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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
___________ TO ____________
COMMISSION FILE NUMBER 0-23478
_________________________
TURBOCHEF, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 48-1100390
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
10500 METRIC DRIVE, SUITE 128 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number:
(214) 341-9471
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [x] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at November 5, 1997
------------------- -------------------
Common Stock, $0.01 Par Value 14,546,294
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TURBOCHEF, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
- -------------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996........................................ 3
Statements of Operations (unaudited) for the three and
nine months ended September 30, 1997 and 1996............ 4
Statement of Cash Flows (unaudited) for the nine months
ended September 30, 1997 and 1996........................ 5
Notes to Financial Statements............................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 13
Item 2. Changes in Securities.................................... 13
Item 3. Defaults Upon Senior Securities.......................... 13
Item 4. Submission of Matters to a Vote of Security Holders...... 13
Item 5. Other Information........................................ 13
Item 6. Exhibits and Reports on Form 8-K......................... 13
2
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PART 1 - ITEM 1 FINANCIAL STATEMENTS
TURBOCHEF INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
------------- -------------
1997 1996
---- ----
Assets (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 290,427 477,166
Marketable securities available for sale
at market value 3,353,535 7,309,431
Accounts receivable 593,097 583,023
Inventories 924,946 686,272
Prepaid expenses 495,245 276,991
------------ ------------
Total current assets 5,657,250 9,332,883
------------ ------------
Property and equipment:
Leasehold improvements 99,933 64,334
Furniture and fixtures 300,371 132,640
Equipment 387,759 350,719
------------ ------------
788,063 547,693
Less accumulated depreciation and amortization (323,699) (242,579)
------------ ------------
Net property and equipment 464,364 305,114
------------ ------------
Other assets 135,414 105,291
------------ ------------
Total assets $6,257,028 $9,743,288
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable 391,127 340,575
Accrued expenses 206,303 415,091
Sales deposits 450 43,700
Deferred revenue 35,024 10,765
------------ ------------
Total current liabilities 632,904 810,131
------------ ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized
50,000,000 shares. Issued 13,979,666 and
13,785,244 shares at September 30, 1997
and December 31, 1996, respectively 139,797 137,852
Additional paid-in capital 22,092,948 21,577,249
Accumulated deficit (16,274,734) (12,614,605)
Treasury stock - at cost 17,382 shares in 1997
and 8,315 shares in 1996 (333,887) (167,339)
------------ ------------
Total stockholders' equity 5,624,124 8,933,157
------------ ------------
$ 6,257,028 9,743,288
============ ============
</TABLE>
3
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TURBOCHEF, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ------------------------
September 30 September 30
------------------------- ------------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 720,517 264,236 2,448,373 2,254,285
Other revenue - - 10,414 8,120
----------- ---------- ---------- ----------
Total revenues 720,517 264,236 2,458,787 2,262,405
Costs and expenses:
Cost of goods sold 650,353 208,886 1,838,416 1,742,400
Research and development expenses 354,983 156,183 876,888 451,177
Selling, general, and administrative
expenses 1,432,899 767,412 3,575,362 1,745,535
----------- ---------- ---------- ----------
Total costs and expenses 2,438,235 1,132,481 6,290,666 3,939,112
----------- ---------- ---------- ----------
(1,717,718) (868,245) (3,831,879) (1,676,707)
----------- ---------- ---------- ----------
Other income (expense):
Interest income 41,853 133,065 228,121 151,523
Interest expense - - - (6,934)
Other income (expense) (41,677) (3,199) (56,386) (3,199)
----------- ---------- ---------- ----------
176 129,866 171,735 141,390
----------- ---------- ---------- ----------
Net loss $(1,717,542) (738,379) (3,660,144) (1,535,317)
----------- ---------- ---------- ----------
Loss per common share $(0.12) (0.05) (0.26) (0.12)
----------- ---------- ---------- ----------
Weighted average number of common
shares and common share equivalents
outstanding 13,909,825 13,732,708 13,877,866 13,199,071
=========== ========== ========== ==========
</TABLE>
4
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TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,660,144) (1,535,317)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 84,528 59,223
Allowance for doubtful accounts 5,775 -
Amortization of director compensation 13,878 6,937
Decrease (increase) in accounts receivable (15,850) 355,447
Increase in inventories (238,674) (149,513)
Increase in prepaid expenses (232,129) (84,815)
Decrease (increase) in other assets (48,154) 15
Increase (decrease) in accounts payable 50,552 43,016
Increase (decrease) in accrued expenses (208,788) 18,062
Increase in deferred revenue 24,259 -
Increase (decrease) in sales deposits (43,250) 30,750
----------- ----------
Net cash used in operating activities (4,267,997) (1,256,195)
----------- ----------
Cash flows from investing activities:
Sales (purchases) of marketable securities 3,955,896 (7,366,506)
Purchase of equipment (240,370) (114,297)
Investment in TurboChef Europe 14,636 -
Additions to intangibles - (43,295)
----------- ----------
Net cash (used in) provided by investing activities 3,730,162 (7,524,098)
----------- ----------
Cash flows from financing activities:
Proceeds from notes payable to stockholders - 285,000
Repayment of notes payable to stockholders - (570,000)
Exercise of stock options 232,245 17,808
Exercise of stock warrants 285,399 -
Issuance of common stock - 12,000,000
Proceeds from sale of warrants - 80
Offering costs - (1,650,962)
Purchase of treasury stock (166,548) -
----------- ----------
Net cash provided by financing activities 351,096 10,081,926
----------- ----------
Net increase (decrease) in cash and cash equivalents (186,739) 1,301,633
Cash and cash equivalents at beginning of period 477,166 642,883
----------- ----------
Cash and cash equivalents at end of period $ 290,427 1,944,516
=========== ==========
</TABLE>
5
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TURBOCHEF, INC.
Notes to Financial Statements
(Unaudited)
September 30, 1997
General
- -------
The financial statements of TurboChef, Inc. (the "Company") included herein have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and have not been examined by independent public
accountants. In the opinion of management, all adjustments (which consisted
only of normal recurring accruals) necessary to present fairly the financial
position and results of operations have been made. Pursuant to SEC rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from these statements unless
significant changes have taken place since the end of the most recent fiscal
year. The December 31, 1996 balance sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles. The Company believes that other disclosures contained
herein, when read in conjunction with the financial statements and notes
included in the Company's Annual Report for the fiscal year ended December 31,
1996 on Form 10-K, are adequate to make the information presented not
misleading. It is suggested, therefore, that these statements be read in
conjunction with the statements and notes included in the aforementioned Form
10-K. The results of operations for the nine months ended September 30, 1997
are not necessarily indicative of the results to be expected for the full year.
6
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
Since its inception in April 1991, the Company has been engaged primarily in
research and development, limited production operations and test marketing of
its cooking systems. The developmental nature of the Company continued through
the March 1994 introduction of its first commercial product, the Model D-1
cooking system. This emphasis on research and development continued into its
first major contract with Whitbread PLC ("Whitbread") in June 1995, when the
Company introduced an enhanced product, the Model D-2 cooking system.
The Company concentrated its efforts on the Whitbread rollout throughout 1996.
