-----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, Gn77A0W4uBbE1yXmH8t4mhVAUtDLA+VjnN8PKgI/I7qBLZEJJUcaFS+Fxge0ADK2 E8zcMG7tW0rnioDSzJqSFQ== 0001012870-97-001955.txt : 19971014 0001012870-97-001955.hdr.sgml : 19971014 ACCESSION NUMBER: 0001012870-97-001955 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19971010 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BARBEQUES GALORE LTD CENTRAL INDEX KEY: 0001047326 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-1/A SEC ACT: SEC FILE NUMBER: 333-37259 FILM NUMBER: 97694388 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/A 1 AMENDMENT NO.1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997 REGISTRATION NO. 333-37259 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- AMENDMENT NO. 1 TO FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- BARBEQUES GALORE LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- AUSTRALIAN CAPITAL TERRITORY, AUSTRALIA 5722 NOT APPLICABLE (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION) 327 CHISHOLM ROAD, AUBURN, SYDNEY, NSW 2144, AUSTRALIA (61-2-9704-4177) (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) SYDNEY SELATI BARBEQUES GALORE LIMITED 15041 BAKE PARKWAY, #A IRVINE, CALIFORNIA 92718 (714) 597-2400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------- COPIES TO: THOMAS A. BEVILACQUA, ESQ. SARAH BESHAR, ESQ. CURTIS L. MO, ESQ. DAVIS POLK & WARDWELL VALERIE RUSSELL, ESQ. 450 LEXINGTON AVENUE BROBECK, PHLEGER & HARRISON LLP NEW YORK, NEW YORK 10017 TWO EMBARCADERO PLACE (212) 450-4000 2200 GENG ROAD PALO ALTO, CALIFORNIA 94303-0913 (415) 424-0160 --------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. --------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier registration statement for the same offering. [_] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- 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. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS Subject to Completion Dated October 10, 1997 [BARBEQUES GALORE LOGO] 2,350,000 American Depositary Shares, each representing One Ordinary Share The American Depositary Shares (the "ADSs") offered hereby are being offered (the "Offering") by the Underwriters named herein. Each ADS represents one ordinary share ("Ordinary Share") of Barbeques Galore Limited ("Barbeques Galore" or the "Company"), a public limited company organized under the laws of Australia. The ADSs are evidenced by American Depositary Receipts ("ADRs"). See "Description of Ordinary Shares" and "Description of American Depositary Receipts." Of the 2,350,000 ADSs offered in the Offering, 1,900,000 ADSs represent Ordinary Shares being sold by the Company and 450,000 ADSs represent Ordinary Shares being sold by certain shareholders of the Company named herein (the "Selling Shareholders"). See "Principal Shareholders" and "Selling Shareholders." Prior to the Offering, there has been no public market in the United States for the Ordinary Shares or the ADSs. It is currently estimated that the initial public offering price of the ADSs will be between $14.00 and $16.00 per share. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price of the ADSs. Application has been made for quotation of the ADSs on the Nasdaq National Market under the symbol "BBQZY." THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE ADSS OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------- PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS - --------------------------------------------------------------------------- Per ADS US$ US$ US$ US$ - --------------------------------------------------------------------------- Total(3) US$ US$ US$ US$ - ---------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at US$1,100,000. (3) The Selling Shareholders have granted to the Underwriters a 30-day option to purchase up to an additional 352,500 ADSs on the same terms and conditions as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Selling Shareholders will be US$ , US$ and US$ , respectively. See "Underwriting." The ADSs are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of ADRs evidencing the ADSs will be made against payment therefor at the offices of J.P. Morgan Securities Inc., New York, New York on or about , 1997. J.P. MORGAN & CO. SBC WARBURG DILLON READ INC. , 1997 [BARBEQUES GALORE LOGO] [DEPICTIONS OF INTERIORS OF THE COMPANY'S U.S. STORES] [MAP OF THE COMPANY'S U.S. STORE LOCATIONS] [MAP OF THE COMPANY'S AUSTRALIAN STORE LOCATIONS] USA [Company Logo] Barbecues Accessories Fireplace [Photo of couple employing barbecue and related accessories in a healthy outdoor lifestyle] [Picture of fireplace] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE ADSS OR THE ORDINARY SHARES. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, ADSS IN THE OPEN MARKET. IN ADDITION, IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE ADSS ON NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 USA [Photograph of interior of store] [Photograph of exterior of stand-alone store] [Map of United States listing company owned and franchised stores by state] [Map of Australia listing company owned and licensee stores by state] ["Australia" written vertically up the side] No person has been authorized to give any information or to make any represen- tation other than those contained in this Prospectus, and if given or made, such information or representation must not be relied upon as having been authorized by the Company, the Selling Shareholders or by any of the Underwrit- ers. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the ADSs or the Ordinary Shares in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any cir- cumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. No action has been or will be taken in any jurisdiction by the Company, the Selling Shareholders or any Underwriter that would permit a public offering of the ADSs or the Ordinary Shares or possession or distribution of this Pro- spectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company, the Selling Shareholders and the Underwriters to inform themselves about and to observe any restrictions as to the offering of the ADSs or the Ordinary Shares and the distribution of this Prospectus. TABLE OF CONTENTS
Page Enforceability of Civil Liabilities Under the Federal Securities Laws... 4 Available Information................ 4 Financial Statement Presentation..... 5 Trademarks........................... 5 Prospectus Summary................... 6 Risk Factors......................... 12 Exchange Rates....................... 20 Use of Proceeds...................... 21 Dividend Policy...................... 21 Capitalization....................... 22 Dilution............................. 23 Selected Consolidated Financial Data................................ 24 Unaudited Selected Additional Consolidated Financial Data......... 26
Page Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 28 Business............................. 37 Management........................... 48 Certain Transactions................. 52 Principal Shareholders............... 54 Selling Shareholders................. 56 Description of Ordinary Shares....... 58 Description of American Depositary Receipts............................ 61 Certain Tax Considerations........... 67 Shares Eligible for Future Sale...... 70 Underwriting......................... 71 Legal Matters........................ 72 Experts.............................. 72 Index to Defined Terms............... 73 Index to Consolidated Financial Statements.......................... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE ADSS, WHETHER OR NOT PARTICIPATING IN THIS DIS- TRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 3 ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS Barbeques Galore is a public company limited by shares and is registered and operates under the Corporations Law of the Commonwealth of Australia. Since most of the Company's directors and officers and certain of the experts named in the Registration Statement on Form F-1 (together with all exhibits and amendments thereto, the "Registration Statement") reside outside the United States, it may not be possible to effect service on such persons in the United States or to enforce, in foreign courts, judgments against such persons obtained in U.S. courts and predicated on the civil liability provisions of the Federal securities laws of the United States. Furthermore, since all directly owned assets of the Company are outside the United States, any judg- ment obtained in the United States against the Company may not be collectible within the United States. The Company has been advised by its Australian coun- sel, Freehill, Hollingdale & Page, that there is doubt as to the enforce- ability in the Commonwealth of Australia, in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon federal or state securities laws of the United States, especially in the case of enforcement of judgments of United States courts where the defendant has not been properly served in Australia. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Com- mission") a Registration Statement on Form F-1 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the ADSs offered hereby. This Prospectus, which constitutes a part of the Registration State- ment, omits certain of the information contained in the Registration Statement and the exhibits and schedules thereto on file with the Commission pursuant to the Securities Act and the rules and regulations of the Commission thereunder. The Registration Statement, including exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Com- mission at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies may be obtained at prescribed rates from the Public Reference Section of the Commis- sion at its principal office in Washington, D.C. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registra- tion Statement, each such statement being qualified in all respects by such reference to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Upon consummation of the Offering, the Company will be subject to the informa- tion requirements of the Securities Exchange Act of 1934, as amended (the "Ex- change Act"), applicable to foreign private issuers, and in accordance there- with will file reports, including annual reports on Form 20-F, and other information with the Commission. In addition, the Company has agreed in the Underwriting Agreement relating to the offering to submit to the Commission quarterly reports, which will include unaudited quarterly consolidated finan- cial information on Form 6-K for the first three quarters of each fiscal year, and file its annual report on Form 20-F within the time periods prescribed under Section 13 of the Exchange Act for the filing by domestic issuers of quarterly reports on Form 10-Q and annual reports on Form 10-K, respectively. Such reports and other information filed by the Company can also be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such materials can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. The Commission main- tains a World Wide Web internet site that contains reports, proxy and informa- tion statements and other information regarding registrants that file elec- tronically with the Commission. The address of such site is http://www.sec.gov. As a foreign private issuer, the Company is exempt from the rules under the Exchange Act prescribing the furnishing and the content of proxy statements. The Company will furnish the Depositary referred to under "Description of American Depositary Receipts" with annual reports which will include a review of operations and annual audited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). The Company will also furnish the Depositary with quarterly reports which will include unaudited quarterly consolidated financial informa- tion prepared in accordance with U.S. GAAP. The Depositary has agreed with the Company that, upon receipt of such reports, it will promptly mail such reports to all registered holders of ADSs. The Company will also furnish to the Depos- itary all notices of shareholders' meetings and other reports and communica- tions that are made generally available to shareholders. The Depositary will arrange for the mailing of such documents to record holders of ADSs. 4 FINANCIAL STATEMENT PRESENTATION The Company publishes its consolidated financial statements in Australian dol- lars. In this Prospectus, references to "$" or "US$" or "U.S. dollars" or "dol- lars" are to United States dollars and references to "A$" are to Australian dollars. For the convenience of the reader, this Prospectus contains transla- tions of certain Australian dollar amounts into U.S. dollars at the rate indi- cated. Translations of Australian dollars into U.S. dollars have been made at the noon buying rate in New York City on the relevant date for cable transfers in Australian dollars as certified by the Federal Reserve Bank of New York (the "Noon Buying Rate"). Unless otherwise indicated, the date of translation was (i) for amounts calculated as of a date, such date and (ii) for amounts calcu- lated for a period, an average rate during the period. Any translation should not be construed as a representation that the Australian dollar amounts actu- ally represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. On October 9, 1997, the Noon Buying Rate was US$0.7342 = A$1.00. See "Exchange Rates." Prior to 1997, the Company's fiscal year ended on June 30. Effective as of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (beginning with the fiscal year ended January 31, 1997). As used in this Prospectus, each fiscal year of the Company is identified by the calendar year in which it ends. For example, references to "fiscal year 1996" or "fiscal 1996" shall mean the fiscal year ended June 30, 1996, and due to the change in fiscal year end, references to "fiscal year 1998" or "fiscal 1998" shall mean the fiscal year ended January 31, 1998. Because of the change in fiscal year, fiscal 1997 was a seven-month period. Unless the context otherwise requires, references herein to "share" or "shares" are references to both the ADSs and the Ordinary Shares. TRADEMARKS BARBEQUES GALORE(R), TURBO(R), CAPT N COOK(R), COOK-ON(R) and BAR-B-CHEF(R) are federally registered trademarks and/or service marks in the United States. The Company also uses the phrase AMERICA'S LARGEST CHAIN OF BARBECUE STORES(TM) as a common-law trademark in the United States. BARBEQUES GALORE and COOK-ON are also registered with the State of California. In Australia, the Company or its subsidiaries have registered, among others, the names NORSEMAN and KENT, and additionally use the phrase YOUR OUTDOOR COOKING AND CAMPING STORE as a common- law trademark. This Prospectus contains other trade names, trademarks and service marks of the Company and other organizations. 5 PROSPECTUS SUMMARY This Prospectus contains certain statements of a forward-looking nature relating to future events affecting the Company or the markets or industries in which it operates or the future financial performance of the Company. Prospec- tive investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identi- fied in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause events or actual results to differ materially from those indicated by such forward-looking statements. The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. As used in this Prospectus, unless the context otherwise requires, the terms "Barbeques Galore" and the "Company" include Barbeques Galore Limited and its consolidated subsidiaries and their respective operations. Except as otherwise specified, all information in this Prospectus (i) is adjusted to reflect a 18.223-for-1 reverse share split of all out- standing Ordinary Shares immediately prior to consummation of the Offering (the "Reverse Share Split"), (ii) assumes the conversion of all outstanding convert- ible notes of the Company ("Convertible Notes") into an aggregate of 1,197,926 Ordinary Shares immediately prior to consummation of the Offering and (iii) assumes no exercise of the Underwriters' over-allotment option. THE COMPANY Barbeques Galore believes that it is the leading specialty retail chain of bar- becue and barbecue accessory stores in Australia and the United States. Barbeques Galore stores carry a wide assortment of barbecues and related acces- sories which are displayed in an open and inviting store format that emphasizes social activities and healthy outdoor lifestyles. The Company's stores also carry a comprehensive line of fireplace products and, in Australia, home heating products, camping equipment and outdoor furniture. As of July 31, 1997, the Company owned and operated 32 stores in all six states in Australia and 32 stores (including three U.S. Navy concession stores) in six states in the United States. In addition, as of such date, there were 45 licensed stores in Australia and six franchised stores in the United States, all of which operate under the "Barbeques Galore" name. The Company's unique retailing concept differentiates Barbeques Galore from its competitors by (i) offering an extensive selection of barbecues and related accessories to suit all consumer lifestyles, preferences and price points, (ii) showcasing these products at convenient store locations in an exciting shopping environment that promotes the total barbecuing experience and (iii) providing exceptional customer service through well-trained sales associates who have in- depth knowledge of the products and understanding of customer needs. These com- petitive strengths are enhanced by the Company's barbecue and home heater manu- facturing operations, which enable the Company to realize higher margins, con- trol product development and improve inventory flexibility and supply. The Company's growth strategy is to substantially expand its U.S. store base and to refurbish existing stores in Australia (through relocating or remodelling). In the United States, since January 31, 1994, the Company has grown from 17 to 32 Company-owned stores (including three U.S. Navy concession stores), representing an 88% increase in the number of owned stores. The Com- pany currently plans to open approximately 10 new stores in the United States in 1997, of which five have been opened, four are under construction and one is in lease negotiation. The Company also currently intends to open 15 to 20 new stores in the United States in each of 1998 and 1999. In addition, the Company has initiated a major refurbishment plan for its Australian store base to enhance store productivity. Since January 31, 1994, 14 stores have been refur- bished in Australia, resulting in an approximately 38% average increase in sales through July 1997 for those stores. The Company currently plans to refur- bish 12 to 15 stores and to open up to six new stores in Australia from 1997 through 1999. The Company's net sales increased by A$13.6 million to A$148.4 million for the twelve months ended January 31, 1997 (A$41.0 million in the United States and A$107.4 million in Australia) from A$134.8 million for the twelve months ended January 31, 1995 (A$29.1 million in the United States and A$105.7 million in Australia). For the six-month period ended July 31, 1997, the Company's net sales increased by A$10.8 million, to A$70.4 million (A$32.5 million in the United States and A$37.9 million in Australia) from A$59.6 million (A$22.2 mil- lion in the United States and A$37.4 million in Australia) for the six-month period ended July 31, 1996. This growth resulted primarily from the opening of nine new stores and growth in comparable store sales during the periods. The comparable store sales increase for the six months ended July 31, 1997 was 17.8% in the United States and 6.8% in Australia. 6 THE OFFERING ADSs OFFERED(1): By the Company............. 1,900,000 ADSs By the Selling Shareholders.............. 450,000 ADSs TOTAL OFFERING............... 2,350,000 ADSs ORDINARY SHARES OUTSTANDING AFTER THE OFFERING(2)....... 4,941,652 Ordinary Shares USE OF PROCEEDS TO THE COMPANY..................... To repay approximately A$23.5 million in outstanding debt and for capital expenditures related to the expansion and refurbishment of the Company's operations, working capital and other general corporate purposes. See "Use of Proceeds." STOCK OPTIONS GRANTED CONCURRENTLY WITH THE OFFERING(3)................. 200,000 Ordinary Shares DIVIDEND POLICY.............. The Company anticipates that it will not pay regular dividends on the ADSs in the foreseeable future. See "Dividend Policy." PROPOSED NASDAQ NATIONAL MARKET SYMBOL............... "BBQZY"
- ------- (1) Assumes the Underwriters' over-allotment option for up to 352,500 ADSs is not exercised. See "Underwriting." (2) Excludes an aggregate of 203,038 Ordinary Shares issuable upon the exercise of stock options granted to certain executives of the Company in January 1997, but not exercisable until February 1999, except under certain circumstances. Also excludes 200,000 Ordinary Shares issuable upon the exercise of stock options. See "Management--Executive Share Option Plan" and Note (3). (3) The Company intends to grant under the 1997 Share Option Plan, concurrently with the Offering, options to purchase an aggregate of 200,000 Ordinary Shares with an exercise price equal to the initial public offering price set forth on the cover page of this Prospectus. These stock options will generally become exercisable in three equal installments on the third, fourth and fifth anniver- saries of the Offering. See "Management--1997 Share Option Plan." -------------- Comparable store sales data presented herein for any period consists of sales in such period by stores which were open during the corresponding period of the immediately preceding calendar or fiscal year, as applicable. However, sales for three U.S. Navy concession stores have been excluded from such calculations as these three concession stores are operated at the Navy's discretion. The Navy provides the Company space on three Navy bases under an at will arrange- ment and directly purchases the inventory for resale in two of the three con- cession stores. The Company owns the inventory at the third concession store and owns the fixtures installed in all three concession stores. 7 SUMMARY CONSOLIDATED FINANCIAL DATA
-------------------------------------------------------------------------------------------------- SEVEN MONTHS ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1) In thousands, except per 1992 1993 1994 1995 1996 1996 1996 1997 1997 share data --------- --------- --------- --------- --------- ---------- ----------- --------- --------- (US$) (UNAUDITED) (US$) STATEMENT OF OPERATIONS DATA: Net sales............... A$127,298 A$114,973 A$124,635 A$138,057 A$141,691 US$113,027 A$ 92,074 A$ 98,752 US$78,212 Cost of goods sold(2)... 80,785 82,630 84,104 92,290 98,158 78,301 62,789 67,955 53,820 --------- --------- --------- --------- --------- ---------- --------- --------- --------- Gross profit............ 46,513 32,343 40,531 45,767 43,533 34,726 29,285 30,797 24,392 Selling, general and administrative expenses............... 40,185 27,992 35,462 40,058 39,339 31,381 24,328 25,740 20,386 Store pre-opening costs.................. -- 205 135 64 153 122 114 200 158 Relocation and closure costs(3)............... -- -- -- -- 875 698 -- 461 365 --------- --------- --------- --------- --------- ---------- --------- --------- --------- Operating income (loss)................. 6,328 4,146 4,934 5,645 3,166 2,525 4,843 4,396 3,483 Equity in income of affiliates, net of tax................. 449 412 660 963 836 667 709 252 200 Interest expense........ 3,728 2,526 1,999 2,230 2,262 1,804 1,619 1,593 1,262 Other expense (income)(4)............ 3,747 -- -- -- (2,303) (1,837) (2,303) 1,132 897 --------- --------- --------- --------- --------- ---------- --------- --------- --------- Income (loss) before income tax............. (698) 2,032 3,595 4,378 4,043 3,225 6,236 1,923 1,524 Income tax expense (benefit).............. 229 176 1,278 573 98 78 1,286 366 290 --------- --------- --------- --------- --------- ---------- --------- --------- --------- Net income (loss)....... A$ (927) A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 US$ 3,147 A$ 4,950 A$ 1,557 US$ 1,234 ========= ========= ========= ========= ========= ========== ========= ========= ========= Net income (loss) per Ordinary Share and ordinary share equivalent(5).......... A$ (0.22) A$ 0.44 A$ 0.52 A$ 0.83 A$ 0.86 US$ 0.69 A$ 1.08 A$ 0.37 US$ 0.29 ========= ========= ========= ========= ========= ========== ========= ========= ========= Weighted average shares outstanding(5)......... 4,166 4,166 4,481 4,570 4,570 4,570 4,570 4,193 4,193 ========= ========= ========= ========= ========= ========== ========= ========= ========= Pro forma supplemental net income (loss) per Ordinary Share and ordinary share equivalent(s)(6)....... A$ 0.90 US$ 0.72 A$ 0.41 US$ 0.32 ========= ========== ========= ========= In thousands BALANCE SHEET DATA: Working capital......... A$ 15,056 A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 US$ 19,093 A$ 25,139 A$ 22,552 US$17,191 Total assets............ 58,977 55,400 60,538 67,624 66,562 51,432 67,544 67,970 51,814 Total long-term debt.... 12,314 10,223 16,988 17,690 15,819 12,223 11,631 34,276 26,129 Shareholders' equity.... 19,284 21,316 24,385 26,326 27,817 21,494 30,349 10,165 7,749 SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 17 17 21 21 19 25 25 Average net sales per store (in thousands)(7)...... A$ 1,389 A$ 1,630 A$ 1,572 US$ 1,254 A$ 862 A$ 822 US$ 651 Comparable store sales increase(8)........... -- 21.2% 10.0% 10.0% 10.0% 4.1% 4.1% Selling square feet (in thousands)......... 49.3 51.3 59.5 59.5 55.7 72.7 72.7 Sales per selling square foot................... A$ 437 A$ 519 A$ 489 US$ 390 A$ 279 A$ 251 US$ 199 SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.................... 32 31 31 31 32 32 32 Average net sales per store (in thousands)(7)...... A$ 1,719 A$ 1,844 A$ 2,081 US$ 1,660 A$ 1,446 A$ 1,658 US$ 1,313 Comparable store sales increase(9)...... -- 4.3% 8.1% 8.1% 6.0% 10.6% 10.6% Selling square feet (in thousands)......... 275.3 273.9 279.9 279.9 159.2 164.0 164.0 Sales per selling square foot................... A$ 206 A$ 216 A$ 230 US$ 183 A$ 281 A$ 312 US$ 247
8 (1) As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (effective January 31, 1997). (2) Cost of goods sold includes the cost of merchandise sold during the periods, distribution and store-level occupancy costs. (3) Includes A$262,000 incurred during the year ended June 30, 1996 in connec- tion with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and a A$369,000 provision accrued in January 1997 in connection with the planned relocation of the Company's enamelling facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Overview." (4) Includes a A$3.7 million loss during the year ended June 30, 1992 related to the Company's divestment of its Optics business (which was discontinued), a 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 a A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. See "Certain Transactions--Recent Delisting Transaction." (5) Based on the weighted average number of Ordinary Shares outstanding after giving effect to (i) the Reverse Share Split and (ii) a net of 120,322 Ordinary Shares issuable upon the exercise of stock options outstanding under the Execu- tive Share Option Plan calculated using the treasury stock method. Net income (loss) per Ordinary Share and ordinary share equivalent and weighted average shares outstanding reflect the Reverse Share Split for all periods presented. The outstanding Convertible Notes were not taken into account in the calcula- tion of earnings per share, as they were antidilutive. (6) The pro forma supplemental net income (loss) per Ordinary Share and ordi- nary share equivalent are computed by assuming proceeds from the Offering, which will be utilized to repay debt subsequent to the Offering, were utilized to repay the debt at the beginning of the applicable period to which earnings (loss) per share relates. The weighted average number of Ordinary Shares out- standing is increased for the number of Ordinary Shares assumed to be issued to enable repayment of such debt. (7) For stores open at beginning of period indicated. (8) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996 and 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively. (9) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, and 31 and 33 for the seven-month periods ended January 31, 1996 and 1997, respectively. 9 UNAUDITED SUMMARY ADDITIONAL CONSOLIDATED FINANCIAL DATA As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31. The following summary additional consolidated financial data has been restated to conform the financial presentation to a January 31 fiscal year end, and are qualified by reference to and should be read in conjunction with "Unaudited Selected Additional Consolidated Financial Data" and notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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. All sum- mary additional consolidated financial data for the six-month and twelve-month periods presented below is unaudited but in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements of the Company and reflects all adjustments necessary for a fair presentation of such data. The summary additional unaudited financial data as of and for the twelve months ended January 31, 1995, 1996 and 1997 has been derived from the unaudited consolidated financial statements of the Company as of such dates and for the periods then ended, to which KPMG has reported that it has applied lim- ited 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 Pro- spectus is a part. Operating results for the six months ended July 31, 1997 are not necessarily indicative of the results that may be expected for the entire year.
---------------------------------------------------------------------------- TWELVE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31, In thousands, except per 1995 1996 1997 1997 1996 1997 1997 share data --------- --------- --------- ---------- --------- --------- --------- (US$) (US$) STATEMENT OF OPERATIONS DATA: Net sales............... A$134,794 A$138,877 A$148,369 US$117,137 A$ 59,620 A$ 70,394 US$53,612 Cost of goods sold(1)... 90,477 94,899 103,324 81,574 43,086 48,420 36,877 --------- --------- --------- ---------- --------- --------- --------- Gross profit............ 44,317 43,978 45,045 35,563 16,534 21,974 16,735 Selling, general and administrative expenses............... 37,081 38,921 40,751 32,173 18,312 21,728 16,548 Store pre-opening costs.................. 109 178 239 189 64 209 159 Relocation and closure costs(2)............... -- -- 1,336 1,055 875 -- -- --------- --------- --------- ---------- --------- --------- --------- Operating income (loss)................. 7,127 4,879 2,719 2,146 (2,717) 37 28 Equity in income of affiliates, net of tax.................... 696 1,205 379 299 167 188 143 Interest expense........ 2,005 2,428 2,236 1,765 848 1,760 1,340 Other expense (income)(3)............ -- (2,303) 1,132 894 -- -- -- --------- --------- --------- ---------- --------- --------- --------- Income (loss) before income tax............. 5,818 5,959 (270) (214) (3,398) (1,535) (1,169) Income tax expense (benefit).............. 1,478 496 (822) (649) (1,767) (649) (494) --------- --------- --------- ---------- --------- --------- --------- Net income (loss)....... A$ 4,340 A$ 5,463 A$ 552 US$ 435 A$ (1,631) A$ (886) US$ (675) ========= ========= ========= ========== ========= ========= ========= Net income (loss) per Ordinary Share and ordinary share equivalent(4).......... A$ 0.95 A$ 1.19 A$ 0.13 US$ 0.10 A$ (0.36) A$ (0.45) US$ (0.34) ========= ========= ========= ========== ========= ========= ========= Weighted average shares outstanding(4)......... 4,570 4,570 4,348 4,348 4,570 1,963 1,963 ========= ========= ========= ========== ========= ========= ========= Pro forma supplemental net income (loss) per Ordinary Share and ordinary share equivalent(5).......... A$ 0.30 US$ 0.23 A$ (0.03) US$ (0.02) ========= ========== ========= ========= In thousands BALANCE SHEET DATA: Working capital......... A$ 21,087 A$ 25,139 A$ 22,552 US$ 17,191 A$ 24,123 A$ 21,563 US$16,125 Total assets............ 61,945 67,544 67,970 51,814 67,641 78,764 58,900 Total long-term debt.... 10,563 11,631 34,276 26,129 15,922 35,089 26,239 Shareholders' equity.... 26,686 30,349 10,165 7,749 26,924 8,960 6,700 SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 16 19 25 25 21 29 29 Average net sales per store (in thousands)(6).......... A$ 1,457 A$ 1,655 A$ 1,579 US$ 1,247 A$ 905 A$ 1,016 US$ 774 Comparable store sales increase(7)............ 16.5% 14.2% 6.5% 6.5% 6.4% 17.8% 17.8% Selling square feet (in thousands)............. 51.2 54.8 70.2 70.2 61.4 86.9 86.9 Sales per selling square foot................... A$ 456 A$ 517 A$ 469 US$ 370 A$ 291 A$ 251 US$ 191 SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.................... 32 32 32 32 31 32 32 Average net sales per store (in thousands)(6).......... A$ 1,835 A$ 1,924 A$ 2,222 US$ 1,754 A$ 731 A$ 796 US$ 606 Comparable store sales increase(8)............ 8.2% 1.4% 11.6% 11.6% 9.8% 6.8% 6.8% Selling square feet (in thousands)............. 276.2 267.1 276.6 276.6 139.9 144.2 144.2 Sales per selling square foot................... A$ 219 A$ 231 A$ 256 US$ 202 A$ 167 A$ 177 US$ 135
10 (1) Cost of goods sold includes the cost of merchandise sold during the peri- ods, distribution and store-level occupancy costs. (2) Includes A$354,000 (of which A$262,000 was incurred during the year ended June 30, 1996 and the remainder was incurred in January 1997) in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and a A$369,000 provision accrued in January 1997 in connection with the planned relocation of the Company's enamelling facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Overview." (3) Includes a A$2.3 million gain during the year ended June 30, 1996 related to the Company's sale of its equity interest in GLG New Zealand and A$1.1 mil- lion charge incurred in December 1996 in connection with the Capital Reduction and delisting. See "Certain Transactions--Recent Delisting Transaction." (4) Based on the weighted average number of Ordinary Shares outstanding after giving effect to (i) the Reverse Share Split and (ii) a net of 120,332 Ordinary Shares issuable upon the exercise of stock options outstanding under the Execu- tive Share Option Plan calculated using the treasury stock method. Net income (loss) per Ordinary Share and ordinary share equivalent and weighted average shares outstanding reflect the Reverse Share Split for all periods presented. The outstanding Convertible Notes were not taken into account in the calcula- tion of earnings per share, as they were antidilutive. (5) The pro forma supplemental net income (loss) per Ordinary Share and ordi- nary share equivalent are computed by assuming proceeds from the Offering, which will be utilized to repay debt subsequent to the Offering, were utilized to repay the debt at the beginning of the applicable period to which earnings (loss) per share relates. The weighted average number of Ordinary Shares out- standing is increased for the number of Ordinary Shares assumed to be issued to enable repayment of such debt. (6) For stores open at beginning of period indicated. (7) The number of comparable stores used to compute such percentages was 14, 16 and 19 for the twelve-month periods ended January 31, 1995, 1996 and 1997, respectively, and 17 and 21 for the six-month periods ended July 31, 1996 and 1997, respectively. (8) The number of comparable stores used to compute such percentages was 32, 31 and 33 for the twelve-month periods ended January 31, 1995, 1996 and 1997, respectively, and 31 and 32 for the six-month periods ended July 31, 1996 and 1997. 11 RISK FACTORS This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. Prospective investors should carefully consider the factors set forth below, as well as other information contained in this Prospectus, in evaluating an investment in the Ordinary Shares and the ADSs. IMPLEMENTATION OF GROWTH STRATEGY The growth of the Company is dependent, in large part, upon the Company's ability to successfully execute its Company-owned store expansion program in the United States and its store refurbishment plan in Australia. Pursuant to the U.S. store expansion program, the Company currently plans to open approxi- mately 10 new stores in 1997, of which five have been opened, four are under construction and one is in lease negotiation. The Company also currently intends to open 15 to 20 new stores in the United States in each of 1998 and 1999. The Company expects to incur capital expenditures relating to this pro- gram in the United States of approximately US$1.8 million in 1997 and approxi- mately US$2.5 million to US$3.2 million in each of 1998 and 1999. Pursuant to the Company's Australian store refurbishment program, in 1997, the Company plans to remodel five existing stores, open one new store, relocate one store and close one store. The Company further intends to refurbish five stores and open three new stores in 1998, and refurbish two stores and open two new stores in 1999. The Company expects to incur capital expenditures relating to this program in Australia of approximately A$2.5 million in 1997 and approximately A$2.0 million to A$3.0 million in each of 1998 and 1999. The proposed expansion is substantially more rapid than the Company's historical growth. The success of these store expansion and refurbishment efforts will be dependent upon, among other things, the identification of suitable markets and sites for new stores, negotiation of leases on acceptable terms, construction or renovation of sites, receipt of all necessary permits and governmental approvals therefor, and, if necessary, obtaining additional financing for those sites. In addition, the Company must be able to hire, train and retain competent managers and per- sonnel and manage the systems and operational components of its growth. There can be no assurance that the Company will be able to locate suitable store sites or enter into suitable lease agreements. In addition, there can be no assurance that, as the Company opens new stores in existing markets, these new stores will not have an adverse effect on comparable store net sales at existing stores in these markets. The failure of the Company to open new stores or relocate or remodel existing stores on a timely basis, obtain acceptance in markets in which it currently has limited or no presence, attract qualified management and personnel or appropriately adjust operational systems and proce- dures would adversely affect the Company's future operating results. See "Busi- ness--Growth Strategy." The success of the Company's growth strategy may also depend upon factors beyond its immediate control. The Company has retained outside real estate con- sultants to assist in site selection and lease negotiations, and may depend, to an increasing extent, on the services of such consultants and other real estate experts as it accelerates the rate of new store expansion. The failure of any such consultants or experts to render needed services on a timely basis could adversely affect the Company's new store expansion. Similarly, changes in national, regional or local real estate and market conditions could limit the ability of the Company to expand into target markets or sites. As part of its growth strategy, the Company intends to open stores in new mar- kets where it will not initially benefit from knowledge of local market condi- tions, pre-existing retail brand name recognition or marketing, advertising, distribution and regional management efficiencies made possible by its store networks in existing markets. Expansion into new markets may present operating and marketing challenges that are different from those encountered in the past by the Company in its existing markets. As a result of its expansion program and its entry into new markets, primarily in the United States, and its refur- bishment program in Australia, the Company has experienced, and expects to con- tinue to experience, an increase in store pre-opening costs and refurbishment- related expenses. There can be no assurance that the Company will anticipate all of the challenges and changing demands that its expansion will impose on its management or operations, and the failure to adapt thereto would adversely affect the Company's implementation of its growth strategy. The Company has, on several past occasions, withdrawn from new businesses in which it encountered unanticipated factors. For example, from 1987 to 1994, the Company owned and operated Pool Patio & Things, a chain of outdoor furniture stores in Northern California. After concluding that Pool Patio & Things was incompatible with its U.S. Barbeques Galore store operations, the Company dis- posed of its interests in the business in a series of transactions from 1990 to 1994. Under a joint venture with a subsidiary of Grand Metropolitan plc, the Company opened a Barbeques Galore store in London in 1986, which was subse- quently closed in 1987 due to lower than expected consumer demand and sales results. In addition, between August 1988 and June 1993, the Company operated Optics Express Pty. Ltd. ("Optics"), a company which devel- 12 oped a chain of optical superstores. In part because of intense competition from participants in the industry with greater financial resources, the Com- pany sold the major part of the business owned by Optics at a substantial loss in June 1993 to a major competitor in that industry. Moreover, if the Company determined to, or was required to, close a Barbecues Galore store, the Company would attempt to sublet the vacated store space in order to cover ongoing lease costs. Even if the Company were able to sublet such store, the Company may incur significant costs in writing off leasehold improvements. In addition, the Company's proposed expansion plans will result in increased demand on the Company's managerial, operational and administrative resources. As a result of the foregoing, there can be no assurance that the Company will be able to successfully implement its growth strategies, continue to open new stores or maintain or increase its current growth levels. The Company's failure to achieve its expansion plan could have a material adverse effect on its future business, operating results and financial condition. See "--Manage- ment of Operational Changes" and "--Reliance on Systems." EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS The success of the Company's operations depends upon a number of factors related to consumer spending, including future economic conditions affecting disposable consumer income such as employment, business conditions, interest rates and taxation. If existing economic conditions were to deteriorate, con- sumer spending may decline, thereby adversely affecting the Company's business and results of operations. Such effects may be exacerbated by the significant current regional concentration of the Company's business in the Australian and Southern California markets. The success of the Company depends on its ability to anticipate and respond to changing merchandise trends and consumer demands in a timely manner. The Com- pany believes it has benefitted from a lifestyle trend toward consumers spending more quality time together in outdoor family gatherings and social activities. Any change in such trend could adversely affect consumer interest in the Company's major product lines. Moreover, the Company's products must appeal to a broad cross-section of consumers whose preferences (as to product features such as colors, styles, finishes and fuel types) cannot always be predicted with certainty and may change between sales seasons. If the Company misjudges either the market for its merchandise or its customers' purchasing habits, it may experience a material decline in sales or be required to sell inventory at reduced margins. The Company could also suffer a loss of customer goodwill if its manufacturing operations or stores do not adhere to its quality control or service procedures or otherwise fail to ensure satisfactory quality of the Company's products. These outcomes may have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." MANAGEMENT OF OPERATIONAL CHANGES The Company has identified a number of areas for improvement in its operations which will have a significant impact on the implementation of its growth strategy. The Company has, in recent years, replaced or upgraded its manage- ment information systems and integrated its central inventory management sys- tems with point-of-sale terminals in Barbeques Galore stores, and currently plans to introduce automated replenishment of store inventory in Australia in the near term. The total expected capital expenditure for such project is not expected to be significant (less than A$50,000). In the United States, the Company intends to transfer its general ledger and accounts payable functions from its existing computer system to its new and more powerful system in the near future. The Company also plans to relocate its enamelling operations (which are currently located 10 miles away) to the same facilities as its bar- becue and home heater manufacturing operations adjacent to its Australian headquarters, add an in-line powder coating operation and rearrange the assem- bly, warehouse and Australian distribution operations to further improve its production flow, inventory control and distribution management. These changes are currently scheduled to occur in 1998. The planned relocation of the Company's enamelling operations and related changes will cost approximately A$454,000 (of which A$369,000 has already been accrued), will require addi- tional capital expenditures of approximately A$2.2 million and will require the Company to obtain a number of building, environmental and other govern- mental permits. In addition, as the Company expands into new regions or accel- erates the rate of its U.S. store expansion, the Company may need additional warehouse capacity. In order to meet such needs, the Company intends to secure another distribution center or expand its current warehouse facilities in the United States or utilize public warehousing space, in each case depending on availability and cost at such time. There can be no assurance as to whether or when the Company will be able to effect its systems upgrades, enamelling plant relocation plans, any expansion or replacement of distribution facilities, or any other necessary operational changes that may arise, or that the Company will not incur cost overruns or disruptions in its operations in connection therewith. The failure of the Company to effect these and any other necessary operational changes on a timely basis would adversely affect the ability of the Company to implement its growth strategy and, therefore, its business, financial condition and operating results. See "Business--Manufacturing," "Business--Distribution" and "Business--Management Information Systems." 13 COMPETITION The retail and distribution markets for barbecues and the Company's other product offerings are highly competitive in both the United States and Austra- lia. The Company's retail operations compete against a wide variety of retail- ers, including mass merchandisers, discount or outlet stores, department stores, hardware stores, home improvement centers, specialty patio, fireplace or cooking stores, warehouse clubs and mail order companies. The Company's man- ufacturing and wholesale operations compete with many other manufacturers and distributors throughout the world, including high-volume manufacturers of bar- becues and home heaters. Barbeques Galore competes for retail customers pri- marily based on its broad assortment of competitively priced, quality products (including proprietary and exclusive products), convenience, customer service and the attractive presentation of merchandise within its stores. Many of the Company's competitors have greater financial, marketing, distribution and other resources than the Company, and particularly in the United States, may have greater name recognition than the Company. Furthermore, the lack of significant barriers to entry into the Company's segment of the retail industry may also result in new competition in the future. See "Business--Competition." SEASONALITY; WEATHER; FLUCTUATIONS IN RESULTS The Company's business is subject to substantial seasonal variations which have caused, and are expected to continue to cause, its quarterly results of opera- tions to fluctuate significantly. Historically, the Company has realized a major portion of its net sales and a substantial portion of its net income for the year during summer months and holiday seasons when consumers are more likely to purchase barbecue products, camping equipment and outdoor furniture. In anticipation of its peak selling seasons (late spring and early summer), the Company substantially increases its inventory levels and hires a significant number of part-time and temporary employees. In non-peak periods, such as late winter and early fall, the Company has regularly experienced monthly losses. Since the Company has historically derived a greater portion of its sales from its larger Australian store base, these seasonal trends have generally resulted in increased sales and income during the Australian summer months of November through January and substantially lower-than-average sales and income during the months of February, March, May and July. The Company believes this is the general pattern associated with its segment of the Australian retail industry and expects this pattern will continue in the future. Partially offsetting the effects of seasonality, the Company operates in both the Southern and Northern hemispheres, which have opposite seasons, and offers fireplace products and (in Australia) home heaters in the fall and winter months. However, sales of any of the Company's major product lines (in particular, home heaters) may vary widely in peak seasons depending on, among other things, prevailing weather patterns, local climate conditions, actions by competitors and shifts in timing of holi- days. The Company's quarterly and annual results of operations may also fluc- tuate significantly as a result of a variety of other factors, including the timing of new store openings, releases of new products and changes in merchan- dise mix throughout the year. The Company has in the past experienced quarterly losses, particularly in its fiscal first quarter, and expects that it will experience such losses in the future. Because of these fluctuations in oper- ating results, the results of operations in any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. If for any reason the Company's sales or gross margins during peak seasons or periods were substantially below expectations, the Company's quarterly and annual results would be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RELIANCE ON SYSTEMS The Company relies upon its existing management information systems in oper- ating and monitoring all major aspects of the Company's business, including sales, gross margins, warehousing, distribution, purchasing, inventory control, financial, accounting and human resources. The Company's reliance upon such systems will likely increase upon the anticipated introduction of automated store replenishment in Australia. Any disruption in the operation of the Company's management information systems, or the Company's failure to continue to upgrade, integrate or expend capital on such systems as its business expands, could have a material adverse effect upon the Company's business, operating results and financial condition. Like many computer systems, the Company's Wang computer system in Australia uses two digit data fields which recognize dates using the assumption that the first two digits are "19" (i.e., the number 97 is recognized as the year 1997). Therefore, in the Australian system, the Company's date critical functions relating to the year 2000 and beyond, such as sales, distribution, purchasing, inventory control, financial and human resource systems, may be adversely affected unless changes are made to this computer system. The Company expects to resolve these issues in a timely manner and is currently engaged in a review of all existing computer systems in order to implement the required changes, which may entail replacing the existing system. The Company expects that upgrades to its computer systems with respect to the year 2000 problem will require capital expenditures of approximately A$1.0 million. However, no assurance can be given that these issues can be resolved in a cost-effective or timely manner or that the Company will not incur significant expense in resolving these issues. The Company's newly installed computer system in the United States has been designed to avoid the occurrence of such problems with the year 2000. See "Business--Management Information Systems." 