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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
Form 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Quarter ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
___________ TO ____________
COMMISSION FILE NUMBER 0-23478
_________________________
TurboChef Technologies, Inc.
(Exact name of Registrant as specified in its Charter)
DELAWARE 48-1100390
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
10500 METRIC DRIVE, SUITE 128 75243
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number:
(214) 341-9471
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at August 10, 1998
------------------- ------------------
Common Stock, $0.01 Par Value 14,653,976
_________________________
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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-Q Item Page
- -------------- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1998 (unaudited) and
December 31, 1997............................................ 3
Condensed Statements of Operations (unaudited) for the three
and six months ended June 30, 1998 and 1997.................. 4
Condensed Statements of Cash Flows (unaudited) for the
six months ended June 30, 1998 and 1997...................... 5
Notes to Condensed Financial Statements (unaudited).......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities........................................ 15
Item 3. Defaults Upon Senior Securities.............................. 15
Item 4. Submission of Matters to a Vote of Security Holders.......... 15
Item 5. Other Information............................................ 16
Item 6. Exhibits and Reports on Form 8-K............................. 16
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PART 1 - ITEM 1 FINANCIAL STATEMENTS
TURBOCHEF TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
-------- ------------
1998 1997
---- ----
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 176,735 1,396,641
Marketable securities available for sale,
at fair value 8,970,303 7,277,395
Accounts receivable 1,210,117 644,569
Inventories 508,961 934,690
Prepaid expenses 41,392 104,160
------------ ------------
Total current assets 10,907,508 10,357,455
------------ ------------
Marketable securities available for sale, at fair value 7,254,323 5,482,064
Property and equipment:
Leasehold improvements 116,313 110,062
Furniture and fixtures 388,281 344,507
Equipment 430,581 420,342
------------ ------------
935,175 874,911
Less accumulated depreciation and amortization (467,940) (383,948)
------------ ------------
Net property and equipment 467,235 490,963
------------ ------------
Other assets 144,176 109,283
------------ ------------
Total assets $ 18,773,242 16,439,765
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 428,685 401,013
Accrued expenses 342,876 352,928
Deferred revenue 66,536 21,705
Other liabilities 215,000 --
------------ ------------
Total current liabilities 1,053,097 775,646
------------ ------------
Deposits 4,977 --
Deferred rent 29,709 35,651
------------ ------------
Total liabilities 1,087,783 811,297
------------ ------------
Stockholders' equity:
Common stock, $.01 par value. Authorized 50,000,000
shares. Issued 14,653,976 and 14,551,294 shares at
June 30, 1998 and December 31, 1997, respectively 146,540 145,513
Additional paid-in capital 32,423,423 32,129,601
Accumulated deficit (18,942,217) (17,276,907)
Net unrealized gain on marketable securities 4,508,665 964,148
Treasury stock - at cost 32,130 shares in 1998 and
17,382 shares in 1997 (450,952) (333,887)
------------ ------------
Total stockholders' equity 17,685,459 15,628,468
------------ ------------
$ 18,773,242 $ 16,439,765
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 748,879 1,040,916 $ 1,702,883 1,727,856
Other revenues 900,000 4,177 1,650,000 10,414
------------ ------------ ------------ ------------
Total revenues 1,648,879 1,045,093 3,352,883 1,738,270
Costs and expenses:
Cost of goods sold 718,326 676,627 1,466,004 1,188,063
Research and development expenses 385,024 253,848 844,149 521,905
Selling, general and administrative expenses 1,410,531 1,157,929 2,700,450 2,142,463
------------ ------------ ------------ ------------
Total costs and expenses 2,513,881 2,088,404 5,010,603 3,852,431
------------ ------------ ------------ ------------
Operating loss (865,002) (1,043,311) (1,657,720) (2,114,161)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 28,646 79,419 65,569 186,268
Dividend income 47,016 -- 94,031 --
Equity in loss of joint venture (115,083) (14,709) (180,365) (14,709)
Other 13,175 -- 13,175 --
------------ ------------ ------------ ------------
(26,246) 64,710 (7,590) 171,559
------------ ------------ ------------ ------------
Net loss $ (891,248) (978,601) $ (1,665,310) (1,942,602)
============ ============ ============ ============
Loss per common share - basic and diluted $ (0.06) (0.07) $ (0.11) (0.14)
============ ============ ============ ============
Weighted average number of
common shares outstanding 14,578,173 13,876,233 14,568,658 13,856,124
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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TURBOCHEF TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,665,310) (1,942,602)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in net loss of joint venture 180,365 14,709
Depreciation and amortization 234,593 54,076
Provision for doubtful accounts 15,000 2,775
Amortization of director compensation 14,946 13,878
Increase in accounts receivable (705,548) (115,703)
Decrease (increase) in inventories 281,729 (206,592)
Decrease (increase) in prepaid expenses 47,823 (353,502)
Decrease (increase) in other assets (1,859) 2,272
Increase (decrease) in accounts payable 27,674 (16,507)
Decrease in accrued expenses (10,052) (213,007)
Increase (decrease) in deferred revenue 44,831 (1,171)
Increase (decrease) in deposits 4,977 (43,250)
Increase in other liabilities 120,000 --
Decrease in deferred rent (5,942) --
----------- -----------
Net cash used in operating activities (1,416,773) (2,804,624)
----------- -----------
Cash flows from investing activities:
Purchase of marketable securities (1,715,980) (4,498,277)
Proceeds from sales of marketable securities 1,795,331 7,309,431
Purchase of equipment (60,264) (170,753)
Investment in TurboChef Europe -- (41,750)
----------- -----------
Net cash provided by investing activities 19,087 2,598,651
----------- -----------
Cash flows from financing activities:
Exercise of stock options 12,500 42,001
Exercise of stock warrants 165,280 125,060
----------- -----------
Net cash provided by financing activities 177,780 167,061
----------- -----------
Net decrease in cash and cash equivalents (1,219,906) (38,912)
Cash and cash equivalents at beginning of period 1,396,641 477,166
----------- -----------
Cash and cash equivalents at end of period $ 176,735 438,254
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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TURBOCHEF TECHNOLOGIES, INC.
Notes to Condensed Financial Statements
(Unaudited)
June 30, 1998
General
- -------
The financial statements of TurboChef Technologies, Inc. (the "Company")
included herein have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and have not been audited by
independent public accountants. In the opinion of management, all adjustments
(which consisted only of normal recurring accruals) necessary to present fairly
the financial position and results of operations have been made. Pursuant to
SEC rules and regulations, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted from these statements
unless significant changes have taken place since the end of the most recent
fiscal year. The December 31, 1997 balance sheet was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles. The Company believes that other disclosures
contained herein, when read in conjunction with the financial statements and
notes included in the Company's Annual Report for the fiscal year ended December
31, 1997 on Form 10-K, are adequate to make the information presented not
misleading. It is suggested, therefore, that these statements be read in
conjunction with the statements and notes included in the aforementioned Form
10-K. The results of operations for the three and six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the full year.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share (EPS), during the fourth quarter of
1997, and all previous references to per share amounts were retroactively
restated. The Statement requires basic EPS to be computed by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in earnings of the entity. Adoption of this statement did
not impact previously recorded net loss per common share for the three or six
months ended June 30, 1997.
Basic net loss per common share is based on 14,578,173 and 13,876,233 weighted
average shares outstanding for the three months ended June 30, 1998 and 1997,
respectively. For the six months ended June 30, 1998 and 1997 basic net loss per
common share is based on 14,568,658 and 13,856,124 weighted average shares
outstanding, respectively. For both the three month and six month periods ended
June 30, 1998 and 1997, the Company did not have any incremental shares of
potentially dilutive stock as their effect was antidilutive.
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The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, Comprehensive Income, on January 1, 1998. This statement
requires the Company to report comprehensive income and its components with the
same prominence as other financial statements in its December 31, 1998 financial
statements. Comprehensive income describes the total of all components of
comprehensive income, including net income and other comprehensive income.
Other comprehensive income refers to all revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. For the six month period
ended June 30, 1998, comprehensive income was $2,843,355, of which ($1,665,310)
was net loss and of which $4,508,665 was net unrealized gain on marketable
securities. For the six month period ended June 30, 1997, there were no
components of other comprehensive income.
In July 1998, the Company executed a revolving credit agreement with its bank to
support general corporate requirements, specifically, continued investment in
technology development. This agreement, which expires July 1, 1999 is secured
by 90,000 shares of Maytag common stock owned by the Company. The Company can
borrow up to the lesser of $3,000,000 or 75% of the market value of the Maytag
stock at market rates of interest. As of August 10, 1998, there are no
outstanding borrowings under such revolving credit facility.
7
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
---------------------------------------------------------------------
OF OPERATIONS
-------------
General
From its inception in April 1991 until March 1994, the Company was engaged
primarily in research and development, limited production operations and test
marketing of its cooking systems. In March 1994, the Company introduced its
first commercial product, the Model D-1 cooking system. In June 1995, the
Company entered into its first major contract with Whitbread PLC ("Whitbread")
and introduced an enhanced product, the Model D-2 cooking system. The Company
concentrated its efforts on the Whitbread rollout throughout 1996. Upon the
completion of the secondary public offering of Common Stock in June 1996 (the
"June 1996 Offering"), the Company began development of a direct sales
organization. By the end of the first quarter of 1997, the Company had
substantially developed its U.S. direct sales and European sales infrastructure
and marketing programs. Due to the revolutionary nature of the Company's
technologies, coupled with the foodservice industry's general resistance to
change, significant increases in sales have not yet materialized through these
efforts. The Company believes its long-term success is dependent on its core
competencies of developing new technologies and products for the foodservice
industry. Consequently, the Company has sought to establish an alliance with a
major firm with strengths in manufacturing, sales, marketing and distribution.
An alliance of this nature was successfully established in September 1997, when
the Company announced a strategic alliance with Maytag Corporation ("Maytag") to
jointly develop new products revolving around the Company's technologies. The
Company also announced in July 1998 that the Maytag alliance had been expanded
to include the sales and marketing of commercial cooking products in North
America. This alliance enables the Company to focus on its core competency of
technology development.
The Company has invested heavily in research, prototype development,
establishment of manufacturing capacity, and sales and marketing personnel. As
a result of these investments, and the heretofore limited revenues generated
through sales of cooking systems, the Company has incurred substantial operating
losses in each year of its operations (including net losses of $4,662,302,
$2,941,413, and $1,585,268 for the years ended December 31, 1997, 1996 and 1995,
respectively) resulting in an accumulated deficit of $18,942,217 as of June 30,
1998.
The Company will continue to pursue business growth through implementation
of the following strategies: (i) joint development and commercialization of
residential and commercial products through the Maytag alliance, (ii) continued
marketing to U.S., European and Japanese restaurants, hotels, convenience stores
and other foodservice operators, and (iii) continued development of new
hardware, software and food solutions for foodservice operators. The Company's
future profitability will depend upon, among other things, the successful
implementation of these initiatives.
