<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1996
REGISTRATION NO. 333-2992
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------
TURBOCHEF, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 3589
(State or other jurisdiction (Primary Standard Industrial Number)
of incorporation)
48-1100390
(I.R.S. employer
identification number)
------
10500 Metric Drive, Suite 128
Dallas, Texas 75243
(214) 341-9471
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------
Philip R. McKee
TurboChef, Inc.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
(214) 341-9471
(Address, including zip code, and telephone number, including area code, of
agent for service)
------
Copies to:
WILLIAM W. MEIER, III, ESQ. ROBERT J. MITTMAN, ESQ.
MARK G. JOHNSON, ESQ. Tenzer Greenblatt LLP
Henry, Meier, Jones & Johnson, L.L.P. The Chrysler Building
1700 Pacific Avenue, Suite 2700 405 Lexington Avenue
Dallas, Texas 75201 New York, New York 10174
Telephone: (214) 954-9700 Telephone: (212) 573-4300
Facsimile: (214) 954-9701 Facsimile: (212) 573-4313
------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes 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 check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering: [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
=============================================================================
<PAGE>
TURBOCHEF, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item in Form SB-2 Caption or Location in Prospectus
----------------- ----------------------------------
<S> <C> <C>
1. Front of Registration Statement and Outside Front Cover
Page of Prospectus........................................ Facing Page of Registration Statement; Cross Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................ Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors ..................... Prospectus Summary; Risk Factors
4. Use of Proceeds........................................... Use of Proceeds
5. Determination of Offering Price .......................... *
6. Dilution.................................................. Risk Factors; Dilution
7. Selling Security Holders.................................. Selling Stockholder and Plan of Distribution
8. Plan of Distribution...................................... Outside Front and Outside Back Cover Pages of Prospectus;
Inside Front Cover Page of Prospectus; Underwriting
9. Legal Proceedings ........................................ Business
10. Directors, Executive Officers, Promoters and
Control Persons........................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management............................................ Principal Stockholders
12. Description of Securities................................. Description of Securities
13. Interest of Named Experts and Counsel .................... *
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................ *
15. Organization Within Last 5 Years ......................... Prospectus Summary; Management's Discussion and Analysis
of Financial Condition and Results of Operations; Business;
Certain Transactions
16. Description of Business................................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan
of Operation ............................................. Management's Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property................................... Business
19. Certain Relationships and Related Transactions ........... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters .................................................. Outside Front Cover Page of Prospectus; Price Range of
Common Stock; Dividend Policy; Principal Stockholders;
Description of Securities; Shares Eligible for Future Sale;
Underwriting; Selling Stockholder and Plan of Distribution
21. Executive Compensation ................................... Management
22. Financial Statements...................................... Financial Statements
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure....................... *
</TABLE>
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* Not applicable or answer is negative.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
PRELIMINARY PROSPECTUS DATED MAY 24, 1996
SUBJECT TO COMPLETION
700,000 SHARES
TURBOCHEF(r)
COMMON STOCK
As described below, an additional 233,334 shares of Common Stock are being
registered in connection with this offering on behalf of a selling
stockholder; however, such shares are being registered for resale purposes
only and not as part of the underwritten offering.
TurboChef, Inc. (the "Company") is offering hereby 700,000 shares (the
"Shares") of the common stock of the Company (the "Common Stock"). The Common
Stock is traded in the over-the-counter market and is quoted on the Nasdaq
SmallCap Market ("NASDAQ") under the symbol "TRBO". On May 22, 1996, the last
sales price for the Common Stock as reported by NASDAQ was $13.25 per share.
See "Price Range of Common Stock."
This Prospectus also relates to the offer and sale by a stockholder of the
Company (the "Selling Stockholder") of up to 233,334 shares of Common Stock
(the "Selling Stockholder Shares"), which were issued to the Selling
Stockholder in connection with its providing certain financing to the
Company. The Selling Stockholder Shares are not part of the underwritten
offering, are being registered for resale purposes only and may not be offered
or sold prior to six months following the date of this Prospectus without the
prior written consent of the Underwriter. The Company will not receive any of
the proceeds from the sale of the Selling Stockholder Shares. See "Selling
Stockholder and Plan of Distribution" and "Underwriting."
Upon the Company's consummation of this offering, the Chairman of the
Board and the President of the Company will beneficially own an aggregate of
approximately 60% of the Company's outstanding Common Stock. As a result,
such persons will continue to be able to control the Company, elect all of
the Company's directors and generally direct the affairs of the Company. See
"Risk Factors" and "Principal Stockholders."
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 18.
------
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.
<PAGE>
<TABLE>
<CAPTION>
==============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share ................... $__________ $__________ $__________
- ------------------------------------------------------------------------------
Total(3) ................... $__________ $__________ $__________
==============================================================================
</TABLE>
(1) In addition, the Company has agreed to pay to the Underwriter a 2 1/2 %
nonaccountable expense allowance and to sell to the Underwriter warrants
to purchase 70,000 shares of Common Stock (the "Underwriter's Warrants").
The Company has also agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company (including the
Underwriter's nonaccountable expense allowance in the amount of
$_______), estimated at $_____. The Selling Stockholder will not bear any
expenses of the offering.
(3) Certain stockholders of the Company have granted the Underwriter an
option, exercisable within 45 days from the date of this Prospectus, to
purchase from them up to 105,000 additional shares of Common Stock (the
"Over-Allotment Shares"), on the same terms as set forth above, solely
for the purpose of covering over-allotments, if any. If the Underwriter's
over-allotment option is exercised in full, the total Price to Public and
the total Underwriting Discounts and Commissions will be $______ and
$______, respectively, and the stockholders selling the Over-Allotment
Shares will receive proceeds, after their payment of the underwriting
commissions and discounts applicable to such shares, of $______ (before
also deducting the Underwriter's 2 1/2 % nonaccountable expense allowance
applicable to such shares, payable by such stockholders, in the amount of
$______). The Company will not receive any proceeds from the sale of the
Over-Allotment Shares. See "Underwriting" and "Principal Stockholders."
------
The Shares are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and
to reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares will be made against payment therefor at
the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019,
on or about ____, 1996.
------
WHALE SECURITIES CO., L.P.
The date of this Prospectus is _________, 1996
<PAGE>
A TURBOCHEF OVEN
CAN PERFORM THE FUNCTIONS OF MULTIPLE TRADITIONAL COOKING APPLIANCES
[Picture of TurboChef oven with (i) arrows above it pointing to pictures of the
following cooking appliances (all of which are named): grill, convection bake,
toaster, fryer, poacher, broiler, convection roast, conveyor and
microwave/steamer; and (ii) arrows below it pointing to pictures of the
following cooked food items (all of which are named): chicken, filled pastry,
hot sandwich, french fries, fish fillet, shrimp, rack of lamb, pizza 16" / 7",
and vegetables.]
The Company believes that by using the TurboChef oven, traditional full-service
restaurants can offer the convenience and speed of foodservice typically
associated with fast food restaurants (without sacrificing the "restaurant
quality" of the food served) and fast food restaurants can offer more varied
menus and a food quality more typically associated with full-service restaurants
(without compromising their "quick service" speeds).
TURBOCHEF(R)
------------
CHANGING THE WAY GOOD FOOD IS SERVED
------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER AND CERTAIN SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Each prospective investor is
urged to read this Prospectus in its entirety. Unless otherwise indicated,
the information contained in this Prospectus, including per share data and
information relating to the number of shares of Common Stock outstanding: (i)
assumes no exercise of the Underwriter's over-allotment option to purchase up
to an aggregate of 105,000 Over-Allotment Shares from certain stockholders of
the Company, and (ii) has been adjusted to give retroactive effect to a
1,767.2266-for-1 stock split which was effected on March 16, 1994 and to a
2-for-1 stock split which was effected on December 29, 1995. See
"Underwriting" and Note 7 of Notes to Financial Statements.
THE COMPANY
TurboChef, Inc. (the "Company") is a foodservice technology company
engaged in designing, developing and marketing high-speed commercial ovens
and in applying its proprietary technologies to other foodservice products,
processes and concepts for customers seeking a competitive advantage in the
foodservice market. In addition, now that the Company's products and
technologies have been validated (through utilization and extensive testing
by a variety of customers) and its research and development capabilities have
been proven, the Company intends to build upon its technology base to expand
its product offerings, while aggressively pursuing joint venture, strategic
alliance and/or licensing or other arrangements with companies already
engaged in the mass marketing and/or manufacture of foodservice equipment and
products in order to expand its market penetration.
The Company's ovens, which are marketed under the name TurboChef, employ
the Company's proprietary cooking technologies to quickly, efficiently and
evenly transfer, disperse and control the heat used in the cooking process
and the Company's proprietary computerized control platform to monitor that
process and automatically adjust cook settings during the cooking cycle.
These technologies provide foodservice operators the flexibility to
"cook-to-order" a variety of food items at speeds which the Company believes
are faster than those permitted by conventional commercial ovens and grills,
microwave ovens, and other currently available high-speed ovens. Among the
various types of foods which can be cooked in a TurboChef oven are an 8-ounce
salmon filet in less than 80 seconds, a 16-inch deluxe par-baked pizza in 90
seconds or less, a "bone-in" quarter chicken in 2 minutes or less, and an
18-ounce beef tenderloin in approximately 3 minutes. In addition, because of
the TurboChef oven's moisture retention, browning and crisping capabilities,
the Company believes that the characteristics of most food items cooked in a
TurboChef oven (including their flavor, texture and appearance) are not only
superior in quality to those achieved using other high-speed ovens, or
microwave ovens, but are also equal in quality, or, in the case of many food
items (such as rack of lamb, beef Wellington and most fish and seafood items)
superior in quality, to those achieved using conventional ovens and grills.
As a result of the foregoing, the Company believes that, by using the
TurboChef oven, traditional full-service restaurants can offer the
convenience and speed of foodservice typically associated with fast food
restaurants (without sacrificing the "restaurant quality" of the food served)
and fast food restaurants can offer more varied menus and a food quality more
typically associated with full-service restaurants (without compromising
their "quick-service" speeds). In addition, the Company's technologies
provide both full-service and fast food restaurant operators with the means
of "upgrading" their menu offerings, both in terms of food items offered and
in terms of cooked food quality and consistency, and of enhancing their
profitability, by reducing certain costs associated with the cooking process.
The current TurboChef oven models contain cooking cavities capable of holding
a food product measuring up to 16 inches in diameter and, depending on the
model, 3-4 inches in height and can be purchased for approximately $11,000,
exclusive of any volume discount.
The Company has also recently completed the development of a series of
operations enhancement software systems, each of which incorporates, and
augments the benefits to be derived from, the use of the
3
<PAGE>
TurboChef oven. These proprietary systems include the TurboCom system, a
centralized cook setting system, which can reprogram TurboChef ovens
installed in various restaurant locations from a single central site, thereby
enabling foodservice operators to easily modify their cook settings, and thus
their menu selections, on a system-wide basis; the TurboStage system, a food
preparation management system, which can be incorporated into a restaurant's
existing electronic order processing system, sort the items to be cooked by
required cook times, and indicate, on a real-time basis, when such food items
are to be inserted into the TurboChef oven; and the TurboTouch system, an
oven operations management system, which ties the restaurant's point-of-sale
cash register directly to the TurboChef oven so that exact cooking settings
may be automatically programmed into the oven when the food order is placed.
The Company's largest customer is Whitbread PLC ("Whitbread"), which
operates over 6,500 pub, convenience, restaurant, hotel and leisure locations
across the United Kingdom, including the Beefeater, Pizza Hut, TGI Friday's
and Brewers Fayre chains. Whitbread, with which the Company has been working
closely for over a year (adapting and applying TurboChef's foodservice
technologies and concepts to Whitbread's particular proposed applications)
has announced that it intends to incorporate the TurboChef oven as an
integral part of the foodservice operations of its Beefeater chain, which
consists of 300 casual dining restaurants, by the end of 1996. In keeping
with such goal, Whitbread has agreed to purchase a total of 340 TurboChef
ovens from the Company, under certain specified terms and conditions, with
deliveries scheduled through September 1996 (the "Whitbread Contract"). As of
March 31, 1996, a total of 170 of such ovens had been delivered. Recently,
Whitbread has also announced that it plans over the next few years to
introduce the TurboChef technologies to other parts of its foodservice
operations and is currently testing the Company's TurboCom system for such
purpose.
The Company was also recently selected by Choice Hotels International
("Choice Hotels"), an international hotel operator, as the sole commercial
oven supplier for its new modular Choice Picks branded food court service
system, which is being offered (as an alternative to full-service
restaurants) to operators of Choice Hotels' Clarion, Quality and Comfort
hotels around the world. As the only commercial oven to be used in the Choice
Picks food courts, the TurboChef oven has been approved to cook multiple food
brands, including Nathan's Famous(R) and Pizzeria Uno(R). Choice Hotels first
introduced the Choice Picks program to its franchisees in November 1995 and
their evaluation of the program is expected to continue throughout 1996. As
of March 31, 1996, a total of 12 TurboChef ovens had been purchased for use
in the Choice Hotels system.
The Company intends to use a significant portion of the proceeds from this
offering to continue and complete its development efforts relating to its
proposed residential, and its proposed consumer-operated, TurboChef oven
models. The Company will also continue in its efforts to exploit other of the
many potential market applications for the TurboChef technologies. There can
be no assurance, however, that the focus of the Company's development efforts
will not change or that its current development projects or any new
applications or products will ever be successfully completed or
commercialized. Moreover, although the Company was organized in April 1991,
it was not until March 1994 that it began the initial commercial roll-out of
its first commercial oven product and not until June 1995 that it entered
into the Whitbread Contract, its first major contract. Consequently, the
Company has had a limited operating history upon which an evaluation of its
prospects and performance can be made. To date, the Company has generated
limited revenues and incurred substantial operating losses and anticipates
that it will continue to incur significant operating expenses in connection
with its ongoing development activities and marketing plans. The Company's
future profitability will depend upon, among other things, corresponding
increases in revenues to offset these expenditures. There can be no assurance
that the Company will be able to successfully implement the next phase of
either its business or marketing strategies, that its rate of revenue growth
will continue in the future or that it will ever be able to achieve
profitable operations.
The Company was incorporated in Kansas on April 3, 1991 and reincorporated
in Delaware on August 17, 1993. Unless otherwise noted, references to the
Company relate to TurboChef, Inc., a Delaware corporation, and its
predecessor. The Company's principal executive offices are located at 10500
Metric Drive, Suite 128, Dallas, Texas 75243 and its telephone number is
(214) 341-9471.
4
<PAGE>
THE OFFERING
Common Stock offered by the
Company...................... 700,000 Shares
Common Stock to be outstanding
after the offering(1) ....... 13,568,078 shares
Use of Proceeds ............... The Company intends to use the net proceeds
of this offering for research and
development; marketing and sales;
manufacturing and tooling; the establishment
of an expanded parts and service network and
for working capital and general corporate
purposes. See "Use of Proceeds."
Risk Factors .................. The shares offered hereby are speculative
and involve a high degree of risk and
immediate substantial dilution and should
not be purchased by investors who cannot
afford the loss of their entire investment.
See "Risk Factors" and "Dilution."
NASDAQ symbol ................. "TRBO"
- ------
(1) Does not include (i) 70,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; (ii) 260,000 shares of
Common Stock reserved for issuance upon exercise of certain warrants
granted to the Underwriter (the "Underwriter's IPO Warrants") in
connection with the Company's initial public offering of Common Stock in
April 1994 (the "April 1994 IPO"); (iii) 1,918,666 shares of Common Stock
reserved for issuance upon exercise of outstanding stock options granted
under the Company's 1994 Stock Option Plan (the "Option Plan"); (iv)
280,334 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Option Plan; and (v) 262,500
shares of Common Stock reserved for issuance upon exercise of an
outstanding non-plan option (the "Acadia Option"), which option was
granted, together with the Selling Stockholder Shares, to Acadia
International Limited ("Acadia"), the Selling Stockholder, in connection
with its providing certain financing to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Management -- 1994 Stock Option Plan," "Certain
Transactions" and "Underwriting."
Notice to California Investors. Each purchaser of Common Stock and
Warrants in California must be an "accredited investor," as that term is defined
in Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or satisfy one of the following suitability
standards: (i) minimum actual gross income of $65,000 and a net worth (exclusive
of home, home furnishings and automobiles) of $250,000; or (ii) minimum net
worth (exclusive of home, home furnishings and automobiles) of $500,000.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is certain summary financial information for the periods
and as of the dates indicated. This information is derived from, and should
be read in conjunction with, the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Ended March 31, Year Ended December 31,
----------------------------- -----------------------
(unaudited)
-----------
1996 1995 1995 1994
------ ------ ---- -----
<S> <C> <C> <C> <C>
Revenues(1) ........................ $ 1,054,008 $ 165,398 $ 1,228,111 $ 249,883
Net loss (1) ....................... $ (364,491) $ (519,667) $(1,585,268) $(3,181,519)
Net loss per share ................. $ (.03) $ (.04) $ (.13) $ (.29)
Weighted average number of shares
outstanding ....................... 12,867,375 11,943,825 12,451,786 11,120,282
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
(unaudited)
-----------
Actual As Adjusted(2)
------ --------------
<S> <C> <C> <C>
Working capital ......... $ 561,515 $ 8,000,015 $ 1,083,190
Total assets ............ $ 2,172,351 $ 9,610,851 $ 2,217,870
Total liabilities ....... $ 1,086,329 $ 1,086,329 $ 769,857
Accumulated deficit ..... $(10,037,683) $(10,037,685) $ (9,673,192)
Total stockholders' equity $ 1,086,022 $ 8,524,522 $ 1,448,013
</TABLE>
- ------
(1) From its inception through February 1994, the operations of the Company
were principally limited to conducting research and development, limited
production operations and test marketing of prototype ovens. The Company
commenced the initial commercial rollout of its first commercial product,
the Model D-1 TurboChef oven, in March 1994, and was considered to be in
the development stage until the last quarter of 1994. Effective June
1995, the Company entered into its first major contract with a customer
and commenced initial shipments of its Model D-2 TurboChef oven.
(2) Gives effect to the sale of the 700,000 Shares offered hereby and the
anticipated application of the estimated net proceeds therefrom (based on
an assumed offering price of $12.50 per Share). See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including, but not necessarily limited to, the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this
offering before making an investment decision.
Limited Operating History and Revenues; Substantial Operating Losses;
Accumulated Deficit. Although the Company was organized in April 1991, it was
not until March 1994 that it began the initial commercial roll- out of the
Model D-1 TurboChef oven, its first commercial product, and not until June
1995 that it entered into the Whitbread Contract, its first major contract,
and commenced shipment of its Model D-2 TurboChef oven. Prior to such time,
the Company was engaged primarily in research and development, limited
production operations and test marketing of prototype ovens. Consequently,
the Company has had a limited operating history upon which an evaluation of
the Company's prospects and performance can be made. The Company's prospects
must be considered in light of the risks, expenses, difficulties and delays
frequently encountered in connection with the early-phase operations of a new
business, the development and commercialization of new products based on
innovative technologies and the high level of competition in the industry in
which the Company operates. To date, the Company has generated limited
revenues and incurred substantial losses in each year of its operations
(including net losses of $364,491, $1,585,268 and $3,181,519 for the
three-month period ended March 31, 1996 and the years ended December 31, 1995
and 1994, respectively) resulting in an accumulated deficit of $10,037,683 as
of March 31, 1996. Moreover, for the year ended December 31, 1995,
approximately 69% of the Company's revenues were generated by a single
customer, Whitbread. The subsequent loss of this customer, in the absence of
significant additional customers or contracts, would have a material adverse
effect on the Company's financial condition and results of operations. The
Company anticipates that it will continue to incur significant operating
expenses, including in connection with the Company's ongoing development
activities relating to new product applications for its proprietary
foodservice technologies, the training and set-up of additional third-party
manufacturing sources for the production of the Company's TurboChef ovens and
the continued implementation of the Company's marketing plans. The Company's
future profitability will depend upon, among other things, corresponding
increases in revenues from operations to offset these expenditures. There can
be no assurance that the Company will be able to successfully implement the
next phase of its business strategy, that its rate of revenue growth will
continue in the future or that it will ever be able to achieve profitable
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and Financial Statements.
Significant Capital Requirements; Dependence On Offering Proceeds;
Possible Need for Additional Financing. The Company's capital requirements in
connection with its product and technology development and marketing efforts
have been and will continue to be significant. In addition, capital is
required to operate and expand the Company's operations. Since its inception,
the Company has been substantially dependent on loans and capital
contributions from its principal stockholders (including capital
contributions and borrowings in the aggregate amounts of $285,000 and
$1,585,000 during the three months ended March 31, 1996 and the year ended
December 31, 1995, respectively, from Jeffrey B. Bogatin, the Chairman of the
Company's Board of Directors, and Philip R. McKee, the Company's President
and Chief Executive Officer), as well as private placements of the Company's
securities and the April 1994 IPO, to fund its activities. The Company is
dependent on the proceeds of this offering or other financing to expand its
operations, including to continue its product development activities and
marketing efforts and to set up additional third-party production operations
for the manufacture of the Company's ovens. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations
(including assumptions regarding its ability to reduce oven production costs
and the progress of its research and development efforts) that the proceeds
of this offering, together with its current cash and cash equivalent balances
and anticipated revenues from operations, will be sufficient to fund the
Company's operations and satisfy its contemplated capital requirements for at
least 24 months following the consummation of this offering. In the event
that the Company's plans change, or its assumptions change or prove to be
incorrect, or if the proceeds of this offering, cash balances and anticipated
revenues otherwise prove to be insufficient, the Company could be required to
seek additional financing prior to the end of such period. Other than a
commitment letter from Messrs. Bogatin and McKee confirming their agreement
to provide financial support (if and as required) to the Company in such
amounts as the Company shall reasonably request during the period
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from January 1, 1996 through June 1997, the Company has no current
arrangements with respect to, or sources of, additional financing. There can
be no assurance that additional financing will be available to the Company,
if and when needed, on commercially reasonable terms, or at all. Any
inability to obtain additional financing when needed could have a material
adverse effect on the Company, including possibly requiring the Company to
significantly curtail its operations. In addition, to the extent that any
future financings involve the sale of the Company's equity securities, the
Common Stock holdings of the Company's then existing stockholders could be
substantially diluted. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Emerging Industry Segment; Uncertainty of Market Acceptance; Limited
Marketing Capabilities; Potential Dependence Upon Third-Party Marketing
Arrangements. The high-speed, high-tech commercial oven segment of the
foodservice equipment industry is an emerging market, characterized by an
increasing number of market entrants. As is typical with new products based
on innovative technologies, demand for and market acceptance of the TurboChef
ovens and other foodservice products developed by the Company using its
innovative technological platform are subject to a high level of uncertainty.
To date, the Company has generated limited revenues from the sale of its
products, entered into only one major contract for future sales of its
products and achieved market acceptance for its products from only a limited
number of customers. Achieving increased market acceptance for its products
and technological concepts will require substantial marketing efforts and the
expenditure of significant funds to increase the foodservice industry's
familiarity with the Company and to educate potential customers as to the
distinctive characteristics and perceived benefits of the TurboChef ovens and
the Company's technologies. There can be no assurance that the Company will
have available the funds necessary to achieve such acceptance. The Company
has conducted only limited marketing activities, to date, and currently has
limited financial, personnel and other resources to undertake extensive
additional marketing and advertising activities. Moreover, the Company's
future performance will be subject to a number of business factors, including
those beyond the Company's control, such as economic downturns and evolving
industry needs and preferences. Consequently, although the Company intends to
utilize approximately $1,450,000 (19.5%) of the net proceeds of this offering
to expand its marketing and sales activities and resources, there can be no
assurance that such funds will be sufficient, that the Company's foodservice
technologies and products will ever achieve widespread market acceptance, or
that the Company's increased marketing efforts and expenditures will result
in significant levels of revenues. In addition, although the Company expects
to continue to market directly to certain international and national
full-service and fast food restaurant chains and to expand its in-house
marketing capability, the Company intends to aggressively pursue the
expansion of its market penetration by seeking to establish joint ventures,
strategic alliances, and/or licensing or other arrangements with companies
already engaged in the mass marketing and/or manufacture of foodservice
equipment and products and to utilize certain independent distributors to
assist the Company in the marketing of its products to independent
restaurants, cafeterias, public and private institutions and non-traditional
food service operators. While the Company believes that any licensees and/or
independent distributors with which it enters into such arrangements will
have an economic motivation to commercialize the Company's products, the time
and resources devoted to these activities generally will be contributed and
controlled by such entities and not by the Company. A decline in the
financial prospects of particular licensees or distributors or of any of
their customers could have an adverse effect on the Company. Moreover, joint
venture or similar arrangements may require financial or other commitments by
the Company. There can be no assurance that the Company will be able, for
financial or other reasons, to finalize any third-party marketing or
distribution arrangements or that such arrangements, if finalized, will
result in the successful commercialization of any of the Company's products.
See "Use of Proceeds" and "Business--Marketing and Sales."
Lengthy Sales Cycle; Possible Fluctuations in Operating Results. The
Company's sales cycle, which generally commences at the time a prospective
customer demonstrates an interest in purchasing a TurboChef oven and ends
upon the execution of a purchase order with that customer, will vary by
customer and could extend for periods of nine months or more, depending upon
the time required by the customer to test and evaluate the TurboChef oven. In
addition, multi-oven sales to restaurant chains generally take even longer as
the Company's products and technologies represent an entirely new method for
the preparation and serving of food and often require a restructuring of a
customer's entire operational strategy. For instance, the Company's current
contract with Whitbread, its principal customer, was not finalized until
after more than a year of testing, negotiating and organizational planning
had first been completed. Moreover, as a result of the Company's lengthy
sales cycle, the sales process for the Company's products also generally
requires substantial time commitments, effort and expense, and there can be
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no assurance that the Company, after expending such resources, will obtain a
significant contract or order from such efforts. In addition, the Company's
manufacturing cycle, which is the period from the execution of a purchase order
until actual shipment of the product to the customer, generally ranges from two
to six weeks for small volume oven sales and up to one or two months longer for
initial shipments to commence under large multi-oven purchase contracts.
Accordingly, the Company's operating results may vary significantly from quarter
to quarter or year to year due to the fluctuating lengths of its sales cycle and
manufacturing cycle, as well as from fluctuations in the purchasing patterns of
potential customers, the timing of introduction of new products and product
enhancements by the Company and its competitors, technological factors,
variations in sales by distribution channels, and generally non-recurring
product sales. Consequently, revenues as well as profits (if any) or losses may
vary significantly from quarter to quarter or year to year, and revenue or
profits (if any) in any period will not necessarily be indicative of results in
subsequent periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Dependence on Third-Party Suppliers and Manufacturers. To date, the
Company has relied almost exclusively upon Manufacturers Services Corp., Inc.
("MSC"), a contract foodservice equipment manufacturer, for the manufacture
of the Company's TurboChef ovens, and, as of March 31, 1996, MSC had
manufactured and delivered approximately 265 TurboChef ovens to the Company.
MSC has the current capacity to produce 50 ovens per month, which is
sufficient to meet the Company's delivery requirements under the Whitbread
Contract. The Company has not, however, entered into a long-term contract
with MSC, intending instead to continue its practice of placing oven
manufacturing orders with MSC from time to time, in the ordinary course of
business, as its needs require. While the Company believes that MSC's
production quantities can, and will, be increased to as high as 100 ovens per
month, there can be no assurance of such production increase or that any
increased production would be sufficient. Moreover, while the Company
believes that alternative manufacturing sources are available, and intends to
use a portion of the proceeds of this offering to engage and set up one or
more additional contract manufacturers to produce TurboChef ovens (and, in
fact, will eventually be required to do so in order to continue expanding its
operations), any new contract manufacturing arrangements will require a
substantial amount of the Company's time and effort to set up and prepare the
new manufacturers' operations, and train their personnel, for the production
of the Company's ovens. Consequently, any inability of MSC to meet the
Company's current production requirements, in the absence of immediately
available alternative sources of supply, or any inability of the Company, as
its needs expand, to enter into, and timely develop, additional oven
manufacturing sources, could have a material adverse effect on the Company's
operations. Additionally, the Company has been and will continue to be
dependent on third parties for the supply and manufacture of all of its
component and electronic parts, including both standard components and
specially-designed component parts, such as the printed circuit computer
boards and wiring harnesses used in the TurboChef ovens. The Company
generally does not maintain supply agreements with such third parties but
instead purchases components and electronic parts pursuant to purchase orders
in the ordinary course of business. The Company is substantially dependent on
the ability of its manufacturers and suppliers to, among other things, meet
the Company's design, performance and quality specifications. Failure by the
Company's manufacturers and suppliers to comply with these and other
requirements could have a material adverse effect on the Company.
Furthermore, there can be no assurance that the Company's manufacturers and
suppliers will continue to dedicate sufficient production capacity to meet
the Company's scheduled delivery requirements or that the Company's suppliers
or manufacturers will have sufficient production capacity to satisfy the
Company's requirements during any period of sustained demand. Their failure
to supply, or delay in supplying, the Company with ovens or components could
adversely affect the Company's profit margin and the Company's ability to
meet its own delivery schedules on a timely and competitive basis. In
addition, although the Company owns the designs and dies for its specially-
designed components and believes that alternative sources of supply are
available, the Company currently purchases all of its specially-designed
components from a limited number of suppliers. Failure by such suppliers to
continue to supply the Company with these components, on commercially
reasonable terms or at all, in the absence of readily available alternative
sources, would have a material adverse effect on the Company. See "Use of
Proceeds" and "Business--Production and Supply."
Dependence on a Significant Customer. For the three months ended March 31,
1996 and the year ended December 31, 1995, approximately 81% and 69%,
respectively, of the Company's revenues were derived from sales to Whitbread,
and it is anticipated that a majority of the Company's revenues for the year
ended December 31, 1996 will continue to be derived from sales to Whitbread
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(based on the terms of the Whitbread Contract, which currently contemplates
shipments through September 1996). The subsequent loss of this customer, in the
absence of significant additional customers or contracts, or the early
termination, for any reason, of the Whitbread Contract would have a material
adverse effect on the Company's financial condition and results of operations.
See "Business--Marketing and Sales."
Uncertainty of New Product Development. The Company intends to utilize
approximately $2,700,000 (36.3%) of the net proceeds of this offering for the
continued development of new and expanded commercial applications of its
foodservice technologies. The Company will be required to devote considerable
efforts to complete the development of such applications, and such
development remains subject to all of the risks associated with the
development of new products based on innovative technologies, including
unanticipated technical or other problems and the possible insufficiency of
the funds allocated therefor, which could result in a substantial change in
the design, delay in the development, or abandonment of such development
efforts. Consequently, there can be no assurance that any new applications or
products will be successfully developed or that, if developed, they will meet
current price or performance objectives, be developed on a timely basis or
prove to be as effective as products based on other technologies. The
inability to successfully complete development of a product or application or
a determination by the Company, for financial, technical or other reasons,
not to complete development of any product or application, particularly in
instances in which the Company has made significant capital expenditures,
could have a material adverse effect on the Company. See "Use of Proceeds,"
"Business--Technologies and Products" and "-- Research and Development."
Risks Associated with Future Growth and Possible Acquisitions. The Company
intends to use a substantial portion of the proceeds of this offering to
implement the next phase of its business strategy in an effort to expand its
current level of operations and grow the Company's business. Such expansion
strategy will place significant pressures on the Company's management,
operational and technical resources. The success of such strategy will thus
depend upon, among other things, the Company's ability to hire and retain
additional skilled management, marketing, technical and other personnel;
secure additional and adequate sources of supply and production on a timely
basis and on commercially reasonable terms; and successfully manage its
growth (which will also require it to develop and improve upon its
operational, management and financial systems and controls, in order to
properly monitor its expanded operations, control its costs and maintain
effective quality controls). The Company's prospects and future growth will
also be largely dependent upon the ability of its products and technologies
to achieve significant penetration in targeted commercial markets and the
ability of the Company to develop and commercialize additional applications
of its proprietary foodservice technologies. There can be no assurance that
the Company will be able to expand its operations, or, if it is able to
expand its operations, that it will be able to effectively manage such
expansion or anticipate and satisfy all of the changing demands and
requirements that growth will impose upon its operations. In addition,
although as of the date of this Prospectus, the Company has no agreements,
understandings or commitments, and is not engaged in any definitive
negotiations, relating thereto, the Company could also seek to expand its
operations by entering into strategic alliances with third-parties relating
to the exploitation of the Company's technologies and/or by acquiring other
companies and businesses. Under Delaware law, various forms of business
combinations can be effected without stockholder approval and, accordingly,
investors in this offering will, in all likelihood, neither receive nor
otherwise have the opportunity to evaluate any financial or other information
which may be made available to the Company in connection with any potential
joint venture arrangement or business acquisition and will be dependent upon
the Company's management to select, structure and consummate any such
arrangements and/or acquisitions in a manner consistent with the Company's
business objectives. Although the Company will endeavor to evaluate the risks
inherent in a particular joint venture arrangement or acquisition, there can
be no assurance that the Company will properly ascertain or assess all
significant and pertinent risk factors prior to its consummation of such a
transaction. Moreover, to the extent the Company does effect a joint venture
or acquisition, there can be no assurance that the Company will be able to
successfully integrate into its operations any business which it may form or
acquire. Any inability to do so, particularly in instances in which the
Company has made significant capital investments, could have a material
adverse effect on the Company. See "Use of Proceeds" and "Business."
Industry Competition; Technological Obsolescence. The cooking and warming
segment of the foodservice equipment market is characterized by intense
competition. The Company competes with numerous well-established manufacturers
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and suppliers of commercial ovens, grills and fryers (including those which cook
through the use of conduction, convection, induction, air impingement, infrared,
and/or microwave heating methods). In addition, the Company is aware of others
who are developing, and in some cases have introduced, new ovens based on
high-speed heating methods and technologies. Although the Company is not aware
of any competitive products, either being marketed or under development, which
it believes are functionally equivalent to the TurboChef ovens (i.e. that can
produce the variety of food items, cooked to the same high quality standards, at
the same speeds), there can be no assurance that other companies with the
financial resources and expertise that would encourage them to attempt to
develop competitive products, do not have or are not currently developing
functionally equivalent products, or that functionally equivalent products will
not become available in the near future. Most of the Company's competitors
possess substantially greater financial, marketing, personnel and other
resources than the Company and have established reputations relating to product
design, development, manufacture, marketing and service of cooking equipment. In
addition, the market for the Company's products and technologies is
characterized by changing technology and evolving industry standards.
Accordingly, the Company's ability to compete successfully will depend, in large
part, on its ability to continually enhance and improve its existing products,
complete development and introduce to the marketplace in a timely manner its
proposed products, successfully develop and market new products, and continue to
improve operating efficiencies and lower manufacturing costs. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the Company's
products obsolete or less marketable or that the Company will be able to
successfully enhance or adapt its products, develop new products or lower its
costs. See "Business -- Competition."
Potential Products Liability; Support and Maintenance Requirements;
Warranty Expense. The Company is engaged in a business which could expose it
to possible liability claims from others, including from foodservice
operators and their staffs, as well as from consumers, for personal injury or
property damage due to alleged design or manufacturing defects in the
Company's products or otherwise. The Company maintains a general liability
insurance policy (which includes products liability coverage) that is subject
to a $1,000,000 per occurrence limit with a $2,000,000 aggregate limit and a
$3,000,000 umbrella liability insurance policy to cover claims in excess of
the limits of its liability insurance. In addition, the Company believes that
MSC currently maintains similar levels of liability insurance. There can be
no assurance, however, that either the Company's insurance or that of any
third-party manufacturer will be sufficient to cover potential claims or that
an adequate level of coverage will be available in the future at reasonable
cost. A partially insured or a completely uninsured successful claim against
the Company could have a material adverse effect on the Company. In addition,
if the Company is successful in its efforts to obtain significant additional
orders for TurboChef ovens, the Company may be required to install and
service, on a timely basis, large numbers of TurboChef ovens at its customers
locations. Although the Company intends to use proceeds from this offering to
establish an expanded parts and service network for its customers and their
TurboChef ovens, there can be no assurance that the Company will be able to
provide such services, when required, on acceptable terms or conditions, or
at all. Furthermore, the Company generally warrants its products to be free
from defects in workmanship and materials for one year. There can be no
assurance that future warranty expenses will not have an adverse effect on
the Company. See "Use of Proceeds," "Business -- Warranty and Service" and
"--Insurance."
Patents and Proprietary Rights. The Company holds two United States
patents which cover certain fundamental aspects of the Company's high-speed
cooking technologies and has 15 pending patent applications corresponding to
these United States patents filed in 7 countries (including 16 countries of
the European Patent Convention as a single country). The Company has also
applied for one United States patent relating to the Company's "par-baked"
pizza dough setting technology and another United States patent relating to
an improvement to its high-speed cooking technologies. The Company also holds
a United States trademark registration for the TurboChef(R) name and a
servicemark registration for its slogan "Changing the Way Good Food is
Served(R)". There can be no assurance as to the breadth or degree of
protection which existing or future patents, if any, may afford the Company,
that any patent applications will result in issued patents, that the
Company's patents, pending patents, or registered marks will be upheld if
challenged or that competitors will not develop similar or superior methods
or products outside the protection of any patents issued to the Company.
Although the Company believes that none of its patents, technologies,
products or registered marks infringe upon the patents, marks, or violate the
proprietary rights, of others, it is possible that its existing patent,
trademark or servicemark rights may not be valid or that infringement of
existing or future patents, marks or proprietary rights may occur.