14 DEPENDENCE ON KEY EMPLOYEES The Company's success is largely dependent on the efforts and abilities of its executive officers, particularly, Sam Linz, Chairman of the Board, Robert Gavshon, Deputy Chairman of the Board, John Price, Head of Research and Product Development and Director, and Sydney Selati, President of The Galore Group (USA), Inc. and Director. These individuals have an average of 15 years of experience with the Company and have chief responsibility for the development of the Company's current business and growth strategies. The Company does not have employment contracts with any of its executive officers. The loss of the services of these individuals or other key employees could have a material adverse effect on the Company's business, operating results and financial con- dition. The Company's success is also dependent upon its ability to continue to attract and retain qualified employees to meet the Company's needs for its new store expansion program in the United States and its store refurbishment plans in Australia. In August 1997, the Company appointed a chief operating officer for its U.S. operations to manage daily operations in the United States, per- mitting Mr. Selati to concentrate on the Company's U.S. growth strategy. See "Business--Growth Strategy" and "Management." RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; DEPENDENCE ON SIGNIFICANT VENDORS AND SUPPLIERS Barbeques Galore, with its headquarters, manufacturing, enamelling, wholesale and non-U.S. store operations in Australia, transacts a majority of its busi- ness in Australia and obtains a significant portion of its merchandise, parts and raw materials from China, Taiwan, Indonesia, Thailand, Italy and other mar- kets outside of the United States and Australia. There are risks inherent in doing business in international markets, including tariffs, customs, duties and other trade barriers, difficulties in staffing and managing foreign operations, political instability, expropriation, nationalization and other political risks, foreign exchange controls, technology export and import restrictions or prohibitions, delays from customs brokers or government agencies, seasonal reductions in business activity, subjection to multiple taxation regimes and potentially adverse tax consequences, any of which could materially adversely affect the Company's business, operating results and financial condition. The Company purchases certain of its finished inventory and manufacturing parts and all of its raw materials from numerous vendors and suppliers and generally has no long-term purchase contracts with any vendor or supplier. During the twelve months ended January 31, 1997, the Company purchased inventory from over 400 vendors in the United States, Australia and the Far East. In such period, approximately 25% of the Company's merchandise purchases were obtained from the Company's ten largest vendors. Although no vendor accounted for more than 5% of the Company's merchandise purchases in such period (other than Horan's Steel 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 19% and 21%, respectively, of the Company's factory parts and raw material purchases, and approximately 73% of the Company's factory parts and raw material purchases were obtained from the Company's ten largest suppliers. The Company's results of operations could be adversely affected by a disruption in purchases from any of these key vendors or suppliers or from volatility in the prices of such parts or raw materials, especially the price of steel, which has fluctuated in the past. In addition, some of the Company's key suppliers currently provide the Company with certain incentives, such as volume and trade discounts as well as other purchasing incentives. A reduction or discontinuance of these incen- tives 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. See "Business--Purchasing." PRODUCT LIABILITY AND GOVERNMENTAL AND OTHER REGULATION Many of the Company's products use gas and flame and, consequently, are subject to regulation by authorities in both the United States and Australia in order to protect consumers, property and the environment. For example, the Company's products and the personal use thereof are subject to regulations relating to, among other things, the use of fire in certain locations (particularly restric- tions relating to the availability or frequency of use of wood heating in homes and barbecues in apartments), restrictions on the sale or use of products that enhance burning potential such as lighter fluid, restrictions on the use of gas in specified locations (particularly restrictions relating to the use of gas containers in confined spaces) and restrictions on the use of wood burning heaters. Compliance with such regulations has not in the past had, and is not anticipated to have, a material adverse effect on the Company's business, oper- ating results and financial condition. Nonetheless, such regulations have had, and can be expected to have, an increasing influence on product claims, manu- facturing, contents, packaging and heater usage. In addition, failure of a product could give rise to product liability claims if customers, employees or third parties are injured or any of their property is damaged while using a Company product. Such injury could be caused, for example, by a gas valve mal- function, gas leak or an unanticipated flame-up resulting in injury to 15 persons and/or property. Even if such circumstances were beyond the Company's control, the Company's business, operating results and financial condition could be materially adversely affected. In the event of such an occurrence, the Company could incur substantial litigation expense, receive adverse publicity, suffer a loss of sales or all or any of the foregoing. Although the Company maintains liability insurance in both Australia and the United States, there can be no assurance that such insurance will provide sufficient coverage in any particular case. In Australia, the limit of the Company's product liability coverage is A$20 million. In the United States, the Company's U.S. operating subsidiary is covered by a policy having general liability coverage limited at US$12 million and third party liability coverage limited at US$11 million. There is no assurance that certain jurisdictions in which the Company operates will not impose additional restrictions on the sale or use of the Company's products. In addition, the Company's barbecue and home heater manufacturing and enamel- ling operations are subject to regulations governing product safety and qual- ity, the discharge of materials hazardous to the environment, water usage, workplace safety and labor relations. The Company's distribution facilities are also subject to workplace safety and labor relations regulations. The Company believes that it is in substantial compliance with such regulations. The sale of certain products by the Company may result in technical violations of cer- tain of the Company's leases. These or other regulations and restrictions could have a material adverse effect on the Company's business, operating results or financial condition. See "Business--Properties" and "Business--Governmental Regulation." UNCERTAINTIES REGARDING MANUFACTURING AND DISTRIBUTION OF MERCHANDISE The Company manufactures a substantial portion of the barbecues and home heaters sold in its stores and distributes merchandise to Barbeques Galore stores primarily from its distribution centers located at its headquarters in Australia and Irvine, California. Throughout the manufacturing process, the Company utilizes heavy machinery and equipment to produce and assemble barbe- cues and home heaters from parts and raw materials supplied from numerous third party suppliers. In distributing merchandise, the Company relies upon third party sea carriers to ship its manufactured products from Australia to the United States, as well as third party surface freight carriers to transport all its merchandise from its distribution centers and warehouses to stores. Accord- ingly, the Company is subject to numerous risks associated with the manufac- turing and distribution of its merchandise, including supply interruptions, mechanical risks, labor stoppages or strikes, inclement weather, import regula- tion, changes in fuel prices, changes in the prices of parts and raw materials, economic dislocations and geopolitical trends. In addition, the Company believes that, while its distribution facilities are sufficient to meet Barbeques Galore's current needs, the Company may need another distribution center or larger facilities in the United States or Australia to support the further growth and expansion of stores. See "--Product Liability and Govern- mental and Other Regulation," "Business--Manufacturing" and "Business--Distri- bution." RISKS RELATED TO FRANCHISED AND LICENSED STORES As of July 31, 1997, there were 45 licensed stores in Australia and six franchised stores in the United States, all of which are operated under the "Barbeques Galore" name by independent licensees or franchisees who purchase proprietary and other store products, and receive support services, from the Company. The licensees and franchisees operate such stores pursuant to agree- ments which typically permit licensees and franchisees to assign the agreements to their immediate family and provide the licensees and franchisees with exclu- sive geographical sales territories. The Company monitors its licensed and franchised stores to assure their conformity to Barbeques Galore's standards and image and requires the licensees and franchisees to comply with Barbeques Galore's merchandising and advertising guidelines. Although the Company believes that its licensees and franchisees are presently in substantial com- pliance with Company guidelines and that its license and franchise arrangements have not been problematic in any material respect in the past, serious or pro- tracted failures by licensees or franchisees to adhere to Company standards could adversely affect customer loyalty and diminish the Company's brand name or reputation for quality products and services, and could require the Company to devote significant management attention and resources to enforcing its rights under such agreements. Conversely, if the Company fails to provide ade- quate support services or otherwise breaches its contractual obligations to any licensee or franchisee, such failure or breach could result in termination of, or litigation relating to, the relevant licensing or franchise agreement and the loss of fees and sales revenue thereunder. The licensing agreements in Aus- tralia are terminable at will (absent fraud) by the licensees only, generally upon sixty days' notice. See "Business--Licensing and Franchising." CURRENCY FLUCTUATIONS The Company intends to publish its consolidated financial statements in Austra- lian dollars, but a substantial portion of the Company's revenues and expenses are denominated in U.S. dollars and, to a lesser extent, other foreign curren- cies. Accord- 16 ingly, the Company is subject to risks of currency exchange to the extent of currency fluctuations between the Australian dollar and the U.S. dollar or other currencies in which the Company transacts its business. This currency imbalance has resulted in, and may continue to result in, foreign currency transaction gains and losses. In the past, the Company's Australian operations have hedged a major portion of its imports against exchange rate fluctuations with respect to the Australian dollar. However, in its U.S. operations, the Company has not, and it currently does not, actively hedge against exchange rate fluctuations, although it may elect to do so in the future. Accordingly, changes in exchange rates may have a material adverse effect on the Company's net sales, cost of goods sold, gross margin and net income, any of which alone or in the aggregate may in turn have a material adverse effect on the Company's business, operating results and financial condition. Such currency issues could, thus, affect the market price for the ADSs. Although the Company does not anticipate paying any regular cash dividends on the Ordinary Shares or the ADSs in the foreseeable future, the above exchange rate fluctuations would affect the conversion into U.S. dollars (for payment to holders of ADSs) by the Depositary of any cash dividends paid in Australian dollars on the Ordinary Shares represented by the ADSs. See "Exchange Rates," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of American Depositary Receipts." CONTROL OF THE COMPANY Immediately prior to the Offering, Messrs. Sam Linz, Robert Gavshon, Sydney Selati and John Price will beneficially own 42.5%, 7.3%, 4.8% and 2.4%, respec- tively, of the outstanding Ordinary Shares of the Company (assuming conversion of the Convertible Notes). Immediately after giving effect to the Offering, Messrs. Linz, Gavshon, Selati and Price will beneficially own 26.2%, 4.5%, 3.0% and 1.5%, respectively, of the outstanding Ordinary Shares of the Company. If these individuals as a group were to vote in the same manner on any matter requiring approval of a majority of the outstanding Ordinary Shares of the Com- pany, such shareholders would likely control the outcome of such vote. Accord- ingly, these shareholders may be able to control the election of the Company's directors and the outcome of corporate actions requiring shareholder approval, such as mergers and acquisitions, regardless of how many other shareholders of the Company may vote. From time to time, the Company has entered into transac- tions with certain of these shareholders or with companies controlled by them. The Company believes that these transactions were completed on terms at least as favorable to the Company as could have been obtained from unaffiliated third parties. Such transactions and any future transactions between the Company and its directors, executive officers and other affiliates must be approved by a majority of the Company's disinterested directors. See "Certain Transactions," "Principal Shareholders," "Selling Shareholders" and "Description of Ordinary Shares" and Note 16 to the Consolidated Financial Statements. RESTRICTIONS ON FOREIGN OWNERSHIP; ANTITAKEOVER RESTRICTIONS Under Australian law, foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval from the Australian Treasurer or in certain other limited circumstances. These limi- tations are set forth in the Australian Foreign Acquisitions and Takeovers Act (the "Takeovers Act"). Under the Takeovers Act, as currently in effect, any foreign person, together with associates, is prohibited from acquiring 15% or more of the outstanding shares of the Company. In addition, if a foreign person acquires shares in the Company and as a result the total holdings of all for- eign persons and their associates exceeds 40% in the aggregate without the approval of the Australian Treasurer, then the Treasurer may make an order requiring the acquiror to dispose of those shares within a specified time. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that under current foreign investment policy, however, it is unlikely that the Treasurer would make such an order where the level of foreign owner- ship exceeds 40% in the ordinary course of trading, unless the Treasurer finds that the acquisition is contrary to the national interest. The same rule applies if the total holdings of all foreign persons and their associates already exceeds 40% and a foreign person (or its associate) acquires any fur- ther shares, including in the course of trading in the secondary market of the ADSs. If all of the ADSs offered hereby are acquired by foreign persons or their associates, then the level of foreign ownership of the Company's equity securities will be approximately 51.6% (or approximately 58.3% if the Under- writers' over-allotment option is exercised in full). The level of foreign own- ership could also increase in the future if existing Australian investors decide to sell their shares into the U.S. market or if the Company were to sell additional Ordinary Shares or ADSs in the future. In addition, once the level of foreign ownership exceeds 40%, the Company would be considered a foreign person and would require approvals in connection with certain acquisitions in Australia. 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 17 acquired by merger or asset sale pursuant to which such stock options are not assumed or replaced by the successor corporation shall become immediately exer- cisable 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 200,000 Ordinary Shares underlying stock options to be granted concurrently with the Offering under the 1997 Share Option Plan, which, barring acceleration, will become exercisable according to the terms of the 1997 Share Option Plan. Such invest- ment 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 (espe- cially foreign entities, in the case of the Takeovers Act) to acquire the Com- pany, including attempts that might result in a premium over market price to holders of ADSs. See "Management--Executive Share Option Plan," "Management-- 1997 Share Option Plan" and "Description of Ordinary Shares--Australian Take- over Laws." The Memorandum and Articles of Association of the Company (collectively, the "Articles") contain certain provisions that could impede any merger, consolida- tion, takeover or other business combination involving the Company or dis- courage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company. Provisions contained in the Articles, among other things, (i) in effect divide the Board of Directors of the Company into three classes, which serve for staggered three-year terms, (ii) provide that the shareholders may amend or repeal special resolutions, including changes to the Articles and extraordinary transactions, only by a vote of at least 75% of the votes cast at a meeting at which a quorum is present, (iii) require extended notice (of up to 21 days) for special resolutions considered by the Board of Directors, and (iv) authorize the Board of Directors, without any vote or action by shareholders of the Company, to issue, out of the Company's autho- rized and unissued capital shares, shares in different classes, or with spe- cial, preferred or deferred rights, which may relate to voting, dividend, return of capital or any other matter. Although the Company currently has no plans to issue any preferred shares, the rights of the holders of Ordinary Shares or ADSs will be subject to, and may be adversely affected by, the rights of the holders of any preferred or senior share that may be issued in the future. The issuance of any preferred or senior shares, and the other provi- sions of the Articles referred to above, could have the effect of making it more difficult for a third party to acquire control of the Company. See "De- scription of Ordinary Shares." Australian law requires the transfer of shares in the Company to be made in writing, and stamp duty at the rate of 0.6% is payable in relation to any transfer of shares. No stamp duty will be payable in Australia on the transfer of ADSs provided that any instrument by which the ADSs are transferred is exe- cuted outside Australia. In certain circumstances, nonresidents of Australia may be subject to Austra- lian tax on capital gains made on the disposal of shares or ADSs. These circum- stances are described in "Certain Tax Considerations--Australian Taxation." ENFORCEABILITY OF CIVIL LIABILITIES The Company is an Australian public limited company. Most of its directors and executive officers reside outside the United States (principally in the Common- wealth of Australia). All or a substantial portion of the assets of these per- sons and of the Company are located outside the United States (principally in the Commonwealth of Australia). As a result, it may not be possible for investors to effect service of process within the United States upon such per- sons or the Company or to enforce against such persons or the Company in for- eign courts judgments obtained in United States courts predicated upon the civil liability provisions of the Federal securities laws of the United States. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that there is doubt as to the enforceability in the Commonwealth of Aus- tralia, in original actions or in actions for enforcement of judgments of U.S. courts, of civil liabilities predicated upon federal or state securities laws of the United States, especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served in Australia. See "Description of Ordinary Shares." SHARES ELIGIBLE FOR FUTURE SALE The Company has granted stock options to purchase up to an aggregate of 203,038 Ordinary Shares (the "Options") under the Company's Executive Share Option Plan to Sam Linz, Robert Gavshon, Sydney Selati and John Price (or companies con- trolled by them), and will grant concurrently with the Offering stock options, with an exercise price equal to the initial public offering price set forth on the cover page of this prospectus, to purchase up to an aggregate of 200,000 Ordinary Shares under the 1997 Share Option Plan. Each of the stock options granted concurrently with the Offering will generally become exercisable in three equal installments on the third, fourth and fifth anniversaries of the Offering. The Company has also reserved an additional 129,254 authorized and unissued Ordinary Shares to grant pursuant to stock options to 18 directors, officers, employees and independent contractors of the Company at a future date under the 1997 Share Option Plan. The Company may in the future issue these or other equity or equity derivative securities. See "Management-- Executive Share Option Plan" and "Management--1997 Share Option Plan." After giving effect to the Offering and assuming no exercise of any of the Options subsequent to July 31, 1997, existing shareholders (including those who held Convertible Notes until immediately prior to the Offering) of the Company will continue to own 2,591,652 Ordinary Shares (2,239,152 Ordinary Shares if the Underwriters' over-allotment option is exercised in full), in the aggregate representing 52.4% of the Company's then outstanding Ordinary Shares (or 45.3% if the Underwriters' over-allotment option is exercised in full). Immediately after the Offering, all of the ADSs offered hereby will be freely tradable, an additional 1,706,537 Ordinary Shares will be eligible for sale in the public market, without any holding period, subject to compliance with Rule 144 ("Rule 144") under the Securities Act and an additional 885,115 Ordinary Shares (532,615 Ordinary Shares if the Underwriters' over-allotment option is exercised in full), including the Ordinary Shares issued upon con- version of the Convertible Notes and not sold in the Offering, will be eli- gible for sale in the public market, subject to compliance with Rule 144, after completion of a one-year holding period in December 1997. All holders of restricted shares have agreed with the representatives of the Underwriters that they will not offer, sell, contract to sell or otherwise dispose of any Ordinary Shares or ADSs, or securities convertible into or exchangeable or exercisable for Ordinary Shares or ADSs for a period of 180 days after the date of this Prospectus without the written consent of J.P. Morgan Securities Inc., which consent may be given in such institution's sole discretion. Sales of substantial amounts of such Ordinary Shares or ADSs or other securities, or the prospect of such sales, could adversely affect the market price of the Ordinary Shares or the ADSs and the Company's ability to raise capital through an offering of securities. See "Shares Eligible for Future Sale." ABSENCE OF PUBLIC MARKET FOR ORDINARY SHARES OR ADSS; POSSIBLE VOLATILITY OF ADS PRICE In April 1987, the Company listed its Ordinary Shares on the Australian Stock Exchange Limited (the "ASE"). In October 1996, as part of its plan to accel- erate its new store expansion in the United States, the Company announced its intention to repurchase shares from the public and delist from the ASE pur- suant to a transaction which was consummated on December 31, 1996. At such time, the Company repurchased an aggregate of 2,743,872 Ordinary Shares at A$7.29 per share, or A$20,000,677 in the aggregate. In addition, all out- standing stock options under the Company's prior share option plan were can- celled in exchange for an aggregate payment of A$77,500, including the cancel- lation of stock options to purchase an aggregate of 74,082 Ordinary Shares at A$0.91 per share and the cancellation of stock options to purchase an aggre- gate of 27,437 Ordinary Shares at A$0.36 per share. From such time until the consummation of the Offering, there has been no public market for the Company's Ordinary Shares, and at no time has there been a public market for the ADSs. Although application has been made to have the ADSs approved for quotation on the Nasdaq National Market, there can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. The initial public offering price of the Company's ADSs will be determined by negotiation between the Company and the representatives of the Underwriters. In addition, the market price of the ADSs may be significantly affected by such factors as quarter to quarter variations in the Company's results of operations and general market conditions or market conditions spe- cific to the industries in which the Company operates. In addition, the stock market in recent years has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of com- panies. These fluctuations, as well as general economic and market conditions, may adversely affect the market price of the Ordinary Shares or ADSs. There can be no assurance that the Depositary will be able to effect any currency conversion or to sell or otherwise dispose of any distributed or offered prop- erty, subscription or other rights, Ordinary Shares or other securities related to the ADSs in a timely manner or at a specified rate or price, as the case may be. See "Certain Transactions--Recent Delisting Transaction," "De- scription of American Depositary Receipts" and "Underwriting." DILUTION The public offering price of the ADSs (on a per underlying Ordinary Share basis) is substantially higher than the book value per share of the out- standing Ordinary Shares. Investors purchasing ADSs in this Offering will therefore incur immediate, substantial dilution. The dilution per share to new investors, after giving effect to the Offering at an assumed initial public offering price of US$15.00 per share, would have been US$7.14 as of July 31, 1997. See "Dilution." 19 EXCHANGE RATES The Australian dollar is convertible into U.S. dollars at freely floating rates, and there are currently no restrictions on the flow of Australian cur- rency between Australia and the United States. On October 9, 1997, the Noon Buying Rate was US$0.7342 = A$1.00. The following table sets forth, for the periods indicated, certain information concerning Noon Buying Rates for Austra- lian dollars.
----------------------------------- TWELVE MONTHS ENDED JANUARY 31, AVERAGE(1) HIGH LOW PERIOD END ------------------------------- ---------- ------ ------ ---------- 1993 First Quarter........................ 0.7582 0.7705 0.7457 0.7550 Second Quarter....................... 0.7525 0.7644 0.7425 0.7441 Third Quarter........................ 0.7209 0.7440 0.6952 0.6958 Fourth Quarter....................... 0.6852 0.7013 0.6689 0.6802 1994 First Quarter........................ 0.7020 0.7217 0.6692 0.7073 Second Quarter....................... 0.6837 0.7095 0.6655 0.6900 Third Quarter........................ 0.6639 0.6916 0.6450 0.6665 Fourth Quarter....................... 0.6782 0.7108 0.6569 0.7086 1995 First Quarter........................ 0.7143 0.7248 0.7016 0.7155 Second Quarter....................... 0.7312 0.7452 0.7041 0.7395 Third Quarter........................ 0.7400 0.7458 0.7303 0.7425 Fourth Quarter....................... 0.7649 0.7780 0.7404 0.7566 1996 First Quarter........................ 0.7383 0.7590 0.7229 0.7282 Second Quarter....................... 0.7248 0.7442 0.7088 0.7385 Third Quarter........................ 0.7508 0.7704 0.7312 0.7595 Fourth Quarter....................... 0.7427 0.7607 0.7339 0.7463 1997 First Quarter........................ 0.7717 0.7915 0.7483 0.7875 Second Quarter....................... 0.7926 0.8025 0.7727 0.7727 Third Quarter........................ 0.7895 0.7998 0.7731 0.7917 Fourth Quarter....................... 0.7908 0.8162 0.7623 0.7623 1998 First Quarter........................ 0.7786 0.7982 0.7574 0.7806 Second Quarter....................... 0.7572 0.7866 0.7349 0.7478 Third Quarter (through October 9, 1997)............................... 0.7314 0.7508 0.7155 0.7342
- ------- (1) Determined by averaging the closing price for each date in the period. Fluctuations in the exchange rate between the Australian dollar and the U.S. dollar may affect the Company's earnings, the book value of its assets and its shareholders' equity as expressed in Australian and U.S. dollars, and conse- quently may affect the market price for the ADSs. Such fluctuations will also affect the conversion into U.S. dollars by the Depositary of cash dividends, if any, paid in Australian dollars on the Ordinary Shares represented by the ADSs. See "Dividend Policy" and "Description of American Depositary Receipts--Distri- butions on Deposited Securities." 20 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,900,000 ADSs being offered by the Company hereby at an assumed initial public offering price of US$15.00 per ADS (the midpoint of the range on the cover page of this Prospec- tus), after deducting estimated underwriting discounts and offering expenses, are estimated to be US$25.4 million. The Company will not receive any proceeds from the sale of the 450,000 ADSs (802,500 ADSs if the Underwriters' over- allotment option is exercised in full) by the Selling Shareholders. The Company intends to use the net proceeds to the Company from the Offering as follows: (i) approximately A$21.0 million (approximately US$15.3 million) to be used for repayment of outstanding indebtedness (including A$11.2 million of indebtedness incurred in connection with the Capital Reduction) under the credit facility (the "ANZ Facility") by and between the Company and the Australian and New Zealand Banking Group Limited ("ANZ"), (ii) approximately US$1.8 million to be used for repayment of all outstanding indebtedness under a term loan and revolving line of credit facility (the "Merrill Lynch Facility") by and between Barbeques Galore, Inc., the Company's U.S. operating subsidiary (along with its U.S. parent, The Galore Group (USA), Inc., "Galore USA"), and Merrill Lynch Business Financial Services, Inc. ("Merrill Lynch"), and (iii) approximately A$11.4 million (approximately US$8.3 million) to be used for expansion of the Company's operations in the United States. The Company's borrowing under the ANZ Facility relating to its real property loan (in the aggregate, A$2.2 million at an interest rate of 9.35% per annum) provides for a variable prepayment penalty depending on the term of the loan. As of October 1997, the penalty would be approximately A$100,000. In light of recent declines in interest rates, the Company will periodically assess whether prepayment is economically advantageous. The majority of the remainder of the Company's borrowings under the ANZ Facility are commercial paper borrowings bearing interest, as of October 1997, at approximately 5.1% per annum plus an additional percentage fee payable to ANZ of approximately 1.25%. There are no significant prepayment penalties associated with these loans. The Company anticipates that approximately A$10.7 million will be outstanding under the ANZ Facility subsequent to the application of the net proceeds of the Offering, of which, approximately A$8.5 million will constitute outstanding trade financing which typically matures within six months of draw down. The Company may use proceeds from the Offering to repay, in whole or in part, outstanding trade financing before it becomes due. The revolving line and the term loan under the Merrill Lynch Facility accrue interest at the 30-day commercial paper rate plus 2.65% and 2.70%, respectively. There are no prepayment penalties associated with the Merrill Lynch Facility. Any remaining net proceeds of the Offering are expected to be used for working capital and general corporate purposes. Pending such uses, the Company intends to apply the net proceeds of the Offering to repay short-term debt or invest the net proceeds in short-term, interest- bearing investment grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources" and "Certain Transactions--Recent Delisting Transaction." DIVIDEND POLICY Since the Ordinary Shares were delisted from the ASE on December 31, 1996, the Company has not declared or paid any cash dividends on its Ordinary Shares other than a dividend in an aggregate amount equal to A$500,000 paid on April 21, 1997. Following the Offering, the Company currently intends to retain any earnings for use in its business and does not anticipate paying any regular dividends on the Ordinary Shares or ADSs in the foreseeable future. The ANZ and Merrill Lynch Credit Facilities contain restrictions on the declaration or pay- ment of dividends by the Company. 21 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of July 31, 1997, as adjusted to (i) reflect the Reverse Share Split, (ii) reflect the conversion of the outstanding Convertible Notes of the Company into 1,197,926 Ordinary Shares upon consummation of the Offering and (iii) give effect to the sale of the 1,900,000 ADSs offered by the Company hereby at an assumed initial public offering price of US$15.00 per ADS, after deducting estimated underwriting discounts and offering expenses payable by the Company, and the application of the estimated net proceeds therefrom. This table should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
------------------------------- AS OF JULY 31, 1997 AS AS ACTUAL ADJUSTED ADJUSTED(2) Dollars in thousands -------- -------- ----------- Current portion of long-term debt............. A$ 8,567 A$ 4,662 US$ 3,486 ======== ======== ========= Long-term debt................................ 21,745 2,150 1,608 Convertible Notes............................. 10,042 -- -- Shareholders' equity: Ordinary Shares, A$3.64 par value: 27,437,853 shares authorized; 1,843,726 shares issued and outstanding, actual; 4,941,652 shares issued and outstanding, as adjusted(1)...... 6,720 17,988 13,451 Additional paid-in capital.................... 4,613 37,359 27,937 Foreign currency translation adjustment....... 380 380 284 Retained deficit.............................. (2,753) (2,753) (2,059) -------- -------- --------- Total shareholders' equity.................. 8,960 52,974 39,613 -------- -------- --------- Total capitalization........................ A$40,747 A$55,124 US$41,221 ======== ======== =========
- ------- (1) Excludes an aggregate of 203,038 Ordinary Shares issuable upon the exercise of stock options granted to certain executives of the Company in January 1997, but not exercisable until February 1999, except under certain circumstances. Also excludes 200,000 Ordinary Shares issuable upon the exercise of stock options granted under the Company's 1997 Share Option Plan concurrently with the Offering, but not exercisable until the third anniversary of the Offering. See "Management--Executive Share Option Plan" and "Management--1997 Share Option Plan." (2) Amounts translated at the Noon Buying Rate on July 31, 1997 of US$0.7478 = A$1.00. 22 DILUTION The following table presents certain information concerning the pro forma net tangible book value per share of the Ordinary Shares as of July 31, 1997 (i) as adjusted to reflect the Reverse Share Split, (ii) assuming the conversion of the outstanding Convertible Notes of the Company into 1,197,926 Ordinary Shares upon consummation of the Offering and (iii) as adjusted to reflect the sale of 1,900,000 ADSs by the Company in the Offering, at an assumed initial public offering price of US$15.00 per share, after deducting the estimated under- writing discounts and offering expenses:
---------------- Assumed initial public offering price......................... US$15.00 Net tangible book value per Ordinary Share before the Offering(1)................................................ US$2.96 Increase per share attributable to new investors............ 4.90 ------- Pro forma net tangible book value per Ordinary Share after the Offering..................................................... 7.86 -------- Dilution per share to new investors(2)........................ US$ 7.14 ========
- ------- (1) Net tangible book value per Ordinary Share is determined by dividing the Company's tangible net worth at July 31, 1997 (translated into US$5,454,000 solely for the convenience of the reader at the rate of A$1.00 = US$0.7478, the Noon Buying Rate on July 31, 1997) by the aggregate number of Ordinary Shares outstanding. See "Exchange Rates." (2) Dilution is determined by subtracting net tangible book value per Ordinary Share after the Offering from the initial public offering price per ADS. The following table summarizes on a pro forma basis, as of July 31, 1997, the difference between existing shareholders and the purchasers of ADSs in the Offering (at an assumed initial public offering price of US$15.00 per ADS) with respect to the number of Ordinary Shares purchased from the Company, the total consideration paid and the average price per Ordinary Share paid by existing shareholders and by purchasers of the ADSs offered hereby (before deducting estimated underwriting discounts and offering expenses payable by the Company).
------------------------------------------------------------------- ORDINARY SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER ORDINARY SHARE --------- -------- ------------ ---------- ------------------ In thousands, except per share data Existing shareholders... 3,042 62% US$15,984 36% US$ 5.25 New investors........... 1,900 38 28,500 64 15.00 --------- ------- ------------ ------ Total................. 4,942 100% US$44,484 100% ========= ======= ============ ======
The foregoing tables assume no exercise of stock options outstanding as of July 31, 1997. As of such date, there were stock options outstanding to purchase an aggregate of 203,038 Ordinary Shares at a weighted average exercise price of A$8.38 per share under the Executive Share Option Plan. The foregoing table also excludes stock options outstanding to purchase an aggregate of 200,000 Ordinary Shares at a weighted average exercise price equal to the initial public offering price per share set forth on the cover page of this Prospectus under the 1997 Share Option Plan and 129,254 stock options reserved for grant thereunder. Stock options under the Executive Share Option Plan are not exer- cisable until February 1999, at which time they will become fully exercisable. Stock options granted concurrently with the Offering under the 1997 Share Option Plan will become exercisable in three equal installments on the third, fourth and fifth anniversaries of the Offering. To the extent that any such stock option is exercised, there will be further dilution to new investors in the Offering. Assuming all stock options outstanding on the date of completion of the Offering were exercised in full, the dilution per share to new investors in the Offering would have been US$7.73 as of July 31, 1997. 23 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data of the Company should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this Prospectus. The statement of oper- ations data for the fiscal years ended June 30, 1994, 1995 and 1996 and the balance sheet data as of such dates were derived from the consolidated finan- cial statements of the Company for the fiscal years ended June 30, 1994, 1995 and 1996, which have been audited by Horwath Sydney Partnership, independent auditors, and are included elsewhere in this Prospectus. The statement of oper- ations data for the fiscal years ended June 30, 1992 and 1993 and the balance sheet data as of such date were derived from the consolidated financial state- ments of the Company for the fiscal years ended June 30, 1992 and 1993, which have been audited by Horwath Sydney Partnership, but are not included herein. The statement of operations data for the seven months ended January 31, 1997 and the balance sheet data as of such date have been derived from the consoli- dated financial statements of the Company for the seven months ended January 31, 1997, which have been audited by KPMG, independent certified public accoun- tants, and are included elsewhere herein. The selected consolidated financial data for the seven months ended January 31, 1996 and the balance sheet data as of such date were derived from the foregoing consolidated financial statements of the Company for the fiscal year ended June 30, 1996 and are unaudited, and in the opinion of management include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the information included therein.
-------------------------------------------------------------------------------------------------- SEVEN MONTHS ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31,(1) In thousands, except per 1992 1993 1994 1995 1996 1996 1996 1997 1997 share data --------- --------- --------- --------- --------- ---------- ----------- --------- --------- (US$) (UNAUDITED) (US$) STATEMENT OF OPERATIONS DATA: Net sales............... A$127,298 A$114,973 A$124,635 A$138,057 A$141,691 US$113,027 A$ 92,074 A$ 98,752 US$78,212 Cost of goods sold(2)... 80,785 82,630 84,104 92,290 98,158 78,301 62,789 67,955 53,820 --------- --------- --------- --------- --------- ---------- ---------- --------- --------- Gross profit............ 46,513 32,343 40,531 45,767 43,533 34,726 29,285 30,797 24,392 Selling, general and administrative expenses............... 40,185 27,992 35,462 40,058 39,339 31,381 24,328 25,740 20,386 Store pre-opening costs.................. -- 205 135 64 153 122 114 200 158 Relocation and closure costs(3)............... -- -- -- -- 875 698 -- 461 365 --------- --------- --------- --------- --------- ---------- ---------- --------- --------- Operating income (loss)................. 6,328 4,146 4,934 5,645 3,166 2,525 4,843 4,396 3,483 Equity in income of affiliates, net of tax................. 449 412 660 963 836 667 709 252 200 Interest expense........ 3,728 2,526 1,999 2,230 2,262 1,804 1,619 1,593 1,262 Other expense (income)(4)............ 3,747 -- -- -- (2,303) (1,837) (2,303) 1,132 897 --------- --------- --------- --------- --------- ---------- ---------- --------- --------- Income (loss) before income tax............. (698) 2,032 3,595 4,378 4,043 3,225 6,236 1,923 1,524 Income tax expense (benefit).............. 229 176 1,278 573 98 78 1,286 366 290 --------- --------- --------- --------- --------- ---------- ---------- --------- --------- Net income (loss)....... A$ (927) A$ 1,856 A$ 2,317 A$ 3,805 A$ 3,945 US$ 3,147 A$ 4,950 A$ 1,557 US$ 1,234 ========= ========= ========= ========= ========= ========== ========== ========= ========= Net income (loss) per Ordinary Share and ordinary share equivalent(5).......... A$ (0.22) A$ 0.44 A$ 0.52 A$ 0.83 A$ 0.86 US$ 0.69 A$ 1.08 A$ 0.37 US$ 0.29 ========= ========= ========= ========= ========= ========== ========== ========= ========= Weighted average shares outstanding(5)......... 4,166 4,166 4,481 4,570 4,570 4,570 4,570 4,193 4,193 ========= ========= ========= ========= ========= ========== ========== ========= ========= Pro forma supplemental net income (loss) per Ordinary Share and ordinary share equivalent(s)(6)....... A$ 0.90 US$ 0.72 A$ 0.41 US$ 0.32 ========= ========== ========= ========= In thousands BALANCE SHEET DATA: Working capital......... A$ 15,056 A$ 16,600 A$ 25,400 A$ 26,856 A$ 24,710 US$ 19,093 A$ 25,139 A$ 22,552 US$17,191 Total assets............ 58,977 55,400 60,538 67,624 66,562 51,432 67,544 67,970 51,814 Total long-term debt.... 12,314 10,223 16,988 17,690 15,819 12,223 11,631 34,276 26,129 Shareholders' equity.... 19,284 21,316 24,385 26,326 27,817 21,494 30,349 10,165 7,749 SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 17 17 21 21 19 25 25 Average net sales per store (in thousands)(7)...... A$ 1,389 A$ 1,630 A$ 1,572 US$ 1,254 A$ 862 A$ 822 US$ 651 Comparable store sales increase(8)...... -- 21.2% 10.0% 10.0% 10.0% 4.1% 4.1% Selling square feet (in thousands)............. 49.3 51.3 59.5 59.5 55.7 72.7 72.7 Sales per selling square foot................... A$ 437 A$ 519 A$ 489 US$ 390 A$ 279 A$ 251 US$ 199 SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.................... 32 31 31 31 32 32 32 Average net sales per store (in thousands)(7)...... A$ 1,719 A$ 1,844 A$ 2,081 US$ 1,660 A$ 1,446 A$ 1,658 US$ 1,313 Comparable store sales increase(9)...... -- 4.3% 8.1% 8.1% 6.0% 10.6% 10.6% Selling square feet (in thousands)............. 275.3 273.9 279.9 279.9 159.2 164.0 164.0 Sales per selling square foot................... A$ 206 A$ 216 A$ 230 US$ 183 A$ 281 A$ 312 US$ 247
24 - ------- (1) As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31 (effective January 31, 1997). (2) Cost of goods sold includes the cost of merchandise sold during the periods, distribution and store-level occupancy costs. (3) Includes A$262,000 incurred during the year ended June 30, 1996 in connec- tion with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and a A$369,000 provision accrued in January 1997 in connection with the planned relocation of the Company's enamelling facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Overview." (4) Includes a A$3.7 million loss during the year ended June 30, 1992 related to the Company's divestment of its Optics business (which was discontinued), a 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 a A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. See "Certain Transactions--Recent Delisting Transaction." (5) Based on the weighted average number of Ordinary Shares outstanding after giving effect to (i) the Reverse Share Split and (ii) a net of 120,332 Ordinary Shares issuable upon the exercise of stock options outstanding under the Execu- tive Share Option Plan calculated using the treasury stock method. Net income (loss) per Ordinary Share and ordinary share equivalent and weighted average shares outstanding reflect the Reverse Share Split for all periods presented. The outstanding Convertible Notes were not taken into account in the calcula- tion of earnings per share, as they were antidilutive. (6) The pro forma supplemental net income (loss) per Ordinary Share and ordi- nary share equivalent are computed by assuming proceeds from the Offering, which will be utilized to repay debt subsequent to the Offering, were utilized to repay the debt at the beginning of the applicable period to which earnings (loss) per share relates. The weighted average number of Ordinary Shares out- standing is increased for the number of Ordinary Shares assumed to be issued to enable repayment of such debt. (7) For stores open at beginning of period indicated. (8) The number of comparable stores used to compute such percentages was 17 for each of fiscal 1995 and 1996 and 16 and 19 for the seven-month periods ended January 31, 1996 and 1997, respectively. (9) The number of comparable stores used to compute such percentages was 32 and 31 for fiscal 1995 and 1996, respectively, and 31 and 33 for the seven-month periods ended January 31, 1996 and 1997, respectively. 25 UNAUDITED SELECTED ADDITIONAL CONSOLIDATED FINANCIAL DATA As of April 9, 1997, the Company changed its fiscal year end from June 30 to January 31. The following selected additional financial data has been restated to conform the financial presentation to a January 31 fiscal year end, and are qualified by reference to and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Selected Consolidated Financial Data of the Company and the consolidated finan- cial statements and notes thereto included elsewhere in this Prospectus 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 com- parison between prospective and historical reporting periods, as the Company will continue to report financial information in the future on the basis of its current January 31 fiscal year end. All selected conformed additional financial data for the six-month and twelve-month periods presented below is unaudited but, in the opinion of management, has been prepared on the same basis as the audited consolidated financial statements of the Company and reflects all adjustments necessary for a fair presentation of such data. The selected addi- tional unaudited financial data as of and for the twelve months ended January 31, 1995, 1996 and 1997 has been derived from the unaudited consolidated finan- cial 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. Operating results for the six months ended July 31, 1997 are not necessarily indicative of the results that may be expected for the entire year.
