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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K-
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM
___________ TO ____________
COMMISSION FILE NUMBER 0-23478
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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)
Issuer's telephone number:
(214) 341-9471
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
None None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
--------------------------
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
form 10-K. YES [ ] NO [ ]
Aggregate Market Value of voting stock held by
non-affiliates of the Registrant at
March 15, 1997: $ 64,344,140
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 March 15, 1997
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Common Stock, $0.01 Par Value 13,853,096
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DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's definitive proxy materials for its
1997 annual meeting of stockholders are incorporated by reference in Part III
hereof.
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TURBOCHEF, INC.
TABLE OF CONTENTS
Form 10-K Item Page
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PART I.
Item 1. Business................................................ 2
Item 2. Properties.............................................. 21
Item 3. Legal Proceedings....................................... 21
Item 4. Submission of Matters to a Vote of Security Holders..... 21
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 22
Item 6. Selected Financial Data................................. 23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 25
Item 8. Financial Statements and Supplementary Data............. 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 31
PART III.
Item 10. Directors and Executive Officers of the Registrant...... 32
Item 11. Executive Compensation.................................. 32
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 32
Item 13. Certain Relationships and Related Transactions.......... 32
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................ 33
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PART I
ITEM 1. BUSINESS
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GENERAL
TurboChef, Inc. (the "Company") is a foodservice technology company engaged
in designing, developing and marketing high-speed commercial "cooking systems"
and in applying its proprietary technologies to other foodservice products,
processes and concepts for customers seeking a competitive advantage in the
foodservice market. These cooking systems incorporate specially designed
proprietary heat transfer hardware with a computerized programmable operating
system, which controls the cooking process, and is capable of accepting software
updates from a remote site via computer modem. Now that the Company's products
and technologies have been validated (through utilization and extensive testing
by both the Company and a variety of foodservice operators) 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 cooking systems, 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 cooking system 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 cooking
system's moisture retention, browning and crisping capabilities, the Company
believes that the characteristics of most food items cooked in a TurboChef
cooking system (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 Company was incorporated on April 3, 1991, as a Kansas corporation and
was reincorporated on August 17, 1993, as a Delaware corporation. The Company
was privately held until April 7, 1994. The Company's principal corporate
offices are located at 10500 Metric Drive, Suite 128, Dallas, Texas 75243 and
its telephone number is (214) 341-9471.
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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 the National Restaurant
Association (NRA), an industry trade association, domestic fast-food restaurant
sales in 1996 accounted for approximately $98 billion in revenues and domestic
full-service restaurant sales during such period accounted for an additional
approximately $100 billion in revenues. These figures compare 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 NRA.
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
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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.
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 cooking system, 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 cooking system hardware,
software and food preparation processes which are customized to meet their
particular needs. For example, the development of the Model D-2 cooking system
was in response to the requirements of Whitbread PLC ("Whitbread"), the
Company's largest customer, which operates over 6,500 pub, convenience,
restaurant, hotel and leisure locations across the
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United Kingdom, including the Beefeater, Pizza Hut, TGI Friday's, Marriott and
Brewers Fayre brands.
TurboChef is also developing a unique application of its cooking system
specifically for convenience store use. This convenience store cooking system
will be designed to cook "on demand" popular fast foods such as breakfast
sandwiches in 20 seconds, hamburgers in 30 seconds and pizza in 40 seconds. As
a reuslt, one TurboChef cooking system will enable a wide variety of competitive
fast food offerings from inside a convenience store.
The Company intends to capitalize upon foodservice industry trends by
aggressively pursuing both the expansion of its product offerings and its market
penetration. The focus of this strategy includes (i) maintaining a direct sales
staff which devotes its efforts towards large foodservice chains, (ii) 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, and (iii) continuing to
devote significant efforts to the development of additional applications of the
Company's technologies.
Expansion in the restaurant 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 restaurant 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 WalMart, and certain grocery
stores have recently placed small outlets of branded fast food chains, such as
McDonald's, Burger King, Little Caesar's 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 cooking system with
a variety of modular components, foodservice supplies and equipment, foodservice
operators will be able to take advantage of the TurboChef cooking system's small
size and cooking versatility to offer an expansive food menu at remote
locations. The Company is seeking to broaden the potential
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market for its cooking system 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, the Company was selected by Choice Hotels International
("Choice Hotels"), an international operator of over 3,500 hotels in 40
countries, as its sole commercial cooking system supplier for a new modular
Choice Picks branded food court service system being offered (as an alternative
to full-service restaurants) to all of Choice Hotel's Clarion, Quality, Comfort,
Friendship, Sleep, Econolodge and Rodeway 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 cooking systems.
TECHNOLOGIES AND PRODUCTS
TURBOCHEF COOKING TECHNOLOGIES
The Company's TurboChef cooking systems 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:
. 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.
. 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.
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. 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.
. 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 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:
. 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.
. 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.
. Versatility. The Company's heat transfer methods are not dependent upon the
use of specific ingredients or product formulations to cook quickly or evenly.
. 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 cooking system has the
capability of simultaneously cooking several different types of food by
utilizing and
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coordinating the common portion of their overlapping cooking temperatures and
times.
. Consistency. Numerous cooking parameters are constantly monitored within the
Company's cooking system and are adjusted automatically to promote consistent
cooking results.
THE TURBOCHEF COOKING SYSTEMS
The Company's high-speed commercial TurboChef cooking systems are intended
to allow foodservice operators the flexibility to "cook-to-order" a variety of
food items at speeds which are faster than those permitted by conventional
commercial ovens and grills, microwave ovens, and other currently available
high-speed ovens. The TurboChef cooking system 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 cooking system may also be transferred to the food item through the
use of microwaves, either in conjunction with, or independent from, the cooking
system'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 cooking system
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 cooking system, 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 current commercially
produced TurboChef cooking system contains a cooking cavity capable of holding a
food product measuring up to 16 inches in diameter and 4 inches in height.
Historically, the direct selling price of a TurboChef cooking system has been
approximately $11,000, after considering volume discounts. The Company's current
preferred offering program is a full service lease which includes the cooking
system hardware, operating system software, TurboChef TurboComm/TM/ software, an
extended warranty and technology upgrades for approximately $500.00 per month,
with a minimum commitment of sixty (60) months.
The cooking capacity of a TurboChef cooking system 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 cooking system. However, since the cooking times required by
conventional ovens and grills are substantially longer than those required by a
TurboChef cooking system, 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
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cooked-to-order are typically "held" until purchased, often resulting in product
degradation and increased food costs due to product spoilage. A TurboChef
cooking system avoids these inherent limitations of conventional commercial
ovens and grills since the rapid cooking speed achieved by the TurboChef cooking
system allows more products to be cooked-to-order by the foodservice operator.
Moreover, under certain circumstances the TurboChef cooking system 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 cooking system, 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 "up-grading" 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 cooking system 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.
The TurboChef cooking system, 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 cooking system 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/or food shrinkage typically associated with the cooking of
such food items can be reduced when a TurboChef cooking system is used.
Finally, certain kitchen equipment costs can be reduced or eliminated (e.g. the
cooking system typically does not require the ventilating equipment normally
needed with commercial ovens and grills and, because of the TurboChef cooking
system versatility, i.e. its ability to bake, broil and grill, the need for
other types of cooking equipment can be reduced) and electricity costs can be
reduced since the TurboChef cooking system 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
cooking system 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 cooking system. By integrating the
Turbochef cooking system with certain foodservice management concepts, the
Company believes that significant additional benefits may be derived from
cooking
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with the TurboChef cooking system. These proprietary systems include:
. the TURBOCHEF TURBOCOMM/TM/ system, a centralized cook setting system, which,
through the use of a computer modem, can reprogram TurboChef cooking systems
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 cooking
system; and
. the TURBOTOUCH system, a cooking system operations management system, which
ties the restaurant's point of sale "cash register" directly to the TurboChef
cooking system so that exact cooking settings may be automatically programmed
into the cooking system when the food order is placed.
PROPOSED TECHNOLOGY EXTENSIONS - ADDITIONAL COMMERCIAL APPLICATIONS. The Company
intends to continue its development efforts relating to its proposed residential
TurboChef cooking system and its proposed consumer-operated TurboChef cooking
system (for use in convenience stores and other retail outlets), both of which
will incorporate the Company's proprietary high-speed cooking technologies. In
June 1996, the Company announced the successful completion of a prototype
residential cooking system. By incorporating its proprietary technologies and
controls into a standard 28 inch residential oven enclosure, the Company has
created a residential cooking system prototype which uses a "downsized" version
of the same basic cooking technologies currently utilized by the TurboChef
commercial cooking systems. The Company is currently in discussion with several
world-wide appliance manufacturers to license its technologies with respect to
this product. The initial target market for the residential cooking system will
be the world-wide residential oven market (including the upper end of the 4
million cooking ranges sold annually in the United States). The Company will
also continue in its efforts to exploit other of the many potential market
applications for the TurboChef technologies.
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
cooking system 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 cooking system, the Company has developed a new
dough-setting technology for which TurboChef's patent application has been
allowed. Once a customer's pizza dough has been set using the Company's
technology, the pizza can then be cooked in a TurboChef cooking system
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,
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various other cooking processes. The TurboChef cooking system 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
Substantially all of the Company's marketing activities are conducted by
members of management and consist primarily of personal contact with potential
customers. Although the Company expects to continue to market directly to
certain domestic and international accounts, such as fast food and full service
restaurant chains, and has expanded its in-house marketing capabilities, the
Company intends to aggressively pursue joint venture, strategic alliance and/or
licensing, co-branding 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 also include direct mailings, the
preparation of sales brochures, advertising in trade publications and
participation in industry trade shows. The Company has and will continue 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.
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 cooking system 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 cooking system. In addition, multi-system 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 initial contract with Whitbread, its
principal customer, was not finalized until after more than a year of continuous
testing, negotiating and organizational planning had first been completed.
The Company has successfully marketed the TurboChef cooking system to
customers in the United States as well as other countries located around the
world. The Company has been working closely with Whitbread for several years in
adapting and applying TurboChef's
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<PAGE>
foodservice technologies and concepts to Whitbread's particular proposed
applications. 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, which operates 300 casual dining pub restaurants, 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 cooking systems enables Whitbread to derive additional benefits from
its "commissary concept", including, improving food quality and cooking yields,
reducing waste and providing product consistency.
Whitbread has purchased approximately 340 TurboChef cooking systems, which
have been installed in all of their 300 unit Beefeater chain as well as in
several of their other restaurants and resorts. In addition, they are testing an
entirely new foodservice concept based upon TurboChef technologies. The Company
announced in February 1997 that it has consummated another Purchase Contract
with Whitbread. This contract represents Whitbread's third commitment to
purchase TurboChef cooking systems, further advancing the relationship between
the two companies. This new contract will launch the next phase of expanded use
of TurboChef systems in various other Whitbread concepts. All of the cooking
systems provided to Whitbread under this new contract will be adapted to
accommodate TurboChef TurboComm/TM/, TurboChef's communications technology which
enables, among other things, cook settings for an entire new menu to be
downloaded overnight to every TurboChef cooking system within a restaurant
chain. The Whitbread contract also grants the option for Whitbread to purchase
either the Company's current Model D-2 cooking system or its new "CUB" model.
The CUB is an advanced design cooking system which utilizes the same TurboChef
proprietary technologies, with the same cooking speed and quality
characteristics as the Model D-2, but requires approximately 30% less counter
space. The Cub also incorporates design enhancements which will reduce certain
system operating costs. The Company developed the smaller CUB model as an
alternative product choice to accommodate those concepts where kitchen space is
more limited.
The Company also recently received an initial purchase order from The
Southland Corporation for TurboChef cooking systems to be tested in their 7-
Eleven stores. The Southland purchase order calls for system deliveries in three
phases. Phases I and II require the delivery of a sufficient number of cooking
systems to develop and refine Southland's food and packaging requirements. Phase
III calls for the delivery of a sufficient number of cooking systems to expand
the test to a greater number of locations to determine the profitability of
Southland's program application. This purchase order does not grant Southland
exclusive buying rights, accordingly, TurboChef is able to market this new
application of its cooking technologies throughout the convenience store
industry.
For the year ended December 31, 1996, approximately 75% of the Company' s
revenues were derived from sales to Whitbread, as compared to 69% and 9% for the
years ended December 31, 1995 and December 31, 1994, respectively. It is
anticipated that a majority of the Company's revenues for the foreseeable
future, will continue to be derived from sales to Whitbread, (based on the terms
of the current Whitbread contract, which contemplates shipments through March,
1998).
TARGET MARKETS
The Company currently intends to focus its marketing efforts on the
following commercial markets:
. FOODSEVICE OPERATORS DESIRING MENU EXTENSION. A TurboChef cooking system can
accommodate foodservice operators 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.
. FOODSERVICE OPERATORS DESIRING TO ACHIEVE OPERATING EFFICIENCIES. The
TurboChef cooking system enables operators to significantly reduce food waste
caused by over preparation and food shrinkage caused by cooking products for
extended periods. Labor costs can also be reduced when utilizing the TurboChef
system because of the minimal training required to operate the system and the
ease of implementing menu changes.
-12-
<PAGE>
. FOODSERVICE OPERATORS SEEKING MARKET EXPANSION THROUGH FASTER SERVICE.
Operators 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 cooking system 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.
. 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.
. 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.
PRODUCTION AND SUPPLY
Until October 1996, the Company had relied almost exclusively upon
Manufacturer Services Corp., Inc. ("MSC"), a contract foodservice equipment
manufacturer, for the manufacture of the Company's TurboChef cooking systems.
However in October, 1996, TurboChef terminated its relationship with MSC and
entered into agreements with two new contract manufacturers to build its cooking
systems, Sylvester's Inc., based in Louisville, Mississippi, and Techniform,
Inc., based in Waterford, Ireland, (the "Manufacturers"). The Manufacturers
have the current combined capacity to produce approximately 50 cooking systems
per month, which is sufficient to meet the Company's delivery requirements under
the current Whitbread contract, as well as the Southland purchase order. The
Company has not, however, entered into a long-term contract with the
Manufacturers, intending instead to continue its practice of placing cooking
system manufacturing orders with the Manufacturers from time to time, in the
ordinary course of business, as its needs require. While the Company believes
that the Manufacturers' combined production quantities can, and will, be
increased to as high as 250 cooking systems per month, there can be no assurance
of such production increase or that any increased production would be
sufficient.
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
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<PAGE>
and specially-designed component parts, such as the printed circuit computer
boards and wiring harnesses used in the TurboChef cooking systems. 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.
The Company has required that its contract manufacturers follow generally
accepted industry standard quality control procedures. In addition, the Company
maintains its own quality assurance personnel and testing capabilities to assist
its contract manufacturers with their respective quality programs and to perform
periodic audits of manufacturing 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 contract manufacturers furnish a limited warranty for any
of their 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 cooking system sales and
up to one or two months longer for initial shipments to commence under large
multi-cooking system purchase contracts. Pursuant to the Company's warranty
policy, the Company will accept the return of a cooking system if the cooking
system does not perform according to product specifications. For certain
potentially large customers which wish to test and evaluate a cooking system
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 cooking system within such period if
the customer is not satisfied for any reason.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1996, 1995 and 1994, the Company
incurred costs related to research and development activities in the amounts of
$681,161, $424,325 and $719,989, respectively. The Company intends 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 cooking systems (its Model D series); completion of development
efforts relating to a residential cooking system model incorporating the
Company's proprietary high-speed cooking technologies; completion of development
efforts relating to the Company's proposed Model E series consumer-operated
TurboChef cooking system 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
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<PAGE>
the Company's continuing efforts to exploit other of the many potential market
applications for the TurboChef technologies.
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-l TurboChef cooking system, the Company entered into a
joint venture agreement with Acadia International Limited, a corporation
incorporated under the laws of the British Virgin Islands ("Acadia"), for the
funding of such project, and formed AcadiaChef, Inc. ("AcadiaChef") for such
purpose. It is intended that the Model E-l cooking system, 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 cooking system, 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 233,334 shares of Common Stock (a
conversion rate of $1.50 per share, the market price of the Common Stock on the
date of the Acadia Agreement) and received an option to purchase 262,500 shares
of Common Stock at $2.50 per share ($.50 per share above the market price of the
Common Stock on the date of the termination of the Acadia Agreement) per share
and, as a consequence, Acadia's interest in AcadiaChef and the Model E-1 project
was eliminated. However, the Company continues its development activities
relative to the consumer operated TurboChef cooking system.
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 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 cooking system (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
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<PAGE>
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 cooking system, 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, local and international authorities (including those limiting radiated
emissions from the Company's cooking system 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 its currently
available TurboChef cooking systems, 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 Federal Communication Commission and the European Community Council, there
can be no assurance of such compliance. The Company intends to test, from time
to time, the cooking systems 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
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<PAGE>
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 additional foreign markets may require the
Company to comply with additional regulatory requirements.
The Company has received certification from Underwriter's Laboratories,
Inc. ("UL/R/") as to compliance of the Company's Model D-2 TurboChef cooking
system 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. 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, the Company has met the requirements necessary to apply the "CE"
mark (which indicates compliance with the European Community Council directive
relating to electromagnetic compatibility and low voltage) to its Model D-2
TurboChef cooking systems. 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 cooking
systems in the European Union.
WARRANTY AND SERVICE
The Company offers to purchasers a one-year limited warranty covering the
TurboChef cooking system'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. The Company is also making
available for purchase by the customer an extended limited warranty for up to an
additional four years. There will be an additional charge for this extended
warranty which will cover the same service elements as the initial one year
warranty.
Although the cost of servicing TurboChef cooking systems 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 cooking systems 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 establish a national and
global parts and service network of independent factory authorized service
representatives, capable of supporting a significant increase in TurboChef
cooking system installations.
-17-
<PAGE>
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 its third party manufacturers currently maintain similar levels of
liability insurance.
PATENTS AND PROPRIETARY RIGHTS
The Company holds three United States patents which cover certain
fundamental aspects of the Company's high-speed cooking technologies and the
Company has pending patent applications or patents corresponding to one or more
of these United States patents filed in 7 countries (including the 16 or 17
countries of the European Patent Convention as a single country). These patents
expire in 2011, 2013 and 2014. The Company has also applied for one United
States patent relating to the Company's "par-baked" pizza dough setting
technology, which application has been allowed. 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 competitors will
not develop similar or superior methods or products outside the protection of
any patents issued to 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 service mark registration for its slogan, "Changing the Way
Good Food Is Served(R)".
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
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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 March 15, 1997, the Company employed 35 persons, of whom 33 are full-
time employees, including its four executive officers. Of its employees, nine
are engaged in design engineering, seven are engaged in manufacturing
engineering and technical service, ten are engaged in sales, marketing, and
foodservice concept and product development, and nine 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.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 15, 1997, were as follows:
NAME AGE POSITION(S)
---- --- -----------
Jeffrey B. Bogatin............ 48 Chairman of the Board of Directors
Philip R. McKee............... 40 President, Chief Executive Officer
Dennis J. Jameson............. 43 Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
Steven R. Leipsner............ 56 Vice President and Chief Operating
Officer
Robert S. Briggs, Jr. ........ 59 Vice President - Engineering
JEFFREY B. BOGATIN, a co-founder of the Company, has been Chairman of the
Board of the Company since its inception. He was also Treasurer of the Company
until June 1996. 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.
DENNIS J. JAMESON was elected Executive Vice President and Chief Financial
Officer of the Company in December 1995, Treasurer in June 1996 and Secretary in
January 1997. 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 operated casual dining and
quick service Mexican restaurants located primarily in the Southwest and
Southeast.
STEVEN R. LEIPSNER was elected Vice President and Chief Operating Officer
of the Company in January 1997. From October 1993 to December 1996, Mr.
Leipsner served as President and Chief Executive Officer of KRI, a franchisee of
the Italian Oven Concept located in Texas. From October 1992 to September 1993,
he served as Chairman of the Board, President and Chief Executive Officer of S &
A Restaurant Corp., an owner of the 150 unit Steak & Ale Restaurant chain and
220 Bennigan's Restaurants. From June 1989 to October 1992, Mr. Leipsner was
President and Chief Executive Officer and Chairman of the Board of Service
America Corporation, a food service management contractor with annual revenues
in excess of $1.2 billion. From 1978 to 1989, he served as an Executive Vice
President within Marriott Corporation's restaurant division.