MAYTAG ALLIANCE
On September 29, 1997, the Company announced a strategic alliance with
Maytag Corporation (the "Maytag alliance"). The alliance is aimed at the
development and commercialization of innovative products based on the Company's
leading-edge technologies in heat transfer, thermodynamics and control
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systems. The two companies believe that the combination of Maytag's expertise in
manufacturing, marketing and distribution in residential and commercial
appliance markets, and the Company's proprietary technologies and product
development capabilities, can result in the successful commercialization of new
products in the future. The alliance entailed a mutual purchase of each
company's common stock valued at approximately $10 million and Maytag's payment
to the Company for certain research and development activities related to
targeted product initiatives.
The initial alliance-related research project began in October 1997, and
was originally for a term of six months. Maytag was contracted to pay $250K per
month pursuant to the agreement to fund research and development activities
related to the project. In March 1998, this project was extended for one year,
and the monthly payment increased to $300K. In July 1998, the Company announced
a commercial sales agreement with Maytag whereby Maytag will lead the Company's
North American commercial sales and marketing initiatives. Furthermore, the
commercial sales agreement establishes a profit sharing arrangement for the
North American sales of commercial products employing the Company's
technologies. With the addition of the commercial relationship, the research
and development funding will be increased to $425K per month from August 1998
through January 1999.
As of August 10, 1998, Maytag had paid the Company an aggregate of $3.1
million for alliance-related activities.
RECENT DEVELOPMENTS
The Company's latest purchase contract with Whitbread expired in May 1998
as did Whitbread's exclusive purchase rights in the UK. The Company and
Whitbread are currently in discussion to continue cooking system purchases.
Furthermore, a unit of Whitbread, Whitbread Pub Partnerships ("WPP") has
contracted with the Company to commence a 30 store test of the Company's cooking
system following their successful two store test over the last year. The cooking
systems for the test will come from existing Whitbread inventory, and will not
initially result in the sale of new units. However, a successful test in WPP
could lead to sales in the future, although it is not possible at this time to
indicate the timing or quantity of such sales as all WPP locations do not have
the physical capacity to accommodate foodservice operations. WPP is comprised of
approximately 1,700 pub operations located throughout the UK which are owned by
Whitbread and managed by independent operators. It is estimated that 200-400 of
the facilities could accommodate a Model D-2 cooking system.
On June 26, 1998, the Company announced that it had consummated a purchase
agreement with Kanematsu Corporation of Japan ("Kanematsu"). The initial minimum
sale of the Company's cooking systems is valued at approximately $1 million.
Purchases by Kanematsu are contingent upon, among other things, Japanese
regulatory approval of the Company's cooking system.
In July 1998, The Company executed a sales agreement with Best Western
International, Inc. ("BWI") for the purchase of 100 ovens. The agreement is
contingent upon a successful six unit test. BWI is an association of member
hotels established to provide revenue generating opportunities and to leverage
the purchasing power of its member hotels. BWI's membership includes
approximately 3,700 locations worldwide.
On June 30, 1998 the Company's European joint venture TurboChef Europe
Limited ("TCE") was terminated. TCE was a joint venture between the Company and
The Queally Group ("Queally"), one of Europe's largest food manufacturers. The
objective of TCE had been to market the Company's products in conjunction with
Queally's food products through the establishment of distribution agreements
with
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regional foodservice equipment distributors throughout Western Europe. As the
inclusion of Queally's food manufacturing services in the joint venture did not
generate the revenues the Company and Queally had anticipated, the two firms
elected to terminate the joint venture as of June 30, 1998. Effective July 1,
1998, the Company commenced exclusive sales and marketing responsibilities for
Western Europe. The former sales and support staff of the joint venture are now
employees of the Company and a managing director has been hired to oversee
European operations which are based in the London area.
RESULTS OF OPERATIONS
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 FOR THE QUARTER ENDED JUNE 30, 1998 COMPARED TO THE QUARTER ENDED JUNE
30, 1997
Revenues for the quarter ended June 30, 1998 were $1,649K, an increase of
$604K, when compared to revenues of $1,045K for the quarter ended June 30, 1997.
This increase is primarily attributable to revenues received pursuant to the
Maytag alliance and revenues generated by an extended maintenance program for
the Company's largest customer, offset by a decline in unit shipments.
Cost of sales for the quarter ended June 30, 1998 was $718K, an increase of
$42K when compared to $677K for cost of sales in the quarter ended June 30,
1997. This increase is attributable to a charge taken to establish a reserve for
anticipated losses on an extended maintenance program, offset by a decline in
unit shipments.
Gross profit on total net sales for the quarter ended June 30, 1998
decreased $334K to $31K, when compared to gross profit on total net sales of
$364K during the quarter ended June 30, 1997. Gross margin for the quarter ended
June 30, 1998 was 4% of total net sales, compared to 35% of total net sales for
the quarter ended June 30, 1997. Gross profit and gross margin were adversely
affected by the aforementioned extended maintenance charge. Excluding extended
maintenance charges, gross profit and gross margin for the quarter were $217K
and 33% respectively.
Gross margin on net oven sales decreased to 34% during the quarter ended
June 30, 1998, compared to 36% for the quarter ended June 30, 1998 due to a
higher average unit cost.
Research and development expenses for the quarter ended June 30, 1998
increased $131K, to $385K, as compared to $254K for the quarter ended June 30,
1997. The increase is attributable to R&D activity relating primarily to Maytag
alliance projects entailing staff additions and prototype and software
development.
Selling, general and administrative expenses for the quarter ended June 30,
1998 increased $253K, to $1,411K from comparable expenses of $1,158K for the
quarter ended June 30, 1997. The increased expense is due to European business
development expenses not incurred during the first quarter of 1997, the addition
of executive management and other administrative personnel, and other
administrative expenses including office expansion and executive recruiting
expenses.
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Interest income, net of interest expense for the quarter ended June 30,
1998, was $29K compared to $79K for the quarter ended June 30, 1997. The
decrease in interest income is attributable to decreased cash levels.
Second quarter results include a $114K charge relating to the termination
of the Company's European joint venture TurboChef Europe Limited ("TCE"). The
$114K charge establishes a reserve for the write-off of the net investment in
TCE. For the three months ended June 30, 1998, losses relating to TCE
were $115K.
RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1997
Revenues for the six months ended June 30, 1998 were $3,353K, an increase
of $1,615K, when compared to revenues of $1,738K for the six months ended June
30, 1997. This increase is primarily attributable to revenues received pursuant
to the Maytag alliance.
Cost of sales for the six months ended June 30, 1998 was $1,466K, an
increase of $278K when compared to $1,188K for cost of sales in the six months
ended June 30, 1997. This increase is attributable to a charge taken to
establish a reserve for anticipated losses on an extended maintenance program,
offset by a decline in unit shipments.
Gross profit on total net sales for the six months ended June 30, 1998
decreased $303K to $237K, when compared to gross profit on total net sales of
$540K during the quarter ended June 30, 1997. Gross margin for the quarter ended
June 30, 1998 was 14% of total net sales, compared to 31% of total net sales for
the quarter ended June 30, 1997. Gross profit and gross margin were adversely
affected by the aforementioned extended maintenance charge. Excluding extended
maintenance charges, gross profit and gross margin for the quarter were $472K
and 32% respectively.
Gross margin on net oven sales of 35% for the six months ended June 30,
1998 was unchanged from 35% for the six months ended June 30, 1997. The effect
of higher average selling prices was offset by an increased average unit cost.
Research and development expenses for the six months ended June 30, 1998
increased $322K, to $844K, as compared to $522K for the six months ended June
30, 1997. The increase is attributable to R&D activity relating primarily to
Maytag alliance projects entailing staff additions and prototype and software
development.
Selling, general and administrative expenses for the six months ended June
30, 1998 increased $558K, to $2,700K from comparable expenses of $2,142K for the
six months ended June 30, 1997. The increased expense is due to European
business development expenses not incurred during the first six months of 1997,
the addition of executive management and other administrative personnel, and
other administrative expenses including office expansion and executive
recruiting expenses.
Interest income, net of interest expense for the six months ended June 30,
1998, was $66K compared to $186K for the six months ended June 30, 1997. The
decrease in interest income is attributable to decreased cash levels.
Results for the six months ended June 30, 1998 include a $114K charge
relating to the termination of the Company's European joint venture, TCE. The
$114K charge establishes a reserve for the
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write-off of the net investment in TCE. For the six months ended June 30,
1998, losses relating to TCE were $180K.
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. From its inception until June 1996, the Company was
substantially dependent on loans and capital contributions from its principal
stockholders, private placements of its securities and the proceeds from the
initial public offering of common stock in April 1994 (the "April 1994 IPO"). 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 $10,301K, net of the underwriter's discount and other offering
costs of $1,699K.
Since October 1997, the Company's capital requirements have been met in
part by Maytag, which in accordance with the alliance has paid to the Company an
aggregate of $3.1 million ($250K per month from October 1997 through March 1998,
$300K from April through July 1998, and $425K in August 1998) as of August 10,
1998 for research and development relating to their interests. In March 1998,
the initial project was extended for one year, and Maytag increased the monthly
payment from $250K to $300K per month for the term of the extension. In July
1998, a commercial sales agreement was announced, and the monthly payment
increased to $425K for six months. The Maytag alliance called for the mutual
purchase of each company's stock with a value of approximately $10 million.
Maytag purchased 564,668 shares of the Company's common stock, and the Company
purchased 293,846 shares of Maytag common stock. According to the terms of the
strategic alliance agreement, the Maytag stock owned by the Company is subject
to a general restriction placed on selling, pledging, transferring or assigning
such securities for a period of two years from the date of the agreement.
However, in accordance with the agreement, the Company gained the right to sell,
pledge, transfer or assign up to 50% of the shares on March 31, 1998. As of
August 10, 1998, the Maytag stock owned by the Company had a market value of
approximately $12.6 million.
In July 1998, the Company executed a revolving credit agreement with its
bank to support general corporate requirements, specifically, continued
investment in technology development. This agreement, which expires July 1,
1999 is secured by 90,000 shares of Maytag common stock owned by the Company.
The Company can borrow up to 75% of the market value of the Maytag stock at
market rates of interest. As of August 10, 1998, there are no outstanding
borrowings under such revolving credit facility.
At June 30, 1998, the Company had working capital of $9,854K as compared to
working capital of $9,582K at December 31, 1997. The $272K working capital
increase from December 31, 1997 resulted primarily from the appreciation of the
current portion (50%) of the investment in Maytag common stock, offset by the
net operating loss of $1,665K. For the six months ended June 30, 1998, accounts
receivable turnover decreased to 4.1 from 5.9 during the six months ended June
30, 1997. The decrease is primarily due to outstanding accounts receivable from
TCE.
Cash used in operating activities was $1,417K for the six months ended June
30, 1998 as compared to cash used in operating activities of $2,805K for the six
months ended June 30, 1997. The decrease is primarily the result of a $277K
decrease in operating losses, an increase in non-cash expenses of $359K, a
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decrease in inventories of $282K, decreased prepaid expenses of $48K and
increased accounts payable, deferred revenue and other liabilities of $28K, $45K
and $120K respectively. These amounts are offset by a $706K increase in accounts
receivable. Cash provided by investing activities for the six months ended June
30, 1998 was $19K as a result of sales of marketable securities in the amount of
$1,795K offset by purchases of marketble securities of $1,716K and equipment
purchases of $60K. Cash provided by financing activities was $178K for the six
months ended June 30, 1998, which represents the net proceeds from exercises of
stock options and warrants. At June 30, 1998, the Company had cash and cash
equivalents of $177K, compared to cash and cash equivalents of $1,397K at
December 31, 1997.
