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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
Form 10-K
For Annual and Transition Reports pursuant to Sections 13 or
15(d) of the Securities Exchange Act of 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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, including area code:
(214) 341-9471
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
Common Stock, $0.01 Par Value
(Title of Class)
_________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. YES [ ] NO [ ]
Aggregate Market Value of voting stock held by non-affiliates of the
Registrant at March 15, 1999: $52,689,312
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock, as of the latest practicable date.
Number of Shares Outstanding
Title of Each Class at March 15, 1999
------------------- -----------------
Common Stock, $0.01 Par Value 14,668,818
_________________________
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Registrant's definitive proxy materials for its 1999
annual meeting of stockholders are incorporated by reference in Part III hereof.
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TURBOCHEF TECHNOLOGIES, INC.
TABLE OF CONTENTS
Form 10-K Item Page
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Part I.
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 15
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Item 8. Financial Statements and Supplementary Data................. 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 25
Part III.
Item 10. Directors and Executive Officers of the Registrant.......... 26
Item 11. Executive Compensation...................................... 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................ 26
Item 13. Certain Relationships and Related Transactions.............. 26
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................... 27
Signatures.................................................. 32
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Item 1. Business
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General
TurboChef Technologies, Inc. ("TurboChef Technologies" or "the Company") is a
technology development firm that intends to be the leader in innovation for
residential and commercial appliances. Currently, it is engaged in designing,
developing and marketing proprietary cooking systems. These systems use
microprocessors to precisely control the distribution of energy used to cook
food over time and across space. Consequently, they achieve higher cooking
speeds and/or quality levels than are achievable with conventional cooking
technologies. In addition, the microprocessors give the cooking systems the
ability to communicate with users and service personnel over computer networks.
The Company's commercial products and technologies have been validated
through utilization and extensive testing by both the Company and a variety of
foodservice operators around the world. Now, the Company is preparing to bring
its technology to residential customers in North America through its Strategic
Alliance Agreement ("Maytag Alliance" or the "Alliance") with Maytag Corporation
("Maytag"). It is also exploring alliance relationships to introduce both the
commercial and residential technologies throughout the world. The Company
intends to build upon its core technology competency, to expand its technology
portfolio by developing other innovative products and increase market
penetration through joint venture, strategic alliance and/or licensing or other
arrangements with companies already engaged in the mass marketing and/or
manufacture of foodservice products.
The Company's commercial cooking systems, marketed under the name
TurboChef, employ the Company's proprietary cooking technologies to quickly,
efficiently and evenly transfer, disperse and control the heat used in the
cooking process. The Company's proprietary computerized control platform
monitors the cooking process and automatically adjusts cook settings during the
cooking cycle for optimum performance. These technologies provide foodservice
operators the flexibility to "cook-to-order" a variety of food items at speeds
which the Company believes are significantly faster than those permitted by
conventional commercial ovens, grills, microwave ovens, and other currently
available high-speed ovens, without sacrificing quality. Among the various
types of foods which can be cooked in a TurboChef cooking system are an 8-ounce
salmon filet in approximately 55 seconds, a 16-inch deluxe par-baked pizza in
approximately 75 seconds, a 1 1/4 lb. lobster in 110 seconds and three 10oz. T-
bone steaks in 160 seconds. In addition, because of the TurboChef cooking
system's moisture retention, browning and crisping capabilities, the Company
believes that the characteristics of most food items cooked in a TurboChef
cooking system (including their flavor, texture and appearance) are superior in
quality to those achieved using other rapid cook ovens, or microwave ovens, and
are equal to, or, in some cases, superior in quality to those achieved using
conventional ovens and grills.
The Company was incorporated on April 3, 1991, as a Kansas corporation and
was reincorporated on August 17, 1993, as a Delaware corporation. The Company
was privately held
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until April 7, 1994. The Company's principal corporate offices are located at
10500 Metric Drive, Suite 128, Dallas, Texas 75243 and its telephone number is
(214) 341-9471.
Rapid Cook Technology
Traditional cooking systems employ a wide range of processes for
transferring heat energy to food. These include: conduction (direct energy
transfer from a hot surface, as in a grill); natural convection (energy transfer
to and from naturally moving air, as in a typical home oven); forced convection
(energy transfer to and from mechanically circulated air, as in a typical
convection oven); air impingement (forced convection with rapidly moving air
directed at the food); induction (heating by the generation of electromagnetic
fields); microwave radiation (heating by the dissipation of microwave energy in
food); and infra-red radiation (heating by light whose wavelength falls below
that of the color red in the electromagnetic spectrum).
Newer cooking systems incorporate two or more of these conventional sources
of energy. For example, some allow cooks to use both microwaves and air
impingement. The Company believes that these systems generally do not provide
tangible advantages to both commercial and residential kitchens because they
typically operate each energy source independently without facilitating their
interaction.
In direct contrast, in its simplest form, the Company's unique, patented
system couples hot air with microwave energy. Just as the inter-twining of two
strings to form a rope gives the rope greater strength than the two strings
could provide on their own, so does the close coupling of the two energy
sources enable faster cooking at higher quality levels than is possible by each
energy source operating independently. The air is forced down from the top of
the oven and suctioned out through a return path that creates a tight air wrap
around food. The air wrap not only browns food more evenly, but also creates
temperature and moisture gradients that enable precisely targeted microwaves to
energize water molecules that cook the food. Microwave energy is introduced
from a direction directly opposite that of the direction of the air flow, thus
capturing the food between the two opposing energy gradients.
Two technological elements make possible the "coupling" described above.
First, precise mechanical design enables a spatial coupling. The flowing air
enshrouds the food in a fashion that is not achievable in traditional convection
or impingement ovens. The microwave energy is directed precisely at those
locations within the cooking cavity where it can contribute maximum value. In
contrast, in most conventional microwave ovens, the energy resonates throughout
the entire chamber. Second, a proprietary microprocessor system couples the hot
air and microwaves temporally. It allows the cook/chef to define the precise
airflow, microwave and, in some cases, temperature conditions required during
different phases of the cooking process.
As a result, the TurboChef system cooks food extremely rapidly, enabling
foods to retain their natural moisture and hence, their appearance, texture and
flavor. Specific advantages over alternative cooking systems include:
. Speed Single servings of most food items can be cooked in under 90 seconds.
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. Quality Foods retain much of their intrinsic moisture and as such, their
tenderness. They can also be browned and/or crisped as desired.
. Flexibility A filtration and proprietary catalyst system strips the air in
the oven of food particles and aromatic by-products of the cooking process.
Thus, foods with very different flavors can be sequentially cooked without
flavor transfer. Indeed, in some circumstances, different foods with similar
cooking characteristics can be cooked simultaneously. Moreover, no external
ventilation is required for most applications.
. Consistency Food cooks uniformly and evenly without the use of any special
ingredient or formulation. Moreover, the microprocessor automatically adjusts
cooking conditions to produce consistent quality even if the cooking process
is unexpectedly interrupted.
Other Products and Applications
The presence of the microprocessor as an intrinsic element of the oven also
gives TurboChef cooking systems a powerful tool to communicate with its users.
For example, cooking programs can be downloaded via computer modem into the
cooking system and the cooking system routinely monitors its own performance
and diagnoses possible problems. To facilitate this process, for its commercial
customers, the Company has developed (and is continuing to enhance and refine)
ChefComm(TM), a software that enables Executive Chefs of food service chains to
program the cooking systems centrally. Thus, for most food service chains, the
use of this system can provide a higher level of cooking quality than is
currently possible. Planned enhancements to ChefComm will also improve oven
reliability -- a critically important food service need.
History
The Company was founded in April 1991, and until March 1994 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 April 1994, the
Company completed an underwritten initial public offering, resulting in net
proceeds of just over $5 million, and became publicly traded on the NASDAQ Small
Cap Stock Market. The Company's common stock was approved for trading on the
NASDAQ National Market effective March 1, 1999. The emphasis on research and
development continued into its first major contract with Whitbread PLC
("Whitbread") in June 1995, when the Company introduced an enhanced product, the
Model D-2 cooking system. The Company concentrated its efforts on the Whitbread
rollout throughout 1996. Whitbread commenced a 30-store test program in the fall
of 1998 in its Pub Partnership Division. As of December 31, 1998, 451 units
have been sold to Whitbread.
In June 1996, the Company completed a secondary public offering of Common
Stock (the "June 1996 Offering") which yielded approximately $10.3 million for
the Company. After the June 1996 Offering, the Company began development of a
direct sales organization in the US. During the first quarter of 1997, the
Company had substantially developed a US direct sales
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infrastructure and marketing program.
In January 1997, the Company entered into a joint venture with The Queally
Group, a large food manufacturer based in Ireland, and formed TurboChef Europe
Limited. The objective of this alliance was to market the Company's cooking
technologies together with value-added food products developed and produced by
Queally. Sales efforts were conducted through the establishment of distribution
agreements with regional foodservice equipment distributors throughout Western
Europe. This joint venture was terminated by mutual agreement in June 1998.
Since that date, the Company has concentrated its European sales and marketing
efforts in the UK region under a new management team operating out of its UK
office.
In January 1997, the Company established a business development office in
Kyoto, Japan to evaluate opportunities within the Asian market. In June 1998
the Company consummated a Purchase Agreement with Japan's Kanematsu Corporation,
a $30 billion multi-national trading company. Pursuant to this agreement,
Kanematsu agreed to purchase a minimum quantity of cooking systems to be
primarily used for market development and seeding. The cooking systems are
marketed through the cooperative efforts of a major Japanese foodservice
equipment distributor (FMI) and a high profile food consultant (Feast
International).
In September 1997 the Company entered into a strategic alliance with Maytag
Corporation to jointly develop residential foodservice products utilizing the
Company's technologies. The Alliance entailed a mutual exchange of each
company's common stock valued at approximately $10 million and Maytag's payment
to TurboChef Technologies for certain research and development activities
related to targeted product initiatives. The Strategic Alliance umbrella
agreement is open-ended and provides for the opportunity of establishing
specific project agreements. In October 1997 the Company entered its first
project agreement with Maytag to explore the potential for adapting the
Company's rapid cook technologies for residential use. The Company received
funding from Maytag for its efforts during this six-month project. In March
1998, a second residential project was initiated pursuant to which the Company
was to develop specific residential cooking prototypes for Maytag. The Company
received research and development fees for this project, which was completed in
March 1999. In July 1998, the Maytag Alliance was expanded to include an
agreement, which calls for Maytag to lead the Company's commercial sales and
marketing initiatives in North America. In addition, Maytag agreed to pay
certain technology transfer fees for research and development activities related
to targeted commercial initiatives. As the Company has previously reported, the
current phase of targeted research and development and the associated per month
payments ended in January and March 1999, respectively. Accordingly, future
revenues from the Maytag Alliance will depend upon the establishment of
additional fee based research and development projects with Maytag and royalties
from the successful commercialization and sales of the products that embody the
Company's technologies.
Opportunities and Strategy
The Company believes that its long-term success is dependent upon the
successful commercialization of its cooking technologies in commercial and
residential products and upon leveraging its core competencies of developing new
innovative technologies. While pursuit of
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opportunities in the commercial cooking markets will continue as a priority, the
Company is also devoting meaningful resources to take advantage of the shift in
American family trends in recent years. Traditionally, the husband was the
primary breadwinner and would arrive home in time for dinner, while the wife
generally did not work outside the home and would prepare dinner for the family
each evening. The shift to two-income families, coupled with longer working
hours, children's activities and increased commute times have threatened to
render the traditional family dinner obsolete. While many families have worked
hard to maintain the traditional family dinner, the length of time required for
the meal preparation process has made this difficult. Families have shifted to
eating at fast-food restaurants, buying pre-packaged frozen foods that can be
prepared quickly in a microwave oven, or eating so-called "junk-food", often
sacrificing food quality and nutrition, as well as the interaction between
family members once prevalent at the evening meal.
TurboChef Technologies believes that its rapid cook technology provides a
potential solution to this dilemma along with an overall improvement in family
lifestyle. As Maytag's recently introduced "white paper," The Future of Cooking,
points out, the Company's residential oven will reduce cooking times to as
little as one-fifth of traditional cook times. For example, a three-pound whole
chicken can be cooked to perfection in 21 minutes, a task that typically takes
up 1 hour and 15 minutes. When available to consumers, the oven will be the
first appliance that delivers the possibility of a stress-free approach to
building family ties over a home-cooked meal. In addition, it can enable the
preparation of quality meals at the spur of the moment. Whether people decide to
prepare home-cooked meals on a nightly basis or simply cook frozen casseroles,
they are likely to experience more time to enjoy dinner. Just as importantly,
the oven will bake, roast, broil, brown and crisp while at least maintaining
nutrition, taste, texture and appearance that is at least comparable to that of
food cooked in conventional ovens.
The Maytag Alliance allows the Company to refocus on its core competencies
of developing new technologies and innovative products, while gaining access to
Maytag's substantial expertise and capabilities in commercializing,
manufacturing, marketing and distributing residential and commercial appliances.
In addition, Maytag has agreed to make certain payments to fund research and
development efforts for mutually agreed upon project initiatives. This Alliance
places a significant amount of dependence upon Maytag's overall infrastructure
capabilities and financial support. However, the Company believes that having a
partner with Maytag's qualities, one that is pursuing innovation as an important
element of its long-term growth strategy, better positions TurboChef
Technologies to continue developing innovative products, expand on its core
technologies and be successfully marketed and commercialized to consumers
worldwide. The Company is also exploring the development of other strategic
alliance, joint venture and/or licensing arrangements outside of North America.
A strategic synopsis by region is as follows:
North America. Since inception, the Company has maintained a direct sales
and marketing organization focused on the commercial foodservice industry in
North America. However, the revolutionary nature of the Company's technologies,
coupled with large restaurant chain operators' historical resistance to change
and the Company's lack of brand strength has
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limited commercial sales. To address this issue, the Company has entered into an
agreement with Maytag to cooperate in the sales and marketing of the Company's
commercial cooking systems in North America. The Alliance, in cooperation with
G.S. Blodgett Corporation, Maytag's commercial foodservice equipment subsidiary,
has developed a comprehensive consultative selling program, which more
effectively identifies and quantifies the benefits of implementing the TurboChef
cooking system. This program offers the foodservice operator total system
solutions, including customized hardware applications, full equipment line-up,
quality and productivity enhancing software and professional services that
include kitchen design, concept development and new formulation.
The Company is also nearing completion of the product development phase of
the Alliance's first residential project. The Alliance is now focusing on the
commercialization and launch of the first residential cooking product
incorporating the Company's technologies under Maytag's heritage-cooking brand,
Jenn-Air. The Company believes that Maytag's commitment to innovation coupled
with their brand leadership and capabilities in marketing, manufacturing and
distribution in residential and commercial cooking are ideal complements to the
Company's technology and development assets.
Europe. Previously, a joint venture with the Queally Group had been
established, with the objective to market the Company's cooking technologies
through European food equipment distributors together with value-added food
products developed and produced by Queally. The strategy did not prove to be
effective and the joint venture was terminated by mutual agreement in June 1998.
Direct marketing efforts utilizing the consultative selling program have been
established under a new Managing Director in the UK. In total, 87 units were
sold throughout Europe during 1998.
Japan. In January 1997, the Company established a business development
office in Japan to evaluate opportunities in the Japanese market. In June 1998,
the Company entered into a Purchase Agreement with Kanematsu, a $30 billion
trading company. To facilitate cooking system sales, relationships were
established with FMI (Food Machines International), a foodservice distribution
company, and Feast International, a Japanese foodservice consulting firm.
Efforts to "seed" the Japanese market will continue along with ongoing
assessments of the commercial and residential business opportunities. In
October 1998, the Japanese government's Ministry of International Trade (MITI)
approved the TurboChef model D-2 cooking system and sales were initiated. In
total, 32 units were sold in Japan during 1998.
TurboChef Technologies believes that the combination of the Strategic
Alliance with Maytag for sales and marketing in North America, its own
international selling activities and success in developing other alliances,
joint venture and/or licensing arrangements outside of North America, will
enable the broad commercialization of the Company's technologies in both
commercial and residential markets.
Production and Supply
Throughout 1998, the Company relied on one contract manufacturer, Techniform
Waterford Ltd., based in Waterford, Ireland, to build its commercial cooking
systems. However, the Company is currently in the process of arranging for the
transition of the manufacturing of its commercial cooking systems to G.S.
Blodgett Corporation, a Maytag subsidiary specializing in the manufacturing and
sale of commercial foodservice equipment. This transition is expected to deliver
enhanced product
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quality and cost advantages. It is anticipated that Blodgett will be able to
provide the necessary production requirements to fulfill demand.
In anticipation of the transition, the Company had a supply of cooking
systems built to fulfill sales demand during this period.
The Company has been and will continue to be dependent on third parties for
the supply and manufacture of all of its component and electronic parts,
including both standard components and specially-designed component parts, such
as the printed circuit computer boards and wiring harnesses used in the
TurboChef cooking systems. The Company generally does not maintain supply
agreements with such third parties but instead purchases components and
electronic parts pursuant to purchase orders in the ordinary course of business.
The Company is substantially dependent on the ability of its manufacturers and
suppliers to, among other things, meet the Company's design, performance and
quality specifications. Failure by the Company's manufacturers and suppliers to
comply with these and other requirements could have a material adverse effect on
the Company.
The Company has required that its contract manufacturers follow generally
accepted industry standard quality control procedures. In addition, the Company
maintains its own quality assurance personnel and testing capabilities to assist
its contract manufacturers with their respective quality programs and to perform
periodic audits of manufacturing facilities and finished products to ensure the
integrity of the quality assurance procedures. Component parts furnished to the
Company by its suppliers and manufacturers are generally covered by a one-year
limited warranty and contract manufacturers furnish a limited warranty for any
of their manufacturing or assembly defects.
The Company's manufacturing cycle, which is the period from the execution
of a purchase order until actual shipment of the product to the customer,
generally ranges from two to six weeks for small volume cooking system sales and
up to one or two months longer for initial shipments to commence under large
multi-cooking system purchase contracts. Pursuant to the Company's warranty
policy, the Company will accept the return of a cooking system if the cooking
system does not perform according to product specifications. For certain
potentially large customers, who wish to test and evaluate a cooking system
prior to purchase, the Company occasionally offers one or more units at a
reduced price for such evaluation.
Research and Development
During the years ended December 31, 1998, 1997 and 1996, the Company
incurred costs related to research and development activities in the amounts of
$2,311,000, $1,220,000, and $681,000, respectively. It is the intention of the
Company to continue to invest in the continued development of its core
technologies and related applications to the extent needed to establish them as
a major world-wide cooking platform. In particular, in the area of cooking, the
Company plans to continue improving the performance of its commercial system and
embody the core technology in a broader range of cooking appliances. The Company
also plans to complete the development of its first residential cooking system
and to work closely with Maytag to develop other residential embodiments of its
cooking technologies. Finally, the Company plans to develop and enhance a range
of software products for residential and commercial kitchens to enable users to
extract more value from their cooking systems.
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Competition
The commercial cooking and warming segment of the foodservice equipment
market is characterized by intense competition. The Company competes with
numerous well-established manufacturers and suppliers of conventional commercial
ovens, grills and fryers (including those that cook through the use of
conduction, convection, induction, air impingement, infrared and/or microwave
heating methods). In addition, the Company is aware of others who are
developing, and in some cases have introduced, new ovens based on high-speed
heating methods and technologies. Although the Company is not aware of any
competitive products, either being marketed or under development, which it
believes are functionally equivalent to the TurboChef cooking system (i.e., that
can produce the variety of food items, cooked to the same high quality
standards, at the same speeds), there can be no assurance that other companies
with greater financial resources would not attempt to develop competitive
products or that functionally equivalent products will not become available in
the near future. Most of the Company's competitors possess substantially greater
financial, marketing, personnel and other resources than TurboChef Technologies
and have established reputations relating to the development, manufacture,
marketing and service of cooking equipment. Among the Company's major
competitors in the cooking and warming segment of the foodservice equipment
market are: The Middleby Corporation and certain of its subsidiaries; the
commercial foodservice equipment division of Welbilt Corporation, including,
Lincoln Foodservice Products, Inc.; Quadlux, Inc.; Vulcan-Hart Corporation, a
subsidiary of Premark International, Inc.; Groen, Inc., a subsidiary of Dover
Corporation; and Amana.
The competitive activity has also increased in the emerging residential rapid
cook sector, and there can be no assurance that other companies with greater
financial resources and expertise would not attempt to develop or are currently
developing functionally competitive products that may become available in the
near future. The major competitors at this juncture include General Electric,
Thermador, Enersyst, Amana and Quadlux.
Regulation and Accreditation
The Company is subject to regulations administered by various federal,
state, local and international authorities, such as the United States Food and
Drug Administration, the Federal Communication Commission, the European
Community Council and the Japanese Government's Ministry of International Trade
(MITI) (including those limiting radiated emissions from the Company's cooking
system products), which impose significant compliance burdens on the Company.
Failure to comply with these regulatory requirements may subject the Company to
civil and criminal sanctions and penalties. While the Company believes that its
products are in compliance in all material respects with all laws and
regulations applicable to the Company and such products, there can be no
assurance of such compliance. The Company tests, from time to time, the cooking
systems in order to confirm continued compliance with applicable regulatory
requirements. Management believes that compliance with these laws and
regulations will not require substantial capital expenditures or have a material
adverse effect on the Company's future operations.
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New legislation and regulations, as well as revisions to existing laws and
regulations (at the federal, state and local levels, in the United States and/or
in foreign markets) affecting the foodservice equipment and residential
appliance industries may be proposed in the future. Such proposals could affect
the Company's operations, result in material capital expenditures, affect the
marketability of the Company's existing products and technologies and/or could
limit or create opportunities for the Company with respect to modifications of
its existing products or with respect to its new or proposed products or
technologies. In addition, an expanded level of operations of the Company in the
future could require the Company to modify or alter its methods of operation at
costs which could be substantial and could subject the Company to increased
regulation, and expansion of the Company's operations into additional foreign
markets may require the Company to comply with additional regulatory
requirements.
The Company has received certification from Underwriter's Laboratories,
Inc. ("UL(R)") as to compliance of the Company's Model D-2 and D-2 Max TurboChef
cooking system with applicable UL(R) requirements relating to product safety
accreditation standards and with the applicable requirements of the National
Sanitation Federation ("NSF") relating to cleanability and sanitation
accreditation standards. UL(R) and NSF are agencies which have established
certain standards for a variety of categorized products and can be engaged to
inspect a manufacturer's products for compliance with the applicable standards.
Certification by each agency authorizes the marking of any such product with the
agency's labels, which indicates that the product is approved by the agency for
such use. Such certifications, which require periodic renewal, only represent
compliance with established standards and are not legally required. However,
failure by the Company to comply with these accreditation standards in the
future could have a material adverse effect on the Company's marketing efforts.
In addition, the Company has met the requirements necessary to apply the "CE"
mark (which indicates compliance with the European Community Council directive
relating to electromagnetic compatibility and low voltage) to its Model D-2 and
D-2 Max TurboChef cooking systems. As an equipment manufacturer, the Company is
allowed to "self-certify" compliance with this directive and have a third party
attest to the results. The Company is required by law to meet this European
Community Council directive in order to apply the "CE" mark and thereby sell its
cooking systems in the European Union. The TurboChef model D-2 cooking system
has also been approved by the Japanese Government's MITI, thereby permitting
sale in Japan.
Warranty and Service
The Company offers to purchasers a one-year limited warranty covering the
TurboChef cooking system's workmanship and materials, during which period the
Company or its authorized service representative will make repairs and replace
parts which become defective due to normal use. Although the cost of servicing
TurboChef cooking systems under this one-year warranty has been in line with
expectations to date, there can be no assurance that future expenses incurred on
the one year warranty will not have an adverse effect on the Company.
The Company did allow the purchase of an extended warranty program for a
particular customer during 1998 and 1997, which covered units that were older
than one year. The Company recorded revenues of $417,000 in 1998 and $253,000
in 1997 for this extended warranty agreement. The costs
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associated with this extended warranty agreement in excess of revenues was
$462,000 and $146,000 for the years ended December 31, 1998 and 1997,
respectively. The results of research associated with the extended warranty
program coupled with research findings from the Company's accelerated life cycle
testing facility have lead to design improvements that should improve both the
durability and reliability of the Company's products and will be incorporated
into future products.
In those areas where TurboChef cooking systems are located, the Company has
established relationships with independent factory authorized service
representatives who provide installation and repair services and carry a parts
inventory. In addition, the Company intends to establish a national and global
parts and service network of independent factory authorized service
representatives, capable of supporting a significant increase in TurboChef
cooking system installations. Currently, the Company is establishing a national
service arrangement through G.S. Blodgett.
Insurance
The Company is engaged in a business which could expose it to possible
liability claims from others, including from foodservice operators and their
staffs, as well as from consumers, for personal injury or property damage due to
design or manufacturing defects or otherwise. The Company maintains a general
liability insurance policy, which the Company believes is adequate coverage for
the type of products currently marketed. In addition, the Company believes that
its third party manufacturer currently maintains similar levels of liability
insurance.
Patents and Proprietary Rights
The Company holds three United States patents which cover certain
fundamental aspects of the Company's high-speed cooking technologies and the
Company has pending patent applications or patents corresponding to one or more
of these United States patents filed in at least seven countries (including the
various countries of the European Patent Convention). These United States
patents expire in 2011-2013. The Company further holds one pending United
States patent application on a catalytic converter for use in such high-speed
cooking technologies. The Company also holds one United States patent relating
to the Company's "par-baked" pizza dough setting technology, which patent
expires in 2014. The patent laws of other countries may differ from those of
the United States as to the patentability of the Company's technologies and
products and the degree of protection afforded. The Company believes that its
patents and patent applications provide it with a competitive advantage.
Accordingly, in the event the Company's products and technologies gain market
acceptance, patent protection would be important to the Company's business.
There can be no assurance as to the breadth or degree of protection which
existing or future patents, if any, may afford the Company, or that any patent
applications will result in issued patents, or that the Company's patent rights
will be upheld if challenged, or that competitors will not develop similar or
superior methods or products outside the protection of any patents issued to the
Company.
The Company believes that product and brand name recognition is an
important competitive factor in the foodservice equipment industry.
Accordingly, the Company promotes the TurboChef(R) name in connection with its
marketing activities. The Company holds a United States trademark for the
TurboChef(R) name. The Company also holds various other trademarks and has
pending applications on others.