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In the event the Company's products are deemed to infringe upon the patents,
or proprietary rights of others, the Company could be required to modify the
design of its products, change the name of its products or obtain a license
for the use of certain technologies incorporated in its products. There can
be no assurance that the Company would be able to do any of the foregoing in
a timely manner, upon acceptable terms and conditions, or at all, and the
failure to do so could have a material adverse effect upon the Company. In
addition, there can be no assurance that the Company will have the financial
or other resources necessary to enforce or defend a patent infringement or
proprietary rights violation action, and, if the Company's products are
deemed to infringe upon the patents, marks or proprietary rights of others,
the Company could, under certain circumstances, become liable for damages,
which could also have a material adverse effect on the Company.
In addition to patent protection, the Company also relies on trade secrets
and proprietary know-how, and typically enters into confidentiality and
non-competition agreements with its employees and appropriate suppliers and
manufacturers, to protect the concepts, ideas and documentation relating to
its proprietary technologies. However, as with its patents, such methods may
not afford the Company complete protection. There can be no assurance that
others will not obtain access to the Company's trade secrets and know-how or
independently develop products or technologies similar to those of the
Company. See "Business -- Patent and Proprietary Rights."
Regulation and Accreditation. The Company is subject to regulations
administered by various federal, state and local authorities (including those
limiting radiated emissions from oven products) which impose significant
compliance burdens on the Company. Failure to comply with these regulatory
requirements may subject the Company to civil and criminal sanctions and
penalties. While the Company believes that it, as well as both the Model D-1
and Model D-2 TurboChef ovens, are in compliance in all material respects
with all laws and regulations applicable to the Company and such products,
including those administered by the United States Food and Drug
Administration (the "FDA"), the Federal Communications Commission (the "FCC")
and the European Community Council, there can be no assurance of such
compliance. Moreover, new legislation and regulations, as well as revisions
to existing laws and regulations (at the federal, state and/or local levels,
in the United States and/or in foreign markets), affecting the foodservice
equipment industry may be proposed in the future. Such proposals could affect
the Company's operations, result in material capital expenditures, affect the
marketability of the Company's existing products and technologies and/or
limit opportunities for the Company with respect to modifications of its
existing products or with respect to its new or proposed products or
technologies. In addition, expansion of the Company's operations into
additional foreign markets may require the Company to comply with additional
regulatory requirements. There can be no assurance that the Company will be
able to comply with additional applicable laws and regulations without
excessive cost or business interruption, and failure to comply could have a
material adverse effect on the Company.
In February and March 1994, the Company received certification from
Underwriters Laboratories, Inc. ("UL(R)") as to compliance of the Company's
Model D-1 TurboChef oven with applicable UL(R) requirements relating to
product safety accreditation standards and with the applicable requirements
of the National Sanitation Federation ("NSF") relating to cleanability and
sanitation accreditation standards. Similarly, in July 1995, the Company
received certification from UL(R) as to compliance of the Model D-2 TurboChef
oven with such requirements. Such certifications, which require periodic
renewal, only represent compliance with established standards and are not
legally required. However, failure by the Company to comply with these
accreditation standards in the future could have a material adverse effect on
the Company's marketing efforts. In addition, in January 1996, the Company
met the requirements necessary to apply the "CE" mark (which indicates
compliance with the European Community Council directive relating to
electromagnetic compatibility) to its Model D-2 TurboChef ovens. As an
equipment manufacturer, the Company is allowed to "self-certify" compliance
with this directive and have a third party attest to the results. The Company
is required by law to meet this European Community Council directive in order
to apply the "CE" mark and thereby sell its ovens in the European Union. Any
failure to meet the requirements of an applicable directive could not only
prevent the Company's sale of its products in the European Union, but if it
were found to be out of compliance with a directive, in connection with
products sold after the establishment of that directive, severe penalties to
the Company could ensue. See "Business -- Regulation and Accreditation."
Risks Relating to Foreign Sales. For the three months ended March 31, 1996
and the year ended December 31, 1995, sales of the Company's products into
foreign markets accounted for approximately 84% and 70%, respectively, of
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the Company's revenues. Based on its requirements under the Whitbread Contract,
the Company anticipates that the majority of its revenues will continue to be
derived from sales of its products in foreign markets for at least the near
future. A substantial portion of the Company's revenues will thus continue to be
subject to the risks associated with foreign sales, including economic or
political instability, shipping delays, fluctuations in foreign currency
exchange rates (although, because the Company sells its products on a "United
States dock" basis, this risk is somewhat mitigated) and various trade
restrictions, as well as to the burdens of complying with a wide variety of
foreign laws and regulatory requirements, all of which could have a significant
impact on the Company's ability to deliver products on a competitive and timely
basis. Future imposition of, or significant increases in, the level of customs
duties, export quotas or trade restrictions could also have an adverse effect on
the Company. See "Business -- Marketing and Sales."
Control by Current Management. Upon consummation of this offering, Jeffrey
B. Bogatin, the Company's Chairman of the Board, and Philip R. McKee, the
Company's President and Chief Executive Officer, will beneficially own an
aggregate of approximately 60% of the Company's outstanding Common Stock. As
a result, Messrs. Bogatin and McKee will continue to be able to control the
Company, elect all of the Company's directors and generally direct the
affairs of the Company. Accordingly, it is likely that investors in this
offering will have little, or no, effective voice in the direction of the
Company's operations. Additionally, pursuant to the Shareholders and
Registration Rights Agreement, dated May 15, 1993, as amended (the
"Shareholders Agreement"), between the Company and Messrs. Bogatin and McKee,
each of Messrs. Bogatin and McKee has agreed to vote for the other to serve
as a member of the Board of Directors, and, as members of the Board, each has
agreed to vote for the election of the other as an officer of the Company.
See "Management," "Principal Stockholders" and "Description of Securities."
Dependence on Key Personnel. The success of the Company will be largely
dependent on the continued personal efforts of Mr. McKee, as well as on those
of other key personnel. Any incapacity or inability of Mr. McKee or certain
other key employees to perform their services could have a material adverse
effect on the Company's business and prospects. Moreover, other than
"key-man" life insurance on the life of Mr. McKee in the amount of $3,000,000
and an employment agreement with Mr. McKee which expires in March 1999, the
Company does not intend to obtain key-man life insurance on the lives of, or
enter into employment agreements with, any of its officers or employees. The
success of the Company will also be dependent upon its ability to hire and
retain additional qualified management, marketing, technical, financial and
other personnel. There can be no assurance that the Company will be able to
hire or retain such necessary personnel, as and when needed, and any
inability to do so could have a material adverse effect on the Company. See
"Management."
Broad Discretion in Application of Proceeds. Approximately $1,198,500
(16.1%) of the estimated net proceeds of this offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds.
See "Use of Proceeds."
Possible Volatility of Stock Price. The trading price of the Common Stock
has been highly volatile and has been subject to dramatic fluctuations, since
its initial listing on NASDAQ in connection with the April 1994 IPO, and may
continue to be highly volatile following the consummation of this offering.
Factors such as the Company's financial results, introduction of new products
by the Company or its competitors and various industry factors generally may
have a significant impact on the market price of the Company's securities.
Additionally, in recent years, the stock market itself has experienced a high
level of price and volume volatility and, accordingly, the market prices for
many companies, particularly small capitalization companies, the common stock
of which trades in the over-the-counter market, have experienced wide price
fluctuations not necessarily related to the operating performance of such
companies. See "Price Range of Common Stock."
No Dividends. To date, the Company has not paid any cash dividends on its
Common Stock and does not expect to declare or pay any cash dividends in the
foreseeable future. See "Dividend Policy."
Immediate and Substantial Dilution. A purchaser in this offering will
experience immediate and substantial dilution of approximately $11.89 (95%)
per share between the adjusted net tangible book value per share after this
offering and the public offering price per Share in this offering. See
"Dilution."
Shares Eligible for Future Sale; Registration Rights. Upon the
consummation of this offering, the Company will have 13,568,078 shares of
Common Stock outstanding, of which, 4,334,000 shares, including the
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700,000 Shares offered hereby and, subject to certain contractual
restrictions with the Underwriter described below, the 233,334 Selling
Stockholder Shares (which are being registered by the Company for resale by
the Selling Stockholder, in connection with this offering) will be freely
tradeable without restriction or further registration under the Securities
Act of 1933, as amended (the "Securities Act"). The remaining 9,234,078
shares are unregistered and deemed to be "restricted securities" (as that
term is defined under Rule 144 promulgated under the Securities Act), and, as
such, may in the future only be sold pursuant to a registration statement
under the Securities Act, in compliance with the exemption provisions of Rule
144 under the Securities Act or pursuant to another exemption under the
Securities Act. Of the 9,234,078 restricted shares, an aggregate of 8,223,334
shares are already eligible for sale under Rule 144, subject to certain
volume limitations prescribed by such rule, and an aggregate of 7,977,004
shares are the subject of piggyback registration rights granted to Messrs.
Bogatin and McKee and Donald J. Gogel, another director of the Company.
Moreover, other than the Selling Stockholder (which is subject to a six month
lock-up agreement with the Underwriter relating to the Selling Stockholder
Shares), none of the Company's officers, directors, or other stockholders are
contractually restricted from selling or otherwise disposing of any of their
shares of Common Stock. In addition, the Company has granted to the
Underwriter certain demand and piggyback registration rights with respect to
the 260,000 shares and 70,000 shares of Common Stock underlying the
Underwriter's IPO Warrants (which are currently exercisable) and the
Underwriter's Warrants (which are exercisable commencing one year following
the date of this Prospectus), respectively. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nonetheless, even the possibility that
substantial additional amounts of Common Stock may be sold in the public
market in the future may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities. See "Description of Securities," "Shares
Eligible for Future Sale" and "Underwriting."
Possible Delisting of Securities from NASDAQ; Risks Relating to Low-Priced
Stocks. The Company's Common Stock is currently listed on NASDAQ. In order to
continue to be listed on NASDAQ, however, the Company must continue to
maintain at least (i) $2,000,000 in total assets, (ii) a public float with a
$200,000 market value, and (iii) $1,000,000 in total capital and surplus. In
addition, continued inclusion requires two market-makers and a minimum bid
price of $1.00 per share; provided, however, that if the Company falls below
such minimum bid price, it will remain eligible for continued inclusion in
NASDAQ if the market value of the public float is at least $1,000,000 and the
Company has $2,000,000 in capital and surplus. The failure to meet these
maintenance criteria in the future may result in the delisting of the Common
Stock from NASDAQ, and trading, if any, in the Common Stock would thereafter
be conducted in the non-NASDAQ over-the-counter market. As a result of such
delisting, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock.
In addition, if the Common Stock was to become delisted from trading on
NASDAQ and the trading price of the Common Stock was to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements
of certain rules promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-NASDAQ equity security that has a market
price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure statement explaining the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established
customers and accredited investors (generally institutions). For these types
of transactions, the broker- dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in the Common Stock, which could severely limit the
market liquidity of the Common Stock and the ability of purchasers in this
offering to sell the Common Stock in the secondary market.
Due to continued operating losses, the Company had less than $2,000,000 in
total assets and less than $1,000,000 in total capital and surplus as of
March 31, 1995. In order to maintain the eligibility of the Company's Common
Stock for listing on NASDAQ, Messrs. Bogatin and McKee contributed an
aggregate of $1,000,000 in cash to the Company in June 1995 in exchange for
certain shares of Common Stock. Recently, the Company again had less than
14
<PAGE>
$2,000,000 in total assets and, in order to maintain the eligibility of the
Company's Common Stock for listing on NASDAQ, Messrs. Bogatin and McKee loaned
an aggregate of $285,000 to the Company on March 30, 1996. Although, if this
offering is consummated, the Company will be well above the minimum NASDAQ
maintenance requirements, there can be no assurance that, if the Company were
once again to fail to meet NASDAQ's maintenance requirements, any person,
including any of the Company's executive officers, would contribute cash to the
Company in order to prevent the delisting of the Company Stock from NASDAQ. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 700,000 Shares
offered hereby are estimated to be $7,438,500 (based on an assumed offering
price of $12.50 per Share), after deducting underwriting discounts and
commissions and the estimated expenses of this offering. The Company expects
to use these net proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage of
Application of Proceeds Dollar Amount Net Proceeds
----------------------- --------------- ---------------
<S> <C> <C>
Research and development (1) ............................. $2,700,000 36.3%
Manufacturing and tooling (2) ............................ 1,600,000 21.5
Marketing and sales (3) .................................. 1,450,000 19.5
Establishment of an expanded parts and service network (4) . 490,000 6.6
Working capital and general corporate purposes (5) ....... 1,198,500 16.1
--------------- ---------------
Total ............................................... $7,438,500 100.0%
=============== ===============
</TABLE>
- ------
(1) Represents the estimated costs associated with the continuing development
of improvements and enhancements to the performance of the Company's
Model D-2 TurboChef oven; completion of development efforts relating to a
residential oven model incorporating the Company's proprietary high-speed
cooking technologies; completion of development efforts relating to the
Company's proposed Model E-1 consumer-operated TurboChef oven for use in
convenience stores and other retail outlets; customization of the
Company's proprietary software systems (incorporated in the technological
platform of its products), if, and as, needed for the successful
integration of the Company's products and services with its customers'
existing foodservice operating systems; and the Company's continuing
efforts to exploit other of the many potential market applications for
the TurboChef technologies. See "Business--Products and Technologies" and
"--Research and Development."
(2) Represents tooling costs and other expenses associated with the planned
set-up and training of at least two additional third-party manufacturers
for the production of the TurboChef ovens and the additional tooling
costs necessary to gain both significant efficiencies in the mass
production of the Company's ovens and significant per-unit manufacturing
cost reductions. See "Business--Production and Supply."
(3) Represents anticipated costs associated with the expansion of the
Company's marketing and sales activities, including expenses for the
preparation of sales brochures, advertising in trade publications and
participation in industry trade shows, as well as those costs associated
with the market testing of the Company's products (including the costs of
assembling and maintaining an inventory of customer demonstration and
test-site ovens) and the establishment of a dealer sales network
necessary for the effective marketing of the Company's products to
smaller foodservice operations. This amount also includes salaries for
additional marketing and sales personnel expected to be hired by the
Company. See "Business--Marketing and Sales."
(4) Represents anticipated costs associated with the Company's planned
establishment of a national and global service network capable of
supporting a significant increase in TurboChef oven installations,
including costs associated with the training of, and the establishment of
parts inventories for, additional service network participants. See
"Business--Warranty and Service."
(5) Includes amounts allocated for the establishment of a finished goods
inventory and the addition of key corporate support staff required to
implement the development and production initiatives planned by the
Company over the next two years.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimates based upon its currently proposed
plans and certain assumptions regarding general economic and industry
conditions and the Company's anticipated future revenues and expenditures. If
any of these factors change, the Company may find it necessary or advisable
to reallocate some of the proceeds within the above-described categories or
to use portions thereof for other purposes. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations
16
<PAGE>
(including assumptions regarding its ability to reduce oven production costs and
the progress of its research and development efforts), that the net proceeds of
this offering, together with its current cash and cash equivalent balances and
anticipated revenues from operations, will be sufficient to fund the Company's
operations and satisfy its contemplated capital requirements for at least 24
months following the consummation of this offering. In the event that the
Company's plans change, or its assumptions change or prove to be incorrect, or
if the proceeds of this offering, current cash and anticipated revenues
otherwise prove to be insufficient (due to unanticipated expenses, delays,
problems or otherwise), the Company could be required to seek additional
financing prior to the end of such period. There can be no assurance that
additional financing will be available to the Company, if and when needed, on
commercially reasonable terms or at all.
The Company may, if and when the opportunity arises, use a portion of the
proceeds of this offering allocated to working capital, together with the
issuance of debt and/or equity securities, to expand its operations by
acquiring companies, or assets thereof, which the Company believes are
compatible with its business. Any decision to make an acquisition will be
based upon a variety of factors including, among others, the purchase price
and other financial terms of the transaction, the business prospects and
competitive position of and services and products provided by the acquisition
candidate and the extent to which any such acquisition would enhance the
Company's prospects. The Company is not, however, currently engaged in
identifying appropriate candidates for acquisition and has no plans,
agreements, understandings or commitments and is not engaged in any
negotiations with respect to any such acquisition.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments.
PRICE RANGE OF COMMON STOCK
The Common Stock has traded on NASDAQ under the symbol "TRBO" since the
Company's April 1994 IPO. Prior to that time, there was no public market for
the Common Stock. The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated (as adjusted to
give retroactive effect to the Company's 2-for-1 stock split effected on
December 29, 1995) as reported by NASDAQ. The NASDAQ per share quotations
represent inter-dealer prices without adjustment for retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
Year Ended December 31, 1994: .................
Second Quarter (commencing April 7, 1994) . $ 2 9/16 $ 2 3/16
Third Quarter ........................... 2 7/16 1 1/2
Fourth Quarter .......................... 2 3/16 1 5/16
Year Ended December 31, 1995: ................
First Quarter ........................... 1 3/4 1
Second Quarter .......................... 9 5/8 1
Third Quarter ........................... 15 1/2 6 1/2
Fourth Quarter .......................... 14 7/8 8 5/8
Year Ended December 31, 1996: ................
First Quarter ........................... 14 3/8 10 1/4
Second Quarter (through May 22, 1996) ... 13 1/2 10 3/4
</TABLE>
The closing sale price of the Common Stock on May 22, 1996, as reported by
NASDAQ, was $13.25 per share. As of such date, there were approximately 55
holders of record of the Common Stock.
17
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock since
inception and does not expect to pay any cash dividends on the Common Stock
in the foreseeable future. The Company instead intends to retain its earnings
to support the operations and growth of its business. Any future cash
dividends would depend on future earnings, capital requirements, the
Company's financial condition and other factors deemed relevant by the Board
of Directors.
DILUTION
The difference between the public offering price per Share offered
hereby and the adjusted net tangible book value per share of Common Stock
after the proposed public offering constitutes the dilution to investors in
this offering. Net tangible book value per share on any given date is
determined by dividing the net tangible book value (total tangible assets
less total liabilities) of the Company on such date by the number of shares
of Common Stock outstanding on such date.
At March 31, 1996, the net tangible book value of the Company was $800,643
or $.06 per share of Common Stock. After giving effect to the sale of the
700,000 Shares being offered hereby (less underwriting discounts and
commissions and estimated expenses of this offering) the adjusted net
tangible book value of the Company at March 31, 1996 would have been
$8,239,143 or $.61 per share (based on an assumed offering price of $12.50
per Share), representing an immediate increase in net tangible book value of
$.55 per share to existing stockholders and an immediate dilution of $11.89
(95%) per share to new investors. The following table illustrates the
foregoing information with respect to dilution to new investors on a per
share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price .......................... $12.50
Net tangible book value before offering ............. $ .06
Increase attributable to new investors ............. .55
-----
Adjusted net tangible book value after offering .......... .61
--------
Dilution to new investors. .............................. $11.89
========
</TABLE>
In addition, as of the date of this Prospectus, there are outstanding
stock options to purchase an aggregate of 2,181,166 shares of Common Stock at
prices ranging from $1.50 to $13.20 per share and outstanding Underwriter's
IPO Warrants to purchase an aggregate of 260,000 shares of Common Stock at a
price of $3.25 per share. To the extent that these options and warrants are
exercised, there will be further dilution to new investors. See "Management
- -- 1994 Stock Option Plan," "Certain Transactions" and "Underwriting."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the capitalization
of the Company (i) on an actual basis, and (ii) as adjusted to give effect to
the issuance and sale of the 700,000 Shares offered hereby (at an assumed
offering price of $12.50 per Share) and the anticipated application of the
estimated net proceeds therefrom:
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------
Actual As Adjusted
-------------- --------------
<S> <C> <C>
Notes payable to stockholders: ............................. $ 285,000 $ 285,000
-------------- --------------
Stockholder's equity: ......................................
Common Stock, $.01 par value, 20,000,000 shares authorized;
12,868,078 shares issued and outstanding (actual);
13,568,078 shares issued and outstanding (as adjusted)(1) 128,681 135,681
Additional paid-in capital ............................ 10,995,024 18,426,524
Accumulated deficit ................................... (10,037,683) (10,037,683)
-------------- --------------
Total stockholders' equity ....................... 1,086,022 8,524,522
-------------- --------------
Total capitalization ........................ $ 1,371,022 $ 8,809,522
============= ==============
</TABLE>
- ------
(1) Does not include (i) 70,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; (ii) 260,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's IPO
Warrants; (iii) 1,918,666 shares of Common Stock currently reserved for
issuance upon exercise of outstanding options granted under the Option
Plan; (iv) 280,334 shares of Common Stock reserved for issuance upon
exercise of options currently available for future grant under the Option
Plan; and (v) 262,500 shares of Common Stock reserved for issuance upon
exercise of the Acadia Option. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Management -- 1994
Stock Option Plan," "Certain Transactions" and "Underwriting."
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of, and for the
fiscal years ended, December 31, 1995 and 1994 has been derived from the
Company's financial statements which have been audited by KMPG Peat Marwick
LLP, independent certified public accountants. The following selected
financial data of the Company as of March 31, 1996, and for the three-month
periods ended March 31, 1996 and 1995, were derived from unaudited financial
statements of the Company which, in the opinion of the Company, reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the results of the unaudited periods. The results of
operations for the three-month period ended March 31, 1996 are not necessarily
indicative of the results of operations for any other interim period or for
the entire year. The following data should be read in conjunction with such
financial statements, including the notes thereto, appearing elsewhere in
this Prospectus. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Three Months Year Ended Ended March 31, December 31,
--------------------------------------------------------------------
(unaudited)
1996 1995 1995 1994
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues(1) ...... $ 1,054,008 $ 165,398 $ 1,228,111 $ 249,883
Net loss (1) ..... $ (364,491) $ (519,667) $(1,585,268) $(3,181,519)
Net loss per share . $ (.03) $ (.04) $ (.13) $ (.29)
Weighted average
number of shares
outstanding ..... 12,867,375 11,943,825 12,451,786 11,120,282
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- ------------------
(unaudited)
<S> <C> <C>
Working capital ........ $ 561,515 $ 1,083,190
Total assets ........... $ 2,172,351 $ 2,217,870
Total liabilities ...... $ 1,086,329 $ 769,857
Accumulated deficit .... $(10,037,683) $(9,673,192)
Total stockholders' equity $ 1,086,022 $ 1,448,013
</TABLE>
- ------
(1) From its inception through February 1994, the operations of the Company
were principally limited to conducting research and development, limited
production operations and test marketing of prototype ovens. The Company
commenced the initial commercial rollout of its first commercial product,
the Model D-1 TurboChef oven, in March 1994, and was considered to be in
the development stage until the last quarter of 1994. Effective June
1995, the Company entered into its first major contract with a customer
and commenced initial shipments of its Model D-2 TurboChef oven.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Although the Company was organized in April 1991, it was not until March
1994 that it began the initial commercial roll-out of the Model D-1 TurboChef
oven, its first commercial product, and not until June 1995 that it entered
into the Whitbread Contract, its first major contract, and commenced shipment
of its Model D-2 TurboChef oven. Prior to such time, the Company was engaged
primarily in research and development, limited production operations and test
marketing of prototype ovens. As a result, to date, the Company has generated
limited revenues and incurred substantial losses in each year of its
operations (including net losses of $364,491, $1,585,268 and $3,181,519 for
the three-month period ended March 31, 1996 and the years ended December 31,
1995 and 1994, respectively) resulting in an accumulated deficit of
$10,037,683 as of March 31, 1996. The Company anticipates that it will
continue to incur significant operating expenses in the future, including in
connection with the Company's ongoing development activities relating to new
product applications for its proprietary foodservice technologies, the
training and set-up of additional third-party manufacturing sources and the
continued implementation of the Company's marketing plans. The Company's
future profitability will thus depend upon, among other things, corresponding
increases in revenues from operations to offset these expenditures.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. The discussion
should be read in conjunction with the financial statements and notes thereto
contained elsewhere in this Prospectus.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995
Revenues for the three months ended March 31, 1996 were $1,054,008, an
increase of $888,610, when compared to revenues of $165,398 for the three
months ended March 31, 1995. This increase is primarily attributable to
greater oven unit sales to Whitbread during 1996. During the first eight
months of 1995, ovens were only sold to small accounts and on a test basis to
chain accounts. Additional revenues recognized in 1996 were $5,120 received
from the licensing of the Company's proprietary dough-setting process.
Cost of sales for the three months ended March 31, 1996 was $796,431, an
increase of $663,514 when compared to $132,917 for cost of sales for the
three months ended March 31, 1995. This increase is consistent with greater
oven unit sales.
Gross profit on sales for the three months ended March 31, 1996 increased
$219,976 to $252,457 when compared to gross profit on sales of $32,481 during
the three months ended March 31, 1995. The increase is a result of the
increase in oven unit sales, primarily to Whitbread.
Gross margin for the three months ended March 31, 1996 was 24% of sales
compared to 20% for the three months ended March 31, 1995. The percentage
increase is primarily attributable to a reduced per unit manufacturing cost
as a result of increased production volume and cost reduction programs
implemented during the fourth quarter of 1995. The margin increase is
partially offset by the reduced oven unit selling price offered to Whitbread
for a significant quantity of ovens, as compared to the higher oven unit
selling price realized on small quantity purchases during the prior year
period.
Research and development expenses for the quarter ended March 31, 1996
decreased 18% or $26,044, to $120,116 from research and development expenses
of $146,160 for the quarter ended March 31, 1995. This decrease is primarily
attributable to reduced salary levels and lower prototype parts costs,
partially offset by an increase in outside research engineering costs
associated with the development of the home version of the TurboChef oven.
Selling, general and administrative expenses for the quarter ended March
31, 1996 increased 30%, or $114,503, to $498,904 from comparable expenses of
$384,401 for the same period in 1995. This increase is attributable to staff
additions, additional travel associated with the Company's international
customers, the establishment of a service warranty reserve as a result of
increasing oven sales and the addition of a marketing and sales consultant.
21
<PAGE>
Interest expense net of interest income for the three-months ended March
31, 1996 decreased $18,539, or 86%, to $3,048 from $21,587 for the three
months ended March 31, 1995. The decrease is attributable to reduced average
borrowing levels, as a result of approximately $1,100,000 of outstanding
indebtedness and accrued interest to the majority stockholder of the Company
being exchanged for 457,892 shares of Common Stock in March 1995.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE
YEAR ENDED DECEMBER 31, 1994
Revenues for the year ended December 31, 1995 were $1,228,111, an increase
of $978,228, or 392%, when compared to revenues of $249,883 for the year
ended December 31, 1994. This increase is primarily attributable to greater
oven unit sales to Whitbread in the last four months of fiscal 1995. Until
September 1995, ovens were only sold to small accounts and on a test basis to
chain accounts. Additional revenues recognized in 1995 were $60,000 received
from Whitbread for modifying the TurboChef oven to meet its unique
requirements and revenues received from the licensing of the Company's
proprietary dough-setting process.
Cost of sales for the year ended December 31, 1995 was $956,449, an
increase of $760,976 when compared to $195,473 for cost of sales in the prior
year. This increase is consistent with greater oven unit sales.
Gross profit on sales for the year ended December 31, 1995 increased
$149,272 to $203,682, when compared to gross profit on sales of $54,410
during the prior year. The increase is a result of the increase in oven unit
sales, primarily to Whitbread.
Gross margin for the year ended December 31, 1995 was 18% of sales,
compared to 22% of sales for the year ended December 31, 1994. The percentage
decrease is attributable primarily to the reduced oven unit selling price
under the Whitbread Contract for a significant quantity of ovens, as compared
to the higher oven unit selling price realized on small quantity purchases in
fiscal 1994. The margin decrease is partially offset by a reduced per unit
manufacturing cost as a result of increased production volume and cost
reduction programs implemented during the fourth quarter of 1995.
Prototype and demonstration inventory was comprised primarily of prototype
ovens, which the Company used temporarily as demonstration equipment. During
the year ended December 31, 1993, the Company recorded a provision for
impairment of such inventory of $427,914 and, during the year ended December
31, 1994 the Company expensed the remaining inventory value of $164,945.
Research and development expenses for the year ended December 31, 1995
decreased 41%, or $295,664, to $424,325 from research and development
expenses of $719,989 for the year ended December 31, 1994. This decrease is
primarily attributable to staff reductions, lower prototype parts costs and
reduced governmental certification and accreditation fees, reflecting the
completion of the development of the TurboChef restaurant oven (the Company's
Model D Series).
Selling, general and administrative expenses for the year ended December
31, 1995 decreased 26%, or $537,427, to $1,545,799 from comparable expenses
of $2,083,226 for fiscal 1994. This decrease is attributable to staff
reductions, reduced travel and trade show participation, and reduced legal
and accounting fees during 1995, partially offset by an increase in public
relations expenses and investor relations costs as a result of the Company's
first public stockholders' meeting held during the year ended December 31,
1995.
Interest expense net of interest income for the year ended December 31,
1995 decreased $248,963, or 93%, to $18,806 from $267,769 for the year ended
December 31, 1994. The decrease is attributable to reduced average borrowing
levels, as a result of approximately $1,100,000 of outstanding indebtedness
and accrued interest to the majority stockholder of the Company being
exchanged for 457,892 shares of Common Stock in March 1995. Interest received
on the unexpended proceeds from the April 1994 IPO during the year ended
December 31, 1994 reduced net interest in 1994, partially offsetting the
impact of the decrease in interest expense in 1995.
Other income of $132,000 represents the forfeiture, during the year ended
December 31, 1995, of a customer's 1992 sales deposit, which occurred as a
result of the customer's abandonment of a restaurant concept that it had
previously intended to develop.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to
be significant. In addition, capital is required to operate and expand the
Company's operations. Since its inception, the Company has been substantially
dependent on loans and capital contributions from its principal stockholders,
private placements of its securities and the April 1994 IPO to fund its
activities.
At March 31, 1996, the Company had working capital of $561,515 as compared
to working capital of $1,083,190 at December 31, 1995. The $521,675 working
capital decrease from December 31, 1995 resulted primarily from the operating
loss of $364,491 incurred by the Company during the three months ended March
31, 1996 and the $134,528 in deferred offering costs associated with the
proposed public offering. For the three months ended March 31, 1996 accounts
receivable turnover improved to 9.9 from 8.1 during the three months ended
March 31, 1995 as a result of the Company adopting more favorable payment
terms with Whitbread.
Cash provided by operating activities was $564,334 for the three months
ended March 31, 1996 as compared to cash used in operating activities of
$398,640 for the three months ended March 31, 1995 for an increase of
$962,974. The increase is the result of a $155,176 decrease in operating
losses, a decrease in accounts receivable of $364,300, a $151,215 increase in
accounts payable and the receipt of a sales deposit of $129,900. Cash used in
investing activities for the three months ended March 31, 1996 was $47,321 as
a result of equipment purchases and patent costs. Cash used in financing
activities was $132,028 for the three months ended March 31, 1996, which
represents primarily the costs incurred by the Company in connection with
this offering and, repayment of a note payable to a stockholder, offset by
the proceeds from notes payable to two stockholders. At March 31, 1996, the
Company had cash of $1,027,868, compared to cash of $642,883 at December 31,
1995.
At December 31, 1995, the Company had working capital of $1,083,190 as
compared to working capital of $1,029,070 at December 31, 1994. The $54,120
working capital increase from December 31, 1994 resulted primarily from the
$1,655,239 net cash provided by financing activities during 1995 and the
$509,013 increase in accounts receivable due to the Whitbread oven sales in
late 1995. These increases are predominately offset by the $1,585,268 in
operating losses incurred by the Company during the year ended December 31,
1995, the $275,397 reduction in finished goods inventory and the $202,150
increase in accounts payable as a result of the inventory purchases made to
support the oven shipments to Whitbread in November and December 1995. Even
though accounts receivable increased significantly, accounts receivable
turnover improved to 5.7 in 1995 from 4.7 in 1994 as a result of the Company
adopting more favorable payment terms with Whitbread.
Cash used in operating activities decreased $2,412,778 to $1,581,146 for
the year ended December 31, 1995, as compared to cash used in operating
activities of $3,993,924 for the year ended December 31, 1994. The decrease
is primarily a result of a $1,596,251 decrease in operating losses, combined
with a $275,397 reduction in finished goods inventories compared to a
$814,480 increase in inventories in 1994, and the $202,150 increase in
accounts payable. These factors were partially offset by the $509,013
increase in accounts receivable. Cash provided by financing activities was
$1,665,239 for the year ended December 31, 1995, which resulted from
investments by Acadia of $140,000, borrowings from a stockholder of $285,000,
the sale of Common Stock at $6.75 per share for an aggregate of $800,000, and
the exercise of stock options for aggregate proceeds totaling $500,000. These
transactions were partially offset by the $21,232 payment of a note payable
to a stockholder and $48,529 in deferred financing costs. At December 31,
1995, the Company had cash of $642,883, compared to cash of $617,495 at
December 31, 1994.
In April 1994, the Company consummated the April 1994 IPO, pursuant to
which the Company sold 2,600,000 shares of Common Stock for aggregate net
proceeds to the Company (after deducting underwriting discounts and
commissions and other expenses of the offering) of $5,237,007, of which
approximately $1,360,000 was utilized for the repayment of debt.
In November 1994, the Company and Acadia International Limited, a
corporation incorporated under the laws of the British Virgin Islands
("Acadia"), entered into an agreement to jointly develop a new consumer-
operated TurboChef oven (the Model E-1 TurboChef oven) for use in retail
locations (the "Acadia Agreement"). Pursuant to the Acadia Agreement, Acadia
committed to invest up to $1,200,000 in the Model E-1 project, over a period
of 16 months, for which it was ultimately to receive between a 20% and 30%
(depending on various circumstances) ownership interest in AcadiaChef, Inc.
23
<PAGE>
("AcadiaChef"), the entity formed in connection with this joint venture to
commercialize the proposed Model E-1 oven. Each of the Company and Acadia had
the option, however, of terminating the Acadia Agreement prior to such time,
whereupon Acadia's investment would be returned to it pursuant to certain agreed
upon terms, as outlined below, and its interest in AcadiaChef and the E-1
project would be eliminated. As of March 31, 1995, the Company had completed an
initial prototype of the Model E-1 TurboChef oven and Acadia had invested a
total of $350,000 in the project pursuant to the terms of the Acadia Agreement.
The Company elected at such time to terminate its arrangement with Acadia.
Pursuant to the terms of the Acadia Agreement, upon such termination, Acadia had
the option of (i) having its investment returned to it, plus interest accrued
thereon at the rate of 10% per annum, in cash and receiving an option to
purchase 350,000 shares of Common stock at $1.50 per share (the market price of
the Common Stock on the date of the Acadia Agreement), or (ii) having its
investment returned to it, without interest, in the form of Common Stock, i.e.
converting the principal amount of its investment into 233,334 shares of Common
Stock, based on a conversion rate of $1.50 per share, and receiving an option to
purchase 525,000 shares of Common Stock at $2.50 per share. Instead, the Company
was able to reach an agreement with Acadia in June 1995, with an effective date
of March 31, 1995, whereby Acadia converted its $350,000 investment, foregoing
the accrued interest thereon, into an aggregate of 233,334 shares of Common
Stock and received the Acadia Option to purchase 262,500 additional shares of
Common Stock at $2.50 per share. The shares issued to Acadia upon such
conversion represent the Selling Stockholder Shares and are included for
registration in the registration statement of which this Prospectus forms a
part. See "Selling Stockholder and Plan of Distribution."
On March 15, 1995, Jeffrey B. Bogatin, the Chairman of the Board and a
principal stockholder of the Company, exchanged outstanding indebtedness and
accrued interest thereon, in the aggregate amount of $1,144,730, for 457,892
shares of Common Stock (a conversion rate of $2.50 per share) and, in
connection with such exchange, also received an option to purchase 600,000
shares of Common Stock at $2.50 per share. The established conversion and
option exercise prices were approximately 74% above the market price of the
Company's Common Stock on the date of the transaction. See "Certain
Transactions."
In June 1995, Mr. Bogatin, together with Philip R. McKee, a principal
stockholder and the President and Chief Executive Officer of the Company,
made contributions to the capital of the Company in the aggregate amount of
$1,000,000; Mr. Bogatin exercised options to purchase 80,000 shares of Common
Stock at $2.50 per share, for total proceeds to the Company of $200,000, and
Mr. McKee purchased 118,518 shares of restricted Common Stock from the
Company at $6.75 per share, for total proceeds to the Company of $800,000.
See "Management--1994 Stock Option Plan" and "Certain Transactions."
During December 1995, Mr. Bogatin made an additional $300,000 contribution
to the capital of the Company by exercising options to purchase 120,000
shares of Common Stock at $2.50 per share, and Mr. McKee advanced to the
Company the sum of $285,000. The note issued to Mr. McKee evidencing such
borrowing bore interest at the rate of 6.5% per annum and was repaid in full
(an aggregate of $288,139, including accrued interest) on February 28, 1996.
See "Management--1994 Stock Option Plan" and "Certain Transactions."
On March 30, 1996, Mr. Bogatin and Mr. McKee loaned the Company the sums
of $200,000 and $85,000, respectively. These loans are evidenced by
promissory notes bearing interest at the rate of 6.5% per annum. Each of
these notes is payable on demand. These loans were made to satisfy certain
eligibility requirements in order for the Common Stock to continue to be
listed on NASDAQ.
FORWARD-LOOKING STATEMENTS
The following statements are based upon management's current expectations.
These statements are forward looking and actual results may differ materially
as a result of the matters described under "Risk Factors." The Company wishes
to ensure that such statements are accompanied by meaningful cautionary
statements so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act
of 1995. Accordingly, these statements should be read in conjunction with,
and are qualified by, the other portions of "Management's Discussion and
Analysis of Financial Condition and Results of Operations," as well as the
entire Prospectus, including the section entitled "Risk Factors."