Upon the completion of the secondary public offering of Common Stock in June
1996 ("the June 1996 Offering"), the Company committed to the development of a
direct sales organization. By the end of the first quarter of 1997, the Company
had substantially developed its US direct sales infrastructure and marketing
programs. This sales group consists of executive level sales representatives
along with the necessary demonstration and implementation technical staff.
Knowing that the process of carrying out numerous face-to-face demonstrations,
developing customized implementation strategies for each potential customer and
conducting the exhaustive testing required by each prospect results in an
extended sales process, the Company has taken a long-term view of the sales
development process. The revolutionary nature of the TurboChef technologies,
coupled with the foodservice industry's general resistance to change, have also
contributed to a long sales cycle. Customers currently taking cooking system
deliveries on a regular basis include Whitbread, various franchisees of HFS
Incorporated, Choice Hotels International and the European joint venture,
TurboChef Europe Limited. In addition, the Company is actively engaged in tests
within regional and national chains of quick service and casual dining
restaurants, hotels, convenience stores, supermarkets and movie theaters.
The Company has invested heavily in research, prototype development,
establishment of manufacturing capacity, and sales and marketing personnel. As
a result of these investments, and the heretofore limited revenues generated
through sales of cooking systems, the Company has incurred substantial operating
losses in each year of its operations (including net losses of $2,941,413,
$1,585,268 and $3,181,519 for the years ended December 31, 1996, 1995 and 1994,
respectively) resulting in an accumulated deficit of $16,274,734 as of September
30, 1997.
On September 29, 1997, the Company announced a strategic alliance with Maytag
Corporation (the "Maytag alliance"). The alliance is aimed at the development
and commercialization of innovative products based on TurboChef's leading-edge
technologies in heat transfer, thermodynamics and control systems. The two
companies believe that the combination of Maytag's expertise in manufacturing,
marketing and distribution in residential and commercial appliance markets, and
the Company's proprietary technologies and product development capabilities, can
result in the successful commercialization of new products in the future. The
alliance entails a mutual exchange of each company's common stock valued at
approximately $10 million and Maytag's payment to TurboChef for certain research
and development activities related to targeted product initiatives.
7
<PAGE>
The Company intends to pursue business growth through implementation of the
following strategies: i) continued marketing to U.S. restaurants, hotels,
convenience stores and other foodservice operators, ii) establishment of
international distribution through strategic alliances and regional
distributorships, iii) joint development and commercialization of new products
through the Maytag alliance and iv) continued development of new hardware,
software and food solutions for foodservice operators. The Company's future
profitability will depend upon, among other things, the successful
implementation of most or all of these initiatives.
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 report.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO THE
QUARTER ENDED SEPTEMBER 30, 1996
Revenues for the quarter ended September 30, 1997 were $720,517, an increase
of $456,281, when compared to revenues of $264,236 for the quarter ended
September 30, 1996. This increase is due to the increase in unit shipments in
the 1997 period and the 1996 delay of shipments of cooking systems to Whitbread
from the third to the fourth quarters of 1996. As a result of the delay, there
were no Whitbread shipments in the third quarter of 1996.
Cost of sales for the quarter ended September 30, 1997 was $650,353, an
increase of $441,467 when compared to $208,886 for cost of sales in the quarter
ended September 30, 1996. The increase resulted from greater unit shipments,
and the effect of charges taken during the third quarter for inventory
obsolescence due to design enhancements to the Model D-2 cooking system and an
increase in the reserve for future warranty expenses.
Gross profit on sales for the quarter ended September 30, 1997 increased
$14,814 to $70,164, when compared to gross profit on sales of $55,350 during the
quarter ended September 30, 1996. Gross margin for the quarter was 10%, compared
to 21% for the third quarter of 1996. Excluding the effect of the
aforementioned obsolescence and warranty charges, gross margin for the quarter
ended September 30, 1997 was 29%, reflecting higher average selling prices and
reduced manufacturing costs for the Model D-2 cooking system in the 1997 period.
Research and development expenses for the quarter ended September 30, 1997
increased $198,800, to $354,983, as compared to $156,183 for the quarter ended
September 30, 1996. The increase was primarily due to staff additions and
expenses incurred for prototype development, including a self-serve cooking
system for convenience store and vending applications, a reduced size commercial
cooking system and a residential oven prototype.
Selling, general and administrative expenses (S G & A) for the three months
ended September 30, 1997 increased $665,487, to $1,432,899 from comparable
expenses of $767,412 for the three months ended September 30, 1996. Consistent
with the business plan outlined by the Company in connection with the June 1996
Offering, the increased expense is primarily attributable to the development of
a U.S. sales infrastructure which incorporates staff additions, increased travel
costs and
8
<PAGE>
trade show participation expenses. Also contributing to the increased S G & A
are costs associated with international business development in the UK and Japan
not incurred in the comparable period of 1996.
Interest income for the quarter ended September 30, 1997, was $41,853
compared to income of $133,065 for the quarter ended September 30, 1996. The
decrease in income is attributable to the liquidation of marketable securities
to fund operations throughout 1997.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues for the nine months ended September 30, 1997 were $2,458,787, an
increase of $196,382, when compared to revenues of $2,262,405 for the nine
months ended September 30, 1996. This increase is primarily attributable to
higher average selling prices for the Model D-2 cooking system in the 1997
period.
Cost of sales for the nine months ended September 30, 1997 was $1,838,416,
an increase of $96,016 when compared to $1,742,400 for cost of sales in the nine
months ended September 30, 1996. This increase is the result of charges taken
during the third quarter of 1997 for inventory obsolescence due to design
enhancements to the Model D-2 cooking system and an increase in the reserve for
future warranty expenses.
Gross profit on sales for the nine months ended September 30, 1997
increased $98,072 to $609,957, when compared to gross profit on sales of
$511,885 during the nine months ended September 30, 1996. Gross margin through
September 30, 1997 was 25%, compared to 23% for the nine months ended September
30, 1996. Excluding the effect of the third quarter obsolescence and warranty
charges, gross margin was 31%, reflecting higher average selling prices and
lower manufacturing costs for the Model D-2 cooking system during the 1997
period.
Research and development expenses for the nine months ended September 30,
1997 increased $425,711, to $876,888, as compared to $451,177 for the nine
months ended September 30, 1996. The increase was primarily due to staff
additions and expenses incurred for prototype development, including a self-
serve cooking system for convenience store and vending applications, a reduced
size commercial cooking system and a residential oven prototype.
Selling, general and administrative expenses (S G & A) for the nine months
ended September 30, 1997 increased $1,829,827, to $3,575,362 from comparable
expenses of $1,745,535 for the nine months ended September 30, 1996. Consistent
with the business plan outlined by the Company in connection with the June 1996
Offering, the increased expense is primarily attributable to the development of
a U.S. sales infrastructure which incorporates staff additions, increased travel
costs and trade show participation expenses. Also contributing to the increased
S G & A are costs associated with international business development in the UK
and Japan not incurred in the comparable period of 1996.
9
<PAGE>
Interest income, net of interest expense for the nine months ended
September 30, 1997, was $228,121 compared to income of $144,589 for the nine
months ended September 30, 1996. The increase in income is attributable to
investment income throughout 1997, whereas significant interest income in 1996
did not begin until after consummation of the June 1996 Offering.