-11-
<PAGE>
The Company also relies on trade secrets and proprietary know-how, and
typically enters into confidentiality and non-competition agreements with its
employees and appropriate suppliers and manufacturers, to protect the concepts,
ideas and documentation relating to its proprietary technologies. However, such
methods may not afford the Company complete protection. There can be no
assurance that others will not independently obtain access to the Company's
trade secrets and know-how or independently develop products or technologies
similar to those of the Company. Since the Company believes that its proprietary
technologies are important to its business, failure to protect such information
could have a material adverse effect on the Company.
Employees
As of March 15, 1999, the Company employed 51 persons, all of whom are
full-time employees, including four executive officers and four senior managers.
Of its employees, nineteen are engaged in technological development, thirteen in
sales, marketing, and customer service development, and eleven are engaged in
administration. None of the Company's employees are represented by labor
unions. The Company considers its relations with its employees to be good.
Executive Officers of the Company
The executive officers of the Company as of March 15, 1999, are as follows:
Name Age Position(s)
---- --- -----------
Marion H. Antonini............... 68 Chairman of the Board of Directors
Richard N. Caron................. 42 President and Chief Executive Officer
Amit S. Mukherjee................ 40 Chief Technology and Strategy Officer
Dennis J. Jameson................ 45 Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
-12-
<PAGE>
Marion H. Antonini has served as Chairman of the Board of Directors since
March 1998. Mr. Antonini was Chairman, President and CEO of Welbilt Corp., a
$600 million commercial appliance manufacturer, from 1990 to 1997. From 1986 to
1990, he served as chairman and managing director of KD Equities, a merchant
banking firm in New York. He was with Xerox Corp. from 1975 to 1986, where he
served as group vice president, worldwide operations from 1982 to 1986.
Richard N. Caron was elected President and Chief Executive Officer and
appointed to the TurboChef Technologies Board in September 1998. Mr. Caron was
employed by Arthur D. Little, Inc., an international technology and innovation
consulting firm, from 1979 to 1998, holding the title of Director from 1991 and
Practice Leader for Consumer Goods in North America from 1997 until he joined
the Company.
Amit S. Mukherjee was elected Chief Technology and Strategy Officer in
October 1998. Mr. Mukherjee was employed by Arthur D. Little, Inc., an
international technology and innovation consulting firm, from 1994 to 1998,
holding the title of Director from 1997 to 1998. From 1992 to 1994 he was a
member of the INSEAD faculty in Fontainebleau, France where he taught Strategic
R&D Management, Quality Management and World-Class Manufacturing in the MBA,
Ph.D. and Executive Programs.
Dennis J. Jameson was elected Executive Vice President and Chief Financial
Officer of the Company in December 1995, Treasurer in 1996 and Secretary in
1997. From 1988 to 1995 he served as a director, Senior Vice President Finance
and Administration, and Chief Financial Officer of Black-eyed Pea Restaurants,
Inc. in Dallas, Texas, which operated casual dining and quick service Mexican
restaurants located primarily in the Southwest and Southeast.
-13-
<PAGE>
Item 2 Properties
The Company owns no real estate. The Company leases approximately 13,600
square feet of space at 10500 Metric Drive, Dallas, Texas, which it uses for
executive offices, technology development, sales and marketing, limited assembly
and other purposes, under a lease agreement which expires on May 31, 2000. The
Company also leases approximately 3,000 square feet of space at 5151 Beltline
Road, Dallas, Texas, which is currently sub-leased to another firm. This lease
will expire on April 15, 2000.
The Company leases approximately 5,500 square feet of general office space
at 745 5th Avenue, New York, New York, pursuant to a lease that is scheduled to
expire on December 20, 2000.
The Company leases approximately 1,000 square feet of general office space
in the Cranfield Innovation Centre, in Cranfield, U.K. In addition, the Company
occupies approximately 1,000 square feet of office space, which is used as a
training facility, in Bedfordshire, U.K., pursuant to a lease that is scheduled
to expire on February 28, 2001.
The Company believes that its facilities are generally well maintained, in
good operating condition and adequate for its current needs.
Item 3 Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any pending
legal proceedings, other than ordinary routine litigation incidental to its
business, none of which is material.
Item 4 Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock has been traded on the NASDAQ Small Cap Market
under the symbol "TRBO" since the Company's initial public offering in April
1994. On March 1, 1999, the Company's stock began trading on the NASDAQ
National Market. The following table sets forth the high and low bid quotations
for the common stock for the periods indicated as reported by NASDAQ Small Cap
Market. The NASDAQ Small Cap Market per share quotations represent inter-dealer
prices without adjustment for retail mark-ups, mark-downs or commissions and may
not necessarily represent actual transactions.
Per Share Price
---------------
Period High Low
------ ---- ---
Fiscal Year 1998
- ----------------
First Quarter $10 $7 7/16
Second Quarter $13 1/8 $7 3/8
Third Quarter $9 $4
Fourth Quarter $9 7/8 $5 7/8
Fiscal Year 1997
- ----------------
First Quarter $19 1/8 $11 7/8
Second Quarter $16 3/4 $12 5/8
Third Quarter $16 3/4 $10 1/8
Fourth Quarter $15 3/4 $7
As of March 15, 1999, there were approximately 110 shareholders of record of the
Company's common stock.
Dividends
The Company has not paid cash dividends on the common stock since its
organization and does not expect to pay any cash dividends on the common stock
in the foreseeable future. The Company instead intends to continue a policy of
retaining earnings for the Company's operations and planned expansion of its
business. The payment of any future cash dividends would be at the discretion of
the Company's Board of Directors and would depend on future earnings, capital
requirements, the Company's financial condition and other factors deemed
relevant by the Board of Directors.
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<PAGE>
Item 6 Selected Financial Data
The following selected financial data for each of the fiscal years ended
December 31, 1998, 1997 and 1996 have been derived from the Company's audited
financial statements, and should be read in conjunction with those statements,
which are included in this Form 10-K. The following selected financial data for
each of the fiscal years ended December 31, 1995 and 1994 have been derived from
the Company's audited financial statements, and should be read in conjunction
with those statements, which are not included in this Form 10-K. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto which are included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
(Amounts in Thousands, Except Share Data)
-----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
- -----------------------
Data:
- -----
Revenues $ 7,137 $ 4,222 $ 2,802 $ 1,228 $ 250
Operating Loss $ (4,152) $ (4,822) $ (3,197) $ (1,698) $ (2,914)
Net Loss $ (3,954) $ (4,662) $ (2,941) $ (1,585) $ (3,182)
Per Share Data (1)
Net Loss per Share basic $ (.27) $ (.33) $ (.22) $ (.13) $ (.29)
and diluted
Weighted Average Number
of Shares Outstanding 14,611,724 14,032,796 13,339,431 12,451,786 11,120,282
Balance Sheet Data:
- -------------------
Working Capital $ 18,566 $ 9,527 $ 8,523 $ 1,083 $ 1,029
Total Assets $ 20,800 $ 16,440 $ 9,743 $ 2,218 $ 1,966
Total Liabilities $ 1,607 $ 811 $ 810 $ 770 $ 1,736
Accumulated Deficit $ (21,231) $ (17,277) $ (12,615) $ (9,673) $ (8,088)
Total Stockholders' Equity $ 19,193 $ 15,629 $ (8,933) $ 1,448 $ 230
</TABLE>
(1) On December 12, 1995, the Company's Board of Directors approved a two for
one stock split effective in the form of a stock dividend paid on January
11, 1996 to stockholders of record on December 29, 1995. Share data is
based upon the weighted average common shares and share equivalents
outstanding for each period, adjusted to reflect the split.
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<PAGE>
Item 7 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 a U.S. direct sales and European sales infrastructure
and marketing programs. However, the revolutionary nature of the Company's
technologies, coupled with large restaurant chain operators' historical
resistance to change and the Company's lack of brand strength has limited
commercial sales.
The Company believes its long-term success is dependent on its core
competencies of developing new technologies and products for the foodservice and
residential appliance industries. Consequently, the Company has sought to
establish alliances with major firms 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 to jointly develop new products incorporating the
Company's technologies. The Alliance entailed a mutual exchange of each
Company's common stock valued at approximately $10 million and Maytag's payment
to TurboChef Technologies for certain research and development activities
related to targeted product initiatives. The Company also announced in July 1998
that the Maytag Alliance had been expanded to establish a cooperative effort to
market and sell commercial cooking products in North America. During the first
quarter of 1999, TurboChef Technologies and G.S. Blodgett Corporation, a wholly
owned subsidiary of Maytag engaged in the manufacturing and sales of commercial
foodservice equipment, began arranging for the transition of the manufacturing
of the Company's commercial unit to Blodgett's facilities. The Maytag Alliance
will enable the Company to focus on its core competency of technology
development while utilizing the strengths of well-established leaders within the
commercial and residential appliance industries to manufacture, market, and
distribute the Company's products in North America.
The Company has invested heavily in research, prototype development 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 $4.0 million, $4.7 million and $2.9 million for the
years ended December 31, 1998, 1997 and 1996, respectively) resulting in an
accumulated deficit of $21.2 million as of December 31, 1998.
The Company will continue to pursue business growth through implementation
of the following strategies: (i) joint development and commercialization of
residential and commercial
-17-
<PAGE>
products in North America through the Maytag Alliance, (ii) pursuit of strategic
alliances and license agreements outside North America, (iii) continued
marketing to European and Japanese restaurants, hotels, convenience stores and
other foodservice operators, (iv) continued development of new hardware,
software and food solutions for residential and commercial applications
utilizing the Company's patented technology and (v) the development of new
technologies. The Company's future profitability will depend upon, among other
things, the successful implementation of these initiatives.
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto contained elsewhere
in this report.
Results of Operations for the Year Ended December 31, 1998 Compared to the Year
Ended December 31, 1997
Revenues for the year ended December 31, 1998 are $7,137,000, an increase
of $2,915,000 when compared to revenues of $4,222,000 for the year ended
December 31, 1997. The increase is primarily due to payments to the Company for
research and development activities under the Maytag Alliance and an increase in
the average selling price of its cooking system, offset partially by a decrease
in commercial cooking system unit sales.
Cost of sales for the year ended December 31, 1998 are $2,677,000, a
decrease of $166,000 when compared to $2,843,000 for cost of sales in the prior
year. This decrease is attributable to the reduction in cooking system unit
sales, partially offset by an increase in costs associated with an extended
warranty program provided to one of the Company's major customers.
Gross profit on product sales for the year ended December 31, 1998
decreased to $385,000, when compared to gross profit on sales of $619,000 during
the prior year. Gross margin for the year ended December 31, 1998 was 13% of
sales, compared 18% of sales for the year ended December 31, 1997. The
reduction in gross profit was principally due to a decrease in oven sales,
higher average unit manufacturing costs and the higher costs of providing the
extended warranty program.
Research and development expenses for the year ended December 31, 1998
increased to $2,311,000. This represents an increase of $1,091,000 from
$1,220,000 for the year ended December 31, 1997. The increase is due to
significant additions of engineering and technical personnel to support the
Company's product development requirements associated with the Maytag Alliance.
Furthermore, the Company established an accelerated life cycle testing facility
for the durability and reliability testing of the Company's products.
Selling, general and administrative expenses for the year ended December
31, 1998 increased $1,320,000, to $6,301,000 from comparable expenses of
$4,981,000 for 1997. The increase over 1997 is due to the addition of executive
officers and other administrative support personnel
-18-
<PAGE>
along with the transfer of the European sales and marketing organization to
TurboChef Technologies from its former joint venture, TurboChef Europe.
Other income was $198,000 for the year ended December 31, 1998 compared to
$160,000 for the year ended December 31, 1997. The increase is primarily due to
dividends received as a result of ownership of the Maytag stock for an entire
year compared to only the fourth quarter of 1997. Offsetting this increase was a
decrease in interest income due to reduced amounts of cash invested in
securities.
Results of Operations for the Year Ended December 31, 1997 Compared to the Year
Ended December 31, 1996
Revenues for the year ended December 31, 1997 are $4,222,000, an increase
of $1,420,000, when compared to revenues of $2,802,000 for the year ended
December 31, 1996. This increase is primarily attributable to payments to the
Company for research and development activities under the Maytag Alliance,
greater cooking system unit sales, higher average selling prices and revenues
generated by an extended warranty program established for one of the Company's
major customers.
Cost of sales for the year ended December 31, 1997 are $2,843,000, an
increase of $536,000 when compared to $2,307,000 for cost of sales in the prior
year. This increase is attributable to greater cooking system unit sales,
additional costs generated by the extended warranty program, and charges taken
during the third and fourth quarters for inventory obsolescence due to design
enhancements to the commercial cooking systems, an increase in the reserve for
future warranty expenses and disposal of the remaining Model D-1 cooking system
inventory.
Gross profit on sales for the year ended December 31, 1997 increased
$137,000 to $619,000, when compared to gross profit on sales of $482,000 during
the prior year. Gross margin for the year ended December 31, 1997 was 18% of
sales, compared to 17% of sales for the year ended December 31, 1996. Excluding
the effect of inventory and warranty charges in 1997 and 1996, gross margin was
27% for 1997, compared to 20% in 1996, reflecting higher average selling prices
and reduced manufacturing costs for the Model D-2 cooking system in 1997.
Research and development expenses for the year ended December 31, 1997
increased $539,000, to $1,220,000 from $681,000 for the year ended December 31,
1996. The increase was due to the Company's ongoing efforts to expand and
enhance its technologies and product offerings through several key initiatives.
Included in these initiatives was construction of a prototype self-serve cooking
system for convenience store and vending applications, a reduced size commercial
cooking system, enhancements to the Model D-2 cooking system, and continued
development and enhancement of a residential oven prototype.
Selling, general and administrative expenses for the year ended December
31, 1997 increased $1,970,000, to $4,981,000 from comparable expenses of
$3,011,000 for 1996. Consistent with the business plan outlined by the Company
in connection with the June 1996
-19-
<PAGE>
Offering, the increased expense was primarily due to the Company's efforts in
1997 in developing a U.S. sales infrastructure. This initiative incorporated
several senior level staff additions as well as the establishment of a customer
service team and increased travel and trade show participation. Also
contributing to the increase in selling, general and administrative expenses are
costs associated with international business development in the UK and Japan not
incurred in 1996.
Interest income net of interest expense for the year ended December 31,
1997 was income of $269,000 compared to $256,000 for the year ended December 31,
1996.
Liquidity and Capital Resources
The Company's capital requirements in connection with its product and
technology development and marketing efforts have been and will continue to be
significant. In addition, capital is required to operate and expand the
Company's operations. Since its inception, the Company has been substantially
dependent on loans and capital contributions from its principal stockholders,
private placements of its securities, the proceeds from the initial public
offering of common stock in April 1994 (the "April 1994 IPO") and the June 1996
Secondary Offering to fund its activities.
Since October 1997, the Company's capital requirements have been met in part by
Maytag. In accordance with the Maytag Alliance, the Company has been paid an
aggregate of $5.9 million ($250,000 per month from October 1997 through March
1998, $300,000 from April through July 1998, $425,000 from August through
January 1999 and $300,000 through March 1999) for technology transfer
initiatives by the Company. In March 1998, the initial project was extended for
one year and Maytag increased the monthly payment from $250,000 to $300,000 per
month for the term of the extension. In July 1998, a commercial sales agreement
was announced and the monthly payment increased to $425,000 for six months. The
increase to $425,000 ended in January 1999. The remaining monthly payments of
$300,000 ended in March 1999. The Maytag Alliance, however, is ongoing, and
provides for the opportunity to establish additional residential and commercial
product development projects in the future. Accordingly, future revenues from
the Maytag Alliance will depend upon the establishment of additional fee based
research and development projects with Maytag and royalties from the successful
commercialization and sales of the products that embody the Company's
technologies. However, if additional projects are not initiated with Maytag
there is no assurance that the Company would be able to find alternate sources
of funding on acceptable terms for further research and development of current
and future products. This could have a significant adverse impact on the
Company's current and future operations. However, management is confident that
through sales of its commercial cooking system and its current credit
facilities, it will have adequate funding for further research and development
throughout 1999.
The Maytag Alliance called for the mutual exchange of each company's stock
with a value of approximately $10.0 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
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<PAGE>
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 and will gain the right to sell, pledge, transfer or assign the
remaining 50% on September 30, 1999. As of March 15, 1999, the Maytag stock
owned by the Company had a market value of approximately $16.0 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 credit agreement originally set to
expire on July 1, 1999 was terminated by the Company in January 1999 and
replaced by a new facility. This agreement, which was never utilized, was
secured by 90,000 shares of Maytag common stock owned by the Company. The
Company could have borrowed up to the lesser of $3.0 million or 75% of the
market value of the Maytag stock at market rates of interest.
In January 1999, the Company terminated the revolving credit agreement with
its bank and entered into an agreement with Banque AIG, London Branch (an
affiliate of American International Group, Inc. ("AIG")). The AIG facility
provides for the Company to pledge its Maytag shares in the form of a "Variable
Stock Transaction" and to receive cash advances against the value of the Maytag
shares. All advances mature within three years and bear interest at LIBOR plus
0.75%. At the end of the three-year term, the Company may satisfy any
outstanding obligation by surrendering Maytag shares equal to the fair value of
the obligation or with cash. The transaction allows the Company to benefit from
the appreciation over $63.25 per share in the Maytag share price over the three-
year period and provides down-side protection to the Company in the form of a
"put option" for the 293,846 shares of Maytag stock. The put option establishes
a minimum realizable value for the Maytag shares of
approximately $57 per share.
In January 1999, the Company had pledged 140,000 shares of the Maytag stock
and received advances totaling $3.0 million and has approximately $3.2 million
in advances available. Once the remaining 146,923 Maytag shares are available to
pledge, the Company will have available approximately $7.2 million in additional
advances.
In February 1999, the Company entered into an agreement with its bank to
support general corporate requirements. The credit agreement is set to expire
in February 2000. The agreement is secured by 6,923 shares of Maytag common
stock owned by the Company. The Company can borrow up to the lesser of $315,000
or 75% of the market value of the Maytag stock at market rates of interest.
At December 31, 1998, the Company had working capital of $18,566,000 as
compared to working capital of $9,527,000 at December 31, 1997. The $9,039,000
working capital increase from December 31, 1997 resulted primarily from the
Company's reclassification of the Company's investment in Maytag common stock to
a current asset, in accordance with the Maytag Alliance and the associated
appreciation of that investment.
-21-
<PAGE>
For the year ended December 31, 1998, accounts receivable turnover was 3.7
compared to 7.3 during the year ended December 31, 1997. The decrease in
accounts receivable turnover principally relates to uncollected amounts from the
Company's former European joint venture.
Cash used in operating activities was $2,887,000 for the year ended
December 31, 1998 as compared to cash used in operating activities of $4,513,000
for the year ended December 31, 1997. The net loss in 1998 included $625,000 of
non-cash contributions to net loss, compared to $357,000 in 1997. Major
contributions to net cash used in operating activities in 1998 was an $722,000
increase in accrued expenses, partially offset by a $289,000 net increase in
accounts receivable and a $130,000 increase in inventory.
Cash provided by investing activities for the year ended December 31, 1998
was $1,464,000 and primarily resulted from net sales of marketable securities of
$1,795,000, equipment purchases of $186,000, and investments in TurboChef Europe
of $145,000.
Cash provided by financing activities was $190,000 for the year ended
December 31, 1998, which represents the net proceeds from exercises of stock
options and warrants.
At December 31, 1998, the Company had cash and cash equivalents of
$164,000, compared to cash and cash equivalents of $1,397,000 at December 31,
1997.
Year 2000 Issues
TurboChef Technologies, like other businesses, is facing the Year 2000
issue. The Year 2000 issue arises from the past practice of utilizing two digits
(as opposed to four) to represent the year in some computer programs and
software. If uncorrected, this could result in computational errors as dates
are compared across the century boundary. Since the software used in the
Company's patented cooking system does not utilize an internal calendar, the
Company believes that, for the most part, it will be unaffected by Year 2000
issues.
Through March 15, 1999, the Company has had the majority of its internal
software and hardware tested and made Year 2000 compliant, where necessary. The
Company currently plans to have all of its hardware, software and embedded
systems contained in the Company's equipment tested by June 30, 1999 and, if
necessary, made Year 2000 compliant no later than September 30, 1999.
While Year 2000 costs incurred to date have not been material, the Company
believes it will continue to incur costs related to Year 2000 readiness
throughout 1999. Furthermore, the Company believes that future costs associated
with achieving Year 2000 readiness will not be material, however, there is no
guarantee that the Company's operations will not be materially impacted by these
costs.
The failure of the Company's third party vendors to be Year 2000 ready
could prevent or delay the manufacturing or shipping products, providing
customer support and completing transactions, all of which could have a material
adverse affect on the Company's business, operating results and financial
condition. The Company is currently working on plans to assess
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<PAGE>
the Year 2000 readiness of its major third party vendors as well as developing
contingency plans as it relates to its operations and major third party vendors.
Authoritative Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". This Statement 130 requires the reporting of
comprehensive income and its components in the general-purpose financial
statements. This Statement also requires that an entity classify items of other
comprehensive income by their nature in an annual financial statement. The
Company has adopted this statement in 1998 and disclosed this information
through its statement of stockholders' equity.
The FASB has recently issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", and SFAS No. 132, "Employers' Disclosure
about Pensions and Other Post-Retirement Benefits". These Statements are
effective for the Company in 1998. The adoption of these statements does not
have a material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement is effective for the
Company on January 1, 2000. SFAS No. 133 requires companies to report
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The Company is currently reviewing
the standard and its effect on the financial statements.
In October 1998, the FASB issued SFAS No 134, "Accounting for Certain
Mortgage Banking Activities". This Statement is effective for the Company in
1999. The adoption of this statement is not expected to have a material effect
on the Company's financial statements.
The American Institute of Certified Public Accountants (AICPA) has issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition". The adoption
of this Statement does not have a material effect on the Company's financial
statements.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", and SOP 98-5, "Reporting on
the Costs of Start-Up Activities". The adoption of these Statements does not
have a material effect on the Company's financial statements.
Forward Looking Statements
The Company has utilized the proceeds from the June 1996 Offering, and is
currently using proceeds received from the Maytag Alliance, to strengthen its
management team and support its product development activities. The Company has
completed the current phase of targeted research and development and the
associated per month payments ended in January and March 1999, respectively. The
Maytag Alliance, however, is ongoing, and provides for the opportunity to
establish additional residential and commercial product development projects in
the future. Accordingly, future revenues from the Maytag Alliance will depend
upon the establishment of additional fee based research and development projects
with Maytag and royalties from the successful commercialization and sales of the
products that embody the Company's technologies. The Company's goals are to
continue its development of innovative and commercially viable products, to
support the Maytag Alliance
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<PAGE>
efforts and to establish additional strategic alliances and license agreements
outside North America. In July 1998, the Company executed a revolving credit
agreement with its bank, secured by 90,000 shares of Maytag Corporation stock it
holds, to support general corporate requirements. This agreement was terminated
in January 1999 and replaced with a facility with Banque AIG, London Branch (an
affiliate of American International Group, Inc.). As of March 15, 1999, the
Company could receive minimum additional advances of $10.4 million through this
facility that expires in January 2002.
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 could be
derived from its currently proposed plans within the next 12 to 18 months, if
such plans are successfully completed. These plans include: (i) joint
development and commercialization of residential and commercial products in
North America through the Maytag Alliance, (ii) pursuit of strategic alliances
and license agreements outside North America, (iii) continued marketing to
European and Japanese restaurants, hotels, convenience stores and other
foodservice operators, and (iv) continued development of new hardware, software
and food solutions for residential and commercial applications. 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 December 31, 1998, the amount of backlog orders believed to be firm
was approximately $0.4 million, as compared to approximately $2.1 million as of
December 31, 1997. The Company anticipates that the majority of this backlog
will be filled during the current year.
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,
-24-
<PAGE>
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.
Item 8 Financial Statements and Supplementary Data
The financial statements set forth herein commence on page F- 1 of this
report.
Item 9 Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective December 21, 1998, the Company appointed the accounting firm of
Arthur Andersen LLP as the Company's independent public accountants for fiscal
1998 to replace KPMG LLP which resigned on that same date. The Company's Board
of Directors approved the selection of Arthur Andersen LLP as independent public
accountants upon the recommendation of the Board's Audit Committee.
During the two most recent fiscal years and the period of January 1, 1998
through December 21, 1998, there were no disagreements with KPMG LLP on any
matter of accounting principle or practice, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement. KPMG LLP's report on the
Company's financial statements for the past two years contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
-25-
<PAGE>
Part III
Item 10 Directors and Executive Officers of the Registrant
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1999 Annual Meeting
of Stockholders, except for the information regarding executive officers of the
Company which is contained in Part I of this Annual Report on Form 10-K. The
information required by this item contained in such definitive proxy material is
incorporated herein by reference.
Item 11 Executive Compensation
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1999 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1999 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
Item 13 Certain Relationships and Related Transactions
The information required by this item is contained in the definitive proxy
materials of the Company to be filed in connection with its 1999 Annual Meeting
of Stockholders, which information is incorporated herein by reference.