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<PAGE>
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.
ITEM 2 PROPERTIES
----------
The Company owns no real estate. The Company leases approximately 11,000
square feet of space at 10500 Metric Drive, Dallas, Texas, which it uses for
executive offices, technology development, sales and marketing, limited assembly
and other purposes, under a lease agreement which expires on May 31, 2000. The
Company also leases approximately 3,000 square feet of space at 5151 Beltline
Road, Dallas, Texas in which its sales and marketing staff will reside effective
April 15, 1997, pursuant to a lease that is scheduled to expire on April 15,
2000.
In addition, the Company leases approximately 2,000 square feet of general
office space at 126 East 56th Street, New York, New York, pursuant to a lease
that is scheduled to expire on November 30, 1997.
The Company believes that its facilities are generally well maintained, in
good operating condition and adequate for its current needs.
ITEM 3 LEGAL PROCEEDINGS
-----------------
Neither the Company nor any of its subsidiaries is a party to any pending
legal proceedings, other than ordinary routine litigation incidental to its
business, none of which is material.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year covered by this report.
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Company's common stock has been traded on the NASDAQ SmallCap Market
("NASDAQ") under the symbol "TRBO" since the Company's initial public offering
in April 1994. Prior to that time, there was no public market for the Company's
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.
PERIOD HIGH LOW
------ ---- ---
Year Ended December 31, 1996
First Quarter 14 3/4 11 1/2
Second Quarter 19 1/2 13
Third Quarter 12 7 5/8
Fourth Quarter 22 1/4 8 1/4
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
As of March 15, 1996, there were approximately 83 holders of record of the
Company's common stock.
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DIVIDENDS
The Company has not paid cash dividends on the common stock since its
organization and does not expect to pay any cash dividends on the common stock
in the foreseeable future. The Company instead intends to continue a policy of
retaining earnings for the Company's operations and planned expansion 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.
ITEM 6 SELECTED FINANCIAL DATA
-----------------------
The following summary of selected financial data has been derived from the
more detailed Financial Statements and Notes thereto of the Company contained
elsewhere in this report or previous reports.
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<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATINS DATA:
Revenues $ 2,802,364 $ 1,228,111 $ 249,883 $ 13,306 $ -
Net Loss $ (2,941,413) $(1,585,268) $(3,181,519) $(3,408,884) $(1,150,214)
Net Loss per Share $ (0.22) $ (0.13) $ (0.29) $ (0.78) $ (0.36)
Weighted Average Number of
Shares Outstanding 13,339,431 12,451,786 11,120,282 4,374,944 3,210,833
BALANCE SHEET DATA:
Working Capital $ 8,522,752 $ 1,083,190 $ 1,029,070 $(1,330,470) $ 217,120
Total Assets $ 9,743,288 $ 2,217,870 $ 1,966,047 $ 695,161 $ 648,672
Total Liabilities $ 810,131 $ 769,857 $ 1,735,973 $ 3,622,705 $ 2,045,318
Accumulated Deficit $(12,614,605) $(9,673,192) $(8,087,924) $(4,906,405) $(1,497,521)
Stockholders' Equity $ 8,933,157 $ 1,448,013 $ 230,074 $(2,927,544) $(1,396,646)
</TABLE>
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ITEM 7 MANAGEMENT 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
cooking system, its first commercial product, and not until June 1995 that it
entered into the initial Whitbread contract, its first major contract, and
commenced shipment of its Model D-2 TurboChef cooking system. Prior to such
time, the Company was engaged primarily in research and development, limited
production operations and test marketing of prototype cooking systems. As a
result, to date, the Company has generated limited revenues and 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
$12,614,605 as of December 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 report.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1995
Revenues for the year ended December 31, 1996 were $2,802,364, an increase
of $1,574,253, when compared to revenues of $1,228,111 for the year ended
December 31, 1995. This increase is primarily attributable to greater cooking
system unit sales to Whitbread in 1996 compared to 1995 and increased sales of
replacement parts. The 1996 revenues also include $12,000 from a customer of
the Company for licensing of the Company's proprietary dough-setting process.
Cost of sales for the year ended December 31, 1996 was $2,306,708, an
increase of $1,320,577 when compared to $986,131 for cost of sales in the prior
year. This increase is attributable to greater cooking system unit sales,
greater sales of replacement parts, adjustments for inventory made obsolete by
the migration from the D-1 to the D-2 model and the establishment of a reserve
for future warranty expense. The increases are partially offset by a reduction
in the per unit manufacturing cost in 1996.
-25-
<PAGE>
Gross profit on sales for the year ended December 31, 1996 increased
$308,191 to $482,191, when compared to gross profit on sales of $174,000 during
the prior year. The increase is a result of the greater system unit sales,
primarily to Whitbread.
Gross margin for the year ended December 31, 1996 was 17% of sales,
compared to 15% of sales for the year ended December 31, 1995. The percentage
increase is attributable to a reduced per unit manufacturing cost which resulted
from increased production volume and cost reduction engineering in 1996, offset
by the incremental costs associated with the establishment of a warranty reserve
and the write-off of obsolete D-1 inventory in 1996. The effect of the inventory
adjustments resulting from the D-1 inventory obsolescence was to decrease gross
margin by approximately 3% of sales in 1996.
Research and development expenses for the year ended December 31, 1996
increased $256,836, to $681,161 from $424,325 for the year ended December 31,
1995. The increase was due to the Company's ongoing efforts to advance its
technologies and product offerings through construction of a residential
prototype, the completion of a reduced size commercial system prototype and the
development of significant technological improvements to the D-2 commercial
model.
Selling, general and administrative expenses for the year ended December
31, 1996 increased $1,495,516, to $3,011,633 from comparable expenses of
$1,516,117 for 1995. The increased expense is attributable to the planned
addition of key personnel in the sales and manufacturing areas, the additional
travel to serve international customers and the establishment of two new
contract manufacturing facilities. Also contributing to the increase in these
expenses are non-recurring charges in the third and fourth quarters of 1996 of
approximately $683,000. These non-recurring charges consist primarily of the
cost of the field upgrade of Whitbread cooking systems with performance
enhancing technological improvements and the write-off of start up costs
associated with the termination of a contract manufacturer.
Interest income net of interest expense for the year ended December 31,
1996 was income of $255,725 compared to expense of $18,806 for the year ended
December 31, 1995. The increase in income is attributable to the income received
on the investment of the net proceeds from the secondary public offering of
Common Stock in June 1996 (the "June 1996 Offering").
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, when compared to revenues of $249,883 for the year ended December
31, 1994. This increase is primarily attributable to greater system unit sales
to Whitbread in the last four months of fiscal 1995. Until September 1995,
cooking systems were only sold to small accounts and on a test basis to chain
accounts. Additional revenues recognized in 1995 included $60,000 received from
Whitbread for modifying the TurboChef cooking system to meet its unique
requirements and revenues received from the licensing of the Company's
proprietary dough-setting process.
-26-
<PAGE>
Cost of sales for the year ended December 31, 1995 was $986,138, an
increase of $790,651 when compared to $195,473 for cost of sales in the prior
year. This increase is consistent with greater cooking system unit sales.
Gross profit on sales for the year ended December 31, 1995 increased
$119,590 to $174,000, when compared to gross profit on sales of $54,410 during
the prior year. The increase is a result of the increase in system unit sales,
primarily to Whitbread.
Gross margin for the year ended December 31, 1995 was 15% of sales compared
to 22% of sales for the year ended December 31, 1994. The percentage decrease
is attributable primarily to the reduced cooking system 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 increase production volume and cost reduction
programs implemented during the fourth quarter of 1995.
Prototype and demonstration inventory was comprised primarily of prototype
cooking systems, 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 $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 commercial cooking system (the Company's Model
D Series).
Selling, general and administrative expenses for the year ended December
31, 1995 decreased $567,109, to $1,516,117 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 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 Company's April 1994 IPO 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,
-27-
<PAGE>
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.
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 December 31, 1996, the Company had working capital of $8,522,752 as
compared to working capital of $1,083,190 at December 31, 1995. The $7,439,562
working capital increase from December 31, 1995 resulted primarily from the net
proceeds received from the June 1996 Offering of $10,349,038 offset by the
operating loss of $2,941,413 incurred by the Company for the year ended December
31, 1996. For the year ended December 31, 1996, accounts receivable turnover
improved to 7.2 from 5.9 during the year ended December 31, 1995 as a result of
more favorable timing of payments from Whitbread.
Cash used in operating activities was $2,817,556 for the year ended
December 31, 1996 as compared to cash used in operating activities of $1,581,146
for the year ended December 31, 1995. The increase is a result of a $1,356,145
increase in operating losses, an increase in prepaid expenses of $164,334
relating to deposits paid to contract manufacturers for system deliveries, and
an increase in inventories of $147,189 required to facilitate field upgrades and
support increased numbers of systems in the field. These are offset by a
$379,777 increase in accrued expenses which relate to the establishment of
reserves for future warranty and upgrade costs and accrued payroll costs. Cash
used in investing activities for the year ended December 31, 1996 was $7,502,578
as a result of the $7,309,431 purchase of marketable securities with a portion
of the net proceeds of the June 1996 Offering along with equipment purchases and
patent costs. Cash provided by financing activities was $10,154,417 for the
year ended December 31, 1996, which represents primarily the net proceeds from
the June 1996 Offering of $10,349,038 and the proceeds from notes payable to
stockholders of $285,000, offset by the repayment of notes payable to
stockholders of $570,000. At December 31, 1996, the Company had cash and cash
equivalents of $477,166, compared to cash and cash equivalents of $642,883 at
December 31, 1995.
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.
In November 1994, the Company and Acadia International Limited, a
corporation
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<PAGE>
incorporated under the laws of the British Virgin Islands ("Acadia"), entered
into an agreement to jointly develop a new consumer-operated TurboChef cooking
system (the Model E-1 TurboChef cooking system) 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 cooking system. 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 cooking system 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 shares of Common Stock
at $2.50 per share.
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.
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.
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
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<PAGE>
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.
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, 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 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 and anticipated revenues from operations, will be sufficient to fund
its operations and satisfy its contemplated capital requirements for at least
the next 15-18 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. In March 1996, Messrs. Bogatin and McKee made a commitment to
provide financial support (if and as required) to enable the Company to meet its
obligations through June 1997. This commitment was made prior to the June 1996
offering, when the Company had minimal cash reserves and the timing and
likelihood of success of the Offering could not be guaranteed. 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.
Although the Company intends to use a substantial portion of the proceeds
of the June
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<PAGE>
1996 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. 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 successfully completed. These plans include: (i) complete
the deliveries of those TurboChef cooking systems contemplated by the latest
Whitbread contract and Southland's initial purchase order, (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, (ii)
further develop the Company's relationship with Southland and thereby increase
product sales to Southland, (iii) obtain initial purchase orders from additional
regional or national foodservice operators, (iv) introduce additional new
products, such as its proposed residential cooking system and CUB models, (v)
establish a dealer sales network and (vi) 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 eve be able to achieve profitable operations.
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.
As of December 31, 1996, the amount of backlog orders believed to be firm
was approximately $4 million, as compared to approximately $3 million as of
December 31, 1995. The Company anticipates that substantially all of such
backlog will be filled during the current year.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements are set herein commencing on page F- 1 of this
report.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
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<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1997 Annual Meeting
of Stockholders, except for the information regarding executive officers of the
Company which is contained in Part I of this Annual Report on Form 10-K. The
information required by this item contained in such definitive proxy material is
incorporated herein by reference.
ITEM 11 EXECUTIVE COMPENSATION
----------------------
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1997 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1997 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1997 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
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<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
2. List of Financial Statement Schedules (None)
3. List of Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation. (1)
3.2 Restated By-Laws. (1)
4.1 Form of Certificate for Common Stock (1)
10.1 Form of Stock Option Agreement between stockholders of the
Company and certain other persons dated as of August 10, 1991
(1)
10.2 Stock Option Plan, as amended. (1)
10.3 Shareholders and Registration Rights Agreement among
the Company, 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 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)
10.5 Consulting Agreement with Whale Securities Co., L.P.
dated April 14, 1994. (2)
10.6 Warrant Agreement with Whale Securities Co., L.P.
dated April 7, 1994. (2)
10.7 Amendment No. 1 dated as of June 12, 1996 to the Warrant
Agreement between the Company and Whale Securities Co., L.P.
dated as of April 14, 1996. (6)
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<PAGE>
10.8 Warrant Agreement between the Company and Whale
Securities Co., L.P. dated as of June 17, 1996. (7)
10.9 Leasing Agreement with Tower 56 Partners dated January 8, 1993.
(1)
10.10 Second Extension of Term Agreement with Tower 56
Partners dated December 1, 1995. (5)
10.11 Lease Agreement with The Fidelity Mutual Life Insurance
Company, in Rehabilitation, dated August 24, 1995. (5)
10.12 Lease Agreement with The Fidelity Mutual Life Insurance
Company, in Rehabilitation, dated March 21, 1996. (4)
10.13 Agreement with Jeffrey B. Bogatin converting debt into equity
dated as of March 15, 1995. (3)
10.14 Option Agreement between the Company and Acadia International
Limited dated as of March 31, 1995. (5)
10.15 Promissory Note dated December 29, 1995, issued to Philip R.
McKee by the Company. (5)
10.16 Promissory Note dated March 30, 1996 issued to Philip R.
McKee by the Company. (4)
10.17 Promissory Note dated March 30, 1996 issued to Jeffrey B.
Bogatin by the Company. (4)
10.18 Purchase Contract between the Company and Whitbread PLC
dated June 30, 1995. (4)
10.19 Purchase Contract between the Company and Whitbread PLC
dated December 27, 1995. (4)
10.20 Purchase Order from The Southland Corporation dated
December 13, 1996. (8)
10.21 Purchase Contract between the Company and Whitbread PLC
dated February 18, 1997. (8)
10.22 Employment Agreement with Philip R. McKee dated March 1, 1996.
* (1)
___________________
* Management contract or compensation plan or arrangement.
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<PAGE>
10.23 Letter Agreement dated February 6, 1996 by and among Jeffrey B.
Bogatin, Philip R. McKee and the Company. (4)
10.24 Letter Agreement between the Company and Joseph F.
Fogliano dated June 26, 1996. (6)
10.25 Lease Agreement with Prestonwood Tower dated March 20, 1997. (7)
11 Statement Re: Computation of Per Share Earnings is not
necessary because the computation of per share earnings
on both a primary and fully diluted basis can be clearly
determined from this report. (4)
21 Subsidiaries of the Company (4)
________________
(1) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 33-75008), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1994, and incorporated herein by
reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form SB-
2 (File No. 333-2992), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996, and incorporated herein by
reference.
(7) Filed herewith.
(8) Filed herewith in redacted form pursuant to Rule 406 promulgated under
the Securities Act of 1933, as amended (the "Act"). Filed separately in
unredacted form subject to a request for confidential treatment
pursuant to Rule 406 under the Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ PHILIP R. MCKEE
----------------------------------
Philip R. McKee
President, Chief Executive Officer
and Director
Dated March 28, 1997
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated:
/s/ Jeffrey B. Bogatin Chairman of the Board and March 28, 1997
- ------------------------ Director
Jeffrey B. Bogatin
/s/ Philip R. McKee President, Chief Executive Officer March 28, 1997
- ------------------------ and Director (Principal Executive
Philip R. McKee Officer)
/s/ Dennis J. Jameson Executive Vice President, Chief March 28, 1997
- ------------------------ Financial Officer (Principal
Dennis J. Jameson Financial Officer)
/s/ Donald J. Gogel Director March 28, 1997
- ------------------------
Donald J. Gogel
/s/ Joseph F. Fogliano Director March 28, 1997
- ------------------------
Joseph F. Fogliano
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements F-8
</TABLE>
All financial statement schedules are omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
TurboChef, Inc.:
We have audited the accompanying financial statements of TurboChef, Inc. as
listed in the accompanying index. 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, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
March 7, 1997
F-2
<PAGE>
TURBOCHEF, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 477,166 642,883
Marketable securities available for sale,
at market value 7,309,431 -
Accounts receivable net of allowance for
doubtful accounts of $16,000 in 1996 (note 11) 583,023 572,299
Inventories 686,272 539,083
Prepaid expenses 276,991 98,782
----------- ----------
Total current assets 9,332,883 1,853,047
----------- ----------
Property and equipment:
Leasehold Improvements 64,334 37,818
Furniture and Fixtures 132,640 56,360
Equipment 350,719 305,718
----------- ----------
547,693 399,896
Less accumulated depreciation and amortization (242,579) (154,330)
----------- ----------
Net property and equipment 305,114 245,566
----------- ----------
Deferred offering costs - 48,529
Other assets 105,291 70,728
----------- ----------
Total assets $ 9,743,288 2,217,870
=========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Note payable to stockholder (note 4) $ - 285,000
Accounts payable 340,575 404,293
Accrued expenses 415,091 35,314
Sales deposits 43,700 45,250
Deferred revenue 10,765 -
----------- ----------
Total current liabilities 810,131 769,857
----------- ----------
Stockholder' equity (notes 4 and 7):
Common stock, $.01 par value. Authorized 20,000,000
shares. Issued 13,785,244 and 12,867,078 shares
at December 31, 1996 and 1995, respectively 137,852 128,671
Additional paid-in capital 21,577,249 10,992,534
Accumulated deficit (12,614,605) (9,673,192)
Treasury stock - at cost 8,315 shares in 1996 (167,339) -
----------- ----------
Total stockholders' equity 8,933,157 1,448,013
Commitments (note 5)
$ 9,743,288 2,217,870
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
TurboChef, Inc.
