, ESQ. BROBECK, PHLEGER & HARRISON LLP TWO EMBARCADERO PLACE 2200 GENG ROAD PALO ALTO, CALIFORNIA 94303-0913 (650) 424-0160 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement is declared effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [_] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE
==================================================================================================== PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE(1) PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------- Ordinary Shares, A$3.64 par value per share, each represented by one American Depositary Share(2).. 1,044,845 shares US$9.15625 US$9,566,862.03 US$2,822.22 ====================================================================================================
(1) Estimated solely for the purposes of computing the registration fee pursuant to Rule 457(c) based on a per share price of US$9.15625, the average of the bid and asked prices per share of the Company's Ordinary Shares on June 10, 1998. (2) American Depositary Shares evidenced by American Depositary Receipts issuable upon deposit of the Ordinary Shares registered hereby are registered pursuant to a separate Registration Statement on Form F-6. The securities are not being registered for sale outside the United States. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED JUNE 12, 1998 PRELIMINARY PROSPECTUS BARBEQUES GALORE LIMITED 1,044,845 American Depositary Shares, each representing One Ordinary Share This prospectus (the "Prospectus") relates to the public offering (the "Offering"), which is not being underwritten, of up to 1,044,845 American Depositary Shares (the "Resale ADSs"), each representing one ordinary share, A$3.64 par value ("Ordinary Share"), of Barbeques Galore Limited ("Barbeques Galore" or the "Company"), a public limited company organized under the laws of Australia. Ordinary Shares of the Company are represented by American Depositary Shares ("ADSs") upon deposit with the Depositary (as defined herein) which in turn are evidenced by American Depositary Receipts ("ADRs"). See "Description of Ordinary Shares" and "Description of American Depositary Receipts." All of the Resale ADSs offered in the Offering represent Ordinary Shares being sold by certain shareholders of the Company named herein (the "Selling Shareholders"). 997,926 of these Ordinary Shares were received upon the conversion of certain notes (the "Convertible Notes") immediately prior to consummation of the Company's initial public offering in the United States (the "IPO") on November 7, 1997 and the remainder of these Ordinary Shares are held by long-term shareholders of the Company currently desiring to divest all or a portion of their holdings in the Company. See "Certain Transactions--Delisting Transaction and Conversion of Convertible Notes." All of the Ordinary Shares sold by the Selling Shareholders hereby were issued in offshore transactions, not required to be registered under the Securities Act of 1933, as amended (the "Securities Act"). A total of 997,926 of the Resale ADSs offered hereby are being registered pursuant to an agreement between the Company and certain holders of the Convertible Notes that the Company would undertake to register the Ordinary Shares received upon conversion of the Convertible Notes subsequent to the expiration of lock-up agreements entered into by certain Selling Shareholders in connection with the Company's IPO. The remaining Ordinary Shares offered hereby are not subject to any registration rights agreements and are being voluntarily registered hereunder by the Company. The Resale ADSs may be offered by the Selling Shareholders from time to time in transactions on The Nasdaq Stock Market's National Market ("Nasdaq"), in privately negotiated transactions, or by a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Resale ADSs to or through broker-dealers and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders or the purchasers of the Resale ADSs for whom such broker- dealers may act as agent or to whom they sell as principal or both (which compensation to a particular broker-dealer might be in excess of customary commissions). See "Plan of Distribution." The Company will not receive any of the proceeds from the sale of the Resale ADSs by the Selling Shareholders. The Company has agreed to bear certain expenses in connection with the registration and sale of the Resale ADSs being offered by the Selling Shareholders. The Company intends that this registration statement will remain effective until no later than December 31, 1998. On June 1, 1998, the last reported sale price for the ADSs, as reported on Nasdaq, was US$9.50 per share. The Company's ADSs are currently quoted on Nasdaq under the symbol "BBQZY." ----------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 11. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is , 1998 No person has been authorized to give any information or to make any representation other than those contained in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company, the Selling Shareholders or by any other person. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Resale ADSs or the Ordinary Shares in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. No action has been or will be taken in any jurisdiction by the Company or the Selling Shareholders that would permit a public offering of the Resale ADSs or the Ordinary Shares or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company and the Selling Shareholders to inform themselves about and to observe any restrictions as to the offering of the Resale ADSs or the Ordinary Shares and the distribution of this Prospectus. TABLE OF CONTENTS
PAGE ---- Enforceability of Civil Liabilities Under the Federal Securities Laws.................................... 2 Available Information................................................. 3 Financial Statement Presentation...................................... 4 Trademarks............................................................ 4 Prospectus Summary.................................................... 5 Risk Factors.......................................................... 11 Exchange Rates........................................................ 21 Use of Proceeds....................................................... 22 Dividend Policy....................................................... 22 Capitalization........................................................ 22 Selected Consolidated Financial Data.................................. 23 Selected Additional Consolidated Financial Data....................... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................ 28 Business.............................................................. 38 Management............................................................ 49 Certain Transactions.................................................. 55 Principal Shareholders................................................ 58 Selling Shareholders.................................................. 61 Description of Ordinary Shares........................................ 64 Description of American Depositary Receipts........................... 67 Certain Tax Considerations............................................ 74 Shares Eligible for Future Sale....................................... 79 Plan of Distribution.................................................. 80 Legal Matters......................................................... 81 Experts............................................................... 81 Index to Defined Terms................................................ 82 Index to Consolidated Financial Statements............................ F-1
ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS Barbeques Galore is a public company limited by shares and is registered and operates under the Corporations Law of the Commonwealth of Australia. Since most of the Company's directors and officers and certain of the experts named in the Registration Statement on Form F-1 of which this Prospectus is a part (together with all exhibits and amendments thereto, the "Registration Statement") reside outside the United States, it may not be possible to effect service on such persons in the United States or to enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated on the civil liability provisions of the Federal securities laws of the United States. Furthermore, since all directly owned assets of the Company are outside the United States, any judgment obtained in the United States against the Company may not be collectible within the United States. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that there is doubt as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon federal or state securities laws of the United States, especially in the case of enforcement of judgments of United States courts where the defendant has not been properly served in Australia. 2 AVAILABLE INFORMATION Except as described below, the Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to foreign private issuers, and in accordance therewith will file reports, including annual reports on Form 20-F, and other information with the Securities and Exchange Commission (the "Commission"). In addition, the Company has agreed in the Underwriting Agreement relating to the Company's IPO in November 1997 to submit to the Commission quarterly reports, which will include unaudited quarterly consolidated financial information, on Form 6-K for the first three quarters of each fiscal year, and file its annual report on Form 20-F within the time period prescribed under Section 13 of the Exchange Act for the filing by domestic issuers of quarterly reports on Form 10-Q and annual reports on Form 10-K, respectively. Such reports and other information filed by the Company can also be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such materials can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. The Commission maintains a World Wide Web internet site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http://www.sec.gov. In addition, the ADSs of the Company are quoted on Nasdaq, and the Company's reports and other information may be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, DC 20006. As a foreign private issuer, the Company is exempt from the rules under the Exchange Act prescribing the furnishing and the content of proxy statements. The Company is presently unable to determine if it will qualify as a foreign private issuer after consummation of this Offering. However, in the event it does not qualify as a foreign private issuer following consummation of this Offering, the Company will comply with all U.S. securities laws applicable to a domestic U.S. issuer. This Prospectus, which constitutes a part of the Registration Statement, omits certain of the information contained in the Registration Statement and the exhibits and schedules set forth therein, which has been filed electronically with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. The Registration Statement, including exhibits and schedules thereto, may be obtained, upon payment of the fee prescribed by the Commission, or may be examined without charge at the Office of the Commission or at the Commission's web site. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Company will furnish the Depositary referred to under "Description of American Depositary Receipts" with annual reports which will include a review of operations and annual audited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The Company will also furnish the Depositary with quarterly reports which will include unaudited quarterly consolidated financial information prepared in accordance with U.S. GAAP. The Depositary has agreed with the Company that, upon receipt of such reports, it will promptly mail such reports to all registered holders of ADSs. The Company will also furnish to the Depositary all notices of shareholders' meetings and other reports and communications that are made generally available to shareholders. The Depositary will arrange for the mailing of such documents to record holders of ADSs. 3 FINANCIAL STATEMENT PRESENTATION The Company publishes its consolidated financial statements in Australian dollars. In this Prospectus, references to "$" or "US$" or "U.S. dollars" or "dollars" are to United States dollars and references to "A$" are to Australian dollars. For the convenience of the reader, this Prospectus contains translations of certain Australian dollar amounts into U.S. dollars at the rate indicated. Translations of Australian dollars into U.S. dollars have been made at the noon buying rate in New York City on the relevant date for cable transfers in Australian dollars as certified by the Federal Reserve Bank of New York (the "Noon Buying Rate"). Unless otherwise indicated, the date of translation was (i) for amounts calculated as of a date, such date and (ii) for amounts calculated for a period, an average rate during the period. Any translation should not be construed as a representation that the Australian dollar amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. On June 1, 1998, the Noon Buying Rate was US$0.6150 = A$1.00. See "Exchange Rates." Prior to 1997, the Company's fiscal year ended on June 30. Effective as of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (beginning with the fiscal year ended January 31, 1997). As used in this Prospectus, each fiscal year of the Company is identified by the calendar year in which it ends. For example, references to "fiscal year 1996" or "fiscal 1996" shall mean the fiscal year ended June 30, 1996, and due to the change in fiscal year end, references to "fiscal year 1998" or "fiscal 1998" shall mean the fiscal year ended January 31, 1998. Because of the change in fiscal year, fiscal 1997 was a seven-month period. ---------------- Unless the context otherwise requires, references herein to "share" or "shares" are references to both the ADSs (including the Resale ADSs) and the Ordinary Shares. TRADEMARKS BARBEQUES GALORE(R), TURBO(R), CAPT N COOK(R), COOK-ON(R) and BAR-B-CHEF(R) are federally registered trademarks and/or service marks in the United States. The Company also uses the phrase AMERICA'S LARGEST CHAIN OF BARBECUE STORES(TM) as a common-law trademark in the United States. BARBEQUES GALORE and COOK-ON are also registered with the State of California. In Australia, the Company or its subsidiaries have registered, among others, the names NORSEMAN and KENT, and additionally use the phrase YOUR OUTDOOR COOKING AND CAMPING STORE as a common-law trademark. This Prospectus contains other trade names, trademarks and service marks of the Company and other organizations. 4 PROSPECTUS SUMMARY This Prospectus contains certain statements of a forward-looking nature relating to future events affecting the Company or the markets or industries in which it operates or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause events or actual results to differ materially from those indicated by such forward-looking statements. The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the terms "Barbeques Galore" and "Company" include Barbeques Galore Limited and its consolidated subsidiaries and their respective operations. Except as otherwise specified, all information in this Prospectus is adjusted to reflect a 18.223-for-1 reverse share split of all outstanding Ordinary Shares immediately prior to consummation of the Company's initial public offering in the United States (the "IPO") in November 1997 (the "Reverse Share Split"). THE COMPANY 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 which are displayed in a store format that emphasizes social activities and healthy outdoor lifestyles. Its stores also carry a comprehensive line of fireplace products and, in Australia, home heating products, camping equipment and outdoor furniture. As of April 30, 1998, the Company owned and operated 33 stores in all six states in Australia and 38 stores (including three U.S. Navy concession stores) in seven 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's unique retailing concept differentiates Barbeques Galore from its competitors by (i) offering an extensive selection of barbecues and related accessories to suit all consumer lifestyles, preferences and price points, (ii) showcasing these products at convenient store locations with a shopping environment that promotes the total barbecuing experience and (iii) providing exceptional customer service through well-trained sales associates who have in- depth knowledge of the products and understanding of customer needs. These competitive strengths are enhanced by the Company's barbecue and home heater manufacturing operations, which enable the Company to realize higher margins, control product development and improve inventory flexibility and supply. The Company's growth strategy is to continue expansion of its U.S. store base and to continue refurbishing (through relocating or remodeling) existing stores in Australia. From January 31, 1997 to January 31, 1998, the Company grew from 27 to 37 Company-owned stores (including three U.S. Navy concession stores), representing a 37% increase in the number of owned stores in the United States. The Company currently plans to open approximately 15 new stores in the United States in calendar year 1998 of which four have opened, six are under construction and the remaining five are in lease negotiation. The Company also currently intends to open 15 new stores in the United States in calendar year 1999. In addition, the Company has initiated a major refurbishment plan for its Australian store base to enhance store productivity. From January 31, 1997 to January 31, 1998, four stores have been refurbished in Australia with an average increase in sales of approximately 41.6% during that period for those stores. The Company's net sales increased by approximately A$30.9 million, or 20.9%, to A$179.3 million for the twelve months ended January 31, 1998 from A$148.4 million for the twelve months ended January 31, 1997. 5 This growth resulted primarily from the opening of 11 new stores in the United States (including one franchise store and one U.S. Navy concession store) and one new store in Australia, as well as the refurbishment or relocation of four stores in Australia. Also contributing were growth in comparable store sales during the periods, sales from stores not included in comparable stores data and an A$3.8 million increase in Australian wholesale sales, mainly to mass merchants. For the three month period ended April 30, 1998, the Company's net sales increased by A$6.3 million, or 21.0%, to A$36.7 million from A$30.4 million for the three-month period ended April 30, 1997. Comparable store sales for the twelve months ended January 31, 1996, 1997 and 1998 were A$88.0 million, A$98.8 million and A$113.7 million, respectively. ---------------- Comparable store sales data presented herein for any period consists of sales in such period by stores which were open during the corresponding period of the immediately preceding calendar or fiscal year, as applicable. However, sales for three U.S. Navy concession stores have been excluded from such calculations as these three concession stores are operated at the Navy's discretion. The Navy provides the Company space on three Navy bases under an at will arrangement and directly purchases the inventory for resale in two of the three concession stores. The Company owns the inventory at the third concession store and owns the fixtures installed in all three concession stores. The Company is presently unable to determine if it will qualify as a foreign private issuer after consummation of this Offering. However, in the event the Company determines that it does not qualify as a foreign private issuer following consummation of this Offering, the Company will comply with all U.S. securities laws applicable to a domestic U.S. issuer. See "Available Information." 6 SUMMARY CONSOLIDATED FINANCIAL DATA
SEVEN MONTHS TWELVE MONTHS THREE MONTHS ENDED ENDED ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1) JANUARY 31,(1) APRIL 30, ---------------------------------------- --------------------- --------------------- ----------------------- 1993 1994 1995 1996 1996 1997 1997 1998 1997 1998 --------- --------- --------- --------- ----------- --------- ----------- --------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net sales....... A$114,973 A$124,635 A$138,057 A$141,691 A$ 92,074 A$ 98,752 A$148,369 A$179,325 A$ 30,366 A$ 36,744 Cost of goods sold(2)........ 82,630 84,104 92,290 98,158 62,789 67,955 103,324 122,072 20,891 25,117 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Gross profit.... 32,343 40,531 45,767 43,533 29,285 30,797 45,045 57,253 9,475 11,627 Selling, general and administrative expenses....... 27,992 35,462 40,058 39,339 24,328 25,740 40,751 48,992 9,798 12,462 Store pre- opening costs.. 205 135 64 153 114 200 239 435 114 147 Relocation and closure costs(3)....... -- -- -- 875 -- 461 1,336 20 -- 15 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Operating income (loss)......... 4,146 4,934 5,645 3,166 4,843 4,396 2,719 7,806 (437) (997) Equity in income of affiliates, net of tax..... 412 660 963 836 709 252 379 547 50 96 Interest expense........ 2,526 1,999 2,230 2,262 1,619 1,593 2,236 3,334 879 388 Other expenses (income)(4).... -- -- -- (2,303) (2,303) 1,132 1,132 -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes.......... 2,032 3,595 4,378 4,043 6,236 1,923 (270) 5,019 (1,266) (1,289) Income tax expense (benefit)...... 176 1,278 573 98 1,286 366 (822) 1,488 (566) (502) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss)......... A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 A$ 4,950 A$ 1,557 A$ 552 A$ 3,531 A$ (700) A$ (787) ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Basic earnings per share(5)... A$ 0.46 A$ 0.53 A$ 0.86 A$ 0.89 A$ 1.11 A$ 0.38 A$ 0.13 A$ 1.43 A$ (0.38) A$ (0.17) ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Diluted earnings per share(5)... A$ 0.46 A$ 0.53 A$ 0.86 A$ 0.89 A$ 1.11 A$ 0.38 A$ 0.13 A$ 1.18 A$ (0.38) A$ (0.17) ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= Weighted average shares outstanding(5).. 4,047 4,358 4,450 4,450 4,450 4,073 4,228 2,473 1,844 4,541 ========= ========= ========= ========= ========= ========= ========= ========= ========= ========= In thousands BALANCE SHEET DATA: Working capital........ A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 A$ 25,139 A$ 22,552 A$ 22,552 A$ 36,917 A$ 28,534 A$ 37,154 Total assets.... 55,400 60,538 67,624 66,562 67,544 67,970 67,970 82,074 71,740 89,315 Total long-term debt........... 10,223 16,988 17,690 15,819 11,631 34,276 34,276 18,121 41,468 22,363 Shareholders' equity......... 21,316 24,385 26,326 27,817 30,349 10,165 10,165 43,927 8,813 43,575 In thousands, except percentages SELECTED U.S. OPERATING DATA: Stores open at period-end..... 17 17 21 19 25 25 34 28 35 Average net sales per store(6)....... A$ 1,389 A$ 1,630 A$ 1,572 A$ 862 A$ 822 A$ 1,579 A$ 1,731 A$ 363 A$ 420 Comparable store sales increase(7).... -- 21.2% 10.0% 10.0% 4.1% 6.5% 18.9% 16.1% 7.7% Selling square feet........... 49.3 51.3 59.5 55.7 72.7 70.2 96.6 83.5 114.4 Sales per selling square foot........... A$ 437 A$ 519 A$ 489 A$ 279 A$ 251 A$ 469 A$ 538 A$ 112 A$ 123 In thousands, except percentages SELECTED AUSTRALIAN OPERATING DATA: Stores open at period-end..... 32 31 31 32 32 32 32 32 33 Average net sales per store(6)....... A$ 1,719 A$ 1,844 A$ 2,081 A$ 1,446 A$ 1,658 A$ 2,222 A$ 2,411 A$ 398 A$ 441 Comparable store sales increase(8).... -- 4.3% 8.1% 6.0% 10.6% 11.6% 5.0% 3.9% 6.6% Selling square feet........... 275.3 273.9 279.9 272.3 281.3 276.6 291.2 281.7 303.5 Sales per selling square foot........... A$ 206 A$ 216 A$ 230 A$ 165 A$ 182 A$ 256 A$ 265 A$ 45.3 A$ 46.5
7 - -------- (1) As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (effective January 31, 1997). (2) Cost of goods sold includes the cost of merchandise sold during the periods, warehouse, distribution and store-level occupancy costs. (3) Includes A$262,000 incurred during the year ended June 30, 1996 in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and an A$369,000 provision accrued in January 1997 in connection with the relocation of the Company's enameling facilities. (4) Includes an A$2.3 million gain during the year ended June 30, 1996, related to the Company's sale of its equity interest in GLG New Zealand and an A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. (5) Basic earnings per share are computed by dividing net income by the weighted average number of ordinary shares. Diluted earnings per share are computed by dividing net earnings available to ordinary shareholders, as adjusted for the effect of the elimination of after-tax interest expense related to assumed conversion of the convertible notes, by the weighted average number of Ordinary Shares and dilutive ordinary share equivalents for the period. (6) For stores open at beginning of period indicated. (7) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996, 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively, 19 and 25 for the twelve-month periods ended January 31, 1997 and 1998, respectively, and 19 and 26 for the three-month periods ended April 30, 1997 and 1998, respectively. (8) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, 31 and 33 for the seven-month periods ended January 31, 1996 and 1997, respectively, 33 and 32 for the fiscal years ended January 31, 1997 and 1998, respectively, and 30 and 30 for the three-month periods ended April 30, 1997 and 1998, respectively. 8 SUMMARY ADDITIONAL CONSOLIDATED FINANCIAL DATA As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31. The following summary additional consolidated financial data has been restated to conform the financial presentation to a January 31 fiscal year end, and are qualified by reference to and should be read in conjunction with "Selected Additional Consolidated Financial Data" and notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and notes thereto included elsewhere in this Prospectus and the financial statements for the twelve-month periods presented below included in the Registration Statement of which this Prospectus is a part. Management believes the data presented below provide a more meaningful basis of comparison between prospective and historical reporting periods, as the Company will continue to report financial information in the future on the basis of its current January 31 fiscal year end. Except for the data for the twelve-month period ended January 31, 1998, all summary additional consolidated financial data for the three-month and twelve-month periods presented below is unaudited but in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements of the Company and reflects all adjustments necessary for a fair presentation of such data. The summary additional unaudited financial data as of and for the twelve months ended January 31, 1996 and 1997 has been derived from the unaudited consolidated financial statements of the Company as of such dates and for the periods then ended, to which KPMG has reported that it has applied limited procedures in accordance with professional standards for a review of such information. These unaudited consolidated financial statements and the review report thereon are included in the Registration Statement of which this Prospectus is a part. The summary additional consolidated financial data as of and for the twelve-months ended January 31, 1998 has been derived from the consolidated financial statements of the Company as of such date and for the period then ended, which have been audited by KPMG and which are included elsewhere in this Prospectus. Operating results for the three months ended April 30, 1997 and 1998 are unaudited and are not necessarily indicative of the results that may be expected for the entire year.
THREE MONTHS ENDED TWELVE MONTHS ENDED JANUARY 31, APRIL 30, --------------------------------- -------------------- 1996 1997 1998 1997 1998 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net sales............... A$138,877 A$148,369 A$179,325 A$ 30,366 A$ 36,744 Cost of goods sold(1)... 94,899 103,324 122,072 20,891 25,117 --------- --------- --------- --------- --------- Gross profit............ 43,978 45,045 57,253 9,475 11,627 Selling, general and administrative expenses............... 38,921 40,751 48,992 9,798 12,462 Store pre-opening costs.................. 178 239 435 114 147 Relocation and closure costs(2)............... -- 1,336 20 -- 15 --------- --------- --------- --------- --------- Operating income (loss)................. 4,879 2,719 7,806 (437) (997) Equity in income of affiliates, net of tax.................... 1,205 379 547 50 96 Interest expense........ 2,428 2,236 3,334 879 388 Other expenses (income)(3)............ (2,303) 1,132 -- -- -- --------- --------- --------- --------- --------- Income (loss) before income taxes........... 5,959 (270) 5,019 (1,266) (1,289) Income tax expense (benefit).............. 496 (822) 1,488 (566) (502) --------- --------- --------- --------- --------- Net income (loss)....... A$ 5,463 A$ 552 A$ 3,531 A$ (700) A$ (787) --------- --------- --------- --------- --------- Basic earnings per share(3)............... A$ 1.23 A$ 0.13 A$ 1.43 A$ (0.38) A$ (0.17) ========= ========= ========= ========= ========= Diluted earnings per share(3)............... A$ 1.20 A$ 0.13 A$ 1.18 A$ (0.38) A$ (0.17) ========= ========= ========= ========= ========= Weighted average shares outstanding (in thousands)(4).......... 4,450 4,228 2,473 1,844 4,541 ========= ========= ========= ========= =========
9
THREE MONTHS ENDED TWELVE MONTHS ENDED JANUARY 31, APRIL 30, -------------------------------- -------------------- 1996 1997 1998 1997 1998 ----------- ----------- -------- --------- --------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In thousands BALANCE SHEET DATA: Working capital......... A$25,139 A$22,552 A$36,917 A$ 28,534 A$ 37,154 Total assets............ 67,544 67,970 82,074 71,740 89,315 Total long-term debt.... 11,631 34,276 18,121 41,468 22,363 Shareholders' equity.... 30,349 10,165 43,927 8,813 43,575 In thousands, except per share data SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 19 25 34 28 35 Average net sales per store(5)............... A$ 1,655 A$ 1,579 A$ 1,731 A$ 363 A$ 420 Comparable store sales increase(6)............ 14.2% 6.5% 18.9% 16.1% 7.7% Selling square feet..... 54.8 70.2 96.6 83.5 114.4 Sales per selling square foot................... A$ 517 A$ 469 A$ 538 A$ 112 A$ 123 In thousands, except percentages SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.................... 32 32 32 32 33 Average net sales per store(5)............... A$ 1,924 A$ 2,222 A$ 2,411 A$ 398 A$ 441 Comparable store sales increase(7)............ 1.4% 11.6% 5.0% 3.9% 6.6% Selling square feet..... 267.1 276.6 291.2 281.7 303.5 Sales per selling square foot................... A$ 231 A$ 256 A$ 265 A$ 45.3 A$ 46.5
- -------- (1) Cost of goods sold includes the cost of merchandise sold during the periods, warehouse, distribution and store-level occupancy costs. (2) Includes A$262,000 incurred during the year ended June 30, 1996 in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and an A$369,000 provision accrued in January 1997 in connection with the relocation of the Company's enameling facilities. (3) Includes an A$2.3 million gain during the year ended June 30, 1996, related to the Company's sale of its equity interest in GLG New Zealand and an A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. (4) Basic earnings per share are computed by dividing net income by the weighted average number of ordinary shares. Diluted earnings per share are computed by dividing net earnings available to ordinary shareholders, as adjusted for the effect of the elimination of after-tax interest expense related to assumed conversion of the convertible notes, by the weighted average number of Ordinary Shares and dilutive ordinary share equivalents for the period. (5) For stores open at beginning of period indicated. (6) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996, 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively, 19 and 25 for the twelve-month periods ended January 31, 1997 and 1998, respectively, and 19 and 26 for the three-month periods ended April 30, 1997 and 1998, respectively. (7) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, 31 and 33 for the seven-month periods ended January 31, 1996 and 1997, respectively, 33 and 32 for the twelve-months periods ended January 31, 1997 and 1998, respectively, and 30 and 30 for the three-month periods ended April 30, 1997 and 1998, respectively. 10 RISK FACTORS This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Prospective investors should carefully consider the factors set forth below, as well as other information contained in this Prospectus, in evaluating an investment in the Ordinary Shares and the ADSs. IMPLEMENTATION OF GROWTH STRATEGY The growth of the Company is dependent, in large part, upon the Company's ability to successfully execute its Company-owned store expansion program in the United States and its store refurbishment plan in Australia. Pursuant to the U.S. store expansion program, the Company 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 four have opened, six are under construction and the remaining five 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 further intends to refurbish four stores and, in March, opened its one planned new store in calendar 1998, and intends to refurbish two stores and open two new 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. See "Business--Store Expansion and Refurbishment." 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, 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 11 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. See "-- Management of Operational Changes" and "--Reliance on Systems." EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS The success of the Company's operations depends upon a number of factors related to consumer spending, including future economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation. If existing economic conditions were to deteriorate, 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 benefitted from a lifestyle trend toward consumers spending more quality time together in outdoor family gatherings and social activities. Any change in such trend could adversely affect consumer interest in the Company's major product lines. Moreover, the Company's products must appeal to a broad cross-section of consumers whose preferences (as to product features such as colors, styles, finishes and fuel types) cannot always be predicted with certainty and may change between sales seasons. If the Company misjudges either the market for its merchandise or its customers' purchasing habits, it may experience a material decline in sales or be required to sell inventory at reduced margins. The Company could also suffer a loss of customer goodwill if its manufacturing operations or stores do not adhere to its quality control or service procedures or otherwise fail to ensure satisfactory quality of the Company's products. These outcomes may have a material adverse effect on the Company's business, operating results and financial condition. 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 is currently in the process of relocating its enameling operations (which are located 10 miles away) to the same facilities as its barbecue and home heater manufacturing operations adjacent to its Australian headquarters, adding an in-line powder coating operation and rearranging the assembly, warehouse and Australian distribution operations to further improve its production flow, inventory control and distribution management. These changes are scheduled to be completed in June 1998. The relocation of the Company's enameling operations and related changes will cost approximately A$454,000 (of which A$369,000 has already been accrued), will require 12 additional capital expenditures of approximately A$2.8 million and will require the Company to obtain 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 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. 13 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, Barbeques Galore currently uses a system which runs on a proprietary Wang VS software environment, together with a Novell network utilizing Microsoft applications. This software processes all distribution, warehouse management, inventory control, purchasing, merchandising, financial and office automation applications. As in the United States, each store in Australia is equipped with POS terminals that receive pricing and inventory information and permit the Company to poll sales transaction data daily. The Australian system provides a range of reporting and inquiry capability at both the store and corporate levels similar to that in the United States. The Company 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. The Company's reliance upon such systems will likely increase upon the anticipated introduction of automated store replenishment in Australia. Any disruption in the operation of the Company's management information systems, or the Company's failure to continue to upgrade, integrate or expend capital on such systems as its business expands, could have a material adverse effect upon the Company's business, operating results and financial condition. Like many computer systems, the Company's Wang computer system in Australia uses two digit data fields which recognize dates using the assumption that the first two digits are "19" (i.e., the number 97 is recognized as the year 1997), such condition being referred to as the "year 2000 problem." Therefore, in the Australian system, the Company's date critical functions relating to the year 2000 and beyond, such as sales, distribution, purchasing, inventory control, financial and human resource systems, may be adversely affected unless changes are made to this computer system. The Company has appointed a computer consultant to upgrade its systems in Australia and currently intends to purchase a new UNIX server and certain additional hardware and software which, because of their more recent design, should not be subject to the year 2000 problem. The Company expects that upgrades to its computer systems with respect to the year 2000 problem will require capital expenditures of approximately A$0.75 million and will be completed by April 1999. However, no assurance can be given that these issues can be resolved in a cost-effective or timely manner or that the Company will not incur significant expense in resolving these issues. The Company's newly installed computer system in the United States has been designed to avoid the occurrence of such problems with the year 2000. 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. In addition, in August 1997, the Company appointed L.D. "Chip" Brown as Chief Operating Officer for its U.S. operations to manage daily operations in the United States, permitting Mr. Selati to concentrate on the Company's U.S. growth strategy. 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 14 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. Also during such period, the Company purchased barbecue and home heater parts from over 50 suppliers in Asia, Australia and North America. Horan's Steel and Bromic supplied the Company with approximately 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 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 15 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 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 April 30, 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 16 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. In the past, the Company's Australian operations have hedged a major portion of its imports against exchange rate fluctuations with respect to the Australian dollar. However, in its U.S. operations, the Company has not, and it currently does not, actively hedge against exchange rate fluctuations, although it may elect to do so in the future. Accordingly, changes in exchange rates may have a material adverse effect on the Company's net sales, cost of goods sold, gross margin and net income, any of which alone or in the aggregate may in turn have a material adverse effect on the Company's business, operating results and financial condition. Such currency issues could, thus, affect the market price for the ADSs. Although the Company does not anticipate paying any regular cash dividends on the Ordinary Shares or the ADSs in the foreseeable future, the above exchange rate fluctuations would affect the conversion into 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. See "Exchange Rates," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of American Depositary Receipts." CONTROL OF THE COMPANY Messrs. Sam Linz, Robert Gavshon, Sydney Selati and John Price beneficially own 28.5%, 4.9%, 3.2% and 1.6%, respectively, of the Ordinary Shares of the Company outstanding on a fully diluted basis. If these individuals as a group were to vote in the same manner on any matter requiring approval of a majority of the outstanding Ordinary Shares of the Company, such shareholders would strongly influence the outcome of such vote. This level of influence, together with the Company's charter documents, may have a significant effect on delaying, deferring or preventing a change of control of the Company and may adversely affect the voting and other rights of other holders of Ordinary Shares or ADSs in that the election of the Company's directors and the outcome of corporate actions requiring shareholder approval, such as mergers and acquisitions, changes in the Company's charter documents and certain matters relating to equity incentive plans may be effected without significant additional shareholder input. From time to time, the Company has entered into transactions with certain of these shareholders or with companies controlled by them. The Company believes that these transactions were completed on terms at least as favorable to the Company as could have been obtained from unaffiliated third parties. Such transactions and any future transactions between the Company and its directors, executive officers and other affiliates must be approved by a majority of the Company's disinterested directors. See "Certain Transactions," "Principal Shareholders," "Selling Shareholders" and "Description of Ordinary Shares" and Note 16 to the Consolidated Financial Statements. RESTRICTIONS ON FOREIGN OWNERSHIP; ANTITAKEOVER RESTRICTIONS Under Australian law, foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval from the Australian Treasurer or in certain other limited 17 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 hereby are acquired by foreign persons or their associates, then the level of foreign ownership of the Company's equity securities will be approximately 63.8%. 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 199,400 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. Such investment restrictions and dilutive acceleration events could have a material adverse effect on the Company's ability to raise capital as needed and could make more difficult or render impossible attempts by certain entities (especially foreign entities, in the case of the Takeovers Act) to acquire the Company, including attempts that might result in a premium over market price to holders of ADSs. See "Management--Executive Share Option Plan," "Management--1997 Share Option Plan" and "Description of Ordinary Shares--Australian Takeover Laws." 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 18 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. See "Description of Ordinary Shares--Australian Takeover Laws." 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%. These circumstances are described in "Certain Tax Considerations--Australian Taxation." ENFORCEABILITY OF CIVIL LIABILITIES The Company is an Australian public limited company. Most of its directors and executive officers reside outside the United States (principally in the Commonwealth of Australia). All or a substantial portion of the assets of these persons and of the Company are located outside the United States (principally in the Commonwealth of Australia). As a result, it may not be possible for investors to effect service of process within the United States upon such persons or the Company or to enforce against such persons or the Company in foreign courts judgments obtained in United States courts predicated upon the civil liability provisions of the Federal securities laws of the United States. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that there is doubt as to the enforceability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated upon federal or state securities laws of the United States, especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served in Australia. See "Description of Ordinary Shares-- Enforceability of Civil Liabilities." POSSIBLE ADVERSE EFFECT ON MARKET PRICE FOR ADSS OF SHARES ELIGIBLE FOR FUTURE SALE The Company has granted stock options to purchase up to an aggregate of 203,038 Ordinary Shares (the "Options") under the Company's Executive Share Option Plan, which options are currently owned by Sam Linz, Robert Gavshon, Sydney Selati, John Price, David James and Kevin Ralphs (or companies controlled by them), and, in connection with its IPO, granted stock options to purchase up to an aggregate of 199,400 Ordinary Shares under the 1997 Share Option Plan, exercisable in three equal installments on November 7, 2000, November 7, 2001 and October 7, 2002. The Company has also reserved an additional 129,854 authorized and unissued Ordinary Shares to grant pursuant to stock options to directors, officers, employees and independent contractors of the Company at a future date under the 1997 Share Option Plan. The Company may in the future issue these or other equity or equity derivative securities. See "Management--Executive Share Option Plan" and "Management--1997 Share Option Plan." ADSs sold in the IPO in November 1997 and option shares registered on the Company's registration statements covering the Company's Executive Share Option Plan and the 1997 Share Option Plan are also, or will be in the near future, eligible for immediate and unrestricted sale in the public market at any time. 19 Substantially all of the other shares of the Company's Ordinary Shares are not restricted and are freely tradeable in the public market. The 1,044,845 Ordinary Shares registered for sale pursuant to this Prospectus will be freely saleable after the date of this Prospectus. Sales of substantial amounts of such Ordinary Shares or ADSs or other securities, or the prospect of such sales, could adversely affect the market price of the Ordinary Shares or the ADSs and the Company's ability to raise capital through an offering of securities. See "Shares Eligible for Future Sale." POSSIBLE VOLATILITY OF ADS PRICE Since the Company's IPO in November 1997, there have been extreme fluctuations in the per share price and the trading volume of such shares. On November 7, 1997, the Company's Ordinary Shares were first sold to the public at US$11.00 per share. On December 30, 1997, the closing price on Nasdaq for the Company's Ordinary Shares was US$5.75. On April 30, 1998, the closing price on Nasdaq for the Company's Ordinary Shares was US$9.63. There can be no assurance that an active or stable trading market will develop or, if one does develop, that it will be maintained. In addition, the market price of the ADSs may be significantly affected by such factors as quarter to quarter variations in the Company's results of operations and general market conditions or market conditions specific to the industries in which the Company operates. In addition, the stock market in recent years has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of the Ordinary Shares or ADSs. There can be no assurance that the Depositary will be able to effect any currency conversion or to sell or otherwise dispose of any distributed or offered property, subscription or other rights, Ordinary Shares or other securities related to the ADSs in a timely manner or at a specified rate or price, as the case may be. See "Certain Transactions--Delisting Transaction and Conversion of Convertible Notes" and "Description of American Depositary Receipts." 20 EXCHANGE RATES The Australian dollar is convertible into U.S. dollars at freely floating rates, and there are currently no restrictions on the flow of Australian currency between Australia and the United States. On June 1, 1998, the Noon Buying Rate was US$0.6150 = A$1.00. The following table sets forth, for the periods indicated, certain information concerning Noon Buying Rates for Australian dollars.
FISCAL YEAR PERIOD ENDED JANUARY 31, AVERAGE(1) HIGH LOW END ----------------- ---------- ------ ------ ------ 1994 First Quarter.............................. 0.7020 0.7217 0.6692 0.7073 Second Quarter............................. 0.6837 0.7095 0.6655 0.6900 Third Quarter.............................. 0.6639 0.6916 0.6450 0.6665 Fourth Quarter............................. 0.6782 0.7108 0.6569 0.7086 1995 First Quarter.............................. 0.7143 0.7248 0.7016 0.7155 Second Quarter............................. 0.7312 0.7452 0.7041 0.7395 Third Quarter.............................. 0.7400 0.7458 0.7303 0.7425 Fourth Quarter............................. 0.7649 0.7780 0.7404 0.7566 1996 First Quarter.............................. 0.7383 0.7590 0.7229 0.7282 Second Quarter............................. 0.7248 0.7442 0.7088 0.7385 Third Quarter.............................. 0.7508 0.7704 0.7312 0.7595 Fourth Quarter............................. 0.7427 0.7607 0.7339 0.7463 1997 First Quarter.............................. 0.7717 0.7915 0.7483 0.7875 Second Quarter............................. 0.7926 0.8025 0.7727 0.7727 Third Quarter.............................. 0.7895 0.7998 0.7731 0.7917 Fourth Quarter............................. 0.7908 0.8162 0.7623 0.7623 1998 First Quarter.............................. 0.7786 0.7982 0.7574 0.7806 Second Quarter............................. 0.7572 0.7866 0.7349 0.7478 Third Quarter.............................. 0.7279 0.7508 0.6866 0.7011 Fourth Quarter............................. 0.6709 0.7126 0.6357 0.6845 1999 First Quarter.............................. 0.6650 0.6868 0.6440 0.6520 Second Quarter (through June 1, 1998)...... 0.6312 0.6520 0.6150 0.6150
- -------- (1) Determined by averaging the closing price for each date in the period. Fluctuations in the exchange rate between the Australian dollar and the U.S. dollar may affect the Company's earnings, the book value of its assets and its shareholders' equity as expressed in Australian and U.S. dollars, and consequently may affect the market price for the ADSs. Such fluctuations will also affect the conversion into U.S. dollars by the Depositary of cash dividends, if any, paid in Australian dollars on the Ordinary Shares represented by the ADSs. See "Dividend Policy" and "Description of American Depositary Receipts--Distributions on Deposited Securities." 21 USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Resale ADSs by the Selling Shareholders. DIVIDEND POLICY Since the Ordinary Shares were delisted from the Australian Stock Exchange ("ASE") on December 31, 1996, the Company has not declared or paid any cash dividends on its Ordinary Shares other than a dividend in an aggregate amount equal to A$500,000 paid on April 21, 1997. The Company does not anticipate paying any regular dividends on the Ordinary Shares or ADSs in the foreseeable future. In addition, the Company is subject to certain restrictions on the declaration or payment of dividends under the credit facility (the "ANZ Facility") by and between the Company and the Australian and New Zealand Banking Group Limited ("ANZ"), as well as the term loan and revolving line of credit facility (the "Merrill Lynch Facility") by and between Barbeques Galore, Inc. (the Company's U.S. operating subsidiary) and Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"). CAPITALIZATION The following table sets forth the capitalization of the Company as of April 30, 1998. This table should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere herein or in the Registration Statement of which this Prospectus is a part.
APRIL 30, 1998 ------------------ ACTUAL ACTUAL(2) -------- --------- (UNAUDITED) Dollars in thousands Current portion of long-term debt........................ A$ 147 US$ 96 ======== ========= Long-term debt........................................... 18,975 12,372 Shareholders' equity: Ordinary Shares, A$3.64 par value: 27,437,853 shares authorized; 4,541,652 shares issued and outstanding, actual(1)............................................. 16,532 10,779 Additional paid-in capital............................... 24,554 16,009 Foreign currency translation adjustment.................. 1,612 1,051 Retained earnings........................................ 877 572 -------- --------- Total shareholders' equity........................... 43,575 28,411 -------- --------- Total capitalization............................... A$62,550 US$40,783 ======== =========
- -------- (1) Excludes an aggregate of 203,038 Ordinary Shares issuable upon the exercise of stock options granted to certain executives of the Company in January 1997, but not exercisable until February 1999, except under certain circumstances. Also excludes 199,400 Ordinary Shares issuable upon the exercise of stock options granted under the Company's 1997 Share Option Plan concurrently with the Offering, but not exercisable until November 7, 2000, at which time one-third of such shares shall become exercisable, the remaining two-thirds to become exercisable in equal installments on November 7, 2001 and October 7, 2002. See "Management-- Executive Share Option Plan" and "Management--1997 Share Option Plan." (2) Amounts translated at the Noon Buying Rate on April 30, 1998 of US$0.6520 = A$1.00. 22 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Prospectus. The statement of operations data for the fiscal years ended June 30, 1995 and 1996 and the balance sheet data as of June 30, 1996 were derived from the consolidated financial statements of the Company for the fiscal years ended June 30, 1995 and 1996, which have been audited by Horwath Sydney Partnership, independent auditors, and are included in the Registration Statement of which this Prospectus is a part. The statement of operations data for the fiscal years ended June 30, 1993 and 1994 and the balance sheet data as of June 30, 1993, 1994 and 1995 were derived from the consolidated financial statements of the Company for the fiscal years ended June 30, 1993, 1994 and 1995 which have been audited by Horwath Sydney Partnership, but are not included herein. The statement of operations data for the seven months ended January 31, 1997 and the twelve months ended January 31, 1998 and the balance sheet data as of such dates have been derived from the consolidated financial statements of the Company for the seven months ended January 31, 1997 and the twelve months ended January 31, 1998, which have been audited by KPMG, independent certified public accountants, and are included elsewhere herein. The selected consolidated financial data for the seven months ended January 31, 1996 and the twelve months ended January 31, 1997 and the balance sheet data as of such dates were derived from the foregoing consolidated financial statements of the Company for the fiscal year ended June 30, 1996 and for the seven months ended January 31, 1997, and are unaudited, and in the opinion of management include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the information included therein. The selected consolidated financial data for the three months ended April 30, 1997 and 1998 were derived from the unaudited consolidated financial statements as of and for the periods then ended, which are not included herein.
SEVEN MONTHS TWELVE MONTHS ENDED ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1) JANUARY 31,(1) ---------------------------------------- --------------------- --------------------- 1993 1994 1995 1996 1996 1997 1997 1998 --------- --------- --------- --------- ----------- --------- ----------- --------- (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net sales.. A$114,973 A$124,635 A$138,057 A$141,691 A$ 92,074 A$ 98,752 A$148,369 A$179,325 Cost of goods sold(2).. 82,630 84,104 92,290 98,158 62,789 67,955 103,324 122,072 --------- --------- --------- --------- --------- --------- --------- --------- Gross profit.. 32,343 40,531 45,767 43,533 29,285 30,797 45,045 57,253 Selling, general and administrative expenses.. 27,992 35,462 40,058 39,339 24,328 25,740 40,751 48,992 Store pre- opening costs.. 205 135 64 153 114 200 239 435 Relocation and closure costs(3).. -- -- -- 875 -- 461 1,336 20 --------- --------- --------- --------- --------- --------- --------- --------- Operating income (loss).. 4,146 4,934 5,645 3,166 4,843 4,396 2,719 7,806 Equity in income of affiliates, net of tax.. 412 660 963 836 709 252 379 547 Interest expense.. 2,526 1,999 2,230 2,262 1,619 1,593 2,236 3,334 Other expenses (income)(4).. -- -- -- (2,303) (2,303) 1,132 1,132 -- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes.. 2,032 3,595 4,378 4,043 6,236 1,923 (270) 5,019 Income tax expense (benefit).. 176 1,278 573 98 1,286 366 (822) 1,488 --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss).. A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 A$ 4,950 A$ 1,557 A$ 552 A$ 3,531 --------- --------- --------- --------- --------- --------- --------- --------- Basic earnings per share(5).. A$ 0.46 A$ 0.53 A$ 0.86 A$ 0.89 A$ 1.11 A$ 0.38 A$ 0.13 A$ 1.43 ========= ========= ========= ========= ========= ========= ========= ========= Diluted earnings per share(5).. A$ 0.46 A$ 0.53 A$ 0.86 A$ 0.89 A$ 1.11 A$ 0.38 A$ 0.13 A$ 1.18 ========= ========= ========= ========= ========= ========= ========= ========= Weighted average shares outstanding(5).. 4,047 4,358 4,450 4,450 4,450 4,073 4,228 2,473 ========= ========= ========= ========= ========= ========= ========= ========= In thousands BALANCE SHEET DATA: Working capital.. A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 A$ 25,139 A$ 22,552 A$ 22,552 A$ 36,917 Total assets.. 55,400 60,538 67,624 66,562 67,544 67,970 67,970 82,074 Total long- term debt.. 10,223 16,988 17,690 15,819 11,631 34,276 34,276 18,121 Shareholders' equity.. 21,316 24,385 26,326 27,817 30,349 10,165 10,165 43,927 In thousands, except percentages SELECTED U.S. OPERATING DATA: Stores open at period- end.. 17 17 21 19 25 25 34 Average net sales per store(6).. A$ 1,389 A$ 1,630 A$ 1,572 A$ 862 A$ 822 A$ 1,579 A$ 1,731 Comparable store sales increase(7).. -- 21.2% 10.0% 10.0% 4.1% 6.5% 18.9% Selling square feet.. 49.3 51.3 59.5 55.7 72.7 70.2 96.6 Sales per selling square foot.. A$ 437 A$ 519 A$ 489 A$ 279 A$ 251 A$ 469 A$ 538 In thousands, except percentages SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.. 32 31 31 32 32 32 32 Average net sales per store(6).. A$ 1,719 A$ 1,844 A$ 2,081 A$ 1,446 A$ 1,658 A$ 2,222 A$ 2,411 Comparable store sales increase(8).. -- 4.3% 8.1% 6.0% 10.6% 11.6% 5.0% Selling square feet.. 275.3 273.9 279.9 272.3 281.3 276.6 291.2 Sales per selling square foot.. A$ 206 A$ 216 A$ 230 A$ 165 A$ 182 A$ 256 A$ 265 THREE MONTHS ENDED APRIL 30, ----------------------- 1997 1998 ----------- ----------- (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net sales.. A$ 30,366 A$ 36,744 Cost of goods sold(2).. 20,891 25,117 ----------- ----------- Gross profit.. 9,475 11,627 Selling, general and administrative expenses.. 9,798 12,462 Store pre- opening costs.. 114 147 Relocation and closure costs(3).. -- 15 ----------- ----------- Operating income (loss).. (437) (997) Equity in income of affiliates, net of tax.. 50 96 Interest expense.. 879 388 Other expenses (income)(4).. -- -- ----------- ----------- Income (loss) before income taxes.. (1,266) (1,289) Income tax expense (benefit).. (566) (502) ----------- ----------- Net income (loss).. A$ (700) A$ (787) ----------- ----------- Basic earnings per share(5).. A$ (0.38) A$ (0.17) =========== =========== Diluted earnings per share(5).. A$ (0.38) A$ (0.17) =========== =========== Weighted average shares outstanding(5).. 1,844 4,541 =========== =========== In thousands BALANCE SHEET DATA: Working capital.. A$ 28,534 A$ 37,154 Total assets.. 71,740 89,315 Total long- term debt.. 41,468 22,363 Shareholders' equity.. 8,813 43,575 In thousands, except percentages SELECTED U.S. OPERATING DATA: Stores open at period- end.. 28 35 Average net sales per store(6).. A$ 363 A$ 420 Comparable store sales increase(7).. 16.1% 7.7% Selling square feet.. 83.5 114.4 Sales per selling square foot.. A$ 112 A$ 123 In thousands, except percentages SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.. 32 33 Average net sales per store(6).. A$ 398 A$ 441 Comparable store sales increase(8).. 3.9% 6.6% Selling square feet.. 281.7 303.5 Sales per selling square foot.. A$ 45.3 A$ 46.5
23 - ------- (1) As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (effective January 31, 1997). (2) Cost of goods sold includes the cost of merchandise sold during the periods, warehouse, distribution and store-level occupancy costs. (3) Includes A$262,000 incurred during the year ended June 30, 1996 in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and an A$369,000 provision accrued in January 1997 in connection with the relocation of the Company's enameling facilities. (4) Includes an A$2.3 million gain during the year ended June 30, 1996, related to the Company's sale of its equity interest in GLG New Zealand and an A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. (5) Basic earnings per share are computed by dividing net income by the weighted average number of ordinary shares. Diluted earnings per share are computed by dividing net earnings available to ordinary shareholders, as adjusted for the effect of the elimination of after-tax interest expense related to assumed conversion of the convertible notes, by the weighted average number of Ordinary Shares and dilutive ordinary share equivalents for the period. (6) For stores open at beginning of period indicated. (7) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996, 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively, 19 and 25 for the twelve- month periods ended January 31, 1997 and 1998, respectively, and 19 and 26 for the three-month periods ended April 30, 1997 and 1998, respectively. (8) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, 31 and 33 for the seven- month periods ended January 31, 1996 and 1997, respectively, 33 and 32 for the fiscal years ended January 31, 1997 and 1998, respectively, and 30 and 30 for the three-month periods ended April 30, 1997 and 1998, respectively. 24 SELECTED ADDITIONAL CONSOLIDATED FINANCIAL DATA As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31. The following selected additional consolidated financial data has been restated to conform the financial presentation to a January 31 fiscal year end, and are qualified by reference to and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Selected Consolidated Financial Data of the Company and the consolidated financial statements and notes thereto included elsewhere in this Prospectus and the financial statements for the twelve-month periods presented below included in the Registration Statement of which this Prospectus is a part. Management believes that the data presented below provide a more meaningful basis of comparison between prospective and historical reporting periods, as the Company will continue to report financial information in the future on the basis of its current January 31 fiscal year end. Except for the data for the twelve-month period ended January 31, 1998, all selected additional consolidated financial data for the three-month and twelve-month periods presented below is unaudited but, in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements of the Company and reflects all adjustments necessary for a fair presentation of such data. The selected additional unaudited financial data as of and for the twelve months ended January 31, 1996 and 1997 has been derived from the unaudited consolidated financial statements of the Company as of such dates and for the periods then ended, to which KPMG has reported that it has applied limited procedures in accordance with professional standards for a review of such information. These unaudited consolidated financial statements and the review report thereon are included elsewhere in the Registration Statement of which this Prospectus is a part. The summary consolidated financial data as of and for the twelve-months ended January 31, 1998 has been derived from the consolidated financial statements of the Company as of such date and for the period then ended, which have been audited by KPMG and which are included elsewhere in this Prospectus. Operating results for the three months ended April 30, 1997 and 1998 are unaudited and are not necessarily indicative of the results that may be expected for the entire year.
THREE MONTHS TWELVE MONTHS ENDED JANUARY 31, ENDED APRIL 30, --------------------------------- ------------------ 1996 1997 1998 1997 1998 ----------- ----------- --------- -------- -------- (UNAUDITED) (UNAUDITED) (UNADUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net sales............... A$138,877 A$148,369 A$179,325 A$30,366 A$36,744 Cost of goods sold(1)... 94,899 103,324 122,072 20,891 25,117 --------- --------- --------- -------- -------- Gross profit............ 43,978 45,045 57,253 9,475 11,627 Selling, general and administrative expenses............... 38,921 40,751 48,992 9,798 12,462 Store pre-opening costs.................. 178 239 435 114 147 Relocation and closure costs(2)............... -- 1,336 20 -- 15 --------- --------- --------- -------- -------- Operating income (loss)................. 4,879 2,719 7,806 (437) (997) Equity in income of affiliates, net of tax.................... 1,205 379 547 50 96 Interest expense........ 2,428 2,236 3,334 879 388 Other expenses (income)(3)............ (2,303) 1,132 -- -- -- --------- --------- --------- -------- -------- Income (loss) before income taxes........... 5,959 (270) 5,019 (1,266) (1,289) Income tax expense (benefit).............. 496 (822) 1,488 (566) (502) --------- --------- --------- -------- -------- Net income (loss)....... A$ 5,463 A$ 552 A$ 3,531 A$ (700) A$ (787) --------- --------- --------- -------- -------- Basic earnings per share(3)............... A$ 1.23 A$ 0.13 A$ 1.43 A$ (0.38) A$ (0.17) ========= ========= ========= ======== ======== Diluted earnings per share(3)............... A$ 1.20 A$ 0.13 A$ 1.18 A$ (0.38) A$ (0.17) ========= ========= ========= ======== ======== Weighted average shares outstanding (in thousands)(4)...... 4,450 4,228 2,473 1,844 4,541 ========= ========= ========= ======== ========
25
THREE MONTHS TWELVE MONTHS ENDED JANUARY 31, ENDED APRIL 30, --------------------------------- -------------------- 1996 1997 1998 1997 1998 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In thousands, except per share data BALANCE SHEET DATA: Working capital......... A$ 25,139 A$ 22,552 A$ 36,917 A$ 28,534 A$ 37,154 Total assets............ 67,544 67,970 82,074 71,740 89,315 Total long-term debt.... 11,631 34,276 18,121 41,468 22,363 Shareholders' equity.... 30,349 10,165 43,927 8,813 43,575 In thousands, except percentages SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 19 25 34 28 35 Average net sales per store(5)............... A$ 1,655 A$ 1,579 A$ 1,731 A$ 363 A$ 420 Comparable store sales increase(6)............ 14.2% 6.5% 18.9% 16.1% 7.7% Selling square feet..... 54.8 70.2 96.6 83.5 114.4 Sales per selling square foot................... A$ 517 A$ 469 A$ $538 A$ 112 A$ 123 In thousands, except percentages SELECTED AUSTRALIAN OP- ERATING DATA: Stores open at period- end.................... 32 32 32 32 33 Average net sales per store(5)............... A$ 1,924 A$ 2,222 A$ 2,411 A$ 398 A$ 441 Comparable store sales increase(7)............ 1.4% 11.6% 5.0% 3.9% 6.6% Selling square feet..... 267.1 276.6 291.2 281.7 303.5 Sales per selling square foot................... A$ 231 A$ 256 A$ 265 A$ 45.3 A$ 46.5
- -------- (1) Cost of goods sold includes the cost of merchandise sold during the periods, warehouse, distribution and store-level occupancy costs. (2) Includes A$262,000 incurred during the year ended June 30, 1996 in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and an A$369,000 provision accrued in January 1997 in connection with the relocation of the Company's enameling facilities. (3) Includes an A$2.3 million gain during the year ended June 30, 1996, related to the Company's sale of its equity interest in GLG New Zealand and an A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. (4) Basic earnings per share are computed by dividing net income by the weighted average number of ordinary shares. Diluted earnings per share are computed by dividing net earnings available to ordinary shareholders, as adjusted for the effect of the elimination of after-tax interest expense related to assumed conversion of the convertible notes, by the weighted average number of Ordinary Shares and dilutive ordinary share equivalents for the period. (5) For stores open at beginning of period indicated. (6) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996, 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively, 19 and 25 for the twelve- month periods ended January 31, 1997 and 1998, respectively, and 19 and 26 for the three-month periods ended April 30, 1997 and 1998, respectively. (7) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, 31 and 33 for the seven- month periods ended January 31, 1996 and 1997, respectively, 33 and 32 for the twelve-month periods ended January 31, 1997 and 1998, respectively, and 30 and 30 for the three-month periods ended April 30, 1997 and 1998, respectively. 26 Unaudited Additional Quarterly Financial Data. The following table sets forth, for the periods indicated, certain selected statement of operations data and operating data for each of the Company's last eight fiscal quarters. The quarterly statement of operations data and selected operating data set forth below were derived from unaudited financial statements of the Company, which in the opinion of management of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation thereof.
QUARTER ENDED -------------------------------------------------------------------------- JUL 31, OCT 31, JAN 31, APR 30, JUL 31, OCT 31, JAN 31, APR 30, 1996 1996 1997 1997 1997 1997 1998 1998 -------- -------- -------- -------- -------- -------- -------- -------- In thousands, except per share data STATEMENT OF OPERATIONS DATA: Net Sales............... A$31,967 A$35,255 A$53,494 A$30,366 A$40,028 A$43,539 A$65,392 A$36,744 Cost of goods sold...... 22,879 24,249 35,989 20,891 27,529 29,815 43,836 25,117 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit............ 9,088 11,006 17,505 9,475 12,499 13,724 21,556 11,627 Selling, general and administrative expenses............... 9,576 10,088 12,351 9,798 11,930 12,384 14,874 12,462 Store pre-opening costs.................. 64 79 96 114 95 37 189 147 Relocation and closure costs.................. 875 -- 461 -- -- -- 20 15 -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss)................. (1,427) 839 4,597 (437) 474 1,303 6,473 (997) Equity in income of affiliates............. 87 103 109 50 138 153 206 96 Interest expense........ 438 678 710 879 881 1,111 463 388 Other expenses (income)............... -- 36 1,096 -- -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income taxes........... (1,778) 228 2,900 (1,266) (269) 345 6,216 (1,289) Income tax expense (benefit).............. (1,330) 98 847 (566) (83) 143 1,996 (502) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)....... A$ (448) A$ 130 A$ 2,053 A$ (700) A$ (186) A$ 202 A$ 4,220 A$ (787) ======== ======== ======== ======== ======== ======== ======== ======== Basic earnings per share.................. A$ (0.10) A$ 0.03 A$ 0.58 A$ (0.38) A$ (0.10) A$ 0.11 A$ 0.97 A$ (0.17) ======== ======== ======== ======== ======== ======== ======== ======== Diluted earnings per share.................. A$ (0.10) A$ 0.03 A$ 0.52 A$ (0.38) A$ (0.10) A$ 0.11 A$ 0.96 A$ (0.17) ======== ======== ======== ======== ======== ======== ======== ======== Weighted average shares outstanding............ 4,450 4,450 3,569 1,844 1,844 1,844 4,336 4,542 ======== ======== ======== ======== ======== ======== ======== ========
27 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 which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Barbeques Galore 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 April 30, 1998, the Company owned and operated 33 stores in all six states in Australia and 38 stores (including three U.S. Navy concession stores) in seven 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. These categories represented 43.1%, 34.4%, 8.9% and 12.9%, respectively, of the Company's net sales for the twelve months ended January 31, 1998, representing a 9.1%, 52.9%, (3.8)% and 19.6% increase (decrease), over their respective net sales levels for the twelve months ended January 31, 1997. For the three months ended April 30, 1998, these categories represented 38.3%, 46.2%, 6.9% and 7.9%, respectively, of the Company's net sales for such period, representing a 10.5%, 50.5%, (6.4)% and (8.8)% increase (decrease) over their respective net sales levels for the three months ended April 30, 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. In the United States, the Company has embarked upon a major program to expand Company-owned stores. In calendar 1997, the Company opened 10 new stores and plans to open approximately 15 new stores in calendar 1998, of which four have opened, six are under construction and the remaining five 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. In Australia, the Company has undertaken a refurbishment program to relocate or remodel existing stores. In calendar 1997, the Company remodelled five stores in Australia, opened one new store, relocated one store and closed one store. In calendar 1998, the Company currently plans to refurbish four stores in addition to the one planned new store already opened in Australia in that time frame. The Company also intends to refurbish two stores in Australia and open two new stores in Australia 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. As a result of its store expansion and refurbishment programs, the Company has experienced, and expects to continue to experience, increases in store pre-opening costs and refurbishment-related expenses. See "Risk Factors--Implementation of Growth Strategy." A number of the Company's existing licensees have elected to refurbish their stores in accordance with the Company's established criteria although no licensee is required to do so. The Company maintains an assistance program to provide advice relating to these enhancements. No financial incentives are offered directly by the Company to encourage licensee refurbishment, although the Company believes its new store concept provides a more consumer-friendly shopping environment. The Company expects that Australian licensing will provide 28 moderate growth in revenues if the economy of rural Australia continues to revitalize. The Company may license additional Barbeques Galore stores in Australia on a selective basis, although it does not intend to franchise any additional stores in the United States (except within geographical territories as required under existing franchise agreements). Although the Company has recently experienced some growth in its wholesale operations, it does not expect to experience significant revenue growth in the future and currently has no plans to operate a wholesale distribution business in the United States. See "Risk Factors--Effect of Economic Conditions and Consumer Trends," "Business--Licensing and Franchising" and "Business--Business Strengths and Competition--Store Environment." 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. By controlling its own manufacturing operations, the Company believes it is able to realize higher margins, control product development and improve inventory flexibility and supply. The Company estimates that, during the twelve months ended January 31, 1998, approximately 40% of its barbecue sales were derived from sales of its proprietary barbecues, and approximately 65% of its home heating sales were derived from sales of its proprietary home heating lines. The Company believes that its existing manufacturing and enameling operations are sufficient to meet presently anticipated production increases that may arise from the Company's store expansion and refurbishment program. See "Risk Factors--Management of Operational Changes" and "Business-- Manufacturing." In connection with the implementation of its United States and Australian growth strategy, the Company incurred several one-time expenses during 1996. The Company relocated and combined its barbecue manufacturing operations from 11 separate off-site buildings to a single facility at its corporate headquarters and distribution center in Sydney, Australia at an expense of approximately A$613,000 plus additional capital expenditures of approximately A$2.3 million. This relocation has resulted in initial cost savings of approximately A$515,000 through the end of July 1997. In a further effort to improve its production flow, inventory control and distribution management, the Company is in the process of relocating its enameling operations to the same facility, and intends to add an in-line powder coating operation and rearrange the assembly, warehouse and distribution operations. These changes are scheduled to be completed in the first half of 1998 at an expected cost of A$454,000, against which the Company has already accrued A$369,000. In addition, the Company has purchased two properties nearby the Company's Australian headquarters, for an aggregate purchase price of approximately A$5.25 million, with an additional approximately A$1.0 million needed to upgrade one of the properties, which properties will provide additional warehouse, distribution and assembly space. As of April 30, 1998, the Company has closed on one of the properties and incurred approximately A$3.5 million of such capital expenditure, with the remainder of the purchase price and upgrade expense expected to be incurred between June and August 1998, after the closing of the purchase of the second property. The Company believes these changes will result in estimated initial cost savings of A$350,000 to A$450,000 in the first full twelve months after completion. The planned relocation of the Company's enameling operations and related changes will involve an additional A$2.8 million in capital expenditures, a significant amount of which will be expended after April 30, 1998, and has required the Company to obtain a number of building, environmental and other governmental permits, some of which are currently being processed. In addition, the Company incurred approximately A$354,000 of one-time charges relating to the restructuring of its Australian licensing division (of which A$262,000 was incurred during the year ended June 30, 1996 and the remainder was accrued in January 1997), in which the licensing division's management and administration were integrated into the Company's retail and wholesale divisions. The restructuring has resulted in an estimated annual cost savings of A$400,000. See "Risk Factors--Management of Operational Changes," "Risk Factors-- Management of Operational Changes," "Business--Manufacturing" and "Business-- Licensing and Franchising." In December 1996, the Company completed its delisting from the ASE, which included the repurchase of Ordinary Shares from the public. These transactions were financed through A$11.2 million in borrowings under the ANZ Facility and A$10.0 million in proceeds from the sale of the Convertible Notes, which were converted into an aggregate of 1,197,926 Ordinary Shares in connection with the Company's IPO in November 1997. In connection with the delisting and issuance of the Convertible Notes, the Company incurred various one-time 29 charges (primarily financing, underwriting and legal fees) aggregating approximately A$1.1 million. The Company repaid a portion of such debt in full and converted the remainder of such debt into Ordinary Shares upon consummation of its IPO, and over the lifetime of such debt, paid interest totalling approximately A$900,000. In connection with its IPO, the Company and certain shareholders of the Company sold 1,700,000 ADSs at a price of US$11.00 per share for an aggregate offering amount of approximately US$18.7 million, of which the Company received approximately US$16.5 million. After registration expenses of approximately A$493,580, underwriting expenses of approximately A$1,652,597 and other related expenses of A$1,749,506 (of which A$83,703 were related to direct and indirect reimbursements to directors and officers of the Company for expenses incurred in connection with the IPO), the Company's net proceeds from that offering were approximately A$19.7 million (approximately US$13.8 million). See "Certain Transactions--Recent Delisting Transaction and Conversion of Convertible Notes." The Company's business is subject to substantial seasonal variations which have caused, and are expected to continue to cause, its quarterly results of operations to fluctuate significantly. Historically, the Company has realized a major portion of its net sales and net income for the year during the Australian summer months (fiscal fourth quarter). The Company expects that its net income during U.S. summer months (fiscal second quarter) will increase with the Company's planned U.S. store expansion. See "Risk Factors-- Seasonality; Weather; Fluctuations in Results." The Company recognizes income from affiliates representing its one-third equity interest in Bromic and its 50% equity interest in GLG Taiwan. The Company also received income from its 50% equity interest in GLG New Zealand. The Company sold its equity interest in GLG New Zealand in December 1995. In 1997, the Company changed its fiscal year-end from June 30 to January 31 in order to conform to the conventional fiscal year for the U.S. retail industry. The Company is subject to a corporate tax rate of 36% in Australia and 34% in the United States (excluding state taxes). Historically, the Company's tax rate has been lower than these stated rates as a result of the exclusion of affiliate income items from Australian taxation and the realization of net operating loss carryforwards against U.S. income. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected statement of operations data as a percentage of net sales:
TWELVE MONTHS SEVEN MONTHS TWELVE MONTHS THREE MONTHS ENDED ENDED ENDED ENDED JUNE 30, JANUARY 31, JANUARY 31, APRIL 30 -------------- ----------------- ----------------- ----------------------- 1995 1996 1996 1997 1997 1998 1997 1998 ------ ------ ----------- ----- ----------- ----- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net Sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold...... 66.8 69.3 68.2 68.8 69.6 68.1 68.8 68.4 ------ ------ ----- ----- ----- ----- ----- ----- Gross profit............ 33.2 30.7 31.8 31.2 30.4 31.9 31.2 31.6 Selling, general and administrative expenses............... 29.0 27.8 26.4 26.1 27.5 27.3 32.3 33.9 Store pre-opening costs.................. 0.0 0.1 0.1 0.2 0.2 0.2 0.4 0.4 Relocation and closure costs.................. 0.0 0.6 0.0 0.5 0.9 0.0 0.0 0.0 ------ ------ ----- ----- ----- ----- ----- ----- Operating income (loss)................. 4.2 2.2 5.3 4.4 1.8 4.4 (1.5) (2.7) Equity in income or affiliates, net of tax.................... 0.7 0.6 0.8 0.3 0.3 0.3 0.2 0.3 Interest expense........ 1.6 1.6 1.8 1.6 1.5 1.9 2.9 1.1 Other expenses (income)............... 0.0 (1.6) (2.5) 1.1 0.8 0.0 0.0 0.0 ------ ------ ----- ----- ----- ----- ----- ----- Income (loss) before income taxes........... 3.3 2.8 6.8 2.0 (0.2) 2.8 (4.2) (3.5) Income tax expense (benefit).............. 0.4 0.1 1.4 0.4 (0.6) 0.8 (1.9) (1.4) ------ ------ ----- ----- ----- ----- ----- ----- Net income (loss)....... 2.9% 2.7% 5.4% 1.6% 0.4% 2.0% (2.3)% (2.1)% ====== ====== ===== ===== ===== ===== ===== =====
30 Three Months Ended April 30, 1998 (Unaudited) Compared to Three Months Ended April 30, 1997 (Unaudited) Net sales increased by approximately A$6.3 million, or 21.0%, to A$36.7 million for the three months ended April 30, 1998 from A$30.4 million for the three months ended April 30, 1997. One new store was opened in the United States during the three months ended April 30, 1998. In Australia one new store was opened and no stores were refurbished during this period. Comparable store sales increased 7.1% and contributed A$3.3 million to the increase in net sales. Comparable store sales increased 7.7% in the United States and 6.6% in Australia. Increased sales of A$2.7 million also resulted from eight new stores which opened in the United States in the previous nine months and which did not form part of the comparative store sales. Gross profit increased approximately A$2.1 million, or 22.7% to A$11.6 million for the three months ended April 30, 1998 from A$9.5 million for the three months ended April 30, 1997. Gross margin (gross profit as a percentage of sales) increased to 31.6% during the three months ended April 30, 1998 from 31.2% during the comparable period in 1997. The increase in gross margin was primarily due to sales mix. Selling, general and administrative expenses (which exclude store pre- opening expenses) increased approximately A$2.7 million, or 27.2%, to A$12.5 million for the three months ended April 30, 1998 from A$9.8 million for the three months ended April 30, 1997. As a percentage of net sales, selling, general and administrative expenses increased to 33.9% during the three months ended April 30, 1998 from 32.3% during the comparable period in 1997. The increase was primarily due to lower operating leverage from the greater number of stores open in the United States and Australia in the first quarter of 1998 during a period when sales are at their seasonal low, additional expenditure incurred in the United States on the build-up of the infrastructure subsequent to the first quarter of 1997 and increased Australian retail advertising expenditure prior to the Easter selling season in 1998. Store pre-opening expenses increased by A$33,000 to A$147,000 due to the number and timing of United States' store opening expenditure. Operating loss increased by $560,000 to A$997,000 for the three months ended April 30, 1998 from A$437,000 for the three months ended April 30, 1997. Income from affiliates increased by A$46,000 to A$96,000 in the three months ended April 30, 1998 from A$50,000 for the three months ended April 30, 1997. This increase resulted mainly from an increase in profitability of the Company's Taiwanese affiliate. Interest expense decreased by A$491,000 to A$388,000 in the three months ended April 30, 1998 from A$879,000 for the three months ended April 30, 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 38.9% in the three months ended April 30, 1998 and 44.7% in the three months ended April 30, 1997. The higher effective tax rate (a benefit) in the comparable period in 1997 reflects an over-provision in the prior period. Twelve Months Ended January 31, 1998 (Audited) Compared to Twelve Months Ended January 31, 1997 (Unaudited) Net sales increased approximately A$30.9 million, or 20.9%, to A$179.3 million for the twelve months ended January 31, 1998 from A$148.4 million for the twelve months ended January 31, 1997. Eleven new stores were opened in the United States during the twelve months ended January 31, 1998 of which eight were in existing markets, including one franchise store in Atlanta, and the remaining three in San Antonio, Texas, Mandarin, Florida and Pearl Harbor, Hawaii (a U.S. Navy concession store). In Australia, one store was opened and four refurbished or relocated. Comparable store sales increased 13% and contributed A$13.1 million of the 31 increase in net sales. Comparable store sales increased 18.9% in the United States and 5.0% in Australia. Increased sales also resulted from stores not forming part of the comparative store sales, including new stores opened in the U.S. in the previous twelve months. The balance of the increased sales was primarily attributable to an A$3.8 million increase in Australian wholesale sales, mainly to mass merchandisers. Gross profit increased approximately A$12.3 million, or 27.1%, to A$57.3 million for the twelve months ended January 31, 1998 from A$45.0 million for the twelve months ended January 31, 1997. Gross margin (gross profit as a percentage of sales) increased to 31.9% during the twelve months ended January 31, 1998 from 30.4% during the comparable period in 1997. The increase in gross margin was primarily due to production efficiencies gained in the Australian manufacturing operation. The increase was partially offset by a reduction in gross margin in the United States as a result mainly of a change in product mix and newer stores with a typically lower gross margin in their first year of operation and additional distribution costs incurred to support the store expansion program. Selling, general and administrative expenses (which exclude store pre- opening expenses) increased approximately A$8.2 million, or 20.2%, to A$49.0 million for the twelve months ended January 31, 1998 from A$40.8 million for the twelve months ended January 31, 1997. As a percentage of net sales, selling, general and administrative expenses decreased to 27.3% during the twelve months ended January 31, 1998 from 27.5% during the comparable period in 1997. Store pre-opening expenses increased A$196,000 to A$435,000 due to three more company-owned stores opening in the twelve months ended January 31, 1998 than in the comparable period in 1997. Relocation and closure costs decreased by $1.3 million to A$20,000 for the twelve months ended January 31, 1998. These costs mainly relate to the restructuring of the Licensee and Wholesale Divisions and the relocation of manufacturing operations. Operating income (excluding relocation and closure costs) increased by A$3.8 million to A$7.8 million for the twelve months ended January 31, 1998 from A$4.1 million for the twelve months ended January 31, 1997. As a percentage of net sales, operating income (excluding relocation and closure costs) increased to 4.4% in the twelve months ended January 31, 1998 from 2.7% in the comparable period in 1997. Income from affiliates increased by A$168,000 to A$547,000 in the twelve months ended January 31, 1998 from A$379,000 in the twelve months ended January 31, 1997. This increase resulted mainly from an increase in profitability of the Company's Taiwanese affiliate. Interest expense increased by A$1.1 million to A$3.3 million in the twelve months ended January 31, 1998 from A$2.2 million in the twelve months ended January 31, 1997. The increase resulted from the interest at 10.25% per annum payable on convertible notes of A$10.0 million that were issued on December 31, 1996 and converted to Ordinary Shares concurrent with the Company's IPO on November 7, 1997. The Company's effective tax rate was 29.6% in the twelve months ended January 31, 1998 and 304.4% during the comparable period in 1997 due, primarily, to a reduction in the valuation allowance in relation to the net deferred tax asset of the United States operation. The valuation allowance was fully written back during the twelve months ended January 31, 1997, as the Company believed it would recoup the benefit of the tax losses and temporary differences which gave rise to the net deferred tax asset. Seven Months Ended January 31, 1997 (Audited) Compared to Seven Months Ended January 31, 1996 (Unaudited) Net sales increased approximately A$6.7 million, or 7.3%, to A$98.8 million for the seven months ended January 31, 1997, from A$92.1 million for the seven months ended January 31, 1996. Four new stores were opened in the United States and one new store opened in Australia during the seven months ended January 31, 32 1997, contributing approximately A$941,000 and A$610,000, respectively, to the increase in net sales. In addition, refurbishment was completed on two stores in Australia during the same period with these stores adding a further A$1.1 million to the increase in net sales. Comparable store sales increased 7.2% and contributed A$4.3 million of the increase in net sales for the seven months ended January 31, 1997. Comparable store sales increased 4.1% in the United States and 10.6% in Australia. A generally poor U.S. retail environment during the 1996 Olympic season impacted U.S. comparable store sales. The remaining portion of the increase in sales was attributable to sales resulting from two new stores opened in the United States in the preceding two quarters, a one-time close-out sale of wood heaters to Australian licensees and an increase in barbecue sales to Australian licensees. This increase in sales was partially offset by the loss of a major Australian wholesale customer and the Company's decision to discontinue third party enameling work. Gross profit increased approximately A$1.5 million, or 5.2%, to A$30.8 million for the seven months ended January 31, 1997 from A$29.3 million for the seven months ended January 31, 1996. Gross margin decreased to 31.2% during the seven months ended January 31, 1997 from 31.8% during the comparable period in 1996. The decrease in gross margin was primarily due to the Company's pursuit of increased market share in the high-volume, low-margin end of the Australian barbecue market. In addition, sales by new U.S. stores include a large portion of lower-margin sales during initial periods of operation. This, combined with increased freight costs for new stores located outside of California, also contributed to the decrease in gross margin. Selling, general and administrative expenses increased approximately A$1.4 million, or 5.8%, to A$25.7 million for the seven months ended January 31, 1997 from A$24.3 million for the seven months ended January 31, 1996. As a percentage of net sales, selling, general and administrative expenses decreased to 26.1% for the seven months ended January 31, 1997 from 26.4% for the seven months ended January 31, 1996. The decrease was primarily due to improved operating leverage in the Australian store base and cost savings in the Australian licensee and wholesale divisions brought about by the restructuring of the licensee division. This decrease was partially offset by increased infrastructure spending in the United States related to Company expansion. Store pre-opening expenses increased A$86,000 to A$200,000 for the seven months ended January 31, 1997 from A$114,000 for the seven months ended January 31, 1996, primarily due to the opening of four new stores in the United States. Relocation and closure costs increased to A$461,000 for the seven months ended January 31, 1997 from A$0 for the seven months ended January 31, 1996 in connection with the organizational restructuring of the licensee and wholesale divisions and the provision for certain costs for the planned relocation of its enameling plant in 1998. Operating income (excluding relocation and closure costs) increased by A$14,000 to A$4,857,000 for the seven months ended January 31, 1997 from A$4,843,000 for the seven months ended January 31, 1996. As a percentage of net sales, operating income (excluding relocation and closure costs) decreased to 4.9% in the seven months ended January 31, 1997 from 5.3% in the comparable period in 1996. Income from affiliates decreased by A$457,000 to A$252,000 in the seven months ended January 31, 1997 from A$709,000 in the seven months ended January 31, 1996. This decrease resulted from the Company's sale of its equity interest in its New Zealand affiliate in December 1995. Interest expense remained constant at approximately A$1.6 million for the seven months ended January 31, 1997 and the seven months ended January 31, 1996. Other expense (income) increased to an expense of A$1.1 million for the seven months ended January 31, 1997 from income of A$2.3 million for the seven months ended January 31, 1996. In the 1997 period, the Company incurred expenses of approximately A$1.1 million related to the Capital Reduction, while in the 1996 period, the Company recognized a gain of A$2.3 million from the sale of its equity interest in its New Zealand affiliate, as described above. 33 The Company's effective tax rate was 19.0% in the seven months ended January 31, 1997 and 20.6% in the seven months ended January 31, 1996. The difference in rates compared to the expected rate of 36% is a result of the exclusion from Australian taxation of equity in income from affiliates, the gain on sale of its equity in a New Zealand affiliate and a reduction in the valuation allowance in relation to the net deferred tax asset of the United States operation. The valuation allowance was fully written back in the seven months ended January 31, 1997 because the Company believed that it would recoup the benefit of the tax losses and temporary differences which gave rise to the net deferred tax asset. Excluding the effect of these items, the effective tax rate would have been 43.9% in the seven months ended January 31, 1997 and 37.1% in the seven months ended January 31, 1996. This difference is mainly attributable to increased state taxes in the United States for the seven months ended January 31, 1997. Twelve Months Ended June 30, 1996 (Audited) Compared to Twelve Months Ended June 30, 1995 (Audited) Net sales increased approximately A$3.6 million, or 2.6%, to A$141.7 million for the fiscal year ended June 30, 1996 from A$138.1 million for the fiscal year ended June 30, 1995. Comparable store sales increased 5.0% and contributed approximately A$4.1 million of the increase in net sales for the 1996 fiscal year. Comparable store sales increased 10.0% in the United States and 8.1% in Australia. The combined comparable store sales increase was impacted by a decrease in the US$/A$ exchange rate of approximately 13.0% in that period. Sales during fiscal 1996 also increased as a result of the opening of four new Company-owned stores and two franchised stores in the United States, the opening of one new store in Australia and increases in other stores not included in the comparable store calculation. The combined sales increases were partially offset by decreases in the Australian licensee and wholesale divisions, primarily due to the declining wood heating market and overall softness in the Australian rural economy. Gross profit decreased approximately A$2.3 million, or 4.9%, to A$43.5 million for fiscal 1996 from A$45.8 million for fiscal 1995. As a percentage of net sales, gross margin decreased to 30.7% during fiscal 1996 from 33.2% during fiscal 1995. The decrease in gross margin in the 1996 period was primarily due to an increase in the cost of the Company's manufactured products as a result of the factory relocation, the one-time close-out sales of the Company's wood heating inventory and general pressure on margins in the Australian retail sector. In the United States, gross margin increased as a result of a change in sales mix towards higher margin proprietary products. Selling, general and administrative expenses decreased approximately A$719,000, or 1.8%, to A$39.3 million for fiscal 1996 from A$40.1 million for fiscal 1995. As a percentage of net sales, selling, general and administrative expenses decreased to 27.8% during fiscal 1996 from 29.0% during fiscal 1995. The decrease was primarily due to increased operating leverage in its Australian store base resulting from store refurbishment and the restructuring of the Australian licensee division. This decrease was partially offset by infrastructure spending related to the opening of five new U.S. stores, including new hiring and staff training expenses. Store pre-opening expenses increased A$89,000 to A$153,000 during fiscal 1996 from A$64,000 for fiscal 1995, primarily due to the opening of four new stores in the United States. Relocation and closure costs increased to A$875,000 for fiscal 1996 from A$0 for fiscal 1995, primarily due to the relocation of the Company's manufacturing operation and the restructuring of the Company's Australian licensing division. Operating income (excluding relocation and closure costs) decreased A$1.6 million to A$4.0 million for fiscal 1996 from A$5.6 million for fiscal 1995. Approximately A$2.3 million of the decrease was due to an increase in the cost of the Company's manufactured products following the factory relocation, the one-time close-out sales of the Company's wood heating inventory and general pressure on margins in the Australian retail sector. This decrease in gross profits was partially offset by a decrease in selling, general and administrative expenses of approximately A$719,000. 34 Income from affiliates decreased A$127,000 to A$836,000 in fiscal 1996 from A$963,000 in fiscal 1995, due to the loss of income from the GLG New Zealand after the Company sold its equity interest therein in December 1995. Interest expense increased by A$32,000 to A$2,262,000 in fiscal 1996 from A$2,230,000 in fiscal 1995. Other income increased to A$2.3 million in fiscal 1996 from A$0 in fiscal 1995, due to the gain on the sale of the Company's New Zealand affiliate. The Company's effective tax rate was 2.4% in fiscal 1996 and 13.1% in fiscal 1995. The difference in rates is primarily the result of the exclusion from Australian taxation of both equity in income from affiliates and gain on the sale of its New Zealand affiliate, as well as a reduction in the valuation allowance for deferred tax assets due to the realization of net operating loss carryforwards against U.S. taxes. Excluding these items, the effective tax rate would have been 46.8% for the fiscal year ended June 30, 1996 and 31.2% for the fiscal year ended June 30, 1995. UNAUDITED QUARTERLY RESULTS AND SEASONALITY The Company's quarterly results of operations have fluctuated, and are expected to continue to fluctuate materially, primarily because of the seasonality associated with the barbecue and fireplace industries and related item sales. The timing of new store openings and related pre-opening and other startup expenses, net sales contributed by new stores, increases or decreases in comparable store sales, changes in the Company's merchandise mix and overall economic conditions also contribute to fluctuations in the Company's quarterly results. The Company believes this is the general pattern associated with its segment of the retail industry and expects this pattern will continue in the future. In order to partially offset the effects of seasonality, the Company operates in both the Southern and Northern hemispheres, which have opposite seasons, and offers fireplace products and (in Australia) home heaters in the fall and winter months. In anticipation of its peak selling season, the Company substantially increases its inventory levels and hires a significant number of part-time and temporary employees. In non-peak periods, such as late winter and early fall, the Company has regularly experienced monthly losses. Because of these fluctuations in net sales and net income (loss), the results of operations of any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. See "Risk Factors--Seasonality; Weather; Fluctuations in Results." 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). Approximately A$12.0 million (approximately US$8.4 million) has been used to repay indebtedness incurred under the ANZ Facility. Approximately US$1.8 million has been used to repay all indebtedness outstanding under the Merrill Lynch Facility as of the completion of the IPO. The Company intends to use the remaining approximately US$3.6 million (approximately A$5.1 million) of the IPO proceeds 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. In July 1994, the Company and ANZ entered into the ANZ Facility. The ANZ Facility is subject to annual review and modification, in accordance with standard Australian practice, and is currently undergoing modification as a consequence of changes in the Company resulting from the Company's IPO. The Company expects that its new credit facility with ANZ will be finalized in June 1998. Under the ANZ Facility as in effect immediately prior to the Company's IPO, the Company and its subsidiaries had credit facilities aggregating up to A$53.7 million, including a real property loan in principal amount of A$2.2 million, a multi-purpose facility in principal amount of A$30.0 million, a trade finance facility in principal amount of A$10.0 million. Indebtedness under the property loan bore interest at 9.35% per annum and was subject to a variable prepayment penalty depending on the term of the loan. The Company also utilized a standby credit facility in principal 35 amount of A$12.0 million in order to fund the Capital Reduction, all of such standby credit facility having been repaid upon consummation of the Company's IPO in November 1997 and will not be renewed. The majority of the remainder of the Company's borrowings under the ANZ Facility were usually in the form of 90- to 180-day bills, which typically bore interest at a market rate plus an additional percentage fee to ANZ of approximately 1.25%. No significant prepayment penalties were associated with these loans. The ANZ Facility was secured by a first security interest in all present and future assets of the Company located in Australia and a second security interest being taken (subordinate to a lien under the Merrill Lynch Facility) in all assets of the Company located in the United States. In addition, the ANZ Facility was guaranteed by each subsidiary of the Company, including The Galore Group (USA), Inc. and Barbeques Galore, Inc. (referred to collectively as "Galore USA"). Although the Company generally maintains a good working relationship with ANZ, the Company can provide no assurance that the terms of the revised ANZ Facility will be as favorable to the Company as the terms of the ANZ Facility in place immediately prior to the consummation of the Company's IPO. 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 April 30, 1998, such facility includes a term loan in aggregate principal amount of US$300,000 (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. In October 1996, the Company, SBC Warburg Dillon Read Australia Limited ("SBC Warburg Australia"), as representative of the holders of the Convertible Notes, and certain principal shareholders of the Company entered into certain debt instruments, pursuant to which the Company issued and sold A$10.0 million in aggregate principal amount of Convertible Notes in December 1996. All of the Convertible Notes were converted into 1,197,926 Ordinary Shares of the Company in connection with the consummation of the Company's IPO in November 1997. Certain holders of Ordinary Shares acquired upon conversion of the Convertible Notes were Selling Shareholders in the Company's IPO, selling an aggregate of 200,000 Ordinary Shares acquired upon conversion of the Convertible Notes, and the remainder of the Ordinary Shares received upon such conversion are being registered pursuant to the Registration Statement of which this Prospectus is a part. See "Certain Transactions--Recent Delisting Transaction and Conversion of Convertible Notes." For the three-month period ended April 30, 1998, the twelve-month period ended January 31, 1998, the seven-month period ended January 31, 1997 and the twelve-month period ended June 30, 1996, cash flow (used in) provided by operating activities was A$(1.4) million, A$(1.1) million, A$7.2 million and A$4.6 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 for the three-month period ended April 30, 1998, the twelve-month period ended January 31, 1998, the seven- month period ended January 31, 1997 and the twelve-month period ended June 30, 1996 were A$5.0 million, A$4.5 million, A$2.8 million and A$0.06 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, during the quarter ended April 30, 1998, of a 45,000 square foot property for approximately A$3.5 million to relocate the Company's enameling operations to the same facilities as its barbecue and home heater manufacturing operations adjacent to the Company's Australian headquarters. Subsequent to April 30, 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$1.0 million capital expenditure required to upgrade the facility before use. Purchase of this property is scheduled to close between June and August 1998. The Company anticipates that it will continue to incur significant capital commitments in connection with further expansion. 36 The cash flows used in operations and investing activities have been largely sourced from long term borrowings under the ANZ and Merrill Lynch Facilities and from the net proceeds from the Company's IPO. At April 30, 1998 the Company had working capital of A$37.2 million. At April 30, 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. For the twelve months ended January 31, 1997 and January 31, 1998, the Company's average capital expenditures to open a new store in the United States were approximately A$196,000 and A$270,000, respectively, and the Company's average capital expenditures to refurbish a store in Australia were approximately A$400,000 and A$425,000, respectively. In calendar 1997, the Company spent an aggregate of approximately A$5.9 million, of which approximately A$2.2 million was spent on U.S. store expansion and approximately A$2.1 million was spent on the Australian store refurbishment program. In calendar 1998, the Company currently anticipates that it will spend an aggregate of approximately A$9.0 million, of which approximately A$3.9 million will be spent on U.S. store expansion and approximately A$1.6 million will be spent on the Australian store refurbishment program. The Company currently expects to fund the foregoing capital expenditures in the United States and Australia using a portion of net proceeds from the Company's IPO and net cash flow from operations. The Company expects to 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. See "Business--Store Expansion and Refurbishment." The Company believes the proceeds raised from the Offering 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. The Company has from time to time in the past and may in the future enter into foreign currency forward contracts as a means of offsetting fluctuations in the dollar value of foreign currency accounts. Typically these are U.S. dollar-denominated contracts with major financial institutions and have settlement dates of less than one year. At January 31, 1997, January 31, 1998 and April 30, 1998, the estimated notional amount of these contracts was A$4.2 million, A$0 million and A$0, respectively. NEW PRONOUNCEMENTS BY FINANCIAL ACCOUNTING STANDARDS BOARD In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS No. 130 is effective for financial statements issued for periods beginning after December 15, 1997. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements issued for periods beginning after December 15, 1997. The impact of these new pronouncements will be to increase the level of disclosure in subsequent financial statements. 37 BUSINESS The following Business section contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. GENERAL Barbeques Galore 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 which are displayed in a store format that emphasizes social activities and healthy outdoor lifestyles. Its stores also carry a comprehensive line of fireplace products and, in Australia, home heating products, camping equipment and outdoor furniture. As of April 30, 1998, the Company owned and operated 33 stores in all six states in Australia and 38 stores (including three U.S. Navy concession stores) in seven 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 believes that various demographic trends have led to the increased popularity of outdoor cooking. Specifically, the Company believes that there has been a shift toward consumers wanting to spend more quality time together in family gatherings and social activities around the home, as well as an increased desire to be outdoors. As a pleasant and inexpensive outdoor activity, barbecuing is increasing in popularity due to its convenience (especially in the case of gas barbecues), great flavors and easy clean-up. Furthermore, as consumers are turning decks, patios and other outdoor spaces into entertainment centers and "virtual" outdoor kitchens, they are increasingly seeking barbecues with enhanced features along with a wide array of barbecue accessories. The Company believes that its strong focus on barbecues and related accessories positions it to capitalize on these trends and provides significant opportunities for future growth. The Company's unique retailing concept differentiates Barbeques Galore from its competitors by (i) offering an extensive selection of barbecues and related accessories to suit all consumer lifestyles, preferences and price points, (ii) showcasing these products at convenient store locations with a shopping environment that promotes the total barbecuing experience and (iii) providing exceptional customer service through well-trained sales associates who have in-depth knowledge of the products and understanding of customer needs. These competitive strengths are enhanced by the Company's barbecue and home heater manufacturing operations, which enable the Company to realize higher margins, control product development and improve inventory flexibility and supply. COMPANY HISTORY Barbeques Galore opened its first store in Sydney, Australia in 1977 to serve an unfilled niche in the retail market for versatile, well-designed barbecues. Since then, the Company has become the leading barbecue retailer in Australia, with an estimated 90% consumer awareness level and an approximately 30% retail market share. In 1980, the Company opened its first U.S. store in Los Angeles. During the 1980s, the Company vertically integrated its operations by expanding into barbecue manufacturing in order to capture higher margins, control product development and improve inventory flexibility and supply. Fireplace products and, in Australia, home heaters were added to take advantage of the winter selling season. In Australia, the Company further diversified its product line through the addition of camping equipment and outdoor furniture, both of which complement the Company's main barbecue line. In April 1987, the Company listed its Ordinary Shares on the ASE. In October 1996, as part of its plans to accelerate new store expansion in the United States, the Company announced its intention to repurchase shares 38 from the public and delist from the ASE (pursuant to a transaction which was consummated as of December 31, 1996) and to seek capital in the United States. The Company consummated its IPO in November 1997. See "Certain Transactions-- Recent Delisting Transaction." BUSINESS STRENGTHS AND 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. 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 retail market which the Company services may also result in new competition in the future. Barbeques Galore competes for retail customers primarily based on its broad assortment of competitively priced, quality products (including proprietary and exclusive products), convenience, customer service and the attractive presentation of merchandise within its stores. The Company believes that the following business strengths have contributed significantly to its past success and intends to further capitalize on those strengths in executing its growth strategy. Selection of Merchandise. Barbeques Galore offers an extensive selection of quality barbecues and barbecue accessories designed to suit consumer lifestyles, preferences and price points. Its stores offer a variety of barbecues, with a range of styles, finishes and special features, including the Company's proprietary brands as well as more than 60 other barbecues under different brand names. Accompanying these barbecues are an assortment of barbecue replacement parts and accessories which generate high margins. As the leading retail chain specializing in barbecues and related merchandise, Barbeques Galore offers consumers one-stop shopping convenience for virtually all of their barbecue cooking needs. Store Environment. The Company's stores offer a shopping environment which is consistent with its outdoor lifestyle image and promotes the total barbecuing experience. The Company's newer stores generally have high ceilings, wide aisles and extensively use natural materials such as wood and stone. Merchandise is displayed to convey the breadth and depth of the Company's product lines. An array of barbecues are displayed on the selling floor complete with accessories to provide the consumer the opportunity to compare and contrast different models. Store presentation is based on a detailed and comprehensive store plan regarding visual merchandising to assure that all stores provide a consistent portrayal of the Barbeques Galore image. Average store retail selling area is approximately 3,300 square feet in the United States and 8,400 square feet in Australia. Customer Service. The Company recognizes that customer service is fundamental to its success. The Company has a "satisfaction guaranteed" return policy and honors all manufacturer warranties for products sold at its stores. Store managers and sales associates undergo product and sales training programs which enable them to recommend merchandise that satisfies each customer's lifestyle and needs. The Company monitors each store's service performance and rewards high quality customer service both on a team and individual level. The Company believes that its employees' knowledge of its product offerings and the overall barbecue market, and their understanding of customer needs, are critical components of providing customer service and distinguish it from its competitors. Convenient Store Locations. The Company positions its stores in locations that maximize convenience and accessibility. Stores are typically situated at highly visible locations and in close proximity to middle to upper-income residential neighborhoods or areas of new housing construction. Stores generally feature ample customer parking space and ready access to major thoroughfares. Many stores are situated in retail power centers or close to complementary retail stores, further attracting customer traffic. As a result of its site selection criteria, the Company believes it has been effective in identifying successful new store locations. 39 Integrated Manufacturing Operation; New Product Development. Through its vertically integrated operations, the Company manufactures a proprietary line of barbecues and home heaters for its retail stores. In addition, the Company has an experienced in-house research and development team dedicated to barbecue and home heater market analysis and product development that can identify and respond to changing consumer trends. The Company believes that controlling its own manufacturing operations allows it to realize higher margins, control product development and improve inventory flexibility and supply. Experienced Management Team. The Company's senior management team has an average of more than 28 years of retail industry experience. Since the current executive management team assumed responsibility in 1982, the number of Barbeques Galore stores has grown from 12 stores (including one licensed store) as of June 30, 1982 to 124 stores (including 53 licensed or franchised stores) as of April 30, 1998. The Company believes that management's experience positions it to execute its business and growth strategies. The directors and executive officers of the Company beneficially own approximately 39.1% of the Company's outstanding Ordinary Shares. See "Principal Shareholders." STORE EXPANSION AND REFURBISHMENT The Company's growth strategy is to continue expansion of its U.S. store base and to continue refurbishing (through relocating or remodelling) existing stores in Australia. From January 31, 1997 to April 30, 1998, the Company grew from 27 to 38 Company-owned stores (including three U.S. Navy concession stores), representing a 41% increase in the number of owned stores in the United States. The Company currently plans to open approximately 15 new stores in the United States in calendar 1998, of which four have opened, six are under construction and the remaining five are in lease negotiation. The Company also currently intends to open 15 new stores in the United States in calendar 1999. For new stores in the United States, the Company estimates that the average cost of leasehold improvements, furniture and fixtures will range from approximately US$120,000 to US$180,000 per store, after taking into account landlord contributions, depending on the condition of the site. Start- up inventory purchases for new stores are estimated at between US$120,000 and US$150,000 per store and pre-opening costs (which are expensed in the period in which the store opens) are estimated to be US$40,000 per store. New Barbeques Galore stores opened in the United States typically are profitable during their first twelve months of operation, generating on average approximately US$80,000 of store level contribution (operating income before store pre-opening expenses and non-cash items such as depreciation). See "Risk Factors--Implementation of Growth Strategy." For the twelve months ended January 31, 1998 and the three months ended April 30, 1998, the Company's owned stores in the United States (that were open for at least 12 months) averaged approximately US$1.3 million and US$279,000, respectively, in net sales and produced approximately US$394 and US$82, respectively, of net sales per selling square foot. The average cost of leasehold improvements, furniture and fixtures acquired for these stores during these periods was approximately US$198,000 and US$120,000, respectively, per store after taking into account landlord contributions. Inventory holdings at such stores averaged US$115,000 and US$115,000, respectively, during these periods. These stores generated an average store level contribution (operating income before store pre-opening expenses and non-cash items such as depreciation) of approximately US$182,000 and US$25,000, respectively, in these periods. For the twelve months ended January 31, 1998, the Company's United States net sales were derived 90.1% from existing stores and 9.9% from the ten new stores (including one new U.S. Navy concession store) opened in that period. For the three months ended April 30, 1998, the Company's United States net sales were derived 99.5% from existing stores and 0.5% from the one new store open in that period. To implement its strategy in the United States, the Company intends to penetrate selected new markets while simultaneously expanding existing markets to increase market share and operating leverage without cannibalizing the productivity of existing stores. Although a major portion of the initial U.S. store expansion is being targeted at large metropolitan markets in Sunbelt states (from California to the Carolinas), the Company believes that its retail concept has national potential and may consider entering markets in the Pacific Northwest, Mid-Atlantic and Northeast regions. In evaluating potential markets and specific store locations, the Company considers 40 demographic factors such as population, income levels, number of single family homes and housing starts, as well as other factors such as visibility, accessibility, lot size, proximity to heavy traffic and ample parking. Many stores are situated in retail power centers or close to complementary retail stores, further attracting customer traffic. Given its rapid store expansion strategy, the Company has retained outside real estate consultants to assist in site selection and lease negotiations. Once a site has been determined and becomes available, the Company is generally able to open a store within six to eight weeks due to its standardization of store design, merchandise displays and store operations. As a result of its site selection criteria, the Company believes it has been highly effective in identifying successful new store locations. The Company's ability to implement its expansion plans will depend upon a number of factors further discussed in "Risk Factors--Implementation of Growth Strategy." In addition, the Company has initiated a major refurbishment plan for its Australian store base to enhance store productivity. From January 31, 1997 to April 30, 1998, five existing stores have been remodelled, one new store has been opened, one store has been relocated and one store has been closed. Under its current plans, the Company intends to refurbish four stores in addition to the one planned new store it has already opened in calendar 1998 and intends to refurbish two stores and open two new stores in calendar 1999. The Company intends to relocate a number of these stores in retail power centers or close to complementary retail stores which fit the Company's desired demographics and other site selection standards. Refurbished stores will be upgraded to replicate the Company's prototype store environment. The Company estimates that the cost of such store relocations will generally range from approximately A$350,000 to A$450,000 per store, depending on the required level of leasehold improvements and replacement furniture, fixtures and inventory. Increased inventory holdings for these stores generally range between A$100,000 and A$200,000 depending on the size of the stores. Management believes that such store relocations will position the Company within potentially significant new markets in Australia, and that such store remodellings will increase customer traffic and comparable store sales. See "Risk Factors--Implementation of Growth Strategy." MERCHANDISING Merchandise Categories. Barbeques Galore's unique merchandising concept differentiates the Company from its competitors by offering a breadth and depth of high quality, competitively-priced proprietary and other brand name barbecues and barbecue accessories which management believes is generally not available from any other single retailer. Barbeques Galore offers an extensive selection of barbecues and barbecue accessories designed to suit all consumer lifestyles, preferences and price points. Its stores offer a wide variety of gas, charcoal and electric barbecues, including barbecues manufactured by the Company under its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands as well as more than 60 other barbecues under different brands, including those made by Weber- Stephen Products Co., Sunbeam Corporation, Rinnai, Onward Multi-Corp. (Broil King and Broil Mate), Meco, DCS, Fiesta and other grill manufacturers. The Company's proprietary barbecues generally generate higher gross margins than barbecues of other manufacturers. For the twelve months ended January 31, 1998, proprietary barbecue retail sales represented approximately 34.8% and 32.0% of the Company's total net sales in the United States and Australia, respectively. For the three months ended April 30, 1998, proprietary barbecue retail sales represented approximately 39.7% and 32.0% of the Company's total net sales in the United States and Australia, respectively. Customers can choose among barbecues with a full range of styles (kettle, table-top, patio-bases, carts, built-in, portable and others), finishes (from stainless steel to colorful porcelain-enamelled steel) and special features (such as side burners, multiple burners, warming racks, rotisseries, griddle plates and electronic ignition and other touch controls). Accompanying these barbecues are a wide assortment of barbecue replacement parts (including many hard-to-find items) and accessories, including tools, grill brushes, utensils, covers, smokers, rotisseries, griddles, fryers, kabob racks, cleaners, charcoal, wood chips and custom barbecue "islands," as well as a variety of barbecue sauces, marinades, spices, rubs, aprons, mitts, cookbooks, cooking videotapes and other grill novelties. In general, accessories not only generate impulse purchases and encourage repeat business, but also command higher margins than barbecues. Accordingly, as part of its ongoing merchandising strategy, the 41 Company intends to increase sales of barbecue accessories as a percent of total retail sales. Under a cross-branding arrangement, certain stores in the United States also offer gourmet steaks and food products made and distributed by Omaha Steaks International, Inc., a national mail order vendor. In addition, to complement the Company's main barbecue and related accessory line and to take advantage of the winter selling season, Barbeques Galore stores also carry a comprehensive line of fireplace products and, in Australia, a full line of gas and wood home heaters. Australian stores also offer camping equipment (including tents, sleeping bags, coolers and outdoor cookware) and outdoor furniture (including deck furniture, picnic tables, standing umbrellas and lounge chairs) to benefit from of the lack of any dominant national retailer of such merchandise. These products broaden customer appeal, generate additional customer traffic and repeat business and improve overall store productivity. The following table sets forth the Company's five major merchandise categories as an approximate percentage of net sales in the United States and Australia for the twelve months ended January 31, 1998:
UNITED STATES AUSTRALIA ------------- --------- Barbecues............................................ 71.6% 56.1% Barbecue Accessories................................. 19.0 7.0 Home Heaters and Fireplace Products.................. 9.4 12.1 Camping Equipment.................................... -- 15.7 Outdoor Furniture.................................... -- 9.1 ----- ----- 100.0% 100.0% ===== =====