-26-
<PAGE>
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
2. List of Financial Statement Schedules (None)
3. List of Exhibits
Exhibit No. Description
3.1 Restated Certificate of Incorporation. (1)
3.2 Restated By-Laws. (1)
4.1 Form of Certificate for Common Stock (1)
10.1 Form of Stock Option Agreement between stockholders of the
Company and certain other persons dated as of August 10, 1993. (1)
10.2 Stock Option Plan, as amended. (1)
10.4 Stock Purchase Agreement with Donald J. Gogel dated April
17, 1993, together with Amendment to Stock Purchase
Agreement dated as of December 31, 1993. (1)
10.5 Consulting Agreement with Whale Securities Co., L.P.
dated April 14, 1994. (2)
10.6 Warrant Agreement with Whale Securities Co., L.P.
dated April 7, 1994. (2)
10.7 Amendment No. 1 dated as of June 12, 1996 to the Warrant
Agreement between the Company and Whale Securities Co., L.P.
dated as of April 14, 1996. (6)
10.8 Warrant Agreement between the Company and Whale
Securities Co., L.P. dated as of June 17, 1996. (7)
10.11 Lease Agreement with The Fidelity Mutual Life Insurance
Company, in Rehabilitation, dated August 24, 1995. (5)
10.12 Lease Agreement with The Fidelity Mutual Life Insurance
Company, in Rehabilitation, dated March 21, 1996. (4)
-27-
<PAGE>
10.14 Option Agreement between the Company and Acadia International
Limited dated as of March 31, 1995. (5)
10.18 Purchase Contract between the Company and Whitbread PLC
dated June 30, 1995. (4)
10.19 Purchase Contract between the Company and Whitbread PLC
dated December 27, 1995. (4)
10.20 Purchase Order from The Southland Corporation dated
December 13, 1996. (8)
10.21 Purchase Contract between the Company and Whitbread PLC
dated February 18, 1997. (8)
10.22 Employment Agreement with Philip R. McKee dated March 1, 1996. (1)
10.25 Lease Agreement with Prestonwood Tower dated March 19, 1997. (7)
10.26 Strategic Alliance Agreement dated as of September 26, 1997, by and
between TurboChef Technologies, Inc. and Maytag Corporation. (8)
10.27 Lease Agreement with Jonathan Woodner dated April 15, 1997. (9)
10.28 First Extension of the Project Agreement (RCAP-II) dated March 4, 1998
by and between TurboChef Technologies, Inc. and Maytag Corporation (9)
10.29 Employment agreement between TurboChef, Inc. and Marion H. Antonini.
(10)
10.30 Commercial Cooking Appliance Project Agreement dated as of July 29,
1998 by and between TurboChef Technologies, Inc. and Maytag
Corporation. (11)
10.31 Revolving Credit Agreement between Chase Bank of Texas NA and
TurboChef Technologies, Inc. dated July 1, 1998. (11)
10.32 Employment Letter between Richard N. Caron and TurboChef Technologies,
Inc. dated September 2, 1998. (12)
10.33 Master Agreement dated January 11, 1999 by and between TurboChef
Technologies, Inc. and AIG Financial Securities Corp. (13)
10.34 Variable Stock Agreement dated January 14, 1999 by and between
TurboChef Technologies, Inc. and AIG Financial Securities Corp. (13)
10.35 Pledge Agreement dated January 11, 1999 by and between TurboChef
Technologies, Inc. and AIG Financial Securities Corp. (13)
-28-
<PAGE>
11 Statement Re: Computation of Per Share Earnings is not necessary
because the computation of per share earnings on both a basic and
diluted basis can be clearly determined from this report.
21 Subsidiaries of the Company. (9)
_______________
(1) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 33-75008), and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1994, and incorporated herein by
reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994, and incorporated herein by
reference.
(4) Filed as an exhibit to the Company's Registration Statement on Form
SB-2 (File No. 333-2992), and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995, and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996, and incorporated herein by
reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996, and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997, and incorporated herein by
reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10K for
the fiscal year December 31, 1997, and incorporated herein by
reference.
(10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998, and incorporated herein by
reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998, and incorporated herein by reference.
(12) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, and incorporated herein by
reference.
(13) Filed herewith.
-29-
<PAGE>
(b) Reports on Form 8-K
During the quarter ending December 31, 1998, the Company filed a Form 8-K
dated December 23, 1998 reporting under Item 4 - "Changes in Registrant's
Certifying Accountant", the resignation of KPMG LLP as the Company's
independent public accountant and the appointment of Arthur Andersen LLP as
the Company's new independent public accountant. The Form 8-K was amended
pursuant to a Form 8-K/A dated January 6, 1999 to incorporate an exhibit
into such Form 8-K.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TURBOCHEF TECHNOLOGIES, INC.
By:/s/ Richard N. Caron
Richard N. Caron
President, Chief Executive Officer
and Director
Dated March 29, 1999
-31-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
Name Title Date
---- ----- ----
/s/ Marion H. Antonini Chairman of the Board and March 29, 1999
Marion H. Antonini Director
/s/ Richard N. Caron President, Chief Executive Officer March 29, 1999
Richard N. Caron and Director (Principal Executive
Officer)
/s/ Dennis J. Jameson Executive Vice President, Chief March 29, 1999
Dennis J. Jameson Financial Officer (Principal
Accounting and Financial Officer)
/s/ Donald J. Gogel Director March 29, 1999
Donald J. Gogel
/s/ Jeffery B. Bogatin Director March 29, 1999
Jeffery B. Bogatin
/s/ Sir Anthony Joliffe Director March 29, 1999
Sir Anthony Joliffe
-32-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Independent Auditors' Report F-3
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 F-4
Statements of Operations for the years ended December 31, 1998,
1997 and 1996 F-5
Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 F-6
Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996 F-7
Notes to Financial Statements F-8
All financial statement schedules are omitted since the required information is
not present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
F-1
<PAGE>
Report of Independent Public Accountants
The Board of Directors and Stockholders
TurboChef Technologies, Inc.:
We have audited the accompanying balance sheet of TurboChef Technologies, Inc.
(a Delaware corporation) as of December 31, 1998, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef Technologies, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Dallas, Texas
March 31, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TurboChef Technologies, Inc.:
We have audited the accompanying balance sheet of TurboChef Technologies, Inc.
as of December 31, 1997, and the related statements of operations, stockholders'
equity, and cash flows) for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TurboChef Technologies, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Dallas, Texas
January 30, 1998
F-3
<PAGE>
TurboChef Technologies, Inc.
Balance Sheets
(Amounts in Thousands, Except Share data)
<TABLE>
<CAPTION>
At December 31,
1998 1997
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 164 $ 1,397
Marketable securities available for sale, at fair value 18,292 7,277
Accounts receivable net of allowance for doubtful accounts of
$92 and $16 at December 31, 1998 and 1997, respectively 914 625
Inventories, net 762 935
Prepaid expenses 41 104
-------- --------
Total current assets 20,173 10,338
-------- --------
Marketable securities available for sale, at fair value -- 5,482
Property and equipment:
Leasehold improvements 130 110
Furniture and fixtures 475 345
Equipment 456 420
-------- --------
1,061 875
Less accumulated depreciation and amortization (563) (384)
-------- --------
Net property and equipment 498 491
-------- --------
Other assets 129 129
-------- --------
Total assets $ 20,800 $ 16,440
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 571 $ 519
Accrued payroll 223 86
Accrued warranty costs 259 145
Accrued expenses 474 3
Deferred revenue 49 22
Other 31 36
-------- --------
Total current liabilities 1,607 811
Commitments and contingencies -- --
Stockholders' equity
Common stock, $.01 par value. Authorized 50,000,000 shares
Issued 14,659,134 and 14,551,294 shares at December 31,
1998 and 1997 respectively 148 146
Additional paid-in capital 32,435 32,130
Accumulated deficit (21,231) (17,277)
Accumulated other comprehensive income 8,292 964
Treasury stock - at cost 32,130 and 17,382 shares in 1998
and 1997, respectively (451) (334)
-------- --------
Total stockholders' equity 19,193 15,629
-------- --------
Total liabilities and stockholders' equity $ 20,800 $ 16,440
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
TurboChef Technologies, Inc.
Statements of Operations
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Product sales $ 3,062 $ 3,462 $ 2,789
Research and development fees 4,075 760 13
------------ ------------ ------------
Total revenues 7,137 4,222 2,802
Costs and expenses:
Cost of goods sold 2,677 2,843 2,307
Research and development expenses 2,311 1,220 681
Selling, general and administrative expenses 6,301 4,981 3,011
------------ ------------ ------------
Total costs and expenses 11,289 9,044 5,999
------------ ------------ ------------
Operating loss (4,152) (4,822) (3,197)
------------ ------------ ------------
Other income (expense):
Interest income 92 269 269
Interest expense -- -- (14)
Dividend income 200 47 --
Equity in loss of joint venture (105) (156) --
Other income 11 -- --
------------ ------------ ------------
198 160 255
------------ ------------ ------------
Net loss $ (3,954) $ (4,662) $ (2,942)
============ ============ ============
Loss per common share - basic and diluted $ (0.27) $ (0.33) $ (0.22)
============ ============ ============
Weighted average number of
common shares outstanding 14,611,724 14,032,796 13,339,431
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
TurboChef Technologies, Inc.
Statements of Stockholders' Equity
(Amounts in Thousands, Except Share Data)
<TABLE>
<CAPTION>
Accumulated
-----------
other Total
----- -----
Common stock Additional paid- comprehensive Accumulated Treasury stockholders'
------------ ---------------- ------------- ----------- -------- ------------
Shares Amount in capital income deficit stock equity
------ ------ ---------- ------ ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 12,867,078 $ 129 $ 10,993 $ - $ (9,673) $ - $ 1,449
Net loss - - - - (2,942) - (2,942)
--------
Comprehensive Income (Loss) - - - - - - (2,942)
Secondary public offering ($15.00 per share)
net of offering cost of $1,699 800,000 8 10,292 - - - 10,300
Issuance of stock in payment of director's fee 2,000 - 28 - - - 28
Exercise of stock options 116,166 1 264 - - - 265
Purchase of treasury stock (8,315 shares) - - - - - (167) (167)
---------- ----- -------- ------- --------- ------ --------
Balance, December 31, 1996 13,785,244 138 21,577 - (12,615) (167) 8,933
Net loss - - - - (4,662) - (4,662)
Net unrealized gain on marketable securities - - - 964 - - 964
--------
Comprehensive Income (Loss) - - - - - - (3,698)
Exercise of warrants 87,815 1 284 - - - 285
Issuance of stock in payment of director's fee 1,960 - 30 - - - 30
Exercise of stock options 111,607 1 244 - - - 245
Issuance of common stock 564,668 6 9,995 - - - 10,001
Purchase of treasury stock (9,067 shares) - - - - - (167) (167)
---------- ----- -------- ------- --------- ------ --------
Balance, December 31, 1997 14,551,294 146 32,130 964 (17,277) (334) 15,629
Net loss - - - - (3,954) - (3,954)
Net unrealized gain on marketable securities - - - 7,328 - - 7,328
--------
Comprehensive Income (Loss) - - - - - - 3,374
Exercise of warrants 51,014 1 164 - - - 165
Exercise of stock options 56,826 1 141 - - - 142
Purchase of treasury stock (14,748 shares) - - - - - (117) (117)
---------- ----- -------- ------- --------- ------ --------
Balance, December 31, 1998 14,659,134 $ 148 $ 32,435 $ 8,292 $ (21,231) $ (451) $ 19,193
========== ===== ======== ======= ========= ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
TurboChef Technologies, Inc.
Statements of Cash Flows
(Amounts in Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,954) $ (4,662) $ (2,941)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in loss of joint venture 105 156 -
Depreciation and Amortization 505 172 104
Provision for doubtful accounts 76 - 16
Amortization of director compensation 15 29 14
Increase in accounts receivable (365) (62) (27)
Increase in inventories (130) (274) (147)
Decrease (increase) in prepaid expenses 47 174 (164)
Decrease (increase) in other assets 18 (47) 3
Increase (decrease) in accounts payable 52 60 (64)
Increase (decrease) in accrued expenses 722 (62) 380
Increase in deferred revenue 27 11 11
Decrease in other liabilities (5) (8) (10)
-------------- -------------- ---------------
Net cash used in operating activities (2,887) (4,513) (2,825)
-------------- -------------- ---------------
Cash flows from investing activities:
Sales (purchases) of marketable securities 1,795 5,514 (7,309)
Purchase of equipment (186) (327) (194)
Investment in joint venture (145) (117) -
-------------- -------------- ---------------
Net cash provided by (used in) investing activities 1,464 5,070 (7,503)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from notes payable to stockholders - - 285
Repayments from notes payable to stockholders - - (570)
Issuances of common stock - - 12,000
Offering costs - - (1,651)
Proceeds from the exercise of stock options 26 78 98
Proceeds from the exercise of stock warrants 164 285
-------------- -------------- ---------------
Net cash provided by financing activities 190 363 10,162
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents (1,233) 920 (166)
Cash and cash equivalents at beginning of period 1,397 477 643
-------------- -------------- ---------------
Cash and cash equivalents at end of period $ 164 $ 1,397 $ 477
============== ============== ===============
Supplemental disclosures of noncash activities:
Noncash investing activity - net unrealized gain on
marketable securities $ 7,328 $ 964 $ -
============== ============== ===============
Noncash financing activities:
Issuance of stock in payment of director's fee $ - $ 30 $ 28
============== ============== ===============
Issuance of stock to Maytag $ - $ 10,000 $ -
============== ============== ===============
Supplemental disclosures of cash flow information -
Interest paid $ - $ - $ 13
============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
TURBOCHEF TECHNOLOGIES, INC.
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
TurboChef Technologies, Inc. (the Company) was incorporated on April 3, 1991.
Prior to its name change in July 1998, the Company operated under the name
TurboChef, Inc. The Company is a foodservice technology company engaged
primarily in designing, developing and marketing high-speed cooking systems.
The Company believes its primary markets are with both residential and
commercial food service operators domestic and international
In April 1994, the Company completed an underwritten initial public offering
(IPO) of 2,600,000 shares of its common stock resulting in aggregate proceeds
of approximately $5.2 million, which is net of the underwriter's discount and
other IPO offering costs totaling $1.3 million.
In June 1996, the Company consummated an underwritten public offering (June
1996 Offering) of 800,000 shares of its common stock resulting in aggregate
proceeds of approximately $10.3 million, which is net of underwriter's
discount and other offering costs totaling $1.7 million.
In September 1997, the Company and Maytag Corporation (Maytag) entered into a
"Strategic Alliance Agreement" (Alliance) for the purpose of the development
and commercialization of innovative products based on new technologies in the
areas of heat transfer and thermodynamics. In connection with the Alliance,
the Company issued 564,668 shares of common stock with an aggregate fair
market value of approximately $10.0 million for 293,846 shares of Maytag
common stock at the same aggregate market value. In addition, the Company
received fees from Maytag for research and development activities incurred in
connection with the first research and development project of $250,000 per
month for a term of six months. The total amount of fees received as of
December 31, 1997 was $750,000 which has been included in research and
"development fees" in the accompanying 1997 statement of operations. In March
1998 this project was extended for one year. Beginning in April 1998, the
monthly payment increased to $300,000 and is scheduled to end in March 1999.
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. With the addition of the commercial relationship, the
research and development funding was increased to $425,000 per month
beginning August 1998 and ending January 1999.
The Company is nearing completion of the Alliance's first product development
phase, and the Alliance is now focusing on the commercialization and launch
of the first residential cooking product incorporating the Company's
technologies under Maytag's Jenn-Air cooking brand. As the Company has
previously reported, this completes the current phase of targeted research
and development and the associated $125,000 and $300,000 per month payments
ended in January and March 1999, respectively. The Alliance, however, is
ongoing, and provides for the opportunity to establish additional residential
and commercial product development projects in the future. Accordingly,
future revenues from the Alliance will depend upon the establishment of
additional
F-8
<PAGE>
fee based research and development projects with Maytag and royalties from
the successful commercialization and sales of the products that embody the
Company's technologies.
However, if additional projects are not initiated with Maytag there is no
assurance that the Company would be able to find alternate sources of funding
on acceptable terms for further research and development of current and
future products. The failure to find acceptable alternative financing could
have a significant adverse impact on the Company's current and future
operations. However, management is confident that through sales of its
commercial cooking system and financing agreements, it will have adequate
funding for further research and development throughout 1999.
Cash Equivalents
Cash equivalents of $1,091,000 at December 31 1997, consisted of U.S.
Treasury securities, which matured in less than three months. For purposes
of the statement of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents. As of December 31, 1998, there were no cash equivalents of this
nature in the ending balance.
Investments in Marketable Securities
Investments in marketable securities at December 31, 1998 consisted of Maytag
common stock. Investments in marketable securities at December 31, 1997
consisted of U.S. Government Agency securities and Maytag common stock. These
securities are classified as available-for-sale under Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and are stated at fair value. Unrealized holding gains and
losses on available-for-sale securities are excluded from earnings and are
reported as a separate component of stockholders' equity until realized.
Realized gains and losses from the sale of available-for-sale securities are
determined on a specific identification basis.
Inventories
Inventories are valued at the lower of cost or market and primarily consist
of completed cooking systems and replacement parts. The Company determines
cost for cooking systems by the specific cost method. Cooking systems used
for demonstration and testing (demo systems) are generally depreciated over a
one-year period. Depreciation for demo systems was $303,000 and $25,000 for
the years ended December 31, 1998 and 1997 respectively. There was no
depreciation for demo systems for the year ended December 31, 1996. The
following table details the various components of inventory for the years
ended December 31, 1998 and 1997, respectively (Amounts shown in Thousands):
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Cooking systems $ 633 $ 450
Parts, net 82 339
Demo systems, net 47 146
----- -----
Total Inventory $ 762 $ 935
===== =====
</TABLE>
F-9
<PAGE>
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets. Computer equipment is generally depreciated over a three-year
period. All other property and equipment is generally depreciated over a
five-year period. Depreciation for all property and equipment was $179,000,
$141,000 and $88,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Sales Deposits
Sales deposits consist of amounts received from customers for future
purchases of cooking systems. Deferred amounts will be recognized as revenue
when the cooking systems are shipped to the customer.
Revenue Recognition
The Company records product sales when the product is shipped to the
customer. Fees for research and development services or technology transfers
are recorded when the Company has met all its related contractual
obligations, which generally coincides with the collection of such funds.
Reserves for sales returns and allowances are recorded in the same accounting
period as the related revenues. As of December 31, 1998 and 1997, there were
no reserves established as sales returns and allowances were not significant.
Other Assets and Related Amortization Expense
Other assets consist primarily of patents. Generally, amortization is
computed on the straight-line method over ten years. Patent amortization was
$23,000, $5,000 and $9,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Research and Development
Research and development costs consist of all costs incurred in planning,
design and testing of the high-speed commercial cooking systems, including
salary costs related to research and development, and are expensed as
incurred.
Product Warranty
The Company's cooking systems are under warranty against defects in material
and workmanship for a period of one year. Anticipated future warranty costs
are estimated, based upon historical experience, and are recorded in the
period cooking systems are sold. Extended warranty coverage has been sold to
a major customer in Europe. The costs associated with this extended warranty
agreement in excess of revenues were $462,000 and $146,000 for the years
ended December 31, 1998 and 1997, respectively. There were no revenues or
expenses for the extended warranty program for the year ended December 31,
1996.
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
F-10
<PAGE>
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Loss Per Share
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 years ended December 31, 1998, 1997 and 1996.
Basic net loss per common share is based on 14,611,724, 14,032,796, and
13,339,431 weighted average shares outstanding for the years ended December
31, 1998, 1997 and 1996, respectively. For the years ended December 31,
1998, 1997 and 1996, diluted earnings per share is the same as basic earnings
per share because the effect of all other dilutive securities on the net loss
was antidilutive. Other potentially dilutive securities (warrants and
options) as of December 31, 1998, 1997 and 1996 totaled 3,278,239, 2,363,079
and 2,380,833, respectively.
Stock Option Plans
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"),
Accounting for Stock Issued to Employees, and related interpretations.
Compensation expense is recorded on the date of grant only if the market
price of the underlying stock exceeds the exercise price. Since the Company
grants substantially all stock options with an exercise price equal to or
greater than the current market price of the stock on the grant date, no
compensation expense is recorded. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("SFAS 123"). Under SFAS 123 the Company has elected the
disclosure provisions, rather than the recognition provision, and will
continue to account for stock-based compensation under APB 25.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
The carrying amount of cash and cash equivalents, marketable securities
available for sale (U.S. Government Agency Securities), accounts receivable,
note payable to shareholder, accounts
F-11
<PAGE>
payable and accrued expenses approximates fair value due to the short
maturity of these instruments.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value, less estimated sales expenses. Adoption of this Statement did
not have a material impact on the Company's financial position, results of
operations, or liquidity.
Reclassifications
Certain amounts in prior periods financial statements have been reclassified
to conform to current year presentation.
2. LIQUIDITY
The Company has historically incurred significant losses and thus anticipates
that its current cash and equivalent balances on hand will not be sufficient
to fund its operations and satisfy its current contemplated capital
requirements. Therefore, 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 was set to expire on July 1, 1999 was secured by 90,000 shares of
Maytag common stock owned by the Company. The Company was able to borrow up
to the lesser $3.0 million or 75% of the market value of the Maytag stock at
market rates of interest. In January 1999, the Company terminated the
revolving credit agreement with its bank and entered into an agreement with
Banque AIG, London Branch (an affiliate of American International Group, Inc.
("AIG")). The AIG facility provides for the Company to pledge its Maytag
shares in the form of a "Variable Stock Transaction" and to receive cash
advances against the value of the Maytag shares. All advances mature within
three years and bear interest at LIBOR plus 0.75%. At the end of the three-
year term, the Company may satisfy any outstanding obligation by surrendering
Maytag shares equal to the fair value of the obligation or with cash. The
transaction allows TurboChef to benefit from any appreciation in the Maytag
share price over $63.25, over a the three-year period and provides down-side
protection to the Company in the form of a "put option" for the 293,846
shares of Maytag stock. The put option establishes a minimum realizable value
for the Maytag shares of approximately $57 per share.
In January 1999, the Company had pledged 140,000 shares of the Maytag stock
and received advances totaling $3.0 million and has approximately $3.2
million in advances available. Once the remaining 146,923 Maytag shares are
available to pledge, the Company will have available approximately $7.2
million in additional advances.
F-12
<PAGE>
In February 1999, the Company entered into an agreement with its bank to
support general corporate requirements. The credit agreement is set to
expire in February 2000. The agreement is secured by 6,923 shares of Maytag
common stock owned by the Company. The Company can borrow up to the lesser
of $315,000 or 75% of the market value of the Maytag stock at market rates of
interest.
Management believes that cash flows from operations and the advances from the
AIG facility and borrowings under the bank agreement will be adequate to
fund the Company's operations in fiscal year 1999.
3. MARKETABLE SECURITES
In 1998, the Company's marketable securities consist of shares of Maytag
common stock. For 1997 marketable securities consist of shares of Maytag
common stock and U.S. Government Agency Securities. These securities were
classified as available-for-sale by major security type and class of security
and unrealized gains and losses are recorded as other accumulated
comprehensive income. At December 31, 1998 and 1997, the amounts of
marketable securities were as follows (Amounts shown in Thousands):
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
holding holding Fair
December 31, 1998: Cost gains losses value
------------------ ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Equity securities (Maytag) $10,000 8,292 -- $18,292
======= ===== ======= =======
December 31, 1997
-----------------
U.S. Government Agency
Securities $ 1,795 -- -- $ 1,795
Equity securities (Maytag) 10,000 964 -- 10,964
------- ----- ------- -------
$11,795 964 -- $12,759
======= ===== ======= =======
</TABLE>
Equity securities are generally subject to a general restriction placed
on selling, pledging, transferring or assigning such securities for a period
of 21 months from December 31, 1997; however, the Company received the
ability, in accordance with the Alliance, to cause 50% of such securities to
be sold, pledged, transferred or assigned, subject to certain requirements,
after March 31, 1998. According to the Alliance, the Company will gain the
right to sell, pledge, transfer or assign the remaining 50% on September 30,
1999. Unrealized gains on equity investments are included in stockholder's
equity.
Proceeds from the sale of investment securities available for sale were
$1,795,000 in 1998 and resulted in no gain or loss.
4. INVESTMENT IN JOINT VENTURE
During 1997, the Company contributed $117,000 for a 50% interest in a joint
venture, TurboChef Europe, created for the purpose of establishing
distributorships and direct sales relationships within certain Western
European countries. The Company's share of the net loss of TurboChef Europe
for the year ended December 31, 1997 was $156,000.
F-13
<PAGE>
During 1998, the Company contributed $145,000 to its joint venture. The
Company's net loss in the joint venture for the year ended December 31, 1998
was $105,000. In June 1998, the joint venture was terminated.
5. CERTAIN TRANSACTIONS WITH STOCKHOLDERS
Notes Payable
On March 30, 1996, a major shareholder and an officer of the Company loaned
the Company the sums of $200,000 and $85,000, respectively. These loans were
evidenced by promissory notes bearing interest at the rate of 6.5% per annum.
Each of these notes was payable on demand. These loans were made to satisfy
certain eligibility requirements in order for the Company's common stock to
continue to be listed on NASDAQ. These notes were repaid in full (an
aggregate of $289,000, including accrued interest) prior to the consummation
of the June 1996 Offering.
6. LEASE COMMITMENTS
The Company is obligated under certain non-cancelable leases for office space
and equipment, the majority of which have remaining terms of less than one
year. Obligations for office space, which extends beyond one year, are
$341,000, $288,000 and $9,000 in 1999, 2000, and 2001 respectively. The
Company has sub-let one of the properties thus reducing the actual net rent
expense by $69,000 and $23,000 for the years ended December 31, 1999 and
2000. Rent expense was $325,000, $323,000, and $148,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the Statements
of Operations:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
Computed "expected" tax benefit $(1,344) $(1,585) $(1,000)
Research and development credit (98) (47) (39)
Other 83 132 5
Valuation Allowanc 1,359 1,500 1,034
------- ------- -------
Income tax benefit $ -- $ -- $ --
======= ======= =======
</TABLE>
The components of the Company's net deferred tax asset were as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1998 1997
-------------------- ------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 31 $ --
Accrued bonuses 36 --
Inventory reserves 150 --
Warranty reserves 39 --
Research and development credit carryforwards 245 158
</TABLE>
F-14
<PAGE>
<TABLE>
<S> <C> <C>
Net operating loss carryforwards 5,518 5,183
Other 17 --
------- -------
Total gross deferred tax assets 6,036 5,341
Less valuation allowance (6,036) (5,322)
------- -------
Net deferred tax assets -- 19
------- -------
Deferred tax liabilities:
Equipment principally due to difference
In depreciation -- (10)
Other -- (9)
------- -------
Total gross deferred tax liabilities (19)
------- -------
Net $ -- $ --
======= =======
</TABLE>
In assessing the realizability of deferred income tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred income tax assets will not be realized. The ultimate realization of
deferred income tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Due to the historical operating results of the Company,
management is unable to conclude on a more likely than not basis that
deferred income tax assets will be realized.
At December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of $16.2 million, which may be used against
future taxable income, if any, and which expire in years 2009 to 2013. Any
change in ownership under Internal Revenue Code Section 382 could limit the
annual utilization of these carryforwards and cause some amount of the
carryforwards to expire unutilized.
The Company also has research and development credit carryforwards of
approximately $245,000 which may be used to offset future federal tax
liability, if any.