---------------------------------------------------------------------------- TWELVE MONTHS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31, In thousands, except per 1995 1996 1997 1997 1996 1997 1997 share data --------- --------- --------- ---------- --------- --------- --------- (US$) (US$) STATEMENT OF OPERATIONS DATA: Net sales............... A$134,794 A$138,877 A$148,369 US$117,137 A$ 59,620 A$ 70,394 US$53,612 Cost of goods sold(1) .. 90,477 94,899 103,324 81,574 43,086 48,420 36,877 --------- --------- --------- ---------- --------- --------- --------- Gross profit............ 44,317 43,978 45,045 35,563 16,534 21,974 16,735 Selling, general and administrative expenses............... 37,081 38,921 40,751 32,173 18,312 21,728 16,548 Store pre-opening costs.................. 109 178 239 189 64 209 159 Relocation and closure costs(2)............... -- -- 1,336 1,055 875 -- -- --------- --------- --------- ---------- --------- --------- --------- Operating income (loss)................. 7,127 4,879 2,719 2,146 (2,717) 37 28 Equity in income of affiliates, net of tax.................... 696 1,205 379 299 167 188 143 Interest expense........ 2,005 2,428 2,236 1,765 848 1,760 1,340 Other expense (income)(3)............ -- (2,303) 1,132 894 -- -- -- --------- --------- --------- ---------- --------- --------- --------- Income (loss) before income tax............. 5,818 5,959 (270) (214) (3,398) (1,535) (1,169) Income tax expense (benefit).............. 1,478 496 (822) (649) (1,767) (649) (494) --------- --------- --------- ---------- --------- --------- --------- Net income (loss)....... A$ 4,340 A$ 5,463 A$ 552 US$ 435 A$ (1,631) A$ (886) US$ (675) ========= ========= ========= ========== ========= ========= ========= Net Income (loss) per Ordinary Share and ordinary share equivalent(4).......... A$ 0.95 A$ 1.19 A$ 0.13 US$ 0.10 A$ (0.36) A$ (0.45) US$ (0.34) Weighted average shares outstanding(4)......... 4,570 4,570 4,348 4,348 4,570 1,963 1,963 ========= ========= ========= ========== ========= ========= ========= Pro forma supplemental net income (loss) per Ordinary Share and ordinary share equivalent(5).......... A$ 0.30 US$ 0.23 A$ (0.03) US$ (0.02) ========= ========== ========= ========= In thousands BALANCE SHEET DATA: Working capital......... A$ 21,087 A$ 25,139 A$ 22,552 US$ 17,191 A$ 24,123 A$ 21,563 US$16,125 Total assets............ 61,945 67,544 67,970 51,814 67,641 78,764 58,900 Total long-term debt.... 10,563 11,631 34,276 26,129 15,922 35,089 26,239 Shareholders' equity.... 26,686 30,349 10,165 7,749 26,924 8,960 6,700 SELECTED U.S. OPERATING DATA: Stores open at period- end.................... 16 19 25 25 21 29 29 Average net sales per store (in thousands)(6).......... A$ 1,457 A$ 1,655 A$ 1,579 US$ 1,247 A$ 905 A$ 1,016 US$ 774 Comparable store sales increase(7)............ 16.7% 14.2% 6.5% 6.5% 6.4% 17.8% 17.8% Selling square feet (in thousands)............. 51.2 54.8 70.2 70.2 61.4 86.9 86.9 Sales per selling square foot................... A$ 456 A$ 517 A$ 469 US$ 370 A$ 291 A$ 251 US$ 191 SELECTED AUSTRALIAN OPERATING DATA: Stores open at period- end.................... 32 32 32 32 31 32 32 Average net sales per store (in thousands)(6).......... A$ 1,835 A$ 1,924 A$ 2,222 US$ 1,754 A$ 731 A$ 796 US$ 606 Comparable store sales increase(8)............ 8.2% 1.4% 11.6% 11.6% 9.8% 6.8% 6.8% Selling square feet (in thousands)............. 276.2 267.1 276.6 276.6 139.9 144.2 144.2 Sales per selling square foot................... A$ 219 A$ 231 A$ 256 US$ 202 A$ 167 A$ 177 US$ 135
26 - ------- (1) Cost of goods sold includes the cost of merchandise sold during the periods and distribution and store-level occupancy costs. (2) Includes A$354,000 (of which A$262,000 was incurred during the year ended June 30, 1996, and the remainder was incurred in January 1997) in connection with the restructuring of the Company's Australian licensing division, A$613,000 incurred in June 1996 in connection with the relocation of the Company's barbecue manufacturing operations and a A$369,000 provision accrued in January 1997 in connection with the planned relocation of the Company's enamelling facilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Overview." (3) Includes a A$2.3 million gain during the year ended June 30, 1996 related to the Company's sale of its equity interest in GLG New Zealand and A$1.1 million charge incurred in December 1996 in connection with the Capital Reduction and delisting. See "Certain Transactions--Recent Delisting Transac- tion." (4) Based on the weighted average number of Ordinary Shares outstanding after giving effect to (i) the Reverse Share Split and (ii) a net of 120,332 Ordinary Shares issuable upon the exercise of stock options outstanding under the Execu- tive Share Option Plan calculated using the treasury stock method. Net income (loss) per Ordinary Share and ordinary share equivalent and weighted average shares outstanding reflect the Reverse Share Split for all periods presented. The outstanding Convertible Notes were not taken into account in the calcula- tion of earnings per share, as they were antidilutive. (5) The pro forma supplemental net income (loss) per Ordinary Share and ordi- nary share equivalent are computed by assuming proceeds from the Offering, which will be utilized to repay debt subsequent to the Offering, were utilized to repay the debt at the beginning of the applicable period to which earnings (loss) per share relates. The weighted average number of Ordinary Shares out- standing is increased for the number of Ordinary Shares assumed to be issued to enable repayment of such debt. (6) For stores open at beginning of period indicated. (7) The number of comparable stores used to compute such percentages was 14, 16 and 19 for the twelve-month periods ended January 31, 1995, 1996 and 1997, respectively, and 17 and 21 for the six-month periods ended July 31, 1996 and 1997, respectively. (8) The number of comparable stores used to compute such percentages was 32, 31 and 33 for the twelve-month periods ended January 31, 1995, 1996 and 1997, respectively, and 31 and 32 for the six-month periods ended July 31, 1996 and 1997, respectively. 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Barbeques Galore believes that it is the leading specialty retail chain of barbecue and barbecue accessory stores in Australia and the United States. 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 compre- hensive line of fireplace products and, in Australia, home heating products, camping equipment and outdoor furniture. As of July 31, 1997, the Company owned and operated 32 stores in all six states in Australia and 32 stores (in- cluding three U.S. Navy concession stores) in six states in the United States. In addition, as of such date, there were 45 licensed stores in Australia and six franchised stores in the United States, all of which operate under the "Barbeques Galore" name. The Company derives its revenue primarily from four categories: Australian retail, United States retail (including royalties and sales to franchisees), Australian licensing (including license fees and sales to licensees) and Aus- tralian wholesale. These categories represented 47.6%, 27.5%, 11.1% and 13.0%, respectively, of the Company's net sales for the twelve months ended January 31, 1997, representing a 15.1%, 13.6%, 7.2% and (14.5)% increase (or decrease), over their respective net sales levels for the twelve months ended January 31, 1996. The Company believes the majority of its future growth will result from the continuing expansion of its U.S. retail business, primarily through the opening of new stores, and the refurbishment of its Australian store base. In the United States, the Company has embarked upon a major program to expand Company-owned stores, and plans to open, approximately 10 new stores in 1997, of which five have opened, four are under construction and one is in lease negotiation, and 15 to 20 new stores in each of 1998 and 1999. The Company expects to incur capital expenditures relating to this program in the United States of approximately US$1.8 million in 1997 and approximately US$2.5 mil- lion to US$3.2 million in each of 1998 and 1999. In Australia, the Company has undertaken a refurbishment program to relocate or remodel existing stores. Since initiating its store refurbishment program in April 1994, the Company has refurbished 14 stores (resulting in an approximately 45% average increase in sales through July 1997 for those stores) and opened four new stores. The Company currently plans to refurbish 12 to 15 stores and to open six new stores in Australia from 1997 through 1999. The Company expects to incur cap- ital expenditures relating to this program in Australia of approximately A$2.5 million in 1997 and approximately A$2.0 million to A$3.0 million in each of 1998 and 1999. As a result of its store expansion and refurbishment programs, the Company has experienced, and expects to continue to experience, increases in store pre-opening costs and refurbishment-related expenses. See "Risk Fac- tors--Implementation of Growth Strategy." A number of the Company's existing licensees have elected to refurbish their stores in accordance with the Company's established criteria although no licensee is required to do so. The Company maintains an assistance program to provide advice relating to these enhancements. No financial incentives are offered directly by the Company to encourage licensee refurbishment, although the Company believes its new store concept provides a more consumer-friendly shopping environment. The Company expects that Australian licensing will pro- vide moderate growth in revenues if the economy of rural Australia continues to revitalize. The Company may license additional Barbeques Galore stores in Australia on a selective basis, although it does not intend to franchise any additional stores in the United States (except within geographical territories as required under existing franchise agreements). The Company does not expect its wholesale operations to experience significant revenue growth in the future and currently has no plans to operate a wholesale distribution business in the United States. See "Risk Factors--Effect of Economic Conditions and Consumer Trends," "Business--Licensing and Franchising" and "Business--Store Environment." Through its vertically integrated operations, the Company manufactures a pro- prietary line of barbecues and home heaters for its retail stores and licensees as well as other barbecue and home heater products for its wholesale customers. By controlling its own manufacturing operations, the Company believes it is able to realize higher margins, control product development and improve inventory flexibility and supply. The Company estimates that, during the twelve months ended January 31, 1997, 40% of its barbecue sales were derived from sales of its proprietary barbecues, and 65% of its home heating sales were derived from sales of its proprietary home heating lines. The Com- pany believes that its existing manufacturing and enamelling operations are sufficient to meet presently anticipated production increases that may arise from the 28 Company's store expansion and refurbishment program. See "Risk Factors--Man- agement of Operational Changes" and "Business--Manufacturing." In connection with the implementation of its United States and Australian growth strategy, the Company incurred several one-time expenses during 1996. The Company relocated and combined its barbecue manufacturing operations from 11 separate off-site buildings to a single facility at its corporate headquar- ters and distribution center in Sydney, Australia at an expense of approxi- mately A$613,000 plus additional capital expenditures of approximately A$2.3 million. This relocation has resulted in initial cost savings of approximately A$515,000 through the end of July 1997. In a further effort to improve its production flow, inventory control and distribution management, the Company plans to relocate its enamelling operations to the same facility, add an in- line powder coating operation and rearrange the assembly, warehouse and dis- tribution operations. These changes are scheduled to occur in the first half of 1998 at an expected cost of A$454,000, against which the Company has already accrued A$369,000. The Company believes these changes will result in estimated initial cost savings of A$350,000 to A$450,000 in the first full twelve months after completion. The planned relocation of the Company's enam- elling operations and related changes will involve an additional A$2.2 million in capital expenditures and will require the Company to obtain a number of building, environmental and other governmental permits. See "Risk Factors-- Management of Operational Changes" and "Business--Manufacturing." In December 1996, the Company completed its delisting from the ASE, which included the repurchase of Ordinary Shares from the public. These transactions were financed through A$11.2 million in borrowings under the ANZ Facility and A$10.0 million in proceeds from the sale of the Convertible Notes, which are convertible into an aggregate of 1,197,926 Ordinary Shares in connection with the Offering. In connection with such transactions, the Company incurred var- ious one-time charges (primarily financing, underwriting and legal fees) aggregating approximately A$1.1 million. For the six months ended July 31, 1997, interest accrued on the debt incurred in relation to the Capital Reduc- tion totalled approximately A$900,000. In connection with the Offering, the Company is required to repay this portion of the ANZ Facility and the holders (the "Noteholders") of all of the Convertible Notes have agreed to convert the Convertible Notes into Ordinary Shares immediately prior to the Offering. See "Certain Transactions--Recent Delisting Transaction." In addition, the Company incurred approximately A$354,000 of one-time charges relating to the restructuring of its Australian licensing division (of which A$262,000 was incurred during the year ended June 30, 1996 and the remainder was accrued in January 1997), in which the licensing division's management and administration were integrated into the Company's retail and wholesale divi- sions. The restructuring has resulted in an estimated annual cost savings of A$400,000. See "Risk Factors--Management of Operational Changes" and "Busi- ness--Licensing and Franchising." The Company's business is subject to substantial seasonal variations which have caused, and are expected to continue to cause, its quarterly results of operations to fluctuate significantly. Historically, the Company has realized a major portion of its net sales and net income for the year during the Aus- tralian summer months (fiscal fourth quarter). The Company expects that its net income during U.S. summer months (fiscal second quarter) will increase with the Company's planned U.S. store expansion. See "Risk Factors-- Seasonality; Weather; Fluctuations in Results" and "--Quarterly Results and Seasonality." The Company recognizes income from affiliates representing its one-third equity interest in Bromic and its 50% equity interest in GLG Taiwan. The Com- pany also received income from its 50% equity interest in GLG New Zealand. The Company sold its equity interest in GLG New Zealand in December 1995. In 1997, the Company changed its fiscal year-end from June 30 to January 31 in order to conform to the conventional fiscal year for the U.S. retail industry. The Company is subject to a corporate tax rate of 36% in Australia and 34% in the United States (excluding state taxes). Historically, the Company's tax rate has been lower than these stated rates as a result of the exclusion of affiliate income items from Australian taxation and the realization of net operating loss carryforwards against U.S. income. 29 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain selected statement of operations data as a percentage of net sales:
-------------------------------------------------------------------- SEVEN TWELVE MONTHS MONTHS ENDED SIX MONTHS ENDED ENDED JUNE 30, JANUARY 31, JULY 31, 1994 1995 1996 1996 1997 1996 1997 ----- ----- ----- ----------- ----- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Net sales............... 100.0% 100.0% 100.0 % 100.0 % 100.0% 100.0 % 100.0 % Cost of goods sold, warehouse, distribution and occupancy costs.... 67.5 66.8 69.3 68.2 68.8 72.3 68.8 ----- ----- ----- ----- ----- ----- ----- Gross profit............ 32.5 33.2 30.7 31.8 31.2 27.7 31.2 Selling, general and administrative expenses............... 28.5 29.0 27.8 26.4 26.1 30.7 30.9 Store pre-opening costs.................. 0.1 0.0 0.1 0.1 0.2 0.1 0.3 Relocation and closure costs.................. 0.0 0.0 0.6 0.0 0.5 1.5 0.0 ----- ----- ----- ----- ----- ----- ----- Operating income (loss)................. 3.9 4.2 2.2 5.3 4.4 (4.6) 0.0 Equity in income of affiliates, net of tax.................... 0.5 0.7 0.6 0.8 0.3 0.3 0.3 Interest expense........ 1.6 1.6 1.6 1.8 1.6 1.4 2.5 Other expense (income).. 0.0 0.0 (1.6) (2.5) 1.1 0.0 0.0 Income (loss) before income tax............. 2.8% 3.3% 2.8 % 6.8 % 2.0% (5.7)% (2.2)% ----- ----- ----- ----- ----- ----- ----- Income tax expense (benefit).............. 1.0 0.4 0.1 1.4 0.4 (3.0) (0.9) Net income.............. 1.8% 2.9% 2.7 % 5.4 % 1.6% (2.7)% (1.3)% ===== ===== ===== ===== ===== ===== =====
Six Months Ended July 31, 1997 (Unaudited) Compared to Six Months Ended July 31, 1996 (Unaudited) Net sales increased approximately A$10.8 million, or 18.1%, to A$70.4 million for the six months ended July 31, 1997 from A$59.6 million for the six months ended July 31, 1996. Four new stores were opened in the United States during the six months ended July 31, 1997 contributing A$1.7 million to the increase in net sales. In Australia, no stores were refurbished and no new stores were opened during this period. Comparable store sales increased 13.4% and contrib- uted A$5.4 million to the increase in net sales. Comparable store sales increased 17.8% in the United States and 6.8% in Australia. The increase in the United States was primarily due to heightened awareness of the Barbeques Galore name in both existing and new markets. The balance of the increased sales was primarily attributable to six new stores opened in the United States and one new store opened in Australia in the preceding half year. This increase was partially offset by declining Australian wholesale revenues, primarily due to the loss in February 1996 of a major Australian wholesale account. Gross profit increased approximately A$5.4 million, or 32.9%, to A$22.0 million for the six months ended July 31, 1997 from A$16.5 million for the six months ended July 31, 1996. Gross margin (gross profit as a percentage of sales) increased to 31.2% during the six months ended July 31, 1997, from 27.7% during the comparable period in 1996. The increase in gross margin was primarily due to production efficiencies gained from the relocation of the Company's manufac- turing operation in Australia, partially offset by a minor reduction in gross margin in the United States as a result of a change in sales mix. Selling, general and administrative expenses (which excludes store pre-opening expenses) increased approximately A$3.4 million, or 18.7%, to A$21.7 million for the six months ended July 31, 1997 from A$18.3 million for the six months ended July 31, 1996. As a percentage of net sales, selling, general and admin- istrative expenses increased to 30.9% during the six months ended July 31, 1997 from 30.7% during the comparable period in 1996. This increase was primarily due to an increase in marketing expenses accrued in Australian retail and higher costs related to refurbished stores in Australia. Store pre-opening expenses increased A$145,000 to A$209,000 for the six months ended July 31, 1997 from A$64,000 for the six months ended July 31, 1996 due to the opening of four new stores in the United States in the six months ended July 31, 1997 versus one new store in the previous period. Operating income (loss) (excluding relocation and closure costs) increased A$1.8 million to A$37,000 for the six months ended July 31, 1997, from a loss of approximately A$1.8 million for the six months ended July 31, 1996. 30 Interest expense increased A$912,000 to A$1.8 million in the six months ended July 31, 1997 from A$848,000 in the six months ended July 31, 1996 as a result of increased borrowings to finance the Capital Reduction. The Company's effective tax rate was approximately 42.3% in the six months ended July 31, 1997 and 52.0% in the six months ended July 31, 1996. The dif- ference in rates is a result of the mix of pre-tax earnings/losses between the Australian and the United States operations. Seven Months Ended January 31, 1997 (Audited) Compared to Seven Months Ended January 31, 1996 (Unaudited) Net sales increased approximately A$6.7 million, or 7.3%, to A$98.8 million for the seven months ended January 31, 1997, from A$92.1 million for the seven months ended January 31, 1996. Four new stores were opened in the United States, refurbishment was completed for two stores in Australia and one new store opened in Australia during the seven months ended January 31, 1997, con- tributing approximately A$941,000, A$1.1 million and A$610,000, respectively, to the increase in net sales. Comparable store sales increased 7.2% and con- tributed A$4.3 million of the increase in net sales for the seven months ended January 31, 1997. Comparable store sales increased 4.1% in the United States and 10.6% in Australia. A generally poor U.S. retail environment during the 1996 Olympic season impacted U.S. comparable store sales. The remaining portion of the increase in sales was attributable to sales resulting from two new stores opened in the United States in the preceding two quarters, a one-time close-out sale of woodheaters to Australian licensees and an increase in bar- becue sales to Australian licensees. This increase in sales was partially offset by the loss of a major Australian wholesale customer and the Company's decision to discontinue third party enamelling work. Gross profit increased approximately A$1.5 million, or 5.2%, to A$30.8 million for the seven months ended January 31, 1997 from A$29.3 million for the seven months ended January 31, 1996. Gross margin decreased to 31.2% during the seven months ended January 31, 1997 from 31.8% during the comparable period in 1996. The decrease in gross margin was primarily due to the Company's pursuit of increased market share in the high-volume, low-margin end of the Australian barbecue market. In addition, sales by new U.S. stores include a large portion of lower-margin sales during initial periods of operation. This, combined with increased freight costs for new stores located outside of California, also con- tributed to the decrease in gross margin. Selling, general and administrative expenses increased approximately A$1.4 mil- lion, or 5.8%, to A$25.7 million for the seven months ended January 31, 1997 from A$24.3 million for the seven months ended January 31, 1996. As a per- centage of net sales, selling, general and administrative expenses decreased to 26.1% for the seven months ended January 31, 1997 from 26.4% for the seven months ended January 31, 1996. The decrease was primarily due to improved oper- ating leverage in the Australian store base and cost savings in the Australian licensee and wholesale divisions brought about by the restructuring of the licensee division. This decrease was partially offset by increased infrastruc- ture spending in the United States related to Company expansion. Store pre-opening expenses increased A$86,000 to A$200,000 for the seven months ended January 31, 1997 from A$114,000 for the seven months ended January 31, 1996, primarily due to the opening of four new stores in the United States. Relocation and closure costs increased to A$461,000 for the seven months ended January 31, 1997 from A$0 for the seven months ended January 31, 1996 in con- nection with the organizational restructuring of the licensee and wholesale divisions and the provision for certain costs for the planned relocation of its enamelling plant in 1998. Operating income (excluding relocation and closure costs) increased by A$14,000 to A$4,857,000 for the seven months ended January 31, 1997 from A$4,843,000 for the seven months ended January 31, 1996. As a percentage of net sales, oper- ating income (excluding relocation and closure costs) decreased to 4.9% in the seven months ended January 31, 1997 from 5.3% in the comparable period in 1996. Income from affiliates decreased by A$457,000 to A$252,000 in the seven months ended January 31, 1997 from A$709,000 in the seven months ended January 31, 1996. This decrease resulted from the Company's sale of its equity interest in its New Zealand affiliate in December 1995. Interest expense remained constant at approximately A$1.6 million for the seven months ended January 31, 1997 and the seven months ended January 31, 1996. 31 Other expense (income) increased to an expense of A$1.1 million for the seven months ended January 31, 1997 from income of A$2.3 million for the seven months ended January 31, 1996. In the 1997 period, the Company incurred expenses of approximately A$1.1 million related to the Capital Reduction, while in the 1996 period, the Company recognized a gain of A$2.3 million from the sale of its equity interest in its New Zealand affiliate, as described above. The Company's effective tax rate was 19.0% in the seven months ended January 31, 1997 and 20.6% in the seven months ended January 31, 1996. The difference in rates compared to the expected rate of 36% is a result of the exclusion from Australian taxation of equity in income from affiliates, the gain on sale of its equity in a New Zealand affiliate and a reduction in the valuation allow- ance in relation to the net deferred tax asset of the United States operation. The valuation allowance was fully written back in the seven months ended Jan- uary 31, 1997 because the Company believes that it will recoup the benefit of the tax losses and temporary differences which gave rise to the net deferred tax asset. Excluding the effect of these items, the effective tax rate would have been 43.9% in the seven months ended January 31, 1997 and 37.1% in the seven months ended January 31, 1996. This difference is mainly attributable to increased state taxes in the United States for the seven months ended January 31, 1997. Twelve Months Ended June 30, 1996 (Audited) Compared to Twelve Months Ended June 30, 1995 (Audited) Net sales increased approximately A$3.6 million, or 2.6%, to A$141.7 million for the fiscal year ended June 30, 1996 from A$138.1 million for the fiscal year ended June 30, 1995. Comparable store sales increased 5.0% and contributed approximately A$4.1 million of the increase in net sales for the 1996 fiscal year. Comparable store sales increased 10.0% in the United States and 8.1% in Australia. The combined comparable store sales increase was impacted by a decrease in the US$/A$ exchange rate of approximately 13.0% in that period. Sales during fiscal 1996 also increased as a result of the opening of four new Company-owned stores and two franchised stores in the United States, the opening of one new store in Australia and increases in other stores not included in the comparable store calculation. The combined sales increases were partially offset by decreases in the Australian licensee and wholesale divi- sions, primarily due to the declining woodheating market and overall softness in the Australian rural economy. Gross profit decreased approximately A$2.3 million, or 4.9%, to A$43.5 million for fiscal 1996 from A$45.8 million for fiscal 1995. As a percentage of net sales, gross margin decreased to 30.7% during fiscal 1996 from 33.2% during fiscal 1995. The decrease in gross margin in the 1996 period was primarily due to an increase in the cost of the Company's manufactured products as a result of the factory relocation, the one-time close-out sales of the Company's woodheating inventory and general pressure on margins in the Australian retail sector. In the United States, gross margin increased as a result of a change in sales mix towards higher margin proprietary products. Selling, general and administrative expenses decreased approximately A$719,000, or 1.8%, to A$39.3 million for fiscal 1996 from A$40.1 million for fiscal 1995. As a percentage of net sales, selling, general and administrative expenses decreased to 27.8% during fiscal 1996 from 29.0% during fiscal 1995. The decrease was primarily due to increased operating leverage in its Australian store base resulting from store refurbishment and the restructuring of the Aus- tralian licensee division. This decrease was partially offset by infrastructure spending related to the opening of five new U.S. stores, including new hiring and staff training expenses. Store pre-opening expenses increased A$89,000 to A$153,000 during fiscal 1996 from A$64,000 for fiscal 1995, primarily due to the opening of four new stores in the United States. Relocation and closure costs increased to A$875,000 for fiscal 1996 from A$0 for fiscal 1995, primarily due to the relocation of the Company's manufacturing operation and the restructuring of the Company's Australian licensing division. Operating income (excluding relocation and closure costs) decreased A$1.6 mil- lion to A$4.0 million for fiscal 1996 from A$5.6 million for fiscal 1995. As a percentage of net sales, operating income (excluding relocation and closure costs) decreased to 2.8% in fiscal 1996 from 4.2% in fiscal 1995. Income from affiliates decreased A$127,000 to A$836,000 in fiscal 1996 from A$963,000 in fiscal 1995, due to the loss of income from the GLG New Zealand after the Company sold its equity interest therein in December 1995. Interest expense increased by A$32,000 to A$2,262,000 in fiscal 1996 from A$2,230,000 in fiscal 1995. Other income increased to A$2.3 million in fiscal 1996 from A$0 in fiscal 1995, due to the gain on the sale of the Company's New Zealand affiliate. 32 The Company's effective tax rate was 2.4% in fiscal 1996 and 13.1% in fiscal 1995. The difference in rates is primarily the result of the exclusion from Australian taxation of both equity in income from affiliates and gain on the sale of its New Zealand affiliate as well as a reduction in the valuation allowance for deferred tax assets due to the realization of net operating loss carryforwards against U.S. taxes. Excluding these items, the effective tax rate would have been 39.1% for the year ended June 30, 1996 and 30.1% for the year ended June 30, 1995. Twelve Months Ended June 30, 1995 (Audited) Compared to Twelve Months Ended June 30, 1994 (Audited) Net sales increased approximately A$13.4 million, or 10.8%, to A$138.1 million for the fiscal year ended June 30, 1995 from A$124.6 million for the fiscal year ended June 30, 1994. Comparable store sales increased 8.2% and contributed approximately A$6.0 million of the increase in net sales for the 1995 fiscal year. Comparable store sales increased 21.2% in the United States and 4.3% in Australia. The Company believes the increase in U.S. comparable store sales was primarily due to the heightened awareness of the Barbeques Galore name in both existing and new markets. The balance of the increased sales during fiscal 1995 was attributable to sales from five new franchise stores in the United States and three new licensee stores in Australia as well as the addition of a major Australian wholesale account. Gross profit increased approximately A$5.2 million, or 12.9%, to A$45.8 million for fiscal 1995 from A$40.5 million for fiscal 1994. Gross margin increased to 33.2% during fiscal 1995 from 32.5% during fiscal 1994. The increase in gross margin was primarily due to an improved retail margin in the United States and the closure of a warehouse in Northern California. Selling, general and administrative expenses increased approximately A$4.6 mil- lion, or 13.0%, to A$40.1 million for fiscal 1995 from A$35.5 million for fiscal 1994. As a percentage of net sales, selling, general and administrative expenses increased to 29.0% during fiscal 1995 from 28.5% during fiscal 1994. The increase was primarily due to increases in staff related costs including training in Australian retail in conjunction with the refurbishment program. Store pre-opening expenses decreased A$71,000 to A$64,000 for fiscal 1995 from A$135,000 for fiscal 1994, primarily due to the opening of one new store in the United States in 1995, as compared to two new stores in 1994. Operating income increased approximately A$711,000 to A$5.6 million for fiscal 1995 from A$4.9 million for fiscal 1994. As a percentage of net sales, oper- ating income increased to 4.2% in fiscal 1995 from 3.9% in fiscal 1994. Income from affiliates increased by A$303,000 to A$963,000 in fiscal 1995 from A$660,000 in fiscal 1994 as a result of increased profitability at the Company's New Zealand affiliate. Interest expense increased approximately A$231,000 to A$2.2 million in fiscal 1995 from A$2.0 million in fiscal 1994. The increase related mainly to the interest portion of capital leases for the refurbishment of Australian stores. The Company's effective tax rate was approximately 13.1% for fiscal 1995 and 35.5% for fiscal 1994. The difference in the rates is primarily the result of the exclusion from Australian taxation equity in income of affiliates as well as a reduction in the valuation allowance for deferred tax assets as net oper- ating loss carryforwards against U.S. taxes have been deemed to be more likely than not to be realized. Excluding these items, the effective tax rate would have been 30.1% for the year ended June 30, 1995 and 41.6% for the year ended June 30, 1994. QUARTERLY RESULTS AND SEASONALITY The Company's quarterly results of operations have fluctuated, and are expected to continue to fluctuate materially, primarily because of the seasonality asso- ciated with the barbecue and fireplace industries and related item sales. The timing of new store openings and related pre-opening and other startup expenses, net sales contributed by new stores, increases or decreases in compa- rable store sales, changes in the Company's merchandise mix and overall eco- nomic conditions also contribute to fluctuations in the Company's quarterly results. The Company believes this is the general pattern associated with its segment of the retail industry and expects this pattern will continue in the future. In order to partially offset the effects of seasonality, the Company operates in both the Southern and Northern hemispheres, which have opposite seasons, and offers fireplace products and (in Australia) home heaters in the fall and winter months. In anticipation of its peak selling season, the Company substantially increases its inventory levels and hires a significant number of part-time and temporary employees. In non-peak periods, such as late winter and early fall, the Company has regularly experienced monthly losses. Because of these fluctuations in net sales and net income (loss), the results of opera- tions of any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year or any future quarter. See "Risk Factors-- Seasonality; Weather; Fluctuations in Results." 33 The following table sets forth, for the periods indicated, certain selected statement of operations and operating data for each of the Company's last eight fiscal quarters and the percentage of net sales represented by the line items presented (except in the case of share and per share amounts and operating data). The quarterly statement of operations data and selected operating data set forth below were derived from unaudited financial statements of the Com- pany, which in the opinion of management of the Company contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presen- tation thereof. UNAUDITED ADDITIONAL QUARTERLY CONSOLIDATED FINANCIAL DATA
---------------------------------------------------------------------------- QUARTER ENDED OCT 31, JAN 31, APR 30, JUL 31, OCT 31, JAN 31, APR 30, JUL 31, In thousands, except per 1995 1996 1996 1996 1996 1997 1997 1997 share data -------- -------- -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Net Sales............... A$33,521 A$48,303 A$27,653 A$31,967 A$35,255 A$53,494 A$30,366 A$40,028 Cost of goods sold, warehouse, distribution and occupancy costs.... 22,685 32,774 20,207 22,879 24,249 35,989 20,891 27,529 -------- -------- -------- -------- -------- -------- -------- -------- Gross profit............ 10,836 15,529 7,446 9,088 11,006 17,505 9,475 12,499 Selling, general and administrative expenses............... 9,933 11,402 8,736 9,576 10,088 12,351 9,798 11,930 Store pre-opening costs.................. 82 32 -- 64 79 96 114 95 Relocation and closure costs.................. -- -- -- 875 -- 461 -- -- -------- -------- -------- -------- -------- -------- -------- -------- Operating income (loss)................. 821 4,095 (1,290) (1,427) 839 4,597 (437) 474 Equity in income of affiliates............. 153 539 80 87 103 109 50 138 Interest expense........ 788 603 410 438 678 710 879 881 Other expense (income).. -- (2,303) -- -- 36 1,096 -- -- -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) before income tax............. 186 6,334 (1,620) (1,778) 228 2,900 (1,266) (269) Income tax expense (benefit).............. (31) 1,511 (437) (1,330) 98 847 (566) (83) -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss)....... A$ 217 A$ 4,823 A$(1,183) A$ (448) A$ 130 A$ 2,053 A$ (700) A$ (186) ======== ======== ======== ======== ======== ======== ======== ======== Net income (loss) per Ordinary Share and ordinary share equivalent............. A$ 0.05 A$ 1.05 A$ (0.26) A$ (0.10) A$ 0.03 A$ 0.56 A$ (0.36) A$ (0.10) ======== ======== ======== ======== ======== ======== ======== ======== Weighted average shares outstanding ........... 4,570 4,570 4,570 4,570 4,576 3,688 1,963 1,963 ======== ======== ======== ======== ======== ======== ======== ========
LIQUIDITY AND CAPITAL RESOURCES The Company's primary uses of cash have been to finance store openings and refurbishment projects, relocate the Company's manufacturing and distribution facilities, purchase merchandise inventories and complete the Capital Reduction and subsequent delisting from the ASE. The Company has satisfied its working capital requirements for certain store-related expenditures and merchandise purchases principally from cash flows from operations. The Capital Reduction was funded by a combination of A$11.2 million in borrowings under the ANZ Facility and A$10.0 million in proceeds from the sale of the Company's Convert- ible Notes, which are convertible into an aggregate of 1,197,926 Ordinary Shares in connection with the Offering. The Company believes that cash gener- ated from operations, net proceeds received by the Company from the Offering and funds available under credit facilities will be sufficient to satisfy its cash requirements through the end of fiscal 1999. See "Certain Transactions-- Recent Delisting Transaction." In July 1994, the Company and ANZ entered into the ANZ Facility. Under the ANZ Facility as currently in effect, the Company and its subsidiaries have credit facilities aggregating up to A$53.7 million, including a real property loan in principal amount of A$2.2 million, a multi-purpose facility in principal amount of A$30.0 million, a trade finance facility in principal amount of A$10.0 mil- lion and a standby credit facility in principal amount of A$12.0 million, pri- marily used to fund the Capital Reduction (the "Standby Facility"). Indebted- ness under the property loan bears interest at 9.35% per annum and is subject to a variable prepayment penalty depending on the term of the loan. As of October 1997, the penalty would be approximately A$100,000. The majority of the remainder of the Company's borrowings under the ANZ Facility are currently in the form of 90- to 180-day bills, bearing interest, as of October 1997, at approximately 5.1% per annum plus an additional percentage fee to ANZ of approximately 1.25%. There are no significant prepayment penalties associated with these loans. The ANZ Facility is secured by a first security interest in all present and future assets of the Company located in Australia. The Company has agreed to grant to ANZ, and ANZ is currently in the process of creating, a second security interest (subordinate to a lien under the Merrill Lynch Facil- ity) in all assets of the Company located in the United States. The ANZ Facility is further guaranteed by each subsidiary of the Company, including Galore USA. The Company intends to use a portion of the net proceeds of the Offering to repay the A$11.2 million outstanding indebtedness 34 under the Standby Facility, as required by the terms of the ANZ Facility, intends to repay A$9.8 million and US$1.8 million of outstanding indebtedness under other portions of the ANZ Facility and the Merrill Lynch facility, respectively, leaving approximately A$10.7 million outstanding under the ANZ Facility. Of this A$10.7 million, approximately A$8.5 million constitutes trade financing which typically matures within six months of being drawn down. The Company may use proceeds from the Offering to repay the whole or part of these amounts before they become due. The ANZ Facility is subject to annual review and modification, in accordance with standard Australian practice. In February 1995, Galore USA entered into a five year credit facility with Merrill Lynch. As currently in effect, such facility includes a term loan in aggregate principal amount of US$600,000 (the "Term Loan") and a revolving line of credit in aggregate principal amount of US$1,250,000 (the "Revolving Line," and collectively with the Term Loan, the "Merrill Lynch Facility"). Indebtedness under the Revolving Line and Term Loan accrues interest at the 30- day commercial paper rates plus 2.65% or 2.70%, respectively, and is payable monthly. The Merrill Lynch Facility is secured by a first security interest in all Galore USA present and future assets. The Merrill Lynch Facility is guaranteed by the Company. The Company will repay outstanding indebtedness under the Merrill Lynch Facility in full with the proceeds of this Offering. For the six-month period ended July 31, 1997, the seven-month period ended January 31, 1997 and the twelve-month period ended June 30, 1996, cash flow (used in) provided by operating activities was A$(8.5) million, A$7.2 million and A$4.6 million, respectively. For the six-month period ended July 31, 1997, the seven-month period ended January 31, 1997 and the twelve-month period ended June 30, 1996, the Company's cash flow used in investing activities was A$1.4 million, A$2.8 million and A$0.06 million, respectively. For the six- month period ended July 31, 1997, the seven-month period ended January 31, 1997 and the twelve-month period ended June 30, 1996, the Company's cash flow provided by (used in) financing activities was A$9.9 million, A$(4.4) million and A$(4.4) million, respectively. For the twelve months ended January 31, 1997, the Company's total capital expenditures were approximately A$6.6 million, including A$2.8 million of capital expenditures in the United States and A$3.8 million of capital expenditures in Australia. The Company's average capital expenditures to open a new store in the United States were approximately A$196,000 and the Company's average capital expenditures to refurbish a store in Australia were approximately A$400,000. In fiscal 1998, the Company anticipates that it will spend an aggregate of approximately A$5.9 million, of which approximately A$2.2 million will be spent on U.S. store expansion and approximately A$2.5 million will be spent on the Australian store refurbishment program. In fiscal 1999, the Company currently anticipates that it will spend an aggregate of approximately A$9.0 million, of which approximately A$3.9 million will be spent on U.S. store expansion and approximately A$2.9 million will be spent on the Australian store refurbishment program. The Company currently expects to fund the foregoing capital expenditures in the United States and Australia using a portion of the net proceeds from the Offering and net cash flow from operations. The actual costs that the Company will incur in connection with the opening and refurbishment of future stores cannot be predicted with precision because such costs will vary based upon, among other things, geographic location, the size of the stores and the extent of remodelling required at the selected sites. See "Use of Proceeds" and "Business--Store Expansion and Refurbishment." In October 1996, the Company, SBC Warburg Dillon Read Australia Limited ("SBC Warburg Australia"), as representative of the Noteholders, and certain principal shareholders of the Company entered into certain debt instruments, pursuant to which the Company issued and sold A$10.0 million in aggregate principal amount of Convertible Notes in December 1996. By their terms, the Company has the power to redeem the debt instruments upon a listing of the Company's securities on a recognized stock exchange or securities market, a condition which will be satisfied upon consummation of the Offering. The holders of all of the Convertible Notes have agreed to convert such notes into 1,197,926 Ordinary Shares of the Company immediately prior to consummation of this Offering. Certain holders of Ordinary Shares acquired upon conversion of the Convertible Notes are Selling Shareholders in the Offering, selling an aggregate of 450,000 Ordinary Shares (802,500 Ordinary Shares if the Underwriters' over-allotment option is exercised in full) acquired upon conversion of the Convertible Notes. See "Certain Transactions--Recent Delisting Transaction" and "Selling Shareholders." The Company enters into foreign currency forward contracts as a means of offsetting fluctuations in the dollar value of foreign currency accounts. Typically these are U.S. dollar-denominated contracts with major financial institutions and have settlement dates of less than one year. At January 31, 1997 and June 30, 1996, the estimated notional amount of these contracts was A$4.2 million and A$6.2 million, respectively. NEW PRONOUNCEMENTS BY FINANCIAL ACCOUNTING STANDARDS BOARD In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No. 128 specifies new standards designed to improve the earnings per share 35 ("EPS") information provided in financial statements by simplifying the existing computational guidelines, revising the disclosure requirements and increasing the comparability of EPS data on an international basis. Some of the changes made to simplify the EPS computations include: (a) eliminating the presentation of primary EPS and replacing it with basic EPS, with the principal differences being that common stock equivalents are not considered in computing basic EPS, (b) eliminating the modified treasury stock method and the three percent materiality provision and (c) revising the contingent share provisions and the supplemental EPS data requirements. SFAS No. 128 also makes a number of changes to existing disclosure requirements. SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The Company estimates that the implementation of SFAS No. 128 will not have a material impact on the Company's financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial state- ments. SFAS No. 130 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has not determined the impact of SFAS No. 130 on its consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for financial statements issued for periods beginning after December 15, 1997. The Company has not determined the impact of SFAS No. 131 on its con- solidated financial statements. 36 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 bar- becue and barbecue accessory stores in Australia and the United States. 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 an open and inviting store format that emphasizes social activi- ties and healthy outdoor lifestyles. Its stores also carry a comprehensive line of fireplace products and, in Australia, home heating products, camping equip- ment and outdoor furniture. As of July 31, 1997, the Company owned and operated 32 stores in all six states in Australia and 32 stores (including three U.S. Navy concession stores) in six states in the United States. In addition, as of such date, there were 45 licensed stores in Australia and six franchised stores in the United States, all of which operate under the "Barbeques Galore" name. The Company's net sales have increased by A$13.6 million to A$148.4 million for the twelve months ended January 31, 1997 (A$41.0 million in the United States and A$107.4 million in Australia) from A$134.8 million for the twelve months ended January 31, 1995 (A$29.1 million in the United States and A$105.7 million in Australia). For the six-month period ended July 31, 1997, the Company's net sales increased by A$10.8 million, to A$70.4 million (A$32.5 million in the United States and A$37.9 million in Australia) from A$59.6 million (A$22.2 mil- lion in the United States and A$37.4 million in Australia) for the six-month period ended July 31, 1996. This growth resulted primarily from the opening of nine new stores and growth in comparable store sales during the periods involved. The comparable store sales increase for the six months ended July 31, 1997 was 17.8% in the United States and 6.8% in Australia. The Company's growth strategy is to substantially expand its U.S. store base and to refurbish (through relocating or remodelling) existing stores in Austra- lia. In the United States, since January 31, 1994, the Company has grown from 17 to 32 Company-owned stores (including three U.S. Navy concession stores), representing an 88% increase in the number of owned stores. The Company cur- rently plans to open approximately 10 new stores in the United States in 1997 of which five have opened, four are under construction and one is in lease negotiation. The Company also currently intends to open 15 to 20 new stores in the United States in each of 1998 and 1999. In addition, the Company has initi- ated a major refurbishment plan for its Australian store base to enhance store productivity. Since January 31, 1994, 14 stores have been refurbished in Aus- tralia, resulting in an approximately 38% average increase in sales through July 1997 for those stores. COMPANY HISTORY Barbeques Galore opened its first store in Sydney, Australia in 1977 to serve an unfilled niche in the retail market for versatile, well-designed barbecues. Since then, the Company has become the leading barbecue retailer in Australia, with an estimated 90% consumer awareness level and an approximately 30% retail market share. In 1980, the Company opened its first U.S. store in Los Angeles to assess U.S. market opportunities. During the 1980s, the Company vertically integrated its operations by expanding into barbecue manufacturing in order to capture higher margins, control product development and improve inventory flexibility and supply. Fireplace products and, in Australia, home heaters were added to take advantage of the winter selling season. In Australia, the Company further diversified its product line through the addition of camping equipment and outdoor furniture, both of which complement the Company's main barbecue line. In April 1987, the Company listed its Ordinary Shares on the ASE. In October 1996, as part of its plans to accelerate new store expansion in the United States, the Company announced its intention to repurchase shares from the public and delist from the ASE (pursuant to a transaction which was consummated as of December 31, 1996) and to seek capital in the United States. The Company believes that as a result of these actions it will be better positioned to suc- cessfully implement its growth strategy, particularly in the United States. See "Certain Transactions--Recent Delisting Transaction." BARBECUE INDUSTRY OVERVIEW Industry sources estimate that the barbecue market (excluding accessory sales) generated approximately US$1.3 billion in retail sales in the United States during 1996 (approximately 10.0 million barbecue units) and approximately A$136.2 million in retail sales in Australia during the 1996 summer sales season (approximately 425,000 barbecue units). These 37 sources estimate that total barbecue sales volume in Australia grew at an average annual rate of 4.0% between the 1993 and 1996 summer sales seasons and that U.S. barbecue sales have increased from approximately 9.2 million to 10.0 million units annually during such period. In particular, gas barbecues are gaining popularity, with annual sales increasing from US$0.9 billion to US$1.1 billion during the same period. The Company believes that nearly half of all barbecues are purchased to replace an existing grill, and that the barbecue market serves as a platform for sales of barbecue accessories in both the United States and Australia. The Company believes that various demographic trends have led to the increased popularity of outdoor cooking. Specifically, the Company believes that there has been a shift toward consumers wanting to spend more quality time together in family gatherings and social activities around the home, as well as an increased desire to be outdoors. As a pleasant and inexpensive outdoor activ- ity, barbecuing is increasing in popularity due to its convenience (especially in the case of gas barbecues), great flavors and easy clean-up. Furthermore, as consumers are turning decks, patios and other outdoor spaces into entertainment centers and "virtual" outdoor kitchens, they are increasingly seeking barbecues with enhanced features along with a wide array of barbecue accessories. The Company believes that its strong focus on barbecues and related accessories positions it to capitalize on these trends and provides significant opportuni- ties for future growth. BUSINESS STRENGTHS Barbeques Galore believes that it is the leading specialty retail chain of bar- becue and barbecue accessory stores in Australia and the United States. The Company believes that the following business strengths have contributed signif- icantly to its success in the past and intends to further capitalize on these strengths in executing its growth strategy: Extensive Selection of Merchandise Barbeques Galore offers an extensive selection of quality barbecues and bar- becue accessories designed to suit all consumer lifestyles, preferences and price points. Its stores offer a wide variety of barbecues, with a full range of styles, finishes and special features, including the Company's proprietary brands as well as more than 60 other barbecues under different brand names. Accompanying these barbecues are a wide assortment of barbecue replacement parts and accessories which generate high margins. As the leading retail chain specializing in barbecues and related merchandise, Barbeques Galore offers con- sumers one-stop shopping convenience for virtually all of their barbecue cooking needs. Exciting Store Environment The Company's stores offer an exciting shopping environment which is consistent with its outdoor lifestyle image and promotes the total barbecuing experience. The Company's newer stores generally have high ceilings, wide aisles and exten- sively use natural materials such as wood and stone. Merchandise is attrac- tively displayed to convey the breadth and depth of the Company's product lines. A wide array of barbecues are displayed on the selling floor complete with accessories to provide the consumer the opportunity to compare and con- trast different models. Store presentation is based on a detailed and compre- hensive store plan regarding visual merchandising to assure that all stores provide a consistent portrayal of the Barbeques Galore image. Average store retail selling area is approximately 3,300 square feet in the United States and 8,400 square feet in Australia. Exceptional Customer Service The Company recognizes that exceptional customer service is fundamental to its success. The Company has a "satisfaction guaranteed" return policy and honors all manufacturer warranties for products sold at its stores. Store managers and sales associates undergo extensive product and sales training programs which enable them to recommend merchandise that 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' 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. 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 cus- tomer traffic. As a result of its site selection criteria, the Company believes it has been highly effective in identifying successful new store locations. 38 Integrated Manufacturing Operation; New Product Development Through its vertically integrated operations, the Company manufactures a pro- prietary line of barbecues and home heaters for its retail stores. In addition, the Company has an experienced in-house research and development team dedicated to barbecue and home heater market analysis and product development that can quickly identify and respond to changing consumer trends. The Company believes that controlling its own manufacturing operations allows it to realize higher margins, control product development and improve inventory flexibility and sup- ply. Experienced Management Team The Company's senior management team has an average of more than 28 years of retail industry experience. Since the current executive management team assumed responsibility in 1982, the number of Barbeques Galore stores has grown from 12 stores (including one licensed store) as of June 30, 1982 to 116 stores (in- cluding 51 licensed or franchised stores) as of July 31, 1997. The Company believes that management's substantial experience strongly positions it to exe- cute its business and growth strategies. Upon completion of the Offering, the executive officers of the Company will beneficially own approximately 35.1% of the Company's outstanding Ordinary Shares. See "Principal Shareholders." GROWTH STRATEGY The Company is implementing the following growth strategy to further capitalize on its business strengths: U.S. New Store Expansion The Company believes it has a strong opportunity to significantly expand its store presence in the United States and is implementing a program for substan- tial new Company-owned store expansion to capitalize on its unique retail con- cept. The Company currently plans to open approximately 10 new stores in 1997 of which five have opened, four are under construction and one is in lease negotiation. The Company also currently intends to open 15 to 20 new stores in each of 1998 and 1999. The Company's store expansion strategy is to penetrate selected new markets while simultaneously expanding existing markets to increase market share and operating leverage without cannibalizing the produc- tivity of existing stores. Although a major portion of the initial store expan- sion 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. The Company's ability to implement its expansion plans will depend upon a number of factors further discussed in "Risk Factors--Implementation of Growth Strategy." Refurbishment of Existing Australian Stores The Company believes that it can continue to enhance store productivity in Aus- tralia through further refurbishment of its existing Australian store base. Since initiating its store refurbishment program in April 1994, the Company has refurbished 14 stores (resulting in an approximately 38% average increase in sales through July 1997 for those stores) and opened four new stores. In 1997, the Company plans to remodel five existing stores, open one new store, relocate one store and close one store. Under its current plans, the Company intends to refurbish five stores and open one new store in 1998 and refurbish two stores and open two new stores in 1999. The Company intends to relocate a number of these stores in retail power centers or close to complementary retail stores which fit the Company's desired demographics and other site selection stan- dards. Refurbished stores will be upgraded to replicate the Company's new pro- totype store environment. MERCHANDISING Merchandise Categories. Barbeques Galore's unique merchandising concept differ- entiates the Company from its competitors by offering a breadth and depth of high quality, competitively-priced proprietary and other brand name barbecues and barbecue accessories which management believes is generally not available from any other single retailer. Barbeques Galore offers an extensive selection of barbecues and barbecue acces- sories designed to suit all consumer lifestyles, preferences and price points. Its stores offer a wide variety of gas, charcoal and electric barbecues, including barbecues manufactured by the Company under its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands as well as more than 60 other barbe- cues under different brands, including those made by Weber-Stephen Products Co., Sunbeam, Rinnai, Onward Multi-Corp. (Broil King and Broil Mate), Meco, DCS, Fiesta and other grill manufacturers. The Company's proprietary barbecues generally generate higher gross margins than barbecues of other manufacturers. For the twelve months ended January 31, 1997, proprietary barbecue retail sales represented approximately 33% and 34% of the Company's total net sales in the United States and Australia, respectively. 39 Customers can choose among barbecues with a full range of styles (kettle, table-top, patio-bases, carts, built-in, portable and others), finishes (from stainless steel to colorful porcelain-enamelled steel) and special features (such as side burners, multiple burners, warming racks, rotisseries, griddle plates and electronic ignition and other touch controls). Accompanying these barbecues are a wide assortment of barbecue replacement parts (including many hard-to-find items) and accessories, including tools, grill brushes, utensils, covers, smokers, rotisseries, griddles, fryers, kabob racks, cleaners, char- coal, wood chips and custom barbecue "islands," as well as a variety of bar- becue sauces, marinades, spices, rubs, aprons, mitts, cookbooks, cooking video- tapes and other grill novelties. In general, accessories not only generate impulse purchases and encourage repeat business, but also command higher mar- gins than barbecues. Accordingly, as part of its ongoing merchandising strat- egy, the Company intends to increase sales of barbecue accessories as a percent of total retail sales. Under a cross-branding arrangement, certain stores in the United States also offer gourmet steaks and food products made and distrib- uted by Omaha Steaks International, Inc., a national mail order vendor. In addition, to complement the Company's main barbecue and related accessory line and to take advantage of the winter selling season, Barbeques Galore stores also carry a comprehensive line of fireplace products and, in Australia, a full line of gas and wood home heaters. Australian stores also offer camping equipment (including tents, sleeping bags, coolers and outdoor cookware) and outdoor furniture (including deck furniture, picnic tables, standing umbrellas and lounge chairs) to benefit from of the lack of any dominant national retailer of such merchandise. These products broaden customer appeal, generate additional customer traffic and repeat business and improve overall store pro- ductivity. The following table sets forth the Company's five major merchandise categories as an approximate percentage of net sales in the United States and Australia for the twelve months ended January 31, 1997:
------------------------------- UNITED STATES AUSTRALIA TOTAL ------------- --------- ----- Barbecues.............................. 70.3% 55.0% 59.2% Barbecue Accessories................... 21.0 6.2 10.3 Home Heaters and Fireplace Products.... 8.7 13.7 12.3 Camping Equipment...................... -- 17.6 12.8 Outdoor Furniture...................... -- 7.5 5.4 ----- ----- ----- 100.0% 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 addi- tion, through its manufacturing capabilities, the Company offers a high quality proprietary line of barbecues that generates higher margins than other manufac- turers' products. The Company believes that it maintains its price-competitive- ness and higher margins by benefitting from its in-depth knowledge of the bar- becue market and its size and purchasing power, resulting in volume discounts and special vendor arrangements. As a result, the Company is able to focus on providing an exciting store environment and superior customer service, while maintaining competitive prices. STORE ENVIRONMENT The Company's stores offer an exciting shopping environment which is consistent with its outdoor lifestyle image and promotes the total barbecuing experience. The Company's newer stores generally have high ceilings, wide aisles and exten- sively use natural materials such as wood and stone. Merchandise is attrac- tively displayed to convey the breadth and depth of the Company's product lines. A wide array of barbecues are displayed on the selling floor complete with accessories to provide the consumer the opportunity to compare and con- trast different models. Colorful signage identifies "store-within-stores" fea- turing accessories, fireplace and do-it-yourself replacement parts. In many stores, large and colorful lifestyle photographs depict the products being used in family gatherings and social events. Certain barbecue accessories and sea- sonally popular merchandise are displayed in wooden bulk bins and near store counters to promote impulse purchases. Store presentation is based on a detailed and comprehensive store plan regarding visual merchandising to assure that all stores provide a consistent portrayal of the Barbeques Galore image. Management believes that its store design encourages customers to browse in Barbeques Galore stores at a comfortable pace and shop for longer periods of time, thereby exposing customers to more product offerings. The Company continuously updates its store design to keep up with changing trends. The Company has developed a new generation of prototype designs for its stores with many of the elements described above, and has incorporated such designs in new U.S. stores (Austin, Dallas (Grapevine), Houston (Stafford), Pasadena and San Antonio) as well as new or refurbished Australian stores. See "--Store Expansion and Refurbishment--New Store Expansion." 40 STORE EXPANSION AND REFURBISHMENT New Store Expansion. The Company believes it has a strong opportunity to sig- nificantly expand its store presence in the United States and is implementing a program for substantial new Company-owned store expansion to capitalize on its unique retail concept. The Company currently plans to open approximately 10 new stores in 1997, of which five have opened, four are under construction and one is in lease negotiation. The Company also currently intends to open 15 to 20 new stores in the United States in each of 1998 and 1999. The Company's store expansion strategy is to penetrate selected new markets while simultane- ously expanding existing markets to increase market share and operating lev- erage without cannibalizing the productivity of existing stores. Although a major portion of the initial store expansion is being targeted at large metro- politan markets in Sunbelt states (from California to the Carolinas), the Com- pany believes that its retail concept has national potential and may consider entering markets in the Pacific Northwest, Mid-Atlantic and Northeast regions. In evaluating potential markets and specific store locations, the Company con- siders demographic factors such as population, income levels, number of single family homes and housing starts, as well as other factors such as visibility, accessibility, lot size, proximity to heavy traffic and ample parking. Many stores are situated in retail power centers or close to complementary retail stores, further attracting customer traffic. Given its rapid store expansion strategy, the Company has retained outside real estate consultants to assist in site selection and lease negotiations. Once a site has been determined and becomes available, the Company is generally able to open a store within six to eight weeks due to its standardization of store design, merchandise displays and store operations. As a result of its site selection criteria, the Company believes it has been highly effective in identifying successful new store locations. The Company's ability to implement its expansion plans will depend upon a number of factors further discussed in "Risk Factors--Implementation of Growth Strategy." The following table highlights the existing and planned U.S. store expansion in 1997: -------------------------------------------------------------------------
NEW STORE LOCATION(1) SELLING SQUARE FEET CURRENT STATUS --------------------- ------------------- -------------------- Pearl Harbor, HI(2) 2,000 Opened in March 1997 Mandarin (Jacksonville), FL(3) 3,000 Opened in March 1997 Stafford (Houston), TX 3,600 Opened in April 1997 Pasadena, CA 3,500 Opened in April 1997 San Antonio, TX 3,600 Opened in May 1997 Valencia (Los Angeles), CA 3,600 Under construction Encinitas (San Diego), CA 3,600 Under construction Houston, TX 3,600 Under construction Lewisville (Dallas), TX 3,600 Under construction Atlanta, GA(4) 3,500 Under construction San Rafael, CA 3,300 Finalizing lease
- ------- (1) In addition to those listed above, the Company plans to open or execute leases for at least three more stores during the remainder of 1997 and expects to open these stores in 1998. (2) Navy concession store. (3) Assumed from franchisee. (4) Franchise store. The implementation of the U.S. store expansion program is subject to a number of variables. See "Risk Factors--Implementation of Growth Strategy." U.S. Store Economics. For the twelve months ended July 31, 1997, the Company's owned stores in the United States (that were open for at least 12 months) averaged US$1.4 million in net sales and produced approximately US$419 of net sales per selling square foot. The average cost of ongoing leasehold improve- ments, furniture and fixtures acquired for these stores during the period was approximately US$7,700 per store after taking into account landlord contribu- tions. Inventory holdings at such stores averaged US$128,000. 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$195,000 in that period. For the twelve months ended July 31, 1997, the Company's United States net sales were derived 90% from existing stores and 10% from the eight new stores opened in the period. For new stores in the United States, the Company estimates that the average cost of leasehold improvements, furniture and fixtures will range from approx- imately US$100,000 to US$160,000 per store, after taking into account landlord contribu- 41 tions, depending on the condition of the site. Start-up inventory purchases for new stores are estimated at between US$120,000 and US$150,000 per store and pre-opening costs (which are expensed in the period in which the store opens) are estimated to be US$40,000 per store. New Barbeques Galore stores opened in the United States typically are profitable during their first twelve months of operation, generating on average approximately US$80,000 of store level contri- bution (operating income before store pre-opening expenses and non-cash items such as depreciation). Refurbishment of Existing Australian Stores. The Company believes that its strong brand name recognition and infrastructure position it to enhance store productivity in Australia through further refurbishment of its existing Austra- lian store base. Since initiating its store refurbishment program in April 1994, the Company has refurbished 14 stores (resulting in an approximately 38% average increase in sales through July 1997 for those stores) and opened four new stores. In 1997, the Company plans to remodel five existing stores, open one new store, relocate one store and close one store. Under its current plans, the Company intends to refurbish five stores and open three new stores in 1998 and refurbish two stores and open two new stores in 1999. The Company intends to relocate a number of these stores in retail power centers or close to com- plementary retail stores which fit the Company's desired demographics and other site selection standards. Refurbished stores will be upgraded to replicate the Company's new prototype store environment. For the twelve months ended July 31, 1997, the Company's Australian retail sales were derived 78% from existing stores, 20% from refurbished or relocated stores and 2% from the one new store opened in the period. The Company estimates that the cost of such store relocations or remodellings will generally range from approximately A$350,000 to A$450,000 per store, depending on the required level of leasehold improvements and replacement fur- niture in, fixtures. Increased inventory holdings for these stores generally range between A$100,000 and A$200,000 depending on the size of the stores. Man- agement 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. The following table highlights the modifications the Company plans to make to its Australian store base in 1997: --------------------------------------------------------------------
STORE LOCATION (STATE) SELLING SQUARE FEET MODIFICATION CURRENT STATUS ---------------------- ------------------- --------------------------- --------------------- Richmond (Victoria) 21,600 Refurbishment--Stage 2 Completed Osborne Park (Western Australia) 9,700 New Completed Modbury (South Australia) 9,200 Relocation of Holden Hill Completed Woolloongabba (Queensland) 8,500 Refurbishment Completed Moore Park (New South Wales) 3,300 Minor refurbishment Completed Northland (Victoria) 10,800 Expansion and refurbishment Under construction (close Thomastown store) (expected completion: October 1997)
The implementation of the Australian store refurbishment program is subject to a number of variables. See "Risk Factors --Implementation of Growth Strategy." CUSTOMER SERVICE The Company believes that its employees' extensive knowledge of its product offerings and the overall barbecue market, and their understanding of customer needs, are critical components of providing excellent customer service and dis- tinguish it from its competitors. Store managers and sales associates undergo extensive product and sales training programs, receiving instruction in all aspects of the Company's products and store operation, as well as cooking clas- ses. In order to attract and retain highly motivated employees committed to providing exceptional customer service, the Company emphasizes competitive wages, bonuses and commissions, and career path development. Sales associates are expected to greet each customer, discuss the customer's needs, suggest mer- chandise that satisfies the customer's lifestyle and barbecuing preferences, and recommend accessories that enhance the use and enjoyment of such merchan- dise. The Company centralizes many key aspects of its operations such as its distribution, inventory, human resource functions and management 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 42 visits by outside consultants, focus group sessions and regular customer care surveys. The Company also rewards high quality customer service through cash awards, special incentives such as free dinners and vacations and commendation plaques. Barbeques Galore stores offer barbecue assembly, home delivery and repair serv- ices. The Company's "satisfaction guaranteed" return policy permits customers who are not completely satisfied with their purchases to return items for an exchange, credit or refund. The Company also honors all manufacturer warranties for products sold at its stores. MARKETING AND PROMOTION The Company's principal marketing strategy is to capitalize on the growing interest in leisure, entertainment and family quality time by emphasizing the fun and healthy outdoor lifestyle aspects of its products in its marketing and promotional campaigns. The Company promotes this image in a variety of media. Catalogs and sales bro- chures containing color pictures of products and accessories being used in social settings are made available to customers at each store and are sent to customers on store mailing lists and in direct mail campaigns. In order to attract first-time customers and increase repeat store visits, the Company reg- ularly runs highly visible newspaper advertisements in selected markets. Tele- vision and radio commercials appear periodically during peak seasonal periods or to publicize promotional events. Barbeques Galore also promotes its store grand openings, conducts in-store barbecue and cooking demonstrations where permissible, and appears at home, garden and trade shows. In the past, the Com- pany has sponsored cross-promotions with other popular retail chains. Total retail advertising expenditures represented 5.9% of net retail sales during the twelve months ended January 31, 1997. STORE OPERATIONS The Company has five district managers in the United States and four regional supervisors in Australia, each of whom is responsible for the store operations within his or her district or region. The district managers report to the Vice President and Director of Operations in the United States and the regional supervisors report to the General Manager of Retail/Licensees in Australia. Each district manager or regional supervisor trains, develops and works directly with store managers to monitor store performance and ensure adherence to the Company's merchandising guidelines and operating standards. Incentive compensation for district managers and regional supervisors is tied to the achievement of specified sales and operating profit targets. The typical staff of a Barbeques Galore store consists of a store manager, an assistant store manager, up to five hourly sales associates and a service tech- nician. Part-time sales associates, cashiers and technicians are added during peak seasons or busy periods as necessary. The Company seeks to recruit and retain highly motivated employees who are committed to providing friendly and knowledgeable service. The Company recruits its store employees primarily through on-campus interviews, professional recruiters and referrals, and con- ducts four to eight-week training programs. In order to emphasize career advancement opportunities, the Company has established defined career paths for store employees and generally promotes district managers and store managers from within the ranks of its sales force. In the United States, store managers are paid a salary plus commissions based on gross sales volume and a bonus based on store profit performance, while sales associates receive commissions only. Australian store managers and sales associates receive a salary and par- ticipate in store bonus pools based on store profit performance. See "--Cus- tomer Service." The Company has centralized many key aspects of its operations, including development of merchandising policies and procedures, accounting systems, hiring and training, purchasing and marketing, at its headquarters in both Aus- tralia and Irvine, California. The Company also plans to centralize store inventory replenishment through the integration of its central distribution system with its point-of-sale ("POS") terminals. As a result, store employees will be able to focus their efforts and attention on customer service, while ensuring that stores meet the high quality standards set by Barbeques Galore. MANUFACTURING In its Australian factory facilities, the Company manufactures barbecues under its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands and certain private label brands, as well as home heaters under its proprietary Norseman and Kent brands. During the twelve months ended January 31, 1997, approximately 33% of the Company's net sales in the United States, and approximately 34% of the Company's net sales in Australia, were represented by barbecues manufac- 43 tured by the Company. The Company believes that controlling its own manufac- turing operations allows it to realize higher margins, control product devel- opment and improve inventory flexibility and supply, without affecting its relationships with third party vendors. The Company's manufacturing operations are closely coordinated with its research and development activities. The Com- pany has a research and development team which is dedicated to barbecue market analysis and product development. The ten members of this research and devel- opment team have an average of over 10 years of industry experience. The team continuously studies sales data, customer feedback, consumer trends and product designs, working closely with the Company's other departments (in both the United States and Australia) and suppliers to develop the annual Barbeques Galore product line. The Company expended approximately A$1.2 million, A$1.1 million and A$1.1 million during the twelve-month periods ended January 31, 1995, 1996 and 1997, respectively, on research and development activities. In the manufacturing process, metal barbecue frames are constructed at the Company's factory, located at its headquarters in Sydney, Australia, before being shipped off-site to its enamelling operations or third party painting facilities, where they are coated and finished or painted before being re- delivered to the factory floor. Gas barbecue manifolds are assembled by hand and tested individually at the factory for compliance with Australian Gas Association and American Gas Association standards. Barbecues are then assem- bled in the factory's automated production line from the completed frames, burners and other parts (or, in certain cases, shipped to the Company's U.S. distribution center for assembly). While keeping the same breadth of product line, the Company has recently rationalized the number of frames it manufac- tures from 19 to 12 to extend production runs, improve inventory control and promote efficiency. Barbeques Galore maintains strict quality control stan- dards and its barbecues are under limited warranty for one to ten years from the date of retail purchase, depending on the part being warranted. Management believes that the Company's existing manufacturing and enamelling operations are sufficient to meet anticipated production increases that may arise from its current store expansion and refurbishment programs. The Company estimates that its plants currently have the capacity to increase barbecue output by approximately 30% without any material capital expenditures, and believes this is sufficient to meet its expansion needs through 1999. The Com- pany further believes it could approximately double current output through the addition of six new steel presses (at an aggregate cost of A$1.5 million to A$2.0 million) and extra worker shifts. In order to streamline its manufacturing operations to enhance production efficiencies, in July 1996, the Company relocated its barbecue manufacturing operations to the location of its corporate headquarters and distribution center in Sydney, Australia. The Company currently plans to relocate its enam- elling operations to the same facilities, add an in-line powder coating opera- tion and rearrange the assembly, warehouse and distribution operations to improve production flow, inventory control and distribution management. These changes are scheduled to occur in the first half of 1998 and will cost an estimated A$454,000 (against which A$369,000 has already been accrued) and will require capital expenditures of approximately A$2.2 million. See "Manage- ment's Discussion and Analysis of Financial Condition and Results of Opera- tions" and "Risk Factors--Management of Operational Changes." PURCHASING The Company believes that it has good relationships with its merchandise ven- dors and suppliers of parts and raw materials and does not anticipate that, as the number of its stores or its manufacturing volume increases, there will be any significant difficulty in obtaining adequate sources of supply in a timely manner and on satisfactory economic terms. Retail. The Company deals with its merchandise vendors principally on an order-by-order basis and does not maintain any long-term purchase contracts with any vendor. Merchandise mix is purchased for its U.S. and Australian stores by the Company's central buying staffs in its respective headquarters. In selecting merchandise, the buying staffs obtain input from a variety of sources, including the Company's research and development team, store employ- ees, focus groups, customer surveys, industry conventions and trade shows. During the twelve months ended January 31, 1997, the Company purchased its inventory from over 400 vendors in the United States, Australia and the Far East. No single vendor accounted for more than 5% of merchandise purchases during this period, although the Company considers certain brands to be sig- nificant to its business, especially in the United States. Approximately 25% of the Company's merchandise purchases were obtained in such period from the Company's ten largest vendors. See "Risk Factors--Risks Associated with Inter- national Operations; Dependence on Significant Vendors and Suppliers." Manufacturing. The Company also purchases parts and raw materials for use in its manufacturing and enamelling operations. During the twelve months ended January 31, 1997, the Company's buying staffs purchased barbecue and home heater parts from over 50 suppliers in Asia, Australia and North America. No single supplier accounted for more than 5% of factory parts and raw material purchases during this period, other than Horan's Steel (an Australian steel distributor) and 44 Bromic, which accounted for approximately 19% and 21% of these purchases, respectively. Other major suppliers of barbecue components include G.L.G. Trading Pte. Ltd. ("GLG Taiwan"), a Taiwanese company that purchases grills, burners and other products directly from factories in China and Taiwan. The Company has a 50% ownership interest in GLG Taiwan and a one-third ownership interest in Bromic. Approximately 73% of the Company's factory parts and raw material purchases were obtained in such twelve-month period from the Company's ten largest suppliers. In order to set production budgets, the price of certain parts and raw materials such as steel are negotiated and fixed well in advance of production usage. The Company uses back-up suppliers to ensure competitive pricing. In addition, some of the Company's key suppliers currently provide the Company with certain purchasing incentives, such as volume rebates and trade discounts. See "Risk Factors-- Risks Associated with International Operations; Dependence on Significant Vendors and Suppliers" and "--Manufacturing." DISTRIBUTION The Company maintains a 44,000 square foot distribution center at its U.S. headquarters in Irvine, California and a 121,000 square foot distribution center at its Australian headquarters. The Company also uses smaller 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 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. Mer- chandise 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 allows it to closely monitor sales and track in-store inventory. Current plans include the introduction of an automated store inven- tory replenishment system in order to better manage its inventory. The Company estimates that its inventory shrinkage represents no more than 0.5% of its aggregate retail sales. As the Company expands into new regions or accelerates the rate of its U.S. store expansion, it may eventually need additional warehouse capacity. In order to meet such needs and to minimize the impact of freight costs, the 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 com- mercially reasonable rates. Wherever possible, the Company also solicits the cooperation of its vendors, through drop shipments to public warehouses and/or stores, in order to reduce its freight and handling costs. The Company believes that its existing Australian distribution arrangements, together with public warehousing space as needed, are sufficient to meet its current needs. MANAGEMENT INFORMATION SYSTEMS In the United States, the Company has installed a JDA Software Group Inc. ("JDA") system on an IBM AS400 platform, which allows it to manage distribu- tion, inventory control, purchasing, sales analysis, warehousing and financial applications. The Company currently runs its general ledger and accounts pay- able applications on its pre-existing computer system, but intends to transfer these functions to the more powerful JDA system in the near future. At the store level, the Company has installed POS computer terminals as its cash reg- isters in all stores. Each POS terminal is equipped with a bar code scanner for ease of product input and validation. Each store's transaction data is captured by its POS terminals and transferred into the main JDA system daily. The JDA system provides extensive reporting and inquiry capability at both the store and corporate levels, including daily transaction data, margin 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 proprie- tary Wang VS software environment, together with a Novell network utilizing Microsoft applications. This software processes all distribution, warehouse management, 45 inventory control, purchasing, merchandising, financial and office automation applications. As in the United States, each store in Australia is equipped with POS terminals that receive pricing and inventory information and permit the Company to poll sales transaction data daily. The Australian system provides a range of reporting and inquiry capability at both the store and corporate levels similar to that in the United States. The Company believes that its man- agement information systems are an important factor supporting its growth and is committed to utilizing technology to maintain its competitive position. WHOLESALE OPERATIONS In Australia, the Company distributes proprietary and private brand name prod- ucts and other imported merchandise, on a wholesale basis, through a wholly- owned Australian subsidiary, Pricotech Leisure Brands Pty Ltd. ("Pricotech"). Wholesale products offered by Pricotech include Cook-On barbecues, Companion gas camping equipment, Igloo coolers and Kent home heaters. Pricotech distrib- utes these products primarily to Australian mass merchants, chains and buying groups. Customers typically buy these products based on price. In the twelve months ended January 31, 1997, the five largest customers of Pricotech accounted for approximately 52% of its net sales of A$19.4 million. The Company's wholesale operations, in which its investment consists primarily of inventory and receivables, currently fill excess production capacity at the Company's manufacturing and enamelling plants. The Company currently has no plans to operate a wholesale distribution business in the United States. LICENSING AND FRANCHISING As of July 31, 1997, the Company licensed 45 Barbeques Galore stores, generally in rural areas of Australia, and franchised six Barbeques Galore stores in the United States. The Company receives annual licensing fees and franchising roy- alties, and benefits primarily from these arrangements through the sale of Barbeques Galore merchandise to the licensees and franchisees. Independent licensees and franchisees operate such stores pursuant to agreements which require them to comply with Barbeques Galore's merchandising and advertising guidelines and conform to the Barbeques Galore image. These agreements typi- cally provide the licensees and franchisees with exclusive geographical sales territories. Most of the Australian licensing agreements have an indefinite term but permit licensees to terminate their arrangements at will, while fran- chisees in the United States are generally contractually bound for fixed periods with renewal options. During the twelve months ended January 31, 1997, total net sales to licensee and franchisee stores was A$16.2 million and US$4.5 million, respectively. The Company estimates that the total retail sales of Barbeques Galore products by licensees and franchisees was approximately A$48.3 million and US$3.7 million, respectively, in the same period. A number of the Company's existing licensees have refurbished their stores in accordance with the Company's established criteria (although no licensee is required to do so), and the Company maintains an assistance program to provide advice relating to these enhancements. See "Management's Discussion and Analysis of Financial Con- dition and Results of Operations--Overview." In fiscal 1997, in order to realize management efficiencies, the Company con- solidated the administration of its Australian licensing division into its retail and wholesale divisions. The Company incurred approximately A$354,000 of one-time charges relating to the restructuring of its Australian licensing division. The restructuring has resulted in an estimated annual cost savings of A$400,000. The Company may license additional Barbeques Galore stores in Aus- tralia on a selective basis, although it does not intend to franchise any addi- tional stores in the United States (except within geographical territories as required under existing franchising agreements). COMPETITION The retail and distribution markets for barbecues and the Company's other product offerings are highly competitive in both the United States and Austra- lia. The Company's retail operations compete against a wide variety of retail- ers, including mass merchandisers, discount or outlet stores, department stores, hardware stores, home improvement centers, specialty patio, fireplace or cooking stores, warehouse clubs and mail order companies. The Company's man- ufacturing and wholesale operations compete with many other manufacturers and distributors throughout the world, including high-volume manufacturers of bar- becues and home heaters. Many of the Company's competitors have greater finan- cial, marketing, distribution and other resources than the Company, and partic- ularly in the United States, may have greater name recognition than the Com- pany. Furthermore, the lack of significant barriers to entry into the retail market which the Company services may also result in new competition in the future. Barbeques Galore competes for retail customers primarily based on its broad assortment of competitively priced, quality products (including proprie- tary and exclusive products), convenience, customer service and the attractive presentation of merchandise within its stores. The Company believes that it competes successfully on each of these factors. EMPLOYEES As of July 31, 1997, the Company employed approximately 830 persons, of whom 493 were store employees, including 198 part-time store employees. The number of part-time employees fluctuates depending on seasonal needs. 46 None of the Company's employees is covered by a collective bargaining agree- ment, although to the Company's knowledge 12 workers in its enamelling plant belong to a labor union. The Company considers its relations with its employees to be good and believes that its employee turnover rate is low. PROPERTIES The Company currently leases all of its stores and expects that its policy of leasing, rather than owning, store properties will continue as it expands. Existing store leases provide for original lease terms that generally range from two to ten years, with single or multiple renewal options that range from three to ten years at increased rents. Certain of the leases provide for sched- uled rent increases or for contingent rent (based upon store sales exceeding stipulated amounts). The Company guarantees two franchised store leases, one of which is secured by the franchisee's rights in its Barbeques Galore franchise. In Sydney, Australia, the Company owns its headquarters and a 76,000 square foot portion of its distribution center. The Company leases the remaining 45,000 square foot portion of such distribution center (under a five-year lease with one five-year renewal option) and the adjacent 75,000 square foot barbecue and home heater factory (under a five-year lease with four successive five-year renewal options for a total maximum lease term of 25 years), and leases a 20,000 square foot wholesale and licensee store distribution center in Brisbane (under a five-year lease with one five-year renewal option). In addition, the Company leases its enamelling plant premises. This lease will expire in June 1998 and, prior to expiration, the Company intends to move its enamelling oper- ations 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, Cali- fornia, the Company leases its home office and 44,000 square foot U.S. distri- bution center under leases scheduled to expire in 2000 (subject to a two-year renewal option). As in Australia, additional public warehouse space is leased for short terms. See "--Manufacturing." TRADEMARKS AND PATENTS "Barbeques Galore," "Turbo," "Capt N Cook," "Bar-B-Chef" and "Cook-On" are fed- erally registered trademarks and/or service marks in the United States. In addition, the Company owns a federal trademark registration for the distinctive configuration of its Turbo grill. The Company also uses the phrase "America's Largest Chain of Barbecue Stores" as a common-law trademark in the United States. "Barbeques Galore" and "Cook-On" are registered trademarks with the State of California. In Australia only, the Company uses the phrase "Your Out- door Cooking and Camping Store" as a common-law trademark and, among others, the names "Norseman" and "Kent" as registered trademarks. The Company further utilizes a number of different trademarks relating to various barbecues, bar- becue accessories, home heaters, camping equipment and outdoor furniture manu- factured or offered by the Company. The Company is not presently aware of any claims of infringement or other challenges to the Company's right to use its marks and the Company's name in the United States. The Company owns an Australian patent with respect to a weighing stand appa- ratus for gas containers. The Company has a patent application pending in Aus- tralia for its "Flamethrower" gas grill ignition system. The Company also owns a number of copyrighted works, including brochures and other literature about its products and many drawings and designs that it uses in marketing those products. GOVERNMENTAL REGULATION Many of the Company's products use gas and flame and, consequently, are subject to regulation by authorities in both the United States and Australia in order to protect consumers, property and the environment. For example, the Company's barbecue and home heater manufacturing and enamelling operations are subject to regulations governing product safety and quality, the discharge of materials hazardous to the environment, water usage, workplace safety and labor rela- tions. The Company believes that it is in substantial compliance with such reg- ulations. The Company's products or personal use thereof are subject to regula- tions relating to, among other things, the use of fire in certain locations (particularly restrictions relating to the availability or frequency of use of wood heating in homes and barbecues in apartments), restrictions on the sale or use of products that enhance burning potential such as lighter fluid, restric- tions on the use of gas in specified locations (particularly restrictions relating to the use of gas containers in confined spaces) and restrictions on the use of wood burning heaters. See "Risk Factors--Product Liability and Gov- ernmental and Other Regulation." In addition, once the Company's level of foreign ownership exceeds 40%, the Company would be considered a foreign person and would require approvals in connection with certain acquisitions in Australia. See "Risk Factors--Restric- tions on Foreign Ownership; Antitakeover Restrictions." LEGAL PROCEEDINGS There are no material pending legal proceedings against the Company. The Com- pany is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business, results of operations or financial condition of the Company. 47 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The executive officers, directors and key employees of the Company are as fol- lows:
- ------------------------------------------------------------------------------ NAME AGE POSITION - ---- --- -------- Directors and Executive Officers of the Company Sam Linz 57 Chairman of the Board Robert Gavshon(1) 50 Deputy Chairman of the Board and General Counsel John Price 47 Head of Research and Product Development and Director Sydney Selati 58 President--Galore USA and Director Philip Gardiner(2) 50 Director Gordon Howlett(1)(2) 56 Director David Glaser 48 Company Secretary David James 37 Chief Financial Officer Kevin Ralphs 43 Chief Financial Officer--Galore USA Key Employees--Australia William Lyons 55 Managing Director of Manufacturing--Park-Tec Engineering Pty Limited and Australian Enamellers Pty Limited Ian Redmile 45 General Manager--Pricotech Leisure Brands Pty Limited Peter Spring 38 General Manager of Retail/Licensees--Barbeques Galore Australia Pty Limited Gary Whitehouse 47 General Manager of Logistics Key Employees--United States L.D. "Chip" Brown 36 Chief Operating Officer--Galore USA Michael Varley 49 Vice President of Purchasing, Distribution and Product Development Austin Yeh 51 Vice President and Director of Operations
- ------- (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 share- holder until he sold his interest in July 1997. Prior to joining the Company, Mr. Linz developed and managed a large chain of liquor stores and hotels in South Africa in association with Mr. Selati. Mr. Linz has over 30 years experi- ence in the retail industry. ROBERT GAVSHON joined the Company in January 1983 as General Counsel and has also served as Deputy Chairman of the Board since August 1993. Until July 1997, Mr. Gavshon served as a non-executive Director of Rebel. Mr. Gavshon was one of the founders of Rebel and was a shareholder until he sold his interest in July 1997. Prior to joining the Company, Mr. Gavshon acted as group counsel and director of corporate affairs for a multinational corporation based in Sydney, Australia and prior thereto as a partner in a large commercial law firm in South Africa. Mr. Gavshon has over 15 years experience in the retail industry. JOHN PRICE joined the Company in 1981 as General Manager of Wholesale and has served as Head of Research and Product Development since June 1989, and as Director of the Company since November 1989. Prior to joining the Company, Mr. Price helped found and was Managing Director of Cook-On-Gas Products Pty Lim- ited, a developer and manufacturer of consumer gas products which was acquired by the Company in 1981. Mr. Price has over 24 years experience in the develop- ment and marketing of consumer gas products. SYDNEY SELATI has served as Director of the Company since July 1997 and Presi- dent of Galore USA since May 1988. From 1984 until 1988, Mr. Selati was Presi- dent of Sussex Group Limited, a chain of retail furniture stores including Huffman-Koos, Colby's and Barker Brothers. Prior to that, Mr. Selati developed and managed a large chain of liquor stores and hotels in South Africa in asso- ciation with Mr. Linz. Mr. Selati has over 30 years experience in the retail industry. PHILIP GARDINER has served as a non-executive Director of the Company since April 1987. Mr. Gardiner also serves as a director for several other Australian companies related to agriculture and mining and has, since 1994, been a Member and 48 Chairman of the Western Australian Ministers for Primary Industry and Fisheries Wool Strategy Group (a state-government-appointed position). In addition, from 1979 to 1994, Mr. Gardiner served both as an executive and non-executive director for Macquarie Bank Limited, a prominent Australian banking institu- tion. Currently, Mr. Gardiner is the full-time manager of his farm in Western Australia. GORDON HOWLETT has served as a non-executive Director of the Company since August 1991. Since April 1997, Mr. Howlett has served as Managing Director of Adshel Street Furniture Pty Ltd., specializing in advertising-related outdoor furniture such as bus shelters. Prior to that, from March 1994 to February 1997, Mr. Howlett served as the Executive General Manager of national and international operations at Qantas Airways Limited. From 1981 to 1994, Mr. Howlett was Managing Director of Avis Australia and Vice President of Avis throughout the Asia-Pacific region. DAVID GLASER has served as Company Secretary since March 1994. Mr. Glaser has also provided retail management accounting services for the retail subsidiary of the Company since February 1996 and, from July 1989 to February 1994, was the financial administrator to certain other of the Company's subsidiaries. Prior to joining the Company, Mr. Glaser was a partner at Arthur Andersen in South Africa. Mr. Glaser has extensive commercial experience in retail, manu- facturing and service industries both locally and overseas. DAVID JAMES joined the Company in January 1992, serving the Company in several group financial roles, ultimately as General Manager--Finance & Administration until his departure in September 1996. From September 1996 to July 1997, Mr. James was employed by HMV Australia Pty Ltd., a subsidiary of EMI plc, as Finance Director. He rejoined the Company in July 1997 as Chief Financial Officer of the Company. Prior to 1992, Mr. James served as a Senior Audit Man- ager for KPMG in Australia. KEVIN RALPHS has served as Chief Financial Officer of Galore USA since February 1989. From May 1988 to February 1989, Mr. Ralphs served as Controller of Galore USA. Mr. Ralphs has also served as controller for American Digital Products, Inc., a distributor of computer peripherals in the Northeast United States, treasurer for Hosken Intermediaries, Inc., a reinsurance broker, and financial manager for Royal Beech-Nut (Pty) Ltd., a foreign subsidiary of Nabisco. WILLIAM LYONS has served as Managing Director of Manufacturing for Park-Tec Engineering Pty Limited, an operating subsidiary of the Company since September 1987. Prior to joining the Company, Mr. Lyons served as the Manager of Quintrex Marine, a division of Alcan, and as the Manager of Vass Electrical Engineering. Prior to managing Quintrex Marine and Vass Electrical Engineering, Mr. Lyons was involved in Design, Production and Factory Management of Cope Allman for 17 years. IAN REDMILE joined the Company in August 1992 as a State Manager for an Austra- lian state and has served as General Manager of Pricotech, the Company's whole- saling subsidiary, since February 1997. Prior to joining the Company, Mr. Redmile has served as Key Account/Sales Manager for Unilever Australia for 12 years. PETER SPRING has served as General Manager of Retail/Licensees for Barbeques Galore Australian Pty Limited, an operating subsidiary of the Company since October 1995. Prior to that, Mr. Spring served as General Manager of the Opera- tions of Pricotech and has served the Company since its inception in 1977. GARY WHITEHOUSE joined the Company in May 1990 as National Warehouse Manager and has served as General Manager of Logistics for the Company since July 1996. Prior to joining the Company, Mr. Whitehouse served as Financial Systems Accountant for Qantas Airways. Prior to that, Mr. Whitehouse held managerial positions, including commercial manager, state branch manager and warehousing/distribution manager. L.D. "CHIP" BROWN joined 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 Com- pany and General Electric Company. MICHAEL VARLEY joined the Company in January 1982 and served in a variety of sales- and buying-related positions, until May 1989 when he was appointed Vice President of Operations and Purchasing. Mr. Varley has served as Vice President of Purchasing, Distribution and Product Development since May 1994. From 1978 to 1981, Mr. Varley served as manufacturing/production manager for Mistral Fans, Inc., a manufacturing company, in both the United States and Australia. Prior to that, Mr. Varley worked as a product engineer and technical sales- person for several companies in the United Kingdom, South Africa and Australia. 49 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 comprised of Messrs. Gavshon and Howlett that advises on the establishment and maintenance of internal controls and ethical standards as well as on the quality and relia- bility of financial information provided by the Company's independent auditors. Shortly after the Offering, the Company intends to elect an additional indepen- dent director, residing in the United States. This new director will serve on the Audit Committee in place of Mr. Gavshon. EXECUTIVE SHARE OPTION PLAN On January 31, 1997, the Company adopted the Executive Share Option Plan (the "Executive Plan"). Under the Executive Plan, a total of 203,038 Ordinary Shares were reserved for issuance. On January 31, 1997, the Board granted stock options comprising the entire share reserve under the Executive Plan. Each such stock option has an exercise price of A$8.38 per Ordinary Share. No additional stock options will be granted under the Executive Share Option Plan. For more information on these stock option grants, see the "Options to Purchase Securi- ties" section below. All stock options granted under the Executive Plan will become exercisable on February 1, 1999. The stock options will generally lapse thirty days after the cessation of the employment of the optionee (or the executive controlling the optionee, if the optionee is an entity (an "Entity Optionee")), whether or not exercisable. In addition, the stock options will automatically lapse (i) if the optionee or Entity Optionee transfers, assigns, or encumbers any right or interest in the options without the Company's consent (except for a one-time exemption for a transfer by a director or Entity Optionee controlled by a director to an employee of the Company or its related entities) or (ii) for Entity Optionees, if the Entity Optionee ceases to be controlled by the employee or director of the Company who controlled the Entity Optionee on the date of grant. If the stock options do not earlier lapse or are not earlier exercised, each stock option will terminate five years after the grant date (the "Expiry Date"). The stock options will automatically accelerate and become immediately exercisable, for the 30 days prior to their lapse, in the event the optionee (or executive controlling the Entity Optionee) ceases to be employed by the Company or a related entity due to death, permanent disability or ill health. In addition, the Board, in its sole discretion, may accelerate any out- standing stock option or extend the period until lapse, even if expired (but in no event to a date later than the Expiry Date), upon any other event termi- nating the employment of the optionee or the executive controlling the Entity Optionee. In the event the Company is subject to a takeover bid pursuant to which the offeror acquires at least thirty percent of the outstanding Ordinary Shares of the Company, the Board may accelerate stock options outstanding at that time for a period of up to 120 days measured from the date the Board noti- fies the optionee of the takeover bid. Any stock option exercise under the Executive Plan must be for a minimum of twenty percent of the stock options included in the relevant grant. In the event of changes to the Company's capital structure, appropriate adjust- ments will be made to the stock option exercise price and the number of shares subject to each outstanding stock option. The Board may not amend the Executive Plan in any respect, except to comply with laws or regulations governing the Executive Plan. The Company may amend the Executive Plan by special resolution of shareholders. The Executive Plan will terminate on the earlier of December 31, 1997, or the date upon which all shares authorized for issuance are issued pursuant to the exercise of stock options granted under the Executive Plan. 1997 SHARE OPTION PLAN The Company's 1997 Share Option Plan (the "1997 Plan") was adopted by the Board of Directors on October 1, 1997, and was approved by the shareholders as of October 7, 1997. A total of 329,254 Ordinary Shares have been authorized for issuance under the 1997 Plan, of which stock options to purchase up to an aggregate of 200,000 Ordinary Shares at the initial public offering price set forth on the cover page of this Prospectus have been granted concurrently with the Offering. Each of the stock options granted concurrently with the Offering will generally become exercisable in three equal installments on the third, fourth and fifth anniversaries of the Offering. The number of Ordinary Shares reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning with the 1999 calendar year, during the term of the 1997 Plan by an amount equal to one percent (1%) of the Ordinary Shares outstanding on December 31st of the immediately preceding cal- endar year. In no event may any one participant in the 1997 Plan receive stock option grants for more than 27,438 Ordinary Shares per calendar year. The 1997 Plan consists of the Option Grant Program, under which eligible indi- viduals in the Company's employ or service (including officers and other employees, non-employee Board members, consultants and other independent advi- sors of the Company, or any parent or subsidiary) may, at the discretion of the Plan Administrator, be granted stock options to purchase Ordinary Shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the option grant date. 50 The 1997 Plan will be administered by the Compensation Committee. The Plan Administrator will have complete discretion, within the scope of its adminis- trative jurisdiction under the 1997 Plan, to determine which eligible individ- uals are to receive stock option grants, the time or times when such grants are to be made, the number of shares subject to each such grant, the exercise and vesting schedule to be in effect for the grant, the maximum term for which any granted stock option is to remain outstanding and the status of any granted stock option as either an incentive stock option or a non-statutory stock option under the U.S. Federal tax laws. The exercise price for outstanding stock option grants under the 1997 Plan may be paid in cash or in Ordinary Shares valued at fair market value on the exer- cise date. Each stock option may also be exercised through a same-day sale pro- gram without any cash outlay by the optionee. In addition, the Plan Adminis- trator may provide financial assistance to one or more optionees in the exer- cise of their outstanding stock options by allowing such individuals to deliver a full-recourse, interest-bearing promissory note in payment of the exercise price and any associated withholding taxes incurred in connection with such exercise. In the event that the Company is acquired by merger or asset sale, each out- standing stock option under the 1997 Plan will immediately accelerate and become fully exercisable for all of the shares subject to such outstanding options, unless such stock options are to be assumed or replaced by the suc- cessor corporation (or parent thereof). Any stock options that do not automati- cally accelerate upon the occurrence of a merger or asset sale of the Company, will immediately accelerate, and such repurchase rights will accordingly lapse, upon the involuntary termination of the optionee within 18 months after the effective date of the merger or asset sale. Stock options accelerated in con- nection with such involuntary termination will be exercisable as fully-vested shares until the earlier of (i) the expiration of the stock option term or (ii) a one (1)-year period measured from the effective date of the involuntary ter- mination. The Plan Administrator has the authority to effect, with the consent of the affected option holders, the cancellation of outstanding stock options under the 1997 Plan in return for the grant of new stock options for the same or a different number of shares with an exercise price per share based upon the fair market value of the Ordinary Shares on the new grant date. The Board may amend or modify the 1997 Plan at any time. However, no such amendment or modification shall adversely affect the rights of any optionee without his or her consent. The 1997 Plan will terminate on October 1, 2007, unless sooner terminated by the Board. COMPENSATION OF DIRECTORS AND OFFICERS The aggregate annual compensation paid by the Company to all directors and executive officers of the Company (nine persons) as a group for (i) the fiscal year ended June 30, 1996 was A$1,258,896, and (ii) the twelve-month period ended January 31, 1997 was A$1,277,085. These amounts do not include any stock options granted to such individuals as more fully described below in the "Op- tions to Purchase Securities" section. The total amount set aside by the Company and its subsidiaries to provide superannuation benefits for such officers and directors (i) during the fiscal year ended June 30, 1996 was A$73,777, and (ii) during the twelve-month period ended January 31, 1997 was A$78,627. On February 1, 1997, the Company instituted an incentive program whereby cer- tain executives will receive a bonus if certain budget objectives are attained during fiscal year 1998. Under this program, Mr. Linz, Mr. Gavshon, Mr. Price, and Mr. James will each receive a bonus of 20%, and Mr. Selati, Mr. Lyons, Mr. Spring, Mr. Redmile and Mr. Whitehouse will each receive a bonus of 10%, of their respective base salaries if the Company achieves its budgeted pre-tax profit before trading contingencies for the fiscal year ending January 31, 1998. Mr. Selati, Mr. Lyons, Mr. Spring and Mr. Redmile will each receive an additional bonus of 10% of his base salary if his division achieves its bud- geted operating contribution, regardless of whether or not the Company's budget is achieved. Additionally, Mr. Whitehouse will receive a bonus of 10% of his base salary if the Company's inventory level budget for fiscal 1998 is attained. OPTIONS TO PURCHASE SECURITIES As of July 15, 1997, the following stock options to purchase Ordinary Shares were outstanding:
------------------------------------------------------------------------------- NUMBER OF ORDINARY SHARES EXERCISE UNDER OPTION PRICE(1) EXPIRY DATE(1) --------------- -------- ---------------- 203,038 A$8.38 February 1, 2002
- ------- (1) Stock options will generally expire on the earlier of the Expiry Date or 30 days after the cessation of employment of the optionee or the executive con- trolling the Entity Optionee. All of the outstanding stock options listed above were held by directors and officers of the Company and were granted pursuant to the Executive Share Option Plan. For more information, see "--Executive Share Option Plan." 51 CERTAIN TRANSACTIONS RECENT DELISTING TRANSACTION In April 1987, the Company listed its Ordinary Shares for trading on the ASE. In October 1996, the Company announced its intention to delist from the ASE pursuant to a capital reduction transaction (the "Capital Reduction") which was consummated on December 31, 1996. The Capital Reduction was approved by holders of 74.1% of the outstanding Ordinary Shares entitled to vote thereon. Pursuant to the Capital Reduction, the Company repurchased 2,743,878 Ordinary Shares and cancelled stock options to purchase 101,520 Ordinary Shares, for a total con- sideration, excluding transaction costs, of A$20.1 million. The Company financed the Capital Reduction through (i) the issuance and sale of A$10.0 mil- lion in aggregate principal amount of its Convertible Notes, and (ii) the bor- rowing of A$11.2 million under the Standby Facility. After giving effect to the Capital Reduction, the issued and outstanding capital of the Company was reduced to A$6,219,661.40 divided into 1,706,542 Ordinary Shares of A$3.64 each. The Convertible Notes are convertible into 1,197,926 Ordinary Shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." In connection with the issuance and sale of the Convertible Notes, the Company, SBC Warburg Australia, as representative of the Noteholders, and certain prin- cipal shareholders of the Company entered into certain debt instruments con- taining the terms and conditions of the Convertible Notes. The Company has the power to redeem these instruments upon a listing of the Company's securities on a recognized stock exchange or securities market, a condition which will be satisfied upon consummation of the Offering, and quotation of the ADSs for trading on the Nasdaq National Market. The Company will, however, be required to indemnify each Noteholder as to matters relating to the issuance of the Ordinary Shares into which the Convertible Notes are convertible. While these instruments are outstanding, SBC Warburg Australia is entitled to elect a rep- resentative of the Noteholders to the Company's Board of Directors. In addi- tion, SBC Warburg Australia received underwriting and advising fees of A$750,000 and a one-time fee of A$15,000 in connection with the original issu- ance of the Convertible Notes, and SBC Warburg Australia will continue to receive an annual fee of A$15,000 on each anniversary of the issue date of the Convertible Notes until all of the Convertible Notes have been redeemed or con- verted. Moreover, in connection with the issuance and sale of the Convertible Notes, the Company granted stock options to purchase up to an aggregate of 203,038 Ordinary Shares under the Executive Share Option Plan to four executive officers of the Company. See "Management--Executive Share Option Plan." TRANSACTIONS WITH AFFILIATES The Company holds a one-third ownership interest in Bromic, which supplies gas valves and related products to the Company. Bromic receives approximately 20% of its revenues from sales to the Company, which in turn is Bromic's largest customer. In fiscal 1996 and fiscal 1997, the Company purchased approximately A$3.8 million and A$2.3 million, respectively, of products from Bromic. The Company guaranteed A$900,000 indebtedness of Bromic to ANZ, which was repaid in full in February 1997, releasing the guarantee. In addition, the Company holds a 50% equity interest in GLG Taiwan, which sup- plies the Company with grills, burners and other products. GLG Taiwan receives approximately 80% of its revenues from sales to the Company, which in turn is GLG Taiwan's largest customer. In fiscal 1996 and fiscal 1997, the Company pur- chased approximately A$5.4 million and A$3.3 million, respectively, of products from GLG Taiwan. SHAREHOLDERS AGREEMENT Certain shareholders of the Company have in the past been party to a Share- holders Agreement providing for certain preemptive rights and other rights. The Shareholders Agreement was terminated prior to consummation of the Offering. TRANSACTIONS INVOLVING PRINCIPAL SHAREHOLDERS Immediately prior to the Offering, Messrs. Sam Linz, Robert Gavshon, Sydney Selati and John Price will beneficially own 42.5%, 7.3%, 4.8% and 2.4%, respec- tively, of the Ordinary Shares of the Company outstanding on a fully diluted basis (assuming conversion of all Convertible Notes). Immediately after giving effect to the Offering, Messrs. Linz, Gavshon, Selati and Price will benefi- cially own 26.2%, 4.5%, 3.0% and 1.5%, respectively, of the outstanding Ordi- nary Shares of the Company. Accordingly, these individuals have in the past controlled the business and affairs of the Corporation, and following the Offering will continue to have substantial influence over the business and affairs of the Corporation, including the election of the Company's directors and the outcome of corporate actions requiring shareholder approval. See "Prin- cipal Shareholders." 52 From time to time in the past, Messrs. Linz, Gavshon and Selati and certain members of their respective families have advanced funds, re-payable on demand, to the Company to be used for general corporate purposes. As of January 31, 1997, the aggregate balance of these advances was A$1,231,000. Over the fiscal year ended January 31, 1997, the Company paid A$50,000 in interest on these advances. Through these advances, the Company has been able to obtain funds at relatively attractive short-term borrowing rates of approximately 2% per annum below the overdraft rate received by the Company. As of July 31, 1997, the Com- pany had repaid all amounts owing on such advances and terminated these bor- rowing arrangements. The Company may reinstate these or similar arrangements in the future if its Board of Directors determines that to do so would be in the best interests of the Company. The Company purchases labels for certain of its products from a relative of Mr. Price's wife. On an average yearly basis, the Company purchases approximately A$551,000 of such labels. Mr. and Mrs. Price receive no monetary benefit from this relationship. The Company leases cars for the use of Messrs. Linz, Gavshon, Price and Selati, at a rate of approximately A$2,272, A$1,916, A$1,620 and US$650, 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 hus- band in one instance and her husband and son in the other instance, owns two entities ("Related Franchisors"), each of which operates one franchised Barbeques Galore store in Orange County, California. The Related Franchisors' franchise agreements provide the Related Franchisors with the exclusive right to open, upon Company approval, additional Barbeques Galore stores within a specified territory in Orange County. A portion of the Ordinary Shares and stock options repurchased or cancelled in connection with the Capital Reduction were repurchased from or cancelled in exchange for payment to principal shareholders of the Company. The Company repurchased or cancelled stock options, as applicable: 8,231 Ordinary Shares beneficially owned by Gordon Howlett, a director of the Company, for an aggre- gate of A$60,000; 37,107 Ordinary Shares beneficially owned by Philip Gardiner, a director of the Company, for an aggregate of A$270,482; stock options granted to Mr. Price for the purchase of 27,438 Ordinary Shares in exchange for A$10,000; and stock options granted to David Glaser, the Secretary of the Com- pany, 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 transac- tions were on terms the same as or less favorable than those provided to other shareholders or option holders whose interests were repurchased or cancelled. The Company leases certain retail facilities to Rebel under an arms-length landlord-tenant relationship. For the twelve months ended June 30, 1996 and the seven months ended January 31, 1997, Rebel reimbursed the Company A$703,000 and A$352,000 for these leases. Until July 10, 1997, Messrs. Linz and Gavshon were directors and significant shareholders of Rebel. COMPANY POLICY CONCERNING TRANSACTIONS WITH AFFILIATES Under the Australian Corporations Law, directors are prohibited from entering into transactions with the Company conferring a benefit on any director which are not on "arms-length" commercial terms, except where limited exemptions apply or detailed approval procedures are first observed. The Company has adopted a more stringent policy based on the Australian Corporations Law that requires that all transactions with directors, executive officers and other affiliates will be on terms that are believed to be at least as favorable to the Company as could be obtained from unaffiliated third parties and that such transactions must be approved by a majority of the Company's disinterested directors. The Company believes that the foregoing transactions with directors, executive officers and other affiliates were completed on terms as favorable to the Com- pany as could have been obtained from unaffiliated third parties. 53 PRINCIPAL SHAREHOLDERS The following table sets forth the beneficial ownership of the Ordinary Shares as of September 30, 1997 (as if all Convertible Notes had been converted into Ordinary Shares as of such date) and as adjusted to reflect the sale of the shares pursuant to the Offering with respect to (i) each person or entity known by the Company to beneficially own 5% or more of the outstanding Ordinary Shares, (ii) each of the Company's directors, (iii) each of the Company's exec- utive officers who owns Ordinary Shares, and (iv) all directors and executive officers of the Company as a group. None of the Company's principal share- holders or their affiliates will sell shares in the Offering.