Statements of Operations
Years ended December 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 2,788,899 1,160,131 249,883
Other revenue 13,465 67,980 -
----------- ---------- ----------
Total revenues 2,802,364 1,228,111 249,883
Costs and expenses:
Cost of goods sold 2,306,708 986,131 195,473
Provision for impairment of prototype and
demonstration inventory - - 164,945
Research and development expenses (note 10) 681,161 424,325 719,989
Selling, general, and administrative expenses (note 8) 3,011,633 1,516,117 2,083,226
----------- ---------- ----------
Total Costs and Expenses 5,999,502 2,926,573 3,163,633
----------- ---------- ----------
(3,197,138) (1,698,462) (2,913,750)
----------- ---------- ----------
Other income (expense):
Interest income 269,164 12,589 25,103
Interest expense (notes 3 and 4) (13,439) (31,395) (292,872)
Forfeited sales deposit (note 9) - 132,000 -
----------- ---------- ----------
255,725 113,194 (267,769)
----------- ---------- ----------
Net Loss $(2,941,413) (1,585,268) (3,181,519)
=========== ========== ==========
Loss per common share $ ($0.22) (0.13) (0.29)
=========== ========== ==========
Weighted average number of
common shares outstanding 13,339,431 12,451,786 11,120,282
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Shares of Total
common stock Additional stockholders'
(notes 3, 4 Common paid-in Accumulated Treasury equity
and 7) stock capital deficit stock (deficit)
----- ------ ------- ------- ----- ---------
<S> <C> <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 to private -
investors ($1.50 per share) 68,000 680 101,320 - - 102,000
Initial public offering
($2.50 per share) net of
offering cost 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 - - 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 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 to officer
($6.75 per share) 118,518 1,185 798,815 - - 800,000
Exchange of indebtedness and
accrued interest by Acadia Ltd. 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
Secondary public offering
($15.00 per share) net of
offering cost of $1,699,491 800,000 8,000 10,292,509 - - 10,300,509
Sale of warrants - - 80 - - 80
Issuance of stock in payment
of director's fee 2,000 20 27,730 - - 27,750
Exercise of stock options 116,166 1,161 264,396 - - 265,557
Purchase of treasury stock (8,315 shares) - - - - (167,339) (167,339)
Net loss - - - (2,941,413) - (2,941,413)
----------- -------- ---------- ---------- -------- ----------
Balance at December 31, 1996 13,785,244 $137,852 21,577,249 (12,614,605) (167,339) 8,933,157
=========== ======== ========== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,941,413) (1,585,268) (3,181,519)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 104,099 86,562 59,188
Allowance for doubtful accounts 16,000 - -
Amortization of debt discount - - 163,400
Impairment of prototype and demonstration
inventory - - 164,945
Amortization of director compensation 13,875 - -
Interest added to principal - 21,070 43,901
Increase in accounts receivable (26,724) (509,013) (60,635)
Decrease (increase) in inventories (147,189) 275,397 (814,480)
Decrease (increase) in prepaid expenses (164,334) 18,058 (113,146)
Decrease (increase) in other assets 2,856 (205) (3,145)
Increase (decrease) in accounts payable (63,718) 202,150 (78,269)
Increase (decrease) in accrued expenses 379,777 (2,136) (184,912)
Increase (decrease) in accrued interest - (1,011) 30,118
Increase in deferred revenue 10,765 - -
Decrease in sales deposits (1,550) (86,750) (19,370)
Other (7,919) - -
------------ ---------- ----------
Net cash used in operating activities (2,825,475) (1,581,146) (3,993,924)
------------ ---------- ----------
Cash flows from investing activities:
Purchase of marketable securities (7,309,431) - -
Acquisition of prototype and demonstration
inventory - - (17,371)
Purchase of equipment (147,797) (48,705) (174,712)
Additions to intangibles (45,350) - -
------------ ---------- ----------
Net cash used in investing activities (7,502,578) (48,705) (192,083)
------------ ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable - 140,000 210,000
Repayment of notes payable - - (1,000,000)
Proceeds from notes payable to stockholders 285,000 285,000 305,298
Repayment of notes payable to stockholders (570,000) (21,232) (305,298)
Exercise of stock options 265,557 500,000 -
Proceeds from sale of common stock 12,000,000 800,000 6,602,000
Proceeds from sale of warrants 80 - 130
Purchase of treasury stock (167,339) - -
Offering costs (1,650,962) (48,529) (1,237,993)
------------ ---------- ----------
Net cash provided by financing activities 10,162,336 1,655,239 4,574,137
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents (165,717) 25,388 388,130
Cash and cash equivalents at beginning of year 642,883 617,495 229,365
------------ ---------- ----------
Cash and cash equivalents at end of year $ 477,166 642,883 617,495
============ ========== ==========
(continued)
</TABLE>
F-6
<PAGE>
TURBOCHEF, INC.
STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of noncash financing
activities:
Exchange of indebtedness and accrued
interest for common stock $ - 1,503,207 -
======= ========== ==========
Contribution of note payable to additional
paid-in capital $ - - 1,000,000
======= ========== ==========
Interest payable added to principal $ - 74,012 264,959
======= ========== ==========
Issuance of stock in payment of director's fee $27,750 - -
======= ========== ==========
Supplemental disclosures of cash flow information -
interest paid $13,439 11,337 55,454
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
TURBOCHEF, INC.
Notes to Financial Statements
December 31, 1996 and 1995
(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 cooking systems. 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 cooking systems. In March 1994, the Company commenced the
commercial manufacturing and initial marketing of the first restaurant
version of the TurboChef cooking system. 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
11 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, which is net of the
underwriter's discount and other IPO expenses approximating $1,263,000.
In June 1996 the Company consummated an underwritten public offering
(June 1996 Offering) of 800,000 shares of its Common Stock resulting in
aggregate proceeds of approximately $10,301,000, net of the
underwriter's discount and other offering expenses totaling $1,699,491.
(b) Investments in Marketable Securities
------------------------------------
Investments in marketable securities at December 31, 1996 consist of
U.S. Treasury securities and are classified as available for sale under
Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and are stated at
market value, which approximates cost. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale securities
are excluded from earnings and are reported as a separate component of
stockholders' equity until realized. Realized gains and losses from the
sale of available-for-sale securities are determined on a specific
identification basis.
(c) Inventories
-----------
Inventories are valued at the lower of cost or market and primarily
consist of completed cooking systems and replacement parts. The
Company determines cost for cooking systems by the specific cost
method.
F-8
<PAGE>
(d) 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. 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.
(e) Offering Costs
--------------
Offering costs consist primarily of legal costs incurred by
the Company in its efforts to secure additional financing. Such costs
are deferred on the balance sheet and subsequently charged against the
proceeds from the offering upon consummation.
(f) Sales Deposits
--------------
Sales deposits consist of amounts received from customers for future
purchases of cooking systems. Deferred amounts will be recognized as
revenue as cooking systems are shipped to the customer.
(g) Revenue Recognition
-------------------
The Company records revenue as earned, which normally occurs when the
product is shipped.
(h) 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.
(i) Research and Development
------------------------
Research and development costs consist of all costs incurred in
planning, design and testing of the high-speed commercial cooking
system, including salary costs related to research and development, and
are expensed as incurred.
(j) Product Warranty
----------------
The Company's cooking systems are under warranty against defects in
material and workmanship for a period of one year. Beginning January
1996, anticipated future warranty costs are recorded in the period
systems are sold. Prior to that time, warranty costs were not
significant and expensed as incurred.
(k) 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
F-9
<PAGE>
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.
(l) 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, has been adjusted for the stock
splits described in note 7.
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.
(m) 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.
(n) Financial Instruments
---------------------
The carrying amount of cash and cash equivalents, marketable securities
available for sale, accounts receivable, note payable to shareholder,
accounts payable and accrued expenses approximates fair value due to
the short maturity of these instruments.
(o) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
-----------------------------------------------------------------------
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that long-
lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount of fair value less costs to sell. Adoption of this Statement did
not have a material impact on the Company's financial position, results
of operations, or liquidity.
(p) Reclassifications
-----------------
Certain amounts in prior year's financial statements have been
reclassified to conform to current year presentation.
(2) Liquidity
---------
Although the Company has historically incurred significant losses, the
Company anticipates that its current cash and cash equivalent balances as a
result of the June 1996 Offering will be sufficient to fund its operations
and satisfy its contemplated capital requirements for at least the next 15-
18 months.
(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 cooking system (the Model E-1 TurboChef cooking system)
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 cooking
system. 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
cooking system and Acadia had
F-10
<PAGE>
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 April 7, 1994, pursuant to an agreement between stockholders and the
Company, notes payable with an unpaid balance of $1,000,000 were
contributed to the Company and reflected as a capital contribution.
On March 15, 1995, a major shareholder 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.
On December 29, 1995, a shareholder and officer of the Company advanced
to the Company the sum of $285,000. The note 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, a major shareholder and an officer of the Company
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.
(b) Stock Issuance
--------------
In June 1995, an 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 restricted Common Stock at $6.75 per
share.
(c) Stock Option Exercise
---------------------
During 1995, a major shareholder of the Company exercised options to
purchase 200,000 shares of the Common Stock of the Company at $2.50 per
share.
F-11
<PAGE>
(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 $154,568
in 1997, $77,703 in 1998, $77,703 in 1999, and $32,140 in 2000. Rent expense
was $148,197, $122,033 and $154,062 for the years ended December 31, 1996,
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) for the years ended December 31 as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Computed "expected" tax benefit $ (1,000,080) (538,991) (1,081,716)
Research and development credit (38,681) (22,253) (70,000)
Other 4,761 17,444 11,916
Change in the valuation allowance
for deferred income tax assets
allocated to income tax expense 1,034,000 543,800 1,139,800
------------- ---------- ------------
$ - - -
------------- ---------- ------------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31 are presented below:
F-12
<PAGE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Intangibles principally due to
differences in amortization $ 5,000 8,000
Research and development credit carryforwards 111,000 70,000
Net operating loss carryforwards 2,849,000 1,852,000
----------- -----------
Total gross deferred tax assets 2,965,000 1,930,000
Less valuation allowance (2,957,000) (1,923,000)
----------- -----------
Net deferred tax assets 8,000 7,000
Deferred tax liabilities:
Prepaid expenses - (2,000)
Equipment principally due to
difference in depreciation (8,000) (5,000)
----------- -----------
Total gross deferred tax liabilities (8,000) (7,000)
----------- -----------
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, 1996, the Company has net operating loss carryforwards and
research and development credit carryforwards for federal income tax
purposes of $8,380,000 and $111,000, respectively, which are available to
offset future Federal taxable income, if any, through 2011.
(7) Stockholders' Equity (Deficit)
------------------------------
(a) 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.
The stock split has 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 split.
(b) 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
F-13
<PAGE>
Common Stock owned by such 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 10). 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. As of December 31, 1996,
options to purchase 89,724 shares of Common Stock have been exercised.
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 four years; and
(iii) generally expire five years subsequent to award.
At December 31, 1996 there were 43,001 shares available for grant under
the Plan. The per share weighted-average fair value of stock options
granted during 1996 and 1995 was $6.21 and $1.25, respectively, on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: Risk-free interest rate, 6%;
expected life, five years; expected dividend yield, 0% and volativity,
50%.
The Company applies APB Opinion 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported ($2,941,413) ($1,585,268)
EPS ($0.22) ($0.13)
Pro forma ($3,520,927) ($1,672,360)
EPS ($0.28) ($0.13)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
amounts presented above because compensation cost is reflected over the
options vesting periods of up to 4 years and compensation cost for
options granted prior to January 1, 1995 is not considered.
F-14
<PAGE>
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise 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 3.65
Options exercised (200,000) 2.50
Options cancelled (59,000) 1.75
--------- -----
Options outstanding at December 31, 1995 1,500,666 3.36
Options granted 949,000 11.02
Options exercised (116,166) 2.29
Options cancelled (292,667) 7.99
--------- -----
Options outstanding at December 31, 1996 2,040,833 6.32
Options exercisable at December 31, 1996 1,095,826 3.08
Shares available for future grant 43,001
</TABLE>
At December 31, 1996 the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.50 - $15.00
and 3.5 years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was
1,095,826 and 468,334 respectively, and the weighted-average exercise
price of those options was $3.08 and $2.50, respectively.
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
4).
(c) 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)
During 1996, the Company issued 2,000 shares of Common Stock to a
director in payment of director fees. The stock was valued at $13.875
per share which approximates the fair value of the stock at the
issuance date.
(d) Stock Warrants
--------------
In June 1996, the Company sold the underwriter of the secondary public
offering warrants to purchase 80,000 shares at $24.00 per share.
F-15
<PAGE>
(8) Selling, General and Administrative Expenses
--------------------------------------------
In the third and fourth quarters of 1996 the Company incurred aggregate
charges in the amount of $467,000 for the field upgrade of systems sold to
a major customer with performance enhancing technological improvements.
(9) 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 cooking systems
under a production agreement originated in 1992. Such cooking systems 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 recognized the cost to produce the 25
units and management of the Company now believes that no further
obligations exist under the production agreement.
(10) Related Party
-------------
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. During the
years ended December 31, 1996, 1995 and 1994, the Company paid the entity
fees of $345,358, $110,603 and $157,079, respectively, relating primarily
to research and development charges incurred on behalf of the Company.
(11) Concentration of Business Risks
-------------------------------
At December 31, 1996, the Company's accounts receivable from one customer
in the United Kingdom was $193,049. Payments on this account were received
as required by stated credit terms subsequent to December 31, 1996. For the
years ended December 31, 1996 and 1995, revenues from the same customer in
the United Kingdom represented $2,108,485 or 75% and $842,000 or 69% 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.
F-16
<PAGE>
EXHIBIT 10.8
WARRANT AGREEMENT dated as of June 17, 1996 between TURBOCHEF, INC., a
Delaware corporation (the "Company"), and WHALE SECURITIES CO., L.P.
(hereinafter referred to as the "Underwriter")
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter warrants
("Warrants") to purchase up to 80,000 shares (the "Shares") of common stock of
the Company, $.01 par value per share (the "Common Stock") ; and
WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement
(the "Underwriting Agreement") dated June 12, 1996 between the Underwriter and
the Company, to act as the underwriter in connection with the Company's proposed
public offering (the "Public Offering") of 800,000 shares of Common Stock at a
public offering price of $15.00 per share of Common Stock; and
WHEREAS, the Warrants issued pursuant to this Agreement are being issued by
the Company to the Underwriter or officers and partners of the Underwriter and
members of the selling group participating in the distribution to the public of
the Common Stock (the "Selling Group") and/or their officers or partners, in
consideration for, and as part of the Underwriter's compensation in connection
with, the Underwriter acting as the underwriter pursuant to the Underwriting
Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment by the
Underwriter to the Company of EIGHTY DOLLARS ($80.00), the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
The Underwriter, and/or its designees who are officers or partners of the
Underwriter or members of the Selling Group in connection with the Public
Offering, are hereby granted the right to purchase, at any time from June 12,
1997 until 5:00 P.M., New York City time, on June 12, 2001 (the "Warrant
Exercise Term"), up to 80,000 Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $24.00 per Share.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates") delivered and to be
delivered pursuant to this Agreement shall be in the form set forth as Exhibit
A, attached hereto and made a part hereof, with such appropriate insertions,
omissions, substitutions and other variations as required or permitted by this
Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are exercisable at a price of
$24.00 per Share, payable in cash or by check to the order of the Company, or
any combination of cash or check, subject to adjustment as provided in Article 8
hereof. Upon surrender of the Warrant Certificate with the annexed Form
2
<PAGE>
of Election to Purchase duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the Shares purchased, at the Company's
principal offices in Dallas, Texas (presently located at 10500 Metric Drive,
Suite 128, Dallas, Texas 75243) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise Term, the
Holder may, at its option, exchange this Warrant, in whole or in part (a
"Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
company or at the office of its transfer agent, accompanied by a notice stating
such holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange
3
<PAGE>
Date"). Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for and acquire the number of Shares (rounded to the next highest
integer) equal to (i) the number of Shares specified by the Holder in its Notice
of Exchange (the "Total Number") less (ii) the number of Shares equal to the
quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (B) the current market value
of a share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within three business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall (subject to the provisions of Article 5 hereof) be issued in
the name of, or in such names as may be directed by, the Holder thereof;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such
4
<PAGE>
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the present or any
future Secretary or Assistant Secretary of the Company. Warrant Certificates
shall be dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or in
whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be offered or
sold except (i) pursuant to an effective registration statement under the Act,
(ii) to the extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of securities), or (iii)
upon the delivery by the holder to the Company of an opinion of counsel,
reasonably satisfactory to counsel to the issuer, stating that an exemption from
registration under such Act is available."
5
<PAGE>
5. Restriction on Transfer of Warrants. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof, and that the Warrants may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(l) year from the date hereof, except to officers or partners of the
Underwriters or to any member of the Selling Group and/or their respective
officers or partners.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial exercise price of
each Warrant shall be $24.00 per Share. The adjusted exercise price shall be the
price which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The Warrants and the
Shares have not been registered for purposes of public distribution under the
Securities Act of 1933, as amended ("the Act").
7.2 Registrable Securities. As used herein the term "Registrable
Security" means each of the Warrants, the Shares and any shares of Common Stock
issued upon any stock split
6
<PAGE>
or stock dividend in respect of such Shares; provided, however, that with
respect to any particular Registrable Security, such security shall cease to be
a Registrable Security when, as of the date of determination, (i) it
has been effectively registered under the Securities Act and disposed of
pursuant thereto, (ii) registration under the Securities Act is no longer
required for the immediate public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. If, at any time during the seven years
following the date of this Agreement, the Company proposes to prepare and file
one or more post-effective amendments to the registration statement filed in
connection with the Public Offering or any new registration statement or post
effective amendments thereto covering equity or debt securities of the Company,
or any such securities of the Company held by its shareholders (in any such
case, other than in connection with a merger, acquisition or pursuant to Form 5-
8 or successor form), (for purposes of this Article 7, collectively, a
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice"), at least thirty (30) business
7
<PAGE>
days prior to the filing of each such Registration Statement, to all holders of
the Registrable Securities. Upon the written request of such a holder (a
"Requesting Holder"), made within twenty (20) business days after receipt of the
Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Securities Act of the Registrable Securities which it has been so requested
to register ("Piggyback Registration;;), at the Company's sole cost and expense
and at no cost or expense to the Requesting Holders.
Notwithstanding the provisions of this Section 7.3, the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.3 (irrespective of whether any written request for inclusion of such
securities shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.4 Registration.
(a) At any time during the Warrant Exercise Term, any "Majority Holder" (as
such term is defined in Section 7.4(d) below) of the Registrable Securities
shall have the right (which right is in addition to the piggyback registration
rights provided for under Section 7.3 hereof), exercisable by written notice to
the Company (the "Demand Registration Request"), to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the
8
<PAGE>
sole expense of the Company, a Registration Statement and such other documents,
including a prospectus, as may be necessary (in the opinion of both counsel for
the Company and counsel for such Majority Holder), in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof, for nine (9) consecutive months.
(b) The Company covenants and agrees to give written notice of any
Demand Registration Request to all holders of the Registrable Securities within
ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) In addition to the registration rights provided for under Section
7.3 and subsection (a) of this Section 7.4, at any time during the Warrant
Exercise Term, any Majority Holder (as defined below in Section 7.4(d)) of
Registrable Securities shall have the right, exercisable by written request to
the Company, to have the Company prepare and file with the Commission, on one
occasion in respect of all holders of Registrable Securities, a Registration
Statement so as to permit a public offering and sale of such Registrable
Securities for
9
<PAGE>
nine (9) consecutive months, provided, however, that all costs incident thereto
shall be at the expense of the holders of the Registrable Securities included in
such Registration Statement. If a Majority Holder shall give notice to the
Company at any time of its or their desire to exercise the registration right
granted pursuant to this Section 7.4(c), then within ten (10) days after the
Company's receipt of such notice, the Company shall give notice to the other
holders of Registrable Securities, advising them that the Company is proceeding
with such registration and offering to include therein the Registrable
Securities of such holders, provided they furnish the Company with such
appropriate information in connection therewith as the Company shall reasonably
request in writing.
(d) The term "Majority Holder" as used in this Section 7.4 shall
mean any holder or any combination of holders of Reqistrable Securities, if
included in such holders' Registrable Securities are that aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) as would constitute a majority of the
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of the
Registrable Securities.
7.5 Covenants of the Company With Respect to Registration. The Company
------------------------------------------------------
covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration
10
<PAGE>
Statement as expeditiously as possible, but in no event later than twenty (20)
business days following receipt of any demand therefor, shall use its best
efforts to have any such Registration Statements declared effective at the
earliest possible time, and shall furnish each holder of Registrable Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to Sections 7.3 and 7.4(a)
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses. The holders of Registrable
Securities included in any Registration Statement filed pursuant to Section
7.4(c) hereof will pay all costs, fees and expenses in connection with such
registration.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities,
[provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction]
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls
11
<PAGE>
such holder or underwriter or person deemed to be an underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Section 7 of the Underwriting Agreement and to provide
for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and its successors and assigns, shall severally, and not
jointly, indemnify, the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to
12
<PAGE>
which the Underwriters have agreed to indemnify the Company and to provide for
just and equitable contribution as set forth in Section 8 of the Underwriting
Agreement.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. In case the Company shall at any
time after the date hereof pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, then upon such dividend or distribution
the Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution multiplied by the
Exercise Price in effect immediately prior to such dividend or distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale.
For the purposes of any computation to be made in accordance with the
provisions of this Section 8.1, the following provisions shall be applicable:
Common Stock issuable by way of dividend or other distribution on any stock of
the Company shall be deemed to have been issued immediately after the opening of
business on the date following the date fixed for the
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<PAGE>
determination of stockholders entitled to receive such dividend or other
distribution.
8.2 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.3 Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger in which the Company is the surviving corporation
and which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as
14
<PAGE>
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holders had exercised the Warrants.