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, the proceeds from the initial public
offering of common stock in April 1994 ( the "April 1994 IPO") and the June 1996
Offering to fund its activities.
At September 30, 1997, the Company had working capital of $5,024,346 as
compared to working capital of $8,522,752 at December 31, 1996. The $3,498,406
working capital decrease from December 31, 1996 resulted primarily from the net
operating loss of $3,660,144 incurred by the Company for the nine months ended
September 30, 1997. For the nine months ended September 30, 1997, accounts
receivable turnover declined to 6.8 from 9.1 during the nine months ended
September 30, 1996 due to temporary delays in payment by the Company's largest
customer, Whitbread, during the first and second quarters of 1997.
Cash used in operating activities was $4,267,997 for the nine months ended
September 30, 1997 as compared to cash used in operating activities of
$1,256,195 for the nine months ended September 30, 1996. The increase is
primarily the result of a $2,124,827 increase in operating losses, an increase
in inventories of $238,674, an increase in prepaid expenses of $232,129, and a
decrease in accrued expenses of $208,788. Cash provided by investing activities
for the nine months ended September 30, 1997 was $3,730,162 as a result of the
sale of marketable securities in the amount of $3,955,896, offset by equipment
purchases of $240,370. Cash provided by financing activities was $351,096 for
the nine months ended September 30, 1997, which represents the net proceeds from
exercises of stock options and warrants offset by purchases of treasury stock.
At September 30, 1997, the Company had cash and cash equivalents of $290,427,
compared to cash and cash equivalents of $1,944,516 at December 31, 1996.
During December 1995, Philip R. McKee, a principal stockholder and the
President and Chief Executive Officer of the Company, 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.
On March 30, 1996, Mr. Bogatin and Mr. McKee loaned the Company the sums of
$200,000 and $85,000, respectively. These loans were evidenced by promissory
notes bearing interest at the rate of 6.5% per annum. Each of these notes was
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. These notes were repaid in full (an aggregate of $288,796, including
accrued interest) prior to the consummation of the June 1996 Offering.
10
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In June 1996 the Company consummated the June 1996 Offering, an
underwritten public offering of 800,000 shares of Common Stock which resulted in
aggregate proceeds of approximately $10,301,000, net of the underwriter's
discount and other offering costs of $1,699,491.
FORWARD LOOKING STATEMENTS
The Company is utilizing the proceeds from the June 1996 Offering to expand
its operations, including, among other things, continuing its product
development activities and marketing efforts and to set-up additional third-
party production operations for the manufacture of the Company's cooking
systems. 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
cooking system production costs) that its current cash and cash equivalent
balances, anticipated revenues from operations, and payments received pursuant
to the Maytag alliance, will be sufficient to fund its operations and satisfy
its contemplated capital requirements for approximately the next 8-10 months.
In the event that the Company's plans change, or its assumptions change or prove
to be incorrect, or 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. The Company has no
other 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.
The Company has used a substantial portion of the proceeds of the June 1996
Offering in an effort to expand its current level of operations and grow the
Company's business. However, 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.
The Company believes that increases in revenues sufficient to offset its
expenses and result in its profitability could be derived from its currently
proposed plans within the next 12 months, if such plans are successfully
completed. These plans include: (i) complete the deliveries of those TurboChef
cooking systems contemplated by the latest Whitbread contract, (ii) utilize the
awareness created by the Whitbread relationship and extend the Company's
marketing and sales efforts into other countries within the European Union,
(iii) further develop the Company's relationship with franchisees of HFS
Incorporated and thereby increase product sales, (iv) obtain initial purchase
orders from additional regional or national foodservice operators, (v) introduce
additional new products, such as its proposed residential cooking system,
consumer operated, and CUB models, and develop and market new products through
the Maytag alliance, (vi) establish a dealer sales network and (vii) further
reduce the Company's manufacturing costs. However, 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.
As of September 30, 1997, the amount of backlog orders believed to be firm
was approximately $2.6 million, as compared to approximately $4 million as of
December 31, 1996. The Company anticipates that approximately $0.5 million of
such backlog will be filled during the current year.
11
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This report and other reports and statements filed by the Company from time
to time with the Securities and Exchange Commission (collectively, "SEC
Filings") contain or may contain certain forward looking statements and
information that are based on the beliefs of the Company's management as well as
estimates and assumptions made by, and information currently available to, the
Company's management. When used in SEC Filings, the words "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan," and similar
expressions, as they relate to the Company or the Company's management, identify
forward looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions relating to the Company's operations and results
of operations, competitive factors and pricing pressures, shifts in market
demand, the performance and needs of the segments of the foodservice industry
served by the Company, the costs of product development and other risks and
uncertainties, in addition to any uncertainties specifically identified in the
text surrounding such statements, uncertainties with respect to changes or
developments in social, economic, business, industry, market, legal, and
regulatory circumstances and conditions and actions taken or omitted to be taken
by third parties, including the Company's stockholders, customers, suppliers,
business partners, and competitors, legislative, regulatory, judicial and other
governmental authorities and officials. Should one or more of these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary significantly from those anticipated, believed,
estimated, expected, intended or planned.
ACCOUNTING MATTERS
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share (Statement 128). Statement 128 specifies the
computations, presentations, and disclosure requirements for earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
Statement 128 replaces primary EPS and fully diluted EPS with basic EPS and
diluted EPS, respectively. Statement 128 is effective for financial statements
for both interim and annual periods beginning after December 15, 1997, with
earlier application not permitted. If such early application were permitted,
management believes the impact of the adoption would not have a material impact
on the recorded EPS at September 30, 1997.
12
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description
-------------- -----------
10.26 Strategic Alliance Agreement dated as
of September 26, 1997, by and between
TurboChef, Inc. and Maytag
Corporation.*
* Filed herewith in redacted form pursuant to Rule 24b-2
promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Filed separately in
unredacted form subject to a request for confidential
treatment pursuant to Rule 24b-2 under the Exchange
Act.
(b) REPORTS ON FORM 8-K
None
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TURBOCHEF, INC.
By:/s/ Dennis J. Jameson
-------------------------------------
Dennis J. Jameson
Executive Vice President, Chief
Financial Officer
(Principal Financial Officer)
Dated November 14, 1997
14
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EXHIBIT 10.26
STRATEGIC ALLIANCE AGREEMENT
<PAGE>
STRATEGIC ALLIANCE AGREEMENT
This STRATEGIC ALLIANCE AGREEMENT (this "Agreement"), dated as of
September 26, 1997, by and between TurboChef, Inc., a Delaware corporation
("TurboChef"), and Maytag Corporation, a Delaware corporation ("Maytag"),
WHEREAS, TurboChef has expertise in the development of innovative
cooking and other related technologies (the "TurboChef Technologies") and
desires to participate with Maytag in the commercialization of residential and
commercial appliances and vending equipment utilizing the TurboChef
Technologies, and
WHEREAS, Maytag has expertise in manufacturing, market development and
sales of residential and commercial appliances and vending equipment for which
the TurboChef Technologies may offer significant advancement and market place
opportunities,
NOW, THEREFORE, in consideration of the foregoing and the agreements
herein contained, TurboChef and Maytag agree as follows:
ARTICLE I
FORMATION OF STRATEGIC ALLIANCE
Section 1.1. The Alliance; Projects. The parties, by this Agreement,
----------------------
form a Strategic Alliance (the "Alliance") to cooperate in the development and
commercialization of highly
<PAGE>
innovative products based on leading edge technologies in the areas of heat
transfer, thermodynamics and controls pursuant to the terms and conditions set
out below. The Alliance will by mutual agreement develop and implement specific
projects, the first of which is the XXXXXX, an agreement between TurboChef and
Maytag being appended to this Agreement as Schedule No. 1 and made a part
hereof. The terms of this Agreement shall apply to the XXXXX and to all other
Project agreements which are appended to this Agreement pursuant to Section 1.2,
unless otherwise provided in the related Schedules hereto.