Competitive Pricing. The Company's stores and advertisements guarantee that Barbeques Galore will beat any advertised price for the same product. In addition, through its manufacturing capabilities, the Company offers a high quality proprietary line of barbecues that generates higher margins than other manufacturers' products. The Company believes that it maintains its price- competitiveness and higher margins by benefitting from its in-depth knowledge of the barbecue market and its size and purchasing power, resulting in volume discounts and special vendor arrangements. As a result, the Company is able to focus on providing an exciting store environment and superior customer service, while maintaining competitive prices. CUSTOMER SERVICE The Company believes that its employees' extensive knowledge of its product offerings and the overall barbecue market, and their understanding of customer needs, are critical components of providing excellent customer service and distinguish it from its competitors. Store managers and sales associates undergo extensive product and sales training programs, receiving instruction in all aspects of the Company's products and store operation, as well as cooking classes. In order to attract and retain highly motivated employees committed to providing exceptional customer service, the Company emphasizes competitive wages, bonuses and commissions, and career path development. Sales associates are expected to greet each customer, discuss the customer's needs, suggest merchandise that satisfies the customer's lifestyle and barbecuing preferences, and recommend accessories that enhance the use and enjoyment of such merchandise. The Company centralizes many key aspects of its operations such as its distribution, inventory, human resource functions and management information systems, in order to allow store employees to focus their efforts and attention on customer service. The Company monitors each store's performance on an on-going basis through customer comment forms, anonymous spot-check visits by outside consultants, focus group sessions and regular customer care surveys. The Company also rewards high quality customer service through cash awards, special incentives such as free dinners and vacations and commendation plaques. Barbeques Galore stores offer barbecue assembly, home delivery and repair services. The Company's "satisfaction guaranteed" return policy permits customers who are not completely satisfied with their purchases to return items for an exchange, credit or refund. The Company also honors all manufacturer warranties for products sold at its stores. 42 MARKETING AND PROMOTION The Company's principal marketing strategy is to capitalize on the growing interest in leisure, entertainment and family quality time by emphasizing the fun and healthy outdoor lifestyle aspects of its products in its marketing and promotional campaigns. The Company promotes this image in a variety of media. Catalogs and sales brochures containing color pictures of products and accessories being used in social settings are made available to customers at each store and are sent to customers on store mailing lists and in direct mail campaigns. In order to attract first-time customers and increase repeat store visits, the Company regularly runs highly visible newspaper advertisements in selected markets. Television and radio commercials appear periodically during peak seasonal periods or to publicize promotional events. Barbeques Galore also promotes its store grand openings, conducts in-store barbecue and cooking demonstrations where permissible, and appears at home, garden and trade shows. In the past, the Company has sponsored cross-promotions with other popular retail chains. Total retail advertising expenditures represented approximately 6.5% of net retail sales during the twelve months ended January 31, 1998 and approximately 7.0% of net retail sales during the three months ended April 30, 1998. STORE OPERATIONS The Company has six district managers in the United States and five regional supervisors in Australia, each of whom is responsible for the store operations within his or her district or region. The district managers report to the Vice President and Director of Operations in the United States and the regional supervisors report to the General Manager of Retail/Licensees in Australia. Each district manager or regional supervisor trains, develops and works directly with store managers to monitor store performance and ensure adherence to the Company's merchandising guidelines and operating standards. Incentive compensation for district managers and regional supervisors is tied to the achievement of specified sales and operating profit targets. The typical staff of a Barbeques Galore store consists of a store manager, an assistant store manager, up to five hourly sales associates and a service technician. Part-time sales associates, cashiers and technicians are added during peak seasons or busy periods as necessary. The Company seeks to recruit and retain highly motivated employees who are committed to providing friendly and knowledgeable service. The Company recruits its store employees primarily through on-campus interviews, professional recruiters and referrals, and conducts four to eight-week training programs. In order to emphasize career advancement opportunities, the Company has established defined career paths for store employees and generally promotes district managers and store managers from within the ranks of its sales force. In the United States, store managers are paid a salary plus commissions based on gross sales volume and a bonus based on store profit performance, while sales associates receive commissions only. Australian store managers and sales associates receive a salary and participate in store bonus pools based on store profit performance. See "Business--Customer Service." MANUFACTURING In its Australian factory facilities, the Company manufactures barbecues under its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands and certain private label brands, as well as home heaters under its proprietary Norseman and Kent brands. During the twelve months ended January 31, 1998, approximately 32.0% of the Company's net sales in the United States, and approximately 32.0% of the Company's net sales in Australia, were represented by barbecues manufactured by the Company. The Company believes that controlling its own manufacturing operations allows it to realize higher margins, control product development and improve inventory flexibility and supply, without affecting its relationships with third party vendors. The Company's manufacturing operations are closely coordinated with its research and development activities. The Company has a research and development team which is dedicated to barbecue market analysis and product development. The ten members of this research and development team have an average of over 10 years of industry experience. The team continuously studies sales data, customer feedback, consumer trends and product designs, working closely with the Company's other departments (in both the United States and Australia) and suppliers to develop 43 the annual Barbeques Galore product line. The Company expended approximately A$0.9 million during the twelve-month period ended January 31, 1998, on research and development activities. In the manufacturing process, metal barbecue frames are constructed at the Company's factory, located at its headquarters in Sydney, Australia, before being shipped off-site to its enameling operations or third party painting facilities, where they are coated and finished or painted before being redelivered to the factory floor. Gas barbecue manifolds are assembled by hand and tested individually at the factory for compliance with Australian Gas Association and American Gas Association standards. Barbecues are then assembled in the factory's automated production line from the completed frames, burners and other parts (or, in certain cases, shipped to the Company's U.S. distribution center for assembly). While keeping the same breadth of product line, in 1997 the Company rationalized the number of frames it manufactures from 19 to 12 to extend production runs, improve inventory control and promote efficiency. Barbeques Galore maintains strict quality control standards and its barbecues are under limited warranty for one to ten years from the date of retail purchase, depending on the part being warranted. Management believes that the Company's existing manufacturing and enameling operations are sufficient to meet anticipated production increases that may arise from its current store expansion and refurbishment programs. The Company estimates that its plants currently have the capacity to increase barbecue output by approximately 30% without any material capital expenditures, and believes this is sufficient to meet its expansion needs through 1999. The Company further believes it could approximately double current output through the addition of six new steel presses (at an aggregate cost of A$1.5 million to A$2.0 million) and extra worker shifts. In order to streamline its manufacturing operations to enhance production efficiencies, in July 1996, the Company relocated its barbecue manufacturing operations to the location of its corporate headquarters and distribution center in Sydney, Australia. The Company is currently in the process of relocating its enameling operations to the same facilities, adding an in-line powder coating operation and rearranging the assembly, warehouse and distribution operations to improve production flow, inventory control and distribution management. These changes are scheduled to be completed in June 1998 and will cost an estimated A$454,000 (against which A$369,000 has already been accrued) and will require capital expenditures of approximately A$2.8 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors--Management of Operational Changes." PURCHASING The Company believes that it has good relationships with its merchandise vendors and suppliers of parts and raw materials and does not anticipate that, as the number of its stores or its manufacturing volume increases, there will be any significant difficulty in obtaining adequate sources of supply in a timely manner and on satisfactory economic terms. Retail. The Company deals with its merchandise vendors principally on an order-by-order basis and does not maintain any long-term purchase contracts with any vendor. Merchandise mix is purchased for its U.S. and Australian stores by the Company's central buying staffs in its respective headquarters. In selecting merchandise, the buying staffs obtain input from a variety of sources, including the Company's research and development team, store employees, focus groups, customer surveys, industry conventions and trade shows. During the twelve months ended January 31, 1998, the Company purchased its inventory from over 400 vendors in the United States, Australia and Asia. No single vendor accounted for more than 5% of merchandise purchases during this period, although the Company considers certain brands to be significant to its business, especially in the United States. The Company does not believe that the loss of any single brand, including those made by Weber-Stephen Products Co., Onward Multi-Corp or Fiesta Gas Grills, Inc., would have a material adverse effect on its operating results. Approximately 25% of the Company's merchandise purchases were obtained in such period from the Company's ten largest vendors. See "Risk Factors--Risks Associated with International Operations; Dependence on Significant Vendors and Supplies." 44 Manufacturing. The Company also purchases parts and raw materials for use in its manufacturing and enameling operations. During the twelve months ended January 31, 1998, the Company's buying staffs purchased barbecue and home heater parts from over 50 suppliers in Asia, Australia and North America. No single supplier accounted for more than 5% of factory parts and raw material purchases during this period, other than Horan's Steel, an Australian steel distributor, and Bromic, an Australian gas components importer, which accounted for approximately 20% and 21% of these purchases, respectively. There is currently no formal supply contract between the Company and Horan's Steel. In December 1997, the Company appointed Sheet Metal Supplies Pty Ltd as its steel supplier, with full effect from May 1998. Other major suppliers of barbecue components include G.L.G. Trading Pte. Ltd. ("GLG Taiwan"), a Taiwanese company that purchases grills, burners and other products directly from factories in China and Taiwan. The Company has a 50% ownership interest in GLG Taiwan and a one-third ownership interest in Bromic. Approximately 80% of the Company's factory parts and raw material purchases were obtained in such twelve-month period from the Company's ten largest suppliers. In order to set production budgets, the price of certain parts and raw materials such as steel is negotiated and fixed well in advance of production usage. The Company uses back-up suppliers to ensure competitive pricing. In addition, some of the Company's key suppliers currently provide the Company with certain purchasing incentives, such as volume rebates and trade discounts. See "Risk Factors-- Risks Associated with International Operations; Dependence on Significant Vendors and Suppliers" and "Business--Manufacturing." DISTRIBUTION The Company maintains a 44,000 square foot distribution center at its U.S. headquarters in Irvine, California and 136,000 square foot combined distribution and warehousing facilities at, and nearby its Australian headquarters. In May 1998, the Company purchased, for approximately A$1.75 million, with an additional A$1.0 million needed to upgrade the property, a distribution facility nearby its existing Australian distribution facilities which will replace a leased distribution facility and eliminate the necessity to utilize public warehousing space in the foreseeable future. The purchase of this property is expected to close in June 1998. The Company also uses smaller warehouses in Perth (operated by an independent distributor) and Brisbane, Australia, for its wholesale and licensee distribution operations and leases additional public warehouse space in Sydney, Los Angeles and Texas as necessary. Merchandise is delivered by vendors and suppliers to the Company's distribution facilities and, in certain instances, directly to stores, where it is inspected and logged into the Company's centralized inventory management systems. Merchandise is then shipped by Company trucks or third party surface freight weekly or twice weekly, providing stores with a steady flow of merchandise. Shipments by the Company's Australian operations to its Irvine distribution center are made by third party sea freight, so that its Irvine distribution center can maintain about two to three months of Company- manufactured inventory at all times, which the Company believes is sufficient to meet expected U.S. store requirements for such products. The Company maintains separate inventory management systems in Australia and the United States which allow it to closely monitor sales and track in-store inventory. Current plans include the introduction of an automated store inventory replenishment system in order to better manage its inventory. The Company estimates that its inventory shrinkage represents no more than 0.5% of its aggregate retail sales. The Company and its advisors are not aware of any barbecue industry source from which an industry average shrinkage rate can be derived. However, the Company believes that the general shrinkage rate for retailers is approximately 1.5% to 2.0%, and that the Company's rate compares favorably to that of other retailers. As the Company expands into new regions or accelerates the rate of its U.S. store expansion, it may eventually need additional warehouse capacity. In order to meet such needs and to minimize the impact of freight costs, the Company intends to secure another distribution center, expand its current warehouse facilities in the United States or utilize public warehousing space. Management believes that there is an ample supply of warehousing space available at commercially reasonable rates. Wherever possible, the Company also solicits the cooperation of its vendors, through drop shipments to public warehouses and/or stores, in order to reduce its 45 freight and handling costs. The Company believes that its existing Australian distribution arrangements, together with public warehousing space as needed, are sufficient to meet its current needs. MANAGEMENT INFORMATION SYSTEMS In the United States, the Company has installed a JDA Software Group Inc. ("JDA") system on an IBM AS400 platform, which allows it to manage 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, Barbeques Galore has installed a system which runs on a proprietary Wang VS software environment, together with a Novell network utilizing Microsoft applications. This software processes all distribution, warehouse management, inventory control, purchasing, merchandising, financial and office automation applications. As in the United States, each store in Australia is equipped with POS terminals that receive pricing and inventory information and permit the Company to poll sales transaction data daily. The Australian system provides a range of reporting and inquiry capability at both the store and corporate levels similar to that in the United States. The Company believes that its management information systems are an important factor supporting its growth and is committed to utilizing technology to maintain its competitive position. WHOLESALE OPERATIONS In Australia, the Company distributes proprietary and private brand name products and other imported merchandise, on a wholesale basis, through a wholly-owned Australian subsidiary, Pricotech Leisure Brands Pty Ltd. ("Pricotech"). Wholesale products offered by Pricotech include Cook-On barbecues, Companion gas camping equipment, Igloo coolers and Kent home heaters. Pricotech distributes these products primarily to Australian mass merchants, chains and buying groups. Customers typically buy these products based on price. In the twelve months ended January 31, 1998 and the three months ended April 30, 1998, the five largest customers of Pricotech accounted for approximately 60% and 43.7%, respectively, of its net sales of A$23.2 million and A$2.9 million, respectively. The Company's wholesale operations, in which its investment consists primarily of inventory and receivables, currently fill excess production capacity at the Company's manufacturing and enameling plants. The Company currently has no plans to operate a wholesale distribution business in the United States. LICENSING AND FRANCHISING As of April 30, 1998, the Company licensed 46 Barbeques Galore stores, generally in rural areas of Australia, and franchised seven Barbeques Galore stores in the United States. The Company receives annual licensing fees and franchising royalties, and benefits primarily from these arrangements through the sale of Barbeques Galore merchandise to the licensees and franchisees. Independent licensees and franchisees operate such stores pursuant to agreements which require them to comply with Barbeques Galore's merchandising and advertising guidelines and conform to the Barbeques Galore image. These agreements typically provide the licensees and franchisees with exclusive geographical sales territories. Most of the Australian licensing agreements have an indefinite term but permit licensees to terminate their arrangements at will, while franchisees in the United States are generally contractually bound for fixed periods with renewal options. During the twelve months ended January 31, 1998, total net sales to licensee and franchisee stores was A$15.6 million and US$5.3 million, respectively. The Company estimates that the retail sales of Barbeques Galore products alone by 46 licensees and franchisees was approximately A$24.5 million and US$2.8 million, respectively, in the same period. During the three months ended April 30, 1998, net sales to licensee and franchise stores was approximately A$2.4 million and US$1.3 million, respectively. The Company estimates that the retail sales of Barbeques Galore products alone by licensees and franchisees was approximately A$3.8 million and US$790,000, respectively, in the same period. A number of the Company's existing licensees have refurbished their stores in accordance with the Company's established criteria (although no licensee is required to do so), and the Company maintains an assistance program to provide advice relating to these enhancements. The Company may license additional Barbeques Galore stores in Australia on a selective basis, although it does not intend to franchise any additional stores in the United States (except within geographical territories as required under existing franchising agreements). EMPLOYEES As of April 30, 1998, the Company employed a total of approximately 960 persons, on a permanent, part-time, or temporary basis. The number of temporary employees fluctuates depending on seasonal needs. None of the Company's employees is covered by a collective bargaining agreement, although to the Company's knowledge, nine workers in its enameling plant belong to a labor union. The Company considers its relations with employees to be good and believes that its employee turnover rate is low. PROPERTIES The Company currently leases all of its stores and expects that its policy of leasing, rather than owning, store properties will continue as it expands. Existing store leases provide for original lease terms that generally range from two to ten years, with single or multiple renewal options that range from three to ten years at increased rents. Certain of the leases provide for scheduled rent increases or for contingent rent (based upon store sales exceeding stipulated amounts). The Company guarantees two franchised store leases, one of which is secured by the franchisee's rights in its Barbeques Galore franchise. In Sydney, Australia, the Company owns its headquarters, a 136,000 square foot portion of its distribution and warehousing facility, a 60,000 square foot portion of which was purchased by the Company in the first quarter of 1998, is expected to close in June 1998 and will need to undergo certain upgrades prior to full usage. The Company additionally owns its assembly facility in Australia, measuring 45,000 square feet, which was purchased for A$3.5 million in the first quarter of 1998. The additional Company-owned space will replace the distribution facility that the Company previously leased in Australia and eliminates the necessity to utilize public warehousing space in the foreseeable future. The Company leases the adjacent 75,000 square foot barbecue and home heater factory (under a five-year lease with four successive five-year renewal options for a total maximum lease term of 25 years), and leases a 20,000 square foot wholesale and licensee store distribution center in Brisbane (under a five-year lease with one five-year renewal option). In addition, the Company leases its enameling plant premises. This lease will expire in June 1998 and, prior to expiration, the Company intends to complete the move of its enameling operations to its main factory. The Company is also able to, and periodically does, lease space for short terms in public warehouses in Australia. In Irvine, California, the Company leases its home office and 44,000 square foot U.S. distribution center under leases scheduled to expire in 2000 (subject to a two-year renewal option). As in Australia, additional public warehouse space is leased for short terms. See "Business-- Manufacturing." The Company's ownership interest in its Sydney headquarters and all of its leasehold interests in real property are subject to a mortgage interest of ANZ under a Deed of Charge and related documents between ANZ (successor-in- interest to Westpac Banking Corporation) and the Company. See Exhibit No. 10.4. TRADEMARKS AND PATENTS "Barbeques Galore," "Turbo," "Capt N Cook," "Bar-B-Chef" and "Cook-On" are federally registered trademarks and/or service marks in the United States. In addition, the Company owns a federal trademark 47 registration for the distinctive configuration of its Turbo grill. The Company also uses the phrase "America's Largest Chain of Barbecue Stores" as a common- law trademark in the United States. "Barbeques Galore" and "Cook-On" are registered trademarks with the State of California. In Australia only, the Company uses the phrase "Your Outdoor Cooking and Camping Store" as a common- law trademark and, among others, the names "Norseman" and "Kent" as registered trademarks. The Company further utilizes a number of different trademarks relating to various barbecues, barbecue accessories, home heaters, camping equipment and outdoor furniture manufactured or offered by the Company. The Company is not presently aware of any claims of infringement or other challenges to the Company's right to use its marks and the Company's name in the United States. The Company owns an Australian patent with respect to a weighing stand apparatus for gas containers. The Company has a patent application pending in Australia for its "Flamethrower" gas grill ignition system. The Company also owns a number of copyrighted works, including brochures and other literature about its products and many drawings and designs that it uses in marketing those products. GOVERNMENTAL REGULATION Many of the Company's products use gas and flame and, consequently, are subject to regulation by authorities in both the United States and Australia in order to protect consumers, property and the environment. For example, the Company's barbecue and home heater manufacturing and 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 believes that it is in substantial compliance with such regulations. The Company's products or 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. See "Risk Factors--Product Liability and Governmental and Other Regulation." In addition, if the Company's level of foreign ownership exceeds 40%, the Company would be considered a foreign person and would require certain governmental approvals in connection with certain acquisitions in Australia. See "Risk Factors--Restrictions on Foreign Ownership; Antitakeover Restrictions." LEGAL PROCEEDINGS There are no material pending legal proceedings against the Company. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business, results of operations or financial condition of the Company. 48 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The executive officers, directors and key employees of the Company are as follows:
NAME AGE POSITION ---- --- -------- Directors and Executive Officers of the Company Sam Linz.................... 58 Chairman of the Board Robert Gavshon(1)........... 51 Deputy Chairman of the Board and General Counsel John Price.................. 48 Head of Research and Product Development and Director Sydney Selati............... 59 President--Galore USA and Director Philip Gardiner(1)(2)....... 51 Director Gordon Howlett(1)(2)........ 56 Director David Glaser................ 49 Company Secretary David James................. 37 Chief Financial Officer Kevin Ralphs................ 44 Chief Financial Officer--Galore USA Key Employees--Australia William Lyons............... 56 Managing Director of Manufacturing--Park-Tec Engineering Pty Limited and Australian Enamellers Pty Limited Ian Redmile................. 46 General Manager--Pricotech Leisure Brands Pty Limited Peter Spring................ 39 General Manager of Retail/Licensees-- Barbeques Galore Australia Pty Limited Gary Whitehouse............. 48 General Manager of Logistics Key Employees--United States L.D. "Chip" Brown........... 37 Chief Operating Officer--Galore USA Michael Varley.............. 50 Vice President of Purchasing, Distribution and Product Development Austin Yeh.................. 50 Vice President and Director of Operations
- -------- (1)Member of the Audit Committee (2) Member of the Compensation Committee Sam Linz has served as Chairman of the Board since joining the Company in May 1982. Until July 1997, Mr. Linz served as non-executive Chairman of the Board of Rebel Sport Limited ("Rebel"), a leading national sports superstore chain in Australia. Mr. Linz was one of the founders of Rebel and was a major shareholder until he sold his interest in July 1997. Prior to joining the Company, Mr. Linz developed and managed a large chain of liquor stores and hotels in South Africa in association with Mr. Selati. Mr. Linz has over 31 years of experience in the retail industry. Robert Gavshon joined the Company in January 1983 as General Counsel and has also served as Deputy Chairman of the Board since August 1993. Until July 1997, Mr. Gavshon served as a non-executive Director of Rebel. Mr. Gavshon was one of the founders of Rebel and was a shareholder until he sold his interest in July 1997. Prior to joining the Company, Mr. Gavshon acted as group counsel and director of corporate affairs for a multinational corporation based in Sydney, Australia and prior thereto as a partner in a large commercial law firm in South Africa. Mr. Gavshon has over 16 years of experience in the retail industry. 49 John Price joined the Company in 1981 as General Manager of Wholesale and has served as Head of Research and Product Development since June 1989, and as Director of the Company since November 1989. Prior to joining the Company, Mr. Price helped found and was Managing Director of Cook-On-Gas Products Pty Limited, a developer and manufacturer of consumer gas products which was acquired by the Company in 1981. Mr. Price has over 25 years of experience in the development and marketing of consumer gas products. Sydney Selati has served as Director of the Company since July 1997 and President of Galore USA since May 1988. From 1984 until 1988, Mr. Selati was President of Sussex Group Limited, a chain of retail furniture stores including Huffman-Koos, Colby's and Barker Brothers. Prior to that, Mr. Selati developed and managed a large chain of liquor stores and hotels in South Africa in association with Mr. Linz. Mr. Selati has over 31 years experience in the retail industry. Philip Gardiner has served as a non-executive Director of the Company since April 1987. Mr. Gardiner also serves as a director for several other Australian companies related to agriculture and mining and has, since 1994, been a Member and Chairman of the Western Australian Ministers for Primary Industry and Fisheries Wool Strategy Group (a state-government-appointed position). In addition, from 1979 to 1994, Mr. Gardiner served both as an executive and non-executive director for Macquarie Bank Limited, a prominent Australian banking institution. Currently, Mr. Gardiner is the full-time manager of his farm in Western Australia. Gordon Howlett has served as a non-executive Director of the Company since August 1991. Since April 1997, Mr. Howlett has served as Managing Director of Adshel Street Furniture Pty Ltd., specializing in advertising-related outdoor furniture such as bus shelters. Prior to that, from March 1994 to February 1997, Mr. Howlett served as the Executive General Manager of national and international operations at Qantas Airways Limited. From 1981 to 1994, Mr. Howlett was Managing Director of Avis Australia and Vice President of Avis throughout the Asia-Pacific region. David Glaser has served as Company Secretary since March 1994. Mr. Glaser has also provided retail management accounting services for the retail subsidiary of the Company from February 1996 to April 1998 and, from July 1988 to February 1994, was the financial administrator to certain other of the Company's subsidiaries. Prior to joining the Company, Mr. Glaser was a partner at Arthur Andersen in South Africa. Mr. Glaser has extensive commercial experience in retail, manufacturing and service industries both locally and overseas. David James joined the Company in January 1992, serving the Company in several group financial roles, ultimately as General Manager--Finance & Administration until his departure in September 1996. From September 1996 to July 1997, Mr. James was employed by HMV Australia Pty Ltd., a subsidiary of EMI plc, as Finance Director. He rejoined the Company in July 1997 as Chief Financial Officer of the Company. Prior to 1992, Mr. James served as a Senior Audit Manager for KPMG in Australia. Kevin Ralphs has served as Chief Financial Officer of Galore USA since February 1989. From May 1988 to February 1989, Mr. Ralphs served as Controller of Galore USA. Mr. Ralphs has also served as controller for American Digital Products, Inc., a distributor of computer peripherals in the Northeast United States, treasurer for Hosken Intermediaries, Inc., a reinsurance brokerage firm, and financial manager for Royal Beech-Nut (Pty) Ltd., a foreign subsidiary of Nabisco. William Lyons has served as Managing Director of Manufacturing for Park-Tec Engineering Pty Limited, an operating subsidiary of the Company since September 1987. Prior to joining the Company, Mr. Lyons served as the Manager of Quintrex Marine, a division of Alcan, and as the Manager of Vass Electrical Engineering. Prior to managing Quintrex Marine and Vass Electrical Engineering, Mr. Lyons was involved in Design, Production and Factory Management of Cope Allman for 17 years. Ian Redmile joined the Company in August 1992 as a State Manager for an Australian state and has served as General Manager of Pricotech, the Company's wholesaling subsidiary, since February 1997. Prior to joining the Company, Mr. Redmile has served as Key Account/Sales Manager for Unilever Australia for 12 years. 50 Peter Spring has served as General Manager of Retail/Licensees for Barbeques Galore Australian Pty Limited, an operating subsidiary of the Company since October 1995. Prior to that, Mr. Spring served as General Manager of the Operations of Pricotech and has served the Company since its inception in 1977. Gary Whitehouse joined the Company in May 1990 as National Warehouse Manager and has served as General Manager of Logistics for the Company since July 1996. Prior to joining the Company, Mr. Whitehouse served as Financial Systems Accountant for Qantas Airways. Prior to that, Mr. Whitehouse held managerial positions, including commercial manager, state branch manager and warehousing/distribution manager. L.D. "Chip" Brown joined the Company in August 1997 as Chief Operating Officer of Galore USA. Prior to joining the Company, from September 1993 to July 1997, Mr. Brown served in a variety of operations including retail and technology-related positions at PepsiCo, Inc., in the capacities of Senior Director/Product Manager from November 1995 to July 1997, Process Team Leader from March 1995 to November 1995 and Market Manager from September 1993 to March 1995. Mr. Brown was a Division President with DeLoitte & Touche from 1991 to July 1993 and, prior to that, held a variety of positions at Ford Motor Company and General Electric Company. Michael Varley joined the Company in January 1982 and served in a variety of sales- and buying-related positions, until May 1989 when he was appointed Vice President of Operations and Purchasing. Mr. Varley has served as Vice President of Purchasing, Distribution and Product Development since May 1994. From 1978 to 1981, Mr. Varley served as manufacturing/production manager for Mistral Fans, Inc., a manufacturing company, in both the United States and Australia. Prior to that, Mr. Varley worked as a product engineer and technical salesperson for several companies in the United Kingdom, South Africa and Australia. Austin Yeh has served as Vice President and Director of Operations for Galore USA since May 1994. Prior to joining Galore USA, Mr. Yeh served for 15 years as Director of Operations for C&R Clothiers, a major menswear retailer. At least one-third of the Board of Directors of the Company is elected at each annual meeting of shareholders. No director may serve for a period in excess of three years without submitting himself for re-election. The Board of Directors has a Compensation Committee comprised of Messrs. Gardiner and Howlett that reviews and makes recommendations for remuneration packages for executive directors and senior executives, and an Audit Committee presently comprised of Messrs. Gavshon, Gardiner and Howlett that advises on the establishment and maintenance of internal controls and ethical standards as well as on the quality and reliability of financial information provided by the Company's independent auditors. The Company is currently reviewing candidates for an additional independent director, residing in the United States. When such new director is designated, he or she may serve on the Audit Committee, and may replace one of the current members of the Audit Committee. EXECUTIVE SHARE OPTION PLAN On January 31, 1997, the Company adopted the Executive Share Option Plan (the "Executive Plan"). Under the Executive Plan, a total of 203,038 Ordinary Shares were reserved for issuance. On January 31, 1997, the Board granted stock options comprising the entire share reserve under the Executive Plan. Each such stock option has an exercise price of A$8.38 per Ordinary Share. The Executive Plan terminated on December 31, 1997. Accordingly, no additional stock options will be granted under the Executive Share Option Plan. However, all options granted prior to the termination date of the Executive Plan are subject to the terms and conditions of the documents evidencing each such option. All stock options granted under the Executive Plan will become exercisable on February 1, 1999. The stock options will generally lapse thirty days after the cessation of the employment of the optionee (or the executive controlling the optionee, if the optionee is an entity (an "Entity Optionee")), whether or not exercisable. In 51 addition, the stock options will automatically lapse (i) if the optionee or Entity Optionee transfers, assigns, or encumbers any right or interest in the options without the Company's consent (except for a one-time exemption for a transfer by a director or Entity Optionee controlled by a director to an employee of the Company or its related entities) or (ii) for Entity Optionees, if the Entity Optionee ceases to be controlled by the employee or director of the Company who controlled the Entity Optionee on the date of grant. Each stock option will terminate five years after the grant date (the "Expiration Date"), if such options do not lapse or are not exercised prior to the Expiration Date. The stock options will automatically accelerate and become immediately exercisable, for the thirty days prior to their lapse, in the event the optionee (or executive controlling the Entity Optionee) ceases to be employed by the Company or a related entity due to death, permanent disability or ill health. In addition, the Board, in its sole discretion, may accelerate any outstanding stock option or extend the period until lapse, even if expired (but in no event to a date later than the Expiration Date), upon any other event terminating the employment of the optionee or the executive controlling the Entity Optionee. In the event the Company is subject to a takeover bid pursuant to which the offeror acquires at least thirty percent of the outstanding Ordinary Shares of the Company, the Board may accelerate stock options outstanding at that time for a period of up to 120 days measured from the date the Board notifies the optionee of the takeover bid. Any stock option exercised under the Executive Plan must be for a minimum of twenty percent of the stock options included in the relevant grant. In the event of changes to the Company's capital structure, appropriate adjustments will be made to the stock option exercise price and the number of shares subject to each outstanding stock option. 1997 SHARE OPTION PLAN The Company's 1997 Share Option Plan (the "1997 Plan") was adopted by the Board of Directors on October 1, 1997, and was approved by the shareholders as of October 7, 1997. A total of 329,254 Ordinary Shares have been authorized for issuance under the 1997 Plan. The number of Ordinary Shares reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning with the 1999 calendar year, during the term of the 1997 Plan by an amount equal to one percent (1%) of the Ordinary Shares outstanding on December 31st of the immediately preceding calendar year. In no event may any one participant in the 1997 Plan receive stock option grants for more than 27,438 Ordinary Shares per calendar year. The 1997 Plan consists of the Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non-employee Board members, consultants and other independent advisors of the Company, or any parent or subsidiary) may, at the discretion of the Plan Administrator, be granted stock options to purchase Ordinary Shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the option grant date. The 1997 Plan will be administered by the Compensation Committee. The Plan Administrator will have complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive stock option grants, the time or times when such grants are to be made, the number of shares subject to each such grant, the exercise and vesting schedule to be in effect for the grant, the maximum term for which any granted stock option is to remain outstanding and the status of any granted stock option as either an incentive stock option or a non- statutory stock option under the U.S. Federal tax laws. Options granted under the 1997 Plan will generally become exercisable in three equal annual installments measured from the option grant date. The exercise price for options granted under the 1997 Plan may be paid in cash or in Ordinary Shares valued at fair market value on the exercise date. The Company is in the process of establishing a procedure pursuant to which options under the 1997 Plan may be exercised through a same-day sale program without any cash outlay by the optionee. In addition, the Plan Administrator may provide financial assistance to one or more optionees in the exercise of their outstanding stock options by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise price and any associated withholding taxes incurred in connection with such exercise. 52 In the event that the Company is acquired by merger or asset sale, each outstanding stock option under the 1997 Plan will immediately accelerate and become fully exercisable for all of the shares subject to such outstanding options, unless such stock options are to be assumed or replaced by the successor corporation (or parent thereof). Any stock options that do not automatically accelerate upon the occurrence of a merger or asset sale of the Company, will immediately accelerate, and such repurchase rights will accordingly lapse, upon the involuntary termination of the optionee within 18 months after the effective date of the merger or asset sale. Stock options accelerated in connection with such involuntary termination will be exercisable as fully-vested shares until the earlier of (i) the expiration of the stock option term or (ii) a one (1)-year period measured from the effective date of the involuntary termination. The Plan Administrator has the authority to effect, with the consent of the affected option holders, the cancellation of outstanding stock options under the 1997 Plan in return for the grant of new stock options for the same or a different number of shares with an exercise price per share based upon the fair market value of the Ordinary Shares on the new grant date. The Board may amend or modify the 1997 Plan at any time. However, no such amendment or modification shall adversely affect the rights of any optionee without his or her consent. The 1997 Plan will terminate on October 1, 2007, unless sooner terminated by the Board. COMPENSATION OF DIRECTORS AND OFFICERS The aggregate annual compensation, including bonuses under the incentive program described below, paid by the Company to all directors and executive officers of the Company (nine persons) as a group for services (i) for the twelve-month period ended June 30, 1996 was A$1,258,896, (ii) for the twelve- month period ended January 31, 1997 was A$1,277,085 and (iii) for the twelve- month period ended January 31, 1998 was A$1,462,568. However, this aggregate compensation amount does not include any stock options granted to such individuals. See "Management--Options to Purchase Securities." The total amount set aside by the Company and its subsidiaries to provide superannuation benefits for such officers and directors for the twelve-month period ended January 31, 1998 was A$92,125. The Company has an incentive program whereby certain executives will receive a bonus if certain budget objectives are attained during each fiscal year. For the fiscal year ending January 31, 1999, under this program, Mr. Linz, Mr. Gavshon, Mr. Price, and Mr. James will each receive a bonus of 20%, and Mr. Selati, Mr. Lyons, Mr. Spring, Mr. Redmile and Mr. Whitehouse will each receive a bonus of 10%, of their respective base salaries if the Company achieves its budgeted pre-tax profit before trading contingencies. Mr. Selati, Mr. Lyons, Mr. Spring and Mr. Redmile will each receive an additional bonus of 10% of his base salary if his division achieves its budgeted operating contribution, regardless of whether or not the Company's budget is achieved. Additionally, Mr. Whitehouse will receive a bonus of 10% of his base salary if the Company's inventory level budget is attained. 53 OPTIONS TO PURCHASE SECURITIES As of April 30, 1998, there were outstanding options to purchase a total of 402,438 Ordinary Shares granted by the Company, of which 221,038 were held by directors and officers of the Company. These outstanding options were granted under both the Company's Executive Share Option Plan and the 1997 Share Option Plan. There were no other warrants or rights to purchase the Company's Ordinary Shares outstanding as of April 30, 1998. The following table sets forth information concerning outstanding options as of April 30, 1998:
NUMBER OF ORDINARY PRICE PER OPTION EXPIRATION SHARES UNDER OPTION ORDINARY SHARE DATE ------------------- -------------- ----------------- Executive Share Option Plan(1)................ 203,038 A$ 8.38 February 1, 2002 1997 Share Option Plan(2)................ 199,400 US$11.00 November 6, 2002 Directors and Officers as a Group(3).......... 221,038 -- --
- -------- (1) Options under the Executive Share Option Plan will generally expire on the earlier of the Expiration Date or thirty days after the cessation of employment of the optionee or the Entity Optionee. See "Management-- Executive Share Option Plan." (2) Options under the 1997 Share Option Plan will generally expire on the earlier of the Expiration Date or three months after the cessation of employment of the optionee. See "Management--1997 Share Option Plan." (3) Directors and Officers as a group received options under both the company's Executive Share Option Plan and the 1997 Share Option Plan. See "Management--Executive Share Option Plan" and "--1997 Share Option Plan." 54 CERTAIN TRANSACTIONS DELISTING TRANSACTION AND CONVERSION OF CONVERTIBLE NOTES In December 1996, the Company delisted from the ASE after repurchasing 2,743,878 Ordinary Shares and cancelling stock options to purchase 101,520 Ordinary Shares pursuant to a "Capital Reduction" program for a total consideration of A$20.1 million, exclusive of transaction costs, financed through the issuance and sale of A$10.0 million in aggregate principal amount of the Convertible Notes and the borrowing of A$11.2 million under the ANZ Facility. In connection with the Company's IPO in November 1997, the Company converted all of the Convertible Notes into 1,197,926 Ordinary Shares, 200,000 of which were sold in the Offering by the holders thereof. Certain holders of the Convertible Notes, including Fagume Pty Ltd., an affiliate of Gordon Howlett, a director of the Company, National Australia Trustees Ltd., on behalf of Philip Gardiner, a director of the Company, Michael Varley, an employee of the Company, Don and Mary McLeod, an ex-employee (and family) of the Company, Sarah Gavshon, the mother of Robert Gavshon, a director and executive officer of the Company, and Mildred Pogorelsky, the mother-in-law of Sam Linz, a director and executive officer of the Company, received Ordinary Shares pursuant to such conversion on the same terms as all other holders of Convertible Notes. These individuals were not permitted to sell securities in the Company's IPO. As a result of the conversion of the Convertible Notes, all debt instruments relating to the Convertible Notes by and among the Company, SBC Warburg Australia, as representative of the holders of the Convertible Notes, and Sam Linz, Robert Gavshon, Sydney Selati, John Price and affiliates of such individuals were terminated. The Company, however, agreed to provide SBC Warburg Australia and the holders of the Ordinary Shares received upon conversion of the Convertible Notes one demand registration right pursuant to which such holders could have their shares registered for resale after the expiration of the 180 day underwriters' lock-up period following the Company's IPO in November 1997. The Registration Statement of which the Prospectus is a part is being filed as a result of the exercise of such demand registration right. The Company has also voluntarily registered an additional 46,919 Ordinary Shares hereunder. SBC Warburg Australia, a financial advisor to a group of shareholders holding, in the aggregate, more than five percent of the outstanding Ordinary Shares of the Company, received underwriting and advising fees of A$750,000 in connection with the Offering and a one-time fee of A$15,000 in connection with the original issuance of the Convertible Notes. In connection with the issuance and sale of the Convertible Notes, the Company granted stock options to purchase up to an aggregate of 203,038 Ordinary Shares under the Executive Share Option Plan to Messrs. Sam Linz, Robert Gavshon, Sydney Selati and John Price, who are directors and executive officers of the Company. TRANSACTIONS WITH AFFILIATES The Company holds a one-third ownership interest in Bromic, which supplies gas valves and related products to the Company. Bromic receives approximately 28% of its revenues from sales to the Company, which in turn is Bromic's largest customer. In the twelve months ended January 31, 1998 and the three months ended April 30, 1998, the Company purchased approximately A$4.0 million and A$0.7 million, respectively, of products from Bromic. The Company guaranteed A$900,000 indebtedness of Bromic to ANZ, which was repaid in full in February 1997, releasing the guarantee. In addition, the Company holds a 50% equity interest in GLG Taiwan, which supplies the Company with grills, burners and other products. GLG Taiwan receives approximately 80% of its revenues from sales to the Company, which in turn is GLG Taiwan's largest customer. In the twelve months ended January 31, 1998 and the three months ended April 30, 1998, the Company purchased approximately A$7.1 million and A$0.9 million, respectively, of products from GLG Taiwan. 55 SHAREHOLDERS AGREEMENT Certain shareholders of the Company have in the past been party to a Shareholders Agreement providing for certain preemptive and other rights. The Shareholders Agreement was terminated prior to consummation of the Company's IPO in November 1997. TRANSACTIONS INVOLVING PRINCIPAL SHAREHOLDERS AND EXECUTIVE OFFICERS Messrs. Linz, Gavshon, Selati and Price beneficially own 28.5%, 4.9%, 3.2% and 1.6%, respectively, of the outstanding Ordinary Shares of the Company. Accordingly, these individuals may exert substantial influence over the business and affairs of the Corporation, including the election of the Company's directors and the outcome of corporate actions requiring shareholder approval. From time to time in the past, Messrs. Linz, Gavshon and Selati and certain members of their respective families have advanced funds, re-payable on demand, to the Company to be used for general corporate purposes. As of January 31, 1997, the aggregate balance of these advances was A$1,231,000. Through these advances, the Company had been able to obtain funds at relatively attractive short-term borrowing rates of approximately 2% per annum below the overdraft rate received by the Company. As of July 31, 1997, the Company had repaid all amounts owing on such advances and terminated these borrowing arrangements. The Company may reinstate these or similar arrangements in the future if its Board of Directors determines that to do so would be in the best interests of the Company. The Company purchases labels for certain of its products from a relative (now deceased) of Mr. Price's wife. On an average yearly basis, the Company purchases approximately A$346,000 of such labels. Mr. and Mrs. Price receive no monetary benefit from this relationship. The Company leases cars for the use of Messrs. Linz, Gavshon, Price and Selati, at a rate of approximately A$3,909, A$3,910, A$1,620 and US$900, respectively, per month per car. The Company pays the premiums on a disability insurance policy naming Mr. Selati as the insured. If benefits were paid to Mr. Selati under this policy, he would receive approximately US$7,900 per month until he reaches age 65. In connection with the Capital Reduction, the Company acquired from Mr. Selati, who is the President of Galore USA and a Director of the Company, his 15% interest in that company, in exchange for the issuance to Mr. Selati of 137,189 Ordinary Shares, valued at A$1,000,000. The Company elected Mr. Selati to its Board of Directors on July 21, 1997. Mr. Linz's sister, together with her husband in one instance and her husband and son in the other instance, owns two entities ("Related Franchisors"), each of which operates one franchised Barbeques Galore store in Orange County, California. The Related Franchisors' franchise agreements provide the Related Franchisors with the exclusive right to open, upon Company approval, additional Barbeques Galore stores within a specified territory in Orange County. A portion of the Ordinary Shares and stock options repurchased or cancelled in connection with the Capital Reduction were repurchased from or cancelled in exchange for payment to principal shareholders of the Company. The Company repurchased or cancelled stock options, as applicable: 8,231 Ordinary Shares beneficially owned by Gordon Howlett, a director of the Company, for an aggregate of A$60,000; 37,107 Ordinary Shares beneficially owned by Philip Gardiner, a director of the Company, for an aggregate of A$270,482; stock options granted to Mr. Price for the purchase of 27,438 Ordinary Shares in exchange for A$10,000; and stock options granted to David Glaser, the Secretary of the Company, and Kevin Ralphs, the Chief Financial Officer of Galore USA, each for the purchase of 2,743 Ordinary Shares in exchange for A$2,500 each. These transactions were on terms the same as or less favorable than those provided to other shareholders or option holders whose interests were repurchased or cancelled. 56 In November 1997, the Company granted options under the 1997 Share Option Plan to purchase up to an aggregate of 18,000 Ordinary Shares to directors and executive officers of the Company at the Offering price. Mr. Kevin Ralphs received a grant of 10,000 Ordinary Shares, Mr. David James received a grant of 5,000 Ordinary Shares and Mr. David Glaser received a grant of 3,000 Ordinary Shares. These options become exercisable in equal installments on November 7, 2000, November 7, 2001 and October 7, 2002. See "Management-- Options to Purchase Securities." The Company leases certain retail facilities to Rebel under an arms-length landlord-tenant relationship. For the seven months ended January 31, 1997 and the twelve months ended January 31, 1998, Rebel reimbursed the Company A$352,000 and A$260,000 for these leases. Until July 10, 1997, Messrs. Linz and Gavshon were directors and significant shareholders of Rebel. COMPANY POLICY CONCERNING TRANSACTIONS WITH AFFILIATES Under the Australian Corporations Law, directors are prohibited from entering into transactions with the Company conferring a benefit on any director which are not on "arms-length" commercial terms, except where limited exemptions apply or detailed approval procedures are first observed. The Company has adopted a more stringent policy based on the Australian Corporations Law that requires that all transactions with directors, executive officers and other affiliates will be on terms that are believed to be at least as favorable to the Company as could be obtained from unaffiliated third parties and that such transactions must be approved by a majority of the Company's disinterested directors. The Company believes that the foregoing transactions with directors, executive officers and other affiliates were completed on terms as favorable to the Company as could have been obtained from unaffiliated third parties. 57 PRINCIPAL SHAREHOLDERS The following table sets forth the beneficial ownership of the Ordinary Shares as of June 1, 1998 and as adjusted to reflect the sale of the shares pursuant to the Offering with respect to (i) each person or entity known by the Company to beneficially own 5% or more of the outstanding Ordinary Shares, (ii) each of the Company's directors, (iii) each of the Company's executive officers, and (iv) all directors and executive officers of the Company as a group.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING(1) AFTER OFFERING(1) ----------------------- SHARES THAT MAY BE -------------------- NAME NUMBER PERCENT SOLD IN OFFERING NUMBER PERCENT(2) - ---- ------------ ---------- ------------------ --------- ---------- Sam Linz(3)............. 1,293,891 28.5% 0 1,293,891 28.5% Robert Gavshon(4)....... 223,499 4.9 0 223,499 4.9 John Price(5)........... 71,880 1.6 0 71,880 1.6 Philip Gardiner(6)...... 23,596 * 23,596 0 * Gordon Howlett(7)....... 13,718 * 13,718 0 * Sydney Selati(8)........ 147,008 3.2 0 147,008 3.2 Wispjune Pty Limit- ed(9).................. 162,205 3.6 0 162,205 3.6 Level 10 1 Market Street Sydney, NSW 2000 Geblon Pty Limited(10).. 167,402 3.7 0 167,042 3.7 Level 10 1 Market Street Sydney, NSW 2000 Sarwill Pty Limit- ed(11)................. 149,016 3.3 0 149,016 3.3 Suite 6 10-12 Woodville Street Hurstville, NSW 2000 All executive officers and directors as a group (9 persons)(12)........ 1,773,592 39.1% 37,314 1,736,278 38.2%
- -------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Ordinary Shares subject to stock options, warrants and convertible securities currently exercisable or convertible, or exercisable or convertible within sixty (60) days of the date hereof, are deemed outstanding for computing the percentage of the person holding such stock options but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentages calculated are based on 4,541,652 shares issued and outstanding as of June 1, 1998. Excludes 203,038 Ordinary Shares issuable upon the exercise of stock options granted under the Executive Share Option Plan and 199,600 Ordinary Shares issuable upon the exercise of stock options granted under the 1997 Share Option Plan. There are an additional 129,854 authorized and unissued Ordinary Shares reserved for the grant of stock options under the 1997 Share Option Plan. (2) Assuming all Ordinary Shares offered are sold by such Selling Shareholder. (3) Includes 162,205 Ordinary Shares held by Wispjune Pty Limited ("Wispjune"), a company in which Mr. Linz owns a 72.5% interest, with Mr. Gavshon and Mr. Price owning the remaining 22.5% and 5.0%, respectively, and 167,402 Ordinary Shares held by Geblon Pty Limited ("Geblon"), a company in which Mr. Linz and Mr. Gavshon each has a 50% ownership interest, with Mr. Linz retaining voting control of the company. See Notes (9) and (10) below. Excludes 88,460 Ordinary Shares held by ANZ Nominees Limited on behalf of members of Mr. Linz's immediate family, of which 32,596 may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Also excludes 58 10,756 Ordinary Shares held of record by Bosmana Pty Limited ("Bosmana"), on behalf of The Galore Management Superannuation Fund, for which Mr. Linz, Mr. Gavshon, Mr. James and a fourth Company employee serve as the four trustees (the group having voting and dispositive power), all of which may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Also excludes 3,567 Ordinary Shares held of record by Galore Group Nominees Pty Ltd. ("Galore Nominees"), on behalf of The Galore Staff Superannuation Fund, for which Mr. Linz, Mr. Gavshon and two other Company employees serve as the four trustees (the group having voting and dispositive power), all of which may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Mr. Linz disclaims beneficial ownership of the foregoing Ordinary Shares held by ANZ Nominees Limited, Bosmana and Galore Nominees, except to the extent of his pecuniary interest therein. None of Messrs. Linz, Gavshon or James individually or by agreement has voting or investment control over the securities held by ANZ Nominees, Bosmana or Galore Nominees. (4) Includes 149,016 outstanding Ordinary Shares held by Sarwill Pty Limited ("Sarwill"), a corporation owned by Mr. Gavshon and his wife. See Note (11). Also includes 1,495 outstanding Ordinary Shares held by Mr. Gavshon's resident children. Excludes 162,205 Ordinary Shares held by Wispjune, in which Mr. Gavshon has a 22.5% interest, and 167,402 Ordinary Shares held by Geblon, a company in which Mr. Gavshon holds a 50% interest. See Notes (3), (9) and (10). Excludes 10,756 Ordinary Shares held of record by Bosmana on behalf of The Galore Management Superannuation Fund, for which Mr. Linz, Mr. Gavshon, Mr. James and a fourth Company employee serve as the four trustees (the group having voting and dispositive power), all of which may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Also excludes 3,567 Ordinary Shares held of record by Galore Nominees on behalf of the Galore Staff Superannuation Fund, for which Mr. Linz, Mr. Gavshon and two other Company employees serve as the four trustees (the group having voting and dispositive power), all of which may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Mr. Gavshon disclaims beneficial ownership of the Ordinary Shares held by Wispjune, Geblon, Bosmana and Galore Nominees, except to the extent of his pecuniary interest therein. None of Messrs. Linz, Gavshon or James individually or by agreement has voting or investment control over the securities held by Bosmana or Galore Nominees. (5) Excludes 162,205 outstanding Ordinary Shares held by Wispjune, in which Mr. Price has a 5.0% interest. Also excludes 10,756 Ordinary Shares held of record by Bosmana on behalf of The Galore Management Superannuation Fund, for which Mr. Linz, Mr. Gavshon, Mr. James and a fourth Company employee serve as the four trustees (the group having voting and dispositive power), all of which may be sold pursuant to the Registration Statement of which this Prospectus is a part. See "Selling Shareholders." Mr. Price disclaims beneficial ownership of the Ordinary Shares held by Wispjune and Bosmana, except to the extent of his pecuniary interest therein. None of Messrs. Linz, Gavshon or James individually or by agreement has voting or investment control over the securities held by Bosmana. See Notes (3) and (9). (6) Includes 23,596 Ordinary Shares held by National Australia Trustees Ltd. Mr. Gardiner disclaims beneficial ownership of such Ordinary Shares, except to the extent of his pecuniary interest therein. Certain Ordinary Shares previously held by Mr. Gardiner were repurchased by the Company in the delisting transaction. See "Certain Transactions." (7) Includes 13,718 Ordinary Shares held by Fagume Pty. Limited. Certain Ordinary Shares previously held by Mr. Howlett were repurchased by the Company in the delisting transaction. See "Certain Transactions." (8) Includes 68,595 Ordinary Shares owned by the Selati Living Trust dated June 30, 1984, of which Mr. Selati and his wife are trustees. Also includes 68,594 Ordinary Shares held by the Selati Family Partnership L.P., of which Mr. Selati is the sole general partner. Also includes 9,545 Ordinary Shares, previously inadvertently reported as 9,819 Ordinary Shares, held by Mr. Selati's wife. Excludes 4,665 Ordinary Shares held by Mr. Selati's three adult children. Mr. Selati disclaims beneficial ownership of all Ordinary Shares held by his children. (9) Mr. Linz, Mr. Gavshon and Mr. Price, Directors of the Company, own 72.5%, 22.5% and 5.0%, respectively, of Wispjune. As such, Mr. Linz is deemed to have voting and investment control with respect to these Ordinary Shares. Mr. Gavshon and Mr. Price have disclaimed beneficial ownership of the Ordinary 59 Shares held by Wispjune, except to the extent of their pecuniary interest in such Ordinary Shares. See Notes (3), (4) and (5). (10) Mr. Linz and Mr. Gavshon, Directors of the Company, each own 50.0% of the Ordinary Shares of Geblon, with Mr. Linz retaining voting control of the Company. Mr. Gavshon disclaims his beneficial ownership of the Ordinary Shares held by Geblon except to the extent of his pecuniary interest in such Ordinary Shares. See Notes (3) and (4). (11) Mr. Gavshon, a Director of the Company, jointly with his wife, is the owner of Sarwill. See Note (4) above. (12) See Notes (3) through (11). 60 SELLING SHAREHOLDERS The Ordinary Shares that may be offered hereby were originally issued by the Company in offshore transactions not subject to the Securities Act. The Selling Shareholders listed below (which term includes their transferees, pledges, donees or successors) may from time to time offer and sell the number of Ordinary Shares set forth opposite his, her or its name pursuant to the Registration Statement of which this Prospectus is a part any and all Ordinary Shares. The table sets forth information with respect to beneficial ownership of the Ordinary Shares by the Selling Shareholders as of June 1, 1998. The Selling Shareholder's position, office or other material relationship with the Company for the last three years, if any, is also stated. The following table sets forth certain information as of June 1, 1998. Any or all of the Ordinary Shares listed below may be offered for sale pursuant to the Registration Statement of which this Prospectus is a part by the Selling Shareholders from time to time. Accordingly, no estimate can be given as to the amounts of Ordinary Shares that will be held by the Selling Shareholders upon consummation of any such sales. In addition, the Selling Shareholders identified below may have sold, transferred, or otherwise disposed of all or a portion of their Ordinary Shares since the date on which the information regarding their Notes was provided, in transactions exempt from the registration requirements of the Securities Act. All information in the following table is based solely upon information furnished to the Company by the Selling Shareholders. From time to time, additional information concerning ownership of the Ordinary Shares may rest with certain holders thereof not named in the preceding table, with whom the Company believes it has no affiliation.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING(1) AFTER OFFERING(1)(2) ----------------------- SHARES THAT MAY BE ---------------------- NAME NUMBER PERCENT SOLD IN OFFERING NUMBER PERCENT ---- ------------ ---------- ------------------ ----------- ---------- Blaironia Pty Limited... 49,221 1.1% 49,221 0 * Halcyon Pty Limited(3).. 19,688 * 19,688 0 * Timewalk Pty Limited.... 49,221 1.1 44,221 0 * RG Investments (Australia) Pty Limited................ 49,221 1.1 49,221 0 * Navarra Investments Pty Ltd.(3)................ 1,968 * 1,968 0 * Depofo Pty Ltd.(3)...... 2,461 * 2,461 0 * Talbot Pty Limited(3)... 9,844 * 9,844 0 * Scelara Pty Ltd......... 19,688 * 19,688 0 * Borlas Pty Limited...... 49,221 1.1 49,221 0 * Dalbrun Pty Ltd.(3)..... 19,688 * 19,688 0 * Pesas Pty Ltd. (A/C Super Fund)(3)......... 19,688 * 19,688 0 * Rupert Baroona Pty Ltd-- the Carter Account(3).. 12,304 * 12,304 0 * Nassa Investments Pty Limited(3)............. 9,844 * 9,844 0 * Shane D. Finemore(3).... 9,844 * 9,844 0 * Warana Holdings Pty Ltd.(3)................ 29,532 * 29,532 0 * Kelstan Pty Ltd.(3)..... 49,221 1.1 49,221 0 * Kahuna Investments Pty Ltd.(3)................ 49,221 1.1 49,221 0 * Megwill Pty Ltd A/C WPG Super Fund (3)......... 24,610 * 24,610 0 * Potter Warburg Nominees Pty Limited(3)......... 9,844 * 9,844 0 * Todizo Pty Limited(3)... 45,776 1.0 45,776 0 * AJA Investments Pty Limited(3)............. 39,376 * 39,376 0 * National Nominees Limited................ 59,064 1.3 59,064 0 * ANZ Nominees Limited(4)............. 176,171 3.9 120,307 55,864 1.2 Conargo Plains Pty Ltd.(3)................ 9,844 * 9,844 0 * RJR Capital Pty Ltd.(3)................ 49,221 1.1 49,221 0 * Chirico Pty Ltd.(3)..... 49,221 1.1 49,221 0 * P.K. Capital Pty Ltd.(3)................ 12,797 * 12,797 0 * Exim Nominees Pty Ltd... 11,320 * 11,320 0 * Dennis Hoffman.......... 452 * 452 0 *
61
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERING(1) AFTER OFFERING(1)(2) ---------------------- SHARES THAT MAY BE ----------------------- NAME NUMBER PERCENT SOLD IN OFFERING NUMBER PERCENT ---- ----------- ---------- ------------------ ---------- ---------- Joyce Hoffman........... 452 * 452 0 * David Katz.............. 7,697 * 7,697 0 * Robert & Ann Patricia McLeod(5).............. 4,528 * 4,528 0 * Don & Mary McLeod(5).... 5,487 * 5,487 0 * Michael Varley(5)....... 5,487 * 5,487 0 * Keith Abrahams.......... 4,528 * 4,528 0 * Richard Wunsh........... 2,263 * 2,263 0 * Patjon Pty Ltd.(5)...... 24,404 * 24,404 0 * Alney Pty Ltd.(5)....... 11,649 * 11,649 0 * GDL Investments Pty Ltd.(5)................ 12,753 * 12,753 0 * Australip Pty Ltd....... 11,320 * 11,320 0 * Martin Tabachnick....... 4,528 * 4,528 0 * Dresner Investments Pty Ltd.................... 4,528 * 4,528 0 * Jokari Pty Ltd.......... 2,263 * 2,263 0 * Mildred Pogorelsky(5)... 2,743 * 2,743 0 * Sarah Gavshon(5)........ 2,743 * 2,743 0 * David Schnaid........... 2,952 * 2,952 0 * Lawrence Oster.......... 1,176 * 1,176 0 * Fagume Pty. Limited(5).. 13,718 * 13,718 0 * National Australia Trustees Ltd.(5)....... 23,596 * 23,596 0 *
- -------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Ordinary Shares subject to stock options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within sixty (60) days of the date hereof, are deemed outstanding for computing the percentage of the person holding such stock options but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentages calculated are based on 4,541,652 Ordinary Shares issued and outstanding as of June 1, 1998. (2) Assuming all Ordinary Shares offered are sold by such Selling Shareholder. (3) The Selling Shareholder is affiliated with an officer or director of SBC Warburg Australia, a co-manager in the Company's IPO in November 1997. (4) In the Company's IPO in November 1997, ANZ Nominees Limited was reported as beneficially owning 106,291 Ordinary Shares prior to such offering and 87,711 Ordinary Shares after such offering, inadvertently excluding an additional 88,459 Ordinary Shares then beneficially owned by ANZ Nominees Limited. ANZ Nominees Limited holds 88,460 Ordinary Shares on behalf of members of Mr. Linz's immediate family, of which 32, 596 may be sold pursuant to the Registration Statement of which this Prospectus is a part. Mr. Linz has disclaimed beneficial ownership of all such Ordinary Shares. (5) Cedarford Pty Pte., a company owned by Robert and Ann Patricia McLeod, is a licensee of the Company. Don McLeod was an employee of the Company until April 30, 1998. Michael Varley is Vice President of Purchasing, Distribution and Product Development of Galore USA. Patjon Pty Ltd., Alney Pty Ltd. and GDL Investments Pty Ltd. are associated with financial and corporate advisors to the Company. In addition, Patjon Pty Ltd., Alney Pty Ltd. and GDL Investments Pty Ltd. are holders of Convertible Notes, but the Company believes that each beneficially owns less than 10% of the voting securities of the Company on a fully diluted basis. Mildred Pogorelsky is Mr. Linz's mother-in-law. Sarah Gavshon is Mr. Gavshon's mother. Fagume Pty Ltd. and National Australia Trustees Ltd. are corporations affiliated or associated with Mr. Howlett and Mr. Gardiner, Directors of the Company, respectively. 62 DESCRIPTION OF ORDINARY SHARES The rights afforded the Ordinary Shares underlying the ADSs are governed by the Articles of the Company and the laws applicable in the Commonwealth of Australia. This includes in particular the Australian Corporations Law. The following description summarizes those rights and is qualified in its entirety by reference to the Articles, copies of which are included elsewhere herein. General. The Company has authorized capital of A$100,000,000 divided into 27,437,853 shares of A$3.64 each (rounded to the nearest cent). At June 1, 1998 there were 4,541,652 fully paid Ordinary Shares issued and outstanding. The Directors of the Company have the power to issue authorized but unissued shares in different classes, or with special, preferred or deferred rights and restrictions, or on deferred terms for payment of the subscription amount. These rights may relate to voting, dividend, return of capital or any other matter, and may include redeemable preference shares. Voting. Each shareholder present in person, by proxy or by properly appointed representative shall have one vote at a meeting of shareholders unless a poll is called. If a poll of shareholders is called, then each shareholder shall have one vote per share, subject to any special rights attaching to shares at the time of issue and to provisos that (i) a shareholder shall not be entitled to vote unless all calls and other sums presently payable by that shareholder in respect of shares in the Company have been paid, and (ii) partly paid shares, which have not been offered pro rata to other shareholders, shall only confer a proportional vote per share. At this time there are no partly paid shares authorized or outstanding. A poll may be called by the chairman, any five shareholders, or any shareholder or shareholders holding 10% of the paid-up capital or the total votes of persons entitled to vote. At least 14 days notice must be given of any meeting, with the requirement extending to 21 days if any special resolution is to be voted on at the meeting. The quorum for a meeting shall be three members, with a proviso that if a quorum does not attend, then, unless it is a meeting convened on a shareholder request, the meeting shall be adjourned to such day as the directors determine, or if no determination, to the same day, time and place in the next week. If a quorum does not attend the adjourned meeting, the meeting shall be dissolved. If a quorum does not attend a meeting that was convened on a shareholder request, the meeting shall be dissolved without any later adjourned meeting. An annual general meeting of shareholders must be convened to consider the financial accounts and to vote on directors, with at least one third of the directors presenting themselves for re-election. No director may serve for a period in excess of three years without submitting himself for re-election, provided, however, that a retiring director may be re-appointed. This Board re-election procedure could delay shareholders from removing a majority of the Board for a period of three years, unless they are able to obtain the requisite vote to remove a director. The foregoing may have a significant effect in delaying, deferring or preventing a change in control of the Company, even though such change might be beneficial to the Company and its shareholders, and may adversely affect the voting and other rights of other holders of Common Stock. Four of the Company's officers and directors beneficially own an aggregate of 38.2% of the Company's outstanding Ordinary Shares. Accordingly, these shareholders are able to significantly influence the election of the Company's directors and the outcome of corporate actions requiring shareholder approval, such as mergers and acquisitions, regardless of how many other shareholders of the Company may vote. See "Risk Factors--Control of the Company." Resolutions. There are two main types of shareholder resolutions under Australian corporate law, ordinary resolutions, which must be approved by more than 50% of the votes cast (with the chairman having a vote), and special resolutions, which must be approved by at least 75% of the votes cast. Appointment of directors and 63 most general business is decided by ordinary resolution, while matters such as changes to the Articles and liquidation require a special resolution. Class Rights. If at any time the Company has more than one class of shares on issue then the rights attaching to a class cannot be varied without the approval of a special resolution passed at a meeting of those shareholders. Transfer of Shares. Shares in the Company may be transferred by any usual form of transfer or other form approved by the Directors of the Company, but the certificate for the shares must be filed with the Company. Currently, applicable law requires transfers to be made in writing and stamp duty of 0.6% must be paid in relation to any transfer. The Directors may refuse to register any transfer of shares where any of the following apply: (i) the Company has a lien on the shares; (ii) where the transfer is of a partly paid share in respect of which the directors have required the transferee or an authorized officer of the transferee to complete a statutory declaration stating that the transferee is financially able to meet any unpaid liability in respect of the share and such a declaration has not been received by the Company; (iii) where the Company may refuse to register the transfer under the Official Listing Rules of the ASE; or (iv) the Company is required to refuse to register the transfer in accordance with a law relating to stamp duty or pursuant to a court order. There are no preemptive rights. The persons and entities that previously held the Convertible Notes are entitled to cause, and this Offering results from a request for, the Company to apply for official quotation of their converted Ordinary Shares on the stock exchange or securities market on which the Company is listed. All Ordinary Shares received upon conversion of the Convertible Notes are included herein or were previously registered and sold in connection with the Company's IPO in November 1997. Buyback. There is a general limitation under the Australian Corporations Law on the Company purchasing or providing financial assistance in relation to the acquisition of shares in the Company. However, there is a specific exemption allowing the Company to make limited buybacks of shares in the Company. Any buyback must satisfy a range of conditions, which conditions vary depending on whether the buyback involves the acquisition of more than 10% of the capital of the Company and/or whether all shareholders have the opportunity to participate equally in that buyback. These restrictions do not apply to debt securities. Australian Takeover Laws. Under Australian law, foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval from the Australian Treasurer or in certain other limited circumstances. These limitations are set forth in the Takeovers Act. Under the Takeovers Act, as currently in effect, any foreign person, together with associates, is prohibited from acquiring 15% or more of the outstanding shares of the Company (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 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 64 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 hereby are acquired by foreign persons or their associates, then the level of foreign ownership of the Company's equity securities will be approximately 63.8%. The level of foreign ownership could also increase in the future if existing Australian investors decide to sell their shares into the U.S. market or if the Company were to sell additional Ordinary Shares or ADSs in the future. Dividends. Holders of Ordinary Shares are entitled to receive, on a pro rata basis in proportion to the capital paid upon on such shares, such dividends as may be recommended by the Directors and approved by shareholders in a general meeting, subject to such other preferential or special rights as may be attached to any new shares issued by the Company. The ability of U.S. persons who hold ADSs to participate in rights offerings or share dividend alternatives which the Company may undertake in the future will be restricted if the Company decides not to register such offerings pursuant to the Securities Act. While the Company is not currently planning any such action, no assurance can be given that such action will not be taken in the future or that, if any such action is taken by the Company, it will be feasible to include U.S. persons. Liquidations. On a liquidation, the liquidator may divide among the shareholders the whole or any part of the assets of the Company and may vest the whole or any part of such assets upon trust for the benefit of the shareholders. Such action requires the approval of a special resolution and is at the discretion of the liquidator. No shareholder shall be compelled to accept any shares or other securities where there is any liability. Related Party Provisions. Under the Corporations Law, directors are prohibited from entering into transactions with the Company conferring a benefit on any Director which are not on "arms-length" commercial terms, except where limited exemptions apply or detailed approval procedures are first observed. Enforceability of Civil Liabilities. The Company is an Australian public limited company. Almost all of its current Directors and executive officers reside outside the United States (principally in the Commonwealth of Australia). All or a substantial portion of the assets of these persons and of the Company are located outside the United States (principally in the Commonwealth of Australia). As a result, it may not be possible for investors to effect service of process within the United States upon such persons or the Company or to enforce against such persons or the Company in foreign courts judgments obtained in U.S. courts predicated upon the civil liability provisions of the Federal securities laws of the United States. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that there is doubt as to the enforceability in the Commonwealth of Australia, in original actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon Federal or state securities laws of the United States, especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served under Australian law. 65 DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS The following is a summary of certain provisions of the Deposit Agreement (including any exhibits thereto, the "Deposit Agreement") dated as of November 6, 1997 among the Company, Morgan Guaranty Trust Company of New York, as depositary (the "Depositary"), and the holders (the "Holders") from time to time of the ADRs issued thereunder. The following description summarizes all material provisions of the Deposit Agreement and is qualified in its entirety by reference to the Deposit Agreement. Copies of the Deposit Agreement are available for inspection at the principal office of the Depositary in New York (the "Principal New York Office"), which is presently located at 60 Wall Street, New York, New York 10260. Terms used herein and not otherwise defined shall have the respective meanings set forth in the Deposit Agreement. ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms of the Deposit Agreement. Each ADS represents, as of the date hereof, the right to receive one Ordinary Share deposited under the Deposit Agreement (together with any additional Ordinary Shares deposited thereunder and all other securities, property and cash received and held thereunder at any time in respect of or in lieu of such deposited Ordinary Shares, the "Deposited Securities") with the Custodian under the Deposit Agreement (together with any successor or successors thereto, the "Custodian"). An ADR may evidence any number of ADSs. Only persons in whose names ADRs are registered on the books of the Depositary will be treated by the Depositary and the Company as Holders. DEPOSIT, TRANSFER AND WITHDRAWAL In connection with the deposit of Ordinary Shares under the Deposit Agreement, the Depositary or the Custodian may require the following in form satisfactory to it: (a) a written order directing the Depositary to execute and deliver to, or upon the written order of, the person or persons designated in such order an ADR or ADRs evidencing the number of ADSs representing such deposited Ordinary Shares (a "Delivery Order"); (b) proper endorsements or duly executed instruments of transfer in respect of such deposited Ordinary Shares; (c) instruments assigning to the Custodian or its nominee any distribution on or in respect of such deposited Ordinary Shares or indemnity therefor; and, (d) proxies entitling the Custodian to vote such deposited Ordinary Shares. As soon as practicable after the Custodian receives Deposited Securities pursuant to any such deposit or pursuant to the form of ADR, the Custodian shall present such Deposited Securities for registration of transfer into the name of the Custodian or its nominee, to the extent such registration is practicable, at the cost and expense of the person making such deposit (or for whose benefit such deposit is made) and shall obtain evidence satisfactory to it of such registration. Deposited Securities shall be held by the Custodian for the account and to the order of the Depositary at such place or places and in such manner as the Depositary shall determine. Deposited Securities may be delivered by the Custodian to any person only under the circumstances expressly permitted in the Deposit Agreement. After any such deposit of Ordinary Shares, the Custodian shall notify the Depositary of such deposit and of the information contained in any related Delivery Order by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by cable, telex or facsimile transmission. After receiving such notice from the Custodian, the Depositary, subject to the terms and conditions of the Deposit Agreement, shall execute and deliver at the Transfer Office (the "Transfer Office") which is presently located at the Principal New York Office, to or upon the order of any person named in such notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs to which such person is entitled. Subject to the terms and conditions of the Deposit Agreement, the Depositary may so issue ADRs for delivery at the Transfer Office only against deposit with the Custodian of: (a) Ordinary Shares in form satisfactory to the Custodian; (b) rights to receive Ordinary Shares from the Company or any registrar, transfer agent, clearing agent or other entity recording Ordinary Share ownership or transactions; or, (c) other rights to receive Ordinary Shares (until such Ordinary Shares are actually deposited pursuant to (a) or (b) above, "Pre-released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked to market daily) with cash or U.S. government securities held by the Depositary for the benefit of Holders (but such collateral shall not 66 constitute "Deposited Securities"), (ii) each recipient of Pre-released ADRs agrees in writing with the Depositary that such recipient (a) owns such Ordinary Shares, (b) assigns all beneficial right, title and interest therein to the Depositary, (c) holds such Ordinary Shares for the account of the Depositary and (d) will deliver such Ordinary Shares to the Custodian as soon as practicable and promptly upon demand therefor and (iii) all Pre-released ADRs evidence not more than 20% of all ADSs (excluding those evidenced by Pre- released ADRs), provided that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may retain for its own account any earnings on collateral for Pre-released ADRs and its charges for issuance thereof. At the request, risk and expense of the person depositing Ordinary Shares, the Depositary may accept deposits for forwarding to the Custodian and may deliver ADRs at a place other than its office. Every person depositing Ordinary Shares under the Deposit Agreement is deemed to represent and warrant that such Ordinary Shares are validly issued and outstanding, fully paid, nonassessable and free of preemptive rights, that the person making such deposit is duly authorized so to do and that such Ordinary Shares (A) are not "restricted securities" as such term is defined in Rule 144 under the Securities Act of 1933 unless at the time of deposit they may be freely transferred in accordance with Rule 144(k) and may otherwise be offered and sold freely in the United States or (B) have been registered under the Securities Act of 1933. Such representations and warranties shall survive the deposit of Ordinary Shares and issuance of ADRs. Subject to the terms and conditions of the Deposit Agreement, upon surrender of an ADR in form satisfactory to the Depositary at the Transfer Office, the Holder thereof is entitled to delivery at the Custodian's office of the Deposited Securities at the time represented by the ADSs evidenced by such ADR. At the request, risk and expense of the Holder thereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit Agreement or the ADR, the withdrawal of Deposited Securities may be restricted only for the reasons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may be amended from time to time) under the Securities Act of 1933. DISTRIBUTIONS ON DEPOSITED SECURITIES Subject to the terms and conditions of the Deposit Agreement, to the extent practicable, the Depositary will distribute by mail to each Holder entitled thereto on the record date set by the Depositary therefor at such Holder's address shown on the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by ADSs evidenced by such Holder's ADRs: (a) Cash: Any U.S. dollars available to the Depositary resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof authorized in the Deposit Agreement ("Cash"), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositary's expenses in (1) converting any foreign currency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. (b) Ordinary Shares: (i) Additional ADRs evidencing whole ADSs representing any Ordinary Shares available to the Depositary resulting from a dividend or free distribution on Deposited Securities consisting of Ordinary Shares (an "Ordinary Share Distribution") and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Ordinary Shares received in an Ordinary Share Distribution, which Ordinary Shares would give rise to fractional ADSs if additional ADRs were issued therefor, as in the case of Cash. (c) Rights: (i) Warrants or other instruments in the discretion of the Depositary representing rights to acquire additional ADRs in respect of any rights to subscribe for additional Ordinary Shares or rights of 67 any nature available to the Depositary as a result of a distribution on Deposited Securities ("Rights"), to the extent that the Company timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so furnish such evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse); and (d) Other Distributions: (i) Securities or property available to the Depositary resulting from any distribution on Deposited Securities other than Cash, Ordinary Share Distributions and Rights ("Other Distributions"), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of such securities or property not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of Cash. Such U.S. dollars available will be distributed by checks drawn on a bank in the United States for whole dollars and cents (any fractional cents being withheld without liability for interest and added to future Cash distributions). To the extent that the Depositary determines in its discretion that any distribution is not practicable with respect to any Holder, the Depositary may make such distribution as it so determines is practicable, including the distribution of foreign currency, securities or property (or appropriate documents evidencing the right to receive foreign currency, securities or property) or the retention thereof as Deposited Securities with respect to such Holder's ADRs (without liability for interest thereon or the investment thereof). There can be no assurance that the Depositary will be able to effect any currency conversion or to sell or otherwise dispose of any distributed or offered property, subscription or other rights, Ordinary Shares or other securities in a timely manner or at a specified rate or price, as the case may be. U.S. SECURITIES LAWS The ability of U.S. persons who hold ADSs to participate in rights offerings or share dividend alternatives which the Company may undertake in the future will be restricted if the Company decides not to register such offerings under the Securities Act. While the Company is not currently planning any such action, no assurance can be given that such action will not be taken in the future or that, if any such action is taken by the Company, it will be feasible to include U.S. persons. DISCLOSURE OF INTERESTS To the extent that the provisions of or governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of Deposited Securities, other Ordinary Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and all persons holding ADRs agree to comply with all such disclosure requirements and ownership limitations and to cooperate with the Depositary in the Depositary's compliance with any Company instructions in respect thereof, and, in the Deposit Agreement, the Depositary has agreed to use reasonable efforts to comply with such Company instructions. RECORD DATES The Depositary will, after consultation with the Company if practicable, fix a record date (which shall be as near as practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be entitled to receive any distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such Holders shall be so entitled. 68 VOTING OF DEPOSITED SECURITIES As soon as practicable after receipt from the Company of notice of any meeting or solicitation of consents or proxies of holders of Ordinary Shares or other Deposited Securities, the Depositary shall mail to Holders a notice stating (a) such information as is contained in such notice and any solicitation materials, (b) that each Holder on the record date set by the Depositary therefor will be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person designated by the Company. Upon receipt of instructions of a Holder on such record date in the manner and on or before the date established by the Depositary for such purpose, the Depositary shall endeavor insofar as practicable and permitted under the provisions of or governing Deposited Securities to vote or cause to be voted (or to grant a discretionary proxy to a person designated by the Company to vote in accordance with (c) above) the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs in accordance with such instructions. The Depositary will not itself exercise any voting discretion in respect of any Deposited Securities. If no instructions are received by the Depositary from any Holder with respect to any of the Deposited Securities represented by the ADSs evidenced by such Holders' ADRs on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writing) that (i) the Company does not wish such proxy given, (ii) substantial opposition exists or (iii) such matter materially and adversely affects the rights of holders of Ordinary Shares; provided, further, that the Depositary shall not be obligated to give any such proxy unless and until the Depositary has been provided with an opinion, which shall be given at the time of entering into the Deposit Agreement and prior to each vote in which a discretionary proxy is to be provided, of counsel to the Company, in form and substance satisfactory to the Depositary, to the effect that (i) the granting of such proxy does not subject the Depositary to any reporting obligations in the Commonwealth of Australia, including any states thereof, (ii) the granting of such proxy will not result in a violation of any of the laws of either the Commonwealth of Australia or any states thereof and (iii) the voting arrangement and proxy as contemplated herein will be given effect under Australian law. There can be no assurance that the Holders generally or any Holder in particular will receive the notice described in this subheading sufficiently prior to the date established by the Depositary for the receipt of instructions to ensure that the Depositary will in fact receive such instructions on or before such date. Neither the Depositary nor the Company shall be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote. INSPECTION OF TRANSFER BOOKS The Deposit Agreement provides that the Depositary will keep books at its Transfer Office for the registration, registration of transfer, combination and split-up of ADRs, which at all reasonable times will be open for inspection by the Holders and the Company for the purpose of communicating with Holders in the interest of the business of the Company or a matter related to the Deposit Agreement. REPORTS AND OTHER COMMUNICATIONS The Depositary shall make available for inspection by Holders at the Transfer Office any reports and communications received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company. The Depositary shall also send to the Holders copies of such reports when furnished by the Company. Any such reports and communications furnished to the Depositary by the Company shall be furnished in English. 69 On or before the first date on which the Company makes any communication available to holders of Deposited Securities or any securities regulatory authority or stock exchange, by publication or otherwise, the Company shall transmit to the Depositary a copy thereof in English or with an English translation or summary. In connection with any registration statement under the Securities Act relating to the ADRs or with any undertaking contained therein, the Company and the Depositary shall each furnish to the other and to the Commission or any successor governmental agency such information as shall be required to make such filings or comply with such undertakings. The Company has delivered to the Depositary, the Custodian and any Transfer Office, a copy of all provisions contained in the Articles or any other charter document of or governing the Shares and any other Deposited Securities which are issued or adopted by the Company or any affiliate of the Company (other than copies of Australian laws, rules and regulations) and, promptly upon any change thereto, the Company shall deliver to the Depositary, the Custodian and any Transfer Office, a copy (in English or with an English translation) of such provisions as so changed. The Depositary and its agents may rely upon the Company's delivery thereof for all purposes of the Deposit Agreement. CHANGES AFFECTING DEPOSITED SECURITIES Subject to the terms and conditions of the Deposit Agreement, the Depositary may, in its discretion, amend the form of ADR or distribute additional or amended ADRs (with or without calling the ADRs for exchange) or cash, securities or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of Deposited Securities, any Ordinary Share Distribution or Other Distribution not distributed to Holders or any cash, securities or property available to the Depositary in respect of Deposited Securities from (and, in the Deposit Agreement, the Depositary is authorized to surrender any Deposited Securities to any person and to sell by public or private sale any property received in connection with) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company, and to the extent the Depositary does not so amend the ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof, whatever cash, securities or property results from any of the foregoing shall constitute Deposited Securities and each ADS shall automatically represent its pro rata interest in the Deposited Securities as then constituted. AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The ADRs and the Deposit Agreement may be amended by the Company and the Depositary, provided that any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise prejudice any substantial existing right of Holders, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder of an ADR at the time any amendment to the Deposit Agreement so becomes effective shall be deemed, by continuing to hold such ADR, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR and receive the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. The Depositary may (upon written notice to the Company if, any time after 60 days have expired after the Depositary will have delivered to the Company a written notice of its election to resign, a successor depositary will not have been appointed and accepted its appointment in accordance with the Deposit Agreement), and shall at the written direction of the Company, terminate the Deposit Agreement and the ADRs by mailing notice of such termination to the Holders at least 30 days prior to the date fixed in such notice for such termination. After the date so fixed for termination, the Depositary and its agents will perform no further acts under the Deposit Agreement and the ADRs, except to advise Holders of such termination, receive and hold (or sell) distributions on Deposited Securities and deliver Deposited Securities being withdrawn. As soon as practicable after the expiration of six months from the date so fixed for termination, the Depositary shall sell the Deposited Securities and shall thereafter (as long as it may lawfully do so) hold in a segregated account the net proceeds of such sales, together with any other cash then held by it under the Deposit Agreement, without liability for interest, in trust for the pro rata benefit of the Holders not theretofore surrendered. After making such sale, the Depositary 70 shall be discharged from all obligations in respect of the Deposit Agreement and the ADRs, except to account for such net proceeds and other cash. After the date so fixed for termination, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary and its agents. CHARGES OF DEPOSITARY The Depositary may charge each person to whom ADRs are issued against deposits of Ordinary Shares including deposits in respect of Ordinary Share Distributions, Rights and Other Distributions and each person surrendering ADRs for withdrawal of Deposited Securities, US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs delivered or surrendered. The Company will pay all other charges and expenses of the Depositary and any agent of the Depositary (except the Custodian) pursuant to agreements from time to time between the Company and the Depositary, except (i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Ordinary Shares), (ii) cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Ordinary Shares, ADRs or Deposited Securities (which are payable by such persons or Holders), (iii) transfer or registration fees for the registration of transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal of Deposited Securities (which are payable by persons depositing Ordinary Shares or Holders withdrawing Deposited Securities; there are no such fees in respect of the Ordinary Shares as of the date of the Deposit Agreement) and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). LIABILITY OF HOLDERS FOR TAXES If any tax or other governmental charge shall become payable by or on behalf of the Custodian or the Depositary with respect to the ADRs, any Deposited Securities represented by the ADRs evidenced thereby or any distribution thereon, such tax or other governmental charge shall be paid by the Holder thereof to the Depositary. The Depositary may refuse to effect any registration, registration of transfer, split-up or combination thereof or, subject to the terms and conditions of the Deposit Agreement, any withdrawal of such Deposited Securities until such payment is made. The Depositary may also deduct from any distributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder thereof any part or all of such Deposited Securities (after attempting by reasonable means to notify the Holder thereof prior to such sale), and may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder thereof remaining liable for any deficiency, and shall reduce the number of ADSs evidenced thereby to reflect any such sales of Deposited Securities. In connection with any distribution to Holders, the Company will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. If the Depositary determines that any distribution in property other than cash (including Ordinary Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the Custodian is obligated to withhold, the Depositary may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes to the Holders entitled thereto. GENERAL LIMITATIONS The Depositary, the Company, their agents and each of them shall: (a) incur no liability (i) if law, regulation, the provisions of or governing any Deposited Security, act of God, war or other circumstance beyond its control shall prevent, delay or subject to any civil or criminal penalty any act which the Deposit Agreement or the ADRs provides shall be done or performed by it, or (ii) by reason of any exercise or failure to exercise any discretion given it in the Deposit Agreement or the ADRs; (b) assume no liability except to perform its obligations to the extent they are specifically set forth in the ADRs and the Deposit Agreement without gross negligence or bad faith; (c) except in the case of the Company and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or the ADRs; (d) in the case of 71 the Company and its agents hereunder be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or the ADRs, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; or (e) not be liable for any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Ordinary Shares for deposit, any Holder, or any other person believed by it to be competent to give such advice or information. The Depositary, its agents and the Company may rely and shall be protected in acting upon any written notice, request, direction or other document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in which any such vote is cast or for the effect of any such vote. The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs. The Company has agreed to indemnify the Depositary and its agents under certain circumstances and the Depositary has agreed to indemnify the Company against losses incurred by the Company to the extent such losses are due to the negligence or bad faith of the Depositary. Prior to the issue, registration, registration of transfer, split-up or combination of any ADR, the delivery of any distribution in respect thereof, or, subject to the terms and conditions of the Deposit Agreement, the withdrawal of any Deposited Securities, the Company, the Depositary or the Custodian may require: (a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of Ordinary Shares or other Deposited Securities upon any applicable register, and (iii) any applicable charges as provided in the Deposit Agreement; (b) the production of proof satisfactory to it of (i) the identity and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law (including, but not limited to evidence of compliance with the Corporations Law, the Banking (Foreign Exchange) Regulations or the Foreign Acquisitions and Takeovers Act 1975 of Australia), regulations, provisions of or governing Deposited Securities and terms of the Deposit Agreement and the ADRs, as it may deem necessary or proper; and (c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of deposits of Ordinary Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the terms of the Deposit Agreement, the withdrawal of Deposited Securities may be suspended, generally or in particular instances, when the ADR Register or any register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary or the Company. GOVERNING LAW The Deposit Agreement is governed by and shall be construed in accordance with the laws of the State of New York. MORGAN GUARANTY TRUST COMPANY OF NEW YORK The Depositary is Morgan Guaranty Trust Company of New York, a New York banking corporation, which has its principal office located in New York, New York. Morgan Guaranty Trust Company of New York is a commercial bank offering a wide range of banking and trust services to its customers in the New York metropolitan area, throughout the United States and around the world. The Consolidated Balance Sheets of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), the parent corporation of Morgan Guaranty Trust Company of New York, are set forth in its most recent Annual Report and Form 10-Q. The Annual Report, Form 10-K and Form 10-Q of J.P. Morgan are on file with the Commission. The Articles of Association of Morgan Guaranty Trust Company of New York and By-Laws together with the annual report, Form 10-K and Form 10-Q of J.P. Morgan will be available for inspection at the Principal New York Office of the Depositary. J.P. Morgan Securities Inc., a co-managing underwriter in the Company's IPO consummated in November 1997, is an affiliate of Morgan Guaranty Trust Company. 72 CERTAIN TAX CONSIDERATIONS Following are, under the caption "Certain Tax Considerations--Australian Taxation," the opinion of Freehill, Hollingdale & Page as to the material Australian tax consequences and, under the caption "Certain Tax Considerations--United States Taxation," the opinion of Brobeck, Phleger & Harrison LLP as to the material U.S. Federal income tax consequences of the acquisition, ownership and disposition of Ordinary Shares or Resale ADSs by U.S. Holders (as defined below). These opinions do not deal with the tax consequences to U.S. Holders who carry on a business in Australia through a permanent establishment. For purposes of these opinions, "U.S. Holder" means a beneficial owner of Ordinary Shares or Resale ADSs that (i) for U.S. federal income tax purposes is a U.S. resident, a U.S. citizen, a domestic corporation, a domestic partnership, or a non-foreign estate or trust and (ii) does not own directly, indirectly or constructively 10% or more of the voting stock of the Company ("10% U.S. Shareholder"). These opinions do not purport to be a complete technical analysis or listing of all potential tax effects to holders of Ordinary Shares or Resale ADSs. Except as otherwise noted, the statements of Australian and U.S. tax laws set forth below are based on the laws in force as of the date of this Prospectus, including the bilateral taxation convention between Australia and the United States (the "Treaty"), and are subject to any changes in Australian and U.S. law occurring after such date. No arrangements exist or are proposed under which the Company will assume liability for, or reimburse to shareholders, any tax that the Company may withhold in respect of dividends in accordance with tax legislation. Purchasers of Resale ADSs or Ordinary Shares should consult their tax advisors concerning the Australian tax and U.S. Federal income tax consequences of their ownership of the Resale ADSs or Ordinary Shares. Further, purchasers who are residents of jurisdictions other than the United States should consult their tax advisors as to the tax consequences of investing in the Resale ADSs or Ordinary Shares under the laws of their jurisdictions of residence. These opinions represent only the best judgment of Freehill, Hollingdale & Page and Brobeck, Phleger & Harrison LLP regarding the application of Australian tax laws and United States Federal income tax laws under the Internal Revenue Code of 1986, as amended (the "Code"), respectively, as well as existing judicial decisions, administrative regulations and published rulings and procedures in the respective jurisdictions. These opinions are not binding upon the relevant Australian taxation authorities or the Internal Revenue Service, as applicable, or the courts in the respective jurisdictions, and there is no assurance that the relevant Australian taxation authorities or the Internal Revenue Service, as the case may be, will not successfully assert contrary positions. Furthermore, no assurance can be given that future legislative, judicial decisions or administrative changes, applicable either on a prospective or retroactive basis, might not materially alter these opinions. AUSTRALIAN TAXATION The following is the opinion of Freehill, Hollingdale & Page, as to the material Australian tax consequences to U.S. Holders of the acquisition, ownership and disposition of Resale ADSs and Ordinary Shares. Dividends. Fully franked dividends (i.e., dividends paid out of the Company's profits which have been subject to Australian income tax at the maximum corporate tax rate) which are paid to shareholders who are not residents of Australia will not be subject to Australian income or Australian withholding taxes. Unfranked dividends (i.e., dividends that are paid out of profits that have not been subject to Australian income tax) are subject to Australian withholding tax when paid to shareholders who are non-residents of Australia. In the event the Company pays partially franked dividends, shareholders will be subject to withholding tax on the unfranked portion. Pursuant to the Treaty, the withholding tax imposed on dividends paid by the Company to a U.S. resident is limited to 15%. Dividends which are paid to the Company by a U.S. subsidiary out of the trading profits of that subsidiary will give rise to a credit in the Company's "foreign dividend account" ("FDA"). Where the Company has a credit balance in its FDA and makes a written FDA declaration specifying that all or a portion of an unfranked dividend to be paid by the Company is an FDA dividend, the amount so specified will be exempt from Australian withholding tax. The payment of an FDA dividend gives rise to a debit in the Company's FDA account. 73 Sales of Resale ADSs or Ordinary Shares. Nonresidents of Australia who do not hold and have not at any time in the five years preceding the date of disposal held (for their own account or together with associates) 10% or more of the issued share capital of a public Australian company are not liable for Australian capital gains tax on the disposal of shares or Resale ADSs of such company. Nonresidents of Australia are subject to Australian capital gains tax on the disposal of shares or Resale ADSs of a private Australian company where the disposal consideration exceeds the cost base (indexed for inflation where the shares or Resale ADSs are held for 12 months or more). The rate of Australian tax on taxable capital gains realized by nonresidents of Australia is 36% for companies. For individuals, the rate of tax increases from 29% to a maximum of 47%. Nonresidents of Australia who are subject to Australian tax on capital gains made on the disposal of shares or Resale ADSs are required to file an Australian income tax return for the year in which the disposal occurs. A company listed on a stock exchange (a "Listed Company") will be treated as a private company in respect of a fiscal year for Australian tax purposes if it is closely held (i.e. at any time during that fiscal year, not less than 75% of the paid up capital of the Company, voting power or dividend rights is held by 20 or fewer persons), unless the Australian Commissioner of Taxation (the "Commissioner"), pursuant to the discretion granted to him, rules that such company will be treated as a public company for such fiscal year. As the Resale ADSs are listed for quotation or The Nasdaq National Market, the Company will be deemed a Listed Company. On July 9, 1997, the Commissioner ruled that the Company will be treated as a public company for Australian tax purposes for the year ending January 31, 1998. Such ruling is based on the Company's expectation that it will not be closely held at any time after the Offering. However, because the ownership of the Company must be continuously monitored, Freehill Hollingdale & Page gives no assurance that the Company will not become closely held. Non-residents who are securities dealers or in whose hands a profit on disposal of Resale ADSs or Ordinary Shares is regarded as Ordinary income and not as a capital gain (such Resale ADSs and Ordinary Shares are referred to as "revenue assets") will be subject to Australian income tax on Australian source profits arising on the disposal of the Resale ADSs or Ordinary Shares, unless such profits are exempt from Australian tax under the Treaty. Freehill Hollingdale & Page expresses no opinion as to whether the Resale ADSs or Ordinary Shares are revenue assets because such a conclusion depends on the particular facts and circumstances of the individual investor concerned. Prospective investors should consult their own tax advisors in this regard. Pursuant to the Treaty, capital gains or profits arising on the disposal of Resale ADSs or Ordinary Shares which constitute "business profits" of an enterprise carried on by a resident of the United States who does not carry on business in Australia through a permanent establishment to which such gains or profits are attributable are exempt from Australian tax. The term "business profits" is not defined in the Treaty and thus its meaning in the present context is that which the term has under Australian tax law. The Australian Courts have held that the term business profits is not confined to profits derived from the carrying on of a business but must embrace any profit of a business nature or commercial character. The term "permanent establishment" is defined in the Treaty to mean a fixed place of business through which an enterprise is carried on and includes an Australian branch of the non-resident and an agent (other than an agent of independent status) who is authorized to conclude contracts on behalf of the non-resident and habitually exercises that authority in Australia. Any capital gains or profits derived by a resident of the United States from the disposal of the Resale ADSs or Ordinary Shares held as revenue assets (including gains derived by a securities dealer) will constitute business profits under the Treaty and, thus be exempt from Australian tax, provided that such holder does not carry on business in Australia through a permanent establishment to which such gains or profits are attributable. Non-residents with no taxable capital gains or income from sources in Australia other than dividends with respect to the Ordinary Shares or Resale ADSs are not required to file an Australian income tax return. 74 Stamp Duty. Under the law as it currently stands, stamp duty is imposed in the Australian Capital Territory on any transfer of shares in a company incorporated in the Australian Capital Territory and will be payable on the transfer of Ordinary Shares in the Company. In the absence of a relevant exemption, duty will be payable on the transfer of Ordinary Shares in the Company at the rate of A$0.60 for each A$100.00 of the higher of the consideration paid or payable to acquire the Ordinary Shares or unencumbered value of the Ordinary Shares. That duty is payable by the transferee. Freehill Hollingdale & Page expresses no opinion regarding the availability of any exemption from stamp duty, since the availability of exemptions depends upon the particular circumstances surrounding each transaction. Technically, duty at the same rate as applies to the transfer of Ordinary Shares in the Company may apply to transfers of ADRs or ADSs relating to Ordinary Shares. However, based on recent discussions with the Australian Capital Territory revenue authorities, it is understood that the authorities do not consider it appropriate for duty to be charged on transfers of ADRs or ADSs to foreign residents. A specific exemption is not provided under current Australian Capital Territory stamp duties laws but is expected to be introduced later this year. Freehill, Hollingdale & Page expresses no opinion regarding the availability of any one of the proposed exemptions from stamp duty, since the availability of any one of the exemptions from stamp duty depends upon the terms of the legislation once introduced and the particular circumstances of each transaction. REPRESENTATIONS BY THE COMPANY The following are representations made by the directors of the Company and have been relied upon by Freehill Hollingdale & Page in rendering their opinion set forth under the caption "Certain Tax Considerations--Australian Taxation." The Company anticipates that all dividends, if any, to be paid in the foreseeable future will be fully franked. Dividend statements will be sent to all Ordinary Shareholders which indicate the extent to which dividends are franked and the amount of any tax withheld. On July 9, 1997, the Australian Commissioner of Taxation (the "Commissioner") ruled that the Company will be treated as a public company for Australian tax purposes. The significance of this treatment for Australian tax purposes is addressed in the opinion of Freehill Hollingdale & Page set forth under the caption "Certain Tax Considerations--Australian Taxation." The Commissioner's ruling is based on the Company's expectation that it will not be closely held after the offering (i.e. it will not be the case that 20 or fewer persons hold 75% or more of the paid up capital of the Company, its voting power or dividend rights). The Company is not currently, and does not expect that, in subsequent years, it will become closely held, and therefore, expects that it will continue to be a public company for Australian tax purposes. However, because the ownership of the Company must be continuously monitored, there can be no assurance that the Company will not become closely held. The Company will monitor its share register and, if the need arises, seek a further exercise of the Commissioner's discretion. The Company will notify its shareholders in the event the Company is unsuccessful in maintaining its status as a public company. UNITED STATES TAXATION The following is the opinion of Brobeck, Phleger & Harrison LLP as to the material U.S. Federal income tax consequences to U.S. Holders of the acquisition, ownership and disposition of the Resale ADSs and Ordinary Shares. Holders of Resale ADSs Deemed to be Owners of Ordinary Shares. For purposes of the Code, a U.S. Holder of Resale ADSs will be treated as the owner of the underlying Ordinary Shares represented by such Resale ADSs. Exchanges, deposits and withdrawals of Ordinary Shares for Resale ADSs or Resale ADSs for Ordinary Shares by a U.S. Holder will not result in recognition of gain or loss for U.S. Federal income tax purposes. 75 Cash Dividends. Distributions (other than a mere pro rata distribution of Ordinary Shares) made by the Company with respect to the Ordinary Shares, including Ordinary Shares represented by Resale ADSs (including the amount of any Australian taxes withheld therefrom), will be includable in the gross income of a U.S. Holder as dividend income from a source other than within the United States to the extent of current or accumulated earnings and profits of the Company. Such dividends will not be eligible for the dividends received deduction otherwise allowed to corporations. To the extent, if any, that the amount of any such distribution exceeds the Company's current and accumulated earnings and profits, it will be treated first as a tax-free return of the U.S. Holder's tax basis in its Resale ADSs to the extent thereof, and then, to the extent in excess of such tax basis, as capital gain. Dividends paid in Australian dollars will be includable in income in a U.S. dollar amount based on the prevailing U.S. dollar-Australian dollar exchange rate on the date of receipt by the Depositary or the date of receipt by the U.S. Holder of Ordinary Shares, whether or not the payment is converted into U.S. dollars at that time. Any gain or loss recognized upon a subsequent sale or conversion of the Australian dollars will be U.S. source ordinary income or loss. Any Australian tax withheld from a dividend will be treated as a foreign tax creditable (subject to the limitations discussed below) against the U.S. Federal income tax liability of the U.S. Holder. Amounts creditable against U.S. tax are permitted, at the election of the U.S. Holder, to be deducted. Under the Code, the amount of foreign tax eligible for credit against the U.S. Federal income tax liability of a U.S. Holder is limited to the amount of U.S. tax attributable to the U.S. Holder's taxable income from sources other than within the United States (such limitation, the "Overall Limitation"). For purposes of computing the Overall Limitation, the amount of foreign tax eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid by the Company will be "passive income" or, in the case of certain holders, "financial services income." Because the ability of a U.S. Holder to credit foreign taxes against such U.S. Holder's U.S. Federal income tax liability depends on such U.S. Holder's particular circumstances, Brobeck, Phleger & Harrison LLP expresses no opinion as to the availability of such a credit. Prospective investors must consult their own tax advisors in this regard. Sale of Resale ADSs or Ordinary Shares. Upon a sale or exchange of Resale ADSs or Ordinary Shares, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized upon the disposition and such holder's adjusted tax basis in the Resale ADSs or Ordinary Shares. Such gain or loss will be a capital gain or loss if the holder has held his Resale ADSs or Ordinary Shares as capital assets. Capital gains recognized on the sale or exchange by individuals of capital assets are subject to a 28% maximum tax rate if the capital assets have been held for more than one year but not more than 18 months and a 20% maximum tax rate if the capital assets have been held for more than 18 months. Capital losses may only be deducted to the extent of capital gains, except that individuals may deduct up to $3,000 of net capital losses against ordinary income. Because the ability of U.S. Holders to deduct capital losses depends on each U.S. Holder's particular circumstances, Brobeck, Phleger & Harrison LLP expresses no opinion as to the availability of such deduction. Prospective investors must consult their own tax advisors in this regard. No Australian Tax is imposed on the capital gains of a U.S. Holder arising from the sale or exchange of Resale ADSs or Ordinary Shares provided that the Company continues to be treated as a public company for Australian tax purposes. See "--Australian Taxation--Sales of Resale ADSs or Ordinary Shares." In the event that the Company is not treated as a public company and, consequently, Australian tax is imposed on the sale or exchange of Resale ADSs or Ordinary Shares, U.S. Holders should consult their own tax advisors with respect to their ability to credit such tax against their U.S. federal income taxes. Because the ability of a U.S. Holder to credit foreign taxes against such U.S. Holder's U.S. Federal income tax liability depends on such U.S. Holder's particular circumstances, Brobeck, Phleger & Harrison LLP expresses no opinion as to the availability of such a credit. Prospective investors must consult their own tax advisors in this regard. Passive Foreign Investment Company. A Passive Foreign Investment Company ("PFIC") is a foreign corporation in which either (1) 75% or more of its gross income in a tax year is passive or (2) at least 50% of the average percentage of its assets (by value or, if the corporation so elects, by adjusted tax basis) produce or are held for the production of passive income. As of the date of this Prospectus, the Company is not a PFIC. If the Company becomes a PFIC, the U.S. Federal income tax consequences to a U.S. Holder of the purchase, 76 ownership, disposition or deemed disposition of Resale ADSs will change significantly from the consequences presented in this discussion. Because the determination of PFIC status in the future will be based upon annual determinations of the composition of the income and assets of the Company, Brobeck, Phleger & Harrison LLP expresses no opinion as to whether the Company will become a PFIC in the future and no opinion as to the material U.S. Federal income tax consequences to U.S. Holders that would result if the Company were to become a PFIC in the future. 77 SHARES ELIGIBLE FOR FUTURE SALE In November 1997, the Company registered, issued and sold 1,700,000 ADSs (each representing one Ordinary Share of the Company) at a price of US$11.00 per share, for an aggregate offering amount of approximately US$18.7 million, including 1,500,000 ADSs sold by the Company for an aggregate offering amount of approximately US$16.5 million and 200,000 ADSs registered for the selling securityholders, at $11.00 per share for an aggregate offering amount of US$2.2 million. The ADSs were registered on a Form F-1 registration statement, file number 333-37259, with the Securities and Exchange Commission, which registration statement became effective on November 3, 1997. The managing underwriters were J.P. Morgan & Co. and SBC Warburg Australia. The Company did not receive any of the proceeds from the offering of ADSs on behalf of the selling securityholders in the IPO. As of April 30, 1998, there were outstanding options to purchase a total of 402,438 Ordinary Shares granted by the Company, of which 221,038 were held by directors and officers of the Company. These outstanding options were granted under both the Company's Executive Share Option Plan and the 1997 Share Option Plan. There were no other warrants or rights to purchase the Company's Ordinary Shares outstanding as of April 30, 1998. None of these options is presently exercisable, nor will any become exercisable within the next sixty (60) days. The Company may in the future issue these or other equity or equity derivative securities. See "Management--1997 Share Option Plan" and "Management--Executive Share Option Plan." Upon effectiveness of the Registration Statement of which this Prospectus is a part, assuming no exercise of outstanding stock options after April 30,1998, the Company will have 4,541,652 Ordinary Shares outstanding (including those represented by the ADSs). Substantially all of such Ordinary Shares will be freely tradable without further registration under the Securities Act, subject to compliance with Rule 144. In general, under Rule 144, as in effect on the date of this Prospectus, an affiliate of the Company, or person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year, will be entitled to sell in any three-month period commencing at least 90 days after the date of this Prospectus a number of shares that does not exceed the greater of (i) 1% of the then outstanding Ordinary Shares (approximately 45,416 shares as of June 1, 1998) or (ii) the average weekly trading volume of the Company's Ordinary Shares (as represented by ADSs) on Nasdaq during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the SEC. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. In addition, affiliates of the Company must comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to sell Ordinary Shares which are not "restricted securities" (such as Ordinary Shares acquired by affiliates in the public markets). A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned restricted shares for at least two years is entitled to sell such shares immediately following the consummation of the Offering pursuant to Rule 144(k) without regard to the limitations described in this paragraph. For purposes of calculating the holding periods under Rule 144, the holders of Ordinary Shares issued upon conversion of Convertible Notes are deemed to have acquired their Ordinary Shares when they acquired their Convertible Notes. 78 PLAN OF DISTRIBUTION The Company will not receive proceeds from the sale of Resale ADSs in this Offering. The Resale ADSs offered hereby may be sold by the Selling Shareholders from time to time in transactions on Nasdaq, in negotiated transactions, or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices. The Selling Shareholders may effect such transactions by selling the Resale ADSs to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of the Resale ADSs for whom such broker- dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). In order to comply with the securities laws of certain states, if applicable, the Resale ADSs will be sold in such jurisdictions only through registered or licensed brokers or dealers. In addition, in certain states the Resale ADSs may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with. The Selling Shareholders and any broker-dealers or agents that participate with the Selling Shareholders in the distribution of the Resale ADSs may be deemed to be "underwriters" within the meaning of the Securities Act, and any commissions received by them and any profit on the resale of the Resale ADSs purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Company has advised the Selling Shareholders that, during such time as they may be engaged in a distribution of the Ordinary Shares included herein, they must comply with the applicable provisions under Regulation M under the Exchange Act, ("Regulation M") and, in connection therewith, the Selling Shareholders may not engage in any stabilization activity in connection with any securities of the Company, that they must furnish copies of this Prospectus to each broker-dealer through which the Ordinary Shares included herein may be offered, and that they may not bid for or purchase any securities of the Company or attempt to induce any person to purchase any securities of the Company except as permitted under Regulation M. The Selling Shareholders have also agreed to inform the Company and broker-dealers through whom sales may be made hereunder when the distribution of the shares is completed. Rules 102 and 103 under Regulation M prohibit participants in a distribution from bidding for or purchasing any of the securities that are the subject of the distribution for an account in which the participant has a beneficial interest. Rule 104 under Regulation M governs bids and purchases made to stabilize the price of a security in connection with a distribution of the security. A total of 997,926 of the Resale ADSs were originally issued upon conversion of the Convertible Notes in connection with the Company's IPO, the Convertible Notes having been issued in offshore transactions not required to be registered under the Securities Act. In connection with the conversion of all of the Convertible Notes upon consummation of the Company's IPO, the Company contractually agreed to register under the Securities Act these Ordinary Shares on behalf of the Selling Shareholders. A total of 46,919 of the Resale ADSs are being registered voluntarily by the Company hereby and were also originally issued by the Company in offshore transactions, not required to be registered under the Securities Act. The Company has agreed to pay all fees and expenses incident to the filing of this Registration Statement, including fees of the Company's counsel relating to Selling Shareholder issues, other than underwriting discounts and commissions. 79 LEGAL MATTERS The validity of the ADSs offered hereby under Australian law and certain Australian tax matters will be passed upon for the Company and the Selling Shareholders by Freehill, Hollingdale & Page, Solicitors & Attorneys, Sydney, Australia. Certain legal matters relating to the ADSs will be passed upon by Brobeck, Phleger & Harrison LLP, Palo Alto, California, special U.S. counsel for the Company and the Selling Shareholders. EXPERTS The Consolidated Balance Sheet of the Company as of June 30, 1996 and the Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the two years in the period ended June 30, 1996 included herein have been audited by Horwath & Horwath, independent public accountants, as indicated in their report with respect thereto, and are included in the Registration Statement of which this Prospectus is a part in reliance upon the authority of said firm as experts in auditing and accounting. The Consolidated Balance Sheets of the Company as of June 30, 1993, 1994 and 1995 and the Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the two years in the period ended June 30, 1994 have been audited by Horwath & Horwath and are not included herein. The Consolidated Financial Statements of Barbeques Galore Limited and subsidiaries as of January 31, 1998 and January 31, 1997 and for the twelve- month period ended January 31, 1998 and the seven-month period ended January 31, 1997 have been included herein in reliance upon the report of KPMG, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. With respect to the unaudited interim financial information for the annual periods ended January 31, 1995, 1996 and 1997 included in the Registration Statement of which this Prospectus is a part, KPMG has reported that they applied limited procedures in accordance with professional standards for a review of such information. However, their separate report (included in the Registration Statement of which this Prospectus is a part) states that they did not audit and they do not express an opinion on this interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of Section 11 of the Securities Act for their report on the unaudited interim financial information because that report is not a "report" or a "part" of the Registration Statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Securities Act. 80 INDEX TO DEFINED TERMS
DEFINED TERM LOCATION ------------ -------- 10% U.S. Shareholder "Certain Tax Considerations" 1997 Plan "Management--1997 Share Option Plan" ADRs Cover Page ADSs Cover Page ANZ "Use of Proceeds" ANZ Facility "Dividend Policy" Articles "Risk Factors--Restrictions on Foreign Ownership; Antitakeover Restrictions" ASE "Dividend Policy" Barbeques Galore Cover Page Bosmana "Principal Shareholders"--Note 3 to Table Bromic "Risk Factors--Risks Associated with International Operations; Dependence on Significant Vendors and Suppliers" Capital Reduction "Certain Transactions--Recent Delisting Transaction" Cash "Description of American Depositary Receipts-- Distributions on Deposited Securities" Code "Certain Tax Considerations--United States Taxation-- Holders of ADSs Deemed to be Owners of Ordinary Shares" Commission "Available Information" Commissioner "Certain Tax Considerations--Australian Taxation" Company Cover Page Convertible Notes Cover Page Custodian "Description of American Depositary Receipts" Delivery Order "Description of American Depositary Receipts--Deposit, Transfer and Withdrawal" Deposit Agreement "Description of American Depositary Receipts" Depositary "Description of American Depositary Receipts" Deposited Securities "Description of American Depositary Receipts" Entity Optionee "Management--Executive Share Option Plan" Exchange Act "Available Information" Expiry Date "Management--Executive Share Option Plan" EPS "Management's Discussion and Analysis of Financial Condition and Results of Operations--New Pronouncements by Financial Accounting Standards Board" Executive Plan "Management--Executive Share Option Plan" Expiration Date "Certain Tax Considerations--Australian Taxation" Galore USA "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Geblon "Principal Shareholders"--Note 2 to Table GLG Taiwan "Business--Manufacturing" Holders "Description of American Depositary Receipts" Horan's Steel "Risk Factors--Risks Associated with International Operations; Dependence on Significant Vendors and Suppliers" JDA "Risk Factors" J.P. Morgan "Description of American Depositary Receipts--Morgan Guaranty Trust Company of New York" Listed Company "Certain Tax Considerations--Australian Taxation" Merrill Lynch "Use of Proceeds" Merrill Lynch Facility "Dividend Policy" Nasdaq Cover page Noon Buying Rate "Financial Statement Presentation"
81
DEFINED TERM LOCATION ------------ -------- Noteholders "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" Offering Cover Page Optics "Risk Factors--Implementation of Growth Strategy" Options "Risk Factors--Shares Eligible for Future Sale" Ordinary Share Cover Page Ordinary Share Distribution "Description of American Depositary Receipts-- Distributions on Deposited Securities" Other Distributions "Description of American Depositary Receipts-- Distributions on Deposited Securities" Overall Limitation "Certain Tax Considerations--United States Taxation--Cash Dividends" Ownership Test "Certain Tax Considerations--Australian Taxation-- Sales of ADSs or Ordinary Shares" PFIC "Certain Tax Considerations--United States Taxation--Passive Foreign Investment Company" POS "Business--Store Operations" Pre-released ADRs "Description of American Depositary Receipts-- Deposit, Transfer and Withdrawal" Pricotech "Business--Wholesale Operations" Principal New York Office "Description of American Depositary Receipts" Prospectus Cover Page Rebel "Management--Executive Officers, Directors and Key Employees" Registration Statement "Enforceability of Civil Liabilities Under the Federal Securities Laws" Regulation M "Plan of Distribution" Related Franchisors "Certain Transactions--Transactions Involving Principal Shareholders" Reverse Share Split "Prospectus Summary" Revolving Line "Management's Discussion and Analysis--Liquidity and Capital Resources" Rights "Description of American Depositary Receipts-- Distributions on Deposited Securities" Rule 144 "Risk Factors--Shares Eligible for Future Sale" Sarwill "Principal Shareholders"--Note 4 to Table SBC Warburg Australia "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Securities Act Cover Page Selling Shareholders Cover Page SFAS "Management's Discussion and Analysis of Financial Condition and Results of Operations--New Pronouncements by Financial Accounting Standards Board" Standby Facility "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Takeovers Act "Risk Factors--Restrictions on Foreign Ownership; Antitakeover Restrictions" Term Loan "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Transfer Office "Description of American Depositary Receipts-- Deposit, Transfer and Withdrawal" Treaty "Certain Tax Considerations" U.S. GAAP "Available Information" U.S. Holder "Certain Tax Considerations" Wispjune "Principal Shareholders"--Note 3 to Table
82 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Reports.............................................. F-2 Consolidated Balance Sheets................................................ F-4 Consolidated Statements of Operations...................................... F-5 Consolidated Statements of Shareholders' Equity............................ F-6 Consolidated Statements of Cash Flows...................................... F-7 Notes to Consolidated Financial Statements................................. F-8
F-1 INDEPENDENT AUDITORS' REPORTS The Board of Directors and Shareholders Barbeques Galore Limited We have audited the accompanying consolidated balance sheets of Barbeques Galore Limited and subsidiaries as of January 31, 1998 and 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for the year ended January 31, 1998 and the seven months ended January 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Australia, the registrant's local standards, which are substantially equivalent to auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barbeques Galore Limited and subsidiaries as of January 31, 1998 and January 31, 1997 and the results of their operations and their cash flows for the years ended January 31, 1998 and seven months ended January 31, 1997 in conformity with generally accepted accounting principles in the United States. /s/ KPMG KPMG April 10, 1998 Sydney, Australia F-2 The Board of Directors and Shareholders Barbeques Galore Limited SCOPE We have audited the accompanying consolidated financial statements of Barbeques Galore Limited and subsidiaries incorporating the consolidated balance sheet as of June 30, 1996, and consolidated statements of operations, shareholders' equity and cash flows for the years ended June 30, 1996 and June 30, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Australia, that are substantially equivalent to auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. AUDIT OPINION In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barbeques Galore Limited and subsidiaries as of June 30, 1996, and the results of their operations and their cash flows for the years ended June 30, 1996 and June 30, 1995, in conformity with generally accepted accounting principles in the United States. /s/ Horwath Sydney Partnership HORWATH SYDNEY PARTNERSHIP August 8, 1997 Sydney, Australia F-3 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, APRIL 30, APRIL 30, 1996 1997 1998 1998 1997 1998 -------- ----------- ----------- ----------- ----------- ----------- (US$) (UNAUDITED) (UNAUDITED) (IN A$THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) ASSETS Current assets: Cash and cash equivalents........... $ 26 $ 30 $ 166 $ 111 $ 33 $ 31 Accounts receivable, net................... 7,835 7,350 9,862 6,601 7,429 7,962 Receivables from affiliates............ 119 362 143 96 74 250 Inventories............ 36,933 33,928 43,030 28,800 37,558 47,302 Deferred income taxes................. 1,113 2,472 2,031 1,359 2,550 2,393 Prepaid expenses and other current assets................ 742 1,131 1,079 722 1,550 1,577 ------- ------- ------- ------- ------- ------- Total current assets.............. 46,768 45,273 56,311 37,689 49,194 59,515 Non-current assets: Receivables from affiliates............ 697 696 642 430 696 480 Property, plant and equipment, net........ 16,457 18,348 21,038 14,081 18,113 24,967 Goodwill, net.......... 628 1,476 1,507 1,009 1,470 1,486 Deferred income taxes................. 841 871 1,194 799 901 1,405 Other non-current assets................ 1,171 1,306 1,382 925 1,366 1,462 ------- ------- ------- ------- ------- ------- Total assets......... $66,562 $67,970 $82,074 $54,933 $71,740 $89,315 ======= ======= ======= ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft......... $ 1,445 $ 1,826 $ -- $ -- $ 2,102 $ 2,610 Accounts payable and accrued liabilities... 14,388 13,693 16,648 11,143 15,428 17,835 Payables to related parties............... 942 1,231 -- -- 1,055 -- Current maturities of long-term debt........ 3,848 2,964 198 133 5 147 Current portion of obligations under capital leases........ 999 1,395 1,729 1,157 1,162 1,312 Income taxes payable... 436 1,612 819 548 908 457 ------- ------- ------- ------- ------- ------- Total current liabilities......... 22,058 22,721 19,394 12,981 20,660 22,361 Non-current liabilities: Long-term debt......... 12,772 20,718 14,716 9,849 27,844 18,975 Convertible notes...... -- 10,042 -- -- 10,042 -- Obligations under capital leases, excluding current portion............... 3,047 3,516 3,405 2,279 3,582 3,388 Other long-term liabilities........... 868 808 632 423 799 1,016 ------- ------- ------- ------- ------- ------- Total liabilities.... 38,745 57,805 38,147 25,532 62,927 45,740 ------- ------- ------- ------- ------- ------- Shareholders' equity: Ordinary shares, A$3.64 par value; authorized 27,437,853 shares................ 16,220 6,720 16,532 11,065 6,720 16,532 Additional paid-in capital............... 14,113 4,613 24,554 16,434 4,613 24,554 Foreign currency translation adjustment............ 3 200 1,177 788 47 1,612 Retained earnings (deficit)............. (2,519) (1,368) 1,664 1,114 (2,567) 877 ------- ------- ------- ------- ------- ------- Total shareholders' equity.............. 27,817 10,165 43,927 29,401 8,813 43,575 ------- ------- ------- ------- ------- ------- Total liabilities and shareholders' equity.............. $66,562 $67,970 $82,074 $54,933 $71,740 $89,315 ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-4 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