The Company currently utilizes its own existing capital resources to
finance its operations. However, the Company is dependent on the proceeds of
this offering or other financing to expand its operations, including,
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among other things, to continue its product development activities and
marketing efforts and to set up additional third-party production operations
for the manufacture of the Company's ovens. The Company anticipates, based on
its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress of its research and development
efforts and its ability to reduce oven production costs) that the proceeds of
this offering, together with its current cash and cash equivalent balances
and anticipated revenues from operations, will be sufficient to fund its
operations and satisfy its contemplated capital requirements for at least 24
months following the consummation of this offering. In the event that the
Company's plans change, or its assumptions change or prove to be incorrect,
or if the proceeds of this offering, cash balances and anticipated revenues
otherwise prove to be insufficient, the Company would be required to revise
its plan of operations (which revision would include a significant reduction
in operating costs) and/or seek additional financing prior to the end of such
period. Other than a commitment letter from Messrs. Bogatin and McKee
confirming their agreement to provide financial support (if and as required)
to the Company in such amounts as the Company shall reasonably request during
the period from January 1, 1996 through June 1997, the Company has no current
arrangements with respect to, or sources of, additional financing. There can
thus be no assurance that additional financing will be available to the
Company, if and when needed, on commercially reasonable terms, or at all.
Although the Company intends to use a substantial portion of the proceeds
of this offering to implement the next phase of its business strategy in an
effort to expand its current level of operations and grow the Company's
business, the Company's future performance will be subject to a number of
business factors, including those beyond the Company's control, such as
economic downturns and evolving industry needs and preferences, as well as to
the level of the Company's competition and the ability of the Company to
successfully market its products and effectively monitor and control its
costs. Moreover, the Company expects to incur losses for at least the next
two quarters. While the Company believes that increases in revenues
sufficient to offset its expenses and result in its profitability could be
derived, within the next 12 months, from its currently proposed plans (if
successfully completed) to (i) complete the deliveries of those TurboChef
ovens contemplated by the Whitbread Contract, (ii) further develop the
Company's relationship with Whitbread and thereby increase product sales to
Whitbread, (iii) obtain initial purchase orders from additional regional or
national foodservice operators, (iv) introduce new products, such as its
proposed residential oven model, (v) establish a dealer sales network and
(vi) further reduce the Company's manufacturing costs, there can be no
assurance that the Company will be able to successfully implement any of the
foregoing plans, that either its revenues will increase or its rate of
revenue growth will continue or that it will ever be able to achieve
profitable operations.
At March 31, 1996 the Company had a backlog in excess of $1,600,000.
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BUSINESS
GENERAL
The Company is a foodservice technology company engaged in designing,
developing, and marketing high- speed commercial ovens and in applying its
proprietary technologies to other foodservice products, processes and
concepts for customers seeking a competitive advantage in the foodservice
market.
BACKGROUND
The commercial foodservice industry consists of four principal categories:
(i) full-service restaurants, (ii) fast food or quick-service restaurants,
including those restaurants which primarily offer pizza, (iii) retail
outlets, such as convenience stores, supermarkets and department stores, and
(iv) public and private institutions, such as schools, hospitals, hotels,
airports, corporate cafeterias, and governmental facilities. The foodservice
market has grown dramatically since the early 1980's in response to
population growth and the ever-increasing demand for convenience and speed in
food preparation and consumption that has resulted from this growth and from
other demographic changes. Moreover, the fastest growing category within the
foodservice industry has been the quick-service or fast food restaurant
segment, the defining themes for which are speed and convenience. According
to Cahner's Bureau of Foodservice Research, an industry research group,
domestic fast food restaurant sales in 1996 will account for approximately
$105 billion in projected revenues and domestic full-service restaurant sales
during such period will account for an additional approximately $96 billion
in projected revenues. This compares to domestic fast food restaurant sales
of $35.4 billion in 1982 and $76 billion in 1992 and domestic full-service
restaurant sales of $46.4 billion in 1982 and $80 billion in 1992, according
to the National Restaurant Association, an industry trade association.
Full-service restaurants generally cook food items selected from a broad
menu following a customer's order. In contrast, many fast food restaurants
prepare their limited menu selections in advance of customer orders. Although
the tendency of full-service restaurants to "cook-to-order" results in
freshly-cooked food being served to the customer, the time necessary to cook
these items generally limits the ability of full-service restaurants to serve
customers desiring immediate or "walk-in/carry-out" service. Conversely,
traditional fast food restaurants are not only generally limited in the
breadth of their menus, but are also constrained by the fact that cooking in
advance of customer orders results in the food items either being "held"
until ordered or discarded due to product degradation. The Company believes
there is a growing demand within both the full-service and fast food
restaurant segments of the foodservice industry for equipment which can (i)
cook to high quality standards, and "to-order," a variety of menu items,
within times acceptable to time-constrained and/or "walk-in/carry-out"
customers, and (ii) permit restaurants to develop and implement innovative
food preparation processes and/or concepts in an effort to achieve a
competitive advantage in the foodservice market.
In addition, the Company believes that increased competition in the
foodservice industry, as well as changes in consumer needs and preferences,
will continue to increase the demand by foodservice operators for new food
items which can generate additional sales and attract new customers. Such
menu extensions may require additional or new foodservice equipment. The
Company also believes that increased competition within the foodservice
industry is requiring industry participants to offer services or products
that increase sales per square foot of service area and maximize sales
generated from capital expenditures. As a consequence, there is an increasing
demand for foodservice equipment which can quickly serve a variety of food
items, cooked to high quality standards, in a limited amount of space.
Accordingly, the Company anticipates that the demand for relatively small,
labor saving and energy efficient foodservice equipment should increase. In
addition, foodservice operators incur substantial costs in attracting and
maintaining skilled food preparation personnel, and yet also regularly face
shortages of such personnel. Consequently, the Company believes that there is
an increasing need for foodservice operators to provide their services and
products in a manner which maximizes the productivity of their skilled
workers and/or utilizes lower cost, less skilled labor. Demand for high-speed
cooking equipment from foodservice operators providing delivery services may
increase for other reasons as well. In particular, since a reduction in the
time needed to prepare the delivered food could result in additional time
available for the delivery itself, fewer food service locations would be
required to service a given market area.
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Moreover, many segments of the foodservice equipment industry (which is a
rather mature industry, with its origination and development generally
reflecting the growth and development of the commercial foodservice industry)
are dominated by well-established manufacturers. For example, the three
largest domestic manufacturers of commercial conveyor ovens have been in
business an average of over 60 years. While such old-line manufacturers have
generally responded to the foodservice industry's need for more efficient and
less expensive foodservice equipment, the focus of their research and
development efforts has typically been on manufacturing efficiencies. As a
result, the foodservice equipment industry has generally produced few
innovations in the manner in which food is cooked, thereby offering
restaurants few, if any, viable alternatives by which to cook competing menu
items.
COMPANY OPPORTUNITIES AND STRATEGY
The Company believes that the demand for speed and convenience in
connection with food preparation and service, as well as the resultant demand
for innovative food preparation processes and other competitively
distinguishing foodservice concepts, will continue to increase. While the
Company anticipates that the quick-service category of the foodservice
industry will continue to be the fastest growing category within such
industry, the Company also believes that certain full-service restaurants
will attempt to aggressively compete with quick- service restaurants for
those customers that demand fast service and a broad menu selection. As a
consequence of the foodservice industry's emphasis on speed, the Company
believes that innovative foodservice technology companies, as well as the
high-speed commercial oven sector of the foodservice equipment industry, will
be presented with attractive growth opportunities. By providing foodservice
operators with the ability to quickly serve a variety of food items cooked to
high quality standards, the Company also believes that its foodservice
technologies and products have uniquely positioned the Company to capitalize
on these perceived opportunities.
The Company intends to seize these opportunities by offering products,
such as the TurboChef oven, which will enable participants in the foodservice
industry to distinguish their menu offerings from those of competitors and
thereby achieve a competitive advantage. By working closely with its
customers, the Company intends to develop ovens and food preparation
processes which are customized to meet their particular needs. For example,
the development of the Model D-2 TurboChef oven was in response to the
requirements of Whitbread, the Company's largest customer. Whitbread is an
industry leader in the use of off-site commissaries to perform the
preparatory work for food served in its restaurants. Through these
centralized preparatory commissaries, Whitbread, particularly in its
Beefeater division, has been able to, among other things, increase labor
efficiency, expand menu offerings and reduce labor costs within existing
kitchen space. The use of TurboChef ovens enables Whitbread to derive
additional benefits from its "commissary concept", including, improving food
quality and cooking yields, reducing waste and providing product consistency.
In addition, now that the Company's products and technologies have been
validated (through utilization and extensive testing by a variety of
customers) and its research and development capabilities have been proven,
the Company intends to capitalize upon such opportunities by aggressively
pursuing both the expansion of its product offerings and its market
penetration. The primary focus of such strategy will be on seeking to
establish joint ventures, strategic alliances and licensing or other
arrangements with companies already engaged in the mass marketing and/or
manufacture of foodservice equipment and products, thereby enabling the
Company to devote a greater portion of its efforts to the development of
additional applications of its technologies.
Expansion in the fast food industry has in the past been achieved, to a
large extent, through the building of new free-standing restaurants. However,
as construction, real estate and labor costs have increased and suitable
locations have become more difficult to find, many fast food chains have
slowed their domestic expansion of traditional outlets and targeted
alternative venues, such as hotels, supermarkets, retail stores and sports
arenas thus presenting an additional opportunity for the Company by expanding
the potential market for the Company's products and technologies. The Company
anticipates that such locations may seek to increase their sales of prepared
foods as a means of attracting new customers to their sites and of
encouraging existing customers to prolong their shopping excursions at such
sites. For example, a number of retailers, such as Home Depot, K-Mart and
Wal-Mart, and certain grocery stores have recently placed small outlets of
branded fast food chains, such as McDonald's, Burger King, Little Caesars and
Pizza Hut, in their stores. The Company believes that it is well positioned
to address what it perceives to be this shifting marketing approach within
the fast food industry. Specifically, by integrating, within a mobile cart or
kiosk, the TurboChef oven with a variety of modular components, foodservice
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supplies and equipment, foodservice operators will be able to take advantage of
the TurboChef oven's small size and cooking versatility to offer an expansive
food menu at remote locations. The Company is seeking to broaden the potential
market for its ovens by providing customers with assistance in connection with
this concept.
The Company also anticipates that various entities, such as public and
private institutions (including hotels), that do not engage primarily in the
foodservice business may seek to provide their customers or guests with the
ability to obtain quick, prepared foods on their premises in order to remain
competitive in their own industries. In order to do so on a cost-effective
basis, they may employ equipment and concepts of the type provided by the
Company. For example, in November 1995, the Company was selected by Choice
Hotels as its sole commercial oven supplier for a new modular Choice Picks
branded food court service system to be offered (as an alternative to
full-service restaurants) to all of Choice Hotel's Clarion, Quality and
Comfort hotels. The Choice Picks food court is comprised of a number of
individual brand modules containing all of the equipment, storage, signage
and preparation area required to serve various branded food products,
including Nathan's Famous(R) and Pizzeria Uno(R). Accordingly, the Company
intends to continue to develop relationships with the developers of
alternative foodservice location concepts in order to support their marketing
efforts on concepts which utilize TurboChef ovens.
TECHNOLOGIES AND PRODUCTS
TURBOCHEF COOKING TECHNOLOGIES
The Company's TurboChef ovens are based on the Company's proprietary
cooking system, which is, in turn, based on the Company's proprietary
high-speed cooking technologies. Following are key aspects of the Company's
unique cooking system:
o Heat Transfer into Air. The Company's cooking technologies utilize a
"thermal mass" within the cooking system to quickly and efficiently
transfer heat into rapidly moving air. The amount of heat provided
during a given cooking cycle is small compared to the total amount of
heat stored within the thermal mass. As a result, the cooking system's
temperatures are maintained close to desired maximum cooking
temperatures even during the stand-by mode between cooking cycles in
order to avoid a cooling down of the system, which would delay the
cooking process.
o Heat Transfer from Air to Food Products. The Company's cooking system
transfers heat from the rapidly moving air to a food product placed in
the system's "cooking cavity". The heated air enters the cooking cavity
from the top and strikes the upper surface of the food, breaking
through its cool surrounding "boundary layer". The heated air is then
drawn across the upper surface of the food, redirected and pulled along
the underside of the food by positive pressure from above and negative
pressure from below, causing it to remain in a constant heat transfer
relationship with the food. The rapidly moving heated air surrounds the
food product like a "moving wrap", continuously removing the cool
surrounding boundary layer. As a result, the entire surface of the food
browns and crisps simultaneously, as the food product is heated at
approximately the same temperature across its entire surface.
o Control of Heat Transfer. The Company's cooking system is able to
adjust the cooking temperature at the food surface during the cooking
process by varying the velocity of the air which forms the moving wrap
surrounding the food. As a result, with the system's variable cook
setting process, a foodservice operator is afforded a significant
amount of cooking temperature flexibility even though the temperature
of the system's heat source remains relatively constant.
o Control of Cooking Durations. The Company's precision cooking system
also adjusts cooking durations, on line, based on the temperature
measurements taken by the system during each cooking cycle. As a
result, greater cooking consistency is achieved even though the
pre-cooked temperature of the food items placed in the cook chamber may
vary.
Traditional cooking methods utilize various cooking technologies,
including conduction (transferring heat directly from a conductive surface,
such as a frying pan, to food); natural convection (transferring heat from
air to food, such as in a typical home oven); forced convection (using a fan
to circulate hot air around food); air impingement (a form of convection which
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forces heated air onto food at high velocities); induction (heating by means of
electric current flowing through food); microwave radiation (cooking by heat
generated from microwaves); and infrared radiation (thermal radiation from light
waves, such as a toaster or broiler). Other newer and higher speed methods of
cooking include combination ovens, which combine two or more of the traditional
cooking methods, such as microwave and traditional air impingement, and ovens
which utilize infrared light from a quartz lamp. The Company believes that each
of these cooking methods is generally subject to limitations involving
substantial cooking times, lower cooked product quality and/or limited menu
capabilities.
The Company believes that its cooking system and technologies offer the
following competitive advantages over other heat transfer methods:
o Cooking Speed. Food items can be cooked faster by the TurboChef cooking
system than by other cooking methods; most single-portion food items
can be cooked in less than 90 seconds.
o Quality. Because of the system's moisture retention, browning and
crisping capabilities, the characteristics of most food items cooked
through the use of the Company's cooking system (including flavor,
texture and appearance) are equal or superior to those achieved using
other cooking methods.
o Versatility. The Company's heat transfer methods are not dependent upon
the use of specific ingredients or product formulations to cook quickly
or evenly.
o Cooking Control and Flexibility. The Company's cooking system enables
the cooking of a variety of food types in the same unit, one
immediately after the other, at different temperatures at the food
surface. Other cooking methods typically cannot cook as many types of
foods to the same quality standards. Moreover, under certain
circumstances, the TurboChef oven has the capability of simultaneously
cooking several different types of food by utilizing and coordinating
the common portion of their overlapping cooking temperatures and times.
o Consistency. Numerous cooking parameters are constantly monitored
within the Company's cooking system and are adjusted automatically to
promote consistent cooking results.
THE TURBOCHEF OVENS
The Company's high-speed commercial TurboChef ovens are intended to allow
foodservice operators the flexibility to "cook-to-order" a variety of food
items at speeds which the Company believes are faster than those permitted by
conventional commercial ovens and grills, microwave ovens, and other
currently available high- speed ovens. Among the various types of foods which
can be cooked in a TurboChef oven are an 8-ounce salmon filet in less than 80
seconds, a 16-inch deluxe par-baked pizza in 90 seconds or less, a "bone-in"
quarter chicken in 2 minutes or less and an 18-ounce beef tenderloin in
approximately 3 minutes. In addition, because of the TurboChef oven's
moisture retention, browning and crisping capabilities, the Company believes
that the characteristics of most food items cooked in a TurboChef oven
(including their flavor, texture and appearance) are not only superior in
quality to those achieved using other high-speed ovens, or microwave ovens,
but are also equal in quality, or, in the case of many food items (such as
rack of lamb, beef Wellington, and most fish and seafood items), superior in
quality, to those achieved using conventional ovens and grills.
The TurboChef oven employs both the Company's proprietary cooking
technologies to quickly and efficiently transfer heat into rapidly moving
air, which is then directed at and drawn around the food product in a manner
designed to efficiently and evenly disperse and control the heat transferred
from the air into the food. During the cooking process, heat in a TurboChef
oven may also be transferred to the food item through the use of microwaves,
either in conjunction with, or independent from, the oven's rapidly moving
heated air. The Company's proprietary computerized control platform monitors
the cooking process and automatically adjusts cook settings during the
cooking cycle. In addition, the TurboChef oven incorporates easy-to-use
programmable settings which provide foodservice operators with the option of
pre-setting and customizing their own cook settings.
To use a TurboChef oven, the operator opens the door to the cooking
cavity, places the food product on the cooking surface, closes the door,
presses the pre-set button corresponding to the food product and then presses
the "start" button. When the cooking cycle is complete, an audio signal and a
visual message prompt the operator to remove the food. The Company's Model D-1
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TurboChef oven contains a cooking cavity capable of holding a food product
measuring up to 16 inches in diameter and 3 inches in height and requires less
than 7 square feet of counter space. The Company's Model D-2 TurboChef oven is
virtually identical in size to the Model D-1, except that its cooking cavity can
hold a food product measuring up to 4 inches in height. The current direct
selling price of a TurboChef oven is about $11,000, exclusive of any volume
discount. While the Company has only been commercially producing the TurboChef
oven since 1994, the Company believes that the expected useful life of a
TurboChef oven can be up to 15 years, provided that the oven is properly
maintained.
The cooking capacity of a TurboChef oven is limited by the size of its
cooking cavity but augmented by its speed. Conventional commercial ovens and
grills can usually prepare a larger number of individual items concurrently
and may cook items which are larger in size than can currently be prepared in
a TurboChef oven. However, since the cooking times required by conventional
ovens and grills are substantially longer than those required by a TurboChef
oven, a foodservice operator using such equipment must generally either (i)
cook a large number of items in advance of customer orders, in order to
satisfy potential demand on a timely basis during peak serving periods, or
(ii) have its customers wait for service, with the waiting time most likely
extending beyond the range of generally acceptable service times for the fast
food segment of the foodservice industry. Food items which are pre-cooked
rather than cooked-to-order are typically "held" until purchased, often
resulting in product degradation and increased food costs due to product
spoilage. A TurboChef oven avoids these inherent limitations of conventional
commercial ovens and grills since the rapid cooking speed achieved by the
TurboChef oven allows more products to be cooked-to-order by the foodservice
operator. Moreover, under certain circumstances the TurboChef oven has the
capability of simultaneously cooking up to five different types of food by
utilizing the "lowest common denominator" or overlapping cooking temperatures
and times.
Thus, through the use of a TurboChef oven, the Company believes that
traditional full-service restaurants can offer the convenience and speed of
foodservice typically associated with fast food restaurants -- without
sacrificing the "restaurant quality" of the food served -- and fast food
restaurants can offer more varied menus and a food quality more typically
associated with full service restaurants -- without compromising their "quick
service" speeds. Moreover, these technologies provide both full service and
fast food restaurant operators with the means of "upgrading" their menu
offerings, both in terms of food items offered and in terms of cooked food
quality and consistency, without a corresponding increase in their labor or
operating costs.
In fact, the use of the TurboChef oven also provides both full-service and
quick-service restaurants with a means of enhancing their profitability by
reducing certain costs associated with the cooking process. For instance, the
TurboChef oven, which is as easy to use as a conventional microwave oven, can
be operated by both skilled and unskilled personnel with minimal training. As
a result, foodservice operators can reduce their labor costs both by
utilizing less skilled personnel to perform cooking functions that normally
require skilled, and more expensive, labor, and by using the reduced cooking
times associated with the TurboChef oven to improve the productivity of their
skilled food preparers. In addition, the Company has determined that product
yields for certain foods can be increased as the moisture loss, and thus the
food shrinkage, typically associated with the cooking of such food items can
be reduced when a TurboChef oven is used. While yield improvements will vary
significantly depending upon the type of food being cooked and the cooking
procedures being utilized, cooking trials conducted by one of the Company's
customers have indicated increased product yields (decreased moisture loss)
of up to 13% on certain meat and seafood items cooked in a TurboChef oven.
Further, certain kitchen equipment costs can be reduced or eliminated. For
example, the TurboChef oven typically does not require the ventilating
equipment normally needed with commercial ovens and grills and, because of
the TurboChef oven's versatility (its ability to bake, broil and grill), the
need for other types of cooking equipment can be reduced. Finally, certain
electricity costs can be reduced since the TurboChef oven gives off less heat
than commercial grills and ovens, thereby reducing the amount of ventilated
air required to maintain kitchen temperatures at acceptable levels.
OTHER PRODUCTS AND APPLICATIONS
Operations Enhancement Systems. In connection with marketing the TurboChef
oven to traditional full- service and fast food restaurants, the Company has
developed a series of operations enhancement systems, each of which
incorporates the use of the TurboChef oven. By integrating the TurboChef oven
with certain foodservice management concepts, the Company believes that
significant additional benefits may be derived from cooking with the
TurboChef oven. These proprietary systems include:
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o the TurboCom system, a centralized cook setting system, which, through
the use of a computer modem, can reprogram TurboChef ovens installed in
various restaurant locations from a single central site, thereby
enabling foodservice operators to easily modify their cook settings,
and thus their menu selections, on a system-wide basis;
o the TurboStage system, a food preparation management system, which can
be incorporated into a restaurant's existing electronic order
processing system, sort the items to be cooked by required cook times,
and indicate, on a real-time basis, when such food items are to be
inserted into the TurboChef oven; and
o the TurboTouch system, an oven operations management system, which ties
the restaurant's point of sale "cash register" directly to the
TurboChef oven so that exact cooking settings may be automatically
programmed into the oven when the food order is placed.
Proposed Technology Extensions - Additional Commercial Applications. The
Company intends to use a significant portion of the proceeds of this offering
to continue, and complete, its development efforts relating to its proposed
residential TurboChef oven model and its proposed consumer-operated TurboChef
oven model (for use in convenience stores and other retail outlets), both of
which will incorporate the Company's proprietary high-speed cooking
technologies. Such activities will subject the Company to additional
regulatory requirements and there can be no assurance that the Company will
be able to comply with such requirements. The Company will also continue in
its efforts to exploit other of the many potential market applications for
the TurboChef technologies. There can be no assurance, however, that the
focus of the Company's development efforts will not change or that its
current development projects or any new applications or products will ever be
successfully completed or commercialized.
Application of New Technologies to Meet Specific Product Requirements.
The Company has been working with various fast food chain operators to
develop the means by which certain of their branded food products requiring
special or unique food preparation or cooking techniques can be cooked in a
TurboChef oven with results that are virtually identical to those achieved
through the slower cooking methods currently utilized by such operators. A
number of pizza restaurant operators, for example, offer pizzas which have a
specific and "brand recognizable" crust texture. In order to obtain the same
type of crust in a TurboChef oven, the Company has developed (and has filed a
patent application for) a new dough-setting technology. Once a customer's
pizza dough has been set using the Company's technology, the pizza can then
be cooked in a TurboChef oven approximately five times faster than in the
customer's current oven, with virtually identical results. The Company
intends to continue its research into the extension of its cooking
technologies to replicate, at significantly faster speeds, various other
cooking processes. As of the date of this Prospectus, the TurboChef oven has
already been approved to cook certain of Nathan's Famous(R) branded food
products as well as certain of the Pizzeria Uno(R) branded food products.
MARKETING AND SALES
GENERAL
To date, substantially all of the Company's marketing activities have been
conducted by members of management and have consisted primarily of personal
contact with potential customers. Although the Company expects to continue to
market directly to certain international and national accounts, such as fast
food and full-service restaurant chains, and to expand its in-house marketing
capability, the Company intends to aggressively pursue joint venture,
strategic alliance and/or licensing or other arrangements with companies
already engaged in the mass marketing and/or manufacture of foodservice
equipment and products in order to expand its market penetration. The Company
also intends to utilize various mass market distribution channels, such as
independent distributors, to assist the Company in the marketing of its
products to independent restaurants, cafeterias, public and private
institutions and non-traditional foodservice operators and may grant
exclusive marketing rights to certain of such distributors within specified
territories (except for any accounts reserved by the Company) so long as
minimum purchase and other requirements are satisfied.
The Company's marketing efforts are also planned to include direct
mailings, the preparation of sales brochures, advertising in trade
publications and participation in industry trade shows. The Company intends
to utilize a significant portion of the proceeds from this offering to expand
its marketing and sales activities, including in connection with the
foregoing efforts, as well as in connection with the market testing of its
products and the hiring of additional marketing personnel.
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The Company is attempting to market new products and technologies which
change the way in which foods can be cooked in the commercial foodservice
market. As a result, the Company's sales cycle, which generally commences at the
time a prospective customer demonstrates an interest in purchasing a TurboChef
oven and ends upon the execution of a purchase order with that customer, will
not only vary by customer, but could extend for periods of nine months or more,
depending upon the time required by the customer to test and evaluate the
TurboChef oven. In addition, multi-oven sales to restaurant chains generally
take even longer as the Company's products and technologies represent an
entirely new method for the preparation and serving of food and often require a
restructuring of a customer's entire operational strategy. For instance, the
Company's current contract with Whitbread, its principal customer, was not
finalized until after more than a year of testing, negotiating and
organizational planning had first been completed. As a result of the Company's
lengthy sales cycle, the sales process for the Company's products generally
requires substantial time commitments, effort and expense, and there can be no
assurance that the Company, after expending such resources, will obtain a
significant contract or order from such efforts. The Company anticipates,
however, that the sales cycle for repeat purchases will be reduced, as the time
required by a customer to test and evaluate the TurboChef oven should decrease.
The Company has successfully marketed the TurboChef oven to customers in
the United States as well as other countries located around the world. While
most of the Company's customers are fast food or quick-service restaurant
operations, the Company's largest customer, Whitbread, operates over 6,500
pub, convenience, restaurant, hotel and leisure locations across the United
Kingdom, including the Beefeater, Pizza Hut, TGI Friday's and Brewers Fayre
chains. The Company has been working closely with Whitbread for over a year
in adapting and applying TurboChef's foodservice technologies and concepts to
Whitbread's particular proposed applications. Effective June 1995, the
Company entered into a purchase contract with Whitbread, pursuant to which
Whitbread agreed, under certain specified terms and conditions, to purchase
120 Model D-2 TurboChef ovens. This purchase contract was substantially
increased in December 1995 when Whitbread and the Company executed a
subsequent purchase contract which provides for Whitbread to take delivery of
an aggregate of 340 (including the 120 previously agreed upon) Model D-2
TurboChef ovens, through September 1996. As part of these purchase contracts
(together, the "Whitbread Contract"), the Company agreed that Whitbread would
receive all of the TurboChef ovens produced for export to the United Kingdom
until December 31, 1996, and that the Company would not license any third
party to manufacture TurboChef ovens for sale in the United Kingdom until
after such date. As of March 31, 1996 the Company had delivered a total of
170 ovens to Whitbread. Whitbread has announced that it intends to
incorporate the TurboChef oven as an integral part of the foodservice
operations of its Beefeater chain, which operates over 300 casual dining
restaurants located throughout the United Kingdom, by the end of 1996. In
addition, Whitbread has announced that it plans over the next few years to
introduce the TurboChef technologies to other parts of its foodservice
operations and is currently testing the Company's TurboCom system for such
purpose. In 1995, Whitbread posted earnings in excess of $425 million on
sales of over $4.1 billion.
In addition, in November 1995, Choice Hotels, an international hotel
operator with over 3,500 hotels worldwide, selected the Company as its sole
commercial oven supplier for its new Choice Picks branded food court concept
which utilizes individual food preparation modules. The Choice Picks food
court concept is being offered (as an alternative to full-service
restaurants) by Choice Hotels to operators of Choice Hotels' Clarion, Quality
and Comfort hotels around the world. As the only commercial oven to be used
in the Choice Picks food courts, the TurboChef oven has been approved to cook
multiple food brands, including Nathan's Famous(R) and Pizzeria Uno(R).
Choice Hotels first introduced the Choice Picks program to its franchisees in
November 1995, and their evaluation of the program is expected to continue
throughout 1996. As of March 31, 1996, a total of 12 TurboChef ovens had been
purchased for use in the Choice Hotels system.
TARGET MARKETS
The Company currently intends to focus its marketing efforts on the
following commercial markets:
o Restaurants Desiring Menu Extension. A TurboChef oven can accommodate
restaurants seeking to "up- grade" their menu offerings, both in terms
of food items offered and in terms of cooked food quality and
consistency, without any significant additional investment, as well as
those desiring to extend their menus, such as hamburger restaurants
desiring to serve pizza, or to introduce new products on a regular
basis as part of their marketing strategy.
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o Restaurants Attempting to Achieve a Competitive Advantage. Restaurants
that want to implement and/or expand innovative food preparation
concepts, such as the use of centralized offsite commissaries for food
preparation, can incorporate the use of TurboChef ovens into such
concepts to promote food quality, cooking yields, product consistency,
waste reduction and improved customer service.
o Restaurants Seeking Market Expansion Through Faster Service.
Restaurants seeking to expand the customer base for their existing
product line by emphasizing speed of service, as well as those desiring
to expand their service to accommodate time-constrained or
"walk-in/carry-out" customers, can utilize the cooking speed and
quality provided by the Company's technologies to serve these markets.
A TurboChef oven allows restaurants to cook to-order products they
currently serve, but within cook times which the Company believes are
acceptable to the time-constrained or "walk-in/carry-out" customers.
o Other Points of Foodservice Distribution. Other foodservice venues,
such as corporate cafeterias, sports arenas, hotel lobbies, schools,
airports, parks and recreation facilities, can employ the Company's
technologies to cook a variety of foods quickly.
o New Non-Traditional Foodservice Distribution. The Company's
technologies can provide the convenience store industry, as well as the
operators of other high traffic, non-traditional foodservice locations
(such as malls, grocery stores, discount stores and warehouse clubs)
with the ability to develop foodservice programs which can offer
products to their customers similar to those offered in traditional
fast food restaurants.
The Company's marketing plans are subject to change as a result of a
number of factors, including progress or delays in the Company's development
efforts, changes in the foodservice or foodservice equipment markets, the
nature of marketing arrangements which may become available to the Company
and competitive factors. There can be no assurance that the Company's
efforts, or those of any distributors or other third parties, will result in
significant or continued market acceptance for the Company's cooking
technologies, the TurboChef oven or any other of its products, or that the
Company will succeed in positioning the TurboChef oven and related products
as a preferred method for cooking in commercial venues or otherwise.
PRODUCTION AND SUPPLY
In January 1994, the Company engaged MSC, a contract foodservices
equipment manufacturer, to manufacture TurboChef ovens for the Company and,
as of March 31, 1996, MSC had manufactured and delivered approximately 265
TurboChef ovens to the Company. MSC has the current capacity to produce 50
ovens per month, which is sufficient to meet the Company's delivery
requirements under the Whitbread Contract. The Company has not, however,
entered into a long-term contract with MSC, intending instead to continue its
practice of placing oven manufacturing orders with MSC from time to time, in
the ordinary course of business, as its needs require. While the Company
believes MSC's production quantities can, and will, be increased to as high
as 100 ovens per month, there can be no assurance of such production increase
or that any increased production would be sufficient. Moreover, while the
Company believes that alternative manufacturing sources are available, and
intends to use a portion of the proceeds of this offering to engage and
set up one or more additional contract manufacturers to produce TurboChef
ovens (and, in fact, will be required to do so in order to expand its
operations), any new contract manufacturing arrangements will require a
substantial amount of the Company's time and effort to set up and prepare the
new manufacturers' operations, and train their personnel, for the production
of the Company's ovens. The Company anticipates that, in the near term at
least, it will be largely dependent on MSC's efforts for the manufacture of
its TurboChef ovens. Additionally, the Company has been and will continue to
be dependent on third parties for the supply and manufacture of all of its
component and electronic parts, including standard components and
specially-designed component parts, such as the printed circuit computer
boards and wiring harnesses used in the TurboChef oven. The Company generally
does not maintain supply agreements with such third parties but instead
purchases its components and electronic parts pursuant to purchase orders in
the ordinary course of business. Although the Company owns the designs and
dies for its specially-designed components and believes that alternative
sources of supply for such components are available, the Company currently
purchases all of its specially-designed component parts from a limited number
of suppliers. The Company will be substantially dependent on the ability of
its manufacturers and suppliers to, among other things, meet the Company's
design, performance and quality specifications and to dedicate sufficient
production capacity to meet the Company's scheduled delivery requirements.
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<PAGE>
The Company has required that MSC follow generally accepted industry
standard quality control procedures. In addition, the Company maintains its
own quality assurance personnel and testing capabilities to assist MSC with
its quality program and to perform periodic audits of MSC's facilities and
finished products to ensure the integrity of the quality assurance
procedures. Component parts furnished to the Company by its suppliers and
manufacturers are generally covered by a one-year limited warranty and MSC
furnishes a limited warranty for any MSC manufacturing or assembly defects.
The Company's manufacturing cycle, which is the period from the execution
of a purchase order until actual shipment of the product to the customer,
generally ranges from two to six weeks for small volume oven sales and up to
one or two months longer for initial shipments to commence under large
multi-oven purchase contracts. Pursuant to the Company's warranty policy, the
Company will accept the return of an oven if the oven does not perform
according to product specifications. For certain potentially large customers
which wish to test and evaluate an oven prior to purchase, the Company
occasionally offers credit terms whereby the initial purchase order from such
customer provides for either full payment within a specified period or return
of the oven within such period if the customer is not satisfied for any
reason.
RESEARCH AND DEVELOPMENT
During the three months ended March 31, 1996 and the years ended December
31, 1995 and 1994, the Company incurred costs related to research and
development activities in the amounts of $120,116, $424,325 and $719,989,
respectively. The Company intends to utilize a material portion of the
proceeds of this offering to continue various research and development
activities undertaken since the Company's inception in an effort to satisfy
the changing needs of its customers and potential customers. These efforts
include the continuing development of improvements and enhancements to the
performance of the Company's TurboChef restaurant ovens (its Model D series);
completion of development efforts relating to a residential oven model
incorporating the Company's proprietary high-speed cooking technologies;
completion of development efforts relating to the Company's proposed Model
E-1 consumer-operated TurboChef oven for use in convenience stores and other
retail outlets; customization of the Company's proprietary software systems
(incorporated in the technological platform of its products), if and as
needed for the successful integration of the Company's products and services
with its customers' existing foodservice operating systems; and the Company's
continuing efforts to exploit other of the many potential market applications
for the TurboChef technologies. There can be no assurance, however, that the
focus of the Company's development efforts will not change or that its
current development projects or any new applications or products will ever be
successfully completed or commercialized.
The Company believes that the versatility of its established technological
platform will enable it to deliver a variety of innovative foodservice
products to its customers and that future research and development costs will
thus generally be incurred in connection with expanding the commercial
applications of its technologies for targeted, customer-requested
applications rather than general science research. In addition, to the extent
the Company is engaged to develop products for its customers, the Company
intends to require such customers to fund all or a portion of the related
research and development costs.
In connection with the Company's initial development efforts relating to
the proposed Model E-1 TurboChef oven, the Company entered into a joint
venture agreement with Acadia for the funding of such project, and formed
AcadiaChef for such purpose. It is intended that the Model E-1 oven, in
conjunction with a refrigerator/freezer to store food and a consumer operated
fountain drink dispenser, will be capable of complete consumer operated food
and beverage service from a small space with limited investment or cost to
the operator. In connection with the development of this oven, Acadia
invested a total of $350,000 in the project. However, pursuant to an
agreement in June 1995, with an effective date of March 31, 1995, Acadia
converted its entire $350,000 investment and accrued interest thereon into
the 233,334 Selling Stockholder Shares and received the Acadia Option to
purchase 262,500 additional shares of Common Stock at $2.50 per share. As a
consequence, Acadia's interest in AcadiaChef and the E-1 project was
eliminated.
COMPETITION
The cooking and warming segment of the foodservice equipment market is
characterized by intense competition. The Company competes with numerous
well-established manufacturers and suppliers of conventional
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commercial ovens, grills and fryers (including those which cook through the
use of conduction, convection, induction, air impingement, infrared and/or
microwave heating methods). In addition, the Company is aware of others who
are developing, and in some cases have introduced, new ovens based on
high-speed heating methods and technologies. Although the Company is not
aware of any competitive products, either being marketed or under
development, which it believes are functionally equivalent to the TurboChef
oven (i.e. that can produce the variety of food items, cooked to the same
high quality standards, at the same speeds), there can be no assurance that
other companies with the financial resources and expertise that would
encourage them to attempt to develop competitive products do not have or are
not currently developing functionally equivalent products, or that
functionally equivalent products will not become available in the near
future. Most of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than the Company and have
established reputations relating to the development, manufacture, marketing
and service of cooking equipment. Among the Company's major competitors in
the cooking and warming segment of the foodservice equipment market are: The
Middleby Corporation and certain of its subsidiaries; the commercial
foodservice equipment division of Welbilt Corporation, including, Lincoln
Foodservice Products, Inc.; Quadlux, Inc; Vulcan-Hart Corporation, a
subsidiary of Premark International, Inc.; the Blodgett Oven Company, Inc., a
subsidiary of G.S. Blodgett Corp.; Groen, Inc., a subsidiary of Dover
Corporation; and Franklin Products, Inc.