It is contemplated that, during the term of this Agreement, Maytag and
TurboChef, or their respective subsidiaries and affiliates, may discover or
develop new product concepts or applications (in addition to the XXXX) which
could utilize the TurboChef Technologies in conjunction with the Maytag
expertise. If either Maytag or TurboChef, or their respective subsidiaries or
affiliates, propose a significant concept or application of this type ("New
Development"), and if it intends to utilize engineering, marketing research,
distribution or product development services in relation thereto from third
party sources, it shall first give written notice thereof to the other party by
presenting a specific written project proposal relating thereto to the other
party setting forth in reasonable detail the scope of the proposed project.
Neither party is required to
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enter into a specific project agreement with the other party with respect to any
New Development.
The party receiving such notice shall have a reasonable time to
evaluate and respond thereto, provided that if the receiving party shall elect
not to proceed or does not respond in a reasonable time, the presenting party,
upon written notice to the receiving party, shall have the right to develop the
same unilaterally and the receiving party shall have no interest therein.
It is agreed and understood that, except as specifically provided
herein, nothing herein shall
(i) require Maytag or TurboChef to give notice to the other of any
business to be acquired by it by means of a merger, consolidation, purchase
of securities or assets or otherwise; or require Maytag or TurboChef to
permit the other to have access to any proprietary information used in any
such business; or
(ii) require either party to give access to the ongoing research and
development and planning conducted by such party or its subsidiaries and
affiliates.
Section 1.2. Additional Projects. The duties and responsibilities of
-------------------
each party with regard to each project
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<PAGE>
hereunder (a "Project") shall be specified in the Schedule relating thereto. The
parties acknowledge that it will be necessary to negotiate and enter into
definitive agreements with regard to each Project in areas such as treatment of
intellectual property, marketing, allocation of costs, task responsibility and
other matters. The parties agree to negotiate in good faith to reach mutually
satisfactory agreements as necessary to facilitate each Project.
Section 1.3. Mutual Responsibilities. Each of Maytag and TurboChef
-----------------------
agree that it will:
(a) facilitate and participate in the exploration and prioritization
of New Developments involving Maytag's residential and commercial appliances and
vending equipment, provided that such activities shall not impede the efforts
required by each party to complete the XXXX and any other then existing
Projects;
(b) provide adequate staffing to explore and prioritize New
Developments in Maytag's residential and commercial appliances and vending
equipment, provided that such staffing shall not impede the efforts required to
complete the XXXX and any other then existing Projects; and
(c) provide access to the research, intellectual property, facilities
and personnel necessary to evaluate New Developments.
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<PAGE>
Section 1.4. Commercialization Agreements. Maytag and TurboChef
----------------------------
agree that should any Project result in the development of any product for which
a significant commercial market exists, they shall each, in good faith,
negotiate and enter into agreements (each a "Commercialization Agreement")
providing for the design, manufacture and distribution of such products for the
exclusive benefits of the parties hereto, specifying the method and source of
such manufacture, the channels of distribution to be employed, the reimbursement
of costs, pricing, the allocation and distribution of profits and losses and
other relevant considerations, including royalties.
Section 1.5. Termination. (a) this Agreement shall not be
-----------
terminable prior to 180 days from the date of this agreement except
(i) at the election of Maytag, upon the material breach of this
Agreement by TurboChef and the failure of TurboChef to cure such breach
within 30 days after receipt of written notice from Maytag requesting such
breach be cured; or
(ii) at the election of TurboChef, upon the material breach of this
Agreement by Maytag, and the failure of Maytag to cure such breach within
30 days after receipt of written notice from TurboChef requesting such
breach be cured.
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(b) after 180 days from the date of this Agreement, this Agreement
shall be terminable by either party for any reason (including a material breach
of this Agreement by the other party) on 30 days advance written notice by
either party.
(c) for the purpose of this Agreement, the term "material breach"
shall mean (i) for the period from the date of this Agreement until the 180th
day thereafter, (w) any failure to perform the requirements of Sections 1.3,
2.1, 2.2, 2.3, 2.5(a), 2.6 and 2.7 or (x) the fact, if true, that the TurboChef
registration statement referred to in Section 2.3 is not declared effective by
the Securities and Exchange Commission on or before such 180th day; and (ii)
after such 180th day shall mean (y) any failure to perform the requirements of
Section 2.5 applicable after such 180th day or of Section 2.6 or (z) the terms
and conditions of the registration rights agreement referred to in Section 2.3.
No such termination shall have any effect on any Commercialization
Agreement in effect on the date of such termination. Termination pursuant to
subsection (a) above, or termination pursuant to subsection (b) above on account
of a material breach, shall (a) have the effects specified in Sections 2.4 and
3.8; and (b) any Project then underway shall be completed in accordance with the
related Project agreement unless the parties otherwise agree in writing.
Termination hereunder shall be without prejudice to any rights or remedies
either party may
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have with respect to the other party's breach of any provision of this
Agreement.
ARTICLE II
STOCK ACQUISITIONS
Section 2.1. Issuance of TurboChef Common Stock. Within 15 days of
----------------------------------
the date of this Agreement:
(a) TurboChef is issuing and selling to Maytag, and Maytag is
purchasing from TurboChef, that number of whole shares of Common Stock, par
value $.01 per share, of TurboChef (the "TurboChef Common Stock"), determined in
accordance with subsection (d) of this Section 2.1 (such shares of TurboChef
Common Stock, together with any TurboChef Common Stock issued with respect
thereto as a stock dividend or stock split, being referred to herein as the
"Acquired TurboChef Common Stock") for the purchase price of $10,000,000 (the
"Purchase Price");
(b) TurboChef is instructing its transfer agent to deliver to Maytag a
certificate, registered in the name of Maytag, representing the Acquired
TurboChef Common Stock, such certificate to bear the following legend:
"The securities represented by this certificate were issued in a
transaction exempt from registration under the Securities Act of 1933.
No transfer of such securities may be made on the books of the Company
unless accompanied by an opinion of counsel, satisfactory to the
Company, that such transfer may be effected without registration under
the Securities Act
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<PAGE>
of 1933 or that such securities have been so registered under a
registration statement which is in effect at the date of such
transfer.
The sale, assignment, pledge, encumbrance or other transfer of the
securities represented by this certificate is subject to the
provisions of an agreement, dated as of September 26, 1997, between
the Company and Maytag Corporation, a copy of which is on file at the
principal executive office of the Company."; and
(c) Maytag is delivering $10,000,000, by wire transfer to an account
designated by TurboChef, in payment of the Purchase Price.