YEAR 2000 ISSUES
The Year 2000 issue, which is common to most businesses, concerns the
inability of information systems, primarily computer software programs, to
properly recognize and process date-sensitive information as the year 2000
approaches. All critical software and related technologies used by the Company
are year-2000 compliant. Thus, management believes that there will be no
significant costs required to address the Year 2000 issue and such issue will
not materially impact its financial condition nor adversely impact business
operations.
AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, which is not expected to significantly change the Company's
current disclosures.
FORWARD LOOKING STATEMENTS
The Company is continuing to utilize the proceeds from the June 1996
Offering, in addition to payments received from the Maytag alliance projects, to
intensify its product development activities with the goal of developing
innovative and commercially viable products, and support its marketing efforts
to expand its commercial cooking system customer base. 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 the realization of projected cooking system deliveries) that its
current cash and cash equivalent balances, anticipated revenues from operations,
payments received pursuant to the Maytag alliance, and the recently established
revolving credit facility, will be sufficient to fund its operations and satisfy
its contemplated capital requirements for at least the next 24 months. In the
event that the Company's plans change, or its assumptions change or prove to be
incorrect, or cash balances, anticipated revenues and amounts available under
the revolving credit facility otherwise prove to be insufficient, the Company
would be required to revise its plan of operations (which revision would include
a significant reduction in operating costs) and/or seek additional financing
prior to the end of such period). The Company has no other current arrangements
with respect to, or sources of, additional financing. There can thus be no
assurance that additional financing will be available to the Company, if and
when needed, on commercially reasonable terms, or at all.
The Company has used a substantial portion of the proceeds of the June 1996
Offering and payments received from Maytag in an effort to expand its current
level of operations and grow the
13
<PAGE>
Company's business. However, the Company's future performance will be subject to
a number of business factors, including those beyond the Company's control, such
as economic downturns and evolving industry needs and preferences, as well as to
the level of the Company's competition and the ability of the Company to
successfully market its products and effectively monitor and control its costs.
The Company believes that increases in revenues sufficient to offset its
expenses and result in its profitability could be derived from its currently
proposed plans within the next 18 months, if such plans are successfully
completed. These plans include: (i) successfully develop and market new products
through the Maytag alliance, (ii) further develop U.S. product sales through the
Maytag commercial sales agreement, (iii) utilize the awareness created by the
Whitbread relationship and the early successes of TCE to extend the Company's
marketing and sales efforts into other countries within the European Union, (iv)
introduce additional new products, and (v) reduce the Company's manufacturing
costs. However, there can be no assurance that the Company will be able to
successfully implement any of the foregoing plans, that either its revenues will
increase or its rate of revenue growth will continue or that it will ever be
able to achieve profitable operations.
As of June 30, 1998, the amount of backlog orders believed to be firm was
approximately $0.8 million, as compared to approximately $2.0 million as of
December 31, 1997. This backlog includes the remaining minimum order quantity of
cooking systems contemplated in the Kanematsu purchase agreement, which are
contingent upon Japanese regulatory approval of the oven. This backlog does not
include any sales to BWI, which are contingent upon successful completion of
field operations tests and certain payback criteria.
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.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 1998, the Annual Meeting of Stockholders of the Company was
held in Dallas, Texas. At the Annual Meeting, the Company's stockholders
elected four (4) individuals to serve as the Company's Board of Directors until
the next Annual Meeting of the Stockholders and until their successors are
elected and duly qualified. The table presented below indicates the number of
votes cast in favor of the election of such persons as directors, the number of
votes cast against, and the number of votes withheld. There were no broker non-
votes cast at the Annual Meeting.
<TABLE>
<CAPTION>
Name of Director Number of Votes For Number of Votes Against Withheld Votes
- -------------------- ------------------- ----------------------- --------------
<S> <C> <C> <C>
Marion H. Antonini 12,155,542 120,624 -0-
Jeffery B. Bogatin 11,636,527 639,639 -0-
Philip R. McKee 12,158,042 118,124 -0-
Donald J. Gogel 12,158,392 117,774 -0-
</TABLE>
In addition to the election of the Company's Board of Directors, the
stockholders approved the following proposals at the Annual Meeting:
1. A proposal to amend the First Article of the Company's Restated Articles
of Incorporation to change the Company's corporate name to TurboChef
Technologies, Inc. An aggregate of 12,232,774 shares were voted for this
proposal, 14,592 shares were voted against this proposal, and 28,800 shares
abstained;
2. A proposal to amend the Company's 1994 Stock Option Plan, as amended, to
increase the number of shares of Common Stock authorized for issuance from
3,150,000 to 3,650,000 shares. An aggregate of 12,109,550 shares were voted for
this proposal, 137,316 shares were voted against this proposal and 29,300 shares
abstained; and
3. A proposal to ratify the appointment of KPMG Peat Marwick LLP as the
Company's independent public accountants for the 1998 fiscal year. An aggregate
of 12,237,774 shares were voted for this proposal, 8,100 shares were voted
against this proposal and 30,342 shares abstained.
15
<PAGE>
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Number Description
-------------- -----------
10.30 Commercial Cooking Appliance Project
Agreement dated as of July 29, 1998 by and
between TurboChef Technologies, Inc. and
Maytag Corporation.(1)
10.31 Revolving Credit Agreement between Chase
Bank of Texas NA and TurboChef Technologies,
Inc. dated July 1, 1998.
(1) Filed herewith in redacted form pursuant to Rule 24b-2 promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"). Filed
separately in unredacted form subject to a request for confidential
treatment pursuant to Rule 24b-2 under the Act.
(b) REPORTS ON FORM 8-K
A report on Form 8-K dated July 1, 1998 was filed with the
Securities and Exchange Commission on July 2, 1998. This Form
8-K reported that the Company's corporate name had been
changed to TurboChef Technologies, Inc.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TURBOCHEF TECHNOLOGIES, INC.
By:/s/ Dennis J. Jameson
------------------------
Dennis J. Jameson
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Dated August 14, 1998
17
<PAGE>
EXHIBIT 10.30
COMMERCIAL COOKING APPLIANCE AGREEMENT DATED AS OF JULY
29, 1998 BY AND BETWEEN TURBOCHEF TECHNOLOGIES, INC. AND
MAYTAG CORPORATION.
(REDACTED)
<PAGE>
Strategic Alliance Agreement
TurboChef/Maytag
Schedule No. 3
COMMERCIAL COOKING APPLIANCE PROJECT AGREEMENT
----------------------------------------------
This Commercial Cooking Appliance Project Agreement (the "CCAP," or the
"Agreement") is made, entered into and effective this 29th day of JULY, 1998, by
and between MAYTAG CORPORATION, a Delaware corporation ("Maytag") and TURBOCHEF
TECHNOLOGIES, INC., (formerly TURBOCHEF, INC.) a Delaware corporation
("TurboChef").
WITNESSETH:
----------
WHEREAS, Maytag and TurboChef have entered into that certain Strategic
Alliance Agreement dated September 26th, 1997 (the "Alliance Agreement"),
pursuant to which the parties agreed to work together in the development and
commercialization of highly innovative products based on leading edge
technologies with respect to heat transfer, thermodynamics and controls; and
WHEREAS, in the Alliance Agreement, the parties expressed their intention
that their projects may involve several phases, and the parties now desire to
commence this project with respect to commercial cooking appliances and related
technologies and software ("commercial cooking systems"), and
WHEREAS, the parties now desire to set forth their understanding as to the
manner in which the commercial cooking appliance project (the "Project") shall
be implemented.
NOW, THEREFORE, in consideration of the premises and of the undertakings of
the parties herein contained, the sufficiency whereof being acknowledged by each
of them, the parties agree as follows:
ARTICLE I
FRAMEWORK FOR PROJECT
1.1 Purpose. It is the purpose of the parties:
-------
(a) During a first phase to develop a XXXXXXXX cooking system XXXX XXXX
XXXXXX XXXX XXX XXXXXXXXX XXX XXXXXXX XXX XXXXXX XXXXXXX XXXXXX XXX XXXXX XXXX
XXXXXXX XXXXXXXX XXXXXXXX XXXXXXX XXXXXXXX XXXXXXXXXXX XXXXXXX XXXXXX
XXXXXXXXXXXXX XXXXXX XXXXX XXX
(b) To transfer marketing, sales and distribution responsibilities for
commercial cooking systems presently handled by TurboChef to Maytag as set
out in Section 1.3.
<PAGE>
1.2 Product Development Framework. Maytag and TurboChef shall each establish a
-----------------------------
team comprised of qualified persons to participate in the Project on behalf of
such party. Each team will be managed by a project leader appointed by the
respective party. The project leaders shall be responsible for, among other
things, insuring that their respective team members devote sufficient time to
the Project such that the assigned tasks can be accomplished in a timely manner.
During the first phase of this Agreement, the two project leaders shall
communicate with each other on a regular basis with respect to the Project and
shall meet in person not less than once per month to evaluate the progress of
the Project and to establish Project milestones.
1.3 Sales and Marketing Transition Framework. In addition to the product
----------------------------------------
development efforts, the parties will undertake a separate and reasonably
concurrent effort to transfer marketing, sales and distribution responsibilities
for commercial cooking systems from TurboChef to Maytag using the following
framework:
(a) Personnel During the first phase of this Agreement, the TurboChef
---------
sales and marketing organization shall be comprised of the current
TurboChef sales and marketing staff outlined in Exhibit A attached and as
may be revised by TurboChef from time to time and a business development
executive (the "Maytag Executive") provided by Maytag.
(b) Organization
------------
(i) The Maytag Executive will be and will continue to be an employee
of Maytag and will report directly to Maytag's Vice President
Administration. The Maytag Executive will also interface directly with
the Chief Financial Officer of TurboChef or other TurboChef designee
for financial control and planning purposes.
(ii) The Maytag Executive will participate in regularly scheduled
operating reviews with a steering committee comprised of Maytag's Vice
President Administration, Blodgett's President, Blodgett's Vice
President Sales and Marketing, TurboChefs Chief Executive Officer,
TurboChefs Chief Technology Officer and TurboChefs Executive Vice
President and CFO (the "Steering Committee").
(iii) The TurboChef sales and marketing organization will report
directly to the Maytag Executive.
(c) Product. During the first phase of this Agreement, the TurboChef sales
-------
and marketing staff will continue selling the D-2 cooking system and
related technologies and software. XXXXX XX XXX XXXXXXXX XXXXXXX XXX
XXXXXXX XXXXXXXXXXXX XXX XXXXXXXX XXXX XXX XXXXXXXX XXXXX XXXXXXXXXX XXXXXX XXX
XXXXXXXXXXXX XXXXXXXXXXXXXXXX XXXX XXXX XXXXXXXXXXX XXXX XXXXXXXXX XX XXXXXX XX
XXX XXX XX XXX XXXXX XXXXX XX XXXX XXXXXXXXX
2
<PAGE>
(d) Profit Sharing. During the first phase of this Agreement, Maytag and
--------------
TurboChef shall share XXXXXXX in the profits generated by sales of the D-2
cooking system and related technologies and software throughout North
America and to customers outside of North America which are North American
based. The profits to be shared will be determined based on the formula set
out in Exhibit B.