-------------------------------------- PERCENTAGE OF SHARES BENEFICIALLY OWNED(1) NUMBER OF SHARES --------------------- BENEFICIALLY BEFORE AFTER NAME OWNED(1) OFFERING OFFERING - ---- ---------------- -------- -------- Sam Linz(2)............................ 1,293,895 42.5% 26.2% Robert Gavshon(3)...................... 223,498 7.3% 4.5% John Price(4).......................... 71,880 2.4% 1.5% Philip Gardiner(5)..................... 23,596 * * Gordon Howlett(6)...................... 13,718 * * Sydney Selati(7)....................... 147,008 4.8% 3.0% Wispjune Pty Limited(8)................ 162,210 5.3% 3.3% Level 10 1 Market Street Sydney, NSW 2000 Geblon Pty Limited(9) ................. 167,402 5.5% 3.4% Level 10 1 Market Street Sydney, NSW 2000 Sarwill Pty Limited(10) ............... 149,016 4.9% 3.0% Suite 6 10-12 Woodville Street Hurstville, NSW 2000 All directors and executive officers as a group (9 persons)(11)............... 1,773,595 58.3% 35.9%
- ------- * Less than 1% (1) Beneficial ownership is determined in accordance with the rules of the Com- mission and generally includes voting or investment power with respect to secu- rities. Ordinary Shares subject to stock options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within sixty (60) days of the date hereof, are deemed outstanding for computing the percentage of the person holding such stock options but are not deemed out- standing for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentages calculated are based on 3,041,652 shares before the Offering (4,941,652 shares after the Offering) issued and outstanding as of July 31, 1997. Excludes 203,038 Ordinary Shares issuable upon the exercise of stock options granted under the Executive Share Option Plan and 200,000 Ordinary Shares issuable upon the exercise of stock options to be granted under the 1997 Share Option Plan concurrently with the Offering. There are an additional 129,254 authorized and unissued Ordinary Shares reserved for the grant of stock options under the 1997 Share Option Plan. (2) Includes 162,210 Ordinary Shares held by Wispjune Pty Limited ("Wispjune"), a company in which Mr. Linz owns a 72.5% interest, with Mr. Gavshon and Mr. Price owning the remaining 22.5% and 5.0%, respectively, and 167,402 Ordinary Shares held by Geblon Pty Limited ("Geblon"), a company in which Mr. Linz and Mr. Gavshon each have a 50% ownership interest, with Mr. Linz retaining voting control of the company. See Notes (8) and (9) below. Excludes 88,459 Ordinary Shares held by ANZ Nominees Limited on behalf of members of Mr. Linz's imme- diate family, and 14,322 Ordinary Shares held by Bosmana Pty Limited ("Bosmana"), a trustee of one of the Company's Superannuation Funds, of which Mr. Linz is one of the three directors. Mr. Linz disclaims beneficial ownership of the foregoing Ordinary Shares held by ANZ Nominees Limited and Bosmana, except to the extent of his pecuniary interest therein. (3) Includes 149,016 outstanding Ordinary Shares held by Sarwill Pty Limited ("Sarwill"), a corporation owned by Mr. Gavshon and his wife. See Note (10). Also includes 1,207 outstanding Ordinary Shares held by Mr. Gavshon's resident 54 children. Excludes 162,210 Ordinary Shares held by Wispjune, in which Mr. Gavshon has a 22.5% interest, and 167,402 Ordinary Shares held by Geblon, a company in which Mr. Gavshon holds a 50.0% interest. See Notes (2), (8) and (9). Excludes 14,322 Ordinary Shares held by Bosmana, of which Mr. Gavshon is one of three directors. Mr. Gavshon disclaims beneficial ownership of the Ordi- nary Shares held by Wispjune, Geblon and Bosmana, except to the extent of his pecuniary interest therein. (4) Excludes 162,210 outstanding Ordinary Shares held by Wispjune, in which Mr. Price has a 5.0% interest. Mr. Price disclaims beneficial ownership of the Ordinary Shares held by Wispjune, except to the extent of his pecuniary interest therein. See Notes (2) and (8). (5) Includes 23,596 Ordinary Shares issuable upon conversion of the Convertible Notes held by Macquarie Investment Management Limited. Mr. Gardiner disclaims beneficial ownership of such Ordinary Shares, except to the extent of his pecu- niary interest therein. Certain Ordinary Shares previously held by Mr. Gardiner were repurchased by the Company in the Delisting transaction. See "Certain Transactions--Recent Delisting Transaction." (6) Includes 13,718 Ordinary Shares issuable upon conversion of the Convertible Notes held by Fagume Pty. Limited. Certain Ordinary Shares previously held by Mr. Howlett were repurchased by the Company in the Delisting transaction. See "Certain Transactions--Recent Delisting Transaction." (7) Includes 68,595 Ordinary Shares owned by the Selati Living Trust dated June 30, 1984, of which Mr. Selati and his wife are trustees. Also includes 68,594 Ordinary Shares held by the Selati Family Partnership L.P., of which Mr. Selati is the sole general partner. Also includes 9,819 Ordinary Shares held by Mr. Selati's wife. Excludes 4,664 Ordinary Shares held by Mr. Selati's three adult children. Mr. Selati disclaims beneficial ownership of all Ordinary Shares held by his children. (8) Mr. Linz, Mr. Gavshon and Mr. Price, Directors of the Company, own 72.5%, 22.5% and 5.0%, respectively, of Wispjune. As such, Mr. Linz is deemed to have voting and investment power with respect to these Ordinary Shares. Mr. Gavshon and Mr. Price have disclaimed beneficial ownership of the Ordinary Shares held by Wispjune, except to the extent of their pecuniary interest in such Ordinary Shares. See Notes (2), (3) and (4). (9) Mr. Linz and Mr. Gavshon, Directors of the Company, each own 50.0% of the Ordinary Shares of Geblon, with Mr. Linz retaining voting control of the Com- pany. Mr. Gavshon disclaims his beneficial ownership of the Ordinary Shares held by Geblon except to the extent of his pecuniary interest in such Ordinary Shares. See Notes (2) and (3). (10) Mr. Gavshon, a Director of the Company, jointly with his wife, is the owner of Sarwill. See Note (3) above. (11) See Notes (2) through (10). 55 SELLING SHAREHOLDERS The Selling Shareholders listed in the table below have agreed to sell the number of Ordinary Shares set forth opposite their respective names. The Selling Shareholders are selling an aggregate of 450,000 Ordinary Shares (802,500 Ordinary Shares if the Underwriters' over-allotment option is exer- cised in full). The table sets forth information with respect to beneficial ownership of the Ordinary Shares by the Selling Shareholders as of September 30, 1997 (as if all Convertible Notes had been converted into Ordinary Shares as of such date) and as adjusted to reflect the sale of shares pursuant to the Offering. Each Selling Shareholder's position, office or other material rela- tionship with the Company for the last three years, if any, is also stated. All information with respect to beneficial ownership has been furnished by the respective Selling Shareholders.
---------------------------------------------------------- BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP BEFORE OFFERING(1) SHARES TO AFTER OFFERING(1)(2) BE SOLD IN NAME NUMBER PERCENT OFFERING(2) NUMBER PERCENT - ---- ------------ ---------- ----------- ----------- ---------- Blaironia Pty Limited... 59,647 2.0% 23,459 36,188 * Halcyon Pty Limited(3).. 23,859 * 9,384 14,475 * Timewalk Pty Limited.... 59,647 2.0% 23,459 36,188 * RG Investments (Australia) Pty Limited................ 59,647 2.0% 23,459 36,188 * Navarra Investments Pty Ltd.(3)................ 2,385 * 938 1,447 * Depofo Pty Ltd.(3)...... 2,982 * 1,173 1,809 * Talbot Pty Limited(3)... 11,929 * 4,692 7,237 * Scelara Pty Limited..... 23,859 * 9,384 14,475 * Borlas Pty Limited...... 59,647 2.0% 23,459 36,188 * Dalbrun Pty Ltd.(3)..... 23,859 * 9,384 14,475 * Pesas Pty Ltd. (A/C Super Fund)(3)......... 23,859 * 9,384 14,475 * Rupert Baroona Pty Ltd-- the Carter Account(3).. 14,911 * 5,865 9,046 * Nassa Investments Pty Limited(3)............. 11,929 * 4,692 7,237 * Shane D. Finemore(3).... 11,929 * 4,692 7,237 * Warana Holdings Pty Ltd.(3)................ 35,788 1.2% 14,076 21,712 * Kelstan Pty Ltd.(3)..... 59,647 2.0% 23,459 36,188 * Kahuna Investments Pty Limited(3)............. 59,647 2.0% 23,459 36,188 * Megwil Pty Ltd. A/C WPG Superfund(3)........... 29,823 1.0% 11,730 18,093 * Potter Warburg Nominees Pty. Limited(3)........ 11,929 * 4,692 7,237 * Todizo Pty Limited(3)... 55,472 1.8% 21,817 33,655 * AJA Investments Pty Limited(3)............. 47,717 1.6% 18,767 28,950 * National Nominees Limited................ 71,576 2.4% 28,151 43,425 * ANZ Nominees Limited.... 106,291 3.5% 41,804 64,487 1.3% Conargo Plains Pty Ltd.(3)................ 11,929 * 4,692 7,237 * RJR Capital Pty Ltd.(3)................ 59,647 2.0% 23,459 36,188 * Chirico Pty Ltd.(3)..... 59,647 2.0% 23,459 36,188 * P.K. Capital Pty Ltd.(3)................ 15,508 * 6,099 9,409 * Exim Nominees Pty. Ltd.................... 13,718 * 5,395 8,323 * Dennis Hoffman.......... 548 * 216 332 * Joyce Hoffman........... 548 * 216 332 * David Katz.............. 9,328 * 3,669 5,659 * Robert & Ann Patricia McLeod(4).............. 5,487 * 2,158 3,329 * Keith B. Abrams......... 5,487 * 2,158 3,329 * Richard Wunsh........... 2,743 * 1,079 1,664 * Patjon Pty Ltd.(4)...... 29,573 1.0% 11,631 17,942 * Alney Pty Ltd.(4)....... 14,117 * 5,552 8,565 * GDL Investments Pty Ltd.(4)................ 15,455 * 6,079 9,376 * Australip Pty Ltd....... 13,718 * 5,395 8,323 * Jack Sack............... 5,487 * 2,158 3,329 * Dresner Investments Pty Ltd.................... 5,487 * 2,158 3,329 * Jokari Pty Ltd.......... 2,743 * 1,079 1,664 * David M. Schnaid........ 3,577 * 1,407 2,170 * Lawrence A. Oster....... 1,426 * 562 864 *
56 - ------- * Less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Com- mission and generally includes voting or investment power with respect to secu- rities. Ordinary Shares subject to stock options, warrants and convertible notes currently exercisable or convertible, or exercisable or convertible within sixty (60) days of the date hereof, are deemed outstanding for computing the percentage of the person holding such stock options but are not deemed out- standing for computing the percentage of any other person. Except as indicated by footnote, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentages calculated are based on 3,041,652 shares before the Offering (4,941,652 shares after the Offering) issued and outstanding as of July 31, 1997. (2) Assumes the Underwriters' over-allotment option is not exercised. In the event that the Underwriters' over-allotment option is exercised in full, the Selling Shareholders will sell an aggregate of 352,500 additional Ordinary Shares (with each Selling Shareholder selling Ordinary Shares on a pro rata basis in proportion to the number of Ordinary Shares being sold by such Selling Shareholder in the Offering). (3) The Selling Shareholder is affiliated with an officer or director of SBC Warburg Australia, an affiliate of a co-manager in the Offering. Under the terms of the Convertible Notes, SBC Warburg Australia is the representative of the Noteholders and received certain underwriting and advising fees in connec- tion with the original issuance of the Convertible Notes. See "Certain Transac- tions--Recent Delisting Transaction." (4) Cedarford Pty Ltd., a company owned by Robert and Ann Patricia McLeod, is a licensee of the Company. Patjon Pty Ltd., Alney Pty Ltd. and GDL Investments Pty Ltd. are associated with financial and corporate advisors to the Company. None of the foregoing persons or entities is considered an affiliate of the Company. 57 DESCRIPTION OF ORDINARY SHARES The rights afforded the Ordinary Shares underlying the ADSs are governed by the Articles of the Company and the laws applicable in the Commonwealth of Australia. This includes in particular the Australian Corporations Law. The following description summarizes those rights and is qualified in its entirety by reference to the Articles, copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. General. The Company has authorized capital of A$100,000,000 divided into 27,437,853 shares of A$3.64 each (rounded to the nearest cent). At July 31, 1997 there were 1,843,726 fully paid Ordinary Shares issued and outstanding. The Directors of the Company have the power to issue authorized but unissued shares in different classes, or with special, preferred or deferred rights and restrictions, or on deferred terms for payment of the subscription amount. These rights may relate to voting, dividend, return of capital or any other matter, and may include redeemable preference shares. Voting. Each shareholder present in person, by proxy or by properly appointed representative shall have one vote at a meeting of shareholders unless a poll is called. If a poll of shareholders is called, then each shareholder shall have one vote per share, subject to any special rights attaching to shares at the time of issue and to provisos that (i) a shareholder shall not be entitled to vote unless all calls and other sums presently payable by that shareholder in respect of shares in the Company have been paid, and (ii) partly paid shares, which have not been offered pro rata to other shareholders, shall only confer a proportional vote per share. At this time there are no partly paid shares authorized or outstanding. A poll may be called by the chairman, any five shareholders, or any shareholder or shareholders holding 10% of the paid- up capital or the total votes of persons entitled to vote. At least 14 days notice must be given of any meeting, with the requirement extending to 21 days if any special resolution is to be voted on at the meet- ing. The quorum for a meeting shall be three members, with a proviso that if a quorum does not attend, then, unless it is a meeting convened on a shareholder request, the meeting shall be adjourned to such day as the directors deter- mine, or if no determination, to the same day, time and place in the next week. If a quorum does not attend the adjourned meeting, the meeting shall be dissolved. If a quorum does not attend a meeting that was convened on a share- holder request, the meeting shall be dissolved without any later adjourned meeting. An annual general meeting of shareholders must be convened to consider the financial accounts and to vote on directors, with at least one third of the directors presenting themselves for re-election. No director may serve for a period in excess of three years without submitting himself for re-election, provided, however, that a retiring director may be re-appointed. This Board re-election procedure could delay shareholders from removing a majority of the Board for a period of three years, unless they are able to obtain the requi- site vote to remove a director. The foregoing may have a significant effect in delaying, deferring or preventing a change in control of the Company, even though such change might be beneficial to the Company and its shareholders, and may adversely affect the voting and other rights of other holders of Common Stock. Four of the Company's officers and directors will beneficially own an aggre- gate of 35.1% of the Company's outstanding Ordinary Shares immediately fol- lowing this Offering. Accordingly, these shareholders will be able to signifi- cantly influence the election of the Company's directors and the outcome of corporate actions requiring shareholder approval, such as mergers and acquisi- tions, regardless of how many other shareholders of the Company may vote. See "Risk Factors--Control of the Company." Resolutions. There are two main types of shareholder resolutions under Austra- lian corporate law, ordinary resolutions, which must be approved by more than 50% of the votes case (with the chairman having a vote), and special resolu- tions, which must be approved by at least 75% of the votes cast. Appointment of directors and most general business is decided by ordinary resolution, while matters such as changes to the Articles and liquidation require a spe- cial resolution. Class Rights. If at any time the Company has more than one class of shares on issue then the rights attaching to a class cannot be varied without the approval of a special resolution passed at a meeting of those shareholders. Transfer of Shares. Shares in the Company may be transferred by any usual form of transfer or other form approved by the Directors of the Company, but the certificate for the shares must be filed with the Company. Currently, appli- cable law requires transfers to be made in writing and stamp duty of 0.6% must be paid in relation to any transfer. The Directors may refuse to register any transfer of shares where any of the following apply: (i) the Company has a lien on the shares; (ii) where the transfer is of a partly paid share in respect of which the directors have required the transferee or an authorized officer of the transferee to complete a statutory declaration stating that the transferee is financially able to meet any unpaid 58 liability in respect of the share and such a declaration has not been received by the Company; (iii) where the Company may refuse to register the transfer under the Official Listing Rules of the ASE; or (iv) the Company is required to refuse to register the transfer in accordance with a law relating to stamp duty or pursuant to a court order. There are no preemptive rights. However, contingent upon the occurrence of the Offering, the Company expects the Noteholders to convert the entire principal balance of such Convertible Notes into the Company's Ordinary Shares according to the Note Subscription Agreement by and between the Company and SBC Warburg Australia. Upon the consummation of a listing of the Company's securities on a recognized stock exchange or securities market, such as is the case with the Offering, the Noteholders are entitled to cause the Company to apply for offi- cial quotation of their converted Ordinary Shares on such stock exchange or securities market. All Noteholders will have waived their rights to have their Ordinary Shares (excluding those to be sold in the Offering by the Selling Shareholders) listed in connection with the Offering. Buyback. There is a general limitation under the Australian Corporations Law on the Company purchasing or providing financial assistance in relation to the acquisition of shares in the Company. However, there is a specific exemption allowing the Company to make limited buybacks of shares in the Company. Any buyback must satisfy a range of conditions, which conditions vary depending on whether the buyback involves the acquisition of more than 10% of the capital of the Company and/or whether all shareholders have the opportunity to participate equally in that buyback. These restrictions do not apply to debt securities. Australian Takeover Laws. Under Australian law, foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval from the Australian Treasurer or in certain other lim- ited circumstances. These limitations are set forth in the Takeovers Act. Under the Takeovers Act, as currently in effect, any foreign person, together with associates, is prohibited from acquiring 15% or more of the outstanding shares of the Company. In addition, if a foreign person acquires shares in the Company and as a result the total holdings of all foreign persons and their associates exceeds 40% in aggregate without the approval of the Australian Treasurer, then the Treasurer may make an order requiring the acquiror to dispose of those shares within a specified time. The Company has been advised by its Australian counsel, Freehill, Hollingdale & Page, that under current foreign investment policy, however, it is unlikely that the Treasurer would make such an order where the level of foreign ownership exceeds 40% in the ordinary course of trading, unless the Treasurer finds that the acquisition is contrary to the national interest. The same rule applies if the total holdings of all foreign persons and their associates already exceeds 40% and a foreign person (or its associate) acquires any further shares, including in the course of trading in the secondary market of the ADSs. If all of the ADSs offered hereby are acquired by foreign persons or their associates, then the level of foreign own- ership of the Company's equity securities will be approximately 51.6% (or approximately 58.3% if the Underwriters' over-allotment option is exercised in full). The level of foreign ownership could also increase in the future if existing Australian investors decide to sell their shares into the U.S. market or if the Company were to sell additional Ordinary Shares or ADSs in the future. Such investment restrictions could have a material adverse effect on the Company's ability to raise capital as needed and could make more difficult or render impossible attempts by foreign entities to acquire the Company, including attempts that might result in a premium over market price to holders of ADSs. Dividends. Holders of Ordinary Shares are entitled to receive, on a pro rata basis in proportion to the capital paid upon on such shares, such dividends as may be recommended by the Directors and approved by shareholders in a general meeting, subject to such other preferential or special rights as may be attached to any new shares issued by the Company. The ability of U.S. persons who hold ADSs to participate in rights offerings or share dividend alternatives which the Company may undertake in the future will be restricted if the Company decides not to register such offerings pursuant to the Securities Act. While the Company is not currently planning any such action, no assurance can be given that such action will not be taken in the future or that, if any such action is taken by the Company, it will be feasible to include U.S. persons. Liquidations. On a liquidation, the liquidator may divide among the share- holders the whole or any part of the assets of the Company and may vest the whole or any part of such assets upon trust for the benefit of the sharehold- ers. Such action requires the approval of a special resolution and is at the discretion of the liquidator. No shareholder shall be compelled to accept any shares or other securities where there is any liability. Related Party Provisions. Under the Corporations Law, directors are prohibited from entering into transactions with the Company conferring a benefit on any director which are not on "arms-length" commercial terms, except where limited exemptions apply or detailed approval procedures are first observed. 59 Enforceability of Civil Liabilities. The Company is an Australian public lim- ited company. Almost all of its current directors and executive officers reside outside the United States (principally in the Commonwealth of Australia). All or a substantial portion of the assets of these persons and of the Company are located outside the United States (principally in the Commonwealth of Austra- lia). As a result, it may not be possible for investors to effect service of process within the United States upon such persons or the Company or to enforce against such persons or the Company in foreign courts judgments obtained in U.S. courts predicated upon the civil liability provisions of the Federal secu- rities laws of the United States. The Company has been advised by its Austra- lian counsel, Freehill, Hollingdale & Page, that there is doubt as to the enforceability in the Commonwealth of Australia, in original actions for enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon federal or state securities laws of the United States, especially in the case of enforcement of judgments of U.S. courts where the defendant has not been properly served under Australian law. 60 DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS The following is a summary of certain provisions of the Deposit Agreement (in- cluding any exhibits thereto, the "Deposit Agreement") dated as of , 1997 among the Company, Morgan Guaranty Trust Company of New York, as depositary (the "Depositary"), and the holders (the "Holders") from time to time of the ADRs issued thereunder. The following description summarizes all material pro- visions of the Deposit Agreement and is qualified in its entirety by reference to the Deposit Agreement. Copies of the Deposit Agreement are available for inspection at the principal office of the Depositary in New York (the "Prin- cipal New York Office"), which is presently located at 60 Wall Street, New York, New York 10260. Terms used herein and not otherwise defined shall have the respective meanings set forth in the Deposit Agreement. ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms of the Deposit Agreement. Each ADS represents, as of the date hereof, the right to receive one Ordinary Share deposited under the Deposit Agreement (together with any additional Ordinary Shares deposited thereunder and all other securities, property and cash received and held thereunder at any time in respect of or in lieu of such deposited Ordinary Shares, the "Deposited Securities") with the Custodian under the Deposit Agreement (together with any successor or succes- sors thereto, the "Custodian"). An ADR may evidence any number of ADSs. Only persons in whose names ADRs are registered on the books of the Depositary will be treated by the Depositary and the Company as Holders. DEPOSIT, TRANSFER AND WITHDRAWAL In connection with the deposit of Ordinary Shares under the Deposit Agreement, the Depositary or the Custodian may require the following in form satisfactory to it: (a) a written order directing the Depositary to execute and deliver to, or upon the written order of, the person or persons designated in such order an ADR or ADRs evidencing the number of ADSs representing such deposited Ordinary Shares (a "Delivery Order"); (b) proper endorsements or duly executed instru- ments of transfer in respect of such deposited Ordinary Shares; (c) instruments assigning to the Custodian or its nominee any distribution on or in respect of such deposited Ordinary Shares or indemnity therefor; and, (d) proxies enti- tling the Custodian to vote such deposited Ordinary Shares. As soon as practi- cable after the Custodian receives Deposited Securities pursuant to any such deposit or pursuant to the form of ADR, the Custodian shall present such Depos- ited Securities for registration of transfer into the name of the Custodian or its nominee, to the extent such registration is practicable, at the cost and expense of the person making such deposit (or for whose benefit such deposit is made) and shall obtain evidence satisfactory to it of such registration. Depos- ited Securities shall be held by the Custodian for the account and to the order of the Depositary at such place or places and in such manner as the Depositary shall determine. Deposited Securities may be delivered by the Custodian to any person only under the circumstances expressly permitted in the Deposit Agree- ment. After any such deposit of Ordinary Shares, the Custodian shall notify the Depositary of such deposit and of the information contained in any related Delivery Order by letter, first class airmail postage prepaid, or, at the request, risk and expense of the person making the deposit, by cable, telex or facsimile transmission. After receiving such notice from the Custodian, the Depositary, subject to the terms and conditions of the Deposit Agreement, shall execute and deliver at the Transfer Office (the "Transfer Office") which is presently located at the Principal New York Office, to or upon the order of any person named in such notice, an ADR or ADRs registered as requested and evi- dencing the aggregate ADSs to which such person is entitled. Subject to the terms and conditions of the Deposit Agreement, the Depositary may so issue ADRs for delivery at the Transfer Office only against deposit with the Custodian of: (a) Ordinary Shares in form satisfactory to the Custodian; (b) rights to receive Ordinary Shares from the Company or any registrar, transfer agent, clearing agent or other entity recording Ordinary Share owner- ship or transactions; or, (c) other rights to receive Ordinary Shares (until such Ordinary Shares are actually deposited pursuant to (a) or (b) above, "Pre- released ADRs") only if (i) Pre-released ADRs are fully collateralized (marked to market daily) with cash or U.S. government securities held by the Depositary for the benefit of Holders (but such collateral shall not constitute "Deposited Securities"), (ii) each recipient of Pre-released ADRs agrees in writing with the Depositary that such recipient (a) owns such Ordinary Shares, (b) assigns all beneficial right, title and interest therein to the Depositary, (c) holds such Ordinary Shares for the account of the Depositary and (d) will deliver such Ordinary Shares to the Custodian as soon as practicable and promptly upon demand therefor and (iii) all Pre-released ADRs evidence not more than 20% of all ADSs (excluding those evidenced by Pre-released ADRs), provided that the Depositary reserves the right to change or disregard such limit from time to time as it deems appropriate. The Depositary may retain for its own account any earnings on collateral for Pre-released ADRs and its charges for issuance thereof. At the request, risk and expense of the person depositing Ordinary Shares, the Depositary may accept deposits for forwarding to the Custodian and may deliver ADRs at a place other than its office. Every person depositing Ordinary Shares under the 61 Deposit Agreement is deemed to represent and warrant that such Ordinary Shares are validly issued and outstanding, fully paid, nonassessable and free of pre- emptive rights, that the person making such deposit is duly authorized so to do and that such Ordinary Shares (A) are not "restricted securities" as such term is defined in Rule 144 under the Securities Act of 1933 unless at the time of deposit they may be freely transferred in accordance with Rule 144(k) and may otherwise be offered and sold freely in the United States or (B) have been reg- istered under the Securities Act of 1933. Such representations and warranties shall survive the deposit of Ordinary Shares and issuance of ADRs. Subject to the terms and conditions of the Deposit Agreement, upon surrender of an ADR in form satisfactory to the Depositary at the Transfer Office, the Holder thereof is entitled to delivery at the Custodian's office of the Depos- ited Securities at the time represented by the ADSs evidenced by such ADR. At the request, risk and expense of the Holder thereof, the Depositary may deliver such Deposited Securities at such other place as may have been requested by the Holder. Notwithstanding any other provision of the Deposit Agreement or the ADR, the withdrawal of Deposited Securities may be restricted only for the rea- sons set forth in General Instruction I.A.(1) of Form F-6 (as such instructions may be amended from time to time) under the Securities Act of 1933. DISTRIBUTIONS ON DEPOSITED SECURITIES Subject to the terms and conditions of the Deposit Agreement, to the extent practicable, the Depositary will distribute by mail to each Holder entitled thereto on the record date set by the Depositary therefor at such Holder's address shown on the ADR Register, in proportion to the number of Deposited Securities (on which the following distributions on Deposited Securities are received by the Custodian) represented by ADSs evidenced by such Holder's ADRs: (a) Cash: Any U.S. dollars available to the Depositary resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or portion thereof authorized in the Deposit Agree- ment ("Cash"), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being impermissible or impracticable with respect to certain Holders, and (iii) deduction of the Depositary's expenses in (1) converting any foreign cur- rency to U.S. dollars by sale or in such other manner as the Depositary may determine to the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the Depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority required for such conversion or transfer, which is obtainable at a reason- able cost and within a reasonable time and (4) making any sale by public or private means in any commercially reasonable manner. (b) Ordinary Shares: (i) Additional ADRs evidencing whole ADSs representing any Ordinary Shares available to the Depositary resulting from a dividend or free distribution on Deposited Securities consisting of Ordinary Shares (a "Ordinary Share Distribution") and (ii) U.S. dollars available to it resulting from the net proceeds of sales of Ordinary Shares received in a Ordinary Share Distribution, which Ordinary Shares would give rise to frac- tional ADSs if additional ADRs were issued therefor, as in the case of Cash. (c) Rights: (i) Warrants or other instruments in the discretion of the Depositary representing rights to acquire additional ADRs in respect of any rights to subscribe for additional Ordinary Shares or rights of any nature available to the Depositary as a result of a distribution on Deposited Securities ("Rights"), to the extent that the Company timely furnishes to the Depositary evidence satisfactory to the Depositary that the Depositary may lawfully distribute the same (the Company has no obligation to so fur- nish such evidence), or (ii) to the extent the Company does not so furnish such evidence and sales of Rights are practicable, any U.S. dollars avail- able to the Depositary from the net proceeds of sales of Rights as in the case of Cash, or (iii) to the extent the Company does not so furnish such evidence and such sales cannot practicably be accomplished by reason of the nontransferability of the Rights, limited markets therefor, their short duration or otherwise, nothing (and any Rights may lapse); and (d) Other Distributions: (i) Securities or property available to the Depos- itary resulting from any distribution on Deposited Securities other than Cash, Ordinary Share Distributions and Rights ("Other Distributions"), by any means that the Depositary may deem equitable and practicable, or (ii) to the extent the Depositary deems distribution of such securities or prop- erty not to be equitable and practicable, any U.S. dollars available to the Depositary from the net proceeds of sales of Other Distributions as in the case of Cash. Such U.S. dollars available will be distributed by checks drawn on a bank in the United States for whole dollars and cents (any frac- tional cents being withheld without liability for interest and added to future Cash distributions). To the extent that the Depositary determines in its discretion that any distri- bution is not practicable with respect to any Holder, the Depositary may make such distribution as it so determines is practicable, including the distribu- tion of foreign 62 currency, securities or property (or appropriate documents evidencing the right to receive foreign currency, securities or property) or the retention thereof as Deposited Securities with respect to such Holder's ADRs (without liability for interest thereon or the investment thereof). There can be no assurance that the Depositary will be able to effect any cur- rency conversion or to sell or otherwise dispose of any distributed or offered property, subscription or other rights, Ordinary Shares or other securities in a timely manner or at a specified rate or price, as the case may be. U.S. SECURITIES LAWS The ability of U.S. persons who hold ADSs to participate in rights offerings or share dividend alternatives which the Company may undertake in the future will be restricted if the Company decides not to register such offerings under the Securities Act. While the Company is not currently planning any such action, no assurance can be given that such action will not be taken in the future or that, if any such action is taken by the Company, it will be feasible to include U.S. persons. DISCLOSURE OF INTERESTS To the extent that the provisions of or governing any Deposited Securities may require disclosure of or impose limits on beneficial or other ownership of Deposited Securities, other Ordinary Shares and other securities and may pro- vide for blocking transfer, voting or other rights to enforce such disclosure or limits, Holders and all persons holding ADRs agree to comply with all such disclosure requirements and ownership limitations and to cooperate with the Depositary in the Depositary's compliance with any Company instructions in respect thereof, and, in the Deposit Agreement, the Depositary has agreed to use reasonable efforts to comply with such Company instructions. RECORD DATES The Depositary will, after consultation with the Company if practicable, fix a record date (which shall be as near as practicable to any corresponding record date set by the Company) for the determination of the Holders who shall be entitled to receive any distribution on or in respect of Deposited Securities, to give instructions for the exercise of any voting rights, to receive any notice or to act in respect of other matters and only such Holders shall be so entitled. VOTING OF DEPOSITED SECURITIES As soon as practicable after receipt from the Company of notice of any meeting or solicitation of consents or proxies of holders of Ordinary Shares or other Deposited Securities, the Depositary shall mail to Holders a notice stating (a) such information as is contained in such notice and any solicitation materials, (b) that each Holder on the record date set by the Depositary therefor will be entitled to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the Deposited Securities represented by the ADSs evidenced by such Holder's ADRs and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person desig- nated by the Company. Upon receipt of instructions of a Holder on such record date in the manner and on or before the date established by the Depositary for such purpose, the Depositary shall endeavor insofar as practicable and per- mitted under the provisions of or governing Deposited Securities to vote or cause to be voted (or to grant a discretionary proxy to a person designated by the Company to vote in accordance with (c) above) the Deposited Securities rep- resented by the ADSs evidenced by such Holder's ADRs in accordance with such instructions. The Depositary will not itself exercise any voting discretion in respect of any Deposited Securities. If no instructions are received by the Depositary from any Holder with respect to any of the Deposited Securities rep- resented by the ADSs evidenced by such Holders' ADRs on or before the date established by the Depositary for such purpose, the Depositary shall deem such Holder to have instructed the Depositary to give a discretionary proxy to a person designated by the Company with respect to such Deposited Securities and the Depositary shall give a discretionary proxy to a person designated by the Company to vote such Deposited Securities, provided, that no such instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which the Company informs the Depositary (and the Company agrees to provide such information as promptly as practicable in writ- ing) that (i) the Company does not wish such proxy given, (ii) substantial opposition exists or (iii) such matter materially and adversely affects the rights of holders of Ordinary Shares; provided, further, that the Depositary shall not be obligated to give any such proxy unless and until the Depositary has been provided with an opinion, which shall be given at the time of entering into the Deposit Agreement and prior to each vote in which a discretionary proxy is to be provided, of counsel to the Company, in form and substance sat- isfactory to the Depositary, to the effect that (i) the granting of such proxy does not subject the Depositary to any reporting obligations in the Common- wealth of Australia, including any states thereof, (ii) the granting of such proxy will not result in a violation of any of the laws of either the Common- wealth of 63 Australia or any states thereof and (iii) the voting arrangement and proxy as contemplated herein will be given effect under Australian law. There can be no assurance that the Holders generally or any Holder in partic- ular will receive the notice described in this subheading sufficiently prior to the date established by the Depositary for the receipt of instructions to ensure that the Depositary will in fact receive such instructions on or before such date. Neither the Depositary nor the Company shall be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any such vote is cast or the effect of any such vote. INSPECTION OF TRANSFER BOOKS The Deposit Agreement provides that the Depositary will keep books at its Transfer Office for the registration, registration of transfer, combination and split-up of ADRs, which at all reasonable times will be open for inspec- tion by the Holders and the Company for the purpose of communicating with Holders in the interest of the business of the Company or a matter related to the Deposit Agreement. REPORTS AND OTHER COMMUNICATIONS The Depositary shall make available for inspection by Holders at the Transfer Office any reports and communications received from the Company which are both (a) received by the Depositary as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Company. The Depositary shall also send to the Holders copies of such reports when furnished by the Company. Any such reports and communications furnished to the Depositary by the Company shall be furnished in English. On or before the first date on which the Company makes any communication available to holders of Deposited Securities or any securities regulatory authority or stock exchange, by publication or otherwise, the Company shall transmit to the Depositary a copy thereof in English or with an English trans- lation or summary. In connection with any registration statement under the Securities Act of 1933 relating to the ADRs or with any undertaking contained therein, the Company and the Depositary shall each furnish to the other and to the United States Securities and Exchange Commission or any successor govern- mental agency such information as shall be required to make such filings or comply with such undertakings. The Company has delivered to the Depositary, the Custodian and any Transfer Office, a copy of all provisions contained in the Articles or any other charter document of or governing the Shares and any other Deposited Securities which are issued or adopted by the Company or any affiliate of the Company (other than copies of Australian laws, rules and reg- ulations) and, promptly upon any change thereto, the Company shall deliver to the Depositary, the Custodian and any Transfer Office, a copy (in English or with an English translation) of such provisions as so changed. The Depositary and its agents may rely upon the Company's delivery thereof for all purposes of the Deposit Agreement. CHANGES AFFECTING DEPOSITED SECURITIES Subject to the terms and conditions of the Deposit Agreement, the Depositary may, in its discretion, amend the form of ADR or distribute additional or amended ADRs (with or without calling the ADRs for exchange) or cash, securi- ties or property on the record date set by the Depositary therefor to reflect any change in par value, split-up, consolidation, cancellation or other reclassification of Deposited Securities, any Ordinary Share Distribution or Other Distribution not distributed to Holders or any cash, securities or prop- erty available to the Depositary in respect of Deposited Securities from (and, in the Deposit Agreement, the Depositary is authorized to surrender any Depos- ited Securities to any person and to sell by public or private sale any prop- erty received in connection with) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all the assets of the Company, and to the extent the Depositary does not so amend the ADR or make a distribution to Holders to reflect any of the foregoing, or the net proceeds thereof, whatever cash, securities or prop- erty results from any of the foregoing shall constitute Deposited Securities and each ADS shall automatically represent its pro rata interest in the Depos- ited Securities as then constituted. AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT The ADRs and the Deposit Agreement may be amended by the Company and the Depositary, provided that any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile transmission costs, delivery costs or other such expenses), or that shall otherwise preju- dice any substantial existing right of Holders, shall become effective 30 days after notice of such amendment shall have been given to the Holders. Every Holder of an ADR at the time any amendment to the Deposit Agreement 64 so becomes effective shall be deemed, by continuing to hold such ADR, to con- sent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder of any ADR to surrender such ADR and receive the Deposited Securities repre- sented thereby, except in order to comply with mandatory provisions of appli- cable law. The Depositary may (upon written notice to the Company if, any time after 60 days have expired after the Depositary will have delivered to the Company a written notice of its election to resign, a successor depositary will not have been appointed and accepted its appointment in accordance with the Deposit Agreement), and shall at the written direction of the Company, terminate the Deposit Agreement and the ADRs by mailing notice of such termination to the Holders at least 30 days prior to the date fixed in such notice for such termi- nation. After the date so fixed for termination, the Depositary and its agents will perform no further acts under the Deposit Agreement and the ADRs, except to advise Holders of such termination, receive and hold (or sell) distributions on Deposited Securities and deliver Deposited Securities being withdrawn. As soon as practicable after the expiration of six months from the date so fixed for termination, the Depositary shall sell the Deposited Securities and shall thereafter (as long as it may lawfully do so) hold in a segregated account the net proceeds of such sales, together with any other cash then held by it under the Deposit Agreement, without liability for interest, in trust for the pro rata benefit of the Holders not theretofore surrendered. After making such sale, the Depositary shall be discharged from all obligations in respect of the Deposit Agreement and the ADRs, except to account for such net proceeds and other cash. After the date so fixed for termination, the Company shall be dis- charged from all obligations under the Deposit Agreement except for its obliga- tions to the Depositary and its agents. CHARGES OF DEPOSITARY The Depositary may charge each person to whom ADRs are issued against deposits of Ordinary Shares including deposits in respect of Ordinary Share Distribu- tions, Rights and Other Distributions and each person surrendering ADRs for withdrawal of Deposited Securities, US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs delivered or surrendered. The Company will pay all other charges and expenses of the Depositary and any agent of the Deposi- tary (except the Custodian) pursuant to agreements from time to time between the Company and the Depositary, except (i) stock transfer or other taxes and other governmental charges (which are payable by Holders or persons depositing Ordinary Shares), (ii) cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or Holders delivering Ordinary Shares, ADRs or Deposited Securities (which are payable by such per- sons or Holders), (iii) transfer or registration fees for the registration of transfer of Deposited Securities on any applicable register in connection with the deposit or withdrawal of Deposited Securities (which are payable by persons depositing Ordinary Shares or Holders withdrawing Deposited Securities; there are no such fees in respect of the Ordinary Shares as of the date of the Deposit Agreement) and (iv) expenses of the Depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency). LIABILITY OF HOLDERS FOR TAXES If any tax or other governmental charge shall become payable by or on behalf of the Custodian or the Depositary with respect to the ADRs, any Deposited Securi- ties represented by the ADRs evidenced thereby or any distribution thereon, such tax or other governmental charge shall be paid by the Holder thereof to the Depositary. The Depositary may refuse to effect any registration, registra- tion of transfer, split-up or combination thereof or, subject to the terms and conditions of the Deposit Agreement, any withdrawal of such Deposited Securi- ties until such payment is made. The Depositary may also deduct from any dis- tributions on or in respect of Deposited Securities, or may sell by public or private sale for the account of the Holder thereof any part or all of such Deposited Securities (after attempting by reasonable means to notify the Holder thereof prior to such sale), and may apply such deduction or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder thereof remaining liable for any deficiency, and shall reduce the number of ADSs evidenced thereby to reflect any such sales of Deposited Securities. In connection with any distribution to Holders, the Company will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Company; and the Depositary and the Custodian will remit to the appropriate governmental authority or agency all amounts (if any) required to be withheld and owing to such authority or agency by the Depositary or the Custodian. If the Depositary determines that any distribution in property other than cash (including Ordi- nary Shares or rights) on Deposited Securities is subject to any tax that the Depositary or the Custodian is obligated to withhold, the Depositary may dis- pose of all or a portion of such property in such amounts and in such manner as the Depositary deems necessary and practicable to pay such taxes, by public or private sale, and the Depositary shall distribute the net proceeds of any such sale or the balance of any such property after deduction of such taxes to the Holders entitled thereto. 65 GENERAL LIMITATIONS The Depositary, the Company, their agents and each of them shall: (a) incur no liability (i) if law, regulation, the provisions of or governing any Deposited Security, act of God, war or other circumstance beyond its control shall pre- vent, delay or subject to any civil or criminal penalty any act which the Deposit Agreement or the ADRs provides shall be done or performed by it, or (ii) by reason of any exercise or failure to exercise any discretion given it in the Deposit Agreement or the ADRs; (b) assume no liability except to perform its obligations to the extent they are specifically set forth in the ADRs and the Deposit Agreement without gross negligence or bad faith; (c) except in the case of the Company and its agents, be under no obligation to appear in, prose- cute or defend any action, suit or other proceeding in respect of any Deposited Securities or the ADRs; (d) in the case of the Company and its agents hereunder be under no obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or the ADRs, which in its opinion may involve it in expense or liability, unless indemnity satisfac- tory to it against all expense (including fees and disbursements of counsel) and liability be furnished as often as may be required; or (e) not be liable for any action or inaction by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Ordinary Shares for deposit, any Holder, or any other person believed by it to be competent to give such advice or information. The Depositary, its agents and the Company may rely and shall be protected in acting upon any written notice, request, direction or other document believed by them to be genuine and to have been signed or pre- sented by the proper party or parties. The Depositary and its agents will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, for the manner in which any such vote is cast or for the effect of any such vote. The Depositary and its agents may own and deal in any class of securities of the Company and its affiliates and in ADRs. The Company has agreed to indemnify the Depositary and its agents under certain circum- stances and the Depositary has agreed to indemnify the Company against losses incurred by the Company to the extent such losses are due to the negligence or bad faith of the Depositary. Prior to the issue, registration, registration of transfer, split-up or combi- nation of any ADR, the delivery of any distribution in respect thereof, or, subject to the terms and conditions of the Deposit Agreement, the withdrawal of any Deposited Securities, the Company, the Depositary or the Custodian may require: (a) payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of Ordinary Shares or other Depos- ited Securities upon any applicable register, and (iii) any applicable charges as provided in the Deposit Agreement; (b) the production of proof satisfactory to it of (i) the identity and genuineness of any signature and (ii) such other information, including without limitation, information as to citizenship, resi- dence, exchange control approval, beneficial ownership of any securities, com- pliance with applicable law (including, but not limited to evidence of compli- ance with the Corporations Law, the Banking (Foreign Exchange) Regulations or the Foreign Acquisitions and Takeovers Act 1975 of Australia), regulations, provisions of or governing Deposited Securities and terms of the Deposit Agree- ment and the ADRs, as it may deem necessary or proper; and (c) compliance with such regulations as the Depositary may establish consistent with the Deposit Agreement. The issuance of ADRs, the acceptance of deposits of Ordinary Shares, the registration, registration of transfer, split-up or combination of ADRs or, subject to the terms of the Deposit Agreement, the withdrawal of Deposited Securities may be suspended, generally or in particular instances, when the ADR Register or any register for Deposited Securities is closed or when any such action is deemed advisable by the Depositary or the Company. GOVERNING LAW The Deposit Agreement is governed by and shall be construed in accordance with the laws of the State of New York. MORGAN GUARANTY TRUST COMPANY OF NEW YORK The Depositary is Morgan Guaranty Trust Company of New York, a New York banking corporation, which has its principal office located in New York, New York. Morgan Guaranty Trust Company of New York is a commercial bank offering a wide range of banking and trust services to its customers in the New York metropol- itan area, throughout the United States and around the world. The Consolidated Balance Sheets of J.P. Morgan & Co. Incorporated ("J.P. Mor- gan"), the parent corporation of Morgan Guaranty Trust Company of New York, are set forth in its most recent Annual Report and Form 10-Q. The Annual Report, Form 10-K and Form 10-Q of J.P. Morgan are on file with the Commission. The Articles of Association of Morgan Guaranty Trust Company of New York and By-Laws together with the annual report, Form 10-K and Form 10-Q of J.P. Morgan will be available for inspection at the Principal New York Office of the Depos- itary. J.P. Morgan Securities Inc., the lead managing underwriter in the Offer- ing, is an affiliate of Morgan Guaranty Trust Company. 