(d) The number of shares of TurboChef Common Stock which shall
constitute the Acquired TurboChef Common Stock on the date hereof shall be
determined by multiplying the number of shares of Acquired Maytag Common Stock
(as such term is defined in Section 2.2) by a ratio, the numerator of which is
the Maytag VWAP and the denominator of which is the TurboChef VWAP. The "Maytag
VWAP" is the volume weighted average price per share of the Maytag Common Stock
as reported on the New York Stock Exchange over the two trading days immediately
prior to the date of this Agreement. The "TurboChef VWAP" is the volume
weighted average price per share of the TurboChef Common Stock reported by
NASDAQ over the two trading days immediately prior to the date of this
Agreement.
Section 2.2. Purchase of Maytag Common Stock. Concurrently with the
-------------------------------
execution and delivery of this Agreement:
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<PAGE>
(a) TurboChef is placing an order with Lehman Brothers (the "Broker")
for the purchase on the New York Stock Exchange of that number of whole shares
of Common Stock, par value $1.25 per share (the "Maytag Common Stock"), of
Maytag purchaseable in the ordinary course for an aggregate of $10,000,000 (such
shares of Maytag Common Stock, together with any Maytag Common Stock issued with
respect thereto as a stock dividend or stock split, being referred to herein as
the "Acquired Maytag Common Stock").
(b) TurboChef is instructing the Broker to instruct the transfer agent
for Maytag Common Stock, and Maytag is instructing the transfer agent for Maytag
Common Stock, to include the following legend on the certificates representing
the Acquired Maytag Common Stock:
"The sale, assignment, pledge, encumbrance or other transfer of the
securities represented by this certificate is subject to the
provisions of an agreement, dated as of September 26, 1997, between
the Company and TurboChef, Inc., a copy of which is on file at the
principal executive office of the Company."
Section 2.3. Registration of TurboChef Common Stock. TurboChef agrees
--------------------------------------
to take all steps reasonably necessary to cause the Acquired TurboChef Common
Stock to be registered in accordance with Section 5 of the Securities Act of
1933, as amended (the "Act"), in order that any sale of the Acquired TurboChef
Common Stock by Maytag shall be in accordance with the Act. TurboChef agrees to
file a registration statement covering
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<PAGE>
the Acquired TurboChef Common Stock under the Act on or before November 26, 1997
and to use its best efforts to cause the Securities and Exchange Commission to
declare such registration statement effective under the Act no later than the
180th day after the date of this Agreement. TurboChef shall, no later than 30
days after the date of this Agreement, have executed and delivered to Maytag a
registration rights agreement, in form and substance reasonably satisfactory to
Maytag and TurboChef, containing customary terms with regard to such
registration, including, without limitation, mutual indemnification.
Section 2.4. Effect of Termination under Section 1.5 for Material
----------------------------------------------------
Breach. (a) In the event that this Agreement is terminated by Maytag pursuant
- ------
to Section 1.5 on account of a material breach by TurboChef, Maytag shall have
the right (i) to retain the Acquired TurboChef Common Stock with the right to
dispose of the same subject only to Section 2.5(e) of this Agreement; or (ii)
upon 20 days advance written notice to TurboChef given within three days after
the date of such termination, to require TurboChef to transfer and assign to
Maytag all of the Acquired Maytag Common Stock then owned by TurboChef (but not
pledged) and transfer and assign a proportionate number of shares of the
Acquired TurboChef Common Stock to TurboChef, such proportion to be based upon
the ratio of the Acquired Maytag Common Stock then owned by TurboChef (but not
pledged) to the total number of shares of Acquired Maytag Common Stock acquired
by TurboChef hereunder.
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<PAGE>
(b) In the event that this Agreement is terminated by TurboChef
pursuant to Section 1.5 on account of a material breach by Maytag, TurboChef
shall have the right (i) to retain the Acquired Maytag Common Stock with the
rights to dispose of the same subject only to Section 2.5(e) of this Agreement;
or (ii) upon 20 days advance written notice to Maytag given within three days
after the date of such termination, to require Maytag to transfer and assign to
TurboChef all of the Acquired TurboChef Common Stock then owned by Maytag and
transfer and assign a proportionate number of shares of the Acquired Maytag
Common Stock to Maytag, such proportion to be based upon the ratio of the
Acquired TurboChef Common Stock then owned by Maytag to the total number of
shares of Acquired TurboChef Common Stock acquired by Maytag hereunder.
Section 2.5. Restrictions on Transfer. (a) Except as provided in
------------------------
Section 2.4, Maytag shall not sell, pledge, transfer or assign any Acquired
TurboChef Common Stock, and TurboChef shall not sell, pledge, transfer or assign
any Acquired Maytag Common Stock, for a period of 180 days after the date of
this Agreement.
(b) Subject to subsections (c), (e) and (f) below, (i) TurboChef may
sell, pledge, transfer or assign up to 50% of the total number of shares of
Acquired Maytag Common Stock at any time after the 180th day after the date of
this Agreement and (ii) on and after the second anniversary of the date of this
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Agreement, TurboChef may sell, pledge, transfer or assign any shares of the
Acquired Maytag Common Stock then owned by TurboChef.
(c) It shall be a condition to TurboChef's right to sell, pledge,
transfer or assign Acquired Maytag Common Stock during the period from and after
the 180th day after the date of this Agreement to the second anniversary of the
date of this Agreement that the following occur:
(i) TurboChef shall give written notice to Maytag should it desire to
obtain additional financing for its business; such notice shall specify the
amount and type of financing desired and the proposed uses of the proceeds
thereof;
(ii) within seven days of the receipt by Maytag of such notice,
Maytag shall notify TurboChef in writing as to whether or not it desires to
participate in such financing; if Maytag does not desire to so participate,
TurboChef shall be entitled to sell, pledge, transfer or assign all or any
portion of the Acquired Maytag Common Stock subject to subsections (e) and
(f) below;
(iii) If Maytag elects to participate in such financing, Maytag shall
submit in writing to TurboChef its plan for such financing within seven
days of such notice,
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<PAGE>
including, the type of financing proposed by Maytag and the sources
thereof;
(iv) TurboChef shall advise Maytag in writing within seven days of
its receipt of such plan as to whether or not such plan is acceptable to
TurboChef; if TurboChef accepts such plan, Maytag and TurboChef shall each
use their best efforts to consummate such financing, and TurboChef shall
sell, pledge, transfer or assign no shares of the Acquired Maytag Common
Stock unless such sale was part of such financing plan; and
(v) If TurboChef rejects such plan and desires to sell, pledge,
transfer or assign the Acquired Maytag Common Stock as the method of
providing such financing, it shall notify Maytag in writing of such
rejection and intention within seven days of its receipt of such plan and,
subject to subsection (e) below and to Maytag's right of first refusal
contained in subsection (f), it shall have the right to sell, pledge,
transfer or assign the Acquired Maytag Common Stock.