7 MONTHS 12 MONTHS 3 MONTHS 3 MONTHS YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED ENDED ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, APRIL 30, APRIL 30, 1995 1996 1997 1997 1998 1998 1997 1998 ---------- ---------- ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (US$) (UNAUDITED) (UNAUDITED) (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales............... $138,057 $141,691 $98,752 $148,369 $179,325 $131,266 $30,366 $36,744 Cost of goods sold, warehouse, distribution and occupancy costs.... 92,290 98,158 67,955 103,324 122,072 89,357 20,891 25,117 -------- -------- ------- -------- -------- -------- ------- ------- Gross profit............ 45,767 43,533 30,797 45,045 57,253 41,909 9,475 11,627 Selling, general, and administrative expenses............... 40,058 39,339 25,740 40,751 48,992 35,862 9,798 12,462 Store pre-opening costs.................. 64 153 200 239 435 318 114 147 Relocation and closure costs.................. -- 875 461 1,336 20 15 -- 15 -------- -------- ------- -------- -------- -------- ------- ------- Operating income........ 5,645 3,166 4,396 2,719 7,806 5,714 (437) (997) -------- -------- ------- -------- -------- -------- ------- ------- Equity in income of affiliates, net of tax.................... 963 836 252 379 547 400 50 96 Interest expense........ 2,230 2,262 1,593 2,236 3,334 2,440 879 388 Other expenses (income)............... -- (2,303) 1,132 1,132 -- -- -- -- -------- -------- ------- -------- -------- -------- ------- ------- Income (loss) before income taxes........... 4,378 4,043 1,923 (270) 5,019 3,674 (1,266) (1,289) Income tax expense (benefit).............. 573 98 366 (822) 1,488 1,089 (566) (502) -------- -------- ------- -------- -------- -------- ------- ------- Net income.............. $ 3,805 $ 3,945 $ 1,557 $ 552 $ 3,531 $ 2,585 $ (700) $ (787) ======== ======== ======= ======== ======== ======== ======= ======= Earnings per share (A$ per share): Basic earnings per share.................. $ 0.86 $ 0.89 $ 0.38 $ 0.13 $ 1.43 $ 1.05 $ (0.38) $ (0.17) ======== ======== ======= ======== ======== ======== ======= ======= Diluted earnings per share.................. $ 0.86 $ 0.89 $ 0.38 $ 0.13 $ 1.18 $ 0.86 $ (0.38) $ (0.17) ======== ======== ======= ======== ======== ======== ======= ======= Weighted average shares outstanding (in thousands)............. 4,450 4,450 4,073 4,228 2,473 2,473 1,844 4,541 ======== ======== ======= ======== ======== ======== ======= =======
See accompanying notes to consolidated financial statements. F-5 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOREIGN ADDITIONAL CURRENCY RETAINED TOTAL SHARES ORDINARY PAID-IN TRANSLATION EARNINGS SHAREHOLDERS' OUTSTANDING SHARES CAPITAL ADJUSTMENT (DEFICIT) EQUITY ----------- -------- ---------- ----------- --------- ------------- (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Balances at June 30, 1994................... 4,450 $ 16,220 $ 14,113 $ 468 $(6,416) $ 24,385 Net income.............. -- -- -- -- 3,805 3,805 Dividend of $0.4560 per share.................. -- -- -- -- (2,028) (2,028) Foreign currency translation adjustment............. -- -- -- 164 -- 164 ------- -------- -------- ------ ------- -------- Balances at June 30, 1995................... 4,450 16,220 14,113 632 (4,639) 26,326 Net income.............. -- -- -- -- 3,945 3,945 Dividend of $0.1367 per share.................. -- -- -- -- (608) (608) Dividend of $0.2733 per share.................. -- -- -- -- (1,217) (1,217) Foreign currency translation adjustment............. -- -- -- (629) -- (629) ------- -------- -------- ------ ------- -------- Balances at June 30, 1996................... 4,450 16,220 14,113 3 (2,519) 27,817 Net income.............. -- -- -- -- 1,557 1,557 Dividend of $0.0911 per share.................. -- -- -- -- (406) (406) Foreign currency translation adjustment............. -- -- -- 197 -- 197 Repurchase of ordinary shares................. (2,744) (10,000) (10,000) -- -- (20,000) Issuance of ordinary shares................. 137 500 500 -- -- 1,000 ------- -------- -------- ------ ------- -------- Balances at January 31, 1997................... 1,843 6,720 4,613 200 (1,368) 10,165 Net loss................ -- -- -- -- (700) (700) Foreign currency translation adjustment............. -- -- -- (153) -- (153) Dividend of $0.2715 per share.................. -- -- -- -- (499) (499) ------- -------- -------- ------ ------- -------- Balance at April 30, 1997 (unaudited)....... 1,843 6,720 4,613 47 (2,567) 8,813 Net income.............. -- -- -- -- 4,231 4,231 Foreign currency translation adjustment............. -- -- -- 1,130 -- 1,130 Issuance of ordinary shares................. 1,500 5,460 18,149 -- -- 23,609 Conversion of convertible notes...... 1,198 4,360 5,682 -- -- 10,042 Initial public offering (the "Offering") costs.................. -- -- (3,898) -- -- (3,898) Other................... -- (8) 8 -- -- -- ------- -------- -------- ------ ------- -------- Balances at January 31, 1998................... 4,541 16,532 24,554 1,177 1,664 43,927 ------- -------- -------- ------ ------- -------- Net loss................ -- -- -- -- (787) (787) Foreign currency translation adjustment............. -- -- -- 435 -- 435 ------- -------- -------- ------ ------- -------- Balances at April 30, 1998 (unaudited)....... 4,541 $ 16,532 $ 24,554 $1,612 $ 877 $ 43,575 ======= ======== ======== ====== ======= ========
See accompanying notes to consolidated financial statements. F-6 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED 3 MONTHS ENDED 3 MONTHS ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, APRIL 30, APRIL 30, 1995 1996 1997 1997 1998 1997 1998 ----------- ----------- --------------- ---------------- ------------ -------------- --------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN A$ THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.......... $ 3,805 $ 3,945 $ 1,557 $ 552 $ 3,531 $ (700) $ (787) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization...... 2,755 3,080 2,633 4,031 4,236 826 1,438 Deferred income taxes............. (365) (536) (1,389) (1,794) 118 (108) (566) Amounts set aside to provisions..... 70 270 (269) (703) (925) (540) (474) Gain on sale of affiliate......... -- (2,303) -- -- -- -- -- Undistributed income of affiliates........ 4 124 (252) (6) (219) (49) (40) Loss (gain) on sale of property, plant and equipment..... 250 76 663 707 (52) -- 1 Debt issue costs... -- -- 1,132 1,132 -- -- -- Changes in operating assets and liabilities: Receivables and prepaid expenses.. (1,959) 275 (421) 1,292 (2,316) (380) 1,580 Inventories........ (4,942) 1,547 3,219 3,039 (9,185) (3,688) (4,247) Other assets....... (203) (6) (1) (45) (81) (18) (24) Accounts payable and accrued liabilities....... 2,326 (1,901) 332 2,425 3,755 1,141 1,754 -------- -------- -------- -------- -------- ------- ------- Net cash provided by (used in) operating activities......... 1,741 4,571 7,204 10,630 (1,138) (3,516) (1,365) -------- -------- -------- -------- -------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of affiliate....... -- 2,222 173 173 -- -- -- Proceeds from sale of property, plant and equipment...... 189 63 51 84 322 -- 11 Capital expenditures....... (2,242) (4,609) (3,201) (6,602) (5,000) (104) (4,969) Loan repayments received........... 181 2,270 140 320 181 50 (38) -------- -------- -------- -------- -------- ------- ------- Net cash provided by (used in) investing activities......... (1,872) (54) (2,837) (6,025) (4,497) (54) (4,996) -------- -------- -------- -------- -------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long- term debt.......... (19,305) (12,661) (4,304) (4,711) (34,111) (1,212) (7,792) Proceeds from long- term debt.......... 21,135 9,429 21,534 19,522 24,274 5,365 12,000 Debt issue costs.... -- -- (1,132) (1,132) -- -- -- Bank overdraft proceeds (repayments)....... -- 1,445 381 1,826 (1,826) 276 2,610 Principal payments under capital leases............. (670) (827) (443) (874) (1,782) (357) (436) Dividends paid...... (2,028) (1,825) (406) (1,623) (499) (499) -- Repurchase of ordinary shares.... -- -- (20,000) (20,000) -- -- -- Proceeds from issuance of ordinary shares.... -- -- -- -- 23,609 -- -- Offering costs...... -- -- -- -- (3,898) -- (156) -------- -------- -------- -------- -------- ------- ------- Net cash provided by (used in) financing activities......... (868) (4,439) (4,370) (6,992) 5,767 3,573 6,226 -------- -------- -------- -------- -------- ------- ------- Effects of exchange rate fluctuations.. (26) (60) 7 (24) 4 -- -- -------- -------- -------- -------- -------- ------- ------- Net increase (decrease) in cash and cash equivalents........ (1,025) 18 4 (2,411) 136 3 (135) Cash and cash equivalents at beginning of period............. 1,544 519 26 2,441 30 30 166 Adjustment to opening cash balance arising from deconsolidation of former subsidiary.. -- (511) -- -- -- -- -- -------- -------- -------- -------- -------- ------- ------- Cash and cash equivalents at end of period.......... $ 519 $ 26 $ 30 $ 30 $ 166 $ 33 $ 31 ======== ======== ======== ======== ======== ======= =======
See accompanying notes to consolidated financial statements. F-7 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of business Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an Australian resident company which is involved in the manufacture of barbecues and heaters, and wholesale and retail sales of barbecues, heaters, camping equipment, outdoor furniture, leisure products and related accessories through company-owned and licensed stores in Australia. The Company is also involved in the retailing, through Company-owned and franchised stores, of barbecues, fireplace equipment and accessories in the United States of America. The Company's manufacturing operations are located in Australia. (b) Principles of consolidation The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. (c) Inventories Inventories are comprised of raw materials and stores, work in progress and finished goods. Inventories are valued at the lower of cost or market using the first-in, first-out ("FIFO") method. (d) Derivative financial instruments The Company uses foreign currency forward contracts to offset earnings fluctuations from anticipated foreign currency cash flows. These instruments are marked to market and the results recognized immediately as income or expense. (e) Investments in affiliated companies Investments in the ordinary shares of 20% to 50% owned companies are accounted for by the equity method. (f) Property, plant and equipment Property, plant and equipment are stated at cost. Plant and equipment under capital leases are initially recorded at the present value of minimum lease payments. The method of depreciation and estimable useful lives over which property, plant and equipment are depreciated are as follows:
METHOD YEARS ------------- ----- Buildings.........................................Straight line 40 Machinery and equipment...........................Straight line 8-12 Leasehold improvements............................Straight line 5-20 Leased plant and equipment........................Straight line 3-5
Plant and equipment held under capital leases and leasehold improvements are amortized on a straight line basis over the shorter of the lease term or estimated useful life of the asset. (g) Goodwill Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is amortized on a straight line basis over the expected periods to be benefited, generally 20 years. F-8 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (h) Research and development, and advertising Research and development, and advertising costs are expensed as incurred. Amounts expensed were as follows:
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Research and development............ $ 996 $1,260 $ 541 $1,070 $ 924 Advertising............. 7,161 7,478 5,319 7,547 8,397 ====== ====== ====== ====== ======
(i) Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. (j) Share option plan The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, in 1996, under which the Company elected to continue following the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for its share option plan. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying share exceeded the exercise price. (k) Commitments and contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. (l) Use of estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (m) Impairment of long-lived assets and long-lived assets to be disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on July 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted operating net cash flows expected to be generated by the asset. If such assets are considered to be impaired, impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the F-9 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (n) Rent expense, surplus leased space and lease incentives The Company leases certain store locations under operating leases which provide for annual payments that increase over the lives of the leases. Total payments under the leases are expensed as incurred over the lease terms. Where premises under a non-cancelable operating lease become vacant during the lease term, a charge is recognized on that date equal to the present value of the expected future lease payments less any expected future sub-lease income. If the Company receives incentives provided by a lessor to enter into an operating lease agreement, these incentives are brought to account as reductions in rent expense over the term of the lease on a straight-line basis. (o) Revenue recognition Revenue (net of returns and allowances) is recognized at the point of shipment for wholesale sales to external customers and the point of sale for retail goods. (p) Cash and cash equivalents Cash includes cash on hand and at bank. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (q) Store pre-opening costs Store pre-opening costs are expensed when incurred. (r) Earnings per share Basic earnings per share are computed by dividing net earnings available to ordinary shareholders by the weighted average number of ordinary shares. Diluted earnings per share are computed by dividing net earnings available to ordinary shareholders, as adjusted for the effect of the elimination of after- tax interest expense related to assumed conversion of the convertible notes, by the weighted average number of ordinary shares and dilutive ordinary share equivalents for the period. (s) Foreign currency translation Foreign currency transactions are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the year end rates. Gains and losses from conversion of monetary assets and liabilities, whether realized or unrealized, are included in income or loss before income taxes as they arise. Assets and liabilities of overseas subsidiaries are translated at year end rates and operating results at the average rates ruling during the year. F-10 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The information in US dollars in the consolidated balance sheets and consolidated statements of operations is presented solely for the convenience of the reader and has been translated at the Noon Buying Rate on January 31, 1998 of US$0.6693 per A$1.00 and at the average rate for the fiscal year ended January 31, 1998 of US$0.7320 per A$1.00 respectively. These translations should not be construed as representations that the Australian dollar amounts actually represent such US dollar amounts or could be converted into US dollars at the rate indicated or at any other rate. 2 DERIVATIVE FINANCIAL INSTRUMENTS The notional amount of foreign currency forward contracts used as a means of offsetting fluctuations in the dollar value of foreign currency accounts payable totaled:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Foreign exchange contracts........................... $4,232 $-- ====== ====
The fair value of these contracts at each period end is not significant. All of the currency derivatives expire within one year and are for United States dollars. The counterparties to the contracts are major financial institutions. The risk of loss to the Company in the event of non-performance by a counterparty is not significant. 3 ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Trade accounts receivable............................ $6,903 $9,929 Less: Reserve for doubtful accounts.................. (377) (497) ------ ------ 6,526 9,432 Receivables from related parties..................... 125 88 Other receivables.................................... 699 342 ------ ------ $7,350 $9,862 ====== ======
4 INVENTORIES The major classes of inventories are as follows:
JANUARY 31, JANUARY 31, APRIL 30, APRIL 30, 1997 1998 1997 1998 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN A$ THOUSANDS) Finished goods............. $29,470 $37,999 $31,656 $42,160 Work in progress........... 1,778 1,328 1,984 1,325 Raw materials.............. 3,116 4,222 4,362 4,311 ------- ------- ------- ------- 34,364 43,549 38,002 47,796 Less: Reserve for obsoles- cence..................... (436) (519) (444) (494) ------- ------- ------- ------- $33,928 $43,030 $37,558 $47,302 ======= ======= ======= =======
F-11 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5 INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies consist of 33 1/3 percent of the ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an Australian Group which imports and distributes componentry to the gas and appliance industries, and 50 percent of the ordinary shares of GLG Trading Pte Limited ("GLG"), a Singapore company which acts as a buying office for Barbeques Galore and other third parties. The shareholding in this company was originally 100 percent but was reduced to 50 percent on July 1, 1995 by issuing shares in that company to a Director of GLG who is also the General Manager of that company. The Company also previously held a 50 percent interest in GLG (NZ) Limited ("GLG NZ"). This investment was sold in December 1995 for total consideration of A$2,395,000. A gain on sale of A$2,303,000 has been recognized in the income statement and is included in other expenses (income). Bromic provides liquid petroleum gas cylinders and related products such as manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG supplies cast iron used in the manufacture of burners, hot plates and grills, small assembled barbecues and certain accessories such as tongs and warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits, spare parts and other heating equipment. Sales to affiliated companies are not significant. Interest is also charged on amounts owing from affiliates at commercial rates but is not significant. Amounts owing from affiliates are in relation to cash advances. Prices charged between the Company and its affiliates are set at the level of prices that are charged to unrelated parties. Trading with affiliates for each period and amounts outstanding at each period end are as follows:
7 MONTHS 12 MONTHS YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- ----------- ----------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Purchases from affili- ates: --Bromic............... $3,953 $3,769 $2,320 $3,476 $ 4,019 --GLG NZ............... 197 188 -- 188 -- --GLG Pte Ltd.......... -- 5,446 3,336 3,840 7,148 ------ ------ ------ ------ ------- $4,150 $9,403 $5,656 $7,504 $11,167 ====== ====== ====== ====== ======= Dividends received or due and receivable from affiliates --Bromic............... $ 250 $ 175 $ -- $ 175 $ 250 --GLG NZ............... 717 495 -- -- -- --GLG Pte Ltd.......... -- 198 -- 198 83 ------ ------ ------ ------ ------- $ 967 $ 868 $ -- $ 373 $ 333 ====== ====== ====== ====== =======
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- Receivable from affiliates: --Bromic............................................ $ 863 $592 --GLG NZ............................................ 195 -- --GLG Pte Ltd....................................... -- 193 ------ ---- 1,058 785 ------ ---- Investment in affiliates............................. $ 491 $710 ====== ====
F-12 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Investments in affiliates are included in the balance sheet as other non- current assets. As the shares of these entities are not traded, the investment in these companies is carried at the equity accounted value representing cost plus the Company's share of undistributed profits. Income statement information has been presented for the respective twelve month periods. The balance date of all affiliates is June 30. Combined summarized financial data at their most recent balance dates and January 31, 1998 are as follows:
JUNE 30, JUNE 30, JUNE 30, JANUARY 31, 1995 1996 1997 1998 ----------- ----------- ----------- ----------- (IN A$ THOUSANDS) Current assets.............. $ 13,974 $ 7,229 $ 6,925 $ 7,414 Current liabilities......... 13,734 4,778 3,666 4,038 -------- -------- -------- -------- Working capital............. 240 2,451 3,259 3,376 Property, plant and equip- ment, net.................. 6,131 1,307 1,215 1,224 Other assets................ 389 549 408 223 Long-term debt.............. (4,261) (2,498) (2,412) (2,417) -------- -------- -------- -------- Shareholders' equity........ $ 2,499 $ 1,809 $ 2,470 $ 2,406 ======== ======== ======== ======== Sales....................... $ 37,049 $ 22,926 $ 18,034 $ 18,460 ======== ======== ======== ======== Gross profit................ $ 11,983 $ 9,025 $ 4,637 $ 4,571 ======== ======== ======== ======== Net income.................. $ 2,131 $ 1,484 $ 963 $ 1,176 ======== ======== ======== ======== 6 PROPERTY, PLANT AND EQUIPMENT JANUARY 31, JANUARY 31, APRIL 30, APRIL 30, 1997 1998 1997 1998 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN A$ THOUSANDS) Land and buildings.......... $ 3,198 $ 3,218 $ 3,218 $ 6,848 Machinery and equipment..... 15,453 18,001 15,902 19,066 Leasehold improvements...... 6,110 8,262 6,055 8,486 Assets under capital leases..................... 6,912 8,298 6,908 8,303 -------- -------- -------- -------- 31,673 37,779 32,083 42,703 Less: ccumulated depreciation/amortization.. (13,325) (16,741) (13,970) (17,736) -------- -------- -------- -------- $ 18,348 $ 21,038 $ 18,113 $ 24,967 ======== ======== ======== ======== 7 GOODWILL JANUARY 31 JANUARY 31, APRIL 30, APRIL 30, 1997 1998 1997 1998 ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (IN A$ THOUSANDS) Goodwill.................... $ 1,704 $ 1,800 $ 1,704 $ 1,800 Less: Accumulated amortiza- tion....................... (228) (293) (234) (314) -------- -------- -------- -------- $ 1,476 $ 1,507 $ 1,470 $ 1,486 ======== ======== ======== ========
F-13 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8 LEASES The Company is obligated under various capital leases for store improvements and certain machinery and equipment that expire at various dates during the next five years. The capital leases for store improvements relate to the purchase of furniture and fixtures installed in retail stores. These retail stores are all managed under operating leases. Machinery and equipment under capital leases includes leased machinery, office furniture and fixtures and certain motor vehicles. All capital lease liabilities are secured by the asset to which the lease relates. The gross amount of store improvements and machinery and equipment and related accumulated amortization recorded under capital leases are as follows:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Store improvements................................... $ 3,119 $ 4,966 Machinery and equipment.............................. 3,793 3,332 ------- ------- 6,912 8,298 Less: Accumulated amortization....................... (2,216) (3,473) ------- ------- $ 4,696 $ 4,825 ======= =======
The Company also has entered into non-cancelable operating leases, primarily for retail stores. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (except those with lease terms of a month or less that were not renewed) consisted of the following:
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Rental expense.......... $9,609 $9,867 $6,181 $10,153 $11,948 ====== ====== ====== ======= =======
Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of January 31, 1998 are:
CAPITAL OPERATING LEASES LEASES ------- --------- (IN A$ THOUSANDS) Year ending January 31, 1999.................................................... $ 2,203 $11,819 2000.................................................... 1,670 10,248 2001.................................................... 1,429 8,348 2002.................................................... 594 6,870 2003.................................................... 211 4,971 Years subsequent to 2003................................ -- 16,041 ------- ------- Total minimum lease payments............................ 6,107 $58,297 ======= Less: Amount representing interest (at rates ranging from 7.3% to 13.5%).................................... (973) ------- Present value of net minimum capital lease payments..... 5,134 Less: Current portion of obligations under capital leases................................................. (1,729) ------- Obligations under capital leases, excluding current por- tion................................................... $ 3,405 =======
F-14 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Trade accounts payable............................. $ 4,968 $ 6,477 Accrued liabilities................................ 5,887 7,416 Employee benefits.................................. 1,745 1,976 Other.............................................. 1,093 779 ------- ------- $13,693 $16,648 ======= =======
Included in other liabilities at January 31, 1998 is an amount of $369,000 in respect of the planned relocation of the enameling facilities. The accrual relates to future lease costs on the vacated premises, the writedown of plant that will be scrapped (allowing for future depreciation charges until the planned exit date) and costs to make good the premises. An exit plan was established and approved by the Board of Directors prior to January 31, 1997. The expected completion is June 1998. 10 LONG-TERM DEBT Long-term debt consists of the following:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Current: Bank bills........................................... $ 2,964 $ 198 ------- ------- $ 2,964 $ 198 ======= ======= Non-current: Bank bills........................................... $18,568 $12,566 Property loan........................................ 2,150 2,150 ------- ------- $20,718 $14,716 ======= =======
The Company and its subsidiaries have access to a facility with the Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ Facility") with credit facilities aggregating up to A$41,700,000, comprising a multi- purpose facility of A$31,700,000 and a trade finance facility of A$10,000,000. As at January 31, 1998 the Company had not utilized A$25,890,000 of the total facility. The ANZ Facility is secured by a first security interest over the assets of the Company's present and future Australian assets. The Company has agreed to grant to ANZ, and ANZ is in the process of creating, a second security interest (subordinate to a lien under the Merrill Lynch Facility detailed below) in all the Company's assets in the United States. The ANZ Facility is further guaranteed by each subsidiary of the Company. Bank bills are generally taken out over a 90 day period and rolled over at the end of their respective terms. As at January 31, 1998, the weighted average interest rate accruing on the bank bills utilized under the ANZ Facility was 6.2% per annum. The property loan is accruing interest at a rate of 9.6% per annum and is secured by a registered first mortgage over the freehold property of the Company. F-15 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) All committed facilities are provided subject to the standard Australian practice of regular annual review of required limits, the Company's performance and the normal terms and conditions, including financial covenants, applicable to bank lending. The Company was in compliance with the financial covenants set out in the ANZ Facility agreement as at January 31, 1998. The Company has historically renegotiated its credit facilities on similar terms and conditions. Negotiations with ANZ with respect to an extension of the existing facility are well advanced and ANZ has formally indicated its willingness to extend the facility. For this reason, the majority of the outstanding balance relating to bank bills and term loans is classified as a non-current liability. In February 1995, Barbeques Galore Inc., the Company's U.S. operating subsidiary, entered into a five year credit facility with Merrill Lynch Business Financial Services ("Merrill Lynch"). As currently in effect, such facility includes a term loan in aggregate principal amount of US$600,000 (the "Term Loan") and a revolving line of credit in aggregate principal amount of US$1,250,000 (the "Revolving Line," and collectively with the Term Loan, the "Merrill Lynch Facility"). Indebtedness under the Revolving Line and Term Loan accrues interest at the 30-day commercial paper rates plus 2.65% or 2.70%, respectively, and is payable monthly. The Merrill Lynch Facility is secured by a first security interest in all Galore USA present and future assets. The Merrill Lynch Facility is guaranteed by the Company and Galore USA, the parent of Barbeques Galore, Inc. Pursuant to the Offering on November 7, 1997, the Company utilised a portion of the net proceeds to repay all outstanding indebtedness under the aforementioned term loan and revolving line of credit facility. As of January 31, 1998 Galore USA had not utilised US$1,845,000 of this facility. The Company's total long-term debt matures as follows:
YEAR ENDING JANUARY 31, ----------------------- (IN A$ THOUSANDS) 1999...................................................... $ 198 2000...................................................... 14,716 ------- $14,914 =======
In conjunction with the Capital Reduction in December 1996 (detailed in Note 12 to the consolidated financial statements), the Company issued unsecured convertible notes with a face value of A$8.38 amounting to A$10,041,952. The notes carried an interest rate of 10.25% per annum, included financial covenants and conferred rights to the noteholders as creditors and not as shareholders. Immediately prior to the consummation of the Offering, all outstanding convertible notes of the Company were converted into 1,197,926 ordinary shares of A$3.64 each. F-16 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11 INCOME TAXES Income (loss) before income taxes was taxed under the following jurisdictions:
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Australia............... $2,905 $2,730 $ 3,091 $(755) $4,614 United States........... 1,473 1,313 (1,168) 485 405 ------ ------ ------- ----- ------ $4,378 $4,043 $ 1,923 $(270) $5,019 ====== ====== ======= ===== ====== The expense (benefit) for income taxes is presented below: YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Current: Australia............... $ 906 $ 477 $ 1,670 $ 738 $1,107 United States........... 32 157 85 234 263 ------ ------ ------- ----- ------ 938 634 1,755 972 1,370 ------ ------ ------- ----- ------ Deferred: Australia............... (365) (536) (499) (904) 286 United States........... -- -- (890) (890) (168) ------ ------ ------- ----- ------ $ 573 $ 98 $ 366 $(822) $1,488 ====== ====== ======= ===== ======
Income tax expense (benefit) attributable to income from continuing operations differed from the amounts computed by applying the Australian federal income tax rate to pretax income (loss) from continuing operations as a result of the following:
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Computed "expected" tax expense (benefit)...... $1,445 $1,455 $ 692 $ (97) $1,807 Increase (reduction) in income taxes resulting from: State taxes, net of federal tax benefit.... 32 157 56 208 29 Change in the valuation allowance.............. (474) (663) (388) (1,109) (79) Equity in earnings of affiliates not subject to taxation............ (318) (301) (91) (136) (79) Capital profit on sale of affiliate........... -- (829) -- -- -- Other, net.............. (112) 279 97 312 (190) ------ ------ ----- ------- ------ $ 573 $ 98 $ 366 $ (822) $1,488 ====== ====== ===== ======= ======
F-17 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Deferred tax assets: Provisions not presently deductible................ $1,482 $1,521 Plant and equipment, due to differences in depreciation...................................... 424 637 Inventories, due to capitalized costs.............. 195 263 Borrowing expenses capitalized for tax purposes.... 302 12 Leases, due to differences in lease payments, interest and amortization......................... 136 113 Unearned income.................................... 116 -- Net operating loss carryforward.................... 562 299 Other.............................................. 432 573 ------ ------ Total gross deferred tax assets.................... $3,649 $3,418 ====== ====== Deferred tax liabilities: Prepayments........................................ $ 178 $ 193 Rebates receivable................................. 128 -- ------ ------ Total gross deferred tax liabilities............... 306 193 ------ ------ Net deferred tax asset............................. $3,343 $3,225 ====== ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the company will need to generate future taxable income of approximately A$808,307 prior to the expiration of the net operating loss carryforwards in 2012. Based upon projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. 12 SHAREHOLDERS' EQUITY On December 31, 1996, the Company consummated a series of transactions to effect a reduction in the ordinary shares of the Company (the "Capital Reduction"). Pursuant to the Capital Reduction, the Company repurchased and cancelled 2,743,878 fully paid ordinary shares and 101,520 options to purchase ordinary shares, for a total consideration of A$20,078,000. The Company financed the Capital Reduction through: (i) the issuance and sale of A$10,041,952 in convertible notes; and (ii) the provision of an additional standby facility of A$12,000,000 from ANZ. Pursuant to the Offering on November 7, 1997, the Company utilised a portion of the net proceeds to repay the aforementioned indebtedness incurred under the standby facility. The effect of the Capital Reduction was to reduce the ordinary shares of the Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of A$3.64 each) from A$16,220,000 (comprising 4,450,420 F-18 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) fully paid ordinary shares of A$3.64 each). Subsequent to the consummation of the Capital Reduction, all outstanding ordinary shares were owned by the executive directors of the Company and their related interests and the Company's pension plan. The Company was delisted from the Australian Stock Exchange following the Capital Reduction. The Company incurred costs in connection with the Capital Reduction of approximately $1,132,000. These amounts have been expensed and are included in other expenses (income) in the consolidated statements of operations for the period to January 31, 1997. Additionally, in connection with the Capital Reduction, the Company also acquired the remaining 15% interest in Galore USA from Mr. Sydney Selati, President of Galore USA, for consideration of A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary shares ($7.29 per share) of the Company. Mr. Sydney Selati was subsequently appointed a director of Barbeques Galore on July 21, 1997. On November 7, 1997 the Company completed the Offering. As a part of the offer process the following changes in securities occurred: . Immediately prior to the consummation of the Offering, all outstanding issued share capital of the Company was subject to a 18.223-for-1 reverse share split; as a result, the issued and outstanding capital of the Company was reduced to 1,843,726 ordinary shares with a par value of A$3.64 each. . Immediately prior to the consummation of the Offering, all outstanding convertible notes of the Company were converted into 1,197,926 ordinary shares. . Pursuant to the Offering, the Company sold 1,500,000 American Depositary Shares (ADSs) at a price of US$11.00 per share. . Pursuant to the Offering, a further 200,000 ADSs were sold by certain shareholders of the Company at a price of US$11.00 per share. 13 SHARE OPTION PLANS Executive Share Option Plan Effective January 31, 1997, the Company adopted an executive share option plan (the "Executive Plan") under which the Board of Directors granted certain members of management options to purchase ordinary shares in the Company. A total of 203,038 options were issued under the Executive Plan with an exercise price of A$8.38 per share. The options do not vest until February 1, 1999 after which each Optionholder is entitled to subscribe for one fully paid ordinary share. The options are not quoted and are due to expire on the earlier of the 5th anniversary from the issue date or, subject to certain conditions, on cessation of employment. The fair value of each share option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: weighted average risk-free interest rate of 5.93%; no dividend yield; expected lives of 1.5 years and volatility of 80.28%. The fair value of the options as at January 31, 1998 has been calculated to be A$462,931. 1997 Share Option Plan Under the terms of the Company's 1997 share option plan (the "1997 Plan"), a total of 329,254 ordinary shares have been authorized for issuance. The 1997 Plan received approval from the Board of Directors of the Company on October 1, 1997 and was approved by the shareholders as of October 7, 1997. Options to purchase F-19 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 199,400 ordinary shares with an exercise price of US$11.00 per share were granted concurrently with the Offering including 18,000 ordinary shares to executive officers of the Company. Each of the options granted concurrently with the Offering will generally become exercisable in three equal installments on the third, fourth and fifth anniversaries of the Offering. The number of ordinary shares reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning with the 1999 calendar year, during the term of the 1997 Plan by an amount equal to one percent (1%) of the ordinary shares outstanding on December 31 of the immediately preceding calendar year. In no event may any one participant in the 1997 Plan receive option grants for more than 27,438 ordinary shares per calendar year. The 1997 Plan consists of the Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non-employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase ordinary shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the grant date. The Plan Administrator will have complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive option grants, the time or times when such option grants are to be made, the number of shares subject to each such grant, the vesting schedule to be in effect for the option grant, the maximum term for which any granted option is to remain outstanding and the status of any granted option as either an incentive stock option or a non-statutory stock option under the Federal tax laws. The fair value of each share option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: weighted average risk-free interest rate of 5.93%; no dividend yield; expected lives of 5 years and volatility of 80.28%. The fair value of the options as at January 31, 1998 has been calculated to be A$794,134. Terminated plan On November 25, 1993, the Company adopted a share option plan ("the 1993 Plan") pursuant to which the Company's Board of Directors could grant share options to officers and key employees. 128,958 options were granted with an exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the Company granted a further 27,438 options with an exercise price of A$5.65. On December 31, 1996 and in connection with the Capital Reduction, all outstanding options were repurchased by the Company from the optionholders. Compensation for the cancellation of the 101,520 options amounted to A$78,000. The total compensation paid by the Company to cancel the options has been expensed during the 7 months to January 31, 1997 and is included in selling, general and administrative expenses. F-20 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company applies APB Opinion No. 25 in accounting for its share option plans and, accordingly, no compensation cost has been recognized for its share options in the seven month period to 31 January 1997 and the year ended 31 January, 1997 and 1998, respectively. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS 123 the Company's net income would have been reduced to the pro forma amounts indicated below:
7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JANUARY 31, JANUARY 31, JANUARY 31, 1997 1997 1998 -------------- --------------- ----------- (IN A$ THOUSANDS, EXCEPT PER SHARE DATA) Net income As reported................... $1,557 $ 552 $3,531 Pro forma..................... 1,557 552 3,239 Net income per common and common equivalent share As reported................... $ 0.38 $0.13 $ 1.43 Pro forma..................... $ 0.38 $0.13 $ 1.31
SUMMARY A summary of the status of the Company's Executive, 1997 and 1993 share option plans as of June 30, 1995 and 1996, and January 31, 1997 and 1998, and changes during the years ended on those dates is presented below:
WEIGHTED- AVERAGE OPTIONS EXERCISABLE OPTIONS EXERCISE PRICE AT YEAR END -------- -------------- ------------------- Outstanding balance at July 1, 1994......................... 117,982 A$ 5.83 Forfeited..................... (10,975) 5.83 -------- ------- ------- Outstanding balance at June 30, 1995..................... 107,007 5.83 107,007 -------- ------- ------- Granted....................... 27,438 5.65 Forfeited..................... (32,925) 5.83 -------- ------- ------- Outstanding balance at June 30, 1996..................... 101,520 5.78 101,520 -------- ------- ------- Granted....................... 203,038 8.38 Cancelled..................... (101,520) 5.78 -------- ------- ------- Outstanding balance at January 31, 1997..................... 203,038 8.38 -- -------- ------- ------- Granted....................... 199,400 16.44 -------- ------- ------- Outstanding balance at January 31, 1998..................... 402,438 A$12.37 -- ======== ======= =======
The options exercisable at June 30, 1995 and 1996 were in relation to the 1993 share option plan. The 1993 share option plan was terminated during the period ended January 31, 1997. The weighted average fair value of options granted during the years ended January 31, 1997 and 1998 were $2.28 and $4.01, respectively. The following table summarizes information about share options outstanding at January 31, 1998:
NUMBER WEIGHTED- WEIGHTED- OUTSTANDING AT AVERAGE REMAINING AVERAGE JANUARY 31, 1998 CONTRACTUAL LIFE EXERCISE PRICE ---------------- ----------------- -------------- 203,038 1.5 years A$ 8.38 199,400 5.0 years 16.44 ------- 402,438 3.2 years A$12.37 =======
F-21 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14 COMMITMENTS AND CONTINGENCIES Product liability claims have been made against certain companies in the group which are not expected to result in any material loss to the Company. The Company entered into a joint and several guarantee together with the directors of Bromic Pty Limited in favor of ANZ in respect of a A$900,000 facility. On February 25, 1997, ANZ released the Company from this guarantee. 15 GEOGRAPHIC SEGMENT INFORMATION Financial information by geographic region is summarized below on the basis that the Operating income of the United States does not include all the income attributable to it for product manufactured and purchased for the United States by the Australian subsidiaries:
AUSTRALIA UNITED STATES TOTAL --------- ------------- -------- (IN A$ THOUSANDS) 12 MONTHS TO JANUARY 31, 1998 Net revenues............................... $117,613 $61,712 $179,325 ======== ======= ======== Operating income........................... $ 7,309 $ 497 $ 7,806 ======== ======= ======== Identifiable assets........................ $ 59,560 $22,514 $ 82,074 ======== ======= ======== 12 MONTHS TO JANUARY 31, 1997 Net revenues............................... $108,003 $40,366 $148,369 ======== ======= ======== Operating income........................... $ 2,076 $ 643 $ 2,719 ======== ======= ======== Identifiable assets........................ $ 53,162 $14,808 $ 67,970 ======== ======= ======== 7 MONTHS TO JANUARY 31, 1997 Net revenues............................... $ 75,997 $22,755 $ 98,752 ======== ======= ======== Operating income (loss).................... $ 5,537 $(1,141) $ 4,396 ======== ======= ======== Identifiable assets........................ $ 53,162 $14,808 $ 67,970 ======== ======= ======== 12 MONTHS TO JUNE 30, 1996 Net revenues............................... $104,737 $36,954 $141,691 ======== ======= ======== Operating income........................... $ 1,828 $ 1,338 $ 3,166 ======== ======= ======== Identifiable assets........................ $ 53,225 $13,337 $ 66,562 ======== ======= ======== 12 MONTHS TO JUNE 30, 1995 Net revenues............................... $104,051 $34,006 $138,057 ======== ======= ======== Operating income........................... $ 4,206 $ 1,439 $ 5,645 ======== ======= ======== Identifiable assets........................ $ 55,337 $12,287 $ 67,624 ======== ======= ========
F-22 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 16 RELATED PARTY TRANSACTIONS The directors of the Company believe that transactions with related parties are on normal terms and conditions no more favourable than those available to other third parties unless otherwise stated. Amounts are advanced to the Company by the directors at a commercial rate of interest. The company shares premises and incurs rent and operating expenses on behalf of Rebel Sport Limited. Mr. Linz and Mr. Gavshon were directors and significant shareholders of Rebel Sport Limited up until July 10, 1997. These amounts are payable to the Company on 30 day terms. The above related party transactions and amounts outstanding at each period end are as follows:
JANUARY 31, JANUARY 31, 1997 1998 ----------- ----------- (IN A$ THOUSANDS) Amounts owing to directors or director related entities......................................... $1,231 $-- ====== ====
7 MONTHS YEAR ENDED YEAR ENDED ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- ----------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Interest costs incurred in respect of amounts advanced by directors or director related entities............... $ 22 $ 97 $ 50 $ 96 $ 44 Amounts advanced to Rebel Sport Limited.... 683 678 410 713 320 Amounts reimbursed by Rebel Sport Limited.... 597 703 352 (641) 260 ====== ====== ====== ====== ====== 17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: 7 MONTHS YEAR ENDED YEAR ENDED ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- ----------- --------------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Interest................ $2,418 $2,327 $1,528 $2,432 $3,362 Income taxes............ 559 968 423 812 2,163 ====== ====== ====== ====== ======
During the period ended January 31, 1997 the Company acquired Mr. Sydney Selati's 15% interest in Galore USA for consideration of A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary shares (A$7.29 per share) of the Company. F-23 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) During the periods, the Company acquired plant and equipment by means of capital leases which are not reflected in the consolidated statements of cash flows with an aggregate fair value of:
7 MONTHS 12 MONTHS YEAR ENDED YEAR ENDED ENDED ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- ----------- ----------- ----------- (UNAUDITED) (IN A$ THOUSANDS) Equipment acquired under capital leases......... $1,883 $1,682 $1,471 $1,893 $1,729 ====== ====== ====== ====== ======
On July 1, 1995, the company's interest in GLG Trading Pte Limited was reduced from 100% to 50% by the issue of additional shares in GLG Trading Pte Limited. The deconsolidation of GLG Trading Pte Limited has resulted in the reversal of the opening cash balance of GLG Trading Pte Limited in the Statement of Cash Flows as the Company has accounted for its investment on an equity basis from July 1, 1995. 18 PENSION PLANS The Company and its Australian subsidiaries have established defined contribution pension plans for the provision of benefits to their Australian employees on retirement, death or disability. Benefits provided under the plans are based on contributions for each employee. Company contributions are 6% of gross salary for all employees except for certain executives for whom the Company contributes 10%. The Company and employees contribute various percentages of gross income. The plans are of an accumulation type and as such, the Company has: . no commitment to fund retirement benefits other than the percentage of each employee's salary as prescribed by the relevant trust deed; and . no legal obligation to cover any shortfall in the funds' obligations to provide benefits to employees on retirement. The pension plans comply with Australian regulatory provisions set by the Insurance and Superannuation Commission. The Company has complied with the provisions of the Superannuation Guarantee Charge Act. The Company also sponsors a defined contribution plan in the United States covering substantially all employees who meet specified age and service requirements. Company contributions are discretionary. Contributions expensed under these plans were as follows:
YEAR ENDED YEAR ENDED 7 MONTHS ENDED 12 MONTHS ENDED YEAR ENDED JUNE 30, JUNE 30, JANUARY 31 JANUARY 31, JANUARY 31, 1995 1996 1997 1997 1998 ---------- ---------- -------------- --------------- ----------- (UNAUDITED) Contribution expense.... $919 $1,015 $600 $996 $1,113 ==== ====== ==== ==== ======
F-24 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 19 EARNINGS PER SHARE
YEAR ENDED YEAR ENDED 7 MONTHS ENDED JUNE 30, 1995 JUNE 30, 1996 JANUARY 31, 1997 ----------------------- ----------------------- ----------------------- PER SHARE PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------ ------ --------- ------ ------ --------- ------ ------ --------- (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Income.................. $3,805 $3,945 $1,557 ------ ------ ------ BASIC EPS Income available to common shareholders.... 3,805 4,450 $0.86 3,945 4,450 $0.89 1,557 4,073 $0.38 ===== ===== ===== EFFECT OF DILUTIVE SECU- RITIES Convertible shares net of tax................. -- -- -- -- 56 79 Options demand exercised.............. -- -- -- -- -- 93 ------ ----- ------ ----- ------ ----- DILUTED EPS Income available to common shareholders plus assumed conversions............ $3,805 4,450 $0.86 $3,945 4,450 $0.89 $1,613 4,245 $0.38 ====== ===== ===== ====== ===== ===== ====== ===== =====
12 MONTHS ENDED YEAR ENDED JANUARY 31, 1997 JANUARY 31, 1998 ----------------------------- ------------------------------ PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------- -------- ---------- --------- -------- ---------- (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Income.................. $ 552 $ 3,531 ------- --------- BASIC EPS Income available to common shareholders.... 552 4,228 $ 0.13 3,531 2,473 $ 1.43 ======== ======== EFFECT OF DILUTIVE SECURITIES Convertible shares net of tax................. -- -- 504 919 ------- -------- --------- -------- Options demand exercised.............. -- -- -- 41 DILUTED EPS Income available to common shareholders plus assumed conversions............ $ 552 4,228 $ 0.13 $ 4,035 3,433 $ 1.18 ======= ======== ======== ========= ======== ========
Options to purchase 199,400 shares of A$16.44 per share were outstanding at January 31, 1998 but were not included in the computation of diluted EPS as the options exercise price was greater than the average market price of the common shares. These options expire on October 1, 2007. 20 SUBSEQUENT EVENT The Company purchased a property for approximately A$3.5 million pursuant to a decision to relocate its enameling operations to the same facilities as its barbecue and home heater manufacturing operations adjacent to its Australian headquarters. F-25 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses payable by the Company in connection with the sale of ADSs being registered. All amounts are estimates, except the SEC registration fee.
AMOUNT TO BE PAID ----------- SEC registration fee......................................... $ 2,822.22 Nasdaq National Market listing fee........................... 17,500.00 Printing and Engraving....................................... 20,000.00 Legal fees and expenses...................................... 60,000.00 Accounting fees and expenses................................. 25,000.00 Depositary fees.............................................. 10,000.00 Transfer agent and registrar fees............................ 5,000.00 Miscellaneous................................................ 24,677.78 ----------- Total...................................................... $165,000.00 ===========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's Memorandum and Articles of Association provide that subject to the laws of Australia, every Director or other officer shall be entitled to be indemnified by the Company against all losses or liabilities incurred by him in the execution and discharge of his duties, or in relation thereto, including any liability in defending any proceedings, civil or criminal, which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of the Company and (i) in which judgment is given in his favor, (ii) in which he is acquitted or (iii) in connection with an application in relation to such proceedings in which the court grants relief to the person under the Corporations Law. The Underwriting Agreement entered into by the Company in connection with its IPO contains provisions indemnifying officers and directors of the Company against certain liabilities. The Company's Memorandum and Articles of Association further provide that no director or other officer shall be liable, except in the case of his own negligence, default, breach of duty or breach of trust, for (i) the acts or omissions of any other director or officer, (ii) joining in any act for conformity, (iii) losses due to inadequacy of title to property or securities acquired on behalf of the Company, (iv) losses due to insolvency or tortious acts of persons with whom monies, property or securities are deposited or (v) losses due to errors of judgment, omissions or oversights. The Company maintains a policy of directors' and officers' liability insurance for the Company and all subsidiaries protecting against all losses for which directors and officers are not otherwise indemnified by the Company. Such insurance has an A$10 million policy limit, including A$5 million provided by an excess coverage insurer, and excludes (i) fines and penalties imposed by law, (ii) claims based on pollution, bodily injury, property damage or loss, insider trading, the receipt of illegal or improper benefit, deliberately fraudulent acts or omissions or violation of fiduciary duties with respect to pension or benefit plans, (iii) certain insured versus insured actions and, specifically in the United States and Canada, and (iv) claims relating to violations of the Employee Retirement Income Security Act of 1974 (ERISA) or any similar federal, state or local law. Such policies are with insurers located outside of the United States, but provide coverage within the United States, including with respect to certain violations of U.S. securities laws. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has issued and sold the following securities within the past three (3) years: 1. In December 1996, the Registrant issued and sold 137,189 Ordinary Shares, valued at A$1,000,000, to Mr. Sydney Selati or entities affiliated or associated with him in exchange for the acquisition by the Registrant of Mr. Selati's 15% equity interest in Galore Group (USA), Inc. 2. On January 31, 1997, the Registrant granted stock options to purchase an aggregate of 203,038 Ordinary Shares at a purchase price of A$8.38, which options are currently owned by Sam Linz, Robert Gavshon, Sydney Selati, John Price, David James and Kevin Ralphs (or companies controlled by them). 3. In December 1996, the Registrant underwent a capital reduction transaction, pursuant to which 101,520 outstanding stock options to purchase the Registrant's Ordinary Shares were cancelled in exchange for up to A$0.05 per stock option. In particular, stock options to purchase an aggregate of 27,438 Ordinary Shares were cancelled in exchange for aggregate consideration of A$10,000 paid to Mr. John Price and stock options to purchase an aggregate of 2,743 Ordinary Shares each were cancelled in exchange for aggregate consideration of A$2,500 to each of Mr. Kevin Ralphs and Mr. David Glaser. In addition, 2,743,878 fully paid Ordinary Shares were repurchased for aggregate consideration of A$20,000,677. In particular, the Company repurchased 8,231 Ordinary Shares from an entity affiliated with Mr. Gordon Howlett for aggregate consideration of A$60,000 and 37,107 Ordinary Shares from an entity affiliated with Mr. Philip Gardiner for an aggregate of A$270,482. All such repurchases and option cancellations with officers and directors of the Company were made on terms no more favorable than those that could be obtained in transactions with non-affiliates of the Company. 4. In December 1996, the Registrant issued and sold Convertible Notes in the aggregate principal amount of A$10,042,000. The purchasers of the Convertible Notes consisted primarily of the persons identified in the "Selling Shareholders" section of this Registration Statement. In connection with the Company's initial public offering in the United States (the "IPO") in November 1997, the Convertible Notes were converted into an aggregate of 1,197,926 Ordinary Shares of the Registrant, 200,000 of which were sold by the Selling Shareholders in the Company's IPO and the remainder of which may be sold hereunder. 5. In November 1997, in connection with the Company's IPO, the Company issued an aggregate of 199,400 options under its 1997 Share Option Plan at an exercise price of US$11.00. The Company's executive officers and key employees received an aggregate of 83,000 of such option shares. The issuances of the above securities were not required to be registered under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 3.1 Memorandum and Articles of Association. 4.1 Form of Specimen of American Depositary Receipt. 4.2 Form of Deposit Agreement among the Registrant, Morgan Guaranty Trust Company of New York, as Depositary, and holders from time to time of ADSs issued thereunder. 5.1 Opinion of Freehill, Hollingdale & Page. 8.1 Opinion of Freehill, Hollingdale & Page. 8.2 Opinion of Brobeck, Phleger & Harrison LLP. 10.1 Executive Share Option Plan. 10.2 1997 Share Option Plan.
II-2
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 10.3 Major Agreements relating to the Registrant's credit facility with Australia and New Zealand Banking Corporation Group Limited ("ANZ"), including Deed of Charge by and between the Registrant and ANZ, as successor in interest to Westpac Banking Corporation as agent; Offer Letter dated July 14, 1994 from ANZ to the Registrant re: lines of credit; Variation Letter dated December 12, 1996 from ANZ to the Registrant modifying terms of certain lines of credit. 10.4 Major Agreements relating to the Registrant's U.S. operating subsidiary's credit facility with Merrill Lynch Business Financial Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and Security Agreement No. 9502340701, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and Security Agreement No. 231-07T10, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; Unconditional Guaranty by the Registrant relating to Term WCMA(R) Loan and Security Agreement No. 9502340701; Unconditional Guaranty by the Registrant relating to WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from Merrill Lynch to Galore USA re: WCMA(R) line of credit variation; Letter and Letter Agreement dated August 27, 1997 from Merrill Lynch to Galore USA re: WCMA(R) line of credit variation; Letter Agreement dated January 20, 1998 from Merrill Lynch to Galore USA re: amendment to WCMA Note,Loan and Security Agreement No. 231-07T10, modifying locations of collateral and change in maturity date to February 28, 1998. 10.5 Deeds of purchase of Registrant's headquarters facility and assembly operations facility. 10.6 Lease dated as of March 6, 1992 by and between Galore USA and Phoenix Business Center Partners re: Irvine, California U.S. headquarters and distribution facility. 11.1 Statement regarding computation of per share earnings. 15.1 Unaudited Additional Consolidated Financial Data of the Registrant for the twelve months ended January 31, 1995, 1996 and 1997, together with review report of KPMG relating thereto. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Horwath Sydney Partnership. 23.2 Consent of KPMG. 23.3 Consent of Freehill, Hollingdale & Page (included in Exhibits 5.1 & 8.1). 23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 8.2). 24.1 Powers of Attorney (included on page II-4).
(b) Financial Statement Schedules Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. II-3 (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING OF FORM F-1 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SYDNEY, AUSTRALIA ON THIS 12TH DAY OF JUNE, 1998. Barbeques Galore Limited By /s/ Sydney Selati ---------------------------- Name: Sydney Selati Title: Director and Authorized U.S. Representative POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Robert Gavshon and Sydney Selati and each one of them, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments and any related registration statement pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys- in-fact, or his substitutes, may do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: SIGNATURE TITLE DATE /s/ Sam Linz Chairman of the June 12, 1998 - ------------------------------------- Board and Director SAM LINZ (Principal Executive Officer) /s/ David James (Principal Financial June 12, 1998 - ------------------------------------- and Accounting DAVID JAMES Officer) /s/ Robert Gavshon Deputy Chairman of June 12, 1998 - ------------------------------------- the Board and ROBERT GAVSHON Director /s/ John Price Director June 12, 1998 - ------------------------------------- JOHN PRICE /s/ Philip Gardiner Director June 12, 1998 - ------------------------------------- PHILIP GARDINER /s/ Gordon Howlett Director June 12, 1998 - ------------------------------------- GORDON HOWLETT /s/ Sydney Selati Director and June 12, 1998 - ------------------------------------- Authorized U.S. SYDNEY SELATI Representative II-5 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 3.1 Memorandum and Articles of Association. 4.1 Form of Specimen of American Depositary Receipt. 4.2 Form of Deposit Agreement among the Registrant, Morgan Guaranty Trust Company of New York, as Depositary, and holders from time to time of ADSs issued thereunder. 5.1 Opinion of Freehill, Hollingdale & Page. 8.1 Opinion of Freehill, Hollingdale & Page. 8.2 Opinion of Brobeck, Phleger & Harrison LLP. 10.1 Executive Share Option Plan. 10.2 1997 Share Option Plan. 10.3 Major Agreements relating to the Registrant's credit facility with Australia and New Zealand Banking Corporation Group Limited ("ANZ"), including Deed of Charge by and between the Registrant and ANZ, as successor in interest to Westpac Banking Corporation as agent; Offer Letter dated July 14, 1994 from ANZ to the Registrant re: lines of credit; Variation Letter dated December 12, 1996 from ANZ to the Registrant modifying terms of certain lines of credit. 10.4 Major Agreements relating to the Registrant's U.S. operating subsidiary's credit facility with Merrill Lynch Business Financial Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and Security Agreement No. 9502340701, dated as of February 23, 1995by and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and Security Agreement No. 231-07T10, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; Unconditional Guaranty by the Registrant relating to Term WCMA(R) Loan and Security Agreement No. 9502340701; Unconditional Guaranty by the Registrant relating to WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from Merrill Lynch to Galore USA re:WCMA(R) line of credit variation; Letter and Letter Agreement dated August 27, 1997 from Merrill Lynch to Galore USA re: WCMA(R) line of credit variation; Letter Agreement dated January 20, 1998 from Merrill Lynch to Galore USA re: amendment to WCMA Note, Loan and Security Agreement No. 231-07T10, modifying locations of collateral and change in maturity date to February 28, 1998. 10.5 Deeds of purchase of Registrant's headquarters facility and assembly operations facility. 10.6 Lease dated as of March 6, 1992 by and between Galore USA and Phoenix Business Center Partners re: Irvine, California U.S. headquarters and distribution facility. 11.1 Statement regarding computation of per share earnings. 15.1 Unaudited Additional Consolidated Financial Data of the Registrant for the twelve months ended January 31, 1995, 1996 and 1997, together with review report of KPMG relating thereto. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Horwath Sydney Partnership. 23.2 Consent of KPMG. 23.3 Consent of Freehill, Hollingdale & Page (included in Exhibits 5.1 & 8.1). 23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 8.2). 24.1 Powers of Attorney (included on page II-4).
EX-3.1 2 MEMORANDUM & ARTICLES OF ASSOCIATION EXHIBIT 3.1 ARTICLES OF ASSOCIATION OF THE GALORE GROUP LIMITED FREEHILL, HOLLINGDALE & PAGE SOLICITORS & NOTARIES MLC CENTRE, MARTIN PLACE SYDNEY N.S.W. 2000 AUSTRALIA AUSTRALIAN CAPITAL TERRITORY Companies Act 1981 Company Limited by Shares ----------------------------------------- ARTICLES OF ASSOCIATION OF THE GALORE GROUP LIMITED ----------------------------------------- Interpretation -------------- 1. (1) In these articles - "Business days" means those days on which the home exchange is open. "Code" means the Companies Act 1981 as varied or amended from time to time or such equivalent code of such other State or Territory in which the Company may be incorporated from time to time; "the Company" means The Galore Group Limited; "home exchange" means the Sydney Stock Exchange Limited or any other exchange so designated by the Australian Associated Stock Exchanges; "seal" means the common seal of the Company and includes any official seal of the Company; "secretary" means any person appointed to perform the duties of a secretary of the Company; and "State" means the Australian Capital Territory or such other State or Territory in which the Company may be incorporated from time to time. (2) Section 40 of the Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 applies in relation to these articles as if they were an instrument made by an authority under a power conferred by the Code as in force on the date on which these articles became binding on the Company. 2 (3) An expression used in a particular Part or Division of the Code that is given by that Part or Division a special meaning for the purposes of that Part or Division has, in any of these articles that deals with a matter dealt with by that Part or Division, unless the contrary intention appears, the same meaning as in that Part or Division. (4) The regulations contained in Table A in Schedule 3 to the Code are excluded and shall not apply to the Company. Share Capital and Variation of Rights ------------------------------------- 2. (1) The share capital of the Company is one hundred million dollars ($100,000,000) divided into five hundred million (500,000,000) shares of twenty cents ($0.20) each. (2) Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares but subject to the Code and to these articles, shares in the Company may be issued by the directors in such manner as they think most beneficial to the Company, and any such share may be issued with such preferred, deferred or other special rights or such restrictions whether with regard to dividend, voting, return of capital or otherwise as the directors, subject to any resolution, determine. 3. Subject to the Code, any preference shares may, with the sanction of a resolution, be issued on the terms that they are, or at the option of the Company are liable, to be redeemed. 4. (1) If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of three-quarters of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class. (2) The provisions of these articles relating to general meetings apply so far as they are capable of application and mutatis mutandis to every such separate meeting except that - 3 (a) a quorum is constituted by 2 persons who, between them, hold, or represent a corporation or corporations that hold, or represent by proxy or power of attorney, one-third of the issued shares of the class; and (b) a poll may be demanded - (i) by not less than 5 holders of shares of the class present in person or by proxy or attorney; (ii) by a holder or holders of shares of the class present in person or by proxy or attorney and representing not less than one-tenth of the total voting rights of all the holders of shares of the class; or (iii) by a holder or holders of shares of the class present in person or by proxy or attorney, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares of the class. 5. (1) The Company may exercise the power to pay commissions conferred by the Code if - (a) the rate or the amount of the commission paid or agreed to be paid is disclosed in the manner required by the Code; and (b) the commission does not exceed 10% of the price at which the shares in respect of which the commission is paid are issued. (2) The commission may be satisfied by the payment of cash or by the allotment of fully or partly paid shares or partly by the payment of cash and partly by the allotment of fully or partly paid shares. (3) The Company may, on any issue of shares, also pay such brokerage as is lawful. 6. (1) Except as required by law, the Company shall not recognise a person as holding a share upon any trust. 4 (2) The Company is not bound by or compelled in any way to recognise (whether or not it has notice of the interest or rights concerned) any equitable, contingent, future or partial interest in any share or unit of a share or (except as otherwise provided by these articles or by law) any other right in respect of a share except an absolute right of ownership in the registered holder. 7. (1) A person whose name is entered as a member in the register of members is entitled without payment to receive a certificate in respect of the share under the seal of the Company in accordance with the Code but, in respect of a share or shares held jointly by several persons, the Company is not bound to issue more than one certificate. (2) Delivery of a certificate for a share to one of several joint holders is sufficient delivery to all such holders. 8. (1) where several persons are jointly entitled to any share or shares - (a) in the absence of any express direction from those persons to the contrary, the Company shall enter the names of those persons as members in the register of members in the order in which their names appear on the application for shares or the instrument of transfer or the notice of death or bankruptcy given to the Company to establish those persons' entitlement to the share or shares; (b) notwithstanding anything to the contrary contained in these articles, in any circumstances and for all purposes it shall be a sufficient discharge of any of the Company's obligations to those persons if the Company discharges that obligation in relation to the firstnamed holder of the share or shares in the register of members; and (c) those persons shall be jointly and severally liable to pay all calls, interest and other amounts in respect of the share or shares. (2) Nothing in sub-article (1) shall prevent the Company from differentiating between the joint 5 holders of any share or shares in any respect as provided for in these articles. 9. Subject to the provisions of the Code, the Company may establish a scheme or schemes for the allotment of shares or other interests in the Company directly or indirectly to any persons selected by the board of directors from time to time to participate in such scheme or schemes including but not limited to executives, directors, consultants to, franchisees, licensees, management and other employees of the Company and related corporations generally or interests nominated by them. Lien ---- 10. (1) The Company has a first and paramount lien on every share (not being a fully paid share) for all money (whether presently payable or not) called or payable at a fixed time in respect of that share. (2) The Company also has a first and paramount lien on all shares (not being fully paid shares) registered in the name of a sole holder for all moneys as the Company may be called upon by law to pay in respect of those shares. (3) The directors may at any time exempt a share wholly or in part from the provisions of this Article. (4) The Company's lien (if any) on a share extends to all dividends payable in respect of the share. 11. (1) Subject to sub-article (2), the Company may sell, in such manner as the directors think fit, any shares on which the Company has a lien. (2) A share on which the Company has a lien shall not be sold unless - (a) a sum in respect of which the lien exists is presently payable; and (b) the Company has, not less than 14 days before the date of the sale, given to the registered holder for the time being of the share or the person entitled to the share by reason of the death or bankruptcy of the registered holder a 6 notice in writing setting out, and demanding payment of, such part of the amount in respect of which the lien exists as is presently payable. 12. (1) For the purpose of giving effect to a sale mentioned in Article 11, the directors may authorise a person to transfer the shares sold to the purchaser of the shares. (2) The Company shall register the purchaser as the holder of the shares comprised in any such transfer and the purchaser is not bound to see to the application of the purchase money. (3) The title of the purchaser to the shares is not affected by any irregularity or invalidity in connection with the sale. 13. The proceeds of a sale mentioned in Article 11 shall be applied by the Company in payment of such part of the amount in respect of which the lien exists as is presently payable, and the residue (if any) shall (subject to any like lien for sums not presently payable that existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. Calls on Shares --------------- 14. (1) The directors may subject to these articles and to any conditions of allotment from time to time make such calls upon the members in respect of any money unpaid on the shares of the members (whether on account of the nominal value of the shares or by way of premium). (2) Each member shall, upon receiving at least 14 days' notice specifying the time or times and place of payment, pay to the Company at the time or times and place so specified the amount called on his shares. (3) The directors may revoke or postpone a call. 15. A call shall be deemed to have been made at the time when the resolution of the directors authorising the call was passed and may be required to be paid by instalments. 16. The joint holders of a share are jointly and severally liable to pay all calls in respect of the share. 7 17. If a sum called in respect of a share is not paid before or on the day appointed for payment of the sum, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment of the sum to the time of actual payment at such rate as the directors determine, but the directors may waive payment of that interest wholly or in part. 18. Any sum that, by the terms of issue of a share, becomes payable on allotment or at a fixed date, whether on account of the nominal value of the share or by way of premium, shall for the purposes of these articles be deemed to be a call duly made and payable on the date on which by the terms of issue the sum becomes payable, and, in case of non-payment, all the relevant provisions of these articles as to payment of interest, forfeiture or otherwise apply as if the sum had become payable by virtue of a call duly made and notified. 19. The directors may, on the issue of shares, differentiate between the holders as to the amount of calls to be paid and the times of payment. 20. (1) The directors may accept from a member the whole or a part of the amount unpaid on a share although no part of that amount has been called up. (2) The directors may authorise payment by the Company of interest upon the whole or any part of an amount so accepted, until the amount becomes payable, at such rate as is agreed upon between the directors and the member paying the sum. Transfer of Shares ------------------ 21. (1) Subject to these articles, a member may transfer all or any of his shares by instrument in writing in any usual or common form or in any other form that the directors approve. (2) An instrument of transfer referred to in sub-article (1) shall be executed by or on behalf of the transferor (but need not be executed by the transferee) or may be executed otherwise in accordance with the Code. (3) A transferor of shares remains the holder of the shares transferred until the transfer is registered and the name of the transferee is entered in the register of members in respect of the shares. 8 22. The instrument of transfer shall be left for registration at the registered office of the Company accompanied by the certificate of the shares to which it relates and such other information as the directors properly require to show the right of the transferor to make the transfer, and thereupon the Company shall, subject to the powers vested in the directors by these articles, register the transferee as a shareholder 23. The directors may decline to register any transfer of shares on which the Company has a lien and may also decline to register any transfer of shares - (a) where the transfer is of a partly paid share in respect of which the directors have required the transferee or an authorised officer of the transferee to complete a statutory declaration stating that the transferee is financially able to meet any unpaid liability in respect of the share and such a declaration has not been received by the Company; or (b) where the Company may refuse to register the transfer under the Official Listing Requirements of the Australian Associated Stock Exchanges. 24. The registration of transfers may be suspended at such times and for such periods as the directors from time to time determine not exceeding in the whole 30 days in any year. Transmission of Shares ---------------------- 25. In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but this Article does not release the estate of a deceased joint holder from any liability in respect of a share that had been jointly held by him with other persons. 26. (1) Subject to the Bankruptcy Act 1966, a person becoming entitled to a share in consequence of the death or bankruptcy of a member may, upon such information being produced as is properly required by the directors, elect either to be registered himself as holder of the share or to have some other person nominated by him registered as the transferee of the share. 9 (2) If the person becoming entitled elects to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. (3) If he elects to have another person registered, he shall execute a transfer of the share to that other person. (4) All the limitations, restrictions and provisions of these articles relating to the right to transfer, and the registration of transfers of, shares are applicable to any such notice or transfer as if the death or bankruptcy of the member had not occurred and the notice or transfer were a transfer signed by that member. 27. (1) Where the registered holder of a share dies or becomes bankrupt, his personal representative or the trustee of his estate, as the case may be, is, upon the production of such information as is properly required by the directors, entitled to the same dividends and other advantages, and to the same rights (whether in relation to meetings of the Company, or to voting or otherwise), as the registered holder would have been entitled to if he had not died or become bankrupt. (2) Where 2 or more persons are jointly entitled to any share in consequence of the death of the registered holders they shall, for the purpose of these articles, be deemed to be joint holders of the share. Forfeiture of Shares -------------------- 28. (l) If a member fails to pay a call or instalment of a call on the day appointed for payment of the call or instalment, the directors may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest that has accrued. (2) The notice shall name a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which the payment required by the notice is to be made and shall state that, in the event of non-payment at or before the time appointed, 10 the shares in respect of which the call was made will be liable to be forfeited. 29. (1) If the requirements of a notice served under Article 28 are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the directors to that effect. (2) Such a forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture. 30. A forfeited share may be sold or otherwise disposed of on such terms and in such manner as the directors think fit, and, at any time before a sale or disposition the forfeiture may be canceled on such terms as the directors think fit. 31. A person whose shares have been forfeited ceases to be a member in respect of the forfeited shares. Such a person remains liable however to pay to the Company all money that, at the date of forfeiture, was payable by him to the Company in respect of the shares (including interest at such rate as the directors determine from the date of forfeiture on the money for the time being unpaid, if the directors think fit to enforce payment of the interest). The liability of such a person ceases if and when the Company receives payment in full of all the money (including interest) so payable in respect of the shares. 32. A statutory declaration in writing declaring that the declarant making the statement is a director or a secretary of the Company, and that a share in the Company has been duly forfeited on a date stated in the declaration, shall be conclusive evidence of the facts therein stated as against all persons claiming to be entitled to the share. 33. (1) The Company may receive the consideration (if any) given for a forfeited share on any sale or disposition of the share and may execute a transfer of the share in favour of the person to whom the share is sold or disposed of. (2) Upon the execution of the transfer, the transferee shall be registered as the holder of the share and is not bound to see to the application of any money paid as consideration. (3) The title of the transferee to the share is not affected by any irregularity or invalidity in 11 connection with the forfeiture, sale or disposal of the share. 34. The provisions of these articles as to forfeiture apply in the case of non- payment of any sum that, by the terms of issue of a share, becomes payable at a fixed time, whether on account of the nominal value of the share or by way of premium, as if that sum had been payable by virtue of a call duly made and notified. Conversion of Shares into Stock ------------------------------- 35. The Company may, by ordinary resolution, convert all or any of its shares into stock and re-convert any stock into shares of any nominal value. 36. (1) Subject to sub-article (2), where shares have been converted into stock, the provisions of these articles relating to the transfer of shares apply, so far as they are capable of application, to the transfer of the stock or of any part of the stock. (2) The directors may fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of that minimum, but the minimum shall not exceed the aggregate of the nominal values of the shares from which the stock arose. 37. (1) The holders of stock have, according to the amount of the stock held by them, the same rights, privileges and advantages as regards dividends, voting at meetings of the Company and other matters as they would have if they held the shares from which the stock arose. (2) No such privilege or advantage (except participation in the dividends and profits of the Company and in the property of the Company on winding up) shall be conferred by any amount of stock that would not, if existing in shares, have conferred that privilege or advantage. 38. The provisions of these articles that are applicable to shares apply to stock, and references in those provisions to share and shareholder shall be read as including references to stock and stockholder, respectively. 12 Alteration of Capital --------------------- 39. The Company may by ordinary resolution - (a) increase its authorised share capital by the creation of new shares of such amount as is specified in the resolution; (b) consolidate and divide all or any of its authorised share capital into shares of larger amounts than its existing shares; (c) subdivide all or any of its shares into shares of smaller amount than is fixed by the memorandum but so that in the subdivision the proportion between the amount paid and the amount (if any) unpaid on each such share of a smaller amount is the same as it was in the case of the share from which the share of a smaller amount is derived; and (d) cancel shares that, at the date of passing of the resolution, have not been taken or agreed to be taken by any person and reduce its authorised share capital by the amount of the shares so cancelled. 40. Unless otherwise provided by these articles or by the terms of issue, new shares created upon an increase in the Company's authorised share capital shall rank equally with and carry the same rights as the existing shares. 41. Subject to the Code, the Company may, by special resolution, reduce its share capital, any capital redemption reserve fund or any share premium account. General Meetings ---------------- 42. The directors may whenever they think fit convene a general meeting. 43. (1) A notice of a general meeting shall specify the place, the day and the hour of meeting and shall state the general nature of the business to be transacted at the meeting. (2) A general meeting, other than a meeting for the passing of a special resolution, shall be convened by notice in writing of not less than 14 days or by shorter notice if it is so agreed - 13 (a) in the case of a meeting convened as the annual general meeting - by all the members entitled to attend and vote at the meeting; or (b) in the case of any other meeting - by a majority in number of the members having a right to attend and vote at the meeting, being a majority that together hold not less than 95% in nominal value of the shares giving a right to attend and vote. 44. The accidental omission to give notice of any general meeting to, or the non-receipt of any such notice by, any person entitled to be so notified shall not invalidate any resolution passed at that meeting. 45. (1) A resolution is a special resolution of the Company if - (a) it is passed at a meeting of the Company, being a meeting of which not less than 21 days' written notice specifying the intention to propose the resolution as a special resolution has been duly given; and (b) it is passed at a meeting referred to in paragraph (a) by a majority of not less than three quarters of such members of the Company as, being entitled to do so, vote in person or by proxy or attorney, at that meeting. (2) A resolution is a special resolution of the holders of any class of shares in the Company if - (a) it is passed at a meeting of the holders of shares of that class, being a meeting of which not less than 21 days' written notice specifying the intention to propose the resolution as a special resolution has been duly given; and (b) it is passed at a meeting referred to in paragraph (a) by a majority of not less than three quarters of such holders of shares of that class as, being entitled to do so, vote in person or by proxy or attorney, at that meeting. (3) Notwithstanding the provisions of sub-article (1) or (2), if it is so agreed by a majority in 15 48. The chairman, if any, of the board of directors shall preside as chairman at every general meeting of the Company, or if there is no such chairman, or if he is not present within 15 minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their number to be chairman of the meeting. 49. The chairman's ruling on all matters relating to the order of business, procedure and conduct of a general meeting shall be final and no motion of dissent therefrom shall be accepted. 50. (1) The chairman may with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting) adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. (2) When a meeting is adjourned for 30 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. (3) Except as provided by sub-article (2), it is not necessary to give any notice of any adjournment or of the business to be transacted at an adjourned meeting. 51. (1) At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded - (a) by the chairman; (b) by at least 5 members present in person or by proxy or attorney; (c) by a member or members present in person or by proxy or attorney and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or (d) by a member or members holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right. 16 (2) Unless a poll is so demanded, a declaration by the chairman that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company, is conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. (3) The demand for a poll may be withdrawn. (4) The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded. 52. (1) If a poll is duly demanded, it shall be taken in such manner and (subject to sub-article (2)) either at once or after an interval or adjournment or otherwise as the chairman directs, and the result of the poll shall be the resolution of the meeting at which the poll was demanded. (2) A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. 53. In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a second or casting vote. 54. (1) Subject to sub-article (2), an entitlement to receive notice of general meetings shall confer on members the right to attend and vote thereat. (2) Subject to any rights or restrictions for the time being attached to any class or classes of shares - (a) at meetings of members or classes of members each member entitled to vote may vote in person or by proxy or attorney; and (b) on a show of hands every person present who is a member or a representative of a member has one vote, and, subject to paragraphs (c) and (d), on a poll every member present in person or by proxy or 17 attorney and every person present who is a representative of a member has one vote for each share he holds or represents as the case may be; (c) where a member holds a partly paid share subscribed for as a result of an offer of partly paid shares made pro-rata to all shareholders, on a poll every such member present in person or by proxy or attorney and every person present who is a representative of such a member has one vote for each such share held; and (d) where a member holds a partly paid share subscribed for as a result of an offer of partly paid shares made other than pro-rata to all shareholders, on a poll every such member present in person or by proxy or attorney and every person present who is a representative of such a member has that fraction of a vote for each such share held as equals the fraction generated by dividing the total amount paid on the share by the issue price of the share. 55. In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy or by attorney, shall be accepted to the exclusion of the votes of the other joint holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register of members, but the other or others of the joint holders are entitled to be present at general meetings. 56. If a member is of unsound mind or is a person whose person or estate is liable to be dealt with in any way under the law relating to mental health, his committee or trustee or such other person as properly has the management of his estate may exercise any rights of the member in relation to a general meeting as if the committee, trustee or other person were the member. 57. A member is not entitled to vote at a general meeting unless all calls and other sums presently payable by him in respect of shares in the Company have been paid. 58 (1) An objection may be raised to the qualification of a voter only at the meeting or adjourned meeting at which the vote objected to is given or tendered. 18 (2) Any such objection shall be referred to the chairman of the meeting, whose decision is final. (3) A vote not disallowed pursuant to such an objection is valid for all purposes. 59. (1) An instrument appointing a proxy shall be in writing under the hand of the appointer or of his attorney duly authorised in writing or, if the appointer is a corporation, either under the seal of the corporation or under the hand of an officer or attorney duly authorised in writing. (2) A proxy may but need not be a member. (3) An instrument appointing a proxy may specify the manner in which the proxy is to vote in respect of a particular resolution and, where an instrument of proxy so provides, the proxy is not entitled to vote on the resolution except as specified in the instrument. (4) An instrument appointing a proxy shall, unless the instrument expressly provides otherwise, be deemed to confer authority to agree to a meeting being convened by shorter notice than is required by the Code or by these articles and to a resolution being proposed and passed as a special resolution at a meeting of which less than 21 days' notice has been given and authority to demand or join in demanding a poll. (5) An instrument appointing a proxy shall be in the following form or in a form that is as similar to the following form as the circumstances allow or in such other common form as the directors may from time to time prescribe or approve in particular cases: 20 Appointment, Removal and Remuneration of Directors -------------------------------------------------- 62. (1) Until otherwise determined by the Company by ordinary resolution, the number of the directors shall be not less than 3 nor more than 15. (2) The Company may, by ordinary resolution, increase or reduce the number of directors, and may also determine in what rotation the increased or reduced number is to vacate office. (3) A director is not required to have any share qualification. 63. (1) Subject to Articles 65, 66 and 85, at the annual general meeting of the Company held in every year one-third of the directors for the time being, or, if their number is not 3 or a multiple of 3, then the number rounded down nearest one-third, shall retire from office. (2) The directors to retire at an annual general meeting are those who have been longest in office since their last election, but, as between persons who became directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot. (3) A director retiring under this Article or Article 65 shall be eligible for re-election and shall act as a director throughout the meeting at which he retires. (4) No director (except a managing director) shall remain in office for a period in excess of 3 years without submitting himself for re- election. 64. (l) Subject as hereinafter provided the Company may, at the meeting at which a director so retires, by ordinary resolution fill the vacated office by electing a person to that office. (2) If the vacated office is not so filled, the retiring director shall, if offering himself for re-election and not being disqualified under the Code or these articles from holding office as a director, be deemed to have been re-elected unless at that meeting - 21 (a) it is expressly resolved not to fill the vacated office; or (b) a resolution for the re-election of that director is put and lost. (3) No person (not being a director retiring by rotation) shall be eligible for election to the office of director at any general meeting unless he or some other member intending to propose him has, not less than thirty (30) Business days before the meeting, left at the registered office of the Company a notice in writing duly signed by such nominee consenting to nomination and signifying his candidature or the intention of such member to propose him. Notice of every candidature shall, not less than five (5) Business days before the meeting at which an election is to take place, be given to all members. 65. (1) The directors may at any time appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing directors but so that the total number of directors does not at any time exceed the number determined in accordance with these articles. (2) Any director so appointed holds office only until the next following annual general meeting and is then eligible for re- election but shall not be taken into account in determining the directors who are to retire by rotation at that meeting. 66. (1) The Company may by ordinary resolution remove any director before the expiration of his period of office, and may by ordinary resolution and subject to these Articles appoint another person in his stead. (2) Any person so appointed is subject to retirement at the same time as if he had become a director on the day on which the director in whose place he is appointed was last elected a director. 67. (1) The directors shall be paid by way of fees for their services such aggregate sum as may be determined from time to time by the Company in general meeting and that sum shall be divided amongst the directors in such proportions and manner as they shall from time to time agree or in default of agreement equally. The fees 22 payable by the Company to directors other than executive directors shall not be by way of commission on or a percentage of profits or turnover. The aggregate sum of the directors fees shall not be increased except with the prior approval of the Company in general meeting and notice of any proposed increase and the new maximum aggregate sum that may be paid shall be given to members in the notice convening the meeting. (2) All directors' fees shall be deemed to accrue from day to day. (3) The directors may also be paid all travelling, accommodation and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the Company or otherwise in connection with the exercise of their powers and the discharge of their duties or the business of the Company. (4) If any director, being willing, renders or is called upon to perform extra services or to make any special exertions in going or residing abroad or otherwise for any business or purposes of the Company, the directors may arrange with that director for a special remuneration by the payment of a stated sum of money and that special remuneration may be either in addition to or in substitution for his share in the remuneration provided in these articles. 68. In addition to any other remuneration otherwise provided by these articles, on or after a director, who is not engaged in the full time employment of the Company or of a subsidiary of the Company, ceasing to hold office by reason of death or otherwise howsoever the directors shall have power to pay to him, or in case of his death to his widow, dependents or legal personal representatives in respect of him, such sum as the directors shall think fit but in any event not exceeding the sum permitted by section 233 of the Code, and any such payments may be in the form of a lump sum or be paid by instalments. 69. In addition to the circumstances in which the office of a director becomes vacant by virtue of the Code, the office of a director becomes vacant if the director - (a) becomes an insolvent under administration; 23 (b) becomes prohibited from being a director by reason of an order made under the Code; (c) becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health; (d) resigns his office by notice in writing to the Company; (e) is absent without the consent of the directors from meetings of the directors held during a continuous period of 6 months and the board resolves that his office be vacated; or (f) reaches age 72. Powers and Duties of Directors ------------------------------ 70. (1) Subject to the Code and to any other provision of these articles, the business of the Company shall be managed by the directors, who may exercise all such powers of the Company as are not, by the Code or by these articles, required to be exercised by the Company in general meeting. (2) Without limiting the generality of sub-article (1), the directors may exercise all the powers of the Company to borrow or raise or secure the payment of money, to charge any property or business of the Company or all or any of its uncalled capital and to issue debentures or give any other security for a debt, liability or obligation of the Company or of any other person. 71. (1) The directors may, by power of attorney, appoint any person or persons to be the attorney or attorneys of the Company for such purposes, with such powers, authorities and discretions (being powers, authorities and discretions vested in or exercisable by the directors), for such period and subject to such conditions as they think fit. (2) Any such power of attorney may contain such provisions for the protection and convenience of persons dealing with the attorney as the directors think fit and may also authorise the attorney to delegate all or any of the powers, authorities and discretions vested in him. 24 72. All cheques, promissory notes, bankers drafts, bills of exchange and other negotiable instruments, and all receipts for money paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, by any 2 directors or in such other manner as the directors shall from time to time by resolution determine. 73. If the directors or any of them or any other person becomes or is about to become personally liable for the payment of any sum primarily due from the Company, the directors may execute or cause to be executed any mortgage, charge or security over or affecting the whole or any part of the assets of the Company by way of indemnity to secure the directors or persons so becoming liable from any loss in respect of such liability. 74. (1) The directors shall cause minutes of all proceedings of general meetings and of meetings of the directors to be entered, within one month after the relevant meeting is held, in books kept for that purpose. (2) Except in the case of documents that are deemed to constitute minutes by virtue of Article 83, those minutes shall be signed by the chairman of the meeting at which the proceedings took place or by the chairman of the next succeeding meeting. Disposal of Main Undertaking ---------------------------- 75. The directors shall not authorise a sale or disposal of, or an agreement to sell or dispose of, the Company's main undertaking unless the Company has by ordinary resolution authorised the sale or disposal or unless the sale or disposal, or the agreement, is subject to ratification by the Company by ordinary resolution. Proceedings of Directors ------------------------ 76. (1) The directors may meet together for the despatch of business and adjourn and otherwise regulate their meetings as they think fit. (2) At a meeting of directors, the number of directors whose presence is necessary to constitute a quorum is such number as is determined by the directors and, unless so determined, is 2. 25 (3) A director may at any time, and a secretary shall on the requisition of a director, convene a meeting of the directors, (4) Without limiting the discretion of the directors to regulate their meetings under sub-article (1), the directors may, if they think fit, confer by radio, telephone closed circuit television or other electronic means of audio or audio-visual communication and a resolution passed by such a conference shall, notwithstanding the directors are not present together in one place at the time of the conference, be deemed to have been passed at a meeting of the directors held on the day on which and at the time at which the conference was held. The provisions of these articles relating to proceedings of directors apply so far as they are capable of application and mutatis mutandis to such conferences. 77. (1) Subject to these articles, questions arising at a meeting of directors shall be decided by a majority of votes of directors present and voting and any such decision shall for all purposes be deemed a decision of the directors. (2) In case of an equality of votes, the chairman of the meeting, in addition to his deliberative vote, has a casting vote unless only 2 directors are present at the meeting or only 2 directors are competent to vote on the question at issue, in either of which cases the chairman shall not have a casting vote in addition to his deliberative vote. 78. (1) A director may hold any other office or place of profit (except that of auditor) in the Company in conjunction with the office of director and on such terms as to remuneration and otherwise as the directors may determine. (2) A director of the Company may be or become a director or other officer of or otherwise interested in any corporation promoted by the Company or in which the Company may be interested as a shareholder or otherwise and he shall not be accountable to the Company for any remuneration or other benefits received by him as a director or officer of or from his interest in the other corporation. (3) Subject to sub-article (6) - 26 (a) a director shall not be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise; (b) such a contract, and any contract or arrangement entered into by or on behalf of the Company in which a director is in any way, whether directly or indirectly, interested, shall not be avoided; and (c) a director shall not be liable, by reason of holding his office or of the fiduciary relations thereby established, to account to the Company for any profit arising from such a contract or from such contracts or arrangements. (4) A director shall not vote in respect of any contract or arrangement or proposed contract or arrangement in which he has, whether directly or indirectly a material interest nor in respect of any matter arising out of such a contract or arrangement or proposed contract or arrangement. (5) Notwithstanding sub-article (4), a director may sign or countersign a contract or other document to which the seal is affixed and in which he has, whether directly or indirectly, a material interest. (6) A director who has, whether directly or indirectly, an interest in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the directors, and a director who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as director shall declare at a meeting of the directors the fact and the nature, character and extent of the conflict. 79. (1) A director may, with the approval of a majority of the other directors, appoint a person (whether a member of the Company or not) to be an alternate director in his place during such period as he thinks fit. (2) An alternate director is entitled to notice of meetings of the directors and, if the appointor is not present at such a meeting, is entitled to attend and vote in his stead. 27 (3) An alternate director may exercise any powers that the appointor may exercise and the exercise of any such power by the alternate director shall be deemed to be the exercise of the power by the appointor. (4) An alternate director is not required to have any share qualification. (5) The appointment of an alternate director may be terminated at any time by the appointor notwithstanding that the period of the appointment of the alternate director has not expired, and terminates in any event if the appointor vacates office as a director. (6) An appointment, or the termination of an appointment, of an alternate director shall be effected by a notice in writing signed by the director who makes or made the appointment and served on the Company. 80. In the event of a vacancy or vacancies in the office of a director or offices of directors, the remaining directors may act but, if the number of remaining directors is not sufficient to constitute a quorum at a meeting of directors, they may act only for the purposes of increasing the number of directors to that number or of convening a general meeting of the Company or in emergencies but not for any other purpose. 81. The directors may elect a chairman of their meetings and a deputy chairman and determine the periods for which they are respectively to hold office. The chairman or in his absence the deputy chairman shall preside at every meeting of the directors but if at the time of any meeting no such chairman or deputy chairman has been elected and is in office or if at any meeting neither the chairman nor deputy chairman is present within fifteen minutes of the time appointed for holding it the directors present shall choose someone of their number to be chairman of such meeting. 82. (1) The directors may delegate any of their powers to a committee or committees consisting of such of their number as they think fit. Such a committee or committees may consist of only one director. (2) A committee to which any powers have been so delegated shall exercise the powers delegated in accordance with any directions of the directors and a power so exercised shall be deemed to have been exercised by the directors. 28 (3) The members of such a committee may elect one of their number as chairman of their meetings. (4) Where such a meeting is held and - (a) a chairman has not been elected as provided by sub-article (3); or (b) the chairman is not present within 10 minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present may elect one of their number to be chairman of the meeting. (5) A committee may meet and adjourn as it thinks proper. (6) Questions arising at a meeting of a committee shall be determined by a majority of votes of the members present and voting. (7) In the case of an equality of votes, the chairman, in addition to his deliberative vote, has a casting vote. 83. (1) If all the directors have signed a document containing a statement that they are in favour of a resolution of the directors in the terms set out in the document, a resolution in those terms shall be deemed to have been passed at a meeting of the directors held on the day on which the document was signed and at the time at which the document was last signed by a director or, if the directors signed the document on different days, on the day on which, and at the time at which, the document was last signed by a director and, where a document is so signed, the document shall be deemed to constitute a minute of that meeting. (2) For the purposes of sub-article (1), 2 or more separate documents containing statements in identical terms each of which is signed by one or more directors shall together be deemed to constitute one document containing a statement in those terms signed by those directors on the respective days on which they signed the separate documents. (3) A reference in sub-article (1) to all the directors does not include a reference to a director who, at a meeting of directors, would not be entitled to vote on the resolution, or a 29 reference to an alternate director whose appointor has signed the document mentioned in sub-article (1). 84. All acts done by any meeting of the directors or of a committee of directors or by any person acting as a director are, notwithstanding that it is afterwards discovered that there was some defect in the appointment of a person to be a director or a member of the committee, or to act as a director, or that a person so appointed was disqualified, as valid as if the person had been duly appointed and was qualified to be a director or to be a member of the committee. Managing Directors ------------------ 85. (1) The directors may from time to time appoint one or more of their number to be managing director or managing directors for such period and on such terms as they think fit, and, subject to the terms of any agreement entered into in a particular case, may revoke any such appointment. (2) A managing director's appointment automatically terminates if he ceases from any cause to be a director. (3) A managing director appointed under this Article shall not, while he continues to hold that office, be subject to retirement by rotation or be taken into account in determining the rotation of directors; but he shall subject to the provisions of any contract between him and the Company be subject to the same provisions as to resignation and removal as the other directors of the Company. 86. A managing director shall, subject to the terms of any agreement entered into in a particular case, receive such remuneration (whether by way of salary, bonus, commission or participation in profits, or partly in one way and partly in another) as the directors determine provided that the said remuneration shall not be by way of commission on or percentage of turnover. 87. (1) The directors may, upon such terms and conditions and with such restrictions as they think fit, confer upon a managing director any of the powers exercisable by them. 30 (2) Any powers so conferred may be concurrent with the powers of the directors. (3) The directors may at any time withdraw or vary any of the powers so conferred on a managing director. Secretary --------- 88. (1) The directors shall appoint at least one secretary of the Company and may terminate any such appointment or appointments. (2) A secretary of the Company holds office on such terms and conditions, as to remuneration and otherwise, as the directors determine. Seal ---- 89. (1) The directors shall provide for the safe custody of the seal. (2) The seal may be used in any place where the Company carries on business. (3) The seal shall be used only by the authority of the directors, or of a committee of the directors authorised by the directors to authorise the use of the seal, and every document to which the seal is affixed shall be signed by a director and be countersigned by another director, a secretary or another person appointed by the directors to countersign that document or a class of documents in which that document is included. (4) The Company may have for use outside the State in place of its common seal one or more official seals, each of which shall be a facsimile of the common seal of the Company with the addition on its face of the name of every place where it is to be used. (5) The Company may have a duplicate common seal, which shall be a facsimile of the common seal of the Company with the addition on its face of the words "Share Seal" or "Certificate Seal" and a certificate referring to or relating to securities of the Company sealed with such a duplicate seal shall be deemed to be sealed with the common seal of the Company. 31 (6) Certificates referring to or relating to securities of the Company may be issued bearing a printed impression of the duplicate common seal referred to in sub-article (5) together with printed impressions of the signature of a director and the countersignature of another director, a secretary or another person appointed by the directors to countersign such certificates, and such certificate shall be deemed to be sealed with the common seal of the Company. Inspection of Records --------------------- 90. The directors shall determine whether and to what extent, and at what time and places and under what conditions, the accounting records and other documents of the Company or any of them will be open to the inspection of members other than directors, and a member other than a director does not have the right to inspect any document of the Company except as provided by law or authorised by the directors or by the Company in general meeting. Dividends and Reserves ---------------------- 91. (1) The Company in general meeting may declare a dividend if, and only if, the directors have recommended a dividend. (2) A dividend shall not exceed the amount recommended by the directors. 92. The directors may authorise the payment by the Company to the members of such interim dividends as appear to the directors to be justified by the profits of the Company. 93. No dividend shall be payable except out of profits or pursuant to section 119 of the Code. 94. Interest is not payable by the Company in respect of any dividend. 95. (1) The directors may, before recommending any dividend, set aside out of the profits of the Company such sums as they think proper as reserves, to be applied, at the discretion of the directors, for any purpose for which the profits of the Company may be properly applied. 32 (2) Pending any such application, the reserves may, at the discretion of the directors, be used in the business of the Company or be invested in such investments as the directors think fit. (3) The directors may carry forward so much of the profits remaining as they consider ought not to be distributed as dividends without transferring those profits to a reserve. 96. (1) Subject to the rights of persons (if any) entitled to shares with special rights as to dividend, all dividends shall be declared and paid according to the amounts paid or credited as paid on the shares in respect of which the dividend is paid. (2) All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on the shares during any portion or portions of the period in respect of which the dividend is paid, but, if any share is issued on terms providing that it will rank for dividend as from a particular date, that share ranks for dividend accordingly. (3) An amount paid or credited as paid on a share in advance of a call shall not be taken for the purposes of this Article to be paid or credited as paid on the share. 97. The directors may deduct from any dividend payable to a member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise in relation to shares in the Company. 98. (1) Any general meeting declaring a dividend may, by ordinary resolution, direct payment of a dividend wholly or partly by the distribution of specific assets, including paid up shares in, or debentures of, any other corporation, and the directors shall give effect to such a resolution. (2) Where a difficulty arises in regard to such a distribution, the directors may settle the matter as they consider expedient and fix the value for distribution of the specific assets or any part of those assets and may determine that cash payments will be made to any members on the basis of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as the directors consider expedient. 33 (3) A share issued in pursuance of sub-article (1) shall unless otherwise provided by the terms of issue only rank for dividend as from the date of allotment thereof. 99. (1) Any dividend, interest or other money payable in cash in respect of shares may be paid by cheque sent through the post directed to - (a) the address of the holder as shown in the register of members, or in the case of joint holders, to the address shown in the register of members as the address of the joint holder first named in that register; or (b) to such other address as the holder or joint holders in writing directs or direct. (2) Any one of 2 or more joint holders may give effectual receipts for any dividends or other money payable in respect of the shares held by them as joint holders. Capitalisation of Profits ------------------------- 100. (1) Subject to sub-article (2), the Company in general meeting may resolve that it is desirable to capitalise any sum, being the whole or a part of the amount for the time being standing to the credit of any reserve account or the profit and loss account or otherwise available for distribution to members, and that that sum be applied, in any of the ways mentioned in sub-article (3), for the benefit of members in the proportions to which those members would have been entitled in a distribution of that sum by way of dividend. (2) The Company shall not pass a resolution as mentioned in sub-article (1) unless the resolution has been recommended by the directors. (3) The ways in which a sum may be applied for the benefit of members under sub-article (1) are - (a) in paying up any amounts unpaid on shares held by members; (b) in paying up in full unissued shares or debentures to be issued to members as fully paid; or 34 (c) partly as mentioned in paragraph (a) and partly as mentioned in paragraph (b). (4) The directors shall do all things necessary to give effect to the resolution and in particular, to the extent necessary to adjust the rights of the members among themselves, may - (a) issue fractional certificates or make cash payments in cases where shares or debentures become issuable in fractions; and (b) authorise any person to make, on behalf of all the members entitled to any further shares or debentures upon the capitalisation, an agreement with the Company providing for the issue to them, credited as fully paid up, of any such further shares or debentures or for the payment up by the Company on their behalf of the amounts or any part of the amounts remaining unpaid on their existing shares by the application of their respective proportions of the sum resolved to be capitalised, and any agreement made under an authority referred to in paragraph (b) is effective and binding on all the members concerned. 101. The directors may in their discretion implement and maintain on such terms and conditions as they may determine from time to time a dividend reinvestment plan for cash dividends paid by the Company to be reinvested by way of subscription for shares in the Company to be allotted by the Company such shares to rank from the date of allotment equally in all respects (including in respect of dividends for the period in which they are allotted) with other such existing fully paid shares of the Company and participation in the plan is to be available to such members of the Company as wish to participate therein and are eligible to do so under the terms and conditions of the plan. The directors may in their discretion terminate any plan which may be in existence from time to time on reasonable written notice to all members of the Company. 35 Notices ------- 102. (1) A notice may be given by the Company to any member either by serving it on him personally or by sending it by post to him at his address as shown in the register of members or the address supplied by him to the Company for the giving of notices to him. In the case of overseas shareholders, documents shall be forwarded by air. (2) Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing, prepaying, and posting a letter containing the notice, and to have been effected, in the case of a notice of a meeting, on the day after the date of its posting and, in any other case, at the time at which the letter would be delivered in the ordinary course of post. (3) A notice may be given by the Company to the joint holders of a share by giving the notice to the joint holder first named in the register of members in respect of the share. (4) A notice may be given by the Company to a person entitled to a share in consequence of the death or bankruptcy of a member by serving it on him personally or by sending it to him by post addressed to him by name, or by the title of representative of the deceased or assignee of the bankrupt, or by any like description, at the address (if any) within the State supplied for the purpose by the person or, if such an address has not been supplied, at the address to which the notice might have been sent if the death or bankruptcy had not occurred. 103. (1) Notice of every general meeting shall be given in the manner authorised by Article 101 to - (a) every member; (b) every person entitled to a share in consequence of the death or bankruptcy of a member who, but for his death or bankruptcy, would be entitled to receive notice of the meeting; and (c) the auditor for the time being of the Company. 36 104. Every person who by operation of law or by transfer or otherwise becomes entitled to any share shall be bound by every notice in respect of that share which previously to his name and address being entered in the register of members in respect of that share has been duly given to the member from whom he derived his title to that share. Winding Up ---------- 105. (1) If the Company is wound up, the liquidator may, with the sanction of a special resolution, divide among the members in kind the whole or any part of the property of the Company and may for that purpose set such value as he considers fair upon any property to be so divided and may determine how the division is to be carried out as between the members or different classes of members. (2) The liquidator may, with the sanction of a special resolution, vest the whole or any part of any such property in trustees upon such trusts for the benefit of the contributories as the liquidator thinks fit, but so that no member is compelled to accept any shares or other securities in respect of which there is any liability. (3) If an order is made for the winding up of the Company or if it is resolved by special resolution of the members in general meeting to wind up the Company within twelve (12) months of the shares of the Company being quoted for the first time on the home exchange, shares issued for cash to members of the public shall rank in priority to share capital (if any) classified by the home exchange as "vendor securities". Indemnity --------- 106. Every officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as officer, auditor or agent in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application in relation to any such proceedings in which relief is under the Code granted to him by the Court. 37 107. No auditor or director or other officer of the Company shall be liable for - (l) the acts, receipts, neglects or defaults of any other director or officer; (2) joining in any receipt or other act for conformity; (3) any loss or expense happening to the Company through the insufficiency or deficiency of title to any property acquired by order of the directors or on behalf of the Company; (4) the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested; (5) any loss or damage arising from the bankruptcy, insolvency or tortious act of any person with whom any moneys, securities or effects shall be deposited; (6) any loss occasioned by any error of judgment, omission or oversight on his part; or (7) any other loss, damage or misfortune whatever which shall happen in relation thereto, unless the same happen through his own negligence, default, breach of duty or breach of trust. Members Not Entitled to Discovery --------------------------------- 108. No member shall be entitled to require discovery of or any information respecting any detail of the Company's trading, or any matter which is or may be in the nature of a trade secret, mystery of trade, or secret process which may relate to the conduct of the business of the Company if, in the opinion of the directors, it would be contrary to the interests of the members of the Company to communicate such information. I hereby certify that the Articles of Association contained in the foregoing pages 1 to 37 inclusive comprise the Articles of Association of THE GALORE GROUP ---------------- LIMITED adopted by special Resolution passed on March, 1987. - ------- /s/ Signature appears here -------------------------- Director agent number (02)644-4177 ---------------------------- agent name DAVID M. GLASER address 327 Chisholm Road AUBURN NSW 2144 telephone (02)644-4177 facsimile (02)644-9828 ---------------------------- DX ================================================================================ --- Australian Securities Commission form 205 --- Notification of Corporations Law RESOLUTION 256(1) ================================================================================ company name: THE GALORE GROUP LIMITED ----------- A.C.N.: 008 577 759 ----------- ================= SUBJECT OF RESOLUTION 176(1) alteration to Articles of Association (K) REFER ANNEXURE A ================= DETAILS OF THE GENERAL MEETING date (d/m/y): 28/11/1995 place of meeting: 327 Chisholm Road, Auburn ================= DETAILS OF THE RESOLUTION type of resolution: Special result: Passed ================= SIGNATURE Name: DAVID MAURICE GLASER Capacity: Secretary Sign Here: /s/ David Maurice Galser Date: 28/11/1995 - -------------------------------------------------------------------------------- --- page 1 --- THIS ANNEXURE A OF 1 PAGE REFERRED TO INFORM 205 "NOTIFICATION OF RESOLUTION" THE GALORE GROUP LIMITED ACN 008 577 759 Resolution Signed:/s/ David Maurice Glaser DATE: 28/11/95 To consider and, if thought fit, to pass the following resolution as a special resolution: "That the Articles of Association of the company be amended by inserting the following Article as a new Article 9A: '(a) The company may buy shares in itself in any manner permitted by the Corporations Law, (b) Unless Article 9A(c) applies, Article 9A(a) ceases to have effect at the end of 3 years beginning on the date that this Article was inserted in the Articles of Association of the company. (c) If the Corporations Law ceases to: (1) require that a buy-back authorisation be contained in a company's Articles as a condition of the company being able to buy back its ordinary shares; or (2) provide that a buy-back authorisation in a company's Articles ceases to have effect unless renewed, then Article 9Ab) ceases to have effect'." Explanatory memorandum The Corporations Law contains provisions giving a company the ability to buy back its own shares. In order for a company to take advantage of the new provisions the Corporations Law requires the Articles of Association of the company to contain an appropriate authorisation to that effect. The proposed special resolution which inserts a new Article 9A into the Articles of Association of the company will provide such an authorisation. In essence the buy-back provisions of the Corporations Law aim to ensure that the ability of a company to buy back shares is not misused and that the approval of shareholders is obtained where appropriate. The consequences of the amendment to the Articles is that the company will be permitted to buy back ordinary shares in itself in certain circumstances and subject to certain conditions as provided under the Corporations Law. The reason for proposing the special resolution is to enable the company to take advantage of future opportunities to purchase shares in itself within the guidelines of the Corporations Law. The advantage for the company, the directors and the shareholders in adopting the new article 9A is that it will give the company greater flexibility in structuring its capital base to take account of its changing circumstances and requirements in the future. There do not appear to be any potential disadvantages in adopting the new article 9A. THE GALORE GROUP LIMITED Passed by Special Resolution At ------------------------ The AGM Held on 24/11/94 Page 1 of 1 ACN 008 577 759 --------------- Annexure A ---------- ALTERATION TO ARTICLES OF ASSOCIATION ------------------------------------- To consider and, if thought fit, to pass the following resolution as a special resolution: "That the Articles of Association of the Company are amended by: (a) deleting Article 78(4) and replacing it with the following new Article 78(4): "Except as permitted by law or the Listing Rules of the Australian Stock Exchange Limited prevailing for the time being to the extent applicable or by Article 107, a director who has a material personal interest in a matter that is being considered at a meeting of directors must not vote on the matter, nor be present at, nor otherwise participate in, the meeting while the matter is being considered at the meeting."; (b) deleting Articles 106 and 107 and replacing them with the following new Articles: "106. Articles 106A and 106B apply: (a) to each person who is or has been a director, alternate director or executive officer (as defined in the Corporations Law) of the company; and (b) to such other officers or former officers or the company or of its related bodies corporate as the directors in each case determine. 106A. The Company must indemnify, on a full indemnity basis and to the full extent permitted by law, each person to whom this Article 106A applies for all losses or liabilities incurred by the person as an officer of the company or of a related body corporate including, but not limited to, a liability for negligence or for reasonable costs and expenses incurred: (a) in defending proceedings, whether civil or criminal, in which judgment is given in favour of the person or in which the person is acquitted; or (b) in connection with an application in relation to such proceedings, in which the Court grants relief to the person under the Corporations Law. 106B. The Company may, to the extent permitted by law: (a) purchase and maintain insurance; or (b) pay or agree to pay a premium for instance, for any person to whom this Article 106B applies against any liability incurred by the person as an officer of the Company or of a related body corporate including, but not limited to, a liability for negligence or for reasonable costs and expenses incurred in defending proceedings, whether civil or criminal and whatever their outcome. 107. Subject to section 232A of the Corporations Law, a director may be present at a meeting of the directors of the Company while a matter relating to an existing or proposed contract of insurance of a kind permitted by Article 106B is being considered and may vote on the matter and on a resolution in relation to it notwithstanding that the director may have an interest in or benefit under the insurance contract." THIS IS ANNEXURE A OF ONE PAGE REFERRED TO IN ---------------------------------------------- FORM 205 "NOTIFICATION OF RESOLUTION" ------------------------------------ SIGNED: /s/ David Maurice Glaser AUSTRALIAN CAPITAL TERRITORY ---------------------------- Companies Ordinance 1962 A Company Limited by Shares ------- MEMORANDUM OF ASSOCIATION of SUNBO PTY. LIMITED The name of the Company is Sunbo Pty. Limited. The provisions of the Third Schedule to the Companies Ordinance 1962 (as amended) are hereby excluded. The objects for which the Company is formed are: (a) To invest whether by purchase or subscription or otherwise in real or personal property of any tenure or shares stock debentures or units in any company or trust whatsoever or in any interest therein whatsoever. (b) To supply all or any of the following services: (i) financial services (ii) use by lease licence or otherwise or shops offices factories homes home units or any other reals estate whatsoever (iii) technical and expert services of any nature whatsoever including but not limited to secretarial, bookkeeping, insurance broking, or building consultancy services. (c) To carry on business as a merchant, shopkeeper, exporter, trader, importer or dealer in or manufacturer or producer of raw processed or manufactured goods materials or products of any description whatsoever. (d) To conduct hotels, motels, restaurants, cafes, kiosks, services stations or garages. (e) To buy, apply for, lease, give or accept options over, acquire by licence or hire and to develop, manage, sell, exchange, let on lease, licence or hire, and otherwise deal with property, and in particular:- (i) Shares stock bonds debentures notes and securities of any company government or local authority (ii) Lands buildings easements and all other rights in respect of real estate (iii) Personal property chattels real or personal choices in action book debts liabilities (iv) Patent rights inventions copyrights designs charters trade marks formulae; licences franchises and concessions. (f) To build repair alter maintain and/or manage buildings wharves roads plant machinery equipment and furnishings. (g) To pay for the acquisition of any rights or property or services by inter alia the issue of shares (fully or partly paid up) debentures or other securities of this or of any other company or by cash instalments of cash or any other form of consideration. (h) To sell the undertaking and/or any or all of the assets of the Company in return for:- (i) Cash, (ii) Instalments of cash, (iii) Shares or debentures of any other company, (iv) Real or personal property or any interest therein, (v) Guarantees liens charges or other securities over the assets of any other company or person. (i) To pay costs and expenses preliminary and/or incidental to the promotion establishment and incorporation of the Company, and to reimburse and indemnify persons who have advanced or paid money for those purposes. (j) To make gifts of property whether real or personal for any purpose and to any person firm or corporation whatsoever. (k) To carry on any of the businesses or act in the respective capacities specified herein for or on behalf of or as trustee for others. (1) Subject to section 125 of the Ordinance to lend money with or without accepting security for loans. (m) To receive money on deposit and/or to borrow money. (n) To guarantee and/or indemnify the contracts or liabilities of others. (o) To furnish security by way of mortgage debentures lien charges or other hypothecation of the Company's rights and property including uncalled capital. (p) To draw issue accept endorse execute discount and negotiate negotiable and/or transferable instruments. (q) To enter into partnership or other arrangements for profit- sharing with any person or company engaged in any business which this Company is authorised to carry on. (r) To grant pensions retiring allowances super- annuation benefits long-serve leave and general benefits to employees and Directors (past and present) of the Company or of subsidiary, holding, or related companies, or of its predecessors in business by:- (i) Grants of money insurance or other aid to them and their dependents and connections, (ii) Establishing and/or subsidising funds and trusts, (iii) Medical educational housing recreational and other amenities. (s) To promote Companies for any purpose. (t) To appoint attorneys, agents, brokers or trustees on such conditions (including remuneration) as the Company shall determine. (u) To distribute in specie any of the assets of the Company provided that if a reduction of capital is involved thereby then section 64 of the Ordinance shall be complied with. (v) To procure registration as a foreign and/or recognised company and/or to establish agencies branch registers and local boards anywhere in the world. AND IT IS HEREBY DECLARED that the objects specified in each of the ------------------------- paragraphs of this clause shall be regarded as independent objects, and accordingly shall not be limited or restricted by reference to or inference from the terms of any other objects but may be carried out in the widest sense and no objects herein specified shall be deemed subsidiary or ancilliary to any other object. 4. The liability of the members of the Company is limited. 5. The capital of the Company is One hundred thousand dollars ($100,000) divided into One hundred thousand (100,000) shares of One dollar ($1.00) each with power for the Company to increase or reduce the said capital. The shares in the capital for the time being whether original or increased may be divided into several classes with any preferential special qualified or deferred rights privileges or conditions attached thereto. 6. The full names and addresses and occupations of the subscribers to the Memorandum of Association of the Company and the number of shares they respectively agree to take are as follows:-
Name, Address and Occupation Number of Shares ---------------------------- ---------------- Ydeet Winter-Irving One (1) Ordinary 6 Supply Place Share RED HILL ACT ------------ Solicitor Christopher Tyrrel One (1) Ordinary 59 McNicoll Street Share HUGHES ACT ------ Solicitor
WE, the several persons whose names and addresses are subscribed hereto are desirous of being formed into a Company in pursuant of this Memorandum of Association and we agree to take the number of shares in the capital of the Company set out opposite our respective names.