8. STOCKHOLDERS' EQUITY
Authorized Shares
In June 1997, the Board of Directors of the Company approved a proposal to
increase the number of authorized shares of common stock from 20,000,000
shares to 50,000,000 million shares.
Stock Option Plan
The Company adopted the 1994 Stock Option Plan ("the Stock Option Plan"),
which was amended in March 1994, June 1995, February 1997, June 1997, June
1998 and October 1998, pursuant to which stock options covering an aggregate
of 3,650,000 shares of the Company's common stock may be granted. Options
awarded under the Stock Option Plan (i) are generally granted at exercise
prices which equate to or are above quoted market price on the date of the
grant; (ii) generally become exercisable over a period of one to four years;
and (iii) generally expire five or seven years subsequent to award.
At December 31, 1998 there were 88,334 shares available for grant under the
Plan. The per share weighted-average fair value of stock options granted
during 1998, 1997 and 1996 was $3.28, $5.16, and $5.53, respectively, on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: For 1998, Risk-free interest rate, ranging from
F-15
<PAGE>
4.02% to 5.63%; expected life, seven years; expected dividend yield, 0% and
volatility, 41%. For 1997, Risk-free interest rate, ranging from 5.77% to
6.56%; expected life, seven years; expected dividend yield, 0% and
volatility, 45%. For 1996, the Risk-free interest rate of was 6%, expected
life was five years, expected dividend yield was 0% and volatility was 50%.
The Company applies APB Opinion 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below (Amounts shown in thousands except share amounts).
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Net loss:
<S> <C> <C> <C>
As reported $(3,954) $(4,662) $(2,941)
Loss per common share - basic
and diluted $ (.27) $ (.33) $ (.22)
Pro forma $(5,448) $(5,959) $(3,588)
Loss per common share - basic
and diluted $ (.37) $ (.42) $ (.27)
</TABLE>
Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options
vesting period of up to four years and compensation cost for options granted
prior to January 1, 1995 is not considered.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
------------------ ------------------
<S> <C> <C>
Options outstanding at December 31, 1995 1,500,666 $ 3.36
========= ======
Options granted 949,000 11.02
Options exercised (116,166) 2.29
Options cancelled (292,667) 7.99
--------- ------
Options outstanding at December 31, 1996 2,040,833 $ 6.32
========= ======
Options granted 424,500 9.61
Options exercised (111,607) 2.19
Options cancelled (242,833) 9.17
--------- ------
Options outstanding at December 31, 1997 2,110,893 $ 6.87
========= ======
Options granted 1,245,000 6.40
Options exercised (56,826) 2.50
Options cancelled (222,000) 9.51
--------- ------
Options outstanding at December 31, 1998 3,077,067 $ 6.57
========= ======
</TABLE>
At December 31, 1998, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.50 - $15.00 and 3.6
years, respectively. The following table summarizes information about the
Company's stock options outstanding at December 31, 1998:
F-16
<PAGE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Range of Exercise Prices Outstanding as Weighted Weighted Exercisable as Weighted
of December 31, Average Average of December Average
1998 Remaining Exercise 31, 1998 Exercise
Contractual Price Price
Life
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1.50-5.00 1,148,067 1.6 $ 2.85 948,067 $ 2.45
5.01-10.00 1,349,000 6.2 $ 6.92 218,499 $ 7.68
10.01-15.00 580,000 2.2 $12.60 125,000 $11.59
</TABLE>
At December 31, 1998, 1997 and 1996, the number of options exercisable was
1,291,566, 1,146,970 and 1,095,826 respectively, and the weighted-average
exercise price of those options was $4.22, $2.88 and $3.08, respectively.
In addition, a former joint venture partner has the option to purchase
262,500 shares of common stock at $2.50 per share and expiring March 31,
2002. As of December 31, 1998, no options have been exercised.
Stock Issuances
During 1997, the Company issued 564,668 shares of stock to Maytag in exchange
for 293,846 shares of Maytag's common stock under the terms of the "Strategic
Alliance Agreement." The Company stock was valued at $17.71 per share and
the Maytag stock was valued at $34.03 per share both of which approximates
the fair value of the respective stocks at the issuance date.
During 1996, the Company issued 2,000 shares of stock to a director in
payment of director fees. The stock was valued at $13.88 per share, which
approximates the fair value of the stock at the issuance date. During 1997,
the Company issued 1,960 shares of stock to a director in payment of director
fees. The stock was valued at $15.25 per share, which approximates the fair
value of the stock at the issuance date.
Treasury Stock
During the years ended December 31, 1998, 1997 and 1996 the Company accepted
issued shares of stock, at market value, as payment to exercise vested stock
options at their granted price. Treasury stock transactions for the years
ended December 31, 1998, 1997 and 1996 were $117,000, $167,000 and $167,000.
Stock Warrants
In connection with the IPO, the Company sold the underwriters warrants to
purchase 260,000 shares at $3.25 per share (the IPO Warrants) of which 51,014
warrants were exercised in 1998 and 87,814 warrants were exercised in 1997.
F-17
<PAGE>
In June 1996, the Company sold the underwriters of the secondary public
offering warrants to purchase 80,000 shares at $24.00 per share (the June
1996 Warrants). None of the June 1996 Warrants had been exercised as of
December 31, 1998.
9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the fourth quarter of 1998, the Company incurred aggregate charges in the
amount of $53,000 relating to the termination of its manufacturing
relationship with a European company.
In the third and fourth quarters of 1996, the Company incurred aggregate
charges in the amount of $467,000 for the field upgrade of systems sold to a
major customer with performance enhancing technological improvements and
charged operations for such charges.
10. RELATED PARTY TRANSACTIONS
Since inception of the Company, an entity (which was founded and is
principally owned by the Company's former Vice President - Engineering) has
performed engineering and development work for the Company. During the years
ended December 31, 1998, 1997 and 1996, the Company paid the entity fees of
$112,000, $256,000, and $345,000, respectively, relating primarily to
research and development charges incurred on behalf of the Company.
For the years ended December 31, 1998 and 1997, the Company made net
purchases of cooking system inventory and related equipment from Techniform
Waterford Ltd. ("Techniform"), an Ireland based manufacturer, in the amounts
of $1,523,000 and $1,032,000, respectively. In 1999, the Company purchased
from Techniform $773,000 in cooking systems, parts and manufacturing
tooling. All transactions with Techniform were considered to be arms length
transactions. The manufacturing relationship with Techniform was terminated
in March 1999. Techniform is owned and operated by The Queally Group, a 50%
owner of the Company's former joint venture, TurboChef Europe.
For the years ended December 31, 1998 and 1997, the Company had net cooking
system sales of $572,000 and $226,000, respectively, to its European joint
venture, TurboChef Europe. This joint venture was terminated in June 1998.
11. CONCENTRATION OF BUSINESS RISKS
For the years ended December 31, 1998, 1997 and 1996, product sales from a
customer in the United Kingdom represented $59,000 or 1%, $1,576,000 or 37%
and $2,108,000 or 75%, respectively, of the total revenues of the Company.
The loss of this customer, in the absence of significant additional
customers or revenue sources, could have a material adverse effect on the
Company.
For the years ended December 31, 1998 and 1997, the Company received
$4,075,000 and $750,000, respectively, in fees for research and development
services and technology transfers from the Maytag Alliance. This represents
57% and 18% of the Company's total revenues for the years ended December 31,
1998 and 1997, respectively. As the Company has previously reported, it has
completed the current phase of targeted research and development and the
associated $125,000 and $300,000 per month payments ended in January and
March 1999, respectively. The Alliance, however, is ongoing, and provides
for the opportunity to establish additional residential and commercial
product development projects in the future. Accordingly, future revenues
from
F-18
<PAGE>
the Alliance will depend upon the establishment of additional fee based
research and development projects with Maytag and royalties from the
successful commercialization and sales of the products that embody the
Company's technologies.
However, if additional projects are not initiated with Maytag there is no
assurance that the Company would be able to find alternate sources of
funding on acceptable terms for further research and development of current
and future products. The failure to find acceptable alternative financing
could have a significant impact on the Company's current and future
operations. However, management is confident that through sales of its
commercial cooking system and the AIG financing agreement, it will have
adequate funding for further research and development throughout 1999. The
termination of the Maytag Alliance could have a material adverse effect on
the Company.
During 1998, the Company relied upon a single source for the manufacturing
of its commercial cooking systems, Techniform. In 1999, the Company began
transitioning its manufacturing requirements to G.S. Blodgett, a subsidiary
of Maytag. The Company will continue to rely upon a single source for the
manufacture of its commercial cooking systems at this time.
As of December 31, 1998, 100% of marketable equity securities and 91% of
current assets are comprised of Maytag common stock. The Company has taken
steps to partially reduce this concentration of risk through its financing
agreement with AIG.
12. COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement under which it is obligated to
supply a fixed number of cooking systems at a price specifically stated on
the contract. A total of 48 units remain to be shipped under the contract,
with an option for 40 additional units at the sole discretion of the buyer.
13. AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". This Statement 130 requires the reporting of
comprehensive income and its components in the general-purpose financial
statements. This Statement also requires that an entity classify items of
other comprehensive income by their nature in an annual financial statement.
The Company has adopted this statement in 1998 and disclosed this
information through its statement of stockholders' equity.
The FASB has recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", and SFAS No. 132, "Employers'
Disclosure about Pensions and Other Post-Retirement Benefits". These
Statements are effective for the Company in 1998. The adoption of these
statements does not have a material effect on the Company's financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement is effective for the
Company on January 1, 2000. SFAS No. 133 requires companies to report
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company is currently
reviewing the standard and its effect on the financial statements.
F-19
<PAGE>
In October 1998, the FASB issued SFAS No 134, "Accounting for Certain
Mortgage Banking Activities". This Statement is effective for the Company in
1999. The adoption of this statement is not expected to have a material
effect on the Company's financial statements.
The American Institute of Certified Public Accountants (AICPA) has issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition". The
adoption of this Statement does not have a material effect on the Company's
financial statements.
In 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", and SOP 98-5, "Reporting
on the Costs of Start-Up Activities". The adoption of these Statements does
not have a material effect on the Company's financial statements.
F-20
<PAGE>
EXHIBIT 10.33
MASTER AGREEMENT DATED JANUARY 11, 1999 BY AND BETWEEN
TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL SERVICES CORP.
<PAGE>
EXHIBIT 10.33
ISDA(R)
International Swap Dealers Association. Inc.
MASTER AGREEMENT
dated as of January 11, 1999
TURBOCHEF TECHNOLOGIES,INC and BANQUE AIG, LONDON BRANCH
have entered an/or anticipate entering into one or more transactions (each a
Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:--
1. INTERPRETATION
(a) Definitions. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) INCONSISTENCY. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this "Agreement"), and the parties
would not otherwise enter into any Transactions.
2. OBLIGATIONS
(a) GENERAL CONDITIONS.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by its subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place of the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
<PAGE>
(b) CHANGE OF ACCOUNT. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice reasonable
objection to such change.
(c) NETTING. If on any date amounts would otherwise be payable:--
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will
not, or will cease to, apply to such Transactions from such date). This
election may be made separately for different groups of Transactions and will
apply separately to each pairing of Offices through which the parties make and
receive payments or deliveries.
(d) DEDUCTION OR WITHHOLDING FOR TAX.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:--
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be deducted or
withheld from any additional amount paid by X to Y under this Section 2(d))
promptly upon the earlier of determining that such deduction or withholding
is required or receiving notice that such amount has been assessed against
Y;
(3) promptly forward to Y an official receipt (or a certified copy) or
other documentation reasonably acceptable to Y, evidencing such payment to
such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount actually
received by Y (free and clear of Indemnifiable Taxes, whether assessed
against X or Y) will equal the full amount Y would have received had no
such deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that it would not
be required to be paid but for:--
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d): or
(B) the failure of a representation made by Y pursuant to Section
3(f) to be accurate and true unless such failure would not have
occurred but for (I) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (II)
a Change in Tax Law.
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(ii) LIABILITY. IF:--
(1) X is required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, to make any deduction
or withholding in respect of which X would not be required to pay an
additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against
X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax. Y will promptly pay to X the amount of such
liability (including any related liability for interest, but including any
related liability for penalties only if Y has failed to comply with or
perform any agreement contained in Section 4(a)(i) 4(a)(iii) or 4(d)).
(e) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c) be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. REPRESENTATIONS
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:--
(a) BASIC REPRESENTATIONS.
(i) STATUS. It is duly organised and validly existing under the laws of
the jurisdiction of its organisation or incorporation and, if
relevant under such laws, in good standing;
(ii) POWERS. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to
deliver this Agreement and any other documentation relating to this
Agreement that it is required by this Agreement to deliver and to
perform its obligations under this Agreement and any obligations it
has under any Credit Support Document to which it is a party and
has taken all necessary action to authorise such execution, delivery
and performance;
(iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do
not violate or conflict with any law applicable to it any provision
of its constitutional documents, any order or judgment of any court
or other agency of government applicable to it or any of its assets
or any contractual restriction binding on or affecting it or any of
its assets;
(iv) CONSENTS. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any
Credit Support Document to which it is a party have been obtained and
are in full force and effect and all conditions of any such consents
have been complied with; and
(v) OBLIGATIONS BINDING. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal,
valid and binding obligations, enforceable in accordance with their
respective terms subject to applicable bankruptcy, reorganisation,
insolvency, moratorium or similar laws affecting creditors' right
generally and subject, as to enforceability, to equitable principles
of general application (regardless of whether enforcement is sought
in a proceeding in equity or at law)).
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(b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of
Default or to its knowledge, Termination Event with respect to it has occurred
and is continuing and no such event or circumstance would occur as a result of
its entering into or performing its obligations under this Agreement; or any
Credit Support Document to which it is a party.
(c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge,
threatened against it or any of its Affiliates any action, suit or proceeding at
law or in equity or before any court, tribunal, governmental body, agency or
official or any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or any Credit Support Document to
which it is a party or its ability to perform its obligations under this
Agreement or such Credit Support Document.
(d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is as of the date of the
information, true, accurate and complete in every material respect.
(e) PAYER TAX REPRESENTATION. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) PAYEE TAX REPRESENTATIONS. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. AGREEMENTS
Each party agrees with the other that, so long as either party has or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:--
(a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party or in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:--
(i) any forms, documents or certificates relating to taxation specified
in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation;
and
(iii) upon reasonable demand by such other party, any form or document that
may be required or reasonably requested in writing in order to allow such
other party or its Credit Support Provider to make a payment under this
Agreement or any applicable Credit Support Document without any deduction
or withholding for or on account of any Tax or with such deduction or
withholding at a reduced rate (so long as the completion, execution or
submission of such form or document would not materially prejudice the
legal or commercial position of the party in receipt of such demand), with
any such form or document to be accurate and completed in a manner
reasonably satisfactory to such other party and to be executed and to be
delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified as soon as reasonable practicable.
(b MAINTAIN AUTHORISATIONS. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
arc required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c) COMPLY WITH LAWS. It will comply in all material respects with all
applicable laws and orders to which it may he subject if failure so to comply
would materially impair its ability to perform its obligations under this
Agreement or any Credit Support Document to which it is a party.
(d) TAX AGREEMENT. It will give notice of any failure of a representation made
by it under Section 3(f) to be accurate and true promptly upon learning of such
failure.
(c) PAYMENT OF STAMP TAX. Subject to Section II, it will pay and Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated.
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organised, managed and controlled, or considered to have its seat, or in which a
branch or office through which it is acting for the purpose of this Agreement is
located ("Stamp Tax Jurisdiction") and will indemnify the other party against
any Stamp Tax levied or imposed upon the other party or in respect of the other
party's execution or performance of this Agreement by any such Stamp Tax
Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the
other party.
5. EVENTS OF DEFAULT AND TERMINATION EVENTS
(a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:--
(i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due,
any payment under this Agreement or delivery under Section 2(a)(i) or 2(e)
required to be made by it if such failure is not remedied on or before the
third Local Business Day after notice of such failure is given to the
party;
(ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform
any agreement or obligation (other than an obligation to make any payment
under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give
notice of a Termination Event or any agreement or obligation under Section
4(a)(i) 4(a)(iii) or 4(d)) to be complied with or performed by the party
in accordance with this Agreement if such failure is not remedied on or
before the thirtieth day after notice of such failure is given to the
party;
(iii) CREDIT SUPPORT DEFAULT.
(1) Failure by the party or any Credit Support Provider of such party
to comply with or perform any agreement or obligation to be
complied with or performed by it in accordance with any Credit
Support Document if such failure is continuing after any
applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document the
failing or ceasing of such Credit Support Document to be in full
force and effect for the purpose of this Agreement (in either
case other than in accordance with its terms) prior to the
satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without
the written consent of the other party: or
(3) the party or such Credit Support Provider disaffirms, disclaims,
repudiates or rejects in whole or in part or challenges the
validity of such Credit Support Document;
(iv) MISREPRESENTATION. A representation (other than a representation
under Section 3(e) or (f)) made or repeated or deemed to have been made or
repeated by the party or any Credit Support Provider of such party in this
Agreement or any Credit Support Document proves to have been incorrect or
misleading in any material respect when made or repeated or deemed to have
been made or repeated;
(v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support
Provider of such party or any applicable Specified Entity of such party
(1) defaults under a Specified Transaction and, after giving effect to any
applicable notice requirement or grace period, there occurs a liquidation
of, an acceleration of obligations under, or an early termination of, that
Specified Transaction, (2) defaults, after giving effect to any applicable
notice requirement or grace period, in making any payment or delivery
due on the last payment delivery or exchange date of, or any payment
on early termination of a Specified Transaction (or such default continues
for at least three Local Business Days if there is no applicable notice
requirement or grace period or (3) disaffirms, disclaims, repudiates or
rejects, in whole or in part, a Specified Transaction or such action is
taken by any person or entity appointed or empowered to operate it or act
on its behalf;
(v) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as
applying to the party, the occurrence or existence of (1) a default, event
of default or other similar condition or event (however
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described) in respect of such party, any Credit Support Provider of
such party or any applicable Specified Entity of such party under one
or more agreements or instruments relating to Specified Indebtedness
of any of them (individually or collectively) in an aggregate amount
not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming,
or becoming capable at such time of being declared, due and payable
under such agreements or instruments, before it would otherwise have
been due and payable or (2) a default by such party, such Credit
Support Provider or such Specified Entity (individually or
collectively) in making one or more payments on the due date thereof
in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to
any applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such
party or any applicable Specified Entity of such party:--
(1) is dissolved (other than pursuant to a consolidation,
amalgamation or merger); (2) becomes insolvent or is unable to
pay its debts or fails or admits in writing its inability
generally to pay its debts as they become due; (3) makes a
general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted
against it a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or insolvency
law or other similar law affecting creditors' rights, or a
petition is presented for its winding-up or liquidation, and in
the case of any such proceeding or petition instituted or
presented against it, such proceeding or petition (A) results in
a judgment of insolvency or bankruptcy or the entry of an order
for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or
restrained in each case within 30 days of the institution or
presentation thereof; (5) has a resolution passed for its winding
-up, official management or liquidation (other than pursuant to a
consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional
liquidator, conservator, receiver, trustee, custodian or other
similar official for it or for all or substantially all its
assets; (7) has a secured party take possession of all or
substantially all its assets or has a distress, execution,
attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and
such secured party maintains possession or any such process is
not dismissed, discharged, stayed or restrained, in each case
within 30 days thereafter; (8) causes or is subject to any event
with respect to it which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the events
specified in clauses (I) to (71 (inclusive); or (9 takes any
action in furtherance of, or indicating its consent to, approval
of, or acquiescence in any of the foregoing acts; or
(vii) Merger Without Assumption. The party or any Credit Support Provider
of such party consolidates or amalgamates with, or merges with or
into, or transfers all or substantially all its assets to another
entity and, at the time of such consolidation, amalgamation, merger or
transfer:--
(1) the resulting, surviving or transferee entity fails to assume
all the obligations of such party or such Credit Support Provider
under this Agreement or any Credit Support Document to which it
or its predecessor was a party by operation of law or pursuant to
an agreement reasonably satisfactory to the other party to this
Agreement; or
(2) the benefits of any Credit Support Document fail to extend
(without the consent of the other party to the performance by
such resulting, surviving or transferee entity of its obligations
under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an Illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below,
and,if specified to be applicable, a Credit Event
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Upon Merger if the event is specified pursuant to (iv) below or an Additional
Termination Event if the event is specified pursuant to (v) below:--
(i) ILLEGALITY. Due to the adoption of, or any change in, any
applicable law after the date on which a Transaction is entered into,
or due to the promulgation of, or any change in, the interpretation by
any court, tribunal or regulatory authority with competent
jurisdiction of any applicable law after such date, it becomes
unlawful (other than as a result of a breach by the party of Section
4(b)) for such party (which will be the Affected Party):--
(1) to perform any absolute or contingent obligation to make a
payment or delivery or to receive a payment or delivery in
respect of such Transaction or to comply with any other material
provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party
to perform, any contingent or other obligation which the party
(or such Credit Support Provider) has under any Credit Support
Document relating to such Transaction;
(ii) TAX EVENT. Due to (x) any action taken by a taxing authority, or
brought in a court of competent jurisdiction, on or after the date on
which a Transaction is entered into (regardless of whether such action
is taken or brought with respect to a party to this Agreement) or (y)
a Change in Tax Law, the party (which will be the Affected Party)
will, or there is a substantial likelihood that it will, on the next
succeeding Scheduled Payment Date (1) be required to pay to the other
party an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is
required to be deducted or withheld for or on account of a Tax (except
in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no
additional amount is required to be paid in respect of such Tax under
Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or
(B)):
(iii) TAX EVENT UPON MERGER. The party (the "Burdened Party") on the
next succeeding Scheduled Payment Date will either (1) be required to
pay an additional amount in respect of an Indemnifiable Tax under
Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has
been deducted or withheld for or on account of any Indemnifiable Tax
in respect of which the other party is not required to pay an
additional amount (other than by reason of Section 2(d)(i)(4)(A) or
(B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or
substantially all its assets to another entity (which will be the
Affected Party) where such action does not constitute an event
described in Section 5(a)(viii);
(iv) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is
specified in the Schedule as applying to the party, such party ("X"),
any Credit Support Provider of X or any applicable Specified Entity of
X consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to another entity and
such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or
transferee entity is materially weaker than that of X, such Credit
Support Provider or such Specified Entity, as the case may be,
immediately prior to such action (and, in such event X or its
successor or transferee, as appropriate, will be the Affected Party);
or
(v) ADDITIONAL TERMINATION EVENT. If any "Additional Termination
Event" is specified in the Schedule or any Confirmation as applying,
the occurrence of such event (and, in such event, the Affected Party
or Affected Parties shall be as specified for such Additional
Termination Event in the Schedule or such Confirmation).
(C) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would
otherwise constitute or give rise to an Event of Default also constitutes an
Illegality, it will be treated as an Illegality and will not constitute an Event
of Default
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6. EARLY TERMINATION
(a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as an
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(l), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT.
(i) NOTICE. If a Termination Event occurs, an Affected Party will,
promptly upon becoming aware of it, notify the other party, specifying
the nature of that Termination Event and each Affected Transaction and
will also give such other information about that Termination Event as
the other party may reasonably require.
(ii) TRANSFER TO AVOID TERMINATION EVENT. If either an Illegality
under Section 5(b)(i)(1) or a Tax Event occurs and there is only one
Affected Party, or if a Tax Event Upon Merger occurs and the Burdened
Party is the Affected Party, the Affected Party will, as a condition
to its right to designate an Early Termination Date under Section
6(b)(iv), use all reasonable efforts (which will not require such
party to incur a loss, excluding immaterial, incidental expenses) to
transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the
Affected Transactions to another of its Offices or Affiliates so that
such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give
notice to the other party to that effect within such 20 day period,
whereupon the other party may effect such a transfer within 30 days
after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be
subject to and conditional upon the prior written consent of the other
party, which consent will not be withheld if such other party's
policies in effect at such time would permit it to enter into
transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(I)
or a Tax Event occurs and there are two Affected Parties, each
party will use all reasonable efforts to reach agreement within 30
days alter notice thereof is given under Section 6(b)(ii) on action to
avoid that Termination Event.
(iv) Right to Terminate. If.--
(1) a transfer under Section 6(h)(ii) or an agreement under
Section 6(b)(iii), as the case may be, has not been effected with
respect to all Affected Transactions within 30 days after an
Affected Party gives notice under Section 6(b)(i): or
(2) an Illegality under Section 5(b)(i)(2),a Credit Event Upon
Merger or an Additional Termination Event occurs, or a Tax Event
Upon Merger occurs and the Burdened Party is not the Affected
Party.
either party in the case of an Illegality, the Burdened Party in the
case of a Tax Event Upon Merger, any Affected Party in the case of a
Tax Event or an Additional Termination Event if there is more than one
Affected Party, or the party which is not the Affected Party in the
case of a Credit Event Upon Merger or an Additional Termination Event
if there is only one Affected Party may, by not more than 20 days
notice to the other party and provided that the relevant Termination
Event is then
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continuing, designate a day not earlier than the day such notice is
effective as an Early Termination Date in respect of all Affected
Transactions.
(C) EFFECT OF DESIGNATION.
(i) If notice designating an Early Termination Date is given under
Section 6(a) or (b), the Early Termination Date will occur on the date
so designated, whether or not the relevant Event of Default or
Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early
Termination Date, no further payments or deliveries under Section
2(a)(i) or 2(e) in respect of the Terminated Transactions will be
required to be made, but without prejudice to the other provisions of
this Agreement. The amount, if any, payable in respect of an Early
Termination Date shall be determined pursuant to Section 6(e).
(d) CALCULATIONS.
(i) STATEMENT. On or as soon as reasonably practicable following the
occurrence of an Early Termination Date, each party will make the
calculations on its part, if any, contemplated by Section 6(e) and
will provide to the other party a statement (1) showing, in reasonable
detail, such calculations (including all relevant quotations and
specifying any amount payable under Section 6(e)) and (2) giving
details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of
a quotation obtained in determining a Market Quotation, the records of
the party obtaining such quotation will be conclusive evidence of the
existence and accuracy of such quotation.