66 CERTAIN TAX CONSIDERATIONS The following summary describes the material Australian tax and U.S. Federal income tax consequences of the acquisition, ownership and disposition of Ordi- nary Shares or ADSs by U.S. Holders (as defined below). This summary does not deal with the tax consequences to U.S. Holders who carry on a business in Aus- tralia through a permanent establishment. For purposes of this discussion, "U.S. Holder" means a beneficial owner of Ordinary Shares or ADSs that (i) for U.S. federal income tax purposes is a U.S. resident, a U.S. citizen, a domestic corporation, a domestic partnership, or a nonforeign estate or trust and (ii) does not own directly, indirectly or constructively 10% or more of the voting stock of the Company ("10% U.S. Shareholder"). This summary does not purport to be a complete technical analysis or listing of all potential tax effects to holders of Ordinary Shares or ADSs. Except as otherwise noted, the statements of Australian and U.S. tax laws set forth below are based on the laws in force as of the date of this Prospectus, including the bilateral taxation convention between Australia and the United States (the "Treaty"), and are subject to any changes in Australian and U.S. law occurring after such date. The summary is based on the opinion of Brobeck, Phleger & Harrison LLP as to U.S. Federal income tax matters and on the opinion of Freehill, Hollingdale & Page as to Australian tax matters. No arrangements exist or are proposed under which the Company will assume liability for, or reimburse to shareholders, any tax that the Company may withhold in respect of dividends in accordance with tax legis- lation. Purchasers of ADSs or Ordinary Shares should consult their tax advisors concerning the Australian tax and U.S. Federal income tax consequences of their ownership of the ADSs or Ordinary Shares. Further, purchasers who are residents of jurisdictions other than the United States should consult their tax advisors as to the tax consequences of investing in the ADSs or Ordinary Shares under the laws of their jurisdictions of residence. AUSTRALIAN TAXATION In the opinion of Freehill, Hollingdale & Page, the following discussion of Australian tax matters reflects the material consequences to U.S. Holders of the acquisition, ownership and disposition of ADSs and Ordinary Shares. Dividends. Fully franked dividends (i.e., dividends paid out of the Company's profits which have been subject to tax at the maximum corporate tax rate) which are paid to shareholders who are not residents of Australia will not be subject to Australian income or Australian withholding taxes. Unfranked dividends (i.e., dividends that are paid out of profits that have not been subject to Australian income tax) are subject to Australian withholding tax when paid to shareholders who are non-residents of Australia. Dividends may be partially franked, in which case shareholders will be subject to tax on the unfranked portion. Pursuant to the Treaty, the withholding tax imposed on dividends paid by the Company to a U.S. resident is limited to 15%. Certain non-portfolio dividends received by the Company from non-Australian companies are exempt from Australian income tax and may be referred to as "for- eign dividends." Unfranked dividends paid out of the Company's profits relating to these foreign dividends may (with limitations) be paid to shareholders who are non-residents of Australia free of Australian withholding tax. The Company anticipates that all dividends, if any, to be paid in the foresee- able future will be fully franked. Dividend statements will be sent to all Ordinary Share shareholders which will indicate the extent to which dividends are franked and the amount of any tax withheld. Sales of ADSs or Ordinary Shares. Nonresidents of Australia who do not hold and have not at any time in the five years preceding the date of disposal held (for their own account or together or together with associates) 10% or more of the issued share capital of a public Australian company are not liable for Austra- lian capital gains tax on the disposal of shares or ADSs of such company. Nonresidents of Australia are subject to Australian capital gains tax on the disposal of shares or ADSs of a private Australian company where the disposal consideration exceeds the cost basis (indexed for inflation where the shares or ADSs are held for 12 months or more). The rate of Australian tax or taxable capital gains realized by nonresidents of Australia is 36% for companies. For individuals, the rate of tax increases from 29% to a maximum of 47%. Nonresi- dents of Australia who are subject to Australian tax on capital gains made on the disposal of shares or ADSs are required to file an Australian income tax return for the year in which the disposal occurs. A company listed on a stock exchange (a "Listed Company") may be treated as a private company for Australian tax purposes if, at any time during its fiscal year, not less than 75% of the paid up capital of the Company, voting power or dividend rights is held by 20 or fewer persons (the "Ownership Test"), unless the Australian Commissioner of Taxation (the 67 "Commissioner"), pursuant to the discretion granted to him, rules that such company will be treated as a public company for such fiscal year. On July 9, 1997, the Commissioner ruled that the Company will be treated as a public company for Australian tax purposes for the year ending January 31, 1998. Such ruling is based on the Company's expectation that it will not sat- isfy the Ownership Test at any time after the Offering. The Company expects that, in subsequent years, it will continue not to satisfy the Ownership Test, and, therefore, that it will continue to be a public company for Australian tax purposes. However, because the Ownership Test is applied on a continuous basis, there can be no assurance that the Company will not satisfy the Ownership Test at any time. The Company will monitor its share register and, if the need arises, seek a further exercise of the Commissioner's discretion. The Company will notify its shareholders in the event the Company is unsuccessful in main- taining its status as a public company. Non-residents who are securities dealers or who otherwise hold ADSs or Ordinary Shares as revenue assets (e.g., financial institutions including banks and insurance companies) may be subject to Australian income tax on Australian source profits arising on the disposal of the ADSs or Ordinary Shares. Pursuant to the Treaty, capital gains or profits arising on the disposal of ADSs or Ordinary Shares which constitute "business profits" of an enterprise carried on by a resident of the United States who does not carry on business in Australia through a permanent establishment to which such gains or profits are attributable are exempt from Australian tax. Any capital gains or profits derived by a resident of the United States from the disposal of the ADSs or Ordinary Shares held as revenue assets (including gains derived by a securities dealer) should constitute business profits under the Treaty and, thus be exempt from Australian tax, provided that such holder does not carry on business in Australia through a permanent establishment 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 ADSs are not required to file an Australian income tax return. Stamp Duty. Stamp duty is imposed in New South Wales on any transfer of shares (or interest in shares) in a company incorporated in New South Wales except in certain limited circumstances and will be payable on the transfer of Ordinary Shares in the Company. As Ordinary Shares are not listed on the Australian Stock Exchange, the rate of duty is A$0.06 for each A$10.00 of the considera- tion paid to acquire the Ordinary Shares in the case of an arms-length sale, or the higher of the consideration or market value in any other case and will be payable by the person acquiring the Ordinary Shares. No stamp duty will be pay- able in Australia on the transfer of ADSs or of ADRs provided that any instru- ment by which the ADSs or ADRs are transferred is executed outside Australia. UNITED STATES TAXATION In the opinion of Brobeck, Phleger & Harrison LLP, the following discussion of U.S. Federal income tax matters reflects the material consequences to U.S. Holders other than 10% U.S. Shareholders of the acquisition, ownership and dis- position of the ADSs and Ordinary Shares. Holders of ADSs Deemed to be Owners of Ordinary Shares. For purposes of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), a U.S. Holder of ADSs will be treated as the owner of the underlying Ordinary Shares represented by such ADSs. Exchanges, deposits and withdrawals of Ordinary Shares for ADSs or ADSs for Ordinary Shares by a U.S. Holder will not result in recognition of gain or loss for U.S. Federal income tax purposes. Cash Dividends. Distributions (other than certain pro rata distributions of Ordinary Shares) made by the Company with respect to the Ordinary Shares, including Ordinary Shares represented by ADSs (including the amount of any Aus- tralian taxes withheld therefrom), will generally be includable in the gross income of a U.S. Holder as foreign source dividend income to the extent such distributions are made from the current or accumulated earnings and profits of the Company, as determined in accordance with U.S. Federal income tax princi- ples. Such dividends will not be eligible for the dividends received deduction otherwise allowed to corporations. To the extent, if any, that the amount of any such distribution exceeds the Company's current and accumulated earnings and profits as so computed, it will be treated first as a tax-free return of the U.S. Holder's tax basis in its ADSs to the extent thereof, and then, to the extent in excess of such tax basis, as capital gain. Dividends paid in Austra- lian dollars will be includable in income in a U.S. dollar amount based on the prevailing U.S. dollar-Australian dollar exchange rate on the date of receipt by the Depositary or the date of receipt by the U.S. Holder of Ordinary Shares, whether or not the payment is converted into U.S. dollars at that time. Any gain or loss recognized upon a subsequent sale or conversion of the Australian dollars will be U.S. source ordinary income or loss. Subject to certain complex limitations, any Australian tax withheld from a dividend will be treated as a foreign income tax that may be claimed as a credit against the U.S. Federal income tax liability of the U.S. Holder. Amounts creditable against U.S. tax may instead be deducted at the election of the U.S. Holder. Under the Code, the limitation on foreign taxes 68 eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid by the Company will generally be "passive income" or, in the case of certain holders, "financial services income." Sale of ADSs or Ordinary Shares. Upon a sale or exchange of ADSs or Ordinary Shares, a U.S. Holder will recognize gain or loss equal to the difference between the amount realized upon the disposition and such holder's adjusted tax basis in the ADSs or Ordinary Shares. Such gain or loss will be a capital gain or loss if the holder has held his ADSs or Ordinary Shares as capital assets. Recently enacted legislation includes substantial changes to the federal income taxation of capital gains by individuals, including a 28% maximum tax rate for certain gains from the sale of capital assets held for more than one year but not more than 18 months and a 20% maximum tax rate for certain gains from the sale of capital assets held for more than 18 months. The deduction of capital losses is subject to certain limitations. Prospective investors should consult their own tax advisors in this regard. No Australian Tax is imposed on the capital gains of a U.S. Holder arising from the sale or exchange of ADSs or Ordinary Shares provided that the Company con- tinues to be treated as a public company for Australian tax purposes. See--Aus- tralian Taxation Sales of ADSs or Ordinary Shares. In the event that the Com- pany is not treated as a public company and, consequently, Australian tax is imposed on the sale or exchange of ADSs or Ordinary Shares, U.S. Holders should consult their own tax advisors with respect to their ability to credit such tax against their U.S. federal income taxes. Passive Foreign Investment Company. A Passive Foreign Investment Company ("PFIC") is a foreign corporation in which either (1) 75% or more of its gross income in a tax year is passive or (2) at least 50% of the average percentage of its assets (by value or, if the corporation so elects, by adjusted tax basis) produce or are held for the production of passive income. As of the date of this Prospectus, the Company is not a PFIC and does not anticipate becoming a PFIC as a result of the sale of the ADSs. If the Company becomes a PFIC, the U.S. Federal income tax consequences to a U.S. Holder of the purchase, owner- ship, disposition or deemed disposition of ADSs will change significantly from the consequences presented in this discussion. 69 SHARES ELIGIBLE FOR FUTURE SALE In April 1987, the Company listed its Ordinary Shares for trading on the ASE. In October 1996, the Company announced its intention to delist from the ASE pursuant to a transaction which was consummated as of December 31, 1996. From the time of such delisting until the consummation of this Offering, there has been no public market for the Ordinary Shares or ADSs and there can be no assurance that a significant public market for the Ordinary Shares or ADSs will develop or be sustained after this Offering. Sales of substantial amounts of Ordinary Shares or ADSs in the public market or the prospect of such sales could adversely affect the market price of the Ordinary Shares of ADSs. The Company has granted stock options to purchase up to an aggregate of 203,038 Ordinary Shares under the Executive Share Option Plan to Sam Linz, Robert Gavshon, Sydney Selati and John Price and has additionally reserved a pool of 329,254 authorized and unissued Ordinary Shares to grant to directors, offi- cers, employees and independent contractors of the Company, of which stock options to purchase up to an aggregate of 200,000 Ordinary Shares have been granted concurrently with the Offering. The Company may in the future issue these or other equity or equity derivative securities. See "Management--1997 Share Option Plan" and "Management--Executive Share Option Plan." Upon completion of this Offering, assuming no exercise of outstanding stock options after July 31, 1997, the Company will have 4,941,652 Ordinary Shares outstanding (including those represented by the ADSs and 1,197,926 Ordinary Shares issued upon conversion of outstanding Convertible Notes). Of such Ordi- nary Shares, 2,350,000 will be sold in the Offering (2,702,500 Ordinary Shares if the Underwriters' over-allotment option is exercised in full). All Ordinary Shares sold in the Offering will be freely tradable without restriction or fur- ther registration under the Securities Act. See "Underwriting." The remaining 2,591,652 Ordinary Shares (2,239,152 Ordinary Shares if the Underwriters' over-allotment option is exercised in full) outstanding upon com- pletion of the Offering (including Ordinary Shares issued upon conversion of the Convertible Notes and not sold in the Offering) were issued in private transactions not involving a public offering, and are thus "restricted" securi- ties within the meaning of Rule 144 and cannot be resold except upon registra- tion under the Securities Act or pursuant to an exemption from registration. Of these Ordinary Shares, 1,706,537 Ordinary Shares will be immediately eligible for sale in the public market, without any holding period, subject to compli- ance with Rule 144 and the remaining 885,115 Ordinary Shares (532,615 Ordinary Shares if the Underwriters' over-allotment option is exercised in full), including Ordinary Shares issued upon conversion of the Convertible Notes and not sold in the Offering, will be eligible for sale in the public market after completion of a one-year holding period in December 1997 and subject to compli- ance with Rule 144. All holders of restricted shares have agreed that they will not offer, sell, contract to sell or otherwise dispose of any Ordinary Shares or other equity or equity derivative securities of the Company for a period of 180 days after the date of this Prospectus without the prior consent of J.P. Morgan Securities Inc. In general, under Rule 144, as in effect on the date of this Prospectus, an affiliate of the Company, or person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least one year, will be entitled to sell in any three-month period commencing at least 90 days after the date of this Prospectus a number of shares that does not exceed the greater of (i) 1% of the then outstanding Ordinary Shares (approximately 49,417 shares immediately after the Offering) or (ii) the average weekly trading volume of the Company's Ordinary Shares (as represented by ADSs) on the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the SEC. Sales pursuant to Rule 144 are sub- ject to certain requirements relating to manner of sale, notice and avail- ability of current public information about the Company. In addition, affili- ates of the Company must comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, in order to sell Ordi- nary Shares which are not "restricted securities" (such as Ordinary Shares acquired by affiliates in the Offering). A person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned restricted shares for at least two years is entitled to sell such shares immediately following the consummation of the Offering pursuant to Rule 144(k) without regard to the limitations described in this paragraph. For purposes of calculating the holding periods under Rule 144, the holders of Ordinary Shares issued upon conversion of Convertible Notes are deemed to have acquired their Ordinary Shares when they acquired their Convertible Notes. Under the terms of the Note Agreements, if the Company consummates a listing of the Company's securities on a recognized stock exchange or securities market, such as is the case with this Offering, the Noteholders are entitled to cause the Company to apply for official quotation of their converted Ordinary Shares on such stock exchange or securities market. The Noteholders will have waived such requirement in connection with the Offering (except as to those Ordinary Shares to be sold in the Offering by the Selling Shareholders). 70 UNDERWRITING Under the terms and subject to the conditions set forth in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Company and the Selling Shareholders have agreed to sell to the Underwriters named below, and each of such Underwriters, for whom J.P. Morgan Securities Inc. and SBC Warburg Dillon Read Inc. are acting as representatives, have severally agreed to purchase from the Company and the Selling Shareholders, the respective number of ADSs set forth opposite their names below:
-------------- UNDERWRITERS NUMBER OF ADSS - ------------ -------------- J.P. Morgan Securities Inc. SBC Warburg Dillon Read Inc. --------- Total.......................................................... 2,350,000 =========
The Underwriting Agreement provides that the obligations of the several Under- writers to purchase ADSs are subject to the approval of certain legal matters by counsel and certain other conditions. Under the terms and conditions of the Underwriting Agreement, the Underwriters are obligated to take and pay for all such ADSs, if any are taken. The Underwriters propose initially to offer the ADSs directly to the public at the public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of US$ per ADS. The Underwriters may allow, and such dealers may reallow, a concession not in excess of US$ per ADS to certain other dealers. After the initial public offering of the ADSs, the public offering price and such concession may be changed. The Selling Shareholders have granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to 352,500 additional ADSs from the Selling Shareholders at the initial public offering price, less the underwriting discount. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any. To the extent that the Underwriters may exercise their option, each Under- writer will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such additional ADSs as the number set forth next to such Underwriters' name in the preceding table bears to the total number of ADSs initially offered hereby. The Company and the Selling Shareholders have agreed to indemnify the Under- writers against certain liabilities, including liabilities under the Securities Act. The ADSs have not been and will not be qualified for distribution under the securities legislation of Australia or the Australian state of New South Wales. Accordingly, the ADSs may not be distributed in Australia, except pursuant to a prospectus exemption under applicable securities legislation. Each Underwriter has agreed that it will not distribute ADSs in Australia, except in accordance with a prospectus exemption under applicable securities legislation. Each of the Company and its directors and executive officers and certain of its shareholders have agreed, with certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of any Ordinary Shares or ADSs, any options for the sale of Ordinary Shares or ADSs, or any securities convertible into or exchangeable or exercisable for any such shares, for a period of 180 days after the date of this Prospectus, without the consent of J.P. Morgan Securities Inc. Prior to this Offering, there has been no public market for the Ordinary Shares or the ADSs. On December 31, 1996, the Company repurchased 2,743,878 Ordinary Shares at A$7.29 per share, for an aggregate purchase price of A$20,000,677, and cancelled stock options to purchase 101,520 Ordinary Shares in exchange for aggregate consideration of A$77,500, in the Capital Reduction. The initial public offering price for the ADSs offered hereby will be determined by agree- ment among the Company, the Selling Shareholders and the Underwriters. Among the factors to be considered in making such determination will be the consider- ation paid for the repurchase of the Ordinary Shares in the Capital Reduction, the history of and the prospects for the industry in which the Company com- petes, an assessment of the Company's management, the present operations of the Company, the historical results of operations of the Company and the trend of its revenues and earnings, the prospects for future earnings of the Company, the general condition of the securities markets at the time of the offering and the prices of similar securities of generally comparable companies. In order to facilitate the offering of the ADSs, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ADSs or the Ordinary Shares. Specifically, the Underwriters may over-allot in con- nection with the Offering, creating a short position in the ADSs for their own account. In addition, to cover over-allotments or to 71 stabilize the price of the ADSs, the Underwriters may bid for, and purchase, ADSs in the open market. Finally, the underwriting syndicate may reclaim con- cessions allowed to an underwriter or a dealer for distributing the ADSs in the Offering, if the syndicate repurchases previously distributed ADSs in transac- tions to cover syndicate short positions, in stabilization transactions or oth- erwise. Any of these activities may stabilize or maintain the market price of the ADSs above independent market levels. The Underwriters are not required to engage in these activities, and may end any of these activities at any time. The Company has made an application to have the Ordinary Shares quoted on the Nasdaq National Market under the symbol "BBQZY." There can be no assurance that an active trading market will develop for the ADSs or that the ADSs will trade in the public market subsequent to the offering at the initial public offering price. J.P. Morgan Securities Inc. is an affiliate of Morgan Guaranty Trust Company of New York, the Depositary for the ADSs. SBC Warburg Dillon Read Inc. is an affiliate of SBC Warburg Australia. Certain of the Selling Shareholders, holding approximately A$4,815,000 aggregate principal amount of the Convertible Notes prior to the Offering (574,396 Ordinary Shares upon conversion), are employees, or family members of employees, of SBC Warburg Australia. Such Selling Shareholders, who will convert their Convertible Notes into Ordinary Shares immediately prior to the closing of the Offering, are selling an aggre- gate of 225,913 Ordinary Shares in the Offering (402,880 Ordinary Shares if the Underwriters' over-allotment option is exercised in full) and will continue to hold 348,483 Ordinary Shares after the Offering (171,516 Ordinary Shares if the Underwriters' over-allotment option is exercised in full). In addition, SBC Warburg Australia acted as underwriter of the initial offering of the Convert- ible Notes and continues to act as a representative of the Convertible Note- holders pursuant to the terms of the Convertible Notes. SBC Warburg Australia received certain fees in connection with the initial offering of the Convert- ible Notes and receives annual fees until all of the Convertible Notes have been redeemed or converted. See "Certain Transactions--Recent Delisting Trans- action," "Selling Shareholders" and "Description of American Depositary Receipts--Morgan Guaranty Trust Company of New York." LEGAL MATTERS The validity of the ADSs offered hereby under Australian law will be passed upon for the Company and the Selling Shareholders by Freehill, Hollingdale & Page, Solicitors & Attorneys, Sydney, Australia. Certain legal matters relating to the ADSs will be passed upon by Brobeck, Phleger & Harrison LLP, Palo Alto, California, special U.S. counsel for the Company and the Selling Shareholders, and Freehill, Hollingdale & Page and certain other counsel for the Selling Shareholders. Certain legal matters relating to the Offering will be passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS The Consolidated Balance Sheets of the Company as of June 30, 1994, 1995 and 1996 and the Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for each of the three years in the period ended June 30, 1996 included herein have been audited by Horwath Sydney Partnership, independent accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in auditing and accounting. The Consolidated Balance Sheets of the Company as of June 30, 1992 and 1993 and the Consolidated Statements of Operations, Share- holders' Equity and Cash Flows for each of the two years in the period ended June 30, 1993 have been audited by Horwath Sydney Partnership and are not included herein. The Consolidated Financial Statements of Barbeques Galore Limited and subsidi- aries as of January 31, 1997 and for the seven-month period ended January 31, 1997 have been included herein and in the Registration Statement in reliance upon the report of KPMG, independent accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. With respect to the unaudited interim financial information for the annual periods ended January 31, 1995, 1996, and 1997 included in the Registration Statement of which this Prospectus is a part, KPMG has reported that they applied limited procedures in accordance with professional standards for a review of such information. However, their separate report states that they did not audit and they do not express an opinion on this interim financial information. Accord- ingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of section 11 of the Securities Act for their report on the unaudited interim financial information because that report is not a "report" or a "part" of the registration statement prepared or certified by the accountants within the meaning of sections 7 and 11 of the Securities Act. 72 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 "Use of Proceeds" Articles "Risk Factors--Restrictions on Foreign Ownership; Antitakeover Restrictions" ASE "Risk Factors--Absence of Public Market for Ordinary Shares or ADSs; Possible Volatility of ADS Price" Barbeques Galore Cover Page Bosmana "Principal Shareholders"--Note 2 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 "Prospectus Summary" 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" Galore USA "Use of Proceeds" 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 "Business--Management Information Systems" 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 "Use of Proceeds" Noon Buying Rate "Financial Statement Presentation" Noteholders "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview"
73
DEFINED TERM LOCATION ------------ -------- Offering Cover Page Optics "Risk Factors--Implementation of Growth Strategy" Options "Risk Factors--Shares Eligible for Future Sale" Ordinary Share Cover Page Ordinary Share Distribution "Description of American Depositary Receipts-- Distributions on Deposited Securities" Other Distributions "Description of American Depositary Receipts-- Distributions on Deposited Securities" Ownership Test "Certain Tax Considerations--Australian Taxation-- Sales of ADSs or Ordinary Shares" PFIC "Certain Tax Considerations--United States Taxation--Passive Foreign Investment Company" POS "Business--Store Operations" Pre-released ADRs "Description of American Depositary Receipts-- Deposit, Transfer and Withdrawal" Pricotech "Business--Wholesale Operations" Principal New York Office "Description of American Depositary Receipts" Rebel "Management--Executive Officers, Directors and Key Employees" Registration Statement "Enforceability of Civil Liabilities Under the Federal Securities Laws" Related Franchisors "Certain Transactions--Transactions Involving Principal Shareholders" Reverse Share Split "Prospectus Summary" Revolving Line "Management's Discussion and Analysis--Liquidity and Capital Resources" Rights "Description of American Depositary Receipts-- Distributions on Deposited Securities" Rule 144 "Risk Factors--Shares Eligible for Future Sale" Sarwill "Principal Shareholders"--Note 3 to Table SBC Warburg Australia "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Securities Act "Available Information" Selling Shareholders Cover Page SFAS "Management's Discussion and Analysis of Financial Condition and Results of Operations--New Pronouncements by Financial Accounting Standards Board" Standby Facility "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Takeovers Act "Risk Factors--Restrictions on Foreign Ownership; Antitakeover Restrictions" Term Loan "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" Transfer Office "Description of American Depositary Receipts-- Deposit, Transfer and Withdrawal" Treaty "Certain Tax Considerations" Underwriting Agreement "Underwriting" U.S. GAAP "Available Information" U.S. Holder "Certain Tax Considerations" Wispjune "Principal Shareholders"--Note 2 to Table
74 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 sheet of Barbeques Galore Limited and subsidiaries as of January 31, 1997 and the related consolidated statements of operations, shareholders' equity and cash flows for the seven months then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Australia, that are substantially equivalent to auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barbeques Galore Limited and subsidiaries as of January 31, 1997 and the results of their operations and their cash flows for the seven months then ended in conformity with generally accepted accounting principles in the United States. KPMG August 8, 1997, except as to note 19, which is as of October 6, 1997. 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 consolidated balance sheets as of June 30, 1996 and June 30, 1995, and consolidated statements of operations, shareholders' equity and cash flows for the years ended June 30, 1996, June 30, 1995 and June 30, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Australia, that are substantially equivalent to auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. AUDIT OPINION In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barbeques Galore Limited and subsidiaries as of June 30, 1996 and June 30, 1995, and the results of their operations and their cash flows for the years ended June 30, 1996, June 30, 1995 and June 30, 1994, in conformity with generally accepted accounting principles in the United States. Horwath Sydney Partnership August 8, 1997 Sydney, Australia F-3 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31, 1995 1996 1996 1997 1996 1997 -------- -------- ----------- ----------- ----------- ----------- In A$ thousands, except share and per share data (UNAUDITED) (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............. $ 519 $ 26 $ 2,441 $ 30 $ 29 $ 33 Accounts receivable, net..................... 8,074 7,835 8,201 7,350 7,813 7,219 Receivables from affiliates.............. 621 119 304 362 -- 229 Inventories............. 38,761 36,933 36,708 33,928 36,949 42,414 Deferred income taxes... 790 1,113 1,063 2,472 1,873 3,233 Prepaid expenses and other current assets.... 706 742 1,136 1,131 1,273 2,297 ------- ------- ------- ------- ------- ------- Total current assets.... 49,471 46,768 49,853 45,273 47,937 55,425 Non-current assets: Receivables from affiliates.............. 1,546 697 412 696 697 667 Property, plant and equipment, net.......... 13,960 16,457 14,519 18,348 16,481 18,836 Goodwill, net........... 438 628 474 1,476 505 1,432 Deferred income taxes... 628 841 486 871 583 823 Other non-current assets.................. 1,581 1,171 1,800 1,306 1,438 1,581 ------- ------- ------- ------- ------- ------- Total assets............ $67,624 $66,562 $67,544 $67,970 $67,641 $78,764 ======= ======= ======= ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank overdraft.......... $ -- $ 1,445 $ -- $ 1,826 $ 5,086 $ 6,184 Accounts payable and accrued liabilities..... 15,729 14,388 10,625 13,693 12,301 17,578 Payables to related parties................. 136 942 1,347 1,231 876 -- Payables to affiliates.. -- -- 99 -- 160 -- Current maturities of long-term debt.......... 5,194 3,848 9,949 2,964 4,143 8,567 Current portion of obligations under capital leases.......... 685 999 829 1,395 969 1,533 Income taxes payable.... 871 436 1,865 1,612 279 -- ------- ------- ------- ------- ------- ------- Total current liabilities............. 22,615 22,058 24,714 22,721 23,814 33,862 Non-current liabilities: Long-term debt.......... 15,326 12,772 8,547 20,718 12,753 21,745 Convertible Notes....... -- -- -- 10,042 -- 10,042 Obligations under capital leases, excluding current portion................. 2,364 3,047 3,084 3,516 3,169 3,302 Other long-term liabilities............. 993 868 850 808 981 853 ------- ------- ------- ------- ------- ------- Total liabilities....... 41,298 38,745 37,195 57,805 40,717 69,804 ------- ------- ------- ------- ------- ------- Shareholders' equity: Ordinary shares, $3.64 par value; authorized 27,437,853 shares....... 16,220 16,220 16,220 6,720 16,220 6,720 Additional paid-in capital................. 14,113 14,113 14,113 4,613 14,113 4,613 Foreign currency translation adjustment.. 632 3 313 200 142 380 Retained deficit........ (4,639) (2,519) (297) (1,368) (3,551) (2,753) ------- ------- ------- ------- ------- ------- Total shareholders' equity.................. 26,326 27,817 30,349 10,165 26,924 8,960 ------- ------- ------- ------- ------- ------- Total liabilities and shareholders' equity.... $67,624 $66,562 $67,544 $67,970 $67,641 $78,764 ======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-4 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------- SEVEN MONTHS ENDED SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31, JULY 31, 1994 1995 1996 1996 1997 1996 1997 --------- -------- -------- ----------- ------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In A$ thousands, except share and per share data Net sales............... $ 124,635 $138,057 $141,691 $92,074 $98,752 $59,620 $70,394 Cost of goods sold, warehouse, distribution and occupancy costs.... 84,104 92,290 98,158 62,789 67,955 43,086 48,420 --------- -------- -------- ------- ------- ------- ------- Gross profit............ 40,531 45,767 43,533 29,285 30,797 16,534 21,974 Selling, general and administrative expenses............... 35,462 40,058 39,339 24,328 25,740 18,312 21,728 Store pre-opening costs. 135 64 153 114 200 64 209 Relocation and closure costs.................. -- -- 875 -- 461 875 -- --------- -------- -------- ------- ------- ------- ------- Operating income (loss). 4,934 5,645 3,166 4,843 4,396 (2,717) 37 --------- -------- -------- ------- ------- ------- ------- Equity in income of affiliates, net of tax. 660 963 836 709 252 167 188 Interest expense........ 1,999 2,230 2,262 1,619 1,593 848 1,760 Other expenses (income). -- -- (2,303) (2,303) 1,132 -- -- --------- -------- -------- ------- ------- ------- ------- Income (loss) before income taxes........... 3,595 4,378 4,043 6,236 1,923 (3,398) (1,535) Income tax expense (benefit).............. 1,278 573 98 1,286 366 (1,767) (649) --------- -------- -------- ------- ------- ------- ------- Net income (loss)....... $ 2,317 $ 3,805 $ 3,945 $ 4,950 $ 1,557 $(1,631) $ (886) ========= ======== ======== ======= ======= ======= ======= Earnings per share: Net income (loss) per Ordinary Share and ordinary share equivalent (A$ per share)................. $ 0.52 $ 0.83 $ 0.86 $ 1.08 $ 0.37 $ (0.36) $ (0.45) ========= ======== ======== ======= ======= ======= ======= Weighted average shares outstanding (in thousands)............. 4,481 4,570 4,570 4,570 4,193 4,570 1,963 ========= ======== ======== ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-5 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------------------------------------------- FOREIGN ADDITIONAL CURRENCY TOTAL SHARES ORDINARY PAID-IN TRANSLATION RETAINED SHAREHOLDERS' OUTSTANDING SHARES CAPITAL ADJUSTMENT DEFICIT EQUITY ----------- -------- ---------- ----------- -------- ------------- In thousands, except per share data Balances at June 30, 1993................... 4,047 14,750 $ 13,458 $ 928 $(7,959) $ 21,177 Net income.............. -- -- -- -- 2,317 2,317 Dividend of $0.0911 per share.................. -- -- -- -- (369) (369) Issuance of ordinary shares, net of issue costs.................. 403 1,470 655 -- -- 2,125 Dividend of $0.0911 per share.................. -- -- -- -- (405) (405) Foreign currency translation adjustment. -- -- -- (460) -- (460) ------ ------- --------- ----- ------- -------- Balances at June 30, 1994................... 4,450 16,220 14,113 468 (6,416) 24,385 Net income.............. -- -- -- -- 3,805 3,805 Dividend of $0.4560 per share.................. -- -- -- -- (2,028) (2,028) Foreign currency translation adjustment. -- -- -- 164 -- 164 ------ ------- --------- ----- ------- -------- Balances at June 30, 1995................... 4,450 16,220 14,113 632 (4,639) 26,326 Net income.............. -- -- -- -- 4,950 4,950 Dividend of $0.1367 per share.................. -- -- -- -- (608) (608) Foreign currency translation adjustment. -- -- -- (319) -- (319) ------ ------- --------- ----- ------- -------- Balances at January 31, 1996 (unaudited)....... 4,450 16,220 14,113 313 (297) 30,349 Net loss................ -- -- -- -- (1,005) (1,005) Dividend of $0.2733 per share.................. -- -- -- -- (1,217) (1,217) Foreign currency translation adjustment. -- -- -- (310) -- (310) ------ ------- --------- ----- ------- -------- Balances at June 30, 1996................... 4,450 16,220 14,113 3 (2,519) 27,817 Net loss................ -- -- -- -- (626) (626) Dividend of $0.0911 per share.................. -- -- -- -- (406) (406) Foreign currency translation adjustment. -- -- -- 139 -- 139 ------ ------- --------- ----- ------- -------- Balances at July 31, 1996 (unaudited)....... 4,450 16,220 14,113 142 (3,551) 26,924 Net income.............. -- -- -- -- 2,183 2,183 Foreign currency translation adjustment. -- -- -- 58 -- 58 Repurchase of ordinary shares................. (2,744) (10,000) (10,000) -- -- (20,000) Issuance of ordinary shares................. 137 500 500 -- -- 1,000 ------ ------- --------- ----- ------- -------- Balances at January 31, 1997................... 1,843 6,720 4,613 200 (1,368) 10,165 Net loss................ -- -- -- -- (886) (886) Dividend of $0.2715 per share.................. -- -- -- -- (499) (499) Foreign currency translation adjustment. -- -- -- 180 -- 180 ------ ------- --------- ----- ------- -------- Balances at July 31, 1997 (unaudited)....... 1,843 6,720 $ 4,613 $ 380 $(2,753) $ 8,960 ====== ======= ========= ===== ======= ========
See accompanying notes to consolidated financial statements. F-6 BARBEQUES GALORE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------- SEVEN MONTHS ENDED SIX MONTHS ENDED FISCAL YEAR ENDED JUNE 30, JANUARY 31, JULY 31, 1994 1995 1996 1996 1997 1996 1997 --------- -------- -------- ---------- ------- ----------- ---------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In A$ thousands CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....... $ 2,317 $ 3,805 $ 3,945 $ 4,950 $ 1,557 $(1,631) $ (886) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:............ Depreciation and amortization........... 2,374 2,755 3,080 1,682 2,633 1,470 1,500 Deferred income taxes... 711 (365) (536) (131) (1,389) (1,338) (713) Amounts set aside to provisions............. (272) 70 270 704 (269) 930 67 Gain on sale of affiliate.............. -- -- (2,303) (2,303) -- -- -- Undistributed income of affiliates............. (270) 4 124 (122) (252) 170 (231) Loss (gain) on sale of property, plant and equipment.............. (51) 250 76 32 663 99 (51) Debt issue costs........ -- -- -- -- 1,132 -- -- Changes in operating assets and liabilities: Receivables and prepaid expenses............... 1,281 (1,959) 275 (1,438) (421) 111 (786) Inventories............. (5,040) (4,942) 1,547 1,727 3,219 (476) (8,309) Other assets............ (172) (203) (6) 38 (1) (21) (130) Accounts payable and accrued liabilities.... 482 2,326 (1,901) (3,994) 332 (746) 1,075 --------- -------- -------- ------- ------- ------- ------ Net cash provided by (used in) operating activities............. 1,360 1,741 4,571 1,145 7,204 (1,432) (8,464) --------- -------- -------- ------- ------- ------- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of affiliate.............. -- -- 2,222 2,222 173 -- -- Proceeds from sale of property, plant and equipment.............. 1,806 189 63 30 51 759 75 Capital expenditures.... (2,828) (2,242) (4,609) (1,208) (3,201) (3,726) (1,565) Loan repayments received............... 536 181 2,270 2,090 140 180 50 --------- -------- -------- ------- ------- ------- ------ Net cash provided by (used in) investing activities............. (486) (1,872) (54) 3,134 (2,837) (2,787) (1,440) --------- -------- -------- ------- ------- ------- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of long-term debt................... (10,936) (19,305) (12,661) (12,254) (4,304) (6,182) (6,389) Proceeds from long-term debt................... 10,893 21,135 9,429 11,441 21,534 4,582 13,019 Debt issue costs........ -- -- -- -- (1,132) -- -- Bank overdraft proceeds (repayments)........... (1,337) -- 1,445 -- 381 5,086 4,358 Principal payments under capital leases......... (456) (670) (827) (396) (443) (462) (588) Dividends paid.......... (774) (2,028) (1,825) (608) (406) (1,217) (499) Repurchase of ordinary shares................. -- -- -- -- (20,000) -- -- Proceeds from issuance of ordinary shares..... 2,125 -- -- -- -- -- -- --------- -------- -------- ------- ------- ------- ------ Net cash provided by (used in) financing activities............. (485) (868) (4,439) (1,817) (4,370) 1,807 9,901 --------- -------- -------- ------- ------- ------- ------ Effects of exchange rate fluctuations........... 266 (26) (60) (29) 7 -- 6 --------- -------- -------- ------- ------- ------- ------ Net increase (decrease) in cash and cash equivalents............ 655 (1,025) 18 2,433 4 (2,412) 3 Cash and cash equivalents at beginning of period.... 889 1,544 519 519 26 2,441 30 Adjustment to opening cash balance arising from deconsolidation of former subsidiary...... -- -- (511) (511) -- -- -- --------- -------- -------- ------- ------- ------- ------ Cash and cash equivalents at end of period................. $ 1,544 $ 519 $ 26 $ 2,441 $ 30 $ 29 $ 33 ========= ======== ======== ======= ======= ======= ======
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 using the investees' fiscal year end. (f) Property, plant and equipment Property, plant and equipment are stated at cost. Plant and equipment under capital leases are initially recorded at the present value of minimum lease payments. The method of depreciation and estimable useful lives over which property, plant and equipment are depreciated are as follows:
------------------- 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. F-8 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Research and development, and advertising Research and development, and advertising costs are expensed as incurred. Amounts expensed were as follows:
--------------------------------------- FISCAL YEAR SEVEN MONTHS ENDED ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------ (UNAUDITED) In A$ thousands Research and development........... $1,231 $ 996 $1,260 $ 731 $ 541 Advertising........................ 6,499 7,161 7,478 5,177 5,319 ====== ====== ====== ===== ======
(i) Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income (loss) in the period that includes the enactment date. (j) Share option plan The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, in 1996, under which the Company elected to continue following the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations for its share option plan. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying share exceeded the exercise price. (k) Commitments and contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. (l) Use of estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (m) Impairment of long-lived assets and long-lived assets to be disposed of The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted operating cash flows expected to be generated by the asset. If such assets are considered to be impaired, impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. F-9 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Rent expense, surplus leased space and lease incentives The Company leases certain store locations under operating leases which provide for annual payments that increase over the lives of the leases. Total payments under the leases are expensed as incurred over the lease terms. Where premises under a non-cancellable operating lease become vacant during the lease term, a charge is recognized on that date equal to the present value of the expected future lease payments less any expected future sub- lease income. If the Company receives incentives provided by a lessor to enter into an operating lease agreement, these incentives are brought to account as reductions in rent expense over the term of the lease on a straight-line basis. (o) Revenue recognition Revenue (net of estimated returns and allowances) is recognized at the point of shipment for wholesale sales to external customers and the point of sale for retail goods. (p) Cash and cash equivalents Cash includes cash on hand and at bank. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. (q) Store pre-opening costs Store pre-opening costs are expensed when incurred. (r) Earnings (loss) per share Earnings (loss) per share are computed by dividing net earnings (loss) available to ordinary shareholders by the weighted average number of ordinary shares and as appropriate, dilutive ordinary share equivalents outstanding for the period, as adjusted for the 18.223-for-one reverse stock split described in note 19. The calculation of fully diluted earnings per share did not differ significantly from primary earnings per share and has therefore not been presented. In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, which specifies the computation, presentation and disclosure requirements for earnings per share. This statement is effective for both interim and annual reporting periods ending after December 15, 1997. Had SFAS No. 128 been in effect, "basic" and "diluted" earnings per share would not have been significantly different to those reported in the Consolidated Statements of Operations and hence have not been presented. Pro forma supplementary earnings (loss) per share are computed by assuming proceeds from the public offering which will be utilized to repay debt subsequent to the public offering were utilized to repay the debt at the beginning of the applicable period to which earnings (loss) per share relates. The weighted average number of ordinary shares outstanding is increased for the number of ordinary shares issued to enable repayment of such debt. Pro forma supplementary earnings (loss) per share and weighted average shares outstanding were:
-------------------------------------------- SEVEN MONTHS SIX MONTHS YEAR ENDED ENDED ENDED JUNE 30, 1996 JANUARY 31, 1997 JULY 31, 1997 ------------- ---------------- ------------- Pro forma unaudited supplementary net income (loss) per ordinary share and ordinary share equivalent (A$ per share)....... $0.90 $0.41 $(0.03) Pro forma unaudited weighted average shares outstanding (in thousands)...................... 5,605 5,448 4,229 ===== ===== ======
F-10 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (s) Foreign currency translation Foreign currency transactions are converted to Australian currency at the rates of exchange applicable at the dates of the transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the year end rates. Gains and losses from conversion of monetary assets and liabilities, whether realized or unrealized, are included in income or loss before income taxes as they arise. Assets and liabilities of overseas subsidiaries are translated at year end rates and operating results at the average rates ruling during the year. 2 DERIVATIVE FINANCIAL INSTRUMENTS The notional amount of foreign currency forward contracts used as a means of offsetting fluctuations in the dollar value of foreign currency accounts payable totalled:
----------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Foreign exchange contracts........ $ 7,528 $6,236 $1,013 $4,232 ======= ====== ====== ======
The fair value of these contracts at each period end is not significant. All of the currency derivatives expire within one year and are for United States dollars. The counterparties to the contracts are major financial institutions. The risk of loss to the Company in the event of non- performance by a counterparty is not significant. 3 ACCOUNTS RECEIVABLE Accounts receivable consists of the following:
-------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Trade accounts receivable.... $ 7,156 $7,087 $7,258 $6,903 Less: Reserve for doubtful accounts.................... (250) (350) (241) (377) ------- ------ ------ ------ 6,906 6,737 7,017 6,526 Receivables from related parties..................... 92 67 53 125 Other receivables............ 1,076 1,031 1,131 699 ------- ------ ------ ------ $ 8,074 $7,835 $8,201 $7,350 ======= ====== ====== ======
F-11 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4 INVENTORIES The major classes of inventories are as follows:
---------------------------------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31, 1995 1996 1996 1997 1996 1997 -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In A$ thousands Finished goods.......... $33,560 $32,602 $32,427 $29,470 $32,101 $36,333 Work in progress........ 1,697 1,565 2,055 1,778 1,683 1,772 Raw materials........... 3,660 3,196 2,693 3,116 3,624 4,789 ------- ------- ------- ------- ------- ------- 38,917 37,363 37,175 34,364 37,408 42,894 Less: Reserve for obsolescence........... (156) (430) (467) (436) (459) (480) ------- ------- ------- ------- ------- ------- $38,761 $36,933 $36,708 $33,928 $36,949 $42,414 ======= ======= ======= ======= ======= =======
5 INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies consist of 33 1/3% of the ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an Australian Group which imports and distributes componentry to the gas and appliance industries, and 50% of the ordinary shares of GLG Trading Pte Limited ("GLG"), a Singapore company which acts as a buying office for Barbeques Galore and other third parties. The shareholding in this company was originally 100% but was reduced to 50% on July 1, 1995 by issuing shares in that company to a Director of GLG who is also the General Manager of that company. The Company also previously held a 50% interest in GLG (NZ) Limited ("GLG NZ"). This investment was sold in December 1995 for total consideration of A$2,395,000. A gain on sale of A$2,303,000 has been recognized in the income statement and is included in other expenses (income). Bromic provides liquid petroleum gas cylinders and related products such as manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG supplies cast iron used in the manufacture of burners, hot plates and grills, small assembled barbecues and certain accessories such as tongs and warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits, spare parts and other heating equipment. Sales to affiliated companies are not significant. Interest is also charged on amounts owing from affiliates at commercial rates but is not significant. Amounts owing from affiliates are in relation to cash advances. Prices charged between the Company and its affiliates are set at the level of prices that are charged to unrelated parties. Trading with affiliates for each period and amounts outstanding at each period end are as follows:
--------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------ (UNAUDITED) In A$ thousands Purchases from affiliates: Bromic............................ $3,260 $3,953 $3,769 $2,613 $2,320 GLG NZ............................ 149 197 188 -- -- GLG Pte Ltd....................... -- -- 5,446 3,952 3,336 ------ ------ ------ ------ ------ $3,409 $4,150 $9,403 $6,955 $5,656 ====== ====== ====== ====== ====== Dividends received or due and receivable from affiliates: Bromic............................ $ 130 $ 250 $ 175 $ -- $ -- GLG NZ............................ 260 717 495 495 -- GLG Pte Ltd....................... -- -- 198 -- -- ------ ------ ------ ------ ------ $ 390 $ 967 $ 868 $ 495 $ -- ====== ====== ====== ====== ======
F-12 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5 INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
----------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Owing to affil- iates: GLG NZ........ $ -- $ -- $ 99 $ -- ====== ==== ==== ====== Receivable from affiliates: Bromic........ $ 218 $619 $716 $ 863 GLG NZ........ 1,949 -- -- 195 GLG Pte Ltd... -- 197 -- -- ------ ---- ---- ------ $2,167 $816 $716 $1,058 ====== ==== ==== ====== Investment in affiliates... $ 492 $368 $638 $ 491 ====== ==== ==== ======
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 ======== ======= =======
F-13 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6 PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31, 1995 1996 1996 1997 1996 1997 -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In A$ thousands Land and buildings...... $ 3,190 $ 3,198 $ 3,198 $ 3,198 $ 3,198 $ 3,218 Machinery and equipment. 13,106 14,420 14,023 15,453 14,334 16,691 Leasehold improvements.. 3,216 5,066 2,902 6,110 5,127 6,510 Assets under capital leases................. 3,813 5,501 5,036 6,912 5,626 7,439 ------- -------- -------- -------- -------- -------- 23,325 28,185 25,159 31,673 28,285 33,858 Less: Accumulated depreciation/ amortization........... (9,365) (11,728) (10,640) (13,325) (11,804) (15,022) ------- -------- -------- -------- -------- -------- $13,960 $ 16,457 $ 14,519 $ 18,348 $ 16,481 $ 18,836 ======= ======== ======== ======== ======== ========
7 GOODWILL
---------------------------------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, JULY 31, JULY 31, 1995 1996 1996 1997 1996 1997 -------- -------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) In A$ thousands Goodwill................ $ 572 $ 800 $ 654 $1,704 $ 704 $1,704 Less: Accumulated amortization........... (134) (172) (180) (228) (199) (272) ----- ----- ----- ------ ----- ------ $ 438 $ 628 $ 474 $1,476 $ 505 $1,432 ===== ===== ===== ====== ===== ======
8 LEASES The Company is obligated under various capital leases for store improvements and certain machinery and equipment that expire at various dates during the next five years. The capital leases for store improvements relate to the purchase of furniture and fixtures installed in retail stores. These retail stores are all managed under operating leases. Machinery and equipment under capital leases includes leased machinery, office furniture and fixtures and certain motor vehicles. All capital lease liabilities are secured by the asset to which the lease relates. The gross amount of store improvements and machinery and equipment and related accumulated amortization recorded under capital leases are as follows:
-------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Store improvements........... $ 967 $ 1,193 $ 2,106 $ 3,119 Machinery and equipment...... 2,846 4,308 2,930 3,793 ------ ------- ------- ------- 3,813 5,501 5,036 6,912 Less: Accumulated amortization................ (868) (1,645) (1,268) (2,216) ------ ------- ------- ------- $2,945 $ 3,856 $ 3,768 $ 4,696 ====== ======= ======= =======
F-14 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8 LEASES (CONTINUED) The Company also has entered into non-cancellable operating leases, primarily for retail stores. These leases generally contain renewal options for periods ranging from three to five years and require the Company to pay all executory costs such as maintenance and insurance. Rental expense for operating leases (except those with lease terms of a month or less that were not renewed) consisted of the following:
--------------------------------------- FISCAL YEAR SEVEN MONTHS ENDED ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------ (UNAUDITED) In A$ thousands Rental expense...................... $9,515 $9,609 $9,867 $5,935 $6,181 ====== ====== ====== ====== ======
Future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of January 31, 1997 are:
------------------ CAPITAL OPERATING LEASES LEASES ------- --------- In A$ 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:
----------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Trade accounts payable............ $ 8,670 $ 6,265 $ 3,736 $ 4,968 Accrued liabilities............... 4,653 5,459 4,419 5,887 Employee benefits................. 1,912 1,784 1,942 1,745 Other............................. 494 880 528 1,093 ------- ------- ------- ------- $15,729 $14,388 $10,625 $13,693 ======= ======= ======= =======
F-15 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (CONTINUED) Included in other liabilities at January 31, 1997 is an amount of $369,000 in respect of the planned relocation of the enamelling facilities. The accrual relates to future lease costs on the vacated premises, the writedown of plant that will be scrapped (allowing for future depreciation charges until the planned exit date) and costs to make good the premises. An exit plan was established and approved by the Board of Directors prior to January 31, 1997. The implementation of the plan has commenced, work is continuing and the exit strategy remains unchanged. 10 LONG-TERM DEBT Long-term debt consists of the following:
----------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Current: Bank bills........................ $ 3,094 $ 3,848 $9,949 $ 2,964 Property loan..................... 2,100 -- -- -- ------- ------- ------ ------- $ 5,194 $ 3,848 $9,949 $ 2,964 ======= ======= ====== ======= Non-current: Bank bills........................ $15,326 $10,622 $6,447 $18,568 Property loan..................... -- 2,150 2,100 2,150 ------- ------- ------ ------- $15,326 $12,772 $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 a current facility as it is repayable at the date of the Company's Initial Public Offering. As at January 31, 1997 the Company had not utilized A$30,422,000 of the total facility. The ANZ Facility is secured by a first security interest over the Company's present and future Australian assets. The Company has agreed to grant to ANZ, and ANZ is in the process of creating, a second security interest (subordinate to a lien under the Merrill Lynch Facility detailed below) in all the Company's assets in the United States. The ANZ Facility is further guaranteed by each subsidiary of the Company. Bank bills are generally taken out over a 90 day period and rolled over at the end of their respective terms. As at January 31, 1997, the weighted average interest rate accruing on the bank bills utilized under the ANZ Facility was 7.2% per annum. Under the terms of the agreement, the bank bills may be repaid at the Company's option provided the facility limit is not breached other than the stand-by facility. For this reason, the majority of the outstanding balance relating to bank bills and term loans is classified as a non-current liability. The stand-by facility is repayable on the earlier of the date of the Company's Initial Public Offering or December 31, 1998. The property loan is accruing interest at a rate of 9.35% per annum and is secured by a registered first mortgage over the freehold property of the Company. As the borrowings under the ANZ facility are subject to renegotiation on December 31, 1998, non-current long-term debt matures during the financial year ending January 31, 1999. The Company has historically renegotiated its credit facilities on similar terms and conditions and expects the current facility to be extended subsequent to December 31, 1998. F-16 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10 LONG-TERM DEBT (CONTINUED) All committed facilities are provided subject to the standard Australian practice of regular annual review of required limits, the Company's performance and the normal terms and conditions, including financial covenants, applicable to bank lending. The Company was in compliance with the financial covenants set out in the ANZ Facility agreement as at January 31, 1997. In addition, in February 1995, the Company's US subsidiary ("Galore USA") entered into a five year credit facility with Merrill Lynch. This facility includes a term loan of US$600,000 and a revolving line of credit of US$1,250,000. Indebtedness under the term loan and the revolving line of credit accrues interest at the 30 day commercial paper rates plus 2.7% or 2.65%, respectively, and is payable monthly. The Merrill Lynch facility is secured by a first security interest in all Galore USA present and future assets. As of January 31, 1997 Galore USA had not utilized US$942,000 of this facility. The Company's total long-term debt matures as follows:
------- AMOUNT In A$ 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$10,041,952. The notes carry an interest rate of 10.25% per annum, include financial covenants and confer rights to the noteholders as creditors and not as shareholders. The notes are convertible into fully paid shares by the noteholder at any time after the first anniversary of issue but prior to the eighth anniversary. If a stock exchange listing occurs, the Company may redeem the notes providing certain conditions are met, failing which the Company must repay the principal outstanding on each note on the eighth anniversary. Upon conversion, the notes will convert at a ratio of one ordinary share for each convertible note held. If all notes are converted, this will result in an additional 1,197,926 ordinary shares being issued. 11 INCOME TAXES Income (loss) before income taxes was taxed under the following jurisdictions:
------------------------------------------ FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------- (UNAUDITED) In A$ thousands Australia....................... $3,961 $2,905 $2,730 $6,576 $ 3,091 United States................... (366) 1,473 1,313 (340) (1,168) ------ ------ ------ ------ ------- $3,595 $4,378 $4,043 $6,236 $ 1,923 ====== ====== ====== ====== =======
F-17 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11 INCOME TAXES (CONTINUED) The expense (benefit) for income taxes is presented below:
--------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ----- ---- ----------- ------ (UNAUDITED) In A$ thousands Current: Australia.......................... $ 550 $ 906 $477 $1,409 $1,670 United States...................... 17 32 157 8 85 ------ ----- ---- ------ ------ 567 938 634 1,417 1,755 ------ ----- ---- ------ ------ Deferred: Australia.......................... 711 (365) (536) (131) (499) United States...................... -- -- -- -- (890) ------ ----- ---- ------ ------ $1,278 $ 573 $ 98 $1,286 $ 366 ====== ===== ==== ====== ======
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:
------------------------------------------------ FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ------------ -------- In A$ thousands, except share and per share data (UNAUDITED) Computed "expected" tax expense................. $1,186 $1,445 $1,455 $ 2,245 $ 692 Increase (reduction) in income taxes resulting from: State taxes, net of federal tax benefit..... 17 32 157 5 56 Change in the valuation allowance............... 117 (474) (663) 58 (388) Equity in earnings of affiliates not subject to taxation............. (218) (318) (301) (255) (91) Capital profit on sale of affiliate............... -- -- (829) (829) -- Other, net............... 176 (112) 279 62 97 ------ ------ ------ --------- -------- $1,278 $ 573 $ 98 $ 1,286 $ 366 ====== ====== ====== ========= ========