- -------------------------------------------------------------------------------- Names, Addresses and No. of Shares Witness to Occupations of taken by each Signatures Subscribers Subscriber - -------------------------------------------------------------------------------- Ydeet Winter-Irving One (1) Susan G. Page, 6 Supply Place Ordinary 21 Batchelor Street, RED HILL ACT Share TORRENS. A.C.T. Solicitor Secretary Christopher Tyrrell One (1) Susan G. Page, 59 McNicoll Street Ordinary 21 Batchelor Street, HUGHES ACT Share TORRENS. A.C.T. Solicitor Secretary
- -------------------------------------------------------------------------------- DATED: this third day of June , 1982 - ----- ---- AUSTRALIAN CAPITAL TERRITORY ---- Companies Act 1981 Companies Form 27 [Sub-section 72(9)] NATIONAL COMPANIES AND SECURITIES COMMISSION Registered No. CL 19011 -------------- CERTIFICATION OF INCORPORATION ON CHANGE OF NAME OF COMPANY This is to certify that BARBEQUES GALORE HOLDINGS LIMITED ORIGINALLY CALLED SUNBO PTY. LIMITED AND FORMERLY NAMED BARBECUES GALORE HOLDINGS PTY. LIMITED which was on the SIXTEENTH day of JUNE 1982 incorporated under COMPANIES ORDINANCE as a PROPRIETARY 1962 company, on the TWENTY-THIRD day of MARCH 1987 changed its name to THE GALORE GROUP LIMITED and that the company is a PUBLIC company, and is a company limited by shares. Given under the seal of the National Companies and Securities Commission at Canberra on this TWENTY-THIRD day of MARCH 1987 [LOGO OF NATIONAL COMPANIES AND SECURITIES COMMISSION APPEARS HERE] [SIGNATURE APPEARS HERE] A person authorised by the Corporate Affairs Commission - Delegate of the National Companies and Securities Commission. EX-4.1 3 FORM OF AMERICAN DEPOSITORY RECEIPT EXHIBIT 4.1 EXHIBIT A ANNEXED TO AND INCORPORATED IN DEPOSIT AGREEMENT ------------------------- [FORM OF FACE OF ADR] No. of ADSs: - ------------------- Number ------------------------------ Each ADS represents One Share CUSIP: AMERICAN DEPOSITARY RECEIPT evidencing AMERICAN DEPOSITARY SHARES representing ORDINARY SHARES, PAR VALUE A$0.20 EACH of BARBEQUES GALORE LIMITED (Incorporated under the laws of Australian Capital Territory, Australia) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, as depositary hereunder (the "Depositary"), hereby certifies that is --------------- the registered owner (a "Holder") of American Depositary Shares ("ADSs"), -------- each (subject to paragraph (13)) representing one ordinary share, par value A$0.20 each (including the rights to receive Shares described in paragraph (1), "Shares" and, together with any other securities, cash or property from time to time held by the Depositary in respect or in lieu of deposited Shares, the "Deposited Securities"), of Barbeques Galore Limited, a corporation organized under the laws of Australian Capital Territory, Australia (the "Company"), deposited under the Deposit Agreement dated as of , 1997 (as amended from time to time, the "Deposit Agreement") among the Company, the Depositary and all Holders from time to time of American Depositary Receipts issued thereunder ("ADRs"), each of whom by accepting an ADR becomes a party thereto. The Deposit Agreement and this ADR (which includes the provisions set forth on the reverse hereof) shall be governed by and construed in accordance with the laws of the State of New York. (1) Issuance of ADRs. This ADR is one of the ADRs issued under the ---------------- Deposit Agreement. Subject to paragraph (4), the Depositary may so issue ADRs for delivery at the Transfer Office (defined in paragraph (3)) only against deposit with the A-1 Custodian of: (a) Shares in form satisfactory to the Custodian; (b) rights to receive Shares from the Company or any registrar, transfer agent, clearing agent or other entity recording Share ownership or transactions; or, (c) other rights to receive Shares (until such Shares are actually deposited pursuant to (a) or (b) above, "Pre-released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked to market daily) with cash or U.S. government securities held by the Depositary for the benefit of Holders (but such collateral shall not constitute "Deposited Securities"), (ii) each recipient of Pre-released ADRs agrees in writing with the Depositary that such recipient (a) owns such Shares, (b) assigns all beneficial right, title and interest therein to the Depositary, (c) holds such Shares for the account of the Depositary and (d) will deliver such Shares to the Custodian as soon as practicable and promptly upon demand therefor and (iii) all Pre-released ADRs evidence not more than 20% of all ADSs (excluding those evidenced by Pre-released ADRs), provided, however, that the -------- ------- Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may retain for its own account any earnings on collateral for Pre-released ADRs and its charges for issuance thereof. At the request, risk and expense of the person depositing Shares, the Depositary may accept deposits for forwarding to the Custodian and may deliver ADRs at a place other than its office. Every person depositing Shares under the Deposit Agreement represents and warrants that such Shares are validly issued and outstanding, fully paid, nonassessable and free of pre-emptive rights, that the person making such deposit is duly authorized so to do and that such Shares (A) are not "restricted securities" as such term is defined in Rule 144 under the Securities Act of 1933 unless at the time of deposit they may be freely transferred in accordance with Rule 144(k) and may otherwise be offered and sold freely in the United States or (B) have been registered under the Securities Act of 1933. Such representations and warranties shall survive the deposit of Shares and issuance of ADRs. The Depositary will not knowingly accept for deposit under the Deposit Agreement any Shares required to be registered under the Securities Act of 1933 and not so registered; the Depositary may refuse to accept for such deposit any Shares identified by the Company in order to facilitate the Company's compliance with such Act. (2) Withdrawal of Deposited Securities. Subject to paragraphs (4) and ---------------------------------- (5), upon surrender of this ADR in form satisfactory to the Depositary at the Transfer Office, the Holder hereof is entitled to delivery at the Custodian's office of the Deposited Securities at the time represented by the ADSs evidenced by this ADR. At the request, risk and expense of the Holder hereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit Agreement or this ADR, the withdrawal of Deposited Securities may be restricted only for the reasons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may be amended from time to time) under the Securities Act of 1933. A-2 (3) Transfers of ADRs. The Depositary or its agent will keep, at a ----------------- designated transfer office in the Borough of Manhattan, The City of New York (the "Transfer Office"), (a) a register (the "ADR Register") for the registration, registration of transfer, combination and split-up of ADRs, which at all reasonable times will be open for inspection by Holders and the Company for the purpose of communicating with Holders in the interest of the business of the Company or a matter relating to the Deposit Agreement and (b) facilities for the delivery and receipt of ADRs. Title to this ADR (and to the Deposited Securities represented by the ADSs evidenced hereby), when properly endorsed or accompanied by proper instruments of transfer, is transferable by delivery with the same effect as in the case of negotiable instruments under the laws of the State of New York; provided that the Depositary, notwithstanding any notice to -------- the contrary, may treat the person in whose name this ADR is registered on the ADR Register as the absolute owner hereof for all purposes. Subject to paragraphs (4) and (5), this ADR is transferable on the ADR Register and may be split into other ADRs or combined with other ADRs into one ADR, evidencing the same number of ADSs evidenced by this ADR, by the Holder hereof or by duly authorized attorney upon surrender of this ADR at the Transfer Office properly endorsed or accompanied by proper instruments of transfer and duly stamped as may be required by applicable law; provided that the Depositary may close the -------- ADR Register at any time or from time to time when deemed expedient by it or requested by the Company. (4) Certain Limitations. Prior to the issue, registration, registration ------------------- of transfer, split-up or combination of any ADR, the delivery of any distribution in respect thereof, or, subject to the last sentence of paragraph (2), the withdrawal of any Deposited Securities, and from time to time in the case of clause (b)(ii) of this paragraph (4), the Company, the Depositary or the Custodian may require: (a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of Shares or other Deposited Securities upon any applicable register and (iii) any applicable charges as provided in paragraph (7) of this ADR; (b) the production of proof satisfactory to it of (i) the identity and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law (including, but not limited to evidence of compliance with the Corporations Law, the Banking (Foreign Exchange) Regulations or the Foreign Acquisitions and Takeovers Act 1975 of Australia), regulations, provisions of or governing Deposited Securities and terms of the Deposit Agreement and this ADR, as it may deem necessary or proper; and (c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of deposits of Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the last sentence of paragraph (2), the withdrawal of Deposited A-3 Securities may be suspended, generally or in particular instances, when the ADR Register or any register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary or the Company. (5) Taxes. If any tax or other governmental charge shall become payable ----- by or on behalf of the Custodian or the Depositary with respect to this ADR, any Deposited Securities represented by the ADSs evidenced hereby or any distribution thereon, such tax or other governmental charge shall be paid by the Holder hereof to the Depositary. The Depositary may refuse to effect any registration, registration of transfer, split-up or combination hereof or, subject to the last sentence of paragraph (2), any withdrawal of such Deposited Securities until such payment is made. The Depositary may also deduct from any distributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder hereof any part or all of such Deposited Securities (after attempting by reasonable means to notify the Holder hereof prior to such sale), and may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder hereof remaining liable for any deficiency, and shall reduce the number of ADSs evidenced hereby to reflect any such sales of Shares. In connection with any distribution to Holders, the Company will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. If the Depositary determines that any distribution in property other than cash (including Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the Custodian is obligated to withhold, the Depositary may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes to the Holders entitled thereto. (6) Disclosure of Interests. To the extent that the provisions of or ----------------------- governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of Deposited Securities, other Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and all persons holding ADRs agree to comply with all such disclosure requirements and ownership limitations and to cooperate with the Depositary in the Depositary's compliance with any Company instructions in respect thereof, and the Depositary will use reasonable efforts to comply with such Company instructions. (7) Charges of Depositary. The Depositary may charge each person to whom --------------------- ADRs are issued against deposits of Shares, A-4 including deposits in respect of Share Distributions, Rights and Other Distributions (as such terms are defined in paragraph (10)), and each person surrendering ADRs for withdrawal of Deposited Securities, U.S. $5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs delivered or surrendered. The Depositary may sell (by public or private sale) sufficient securities and property received in respect of Share Distributions, Rights and Other Distributions prior to such deposit to pay such charge. The Company will pay all other charges and expenses of the Depositary and any agent of the Depositary (except the Custodian) pursuant to agreements from time to time between the Company and the Depositary, except (i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Shares), (ii) cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Shares, ADRs or Deposited Securities (which are payable by such persons or Holders), (iii) transfer or registration fees for the registration of transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal of Deposited Securities (which are payable by persons depositing Shares or Holders withdrawing Deposited Securities; there are no such fees in respect of the Shares as of the date of the Deposit Agreement) and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). These charges may be changed in the manner indicated in paragraph (16). (8) Available Information. The Deposit Agreement, the provisions of or --------------------- governing Deposited Securities and any written communications from the Company, which are both received by the Custodian or its nominee as a holder of Deposited Securities and made generally available to the holders of Deposited Securities, are available for inspection by Holders at the offices of the Depositary and the Custodian and at the Transfer Office. The Depositary will mail copies of such communications (or English translations or summaries thereof) to Holders when furnished by the Company. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and accordingly files certain reports with the United States Securities and Exchange Commission (the "Commission"). Such reports and other information may be inspected and copied at public reference facilities maintained by the Commission located at the date hereof at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. A-5 (9) Execution. This ADR shall not be valid for any purpose unless --------- executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary. Dated: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Depositary By -------------------------------------------- Authorized Officer The Depositary's office is located at 60 Wall Street, New York, New York 10260. A-6 [FORM OF REVERSE OF ADR] (10) Distributions on Deposited Securities. Subject to paragraphs (4) and ------------------------------------- (5), to the extent practicable, the Depositary will distribute by mail to each Holder entitled thereto on the record date set by the Depositary therefor at such Holder's address shown on the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by ADSs evidenced by such Holder's ADRs: (a) Cash. Any U.S. dollars available to the Depositary ---- resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof authorized in this paragraph (10) ("Cash"), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositary's expenses in (1) converting any foreign currency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. (b) Shares. (i) Additional ADRs evidencing whole ADSs representing any ------ Shares available to the Depositary resulting from a dividend or free distribution on Deposited Securities consisting of Shares (a "Share Distribution") and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Shares received in a Share Distribution, which Shares would give rise to fractional ADSs if additional ADRs were issued therefor, as in the case of Cash. (c) Rights. (i) Warrants or other instruments in the discretion ------ of the Depositary representing rights to acquire additional ADRs in respect of any rights to subscribe for additional Shares or rights of any nature available to the Depositary as a result of a distribution on Deposited Securities ("Rights"), to the extent that the Company timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so furnish such evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse). (d) Other Distributions. (i) Securities or property available to the ------------------- Depositary resulting from any distribution on Deposited Securities other than Cash, Share Distributions and Rights A-7 ("Other Distributions"), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of such securities or property not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of Cash. Such U.S. dollars available will be distributed by checks drawn on a bank in the United States for whole dollars and cents (any fractional cents being withheld without liability for interest and added to future Cash distributions). (11) Record Dates. The Depositary will, after consultation with the ------------ Company, if practicable, fix a record date (which shall be as near as practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be entitled to receive any distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such Holders shall be so entitled. (12) Voting of Deposited Securities. As soon as practicable after receipt ------------------------------ from the Company of notice of any meeting or solicitation of consents or proxies of holders of Shares or other Deposited Securities, the Depositary shall mail to Holders a notice stating (a) such information as is contained in such notice and any solicitation materials, (b) that each Holder on the record date set by the Depositary therefor will be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person designated by the Company. Upon receipt of instructions of a Holder on such record date in the manner and on or before the date established by the Depositary for such purpose, the Depositary shall endeavor insofar as practicable and permitted under the provisions of or governing Deposited Securities to vote or cause to be voted (or to grant a discretionary proxy to a person designated by the Company to vote) the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs in accordance with such instructions. The Depositary will not itself exercise any voting discretion in respect of any Deposited Security. If no instructions are received by the Depositary from any Holder with respect to any of the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided that no such instruction -------- shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information promptly in writing) that (x) the Company does not A-8 wish such proxy given, (y) substantial opposition exists or (z) materially affects the rights of holders of Shares; provided, further, that the Depositary -------- shall not be obligated to give any such proxy unless and until the Depositary has been provided with an opinion, which shall be given at the time of entering into the Deposit Agreement and prior to each vote in which a discretionary proxy is to be provided, of counsel to the Company, in form and substance satisfactory to the Depositary, to the effect that (i) the granting of such proxy does not subject the Depositary to any reporting obligations in the Commonwealth of Australia, including any states thereof, (ii) the granting of such proxy will not result in a violation of any of the laws of either the Commonwealth of Australia or any states thereof and (iii) the voting arrangement and proxy as contemplated herein will be given effect under Australian law. (13) Changes Affecting Deposited Securities. Subject to paragraphs (4) -------------------------------------- and (5), the Depositary may, in its discretion, amend this ADR or distribute additional or amended ADRs (with or without calling this ADR for exchange) or cash, securities or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of Deposited Securities, any Share Distribution or Other Distribution not distributed to Holders or any cash, securities or property available to the Depositary in respect of Deposited Securities from (and the Depositary is hereby authorized to surrender any Deposited Securities to any person and to sell by public or private sale any property received in connection with) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company, and to the extent the Depositary does not so amend this ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof, whatever cash, securities or property results from any of the foregoing shall constitute Deposited Securities and each ADS evidenced by this ADR shall automatically represent its pro rata interest in the Deposited Securities as then constituted. (14) Exoneration. The Depositary, the Company, their agents and each of ----------- them shall: (a) incur no liability (i) if law, regulation, the provisions of or governing any Deposited Securities, act of God, war or other circumstance beyond its control shall prevent, delay or subject to any civil or criminal penalty any act which the Deposit Agreement or this ADR provides shall be done or performed by it, or (ii) by reason of any exercise or failure to exercise any discretion given it in the Deposit Agreement or this ADR; (b) assume no liability except to perform its obligations to the extent they are specifically set forth in this ADR and the Deposit Agreement without gross negligence or bad faith; (c) except in the case of the Company and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or this ADR; (d) in the case of the Company and its agents hereunder be under no obligation to appear in, A-9 prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or this ADR, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; or (e) not be liable for any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, or any other person believed by it to be competent to give such advice or information. The Depositary, its agents and the Company may rely and shall be protected in acting upon any written notice, request, direction or other document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in which any such vote is cast or for the effect of any such vote. The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs. The Company has agreed to indemnify the Depositary and its agents under certain circumstances and the Depositary has agreed to indemnify the Company against losses incurred by the Company to the extent such losses are due to the negligence or bad faith of the Depositary. No disclaimer of liability under the Securities Act of 1933 is intended by any provision hereof. (15) Resignation and Removal of Depositary; the Custodian. The Depositary ---------------------------------------------------- may resign as Depositary by written notice of its election to do so delivered to the Company, or be removed as Depositary by the Company by written notice of such removal delivered to the Depositary; such resignation or removal shall take effect upon the appointment of and acceptance by a successor depositary. The Depositary may appoint substitute or additional Custodians and the term "Custodian" refers to each Custodian or all Custodians as the context requires. - ---------- (16) Amendment. Subject to the last sentence of paragraph (2), the ADRs --------- and the Deposit Agreement may be amended by the Company and the Depositary, provided that any amendment that imposes or increases any fees or charges (other - -------- than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise prejudice any substantial existing right of Holders, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder of an ADR at the time any amendment to the Deposit Agreement so becomes effective shall be deemed, by continuing to hold such ADR, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR and receive the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. A-10 (17) Termination. The Depositary may (upon written notice to the Company, ----------- if at any time after 60 days have expired after the Depositary shall have delivered to the Company a written notice of its election to resign, provided -------- that no successor depositary shall have been appointed and accepted its appointment as provided in the Deposit Agreement before the end of such 60 days), and shall at the written direction of the Company, terminate the Deposit Agreement and this ADR by mailing notice of such termination to the Holders at least 30 days prior to the date fixed in such notice for such termination. After the date so fixed for termination, the Depositary and its agents will perform no further acts under the Deposit Agreement and this ADR, except to advise Holders of such termination, receive and hold (or sell) distributions on Deposited Securities and deliver Deposited Securities being withdrawn. As soon as practicable after the expiration of six months from the date so fixed for termination, the Depositary shall sell the Deposited Securities and shall thereafter (as long as it may lawfully do so) hold in a segregated account the net proceeds of such sales, together with any other cash then held by it under the Deposit Agreement, without liability for interest, in trust for the pro rata --- ---- benefit of the Holders of ADRs not theretofore surrendered. After making such sale, the Depositary shall be discharged from all obligations in respect of the Deposit Agreement and this ADR, except to account for such net proceeds and other cash. After the date so fixed for termination, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary and its agents. A-11 [LOGO OF BARBEQUES GALORE LIMITED APPEARS HERE] (INCORPORATED IN THE AUSTRALIAN CAPITAL TERRITORY) --------------- Registered Office: 327 Chisholm Road, Auburn, NSW 2144 Address for Registrar, Correspondence and Transfers ORDINARY SHARE CERTIFICATE NUMBER OF FULLY SHAREHOLDER THIS IS TO CERTIFY THAT PAID ORDINARY CERTIFICATE DATE REFERENCE SHARES NUMBER REGISTERED REGISTER is registered as the holder of ORDINARY FULLY PAID SHARES of __________ each in the capital of BARBEQUES GALORE LIMITED subject to the Memorandum and Articles of Association of the Company. Director BARBEQUES GALORE LIMITED A.C.N. --- --- --- Share Seal Secretary [_] Given under the Share Seal of the Company on the above date. ADDRESSES OF REGISTRIES: EX-4.2 4 FORM OF DEPOSIT AGREEMENT EXHIBIT 4.2 - -------------------------------------------------------------------------------- BARBEQUES GALORE LIMITED AND MORGAN GUARANTY TRUST COMPANY OF NEW YORK, As Depositary AND HOLDERS OF AMERICAN DEPOSITARY RECEIPTS ------------------- Deposit Agreement Dated as of , 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page ---- PARTIES............................................. 1 RECITALS............................................ 1 Section 1. Certain Definitions (a) ADR Register......................... 1 (b) ADRs................................. 1 (c) ADS.................................. 1 (d) Custodian............................ 1 (e) Delivery Order....................... 1 (f) Deposited Securities................. 1 (g) Holder............................... 1 (h) Securities Act of 1933............... 1 (i) Securities Exchange Act of 1934...... 1 (j) Shares............................... 1 (k) Transfer Office...................... 1 (l) Withdrawal Order..................... 2 Section 2. ADR Certificates..................... 2 Section 3. Deposit of Shares.................... 2 Section 4. Issue of ADRs........................ 2 Section 5. Distributions on Deposited Securities 3 Section 6. Withdrawal of Deposited Securities... 3 Section 7. Substitution of ADRs................. 3 Section 8. Cancellation and Destruction of ADRs. 3 Section 9. The Custodian........................ 4 Section 10. Co-Registrars and Co-Transfer Agents. 4 Section 11. Lists of Holders..................... 4 Section 12. Depositary's Agents.................. 4 Section 13. Successor Depositary................. 4 Section 14. Reports.............................. 5 Section 15. Additional Shares.................... 5 Section 16. Indemnification...................... 5 Section 17. Notices.............................. 6 Section 18. Miscellaneous........................ 6 TESTIMONIUM......................................... 7 SIGNATURES.......................................... 7
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EXHIBIT A --------- Page ---- FORM OF FACE OF ADR................................. A-1 - ------------------- Introductory Paragraph......................... A-1 (1) Issuance of ADRs...................... A-1 (2) Withdrawal of Deposited Securities.... A-2 (3) Transfers of ADRs..................... A-3 (4) Certain Limitations................... A-3 (5) Taxes................................. A-4 (6) Disclosure of Interests............... A-4 (7) Charges of Depositary................. A-4 (8) Available Information................. A-5 (9) Execution............................. A-6 Signature of Depositary........................ A-6 Address of Depositary's Office................. A-6 FORM OF REVERSE OF ADR.............................. A-7 - ---------------------- (10) Distributions on Deposited Securities. A-7 (11) Record Dates.......................... A-8 (12) Voting of Deposited Securities........ A-8 (13) Changes Affecting Deposited Securities A-9 (14) Exoneration........................... A-9 (15) Resignation and Removal of Depositary; the Custodian............. A-10 (16) Amendment............................. A-10 (17) Termination........................... A-11
-ii- DEPOSIT AGREEMENT dated as of , 1997 (the "Deposit Agreement") among BARBEQUES GALORE LIMITED and its successors (the "Company"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as depositary hereunder (the "Depositary"), and all holders from time to time of American Depositary Receipts issued hereunder ("ADRs") evidencing American Depositary Shares ("ADSs") representing Shares (defined below) deposited hereunder. The parties hereto agree as follows: 1. Certain Definitions. ------------------- (a) "ADR Register" is defined in paragraph (3) of the form of ADR. ------------ (b) "ADRs" mean certificates evidencing ADSs substantially in the form of ---- Exhibit A annexed hereto (the "form of ADR"). The form of ADR is hereby ----------- incorporated herein and made a part hereof; the provisions of the form of ADR shall be binding upon the parties hereto. (c) Subject to paragraph (13) of the form of ADR, each "ADS" evidenced by --- an ADR represents the right to receive one Share and a pro rata share in any other Deposited Securities. (d) "Custodian" means the agent or agents of the Depositary (singly or --------- collectively, as the context requires) named as Custodian in the form of ADR and any additional or substitute Custodian appointed pursuant to Section 9. (e) "Delivery Order" is defined in Section 3. -------------- (f) "Deposited Securities" as of any time means all Shares at such time -------------------- deposited under this Deposit Agreement and any and all other Shares, securities, property and cash at such time held by the Depositary or the Custodian in respect or in lieu of such deposited Shares and other Shares, securities, property and cash. (g) "Holder" means the person or persons in whose name an ADR is registered ------ on the ADR Register. (h) "Securities Act of 1933" means the United States Securities Act of ---------------------- 1933, as from time to time amended. (i) "Securities Exchange Act of 1934" means the United States Securities ------------------------------- Exchange Act of 1934, as from time to time amended. (j) "Shares" mean the ordinary shares, par value A$0.20 each, of the ------ Company and shall include the rights to receive Shares specified in paragraph (1) of the form of ADR. (k) "Transfer Office" is defined in paragraph (3) of the form of ADR. --------------- (l) "Withdrawal Order" is defined in Section 6. ---------------- 2. ADR Certificates. ADRs shall be engraved, printed or otherwise ---------------- reproduced at the discretion of the Depositary in accordance with its customary practices in its American depositary receipt business, or at the request of the Company typewritten and photocopied on plain or safety paper, and shall be substantially in the form set forth in the form of ADR, with such changes as may be required by the Depositary or the Company to comply with their obligations hereunder, any applicable law, regulation or usage or to indicate any special limitations or restrictions to which any particular ADRs are subject. ADRs may be issued in denominations of any number of ADSs. ADRs shall be executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary. ADRs bearing the facsimile signature of anyone who was at the time of execution a duly authorized officer of the Depositary shall bind the Depositary, notwithstanding that such officer has ceased to hold such office prior to the delivery of such ADRs. 3. Deposit of Shares. In connection with the deposit of Shares hereunder, ----------------- the Depositary or the Custodian may require the following in form satisfactory to it: (a) a written order directing the Depositary to execute and deliver to, or upon the written order of, the person or persons designated in such order an ADR or ADRs evidencing the number of ADSs representing such deposited Shares (a "Delivery Order"); (b) proper endorsements or duly executed instruments of transfer in respect of such deposited Shares; (c) instruments assigning to the Custodian or its nominee any distribution on or in respect of such deposited Shares or indemnity therefor; and (d) proxies entitling the Custodian to vote such deposited Shares. As soon as practicable after the Custodian receives Deposited Securities pursuant to any such deposit or pursuant to paragraph (10) or (13) of the form of ADR, the Custodian shall present such Deposited Securities for registration of transfer into the name of the Custodian or its nominee, to the extent such registration is practicable, at the cost and expense of the person making such deposit (or for whose benefit such deposit is made) and shall obtain evidence satisfactory to it of such registration. Deposited Securities shall be held by the Custodian for the account and to the order of the Depositary at such place or places and in such manner as the Depositary shall determine. Deposited Securities may be delivered by the Custodian to any person only under the circumstances expressly contemplated in this Deposit Agreement. 4. Issue of ADRs. After any such deposit of Shares, the Custodian shall ------------- notify the Depositary of such deposit and of the information contained in any related Delivery Order by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by cable, telex or facsimile transmission. After receiving such notice from the 2 Custodian, the Depositary, subject to this Deposit Agreement, shall execute and deliver at the Transfer Office, to or upon the order of any person named in such notice, an ADR or ADRs registered as requested and evidencing the aggregate ADSs to which such person is entitled. 5. Distributions on Deposited Securities. To the extent that the ------------------------------------- Depositary determines in its discretion that any distribution pursuant to paragraph (10) of the form of ADR is not practicable with respect to any Holder, the Depositary may make such distribution as it so deems practicable, including the distribution of foreign currency, securities or property (or appropriate documents evidencing the right to receive foreign currency, securities or property) or the retention thereof as Deposited Securities with respect to such Holder's ADRs (without liability for interest thereon or the investment thereof). 6. Withdrawal of Deposited Securities. In connection with any surrender ---------------------------------- of an ADR for withdrawal of the Deposited Securities represented by the ADSs evidenced thereby, the Depositary may require proper endorsement in blank of such ADR (or duly executed instruments of transfer thereof in blank) and the Holder's written order directing the Depositary to cause the Deposited Securities represented by the ADSs evidenced by such ADR to be withdrawn and delivered to, or upon the written order of, any person designated in such order (a "Withdrawal Order"). Directions from the Depositary to the Custodian to deliver Deposited Securities shall be given by letter, first class airmail postage prepaid, or, at the request, risk and expense of the Holder, by cable, telex or facsimile transmission. Delivery of Deposited Securities may be made by the delivery of certificates (which, if required by law shall be properly endorsed or accompanied by properly executed instruments of transfer or, if such certificates may be registered, registered in the name of such Holder or as ordered by such Holder in any Withdrawal Order) or by such other means as the Depositary may deem practicable. 7. Substitution of ADRs. The Depositary shall execute and deliver a new -------------------- ADR of like tenor in exchange and substitution for any mutilated ADR upon cancellation thereof or in lieu of and in substitution for such destroyed, lost or stolen ADR, unless the Depositary has notice that such ADR has been acquired by a bona fide purchaser, upon the Holder thereof filing with the Depositary a request for such execution and delivery and a sufficient indemnity bond and satisfying any other reasonable requirements imposed by the Depositary. 8. Cancellation and Destruction of ADRs. All ADRs surrendered to the ------------------------------------ Depositary shall be cancelled by the Depositary. The Depositary is authorized to destroy ADRs so cancelled in accordance with its customary practices. 3 9. The Custodian. Any Custodian in acting hereunder shall be subject to ------------- the directions of the Depositary and shall be responsible solely to it. The Depositary may from time to time appoint one or more agents to act for it as Custodian hereunder. Each Custodian so appointed (other than Morgan Guaranty Trust Company of New York) shall give written notice to the Company and the Depositary accepting such appointment and agreeing to be bound by the applicable terms hereof. Any Custodian may resign from its duties hereunder by at least 30 days written notice to the Depositary. The Depositary may discharge any Custodian at any time upon notice to the Custodian being discharged. Any Custodian ceasing to act hereunder as Custodian shall deliver, upon the instruction of the Depositary, all Deposited Securities held by it to a Custodian continuing to act. 10. Co-Registrars and Co-Transfer Agents. The Depositary may appoint and ------------------------------------ remove (i) co-registrars to register ADRs and transfers, combinations and split- ups of ADRs and to countersign ADRs in accordance with the terms of any such appointment and (ii) co-transfer agents for the purpose of effecting transfers, combinations and split-ups of ADRs at designated transfer offices in addition to the Transfer Office on behalf of the Depositary. Each co-registrar or co- transfer agent (other than Morgan Guaranty Trust Company of New York) shall give notice in writing to the Company and the Depositary accepting such appointment and agreeing to be bound by the applicable terms of this Deposit Agreement. 11. Lists of Holders. The Company shall have the right to inspect ---------------- transfer records of the Depositary and its agents and the ADR Register, take copies thereof and require the Depositary and its agents to supply copies of such portions of such records as the Company may request. The Depositary or its agent shall furnish to the Company promptly upon the written request of the Company, a list of the names, addresses and holdings of ADSs by all Holders as of a date within seven days of the Depositary's receipt of such request. 12. Depositary's Agents. The Depositary may perform its obligations under ------------------- this Deposit Agreement through any agent appointed by it, provided that the Depositary shall notify the Company of such appointment and shall remain responsible for the performance of such obligations as if no agent were appointed. 13. Successor Depositary. If the Depositary acting hereunder shall resign -------------------- or be removed, the Company shall use its best efforts to appoint a bank or trust company having an office in the Borough of Manhattan, The City of New York, as successor depositary hereunder. Every successor depositary shall execute and deliver to its predecessor and to the Company written acceptance of its appointment hereunder, and thereupon such successor depositary, without any further act or deed, shall become Depositary hereunder; but such predecessor, upon payment of all sums due it and on the written request of the Company, shall execute and deliver an instrument transferring to such 4 successor all rights and powers of such predecessor hereunder and assigning all interest in the Deposited Securities to such successor, and shall deliver to such successor a list of the Holders. Any bank or trust company into or with which the Depositary may be merged or consolidated, or to which the Depositary shall transfer substantially all its American depositary receipt business, shall be the successor of the Depositary without the execution or filing of any document or any further act. Upon the appointment of any successor depositary hereunder, any agent of the Depositary then acting hereunder shall forthwith become such agent hereunder of such successor depositary and such successor depositary shall, on the written request of any such agent, execute and deliver to such agent any instruments necessary to give such agent authority as such agent hereunder of such successor depositary. 14. Reports. On or before the first date on which the Company makes any ------- communication available to holders of Deposited Securities or any securities regulatory authority or stock exchange, by publication or otherwise, the Company shall transmit to the Depositary a copy thereof in English or with an English translation or summary. In connection with any registration statement under the Securities Act of 1933 relating to the ADRs or with any undertaking contained therein, the Company and the Depositary shall each furnish to the other and to the United States Securities and Exchange Commission or any successor governmental agency such information as shall be required to make such filings or comply with such undertakings. The Company has delivered to the Depositary, the Custodian and any Transfer Office, a copy of all provisions of or governing the Shares and any other Deposited Securities which are issued or adopted by the Company or any affiliate of the Company (other than copies of Australian laws, rules and regulations), and promptly upon any change thereto, the Company shall deliver to the Depositary, the Custodian and any Transfer Office, a copy (in English or with an English translation) of such provisions as so changed. The Depositary and its agents may rely upon the Company's delivery thereof for all purposes of this Deposit Agreement. 15. Additional Shares. Neither the Company nor any company controlling, ----------------- controlled by or under common control with the Company shall issue additional Shares, rights to subscribe for Shares, securities convertible into or exchangeable for Shares or rights to subscribe for any such securities or shall deposit any Shares under this Deposit Agreement, except under circumstances complying in all respects with the Securities Act of 1933. The Depositary will use reasonable efforts to comply with written instructions of the Company not to accept for deposit hereunder any Shares identified in such instructions at such times and under such circumstances as may reasonably be specified in such instructions in order to facilitate the Company's compliance with securities laws in the United States. 16. Indemnification. The Company shall indemnify, defend and save --------------- harmless each of the Depositary and its agents against 5 any loss, liability or expense (including reasonable fees and expenses of counsel) that may arise out of (a) its acceptance and performance of its powers and duties in respect of this Deposit Agreement, except to the extent such loss, liability or expense is due to its negligence or bad faith, or (b) any offer or sale of ADRs, ADSs, Shares or other Deposited Securities or any registration statement under the Securities Act of 1933 in respect thereof, except to the extent such loss, liability or expense arises out of information (or omissions from such information) relating to it furnished in writing to the Company by it expressly for use in any such registration statement. The Depositary shall indemnify, defend and save harmless the Company against any loss, liability or expense incurred by the Company in respect of this Deposit Agreement to the extent such loss, liability or expense is due to the negligence or bad faith of the Depositary. The obligations set forth in this Section 16 shall survive the termination of this Deposit Agreement and the succession or substitution of any indemnified person. 17. Notices. Notice to any Holder shall be deemed given when first ------- mailed, first class postage prepaid, to the address of such Holder on the ADR Register or received by such Holder. Notice to the Depositary or the Company shall be deemed given when first received by it at the address or facsimile transmission number set forth in (a) or (b), respectively, or at such other address or facsimile transmission number as either may specify to the other by written notice: (a) Morgan Guaranty Trust Company of New York 60 Wall Street (36th Floor) New York, New York 10260 Attention: ADR Administration Fax: (212) 648-5104 or 5105 (b) Barbeques Galore Limited 327 Chisholm Road Auburn, Sydney NSW 2144, Australia Attention: [CONTACT PERSON] Fax: 61 2-9[FACSIMILE] 18. Miscellaneous. This Deposit Agreement is for the exclusive benefit of ------------- the Company, the Depositary, the Holders, and their respective successors hereunder, and shall not give any legal or equitable right, remedy or claim whatsoever to any other person. The Holders and owners of ADRs from time to time shall be parties to this Deposit Agreement and shall be bound by all of the provisions hereof. If any such provision is invalid, illegal or unenforceable in any respect, the remaining provisions shall in no way be affected thereby. This Deposit Agreement may be executed in counterparts, both of which shall be deemed an original and all of which shall constitute one instrument. 6 IN WITNESS WHEREOF, BARBEQUES GALORE LIMITED and MORGAN GUARANTY TRUST COMPANY OF NEW YORK have duly executed this Deposit Agreement as of the day and year first above set forth and all holders of ADRs shall become parties hereto upon acceptance by them of ADRs issued in accordance with the terms hereof. BARBEQUES GALORE LIMITED By ------------------------------------------ Name: Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By ------------------------------------------ Name: Title: Vice President 7 EXHIBIT A ANNEXED TO AND INCORPORATED IN DEPOSIT AGREEMENT ------------------------- [FORM OF FACE OF ADR] No. of ADSs: - ------------------- Number ------------------------------ Each ADS represents One Share CUSIP: AMERICAN DEPOSITARY RECEIPT evidencing AMERICAN DEPOSITARY SHARES representing ORDINARY SHARES, PAR VALUE A$0.20 EACH of BARBEQUES GALORE LIMITED (Incorporated under the laws of Australian Capital Territory, Australia) MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York corporation, as depositary hereunder (the "Depositary"), hereby certifies that is --------------- the registered owner (a "Holder") of American Depositary Shares ("ADSs"), -------- each (subject to paragraph (13)) representing one ordinary share, par value A$0.20 each (including the rights to receive Shares described in paragraph (1), "Shares" and, together with any other securities, cash or property from time to time held by the Depositary in respect or in lieu of deposited Shares, the "Deposited Securities"), of Barbeques Galore Limited, a corporation organized under the laws of Australian Capital Territory, Australia (the "Company"), deposited under the Deposit Agreement dated as of , 1997 (as amended from time to time, the "Deposit Agreement") among the Company, the Depositary and all Holders from time to time of American Depositary Receipts issued thereunder ("ADRs"), each of whom by accepting an ADR becomes a party thereto. The Deposit Agreement and this ADR (which includes the provisions set forth on the reverse hereof) shall be governed by and construed in accordance with the laws of the State of New York. (1) Issuance of ADRs. This ADR is one of the ADRs issued under the ---------------- Deposit Agreement. Subject to paragraph (4), the Depositary may so issue ADRs for delivery at the Transfer Office (defined in paragraph (3)) only against deposit with the A-1 Custodian of: (a) Shares in form satisfactory to the Custodian; (b) rights to receive Shares from the Company or any registrar, transfer agent, clearing agent or other entity recording Share ownership or transactions; or, (c) other rights to receive Shares (until such Shares are actually deposited pursuant to (a) or (b) above, "Pre-released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked to market daily) with cash or U.S. government securities held by the Depositary for the benefit of Holders (but such collateral shall not constitute "Deposited Securities"), (ii) each recipient of Pre-released ADRs agrees in writing with the Depositary that such recipient (a) owns such Shares, (b) assigns all beneficial right, title and interest therein to the Depositary, (c) holds such Shares for the account of the Depositary and (d) will deliver such Shares to the Custodian as soon as practicable and promptly upon demand therefor and (iii) all Pre-released ADRs evidence not more than 20% of all ADSs (excluding those evidenced by Pre-released ADRs), provided, however, that the -------- ------- Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may retain for its own account any earnings on collateral for Pre-released ADRs and its charges for issuance thereof. At the request, risk and expense of the person depositing Shares, the Depositary may accept deposits for forwarding to the Custodian and may deliver ADRs at a place other than its office. Every person depositing Shares under the Deposit Agreement represents and warrants that such Shares are validly issued and outstanding, fully paid, nonassessable and free of pre-emptive rights, that the person making such deposit is duly authorized so to do and that such Shares (A) are not "restricted securities" as such term is defined in Rule 144 under the Securities Act of 1933 unless at the time of deposit they may be freely transferred in accordance with Rule 144(k) and may otherwise be offered and sold freely in the United States or (B) have been registered under the Securities Act of 1933. Such representations and warranties shall survive the deposit of Shares and issuance of ADRs. The Depositary will not knowingly accept for deposit under the Deposit Agreement any Shares required to be registered under the Securities Act of 1933 and not so registered; the Depositary may refuse to accept for such deposit any Shares identified by the Company in order to facilitate the Company's compliance with such Act. (2) Withdrawal of Deposited Securities. Subject to paragraphs (4) and ---------------------------------- (5), upon surrender of this ADR in form satisfactory to the Depositary at the Transfer Office, the Holder hereof is entitled to delivery at the Custodian's office of the Deposited Securities at the time represented by the ADSs evidenced by this ADR. At the request, risk and expense of the Holder hereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit Agreement or this ADR, the withdrawal of Deposited Securities may be restricted only for the reasons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may be amended from time to time) under the Securities Act of 1933. A-2 (3) Transfers of ADRs. The Depositary or its agent will keep, at a ----------------- designated transfer office in the Borough of Manhattan, The City of New York (the "Transfer Office"), (a) a register (the "ADR Register") for the registration, registration of transfer, combination and split-up of ADRs, which at all reasonable times will be open for inspection by Holders and the Company for the purpose of communicating with Holders in the interest of the business of the Company or a matter relating to the Deposit Agreement and (b) facilities for the delivery and receipt of ADRs. Title to this ADR (and to the Deposited Securities represented by the ADSs evidenced hereby), when properly endorsed or accompanied by proper instruments of transfer, is transferable by delivery with the same effect as in the case of negotiable instruments under the laws of the State of New York; provided that the Depositary, notwithstanding any notice to -------- the contrary, may treat the person in whose name this ADR is registered on the ADR Register as the absolute owner hereof for all purposes. Subject to paragraphs (4) and (5), this ADR is transferable on the ADR Register and may be split into other ADRs or combined with other ADRs into one ADR, evidencing the same number of ADSs evidenced by this ADR, by the Holder hereof or by duly authorized attorney upon surrender of this ADR at the Transfer Office properly endorsed or accompanied by proper instruments of transfer and duly stamped as may be required by applicable law; provided that the Depositary may close the -------- ADR Register at any time or from time to time when deemed expedient by it or requested by the Company. (4) Certain Limitations. Prior to the issue, registration, registration ------------------- of transfer, split-up or combination of any ADR, the delivery of any distribution in respect thereof, or, subject to the last sentence of paragraph (2), the withdrawal of any Deposited Securities, and from time to time in the case of clause (b)(ii) of this paragraph (4), the Company, the Depositary or the Custodian may require: (a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of Shares or other Deposited Securities upon any applicable register and (iii) any applicable charges as provided in paragraph (7) of this ADR; (b) the production of proof satisfactory to it of (i) the identity and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law (including, but not limited to evidence of compliance with the Corporations Law, the Banking (Foreign Exchange) Regulations or the Foreign Acquisitions and Takeovers Act 1975 of Australia), regulations, provisions of or governing Deposited Securities and terms of the Deposit Agreement and this ADR, as it may deem necessary or proper; and (c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of deposits of Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the last sentence of paragraph (2), the withdrawal of Deposited A-3 Securities may be suspended, generally or in particular instances, when the ADR Register or any register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary or the Company. (5) Taxes. If any tax or other governmental charge shall become payable ----- by or on behalf of the Custodian or the Depositary with respect to this ADR, any Deposited Securities represented by the ADSs evidenced hereby or any distribution thereon, such tax or other governmental charge shall be paid by the Holder hereof to the Depositary. The Depositary may refuse to effect any registration, registration of transfer, split-up or combination hereof or, subject to the last sentence of paragraph (2), any withdrawal of such Deposited Securities until such payment is made. The Depositary may also deduct from any distributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder hereof any part or all of such Deposited Securities (after attempting by reasonable means to notify the Holder hereof prior to such sale), and may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder hereof remaining liable for any deficiency, and shall reduce the number of ADSs evidenced hereby to reflect any such sales of Shares. In connection with any distribution to Holders, the Company will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. If the Depositary determines that any distribution in property other than cash (including Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the Custodian is obligated to withhold, the Depositary may dispose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes to the Holders entitled thereto. (6) Disclosure of Interests. To the extent that the provisions of or ----------------------- governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of Deposited Securities, other Shares and other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and all persons holding ADRs agree to comply with all such disclosure requirements and ownership limitations and to cooperate with the Depositary in the Depositary's compliance with any Company instructions in respect thereof, and the Depositary will use reasonable efforts to comply with such Company instructions. (7) Charges of Depositary. The Depositary may charge each person to whom --------------------- ADRs are issued against deposits of Shares, A-4 including deposits in respect of Share Distributions, Rights and Other Distributions (as such terms are defined in paragraph (10)), and each person surrendering ADRs for withdrawal of Deposited Securities, U.S. $5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs delivered or surrendered. The Depositary may sell (by public or private sale) sufficient securities and property received in respect of Share Distributions, Rights and Other Distributions prior to such deposit to pay such charge. The Company will pay all other charges and expenses of the Depositary and any agent of the Depositary (except the Custodian) pursuant to agreements from time to time between the Company and the Depositary, except (i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Shares), (ii) cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Shares, ADRs or Deposited Securities (which are payable by such persons or Holders), (iii) transfer or registration fees for the registration of transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal of Deposited Securities (which are payable by persons depositing Shares or Holders withdrawing Deposited Securities; there are no such fees in respect of the Shares as of the date of the Deposit Agreement) and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). These charges may be changed in the manner indicated in paragraph (16). (8) Available Information. The Deposit Agreement, the provisions of or --------------------- governing Deposited Securities and any written communications from the Company, which are both received by the Custodian or its nominee as a holder of Deposited Securities and made generally available to the holders of Deposited Securities, are available for inspection by Holders at the offices of the Depositary and the Custodian and at the Transfer Office. The Depositary will mail copies of such communications (or English translations or summaries thereof) to Holders when furnished by the Company. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and accordingly files certain reports with the United States Securities and Exchange Commission (the "Commission"). Such reports and other information may be inspected and copied at public reference facilities maintained by the Commission located at the date hereof at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. A-5 (9) Execution. This ADR shall not be valid for any purpose unless --------- executed by the Depositary by the manual or facsimile signature of a duly authorized officer of the Depositary. Dated: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Depositary By -------------------------------------------- Authorized Officer The Depositary's office is located at 60 Wall Street, New York, New York 10260. A-6 [FORM OF REVERSE OF ADR] (10) Distributions on Deposited Securities. Subject to paragraphs (4) and ------------------------------------- (5), to the extent practicable, the Depositary will distribute by mail to each Holder entitled thereto on the record date set by the Depositary therefor at such Holder's address shown on the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by ADSs evidenced by such Holder's ADRs: (a) Cash. Any U.S. dollars available to the Depositary ---- resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof authorized in this paragraph (10) ("Cash"), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositary's expenses in (1) converting any foreign currency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. (b) Shares. (i) Additional ADRs evidencing whole ADSs representing any ------ Shares available to the Depositary resulting from a dividend or free distribution on Deposited Securities consisting of Shares (a "Share Distribution") and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Shares received in a Share Distribution, which Shares would give rise to fractional ADSs if additional ADRs were issued therefor, as in the case of Cash. (c) Rights. (i) Warrants or other instruments in the discretion ------ of the Depositary representing rights to acquire additional ADRs in respect of any rights to subscribe for additional Shares or rights of any nature available to the Depositary as a result of a distribution on Deposited Securities ("Rights"), to the extent that the Company timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so furnish such evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse). (d) Other Distributions. (i) Securities or property available to the ------------------- Depositary resulting from any distribution on Deposited Securities other than Cash, Share Distributions and Rights A-7 ("Other Distributions"), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of such securities or property not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of Cash. Such U.S. dollars available will be distributed by checks drawn on a bank in the United States for whole dollars and cents (any fractional cents being withheld without liability for interest and added to future Cash distributions). (11) Record Dates. The Depositary will, after consultation with the ------------ Company, if practicable, fix a record date (which shall be as near as practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be entitled to receive any distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such Holders shall be so entitled. (12) Voting of Deposited Securities. As soon as practicable after receipt ------------------------------ from the Company of notice of any meeting or solicitation of consents or proxies of holders of Shares or other Deposited Securities, the Depositary shall mail to Holders a notice stating (a) such information as is contained in such notice and any solicitation materials, (b) that each Holder on the record date set by the Depositary therefor will be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person designated by the Company. Upon receipt of instructions of a Holder on such record date in the manner and on or before the date established by the Depositary for such purpose, the Depositary shall endeavor insofar as practicable and permitted under the provisions of or governing Deposited Securities to vote or cause to be voted (or to grant a discretionary proxy to a person designated by the Company to vote) the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs in accordance with such instructions. The Depositary will not itself exercise any voting discretion in respect of any Deposited Security. If no instructions are received by the Depositary from any Holder with respect to any of the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided that no such instruction -------- shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information promptly in writing) that (x) the Company does not A-8 wish such proxy given, (y) substantial opposition exists or (z) materially affects the rights of holders of Shares; provided, further, that the Depositary -------- shall not be obligated to give any such proxy unless and until the Depositary has been provided with an opinion, which shall be given at the time of entering into the Deposit Agreement and prior to each vote in which a discretionary proxy is to be provided, of counsel to the Company, in form and substance satisfactory to the Depositary, to the effect that (i) the granting of such proxy does not subject the Depositary to any reporting obligations in the Commonwealth of Australia, including any states thereof, (ii) the granting of such proxy will not result in a violation of any of the laws of either the Commonwealth of Australia or any states thereof and (iii) the voting arrangement and proxy as contemplated herein will be given effect under Australian law. (13) Changes Affecting Deposited Securities. Subject to paragraphs (4) -------------------------------------- and (5), the Depositary may, in its discretion, amend this ADR or distribute additional or amended ADRs (with or without calling this ADR for exchange) or cash, securities or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of Deposited Securities, any Share Distribution or Other Distribution not distributed to Holders or any cash, securities or property available to the Depositary in respect of Deposited Securities from (and the Depositary is hereby authorized to surrender any Deposited Securities to any person and to sell by public or private sale any property received in connection with) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company, and to the extent the Depositary does not so amend this ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof, whatever cash, securities or property results from any of the foregoing shall constitute Deposited Securities and each ADS evidenced by this ADR shall automatically represent its pro rata interest in the Deposited Securities as then constituted. (14) Exoneration. The Depositary, the Company, their agents and each of ----------- them shall: (a) incur no liability (i) if law, regulation, the provisions of or governing any Deposited Securities, act of God, war or other circumstance beyond its control shall prevent, delay or subject to any civil or criminal penalty any act which the Deposit Agreement or this ADR provides shall be done or performed by it, or (ii) by reason of any exercise or failure to exercise any discretion given it in the Deposit Agreement or this ADR; (b) assume no liability except to perform its obligations to the extent they are specifically set forth in this ADR and the Deposit Agreement without gross negligence or bad faith; (c) except in the case of the Company and its agents, be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or this ADR; (d) in the case of the Company and its agents hereunder be under no obligation to appear in, A-9 prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or this ADR, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; or (e) not be liable for any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for deposit, any Holder, or any other person believed by it to be competent to give such advice or information. The Depositary, its agents and the Company may rely and shall be protected in acting upon any written notice, request, direction or other document believed by them to be genuine and to have been signed or presented by the proper party or parties. The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in which any such vote is cast or for the effect of any such vote. The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs. The Company has agreed to indemnify the Depositary and its agents under certain circumstances and the Depositary has agreed to indemnify the Company against losses incurred by the Company to the extent such losses are due to the negligence or bad faith of the Depositary. No disclaimer of liability under the Securities Act of 1933 is intended by any provision hereof. (15) Resignation and Removal of Depositary; the Custodian. The Depositary ---------------------------------------------------- may resign as Depositary by written notice of its election to do so delivered to the Company, or be removed as Depositary by the Company by written notice of such removal delivered to the Depositary; such resignation or removal shall take effect upon the appointment of and acceptance by a successor depositary. The Depositary may appoint substitute or additional Custodians and the term "Custodian" refers to each Custodian or all Custodians as the context requires. - ---------- (16) Amendment. Subject to the last sentence of paragraph (2), the ADRs --------- and the Deposit Agreement may be amended by the Company and the Depositary, provided that any amendment that imposes or increases any fees or charges (other - -------- than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise prejudice any substantial existing right of Holders, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder of an ADR at the time any amendment to the Deposit Agreement so becomes effective shall be deemed, by continuing to hold such ADR, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR and receive the Deposited Securities represented thereby, except in order to comply with mandatory provisions of applicable law. A-10 (17) Termination. The Depositary may (upon written notice to the Company, ----------- if at any time after 60 days have expired after the Depositary shall have delivered to the Company a written notice of its election to resign, provided -------- that no successor depositary shall have been appointed and accepted its appointment as provided in the Deposit Agreement before the end of such 60 days), and shall at the written direction of the Company, terminate the Deposit Agreement and this ADR by mailing notice of such termination to the Holders at least 30 days prior to the date fixed in such notice for such termination. After the date so fixed for termination, the Depositary and its agents will perform no further acts under the Deposit Agreement and this ADR, except to advise Holders of such termination, receive and hold (or sell) distributions on Deposited Securities and deliver Deposited Securities being withdrawn. As soon as practicable after the expiration of six months from the date so fixed for termination, the Depositary shall sell the Deposited Securities and shall thereafter (as long as it may lawfully do so) hold in a segregated account the net proceeds of such sales, together with any other cash then held by it under the Deposit Agreement, without liability for interest, in trust for the pro rata --- ---- benefit of the Holders of ADRs not theretofore surrendered. After making such sale, the Depositary shall be discharged from all obligations in respect of the Deposit Agreement and this ADR, except to account for such net proceeds and other cash. After the date so fixed for termination, the Company shall be discharged from all obligations under the Deposit Agreement except for its obligations to the Depositary and its agents. A-11 EX-5.1 5 OPINION OF FREEHILL, HOLLINGDALE & PAGE FREEHILL EXHIBIT 5.1 -------- HOLLINGDALE ----------- 4 June 1998 & PAGE ------ Our ref Rick Narev Phone 02 9225 5604 File no 1811824 Doc no SYDCA/97276005.4 Barbeques Galore Limited 327 Chisholm Road AUBURN NSW 2144 AUSTRALIA Ladies and Gentlemen: REGISTRATION STATEMENT ON FORM F-1 We have examined the Registration Statement on Form F-1 to be filed by you with the Securities and Exchange Commission on the date hereof (the REGISTRATION STATEMENT), in connection with the registration under the Securities Act of 1933, as amended (the ACT), of ADSs representing up to 1,044,845 Ordinary Shares (the SHARES), of Barbeques Galore Limited, a corporation registered under the national Corporations Law of Australia (the COMPANY). We have examined a copy of the Memorandum and Articles of Association of the Company, as amended to date, certified as true copies by the company secretary of the Company and copies of resolutions adopted by the Board of Directors of the Company certified as true copies by the company secretary of the Company. We have also examined a certificate given by a director of the Company on or about 4 June, 1998 (the CERTIFICATE). In such examination, we have assumed the genuineness of all signatures, the authenticity of all documents presented to us as copies of originals, the conformity to the originals of all documents presented to us as copies, the authenticity of the originals of such latter documents and that there have been no other actions of the Company, its directors, shareholders or creditors or of any other person or body or authority, governmental or non-governmental which alters, supersedes or overrides the effect on their face of the Memorandum and Articles of Association as of 4 June 1998 or of the resolutions or the matters set out in the Certificate. In relation to the Shares other than Shares issued upon conversion of the Convertible Notes (as defined in the Registration Statement), we have relied solely upon the Certificate and the Memorandum and Articles of Association. Based solely upon the foregoing, we are of the opinion that, as a matter of Australian law, when the Registration Statement becomes effective under the Act and the Shares are sold by the Selling Shareholders (as defined in the Registration Statement), the Shares will be validly issued and fully paid. This opinion may be relied upon exclusively by you, and may not be relied upon by any other person without our prior written consent. This opinion is confined to matters of Australian law only. In particular, we are not qualified to, nor do we express any opinion on the effectiveness of any action under, nor as to any question of compliance with, any United States Federal or state law or requirement of any regulatory body. Notwithstanding the foregoing, we consent to the use of this opinion as an exhibit to the Registration Statement and further consent to the use of our name whenever appearing in the Registration Statement and any amendment thereto. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required by Section 6 of the Act or the rules and regulations of the Securities and Exchange Commissioner thereunder. Yours faithfully FREEHILL HOLLINGDALE & PAGE /s/ Rick Narev RICK NAREV Partner EX-8.1 6 OPINION OF FREEHILL, HOLLINGDALE & PAGE EXHIBIT 8.1 FREEHILL -------- HOLLINGDALE ----------- & PAGE ------ 4 June 1998 Our ref Rick Narev Phone 02 9225 5604 File no 1811824 Doc no SYDCA/97276000.8 Barbeques Galore Limited 327 Chisholm Road AUBURN NSW 2144 Ladies and Gentlemen: We have acted as Australian counsel to Barbeques Galore Limited (the COMPANY) in connection with the proposed offering, which is not being underwritten, of up to 1,044,845 American Depositary Shares (RESALE ADSS), each representing one ordinary share (ORDINARY SHARE) of the Company. The Resale ADSs are evidenced by American Depositary Receipts (ADRS). The Ordinary Shares, the Resale ADSs and the ADRs are described in the registration statement on Form F-1 (as amended, the REGISTRATION STATEMENT). (Capitalised terms used herein that are not otherwise defined herein have the meaning assigned to such terms in the Registration Statement.) The Prospectus constituting part of the Registration Statement contains a section entitled "Certain Tax Considerations--Australian Taxation" (SUMMARY). In rendering the opinion set forth in the Summary, we have: (a) relied upon an opinion dated 4 June 1998 from Greenwoods & Freehills Pty Limited, our affiliated taxation practice; and (b) assumed that the legal relationship between each holder of a Resale ADS and the Depositary is equivalent to a nominee or bare trust relationship. Based on and subject to the foregoing, we have set forth our opinions as to the material Australian tax consequences of the acquisition, ownership and disposition of the Resale ADSs and Ordinary Shares by US Holders in the Prospectus constituting part of the Registration Statement under the caption "Certain Tax Considerations--Australian Taxation." We express no opinion as to other tax issues affecting the holders of the Resale ADSs or the other parties to the transactions described in the Registration Statement, nor does our opinion address state, local or foreign tax consequences that may result from such transactions. Our opinion represents only our best judgment regarding the application of Australian tax laws, existing judicial decisions, administrative regulations and published rulings and procedures. Our opinion is not binding upon the relevant taxation authorities or the courts, and there is no assurance that the relevant taxation authorities will not successfully assert contrary positions. Furthermore, no assurance can be given that future legislative, judicial decisions or administrative changes, applicable either on a prospective or retroactive basis, might not materially alter our opinion. We consent to the use of this opinion for filing as an exhibit to the Registration Statement and further consent to all references to us in the Registration Statement. Subject to the foregoing sentence, this opinion is given as of the date hereof solely for your benefit and may not be relied upon, circulated, quoted or otherwise referred to for any purpose without our prior written consent. Yours faithfully FREEHILL HOLLINGDALE & PAGE /s/ Rick Narev RICK NAREV Partner EX-8.2 7 OPINION OF BROBECK PHLEGER & HARRISON EXHIBIT 8.2 [BROBECK, PHLEGER & HARRISON LLP LETTERHEAD] June 10, 1998 Barbeques Galore Limited 327 Chisholm Road Auburn, Sydney, NSW 2144, Australia Ladies and Gentlemen: We have acted as counsel to Barbeques Galore Limited (the "Company") in connection with the public offering; which is not being underwritten, of up to 1,044,845 American Depositary Shares ("Resale ADSs"). Each Resale ADS represents an ordinary share ("Ordinary Share") of the Company. The Resale ADSs are evidenced by American Depositary Receipts ("ADRs"). The Ordinary Shares, the Resale ADSs and the ADRs are described in the registration statement on Form F-1 (as amended, the "Registration Statement"). (Capitalized terms used herein that are not otherwise defined herein have the meaning assigned to such terms in the Registration Statement.) In rendering the opinion set forth below, we have examined copies, certified or otherwise identified to our satisfaction, of the following executed documents and are relying upon the truth and accuracy of the statements, covenants, representations and warranties set forth therein: 1. The Registration Statement; 2. The Deposit Agreement; and 3. Such other agreements and documents as we have considered necessary or appropriate for the purpose of rendering the opinion set forth below. Based on and subject to the foregoing, we have set forth our opinion as to the material United States Federal income tax consequences of the acquisition, ownership and disposition of the Resale ADSs and Ordinary Shares by the U.S. Holders in the Prospectus constituting part of the Registration Statement under the caption "Certain Tax Considerations--United States Taxation." We express no opinion as to other tax issues affecting the holders of the Resale ADSs or the other parties to the transactions described in the Registration Statement, nor does our opinion address state, local or foreign (including Australian) tax consequences that may result from such transactions. Our opinion represents only our best judgment regarding the application of federal income tax laws under the Internal Revenue Code of 1986, as amended (the "Code"), existing judicial decisions, administrative regulations and published rulings and procedures. Our opinion is not binding upon the Internal Revenue Service or the courts, and there is no assurance that the Internal Revenue Service will not successfully assert contrary positions. Furthermore, no assurance can be given that future legislative, judicial decisions or administrative changes, applicable either on a prospective or retroactive basis, might not materially alter our opinion. We consent to the use of this opinion for filing as an exhibit to the Registration Statement and further consent to all references to us in the Registration Statement. Subject to the foregoing sentence, this opinion is given as of the date hereof solely for your benefit and may not be relied upon, circulated, quoted or otherwise referred to for any purpose without our prior written consent. Respectfully, /s/ Brobeck, Phleger & Harrison LLP BROBECK, PHLEGER & HARRISON LLP EX-10.1 8 EXECUTIVE SHARE OPTION PLAN EXHIBIT 10.1 SCHEDULE THE GALORE GROUP LIMITED ACN 008 577 759 EXECUTIVE SHARE OPTION PLAN TERMS AND CONDITIONS OF OPTIONS 1. DEFINITIONS In these terms and conditions, unless the context otherwise requires: "BOARD" means the board of directors of the Company; "BONUS DATE" means any date after the Issue Date and before exercise or expiry of the Outstanding Options, on which entitlements are determined for holders of Ordinary Shares to participate in any bonus issue by way of capitalisation of profits, reserves or share premium account; "BUSINESS DAY" means a day on which banks are open for business in Sydney excluding a Saturday, Sunday or public holiday; "COMPANY" means The Galore Group Limited; "DEAL WITH" means to sell, transfer, assign, alienate or otherwise dispose of or deal with the legal or beneficial interest in the Options or any rights or interests relating to the Options, or to mortgage, charge, pledge, encumber, create a lien, right of set-off or create or permit to arise any other security or other rights or interests over or in respect of the Options; "EXERCISE NOTICE" means a notice substantially in the form set out in the schedule; "EXERCISE PERIOD" means the period commencing on 1 February 1999 or the Issue Date, whichever is the later and ending on the Expiry Date, provided that if: (a) the Optionholder is an individual and the Optionholder ceases to be employed by or related to the Company or any Related Body Corporate due to death, permanent disability or ill health; or (b) the Optionholder is an entity and the individual who controls that entity ceases to be employed by or related to the Company or any Related Body Corporate due to death, permanent disability or ill health, then the period will commence on the date of the cessation of employment and end on the Expiry Date; "EXERCISE PRICE" means $0.46 per Option; "EXPIRY DATE" means the fifth anniversary of the Issue Date; "ISSUE DATE" means the date upon which the Options are issued to the Optionholder as set out in the Option Certificate; "OPTIONS" means the Options over Ordinary Shares referred to in the Option Certificate; "OPTION CERTIFICATE" means the certificate issued by the Company to the Optionholder setting out the number of Options issued to the Optionholder and the Issue Date; 2 "OPTIONHOLDER" means the person registered in the Company's option register as the holder of the Options; "ORDINARY SHARES" means fully paid ordinary shares of 20 cents each in the capital of the Company or the ordinary shares into which fully paid ordinary shares of 20 cents each are consolidated or subdivided or otherwise adjusted from time to time; "OUTSTANDING OPTIONS" means Options which remain unexercised from time to time; "RELATED BODY CORPORATE" has the same meaning as defined in the Corporations Law; "STOCK EXCHANGE" means any recognised stock exchange or securities market in the United States or Australia; "SUBSIDIARY" means a subsidiary of the Company as determined in accordance with the Corporations Law; "TAKEOVER BID" has the same meaning as defined in the Corporations Law; "$" means Australian dollars. 2. INTERPRETATION In these terms and conditions, unless the context otherwise requires: (a) headings and underlinings are for convenience only and do not affect the interpretation of these terms and conditions; (b) words importing the singular include the plural and vice versa; (c) words importing a gender include any gender; (d) an expression importing a natural person includes any company, partnership, joint venture, association, corporation or other body corporate; (e) a reference to any thing includes a part of that thing; (f) a reference to a clause or schedule is a reference to a clause of, and a schedule to, these terms and conditions; (g) a reference to any statute, regulation, proclamation, ordinance or by-law includes all statutes, regulations, proclamations, ordinances or by-laws varying, consolidating or replacing them, and a reference to a statute includes all regulations, proclamations, ordinances and by-laws issued under that statute; (h) a reference to a document includes an amendment or supplement to, or replacement or novation of, that document; (i) a reference to a party to a document includes that party's successors and permitted assigns; (j) where the day on or by which any thing is to be done is not a Business Day, that thing must be done on or by the following Business Day. 3. OPTION ENTITLEMENT Subject to the provisions of these terms and conditions, upon grant and exercise each Option entitles the Optionholder to subscribe for one Ordinary Share at the Exercise Price. 4. DURATION OF OPTIONS (a) The Options expire at 5:00 pm on the Expiry Date. 3 (b) Options not exercised on or before the Expiry Date will automatically lapse. 5. EXERCISE OF OPTIONS (a) Subject to clause 6, an Optionholder may exercise its Outstanding Options from time to time, in whole or in part, by lodging with the Company at its registered office during the Exercise Period: (1) the Option Certificate; (2) a duly completed and signed Exercise Notice; and (3) the subscription monies for the relevant Ordinary Shares, being the number of Options specified in the Exercise Notice multiplied by the Exercise Price. (b) If while any Options remain unexercised: (1) an offer is made to ordinary shareholders of the Company to purchase or otherwise acquire their shares pursuant to a Takeover Bid; and (2) as a result of or pursuant to the Takeover Bid the offeror acquires a relevant interest (as defined in the Corporations Law) in not less than 30% of the issued ordinary shares in the Company, then the Company may, at the sole discretion of the directors, give written notice of the facts to the Optionholder within 14 days of the offeror acquiring the relevant interest and the Options may then be exercised in whole or in part within the period of 120 days (or such other period of between 30 days and 120 days as the directors of the Company may determine in their absolute discretion) from the date of that notice. (c) Upon allotment to the Optionholder of the Ordinary Shares specified in the Exercise Notice, the Option Certificate lodged with the Company by the Optionholder pursuant to clause 5(a) must: (1) if all the Outstanding Options have been exercised, be cancelled by the Company; (2) if some only of the Outstanding Options have been exercised, be appropriately endorsed by the Company and then returned to the Optionholder. 6. EXERCISE PERIOD Subject to clauses 5(b) and (c), the Options are exercisable at any time during the Exercise Period provided that at any one time the Optionholder must exercise at least 20% of the Options. 7. TIME FOR ALLOTMENT AND ISSUE The Company must allot to the Optionholder on the date upon which the Optionholder validly exercises Options, and issue to the Optionholder within 10 Business Days of that date, the number of Ordinary Shares which corresponds with the number of Options being exercised as specified in the Exercise Notice. 4 8. ADJUSTMENTS UPON RECONSTRUCTION Subject to clause 12(a), if at any time or times prior to the exercise by the Optionholder of any Outstanding Options the Company implements a reconstruction of its share capital, then the Outstanding Options shall be treated in the following manner: (a) in the event of a consolidation of the share capital of the Company, the number of Outstanding Options shall be consolidated in the same ratio as the Ordinary Share capital and the Exercise Price shall be amended in inverse proportion to that ratio; (b) in the event of a subdivision of the share capital of the Company, the number of Outstanding Options shall be sub-divided in the same ratio as the Ordinary Share capital and the Exercise Price shall be amended in inverse proportion to that ratio; (c) in the event of a reduction of par value by return of share capital, the number of Outstanding Options shall remain the same and the Exercise Price shall be reduced by the same amount as the reduction of the par value of each Ordinary Share; (d) in the event of a reduction of par value of each Ordinary Share by a cancellation of share capital that is either lost or not represented by available assets, the number of Outstanding Options and the Exercise Price shall remain unaltered; (e) in the event of a pro-rata cancellation of shares, the number of Outstanding Options shall be reduced in the same ratio as the ordinary share capital and the Exercise Price shall be amended in inverse proportion to that ratio; (f) in the event of any other reconstruction of that issued capital of the Company, the number of Outstanding Options or the Exercise Price or both shall be reconstructed (as appropriate) in a manner which will not result in any benefits being conferred on the Optionholder which are not conferred on shareholders; and (g) in each case all adjustments shall be rounded down to the nearest whole number and fractions shall be disregarded, provided that the Exercise Price must not be reduced below the par value of an Ordinary Share. 9. BONUS ISSUES Subject to clause 12(a), on each Bonus Date each Option will immediately confer on the Optionholder the right: (a) to receive upon exercise of those Outstanding Options, not only an allotment of one Ordinary Share for each of the Outstanding Options exercised but also an allotment of such additional shares and/or other securities as it would have received had it exercised those Outstanding Options immediately before that Bonus Date; and (b) to have profits, reserves or share premium account, as the case may be, applied in paying up in full those additional shares. 10. RIGHTS ISSUE (a) If prior to the date of exercise of any of the Options any offer or invitation is made by the Company for subscription for cash with respect to shares, options or other securities of the Company or of any other Company to the holders for the time being of the Ordinary Shares of the Company, the Company must give the Optionholder notice of its intention to make such offer or invitation at least 12 Business Days prior to the commencement of the offer or invitation. 5 (b) If at the date of the notice the Options are exercisable in accordance with their terms, then if the Optionholder exercises the Options prior to the books closing date, the Optionholder is entitled to participate in the rights issue to the extent of the resulting Ordinary Shares. (c) If, at the date of the notice, the Options are not exercisable in accordance with their terms, the Optionholder is not entitled to participate in the rights issue. 11. PARI PASSU RANKING (a) Subject to the provisions of clause 11(b), any Ordinary Shares allotted pursuant to any exercise of the Options shall rank pari passu in all respects with other Ordinary Shares of the Company on issue at the date of such allotment. (b) Where any Ordinary Shares are allotted during a period in respect of which a dividend is declared, the holder of such shares shall only be entitled to receive a dividend where the Option pursuant to which such shares were issued was exercised on or before the relevant dividend entitlement date. 12. CALCULATIONS (a) If the Board in its absolute discretion determines that an adjustment prescribed by clause 8 or 9 (or the fact that no adjustment is prescribed in respect of a particular reconstruction) would not be fair and equitable to all of the Optionholders and the holders of Ordinary Shares having regard to the circumstances of the particular capital reconstruction or bonus issue and the capital structure of the Company at that time, then the Board may substitute another adjustment, provided that the Board reasonably considers that the substitute adjustment is fair and equitable. (b) Any calculations or adjustments which are required to be made for the purposes of these Options will be made by the auditors of the Company for the time being and will, in the absence of manifest error be final and conclusive and binding on the Optionholder. (c) The Company must notify each Optionholder of any adjustments made to the Exercise Price or the number of Outstanding Options within 10 Business Days of the date of the adjustment. 13. REPLACEMENT OF CERTIFICATES If any Option Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the registered office of the Company upon payment by the claimant of the expenses incurred in connection with that replacement and on such terms as to evidence, indemnity and security as the Company may reasonably require. Mutilated or defaced Option Certificates must be surrendered before replacements will be issued. 14. NOTICES Any notice regarding the Options will be sent to the registered address of the Optionholder as recorded in the register of options maintained by the Company. 15. GOVERNING LAW The Options are governed by and construed in accordance with the laws of New South Wales. 6 16. DUTIES AND TAXES The Company is not responsible for any duties or taxes which may become payable in connection with the issue and allotment of Ordinary Shares pursuant to an exercise of the Options or any other dealing with the Options. 17. ASSIGNMENT OF OPTIONS (a) Subject to clause 17(c), the Options will automatically lapse if the Optionholder Deals with any of the Options without the prior written consent of the Company. (b) If the Optionholder is an entity, the Options will automatically lapse if that entity ceases to be controlled by the employee of the Company who controlled that entity at the date of granting of the Options, without the prior written consent of the Company. (c) If the Options are initially granted to a director of the Company or of a ======= Related Body Corporate or an entity controlled by a director of the Company ====================== or of a Related Body Corporate, then that director or entity may transfer ============================== all or any of the Options to any other employee of the Company or of a ======= Related Body Corporate or entity controlled by an employee of the Company ====================== or of a Related Body Corporate, provided that upon any such transfer ============================== occurring this clause 17(c) will cease to apply as an exception to clause 17(a). 18. CESSATION OF EMPLOYMENT (a) Notwithstanding anything to the contrary herein contained, the Options shall automatically lapse 30 days after: (1) if the Optionholder is an individual, the Optionholder ceases, for any reason, to be employed by or related to the Company or any Related Body Corporate; or (2) if the Optionholder is an entity, the individual who controls that entity ceases for any reason to be employed by or related to the Company or any Related Body Corporate, PROVIDED HOWEVER THAT the directors of the Company may in their sole discretion and irrespective of whether or not the 30 day period will have passed do all or any of the following: (1) extend the 30 day period to such date as the directors may determine being a date not later than the Expiry Date; (2) bring forward the Exercise Date of any or all of the Outstanding Options to such date as the directors may determine, to the intent that such number of those Options as determined by the directors shall be deemed not to have lapsed and shall be capable of exercise by the Optionholder or his legal representative, as the case may be, within a time period stipulated by the directors. (b) For the purposes of this clause, any Optionholder or individual "related" to the Company or any Related Body Corporate refers to the person's relationship with the Company or body corporate as a licensee, franchisee or such other position as the directors consider gives rise to a person being related to the Company for the purposes of this clause. 7 SCHEDULE NOTICE OF EXERCISE OF OPTION To: The Galore Group Limited (the "Company") I of being the registered holder of the options specified in the attached Option Certificate hereby give notice of the exercise of my options to subscribe for Ordinary Shares in the capital of the Company and enclose subscription monies of $ . I authorise you to register me as the holder of the shares to be allotted to me and agree to be bound by the Memorandum and Articles of Association of the Company. DATED the day of 199 . THIS NOTICE OF EXERCISE OF OPTION, WITH THE APPROPRIATE REMITTANCE, SHOULD BE LODGED AT THE COMPANY'S REGISTERED OFFICE. THE GALORE GROUP LIMITED (ACN 008 577 759) 327 Chisholm Road, Auburn, New South Wales EMPLOYEE SHARE OPTION PLAN OPTION CERTIFICATE EXPIRY DATE [ ] - -------------------------------------------------------------------------------- Number of Name and Address Certificate Issue Date Options Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This is to certify that the person named above is the registered holder of the number of Options specified on this certificate (and not yet exercised) to apply for and be issued the same number of fully paid ordinary shares in THE GALORE GROUP LIMITED on the terms and conditions attached to this certificate, and subject to the Memorandum and Articles of Association of the Company. ------------------------- For Office Use Only ------------------------- No. of Date of Options Exercise Exercised ------------------------- ------------------------- ANY OPTIONS NOT EXERCISED BY THE EXPIRY DATE ( ) WILL LAPSE. THE COMMON SEAL of the Company was affixed to this document by authority of the Board: - ----------------------------- --------------------------- Secretary Director NOTE: This certificate must be surrendered on exercise of the whole or any part of the Options, for endorsement or cancellation, as the case may be. EX-10.2 9 1997 SHARE OPTION PLAN Exhibit 10.2 BARBEQUES GALORE LIMITED ACN 008 577 759 1997 SHARE OPTION PLAN ---------------------- ARTICLE ONE GENERAL PROVISIONS ------------------ I. PURPOSE OF THE PLAN This 1997 Share Option Plan is intended to promote the interests of Barbeques Galore Limited, a corporation organized under the laws of New South Wales, Australia, by providing eligible persons with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in the service of the Corporation. Capitalized terms shall have the meanings assigned to such terms in the attached Appendix. II. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Board. However, any or all administrative functions otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee. B. The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding options as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any option or shares issued thereunder. III. ELIGIBILITY A. The persons eligible to participate in the Plan are as follows: (i) Employees, (ii) non-employee members of the Board or the board of directors of any Parent or Subsidiary, and (iii) consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary). B. The Plan Administrator shall have full authority (subject to the provisions of the Plan) to determine, (i) which eligible persons are to receive option grants, the time or times when such option grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times at which each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding. C. The Plan Administrator shall have the absolute discretion to grant options in accordance with the Plan. IV. STOCK SUBJECT TO THE PLAN A. The maximum number of Ordinary Shares which may be issued over the term of the Plan shall initially not exceed 6,000,000 shares. Such authorized share reserve shall be drawn from the Corporation's authorized but unissued Ordinary Shares. B. The number of Ordinary Shares available for issuance under the Plan shall automatically increase on the first trading day of each calendar year during the term of the Plan, beginning with the 1999 calendar year, by an amount equal to one percent (1%) of the Ordinary Shares outstanding on December 31 of the immediately preceding calendar year. No Incentive Options may be granted on the basis of the additional Ordinary Shares resulting from such annual increases. C. No one person participating in the Plan may receive options and separately exercisable stock appreciation rights for more than 500,000 Ordinary Shares in the aggregate per calendar year, beginning with the 1997 calendar year. D. Ordinary Shares subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the cancellation-regrant provisions of Article Two. All Ordinary Shares issued under the Plan shall reduce on a share-for-share basis the number of Ordinary Shares available for subsequent issuance under the Plan. E. Should any change be made to the Ordinary Shares by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Ordinary Shares as a class without the Corporation's receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of 2. securities issuable under the Plan and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. 3. ARTICLE TWO OPTION GRANT PROGRAM -------------------- I. OPTION TERMS Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document -------- shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options. A. Exercise Price. -------------- 1. The exercise price per share shall be fixed by the Plan Administrator but shall not be less than eighty-five percent (85%) of the Fair Market Value per Ordinary Share on the option grant date. 2. The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Three and the documents evidencing the option, be payable in one or more of the forms specified below: (i) cash or check made payable to the Corporation, (ii) Ordinary Shares held for the requisite period necessary to avoid a charge to the Corporation's earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or (iii) to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable written instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state, local and foreign income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale. Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date. 4. B. Exercise and Term of Options. Each option shall be exercisable at ---------------------------- such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option. However, no option shall have a term in excess of ten (10) years measured from the option grant date. C. Effect of Termination of Service. -------------------------------- 1. The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death: (i) Any option outstanding at the time of the Optionee's cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the option, but no such option shall be exercisable after the expiration of the option term. (ii) Any option exercisable in whole or in part by the Optionee at the time of death may be exercised subsequently by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. (iii) During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee's cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee's cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares. (iv) Should the Optionee's Service be terminated for Misconduct, then all outstanding options held by the Optionee shall terminate immediately and cease to be outstanding. (v) In the event of an Involuntary Termination following a Corporate Transaction, the provisions of Section III of this Article Two shall govern the period for which the outstanding options are to remain exercisable following the Optionee's cessation of Service and shall supersede any provisions to the contrary in this section. 5. 2. The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to: (i) extend the period of time for which the option is to remain exercisable following the Optionee's cessation of Service from the period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or (ii) permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested Ordinary Shares for which such option is exercisable at the time of the Optionee's cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service. D. Shareholder Rights. The holder of an option shall have no ------------------ shareholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares. E. Repurchase Rights. The Plan Administrator shall have the ----------------- discretion to grant options which are exercisable for unvested Ordinary Shares. Should the Optionee cease Service while holding such unvested shares, the Corporation shall, subject to limitations imposed under Australian law, have the right to repurchase, at the exercise price paid per share, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. F. Limited Transferability of Options. During the lifetime of the ---------------------------------- Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee's death. However, a Non-Statutory Option may, in connection with the Optionee's estate plan, be assigned in whole or in part during the Optionee's lifetime to one or more members of the Optionee's immediate family or to a trust established exclusively for one or more such family members. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. 6. II. INCENTIVE OPTIONS The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Three shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II. --- A. Eligibility. Incentive Options may only be granted to Employees. ----------- B. Exercise Price. The exercise price per share shall not be less -------------- than one hundred percent (100%) of the Fair Market Value per Ordinary Share on the option grant date. C. U.S. Dollar Limitation. The aggregate Fair Market Value of the ---------------------- Ordinary Shares (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand U.S. Dollars (US$100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted. D. 10% Shareholder. If any Employee to whom an Incentive Option is --------------- granted is a 10% Shareholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per Ordinary Share on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any Corporate Transaction, each outstanding option shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Corporate Transaction, become fully exercisable for all of the Ordinary Shares at the time subject to such option and may be exercised for any or all of those shares as fully-vested Ordinary shares. However, an outstanding option shall not so accelerate if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation (or parent thereof) or to be replaced with a comparable option to purchase shares of the capital stock of the successor corporation (or parent thereof), (ii) such option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the unvested option shares at the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such option or (iii) the acceleration of such option is subject to other limitations imposed by the Plan Administrator at the time of the option grant. The determination of option comparability under clause (i) above shall be made by the Plan Administrator, and its determination shall be final, binding and conclusive. 7. B. All outstanding repurchase rights shall also terminate automatically, and the Ordinary Shares subject to those terminated rights shall immediately vest in full, in the event of any Corporate Transaction, except to the extent: (i) those repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with such Corporate Transaction or (ii) such accelerated vesting is precluded by other limitations imposed by the Plan Administrator at the time the repurchase right is issued. C. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more outstanding repurchase rights with the immediate vesting of the Ordinary Shares subject to those rights) upon the occurrence of a Corporate Transaction, whether or not those options are to be assumed or replaced (or those repurchase rights are to be assigned) in the Corporate Transaction. The Plan Administrator shall also have the discretion to grant options which do not accelerate whether or not such options are assumed (and to provide for repurchase rights that do not terminate whether or not such rights are assigned) in connection with a Corporate Transaction. D. Immediately following the consummation of the Corporate Transaction, all outstanding options shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof). E. Each option which is assumed in connection with a Corporate Transaction shall be appropriately adjusted, immediately after such Corporate Transaction, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Corporate Transaction had the option been exercised immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to (i) the number and class of securities available for issuance under the Plan following the consummation of such Corporate Transaction, (ii) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such -------- securities shall remain the same and (iii) the maximum number of securities and/or class of securities for which any one person may be granted stock options, and separately exercisable stock appreciation rights under the Plan per calendar year. F. Any options which are assumed or replaced in the Corporate Transaction and do not otherwise accelerate at that time shall automatically accelerate (and any of the Corporation's outstanding repurchase rights which do not otherwise terminate at the time of the Corporate Transaction shall automatically terminate and the Ordinary Shares subject to those terminated rights shall immediately vest in full) in the event the Optionee's Service should subsequently terminate by reason of an Involuntary Termination within eighteen (18) months following the effective date of such Corporate Transaction. Any options so accelerated shall remain exercisable for fully-vested shares until the earlier of (i) the expiration of the option term or (ii) the ------- expiration of the one (1)-year period measured from the effective date of the Involuntary Termination. 8. G. The Plan Administrator shall have the discretion, exercisable either at the time the option is granted or at any time while the option remains outstanding, to (i) provide for the automatic acceleration of one or more outstanding options (and the automatic termination of one or more outstanding repurchase rights with the immediate vesting of the Ordinary Shares subject to those rights) upon the occurrence of a Change in Control or (ii) condition any such option acceleration (and the termination of any outstanding repurchase rights) upon the subsequent Involuntary Termination of the Optionee's Service within a specified period following the effective date of such Change in Control. Any options accelerated in connection with a Change in Control shall remain fully exercisable until the expiration or sooner termination of the option term. H. The portion of any Incentive Option accelerated in connection with a Corporate Transaction or Change in Control shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand U.S. Dollar (US$100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws. I. The grant of options under the Option Grant Program shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CANCELLATION AND REGRANT OF OPTIONS The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Option Grant Program and to grant in substitution new options covering the same or different number of Ordinary Shares but with an exercise price per share based on the Fair Market Value per Ordinary Share on the new grant date. V. STOCK APPRECIATION RIGHTS A. The Plan Administrator shall have full power and authority to grant to selected Optionees tandem stock appreciation rights. B. One or more Optionees may be granted the right, exercisable upon such terms as the Plan Administrator may establish, to elect between the exercise of the underlying option for Ordinary Shares and the surrender of that option in exchange for a distribution from the Corporation in an amount equal to the excess of (a) the Fair Market Value (on the option surrender date) of the number of shares in which the Optionee is at the time vested under the surrendered option (or surrendered portion thereof) over (b) the aggregate exercise price payable for such shares. 9. C. No such option surrender shall be effective unless it is approved by the Plan Administrator. If the surrender is so approved, then the distribution to which the Optionee shall be entitled may be made in Ordinary Shares valued at Fair Market Value on the option surrender date, in cash, or partly in shares and partly in cash, as the Plan Administrator shall in its sole discretion deem appropriate. D. If the surrender of an option is rejected by the Plan Administrator, then the Optionee shall retain whatever rights the Optionee had under the surrendered option (or surrendered portion thereof) on the option surrender date and may exercise such rights at any time prior to the later of ----- (a) five (5) business days after the receipt of the rejection notice or (b) the last day on which the option is otherwise exercisable in accordance with the terms of the documents evidencing such option, but in no event may such rights be exercised more than five (5) years after the option grant date. 10. ARTICLE THREE MISCELLANEOUS ------------- I. FINANCING A. Subject to compliance with applicable law, the Plan Administrator may permit any Optionee to pay the option exercise price by delivering a promissory note payable in one or more installments. The terms of any such promissory note (including the interest rate and the terms of repayment) shall be established by the Plan Administrator in its sole discretion. Promissory notes may be authorized with or without security or collateral. In all events, the maximum credit available to the Optionee may not exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares plus (ii) any Federal, state, local and foreign income and employment tax liability incurred by the Optionee in connection with the option exercise or share purchase. B. The Plan Administrator may, in its discretion, determine that one or more such promissory notes shall be subject to forgiveness by the Corporation in whole or in part upon such terms as the Plan Administrator may deem appropriate. II. TAX WITHHOLDING A. The Corporation's obligation to deliver Ordinary Shares upon the exercise of options or upon the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable Federal, state, local and foreign income and employment tax withholding requirements. B. The Plan Administrator may, in its discretion, provide any or all holders of Non-Statutory Options or unvested Ordinary Shares under the Plan with the right to use Ordinary Shares in satisfaction of all or part of the Taxes incurred by such holders in connection with the exercise of their options or the vesting of their shares. Such right may be provided to any such holder in either or both of the following formats: (i) Stock Withholding: The election to have the Corporation ----------------- withhold, from the Ordinary Shares otherwise issuable upon the exercise of such Non-Statutory Option or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. (ii) Stock Delivery: The election to deliver to the Corporation, -------------- at the time the Non-Statutory Option is exercised or the shares vest, one or more Ordinary Shares previously acquired by such holder (other than in 11. connection with the option exercise or share vesting triggering the Taxes) with an aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed one hundred percent (100%)) designated by the holder. III. EFFECTIVE DATE AND TERM OF THE PLAN A. The Plan shall become effective on the Plan Effective Date. Options may be granted under the Plan at any time on or after the Plan Effective Date. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation's shareholders. If such shareholder approval is not obtained within twelve (12) months after the date the Plan is adopted by the Board, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. B. The Plan shall terminate upon the earliest of (i) October 1, -------- 2007, (ii) the date on which all shares available for issuance under the Plan shall have been issued pursuant to the exercise of the options or the issuance of shares (whether vested or unvested) under the Plan or (iii) the termination of all outstanding options in connection with a Corporate Transaction. Upon such Plan termination, all outstanding options and unvested stock issuances shall continue to have force and effect in accordance with the provisions of the documents evidencing such options or issuances. IV. AMENDMENT OF THE PLAN A. The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect any rights and obligations with respect to options, stock appreciation rights or unvested stock issuances at the time outstanding under the Plan unless the Optionee consents to such amendment or modification. In addition, certain amendments may require shareholder approval pursuant to applicable law or regulation. B. Options to purchase Ordinary Shares may be granted under the Plan that are in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under that program are held in escrow until there is obtained shareholder approval of an amendment sufficiently increasing the number of Ordinary Shares available for issuance under the Plan. If such shareholder approval is not obtained within twelve (12) months after the date the first such excess grants or issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding. 12. V. USE OF PROCEEDS Any cash proceeds received by the Corporation from the sale of Ordinary Shares under the Plan shall be used for general corporate purposes. VI. REGULATORY APPROVALS A. The implementation of the Plan, the granting of any option or stock appreciation right under the Plan and the issuance of any Ordinary Shares upon the exercise of any option or stock appreciation right shall be subject to the Corporation's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options and stock appreciation rights granted under it and the Ordinary Shares issued pursuant to it. B. No Ordinary Shares or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with (i) all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the Ordinary Shares issuable under the Plan, (ii) all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Ordinary Shares (or the American Depositary Shares representing the Ordinary Shares) are then listed for trading, and (iii) all applicable requirements of Australian law. VII. NO EMPLOYMENT/SERVICE RIGHTS Nothing in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause. 13. APPENDIX -------- The following definitions shall be in effect under the Plan: A. BOARD shall mean the Corporation's Board of Directors. ----- B. CHANGE IN CONTROL shall mean a change in ownership or control of the ----------------- Corporation effected through either of the following transactions: (i) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities pursuant to a tender or exchange offer made directly to the Corporation's shareholders, or (ii) a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination. C. CODE shall mean the Internal Revenue Code of 1986, as amended. ---- D. COMMITTEE shall mean a committee of two (2) or more board members --------- appointed by the Board to administer the Plan with respect to eligible persons. E. CORPORATE TRANSACTION shall mean either of the following shareholder- --------------------- approved transactions to which the Corporation is a party: (i) a merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation's outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction; or (ii) the sale, transfer or other disposition of all or substantially all of the Corporation's assets in complete liquidation or dissolution of the Corporation. 14. F. CORPORATION shall mean Barbeques Galore Limited, a corporation ----------- organized under the laws of New South Wales, Australia, and any corporate successor to all or substantially all of the assets or voting stock of Barbeques Galore Limited which shall by appropriate action adopt the Plan. G. EMPLOYEE shall mean an individual who is in the employ of the -------- Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance. H. EXERCISE DATE shall mean the date on which the Corporation shall have ------------- received written notice of the option exercise. I. FAIR MARKET VALUE per Ordinary Share on any relevant date shall be ----------------- determined in accordance with the following provisions: (i) If the Ordinary Share (or any American Depositary Share representing the Ordinary Share) is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per Ordinary Share (or American Depositary Share) on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market or any successor system. If there is no closing selling price for the Ordinary Share (or American Depositary Share) on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (ii) If the Ordinary Share (or any American Depositary Share) is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per Ordinary Share (or American Depositary Share) on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Ordinary Share (or American Depositary Share), as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Ordinary Share (or American Depositary Share) on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. (iii) For purposes of any option grants made on the Plan Effective Date, the Fair Market Value shall be deemed to be equal to the price per share at which the Ordinary Share (or American Depositary Share) is sold in the initial public offering pursuant to the Underwriting Agreement. J. INCENTIVE OPTION shall mean an option which satisfies the requirements ---------------- of Code Section 422. 15. K. INVOLUNTARY TERMINATION shall mean the termination of the Service of ----------------------- any individual which occurs by reason of: (i) such individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or (ii) such individual's voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her level of responsibility, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and participation in corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the individual's consent. L. MISCONDUCT shall mean the commission of any act of fraud, embezzlement ---------- or dishonesty by the Optionee, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee or other person in the Service of the Corporation (or any Parent or Subsidiary). M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended. -------- N. NON-STATUTORY OPTION shall mean an option not intended to satisfy the -------------------- requirements of Code Section 422. O. OPTIONEE shall mean any person to whom an option is granted under the -------- Discretionary Option Grant Program. P. OPTION GRANT PROGRAM shall mean the option grant program in effect -------------------- under the Plan. Q. ORDINARY SHARE shall mean the Corporation's ordinary share, par value -------------- of A$0.20 per share. R. PARENT shall mean any corporation (other than the Corporation) in an ------ unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. S. PLAN shall mean the Corporation's 1997 Share Option Plan, as set forth ---- in this document. T. PLAN ADMINISTRATOR shall mean the particular entity, whether the ------------------ Committee or the Board which is authorized to administer the Plan with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under that program with respect to the persons under its jurisdiction. U. PLAN EFFECTIVE DATE shall mean the date on which the Underwriting ------------------- Agreement is executed and the initial public offering price of both the Ordinary Shares and American Depositary Shares is established. V. SERVICE shall mean the performance of services to the Corporation (or ------- any Parent or Subsidiary) by a person in the capacity of an Employee, a non- employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance. W. STOCK EXCHANGE shall mean either the American Stock Exchange, the New -------------- York Stock Exchange, or the Australian Stock Exchange. X. SUBSIDIARY shall mean any corporation (other than the Corporation) in ---------- an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Y. TAXES shall mean the Federal, state, local and foreign income and ----- employment tax liabilities incurred by the holder of Non-Statutory Options or unvested Ordinary Shares in connection with the exercise of those options or the vesting of those shares. Z. 10% SHAREHOLDER shall mean the owner of stock (as determined under Code --------------- Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary). AA. UNDERWRITING AGREEMENT shall mean the agreement between the ---------------------- Corporation and the underwriter or underwriters managing the initial public offering of the Ordinary Share (or American Depositary Share). 16. EX-10.3 10 MAJOR AGREEMENTS RE CREDIT FACILITY EXHIBIT 10.3 THE COMPANIES LISTED IN SCHEDULE ONE ------------------------------------ (Mortgagors) AND WESTPAC BANKING CORPORATION ---------------------------- (Agent) ----------------- DEED OF CHARGE ----------------- Victorian property COPYRIGHT RESERVED ALLEN ALLEN & HEMSLEY Level 46, MLC Centre, 19-29 Martin Place, SYDNEY NSW 2000 Tel: 229 8765 Doc. Ref: MEB3RYD3 Ref: PJC 817534 MEB TABLE OF CONTENTS -----------------
Clause Page ------ ---- 1. INTERPRETATION -------------- 1.1 Definitions 1.2 General 1.3 Document or agreement 1.4 Joint and several obligations 2. CHARGE ------ 2.1 Charge 2.2 Prospective liability 2.3 Increase in prospective liability 3. NATURE OF CHARGE ---------------- 3.1 Priority 3.2 Nature of charge 3.3 Dealing with Mortgaged Property 3.4 Crystallisation 3.5 De-crystallisation 3.6 Dealing with proceeds 4. REPRESENTATIONS AND WARRANTIES ------------------------------ 4.1 Representations and warranties 4.2 Reliance on representations and warranties 5. COVENANTS --------- 5.1 Covenants 5.2 General covenants 5.3 Covenants relating to Mortgaged Property 5.4 Term of covenants 5.5 Financial undertakings 5.6 Definitions 6. FURTHER ASSURANCES ------------------ 6.1 Further assurances 6.2 Interest in land 6.3 Title documents 7. EVENTS OF DEFAULT ----------------- 7.1 Events of Default 7.2 Consequences
(ii)
Clause Page ------ ---- 8. APPOINTMENT OF RECEIVER ----------------------- 8.1 Appointment 8.2 Agent of Mortgagors 8.3 Receiver's powers 8.4 Receiver appointed after commencement of winding up 8.5 Powers exercisable by the Agent 8.6 Withdrawal 9. POWER OF ATTORNEY ----------------- 10. COMPLETION OF BLANK SECURITIES ------------------------------ 11. PERFORMANCE OF MORTGAGORS' OBLIGATIONS -------------------------------------- 12. STATUTORY POWERS ---------------- 12.1 Powers in augmentation 12.2 Leasing 12.3 Notice not required 13. APPLICATION OF MONEYS RECEIVED ------------------------------ 13.1 Order 13.2 Moneys actually received 13.3 Amounts contingently due 13.4 Notice of subsequent Security Interests 13.5 Conversion of currencies on application 14. OTHER SECURITY INTERESTS OVER MORTGAGED PROPERTY ------------------------------------------------ 15. PROTECTION OF AGENT, RECEIVER AND ATTORNEY ------------------------------------------ 16. PROTECTION OF THIRD PARTIES --------------------------- 16.1 No Enquiry 16.2 Receipt 17. EXPENSES, INDEMNITY ------------------- 17.1 Expenses 17.2 Indemnity 17.3 Amounts in foreign currency 18. FOREIGN CURRENCY INDEMNITY -------------------------- 19. STAMP DUTIES ------------
(iii)
Clause Page ------ ---- 20. INTEREST ON OVERDUE AMOUNTS --------------------------- 20.1 Interest 20.2 Rate 20.3 Foreign currency basis 21. CERTIFICATE AS TO AMOUNT OF SECURED MONEYS ------------------------------------------ 22. SURVIVAL OF REPRESENTATIONS AND INDEMNITIES ------------------------------------------- 23. CONTINUING SECURITY ------------------- 24. OTHER SECURITIES ---------------- 25. WAIVERS, REMEDIES CUMULATIVE ---------------------------- 26. CONSENTS AND OPINION -------------------- 27. SEVERABILITY OF PROVISIONS -------------------------- 28. MORATORIUM LEGISLATION ---------------------- 29. ASSIGNMENTS ----------- 30. NOTICES ------- 31. AUTHORISED OFFICERS ------------------- 32. GOVERNING LAW AND JURISDICTION ------------------------------ 33. THIRD PARTY PROVISIONS ---------------------- 33.1 Security not to be affected 33.2 Principal and independent obligation 33.3 No marshalling 33.4 No competition 33.5 Suspense account 33.6 Rescission of payment 33.7 Variation 33.8 Indemnity 34. SET OFF ------- 35. COUNTERPARTS ------------ 36. ACKNOWLEDGEMENT BY MORTGAGOR ---------------------------- 37. ATTORNEYS --------- EXECUTION PAGE --------------