(ii) PAYMENT DATE. An amount calculated as being due in respect of any
Early Termination Date under Section 6(e) will be payable on the day
that notice of the amount payable is effective (in the case of an
Early Termination Date which is designated or occurs as a result of an
Event of Default) and on the day which is two Local Business Days
after the day on which notice of the amount payable is effective (in
the case of an Early Termination Date which is designated as a result
of a Termination Event). Such amount will be paid together with (to
the extent permitted under applicable law) interest thereon (before
as well as after judgement) in the Termination Currency, from (and
including) the relevant Early Termination Date to (but excluding) the
date such amount is paid, at the Applicable Rate. Such interest will
be calculated on the basis of daily compounding and the actual number
of days elapsed.
(C) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs,the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method" or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule, it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) EVENTS OF DEFAULT. If the Early Termination Date results from an
Event of Default:--
(1) First Methods and Market Quotation. If the First Method and
Market Quotation apply, the Defaulting Party will pay to the
Non-defaulting Party the excess, if a positive number, of (A) the
sum of the Settlement Amount (determined by the Non-defaulting
Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to
the Non-defaulting Party over (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss
apply, the Defaulting Party will pay to the Non-defaulting Party,
if a positive number, the Non-defaulting Party's Loss in respect
of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and
Market Quotation apply, an amount will be payable equal to (A)
the sum of the Settlement Amount (determined by the
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Non-defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the Non-
defaulting Party less (B) the Termination Currency Equivalent of the
Unpaid Amounts owing to the Defaulting Party. If that amount is a positive
number, the Defaulting Party will pay it to the Non-defaulting Party; if
it is a negative number, the Non-defaulting Party will pay the absolute
value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an
amount will be payable equal to the Non-defaulting Party's Loss in respect
of this Agreement. If that amount is a positive number, the Defaulting
Party will pay it to the Non-defaulting Party; if it is a negative number,
the Non-defaulting Party will pay the absolute value of that amount to the
Defaulting Party.
(ii) TERMINATION EVENTS. If the Early Termination Date results from a
Termination Event:--
(1) One Affected Party. If there is one Affected Party, the amount
payable will be determined in accordance with Section 6(e)(i)(3), if
Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except
that, in either case, references to the Defaulting Party and to the
Non-defaulting Party will be deemed to be references to the Affected Party
and the party which is not the Affected Party, respectively, and, if Loss
applies and fewer than all the Transactions are being terminated. Loss
shall be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:--
(A) if Market Quotation applies, each party will determine a
Settlement Amount in respect of the Terminated Transactions, and an
amount will be payable equal to (I) the sum of (a) one-half of the
difference between the Settlement Amount of the party with the
higher Settlement Amount ("X") and the Settlement Amount of the
party with the lower Settlement Amount ("Y") and (b) the
Termination Currency Equivalent of the Unpaid Amounts owing to X
less (II) the Termination Currency Equivalent of the Unpaid Amounts
owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect
of this Agreement (or, if fewer than all the Transactions are being
terminated, in respect of all Terminated Transactions) and an amount
will be payable equal to one-half of the difference between the Loss
of the party with the higher Loss ("X") and the Loss of the party
with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a
party, the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).
(iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount
recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a penalty. Such amount is payable for the loss of bargain and the loss of
protection against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any additional damages as a
consequence of such losses.
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7. TRANSFER
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:--
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. CONTRACTUAL CURRENCY
(a) PAYMENT IN THE CONTRACTUAL CURRENCY. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) JUDGMENTS. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgment or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and
costs of exchange payable in connection with the purchase of or conversion into
the Contractual Currency.
(c) SEPARATE INDEMNITIES. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect of this
Agreement.
(d) EVIDENCE OF LOSS. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
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9. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of the parties under this Agreement will survive the
termination of any Transaction.
(d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) COUNTERPARTS AND CONFIRMATIONS.
(i) This Agreement (and each amendment, modification and waiver in respect
of it) may be executed and delivered in counterparts (including by
facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally
or otherwise). A Confirmation shall be entered into as soon as
practicable and may be executed and delivered in counterparts
(including by facsimile transmission) or be created by an exchange of
telexes or by an exchange of electronic messages on an electronic
messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The
parties will specify therein or through another effective means that
any such counterpart, telex or electronic message constitutes a
Confirmation.
(f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right power or privilege.
(g) HEADINGS. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. OFFICES MULTIBRANCH PARTIES
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. EXPENSES
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document
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to which the Defaulting Party is a party or by reason of the early termination
of any Transaction, including, but not limited to, costs of collection.
12. NOTICES
(a) EFFECTIVENESS. Any notice or other communication in respect of this
Agreement may be given in any manner set forth below (except that a notice or
other communication under Section 5 or 6 may not be given by facsimile
transmission or electronic messaging system) to the address or number or in
accordance with the electronic messaging system details provided (see the
Schedule) and will be deemed effective as indicated:--
(i) if in writing and delivered in person or by courier, on the date
it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii) if sent by facsimile transmission, on the date that transmission
is received by a responsible employee of the recipient in legible form
(it being agreed that the burden of proving receipt will be on the
sender and will not be met by a transmission report generated by the
sender's facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas)
or the equivalent (return receipt requested), on the date that mail is
delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that
electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) CHANGE OF ADDRESSES. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. GOVERNING LAW AND JURISDICTION
(a) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) JURISDICTION. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings), each party irrevocably:--
(i) submits to the jurisdiction of the English courts, if this
Agreement is expressed to be governed by English law, or to the
non-exclusive jurisdiction of the courts of the State of New York and
the United States District Court located in the Borough of Manhattan
in New York City, if this Agreement is expressed to be governed by
the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying
of venue of any Proceedings brought in any such court, waives any
claim that such Proceedings have been brought in an inconvenient forum
and further waives the right to object, with respect to such
Proceedings, that such court does not have any jurisdiction over such
party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) SERVICE OF PROCESS. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any
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reason any party's Process Agent is unable to act as such, such party will
promptly notify the other party and within 30 days appoint a substitute process
agent acceptable to the other party. The parties irrevocably consent to service
of process given in the manner provided for notices in Section 12. Nothing in
this Agreement will affect the right of either party to serve process in any
other manner permitted by law.
(d) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. DEFINITIONS
As used in this Agreement:--
"ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b).
"AFFECTED PARTY" has the meaning specified in Section 5(b).
"AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"AFFILIATE" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"APPLICABLE RATE" means:--
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate:
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii) by a Non-defaulting Party, the Non-default
Rate: and
(d) in all other cases, the Termination Rate.
"BURDENED PARTY" has the meaning specified in Section 5(b).
"CHANGE IN TAX LAW" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"CONSENT" includes a consent approval, action, authorisation, exemption, notice,
filing, registration or exchange control consent.
"CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b).
"CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as
such in this Agreement.
"CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule.
"DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
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"DEFAULTING PARTY" has the meaning specified in Section 6(a).
"EARLY TERMINATION DATE" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"ILLEGALITY" has the meaning specified in Section 5(b).
"INDEMNIFIABLE TAX" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"LAW" includes any treaty, law, rule or regulation (as modified, in the case of
tax matters, by the practice of any relevant governmental revenue authority) and
"LAWFUL" and "UNLAWFUL" will be construed accordingly.
"LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"LOSS" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be its
total losses and costs (or gain, in which case expressed as a negative number)
in connection with this Agreement or that Terminated Transaction or group of
Terminated Transactions, as the case may be, including any loss of bargain, cost
of funding or, at the election of such party but without duplication, loss or
cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position (or any gain resulting from
any of them). Loss includes losses and costs (or gains) in respect of any
payment or delivery required to have been made (assuming satisfaction of each
applicable condition precedent) on or before the relevant Early Termination Date
and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3)
or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and
out-of-pocket expenses referred to under Section II. A party will determine its
Loss as of the relevant Early Termination Date, or, if that is not reasonably
practicable, as of the earliest date thereafter as is reasonably practicable. A
party may (but need not) determine its Loss by reference to quotations of
relevant rates or prices from one or more leading dealers in the relevant
markets.
"MARKET QUOTATION" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have
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been required after that date. For this purpose, Unpaid Amounts in respect of
the Terminated Transaction or group of Terminated Transactions are to be
excluded but, without limitation, any payment or delivery that would, but for
the relevant Early Termination Date, have been required (assuming satisfaction
of each applicable condition precedent) after that Early Termination Date is to
be included. The Replacement Transaction would be subject to such documentation
as such party and the Reference Market-maker may, in good faith, agree. The
party making the determination (or its agent) will request each Reference
Market-maker to provide its quotation to the extent reasonably practicable as of
the same day and time (without regard to different time zones) on or as soon as
reasonably practicable after the relevant Early Termination Date. The day and
time as of which those quotations are to be obtained will be selected in good
faith by the party obliged to make a determination under Section 6(e), and, if
each party is so obliged, after consultation with the other. If more than three
quotations are provided, the Market Quotation will be the arithmetic mean of the
quotations, without regard to the quotations having the highest and lowest
values. If exactly three such quotations are provided, the Market Quotation will
be the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that the Market Quotation in
respect of such Terminated Transaction or group of Terminated Transactions
cannot be determined.
"NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"NON-DEFAULTING PARTY" has the meaning specified in Section 6(a).
"OFFICE" means a branch or office of a party, which may be such party's head or
home office.
"POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"RELEVANT JURISDICTION" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"SET-OFF" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"SETTLEMENT AMOUNT" means, with respect to a party and any Early Termination
Date, the sum of:--
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"SPECIFIED ENTITY" has the meaning specified in the Schedule.
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"SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"STAMP TAX" means any stamp, registration, documentation or similar tax.
"TAX" means any present or future tax, levy, impost duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"TAX EVENT" has the meaning specified in Section 5(b).
"TAX EVENT UPON MERGER" has the meaning specified in Section 5(b).
"TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or if "Automatic Early Termination applies, immediately
before that Early Termination Date).
"TERMINATION CURRENCY" has the meaning specified in the Schedule.
"TERMINATION CURRENCY EQUIVALENT" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase of such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"TERMINATION EVENT" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party as certified
by such party) if it were to fund or of funding such amounts.
"UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Date and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which has not been so settled as at such Early Termination Date, an amount equal
to the fair market
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value of that which was (or would have been) required to be delivered as of the
originally scheduled date for delivery, in each case together with (to the
extent permitted under applicable law) interest, in the currency of such
amounts, from (and including) the date such amounts or obligations were or would
have been required to have been paid or performed to (but excluding) such Early
Termination Date, at the Applicable Rate. Such amounts of interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed. The fair market value of any obligation referred to in clause (b) above
shall be reasonably determined by the party obliged to make the determination
under Section 6(e) or, if each party is so obliged, it shall be the average of
the Termination Currency Equivalents of the fair market values reasonably
determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date specified on the first page of
this document.
TURBOCHEF TECHNOLOGIES, INC. BANQUE AIG. LONDON BRANCH
----------------------------- -----------------------------
(NAME OF PARTY) (NAME OF PARTY)
By: /s/ Dennis J. Jameson By: /s/ Kristofer Masson
................................. ................................
Name: DENNIS J. JAMESON Name: KRISTOFER MANSSON
Title: EVP-CFO Title: MANAGING DIRECTOR
Date: JAN 11, 1999 Date:
18
<PAGE>
(Multicurrency--Cross Border)
ISDA
International Swap and Derivatives Association, Inc.
SCHEDULE
to the
Master Agreement
dated as of January 11, 1999
between BANQUE AIG, LONDON BRANCH and TURBOCHEF TECHNOLOGIES, INC
("Party A") ("Party B")
Part 1. TERMINATION PROVISIONS.
(a) "SPECIFIED ENTITY" means in relation to Party A for the purpose of:--
Section 5(a)(v) : Not Applicable.
Section 5(a)(vi) : Not Applicable.
Section 5(a)(vii) : Not Applicable.
Section 5(b)(iv) : Not Applicable.
and in relation to Party B for the purpose of:--
Section 5(a)(v) : Not Applicable.
Section 5(a)(vi) : Not Applicable.
Section 5(a)(vii) : Not Applicable.
Section 5(b)(iv) : Not Applicable.
(b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 14 of
this Agreement.
(c) The "CROSS DEFAULT" provisions of Section 5(a)(vi) will apply to Party A and
Party B.
"SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 14 of
this Agreement.
"THRESHOLD AMOUNT" means, with respect to Party A, USD 25,000,000 or its
equivalent in any currency, and, with respect to Party B, USD 1,000,000
or its equivalent in any currency.
(d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(iv) will apply to
Party A and will apply to Party B.
(e) The "AUTOMATIC EARLY TERMINATION" provisions of Section 6(a) will not apply
to Party A and will not apply to Party B.
NY!2524: 36580.3
<PAGE>
(f) Payments on Early Termination. For the purpose of Section 6(e) of this
Agreement:--
(i) Market Quotation will apply.
(ii) The Second Method will apply.
(g) "TERMINATION CURRENCY" means United States Dollars.
(h) ADDITIONAL TERMINATION EVENT will apply. The following shall constitute
an Additional Termination Event, with Party B as the Affected Party:--
There shall occur any event that would permit Party A to declare an
acceleration under Article VI of the Variable Stock Agreement, to be
dated on or about January 14, 1999, between Party A and Party B.
For purposes of this Agreement:
"TRANSACTION" means any Transaction entered into pursuant to a
Confirmation delivered pursuant to, and forming a part of, this
Agreement, as amended or modified from time to time.
"ISSUER" means the issuer of the Shares with respect to a Transaction.
Each reference in the definition of "Merger Event" and
"Nationalization or Insolvency" in the Equity Derivatives Definitions
to "all of such Shares outstanding, "all such Shares" or "all the
Shares" shall be deemed to be a reference to "all or a substantial
portion of such Shares outstanding", "all or a substantial portion of
such Shares" or "all or a substantial portion of the Shares" as the
case may be. The reference in the definition of "Merger Date" in the
Equity Derivatives Definition to "all holders of the relevant Shares"
shall be deemed a reference to "holders of all or a substantial
portion of the relevant Shares." Also, as used herein the term "Merger
Event" shall be deemed to include, in addition to the transactions
described in the definition thereof in the Equity Derivatives
Definitions, any mandatory share exchange or other similar transaction
involving the Issuer and another entity.
Part 2. TAX REPRESENTATIONS.
(a) PAYER REPRESENTATIONS. For the purpose of Section 3(e) of this Agreement,
Party A will make the following representation and Party B will make the
following representation:-- It is not required by any applicable law, as
modified by the practice of any relevant governmental revenue authority, of
any Relevant Jurisdiction to make any deduction or withholding for or on
account of any Tax from any payment (other than interest under Section 2(e),
6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party
under this Agreement. In making this representation, it may rely on (i) the
accuracy of any representations made by the other party pursuant to Section
3(f) of this Agreement, (ii) the satisfaction of the agreement of the other
party contained in Section 4(a)(i) or 4(a)(iii) of this Agreement and the
accuracy and effectiveness of any document provided
2
<PAGE>
by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this
Agreement and (iii) the satisfaction of the agreement of the other party
contained in Section 4(d) of this Agreement, provided that it shall not be a
breach of this representation where reliance is placed on clause (ii) and
the other party does not deliver a form or document under Section 4(a)(iii)
by reason of material prejudice to its legal or commercial position.
(b) PAYEE REPRESENTATIONS. For the purpose of Section 3(f) of this Agreement,
Party A makes no representations and Party B makes no representations.
Part 3. AGREEMENT TO DELIVER DOCUMENTS.
For the purpose of Sections 4(a)(i) and (ii) of this Agreement, each party
agrees to deliver the following documents, as applicable:--
(a) Tax forms, documents or certificates to be delivered are:--
Each party agrees to complete, accurately and in a manner reasonably
satisfactory to the other party (or any Credit Support Provider thereof),
execute, arrange for any required certification of, and deliver to the other
party (or any Credit Support Provider thereof) or such government or taxing
authority as the other party (or any Credit Support Provider thereof) directs,
any form or document that may be required or reasonably requested in order to
assist or enable the other party (or any Credit Support Provider thereof) to
secure the benefit of any available exemption or relief from any deduction or
withholding for or on account of any Tax or, if there is no available exemption
or relief as aforesaid, to secure the benefit of any reduced rate of deduction
or withholding in respect of any payment under this Agreement (or any Credit
Support Document) promptly upon the earlier of: (i) reasonable demand by the
other party (or any Credit Support Provider thereof); and (ii) learning that the
form or document is required.
(b) Other documents to be delivered are:--
PARTY REQUIRED FORM/DOCUMENT/ DATE BY WHICH TO BE COVERED BY
TO DELIVER CERTIFICATE DELIVERED SECTION 3(D)
DOCUMENT REPRESENTATION
Party A Guarantee of At execution No
American
International Group,
Inc. (the "Guarantor")
in substantially the
form attached hereto as
Exhibit A
3
<PAGE>
PARTY REQUIRED FORM/DOCUMENT/ DATE BY WHICH TO BE COVERED BY
TO DELIVER CERTIFICATE DELIVERED SECTION 3(D)
DOCUMENT REPRESENTATION
Evidence of the At execution Yes
authority of a
specified person or
persons to execute
this Agreement,
including any and all
Confirmations, on
behalf of Party A
Annual Financial On demand of Party Yes
Statements of the B, in respect of the
Guarantor latest publicly
available financial
statements prior to
the date of this
Agreement and in respect
of financial statements
that hereafter become
publicly available
Party B Annual Financial Within 90 days of the Yes
Statements last day of each calendar
year, with respect to
financial statements
relating to such
calendar year
Opinion of counsel At execution No
satisfactory to
Party A
Part 4. MISCELLANEOUS.
(a) ADDRESSES FOR NOTICES. For the purpose of Section 12(a) of this Agreement:--
Address for notices or communications to Party A:--
Address: 4 Broadgate, 7th Floor
London EC2M 7LE
United Kingdom
Attention: Managing Director
Telex: 94016840 Answerback: AIGF
4
<PAGE>
Facsimile No.: (011) (44171) 972-0771
Electronic Messaging System Details: Not Applicable.
With a copy to:
AIG Financial Products Corp.
100 Nyala Farm
Westport, Connecticut 06880
United States of America
Attention: Chief Financial Officer (with a copy to the General
Counsel)
Telex No.: 910240 9432 Answerback: AIGFPC
Facsimile No.: (203) 222-4780
Electronic Messaging System Details: Not Applicable.
Address for notices or communications to Party B:--
Address: 10500 Metric Drive, Suite 128
Dallas, Texas 75243
Attention: Chief Financial Officer
Telex No.: Not Applicable Answerback: Not Applicable
Facsimile No.: (214) 340-8477 Telephone No.: (214) 341-9471
Electronic Messaging System Details: Not Applicable
(b) PROCESS AGENT. For the purpose of Section 13(c) of this Agreement:--
Party A appoints as its Process Agent: Not Applicable.
Party B appoints as its Process Agent: Not Applicable.
(c) OFFICES. The provisions of Section 10(a) will not apply to this Agreement.
(d) MULTIBRANCH PARTY. For the purpose of Section 10(c) of this Agreement:--
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
5
<PAGE>
(e) CALCULATION AGENT. The Calculation Agent is Party A.
(f) CREDIT SUPPORT DOCUMENT. Details of any Credit Support Document:
In the case of Party A, the Guarantee of Party A's obligations hereunder by
the Guarantor dated as of the date hereof.
In the case of Party B. the Pledge Agreement, dated as of the date hereof,
between Party A and Party B.
(g) CREDIT SUPPORT PROVIDER. Credit Support Provider means in relation to Party
A: American International Group, Inc.
Credit Support Provider means in relation to Party B: Not Applicable.
(h) GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH NEW YORK LAW.
(i) NETTING OF PAYMENTS. Subparagraph (ii) of Section 2(c) of this Agreement
will not apply to any Transactions under this Agreement.
(j) "AFFILIATE" will have the meaning specified in Section 14 of this Agreement
Part 5. OTHER PROVISIONS.
(a) DEFINITIONS. This Agreement, each Confirmation and each Transaction are
subject to the 1991 ISDA Definitions and the 1996 ISDA Equity Derivatives
Definitions (the "Equity Derivatives Definitions") (each as published by
the International Swaps and Derivatives Association, Inc. (formerly the
International Swap Dealers Association, Inc.)) (collectively, the
"Definitions"), and will be governed in all respects by the provisions set
forth in the Definitions, without regard to any amendments to the
Definitions subsequent to the date thereof. The provisions of the
Definitions are incorporated by reference in, and shall be deemed to be
part of, this Agreement and each Confirmation, as if set forth in full in
this Agreement or in that Confirmation. In the event of any inconsistency
between the provisions of this Agreement and the Definitions, this
Agreement will prevail. In the event of any inconsistency between the
provisions of any Confirmation and this Agreement. such Confirmation will
prevail for the purpose of the relevant Transaction.
(b) GROSS UP. The third line of Section 2(d)(i) of this Agreement is hereby
amended by the insertion before the phrase "of any relevant governmental
revenue authority" of the words ", application or official interpretation"
and the insertion of the words "(either generally or with respect to a
party to this Agreement)" after such phrase.
(c) ANNUAL FINANCIAL STATEMENTS. "Annual Financial Statements" means, in
respect of each of American International Group, Inc. and Party B, a copy
of the annual report of such party containing audited consolidated
financial statements for such party's fiscal year certified by independent
certified
6
<PAGE>
public accountants and prepared in accordance with accounting principles
that are generally accepted in the United States of America.
(d) Set-off. Any amount (the "Early Termination Amount") payable to Party B by
Party A under Section 6(e), in circumstances where Party B is the
Defaulting Party or the only Affected Party in the case where a Termination
Event has occurred, will, at the option of Party A (and without prior
notice to Party B), be reduced by its set-off against any amount(s) (the
"Other Agreement Amount") payable (whether at such time or in the future or
upon the occurrence of a contingency) by Party B to Party A (irrespective
of the currency, place of payment or booking office of the obligation)
under any other agreement(s) between Party A and Party B or instrument(s)
or undertaking(s) issued or executed by Party B to, or in favor of, Party A
(and the Other Agreement Amount will be discharged promptly and in all
respects to the extent it is so set-off). Party A will give notice to Party
B of any set-off effected under this Part 5(d).
For this purpose, either the Early Termination Amount or the Other
Agreement Amount (or the relevant portion of such amounts) may be converted
by Party A into the currency in which the other is denominated at the rate
of exchange at which Party A would be able, acting in a reasonable manner
and in good faith, to purchase the relevant amount of such currency.
If an obligation is unascertained, Party A may in good faith estimate that
obligation and set-off in respect of the estimate, subject to Party A
accounting to Party B when the obligation is ascertained.
Nothing in this Part 5(d) shall be effective to create a charge or other
security interest. This Part 5(d) shall be without prejudice and in
addition to any right of set-off, combination of accounts, lien or other
right to which Party A is at any time otherwise entitled (whether by
operation of law, contract or otherwise).
Party B shall not have any right of set-off against Party A.
(e) REPRESENTATIONS. Section 3 is hereby amended by (i) adding the following
sentence at the end of subparagraph (c) of Section 3 of the Agreement:
"Without limitation of the foregoing, Party B has made any and all filings
or reports required to be made by it under applicable laws and regulations
in connection with its ownership of any Shares that are the subject of any
Transaction entered into under this Agreement"; and (ii) adding at the end
thereof the following subparagraphs (g) and (h):
(g) ELIGIBLE SWAP PARTICIPANT. It constitutes an "eligible swap
participant" as such term is defined in Rule 35.1(b)(2) of the Commodity
Futures Trading Commission, 17 C.F.R. (S)35.1(b)(2)(1993).
(h) LINE OF BUSINESS. It has entered into this Agreement (including each
Transaction entered into hereunder) in conjunction with its line of
business (including financial intermediation services) or the financing of
its business.
(f) PARTY B REPRESENTATIONS. Party B hereby represents to Party A (which
representations will be deemed to be repeated by Party B on each date on
which a Transaction is entered into and at all times until the termination
of the Agreement unless otherwise specified in the Confirmation for any
Transaction) that:--
7
<PAGE>
(i) Party B is not, and for a period of not less than three months has
not been, an affiliate (as defined in Rule 144 ("Rule 144") under the
Securities Act of 1933, as amended (the "Securities Act")) of the Issuer.
At least six months have elapsed since the date on which Party B acquired
any Shares and at least three months have elapsed since the date on which
Party B acquired any securities that are convertible into or exchangeable
for Shares (other than any Shares or convertible or exchangeable securities
that may be freely resold by Party B without restriction as to the amount
or timing of sale and without registration under the Securities Act) (with
the three and six-month periods referenced in this sentence being measured
as provided in Rule 144).
(ii) All of the Shares owned by Party B are either (i) freely transferable
by Party B under the Securities Act without restriction as to the amount or
timing of sale and without registration under the Securities Act, or (ii)
subject to the expiration of any required holding period under Rule 144(d),
eligible for resale by Party B pursuant to Rule 144.
(iii) Party B is not an affiliate (as defined in Rule 144) of the Issuer.
Party B is not in possession of, and does not have special access to, any
material non-public information regarding the Issuer.
(iv) Party B is not, and during the term of any Transaction will not
become, the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but treating any
securities beneficially owned by Party B that are convertible, exchangeable
or exercisable for equity securities of the Issuer as if they had been
converted, exchanged or exercised) of more than 5 per cent of the
outstanding shares of any class or series of equity securities of the
Issuer. For purposes of this representation, Party B shall be deemed to
have beneficial ownership of any securities it beneficially owns within the
meaning of said Rule 13d-3 whether such beneficial ownership is direct or
indirect and whether it is based on securities individually owned by Party
B or securities owned as a member of a "group" within the meaning of Rule
13d-5(b) under the Exchange Act.
(v) Party B is not and has not been subject to the reporting obligations
of Section 16 of the Exchange Act with respect to the Issuer.
(vi) Party B has filed or caused to be filed all tax returns that are
required to be filed by Party B and has paid all taxes shown to be due and
payable on said returns or on any assessment made against Party B or any of
Party B's property and all other taxes, assessments, fees, liabilities or
other charges imposed on Party B or any of Party B's property by any
governmental authority (other than any taxes, assessments, fees,
liabilities or other changes contested by Party B in good faith).
(vii) (a) Party B is solely responsible for Party B's trading or
investment decisions with respect to this Agreement and each Transaction
entered into under this Agreement; and (b) Party B is not relying on Party
A in connection with any such decisions, and Party A is not acting as an
advisor to or fiduciary of Party B in connection with any Transaction under
this Agreement, regardless of whether Party A provides it from time to time
with market information or views.