F-18 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11 INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
-------------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Deferred tax assets: Provisions not presently deductible................... $ 1,071 $1,676 $ 1,316 $1,482 Plant and equipment, due to differences in depreciation.. 496 404 287 424 Inventories, due to capitalized costs............ 222 189 211 195 Borrowing expenses capitalized for tax purposes............. -- -- -- 302 Leases, due to differences in lease payments, interest and amortization................. 37 68 52 136 Unearned income............... 58 61 105 116 Net operating loss carryforward................. 669 70 745 562 Other......................... (8) (36) 89 432 ------- ------ ------- ------ Total gross deferred tax assets....................... 2,545 2,432 2,805 3,649 Less: Valuation allowance..... (1,051) (388) (1,109) -- ------- ------ ------- ------ $ 1,494 $2,044 $ 1,696 $3,649 ======= ====== ======= ====== Deferred tax liabilities: Prepayments................... $ 76 90 147 178 Rebates receivable............ -- -- -- 128 ------- ------ ------- ------ Total gross deferred tax liabilities.................. 76 90 147 306 ------- ------ ------- ------ Net deferred tax asset........ $ 1,418 $1,954 $ 1,549 $3,343 ======= ====== ======= ======
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The change in the valuation allowance for deferred tax assets between January 31, 1996 and June 30, 1996 is due to the recoupment of net operating loss carryforwards. The change in the valuation allowance between June 30, 1996 and January 31, 1997 is due to management's assessment that the tax benefits related to the gross deferred tax assets were more likely than not to be realized. In order to fully realize the deferred tax asset, the company will need to generate future taxable income of approximately A$1,413,000 prior to the expiration of the net operating loss carryforwards in 2012. Based upon projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely that not the company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced. 12 SHAREHOLDERS' EQUITY On December 31, 1996, the Company consummated a series of transactions to effect a reduction in the ordinary shares of the Company (the "Capital Reduction"). Pursuant to the Capital Reduction, the Company repurchased and cancelled 2,743,878 fully paid ordinary shares and 101,520 options to purchase ordinary shares, for a total consideration of A$20,078,000. The Company financed the Capital Reduction through: (i) the issuance and sale of A$10,041,952 in Convertible Notes; and F-19 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12 SHAREHOLDERS' EQUITY (CONTINUED) (ii) the provision of an additional standby facility of A$12,000,000 from the Company's bankers, ANZ. This standby facility will only be available to the Company until the earlier of the Company's Initial Public Offering or December 31, 1998. The effect of the Capital Reduction was to reduce the ordinary shares of the Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary shares of A$3.64 each). Subsequent to the consummation of the Capital Reduction, all outstanding ordinary shares were owned by the executive directors of the Company and their related interests and the Company's pension plan. The Company was delisted from the Australian Stock Exchange following the Capital Reduction. The Company incurred transaction costs in connection with the Capital Reduction of approximately A$1,132,000. These amounts have been expensed and are included in other expenses (income) in the consolidated statement of operations for the seven month period to January 31, 1997. Additionally, in connection with the Capital Reduction, the Company also acquired the remaining 15% interest in The Galore Group (USA) Inc. ("Galore USA") from Mr Sydney Selati, President of Galore USA, for consideration of A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary shares (valued at A$7.29 per share) of the Company. Mr Sydney Selati was subsequently appointed a director of Barbeques Galore on July 21, 1997. 13 SHARE OPTION PLANS EXECUTIVE SHARE OPTION PLAN Effective January 31, 1997, the Company adopted an executive share option plan (the "Executive Plan") under which the Board of Directors granted certain members of management options to purchase ordinary shares in the Company. A total of 203,038 options were issued under the Executive Plan with an exercise price of A$8.38 per share. The options do not vest until February 1, 1999 after which each Optionholder is entitled to subscribe for one fully paid ordinary share. The options are not quoted and are due to expire on the earlier of the 5th anniversary from the issue date or, subject to certain conditions, on cessation of employment. The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its share options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its share options under SFAS No. 123, the Company's earnings per share for the 7 month period ended January 31, 1997 would have been A$0.37 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, and was approved by the shareholders as of October 7, 1997. The 1997 Plan consists of the Option Grant Program, under which eligible individuals in the Company's employ or service (including officers and other employees, non-employee Board members and independent consultants) may, at the discretion of the Plan Administrator, be granted options to purchase ordinary shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the grant date. F-20 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13 SHARE OPTION PLANS (CONTINUED) The Plan Administrator will have complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive option grants, the time or times when such option grants are to be made, the number of shares subject to each such grant, the vesting schedule to be in effect for the option grant, the maximum term for which any granted option is to remain outstanding and the status of any granted option as either an incentive stock option or a non- statutory stock option under the Federal tax laws. TERMINATED PLAN On November 25, 1993, the Company adopted a share option plan ("the 1993 Plan") pursuant to which the Company's Board of Directors could grant share options to officers and key employees. The Company granted 128,958 options with an exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the Company granted a further 27,438 options with an exercise price of A$5.65. On December 31, 1996 and in connection with the Capital Reduction, all outstanding options were repurchased by the Company from the Optionholders. Compensation for the cancellation of the 101,520 options amounted to A$78,000. The total compensation paid by the Company to cancel the options has been expensed during the seven months to January 31, 1997 and is included in selling, general and administrative expenses. 14 COMMITMENTS AND CONTINGENCIES Product liability claims have been made against certain companies in the group which are not expected to result in any material loss to the Company. The Company entered into a joint and several guarantee together with the directors of Bromic Pty Limited in favor of ANZ in respect of a A$900,000 facility. On February 25, 1997, ANZ released the Company from this guarantee. 15 GEOGRAPHIC SEGMENT INFORMATION Financial information by geographic region is summarized below:
-------------------------- UNITED AUSTRALIA STATES TOTAL --------- ------- ------- In A$ thousands SEVEN MONTHS ENDED JANUARY 31, 1997 Net revenues..................................... $75,997 $22,755 $98,752 ======= ======= ======= Operating income (loss).......................... $ 5,537 $(1,141) $ 4,396 ======= ======= ======= Identifiable assets.............................. $53,162 $14,808 $67,970 ======= ======= ======= SEVEN MONTHS ENDED JANUARY 31, 1996 (UNAUDITED) Net revenues..................................... $73,101 $18,973 $92,074 ======= ======= ======= Operating income (loss).......................... $ 5,117 $ (274) $ 4,843 ======= ======= ======= Identifiable assets.............................. $56,509 $11,035 $67,544 ======= ======= =======
F-21 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15 GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
-------------------------- UNITED AUSTRALIA STATES TOTAL --------- ------- -------- In A$ thousands FISCAL YEAR ENDED JUNE 30, 1996 Net revenues.................................... $104,737 $36,954 $141,691 ======== ======= ======== Operating income................................ $ 1,828 $ 1,338 $ 3,166 ======== ======= ======== Identifiable assets............................. $ 53,225 $13,337 $ 66,562 ======== ======= ======== FISCAL YEAR ENDED JUNE 30, 1995 Net revenues.................................... $104,051 $34,006 $138,057 ======== ======= ======== Operating income................................ $ 4,206 $ 1,439 $ 5,645 ======== ======= ======== Identifiable assets............................. $ 55,337 $12,287 $ 67,624 ======== ======= ========
16 RELATED PARTY TRANSACTIONS The directors of the Company believe that transactions with related parties are on normal terms and conditions no more favourable than those available to other third parties unless otherwise stated. Amounts are advanced to the Company by the directors at a commercial rate of interest. The company shares premises and incurs rent and operating expenses on behalf of Rebel Sport Limited. Mr Linz and Mr Gavshon were directors of Rebel Sport Limited until July 10, 1997. These amounts are payable to the Company on 30 day terms. The above related party transactions and amounts outstanding at each period end are as follows:
----------------------------------------- JUNE 30, JUNE 30, JANUARY 31, JANUARY 31, 1995 1996 1996 1997 -------- -------- ----------- ----------- (UNAUDITED) In A$ thousands Amounts owing to directors or director related entities....... $136 $942 $1,347 $1,231 Amounts owing from Rebel Sport Limited......................... 92 67 53 125 ==== ==== ====== ======
-------------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ----- ----- ----- ------------ --------- (UNAUDITED) In A$ thousands Interest costs incurred in respect of amounts advanced by directors or director related entities............. $ 28 $ 22 $ 97 $ 51 $ 50 Amounts advanced to Rebel Sport Limited................ 743 683 678 375 410 Amounts reimbursed by Rebel Sport Limited................ 815 597 703 414 352 ===== ===== ===== ========= =========
F-22 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for:
--------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------ (UNAUDITED) In A$ thousands Interest............................ $1,944 $2,418 $2,327 $1,423 $1,528 Income taxes........................ 11 559 968 579 423 ====== ====== ====== ====== ======
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 (valued at A$7.29 per share) of the Company. During the periods, the Company acquired plant and equipment by means of capital leases which are not reflected in the consolidated statements of cash flows with an aggregate fair value of:
--------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ------ ------ ------ ----------- ------ (UNAUDITED) In A$ thousands Equipment acquired under capital leases............................ $1,513 $1,883 $1,682 $1,260 $1,471 ====== ====== ====== ====== ======
On July 1, 1995, the Company's interest in GLG Trading Pte Limited was reduced from 100% to 50% by the issue of additional shares in GLG Trading Pte Limited. The deconsolidation of GLG Trading Pte Limited has resulted in the reversal of the opening cash balance of GLG Trading Pte Limited in the Statement of Cash Flows as the Company has accounted for its investment on an equity basis from July 1, 1995. 18 PENSION PLANS The Company and its Australian subsidiaries have established defined contribution pension plans for the provision of benefits to their Australian employees on retirement, death or disability. Benefits provided under the plans are based on contributions for each employee. Company contributions are 6% or gross salary for all employees except for certain executives for whom the Company contributes 10%. The Company and employees contribute various percentages of gross income. The plans are of an accumulation type and as such, the Company has: . no commitment to fund retirement benefits other than the percentage of each employee's salary as prescribed by the relevant trust deed; and . no legal obligation to cover any shortfall in the funds' obligations to provide benefits to employees on retirement. The pension plans comply with Australian regulatory provisions set by the Insurance and Superannuation Commission. The Company has complied with the provisions of the Superannuation Guarantee Charge Act. The Company also sponsors a defined contribution plan in the United States covering substantially all employees who meet specified age and service requirements. Company contributions are discretionary. The Company has not contributed and does not anticipate contributing to the plan for the 7 month period ended January 31, 1997. F-23 BARBEQUES GALORE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) 18 PENSION PLANS (CONTINUED) Contributions expensed under these plans were as follows:
---------------------------------------------- FISCAL YEAR ENDED SEVEN MONTHS ENDED JUNE 30, JANUARY 31, 1994 1995 1996 1996 1997 ----- ----- ------- ------------ --------- (UNAUDITED) In A$ thousands Contribution expense......... $ 830 $ 919 $ 1,015 $ 617 $ 600 ===== ===== ======= ========= =========
19 SUBSEQUENT EVENT The Board of Directors has authorized the filing of a registration statement for an Initial Public Offering (the "Offering") of the Company's ordinary shares. Upon successful consummation of the Offering, the Company intends to use the proceeds to repay outstanding debt and procure the conversion or redemption of the convertible notes (refer note 10). In addition the proceeds will be used to fund capital expenditures related to the expansion of the Company's operations. The Company's Board 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. F-24 [Photograph of Barbecue with food being prepared] [Photograph of outdoor table with empty chairs set for outdoor meal] [Photograph of couple in front of fireplace] [Photograph of couple in front of camping equipment making a fire] Barbecues Home Heating Accessories Camping Outdoor Furniture [Company logo] Australia [LOGO OF BARBEQUES GALORE] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses payable by the Company in connection with the sale of ADSs being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID ------------ SEC registration fee........................................... US$ 13,104 NASD filing fee................................................ 4,824 Nasdaq National Market listing fee............................. 17,500 Printing and engraving......................................... 150,000 Legal fees and expenses........................................ 400,000 Accounting fees and expenses................................... 300,000 Directors' and officers' insurance............................. 150,000 Blue sky fees and expenses..................................... 10,000 Transfer agent and registrar fees.............................. 5,000 Depositary fees................................................ 10,000 Miscellaneous.................................................. 39,572 ------------ Total.................................................... US$1,100,000 ============
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, a form of which is filed as Exhibit 1.1 hereto, will contain provisions indemnifying officers and directors of the Company against certain liabilities. The Company's Memorandum and Articles of Association further provide that no director or other officer shall be liable, except in the case of his own negli- gence, default, breach of duty or breach of trust, for (i) the acts or omis- sions of any other director or officer, (ii) joining in any act for conformity, (iii) losses due to inadequacy of title to property or securities acquired on behalf of the Company, (iv) losses due to insolvency or tortious acts of per- sons with whom monies, property or securities are deposited or (v) losses due to errors of judgment, omissions or oversights. The Company maintains a policy of directors' and officers' liability insurance with an Australian insurer for the Company and all subsidiaries protecting against all losses for which directors and officers are not otherwise indemni- fied by the Company. Such insurance has a A$5 million policy limit and excludes (i) fines and penalties imposed by law, (ii) claims made by entities owning 10% or more of the outstanding Ordinary Shares of the Company, (iii) claims based on pollution, bodily injury, property damage or loss, insider trading, the receipt of illegal or improper benefit, deliberately fraudulent acts or omis- sions or violation of fiduciary duties with respect to pension or benefit plans, (iv) certain insured versus insured actions and, specifically in the United States and Canada, (v) claims relating to violations of securities laws or the Employee Retirement Income Security Act of 1974 (ERISA) or any similar federal, state or local law. Prior to the consummation of the Offering, the Company intends to obtain a policy of directors' and officers' liability insur- ance that will insure United States directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances, including certain violations of the securities laws. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The Registrant has issued and sold the following securities (on a post-split basis) within the past three (3) years: 1. In December 1996, the Registrant issued and sold 137,189 Ordinary Shares, valued at A$1,000,000, to Mr. Sydney Selati 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 four of its executives to purchase an aggregate of 203,038 Ordinary Shares at a purchase price of A$8.38. 3. In December 1996, the Registrant underwent a capital reduction transaction, pursuant to which 101,520 outstanding stock options to purchase the Registrant's Ordinary Shares were cancelled in exchange for up to A$0.05 per stock option. In particular, stock options to purchase an aggregate of 27,438 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. All such repurchases and option cancellations with officers and directors of the Company were made on terms no more favorable than those that could be obtained in transactions with non-affiliates of the Company. 4. In December 1996, the Registrant issued and sold Convertible Notes in the aggregate principal amount of A$10,042,000. The purchasers of the Convertible Notes consisted primarily of the persons identified in the "Selling Shareholders" section of this Registration Statement. Subject to adjustments for certain dilutive events, the Convertible Notes are convertible into an aggregate of 1,197,926 Ordinary Shares of the Registrant. The issuances of the above securities were not required to be registered under the Securities Act. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER ------- 1.1 Form of Underwriting Agreement. *3.1 Memorandum and Articles of Association. 4.1 Form of Specimen of American Depositary Receipt. 4.2 Form of Deposit Agreement to be entered into among the Registrant, Morgan Guaranty Trust Company of New York, as Depositary, and holders from time to time of ADSs issued thereunder. 5.1 Opinion of Freehill, Hollingdale & Page. 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 Terms and Conditions of Convertible Notes and Shareholder's Deed Poll relating to Convertible Notes. *10.4 Major Agreements relating to the Registrant's Credit Facility with Australia and New Zealand Banking Corporation Group Limited ("ANZ"), including Deed of Charge by and between the Registrant and ANZ, as successor in interest to Westpac Banking Corporation as agent; Offer Letter dated July 14, 1994 from ANZ to the Registrant re: lines of credit; Variation Letter dated December 12, 1996 from ANZ to the Registrant modifying terms of certain lines of credit. **10.5 Major Agreements relating to the Registrant's U.S. Operating Subsidiary's Credit Facility with Merrill Lynch Business Financial Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and Security Agreement No. 9502340701, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and Security Agreement No. 231-07T10, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; Unconditional Guaranty by the Registrant relating to Term WCMA(R) Loan and Security Agreement No. 9502340701; Unconditional Guaranty by the Registrant relating to WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from Merrill Lynch to Galore USA re: WCMA(R) line of credit variation; Letter and Letter Agreement dated August 27, 1997 from Merrill Lynch to Galore U.S.A. re: WCMA(R) line of credit variation. *10.6 Deed of purchase of Registrant's headquarters facility. *10.7 Lease dated as of March 6, 1992 by and between Galore USA and Phoenix Business Center Partners re: Irvine, California U.S. headquarters and distribution facility. *11.1 Statement regarding computation of per share earnings. 15.1 Unaudited Additional Consolidated Financial Data of the Registrant for the twelve months ended January 31, 1995, 1996 and 1997, together with review report of KPMG relating thereto. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Horwath Sydney Partnership. *23.2 Consent of KPMG. 23.3 Consent of Freehill, Hollingdale & Page (included in Exhibits 5.1 & 8.1). 23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 8.2). *24.1 Powers of Attorney.
- ------- *Previously filed. **All documents previously filed except Letter and Letter Agreement, dated August 27, 1997, filed herein. (b) Financial Statement Schedules Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial state- ments or notes thereto. II-3 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Regis- trant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securi- ties being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be gov- erned by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this Regis- tration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 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 AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SYDNEY, AUSTRALIA ON THIS 10TH DAY OF OCTOBER, 1997. Barbeques Galore Limited By: /s/ Sam Linz ____________________________________ TITLE: CHAIRMAN OF THE BOARD PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE --------- ----- ---- * Chairman of the October 10, 1997 - ----------------------------------- Board and SAM LINZ Director (Principal Executive Officer) * (Principal October 10, 1997 - ----------------------------------- Financial and DAVID JAMES Accounting Officer) * Deputy Chairman of October 10, 1997 - ----------------------------------- the Board and ROBERT GAVSHON Director * Director October 10, 1997 - ----------------------------------- JOHN PRICE * Director October 10, 1997 - ----------------------------------- PHILIP GARDINER * Director October 10, 1997 - ----------------------------------- GORDON HOWLETT * Director and October 10, 1997 - ----------------------------------- Authorized U.S. SYDNEY SELATI Representative *Pursuant to Power of Attorney previously filed with the Commission. /s/ Sam Linz Attorney-in-Fact October 10, 1997 - ----------------------------------- SAM LINZ
II-5 INDEX TO EXHIBITS
EXHIBIT NUMBER ------- 1.1 Form of Underwriting Agreement. *3.1 Memorandum and Articles of Association. 4.1 Form of Specimen of American Depositary Receipt. 4.2 Form of Deposit Agreement to be entered into among the Registrant, Morgan Guaranty Trust Company of New York, as Depositary, and holders from time to time of ADSs issued thereunder. 5.1 Opinion of Freehill, Hollingdale & Page. 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 Terms and Conditions of Convertible Notes and Shareholder's Deed Poll relating to Convertible Notes. *10.4 Major Agreements relating to the Registrant's Credit Facility with Australia and New Zealand Banking Corporation Group Limited ("ANZ"), including Deed of Charge by and between the Registrant and ANZ, as successor in interest to Westpac Banking Corporation as agent; Offer Letter dated July 14, 1994 from ANZ to the Registrant re: lines of credit; Variation Letter dated December 12, 1996 from ANZ to the Registrant modifying terms of certain lines of credit. **10.5 Major Agreements relating to the Registrant's U.S. Operating Subsidiary's Credit Facility with Merrill Lynch Business Financial Services Inc. ("Merrill Lynch"), including Term WCMA(R) Loan and Security Agreement No. 9502340701, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; WCMA(R) Note, Loan and Security Agreement No. 231-07T10, dated as of February 23, 1995 by and between Galore USA and Merrill Lynch; Unconditional Guaranty by the Registrant relating to Term WCMA(R) Loan and Security Agreement No. 9502340701; Unconditional Guaranty by the Registrant relating to WMCA(R) Note, Loan and Security Agreement No. 231-07710; Term WCMA(R) Note No. 9502340701; Letter dated November 27, 1996 from Merrill Lynch to Galore USA re: WCMA(R) line of credit variation; Letter and Letter Agreement dated August 27, 1997 from Merrill Lynch to Galore U.S.A. re: WCMA(R) line of credit variation. *10.6 Deed of purchase of Registrant's headquarters facility. *10.7 Lease dated as of March 6, 1992 by and between Galore USA and Phoenix Business Center Partners re: Irvine, California U.S. headquarters and distribution facility. *11.1 Statement regarding computation of per share earnings. 15.1 Unaudited Additional Consolidated Financial Data of the Registrant for the twelve months ended January 31, 1995, 1996 and 1997, together with review report of KPMG relating thereto. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Horwath Sydney Partnership. *23.2 Consent of KPMG. 23.3 Consent of Freehill, Hollingdale & Page (included in Exhibits 5.1 & 8.1). 23.4 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 8.2). *24.1 Powers of Attorney.
- ------- *Previously filed. **All documents previously filed except Letter and Letter Agreement, dated August 27, 1997, filed herein. EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 BARBEQUES GALORE LIMITED 2,350,000 Ordinary Shares Underwriting Agreement [ ], 1997 J.P. Morgan Securities Inc. SBC Warburg Dillon Read Inc. As Representatives of the Several Underwriters Listed in Schedule I hereto c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260 Ladies and Gentlemen: Barbeques Galore Limited (ACN 008 577 759), formerly The Galore Group Limited, a corporation organized under the laws applicable in the Commonwealth of Australia (the "Company"), proposes to issue and sell to the several Underwriters listed in Schedule I hereto (the "Underwriters"), for whom you are acting as representatives (the "Representatives"), an aggregate of 1,900,000 ordinary shares, par value A$3.64 per share (the "Ordinary Shares"), of the Company, and the shareholders of the Company named in Schedule II hereto (the "Selling Shareholders") propose to sell to the Underwriters an aggregate of 450,000 Ordinary Shares. Such Ordinary Shares to be sold by the Company and the Selling Shareholders are hereinafter referred to as the "Firm Shares." It is understood that the Firm Shares are to be represented by 2,350,000 American Depositary Shares, each representing one Firm Share (the "Firm ADSs"). Each Selling Shareholder also proposes to sell, severally and not jointly, for the sole purpose of covering over-allotments in connection with the sale of the Firm ADSs by the Underwriters, up to the number of Ordinary Shares (the "Option Shares") set forth opposite such Selling Shareholder's name on Schedule II hereto under the heading "Number of Option Shares To Be Sold" (an aggregate of up to an additional 352,500 Ordinary Shares). It is understood that the Option Shares are to be represented by 352,500 American Depositary Shares, each representing one Option Share (the "Option ADSs"). The Firm Shares and the Option Shares are hereinafter referred to collectively as the "Shares." The Firm ADSs and the Option ADSs are hereinafter referred to as the "ADSs." The ADSs will be evidenced by American Depositary Receipts ("ADRs") to be issued pursuant to a Deposit Agreement dated as of [ ], 1997 (the "Deposit Agreement"), entered into among the Company, Morgan Guaranty Trust Company of New York, as Depositary (the "Depositary") and all holders from time to time of ADRs evidencing ADSs issued thereunder. The Company and the Selling Shareholders are hereinafter sometimes collectively referred to as the "Sellers." All references herein to numbers of Ordinary Shares refer to the number of Ordinary Shares to be outstanding after the Reverse Share Split (as defined in the Prospectus referred to below). The Company has prepared and filed with the U.S. Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Securities Act"), a registration statement on Form F-1 (File No. 333-37259), including a prospectus, relating to the Shares underlying the ADSs. The registration statement as amended at the time when it shall become effective, or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including in each case information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act is referred to in this Agreement as the "Registration Statement," and the prospectus in the form first used to confirm sales of ADSs is referred to in this Agreement as the "Prospectus." If the Company has filed an abbreviated registration statement to register additional Shares pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"), then any reference herein to the term "Registration Statement" shall be deemed to include such Rule 462 Registration Statement. The Company has also filed a 2 registration statement on Form F-6, as amended, (the "F-6 Registration Statement") relating to the ADSs. The Company and each of the Selling Shareholders hereby agree, severally and not jointly, with the Underwriters as follows: 1. The Company and each of the Selling Shareholders agree, severally and not jointly, to sell the Firm Shares underlying the Firm ADSs to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company and each of the Selling Shareholders at a purchase price of U.S.$ [ ] per Ordinary Share (equal to U.S.$[ ] per ADS) (the "Purchase Price") the number of Firm Shares underlying the Firm ADSs (subject to such adjustments to eliminate fractional ADSs, as you may determine) determined by multiplying the aggregate number of Firm Shares underlying the Firm ADSs to be sold by the Company and by each of the Selling Shareholders as set forth opposite their respective names in Schedule II hereto under the heading "Number of Firm Shares To Be Sold" by a fraction, the numerator of which is the aggregate number of Firm Shares underlying the Firm ADSs to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares underlying the Firm ADSs to be purchased by all the Underwriters from the Company and all the Selling Shareholders hereunder. In addition, each Selling Shareholder, severally and not jointly, agrees to issue and sell the number of Option Shares underlying the Option ADSs set forth opposite such Selling Shareholder's name in Schedule II hereto under the heading "Number of Option Shares To Be Sold," to the several Underwriters as hereinafter provided, and the Underwriters, on the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, shall have the option to purchase, severally and not jointly, from the Selling Shareholders at the Purchase Price that portion of the number of Option Shares underlying the Option ADSs as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Option Shares underlying the Option ADSs by a fraction the numerator of which is the maximum number of Option Shares underlying the Option ADSs by which such Underwriter is entitled to purchase and the denominator of which is the maximum number of Option Shares underlying the Option ADSs that all of the Underwriters are entitled to purchase hereunder, for the sole purpose of covering over-allotments (if any) in the sale of Firm ADSs by the Underwriters. 3 The Underwriters may exercise the option to purchase the Option Shares at any time (but not more than once) on or before the thirtieth day following the date of this Agreement, by written notice from the Representatives to the Company and the Attorneys-in-Fact (as defined below). Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full Business Day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 3 hereof). Any such notice shall be given at least two Business Days prior to the date and time of delivery specified therein. If less than all of the Option Shares are to be purchased, each of the Underwriters shall purchase Option Shares pro rata from the Selling Shareholders. 2. The Company and the Selling Shareholders understand that the Underwriters intend (i) to make a public offering of the ADSs as soon after (A) the Registration Statement has become effective and (B) the parties hereto have executed and delivered this Agreement, as in the judgment of the Representatives is advisable and (ii) initially to offer the ADSs upon the terms set forth in the Prospectus. 3. Payment for the Shares underlying the ADSs shall be made by wire transfer in immediately available funds to the account specified to the Representatives by the Company with regard to payment to the Company and by the Attorneys-in Fact, or any of them, with regard to payment to the Selling Shareholders in the case of the Firm Shares underlying the Firm ADSs on [ ], 1997, or, at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Representatives and the Company and Attorneys-in-Fact may agree upon in writing or, in the case of the Option Shares, on the date and time specified by the Representatives in the written notice of the Underwriters' election to purchase such Option Shares, which in no event shall be later than the fifth Business Day after such notice. The time and date of such payment for the Firm Shares is referred to herein as the "Closing Date" and the time and date for such payment for the Option Shares, if other than the Closing Date, are herein referred to as the "Additional Closing Date." As used herein, the term "Business Day" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Shares underlying the ADSs to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made only against deposit of such Shares with or in the account maintained at Morgan Guaranty Trust Company of New York, by [ ], as custodian for the 4 Depositary (the "ADR Custodian"), instruction by the ADR Custodian to the Depositary to issue such ADSs, and delivery of ADRs evidencing all such ADSs. The ADRs shall be in definitive form and shall be registered in such names and in such denominations as the Representatives shall request in writing addressed to the Depositary not later than one full Business Day prior to the Closing Date or the Additional Closing Date, as the case may be, with any transfer or other taxes duly paid by the Company or Selling Shareholders, as the case may be, payable in connection with (i) the deposit by the Company and Selling Shareholders of the Shares underlying the ADSs with the Depositary or the ADR Custodian against the issuance of ADRs evidencing ADSs and (ii) the sale and delivery by the Company and the Selling Shareholders of the Shares underlying the ADSs to or for the account of the Underwriters. The certificates for the ADRs will be made available for inspection and packaging by the Representatives at the office of the Depositary not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date or the Additional Closing Date, as the case may be. 4(A). The Company represents and warrants to each Underwriter that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that this representation and warranty -------- shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter or Selling Shareholder furnished to the Company in writing by such Underwriter through the Representatives or by any Selling Shareholder, as applicable, expressly for use therein; (b) no stop order suspending the effectiveness of the Registration Statement or the F-6 Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission; and the Registration Statement, the Prospectus and the F-6 Registration Statement (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) comply, or will comply, as the case may be, in all material 5 respects with the Securities Act and do not and will not, as of the applicable effective date as to the Registration Statement and the F-6 Registration Statement and any amendment thereto, including the prospectus contained therein, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as of its date and as amended or supplemented, if applicable, at the Closing Date or Additional Closing Date, as the case may be, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; except that the foregoing ------ representations and warranties shall not apply to statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter or Selling Shareholder furnished to the Company in writing by such Underwriter through the Representatives or by any Selling Shareholder, as applicable, expressly for use therein; (c) the financial statements, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and changes in their consolidated financial position for the periods specified; and said financial statements have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis, and the supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein; (d) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock or long-term debt of the Company or any of its subsidiaries (the "Subsidiaries"), or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, shareholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Prospectus; and except as set forth or contemplated in the Prospectus neither the Company nor any of the Subsidiaries has entered into any transaction or agreement 6 (whether or not in the ordinary course of business) material to the Company and the Subsidiaries taken as a whole; (e) the Company has been duly incorporated and is validly existing as a corporation formed under the laws applicable in the Commonwealth of Australia, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole; (f) each of the Subsidiaries has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole; and all the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully-paid and non-assessable, and (except for directors' qualifying shares and except as otherwise set forth in the Registration Statement) are owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (g) this Agreement has been duly authorized, executed and delivered by the Company; (h) the Company has an authorized capitalization as set forth in the Prospectus and such authorized capital stock conforms as to legal matters to the description thereof set forth in the Registration Statement, and all of the outstanding shares of capital stock of the Company (including the Shares to be sold by the Selling Shareholders) have been duly authorized and validly issued, are fully-paid and non-assessable and are not subject to any 7 pre-emptive or similar rights; the Shares underlying the ADSs to be issued and sold by the Company and the Selling Shareholders, including the Shares to be deposited by the Company and the Selling Shareholders with the ADR Custodian in accordance with the Deposit Agreement, have been duly authorized, and when such Shares have been so deposited and paid for by the Underwriters in accordance with the terms of this Agreement, such Shares will have been duly issued and will be fully paid and non-assessable and will conform to the descriptions thereof in the Prospectus; and, except for (i) the Convertible Notes (as described in the Prospectus) and (ii) Ordinary Shares issuable or available for grant under the Company's Executive Share Option Plan and the Company's 1997 Stock Option and Stock Issuance Plan, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interests in the Company or any of the Subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such Subsidiary, any such convertible or exchangeable securities or any such right, warrants or options, in each of the foregoing cases, to which the Company is a party; the Company has not granted any preemptive or other rights to acquire the Shares or the ADSs; and to the Company's knowledge there are no restrictions on transfers of the Shares, other than pursuant to arrangements that will be terminated prior to the sale of the Shares to the Underwriters; (i) upon the deposit of the Shares with the Depositary pursuant to the Deposit Agreement against issuance of the ADRs evidencing the ADSs, all right, title and interest in such Shares, subject to the Deposit Agreement, will be transferred to the Depositary or its nominee, as the case may be, free and clear of all liens, encumbrances or claims; (j) upon the sale and delivery of the Shares to be sold by the Company to the Underwriters, and payment therefor against deposit thereof with or in the account of the ADR Custodian maintained in [ ] and delivery of ADRs evidencing the ADSs as contemplated by this Agreement and the Deposit Agreement, good and valid title to the ADSs representing such Shares, free and clear of all liens, encumbrances or claims, will be transferred to the Underwriters; the ADSs to be delivered hereunder are freely 8 transferable to or for the account of the several Underwriters; upon delivery by the Depositary of the ADRs evidencing the ADSs against deposit of the Shares in accordance with the Deposit Agreement, the ADSs will be duly and validly issued; the ADSs and the ADRs conform as to legal matters to the description thereof set forth in the Registration Statement and the Prospectus in all material respects; (k) the Deposit Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and to public policy principles, including but not limited to the enforceability of any indemnification provision therein; (l) neither the Company nor any of the Subsidiaries is, or with the giving of notice or lapse of time or both would be, (i) in violation of or in default under the Company's Memorandum and Articles of Association (collectively, the "Certificate of Incorporation") or (ii) in violation of or in default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except (x) as such violation has been waived by the parties to such agreement, and written notice given to the Underwriters and (y) for any such violation or default which has not had, and would not reasonably be expected to have, a material adverse effect on the Company and the Subsidiaries, taken as a whole (a "Material Adverse Effect"); the issue and sale of the Shares and the ADSs and the performance by the Company of its obligations under this Agreement and the Deposit Agreement, and the consummation of the transactions contemplated herein and therein will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, except for any such conflict, breach or default which could not reasonably be 9 expected to have a Material Adverse Effect, nor will any such action result in any violation of the provisions of the Certificate of Incorporation of the Company or any applicable law or statute including, without limitation, any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, the Subsidiaries or any of their respective properties; and no consent, approval, authorization, order, license, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Shares or the ADSs or the consummation by the Company of the transactions contemplated by this Agreement and the Deposit Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act and as may be required under state securities or Blue Sky laws in connection with the purchase of the Shares and distribution of the ADSs by the Underwriters; (m) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries or any of their respective properties or to which the Company or any of the Subsidiaries is or may be a party or to which any property of the Company or any of the Subsidiaries is or may be the subject which, if determined adversely to the Company or any of the Subsidiaries, could individually or in the aggregate have, or reasonably be expected to have, a material adverse effect on the general affairs, business, prospects, management, financial position, shareholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole; and there are no statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (n) the Company and the Subsidiaries have good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Prospectus or such as do not materially adversely affect the Company and its Subsidiaries taken as a whole and do not materially interfere with the use made or proposed to be made of such property by the 10 Company and its Subsidiaries; and any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as do not materially adversely affect the Company and the Subsidiaries, taken as a whole and do not materially interfere with the use made or currently proposed to be made of such property and buildings by the Company or the Subsidiaries; (o) no relationship, direct or indirect, exists between or among the Company or any of the Subsidiaries, on the one hand, and the directors, officers, shareholders, customers or suppliers of the Company or any of the Subsidiaries, on the other hand, which is required by the Securities Act to be described in the Registration Statement and the Prospectus which is not so described; (p) no person has the right to require the Company to register any securities for offering and sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issue and sale of the Shares or the ADSs in the Offering, except any such rights which have been waived; (q) the Company is not and, after giving effect to the offering and sale of the Shares, will not be an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (r) the Company is not a "passive foreign investment company" within the meaning of the Internal Revenue Code of 1986, as amended (the "Code"), and the Rules and Regulations adopted thereunder; (s) KPMG and Horwath Sydney Partnership, who have certified certain financial statements of the Company and the Subsidiaries, are each independent public accountants as required by the Securities Act; (t) the Company and the Subsidiaries have filed all United States federal, state and local and all Australian federal, state and local, and all other foreign, tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith; and there is 11 no tax deficiency which has been or might reasonably be expected to be asserted or threatened against the Company or any Subsidiary, except where the failure to so file or pay would not have a Material Adverse Effect; (u) the Company is treated as a "public company" for Australian tax law purposes; (v) the Company has not taken nor will it take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Ordinary Shares or the ADSs; (w) the unissued Ordinary Shares issuable upon conversion of the Convertible Notes to be converted by the Selling Shareholders have been duly and validly authorized and reserved for issuance, and at the time of delivery to the Underwriters with respect to such Ordinary Shares, such Ordinary Shares will be issued and delivered in accordance with the Terms and Conditions of Convertible Notes and the Galore Shareholders Deed Poll (collectively, the "Note Agreements"), except to the extent the terms of the Note Agreements have been waived, and written notice given to the Underwriters, and will be duly and validly issued, fully paid and non- assessable and will conform to the description thereof in the Prospectus; (x) the Convertible Notes were duly authorized and issued pursuant to the Note Agreements and constitute valid and binding obligations of the Company and the holders of the Convertible Notes are entitled to the benefits provided by the Note Agreements; the Note Agreements were duly authorized, executed and delivered and constitute valid and binding instruments enforceable in accordance with their terms subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; and the Note Agreements conform in all material respects to the descriptions thereof in the Prospectus; (y) the Company is not, and after giving effect to the offering of the ADSs and the other transactions contemplated herein, will not be, in violation of or in default under the Note Agreements, except to the extent that such violation or default has 12 been waived by the holders of the Convertible Notes and written notice given to the Underwriters; (z) each of the Company and the Subsidiaries own, possess or has the right to use all material patents, patent rights, licenses, inventions, trade secrets, copyrights, trademarks, service marks, trade names, technology and know-how (the "Intellectual Property") employed by it in connection with the business conducted by it as of the date hereof; (aa) each of the Company and the Subsidiaries owns, possesses or has obtained all material licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all material declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, and neither the Company nor any such Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus; and each of the Company and the Subsidiaries is in compliance in all material respects with all laws and regulations relating to the conduct of its business as conducted as of the date hereof; (bb) there are no existing or, to the best knowledge of the Company, threatened labor disputes with the employees of the Company or any of the Subsidiaries which are likely to have a material adverse effect on the Company and the Subsidiaries, taken as a whole; (cc) the Company and the Subsidiaries (i) are in compliance in all material respects with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all material permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental 13 Laws, failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and the Subsidiaries, taken as a whole; (dd) to the knowledge of the Company, there are no legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries under any Environmental Law which, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the Company and the Subsidiaries, taken as a whole; and (ee) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") that is maintained, administered or contributed to by the Company or any of its affiliates for employees or former employees of the Company and its affiliates, and to the best knowledge of the Company, has been maintained in compliance with its terms and the material requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code and to the extent any such plan has not been maintained in compliance with such requirements, the Company shall take corrective measures to comply with all requirements. To the best knowledge of the Company, no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption. The Company does not maintain a plan subject to Title IV of ERISA. (B) Each of the Selling Shareholders, solely as to himself, herself or itself, severally, and not jointly, represents and warrants to, and agrees with, each of the Underwriters that: (a) this Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder; (b) an Irrevocable Power of Attorney and Custody Agreement (with respect to each Selling Shareholder, the "Power of Attorney and Custody Agreement") has been duly executed and delivered by each Selling Shareholder and constitutes a valid and binding agreement of such Selling Shareholder in accordance with its terms; 14 (c) all consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Shareholder of this Agreement and the Power of Attorney and Custody Agreement, and for the sale and delivery of the Shares underlying ADSs to be sold by such Selling Shareholder hereunder, have been obtained except for the registration of Shares or ADSs under the Securities Act and such as may be required under state securities or Blue Sky Laws; and such Selling Shareholder has full right, power and authority to enter into this Agreement and the Power of Attorney and Custody Agreement and to sell, assign, transfer and deliver the Shares underlying ADSs to be sold by such Selling Shareholder hereunder; (d) the sale of the Shares underlying ADSs to be sold by such Selling Shareholder hereunder and the compliance by such Selling Shareholder with all of the provisions of this Agreement and the Power of Attorney and Custody Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Selling Shareholder is a party or by which such Selling Shareholder is bound, or to which any of the material property or assets of such Selling Shareholder is subject, nor will such action result in any violation of the provisions of the certificate or articles of incorporation or bylaws of such Selling Shareholder if such Selling Shareholder is a corporation, the declaration of trust or other constituent documents if such Selling Shareholder is a trust, the partnership agreement of such Selling Shareholder if such Selling Shareholder is a partnership, or any material statute or order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Shareholder or the Shares owned by such Selling Shareholder; (e) such Selling Shareholder will have, immediately prior to the Closing Date or Additional Closing Date, as the case may be, assuming due issuance of any Shares underlying ADSs to be issued upon conversion of Convertible Notes, good and valid title to the Shares underlying ADSs to be sold at the Closing Date or Additional Closing Date, as the case may be, by such Selling Shareholder, free and clear of all liens, encumbrances, equities or adverse claims; and, upon delivery of the certificates representing 15 such Shares underlying ADSs and payment therefor pursuant hereto, good and valid title to such Shares underlying ADSs, free and clear of all liens, encumbrances, equities or adverse claims, will pass to the several Underwriters; (f) such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Ordinary Shares or the ADSs; (g) all information furnished by or on behalf of such Selling Shareholder in writing for use in the Registration Statement and Prospectus is, and on the Closing Date (and the Additional Closing Date, if any) will be, true, correct, and complete, and does not, and on the Closing Date (and the Additional Closing Date, if any) will not, contain any untrue statement of a material fact or omit to state any material fact necessary to make such information not misleading; and (h) Nothing has come to such Selling Shareholder's attention that would cause such Selling Shareholder to believe that the Registration Statement or the Prospectus (as amended or supplemented) did or will, as of the applicable effective date of the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and to such Selling Shareholder's knowledge, without independent review, the Prospectus, as amended or supplemented, if applicable, at the Closing Date or Additional Closing Date, as the case may be, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and such Selling Shareholder will notify the Company and you if he, she or it becomes aware of any facts which would cause this representation to be untrue. Each of the Selling Shareholders represents and warrants that it has appointed Robert Rankin and David East, and each of them, as such Selling Shareholder's attorneys-in-fact (the "Attorneys-in-Fact" or either one of them an "Attorney-in Fact") with authority to execute and deliver this Agreement on behalf of such Selling Shareholder, to determine the purchase price to be paid by 16 the Underwriters to the Selling Shareholders as provided herein, to authorize the conversion of the Convertible Notes into the Shares underlying the ADSs to be sold by such Selling Shareholder hereunder and otherwise to act on behalf of such Selling Shareholder in connection with the transactions contemplated by this Agreement and the Power of Attorney and Custody Agreement. Each of the Selling Shareholders specifically agrees that the Shares underlying the ADSs and the irrevocable notice held in custody for such Selling Shareholder under the Power of Attorney and Custody Agreement, are subject to the interests of the Underwriters hereunder, and that the arrangements made by such Selling Shareholder for such custody, and the appointment by such Selling Shareholder of the Attorneys-in-Fact by the Power of Attorney and Custody Agreement, are to that extent irrevocable. Each of the Selling Shareholders specifically agrees that the obligations of the Selling Shareholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Shareholder, or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership or corporation, or by the occurrence of any other event. If any individual Selling Shareholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Shares underlying the ADSs hereunder, certificates representing the Shares underlying the ADSs shall be delivered by or on behalf of such Selling Shareholder in accordance with the terms and conditions of this Agreement and the Power of Attorney and Custody Agreement, and actions taken by the Attorneys- in-Fact pursuant to the Power of Attorney and Custody Agreement shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the custodian under the Power of Attorney and Custody Agreement, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event. 