The Company competes on the basis of product performance, innovative
technologies, product features, quality, reliability and service. However,
because other commercial oven and grill products currently offered by
competitors of the Company are available at prices which may be substantially
below the price of a TurboChef oven, potential customers may elect, during
general economic downturns or otherwise, to purchase such lower priced
products.
The market for the Company's products and technologies is characterized by
changing technology and evolving industry standards. The Company's ability to
compete successfully will depend, in large part, on its ability to
continually enhance and improve its existing products, complete development
and introduce to the marketplace in a timely manner its proposed products,
adapt its products to the needs of its customers and potential customers,
successfully develop and market new products and continue to improve
operating efficiencies and lower manufacturing costs. There can be no
assurance that the Company will be able to compete successfully, that
competitors will not develop technologies or products that render the
Company's products obsolete or less marketable, or that the Company will be
able to successfully enhance its products, develop new products or lower
costs, when and as needed.
REGULATION AND ACCREDITATION
The Company is subject to regulations administered by various federal,
state and local authorities (including those limiting radiated emissions from
the Company's oven products), which impose significant compliance burdens on
the Company. Failure to comply with these regulatory requirements may subject
the Company to civil and criminal sanctions and penalties. While the Company
believes that it, as well as both the Model D-1 and Model D-2 TurboChef
ovens, is in compliance in all material respects with all laws and
regulations applicable to the Company and such products, including those
administered by the FDA, the FCC and the European Community Council, there
can be no assurance of such compliance. The Company intends to test, from
time to time, the ovens manufactured for it to confirm their continued
compliance with applicable regulatory requirements. Management believes that
compliance with these laws and regulations will not require substantial
capital expenditures or have a material adverse effect on the Company's
future operations.
New legislation and regulations, as well as revisions to existing laws and
regulations (at the federal, state and local levels, in the United States
and/or in foreign markets) affecting the foodservice equipment industry may
be proposed in the future. Such proposals could affect the Company's
operations, result in material capital expenditures, affect the marketability
of the Company's existing products and technologies and/or could limit or
create opportunities for the Company with respect to modifications of its
existing products or with respect to its new or proposed products or
technologies. In addition, an expanded level of operations of the Company in
the future could require the Company to modify or alter its methods of
operation at costs which could be substantial and could subject the Company
to increased regulation, and expansion of the Company's operations into
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additional foreign markets may require the Company to comply with additional
regulatory requirements. There can be no assurance that the Company will be
able to comply with additional or expanded applicable laws and regulations
without excessive cost or business interruption and failure to comply could
have a material adverse effect on the Company.
In February and March 1994, the Company received certification from UL(R)
as to compliance of the Model D-1 TurboChef oven with applicable UL(R)
requirements relating to product safety accreditation standards and with the
applicable NSF requirements relating to cleanability and sanitation
accreditation standards. The Company has maintained these certifications
since that time and has subsequently received additional certification for
enhancements to the Model D-1 TurboChef oven. Similarly, in July 1995, the
Company received certification from UL(R) as to compliance of the Model D-2
TurboChef oven with such requirements. UL(R) and NSF are agencies which have
established certain standards for a variety of categorized products and can
be engaged to inspect a manufacturer's products for compliance with the
applicable standards. Certification by each agency authorizes the marking of
any such product with the agency's labels, which indicates that the product
is approved by the agency for such use. Such certifications, which require
periodic renewal, only represent compliance with established standards and
are not legally required. However, failure by the Company to comply with
these accreditation standards in the future could have a material adverse
effect on the Company's marketing efforts. In addition, in January 1996, the
Company met the requirements necessary to apply the "CE" mark (which
indicates compliance with the European Community Council directive relating
to electromagnetic compatibility) to its Model D-2 TurboChef ovens. As an
equipment manufacturer, the Company is allowed to "self-certify" compliance
with this directive and have a third party attest to the results. The Company
is required by law to meet this European Community Council directive in order
to apply the "CE" mark and thereby sell its ovens in the European Union.
WARRANTY AND SERVICE
The Company offers to domestic purchasers a one-year limited warranty
covering the TurboChef oven's workmanship and materials, during which period
the Company or its authorized service representative will make repairs and
replace parts which become defective due to normal use. Since the Company
does not currently have the capability to service TurboChef ovens installed
outside the United States, the Company offers international purchasers a
one-year limited warranty covering parts only. In addition, for such
purchasers the Company provides that in the event any oven which has been
operated within the normal operating parameters requires repair more than
four times within 13 months from the date of shipment to the purchaser, the
Company will pay up to 50% of the reasonable cost of any additional service
work required until twelve months after the shipment date of that oven.
Although the cost of servicing TurboChef ovens has not been material to date
and the Company believes that it has experienced warranty costs in accordance
with generally accepted industry standards, there can be no assurance that
future warranty expenses will not have an adverse effect on the Company. In
those areas where TurboChef ovens are located, the Company has established
relationships with independent factory authorized service representatives
which provide installation and repair services and carry a parts inventory.
In addition, the Company intends to use a portion of the proceeds from this
offering to establish a national and global parts and service network of
independent factory authorized service representatives, capable of supporting
a significant increase in TurboChef oven installations.
INSURANCE
The Company is engaged in a business which could expose it to possible
liability claims from others, including from foodservice operators and their
staffs, as well as from consumers, for personal injury or property damage due
to design or manufacturing defects or otherwise. The Company maintains a
general liability insurance policy (which includes products liability
coverage) that is subject to a $1,000,000 per occurrence limit with a
$2,000,000 aggregate limit and a $3,000,000 umbrella liability insurance
policy to cover claims in excess of the limits of its liability insurance,
which the Company believes is adequate coverage for the type of products
currently marketed. In addition, the Company believes that MSC maintains
similar levels of liability insurance. There can be no assurance, however,
that either the Company's insurance or that of any third-party manufacturer
will be sufficient to cover potential claims or that an adequate level of
coverage will be available in the future at reasonable cost. A partially
insured or a completely uninsured successful claim against the Company could
have a material adverse effect on the Company. The Company's failure to
obtain a significantly increased level of coverage on commercially reasonable
terms in the future could limit the Company's ability to expand its
operations.
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PATENTS AND PROPRIETARY RIGHTS
The Company holds two United States patents which cover certain
fundamental aspects of its high-speed cooking technologies. The Company's
patents expire in 2011 and 2013, respectively. The Company has also applied
for one United States patent relating to the Company's "par-baked" pizza
dough setting technology and another relating to an improvement to the
Company's high-speed cooking technologies. In addition, the Company has 15
pending patent applications corresponding to its two current United States
patents filed in 7 countries (including 16 countries of the European Patent
Convention as a single country) and anticipates that it will apply for
additional patents as deemed appropriate. High-speed cooking systems not
covered by the Company's patents are in commercial distribution by the
Company's competitors. The patent laws of other countries may differ from
those of the United States as to the patentability of the Company's
technologies and products and the degree of protection afforded. The Company
believes that its patents and patent applications provide it with a
competitive advantage. Accordingly, in the event the Company's products and
technologies gain market acceptance, patent protection would be important to
the Company's business. There can be no assurance as to the breadth or degree
of protection which existing or future patents, if any, may afford the
Company, or that any patent applications will result in issued patents, or
that the Company's patent rights will be upheld if challenged, or that other
companies will not develop similar or superior methods or products outside
the protection of any patents issued to the Company.
Although the Company believes that none of its patents, technologies or
products infringe upon the patents or violate the proprietary rights of
others, it is possible that its existing patent rights may not be valid or
that infringement of existing or future patents or proprietary rights may
occur. In the event the Company's products infringe upon the patents or
proprietary rights of others, the Company could be required to modify the
design of its products or obtain a license for the use of certain
technologies incorporated in its products. There can be no assurance that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect upon the Company. In addition, there can be no
assurance that the Company will have the financial or other resources
necessary to enforce or defend a patent infringement or a proprietary rights
violation action. Moreover, if the Company's products are deemed to infringe
upon the patents or proprietary rights of others, the Company could, under
certain circumstances, become liable for damages, which could have a material
adverse effect on the Company.
The Company believes that product and brand name recognition is an
important competitive factor in the foodservice equipment industry.
Accordingly, the Company promotes the TurboChef name in connection with its
marketing activities. The Company holds a United States trademark
registration for the TurboChef name and a servicemark registration of the
slogan, "Changing the Way Good Food Is Served(R)". The Company's use of these
marks may be subject to challenge by others, which, if successful, could have
a material adverse effect on the Company.
The Company also relies on trade secrets and proprietary know-how, and
typically enters into confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, to protect the
concepts, ideas and documentation relating to its proprietary technologies.
However, such methods may not afford the Company complete protection either.
There can be no assurance that others will not independently obtain access to
the Company's trade secrets and know-how or independently develop products or
technologies similar to those of the Company. Since the Company believes that
its proprietary technologies are important to its business, failure to
protect such information could have a material adverse effect on the Company.
EMPLOYEES
As of the date of this Prospectus, the Company employs 22 persons, of whom
19 are full-time employees, including its four executive officers. Of its
employees, eight are engaged in design engineering, five are engaged in
manufacturing engineering and technical service, two are engaged in sales,
marketing, and foodservice concept and product development, and seven are
engaged in administration. None of the Company's employees are represented by
labor unions. The Company considers its relations with its employees to be
good.
PROPERTIES
The Company owns no real estate. The Company leases approximately 4,000
square feet of space at 10500 Metric Drive, Dallas, Texas, which it uses for
executive offices, technology development, sales and marketing,
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limited assembly and other purposes, under a lease agreement which expires on
September 30, 1996, at a base monthly rent of $1,667 per month. The Company
also rents approximately 1,800 square feet of space in an adjacent building
for $1,000 per month, on a month-to-month basis, from Cyten. See "Certain
Transactions."
The Company recently entered into a lease covering approximately 7,000
square feet of office space located adjacent to its leased premises at 10500
Metric Drive, Dallas, Texas. This lease provides for an initial term of four
years commencing on June 1, 1996, and an initial base monthly rent of $3,838
per month. The Company anticipates that upon occupying such additional space,
the Company will no longer lease space from Cyten.
The Company also leases approximately 2,000 square feet of general office
space at 126 East 56th Street, New York, New York, at a current base monthly
rent of approximately $7,300, pursuant to a lease that is to expire on
November 30, 1997.
The Company believes that its Dallas facilities , including the additional
space which the Company intends to occupy on or around June 1, 1996, will be
sufficient to accommodate the Company's anticipated future needs.
LITIGATION
The Company is not a party to any material litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- ----- --------
<S> <C> <C>
Jeffrey B. Bogatin . 47 Chairman of the Board of Directors, Treasurer and Director
Philip R. McKee ... 39 President, Chief Executive Officer and Director
Larry R. Behm ..... 38 Executive Vice President and Secretary
Dennis J. Jameson . 42 Executive Vice President and Chief Financial Officer
Robert S. Briggs .. 58 Vice President -- Engineering
Donald J. Gogel ... 47 Director
</TABLE>
Jeffrey B. Bogatin, a co-founder of the Company, has been Chairman of the
Board and Treasurer of the Company since its inception. Since 1975, Mr.
Bogatin has served as President of Whitemarsh Industries, Inc., which is
engaged in manufacturing and importing ladies apparel and making venture
capital investments.
Philip R. McKee, a co-founder of the Company, has been President, Chief
Executive Officer and a director of the Company since its inception. He was
also Secretary of the Company until January 1994. From May 1989 until
November 1991, Mr. McKee was President of MicroGold, Inc., a food product
manufacturing company, and from January 1986 until April 1989, he served as
President of Tracer, Inc., a technology development and operations company.
Larry R. Behm was elected Executive Vice President of the Company in March
1995 and Secretary of the Company in June 1995. From August 1994 to February
1995, he served as Manager of Commercial Products for the Company. From April
1990 to July 1994, Mr. Behm was Director of Engineering for Pizza Hut, Inc.,
a quick-service pizza restaurant chain. From November 1989 to April 1990, he
served as Section Head, Products Supply, for Procter & Gamble Co., a
multinational consumer products company.
Dennis J. Jameson was elected Executive Vice President and Chief Financial
Officer of the Company in December 1995. From November 1988 to May 1995, he
served as a director, Senior Vice President Finance and Administration, and
Chief Financial Officer of Black-eyed Pea Restaurants, Inc. in Dallas, Texas,
which operates casual dining and quick service Mexican restaurants located
primarily in the Southwest and Southeast.
Robert S. Briggs, Jr. was elected Vice President -- Engineering of the
Company in March 1995. From November 1993 to February 1995, he served as the
Company's Chief Engineer. From February 1993 to November 1993, he served as
Executive Vice President of Cyten Circuit Design Corporation ("Cyten"), a
contract engineering and manufacturing company, where he was responsible for
manufacturing engineering on the TurboChef project. From July 1988 to
February 1993, Mr. Briggs was employed by Comar, Inc., an engineering design
company, serving as Vice President of Engineering from July 1988 to February
1991 and as President from February 1991 to February 1993. Mr. Briggs
co-founded Spectradyne, Inc., a provider of in-room pay-per-view movies to
the hotel industry, and, from 1974 to 1988, he served first as its Director
of Engineering, then as Vice President of Engineering and later as Vice
President of Technology.
Donald J. Gogel has been a director of the Company since April 1993. Since
February 1989, Mr. Gogel has been a principal of Clayton, Dubilier & Rice,
Inc., a private investment firm. Mr. Gogel is currently a director of each
of: A.P.S, Inc. (a national distributor of aftermarket autoparts) and APS
Holding Corporation; Lexmark International Group (a global manufacturer of
printing products and supplies); and Van Kampen American Capital, Inc. (an
investment advisory company serving the mutual fund and institutional money
management industries) and VK/AC Holding, Inc.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors currently
receive no cash compensation for serving on the Board of Directors other than
reimbursement of reasonable expenses incurred in attending meetings. Officers
are elected annually by the Board of Directors and serve at the discretion of
the Board. Pursuant to the Shareholders Agreement, each of Messrs. Bogatin
and McKee has agreed to vote for the other to serve as a member of the Board
of Directors, and, as members of the Board, each has agreed to vote for the
election of the other as an officer of the Company. See "Description of
Securities."
39
<PAGE>
In connection with this offering, the Company has agreed, for a period of
three years from the date of this Prospectus, to permit a designee of the
Underwriter (which designee may change from time to time) to serve as a
non-voting advisor to the Company's Board of Directors. The Underwriter has
not yet exercised its right to designate such a person. See "Underwriting."
The Company maintains "key-man" life insurance on the life of Mr. McKee in
the amount of $3,000,000.
KEY EMPLOYEE
Earl R. Winkelmann has been employed by the Company since November 1993
and served as its Vice President-Engineering from January 1994 until March
1995. He is currently a part-time employee of the Company, performing
engineering services for the Company on an as-needed basis. Mr. Winkelmann
has also served as the President of Cyten (which he founded in June 1987)
both since March 1995 and from its inception through January 1994. Prior to
joining the Company in 1994, Mr. Winkelmann was responsible, while at Cyten,
for transforming the Company's technology designs into working ovens. He also
served as Vice President of Manufacturing for Lamtech Electronics
Corporation, a contract manufacturer of electronic products, from February
1985 until January 1990. Prior to such time, he co-founded Spectradyne, Inc.,
a provider of in-room pay-per- view movies to the hotel industry, in 1973,
serving as Executive Vice President and a director of such company from 1978
to 1984.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to or accrued by
the Company's Chief Executive Officer for services rendered to the Company
during the fiscal years ended December 31, 1995, 1994 and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------
Long Term
All Other Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation Awards
- --------------------------- ------ --------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Philip R. McKee, President and
Chief Executive Officer ..... 1995 $ 73,077(1) -0- -0- -0-
1994 110,385 -0- -0- -0-
1993 155,000(2) -0- -0- -0-
</TABLE>
- ------
(1) Pursuant to Mr. McKee's employment agreement with the Company, he was
entitled to receive annual salary of $95,000 for the fiscal year ended
December 31, 1995; however, he did not receive a salary from March 17 to
May 26, 1995 during which time he received $3,745 every two weeks in
repayment of certain indebtedness from the Company. See "Certain
Transactions."
(2) Includes $35,000 in accrued salary as of December 31, 1993 which was paid
from the proceeds of the April 1994 IPO. Does not include an additional
$95,000 in accrued salary as of December 31, 1993 which was eliminated as
of such date.
Mr. McKee was neither granted, nor did he exercise, any stock options
during the past three fiscal years.
EXECUTIVE EMPLOYMENT AGREEMENT
In May 1993, the Company entered into a three-year employment agreement
with Philip R. McKee, providing for his employment as President of the
Company. The term of this agreement was subsequently extended, in March 1996,
pursuant to the mutual agreement of the Company and Mr. McKee, for an
additional three-year period. The employment agreement requires Mr. McKee to
devote all of his business time to the affairs of the Company, for which he
is entitled to receive a base salary of $95,000 per year. Originally, Mr.
McKee's employment agreement provided for an annual base salary of $250,000
but was subsequently amended in December 1993 to provide for an annual base
salary of $120,000 commencing as of January 1, 1994. Pursuant to this
amendment, the Company was also relieved of any liability in respect of any
accrued and unpaid compensation due to Mr. McKee as of that date.
40
<PAGE>
Consequently, an aggregate of $95,000 in accrued and unpaid salary as of
December 31, 1993 was eliminated as of such date. Effective as of July 30, 1994,
Mr. McKee voluntarily reduced his annual base salary again, this time to its
current $95,000 level. The employment agreement currently expires in March 1999
and, thereafter, will be automatically renewed for successive one-year terms
unless the Company or the executive elects not to renew. The employment
agreement with Mr. McKee provides that during the term of his employment with
the Company and thereafter for the remaining stated term or two years from the
date of termination, whichever is longer, Mr. McKee will be subject to a
noncompetition covenant. In addition, Mr. McKee is entitled to receive other
benefits that are generally provided to other employees of the Company.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Restated Certificate of Incorporation and under
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
(i) liability in connection with a breach of duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) dividend payments or stock repurchases
illegal under Delaware law or (iv) any transaction in which a director has
derived an improper personal benefit.
In addition to the foregoing, the Company has obtained a liability
insurance policy to insure its officers and directors against losses
resulting from wrongful acts committed by them in their capacities as
officers and directors of the Company, including liabilities arising under
applicable securities laws.
1994 STOCK OPTION PLAN
In January 1994, in order to attract, retain and motivate employees
(including officers), directors, consultants and other persons who perform
substantial services for or on behalf of the Company, the Company adopted the
1994 Stock Option Plan, which was subsequently amended in March 1994, June
1995 and May 1996 (the "Option Plan"), pursuant to which stock options
covering an aggregate of 2,400,000 shares of the Company's Common Stock may
be granted to such persons. Under the Option Plan, incentive stock options
("Incentive Options") within the meaning of Section 422 of the Code, may be
granted to employees (including officers), and non-incentive stock options
("Non-incentive Options") may be granted to any such employee and to other
persons (including directors) who perform substantial services for or on
behalf of the Company. Incentive Options and Non-incentive Options are
collectively referred to herein as "Options".
The Option Plan is administered by the Board of Directors, which is vested
with complete authority to administer and interpret the Option Plan,
determine the terms upon which Options may be granted, prescribe, amend and
rescind such interpretations and determinations and grant Options. The Board
of Directors also has the power to terminate or amend the Option Plan from
time to time in such respects as it deems advisable, except that no
termination or amendment shall materially adversely affect any outstanding
Option without the consent of the grantee, and the approval of the Company's
stockholders is required in respect of any amendment which would (i) change
the total number of shares subject to the Option Plan or (ii) change the
designation or class of employees or other persons eligible to receive
Incentive Options or Non-incentive Options.
The price at which shares covered by an Option may be purchased is
determined on the date of the Option grant by the Board of Directors but may
be no less than the par value of such shares and, in the case of Incentive
Options, no less than the fair market value of such shares on the date of
grant (the "Fair Market Value"). The Fair Market Value is generally equal to
the last sale price quoted for shares of Common Stock on NASDAQ on the date
of grant. The purchase price of shares issuable upon exercise of an Option
may be paid in cash or by delivery of shares with a value equal to the
exercise price of the Option. The Company may also loan the purchase price to
the optionee, or guarantee third-party loans to the optionee, on terms and
conditions acceptable to the Board of Directors. The number of shares covered
by an Option is subject to adjustment for stock splits, mergers,
consolidations, combinations of shares, reorganizations and
recapitalizations. Options are generally non-transferable except by will or
by the laws of descent and distribution, and in the case of employees, with
certain exceptions, may be exercised only so long as the optionee continues
to be employed by the Company. If the employee dies or becomes disabled, the
right to exercise the Option, to the extent then vested, continues for
specified periods. Non-incentive Options may be exercised within a period not
exceeding ten years from the date of grant. The terms of Incentive Options
are subject to additional restrictions provided by the Option Plan.
41
<PAGE>
As of the date of this Prospectus, five-year Options to purchase 1,918,666
shares of Common Stock are outstanding, and Options to purchase an additional
280,334 shares are available for future grant. In addition to the foregoing,
Options to purchase an aggregate of 201,000 shares of Common Stock have been
exercised, including Options to purchase an aggregate of 200,000 shares of
Common Stock at $2.50 per share, which were exercised by Mr. Bogatin in June
and December 1995. See "Certain Transactions."
Included in the currently outstanding Options are: an Option granted to
Mr. Briggs in February 1994 to purchase 30,000 shares at $2.50 per share,
which vests at the rate of one-third per year commencing in December 1995;
Options granted to Messrs. Bogatin and Gogel in April 1994 to purchase
200,000 shares and 40,000 shares, respectively, at $2.50 per share, which are
immediately exercisable; Options granted to Messrs. Behm and Briggs in
February 1995 to purchase 120,000 shares and 20,000 shares, respectively, at
$1.50 per share, which vest at the rate of one-third per year commencing in
February 1996; an Option granted to Mr. Bogatin in March 1995 to purchase
600,000 shares at $2.50 per share, which is immediately exercisable; an
Option granted to Mr. Briggs in August 1995 to purchase 20,000 shares at
$11.88 per share, which vests at the rate of one-third per year commencing in
August 1996; an Option granted to Mr. Jameson in January 1996 to purchase
120,000 shares at $10.75 per share, which vests at the rate of one-third per
year commencing in January 1997; and Options granted to Messrs. Bogatin and
McKee in February 1996 to purchase 150,000 shares and 250,000 shares,
respectively, at $13.20 per share, which vest as to various amounts, in
January 1999, based on the performance of the Company's Common Stock. See
"Principal Stockholders" and "Certain Transactions."
AUGUST 1993 STOCK OPTION AGREEMENTS
Pursuant to agreements dated as of August 10, 1993, Messrs. Bogatin, McKee
and Gogel granted five-year options to purchase an aggregate of 161,504 of
their shares of Common Stock (104,448 shares, 48,980 shares and 8,076 shares,
respectively), at a price of $1.25 per share, to nine persons employed or
retained by the Company or Cyten who had significantly contributed to the
development of the Company, the TurboChef oven and the Company's cooking
technologies (the "August Stock Option Agreements"). The options are
exercisable over the period commencing on April 7, 1995, and ending in August
1998, subject to certain exceptions. In April 1996, pursuant to his August
Stock Option Agreements, Mr. Earl R. Winkelmann exercised options to purchase
24,740 shares of Common Stock from Mr. McKee and 4,078 shares of Common Stock
from Mr. Gogel. See "Principal Stockholders" and "Certain Transactions."
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of the 700,000
Shares hereby, based on information obtained from the persons named below,
relating to the beneficial ownership of shares of Common Stock by (i) each
beneficial owner of more than five percent of the outstanding Common Stock,
(ii) each director, (iii) the executive named in the Summary Compensation
Table in "Management" and (iv) all current executive officers and directors
of the Company as a group.
<TABLE>
<CAPTION>
Percentage of
Amount and Outstanding
Nature of Shares Owned(1)
---------------------------
Name and Address Beneficial Before After
of Beneficial Owner Ownership(1) Offering Offering
------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Jeffrey B. Bogatin
126 East 56th Street
New York, New York 10022 ...... 6,269,364(2) 45.87% 43.63%
Philip R. McKee
10500 Metric Drive, Ste. 128
Dallas, Texas 75243 ........... 2,195,042(3) 17.06% 16.18%
Stonehill Capital Management
277 Park Avenue
New York, New York 10172 ...... 2,189,478(4) 17.01% 16.14%
Robert L. Emerson
277 Park Avenue
New York, New York 10172 ...... 2,189,478(4) 17.01% 16.14%
Donald J. Gogel
375 Park Avenue, 18th Floor
New York, New York 10152 ...... 343,798(5) 2.66% 2.53%
All directors and executive
officers as a group (6 persons) . 8,876,870(6) 64.44% 61.33%
</TABLE>
- ------
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities that can be acquired by such person
within 60 days from the date of this Prospectus upon the exercise of
options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the date of this Prospectus have been exercised.
Percentages herein assume a base of 12,868,078 shares of Common Stock
outstanding prior to this offering and a base of 13,568,078 shares of
Common Stock outstanding immediately after this offering, before any
consideration is given to outstanding options or warrants.
(2) Includes 104,448 shares of Common Stock which are subject to options
issued by Mr. Bogatin in connection with the August Stock Option
Agreements and 800,000 shares issuable upon exercise of immediately
exercisable Options granted under the Option Plan. Also includes 74,550
Over-Allotment Shares. In the event the Underwriter's over-allotment
option is exercised in full, Mr. Bogatin's beneficial ownership after the
consummation of this offering and his sale of such Over-Allotment Shares
will be 42.80%. See "Underwriting."
(3) Includes 24,240 shares of Common Stock which are subject to options
issued by Mr. McKee in connection with the August Stock Option
Agreements. Also includes 30,450 Over-Allotment Shares. In the event the
Underwriter's over-allotment option is exercised in full, Mr. McKee's
beneficial ownership after the consummation of this offering and his sale
of such Over-Allotment Shares will be 15.83%. See "Underwriting."
43
<PAGE>
(4) SCM is an Investment Advisor registered under Section 203 of the
Investment Advisors Act of 1940. Mr. Emerson is the President of SCM. SCM
and Mr. Emerson share the power to vote, direct the vote, dispose of and
direct the disposition of all 2,189,478 of these shares. Of such shares,
1,769,118 ( 13.75% of the outstanding shares of the Company before this
offering and 13.04% after this offering) are held by Stonehill Capital
Partners, L.P., a partnership whose investments are managed by SCM. This
partnership has no authority to vote or dispose of these shares.
(5) Includes 3,998 shares of Common Stock which are subject to options issued
by Mr. Gogel in connection with the August Stock Option Agreements and
40,000 shares issuable upon exercise of immediately exercisable Options
granted under the Option Plan.
(6) Includes an aggregate of 132,686 shares of Common Stock which are subject
to options issued by Messrs. Bogatin, McKee and Gogel in connection with
the August Stock Option Agreements and an aggregate of 906,666 shares
issuable upon exercise of immediately exercisable Options granted under
the Option Plan. Also includes the 105,000 Over-Allotment Shares. In the
event the Underwriter's over-allotment option is exercised in full, the
beneficial ownership of all officers and directors as a group after the
consummation of this offering and the sale of the Over-Allotment Shares
will be 60.16%. See "Underwriting."
<PAGE>
CERTAIN TRANSACTIONS
Jeffrey B. Bogatin and Philip R. McKee, co-founders of the Company, each
purchased 5,301,680 shares of Common Stock of the Company at an aggregate
price of approximately $30,000 for all 10,603,360 of such shares, upon
formation of the Company in 1991; each of Messrs. Bogatin and McKee
subsequently contributed back to the Company an aggregate of 2,827,916 shares
of Common Stock in order to assure sufficient available authorized capital
stock for future issuances.
Pursuant to an agreement between the Company and Donald J. Gogel, a
director of the Company, dated April 17, 1993 (the "Stock Purchase
Agreement"), the Company sold to Mr. Gogel 407,876 shares of Common Stock for
an aggregate purchase price of $500,000 in April 1993.
In August 1993, pursuant to the August Stock Option Agreements, Messrs.
Bogatin, McKee and Gogel granted options for an aggregate of 161,504 of their
shares of Common Stock (104,448 shares, 48,980 shares and 8,076 shares,
respectively), at a price of $1.25 per share, to nine persons employed or
retained by the Company or Cyten who had, prior to such time, significantly
contributed to the development of the Company, the TurboChef oven, and the
Company's cooking technologies.
Prior to January 1, 1994, Mr. Bogatin made loans to the Company in the
aggregate amount of $1,918,237 and, in connection with certain of such loans,
received 2,801,408 shares of Common Stock. An aggregate of $98,400 of such
indebtedness was repaid by the Company in 1993, resulting in a principal
amount loan balance at December 31, 1993 of approximately $1,819,837. Prior
to the April 1994 IPO, such loans were to mature on November 15, 1995 and
bore interest at the rate of 9% per annum, payable at maturity. In connection
with the April 1994 IPO, however, the Company's indebtedness to Mr. Bogatin
(which, as of April 7, 1994 aggregated approximately $2,079,194, including
$259,357 in accrued interest) was first reduced by $1,000,000, as a result of
Mr. Bogatin's contribution of $1,000,000 of the amounts owed to him to the
Company's capital, and then recharacterized as a term loan, maturing on April
7, 1999 and bearing interest at the rate of 6 1/2 % per annum, payable
semi-annually. In connection with the aforementioned contribution to capital,
Mr. Bogatin received an option granted under the Company's Option Plan to
purchase 400,000 shares of Common Stock at $2.50 per share. Subsequently, on
March 15, 1995, Mr. Bogatin converted the outstanding balance of this
indebtedness, including accrued interest thereon through such conversion
date, in the aggregate amount of $1,144,730, into 457,892 shares of Common
Stock. In connection with such conversion, Mr. Bogatin also received an
option granted under the Company's Option Plan to purchase 600,000 shares of
Common Stock at $2.50 per share.
Prior to January 1, 1994, Mr. McKee loaned the sum of $43,512 to the
Company, of which an aggregate of $27,882 was repaid prior to such time,
resulting in a principal loan balance at December 31, 1993 of $15,630. Prior
to the April 1994 IPO, this loan was to mature on November 15, 1995 and bore
interest at the rate of 9% per annum, payable at maturity. In connection with
the April 1994 IPO, the Company's indebtedness to Mr. McKee (which as of
April 7, 1994 aggregated approximately $21,232, including $5,602 in accrued
interest) was recharacterized as a term loan, maturing on April 7, 1997
and bearing interest at the rate of 6.5% per annum, payable semi-annually.
Commencing on March 17, 1995, the Company paid Mr. McKee installments in the
amount of $3,745 every two weeks as repayment of the outstanding principal
amount and accrued interest on such loan. Consequently, the loan was repaid in
full on May 26, 1995. During the period that this loan was being repaid, Mr.
McKee did not receive any salary from the Company.
During the period from January to March 1994, Messrs. Bogatin and McKee
made working capital loans to the Company in the aggregate amount of $224,303
and $80,995, respectively. These loans, which bore interest at the rate of 8%
per annum, were repaid by the Company from the proceeds of the April 1994
IPO.
In June 1995, Messrs. McKee and Bogatin made capital contributions to the
Company in the aggregate amount of $1,000,000. Specifically, on June 15,
1995, Mr. McKee made a contribution to the capital of the Company in the
amount of $800,000, by purchasing 118,518 shares of Common Stock at $6.75 per
share directly from the Company and holding such shares for investment, and,
on June 19, 1995, Mr. Bogatin made contributions to the capital of the
Company in the amount of $200,000, by exercising Options (previously granted
to him under the Option Plan in April 1994) to purchase 80,000 shares of
Common Stock at $2.50 per share. The foregoing capital contributions were
made to satisfy certain financial eligibility requirements in order for the
Company s Common Stock to continue to be listed on NASDAQ.
45
<PAGE>
On December 29, 1995, Mr. Bogatin made an additional capital contribution
to the Company in the amount of $300,000 by exercising Options (previously
granted to him under the Option Plan in April 1994) to purchase 120,000
shares of Common Stock at $2.50 per share. In addition, on December 29, 1995,
Mr. McKee loaned the Company the sum of $285,000. The note issued to Mr.
McKee evidencing such borrowing bore interest at the rate of 6.5% per annum
and was repaid in full (an aggregate of $288,139, including accrued interest)
on February 28, 1996.
On March 30, 1996, Messrs. Bogatin and McKee loaned the Company the sums
of $200,000 and $85,000, respectively. These loans are evidenced by
promissory notes bearing interest at the rate of 6.5% per annum. Each of
these notes is payable on demand. These loans were made to satisfy certain
eligibility requirements in order for the Company's Common Stock to continue
to be listed on NASDAQ.
In connection with this offering, Messrs. Bogatin and McKee have granted
to the Underwriter an option to purchase up to an aggregate of 105,000 shares
of Common Stock from them (74,550 from Mr. Bogatin and 30,450 from Mr. McKee)
for the purpose of covering over-allotments in connection with the sale of
the 700,000 Shares offered hereby, at the public offering price set forth on
the cover page of this Prospectus, less the underwriting discounts and
commissions and the Underwriter's 2 1/2 % nonaccountable expense allowance
applicable to such Over-Allotment Shares. The Company will bear all of the
other expenses of this offering, including any associated with the sale (if
any) of these Over-Allotment Shares. If such over-allotment option is
exercised in full, Messrs. Bogatin and McKee will receive net proceeds
therefrom of approximately $829,369 and $338,756, respectively (based on an
assumed offering price of $12.50 per Share).
Since the inception of the Company, Cyten (which was founded and is
principally owned by Earl R. Winkelmann, the Company's former Vice President
- -- Engineering and a current part-time employee of the Company) has performed
engineering and development work for the Company. During the three months
ended March 31, 1996 and the fiscal years ended December 31, 1995 and 1994,
the Company paid to Cyten $36,211, $110,603 and $157,079, respectively,
relating primarily to research and development charges incurred by Cyten on
behalf of the Company and to a lesser degree to rental payments due in
connection with certain space leased by the Company from Cyten on a
month-to-month basis.
Any future transaction with directors, executive officers or their
affiliates will be made only if the transaction has been approved by a
majority of the then disinterested members of the Board of Directors and is
on terms no less favorable to the Company than could have been obtained from
unaffiliated parties.
46
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock, $.01
par value per share. As of the date of this Prospectus, there are 12,868,078
shares of Common Stock outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by stockholders. There are no
preemptive, subscription, conversion or redemption rights pertaining to the
shares of Common Stock. Holders of shares of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor and to share ratably in the assets of the
Company available upon liquidation. The holders of shares of Common Stock do
not have the right to cumulate their votes in the election of directors and,
accordingly, the holders of more than 50% of all the shares of Common Stock
outstanding are able to elect all directors. The Company's officers and
directors will continue to control a majority of the votes following
completion of this offering and, accordingly, they will be able to elect all
of the Company's directors. All of the outstanding shares of Common Stock
are, and the shares of Common Stock offered hereby, upon issuance and when
paid for, will be, duly authorized, validly issued, fully paid and
non-assessable.
SHAREHOLDERS' AGREEMENTS AND REGISTRATION RIGHTS
In May 1993, Jeffrey B. Bogatin, the Company's Chairman of the Board, and
Philip B. McKee, the Company's President and Chief Executive Officer, entered
into the Shareholders Agreement with the Company, which sets forth certain
rights and obligations of the parties with respect to the Common Stock and
corporate governance of the Company. The Shareholders Agreement provides that
Messrs. Bogatin and McKee will vote for each other to be members of the Board
of Directors and, as members of the Board, will vote to elect each other as
an officer of the Company. The Shareholders Agreement also provides that if
the Company proposes to register shares of its Common Stock under the
Securities Act prior to May 1998 (subject to certain exceptions), then each
individual party will have the right, subject to certain restrictions, to
request that the Company register his shares of Common Stock in connection
with such registration. The Shareholders Agreement also places certain
limitations on the Company's ability to grant demand registration rights to
any of its security holders. The Shareholders Agreement will terminate on the
occurrence of any of the following: (i) the cessation of the Company's
corporate business during the lifetime of Messrs. Bogatin and McKee, (ii) the
bankruptcy or dissolution of the Company or (iii) the mutual agreement of
Messrs. Bogatin and McKee. See "Shares Eligible for Future Sale."
Pursuant to the Company's April 1993 Stock Purchase Agreement with Donald
J. Gogel, a director of the Company, the Company agreed that, if it proposes
to register shares of its Common Stock under the Securities Act prior to
April 17, 1998 (subject to certain exceptions), then Mr. Gogel will have the
right, subject to certain restrictions, to request that the Company register
his shares in connection therewith. The Stock Purchase Agreement also places
certain limitations on the Company's ability to grant demand registration
rights to any of its securityholders. Subject to certain exceptions, the
Stock Purchase Agreement also provides that if any entity owned or controlled
by either or both of Messrs. Bogatin or McKee transacts business with the
Company in connection with consulting or licensing matters or supply,
distribution, agency or other arrangements, then Mr. Gogel is to be given an
opportunity to purchase an equity interest in such entity. See "Shares
Eligible for Future Sale."