(viii) Party B has sufficient knowledge, experience and access to
professional advice to make Party B's own legal, tax, accounting and
financial evaluation of the merits and risks of entering into this
Agreement and each Transaction hereunder, has reviewed the documentation
relating to this
8
<PAGE>
Agreement and each Transaction hereunder carefully with Party B's
financial, legal and tax advisors and has determined that entering into
this Agreement and each Transaction hereunder is consistent with Party B's
objectives. Without limitation of the foregoing, or of any other provisions
of this Agreement, Party B acknowledges and understands that Transactions
entered into under this Agreement may involve complex legal, tax and
regulatory considerations that are highly dependent on facts and
circumstances related to Party B, that Party A will have insufficient
information regarding such facts and circumstances to determine the legal,
tax and regulatory consequences of such Transactions for Party B and that
Party B, together with its legal, tax and financial advisors, will be
solely responsible for determining and evaluating such consequences and
making its own independent decisions with respect to such Transactions
based on such determinations and evaluations and any other factors or
considerations deemed relevant by Party B or its advisors.
(ix) Party B has provided to Party A copies of all agreements or contracts
to which it is a party, or by which it is bound, that relate to the Shares
or any securities that are convertible, exchangeable or exercisable for
Shares.
(x) Any Shares beneficially owned by Party B, and any securities
beneficially owned by Party B that are convertible, exercisable or
exchangeable for Shares, are not subject to any restrictions on transfer
other than those arising under state securities laws (if any) and no such
Shares or other securities are entitled to the benefits of any registration
rights agreement or similar agreement.
(xi) Party B acknowledges that it has received and executed a copy of the
Option Account Agreement and Approval Form (the "Account Form") and
related Representation Letter of AIG Financial Securities Corp. and has
reviewed the related disclosures. Party B hereby makes for the benefit of
Party A all representations and undertakings made by it in the Account
Form and such Representation Letter.
(g) ADDITIONAL COVENANTS. The following paragraphs (f) and (g) are hereby added
at the end of Section 4 of this Agreement:
(f) NOTICE OF TAX LIENS. Promptly upon (and in any event within three days
of) becoming aware that any filing of a federal lien in respect of Party B
or any of Party B's property has been made in the United States of America,
or that the United States Internal Revenue Service intends to make or
contemplates making any such filing, Party B shall give notice of such
occurrence to Party A. specifying the nature and status of such filing.
(g) CONFIDENTIALITY. Party A considers its participation in each and any
Transaction and the details thereof (collectively, the "Information") to
constitute confidential and valuable business information. Accordingly,
Party B agrees to keep the Information strictly confidential and not to
disclose it (or any portion thereof) to any third party. Party B may,
however, disclose any Information to the extent such disclosure is required
by law, provided that Party B (i) notifies Party A reasonably in advance of
any requirement or pending request for the disclosure of any Information,
and (ii) prior to disclosure consults with Party A as to the advisability
of seeking means to preserve the confidentiality of such Information.
9
<PAGE>
(h) ADDITIONAL EVENT OF DEFAULT. Section 5(a) of the Agreement is hereby
amended by replacing the period at the end thereof with "; or" and adding
the following paragraph (ix) immediately thereafter:
(ix) TAX LIENS. With respect to Party B only, (i) a federal tax lien is
filed against Party B or any of Party B's property in the United States of
America, or (ii) Party B fails to comply with Party B's obligations
pursuant to Section 4(f) of this Agreement.
(i) TRANSFER. Section 7 of this Agreement is replaced in its entirety with the
following:
(a) Neither this Agreement nor any interest or obligation in or under this
Agreement or any Transaction may be transferred by Party B without the
prior written consent of Party A and any purported transfer without such
consent will be void.
(b) Subject to Section 6(b)(ii) of this Agreement, and except as expressly
provided herein, neither this Agreement nor any interest or obligation in
or under this Agreement or any Transaction may be transferred by Party A
without the prior written consent of Party B (other than pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of
all or substantially all of Party A's assets to, another entity) and any
purported transfer without such consent will be void. Party A may transfer
the Agreement, any of its interests and obligations in and under this
Agreement or all, but not fewer than all Transactions, to another of Party
A's offices, branches or Affiliates on two Business Days' prior written
notice; provided, however, that (i) if such transfer is to an entity other
than American International Group, Inc., such notice shall be accompanied
by a Guarantee of American International Group, Inc. of such transferee's
obligations in substantially the form of the Guarantee of American
International Group, Inc. referred to in Part 4(f) of this Schedule or by
an agreement in writing of American International Group, Inc. that such
Guarantee will apply to the obligations of such transferee under this
Agreement, (ii) Party B will not, as a result of such transfer, be required
under tax laws in effect on the date of transfer to pay to the transferee
on the next succeeding Scheduled Payment Date an amount in respect of an
Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of default
interest) greater than the amount which Party B would have been required to
pay to Party A in the absence of such transfer, (iii) the transferee will
not, as a result of such transfer, be required under laws in effect on the
date of transfer to withhold or deduct on the next succeeding Scheduled
Payment Date on account of Indemnifiable Tax under Section 2(d)(i) (except
in respect of default interest) amounts in excess of that which Party A
would, on the next succeeding Scheduled Payment Date, have been required to
so withhold or deduct in the absence of such transfer unless the transferee
would be required to make additional payments pursuant to Section
2(d)(i)(4) corresponding to such excess and (iv) a Termination Event or
Event of Default does not occur as a result of such transfer. With respect
to the result described in subclauses (ii) and (iii), Party A agrees to
cause such transferee to make, and Party B agrees to make, such Payee Tax
Representations and Payer Tax Representation as may be reasonably requested
by the other party in order to permit such other party to determine that
such result will not occur after such transfer.
(j) BINDING EFFECT.
The following paragraph (h) is hereby added at the end of Section 9 of
this Agreement:
10
<PAGE>
(h) BINDING EFFECT. This Agreement shall bind and inure to the benefit of
Party A and Party B and their respective permitted successors and assigns.
(k) DEFINITIONS.
(i) For all purposes of this Agreement, "Contractual Currency" means United
States Dollars.
(ii) The definition of "law" in Section 14 of this Agreement is hereby
amended by the insertion of the words "either generally or with respect to
a party to this agreement" after the phrase "any relevant governmental
revenue authority" and the addition of the words "Change in Tax Law,"
before the word "lawful" in the second line.
(l) DEALINGS IN THE SHARES. Party B hereby acknowledges and agrees that Party A
will hedge its exposure with respect to the Transactions; that such hedging
may involve effecting purchases, long sales or short sales in any or all of
the classes of Shares that are the subject of a Transaction or in options
or other derivatives in respect of any such classes of Shares; that at any
time before, during or after the term of any Transaction Party A may change
or alter its hedge position: that such hedging transactions may affect the
market price of any such class or classes of Shares and thus the amounts
payable by Party A under one or more Transactions and that Party A shall
have no obligation to purchase or sell, or to refrain from purchasing or
selling, any class of Shares, or to refrain from entering into, any hedging
transaction, at any time.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this document as of the
date specified on the first page hereof.
Party A
-------
BANQUE AIG, LONDON BRANCH
By: /s/ Kristofer Mansson
-------------------------
Name: KRISTOFER MANSSON
Title: MANAGING DIRECTOR
Date:
Party B
-------
TURBOCHEF TECHNOLOGIES, INC.
/s/ Dennis J. Jameson
-------------------------
Name: DENNIS J. JAMESON
Title: EVP-CFO
Date: JAN. 11, 1999
12
<PAGE>
Exhibit A
---------
GUARANTEE OF AMERICAN INTERNATIONAL GROUP. INC.
-----------------------------------------------
Guarantee, dated as of January 11, 1999, by American
International Group, Inc., a Delaware corporation (the "Guarantor"), in favor of
TurboChef Technologies, Inc., a Delaware corporation (the "Guaranteed Party").
1. GUARANTEE. To induce the Guaranteed Party to enter into (i) a
Master Agreement, dated as of the date hereof, pursuant to which the Guaranteed
Party and Banque AIG, London Branch (the "Bank"), have entered and/or anticipate
entering into one or more Transactions (as defined therein), the confirmation of
each of which supplements, forms a part of, and will be read and construed as
one with, such Master Agreement (as amended or modified from time to time, such
Master Agreement together with such confirmations are collectively referred to
herein as the "Master Agreement"), and (ii) a Variable Stock Agreement, to dated
on or about January 14, 1999, pursuant to which the Guaranteed Party will sell
to the Bank certain securities at the time and on the terms specified therein
(as amended or modified from time to time, the "Stock Agreement"), the Guarantor
absolutely, unconditionally and irrevocably guarantees to the Guaranteed Party
and its successors, endorsees and assigns, the prompt payment when due of all
present and future payment obligations of the Bank to the Guaranteed Party
arising out of (i) Transactions entered into under the Master Agreement, or (ii)
the Stock Agreement (collectively, the "Obligations"). This Guarantee is a
Credit Support Document as contemplated in the Master Agreement.
2. NATURE OF GUARANTEE. The Guarantor's obligations hereunder shall
not be affected by the existence, validity, enforceability, perfection or extent
of any collateral therefor or by any other circumstance relating to the
Obligations that might otherwise constitute a legal or equitable discharge of or
defense to the Guarantor not available to the Bank. The Guarantor agrees that
the Guaranteed Party may resort to the Guarantor for payment of any of the
Obligations whether or not the Guaranteed Party shall have resorted to any
collateral therefor or shall have proceeded against the Bank or any other
obligor principally or secondarily obligated with respect to any of the
Obligations. The Guaranteed Party shall not be obligated to file any claim
relating to the Obligations in the event that the Bank becomes subject to a
bankruptcy, reorganization or similar proceeding, and the failure of the
Guaranteed Party to so file shall not affect the Guarantor's obligations
hereunder. In the event that any payment to the Guaranteed Party in respect of
any Obligations is rescinded or must otherwise be returned for any reason
whatsoever, the Guarantor shall remain liable hereunder with respect to such
Obligations as if such payment had not been made. The Guarantor reserves the
right to (a) set-off against any payment owing hereunder any amounts owing by
the Guaranteed Party to the Bank and (b) assert defenses which the Bank may have
to payment of any Obligations other than defenses arising from the bankruptcy or
insolvency of the Bank and other defenses expressly waived hereby.
<PAGE>
3. CHANGES IN OBLIGATIONS, COLLATERAL THEREFOR AND AGREEMENTS
RELATING THERETO; WAIVER OF CERTAIN NOTICES. The Guarantor agrees that the
Guaranteed Party may at any time and from time to time, either before or after
the maturity thereof, without notice to or further consent of the Guarantor,
extend the time of payment of, exchange or surrender any collateral for, or
renew any of the Obligations, and may also make any agreement with the Bank or
with any other party to or person liable on any of the Obligations or interested
therein, for the extension, renewal, payment, compromise, discharge or release
thereof, in whole or in part, or for any modification of the terms thereof or of
any agreement between the Guaranteed Party and the Bank or any such other party
or person without in any way impairing or affecting this Guarantee. The
Guarantor waives notice of the acceptance of this Guarantee and of the
Obligations, presentment, demand for payment, notice of dishonor and protest.
4. EXPENSES. The Guarantor agrees to pay on demand all fees and out
of pocket expenses (including the reasonable fees and expenses of the Guaranteed
Party's counsel) in any way relating to the enforcement or protection of the
rights of the Guaranteed Party hereunder; provided that the Guarantor shall not
be liable for any expenses of the Guaranteed Party if no payment under this
Guarantee is due.
5. SUBROGATION. Upon payment of any of the Obligations, the
Guarantor shall be subrogated to the rights of the Guaranteed Party against the
Bank with respect to such Obligations, and the Guaranteed Party agrees to take
at the Guarantor's expense such steps as the Guarantor may reasonably request to
implement such subrogation.
6. NO WAIVER; CUMULATIVE RIGHTS. No failure on the part of the
Guaranteed Party to exercise, and no delay in exercising, any right, remedy or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by the Guaranteed Party of any right, remedy or power hereunder
preclude any other or future exercise of any right, remedy or power. Each and
every right, remedy and power hereby granted to the Guaranteed Party or allowed
it by law or other agreement shall be cumulative and not exclusive of any other,
and may be exercised by the Guaranteed Party at any time or from time to time.
7. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents
and warrants that:
(a) the Guarantor is duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate
power to execute, deliver and perform this Guarantee;
(b) the execution, delivery and performance of this Guarantee have
been and remain duly authorized by all necessary corporate action and do
not contravene any provision of the Guarantor's certificate of
incorporation or by-laws, as amended to date, or any law,
-2-
<PAGE>
regulation, rule, decree, order, judgment or contractual restriction
binding on the Guarantor or its assets;
(c) all consents, licenses, clearances, authorizations and
approvals of, and registrations and declarations with, any governmental
authority or regulatory body necessary for the due execution, delivery
and performance of this Guarantee have been obtained and remain in full
force and effect and all conditions thereof have been duly complied
with, and no other action by, and no notice to or filing with, any
governmental authority or regulatory body is required in connection with
the execution, delivery or performance of this Guarantee; and
(d) this Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
8. ASSIGNMENT. Neither the Guarantor nor the Guaranteed Party may
assign its rights, interests or obligations hereunder to any other person
(except by operation of law) without the prior written consent of the Guarantor
or the Guaranteed Party, as the case may be, provided, however, that the
Guaranteed Party may assign its rights, interests and obligations hereunder
(insofar as such rights, interests and obligations pertain to the Master
Agreement) to an assignee or transferee to which it has transferred its
interests and obligations under the Master Agreement pursuant to Section 7
thereof and may assign its rights, interests and obligations hereunder (insofar
as such rights, interests and obligations pertain to the Stock Agreement) to an
assignee or transferee to which it has transferred its interests and obligations
under the Stock Agreement pursuant to Section 7.6 thereof.
9. NOTICES. All notices or demands on the Guarantor shall be deemed
effective when received, shall be in writing and shall be delivered by hand or
by registered mail, or by facsimile transmission promptly confirmed by
registered mail, addressed to the Guarantor at:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Secretary
Fax (212) 514-6894
or such other address or facsimile number as the Guarantor shall have notified
the Guaranteed Party in a written notice delivered to the Guaranteed Party in
accordance with the Agreement.
-3-
<PAGE>
10. CONTINUING GUARANTEE. Subject to the provisions of Section 11
hereof, this Guarantee shall remain in full force and effect and shall be
binding on the Guarantor, its successors and assigns until all of the
Obligations have been satisfied in full.
11. TERMINATION. The Guarantee may be terminated by the Guarantor
upon 5 days' written notice to the Guaranteed Party, provided that this
Guarantee shall remain in full force and effect with respect to Obligations
incurred by the Bank pursuant to the Stock Agreement or incurred as a result of
Transactions entered into prior to the effective date of such termination.
12. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, this Guarantee has been duly executed and
delivered by the Guarantor to the Guaranteed Party as of the date first above
written.
AMERICAN INTERNATIONAL GROUP, INC.
By:_______________________________
By:_______________________________
-4-
<PAGE>
BANQUE AIG [LOGO OF AIG APPEARS HERE]
London Branch EXHIBIT A
7th Floor, 4 Broadgate, London EC2M 2BD
Tel: 0171-617 0400 Fax: 0171-972 0771
and 0171-920 0033 and 0171-628 2923
A member of the SFA
DATE: 14 January, 1999
TO: TURBOCHEF TECHNOLOGIES, INC.
10500 METRIC DRIVE
SUITE 128
DALLAS, TEXAS 75243
TEL: 214-341-9471
FAX: 214-340-8477
ATTENTION: MR. DENNIS JAMESON
CC: AIG FINANCIAL SECURITIES CORP.
Kurt Nelson
FROM: BANQUE AIG, LONDON BRANCH
SUBJECT: SHARE OPTION TRANSACTION
- --------------------------------------------------------------------------------
Dear Mr. Jameson:
The purpose of this letter agreement is to set forth the terms and
conditions of the share option transaction entered into on the Trade Date
referred to below (the "Option Transaction") between Banque AIG, London
Branch ("Banque AIG") (guaranteed by American International Group, Inc.
("AIG") and TurboChef Technologies Inc. ("Counterparty"). We are treating
Counterparty for the purposes of the rules of the Securities and Futures
Authority as an Ordinary Business Investor within paragraph (a) of the
definition of an Ordinary Business Investor contained in these rules, and
your confirmation of this transaction in the manner referred to below will
constitute a confirmation and warranty that you are such an Ordinary
Business Investor. This letter agreement constitutes a "Confirmation" as
referred to in the Master Agreement specified below.
1. This Confirmation is subject to and incorporates the 1991 ISDA
Definitions and the 1996 ISDA Equity Derivatives Definitions, each
published by the International Swaps and Derivatives Association, Inc. (the
"Definitions"). This Confirmation supplements, forms a part of and is
subject to the ISDA Master Agreement dated as of 11 January 1999 between
Banque AIG, London Branch and Counterparty that (i) incorporates the
Definitions (whether directly or by means of this Confirmation) and (ii)
sets forth general terms and conditions applicable to interest rate swap
transactions between us (the "Master Agreement"). All provisions contained
in, or incorporated by reference to, such Master Agreement shall govern
this Confirmation except as expressly modified below.
2. The terms of the particular Option Transaction to which this
Confirmation relates are as follows:
General Terms:
Trade Date: 14 January 1999.
Option Style: European.
Option Type: Put.
Seller: Banque AIG.
<PAGE>
Buyer: Counterparty.
Strike Price: 90% of the Initial Price.
Shares: Common Shares, $1.25 par value per
share, of Maytag Corporation (Cusip
Number: 578592107).
Number of Options: 221,846.
Option Entitlement: One Share per Option.
Premium: 10.45% of the Initial Price per Option.
Premium Payment Date: One Currency Business Day following the
Final Hedge Date (as defined below).
Initial Price: Weighted average price at which Banque
AIG or an affiliate sells Shares short
on or following the Trade Date in an
amount sufficient to hedge (at its sole
discretion) its position pursuant to the
Option Transaction (and any other option
transaction entered into by Banque AIG
and the Counterparty on the Trade Date).
Counterparty acknowledges and agrees
that (i) Banque AIG or an affiliate
will, on the basis of this Confirmation
and without seeking further agreement
from Counterparty, seek to sell Shares
short to hedge the Option Transaction,
such hedging transactions to be executed
by Banque AIG or an affiliate in its
sole discretion, (ii) Banque will notify
Counterparty of the "Initial Price"
promptly following the final day on
which such short sales are completed
(the "Final Hedge Date"), and (iii)
Banque AIG and Counterparty shall be
bound by the terms of this Confirmation
and such notice.
In the event Banque AIG or its
affiliates do not complete short sales
(including related borrowings of Shares)
sufficient to hedge its position
pursuant to the Option Transaction (in a
manner determined by it in its sole
discretion to be satisfactory), it shall
promptly give notice thereof to
Counterparty, and upon such
notification, at the election of Banque
AIG (set forth in such notice), either
(i) the Number of Options subject to the
Option Transaction to which this
Confirmation relates shall be reduced to
such number as Banque AIG or its
affiliate has sufficiently hedged
through short sales actually completed
(determined by Banque AIG in its sole
discretion), such revised Number of
Options to be set forth in such notice,
or (ii) the Option Transaction shall
terminate with the same effect as if the
Option Transaction were never entered
into.
2
<PAGE>
Banque AIG will make a good faith effort
to complete hedging of its position
under the Option Transactions within 5
Exchange Business Days from and
including the Trade Date.
Exchange: NYSE.
Related Exchange(s): CBOE.
Procedure for Exercise:
Expiration Time: The official closing time at which the
Exchange closes.
Expiration Date: 14 January 2002, or if such day is not
an Exchange Business Day, the next
following Exchange Business Day.
Automatic Exercise: Applicable.
Seller's Agents Telephone
Number and Telex and/or
Facsimile Number and Contact
Details for Purpose of Giving
Notice: Carmine Paradiso/Sabrina Jaques
Telephone: (203) 221-4805
Facsimile: (203) 222-4780
Valuation:
Valuation Time: The close of trading on the Exchange.
Valuation Date: The Expiration Date.
Settlement Terms:
Cash Settlement: Applicable; provided that Counterparty
may, by written notice to Banque AIG
received not fewer than 15 Exchange
Trading Days prior to the Expiration
Date, elect that Physical Settlement
shall be applicable, in which event the
Reference Price shall be the Settlement
Price, the Clearance System shall be The
Depository Trust Company ("DTC"), and
Counterparty shall be obligated to
deliver Shares that are freely
transferable as determined by Banque AIG
in its sole discretion. Counterparty
acknowledges that not all of the Shares
it currently holds are eligible in their
current form for clearance through DTC.
Settlement Price: The closing ask price per share for
Shares as reported by the Exchange on
the Valuation Date.
Cash Settlement Amount: The Number of Options multiplied by the
Option Entitlement multiplied by the
Strike Price Differential.
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Strike Price Differential: The greater of (a) the excess of the Strike Price over the Settlement Price,
and (b) zero.
Cash Settlement Payment Date: Three Currency Business Days after the Valuation Date.
Adjustments:
Method of Adjustment: Calculation Agent Adjustment.
Extraordinary Events:
Consequences of Merger Events:
(a) Share-for-Share: Alternative Obligation. In the case of any such event, Counterparty shall be
deemed to have made, as of the effective date of such event, each of the
representations of Counterparty set forth in Section 3 of the Master
Agreement (except for the representation set forth in Part 3(f)(i) to the
Schedule thereto, relating to holding periods).
(b) Share-for-Other: Cancellation and Payment.
(c) Share-for-Combined: Cancellation and Payment.
Nationalization or Insolvency: Cancellation and Payment.
Currency Business Days: New York.
Calculation Agent: Banque AIG.
Governing Law: New York.
Documentation: The Master Agreement.
Credit Support Documents: The Guarantee of AIG provided by Banque AIG, and the Pledge Agreement
provided by Counterparty.
Payment Instructions for
Banque AIG: Swiss Bank Corp., New York
ABA No. 0260-07993.
A/C Banque AIG, London Branch.
A/C # 1O1WA-182-850-000
Banque AIG Settlements: Carmine Paradiso/Sabrina Jaques
Westport, Connecticut
Tel: (203) 221-4805
Fax: (203) 222-4780
</TABLE>
4
<PAGE>
3. Please confirm that the foregoing correctly sets forth the terms of our
agreement with respect to the Option Transaction by signing in the space
provided below and returning a copy of the executed Confirmation to Andrew
Dixon, Counsel, Banque AIG, London Branch.
It has been a pleasure working with you on this transaction, and we look forward
to working with you again in the future.
Yours sincerely,
Banque AIG, London Branch
By: /s/ T. Vakker
---------------------------
Name: Thomas Vakker
Title: Executive Director
Agreed and accepted by:
TurboChef Technologies, Inc.
By /s/ Dennis J. Jameson
------------------------
Name: DENNIS J. JAMESON
Title EVA CFO
5
<PAGE>
AIG FINANCIAL SECURITIES CORP. [LOGO OF AIG APPEARS HERE]
100 Nyala Farm, Westport, CT 06880
(203) 222-4700 (800) 248-SWAP
Fax: (203) 222-4780 Telex: 910-2409432 AIG FPC
February 4, 1999
Mr. Dennis Jameson
Executive Vice President, Chief Financial Officer, Secretary and Treasurer
TurboChef Technologies
10500 Metric Drive
Suite 128
Dallas, TX 75243
Dear Dennis:
At your request I have enclosed the original AIG Guarantee. If you
have any questions, please do not hesitate to call me.
Sincerely,
/s/ Ananth Krishnamurthy
Ananth Krishnamurthy
Managing Director, North America
<PAGE>
GUARANTEE OF AMERICAN INTERNATIONAL GROUP, INC.
-----------------------------------------------
Guarantee, dated as of January 11, 1999, by American
International Group, Inc., a Delaware corporation (the "Guarantor"), in favor of
TurboChef Technologies, Inc., a Delaware corporation (the "Guaranteed Party").
1. GUARANTEE. To induce the Guaranteed Party to enter into (i) a
Master Agreement, dated as of the date hereof, pursuant to which the Guaranteed
Party and Banque AIG, London Branch (the "Bank"), have entered and/or anticipate
entering into one or more Transactions (as defined therein), the confirmation of
each of which supplements, forms a part of, and will be read and construed as
one with, such Master Agreement (as amended or modified from time to time, such
Master Agreement together with such confirmations are collectively referred to
herein as the "Master Agreement"), and (ii) a Variable Stock Agreement, to dated
on or about January 14, 1999, pursuant to which the Guaranteed Party will sell
to the Bank certain securities at the time and on the terms specified therein
(as amended or modified from time to time, the "Stock Agreement"), the Guarantor
absolutely, unconditionally and irrevocably guarantees to the Guaranteed Party
and its successors, endorsees and assigns, the prompt payment when due of all
present and future payment obligations of the Bank to the Guaranteed Party
arising out of(i) Transactions entered into under the Master Agreement, or (ii)
the Stock Agreement (collectively, the "Obligations"). This Guarantee is a
Credit Support Document as contemplated in the Master Agreement.
2. NATURE OF GUARANTEE. The Guarantor's obligations hereunder shall
not be affected by the existence, validity, enforceability, perfection or extent
of any collateral therefor or by any other circumstance relating to the
Obligations that might otherwise constitute a legal or equitable discharge of or
defense to the Guarantor not available to the Bank. The Guarantor agrees that
the Guaranteed Party may resort to the Guarantor for payment of any of the
Obligations whether or not the Guaranteed Party shall have resorted to any
collateral therefor or shall have proceeded against the Bank or any other
obligor principally or secondarily obligated with respect to any of the
Obligations. The Guaranteed Party shall not be obligated to file any claim
relating to the Obligations in the event that the Bank becomes subject to a
bankruptcy, reorganization or similar proceeding, and the failure of the
Guaranteed Party to so file shall not affect the Guarantor's obligations
hereunder. In the event that any payment to the Guaranteed Party in respect of
any Obligations is rescinded or must otherwise be returned for any reason
whatsoever, the Guarantor shall remain liable hereunder with respect to such
Obligations as if such payment had not been made. The Guarantor reserves the
right to (a) set-off against any payment owing hereunder any amounts owing by
the Guaranteed Party to the Bank and (b) assert defenses which the Bank may have
to payment of any Obligations other than defenses arising from the bankruptcy or
insolvency of the Bank and other defenses expressly waived hereby.