(d) Subject to subsections (e) and (f) below, Maytag shall have the
right to sell that number of shares of the Acquired TurboChef Common Stock
determined by multiplying the total number of shares of Acquired TurboChef
Common Stock by a fraction, the numerator of which is the total number of shares
of
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<PAGE>
Acquired Maytag Common Stock sold by TurboChef pursuant to this Section 2.6 and
the denominator of which is the total number of shares of Acquired Maytag Common
Stock; provided that Maytag shall limit such sales to not more than 50,000
--------
shares of Acquired TurboChef Common Stock per month.
(e) In no event shall any Acquired Maytag Common Stock or TurboChef
Common Stock be sold, assigned or transferred by any party to this Agreement in
violation of the Act or any applicable state securities or "Blue Sky" laws.
Each party shall notify the other of any proposed sale, assignment or transfer
and use its best efforts to arrange such sales so as not to disrupt the market
for the securities being sold.
(f) Neither TurboChef nor Maytag shall sell Acquired Maytag Common
Stock or Acquired TurboChef Common Stock, as the case may be, unless it shall
have first offered the same to the other party in writing for cash at the Volume
Weighted Average Price per share thereof (on the New York Stock Exchange, in the
case of Maytag, or on the NASDAQ National Market, in the case of TurboChef) for
the two trading days prior to the date of such offer. The offeree shall have
three business days to accept such offer in writing and such acceptance, if any,
must be for the entire number of shares so offered. If such offer is so
accepted, the offeror shall sell and transfer such shares to the offeree, and
the offeree shall accept and pay for such shares, no later than the close of
business on the second business day
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<PAGE>
following the date of such written acceptance. If such offer is not so accepted,
the offeror shall have the right to sell such shares in accordance with Section
2.5(b), (d) and (e) for a period of 30 days after which such shares shall again
be subject to this subsection (f).
Section 2.6. Standstill. (a) During the period that this Agreement
----------
is in effect and for a period of five (5) years after the termination thereof,
neither party (the "Initiating Party") nor any of its Affiliates (as such term
is defined in Rule 12h-2 of the Securities Exchange Act of 1934, as amended, the
"Exchange Act") or any other person or entity with whom such party is acting in
concert or shall have formed a "group" within the meaning of Section 13(d)(3) of
the Exchange Act shall, directly or indirectly, (a)(x) solicit, seek or offer to
effect, or effect, or (xx) make any statement or proposal, whether written or
oral, either alone or in concert with others, to the Board of Directors of the
other party, any director or officer of the other party or any stockholder of
the other party, or (xxx) make any public announcement or proposal or offer
whatsoever (including, but not limited to, any "solicitation" of "proxies" as
such terms are defined, or used in Regulation 14A of the Exchange Act) with
respect to, (i) any form of business combination or transaction involving the
other party, including, without limitation, a merger, tender or exchange offer
or liquidation of the other party's assets, (ii) any form of restructuring,
recapitalization or similar transaction with
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respect to the other party, (iii) any purchase of any securities or assets, or
rights or options to acquire any securities or assets (through purchase,
exchange, conversion or otherwise), of the other party if the aggregate amount
of the securities held by the Initiating Party, its Affiliates and/or the
members of any "group" would exceed fifteen percent (15%) of the other party's
issued and outstanding voting securities, (iv) any proposal to seek
representation on the Board of Directors of the other party or otherwise to seek
to control or influence the management, Board of Directors or policies of the
other party, or (b) instigate, encourage, join, act in concert with or assist
(including, but not limited to, providing or assisting in any way in the
obtaining of financing for or acting as a joint bidder or co-bidder for the
other party with) any third party to do any of the foregoing, unless and until
the Initiating Party has received the prior written invitation or approval of a
majority of the Board of Directors of such other party to do any of the
foregoing.
(b) Prior to the execution of any transaction, as described below,
TurboChef shall give prompt written notice to Maytag of any decision by the
Board of Directors of TurboChef (i) to sell all or substantially all of the
assets of TurboChef or any of its subsidiaries, (ii) to merge or consolidate
TurboChef or any of its subsidiaries with or into any third party, (iii) to
approve any offer for more than 15% of its outstanding Common Stock or (iv) for
any other transaction which will result in a
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change in control of TurboChef or its business and assets. Upon receipt of such
notice at its option, Maytag shall have the right to propose such a transaction
to TurboChef involving Maytag, notwithstanding the provisions of subsection (a)
of this Section 2.6.
Section 2.7. Restriction on Trading. The number of shares comprising
----------------------
the Acquired TurboChef Common Stock is being derived in part by a formula which
utilizes the Maytag VWAP and the TurboChef VWAP over a designated period of two
trading days. Neither Maytag or TurboChef, nor any of their affiliates, agents
or representatives on their behalf, shall purchase any Maytag Common Stock or
any TurboChef Common Stock during such two day period.
ARTICLE III
INTELLECTUAL PROPERTY RIGHTS
Section 3.1. Intellectual Property. As used herein, the term
---------------------
"Intellectual Property" shall include, without limitation, any and all United
States and foreign patents, patent applications, any continuations,
continuations-in-part, and divisionals (the "Patents"); any copyrights, whether
registered or unregistered, mask works, and other copyrightable works (the
"Copyrights"); any computer software applications, software systems, tools,
interfaces, in any form, including object code and source code, in any media,
and related documentation (the
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"Software"); and any proprietary inventions, discoveries, improvements,
know-how, show-how, works-in-progress, processes, designs, concepts,
technologies, ideas, customer information, customer lists, marketing strategies,
market research, industrial designs and any other trade secrets (collectively
the "Trade Secrets").
Section 3.2. Pre-Existing Intellectual Property.
----------------------------------
(a) Retention of Ownership and Rights in Pre-Existing Intellectual
--------------------------------------------------------------
Property: Each party will retain exclusive ownership of and rights to any
- --------
Intellectual Property (including any derivative works based therefrom or
improvements thereon) which the respective party owned or created prior to the
execution of this Agreement ("Pre-Existing Intellectual Property"). This
Agreement shall not affect the exclusive ownership or rights of each party to
its respective Pre-Existing Intellectual Property (whether before, during or
after the term of this Agreement). Maytag shall own any market research
conducted solely by Maytag or industrial design documents and prototypes done or
produced solely by Maytag as part of a Project.
(b) Limited License to Use the Other Party's Pre-Existing Intellectual
------------------------------------------------------------------
Property: During the term of this Agreement, each party will be granted, for a
- --------
reasonable royalty, rights to use certain Pre-Existing Intellectual Property of
the other as provided in the specific Project agreements solely for
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the purpose of and to the extent necessary for the work contemplated by such
Project, for commercial products identified or developed in the course of a
Project, and subject to the terms and conditions of Article IV of this
Agreement. The specific terms and conditions of each license for such Pre-
Existing Intellectual Property will be as set forth in the description of the
Project to which the Pre-Existing Intellectual Property is applicable or as set
forth in a separate license agreement relating to a Project and applicable for
the particular type of Pre-Existing Intellectual Property (whether a Patent,
Trade Secret, Copyright or Software, or combination thereof, as the case may
be). However, Maytag's payment to TurboChef of $1,500,000 pursuant to the
agreement for the XXXXX shall entitle Maytag access to (but not necessarily the
use of) all of TurboChef's Pre-Existing Intellectual Property as Maytag shall
reasonably require (including the TurboChef Technologies referred to in Section
4.1) as of the date of this Agreement; provided, however, that such access does
not interfere with any agreed upon completion schedule in any Project agreement.