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company, 40 Wall Street, New York, New York 10005.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to certain anti-takeover provisions under Section
203 of the Delaware General Corporation Law. In general, under Section 203, a
Delaware corporation may not engage in any business combination with any
interested stockholder (a person that owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation or is an affiliate of a
corporation that is the owner of 15% or more of the outstanding voting
stock), for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in
47
<PAGE>
the stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, or (iii) on or subsequent to such date, the
business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders by at least 66 2/3 % of the
outstanding voting stock which is not owned by the interested stockholder. The
restrictions imposed by Section 203 will not apply to a corporation if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by this section or the corporation by
action of its stockholders holding a majority of outstanding stock adopts an
amendment to its certificate of incorporation or by-laws expressly electing not
to be governed by Section 203. The Company has not elected out of Section 203,
and thus the restrictions imposed by Section 203 apply to the Company. Such
provision could have the effect of discouraging, delaying or preventing a
takeover of the Company, which could otherwise be in the best interest of the
Company's stockholders, and have an adverse effect on the market price for the
Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 13,568,078
shares of Common Stock outstanding, of which, 4,334,000 shares, including the
700,000 Shares offered hereby and, subject to certain contractual
restrictions with the Underwriter described below, the 233,334 Selling
Stockholder Shares, will be freely tradeable without restriction or further
registration under the Securities Act. The remaining 9,234,078 shares are
unregistered and deemed to be restricted securities (as that term is defined
under Rule 144 promulgated under the Securities Act), and, as such, may in
the future only be sold pursuant to a registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 under
the Securities Act or pursuant to another exemption under the Securities Act.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to
sell, within any three-month period, a number of restricted shares
beneficially owned by such person for a period of at least two years that
does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) an amount equal to the average weekly trading volume in
the Common Stock during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner of
sale, notice and the availability of current public information about the
Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell
such shares without regard to the volume or other resale requirements.
Of the 9,234,078 restricted shares of Common Stock, an aggregate of
8,223,334 shares are already eligible for sale under Rule 144, subject to the
volume limitations discussed above. Moreover, an aggregate of 7,977,004 of
such shares are the subject of piggyback registration rights granted to
Messrs. Bogatin, McKee and Gogel. Other than the Selling Stockholder (which
is subject to a six month lock-up agreement with the Underwriter relating to
the Selling Stockholder Shares), none of the Company's officers, directors,
or other stockholders are contractually restricted from selling or otherwise
disposing of any of their shares of Common Stock. The Company has also
granted the Underwriter certain demand and piggyback registration rights with
respect to the 260,000 shares and 70,000 shares of Common Stock underlying
the Underwriter's IPO Warrants (which are currently exercisable) and
Underwriter's Warrants (which are exercisable commencing one year following
the date of this Prospectus), respectively. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices
prevailing from time to time. Nonetheless, even the possibility that
substantial additional amounts of Common Stock may be sold in the public
market in the future may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
48
<PAGE>
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase the
700,000 Shares offered hereby from the Company. The Underwriter is committed
to purchase and pay for all of the Shares offered hereby if any of such Shares
are purchased. The Shares are being offered by the Underwriter subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares to the public at the public offering price set forth on the cover page
of this Prospectus. The Underwriter may allow to certain dealers who are
members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions, not in excess of $___ per Share, of which not in excess of $____
per Share may be reallowed to other dealers who are members of the NASD.
Jeffrey B. Bogatin, the Company's Chairman of the Board, and Philip R.
McKee, the Company's President and Chief Executive Officer, have granted to
the Underwriter an option, exercisable for 45 days from the date of this
Prospectus, to purchase up to an aggregate of 105,000 shares of Common Stock
from them at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter
may exercise this option to purchase the Over-Allotment Shares in whole or,
from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Shares
offered hereby. The Company will not receive any proceeds from the sale of
any of these Over-Allotment Shares.
The Company has agreed to pay to the Underwriter a nonaccountable expense
allowance equal to 2 1/2 % of the gross proceeds derived from the sale of the
Shares offered hereby (and Messrs. Bogatin and McKee have agreed to pay to
the Underwriter 2 1/2 % of the gross proceeds derived from sales, if any, of
the Over-Allotment Shares), of which $50,000 has been paid as of the date of
this Prospectus. The Company has also agreed to pay all expenses in
connection with qualifying the Shares offered hereby for sale under the laws
of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees, for
an aggregate of $70, warrants (the "Underwriter's Warrants") to purchase up
to 70,000 shares of Common Stock at an exercise price equal to 110% of the
public offering price per Share. The Underwriter's Warrants may not be sold,
transferred, assigned or hypothecated for one year from the date of this
Prospectus, except to the officers and partners of the Underwriter and
members of the selling group, and are exercisable at any time and from time
to time, in whole or in part, during the four-year period commencing one year
following the date of this Prospectus (the "Warrant Exercise Term"). During
the Warrant Exercise Term, the holders of the Underwriter's Warrants are
given, at nominal cost, the opportunity to profit from a rise in the market
price of the Company's Common Stock. To the extent that the Underwriter's
Warrants are exercised, dilution to the interests of the Company's
stockholders will occur. Further, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holders of the Underwriter's Warrants can be expected to exercise them at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
Underwriter's Warrants. Any profit realized by the Underwriter on the sale of
the Underwriter's Warrants or the underlying shares of Common Stock may be
deemed additional underwriting compensation. Subject to certain limitations
and exclusions, the Company has agreed (i) that, at the request of the
holders of a majority of the Underwriter's Warrants, the Company will (at its
own expense), register the Underwriter's Warrants and the underlying shares
of Common Stock under the Securities Act on one occasion during the Warrant
Exercise Term and (ii) that it will include such Underwriter's Warrants and
underlying shares in any appropriate registration statement which is filed by
the Company during the seven years following the date of this Prospectus.
The Company has agreed, for a period of three years from the date of this
Prospectus, to permit a designee of the Underwriter, which designee may
change from time to time, to serve as a nonvoting adviser to the Company's
Board of Directors. The Underwriter has not yet exercised its right to
designate such person and has advised the Company that it has no current
intention to do so.
The Underwriting Agreement contains reciprocal agreements of indemnity
between the Company and the Underwriter as to certain liabilities which may
arise in connection with this offering, including liabilities under the
Securities Act.
49
<PAGE>
In connection with this offering, the Underwriter and certain selling
group members (if any), who are qualifying registered market makers on
NASDAQ, may engage in passive market making transactions in the Common Stock
on NASDAQ in accordance with Rule 10b-6A under the Exchange Act during the two
business day period before commencement of sales in this offering. The passive
market making transactions must comply with applicable price and volume limits
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the security. If
all independent bids are lowered below the passive market maker's bid, however,
such bid must then be lowered when certain purchase limits are exceeded. Net
purchases by a passive market maker on each day are generally limited in amount
to a specified percentage of the passive market maker's average daily trading
volume in the Common Stock during a specified prior period and must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
Acadia, the Selling Stockholder, has entered into an agreement with the
Underwriter, whereby Acadia has agreed not to sell or otherwise dispose of
any of the Selling Stockholder Shares (which are being registered by the
Company, for resale by Acadia, concurrently with this offering) for a period
of six months from the date of this Prospectus without the prior written
consent of the Underwriter.
The Underwriter also acted as the underwriter of the Company's April 1994
IPO, in connection with which it received the Underwriter's IPO Warrants
which are exercisable to purchase an aggregate of 260,000 shares of Common
Stock at $3.25 per share during the period commencing on April 7, 1996 and
expiring on April 7, 1999. In connection with such warrants the Underwriter
has two demand and unlimited piggyback registration rights.
SELLING STOCKHOLDER AND PLAN OF DISTRIBUTION
An aggregate of up to 233,334 Selling Stockholder Shares may be offered
and sold pursuant to this Prospectus by Acadia International Limited, the
Selling Stockholder. The Company has agreed to register the public offering
of the Selling Stockholder Shares under the Securities Act concurrently with
this offering and to pay all expenses in connection therewith. Consequently,
the Selling Stockholder Shares have been included in the Registration
Statement of which this Prospectus forms a part. None of the Selling
Stockholder Shares may be sold by the Selling Stockholder prior to six months
after the date of this Prospectus, without the prior written consent of the
Underwriter. The Selling Stockholder acquired the Selling Stockholder Shares
in connection with providing certain financing to the Company. No officer or
director of the Selling Stockholder has ever held any position or office with
the Company and, other than as an investor, the Selling Stockholder has had
no material relationship with the Company. The Company will not receive any
of the proceeds from the sale of the Selling Stockholder Shares by the
Selling Stockholder.
As of the date of this Prospectus, the Selling Stockholder is the
beneficial owner of 495,834 shares of Common Stock (including the 233,334
Selling Stockholder Shares and 262,500 shares of Common Stock which are
issuable upon exercise of the immediately exercisable Acadia Option),
representing a 3.8% beneficial ownership interest in the Company's Common
Stock prior to the consummation of this offering. Assuming for purposes
hereof that all of the Selling Stockholder Shares are sold, then immediately
following both the consummation of this offering and the sale of all of the
Selling Stockholder Shares (assuming no additional shares are acquired or
sold by either the Company or the Selling Stockholder), the Selling
Stockholder would beneficially own 262,500 shares of Common Stock,
representing a 1.9% beneficial ownership interest in the Company's Common
Stock.
The Selling Stockholder Shares may be offered and sold from time to time
as market conditions permit in the over-the-counter market, or otherwise, at
prices and terms then prevailing or at prices related to the then- current
market price, or in negotiated transactions. The Selling Stockholder Shares
may be sold by one or more of the following methods, without limitation: (a)
a block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchases; and (d) face-to-face transactions
between sellers and purchasers without a broker/dealer. In effecting sales,
brokers or dealers engaged by the Selling Stockholder may arrange for other
brokers or dealers to participate Such brokers or dealers may receive
50
<PAGE>
commissions or discounts from the Selling Stockholder in amounts to be
negotiated. Such brokers and dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act, in connection with such sales.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Henry, Meier, Jones & Johnson, L.L.P., Dallas, Texas.
Intellectual property counsel for the Company is Amster, Rothstein &
Ebenstein, New York, New York. Tenzer Greenblatt LLP, New York, New York has
acted as counsel for the Underwriter in connection with this offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994,
and for the years then ended, which are included in this Prospectus and in
the Registration Statement, have been included herein in reliance upon the
report, appearing elsewhere herein, of KPMG Peat Marwick LLP, independent
certified public accountants, and upon the authority of said firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected and copied, at prescribed rates, at the public reference
facilities of the Commission located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048. Copies of such material can also be inspected at the
reading room of the library of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., 2nd Floor, Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in,
or annexed as exhibits to, the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement including the
exhibits filed therewith. Statements made in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and, where the contract or other document has been filed as an
exhibit to the Registration Statement, each such statement is qualified in
all respects by such reference to the applicable document filed with the
Commission. The Registration Statement may be inspected without charge and
copied, upon payment of prescribed fees, at the facilities of the Commission
referred to above.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ................................................................................... F-2
Financial Statements: Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995 and 1994 ............ F-3
Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) and the years
ended
December 31, 1995 and 1994 .................................................................................... F-4
Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 1996 (unaudited) and
the years ended December 31, 1995 and 1994 .................................................................... F-5
Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) and the years ended
December 31, 1995 and 1994 .................................................................................... F-6
Notes to Financial Statements .................................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TurboChef, Inc.:
We have audited the accompanying balance sheets of TurboChef, Inc. as of
December 31, 1995 and 1994, and the related statements of operations,
stockholders equity (deficit), and cash flows for the years then ended. These
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 generally accepted auditing
standards. 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
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef, Inc. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
February 2, 1996, except for the first
paragraph of note 10 which is as of
February 14, 1996
F-2
<PAGE>
TURBOCHEF, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31
-----------------------------------------------
1996 1995 1994
-------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash ...................................... $ 1,027,868 642,883 617,495
Accounts receivable (note 10) ............. 207,999 572,299 63,286
Inventories ............................... 347,503 539,083 814,480
Prepaid expenses .......................... 64,474 98,782 116,840
-------------- ------------- -------------
Total current assets ............ 1,647,844 1,853,047 1,612,101
-------------- ------------- -------------
Property and equipment:
Leasehold improvements .................... 37,818 37,818 37,818
Furniture and fixtures .................... 59,370 56,360 39,985
Equipment ................................. 312,849 305,718 273,388
-------------- ------------- -------------
410,037 399,896 351,191
Less accumulated depreciation and amortization (174,259) (154,330) (76,708)
-------------- ------------- -------------
Net property and equipment ...... 235,778 245,566 274,483
-------------- ------------- -------------
Deferred offering costs ........................ 183,057 48,529 --
Other assets ................................... 105,672 70,728 79,463
-------------- ------------- -------------
Total assets .................... $ 2,172,351 2,217,870 1,966,047
============== ============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable (note 3) ..................... $ -- -- 210,000
Notes payable to stockholders (note 4) .... 285,000 285,000 --
Accounts payable .......................... 555,508 404,293 202,143
Accrued expenses .......................... 70,671 35,314 37,450
Accrued interest .......................... -- -- 1,438
Sales deposits ............................ 175,150 45,250 132,000
-------------- ------------- -------------
Total current liabilities ....... 1,086,329 769,857 583,031
-------------- ------------- -------------
Accrued interest (note 4) ...................... -- -- 52,516
Notes payable to stockholders (note 4) ......... -- -- 1,100,426
-------------- ------------- -------------
Total liabilities ............... 1,086,329 769,857 1,735,973
-------------- ------------- -------------
Stockholders' Equity (notes 4 and 7):
Common stock, $.01 par value. Authorized
20,000,000 shares. Issued and outstanding
12,868,078 (unaudited), 12,867,078 and
11,857,334 shares at March 31, 1996 and
December 31, 1995 and 1994, respectively . 128,681 128,671 118,573
Additional paid-in capital ................ 10,995,024 10,992,534 8,199,425
Accumulated deficit ....................... (10,037,683) (9,673,192) (8,087,924)
-------------- ------------- -------------
Total stockholders' equity ...... 1,086,022 1,448,013 230,074
Commitments (note 5) ...........................
-------------- ------------- -------------
$ 2,172,351 2,217,870 1,966,047
============== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31 December 31
------------------------------------------------------------
1996 1995 1995 1994
------------- ----------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales ....................... $ 1,048,888 165,398 1,160,131 249,883
Other revenues .................. 5,120 -- 67,980 --
------------- ----------- ------------- -------------
Total revenues ................ 1,054,008 165,398 1,228,111 249,883
------------- ----------- ------------- -------------
Costs and expenses:
Cost of goods sold ............ 796,431 132,917 956,449 195,473
Provision for impairment of
prototype and demonstration
inventory .................. -- -- -- 164,945
Research and development expenses
(note 9) ................... 120,116 146,160 424,325 719,989
Selling, general and
administrative expenses .... 498,904 384,401 1,545,799 2,083,226
------------- ----------- ------------- -------------
Total costs and expenses ..... 1,415,451 663,478 2,926,573 3,163,633
------------- ----------- ------------- -------------
Operating loss ............. (361,443) (498,080) (1,698,462) (2,913,750)
------------- ----------- ------------- -------------
Other income (expense):
Interest income ............... 90 2,674 12,589 25,103
Interest expense (notes 3 and 4) (3,138) (24,261) (31,395) (292,872)
Forfeited sales deposit (note 8) -- -- 132,000 --
------------- ----------- ------------- -------------
(3,048) (21,587) 113,194 (267,769)
------------- ----------- ------------- -------------
Net loss ................... $ (364,491) (519,667) (1,585,268) (3,181,519)
============= =========== ============= =============
Loss per common share ........... $ (.03) (.04) (.13) (.29)
============= =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Shares of Total
common stock Additional stockholders'
(notes 3, 4 Common paid-in Accumulated equity
and 7) stock capital deficit (deficit)
-------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 ..... 9,189,334 $ 91,893 1,886,968 (4,906,405) (2,927,544)
Issuance of stock January 19, 1994
($1.50 per share) ............. 68,000 680 101,320 -- 102,000
Initial public offering April 7, 1994
($2.50 per share), net of offering
costs of $1,262,993 ........... 2,600,000 26,000 5,211,007 -- 5,237,007
Contributed capital ............ -- -- 1,000,000 -- 1,000,000
Sale of warrants April 7, 1994 . -- -- 130 -- 130
Net loss ....................... -- -- -- (3,181,519) (3,181,519)
-------------- ----------- ------------ -------------- ---------------
Balance, December 31, 1994 ..... 11,857,334 118,573 8,199,425 (8,087,924) 230,074
Exchange of indebtedness and accrued
interest by a major stockholder
(note 4) ...................... 457,892 4,579 1,140,151 -- 1,144,730
Exercise of stock options ...... 200,000 2,000 498,000 -- 500,000
Issuance of stock June 1995 ($6.75
per share) .................... 118,518 1,185 798,815 -- 800,000
Exchange of indebtedness and accrued
interest by Acadia Ltd. (note 3) 233,334 2,334 356,143 -- 358,477
Net loss ....................... -- -- -- (1,585,268) (1,585,268)
-------------- ----------- ------------ -------------- ---------------
Balance at December 31, 1995 ... 12,867,078 128,671 10,992,534 (9,673,192) 1,448,013
Exercise of stock options
(unaudited) ................... 1,000 10 2,490 -- 2,500
Net loss (unaudited) ........... -- -- -- (364,491) (364,491)
-------------- ----------- ------------ -------------- ---------------
Balance, March 31, 1996 (unaudited) 12,868,078 $128,681 10,995,024 (10,037,683) 1,086,022
============== =========== ============ ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended Years ended
March 31 December 31
-----------------------------------------------------------
1996 1995 1995 1994
------------- ----------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................ $ (364,491) (519,667) (1,585,268) (3,181,519)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ................ 22,165 18,540 86,562 59,188
Amortization of debt discount ................ -- -- -- 163,400
Impairment of prototype and demonstration inventory -- -- -- 164,945
Interest expense added to principal .......... -- 14,032 21,070 43,901
Decrease (increase) in accounts receivable ... 364,300 (24,628) (509,013) (60,635)
Decrease (increase) in inventories ........... 191,580 116,414 275,397 (814,480)
Decrease (increase) in prepaid expenses ...... 34,308 9,173 18,058 (113,146)
Increase in other assets ..................... -- -- (205) (3,145)
Increase (decrease) in accounts payable ...... 151,215 (11,080) 202,150 (78,269)
Increase (decrease) in accrued expenses ...... 35,357 (8,784) (2,136) (184,912)
Increase (decrease) in accrued interest ...... -- 7,360 (1,011) 30,118
Increase (decrease) in sales deposits ........ 129,900 -- (86,750) (19,370)
------------- ----------- ------------- -------------
Net cash provided by (used in) operating
activities .............................. 564,334 (398,640) (1,581,146) (3,993,924)
------------- ----------- ------------- -------------
Cash flow from investing activities:
Acquisition of demonstration and prototype inventory -- -- -- (17,371)
Purchase of equipment ........................... (10,141) -- (48,705) (174,712)
Additions to intangibles ........................ (37,180) -- -- --
------------- ----------- ------------- -------------
Net cash used in investing activities ...... (47,321) -- (48,705) (192,083)
------------- ----------- ------------- -------------
Cash flows from financing activities:
Proceeds from notes payable ..................... -- 140,000 140,000 210,000
Repayment of notes payable ...................... -- -- -- (1,000,000)
Proceeds from notes payable to stockholders ..... 285,000 -- 285,000 305,298
Repayments of notes payable to stockholders ..... (285,000) (7,490) (21,232) (305,298)
Exercise of stock options ....................... 2,500 -- 500,000 --
Issuance of common stock ........................ -- -- 800,000 102,000
Proceeds from initial public offering ........... -- -- -- 6,500,000
Proceeds from sale of warrants .................. -- -- -- 130
Offering costs .................................. (134,528) -- (48,529) (1,237,993)
------------- ----------- ------------- -------------
Net cash provided by (used in) financing
activities .............................. (132,028) 132,510 1,655,239 4,574,137
------------- ----------- ------------- -------------
Net increase (decrease) in cash ................... 384,985 (266,130) 25,388 388,130
Cash at beginning of period ....................... 642,883 617,495 617,495 229,365
------------- ----------- ------------- -------------
Cash at end of period ............................. $ 1,027,868 351,365 642,883 617,495
============= =========== ============= =============
Supplemental disclosures of noncash financing
activities:
Exchange of indebtedness and accrued interest for
common stock ................................. $ -- 1,144,730 1,503,207 --
============= =========== ============= =============
Contribution of notes payable to additional paid-in
capital ...................................... $ -- -- -- 1,000,000
============= =========== ============= =============
Interest payable added to principal ............. $ -- -- 74,012 264,959
============= =========== ============= =============
Supplemental disclosure of cash flow information --
interest paid ................................... $ 3,138 -- 11,337 55,454
============= =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
TURBOCHEF, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
TurboChef, Inc. (the Company) was incorporated on April 3, 1991. The
Company is a foodservice technology company engaged primarily in
designing, developing and marketing high-speed ovens. From its inception
through February 1994, the operations of the Company were principally
limited to conducting research and development, limited production
operations and test marketing of prototype high-speed commercial ovens. In
March 1994, the Company commenced the commercial manufacturing and initial
marketing of the first restaurant version of the TurboChef oven. Prior to
the last quarter of 1994, the Company was considered to be in the
development stage. The Company believes its primary market is with
traditional full- service restaurants operating both domestically and
internationally. (See note 10 for information regarding concentration of
business risks.)
In April 1994, the Company completed an underwritten initial public
offering ("IPO") of 2,600,000 shares of its common stock resulting in
aggregate proceeds of approximately $5,237,000, net of the underwriter's
discount and other IPO expenses totaling $1,263,000.
The financial statements of the Company as of March 31, 1996 and for the
periods ended March 31, 1996 and 1995 are unaudited, but in the opinion of
management reflect all adjustments consisting of normal recurring accruals
which are necessary for a fair statement of the results of the interim
periods presented. Results for interim periods are not necessarily
indicative of the results to be expected for a full year or for periods
which have been previously reported, due in part to the Company's growth.
(b) Inventory
Inventory is valued at the lower of cost or market and primarily consists
of completed ovens. The Company determines cost for ovens by the specific
cost method.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
respective assets (generally five years). Leasehold improvements are
amortized using the straight-line method over the shorter of the expected
term of the related lease or estimated useful life of the asset.
(d) Deferred Offering Costs
Deferred offering costs consists primarily of legal costs incurred by the
Company in its efforts to secure additional financing. Such costs will be
charged against the proceeds from the offering upon consummation.
(e) Sales Deposits
Sales deposits consists of amounts received from customers for future
purchases of ovens. Deferred amounts will be recognized as revenue as
ovens are shipped to the customer.
(f) Revenue Recognition
The Company records revenue as earned, which occurs when the product is
shipped.
(g) Other Assets and Related Amortization Expense
Other assets consist primarily of the cost of obtaining patents.
Amortization is computed on the straight- line method over ten years.
F-7
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies - (Continued)
(h) Research and Development
Research and development costs consist of all costs incurred in planning,
design and testing of the high- speed commercial oven, including salary
costs related to research and development, and are expensed as incurred.
(i) Product Warranty
The Company's ovens are under warranty against defects in material and
workmanship for a period of one year. Beginning in January 1996,
anticipated future warranty costs are recorded in the period ovens are
sold. Prior to that time, warranty costs were not significant and expensed
as incurred.
(j) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted 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 in the period
that includes the enactment date.
(k) Loss Per Share
Loss per share is determined based on the weighted average number of
common and dilutive common equivalent shares. The weighted average number
of common shares outstanding, as adjusted for the stock splits described
in note 7, were 12,867,375 (unaudited) and 11,943,825 (unaudited) for the
three-month periods ended March 31, 1996 and 1995, respectively, and
12,451,786 and 11,120,282 for the years ended December 31, 1995 and 1994,
respectively.
Giving effect to the March 15, 1995 conversion of a note payable to
stockholder and related accrued interest of $1,144,730 into 457,892 shares
of common stock would not have materially affected loss per share for
1995.
(l) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(m) Reclassifications
Certain amounts in prior periods financial statements have been
reclassified to conform to current year presentation.
(2) LIQUIDITY
Although the Company has historically incurred significant losses, the
Company expects to generate future cash flows from the sale of commercial
ovens and, as necessary, raising capital through future equity or debt
financing. As discussed in note 10, the Company is currently dependent on a
single customer. To the extent these sources of funds are not sufficient, two
officers, who are major shareholders of the Company, have agreed to provide
financial support as required to enable the Company to meet its obligations
through June 1997. If external financing is not sufficient, the Company may
be required to revise its plan of operations, including a curtailment of
expansion and product development activities.
F-8
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements - (Continued)
(3) NOTE PAYABLE
In November 1994, the Company and Acadia International Limited, a corporation
incorporated under the laws of the British Virgin Islands ("Acadia"), entered
into an agreement to jointly develop a new consumer- operated TurboChef oven
(the Model E-1 TurboChef oven) for use in retail locations (the "Acadia
Agreement"). Pursuant to the Acadia Agreement, Acadia committed to invest up
to $1,200,000 in the Model E-1 project, over a period of 16 months, for which
it was ultimately to receive between a 20% and 30% (depending on various
circumstances) ownership interest in AcadiaChef, Inc. ("AcadiaChef"), the
entity formed in connection with this joint venture to commercialize the
proposed Model E-1 oven. Each of the Company and Acadia had the option,
however, of terminating the Acadia Agreement prior to such time, whereupon
Acadia's investment would be returned, as outlined below, and its interest in
AcadiaChef and the E-1 project would be eliminated. As of March 31, 1995, the
Company had completed an initial prototype of the Model E-1 TurboChef oven
and Acadia had invested a total of $350,000 in the project pursuant to the
terms of the Acadia Agreement. The Company elected at such time to terminate
its arrangement with Acadia. Pursuant to the terms of the Acadia Agreement,
upon such termination, Acadia had the option of (i) having its investment
returned to it, in cash plus interest accrued thereon at the rate of 10% per
annum, and receiving an option to purchase 350,000 shares of common stock at
$1.50 per share (the market price of the common stock on the date of the
Acadia Agreement), or (ii) converting the principal amount of its investment
into 233,334 shares of common stock, based on a conversion rate of $1.50 per
share, and receiving an option to purchase 525,000 shares of common stock at
$2.50 per share. Instead, the Company was able to reach an agreement with
Acadia in June 1995, with an effective date of March 31, 1995, whereby Acadia
converted its $350,000 investment, foregoing the accrued interest thereon,
into an aggregate of 233,334 shares of common stock and received an option to
purchase 262,500 shares of common stock at $2.50 per share, exercisable after
March 31, 1996 and expiring March 31, 2002.
(4) TRANSACTIONS WITH STOCKHOLDERS
(a) Notes Payable
On December 29, 1995, a shareholder and officer of the Company advanced the
Company $285,000. The note is unsecured, bears interest at 6.5% and is
scheduled to mature on March 1, 1996, at which time principal and interest
are due. The carrying value of the note approximates the fair value at
December 31, 1995 because of the short maturity of the note. The amount due
to the stockholder was paid by the Company during the three months ended
March 31, 1996 (unaudited). In addition, $285,000 (unaudited) was loaned to
the Company by two stockholders prior to March 31, 1996. The new notes bear
interest at 6 1/2 percent, are unsecured and due on demand.
The notes payable to stockholders at December 31, 1994 are for various
expenses paid by two principal stockholders for the benefit of the Company
and for cash advances to the Company. The notes payable originally bore
interest at 9% per annum with all amounts due on November 15, 1995.
Pursuant to an agreement between the stockholders and the Company, on April
7, 1994, the effective date of the IPO, the terms of the notes payable were
changed as follows:
o Unpaid principal of $1,000,000 was contributed to the Company as a
capital contribution.
o The final due dates were changed from November 15, 1995 to April 7, 1999,
subject to certain conditional prepayment provisions (subsequently
converted to common stock-see paragraph below).
o The interest rate was changed, prospectively, from 9% to 6 1/2 %.
o Accrued interest of $264,959 was added to the unpaid principal balances
of the notes payable. Subse quently, interest was to be payable
semiannually.
F-9
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(4) Transactions With Stockholders - (Continued)
On March 15, 1995, a major stockholder and Chairman of the Board of Directors
of the Company exchanged outstanding indebtedness and accrued interest
aggregating $1,144,730 for 457,892 shares of common stock of the Company. In
addition, the stockholder received an option to purchase 600,000 shares of
the common stock of the Company at $2.50 per share. The option price was
greater than the market price of the Company's common stock on the date of
grant. The options have a five year term and are exercisable beginning March
1996.
(b) Stock Issuance
In June 1995, a principal stockholder and officer of the Company made a
contribution to the capital of the Company in the amount of $800,000 by
purchasing directly from the Company 118,518 shares of the common stock of
the Company at $6.75 per share.
(c) Stock Option Exercise
During 1995, a major stockholder and Chairman of the Board of Directors of
the Company exercised options to purchase 200,000 shares of the common stock
of the Company at $2.50 per share.
(d) Advances from Stockholders
During the period from January 1, 1994 through April 6, 1994, approximately
$305,000 was advanced to the Company by two principal stockholders. The
advances bore interest at prime plus 2%. The advances and accrued interest
were paid in April 1994 with proceeds from the IPO.
(5) LEASE COMMITMENTS
The Company is obligated under certain noncancelable leases for office space
and equipment, the majority of which have remaining terms of less than one
year. Obligations for office space which extends beyond a year are $87,472 in
1996 and $80,183 in 1997. Rent expense was $34,667 (unaudited), $33,619
(unaudited), $122,033 and $154,062 for the three-month periods ended March
31, 1996 and 1995 and the years ended December 31, 1995 and 1994,
respectively.
(6) INCOME TAXES
Actual income tax benefit differs from the "expected" income tax benefit
(computed by applying the U.S. federal corporate tax rate of 34% to loss
before income taxes) is as follows:
<TABLE>
<CAPTION>
Three months Years ended
ended March 31 December 31
------------------------------ --------------------------
1996 1995 1995 1994
------------ ----------- ----------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Computed "expected" tax benefit ............ $ (123,927) (176,687) (538,991) (1,081,716)
Research and development credit ............ (6,299) (7,665) (22,253) (70,000)
Other ...................................... 3,226 4,352 17,444 11,916
Change in the valuation allowance for losses for
which there is no expected tax benefit .... 127,000 180,000 543,800 1,139,800
------------ ----------- ----------- -------------
$ -- -- -- --
============ =========== =========== =============
</TABLE>
F-10
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(6) Income Taxes - (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
December 31
March 31, ------------------------------
1996 1995 1994
------------- ------------- -------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Intangibles principally due to differences in amortization $ 2,000 8,000 12,000
Research and development credit carryforwards ......... 14,000 70,000 79,000
Net operating loss carryforwards ...................... 2,037,000 1,852,000 1,318,200
------------- ------------- -------------
Total gross deferred tax assets ...................... 2,053,000 1,930,000 1,409,200
Less valuation allowance .............................. (2,050,000) (1,923,000) (1,379,200)
------------- ------------- -------------
Net deferred tax assets .............................. 3,000 7,000 30,000
------------- ------------- -------------
Deferred tax liabilities:
Prepaid expenses ...................................... $ -- (2,000) (23,000)
Equipment principally due to difference in depreciation . (3,000) (5,000) (7,000)
------------- ------------- -------------
Total gross deferred tax liabilities ............... (3,000) (7,000) (30,000)
------------- ------------- -------------
Net .............................................. $ -- -- --
============= ============= =============
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred income tax assets will not be realized. The ultimate
realization of deferred income tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Due to the historical operating results of
the Company, management is unable to conclude on a more likely than not
basis that deferred income tax assets will be realized.
At December 31, 1995, the Company has net operating loss carryforwards and
research and development credit carryforwards for federal income tax
purposes of $5,447,000 and $70,000, respectively, which are available to
offset future Federal taxable income, if any, through 2010.
(7) STOCKHOLDERS' EQUITY
(a) Authorized Shares of Common Stock
Effective immediately prior t o April 7, 1994, the effective date of the
Prospectus relating to the Company's IPO, the Company filed an amendment to
the Company's Certificate of Incorporation increasing its authorized shares
of common stock from 5,000 to 20,000,000 shares.
(b) Stock Splits
In December 1995, the Board of Directors of the Company approved a
two-for-one stock split for holders of record on December 29, 1995.
Effective immediately prior to April 7, 1994, the effective date of the
Prospectus relating to the Company's IPO, the Company effected a
1,767.2266-for-one stock split.
The stock splits have been reflected retroactively to all periods presented
in the accompanying financial statements and, accordingly, all applicable
dollar, share and per share amounts have been restated to reflect the stock
splits.
(c) Stock Options
Pursuant to agreements dated as of August 10, 1993, certain major
stockholders of the Company granted options to purchase an aggregate of
161,504 shares of the Company's common stock owned by such
F-11
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(7) Stockholders' Equity - (Continued)
stockholders, at a price of $1.25 per share, to nine persons employed or
retained by either the Company or another entity which had performed
engineering and development work for the Company (see note 9). In
November 1993, 13 persons previously employed by such other entity became
employees of the Company. The options are exercisable over a period
commencing April 7, 1994 and ending August 10, 1998 subject to certain
exceptions.
In January 1994, the Company adopted the 1994 Stock Option Plan ("the
Stock Option Plan"), which was amended in March 1994 and June 1995,
pursuant to which stock options covering an aggregate of 2,400,000 shares
of the Company's common stock may be granted. Options awarded under the
Stock Option Plan (i) are generally granted at prices which equate to or
are above fair market value on the date of the grant; (ii) generally
become exercisable over a period of one to three years; and (iii)
generally expire five years subsequent to award. A summary of stock
option activity follows:
<TABLE>
<CAPTION>
Exercise
Shares price
----------- --------------
<S> <C> <C>
Options granted ................................. 1,075,000 $2.50
Options cancelled ............................... (400,000) 2.50
----------- --------------
Options outstanding at December 31, 1994 ........ 675,000 2.50
Options granted ................................. 1,084,666 1.50-13.25
Options exercised ............................... (200,000) 2.50
Options cancelled ............................... (59,000) 1.50
----------- --------------
Options outstanding at December 31, 1995 ........ 1,500,666 1.50-13.25
Options granted (unaudited) ..................... 539,000 10.75-13.20
Options exercised (unaudited) ................... (1,000) 2.50
Options cancelled (unaudited) ................... (120,000) 13.25
----------- --------------
Options outstanding at March 31, 1996 (unaudited) . 1,918,666 $ 1.50-13.20
=========== ==============
Options exercisable at March 31, 1996 (unaudited) . 1,143,333 $ 1.50-2.50
=========== ==============
Shares available for future grant (unaudited) ... 280,334
===========
</TABLE>
In addition, the Company has issued options to purchase 262,500 shares of
common stock of the Company at $2.50 per share to Acadia (see note 3).
(d) Stock Issuances
In January 1994, the Company entered into stock purchase agreements with
private investors. Under the terms of these agreements, the Company issued
and sold 68,000 shares of common stock for an aggregate purchase price of
$102,000 ($1.50 per share).
(8) FORFEITED SALES DEPOSIT
During 1995, the Company recognized income of $132,000 which had
previously been deposited with the Company for the production of 25 ovens
under a production agreement originated in 1992. Such ovens were completed
in 1993 but were not delivered since the purchaser discontinued the
development of the restaurant concept for which these units were designed.
The Company had previously expensed the cost to produce the 25 units and
management of the Company now believes that no further obligations exist
under the production agreement.
F-12
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
(9) RELATED PARTY TRANSACTIONS
Since inception of the Company, an entity (which was founded and is
principally owned by the Company's former Vice President -- Engineering) has
performed engineering and development work for the Company. The Company paid
the entity fees of $36,211 (unaudited) and $17,143 (unaudited) during the
three-month periods ended March 31, 1996 and 1995, respectively, and $110,603
and $157,079 during the years ended December 31, 1995 and 1994, respectively,
relating primarily to research and development charges incurred on behalf of
the Company.
(10) CONCENTRATION OF BUSINESS RISKS
At December 31, 1995, the Company's accounts receivable from one customer in
the United Kingdom was $450,000. Payments on this account were received as
required by stated credit terms through February 14, 1996. For the year ended
December 31, 1995, revenues from the same customer in the United Kingdom
represented $850,000 or 69.2% of the total revenues of the Company. The loss
of this customer, in the absence of significant additional customers, would
have a material adverse effect on the Company.
At December 31, 1995, substantially all of the production of the Company's
product was performed by a single manufacturer. Management believes that
other manufacturers could provide similar production on comparable terms. A
change in manufacturers, however, could cause a delay in manufacturing and
possible loss of sales, which would adversely affect operating results.
F-13
<PAGE>
A TURBOCHEF OVEN
MAKES COOKING AN ENTIRE MENU FAST AND SIMPLE
- ------------------------------------------------------------------------------
[PICTURE OF TURBOCHEF OVEN]
The Company believes that the characteristics of most food items cooked in a
TurboChef oven (including their flavor, texture and appearance) are not only
superior in quality to those achieved using other high-speed ovens, or microwave
ovens, but are also equal in quality or, in the case of many food items (such as
rack of lamb, beef Wellington, and most fish and seafood items) superior in
quality to those achieved using conventional ovens and grills.
[Picture of Turbo Chef oven Key-pad with four arrows pointing to items on the
key-pad. At the end of the arrows are the captions: "Self-diagnostic
Indicators", "Product "Load" Instructions", "Push Button Ease" and "Program up
to 108 Menu Items."
The Company's proprietary computerized control platform monitors the cooking
process and automatically adjusts cook settings during the cooking cycle. In
addition, the TurboChef oven incorporates easy-to-use programmable settings
which provide foodservice operators with the option of pre-setting and
customizing their own cook settings.
TURBOCHEF OVEN SAMPLE COOKING TIMES
<TABLE>
FROM REFRIGERATED STATE FROM FROZEN STATE
- ------------------------------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Nachos 30 sec. Ravioli Plate 35 sec. Egg Rolls 65 sec.