8.5 Determination of Outstanding Shares of Common Stock. The number
of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.6 Dividends and Other Distributions with Respect to Outstanding
Securities. In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend (other than a dividend consisting
solely of shares of Common Stock or a cash dividend or distribution payable out
of current or retained earnings) or otherwise distribute to its shareholders any
monies, assets, property, rights, evidences of indebtedness, securities (other
than shares of Common Stock), whether issued by the Company or by another person
or entity, or
15
<PAGE>
any other thing of value, the Holder or Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Subsection 8.6.
8.7 Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or an affiliate of the Company shall at any
- ----------
time after the date hereof and prior to the exercise of all the Warrants issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates. Each Warrant
Certificate is exchangeable without expense, upon the surrender hereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate
16
<PAGE>
the right to purchase the same number of Shares in such denominations as shall
be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, non-assessable and
17
<PAGE>
not subject to the preemptive rights of any shareholder. As long as the Warrants
shall be outstanding, the Company shall use its best efforts to cause all
shares of Common Stock issuable upon the exercise of the Warrants to be listed
on or quoted by NASDAQ or listed on such national securities exchanges as
requested by the Underwriter.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring upon
the Holder or Holders the right to vote or to consent or to receive notice as a
shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the
18
<PAGE>
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; then, in any one or more of said events, the Company shall give
written notice of such event at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of an~~
convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been duly made when delivered, or mailed
by registered or certified mail, return receipt requested:
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<PAGE>
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of this
Agreement or to such other address as the Company may designate by notice to the
Holders.
14. Supplements and Amendments.
The Company and the Underwriter may from time to time supplement or amend
this Agreement without the approval of any Holders of Warrant Certificates in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem not to adversely affect the interests of
the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or for the benefit of
the Company and the Holders inure to the benefit of their respective successors
and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on June 12, 2004.
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants have been exercised and all the Shares issuable upon exercise
of the
20
<PAGE>
Warrants have been resold to the public; provided, however, that the provisions
of Section 7.3 shall survive such termination until the close of business on
June 12, 2006.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of New York and for all
purposes shall be construed in accordance with the laws of said State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Underwriter and any other registered
holder or holders of the Warrant Certificates, Warrants or the Shares any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Underwriter
and any other holder or holders of the Warrant Certificates, Warrants or the
Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
[SEAL] TURBOCHEF, INC.
By: /s/ JEFFREY B. BOGATIN
-------------------------------------
Name: Jeffrey B. Bogatin
Title: Chairman of the Board of
Directors, Treasurer
Attest:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By: /s/ WILLIAM G. WALTERS
-------------------------------------
Name: William G. Walters
Title: Chairman
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EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME,
No. W-2 80,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Whale Securities Co., L.P. or
registered assigns, is the registered holder of 80,000 Warrants to purchase at
any time from _____ 1997 until 5:00 P. New York City time on June 12, 2001
("Expiration Date up to 8,000 shares ("Shares") of fully-paid and non-assessable
common stock, $.01 par value ("Common Stock"), of TurboChief, Inc., a Delaware
corporation (the "Company"), at the exercise price, subject to adjustment in
certain eve "Exercise Price), of $24.00 per Share upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of June 17, 1996 between the Company and Whale Securities
Co., L.P. (the "Warrant Agreement"). Payment of the Exercise Price may be made
in cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of
23
<PAGE>
rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: June 17, 1996 TURBOCHIEF, INC.
[SEAL] BY: /s/ JEFFREY B. BOGATIN
--------------------------------
Name: Jeffrey B. Bogatin
Title: Chairman of the Board
of Directors, Treasurer
Attest:
24
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
____________________ in the amount of $ _________ , all in accordance with the
terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of _____________________ , whose address is
___________________ and that such Certificate be delivered to
___________________ whose address is ______________.
Dated: Signature: __________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
---------------------------------------
---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
25
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________ hereby sells, assigns
and transfers unto
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ___________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate)
- ---------------------------------
- ---------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
26
<PAGE>
[LOGO OF SOUTHLAND CORPORATION APPEARS HERE]
EXHIBIT 10.20
PURCHASE ORDER
ISSUING OFFICE:
CORPORATE PROCUREMENT OFFICE
P.O. BOX 711
DALLAS, TEXAS 75221-0711
No. B 605955
THIS PURCHASE ORDER NUMBER
MUST BE SHOWN ON TAG, BOX,
BILL OF LADING OR EXPRESS
RECEIPT AND ON THE INVOICE.
COPY OF PAID FREIGHT BILL
MUST ACCOMPANY INVOICE FOR
OTHER THAN FOB DESTINATION
SHIPMENT OR THIRD PARTY
FREIGHT BILLING.
** BLANKET ORDER **
DATE
12-13-96
SOUTHLAND CORP. OFFICE
TURBOCHEF STORES EQUIP PURCHASING
10500 METRIC DRIVE 2711 N HASKELL
SUITE 128
DALLAS TX 75243 DALLAS TX 75204
SELLER SHIP TO
PHILIP MCKEE FOR LOCATION # 260- 260
- --------------------------------------------------------------------------------
F.O.B. FREIGHT SEND INVOICES IN DUPLICATE TO:
DALLAS TX PREPAY AND INVOICE The Southland Corporation
- --------------------------------------------- P.O. Box 711
PAYMENT TERMS SHIPPING INSTRUCTIONS Dallas, Texas 75221-0711
SHIP TO ARRIVE BY 01-01-97 Attn: Property Accounting
Net. 30
- --------------------------------------------------------------------------------
QUANTITY DESCRIPTION AND SPECIFICATIONS UNIT PRICE AMOUNT
- --------------------------------------------------------------------------------
XX TURBOCHEF OVEN (TEST EQUIPMENT). PROD 29785FFIA $XXXXXXX $XXXXXXXX
THIS IS A BLANKET ORDER FOR A THREE PHASE PROGRAM
BASED UPON THE TURBOCHEF OVEN DEMONSTRATED FOR
ADRIAN EVANS, KRISTA FULLER AND WENDY BARTH
(SOUTHLAND REPRESENTATIVES) IT IS TO INCLUDE
AGREED CHANGES AND IMPROVEMENTS REQUESTED BY THE
SOUTHLAND REPRESENTATIVES
PHASE 1 IS FOR XXXXXXXX OVENS FOR USE DURING THE
FIRST THREE MONTHS OF THE DEVELOPMENT PHASE
"FOOD AND PACKAGE"
PHASE 2 IS FOR XXXXXXX OVENS FOR "FOOD AND
PACKAGE REFINEMENT" THESE UNITS ARE TO BE USED
IN TESTS IN THE PERIOD OF FOUR TO SIX MONTHS AFTER
BEGINNING OF PHASE 1 "BETA TEST MODEL"
PHASE 3 AT THE END OF THE "BETA TEST PERIOD"
SOUTHLAND WILL PURCHASE AN ADDITIONAL XXXXXXX OVENS
FOR THE "PROFITABILITY TESTS"
ALL PRICES ARE PLUS APPLICABLE TAXES, EXCEPT AS NOTED ABOVE.
- --------------------------------------------------------------------------------
THIS PURCHASE ORDER EXPRESSLY LIMITS THE SOUTHLAND CORPORATION
ACCEPTANCE TO THE TERMS AND CONDITIONS STATED
HEREIN, SET FORTH ON THE REVERSE SIDE AND ANY
SUPPLEMENTARY TERMS AND CONDITIONS ANNEXED ( SEE PAGE 3 )
OR INCORPORATED BY REFERENCE. ANY ADDITIONAL BY___________________________
OR DIFFERENT TERMS AND CONDITIONS PROPOSED THOMAS KISTNER PURCHASING
BY THE SELLER ARE THEREFORE REJECTED AND AGENT
DO NOT BECOME PART OF THIS AGREEMENT.
- --------------------------------------------------------------------------------
CHARGE TO: 3 1821 FOR INTERNAL USE ONLY
----------------------------------------
DUE DATE INVOICE NO. AMOUNT HOLD CODE
----------------------------------------
[_] PLUS INSTALLATION PAGE 1 OF 3
----------------------------------------
----------------------------------------
<PAGE>
[LOGO OF SOUTHLAND CORPORATION APPEARS HERE]
PURCHASE ORDER
ISSUING OFFICE:
CORPORATE PROCUREMENT OFFICE
P.O. BOX 711
DALLAS, TEXAS 75221-0711
No. B 605955
THIS PURCHASE ORDER NUMBER
MUST BE SHOWN ON TAG, BOX,
BILL OF LADING OR EXPRESS
RECEIPT AND ON THE INVOICE.
COPY OF PAID FREIGHT BILL
MUST ACCOMPANY INVOICE FOR
OTHER THAN FOB DESTINATION
SHIPMENT OR THIRD PARTY
FREIGHT BILLING.
** BLANKET ORDER **
DATE
12-13-96
SOUTHLAND CORP. OFFICE
TURBOCHEF STORES EQUIP PURCHASING
10500 METRIC DRIVE 2711 N HASKELL
SUITE 128
DALLAS TX 75243 DALLAS TX 75204
SELLER SHIP TO
PHILIP MCKEE FOR LOCATION # 260- 260
- --------------------------------------------------------------------------------
F.O.B. FREIGHT SEND INVOICES IN DUPLICATE TO:
DALLAS TX PREPAY AND INVOICE The Southland Corporation
- --------------------------------------------- P.O. Box 711
PAYMENT TERMS SHIPPING INSTRUCTIONS Dallas, Texas 75221-0711
SHIP TO ARRIVE BY 01-01-97 Attn: Property Accounting
NET. 30
- --------------------------------------------------------------------------------
QUANTITY DESCRIPTION AND SPECIFICATIONS UNIT PRICE AMOUNT
- --------------------------------------------------------------------------------
HOWEVER, SOUTHLAND RETAINS THE OPTION TO
CANCEL ALL OR PART OF THIS XXXXXXX OVEN ORDER
WITH A 30 DAY NOTICE.
STARTING DATE OF PHASE 1 IS JANUARY 1997
DATES STATED HEREIN ARE APPROXIMATE AND
ARE SUBJECT TO ADJUSTMENT BY MUTUAL AGREEMENT
BETWEEN BUYER AND SELLER
INDIVIDUAL PURCHASE ORDERS WILL BE ISSUED
WITH SPECIFIC SHIPPING INSTRUCTIONS AND TIME
FOR DELIVERY FOR EACH OVEN SHIPMENT OF
UNITS TO ANY ADDRESS IS NOT AUTHORIZED UNTIL
RECEIPT OF THE
INDIVIDUAL PURCHASE ORDER WHICH CITES THIS
BLANKET ORDER
THIS AGREEMENT COMMENCES ON DECEMBER 15, 1996
CHANGES TO THIS BLANKET ORDER WILL BE MADE IN
WRITING, BY MUTUAL AGREEMENT, BETWEEN BUYER
AND SELLER
ALL PRICES ARE PLUS APPLICABLE TAXES, EXCEPT AS NOTED ABOVE.
- --------------------------------------------------------------------------------
THIS PURCHASE ORDER EXPRESSLY LIMITS ACCEPTANCE THE SOUTHLAND CORPORATION
TO THE TERMS AND CONDITIONS STATED HEREIN,
SET FORTH ON THE REVERSE SIDE AND ANY
SUPPLEMENTARY TERMS AND CONDITIONS ANNEXED
OR INCORPORATED BY REFERENCE. ANY ADDITIONAL
OR DIFFERENT TERMS AND CONDITIONS PROPOSED BY (SEE PAGE 3)
BY THE SELLER ARE THEREFORE REJECTED AND DO --------------------------
NOT BECOME PART OF THIS AGREEMENT. PURCHASING AGENT
THOMAS KISTNER.
- --------------------------------------------------------------------------------
CHARGE TO: 3 1821 FOR INTERNAL USE ONLY ---------------------------------------
DUE DATE INVOICE NO. AMOUNT HOLD CODE
---------------------------------------
[_] PLUS INSTALLATION PAGE 2 OF 3
---------------------------------------
<PAGE>
[LOGO OF SOUTHLAND CORPORATION APPEARS HERE]
PURCHASE ORDER
ISSUING OFFICE:
CORPORATE PROCUREMENT OFFICE
P.O. BOX 711
DALLAS, TEXAS 75221-0711
No. B 605955
THIS PURCHASE ORDER NUMBER
MUST BE SHOWN ON TAG, BOX,
BILL OF LADING OR EXPRESS
RECEIPT AND ON THE INVOICE.
COPY OF PAID FREIGHT BILL
MUST ACCOMPANY INVOICE FOR
OTHER THAN FOB DESTINATION
SHIPMENT OR THIRD PARTY
FREIGHT BILLING.
** BLANKET ORDER **
DATE
12-13-96
SOUTHLAND CORP. OFFICE
TURBOCHEF STORES EQUIP PURCHASING
10500 METRIC DRIVE 2711 N HASKELL
SUITE 128
DALLAS TX 75243 DALLAS TX 75204
SELLER SHIP TO
PHILIP MCKEE FOR LOCATION # 260- 260
- --------------------------------------------------------------------------------
F.O.B. FREIGHT SEND INVOICES IN DUPLICATE TO:
DALLAS TX PREPAY AND INVOICE The Southland Corporation
- --------------------------------------------- P.O. Box 711
PAYMENT TERMS SHIPPING INSTRUCTIONS Dallas, Texas 75221-0711
SHIP TO ARRIVE BY 01-01-97 Attn: Property Accounting
NET. 30
- --------------------------------------------------------------------------------
QUANTITY DESCRIPTION AND SPECIFICATIONS UNIT PRICE AMOUNT
- --------------------------------------------------------------------------------
THIS BLANKET ORDER ENDS AT THE COMPLETION OF
PHASE 3, OR UPON CANCELLATION OF PHASE 3
WARRANTY PROVISIONS ARE BASED ON EQUIPMENT
INSTALLATION DATES AND CONTINUE FOR THE
AGREED WARRANTY PERIOD
********** FOR INTERNAL USE ONLY *************
* *
* PERSON RESPONSIBLE: TOM KISTNER *
**********************************************
PO TOTAL **$XXXXXX
ALL PRICES ARE PLUS APPLICABLE TAXES, EXCEPT AS NOTED ABOVE.
- --------------------------------------------------------------------------------
THIS PURCHASE ORDER EXPRESSLY LIMITS ACCEPTANCE THE SOUTHLAND CORPORATION
TO THE TERMS AND CONDITIONS STATED HEREIN,
SET FORTH ON THE REVERSE SIDE AND ANY
SUPPLEMENTARY TERMS AND CONDITIONS ANNEXED
OR INCORPORATED BY REFERENCE. ANY ADDITIONAL
OR DIFFERENT TERMS AND CONDITIONS PROPOSED BY /s/ THOMAS KISTNER
BY THE SELLER ARE THEREFORE REJECTED AND DO --------------------------
NOT BECOME PART OF THIS AGREEMENT. PURCHASING AGENT
THOMAS KISTNER
- --------------------------------------------------------------------------------
CHARGE TO: 3 1821 FOR INTERNAL USE ONLY ---------------------------------------
DUE DATE INVOICE NO. AMOUNT HOLD CODE
---------------------------------------
[_] PLUS INSTALLATION PAGE 3 OF 3
---------------------------------------
<PAGE>
EXHIBIT 10.21
Page 1 Group Contract No GC/1O58P
18th February 1997
-----------------
PURCHASE CONTRACT
-----------------
WHITBREAD PLC
REGISTERED IN ENGLAND NO: 29423
REGISTERED OFFICE: CHISWELL STREET, LONDON, EC1Y 4SD
Between: TurboChef Inc.
10500 Metric Drive, Suite 128
Dallas, Texas 75205
USA
Attn: Philip R McKee
Telephone No: (214) 341-9471
Fax No: (214) 340-8477
(Hereinafter referred to as "the Sellers")
and Whitbread PLC
Whitbread House
Park Street West
LUTON
Bedfordshire
LU1 3BG
Telephone No: 01582 424200
Fax No: 01582 396841
Whereby Whitbread PLC (hereinafter referred to as "the Buyers" which expression
shall for the purpose of this contract be deemed to include all or any of the
subsidiary companies for the time being of Whitbread PLC) agree to purchase, and
the Sellers agree to supply the Goods and Services described below on the terms
and conditions set out or referred to below.
- --------------------------------------------------------------------------------
Specification of Goods and Services
- -----------------------------------
TurboChef model D-2 EC ovens, and CUB
The specification of the ovens to include all latest modifications and
improvements as at 1st Feb 1997 and to include but not be limited to :
Feature CUB D2
- ------- --- --
Door rails outside cook chamber Included Possible date to
be agreed
Removable cook chamber Included Possible date to
be agreed
Magic Filter Included Included
Computer capable of receiving TurboComm Included Included
Automated, adjustable height stirrer blade Date to be agreed -
Stirrer blade height specified by Whitbread Date to be agreed Date to be agreed
"Screwless" door covers Included Included
Magnetic filter cover Included Date to be agreed
Filter present switch Included Date to be agreed
Variable air pass heat exchanger Included Possible date to
be agreed
<PAGE>
Page 2 Group Contract No GC/1058P
18th February 1997
Over the course of this Purchase Contract, the Sellers will undertake additional
product modification and enhancement efforts, as well as cost reduction
engineering efforts. The Sellers may, at the Sellers' discretion, modify or
enhance the ovens shipped to the Buyers pursuant to this Purchase Contract
provided that such modifications or enhancements do not effect the sales price,
form, fit or function of the D-2 EC and CUB ovens without the Buyers' prior
written approval.
The Sellers will also provide repair and maintenance and training services to
the Buyers during the period of this Purchase Contract in accordance with the
Special Conditions Repair & Maintenance clause.
Except as outlined herein, no variations to this Specification of Goods or
Services are permitted without the Buyers' and the Sellers' written prior
approval.
Volume Forecast
- ---------------
The volume forecast for oven purchases by the Buyer is set out below.
Min. for Exclusivity to continue Max Demand
Feb 97 XX XX
March XX XX
April XX XX
May XX XX
June XX XX
July XX XX
Aug XX XX
Sept XX XX
Oct XX XX
Nov XX XX
Dec XX XX
Jan 98 XX XX
Feb XX XX
Mar XX XX
--- ---
XXX XXX
For the avoidance of doubt, the figures in the first column above solely
indicate the minimum number of ovens to be purchased by the Buyer in order to
retain exclusivity pursuant to the Special Conditions - Production Capacity
clause. Failure to purchase the numbers set out in this column within the
timescales shown shall not in anyway be considered to be a breach of this
Purchase Contract nor give rise to a right to terminate this Purchase Contract.
Also the Buyers can maintain exclusivity even if the minimum number for
exclusivity to continue has not been met if the Buyers have made arrangements
with the Sellers for delayed deliveries (pending the phase in of agreed
modifications). However, at the Sellers option, such delayed deliveries may
require payment as originally scheduled
For the purpose of clarity, when referring to volume forecasts a TurboChef D2 is
--
interchangeable with a CUB, except that CUB models will require a 90 day call
---
down advance and cannot be called down until the CUB prototypes have been
accepted by the Buyers. Once the Buyers have accepted the CUB model, should the
Sellers be unable to provide CUBS within 90 days, the minimum required for
exclusivity to continue will be adjusted (into later months) until such time as
the Sellers can meet this request.
<PAGE>
Page 3 Group Contract No GC/1058P
18th February 1997
Price:
- ------
The selling price, including delivery, duties, freight, unpacking and
preparation for installation is $XXXXX for each D2 oven purchased. This amount
will be paid within 14 days of receipt by the Buyers of satisfactory invoice.
Interest of 1.5% per month will be charged for any outstanding balances not
received by the Sellers within 28 days of receipt by the Buyers of satisfactory
invoice.
Packing Charges:
- ----------------
The Sellers are responsible for all packing charges associated with the Method
------
of Packing defined below.
- ----------
Method of Packing:
- ------------------
It is the Sellers responsibility to pack with adequate protection and to
guarantee safe delivery to the selected Whitbread sites.
Carriage Charges:
- -----------------
The Sellers are responsible for all carriage charges from point of manufacture
of completed goods to delivery to agreed delivery depots.
Settlement Terms:
- -----------------
All items purchased under this Purchase Contract will be invoiced upon delivery
to the relevant depots.