THIS DEED is made on 5 April 1991 - --------- BETWEEN: - ------- 1. THE COMPANIES LISTED IN SCHEDULE ONE (each a "Mortgagor"); and ------------------------------------ 2. WESTPAC BANKING CORPORATION A.R.B.N. 007-457-141 of 60 Martin Place, ------------------------------------------------ Sydney (the "Agent"). WHEREAS: - ------- A. From time to time a Mortgagor may wish the Mortgagees to provide advances and accommodation to a Mortgagor or another person. B. This charge is given to the Agent as trustee for itself and any other Mortgagee. NOW THIS DEED WITNESSES and it is agreed as follows. - ----------------------- 1. INTERPRETATION - ------------------- 1.1 Definitions - ---------------- When used in this Deed the following terms have the following meanings unless the context requires otherwise. "Agency Agreement" means the agreement so entitled dated on or about the date of ---------------- this Deed between (among others) the Agent, certain banks and financial institutions and the Mortgagors. "Associate" means: --------- (a) a Related Body Corporate of a Mortgagor; (b) any person, or the trustee or manager of any trust, which has a Controlling Interest in a Mortgagor or a Related Body Corporate of a Mortgagor; (c) a Related Body Corporate of any corporation or trust included in paragraph (b) or (e); (d) any director of any corporation included in paragraph (a), (b) or (c) or of the manager or of the trustee of any trust included in paragraph (a), (b) or (c) or any spouse, child, parent or sibling of any such director; (e) any corporation, or the trustee or manager of any trust, in which any one or more persons or trusts mentioned in paragraph (a), (b), (c), (d), (e), (f) or (g) alone or together has a Controlling Interest; (f) the trustee of any discretionary trust of which any person included in paragraph (a), (b), (c), (d), (e) or (g) is a beneficiary (whether or not through one or more other discretionary trusts); or (g) any corporation of which a director of a Mortgagor or a Related Body Corporate of a Mortgagor is also a director. For the purposes of this definition: 2 (i) where a person is a beneficiary of a discretionary trust, that person shall be deemed to own, and control, all the assets of that trust; (ii) "director" has the meaning given in the Corporations Law; and (iii) a person has a "Controlling Interest" in a corporation or trust if: (A) the corporation or its directors, or the trustee or manager of the trust or its directors, are accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of that person or of that person in concert with others; or (B) the person has a relevant interest as defined in the Corporations Law in aggregate in more than 20% of the issued or voting shares, units or other interests in the corporation or trust (in number, voting power or value), or would have such a relevant interest if any rights were exercised to subscribe for, or acquire or convert into, shares, units or other interests which are issued or unissued were exercised. The definition of relevant interest will apply as if units or other interests were shares. "Attorney" means any attorney appointed under this Deed or any Collateral -------- Security. "Authorisation" includes: ------------- (a) any consent, authorisation, registration, filing, agreement, notarisation, certificate, permission, licence, approval, authority or exemption from, by or with a Governmental Agency; or (b) in relation to anything which will be prohibited or restricted in whole or part by law if a Governmental Agency intervenes or acts in any way within a specified period after lodgement, filing, registration or notification, the expiry of such period without such intervention or action. "Authorised Officer" means: ------------------ (a) in respect of a Mortgagor, any director or secretary, or any person from time to time nominated as an Authorised Officer by that Mortgagor by a notice to the Agent accompanied by certified copies of signatures of all new persons so appointed; and (b) in respect of the Agent, any person whose title includes the word "Manager" or "President" or cognate expressions (including any person acting in any such office) or any secretary or director. "Borrower" means The Galore Group Limited, GLG Australia Limited, The Galore -------- Group (USA) Inc., Vilbrent Pty. Limited or any other Charging Group Member which incurs Financial Indebtedness to a Mortgagee. "Business Day" means a day (not being a Saturday or a Sunday) on which banks are ------------ open for general banking business in Sydney. "Charging Group Member" means: --------------------- (a) a Mortgagor; or (b) any Related Body Corporate of a Mortgagor which has granted a first charge over all its assets and undertaking to the Agent satisfactory to the Agent to secure the Secured Moneys. 3 "Collateral Security" means any Security Interest, Guarantee or other document ------------------- or agreement at any time created or entered into by a Mortgagor under this Deed or otherwise as security for any Secured Moneys, satisfactory to the Agent. "Core Business" means: ------------- (a) the manufacture, wholesaling and retailing of barbecues, heaters, camping equipment, leisure products and related accessories; (b) the distribution of domestic LP gas and leisure products; and (c) the retailing of prescription glasses and frames and other optical products through dispensing units whether or not with on-site laboratories established under the name "Optic Express". "Event of Default" means any of the events specified in Clause 7. ---------------- "Excluded Taxes" means any Tax imposed by any jurisdiction on the net income of -------------- a Mortgagee as a consequence of the Mortgagee being a resident of or organised or doing business in that jurisdiction but not any Tax:- (a) which is calculated on or by reference to the gross amount of any payments derived by a Mortgagee under any Transaction Document or any other document referred to in any Transaction Document (without the allowance of any deduction); or (b) which is imposed as a result of a Mortgagee being considered a resident of that jurisdiction or organised or doing business in that jurisdiction solely as a result of it being a party to any Transaction Document or any transaction contemplated by any Transaction Document. "Financial Indebtedness" means any indebtedness, present or future, actual or ---------------------- contingent, in respect of moneys borrowed or raised or any financial accommodation whatsoever. It includes without limitation any indebtedness under or in respect of any bill, acceptance, endorsement, Guarantee, interest, gold or currency exchange, hedge or other arrangement, redeemable share, discounting arrangement, finance or capital Lease, hire purchase, deferred purchase price (for more than 90 days) of any asset or service, any obligation to deliver goods or other property or to provide services paid for in advance by any financier or in relation to any other financing transaction. "Galore Guarantee" means any guarantee and indemnity agreement entered into ---------------- between the Guarantor and the Agent. "Governmental Agency" means any government or any governmental, semi- ------------------- governmental or judicial entity or authority. "Guarantee" means any guarantee, indemnity, letter of credit, legally binding --------- letter of comfort or suretyship or any other obligation (whatever called and of whatever nature): (a) to pay or to purchase; (b) (whether by the advance of money, the purchase of or subscription for shares or other securities, the purchase of assets, rights or services, or otherwise) to provide funds for the payment or discharge of; (c) to indemnify against the consequences of default in the payment of; or (d) otherwise to be responsible for, 4 any obligation or indebtedness, any dividend, capital or premium on shares or stock, or the insolvency or financial condition of any other person. "Guarantor" means Cook-On Gas Products (Australia) Pty. Limited (A.C.N. 001 532 --------- 912). "Holding Company" means The Galore Group Limited incorporated in the Australian --------------- Capital Territory. "Intellectual Property" means any intellectual or industrial property including --------------------- without limitation: (a) any patent, trade mark or service mark, copyright, registered design, trade secret, or confidential information; or (b) any licence or other right to use or to grant the use of any of them or to be the registered proprietor or user of any of them. "Lease" means: ----- (a) any lease, licence, charter, hire purchase or hiring arrangement of any asset; (b) any other agreement or arrangement under which any asset is or may be used or operated by a person other than the owner; or (c) any agreement or arrangement under which any asset is or may be managed or operated for or on behalf of the owner or another person by a person other than the owner, and the operator or manager or its Related Body Corporate or associate (whether in the same or another agreement or arrangement) is required to make or assure minimum, fixed and/or floating rate payments of a periodic nature, (other than agreements under which the manager of a joint venture uses assets owned by the joint venturers on behalf of the joint venture), and where used as a verb is defined accordingly. "Licenced Optometrist" means a optometrist which has a subsisting agreement or -------------------- arangement for a licence of facilities with Optic Express Pty. Limited. "Liquidation" includes official management, compromise, receivership, ----------- amalgamation, administration, reconstruction, winding up, dissolution, assignment for the benefit of creditors, arrangement or compromise with creditors, bankruptcy or death. "Marketable Security" has the meaning given in the Corporations Law, but also ------------------- includes: (a) a right or an option in respect of unissued Marketable Securities; (b) a document referred to in the exceptions to the definition of debenture in the Corporations Law, or a right or option in respect of issued or unissued such documents; (c) a unit or other interest in a trust or a right or option in respect of issued or unissued units or other interests in a trust; and (d) a negotiable instrument or a right or option in respect of issued or unissued negotiable instruments. 5 "Material Adverse Effect" means, in the opinion of the Agent a material adverse ----------------------- effect upon the ability of any Relevant Company to perform its obligations under any Transaction Document or upon the security of any Mortgagee or the financial condition or business of any Relevant Company. "Material Document" means: ----------------- (a) any Lease (including, without limitation, any right to use Intellectual Property or any franchise); or (b) any other document or agreement which is material to the business of a Mortgagor, the Mortgaged Property or the security of any Mortgagee, or which is reasonably specified by the Agent as being so. "Mortgaged Property" means all assets and undertaking of a Mortgagor charged or ------------------ mortgaged under this Deed or any Collateral Security. "Mortgagee" means: --------- (a) the Agent; (b) any company, bank or financial institution for which the Agent is acting as agent or trustee under the Agency Agreement; (c) any other person which the Mortgagors and the Agent agree is to be a Mortgagee for the purposes of this Deed; or (d) any successor or assignee of any of the above. "Nominated Account" means any bank account opened by a Mortgagor before or after ----------------- the execution of this Deed at the request of the Agent. "Potential Event of Default" means any event which with the passage of time -------------------------- and/or the giving of notice would be an Event of Default. "Power" means any power, right, authority, discretion or remedy which is ----- conferred on any Mortgagee or any Receiver or Attorney: (a) by this Deed or any Collateral Security; or (b) by law in relation to this Deed or any Collateral Security. "Receiver" means any receiver or receiver and manager appointed under this Deed -------- or any Collateral Security. "Related Body Corporate" has the meaning given in the Corporations Law but on ---------------------- the basis that "Subsidiary" when used in the Corporations Law has the meaning given in this Deed and "corporation" includes trusts. "Relevant Company" means a Mortgagor, a Borrower or any of their Subsidiaries or ---------------- any person who gives or creates a Guarantee or Security Interest in respect of any of the Secured Moneys. "Secured Moneys" means all moneys which the Guarantor (whether alone or with any -------------- other person) is or at any time may become actually or contingently liable to pay to or for the account of a Mortgagee (whether alone or with any other person) under a Galore Guarantee. 6 "Security Interest" means any mortgage, pledge, lien or charge or any security ----------------- or preferential interest or arrangement of any kind, or any other right of or arrangement with any creditor to have its claims satisfied prior to other creditors with, or from the proceeds of, any asset (including, without limitation, retention of title other than in the course of day-to-day trading and any deposit of money by way of security) but excluding any charge or lien arising in favour of any Governmental Agency by operation of law provided there is no default in payment of the moneys secured by such charge or lien. "Subsidiary" has the meaning given in the Corporations Law but so that: ---------- (a) a corporation shall also be deemed to be a Subsidiary of another corporation if that other corporation has appointed or is in a position to appoint a director or directors who are in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a meeting of the board of directors of the first-mentioned corporation; (b) a trust may be a Subsidiary, for the purposes of which any units or other beneficial interests will be deemed shares; and (c) a corporation or trust may be a Subsidiary of a trust if it would have been a Subsidiary if that trust were a corporation. "Tax" includes any tax, levy, impost, deduction, charge, rate, duty, compulsory --- loan or withholding which is levied or imposed by a Governmental Agency, including (without limitation) any withholding, income, stamp or transaction tax, duty or charge together with any related interest, penalty, charge, fee or other amount. "Transaction Document" means: -------------------- (a) this Deed, the Agency Agreement, any Galore Guarantee or any Collateral Security; (b) (i) any agreement for or relating to the provision of financial accommodation to or for the account of a Borrower by a Mortgagee, whether alone or with any other person, including without limitation a Security Interest; (ii) any document or agreement defined as a Transaction Document in such agreement; or (iii) any other document or agreement which a Mortgagor and the Agent at any time agree is to be a Transaction Document for the purposes of this Deed; (c) any document or agreement: (i) to which a Mortgagor and/or a Borrower is or becomes party (whether or not with others) and either: (A) the Agent (whether or not with others) is or becomes a party; or (B) rights under that document or agreement are assigned to the Agent (whether or not with others); or (ii) which in any way relates to or requires the payment of any Secured Moneys; or 7 (d) any document or agreement entered into under, or for the purpose of amending or novating, any of them (including, without limitation, any undertaking by or to a party or its lawyers). "Treasury Facility' means any transaction or arrangement relating to the ----------------- purchase (whether spot or forward), exchange, hedging, fixing, adjustment or indemnification in respect of interest, currency or financial instruments, indebtedness or indicators of any kind or any other treasury operation. "Unpaid Capital" means any uncalled or unpaid share capital or premiums of a -------------- Mortgagor. "US Subsidiary" means Barbeques Galore Inc. (incorporated in California), Pool ------------- Patio 'n Things Inc. (incorporated in California) or Galore Group (USA) Inc. (incorporated in Delaware). 1.2 General - ------------ In this Deed headings are for convenience only and do not affect interpretation. Except to the extent that the context requires otherwise: (a) references to any legislation or to any provision of any legislation include any modification or re-enactment of it, or any provision substituted for it, and all statutory instruments issued under such legislation or provision; (b) the singular includes the plural and vice versa; (c) any gender includes all genders; (d) words denoting an individual include a corporation and vice versa; (e) references to Clauses and Schedules are references to clauses and schedules of this Deed; (f) references to any document or agreement (including this Deed) include references to that document or agreement as amended, novated, supplemented or replaced from time to time; (g) references to any party to this Deed or any other document or agreement include its successors or permitted substitutes or assigns; (h) "writing" and cognate expressions include all means of reproducing words in a tangible and permanently visible form; (i) "asset" includes any real or personal, present or future, tangible or intangible property or asset (including, without limitation, any Intellectual Property), and any right, revenue or benefits and any right or interest in, under or derived from any of the foregoing; (j) a limited partnership will be regarded as a corporation; (k) an Event of Default will be deemed to be "subsisting" unless and until it has been waived in writing by the Agent or remedied to the satisfaction of the Agent; and (l) without limiting the meaning of the term, references to amounts for which a person is contingently liable or which are contingently owing by a person include amounts which that person may become actually or contingently liable to pay on the occurrence of a contingency whether or not that liability will arise because of an obligation existing at the relevant time. 8 1.3 Document or agreement - -------------------------- In this Deed references to an "agreement" include any Security Interest, Guarantee, undertaking, deed, agreement or legally enforceable arrangement whether or not in writing and references to a "document" include any agreement (as so defined) in writing, or any certificate, notice, instrument or document of any kind. 1.4 Joint and Several obligations - ---------------------------------- The obligations of each Mortgagor under this Deed are joint and several and this Deed will be binding on each Mortgagor notwithstanding anything done or omitted to be done by any other Mortgagor or by the Agent in relation to any Mortgagor. 2. CHARGE - ----------- 2.1 Charge - ----------- (a) Each Mortgagor charges to the Agent for itself and as trustee for the Mortgagees all its present and future assets and undertaking including, without limitation, Unpaid Capital but excluding any such assets or undertaking of a Mortgagor on the date of this Deed and on the date of any notice under Clause 31 which are on such date situate in the Australian Capital Territory, the Northern Territory or any State of Australia other than Victoria. (b) The charge secures the due and punctual payment of the Secured Moneys. (c) The charge is given in consideration of the Mortgagees entering the Transaction Documents and/or providing or continuing to provide advances and financial accommodation from time to time to the Guarantor under any Galore Guarantee and/or for other valuable consideration received. 2.2 Prospective liability - -------------------------- Subject to Clause 2.3, for the purposes of the Corporations Law alone the maximum prospective liability (as defined in the Corporations Law) secured by this Deed is A$200,000,000 or its equivalent but this Clause does not limit the amount of actual liability at any time secured by or recoverable under this Deed. 2.3 Increase in prospective liability - -------------------------------------- The Agent may from time to time lodge a notice under section 268(2) of the Corporations Law on behalf of the Mortgagors specifying an increase in the maximum prospective liability secured by this Deed. From the date of lodgement the sum specified in Clause 2.2 will be deemed to be varied to the sum specified in the notice. 3. NATURE OF CHARGE - --------------------- 3.1 Priority - ------------- The charge is a first charge and takes priority over all Security Interests except those described in Schedule Two and ranks pari passu with each Collateral Security. 3.2 Nature of charge - --------------------- The charge operates: (a) as a fixed charge as regards all present and future: 9 (i) freehold and leasehold property or any other interest in real property; (ii) Unpaid Capital; (iii) machinery (other than stock-in-trade), plant, any item of equipment having a value in excess of A$50,000 or its equivalent; (iv) insurance policies, and any proceeds of any policy of an amount exceeding A$50,000; (v) books of account, registers, minute books, statements, invoices, accounting and other records (including without limitation those recorded electronically) and all software; (vi) interests in any partnership; (vii) Intellectual Property and goodwill; (viii) Marketable Securities; (ix) Authorisations; (x) documents and agreements of any kind; (xi) book and other debts and the proceeds of such debts (other than proceeds which may be dealt with by a Mortgagor under Clause 3.6(a)); (xii) accounts opened in the name of a Mortgagor or for the benefit of a Mortgagor under any Transaction Document (including the Nominated Accounts); (xiii) other assets that are not acquired for disposal in the ordinary course of a Mortgagor's business. and all right, title and interest of a Mortgagor in under or derived from the above (except as expressly provided); and (b) subject to Clause 3.4, as a floating charge only as regards all other assets charged. All sub-paragraphs of paragraph (a) are to be construed independently. None limits the generality of any other. 3.3 Dealing with Mortgaged Property - ------------------------------------ (a) Except with the prior written consent of the Agent, no Mortgagor may: (i) create or allow to exist any Security Interest over any Mortgaged Property which ranks in priority to, equally with or after this security; or (ii) in any other way: (A) dispose of; (B) create or allow any interest in; or (C) part with possession of, any Mortgaged Property, except: 10 (D) as expressly permitted in Clause 5 or any Transaction Document; (E) subject to any Transaction Document (including this Deed): (I) any disposal of or dealing with any asset for the time being subject to the floating charge in the ordinary course of its ordinary business; or (II) any disposal of or dealing with any asset for the time being subject to the fixed charge the value of which is, or during any one calendar month the aggregate values of which are, less than A$50,OOO; or (b) Where by law the Agent may not restrict the creation of any Security Interest over an asset ranking after the charge created by this Deed, then paragraph (a) will not restrict that creation, but each Mortgagor shall ensure that before any such Security Interest is created the holder of such Security Interest enters into a deed of priority in form and substance specified by the Agent. 3.4 Crystallisation - -------------------- The floating charge referred to in Clause 3.2 will automatically and immediately crystallise and operate as a fixed charge: (a) in respect of any asset: (i) upon notice to the relevant Mortgagor from the Agent (which it may only give following the occurrence of an Event of Default which is subsisting); (ii) if the relevant Mortgagor: (A) creates or allows any Security Interest over; (B) sells, Leases or otherwise disposes of; (C) creates or allows any interest in; or (D) parts with possession of, that asset, in breach of any Transaction Document or agrees or attempts to do so or takes any step towards doing so without the prior written consent of the Agent; (iii) upon any step being taken with a view to levying or enforcing any distress, attachment or other execution on that asset or to enforcing any Security Interest in respect of that asset; (iv) upon the Commissioner of Taxation or its successor signing a notice under: (A) section 218 or section 255 of the Income Tax Assessment Act 1936; (B) section 38 of the Sales Tax Assessment Act 1930; or (C) any similar legislation, which will affect that asset; or that asset, in breach of any Transaction Document or agrees or attempts to do so or takes any step towards doing so without the prior written consent of the Agent; (iii) upon any step being taken with a view to levying or enforcing any distress, attachment or other execution on that asset or to enforcing any Security Interest in respect of that asset; (iv) upon the Commissioner of Taxation or its successor signing a notice under: (A) section 218 or section 255 of the Income Tax Assessment Act 1936; (B) section 38 of the Sales Tax Assessment Act 1930; or (C) any similar legislation, which will affect that asset; or (v) upon any Governmental Agency taking any step which may result in any amount of any Tax or any amount owing to a Governmental Agency ranking ahead of the floating charge with respect to that asset; or (b) in respect of all the Mortgaged Property: (i) if an order is made or a resolution is passed for the winding up of any Mortgagor; or (ii) upon the security constituted by this Deed being enforced in any way. Except where expressly stated no notice or action by the Agent is necessary for the charge to crystallise. 3.5 De-crystallisation - ----------------------- The Agent may at any time, by notice to the relevant Mortgagor, release from the fixed charge any asset which has become subject to a fixed charge under Clause 3.4. That asset will then again be subject to the floating charge and to the further operation of that Clause. 3.6 Dealing with proceeds - -------------------------- (a) Subject to any Transaction Document (including this Deed) a Mortgagor may deal with the proceeds of any book or other debt as it thinks fit where: (i) the book or other debt arose in the ordinary course of its business; (ii) the proceeds do not arise from the sale or other disposal of, Lease of, or grant of any interest in, an asset the subject of the fixed charge; (iii) the proceeds are received before the floating charge crystallises in respect of all the Mortgaged Property and before anything occurs as described in Clause 3.4(a) with respect to the debt or those proceeds; and 12 (d) Each Mortgagor shall give notices and directions necessary or requested by the Agent to ensure paragraphs (b) and (c) are complied with. (e) Failure by the Agent to require a Mortgagor to comply with this Clause will not constitute a waiver. (f) Without prejudice to paragraph (e), if for any reason the Agent waives or is deemed to have waived the requirements of this Clause, the charge created by this Deed will still operate as a fixed charge in respect of the relevant debt or other asset under which the relevant moneys or proceeds are payable or receivable. (g) In this clause "proceeds" includes moneys or consideration payable whether or not received by a Mortgagor. 4. REPRESENTATIONS AND WARRANTIES - ----------------------------------- 4.1 Representations and warranties - ----------------------------------- Each Mortgagor makes the following representations and warranties on the date of this Deed. (a) (Status): It is a corporation validly existing under the laws of the place ------ of its incorporation specified above. (b) (Corporate power): It has the corporate power to enter into and perform --------------- its obligations under the Transaction Documents to which it is expressed to be a party, to carry out the transactions contemplated by those documents and to carry on its business as now conducted or contemplated. (c) (Corporate authorisations): It has taken all necessary corporate action to ------------------------ authorise the entry into and performance of the Transaction Documents to which it is expressed to be a party, and to carry out the transactions contemplated by those documents. (d) (Documents binding): Each Transaction Document to which it is expressed to ----------------- be a party is, subject to any necessary stamping and registration, its valid and binding obligation enforceable in accordance with its terms. This Deed is effective security over the Mortgaged Property with the priority stated in Clause 3.1. (e) (Transactions permitted): Neither the execution and performance by it of ---------------------- the Transaction Documents to which it is expressed to be a party nor any transaction contemplated under any such document will violate in any respect any provision of: (i) any law or treaty or any judgment, ruling, order or decree of any Governmental Agency binding on it; (ii) its memorandum or articles of association or other constituent documents; or (iii) any other document or agreement which is binding upon it or its assets, and, except as may be provided by the Transaction Documents, did not and will not result in: (iv) the creation or imposition of any Security Interest on any of its assets under any of the foregoing; or (v) the acceleration of or cancellation of any obligation with respect to any Financial Indebtedness, or anything which constitutes (or which, with the giving of notice and/or lapse of time would constitute) an event of default, cancellation event, prepayment event or similar event (whatever called) under any agreement relating to Financial Indebtedness. (f) (Accounts): -------- (i) Its most recent consolidated and unconsolidated audited accounts give a true and fair view of its and its Subsidiaries' state of affairs as at the date to which they relate and the results of its and its Subsidiaries' operations for the accounting period ended on that date. (ii) There has been no change in its and its Subsidiaries' state of affairs since that date which may have a material adverse effect upon it or its ability to perform its financial or other obligations under any Transaction Document. (iii) Those accounts have been prepared in accordance with all applicable laws and accounting principles and practices generally accepted in Australia consistently applied, except to the extent of departures from such principles and practices disclosed in such accounts. (iv) There is no material Financial Indebtedness or any other material contingent liability which is not disclosed in those accounts. (v) No indemnity has been executed by any Relevant Company for the purposes of obtaining an exemption, order or relief under section 313 of the Corporations Law. (g) (No litigation): No litigation, arbitration, Tax claim, dispute or ------------- administrative proceeding is presently current or pending or, to its knowledge, threatened, which is likely to have a material adverse effect upon it or its Subsidiaries or its ability to perform its financial or other obligations under any Transaction Document or upon the security of the Agent. (h) (No default): Other than as disclosed to the Agent in writing prior to the ---------- date of this Deed: (i) no Relevant Company is in default under any document or agreement (including without limitation any Authorisation) binding on it or its assets which default relates to Financial Indebtedness or is material. (ii) nothing has occurred which is or would with the giving of notice and/or lapse of time constitute an event of default, cancellation, prepayment event or similar event (whatever called) under any such document or agreement (and which is subsisting). (i) (Authorisations): All Authorisations, if any, required in relation to the -------------- execution, delivery or performance by it and the validity and enforceability of the Transaction Documents to which it is a party and the transactions contemplated by such documents have been obtained or effected and are in full force and effect. (j) (No misrepresentation): All information provided by it to the Agent in -------------------- relation to the Transaction Documents is true in all material respects as at the date of this Deed and is not, by the omission of information or otherwise, misleading. 14 (k) (No undisclosed agreements): There are in existence no documents or ------------------------- agreements which have not been disclosed to any Mortgagee and which are material to the security constituted by this Deed or which have the effect of varying any of the Transaction Documents. (l) (Copies of documents): All copies of documents and agreements (including, ------------------- without limitation, its latest audited accounts and all Authorisations) given by it or on its behalf to the Agent constitute true and complete copies. Such documents and agreements are in full force and effect. (m) (Title): ----- (i) It is and will be the sole beneficial owner of the Mortgaged Property purported to be charged or mortgaged by it and all material assets included in its latest audited accounts free and clear of any other third party right or interest whatsoever including any Security Interest other than any Security Interest created or permitted by any Transaction Document. (ii) None of its or its Subsidiaries' assets is subject to any Security Interest which is pot permitted by Clause 5.2(f) or any agreement to give such a Security Interest. (iii) None of its Subsidiaries (other than the US Subsidiaries or a Subsidiary which has given a first charge over all of its assets to secure the Secured Moneys) has any Financial Indebtedness save for Galore US Inc. to Sanwa Bank California for a maximum principal amount of US$500,000 and save for any Collateral Security. (iv) Paragraph (m)(i) is correct with respect to each Subsidiary as if references to "it" were to the Subsidiary. (n) (Subsidiaries). All its Subsidiaries (other than the US Subsidiaries and ------------ G.L.G. Pte Trading Limited) are party to this Deed. (o) (Trust): It does not hold any assets as the trustee of any trust. ----- 4.2 Reliance on representations and warranties - ----------------------------------------------- Each Mortgagor acknowledges that the Agent has entered the Transaction Documents in reliance on the representations and warranties in this Clause. 5. COVENANTS - ------------- 5.1 Covenants - -------------- (a) Each Mortgagor shall duly and punctually pay the Secured Moneys payable by it. After an Event of Default which is subsisting it will pay all Secured Moneys on demand by the Agent. (b) Each Mortgagor shall ensure that no Event of Default occurs. (c) Each Mortgagor shall duly and punctually comply with its obligations under the Transaction Documents and ensure that its and each Borrower's representations and warranties in the Transaction Documents are true and ensure that each Borrower duly and punctually complies with its obligations under the Transaction Documents. 15 5.2 General covenants - ---------------------- Each Mortgagor covenants with the Agent as follows, except to the extent that the Agent consents otherwise. (a) (Corporate reporting and information): It will furnish to the Agent: ------------------------------------ (i) (annual accounts): in the case of the Holding Company only, as soon --------------- as practicable (and in any event not later than 120 days) after the close of each of its financial years copies of its consolidated audited balance sheet and profit and loss account; (ii) (semi-annual accounts): in the case of the Holding Company only, as -------------------- soon as practicable (and in any event not later than 90 days) after the first half of each of its financial years copies of its consolidated unaudited balance sheet and profit and loss account in respect of that half-year; (iii) (quarterly management accounts): in the case of the Holding Company ----------------------------- only, as soon as practicable (and in any event not later than 45 days) after the close of each quarter of its financial year copies of its consolidated unaudited management accounts in respect of that quarter; (iv) (ratios): in the case of the Holding Company only, at the time it ------ delivers the financial statements under sub-paragraphs (i) or (ii), a certificate of two of its directors that the requirements of Clause 5.5 have been met at the last day of the last six or 12 month period ended 30 June or 31 December, as the case may be; (v) (documents issued to shareholders): promptly, all documents issued -------------------------------- by it as required by applicable law to its shareholders, debenture holders or holders of any other Marketable Securities issued by it; (vi) (litigation): promptly, written particulars of any litigation, ---------- arbitration, Tax claim, dispute or administrative proceeding in relation to the Mortgaged Property or it and its Subsidiaries involving a claim of A$50,000 or its equivalent if the claim is for liquidated damages, or, if the claim is for unliquidated damages is likely in the opinion of the directors of the Holding Company to result in an award of at least that amount, other than a claim for worker's compensation; (vii) (Governmental Agency): promptly, any notice, order or material ------------------- correspondence from or with a Governmental Agency relating to the Mortgaged Property or its use which may, or compliance with which may, in the reasonable opinion of the directors of the Holding Company adversely affect the value of the Mortgaged Property; and (viii) (other information): upon request, any financial and other ----------------- information in relation to the Mortgaged Property or its and its Subsidiaries' financial condition or business which the Agent may reasonably request. (b) (Accounting principles): In the case of the Holding Company only, it will --------------------- ensure that each balance sheet and profit and loss account furnished under paragraph (a) will: (i) be prepared in accordance with all applicable laws and accounting principles and practices generally accepted in Australia consistently applied except to the extent disclosed in such accounts; and 16 (ii) give a true and fair view of its consolidated and unconsolidated state of affairs and the result of its consolidated operations, as at the date, and for the period ending on the date, to which such accounts are prepared. (c) (Authorisations): It will use its best endevours to ensure that all -------------- Authorisations required for: (i) the validity, enforceability and performance of its obligations under the Transaction Documents and the effectiveness and priority of this charge; (ii) the validity, enforceability and performance of the Material Documents; and (iii) it and its Subsidiaries to carry on their business, are obtained and promptly renewed and maintained in full force and effect. It will comply with them. It will provide copies promptly to the Agent when they are obtained or renewed. (d) (Notice to Agent): It will give notice to the Agent as soon as it becomes --------------- aware of: (i) any Event of Default or Potential Event of Default; (ii) any proposal by any Governmental Agency to acquire compulsorily any of the Mortgaged Property or the whole or a substantial part of its or any of its Subsidiaries' assets or business or of any asset; (iii) any substantial dispute between it or any of its Subsidiaries and any Governmental Agency; and (iv) any change in its Authorised Officers, giving specimen signatures of any new Authorised Officer so appointed, and, where requested by the Agent, evidence satisfactory to the Agent of the authority of those Authorised Officers. (e) (Disposal of assets): It will not sell or otherwise dispose of, part with ------------------ possession of, or create any interest in, any of the Mortgaged Property or all or a substantial part of its assets or agree or attempt to do so (whether in one or more related or unrelated transactions) except, in the case only of assets over which this charge is floating: (i) as permitted by paragraph (f); (ii) disposals of assets in exchange for other assets comparable in value (other than a factoring on recourse terms or a sale and Lease back or similar transaction); and (iii) disposals in the ordinary course of day-to-day trading. Where a Subsidiary issues shares and its holding company does not acquire all the shares or (as the case may be) a ratable portion of those shares according to its then shareholding it will be deemed a disposal by the holding company. (f) (Negative pledge): It will not create or allow to exist any Security --------------- Interest over its assets other than: 17 (i) this Deed or any Collateral Security; (ii) liens arising by operation of law in the ordinary course of day-to- day trading; (iii) in the case of Vilbrent Pty Limited, the first ranking Real Property Act mortgage registered number W415483 to Permanent Custodians Limited over the whole of the land contained in Certificate of Title Folio Identifier 10/533334 at Auburn; (iv) by a US Subsidiary for so long as it has not given a Security Interest over the relevant asset to the Agent or otherwise in favour of a Charging Group Member where the chargor executes a deed of priority subordinating such Security Interest to this Deed and the Collateral Security on terms satisfactory to the Agent. (g) (Security deposit): It will not deposit or lend money on terms that it ---------------- will not be repaid unless or until its or any other person's obligations or indebtedness are performed or discharged, other than as a condition of a Lease where such condition is a usual commercial term. It will not deposit money with or lend money to any person to whom it is, or is likely to become, actually or contingently indebted other than a Mortgagee, a Charging Group Member, Bromic Pty Limited, G.L.G. (NZ) Pty Limited or a Licensed Optometrist and will furnish to the Agent at the time the Holding Company furnishes quarterly management accounts to the Agent under Clause 5.2(a) (iii) a statement of its accounts with Bromic Pty Limited and G.L.G. (NZ) Pty Limited as at the end of the quarter. (h) (Title retention): It will not enter into any agreement with respect to --------------- the acquisition of assets on title retention terms except in the ordinary course of day-to-day trading. (i) (Sale and Lease back): It will not sell or otherwise dispose of any of its ------------------- assets to any person where under the terms of such sale or disposal, or under a related transaction, such asset is or may be Leased to or used, chartered, hired, operated or managed by any Relevant Company or Associate under any Lease. (j) (Partnership and joint ventures): It will not enter into any partnership, ------------------------------ franchise arrangement or joint venture with any other person in relation to the Mortgaged Property unless the nature of its rights and liabilities under such partnership, franchise arrangement or joint venture has been disclosed to the Agent or is substantially similar to those previously disclosed to the Agent and any material difference has been previously disclosed to the Agent. (k) (Corporate existence): ------------------- (i) It will do all things necessary to maintain its corporate existence in good standing. (ii) It will not transfer its jurisdiction of incorporation or enter any merger or consolidation except in the case of a transfer within Australia with the consent of the Agent not to be unreasonably withheld. (l) (Compliance with law): It will comply duly and punctually with all laws ------------------- binding upon it in all material respects. (m) (Pay Taxes): --------- (i) It will pay when due all Taxes payable by it. 18 (ii) It need not pay Taxes for which it has set aside sufficient reserves and which are being contested in good faith except where failure to pay such Taxes may have a material adverse effect upon it or its ability to perform any of its financial or other obligations under any Transaction Document or may prejudice the Mortgaged Property or the security of the Agent. (iii) It will pay such contested Taxes after the final determination or settlement of any such contest. (n) (Commercial dealings): ------------------- (i) It will not deal in any way with any person who is not a Charging Group Member except at arms' length in the ordinary course of business for valuable commercial consideration or as disclosed to the Agent with the Agent's prior written consent or except with a US Subsidiary, Bromic Pty Limited, G.L.G. (NZ) Pty Limited or a Licensed Optometrist on terms previously disclosed to the Agent. (ii) Subject to paragraph (iii) where the other party to the dealing is an Associate (other than Bromic Pty Limited or G.L.G. (NZ) Pty Limited) the adequacy of the consideration and the terms of the dealing must be supported by an independent valuation or other verification of compliance with sub-paragraph (i) specified by the Agent, in each case by a person satisfactory to the Agent. (iii) It will immediately notify the Agent of any dealing with Rebel Sports Pty Limited, Rebel Concepts Pty Limited, Rebel Sports (Bankstown) Pty Limited, Rebel Sports (Bondi) Pty Limited, Rebel Sports (Miranda) Pty Limited or Rebel Sports (Penrith) Pty Limited, however an independent valuation is only required if requested by the Agent. (iv) It will obtain a fair market rent or licence fee under any Lease granted by it in respect of any of the Mortgaged Property. (v) It will not enter into any Treasury Facility other than for the sole purpose of creating a hedge for interest rate or currency movement risks associated with the ordinary course of its business. (o) (Financial assistance): It will not: -------------------- (i) advance money or make available any financial accommodation to or for the benefit of; or (ii) give any Guarantee or Security Interest in connection with any indebtedness, obligation or liability of, any person other than; (iii) a Charging Group Member; (iv) a US Subsidiary (on terms previously disclosed to the Agent); or (v) the Guarantees given in connection with Bromic Pty. Limited and G.L.G. (NZ) Pty. Limited prior to the date of this Deed, but it may: 19 (vi) deposit funds with a bank in the ordinary course of its business unless, where the bank is not a Mortgagee, it owes Financial Indebtedness to that bank; (vii) allow its customers to acquire goods and services on extended terms in the ordinary course of trading; and (viii) make a loan to any person (other than a director of the Holding Company) engaged in the full-time employment of a Charging Group Member, but so that the aggregate amount owing by such person shall not at any time exceed A$120,000. (p) (Distributions): It will not make any payment or distribution (including ------------- without limitation by management or other fee, interest, dividend, return of capital, repayment or redemption) to or for the benefit of any Associate or its shareholders in their capacity as shareholders except: (i) dividends in the ordinary course of business paid out of trading profits (excluding extraordinary items) and paid when there is no Event of Default subsisting and the aggregate amount of which during the previous 12 month period does not exceed 50% of Earnings (as defined in Clause 5.6(c)) for that 12 month period; (ii) reasonable directors' fees and salaries and other emoluments; (iii) payments under dealings permitted under paragraph (n); and (iv) payments to a Charging Group Member or a US Subsidiary, Bromic Pty Limited or G.L.G. (NZ) Pty Limited on terms previously disclosed to the Agent. (q) (Change of business): It will not cease or materially change any Core ------------------- Business. It will not take any action whether by acquisition or otherwise which would constitute or result in an alteration to the nature of a Core Business of a Mortgagor or a Mortgagor's Subsidiaries and if such alteration or such alterations in the aggregate would constitute a material alteration to the nature of a Core Business of a Mortgagor and a Mortgagor's Subsidiaries taken as a whole. (r) (Subsidiaries) ------------ (i) It will not create or acquire a Subsidiary unless at the time of becoming a Subsidiary the Subsidiary gives a first charge over all its assets and undertaking to secure the Secured Moneys satisfactory to the Agent. (ii) It will ensure that each of its Subsidiaries complies with paragraphs (e) to (r) inclusive as if binding on each of them and as if references to "it" were to the Subsidiary. (iii) It will ensure that none of its Subsidiaries (other than a Subsidiary which has given a first charge over all its assets to secure the Secured Moneys satisfactory to the Agent) incurs any Financial Indebtedness except to: (A) a Mortgagee; or (B) a Mortgagor or any other person who has given a first charge over all its assets and undertaking to secure the Secured Moneys satisfactory to the Agent. 20 (s) (Further security): It will procure that any Subsidiary provides: ---------------- (a) a Security Interest over any asset located in Australia and any asset of the type described in Clause 3.2(a) of this Deed located outside Australia to secure; or (b) a Guarantee of, any Secured Moneys, at the request of the Agent in form and substance acceptable to the Agent within 30 days of the date of the request. 5.3 Covenants relating to Mortgaged Property - --------------------------------------------- Each Mortgagor covenants with the Agent as follows, except to the extent that the Agent otherwise consents. (a) (Pay outgoings): ------------- (i) Subject to sub-paragraph (ii), it will pay when due all outgoings payable by it in respect of the Mortgaged Property (including without limitation rent and Taxes). (ii) It need not pay outgoings which are being contested in good faith except where failure to pay such outgoings may have a material adverse effect upon it or its ability to perform any of its financial or other obligations under any Transaction Document or may prejudice the Mortgaged Property or any Security Interest held by the Agent. (iii) It will pay such contested outgoings after the final determination or settlement of such contest. (iv) On request by the Agent it will immediately hand to the Agent evidence of every payment covered by the request. (b) (Maintenance): ----------- (i) It will maintain each item of the Mortgaged Property which has a value in excess of A$50,000 in a good state of repair and in good working order and condition. (ii) On being required to do so by the Agent it will immediately amend every defect in the repair and condition of any item of the Mortgaged Property which has a value in excess of A$50,000 (fair wear and tear excepted). (c) (Insurance): --------- (i) (General obligation): In its name and in the name of the Agent on ------------------ behalf of each Mortgagee it will: (A) insure and keep insured the Mortgaged Property which is of an insurable nature to the full replacement or re- instatement value; and (B) take out and keep in force other insurance with respect to the Mortgaged Property and each business in which the Mortgaged Property is used (including, without limitation, any insurance reasonably requested by the Agent and public risk, worker's compensation, product liability and business interruption insurance), 21 in the manner and to the extent which the Agent acting on the advice of substantial and reputable brokers determines to be reasonable and customary for a business enterprise engaged in a similar business and in a similar locality, and for property of the nature of the Mortgaged Property. (ii) (Alternative obligation): If the Agent makes no determination or ---------------------- request under sub-paragraph (i), the relevant Mortgagor shall take out and keep in force insurance in the amount and against the risks which a business enterprise holding property and engaged in a business in a locality similar to that of the relevant Mortgagor would prudently insure against. (iii) (Payment of premiums): It will pay when due all premiums, ------------------- commissions, levies, stamp duties, charges and other expenses necessary for effecting each such insurance policy and maintaining it in force. (iv) (Insurers): It will take out each such insurance policy with -------- substantial and reputable insurers approved by the Agent, located in jurisdictions approved by the Agent. The approval in each case is not to be unreasonably withheld. (v) (Information): On request it will deliver to the Agent certificates ----------- of currency in respect of all such insurance policies, and all other details as to the insurance policies which the Agent requires. (vi) (Annual report): At least once every year it will provide to the ------------- Agent a report as to such insurance policies as at the date of the report and claims and other material events with respect to such insurances during the previous twelve months. (vii) (No prejudicial action): It will not do anything nor permit --------------------- anything to be done which may prejudice any such policy or omit to do anything where omission may prejudice any such insurance policy. (viii) (Contents of policy): Without limiting sub-paragraphs (i) or (ii) ------------------ it will ensure that each such insurance policy with respect to the Mortgaged Property is on terms and conditions satisfactory to the Agent acting on the advice of reputable and substantial brokers and without limitation provides that: (A) the Agent (on behalf of the Mortgagees) is named as loss payee; (B) the proceeds of any loss in respect of insurance of the Mortgaged Property will be paid to the Agent other than claims of less than A$50,000 or its equivalent and claims under any public liability policy in each case made before notice by the Agent to the insurer that this Deed has become enforceable and except where the proceeds are used by way of replacement or reinstatement in accordance with the relevant policy; (C) the amount of any excess or deductible payable by the insured in respect of any claim will not exceed the customary amount for similar policies in the reasonable opinion of the Agent acting on the advice of reputable and substantial brokers; 22 (D) the insurer waives its right to set off or counter claim or to make any other deduction or withholding as against the Agent and all persons claiming under the Agent except for his rights under section 54 of the Insurance Contracts Act 1984; and (E) the insurer will not terminate the insurance policy unless it has given not less than 14 days prior notice to the Agent specifying the default or breach and the relevant default or breach has not been rectified before the expiry of the period of the notice. (ix) (Remedy of default): If: ----------------- (A) any default is made by a Mortgagor in effecting or keeping up any such insurance policy; (B) any fact or circumstance arises which in the reasonable opinion of the Agent may entitle the insurer to cancel or avoid any such insurance policy; or (C) in the reasonable opinion of the Agent the insurer under any such policy may not be capable of meeting a claim, the Agent may do anything which in its opinion is advisable or necessary to effect or keep up that insurance policy or take out a new policy complying with this Clause, in each case at the cost of the relevant Mortgagor and either in its name or in the name of the relevant Mortgagor. The Agent is not under any obligation to do so. (x) (Enforcement by Agent): It will do everything necessary and provide all -------------------- documents, evidence and information necessary to enable the Agent to make a claim, and to collect or recover any moneys due in respect of any such insurance policy. (xi) (Notice of claims): As soon as possible it will notify: ---------------- (A) (1) the Agent; and (2) (when it is required or it is advisable to do so) the relevant insurer, of the occurrence of any event which does or may give rise to any claim of A$50,000 or its equivalent or more under any such insurance policy; and (B) the Agent of; (1) any cancellation, change or reduction in any such insurance policy which has a value in excess of A$50,000; (2) any such insurance policy becoming void or voidable; or (3) any other material circumstance or correspondence relating to any such insurance policy. (xii) (Use of insurance proceeds): It will use the proceeds of all such ------------------------- insurance policies received by it for the following purposes. 23 (A) If no Event of Default is subsisting: (1) to the extent necessary, in the replacement, repair or reimbursement of the relevant Mortgaged Property; or (2) in discharging the relevant liability or in making good the relevant loss covered by the insurance policy, as the case may be. The Agent will make available for those purposes to the relevant Mortgagor all proceeds received by the Agent as and when the proceeds are actually required to pay amounts due and payable for those purposes. Each Mortgagor will apply any surplus in reduction of the Secured Moneys unless the Agent agrees otherwise. (B) if an Event of Default is subsisting: (1) for any of the purposes described in sub-paragraph (A); or (2) towards payment of the Secured Moneys, at the option of the Agent. (c) (Alterations): It will not make or permit any person to make material ----------- alterations to any real property comprised in the Mortgaged Property without the prior written consent of the Agent. (d) (Preservation and protection of security): --------------------------------------- (i) It will do promptly everything necessary and everything reasonably required by the Agent to: (A) preserve and protect the value of the Mortgaged Property; and (B) protect and enforce its title and the Agent's title as mortgagee to the Mortgaged Property. (ii) Without limiting the generality of sub-paragraph (i), no Mortgagor will permit lodgment of a caveat forbidding the recording of any interest of it or a Mortgagee in the Mortgaged Property. (iii) If any such caveat is lodged (other than a caveat lodged by the relevant Mortgagee) the relevant Mortgagor will promptly do everything in its power to remove it. (iv) The generality of this paragraph does not limit nor is it limited by the generality of any other paragraph of this Clause 5. (e) (Other Security Interests): It will duly and punctually comply with all ------------------------ Security Interests affecting the Mortgaged Property and the obligations secured by those Security Interests. 24 (f) (Acquisition of assets): It will notify the Agent: --------------------- (i) immediately of the creation or acquisition of a Subsidiary or of any, agreement for the purchase of, or other acquisition of, any estate or interest in, any land it enters into (other than an interest dealt with in paragraph (ii)); (ii) at the time the Holding Company furnishes the annual accounts under Clause 5.2(a)(i) of each agreement for lease or lease of any land it has entered into during the immediately preceding financial year. 5.4 Term of covenants - ---------------------- Each covenant in this Clause continues from the date of this Deed until the Secured Moneys are fully and finally repaid. 5.5 Financial undertakings - --------------------------- Each Mortgagor undertakes to the Agent on behalf of each Mortgagee as follows, except to the extent that the Agent consents otherwise. (a) (Gearing ratio): It will ensure that Total Liabilities do not as at 30 ------------- June or 31 December in any year exceed 70% of Total Tangible Assets as at that time. (b) (Current ratio): It will ensure that Total Current Assets as at 30 June or ------------- 31 December in any year are not less than 125% of Total Current Liabilities as at that time. (c) (Interest cover): It will ensure that Interest Expense for the six month -------------- period ended 30 June 1991 and then for each 12 month period ending 31 December and 30 June is not greater than 50% of Earnings for that period. (d) (Overseas Subsidiary): It will ensure that the aggregate amount of all ------------------- assets of the Subsidiaries of the Holding Company which are incorporated outside Australia as shown by such financial statements or other evidence required by the Agent at no time exceeds US$10,000,000.00 or its equivalent. 5.6 Definitions - ---------------- In Clause 5.5 the following terms have the following meanings. (a) "Accounts" means at any time the then latest audited consolidated balance -------- sheet and profit and loss account of the Holding Company and its Subsidiaries or any other accounts prepared in the manner approved by the Agent and provided to the Agent under this Agreement and in the case of any interim accounts includes, where necessary to make a determination over a 12 month period, so much of the last audited financial statements as is necessary. (b) "Auditors" means Horwath & Horwath or such other firm of accountants -------- appointed by the Holding Company to audit its accounts with the approval of the Agent. (c) "Earnings" means, for any period of 12 months, the aggregate amount of -------- consolidated pre-tax profit excluding extraordinary items plus Interest Expense and depreciation and amortisation of goodwill, other intangibles and non-cash items of the Holding Company and its Subsidiaries for that period, as shown by the Accounts. 25 (d) "Interest Expense" means, for any period of 12 months, all interest and ---------------- amounts in the nature of interest or of similar effect to interest (including amounts other than principal payable under this Agreement) paid or payable by the Holding Company and its Subsidiaries in that period, as shown in the Accounts including, without limitation: (i) any dividend payable on any stock or share included as Financial Indebtedness; (ii) the non-capital component of rentals in respect of finance or capitalised Lease obligations; (iii) the face value of bills of exchange or other financial instruments (but not reliquefication bills drawn under any Transaction Document) drawn, issued, endorsed or accepted by the Holding Company or any of its Subsidiaries less their net proceeds after discount or issue and payment of any acceptance, endorsement, underwriting or similar fee; and (iv) all line, facility, letter of credit, guarantee and similar fees and all fees and other amounts of a regular or recurring nature payable in relation to Financial Indebtedness but not: (A) unused line fees; and (B) establishment, arrangement and other fees payable once only on the initial provision of financial accommodation, but excluding all transactions between any two of the Holding Company and its Subsidiaries. (e) "Tangible Assets" means all assets other than goodwill, patents, --------------- trademarks, design rights, franchises, future Tax benefits, underwriting and formation expenses and any other items which according to generally accepted Australian accounting principles and practices are regarded as intangible assets. (f) "Total Current Assets" means at any time the aggregate amount of the -------------------- current assets of the Holding Company and its Subsidiaries as shown by the Accounts, adjusted as necessary to include: (i) (new Subsidiaries): the aggregate amount of all current assets of ---------------- any corporation that has become a Subsidiary of the Holding Company since the date of the Accounts, after: (ii) (former Subsidiaries): deducting the aggregate amount of all ------------------- current assets of any Subsidiary that has ceased to be a Subsidiary since the date of the Accounts to the extent they were reflected in the Accounts; and (iii) (further adjustments): making any further adjustments which in ------------------- the reasonable opinion of the Auditors are appropriate to make a proper determination of the total current assets of the Holding Company and its Subsidiaries on a consolidated basis in accordance with the Corporations Law and, to the extent not inconsistent, generally accepted Australian accounting principles and practices including without limitation any adjustment to include the difference, if any, in the value between the cost of stock manufactured by any Subsidiary of the Holding Company and the value at which such stock is acquired by any other Subsidiary in the ordinary course of business between such Subsidiaries. 26 (g) "Total Current Liabilities" means at any time the aggregate amount of all ------------------------- current liabilities of the Holding Company and its Subsidiaries in respect of Financial Indebtedness or otherwise (but excluding any Financial Indebtedness (less interest or any amount in the nature of interest) under any Facility Document as defined in the Agency Agreement), as shown by the Accounts, adjusted as necessary to include (without limitation or duplication): (i) (maturing obligations): all Financial Indebtedness and other -------------------- obligations of the Holding Company and its Subsidiaries payable within 12 months of the date of determination (excluding any Financial Indebtedness (less interest or any amount in the nature of interest) under any Facility Document as defined in the Agency Agreement); (ii) (new subsidiaries): the aggregate amount of all current liabilities ---------------- of any corporation that has become a Subsidiary of the Holding Company since the date of the Accounts; after: (iii) (former subsidiaries): deducting the aggregate amount of all ------------------- current liabilities of any Subsidiary that has ceased to be a Subsidiary since the date of the Accounts to the extent they were reflected in the Accounts; (iv) (eliminations): eliminating all inter-company balances between any ------------ two of the Holding Company and its Subsidiaries; and (v) (further adjustments): making any further adjustments which in the ------------------- reasonable opinion of the Auditors are appropriate to make a proper determination of the total current liabilities of the Holding Company and its Subsidiaries on a consolidated basis in accordance with the Corporations Law and, to the extent not inconsistent, generally accepted Australian accounting principles and practices. (1) "Total Liabilities" means at any time the aggregate amount of all secured ----------------- and unsecured direct liabilities excluding Contingent Liabilities of the Holding Company and its Subsidiaries in respect of Financial Indebtedness or otherwise, as shown by the Accounts, adjusted as necessary to include (without limitation or duplication): (i) (new subsidiaries): the aggregate amount of all secured and ---------------- unsecured liabilities of any corporation that has become a Subsidiary of the Holding Company since the date of the Accounts; (ii) (provisions): all provisions for estimated liabilities for Tax and ---------- long service leave and for dividends recommended, declared or accrued but not paid since the date of the Accounts; (iii) (new accommodation): the unrepaid principal (including the ----------------- principal component of such liability in respect of any finance Lease) of any liability in respect of Financial Indebtedness when the proceeds or the benefits of the same have been received by the Holding Company or any of its Subsidiaries since the date of the Accounts, but excluding the amount of any such proceeds which have been applied in reduction of any liabilities otherwise included in the definition, 27 after: (iv) (former subsidiaries): deducting the aggregate of all secured and ------------------- unsecured liabilities of any corporation that has ceased to be a Subsidiary since the date of the Accounts to the extent they were reflected in the Accounts; (v) (deferrals): deducting any provision for deferred income Tax --------- appearing as a liability in the Accounts; (vi) (eliminations): eliminating all inter-company balances between any ------------ two of the Holding Company and its Subsidiaries (including any Subsidiary which has become one since the date of the Accounts); and (vii) (further adjustments): making any further adjustments which in the ------------------- reasonable opinion of the Auditors are appropriate to make a proper determination of the total liabilities of the Holding Company and its Subsidiaries on a consolidated basis in accordance with the Corporations Law and, to the extent not inconsistent, generally accepted Australian accounting principles and practices. (i) "Total Tangible Assets" means at any time the aggregate of the book values --------------------- of all tangible assets of the Holding Company and its Subsidiaries, as shown by the Accounts, adjusted as necessary to include (without limitation or duplication): (i) (new subsidiaries): the aggregate amount of all Tangible Assets of ---------------- any corporation that has become a Subsidiary of the Holding Company since the date of the Accounts; (ii) (new issues): the aggregate proceeds of any issue of shares or ---------- other securities by the Holding Company received since the date of the Accounts; (iii) (revaluations): the excess (if any) of the value of any asset of ------------ the Holding Company or a Subsidiary over the book value shown in the Accounts for that asset as assessed by a qualified independent valuer approved by the Agent; after: (iv) (provisions): deducting the amount shown in the Accounts of any ---------- income yet to mature at the date of adjustment and any provisions for depreciation and for bad and doubtful debts appearing in the books of the Holding a Company or any of its Subsidiaries; (v) (revaluations): deducting any amount by which the book value of any ------------ asset is written up after the date of this Agreement in excess of its cost, except where it has been written up in accordance with a valuation by a qualified independent valuer approved by the Agent; (vi) (former subsidiaries): deducting the aggregate amount (disclosed by ------------------- the latest audited balance sheet of the relevant corporation) of the book value of tangible assets of any corporation which has ceased to be a Subsidiary of the Holding Company since the date of the Accounts; (vii) (eliminations): eliminating all inter-company balances between any ------------ two of the Holding Company and its Subsidiaries; and 28 (viii) (further adjustments): making any further adjustments which in the -------------------- reasonable opinion of the Auditors are appropriate to make a proper determination of the total tangible assets of the Holding Company and its Subsidiaries on a consolidated basis in accordance with the Corporations Law and, to the extent not inconsistent, generally accepted Australian accounting principles and practices. (j) "Contingent Liabilities" means at any time the aggregate amount of the ---------------------- contingent liabilities of the Holding Company and its Subsidiaries in respect of Financial Indebtedness or otherwise, as shown by the Accounts, but excluding any Guarantee, adjusted as necessary to include: (i) (new subsidiaries): the aggregate amount of contingent liabilities ----------------- of any corporation that has become a Subsidiary of the Holding Company since the date of the Accounts, after: (ii) (former subsidiaries): deducting the aggregate of contingent -------------------- liabilities of any Subsidiary that has ceased to be a Subsidiary since the date of the Accounts to the extent they were reflected in the Accounts; and (iii) (further adjustments): making any further adjustments which in the -------------------- reasonable opinion of the Auditors are appropriate to make a proper determination of the contingent liabilities of the Holding Company and its Subsidiaries on a consolidated basis in accordance with the Corporations Law and, to the extent not inconsistent, generally accepted Australian accounting principles and practices. 6. FURTHER ASSURANCES - ---------------------- 6.1 Further assurances - ----------------------- Whenever the Agent requests a Mortgagor to do anything: (a) for more satisfactorily mortgaging, assuring or securing the Mortgaged Property to the Agent in a manner not inconsistent with this Deed or any Collateral Security; or (b) for aiding in the execution or exercise of any Power, that Mortgagor shall do it immediately at its own cost. It may include (without limitation) registering this Deed, the execution or registering of any other document or agreement, the delivery of documents or evidence of title and the execution and delivery of blank transfers. 6.2 Interest in land - ---------------------- (a) Without limiting Clause 6.1, if requested by the Agent, upon acquiring any fee simple interest in real property comprised in the Mortgaged Property a Mortgagor shall execute a legal or statutory mortgage over that interest securing the Secured Moneys in the form and substance required by the Agent. The relevant Mortgagor shall use its best endeavours to register that mortgage. (b) The mortgage may not contain any obligation more onerous than in the relevant Transaction Documents. 29 6.3 Title documents - -------------------- Without limiting Clause 6.1. each Mortgagor will forthwith deliver to the Agent all documents of title held or received by it to: (a) any interest in real property; or (b) any Marketable Securities other than: (i) scrip for any shares it holds in a Subsidiary, Bromic Pty Ltd or G.L.G. (NZ) Pty Ltd; (ii) negotiable instruments in aggregate face value at any time of A$50,000; and (iii) a Marketable Security, the subject of a notice from the Agent to the relevant Mortgagor, which it may retain, unless delivery is specifically requested by the Agent at any time. 7. EVENTS OF DEFAULT - --------------------- 7.1 Events of Default - ---------------------- Each of the following is an Event of Default (whether or not it is in the control of a Mortgagor). (a) (Obligations under Transaction Documents): A Mortgagor or any Relevant ---------------------------------------- Company fails: (i) to pay when due or within any applicable grace period any amount payable by it under any Transaction Document; (ii) to comply with any of its other obligations under any Transaction Document and, if that failure can be remedied in that period, does not remedy the failure within a further 14 days; or (iii) to satisfy within the stipulated time any condition subject to which the Agent or a Mortgagee has waived compliance with any condition precedent in any Transaction Document. (b) (Misrepresentation): Any representation, warranty or statement by or on ----------------- behalf of any Relevant Company in any Transaction Document, or in any document provided under or in connection with any Transaction Document, is not true or is misleading in any material respect when made or repeated. (c) (Cross default): ------------- (i) Any Financial Indebtedness of any Relevant Company aggregating to at least $500,000 or its equivalent: (A) is not paid when due (or within any applicable grace period); or (B) becomes due and payable or capable of being declared due and payable before its stated maturity or expiry; (ii) any facility or obligation granted or owed by any person to any Relevant Company to provide financial accommodation or to acquire or underwrite Financial Indebtedness aggregating to at least A$500,000 or its equivalent is prematurely terminated; or 30 (iii) an event of default as defined in any other Transaction Document (other than an event of default disclosed in writing to the Agent prior to the date of this Deed) occurs and is not remedied or waived within 3 Business Days. For the purposes of this paragraph, if a person is required to provide cash cover for Financial Indebtedness it will be deemed to be due and payable. (d) (Winding up, arrangements, insolvency etc.): ----------------------------------------- (i) Except for the purposes of a solvent reconstruction or amalgamation previously approved by the Agent: (A) an application (other than a frivolous or vexatious application) or an order is made, proceedings are commenced, a resolution is passed or proposed in a notice of meeting or an application to a court or other steps are taken for: (I) the winding up, dissolution, official management or administration of any Relevant Company; or (II) any Relevant Company entering into any arrangement, compromise or composition with or assignment for the benefit of its creditors or any class of them; or (B) any Relevant Company ceases or suspends the conduct of all or a substantial part of a Core Business or disposes of or threatens to dispose of a substantial part of its assets or threatens to do so. (ii) any Relevant Company is, or is deemed under any applicable legislation to be, unable to pay its debts when they fall due (other than as a result of a failure to pay a debt or claim the subject of a good faith dispute) or stops or suspends or threatens to stop or suspend payment of all or any class of its debts. (e) (Enforcement against assets): With respect to any of the assets and -------------------------- undertaking of any Relevant Company: (i) a receiver, receiver and manager, administrative receiver or similar officer is appointed; (ii) any Security Interest becomes enforceable or is enforced; or (iii) a distress, attachment or other execution for an amount in excess of A$50,000 is levied or enforced or applied for. (f) (Reduction of capital): Without the prior consent of the Agent (which -------------------- shall be withheld, if, without limitation, in the opinion of the Agent such action will reduce the value to the Mortgagees of this Deed or any Collateral Security), any Relevant Company: (i) reduces its capital (except by the redemption of redeemable shares); (ii) passes a resolution to reduce its capital or a resolution under section 188(2) or 205(10) of the Corporations Law or any equivalent provision, or calls a meeting to consider such a resolution; or 31 (iii) applies to a court to call any such meeting or to sanction any such resolution or reduction. (g) (Inspector): An inspector is appointed under any companies legislation to --------- investigate all or any part of the affairs of any Relevant Company in circumstances material to its financial condition. (h) (Analogous process): Anything which is analogous to anything referred to ----------------- in paragraphs (d) to (g) inclusive, or which has substantially similar effects with respect to any Relevant Company occurs under any applicable law. (i) (Vitiation of Transaction Documents): ---------------------------------- (i) All or any part of any Transaction Document is terminated (other than with the consent of all parties to the document, as a result of due performance or as a result of closing out a treasury contract) or is or becomes void, illegal, invalid, unenforceable or of limited force and effect; (ii) any party becomes entitled to terminate, rescind or avoid all or any part of any Transaction Document; or (iii) any Relevant Company alleges or claims that an event described in sub-paragraph (i) has occurred or that it is entitled as described in sub-paragraph (ii). (j) (Amendment of articles): The memorandum or articles of association or --------------------- other constituent documents of any Relevant Company are amended in a material respect without the prior written consent of the Agent (which will not be withheld unreasonably). (k) (Revocation of Authorisation): Any Authorisation which is material to the --------------------------- performance by any Relevant Company of any Transaction Document, or to the validity and enforceability of any Transaction Document or to the security of the Agent, is repealed, revoked or terminated or expires, or is modified or amended in a manner reasonably unacceptable to the Agent, and is not replaced by another Authorisation acceptable to the Agent. (l) (Material adverse change): Any other event or series of events, whether ----------------------- related or not, occurs (including, without limitation, any material adverse change in the business, assets or financial condition of any Relevant Company) which in the opinion of the Agent may adversely affect the security of the Agent or the ability or willingness of any Relevant Company to comply with any of its obligations under any Transaction Document. (m) (Control of Mortgagor and Borrower): --------------------------------- (i) A Mortgagor or a Borrower becomes a Subsidiary of another person; (ii) any person, being entitled (within the meaning of Section 609 of the Corporations Law to less than 20% of the shares or stock (as to votes or paid up capital) of a Mortgagor or a Borrower at the date of this Deed becomes entitled to 20% or more of the shares or stock (as to votes or paid up value) of a Borrower or a Mortgagor (as the case may be); 32 (iii) any person, being entitled (as so defined) to less than 50% of the voting shares or stock (as to votes or paid up capital) of a Borrower or a Mortgagor at the date of this Deed becomes entitled to more than 50% of the voting shares or stock (as to votes or paid up capital) of a Borrower or a Mortagor (as the case may be); (iv) in the reasonable opinion of the Agent there is a material change in: (A) the ownership or control of a Mortgagor or a Borrower; or (B) the management of the Charging Group Members taken as a whole. (n) (Compulsory acquisition): ---------------------- (i) All or any part of the Mortgaged Property or other assets of any Relevant Company, with a value in aggregate in excess of A$50,0O0, is compulsorily acquired by or by order of any Governmental Agency or under any law without the Relevant Company receiving assets of equivalent value; (ii) any Governmental Agency orders the sale, vesting or divesting of all or any part of the Mortgaged Property, or other assets of any Relevant Company, with a value in aggregate in excess of A$50,000, without the Relevant Company receiving assets of equivalent value; or (iii) any Governmental Agency takes any step for the purpose of any of the above or proposes or threatens to do any of the above. (o) (Governmental interference): Any law or anything done by any Governmental ------------------------- Agency wholly or partially to a material extent renders illegal, prevents or restricts the performance or effectiveness of any Transaction Document or otherwise has a Material Adverse Effect. (p) (Share buy-backs): Without the prior consent of the Agent, a Relevant --------------- Company: (i) effects a buy back (as defined in the Corporations Law) of any of its shares (including, without limitation, a buy-back, an employee- share purchase or an odd-lot purchase (all of which are defined in the Corporations Law)); (ii) passes a resolution to buy back (as defined in the Corporations Law) any of its shares (including, without limitation, a buy-back, an employee-share purchase or an odd-lot purchase (all of which are defined in the Corporations Law)) or passes a resolution under Section 206GC, Section 206HB, Section 206JA or Section 206JB of the Corporations Law or any equivalent provision, or calls a meeting to consider such a resolution; or (iii) applies to a court to call any such meeting or to sanction any such resolution or reduction. 7.2 Consequences - ----------------- In addition to any other rights provided by this Deed or any other Transaction Document, upon the occurrence of an Event of Default, and at any time subsequently, the Agent may and shall if so directed by the Mortgagees by notice to the Mortgagors: 33 (a) declare the Secured Moneys immediately payable; and/or (b) terminate any obligation of the Agent or a Mortgagee under the Transaction Documents; and/or (c) at the joint and several cost of the Borrowers appoint a firm of independent accountants or other experts to review and report to the Agent and the Mortgagees on the affairs, financial condition and business of any Mortgagor at which time the Mortgagors shall ensure that such party is given access to all records and information of a Mortgagor as it shall from time to time require. 8. APPOINTMENT OF RECEIVER - ---------------------------- 8.1 Appointment - ---------------- To the extent permitted by law, at any time after an Event of Default (whether or not it is continuing) the Agent or any Authorised Officer of the Agent may: (a) appoint any person or any two or more persons jointly and/or severally to be a receiver or receiver and manager of all or any of the Mortgaged Property; (b) remove any Receiver; (c) appoint another Receiver in addition to or in place of any Receiver; and (d) fix the remuneration of any Receiver. 8.2 Agent of Mortgagors - ------------------------ Subject to Clause 8.4, every Receiver will be the agent of the relevant Mortgagor. The relevant Mortgagor alone will be responsible for his acts and defaults. 8.3 Receiver's powers - ---------------------- In addition to any powers granted by law, and except to the extent specifically excluded by the terms of his appointment, every Receiver will have power to do anything in respect of the Mortgaged Property that a Mortgagor could do, including (without limitation): (a) (to take possession and collect): to take possession of, collect, get in ------------------------------ and manage the Mortgaged Property; (b) (to Lease): to Lease any of the Mortgaged Property for any term (whether or -------- not the Receiver has taken possession); (c) (to carry on business): to carry on or concur in carrying on any business; -------------------- (d) (to acquire any asset): to acquire in any manner any asset (including -------------------- without limitation to take it on Lease), after that acquisition it will be included in the Mortgaged Property; (e) (to maintain and improve the Mortgaged Property): to do anything for the ---------------------------------------------- maintenance, protection or improvement of any of the Mortgaged Property or for obtaining income or returns from any of the Mortgaged Property (including, without limitation, by development, sub-division, construction, alteration, or repair of any property or by pulling down, dismantling or scrapping any property); 34 (f) (to raise money): -------------- (i) to borrow or raise any money from the Agent or any other person approved by the Agent; and (ii) to grant any Security Interest over any of the Mortgaged Property to secure such money, such Security Interest may rank in priority to or equally with or after the security created by this Deed, it may be given in the name of a Mortgagor or otherwise; (g) (to sell): ------- (i) to sell any of the Mortgaged Property (whether or not the Receiver has taken possession); and (ii) without limitation any sale may be made: (A) by public auction, private treaty, or tender; (B) for cash or on credit; (C) in one lot or in parcels; (D) either with or without special conditions or stipulations as to title or time or mode of payment of purchase money or otherwise; (E) with power to allow the whole or any part of the purchase money to be deferred (whether with or without any security); and (F) whether or not in conjunction with the sale of any property by any person; (h) (options): to grant or take put or call options; ------- (i) (to sever fixtures): to sever fixtures; ----------------- (j) (to employ): to employ or discharge any person as employee, contractor, --------- agent, professional adviser, consultant or auctioneer for any purpose; (k) (to compromise): to make or accept any arrangement or compromise; ------------- (1) (to give receipts): to give receipts for all moneys and other assets which ---------------- may come into the hands of the Receiver; and (m) (to perform and enforce agreements): --------------------------------- (i) to perform or enforce; (ii) to exercise or refrain from exercising a Mortgagor's rights and powers under; or (iii) to obtain the benefit in other ways of, any documents or agreements or rights which form part of the Mortgaged Property and any documents or agreements entered into in exercise of any Power; (n) (to vary and terminate agreements): to vary, rescind or terminate any -------------------------------- document or agreement (including without limitation to surrender or accent the surrender of Leases); 35 (o) (to take insolvency proceedings): to make debtors bankrupt and to wind up ------------------------------ companies and to do any thing in relation to any bankruptcy, winding up official management, scheme of arrangement or receivership or other administration (including without limitation to attend and vote at meetings of creditors and appoint proxies for such meetings); (p) (to take proceedings): to commence, defend, prosecute, settle, discontinue ------------------- and compromise proceedings in the name of a Mortgagor or otherwise; (q) (to execute documents): to enter into and execute documents or agreements -------------------- on behalf of itself or a Mortgagor for any of the purposes of this Deed (including, without limitation, to sign, accept or endorse cheques, promissory notes and bills of exchange); (r) (to operate bank accounts): to operate any bank account comprising part of ------------------------ the Mortgaged Property and to open and operate any further bank account; (s) (to surrender Mortgaged Property): to surrender, release or transfer any of ------------------------------- the Mortgaged Property; (t) (to exchange Mortgaged Property): to exchange with any person any of the ------------------------------ Mortgaged Property for other property; (u) (to promote companies): to promote the formation of companies with a view -------------------- to purchasing all or any of the Mortgaged Property or assuming a obligations of the Mortgagor or otherwise; (v) (to delegate): to delegate to any person approved by the Agent any of the ----------- powers conferred upon the Receiver (including delegation); (w) (to have access): to have access to and make use of the premises, plant, -------------- equipment and accounting and other services of a Mortgagor and the services of its staff; (x) (to vote): to exercise any voting or other rights or powers in respect of ------- any of the Mortgaged Property and to do anything in relation to Marketable Securities; (y) (to make calls): to make calls on the members of a Mortgagor in respect of ------------- any Unpaid Capital; (z) (to insure): to take out insurance; --------- (aa) (insurance claims): to make, enforce, compromise and settle all claims in ---------------- respect of insurance; and (bb) (incidental power): to do anything incidental to the exercise of any other ---------------- Power. All of the above paragraphs are to be construed independently. None limits the generality of any other. Any dealing under any such power will be on the terms and conditions the Receiver thinks fit. 8.4 Receiver appointed after commencement of winding up - -------------------------------------------------------- The power to appoint a Receiver may be exercised notwithstanding that: (a) an order may have been made or a resolution may have been passed for the winding up of a Mortgagor; and 36 (b) a receiver appointed in those circumstances may not, or may not in some respects, act as the agent of a Mortgagor. 8.5 Powers exercisable by the Agent - ------------------------------------ Whether or not a Receiver has been appointed, to the extent permitted by law the Agent may exercise any Power of a Receiver at any time after an Event of Default (whether or not it is continuing) in addition to any Power of the Agent and without giving notice. It may exercise those Powers and its Powers without taking possession or being liable as mortgagee in possession. 8.6 Withdrawal - --------------- The Agent may at any time give up possession of the Mortgaged Property and may at any time withdraw any receivership. 9. POWER OF ATTORNEY - ---------------------- 9.1 For valuable consideration and by way of security each Mortgagor - ------ irrevocably appoints each Authorised Officer of the Agent severally its attorney to do anything which: (a) that Mortgagor is obliged to do under or in relation to any Transaction Document; or (b) the Agent or any Receiver is authorised or empowered to do under any Transaction Document or any law but it may only do something at the times that the Agent or a Receiver (if a Receiver had been appointed) would have been able to do it. 9.2 Without limitation, the Attorney may: - ------ (a) at any time, do anything necessary or considered expedient by the Agent or the Attorney for securing, preserving or perfecting the security contained in this Deed (including, without limitation, anything under Clause 10 or 11) and for this purpose he may execute legal mortgages, transfers, assignments and other assurances in favour of the Agent of any of the Mortgaged Property; and (b) for any purpose from time to time delegate his powers (including delegation). 9.3 No Attorney appointed under this Deed may act, nor has power to act, - ------ inconsistently with this Deed or any other Transaction Document. 10. COMPLETION OF BLANK SECURITIES - ----------------------------------- The Agent, any Authorised Officer of the Agent, any Receiver or any Attorney may complete any document which at any time is executed by or on behalf of a Mortgagor and deposited with the Agent under or as collateral security to this Deed or any Collateral Security. It may complete it in favour of the Mortgagees, the Agent on behalf of the Mortgagees, any appointee of the Mortgagee or any purchaser. 11. PERFORMANCE OF MORTGAGORS' OBLIGATIONS - ------------------------------------------- If a Mortgagor at any time fails duly to perform any obligation in any Transaction Document the Agent may do anything which in its opinion is necessary or expedient to make good or to attempt to make good that failure to its satisfaction. 37 12. STATUTORY POWERS - --------------------- 12.1 Powers in augmentation - --------------------------- The powers conferred on a mortgagee by any law: (a) are in augmentation of the powers conferred by this Deed or any Collateral Security; (b) (to the extent permitted by law) may be exercised by the Agent immediately upon the occurrence of an Event of Default; and (c) are excluded or varied only so far as they are inconsistent with the express terms of this Deed or any Collateral Security. 12.2 Leasing - ------------ Each Mortgagor shall furnish the Agent at the time the Holding Company furnishes the annual accounts under Clause 5.2(a)(i) with details of any Lease it has surrendered or had surrendered or become entitled to surrender during the immediately preceding financial year. No Mortgagor shall exercise any power of Leasing conferred on a Mortgagor by or under any law except as expressly permitted or contemplated in any Transaction Document. 12.3 Notice not required - ------------------------ To the extent permitted by law each Mortgagor dispenses with any notice or lapse of time required by any law before enforcing this Deed or any Collateral Security or exercising any Power and agrees that: (a) neither the Agent nor any Mortgagee will be required to give notice to any person before any such enforcement or exercise; and (b) any law requiring the giving of any notice or the compliance with any procedure or the lapse of time before any such enforcement or exercise is excluded. 13. APPLICATION OF MONEYS RECEIVED - ----------------------------------- 13.1 Order - ---------- Subject to any law which applies notwithstanding any agreement to the contrary, all moneys received by any Receiver, any Attorney or Mortgagee under or by virtue of this Deed shall be applied in the manner and order determined by the Agent or, if the Agent does not make any such determination, in the following order: (a) First: all costs, charges and expenses of any Mortgagee or any Receiver or Attorney which are incurred in or are incidental to the exercise or performance or attempted exercise or performance of any Power or otherwise in relation to this Deed or any Collateral Security. (b) Second: any other outgoings which the Receiver, Attorney or the Agent thinks fit to pay. (c) Third: the Receiver's remuneration. (d) Fourth: to each holder of a Security Interest of which the Agent is aware and which has priority over this Deed in relation to the relevant Mortgaged Property, to the extent, and in order, of priority. 38 (e) Fifth: to the Agent for the account of the Mortgagees towards satisfaction of the Secured Moneys. (f) Sixth: to each holder of a Security Interest of which the Agent is aware and which ranks after this Deed in relation to the relevant Mortgaged Property, to the extent, and in order, of priority. (g) Seventh: the surplus (if any) belongs to the relevant Mortgagor: (i) the surplus will not carry interest; and (ii) upon paying the surplus to the credit of an account in the name of that Mortgagor with any bank carrying on business within the Commonwealth of Australia, the Receiver, Mortgagee or Attorney (as the case may be) will be under no further liability in respect of it. 13.2 Moneys actually received - ----------------------------- In applying any moneys towards satisfaction of the Secured Moneys a Mortgagor is to be credited only with the money available for that purpose which is actually received by the relevant Mortgagee. The credit will date from the time of receipt. 13.3 Amounts contingently due - ----------------------------- If, at the time of a distribution of an amount under Clause 13.1, any of the Secured Moneys is contingently owing to any Mortgagee, the Agent may retain any of that amount. If it does, it shall place the amount retained on short term interest bearing deposit until the relevant Secured Moneys become actually due or cease to be contingently owing, and the Agent shall then: (a) pay that Mortgagee itself the amount which does become actually due to it; and (b) apply the balance of the amount retained (together with interest earned on the deposit) in accordance with Clause 13.1. 13.4 Notice of subsequent Security Interests - -------------------------------------------- (a) If any Mortgagee receives actual or constructive notice of any subsequent Security Interest affecting any of the Mortgaged Property that Mortgagee may open a separate account in the name of the relevant Mortgagor or the Borrower in its books. (b) If the Mortgagee does not open such a new account it will be treated as if it had done so at the time it received actual or constructive notice of the Security Interest. (c) From the time the new account is opened or is deemed to be opened: (i) all advances and accommodation made available by the Mortgagee to that Mortgagor or the Borrower; (ii) all payments and repayments made by that Mortgagor or the Borrower to the Mortgagee, and (iii) moneys to be applied towards the Secured Moneys under Clause 13.1(e), 39 will be or be deemed to be debited or credited, as appropriate, to the new account. Payments, repayments and other moneys will only be applied in reduction of other Secured Moneys if, and to the extent that, there is no debit balance in that account. 13.5 Conversion of currencies on application - -------------------------------------------- For the purposes of making an application under Clause 13.1 any Mortgagee, any Receiver or any Attorney may purchase one currency with another, whether or not through an intermediate currency, whether spot or forward, in the manner and at the time it thinks fit. 14. OTHER SECURITY INTERESTS OVER MORTGAGED PROPERTY - ----------------------------------------------------- (a) For all the purposes of this Deed any Mortgagee and any Receiver or Attorney may rely on the certificate of a holder of another Security Interest affecting or purporting to affect the Mortgaged Property as to the amount and property secured by the Security Interest. (b) The Agent may at any time pay the amount certified by the holder of a prior ranking Security Interest or purported prior ranking Security Interest as necessary to discharge it. From the date of payment that amount will be part of the Secured Moneys and each Mortgagor will indemnify the Agent on demand against that amount, whether or not that Security Interest or purported Security Interest was valid or prior ranking or the property or moneys stated in the certificate were secured by it. 15. PROTECTION OF AGENT, RECEIVER AND ATTORNEY - ----------------------------------------------- Subject to any law which applies notwithstanding any agreement to the contrary, no Mortgagee nor any Receiver or Attorney will be liable in respect of: (a) any act, omission, delay, negligence or breach of duty in the exercise or non-exercise of any Power; nor (b) for any loss (including consequential loss) which results, except where it arises from fraud or wilful default on the part of the Agent, Receiver or Attorney. 16. PROTECTION OF THIRD PARTIES - -------------------------------- 16.1 No enquiry - --------------- No party to any Dealing (as defined below) and no person asked to register a Dealing: (a) is bound to enquire: (i) as to whether an Event of Default has occurred or whether this Deed has become enforceable; (ii) as to whether a person who is or is purported to be a Receiver or Attorney is duly appointed; (iii) as to the amount of Secured Moneys and as to whether Secured Moneys are due and payable; or (iv) in any other way as to the propriety or regularity of the Dealing; or 40 (b) is affected by express notice that the Dealing is unnecessary or improper. Notwithstanding any irregularity or impropriety in any Dealing, as regards the protection of any party to the Dealing or a person registering a Dealing, it will be deemed to be authorised by this Deed and will be valid accordingly. In this Clause a "Dealing" is: (a) any payment or delivery or handing over of an asset to; or (b) any acquisition, incurring of Financial Indebtedness, receipt, sale, Lease, disposal or other dealing, by the Agent or any Receiver or Attorney, or person who is purported to be a Receiver or Attorney. 16.2 Receipt - ------------ The receipt of any Authorised Officer of the Agent or any Attorney or Receiver (or person who is purported to be a Receiver or Attorney) for any moneys or assets payable to or receivable or received by it exonerates discharges the person paying those moneys or handing over that asset from being concerned to see to their application, or being liable or accountable for their loss or misapplication. 17. EXPENSES,INDEMNITY - ----------------------- 17.1 Expenses - ------------- On demand each Mortgagor shall reimburse the Agent for the expenses of the Agent in relation to: (a) the preparation, execution and completion of the Transaction Documents and any subsequent consent, approval, waiver or amendment; and. (b) (i) the actual or contemplated enforcement of the Transaction Documents, or the actual or contemplated exercise, preservation or consideration of any right or powers under, the Transaction Documents; and (ii) any enquiry by a Governmental Agency converning a transaction or activity for which or in connection with which finance or funds raised under a Transaction Document are used or provided, including without limitation any expenses incurred in retaining consultants to evaluate matters of material concern to the Agent and administrative costs including any time of its executives (such time and costs to be charged at reasonable rates), and including in each case reasonable legal costs and expenses on a full indemnity basis before an Event of Default has occurred, and after an Event of Default has occurred, including all legal costs and expenses on a full indemnity basis. 17.2 Indemnity - -------------- On demand, each Mortgagor shall indemnify the Agent and each Receiver and Attorney against all losses, costs, charges, expenses, liabilities, outgoings and payments which the Agent or any Receiver or Attorney pays, is liable to pay or sustains in any way: 41 (a) in relation to the Mortgaged Property or the exercise or attempted exercise of any Power; or (b) as a consequence of the occurence of an Event of Default or Potential Event of Default, except where it arises from the fraud or wilful default on the part of the Agent, Receiver or Attorney. 17.3 Amounts in foreign currency - -------------------------------- Where an amount to be reimbursed or indemnified against is denominated in another currency, if the Agent so requests, each Mortgagor will reimburse or indemnify it against the amount of Australian dollars which the Agent certifies that it used to buy the relevant amount of the other currency in accordance with its normal procedures. If the Agent does not so request, each Mortgagor will reimburse or indemnify it in the relevant currency. 18. FOREIGN CURRENCY INDEMNITY - ------------------------------- Whenever: (a) any amount payable by a Mortgagor is received or recovered by the Agent or a Mortgagee in a currency (the "Payment Currency") other than the currency in which payment was to be made (the "Relevant Currency") for any reason (including without limitation as a result of any judgment or order, or the Liquidation of that Mortgagor or any proof or claim in relation to that Liquidation); and (b) the amount actually received by the Agent or a Mortgagee in accordance with its normal practice by converting the Payment Currency into the Relevant Currency is less than the relevant amount in the Relevant Currency, then as an independent obligation that Mortgagor shall indemnify the Agent or a Mortgagee, as appropriate against the deficiency upon demand. 19. STAMP DUTIES - ----------------- 19.1 Each Mortgagor shall pay all stamp, transaction, registration and similar - ------- Taxes (including fines and penalties, other than arising from the wilful default of the Agent) other than Excluded Taxes which may be payable or determined to be payable in relation to the execution, delivery, performance or enforcement of any Transaction Document or any payment or receipt or any other transaction contemplated by any Transaction Document. 19.2 Such Taxes include any financial institutions duty, debits tax or other - ------ Taxes payable by return and any such Taxes passed on to the Agent by any bank or financial institution. 19.3 Each Mortgagor shall indemnify the Agent on demand against any liabilities - ------ resulting from delay or omission to pay such Taxes. 20. INTEREST ON OVERDUE AMOUNTS - -------------------------------- 20.1 Interest - ------------- On demand by the Agent each Mortgagor shall pay interest on any of the Secured Moneys which are due and payable by it and unpaid (including without limitation interest payable under this Clause). 42 20.2 Rate - --------- Unless any Transaction Document provides otherwise, interest accrues from day to day from the due date (or in the case of amounts to be reimbursed or indemnified against under Clause 17 or 18, from the date of disbursement or loss) up to the date of actual payment, before and (as a separate and independent obligation) after judgment, in the currency of the relevant amount at the rate which is the higher of: (a) the rate (if any) applicable to the Secured Moneys under any Transaction Document immediately prior to the due date; and (b) the aggregate of 2% per annum and: (i) if the amount is denominated in Australian dollars, the indicator lending rate of the Agent in respect of loans of A$100,000 and over from time to time calculated on a daily basis and a year of 365 days; or (ii) if the amount is denominated in any other currency, the rate which is determined by the Agent to be: (A) the arithmetic mean of the rates displayed on the Reuters screen LIBO page (in the case of US dollars or the equivalent page for other currencies) for the making of deposits in the currency concerned for funding periods not exceeding three months selected by the Agent from time to time and for the value date which is the date of default, disbursement or loss as the case may be (or, as appropriate, the expiry of any relevant funding period referred to above). That arithmetic mean will be rounded upwards, if necessary, to the nearest 1/16th of one percent; or (B) if no such rates are available, the Agent's cost of funds in that currency from time to time. If no earlier demand is made for its payment, accrued interest under this Clause will be deemed to be demanded at the end of each calendar quarter (and will start to accrue interest accordingly). 20.3 Foreign currency basis - --------------------------- Interest on amounts other than Australian dollars or Sterling will be calculated on a daily basis and a year of 360 days. 21. CERTIFICATE AS TO AMOUNT OF SECURED MONEYS - ----------------------------------------------- A certificate signed by any Authorised Officer of the Agent will be conclusive evidence any against any Mortgagor, in the absence of manifest error: (a) as to the amount of Secured Moneys stated in that certificate; and (b) that a document specified in that certificate is a Transaction Document. 22. SURVIVAL OF REPRESENTATIONS AND INDEMNITIES - ------------------------------------------------ 22.1 All representations and warranties in any Transaction Document will - ------ survive the execution and delivery of the Transaction Documents and the provision of advances and accommodation. 43 22.2 Each indemnity in any Transaction Document: - ------ (a) is a continuing obligation; (b) is a separate and independent obligation of the party giving the indemnity from its other obligations under the Transaction Documents; and (c) will survive termination or discharge of the relevant Transaction Document. 23. CONTINUING SECURITY - ----------------------- This Deed and each Collateral Security is a continuing security notwithstanding any settlement of account, intervening payment or anything whatsoever until a final discharge of this Deed and each Collateral Security has been given to each Mortgagor. 24. OTHER SECURITIES - --------------------- No Power and nothing in this Deed or any Collateral Security merges in, or in any other way prejudicially affects or is prejudicially affected by: (a) any other Security Interest; or (b) any judgment, right or remedy against any person, which the Agent or any person claiming through the Agent may have at any time. 25. WAIVERS, REMEDIES CUMULATIVE - --------------------------------- 25.1 No failure to exercise and no delay in exercising any Power operates as a - ------ waiver. Nor does any single or partial exercise of any Power preclude any other or further exercise of that Power, or the exercise of any other Power. 25.2 The rights, powers and remedies provided to the Agent in this Deed are - ------ cumulative and not exclusive of any rights, powers or remedies provided by law. 26. CONSENTS AND OPINION - ------------------------- Except where expressly stated the Agent may give or withhold, or give conditionally, approvals and consents be satisfied or unsatisfied, and form opinions, at its absolute discretion. 27. SEVERABILITY OF PROVISIONS - ------------------------------- (a) Any provision of this Deed or any Collateral Security which is prohibited or unenforceable in any jurisdiction will be ineffective as to that jurisdiction to the extent of the prohibition or unenforceability. That will not invalidate the remaining provisions of this Deed or any Collateral Security nor affect the validity or enforceability of that provision in any other jurisdiction. (b) Without limiting the generality of paragraph (a): (i) the definition of Secured Moneys does not include any obligation so long as and to the extent that the inclusion of that obligation would avoid or invalidate or render ineffective Clauses 2 and 3 or the security constituted Deed; and 44 (ii) the definition of the Mortgaged Property does not include any property so long as and to the extent the inclusion of that property would invalidate or avoid or render ineffective the security constituted by this Deed, but each Mortgagor shall use its best endeavours to satisfy any condition or obtain any consent which may be necessary to include such obligation or property validly under this Deed. 28. MORATORIUM LEGISLATION - --------------------------- To the full extent permitted by law all legislation which at any time directly or indirectly: (a) lessens; varies or affects in favour of a Mortgagor any obligation under this Deed or any Collateral Security; or (b) delays; prevents or prejudicially affects the exercise of any Power, is excluded from this Deed and any Collateral Security. 29. ASSIGNMENTS - ----------------- Subject to the other Transaction Documents, any Mortgagee may assign its rights under this Deed and each Collateral Security. If this Deed is assigned, the Secured Moneys will include all actual and contingent liability of each Mortgagor and the Borrower to the assignee, whether or not it was incurred before the assignment or in contemplation of it. 30. NOTICES - ------------ All notices, requests, demands, consents, approvals, agreements or other communications to or by a party to this Deed shall: (a) be in writing; (b) be signed by an Authorised Officer of the sender; and (c) be deemed to be duly given or made: (i) (in the case of delivery in person or by post, facsimile transmission or cable) when delivered, received or left at the address of the recipient shown in this Deed or to any other address it may have notified the sender; or (ii) (in the case of telex) on receipt by the sender of the answerback code of the recipient at the end of transmission, but if delivery or receipt is on a day on which business is not generally carried on in the place to which such communication is sent or is later than 4 p.m. (local time), it will be deemed to have been duly given or made at the commencement of business on the next such day or which business is generally carried on in that place. 31. AUTHORISED OFFICERS - ------------------------ Each Mortgagor irrevocably authorises the Agent to rely on a certificate by any person purporting to be a director or secretary of that Mortgagor as to the identity and signatures of its Authorised Officers. The relevant Mortgagor warrants that those persons have been authorised to give notices and communications under or in connection with the Transaction Documents. 45 32. GOVERNING LAW AND JURISDICTION - ----------------------------------- This Deed is governed by the laws of New South Wales. Each Mortgagor submits to the non-exclusive jurisdiction of its courts. 33. THIRD PARTY PROVISIONS - --------------------------- 33.1 Security not to be affected - -------------------------------- None of this Deed, any Collateral Security, any Power nor the obligations of any Mortgagor under this Deed will be affected by anything which but for this provision might operate to release, prejudicially affect or discharge them or in any way exonerate a Mortgagor from any of its obligations including, without limitation: (a) the grant to any person of any time, waiver or other indulgence, or the discharge or release of any person; (b) any transaction or arrangement that may take place between any Mortgagee and person; (c) the Liquidation of any person; (d) any Mortgagee becoming a party to or bound by any compromise, moratorium, assignment of property, scheme of arrangement, composition of debts or scheme of reconstruction by or relating to any person; (e) any Mortgagee exercising or delaying or refraining from exercising any other security or any of the rights, powers or remedies conferred on it by law or by any Transaction Document or by any other document or agreement with any person; (f) the amendment, variation, novation, replacement, rescission, invalidity, extinguishment, repudiation, avoidance, unenforceability, frustration, failure, expiry, termination, loss, release, discharge, abandonment, assignment or transfer either in whole or in part and either with or without consideration of any Transaction Document, or of any other Guarantee, Security Interest or other document or agreement now or in the future held by a Mortgagee from any person or of any right, obligation, power or remedy; (g) the taking or perfection of or failure to take or perfect any Security Interest or Guarantee; (h) the failure by any Relevant Company or any Mortgagee to notify a Mortgagor of any default by any Relevant Company under any Transaction Document or any other agreement with any Mortgagee; (i) any Mortgagee obtaining a judgment against any person for the payment of any Secured Moneys; (j) any legal limitation, disability, incapacity or other circumstances relating to any person; or (k) any change in the members or constitution of any partnership or of any person; (l) any Guarantee or Security Interest to secure all or part of the Secured Moneys not being valid or executed by or binding upon any person. 46 33.2 Principal and independent obligation - ----------------------------------------- This Deed and each Collateral Security is a principal and independent obligation and except for stamp duty purposes it is not to be treated as ancillary or collateral to any other Security Interest, right or obligation. 33.3 No marshalling - ------------------- No Mortgagee shall be under any obligation to marshal or appropriate in favour of a Mortgagor, or to exercise, apply or recover: (a) any Security Interest or Guarantee (including, without limitation, any Transaction Document) held by that Mortgagee at any time; or (b) any of the funds or assets that Mortgagee may be entitled to receive or have a claim upon. 33.4 No competition - ------------------- Until the Secured Moneys have been irrevocably paid and discharged in full no Mortgagor is entitled on any grounds whatsoever: (a) to be subrogated to any Mortgagee or to claim the benefit of any Security Interest or Guarantee held by that Mortgagee at any time; or (b) either directly or indirectly to prove in, to claim or to receive the benefit of, any distribution, dividend or payment arising out of or relating to the Liquidation of the Borrower or the Guarantor or any other person who gives a Guarantee or Security Interest in respect of any of the Secured Moneys. The receipt of any distribution, dividend or other payment by any Mortgagee out of or relating to such Liquidation will not prejudice the right of the Agent to recover the Secured Moneys by enforcement of this Deed and each Collateral Security. 33.5 Suspense account - --------------------- In the event of the Liquidation of a Mortgagor or any other person, each Mortgagor authorises the Agent: (a) to prove for all moneys received by any Receiver, Attorney or Mortgagee under or by virtue of this Deed or any Collateral Security or any other Guarantee or Security Interest in or towards satisfaction of the Secured Moneys payable to the Mortgagees by the relevant Mortgagor; and (b) (i) to retain and carry to a suspense account; and (ii) to appropriate at the discretion of the Agent; any dividends received in the Liquidation of the relevant Mortgagor or any other person and all other moneys received in respect of the Secured Moneys, until the Mortgagees have been paid in full in respect of the Secured Moneys. 33.6 Rescission of payment - -------------------------- Whenever for any reason (including without limitation under any law relating to Liquidation, fiduciary obligations or the protection of creditors): 47 (a) all or part of any transaction of any nature (including without limitation any payment or transfer) made during the term of this Deed which affects or relates in any way to the Secured Moneys is void set aside or voidable; (b) any claim that it is so is upheld, conceded or compromised; or (c) any Mortgagee is required to return or repay money or assets received by it under any such transaction or the equivalent for value of that money or asset, the Mortgagees will immediately become entitled against each Mortgagor to all rights in respect of the Secured Moneys and the Mortgaged Property which it would have had if all or the relevant part of the transaction or receipt had not taken place. Each Mortgagor will indemnify the Mortgagees on demand against any resulting loss, costs or expenses. This clause continues to apply after the discharge of this Deed. 33.7 Variation - -------------- (a) Subject to any other Transaction Document, any Mortgagee may from time to time: (i) amend any Transaction Document to which it is a party; (ii) provide further accommodation to the Borrower or the Guarantor; or (iii) increase the limit (if any) of accommodation to be made available by it, at its absolute discretion and without notice to or consent by any Mortgagor. (b) This Deed extends to cover all Transaction Documents and all agreements from time to time in force between any Mortgagee and a Mortgagor as contemplated by paragraph (a). 33.8 Indemnity - -------------- If any of the Secured Moneys (including moneys which would have been Secured Moneys if they were recoverable) are not recoverable from a Mortgagor for any reason, including without limitation any legal limitation, disability or incapacity affecting a Mortgagor and whether or not: (a) any transaction relating to the Secured Moneys was void or illegal or has been subsequently avoided; or (b) any matter or fact relating to any such transaction was or ought to have been within the knowledge of any Mortgagee, each Mortgagor shall indemnify each Mortgagee on demand in respect of such moneys and agrees to pay such moneys to the Agent for the account of the relevant Mortgagees on demand. 34. SET OFF - ------------ 34.1 Each Mortgagor authorises any Mortgagee to apply any credit balance in any - ------ currency (whether or not matured) in any of its accounts with any branch of that Mortgagee towards satisfaction of any sum at any time due and payable by it to the Agent under or in relation to any Transaction Document. No Mortgagee is obliged to make the application. 48 34.2 Each Mortgagee may effect any currency exchanges appropriate to implement - ------ that application. 35. COUNTERPARTS - ----------------- This Deed may be executed in any number of counterparts. All counterparts taken together will be deemed to constitute one instrument. 36. ACKNOWLEDGMENT BY MORTGAGORS - --------------------------------- Each Mortgagor confirms that: (a) it has not entered into this Deed in reliance on, or as a result of, any statement or conduct of any kind of or on behalf of any Mortgagee or any Related Body Corporate of any Mortgagee (including, without limitation, any advice, warranty, representation or undertaking); and (b) neither any Mortgagee nor any Related Body Corporate of any Mortgagee is obliged to do anything (including, without limitation, disclose anything or give advice), except as expressly set out in the Transaction Documents. 37. ATTORNEYS - -------------- Each of the attorneys executing this Deed states that he has no notice of the revocation of his power of attorney. 49 SCHEDULE ONE ------------ MORTGAGORS ----------
NAME A.C.N. REGISTERED - ---- ------ ---------- ADDRESS ------- The Galore Group Limited 008 577 759 c/-Sly and Weigall 4th Floor 54 Marcus Clarke Street Canberra City ACT 2601 Vilbrent Pty. Ltd. 002 055 567 327 Chisholm Road Auburn NSW 2144 Barbeques Galore Pty. Ltd. 001 354 454 327 Chisholm Road Auburn NSW 2144 Optic Express Pty. Ltd. 001 819 852 327 Chisholm Road Auburn NSW 2144 The Galore Group (International) Pty. Ltd. 001 753 073 327 Chisholm Road Auburn NSW 2144 Bosmana Pty. Ltd. 002 060 335 327 Chisholm Road Auburn NSW 2144 Pricotech Leisure Brands 002 060 273 327 Chisholm Road Pty. Ltd. Auburn NSW 2144 Redgun Pty. Ltd. 002 065 330 327 Chisholm Road Auburn NSW 2144 G.L.G. Australia Pty. Ltd. 001 185 002 327 Chisholm Road Auburn NSW 2144 Park-Tee Engineering Pty. Ltd. 001 387 382 327 Chisholm Road Auburn NSW 2144 Douglas Manufacturing Pty. 002 177 424 327 Chisholm Road Ltd. Auburn NSW 2144 Australian Enamellers Pty. 002 909 864 327 Chisholm Road Ltd. Auburn NSW 2144 Cook-on-Gas Products 001 532 912 327 Chisholm Road (Australia) Pty. Ltd. Auburn NSW 2144 Cougar Leisure Products 005 669 198 327 Chisholm Road Pty. Ltd. Auburn NSW 2144 Galore Group Services 007 903 022 U5 1181 Churchill Road Pty. Ltd. Cavan, SA 5094 Galore Steel Industries 003 352 949 327 Chisholm Road Pty. Ltd. Auburn NSW 2144
50 SCHEDULE TWO ------------ Nil IN WITNESS the parties have executed and delivered this Deed in the Australian - ---------- Capital Territory. THE MORTGAGORS - -------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) THE GALORE GROUP LIMITED ) /s/ BETTIE ANNE McNEE - ------------------------ ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) VILBRENT PTY. LIMITED ) /s/ BETTIE ANNE McNEE - -------------------- ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) BARBEQUES GALORE PTY. LTD ) /s/ BETTIE ANNE McNEE - ------------------------- ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) OPTIC EXPRESS PTY. LTD ) /s/ BETTIE ANNE McNEE - ------------------------ ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- 51 SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) THE GALORE GROUP ) - ---------------- ) (INTERNATIONAL) PTY. LTD ) /s/ BETTIE ANNE McNEE - ------------------------ ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) /s/ BETTIE ANNE McNEE BOSMANA PTY. LTD ) --------------------------- - ---------------- ) BETTIE ANNE McNEE by its attorney: ) [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) PRICOTECH LEISURE BRANDS PTY ) /s/ BETTIE ANNE McNEE - ---------------------------- ) --------------------------- LTD by its attorney: ) BETTIE ANNE McNEE - --- [SIGNATURE APPEARS HERE] - -------------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) REDGUN PTY. LTD ) /s/ BETTIE ANNE McNEE - --------------- ) --------------------------- by its attorney: ) BETTIE ANNE McNEE [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) /s/ BETTIE ANNE McNEE G.L.G. AUSTRALIA PTY. LTD ) --------------------------- - ------------------------- ) BETTIE ANNE McNEE by its attorney: ) [SIGNATURE APPEARS HERE] - -------------------------- 52 SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) PARK-TEC ENGINEERING PTY. ) /s/ BETTIE ANNE McNEE - ------------------------- ) --------------------------- LTD by its attorney: ) BETTIE ANNE McNEE - --- [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) DOUGLAS MANUFACTURING PTY. ) /s/ BETTIE ANNE McNEE - -------------------------- ) --------------------------- LTD by its attorney: ) BETTIE ANNE McNEE - --- [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) AUSTRALIAN ENAMELLERS PTY. ) /s/ BETTIE ANNE McNEE - -------------------------- ) --------------------------- LTD by its attorney: ) BETTIE ANNE McNEE - --- [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) COOK-ON-GAS PRODUCTS ) /s/ BETTIE ANNE McNEE - -------------------- ) --------------------------- (AUSTRALIA) PTY. LTD ) BETTIE ANNE McNEE - -------------------- ) by its attorney: ) [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) /s/ BETTIE ANNE McNEE COUGAR LEISURE PRODUCTS ) --------------------------- - ----------------------- ) BETTIE ANNE McNEE PTY. LTD by its attorney: ) - -------- [SIGNATURE APPEARS HERE] - -------------------------- 53 SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) GALORE GROUP SERVICES PTY. /s/ BETTIE ANNE McNEE - -------------------------- --------------------------- LTD by its attorney: BETTIE ANNE McNEE - --- [SIGNATURE APPEARS HERE] - -------------------------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) GALORE STEEL INDUSTRIES ) /s/ BETTIE ANNE McNEE - ----------------------- ) --------------------------- PTY. LTD by its attorney: ) BETTIE ANNE McNEE - -------- [SIGNATURE APPEARS HERE] - -------------------------- THE AGENT - --------- SIGNED SEALED AND DELIVERED ) - --------------------------- ) for and on behalf of ) WESTPAC BANKING CORPORATION ) - --------------------------- ) by its attorney ) /s/ JAMES GRANT in the presence of: ) --------------------------- Attorney [SIGNATURE APPEARS HERE] Print name: JAMES GRANT - -------------------------- Witness Print name: [LETTERHEAD OF ANZ BANK APPEARS HERE] 14 July, 1994. The Directors The Galore Group Limited 327 Chisholm Road AUBURN NSW 2144 Dear Sirs, LETTER OF OFFER - --------------- THE GALORE GROUP LIMITED A.C.N. 008 577 759 ("THE CUSTOMER") - ------------------------------------------------------------ Australia and New Zealand Banking Group Limited (the "Bank") is pleased to offer the availability of the Facilities listed below to each company listed as a Customer in Schedule 1 to this letter. The Facilities are offered on the terms set out in this Letter of Offer, the General Conditions and the Specific Conditions for each Facility as at the date of this Letter of offer (together the "Agreement"). A summary of the Facilities is as follows:
Facility Limit -------------- Facility AUD -------- --- 1. Interchangeable Facility i. Variable Rate Commercial Bill Acceptance/Discount Facility ii. Fixed Rate Commercial Bill Facility Total Facility Limit for the Interchangeable Facility 5,400,000 2. Multi Option Facility i. Variable Rate Commercial Bill Acceptance/Discount Facility ii. Documentary Credit/Documents Surrendered Facility (Local or Overseas) iii. Bills Negotiated Not Under Credit Facility (Bills Payable Overseas) Total Facility Limit for the Multi Option Facility 9,600,000 3. Overdraft Facility 2,400,000 4. Indemnity/Guarantee Facility 150,000 5. Encashment Facility/Payroll 850,000 6. Foreign Currency Dealing Facility 2,000,000 7. Foreign Currency Settlement Facility (1,000,000) ----------- Total Facility Limits $20,400,000 ===========
LIMIT APPROVAL FEE $20,000 - 2 - LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- 1. INTERCHANGEABLE FACILITY ------------------------ Total Facility Limit: $5,400,000 Termination Date: 30 June, 1997 Purpose: Term debt. Total Facility Limit for Interchangeable Facility (and separate Facility Limits): The Customer may only make a Drawing under or otherwise make use of a particular Facility included in the Interchangeable Facility if, on the Drawdown Date (or the date when the relevant amount of Principal Outstanding is to be made available), the Principal Outstanding under both the Facilities included in the Interchangeable Facility does not exceed the Total Facility Limit for the Interchangeable Facility. Line Fee: 0.75% p.a. on the Facility Limit, payable in advance on the date of the Agreement and afterwards quarterly. (i) Variable Rate Commercial Bill Acceptance/Discount Facility: Yield Rate: For each Drawing of Bills, a rate quoted by the Bank in respect of the face value of the Bills for the relevant tenor. Fees: Acceptance Fee: For each Bill, an amount equal to 0.75% p.a. on the face amount of the Bill payable on the Drawdown Date for the Bill. Specific Conditions: Apply. (ii) Fixed Rate Commercial Bill Facility Yield Rate: For each Drawing of Bills, a rate fixed for all rollovers up until the last day of the term. Fees: Acceptance Fee: For each Bill, an amount equal to 0.75% p.a. on the face amount of the Bill payable on the Drawdown Date for the Bill. Specific Conditions: Apply. - 3 - LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- 2. MULTI OPTION FACILITY --------------------- Total Facility Limit: $9,600,000 Termination Date: Not before the next Annual Review Date. Purpose: Trade Finance. Total Facility Limit for Multi Option Facility (and separate Facility Limits): The Customer may only make a Drawing under or otherwise make use of a particular Facility included in the Multi Option Facility if, on the Drawdown Date (or the date when the relevant amount of Principal Outstanding is to be made available), the Principal Outstanding under all the Facilities included in the Multi Option Facility does not exceed the Total Facility Limit for the Multi Option Facility. (i) Variable Rate Commercial Bill Acceptance/Discount Facility (Trade) Yield Rate: For each Drawing of Bills, a rate quoted by the Bank in respect of the face value of the Bills for the relevant tenor. Acceptance Fee: For each Bill, an amount equal to 1.5% p.a. on the face amount of the Bill payable on the Drawdown Date for the Bill. Specific Conditions: Apply. (ii) Documentary Credit / Documents Surrendered Facility (Local or Overseas): Subject to Bank's Agreement: The Customer is only entitled to have the Bank open a Documentary Credit if the Bank agrees to the terms of the Customer's application and if the Customer executes all documents required by the Bank. Fees: Bank's standard charges to apply. Specific Conditions: Do not apply. (iii) Bills Negotiated Not Under Credit Facility (Bills Payable Overseas) Subject to Bank's Agreement: The Customer is only entitled to have the Bank negotiate a Bill or trade documents under the Facility if the Bank agrees to the terms of the Customer's Lodgement Letter and if the Customer executes all documents required by the Bank. Fees: Bank's standard charges to apply. Specific Conditions: Do not apply. - 4 - LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- 3. OVERDRAFT FACILITY ------------------ Total Facility Limit: $2,400,000 Termination Date: Not before the next Annual Review date. Purpose: Working capital. Interest Rate: Bank Reference Rate (currently 9.0% p.a.) for amounts up to the Facility Limit. Interest Payment: Monthly in arrears on the first Business Day of each calendar month, accruing daily starting on the first day of overdraft (interest payable monthly). Fees: Line Fee: 0.75% p.a. on the Facility Limit, payable quarterly in arrears on the 15th day of each February, May, August and November, in respect of the calendar quarter which ended on the last day of the preceding month. Specific Conditions: Do not apply. 4. INDEMNITY / GUARANTEE FACILITY ------------------------------ Facility Limit: $150,000 Termination Date: Not before the next Annual Review date. Fee Rate for each 1.0% p.a. subject to Minimum Fee of $50 Bank Guarantee per half year. The Minimum Fee is subject to variation any time during the term of the Facility. Fee Payment: For each Bank Guarantee, the fee is payable on the date of drawdown and afterwards half yearly. Specific Conditions: Apply. 5. ENCASHMENT FACILITY / PAYROLL ----------------------------- Facility Limit: $850,000 Termination Date: Not before the next Annual Review date. Purpose: To allow each Customer specified in Schedule 1 to cash cheques at specified branches. Fees: Establishment Fee: $50.00 for each encashment arrangement. This charge is subject to variation at any time during the term of the Facility. Renewal Fee: $50.00 p.a. for each encashment arrangement. This charge is subject to variation at any time during the term of the Facility. Specific Conditions: Do not apply. - 5 - LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- 6. FOREIGN CURRENCY ---------------- DEALING FACILITY ---------------- Facility Limit: AUD2,000,000 (For this purpose the Bank adjusts the face value of the Customer's obligation under each transaction by a multiplier (determined by the Bank). The process includes conversion of any foreign currency amount to the equivalent amount in AUD.) Termination Date: Not before the next Annual Review date. Purpose: Spot and forward exchange dealing (including currency swaps). No Pay Away Exposure except under Foreign Currency Settlement Facility: The Bank does not assume any pay away exposure under this Facility unless and to the extent that it links this Facility with a Foreign Currency Settlement Facility. Except to that extent the Bank can have no obligation to deliver currency under a contract until it is satisfied that counter funds have been lodged by or on behalf of the Customer. Subject to Bank's Agreement: The Customer may only enter into a foreign currency contract with the Bank if the Bank agrees to the terms of the contract and if the Customer executes all other documents required by the Bank. Maximum contract term: The maximum term for a Foreign Currency Dealing contract is 6 months. Specific Conditions: Do not apply. 7. FOREIGN CURRENCY ---------------- SETTLEMENT FACILITY ------------------- Facility Limit: (AUD1,000,000) (For this purpose the Bank will determine the prevailing market rates to convert foreign currency amounts to the equivalent amounts in AUD.) The Facility is linked to the Foreign Currency Dealing Facility. The Facility Limit represents the extent to which the Bank will assume pay away exposure, on any one settlement day, in respect of foreign exchange contracts maturing on that day. Termination Date: Not before the next Annual Review date. Purpose: To allow delivery of currency under foreign exchange contracts before the Bank has received confirmation that counter funds have been lodged by or on behalf of the Customer. Subject to Bank's Agreement: The Bank will only assume pay away exposure in respect of the Customer's obligation under a foreign exchange contract, if the Bank has agreed to the terms of the contract and the Customer has executed all documents required by the Bank. Specific Conditions: Do not apply. - 6 - LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- SECURITY: Conditions precedent to use of the Facilities - ------- include provision of the following securities in favour of the Bank, each in the form furnished by, and approved by the Bank: (a) Cross Deed of Covenant (standard ANZ Bank document) between and on account of each Company which is a Customer; (b) Joint and Several Guarantee (standard ANZ Bank document), unlimited as to amount by: The Galore Group Limited Vilbrent Pty Limited Barbecues Galore Pty Limited Galore Pty Limited (formerly Optic Express Pty Ltd) The Galore Group (Int'l) Pty Limited Bosmana Pty Limited Pricotech Leisure Brands Pty Limited Redgun Pty Limited G.L.G. Australia Pty Limited Park-tec Engineering Pty Limited Douglas Manufacturing Pty Limited Australian Enamellers Pty Limited Cook-on-Gas Products (Aust.) Pty Limited Cougar Leisure Products Pty Limited Galore Group Services Pty Limited Galore Group Nominees Pty Limited G.L.G. Trading Pte Ltd The Galore Group (USA) Barbecues Galore Inc. Pool Patio 'n Things Inc. (c) First ranking Registered Mortgage Debenture over all the assets and undertaking of The Galore Group Limited and its wholly owned subsidiaries (excluding US corporations). (This to be a fixed and floating charge over all present and future assets, undertaking (including goodwill) and unpaid/uncalled capital of the company). (d) First Registered Guarantee Mortgage by Vilbrent Pty Limited being the Registered Proprietor over the property situated at 345 Chisholm Road, Auburn. (e) Second Registered Guarantee Mortgage by Vilbrent Pty Limited being the Registered Proprietor over property situated at 327 Chisholm Road, Auburn. (The costs for which the Customer is liable under the General Conditions include costs of preparing security documents and costs of any property valuations required by the Bank in connection with the securities). ANNUAL REVIEW: The facilities are subject to Annual Review - ------------- so that (in accordance with the General Conditions and with the exclusion of the Interchangeable Facility) the Bank may terminate them and require repayment, or amend the terms on which the facilities are available, by giving 30 days' notice to the Customer. -7- LETTER OF OFFER THE GALORE GROUP LIMITED 14 July 1994. - -------------------------------------------------------------------------------- ANNUAL REVIEW - ------------- DATE: 31 July in each year. - ---- GOVERNMENT DUTIES/ - ------------------ TAXES/CHARGES: Subject to any applicable law, the Customer - ------------- indemnifies the Bank in respect of and shall on demand pay to the Bank all transaction charges (such as financial institutions duty and debits tax). CHANGE OF CONTROL: For the purposes of the Agreement, a Change of - ----------------- Control occurs if, in the opinion of the Bank, there is a change in the control of the Customer, directly or indirectly (whether by change of ownership or voting power) and the Bank determines that the change is unacceptable for the purposes of the Agreement. OTHER CONDITIONS: In addition to the provisions of the General - ---------------- Conditions, the following conditions shall apply: (a) Split Banking Arrangements -------------------------- The Bank's provision of Facilities aggregating $20,400,000 is conditional upon the total bank facilities requirements not exceeding $33,200,000 and reducing by $2,800,000 by 31/12/94. The balance of the requirements (maximum $12,800,000) will be provided by St. George Bank on common terms and conditions. The St. George Bank Facility will reduce by $2,800,000 by 31/12/94. (b) Security Arrangements --------------------- The mortgage security proposed shall secure the Bank and St. George Bank parri passu in proportion to the actual level of utilisation of their respective facilities. The security arrangements shall be governed by a security structure under which the Bank shall be appointed the security agent. (c) Structure and Documentation --------------------------- The Split Banking Arrangements and the Security Arrangements shall be structured and documented according to legal advice to be obtained by and satisfactory to the Bank. (d) Existing First Mortgage Borrowing --------------------------------- The Customer agrees that the fixed rate loan (AUD2.1M.) relating to the 327 Chisholm Road property will be fully repaid from cashflow accumulation upon expiry in 1996, so that the existing first mortgage is discharged. (e) United States Subsidiaries and Assets ------------------------------------- Galore Group's business and trading assets in the United States may not be pledged or otherwise encumbered without the prior written consent of the Bank. The subsidiaries may not be sold or otherwise disposed of without the Bank's consent. -8- LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- (f) Restriction on Provision of Accommodation to -------------------------------------------- Others ------ Other than under normal terms of trade, the Customer may not: (i) provide financial accommodation for the benefit of or to; or (ii) give any guarantee or security interest in connection with any indebtness of; any party other than a mortgagor company, with the exception of the guarantees currently provided in connection with Bromic Pty Limited and GLG (NZ) Pty Limited. (g) Financial Performance Covenants ------------------------------- The Customer shall observe the following financial performance covenants:
Gearing Ratio (max.) 30/6/94 30/6/95 30/6/96 ------- ------- ------- -Total Liabilities/ Shareholders Funds as at 30/6 and 31/12 1.2X 1.2X 1.2X Current Ratio (min.) -Total Tangible Current Assets/Total Current Liabilities as at 30/6 and 31/12 1.20X 1.20X 1.20X Interest Cover (min.) -EBIT/Int. 2.0X 2.0X 2.0X Overseas Subsidiary (max.) -Aggregate amount of all assets of subsidiaries incorporated outside Australia USD10M. USD10M. USD10M.
and an Authorised Representative shall certify compliance to the Bank as at the dates shown. (h) Management Accounts ------------------- The Customer will provide to the Bank monthly management accounts covering group operations within 45 days of each month. (i) Dividend Payout Limitation -------------------------- Dividends paid to shareholders in respect to a financial year may not exceed 50% of the Customer's net profit after tax during the relevant year. (j) Convertibility -------------- The Customer may convert undrawn capacity under the Multi Option Facility (minimum parcel $1M) to the Interchangeable Facility. Conversion shall be a permanent reduction in the Multi Option Facility and amounts converted shall be subject to a line fee of 0.75% p.a. and an acceptance fee of 0.95% p.a. -9- LETTER OF OFFER THE GALORE GROUP LIMITED 14 July, 1994. - -------------------------------------------------------------------------------- OFFER PERIOD: This offer is available for acceptance until the close of business on 15 July, 1994. ACCEPTANCE: The Customer may accept this offer by: (a) executing or, if it is a corporation, having its Authorised Representative execute on its behalf, in each case in the place indicated for execution: (i) the enclosed copy of this Letter of Offer; and (ii) the confirmation of the General Conditions and the Specific Conditions on the duplicate cover page of the enclosed copy of the General Conditions titled "Australia and New Zealand Banking Group Limited - General Conditions Credit Facilities"; and (b) returning the executed documents to the Bank, together with a cheque made out to the Bank for the Limit Approval Fee. If you have any questions in relation to this Letter of Offer or the Conditions, please do not hesitate to contact Peter Meares on telephone number 227 1808. Yours sincerely, AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED /s/ Peter D. Meares PETER D. MEARES SENIOR MANAGER - MARKETING - -------------------------- BUSINESS BANKING - ---------------- MARTIN PLACE REGION. - ------------------- SCHEDULE 1 ----------
CUSTOMER A.C.N. FACILITIES FACILITIES LIMIT - -------- ------ ---------- ---------------- AUD --- The Galore Group Limited 008 577 759 TBA TBA Vilbrent Pty Limited 002 055 567 TBA TBA Barbecues Galore Pty Limited 001 354 454 TBA TBA Pricotech Leisure Brands Pty Limited 002 060 273 TBA TBA G.L.G. Australia Pty Limited 001 185 002 TBA TBA Park-tec Engineering Pty Limited 001 387 382 TBA TBA Australian Enamellers Pty Limited 002 909 864 TBA TBA Galore Group Services Pty Limited 002 060 335 TBA TBA
The Customer confirms that it and (if it is a corporation) its directors are aware of, understand and agree to the terms of this Letter of Offer and of the General Conditions and the Specific Conditions, if any, which are contained in separate documents, in the case of the Specific Conditions, if any, bearing the same reference at the foot of their first pages as that appearing at the foot of the first page of this letter. Each of: The Galore Group Limited Vilbrent Pty Limited Barbeques Galore Pty Limited Pricotech Leisure Brands Pty Limited G.L.G. Australia Pty Limited Park-tec Engineering Pty Limited Australian Enamellers Pty Limited Galore Group Services Pty Limited gives the confirmation set out above and accepts the Bank's offer as set out in this Letter of Offer, in the General Conditions and in the Specific Conditions for each Facility. Dated ------- ------------ 199.. [day] [month] [year] Signed for and on behalf of each Customer by its Authorised Representative ) ) -------------------------- Name (printed): Signed by ) -------------------------- in the presence of: ) ) ) - ---------------------------- ) Witness Name (printed): The following Sureties confirm that they and (if they are companies) their directors are aware of and understand the terms of this Letter of Offer and of the General Conditions and the Specific Conditions contained in separate documents and described above, all of which make up the Agreement between the Customer and the Bank. Signed for and on behalf of ) The Galore Group Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Vilbrent Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Barbecues Galore Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Galore Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) The Galore Group (Int'l) Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Bosmana Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Pricotech Leisure Brands Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Redgun Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) G.L.G. Australia Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Park-Tec Engineering Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Douglas Manufacturing Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Australian Enamellers Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Cook-on-Gas Products (Aust) Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Cougar Leisure Products Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Galore Group Services Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Galore Group Nominees Pty Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) G.L.G. Trading Pte Ltd ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) The Galore Group (USA) Inc. ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Barbecues Galore, Inc. ) ---------------------------------- by its director ) Name (printed): Signed for and on behalf of ) Pool Patio 'n Things, Inc. ) ---------------------------------- by its director ) Name (printed): ================================================================================ VARIATION LETTER to THE GALORE GROUP LIMITED Dated 12th December 1996 Australia and New Zealand Banking Group Limited ACN 005 357 522 ====[LOGO OF AUTSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED APPEARS HERE]===== - -------------------------------------------------------------------------------- [LETTERHEAD OF ANZ CORPORATE BANKING APPEARS HERE] 12 December 1996 The Directors The Galore Group 327 Chisholm Road AUBURN NSW 2144 Dear Sirs, VARIATION LETTER THE GALORE GROUP LIMITED Following our recent discussions we are pleased to offer additional facilities and variations to some of the conditions on which the existing facilities are provided as follows.
Customer ACN - -------- --- The Galore Group Limited ("Galore") 008 577 759 Vilbrent Pty Limited 002 055 567 Barbecues Galore Pty Limited 001 354 454 Pricotech Leisure Brands Pty Limited 002 060 273 G.L.G. Australia Pty Limited 001 185 002 Park-tec Engineering Pty Limited 001 387 382 Australian Enamellers Pty Limited 002 909 864 Galore Group Services Pty Limited 002 060 335
(each a "Customer" and collectively referred to as the "Galore Group") Summary of facilities - --------------------- Except where specifically stated to the contrary, the facilities to be provided and specified below may be drawn by each Customer, provided the aggregate drawings of the Galore Group under any facility does not exceed the Facility limit for that facility.
Facility Facility Limit -------- -------------- AUD --- 1. Interchangeable Facility i. Variable Rate Commercial Bill Acceptance/Discount Facility ii. Fixed Rate Commercial Bill Facility Total Facility Limit for the Interchangeable Facility 7,550,000 2. Multi Option Facility i. Variable Rate Commercial Bill Acceptance/Discount Facility ii. Documentary Credit/Documents Surrendered Facility (Local or Overseas) iii. Bills Negotiated Not Under Credit Facility (Bills Payable Overseas) Total Facility Limit for the Multi Option Facility 14,100,000 3. Documentary Credit Facility (Local or Overseas) 5,000,000 4. Overdraft Facility 2,400,000
2 5. Indemnity/Guarantee Facility 300,000 6. Encashment Facility/Payroll 850,000 7. Foreign Currency Dealing Facility 2,500,000 8. Foreign Currency Settlement Facility 3,000,000 9. Lease Finance Facility 1,000,000 10. Seasonal Trade Facility 5,000,000 11. Standby Facility 12,000,000 (Variable Rate Commercial Bill Acceptance/Discount Facility) ---------- Total Facility Limits 53,700,000 ----------
The varied facilities are as follows: 2. MULTI OPTION FACILITY --------------------- Total facility limit: $14,100,000 Termination date: Not before the next review date. Purpose: Trade Finance. Total facility limit for Multi Option Facility (and separate facility limits): You may only make a drawing under or otherwise make use of a particular facility included in the Multi Option Facility so long as the making of the drawing would not cause: (i) the amount outstanding under both the facilities included in the Multi Option Facility to exceed the total facility limit for the Multi Option Facility; and (ii) the amount of the outstanding drawings under the particular facility under which the drawing is made to exceed the facility limit, if any, for that particular facility. (i) Variable Rate Commercial Bill Acceptance/Discount Facility (Trade) ------------------------------------------------------------------ Facility Limit: $1,000,000 Yield Rate: For each drawing of bills, a rate quoted by us in respect of the face value of the bills for the relevant tenor. Line Fee: 0.50% p.a. This fee is payable quarterly in arrears. Acceptance Fee: For each bill, an amount equal to 0.625% p.a. on the face amount of the bill payable on the drawdown date for the bill. Conditions: Specific Conditions are attached for this facility. 3 (ii) Interchangeable --------------- Documentary Credit/Documents Surrendered ---------------------------------------- (Local or Overseas) ------------------- Bills Negotiated Not Under Credit Facility ------------------------------------------ (Bills Payable Overseas) ------------------------ Facility limit: AUD13,100,000 (for this purpose we will determine prevailing market rates to convert foreign currency amounts to the equivalent amounts in AUD). Conditions Precedent: You are only entitled to use this facility if we agree to the terms of your application and if you execute all documents required by us. Purpose: Establishment of documentary credits at sight or at term. Fees: Drawings are to be discounted at the bank bill buying rate plus a margin of 1.125% p.a for AUD amounts or in the case of foreign currency amounts, our cost of funds (as determined by us) plus a margin of 1.125%. Specific Conditions: There are no Specific Conditions which apply to this facility except that drawings are to be refinanced on finance terms not exceeding 180 days including the term of the letter of credit. 3. DOCUMENTARY CREDIT FACILITY --------------------------- (Local or Overseas) ------------------- Facility limit: AUD5,000,000 (for this purpose we will determine prevailing market rates to convert foreign currency amounts to the equivalent amounts in AUD.) Termination date: Not before the next review date. Purpose: Establishment of documentary credits at sight. Condition precedent: You are only entitled to use the facility if we agree to the terms of your application and if you execute all documents required by us. Fees: As advised by us from time to time. Specific Conditions: There are no Specific Conditions which apply to this facility. 11. STANDBY FACILITY ---------------- Variable Rate Commercial Bill Acceptance/Discount Facility: Facility limit: $12,000,000 (representing the aggregate face value of the bills). Termination date: (a) If by 30 September 1998 an underwriting arrangement, acceptable to us, has not been entered into for the listing of Galore or any other [LOGO OF ANZ APPEARS HERE] 4 associated entity of Galore in the United States of America ("US") under the Initial Public Offering ("IPO"), 30 September 1998; or (b) If an underwriting arrangement, acceptable to us, has been entered into for the listing of Galore or any other associated entity of Galore under the IPO, the date which is the earlier of: (i) 31 December 1998; or (ii) the date on which the listing of Galore or any other associated entity of Galore occurs in the US. Purpose: To assist Galore in funding its proposed selective share reduction. Repayment arrangement: Unless repaid earlier, this facility will be repaid from either: (a) the proceeds of the IPO; or (b) if the IPO is delayed, from the proceeds of the sale of the assets of Pricotech Leisure Brands Pty Limited; or (c) any other external resources. Yield rate: For each drawing of bills, a rate quoted by us for the face value of the bills for the relevant tenor. Fees: Establishment Fee: $25,000 payable on acceptance of this variation letter. Line Fee: 1.0% pa on the facility limit, payable quarterly in advance, commencing on the date notified to you by us. Acceptance Fee: For each bill, an amount equal to 0.5% pa on the face value amount of the bill calculated on the tenor of the bill and payable on the drawdown date for the bill. Conditions precedent: You will only be entitled to use the facility if: (a) you are fully drawn under facilities 1, 2, 4 and 10 provided to you by us and provided we are satisfied, from the cashflow forecast provided by you, that the Galore Group cashflow: (i) requires a drawing, and [LOGO OF ANZ APPEARS HERE] 5 (ii) will be sufficient to enable you to meet all your obligations to us; and (b) Galore to have raised not less than $10,000,000 pursuant to the issue of unsecured and unsubordinated convertible notes (the "Notes") issued pursuant to the terms of a Note Subscription Agreement dated 25 October, 1996 (the "Note Subscription Agreement") between Galore and SBC Warburg Australia Limited; and (c) you have provided us with evidence (to our satisfaction) that the proposed selective share reduction as detailed in the Notice of Annual General Meeting and Information Memorandum dated 25 October, 1996 has been approved by the shareholders and the courts as required under the Corporations Law or such other regularity requirements; and (d) we must have received a valuation of Galore by Ernst & Young, verifying that the price offered for the selective share reduction is a fair and reasonable price; and (e) we must have received a certificate signed by the directors of Galore stating that the asset value of Pricotech Leisure Brand Pty Limited during the period between November 1996 and January 1997 will be between $8,000,000 and $10,000,000; and (f) we must have received the additional security referred to below and any other documentation in connection with the security, in a form satisfactory to us and our legal advisers; and (g) we and our legal advisers, must be satisfied that all legal requirements in relation to the selective share reduction are in order; and (h) we have received a certification, to our satisfaction, that your stock (or any part thereof) is not subject to any retention of title arrangement in favour of any third party (the certification must be provided by one of your directors and by one other person, being a director or secretary of you); and (i) you must present to us an interest rate management policy and that policy must be acceptable to us; and (j) the terms of the Notes and the Note Subscription Agreement are acceptable to us. Special Conditions: Specific conditions are attached for this facility. [LOGO OF ANZ APPEARS HERE] 6 This facility may only be drawn by Galore. Further Security The existing security held by us is to remain in full force and together with the further security now to be taken, will extend to cover the existing facilities currently being provided to you by us and the additional facilities in this letter. (f) Mortgage debentures (the "US Debentures") over all the assets and undertaking of Galore and its subsidiaries in the United States or its equivalent security under the laws of the United States of America, as advised by our US legal advisers, ranking second to a mortgage debenture granted in favour of Merrill Lynch Business Financial Services Inc. (g) Cross Guarantee between all members of the Galore Group and including all your US subsidiaries. (h) A Deed of Priority between us and Merrill Lynch Business Financial Services Inc, in a form satisfactory to us, granting them a USD 2,150,000 priority (which priority will reduce in accordance with the terms of the repayment arrangements under part of the facilities which it secures) in relation to our US Debentures. The Deed of Priority must have reduced to USD1,500,000.00 prior to any drawdown under the Standby Facility beyond $11 million. And if requested by us: (i) Issuing and stamping of additional new debenture certificates in our favour; and (j) completion of a Statutory Declaration which outlines the value of total assets in each state (previously forwarded to you). We will engage Gadens Ridgeway to prepare the necessary security documentation to complete our security position. The security arrangements are governed by a security structure under which ANZ Capel Court Limited has been appointed security agent. Other Conditions - ---------------- Negative Pledge You undertake not to: (a) create or permit an encumbrance over your assets or give any guarantee or indemnity or similar security to any third party for any obligation without our prior written consent, except for a second ranking charge, upon terms acceptable to us and granted to the holders of the Notes (the "Noteholders"), pursuant to the terms of the Notes and subject to a priority agreement (acceptable to us), between us and the Noteholders or their representative (as the case may be); and (b) make any payments under the Notes where there subsists, or upon payment, will occur, an event of default or potential event of default under the terms and conditions of this agreement or the terms and conditions of the Notes. Cross Default In addition to any other event of default under this agreement, it is an event of default under this agreement if an Early Redemption Event (as that term is defined in the terms of the Notes) occurs or if you breach any of the terms of the Notes. [LOGO OF ANZ APPEARS HERE] 7 Listing in the US Galore undertakes not to make the IPO unless we have given our prior written consent to the terms of the IPO. Such consent will not be unreasonably withheld. All proceeds raised from the IPO must be deposited into an account opened with us, named "Galore IPO account" unless prohibited by any relevant legislation or regulatory requirement or an underwriting agreement entered into in relation to the IPO provided we are reasonably satisfied that our security will extend to those proceeds or that those proceeds form part of our security. If the proceeds are deposited into an account named "Galore IPO account" no money or amount may be withdrawn from that account until all money owing to us, whether actual or contingent, under the Standby Facility has been unconditionally repaid to us in full and in priority to the Noteholders. Acknowledgment We acknowledge that you have the right to issue up to 3,700,000 share options under an executive employee option scheme provided the documentation for the scheme is acceptable to us and our legal advisers. Capital Expenditure Budget The Galore Group's annual capital expenditure budget is to be presented to us and approved by us prior to the commencement of the next financial year. You will not, without our prior written consent, spend or incur any capital expenses in aggregate in excess of $500,000 of your budget for that year. Further Financial Performance Covenants For the avoidance of doubt, with respect to the financial covenants, "you" or "your" means Galore and all its subsidiaries. Previous references to "Gearing Ratio" are deleted. You shall observe the following financial performance covenants: Leverage Ratio is not to exceed 2.0:1. (To be monitored on a monthly basis). Shareholders Funds, including the principal outstanding under the Notes (but excluding any capitalised or deferred interest under the Notes) is not to fall below $20,000,000. Current Ratio not to fall below 1.50:1 (being Total Tangible Current Assets divided by Total Current Liabilities) (To be monitored monthly). For any financial year, dividends declared and loans made to shareholders are not to exceed 50% of NPAT.