16' Cheese Pizza 80 sec Bread Sticks 15 sec. Chicken Nuggets 45 sec.
16' Pepperoni Pizza 85 sec. Filled Pastry 55 sec. Chicken Hot Wings 75 sec.
16' Deluxe Pizza 90 sec. Cinnamon Rolls 40 sec. Breaded Chicken Tenders 60 sec.
(3) 8" Pizzas 75 sec. Shrimp Kabob 45 sec. Chicken Pot Pie 80 sec.
Chicken Breasts 55 sec. Shrimp Scampi 35 sec. Chicken Cordon Bleu 60 sec.
Fish Fillets 60 sec Assorted Vegetables 90 sec. Mozzarella Sticks 60 sec.
Hot Dogs 40 sec. Stuffed Mushrooms 45 sec. Breaded Ravioli 50 sec.
Sausage Links 40 sec. Lasagna 70 sec. French Fries 55 sec.
Chicken Parmesan 65 sec. Omelet 35 sec. -----------------------------------
8oz. Strip Steak 70 sec. Reuben Sandwiches 45 sec. TurboChef ovens are intended to allow foodservice
Hamburgers 55 sec. Sub Sandwiches 30 sec. operators the flexibility to "cook-to-order" a
Pork Chops 75 sec. Sausage & Egg Biscuits 30 sec. variety of food items at speeds which the Company
Fajita Plate 65 sec. 1/4 Bone-in-Chicken 2.5 min. believes are faster than those permitted by
Rack of Lamb 2 min. 1/2 Bone-in-Chicken 3.5 min. conventional commercial ovens and grills,
18 oz. Beef Tenderloin 3 min. Baked Potato 3.5 min. microwave ovens, and other currently available
- ------------------------------------------------------------------- high speed ovens.
</TABLE>
<PAGE>
=============================================================================
No dealer, salesperson or any other person has been authorized to give
information or make any representation in connection with this offering other
than as 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 Underwriter or any selling stockholder. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
security other than the securities offered by this Prospectus, or an offer to
sell, or a solicitation of an offer to buy, any securities by any person in
any jurisdiction in which such offer or solicitation is not authorized or
would be unlawful. Neither the delivery of this Prospectus nor any sale
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ............................. 3
Risk Factors ................................... 7
Use of Proceeds ................................ 16
Price Range of Common Stock .................... 17
Dividend Policy ................................ 18
Dilution ....................................... 18
Capitalization ................................. 19
Selected Financial Data ........................ 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 21
Business ....................................... 26
Management ..................................... 39
Principal Stockholders ......................... 43
Certain Transactions ........................... 45
Description of Securities ...................... 47
Shares Eligible for Future Sale ................ 48
Underwriting ................................... 49
Selling Stockholder and Plan of Distribution ... 50
Legal Matters .................................. 51
Experts ........................................ 51
Additional Information ......................... 51
Index to Financial Statements .................. F-1
</TABLE>
=============================================================================
=============================================================================
700,000 SHARES
TURBOCHEF
Common Stock
----------
PROSPECTUS
----------
WHALE SECURITIES CO., L.P.
, 1996
=============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized thereunder eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Restated Certificate of Incorporation of the Registrant eliminates the
personal liability of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by them in connection with any nonderivative suit or proceeding, if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to a
criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection
with the defense or settlement of such action or suit, provided such person
meets the standard of conduct described in the preceding paragraph, except
that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery
or the court in which such action or suit was brought approves such
indemnification and determines that such person is fairly and reasonably
entitled to be indemnified.
Reference is made to Article Tenth of the Restated Certificate of
Incorporation, and Article IX of the Restated By-Laws, of the Registrant for
the provisions which the Registrant has adopted relating to indemnification
of officers, directors, employees and agents.
The Stock Purchase Agreement, as amended (see Exhibit 10.2 to this
Registration Statement), contains provisions entitling certain persons to
indemnification for losses incurred under certain circumstances.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been informed that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In addition, the Registrant has obtained a policy of liability insurance
to insure its officers and directors against losses resulting from wrongful
acts committed by them in their capacities as officers and directors of the
Registrant, including liabilities arising under applicable securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with this
offering (other than underwriting discounts and commissions and the
Underwriter's nonaccountable expense allowance) are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .............. $ 4,717.97
NASD filing fee ................... 1,868.22
Nasdaq listing fee ................ 7,000.00
Printing and engraving expenses ... *
Legal fees and expenses ........... *
Accounting fees and expenses ...... *
Transfer Agent's fees and expenses . *
Blue Sky fees and expenses ........ *
Miscellaneous ..................... *
------------
TOTAL ........................... $349,000.00
============
</TABLE>
- ------
*To be filed by amendment.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April 1993, the Registrant issued and sold to Donald J. Gogel, a
director of the Registrant, 407,876 shares of Common Stock for an aggregate
purchase price of $500,000.
In August 1993, the Registrant issued 160,000, 41,594 and 41,594 shares of
Common Stock (the "August Bridge Financing") to Allan P. White, Don Gaon and
Jack Matalon for aggregate consideration of $200,000, $51,993 and $51,993,
respectively.
In December 1993, the Registrant issued 400,000 shares of Common Stock to
Grand Cheer Company, Ltd. ("Grand Cheer") pursuant to the Company's agreement
to do so in October 1993 in connection with Grand Cheer's loan to the
Registrant in the principal amount of $1,000,000.
In December 1993, the Registrant issued an aggregate of 389,334 shares of
Common Stock to eight purchasers for an aggregate purchase price of $584,000
as follows:
<TABLE>
<CAPTION>
Name Shares of Common Stock Purchase Price
----- ---------------------- --------------
<S> <C> <C>
Allan P. White ................................ 133,334 $200,000
Lawrence Fischer .............................. 20,000 30,000
Harry A. Katz Family Trust dated March 8, 1989 . 20,000 30,000
Harry A. Katz ................................. 64,000 96,000
Hyman Katz .................................... 50,000 75,000
Diane C. Katz ................................. 34,000 51,000
Howard Bloom .................................. 34,000 51,000
Bonnie Lowenstein Rudin and Mitchell E. Rudin . 34,000 51,000
</TABLE>
The purchasers have represented that they are "accredited investors" and
have knowledge and experience in financial and business matters that are
capable of evaluating the merits and risks of acquiring the securities and
understand that the securities cannot be resold without registration or the
availability of an exemption from registration.
In January 1994, the Registrant issued 34,000 shares of Common Stock to
each of Jack Matalon and Don Gaon for a consideration of $51,000 from each
purchaser (together with the issuances in December 1993, the
"December/January Bridge Financing").
In March 1995, the Registrant issued 457,892 shares of Common Stock to
Jeffrey B. Bogatin, Chairman of the Board of the Registrant, in exchange for
certain outstanding indebtedness and accrued interest aggregating $1,144,730.
In June 1995, the Registrant issued 233,334 shares of Common Stock and
options to purchase 262,500 shares of Common Stock at an exercise price of
$2.50 per share to Acadia International Limited ("Acadia") in connection with
the Registrant repurchasing Acadia's interest in AcadiaChef, Inc.
In June 1995, the Registrant issued and sold to Philip R. McKee,
President, Chief Executive Officer and a director of Registrant, 118,518
shares of Common Stock for cash consideration of $800,000.
In June 1995 and December 1995, the Registrant issued and sold to Jeffrey
B. Bogatin 80,000 and 120,000 shares, respectively, of Common Stock, upon the
exercise of stock options previously granted to Mr. Bogatin in April 1994 for
cash consideration of $200,000 and $300,000, respectively.
In March 1996, the Registrant issued and sold 1,000 shares of Common Stock
to Earl R. Winkelmann upon his exercise of certain stock options previously
granted to him in January 1994 for cash consideration of $2,500.
The sales of the aforementioned securities were made in reliance upon the
exemption from the registration provisions of the Act afforded by Section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering. The purchasers of the securities
described above acquired them for their own account and not with a view to
any distribution thereof to the public. The Registrant has placed stop
transfer instructions with its transfer agent with respect to all such
securities.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------
<S> <C>
1.1 Form of Underwriting Agreement between Registrant and Whale Securities Co., L.P.*
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Restated By-Laws of Registrant.(1)
4.1 Form of Underwriter's Warrant Agreement.*
4.2 Form of Certificate for Common Stock.(1)
5.1 Opinion of Henry, Meier, Jones & Johnson, L.L.P.(2)
10.1 Employment Agreement with Philip R. McKee dated March 1, 1996.
10.2 Stock Purchase Agreement with Donald J. Gogel dated April 17, 1993, together with Amendment to Stock Purchase
Agreement dated as of December 31, 1993.(1)
10.3 Shareholders and Registration Rights Agreement among the Registrant, Jeffrey B. Bogatin and Philip R. McKee
dated May 15, 1993, together with Amendment to Shareholders and Registration Rights Agreement dated as
of December 31, 1993. (1)
10.4 Second Extension of Term Agreement with Tower 56 Partners dated December 1, 1995.*
10.5 Lease Agreement with The Fidelity Mutual Life Insurance Company, in Rehabilitation, dated August 24, 1995.*
10.6 Form of Stock Option Agreement between stockholders of Registrant and certain other persons dated as of
August 10, 1993. (1)
10.7 Stock Option Plan, as amended.
10.8 Warrant Agreement between Registrant and Whale Securities Co., L.P. dated April 14, 1994.*
10.9 Option Agreement between Registrant and Acadia International Limited dated as of March 31, 1995.*
10.10 Purchase Contract between Registrant and Whitbread PLC dated June 30, 1995.(3)
10.11 Purchase Contract between Registrant and Whitbread PLC dated December 27, 1995.(3)
10.12 Promissory Note dated December 29, 1995 issued to Philip R. McKee by the Registrant.*
10.13 Lease Agreement with The Fidelity Mutual Life Insurance Company, in Rehabilitation, dated March 21, 1996.
10.14 Promissory Note dated March 30, 1996 issued to Philip R. McKee by the Registrant.
10.15 Promissory Note dated March 30, 1996 issued to Jeffrey B. Bogatin by the Registrant.
10.16 Letter Agreement dated February 6, 1996 by and among Jeffrey B. Bogatin, Philip R. McKee and the Registrant.
21 Subsidiaries of the Registrant*
23.1 Consent of Henry, Meier, Jones & Johnson, L.L.P. (included in its opinion filed as Exhibit 5.1).(2)
23.2 Consent of Amster, Rothstein & Ebenstein.(2)
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (See page II-8 of the Registration Statement as filed on March 29, 1996).
</TABLE>
- ------
* Previously filed.
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2 (File No. 33-75008) and incorporated herein by reference.
(2) To be filed by amendment.
(3) To be filed by amendment subject to a request for confidential treatment
pursuant to Rule 406 promulgated under the Act.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to:
(1) file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
II-3
<PAGE>
(i) include any prospectus required by Section 10(a)(3) of the Act,
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth
in the Registration Statement, and
(iii) include any additional or changed material information on the
plan of distribution;
(2) for determining liability under the Act, treat such post-effective
amendment as a new registration of the securities offered, and the offering
of the securities at that time to be the initial bona fide offering; and
(3) file a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commissions such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, 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 Act and
will be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(i) For determining any liability under the Securities Act, treat 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 as part of this registration statement
as of the time it was declared effective.
(ii) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and the offering of such securities at that time as the initial
bona fide offering of those securities.
The Registrant hereby undertakes to provide to the Underwriter at the
closing specified in the underwriting agreement, certificates in such
denomination and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
In accordance with 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 of filing on Form SB-2 and has authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned in the City of Dallas, Texas on May 23, 1996.
TURBOCHEF, INC.
By: /s/ Philip R. McKee
-----------------------------
Philip R. McKee
President, Chief Executive
Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement on Form SB-2 has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and Director May 23, 1996
--------------------------------
Jeffrey B. Bogatin
/s/ Philip R. McKee President, Chief Executive Officer and Director May 23, 1996
-------------------------------- (Principal Executive Officer)
Philip R. McKee
* Executive Vice President-Chief Financial May 23, 1996
-------------------------------- Officer (Principal Financial Officer)
Dennis J. Jameson
* Director May 23, 1996
--------------------------------
Donald J. Gogel
By: /s/ Philip R. McKee
-----------------------------
Philip R. McKee
Agent and Attorney-in-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.1 Form of Underwriting Agreement between Registrant and Whale Securities Co., L.P.*
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Restated By-Laws of Registrant.(1)
4.1 Form of Underwriter's Warrant Agreement.*
4.2 Form of Certificate for Common Stock.(1)
5.1 Opinion of Henry, Meier, Jones & Johnson, L.L.P.(2)
10.1 Employment Agreement with Philip R. McKee dated March 1, 1996.
10.2 Stock Purchase Agreement with Donald J. Gogel dated April 17, 1993, together with Amendment to Stock Purchase
Agreement dated as of December 31, 1993.(1)
10.3 Shareholders and Registration Rights Agreement among the Registrant, Jeffrey B. Bogatin and Philip R. McKee
dated May 15, 1993, together with Amendment to Shareholders and Registration Rights Agreement dated as
of December 31, 1993. (1)
10.4 Second Extension of Term Agreement with Tower 56 Partners dated December 1, 1995.*
10.5 Lease Agreement with The Fidelity Mutual Life Insurance Company, in Rehabilitation, dated August 24, 1995.*
10.6 Form of Stock Option Agreement between stockholders of Registrant and certain other persons dated as of
August 10, 1993. (1)
10.7 Stock Option Plan, as amended.
10.8 Warrant Agreement between Registrant and Whale Securities Co., L.P. dated April 14, 1994.*
10.9 Option Agreement between Registrant and Acadia International Limited dated as of March 31, 1995.*
10.10 Purchase Contract between Registrant and Whitbread PLC dated June 30, 1995.(3)
10.11 Purchase Contract between Registrant and Whitbread PLC dated December 27, 1995.(3)
10.12 Promissory Note dated December 29, 1995 issued to Philip R. McKee by the Registrant.*
10.13 Lease Agreement with The Fidelity Mutual Life Insurance Company, in Rehabilitation, dated March 21, 1996.
10.14 Promissory Note dated March 30, 1996 issued to Philip R. McKee by the Registrant.
10.15 Promissory Note dated March 30, 1996 issued to Jeffrey B. Bogatin by the Registrant.
10.16 Letter Agreement dated February 6, 1996 by and among Jeffrey B. Bogatin, Philip R. McKee and the Registrant.
21 Subsidiaries of the Registrant*
23.1 Consent of Henry, Meier, Jones & Johnson, L.L.P. (included in its opinion filed as Exhibit 5.1).(2)
23.2 Consent of Amster, Rothstein & Ebenstein.(2)
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (See page II-8 of the Registration Statement as filed on March 29, 1996).
</TABLE>
- ------
* Previously filed.
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2 (File No. 33-75008) and incorporated herein by reference.
(2) To be filed by amendment.
(3) To be filed by amendment subject to a request for confidential treatment
pursuant to Rule 406 promulgated under the Act.
<PAGE>
[TURBOCHEF LETTERHEAD]
March 30, 1996
Mr. Philip R. McKee, President
TURBOCHEF, INC.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
Dear Mr. McKee:
This will confirm our understanding relative to your continued
employment with TurboChef, Inc. ("TurboChef").
1. You shall continue to serve as President and Chief Executive Officer
of TurboChef, effective on the date written above, for a term of three years
from the date first written above, unless sooner terminated pursuant to
paragraph 8 herein. This Agreement shall be automatically renewed three years
from the date first written above for a period of one year, and for succeeding
one-year periods on each subsequent anniversary date of this Agreement, unless
either party hereto notifies the other at least six months before the expiration
of the then current term that such party does not wish to renew this Agreement.
You shall devote all of your business time and attention to the affairs of
TurboChef. You shall perform such duties as shall be given to you by the Board
of Directors of TurboChef.
2. You shall be compensated at the annual base rate of not less than
$95,000 ("Base Salary"). Any and all compensation payments required by this
Agreement shall be payable in equal pro-rata installments in accordance with
TurboChef policy during the stated term of this Agreement.
3. TurboChef will reimburse you for all properly documented necessary
and reasonable business expenses in accordance with its usual practice.
4. You shall participate, subject to eligibility, in such vacation,
profit-sharing, pension, group insurance, executive medical, hospitalization or
other incentive benefit plans or arrangements of TurboChef at a level at least
equal to the executives immediately below you in rank, as TurboChef shall, in
its sole discretion, currently have or hereafter establish. Nothing herein shall
be construed to require TurboChef to establish any such plan or, having
established any of them, to continue any such plan.
5. (a) You recognize that as an executive of TurboChef you have had
and will continue to have access to secret and confidential information
regarding TurboChef, its products, customers and plans. You acknowledge that
such information has been and will be acquired by you in confidence, and you
will not disclose it to any other party without the prior written consent of
<PAGE>
TurboChef. At the request of TurboChef, you will execute a Non-Disclosure
Agreement in favor of TurboChef substantially in the form that TurboChef
presently enters into with persons it does business with.
(b) You also acknowledge that any ideas, technology,
suggestions and business concepts or plans which are in the development stage,
in the process of being developed or have been developed or implemented, whether
or not patentable, are and shall be the sole property of TurboChef. This does
not include items in the public domain. In consideration of the obligations
undertaken by TurboChef as set forth herein, you will not, at any time, during
or after your employment hereunder, divulge to any person other than a person
associated with TurboChef, any such information concerning TurboChef acquired or
developed by you before or during the course of your employment, unless required
to do so by law. You also acknowledge that any ideas, technology, suggestions
and business concepts relating to the business engaged in by TurboChef either
before or during the term of your employment developed or worked on by you
before or during the term of your employment is and shall be the sole property
of TurboChef.
6. (a) You recognize that the services to be performed by you
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of TurboChef that you agree, and
accordingly, you do hereby agree that you will not, directly or indirectly,
except for the benefit of TurboChef, at any time during your employment
hereunder and thereafter for the remaining stated term of the Agreement or two
years from the date of termination of your employment, whichever is longer:
(i) become an officer, director, stockholder,
partner, associate, employee, owner, agent, creditor,
independent contractor, co-venturer or otherwise, or
(except for up to a 3% interest in a company whose
shares are publicly traded) be interested in or
associated with any other corporation, firm or
business engaged in the same or any similar business
competitive with that of TurboChef; or
(ii) solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of
yourself or third parties from persons who were
customers of TurboChef at any time within one year
prior to the cessation of your employment hereunder,
any business similar to the business transacted by
TurboChef with such customer; or
(iii) accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of you or
third parties, any such business from any such
customers of TurboChef as defined in the preceding
subsection; or
<PAGE>
(iv) (A) solicit, entice, persuade or induce,
directly or indirectly, any employee of TurboChef or
any other person, who was at anytime within one year
prior to the cessation of your employment hereunder,
then under contract with or rendering service to
TurboChef, to terminate his or her employment by, or
contractual relationship with, TurboChef or to
refrain from extending or renewing the same (upon the
same or new terms) or to refrain from rendering
services to TurboChef or from TurboChef or to become
employed by or to enter into contractual relations
with persons other than TurboChef; or
(B) approach any such employee or other
person for any of the foregoing purposes; or
(C) authorize or knowingly approve or assist
in the taking of any such actions by any person other
than TurboChef.
7. (a) You agree that any breach or threatened breach by you of any
provisions of paragraphs 5 or 6 shall entitle TurboChef, in addition to any
other legal or equitable remedies available to it, to apply to any court of
competent jurisdiction to enjoin such breach or threatened breach without the
posting of any bond or any security. If any of the restrictions contained in
paragraph (c) shall be deemed to be unenforceable by reason of extent, duration
or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form such paragraph shall
then be enforceable in the manner contemplated hereby.
(b) Paragraphs 5, 6 and 7 shall survive the termination of
your employment hereunder.
(c) For purposes of paragraphs 5, 6 and 7, "TurboChef" shall
mean TurboChef and its affiliates.
8. TurboChef shall have the right to terminate your employment upon
your permanent disability or for cause. If this Agreement terminates due to your
death or permanent disability, TurboChef shall pay you or your legal
representative, as the case may be, all of your Base Salary at the then annual
rate set forth in paragraph 1 of this Agreement earned to the date of death or
determination of permanent disability plus an amount equal to three (3)
months Base Salary payable at the then annual rate set forth in paragraph 1 of
this Agreement.
For purposes of this Agreement, termination for "Cause" shall
be limited to the following:
(i) you are convicted of, or plead nolo contendere
to, any crime or offense involving monies or other property of
<PAGE>
TurboChef or any other crime (whether or not involving
TurboChef) which constitutes a felony or serious misdemeanor
in the jurisdiction involved;
(ii) your continuing willful failure or refusal to
carry out the specific written directions of the Board of
Directors, which violation continues for five (5) business
days following your receipt of such written directions
provided, however, that if such action requested by the
Board of Directors can not be reasonably performed within
five (5) business days then the time allowed to carry out
such specific written instructions shall be extended to such
period as may be required to enable you to reasonably
perform such specific written instructions;
(iii) conduct of yours which brings public obloquy
upon TurboChef; or
(iv) a material breach by you of any provision of
this Agreement which continues for five (5) business days
following receipt of notice by you specifying such breach.
(d) "Permanent disability" shall be deemed to exist if, in the
judgment of a physician licensed to practice in the state in which you then
permanently reside selected by the Board of Directors, you have been unable or
will be unable due to mental or physical incapacity, disease or injury to
perform your duties or services to TurboChef for a period of not less than three
(3) consecutive months.
9. This Agreement is personal and non-assignable by you. It shall
extend to, and be binding upon, any corporation or other entity with which
TurboChef shall merge or consolidate or to which TurboChef shall lease or sell
all or substantially all of its assets and may be assigned by TurboChef to any
affiliate of TurboChef or to any corporation or entity with which such affiliate
shall merge or consolidate or which shall lease or purchase all or substantially
all of the assets of such affiliate.
10. Any notices or other communications required or permitted to be
given hereunder shall be in writing, and shall be duly given if delivered
personally or sent by registered or certified mail, return receipt requested, to
TurboChef at 10500 Metric Drive, Suite 128, Dallas, Texas 75243 and to you at
your address first set forth above, or such other address as either party shall
designate by written notice to the other.
11. This Agreement constitutes the entire agreement between us in any
way relating to your employment and supersedes all prior agreements and
understandings between us. This Agreement may not be altered or amended except
by a writing signed by the party against whom such alteration or amendment is
sought to be enforced.
12. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas applicable to agreements made and to be
performed within this state.
<PAGE>
13. Should the parties hereto disagree concerning their respective
obligations under this Agreement, or any other aspect of this Agreement, the
parties hereto agree to submit their differences to determination and award to
the American Arbitration Association, as arbitrator, with arbitration to occur
in Dallas, Texas.
Very truly yours,
TURBOCHEF, INC.
By: ______________________
Jeffrey B. Bogatin
Chairman of the board
AGREED:
- ---------------------------
Philip R. McKee
<PAGE>
TURBOCHEF, INC.
1994 STOCK OPTION PLAN (AS AMENDED)
SECTION 1. Establishment. There is hereby established the
TurboChef, Inc. 1994 Stock Option Plan ("Plan"), pursuant to which employees and
directors of TURBOCHEF, INC. (the "Company") and consultants and any other
persons who perform substantial services for or on behalf of the Company, any
subsidiaries of the Company and certain other entities may be granted options to
purchase shares of common stock of the Company, par value $.01 per share
("Common Stock"), and thereby share in the future growth of the business. The
subsidiaries of the Company included in this Plan (the "Subsidiaries") shall be
any subsidiary of the Company as defined in Section 424 of the Internal Revenue
Code of 1986, as amended ("the Code").
SECTION 2. Status of Options. The options which may be granted
pursuant to this Plan will constitute either incentive stock options within the
meaning of Section 422 of the Code ("Incentive Stock Options") or options which
are not Incentive Stock Options ("Non-incentive Stock Options"). Incentive Stock
Options and Non-incentive Stock Options shall be collectively referred to herein
as "Options".
SECTION 3. Eligibility. All employees (including officers,
whether or not they are members of the Board of Directors) of the Company or any
of its Subsidiaries who are employed at the time of the adoption of this Plan or
thereafter, any directors of the Company, and any consultants and other persons
who perform substantial services for or on behalf of the Company, any of its
Subsidiaries or affiliates, or any entity in which the Company has an interest
(collectively, the "Grantees") shall be eligible to be granted Non-incentive
Stock Options under this Plan. All employees (including officers, whether or not
they are members of the Board of Directors) of the Company or any of its
Subsidiaries who are employed at the time of adoption of this Plan or thereafter
shall be eligible to be granted Incentive Stock Options under this Plan.
SECTION 4. Number of Shares Covered by Options: No Preemptive
Rights. The total number of shares which may be issued and sold pursuant to
Options granted under this Plan shall be 2,400,000 shares (after giving effect
to (a) a 1,767.2266 for 1 stock split with respect to the Common Stock effected
immediately prior to the Company's initial public offering of Common Stock, and
(b) a 2 for 1 stock split with respect to the Common Stock effected on December
29, 1995) of Common Stock (or the number and kind of shares of stock or other
securities which, in accordance with Section 9 of this Plan, shall be
substituted for such shares of Common Stock or to which said shares shall be
adjusted; hereinafter, all references to shares of Common Stock are deemed to be
references to said shares or shares so adjusted.) The issuance of shares upon
exercise of an Option shall be free from any preemptive or preferential right of
subscription or purchase on the part of any stockholder. If any outstanding
Option granted under this Plan expires or is terminated, for any reason, the
shares of Common Stock subject to the unexercised portion of the Option will
again be available for Options issued under this Plan.
<PAGE>
SECTION 5. Administration.
(a) This Plan shall be administered by the committee (the "Committee")
referred to in paragraph (b) of this Section. Subject to the express provisions
of this Plan, the Committee shall have complete authority, in its discretion, to
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective option
agreements (which need not be identical), to determine the Grantees to whom, and
the times and the prices at which, Options shall be granted, the option periods,
the number of shares of the Common Stock to be subject to each Option and
whether each Option shall be an Incentive Stock Option or a Non-incentive Stock
Option, and to make all other determinations necessary or advisable for the
administration of the Plan. Each Option shall be clearly identified at the time
of grant as to its status. In making such determinations, the Committee may take
into account the nature of the services rendered by the respective Grantees,
their present and potential contributions to the success of the Company and such
other factors as the Committee, in its discretion, shall deem relevant. Nothing
contained in this Plan shall be deemed to give any Grantee any right to be
granted an Option to purchase shares of Common Stock except to the extent and
upon such terms and conditions as may be determined by the Committee. The
Committee's determination on all of the matters referred to in this Section 5
shall be conclusive.
(b) The Committee shall consist of from one (1) to five (5) individuals
who are members of the Board. Each member of the Committee shall be a person
who, at the time of his appointment to, and at all times during his service as a
member of, the Committee is a "disinterested person" as that term is then
defined under Regulation 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any successor statute or regulation
regarding the same subject matter. The Committee shall be appointed by the
Board, which may at any time, and from time to time, remove any member of the
Committee, with or without cause, appoint additional members to the Committee
and fill vacancies, however caused, in the Committee. A majority of the members
of the Committee shall constitute a quorum and all determinations of the
Committee shall be made by a majority of such quorum. Any decision or
determination of the Committee reduced to writing and signed by all of the
members of the Committee shall be fully as effective as if it had been made at a
meeting duly called and held.
(c) The Committee may at its election provide in any option agreement
covering the grant of Options under this Plan that, upon the exercise of such
Options, the Company will loan to the holder thereof such amount as shall equal
the purchase price of the shares of Common Stock issuable upon such exercise,
such loan to be on terms and conditions deemed appropriate by the Committee.
(d) Notwithstanding any provision hereof to the contrary, the Committee
shall have sole and exclusive authority with respect to the grant of Options to
directors.
- 2 -
<PAGE>
SECTION 6. Terms of Incentive Stock Options. Each Incentive
Stock Option granted under this Plan shall be evidenced by an Incentive Stock
Option Agreement which shall be executed by the Company and by the person to
whom such Incentive Stock Option is granted, and shall be subject to the
following terms and conditions:
(a) The price at which shares of Common Stock covered by each Incentive
Stock Option may be purchased pursuant thereto shall be determined in each case
on the date of grant by the Committee, but shall be an amount not less than the
par value of such shares and not less than the fair market value of such shares
on the date of grant. For purposes of this Section, the fair market value of
shares of Common Stock on any day shall be (i) in the event the Common Stock is
not publicly traded, the fair market value on such day as determined in good
faith by the Committee or (ii) in the event the Common Stock is publicly traded,
the last sale price of a share of Common Stock as reported by the principal
quotation service on which the Common Stock is listed, if available, or if last
sale prices are not reported with respect to the Common Stock, the mean of the
high bid and low asked prices of a share of Common Stock as reported by such
principal quotation service, or if there is no such report by such quotation
service for such day, such fair market value shall be the average of (i) the
last sale price (or, if last sale prices are not reported with respect to the
Common Stock, the mean of the high bid and low asked prices) on the day next
preceding such day for which there was a report and (ii) the last sale price
(or, if last sale prices are not reported with respect to the Common Stock, the
mean of the high bid and low asked prices) on the day next succeeding such day
for which there was a report, or as otherwise determined by the Committee in its
discretion pursuant to any reasonable method contemplated by Section 422 of the
Code and any regulations issued pursuant to that Section.
(b) The option price of the shares to be purchased pursuant to each
Incentive Stock Option shall be paid in full in cash, or by delivery (i.e.
surrender) of shares of Common Stock of the Company then owned by the Grantee,
at the time of the exercise of the Incentive Stock Option. Shares of Common
Stock so delivered will be valued on the day of delivery for the purpose of
determining the extent to which the option price has been paid thereby, in the
same manner as provided for the purchase price of Incentive Stock Options as set
forth in paragraph (a) of this Section, or as otherwise determined by the
Committee, in its discretion, pursuant to any reasonable method contemplated by
Section 422 of the Code and any regulations issued pursuant to that Section.
(c) Each Incentive Stock Option Agreement shall provide that such
Incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, with a period not exceeding
ten years after the date on which the Incentive Stock Option is granted
(hereinafter called the "Incentive Stock Option Period") and, in any event, only
during the continuance of the employee's employment by the Company or any of its
Subsidiaries or during the period of three months after the termination of such
employment to the extent that the right to exercise such Incentive Stock Option
had accrued at the date of such termination; provided, however, that if
Incentive Stock Options as to 100 or more shares are held by a Grantee, then
such Incentive Stock Options may not be exercised for less than 100 shares
- 3 -
<PAGE>
at any one time, and if Incentive Stock Options for less than 100 shares are
held by a Grantee, then Incentive Stock Options for all such shares must be
exercised at one time; and provided, further, that if the Grantee, while still
employed by the Company or any of its Subsidiaries, shall die within the
Incentive Stock Option Period, the Incentive Stock Option may be exercised, to
the extent specified in the Incentive Stock Option Agreement, and as herein
provided, but only prior to the first to occur of:
(i) the expiration of the period of one year after the
date of the Grantee's death,
(ii) the expiration of the Incentive Stock Option Period, by
the person or persons entitled to do so under the Grantee's will, or, if the
Grantee shall fail to make testamentary disposition of said Incentive Stock
Option, or shall die intestate, by the Grantee's legal representative or
representatives.
(d) Each Incentive Stock Option granted under this Plan shall by its
terms be non-transferable by the Grantee except by will or by the laws of
descent and distribution, and each Incentive Stock Option shall by its terms be
exercisable during the Grantee's lifetime only by him.
(e) Notwithstanding the foregoing, if an Incentive Stock Option is
granted to a person at any time when such person owns, within the meaning of
Section 424 (d) of the Code, more than 10% of the total combined voting power of
all classes of stock of the employer corporation (or a parent or subsidiary of
such corporation within the meaning of Section 424 of the Code) the price at
which each share of Common Stock covered by such Incentive Stock Option may be
purchased pursuant to such Incentive Stock Option shall not be less than 110% of
the fair market value (determined as in paragraph (a) of this Section) of the
shares of Common Stock at the time the Incentive Stock Option is granted, and
such Incentive Stock Option must be exercised within a period specified in the
Incentive Stock Option Agreement which does not exceed five years after the date
on which such Incentive Stock Option is granted.
(f) The Incentive Stock Option Agreement entered into pursuant hereto
may contain such other terms, provisions and conditions not inconsistent
herewith as shall be determined by the Committee including, without limitation,
provisions (i) requiring the giving of satisfactory assurances by the Grantee
that the shares are purchased for investment and not with a view to resale in
connection with a distribution of such shares, and will not be transferred in
violation of applicable securities laws, (ii) restricting the transferability of
such shares during a specified period, and (iii) requiring the resale of such
shares to the Company at the option price if the employment of the employee
terminates prior to a specified time. In addition, the Committee, in its
discretion, may afford to holders of Incentive Stock Options granted under this
Plan the right to require the Company to cause to be registered under the
Securities Act of 1933, as amended, for public sale by the holders thereof,
shares of Common Stock subject to such Incentive Stock Options upon such terms
and subject to such conditions as the Committee may determine to be appropriate.
- 4 -
<PAGE>
(g) In the discretion of the Committee, a single Stock Option Agreement
may include both Incentive Stock Options and Non-incentive Stock Options, or
those options may be included in separate stock option agreements.
Section 7. Terms of Non-incentive Stock Options. Each
Non-incentive Stock Option granted under this Plan shall be evidenced by a
Non-incentive Stock Option Agreement which shall be executed by the Company and
by the person to whom such Non-incentive Stock Option is granted, and shall be
subject to the following terms and conditions:
(a) The price at which shares of Common Stock covered by each
Non-incentive Stock Option may be purchased pursuant thereto shall be an amount
not less than the par value of such shares and not less than the fair market
value of such shares on the date of grant, determined in the manner provided in
Section 6(a) of this Plan.
(b) Each Non-incentive Stock Option Agreement shall provide that such
Non-incentive Stock Option may be exercised by the Grantee, in such parts and at
such times as may be specified in such Agreement, within a period up to and
including ten years and thirty days after the date on which the Non-incentive
Stock Option is granted.
(c) Each Non-incentive Stock Option granted under this Plan shall by
its terms be non-transferable by the optionee except by will or by the laws of
descent and distribution, and each Non-incentive Stock Option shall by its terms
be exercisable during the Grantee's lifetime only by him.
(d) The Non-incentive Stock Option Agreement entered into pursuant
hereto may contain such other terms, provisions and conditions not inconsistent
herewith as shall be determined by the Committee, in its sole discretion,
including without limitation the terms, provisions and conditions set forth in
Section 6(f) with respect to Incentive Stock Option Agreements.
Section 8. Limit on Option Amount. Notwithstanding any
provision contained herein, the aggregate fair market value (determined under
Section 6(a) as of the time such Incentive Stock Options are granted) of the
shares of Common Stock with respect to which Incentive Stock Options are first
exercisable by any employee during any calendar year (under all stock option
plans of the employee's employer corporation and its parent and subsidiary
corporation within the meaning of Section 424 of the Code) shall not exceed
$100,000. If an Option exceeds this $100,000 limitation, the portion of such an
option which is exercisable for shares of Common Stock in excess of the $100,000
limitation shall be treated as a Non-incentive Stock Option. The limit in this
paragraph shall not apply to options which are designated as Non-incentive Stock
Options, and, except as otherwise provided herein, there shall be no limit on
the amount of such options which may be first exercisable in any year.
- 5 -
<PAGE>
Section 9. Adjustment of Number of Shares. In the event that a
dividend shall be declared upon the shares of Common Stock payable in shares of
Common Stock, the number of shares of Common Stock then subject to any Option
granted hereunder, and the number of shares reserved for issuance pursuant to
this Plan but not yet covered by an Option, shall be adjusted by adding to each
of such shares the number of shares which would be distributable thereon if such
share had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the outstanding
shares of Common Stock shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there shall be substituted
for each share of Common Stock reserved for issuance pursuant to this Plan but
not yet covered by an Option, the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock shall be so changed
or for which each such share shall be exchanged; provided, however, that in the
event that such change or exchange results from a merger or consolidation, and
in the judgment of the Board of Directors such substitution cannot be effected
or would be inappropriate, or if the Company shall sell all or substantially all
of its assets, the Company shall use reasonable efforts to effect some other
adjustment of each then outstanding Option which the Board of Directors, in its
sole discretion, shall deem equitable. In the event that there shall be any
change, other than as specified above in this Section 9, in the number or kind
of outstanding shares of Common Stock or of any stock or other securities into
which such shares of Common Stock shall have been changed or for which they
shall have been exchanged, then, if the Board of Directors shall determine that
such change equitably requires an adjustment in the number or kind of shares
theretofore reserved for issuance pursuant to the Plan but not yet covered by an
Option and of the shares then subject to an Option or Options, such adjustment
shall be made by the Board of Directors and shall be effective and binding for
all purposes of this Plan and of each stock option agreement. Notwithstanding
the foregoing, if any adjustment in the number of shares which may be issued and
sold pursuant to Options is required by the Code or regulations issued pursuant
thereto to be approved by the stockholders in order to enable the Company to
issue Incentive Stock Options pursuant to this Plan, then no such adjustment
shall be made without the approval of the stockholders. In the case of any such
substitution or adjustment as provided for in this Section, the option price in
each stock option agreement for each share covered thereby prior to such
substitution or adjustment will be the total option price for all shares of
stock or other securities which shall have been substituted for each such share
or to which such share shall have been adjusted pursuant to this Section 9. No
adjustment or substitution provided for in this Section 9 shall require the
Company, in any stock option agreement, to sell a fractional share, and the
total substitution or adjustment with respect to each stock option agreement
shall be limited accordingly. Notwithstanding the foregoing, in the case of
Incentive Stock Options, if the effect of the adjustments or substitution is to
cause the Incentive Stock Option to fail to continue to qualify as an Incentive
Stock Option or to cause a modification, extension or renewal of such Incentive
Stock Option within the meaning of Section 424 of the Code, the Board of
Directors shall use reasonable efforts to effect such other adjustment of each
then outstanding option as the Board of Directors, in its sole discretion, shall
deem equitable.