Each invoice will compromise:
The Selling price of the D2 oven: $XXXXX
Period of Contract:
- -------------------
One year and one month from the date of this Purchase Contract.
Governing Law:
- --------------
This Purchase Contract shall be governed by and construed in accordance with UK
laws.
- --------------------------------------------------------------------------------
STANDARD CONDITIONS & SPECIAL CONDITIONS OF CONTRACT
- ----------------------------------------------------
Standard Conditions
- -------------------
This contract number, and order number where applicable, must be quoted on
all invoices and correspondence.
If the Buyers have complied with this Purchase contract but the Sellers
have not shipped the ovens within the time specified in the Special
Conditions - Quantity and Delivery provisions, for 3 consecutive months,
the Buyers have the right to cancel delivery of the goods ordered and/or to
rescind this Purchase Contract in its entirely. In this event the Buyers
have certain rights as specified below under Special Conditions-Security,
---------------------------
and the Buyers will not entertain any claim made by the Sellers upon the
Buyers for any costs, damages or losses of whatsoever nature or howsoever
caused.
No variation to the specification, or to prices, discounts, settlement
terms, etc., relating to the Goods or Services as described will be
accepted by the Buyers during the currency of the contract without their
giving the Sellers prior approval in writing.
The Sellers shall at all times during the period of this Purchase Contract
manufacture and maintain sufficient stocks of Goods and/or retain
sufficient staff and maintain sufficient capability, to fulfil their
obligation under this Purchase Contract to supply such Goods and/or
Services as the Buyers may require to be performed under this Purchase
Contract. The Sellers shall supply such quantities of Goods and/or Services
as the Buyer may desire from time to time in accordance with this Purchase
Contract.
All sales of Goods and supplies of Services pursuant to this Purchase
Contract shall be made on and subject to the terms and conditions of this
Purchase Contract, to the exclusion of any standard terms and conditions of
the Sellers.
<PAGE>
Page 4 Group Contract No GC/1058P
18th February 1997
Notwithstanding the fact that the Sellers may have or have had business
dealings with the Buyers and/or its associated businesses, the Buyers' name
and those of its associated businesses shall not be used by the Sellers for
the purpose of advertisement or publicity without the prior written consent
of the Buyers (which shall not be unreasonably withheld).
Special Conditions
- ------------------
Security
- --------
In the event:
The Buyers have fully complied with this Purchase Contract and the Sellers
fail to meet their obligations under the Delivery Procedures provision of
this Purchase Contract for 3 consecutive months, the Buyers may notify the
Sellers in writing of the Sellers' failure to meet such obligations. In
that case, the Sellers have 90 days from the date of Sellers' receipt of
such notification to remedy such failure by meeting all such obligations.
If the Sellers have still not remedied such failure within 90 days of
receipt of written notification; or
If there has been a bankruptcy filing by the Sellers before the completion
of this Purchase Contract, and the Sellers' ability to perform under this
Purchase Contract is affected by such bankruptcy filing, and if the Sellers
can not resume operations capable of completing this Purchase Contract (or
license its intellectual property and know-how to a second supplier for the
purpose of completing this Purchase Contract on the same terms and
conditions as originally agreed) within four months after such filing; or
If there has been a substantial change of ownership of the Sellers which
has not been previously approved by the Buyers, such approval not to be
unreasonably withheld;
then the Sellers will license their intellectual property and know-how
(including all current drawings, plans and specifications necessary to
manufacture the oven model being supplied to the Buyers at the time of such
unremedied failure or bankruptcy filing or substantial change of ownership) to
the Buyers, under confidentiality provisions and appropriate restrictions
regarding use sufficient to protect such intellectual property following
completion (but at the same time ensuring that the Buyers rights under this
contract are protected to the fullest extent possible), such license being
assignable to a Supplier of the Buyers' choice for the purpose of completing
this Purchase Contract. Any license of the Sellers' intellectual property for
the purpose of satisfying the terms and conditions of this Purchase Contract
will expire upon the earlier of the end of the contract period or the
manufacture of the total number of ovens included in the maximum demand column
of the Volume Forecast set out in this Purchase Contract, except in so far as
the Buyers' spare parts requirements need to be met, in which case the Buyers
will have rights to continue producing for these requirements.
Production Capacity
- -------------------
The Sellers have limited production capacity, and limited ability to increase
capacities without increasing the risk of production error. The Sellers seek to
sell ovens throughout the world and, as a result, allocate certain portions of
their current and anticipated future production capacities to particular
regions. The level of production of TurboChef ovens which can be allocated for
shipment to the United Kingdom and Germany through to end of March 1998 totals
______ ovens. Accordingly, provided the Buyers are purchasing ovens in
accordance with the figures in the first column of the minimum volume forecast
listed previously, the Buyers will receive the option on all of the Sellers
production capacity which is allocated to the UK and Germany during this period
and the Sellers will not licence anyone else to manufacture ovens for sale, rent
or loan in the UK and Germany during this period except as set forth below.
Additionally, the Sellers will not make shipments to or licence manufacture of
ovens for sale, rent or loan in the UK and Germany for a period of 3 months
beyond the date that the Buyers fail to order the minimum delivery requirements
as laid out in the first column of the volume forecast, to anyone else other
than the Buyers. Should the Buyers purchase in excess of the maximum demand
noted previously, the exclusivity will automatically be extended for 3 months
for each 100 ovens in excess of XXX ovens, with a limit of 6 months automatic
extension.
Exclusivity in Germany is subject to the following provision:- In the first
month in which the Buyers have not ordered the maximum demand as laid down in
the volume forecast (but has ordered the
<PAGE>
Page 5 Group Contract No GC/1058P
18th February 1997
minimum) the Buyers will present to the Sellers a plan for installing ovens in
Germany (Timing/Number of ovens to be agreed between Buyers and Sellers such
agreement not to be unreasonably withheld). At such time the Sellers may, at the
Sellers option, tend (but not sell) a maximum of 10 D2EC or CUB ovens to other
companies in Germany. This lending provision notwithstanding, exclusivity in
Germany will continue until such time as the Buyers fail to satisfy the agreed
upon installation plan for Germany.
Purchase Contract Extensions
- ----------------------------
It is the intention of the Sellers to sell and Buyers to buy through mutually
agreed Contract terms ovens as before described for periods beyond this Contract
term, those periods as yet unknown.
It is further agreed that Purchase Contract Extensions will be agreed at
----------------------------
intervals not exceeding 6 months from 31.12 97.
Currency
- --------
All payments made to the Sellers by the Buyers will be made in US Currency,
regardless of the then prevailing exchange rates between British Pounds and US
Dollars at the time payments are made.
Confidentiality
- ---------------
Both the Sellers and the Buyers are subject to the Confidentiality Provision as
attached hereto.
Quantity and Delivery
- ---------------------
The Buyers firm quantity requirements shall be given to the Seller by means of
Whitbread Purchase Orders. The Whitbread Purchase Order for February, 1997,
March and April are attached hereto. This contract number must be quoted on all
invoices and correspondence.
Time of delivery of the goods and execution of the services shall be within 60
days of receipt of the above said purchase order for delivery up to end of June
1997 and then 90 days after receipt of order for the remainder of this contract
subject to the modification clauses.
The Seller is not required to perform work on the Buyers' premises as part of
this Purchase Contract. The Sellers shall maintain to the Buyers' satisfaction
adequate insurance cover for third party liability risks (including Product
Liability) in respect of the use of the ovens in the UK and Germany and the
Buyers' shall have the right to inspect and approve such policies of insurance.
Such insurances to be maintained throughout the duration of this Contract.
Warranties and Liabilities
- --------------------------
The Sellers warrant to the Buyers that the Goods will be of satisfactory quality
and fit for the purposes set forth in the Sellers owner's manual as may be
updated from time to time (with the approval of the Buyers, such approval not to
be unreasonably withheld).
The Sellers warrant that the Services will be performed by appropriately
qualified and trained personnel acting with due care and diligence and to best
industry practice provided, however, that the Sellers and Buyers agree upon the
service contractors the Sellers are to train in anticipation of satisfying this
provision (such agreement not to be unreasonably withheld).
The Sellers warrant that all Goods supplied will comply in all respect with
relevant UK legislation.
All Goods shall be covered by the Sellers warranty for a period of 12 months,
inclusive of all parts, labour and transport, commencing from the date of
satisfactory installation and commissioning of the Goods.
<PAGE>
Page 6 Group Contract No GC/1058P
18th February 1997
The Sellers warrant that:
all information provided from time to time by the Sellers to the Buyers
shall be accurate when given;
the Sellers shall immediately upon becoming aware that any information
provided to the Buyers pursuant to this Agreement is inaccurate, notify the
Buyers of the inaccuracy and confirm the same in writing to the Buyers
within 3 days of such notification being made;
the Goods will be produced in respect of their manufacture, production and
composition, and/or Services will be supplied, in accordance with the
information supplied by the Seller in accordance with the above provisions
of this Warranties and Liabilities Clause;
the Sellers will carry out on the Goods supplied all checks, tests,
inspections and investigations in order to discharge the Seller's
responsibilities as seller and that such checks, tests, inspections and
investigations will comply in all respects with best practice within the
industry as at the date the Goods are supplied.
The Sellers agree (subject to the provisions on Rights of Access below) to allow
an authorised representative of the Buyers to enter the Seller's premises at any
reasonable time for the purposes of inspecting any part of the premises, plant,
machinery or products.
The Sellers will, upon becoming aware of any defect whatsoever in the Goods
delivered to the Buyers immediately notify the Buyers of such defect and confirm
the same in writing to the Buyers within 3 days of such defect being identified.
The Sellers shall indemnify the Buyers in full against all losses, damages
(including but not limited to loss or damage to property or the Buyers business
or death or personal injury), liabilities, fines, penalties, costs and expenses
(including legal expenses whether or not proceedings are brought) of awarded
against or reasonably incurred and paid by the Buyers as a result of a breach of
any of the warranties contained in this Clause by the Sellers, as it relates to
Goods and Services provided by the Sellers. Provided always that this indemnity
should not apply if and to the extent that it is proved that such losses,
damages, claims, liabilities, fines, penalties, costs and expenses result from
any act, negligence or default of the Buyers or Buyers authorised servant or
agents.
The Sellers warrant that any system developed for the Buyers or any software
utilised by the Seller to provide Goods and/or Services to the Buyers, is
programmed to adapt to and accommodate changes in dates, including and without
limitation, the next millennium, the year 2000 and leap years, without any
detriment or deterioration in performance to the Buyers.
Insurance
- ---------
The Seller shall take out and maintain adequate insurance to cover its liability
hereunder and shall furnish the Buyers with evidence of such insurance as and
when reasonably required to do so.
The Sellers are responsible for all insurance up to the point the ovens are
safely delivered to the agreed upon depot and the Buyers are responsible for all
insurance thereafter.
Technical Specification
- -----------------------
The Sellers guarantee that all versions of oven firmware and communications
software will comply with the agreed set of function calls.
The Sellers shall ensure that any proposed changes to the defined set of
function calls are agreed and endorsed by the Buyers prior to any subsequent
installation taking place in the Buyers' ovens by the Sellers. For reference,
all the calls are defined in the Oven Data and Menu Data sections of the
Technical Specification for the Turbochef Data Communications Interface.
<PAGE>
Page 7 Group Contract No GC/1O58P
18th February 1997
Repair & Maintenance
- --------------------
The Sellers are responsible for providing all warranty related repairs and
maintenance for the ovens for a period of 1 year after date of installation and
will provide a monthly report of all installation dates, repairs and maintenance
carried out, such report being transmitted to the Buyers on a monthly basis.
The Sellers have already trained one service agency, and hereby agree to train
another agency. Should the Buyers and the Sellers agree (agreement not to be
unreasonably withheld) that the service agency base needs to change or be
expanded, the Sellers will conduct additional training sessions. These training
sessions will be conducted at either the Sellers' Dallas, Texas, USA location,
or in the UK (at the Sellers option) by the Seller's employees. As many as 5
technical trainees may attend any given training session provided, however, that
the Sellers are satisfied with the Sellers' protection regarding confidential
information, trade secrets and know-how, for each training session attendee, at
least 14 days prior to the scheduled start date of any training session. Each
training session will last approximately 2-3 consecutive days. The Sellers may
require, at the Sellers' option, as much as 30 days notice prior to the date of
the training sessions, the exact schedule of which is at the Sellers'
discretion. The Sellers to formally approve any new service agency by naming
the agency and engineers trained. The Buyers to be informed in writing within 30
days of training being completed.
The Sellers will make available for purchase by the Buyers, spare parts as may
be required to repair and maintain the ovens. A list of spare parts and current
prices is attached. Prices to remain fixed for a period of one (1) year from
commencement of this contract.
The Sellers' engineering staff has been, and will continue to be, available to
the Buyers (or the Buyers service agency) to answer any questions over the
telephone that may arise from The Buyers operation, use and/or service of the
ovens during the period of this Agreement and for a further 1 year after this
agreement has ceased.
For the aboidance of doubt, where the repair or maintenance of the ovens falls
under the Sellers warranty (as referred to in the Warranties and Liabilities
section) no payment shall be made for any spare parts, labour or transport
associated therewith.
Research & Development
- ----------------------
The Sellers anticipate that, over the course of this Purchase Contract, the
Sellers will attempt to further enhance the D series ovens (D-1A, D-2, etc.) and
CUB ovens. In addition, the Sellers anticipate that future generations of ovens
which utilise the Sellers' current and "to be developed" technologies may become
available. The Buyers will have the option to accept or not accept any such
modifications or future generations and any impact on the Buyers' price which
may result from such modifications or future generations.
The Buyers reserve the right of first refusal to purchase products resulting
from any new developments by the Sellers which fall outside the definition of
ovens previously described. This includes vending, residential and consumer
operated ovens and associated technology. For the purpose of this Purchase
Contract the Sellers are to offer the new developments to the Buyers for trial
at the stage of developments where the Sellers have determined that the product
is fit for shipment and trial by the Buyers. From date of receipt of the new
development, the Buyers have 3 months in which to assess and determine their
future interest in the new development. The anticipated level of purchase
commitment resulting from this 3 months process is to be agreed at that time but
to follow the same principles in respect of production capacity and other rights
as contained herein this Purchase Contract. If no such agreement can be reached
after 1 month, the Buyers' right of first refusal shall have no further cause or
effect.
Ownership of Joint Developments
- -------------------------------
As a result of this Purchase Contract, the Sellers will disclose certain
Confidential Information to the Buyers which is subject to the CONFIDENTIALITY
---------------
PROVISION as attached hereto. Any developments resulting from the Buyers' use
- ---------
of such Confidential Information will become the property of the Sellers except
that any developments made by the Buyers to the mechanical operation of the
Sellers' ovens will be owned jointly by the Sellers and the Buyers, with each
party having the right to utilise such developments in their sole respective
discretion.
<PAGE>
Page 8 Group Contract No GC/1O58P
18th February 1997
As a result of this Purchase Contract, the Buyers will disclose certain
Confidential Information to the Sellers' which is subject to the CONFIDENTIALITY
---------------
PROVISION as attached hereto. Any developments resulting from the Sellers' use
- ---------
of such Confidential Information will become the property of the Buyers except
that any developments made by the Sellers to the preparation and cooking of the
Buyers' food items will be owned jointly by the Sellers and the Buyers, with
each party having the right to utilise such developments in their sole
respective discretion.
Approvals
- ---------
The Sellers are responsible to gain and maintain all Underwriters Laboratories
(UL) National Sanitation Federation (NSF), Food and Drug Administration (FDA)
and Federal Communications Commission (FCC) approvals and accreditations on any
ovens used within the United States. The Sellers are responsible to gain any
accreditation's that are unique to the UK or in any other jurisdiction within
the European Union that the Buyers seek to place the ovens, such accreditations
to be in the name of the Sellers. The Buyers will support any accreditation
process that the Sellers undertake on behalf of the Buyers by providing readily
available information and conducting reasonable tests. Should the Buyers wish to
gain any accreditations outside the EU this will be in agreement with the
Sellers.
Price Stability
- ---------------
Both parties shall use their best endeavour to share the benefits of any
efficiencies improved upon in an effort to maintain price stability for the
duration of this Agreement and offset any price increases. In the event that
price increases cannot be wholly offset by improved efficiencies, and the
Company has given Whitbread 60 days notice of a request for change then price
changes may be discussed not before August 1997 and thereafter on a 6 months
basis. This price change will be limited to the change in material cost of
stainless steel (at present 1.668 Irish pounds per kilo) if this results in a
price change over 5% either way then the excess/reduction over/under the 5% will
be adjusted to the purchase price of the ovens ordered 30 days from the
price agreement date. (NB There are approximately 225 kg of stainless steel in
a Turbochef D2EC oven).
Rights of Access
- ----------------
In general, the Sellers welcome the Buyers to visit either the Sellers' R&D
facility or factory as often as the Buyers may reasonably request. The Sellers
will make every attempt to support any reasonable request to gain access to
either location, provided that the Sellers can accommodate the timing of such
visits. While the Sellers may be available to accommodate such visits with less
than 1 week's notice, the Buyers will attempt to schedule with the Sellers'
their visits to either location at least 30 days in advance. This general
availability notwithstanding, the Buyers have the right to visit the Sellers'
R&D facility or factory, up to once per 6 months, without any notice whatsoever
provided that the Sellers can restrict access to any areas of its facility or
factory where confidential information must be protected.
Import/Export Duties
- --------------------
The Sellers are responsible for all Import or Export duties that may be levied
as a result of this Purchase Contract.
Resolution of Disputes
- ----------------------
In the event of a dispute between the Buyers and the Sellers arising from this
Purchase Contract which the Buyers and the Sellers are unable to resolve, the
Buyers and the Sellers agree to submit to binding arbitration within 90 days of
receipt of notification such dispute. In this case arbitration would be in
accordance with the rules of the London court of International Arbitration
('LCIA') and shall occur in London England.
Each of the Buyers and the Sellers shall select one arbitrator and the two
arbitrators so selected shall mutually agree to the selection of a third
arbitrator, or failing such mutual agreement the third arbitrator shall be
selected by the LCIA.
<PAGE>
Page 9 Group Contract No GC/1058P
18th February 1997
- --------------------------------------------------------------------------------
For and on behalf of For and on behalf of
TURBOCHEF INC. WHITBREAD PLC
Signed /s/ Philip R. McKee Signed /s/ David M. Thomas
------------------------ --------------------------
Name Philip R. McKee Name David M. Thomas
------------------------ --------------------------
Title President, CEO Title Chief Executive (Designate)
------------------------ --------------------------
Date February 20, 1997 Date February 20, 1997
------------------------ --------------------------
<PAGE>
Page 10 Group Contract No GC/1058P
18th February 1997
CONFIDENTIALITY PROVISION
-------------------------
1. During the term of this Agreement and after termination or expiration of
this Agreement for any reason whatsoever the Receiving Party shall:
a) keep the Confidential Information confidential;
b) not disclose the Confidential Information to any other person
other than with the prior written consent of the Disclosing Party or
in accordance with Clause 2 and 3; and
c) not use the Confidential Information for any purpose other than
the performance of its obligations under this Agreement
2. During the term of this Agreement the Receiving Party may disclose the
Confidential Information to its employees, sub-contractors and customers
(the "Recipient") to the extent that it is necessary for the purposes of
this Agreement.
3. The Receiving Party shall procure that each Recipient is made aware of and
complies with all the Receiving Party's obligations of confidentiality
under this Agreement as if the Recipient was a party to this Agreement.
4. The obligations contained in Clauses 1 to 3 shall not apply to any
Confidential Information which:
(i) is at the date of this Agreement or at any time after the date of
this Agreement comes into the public domain other than through breach
of this Agreement by the Receiving Party or any Recipient; or
(ii) can be shown by the Receiving Party to the reasonable satisfaction of
the Disclosing Party to have been known by the Receiving Party before
disclosure by the Disclosing Party to the Receiving Party; or
(iii) subsequently comes lawfully into the possession of the Receiving
party from a third party.