5(A). The Company covenants and agrees with the several Underwriters as follows: (a) to use its reasonable best efforts to cause the Registration Statement to become effective at the earliest possible time and to file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act and to file promptly all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 17 14 or 15(d) of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Exchange Act") subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Shares underlying the ADSs and to furnish copies of the Prospectus to the Underwriters in New York City prior to 10:00 a.m., New York City time, on the Business Day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request; (b) to deliver, at the expense of the Company, to the Representatives, 2 signed copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits and documents incorporated by reference therein, and to each other Underwriter a conformed copy of the Registration Statement (as originally filed) and each amendment thereto, in each case without exhibits or documents incorporated by reference therein and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto and documents incorporated by reference therein) as the Representatives may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the Registration Statement becomes effective, to furnish to the Representatives a copy of the proposed amendment or supplement for review and not to file any such proposed amendment or supplement to which the Representatives reasonably object; (d) to advise the Representatives promptly, and to confirm such advice in writing (i) when the Registration Statement has become effective, (ii) when any amendment to the Registration Statement has been filed or become effective, (iii) when any supplement to the prospectus or any amended Prospectus has been filed and to furnish the Representatives with copies thereof, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (v) after becoming aware, of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary 18 prospectus or the Prospectus or the initiation or threatening of any proceeding for that purpose, (vi) after becoming aware, of the occurrence of any event, within the period referenced in paragraph (e) below, as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, and (vii) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Shares or the ADSs for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any order suspending any such qualification of the Shares or the ADSs or notification of any order thereof and, if issued, to obtain as soon as possible the withdrawal thereof; (e) if, during such period of time after the first date of the public offering of the ADSs as in the opinion of counsel for the Underwriters a prospectus relating to the ADSs is required by law to be delivered in connection with sales by the Underwriters or any dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which ADSs may have been sold by the Representatives on behalf of the Underwriters and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) to make generally available to its security holders and to the Representatives as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date of the Registration Statement, which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder; 19 (g) through and until the fifth anniversary of the issuance of the ADSs, to furnish to the Representatives copies of all reports or other communications (financial or other) furnished to holders of ADSs, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; (h) for a period of 180 days after the date of the final prospectus relating to the initial public offering of the ADSs not to (i) offer, pledge, announce the intention to sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any ADSs or Shares or any securities convertible into or exercisable or exchangeable for ADSs or Shares or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the ADSs or Shares, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Ordinary Shares or ADSs or such other securities, in cash or otherwise without the prior written consent of J.P. Morgan Securities Inc. on behalf of the Underwriters, other than the Shares to be sold hereunder and any ADSs or Ordinary Shares of the Company issued upon the exercise of options granted under existing employee stock option plans; (i) to use the net proceeds received by the Company from the sale of the ADSs pursuant to this Agreement in the manner set forth under the caption "Use of Proceeds" in the Prospectus; (j) to use its best efforts to list, subject to official notice of issuance, the ADSs on the Nasdaq Stock Market's Nasdaq National Market (the "Nasdaq National Market"); (k) whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all costs and expenses incident to the performance of the Company's obligations hereunder, including without limiting the generality of the foregoing, all costs and expenses of the Company (i) incident to the preparation, registration, transfer, execution and delivery of the ADSs and the Shares, (ii) incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Prospectus, any preliminary prospectus (including in each case all exhibits, 20 amendments and supplements thereto) and the F-6 Registration Statement, (iii) incurred in connection with the registration or qualification of the ADSs and the Shares under the laws of such jurisdictions as the Representatives may designate (including reasonable fees of counsel for the Underwriters and its disbursements), (iv) in connection with the listing of the Ordinary Shares and the ADSs on any stock exchange, (v) related to the filing with, and clearance of the offering by, the National Association of Securities Dealers, Inc., (vi) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the furnishing to the Underwriters and dealers of copies of the Registration Statement and the Prospectus, including mailing and shipping, as herein provided, (vii) incident to the preparation of ADR certificates evidencing the ADSs, (viii) in connection with preparation and execution of the Deposit Agreement (including fees and expenses of counsel to the Depositary not borne by the Depositary) other than the fees and expenses to be paid by the holders of ADSs pursuant to the provisions of the Deposit Agreement; (ix) incident to the appointment of an Authorized Agent (as defined in Section 13), (x) in connection with the costs and charges of any transfer agent or registrar, and (xi) incurred directly by the Company in connection with a "road show" presentation to potential investors; (l) to file with the Commission such reports on Form SR as may be required by Rule 463 under the Securities Act; and (m) so long as the Company is subject to the provisions of Section 13 or Section 15(d) of the Exchange Act, to file with the Commission (i) quarterly reports, which will include audited quarterly consolidated financial information on Form 6-K for the first three quarters of each fiscal year of the Company, and (ii) an annual report on Form 20-F within the time periods 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; provided that, if at any time the filing of any such report in such fashion is prohibited by the Commission, such report shall be submitted to the Depositary for distribution to holders of the ADSs, in lieu of filing with the Commission. 5(B). Each of the Selling Shareholders covenants and agrees solely as to himself, herself or itself with each of the several Underwriters as follows: 21 (a) subject to certain exceptions as provided in the "lock- up" agreement of each Selling Shareholder referred to in Section 6(k) of this Agreement, for a period of 180 days after the date of the final prospectus relating to the initial public offering of the ADSs not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or ADSs or any securities convertible into or exercisable or exchangeable for Ordinary Shares or ADSs or (ii) enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Ordinary Shares or ADSs, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Ordinary Shares or ADSs or such other securities, in cash or otherwise or (iii) make any demand for or exercise any right with respect to the registration of any Ordinary Shares or any security convertible into or exercisable or exchangeable for Ordinary Shares, each of the foregoing without the prior written consent of J.P. Morgan Securities Inc. on behalf of the Underwriters; and (b) to deliver to the Representatives prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-8 or W-9, as applicable (or other applicable form or statement specified by the Treasury Department regulations in lieu thereof), in order to facilitate the Underwriters' documentation of their compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated. 6. The several obligations of the Underwriters hereunder to purchase the Shares underlying the ADSs on the Closing Date or the Additional Closing Date, as the case may be, are subject to the performance by the Company and each of the Selling Shareholders of their respective obligations hereunder and to the following additional conditions: (a) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 P.M., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the 22 Commission; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Securities Act and in accordance with Section 5(a) hereof; and all requests for additional information shall have been complied with to the reasonable satisfaction of the Representatives; (b) the representations and warranties of the Company and the Selling Shareholders contained herein are true and correct in all material respects on and as of the Closing Date or the Additional Closing Date, as the case may be, as if made on and as of the Closing Date or the Additional Closing Date, as the case may be, and each of the Company and the Selling Shareholders shall have complied in all material respects with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be; (c) since the respective dates as of which information is given in the Prospectus there shall not have been any change in the capital stock or long-term debt of the Company or any of the Subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, shareholders' equity or results of operations of the Company and the Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Prospectus, the effect of which in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the ADSs on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated in the Prospectus; and neither the Company nor any of the Subsidiaries has sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; (d) the Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, (1) a certificate of an executive officer of the Company, with 23 specific knowledge about the Company's financial matters, satisfactory to the Representatives to the effect set forth in subsections (a) through (c) of this Section 6 (with respect to the respective representations, warranties, agreements and conditions of the Company) of this Section and to the further effect that there has not occurred any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, shareholders' equity or results of operations of the Company and the Subsidiaries taken as a whole from that set forth or contemplated in the Registration Statement and (2) a certificate of the Selling Shareholders (which may be delivered on their behalf by the Attorneys-in-Fact), satisfactory to the Representatives to the effect set forth in subsection (b) of this Section 6 (with respect to the respective representations, warranties, agreements and conditions of the Selling Shareholders); (e) Brobeck, Phleger & Harrison LLP, Freehill, Hollingdale & Page and Robert Gavshon, each counsel for the Company, shall have furnished to the Representatives their written opinions, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representatives, as set forth in Exhibits A-1, A-2 and A-3, respectively; (f) Brobeck, Phleger & Harrison LLP, special counsel for certain Selling Shareholders resident in the United States, shall have furnished to the Representatives their written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representatives, as set forth in Exhibit B-1, and Freehill, Hollingdale & Page and Andersen Legal, special counsel for the remaining Selling Shareholders, shall have furnished to the Representatives their written opinions, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance reasonably satisfactory to the Representatives, each as set forth in Exhibit B-2; (g) on the effective date of the Registration Statement and the effective date of the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date or Additional Closing Date, as the case may be, KPMG and Horwath & Horwath shall have furnished to you letters, dated the 24 respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus; (h) the Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion of Davis Polk & Wardwell, counsel to the Underwriters, with respect to the due authorization and valid issuance of the ADSs, the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (i) the ADSs to be delivered on the Closing Date or the Additional Closing Date, as the case may be, shall have been approved for quotation on the Nasdaq National Market, subject to official notice of issuance; (j) on or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company and the Selling Shareholders shall have furnished to the Representatives such further certificates and documents (not including any additional representations, warranties or covenants) which are of form and substance normally and customarily requested in a public offering transaction as the Representatives shall reasonably request; (k) the "lock-up" agreements, each substantially in the form previously distributed, between you and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Ordinary Shares or ADSs or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or Additional Closing Date, as the case may be; and (l) each of the Reverse Share Split and the conversion of all Convertible Notes into Ordinary Shares (as contemplated in the Prospectus) shall have been validly consummated; each of the Galore Shareholders Deed Poll and the Terms and Conditions of Convertible Notes, relating to the Convertible Notes, shall have 25 been terminated in accordance with its terms, with the Company having no further obligation thereunder or under the Convertible Notes; and the Company shall have a capitalization conforming in all material respects to the description thereof in the Prospectus. 7. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Underwriter or any Selling Shareholder furnished to the Company in writing by such Underwriter through the Representatives, or by such Selling Shareholder, expressly for use therein. Each of the Selling Shareholders severally in proportion to the number of ADSs to be sold by such Selling Shareholder hereunder agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent and only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement or any amendment thereof, any preliminary prospectus or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) in reliance upon, and in conformity with, information relating to such Selling Shareholder furnished to the Company in writing by or on behalf of such Selling Shareholder expressly for use in the Registration Statement, 26 any preliminary prospectus or the Prospectus. Notwithstanding any other provision of this Section 7, the liability of each Selling Shareholder to the Underwriters shall not exceed the net amount received by such Selling Shareholder (after deducting any underwriting discount) from the sale of the Shares or the ADSs pursuant to this Agreement. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act and each of the Selling Shareholders to the same extent as the foregoing indemnity from the Company and the Selling Shareholders to each Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. Each of the foregoing indemnification provisions with respect to any preliminary prospectus shall not inure to the benefit of any indemnified party on account of any loss, claim, damage or liability (including without limitation, the legal fees and other expenses incurred in connection with any suit, action proceeding or any claim asserted) if a copy of the Prospectus shall not have been delivered or sent to such person within the time required by the Securities Act and the regulations thereunder and the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in such preliminary prospectus was corrected in the Prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to the preceding paragraphs of this Section 7, such person (the "Indemnified Person") shall promptly notify the person or persons against whom such indemnity may be sought (each an "Indemnifying Person") in writing, and such Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Person may designate in such proceeding and shall pay the reasonable fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person and not the Indemnifying Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any 27 such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that no Indemnifying Person shall, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Underwriters and such control persons of Underwriters shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for the Company, its directors, its officers who sign the Registration Statement and such control persons of the Company shall be designated in writing by the Company. In the case of any such separate firm for the Selling Shareholders and such controlling persons of Selling Shareholders, such firm shall be designated in writing by the Selling Shareholders selling the majority of the amount of Shares sold by the Selling Shareholders under this Agreement. No Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, each Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested the Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, such Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first four paragraphs of this Section 7 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on 28 the other hand from the offering of the ADSs or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other hand shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Selling Shareholders and the total underwriting discounts and the commissions received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the ADSs. The relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Selling Shareholders or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were --- ---- treated as one entity for such purposes) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the ADSs underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of ADSs set forth opposite their names in Schedule I hereto, and not joint. 29 The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company and the Selling Shareholders set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any other person controlling the Company or the Selling Shareholders and (iii) acceptance of and payment for any of the ADSs. 8. Notwithstanding anything herein contained, this Agreement (or the obligations of the several Underwriters with respect to the Option Shares) may be terminated in the absolute discretion of the Representatives, by notice given to the Company and the Selling Shareholders, if after the execution and delivery of this Agreement and prior to the Closing Date (or, in the case of the Option Shares, prior to the Additional Closing Date) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange or the American Stock Exchange, the Nasdaq National Market, the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and which, in the judgment of the Representatives, makes it impracticable to market the ADSs being delivered at the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated in the Prospectus. 9. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post-effective amendment) by the Commission. If on the Closing Date or the Additional Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase ADSs which it or they have agreed to purchase hereunder on such date, and the aggregate number of ADSs which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one- tenth of the aggregate number of ADSs 30 to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of ADSs set forth opposite their respective names in Schedule I bears to the aggregate number of Underwritten Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Representatives may specify, to purchase the ADSs which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of ADSs that any Underwriter has -------- agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by an amount in excess of one-tenth of such number of ADSs without the written consent of such Underwriter. If on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase ADSs which it or they have agreed to purchase hereunder on such date, and the aggregate number of ADSs with respect to which such default occurs is more than one-tenth of the aggregate number of ADSs to be purchased on such date, and arrangements satisfactory to the Representatives, the Selling Shareholders, and, in the case of the Closing Date, the Company, for the purchase of such ADSs are not made within 36 hours after such default, this Agreement (or the obligations of the several Underwriters to purchase the Option Shares, as the case may be) shall terminate without liability on the part of any non- defaulting Underwriter, the Company or the Selling Shareholders. In any such case either you, the Selling Shareholders or, in the case of the Closing Date, the Company, shall have the right to postpone the Closing Date (or, in the case of the Option Shares, the Additional Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company or the Selling Shareholders to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or the Selling Shareholders shall be unable to perform their obligations under this Agreement or any condition of the Underwriters' obligations cannot be fulfilled, the Company and the Selling Shareholders agree to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and expenses of its counsel) reasonably incurred by the Underwriters in connection with this Agreement or the offering contemplated hereunder. 11. The Company and the Selling Shareholders (a) agree that any legal suit, action or proceeding brought by an Underwriter arising out of or relating to this Agreement, the Deposit Agreement, the Power of Attorney and Custody 31 Agreement, or the transactions contemplated hereby or thereby may be instituted in any federal or state court in New York City, (b) irrevocably waive, to the fullest extent it may effectively do so, any objection (x) which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any federal or state court in New York City or (y) that any such suit, action or proceeding has been brought in an inconvenient forum, and (c) irrevocably submit to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding. If for the purposes of obtaining judgment in any court it is necessary to convert a sum due hereunder into any currency other than United States dollars, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Underwriters could purchase United States dollars with such other currency in New York City on the business day preceding that on which final judgment is given. The obligation of the Company or the Selling Shareholders, as the case may be, in respect of any sum due from the Company or the Selling Shareholders, as the case may be, to the Underwriters, or of any Underwriter in respect of any sum due from such Underwriter to the Company or the Selling Shareholders, as the case may be, shall, notwithstanding any judgment in a currency other than United States dollars, not be discharged until the first business day, following receipt by the Underwriters, the Company or the Selling Shareholders, as the case may be, of any sum adjudged to be so due in such other currency, on which (and only to the extent that) the Underwriters, the Company or the Selling Shareholders, as the case may be, may in accordance with normal banking procedures purchase United States dollars with such other currency; if the United States dollars so purchased are less than the sum originally due to the Underwriters, the Company or the Selling Shareholders, as the case may be, hereunder, the Company agrees, the Selling Shareholders agree, and each Underwriter agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Underwriters, the Company or the Selling Shareholders, as the case may be, against such loss. If the United States dollars so purchased are greater than the sum originally due to the Underwriters, the Company or the Selling Shareholders, as the case may be, hereunder, the Underwriters, the Company and the Selling Shareholders, as the case may be, agree to pay to the Company, the Selling Shareholders or the Underwriters, as the case may be, an amount equal to the excess of the dollars so purchased over the sum originally due to the Underwriters, the Company or the Selling Shareholders, as the case may be, hereunder. 12. This Agreement shall inure to the benefit of and be binding upon the Company, the Selling Shareholders and the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed 32 or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of ADSs from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 13. Any action by the Underwriters hereunder may be taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such action taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260 (telefax:______); Attention: Syndicate Department. Notices to the Company shall be given to it at Barbeques Galore Limited, 15041 Bake Parkway, #A, Irvine, CA 92718, (telefax:(714) 597-2434); Attention:____________. Notices to any of the Selling Shareholders shall be given to both Attorneys-in-Fact at (i) SBC Warburg Australia, Level 25, Governor Philip Tower, 1 Farrer Place, Sydney NSW Australia 2000, Attention: Robert Rankin (telefax: (011-612) 9324- 2424), and (ii) Andersen Legal, Level 12, 141 Walker Street, North Sydney NSW Australia 2060, Attention: David East, (telefax: (011-612) 9964-6650). 14. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. 33 If the foregoing is in accordance with your understanding, please sign and return four counterparts hereof. Very truly yours, BARBEQUES GALORE LIMITED By: ------------------------- Title: SELLING SHAREHOLDERS By: --------------------------- Name: Title: As Attorney-in-Fact acting on behalf of each of the Selling Shareholders named in Schedule II to this Agreement. Accepted: [ ], 1997 By: J.P. Morgan Securities Inc. Acting on behalf of itself and the several Underwriters listed in Schedule I hereto. By: ------------------------------ Title: 34 SCHEDULE I
Number of Firm ADSs To Be Underwriter Purchased ----------- ------------------ J.P. Morgan Securities Inc. ................. SBC Warburg Dillon Read Inc. ................ -------------- Total: 2,350,000 ==============
SCHEDULE II All Share Numbers Reflect the Occurrence of the Proposed 18.223-for-1 Reverse Stock Split Prior to the Offering
Number of Firm Number of Total Number of Selling Shares to Be Option Shares Shares To Be Shareholders Sold Sold Sold ============================================================================================ - -------------------------------------------------------------------------------------------- Blaironia Pty Limited 23,459 18,376 41,835 - -------------------------------------------------------------------------------------------- Halcyon Pty Limited 9,384 7,351 16,735 - -------------------------------------------------------------------------------------------- Timewalk Pty Limited 23,459 18,376 41,835 - -------------------------------------------------------------------------------------------- RG Investments (Australia) Pty Limited 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- Navarra Investments Pty Ltd. 938 735 1,673 - -------------------------------------------------------------------------------------------- Depofo Pty Ltd. 1,173 919 2,092 - -------------------------------------------------------------------------------------------- Talbot Pty. Limited 4,692 3,675 8,367 - -------------------------------------------------------------------------------------------- Scelara Pty Limited 9,384 7,351 16,735 - -------------------------------------------------------------------------------------------- Borlas Pty Limited 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- Dalbrun Pty Ltd. 9,384 7,351 16,735 - -------------------------------------------------------------------------------------------- Pesas Pty Ltd. (A/C Super Fund) 9,384 7,351 16,735 - -------------------------------------------------------------------------------------------- Rupert Baroona Pty Ltd - the Carter Account 5,865 4,594 10,459 - -------------------------------------------------------------------------------------------- Nassa Investments Pty Limited 4,692 3,675 8,367 - -------------------------------------------------------------------------------------------- Shane D. Finemore 4,692 3,675 8,367 - -------------------------------------------------------------------------------------------- Warana Holdings Pty Ltd. 14,076 11,026 25,102 - -------------------------------------------------------------------------------------------- Kelstan Pty Ltd. 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- Kahuna Investments Pty Limited 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- Megwil Pty Ltd. A/C WPG Superfund 11,730 9,188 20,918 - -------------------------------------------------------------------------------------------- Potter Warburg Nominees Pty. Limited 4,692 3,675 8,367 - -------------------------------------------------------------------------------------------- Todizo Pty Limited 21,817 17,090 38,907 - -------------------------------------------------------------------------------------------- AJA Investments Pty Limited 18,767 14,701 33,468 - -------------------------------------------------------------------------------------------- National Nominees Limited 28,151 22,052 50,203 - -------------------------------------------------------------------------------------------- ANZ Nominees Limited 41,804 32,747 74,551 - -------------------------------------------------------------------------------------------- Conargo Plains Pty Ltd. 4,692 3,676 8,367 - -------------------------------------------------------------------------------------------- RJR Capital Pty Ltd. 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- Chirico Pty Ltd 23,459 18,377 41,836 - -------------------------------------------------------------------------------------------- P.K. Capital Pty Ltd. 6,099 4,778 10,877 - -------------------------------------------------------------------------------------------- Exim Nominees Pty. Ltd. 5,395 4,226 9,621 - -------------------------------------------------------------------------------------------- Dennis Hoffman 216 169 385 - -------------------------------------------------------------------------------------------- Joyce Hoffman 216 169 385 - -------------------------------------------------------------------------------------------- David Katz 3,669 2,874 6,543 - -------------------------------------------------------------------------------------------- Robert & Ann Patricia McLeod 2,158 1,690 3,848 - -------------------------------------------------------------------------------------------- Keith B. Abrams 2,158 1,690 3,848 - -------------------------------------------------------------------------------------------- Richard Wunsh 1,079 845 1,924 - -------------------------------------------------------------------------------------------- Patjon Pty Ltd. 11,631 9,111 20,742 - -------------------------------------------------------------------------------------------- Alney Pty Ltd. 5,552 4,349 9,901 - -------------------------------------------------------------------------------------------- GDL Investments Pty Ltd. 6,079 4,762 10,841 - -------------------------------------------------------------------------------------------- Australip Pty Ltd. 5,395 4,226 9,621 - -------------------------------------------------------------------------------------------- Jack Sack 2,158 1,690 3,848 - -------------------------------------------------------------------------------------------- Page 1
SCHEDULE II - -------------------------------------------------------------------------------- Dresner Investments Pty Ltd. 2,158 1,690 3,848 - -------------------------------------------------------------------------------- Jokari Pty Ltd. 1,079 845 1,924 - -------------------------------------------------------------------------------- David M. Schnaid 1,407 1,102 2,509 - -------------------------------------------------------------------------------- Lawrence A. Oster 562 439 1,001 - --------------------------------------------------------------------------------
Page 2 Exhibit A-1 ----------- Opinion of Brobeck, Phleger & Harrison LLP, as Counsel to the Company --------------------------------------------------------------------- (i) each of Barbeques Galore Inc., a California corporation, and The Galore Group (USA) Inc., a Delaware corporation (the "Material U.S. Subsidiaries"), has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with all requisite corporate power and authority to own its properties and conduct its business as described in the Prospectus; and to the knowledge of such counsel, based solely on a review of the certificates of public officials furnished herewith, each of the Material U.S. Subsidiaries has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the Company and the Subsidiaries, taken as a whole; and, to the knowledge of such counsel, all of the outstanding shares of capital stock of each Material U.S. Subsidiary have been duly and validly authorized and issued, are fully paid and non- assessable, and are owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (ii) to the knowledge of such counsel, there are no currently outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interests in any of the Material U.S. Subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of any such Material U.S. Subsidiary, any such convertible or exchangeable securities or any such right, warrants or options; (iii) upon the deposit of the Shares to be sold by the Company with the Depositary pursuant to the Deposit Agreement against issuance of the ADRs evidencing the ADSs representing such Shares, all right, title and interest in such Shares, subject to the Deposit Agreement, will be transferred to the Depositary or its nominee, as the case may be, free and clear of all liens, encumbrances or claims; (iv) upon the sale and delivery of the Shares to be sold by the Company to the Underwriters, and payment therefor against deposit thereof with or in the account of the ADR Custodian maintained in [ ] and delivery of ADRs evidencing the ADSs representing such Shares as contemplated by the Underwriting Agreement and the Deposit Agreement, good and valid title to the A-1-1 ADSs representing such Shares, free and clear of all liens, encumbrances or claims, will be transferred to the Underwriters; the foregoing ADSs to be delivered hereunder are freely transferable to or for the account of the several Underwriters; upon delivery by the Depositary of the ADRs evidencing such ADSs against deposit of such Shares in accordance with the Deposit Agreement, such ADSs will be duly and validly issued; the ADSs and the ADRs conform as to legal matters to the description thereof set forth in the Registration Statement and Prospectus in all material respects; (v) neither of the Material U.S. Subsidiaries is, or with the giving of notice or lapse of time or both would be, (i) in violation of or in default under its articles of incorporation or bylaws or (ii) in violation of or in default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument filed as an exhibit to the Registration Statement or listed on Annex A hereto, except (x) as such violation has been waived by the parties to such agreement, and written notice given to the Underwriters and (y) for any such violation or default which has not had, and would not reasonably be expected to have, a Material Adverse Effect; the issue and sale of the Shares to be sold by the Company and the ADSs representing such Shares and the performance by the Company of its obligations under the Underwriting Agreement and the Deposit Agreement, and the consummation of the transactions contemplated therein will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument filed as an exhibit to the Registration Statement or listed on Annex A hereto, except for any such conflict, breach or default which would not reasonably be expected to have a Material Adverse Effect, nor will any such action result in any violation of the provisions of the articles of incorporation or bylaws of any Material U.S. Subsidiary or any applicable California or United States federal law or statute or, to the knowledge of such counsel, any order, rule or regulation of any California or United States federal court or governmental agency or body having jurisdiction over such Subsidiaries or any of their respective properties; (vi) to such counsel's knowledge, no consent, approval, authorization, order, license, registration or qualification of or with any California or United States federal court or governmental agency or body is required for the issue and sale of the Shares to be sold by the Company or the ADSs representing such Shares or the consummation of the other transactions contemplated by the Underwriting Agreement and the Deposit Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act and as may be required under United States state securities or Blue Sky laws in connection with the purchase of any such Shares and distribution of any such ADSs by the Underwriters; A-1-2 (vii) other than as set forth or contemplated in the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending in the United States or, to the best of such counsel's knowledge, threatened against the Company or any of the Significant Subsidiaries (as defined in Regulation S-X) or any of their respective properties or to which the Company or any of the Significant Subsidiaries is or may be a party or to which any property of the Company or the Significant Subsidiaries is or may be the subject which, if determined adversely to the Company or any of the Significant Subsidiaries, would individually or in the aggregate have, or reasonably be expected to have, a Material Adverse Effect; and such counsel does not know of any California or United States federal statutes, regulations, contracts or other documents that are required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (viii) the Company is not and, after giving effect to the offering and sale of the ADSs, will not be an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the Investment Company Act; (ix) the Company is not a "passive foreign investment company" within the meaning of the Code and the Treasury Regulations adopted thereunder; (x) each of the Company and the Material U.S. Subsidiaries owns, possesses or has obtained all material California and United States federal licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all material declarations and filings with, all United States federal, state, local and other governmental authorities and all California and United States federal courts and other tribunals, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, and neither the Company nor any such Material U.S. Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus; (xi) the statements in the Prospectus under "Certain Tax Considerations -- United States Taxation" constitute a summary of the material consequences under the Code to U.S. Holders other than 10% U.S. shareholders of the acquisition, ownership and disposition of the ADSs and Ordinary Shares; (xii) assuming the accuracy of information furnished by or on behalf of the Underwriters for inclusion therein, the statements in the Prospectus under A-1-3 "Description of American Depositary Receipts" and "Underwriting" and in the Registration Statement in Items 14 and 15, insofar as such statements constitute a summary of the terms of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such terms, legal matters, documents or proceedings; and (xiii) such counsel is of the opinion that the Registration Statement and the Prospectus and any amendments and supplements thereto (other than the financial statements and related schedules therein, and all financial, statistical, accounting and other numerical information therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Securities Act and nothing has come to such counsel's attention that (other than the financial statements and related schedules therein, and all financial, statistical, accounting and other numerical information therein, as to which such counsel need express no belief) the Registration Statement and the prospectus included therein at the time the Registration Statement became effective did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and further that the Prospectus, as amended or supplemented, if applicable, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The opinion of Brobeck, Phleger & Harrison LLP described above shall be rendered to the Underwriters. In rendering such opinion, such counsel may (A) limit their opinion to the federal laws of the United States of America, the laws of the State of California and the General Corporation Law of the State of Delaware and (B) rely as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company. With respect to the matters to be covered in subparagraph (xiii), counsel may state their opinion is based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto and review and discussion of the contents thereof but is without independent check or verification. Brobeck, Phleger & Harrison LLP standard opinion limitations will apply. A-1-4 Exhibit A-2 ----------- Opinion of Freehill, Hollingdale & Page, as Counsel to the Company ------------------------------------------------------------------ (i) the Company has been duly incorporated and is validly existing as a corporation formed under the laws applicable in the Commonwealth of Australia, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus; (ii) the Company is registered under the laws of New South Wales as a corporation and under the national Corporation Law of Australia is entitled to transact business in each jurisdiction in Australia; (iii) each of [list material Australian subsidiaries] (the "Material Australian Subsidiaries") has been duly incorporated and is validly existing as a corporation under the laws applicable in the Commonwealth of Australia, with all requisite power and authority to own its properties and conduct its business as described in the Prospectus; and is registered under the laws of its State of incorporation as a corporation and under the national Corporations Law of Australia is entitled to transact business in each jurisdiction in Australia; and no matter has come to the attention of counsel that suggests that all of the outstanding shares of capital stock of each Material Australian Subsidiary have not been duly and validly authorised and issued and are fully paid, and except for directors' qualifying shares and except as otherwise set forth in the Registration Statement, are not owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (iv) the board of directors of the Company has duly authorised and executed the Underwriting Agreement on behalf of the Company in accordance with the laws of Australia; (v) the Company has an authorised capitalization as set forth in the Prospectus and such authorised capital stock conforms in all material respects as to legal matters to the description thereof set forth in the Registration Statement; (vi) the shares of capital stock of the Company outstanding (including the Shares to be sold by the Selling Shareholders) have been duly authorised and are validly issued and fully paid; the Shares underlying the ADSs to be issued and sold by the Company and the Selling Shareholders, including the Shares to be deposited by the A-2-1 Company and the Selling Shareholders with the ADR Custodian in accordance with the Deposit Agreement, have been duly authorised, and when such Shares have been so deposited and paid for by the Underwriters in accordance with the terms of the Underwriting Agreement, such Shares will have been duly issued and will be fully paid and will conform to the descriptions thereof in the Prospectus in all material respects; and except for Ordinary Shares issuable or available for grant under the Company's Executive Share Option Plan and the Company's 1997 Stock Option and Stock Issuance Plan, to the knowledge of such counsel, there are no currently outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interests in the Company or any of the Material Australian Subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such Material Australian Subsidiary, any such convertible or exchangeable securities or any such right, warrants or options, in each of the foregoing cases, to which the Company or any of the Subsidiaries is a party; the Company has not granted any preemptive or other rights to acquire the Shares or the ADSs which are presently outstanding; and to such counsel's knowledge there are no restrictions on transfers of the Shares, other than pursuant to arrangements which counsel has been advised will be terminated prior to the sale of the Shares to the Underwriters; (vii) the board of directors of the Company has duly authorised and executed the Deposit Agreement on behalf of the Company in accordance with the laws of Australia, and the Deposit Agreement constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganisation, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and to public policy principles, including but not limited to the enforceability of any indemnification provision therein; (viii) to such counsel's knowledge, no consent, approval, authorisation, order, license, registration or qualification of or with any Australian court or governmental agency or body is required for the issue and sale of the Shares or the ADSs or the consummation of the other transactions contemplated by the Underwriting Agreement and the Deposit Agreement; (ix) other than as set forth or contemplated in the Prospectus, to such counsel's knowledge, there are no legal or governmental A-2-2 investigations, actions, suits or proceedings pending in Australia or, to the best of such counsel's knowledge, threatened against the Company or any of the Material Australian Subsidiaries or any of their respective properties or to which the Company or any of the Material Australian Subsidiaries is or may be a party or to which any property of the Company or the Material Australian Subsidiaries is or may be the subject which, if determined adversely to the Company or any of the Material Australian Subsidiaries, would individually or in the aggregate have, or reasonably be expected to have, a Material Adverse Effect; to such counsel's knowledge, no such proceedings are threatened or contemplated by Australian governmental authorities or threatened by others; (x) the Company is treated as a "public company" for Australian tax law purposes; (xi) the statements in the Prospectus under "Description of Ordinary Shares" and "Certain Tax Considerations--Australian Taxation," insofar as such statements constitute a summary of the terms of the legal matters, documents or proceedings referred to therein, are accurate as a matter of Australian law; and (xii) each of the Reverse Share Split and the conversion of all Convertible Notes into Ordinary Shares (as contemplated in the Prospectus) has been validly consummated; and each of the Galore Shareholders Deed Poll and the Terms and Conditions of Convertible Notes, relating to the Convertible Notes, has been terminated in accordance with its terms, with the Company having no further obligation thereunder or under the Convertible Notes. The opinion of Freehill, Hollingdale & Page described above shall be rendered to the Underwriters. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws other than Australian laws, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to Underwriters' counsel, familiar with the applicable laws; (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company. Such counsel may limit its opinion solely to Australian laws, and express no opinion with respect to the effect or application of any other laws. Freehill, Hollingdale & Page standard opinion limitations will apply. A-2-3 Exhibit A-3 ----------- Opinion of Robert Gavshon, General Counsel ------------------------------------------ for the Company --------------- (i) neither the Company nor any of the Subsidiaries is, or with the giving of notice or lapse of time or both would be, (i) in violation of or in default under its articles of incorporation or bylaws or (ii) in violation of or in default under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except (x) as such violation has been waived by the parties to such agreement, and written notice given to the Underwriters and (y) for any such violation or default which has not had, and would not reasonably be expected to have, a Material Adverse Effect; the issue and sale of the Shares and the ADSs and the performance by the Company of its obligations under the Underwriting Agreement and the Deposit Agreement, and the consummation of the transactions contemplated therein will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the material property or assets of the Company or any of the Subsidiaries is subject, except for any such conflict, breach or default which could not reasonably be expected to have a Material Adverse Effect, nor will any such action result in any violation of the provisions of the articles of incorporation of the Company or any Subsidiary or any applicable law or statute or, to the knowledge of such counsel, any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, such Subsidiaries or any of their respective properties; (ii) any real property and buildings held under lease by the Company and the Subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such property and buildings by the Company or the Subsidiaries; (iii) the Company is not, and after giving effect to the waiver by the holders of the Convertible Notes, the offering of the ADSs and the other transactions contemplated herein, will not be, in violation of or in default in any material respect under the Note Agreements; and A-3-1 (iv) each of the Company and the Subsidiaries owns, possesses or has obtained all material licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all material declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, and neither the Company nor any such Subsidiary has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus; and each of the Company and the Subsidiaries is in compliance in all material respects with all laws and regulations relating to the conduct of its business as conducted as of the date of the Prospectus. A-3-2 Exhibit B-1 ----------- Opinion of Brobeck, Phleger & Harrison LLP, as Counsel ------------------------------------------------------ to the U.S. Selling Shareholders -------------------------------- (i) the Underwriting Agreement has been duly authorized, executed and delivered by or on behalf of each of the Selling Shareholders who has validly completed, executed and filed a Substitute Form W-9 (each, a "U.S. Selling Shareholder"); (ii) an Irrevocable Power of Attorney and Custody Agreement has been duly executed and delivered by each U.S. Selling Shareholder and constitutes a valid and binding agreement of such U.S. Selling Shareholder in accordance with its terms; (iii) all consents, approvals, authorizations and orders under United States laws, rules and regulations necessary for the execution and delivery by each such U.S. Selling Shareholder of the Underwriting Agreement and the Power of Attorney and Custody Agreement, and for the sale and delivery of the Shares underlying ADSs to be sold by each such U.S. Selling Shareholder hereunder, have been obtained except for the registration of Shares or ADSs under the Securities Act and such as may be required under state securities or Blue Sky laws; and each such U.S. Selling Shareholder has full right, power and authority to enter into the Underwriting Agreement and the Power of Attorney and Custody Agreement and to sell, assign, transfer and deliver the Shares underlying ADSs to be sold by such U.S. Selling Shareholder thereunder; (iv) the sale of the Shares underlying ADSs to be sold by each such U.S. Selling Shareholder thereunder and the compliance by each such U.S. Selling Shareholder with all of the provisions of the Underwriting Agreement and the Power of Attorney and Custody Agreement and the consummation of the transactions therein contemplated will not, to the knowledge of such counsel, conflict with or result in a material breach or violation of any of the terms or provisions of, or constitute a default under, any United States statute, indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such U.S. Selling Shareholder is a party or by which such U.S. Selling Shareholder is bound, or to which any of the material property or assets of such U.S. Selling Shareholder is subject, nor will such action result in any violation of the provisions of the certificate or articles of incorporation or bylaws of such U.S. Selling Shareholder if such U.S. Selling Shareholder is a corporation, the declaration of trust or other constituent documents if such U.S. Selling Shareholder is a trust, or the partnership agreement of such U.S. Selling Shareholder if such U.S. Selling Shareholder is a partnership, nor, to the B-1-1 knowledge of such counsel, will such action result in any violation of any material United States statute or order, rule or regulation of any United States court or governmental agency or body having jurisdiction over such U.S. Selling Shareholder or the Shares owned by such U.S. Selling Shareholder; and (v) each such U.S. Selling Shareholder will have, immediately prior to the Closing Date, assuming due issuance of any Shares underlying ADSs to be issued upon conversion of Convertible Notes, good and valid title to the Shares underlying ADSs to be sold at the Closing Date, by such U.S. Selling Shareholder, free and clear of all liens, encumbrances, equities or adverse claims; and, upon delivery of the certificates representing such Shares underlying ADSs and payment therefor pursuant hereto, and assuming no notice to the Underwriters of any adverse claim, good and valid title to such Shares underlying ADSs, free and clear of all liens, encumbrances or equities, will pass to the several Underwriters. The opinion of Brobeck, Phleger & Harrison LLP described above shall be rendered to the Underwriters. In rendering such opinion, such counsel may limit their opinion solely to the laws of the State of California, the Delaware General Corporation Law and the federal laws of the United States, and express no opinion with respect to the effect or application of any other laws. Brobeck, Phleger & Harrison LLP standard opinion limitations will apply. B-1-2 Exhibit B-2 ----------- Opinion of Freehill, Hollingdale & Page and Andersen Legal, as Counsel ---------------------------------------------------------------------- to the Selling Shareholders --------------------------- (i) the Underwriting Agreement has been duly authorized, executed and delivered by or on behalf of each of the Selling Shareholders who has validly completed, executed and filed a Substitute Form W-8 (each, a "Non-U.S. Selling Shareholder"); (ii) an Irrevocable Power of Attorney and Custody Agreement has been duly executed and delivered by each Non-U.S. Selling Shareholder and constitutes a valid and binding agreement of such Non-U.S. Selling Shareholder in accordance with its terms; (iii) all consents, approvals, authorizations and orders under non-United States laws, rules and regulations necessary for the execution and delivery by each such Non-U.S. Selling Shareholder of the Underwriting Agreement and the Power of Attorney and Custody Agreement, and for the sale and delivery of the Shares underlying ADSs to be sold by each such Non-U.S. Selling Shareholder hereunder, have been obtained except for the registration of Shares or ADSs under the Securities Act and such as may be required under state securities or Blue Sky laws; and each such Non-U.S. Selling Shareholder has full right, power and authority to enter into the Underwriting Agreement and the Power of Attorney and Custody Agreement and to sell, assign, transfer and deliver the Shares underlying ADSs to be sold by such Non-U.S. Selling Shareholder thereunder; (iv) the sale of the Shares underlying ADSs to be sold by each such Non- U.S. Selling Shareholder thereunder and the compliance by each such Non-U.S. Selling Shareholder with all of the provisions of the Underwriting Agreement and the Power of Attorney and Custody Agreement and the consummation of the transactions therein contemplated will not result in any violation of the provisions of the certificate or articles of incorporation or bylaws of such Non-U.S. Selling Shareholder if such Non-U.S. Selling Shareholder is a corporation, the declaration of trust or other constituent documents if such Non-U.S. Selling Shareholder is a trust, the partnership agreement of such Selling Shareholder if such Non-U.S. Selling Shareholder is a partnership; and (v) each such Non-U.S. Selling Shareholder will have, immediately prior to the Closing Date, assuming due issuance of any Shares underlying ADSs to be issued upon conversion of Convertible Notes, good and valid title to the Shares underlying ADSs to be sold at the Closing Date, by such Non-U.S. Selling Shareholder, free and clear of all liens, encumbrances, equities or adverse claims; B-2-1 and, upon delivery of the certificates representing such Shares underlying ADSs and payment therefor pursuant hereto, and assuming no notice to the Underwriters of any adverse claim, good and valid title to such Shares underlying ADSs, free and clear of all liens, encumbrances or equities, will pass to the several Underwriters. In rendering such opinions, such counsel may rely as to matters involving the application of laws other than Australian laws, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to Underwriters' counsel) of other counsel reasonably acceptable to Underwriters' counsel, familiar with the applicable laws. Such counsel may limit its opinion solely to Australian laws, and express no opinion with respect to the effect or application of any other laws. _____________ standard opinion limitations will apply. B-2-2 EX-4.1 3 FORM OF SPECIMEN ADR 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 AND PAGE Exhibit 5.1 [LETTERHEAD OF FREEHILL HOLLINGDALE & PAGE APPEARS HERE] 10 October 1997 Our ref Rick Narev Phone 02 9225 5604 File no 1811824 Doc no SYDCA\97276005.A 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 2,350,000 Ordinary Shares, par value A$3.64 per share (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. 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 or of the resolutions. Based upon the foregoing, we are of the opinion that, as a matter of Australian law, when (1) the Registration Statement becomes effective under the Act; (2) the shareholders of the Company approve the consolidation of capital (reverse share split) contemplated by the Registration Statement; (3) the holders of the convertible notes issued by the Company convert those notes as contemplated by the Registration Statement; and (4) the Shares to be sold by the Company are sold by the Company as provided 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. 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 7 of the Act or the rules and regulations of the Securities and Exchange Commissioner thereunder. Yours faithfully FREEHILL HOLLINGDALE & PAGE /s/ Rick Narev Rich Narev Partner EX-8.1 6 OPINION OF FREEHILL HOLLINGDALE & PAGE Exhibit 8.1 [LETTERHEAD OF FREEHILL HOLLINGDALE & PAGE APPEARS HERE] 9 October 1997 Our ref Rick Narev Phone 02 9225 5604 File no 1811824 Doc no SYDCP\97282000.8 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 of 2,350,000 American Depositary Shares (ADSs) by the Underwriters. Each ADS represents an ordinary share (Ordinary Share) of the Company. The ADSs are evidenced by American Depositary Receipts (ADRs). The Ordinary Shares, the ADSs and the ADRs are described in the registration statement on Form F-1 filed by the Company with the Securities and Exchange Commission on 6 October 1997 (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 below, we have: (a) relied upon an opinion dated 9 October 1997 from Greenwoods & Freehills Pty Limited, our affiliated taxation practice; (b) assumed that the legal relationship between each holder of an ADS and the Depositary is equivalent to a nominee or bare trust relationship; (c) assumed that the final wording of the Summary is in the form attached to this letter. We understand that the Summary is intended to be a general statement of the Australian income tax position in relation to an investment in Ordinary Shares or ADSs made pursuant to the Prospectus by investors who are residents of the United States for tax purposes (US Holders). The Summary is based on the income tax legislation in force at the date of this letter and is not exhaustive or definitive. Based on and subject to the foregoing, we are of the opinion that the statements of law and legal conclusions set forth in the Summary constitute an accurate summary of the material Australian tax consequences for US Holders in relation to the acquisition, ownership and disposition of Ordinary Shares and ADSs. We express no opinion as to other tax issues affecting the holders of the 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 judgement 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 AND HARRISON LLP Exhibit 8.2 October 10, 1997 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 proposed offering of 2,350,000 American Depositary Shares ("ADSs") by the Underwriters. Each ADS represents an ordinary share ("Ordinary Share") of the Company. The ADSs are evidenced by American Depositary Receipts ("ADRs"). The Ordinary Shares, the ADSs and the ADRs are described in the registration statement on Form F-1 (Registration No. 333-37259) filed by the Company with the Securities and Exchange Commission on October 6, 1997 (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 are of the opinion that the statements of law and legal conclusions set forth in the Prospectus constituting part of the Registration Statement under the caption "Certain Tax Considerations--United States Taxation" constitute an accurate summary of the material United States federal income tax matters described therein relating to the tax treatment of holders of the ADSs. We express no opinion as to other tax issues affecting the holders of the 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 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-10.5 8 LETTER AGREEMENT DATED 08/27/97 Exhibit 10.5 [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 EX-15.1 9 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 -----END PRIVACY-ENHANCED MESSAGE-----