- -------------------------------------------------------------- Other Ratios 30/6/97 30/6/98 - ------------ ------- ------- - -------------------------------------------------------------- Effective Gearing Ratio (being 2.85:1 2.85:1 Shareholders Funds less Intangible Assets divided by Total Liabilities) - -------------------------------------------------------------- Interest Cover (being EBIT 1.5X 1.5x divided by Gross Interest). - --------------------------------------------------------------
8 "Accounting Standards" means: (a) the accounting standards prescribed under the Corporations Law, the Corporations Regulations and, where not inconsistent with those Accounting Standards and regulations, generally accepted principles and practices in Australia consistently applied by you as between your members; or (b) such other standards, principles and practices that we may otherwise agree to in writing from time to time. "EBIT" means earnings before income tax and before Gross Interest, being your gross income less costs and expenses incurred by you during the same period as disclosed by the profit and loss account excluding any income tax expense and Gross Interest. "Intangible Assets" means: (a) patents, patent rights, trademarks, trade names, franchises, copyrights, licences, permits, goodwill, and other intangible assets classified as such in accordance with generally accepted Accounting Standards; and (b) all prepayments; and (c) future income tax benefits being the estimated amount of future saving in income tax likely to arise as a result of: (i) the reversal of timing differences; and (ii) the recoupment of carried forward tax losses, calculated in accordance with Accounting Standards. "Gross Interest" means the aggregate of interest and amounts in the nature of interest incurred (including without limitation payments in the nature of interest under any finance leases) or paid or for which provision has been made during the relevant accounting period, including without limitation such payments under the Notes, determined on a gross (not net) basis. "Leverage Ratio" means the total funded debt divided by Shareholders Funds, where Shareholders Funds include the principal outstanding under the Notes. "NPAT" means your net income on a consolidated basis equal to the gross revenues and other income, less the aggregate of: a) operating expenses; b) selling, administrative and general expense; c) taxes; d) contingency and other reserves; e) depreciation, depletion and amortisation of properties; and including abnormal and extraordinary items of income or expense, all computed and consolidated in accordance with Accounting Standards. [LOGO OF ANZ APPEARS HERE] 9 "Shareholders Funds" means the total consolidated net book value of your assets after all appropriate deductions in accordance with generally accepted Accounting Standards (including without limitation, reserves for doubtful receivable, obsolescence, depreciation and amortisation) less the consolidated liabilities (including tax and other proper accruals, and any deferred income) calculated in accordance with Accounting Standards. "Total Tangible Current Assets" means, at any time, the aggregate of all your assets calculated on a consolidated basis which would be classified as current assets, in accordance with Accounting Standards, less Intangible Assets. "Total Current Liabilities" means, at any time, the aggregate of all your liabilities calculated on a consolidated basis which would be classified as current liabilities, in accordance with Accounting Standards. "Total Liabilities" means the total of all your liabilities (including provisions, tax and other accruals, dividends declared or accrued but not paid, and any deferred income) calculated in accordance with Accounting Standards and computed on a consolidated basis. Financial Information You must ensure that all Financial Information provided to us complies with all relevant Accounting Standards and gives a true and fair view of the financial condition and the result of your operations as at the date and in relation to the period in respect of which they were prepared. "Financial Information" includes without limitation profit and loss accounts and balance sheets (including any statements, reports and notes attached OR issued in relation to those accounts and balance sheets). Certificate of Compliance with Financial Undertakings You must provide a certificate of compliance with the financial ratios specified in this letter, including reasonable details of the methodology used to calculate the ratios, and certify that all Financial Information provided to us gives a true and fair view of your financial condition and the result of your operations as at the date and in relation to the period in respect of which they were prepared. The certificate referred to in the preceding paragraph must be signed by one of your directors and by one other person, being a director or secretary of you. These certificates must be provided within 45 days of the end of each financial half year. Undertakings in Relation to the Notes With respect to the Notes, Galore agrees: (a) to provide us with a copy of any notice or demand it receives under the terms and conditions of the Notes, immediately once that notice or demand is received by Galore including without limitation any notice to convene a meeting of Noteholders to discuss or consider any action following the occurrence of an Early Redemption Event; (b) to immediately notify us if it has or is likely to breach any term or condition of the Notes (and provide us with reasonable details of the breach or the likely breach); and (c) not to agree to amend the terms and conditions of the Notes without our prior written consent. [LOGO OF ANZ APPEARS HERE] 10 Additional Event of Default You will commit an event of default if you complete: (a) a selective share reduction without first having raised $10,000,000 from the issue of the Notes; or (b) any other form of share reduction. If you commit the event of default referred to in the preceding paragraph, then in addition to any other rights or remedies we may have under this agreement, we may cancel all your facilities and demand immediate payment of all outstanding money. Costs All costs and fees, including legal expenses and stamp duty, associated with the preparation, negotiation and execution of this letter and the further securities are to be paid by you or to be debited to your account. In addition, subject to any applicable law, you indemnify us in respect of and on demand will pay to us all transaction charges (such as financial institutions duty and debits tax). No Retention of Title We must receive a certification, to our satisfaction, that your stock (or any part thereof) is not subject to any retention of title arrangement in favour of any third party. The certification referred to in the preceding paragraph must be provided by one of your directors and by one other person, being a director or secretary of you, within 45 days of the end of each financial year. Renegotiation of Facilities All terms and conditions relevant to all your facilities will be subject to renegotiation prior to 31 December 1998. If the terms and conditions of all your facilities cannot be agreed upon between us on or before 31 December 1998, then despite any provision to the contrary you will repay or pay to us on 31 December 1998 all outstanding money under all facilities provided to you and at the same time you agree to pay to us all other amounts outstanding but unpaid under any transaction document. No Other Variations Except as indicated in this letter, no other existing arrangements and conditions for the Facilities are varied or replaced, and those arrangements and conditions for the Facilities continue despite the variations in this letter. Conditions Continue Until you accept our offer and have complied with all conditions precedent, the arrangements for the facilities that we are making available to you, including the conditions on which the facilities are being made, continue. Annual Review Our next annual review of your facilities will be on 16 February 1997. [LOGO OF ANZ APPEARS HERE] 11 Offer Period Our offer is available for acceptance until the close of business on 31 December 1996 unless otherwise extended by us in writing. We may withdraw our offer at any time before you accept it if we become aware of anything which, in our opinion, adversely alters the basis on which we made our offer. Acceptance To accept this offer, please sign the duplicate of this letter where indicated and return it to us. If you wish to discuss these or any other arrangements, please feel free to contact myself on 9227 1478 or Jason Mares on 9227 1705. Your faithfully, /s/ Neil Shilbury Neil Shilbury Senior Manager Corporate Banking [LOGO OF ANZ APPEARS HERE] 7 SIGNED on behalf of BARBECUES GALORE INC. ) by its authorised representative in the ) presence of: ) ) ) [SIGNATURE APPEARS HERE] - ----------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representatives - ----------------------------------------------- ) Name of witness - please print ) ) - ----------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of POOL PATIO'N THINGS, INC. ) by its authorised representative in the ) presence of: ) ) [SIGNATURE APPEARS HERE] - ----------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ----------------------------------------------- ) Name of witness - please print ) ) - ----------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of COOK-ON GAS PRODUCTS (AUST) ) PTY LTD by its authorised representative ) in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ----------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ----------------------------------------------- ) Name of witness - please print ) ) - ----------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
To accept our offer: [_] SIGN the attached duplicate variation letter and extract where indicated. [_] RETURN the signed variation letter to the Bank at our address shown in the letter by 31st December 1996. 2 SIGNED on behalf of VILBRENT PTY LTD by its ) authorised representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------------------- ) Name of witness - please print ) ) - ------------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of BARBECUES GALORE PTY LTD by ) its authorised representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------------------- ) Name of witness - please print ) ) - ------------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of PRICOTECH LEISURE BRANDS PTY ) LTD by its authorised representative ) in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------------------- ) Name of witness - please print ) ) - ------------------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
3 SIGNED on behalf of G.L.G. AUSTRALIA PTY ) LTD by its authorised representative in the ) presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of PARK-TEC ) ENGINEERING PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print SIGNED on behalf of AUSTRALIAN ) ENAMELLERS PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
4 SIGNED on behalf of GALORE GROUP ) SERVICES PTY LIMITED by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print
SURETY ACKNOWLEDGMENT To: Australia and New Zealand Banking Group Limited Surety acknowledgment to Variation Letter dated 12th December 1996. Each of the following sureties acknowledges that the securities given, or to be given by us secure all present and future obligations of the customer(s) to the Bank, including obligations in respect of the facilities as varied by the variation letter and in respect of the additional facilities detailed in the variation letter. SIGNED on behalf of THE GALORE GROUP ) LTD by its authorised representative in the ) presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print SIGNED on behalf of VILBRENT PTY LTD by its ) authorised representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
2 SIGNED on behalf of BARBECUES GALORE ) PTY LTD by its authorised representative in the ) presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representatives - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print SIGNED on behalf of PRICOTECH LEISURE ) BRANDS PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print SIGNED on behalf of G.L.G. AUSTRALIA PTY ) LIMITED by its authorised representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print
3 SIGNED on behalf of PARK-TEC ) ENGINEERING PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representatives - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of AUSTRALIAN ) ENAMELLERS PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of GALORE GROUP ) SERVICES PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print
4 SIGNED on behalf of GALORE PTY LTD by its ) authorised representative in the ) presence of: ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of THE GALORE GROUP ) (INT'L) PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of BOSMANA PTY LTD ) by its authorised representative in ) the presence of: ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
5 SIGNED on behalf of REDGUN PTY LTD ) by its authorised representative in ) the presence of: ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of Witness Name of authorised representative - please print SIGNED on behalf of DOUGLAS ) MANUFACTURING PTY LTD by its ) authorised representative in ) the presence of: ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print SIGNED on behalf of COUGAR LEISURE ) PRODUCTS PTY LTD by its authorised ) representative in the presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
ACCEPTANCE To: Australia and New Zealand Banking Group Limited Acceptance of offer Variation Letter dated 12th December 1996. We accept the additional facilities and variations detailed in this letter. We each state that each of the additional facilities in this variation letter is for commercial purposes and that the financial accommodation made available by the Bank under each of the additional facilities will not be used wholly and exclusively for the personal, domestic or household use by any person. Dated: 1996. SIGNED on behalf of THE GALORE GROUP ) LTD by its authorised representative in the ) presence of: ) ) ) [SIGNATURE APPEARS HERE] - ------------------------------------- ) ---------------------------------- Signature of witness ) Signature of authorised ) representative - ------------------------------------- ) Name of witness - please print ) ) - ------------------------------------- ) ---------------------------------- Address of witness Name of authorised representative - please print
EX-10.4 11 MAJOR AGREEMENTS RE US CREDIT FACILITY EXHIBIT 10.4 [LOGO OF MERRILL LYNCH APPEARS HERE] No.9502340701 - -------------------------------------------------------------------------------- TERM WCMA(R) LOAN AND SECURITY AGREEMENT This Term WCMA Loan and Security Agreement ("Loan Agreement") is entered into as of February 23, 1995, between BARBEQUES GALORE, INC., a corporation organized and existing under the laws of the State of California having its principal office at 15041 Bake Parkway, Ste. A, Irvine, CA 92718, Attn: Sydney Selati, Chairman. ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS"). In accordance with that certain Working Capital Management/(R)/ Account Agreement No. 231-07T11 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by this reference incorporated as a part hereof. In conjunction therewith, Customer has requested that MLBFS make the Term WCMA Loan hereinafter described (the "Loan"); and, subject to the terms and conditions herein set forth, MLBFS has agreed to make the Loan to Customer. The Loan combines the equivalent of 5 successive one-year term loans, each equal to that portion of the Loan that will be fully amortized in one year, with a line of credit under the WCMA Program ("WCMA Line of Credit") equal to that portion of the Loan that will not be amortized in the ensuing year. Subject to the terms hereof, each year after the initial funding there will be an additional funding on account of the term portion of the Loan, with the proceeds deposited into Customer's WCMA Account concurrently with a corresponding reduction in the maximum WCMA Line of Credit. This structure provides Customer with substantially the same funding and amortization as a conventional term loan. However, unlike most conventional term loans, it permits both a prepayment in whole or in part at any time without penalty, and, subject to the terms and conditions herein set forth, a re-borrowing on a revolving basis of any such amounts prepaid on account of the WCMA Line of Credit portion of the Loan. The structure therefore enables Customer at its option to use its free cash balances to reduce term loan interest expense without impairing working capital. Contemporaneously herewith, MLBFS is entering into a WCMA Note, Loan and Security Agreement with Customer for a $500,000.00 line of credit for working capital purposes. All references to the WCMA Line of Credit in this Loan Agreement shall refer only to the WCMA Line of Credit hereunder and not to that under the WCMA Note, Loan and Security Agreement dated as of the date hereof. Accordingly, and in consideration of the premises and of the mutual covenants of the parties hereto, Customer and MLBFS hereby agree as follows: Article I. DEFINITIONS 1.1 Specific Terms. In addition to terms defined elsewhere in this Loan Agreement, when used herein the following terms shall have the following meanings: (a) "Account Debtor " shall mean any party who is or may become obligated with respect to an Account or Chattel Paper. (b) "Additional Agreements" shall mean all agreements, instruments, documents and opinions other than this Loan Agreement which are contemplated hereby or otherwise reasonably required by MLBFS, and relate to this Loan agreement or evidence the creation, guaranty or collateralization of the Obligations or the granting or perfection of security interests upon the Collateral or any other collateral for the Obligations, and shall include, without limitation, the Term WCMA Note. (c) "Business Day" shall mean any day other than a Saturday, Sunday, federal holiday or other day on which the New York Stock Exchange is regularly closed. (d) "Closing Date" shall mean the date upon which all conditions precedent to MLBFS' obligation to make the Loan shall have been met to the satisfaction of MLBFS. (e) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents and Instruments of Customer, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all books and records (including computer records) in any way related thereto, all proceeds thereof, and the additional collateral described in Section 4.6 (b) hereof. (f) "Commitment Expiration Date" shall mean March 23, 1995. (g) "Commitment Fee" shall mean a fee of $7,500.00 due to MLBFS in connection with this Loan Agreement. (h) "General Funding Conditions" shall mean each of the following conditions to any loan or advance by MLBFS hereunder: (i) no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing or would result from the making of any WCMA Loan hereunder by MLBFS; (ii) there shall not have occurred any material adverse change in the business or financial condition of Customer or any Guarantor; (iii) all representations and warranties of Customer or any Guarantor herein or in any Additional Agreements shall then be true and correct in all material respects; (iv) no other event shall then have occurred and be continuing which shall have reasonably caused MLBFS to in good faith believe that the prospect of payment or performance by Customer or any Guarantor has been materially impaired; (v) MLBFS shall have received this Loan Agreement and all Additional Agreements, duly executed and filed or recorded where applicable, all of which shall be in form and substance reasonably satisfactory to MLBFS; (vi) the Commitment Fee shall have been paid in full; (vii) MLBFS shall have received evidence reasonably satisfactory to it as to the ownership of the Collateral and the perfection and priority of MLBFS' liens and security interests thereon, as well as the ownership of and the perfection and priority of MLBFS' liens and security interests on any other collateral for the Obligations furnished pursuant to any of the Additional Agreements; (viii) MLBFS shall have received evidence reasonably satisfactory to it of the insurance required hereby or by any of the Additional Agreements; and (ix) any additional conditions specified in an Approval Letter or Commitment Letter executed by MLBFS with respect to the transactions contemplated hereby shall have been met to the reasonable satisfaction of MLBFS. (i) "Guarantor" shall mean a person or entity who has either guaranteed or provided collateral for any or all of the Obligations; and "Business Guarantor" shall mean any such Guarantor that is a corporation, partnership, proprietorship, limited liability company or other entity regularly engaged in a business activity. (j) "Interest Rate" shall mean a fluctuating per annum rate equal to the sum of (i) 2.70%, and (ii) the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured notes sold though dealers by major corporations (the "30-Day Commercial Paper Rate"). The Interest Rate will change as of the date of publication in The Wall Street Journal of a 30-Day Commercial Paper Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. (k) "Loan Amount" shall mean $1,500,000.00. (l) "Loan Purpose" shall mean the purpose for which the proceeds of the Loan will be used; to wit: to refinance existing debt owed to The Galore Group Limited and to provide financing for expansion purposes, -2- including, without limitation, expansion of Customer's commercial division and for purchase of inventory, fixtures, equipment, leasehold improvements, and lease acquisition costs for company owned and franchised stores, and as working capital for Customer. (m) "Location of Tangible Collateral" shall mean the address of Customer set forth at the beginning of this Loan Agreement, together with any other address or addresses set forth on an exhibit hereto as being a Location of Tangible Collateral. (n) "Maximum WCMA Line of Credit" shall mean the maximum aggregate line of credit which MLBFS will extend to Customer subject to the terms and conditions hereof, as the same shall be reduced from time to time in accordance with the terms hereof. (o) "Obligations" shall mean all liabilities, indebtedness and other obligations of Customer to MLBFS, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without limiting the foregoing, include all present and future liabilities, indebtedness and obligations of Customer under this Loan Agreement and the Term WCMA Note. (p) "Permitted Liens" shall mean (i) liens for current taxes not delinquent and, if MLBFS' rights to and interest in the Collateral are not materially and adversely affected thereby, liens for taxes being contested in good faith by appropriate proceedings; (ii) liens arising in the ordinary course of business for sums not due; (iii) liens in favor of MLBFS; (iv) liens which will be discharged with the proceeds of the Loan; (v) and those liens set forth on Schedule 1 attached hereto; and (vi) any other liens expressly permitted in writing by MLBFS. (q) "Term WCMA Note" shall mean and refer to the Term WCMA Note executed by Customer and dated as of the date hereof which incorporates both a WCMA Note evidencing amounts owing on account of the WCMA Line of Credit portion of the Loan, and a Term Note evidencing amounts owing on account of the term portion of the Loan. (r) "WCMA Account" shall mean and refer to the Working Capital Management Account of Customer with MLPF&S identified as WCMA Account No. 231-07T11. (s) "WCMA Loan" shall mean each advance made by MLBFS pursuant to the WCMA Line of Credit. (t) "WCMA Loan Balance" shall mean an amount equal to the aggregate unpaid principal balance of all WCMA Loans. 1.2 Other Terms. Except as otherwise defined herein: (i) all terms used in this Loan Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms used herein which are defined in the WCMA Agreement shall have the meaning set forth in the WCMA Agreement. Article II. THE LOAN 2.1 Commitment. Subject to the terms and conditions hereof, MLBFS hereby agrees to make the Loan to Customer, and Customer hereby agrees to borrow the Loan from MLBFS. Unless otherwise hereafter agreed by MLBFS, the entire proceeds of the Loan will be disbursed either directly to the applicable third party or parties on account of the Loan Purpose or to reimburse Customer for amounts directly expended by it; all as directed by Consumer in a Closing Certificate to be executed and delivered to MLBFS prior to the date of funding. -3- 2.2 Operation of Loan. (a) Term WCMA Note. The Loan will be evidenced by and shall be repayable in accordance with the terms of the Term WCMA Note and this Loan Agreement. The Term WCMA Note combines two promissory notes, one evidencing the term portion of the Loan (the "Term Note") and the other evidencing the WCMA Line of Credit portion of the Loan (the "WCMA Note"). The balance owing by Customer on account of the Loan at any time shall be an amount equal to the sum of the then outstanding balances under the WCMA Note and the Term Note included in the Term WCMA Note. The Term WCMA Note is hereby incorporated as a part hereof. (b) Term Note Principal. The principal balance owing under the Term Note at any time shall be an amount equal to the difference between (i) the Loan Amount less the aggregate principal paid by Customer on account of the Term Note; and (ii) the WCMA Line of Credit. So long as there shall be any moneys owing by Customer to MLBFS hereunder or there shall be a WCMA Line of Credit, no reduction in the unpaid principal balance of the Term Note to zero shall be deemed a payment of the Term Note in full or an extinguishment of any of the obligations of Customer thereunder or hereunder. (c) Term Note Funding. Subject to the terms hereof, the Term Note will be funded by MLBFS in 5 annual installments, each equal to 1/5th of the Loan Amount. The first 1/5th installment funded by MLBFS will be funded on the Closing Date and applied on account of the Loan Purpose, as aforesaid. Subsequent installments will be funded on a date chosen by MLBFS in its sole discretion which will be on or within two weeks before or after each subsequent anniversary of the last day of the calendar month in which the Closing Date occurs (each, a "Subsequent Funding Date"). Each Term Note funding after the first shall be deposited into Customers WCMA Account. (d) Activation of WCMA Line. On the Closing Date, MLBFS will activate and make available as an integral part of the Loan a WCMA Line of Credit equal to 4/5ths of the Loan Amount, all of which will be immediately disbursed on account of the Loan Purpose as part of the Loan in accordance with the directions of Customer set forth in the Closing Certificate, as aforesaid. (e) Subsequent Fundings. On the first Subsequent Funding Date, concurrently with MLBFS' funding of the second installment of the debt evidenced by the Term Note into the WCMA Account, the WCMA Line of Credit will be reduced to an amount equal to 3/5ths of the Loan Amount. On the second Subsequent Funding Date, the WCMA Line of Credit will be reduced to an amount equal to 2/5ths of the Loan Amount; and on the third Subsequent Funding Date the WCMA Line of Credit will be reduced to an amount equal to 1/5th of the Loan Amount. (f) Final WCMA Maturity Date. On the fourth Subsequent Funding Date (the "WCMA Maturity Date"), the WCMA Line of Credit will be terminated and the WCMA Account, at the option of Customer, will either be converted to a WCMA Cash Account (subject to any requirements of MLPF&S) or terminated. 2.3 Conditions of MLBFS' Obligation. The Closing Date and MLBFS' obligation to make the Loan on the Closing Date are subject to the prior fulfillment of each of the following conditions; (a) MLBFS shall have received a written request from Customer that the Loan be funded in accordance with the terms hereof, together with a written direction from Customer as to the method of payment and payee(s) of the proceeds of the Loan, which request and direction shall have been received by MLBFS not less than two Business Days prior to any requested funding date; (b) MLBFS shall have received a copy of invoices, bills of sale, payoff letters or other applicable evidence reasonably satisfactory to it that the proceeds of the Loan will satisfy the Loan Purpose; (c) the Commitment Expiration Date shall not then have occurred; Purpose; (c) the Commitment Expiration Date shall not then have occurred; and (d) each of the General Funding Conditions shall have been met or satisfied to the reasonable satisfaction of MLBFS. -4- 2.4 Conditions of Subsequent Fundings; Termination. (a) Conditions of Subsequent Fundings. The obligation of MLBFS to fund installments of the term portion of the Loan on any Subsequent Funding Date shall be subject to each of the conditions specified in Section 2.3 hereof being met at such date, and the further condition that all payments due under the Term Note on or prior to any Subsequent Funding Date shall have been paid in full; provided, however, that notwithstanding the failure of any such conditions to have been met, MLBFS may in its sole discretion fund such installment and/or any other installments, and no such funding shall constitute a waiver by MLBFS of any of its rights hereunder or under any of the Additional Agreements. Without limiting the foregoing, it is understood that no funding by MLBFS of any sum hereunder while an Event of Default shall have occurred and is continuing shall under any circumstances be deemed a waiver by MLBFS of such Event of Default, or a waiver of any of MLBFS' rights hereunder. 2.5 Commitment Fee. In consideration of the agreement by MLBFS to extend the Loan to Customer in accordance with and subject to the terms hereof, Customer has paid or shall, on or before the Closing Date pay, the Commitment Fee to MLBFS. The Commitment Fee shall not be refundable under any circumstances. 2.6 Acknowledgments of Customer. Customer acknowledges, covenants and agrees that: (a) Payment of WCMA Interest; Additional Deposits. Under the terms of this Loan Agreement, interest accrued on amounts outstanding on the Term WCMA Line of Credit each month will, subject to the terms hereof, ordinarily be paid from the proceeds of a borrowing of an additional sum under the Term WCMA Line of Credit. Since substantially the entire Term WCMA Line of Credit may be drawn on the Closing Date, Customer agrees that it will, without demand, invoicing or the request of MLBFS, from time to time make sufficient deposits into the WCMA Account in order to assure that the Maximum WCMA Line of Credit is not exceeded. Installments of principal and interest under the Term Note shall be paid directly to MLBFS in accordance with the terms of the Term Note. (b) Additional Interest Charges. SUBJECT TO THE TERMS HEREOF, ON EACH SUBSEQUENT FUNDING DATE MLBFS WILL DEPOSIT THE AMOUNT FUNDED INTO THE WCMA ACCOUNT. DUE TO POSSIBLE DELAYS IN POSTING AS WELL AS CERTAIN DELAYS IN RECOGNITION OF DEPOSITS INHERENT IN THE WCMA PROGRAM, CUSTOMER WILL NOT RECEIVE CREDIT FOR THE AMOUNT DEPOSITED FOR UP TO SEVERAL DAYS THEREAFTER, RESULTING IN AN INTEREST CHARGE FOR THAT PERIOD OF TIME ACCRUING AND CHARGED IN THE WCMA ACCOUNT. ON THE OTHER HAND, BECAUSE MLBFS BORROWS ALL OR SUBSTANTIALLY ALL OF THE FUNDS THAT IT LENDS ON THE DATE OF FUNDING, IT MUST CHARGE INTEREST ON THE AMOUNT FUNDED ON EACH SUBSEQUENT FUNDING DATE FROM THE DATE OF ITS DEPOSIT INTO THE WCMA ACCOUNT, WHETHER OR NOT SUCH DEPOSIT IS IMMEDIATELY RECOGNIZED. THE TIMING DIFFERENCES BETWEEN THE DATE OF DEPOSIT AND DATE OF RECOGNITION OF THE DEPOSIT IN THE WCMA ACCOUNT WILL THEREFORE RESULT IN EXTRA INTEREST CHARGES TO CUSTOMER, WHICH CUSTOMER ACKNOWLEDGES ARE AN ADDITIONAL COST OF THE LOAN AND HEREBY UNCONDITIONALLY AGREES TO PAY. -5- Article III. THE WCMA LINE OF CREDIT 3.1 WCMA Note. All amounts owing under the WCMA Line of Credit shall be deemed owing under and evidenced by the WCMA Note included in the Term WCMA Note. 3.2 WCMA Loans. (a) Loan Commitment and Requests. Subject to the terms and conditions hereof; (i) on the Closing Date, MLBFS will make a WCMA Loan to Customer in an amount equal to the Maximum WCMA Line of Credit, the entire proceeds of which will be disbursed on account of the Loan Purpose, as aforesaid; and (ii) during the period from and after the Closing Date to the WCMA Maturity Date; (x) Customer may repay said WCMA Loan and any other WCMA Loans in whole or in part at any time without premium or penalty, and request a re-borrowing of amounts repaid on a revolving basis, and (y) MLBFS will make such additional WCMA Loans as Customer may from time to time request in accordance with the terms hereof, provided that, without limiting any of the other conditions hereof, the making of any such WCMA Loan shall not cause the WCMA Loan Balance to exceed the Maximum WCMA Line of Credit. Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other means of access to the WCMA Line of Credit as may be permitted by MLBFS from time to time; it being understood that so long as the WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account which but for the WCMA Line of Credit would under the terms of the WCMA Agreement result in an overdraft, shall be deemed a request by Customer for a WCMA Loan. (b) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be obligated to make any WCMA Loan, and may without notice refuse to honor any such request by Customer, if at the time of Customers request; (i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of Credit shall have otherwise been terminated in accordance with the terms hereof; or (iii) an event shall have occurred and is continuing which shall have caused any of the General Funding Conditions to not then be met or satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any one or more of said conditions shall not have been met shall not in any event be construed as a waiver of said condition or conditions or of any Event of Default, and shall not prevent MLBFS at any time thereafter while any condition shall not have been met from refusing to honor any request by Customer for a WCMA Loan. (c) Force Majeure. MLBFS shall not be responsible, and shall have no liability to Customer or any other party, for any delay or failure of MLBFS to honor any request of Customer for a WCMA Loan or any other act or omission of MLBFS, MLPF&S or any of their affiliates due to or resulting from any system failure, error or delay in posting or other clerical error, loss of power, fire, Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of their affiliates unless directly arising out of the willful wrongful act or active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer or any other party for any incidental or consequential damages arising from any act or omission by MLBFS, MLPF&S or any of their affiliates in connection with the WCMA Line of Credit or this Loan Agreement. (d) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. Notwithstanding any other provision in this Loan Agreement or any Additional Agreements to the contrary, in no event shall the Interest Rate exceed the highest rate permissible under any applicable law. In the event that any court having jurisdiction determines that MLBFS has received excess interest hereunder, MLBFS will promptly refund such excess interest to Customer, without charge or penalty. Except as otherwise provided herein, accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on the last Business Day of the calendar month in which the Closing Date shall occur. Customer hereby irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued interest from any available free credit balances in the WCMA Account, and if such available free credit -6- balances are insufficient to satisfy any interest payment due, to liquidate any investments in the Money Accounts (other than any investments constituting any Minimum Money Accounts Balance) in an amount up to the balance of such accrued interest, and pay to MLBFS the available proceeds on account thereof. If available free credit balances in the WCMA Account and available proceeds of the Money Accounts are insufficient to pay the entire balance of accrued interest, and Customer otherwise fails to make such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an amount equal to the balance of such accrued interest and pay the proceeds of such WCMA Loan to itself on account of such interest. The amount of any such WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a WCMA Loan to Customer under these circumstances, Customer hereby authorizes and directs MLPF&S to make all such interest payments to MLBFS from any Minimum Money Accounts Balance. If there is no Minimum Money Accounts Balance, or it is insufficient to pay all such interest, MLBFS will invoice Customer for payment of the balance of the accrued interest, and Customer shall pay such interest as directed by MLBFS within 5 Business Days of receipt of such invoice. (e) Payments. All payments required or permitted to be made pursuant to this Loan Agreement shall be made in lawful money of the United States. Unless otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be made by the delivery of checks (other than WCMA Checks), or by means of FTS or wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA Agreement to the contrary, Customer hereby irrevocably authorizes and directs MLPF&S to apply available free credit balances in the WCMA Account to the repayment of the WCMA Loan Balance prior to application for any other purpose. Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by Customer upon the same basis and schedule as funds are made available for investment in the Money Accounts in accordance with the terms of the WCMA Agreement. The acceptance by or on behalf of MLBFS of a check or other payment for a lesser amount than shall be due from Customer, regardless of any endorsement or statement thereon or transmitted therewith, shall not be deemed an accord and satisfaction or anything other than a payment on account, and MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment without prejudice to the rights of MLBFS to recover the balance actually due or to pursue any other remedy under this Loan Agreement or applicable law for such balance. All checks accepted by or on behalf of MLBFS in connection with the Loan and WCMA Line of Credit are subject to final collection. (f) Exceeding the Maximum WCMA Line of Credit. In the event that the WCMA Loan Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall within 1 Business Day of the first to occur of (i) any request or demand of MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA Loan Balance in excess of the WCMA Line of Credit, deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum WCMA Line of Credit. (g) Statements. MLPF&S will include in each monthly statement it issues under the WCMA Program information with respect to WCMA Loans and the WCMA Loan Balance. Any questions that Customer may have with respect to such information should be directed to MLBFS; and any questions with respect to any other matter in such statements or about or affecting the WCMA Program should be directed to MLPF&S. Article IV. GENERAL PROVISIONS 4.1 Representations and Warranties. Customer represents and warrants to MLBFS that: (a) Due Organization, etc. Customer is a corporation, duly organized, validly existing and in good standing under the laws of the State of California, and if any Guarantor is a corporation, partnership or limited liability company, such Guarantor is, duly organized, validly existing and in good standing under the laws of the State of its incorporation or formation. (b) Execution, Delivery and performance. The execution, delivery and performance by Customer of this Loan Agreement and the Term WCMA Note and by Consumer and each Guarantor of such of the other -7- Additional Agreements to which it is a party; (i) have been duly authorized by all requisite action, (ii) do not and will not violate or conflict with any law or other governmental requirement, or any of the agreements, instruments or documents which formed or govern Customer or any such Guarantor, and (iii) do not and will not breach or violate any of the provisions of, and will not result in a default by Customer or any such Guarantor under, any other agreement, instrument or document to which it is a party or by which it is bound. (c) Notices and Approvals. Except as may have been given or obtained, no notice to or consent or approval of any governmental body or authority or other third party whatsoever (including, without limitation, any other creditor) is required in connection with the execution, delivery or performance by Customer or any Guarantor of such of this Loan Agreement, the Term WCMA Note and the other Additional Agreements to which it is a party. (d) Enforceability. This Loan Agreement, the Term WCMA Note and such of the other Additional Agreements to which it is a party are the legal, valid and binding obligations of Customer or the Guarantors, enforceable against it or them, as the case may be, in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally or by general principals of equity. (e) Collateral. Except for Permitted Liens; (i) Customer has good and marketable title to the Collateral, (ii) none of the Collateral is subject to any lien, encumbrance or security interest other than the liens and security interests of MLBFS, and (iii) upon the filing of all Uniform Commercial Code financing statements executed by Customer with respect to the Collateral in the appropriate jurisdiction(s) and/or the completion of any other action required by applicable law to perfect its liens and security interests, MLBFS will have valid and perfected first liens and security interests upon all of the Collateral. (f) Financial Statements. Except as expressly set forth in Customers or any Business Guarantors financial statements, all financial statements of Customer and each Business Guarantor furnished to MLBFS have been prepared in conformity with generally accepted accounting principles, consistently applied, are true and correct, and fairly present, the financial condition of it as at such dates and the results of its operations for the periods then ended; and since the most recent date covered by such financial statements, there has been no material adverse change in any such financial condition or operation. All financial statements furnished to MLBFS of any Guarantor other than a Business Guarantor are true and correct and fairly represent such Guarantors financial condition as of the date of such financial statements, and since the most recent date of such financial statements, there has been no material adverse change in such financial condition. (g) Litigation. No litigation, arbitration, administrative or governmental proceedings are pending or threatened against Customer or any Guarantor, which would, if adversely determined, materially and adversely affect the financial condition of Customer or any such Guarantor or the continued operations of Customer or any Business Guarantor. (h) Tax Returns. All federal, state and local tax returns, reports and statements required to be filed by Customer and each Guarantor have been filed with the appropriate governmental agencies and all taxes due and payable by Customer and each Guarantor have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor). (i) Collateral Location. All of the tangible Collateral is located at a Location of Tangible Collateral. Each of the foregoing representations and warranties are continuing and shall be deemed remade by Customer on the Closing Date, on each Subsequent Funding Date and concurrently with each request for a WCMA Loan. -8- 4.2 Financial and Other Information. Customer shall furnish or cause to be furnished to MLBFS during the term of this Loan Agreement all of the following: (a) Annual Financial Statements. Within 120 days after the close of each fiscal year of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited, Customer shall furnish or cause to be furnished to MLBFS a copy of the annual audited financial statements of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited consisting of at least a balance sheet as at the close of such fiscal year and related statements of income, retained earnings and cash flows, certified by its current independent certified public accountants or other independent certified public accountants reasonably acceptable to MLBFS or, in the case of The Galore Group, Limited, a nationally recognized, Australian independent certified public accounting firm. (b) Interim Financial Statements. Within 45 days after the close of each fiscal quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS: (i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a balance sheet as at the close of such fiscal quarter, all in reasonable detail and certified by its chief financial officer. Within 45 days after the close of each fiscal semi-annual period of Customer, Customer shall furnish or cause to be furnished to MLBFS, a statement of profit and loss for the fiscal semi-annual period then ended for each Customer-owned retail location. (c) Aging of Accounts and Inventory Reports. Within 20 days after the close of each fiscal month of Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of its Accounts and any Chattel Paper and an Inventory report, certified by its chief financial officer. (d) Other Information. Customer shall furnish or cause to be furnished to MLBFS such other information as MLBFS may from time to time reasonably request relating to Customer, any Guarantor or the Collateral. Customer acknowledges that (i) timely receipt of all such information is critical to the ability of MLBFS to prudently extend and monitor the Loan, and (ii) the failure to provide any such information within the time required will constitute a material breach by Customer of this Loan Agreement. 4.3 Other Covenants. Customer further covenants and agrees during the term of this Loan Agreement that: (a) Financial Records; Inspection. Customer and each Business Guarantor will: (i) maintain complete and accurate books and records, and maintain all of its financial records in a manner consistent with the financial statements heretofore furnished to MLBFS, or prepared on such other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS, upon reasonable notice and at reasonable times, to inspect its properties (both real or personal), operations, books and records. (b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments and other governmental charges, howsoever designated, and all other liabilities and obligations, except to the extent that any such failure to pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor or the continued operations of Customer or any Business Guarantor. (c) Compliance With Laws. Neither Customer nor any Guarantor will violate any law, regulation or other governmental requirement, or any judgment or order of any court or governmental agency or authority if any such violation will materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor. (d) Use of Loan Proceeds; Securities Transactions. The proceeds of the Loan (including the initial WCMA Loan) shall be used by Customer solely for the Loan Purpose, or, with the prior written consent of -9- MLBFS, for other lawful business purposes of Customer not prohibited hereby. The proceeds of each WCMA Loan other than the initial WCMA Loan shall be used by Customer solely for working capital in the ordinary course of Customers business, or, with the prior written consent of MLBFS, for other lawful business purposes of Customer not prohibited hereby. Customer agrees that under no circumstances will the Loan or funds borrowed from MLBFS through WCMA Line of Credit be used; (i) for personal, family or household purposes of any person whatsoever, (ii) to purchase, carry or trade in securities, including shares of the Money Accounts, or (iii) to repay debt incurred to purchase, carry or trade in securities; nor will any such funds be remitted, directly or indirectly, to MLPF&S or any other broker or dealer in securities, by WCMA Check, check, FTS, wire transfer, or otherwise. (e) Continuity. Except upon the prior written consent of MLBFS, which consent will not be unreasonably withheld; (i) neither Customer nor any Business Guarantor will be a party to any merger or consolidation with, or purchase or otherwise acquire all or substantially all of the assets or stock of, or any material partnership or joint venture interest in, any person or entity, or sell, transfer or lease all or any substantial part of its assets if any such action causes a material change in its control or principal business, or a material adverse change in its financial condition or operations; (ii) Customer and each Business Guarantor that is a corporation, partnership or limited liability company will preserve its existence and good standing in the jurisdictions of establishment and operation, and will not operate in any material business other than a business substantially the same as its business as of the date of application by Customer for credit from MLBFS; and (iii) neither Customer nor any Business Guarantor will cause or permit any material change in its controlling ownership, controlling senior management or, except upon not less than 30 days prior written notice to MLBFS, its name or principal place of business. (f) Tangible Net Worth. Beginning March 31, 1995, the "tangible net worth" of Customer, consisting of net worth as shown on Customers regular financial statements prepared in a manner consistent with the terms hereof, but excluding an amount equal to (i) any assets which are ordinarily classified as "intangible" in accordance with generally accepted accounting principles, and (ii) any amounts now or hereafter directly or indirectly owing to Customer by officers, shareholders or affiliates of Customer, shall at all times exceed $2,500,000.00. (g) Debt to Worth. The ratio of Customers total debt to Customers tangible net worth, determined as aforesaid, shall not at any time exceed 2 to 1. (h) Minimum Cash Flow. The "Net Cash Flow" of Customer as of the end of each of its fiscal years shall not be less than $400,000.00. As used herein, "Net Cash Flow" shall mean the sum of Customers annual net after-tax income, depreciation and any non-recurring expenses, less any non-recurring income and the current portion of long-term debt due to parties other than MLBFS; all as shown on Customers regular financial statements prepared in a manner consistent with the terms hereof. (i) Distributions and Transfers. Customer shall not without the prior written consent of MLBFS directly or indirectly pay any cash dividends or other distributions on account of its stock, lend any moneys to, or transfer any assets or property, in excess of $250,000.00, to The Galore Group (U.S.A.), Inc., Pool Patio 'N Things, Inc. or The Galore Group Limited (other than arms length transfers for fair consideration in the ordinary course of business). (j) Additional Debt Guaranties. Except upon the prior written consent of MLBFS, Customer shall not directly or indirectly guaranty any additional debt of The Galore Group (U.S.A.), Inc. or Pool Patio 'N Things, Inc., except for debt of such entities existing as of the date of and reflected on the last financial statements of each submitted to MLBFS. Customer shall not directly or indirectly guaranty any additional debt of The Galore Group Limited in excess of the 29 million Australian dollars of debt currently in force for said entity. (k) Note Receivable from The Galore Group (U.S.A.), Inc. Except upon the prior written consent of MLBFS, Customer shall not directly or indirectly permit to exist any debt of The Galore Group (U.S.A.), Inc. to Customer exceeding $1,500,000.00, beginning March 31, 1995. -10- 4.4 Collateral (a) Pledge of Collateral. To secure payment and performance of the Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants to MLBFS first liens and security interests in and upon all of the Collateral, subject only to Permitted Liens. (b) Liens. Customer shall not create or permit to exist any lien, encumbrance or security interest upon or with respect to any Collateral now owned or hereafter acquired, except for any Permitted Liens. Customer shall further perform any and all acts reasonably requested by MLBFS to establish, perfect, maintain and continue MLBFS' security interests and liens upon the Collateral, including, but not limited to: (i) executing financing statements and any and all other instruments and documents when and as reasonably requested by MLBFS, and (ii) if in the reasonable judgment of MLBFS it is required by local law, causing the owners and/or mortgagees of the real property on which any Collateral may be located to execute and deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS with respect to any rights in such Collateral. (c) Performance of Obligations. Customer shall perform all of its obligations owing on account of or with respect to the Collateral; it being understood that nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or otherwise, shall be deemed an assumption by MLBFS of any of Customers said obligations. (d) Sales and Collections. So long as no Event of Default shall have occurred and is continuing, Customer may in the ordinary course of its business: (i) sell any Inventory normally held by Customer for sale, (ii) use or consume any materials and supplies normally held by Customer for use or consumption. (iii) sell or dispose of any Fixtures or Equipment so long as same is replaced by Fixtures or Equipment of comparable value, and (iv) collect all of its Accounts. Customer shall take such action with respect to protection of the Inventory and the other Collateral and the collection of the Accounts as MLBFS may from time to time reasonably request. (e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable time or times hereafter, Customer shall deliver to MLBFS, in addition to the other information required hereunder, a schedule identifying, for each Account and all Chattel Paper subject to MLBFS' security interests hereunder, each Account Debtor by name and address and amount, invoice or contract number and date of each invoice or contract. Customer shall furnish to MLBFS such additional information with respect to the Collateral, and amounts received by Customer as proceeds of any of the Collateral, as MLBFS may from time to time reasonably request. (f) Alterations and Maintenance. Except upon the prior written consent of MLBFS, Customer shall not make or permit any material alterations to any tangible Collateral which might materially reduce or impair its market value or utility. Customer shall at all times keep the tangible Collateral in good condition and repair and shall pay or cause to be paid all obligations arising from the repair and maintenance of such Collateral, as well as all obligations with respect to the premises where any Collateral is or may be located, except for any such obligations being contested by Customer in good faith by appropriate proceedings. (g) Location. Except for movements required in the ordinary course of Customer's business, Customer shall give MLBFS 30 days' prior written notice of the placing at or movement of any tangible Collateral to any location other than a Location of Tangible Collateral. In no event shall Customer cause or permit any material tangible Collateral to be removed from the United States without the express prior written consent of MLBFS. (h) Insurance. Customer shall insure all of the tangible Collateral under a policy or policies of physical damage insurance providing that losses will be payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable Endorsement and containing such other provisions as may be reasonably required by MLBFS. Customer shall further provide and maintain a policy or policies of comprehensive public liability insurance naming MLBFS as an additional party insured. Customer and each Business Guarantor shall -11- maintain such other insurance as may be required by law or is customarily maintained by companies in a similar business or otherwise reasonably required by MLBFS. All such insurance shall provide that MLBFS will receive not less than 10 days prior written notice of any cancellation, and shall otherwise be in form and amount and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of each such policy or policies and, prior to any expiration or cancellation, each renewal or replacement thereof. (i) Event of Loss. Customer shall at its expense promptly repair all repairable damage to any tangible Collateral. In the event that any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an "Event of Loss") and such Collateral had a value prior to such Event of Loss of $75,000.00 or more, then, on or before the first to occur of (i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on which either Customer or MLBFS shall receive any proceeds of insurance on account of such Event of Loss, or any underwriter of insurance on such Collateral shall advise either Customer or MLBFS that it disclaims liability in respect of such Event of Loss, Customer shall, at Customers option, either replace the Collateral subject to such Event of Loss with comparable Collateral free of all liens other than Permitted Liens (in which event Customer shall be entitled to utilize the proceeds of insurance on account of such Event of Loss for such purpose, and may retain any excess proceeds of such insurance), or prepay the Loan by an amount equal to the actual cash value of such Collateral as determined by either the insurance company's payment (plus any applicable deductible) or, in absence of insurance payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or prepayment, as aforesaid, an Event of Default shall occur hereunder, then MLBFS may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Customer to either replace such Collateral or prepay the Loan, as aforesaid. Any prepayment of the Loan pursuant to this Section shall be applied first to installments on account of the then "Term Note Balance" (as defined in the Term WCMA Note) in inverse order of maturity; with any prepayment in excess of the then Term Note Balance applied on account of the WCMA Note concurrently with: (i) a like permanent reduction in the WCMA Line of Credit, and (ii) a like reduction in the obligation of MLBFS to fund future installments on account of the Term Note in inverse order of funding. No amount prepaid pursuant to this Section may be re-borrowed by Customer. (j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any attachment, lien, judicial process, encumbrance or claim affecting or involving $75,000.00 or more of the Collateral. (k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless from and against any and all claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature whatsoever which may be asserted against or incurred by MLBFS arising out of or in any manner occasioned by (i) the ownership, collection, possession, use or operation of any Collateral, or (ii) any failure by Customer to perform any of its obligations hereunder; excluding, however, from said indemnity any such claims, liabilities, etc. arising directly out of the willful wrongful act or active gross negligence of MLBFS. This indemnity shall survive the expiration or termination of this Loan Agreement as to all matters arising or accruing prior to such expiration or termination. 4.5 Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" under this Loan Agreement: (a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA Account when due any amount owing or required to be deposited by Customer under this Loan Agreement or the Term WCMA Note, and such failure shall continue for more than 5 Business Days after written notice thereof shall have been given by MLBFS to Customer. (b) Failure to Perform. Customer or any Guarantor shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements (not constituting an Event of Default under any other -12- clause of this Paragraph) and such default shall continue unremedied for 10 Business Days after written notice thereof shall have been given by MLBFS to Customer. (c) Breach of Warranty. Any representation or warranty made by Customer or any Guarantor contained in this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements shall at any time prove to have been incorrect in any material respect when made. (d) Default Under Other Agreement. A default or Event of Default by Customer or any Guarantor shall occur under the terms of any other agreement, instrument or document with or intended for the benefit of MLBFS, MLPF&S or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed. (e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or receivership law or statute shall be filed by Customer or any Guarantor, or any such proceeding shall be filed against Customer or any Guarantor and shall not be dismissed or withdrawn within 60 days after filing, or Customer or any Guarantor shall make an assignment for the benefit of creditors, or Customer or any Guarantor shall become insolvent or generally fail to pay, or admit in writing its inability to pay, its debts as they become due. (f) Material Impairment. Any event shall occur which shall reasonably cause MLBFS to in good faith believe that the prospect of payment or performance by Customer or any Guarantor has been materially impaired. (g) Acceleration of Debt to Other Creditors. Any event shall occur which results in the acceleration of the maturity of any indebtedness of $1,000,000 or more of Customer or any Guarantor to another creditor under any indenture, agreement, undertaking, or otherwise. (h) Seizure or Abuse of Collateral. The Collateral. or any material part thereof, shall be or become subject to any material abuse or misuse, or any levy, attachment, seizure or confiscation which is not released within 10 Business Days. 4.6 Remedies. (a) Remedies Upon Default. Upon the occurrence and during the continuance of any Event of Default, MLBFS may at its sole option do any one or more or all of the following, at such time and in such order as MLBFS may in its sole discretion choose: (i) Termination. MLBFS may without notice terminate its obligation to make the Loan (if any portion of the Loan has not then been funded), or fund any further amount on account of the Term WCMA Note, or make or continue to make the WCMA Line of Credit available to Customer, or otherwise extend any credit to or for the benefit of Customer; and upon any such termination MLBFS shall be relieved of all such obligations. (ii) Acceleration. MLBFS may declare the principal of and interest on the Term Note and WCMA Note included in the Term WCMA Note, and all other Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. (iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the remedies of a secured party under applicable law, including, but not limited to, the UCC, and any or all of its other rights and remedies (iv) Possession. MLBFS may require Customer to make the Collateral and the records pertaining to the Collateral available to MLBFS at a place designated by MLBFS which is reasonably convenient, or may take possession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice to Customer. -13- (v) Sale. MLBFS may sell any or all of the Collateral at public or private sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may purchase any Collateral at any such public sale. The net proceeds of any such public or private sale and all other amounts actually collected or received by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and sale of the Collateral, will be applied to the payment of the Obligations, with any remaining proceeds paid to Customer or whoever else may be entitled thereto, and with Customer and the Guarantors remaining jointly and severally liable for any amount remaining unpaid after such application. (vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon receipt, transmit and deliver to MLBFS in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLBFS) which may be received by Customer at any time in full or partial payment of any Collateral, and require that Customer not commingle any such items which may be so received by Customer with any other of its funds or property but instead hold them separate and apart and in trust for MLBFS until delivery is made to MLBFS. (vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that its Account or Chattel Paper has been assigned to MLBFS and direct such Account Debtor to make payment directly to MLBFS of all amounts due or becoming due with respect to such Account or Chattel Paper; and MLBFS may enforce payment and collect, by legal proceedings or otherwise, such Account or Chattel Paper. (viii) Control of Collateral. MLBFS may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and of any rejected, returned, stopped in transit or repossessed goods included in the Collateral and endorse Customer's name on any item of payment on or proceeds of the Collateral. (b) Set-Off. MLBFS shall have the further right upon the occurrence and during the continuance of an Event of Default to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as MLBFS may from time to time and at any time elect, any cash, credit, deposits, accounts, securities and any other property of Customer which is in transit to or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account and any Money Accounts, and all cash and securities therein or controlled thereby, and all proceeds thereof. Customer hereby grants to MLBFS a security interest in all such property as additional Collateral. (c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS herein are severable and cumulative and in addition to all other rights and remedies available in the Term WCMA Note, the other Additional Agreements, at law or in equity, and any one or more of such rights and remedies may be exercised simultaneously or successively. (d) Notices. To the fullest extent permitted by applicable law, Customer hereby irrevocably waives and releases MLBFS of and from any and all liabilities and penalties for failure of MLBFS to comply with any statutory or other requirement imposed upon MLBFS relating to notices of sale, holding of sale or reporting of any sale, and Customer waives all rights of redemption from any such sale. Any notices required under applicable law shall be reasonably and properly given to Customer if given by any of the methods provided herein at least 5 Business Days prior to taking action. MLBFS shall have the right to postpone or adjourn any sale or other disposition of Collateral at any time without giving notice of any such postponed or adjourned date. In the event MLBFS seeks to take possession of any or all of the Collateral by court process, Customer further irrevocably waives to the fullest extent permitted by law any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession, and any demand for possession prior to the commencement of any suit or action. -14- 4.7 Miscellaneous. (a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any right, power or remedy pursuant to this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. Neither any amendment, modification, supplement, termination or waiver of any provision of this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements, nor any consent to any departure by Customer therefrom, shall be effective unless the same shall be in writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements and any consent to any departure by Customer from the terms thereof shall be effective only in the specific instance and for the specific purpose for which given. Except as otherwise expressly provided herein, no notice to or demand on Customer shall in any case entitle Customer to any other or further notice or demand in similar or other circumstances. (b) Disclosure. Customer and each Guarantor hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Customer or any Guarantor. (c) Communications. All notices and other communications required or permitted hereunder or in connection with any of the Additional Agreements shall be in writing, and shall be either delivered personally, mailed by postage prepaid certified mail or sent by express overnight courier or by facsimile. Such notices and communications shall be deemed to be given on the date of personal delivery, facsimile transmission or actual delivery of certified mail, or one Business Day after delivery to an express overnight courier. Unless otherwise specified in a notice sent or delivered in accordance with the terms hereof, notices and other communications in writing shall be given to the parties hereto at their respective addresses set forth at the beginning of this Loan Agreement, or, in the case of facsimile transmission, to the parties at their respective regular facsimile telephone number. (d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS for: (i) all Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in connection with the verification, perfection or preservation of MLBFS' rights hereunder or in the Collateral or any other collateral for the Obligations; (ii) any and all stamp, transfer and other taxes and fees payable or determined to be payable in connection with the execution, delivery and/or recording of this Loan Agreement or any of the Additional Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including, but not limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS in connection with the enforcement of this Loan Agreement or any of the Additional Agreements or the protection of MLBFS' rights hereunder or thereunder, excluding, however, salaries and expenses of MLBFS' employees. The obligations of Customer under this paragraph shall survive the expiration or termination of this Loan Agreement and the discharge of the other Obligations. (e) Right to Perform Obligations. If Customer shall fail to do any act or thing which it has covenanted to do under this Loan Agreement or any representation or warranty on the part of Customer contained in this Loan Agreement shall be breached, MLBFS may, in its sole discretion, after 5 Business Days written notice is sent to Customer, do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon demand, with interest at the Interest Rate during the period from and including the date funds are so expended by MLBFS to the date of repayment, and all such amounts shall be additional Obligations. (f) Late Charges. Any payment required to be made by Customer pursuant to this Loan Agreement or any of the Additional Agreements not paid within 5 Business Days of the applicable due date shall be subject to a late charge in an amount equal to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount -15- permitted by applicable law. Such late charges shall be payable on demand, or, without demand, may in the sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in the same manner as provided herein for accrued interest with respect to the WCMA Line of Credit. (g) Further Assurances. Customer agrees to do such further acts and things and to execute and deliver to MLBFS such additional agreements, instruments and documents as MLBFS may reasonably require or deem advisable to effectuate the purposes of this Loan Agreement, or to confirm unto MLBFS its rights, powers and remedies under this Loan Agreement, the Term WCMA Note and the other Additional Agreements. (h) Binding Effect. This Loan Agreement, the Term WCMA Note and the other Additional Agreements shall be binding upon, and shall inure to the benefit of MLBFS, Customer and their respective successors and assigns. Customer shall not assign any of its rights or delegate any of its obligations under this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements without the prior written consent of MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS, no such consent shall in any event relieve Customer of any of its obligations under this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements. (i) Headings. Captions and section and paragraph headings in this Loan Agreement and the Additional Agreements are inserted only as a matter of convenience, and shall not affect the interpretation hereof. (j) Governing Law. This Loan Agreement, the Term WCMA Note and, unless otherwise expressly provided therein, each of the other Additional Agreements, shall be governed in all respects by the laws of the State of Illinois. (k) Severability of Provisions. Whenever possible, each provision of this Loan Agreement, the Term WCMA Note and the other Additional Agreements shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of this Loan Agreement, the Term WCMA Note or any of the other Additional Agreements which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Loan Agreement, the Term WCMA Note and the other Additional Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. (l) Term. This Loan Agreement shall become effective on the date accepted by MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof, shall continue in effect so long thereafter as either MLBFS shall be obligated to make the Loan, or, after the Closing Date, there shall be any moneys outstanding under the Term Note or WCMA Note included in the Term WCMA Note or under this Loan Agreement, or there shall be any other Obligations outstanding. (m) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE TERM WCMA NOTE AND THE OTHER ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without limiting the foregoing, Customer acknowledges that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any of their respective employees, agents or representatives to make the Loan on any terms other than as expressly set forth herein and in the Term WCMA Note, or to make any other loan or otherwise extend any other credit to Customer or any other party; and (ii) except as otherwise expressly provided herein, this Loan Agreement supersedes and replaces any and all proposals, letters of intent and approval and commitment letters from MLBFS to Customer, non of which shall be considered an Additional Agreement. (n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS SOLE -16- DISCRETION, TO ENFORCE THIS LOAN AGREEMENT, THE TERM WCMA NOTE AND THE OTHER ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THIS LOAN AGREEMENT, THE TERM WCMA NOTE, ANY OTHER ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT. IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year first above written. BARBEQUES GALORE, INC. By: /s/ Sydney Selati /s/ Kevin Ralphs ----------------------------------------------------------------------- Signature (1) Signature (2) Sydney Selati Kevin Ralphs ----------------------------------------------------------------------- Printed Name Printed Name Chairman Chief Financial Officer ----------------------------------------------------------------------- Title Title Accepted at Chicago, Illinois: MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/ B. Jensen, AVP ----------------------------- -17- EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF TERM WCMA LOAN AND SECURITY AGREEMENT NO. 9502340701 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND BARBEQUES GALORE, INC. - -------------------------------------------------------------------------------- Locations of Tangible Collateral: 15041 Bake Parkway, Ste. A, Irvine, CA 92718 2246 Sunrise Blvd., Ste. 7, Rancho Cordova, CA 95670 11073 W. Pico Blvd., Los Angeles, CA 90064 ll24 Sunset Rd., Henderson, NV 89015 6412 Tupelo Drive, Citrus Heights, CA 95621 18255 Hawthorne Blvd., Torrance, CA 90503 7450 Clairemont Mesa Blvd., San Diego, CA 92111 1286 B Auto Parkway, Escondido, CA 92025 311 E. Camelback Rd., Phoenix, AZ 85012 201 N. Central Ave., Glendale, CA 91203 9010 E. Indian Bend, Ste. 2, Scottsdale, AZ 85250 18922 Ventura Blvd., Tarzana, CA 91356 14040 E. Firestone Blvd., Santa Fe Springs, CA 90670 324 S. Mountain Ave., Upland, CA 91786 10495 Magnolia Ave., Riverside, CA 92505 2580 S. Decatur Blvd., Las Vegas, NV 89102 7307 Roseville Rd., Ste. 10, Sacramento, CA 95842 c/o Tropitone, 5 Marconi Dr., Irvine, CA 52798 SCHEDULE 1 ================================================================================ C O V E R FAX BARBEQUES GALORE, 15041 BAKE PARKWAY, SUITE A IRVINE CA 92718 PHONE (714) 581-1753, FAX (714) 581-4822 S H E E T ================================================================================ To: Larry Sherman Fax #: 619-231-8770 Subject: Leased and Other Secured Assets Date: March 9, 1995 Pages: 5, including this cover sheet. COMMENTS: Dear Larry, 1. Listed below are the assets that we have on lease: Asset Lessor Termination Date ----- ------ ---------------- El Dorado Cadillac GMAC 4/96 Nissan 240SX Nissan Motor Acceptance 7/96 Canon NP2120 Copier Canon 4/96 Canon Fax L700 Canon 4/96 1994 Isuzu Rodeo GE Capital 5/98 1994 Ford Cargo Van Ford Motor Credit 7/97 1994 Ford Cargo Van Ford Motor Credit 7/97 1995 Ford Cargo Van Ford Motor Credit 10/97 1995 Ford Cargo Van Ford Motor Credit 10/97 1995 Ford Cargo Van Ford Motor Credit 3/98 None of the above leases are capitalized in our books. 2. We have purchased a Clark TM15 forklift truck through Clark Credit Corporation. The original purchase price was $21,208.00. This loan will be paid off by July 1995. 3. The attached Exhibit A is a listing by location of all of the computer equipment financed by Warrior Bank and covered by a UCC filing in favor of that bank. The invoiced value of these assets was $73,513.64. This loan will be paid off by August 1997. Regards, /s/ Kevin J. Ralphs Kevin J. Ralphs EXHIBIT A --------- PAGE 1 of 4 -----------
Location: 2246 Sunrise Blvd. Suite 7 - --------- Rancho Cordova, Ca. 95670 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 386SX/20 23DC168 1 Mono Monitor VGA 9411612B 1 2400 Baud Modem 931223 1 American Power 250 UPS 931223 1 Okidata 931223 1 Star SP312 Roll Printer RKP-300 450130401236 1 Aim Cash Drawer 1 PC Anywhere Software Package 1 Remote System - Infocorp 1 SW Purchase Order Control - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller W/I/O Port - -------------------------------------------------------------------------------- Location: 1700 East Ventura Blvd, Suite D - --------- Oxnard, California 93030 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 386SX/20 23BV692 1 Mono Monitor VGA 12112092 1 2400 Baud Modem 301C0906904 1 American Power 250 UPS 301C0906904 1 Okidata 320 Printer 301C0906904 1 Star SP312 Roll Printer RKP-300 450130100995 1 Aim Cash Drawer 1 PC Anywhere Software Host 1 Remote System - Infocorp 1 SW Purchase Order Control - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller W/I/O Port - -------------------------------------------------------------------------------- Location: 14040 E. Firestone Blvd. - --------- Santa Fe Springs, Ca. 90670 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 486 23PVR43 1 Mono Monitor VGA 23112160 1 2400 Baud Modem 960551 1 American Power 250 UPS 960551 1 Okidata 320 Printer 960551 1 Star SP312 Roll Printer 450130000535 1 M-S Cash Drawer 1 PC Anywhere Software 1 Remote software/POS 1 Purchase Order Management - Infocorp 2 Cable IBM Printer 1 Hard Disk Controller - --------------------------------------------------------------------------------
BARBEQUES GALORE INC. BY:/s/ [SIGNATURE APPEARS HERE] ----------------------------- ITS: C.F.O. ---------------------------- [LOGO OF MERRILL LYNCH APPEARS HERE] No. 231-07T10 - -------------------------------------------------------------------------------- WCMA(R) NOTE, LOAN AND SECURITY AGREEMENT WCMA Note, Loan and Security Agreement ("Loan Agreement") dated as of February 23, 1995, between BARBECUES GALORE, INC., a corporation organized and existing under the laws of the State of California having its principal office at 15041 Bake Parkway, Ste. A, Irvine, CA 92718, Attn: Sydney Selati, Chairman, ("Customer"), and MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware having its principal office at 33 West Monroe Street, Chicago, IL 60603 ("MLBFS"). In accordance with that certain Working Capital Management(R) Account Agreement No. 231-07T10 ("WCMA Agreement") between Customer and MLBFS' affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), Customer has subscribed to the WCMA Program described in the WCMA Agreement. The WCMA Agreement is by this reference incorporated as a part hereof. In conjunction therewith and as part of the WCMA Program, Customer has requested that MLBFS provide, and subject to the terms and conditions herein set forth MLBFS has agreed to provide, a commercial line of credit for Customer (the "WCMA Line of Credit"). Contemporaneously herewith, MLBFS is entering into a Term WCMA Loan and Security Agreement with Customer for an aggregate amount of $1,500,000.00. All references to the WCMA Line of Credit in this Loan Agreement shall refer only to the WCMA Line of Credit hereunder and not to that under the Term WCMA Loan and Security Agreement dated as of the date hereof. Accordingly, and in consideration of the premises and of the mutual covenants of the parties hereto, Customer and MLBFS hereby agree as follows: 1. DEFINITIONS (a) Specific Terms. In addition to terms defined elsewhere in this Loan Agreement, when used herein the following terms shall have the following meanings: (i) "Account Debtor" shall mean any party who is or may become obligated with respect to an Account or Chattel Paper. (ii) "Activation Date" shall mean the date upon which MLBFS shall cause the WCMA Line of Credit to be fully activated under MLPF&S' computer system as part of the WCMA Program. (iii) "Additional Agreements" shall mean all agreements, instruments, documents and opinions other than this Loan Agreement which are contemplated hereby or otherwise reasonably required by MLBFS, and relate to this Loan Agreement or evidence the creation, guaranty or collateralization of the Obligations or the granting or perfection of security interests upon the Collateral or any other collateral for the Obligations. (iv) "Business Day" shall mean any day other than a Saturday, Sunday, federal holiday or other day on which the New York Stock Exchange is regularly closed. (v) "Collateral" shall mean all Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents and Instruments of Customer, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all books and records (including computer records) in any way related thereto, all proceeds thereof, and the additional collateral described in Section 9 (b) hereof. (vi) "Commitment Expiration Date" shall mean March 23,1995. (vii) "General Funding Conditions" shall mean each of the following conditions to any WCMA Loan by MLBFS hereunder; (A) no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall have occurred and be continuing or would result from the making of any WCMA Loan hereunder by MLBFS; (B) there shall not have occurred any material adverse change in the business or financial condition of Customer or any Guarantor; (C) all representations and warranties of Customer or any Guarantor herein or in any Additional Agreements shall then be true and correct in all material respects; (D) no other event shall then have occurred and be continuing which shall have reasonably caused MLBFS to in good faith believe that the prospect of payment or performance by Customer or any Guarantor has been materially impaired; (E) MLBFS shall have received this Loan Agreement and all Additional Agreements, duly executed and filed or recorded where applicable, all of which shall be in form and substance reasonably satisfactory to MLBFS; (F) MLBFS shall have received evidence reasonably satisfactory to it as to the ownership of the Collateral and the perfection and priority of MLBFS' liens and security interests thereon, as well as the ownership of and the perfection and priority of MLBFS' liens and security interests on any other collateral for the Obligations furnished pursuant to any of the Additional Agreements; (G) MLBFS shall have received evidence reasonably satisfactory to it of the insurance required hereby or by any of the Additional Agreements; and (H) any additional conditions specified in an Approval Letter or Commitment Letter executed by MLBFS with respect to the transactions contemplated hereby shall have been met to the reasonable satisfaction of MLBFS. (viii) "Guarantor' shall mean a person or entity who has either guaranteed or provided collateral for any or all of the Obligations; and "Business Guarantor" shall mean any such Guarantor that is a corporation, partnership, proprietorship, limited liability company or other entity regularly engaged in a business activity. (ix) "Interest Rate" shall mean a fluctuating per annum rate of interest equal to the sum of 2.65% and the 30-Day Commercial Paper Rate. The "30-Day Commercial Paper Rate" shall mean, as of the date of any determination, the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal for 30-Day high-grade unsecured notes sold though dealers by major corporations. The Interest Rate will change as of the date of publication in The Wall Street Journal of a 30-Day Commercial Paper Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the 30-Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. (x) "Line Fee" shall mean a fee of $2,500.00 due to MLBFS in connection with the WCMA Line of Credit for the period prior to the current Maturity Date. (xi) "Location of Tangible Collateral" shall mean the address of Customer set forth at the beginning of this Loan Agreement, together with any other address or addresses set forth on an exhibit hereto as being a Location of Tangible Collateral. (xii) "Maturity Date" shall mean March 31,1996, or such later date as may be consented to in writing by MLBFS. (xiii) "Maximum WCMA Line of Credit" shall mean an amount equal to the lesser of (A) the sum of (i) 70% of Customer's Non-Government Accounts and Chattel Paper (excluding Accounts over 90 days old, Chattel Paper with installments or other sums more than 90 days past due, and Accounts and Chattel Paper directly or indirectly due from any shareholder, officer or employee of Customer or any affiliated entity) and (ii) 50% of Customer's Inventory, all as shown on Customers regular books and records, less the aggregate of (x) then outstanding balance of principal and interest under the Term WCMA Note made by Customer and payable to MLBFS and (y) the remaining availability under the WCMA Line of Credit portion of the Term WCMA facility, or (B) $500,000.00. (xiv) "Obligations" shall mean all liabilities, indebtedness and other obligations of Customer to MLBFS, howsoever created, arising or evidenced, whether now existing or hereafter arising, whether direct or indirect, absolute or contingent, due or to become due, primary or secondary or joint or several, and, without -2- limiting the foregoing, include all present and future liabilities, indebtedness and obligations of Customer under this Loan Agreement. (xv) "Permitted Liens" shall mean (A) liens for current taxes not delinquent and, if MLBFS' rights to and interest in the Collateral are not materially and adversely affected thereby, liens for taxes being contested in good faith by appropriate proceedings; (B) liens arising in the ordinary course of business for sums not due; (C) liens in favor of MLBFS; (D) liens which will be discharged with the proceeds of the initial WCMA Loan; (E) those liens set forth on Schedule 1, attached hereto; and (F) any other liens expressly permitted in writing by MLBFS. (xvi) "WCMA Account" shall mean and refer to the Working Capital Management Account of Customer with MLPF&S identified as Account No. 231-07T10. (xvii) "WCMA Loan" shall mean each advance made by MLBFS pursuant to this Loan Agreement. (b) Other Terms. Except as otherwise defined herein: (i) all terms used in this Loan Agreement which are defined in the Uniform Commercial Code of Illinois ("UCC") shall have the meanings set forth in the UCC, and (ii) capitalized terms used herein which are defined in the WCMA Agreement shall have the meaning set forth in the WCMA Agreement. 2. WCMA PROMISSORY NOTE FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at the times and in the manner set forth in this Loan Agreement, or in such other manner and at such place as MLBFS may hereafter designate in writing, the following: (a) on the Maturity Date, the aggregate unpaid principal amount of all WCMA Loans (the "WCMA Loan Balance"); (b) interest at the Interest Rate on the outstanding WCMA Loan Balance, from and including the date on which the initial WCMA Loan is made until the date of payment of all WCMA Loans in full; and (c) on demand, all other sums payable pursuant to this Loan Agreement, including, but not limited to, the Line Fee and any late charges. Except as otherwise expressly set forth herein, Customer hereby waives presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices and formalities in connection with this WCMA Promissory Note and this Loan Agreement. 3. WCMA LOANS (a) Activation Date. Provided that: (i) the Commitment Expiration Date shall not then have occurred, and (ii) Customer shall have subscribed to the WCMA Program and its subscription to the WCMA Program shall then be in effect, the Activation Date shall occur on or promptly after the date, following the acceptance of this Loan Agreement by MLBFS at its office in Chicago, Illinois, upon which each of the General Funding Conditions shall have been met or satisfied to the reasonable satisfaction of MLBFS. No activation by MLBFS of the WCMA Line of Credit for a nominal amount shall be deemed evidence of the satisfaction of any of the conditions herein set forth, or a waiver of any of the terms or conditions hereof. (b) WCMA Loans. Subject to the terms and conditions hereof, during the period from and after the Activation Date to the Maturity Date: (i) MLBFS will make WCMA Loans to Customer in such amounts as Customer may from time to time request in accordance with the terms hereof, up to an aggregate outstanding amount not to exceed the Maximum WCMA Line of Credit, and (ii) Customer may repay any WCMA Loans in whole or in part at any time without premium or penalty, and request a re-borrowing of amounts repaid on a revolving basis, provided that the aggregate amount outstanding at any time shall not exceed the Maximum WCMA Line of Credit. Customer may request WCMA Loans by use of WCMA Checks, FTS, Visa(R) charges, wire transfers, or such other means of access to the WCMA Line of Credit as may be permitted by MLBFS from time to time; it being understood that so long as the WCMA Line of Credit shall be in effect, any charge or debit to the WCMA Account which but for the WCMA Line of Credit would under the terms of the WCMA Agreement result in an overdraft, shall be deemed a request by Customer for a WCMA Loan. -3- (c) Conditions of WCMA Loans. Notwithstanding the foregoing, MLBFS shall not be obligated to make any WCMA Loan, and may without notice refuse to honor any such request by Customer, if at the time of Customer's request: (i) the making of such WCMA Loan would cause the Maximum WCMA Line of Credit to be exceeded; or (ii) the Maturity Date shall have occurred, or the WCMA Line of Credit shall have otherwise been terminated in accordance with the terms hereof; or (iii) an event shall have occurred and is continuing which shall have caused any of the General Funding Conditions to not then be met or satisfied to the reasonable satisfaction of MLBFS. The making by MLBFS of any WCMA Loan at a time when any one or more of said conditions shall not have been met shall not in any event be construed as a waiver of said condition or conditions or of any Event of Default, and shall not prevent MLBFS at any time thereafter while any condition shall not have been met from refusing to honor any request by Customer for a WCMA Loan. (d) Force Majeure. MLBFS shall not be responsible, and shall have no liability to Customer or any other party, for any delay or failure of MLBFS to honor any request of Customer for a WCMA Loan or any other act or omission of MLBFS, MLPF&S or any of their affiliates due to or resulting from any system failure, error or delay in posting or other clerical error, loss of power, fire, Act of God or other cause beyond the reasonable control of MLBFS, MLPF&S or any of their affiliates unless directly arising out of the willful wrongful act or active gross negligence of MLBFS. In no event shall MLBFS be liable to Customer or any other party for any incidental or consequential damages arising from any act or omission by MLBFS, MLPF&S or any of their affiliates in connection with the WCMA Line of Credit or this Loan Agreement. (e) Interest. The WCMA Loan Balance shall bear interest at the Interest Rate. Interest shall be computed for the actual number of days elapsed on the basis of a year consisting of 360 days. Notwithstanding any other provision in this Loan Agreement or any Additional Agreements to the contrary, in no event shall the Interest Rate exceed the highest rate permissible under any applicable law. In the event that any court having jurisdiction determines that MLBFS has received excess interest hereunder, MLBFS will promptly refund such excess interest to Customer, without charge or penalty. Except as otherwise provided herein, accrued and unpaid interest on the WCMA Loan Balance shall be payable monthly on the last Business Day of each calendar month, commencing with the last Business Day of the calendar month in which the Activation Date shall occur. Customer hereby irrevocably authorizes and directs MLPF&S to pay MLBFS such accrued interest from any available free credit balances in the WCMA Account, and if such available free credit balances are insufficient to satisfy any interest payment due, to liquidate any investments in the Money Accounts (other than any investments constituting any Minimum Money Accounts Balance) in an amount up to the balance of such accrued interest, and pay to MLBFS the available proceeds on account thereof. If available free credit balances in the WCMA Account and available proceeds of the Money Accounts are insufficient to pay the entire balance of accrued interest, and Customer otherwise fails to make such payment when due, MLBFS may, in its sole discretion, make a WCMA Loan in an amount equal to the balance of such accrued interest and pay the proceeds of such WCMA Loan to itself on account of such interest. The amount of any such WCMA Loan will be added to the WCMA Loan Balance. If MLBFS declines to extend a WCMA Loan to Customer under these circumstances, Customer hereby authorizes and directs MLPF&S to make all such interest payments to MLBFS from any Minimum Money Accounts Balance. If there is no Minimum Money Accounts Balance, or it is insufficient to pay all such interest, MLBFS will invoice Customer for payment of the balance of the accrued interest, and Customer shall pay such interest as directed by MLBFS within 5 Business Days of receipt of such invoice. (f) Payments. All payments required or permitted to be made pursuant to this Loan Agreement shall be made in lawful money of the United States. Unless otherwise directed by MLBFS, payments on account of the WCMA Loan Balance may be made by the delivery of checks (other than WCMA Checks), or by means of FTS or wire transfer of funds (other than funds from the WCMA Line of Credit) to MLPF&S for credit to Customer's WCMA Account. Notwithstanding anything in the WCMA Agreement to the contrary, Customer hereby irrevocably authorizes and directs MLPF&S to apply available free credit balances in the WCMA Account to the repayment of the WCMA Loan Balance prior to application for any other purpose. Payments to MLBFS from funds in the WCMA Account shall be deemed to be made by Customer upon the same basis and schedule as funds are made available for investment in the Money Accounts in accordance with the terms of the WCMA Agreement. All funds received by MLBFS from MLPF&S pursuant to the aforesaid authorization shall be applied by MLBFS to repayment of the WCMA Loan Balance. The acceptance by or -4- on behalf of MLBFS of a check or other payment for a lesser amount than shall be due from Customer, regardless of any endorsement or statement thereon or transmitted therewith, shall not be deemed an accord and satisfaction or anything other than a payment on account, and MLBFS or anyone acting on behalf of MLBFS may accept such check or other payment without prejudice to the rights of MLBFS to recover the balance actually due or to pursue any other remedy under this Loan Agreement or applicable law for such balance. All checks accepted by or on behalf of MLBFS in connection with the WCMA Line of Credit are subject to final collection. (g) Exceeding the Maximum WCMA Line of Credit. In the event that the WCMA Loan Balance shall at any time exceed the Maximum WCMA Line of Credit, Customer shall within 1 Business Day of the first to occur of (i) any request or demand of MLBFS, or (ii) receipt by Customer of a statement from MLPF&S showing a WCMA Loan Balance in excess of the Maximum WCMA Line of Credit, deposit sufficient funds into the WCMA Account to reduce the WCMA Loan Balance below the Maximum WCMA Line of Credit. (h) Line Fee; Extensions. In consideration of the extension of the WCMA Line of Credit by MLBFS to Customer during the period prior to the current Maturity Date, Customer has paid or shall pay the Line Fee to MLBFS. If such fee has not heretofore been paid by Customer, Customer hereby authorizes MLBFS, at its option, to either cause said fee (and any renewal Line Fee) to be paid with a WCMA Loan which is added to the WCMA Loan Balance, or invoice Customer for said fee (in which event Customer shall pay said fee within 5 Business Days after receipt of such invoice). No delay in the Activation Date, howsoever caused, shall entitle Customer to any rebate or reduction in the Line Fee or extension of the Maturity Date. In the event MLBFS and Customer, in their respective sole discretion, agree to renew the WCMA Line of Credit beyond the current Maturity Date, Customer agrees to pay a renewal Line Fee in the amount then set forth in the writing signed by MLBFS which extends the Maturity Date; it being understood that any request by Customer for a WCMA Loan or failure of Customer to pay any WCMA Loan Balance outstanding on the immediately prior Maturity Date, after the receipt by Customer of a writing signed by MLBFS extending the Maturity Date, shall be deemed a consent by Customer to both the renewal Line Fee and the new Maturity Date. If no renewal Line Fee is set forth in the writing signed by MLBFS extending the Maturity Date, the renewal Line Fee shall be deemed to be the same as the immediately preceding Line Fee. (i) Statements. MLPF&S will include in each monthly statement it issues under the WCMA Program information with respect to WCMA Loans and the WCMA Loan Balance. Any questions that Customer may have with respect to such information should be directed to MLBFS; and any questions with respect to any other matter in such statements or about or affecting the WCMA Program should be directed to MLPF&S. (j) Use of Loan Proceeds; Securities Transactions. The proceeds of each WCMA Loan shall be used by Customer solely for working capital in the ordinary course of its business, or, with the prior written consent of MLBFS, for other lawful business purposes of Customer not prohibited hereby. Customer agrees that under no circumstances will funds borrowed from MLBFS through the WCMA Line of Credit be used: (i) for personal, family or household purposes of any person whatsoever, (ii) to purchase, carry or trade in securities, including shares of the Money Accounts, or (iii) to repay debt incurred to purchase, carry or trade in securities; nor will any such funds be remitted, directly or indirectly, to MLPF&S or any other broker or dealer in securities, by WCMA Check, check, FTS, wire transfer, or otherwise. 4. REPRESENTATIONS AND WARRANTIES Customer represents and warrants to MLBFS that: (a) Due Organization, etc. Customer is a corporation, duly organized, validly existing and in good standing under the laws of the State of California, and if any Guarantor is a corporation, partnership or limited liability company, such Guarantor is, duly organized, validly existing and in good standing under the laws of the State of its incorporation or formation. -5- (b) Execution, Delivery and Performance. The execution, delivery and performance by Customer of this Loan Agreement and by Customer and each Guarantor of such of the Additional Agreements to which it is a party: (i) have been duly authorized by all requisite action, (ii) do not and will not violate or conflict with any law or other governmental requirement, or any of the agreements, instruments or documents which formed or govern Customer or any such Guarantor, and (iii) do not and will not breach or violate any of the provisions of, and will not result in a default by Customer or any such Guarantor under, any other agreement, instrument or document to which it is a party or by which it is bound. (c) Notices and Approvals. Except as may have been given or obtained, no notice to or consent or approval of any governmental body or authority or other third party whatsoever (including, without limitation, any other creditor) is required in connection with the execution, delivery or performance by Customer or any Guarantor of such of this Loan Agreement and the Additional Agreements to which it is a party. (d) Enforceability. this Loan Agreement and such of the Additional Agreements to which it is a party are the legal, valid and binding obligations of Customer or the Guarantors, enforceable against it or them, as the case may be, in accordance with their respective terms, except as enforceability may be limited by bankruptcy and other similar laws affecting the rights of creditors generally or by general principals of equity. (e) Collateral. Except for Permitted Liens: (i) Customer has good and marketable title to the Collateral, (ii) none of the Collateral is subject to any lien, encumbrance or security interest other than the liens and security interests of MLBFS, and (iii) upon the filing of all Uniform Commercial Code financing statements executed by Customer with respect to the Collateral in the appropriate jurisdiction(s) and/or the completion of any other action required by applicable law to perfect its liens and security interests, MLBFS will have valid and perfected first liens and security interests upon all of the Collateral. (f) Financial Statements. Except as expressly set forth in Customer's or any Business Guarantor's financial statements, all financial statements of Customer and each Business Guarantor furnished to MLBFS have been prepared in conformity with generally accepted accounting principles, consistently applied, are true and correct, and fairly present the financial condition of it as at such dates and the results of its operations for the periods then ended; and since the most recent date covered by such financial statements, there has been no material adverse change in any such financial condition or operation. All financial statements furnished to MLBFS of any Guarantor other than a Business Guarantor are true and correct and fairly represent such Guarantor's financial condition as of the date of such financial statements, and since the most recent date of such financial statements, there has been no material adverse change in such financial condition. (g) Litigation. No litigation, arbitration, administrative or governmental proceedings are pending or threatened against Customer or any Guarantor, which would, if adversely determined, materially and adversely affect the financial condition of Customer or any such Guarantor or the continued operations of Customer or any Business Guarantor. (h) Tax Returns. All federal, state and local tax returns, reports and statements required to be filed by Customer and each Guarantor have been filed with the appropriate governmental agencies and all taxes due and payable by Customer and each Guarantor have been timely paid (except to the extent that any such failure to file or pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor). (i) Collateral Location. All of the tangible Collateral is located at a Location of Tangible Collateral. Each of the foregoing representations and warranties are continuing and shall be deemed remade by Customer concurrently with each request for a WCMA Loan. -6- 5. FINANCIAL AND OTHER INFORMATION Customer shall furnish or cause to be furnished to MLBFS during the term of this Loan Agreement all of the following: (a) Annual Financial Statements. Within 120 days after the close of each fiscal year of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited, Customer shall furnish or cause to be furnished to MLBFS a copy of the annual audited financial statements of Customer, The Galore Group (U.S.A.), Inc. and The Galore Group Limited consisting of at least a balance sheet as at the close of such fiscal year and related statements of income, retained earnings and cash flows, certified by its current independent certified public accountants or other independent certified public accountants reasonably acceptable to MLBFS, or in the case of The Galore Group Limited, a nationally recognized, Australian independent certified public accounting firm. (b) Interim Financial Statements. Within 45 days after the close of each fiscal quarter of Customer, Customer shall furnish or cause to be furnished to MLBFS; (i) a statement of profit and loss for the fiscal quarter then ended, and (ii) a balance sheet as at the close of such fiscal quarter; all in reasonable detail and certified by its chief financial officer. Within 45 days after the close of each fiscal semi-annual period of Customer, Customer shall furnish or cause to be furnished to MLBFS, a statement of profit and toss for the fiscal semi-annual period then ended for each Customer-owned retail location. (c) Aging of Accounts and Inventory Reports. Within 20 days after the close of each fiscal month of Customer, Customer shall furnish or cause to be furnished to MLBFS an aging of its Accounts and any Chattel Paper and an Inventory report, certified by its chief financial officer (d) Other Information. Customer shall furnish or cause to be furnished to MLBFS such other information as MLBFS may from time to time reasonably request relating to Customer, any Guarantor or the Collateral. Customer acknowledges that timely receipt of all such information is critical to the ability of MLBFS to prudently offer the WCMA Line of Credit, and that the failure to provide any such information within the time required will constitute a material breach by Customer of this Loan Agreement. 6. OTHER COVENANTS Customer further agrees during the term of this Loan Agreement that; (a) Financial Records; Inspection. Customer and each Business Guarantor will; (i) maintain complete and accurate books and records, and maintain all of its financial records in a manner consistent with the financial statements heretofore furnished to MLBFS, or prepared on such other basis as may be approved in writing by MLBFS; and (ii) permit MLBFS, upon reasonable notice and at reasonable times, to inspect its properties (both real or personal), operations, books and records. (b) Taxes. Customer and each Guarantor will pay when due all taxes, assessments and other governmental charges, howsoever designated, and all other liabilities and obligations, except to the extent that any such failure to pay will not materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor or the continued operations of Customer or any Business Guarantor. (c) Compliance With Laws. Neither Customer nor any Guarantor will violate any law, regulation or other governmental requirement, or any judgment or order of any court or governmental agency or authority if any such violation will materially and adversely affect either the liens and security interests of MLBFS hereunder or under any of the Additional Agreements, the financial condition of Customer or any Guarantor, or the continued operations of Customer or any Business Guarantor. -7- (d) Continuity. Except upon the prior written consent of MLBFS, which consent will not be unreasonably withheld: (i) neither Customer nor any Business Guarantor will be a party to any merger or consolidation with, or purchase or otherwise acquire all or substantially all of the assets or stock of, or any material partnership or joint venture interest in, any person or entity, or sell, transfer or lease all or any substantial part of its assets if any such action causes a material change in its control or principal business, or a material adverse change in its financial condition or operations; (ii) Customer and each Business Guarantor that is a corporation, partnership or limited liability company wilt preserve its existence and good standing in the jurisdictions of establishment and operation, and will not operate in any material business other than a business substantially the same as its business as of the date of application by Customer for credit from MLBFS; and (iii) neither Customer nor any Business Guarantor will cause or permit any material change in its controlling ownership, controlling senior management or, except upon not less than 30 days prior written notice to MLBFS, its name or principal place of business. (e) Tangible Net Worth. Beginning March 31, 1995, the "tangible net worth" of Customer, consisting of net worth as shown on Customer's regular financial statements prepared in a manner consistent with the terms hereof, but excluding an amount equal to (i) any assets which are ordinarily classified as "intangible" in accordance with generally accepted accounting principles, and (ii) any amounts now or hereafter directly or indirectly owing to Customer by officers, shareholders or affiliates of Customer, shall at all times exceed $2,500,000.00. (f) Debt to Worth. The ratio of Customer's total debt to Customer's tangible net worth, determined as aforesaid, shall not at any time exceed 2 to 1. (g) Minimum Cash Flow. The "Net Cash Flow" of Customer as of the end of each of its fiscal years shall not be less than $400,000.00. As used herein, "Net Cash Flow" shall mean the sum of Customer's annual net after-tax income, depreciation and any non-recurring expenses, less any non-recurring income and the current portion of long-term debt due to parties other than MLBFS; all as shown on Customer's regular financial statements prepared in a manner consistent with the terms hereof. (h) Annual Clean-Up. Prior to each Maturity Date, Customer shall cause the WCMA Loan Balance to be fully paid off and remain at zero for at least one consecutive 60-day period. (i) Distributions and Transfers. Customer shall not without the prior written consent of MLBFS directly or indirectly pay any cash dividends or other distributions on account of its stock, lend any moneys to, or transfer any assets or property, in excess of $250,000.00, to The Galore Group (U.S.A.), Inc., Pool Patio 'N Things, Inc. or The Galore Group Limited (other than arms length transfers for fair consideration in the ordinary course of business). (j) Additional Debt Guaranties. Except upon the prior written consent of MLBFS, Customer shall not directly or indirectly guaranty any additional debt of The Galore Group (U.S.A.), Inc. or Pool Patio 'N Things, Inc., except for debt of such entities existing as of the date of and reflected on the last financial statements of each submitted to MLBFS. Customer shall not directly or indirectly guaranty any additional debt of The Galore Group Limited in excess of the 29 million Australian dollars of debt currently in force for said entity. (k) Note Receivable from The Galore Group (U.S.A.), Inc. Except upon the prior written consent of MLBFS, Customer shall not directly or indirectly permit to exist any debt of The Galore Group (U.S.A.), Inc. to Customer exceeding $1,500,000.00, beginning March 31, 1995. 7. COLLATERAL (a) Pledge of Collateral. To secure payment and performance of the Obligations, Customer hereby pledges, assigns, transfers and sets over to MLBFS, and grants to MLBFS first liens and security interests in and upon all of the Collateral, subject only to Permitted Liens. -8- (b) Liens. Customer shall not create or permit to exist any lien, encumbrance or security interest upon or with respect to any Collateral now owned or hereafter acquired, except for any Permitted Liens. Customer shall further perform any and all acts reasonably requested by MLBFS to establish, perfect, maintain and continue MLBFS' security interests and liens upon the Collateral, including, but not limited to; (i) executing financing statements and any and all other instruments and documents when and as reasonably requested by MLBFS, and (ii) if in the reasonable judgment of MLBFS it is required by local law, causing the owners and/or mortgagees of the real property on which any Collateral may be located to execute and deliver to MLBFS waivers or subordinations reasonably satisfactory to MLBFS with respect to any rights in such Collateral. (c) Performance of Obligations. Customer shall perform all of its obligations owing on account of or with respect to the Collateral; it being understood that nothing herein, and no action or inaction by MLBFS, under this Loan Agreement or otherwise, shall be deemed an assumption by MLBFS of any of Customer's said obligations. (d) Sales and Collections. So long as no Event of Default shall have occurred and is continuing, Customer may in the ordinary course of its business; (i) sell any Inventory normally held by Customer for sale, (ii) use or consume any materials and supplies normally held by Customer for use or consumption, (iii) sell or dispose of any Fixtures or Equipment so long as same is replaced by Fixtures or Equipment of comparable value, and (iv) collect all of its Accounts. Customer shall take such action with respect to protection of the Inventory and the other Collateral and the collection of the Accounts as MLBFS may from time to time reasonably request. (e) Account Schedules. Upon the request of MLBFS, made now or at any reasonable time or times hereafter, Customer shall deliver to MLBFS, in addition to the other information required hereunder, a schedule identifying, for each Account and all Chattel Paper subject to MLBFS' security interests hereunder, each Account Debtor by name and address and amount, invoice or contract number and date of each invoice or contract. Customer shall furnish to MLBFS such additional information with respect to the Collateral, and amounts received by Customer as proceeds of any of the Collateral, as MLBFS may from time to time reasonably request. (f) Alterations and Maintenance. Except upon the prior written consent of MLBFS, Customer shall not make or permit any material alterations to any tangible Collateral which might materially reduce or impair its market value or utility. Customer shall at all times keep the tangible Collateral in good condition and repair and shall pay or cause to be paid all obligations arising from the repair and maintenance of such Collateral, as well as all obligations with respect to the premises where any Collateral is or may be located, except for any such obligations being contested by Customer in good faith by appropriate proceedings. (g) Location. Except for movements required in the ordinary course of Customer's business, Customer shall give MLBFS 30 days' prior written notice of the placing at or movement of any tangible Collateral to any location other than a Location of Tangible Collateral. In no event shall Customer cause or permit any material tangible Collateral to be removed from the United States without the express prior written consent of MLBFS. (h) Insurance. Customer shall insure all of the tangible Collateral under a policy or policies of physical damage insurance providing that losses will be payable to MLBFS as its interests may appear pursuant to a Lender's Loss Payable Endorsement and containing such other provisions as may be reasonably required by MLBFS. Customer shall further provide and maintain a policy or policies of comprehensive public liability insurance naming MLBFS as an additional party insured. Customer and each Business Guarantor shall maintain such other insurance as may be required by law or is customarily maintained by companies in a similar business or otherwise reasonably required by MLBFS. All such insurance shall provide that MLBFS will receive not less than 10 days prior written notice of any cancellation, and shall otherwise be in form and amount and with an insurer or insurers reasonably acceptable to MLBFS. Customer shall furnish MLBFS with a copy or certificate of each such policy or policies and, prior to any expiration or cancellation, each renewal or replacement thereof. -9- (i) Event of Loss. Customer shall at its expense promptly repair all repairable damage to any tangible Collateral. In the event that any tangible Collateral is damaged beyond repair, lost, totally destroyed or confiscated (an "Event of Loss") and such Collateral had a value prior to such Event of Loss of $75,000.00 or more, then, on or before the first to occur of (i) 90 days after the occurrence of such Event of Loss, or (ii) 10 Business Days after the date on which either Customer or MLBFS shall receive any proceeds of insurance on account of such Event of Loss, or any underwriter of insurance on such Collateral shall advise either Customer or MLBFS that it disclaims liability in respect of such Event of Loss, Customer shall, at Customer's option, either replace the Collateral subject to such Event of Loss with comparable Collateral free of all liens other than Permitted Liens (in which event Customer shall be entitled to utilize the proceeds of insurance on account of such Event of Loss for such purpose, and may retain any excess proceeds of such insurance), or consent to a reduction in the WCMA Line of Credit in an amount equal to the actual cash value of such Collateral as determined by either the applicable insurance company's payment (plus any applicable deductible) or, in absence of insurance payment, as reasonably determined by MLBFS. Notwithstanding the foregoing, if at the time of occurrence of such Event of Loss or any time thereafter prior to replacement or line reduction, as aforesaid, an Event of Default shall occur hereunder, then MLBFS may at its sole option, exercisable at any time while such Event of Default shall be continuing, require Customer to either replace such Collateral or, on its own volition and without the consent of Customer, reduce the WCMA Line of Credit, as aforesaid. (j) Notice of Certain Events. Customer shall give MLBFS immediate notice of any attachment, lien, judicial process, encumbrance or claim affecting or involving $75,000.00 or more of the Collateral. (k) Indemnification. Customer shall indemnify, defend and save MLBFS harmless from and against any and all claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) of any nature whatsoever which may be asserted against or incurred by MLBFS arising out of or in any manner occasioned by (i) the ownership, collection, possession, use or operation of any Collateral, or (ii) any failure by Customer to perform any of its obligations hereunder; excluding, however, from said indemnity any such claims, liabilities, etc. arising directly out of the willful wrongful act or active gross negligence of MLBFS. This indemnity shall survive the expiration or termination of this Loan Agreement as to all matters arising or accruing prior to such expiration or termination. 8. Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" under this Loan Agreement: (a) Failure to Pay. Customer shall fail to pay to MLBFS or deposit into the WCMA Account when due any amount owing or required to be deposited by Customer under this Loan Agreement, and such failure shall continue for more than 5 Business Days after written notice thereof shall have been given by MLBFS to Customer. (b) Failure to Perform. Customer or any Guarantor shall default in the performance or observance of any covenant or agreement on its part to be performed or observed under this Loan Agreement or any of the Additional Agreements (not constituting an Event of Default under any other clause of this Paragraph), and such default shall continue unremedied for 10 Business Days after written notice thereof shall have been given by MLBFS to Customer. (c) Breach of Warranty. Any representation or warranty made by Customer or any Guarantor contained in this Loan Agreement or any of the Additional Agreements shall at any time prove to have been incorrect in any material respect when made. (d) Default Under Other Agreement. A default or Event of Default by Customer or any Guarantor shall occur under the terms of any other agreement, instrument or document with or intended for the benefit of -10- MLBFS, MLPF&S or any of their affiliates, and any required notice shall have been given and required passage of time shall have elapsed. (e) Bankruptcy, Etc. A proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt or receivership law or statute shall be filed by Customer or any Guarantor, or any such proceeding shall be filed against Customer or any Guarantor and shall not be dismissed or withdrawn within 60 days after filing, or Customer or any Guarantor shall make an assignment for the benefit of creditors, or Customer or any Guarantor shall become insolvent or generally fail to pay, or admit in writing its inability to pay, its debts as they become due. (f) Material Impairment. Any event shall occur which shall reasonably cause MLBFS to in good faith believe that the prospect of payment or performance by Customer or any Guarantor has been materially impaired. (g) Acceleration of Debt to Other Creditors. Any event shall occur which results in the acceleration of the maturity of any indebtedness of $100,000.00 or more of Customer or any Guarantor to another creditor under any indenture, agreement, undertaking, or otherwise. (h) Seizure or Abuse of Collateral. The Collateral, or any material part thereof, shall be or become subject to any material abuse or misuse, or any levy, attachment, seizure or confiscation which is not released within 10 Business Days. 9. Remedies. (a) Remedies Upon Default. Upon the occurrence and during the continuance of any Event of Default, MLBFS may at its sole option do any one or more or all of the following, at such time and in such order as MLBFS may in its sole discretion choose: (i) Termination. MLBFS may without notice terminate the WCMA Line of Credit and all obligations to provide the WCMA Line of Credit or otherwise extend any credit to or for the benefit of Customer; and upon any such termination MLBFS shall be relieved of all such obligations. (ii) Acceleration. MLBFS may declare the principal of and interest on the WCMA Loan Balance, and all other Obligations to be forthwith due and payable, whereupon all such amounts shall be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. (iii) Exercise Rights of Secured Party. MLBFS may exercise any or all of the remedies of a secured party under applicable law, including, but not limited to, the UCC, and any or all of its other rights and remedies under this Loan Agreement and the Additional Agreements. (iv) Possession. MLBFS may require Customer to make the Collateral and the records pertaining to the Collateral available to MLBFS at a place designated by MLBFS which is reasonably convenient, or may take possession of the Collateral and the records pertaining to the Collateral without the use of any judicial process and without any prior notice to Customer. (v) Sale. MLBFS may sell any or all of the Collateral at public or private sale upon such terms and conditions as MLBFS may reasonably deem proper. MLBFS may purchase any Collateral at any such public sale. The net proceeds of any such public or private sale and all other amounts actually collected or received by MLBFS pursuant hereto, after deducting all costs and expenses incurred at any time in the collection of the Obligations and in the protection, collection and sale of the Collateral, will be applied to the payment of the obligations, with any remaining proceeds paid to Customer or whoever else may be entitled thereto, and with Customer and the Guarantors remaining jointly and severally liable for any amount remaining unpaid after such application. -11- (vi) Delivery of Cash, Checks, Etc. MLBFS may require Customer to forthwith upon receipt, transmit and deliver to MLBFS in the form received, all cash, checks, drafts and other instruments for the payment of money (properly endorsed, where required, so that such items may be collected by MLBFS) which may be received by Customer at any time in full or partial payment of any Collateral, and require that Customer not commingle any such items which may be so received by Customer with any other of its funds or property but instead hold them separate and apart and in trust for MLBFS until delivery is made to MLBFS. (vii) Notification of Account Debtors. MLBFS may notify any Account Debtor that its Account or Chattel Paper has been assigned to MLBFS and direct such Account Debtor to make payment directly to MLBFS of all amounts due or becoming due with respect to such Account or Chattel Paper; and MLBFS may enforce payment and collect, by legal proceedings or otherwise, such Account or Chattel Paper. (viii) Control of Collateral. MLBFS may otherwise take control in any lawful manner of any cash or non-cash items of payment or proceeds of Collateral and of any rejected, returned, stopped in transit or repossessed goods included in the Collateral and endorse Customers name on any item of payment on or proceeds of the Collateral. (b) Set-Off. MLBFS shall have the further right upon the occurrence and during the continuance of an Event of Default to set-off, appropriate and apply toward payment of any of the Obligations, in such order of application as MLBFS may from time to time and at any time elect, any cash, credit, deposits, accounts, securities and any other property of Customer which is in transit to or in the possession, custody or control of MLBFS, MLPF&S or any agent, bailee, or affiliate of MLBFS or MLPF&S, including, without limitation, the WCMA Account and any Money Accounts, and all cash and securities therein or controlled thereby, and all proceeds thereof. Customer hereby grants to MLBFS a security interest in all such property as additional Collateral. (c) Remedies are Severable and Cumulative. All rights and remedies of MLBFS herein are severable and cumulative and in addition to all other rights and remedies available in the Additional Agreements, at law or in equity, and any one or more of such rights and remedies may be exercised simultaneously or successively. (d) Notices. To the fullest extent permitted by applicable law, Customer hereby irrevocably waives and releases MLBFS of and from any and all liabilities and penalties for failure of MLBFS to comply with any statutory or other requirement imposed upon MLBFS relating to notices of sale, holding of sale or reporting of any sale, and Customer waives all rights of redemption from any such sale. Any notices required under applicable law shall be reasonably and properly given to Customer if given by any of the methods provided herein at least 5 Business Days prior to taking action. MLBFS shall have the right to postpone or adjourn any sale or other disposition of Collateral at any time without giving notice of any such postponed or adjourned date. In the event MLBFS seeks to take possession of any or all of the Collateral by court process, Customer further irrevocably waives to the fullest extent permitted by law any bonds and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession. and any demand for possession prior to the commencement of any suit or action. 10. Miscellaneous. (a) Non-Waiver. No failure or delay on the part of MLBFS in exercising any right, power or remedy pursuant to this Loan Agreement or any of the Additional Agreements shall operate as a waiver thereof, and no single or partial exercise of any such right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. Neither any amendment, modification, supplement, termination or waiver of any provision of this Loan Agreement or any of the Additional Agreements, nor any consent to any departure by Customer therefrom, shall be effective unless the same shall be in writing and signed by MLBFS. Any waiver of any provision of this Loan Agreement or any of the Additional Agreements and any consent to any departure by Customer from the terms of this Loan Agreement or any of the Additional Agreements shall be effective only in the specific instance and for the specific purpose for which -12- given. Except as otherwise expressly provided herein, no notice to or demand on Customer shall in any case entitle Customer to any other or further notice or demand in similar or other circumstances. (b) Disclosure. Customer and each Guarantor hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Customer or any Guarantor. (c) Communications. All notices and other communications required or permitted hereunder shall be in writing, and shall be either delivered personally, mailed by postage prepaid certified mail or sent by express overnight courier or by facsimile. Such notices and communications shall be deemed to be given on the date of personal delivery, facsimile transmission or actual delivery of certified mail, or one Business Day after delivery to an express overnight courier. Unless otherwise specified in a notice sent or delivered in accordance with the terms hereof, notices and other communications in writing shall be given to the parties hereto at their respective addresses set forth at the beginning of this Loan Agreement, or, in the case of facsimile transmission, to the parties at their respective regular facsimile telephone number. (d) Costs, Expenses and Taxes. Customer shall upon demand pay or reimburse MLBFS for: (i) all Uniform Commercial Code filing and search fees and expenses incurred by MLBFS in connection with the verification, perfection or preservation of MLBFS' rights hereunder or in the Collateral or any other collateral for the Obligations; (ii) any and all stamp, transfer and other taxes and fees payable or determined to be payable in connection with the execution, delivery and/or recording of this Loan Agreement or any of the Additional Agreements; and (iii) all reasonable fees and out-of-pocket expenses (including, but not limited to, reasonable fees and expenses of outside counsel) incurred by MLBFS in connection with the enforcement of this Loan Agreement or any of the Additional Agreements or the protection of MLBFS' rights hereunder or thereunder, excluding, however, salaries and expenses of MLBFS' employees. The obligations of Customer under this paragraph shall survive the expiration or termination of this Loan Agreement and the discharge of the other Obligations. (e) Right to Perform Obligations. If Customer shall fail to do any act or thing which it has covenanted to do under this Loan Agreement or any representation or warranty on the part of Customer contained in this Loan Agreement shall be breached, MLBFS may, in its sole discretion, after 5 days written notice is sent to Customer, do the same or cause it to be done or remedy any such breach, and may expend its funds for such purpose. Any and all reasonable amounts so expended by MLBFS shall be repayable to MLBFS by Customer upon demand, with interest at the Interest Rate during the period from and including the date funds are so expended by MLBFS to the date of repayment, and all such amounts shall be additional Obligations. (f) Late Charges. Any payment required to be made by Customer pursuant to this Loan Agreement not paid within 5 Business Days of the applicable due date shall be subject to a late charge in an amount equal to the lesser of: (i) 5% of the overdue amount, or (ii) the maximum amount permitted by applicable law. Such late charges shall be payable on demand, or, without demand, may in the sole discretion of MLBFS be paid by a WCMA Loan and added to the WCMA Loan Balance in the same manner as provided herein for accrued interest. (g) Further Assurances. Customer shall do such further acts and things and execute and deliver to MLBFS such additional agreements, instruments and documents as MLBFS may reasonably require or deem advisable to effectuate the purposes of this Loan Agreement, or to confirm unto MLBFS its rights, powers and remedies under this Loan Agreement and the Additional Agreements. (h) Binding Effect; Assignment. This Loan Agreement and the Additional Agreements shall be binding upon, and shall inure to the benefit of MLBFS, Customer and their respective successors and assigns. Customer shall not assign any of its rights or delegate any of its obligations under this Loan Agreement or any of the Additional Agreements without the prior written consent of MLBFS. Unless otherwise expressly -13- agreed to in a writing signed by MLBFS no such consent shall in any event relieve Customer of any of its obligations under this Loan Agreement or the Additional Agreements. (i) Headings. Captions and section and paragraph headings in this Loan Agreement and the Additional Agreements are inserted only as a matter of convenience, and shall not affect the interpretation hereof. (j) Governing Law. This Loan Agreement, and, unless otherwise expressly provided therein, each of the Additional Agreements, shall be governed in all respects by the laws of the State of Illinois. (k) Severability of Provisions. Whenever possible, each provision of this Loan Agreement and the Additional Agreements shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of this Loan Agreement or any of the Additional Agreements which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Loan Agreement and the Additional Agreements or affecting the validity or enforceability of such provision in any other jurisdiction. (I) Term. This Loan Agreement shall become effective on the date accepted by MLBFS at its offices in Chicago, Illinois, and, subject to the terms hereof, shall continue in effect so long thereafter as the WCMA Line of Credit shall be in effect or there shall be any other Obligations outstanding. (m) Integration. THIS LOAN AGREEMENT, TOGETHER WITH THE ADDITIONAL AGREEMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES. Without limiting the foregoing, Customer acknowledges that: (i) no promise or commitment has been made to it by MLBFS, MLPF&S or any of their respective employees, agents or representatives to extend the availability of the WCMA Line of Credit or the due date of the WCMA Loan Balance beyond the current Maturity Date, or to increase the Maximum WCMA Line of Credit, or otherwise extend any other credit to Customer or any other party; (ii) no purported extension of the Maturity Date, increase in the Maximum WCMA Line of Credit or other extension or agreement to extend credit shall be valid or binding unless expressly set forth in a written instrument signed by MLBFS; and (iii) except as otherwise expressly provided herein, this Loan Agreement supersedes and replaces any and all proposals, letters of intent and approval and commitment letters from MLBFS to Customer, none of which shall be considered an Additional Agreement. (n) Jurisdiction; Waiver. CUSTOMER ACKNOWLEDGES THAT THIS LOAN AGREEMENT IS BEING ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS' RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS LOAN AGREEMENT AND THE ADDITIONAL AGREEMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE LOCATED. CUSTOMER CONSENTS TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND CUSTOMER WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. CUSTOMER FURTHER WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY JURISDICTION EXCEPT IN THE COUNTY OF COOK AND STATE OF ILLINOIS. MLBFS AND CUSTOMER HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE WCMA LINE OF CREDIT, THIS LOAN AGREEMENT, ANY ADDITIONAL AGREEMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT MATTER OF THIS LOAN AGREEMENT. -14- IN WITNESS WHEREOF, this Loan Agreement has been executed as of the day and year first above written. BARBEQUES GALORE, INC. By: /s/ Sydney Selati /s/ Kevin Ralphs ---------------------------------------------------------------- Signature (1) Signature (2) Sydney Selati Kevin Ralphs - ------------------------------------------------------------------- Printed Name Printed Name Chairman Chief Financial Officer - ------------------------------------------------------------------- Title Title Accepted at Chicago, Illinois: MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By /s/ [SIGNATURE APPEARS HERE] ------------------------------------ -15- EXHIBIT A ATTACHED TO AND HEREBY MADE A PART OF WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 231-07T10 BETWEEN MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. AND BARBEQUES GALORE, INC. - -------------------------------------------------------------------------------- Locations of Tangible Collateral: 15041 Bake Parkway, Ste. A, Irvine, CA 92718 2246 Sunrise Blvd., Ste. 7, Rancho Cordova, CA 95670 11073 W. Pico Blvd., Los Angeles, CA 90064 1124 Sunset Rd., Henderson, NV 89015 6412 Tupelo Drive, Citrus Heights, CA 95621 18255 Hawthorne Blvd., Torrance, CA 90503 7450 Clairemont Mesa Blvd., San Diego, CA 92111 1286 B Auto Parkway, Escondido, CA 92025 311 E. Camelback Rd., Phoenix, AZ 85012 201 N. Central Ave., Glendale, CA 91203 9010 E. Indian Bend, Ste. 2, Scottsdale, AZ 85250 18922 Ventura Blvd., Tarzana, CA 91356 14040 E. Firestone Blvd., Santa Fe Springs, CA 90670 324 S. Mountain Ave., Upland, CA 91786 10495 Magnolia Ave., Riverside, CA 92505 2580 S. Decatur Blvd., Las Vegas, NV 89102 7307 Roseville Rd., Ste. 10, Sacramento, CA 95842 c/o Tropitone, 5 Marconi Dr., Irvine, CA 52798 SCHEDULE 1 ================================================================================ [LETTERHEAD OF FAX COVERSHEET APPEARS HERE] ================================================================================ To: Larry Sherman Fax#: 619-231-8770 Subject: Leased and Other Secured Assets Date: March 9, 1995 Pages 5, including this cover sheet. COMMENTS: Dear Larry, 1. Listed below are the assets that we have on lease:
Asset Lessor Termination Date - ----- ------ ---------------- El Dorado Cadillac GMAC 4/96 Nissan 240SX Nissan Motor Acceptance 7/96 Canon NP2120 Copier Canon 4/96 Canon Fax L700 Canon 4/96 1994 Isuzu Rodeo GE Capital 5/98 1994 Ford Cargo Van Ford Motor Credit 7/97 1994 Ford Cargo Van Ford Motor Credit 7/97 1995 Ford Cargo Van Ford Motor Credit 10/97 1995 Ford Cargo Van Ford Motor Credit 10/97 1995 Ford Cargo Van Ford Motor Credit 3/98
None of the above leases are capitalized in our books. 2. We have purchased a Clark TM15 forklift truck through Clark Credit Corporation. The original purchase price was $21,208.00. This loan will be paid off by July 1995. 3. The attached Exhibit A is a listing by location of all of the computer equipment financed by Warrior Bank and covered by a UCC filing in favor of that bank. The invoiced value of these assets was $73,513.64. This loan will be paid off by August 1997. Regards, /s/ Kevin J. Ralphs Kevin J. Ralphs EXHIBIT A --------- PAGE 1 of 4 -----------
Location: 2246 Sunrise Blvd. Suite 7 - --------- Rancho Cordova, Ca 95670 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 386SX/20 23DC168 1 Mono VGA 94116128 1 2400 Baud Modem 931223 1 American Power 250 UPS 931223 1 Okidata 931223 1 Star SP312 Roll Printer RKP-300 450130401236 1 Aim Cash Drawer 1 PC Anywhere Software Package 1 Remote System - Infocorp 1 SW Purchase Order Control - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller W/I/O Port - -------------------------------------------------------------------------------- Location: 1700 East Ventura Blvd, Suite D - -------- Oxnard, California 93030 Quantity Item Serial # - --------- ---- -------- 1 IBM Value Point 386SX/20 23BV692 1 Mono Monitor VGA 12112092 1 2400 Baud Modem 301C0906904 1 American Power 250 UPS 301C0906904 1 Okidata 320 Printer 301C0906904 1 Star SP312 Roll Printer RKP-300 450130100995 1 Aim Cash Drawer 1 PC Anywhere Software Host 1 Remote System - Infocorp 1 SW Purchase Order Control - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller W/I/O Port - -------------------------------------------------------------------------------- Location: 14040 E. Firestone Blvd. - --------- Santa Fe Springs, Ca 90670 Quantity Item Serial # - -------- ---- -------- 1 IBM PS/Value Point 486 23PVR43 1 Mono Monitor VGA 23112160 1 2400 Baud Modem 960551 1 American Power 250 UPS 960551 1 Okidata 320 Printer 960551 1 Star SP312 Roll Printer 450130600535 1 M-S Cash Drawer 1 PC Anywhere Software 1 Remote software/POS [xx] Sign Here 4 pages 1 Purchase Order Management - Infocorp [ ] Initial Here 2 Cable IBM Printer [ ] Notarize Here 1 Hard Disk Controller [ ] Return - ------------------------------------------------- [xx] Sign 4 pages (to be
------------------- recorded in Alabama) BARBEQUES GALORE, INC. BY: /s/ [SIGNATURE APPEARS HERE] ---------------------------- ITS: CFO ---------------------------- EXHIBIT A --------- PAGE 2 of 4 -----------
Location: 10495 Magnolia Ave., Suite A - --------- Riverside, Ca. 92505 Quantity Item Serial # - --------- ---- -------- 1 IBM PS/Value Point 486 23FWL24 1 Mono Monitor VGA 64130104 1 2400 Baud Modem 931095 1 American Power 250 UPS 931095 1 Okidata 320 Printer 931095 1 Star SP312 Roll Printer 450130600560 1 M-S Cash Drawer 1 PC Anywhere Software 1 Remote software/POS 1 SW Purchase order management - Infocorp 2 Cable IBM Printer 1 Hard Disk Controller - -------------------------------------------------------------------------------- Location: 1286 B. Auto Parkway - -------- Escondido, Ca. 92025 Quantity Item Serial # - --------- ---- -------- 1 IBM Value Point 486 23FWH18 1 Mono Monitor VGA 64130067 1 2400 Baud Modem 1 American Power 250 UPS 1 Okidata 320 Printer 1 Star SP312 Roll Printer 450130600559 1 M-S Cash Drawer 1 PC Anywhere software 1 Remote System - Infocorp 1 SW Purchase Order - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller - -------------------------------------------------------------------------------- Location: 18225 Hawthorne Blvd. - --------- Torrance, Ca. 90504 Quantity Item Serial # - -------- ---- -------- 1 IBM 486 PS/Value Point 23GAC54 1 Mono Monitor VGA 23112400 1 2400 Baud Modem 307C1030366 1 American Power 450 UPS 307C1030366 1 Okidata 320 Printer 307C1030366 1 Star SP312 Roll Printer 450130600166 1 Cash Drawer 1 PC Anywhere software 1 Remote software/POS - Infocorp 1 Purchase Order Management - Infocorp 1 Cable IBM Printer 1 Hard disk controller W/I/O Port
- -------------------------------------------------------------------------------- BARBEQUES GALORE, INC. WARRIOR SAVINGS BANK BY:[SIGNATURE APPEARS HERE] BY: ------------------------- -------------------------- ITS: CFO ITS: ------------------------ -------------------------- EXHIBIT A --------- PAGE 3 0F 4 -----------
Location: 11073 W. Pico Blvd. - --------- Los Angeles, Ca. 90064 Quantity Item Serial # - --------- ---- -------- 1 IBM 486 PS/Value Point 23FZY64 1 Mono Monitor VGA 64135441 1 2400 Baud Modem G.V.C. 307C1030903 1 American Power 450 UPS 307C1030903 1 Star SP312 Roll Printer 307C1030903 1 M-S Cash Drawer 1 PC Anywhere Software 1 Software POS, Remote (Store System) 1 Purchase order management 2 Cable IBM Printer 1 Hard Disk Controller - -------------------------------------------------------------------------------- Location: 18922 Venture Blvd. - --------- Tarzana, Ca. 91356 Quantity Item Serial # - -------- ---- -------- 1 IBM 486 PS/Value Point 23GAB06 1 Mono Monitor VGA 23112348 1 2400 Baud Modem G.V.C. 307C1030304 1 American Power 450 UPS 307C1030304 1 Okidata 320 Printer 307C1030304 1 Star SP312 Roll Printer 450130600529 1 M-S Cash Drawer 1 PC Anywheres oftware 1 Purchase order management 2 Cable IBM Printer 1 Hard Disk ControllerW/I/O Port - -------------------------------------------------------------------------------- Location: 311 East Camelback Road - --------- Camelback Terrace Phoenix, Arizona 85012 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 386SX/120 2BM729 1 Mono Monitor VGA 12112004 1 2400 Baud Modem 301C0906909 1 American Power 250 UPS 301C0906909 1 Okidata 320 Printer 301C0906909 1 Star SP312 Roll Printer RKF-300 450121100037 1 Aim Cash Drawer 1 PC Anywhere Softward Host 1 Remote System - Infocorp. 1 SW Purchase Order Control - Infocorp. 1 Cable IBM Printer - --------------------------------------------------------------------------------
BARBEQUES GALORE INC. WARRIOR SAVINGS BANK BY:/s/ SIGNATURE APPEARS HERE] BY: ----------------------------- --------------------------- ITS: CFO. ITS: ---------------------------- -------------------------- EXHIBIT A --------- PAGE 4 OF 4 -----------
Location: - --------- 2580 South Decatur Avenue Las Vegas, Nevada 89102 and 1124 Sunset Road Henderson, Nevada 89015 Quantity Item Serial # - -------- ---- -------- 1 IBM Value Point 386SX/20 23BP598 1 Mono Monitor VGA 94116303 1 2400 Baud Modem 112C0636794 1 American Power 250 UPS 112C0636794 1 Okedata 320 Printer 112CO636794 1 Star SP312 Roll Printer RKP-300 112C0636794 1 Aim Cash Drawer 450130101229 1 PC Anywhere Software Package 1 Remote System - Infocorp 1 SW Purchase Order Control - Infocorp 1 Cable IBM Printer 1 Hard Disk Controller W/I/O Port
- -------------------------------------------------------------------------------- BARBEQUES GALORE, INC. WARRIOR SAVINGS BANK BY:[SIGNATURE APPEARS HERE] BY: ----------------------------- ------------------------------ ITS: CFO ITS: ---------------------------- ----------------------------- [LOGO OF MERRILL LYNCH APPEARS HERE] No. 9502340701 ================================================================================ UNCONDITIONAL GUARANTY FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit to or for the benefit of BARBEQUES GALORE, INC., a corporation organized and existing under the laws of the State of California (with any successor-in interest, including, without limitation, any successor by merger or by operation of law, herein collectively referred to as "Customer") under (a) that certain TERM WCMA LOAN AND SECURITY AGREEMENT No. 9502340701 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined in the Loan Agreement (including, without limitation, the TERM WCMA NOTE incorporated by reference into the Loan Agreement), and (c) all present and future amendments and other evidences of any extensions, increases, renewals and other changes of or to the Loan Agreement or Additional Agreements (collectively, the "Guaranteed Documents"), the undersigned, THE GALORE GROUP (U.S.A.), INC., a corporation duly organized and validly existing under the laws of the State of Delaware ("Guarantor"), hereby unconditionally guarantees to MLBFS:(i) the prompt and full payment when due, by acceleration or otherwise, of all sums now or any time hereafter due from Customer to MLBFS under the Guaranteed Documents; (ii) the prompt, full and faithful performance and discharge by Customer of each and every other covenant and warranty of Customer set forth in the Guaranteed Documents, and (iii) the prompt and full payment and performance of all other indebtedness, liabilities and obligations of Customer to MLBFS howsoever, created or evidenced, and whether now existing or hereafter arising (collectively, the "Obligations"). Guarantor further agrees to pay all reasonable costs and expenses (including, but not limited to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or enforce performance of any of the Obligations, or in enforcing this Guaranty. This Guaranty is absolute, unconditional and continuing and shall remain in effect until all of the Obligations shall have been fully paid, performed and discharged. Upon the occurrence and during the continuance of any Event of Default under the Guaranteed Documents, any or all of the indebtedness hereby guaranteed then existing shall, at the option of MLBFS, become immediately due and payable from Guarantor. Notwithstanding the occurrence of any such event, this Guaranty shall continue and remain in full force and effect. The liability of Guarantor hereunder shall in no event be affected or impaired by any of the following, any of which may be done or omitted by MLBFS from time to time, without notice to or the consent of Guarantor: (a) any renewals, amendments, modifications or supplements of or to any of the Guaranteed Documents, or any renewals, extensions, forbearances, compromises or releases of any of the Obligations or any of MLBFS, rights under any of the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security for, or other guarantors of any of the Obligations; (c) any failure, neglect or omission on the part of MLBFS to realize upon or protect any of the Obligations, or any collateral or security therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of Customer or any other guarantor, possessed by or under the control of MLBFS or any of its affiliates, toward the liquidation or reduction of the Obligations; (d) any application of payments or credits by MLBFS; (e) the granting of credit from time to time by MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents; or (f) any other act of commission or omission of any kind or at any time upon the part of MLBFS or any of its affiliates or any of their respective employees or agents with respect to any matter whatsoever. MLBFS shall not be required at any time, as a condition of Guarantor's obligations hereunder, to resort to payment from Customer or other persons or entities whatsoever, or any of their properties or estates, or resort to any collateral or pursue or exhaust any other rights or remedies whatsoever. No release or discharge in whole or in part of any other guarantor of the Obligations shall release or discharge Guarantor unless and until all of the Obligations shall have been fully paid and discharged. Guarantor expressly waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of advancement of funds under the Guaranteed Documents and all other notices and formalities to which Customer or Guarantor might be entitled, by statute or otherwise, and, so long as there are any Obligations or MLBFS is committed to extend credit to Customer, waives any right to revoke or terminate this Guaranty without the express written consent of MLBFS. So long as there are any Obligations, Guarantor shall not have any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right, or remedy of MLBFS against Customer or any security which MLBFS now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise. MLBFS is hereby irrevocably authorized by Guarantor at any time during the continuance of an Event of Default under the Loan Agreement or other Guaranteed Documents or in respect of any of the Obligations, in its sole discretion and without demand or notice of any kind, to appropriate, hold, set off and apply toward the payment of any amount due hereunder, in such order of application as MLBFS may elect, all moneys, credits and other property belonging to or in the name of Guarantor at any time held or controlled by MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective affiliates, whether now being held or controlled or held or controlled in the future, on deposit or otherwise, and MLBFS is hereby granted a lien and security interest upon all such moneys, credits and other property. Guarantor further hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Guarantor. Guarantor agrees to furnish to MLBFS such financial information concerning Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may otherwise from time to time reasonably request. No delay on the part of MLBFS in the exercise of any right or remedy under any agreement (including, but not limited to, this Guaranty) shall operate as a waiver thereof, and, without limiting the foregoing, no delay in the enforcement of any security interest, and no single or partial exercise by MLBFS of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. This Guaranty may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. This Guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. If there is more than one guarantor of the Obligations, all of the obligations and agreements of Guarantor are joint and several with such other guarantors. This Guaranty shall be governed by the laws of the State of Illinois. Guarantor agrees that this Guaranty may be enforced by MLBFS in any jurisdiction and venue in which the Loan Agreement may be enforced. Guarantor and MLBFS hereby each expressly waive any and all rights to a trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other party in any way related to or arising out of this Guaranty or the Obligations. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. No modification or waiver of any of the provisions of this Guaranty shall be effective unless in writing and signed by both Guarantor and an officer of MLBFS. -2- Each signatory on behalf of Guarantor warrants that he has authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor hereunder. Dated as of February 28, 1995. THE GALORE GROUP (U.S.A.), INC. By: /s/ Sydney Selati /s/ Kevin Ralphs ---------------------------------------------------------- Signature (1) Signature (2) Sydney Selati Kevin Ralphs ---------------------------------------------------------- Printed Name Printed Name President Chief Financial Officer ---------------------------------------------------------- Title Title Address of Guarantor: 15041 Bake Parkway, Suite A Irvine, CA 92718 -3- [LOGO OF MERRILL LYNCH APPEARS HERE] Ref. No. 231-07T10 ================================================================================ UNCONDITIONAL GUARANTY FOR VALUE RECEIVED, and in order to induce MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. ("MLBFS") to advance moneys or extend or continue to extend credit to or for the benefit of BARBEQUES GALORE, INC., a corporation organized and existing under the laws of the State of California (with any successor-in interest, including, without limitation, any successor by merger or by operation of law, herein collectively referred to as "Customer") under (a) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT No. 231-07T10 between MLBFS and Customer (the "Loan Agreement"), (b) any "Additional Agreements", as that term is defined in the Loan Agreement, and (c) all present and future amendments and other evidences of any extensions, increases, renewals and other changes of or to the Loan Agreement or Additional Agreements (collectively, the "Guaranteed Documents"), the undersigned, THE GALORE GROUP (U.S.A.), INC., a corporation duly organized and validly existing under the laws of the State of Delaware ("Guarantor"), hereby unconditionally guarantees to MLBFS: (i) the prompt and full payment when due, by acceleration or otherwise, of all sums now or any time hereafter due from Customer to MLBFS under the Guaranteed Documents: (ii) the prompt, full and faithful performance and discharge by Customer of each and every other covenant and warranty of Customer set forth in the Guaranteed Documents, and (iii) the prompt and full payment and performance of all other indebtedness, liabilities and obligations of Customer to MLBFS, howsoever created or evidenced, and whether now existing or hereafter arising (collectively, the "Obligations"). Guarantor further agrees to pay all reasonable costs and expenses (including, but not limited to, court costs and reasonable attorneys' fees) paid or incurred by MLBFS in endeavoring to collect or enforce performance of any of the Obligations, or in enforcing this Guaranty. This Guaranty is absolute, unconditional and continuing and shall remain in effect until all of the Obligations shall have been fully paid, performed and discharged. Upon the occurrence and during the continuance of any Event of Default under the Guaranteed Documents, any or all of the indebtedness hereby guaranteed then existing shall, at the option of MLBFS, become immediately due and payable from Guarantor. Notwithstanding the occurrence of any such event, this Guaranty shall continue and remain in full force and effect. The liability of Guarantor hereunder shall in no event be affected or impaired by any of the following, any of which may be done or omitted by MLBFS from time to time, without notice to or the consent of Guarantor: (a) any renewals, amendments, modifications or supplements of or to any of the Guaranteed Documents, or any renewals, extensions, forbearances, compromises or releases of any of the Obligations or any of MLBFS' rights under any of the Guaranteed Documents; (b) any acceptance by MLBFS of any collateral or security for, or other guarantors of, any of the Obligations; (c) any failure, neglect or omission on the part of MLBFS to realize upon or protect any of the Obligations, or any collateral or security therefor, or to exercise any lien upon or right of appropriation of any moneys, credits or property of Customer or any other guarantor, possessed by or under the control of MLBFS or any of its affiliates, toward the liquidation or reduction of the Obligations; (d) any application of payments or credits by MLBFS; (e) the granting of credit from time to time by MLBFS to Customer in excess of the amount set forth in the Guaranteed Documents; or (f) any other act of commission or omission of any kind or at any time upon the part of MLBFS or any of its affiliates or any of their respective employees or agents with respect to any matter whatsoever. MLBFS shall not be required at any time, as a condition of Guarantor's obligations hereunder, to resort to payment from Customer or other persons or entities whatsoever, or any of their properties or estates, or resort to any collateral or pursue or exhaust any other rights or remedies whatsoever. No release or discharge in whole or in part of any other guarantor of the Obligations shall release or discharge Guarantor unless and until all of the Obligations shall have been fully paid and discharged. Guarantor expressly waives presentment, protest, demand, notice of dishonor or default, notice of acceptance of this Guaranty, notice of advancement of funds under the Guaranteed Documents and all other notices and formalities to which Customer or Guarantor might be entitled, by statute or otherwise, and, so long as there are any Obligations or MLBFS is committed to extend credit to Customer, waives any right to revoke or terminate this Guaranty without the express written consent of MLBFS. So long as there are any Obligations, Guarantor shall not have any claim, remedy or right of subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right, or remedy of MLBFS against Customer or any security which MLBFS now has or hereafter acquires, whether or not such claim, right or remedy arises in equity, under contract, by statute, under common law, or otherwise. MLBFS is hereby irrevocably authorized by Guarantor at any time during the continuance of an Event of Default under the Loan Agreement or other Guaranteed Documents or in respect of any of the Obligations, in its sole discretion and without demand or notice of any kind, to appropriate, hold, set off and apply toward the payment of any amount due hereunder, in such order of application as MLBFS may elect, all moneys, credits and other property belonging to or in the name of Guarantor at any time held or controlled by MLBFS or Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), or any of their respective affiliates, whether now being held or controlled or held or controlled in the future, on deposit or otherwise, and MLBFS is hereby granted a lien and security interest upon all such moneys, credits and other property. Guarantor further hereby irrevocably authorizes MLBFS and each of its affiliates, including without limitation MLPF&S, to at any time (whether or not an Event of Default shall have occurred) obtain from and disclose to each other any and all financial and other information about Guarantor. Guarantor agrees to furnish to MLBFS such financial information concerning Guarantor as may be required by any of the Guaranteed Documents or as MLBFS may otherwise from time to time reasonably request. No delay on the part of MLBFS in the exercise of any right or remedy under any agreement (including, but not limited to, this Guaranty) shall operate as a waiver thereof, and, without limiting the foregoing, no delay in the enforcement of any security interest, and no single or partial exercise by MLBFS of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy. This Guaranty may be executed in any number of counterparts, each of which counterparts, once they are executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Guaranty. This Guaranty shall be binding upon Guarantor and its successors and assigns, and shall inure to the benefit of MLBFS and its successors and assigns. If there is more than one guarantor of the Obligations, all of the obligations and agreements of Guarantor are joint and several with such other guarantors. This Guaranty shall be governed by the laws of the State of Illinois. Guarantor agrees that this Guaranty may be enforced by MLBFS in any jurisdiction and venue in which the Loan Agreement may be enforced. Guarantor and MLBFS hereby each expressly waive any and all rights to a trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other party in any way related to or arising out of this Guaranty or the Obligations. Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. No modification or waiver of any of the provisions of this Guaranty shall be effective unless in writing and signed by both Guarantor and an officer of MLBFS. -2- Each signatory on behalf of Guarantor warrants that he has authority to sign on behalf of Guarantor, and by so signing, to bind Guarantor hereunder. Dated as of February 23, 1995. THE GALORE GROUP (U.S.A), INC. By: /s/ Sydney Selati /s/ Kevin Ralphs ----------------------------------------------------- Signature (1) Signature (2) Sydney Selati Kevin Ralphs - -------------------------------------------------------- Printed Name Printed Name President Chief Financial Officer - -------------------------------------------------------- Title Title Address of Guarantor: 15041 Bake Parkway, Suite A Irvine, CA 92718 -3- [LOGO OF MERRILL LYNCH APPEARS HERE] No. 9502340701 ================================================================================ $1,500,000,00 February 23, 1995 TERM WCMA(R) NOTE FOR VALUE RECEIVED, BARBEQUES GALORE, INC., a corporation organized and existing under the laws of the State of California ("Customer"), hereby promises to pay to the order of MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., a corporation organized and existing under the laws of the State of Delaware ("MLBFS"), in lawful money of the United States, the principal sum of $1,500,000.00, or, if less, an amount equal to the sum of the balances from time to time outstanding under the "Term Note" and "WCMA Note" included herein. TERM NOTE FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, in lawful money of the United States, an amount equal to the difference between (i) the principal sum of $1,500,000.00 or, if less, the aggregate amount advanced by MLBFS to Customer pursuant to the "Loan Agreement," as herein defined (the "Loan Amount"), and (ii) the sum of (x) the aggregate amount paid by Customer on account of the principal hereof, and (y) the WCMA Line of Credit (said difference being herein called the "Term Note Balance"); together with interest on the Term Note Balance, from the date of advancement of funds hereunder until payment, at the Interest Rate. Said indebtedness shall be payable in 61 consecutive monthly installments commencing on the first day of the calendar month following the calendar month in which funds are advanced hereunder, and continuing on the first day of each calendar month thereafter until this Note shall be paid in full. The first such installment shall be in an amount equal to accrued interest at the Interest Rate and installments 2 through 61, both inclusive, shall be in an amount equal to the sum of (i) accrued interest at the Interest Rate and (ii) 1/60th of the Loan Amount. Each payment received hereunder shall be applied first to interest at the Interest Rate, with the balance applied on account of the Term Note Balance. All sums payable hereunder shall be payable at the office of MLBFS at 33 West Monroe Street, Chicago, Illinois 60603, or at such other place or places as the holder hereof may from time to time appoint in writing. Customer may prepay this Term Note at any time in whole or in part without premium or penalty. Any partial prepayment shall be applied to installments of the Loan Amount in inverse order of maturity. Customer shall not have the right to re-borrow amounts prepaid on account of this Term Note. WCMA NOTE FOR VALUE RECEIVED, Customer hereby promises to pay to the order of MLBFS, at the times and in the manner set forth in the Loan Agreement, or in such other manner and at such place as MLBFS may hereafter designate in writing, the following: (a) on the WCMA Maturity Date, the then WCMA Loan Balance; and (b) interest at the Interest Rate on the outstanding WCMA Loan Balance, from and including the date on which the initial WCMA Loan is made until the date of payment of all WCMA Loans in full. Interest shall be payable in the manner and on the dates specified in, or determined in accordance with, the Loan Agreement. PROVISIONS APPLICABLE TO BOTH TERM NOTE AND WCMA NOTE As used herein, the term "Interest Rate" shall mean a fluctuating per annum rate equal to the sum of (i) 2.70%, and (ii) 30-Day Commercial Paper Rate. The "30- Day Commercial Paper Rate" shall mean, as of the date of any determination, the interest rate from time to time published in the "Money Rates" section of The Wall Street Journal for 30-day high-grade unsecured notes sold through dealers by major corporations. The Interest Rate will change as of the date of publication in The Wall Street Journal of a 30-Day Commercial Paper Rate that is different from that published on the preceding Business Day. In the event that The Wall Street Journal shall, for any reason, fail or cease to publish the 30- Day Commercial Paper Rate, MLBFS will choose a reasonably comparable index or source to use as the basis for the Interest Rate. Any part of the principal hereof or interest hereon not paid within S Business Days of the applicable due date shall be subject to a late charge equal to the lesser of (i) 5% of the overdue amount, or (ii) the maximum amount permitted by law. All interest shall be computed on the basis of actual days elapsed over a 360-day year. This Term WCMA Note constitutes and includes both the "Term Note" and the "WCMA Note" referred to in, and is entitled to all of the benefits of that certain TERM WCMA LOAN AND SECURITY AGREEMENT No. 9502340701 between Customer and MLBFS (the "Loan Agreement"). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Agreement. The Loan Agreement is by this reference hereby incorporated as a part hereof. If Customer shall fail to pay when due any installment or other sum due hereunder, and any such failure shall continue for more than 5 Business Days after written notice thereof from the holder hereof to Customer, or if any other "Event of Default", as that term is defined in the Loan Agreement, shall occur, then at the option of the holder hereof, and in addition to all other rights and remedies available to such holder under the Loan Agreement and otherwise, an amount equal to the sum of the WCMA Loan Balance and the Term Note Balance at such time remaining unpaid, together with accrued interest thereon, and all other sums then owing by Customer under the Loan Agreement, may be declared to be and thereby become immediately due and payable. It is expressly understood, however, that nothing contained in the Loan Agreement, any other agreement, instrument or document executed by Customer, or otherwise, shall affect or impair the right, which is unconditional and absolute, of the holder hereof to enforce payment of all sums due under this Term WCMA Note at or after maturity, whether by acceleration or otherwise, or shall affect the obligation of Customer, which is also unconditional and absolute, to pay the sums payable under this Term WCMA Note in accordance with its terms. Except as otherwise expressly set forth herein or in the Loan Agreement, Customer hereby waives presentment, demand for payment, protest and notice of protest, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices and formalities in connection with this Term WCMA Note. Wherever possible each provision of this Term WCMA Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Term WCMA Note shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Term WCMA Note. Notwithstanding anything herein to the contrary, in no event shall any interest charged hereunder exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that MLBFS has received interest hereunder in excess of the highest rate applicable hereto, MLBFS shall promptly refund such excess interest to Customer without charge or penalty. This Term WCMA Note shall be construed in accordance with the laws of the State of Illinois and may be enforced by the holder hereof in any jurisdiction in which the Loan Agreement may be enforced. -2- IN WITNESS WHEREOF, this Term WCMA Note has been executed by Customer as of the day and year first above written. BARBEQUES GALORE, INC. By: /s/ Sydney Selati /s/ Kevin Ralphs ------------------------------------------------------------ Signature (1) Signature (2) Sydney Selati Kevin Ralphs ------------------------------------------------------------ Printed Name Printed Name Chairman Chief Financial Officer ------------------------------------------------------------ Title Title -3- Private Client Group Merrill Lynch Business Financial Services Inc. 33 West Monroe Street 22nd Floor Chicago, Illinois 60603 312/845-1020 [LOGO OF MERRILL LYNCH APPEARS HERE] FAX 312/845-9093 November 27, 1996 Mr. Sydney Selati Barbeques Galore, Inc. 15041 Bake Parkway Irvine, CA 92718 Re: WCMA Line of Credit Increase Dear Mr. Selati, I am pleased to advise you that the request of Barbeques Galore, Inc. for an increase of its WCMA Line of Credit has been approved upon the terms set forth in the enclosed Letter Agreement. Note that, among other conditions in said Letter Agreement, in order for this increase to become effective, one copy of the enclosed Letter Agreement and the other documents enclosed herewith must be fully executed and returned to me within 14 days from the date hereof. Please note further that because of inherent system and administrative delays that it may take several days after such execution and return before the increased line of credit is actually available. Accordingly, I recommend that you call me if you have need to immediately use the increased portion of the line. If you have such an immediate need or have any questions, please call me at (312) 269-5426. Very truly yours, Merrill Lynch Business Financial Services Inc. By: /s/ Heather J. Wise ---------------------------------- Heather J. Wise Credit Services Account Manager cc: David Polster Private Client Group Merrill Lynch Business Financial Services Inc. 33 West Monroe Street 22nd Floor Chicago, Illinois 60603 312/269-5426 [LOGO OF MERRILL LYNCH APPEARS HERE] FAX 312/201-0210 November 27,1996 Barbeques Galore, Inc. 15041 Bake Parkway Irvine, CA 92718 Re: WCMA Line of Credit Increase Ladies And Gentlemen: This Letter Agreement will serve to confirm certain agreements of Merrill Lynch Business Financial Services Inc. ("MLBFS") and Barbeques Galore, Inc. ("Customer") with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 231-07T10 between MLBFS and Customer (including any previous amendments and extensions thereof), and (ii) all other agreements between MLBFS and Customer or any party who has guaranteed or provided collateral for Customer's obligations to MLBFS (a "Guarantor") in connection therewith (collectively, the "Loan Documents"). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Documents. Subject to the terms hereof, effective as of the "Effective Date" the Loan Documents are hereby amended as follows: 1. The term "Maximum WCMA Line of Credit" shall mean: (A) during the period between the Effective Date and June 30, 1997, an amount equal to the lesser of: (i) the sum of (x) 70% of Customer's Non-Government Accounts and Chattel Paper (excluding Accounts over 90 days old, Chattel Paper with installments or other sums more than 90 days past due, and Accounts and Chattel Paper directly or indirectly due from any shareholder, officer or employee of Customer or any affiliated entity) and (y) 50% of Customer's Inventory, all shown on Customer's regular books and records, less the aggregate of (a) the outstanding balance of principal and interest under the Term WCMA Note made by Customer and payable to MLBFS and (b) the availability under the WCMA Line of Credit portion of the Term WCMA facility, or (ii) $1,250,000.00; and (B) from and after July 1,1997 to the Maturity Date, $650,000.00. 2. The "Line Fee" for the period ending September 30,1997, is hereby increased to $6,250.00, of which $3,750.00 (the "Additional Fee") is now due and owing. Customer hereby authorizes and directs MLBFS to charge the Additional Fee to WCMA Account No. 231-07T10 on or at any time after the Effective Date. 3. Within 15 days after the close of each fiscal month of Customer, Customer shall furnish or cause to be furnished to MLBFS: (i) a statement of profit or loss for the fiscal month then ended, and (ii) a balance sheet as at the close of such fiscal month; all in reasonable detail and certified by its chief financial officer. In addition, within 15 days after the close of each fiscal month of Customer, Customer shall furnish or cause to be furnished to MLBFS, a statement of profit and loss for the fiscal month then ended for each Customer- owned retail location. Barbeques Galore, Inc. November 27, 1996 Page No. 2 4. The following are now additional "Locations of Tangible Collateral": Cooper Street Plaza, 4605 S. Cooper St., Arlington, TX 76017 9010 E. Indian Bend, Suite 2, Scottsdale, AZ 85012 7635 W. Bell Road, Suite #101, Peoria, AZ 85382 390 McKinley #108, Corona, CA 91719 2080 El Camino Real, Palo Alto, CA 94306 Camelback Terrace, 311 E. Camelback Road, Phoenix, AZ 85012 1801 Preston Road, Suite A, Plano TX 75093 1875 S. Bascorn Avenue, Campbell, CA 95008 4360 Lovers Lane, Dallas, TX 75205 1539 Botelho Drive, Walnut Creek, CA 94596 Mariner Village / Miracle Mile 6429 Westheimer, Houston, TX 77057 1419 State Highway, 114 West, Suite 412, Grapevine, TX 76051 5. The ratio of Customer's total debt to Customer's tangible net worth, determined as aforesaid, shall not at any time exceed 1.75:1. 6. The "Net Cash Flow" of Customer as of the end of each of its fiscal years shall not be less than $750,000.00. As used herein, "Net Cash Flow" shall mean the sum of Customer's annual net after-tax income, depreciation and any non- recurring expenses, less any non-recurring income and the current portion of long-term debt due to parties other than MLBFS; all as shown on Customer's regular financial statements prepared in a manner consistent with the term hereof. 7. Customer shall no longer be required to reduce the WCMA Loan Balance to zero at any time. 8. The "tangible net worth" of Customer, consisting of net worth as shown on Customer's regular financial statements prepared in a manner consistent with the term hereof, but excluding an amount equal to (i) any assets which are ordinarily classified as "intangible" in accordance with generally accepted accounting principles, and (ii) any amounts now or hereafter directly or indirectly owing to Customers by officers, shareholders or affiliates of Customer, shall on and at all times after June 30, 1997 exceed $5,000,000.00. Except as expressly modified hereby, the Loan Documents shall continue in full force and effect upon all of their terms and conditions. Nothing herein shall be deemed to extend the Maturity Date of the WCMA Line of Credit. By their execution of this Letter Agreement, the below-named Guarantors hereby consent to the foregoing modifications to the Loan Documents, and hereby agree that the "Obligations" under their Unconditional Guaranty shall extend to and include the Obligations of Customer under the Loan Documents, as amended hereby. Customer and said Guarantors acknowledge, warrant and agree, as a primary inducement to MLBFS to enter into this Agreement, that: (i) no default or Event of Default has occurred and is continuing under the Loan Documents; (ii) each of the warranties of Customer in the Loan Documents are true and correct as of the date hereof and shall be deemed remade as of the date hereof; (iii) neither Customer nor any of said Guarantors have any claim against MLBFS or any of its affiliates arising out of or in connection with the Loan Documents or any other matter its affiliates arising out of or in connection with the Loan Documents or any other matter whatsoever; and (iv) neither Customer nor any of said Guarantors have any defense to payment of any amounts owing, or any right of counterclaim for any reason under, the Loan Documents. Barbeques Galore, Inc. November 27,1996 Page No. 3 The amendments and agreements in this Letter Agreement will become effective on the date (the "Effective Date") upon which: (i) Customer and the Guarantors shall have executed and returned the duplicate copy of this Letter Agreement and the other documents enclosed herewith; (ii) an officer of MLBFS shall have reviewed and approved this Letter Agreement and such other documents as being consistent in all respects with the original internal authorization hereof; and (iii) to the extent applicable, MLBFS shall have entered such amendments and agreements in its computer system (which MLBFS agrees to do promptly after the receipt of such executed duplicate copy and other documents). Notwithstanding the foregoing, if for any reason other than the sole fault of MLBFS the Effective Date shall not occur within 14 days from the date of this Letter Agreement, then all of said amendments and agreements herein will, at the sole option of MLBFS, be void. MLBFS requests that as soon as feasible Customer furnish to MLBFS the following items (however, the Effective Date of this Letter Agreement is not conditioned upon the receipt of such items): (1) The finalized 6/30/96 year end statements from The Galore Group (2) The Landlord Subordinations from each store location in Arizona and Texas Very truly yours, Merrill Lynch Business Financial Services Inc. By: /s/ Heather J. Wise ------------------------------------- Heather J. Wise Credit Services Account Manager Accepted: Barbeques Galore, Inc. By: /s/ Sydney Selati ------------------------------------- Printed Name: SYDNEY SELATI -------------------------- Title: PRESIDENT ---------------------------------- (Additional Acceptance and Approval Signatures on Page 4) Barbeques Galore, Inc. November 27,1996 Page No. 4 Approved: The Galore Group (USA), Inc. By: /s/ Sydney Selati ------------------------------------- Printed Name: SYDNEY SELATI -------------------------- Title: PRESIDENT ---------------------------------- Pool Patio'n Things, Inc. By: /s/ Sydney Selati ------------------------------------- Printed Name: SYDNEY SELATI -------------------------- Title: PRESIDENT ---------------------------------- [LETTERHEAD OF MERRILL LYNCH APPEARS HERE] August 21, 1997 Mr. Kevin Ralphs Controller Barbeques Galore, Inc. 15041 Bake Parkway, Suite A Irvine, CA 92718 Re: WCMA Line of Credit Increase and Extension Dear Mr. Ralphs, I am pleased to advise you that the request of Barbeques Galore, Inc. for an increase and extension of its WCMA Line of Credit has been approved upon the terms set forth in the enclosed Letter Agreement. Among other conditions in said Letter Agreement, in order for this increase and extension to become effective, one copy of the enclosed Letter Agreement must be fully executed and returned to me within 14 days from the date hereof. Due to internal processing requirements it may take a few days after such execution and return before the increased line of credit is actually available. Accordingly, I recommend that you call me if you have need to immediately use the increased portion of the line. If you have such an immediate need or have any questions, please call me at (312) 269-5426. Very truly yours, Merrill Lynch Business Financial Services Inc. By: /s/ Heather Wise ------------------------------------------ Heather Wise Credit Services Account Manager cc: David Polster [LETTERHEAD OF MERRILL LYNCH APPEARS HERE] Barbeques Galore, Inc. 15041 Bake Parkway, Suite A Irvine, CA 92718 Re: WCMA Line of Credit Increase and Extension Ladies and Gentlemen: This Letter Agreement will serve to confirm certain agreements of Merrill Lynch Business Financial Services Inc. ("MLBFS") and Barbeques Galore, Inc. ("Customer") with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 231-07T10 between MLBFS and Customer (including any previous amendments and extensions thereof), and (ii) all other agreements between MLBFS and Customer or any party who has guaranteed or provided collateral for Customer's obligations to MLBFS ("Guarantor") in connection therewith (collectively, the "Loan Documents"). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Documents. Subject to the terms hereof, effective as of the "Effective Date" the Loan Documents are hereby amended as follows: 1. The term "Maturity Date" shall mean October 31, 1997. 2. The "Line Fee" for the period ending October 31, 1997 shall be $770.83. Customer hereby authorizes and directs MLBFS to charge said amount to WCMA Account No. 231-07T10 on or at any time after the Effective Date. 3. The term "Maximum WCMA Line of Credit" shall mean an amount equal to the lesser of: (A) the sum of (x) 70% of Customer's Non-Government Accounts and Chattel Paper, as shown on its regular books and records (excluding Accounts over 90 days old, Chattel Paper with installments or other sums more than 90 days past due, and Accounts and Chattel Paper directly or indirectly due from any person or entity not domiciled in the United States or from any shareholder, officer or employee of Customer or any affiliated entity) and (y) 50% of Customer's Inventory, as shown on its regular books and records, (Provided, however, unless and until MLBFS shall receive and accept Landlord's Subordination Agreements for each of Customer's locations in Texas and Arizona, the inventory at such locations shall not be considered in determining the Maximum WCMA Line of Credit.) less the aggregate of (a) the outstanding balance of principal and interest under the Term WCMA Note made by the customer and payable to MLBFS and (b) the availability under the WCMA Line of Credit portion of the Term WCMA facility or (B) $1,250,000.00. Barbeques Galore, Inc. August 21, 1997 Page No. 2 4. The following are now additional "Locations of Tangible Collateral": 9333 Research Blvd., Building C, Suite 200, Austin, TX 78759 Box 133, Outdoor Living BR A51, Pearl Harbor, HI 96860 10991 San Jose Blvd., Jacksonville, FL 32223 30 S. Rosemead Blvd, Pasadena, CA 91107 11355 Fountain Lakes Drive, Stafford, TX 77477 327 NW Loop 410, Suite #101, San Antonio, TX 78216 Except as expressly modified hereby, the Loan Documents shall continue in full force and effect upon all of their terms and conditions. By their execution of this Letter Agreement, the below-named Guarantors hereby consent to the foregoing modifications to the Loan Documents, and hereby agree that the "Obligations" under their respective Unconditional Guaranty and/or agreement providing collateral shall extend to and include the Obligations of Customer under the Loan Documents, as amended hereby. Customer and said Guarantors acknowledge, warrant and agree, as a primary inducement to MLBFS to enter into this Agreement, that: (i) no default or Event of Default has occurred and is continuing under the Loan Documents; (ii) each of the warranties of Customer in the Loan Documents are true and correct as of the date hereof and shall be deemed remade as of the date hereof; (iii) neither Customer nor any of said Guarantors has any claim against MLBFS or any of its affiliates arising out of or in connection with the Loan Documents or any other matter whatsoever; and (iv) neither Customer nor any of said Guarantors has any defense to payment of any amounts owing, or any right of counterclaim for any reason under, the Loan Documents. Provided that no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall then have occurred and be continuing under the terms of the Loan Documents, the amendments and agreements in this Letter Agreement will become effective on the date (the "Effective Date") upon which: (i) Customer and the Guarantors shall have executed and returned the duplicate copy of this Letter Agreement enclosed herewith; (ii) Receipt and satisfaction with the Customer's 6/30/97 store by store income statements; (iii) receipt and satisfaction with the Landlord Waiver that have been sent on the Customer's locations in Texas and Arizona; (iv) an officer of MLBFS shall have reviewed and approved this Letter Agreement as being consistent in all respects with the original internal authorization hereof; and (v) to the extent applicable, MLBFS shall have entered such amendments and agreements in its computer system (which MLBFS agrees to do promptly after the receipt of such executed duplicate copy). Notwithstanding the foregoing, if for any reason other than the sole fault of MLBFS the Effective Date shall not occur within 14 days from the date of this Letter Agreement, then all of said amendments and agreements herein will, at the sole option of MLBFS, be void. Barbeques Galore, Inc. August 21, 1997 Page No. 3 MLBFS requests that as soon as feasible Customer furnish to MLBFS the following items (however, the Effective Date of this Letter Agreement is not conditioned upon the receipt of the such items): (1) Receipt and satisfaction with The Galore Group Limited Financial Statement for FYE 1/31/97; and, (2) Receipt of the proposal for the Customer's IPO in September of 1997. Very truly yours, Merrill Lynch Business Financial Services Inc. By: /s/ Heather Wise ----------------------------------------- Heather Wise Credit Services Account Manager Accepted: Barbeques Galore, Inc. By: /s/ Kevin Ralphs ----------------------------------------- Printed Name: Kevin Ralphs ------------------------------- Title: C.F.O. ------------------------------------- Approved: Pool Patio'n Things, Inc. By: /s/ Kevin Ralphs ----------------------------------------- Printed Name: Kevin Ralphs ------------------------------- Title: C.F.O. ------------------------------------- The Galore Group (USA), Inc. By: /s/ Kevin Ralphs ----------------------------------------- Printed Name: Kevin Ralphs ------------------------------- Title: C.F.O. ------------------------------------- Type complete address below. - -------------------------------------------------------------------------------- Return by Mail ( ) To: Pickup or will pickup ( ) CSC NETWORKS/PHL&FS 1013 Centre Rd., Wilmington, DE 18905-1297 - -------------------------------------------------------------------------------- 2. Debtor (Last Name First) and Address Assignee and Address Barbeques Galore, Inc. 15041 Bake Parkway, Suite A Irvine, CA 92718 - ---------------------------------------------------- 3. Secured Party: Name and Address Merrill Lynch Business Financial Services, Inc. 33 West Monroe, 22nd Floor Chicago, IL 60603 - ---------------------------------------------------- This Financing Statement covers the following types or items of property: All Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents and Instruments of Debtor, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all parts thereof (including spare parts), all accessories and accessions thereto, all books and records (including computer records) directly related thereto, and all proceeds thereof (including, without limitation, proceeds in the form of Accounts and insurance proceeds). In accordance with the terms of a certain Loan Agreement between Debtor and Secured Party, Debtor has agreed that except for certain "Permitted Liens" (as defined in said Loan Agreement), Debtor will not further encumber any of the above property without the prior written consent of Secured Party. CSC#/M000023/97-002159/1/1 III Hawaii Bureau of Con - -------------------------------------------------------------------------------- 6. Check (x) if applicable: ( ) (if collateral is crops) The above described crops are growing or are to be grown on: ( ) (If collateral is goods which are or are to become fixtures) The above described goods are affixed or to be affixed to: Record Owner: ------------------------------------------------------------------- Record Lessee: ------------------------------------------------------------------ - -------------------------------------------------------------------------------- 7. Check (x) if applicable: ( ) Proceeds ( ) Products of collateral are also covered - -------------------------------------------------------------------------------- 8. This statement is filed without the debtor's signature to perfect a security interest in collateral: ( ) which is already subject to a security interest in another jurisdiction when it was brought to this state, or; ( ) which is proceeds of the original collateral described above in which a security interest was perfected. Barbeques Galore, Inc. Merrill Lynch Business Financial Services, Inc. By /s/ [SIGNATURE APPEARS HERE] By --------------------------------------------------- ------------------------------------------------ Signature(s) of Debtor(s) (only on amendment) Signature(s) of Secured Party(ies)
STATE OF HAWAII Private Client Group MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. 33 West Monroe Street 22nd Floor [LOGO OF MERRILL LYNCH APPEARS HERE] Chicago, Illinois 60603 312/845-1020 FAX 312/845-9093 January 20, 1998 Barbeques Galore, Inc. 15041bake Parkway, Suite A Irvine, CA 92618 RE: AMENDMENT TO LOAN DOCUMENTS Ladies And Gentlemen: This Letter Agreement will serve to confirm certain agreements of Merrill Lynch Business Financial Services Inc. ("MLBFS") and Barbeques Galore, Inc. ("Customer") with respect to: (i) that certain WCMA NOTE, LOAN AND SECURITY AGREEMENT NO. 231-07T10 between MLBFS and Customer (including any previous amendments and extensions thereof), and (ii) all other agreements between MLBFS and Customer or any party who has guaranteed or provided collateral for Customer's obligations to MLBFS ("Guarantor") in connection therewith (collectively, the "Loan Documents"). Capitalized terms used herein and not defined herein shall have the meaning set forth in the Loan Documents. Subject to the terms hereof, effective as of the "Effective Date", the Loan Documents are hereby amended as follows: 1. The term "Maturity Date" shall mean February 28, 1998. 2. The "Line Fee" for the period ending shall be $2,083.33. Customer hereby authorizes and directs MLBFS to charge said amount to the WCMA Account No. 231-07T10 on or at any time after the Effective Date. 3. The following locations are now additional "Locations of Tangible Collateral": 1076 N. El Camino Real, Encinitas, CA 92024-1320 620 W. Francisco Blvd. San Rafael, CA 94901 4765 FM 1960 West, Suite H, Houston, TX 77069 25550 North The Old Road, Valencia, Ca 91381 2267 S. Stemmons Fwy, #604, Lewisville, TX 75067 Except as expressly amended hereby, the Loan Documents shall continue in full force and effect upon all of their terms and conditions. By their execution of this Letter Agreement, the below-named Guarantors hereby consent to the foregoing modifications to the Loan Documents, and hereby agree that the "Obligations" under their respective Unconditional Guaranty and/or agreement providing collateral shall extend to and include the Obligations of Customer under the Loan Documents, as amended hereby. Barbeques Galore, Inc. January 20, 1998 Page No. 2 Customer and said Guarantors acknowledge, warrant and agree, as a primary inducement to MLBFS to enter into this Agreement, that: (i) no default or Event of Default has occurred and is continuing under the Loan Documents; (ii) each of the warranties of Customer in the Loan Documents are true and correct as of the date hereof and shall be deemed remade as of the date hereof; (iii) neither Customer nor any of said Guarantors has any claim against MLBFS or any of its affiliates arising out of or in connection with the Loan Documents or any other matter whatsoever; and (iv) neither Customer nor any of said Guarantors has any defense to payment of any amounts owing, or any right of counterclaim for any reason under, the Loan Documents. Provided that no Event of Default, or event which with the giving of notice, passage of time, or both, would constitute an Event of Default, shall then have occurred and be continuing under the terms of the Loan Documents, the amendments and agreements in this Letter Agreement will become effective on the date (the "Effective Date") upon which: Customer and the Guarantors shall have executed and returned the duplicate copy of this Letter Agreement enclosed herewith; (ii) an officer of MLBFS shall have reviewed and approved this Letter Agreement as being consistent in all respects with the original internal authorization hereof; (iii) 11/30/97 store-by-store income statements; (iv) updated UCC-1 filings on new stores; and (v) to the extent applicable, MLBFS shall have entered such amendments and agreements in its computer system (which MLBFS agrees to do promptly after the receipt of such executed duplicate copy). Notwithstanding the foregoing, if for any reason other than the sole fault of MLBFS the Effective Date shall not occur within 14 days from the date of this Letter Agreement, then all of said amendments and agreements herein will, at the sole option of MLBFS, be void. MLBFS requests that as soon as feasible Customer furnish to MLBFS the following item (however, the Effective Date of this Letter Agreement is not conditioned upon the receipt of the such item): Final Copy of The Galore Group (U.S.A.), Inc.'s Audited Financial Statements for FYE 1/31/97. Very truly yours, MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC. By: /s/ Heather Wise ----------------------------------------- Heather Wise Credit Services Account Manager Barbeques Galore, Inc. January 20, 1998 Page No. 3 Accepted: BARBEQUES GALORE, INC. By: Kevin Ralphs ----------------------------------- Printed Name: Kevin Ralphs ------------------------- Title: C.F.O. -------------------------------- Approved: THE GALORE GROUP (U.S.A.), INC. By: Kevin Ralphs ----------------------------------- Printed Name: Kevin Ralphs ------------------------- Title: C.F.O. -------------------------------- POOL PATIO'N THINGS, INC. By: Kevin Ralphs ----------------------------------- Printed Name: Kevin Ralphs ------------------------- Title: C.F.O. --------------------------------
THIS STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE. --------------------------------------------- 11. [_] CHECK TO REQUEST SAME DEBTOR SEARCH CERTIFICATE (INSTRUCTION B.11) - --------------------------------------------------------------------------------------------------------------------------------- 1. DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I 1A. PREFIX 1B. SUFFIX Barbeques Galore, Inc. - --------------------------------------------------------------------------------------------------------------------------------- 1C. MAILING ADDRESS 1D. CITY, STATE 1E. ZIP CODE 5041 Bake Parkway, Suite A Irvine, CA 92718 - --------------------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR (IF PERSONAL) LAST NAME FIRST NAME M.I. 2A. PREFIX 2B. SUFFIX - --------------------------------------------------------------------------------------------------------------------------------- 2C. MAILING ADDRESS 2D. CITY, STATE 2E. ZIP CODE - --------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY (IF PERSONAL) LAST NAME FIRST NAME M.I. Merrill Lynch Business Financial Services Inc. - --------------------------------------------------------------------------------------------------------------------------------- 3A. MAILING ADDRESS 3B. CITY, STATE 3C. ZIP CODE 33 West Monroe, 22nd Floor Chicago, IL 60603 - --------------------------------------------------------------------------------------------------------------------------------- 4. ADDITIONAL SECURED PARTY (IF ANY) - --------------------------------------------------------------------------------------------------------------------------------- 4A. MAILING ADDRESS 4B. CITY, STATE 4C. ZIP CODE - --------------------------------------------------------------------------------------------------------------------------------- 5. ORIGINAL FINANCING STATEMENT NUMBER 5A. ORIGINAL DATE FILED 6. CHECK THIS FINANCING STATEMENT CHANGE 104243 5/29/97 IF IS TO BE FILED IN THE REAL ESTATE APPLICABLE [ ] RECORDS. NO. OF ADDITIONAL SHEETS PRESENTED 1 - --------------------------------------------------------------------------------------------------------------------------------- 7. A. [ X ] AMENDMENT - THE FINANCING STATEMENT IS AMENDED AS SET FORTH IN ITEM 8 BELOW. (INSTRUCTION 8.7(A)) - --------------------------------------------------------------------------------------------------------------------------------- B. TOTAL ASSIGNMENT - ALL OF SECURED PARTY'S RIGHTS UNDER THE FINANCING STATEMENT HAVE BEEN ASSIGNED TO THE [ ] ASSIGNEE WHOSE NAME AND ADDRESS ARE SET FORTH IN ITEM 8 BELOW. (INSTRUCTION 8.7(B)) - --------------------------------------------------------------------------------------------------------------------------------- C. PARTIAL ASSIGNMENT - SOME OF SECURED PARTY'S RIGHTS HAVE BEEN ASSIGNED TO THE ASSIGNEE SHOWN IN ITEM 8 BELOW. [ ] (INSTRUCTION 8.7(C)) - --------------------------------------------------------------------------------------------------------------------------------- D. [ ] CONTINUATION - THE ORIGINAL STATEMENT IS STILL EFFECTIVE. (INSTRUCTION 8.7(D)) - --------------------------------------------------------------------------------------------------------------------------------- E. [ ] TOTAL RELEASE - THE SECURED PARTY RELEASES ALL OF THEIR INTEREST IN THE COLLATERAL (INSTRUCTION 8.7(E)) - --------------------------------------------------------------------------------------------------------------------------------- F. [ ] PARTIAL RELEASE - THE SECURED PARTY RELEASES THE FOLLOWING COLLATERAL DESCRIBED IN ITEM 8 BELOW. (INSTRUCTION 8.7(F)) - --------------------------------------------------------------------------------------------------------------------------------- G. [ ] TERMINATION - THE SECURED PARTY(IES) OR RECORD NO LONGER CLAIMS A SECURITY INTEREST AND THE FINANCING STATEMENT IS TERMINATED. (INSTRUCTION 8.7(G)) - --------------------------------------------------------------------------------------------------------------------------------- 8. The collateral is hereby amended to include Exhibit A: CSC#/M000023/98-000185/1/1 TX: Texas SOS - --------------------------------------------------------------------------------------------------------------------------------- 9. SIGNATURE(S) Barbeques Galore, Inc. THIS SPACE FOR USE OF FILING OFFICER OF By: /s/ K. Ralphs C.F.O. (DATE, TIME, NUMBER, FILING OFFICER) DEBTOR(S) - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- SIGNATURE(S) Merrill Lynch Business Financial Services Inc. OF SECURED PARTY(IES) - --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- 10. Return copy to: NAME CSC NETWORKS/PHL&FS ADDRESS 1013 Centre Rd. CITY Wilmington, DE 18905-1297 STATE ZIP - --------------------------------------------------------------------------------------------------------------------------------- STANDARD FORM - FORM UCC-3 (REV. 9/1/92) COPYRIGHT 1992 OFFICE OF THE SECRETARY OF STATE OF TEXAS REORDER FROM: CSC Networks, 500 Central Avenue, Albany, NY 12206 (1) Filing Officer Copy-Numerical
EXHIBIT A --------- Locations of tangible collateral shall now mean: Arlington Plano - --------- ----- Coopers Street Plaza 1801 Preston Road, Suite A 4605 S. Cooper Street Plano, TX 75093 Arlington, TX 76017 (972) 735-8185 (817) 467-4900 University Park Westheimer - --------------- ---------- 4360 Lovers Lane Mariner Village/Miracle Mile Dallas, TX 75205 6429 Westheimer (214) 696-0030 Houston, TX 77057 (713) 953-7030 Grapevine Fountains - --------- --------- 1419 State Hwy. 114 West 11355 Fountain Lakes Drive Suite 412 Stafford, TX 77477 Grapevine, TX 76051 (281) 494-9800 (817) 421-9052 Austin University Park - ------ --------------- 9333 Rescarch Blvd. 4360 Lovers Lane Bldg. C, Suite 200 Dallas, TX 75225 Austin, TX 78759 (214) 696-0030 (512) 345-1146 San Antonio Champions - ----------- --------- 327 NW Loop 410, Suite 101 4765 FM 1960 West, Suite H San Antonio, TX 78216 Houston, TX 77069 (210) 375-2070 (281) 880-9291 Lewisville - ---------- 2267 S. Stemmons Fwy, #604 Lewisville, TX 75067 (972) 315-3364 All Accounts, Chattel Paper, Contract Rights, Inventory, Equipment, Fixtures, General Intangibles, Deposit Accounts, Documents and Instruments of Debtor, howsoever arising, whether now owned or existing or hereafter acquired or arising, and wherever located; together with all parts thereof (including spare parts), all accessories and accessions thereto, all books and records (including computer records) directly related thereto, and all proceeds thereof (including, without limitation, proceeds in the form of Accounts and insurance proceeds). In accordance with the terms of a certain Loan Agreement between Debtor and Secured Party, Debtor has agreed that except for certain "Permitted Liens" (as defined in said Loan Agreement), Debtor will not further encumber any of the above property without the prior written consent of Secured Party. EX-10.5 12 DEEDS OF PURCHASE FOR COMPANY HEAD QUARTERS BOX 745 Exhibit 10.5 (EI66006) NEW SOUTH WALES CERTIFICATE OF TITLE REAL PROPERTY ACT, 1900 TORRENS TITLE [SEAL] REFERENCE TO FOLIO OF THE REGISTER ?????? 9/8757 EDITION DATE OF ISSUE 1 24.12.1991 I certify that the person described in the First Schedule is the registered proprietor of an estate in fee simple (or such other estate or interest as is set forth in that Schedule) in the land within described subject to such exceptions, encumbrances, interests and entries as appear in the Second Schedule and to any additional entries in the Folio of the Register. /s/ K. METTLE K. Mettle DEPUTY REGISTRAR GENERAL [SEAL] LAND - ---- LOT 9 IN DEPOSITED PLAN 8757 MUNICIPALITY OF AUBURN PARISH OF LIBERTY PLAINS COUNTY OF CUMBERLAND TITLE DIAGRAM: DP8757 FIRST SCHEDULE - -------------- VILBRENT PTY LIMITED (T X82485) SECOND SCHEDULE - --------------- 1. RESERVATIONS AND CONDITIONS IN THE CROWN GRANT(S) 2. E158006 MORTGAGE TO WESTPAC BANKING CORPORATION [ALONG SIDE OF CERTIFICATE] PERSONS ARE CAUTIONED AGAINST ALTERING OR ADDING TO THIS CERTIFICATE OR ANY NOTIFICATION HEREON. BOX 745 (EI66006) NEW SOUTH WALES CERTIFICATE OF TITLE REAL PROPERTY ACT, 1900 TORRENS TITLE [SEAL] REFERENCE TO FOLIO OF THE REGISTER 10/8757 EDITION DATE OF ISSUE 1 24.12.1991 I certify that the person described in the First Schedule is the registered proprietor of an estate in fee simple (or such other estate or interest as is set forth in that Schedule) in the land within described subject to such exceptions, encumbrances, interests and entries as appear in the Second Schedule and to any additional entries in the Folio of the Register. /s/ K. METTLE K. Mettle DEPUTY REGISTRAR GENERAL [SEAL] LAND - ---- LOT 10 IN DEPOSITED PLAN 8757 MUNICIPALITY OF AUBURN PARISH OF LIBERTY PLAINS COUNTY OF CUMBERLAND TITLE DIAGRAM: DP8757 FIRST SCHEDULE - -------------- VILBRENT PTY LIMITED (T X82485) SECOND SCHEDULE - --------------- 1. RESERVATIONS AND CONDITIONS IN THE CROWN GRANT(S) 2. E158006 MORTGAGE TO WESTPAC BANKING CORPORATION WARNING: BEFORE DEALING WITH THIS LAND SEARCH THE CURRENT FOLIO OF THE REGISTER [ALONG SIDE OF CERTIFICATE] PERSONS ARE CAUTIONED AGAINST ALTERING OR ADDING TO THIS CERTIFICATE OR ANY NOTIFICATION HEREON. BOX 27C NEW SOUTH WALES (3816295) CERTIFICATE OF TITLE REAL PROPERTY ACT, 1900 TORRENS TITLE REFERENCE TO FOLIO OF THE REGISTER [LOGO IDENTIFIER 11/533334 APPEARS --------------------------- HERE] EDITION DATE OF ISSUE 5 24/2/1998 --------------------------- PERSONS ARE CAUTIONED AGAINST ALTERING OR ADDING TO THIS CERTIFICATE OR ANY NOTIFICATION HEREON I certify that the person described in the First Schedule is the registered proprietor of an estate in fee simple (or such other estate or interest as is set forth in that Schedule) in the land within described subject to such exceptions, encumbrances, interests and entries as appear in the Second Schedule and to any additional entries in the Folio of the Register. [DAVID MURLESKY] [SEAL] REGISTRAR GENERAL LAND - ---- LOT 11 IN DEPOSITED PLAN 533334 AT AUBURN LOCAL GOVERNMENT AREA: AUBURN PARISH OF LIBERTY PLAINS COUNTY OF CUMBERLAND TITLE DIAGRAM: DP533334 FIRST SCHEDULE - -------------- VILBRENT PTY LIMITED (T 3816295) SECOND SCHEDULE - --------------- 1. RESERVATIONS AND CONDITIONS IN THE CROWN GRANT(S) 2. DP533334 EASEMENT TO DRAIN SEWAGE AFFECTING THE EXISTING LINE OF PIPES WITHIN THE LAND ABOVE DESCRIBED SHOWN IN DP533334 3. DP533334 EASEMENT TO DRAIN WATER AFFECTING THE EXISTING LINE OF PIPES WITHIN THE LAND ABOVE DESCRIBED SHOWN IN DP533334 4. R542147 LEASE TO THE SYDNEY COUNTY COUNCIL OF CONTROL POINT PREMISES NO 587 & SUBSTATION PREMISES NO 3768. WITH A RIGHT OF WAY & EASEMENT FOR ELECTRICITY PURPOSES. EXP 12-3-2022 5. Z207443 LEASE TO BUNZL INDUSTRIES LIMITED. EXPIRES 30.6.2000 OPTION OF RENEWAL 5 YEARS E304837 TRANSFER OF LEASE TO SONOCO AUSTRALIA PTY LTD WARNING: BEFORE DEALING WITH THIS LAND SEARCH THE CURRENT FOLIO OF THE REGISTER EX-10.6 13 LEASE DATED AS OF MARCH 6, 1992 EXHIBIT 10.6 Phoenix Business Center Multi-Tenant Net Lease LANDLORD: PHOENIX BUSINESS CENTER PARTNERS, a California Limited Partnership TENANT: Barbeques Galore, Inc., a California corporation Date of Lease: March 6, 1992 Basic Lease Information 1. Lease Date: March 6, 1992 2. Landlord: PHOENIX BUSINESS CENTER PARTNERS, a California Limited Partnership 3. Address c/o McLachlan Investment Company of Landlord: 4141 MacArthur Boulevard Newport Beach, CA 92660 4. Tenant: Barbeques Galore, Inc., a California corporation 5. Address 15041 Bake Parkway, Suite A of Tenant: Irvine, California 92718 6. Contact: Sydney Selati, Chairman Telephone: ______ Kevin J. Ralphs, Company Secretary 7. Section 1.1 Building: 15041 Bake Parkway - Building 1 Suite(s): A and a portion of B 8. Section 1.3 Parking Spaces: 38 9. Section 1.4 Rentable Area of Premises: 27,322 square feet 10. Section 2.1 Term: sixty-five (65) months Estimated Term Commencement Date: July 15, 1992 Actual: 8/22/92 Estimated Term Expiration Date: December 14, 1997 Actual: 1/21/98 11. Section 3.1 Monthly Rental: $ 11,748.46 Annual Rental: $140,981.52 12. Section 4.1.2 Tenants Share: 7.6% 13. Section 6.1 Use: warehousing, assembly, research and development, and general administrative offices, for barbecues, fireplaces, wood burning stoves, and related products 14. Section 29 Security Deposit: $ 11,748.46 (with interest at money market rates) 15. Section 27.1 Tenant's Broker: CB Commercial Real Estate Group Dan Sweet - Anaheim office The foregoing Basic Lease Information is hereby incorporated into and made a part of this Lease. Each reference in this Lease to any of the Basic Lease Information shall mean the respective information hereinabove set forth and shall be construed to incorporate all of the terms provided under the particular Lease section pertaining to such information. In the event of any conflict between any Basic Lease Information and the Lease, the latter shall control. LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California corporation By: Russell/Sutro, a California limited partnership Its: general partner By: /s/ Sydney Selati ------------------------ Sydney Selati Its: Chairman By: /s/ Donald E. Russell ----------------------- Donald E. Russell Its: general partner By:/s/ Kevin J. Ralphs ------------------------ Kevin J. Ralphs Its: Company Secretary 13.5. Period of Limitations...................................12 13.6. Remedies Cumulative.....................................12 13.7. Expenses and Legal Fees.................................12 13.8. Landlord's Defaults.....................................12 14. CONDEMNATION.........................................................12 14.1. Definitions.............................................12 14.2. Total Taking............................................12 14.3. Partial Taking..........................................13 15. HOLDING OVER.........................................................13 16. ASSIGNMENT AND SUBLETTING............................................13 16.1. Assignment and Subletting Prohibited....................13 16.2. Information Required....................................13 16.3. Landlord's Options......................................13 16.4. Tenant Merger, Acquisition, Associated Entities.........14 16.5. No Release of Tenant....................................14 17. TRANSFERS AND REFINANCING............................................14 17.1. Conveyance of Landlord's Interest.......................14 17.2. Estoppel Certificate....................................14 18. SURRENDER............................................................15 18.1. Surrender of Lease Not Merger...........................15 18.2. Redelivery of Premises to Landlord .....................15 18.3. Survival of Obligations.................................15 19. SIGNS................................................................15 20. NOTICES..............................................................15 21. MISCELLANEOUS........................................................16 21.1 Integration.............................................16 21.2. Time is of the Essence..................................16 21.3. Joint and Several.......................................16 21.4. Captions................................................16 21.5. Governing Law...........................................16 21.6. Landlord's Liability....................................16 21.7. Interest and Late Charges...............................16 21.8. Inurement...............................................16 21.9. Relationship............................................17 21.10. Waivers.................................................17 21.11. Severability............................................17 21.12. Miscellaneous...........................................17 21.13. Authority...............................................17 21.14. No Offer................................................17 21.15. Force Majeure...........................................17 21.16. Broker's Commission.....................................17 21.17. Recording...............................................17 21.18. Furnishing of Financial Statements......................17 21.19. Safety and Health.......................................17 21.20. Interstate Land Sales Act...............................18 21.22. Changes Requested by Lender.............................18 21.23. Nondiscrimination.......................................18 21.24. Entire Agreement........................................18 22. SPECIAL PROVISIONS...................................................18
ii Phoenix Business Center Multi-Tenant Net Lease This Lease is made as of March 6, 1992 by and between PHOENIX BUSINESS CENTER PARTNERS, a California Limited Partnership ("Landlord") and Barbeques Galore, Inc., a California corporation ("Tenant"). In Consideration of the mutual promises herein, Landlord and Tenant agree as follows: 1. PREMISES 1.1. Definition of Premises Landlord leases to Tenant, and Tenant hires from Landlord, pursuant to the provisions of this Lease, a portion (the "Premises") of the improved real property (the "Master Premises") known as Phoenix Business Center and Crow Irvine Development, located at 15041 and 15091 Bake Parkway and 1 Marconi, in the City of Irvine, Orange County, California. The Master Premises include the building or buildings (the "Building") which contains the Premises, certain other premises and certain Common Areas inside and outside the Building, which Master Premises are located on that certain real property leased by Landlord from The Irvine Company, a Michigan corporation ("Owner") pursuant to that certain ground lease dated December 1, 1980 (the "Ground Lease"). The Premises consist of approximately 27,322 square feet inside the Building. The Premises are leased and shall be used and occupied subject to all terms and conditions of the Ground Lease, any and all existing restrictive covenants, encumbrances, conditions, rights, covenants, easements, restrictions and rights-of-way of record, and other matters of record, if any, applicable zoning and building laws, regulations and codes, and such matters as may be disclosed by inspection. The Premises, as shell warehouse and office space, are not in conflict with the foregoing; to the best of Landlord's knowledge. Tenant's proposed use contemplated at the commencement of the lease term, as described in Paragraph 4.1. is not in conflict with the foregoing. Landlord's representations do not extend to, and Tenant assumes all responsibility for, compliance with all health, safety, fire, and similar requirements as they may apply from time to time to Tenant's use and occupancy of the Premises and the Master Premises. Exhibit "A" hereto, which is incorporated herein by reference, includes a description of the Master Premises and shows the location of the Premises within the Master Premises. 1.2. Common Areas The Common Areas include those areas and facilities (collectively "Common Areas") within the Master Premises which Landlord provides and designates for the general non-exclusive use and convenience of Landlord, Tenant, other tenants of Landlord and their respective employees and invitees. Common Areas include, without limitation: parking and loading areas; access roads and driveways; spur track; ramps and stairways; common loading docks; and landscaping and all areas outside the Building. Tenant's right to use Common Areas shall terminate upon the termination of this Lease. Landlord shall operate, manage and maintain all the Common Areas and determine expenditures ("Common Area Expenses", which term is defined more fully in Paragraph 5.2) for the Common Areas. 1.3. Acceptance of Premises To the best of Landlord's knowledge, at the date of this Lease, the Premises generally are not in violation of applicable zoning ordinances; Landlord makes no representations or warranties as to the suitability of the Premises for the specific purposes for which Tenant intends to use the Premises. 1.4. Changes to Building Facilities, Name 1.4.1. Landlord may adopt any name for the Building and Landlord reserves the right to change the name and/or address of the Building at any time, subject to compliance with the sign program in effect for the Master Premises. 1.4.2. Provided Landlord does not unreasonably interfere with Tenant's use or operation of the Premises or Master Premises, Landlord reserves the right, at any time before or after completion of the Building, without incurring any liability to Tenant therefor, to make such changes in or to the building and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages and other improvements thereof, as it may deem necessary or desirable, and Landlord shall at all times have the right and privilege of determining the nature and extent of and the rules and regulations governing the use of the Common areas, if any, and of making such changes therein and additions thereto from time to time which in its opinion are deemed to be desirable and for the best interest of all persons using the common areas, if any, including the location and relocation of driveways, entrances and exits, the direction and flow of traffic; installation of prohibited areas or landscaped areas; the addition of other buildings or facilities thereto; and additions to the total land areas of the Building. 2. TERM 2.1. Initial Period; Commencement Date The term of this Lease shall be for a period of sixty-five (65) months beginning on the Commencement Date. The Commencement Date shall mean the earlier of (a) one (1) day after substantial completion of construction of the items described on Exhibit C, provided such date is not prior to July 15, 1992, or (b) the date on which Tenant first takes possession of the Premises ("Commencement Date"). Landlord agrees that the Premises will be substantially complete and approved for occupancy on or before September 15, 1992, subject to delays from causes beyond Landlord's reasonable control, including, but not limited to, acts of God, strike or labor troubles, fuel or energy shortages, governmental decree or failure of any governmental agency to act in a reasonable time. The term "Lease Year" shall mean the 12-month period beginning with the Commencement Date of the term of this Lease as determined above, and each successive 12-month period thereafter during the term of this Lease, provided that if the Commencement Date is other than the first day of a calendar month, then the first Lease Year shall commence on the first day of the next succeeding calendar month, but shall include the first such partial month from the Commencement Date. At the request of either party, each party shall execute a memorandum in the form attached hereto as Exhibit "B" confirming the Commencement Date for the term hereto, but failure of the parties to so confirm the Commencement Date shall not affect the determination thereof by Landlord pursuant to this Paragraph 2.1. 2.2. In the event this Lease pertains to premises for which construction is to be performed by Landlord, the provisions of this Subparagraph 2.2 shall apply in lieu of the provisions of Subparagraph 1.3 above, and supplement the provisions of 2.1 above, and the "Commencement Date" shall be the date upon which the improvements erected and to be erected shall have been substantially completed in accordance with the plans and specifications described on Exhibit "C" attached hereto and incorporated herein by reference (the "Construction Addendum"). Landlord shall notify Tenant in writing as soon as Landlord deems said improvements to be completed and ready for occupancy. In the event that said improvements have not in fact been substantially completed, Tenant shall notify Landlord in writing of its objections. Landlord shall have a reasonable time after delivery of such notice in which to take corrective action as may be necessary, and shall notify Tenant in writing as soon as it deems such corrective action has been completed so that said improvements are completed and ready for occupancy. Taking of possession by Tenant shall be deemed conclusively to establish that said improvements have been completed in accordance with the plans and specifications and that the Premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the repair of the Premises have been made by Landlord, unless such are expressly set forth in this Lease. After such "Commencement Date" tenant shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. In the event of any dispute as to substantial completion or work performed or required to be performed by Landlord, the certificate of Landlord's architect or general contractor shall be conclusive. Notwithstanding the foregoing, following Tenant's acceptance of the Premises, Landlord shall have the obligation to complete items which are not complete in accordance with the requirements of Exhibit One to Exhibit C (the plans and specifications) as of the date Tenant takes possession of the Premises. Said incomplete items shall be described on a "punchlist" to be created in good faith by Landlord and Tenant prior to occupancy by Tenant. Landlord shall endeavor to complete the items described on the punchlist within thirty (30) days following occupancy by Tenant. 2.3. Delay and Delivery If Landlord is unable to deliver possession of the Premises to tenant for any cause, then (a) Landlord shall not have any liability to Tenant for any consequential loss or damage, nor shall this Lease be void or voidable, but this Lease shall remain valid and continue in full force and effect, and (b) rent shall not be payable until Landlord does deliver possession of the Premises to Tenant, subject to the provisions of Paragraph 2.1. 3. RENT AND SECURITY DEPOSIT 3.1. Manner of Payment Tenant shall pay Landlord all amounts due from Tenant to Landlord hereunder, whether for rent or otherwise, in lawful money of the United States, without any deduction or offset, at the address set forth herein for delivery of notices to Landlord or at such other address as Landlord may designate in writing. 3.2. Rent Tenant shall pay Landlord minimum annual rent for the initial period of the term hereof, in advance, in the amount of one hundred forty thousand nine hundred eighty-one and 52/100 Dollars ($140,981.52), in monthly installments of eleven thousand seven hundred forty-eight and 46/100 Dollars ($11,748.46) each, commencing on the first day of the calendar month first commencing after the Commencement Date, and on or before the first day of each successive calendar month during the term hereof. Unless the Commencement Date is the first day of a calendar month, rent for the partial month which begins on the Commencement Date shall be prorated and Tenant shall pay the rent for said partial month with the first regular installment of rent hereunder. The first calendar month's rent shall be due and payable upon execution of this Lease. (See First Addendum to Lease - Paragraph 23) 3.3. Cost of Living Increase 2 3.4. Security Deposit Upon executing this Lease, Tenant shall make a deposit (the "Security Deposit") with Landlord of eleven thousand seven hundred forty-eight and 46/100 Dollars ($11,748.46). The Security Deposit shall secure Tenant's obligations hereunder to pay rent and other money amounts, to maintain the Premises and repair damages thereto, to surrender the Premises to Landlord in clean condition and good repair upon termination of this Lease and timely to discharge Tenant's other obligations hereunder. Landlord shall place the Security Deposit in an account in the name of Tenant, for the benefit of Landlord, which account shall be held by, and controlled by, McLachlan Investment Company or its successor, if any, as property manager of the Master Premises. The account shall be held separate from other funds of Landlord, and may be drawn upon as provided herein. Said account shall earn interest, which shall accrue and increase the Security Deposit. If Tenant fails to perform Its obligations hereunder, then Landlord may, but without any obligation so to do, apply all or any portion of the Security Deposit toward fulfillment of Tenant's unperformed obligations. If Landlord does so apply any portion of the Security Deposit Tenant, upon demand by Landlord, shall immediately pay Landlord a sufficient amount in cash to restore the Security Deposit to its full original amount. On termination of this Lease, if Tenant has then fully performed all its obligations hereunder, Landlord shall return the Security Deposit (including any interest which has not been applied by Landlord) to Tenant. But if Landlord earlier sells or otherwise transfers Landlord's rights or interest under this Lease, Landlord may deliver the Security Deposit to the transferee, whereupon, provided that Landlord complies with any applicable requirements of Section 1950.5 of the civil Code of the State of California and of any similar or successor statute, Landlord shall have no further liability to Tenant concerning the Security Deposit. Tenant shall have the right to deposit a letter of credit, in the amount specified above for the security deposit, in lieu of making a cash security deposit. Said letter of credit shall be in a form reasonably acceptable to Landlord, and shall incorporate an expiration date of at least thirty (30) days following the expiration of the lease term. 4. USE 4.1. Permitted Use Throughout the term hereof Tenant shall continuously occupy and use the Premises only for the following purpose, namely: warehousing, assembly, research and development, and general administrative offices, for barbecues, fireplaces, wood burning stoves, and related products. In the event Tenant desires to occupy and/or use the Premises for a purpose other than that described in the preceding sentence, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld. The Premises shall be used only for the purpose of receiving, storing, shipping and selling (other than retail as more fully prohibited below) products, materials and merchandise made and/or distributed by Tenant, and for such other lawful purposes as may be incidental thereto. Outside storage is prohibited without Landlord's prior written consent. Tenant shall, at its own cost and expense, obtain any and all licenses and permits necessary for any such use. Tenant shall comply with all governmental laws, ordinances and regulations and all recorded covenants, conditions and restrictions applicable to the use of the Premises, including, but not limited to, all applicable provisions of (i) the City of Irvine Planned Community District Regulations, including but not limited to, the general Development Standards contained therein, without regard to any amendment or abolition thereof by such city at any time hereafter, (ii) the Declaration of Restrictions recorded on September 29, 1978 at Book 12864, Page 63 of Official Records of Orange County, California and any amendments thereto, without regard to any expiration thereof, and (iii) the Architectural and Landscape Standards, all as set forth in the booklet entitled Development Standards - Irvine Industrial Complex East - Phase I and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with the Premises, all at Tenant's sole expense, provided, however, that Tenant shall not be obligated to spend more than $1,000.00 per annum to comply with the foregoing unless the reason for necessity to comply results from Tenant's particular use; the Premises, as shell warehouse and office space, are not in conflict with the foregoing, to the best of Landlord's knowledge, Tenant's proposed use contemplated at the commencement of the lease term, as described in Paragraph 4.1, is not in conflict with the foregoing. Landlord's representations do not extend to, and Tenant assumes all responsibility for, compliance with all health, safety, fire, and similar requirements as they may apply from time to time to Tenant's use and occupancy of the Premises and the Master Premises. Unless expressly approved by both Owner and Landlord, which approvals may be withheld by Owner and Landlord, in their sole discretion, Tenant shall not: (a) Use, develop or attempt to use or develop the Premises or any portion thereof for any purpose other than those purposes expressly allowed (without the benefit of a conditional use permit, zone variance, exception or amendment) under the City of Irvine Planned Community District Regulations; (b) Change or attempt any change in zoning, or the obtaining of or application for a conditional use permit, zoning variance or exception or other similar approval with respect to the use or development of the Premises or any portion thereof not expressly allowed under such existing zoning; (c) Develop or allow the use of more than 50% of the Premises, or any portion thereof sublet in accordance with the provisions hereof, for office purposes; (d) Construct or maintain any structure or improvements in the Premises not in full compliance with all requirements of law or as contained herein or in any recorded covenants, conditions and restrictions existing from time to time covering the Premises; (e) Operate any retail business or activity on the Premises, or use the Premises or any facilities thereon as a point of customer (or intermediate or ultimate user) pick-up or delivery of products or services for a retail activity; or 3 (f) Effect any change or amendment to any parcel or final map covering the Premises or record any further parcel or final map of the Premises or any portion thereof or facilities thereon, pursuant to California Government Code Sections 66410 et seq., or any similar statute hereafter enacted, and any -- --- local ordinances adopted pursuant thereto, or file any applications with any governmental agency with respect thereto unless expressly approved by Landlord, which approval may be withheld by Landlord in its sole discretion. Tenant shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the building in which the Premises are situated or unreasonably interfere with their use of their respective premises. Without Landlord's prior written consent, Tenant shall not receive, store or otherwise handle any product, material or merchandise which is explosive or highly inflammable. Tenant will not permit the Premises to be used for any purpose or in any manner (including without limitation any method of storage) which would render the Insurance thereon void or the insurance risk more hazardous or cause the state Board of Insurance or other insurance authority to disallow any sprinkler credits. Tenant shall not use the Premises for any other purpose without Landlord's prior written consent. 5. COMMON AREA EXPENSES 5.1. Payment of Tenant's Share of Common Area Expenses Tenant shall pay Landlord, as additional rent, Tenant's Share of Common Area Expenses during the term hereof, in monthly installments as billed by Landlord. As use herein the term "Tenant's Share" shall mean seven and 6/10 percent (7.6%); the parties acknowledge that Tenant's Share, as used herein, is the ratio of the square footage of Premises to the square footage of all tenant premises in the Master Premises, as the Master Premises are constituted from time to time. Landlord shall maintain accurate records of Common Area Expenses which tenant may examine, during Landlord's normal business hours at landlord's office, not more frequently than quarterly. 5.2 Common Area Expenses As used herein, the term "Common Area Expenses" shall mean the sum of the following items: 5.2.1. Taxes and Assessments. The amount of all Taxes. As used herein the term "Taxes" shall mean and include, without limitation: (i) all real and personal property taxes and assessments and all other taxes, charges, levies and license and permit fees of any kind or nature whatsoever, foreseen or unforeseen, general or special, which are levied or assessed with respect to all or any portion of the Master Premises and the improvements, fixtures, equipment and other property of Landlord therein; (ii) any taxes (of whatsoever nature and however characterized) which become payable by Landlord, whether or not now customary or within the contemplation of Landlord or Tenant, which are levied in addition to or in lieu of such real or personal property taxes or assessments (a) upon, allocable to or measured by rent or other amounts payable to Landlord hereunder, (b) with respect to the receipt of such rents or amounts by Landlord, or (c) with respect to any activity or right of Tenant in the leasing, possession, occupancy, use, operation, management, repair, maintenance, alteration, or improvement of the Premises; and (iii) any costs incurred by Landlord In contesting any taxes. Taxes shall include the annual installments under any general or special assessment against the Master Premises whether first imposed prior to or during the term hereof, which annual installments fall due during the term hereof. Taxes shall be reduced by any refunds, reductions, etc. obtained by Landlord. Notwithstanding the foregoing, to the extent that any such taxes are attributable to Tenant, Landlord may, at its option, exclude such amounts from the Taxes and bill such amounts directly to Tenant who shall promptly pay them. Taxes shall not include: any taxes or assessments against the personal property of Tenant or any other tenant of the Master Premises, which taxes and assessments are separately billed to Tenant or such other tenant by the tax collecting authority; or any income tax franchise tax or transfer tax for which Landlord may be or become personally liable. 5.2.2. Operating and Maintenance Expenses for Common Areas. The amount of (i) the cost of the structural and nonstructural maintenance and repairs Landlord performs hereunder directly or through independent contractors (excluding structural repairs resulting from damage from causes other than use or ordinary wear and tear of the Master Premises); (ii) the cost of any alteration of or work upon the Master Premises required by any governmental authority which requirement is not attributable primarily to the particular use which a particular tenant or occupant makes of the Master Premises amortized as hereinafter described; (iii) the cost of utilities not separately metered to particular tenants; premiums for casualty, liability and other insurance on the Master Premises carried by Landlord as required or permitted herein; periodic painting of the exterior of the Building; service contracts; and such other items as are customarily included in the cost of maintaining and repairing the Building and Common Areas; and (iv) the cost of any capital improvements made after the date of this Lease for purposes of saving labor or otherwise reducing applicable operating costs, not to exceed the aggregate estimated cost savings annualized on a straight line basis over the useful life of the capital improvements as reasonably determined by Landlord. Notwithstanding the foregoing, maintenance and repairs which are the result of latent defects of the Premises or Master Premises shall not be included in Common Area Expenses, nor shall Tenant be required to pay more than seven thousand five hundred dollars ($7,500.00) over the sixty-five (65) month lease term for repairs to the structure, foundation, and roof which are not caused by Tenant's use and/or occupancy of the Premises or Master Premises. 5.3. Contests Tenant, at its cost, in good faith and lawful manner, may contest the legality or amount of any tax or assessment against the Premises or Master Premises. In furtherance of any such contest, Landlord, if Tenant requests, shall declare to the tax collecting authority that contested payments are paid under protest. Tenant shall indemnify and hold Landlord harmless against any cost, expense (including, without limitation, attorneys' fees) loss or damage resulting from any such contest. If Landlord deems it necessary to prevent a sale of the Premises or Master Premises or other loss or damage to Landlord, or to prevent the imposition or accrual of any interest, penalties or delinquency charges Landlord may require that the entirety of any contested tax or assessment be paid under protests or that Tenant take such other steps as Landlord may reasonably deem necessary to prevent sale of the Premises or loss or damage to landlord. If any contest 4 is adjudicated adversely to Tenant, Tenant shall promptly pay tenant's Share IF any unpaid portion of the contested tax or assessment, as well as any increased tax or other charge which may result therefrom. 5.4. Substituted Taxes If at any time during the term of this Lease, the present method of taxation shall be changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on real estate and the improvements thereon, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents for the present or for any future building or buildings on the Premises, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term Taxes for purposes hereof. 5.5. Taxes on Tenant's Personal Property Tenant shall pay before delinquency, directly to the tax collecting authority, all taxes, assessments, license fees and public charges which become due during the term of this Lease upon Tenant's personal property at the Premises. 6. PAYMENT BY TENANT Tenant shall pay for gas, heat, light, water, power, telephone and other communication service, sanitary and sewer charges, janitorial services, scavenger services, and all other utilities and services consumed on or supplied to the Premises, any of which are separately metered to the Premises or are charged directly to Tenant or the Premises by the supplier of the utility service together with any taxes, penalties, surcharges or the like pertaining thereto, and maintenance charges for utilities and shall furnish all electric light bulbs and tubes. If any such services are not separately metered to Tenant, Tenant shall pay a reasonable proportion, as determined by Landlord, of all charges jointly metered with other premises. Tenant shall pay any costs arising from the hook-up or connection of such utilities or services to the Premises. Landlord shall have no liability to Tenant for any lack of or failure in such utilities and services, whether such failure or lack results from accidents, repairs, strikes, labor disturbances or disputes, or from any other cause (excepting only breaches of this Lease by Landlord). No such lack or failure shall constitute an eviction. Landlord shall not be liable to Tenant for any loss or damage Tenant may sustain from any such lack or failure or in connection with such utilities and services, unless such loss or damage is caused by Landlord's intentional affirmative acts or gross negligence. In the event that utilities are not available to the Premises for more than fifteen (15) consecutive days, and such unavailability of utilities has not been caused by Tenant, Tenant's agents, employees, visitors, vendors, etc. and such unavailability of utilities makes it impractical for Tenant to conduct its business in the ordinary course from the Premises, then the payment of rent shall abate for the period of unavailability of utilities. 7. MAINTENANCE, REPAIRS AND ALTERATIONS 7.1. Landlord's Obligations Landlord, throughout the term of this Lease, shall keep and maintain in good and sanitary order and repair: Common areas and the exterior surface of sidewalls of the Building and the roof of the Building. The cost of the foregoing work to be performed by Landlord shall be included as a Common Area Expense. Landlord shall have no obligation to maintain or repair the Premises except as this Lease explicitly provides. Tenant expressly waives all rights it would otherwise have pursuant to California Civil Code Sections 1932(2), 1933(4), 1941 and 1942, and any successor or other law, statute or ordinance hereafter in effect of similar importance or otherwise affecting the rights and obligations of the parties as otherwise provided herein. 7.2. Tenant's Obligations At all times after the Commencement Date, Tenant, at its cost, shall maintain the entirety of the Premises in good and sanitary order, condition and repair excepting only damage caused by fire or other casualty or which this Lease does not otherwise obligate Tenant to repair. Tenant hereby waives any right it may have to make repairs at Landlord's expense under Section 1942 of the Civil Code of the State of California and all rights under Section 1941 of said Civil Code or under any other similar law now or hereafter in effect. Tenant's obligations of maintenance under this Paragraph shall be inclusive and shall extend, without limitation, to both structural and non-structural ordinary and extraordinary repairs (excluding structural repairs resulting from damage from causes other than use or ordinary wear and tear); floors and floor coverings; walls and finish work; foundation (excluding structural repairs resulting from damage from causes other than use or ordinary wear and tear); downspouts, gutters; loading doors; loading docks and pads; entryways, doors and locks; all glazing (including skylights); Tenant's signs; plumbing systems, electrical systems and heating and air conditioning systems and equipment in the Premises; and any damage to the Master Premises or Premises directly or indirectly caused by tenant or tenant's employees and invitees. Tenant, at its cost, shall comply with all the requirements of any governmental authorities, whether now or hereafter in effect, involving (a) either the structure or physical condition of all or any portion of the Premises or work to satisfy applicable code requirements, which, in either case, are attributable primarily to the particular use which Tenant makes of the Premises, or (b) the California Occupational Safety and Health Act of 1973, all subject to Landlord's obligations and representations herein. Notwithstanding the foregoing, Tenant shall not be required to pay more than seven thousand five hundred dollars ($7,500.00) over the sixty-five (65) month lease term under this Paragraph 7.2 or Paragraph 5.2.2 hereof for repairs to the structure, foundation, and roof which are not caused by Tenant's use and/or occupancy of the Premises or Master Premises. 7.3. Common Walls The cost of maintenance and repair (other than latent defects) of any common party wall (any wall, divider, partition or any other structure separating the Premises from any adjacent premises occupied by other tenants) shall be shared equally by Tenant and the tenant occupying adjacent premises. Tenant shall not damage any party wall or disturb the integrity and support provided by any party wall and shall, at its sole cost and expense, promptly repair any damage or injury to any party wall caused by Tenant or its employees, agents or invitees. 5 7.4. Landlord's Reservations Landlord reserves the right to perform the roof, paving, and landscape maintenance, exterior painting and common sewage line plumbing and any maintenance and repair obligations which are otherwise Tenant's under Paragraph 7.2 above, and Tenant shall, in lieu of the obligations set forth under Paragraph 7.2 above with respect to such items, be liable for Tenant's Share (as defined in Paragraph 5.1 above) of the cost and expense of the care for the grounds around the building, including but not limited to, the mowing of grass, care of shrubs, general landscaping, maintenance of parking areas, driveways and alleys, roof maintenance, exterior repainting and common sewage line plumbing; provided that if tenant or any other particular tenant of the building can be clearly identified as being responsible for obstruction or stoppage of the common sanitary sewage line, then Tenant, if Tenant is responsible, or such other responsible tenant shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall pay the entire cost thereof, upon demand, as additional rent. Tenant shall pay when due its share, determined as aforesaid, of such costs and expenses along with the other tenants of the Building to Landlord upon demand, as additional rent, in the event Landlord elects to perform or cause to be performed such work. If Tenant fails to promptly perform any maintenance or repair obligation(s) resulting from damage caused in part or in whole, directly or indirectly, by any intentional or negligent act or omission on the part of Tenant and/or Tenant's directors, officers, employees, agents, contractors, invitees or licensees, Landlord shall have the right to perform such obligations at Tenant's cost. 7.5. Rail Use Landlord shall be responsible for coordinating any repairs and other maintenance of any rail tracks serving or to serve the Building, and the cost of such work shall be included as a Common Area Expense. Such cost to Tenant shall not exceed one thousand dollars ($1,000.00) per annum unless the costs are the result of Tenant's use of the rail tracks or the result of actions by Tenant or Tenant's employees, agents, vendors, visitors, etc. 7.6. Warranties If Tenant requests, Landlord shall assign to Tenant any equipment or appliance warranties running to Landlord, enforcement of which would reduce the cost or facilitate the performance of tenant's maintenance and repair obligations hereunder. Tenant shall reassign such warranties to Landlord on termination of this Lease. 7.7. Exterior Portions of the Premises Tenant shall maintain the aesthetic appearance of the Premises in neat and attractive condition. Tenant shall not store supplies, work in process, Inventory or other materials, or waste or garbage outside the building or in Common areas without Landlord's prior consent, which Landlord may condition upon compliance with applicable recorded restrictions and upon installation, at tenant's cost, of suitable storage facilities including aesthetic screening. Such facilities shall constitute Tenant's Alterations (as said term is defined herein). 7.8. Service Contracts Tenant shall use independent contractors to discharge its obligations hereunder to maintain and repair portions of the Premises such as air conditioning and heating systems, or other mechanical equipment. Tenant shall, at its own cost and expense, enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor for servicing all heating and air conditioning systems and equipment within the Premises. The maintenance contractor and the contract must be approved by Landlord and Mortgagee as defined below in Paragraph 12.2. The service contract must include all services suggested by the equipment manufacturer within the operation/maintenance manual and must become effective (and a copy thereof delivered to Landlord and Mortgagee) within thirty (30) days of the date Tenant takes possession of the premises. Tenant shall notify Landlord of any subsequent independent contractors and of the service contract terms. Each such service contract shall provide (a) for automatic termination if for any reason this Lease terminates and (b) for the assignment to Landlord, upon termination of this Lease, of any causes of action arising under the service contract against the independent contractor. 7.9. Personal Property of Tenant Tenant, at its sole cost and expense, may install in the Premises furniture, fixtures, equipment and machinery (collectively, "Tenant's Trade Fixtures") necessary for the business which this Lease permits Tenant to conduct in the Premises. Tenant's Trade Fixtures shall be and remain the personal property of Tenant, which Tenant may replace and remove during the term of this Lease, and which Tenant shall remove at the termination of this Lease. Tenant, at its cost, shall repair all damage to the Premises which installation, replacement or removal of Tenant's Trade Fixtures may cause. From time to time, if and as Landlord requests, Tenant shall furnish Landlord a written itemization of tenant's Trade Fixtures in the Premises. 7.10. Alterations 7.10.1. Landlord's Approval. Tenant shall not make or suffer any alterations, improvement or addition ("Tenant's Alterations") to the Premises without first obtaining Landlord's written consent, which consent shall not be unreasonably withheld or delayed. Tenant's Alterations shall include any work by Tenant which affects the Premises, such as, without limitation, any work which affects the exterior of the Premises or any structural, plumbing, electrical or mechanical component of the Premises, but shall exclude (a) Tenant's Trade Fixtures, which are governed by Paragraph 7.9 and (b) maintenance and repairs performed by tenant under Paragraph 7.2. Tenant may, without consent of Landlord, but at its own cost and expense and in a good workmanlike manner make such minor alterations, additions or improvements or erect, remove or alter such partitions, or erect such shelves, bins, machinery and trade fixtures as it may deem advisable, without altering the basic character of the building or improvements and without overloading or damaging such Building or improvements and in each case complying with all applicable governmental laws, ordinances, regulations and other requirements. Tenant's Alterations shall be deemed part of the Premises for purposes of Tenant's obligations hereunder to maintain and repair the Premises. Upon completion, tenant's alterations shall become Landlord's property, which upon termination of the lease, Tenant shall surrender with the Premises unless Landlord, by written notice to tenant, requires 6 Tenant to remove Tenant's Alterations, in which case Tenant, at Tenant's cost, shall remove Tenant's Alterations, repair any damage such removal causes, and restore the Premises to their condition prior to installation of Tenant's Alterations. In default thereof, Landlord may effect said removals and repairs at Tenant's expense. 7.10.2. Owner's Approval. In addition to compliance with the requirements imposed in Subparagraph (a) above and otherwise pursuant to this Lease, Tenant shall comply with the provisions of this subparagraph. As used in this subparagraph, the terms "Improvements" shall mean and include without limitation all buildings, outbuildings, parking or loading areas, roadways or walkways, separate display or storage areas, trackage, fences, walls, poles, signs, exterior lighting, canopies, awnings, antennas, billboards, marquees, hedges, mass or large plantings, and all other structures of any kind located above the ground level of any site, and any replacements, additions, repairs or alterations thereto of any kind whatsoever. No Improvement of any nature whatsoever (including, but not limited to, any alteration or addition to any improvements existing from time to time) shall be constructed, placed or assembled and maintained on the Premises until Owner has first approved the exterior design, density, size, appearance and location thereof. Before commencing any work of Improvement or applying for any governmental permit or approval with respect thereto, Tenant shall first deliver or cause to be delivered to Owner for approval as provided below, two sets of schematic plans and preliminary specifications including at least grading and drainage plans, exterior elevations, roof plans and site plans, to the extent applicable, showing in reasonable detail existing topography and proposed type of use, size, land coverage, shape, height, location, material, color scheme and elevation of each proposed Improvement, all proposed ingress and egress to public or private streets or roads, all utilities and service connections, and all proposed landscaping, parking, exterior lighting, signs, cut and fill, finished grade, run-off and concentration points. After such approval by Owner but prior to commencing any such work, Tenant shall also submit to Owner for approval final plans and specifications for any proposed Improvements in the same manner as provided in this paragraph with respect to schematic plans and preliminary specifications. All plans and specifications for grading or Improvements to be submitted to Owner hereunder shall be prepared by a duly licensed or registered architect or engineer, as the case may be. Owner shall not unreasonably withhold its approval of any such plans or specifications. Owner shall be conclusively deemed to have given Its approval therefor unless, within 30 days after all such plans and specifications have been received, by Owner's project manager or another person designated by Owner, Owner shall give Tenant written notice specifying in reasonable detail each item which Owner disapproves. Unless so disapproved, Owner shall endorse its approval on at least one set of plans and return the same to Tenant. Without limiting the generality of the foregoing, Owner may disapprove any plans which are not in harmony or conformity with other existing or proposed Improvements on or in the vicinity of the Premises, or with Owner's master utility, circulation or general aesthetic or architectural plans and criteria for the Premises, the Master Premises and the general area in which the premises are located, Including, but not limited to such matters as adequacy of site and Improvement dimensions, external appearance, relation of topography, grade and elevation of the site being improved with neighboring sites and nearby streets, and the effect of location and use of Improvements on neighboring sites, Improvements or operations. Notwithstanding the foregoing, Tenant may repair, replace, alter or reconstruct any Improvement on the Premises for which plans were previously approved by Owner as provided above, but only if such repair, replacement, alteration or reconstruction is substantially identical to the Improvement previously so approved. Nothing herein shall be deemed to grant Tenant any right to make any Improvements not otherwise expressly permitted by this Lease. As of the execution of this Lease, Landlord represents that all approvals required to be obtained from Owner for the work to be performed by Landlord hereunder have been, or will be, obtained from Owner. 7.11. Mechanic's Liens Tenant shall notify Landlord at least fifteen (15) days prior to commencing any work affecting the Premises, regardless whether this Lease requires Tenant to obtain Landlord's consent for such work, if Tenant can reasonably expect such work to cost in excess of $1,000, so Landlord has a reasonable amount of time to post notices of nonresponsibility. Tenant shall keep the Premises and Tenant's leasehold hereunder free of any lien (or stop notice, claim or other charge or encumbrance) which may arise out of any work affecting the Premises or any materials or labor furnished to the Premises for or at the behest of Tenant. If Landlord requests, Tenant shall furnish Landlord with such security, including a labor and materials bond and/or a performance bond, as Landlord may deem reasonable to protect the Premises against the attachment or foreclosure of any such lien. Tenant shall have no authority, express or implied, to create or place any lien or encumbrance, of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any connection with any work performed on the Premises on which any lien is or can be validly and legally asserted and that it will save and hold Landlord harmless from any and all claim, loss, cost or expense, including, without limitation, attorneys' fees, based on or arising out of assented claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. 8. ENTRY BY LANDLORD 8.1. Entry by Landlord Landlord, Landlord's agents, Owner and Owner's agents, may enter the Premises at all reasonable times upon reasonable notice to Tenant, except in the case of emergency, to perform Landlord's obligations hereunder, to inspect Tenant's performance of Tenant's obligations hereunder and to exhibit the Premises to actual or prospective lenders, purchasers and tenants and for any other reasonable purpose. Landlord shall have the right to place "for sale" signs at any time during the term and "for rent" signs during the last 180 days of the term on the Premises, which Tenant shall neither molest nor obscure. The performance of work on the Premises by Landlord, whether to discharge Landlord's obligations hereunder or to prevent waste or deterioration, including the placement in the Premises of supplies and materials necessary for such work, shall not be deemed to constitute a partial or total eviction of Tenant and neither rent nor any other obligation of Tenant hereunder shall abate while any entry or work by Landlord hereunder is underway. Landlord shall, however, use its best efforts in the conduct of any such entry or work to minimize any interference with Tenant's use of the Premises. In no case of entry shall Landlord have any liability to tenant and tenant shall have no claim against Landlord hereunder. None of Landlord's rights under this section shall be deemed to impose on Landlord any obligation for the maintenance or repair of the Premises in addition to the obligations which other paragraphs of this Lease explicitly impose on Landlord. Tenant shall give written notice to Landlord at least thirty (30) days prior to vacating the Premises and shall arrange to meet with 7 Landlord for a joint inspection of the Premises at the time of vacating. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant's vacating the Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repair and restoration. 9. INSURANCE 9.1. Tenant's Liability Insurance and Fire and Extended Coverage of Fixtures Tenant agrees, at its sole expense, to maintain in full force during the term of this Lease, a policy or policies of Comprehensive General Liability Insurance, which will insure Tenant, and name Mortgagee(s), Landlord, Landlord's property manager, agents and/or Owner, as additional insureds against liabilities for injury to persons and/or property occurring in, on or about the Premises. The limits of liability under such insurance shall not be less than a $1,000,000 primary policy with an umbrella policy of $5,000,000 per occurrence for bodily/personal injury and/or property damage. Such coverage shall also include at least personal injury, independent contractors, broad form property damage, products liability and completed operations, contractual liability, host liquor liability and liquor law liability if Tenant engages in serving or in the sale of alcoholic beverages, with respect to alterations, improvements and the like required or permitted to be made by Tenant hereunder, contingent liability and builder's risk insurance, in amounts satisfactory to Landlord and Mortgagee, boiler and machinery insurance, if applicable; Tenant also agrees to maintain insurance against fire, extended coverage vandalism, malicious mischief and such other additional perils as now are or hereafter may be included in an "All Risk" extended coverage endorsement, covering Tenant's leasehold improvements, merchandise, trade fixtures, furnishings, equipment and all other items of personal property of Tenant located on or in the Premises, in an amount equal to not less than 90% of the actual replacement cost thereof, including property of others which is in Tenant's possession, worker's compensation coverage as required by law, including employer's liability, and business interruption insurance, in amounts reasonably satisfactory to Landlord and Mortgagee. Landlord or Mortgagee may, in their reasonable discretion, require Tenant to increase the limits of the comprehensive general liability policy required in this Paragraph, but not beyond that deemed appropriate in the general area. 9.2. Fire and Extended Coverage Throughout the term of this Lease Landlord shall cause the Building (but not Tenant's Trade Fixtures and Tenant's other personal property in the Premises) to be insured in an amount not less than 80% of the replacement cost thereof against loss or damage by fire and such other risks as are now or hereafter included under "All Risk" coverage in common use for commercial structures in the vicinity of the Building, including, if Landlord deems necessary flood and/or other types of insurance. The cost of said insurance shall be a Common Area Expense; but if such insurance cost is increased due to Tenant's use of the Premises, Tenant shall pay Landlord the full amount of such increase. Tenant, shall have no interest in nor any right to the proceeds of said insurance. All proceeds thereunder shall be paid to Landlord (a) to be disbursed by Landlord if the damage is repaired and the affected improvements restored, in accordance with such progress payment schedule as Landlord may approve, or (b) to be retained in full by Landlord if this Lease is terminated on account of the casualty giving rise to such proceeds. 9.3. Form of Policies Tenant shall carry all insurance which this Lease requires Tenant to maintain with Insurance companies which are satisfactory to Landlord and Mortgagee and licensed to do business in the State of California. All policies evidencing such coverage shall provide that: (i) any loss shall be payable notwithstanding any act or negligence of Landlord which might otherwise result in a forfeiture of coverage; (ii) the carrier waives the right of subrogation against Landlord, Mortgagee and against Landlord's agents and representatives; (iii) the policies evidencing such coverage are primary and noncontributing with any insurance that may be carried by Landlord; (iv) such coverage cannot be cancelled, modified, reduced or otherwise materially changed except after thirty (30) days' prior written notice to Landlord; and (v) with respect to general liability policies only, Landlord and Mortgagee shall be included as additional insureds as their interests may appear. Tenant shall furnish Landlord and Mortgagee with copies of all policies evidencing such coverage promptly on receipt of them, or, if Landlord and Mortgagee expressly agree, with certificates evidencing such coverage. Tenant may effect for its own account any insurance not required under this Lease. Tenant may provide by blanket insurance, covering the Premises and any other location or locations, any insurance required or permitted under this Lease. 9.4. Procedures and Remedies Tenant shall deliver to Landlord, in the manner required for notices, (a) certificates evidencing, and a copy of, all insurance policies and endorsements this Lease requires Tenant to carry, and (b) proof satisfactory to Landlord that Tenant has fully paid the premiums for the procurement and maintenance of such coverage, all within the following time limits: (i) For insurance required at the commencement of the term of this Lease, upon execution hereof. (ii) For insurance required at a later date, at least thirty (30) days before the requirement takes effect; and (iii) For any renewal or replacement of a policy already in existence, at least thirty (30) days before expiration or other termination of the existing policy. If Tenant fails or refuses to procure or to maintain the insurance coverage required hereunder, or fails or refuses to furnish Landlord with proof that said coverage has been procured and is in force and paid for, Landlord shall have the right, at Landlord's election and without notice to Tenant, but without any obligation so to do, to procure and maintain such coverage. Tenant shall reimburse Landlord on demand for any premiums Landlord so pays. 9.5. Waiver of Subrogation Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused 8 by fire or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible; provided, however, that this release shall be applicable and in force and effect only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of Landlord and Tenant agrees that it will request its insurance carriers to include in its policies such a clause or endorsement. If extra cost shall be charged therefor, each party shall advise the other thereof and of the amount of the extra cost, and the other party, at its elections, may pay the same, but shall not be obligated to do so. 10. INDEMNITY 10.1. Waiver of Damages Landlord shall not be liable to Tenant, and Tenant hereby waives any claim against Landlord, for injury to or death of any person or damage to any property that may result from negligence or any cause whatsoever in connection with the Premises and the Master Premises other than directly and solely from the gross negligence or intentional affirmative act of Landlord. Except as aforesaid, Tenant hereby fully assumes all risk of damage, from any source, to any property in the Premises. 10.2. Indemnification Tenant shall indemnify, defend and hold Landlord harmless against any and all claims or liability for the death of or any injury to any person and for damage to any property whatsoever, at the Premises or any part thereof, if any such death, injury or damage is caused in part or in whole, directly or indirectly, by any intentional or negligent act or omission on the part of Tenant and/or Tenant's directors, officers, employees, agents, contractors, invitees or licensees, unless caused by Landlord's intentional affirmative acts or gross negligence. Tenant's waiver in Paragraph 10.1 and the indemnity obligation in this Paragraph 10.2 shall particularly include, without limitation, any death, injury or damage caused by water leakage of any character (including from roof, walls, floor or basement) or caused by gas, oil, electricity or any other matter. If any action or proceeding based on any such death, injury or damage is brought against Landlord, then, upon written request from Landlord, Tenant, at Tenant's cost, shall defend such action or proceeding and, if appropriate, file such counteraction's or counter-proceedings as the circumstances require, all through legal counsel reasonably acceptable to Landlord. 11. DAMAGE AND DESTRUCTION If the Premises are destroyed in whole from any cause, Landlord may elect either to restore the Premises or to terminate this Lease. If the Premises are destroyed in part from any cause, Landlord may elect to restore, or, to terminate this Lease if (1) the Building, the Premises, or the Master Premises are uneconomic to restore, or (2) the cost of restoration materially exceeds the proceeds of insurance required to be carried hereunder, or (3) the restoration cannot be substantially completed within one hundred eighty days after Landlord's notice of election to Tenant. Landlord shall notify Tenant of its election within sixty days after the casualty. Landlord shall be obligated to restore in all other instances. 11.1. Restoration If Landlord elects, or is obligated, to restore, Landlord shall promptly restore the Premises to their prior condition, provided that such restoration can be completed within one hundred eighty days (which period shall be extended one day for each day of delay resulting from causes beyond Landlord's control) (the "Restoration Period") after Landlord's notice of election to Tenant. Tenant hereby expressly waives the provisions of Subdivision 2 of Section 1932, Subdivision 4 of Section 1933, Section 1941 and Section 1942 of the California Civil Code, and any successor or other law, statute or ordinance hereafter in effect of similar importance or otherwise provided herein. Rent shall abate from the date of casualty in the proportion that Tenant is actually deprived of use of the Premises. In the event that such restoration cannot be completed within such Restoration Period, Tenant may elect to terminate this Lease. 11.2. Termination If Landlord elects to terminate, rent shall terminate as of the date of the casualty, and from the date of the notice of election the parties shall have no further obligations under this Lease except for obligations which arose prior to such notice of election. 12. COMPLIANCE WITH LAW AND QUIET POSSESSION 12.1. Compliance with the Law Throughout the term of this Lease, subject to the provisions of this Lease, Tenant shall faithfully observe and promptly comply with all present and future requirements of all governmental authorities with jurisdiction over the Premises and with all presently existing recorded covenants, conditions and restrictions which are applicable to the Premises. Tenant shall not permit its vehicles to interfere with the use of Common Areas. 