(iv) is required to be disclosed by law, any Court of competent
jurisdiction or any other appropriate authority or body.
For the purposes of this Clause, "Confidential Information" means all
information of a confidential nature disclosed (whether in writing,
verbally or by any other means and whether directly or indirectly) by one
party (the "Disclosing Party") to the other party (the "Receiving Party")
whether before or after the date of this Agreement including, without
limitation, any information relating to the Disclosing Party's products,
operations, processes, plans or intentions, product information, know-how,
design rights, trade secrets, market opportunities and business affairs.
<PAGE>
EXHIBIT 10.25
PRESTONWOOD TOWER
OFFICE LEASE
THIS LEASE (herein so called) is made as of the 20th day of March, 1997, by
and between Prestonwood Tower, Inc., a Texas corporation ("Landlord"), and the
Tenant named below. --------
WITNESSETH:
1. Basic Provisions.
(a) Tenant: TurboChef , Inc.
------------------------
Dallas, Texas 75240
------------------------
(b) Premises: Suite 955, Prestonwood Tower,
Dallas, Texas 75240.
Approximate Rentable Area:
3,036 square feet (RA).
----------------------------------------
Approximate Usable Area:
2,710 square feet (UA).
----------------------------------------
(c) Basic Rental: $4,976.80 per month, including 1 garage
parking space; annual rental rate per
square foot (RA): $19.67.
----------------------------------------
(d) Security Deposit: $16,212.00
----------------------------------------
(e) Lease Term: Three (3) years.
----------------------------------------
(f) Estimated
Commencement Date: April 15, 1997.
---------------
(g) Operating Expense Stop: $ 6.75
------
(h) Permitted Use: Office
--------------------------------------
(i) Parking: Tenant shall be allowed one parking
space in the garage and ten in the open
parking lot.
---------------------------------------
<PAGE>
2. Lease Grant. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the Premises described above, which are shown in Exhibit
-------
A-1 attached hereto. The Premises are located in the building described above
- ---
(the "Building"), located on the real property described in Exhibit A-2 attached
-------- -----------
hereto (the "Land"). The Land, the Building, the parking facilities, parking
----
garage and other structures and improvements, landscaping, fixtures,
appurtenances and other common areas now or hereafter placed, constructed or
erected thereon comprise the project (the "Project") known as Prestonwood Tower
-------
in Dallas, Dallas County, Texas. This Lease is granted subject to the terms
hereof, the rights and interests of third parties under existing liens,
easements and encumbrances affecting such property, all zoning regulations,
rules, ordinances, building restrictions and other laws and regulations now in
effect or hereafter adopted by any governmental authority having jurisdiction
over the Project or any part thereof.
3. Lease Term. This Lease shall be for the term of years described
above, commencing on the later of (a) the Estimated Commencement Date set forth
in Paragraph 1 or (b) ten (10) days after Landlord's substantial completion of
-----------
the Finish Work (as hereinafter defined) in the Premises, but if Tenant takes
possession of the Premises for the conduct of business before either such date,
then the Lease Term shall commence on the date Tenant in fact occupies the
Premises. The date the Lease Term commences shall be referred to in this Lease
as the "Commencement Date." If the Lease Term expires on a date other than the
-----------------
last day of a calendar month, Landlord and Tenant shall be deemed to have agreed
that the Lease Term shall be extended through the last day of the calendar month
in which the termination date falls.
4. Construction of Finish Work in Premises. Landlord agrees to construct
leasehold improvements (the "Finish Work") in a good and workmanlike manner in
-----------
and upon the Premises at its sole cost and expense so long as the cost of the
Finish Work does not exceed $3.00 per rentable square foot of the Premises (the
-----
"Finish Allowance") in accordance with construction drawings approved by both
----------------
Landlord and Tenant. Costs to be incurred by Landlord in excess of the Finish
Allowance shall be paid by Tenant to Landlord promptly upon demand prior to
Landlord's commencing construction. Change orders requested by Tenant and
approved by Landlord after construction has commenced and which increase the
cost of construction shall be paid by Tenant to Landlord promptly upon demand.
All installations and improvements now or hereafter placed in the Premises other
than Building Standard (as hereinafter defined) improvements shall be for
Tenant's account and at Tenant's cost (and Tenant shall pay ad valorem taxes and
increased insurance thereon or attributable thereto), which cost shall be
payable by Tenant to Landlord upon demand as additional rent. "Building
--------
Standard" shall mean the type, brand and/or quality of materials Landlord
- --------
designates from time to time to be the minimum quality to be used in the
Building or the exclusive type, grade or quality of material to be used in the
Building. If Landlord is delayed in completing such construction within the
specified time, the delay in commencement of Tenant's obligation to pay rent
hereunder shall constitute full settlement of all claims that Tenant may have
against Landlord based on the delay. If Landlord is unable to complete the
Finish Work within the specified time due to a delay caused by Tenant or for any
other cause related to Tenant's acts or omissions, Tenant's rental obligations
under this Lease shall begin on the date on which Landlord would have delivered
possession of the Premises to Tenant absent such delay, and such date shall be
the Commencement Date.
5. Tenant's Basic Rental Obligation.
(a) Basic Rental. Beginning on the Commencement Date, Tenant shall
------------
pay to Landlord the Basic Rental without demand, deduction or setoff, for
each month of the entire Lease Term. If the day on which Basic Rental is
first due is other than the first day of a calendar month, rent for such
partial month shall be prorated on a daily basis. All Basic Rental shall
be paid by Tenant to Landlord in advance on or before the first day of each
calendar month during the Lease Term. All rental and other payments which
are due hereunder shall be made payable to Landlord. Tenant agrees to pay
said rental and other payments to Landlord at c/o
2
<PAGE>
Prestonwood Tower, Inc., 5151 Beltline Road, Suite 650, Dallas, Texas
75240, or at such other place as may from time to time be designated in
writing by Landlord, in lawful money of the United States of America
without any prior demand therefor and without any deduction or setoff
whatsoever.
(b) Security Deposit. Tenant shall deposit with Landlord the amount
----------------
shown above as a Security Deposit contemporaneously with the execution
hereof. Tenant's Security Deposit shall be held in accordance with the
terms of Paragraph 18(k) with the exception that after the eighteenth
---------------
month of the Lease, Tenant shall provide to Landlord the most current and
accurate financials available. In the event that Tenant has paid all
rentals in a timely manner per the Lease and if the financials indicate a
cash balance of at least $2,000,000, then Landlord will refund to Tenant
$8,106.00. The remaining balance will be refunded at the end of the term
of the lease per the terms of Paragraph 18(k).
---------------
6. Tenant's Additional Rental Obligation.
(a) Additional Rental. Beginning on the Commencement Date, Tenant
-----------------
shall pay to Landlord each calendar year additional rental (the "Additional
----------
Rental") equal to Tenant's proportionate share of the Actual Operating
------
Expenses (defined below) for the Building for such calendar year in excess
of the Operating Expense Stop multiplied by the number of square feet of
Rentable Area in the Premises. Additional Rental shall be prorated on a
daily basis for each partial calendar year in the Lease Term. Tenant's
proportionate share shall be based on the ratio which the Rentable Area in
the Premises (adjusted for office expansions) bears to the Rentable Area
within the Building.
(b) Adjustment of Actual Operating Expenses. Notwithstanding any
---------------------------------------
language herein to the contrary, if the Building is not fully occupied
during any calendar year of the Lease Term, Actual Operating Expenses shall
be determined as if the Building had been fully occupied during such year.
For the purposes of this Lease, "fully occupied" shall mean occupancy of
--------------
one hundred percent (100%) of the Rentable Area in the Building.
(c) Actual Operating Expenses Enumerated. Actual operating expenses
------------------------------------
(the "Actual Operating Expenses") shall include all expenses, costs and
-------------------------
disbursements of every kind and nature incurred or paid by Landlord in
connection with the ownership and/or the operation, maintenance, repair and
security of the Project, including (without limitation) such expenses as
utility costs, wages, landscaping, maintenance and repair costs, costs of
independent contractors, fees (other than legal fees directly related to
leasing activities of Landlord), insurance premiums and real estate taxes
and other governmental assessments. Actual Operating Expenses shall
exclude the capitalized cost of permanent improvements (other than those
installed to reduce operating costs or as may be required by law);
interest, amortization or other payments on loans to Landlord (other than
that incurred to finance items which are included in Actual Operating
Expenses); all costs reimbursed to Landlord out of insurance proceeds or
from tenants or other sources not affiliated with Landlord; and
depreciation of the Building.
(d) Estimated Actual Operating Expenses. Landlord shall have the
-----------------------------------
right to estimate Additional Rental to accrue hereunder and Tenant shall
pay to Landlord the amount of such estimate monthly with Tenant's Basic
Rental payments. If Landlord estimates Additional Rental in advance, then
by each April 1 or as soon thereafter as practical, Landlord shall furnish
to Tenant a statement of Landlord's Actual Operating Expenses for the
previous calendar year. If for any calendar year Tenant's Additional
Rental collected for the prior year, as a result of payment of Tenant's
estimated Additional Rental, is in excess of Tenant's Additional Rental
actually due during such prior year, then, so long as Tenant is not in
default hereunder, Landlord shall refund to Tenant any overpayment (or, at
Landlord's option, apply such amount
3
<PAGE>
against rentals due or to become due hereunder). Likewise, Tenant shall pay
to Landlord, on demand, any underpayment with respect to the prior year.
7. Landlord's Obligations.
(a) Water, Heat, Air Conditioning, Janitorial and Elevator Service and
------------------------------------------------------------------
Maintenance Obligations. Subject to the limitations hereinafter set forth,
-----------------------
Landlord agrees to furnish Tenant while occupying the Premises and while
Tenant is not in default under this Lease: (i) water (hot and cold) at
those points of supply provided for general use of tenants of the Building;
(ii) Building Standard heat and air conditioning in season, as determined
by Landlord, weekdays (other than holidays) between 7:00 a.m. and 7:00
p.m., and Saturdays between 7:00 a.m. and 1:00 p.m., at such temperatures
and in such amounts as are reasonably considered by Landlord to be standard
(Landlord shall only furnish heat and air conditioning weekdays after 7:00
p.m., on Saturdays after 1:00 p.m., and on Sundays and holidays at the
written request of Tenant, and at Tenant's cost payable within fifteen (15)
days after receipt of an invoice); (iii) Building Standard janitorial
service on weekdays other than holidays for Building installations and
Building Standard window washing; (iv) operatorless passenger elevators for
ingress and egress to the floor on which the Premises are located; and (v)
replacement of Building Standard light bulbs and fluorescent tubes, but
Landlord's standard charge for such bulbs and tubes shall be paid by
Tenant. Landlord additionally agrees to maintain in the Building the
exterior walls, roof, windows, structural steel, load-bearing nondemising
walls, floors below the level of Tenant's floor covering and the HVAC,
electrical and plumbing systems serving the Premises, but located outside
the Premises, subject to the terms and conditions of this Lease which may
limit Landlord's maintenance, repair and rebuilding obligations under
various circumstances.
(b) Electrical Service. Landlord shall provide electrical current for
------------------
Tenant's use of typewriters, voice writers, calculating machines and other
machines of similar low electrical consumption, special lighting in excess
of Building Standard or any other item of electrical equipment which
consumes more than machines of low electrical consumption or requires
voltage of more than 120 volts, provided, however, that all costs for
extraordinary or unusual demand for electrical service shall be borne by
Tenant.
(c) Interruption of Services. Failure to any extent to make
------------------------
available, or any slow-down, stoppage or interruption of any services
described in this paragraph, resulting from any cause whatsoever (other
than Landlord's gross negligence) shall not render Landlord liable in any
respect for damages, nor be construed as an eviction of Tenant, nor relieve
Tenant from fulfillment of any covenant or agreement hereof. Should any
service being furnished by Landlord be interrupted for any cause
whatsoever, Tenant shall notify Landlord and Landlord shall use reasonable
diligence to restore such service promptly. Tenant shall be entitled to an
equitable diminution of rent based upon the percentage area of the Premises
which is rendered unfit for occupancy for the Permitted Use, if such
interruption or termination of service continues for more than ten (10)
consecutive business days. Tenant's right to an equitable diminution of
rent shall be Tenant's sole and exclusive remedy in the event of an
occurrence specified herein.
(d) Discontinuance of Service. Landlord reserves the right, upon not
-------------------------
less than thirty (30) days written notice to Tenant, to discontinue the
availability of electrical service to the Premises. If Landlord elects
such option, Tenant will contract directly with such public utility for the
continuance of service to the Premises.
8. Tenant's Covenants. Tenant covenants and agrees as follows:
(a) Alterations. Tenant shall make no alterations, changes or
-----------
improvements to the Premises without first submitting to Landlord plans and
specifications and obtaining the prior
4
<PAGE>
written consent of Landlord. All work done by Tenant shall be performed in
a good and workmanlike manner, in compliance with applicable laws and at
such times and in such manner as not to cause interference with
construction in progress or with other tenants in the Building.
(b) Mechanic's and Materialmen's Liens. Tenant shall have no
----------------------------------
authority or power, express or implied, to create or cause any mechanic's
or materialmen's lien, charge or encumbrance of any kind against the
Premises or the Project or any portion thereof. Tenant shall promptly
cause any such liens which have arisen by reason of any work claimed to
have been undertaken by or through Tenant to be released by payment,
bonding or otherwise within thirty (30) days after request by Landlord, and
shall indemnify Landlord against losses arising out of any such claim.
(c) Permitted Use of Premises. Tenant shall not permit the Premises
-------------------------
to be used for any purpose other than for the use specified in Paragraph 1
-----------
of this Lease. Tenant shall at all times comply with applicable laws,
ordinances, rules and regulations in Tenant's occupancy of the Premises,
whether now existing or hereafter enacted.
(d) Repairs. Tenant will not in any manner deface or injure the
-------
Building, and will pay the cost of repairing and replacing any damage or
injury done to the Building or any part thereof by Tenant or Tenant's
agents, contractors or employees. Tenant shall throughout the Lease Term
keep the Premises free from deterioration, waste and nuisance of any kind,
excluding ordinary and customary wear and tear and damage resulting from a
fire or unavoidable casualty not caused by the act or omission Tenant or
Tenant's agents, contractors or employees. Tenant agrees to keep the
Premises in good condition and repair and Tenant shall make all necessary
repairs and replacements. If Tenant fails to make such repairs within
fifteen (15) days after notice from Landlord, Landlord may at its option
make such repair, and Tenant shall upon demand pay Landlord for the cost
thereof.
(e) Purchase of Parking Rights. Tenant shall be required to purchase
--------------------------
parking rights for the covered spaces located in the Building garage and
the surface spaces located in the parking area adjacent to the parking
garage specified in excess of those specified Paragraph 1 at the rates
-----------
established from time to time by Landlord or Landlord's garage operator.
9. Assignment and Subletting.
(a) Assignment and Subletting. Tenant shall not sublet the Premises
-------------------------
in whole or in part or market the Premises for sublease and shall not sell,
assign or in any manner transfer this Lease or any interest herein,
directly or indirectly (by transfer of control of Tenant, for example), or
voluntarily or by operation of law or otherwise, or permit any transfer of
Tenant's interest created hereby, or allow any lien upon Tenant's interest
by operation of law or otherwise, or permit the use or occupancy of the
Premises or any part thereof, by anyone other than Tenant, nor shall Tenant
sublease space in the Building from another tenant thereof, without
Landlord's prior written consent. If this Lease or any interest in this
Lease is sold, assigned or transferred, or Tenant subleases any part of the
Premises, without Landlord's consent, cumulative of any other right or
remedy available to Landlord, Landlord may elect to terminate this Lease
(as it affects the portion of the Premises sought to be sublet or assigned)
as of the effective date of the proposed transfer. Landlord's acceptance
of any name for listing on the Building directory will not be deemed, nor
will it substitute for, Landlord's consent, as required by this Lease, to
any sublease, assignment or other occupancy of the Premises.
(b) Consent to Assignment. Consent by Landlord to one or more
---------------------
assignments or sublettings shall not operate as a waiver of Landlord's
rights as to any subsequent assignments and sublettings. Notwithstanding
any assignment or subletting, Tenant and any guarantor of Tenant's
obligations under this Lease shall at all times remain fully responsible
and liable for the
5
<PAGE>
payment of the rent and other sums herein specified and for compliance with
all of Tenant's other obligations under this Lease, and Landlord may
proceed against Tenant (or any guarantor) for the enforcement of such
obligations without first proceeding against any other party. No direct
collection by Landlord from any such assignee or sublessee shall be
construed to constitute a novation or a release of Tenant or any guarantor
of Tenant from the further performance of its obligations hereunder.
(c) Excess Rents. If any rents or other sums received by Tenant under
------------
any sublease are in excess of the rent and other sums payable by Tenant
under this Lease (prorated for a sublease of less than 100 percent of the
Premises), or if any additional consideration is paid to Tenant by any
assignee under any assignment, then such excess rents under any sublease or
such additional consideration under an assignment shall be paid by Tenant
to Landlord as additional rent hereunder within ten (10) days after Tenant
receives the same.
10. Indemnity and Insurance.
(a) Indemnity. Tenant hereby agrees to protect, defend (with counsel
---------
acceptable to Landlord), indemnify and hold harmless Landlord and its
agents, officers, employees, trustees, advisory board members or
subsidiaries (hereinafter "Indemnities") from any and all claims, demands,
-----------
losses, fines, assessments, penalties, forfeitures, losses of use, damages
to persons (including damages for sickness, disease, personal injury,
bodily injury and death), damages to property, causes of action and costs
(including, without limitation, costs of attorneys' fees, investigation,
defense, settlement and court) (i) caused by the negligence or misconduct
of any person, including, but not limited to, (A) Indemnities, or any of
them, (B) Tenant or its employees, agents, subtenants, guests, invitees,
licensees or concessionaires or (C) any other person entering the Premises
under the express or implied invitation of Tenant; (ii) arising out of the
use of the Premises by Tenant and the conduct of its business therein;
and/or (iii) arising out of any breach or default by Tenant in the
performance of its obligations hereunder, including, but not limited to,
Tenant's obligation to obtain the insurance coverages required herein.
Indemnities, or any of them, shall have the right to participate in the
defense supplied by Tenant, with their own legal counsel and at their own
expense, without releasing Tenant from any of its defense and indemnity
obligations contained herein. Tenant's obligations hereunder shall survive
the termination of this Lease.
(b) Liability and Worker's Compensation Insurance.
---------------------------------------------
(i) Tenant at all times during the Lease Term shall, at its own
expense, keep in full force and effect commercial general liability
insurance against bodily injury, including death resulting therefrom,
and property damage to the combined single limit of $1,000,000 to one
or more than one person as the result of any one accident or
occurrence. Landlord shall be named an additional insured on said
policy. Additionally, Tenant at all times during the Lease Term
shall, at its own expense, keep in full force and effect worker's
compensation insurance, with Coverage A to the statutory limit and
Coverage B to the limit of $500,000 per occurrence. Tenant hereby
waives its right of recovery of any amounts paid by Tenant or on
Tenant's behalf to satisfy applicable worker's compensation laws. The
policies or duly executed certificates for the same, together with
satisfactory evidence of the payment of the premiums therefor, shall
be deposited with Landlord on the date Tenant first occupies the
Premises and upon renewals of such policies not less than thirty (30)
days prior to the expiration of the term of such coverage.
(ii) Any failure of Tenant to obtain and maintain the insurance
coverages required herein shall constitute a breach hereof and Tenant
shall be solely responsible for any loss suffered as a result of such
deficiency in coverage. It is expressly understood
6
<PAGE>
and agreed that the coverages required represent Landlord's minimum
requirements and such are not to be construed to void or limit
Tenant's indemnity obligations contained in this Lease. Neither shall
(A) the insolvency, bankruptcy or failure of any insurance company
carrying insurance of Tenant, (B) the failure of any insurance company
to pay claims occurring nor (C) any exclusion from or insufficiency of
coverage be held to affect, negate or waive any of the provisions of
this Lease. With respect to insurance coverages, except worker's
compensation, maintained hereunder by Tenant and insurance coverage
separately obtained by Landlord, all insurance coverages afforded by
policies of insurance maintained by Tenant shall be primary insurance
as such coverages apply to Landlord, and such insurance coverages
separately maintained by Landlord shall be excess. The amount of
liability insurance under insurance policies maintained by Tenant
shall not be reduced by the existence of insurance coverage under
policies separately maintained by Landlord. Neither Tenant nor its
insurers shall be entitled to receive any contribution from any
insurance policies separately maintained by Landlord. Tenant shall be
solely responsible for any premiums, deductible assumptions,
retentions, self-insurance premiums, audits, retrospective adjustments
or any other kind of payment due under its policies.