(e) Maytag Executive. The Maytag Executive will be compensated and have
----------------
benefits provided by Maytag. Out of pocket expenses incurred by the Maytag
Executive such as travel and lodging will be paid by Maytag. However, all
other costs and expenses included in cost of sales and sales and marketing
expenses, such as salaries, wages, benefits and travel and lodging of all
remaining sales and marketing personnel, trade shows under the TurboChef
name, training, rents and utilities will be paid by TurboChef.
1.4 Costs. Except as provided in Sections 1.3(e) and 3.1, each party shall be
-----
solely responsible for the costs and expenses incurred by such party in
participating in the Project, including, without limitation, personnel costs and
out-of-pocket costs such as travel and lodging expenses.
ARTICLE II
DUTIES OF THE PARTIES
--------- -----------
2.1 Maytag Duties, First Phase. During the first phase of this Agreement,
--------------------------
Maytag shall perform the following duties in connection with the Project:
(a) Provide the Maytag Executive, who will:
(i) Lead TurboChef's sales and marketing organization,
(ii) Strive to understand TurboChef's sales and marketing
accomplishments to date and current plans for the future,
(iii) Meet with key executives of TurboChef and existing and targeted
accounts,
(iv) Initiate development of channel specific needs assessments and
potential hardware, software and service solutions,
(v) At the direction of the Steering Committee, develop detailed
sales and marketing strategies and tactics to be employed during the
term of this agreement,
(vi) Work with the Steering Committee to develop the sales and
marketing organization,
(vii) Provide input to the development process;
3
<PAGE>
(b) Provide industrial design expertise in connection with the development
of XXXXXXXX prototypes including the development of prototype parts where
agreeable by both parties;
(c) Provide manufacturing engineering expertise in connection with
XXXXXXXX designs to a production ready state;
(d) Prepare a business plan with respect to the XXXXXXXX cooking system
and related technologies and software, a draft of said business plan to be
submitted to the Steering Committee within four (4) months after the Maytag
Executive reports to work at TurboChef and a final draft of said business
plan to be submitted to the Steering Committee within six (6) months after
the Maytag Executive reports to work at TurboChef.
(e) Maintain a project team comprised of qualified persons, as determined
by Maytag, with the particular expertise required to perform the tasks
contemplated by subparagraphs (a) - (d) hereinabove, make reasonable best
efforts to make resources available to meet the objectives of the Agreement
and the milestones established by the project leaders.
2.2 TurboChef Duties, First Phase. During the first phase of this Agreement,
-----------------------------
TurboChef shall perform the following duties in connection with the Project:
(a) Disclose all relevant knowledge and know-how with regard to
TurboChef's sales and marketing processes, practices and efforts to date,
including, but not limited to, customer needs, relations and programs;
pricing; and competitive advantages/disadvantages.
(b) Provide Maytag with access to all relevant proprietary data with
respect to TurboChef's cooking technologies, including, without limitation,
copies of all current drawings, specifications and patents utilized by
TurboChef in designing and manufacturing its commercial cooking systems;
(c) XXXXXX XXX XXXXXXXXX XXX XX XXXX XXXXXXXXXXXX XX X XXXXXXXX XXXXXXXXXX
XXXXXXX XXXXXX XXXXX XXXXXXXX XXXXXXXXXXX XXXXXXXXXXX XXXXXXX XXXXXXXXXXXXX
(d) Provide the TurboChef sales and marketing staff per Section 1.3 at its
expense and provide product engineering expertise XX XXXXXXX XXX XXXXXXXX
XXXXXXXXXX XXXXXXX XXXXXX XX X XXXXXXXXXX XXXXX XXXXX XXXXXXXXXX
XXXXXXXXXXXX XX XXX XXXXXXXXXX XXXXXX XX XXXXXXXXXX XX XXXXXXXX XXXXX
XXXXXXXXXXXX XXX
(e) Maintain a project team comprised of qualified persons, as determined
by TurboChef, with the particular expertise required to perform the tasks
contemplated by subparagraphs (a) - (d) hereinabove, make reasonable best
efforts to make resources available to meet the objectives of the Agreement
and the milestones established by the project leaders.
4
<PAGE>
2.3 Maytag Duties, Continuing. After the end of the first phase of this
-------------------------
Agreement, Maytag shall complete any uncompleted first phase duties and perform
the following continuing duties in connection with the Project:
(a) Actively market and sell commercial cooking systems using TurboChef
technology throughout North America and elsewhere as permitted;
(b) Provide input into the technology development process.
2.4 TurboChef Duties, Continuing. After the end of the first phase of this
----------------------------
Agreement, TurboChef shall complete any uncompleted first phase duties and
perform the following continuing duties in connection with the Project:
(a) Actively support current commercial cooking technologies;
(b) Provide support to Maytag's marketing and selling efforts.
ARTICLE III
PROJECT INVESTMENTS
3.1 Maytag Research and Development Fee. In addition to performing the duties
-----------------------------------
described in Section 2.1 hereof, Maytag hereby agrees to pay to TurboChef a
research and development fee in the aggregate amount of Seven Hundred and Fifty
Thousand Dollars ($750,000.00), to be applied to the research and development
costs associated with the Project. Maytag shall pay such amount in six (6) equal
monthly installments of One Hundred and Twenty-Five Thousand Dollars
($125,000.00) each. The initial installment shall be due on the first day of the
month immediately following the date of this Agreement and each subsequent
installment shall be due no later than the first (1st) day of each month
thereafter until a total of six (6) installments have been paid.
3.2 In consideration for Maytag's agreement to pay the research fee set forth
in Section 3.1 above, TurboChef hereby grants to Maytag, effective at the end of
the first phase, certain rights to market, distribute and sell commercial
cooking systems which utilize TurboChef proprietary cooking technologies. These
rights are defined as follows:
(a) The exclusive right throughout North America subject to the terms of
existing distribution agreements set forth in Exhibit C, and
(b) Rights outside of North America as follows:
(i) If Maytag enters into a sales agreement with a North American
based company, which agreement calls for sale of TurboChef products
to said company or any division, subsidiary or franchisee of said
company outside of North
5
<PAGE>
America, Maytag has the exclusive right to sell to such company within
the territories called for in such sales agreement, subject to the
terms of any existing distribution agreements set forth in Exhibit C
and in the United Kingdom where TurboChef is acting as the exclusive
distributor.
(ii) If Maytag establishes a relationship with a North American based
company, Maytag has the nonexclusive right to sell TurboChef products
outside of North America to any division, subsidiary or franchisee of
such North American based company subject to the terms and conditions
of any sales/distribution agreement set forth in Exhibit C.
(c) This Agreement does not prohibit TurboChef from entering into
sales/distribution agreements for territories outside of North America
after the effective date of this Agreement, however, such agreements must
be subject to Maytag's rights established by this Agreement.
(d) Profit Sharing. After the end of the first phase of this Agreement,
Maytag and TurboChef shall share XXXXXXX in the operating income, less cost
of capital, generated from the sales of TurboChef cooking systems and
related technologies and software throughout North America and outside of
North America as provided in Section 3.2(b). Maytag agrees to create a
distinct profit center within Maytag to capture the appropriate revenues
and costs for this endeavor. The income to be shared will be determined
based on the formula set out in Exhibit D.
3.3 It is the intention of the parties to negotiate the extension of
Maytag's exclusive rights to market, distribute and sell commercial cooking
systems which utilize TurboChef's proprietary cooking technologies throughout
the World. As a condition to TurboChef considering the extension of such rights
by country, Maytag shall be required to demonstrate its international marketing
and distribution strategies and capabilities by geographic area (Europe, the
Middle East and Africa, the Near East, the Far East and Latin America), in a
manner satisfactory to TurboChef.
ARTICLE IV
TERM AND TERMINATION
--------------------
4.1. The first phase of this Agreement shall commence when the Maytag Executive
reports to work at TurboChef and end on the date when XXXXXX XXXXXX XXXXXXX XXX
XXXXXXXX XXXXXXX XXXXXXX but in no event less than seven (7) months nor more
than thirteen (13) months after the effective date of this Agreement.
4.2 At the end of the first phase or any time thereafter TurboChef may
terminate this Agreement by giving Maytag written notice of termination,
whereupon this Agreement shall terminate and within forth-five (45) days
thereafter each party shall provide an accounting to the other for any
previously unaccounted-for revenues realized and costs and expenses
incurred under
6
<PAGE>
this Agreement prior to termination. Upon such termination all rights granted to
Maytag under Section 3.2 to market, distribute and sell commercial cooking
systems which utilize TurboChef proprietary cooking technologies shall survive
indefinitely, and those rights that were exclusive shall become non-exclusive,
but not prior to two years after the end of phase one.
(a) If TurboChef gives written notice of termination to Maytag within ten
(10) days following the end of the first phase, and further, in addition to
giving such notice of termination to Maytag, TurboChef delivers to Maytag a
promissory note payable to Maytag for a principal amount equal to the
research fee set forth in Section 3.1 above, said promissory note to bear
interest at four percentage points above one-year LIBOR as announced by the
British Bankers Association and reported in Bloomberg Financial Market
Commodities News on its day of issue and to become due and payable in
principal and interest one year from its date of issue, then all rights
granted to Maytag under Section 3.2 to market, distribute and sell
commercial cooking systems which utilize TurboChef proprietary cooking
technologies shall terminate; and apart from the accounting referred to
above, neither party shall have any further obligation to the other with
respect to the Commercial Cooking Project.
xxx xx xxx xxxxx xxxx xxxxxx xxxxx xxx xx xx xxxxxxxx xxxxxxxxxxx xxxxxxxxxx
xxxxxx xxx xxxxxxxx xxxxxx xxxxxxxxx xxx xxx xx xxxxx xxxx xxxxxxxxxxxxxxx xxx
xxxxxxxxx xxxxxx xxxxxxx xx xxxxxx xx xxxxxxx xxx xxxxxx xxxxxxxxx xxx xxxxx
xxxxxxxxxxxx xxxxxx xx xx xx xxxxxxxx xxxxxxxxxxx xx xxxxxxx xxxxxxxxxx xxx xxxx
xxxxxxxxxx xxxxxxx xxxxxxx xxxxx xxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxx
xxxxxxxxxxxx xxx xxx xxxxxxx xx xxxx xxxxxxxx xxxxxxx
xxx xx xxx xxxxx xxxx xxxxxx xxxxx xxx xxxxxxxxxx xxxxxxx xxxxxxxxx xxxxxxxxx
xxxxxxxxx xxx xxxxxxxxx xxxx xxxxxxxxx xx xxxxxx xxxxxx xxxxxxx xxxxxx xx
xxxxxxxxxxxx xxxxxxxxx xxxx xxxxxxxxx xxxxx xxxxxxxxx xxx xxxxxx xxxxxxxxxx xxxx
xxxx xxxxxxxxxx xxxx xxxxx xxxxx xxxxxxx xx xxxxxxxxxx xx xxx xxxxx xxx xxx
xxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxx xxxxxxxx xxx xxxxx xxx xxxxxxxx xxxxxxxx
xxxxx xxxx xxxxxxxxx xxxxx xx xxxxxxxxxxxx xxxx xxxx xxxxxxxxxxx xxx xxxxxx
xxxxxxx xx xxxxxx xxxxx xxxxxxx xxx xx xxxxxxx xxxxxxxxxx xxx xxxx xxxxxxxxxx
xxxxxxx xxxxxxx xxxxx xxxxxxx xxxxxxxxx xxxxxxxxxxx xxxxxxx xxxxxxxxxxxx xxxxx
xxxxxxxxxx xxx xxxxx xxxx xxx xxxxxxxxxx xxxxxxxx xx xxxxxx xxxxxxx xxxxx xxxxx
xxxx xxx xxxxxxx xxxxxxxxxx xx xxx xxxxx xxxx xxxxxxx xx xxx xxxxxxxxxx xxxxxxx
xxxxxxxx
4.5 At the end of the first phase or any time thereafter Maytag may terminate
this Agreement by giving TurboChef written notice of termination, whereupon this
Agreement shall terminate and within forth-five (45) days thereafter each party
shall provide an accounting to the other for any previously unaccounted-for
revenues realized and costs and expenses incurred under this Agreement prior to
termination. Upon such termination, all rights granted to Maytag under Section
3.2 to market, distribute and sell commercial cooking systems which utilize
TurboChef proprietary cooking technologies shall terminate; and apart from the
accounting referred to above, neither party shall have any further obligation to
the other with respect to the Commercial Cooking Project.