- 6 -
<PAGE>
Section 10. Retirement. Notwithstanding any provision of this
Plan or any provision in any stock option agreement to the contrary, all
unexpired Options granted to any Grantee who is an employee of the Company or
any of its Subsidiaries will become immediately exercisable in full upon the
"retirement" of such Grantee; provided, that, such Grantee shall have been
employed by the Company or any of its Subsidiaries for a period of at least two
consecutive years prior to the date of such retirement. For purposes of this
Plan, the term "retirement" shall mean (i) the voluntary termination of
employment with the Company and/or any of its Subsidiaries by a Grantee on or
after the date such Grantee becomes 62 years old, or (ii) the mandatory
retirement with respect to a Grantee pursuant to the Company's then existing
employment policy.
Section 11. Amendments. This Plan may be terminated or amended
from time to time by vote of the Board of Directors; provided, however, that no
such termination or amendment shall materially adversely affect or impair any
then outstanding Option without the consent of the Grantee thereof and no
amendment which shall (i) change the total number of shares which may be issued
and sold pursuant to Options granted under this Plan, or (ii) change the
designation or class of employees or other persons eligible to receive Incentive
Options or Non-incentive Option, shall be effective without the approval of the
stockholders.
Section 12. Termination. Except to the extent necessary to
govern outstanding Options, this Plan shall terminate on, and no additional
Options shall be granted after, ten years from the date the Plan is adopted, or
ten years from the date the Plan is approved by the stockholders, whichever is
earlier.
A:\EXHIBITS\STOCKPLN
- 7 -
<PAGE>
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease") dated for reference purposes only,
March 21, 1996, is made by and between The Fidelity Mutual Life Insurance
Company in Rehabilitation ("Lessor") and TurboChef, Inc. ("Lessee"),
(collectively the "Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 10500 Metric Drive - Suite 126,
located in the City of Dallas, County of Dallas, State of Texas, with zip code
75243-5517, as outlined on Exhibit A attached hereto ("Premises"). The
"Building" is that certain building containing the Premises and generally
described as (describe brief the nature of the Building): Park Forest Business
Center - Approximately 7,085 SF, 10500 Metric Drive - Suite 126; Dallas, Texas
75243-5517. In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with
all other buildings and improvements thereon, are herein collectively referred
to as the "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: Sixteen (16) unreserved vehicle parking spaces
("Unreserved Parking Spaces"); and no reserved vehicle parking spaces
("Reserved Parking Spaces"). (Also see Paragraph 2.6)
1.3 Term: 4 years and 0 months ("Original Term") commencing June 1,
1996 ("Commencement Date") and ending May 31, 2000 ("Expiration Date"). (Also
see Paragraph 3.)
1.4 Early Possession: N/A ("Early Possession Date"). (Also see
Paragraph 3.2 and 3.3.)
1.5 Base Rent: $ See addendum 67 per month ("Base Rent"), payable on
the first day of each month commencing June 1, 1996. (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 62, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $ N/A as Base Rent for the
period N/A.
1.6(b) Lessee's Share of Common Area Operating Expenses: Three and
five hundred thirty-nine thousandths percent (3.539%) ("Lessee's Share") as
determined by [x] prorata square footage of the Premises as compared to the
total square footage of the Building or [ ] other criteria as described in
Addendum .
---
1.7 Security Deposit: $1,500.00 Honored from previous lease
("Security Deposit"). (Also see paragraph 5.)
<PAGE>
(Also see Paragraph 5.)
1.8 Permitted Use: Office/Warehouse/Technical "Permitted Use")(Also
see Paragraph 6.)
1.9 Insuring Party: Lessor is the "Insuring Party." (Also see
Paragraph 8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the"Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties.
Glenn Williams & Associates, Inc. represents both Lessor and Lessee
("Dual Agency"). (Also see Paragraph 15).
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate
shares as they may mutually designate in writing, a fee as set forth in a
separate written agreement between Lessor and said Broker(s) (or in the event
there is no separate written agreement between Lessor and said Broker(s), the
sum of $ N/A for brokerage services rendered by said Broker(s) in connection
with this transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 66, and Exhibits A through D, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon
is not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the Premises,
other than those constructed by Lessee, shall be in good operating condition
on the Commencement Date. If a non-compliance with said warranty exists as of
the Commencement Date, Lessor shall, except as otherwise provided in this
Lease, promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the
<PAGE>
Commencement Date, correction of that non-compliance shall be the obligation
of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be
reasonable or appropriate to rectify the non-compliance. Lessor makes no
warranty that the Permitted Use in Paragraph 1.8 is permitted for the Premises
under Applicable Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, seismic and
earthquake requirements, and compliance with the Americans with Disabilities
Act and applicable zoning, municipal, county, state and federal laws,
ordinances and regulations and any covenants or restrictions of record
(collectively "Applicable Laws") and the present and future suitability of the
Premises for Lessee's intended use; (b) that Lessee has made such
investigation as it deems necessary with reference to such matters, is
satisfied with reference thereto, and assumes all responsibility therefore as
the same relate to Lessee's occupancy of the Premises and/or the terms of this
Lease; and (c) that neither Lessor, nor any of Lessor's agents, has made any
oral or written representations or warranties with respect to said matters
other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted
Size Vehicles." Vehicles other than Permitted Size Vehicles shall be parked
and loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, contractors or invitees to be loaded, unloaded, or parked
<PAGE>
in areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the
Premises that are provided and designated by the Lessor from time to time for
the general non-exclusive use of Lessor, Lessee and other lessees of the
Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways and landscaped areas.
2.8 Common Areas-- Lessee's Rights. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges
reserved by Lessor under the terms hereof or under the terms of any rules and
regulations or restrictions governing the use of the Industrial Center. Under
no circumstances shall the right herein granted to use the Common Areas be
deemed to include the right to store any property, temporarily or permanently,
in the Common Areas. Any such storage shall be permitted only by the prior
written consent of Lessor or Lessor's designated agent, which consent bay be
revoked at any time. In the event that any unauthorized storage shall occur
then Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and charge the
cost to Lessee, which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable Rules and Regulations with
respect thereto in accordance with Paragraph 40. Lessee agrees to abide by and
conform to all such Rules and Regulations, and to cause its employees,
suppliers, shippers, customers, contractors and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including,
without limitation, changes in the location, size, shape and number of
driveways, entrances, parking spaces, parking areas, loading and unloading
<PAGE>
areas, ingress, egress, direction of traffic, landscaped areas, walkways and
utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or
any portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be
appropriate.
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after
the Early Possession Date but prior to the Commencement Date, the obligation
to pay Base Rent shall be abated for the period of such early occupancy. All
other terms of this Lease, however, (including but not limited to the
obligations to pay Lessee's Share of Common Area Operating Expenses and to
carry the insurance required by Paragraph 8) shall be in effect during such
period. Any such early possession shall not affect nor advance the Expiration
Date of the Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor, shall such failure affect the validity of this Lease, or the obligations
of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall
not, except as otherwise provided herein, be obligated to pay rent or perform
any other obligation of Lessee under the terms of this Lease until Lessor
delivers possession of the Premises to Lessee. If possession of the Premises
is not delivered to Lessee within sixty (60) days after the Commencement Date,
Lessee may, at its option, by notice in writing to Lessor within ten (10) days
after the end of said sixty (60) day period, cancel this Lease, in which event
the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period. Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect. Except as may
be otherwise provided, and regardless of when the Original Term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
<PAGE>
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to the period during which the Lessee would have otherwise enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. Rent
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of
the United States, without offset or deduction, on or before the day on which
it is due under the terms of this Lease. Base Rent and all other rent and
charges for any period during the term hereof which is for less than one full
month shall be prorated based upon the actual number of days of the month
involved. Payment of Base Rent and other charges shall be made to Lessor at
its address stated herein or to such other persons or at such other addresses
as Lessor may from time to time designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of the Lease, in accordance
with the following provisions:
(a) "Common Area Operating Expenses" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited
to, the following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, Common Area lighting facilities, fences and gates, elevators and
roof.
(bb) Exterior signs and any tenant
directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and
security services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair
of Common Areas.
<PAGE>
(v) Any increase above the Base Real Property Taxes
(as defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1).
(vii) The cost of insurance carried by Lessor with
respect to the Common Areas.
(viii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(ix) Any other services to be provided by Lessor
that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other
building. However, any Common Area Operating Expenses and Real Property Taxes
that are not specifically attributable to the Building or to any other
building or to the operation, repair and maintenance thereof, shall be
equitably allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in this
Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall
be payable by Lessee within ten (10) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor. At Lessor's
option, however, an amount may be estimated by Lessor from time to time of
Lessee's Share of annual Common Area Operating Expenses and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each 12-month
period of the Lease term, on the same day as the Base Rent is due hereunder.
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of
the actual Common Area Operating Expenses incurred during the preceding year.
If Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement, Lessor shall be credited
the amount of such overpayment against Lessee's Share of Common Area Operating
Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d)
during said preceding year were less than Lessee's Share as indicated on said
statement, Lessee shall pay to Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for
Lessee's faithful performance of Lessee's obligations under this Lease. If
Lessee fails to pay Base Rent or other rent or charges due hereunder,
<PAGE>
or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor
may use, apply or retain all or any portion of said Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefore deposit monies with Lessor sufficient to restore
said Security Deposit to the full amount required by this Lease. Any time the
Base Rent increases during the term of this Lease, Lessee shall, upon written
request from Lessor, deposit additional monies with Lessor as an addition to
the Security Deposit so that the total amount of the Security Deposit shall at
all times bear the same proportion to the then current Base Rent as the
initial Security Deposit bears to the initial Base Rent set forth in Paragraph
1.5. Lessor shall not be required to keep all or any part of the Security
Deposit separate from its general accounts. Lessor shall, at the expiration or
earlier termination of the term hereof and after Lessee has vacated the
Premises, return to Lessee (or, at Lessor's option, to the last assignee, if
any, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in
trust, to bear interest or other increment for its use, or to be prepayment
for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessor shall not use
or permit the use of the Premises in a manner that is unlawful, creates waste
or a nuisance, or that disturbs owners and/or occupants of, or causes damage
to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long as
the same will not impair the structural integrity of the improvements on the
Premises or in the Building or the mechanical or electrical systems therein,
does not conflict with uses by other lessees, is not significantly more
burdensome to the Premises or the Building and the improvements thereon, and
is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days after such
request give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health,
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safety or welfare, the environment, or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for potential
liability of Lessor to any governmental agency or third party under any
applicable statute or common law theory. Hazardous Substances shall include,
but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
products or by-products thereof. Lessee shall not engage in any activity in or
about the Premises which constitutes a Reportable Use (as hereinafter defined)
of Hazardous Substances without express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Requirements (as defined in Paragraph 6.3). "Reportable Use" shall
mean (i) the installation or use of any above or below ground storage tank,
(ii) the generation, possession, storage, use, transportation, or disposal of
a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with,
any governmental authority, and (iii) the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Laws
require that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but upon notice to Lessor and in compliance with all
Applicable Requirements, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of the Permitted Use, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to any Reportable Use of any
Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited
to the installation (and, at Lessor's option, removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the
deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement , report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party concerning
the presence, spill, release, discharge of, or exposure to, such Hazardous
Substance including but not limited to all such documents as may be involved
in any Reportable Use involving the Premises. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary
sewer system).
(c) Indemnification. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss or
permits and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by or for Lessee or by anyone
under Lessee's control. Lessee's obligations under this Paragraph 6.2(c) shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the
cost of investigation (including consultants' and attorneys' fees and
<PAGE>
testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Lessor and Lessee shall release Lessee from its
obligations under this Lease with respect to Hazardous Substances, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with
all "Applicable Requirements," which term is used in this Lease to mean all
laws, rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene,
(ii) environmental conditions on, in, under or about the Premises, including
soil and groundwater conditions, and (iii) the use, generation, manufacture,
production, installation, maintenance, removal, transportation, storage,
spill, or release of any Hazardous Substance), now in effect or which may
hereafter come into effect, Lessee shall, within five (5) days after receipt
of Lessor's written request, provide Lessor with copies of all documents and
information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of
any threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving failure by Lessee or the Premises to comply with
any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or ground leases on the Premises ("Lenders") shall
have the right to enter the Premises at any time in the case of an emergency,
and otherwise, at reasonable times, for the purpose of inspecting the
condition of the Premises and for verifying compliance by Lessee with this
Lease and all Applicable Requirements (as defined in Paragraph 6.3), and
Lessor shall be entitled to employ experts and/or consultants in connection
therewith to advise Lessor with respect to Lessee's activities, including but
not limited to Lessee's installation, operation, use, monitoring, maintenance,
or removal of any Hazardous Substance on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease by Lessee or a violation of
Applicable Requirements or a contamination, caused or materially contributed
to by Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee shall
upon request reimburse Lessor or Lessor's Lender, as the case may be, for the
costs and expenses of such inspections.
7. Maintenance, Repairs , Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraph 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
<PAGE>
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereon in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense,
procure and maintain a contract, with copies to Lessor, in customary form and
substance for and with a contractor specializing and experienced in the
inspection, maintenance and service of the heating, air conditioning and
ventilation system for the Premises. However, Lessor reserves the right, upon
notice to Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor, upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to
reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition
and repair the foundations, exterior walls, structural condition of interior
bearing walls, exterior roof, fire sprinkler and/or standpipe and hose (if
located in the Common Areas) or other automatic fire extinguishing system
including fire alarm and/or smoke detection systems and equipment, fire
hydrants, parking lots, walkways, parkways, driveways, landscaping, fences,
signs and utility systems serving the Common Areas and all parts thereof, as
well as providing the services for which there is a Common Area Operating
Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the
exterior or interior surfaces of exterior walls nor shall Lessor be obligated
to maintain, repair or replace windows, doors or plate glass of the Premises.
Lessee expressly waives the benefit of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and
repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
<PAGE>
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed $2,500.00
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with detailed plans. All consents given
by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing
of copies of such permits together with a copy of the plans and specifications
for the Alteration or Utility Installation to Lessor prior to commencement of
the work thereon; and (iii) the compliance by Lessee with all conditions of
said permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may, (but without obligation to do so) condition its consent
to any requested Alteration or Utility Installation that costs $2,500.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such Alteration
or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in, on, or about the Premises, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor
in an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorneys' fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
<PAGE>
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter
provided in this Paragraph 7.4, all Alterations and Utility Installations made
to the Premises by Lessee shall be the property of and owned by Lessee, but
considered a part of the Premises. Lessor may, at any time and at its option,
elect in writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise
instructed per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and
Utility Installations shall, at the expiration or earlier termination of this
Lease, become the property of Lessor and remain upon the Premises and be
surrendered with the Premises by Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor
may require that any or all Lessee-Owned Alterations or Utility Installations
be removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by Lessor.
Lessor may require the removal at any time of all or any part of any
Alterations or Utility Installations made without the required consent of
Lessor.
(c) Surrender/Restoration. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, clean and free of debris and in good operating order,
condition and state of repair, ordinary wear and tear excepted. Ordinary wear
and tear shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified herein,
the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraph 8.2(b),
8.3(a) and 8.3(b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase" shall
not, however, include any premium increases resulting from the nature of the
<PAGE>
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base Premium." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of this premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of Insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury ,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke, or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss
or damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the restructuring or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or polices shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
or subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
<PAGE>
(b) Rental Value. Lessor shall also obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and any Lender(s), insuring the loss of
the full rental and other charges payable to all lessees of the Building to
Lessor for one year (including all Real Property Taxes, insurance costs, all
Common Area Operating Expenses and any scheduled rental increases). Said
insurance may provide that in the event the Lease is terminated by reason of
an insured loss, the period of indemnity for such coverage shall be extended
beyond the date of the completion of repairs or replacement of the Premises,
to provide for one full year's loss of rental revenues from the date of any
such loss. Said insurance shall contain an agreed valuation provision in lieu
of any co-insurance clause, and the amount of coverage shall be adjusted
annually to reflect the projected rental income. Real Property Taxes, insurance
premium costs and other expenses, if any, otherwise payable, for the next
12-month period. Common Area Operating Expenses shall include any deductible
amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase
in the premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the insuring
Party, Lessor shall not be required to insure Lessee-Owned Alterations and
Utility installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property. Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on, or about the
Premises similar in coverage to that carried by Lessor as the Insuring Party
under Paragraph 8.3(a). Such insurance shall be full replacement cost coverage
with a deductible not to exceed $1,000 per occurrence. The proceeds from any
such insurance shall be used by Lessee for the replacement of personal
property and the restoration of Trade Fixtures and Lessee-Owned Alterations
and Utility Installations. Upon request from Lessor, Lessee shall provide
Lessor with written evidence that such insurance is in force.
<PAGE>
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a
Lender, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor, within seven (7) days after the earlier of the Early
Possession Date or the Commencement Date, certified copies of, or certificates
evidencing the existence and amounts of, the insurance required under
Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss or damage to their property arising out of or
incident to the perils required to be insured against under Paragraph 8. The
effect of such releases and waivers of the right to recover damages shall not
be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto. Lessor and Lessee agree to have their
respective insurance companies issuing property damage insurance waive any
right to subrogation that such companies may have against Lessor or Lessee, as
the case may be, so long as the insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor,
partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits,
attorneys' and consultants' fees, expenses and/or liabilities arising out of,
involving, or in connection with, the occupancy of the Premises by Lessee, the
conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach
by Lessee in the performance in a timely manner of any obligation on Lessee's
part to be performed under this Lease. The foregoing shall include, but not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not (in the case of claims made against
Lessor) litigated and/or reduced to judgment. In case any action or proceeding
be brought against Lessor by reason of any of the foregoing matters, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in
such defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said injury or damage results from
<PAGE>
conditions arising upon the Premises or upon other portions of the Building of
which the Premises are a part, from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other lessee of Lessor nor from the failure by
Lessor to enforce the provisions of any other lease in the Industrial Center.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in Paragraph
9.1(d)) of the Premises (excluding Lessee-Owned Alterations and Utility
Installations and Trade Fixtures) immediately prior to such damage or
destruction.
(b) "Premises Total Destruction" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at
the option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to
their condition existing immediately prior thereto, including demolition,
debris removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in,
on, or under the Premises.
<PAGE>
9.2 Premises Partial Damage-Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after
receipt by Lessor of knowledge of the occurrence of such damage of Lessor's
desire to terminate this Lease as of the date sixty (60) days following the
date of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage totally at
Lessee's expense and without reimbursement from Lessor. Lessee shall provide
Lessor with the required funds or satisfactory assurance thereof within thirty
(30) days following such commitment from Lessee. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 9.7.
<PAGE>
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by (a) exercising such option, and (b)
providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten (10) days after Lessee's receipt of Lessor's written
notice purporting to terminate this Lease, or (ii) the day prior to the date
upon which such option expires. If Lessee duly exercises such option during
such period and provides Lessor with funds (or adequate assurance thereof) to
cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense
repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during such period, then this Lease shall
terminate as of the date set forth in the first sentence of this Paragraph
9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable
by Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in
excess of proceeds from insurance required to be carried under Paragraph
8.3(b). Except for abatement of Base Rent, Common Area Operating Expenses and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair,
remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in the Paragraph 9.6
shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
<PAGE>
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date (60) days following the date of such notice.
In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination-Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms of
this Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in paragraph 10.2 (a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any increases in such amounts over
the Base Real Property Taxes shall be included in the calculation of Common
Area Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall
include any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city/state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
<PAGE>
(b) As used herein, the term "Base Real Property Taxes"
shall be the amount of Real Property Taxes, which are assessed against the
Premises, Building or Common Areas in the calendar year during which the Lease
is executed. In calculating Real Property Taxes for any calendar year, the
Real Property Taxes for any real estate tax year shall be included in the
calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment of
such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall,
however, pay to Lessor at the time Common Area Operating Expenses are payable
under Paragraph 4.2, the entirety of any increase in Real Property Taxes if
assessed solely by reason of Alterations, Trade Fixtures or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included
within the tax parcel assessed, such proportion to be determined by Lessor
from the respective valuations assigned in the assessor's work sheets or such
other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee contained in the Premises or stored within the Industrial
Center. When possible, Lessee shall cause its Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property
or Lessor. If any of Lessee's said property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after the receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon.
If any such utilities or services are not separately metered to the Premises
or separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
<PAGE>
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of
Lessee, as hereinafter defined, by an amount equal to or greater than
twenty-five percent (25%) of such Net Worth of Lessee as it was represented to
Lessor at the time of full execution and delivery of this Lease or at the time
of the most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater, shall
be considered an assignment of this Lease by Lessee to which Lessor may
reasonably withhold its consent. "Net Worth of Lessee" for purposes of this
Lease shall be the net worth of Lessee (excluding any Guarantors) established
under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in
this lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-curable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unconsented to assignment or subletting as a non-curable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days' written notice ("Lessor's Notice"), increase the monthly Base
Rent for the Premises to the greater of the then fair market rental value of
the Premises, as reasonably determined by Lessor, or one hundred ten percent
(110%) of the Base Rent then in effect. Pending determination of the new fair
market rental value, if disputed by Lessee, Lessee shall pay the amount set
forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event of such
Breach and rental adjustment, (i) the purchase price of any option to purchase
the Premises held by Lessee shall be subject to similar adjustment to the then
fair market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or obsolescence,
and considering the Premises at its highest and best use and in good
condition) or one hundred ten percent (110%) of the price previously in
effect, (ii) any index-oriented rental or price adjustment formulas contained
in this Lease shall be adjusted to require that the base index be determined
with reference to the index applicable to the time of such adjustment, and
(iii) any fixed rental adjustments scheduled during the remainder of the Lease
<PAGE>
term shall be increased in the same ratio as the new rental bears to the Base
Rent in effect immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1
by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption
by such assignee or sublessee or the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings
and assignments of the sublease or any amendments or modifications thereto
without notifying Lessee or anyone else liable under this Lease or the
sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to
Lessor's determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the monthly Base Rent applicable to the portion of the Premises which is the
subject of the proposed assignment or sublease, whichever is greater, as
reasonable consideration for Lessor's considering and processing the request
for consent. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested by Lessor.
<PAGE>
(f) Any assignee of, or sublessee under, this Lease shall,
by reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to be
observed or performed by Lessee during the term of said assignment or sublease,
other than such obligations as are contrary to or inconsistent with provisions
of an assignment or sublease to which Lessor has specifically consented in
writing.
(g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lesser's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all
or a portion of the Premises heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in this
Lease, receive, collect and enjoy the rents accruing under such sublease.
Lessor shall not, by reason of the foregoing provision or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor the rents and other charges due and to become due
under the sublessee. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance
of its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under sublease
from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to such sublessor or for any other
prior defaults or breaches of such sublessor under such sublease.
<PAGE>
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's
prior written consent.
(e) Lessor shall deliver a copy of any notice of Default
or Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said default. A "Default" by
Lessee is defined as a failure by Lessee to observe, comply with or perform
any of the terms, covenants, conditions or rules applicable to Lessee under
this Lease. A "Breach" by Lessee is defined as the occurrence of any one or
more of the following Defaults, and, where a grace period for cure after
notice is specified herein, the failure by Lessee to cure such Default prior
to the expiration of the applicable grace period, and shall entitle Lessor to
pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease,
the failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1 (b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination of non-subordination
of this Lease per Paragraph 30, (vi) the guaranty of the performance of
Lessee's obligations under this Lease if required under Paragraphs 1.11 and
37, (vii) the execution of any document requested under Paragraph 42
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this lease, where any such
failure continues for a period of ten (10) days following written notice by or
on behalf of Lessor to Lessee.
<PAGE>
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under
Paragraph 40 hereof that are to be observed, complied with or performed by
Lessee, other than those described in Subparagraphs 13.1(a), (b) or (c), above,
where such Default continues for a period of thirty (30) days after written
notice thereof by or on behalf of Lessor to Lessee; provided, however, that if
the nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a Breach
of this Lease by Lessee if Lessee commences such cure within said thirty (30)
day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrences of any of the following events: (i)
the making by Lessee of any general arrangement or assignment for the benefit
of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U. S. Code
Section 101 or any successor stature thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60) days;
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; of (iv) the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty
(30) days; provided, however, in the event that any provision of this
Subparagraph 13.1(e) is contrary to any applicable law, such provision shall
be of no force or effect, and shall not affect the validity of the remaining
provisions.
(f) The discovery by Lessor that any financial statement
of Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
<PAGE>
(a) Terminate Lessee's right to possession of the Premises
by any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the
worth at the time of the award of the unpaid rent which had been earned at the
time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of
the amount by which the unpaid rent for the balance of the term after the time
of award exceeds the amount of such rental loss that the Lessee proves could
be reasonably avoided; and (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by the Lessee's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including but not limited to the
cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of any leasing commission paid by Lessor in
connection with this Lease applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
immediately preceding sentence shall be computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph 13.2. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the
right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve the right to recover all or any
part thereof in a separate suit for such rent and/or damages. If a notice and
grace period required under Subparagraph 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
lease for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. Lessor
and Lessee agree that the limitations on assignment and subletting in this
Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's
interest under this Lease, shall not constitute a termination of the Lessee's
right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
<PAGE>
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "Inducement Provisions" shall
be deemed conditioned upon Lessee's full and faithful performance of all of
the terms, covenants and conditions of this Lease to be performed or observed
by Lessee during the term hereof as the same may be extended. Upon the
occurrence of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee,
any such Inducement Provision shall automatically be deemed deleted from this
Lease and of no further force or effect, and any rent, other charge, bonus,
inducement or consideration theretofore abated, given or paid by Lessor under
such an Inducement Provision shall be immediately due and payable by Lessee to
Lessor, and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions
of this Paragraph 13.3 unless specifically so stated in writing by Lessor at
the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering
the Premises. Accordingly, if any installment of rent or other sum due from
Lessee shall not be received by Lessor or Lessor's designee within ten (10)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt
by Lessor, and by any Lender(s) whose name and address shall have been
furnished to Lessee in writing for such purpose, of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days after such notice are reasonably required for its performance, then
<PAGE>
Lessor shall not be in breach of this Lease if performance is commenced within
such thirty (30) day period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the
floor area of the Premises, or more that twenty-five percent (25%) of the
portion of the Common Areas designated for Lessee's parking, is taken by
condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession) terminate this Lease as of
the date the condemning authority takes such possession. If Lessee does not
terminate this Lease in accordance with the foregoing, this Lease shall remain
in full force and effect as to the portion of the Premises remaining, except
that the Base Rent shall be reduced in the same proportion as the rentable
floor areas of the Premises taken bears to the total rentable floor area of
the Premises. No reduction of Base Rent shall occur if the condemnation does
not apply to any portion of the Premises. Any award for the taking of all or
any part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution of value of
the leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages
received, over and above Lessee's Share of the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other
premises in which Lessor has an interest, or (c) if Lessee remains in
possession of the Premises with the consent of Lessor after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered into
between the Parties pertaining to the Premises and/or any adjacent property in
which Lessor has an interest, or (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Broker(s) a fee in accordance with the
schedule of said Broker(s) in effect at the time of the execution of this
Lease.
<PAGE>
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation
of law, shall be deemed to have assumed Lessor's obligation under this
Paragraph 15. Each Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall
within ten (10) days after written notice form the other Party (the
"Requesting Party") execute, acknowledge and deliver to the Requesting Party a
statement in writing in a form similar to the then most current "Tenancy
Statement" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15.3, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
<PAGE>
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date of which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown
on the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail, notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantees next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the United States Postal Service or courier. If
any notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone or facsimile confirmation
of receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
<PAGE>
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any Default or Breach by Lessee of any provision hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of
no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation. Lessee will give any Lender whose name and address have been
<PAGE>
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof an attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach, Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
<PAGE>
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of
Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to
advertise Lessee's own business so long as such signs are in a location
designated by Lessor and comply with Applicable Requirements and the signage
criteria established for the Industrial Center by Lessor. The installation of
any sign on the Premises by or for Lessee shall be subject to the provisions
of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures
and Alterations). Unless otherwise expressly agreed herein, Lessor reserves
all rights to the use of the roof of the Building, and the right to install
advertising signs on the Building, including the roof which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, of a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses
(including but not limited to architects', attorneys', engineers' and other
consultants' fees) incurred in the consideration of, or response to, a request
by Lessee for any Lessor consent pertaining to this Lease or the Premises,
including but not limited to consents to an assignment a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee to Lessor upon
receipt of an invoice and supporting documentation therefor. In addition to the
deposit described in Paragraph 12.2(e), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall consent be deemed a waiver of any then existing Default or
Breach, except as may be otherwise specifically stated in writing by Lessor at
the time of such consent.
<PAGE>
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter for
which consent is being given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this
Lease per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or refuses,
upon reasonable request by Lessor to give: (a) evidence of the due execution
of the guaranty called for by this Lease, including the authority of the
Guarantor (and of the party signing on Guarantor's behalf) to obligate such
Guarantor on said guaranty, and resolution of its board of directors
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to time
be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation
that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property
of Lessor; (b) the right of first refusal to lease the Premises or the right
of first offer to lease the Premises or the right of first refusal to lease
other property of Lessor or the right of first offer to lease other property
of Lessor; (c) the right to purchase the Premises, or the right of first
refusal to purchase the Premises, or the right of first offer to purchase the
Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
<PAGE>
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of separate Defaults
under Paragraph 13.1 during the twelve (12) month period immediately preceding
the exercise of the Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the
Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants
or tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
<PAGE>
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If, at any time, a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute
and deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
YOUR ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE
PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES
OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY
IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<CAPTION>
<S> <C>
Executed at: The Fidelity Mutual Life Insurance Executed at: 10500 Metric Drive -Suite 110
Company in Rehabilitation Dallas, TX 75243-5517
------------------------------------------- ---------------------------------------------
on: April 11, 1996 on:
------------------------------------------- ---------------------------------------------
By LESSOR: By LESSEE:
The Fidelity Mutual Life Insurance
Company in Rehabilitation TurboChef, Inc.
------------------------------------------- ---------------------------------------------
By: /s/ JAMES W. KELICAN, JR. By: /s/ DENNIS J. JAMESON
------------------------------------------- ---------------------------------------------
Name Printed: James W. Kelican, Jr. Name Printed: Dennis J. Jameson
------------------------------------------- ---------------------------------------------
Title: Senior Vice President Title: EVP-CFO
------------------------------------------- ---------------------------------------------
By: By:
------------------------------------------- ---------------------------------------------
Name Printed: Name Printed:
------------------------------------------- ---------------------------------------------
Title: Title:
------------------------------------------- ---------------------------------------------
Address: Address:
------------------------------------------- ---------------------------------------------
Telephone:( ) Telephone:( )
--------------------------------------- -----------------------------------------
Facsimile:( ) Facsimile:( )
--------------------------------------- -----------------------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------------------------- ---------------------------------------------
on: on:
------------------------------------------- ---------------------------------------------
By: By:
------------------------------------------- ---------------------------------------------
Name Printed: Name Printed:
------------------------------------------- ---------------------------------------------
Title: Title:
------------------------------------------- ---------------------------------------------
Address: Address:
------------------------------------------- ---------------------------------------------
Telephone:( ) Telephone:( )
--------------------------------------- -----------------------------------------
Facsimile:( ) Facsimile:( )
--------------------------------------- -----------------------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the Industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
St., M-1, Los Angeles, CA 90071. (213) 687-8777.
<PAGE>
ADDENDUM
TO
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - GROSS
The following terms and provisions shall be incorporated into and made
a part of the attached Lease for all purposes:
49. Remedies of Lessor. In addition to the remedies provided in the
Lease, upon the occurrence of a Breach, Lessor may also terminate Lessee's right
of possession, without terminating this Lease, in which event Lessee agrees to
surrender possession and vacate the Premises immediately and delivery possession
thereof to Lessor, and Lessee hereby grants to Lessor full and free license to
enter into and upon the Premises without being liable for prosecution or any
claim for damages therefor, in whole or in part, with or without process of law
and to repossess Lessor of the Premises or any part thereof and to expel or
remove Lessee and any other person, firm or corporation who may be occupying or
within the Premises or any part thereof and remove any and all property
therefrom, using such force as may be necessary, without terminating this lease
or releasing Lessee in whole or in part from Lessee's obligation to pay Rent and
perform any of the covenants, conditions and agreements to be performed by
Lessee as provided in this Lease which do not pertain to the actual use of the
Premises, without being deemed in any manner guilty of trespass, eviction or
forcible entry or detainer and without relinquishing Lessor's right to Rent or
any other rights or remedies either hereunder or at law or in equity. Lessee
hereby waives notice of any election made by lessor under this section,
including demand for payment of Rent, demand for possession, and any and every
other form of demand and notice prescribed by any applicable statute or law.
Upon and after entry into possession, without terminating this Lease, Lessor may
relet all or any part of the Premises for such rent and upon such terms and to
such persons, firms or corporations and for such period or periods as Lessor in
Lessor's sole discretion shall determine. Lessor shall not be obligated to
accept any tenant offered by Lessee, or to observe any instruction given by
Lessee with respect to such reletting or to the mitigation of damages of Lessor.
For the purpose of such reletting, Lessor may decorate or make repairs, changes,
alterations or additions in or to the Premises to the extent deemed desirable or
convenient by Lessor. If the consideration collected by Lessor from time to time
upon any such reletting for Lessee's account is not sufficient to pay the Rent
reserved in this Lease (including Percentage Rent) and the cost or repairs,
Lessee agrees to pay to Lessor the deficiency upon demand.
50. No Waiver: Remedies Cumulative. The service of a notice to quit or
vacate the Premises, demand for possession, notice that the tenancy hereby
created will be terminated on any date, institution of an action of forcible
detainer or ejectment or entering of a judgment for possession of the Premises
(as distinguished from the termination of this Lease pursuant to any express
notice from Lessor) shall not relieve Lessee from Lessee's obligation to pay the
Rent hereunder during the balance of the term or any extension thereof, except
as herein expressly provided. Institution by Lessor or Lessor's agents or
attorneys of a forcible detainer or ejectment action to re-enter the Premises
shall not be construed to be an election by Lessor to terminate this Lease.
Lessor may collect and receive any Rent due from Lessee and the payment thereof
shall not constitute a waiver of or affect any notice or demand given, suit
instituted or judgment obtained by Lessor, or be held to waive, affect, change,
modify or alter the rights or remedies which Lessor may have in equity or at law
or by virtue of this Lease at the time of such payment. The failure of Lessor to
insist upon strict performance by Lessee of any of the covenants, conditions and
agreements contained in this Lease shall not be deemed a waiver of any of
Lessor's rights or remedies hereunder and shall not be deemed a waiver of any
subsequent breach or default by Lessee in any of the covenants, conditions and
agreements of this Lease. No surrender of the Premises shall be effected by
Lessor's acceptance of Rent or by any other means whatsoever unless the same be
evidenced by Lessor's written acceptance of such as a surrender. All rights and
remedies of Lessor herein created or reserved or otherwise existing at law or in
equity are cumulative and the exercise of one or more rights or remedies shall
not be taken to exclude or waive the right to the exercise of any other. All
such rights and remedies may be exercised and enforced concurrently and whenever
and as often as Lessor shall deem desirable.
<PAGE>
51. Americans With Disabilities Act. Lessee shall be responsible for
compliance with the Americans with Disabilities Act of 1990, as amended from
time to time, and related state and municipal laws and regulations, and all
matters regarding both the configuration of the Premises (the interior as well
as all public and/or employee door entrances) and Lessee's business operations
at the Premises.
52. Waiver of Deceptive Trade Practices Act. Lessee hereby waives the
applicability, protections and provisions of the Deceptive Trade
Practices-Consumer Protection Act, Section 17.41 et.seq, of the Texas Business
and Commerce Code (the "DTPA"), other than Section 17.555 of the DTPA. Lessee
hereby represents and warrants to Lessor that (a) Lessee is not in a
significantly disparate bargaining position in connection with this Lease, (b)
Lessee is represented by legal counsel, who has executed this Lease, in
connection with this Lease, and (c) this Lease does not include the lease of a
family residence occupied or to be occupied as Lessee's residence.
53. Lessor's Lien. In addition to any statutory landlord's lien, Lessor
shall have at all times a valid security interest to secure payment of all Rent
and other sums of money becoming due hereunder from Lessee, and to secure
payment of any damages or loss which Lessor may suffer by reason of the breach
by Lessee of any covenant, agreement or condition contained herein, upon all
goods, wares, equipment, fixtures (including trade fixtures), furniture,
improvements and other personal property of Lessee presently, or which may
hereafter be, situated in the Premises, and all proceeds from the sale or lease
thereof, and such property shall not be removed therefrom without the prior
written consent of Lessor until all arrearages in Rent as well as any and all
other sums of money then due to Lessor hereunder shall first have been paid and
discharged and all the covenants, agreements and conditions hereof have been
fully complied with and performed by Lessee. Upon the occurrence of an Event of
Default by Lessee, Lessor may, in addition to any other remedies provided herein
or by law, enter upon the Premises and take possession of any and all goods,
wares, equipment, fixtures, furniture, improvements and other personal property
of Lessee situated in the Premises, without liability for trespass or conversion
and sell the same at private or public sale, with or without having such
property at the sale, after giving Lessee reasonable notice of the time and
place of any public sale or of the time after which any private sale is to be
made. Unless otherwise required by law, and without intending to exclude any
other manner of giving Lessee reasonable notice, the requirement of reasonable
notice to Lessee of a private or public sale shall be met if such notice is
given in the manner prescribed in Article 24 of this Lease at least 10 days
before the date of sale, Lessee agreeing that such notice affords Lessee
sufficient opportunity prior to sale to obtain a hearing if desired by Lessee.