Section 3.3. Ownership of Improvements, Derivative Works, and other
------------------------------------------------------
Enhancements to Pre-Existing Intellectual Property and Limited License Grant.
- ----------------------------------------------------------------------------
(a) Ownership of Enhancements. Any improvement, modification,
-------------------------
discovery, process, know-how, derivative work, or other enhancement
("Enhancement") based upon, or related to, a
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Pre-Existing Intellectual Property that is created, invented or discovered in
connection with the performance of a Project shall be owned exclusively by the
owner of the Pre-Existing Intellectual Property.
(b) Limited License to Use. If the other party has contributed to
----------------------
the development, creation or discovery of the Enhancement, and if the other
party so requests, then the party that owns the Enhancement shall grant the
contributing party a limited, non-exclusive, non-assignable, revocable license
at a reasonable royalty rate to use such Enhancement in accordance with the
terms and conditions of a license agreement to be mutually agreed upon by the
parties.
Section 3.4. Ownership of Jointly Developed Intellectual Property.
----------------------------------------------------
Any Intellectual Property which are not Enhancements and which are created,
developed, discovered, or invented jointly by the parties during the term of
this Agreement or in connection with a particular Project shall be jointly
owned; provided, however, it shall be the responsibility of Maytag to identify
those creations, developments, discoveries, or inventions which it considers
jointly created, developed, discovered or invented by the parties hereto,
otherwise sole ownership thereof shall accrue to TurboChef.
Section 3.5. Prosecution of Patent Applications Or Other Protection
------------------------------------------------------
For Jointly-Owned Intellectual Property. If the
- ---------------------------------------
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parties mutually agree to file and prosecute a patent application, or to seek
other forms of protection as applicable, in the U.S. or elsewhere for a jointly
owned Intellectual Property, the parties will share equally in the expense
incurred in connection with the filing and prosecution of such patent
applications or other protection. The parties will reasonably cooperate and
execute all documents reasonably required to file and prosecute such patent
applications or to obtain such other protection.
If one party elects not to file and prosecute a patent application or
obtain such other applicable protection ("the Non-Electing Party") for a
potential jointly owned Intellectual Property, the other party ("the Electing
Party") may do so at its expense. The Non-Electing Party will reasonably
cooperate with the Electing Party and will execute all documents reasonably
required to file and prosecute such patent applications or obtain such other
protection. In such event, the Intellectual Property shall become the property
of the Electing Party.
Section 3.6. Prosecution of Patent Applications or Other Protection
------------------------------------------------------
for Exclusively-Owned Enhancements. Each party will reasonably cooperate and
- ----------------------------------
execute all documents reasonably required to assist the party who owns an
Enhancement to file and prosecute a patent application or obtain other
protection for such Enhancement.
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Section 3.7. Employee Matters. Each party will take reasonable
----------------
efforts to secure and protect its ownership in and rights to all work product,
including any inventions, Software, Copyrights, Patents, patent rights, and
Trade Secrets which its employees or agents who are assigned to a Project have
developed or created, or have participated in the development or creation,
including by entering into appropriate written work made-for-hire, and
confidentiality agreements, and assignments of rights in inventions and work
product, with each employee assigned to a Project.
Section 3.8 Termination of Agreement. In the event that this
------------------------
Agreement is terminated, all rights, including the licenses to Pre-Existing
Intellectual Property and the Enhancements, under this Article III shall cease,
unless otherwise provided in a separate agreement relating to a Project.
ARTICLE IV
CONFIDENTIALITY
Section 4.1. Confidential Information. Information communicated by
------------------------
one party (the "Disclosing Party") to the other (the "Receiving Party") pursuant
to this Agreement or in connection with a Project which the Disclosing Party
considers confidential shall, when communicated in documentary form or on
computer tape or disc or transmitted electronically, be marked, or designated,
as "Confidential." In the event information is
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communicated orally or by transfer of non-documentary materials, the
confidential nature of such information shall be confirmed to the Receiving
Party in writing within twenty days after such disclosure. "Confidential
Information" shall mean any and all information in any form with respect to the
Disclosing Party's technical or business matters which are designated by the
Disclosing Party as "Confidential" in the manner set forth above.
Notwithstanding the provisions of this paragraph, as to those subjects within
TurboChef Technology, it is agreed that all disclosure of information with
respect to said subjects shall be considered "Confidential Information,"
regardless of the form in which it is communicated and whether marked
"confidential" or not, unless otherwise indicated in writing by the Disclosing
Party.
Section 4.2. Maintenance of Confidentiality. During the term of this
------------------------------
Agreement and for a period of five years thereafter the Receiving Party shall
maintain all Confidential Information of the Disclosing Party in strict
confidence, shall not publish, disseminate, disclose or otherwise make such
Confidential Information available to any third party, and shall not use such
Confidential Information for any purpose other than for the benefit of the
Disclosing Party in a manner approved by the Disclosing Party; provided that, as
to documentation containing Confidential Information which is designated by a
party as "Super Confidential," the obligations of this Section
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4.2 shall remain in force beyond the period specified in this Section 4.2 for so
long as such information remains confidential. The Receiving Party agrees to
limit the dissemination of, and access to, the Confidential Information to
employees of the Receiving Party (together with its legal advisors) who have a
"need to know" such information, provided that such employees shall have entered
into appropriate confidentiality relationships with the Receiving Party so as to
ensure that the Receiving Party has the legal right to implement the terms and
conditions of this Confidentiality Agreement.
Section 4.3. Exceptions. Notwithstanding Section 4.2, the
----------
obligations of confidentiality and non-use on the part of the Receiving Party
shall not apply to information which:
(a) the Receiving Party can establish was publicly known or was
known to the Receiving Party at the time of disclosure;
(b) become publicly known subsequent to the time of disclosure,
provided that such public knowledge is not the result of disclosure of
Confidential Information by the Receiving Party;
(c) is approved for release by prior written authorization of
the Disclosing Party; or
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(d) is required to be disclosed by applicable law, regulation or
legal process (whether by subpoena, civil investigative demand, or
other similar process), provided that if the Receiving Party is so
required to disclose any of the Confidential Information the Receiving
Party will provide the Disclosing Party with prompt notice of any such
request of which the Receiving Party has knowledge so that the
Disclosing Party may seek a protective order or other appropriate
remedy or waive the Receiving Party's compliance with the provisions
of this Confidentiality Agreement, as appropriate. Regardless of
whether the Disclosing Party waives compliance with the terms hereof,
or whether a protective order or other appropriate remedy is obtained,
the Receiving Party will furnish only that portion of the Confidential
Information which is required to be disclosed by such applicable law,
regulation or legal process.
Section 4.4. Remedies. The parties acknowledge and agree that a
--------
breach of this Article IV by either of them would cause irreparable damage to
the non-breaching party, that such damage would be difficult to measure, and
that such damage may not be adequately compensated by monetary damages.
Consequently, the parties agree that each shall be entitled to equitable relief,
including injunction and specific performance, in the event of any breach of the
provisions of this Article IV, in
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<PAGE>
addition to all remedies available to the parties at law or in equity.