7
<PAGE>
ARTICLE V
EXCLUSIVE DEALING
-----------------
Except as set forth in this Agreement, during the term of this Agreement,
neither party, nor any of their respective affiliates, whether alone or in
conjunction with any other person, shall in any manner, without the written
consent of the other party, directly or indirectly participate in, propose or in
any other way support, or agree to participate in, propose or support further
development and/or commercialization of a commercial cooking system for sale in
North America utilizing TurboChef's technologies or similar high speed cooking
technologies. This excludes any work with Gama Consultants (U.K.), provided the
work does not include TurboChef Technologies without the consent of TurboChef.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first above written.
TURBOCHEF: TURBOCHEF TECHNOLOGIES, INC.
/s/ PHILIP R. MCKEE
---------------------------------
Name: Philip R. McKee
Title: Chief Technology Officer
MAYTAG; MAYTAG CORPORATION
/s/ CHARLES M. PETERS
---------------------------------
Name: Charles M. Peters
Title: V.P. Administration
8
<PAGE>
Exhibit A
TurboChef Sales and Marketing Organization
------------------------------
MAYTAG CORPORATION
BUSINESS DEVELOPMENT EXECUTIVE
(OPEN)
------------------------------
|
------------------------------------------------------
| | |
- --------------- ------------------ ----------------
Ralph Bellinger Steve Boothe Desmond Hague
VP System Sales VP System Sales VP of Operations
(Primarily hotels)
- --------------- ------------------ ----------------
|
----------------------
| |
---------------------- --------------
Al Harvey Pete Ashcraft
Director of Operations Executive Chef
---------------------- --------------
|
| ---------------------
|-- Ron Massaro
| Manager of Operations
| ---------------------
|
| ---------------------
-- Glen Tasman
Operations Specialist
---------------------
9
<PAGE>
EXHIBIT B
XXXXX
10
<PAGE>
EXHIBIT C
EXISTING DISTRIBUTOR AGREEMENTS
<TABLE>
<CAPTION>
PARTY (CITY/COUNTRY) TERRITORY PRODUCT TERM EXCLUSIVITY
------------------- --------- ------- ---- -----------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Martin Olsson Handels Sweden and Norway D2, D2 Max, & Can be terminated at any time. Exclusivity in Sweden & Norway has
Aktiebolag AG assoc. software expired due to not achieve sales
Arsta, Sweden targets. Gentlemen's agreement not
to introduce new distributor in
area at this time.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Plastos Iceland D2, D2 Max, & Can be terminated at any time. None contracted. Gentlemen's
Reykjavik, Iceland assoc. software Commiment to review agreement not to introduce new
relationship at 12/31/98. distributor in area through
review period.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Scal France D2, D2 Max, & Can be terminated at any time. None contracted. Gentlemen's
Courtabouef, France assoc. software Commitment to review agreement not to introduce new
relationshp at 12/31/98. distributor in area through review
period. TurboChef is allowed to
develop existing direct contacts
with Pizza Pal.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Import Hispania Spain and Spanish D2, D2 Max, & Can be terminated at any time. None contracted. Gentlemen's
Vitoria, Spain Islands assoc. software Commitment to review agreement not to introduce new
(Canaries/Majorca) relationship at 12/31/98 distributor in area through
review period.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Masser Hammond Ireland D2, D2 Max, & Can be terminated at any time. None contracted. Gentlemen's
Dublin, Ireland assoc. software Commitment to review agreement not to introduce new
relationship at 12/31/98 distributor in area through
review period.
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Specialty Food Kansas, Western D2, D2 Max, & Can be terminated at any time. None contracted. Gentlemen's
Equipment Missouri, Northwest assoc. software agreement not to introduce new
Kansas City, Kansas Arkansas, distributor in area at this time.
United States Northeast Oklahoma
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Kanematsu Japan D2, D2 Max, & Up to November 4, 1999 Japan
Tokyo, Japan assoc. software
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<PXGE>
XXXXXXX X
XXXXXX XXXXXXX XXXXXXX
<TABLE>
<CAPTION>
XXXXXX XXXXXXXXX XXXXXXXXXXXXXX XXXXXXXX XXXXXXXXXXX
---------------- ----------------------- -----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
XXXXX XXXXX XXXXX XXXXXXXX XXXX XXXXX XX XXXXXXXXX XXXX XX XXXXXXXX XXXXXXXX XX XXX XXXXX XXXXXX
XXXXXXX XXXXXXX X XXXXXXX XXXXXXXXXXXX
XXX XXXXXXXX
- ------------------------------------------------------------------------------------------------------------------------------------
XXXXXXXXXXX XX XXXXX XXXXXXX XXXXXXXX XXXXXXX XXXXXXXXXXX XXXXXX XXXXXXXXXXX XXXXXXXXXXX XXXX XX XXXXXXXX XXXXXXXX
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13
<PAGE>
EXHIBIT 10.31
REVOLVING CREDIT AGREEMENT BETWEEN CHASE BANK OF TEXAS
NA AND TURBOCHEF TECHNOLOGIES, INC. DATED JULY 1, 1998.
<PAGE>
CREDIT AGREEMENT
(BORROWING BASE)
THIS CREDIT AGREEMENT (as amended, restated and supplemented from time to time,
this "AGREEMENT") by and between TURBOCHEF TECHNOLOGIES, INC. ("BORROWER") and
--------- --------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION ("BANK") is dated as of July 1, 1998
----
(the "EFFECTIVE DATE").
--------------
1. THE LOANS.
---------
REVOLVING CREDIT NOTE 1.1 Subject to the terms and conditions hereof, Bank
agrees to make loans ("LOAN" or "LOANS") to Borrower from time to time before
---- -----
the Termination Date, not to exceed at any one time outstanding the lesser of
the Borrowing Base or $3,000,000.00 (the "COMMITMENT"). Borrower has the right
----------
to borrow, repay and reborrow. The Loans may only be used for finance short term
working capital needs. Chapter 346 of the Texas Finance Code (which governs
certain revolving loan accounts) will not apply to this Agreement, the Note or
any Loan. The Loans will be evidenced by, and will bear interest and be payable
as provided in, the promissory note of Borrower dated the Effective Date
(together with any and all renewals, extensions, modifications and replacements
thereof and substitutions therefor, the "NOTE"). "TERMINATION DATE" means the
---- ----------------
earlier of: (a) July 1, 1999; or (b) the date specified by Bank pursuant to
Section 6.1 hereof.
- -----------
BORROWING BASE 1.2 The "BORROWING BASE" will be the amount shown as the
--------------
BORROWING BASE on the most recent Borrowing Base Report, subject to verification
by Bank and determination by Bank at any time and calculated using the
eligibility criteria, borrowing base factors, dollar ceilings for various
components and any deductions specified in the attached EXHIBIT A incorporated
---------
herein by reference.
REQUIRED PAYMENT 1.3 If the unpaid amount of the Loans at any time exceeds the
Borrowing Base then in effect, Borrower must make a payment on the Note in an
amount sufficient to reduce the unpaid principal balance of the Note to an
amount no greater than the Borrowing Base. Such payment shall be accompanied by
any prepayment charge required by the Note and shall be due concurrently with
the Borrowing Base Report. In lieu of such mandatory prepayment, Borrower may
pledge additional Maytag Corporation common stock in an amount sufficient to
bring Borrower back into compliance with the Borrowing Base requirements set
forth herein. Such mandatory prepayment or pledge of additional Maytag stock
must be made by Borrower within five (5) business days of notice to Borrower,
which notice may be given either orally or in writing by Bank, unless the
mandatory prepayment or pledge of additional Maytag stock is necessary to comply
(in Bank's sole discretion and determination) with Regulation U or any other
legal requirement affecting the Loan in which case the mandatory prepayment or
additional stock pledge is effective immediately.
COMMITMENT FEE 1.4 Borrower will pay a commitment fee (computed on the basis of
the actual number of days elapsed in a year comprised of 360 days) of .25% per
annum on the daily average difference between the Commitment and the principal
balance of the Note, from the date hereof to the Termination Date. The
Commitment fee is due and payable calendar quarterly, in arrears.
PAST DUE AMOUNTS 1.5 Each amount due to Bank in connection with the Loan
Documents will bear interest from its due date until paid at the Highest Lawful
Rate unless the applicable Loan Document provides otherwise.
2. CONDITIONS PRECEDENT.
---------- ---------
ALL LOANS 2.1 Bank is not obligated to make any Loan unless: (a) Bank has
received the following, duly executed and in Proper Form: (1) a Request for
Loan, substantially in the form of Exhibit B, not later than one (1) Business
---------
Day before the date (which shall also be a Business Day) of the proposed Loan;
provided however, Bank may accept and act upon verbal advance requests received
from Borrower's representative reasonably believed by Bank to be authorized to
make such requests; (2) a Borrowing Base Report within the time required by this
Agreement; (3) the Collateral, free and clear of all restrictions; limitations,
legends or any other agreement that might serve to limit or restrict Bank's
ability to sell such stock in the event of an Event of Default, at least five
----
days prior to the first Request for Loan; and (4) such other documents as Bank
- ----
reasonably may require; (b) no Event of Default exists; and (c) the making of
the Loan is not prohibited by, or subjects Bank to any penalty or onerous
condition under any Legal Requirement.
FIRST LOAN 2.2 In addition to the matters described in the preceding section,
Bank will not be obligated to make the first Loan unless Bank has received all
of the Loan Documents specified on Annex I in Proper Form.