Any public sale made under this Section 5 shall be deemed to have been conducted
in a commercially reasonable manner if held in the Premises or where the
property is located, after the time, place and method of sale and a general
description of the types of property to be sold have been advertised in a daily
newspaper published in the county in which the Premises are located, for 5
consecutive days before the date of the sale. Lessor or its assigns may purchase
at a public sale and, unless prohibited by law, at a private sale. The proceeds
from any disposition dealt with in this Section 5, less any and all expenses
connected with the taking of possession, holding and selling of the property
(including reasonable attorneys' fees and legal expenses) shall be applied as a
credit against the indebtedness secured by the security interest granted in this
Section 5. Any surplus shall be paid to Lessee or as otherwise required by law,
Lessee shall pay any deficiences on demand. Upon request by Lessor, Lessee shall
execute and deliver to Lessor a financing statement in form sufficient to
perfect the security interest of Lessor in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial code in force in
the state in which the Premises are located. Any statutory lien for rent is not
hereby waived, the security interest herein granted being in addition and
supplementary thereto.
<PAGE>
54. Estoppel Certificates. Lessee agrees to furnish to Lessor from time
to time when requested by Lessor a certificate signed by Lessee to the effect
that this Lease is then presently in full force and effect, that Lessor is not
then in default under this lease and Lessee does not claim any right of set-off
against its obligation to pay Rent hereunder, if such is the case, and that
Lessee is not in default under this lease and has not prepaid any of the Rent
due hereunder except to the extent expressly provided herein. Lessee further
agrees to furnish from time to time when requested any and all attornment
agreements and/or estoppel certificates which may be required by any holder of
indebtedness who has a lien on the Building.
55. Representations and Warranties. It is understood and agreed by
Lessee that Lessor and Lessor's agent have made no representations, promises or
warranties with respect to the Premises or the making or entry into this Lease
except as are expressly set forth in this Lease and that no claim or liability,
or cause for termination shall be asserted by Lessee against Lessor for, and
Lessor shall not be liable by reason of, the breach of any representations,
promises or warranties not expressly stated in this Lease. Lessor's duties and
warranties are limited to those set forth in the Lease and shall not include any
implied duties or warranties, all of which are hereby waived by Lessee. Lessee
represents and warrants that Lessee has not dealt with any real estate agent or
broker in connection with this Lease other than Lessor's agent.
56. No Personal Liability of Lessor. Lessee specifically agrees to look
solely to Lessor's interest in the Project for the recovery of any judgment from
Lessor by reason of a default in the performance of Lessor's obligations under
this Lease and that in no event shall Lessor or any partner of Lessor be
personally liable for any such judgment. The provisions contained in this
paragraph shall not limit any right Lessee may otherwise have to obtain
injunctive relief against Lessor or Lessor's successors in interest, or any
other action not involving the personal liability of Lessor to respond in
monetary damages from assets other than Lessor's interest in the Building.
57. Memorandum of Lease. This Lease shall not be recorded. If this
Lease or any document referring to this Lease shall be recorded by Lessee
without Lessor's prior written consent, such recording shall be deemed a Default
hereunder.
58. Guaranty. If the obligations of Lessee hereunder are guaranteed by
a guarantor, such obligations shall be the joint and several obligations of
Lessee and the guarantor, and Lessor need not first proceed against Lessee
before proceeding against the guarantor, nor shall the guarantor be released
from its guaranty for any reason, whatsoever, including, without limitation, the
additions of any amendments hereto, waivers hereof or failure to give such
guarantor any notices hereunder. If there is more than one Lessee, the
obligations hereunder imposed upon Lessee shall be joint and several.
59. Further Work by Lessor. Lessee acknowledges that Lessor may from
time to time undertake construction, remodeling and renovation work with respect
to the Building and the Land of which the Premises are a part. In connection
with such work, Lessee further acknowledges that Lessee may suffer certain
inconveniences, such as temporary lack of access to certain areas. Lessee hereby
waives and relinquishes all claims which is may at any time have against Lessor
with respect to any such work and agrees that no actions taken by Lessor in
connection therewith shall in any event relieve Lessee of any of its obligations
under this Lease, including without limitation, the obligation to pay all Rent
due hereunder.
<PAGE>
60. Interruption of Utility Services. Lessor shall not be liable for
any interruption whatsoever in utility services nor furnished by Lessor, not for
interruptions in utility services furnished by Lessor which are due to five,
accident, strike, acts of God or other causes beyond the control of Lessor, or
in order to make alterations, repairs or improvements.
61. Other Taxes. Any excise, transaction, sales or privilege tax
(except income tax) now or hereafter levied or imposed upon Lessor by any
government or governmental agency on account of, attributed to or measured by
rent or other charges or prorations payable under this Lease shall be paid by
Lessee to Lessor, upon demand, as additional Rent along with the other rent and
sums payable under this lease.
By LESSOR: By LESSEE:
The Fidelity Mutual Life Insurance TurboChef, Inc.
Company in Rehabilitation
- ---------------------------------- --------------------------------
- ---------------------------------- --------------------------------
By: /s/ JAMES W. KELICAN, JR. By: /s/ DENNIS J. JAMESON
- ---------------------------------- --------------------------------
Name Printed: James W. Kelican, Jr. Name Printed: Dennis J. Jameson
- ---------------------------------- --------------------------------
Title: Senior Vice President Title: EVP-CEO
- ---------------------------------- --------------------------------
By: By:
- ---------------------------------- --------------------------------
62. Lessee shall pay to Lessor during the term hereof, in addition to
the Base Rent, Lessees share, as defined in 1.6(b), of Common Area Operating
Expenses, as defined in Section 4.2 hereof, for each Comparison Year which
exceeds the amount of all Operating Expenses for the Base Year 1996, such excess
being hereafter referred to as the Common Area Operating Expenses.
63. Landlords' mailing address is as follows:
Park Forest Business Center
10500 Metric Drive - Suite 110
Dallas, TX 75243-5517
64. Landlord shall complete Tenant Improvements as indicated on
attached Exhibit "C". Landlords responsibility for Tenant Improvements shall be
"capped" at $12,580.00. Tenant shall be responsible for "make ready" expenses
above $12,580.00.
65. Tenant shall have the following options to terminate this lease
after giving ninety (90) days written notice to Landlord:
A: Terminate after two and one half (2 1/2) years.
B: Terminate after three (3) years.
C: Terminate after three and one half (3 1/2) years.
D: Terminate after four (4) years.
66. In the event Tenant terminates this lease, Tenant shall repay to
Landlord, prior to vacating, the "unamortized" portion of Tenant Improvements
and the Lease Commission which total $16,618.48 or, based upon a four (4) year
lease, $346.22 per month. As per addendum #65 above, the "unamortized" amount
would be as follows:
A: $6,231.96
B: $4,154.64
C: $2,077.32
D: -0-
67. Tenants Base Rent shall be as follows:
Year 1 - $3,838.00 month.
Year 2 - $4,133.00 month.
Years 3 & 4 - $4,428.00 per month.
<PAGE>
ADDENDUM
TO
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS
62. Arbitration. Any dispute or controversy arising out of or relating
to this Lease, shall be finally and fully settled and determined by binding
arbitration administered by the American Arbitration Association under its
Commercial Arbitration Rules then in effect. In any such arbitration, each party
shall bear its own legal expenses. All decisions and awards by a majority of the
arbitrators shall be final and binding upon the parties and judgment upon any
such award may be entered by any court having jurisdiction over the matter.
<PAGE>
[Building Footprint of Premises]
EXHIBIT "A"
10500 Metric Drive - Suite 126
Dallas, Texas 75243-5517
<PAGE>
EXHIBIT "B"
BUILDING RULES AND REGULATIONS
1. Landlord agrees to furnish Tenant two keys without charge.
Additional keys will be furnished at a nominal charge.
2. Tenant will refer all contractors, contractor's representatives
and installation technicians, rendering any service on or to the Premises for
Tenant, to Landlord for Landlord's approval and supervision before performance
of any contractual service. This provision shall apply to all work performed
in the Building including installation of telephones, telegraph equipment,
electrical devices and attachments and installations of any nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment or any other
physical portion of the Building.
3. No Tenant shall at any time occupy any part of the Project as
sleeping or lodging quarters.
4. Tenant shall not place, install or operate on Premises or in any
part of the Project, any engine, stove or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about Premises
any explosives, gasoline, kerosene, oil, acids, caustics, or any other
inflammable, explosive, or hazardous material without prior written consent of
Landlord.
5. Landlord will not be responsible for loss or stolen personal
property, equipment, money or jewelry from Tenant's area or public rooms
regardless of whether such loss occurs when area is locked against entry or
not.
6. No birds, fowl, dogs, animals or pets of any kind shall be brought
into or kept in or about the Project.
7. Landlord will not permit entrance to Tenant's offices by use of
pass key controlled by Landlord, to any person at any time without written
permission by Tenant, except employees, contractors, or service personnel
directly supervised or employed by Landlord.
8. None of the entries, passages, doors, elevators, hallways or
stairways shall be blocked or obstructed, or any rubbish, litter, trash, or
material of any nature placed, emptied or thrown into these areas, or shall
such areas be used at any time except for ingress or egress by Tenant,
Tenant's agents, employees or invitees.
9. The water closets and other water fixtures shall not be used for
any purpose other than those for which they were constructed. No person shall
waste water by interfering with the faucets or otherwise.
10. No person shall disturb the occupants of the Building by the use
of any musical instruments, the making of raucous noises, or other
unreasonable use.
<PAGE>
11. Nothing shall be thrown out of the windows of the Building, or
down the stairways or other passages.
12. Tenant shall not store any materials, equipment, products, etc.,
outside the Premises as shown on the plats attached hereto.
13. Tenant shall not erect any sign or other insignia upon or in any
part of the Project or other portion of the Premises without the prior written
consent of the Landlord.
14. Tenant shall comply with all local and federal codes and
ordinances. In the event of fire or code problems, Tenant shall comply with
said requirements.
15. Tenant and its agents, employees and invitees shall observe and
comply with the driving and parking signs and markers on the Project grounds
and surrounding areas.
16. Corridor and passage doors when not in use shall be kept closed.
17. All deliveries of other than hand carried items must be made via
the service entrances and service elevators. Any deliveries of an abnormally
large, bulky or voluminous nature, such as furniture, office machinery, etc.,
can only be made after obtaining approval from the Landlord and at those times
specified by the Landlord.
18. Directories will be placed by the Landlord, at Landlord's
expense, in the building and no other directories shall be permitted.
19. No signs, draperies, shutters, window coverings, decorations,
hangings or obstructions of any type shall be placed on any skylights or on
any doors or windows which are visible from outside the leased premises
without the prior written consent of the Landlord.
20. The Landlord reserves the right to rescind any of these rules and
make such other and further rules and regulations as in the judgment of
Landlord shall from time to time be needed for the safety, protection, care
and cleanliness of the Project, the operation thereof, the preservation of
good order therein, and the protection and comfort of its Tenants, their
agents, employees and invitees, including but not limited to rules and
regulations regarding hours of access to the Project, which rules when made
and notice thereof given to a tenant shall be binding upon him in like manner
as if originally herein prescribed. In the event of any conflict,
inconsistency, or other difference between the terms and provision of these
rules and regulations and any lease now or hereafter in effect between
Landlord and any tenant in the Building. Landlord shall have the right to rely
on the term or provision in either such lease or such Rules and Regulations
which is most restrictive on such tenant and most favorable to Landlord.
<PAGE>
WORK LETTER
March 21, 1996
Re: Renovations To Be Completed
10500 Metric Drive - Suite 126
Dallas, Texas 75243-5517
1. Demolition and construction of new walls and relocation or addition of
doors and frames as indicated on floor plan including modification of
HVAC and electrical as required.
2. All existing and new walls to be patched and textured as required and
repainted.
3. Cap or remove plumbing lines, including drains and floor pit as directed
by Tenant.
4. Replace all damaged or stained ceiling tile.
5. All electrical outlets, switches, light fixtures, plumbing fixtures and
hardware to be in good operating order.
6. Steel ramp at rear overhead door to be either relocated or removed.
7. Front and rear doors to be re-keyed.
8. All existing VCT in laboratory area to be cleaned or replaced.
9. Fire corridor in warehouse to be removed subject to City of Dallas
approval.
10. Entire space to be cleaned including interior and exterior of glass.
<PAGE>
[Drawing of New Floor Plan]
NEW FLOOR PLAN
--------------
Park Forest Business Center
10500 Metric Drive - Suite 126
Dallas, Texas 75243-5517
EXHIBIT "D"
<PAGE>
Real Estate Management [ ] Leasing [ ] Brokerage
February 28, 1996
TO ALL TENANTS
Park Forest Business Center
Dallas, Texas
TO WHOM IT MAY CONCERN:
Please be advised that beginning March. 1, 1996, the Landlord, Fidelity Mutual
Life Insurance Company, will no longer accept rent payments after the "late
date" without assessing late fee charges as outlined in your lease agreement.
Rent is due on or before the first of each month and late after the "late date"
indicated in your lease agreement.
Therefore, please be sure to have your payment in our office on or before the
"late date" in order to avoid a late payment fee for rent received after the
"late date". You should refer to your lease agreement to determine your "late
date".
Failure to remit payment of any late fees assessed will place your lease in
default with Park, Forest Business Center.
Thank you for your cooperation,
/s/ P. NEILL
- -----------------------
P. Neill
<PAGE>
PROMISSORY NOTE
U.S. $85,000.00 Dallas, Texas March 30, 1996
FOR VALUE RECEIVED, the undersigned, TURBOCHEF, INC. a Delaware
corporation ("Maker"), unconditionally promises to pay to the order of Philip R.
McKee ("Holder"), the principal sum of Eighty-Five Thousand and No/100 Dollars
($85,000.00), in lawful money of the United States and in immediately available
funds, together with accrued but unpaid interest on the outstanding principal
balance, in like money and funds, at the rate per annum and on the dates
provided below (provided that the interest payable shall not exceed the Maximum
Rate (as hereinafter defined)).
1. Interest. The unpaid principal balance of the outstanding balance
hereunder shall bear interest at the lesser of (a) six and one-half percent
(6 1/2%) per annum, and (b) the maximum rate per annum permitted by applicable
law (the "Maximum Rate"). All past-due principal and interest under this Note
shall bear interest at the lesser of (i) eighteen percent (18%) per annum, and
(ii) the Maximum Rate. Interest paid or agreed to be paid shall not exceed the
maximum amount permissible under the applicable laws of the United States or the
State of Texas and, in any contingency whatsoever, if Holder shall receive
anything of value deemed interest under such laws which would exceed the amount
of interest permissible under those laws, the excessive interest shall be
applied first to the reduction of unpaid principal outstanding under this Note
and the remainder of such excessive interest shall then be refunded to Maker if
such excessive interest exceeds unpaid principal. All interest paid or agreed to
be paid under this Note shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period until
payment in full of the principal so that the interest hereon for such full
period shall not exceed the Maximum Rate. Interest shall be computed on the per
annum basis of a year of 360 days and for the actual number of days (including
the first but excluding the last day) elapsed.
2. Payment of Principal and Interest. The outstanding principal balance
of this Note, together with accrued interest thereon, shall be due and payable
upon demand.
3. Representations and Warranties. Maker does hereby represent and
warrant to Holder as follows:
(a) Due Organization and Qualification. Maker (i) is duly
organized and validly existing and in good standing under the laws of
the State of Delaware; and (ii) is qualified and licensed to do
business in, and in good standing in, any other state or foreign
jurisdiction in which the conduct of its business or its ownership of
property requires that it be so qualified.
(b) Due Authorization; No Conflict. The execution, delivery
and performance of this Note are within Maker's corporate powers, have
been duly authorized and do not conflict with or constitute a breach of
any provision contained in Maker's governing documents, nor do they
constitute an event of default under any agreement to which Maker is
now a party.
<PAGE>
(c) No Default. No Event of Default (as hereinafter defined)
and no event which, with the giving of notice or lapse of time or both,
would become such an Event of Default, has occurred and is continuing.
(d) Compliance with Laws. Maker is in compliance in all
material respects with all applicable foreign, federal, state or local
laws, statutes, ordinances, regulations, orders and other requirements
of any federal, state, county, parish, local or foreign governmental
entity or municipality or subdivision thereof or any authority,
arbitrator, department, commission, board, bureau, body, agency, court
or instrumentality thereof (each a "Governmental Authority") having
jurisdiction over Maker, Maker's assets or the conduct of Maker's
business.
4. Covenants.
While any part of any of the obligations arising hereunder remains
unpaid, and unless otherwise waived by Holder in writing, Maker agrees as
follows:
(a) Corporate Existence. Maker shall maintain and preserve its
corporate existence and authority to transact business and shall remain
in good standing under the laws of the State of Delaware and all other
jurisdictions where the failure to do so maintain would have a material
adverse effect upon the assets of Maker.
(b) Observance of Terms. (a) Maker shall pay the principal and
interest on this Note when due or when declared due, in accordance with
this Note, and (b) Maker shall observe, perform and comply with every
covenant, term and condition herein on the part of Maker to be
observed, performed or complied with.
(c) Compliance with Applicable Law. Maker shall comply in all
respects with the requirements of all applicable laws, the
noncompliance with which might, in any respect, materially and
adversely affect Maker's business, property, assets, operations or
condition, financial or otherwise.
(d) Notice of Default. Maker shall notify Holder in writing
within three (3) business days after the earliest date on which any
director or officer of Maker acting diligently and in good faith
becomes or should have become aware thereof (a) of any condition or
event that constitutes an Event of Default or an event that, with the
giving of notice or lapse of time or both, would constitute and Event
of Default, (b) of any other material default or potential material
default by Maker, under any note, indenture, loan agreement, mortgage,
lease, deed or other similar agreement to which Maker is a party or by
which Maker is bound, or (c) of any event or condition that, or an
event that, with the giving of notice or lapse of time or both, would
allow or permit the attachment of any liens, claims, security interests
or encumbrances on any of Maker's assets. Such notice shall specify the
nature and period of existence of any such condition, event, default or
potential default and what action Maker has taken, is taking or
proposes to take with respect thereto.
<PAGE>
5. Events of Default. For purposes of this Note, an "Event of Default"
shall mean:
(a) Failure by Maker to pay any principal or interest on this
Note, or any renewal, extension, modification or rearrangement hereof,
when due or declared due; or
(b) Any representation or warranty made by Maker in this Note,
in any certificate or financial or other statement furnished to Holder
by Maker or in any other agreement between Holder and Maker is untrue
in any material respect as of the date made or furnished; or
(c) Filing by Maker of a voluntary petition or any answer
seeking reorganization, arrangement, readjustment of its debts or for
any other relief under any applicable bankruptcy act or law, or under
any other insolvency act or law, now or hereafter existing, or any
action by Maker consenting to, approving of or acquiescing in any such
petition or proceeding; the application by Maker for, or the
appointment by consent or acquiescence of, a receiver or trustee for
Maker or for all or a substantial part of the assets of Maker; the
making by Maker of an assignment for the benefit of creditors; or the
inability of Maker or admission by Maker, in writing, of its inability
to pay its debts as they mature (the term "acquiescence" as used in
this Section 5(c) shall mean the failure to file a petition or motion
in opposition to such petition or proceeding or to vacate or discharge
any order, judgment or decree providing for such appointment within
sixty (60) days after the appointment of a receiver or trustee); or
(d) Filing of an involuntary petition against Maker in
bankruptcy seeking reorganization, arrangement, readjustment of its
debts or for any other relief under any applicable bankruptcy act or
law, or under any other insolvency act or law, now or hereafter
existing, and such petition remains undismissed or unanswered for a
period of sixty (60) days from such filing; or the involuntary
appointment of a receiver or trustee for Maker or for all or a
substantial part of the assets of Maker, and such appointment remains
unvacated for a period of sixty (60) days or unopposed for a period of
ten (10) days from such appointment; or the issuance of a warrant of
attachment, execution or similar process against any substantial part
of the assets of Maker and such warrant remains unbonded or undismissed
for a period of fifteen (15) days from notice to Maker of its issuance;
or
<PAGE>
(e) Without prior written consent of Holder, Maker shall sell,
transfer, lease or otherwise dispose of all or substantially all of its
assets or property, other than sales of inventory in the ordinary
course of business; or
(f) Maker ceases to function as a going concern or conduct its
operations in the normal course of business.
6. Acceleration. Upon the occurrence of any Event of Default set forth
in Section 5, Holder may (but only if Maker has not cured such Event of Default
to Holder's reasonable satisfaction within fifteen (15) days after written
notice of such Event of Default is sent by Holder to Maker), in Holder's sole
and absolute discretion and upon Maker's receipt of written notice to such
effect, declare the principal of and interest accrued but unpaid under this Note
to be forthwith due and payable, whereupon the same shall become due and payable
without any presentment, acceleration, demand, protest, notice of protest,
notice of intent to accelerate, notice of acceleration or notice of any kind,
all of which are hereby waived.
7. Prepayment. This Note may be prepaid at any time, in whole or in
part, without premium or penalty, at the option of Maker.
8. Transfer. Holder may not sell, transfer, pledge, hypothecate or
otherwise dispose of this Note or any interest herein without the prior written
approval of Maker, which may be granted or denied by Maker in its sole
discretion.
9. Surrender. Upon payment in full of the principal amount, this Note
shall be surrendered by Holder to Maker for cancellation.
10. Notices. Unless otherwise provided herein, all notices, requests,
consents and demands shall be in writing and shall be delivered to the following
addresses:
If intended for Holder, to:
Philip R. McKee
5548 Southern Hills Drive
Frisco, Texas 75034
Facsimile: (214) 625-1484
If intended to Maker, to:
TurboChef, Inc.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
Attn: Dennis J. Jameson, Chief Financial Officer
Facsimile: (214) 340-8477
<PAGE>
or to such other person or address as either party shall designate to the other
from time to time in writing forwarded in like manner. All such notices,
requests, consents and demands shall be in writing and deemed to have been given
or made when (i) delivered personally; (ii) delivered by facsimile when
confirmed; or (iii) sent by overnight courier, guaranteeing two- day delivery.
11. Waiver. No waiver or consent by Holder with respect to any act or
omission of Maker on one occasion shall constitute a waiver or consent with
respect to any other act or omission by Maker on the same or any other occasion,
and no failure on the part of Holder to exercise and no delay in exercising any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by Holder of any right hereunder preclude any other further
right of exercise thereof or the exercise of any other right.
12. Parties in Interest. All covenants and agreements contained in this
Note shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto, except that Maker may not assign its rights
hereunder without the prior written consent of Holder.
13. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF TEXAS, WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
14. Jurisdiction and Venue. Any jurisdictional proceeding brought by or
against any of the parties to this Note, on any dispute arising out of this Note
or any matter related hereto shall be brought in the courts of Dallas County,
State of Texas, and, by execution and delivery of this Note, each of the parties
to this Agreement accepts for itself the exclusive jurisdiction and venue of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Note after exhaustion of all appeals (or by the
appropriate appellate court if such appellate court renders judgment).
15. Severability. If any provision of this Note is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
of this Note, such provision shall be fully severable; this Note shall be
construed and enforced as if such illegal, invalid and unenforceable provision
had never comprised a part hereof and this Note shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this Note.
16. Modification. No modification or waiver of any provision of this
Note shall be effective unless such modification or waiver shall be in writing
and executed by a duly authorized officer or Holder.
<PAGE>
17. No Demand, Presentment. The undersigned and all parties now or
hereafter liable for the payment hereof, whether as endorser, guarantor, surety
or otherwise, severally waive demand, presentment for payment, notice of
dishonor, notice of intention to demand or accelerate payment hereof, protest
and notice of protest and diligence on collecting or bringing suit against any
party hereof, and agree to all extensions, renewals, indulgences, releases or
changes which from time to time may be granted by Holder and to all partial
payments hereon, with or without notice, before or after maturity.
18. Attorneys' Fees. If this Note is placed in the hands of an attorney
for collection, or if it is collected through bankruptcy or other judicial
proceedings, Maker agrees to pay all expenses of collection, including, but not
limited to, attorneys' fees, incurred by the Holder.
MAKER:
TURBOCHEF, INC.
/s/ Dennis J. Jameson
-----------------------------
By: Dennis J. Jameson
Title: Chief Financial Officer
<PAGE>
PROMISSORY NOTE
U.S. $200,000.00 Dallas, Texas March 30, 1996
FOR VALUE RECEIVED, the undersigned, TURBOCHEF, INC. a Delaware
corporation ("Maker"), unconditionally promises to pay to the order of Jeffrey
B. Bogatin ("Holder"), the principal sum of Two Hundred Thousand and No/100
Dollars ($200,000.00), in lawful money of the United States and in immediately
available funds, together with accrued but unpaid interest on the outstanding
principal balance, in like money and funds, at the rate per annum and on the
dates provided below (provided that the interest payable shall not exceed the
Maximum Rate (as hereinafter defined)).
1. Interest. The unpaid principal balance of the outstanding balance
hereunder shall bear interest at the lesser of (a) six and one-half percent
(6 1/2%) per annum, and (b) the maximum rate per annum permitted by applicable
law (the "Maximum Rate"). All past-due principal and interest under this Note
shall bear interest at the lesser of (i) eighteen percent (18%) per annum, and
(ii) the Maximum Rate. Interest paid or agreed to be paid shall not exceed the
maximum amount permissible under the applicable laws of the United States or the
State of Texas and, in any contingency whatsoever, if Holder shall receive
anything of value deemed interest under such laws which would exceed the amount
of interest permissible under those laws, the excessive interest shall be
applied first to the reduction of unpaid principal outstanding under this Note
and the remainder of such excessive interest shall then be refunded to Maker if
such excessive interest exceeds unpaid principal. All interest paid or agreed to
be paid under this Note shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full period until
payment in full of the principal so that the interest hereon for such full
period shall not exceed the Maximum Rate. Interest shall be computed on the per
annum basis of a year of 360 days and for the actual number of days (including
the first but excluding the last day) elapsed.
2. Payment of Principal and Interest. The outstanding principal balance
of this Note, together with accrued interest thereon, shall be due and payable
upon demand.
3. Representations and Warranties. Maker does hereby represent and
warrant to Holder as follows:
(a) Due Organization and Qualification. Maker (i) is duly
organized and validly existing and in good standing under the laws of
the State of Delaware; and (ii) is qualified and licensed to do
business in, and in good standing in, any other state or foreign
jurisdiction in which the conduct of its business or its ownership of
property requires that it be so qualified.
(b) Due Authorization; No Conflict. The execution, delivery
and performance of this Note are within Maker's corporate powers, have
been duly authorized and do not conflict with or constitute a breach of
any provision contained in Maker's governing documents, nor do they
constitute an event of default under any agreement to which Maker is
now a party.
<PAGE>
(c) No Default. No Event of Default (as hereinafter defined)
and no event which, with the giving of notice or lapse of time or both,
would become such an Event of Default, has occurred and is continuing.
(d) Compliance with Laws. Maker is in compliance in all
material respects with all applicable foreign, federal, state or local
laws, statutes, ordinances, regulations, orders and other requirements
of any federal, state, county, parish, local or foreign governmental
entity or municipality or subdivision thereof or any authority,
arbitrator, department, commission, board, bureau, body, agency, court
or instrumentality thereof (each a "Governmental Authority") having
jurisdiction over Maker, Maker's assets or the conduct of Maker's
business.
4. Covenants.
While any part of any of the obligations arising hereunder remains
unpaid, and unless otherwise waived by Holder in writing, Maker agrees as
follows:
(a) Corporate Existence. Maker shall maintain and preserve its
corporate existence and authority to transact business and shall remain
in good standing under the laws of the State of Delaware and all other
jurisdictions where the failure to do so maintain would have a material
adverse effect upon the assets of Maker.
(b) Observance of Terms. (a) Maker shall pay the principal and
interest on this Note when due or when declared due, in accordance with
this Note, and (b) Maker shall observe, perform and comply with every
covenant, term and condition herein on the part of Maker to be
observed, performed or complied with.
(c) Compliance with Applicable Law. Maker shall comply in all
respects with the requirements of all applicable laws, the
noncompliance with which might, in any respect, materially and
adversely affect Maker's business, property, assets, operations or
condition, financial or otherwise.
<PAGE>
(d) Notice of Default. Maker shall notify Holder in writing
within three (3) business days after the earliest date on which any
director or officer of Maker acting diligently and in good faith
becomes or should have become aware thereof (a) of any condition or
event that constitutes an Event of Default or an event that, with the
giving of notice or lapse of time or both, would constitute and Event
of Default, (b) of any other material default or potential material
default by Maker, under any note, indenture, loan agreement, mortgage,
lease, deed or other similar agreement to which Maker is a party or by
which Maker is bound, or (c) of any event or condition that, or an
event that, with the giving of notice or lapse of time or both, would
allow or permit the attachment of any liens, claims, security interests
or encumbrances on any of Maker's assets. Such notice shall specify the
nature and period of existence of any such condition, event, default or
potential default and what action Maker has taken, is taking or
proposes to take with respect thereto.
5. Events of Default. For purposes of this Note, an "Event of Default"
shall mean:
(a) Failure by Maker to pay any principal or interest on this
Note, or any renewal, extension, modification or rearrangement hereof,
when due or declared due; or
(b) Any representation or warranty made by Maker in this Note,
in any certificate or financial or other statement furnished to Holder
by Maker or in any other agreement between Holder and Maker is untrue
in any material respect as of the date made or furnished; or
(c) Filing by Maker of a voluntary petition or any answer
seeking reorganization, arrangement, readjustment of its debts or for
any other relief under any applicable bankruptcy act or law, or under
any other insolvency act or law, now or hereafter existing, or any
action by Maker consenting to, approving of or acquiescing in any such
petition or proceeding; the application by Maker for, or the
appointment by consent or acquiescence of, a receiver or trustee for
Maker or for all or a substantial part of the assets of Maker; the
making by Maker of an assignment for the benefit of creditors; or the
inability of Maker or admission by Maker, in writing, of its inability
to pay its debts as they mature (the term "acquiescence" as used in
this Section 5(c) shall mean the failure to file a petition or motion
in opposition to such petition or proceeding or to vacate or discharge
any order, judgment or decree providing for such appointment within
sixty (60) days after the appointment of a receiver or trustee); or
<PAGE>
(d) Filing of an involuntary petition against Maker in
bankruptcy seeking reorganization, arrangement, readjustment of its
debts or for any other relief under any applicable bankruptcy act or
law, or under any other insolvency act or law, now or hereafter
existing, and such petition remains undismissed or unanswered for a
period of sixty (60) days from such filing; or the involuntary
appointment of a receiver or trustee for Maker or for all or a
substantial part of the assets of Maker, and such appointment remains
unvacated for a period of sixty (60) days or unopposed for a period of
ten (10) days from such appointment; or the issuance of a warrant of
attachment, execution or similar process against any substantial part
of the assets of Maker and such warrant remains unbonded or undismissed
for a period of fifteen (15) days from notice to Maker of its issuance;
or
(e) Without prior written consent of Holder, Maker shall sell,
transfer, lease or otherwise dispose of all or substantially all of its
assets or property, other than sales of inventory in the ordinary
course of business; or
(f) Maker ceases to function as a going concern or conduct its
operations in the normal course of business.
6. Acceleration. Upon the occurrence of any Event of Default set forth
in Section 5, Holder may (but only if Maker has not cured such Event of Default
to Holder's reasonable satisfaction within fifteen (15) days after written
notice of such Event of Default is sent by Holder to Maker), in Holder's sole
and absolute discretion and upon Maker's receipt of written notice to such
effect, declare the principal of and interest accrued but unpaid under this Note
to be forthwith due and payable, whereupon the same shall become due and payable
without any presentment, acceleration, demand, protest, notice of protest,
notice of intent to accelerate, notice of acceleration or notice of any kind,
all of which are hereby waived.
7. Prepayment. This Note may be prepaid at any time, in whole or in
part, without premium or penalty, at the option of Maker.
8. Transfer. Holder may not sell, transfer, pledge, hypothecate or
otherwise dispose of this Note or any interest herein without the prior written
approval of Maker, which may be granted or denied by Maker in its sole
discretion.
9. Surrender. Upon payment in full of the principal amount, this Note
shall be surrendered by Holder to Maker for cancellation.
10. Notices. Unless otherwise provided herein, all notices, requests,
consents and demands shall be in writing and shall be delivered to the following
addresses:
If intended for Holder, to:
Jeffrey B. Bogatin
888 Park Avenue
New York, New York 10021
Facsimile: (212) 737-5576
If intended to Maker, to:
TurboChef, Inc.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
Attn: Dennis J. Jameson, Chief Financial Officer
Facsimile: (214) 340-8477
<PAGE>
or to such other person or address as either party shall designate to the other
from time to time in writing forwarded in like manner. All such notices,
requests, consents and demands shall be in writing and deemed to have been given
or made when (i) delivered personally; (ii) delivered by facsimile when
confirmed; or (iii) sent by overnight courier, guaranteeing two- day delivery.
11. Waiver. No waiver or consent by Holder with respect to any act or
omission of Maker on one occasion shall constitute a waiver or consent with
respect to any other act or omission by Maker on the same or any other occasion,
and no failure on the part of Holder to exercise and no delay in exercising any
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by Holder of any right hereunder preclude any other further
right of exercise thereof or the exercise of any other right.
12. Parties in Interest. All covenants and agreements contained in this
Note shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto, except that Maker may not assign its rights
hereunder without the prior written consent of Holder.
13. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF TEXAS, WITHOUT REGARD TO ITS
PRINCIPLES OF CONFLICTS OF LAWS.
14. Jurisdiction and Venue. Any jurisdictional proceeding brought by or
against any of the parties to this Note, on any dispute arising out of this Note
or any matter related hereto shall be brought in the courts of Dallas County,
State of Texas, and, by execution and delivery of this Note, each of the parties
to this Agreement accepts for itself the exclusive jurisdiction and venue of the
aforesaid courts, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Note after exhaustion of all appeals (or by the
appropriate appellate court if such appellate court renders judgment).
15. Severability. If any provision of this Note is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
of this Note, such provision shall be fully severable; this Note shall be
construed and enforced as if such illegal, invalid and unenforceable provision
had never comprised a part hereof and this Note shall not be affected by the
illegal, invalid or unenforceable provision or by its severance from this Note.
16. Modification. No modification or waiver of any provision of this
Note shall be effective unless such modification or waiver shall be in writing
and executed by a duly authorized officer or Holder.
17. No Demand, Presentment. The undersigned and all parties now or
hereafter liable for the payment hereof, whether as endorser, guarantor, surety
or otherwise, severally waive demand, presentment for payment, notice of
dishonor, notice of intention to demand or accelerate payment hereof, protest
and notice of protest and diligence on collecting or bringing suit against any
party hereof, and agree to all extensions, renewals, indulgences, releases or
changes which from time to time may be granted by Holder and to all partial
payments hereon, with or without notice, before or after maturity.
<PAGE>
18. Attorneys' Fees. If this Note is placed in the hands of an attorney
for collection, or if it is collected through bankruptcy or other judicial
proceedings, Maker agrees to pay all expenses of collection, including, but not
limited to, attorneys' fees, incurred by the Holder.
MAKER:
TURBOCHEF, INC.
/s/ Dennis J. Jameson
-----------------------------
By: Dennis J. Jameson
Title: Chief Financial Officer
<PAGE>
[TURBOCHEF LETTERHEAD]
February 6, 1996
Mr. Dennis J. Jameson
Chief Financial Officer
TURBOCHEF, INC.
10500 Metric Drive, Suite 128
Dallas, Texas 75243
Re: Agreement to Provide Financial Support
Dear Dennis:
This letter confirms our understanding whereby Jeffrey B. Bogatin and
Philip R. McKee, in their individual capacities, will provide certain financial
support to TurboChef, Inc. a Delaware corporation ("TurboChef"). As you are
aware, we have received and reviewed a copy of the eighteen month cash flow
analysis for the period January 1996 through June 1997 with respect to TurboChef
and have had a reasonable opportunity to ask any questions with respect thereto.
In addition, in our capacities as directors and/or officers of TurboChef, we are
familiar with TurboChef's financial condition.
Based on the foregoing, we have agreed to provide financial support to
TurboChef in such amounts as TurboChef shall reasonably request during the
eighteen month period commencing on January 1, 1996 and ending on June 30, 1997.
Such financial support shall be in those forms which we and TurboChef may
mutually agree, including, without limitation, loans and additional capital
contributions.
<PAGE>
Dennis J. Jameson
February 6, 1996
Page 2
If the foregoing correctly sets forth our agreement with respect to
this matter please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among us.
Sincerely,
/s/ Jeffrey B. Bogatin
------------------------
Jeffrey B. Bogatin
/s/ Philip R. McKee
------------------------
Philip R. McKee
Agreed and Accepted as of this 6th day of February 1996.
TurboChef, Inc.
By: /s/ Dennis J. Jameson
-------------------------------------------------
Dennis J. Jameson, Chief Financial Officer
(Our ref: 268.0503)
F:\DOCS\268\SHELF\LETTERS\SUPPORT.AGR
<PAGE>
[KPMG Peat Marwick LLP Letterhead]
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
TurboChef, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
May 22, 1996