Section 4.5. Other Agreements. The parties recognize that other
----------------
agreements between them on various subjects related to a Project may contain
confidentiality provisions. Nothing herein shall affect each party's obligation
to fully perform any such provisions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1. Representations by Maytag. Maytag represents and
-------------------------
warrants, as of the date of execution of this Agreement and of each Project
agreement (except with respect to Section 5.1(f) and except as may be otherwise
provided in such Project agreement), that:
(a) Maytag has full corporate right, power and authority to
enter into this Agreement and perform its obligations hereunder;
(b) The execution, delivery and performance by Maytag of this
Agreement do not (i) contravene or constitute a default under any
contractual restriction binding on or affecting Maytag or any of its
properties or certificate of incorporation or by-laws or (ii) to
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<PAGE>
the best of Maytag's knowledge, require any consent, permit or
approval of any U.S. governmental agency or authority;
(c) This Agreement has been duly executed and delivered by
Maytag and is a legal, valid and binding obligation of Maytag
enforceable against it in accordance with its terms;
(d) To the best of Maytag's knowledge, there are no claims,
judgments or settlements binding on Maytag or any of its affiliates,
or pending or threatened claims or litigation against Maytag or any of
its affiliates, which would prevent or impede its performance under
this Agreement;
(e) To the best of Maytag's knowledge, the execution, delivery
and performance by Maytag of this Agreement do not violate any
intellectual property rights of any other parties; and
(f) Maytag is acquiring the Acquired TurboChef Common Stock for
its own account, for investment and not with a view to the distribution
thereof within the meaning of the Act.
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<PAGE>
Section 5.2. Representations by TurboChef. TurboChef represents and
----------------------------
warrants, as of the date of execution of this Agreement and of each Project
Agreement (except as otherwise provided therein), that:
(a) TurboChef has full corporate right, power and authority to
enter into this Agreement and perform its obligations hereunder;
(b) The execution, delivery and performance by TurboChef of this
Agreement do not (i) contravene or constitute a default under any
contractual restriction binding on or affecting TurboChef or any of
its properties or under TurboChef's certificate of incorporation or
by-laws or (ii) to the best of TurboChef's knowledge, require any
consent, permit or approval of any U.S. governmental agency or
authority;
(c) This Agreement has been duly executed and delivered by
TurboChef and is a legal, valid and binding obligation of TurboChef
enforceable against it in accordance with its terms;
(d) To the best of TurboChef's knowledge, there are no claims,
judgments or settlements binding on TurboChef or any of its
affiliates, or pending or threatened claims or litigation against
TurboChef or
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<PAGE>
any of its affiliates, which would prevent or impede its performance
under this Agreement;
(e) To the best of the TurboChef's knowledge, the execution,
delivery and performance by TurboChef of this Agreement do not violate
any intellectual property rights of any other parties; and
(f) The shares of Acquired TurboChef Common Stock issued pursuant
to Section 2.1 have been duly authorized and are validly issued, fully
paid and nonassessable.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Entire Agreement; Assignment. This Agreement (a)
----------------------------
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof and (b) shall not be assigned by operation of law or otherwise;
provided, however, that either party may assign its rights and obligations to
- -------- -------
any wholly owned subsidiary, but no such assignment shall relieve the party of
its obligations hereunder.
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<PAGE>
Section 6.2 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, telecopies (which is confirmed by the
recipient) or sent to registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses:
If to TurboChef, to:
TurboChef, Inc.
10500 Metric Drive
Suite 128
Dallas, Texas 75243
Attention: Philip R. McKee
Telecopy No.: 214-340-8477
If to Maytag, to:
Maytag Corporation
403 West Fourth Street North
P.O. Box 39
Newton, Iowa 50208
Attention: General Counsel
Telecopy No.: 515-791-8102
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 6.3. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the substantive laws of the State of Iowa,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
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<PAGE>
Section 6.4. Publicity. Except as otherwise required by law or in
---------
accordance with good faith advice by legal counsel, for so long as this
Agreement is in effect, neither TurboChef or Maytag shall issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement without the express prior
written approval of the other parties. Without the prior written consent of
Maytag, or TurboChef, as the case may be, the other party shall not use the name
"Maytag" or "TurboChef" or any confusingly similar variations thereof, in any
marketing materials, product descriptions, point-of-purchase materials, or
annual or periodic reports, or otherwise. Such approval and consent, if
granted, will be on a timely basis and will not be unreasonably withheld.
Section 6.5. Dispute Resolution. Except as otherwise provided
------------------
herein, any and all claims or controversies relating to this Agreement shall be
finally resolved by arbitration. Any of the parties to such claim or
controversy shall have the right to submit the same to arbitration by delivery
of a written dated notice (the "Arbitration Notice") for arbitration delivered
to the other party to such claim or controversy. Upon receipt of such
Arbitration Notice, the parties shall have ten days to agree on a single
arbitrator. If no such agreement is reached during such ten day period, each
party shall have 10 additional days to appoint one neutral and impartial
individual to serve on the arbitration panel. Within ten days after such two
arbitrators are selected, a third arbitrator who shall preside shall be
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<PAGE>
appointed by the two so selected. Any vacancy which is not filled within ten
days by the parties shall be filled with a neutral and impartial individual by
the American Arbitration Association.
Following designation and appointment of the three arbitrators to
serve on the arbitration panel, the parties to such claim or controversy shall
undertake in good faith informal efforts to mediate and negotiate to resolve
such claim or controversy. If a negotiated solution cannot be achieved within
fifteen days after the date such arbitration panel is constituted, then unless
the parties to such claim or controversy agree otherwise to a reasonable
extension of time in order to negotiate to resolve such claim or controversy,
the arbitration proceeding shall commence.
The Arbitration proceedings shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA")
subject to the following modifications:
(a) discovery shall be permitted under the same standards provided
for in the Federal Rules of Civil Procedure;
(b) the members of the arbitration panel shall interpret and apply
the provisions of this Agreement;
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<PAGE>
(c) the arbitration panel shall determine and award costs between the
parties to the arbitration proceedings;
(d) the proceedings will be held in Dallas, Texas, unless the parties
otherwise agree in writing;
(e) to the extent permissible under applicable law, the decisions and
award of the arbitrators shall be final and conclusive, and may be enforced in
any court having prior jurisdiction; and
(f) it is not intended by the parties that the arbitrators shall be
required to be members of the AAA's Panel of Commercial Arbitrators or that the
arbitration be subject to the auspices of the AAA or subject to AAA
administration.
Section 6.6. Independent Contractor. Each party hereto is, and at
----------------------
all times will remain, an independent contractor and will not represent itself
to be the agent, joint venturer, or partner of the other party hereto or to be
related to such other party. No representations will be made or acts done by
either party which would establish any apparent relationship of agency, joint
venture, or partnership.
Section 6.7. Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only
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<PAGE>
and are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
Section 6.8. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TURBOCHEF, INC.
By: /s/Philip R. McKee
------------------------------------
Name: Philip R. McKee
Title: President, CEO
MAYTAG CORPORATION
By: /s/John M. Dupuy
------------------------------------
Name: John M. Dupuy
Title: VP Strategic Planning
-34-
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