(iii) Tenant's occupancy of the Premises without delivering the
certificates of insurance shall not constitute a waiver of Tenant's
obligations to provide the required coverages. If Tenant provides to
Landlord a certificate that does not evidence the coverages required
herein, or that is faulty in any respect, such shall not constitute a
waiver of Tenant's obligations to provide the proper insurance.
(c) Increase in Landlord's Insurance Costs. Tenant agrees to pay to
--------------------------------------
Landlord any increase in premiums for Landlord's insurance policies
resulting from Tenant's use or occupancy of the Premises.
(d) Waiver of Liability. Landlord shall not be liable to Tenant or to
-------------------
Tenant's employees, agents, subtenants, guests, invitees, licensees,
concessionaires, or to any other person whomsoever, for any injury to
persons or damage to property on or about the Premises or any other part of
the Building (i) caused by the negligence or misconduct of any person,
including, but not limited to, (A) Landlord or its agents, officers,
employees, trustees, advisory board members, directors, partners,
shareholders, venturers, predecessors, affiliates or subsidiaries, (B)
Tenant or its employees, agents, subtenants, guests, invitees, licensees or
concessionaires or (C) any other person entering the Premises or the
Building under the express or implied invitation of Tenant; (ii) arising
out of the use of the Premises by Tenant and the conduct of its business
therein; and/or (iii) arising out of any breach or default by Tenant in the
performance of its obligations hereunder, including, but not limited to,
Tenant's obligations to obtain the insurance coverages required herein.
11. Fire or Casualty. In the event that (a) the Premises or the Building
should be so damaged by fire or other casualty that rebuilding or repairs cannot
be completed within one (1) year after the date of commencement of
reconstruction, as determined by Landlord, or (b) the Premises shall be so
damaged during the last two (2) years of the Lease Term to the extent that more
than fifty percent (50%) of the area thereof is rendered untenantable, or (c)
the holder of a mortgage, deed of trust or other lien covering the Premises at
the time of the casualty elects, pursuant to such mortgage, deed of trust or
other lien, to require use of all or a part of Landlord's insurance proceeds in
satisfaction of all or part of the indebtedness secured by the mortgage, deed of
trust or other lien, Landlord may at its option terminate this Lease within
ninety (90) days after such damage by giving written notice to Tenant, in which
event rent shall be abated effective with the date of such damage. If,
following any such casualty, Landlord does not terminate this Lease, or in the
event of casualty damage of a lesser extent to the Building, Landlord shall,
following receipt of insurance proceeds, solely to the extent of such proceeds
(after deducting therefrom the reasonable costs and expenses paid or incurred by
Landlord in connection
7
<PAGE>
with the recovery of such insurance proceeds), rebuild or repair the Premises or
the Building to substantially the same condition in which they were immediately
prior to the happening of the fire or other casualty, except that Landlord shall
not be required to rebuild, repair or replace any part of the furniture,
equipment, fixtures and other personal property which may have been placed by
Tenant or other tenants within the Building or the Premises. Landlord shall
allow Tenant a fair diminution of rental during the time the Premises are unfit
for occupancy, and at Landlord's option, the Lease Term shall be extended for a
period equal to the period that the Premises are unfit for occupancy.
12. Condemnation. In the event that the Premises or the Building or any
part thereof shall be taken for public use or condemned under eminent domain or
conveyed under threat of such a taking or condemnation, or access to the
Premises precluded by any such event, either Landlord or Tenant may cancel and
terminate this Lease as it affects the portion of the Premises taken, or the
portion to which access is precluded, by giving notice to the other within ten
(10) days after the date on which title to the property taken vests in the
condemnor. If this Lease is not terminated as to all of the Premises following
any of said actual takings or conveyances of any part of the Premises, then
Landlord shall, to the extent of an equitable proportion of the award for the
portion of the Premises taken (excluding any award for land), make such repairs
to the Premises as are necessary to constitute a complete architectural and
tenantable unit. In the event of a partial taking or conveyance of the
Premises, Landlord shall allow Tenant a fair diminution of rental. Tenant shall
not be entitled to claim, or have paid to Tenant, any compensation or damages
whatsoever for or on account of any taking or conveyance of any right, interest
or estate of Tenant under this Lease, and Tenant hereby relinquishes and assigns
to Landlord any rights to any such compensation or damages. Tenant does not
hereby waive or release claims for moving expenses, inconvenience or business
interruption related to a condemnation of the Premises, but any such claim shall
be asserted, if at all, in a proceeding independent of Landlord's primary
condemnation suit.
13. Default and Remedies.
(a) Events of Default. The following events shall be deemed to be
-----------------
events of default (the "events of default") by Tenant under this Lease:
-----------------
(i) Tenant shall fail to pay within five (5) days of the due date Basic
Rental, Additional Rental or any other rental or sums payable by Tenant
hereunder; (ii) Tenant shall fail to comply with or observe any other
provision of this Lease and such failure shall continue for ten (10) days
after written notice to Tenant (or, in the case of Tenant's failure to
comply with or observe any other single provision of this Lease more than
three (3) times during the Lease Term, upon the occurrence of the fourth
and all subsequent such failures, without notice from Landlord); (iii)
Tenant or any guarantor of Tenant's obligations hereunder shall make a
general assignment for the benefit of creditors; (iv) any petition shall be
filed by or against Tenant or any guarantor of Tenant's obligations
hereunder under the United States Bankruptcy Code, as amended, or under any
similar law or statute of the United States or any state thereof, and such
petition shall not be dismissed within forty-five (45) days of filing, or
Tenant or any guarantor of Tenant's obligations hereunder shall be adjudged
bankrupt or insolvent in proceedings filed thereunder; (v) a receiver or
trustee shall be appointed for all or substantially all of the assets of
Tenant or any guarantor of Tenant's obligations hereunder, and such
appointment shall not be vacated or otherwise terminated, and the action in
which such appointment was ordered dismissed, within forty-five (45) days
of filing; (vi) Tenant shall fail to take possession of or shall desert,
abandon or vacate the Premises; (vii) the death of any guarantor; or (viii)
the occurrence of an event described in clauses (iv) or (v) of this
Paragraph 13(a) and the failure thereafter of Tenant (A) to timely and
---------------
fully make any payment of rent or any other sum of money due hereunder or
(B) to perform or observe any other covenant, condition or agreement to be
performed or observed by it hereunder.
(b) Remedies. Upon the occurrence of any event of default specified
--------
in this Lease, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever and without
releasing Tenant from any obligation under this Lease:
8
<PAGE>
(i) Landlord may enter the Premises without terminating this
Lease and perform any covenant or agreement or cure any condition
creating or giving rise to an event of default under this Lease and
Tenant shall pay to Landlord on demand, as additional rent, the amount
expended by Landlord in performing such covenants or agreements or
satisfying or observing such condition. Landlord or its agents or
employees shall have the right to enter the Premises, and such entry
and such performance shall not terminate this Lease or constitute an
eviction of Tenant.
(ii) Landlord may terminate this Lease by written notice to
Tenant (and not otherwise) or Landlord may terminate Tenant's right of
possession without terminating this Lease. In either of such events,
Tenant shall surrender possession of and vacate the Premises
immediately and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free license to enter the Premises,
in whole or in part, with or without process of law and to expel or
remove Tenant and any other person, firm or corporation who may be
occupying the Premises or any part thereof and remove any and all
property therefrom, using such lawful force as may be necessary.
(iii) In the event Landlord elects to re-enter or take
possession of the Premises after Tenant's default, with or without
terminating this Lease, Landlord may change or pick locks or alter
security devices and lock out, expel or remove Tenant and any other
person who may be occupying all or any part of the Premises without
being liable for any claim for damages. Notwithstanding anything to
the contrary contained herein or in section 93.002 of the Texas
Property Code, Landlord may exercise any and all of its rights or
remedies under this Lease following an event of default by Tenant
without compliance with section 93.002 of the Texas Property Code, the
benefits of which are hereby expressly waived by Tenant.
(iv) If Landlord elects to re-enter or take possession of the
Premises without terminating this Lease, then Tenant shall be liable
for and shall pay to Landlord all Basic Rental and any other amounts
of money due to Landlord hereunder as of the date of such election.
Tenant shall also pay to Landlord all Basic Rental required to be paid
by Tenant during the remainder of the Lease Term as such amounts
become due, diminished by any net sums received by Landlord, if any,
through reletting the Premises during said period (after deducting all
expenses incurred by Landlord in connection with any reletting of the
Premises). Landlord is not obligated to relet the Premises, and if no
reletting occurs, Tenant shall be responsible for the full amounts
due. If Landlord elects to relet, Landlord shall have the sole and
unfettered right to relet all or any part of the Premises for such
rent and upon such terms as shall be satisfactory to Landlord
(including but not limited to the right to relet the Premises for a
term shorter or longer than that remaining under this Lease, the right
to relet the Premises as a part of a larger area and the right to
change the character or use made of the Premises). Tenant shall not
in any event be entitled to any sums collected in connection with a
reletting of the Premises that exceed the amount of Basic Rental and
other sums of money due hereunder. Landlord shall not be required to
wait until the expiration of the Lease Term in order to collect any
such deficiencies, and shall have the right to file suit from time to
time, on one or more occasions, to collect the deficiencies then due.
Any such suit shall not prejudice in any way the right of Landlord to
bring similar actions for any subsequent deficiency or deficiencies.
(v) Notwithstanding any prior election by Landlord to terminate
this Lease, Landlord may at any time, including subsequent to any re-
entry or taking of possession of the Premises as allowed hereinabove,
elect to terminate this Lease. Tenant shall be liable for and shall
immediately pay to Landlord the amount of all Basic Rental
9
<PAGE>
and other sums of money due under this Lease as may have accrued as of
the date of termination. Tenant shall also immediately pay to
Landlord, as agreed and liquidated damages, an amount of money equal
to the Basic Rental and other amounts due for the remaining portion of
the Lease Term (had such term not been terminated by Landlord prior to
the expiration of the Lease Term), less the fair rental value of the
Premises for the residue of the Lease Term, both discounted to their
present value based upon an interest rate of eight percent (8%) per
annum. In determining fair rental value, Landlord shall be entitled to
take into account the time and expenses necessary to obtain a
replacement tenant or tenants, including anticipated expenses
hereinafter described relating to recovery, preparation and reletting
of the Premises; provided, however, the parties hereto stipulate and
agree that the fair rental value shall never be deemed to exceed
eighty-five percent (85%) of the Basic Rental provided for herein for
said residual period. If Landlord elects to relet the Premises, or any
portion thereof, before presentation of proof of such liquidated
damages, the amount of rent reserved upon such reletting shall be
deemed prima facie evidence of the fair rental value of the portion of
the Premises so relet.
(vi) In addition to any sum provided to be paid above, Tenant
shall also be liable for and shall immediately pay to Landlord all
broker's fees incurred by Landlord in connection with any reletting of
the whole or any part of the Premises, the costs of removing and
storing Tenant's or any other occupant's property, the cost of
repairing, altering, remodeling, renovating or otherwise putting the
Premises into a condition acceptable to a new tenant or tenants, the
cost of removal and replacement of signage and all reasonable expenses
incurred by Landlord in enforcing Landlord's remedies, including
reasonable attorneys' fees.
(vii) Landlord may apply Tenant's Security Deposit to the extent
necessary to make good any rent arrearage, to pay the cost of
remedying Tenant's default or to reimburse Landlord for expenditures
made or damages suffered as a consequence of Tenant's default.
Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to its original amount.
(viii) Nothing contained in this Paragraph 13(b) shall be
---------------
construed as imposing any enforceable duty upon Landlord to relet the
Premises or otherwise mitigate or minimize Landlord's damages by
virtue of Tenant's default. Landlord shall not be liable in any
manner, nor shall Tenant's obligations hereunder be diminished, by the
failure of Landlord to relet the Premises, or in the event of
reletting to collect rent.
(c) Effect of Suit or Partial Collection. Institution of a forcible
------------------------------------
detainer action to re-enter the Premises shall not be construed to be an
election by Landlord to terminate this Lease. Landlord may collect and
receive any rent due from Tenant and the payment thereof shall not
constitute a waiver of or affect any notice or demand given, suit
instituted or judgment obtained by Landlord, or be held to waive or alter
the rights or remedies which Landlord may have at law or in equity or by
virtue of this Lease at the time of such payment.
(d) Remedies Cumulative. All rights and remedies of Landlord herein
-------------------
or 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.
14. Surrender of Premises.
(a) Surrender. Upon the expiration or termination of this Lease,
---------
Tenant shall peaceably surrender to Landlord the Premises, including the
alterations, improvements and
10
<PAGE>
changes (except as provided in Paragraph 14(b)) other than Tenant's
---------------
fixtures remaining the property of Tenant, broom-clean and in the condition
the same were in on the Commencement Date, subject only to damage caused by
fire or other casualty not caused by the act or omission of Tenant or
Tenant's agents, contractors or employees, or ordinary use and wear.
(b) Removal of Alterations and Tenant's Property.
--------------------------------------------
(i) Notwithstanding anything in this Lease to the contrary, all
permanent or built-in fixtures or improvements and all mechanical,
electrical and plumbing equipment in the Premises, whether installed
by Tenant or by Landlord, shall be the property of Landlord upon the
termination of this Lease, unless Landlord, by notice to Tenant no
later than twenty (20) days prior to the expiration of the Lease Term
(or any renewal or extension thereof), elects to relinquish Landlord's
right to any such fixtures or improvements and to have them removed
from the Premises by Tenant within five (5) business days after the
expiration of this Lease, at Tenant's sole cost and expense. Except
as otherwise provided, all furnishings, equipment, furniture, trade
fixtures and other removable equipment installed in the Premises by
Tenant and paid for by Tenant shall remain the property of Tenant and
shall be removed by Tenant upon the termination of this Lease.
Tenant shall repair any damage caused by such removal.
(ii) If any furnishings, equipment, furniture, trade fixtures or
other removable equipment are not removed within five (5) business
days after the expiration of this Lease, then Tenant hereby grants to
Landlord the option, exercisable at any time thereafter without the
requirement of any notice to Tenant, (A) to treat such property, or
any portion thereof, as being abandoned by Tenant to Landlord,
whereupon Landlord shall be deemed to have full rights of ownership
thereof; (B) to elect to remove and store such property, or any
portion thereof, on Tenant's behalf (but without assuming any
liability to any person) and at Tenant's sole cost and expense, with
reimbursement therefor to be made to Landlord upon demand; and/or (C)
to sell, give away, donate or dispose of as trash or refuse any or all
of such property without any responsibility to deliver to Tenant any
proceeds therefrom. If (a) Landlord elects not to exercise its
contractual and/or statutory lien rights covering Tenant's property as
may be granted herein, (b) Tenant ceases to occupy the Premises, or
its rights to occupy the Premises are terminated by Landlord, prior to
Landlord's termination or the expiration of this Lease and (c) any of
Tenant's furnishings, equipment, furniture, trade fixtures or other
removable equipment are not removed within five (5) business days
thereafter, then Tenant hereby grants to Landlord the option,
exercisable at any time thereafter without the requirement of notice
to Tenant, (i) to treat such property, or any portion thereof, as
being abandoned by Tenant to Landlord, whereupon Landlord shall be
deemed to have full rights of ownership thereof; (ii) to elect to
remove and store such property, or any portion thereof, on Tenant's
behalf (but without assuming any liability to any person) and at
Tenant's sole cost and expense, with reimbursement therefor to be made
to Landlord upon demand; and/or (iii) to sell, give away, donate or
dispose of as trash or refuse any or all of such property without
responsibility to deliver to Tenant any proceeds therefrom. Landlord
shall have no liability of any kind whatsoever to Tenant in respect of
the exercise or failure to exercise the options set forth in this
Paragraph 14(b). Specifically, Tenant shall not have the right to
---------------
assert against Landlord a claim either for the value, or the use, of
any such property, either as an offset against any amount of money
owing to Landlord or otherwise. The provisions of this Paragraph
---------
14(b) shall supersede the provisions of section 93.002(d) and (e) of
-----
the Texas Property Code, as such may be amended from time to time, and
any other law which purports to restrict the options granted to
Landlord herein.
11
<PAGE>
15. Holding Over. If Tenant remains in possession of the Premises after
the expiration of the tenancy created hereunder and without the execution of a
new lease, Tenant shall be deemed to be occupying the Premises as a tenant at
will and subject to all of the provisions of this Lease except those relating to
term and except that the Basic Rental and Additional Rental shall be 150% of
the amount payable during the last month of the Lease Term (without waiver of
Landlord's right to recover damages as permitted by law). Said tenancy may be
terminated by Landlord or Tenant by giving written notice to the other at any
time.
16. Mortgages. This Lease shall be subordinate to all deeds of trust now
or hereafter encumbering the Building, and all refinancings, replacements,
renewals, modifications, extensions or consolidations thereof. Tenant agrees to
attorn to any mortgagee, trustee under a deed of trust or purchaser at a
foreclosure sale or trustee's sale as Landlord under this Lease. Tenant
covenants and agrees that Tenant shall within five (5) days after Landlord's
request execute in recordable form and deliver to Landlord whatever instruments
may be required to acknowledge and further evidence the subordination of this
Lease and/or the attornment by Tenant to such mortgagee, trustee or purchaser.
If Tenant within five (5) business days after submission of any such instrument
fails to execute the same, Landlord is hereby authorized to execute the same as
attorney-in-fact for Tenant. Any holder of a deed of trust covering all or any
part of the Building may at any time elect to have this Lease have priority over
its deed of trust by executing unilaterally an instrument of subordination or
placing a clause of such subordination in any pleadings or in its deed of trust
and recording the same.
17. Certain Rights Reserved by Landlord. Landlord shall have the
following rights:
(a) Common and Service Area Alterations. To decorate and to make
-----------------------------------
repairs, alterations, additions, changes or improvements, whether
structural or otherwise, in, about or on the exterior of the Building, or
any part thereof, and to change, alter, relocate, remove or replace service
areas and/or common areas; to place, inspect, repair and replace in the
Premises (below floors, above ceilings or next to columns) utility lines,
pipes and the like to serve other areas of the Building outside the
Premises; and to otherwise alter or modify the Project, and for such
purposes to enter upon the Premises and, during the continuance of any such
work, to take such measures for safety or for the expediting of such work
as may be required, in Landlord's judgment, all without affecting any of
Tenant's obligations hereunder, provided Landlord's entries in the Premises
shall be subject to the terms of Paragraph 18(l).
---------------
(b) Parking. To permit Tenant and its employees to use the parking
-------
garage associated with the Building and the surface parking area adjacent
thereto only in accordance with rules and regulations promulgated from time
to time by Landlord and/or the operator of the garage at such charges as
then may be in effect; and to prohibit Tenant and its employees to use any
on-site surface parking spaces within the Project designated for visitors,
occupants of the Building, or otherwise. Parking spaces will be
unassigned, provided that Landlord may at any time assign parking spaces.
Tenant shall, if requested by Landlord, furnish to Landlord a complete list
of the license plate numbers of all vehicles operated by Tenant and
Tenant's employees and agents. Landlord shall not be liable for any damage
of any nature whatsoever to, or any theft of, vehicles, or contents
therein, in or about such parking facility.
(c) Rules and Regulations. To establish and amend from time to time
---------------------
rules and regulations governing all tenants' use and occupancy of the
Building, provided that in the event of a conflict between those rules and
this Lease, this Lease shall control. The rules and regulations now
enforced by Landlord are available upon request.