-------
3. REPRESENTATIONS AND WARRANTIES. To induce Bank to enter into this Agreement
------------------------------
and to make the Loans, Borrower represents and warrants as of the Effective Date
and the date of each request for a Loan that each of the following statements is
and shall remain true and correct throughout the term of this Agreement:
ORGANIZATION AND STATUS 3.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; has all power and authority to conduct its
business as presently conducted, and is duly qualified to do business and in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification desirable. Borrower has no Subsidiary other than
those listed on Annex II and each Subsidiary is owned by Borrower in the
--------
percentage set forth on Annex II. If Borrower is subject to the Texas Revised
--------
Partnership Act ("TRPA"), Borrower agrees that Bank is not required to comply
----
with Section 3.05(d) of TRPA and agrees that Bank may proceed directly against
one or more partners or their property without first seeking satisfaction from
partnership property.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to Bank are complete
and correct and fairly present, in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), the financial condition and the
----
results of operations of Borrower and each Subsidiary of Borrower as at the
dates and for the periods indicated. No material adverse change has occurred in
the assets, liabilities, financial condition, business or affairs of Borrower or
any Subsidiary of Borrower since the dates of such financial statements. Neither
Borrower nor any Subsidiary of Borrower is subject to any instrument or
agreement materially and adversely affecting its financial condition, business
or affairs.
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding obligations
of the Parties enforceable in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally. The execution, delivery and performance of the Loan
Documents have all been duly authorized by all necessary action; are within the
power and authority of the Parties; do not and will not violate any Legal
Requirement, the Organizational Documents of the Parties or any agreement or
instrument binding or affecting the Parties or any of their respective Property.
COMPLIANCE 3.4 Borrower and each Subsidiary of Borrower has filed all applicable
tax returns and paid all taxes shown thereon to be due, except those for which
extensions have been obtained and those which are being contested in good faith
and for which adequate reserves have been established. Borrower and each
Subsidiary of Borrower is in compliance with all applicable Legal Requirements
and manages and operates (and will continue to manage and operate) its business
in accordance with good industry practices. Neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other indebtedness or under any
agreement to which it is a party. The Parties have obtained all consents of and
registered with all Governmental Authorities or other Persons required to
execute, deliver and perform the Loan Documents.
LITIGATION 3.5 Except as previously disclosed to Bank in writing, there is no
litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting Borrower or any Subsidiary of Borrower before or by any Governmental
Authority.
TITLE AND RIGHTS 3.6 Borrower and each Subsidiary of Borrower has good and
marketable title to its Property, free and clear of any Lien except for Liens
permitted by this Agreement and the other Loan Documents. Except as otherwise
expressly stated in the Loan Documents or permitted by this Agreement, the Liens
of the Loan Documents will constitute valid and perfected first and prior Liens
on the Property described therein, subject to no other Liens whatsoever.
Borrower and each Subsidiary of Borrower possesses all permits, licenses,
patents, trademarks and copyrights required to conduct its business. All
easements, rights-of-way and other rights necessary to maintain and operate
Borrower's Property have been obtained and are in full force and effect.
Page 1 of 6 Pages
<PAGE>
Credit Agreement (With Borrowing Base) July 1, 1998
TurboChef Technologies, Inc.
REGULATION U; BUSINESS PURPOSE 3.7 None of the proceeds of any Loan will be
used to purchase or carry, directly or indirectly, any margin stock or for any
other purpose which would make this credit a "purpose credit" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System. Bank
expressly reserves the right to change the loan advance rate and collateral-to-
loan percentage upon notice to Borrower in order to comply with the requirements
of Regulation U. All Loans will be used for business, commercial, investment or
other similar purpose and not primarily for personal, family, or household use
or primarily for agricultural purposes as such terms are used in Chapter One of
the Texas Credit Code or any successor statute.
ENVIRONMENT 3.8 Borrower and each Subsidiary of Borrower have complied with
applicable Legal Requirements in each instance in which any of them have
generated, handled, used, stored or disposed of any hazardous or toxic waste or
substance, on or off its premises (whether or not owned by any of them). Neither
Borrower nor any Subsidiary of Borrower has any material contingent liability
for non-compliance with environmental or hazardous waste laws. Neither Borrower
nor any Subsidiary of Borrower has received any notice that it or any of its
Property or operations does not comply with, or that any Governmental Authority
is investigating its compliance with, any environmental or hazardous waste laws.
INVESTMENT COMPANY ACT/PUBLIC UTILITY HOLDING COMPANY ACT 3.9 Neither Borrower
nor any Subsidiary of Borrower is an "investment company" within the meaning of
the Investment Company Act of 1940 or a "holding company" or an "affiliate" of a
"holding company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
STATEMENTS BY OTHERS 3.10 All statements made by or on behalf of Borrower, any
Subsidiary of Borrower or any other of the Parties in connection with any Loan
Document constitute the joint and several representations and warranties of
Borrower hereunder.
4. AFFIRMATIVE COVENANTS. Borrower agrees to do, and if necessary cause to be
---------------------
done, and cause its Subsidiaries to do, each of the following:
CORPORATE FUNDAMENTALS 4.1 (a) Pay when due all taxes and governmental charges
of every kind upon it or against its income, profits or Property, unless and
only to the extent that the same shall be contested in good faith and adequate
reserves have been established therefor; (b) Renew and keep in full force and
effect all of its licenses, permits and franchises; (c) Do all things necessary
to preserve its corporate existence and its qualifications and rights in all
jurisdictions where such qualification is necessary or desirable; (d) Comply
with all applicable Legal Requirements; and (e) Protect, maintain and keep in
good repair its Property and make all replacements and additions to its Property
as may be reasonably necessary to conduct its business properly and efficiently.
INSURANCE 4.2 Maintain insurance with such reputable financially sound insurers,
on such of its Property and personnel, in such amounts and against such risks as
is customary with similar Persons or as may be reasonably required by Bank, and
furnish Bank satisfactory evidence thereof promptly upon request. These
insurance provisions are cumulative of the insurance provisions of the other
Loan Documents. Bank must be named as a beneficiary, loss payee or additional
insured of such insurance as its interest may appear and Borrower must provide
Bank with copies of the policies of insurance and a certificate of the insurer
that the insurance required by this section may not be canceled, reduced or
affected in any manner without 30 days' prior written notice to Bank.
FINANCIAL INFORMATION/BORROWING BASE REPORT 4.3 Furnish to Bank in Proper Form
(i) the financial statements prepared in conformity with GAAP on consolidated
and consolidating bases and the other information described in, and within the
times required by, Exhibit C, Reporting Requirements, Financial Covenants and
---------
Compliance Certificate attached hereto and incorporated herein by reference;
(ii) the Borrowing Base Report substantially in the form of, and within the time
required by, Exhibit A along with the other information required by Exhibit A to
--------- ---------
be submitted; (iii) within the time required by Exhibit C, Exhibit C signed and
--------- ---------
certified by the chief financial officer or president of Borrower; (iv) promptly
after such request is submitted to the appropriate Governmental Authority, any
request for waiver of funding standards or extension of amortization periods
with respect to any employee benefit plan; (v) copies of special audits,
studies, reports and analyses prepared for the management of Borrower by outside
parties and (vi) such other information relating to the financial condition and
affairs of the Borrower and guarantors and their Subsidiaries as Bank may
request from time to time in its discretion.
MATTERS REQUIRING NOTICE 4.4 Notify Bank immediately, upon acquiring knowledge
of (a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might adversely affect
Borrower; (b) any material adverse change in the assets, liabilities, financial
condition, business or affairs of Borrower; (c) any Event of Default; or (d) any
reportable event or any prohibited transaction in connection with any employee
benefit plan.
INSPECTION 4.5 Permit Bank and its affiliates to inspect and photograph its
Property, to examine and copy its files, books and records, and to discuss its
affairs with its officers and accountants, at such times and intervals and to
such extent as Bank reasonably desires.
ASSURANCES 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings that Bank may request to cure any
defect in the execution and delivery of any Loan Document or more fully to
describe particular aspects of the agreements set forth or intended to be set
forth in the Loan Documents.
CERTAIN CHANGES 4.7 Notify Bank at least 30 days prior to the date that any of
the Parties changes its name or the location of its chief executive office or
principal place of business or the place where it keeps its books and records or
the location of any of the Collateral.
EXHIBIT C 4.8 Comply with each of the other affirmative covenants set forth in
Exhibit C.
- ---------
COLLATERAL MAINTENANCE AGREEMENT 4.9 The Collateral Value shall at all times be
at least the Minimum, as defined in Section 8. If the Collateral to Loan
Percentage is ever less than the Minimum, then within ten (10) days of such
event: (i) Borrower will make a payment on the Note; and/or (ii) Borrower will
deliver to Bank as Marketable Collateral additional cash and/or marketable
investment securities acceptable to Bank; or Borrower will do any combination
of(i) and (ii); so that the Collateral Value is at least the Minimum. Bank will
not be obligated to make any advance under the Note when the Collateral to Loan
Percentage is less than the Minimum. If the Collateral to Loan Percentage
continues to be less than the Minimum after the elapse of the 10 day period
described in the preceding paragraph, a default and Event of Default shall exist
with respect to the Note and Security Agreement. Bank will have the right at any
time thereafter, and without the necessity of accelerating the Note, to sell all
or any portion of the Marketable Collateral and apply the proceeds as Bank
elects to some or all of the Obligations; which right is in addition to all
other rights in the Loan Documents.
5. NEGATIVE COVENANTS. The Borrower will not, and no Subsidiary of Borrower
------------------
will:
INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume or guarantee,
directly or indirectly, or become or remain liable with respect to, any funded
Indebtedness (defined as:(i) any borrowed money obligation from any lender
other than Bank, and (ii) capital lease obligations), contingent or otherwise
without prior written consent of Bank and unless subordinate to Bank, unless
there is a permitted amount set forth in Exhibit C, except: (a) Indebtedness to
--------- ------
Bank, or secured by Liens permitted by this Agreement, or otherwise approved in
writing by Bank, and renewals and extensions (but not increases) thereof; and
(b) current accounts payable and unsecured current liabilities, not the result
of borrowing, to vendors, suppliers and Persons providing services, for
expenditures for goods and services normally required by it in the ordinary
course of business and on ordinary trade terms.
LIENS 5.2 Create or permit to exist any Lien upon any of its Property now owned
or hereafter acquired, or acquire any Property upon any conditional sale or
other title retention device or arrangement or any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property, except: (a) Liens, not
------
for borrowed money, arising in the ordinary course of business; (b) Liens for
taxes not delinquent or being contested in good faith by appropriate
proceedings; (c) Liens in effect on the date hereof and disclosed to Bank in
Page 2 of 6 Pages
<PAGE>
Credit Agreement (With Borrowing Base) July 1, 1998
TurboChef Technologies, Inc.
writing, so long as neither the indebtedness secured thereby nor the Property
covered thereby increases; and (d) Liens in favor of Bank, or otherwise approved
in writing by Bank. Notwithstanding anything to the contrary herein, Borrower
will not, and no Subsidiary of Borrower will permit any Lien on any inventory
that secures the Loans unless Bank shall provide Borrower with Bank's prior
written consent.
FINANCIAL AND OTHER COVENANTS 5.3 Fail to comply with the required financial
covenants and other covenants described, and calculated as set forth, in Exhibit
-------
C. Unless otherwise provided on Exhibit C all such amounts and ratios will be
- -
calculated: (a) on the basis of GAAP; and (b) on a consolidated basis.