12.2. Quiet Enjoyment and Subordination So long as no uncured default on the part of Tenant exists hereunder, Landlord shall secure to Tenant the quiet and peaceful possession of the Premises against any persons who clam paramount title to the premises or an interest in the Premises through or under Landlord. Tenant acknowledges that Landlord holds the Building as a tenant under the Ground Lease and that Tenant is subject to all of the terms and conditions of the Ground Lease. Tenant further acknowledges that the Master Premises are subject to a deed of trust for the benefit of Weyerhaeuser Mortgage Company (which entity and any successor shall be referred to herein as "Mortgagee"). Tenant accepts this Lease subject and 9 subordinate to the Ground Lease and any mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a lien or charge upon the Premises or the Building; provided, however, that if the mortgagee, trustee or holder of any such mortgage or deed of trust elects to have Tenant's interest in this Lease superior to any such instrument, then by notice to Tenant from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust. This Lease shall automatically be subordinate to any mortgage, deed of trust or any other hypothecation for security, whether existing at the date hereof or subsequently placed upon the Premises (or property of Landlord of which the Premises are a part), to any and all advances made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. If, however, the holder of any such security shall elect to have this lease prior to the lien of such holder's security, such holder may give written notice to Tenant and thereupon this Lease shall be deemed prior to such security, whether this Lease is dated (and any memorandum of this Lease recorded) prior or subsequent to the date of execution or recordation of such security and regardless of the priority of recordation. Tenant shall at any time hereafter, on demand, execute any instruments, releases or other documents which may be required by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage. Tenant agrees that in the event that any proceedings are brought for the foreclosure of any such mortgage or deed of trust, Tenant shall attorn to the purchaser at such foreclosure sale, if requested to do so by such purchaser, and shall recognize such purchaser as the Landlord under this Lease, and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of tenant hereunder in the event that any such foreclosure proceeding is prosecuted or completed. Tenant further agrees that in the event the landlord under the Ground Lease becomes the Landlord under this Lease, Tenant shall attorn to such ground landlord and recognize such ground landlord as Landlord under this Lease, if requested to do so by such ground landlord. In addition, if a leasehold mortgagee shall acquire Landlord's interest in this Lease under a new ground lease made to such leasehold mortgagee, Tenant shall attorn to such leasehold mortgagee and recognize such leasehold mortgagee as the Landlord under this Lease, if requested to do so by such leasehold mortgagee. This Lease shall be subject to any new ground lease made to the leasehold mortgagee. 13. DEFAULT 13.1. Events of Default Any of the following events or occurrences shall constitute a material breach of this Lease by Tenant and after the expiration of any applicable grace period, shall constitute an "Event of Default" hereunder. Upon the occurrence of an event of Default, Landlord shall have all the rights and remedies set forth in Paragraphs 13.2 through 13.6 as well as any other rights or remedies available at law or in equity. The following occurrences shall each constitute and Event of Default: (a) The failure by Tenant to make any payment of rent, additional rent or other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of five days after written notice thereof from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure (S)1161, as amended. (b) The failure by Tenant to perform any other obligation hereunder, if the failure has continued for a period of thirty (30) days after Landlord demands in writing that Tenant cure such failure; provided, if by its nature the failure cannot be cured within thirty (30) days, Tenant may have such longer period as is necessary to cure the failure upon the condition that Tenant shall have promptly commenced to cure within said thirty (30) day period and shall thereafter diligently prosecute the cure to completion; provided, further, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure (S)1161, as amended; Tenant shall indemnify, defend and hold Landlord harmless against any liability, claim, damage, loss or penalty which may be threatened or may in fact arise during the period any such failure is uncured; (c) A general assignment by Tenant for the benefit of Tenant's creditors; any voluntary filing, petition or application by Tenant under any law relating to insolvency or bankruptcy, whether for a declaration of bankruptcy, a reorganization, an arrangement or otherwise; the abandonment or vacation or surrender of the Premises by Tenant except as provided in Paragraph 13.1(f); or the dispossession of Tenant from the Premises (other than by Landlord) by process of law or otherwise; (d) The involuntary filing against tenant (or any general partner of Tenant if Tenant is a partnership) of (i) a petition to have tenant (or any partner of Tenant if tenant is a partnership) declared a bankrupt, or (ii) a petition of reorganization or arrangement of Tenant under any law relating to insolvency or bankruptcy, unless in the case of any such involuntary filing, the same is dismissed within sixty (60) days; the appointment of a trustee or receiver to take possession of all or substantially all Tenant's assets, or the attachment, execution or other judicial seizure of all or substantially all of Tenant's assets located at the Premises, or of Tenant's interest in this Lease, unless such appointment, attachment, execution or seizure is discharged within thirty (30) days. (e) Tenant shall desert or vacate any substantial portion of the Premises for ten (10) or more business days while otherwise in violation of any of its obligations hereunder. (f) Tenant shall desert or vacate any substantial portion of the Premises for ten or more business days even if not otherwise in violation of any of its obligations hereunder, without giving Landlord at least thirty (30) days notice in advance in the manner provided hereunder. 13.2. Landlord's Remedies Upon an Event of Default (a) Termination. Upon occurrence of an Event of Default, Landlord, in addition to any other rights or remedies available to Landlord at law or in equity, shall have the right immediately to terminate this Lease and all rights of tenant hereunder by giving Tenant written notice that this Lease is terminated. If Landlord so terminates this Lease, then Landlord may recover from Tenant the sum of: (i) the worth at the time of award of any unpaid rent which had been earned at the time of termination; 10 (ii) the worth at the time of award of the amount by which (A) the unpaid rent which would have been earned after termination until the time of award exceeds (B) the amount of such rental loss, if any, as Tenant affirmatively proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which (A) the unpaid rent for the balance of the term after the time of award exceeds (B) the amount of such rental loss, if any, as Tenant affirmatively proves could be reasonably avoided; (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations hereunder or which, in the ordinary course of things, would be likely to result therefrom; and (v) all such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable California law. (b) Definitions. (i) "Worth at the Time of Award." As used in Subparagraphs (a)(i) and (a)(ii) of this Paragraph, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum. As used in Subparagraph (a)(iii) of this Paragraph, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (ii) Rent. As used in this article, the term "rent" shall include both charges equivalent to rent and any other period payments (such as Tenant's Share of Common Area Expenses) by Tenant hereunder. (c) Continuation of Lease. If Tenant vacates, abandons or surrenders the Premises without Landlord's consent, or if Landlord re-enters the Premises as provided in Subparagraph (d) of this Paragraph or takes possession of the Premises pursuant to legal proceedings or through any notice procedure provided by law, then, if Landlord does not elect to terminate this Lease, Landlord may, from time to time, without terminating this Lease, either (i) recover all rent and other amounts payable hereunder as they become due or (ii) relet the Premises or any part thereof on behalf of Tenant for such term or terms, at such rent or rents and pursuant to such other provisions as Landlord, in its sole discretion, may deem advisable, all with the right, at Tenant's cost, to make alterations and repairs to the Premises. (d) Re-entry. Upon an Event of Default, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises. Landlord may cause property so removed from the Premises to be stored in a public warehouse or elsewhere at the expense and for the account of Tenant. (e) No constructive Termination. None of the following remedial actions, singly or in combination, shall be construed as an election by Landlord to terminate this Lease unless Landlord has in fact given Tenant written notice that this Lease is terminated or unless a count of competent jurisdiction decrees termination of this Lease; any act by Landlord to maintain or preserve the Premises; any efforts by Landlord to relet the Premises; any re-entry, repossession or reletting of the Premises by Landlord pursuant to this Paragraph; or the appointment of a receiver, upon the initiative of Landlord, to protect Landlord's interest under this Lease. If Landlord takes any of the foregoing remedial action without terminating this Lease, Landlord may nevertheless at any time after taking any such remedial action terminate this Lease by written notice to Tenant. (f) Allocation of Income from Reletting. If Landlord relets the Premises, Landlord shall apply the revenue therefrom as follows: first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; second, to the payment of any reasonable cost of reletting (including, without limitation, finder's fees and leasing commissions); third, to the payment of the cost of any reasonable alterations, improvements, maintenance and repairs to the Premises; and fourth, to the payment of rent and other amounts due and unpaid hereunder. Should revenue from reletting during any month, after application pursuant to the foregoing provisions, be less than the sum of (i) Landlord's expenditures for the Premises during such month and (ii) the amounts due from Tenant hereunder during such month or theretofore, Tenant shall pay the deficiency to Landlord immediately upon demand therefor. 13.3. Landlord's Right to Cure After an Event of default, Landlord, in addition to or in lieu of exercising other remedies, may (but without any obligation so to do) cure the breach underlying the Event of Default for the account and at the expense of Tenant; provided that Landlord by prior notice shall first allow Tenant a reasonable opportunity to cure, except in cases of emergency, where Landlord may proceed without prior notice to tenant. Tenant shall, upon demand, immediately reimburse Landlord for all costs (including costs of settlements, defense, count costs and attorneys' fees) which Landlord may incur in the course of any such cure. 13.4. Security No Bar No security or guaranty for the performance of Tenant's obligations hereunder, which Landlord may now or hereafter hold, shall in any way constitute a bar or defense to any action initiated by Landlord for unlawful detainer or for the recovery of the premises, for enforcement of any obligation of tenant hereunder or for the recovery of damages caused by a breach of this Lease by Tenant or by an Event of Default. 13.5. Period of Limitations Any claim, demand, right or defense of any kind by tenant, which is based upon or arises in any connection with this Lease or the negotiations prior to its execution, shall be barred unless tenant commences an action thereon, or interposes in a legal proceeding a defense by reason thereof, within six (6) months after the date of the inaction or omission or the date of the occurrence of the event or of the action to which the claim, demand, right, or defense relates, whichever applies. 11 13.6. Remedies Cumulative The rights, privileges, elections and remedies of landlord herein are cumulative. Landlord may exercise them at any time and from time to time singly and in combination. No provision of this section shall be deemed to limit or negate Landlord's rights under this Lease to indemnification from Tenant (or tenant's insurance carriers) for any liability asserted against or imposed upon Landlord, whether before or after termination of this lease, which liability is directly or indirectly based upon deaths, personal injuries, property damage or other matters first occurring prior to the termination of this Lease. 13.7. Expenses and Legal Fees If either party incurs any expense, including reasonable attorneys' fees, in connection with any action or proceeding instituted by either party by reason of any default or alleged default of the other party hereunder, the party prevailing in such action or proceeding shall be entitled to recover, as an element of costs of suit and not as damages, its said reasonable expenses from the other party. Such reasonable expenses, including attorneys' fees, shall be deemed to have accrued on the commencement of such action and shall be paid whether or not such action is prosecuted to judgment for purposes of this provision, in any unlawful detainer or other action or proceeding instituted by Landlord based upon any default or alleged default by tenant hereunder Landlord shall be deemed the prevailing party if (i) judgment is entered in favor of Landlord or (ii) prior to trial or judgment Tenant shall pay or agree to pay all or any portion of the rent and charges claimed by Landlord, eliminate the condition, cease any act or otherwise cure any omission claimed by Landlord to constitute a default by Tenant hereunder. 13.8. Landlord's Defaults Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after notice by Tenant to Landlord and Mortgagee or to the holder of any other first mortgage or deed of trust covering the Premises, whose name and address shall have theretofore been furnished to tenant, in writing specifying wherein Landlord has failed to perform such obligation; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Mortgagee or the holder of any other first mortgage or deed of trust covering the Premises shall have the same rights as Landlord to cure Landlord's default within the aforesaid time periods. In no event shall tenant have the right to terminate this Lease as a result of landlord's default, and Tenant's remedies shall be limited to damages and/or an injunction. 14. CONDEMNATION 14.1. Definitions For the purpose of this Lease: (a) The term "Taking" shall mean a taking of the Premises or damage related to the exercise of the power of eminent domain and shall include a voluntary conveyance, in lieu of court proceedings, to any agency, authority, public utility, person or corporate entity empowered to condemn property. (b) The term "Total Taking" shall mean the taking of the entire Premises or so much of the Premises as prevents or substantially impairs the use thereof by Tenant for the uses herein specified. Landlord acknowledges that Tenant requires at least 27,000 square feet, and adequate parking, in which to conduct its business. (c) The term "Partial taking" shall mean the taking of a portion of the Premises which does not constitute a Total Taking. (d) The term "Date of Taking" shall mean the date upon which title to the Premises, or a portion thereof, passes to and vests in the condemnor or the effective date of any order for possession if issued prior to the date title vests in the condemnor. (e) The term "Award" shall mean the amount of any award made, consideration paid, or damages ordered as a result of a Taking. 14.2. Total Taking In the event of a Total Taking during the term hereof (a) the rights of Tenant under the Lease and the leasehold estate of tenant in and to the Premises shall terminate as of the Date of Taking; (b) Landlord shall refund to Tenant any prepaid rent; (c) Tenant shall pay to Landlord any rent or charges due Landlord under the Lease, each prorated as of the Date of Taking; and (d) the total Award shall be paid to and be the property of Landlord and Tenant shall not have any claims against Landlord for any portion of said award. Tenant will be entitled to any award made directly to Tenant for loss of or damage to Tenant's trade fixtures and removable personal property and for reasonable expenses incurred in moving. 14.3. Partial Taking In the event of a Partial Taking of more than one thousand (1,000) square feet during the term hereof, Tenant shall have the option to terminate the Lease by so notifying Landlord in writing within thirty (30) days following the Date of Taking, and said termination shall be effective sixty (60) days after the date Tenant notifies Landlord. In the event Tenant does not elect to terminate the Lease, (a) the rights of Tenant under the Lease and leasehold estate of tenant in and to the portion of the Premises taken shall terminate as of the Date of Taking; (b) from and after the Date of Taking the monthly rent shall be reduced in the proportion that the square footage of the Premises taken bear to the original square footage of the Premises and (c) the total Award shall be paid to and be the property of Landlord and Tenant shall not have any claims 12 against Landlord for any portion of said award. Tenant will be entitled to any award made directly to Tenant for loss of or damage to Tenant's trade fixtures and removable personal property. Landlord shall restore the Premises to a complete architectural unit at its sole cost and expense. 15. HOLDING OVER Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord. In the event of any holding over by Tenant or any of its successors in interest after the expiration or termination of this Lease, unless the parties hereto otherwise agree in writing, the holdover tenancy shall be subject to termination by Landlord at any time upon not less than five (5) days advance written notice, or by Tenant at any time upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease shall be applicable during that period, except that Tenant shall pay Landlord from time to time upon demand, as rental for the period of any holdover, an amount equal to 150% of the rent in effect on the termination date, computed on a daily basis for each day of the holdover period. No holding over by Tenant, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. 16. ASSIGNMENT AND SUBLETTING 16.1. Assignment and Subletting Prohibited Notwithstanding any provision herein to the contrary or reference herein to subtenants or otherwise, neither Tenant nor any trustee, receiver or other successor to tenant may assign, sell, encumber, pledge or in any manner transfer this Lease or any estate or interest herein, or sublet the Premises or any part or parts thereof or any right or privilege appurtenant thereto, or allow anyone to conduct business at, upon or from the Leased Premises (whether as franchisee, licensee, permittee, subtenant, or otherwise), or to come in, by, through or under it, in all cases either by voluntary or involuntary act or by operation of law or otherwise, without Landlord's prior written consent in each instance. The sale, issuance or transfer of any voting capital stock of Tenant or Tenant's Guarantor, if any (if Tenant or Tenant's Guarantor, if any, is a corporation the stock of which Is not traded on the New York Stock Exchange or the American Stock Exchange), which results in a change in the voting control of Tenant, or Tenant's Guarantor, if any, shall be deemed to be an assignment of this Lease, and any purported such act shall be null and void. Any such prohibited act by Tenant (or any attempt at same), either voluntarily or involuntarily or by operation of law or otherwise, shall at Landlord's option terminate this Lease, and any purported such act shall be null and void. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at the option of Landlord, terminate all or any existing franchises, concessions, licenses, permits, subleases, subtenancies, departmental operating arrangements or the like, or may, at the option of Landlord, operate as an assignment to Landlord of the same. Nothing contained elsewhere in this Lease shall authorize Tenant to enter into any franchise, license, permit, subtenancy, or the like except pursuant to the provisions of this Paragraph. The consent by Landlord to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment or subletting. If this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount collected to the rent herein reserved, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant or the acceptance of the assignee, subtenant or occupant as tenant, or a release of tenant from the further performance of covenants on the part of Tenant herein contained. Any one or more of the foregoing prohibited acts, without Landlord's prior written consent, shall be void and, at the option of Landlord, shall terminate this Lease. 16.2. Information Required If Tenant desires at any time to assign this Lease or to sublet the Premises or any portion thereof, it shall first notify Landlord of its desire to do so and shall submit in writing to Landlord (i) the name of the proposed subtenant or assignee; (ii) the nature of the proposed subtenant's or assignee's business to be carried on in the Premises; (iii) the terms and provisions of the proposed sublease or assignment; and (iv) such reasonable financial information as Landlord may request concerning the proposed subtenant within ninety (90) days of the request for Landlord's consent. 16.3. Landlord's Options At any time within fifteen (15) days after Landlord's receipt of the information specified in Paragraph 16.2 above, Landlord may by written notice to tenant elect to (i) consent to the subletting or assignment upon the terms and to the subtenant or assignee proposed; (ii) refuse to give its consent; (iii) sublease the Premises or the portion thereof so proposed to be subleased by Tenant or take an assignment of tenant's leasehold estate hereunder or such part thereof as shall be specified in said notice upon the same terms (excluding terms relating to the use of Tenant's name or the continuation of Tenant's business) as those offered to the proposed subtenant or assignee, as the case may be; or (iv) terminate this Lease as to the portion (including all) of the Premises proposed to be subleased or assigned with a proportionate abatement in the rent payable hereunder. Tenant agrees that Landlord may refuse to consent to any proposed assignment or subletting for any reason or reasons deemed sufficient by Landlord without regard to any objective standard of reasonableness and may consent to a proposed subletting or assignment subject to such conditions as Landlord, in its sole discretion, deems appropriate. Tenant further agrees that Landlord may condition its consent upon the payment of any rentals to be received by Tenant in excess of any rental's fairly allocable to the applicable space payable by Tenant to Landlord. Tenant further agrees that no assignment or subletting consented to by Landlord shall impair or diminish any covenant, condition or obligation imposed upon Tenant by this Lease or any right, remedy or benefit afforded Landlord by this Lease. If Landlord consents to such assignment or subletting, Tenant may, within ninety (90) days after the date of Landlord's consent, enter into a valid assignment or sublease of the Premises or portion thereof upon the terms and conditions described in the information required to be furnished by tenant to Landlord pursuant to Paragraph 12.2 above, or upon other terms not more favorable to Tenant; provided, however, that any material change in such terms shall be subject to Landlord's consent as provided in this Paragraph 16. Failure of Landlord to exercise any option set forth in clauses (i) through (iv) above within such fifteen (15) day period shall be deemed refusal of Landlord to consent to the proposed subletting or assignment. In the event that Landlord shall consent to a sublease or assignment, Tenant shall pay Landlord's reasonable attorney's fees incurred in connection with giving such consent. 13 16.4 Tenant Merger, Acquisition, Associated Entities Notwithstanding anything in the Lease to the contrary, Landlord's consent shall not be required nor shall any excess rent be payable and the foregoing provisions of Paragraph 16 shall not apply to an assignment of the Lease or sublease of the Premises by Tenant to any corporation: (a) with which it may merge or consolidate or which acquires (i) a majority of Tenant's stores, or which acquires (ii) all or substantially all of the shares of stock or assets of Tenant, (b) which is a parent or subsidiary of Tenant, or (c) which is the successor corporation in the event of a corporate reorganization provided such corporation, in Landlord's reasonable judgment, has the financial capacity to satisfy Tenant's obligations under this Lease. However, if such corporation does not, in Landlord's reasonable judgement, have the financial capacity to satisfy Tenant's obligations under this Lease, Landlord may, but shall not be obligated to, elect to terminate this Lease by giving Tenant written notice of Landlord's election to terminate at least one hundred eighty (180) days in advance of the effective date of the termination of the Lease. If this Lease is so terminated, Tenant's obligation to pay rent and common area expenses shall cease to accrue on the later of (a) the effective date of the termination, or (2) vacation of the Premises by Tenant. If Landlord does not elect to terminate this Lease, Landlord shall consent to such assignment. Public offering or private placement of Tenant's stock or transfer of less than a majority of Tenant's stock shall not be deemed an Assignment provided Tenant, in Landlord's reasonable judgement, has the financial capacity to satisfy Tenant's obligations under this Lease. However, if Tenant does not, in Landlord's reasonable judgement, have the financial capacity to satisfy Tenant's obligations under this Lease, Landlord may, but shall not be obligated to, elect to terminate this Lease by giving Tenant written notice of Landlord's election to terminate at least one hundred eighty (180) days in advance of the effective date of the termination of the Lease. If this Lease is so terminated, Tenant's obligation to pay rent and common area expenses shall cease to accrue on the later of (a) the effective date of the termination, or (2) vacation of the Premises by Tenant. If Landlord does not elect to terminate this Lease, Landlord shall consent to such assignment. Tenant shall not, however, by reason of any assignment or sublease, be relieved of any responsibility, liability, or obligation to Landlord under the terms of this Lease. As a condition precedent to any effective assignment or sublease, the assignee or sublessee shall agree, in writing, to assume all of the terms, covenants, and conditions of Tenant under this Lease. An executed original copy of the assignment or sublease shall be delivered to Landlord prior to said assignment or sublease becoming effective. 16.5. No Release of Tenant No subletting or assignment, even with Landlord's consent, shall relieve Tenant of its duty to pay the rent and to perform all its other obligations hereunder. 17. TRANSFERS AND REFINANCING 17.1 Conveyance of Landlord's Interest Landlord may sell, assign or otherwise transfer, in whole or in part, its interest in this Lease and its reversion hereunder. Landlord shall require the transferee to accept the interest transferred subject to this lease. The transfer shall release Landlord from any further liability to Tenant hereunder and, after any such transfer, Tenant shall look solely to the transferee for the performance of the obligations of the party who from time to time is the landlord under this Lease for events occurring after such transfer. Paragraph 3.4 hereof shall govern disposition of the Security Deposit. If Landlord transfers to such a transferee any other security Landlord holds for performance of Tenant's obligations hereunder and so notifies Tenant, Landlord shall have no further liability to Tenant concerning such security and Tenant shall henceforth look solely to the transferee. 17.2. Estoppel Certificate Within ten (10) days after written request from either party (the "Notifying Party"), the other party (the "Receiving Party") shall execute, acknowledge and deliver to the Notifying Party a statement in writing (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), the dates to which rent and any other charges payable by Tenant hereunder are paid in advance, if any, and the amount of the Security Deposit, (b) if Tenant is the Receiving Party, acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder or specifying such defaults if any are claimed, and (c) in case of a transfer of Landlord's interest, attorning to the transferee. Tenant hereby acknowledges that prospective purchasers and encumbrancers of the Premises (or of property of Landlord of which the Premises are a part) may incur obligations or extend credit in reliance upon the representations of Tenant contained in such statement. Landlord hereby acknowledges that prospective purchasers of Tenant and/or encumbrancers of Tenant's property may incur obligations or extend credit in reliance upon the representations of Landlord contained in such statement. Tenant's failure to deliver such statement to Landlord within said ten (10) day period shall conclusively evidence Tenant's representation and agreement that: this Lease is in full force and effect, without modification, except as Landlord may represent; there are no uncured defaults in Landlord's performance hereunder; and Tenant has not paid more than one month's rent in advance nor made a Security Deposit in excess of one month's rent. It is understood and agreed that Tenant's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Landlord's execution of this Lease. 18. SURRENDER 18.1. Surrender of Lease Not Merger A surrender of this Lease by Tenant, a cancellation of this Lease by mutual agreement between Landlord and Tenant, or a termination of this Lease for any reason, shall not automatically work a merger. After such a surrender, 14 cancellation or termination, Landlord may (a) terminate any or all then existing subtenancies and/or (b) treat such surrender, cancellation or assignment as effecting an assignment to Landlord of any or all existing subtenancies. This Paragraph shall not be deemed to give Tenant any right to surrender, cancel or terminate this Lease without Landlord's consent. 18.2. Redelivery of Premises to Landlord Upon termination of this Lease for any reason, Tenant shall surrender the Premises to Landlord in the same condition in which Tenant received them excepting only (a) reasonable wear and damage by fire or other casualty (except as otherwise provided herein) and (b) such of Tenant's Alterations as Landlord does not require Tenant to remove. Tenant shall promptly discharge Its obligations hereunder to remove Tenant's Trade Fixtures and to repair any damage which removals from or restoration of the Premises may cause, any personal property of Tenant which Tenant fails to remove from the Premises shall be deemed abandoned. 18.3. Survival of Obligations All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation all payment obligations with respect to taxes and insurance and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Tenant vacating the Premises, Tenant shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the Premises, including without limitation all heating and air conditioning systems and equipment herein, in good condition and repair. Tenant shall also, prior to vacating the Premises, pay to Landlord the amount, as estimated by Landlord, of Tenant's obligation hereunder for real estate taxes and insurance premiums for the year in which the Lease expires or terminates. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant hereunder, with Tenant being liable for any additional costs therefor upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied, as the case may be. Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this Paragraph 18. 19. SIGNS Tenant may install, at Its sole cost and expense, on the Premises signs which identify Tenant and the business Tenant conducts in the premises, provided Tenant's signs comply with (a) applicable requirements of governmental authorities, (b) applicable recorded restrictions and (c) Landlord's requirements for coordinating (i) Tenant's signs with the signs of other tenants in the Master Premises, in which respect Landlord may limit the location, size and type of Tenant's signing and (ii) any common directory, accessible to the general public, of all tenants and occupants in the Master Premises. Tenant shall maintain its signs in neat condition and repair throughout the term of this Lease. Tenant shall repair any damage which maintenance, alterations or renovation of its signs may cause during or at the expiration of the term hereof. Tenant shall remove its signs from the Premises at the expiration of the term hereof. Such installations and removals shall be made in such manner as to avoid injury to or defacement of the Building and other improvements, and tenant shall repair any injury or defacement including without limitation discoloration, caused by such installation or removal. Approval by Landlord of a sign submittal by Tenant shall not constitute approval by governmental authorities, which approval(s) shall be obtained by Tenant. 20. NOTICES Any notice required or desired to be given under this Lease shall be in writing with copies directed as indicated and shall be personally served or may be deposited in the United States mail, duly registered or certified, postage prepaid, return receipt requested. If any notice or other document is sent by mail as aforesaid, the same shall be deemed served or delivered 48 hours after the mailing thereof. All copies required to be delivered to Landlord shall also be delivered to Mortgagee. Notices shall be addressed as indicated below or as a party may otherwise require by notice given pursuant to this Paragraph: LANDLORD: PHOENIX BUSINESS CENTER PARTNERS, a California Limited Partnership c/o McLachlan Investment Company 4141 MacArthur Boulevard, Suite 100 Newport Beach, CA 92660 Attention: Donald E. Russell MORTGAGEE: Weyerhaeuser Mortgage Company 6320 Canoga Avenue Woodland Hills, California 91637 Attention: Joseph J. Hemmens TENANT: Barbeques Galore, Inc., a California corporation 15041 Bake Parkway, Suite A Irvine, California 92718 Attention: Sydney Selati 15 21. MISCELLANEOUS 21.1. Integration This Lease, together with any exhibits hereto, constitutes the sole agreement between Landlord and Tenant and supersedes all prior written or oral agreements or understandings between them pertaining to the transactions contemplated herein. Neither party has made to the other any representations, warranties or inducements, express or implied, except as set forth herein. All modifications hereof must be in writing and signed by the parties hereto. 21.2. Time is of the Essence Time is and shall be of the essence of this Lease except as to delivery of possession of the Premises. 21.3. Joint and Several Where a party hereto consists of more than one person, each such person shall be jointly and severally liable for the performance of such party's obligations hereunder. 21.4. Captions The captions in this Lease are for convenience only, are not a part of this Lease and do not in any way limit or amplify the provisions hereof. 21.5. Governing Law This Lease shall be interpreted and enforced in accordance with the laws of the State of California in effect on the date hereof. 21.6. Landlord's Liability With respect to any of the covenants or conditions of this Lease, Tenant hereby acknowledges that it shall look solely to the equity of Landlord in the master Premises for any satisfaction, assertion or remedy Tenant may have against Landlord in the event of breach by Landlord of any covenants or conditions of this Lease, even if said Landlord or any successor in interest to Landlord shall be an individual, joint venture, tenant-in-common, trustee or partnership. 21.7. Interest and Late Charges (a) Any amount payable from Tenant to Landlord hereunder which is not paid when due shall bear interest, to the extent legally enforceable, at the rate not exceeding the higher of (i) ten percent (10%) per annum or (ii) five percent (5%) per annum plus the rate prevailing on the 25th day of the month preceding the date of execution of this Lease established by the Federal Reserve Bank of San Francisco on advances to member banks under Section 13 or 13(a) of the Federal Reserve Act as in effect as of such date from the date due and payable until the same shall have been fully paid. Neither the accrual nor the payment of any such interest shall be deemed to excuse or cure any breach or Event of Default under this Lease on the part of Tenant. (b) TENANT HEREBY ACKNOWLEDGES THAT THE LATE PAYMENT BY TENANT TO LANDLORD OF RENT AND OTHER SUMS DUE HEREUNDER WILL CAUSE LANDLORD TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS MAY INCLUDE, BUT ARE NOT LIMITED TO, ADMINISTRATIVE, PROCESSING AND ACCOUNTING CHARGES, AND LATE CHARGES WHICH MAY BE IMPOSED ON LANDLORD BY THE TERMS OF ANY GROUND LEASE, MORTGAGE OR TRUST DEED COVERING THE PREMISES. ACCORDINGLY, IF ANY INSTALLMENT OF RENT, ADDITIONAL RENT, OR ANY OTHER SUM DUE FROM TENANT SHALL NOT BE RECEIVED BY LANDLORD OR LANDLORD'S DESIGNEE WITHIN THREE (3) DAYS AFTER NOTICE (VERBAL OR WRITTEN) FROM LANDLORD, THEN TENANT SHALL PAY TO LANDLORD, IN ADDITION TO THE INTEREST PROVIDED ABOVE, A LATE CHARGE IN THE AMOUNT OF $150.00 AS LIQUIDATED DAMAGES. THE PARTIES AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COST LANDLORD WILL INCUR BY REASON OF LATE PAYMENT BY TENANT. ACCEPTANCE OF SUCH LATE CHARGE BY LANDLORD SHALL IN NO EVENT CONSTITUTE A WAIVER OF TENANT'S DEFAULT WITH RESPECT TO SUCH OVERDUE AMOUNT, NOR PREVENT LANDLORD FROM EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES GRANTED HEREUNDER. [INITIALS APPEAR HERE] [INITIALS APPEAR HERE] ----------------------- ----------------------- Tenant's Initials Landlord's Initials 21.8. Inurement The provisions of this Lease shall bind and inure to the benefit of the parties originally named herein and their successors and assigns. The foregoing sentence shall not be deemed to authorize any succession, assignment, subletting or other transfer of Tenant's interest herein in violation of Paragraph 16 hereof. 21.9. Relationship The parties intend by this Lease to establish the relationship of landlord and tenant only, and do not intend to create a partnership, joint venture, joint enterprise, or any business relationship other than that of landlord and tenant. 16 21.10. Waivers No waiver or failure by Landlord or Tenant to enforce any provision of this Lease shall be deemed to be a waiver of any other provision of this Lease or of any subsequent breach of the same or any other provision. If Landlord accepts rent or performance of any other obligation by Tenant, Landlord shall not be deemed to waive or forgive any breach or Event of Default unless Landlord expressly so states in writing. 21.11. Severability If any provision of this Lease, or the application thereof to any person or circumstance, shall to any extent be or become invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valued and enforced to the fullest extent permitted by law. 21.12. Miscellaneous Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. 21.13. Authority Tenant agrees to furnish Landlord, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the authorization of Tenant to enter into this Lease. 21.14. No Offer Because the Premises are on the open market and are presently being shown, this Lease shall not be treated as an offer, but the Premises shall be subject to prior lease and offer subject to withdrawal or nonacceptance by Landlord or to other use of the Premises without notice, and this Lease shall not be valid or binding unless and until accepted by Landlord in writing and a fully executed copy delivered to both parties hereto. 21.15. Force Majeure If either party, except as otherwise herein specifically provided, shall be delayed or hindered in or prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. The provisions of this paragraph shall not operate to excuse Tenant from the prompt payment of minimum rent, additional rent or any other payments required by the terms of this Lease. 21.16. Broker's Commission Tenant represents and warrants that there are no claims for brokerage commissions or finders' fees incurred by it in connection with the execution of this Lease, except for the commission payable to CB Commercial Real Estate Group, Inc., if any, upon execution and delivery of this Lease, which fees shall be payable by Landlord, and each of the parties agrees to indemnify the other against and hold it harmless from all liabilities arising from any other such claim incurred by it. 21.17. Recording Tenant shall not record this Lease; however, a short-form memorandum of lease may be recorded with the written consent of Landlord. 21.16. Furnishing of Financial Statements Upon Landlord's written request, Tenant shall promptly furnish Landlord, from time to time as reasonably required by a Mortgagee, prospective Mortgagee, or prospective purchaser of Landlord's interest in the Master Premises, with financial statements reflecting Tenant's current financial condition. Landlord agrees to keep financial statements furnished by Tenant in strict confidence. Landlord will not, without the prior consent of Tenant, release, or divulge the contents of, Tenant's financial statements to anyone other than Landlord's authorized management agents, Mortgagee(s), potential Mortgagees authorized by Landlord, and potential purchasers of the Master Premises, authorized by Landlord, with which Landlord has a Purchase and Sale Agreement which is subject to approval by the Purchaser of the financial condition of the tenants of the Master Premises. 21.19. Safety and Health Tenant covenants at all times during the term of the Lease to comply with the requirements of the Occupational Safety and Health Act of 1970, 20 U.S.C. Section 651 et seq. and any analogous legislation in California (collectively, the "Act"), to the extent that the act applies to the Premises and any activities therein. Without limiting the generality of the foregoing, Tenant covenants to maintain all working areas, all machinery, structures, electrical facilities and the like upon the Premises in a condition that fully complies with the requirements of the Act, including such requirements as would be applicable with respect to agents, employees or contractors of landlord who may from time to time be present upon the Premises, and Tenant agrees to indemnify and hold harmless Landlord from any liability, claims or damages arising as a result of a breach of the foregoing covenant and from all costs, expenses and charges arising therefrom, including, without limitation, attorneys' fees and court costs incurred by Landlord in connection therewith, which indemnity shall survive the expiration or termination of this Lease. 17 21.20. Interstate Land Sales Act Landlord, recognizing that the Premises consist of space in an industrial building and that the Leased Premises are either completed or that Landlord has herein obligated itself to complete construction of the Premises within a two-year period from the date of this Lease (except for such Tenant's work, furniture, furnishings and fixtures as Tenant is to supply), believes that this Lease is exempt from the Interstate Land Sales Full Disclosure Act (see, 15 --- USC (S)(S) 1701-1720) pursuant to the exemption provided by paragraph 1403(a)(3) thereof, which reads as follows: The provisions of this chapter shall not apply (to) . . . (3) the sale or lease of any improved land on which there is a residential, commercial, or industrial building, or to the sale or lease of land under a contract obligating the seller to erect such a building thereon within a period of two years... Tenant, by its signature hereto, acknowledges that it has read and understands such section. 21.21. Nondisclosure of Lease Terms Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information. Disclosure of the terms hereof could adversely affect the ability of Landlord to negotiate other leases with respect to the building and impair Landlord's relationship with other tenants of the Building. Tenant agrees that it, and its partners, officers, directors, employees and attorneys shall not disclose the terms and conditions of this Lease to any other person without the prior written consent of Landlord. It is understood and agreed that damages would be an inadequate remedy for the breach of this provision by any party hereto and each of the parties hereto shall have the right to specific performance of this provision and to injunctive relief to prevent its breach or continued breach. 21.22. Changes Requested by Lender Tenant shall not unreasonably withhold its consent to changes or amendments to this Lease requested by Mortgagee, so long as such changes do not alter the basic business terms of this Lease or otherwise materially diminish the rights or materially increase the obligations of Tenant. 21.23. Nondiscrimination Tenant herein covenants by and for itself, its heirs, executors, administrators, personal representatives, successors and assigns, and all persons claiming under or through it, and this Lease is made and accepted upon and subject to the following conditions: That there shall be no discrimination against or segregation of any person or group of persons, on account of race, religion, color, creed, sex, national origin, or ancestry, in the leasing, subleasing, transferring, use, occupancy, tenure or enjoyment of the Premises herein leased nor shall tenant himself, or any person claiming under or through him, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees of the Leased Premises. 21.24. Entire Agreement This Lease and the Exhibits hereto contain all agreements of the parties with respect to any matter mentioned herein or therein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties in interest at the time of the modification, any such modification to be subject to the express written consent of the first mortgagee. 22. SPECIAL PROVISIONS Special provisions of this Lease (in the form of addenda) are attached hereto and made a part hereof as follows: (1) Basic Lease Information (2) First Addendum to Lease (3) Exhibit A - Description of Master Premises (4) Exhibit B - Memorandum Confirming Commencement (5) Exhibit C - Construction Addendum (6) Exhibit D - Sign Criteria Landlord and Tenant, respectively, have executed this Lease as of the date first above written LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California Corporation By: Russell/Sutro, a California limited partnership Its: general partner By: /s/ Sydney Selati ------------------------- Sydney Selati Its: Chairman By: /s/ Donald E. Russell -------------------------- Donald E Russell Its: general partner By: /s/ Kevin J. Ralphs ------------------------- Kevin J. Ralphs Its: Company Secretary 18 First Addendum to Lease This First Addendum to Lease by and between PHOENIX BUSINESS CENTER PARTNERS, a California Limited Partnership ("Landlord") and Barbeques Galore, Inc., a California corporation ("Tenant"), amends as follows that certain Lease Agreement dated March 6, 1992, by and between Landlord and Tenant, all relating to the real property located in Orange County, California, described in the Lease, as: 23. RENT Tenant shall pay rent, in the manner described in Paragraph 3.2, in accordance with the following schedule:
Month(s) Rate per square foot -------- -------------------- 1 $ 0.00 NNN 2 - 22 $ 0.43 NNN 23 - 30 $ 0.215 NNN 31 - 65 $ 0.46 NNN
24. OPTION TO EXTEND Provided Tenant is not then in default, and has not been in monetary default beyond the cure period(s) provided in the Lease during the lease term, Tenant shall have the right to extend the lease term for one (1) period of five (5) additional years. Tenant shall exercise this option to extend by delivering written notice (of its election to exercise the option) to Landlord at least one hundred twenty (120) days in advance of the expiration of the lease term. Any extension of the lease term shall be subject to all of the terms and conditions set forth in the Lease, except that the base monthly rent schedule shall be adjusted to reflect the market terms and conditions prevailing at the commencement of the extension period. This option to extend is personal to Tenant, and may not be (1) assigned voluntarily or involuntarily by Tenant to any other entity or person, nor (2) exercised by any other entity or person, without the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion, provided, however, this option shall automatically be assigned to the assignee in an assignment of the Lease which Landlord consents to, or in an assignment of the Lease to which Landlord's consent is not required under this Lease. 25. HAZARDOUS SUBSTANCES Tenant shall use the Premises solely for the uses set forth in the Basic Lease Information on page 1 and shall not use the Premises for any other purpose without obtaining the prior written consent of Landlord. Tenant warrants that it shall not make any use of the Premises which may cause contamination of the soil, the subsoil or ground water. Tenant shall not do, bring, or keep anything in or about the Premises that will cause a cancellation of any insurance covering the Premises. If the rate of any insurance carried by Landlord is increased as a result of Tenant's use, Tenant shall pay to Landlord within thirty (30) days before the date Landlord is obligated to pay a premium on the insurance, or within ten (10) days after Landlord delivers to Tenant a certified statement from Landlord's insurance carrier stating that the rate increase was caused solely by an activity of Tenant on the premises as permitted in this Lease, whichever date is later, a sum equal to the difference between the original premium and the increased premium. Tenant will not use, generate, manufacture, produce, store, release, discharge or dispose of, on, under or about the Premises or transport to or from the Premises any Hazardous Material (as defined below) or allow its employees, agents, contractors, invitees or any other person or entity to do so. Tenant shall keep and maintain the Premises in compliance with, and shall not cause or permit the Premises to be in violation of any Environmental Law (any and all federal, state or local laws, ordinances, rules or regulations pertaining to health, industrial hygiene or the environmental conditions on, under or about the Premises including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et. seq., ("CERCLA"), the Resource -------- Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 et. seq. ------- ("RCRA"), the Clean Air Act, 42 U.S.C. Section 7401 et. seq., the Porter -------- Cologne Water Quality Control Act, California Water Code Section 13000 et. --- seq., California Hazardous Waste Control Act, Health and Safety Code ---- Section 25100 et. seq., Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health and Safety Code Section 25300 et. seq., -------- those laws described in paragraph 11 hereof and implementing regulations and rules, all as amended, are herein collectively referred to as "Environmental Laws") (the "Environmental Laws" and the "Plan" are hereinafter collectively referred to as the "Regulations"). Tenant shall surrender the Premises in as good a condition as when received by Tenant, reasonable wear and tear excepted, it being specifically agreed to by Landlord and Tenant that the presence at expiration or termination of this Lease of Hazardous Materials which are generated, released, discharged or disposed of by Tenant on, under or about the Premises, shall not be "reasonable wear and tear" as that term is used in this lease. Landlord and its representatives shall have the right, at the following time to enter the Premises and to conduct any testing, monitoring and analysis for Hazardous Materials: 19 (i) Once every three (3) months for the first year after Tenant introduces Hazardous Materials to the Premises pursuant to this Addendum and once in every twelve (12) months thereafter; (ii) At any time during the term of this Lease if, in Landlord's reasonable judgment, Tenant is breaching its obligations under this provision. Tenant shall give immediate written notice to Landlord of: a. Any action, proceeding or inquiry by any governmental authority (including, without limitation, the California State Department of Health Services, the State of any Regional Water Quality Control Board, the Bay Area Air Quality Management District or any local governmental entity) with respect to the presence of any Hazardous Material on the Premises or the migration thereof from or to other property; b. All demands or claims made or threatened by any third party against Tenant or the Premises relating to any loss or injury resulting from any Hazardous Materials; and c. Any spill, release, discharge or nonroutine disposal of Hazardous Materials that occurs with respect to the Premises or Tenant's operations, including, without limitation, those that would constitute a violation of Health and Safety Code Section 25249.5 or any other Environmental Law; d. All matters of which Tenant is required to give notice of pursuant to Section 25359.7 of the California Health and Safety Code; and e. Tenant's discovery of any occurrence or condition on, under or about the Premises or any real property adjoining or in the vicinity of the Premises or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of the Premises under any Environmental Law including without limitation, Tenant's discovery of any occurrence or conditions on any real property adjoining or in the vicinity of the Premises that could cause the Premises or any part thereof to be classified as "border-zone property" under the provisions of California Health and Safety Code Sections 25220 et.seq. or any regulation adopted in accordance therewith, or to be ------- otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Premises under any Environmental Law. Landlord shall have the right to join and participate in, as a party if it so elects, any legal proceedings or actions affecting the Premises initiated in connection with any Environmental Law and have its attorneys' fees in connection therewith paid by Tenant. Tenant shall indemnify and hold harmless Landlord, its directors, officers, employees, agents, successors and assigns (collectively "Landlord") from and against any and all claims arising from Tenant's use of the Premises for the conduct of its business or from any activity, work or other things done or suffered by the Tenant in or about the Buildings and shall further indemnify and hold harmless Landlord against and from any and all claims directly arising from breach or default in performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or negligence of the Tenant, or any officer, agent, employee, guest or invitee of Tenant, and from all and against all costs, attorneys' fees, expenses and liabilities incurred in or about any such claim or any action or proceeding brought thereon, including, with limitation, claims, fines, judgments, penalties, losses, damages, costs, expenses or liabilities (including attorneys' fees and costs) directly or indirectly arising, in any manner whatsoever, out of or attributable to the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a Hazardous Material on, under or about the premises (collectively a "Release") including, without limitation, (i) all foreseeable consequential damages including without limitation loss of rental income and diminution in property value; and (ii) the costs of any investigation, monitoring, removal, restoration, abatement, repair, cleanup, detoxification or other ameliorative work of any kind or nature required by any governmental agency having jurisdiction thereof or Landlord (collectively "Remedial Work") and the preparation and implementation of any closure, remedial or other required plans. This Indemnity shall survive the expiration or termination of this Lease. In any action or proceeding brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord. In addition, Tenant, as a material part of the consideration to Landlord, hereby assumes all risk or damage to property or injury to persons, in upon or about the Premises, except those resulting from the acts or omissions of Landlord or its authorized representatives. In the event of the occurrence of a Release, Tenant shall, at its sole expense and within thirty (30) days after demand by lessor (or such shorter period of time as may be required under applicable laws or by any governmental entity having jurisdiction thereof) commence to perform and thereafter diligently prosecute to completion such Remedial Work as is necessary to restore the Premises to the condition existing prior to the introduction of any Hazardous Materials. All such Remedial Work shall be performed in conformance with the requires of Landlord and all applicable Environmental Laws. All Remedial Work shall be performed by one or more contractors, approved in advance in writing by Landlord, and under the supervision of a consulting engineer approved in advance in writing by Landlord. All costs and expenses of such Remedial Work shall be paid by Tenant including, without limitation, to the charges of such contractor(s) and/or the consulting engineer, and Landlord's reasonable attorneys' fees and costs incurred in connection with monitoring or review of such Remedial Work. In the event Tenant shall fail to timely commence, or cause to be commenced, or fail to diligently prosecute to completion such Remedial Work, Landlord may, but shall not be required to, cause such Remedial Work to be performed and all costs and expenses thereof, or incurred in connection therewith, shall become immediately due and payable. The term "Hazardous Material" shall include without limitation: 20 a. Those substances included within the definitions of "hazardous substances", "hazardous materials", "toxic substances", or "solid waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et. seq. and in the regulations promulgated pursuant to said laws; ------- b. Those substances defined as "hazardous wastes" in Section 25117 of the California Health & Safety Code, or as "hazardous substances" in Section 25316 of the California Health & Safety Code, and in the regulations promulgated pursuant to said laws; c. Those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or successor agency) as hazardous substances (40 CFR Part 302 and amendments thereto); d. Such other substances, materials and wastes which are or become regulated under applicable local, state or federal law, or the United States government, or which are classified as hazardous or toxic under federal, state or local laws or regulations Including without limitation California Health and Safety Code, Division 20, and California Administrative Code, Division 4; e. Any material, waste or substance which is (A) petroleum, (B) asbestos, (C) polychlorinated biphenyls, (D) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections 1251 et. seq. ------- (33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (E) flammable explosives; or (F) radioactive materials. Landlord agrees to hold harmless Tenant from any claims, costs, or damages, including without limitation reasonable attorneys fees, caused by any hazardous materials existing within the Master Premises as of the date of execution of this Lease. LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California corporation By: Russell/Sutro, a California limited partnership Its: general partner By: /s/ Sydney Selati ------------------------- Sydney Selati Its: Chairman By: /s/ Donald E. Russell ------------------------ Donald E. Russell Its: general partner By: /s/ Kevin J. Ralphs ------------------------- Kevin J. Ralphs Its: Company Secretary 21 Exhibit A Description of Premises Legal Description of Master Premises: Parcels 8 and 12, as per Map filed in Book 112, Pages 17 through 25, inclusive, of Parcel Maps, in the Office of the County Recorder of Orange County, California, and now known as Parcel 1, in the City of Irvine, County of Orange, State of California, as shown on Parcel Map filed in Book 159, Pages 14 through 15, inclusive, of Parcel Maps in the Office of the County Recorder of said County. Site Plan of Master Premises: [DIAGRAM OF 15041 BAKE PARKWAY APPEARS HERE] Description of Premises: 15041 Bake Parkway (Building 1) Suite A and a portion of Suite B Irvine, California Landlord [INITIALS APPEAR HERE] Tenant [INITIALS APPEAR HERE] ----------------------- ----------------------- 22 Exhibit B Memorandum Confirming Commencement Date PHOENIX BUSINESS CENTER PARTNERS, a California limited partnership ("Landlord") and Barbeques Galore, Inc., a California Corporation ("Tenant") have executed a Lease dated March 6, 1992 for premises located at 15041 Bake Parkway, Suite A, Irvine, California. As of __________, Tenant has completed an inspection of the Premises. Tenant has taken receipt of keys to the Premises, and has taken possession of the premises as of _________. Tenant hereby accepts the Premises, with the exception of the incompleted items, latent defects and unsatisfactory punch list items specified during inspection which shall be corrected by Landlord's contractor. Said parties hereby confirm that the commencement date for the Lease is ________ and that this instrument is the confirmatory memorandum. LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California corporation By: Russell/Sutro, a California limited partnership Its: general partner By: -------------------------- Sydney Selati By: /s/ Donald E. Russell Its: Chairman --------------------------- Donald E. Russell Its: general partner By: -------------------------- Kevin J. Ralphs Its: Company Secretary To be initialed at lease execution: Landlord: [INITIALS APPEAR HERE] Tenant: [INITIALS APPEAR HERE] --------------------------- -------------------------- 23 Exhibit C Construction Addendum The terms and conditions set forth in this Construction Addendum to the Lease dated March 6, 1992 by and between PHOENIX BUSINESS CENTER PARTNERS, a California limited partnership ("Landlord") and Barbeques Galore, Inc., a California corporation ("Tenant") shall prevail should there be any conflict between the terms and conditions set forth in the attached Lease. 1. DEFINITION OF LANDLORD'S WORK As used herein the term "Landlord's Work" shall mean construction or installation of the improvements for the Premises described on the preliminary plans and outline specifications, which are attached hereto as Exhibit One to Exhibit C and incorporated herein by reference. Landlord shall construct Landlord's Work according to plans and specifications to be approved in writing by Landlord and Tenant in accordance with Paragraph 2 of this Exhibit C, which plans and specifications shall be substantially in accordance with Exhibit One to Exhibit C unless otherwise agreed in writing by Landlord and Tenant. 2. APPROVAL OF PLANS a. Cooperation Throughout the process of preparing plans and specifications and of obtaining necessary governmental permits and approval, each party shall act diligently and in good faith and shall cooperate in whatever manner may be required with the other and with governmental agencies, to the end that the procedures this Section 2 prescribes are completed as smoothly and quickly as possible. b. Approval of Final Plans and Specifications Tenant at its cost shall furnish Landlord the information Landlord requires to prepare plans and specifications for the improvements Tenant desires for the Premises. After receipt of Tenant's information, Landlord shall cause plans and specifications to be prepared and submit them to Tenant for approval. Tenant shall then have two (2) business days in which to notify Landlord of any changes Tenant desires. If Landlord receives no such notice within said period, Tenant's approval shall be conclusively presumed. c. Distribution of Approved Final Plans and Specifications When Landlord and Tenant agree upon the final plans and specifications, each party shall sign the pages of four (4) sets thereof and one (1) set shall be delivered to Tenant and three (3) delivered to Landlord. d. Changes (i) If any changes of a material nature are required by any governmental authority to the plans and specifications approved by Landlord and Tenant, whether or not as a prerequisite to the granting of any permit necessary for the construction of the improvements or the issuance of an occupancy permit for the Premises, Landlord shall promptly notify Tenant in writing of the required changes. If Tenant does not object in writing to such changes within two (2) business days Tenant's approval thereof shall be conclusively presumed. (ii) If Tenant requests any changes to the approved plans and specifications at any time after they have been signed by the parties as set forth in Section 2(c) above, and Landlord agrees in writing to such changes, Tenant shall reimburse Landlord for Landlord's Costs related to such changes. Tenant shall pay such amount within ten (10) business days of approval by Landlord of such changes. As used herein "Landlord's Costs" shall include, without limitation: (a) all architectural and engineering expenses; (b) the cost of all permits and inspection fees relating to such change(s); (c) Landlord's contractor's price for effectuating the changes plus ten percent (10%) of said price. 3. DELAY BY TENANT If the completion of Landlord's Work in Tenant's Premises is delayed by Tenant's failure to comply with the provisions of this Exhibit C, or by Tenant's requirement of unusual materials or installations, or by changes in the work ordered by Tenant or by extra work ordered by Tenant, then the rent shall commence to accrue on the Commencement Date as specified in Item #10 of the Basic Lease Information and in Paragraph 2.1 of the Lease. 4. CONSTRUCTION AND COMPLETION Promptly following the signing of final plans and specifications by Landlord and Tenant, Landlord shall apply for and use its best efforts to obtain the necessary building permits for construction of the improvements. Promptly following issuance of the necessary building permits, Landlord shall commence construction in accordance with the final plans and specifications and shall use its best efforts substantially to complete Landlord's Work and to tender delivery of the Premises to Tenant on the Commencement Date. 24 5. ACCEPTANCE OF PREMISES By entry into the Premises, Tenant shall be deemed to have acknowledged that Landlord's Work substantially conforms to Exhibit One to Exhibit C, and that the Premises are in good condition and repair and are suitable for Tenant's intended use. Landlord, however, at its cost, will correct any defects or deficiencies in Landlord's Work if Tenant notifies Landlord thereof within thirty (30) days after the Commencement Date. 6. EARLY ENTRY If, prior to substantial completion of Landlord's Work, Tenant desires to enter the Premises in order to install trade fixtures or otherwise prepare the Premises for use, Tenant shall so notify Landlord, specifying the nature of the work ("Tenant's Work") Tenant desires to undertake. If Landlord, in Landlord's sole discretion, determines that prosecution of tenant's Work will not interfere with the prosecution of Landlord's Work, Landlord shall permit Tenant (and Tenant's contractors and agents) to perform Tenant's Work in the Premises. Tenant shall then follow whatever instructions Landlord may give concerning unloading and storage of materials, scheduling phases of work, coordination of trade and cleaning up. Tenant shall pay Landlord on demand whatever amount Landlord equitably determines is chargeable to Tenant for utilities used or consumed in the performance of Tenant's Work. If at any time Landlord determines that the prosecution of Tenant's Work interferes with the conduct of Landlord's Work, Tenant shall suspend Tenant's Work until completion of Landlord's Work. LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California corporation By: Russell/Sutro, a California limited partnership Its: general partner By: /s/ Sydney Selati ------------------------ Sydney Selati Its: Chairman By: /s/ Donald E. Russell -------------------------- Donald E Russell Its: general partner By: /s/ Kevin J. Ralphs ------------------------ Kevin J. Ralphs Its: Company Secretary 25 Exhibit One to Exhibit C Barbeques Galore Phoenix Business Center General Notes & Outline Specifications 1. All existing floorcovering to be removed and slab prepared for new floorcovering as follows: Office areas: 30 ounce, 10 year rated carpet over carpet pad Room 105: Vinyl Composition Tile (VCT) Restrooms: Sheet vinyl Stairs: Vinyl Composition Tile (VCT) Warehouse: Concrete 2. Existing ceiling tile to be removed and replaced. Existing ceiling grid to be painted, and repaired/replaced as required. 3. Existing light fixtures and H.V.A.C. grills to be removed, cleaned, and re-installed. 4. All new and existing partitions in the office area shall be sanded to a smooth finish prior to receiving flat paint to cover. 5. All existing fixtures, windows, window mullions, hardware, etc. to be cleaned, and repaired if necessary. 6. New +/-40' truck ramp to be installed at existing truck dock position. (not shown on floor plan) 7. (2) @ +/-12' x 12' cased openings to be installed in existing 24' high wall adjacent to truck docks. [INITIALS [INITIALS Landlord: APPEAR HERE] Tenant: APPEAR HERE] -------------- -------------- 26 [INITIALS [INITIALS Landlord: APPEAR HERE] Tenant: APPEAR HERE] -------------- -------------- [DIAGRAM APPEARS HERE] 27 [INITIALS [INITIALS Landlord: APPEAR HERE] Tenant: APPEAR HERE] -------------- -------------- [DIAGRAM APPEARS HERE] 28 Exhibit D Sign Criteria This criteria establishes the uniform policies for all Tenant identification signs visible outside of the Premises. This criteria has been established for the purpose of maintaining the overall appearance of Phoenix Business Center. Conformance will be strictly enforced. Any sign installed that does not conform to the sign criteria will be brought into conformity at the expense of the Tenant. A. General Requirements 1. A drawing of all proposed Tenant signs indicating copy, sizes, color, and locations shall be submitted to Landlord, prior to fabrication of any sign. Landlord shall respond to Tenant within ten (10) business days of Landlord's receipt of a sign submittal from Tenant. In the event Landlord does not respond within said period, Tenant's sign will be deemed approved by Landlord provided it meets the requirements stated in Paragraph B 1, 2, 3 and 5 of this Exhibit D. 2. Landlord shall approve all copy and/or logo design and color, prior to the fabrication of the sign. 3. Landlord shall direct the placement of all Tenant signs and the method of attachment to the building. 4. Tenant shall be responsible for the fulfillment of requirements for this criteria. 5. Sign fabrication and installation shall be paid for by the Tenant. B. General Specifications 1. Tenant shall be allowed one sign regardless of size of occupancy. 2. All signs to be of individual letters and logos with a minimum of 2" depth. No cans, frames or panels are permitted. Materials to be polystyrene backs with plexiglass or high impact faces or equal. 3. No electrical or audible signs will be allowed. 4. Upon the removal of any sign, any damage to the building will be repaired by the Tenant. 5. Except as provided herein, no advertising placards, banners, pennants, names, insignia, trademarks, or other descriptive material shall be affixed or maintained upon any automated machine, glass panes of the building, landscaped areas, streets, or parking areas. Please contact Landlord for approvals and for assistance in the fabrication and installation of signs. LANDLORD: TENANT: PHOENIX BUSINESS CENTER PARTNERS, Barbeques Galore, Inc., a California Limited Partnership a California corporation By: Russell/Sutro, a California limited partnership Its: general partner By: /s/ Sydney Selati ------------------- Sydney Selati By: /s/ Donald E. Russell Its: Chairman ------------------------ Donald E Russell Its: general partner By: /s/ Kevin J. Ralphs ------------------- Kevin J. Ralphs Its: Company Secretary 29 FIRST AMENDMENT TO LEASE BETWEEN WEYERHAEUSER MORTGAGE COMPANY AND BARBEQUES GALORE, INC. This First Amendment to Lease (this "Amendment") is dated as of April 11, 1995, by and between WEYERHAEUSER MORTGAGE COMPANY, a California corporation ("Landlord"), as successor in interest to Phoenix Business Center Partners, and BARBEQUES GALORE, INC., a California corporation ("Tenant"). RECITALS -------- A. Landlord and Tenant entered into that certain Lease dated March 6, 1992 in that project known as the Phoenix Business Center, located at 15041 Bake Parkway, Irvine, California 92718 (the "Lease"). B. Landlord and Tenant desire to amend the Lease as hereinafter provided. AGREEMENT --------- Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Lease. Now, therefore, Landlord and Tenant hereby covenant and agree as follows: 1. Rentable Area of Premises. Section 1.4 of the Lease. Effective May 1, 1995, ------------------------- or upon completion of tenant improvements, the Rentable Area of Premises shall be increased to 33,756 square feet. 2. Lease Term. Section 2.1 of Lease. The term of the Lease is hereby extended ---------- to January 31, 2000. 3. Monthly Rental Rate. Section 3.1 of Lease. Effective May 1, 1995 or upon ------------------- completion of tenant improvements the new base rental rate for the Premises shall be as follows: May 1, 1995 - January 31, 1998 $15,527.76 NNN May 1, 1996 - January 31, 2000 $16,148.78 NNN 4. Tenant's Share (of Taxes and Common Expenses). Section 4.1.2. of Lease. --------------------------------------------- Effective May 1, 1995 or upon completion of tenant improvements and in accordance with item 12 of the Basic Lease Information made a part of the Lease, Tenant's Share shall be 9.48%. 5. Security Deposit Section 29 of Lease. Effective February 1, 1998, Landlord ---------------- agrees to refund tenant's security deposit in the amount of $11,748.46. 6. Tenant Improvements Landlord will provide the following tenant ------------------- improvements; 1) new carpet and paint in Suite B, expansion premises, 2) secure premises from Suite C, 3) demise warehouse and office, 4) create an opening into warehouse and office from Suite A and 5) Landlord provides that additional leased space and construction work will meet all current government regulations and codes. 7. Option to Expand Tenant shall have an option to expand into the adjacent ---------------- 10,497 square feet currently occupied by Western Digital, upon the expiration of Western Digital's lease - estimated to be March 31, 1998. Tenant must give Landlord written notice of intent to exercise said option no later than September 30, 1997. If the space becomes available prior to the estimated expiration date, Landlord will offer the space to Tenant at the same rate then being paid by the Tenant on their existing space. Tenant shall have five business days to respond to Landlord's offer in writing. If no response is received, it will be deemed a rejection of Landlord's offer and the Landlord will have the right to market the space with no further obligation to Tenant. First Amendment to Lease between WMC and BBQ Page 2 8. Miscellaneous. This Amendment may be executed in any number of ------------- counterparts, each of which shall he considered an original, but all of which together shall constitute one and the same instrument. Each party hereto shall execute such further instruments as may he necessary to give full effect to the agreements set forth in this Amendment. Except as set forth in this First Amendment to Lease, all provisions of the Lease shall remain unchanged and in full force and effect. In witness whereof, Landlord and Tenant have executed this First Amendment to Lease as of the year and date first above written. LANDLORD TENANT WEYERHAEUSER MORTGAGE COMPANY, BARBEQUES GALORE, INC., a California corporation a California corporation By: /s/ E A Gallagher By: /s/ John Damiano -------------------------- ------------------------ Elizabeth A. Gallagher Name: John Damiano Vice President ---------------------- Title: President --------------------- 4. Description of Premises. Provided Landlord delivers Suite C to Tenant ----------------------- in accordance with Section 7 below, Exhibit A of the Base Lease shall be deleted --------- in its entirety and replaced with Exhibit A-1 attached hereto. ----------- 5. Option to Expand- Provided Landlord delivers Suite C to Tenant in ---------------- accordance with Section 7 below, Section 7 of Amendment No.1 shall be deleted in --------- --------- its entirety. 6. Option to Extend. ---------------- 6.1 Landlord hereby grants to Tenant one (1) option to extend (the "Option to Extend") the Term of this Lease for a period of two (2) years and four (4) months (the "Extended Term"), commencing February 1, 2000 (the "Extended Term Commencement Date") and terminating May 31, 2002, on the same terms and conditions contained in this Lease, except that (a) there shall be no further option to extend the term of this Lease, (b) rent for the Extended Term shall be adjusted as described hereinbelow and (c) the Additional Payment shall be applied to rent due for the month immediately following the month in which Tenant timely delivers to Landlord the Extension Notice (as defined and pursuant to Section 6.2 below). ----------- 6.2 Tenant shall deliver to Landlord prior written notice (the "Extension Notice") of Tenant's election to exercise its Option to Extend no later than October 1, 1997. 6.3 All rights of Tenant under the provisions of this Section 6 shall --------- terminate and be of no further force or effect, notwithstanding Tenant's due and timely exercise of the Option to Extend, if at any time during the Term of this Lease Tenant defaults in the performance of any covenant, obligation or agreement to be performed by Tenant under this Lease. 6.4 In the event Tenant timely exercises the Option to Extend as herein provided, rent for the Premises shall be adjusted as of the Extended Term Commencement Date to be equal to Twenty-Three Thousand Eight Hundred Ninety-Six and 62/100 Dollars ($23,896.62)($0.54 per square foot per month - $0.54 x 44,253). 6.5 In the event Tenant timely exercises its Option to Extend, then Landlord shall (i) apply the Additional Payment against all rent due for the month immediately following the month in which Tenant timely exercised its Option to Extend, and (ii) abate Three Hundred Fifteen and 21/100 Dollars ($315.21) from Tenant's monthly rent with respect to Unit C, reducing such rent from Five Thousand Three Hundred Fifty-Three and 77/100 ($5,353.77) per month to Five Thousand Thirty-Eight and 56/100 Dollars ($5,038.56) per month for the period commencing on the first (1st) day of the first calendar month following Tenant's timely exercise of its Option to Extend through January 31, 2000. During the Extended Term rent for Suite C shall be adjusted pursuant to Section ------- 6.4 above. - --- 6.6 The Option to Extend is personal to Tenant and shall automatically terminate upon any assignment, transfer, hypothecation or encumbrance of this Lease by Tenant or upon any sublease of all or a part of the Premises. 6.7 In the event that Tenant fails to timely exercise its Option to Extend, Tenant shall be conclusively deemed to have elected not to exercise its Option to Extend and Tenant shall have no further rights under this Section 6. --------- 6.8 Section 24 of the Base Lease is deleted in its entirety. ---------- 7. Delivery of Suite C. Landlord and Tenant acknowledge that Suite C is ------------------- currently occupied by another tenant (the "Other Tenant"). Landlord shall use reasonable efforts to relocate the Other Tenant to the alternative space in the Phoenix Business Center. In the event that Landlord in its reasonable discretion, determines at any time, that Landlord is unable to relocate the Other Tenant, Landlord shall have no liability to Tenant as a result thereof and this Amendment No.2 shall remain in full force and effect, except for such provisions relating to 3 Suite C. Upon relocating the Other Tenant, Landlord shall deliver Suite C to Tenant in As-Is condition, broom swept. 8. General. ------- 8.1 Effect of Amendments. Landlord and Tenant acknowledge that the -------------------- Original Lease, as hereby amended, remains in full force and effect in accordance with its terms. 8.2 Entire Agreement. The Original Lease, as modified herein, ---------------- constitutes the entire understanding between Landlord and Tenant, and can be changed only by a writing executed by Landlord and Tenant. 8.3 Counterparts. If this Amendment No.2 is executed in counterparts, ------------ each is hereby declared to be an original; all, however, shall constitute but one and the same agreement. 8.4 Corporate and Partnership Authority. If Tenant is a corporation ----------------------------------- or partnership, or is comprised of either or both of them, each individual executing this Amendment No.2 for the corporation or partnership represents that he or she is duly authorized to execute and deliver this Amendment No.2 on behalf of the corporation or partnership and that this Amendment No.2 is binding upon the corporation or partnership in accordance with its terms. 8.5 Effective Date. The effective date (the "Effective Date") shall -------------- be the date Landlord delivers possession of Unit C to Tenant in broom swept condition pursuant to Section 7 above. --------- EXECUTION --------- IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment No.2 as of the date first written above. "LANDLORD": "TENANT": BUCKHEAD INDUSTRIAL PROPERTIES, INC. BARBEQUES GALORE, INC., a Maryland corporation a California corporation By: Equitable Real Estate Investment By: /s/ Kevin Ralphs Management Inc., as its agent --------------------------- Name: Kevin Ralphs ---------------------- By: /s/ John Schafer Title: CFO ----------------------------- --------------------- John Schafer Asset Manager 4 EXHIBIT "A-1" DESCRIPTION OF PREMISES SITE PLAN Phoenix Business Center 1 Marconi & 15041 Bake Pkwy + Irvine Spectrum, California [DIAGRAM OF SITE PLAN APPEARS HERE] EXHIBIT "A-1" SECOND AMENDMENT TO LEASE This Second Amendment to Lease (this "Amendment No.2") is made as of the 14th day of April, 1997, by and between BUCKHEAD INDUSTRIAL PROPERTIES, INC., a - ---- Maryland corporation ("Landlord"), as successor-in-interest to PHOENIX BUSINESS CENTER PARTNERS, a California limited partnership (the "Original Landlord") and BARBEQUES GALORE, INC., a California corporation ("Tenant"). This Amendment No.2 amends and modifies the terms and conditions of that certain Phoenix Business Center Multi-Tenant Net Lease dated March 6, 1992, by and between Original Landlord and Tenant (the "Base Lease"), as amended by that certain First Amendment to Lease dated April 11, 1995 ("Amendment No. I"). The Base Lease as amended by Amendment No. I is hereinafter referred to as the "Original Lease." The Original Lease, as hereby amended, is referred to herein as the "Lease." R E C I T A L S --------------- A. Landlord and Tenant previously entered into the Original Lease, which sets forth the terms and conditions relating to Tenant's occupancy of certain premises consisting of thirty-three thousand seven hundred fifty-six (33,756) rentable square feet (the "Premises") located in the Phoenix Business Center, 15041 Bake Parkway, Units A and B, Irvine, California. B. Landlord and Tenant desire to (i) expand the Premises to include an additional ten thousand four hundred ninety-seven (10,497) rentable square feet, (ii) provide an option to extend the term of the Lease, and (iii) to set forth certain other matters of agreement between Landlord and Tenant. C. Capitalized terms which are not otherwise defined in this Amendment No.2 shall have the meanings ascribed to such terms in the Original Lease. A G R E E M E N T ----------------- FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Basic Lease Information. As of the Effective Date (as defined in ----------------------- Section 7.5 below), Items 2, 3, 7 and 9 through 12, inclusive, of the Basic - ----------- Lease Information contained in the Original Lease are hereby deleted and replaced in their entirety as follows: "2. Landlord: The Equitable Life Assurance Society of the United States, a New York corporation 3. Address of Landlord: c/o Compass Management and Leasing 19900 MacArthur Boulevard, Suite 190 Irvine, California 92612 Attention: Stephen R. Lane 7. Section 1.1 Building: 15041 Bake Parkway - Building 1 Suites: A, B and C 9. Section 1.4 Rentable Area of Premises: 44,253 square feet Suite A & B: 33,756 Suite C: 10,497
10. Section 2.1 Term: The term of this Lease commenced on August 22, 1992, and shall expire on January 31,2000. 11. Section 3 1 RENTAL RATE
Suite A and B ------------- Effective Period Monthly Rental (per Annual Rental (per of Rental Rate rentable square foot) rentable square foot) ---------------- --------------------- --------------------- August 22, 1992 - April $11,748.46 ($0.43) $140,981.52 ($5.16) 30, 1995 May 1, 1995 - January 31, 1998 $15,527.76 ($0.46) $186,333.12 ($5.52) February 1, 1998 - January $16,148.78 ($0.48) $193,785.36 ($5.74) 31, 2000 Suite C ------- Effective Period Monthly Rental (per Annual Rental (per of Rental Rate rentable square foot) rentable square foot) ---------------- --------------------- --------------------- Effective Date - January $ 5,353.47 ($0.51) $ 64,241.64 ($6.12) 31, 2000 (See Section 6 of Amendment No.2) 12. Section 4.1.2 Tenant's Share: 12.3%"
2. Rent. Section 23 of the Base Lease is hereby deleted in its entirety. ----- ---------- 3. Additional Payment. As consideration for Landlord to enter into this ------------------ Amendment, Tenant shall deliver to Landlord the sum of Ten Thousand and no/100 Dollars ($10,000.00)(the "Additional Payment"), as additional rent for Unit C, concurrent with Tenant's execution of this Amendment No.2. Notwithstanding the foregoing, in the event that Landlord is unable to deliver Suite C to Tenant in accordance with Section 7 below, a portion of the Additional Payment shall be --------- applied to Tenant's basic monthly rental obligation as set forth herein. In the event Landlord is unable to deliver Suite C to Tenant by June 15,1997, the Additional Payment shall be reduced to Nine Thousand and no/100 Dollars ($9,000.00) and Landlord shall apply One Thousand and no/100 Dollars ($1,000.00) to Tenant's current basic rental obligation. In the event that Landlord is unable to deliver Suite C to Tenant by July 15, 1997, the Additional Payment shall be reduced to Six Thousand and no/100 Dollars ($6,000.00) and Landlord shall apply an additional Three Thousand and no/100 Dollars ($3,000.00) to Tenant's then current basic rental obligation. In the event that Landlord is unable to deliver Suite C to Tenant by September 15, 1997, the Additional Payment shall be reduced to Three Thousand and no/100 Dollars ($3,000.00) and Landlord shall apply an additional Three Thousand and no/100 Dollars ($3,000.00) to Tenant's then current basic rental obligation. 2 EX-11.1 14 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11.1 BARBEQUES GALORE LIMITED AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS
7 months 12 months 3 months 3 months Year ended Year ended ended ended Year ended ended ended June 30, June 30, January 31, January 31, January 31, April 30, April 30, 1995 1996 1997 1997 1998 1997 1998 --------- ---------- ---------- ---------- ---------- -------- ---------- (unaudited) (unaudited) (unaudited) (in A$ thousands, except share and per share data) BASIC EARNINGS Net income (loss) 3,805 3,945 1,557 552 3,531 (700) (787) ====== ====== ====== ====== ====== ====== ====== Weighted average number of ordinary shares outstanding 4,450 4,450 4,073 4,228 2,473 1,844 4,541 ====== ====== ====== ====== ====== ====== ====== Basic earnings per ordinary share $ 0.86 $ 0.89 $ 0.38 $ 0.13 $ 1.43 $(0.38) $(0.17) ====== ====== ====== ====== ====== ====== ====== DILUTED EARNINGS Net income (loss) 3,805 3,945 1,557 552 3,351 (700) (787) Effect of convertible notes - - 56 - 504 - - net of tax ------ ------ ------ ------ ------ ------ ------ Adjusted net income (loss) 3,805 3,945 1,613 552 4,035 (700) (787) ====== ====== ====== ====== ====== ====== ====== Weighted average number of ordinary shares outstanding 4,450 4,450 4,073 4,228 2,473 1,844 4,541 Effect of dilutive securities: Options deemed exercised - - 93 - 41 - - Convertible notes - - 79 - 919 - - Weighted average number of ordinary and ordinary equivalent shares outstanding as adjusted 4,450 4,450 4,245 4,228 3,433 1,844 4,541 ====== ====== ====== ====== ====== ====== ====== Diluted earnings per ordinary share and ordinary equivalent share $ 0.86 $ 0.89 $ 0.38 $ 0.13 $ 1.18 $(0.38) $(0.17) ====== ====== ====== ====== ====== ====== ======
EX-15.1 15 UNAUDITED ADDITIONAL CONSOLIDATED FINANCIAL DATA EXHIBIT 15.1 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS [KPMG LOGO APPEARS HERE] CHARTERED ACCOUNTANTS The KPMG Centre 111 Phillip Street PO Box 207 Telephone: (02) 9895 8444 Parramatta NSW 2150 Parramatta NSW 2124 Facsimile: (02) 9633 2589 Australia Australia DX 8297 PARRAMATTA INDEPENDENT REVIEW REPORT The Board of Directors Barbeques Galore Limited: We have reviewed the accompanying consolidated financial statements of Barbeques Galore Limited and subsidiaries as of January 31, 1997, 1996 and 1995 and for the years then ended. These consolidated financial statements are the responsibility of the company's management. We conducted our review in accordance with auditing standards generally accepted in Australia applicable to review engagements, that are substantially equivalent to standards established by the American Institute of Certified Public Accountants. A review consists principally of applying analytical procedures to financial data and inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles in the United States. /s/ KPMG August 8, 1997 Sydney, Australia [LOGO OF KPMG APPEARS HERE] Barbeques Galore Limited and subsidiaries Consolidated financial statements CONSOLIDATED BALANCE SHEETS
January 31, January 31, January 31, 1995 1996 1997 ASSETS (unaudited) (unaudited) (in A$ thousands, except share and per share data) Current assets: Cash and cash equivalents $ 35 2,441 30 Accounts receivable, net 7,782 8,201 7,350 Receivables from affiliates 1,556 304 362 Inventories 33,571 36,708 33,928 Deferred income taxes 689 1,063 2,472 Prepaid expenses and other current assets 1,083 1,136 1,131 ------- ------- ------- Total current assets 44,716 49,853 45,273 Non-current assets: Receivables from affiliates 400 412 696 Property, plant and equipment, net 13,810 14,519 18,348 Goodwill, net 404 474 1,476 Deferred income taxes 425 486 871 Other non-current assets 2,190 1,800 1,306 ------- ------- ------- Total assets $61,945 67,544 67,970 ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft $ 836 - 1,826 Accounts payable and accrued liabilities 11,099 10,625 13,693 Payables to related parties 494 1,347 1,231 Payables to affiliates - 99 - Current maturities of long-term debt 8,844 9,949 2,964 Current portion of obligations under capital leases 495 829 1,395 Income taxes payable 1,861 1,865 1,612 ------- ------- ------- Total current liabilities 23,629 24,714 22,721 Non-current liabilities: Long-term debt 8,574 8,547 20,718 Convertible notes - - 10,042 Obligations under capital leases, excluding current portion 1,989 3,084 3,516 Other long-term liabilities 1,067 850 808 ------- ------- ------- Total liabilities 35,259 37,195 57,805 ------- ------- ------- Shareholders' equity: Ordinary shares, $3.64 par value; authorized 27,437,853 shares 16,220 16,220 6,720 Additional paid-in capital 14,113 14,113 4,613 Foreign currency translation adjustment 280 313 200 Retained deficit (3,927) (297) (1,368) ------- ------- ------- Total shareholders' equity 26,686 30,349 10,165 ------- ------- ------- Total liabilities and shareholders' equity $61,945 67,544 67,970 ======= ======= =======
See accompanying notes to consolidated financial statements. 1 Barbeques Galore Limited and subsidiaries Consolidated financial statements CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands, except share and per share data) Net sales $ 134,794 138,877 148,369 Cost of goods sold, warehouse, distribution and occupancy costs 90,477 94,899 103,324 --------- -------- -------- Gross profit 44,317 43,978 45,045 Selling, general and administrative expenses 37,081 38,921 40,751 Store pre-opening costs 109 178 239 Relocation and closure costs - - 1,336 --------- -------- -------- Operating income 7,127 4,879 2,719 --------- -------- -------- Equity in income of affiliates, net of tax 696 1,205 379 Interest expense 2,005 2,428 2,236 Other expenses (income) - (2,303) 1,132 --------- -------- -------- Income (loss) before income taxes 5,818 5,959 (270) Income tax expense (benefit) 1,478 496 (822) --------- -------- -------- Net income $ 4,340 5,463 552 ========= ======== ======== Earnings per share: Net income per ordinary share and ordinary share equivalent ($A per share) $ 0.95 $ 1.19 $ 0.13 Weighted average shares outstanding (in thousands) 4,570 4,570 4,348 ========= ======== ========
See accompanying notes to consolidated financial statements. 2 Barbeques Galore Limited and subsidiaries Consolidated financial statements CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign Additional Currency Total Shares Ordinary Paid-In Translation Retained Shareholders' Outstanding Shares Capital Adjustment Deficit Equity ----------- -------- ---------- ----------- -------- ------------- ('000) (in A$ thousands, except share and per share data) Balances at January 31, 1994 (unaudited) 4,450 $16,220 14,113 638 (7,050) 23,921 Net income - - - - 4,340 4,340 Dividends of $0.0911 and $0.1822 per share - - - - (1,217) (1,217) Foreign currency translation adjustment - - - (358) - (358) ------ ------- -------- ----- ------- -------- Balances at January 31, 1995 (unaudited) 4,450 16,220 14,113 280 (3,927) 26,686 Net income - - - - 5,463 5,463 Dividends of $0.2733 and $0.1385 per share - - - - (1,833) (1,833) Foreign currency translation adjustment - - - 33 - 33 ------ ------- -------- ----- ------- -------- Balances at January 31, 1996 (unaudited) 4,450 16,220 14,113 313 (297) 30,349 Net income - - - - 552 552 Dividends of $0.2733 and $0.0911 per share - - - - (1,623) (1,623) Foreign currency translation adjustment - - - (113) - (113) Repurchase of ordinary shares (2,744) (10,000) (10,000) - - (20,000) Issuance of ordinary shares 137 500 500 - - 1,000 ------ ------- -------- ----- ------- -------- Balances at January 31, 1997 1,843 6,720 4,613 200 (1,368) 10,165 ====== ======= ======== ===== ======= ========
See accompanying notes to consolidated financial statements. 3 Barbeques Galore Limited and subsidiaries Consolidated financial statements CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,340 5,463 552 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,392 2,596 4,031 Deferred income taxes (659) (435) (1,794) Amounts set aside to provisions 156 (160) (703) Gain on sale of affiliate - (2,303) - Undistributed income of affiliates (271) 476 (6) Loss (gain) on sale of property, plant and equipment 46 279 707 Debt issue costs - - 1,132 Changes in operating assets and liabilities: Receivables and prepaid expenses (2,206) (1,623) 1,292 Inventories (1,537) (3,062) 3,039 Other assets 780 121 (45) Accounts payable and accrued liabilities 1,722 1,062 2,425 --------- -------- -------- Net cash provided by operating activities 4,763 2,414 10,630 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of affiliate - 2,222 173 Proceeds from sale of property, plant and equipment 602 480 84 Capital expenditures (2,094) (2,120) (6,602) Loan repayments received 524 2,170 320 --------- -------- -------- Net cash provided by (used in) investing activities (968) 2,752 (6,025) --------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt (18,926) (9,884) (4,711) Proceeds from long-term debt 15,417 10,962 19,522 Debt issue costs - - (1,132) Bank overdraft proceeds (repayments) 273 (836) 1,826 Principal payments under capital leases (389) (662) (874) Dividends paid (1,217) (1,833) (1,623) Repurchase of ordinary shares - - (20,000) --------- -------- -------- Net cash (used in) financing activities (4,842) (2,253) (6,992) --------- -------- -------- Effects of exchange rate fluctuations (14) 4 (24) --------- -------- -------- Net increase (decrease) in cash and cash equivalents (1,061) 2,917 (2,411) Cash and cash equivalents at beginning of the year 1,096 35 2,441 Adjustment to opening cash balance arising from deconsolidation of former subsidiary - (511) - --------- -------- -------- Cash and cash equivalents at end of the year $ 35 2,441 30 ========= ======== ========
See accompanying notes to consolidated financial statements. 4 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) DESCRIPTION OF BUSINESS Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an Australian resident company which is involved in the manufacture of barbecues and heaters, and wholesale and retail sales of barbecues, heaters, camping equipment, outdoor furniture, leisure products and related accessories through company-owned and licensed stores in Australia. The Company is also involved in the retailing, through Company-owned and franchised stores, of barbecues, fireplace equipment and accessories in the United States of America. The Company's manufacturing operations are located in Australia. (b) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. (c) INVENTORIES Inventories are comprised of raw materials and stores, work in progress and finished goods. Inventories are valued at the lower of cost or market using the first-in, first-out ("FIFO") method. (d) DERIVATIVE FINANCIAL INSTRUMENTS The Company uses foreign currency forward contracts to offset earnings fluctuations from anticipated foreign currency cash flows. These instruments are marked to market and the results recognized immediately as income or expense. (e) INVESTMENTS IN AFFILIATED COMPANIES Investments in the ordinary shares of 20% to 50% owned companies are accounted for by the equity method. (f) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Plant and equipment under capital leases are initially recorded at the present value of minimum lease payments. The method of depreciation and estimable useful lives over which property, plant and equipment are depreciated are as follows:
Method Years Buildings Straight line 40 Machinery and equipment Straight line 8-12 Leasehold improvements Straight line 5-20 Leased plant and equipment Straight line 3-5
Plant and equipment held under capital leases and leasehold improvements are amortized on a straight line basis over the shorter of the lease term or estimated useful life of the asset. (g) GOODWILL Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is amortized on a straight line basis over the expected periods to be benefited, generally 20 years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows, using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. 5 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) RESEARCH AND DEVELOPMENT, AND ADVERTISING Research and development, and advertising costs are expensed as incurred. Amounts expensed were as follows:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Research and development $ 1,229 1,093 1,070 Advertising $ 6,745 7,218 7,547 ======= ====== ======
(i) INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. (j) SHARE OPTION PLAN The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, in 1996, under which the Company elected to continue following the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for its share option plan. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying share exceeded the exercise price. (k) COMMITMENTS AND CONTINGENCIES Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. (l) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. (n) RENT EXPENSE, SURPLUS LEASED SPACE AND LEASE INCENTIVES The Company leases certain store locations under operating leases which provide for annual payments that increase over the lives of the leases. Total payments under the leases are expensed as incurred over the lease terms. Where premises under a non-cancellable operating lease become vacant during the lease term, a charge is recognized on that date equal to the present value of the expected future lease payments less any expected future sub- lease income. If the Company receives incentives provided by a lessor to enter into an operating lease agreement, these incentives are brought to account as reductions in rent expense over the term of the lease on a straight-line basis. 6 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (o) REVENUE RECOGNITION Revenue (net of estimated returns and allowances) is recognized at the point of shipment for wholesale sales to external customers and the point of sale for retail goods. (p) CASH AND CASH EQUIVALENTS Cash includes cash on hand and at bank. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (q) STORE PRE-OPENING COSTS Store pre-opening costs are expensed when incurred. (r) EARNINGS PER SHARE Earnings per share are computed by dividing net earnings available to ordinary shareholders by the weighted average number of ordinary shares and as appropriate, dilutive ordinary share equivalents outstanding for the period. The calculation of fully diluted earnings per share did not differ significantly from primary earnings per share and has therefore not been presented. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which specifies the computation, presentation and disclosure requirements for earnings per share. This statement is effective for both interim and annual reporting periods ending after December 15, 1997. Had SFAS No. 128 been in effect, "basic" and "diluted" earnings per share would not have been significantly different to those reported in the Consolidated Statements of Operations and hence have not been presented. Pro forma supplementary earnings per share are computed by assuming proceeds from the public offering which will be utilized to repay debt subsequent to the public offering were utilized to repay the debt at the beginning of the applicable period to which earnings per share relates. The weighted average number of ordinary shares outstanding is increased for the number of ordinary shares issued to enable repayment of such debt. Pro forma supplementary earnings per share and weighted average shares outstanding were:
Year ended January 31, 1997 (unaudited) ---------------- Pro-forma supplementary net income per ordinary share and ordinary share equivalent (A$ per share)....................................... $0.30 Pro-forma weighted average shares outstanding (in thousands).................... 5,495 =====
(s) FOREIGN CURRENCY TRANSLATION Foreign currency transactions are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the year end rates. Gains and losses from conversion of monetary assets and liabilities, whether realized or unrealized, are included in income or loss before income taxes as they arise. Assets and liabilities of overseas subsidiaries are translated at year end rates and operating results at the average rates ruling during the year. 7 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2 DERIVATIVE FINANCIAL INSTRUMENTS The notional amount of foreign currency forward contracts used as a means of offsetting fluctuations in the dollar value of foreign currency accounts payable totalled:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Foreign exchange contracts $ 3,789 1,013 4,232 ======= ====== ======
The fair value of these contracts at each period end is not significant. All of the currency derivatives expire within one year and are for United States dollars. The counterparties to the contracts are major financial institutions. The risk of loss to the Company in the event of non- performance by a counterparty is not significant. 3 ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Trade accounts receivable $ 7,487 7,258 6,903 Less: Reserve for doubtful accounts (216) (241) (377) ------- ------ ------ 7,271 7,017 6,526 Receivables from related parties 58 53 125 Other receivables 453 1,131 699 ------- ------ ------ $ 7,782 8,201 7,350 ======= ====== ======
4 INVENTORIES The major classes of inventories are as follows:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Finished goods $ 29,692 32,427 29,470 Work in progress 1,326 2,055 1,778 Raw materials 2,733 2,693 3,116 -------- ------- ------- 33,751 37,175 34,364 Less: Reserve for obsolescence (180) (467) (436) -------- ------- ------- $ 33,571 36,708 33,928 ======== ======= =======
8 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5 INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies consist of 33 1/3 percent of the ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an Australian Group which imports and distributes componentry to the gas and appliance industries, and 50 percent of the ordinary shares of GLG Trading Pte Limited ("GLG"), a Singapore company which acts as a buying office for Barbeques Galore and other third parties. The shareholding in this company was originally 100 percent but was reduced to 50 percent on July 1, 1995 by issuing shares in that company to a Director of GLG who is also the General Manager of that company. The Company also previously held a 50 percent interest in GLG (NZ) Limited ("GLG NZ"). This investment was sold in December 1995 for total consideration of A$2,395,000. A gain on sale of A$2,303,000 has been recognized in the income statement and is included in other expenses (income). Bromic provides liquid petroleum gas cylinders and related products such as manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG supplies cast iron used in the manufacture of burners, hot plates and grills, small assembled barbecues and certain accessories such as tongs and warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits, spare parts and other heating equipment. Sales to affiliated companies are not significant. Interest is also charged on amounts owing from affiliates at commercial rates but is not significant. Amounts owing from affiliates are in relation to cash advances. Prices charged between the Company and its affiliates are set at the level of prices that are charged to unrelated parties. Trading with affiliates for each period and amounts outstanding at each period end are as follows:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Purchases from affiliates: - Bromic $ 3,579 3,616 3,476 - GLG NZ 14 77 188 - GLG Pte Ltd - 4,627 4,922 ------- ------ ------ $ 3,593 8,320 8,586 ======= ====== ====== Dividends received or due and receivable from affiliates - Bromic $ 130 250 175 - GLG NZ 260 1,212 - - GLG Pte Ltd - - 198 ------- ------ ------ $ 390 1,462 373 ======= ====== ======
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Owing to affiliates: - GLG NZ $ - 99 - ======= ====== ====== Receivable from affiliates: - Bromic $ 522 716 863 - GLG NZ 1,434 - 195 ------- ------ ------ $ 1,956 716 1,058 ======= ====== ======
9 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5 INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Investment in affiliates $ 1,052 638 491 ======= ====== ======
Investments in affiliates are included in the balance sheet as other non-current assets. As the shares of these entities are not traded, the investment in these companies is carried at the equity accounted value representing cost plus the Company's share of undistributed profits. The balance date of all affiliates is June 30. Combined summarized financial data at their most recent balance dates are as follows:
June 30, June 30, June 30, 1995 1996 1997 (in A$ thousands) Current assets $ 13,974 7,229 6,925 Current liabilities 13,734 4,778 3,666 -------- ------- ------- Working capital 240 2,451 3,259 Property, plant and equipment, net 6,131 1,307 1,215 Other assets 389 549 408 Long-term debt (4,261) (2,498) (2,412) -------- ------- ------- Shareholders' equity $ 2,499 1,809 2,470 ======== ======= ======= Sales $ 37,049 22,926 18,034 ======== ======= ======= Gross profit $ 11,983 9,025 4,637 ======== ======= ======= Net income $ 2,131 1,484 963 ======== ======= =======
6 PROPERTY, PLANT AND EQUIPMENT
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Land and buildings $ 3,198 3,198 3,198 Machinery and equipment 13,363 14,023 15,453 Leasehold improvements 2,581 2,902 6,110 Assets under capital leases 2,981 5,036 6,912 -------- -------- -------- 22,123 25,159 31,673 Less: Accumulated depreciation/amortization (8,313) (10,640) (13,325) -------- -------- -------- $ 13,810 14,519 18,348 ======== ======== ========
10 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7 GOODWILL
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Goodwill $ 543 654 1,704 Less: Accumulated amortization (139) (180) (228) ----- ---- ----- $ 404 474 1,476 ===== ==== =====
8 LEASES The Company is obligated under various capital leases for store improvements and certain machinery and equipment that expire at various dates during the next five years. The capital leases for store improvements relate to the purchase of furniture and fixtures installed in retail stores. These retail stores are all managed under operating leases. Machinery and equipment under capital leases includes leased machinery, office furniture and fixtures and certain motor vehicles. All capital lease liabilities are secured by the asset to which the lease relates. The gross amount of store improvements and machinery and equipment and related accumulated amortization recorded under capital leases are as follows:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Store improvements $ 817 2,106 3,119 Machinery and equipment 2,164 2,930 3,793 ------ ------ ------ 2,981 5,036 6,912 Less: Accumulated amortization (584) (1,268) (2,216) ------ ------ ------ $2,397 3,768 4,696 ====== ====== ======
The Company also has entered into non-cancellable operating leases, primarily for retail stores. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (except those with lease terms of a month or less that were not renewed) consisted of the following:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Rental expense $9,446 10,078 10,153 ====== ====== ======
11 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8 LEASES (CONTINUED) Future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of January 31, 1997 are:
Capital Operating leases leases (in A$ thousands) Year ending January 31, 1998 $1,908 $ 9,541 1999 1,720 8,308 2000 1,231 6,896 2001 1,042 5,098 2002 249 3,887 Years subsequent to 2002 - 10,822 ------ ------- Total minimum lease payments 6,150 $44,552 ======= Less: Amount representing interest (at rates ranging from 9.5% to 12.0%) (1,239) ------ Present value of net minimum capital lease payments 4,911 ------ Less: Current portion of obligations under capital leases (1,395) ------ Obligations under capital leases, excluding current portion $3,516 ======
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Trade accounts payable $ 4,156 3,736 $ 4,968 Accrued liabilities 4,401 4,419 5,887 Employee benefits 2,025 1,942 1,745 Other 517 528 1,093 ------ ------- ------- $11,099 10,625 $13,693 ======= ======= =======
Included in other liabilities at January 31, 1997 is an amount of $369,000 in respect of the planned relocation of the enamelling facilities. The accrual relates to future lease costs of the vacated premises, the writedown of plant that will be scrapped (allowing for future depreciation charges until the planned exit date) and costs to make good the premises. An exit plan was established and approved by the Board of Directors prior to January 31, 1997. The implementation of the plan has commenced, work is continuing and the exit strategy remains unchanged. 12 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10 LONG-TERM DEBT Long-term debt consists of the following:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Current: Bank bills $ 8,844 9,949 2,964 Property loan - - - -------- -------- -------- $ 8,844 9,949 2,964 ======== ======== ======== Non-current: Bank bills $ 6,474 6,447 18,568 Property loan 2,100 2,100 2,150 -------- -------- -------- $ 8,574 8,547 20,718 ======== ======== ========
The Company and its subsidiaries have access to a facility with the Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ Facility") with credit facilities aggregating up to A$53,700,000. This includes a multi-purpose facility of A$31,700,000, a trade finance facility of A$10,000,000 and a stand-by credit facility of A$12,000,000. The stand-by credit facility is classified as a current facility as it is repayable on the earlier of the date of the Company's Initial Public Offering or December 31, 1998. As at January 31, 1997 the Company had not utilized A$30,422,000 of the total facility. The ANZ Facility is secured by a first security interest over the Company's present and future Australian assets. The Company has agreed to grant to ANZ, and ANZ is in the process of creating, a second security interest (subordinate to a lien under the Merrill Lynch Facility detailed below) in all the Company's assets in the United States. The ANZ Facility is further guaranteed by each subsidiary of the Company. Bank bills are generally taken out over a 90 day period and rolled over at the end of their respective terms. As at January 31, 1997, the weighted average interest rate accruing on the bank bills utilized under the ANZ Facility was 7.2% per annum. Under the terms of the agreement, the bank bills may be repaid at the Company's option provided the facility limit is not breached other than the stand-by facility. For this reason, the majority of the outstanding balance relating to bank bills and term loans is classified as a non-current liability. The property loan is accruing interest at a rate of 9.35% per annum and is secured by a registered first mortgage over the freehold property of the Company. As the borrowings under the ANZ facility are subject to renegotiation on December 31, 1998, non-current long-term debt matures during the financial year ended January 31, 1999. The Company has historically renegotiated its credit facilities on similar terms and conditions and expects the current facility to be extended subsequent to December 31, 1998. All committed facilities are provided subject to the standard Australian practice of regular annual review of required limits, the Company's performance and the normal terms and conditions, including financial covenants, applicable to bank lending. The Company was in compliance with the financial covenants set out in the ANZ Facility agreement as at January 31, 1997. In addition, in February 1995, the Company's US subsidiary ("Galore USA") entered into a five year credit facility with Merrill Lynch. This facility includes a term loan of US$600,000 and a revolving line of credit of US$1,550,000. Indebtedness under the term loan and the revolving line of credit accrues interest at the 30 day commercial paper rates plus 2.7% or 2.65% respectively, and is payable monthly. The Merrill Lynch facility is secured by a first security interest in all Galore USA present and future assets. As of January 31, 1997 Galore USA had not utilized US$942,000 of this facility. 13 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LONG-TERM DEBT (CONTINUED) The Company's total long-term debt matures as follows:
(in A$ thousands) Year ending January 31, 1998 $ 2,964 1999 20,691 2000 22 2001 5 ------- $23,682 =======
In conjunction with the Capital Reduction in December 1996 (detailed in Note 12 to the consolidated financial statements), the Company issued unsecured convertible notes with a face value of A$8.38 amounting to A$10,041,952. The notes carry an interest rate of 10.25% per annum, include financial covenants and confer rights to the noteholders as creditors and not as shareholders. The notes are convertible into fully paid shares by the noteholder at any time after the first anniversary of issue but prior to the eighth anniversary. If a stock exchange listing occurs, the Company may redeem the notes providing certain conditions are met, failing which the Company must repay the principal outstanding on each note on the eighth anniversary. Upon conversion, the notes will convert at a ratio of one ordinary share for each convertible note held. If all notes are converted, this will result in an additional 1,197,926 ordinary shares being issued. 11 INCOME TAXES Income (loss) before income taxes was taxed under the following jurisdictions:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Australia $5,296 4,970 (755) United States 522 989 485 ------ ------ ----- $5,818 5,959 (270) ====== ====== =====
The expense (benefit) for income taxes is presented below:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Current: Australia $2,122 898 738 United States 15 33 234 ------ ------ ----- 2,137 931 972 ------ ------ ----- Deferred: Australia (659) (435) (904) United States - - (890) ------ ------ ----- $1,478 496 (822) ====== ====== =====
14 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11 INCOME TAXES (CONTINUED) Income tax expense attributable to income from continuing operations differed from the amounts computed by applying the Australian federal income tax rate to pretax income from continuing operations as a result of the following:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Computed "expected" tax expense $1,920 2,145 (97) Increase (reduction) in income taxes resulting from: State taxes, net of federal tax benefit 31 60 208 Change in the valuation allowance (194) (406) (1,109) Equity in earnings of affiliates not subject to taxation (230) (434) (136) Capital profit on sale of affiliate - (829) - Other, net (49) (40) 314 ------ ----- ------ $1,478 496 (822) ====== ===== ======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Deferred tax assets: Provisions not presently deductible $ 1,191 1,316 1,482 Plant and equipment, due to differences in depreciation 215 287 424 Inventories, due to capitalized costs 208 211 195 Borrowing expenses capitalized for tax purposes 29 - 302 Leases, due to differences in lease payments, interest and amortization 29 52 136 Unearned income 91 105 116 Net operating loss carryforward 1,156 745 562 Other - 89 432 ------- ------ ------ Total gross deferred tax assets 2,890 2,805 3,649 ------- ------ ------ Less: Valuation allowance (1,515) (1,109) - ------- ------ ------ 1,375 1,696 3,649 Deferred tax liabilities: Prepayments 261 147 178 Rebates receivable - - 128 ------- ------ ------ Total gross deferred tax liabilities 261 147 306 ------- ------ ------ Net deferred tax asset $ 1,114 1,549 3,343 ======= ====== ======
15 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11 INCOME TAXES (CONTINUED) In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The change in the valuation allowance for deferred tax assets between January 31, 1996 and January 31, 1997 is due to the recoupment of net operating loss carryforwards and management's assessment that the realization of the net operating loss carryforwards was more likely than not to be realized. In order to fully realize the deferred tax asset, the company will need to generate future taxable income of approximately A$1,413,000 prior to the expiration of the net operating loss carryforwards in 2012. Based upon projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely that not the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. 12 SHAREHOLDERS' EQUITY On December 31, 1996, the Company consummated a series of transactions to effect a reduction in the ordinary shares of the Company (the "Capital Reduction"). Pursuant to the Capital Reduction, the Company repurchased and cancelled 2,743,878 fully paid ordinary shares and 101,520 options to purchase ordinary shares, for a total consideration of A$20,078,000. The Company financed the Capital Reduction through: (i) the issuance and sale of A$10,041,952 in Convertible Notes; and (ii) the provision of an additional standby facility of A$12,000,000 from the Company's bankers, ANZ. This standby facility will only be available to the Company until the earlier of the Company's Initial Public Offering or December 31, 1998. The effect of the Capital Reduction was to reduce the ordinary shares of the Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary shares of A$3.64 each). Subsequent to the consummation of the Capital Reduction, all outstanding ordinary shares were owned by the executive directors of the Company and their related interests and the Company's pension plan. The Company was delisted from the Australian Stock Exchange following the Capital Reduction. The Company incurred costs in connection with the Capital Reduction of approximately A$1,132,000. These amounts have been expensed and are included in other expenses (income) in the consolidated statements of operations for the year ended January 31, 1997. Additionally, in connection with the Capital Reduction, the Company also acquired the remaining 15% interest in The Galore Group (USA) Inc. ("Galore USA") from Mr. Sydney Selati, President of Galore USA, for consideration of A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary shares ($7.29 per share) of the Company. Mr. Sydney Selati was subsequently appointed a director of Barbeques Galore on July 21, 1997. 16 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13 SHARE OPTION PLAN EXECUTIVE SHARE OPTION PLAN (CONTINUED) Effective January 31, 1997, the Company adopted an executive share option plan (the "Executive Plan") under which the Board of Directors granted certain members of management options to purchase ordinary shares in the Company. A total of 203,038 options were issued under the Executive Plan with an exercise price of A$8.38 per share. The options do not vest until February 1, 1999 after which each Optionholder is entitled to subscribe for one fully paid ordinary share. The options are not quoted and are due to expire on the earlier of the 5th anniversary from the issue date or, subject to certain conditions, on cessation of employment. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its share options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS No. 123, the Company's earnings per share for the year ended January 31, 1997 would have been A$0.13 per ordinary share. The fair value of each share option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: weighted average risk-free interest rate of 6.49%; no dividend yield; expected lives of 2.5 years and volatility of 17.97%. The fair value of the options as at January 31, 1997 has been calculated to be A$182,000. 1997 SHARE OPTION PLAN Under the terms of the Company's 1997 share option plan (the "1997 Plan"), a total of 329,254 ordinary shares have been authorized for issuance. The 1997 Plan received approval from the Board of Directors of the Company on October 1, 1997. The 1997 Plan consists of the Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non-employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase ordinary shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the grant date. The Plan Administrator will have complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive option grants, the time or times when such option grants are to be made, the number of shares subject to each such grant, the vesting schedule to be in effect for the option grant, the maximum term for which any granted option is to remain outstanding and the status of any granted option as either an incentive share option or a non-statutory share option under the Federal tax laws. TERMINATED PLAN On November 25, 1993, the Company adopted a share option plan ("the 1993 Plan") pursuant to which the Company's Board of Directors could grant share options to officers and key employees. 128,958 options were granted with an exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the Company granted a further 27,438 options with an exercise price of A$5.65. On December 31, 1996, and in connection with the Capital Reduction, all outstanding options were repurchased by the Company from the Optionholders. Compensation for the cancellation of the 101,520 options amounted to A$78,000. The total compensation paid by the Company to cancel the options has been expensed during the year ended January 31, 1997 and is included in selling, general and administrative expenses. 14 COMMITMENTS AND CONTINGENCIES Product liability claims have been made against certain companies in the group which are not expected to result in any material loss to the Company. The Company entered into a joint and several guarantee together with the directors of Bromic Pty Limited in favour of ANZ in respect of a A$900,000 facility. On February 25, 1997, ANZ released the Company from this guarantee. 17 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15 GEOGRAPHIC SEGMENT INFORMATION Net income by geographic region is summarized below (in thousands):
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Australia $ 3,833 4,507 (589) United States 507 956 1,141 --------- --------- -------- $ 4,340 5,463 552 ========= ========= ========
16 RELATED PARTY TRANSACTIONS The directors of the Company believe that transactions with related parties are on normal terms and conditions no more favourable than those available to other third parties unless otherwise stated. Amounts are advanced to the Company by the directors at a commercial rate of interest. The company shares premises and incurs rent and operating expenses on behalf of Rebel Sport Limited. Mr. Linz and Mr. Gavshon were directors of Rebel Sport Limited up until July 10, 1997. These amounts are payable to the Company on 30 day terms. The above related party transactions and amounts outstanding at each period end are as follows:
January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (in A$ thousands) Amounts owing to directors or director related entities $ 494 1,347 1,231 Amounts owing from Rebel Sport Limited 58 53 125 ======== ========= =========
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) Interest costs incurred in respect of amounts advanced by directors or director related entities $ 6 62 96 Amounts advanced to Rebel Sport Limited 427 720 713 Amounts reimbursed by Rebel Sport Limited (471) (725) (641) ======== ========= =========
18 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) Interest $ 2,035 2,470 2,432 Income taxes 276 927 812 ======== ===== =====
During the period ended January 31, 1997 the Company acquired Mr. Sydney Selati's 15% interest in Galore USA for consideration of A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary shares (A$7.29 per share) of the Company. During the periods, the Company acquired plant and equipment by means of capital leases which are not reflected in the consolidated statements of cash flows with an aggregate fair value of:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) (in A$ thousands) Equipment acquired under capital leases $ 1,668 2,091 1,893 ======== ===== =====
On July 1, 1995, the company's interest in GLG Trading Pte Limited was reduced from 100% to 50% by the issue of additional shares in GLG Trading Pte Limited. The deconsolidation of GLG Trading Pte Limited has resulted in the reversal of the opening cash balance of GLG Trading Pte Limited in the Statement of Cash Flows as the Company has accounted for its investment on an equity basis from July 1, 1995. 18 PENSION PLANS The Company and its Australian subsidiaries have established defined contribution pension plans for the provision of benefits to their Australian employees on retirement, death or disability. Benefits provided under the plans are based on contributions for each employee. Company contributions are 6% of gross salary for all employees except for certain executives for whom the Company contributes 10%. The Company and employees contribute various percentages of gross income. The plans are of an accumulation type and as such, the Company has: . no commitment to fund retirement benefits other than the percentage of each employee's salary as prescribed by the relevant trust deed; and . no legal obligation to cover any shortfall in the funds' obligations to provide benefits to employees on retirement. The pension plans comply with Australian regulatory provisions set by the Insurance and Superannuation Commission. The Company has complied with the provisions of the Superannuation Guarantee Charge Act. The Company also sponsors a defined contribution plan in the United States covering substantially all employees who meet specified age and service requirements. Company contributions are discretionary. The Company has not contributed and does not anticipate contributing to the plan for the year ended January 31, 1997. 19 Barbeques Galore Limited and subsidiaries Consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18 PENSION PLANS (CONTINUED) Contributions expensed under these plans were as follows:
Year ended Year ended Year ended January 31, January 31, January 31, 1995 1996 1997 (unaudited) (unaudited) (unaudited) Contribution expense $ 911 974 996 ====== === ===
19 SUBSEQUENT EVENTS The Board of Directors has authorized the filing of a registration statement for an Initial Public Offering (the "Offering") of the Company's ordinary shares. Upon successful consummation of the Offering, the Company intends to use the proceeds to repay outstanding debt and procure the conversion or redemption of the convertible notes (refer note 10). In addition the proceeds will be used to fund capital expenditures related to the expansion of the Company's operations and for working capital and other general corporate purposes. The Company's Board of Directors and Shareholders have approved an 18.223 for one reverse stock split of the Company's ordinary shares thereby adjusting the authorized share capital to 27,437,853 shares immediately prior to the Offering. All share, per share and share option data for all periods presented have been restated to reflect the stock split. 20 EX-21.1 16 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 BARBEQUES GALORE LIMITED AND SUBSIDIARIES SUBSIDIARIES OF THE REGISTRANT Vilbrent Pty Limited (incorporated under the laws of New South Wales, Australia) Barbeques Galore Pty Limited (incorporated under the laws of New South Wales, Australia) Galore Pty Limited (incorporated under the laws of New South Wales, Australia)(/1/) The Galore Group (International) Pty Limited (incorporated under the laws of New South Wales, Australia)(/1/) The Galore Group (U.S.A.), Inc. (a California company)(/2/) Barbeques Galore, Inc. (a California company)(/3/) Pool Patio 'N Things, Inc. (a California company)(/3/) Galore Group Services Pty Limited (incorporated under the laws of New South Wales, Australia) Pricotech Leisure Brands Pty Limited (incorporated under the laws of New South Wales, Australia)(/4/) Redgun Pty Limited (incorporated under the laws of New South Wales, Australia)(/4/) G.L.G. Australia Pty Limited (incorporated under the laws of New South Wales, Australia)(/4/) Australian Enamellers Pty Limited (incorporated under the laws of New South Wales, Australia)(/5/) Douglas Manufacturing Pty Limited (incorporated under the laws of New South Wales, Australia)(/5/) Park-Tec Engineering Pty Limited (incorporated under the laws of New South Wales, Australia)(/5/) Cook-on-Gas Products (Australia) Pty Limited (incorporated under the laws of New South Wales, Australia)(/4/) Bosmana Pty Limited (incorporated under the laws of New South Wales, Australia)(/6/) Cougar Leisure Products Pty Limited (incorporated under the laws of New South Wales, Australia)(/6/) Galore Group Nominees Pty Limited (incorporated under the laws of New South Wales, Australia) (/1/) A subsidiary of Barbeques Galore Pty Limited (/2/) A subsidiary of The Galore Group (International) Pty Limited (/3/) A subsidiary of The Galore Group (U.S.A.), Inc. (/4/) A subsidiary of Galore Group Services Pty Limited (/5/) A subsidiary of G.L.G. Australia Pty Limited (/6/) A subsidiary of Cook-on-Gas Products (Australia) Pty Limited EX-23.1 17 CONSENT OF HOWARTH SYDNEY PARTNERSHIP EXHIBIT 23.1 HORWATH SYDNEY PARTNERSHIP Chartered Accountants A member of Horwath International 1 Market Street Sydney NSW 2000 GPO Box 1455 Sydney NSW 1041 DX 1142 Sydney Telephone (02) 9372 0777 Facsimile (02) 9372 0606 INDEPENDENT AUDITORS' CONSENT The Board of Directors Barbeques Galore Limited We consent to the inclusion in the Registration Statement on Form F-1, including all amendments and supplements thereto, of Barbeques Galore Limited of our audit report dated August 8, 1997 relating to the consolidated financial statements of Barbeques Galore Limited and subsidiaries incorporating the consolidated balance sheet as of June 30, 1996 and consolidated statements of operations, shareholders' equity and cashflows for the years ended June 30, 1996 and 1995. We further consent to the reference to our firm as "Horwath Sydney Partnership" under the headings "Selected Consolidated Financial Data" and "Experts" in such document. /s/ Horwath Sydney Partnership _____________________________________ HORWATH SYDNEY PARTNERSHIP June 4, 1998 Sydney, Australia EX-23.2 18 CONSENT KPMG EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT The Board of Directors Barbeques Galore Limited: We consent to the use of our audit report dated April 10, 1998 on the consolidated financial statements of Barbeques Galore Limited and subsidiaries as of January 31, 1998 and January 31, 1997 and for the twelve months ended January 31, 1998 and the seven months ended January 31, 1997 included herein and to the reference to our firm under the headings "Summary Additional Consolidated Financial Data", "Selected Consolidated Financial Data", "Selected Additional Consolidated Financial Data" and "Experts" in such Prospectus. /s/ KPMG June 10, 1998 Sydney, Australia -----END PRIVACY-ENHANCED MESSAGE-----