<PAGE>
3. CHANGES IN OBLIGATIONS, COLLATERAL THEREFOR AND AGREEMENTS
RELATING THERETO; WAIVER OF CERTAIN NOTICES. The Guarantor agrees that the
Guaranteed Party may at any time and from time to time, either before or after
the maturity thereof, without notice to or further consent of the Guarantor,
extend the time of payment of, exchange or surrender any collateral for, or
renew any of the Obligations, and may also make any agreement with the Bank or
with any other party to or person liable on any of the Obligations or interested
therein, for the extension, renewal, payment, compromise, discharge or release
thereof, in whole or in part, or for any modification of the terms thereof or of
any agreement between the Guaranteed Party and the Bank or any such other party
or person without in any way impairing or affecting this Guarantee. The
Guarantor waives notice of the acceptance of this Guarantee and of the
Obligations, presentment, demand for payment, notice of dishonor and protest.
4. EXPENSES. The Guarantor agrees to pay on demand all fees and out
of pocket expenses (including the reasonable fees and expenses of the Guaranteed
Party's counsel) in any way relating to the enforcement or protection of the
rights of the Guaranteed Party hereunder; provided that the Guarantor shall not
be liable for any expenses of the Guaranteed Party if no payment under this
Guarantee is due.
5. SUBROGATION. Upon payment of any of the Obligations, the
Guarantor shall be subrogated to the rights of the Guaranteed Party against the
Bank with respect to such Obligations, and the Guaranteed Party agrees to take
at the Guarantor's expense such steps as the Guarantor may reasonably request to
implement such subrogation.
6. NO WAIVER; CUMULATIVE RIGHTS. No failure on the part of the
Guaranteed Party to exercise, and no delay in exercising, any right, remedy or
power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise by the Guaranteed Party of any right, remedy or power hereunder
preclude any other or future exercise of any right, remedy or power. Each and
every right, remedy and power hereby granted to the Guaranteed Party or allowed
it by law or other agreement shall be cumulative and not exclusive of any other,
and may be exercised by the Guaranteed Party at any time or from time to time.
7. REPRESENTATIONS AND WARRANTIES. The Guarantor hereby represents
and warrants that:
(a) the Guarantor is duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full corporate
power to execute, deliver and perform this Guarantee;
(b) the execution, delivery and performance of this Guarantee have
been and remain duly authorized by all necessary corporate action and do
not contravene any provision of the Guarantor's certificate of
incorporation or by-laws, as amended to date, or any law,
-2-
<PAGE>
regulation, rule, decree, order, judgment or contractual restriction
binding on the Guarantor or its assets;
(c) all consents, licenses, clearances, authorizations and
approvals of, and registrations and declarations with, any governmental
authority or regulatory body necessary for the due execution, delivery
and performance of this Guarantee have been obtained and remain in full
force and effect and all conditions thereof have been duly complied
with, and no other action by, and no notice to or filing with, any
governmental authority or regulatory body is required in connection with
the execution, delivery or performance of this Guarantee; and
(d) this Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable against the Guarantor in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
8. ASSIGNMENT. Neither the Guarantor nor the Guaranteed Party may
assign its rights, interests or obligations hereunder to any other person
(except by operation of law) without the prior written consent of the Guarantor
or the Guaranteed Party, as the case may be, provided, however, that the
Guaranteed Party may assign its rights, interests and obligations hereunder
(insofar as such rights, interests and obligations pertain to the Master
Agreement) to an assignee or transferee to which it has transferred its
interests and obligations under the Master Agreement pursuant to Section 7
thereof and may assign its rights, interests and obligations hereunder (insofar
as such rights, interests and obligations pertain to the Stock Agreement) to an
assignee or transferee to which it has transferred its interests and obligations
under the Stock Agreement pursuant to Section 7.6 thereof.
9. NOTICES. All notices or demands on the Guarantor shall be deemed
effective when received, shall be in writing and shall be delivered by hand or
by registered mail, or by facsimile transmission promptly confirmed by
registered mail, addressed to the Guarantor at:
American International Group, Inc.
70 Pine Street
New York, New York 10270
Attention: Secretary
Fax (212) 514-6894
or such other address or facsimile number as the Guarantor shall have notified
the Guaranteed Party in a written notice delivered to the Guaranteed Party in
accordance with the Agreement.
-3-
<PAGE>
10. CONTINUING GUARANTEE. Subject to the provisions of Section 11
hereof, this Guarantee shall remain in full force and effect and shall be
binding on the Guarantor, its successors and assigns until all of the
Obligations have been satisfied in full.
11. TERMINATION. The Guarantee may be terminated by the Guarantor
upon 5 days' written notice to the Guaranteed Party, provided that this
Guarantee shall remain in full force and effect with respect to Obligations
incurred by the Bank pursuant to the Stock Agreement or incurred as a result of
Transactions entered into prior to the effective date of such termination.
12. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
IN WITNESS WHEREOF, this Guarantee has been duly executed and
delivered by the Guarantor to the Guaranteed Party as of the date first above
written.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ William L. Dooley
-----------------------------
By: /s/ Kathleen E. Shannon
-----------------------------
-4-
<PAGE>
EXHIBIT 10.34
VARIABLE STOCK AGREEMENT DATED JANUARY 14, 1999 BY AND
BETWEEN TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL
SERVICES CORP.
<PAGE>
EXHIBIT 10.34
VARIABLE STOCK AGREEMENT
THIS AGREEMENT is made as of this 14th day of January, 1999
between TURBOCHEF TECHNOLOGIES, INC., a Delaware corporation ("Seller"), and
BANQUE AIG, LONDON BRANCH ("Purchaser").
WHEREAS, Seller owns shares of Common Stock, $1.25 par value
per share ("Common Stock"), of Maytag Corporation, a Delaware corporation (the
"Company"); and
WHEREAS, Seller intends to sell, and Purchaser intends to
purchase, shares of Common Stock at the time and on the terms set forth herein;
NOW, THEREFORE, in consideration of their mutual covenants
herein contained, the parties hereto, intending to be legally bound, hereby
mutually covenant and agree as follows:
DEFINITIONS
As used herein, the following words and phrases shall have
the following meanings:
"Alternate Settlement Date" has the meaning provided in
Article VI.
"Closing Price" of the Common Stock on any date of
determination means the daily closing sale price (or, if no closing sale price
is reported, the last reported sale price) of the Common Stock on the NYSE on
such date of determination as reported by the NYSE or, if the Common Stock is
not listed for trading on the NYSE on any such date, as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is so listed, or if the Common Stock is not so listed on
a United States national or regional securities exchange, as reported by the
Nasdaq National Market or, if the Common Stock is not so reported, the last
quoted bid price for the Common Stock in the over-the-counter market as
reported by the National Quotation Bureau or similar organization.
"Contract Shares" means shares of Common Stock; provided,
however, that Purchaser may at any time appropriately
<PAGE>
revise the definition of "Contract Shares" to reflect any adjustment it makes in
the payment or settlement terms of this Agreement in connection with Potential
Adjustment Events or Reorganization Events as provided in Article V.
"Contract Shares Number" means the maximum number of Contract
Shares which Seller has agreed to sell, and Purchaser has agreed to purchase,
pursuant to this Agreement. The Contract Shares Number on the date hereof is
72,000. The Contract Shares Number shall be subject to adjustment as provided in
Section 1.2(b) or in connection with Potential Adjustment Events and
Reorganization Events as provided in Article V.
"Covered Contract Shares" means the Contract Shares that
Seller is obligated to sell, and Purchaser is obligated to purchase, under this
Agreement as determined pursuant to Section 1.3(b).
"Currency Business Day" means any day on which commercial
banks are open for business in New York City.
"Daily Average Price" means, in relation to any Hedging Date,
the weighted average price per share of Common Stock at which Purchaser or an
affiliate thereof effected hedging transactions in respect of the Common Stock
on such Hedging Date. In respect of each such hedging transaction, the per share
price will be (i) in the case of long or short sales of shares of Common Stock,
the net price per share at which such sales are effected, and (ii) in the case
of any other hedging transaction, the net price per share implied by such
hedging transaction as determined by Purchaser.
"Event of Default" has the meaning provided in Article VI.
"Exchange Business Day" means any day that is a trading day
on the NYSE other than a day on which trading on the NYSE is scheduled to close
prior to its regular weekday closing time.
"Final Value" means the product, calculated as of the
Settlement Date or Alternate Settlement Date (as applicable), of the Reference
Price and the Contract Shares Number.
"Guarantee" means the Guarantee provided by the Guarantor in
the form of Annex A hereto.
-2-
<PAGE>
"Guarantor" means American International Group, Inc., a
Delaware corporation.
"Hedging Date" means any day on which Purchaser or an
affiliate thereof effects hedging transactions in respect of the Common Stock
pursuant to Section 1.2(a) hereof.
"Initial Price" means the weighted average of the Daily
Average Prices calculated by Purchaser for each Hedging Date. Such weighted
average shall be calculated with reference to the number of shares of Common
Stock hedged on each Hedging Date as determined by Purchaser. The Initial Price
shall be subject to adjustment in connection with Potential Adjustment Events
and Reorganization Events as provided in Article V.
"Initial Value" means the product, calculated as of the close
of business on the final Hedging Date, of the Initial Price and the Contract
Shares Number on the final Hedging Date.
"Lower Percentage" means 90.0%.
"Market Quotation" means an amount determined on the basis of
quotations from Reference Dealers. Each quotation will be for an amount, if any,
that would be paid to the quoting Reference Dealer in consideration of an
agreement between Purchaser and the quoting Reference Dealer to enter into a
transaction that would have the effect of preserving for Purchaser the delivery
and payment rights and obligations (whether the underlying right or obligation
was absolute or contingent and assuming the satisfaction of each applicable
condition precedent) of Purchaser under this Agreement that would, but for the
occurrence of the relevant Alternate Settlement Date, have been performed after
that date (including the right to receive the Covered Contract Shares on the
Settlement Date). Purchaser (or its agent) will request each Reference Dealer
to provide its quotation to the extent reasonably practicable as of the same day
and time (without regard to different time zones) on or as soon as reasonably
practicable after the Alternate Settlement Date. The day and time as of which
those quotations are to be obtained will be selected in good faith by Purchaser.
If more than three quotations are provided, the Market Quotation will be the
arithmetic mean of the quotations, without regard to the quotations having the
highest and lowest values. If exactly three such quotations are provided, the
Market Quotation will be
-3-
<PAGE>
the quotation remaining after disregarding the highest and lowest quotations.
For this purpose, if more than one quotation has the same highest value or
lowest value, then one of such quotations shall be disregarded. If fewer than
three quotations are provided, it will be deemed that Market Quotation cannot be
determined.
"NYSE" means the New York Stock Exchange, Inc.
"Pledge Agreement" means the Pledge Agreement, dated as of
the date hereof, between Seller and Purchaser in the form of Annex B hereto.
"Pledged Contract Shares" means the Contract Shares pledged
by Seller to Purchaser pursuant to the Pledge Agreement.
"Potential Adjustment Event" means any of the following: (i)
a subdivision, consolidation or reclassification of the Common Stock (unless a
Reorganization Event), or a free distribution or dividend of any shares of
Common Stock to existing holders by way of bonus, capitalization or similar
issue; (ii) a distribution or dividend to existing holders of the Common Stock
of (A) shares of Common Stock or (B) other share capital or securities granting
the right to payment of dividends and/or the proceeds of liquidation of the
Company equally or proportionately with such payments to holders of the Common
Stock, or (C) any other types of securities, rights or warrants or other assets,
in any case for payment (cash or other) at less than the prevailing market price
as determined in good faith by the Purchaser; (iii) an extraordinary dividend;
(iv) a call by the Company in respect of shares of Common Stock that are not
fully paid; (v) a repurchase by the Company of shares of Common Stock whether
out of profits or capital and whether the consideration for such repurchase is
cash, securities or otherwise; or (vi) any other similar event that may have a
diluting or concentrative effect on the theoretical value of the Common Stock.
"Prepayment Amount" means the product of (A) 0.651408705, (B)
the Initial Price, and (C) the Contract Shares Number.
"Prepayment Date" has the meaning provided in Section 1.3(a).
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"Purchaser's Loss" means an amount that Purchaser reasonably
determines in good faith to be its total losses and costs in connection with
declaration of an Alternate Settlement Date under this Agreement including any
losses of bargain, cost of funding or, at the election of Purchaser but without
duplication, loss or costs incurred as a result of its terminating, liquidating,
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been made (assuming
satisfaction of each applicable condition precedent) on or before the Alternate
Settlement Date and not made. Purchaser will determine its Loss as of the
Alternate Settlement Date, or, if that is not reasonably practicable, as of the
earliest date thereafter as is reasonably practicable. Purchaser may (but need
not) determine its Loss by reference to quotations of relevant rates or prices
from one or more leading dealers in the relevant markets.
"Reference Dealer" means a leading dealer in the equity
derivatives market selected by the Purchaser in good faith (a) from among
dealers of the highest credit standing which satisfy all the criteria Purchaser
generally applies at the time in deciding whether to offer or make an extension
of credit and (b) to the extent practicable, from among such dealers having an
office in the same city.
"Reference Price", when used with respect to the Settlement
Date, means the Closing Price of the Common Stock on January 14, 2002 (or, if
such date is not an Exchange Business Day, the next succeeding Exchange Business
Day), and when used with respect to an Alternate Settlement Date, means the
Closing Price of the Common Stock on the third Exchange Business Day immediately
preceding such Alternate Settlement Date.
"Reorganization Event" means (i) any consolidation or merger
of the Company, or any surviving entity or subsequent surviving entity of the
Company (a "Company Successor"), with or into another entity (other than a
merger or consolidation in which the Company is the continuing corporation and
in which the Common Stock outstanding immediately prior to the merger or
consolidation is not exchanged for cash, securities or other property of the
Company or another corporation), (ii) any reclassification of or change in the
Common Stock that results in a transfer of or an irrevocable commitment to
transfer all of the
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outstanding shares of Common Stock, (iii) any other takeover offer for shares of
Common Stock that results in a transfer of or an irrevocable commitment to
transfer all such shares of Common Stock (other than any such shares owned or
controlled by the offeror), (iv) any sale, transfer, lease or conveyance to
another corporation of the property of the Company or any Company Successor as
an entirety or substantially as an entirety, (v) any statutory exchange of
securities of the Company or any Company Successor with another corporation
(other than in connection with a merger or acquisition) or (vi) any liquidation,
dissolution or winding up of the Company or any Company Successor.
"Securities Act" means the Securities Act of 1933, as
amended.
"Settlement Date" means the third Currency Business Day
following the date as of which the Reference Price is determined in accordance
with the definition thereof.
I.
SALE AND PURCHASE
1.1 Sale and Purchase. Upon the terms and subject to the
conditions of this Agreement, Seller agrees to sell the Covered Contract Shares
to Purchaser and Purchaser agrees to purchase the Covered Contract Shares from
Seller. The sale of the Covered Contract Shares shall settle on the Settlement
Date.
1.2 Hedging. (a) Transactions. To hedge its exposure to the
Common Stock under this Agreement, Purchaser or an affiliate thereof has or will
effect purchases, long sales or short sales of Common Stock or options or other
derivatives in respect thereof (or combinations of such transactions).
Purchaser will make a good faith effort to complete such hedging transactions
not later than five Exchange Business Days after the date of this Agreement.
Promptly after the close of business on the final Hedging Date, Purchaser will
provide written notice to Seller of the Initial Price, the Prepayment Amount and
the Prepayment Date. Purchaser's calculation of the Initial Price and the
Prepayment Amount shall be conclusive absent manifest error. All hedging
transactions effected by Purchaser or its affiliate pursuant to this Section
1.2(a) shall be effected by
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them solely for their benefit and Seller shall not have any financial interest
in, or any right to direct the timing or amount of, any such transactions.
(b) Adjustments. In the event Purchaser or its affiliate does
not complete (in a manner determined by Purchaser in its discretion to be
satisfactory) the hedging contemplated by Section 1.2(a) in respect of the
Common Stock, Purchaser shall promptly give notice thereof to Seller and upon
such notification, at the election of Purchaser (set forth in such notice),
either (i) the Contract Shares Number shall be reduced to such number as
Purchaser or its affiliate has sufficiently hedged through hedging transactions
actually completed (determined by Purchaser in its sole discretion), such
revised Contract Shares Number to be set forth in such notice, or (ii) this
Agreement shall terminate with the same effect as if the Agreement were never
entered into.
1.3 Purchase Price. (a) Prepayment. Purchaser shall pay
Seller the Prepayment Amount on the first Currency Business Day following the
final Hedging Date (the "Prepayment Date"). Payment shall be made in immediately
available funds.
(b) Number of Contract Shares. Purchaser's obligation to
purchase, and Seller's obligation to sell, Contract Shares under this Agreement
applies only to the Covered Contract Shares. The number of Covered Contract
Shares shall be calculated in accordance with the following provisions:
(A) If the Final Value for the Settlement Data
is equal to or less than the Lower
Percentage times the Initial Value, then the
Covered Contract Shares shall be that number
of Contract Shares as shall equal the
Contract Shares Number.
(B) If the Final Value for the Settlement Date
is greater than the Lower Percentage times
the Initial Value, then the Covered Contract
Shares shall be that number of Contract
Shares as shall equal the product of (A) the
Contract Shares Number and (B) 1.000 minus a
fraction (expressed in decimal form) the
numerator of which is the Final Value minus
-----
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90.0% of the Initial Value and the
denominator of which is the Final Value.
(c) Delivery of Shares; Fractional Shares. Seller shall
deliver the Contract Shares to Purchaser on the Settlement Date (or, if
applicable, on any Alternate Settlement Date) in a manner prescribed by Section
8-301 of the New York Uniform Commercial Code. Any Contract Shares or other
cash, securities or property delivered pursuant to this Agreement shall be
delivered in marketable form without restrictive legends and be freely
transferable. If, however, on any Settlement Date or Alternate Settlement Date
any fractional shares of Common Stock would otherwise be deliverable to
Purchaser, Seller agrees to make a cash payment to Purchaser in respect of such
fractional shares of Common Stock in an amount equal to the value thereof the
applicable Reference Price.
II.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to, and agrees with,
Purchaser that:
(a) Seller is duly organized and validly existing under the
laws of its jurisdiction of incorporation.
(b) The execution, delivery and performance by Seller of this
Agreement and the Pledge Agreement do not violate or conflict with any law
applicable to Seller, any provision of its organizational documents, any order
or judgment of any court or other governmental agency applicable to it or any of
its assets or any contractual restriction binding on or affecting it or any of
its assets.
(c) All governmental and other consents that are required to
have been obtained by Seller with respect to this Agreement and the Pledge
Agreement, if any, have been obtained and are in full force and effect. Without
limitation of the foregoing, Seller has made and will continue to make any and
all filings or reports required to be made by it under applicable laws and
regulations in connection with its ownership of any Contract Shares.
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(d) This Agreement and the Pledge Agreement have been duly authorized,
executed and delivered by Seller and Seller's obligations under this Agreement
and the Pledge Agreement constitute its legal, valid and binding obligations,
enforceable in accordance with their respective terms (subject to applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting
creditor's rights generally and subject, as to enforceability, to equitable
principles of general application (regardless of whether enforcement is sought
in a proceeding in equity or at law)).
(e) There is not pending or, to Seller's knowledge, threatened against
Seller any action, suit or proceeding at law or in equity or before any court,
tribunal, governmental body, agency or official or any arbitrator that might
affect the legality, validity or enforceability against it of this Agreement or
the Pledge Agreement or its ability to perform its obligations hereunder or
thereunder.
(f) The Pledged Contract Shares on the date hereof are freely
transferable by Seller under the Securities Act without restriction as to the
amount or timing of sale.
(g) Seller is not in possession of, and does not have special access
to, any material non-public information regarding the Company and during the
period that Purchaser is effecting hedging transactions pursuant to Section
1.2(a) and on the Settlement Date will not have, and will not have special
access to, any such information. Seller is not, and will not become during the
term of this Agreement, an "affiliate" (as defined in Rule 144 under the
Securities Act) of the Company.
(h) Seller is not, and will not become during the term of this
Agreement, the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), but treating any
securities beneficially owned by Seller that are convertible, exchangeable or
exercisable for equity securities of the Company as if they had been converted,
exchanged or exercised) of more than five percent of the outstanding shares of
any class or series of equity securities issued by the Company. For purposes of
this representation, Seller shall be deemed to have beneficial ownership of any
securities it beneficially owns within the meaning of said Rule 13d-3 whether
such beneficial ownership is direct or indirect and whether it is based on
securities individually owned by Seller or
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securities owned as a member of a "group" within the meaning of Rule 13d-5(b)
under the Exchange Act.
(i) Seller has filed or caused to be filed all tax returns that are
required to be filed by Seller and has paid all taxes shown to be due and
payable on said returns or on any assessment made against Seller or any of
Seller's property and all other taxes, assessments, fees, liabilities or other
charges imposed on Seller or any of Seller's property by any governmental
authority (other than any taxes, assessments, fees, liabilities or other charges
contested by Seller in good faith).
(j) Seller is an "accredited investor" as defined in Rule 501(a) of
Regulation D under the Securities Act.
(k) (i) Seller is solely responsible for Seller's investment decisions
with respect to this Agreement and the Pledge Agreement; and (ii) Seller is not
relying on Purchaser or any affiliate thereof in connection with any such
decisions, and neither Purchaser nor any such affiliate is acting as an advisor
to or fiduciary of Seller in connection with this Agreement or the Pledge
Agreement, regardless of whether Purchaser or any such affiliate provides Seller
from time to time with market information or views.
(1) Seller has sufficient knowledge, experience and access to
professional advice to make Seller's own legal, tax, accounting and financial
evaluation of the merits and risks of Seller entering into this Agreement and
the Pledge Agreement, has reviewed the documentation relating to this Agreement
and the Pledge Agreement carefully with Seller's financial, legal and tax
advisors and has determined that entering into this Agreement and the Pledge
Agreement is consistent with Seller's objectives. Without limitation of the
foregoing, or of any other provisions of this Agreement, Seller acknowledges and
understands that the transactions contemplated by this Agreement may involve
complex legal, tax and regulatory considerations that are highly dependent on
facts and circumstances related to Seller, that Purchaser has insufficient
information regarding such facts and circumstances to determine the legal, tax
and regulatory consequences of such transactions for Seller and that Seller,
together with its legal, tax and financial advisors, will be solely responsible
for determining and evaluating such consequences and making independent
decisions with respect to such transactions based on such determinations and
evaluations
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and any other factors or considerations deemed relevant by Seller or its
advisors.
(m) Seller has provided to Purchaser copies of all agreements or
contracts to which it is a party, or by which it is bound, that relate to the
Pledged Contract Shares or any other Common Stock or any securities that are
convertible, exchangeable or exercisable for Common Stock. A list of all such
agreements or contracts is attached as Annex B hereto.
(n) The Pledged Contract Shares and any other shares of Common Stock
beneficially owned by Seller, and any securities beneficially owned by Seller
that are convertible, exercisable or exchangeable for Common Stock, are not
subject to any restrictions on transfer other than those arising under federal
or state securities laws and no such shares of Common Stock or other securities
are entitled to the benefits of any registration rights agreement or similar
agreement.
(o) Seller acknowledges and agrees that Purchaser has or will hedge
its exposure to the Common Stock hereunder as contemplated by Section 1.2(a);
that at any time before, on or after the Settlement Date Purchaser may change or
alter its hedge position; that such transactions may affect the market price for
the Common Stock and thus the amounts payable hereunder; and that, with the
exception of its purchase obligation hereunder and its obligations under Section
1.2(a), Purchaser shall have no obligation to purchase or sell, or to refrain
from purchasing or selling, the Common Stock or entering into any hedging
transaction at any time.
(p) The information included in each financial statement delivered by
Seller to Purchaser pursuant to Section 4.4 hereof will be true and complete in
all material respects.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents to Seller that:
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(a) It is duly organized and validly existing under the laws of the
jurisdiction of its organization.
(b) It has the power to execute and deliver this Agreement and to
perform its obligations and has taken all necessary action to authorize such
execution, delivery and performance.
(c) The execution, delivery and performance by Purchaser of this
Agreement do not violate or conflict with any law applicable to Purchaser, any
provision of its constitutional documents, any order or judgment of any court or
other governmental agency applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets.
(d) All governmental and other consents that are required to have been
obtained by Purchaser with respect to this Agreement, if any, have been obtained
and are in full force and effect.
(e) Purchaser's obligations hereunder constitute its legal, valid and
binding obligations, enforceable in accordance with their respective terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).
(f) There is not pending or, to Purchaser's knowledge, threatened
against Purchaser any action, suit or proceeding at law or in equity or before
any court, tribunal, governmental body, agency or official or any arbitrator
that is likely to affect the legality, validity or enforceability against it of
this Agreement or its ability to perform its obligations hereunder.
IV.
COVENANTS
4.1 Taxes. Seller shall pay any and all documentary, stamp, transfer
or similar taxes and charges that may be payable
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in respect of the entry into this Agreement and the transfer and delivery of any
Contract Shares pursuant hereto.
4.2 Notices. Seller will cause to be delivered to Purchaser:
(a) Immediately upon the occurrence of any Event of Default hereunder
or under the Pledge Agreement, or the occurrence of any event that with giving
of notice, lapse of time or both would be such an Event of Default, or upon
Seller's obtaining knowledge that any of the conditions or events described in
paragraph (a) or (b) of Article VI shall have occurred with respect to the
Company, notice of such occurrence; and
(b) In case at any time prior to the Settlement Date Seller receives
notice, or otherwise obtains knowledge, that any event requiring or permitting
that an adjustment be effected pursuant to Article V hereof shall have occurred
or be pending, then Seller shall promptly cause to be delivered to Purchaser a
notice identifying such event and stating, if known to Seller, the date on which
such event is to occur and, if applicable, the record date relating to such
event. Seller shall cause further notices to be delivered to Purchaser if Seller
shall subsequently receive notice, or otherwise obtain knowledge, of any further
or revised information regarding the terms or timing of such event or any record
date relating thereto.
4.3 Security for Obligations. Seller shall secure its obligations to
Purchaser under this Agreement by executing the Pledge Agreement on the date
hereof and delivering thereunder the Pledged Contract Shares.