Compliance with the requirements of Exhibit C will be determined as of the dates
---------
of the financial statements to be provided to Bank.
CORPORATE CHANGES 5.4 In any single transaction or series of transactions,
directly or indirectly: (a) liquidate or dissolve; (b) be a party to any merger
or consolidation; (c) sell or dispose of any interest in any of its
Subsidiaries, or permit any of its Subsidiaries to issue any additional equity
other than to Borrower; (d) sell, convey or lease all or any substantial part of
its assets, except for sale of inventory in the ordinary course of business; (e)
------
permit any change in ownership of Borrower; or make any acquisition, without
prior written consent of Bank.
RESTRICTED PAYMENTS 5.5 Unless otherwise permitted on Exhibit C or with prior
---------
written consent of Bank, at any time: (a) redeem, retire or otherwise acquire,
directly or indirectly, any shares of its capital stock or other equity interest
(except for any employee stock option program); (b) declare or pay any dividend
------
(except stock dividends and dividends paid to Borrower); or (c) make any other
- -------
distribution or contribution of any Property or cash or obligation to owners of
an equity interest or to a Subsidiary in their capacity as such.
NATURE OF BUSINESS; MANAGEMENT 5.6 Without prior written consent of Bank, change
the nature of its business or enter into any business which is substantially
different from the business in which it is presently engaged, or permit any
material change in its management.
AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any
Affiliate except upon terms substantially similar to those obtainable from
wholly unrelated sources.
SUBSIDIARIES 5.8 Form, create or acquire any Subsidiary.
LOANS AND INVESTMENTS 5.9 Unless otherwise provided on Exhibit C make any
---------
advance, loan, extension of credit, or capital contribution to or investment in,
or purchase, any stock, bonds, notes, debentures, or other securities of, any
Person, except: (a) readily marketable direct obligations of the United States
of America or any agency thereof with maturities of one year or less from the
date of acquisition; (b) fully insured certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial bank
operating in the United States of America having capital and surplus in excess
of $50,000,000.00; and (c) commercial paper of a domestic issuer if at the time
of purchase such paper is rated in one of the two highest rating categories of
Standard and Poor's Corporation or Moody's Investors Service.
6. EVENTS OF DEFAULT AND REMEDIES.
------------------------------
EVENTS OF DEFAULT 6.1 Each of the following is an "EVENT OF DEFAULT":
----------------
(a) Any Obligor fails to pay any principal of or interest on the Note or any
other obligation under any Loan Document as and when due; or
(b) Any Obligor or any Subsidiary of Borrower fails to pay at maturity, or
within any applicable period of grace, any principal of or interest on any other
borrowed money obligation or fails to observe or perform any term, covenant or
agreement contained in any agreement or obligation by which it is bound; or
(c) Any representation or warranty made in connection with any Loan Document
was incorrect, false or misleading when made; or
(d) Any Obligor violates any covenant contained in any Loan Document; or
(e) An event of default occurs under any other Loan Document; or
(f) Final judgment for the payment of money is rendered against Obligor or any
Subsidiary of Borrower and remains undischarged for a period of 30 days during
which execution is not effectively stayed; or
(g) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by this Agreement) of any of the Collateral or the making of any levy,
seizure, garnishment, sequestration or attachment thereof or thereon; or the
loss, theft, substantial damage, or destruction of any material portion of such
Property; or
(h) Any order is entered in any proceeding against Borrower or any Subsidiary
of Borrower decreeing the dissolution, liquidation or split-up thereof, and such
order shall remain in effect for 30 days; or
(i) Any Obligor or any subsidiary of Borrower makes a general assignment for
the benefit of creditors or shall petition or apply to any tribunal for the
appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against any
Obligor or any subsidiary of Borrower and the Obligor or such subsidiary by any
act or omission shall indicate approval thereof, consent thereto or acquiescence
therein, or an order shall be entered appointing a trustee, custodian, receiver
or liquidator of all or any substantial part of the assets of any Obligor or any
subsidiary of Borrower or granting relief to any Obligor or any subsidiary of
Borrower or approving the petition in any such proceeding, and such order shall
remain in effect for more than 30 days; or any Obligor or any subsidiary of
Borrower shall fail generally to pay its debts as they become due or suffer any
writ of attachment or execution or any similar process to be issued or levied
against it or any substantial part of its property which is not released,
stayed, bonded or vacated within 30 days after its issue or levy; or
(j) Any Obligor or any Subsidiary of Borrower conceals or removes any part of
its Property, with intent to hinder, delay or defraud any of its creditors,
makes or permits a transfer of any of its Property which may be fraudulent under
any bankruptcy, fraudulent conveyance or similar law; or makes any transfer of
its Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or
(k) A material adverse change occurs in the assets, liabilities, financial
condition, business or affairs of any Obligor or any Subsidiary of Borrower; or
(l) Any individual Obligor dies or any Obligor that is not an individual
dissolves.
IF ANY EVENT OF DEFAULT OCCURS, then Bank may do any or all of the following:
(1) declare the Obligations to be immediately due and payable without notice of
acceleration or of intention to accelerate, presentment and demand or protest,
all of which are hereby expressly waived; (2) without notice to any Obligor,
terminate the Commitment and accelerate the Termination Date; (3) set off, in
any order, against the indebtedness of Borrower under the Loan Documents any
debt owing by Bank to Borrower (whether such debt is owed individually or
jointly), including, but not limited to, any deposit account, which right is
hereby granted by Borrower to Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise.
REMEDIES CUMULATIVE 6.2 No remedy, right or power of Bank is exclusive of any
other remedy, right or power now or hereafter existing by contract, at law, in
equity, or otherwise, and all remedies, rights and powers are cumulative.
7. MISCELLANEOUS.
-------------
NO WAIVER 7.1 No waiver of any default or Event of Default will be a waiver of
any other default or Event of Default. No failure to exercise or delay in
exercising any right or power under any Loan Document will be a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or power.
The making of any Loan during either the existence of any default or Event of
Default, or subsequent to the occurrence of an Event of Default will not be a
waiver of any such default or Event of Default. No amendment, modification or
waiver of any Loan Document will be effective unless the same is in writing and
signed by the Person against whom such amendment, modification or waiver is
sought to be enforced. No notice to or demand on any Person shall entitle any
Person to any other or further notice or demand in similar or other
circumstances.
NOTICES 7.2 All notices required under the Loan Documents shall be in writing
and either delivered against receipt therefor, or mailed by registered or
certified mail, return receipt requested, in each case addressed to the address
shown on the signature page hereof or to such other address as a party may
designate. Except for the notices required by Section 2.1, which shall be given
-----------
only upon actual receipt by Bank, notices shall be deemed to have been given
(whether actually received or not) when delivered (or, if mailed, on the next
Business Day).
Page 3 of 6 Pages
<PAGE>
Credit Agreement (With Borrowing Base) July 1, 1998
TurboChef Technologies, Inc.
GOVERNING LAW/ARBITRATION 7.3 (a) UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT IS GOVERNED BY TEXAS LAWS AND THE APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. To the maximum extent permitted by law, any controversy or claim
arising out of or relating to the Loans or any Loan Document, including but not
limited to any claim based on or arising from an alleged tort or an alleged
breach of any agreement contained in any of the Loan Documents, shall, at the
request of any party to the Loan or Loan Documents (either before or after the
commencement of judicial proceedings), be settled by mandatory and binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA Rules") and pursuant to Title 9 of the United
----------
States Code, or if Title 9 does not apply, the Texas General Arbitration Act. In
any arbitration proceeding: (i) all statutes of limitations which would
otherwise be applicable shall apply; and (ii) the proceeding shall be conducted
in the city in which the office of Bank originating the Loans is located, by a
single arbitrator if the amount in controversy is $1 million or less, or by a
panel of three arbitrators if the amount in controversy (including but not
limited to all charges, principal, interest fees and expenses) is over $1
million. Arbitrators are empowered to resolve any controversy by summary rulings
substantially similar to summary judgments and motions to dismiss. Arbitrators
may order discovery conducted in accordance with the Federal Rules of Civil
Procedures. All arbitrators will be selected by the process of appointment from
a panel, pursuant to the AAA Rules. Any award rendered in the arbitration
proceeding will be final and binding, and judgment upon any such award may be
entered in any court having jurisdiction.
(b) If any party to the Loan or Loan Documents files a proceeding in any court
to resolve any controversy or claim, such action will not constitute a waiver of
the right of such party or a bar to the right of any other party to seek
arbitration under the provisions of this Section or that of any other claim or
controversy, and the court shall, upon motion of any party to the proceeding,
direct that the controversy or claim be arbitrated in accordance with this
Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies including
but not limited to setoff or repossession; (ii) foreclose any lien on or
security interest in any Collateral; or (iii) obtain relief from a court of
competent jurisdiction to prevent the dissipation, damage, destruction,
transfer, hypothecation, pledging or concealment of assets or Collateral
including, but not limited to attachments, garnishments, sequestrations,
appointments of receivers, injunctions or other relief to preserve the status
quo.
(d) To the maximum extent permitted by applicable law and the AAA Rules,
neither Bank nor any Obligor or any Affiliate, officer, director, employee,
attorney, or agent of either shall have any liability with respect to, and Bank
and each Obligor waives, releases, and agrees not to sue any of them upon, any
claim for any special, indirect, incidental and consequential damages suffered
or incurred by such Person in connection with, arising out of, or in any way
related to, this Agreement or any of the other Loan Documents. Each of Bank and
each Obligor waives, releases, and agrees not to sue each other or any of their
Affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of or in any way
related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
Nothing contained herein, however, shall be construed as a waiver of any
Obligor's or the Bank's right to compel arbitration of disputes pursuant to
subparagraphs (a) and (b), above.
(e) Nothing herein shall be considered a waiver of the right or protections
afforded Bank by 12 U.S.C. 91, Texas Banking Code Art. 342-609 or any similar
statute.
(f) Each party agrees that any other party may proceed against any other liable
Person, jointly or severally, or against one or more of them, less than all,
without impairing rights against any other liable Persons. A party shall not be
required to join the principal Obligor or any other liable Persons (e.g.,
sureties or guarantors) in any proceeding against any Person. A party may
release or settle with one or more liable Persons as the party deems fit without
releasing or impairing right to proceed against any Persons not so released.
SURVIVAL; PARTIES BOUND; TERM OF AGREEMENT 7.4 All representations, warranties,
covenants and agreements made by or on behalf of Borrower in connection with the
Loan Documents will survive the execution and delivery of the Loan Documents;
will not be affected by any investigation made by any Person, and will bind
Borrower and the successors, trustees, receivers and assigns of Borrower and
will benefit the successors and assigns of the Bank; provided that Bank's
--------
agreement to make Loans to Borrower will not inure to the benefit of any
successor or assign of Borrower. Except as otherwise provided herein, the term
of this Agreement will be until the later of the final maturity of the Note and
the full and final payment of all Obligations and all amounts due under the
Loan Documents.