(d) Food Preparation. To prohibit the preparation of food within the
----------------
Premises for commercial purposes or the placing of vending or dispensing
machines of any kind in or about the Premises if such vending or dispensing
machines are available to the general public.
12
<PAGE>
(e) Security Measures. To take all such reasonable measures as
-----------------
Landlord may deem advisable for the security of the Building and its
occupants. Landlord, however, shall have no liability to Tenant or its
employees, agents, invitees or licensees for losses due to theft or
burglary, or for damage done by unauthorized persons in or about the
Building or Premises. Landlord may require those tenants requesting access
to the Building during other than normal business hours to pay its then
prevailing fee for each magnetic access card which Landlord supplies to
Tenant for after-hours access to the Building. Tenant shall cooperate
fully in Landlord's efforts to maintain security in the Building and shall
follow all regulations promulgated by Landlord with respect thereto.
(f) Right To Relocate Tenant. At any time after the execution of this
------------------------
Lease and on sixty (60) days prior written notice, Landlord may substitute
for the Premises other comparable premises in the Building (the "New
---
Premises"), in which event the New Premises shall be deemed to be the
--------
Premises for all purposes hereunder, provided: (a) the New Premises shall
be similar in area, finish and appropriateness for the Permitted Use; (b)
the Basic Rental and other rentals payable under this Lease shall remain
the same; and (c) reasonable out-of-pocket costs in connection with
relocation to the New Premises shall be reimbursed by Landlord after
receipt of third party invoices therefor.
18. Miscellaneous.
(a) Time Is of the Essence. The time of the performance of all of the
----------------------
covenants, conditions and agreements of this Lease is of the essence of
this Lease.
(b) Force Majeure. If either Landlord or Tenant is prevented or
-------------
hindered from timely satisfying any provisions set forth herein because of
a shortage of or inability to obtain materials or equipment, strikes or
other labor difficulties, governmental restrictions, casualties or any
other cause beyond such party's reasonable control, such party shall be
permitted an extension of time of performance by the number of days during
which such performance was prevented or hindered; provided, however, that
this paragraph shall not apply to the payment of rent or other monies by
Landlord or Tenant, nor shall the provisions of this paragraph postpone the
date that rent is payable pursuant to this Lease, except as expressly
provided to the contrary in Paragraph 4.
-----------
(c) No Personal Liability of Landlord. If Landlord shall fail to
----------------------------------
perform any covenant, term or condition of this Lease and, as a
consequence, if Tenant shall recover a money judgment against Landlord,
such judgment shall be satisfied only out of the proceeds received at a
judicial sale upon execution and levy against the right, title and interest
of Landlord in the Building and in the rents or other income from the
Building receivable by Landlord, and neither Landlord nor Landlord's
owners, partners or venturers shall have any personal, corporate or other
liability hereunder. Landlord shall have the right to transfer, assign and
convey, in whole or in part, the Building and any and all of its rights
under this Lease, and in such event, Landlord shall thereby be released
from any further obligations hereunder, and Tenant agrees to look solely to
such successor-in-interest of Landlord for performance of such obligation.
(d) Quiet Enjoyment. Landlord hereby covenants and agrees that if
----------------
Tenant shall perform all of the covenants and agreements herein stipulated
to be performed on Tenant's part, Tenant shall at all times during the
continuance hereof have peaceable and quiet enjoyment and possession of the
Premises without hindrance from Landlord or any person or persons lawfully
claiming the Premises by or through Landlord, subject, however, to the
terms of this Lease and to all mortgages, deeds of trust, leases and
agreements to which this Lease is subordinate.
(e) Entire Agreement and Amendments. This Lease is the only agreement
--------------------------------
between the parties hereto and their representatives and agents. There are
no representations or
13
<PAGE>
warranties between the parties other than the representations and
agreements contained in this document. No agreement shall be effective to
change, modify or terminate this Lease in whole or in part unless such
agreement is in writing and duly signed by the party against whom
enforcement of such change, modification or termination is sought.
(f) Interpretation. The necessary grammatical changes required to
---------------
make the provisions of this Lease apply in the plural sense where there is
more than one Tenant and to either corporations, associations, partnerships
or individuals, male or female, shall in all instances be assumed as
though in each case fully expressed. The laws of the State of Texas shall
govern the validity, performance and enforcement of this Lease. The venue
for any legal proceeding brought by any party or guarantor to this lease
shall be Dallas County, Texas. If this Lease is executed by more than one
person or entity as "Tenant," each such person or entity executing this
Lease as Tenant shall be jointly and severally bound and liable hereunder.
(g) Severability. No provision of this Lease shall be construed or
-------------
interpreted in any manner which would render such provision invalid. If
any provision of this Lease is held to be invalid, such invalid provision
shall be deemed to be severable from and shall not affect the validity of
the remainder of this Lease.
(h) Terms Binding. Subject to the limitations on subletting and
--------------
assignment set forth in this Lease, all covenants, promises, conditions,
representations and agreements herein contained shall be binding upon and
apply and inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, successors and assigns.
(i) Estoppel Certificates. Within five (5) days after request by
----------------------
Landlord, Tenant agrees to execute and deliver to Landlord estoppel or
offset letters as required by Landlord or by Landlord's lenders. The
letters shall certify the date of this Lease and any amendments, that
Landlord is not in default of any of the terms and provisions of this Lease
or specifying the provisions as to which Landlord is in default if Landlord
shall be in default, that Landlord has performed all inducements required
of Landlord in connection with this Lease, including any construction
obligations, specifying any inducements which have not been fulfilled by
Landlord, the date to which rent has been paid, and any other matters which
Landlord or its lenders may reasonably require. Tenant further agrees to
furnish to Landlord from time to time when requested by Landlord a letter
of acceptance in conformity with any requirements made by any existing or
proposed lenders.
(j) Late Payment Charge and Interest Payable. Landlord may impose a
-----------------------------------------
late payment charge equal to five percent (5%) of any amount due if not
paid within five (5) days from the date required to be paid hereunder. In
addition, any payment due under this Lease not paid within ten (10) days
after the date herein specified to be paid shall bear interest from the
date such payment is due to the date of actual payment at the rate of
eighteen percent (18%) per annum or the highest lawful rate of interest
permitted by Texas or federal law, whichever rate of interest is lower.
(k) Security Deposit. Landlord shall hold Tenant's Security Deposit
-----------------
without interest, and the same shall not be considered prepaid rent or a
measure of Landlord's damages in case of default by Tenant. The remaining
balance of the Security Deposit (after application of any part thereof in
accordance with Paragraph 13(b) or for necessary repairs to the Premises)
---------------
shall be refundable to Tenant within thirty (30) days after termination of
this Lease.
(l) Access to Premises. Tenant agrees that Landlord and its agents
-------------------
may enter the Premises for the purpose of inspecting and making such
repairs (structural or otherwise), additions, improvements, changes or
alterations to the Premises or the Building as may be permitted or required
under this Lease or as Landlord may elect, and to exhibit the same to
14
<PAGE>
prospective purchasers, mortgagees or tenants. In the event of any such
repairs, additions, improvements, changes or alterations, Tenant shall
cooperate with Landlord to facilitate Landlord's efforts. Landlord's
entries in the Premises shall be preceded by reasonable notice (except in
the case of an emergency) and shall not unreasonably interfere with
Tenant's use and occupancy of the Premises for the Permitted Use.
(m) Notices. Notices hereunder must be hand-delivered or sent by
--------
Registered Mail, Return Receipt Requested, postage prepaid, addressed, if
to Landlord, at Suite 650, Prestonwood Tower, 5151 Belt Line Road, Dallas,
Texas 75240, Attention: Building Manager, with a copy to Prestonwood
Tower, Inc., 315 Central Park West, Suite 1200, New York, New York, 10025,
Attention: Sinclair Haberman; and if to Tenant, at the address specified
for Tenant in Paragraph 1(a) above prior to the Commencement Date and to
--------------
the Premises thereafter, or to such other address as may be specified by
written notice actually received by Landlord. Notice shall be deemed given
upon tender of delivery (in the case of a hand-delivered notice) or upon
the first attempted delivery by United States Postal Service (in the case
of a registered letter), provided that no notice of either party's change
of address shall be effective until fifteen (15) days after the addressee's
actual receipt thereof.
(n) Acceptance of Premises and Building by Tenant. LANDLORD HEREBY
---------------------------------------------
DISCLAIMS ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY THAT THE
PREMISES ARE SUITABLE FOR TENANT'S INTENDED PURPOSE OR USE. THE TAKING OF
POSSESSION BY TENANT SHALL BE CONCLUSIVE EVIDENCE THAT TENANT:
(I) ACCEPTS THE PREMISES AS SUITABLE FOR THE PURPOSES FOR WHICH
THEY WERE LEASED;
(II) ACCEPTS THE BUILDING AND EVERY PART AND APPURTENANCE THEREOF
AS BEING IN GOOD AND SATISFACTORY CONDITION; AND
(III) WAIVES ANY DEFECTS IN THE PREMISES AND ITS APPURTENANCES
EXISTING NOW OR IN THE FUTURE, EXCEPT THAT TENANT'S TAKING OF
POSSESSION SHALL NOT BE DEEMED TO WAIVE LANDLORD'S COMPLETION OF MINOR
FINISH WORK ITEMS THAT DO NOT INTERFERE WITH TENANT'S OCCUPANCY OF THE
PREMISES.
TENANT ACKNOWLEDGES THE DISCLAIMER BY LANDLORD SET FORTH HEREIN AND WAIVES
ALL CLAIMS BASED ON ANY IMPLIED WARRANTY OF SUITABILITY. FURTHERMORE,
TENANT CONFIRMS THAT ITS OBLIGATIONS TO PAY BASIC RENTAL, ADDITIONAL RENTAL
AND OTHER AMOUNTS OF MONEY DUE TO LANDLORD HEREUNDER ARE NOT DEPENDENT ON
THE CONDITION OF THE PREMISES OR THE BUILDING, THE COMPLETION OF ANY MINOR
FINISH WORK ITEMS OR THE PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS
HEREUNDER. TENANT SHALL CONTINUE TO PAY BASIC RENTAL, ADDITIONAL RENTAL
AND OTHER AMOUNTS OF MONEY DUE TO LANDLORD HEREUNDER, WITHOUT ABATEMENT,
SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH OR ALLEGED BREACH BY
LANDLORD OF ITS OBLIGATIONS HEREUNDER.
(o) Building Name. Landlord shall have the exclusive right at all
--------------
times during the Lease Term to change, modify, add to or otherwise alter
the name of the Building, and Landlord shall not be liable for claims or
damages of any kind which may be attributed thereto or result therefrom.
15
<PAGE>
(p) Landlord's Lien. In addition to the statutory landlord's lien,
---------------
Landlord shall have at all times a valid security interest to secure
payment of all rentals and other sums of money becoming due hereunder from
Tenant, and to secure payment of any damage or loss which Landlord may
suffer by reason of the breach by Tenant of any covenant, agreement or
condition contained herein, upon all goods, wares, equipment, fixtures,
furniture, improvements and other personal property of Tenant presently or
which may hereafter be situated in the Premises and all proceeds therefrom,
and such property shall not be removed therefrom without the consent of
Landlord until all arrearages in rent as well as any and all other sums of
money then due to Landlord hereunder shall first have been paid and
discharged and all the covenants, agreements and conditions hereof have
been fully complied with and performed by Tenant. Upon the occurrence of an
event of default by Tenant, Landlord may, in addition of any other remedies
provided herein, enter upon the Premises and take possession of any and all
goods, wares, equipment, fixtures, furniture, improvements and other person
property of Tenant situated in the Premises, without liability for trespass
or conversion, and sell the same at public or private sale, with or without
having such property at the sale, after giving Tenant reasonable notice of
the time and place of any public sale or of the time after which any
private sale is to made, at which sale(s) Landlord or its assigns may
purchase unless otherwise prohibited by law. Unless otherwise provided by
law, and without intending to exclude any other manner of giving Tenant
reasonable notice, the requirement of reasonable notice shall be met if
such notice is given at least five (5) days before the time of sale. Such
notice shall be deemed to be delivered if personally delivered or when
deposited in the United States mail, postage prepaid, certified or
registered mail (with or without return receipt requested), addressed to
the parties hereto at the addresses as shown herein, whether or not
actually received. The proceeds from any such disposition, less any and
all expenses connected with the taking of possession, holding and selling
of the property (including reasonable attorneys' fees and other expenses),
shall be applied as a credit against the indebtedness secured by the
security interest granted in this paragraph. Any surplus shall be paid to
Tenant or as otherwise required by law; and Tenant shall pay any
deficiencies forthwith. Upon request by Landlord, Tenant agrees to execute
and deliver to Landlord a financing statement in form sufficient to perfect
the security interest of Landlord in aforementioned property and proceeds
thereof under the provisions of the Uniform Commercial Code in force in the
State of Texas. The statutory lien for rent is not hereby waived, the
security interest herein granted being in addition and supplementary
thereto. Landlord shall be entitled to file a carbon, photographic or
other reproduction of this lease as a financing statement as is permitted
under section 9.402(a) of the Texas Business and Commerce Code.
(q) Authority To Sign Lease. If Tenant is a corporation or a
------------------------
partnership (general or limited), each person(s) signing this Lease as an
officer or partner of Tenant represents to Landlord that such person(s) is
authorized to execute this Lease without the necessity of obtaining any
other signature of any other officer or partner, that the execution of this
Lease has been authorized by the board of directors of the corporation or
by the partners of the partnership, as the case may be, and that this Lease
is fully binding on Tenant. Landlord reserves the right to request
evidence of the approval of this Lease and authorization of Tenant's
signatories to bind Tenant, which evidence shall be satisfactory in form
and content to Landlord and its counsel.
(r) Attorneys' Fees, Costs and Expenses. In the event either party is
-----------------------------------
in default beyond any applicable grace or notice period in the performance
of any of the terms of this Lease and the other party employs an attorney
in connection therewith, the nonprevailing party agrees to pay the
prevailing party's reasonable attorneys' fees. Whenever any request or
action by Tenant reasonably causes Landlord to engage an attorney
(including an in-house attorney of Landlord or any of its affiliates) or
incur any other costs or expenses, Tenant agrees that it shall pay or
reimburse Landlord for such costs or expenses upon demand.
16
<PAGE>
(s) Execution of Lease. The submission of this Lease for examination
------------------
does not constitute a reservation of or option for the Premises or any
other space within the Building and shall vest no right in either party.
This Lease shall become effective only upon the full execution and delivery
hereof by all of the parties hereto.
(t) No Attornment. All checks tendered to Landlord as and for the
-------------
Basic Rental and/or Additional Rental required hereunder shall be deemed
payments for the account of Tenant. Acceptance by Landlord of Basic Rental
and/or Additional Rental from anyone other than Tenant shall not be deemed
to operate as an attornment to Landlord by the payor of such Basic Rental
and/or Additional Rental or as a consent by Landlord to an assignment of
this Lease or subletting by Tenant of the Premises to such payor, or as a
modification of any of the provisions of this Lease.
(u) Arms-Length Transaction. This Lease has been entered into by the
-----------------------
undersigned after arms-length negotiation, with each party acknowledging
that it and its counsel, if it so chooses, have had an opportunity to
review this Lease, and therefore, the parties agree that this Lease shall
not be construed against Landlord on the ground that Landlord's
representatives prepared this Lease.
(v) Exhibits and Riders. The following exhibits and riders are
--------------------
attached hereto, incorporated herein and made a part of this Lease for all
purposes:
Exhibit A-1: Floor Plan of Premises
Exhibit A-2: Property Description
Exhibit _____:
Exhibit _____:
Riders: (check if attached and applicable)
_______ (I)
_______ (II)
19. Special Provisions.
This lease is entirely contingent upon Landlord's ability to acquire the
space from the existing tenant currently under lease for Suite 955 and
Landlord's ability to obtain a waiver of all rights of refusal and/or options
that may exist on the premises by March 31, 1997.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Lease as of the day and year first above written.
TENANT: LANDLORD:
TURBOCHEF, INC. PRESTONWOOD TOWER, INC.
a Texas corporation
By:
-------------------------------
Name:
------------------------------ By:
Title: ----------------------------
----------------------------- Sinclair Haberman, Secretary
18
<PAGE>
Exhibit A-1
[FLOORPLAN APPEARS HERE]
<PAGE>
Exhibit A-1
[FLOORPLAN APPEARS HERE]
<PAGE>
EXHIBIT A-2
PRESTONWOOD TOWER
PROPERTY DESCRIPTION
The description of Lot 1, City Block 2/8708 Prestonwood Tower Addition, an
addition to the City of Dallas as recorded in Volume 78240, Page 0349, Dallas
County Plat Records, said Lot 1 also being situated in the Robert Wilburn
Survey, Abstract No. 1580, Dallas County, Texas, said Lot 1 also being a portion
of that certain tract of land as described in the deed to Caroline Hunt Trust
Estate, by Deed recorded in Volume 77065, Page 3243, Dallas County Deed Records,
said Lot 1 being more particularly described as follows:
BEGINNING at a 1/2 inch iron rod in the north right-of-way line of Belt Line
Road (width varies), said iron rod being the southwest corner of Prestonwood
Town Center, an addition to the City of Dallas, Texas, and recorded in Volume
78053, Page 3, Dallas County Deed Records;
THENCE S 89 30' 00" W along the north line of said Belt Line Road for a distance
of 500.53 feet to a found 5/8 inch iron rod for corner, said iron rod being the
southeast corner of a tract of land conveyed to Prestonwood National Bank;
THENCE N 03 06' 53" W along the westerly line of said Lot 1 and the easterly
line of said bank tract for a distance of 644.14 feet to a found "X" cut in
concrete, said point being the northeast corner of said bank tract;
THENCE N 79 30' 00" W along the north line of said bank tract for a distance of
115.57 feet to a found "X" cut in concrete, said point being in the easterly
right-of-way line of Dallas Parkway (200 foot R.O.W.);
THENCE N 10 30' 00" E along the easterly line of said Dallas Parkway for a
distance of 25.00 feet to a 1/2 inch iron rod set for corner, said point being
the southwest corner of Lot 2, Block 2/8708;
THENCE S 79 30' 00" E along the common lot line of said Lot 1 and Lot 2 for a
distance of 141.00 feet to a 1/2 inch iron rod set for corner;
THENCE S 45 28' O5" E along said common lot line for a distance of 30.94 feet to
"PK" nail set in asphalt drive for corner;
THENCE N 89 31' 55" E along said common lot line for a distance of 320.14 feet
to a "PK" nail set in asphalt drive for corner;
THENCE S 45 00' 00" E along said common lot line for a distance of 38.05 feet to
a "PK" nail set in asphalt drive for corner;
THENCE N 45 00' 00" E continuing along said common lot line for a distance of
30.00 feet to a "PK" nail set in asphalt drive for corner, said point being in
the westerly line of the aforementioned Prestonwood Town Center Addition;
THENCE S 45 00' 00" E along the westerly line of said Prestonwood Town Center
Addition and the easterly line of Lot 1, for a distance of 120.00 feet to a 1/2
inch iron rod set for corner;
THENCE S 03 12' 30" E continuing along the westerly line of said Prestonwood
Town Center Addition and the easterly line of said Lot 1, for a distance of
550.00 feet to the POINT OF BEGINNING.
CONTAINING 319,757.50 square feet or 7.341 acres of land.
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 477,166
<SECURITIES> 7,309,431
<RECEIVABLES> 583,023
<ALLOWANCES> 0
<INVENTORY> 686,272
<CURRENT-ASSETS> 9,332,883
<PP&E> 547,693
<DEPRECIATION> 242,579
<TOTAL-ASSETS> 9,743,288
<CURRENT-LIABILITIES> 810,131
<BONDS> 0
0
0
<COMMON> 137,852
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,743,288
<SALES> 2,788,899
<TOTAL-REVENUES> 2,802,364
<CGS> 2,306,708
<TOTAL-COSTS> 5,999,502
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,439
<INCOME-PRETAX> (2,941,413)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,941,413)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
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