DOCUMENTARY MATTERS 7.5 This Agreement may be executed in several identical
counterparts, on separate counterparts; each counterpart will constitute an
original instrument, and all separate counterparts will constitute but one and
the same instrument. The headings and captions in the Loan Documents have been
included solely for convenience and should not be considered in construing the
Loan Documents. If any provision of any Loan Document is invalid, illegal or
unenforceable in any respect under any applicable law, the remaining provisions
will remain effective. The Loans and all other obligations and indebtedness of
Borrower to Bank are entitled to the benefit of the Loan Documents.
EXPENSES 7.6 Any provision to the contrary notwithstanding, and whether or not
the transactions contemplated by this Agreement are consummated, Borrower agrees
to pay on demand all out-of-pocket expenses (including, without limitation, the
fees and expenses of counsel for Bank) in connection with the negotiation,
preparation, execution, filing, recording, modification, supplementing and
waiver of the Loan Documents and the making, servicing and collection of the
Loans. Borrower agrees to pay Bank's standard Documentation Preparation and
Processing Fee for preparation, negotiation and handling of this Agreement. The
obligations of the Borrower under this and the following section will survive
the termination of this Agreement.
INDEMNIFICATION 7.7 BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD BANK HARMLESS
FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, OBLIGATION, DAMAGE, PENALTY,
JUDGMENT, CLAIM, DEFICIENCY AND EXPENSE (INCLUDING INTEREST, PENALTIES,
ATTORNEYS' FEES AND AMOUNTS PAID IN SETTLEMENT) TO WHICH BANK MAY BECOME SUBJECT
ARISING OUT OF OR BASED UPON THE LOAN DOCUMENTS, OR ANY LOAN, INCLUDING THAT
RESULTING FROM BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT CAUSED BY BANK'S
------
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
NATURE OF OBLIGATIONS 7.8 If more than one Borrower executes this Agreement, all
of the representations, warranties, covenants and agreements of Borrower shall
be joint and several obligations of all Borrowers.
USURY NOT INTENDED 7.9 Borrower and Bank intend to conform strictly to
applicable usury laws. Therefore, the total amount of interest (as defined under
applicable law) contracted for, charged or collected under this Agreement or any
other Loan Document will never exceed the Highest Lawful Rate. If Bank contracts
for, charges or receives any excess interest, it will be deemed a mistake. Bank
will automatically reform the Loan Document or charge to conform to applicable
law, and if excess interest has been received, Bank will either refund the
excess to Borrower or credit the excess on any unpaid principal amount of the
Note or any other Loan Document. All amounts constituting interest will be
spread throughout the full term of the Loan Document or applicable Note in
determining whether interest exceeds lawful amounts.
NO COURSE OF DEALING 7.10 NO COURSE OF DEALING BY BORROWER WITH BANK, NO COURSE
OF PERFORMANCE AND NO TRADE PRACTICES OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE
MAY BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
AGREEMENT.
8. DEFINITIONS.
-----------
Unless the context otherwise requires, capitalized terms used in Loan Documents
and not defined elsewhere shall have the meanings provided by GAAP, except as
follows:
AFFILIATE means, as to any Person, any other Person (a) that directly or
- ---------
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person; (b) that directly or indirectly
beneficially owns or holds five percent (5%) or more of any class of voting
stock of such Person; or (c) five percent (5%) or more of the voting stock of
which is directly or indirectly beneficially owned or held by the Person in
question. The term "control" means to possess, directly or indirectly, the power
to direct the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise. Bank is not under any
circumstances to be deemed an Affiliate of Borrower or any of its Subsidiaries.
AGGREGATE BALANCE means the sum of the aggregate indebtedness evidenced by the
- -----------------
Note, both principal and accrued and unpaid interest; plus all amounts available
----
for borrowing under the Note.
Page 4 of 6 Pages
<PAGE>
Credit Agreement (With Borrowing Base) July 1, 1998
TurboChef Technologies, Inc.
AUTHORITY DOCUMENTS means certificates of authority to transact business,
- -------------------
certificates of good standing, borrowing resolutions (with secretary's
certificate), secretary's certificates of incumbency, and other documents which
empower and enable Borrower or its representatives to enter into agreements
evidenced by Loan Documents or evidence such authority.
BUSINESS DAY means a day when the main office of Bank is open for the conduct of
- ------------
commercial lending business.
COLLATERAL means all Property, tangible or intangible, real, personal or mixed,
- ----------
now or hereafter subject to Security Documents, or intended so to be.
COLLATERAL VALUE means the market value of the Marketable Collateral in which
- ----------------
Bank has a first priority nod perfected security interest. Bank may determine
the market value of the Marketable Collateral by any reasonable method, which
determination shall be deemed conclusive absent manifest error. Using published
figures in The Wall Street Journal or any reporting service used by Bank is
-----------------------
agreed to be reasonable.
COLLATERAL TO LOAN PERCENTAGE means the Collateral Value divided by the
- -----------------------------
Aggregate Balance.
CORPORATION means corporations, partnerships, limited liability companies, joint
- -----------
ventures, joint stock associations, associations, banks, business trust and
other business entities.
GOVERNMENT ACCOUNTS means receivables owed by the U.S. government or by the
- -------------------
government of any state, county, municipality, or other political subdivision as
to which Banks security interest or ability to obtain direct payment of the
proceeds is governed by any federal or state statutory requirements other than
those of the Uniform Commercial Code, including, without limitation, the Federal
Assignment of Claims Act of 1940, as amended.
GOVERNMENTAL AUTHORITY means any foreign governmental authority, the United
- ----------------------
States of America, any state of the United States and any political subdivision
of any of the foregoing, and any agency, department, commission, board, bureau,
court or other tribunal having jurisdiction over Bank of any Obligor, or any
Subsidiary of Borrower or their respective Property.
HIGHEST LAWFUL RATE means the maximum nonusurious rate of interest permitted to
- -------------------
be charged by applicable Federal or Texas law (whichever permits the higher
lawful rate) from time to time in effect. If Texas law determines the Highest
Lawful Rate, the Highest Lawful Rate is the weekly rate ceiling as defined in
Article 5069-1D.001 et seq., as amended, of the Texas Revised Civil Statutes.
INDEBTEDNESS means and includes (a) all items which in accordance with GAAP
- ------------
would be included on the liability side of a balance sheet on the date as of
which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, endorsements and
other contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others, and (c) all Indebtedness secured by
any Lien existing on any interest of the Person with respect to which
indebtedness is being determined, in Property owned subject to such Lien,
whether or not the Indebtedness secured thereby has been assumed.
LEGAL REQUIREMENT means any law, ordinance, decree, requirement, order,
- -----------------
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
LIEN shall mean any mortgage, pledge, charge, encumbrance, security interest,
- ----
collateral assignment or other lien or restriction of any kind, whether based on
common law, constitutional provision, statute or contract.
LOAN DOCUMENTS means this Agreement, the agreements, documents, instruments and
- --------------
other writings contemplated by this Agreement or listed on Annex I, all other
assignments, deeds, guaranties, pledges, instruments, certificates and
agreements now or hereafter executed or delivered to the Bank pursuant to any of
the foregoing, and all amendments, modifications, renewals, extensions,
increases and rearrangements of, and substitutions for, any of the foregoing.
MARKETABLE COLLATERAL means the financial assets listed below and all financial
- ---------------------
assets delivered or transferred to Bank or to Bank's control pursuant to this
Agreement: 90,000 shares common stock Maytag Corporation registered in the name
of Borrower.
MINIMUM is 125% of the Aggregate Balance.
- ------- ----
OBLIGATIONS means all principal, interest and other amounts which are or become
- -----------
owing under this Agreement, the Note or any other Loan Document.
OBLIGOR means each Borrower and any guarantor, surety, co-signer, general
- -------
partner or other person who may now or hereafter be obligated to pay all or any
part of the Obligations.
ORGANIZATIONAL DOCUMENTS means, with respect to a corporation; the certificate
- ------------------------
of incorporation, articles of incorporation and bylaws of such corporation; with
respect to a limited liability company, the articles of organization,
regulations and other documents establishing such entity, with respect to a
partnership, joint venture, or trust, the agreement, certificate or instrument
establishing such entity; in each case including all modifications and
supplements thereof as of the date of the Loan Document referring to such
Organizational Document and any and all future modifications thereof which are
consented to by Bank.
PARTIES means all Persons other than Bank executing any Loan Document.
- -------
PERSON means any individual, Corporation, trust, unincorporated organization,
- ------
Governmental Authority or any other form of entity.
PROPER FORM means in form and substance satisfactory to the Bank.
- -----------
PROPERTY means any interest in any kind of property or asset, whether real,
- --------
personal or mixed, tangible or intangible.
SECURITY DOCUMENTS means those Security Agreements listed on Annex I and all
- ------------------ -------
supplements, modifications, amendment, extensions thereof and all other
agreements hereafter executed and delivered to Bank to secure the Loans.
SUBORDINATED DEBT means any Indebtedness subordinated to Indebtedness due Bank
- -----------------
pursuant to a written subordination agreement in Proper Form by and among Bank,
subordinated creditor and Borrower which at a minimum must prohibit: (a) any
action by subordinated creditor which will result in an occurrence of an Event
of Default or default under this Agreement, the subordination agreement or the
subordinated Indebtedness; and (b) upon the happening of any Event of Default or
default under any Loan Document, the subordination agreement, or any instrument
evidencing the subordinated Indebtedness (i) any payment of principal and
interest on the subordinated Indebtedness; (ii) any act to compel payment of
principal or interest on subordinated Indebtedness; and (iii) any action to
realize upon any Property securing the subordinated Indebtedness.
SUBSIDIARY means, as to a particular parent Corporation, any Corporation of
- ----------
which 50% or more of the indicia of equity rights is at the time directly or
indirectly owned by such parent Corporation or by one or more Persons controlled
by, controlling or under common control with such parent Corporation.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BANK AND THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BANK AND THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this agreement as of the Effective
Date.
BORROWER: TURBOCHEF TECHNOLOGIES, INC.
By: /s/ DENNIS J. JAMESON
----------------------------------------------------------------------------
Name: Dennis J. Jameson
----------------------------------------------------------------------------
Title: EVP and CEO
---------------------------------------------------------------------------
Address: 10500 Metric Dr., Suite 128, Dallas, TX 75243
------------------------------------------------------------------------
BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By:
----------------------------------------------------------------------------
Name:
----------------------------------------------------------------------------
Title:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
EXHIBITS: ANNEXES:
Page 5 of 6 Pages
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 176,735
<SECURITIES> 8,970,303
<RECEIVABLES> 1,210,117
<ALLOWANCES> 0
<INVENTORY> 508,961
<CURRENT-ASSETS> 10,907,508
<PP&E> 935,175
<DEPRECIATION> 467,940
<TOTAL-ASSETS> 18,773,242
<CURRENT-LIABILITIES> 1,053,097
<BONDS> 0
0
0
<COMMON> 146,540
<OTHER-SE> 17,538,919
<TOTAL-LIABILITY-AND-EQUITY> 18,773,242
<SALES> 748,879
<TOTAL-REVENUES> 1,648,879
<CGS> 718,326
<TOTAL-COSTS> 2,513,881
<OTHER-EXPENSES> 26,246
<LOSS-PROVISION> (891,248)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (891,248)
<INCOME-TAX> 0
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<CHANGES> 0
<NET-INCOME> (891,248)
<EPS-PRIMARY> (.06)
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