4.4 Seller Financial Statements. Seller shall deliver to Purchaser not
later than March 31st in each calendar year commencing in 1999, audited
consolidated financial statements for its immediately preceding fiscal year
certified by independent certified public accountants and prepared in accordance
with United States generally accepted accounting principles.
4.5 Confidentiality. Purchaser considers its participation in the
transactions contemplated by this Agreement and the details thereof
(collectively, the "Information") to constitute confidential and valuable
business information. Accordingly, Seller agrees to keep the Information
strictly
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confidential and not to disclose it (or any portion thereof) to any third party.
Seller may, however, disclose any Information to the extent such disclosure is
required by law, provided that Seller (i) notifies Purchaser reasonably in
advance of any requirement or pending request for the disclosure of any
Information, and (ii) prior to disclosure consults with Purchaser as to the
advisability of seeking means to preserve the confidentiality of such
Information.
4.7 Further Assurances. From time to time on and after the date hereof
through the Settlement Date, each of the parties hereto shall use its reasonable
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper and advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Agreement in accordance with the terms and conditions
hereof.
V.
ADJUSTMENT OF INITIAL PRICE AND CONTRACT SHARES NUMBER
If there shall occur, or if the Company shall declare the terms of,
any Potential Adjustment Event, Purchaser will determine whether such Potential
Adjustment Event has a diluting or concentrative effect on the theoretical value
of the shares of Common Stock and, if so, will (i) make the corresponding
adjustment(s), if any, to the Initial Price and/or the Contract Shares Number
and, in any case, any other variable relevant to the settlement or payment terms
of this Agreement as Purchaser determines appropriate to account for that
diluting or concentrative effect and (ii) determine the effective date(s) of the
adjustment(s). If there shall occur any Reorganization Event, or if the Company
shall announce the terms of any Reorganization Event to which the Company is
irrevocably committed, Purchaser will (i) make such adjustments, if any, to the
settlement or payment terms of this Agreement as Purchaser determines
appropriate to account for such Reorganization Event
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(including adjustments to the number and class of securities or other assets to
be delivered by Seller on the Settlement Date), and (ii) determine the effective
date(s) of the adjustment(s). Purchaser may (but need not) determine the
appropriate adjustment(s) in respect of a Potential Adjustment Event or
Reorganization Event by reference to the adjustment(s) in respect of such
Potential Adjustment Event or Reorganization Event made by an options exchange
to options on the Common Stock traded on that options exchange. Purchaser will
promptly notify Seller in writing of any adjustments made by it pursuant to this
Article V. In making any such adjustment, Purchaser shall endeavor in good faith
to maintain the parties' relative economic positions under this Agreement as
they stood immediately prior to such adjustment and all such adjustments shall
be conclusive and binding on both parties absent manifest error.
VI.
ACCELERATION
6.1 Acceleration by Purchaser. If one or more of the following events
(each, an "Event of Default") shall occur:
(a) Seller shall commence a voluntary case or other proceeding seeking
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall take any action to authorize
any of the foregoing;
(b) an involuntary case or other proceeding shall be commenced against
the Seller seeking relief with respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of 30 days;
or an order for relief shall be entered against the Seller under the federal
bankruptcy laws as now or hereafter in effect;
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(c) any representation made by Seller in Article II hereof or
in the Pledge Agreement shall have been untrue in any material respect when
made, or at any time prior to the Settlement Date shall become untrue in any
material respect;
(d) Seller shall fail to perform in any material respect any
of its other obligations to Purchaser hereunder, and such failure shall continue
for five Currency Business Days after notice thereof;
(e) an Event of Default within the meaning of the Pledge
Agreement has occurred and is continuing; or
(f) there shall occur any Event of Default, Termination Event
or Additional Termination Event, with Seller as the affected party, within the
meaning of the Master Agreement, dated as of January 11, 1999, between Seller
and Purchaser;
then, upon the occurrence of any such event, Seller shall become obligated to
deliver on such Currency Business Day as Purchaser may specify (the "Alternate
Settlement Date") all of the Covered Contract Shares (calculated, as of the
Alternate Settlement Date, in the manner set forth in Section 1.3(b) hereof),
and, in addition, such number of Contract Shares as shall have a value equal to
the positive difference, if any, between (i) the Market Quotation (or, in the
event Market Quotation cannot be determined, Purchaser's Loss); and (ii) the
Final Value of the Covered Contract Shares, provided that Seller shall not be
obligated to deliver on any Alternate Settlement Date a total number of Contract
Shares that exceeds the Contract Shares Number.
VII.
MISCELLANEOUS
7.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard forms of telecommunication. Notices to Purchaser
shall be directed to it at 4 Broadgate, 7th Floor; London EC2M 7LE, United
Kingdom, Telecopy No. 011-44171-972-0771, with a copy to AIG Financial
Securities Corp., 100 Nyala Farm, Westport, Connecticut 06880, Attention: Chief
Financial Officer (with a copy to the General
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Counsel), Telecopy No. (203) 222-4780, or to such other address as Purchaser
may notify Seller in writing. Notices to Seller shall be directed to it at 10500
Metric Drive, Suite 128, Dallas, Texas 75243, Attention: Chief Financial
Officer, Telecopy No. (214) 340-8477, or to such other address as Seller may
notify Purchaser in writing.
7.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
7.3 Severability. To the extent permitted by law, the
unenforceability or invalidity of any provision or provisions of this Agreement
shall not render any other provision or provisions herein contained
unenforceable or invalid.
7.4 Entire Agreement. Except as expressly set forth herein,
this Agreement, together with any oral or written confirmations of pricing terms
delivered by Purchaser to Seller, constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements, understandings and negotiations, both written and oral, among the
parties with respect to the subject matter of this Agreement.
7.5 Amendments; Waivers. Except with respect to oral or
written confirmations of pricing terms provided by Purchaser to Seller, any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
Purchaser and Seller or, in the case of a waiver, by the party against whom the
waiver is to be effective. No failure or delay by either party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
7.6 No Third Party Rights; Successors and Permitted Assigns.
(a) This Agreement is not intended and shall not be construed to create any
rights in any person other than Seller and Purchaser and their respective
successors and permitted assigns and no person shall assert any rights as third
party beneficiary hereunder. Whenever any of the parties hereto is referred to,
such reference shall be deemed to include the
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successors and permitted assigns of such party. All the covenants and agreements
herein contained by or on behalf of the Seller and Purchaser shall bind, and
inure to the benefit of, their respective successors and permitted assigns
whether so expressed or not, and shall be enforceable by and inure to the
benefit of Purchaser and its successors and permitted assigns.
(b) Neither this Agreement nor any interest herein or
obligation hereunder may be transferred by Seller without the prior written
consent of Purchaser and any purported transfer without such consent will be
void.
(c) Except as expressly provided herein, neither this
Agreement nor any interest herein or obligation hereunder may be transferred by
Purchaser without the prior written consent of Seller (other than pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all of Purchaser's assets to, another entity) and any purported
transfer without such consent will be void. Purchaser may transfer this
Agreement or any of its interests herein or obligations hereunder to another of
Purchaser's offices, branches or affiliates on two Business Days' prior written
notice; provided, however, that (i) if such transfer is to an entity other than
the Guarantor, such notice shall be accompanied by a guarantee of the Guarantor
of such transferee's obligations in substantially the form of the Guarantee or
by an agreement in writing of the Guarantor that such Guarantee will apply to
the obligations of such transferee under this Agreement.
7.7 Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
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IN WITNESS WHEREOF, the parties have signed this Agreement as
of the date and year first above written.
SELLER:
TURBOCHEF TECHNOLOGIES, INC.
By: /s/ Dennis J. Jameson
------------------------------
Name: DENNIS J. JAMESON
Title: EVD-CFO
PURCHASER:
BANQUE AIG, LONDON BRANCH
By: /s/ Kristofer Mansson
-----------------------------
Name: KRISTOFER MANSSON
Title: MANAGING DIRECTOR
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EXHIBIT 10.35
PLEDGE AGREEMENT DATED JANUARY 11, 1999 BY AND BETWEEN
TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL SERVICES CORP.
<PAGE>
EXHIBIT 10.35
PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of January 11, 1999 between
TURBOCHEF TECHNOLOGIES, INC. (the "Pledgor") and BANQUE AIG, LONDON BRANCH (the
"Bank").
WHEREAS, the Bank and the Pledgor intend to enter into a
Variable Stock Agreement (the "Stock Agreement"), pursuant to which the Pledgor
will sell to the Bank Covered Contract Shares (as defined in the Stock
Agreement) at the time and on the terms specified therein; and
WHEREAS, the Bank and/or certain of its Affiliates (as
hereinafter defined) may from time to time enter into derivative and other
transactions with the Pledgor, including options transactions effected pursuant
to the Master Agreement, dated as of the date hereof (the "Master Agreement"),
between the Pledgor and the Bank;
NOW, THEREFORE, to induce the Bank and its Affiliates to
enter into the securities purchase, derivative and other transactions
contemplated by the Stock Agreement and/or the Master Agreement (collectively,
the "Secured Transactions"), and to secure the Pledgor's obligations thereunder
and under this Agreement (collectively, the "Secured Obligations"), and for
other good consideration, the receipt and adequacy of which are hereby
acknowledged, the Pledgor and the Bank agree as follows:
1. As collateral security for the performance of the Secured
Obligations, the Pledgor hereby pledges and assigns to the Bank, and grants to
the Bank a valid first-priority security interest in, the following collateral
(the "Collateral"): (i) those Securities identified in Exhibit A hereto (the
"Identified Securities"), all proceeds and products thereof, all dividends,
interest and other distributions thereon (whether in cash, additional securities
or otherwise), and all Security Entitlements to the Identified Securities and
any other Securities or other Investment Property constituting Collateral
hereunder, and (ii) all options ("Options") purchased by Pledgor from the Bank
under the Master Agreement, all Securities Entitlements of the Pledgor to the
Options and all General Intangibles and contract rights of the Pledgor relating
to or arising from the Stock Agreement, the Master Agreement or the Options.
Capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings assigned to
<PAGE>
such terms in the New York Uniform Commercial Code (the "New York UCC").
2. The Pledgor shall deliver to the Bank on the date hereof
140,000 shares of the Identified Securities in certificated form in proper form
for transfer (as determined by the Bank in its sole discretion) and shall
include therewith stock powers duly endorsed in blank (the "Initial Shares").
The Pledgor acknowledges that the Bank intends to submit the Initial Shares to
The Depository Trust Company ("DTC") or its representative for entry into DTC's
book-entry system and that the Bank or its nominee shall thereafter hold the
Initial Shares (subject to the Bank's right to transfer or register Collateral
as provided in this Agreement) in book-entry form through the facilities of DTC.
The Pledgor further shall deliver to the Bank, or at its
instructions, any other Securities, assets or payments it receives that
constitute Collateral hereunder promptly after receiving the same. In
particular, and without limitation to the foregoing, the Pledgor (i) confirms
that on the date hereof it owns 293,846 shares of Common Stock, $1.25 per value
per share, of Maytag Corporation, a Delaware corporation ("Common Stock") and
that of such shares of Common Stock 146,923 shares (the "Relevant Shares")
constitute "restricted securities" as defined in Rule 144 ("Rule 144") under the
Securities Act of 1933, as amended (the "Securities Act"), and (ii) agrees that
it will (a) promptly after any Relevant Shares become eligible for resale by the
Pledgor pursuant to Rule 144(k), deliver said Relevant Shares to the Bank as
additional Collateral hereunder, and (b) execute and deliver all such documents
(including any amendments or supplements to this Agreement) as the Bank may
reasonably request to effect any such delivery. The Pledgor and the Bank further
agree that any Relevant Shares so delivered by the Pledgor to the Bank shall,
from and after the date of delivery, constitute Identified Securities for all
purposes of this Agreement. The Pledgor shall deliver the Relevant Shares to the
Bank hereunder in book-entry form through the facilities of DTC.
Notwithstanding anything in this Agreement to the contrary,
the Bank acknowledges that the 293,846 shares of Common Stock owned by the
Pledgor on the date hereof include, in addition to the Initial Shares and the
Relevant Shares, 6,923 shares of Common Stock that are not
-2-
<PAGE>
"restricted securities" as defined in Rule 144 and that the Pledgor is not
pledging, and is not required to pledge, such 6,923 shares of Common Stock to
the Bank hereunder.
3. The Pledgor represents, warrants, covenants and agrees that: (i) it
is duly incorporated and validly existing as a corporation in good standing
under the laws of the State of Delaware, (ii) this Agreement has been duly
authorized, executed and delivered by the Pledgor and constitutes a valid and
legally binding obligation of the Pledgor enforceable in accordance with its
terms, (iii) the pledge and delivery of the Collateral pursuant to this
Agreement will create a valid first-priority lien on and first-priority
perfected security interest in the Collateral securing the satisfaction or
payment of the Secured Obligations, (iv) it has, and will have upon the deposit
of any additional Collateral with the Bank or the purchase of any Options, title
to all of the Collateral, free and clear of all claims, mortgages, pledges,
liens, encumbrances and security interests of every nature whatsoever ("Liens")
and no consent or approval of any person, entity or governmental or regulatory
authority, or of any securities exchange, was or is necessary to create or
perfect the security interest created hereby, (v) the execution and delivery of
this Agreement by the Pledgor and the performance by the Pledgor of its
obligations hereunder do not violate or conflict with, and will not result in a
breach of or default under, any law applicable to it, any of its organizational
documents, any order, judgment or decree of any court or other agency or body or
any contract, agreement or instrument to which it is a party or affecting any of
its assets and will not result in the creation or imposition of a Lien on any of
its assets (other than the Lien created hereby), (vi) the information set forth
in Exhibit A is true and correct; (vii) no Liens other than the Lien created
hereby in favor of the Bank exist upon or with respect to any of the Collateral
and (viii) there is no restriction on the ability of, or consent or approval
that is necessary for, the Bank to effect an "Initial Transfer" as contemplated
by Section 9.
4. The Pledgor will faithfully preserve and protect the Bank's
security interest in the Collateral, wi1 defend the Bank's right, title, lien
and security interest in and to the Collateral against the claims and demands of
all persons whomsoever, and will do all such acts and things and execute and
deliver all such documents and instruments,
-3-
<PAGE>
including without limitation further pledges, assignments, financing statements
and continuation statements, as the Bank in its sole discretion may reasonably
deem necessary or advisable from time to time in order to preserve, protect and
perfect such security interest or to enable the Bank to exercise or enforce its
rights under this Agreement with respect to any Collateral. The Pledgor hereby
authorizes the Bank to sign and file financing and continuation statements and
Securities and Exchange Commission Form 144s (or similar or replacement forms)
without the signature of the Pledgor.
5. The Pledgor will not permit any Liens other than the Lien created
hereby in favor of the Bank to exist upon any of the Collateral.
6. The Pledgor will not take any action that could in any way limit or
adversely affect the ability of the Bank to realize upon its rights in the
Collateral.
7. The Pledgor hereby confirms that the Identified Securities are not
"restricted" or "control" securities for purposes of the Securities Act and may
be freely resold by the Bank under the Securities Act without restriction as to
the amount or timing of sale.
8. At any time and from time to time the Bank may cause all or any of
the Collateral to be transferred to or registered in its name or the name of its
nominee or nominees.
9. The Pledgor acknowledges and agrees that the Bank may sell, loan,
transfer, pledge or otherwise rehypothecate all or part of the Collateral from
time to time in one or more transactions (each such transaction an "Initial
-------
Transfer"). The Pledgor understands and agrees that, in connection with an
- --------
Initial Transfer, the Bank may transfer all voting and dividend and other rights
associated with the Collateral and that any such Initial Transfer will be for
the sole benefit and risk of the Bank and that the Pledgor will have no interest
in the Initial Transfer. The Pledgor acknowledges that the Bank would be
unwilling to execute Secured Transactions with the Pledgor if it did not have
the right to effect Initial Transfers.
10. The Bank shall be entitled to exercise all voting power with
respect to the Collateral if there shall
-4-
<PAGE>
at any time occur and be continuing an Event of Default or a Potential Default.
In addition, whether or not there has been an Event of Default or Potential
Default, the Bank may transfer any and all of the voting rights associated with
the Identified Securities (or any other Securities included in the Collateral)
through an Initial Transfer. The Pledgor acknowledges that the Bank may execute
one or more Initial Transfers at any time and that, in such a case, the Pledgor
will have no voting rights with respect to any Identified Securities (or other
Securities) included in such Initial Transfer. An "Event of Default" shall be
deemed to occur if (i) the Pledgor is in default in performing any Secured
Obligation (including any of its covenants under the Stock Agreement, the Master
Agreement or Additional Termination Event, with the Pledgor as the affected
party, or this Agreement), (ii) an Event of Default, Termination Event or
Additional Termination Event, with the Pledgor as the affected party, shall
occur under the Master Agreement, (iii) there shall occur any event that would
permit the Bank to declare an acceleration under Article VI of the Stock
Agreement, or (iv) any representation or warranty made by the Pledgor under the
Stock Agreement, the Master Agreement or this Agreement is or becomes materially
inaccurate. A "Potential Default" includes any fact or circumstance that with
notice or lapse of time or both would constitute an Event of Default.
11. If the Pledgor shall fail to deliver Covered Contract Shares to
the Bank at the time or in the amounts required by the Stock Agreement, the Bank
shall be entitled to apply to the satisfaction of the Pledgor's delivery
obligation any Identified Securities or other Securities then pledged hereunder
that are of the same class as the Covered Contract Shares. In addition, if any
other Event of Default shall occur, or if the Pledgor shall default on its
obligation to deliver Covered Contract Shares under the Stock Agreement and
insufficient Identified Securities (or other Securities of the same class as the
Covered Contract Shares) are then pledged hereunder to satisfy such delivery
obligation in full, the Bank, without obligation to resort to other security,
shall have the right at any time and from tame to time to sell, resell, assign
and deliver, in its discretion, all or any of the Collateral, in one or more
parcels at the same or different times, and all right, title and interest, claim
and demand therein and right of redemption thereof, on any securities exchange
on which the Collateral or any of it may be listed, or at public or
-5-
<PAGE>
private sale, for cash, upon credit or for future delivery, and in connection
therewith the Bank may grant options, the Pledgor hereby waiving and releasing
any and all equity or right of redemption to the fullest extent permitted by
law. If any of the Collateral is sold by the Bank upon credit or for future
delivery, the Bank shall not be liable for the failure of the purchaser to
purchase or pay for the same and, in the event of any such failure, the Bank may
resell such Collateral. In no event shall the Pledgor be credited with any part
of the proceeds of sale of any Collateral until cash payment thereof has
actually been received by the Bank. In addition, should any portion of the
Collateral consist of a time deposit or deposits with a financial institution
(including the Bank), the Bank may terminate such deposit or deposits prior to
the maturity thereof and any penalties payable in connection therewith shall be
for the sole account of the Pledgor.
12. The Pledgor acknowledges and agrees that the Identified Securities
may decline speedily in value and are of a type customarily sold on a recognized
market, and, accordingly, no demand, advertisement or notice, all of which are
hereby expressly waived, shall be required in connection with any sale or other
disposition of any such Identified Securities, or any other securities or assets
included in the Collateral which may decline speedily in value or which are of a
type customarily sold on a recognized market, except any notice that is required
under applicable law and cannot be waived. With respect to any other type of
Collateral, the Bank shall give the Pledgor at least five business days' prior
notice of the time and place of any public sale and of the time after which any
private sale or other disposition is to be made, which notice the Pledgor agrees
is reasonable, all other demands, advertisements and notices being hereby
waived. The Bank shall not be obligated to make any sale of Collateral if it
shall determine not to do so, regardless of the fact that notice of sale may
have been given. The Bank may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for sale, and such sale may, without
further notice, be made at the time and place to which the same was so
adjourned. In the case of all sales of Collateral, public or private, the
Pledgor shall pay all costs and expenses of every kind for sale or delivery,
including brokers' and attorneys' fees and all liabilities and advances made or
incurred by the Bank in
-6-
<PAGE>
connection with such sale or delivery, and after deducting such costs and
expenses from the proceeds of sale, the Bank shall apply any residue first, to
the payment of the costs and expenses, including legal fees, incurred by the
Bank in connection with the administration and enforcement of the Secured
Obligations and this Agreement and any amounts due to the Bank in respect of the
Secured Obligations other than principal or interest and other than settlement
payments due upon the exercise or early termination of Options or payments due
to the Bank by reason of any default by the Pledgor (after giving effect to any
application of Collateral hereunder) to deliver Covered Contract Shares under
the Stock Agreement, second, if applicable, to the payment of interest owed with
regard to the Secured Obligations, and third, to the payment of principal or
other amounts owed with regard to the Secured Obligations. The balance, if any,
remaining after payment in full of all such amounts shall be paid to or on the
order of the Pledgor.
13. The Pledgor recognizes that the Bank may be unable to effect a
public sale of all or a part of the Collateral by reason of certain prohibitions
contained in the Securities Act, as now or hereafter in effect, or in applicable
Blue Sky or other state securities laws, as now or hereafter in effect, but may
be compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. The Pledgor agrees that private sales so made
may be at prices and other terms less favorable to the seller than if such
Collateral were sold at public sales, and that the Bank has no obligation to
delay sale of any such Collateral for the period of time necessary to permit the
issuer of such Collateral, even if such issuer would agree, to register such
Collateral for public sale under such applicable securities laws. The Pledgor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
14. The Bank shall have the right (but not any obligation), for and in
the name, place and stead of the Pledgor, to execute endorsements, assignments
or other instruments of conveyance or transfer with respect to all or any of the
Collateral.
-7-
<PAGE>
15. The Bank shall have no duty as to the collection or protection of
the Collateral or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody of any thereof actually in its
possession. As provided in Section 9, the Bank may transfer any or all of the
dividend rights relating to the Collateral (including the Identified Securities)
in an Initial Transfer. The Bank agrees that notwithstanding any such Initial
Transfer it may make it will, in the absence of an Event of Default or Potential
Default, promptly pay over, or cause to be paid over, to the Pledgor any cash
dividends actually paid on the Identified Securities during the term of this
Agreement (other than any such dividend which the Bank, in its good faith
discretion, determines was not paid by the issuer of the Identified Securities
in the ordinary course of its business or otherwise constitutes an
"extraordinary" dividend). With respect to any maturities, calls, conversions,
exchanges, redemptions, offers, tenders or similar matters relating to any of
the Collateral (herein called "events") occurring prior to an Event of Default
or a Potential Default by the Pledgor in respect of any of the Secured
Obligations, the Bank's duty shall be fully satisfied if (i) the Bank promptly
forwards to the Pledgor any notices the Bank receives, in its capacity as
registered holder, of any events applicable to any securities included in the
Collateral which are registered and held in the name of the Bank or its nominee,
and (ii) subject to the exercise of its sole discretion (a) the Bank endeavors
to take such action with respect to any of such events as the Pledgor may
reasonably and specifically request in writing in sufficient time for such
action to be evaluated and taken or (b) if the Bank determines that the action
requested might adversely affect the value of the Collateral as collateral, the
collection of the Secured Obligations, or otherwise prejudice the interests of
the Bank, the Bank gives reasonable notice to the Pledgor that any such
requested action will not be taken, and if the Bank makes such determination or
if the Pledgor fails to make such timely request, the Bank takes such other
action as it deems advisable in the circumstances; provided, however, that the
Bank shall have no duties hereunder in regard to any event that occurs with
respect to Collateral which is subject to an Initial Transfer. Except as
hereinabove specifically set forth, and at any time following an Event of
Default or a Potential Default by the Pledgor in respect of any of the Secured
Obligations, the Bank shall have no further obligation to ascertain the
occurrence of, or to notify the
-8-
<PAGE>
Pledgor with respect to, any events and shall not be deemed to assume any such
further obligation as a result of the establishment by the Bank of any internal
procedures with respect to any securities in its possession. The Pledgor
releases the Bank from any claims, causes of action and demands at any time
arising out of or with respect to this Agreement or the Collateral and/or any
actions taken or omitted to be taken by the Bank with respect thereto, and the
Pledgor hereby agrees to hold the Bank harmless from and with respect to any and
all such claims, causes of action and demands.
16. The Pledgor hereby irrevocably appoints the Bank as the Pledgor's
attorney-in-fact for the purpose of carrying out the provisions of this
Agreement and taking any action and executing any instrument which the Bank may
deem necessary or advisable to accomplish the purposes hereof. Without limiting
the generality of the foregoing, the Bank shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to the Pledgor representing any interest or dividend or other
distribution payable in respect of the Collateral or any part thereof and to
give full discharge for the same.
17. The remedies provided herein in favor of the Bank shall not be
deemed exclusive, but shall be cumulative, and shall be in addition to all other
remedies in favor of the Bank existing at law or in equity. No delay on the part
of the Bank in exercising any of its options, powers or rights, or partial or
single exercise thereof, shall constitute a waiver thereof. The pledge of the
Collateral hereby shall not in any way preclude or restrict any recourse by the
Bank against the Pledgor or any other person or entity liable with regard to the
Secured Obligations or any other collateral therefor. Without limitation to the
foregoing, the Bank shall have all the rights of a secured party under the New
York UCC.
18. If the Pledgor defaults in its obligation to deliver Covered
Contract Shares under the Stock Agreement and the Identified Securities (or
other Securities of the same class as the Covered Contract Shares) then pledged
hereunder are insufficient to satisfy such delivery obligation in full, or if
the proceeds of any sale, collection or other realization of or upon the
Collateral pursuant to this Agreement are insufficient to pay in full
-9-
<PAGE>
both any monetary Secured Obligations and the costs and expenses of such
realization, the Pledgor shall remain liable to the Bank for such deficiency in
its entirety.
19. Upon (i) the satisfaction in full of the Pledgor's obligation to
deliver Covered Contract Shares under the Stock Agreement, and (ii) the payment
in full of all amounts that may be payable with regard to the Secured
Obligations, the Pledgor shall be entitled to the return of all of the
Collateral and of all other property and cash which have not been used or
applied toward the satisfaction of such delivery requirements or the payment of
such amounts free and clear of all Liens in favor of the Bank or any
encumbrances imposed by the Bank. Except as aforesaid, the assignment by the
Bank to the Pledgor of such Collateral and other property shall be without
representation or warranty of any nature whatsoever and wholly without recourse.
20. Any notice or demand upon the Pledgor shall be deemed to have been
sufficiently given for all purposes thereof if mailed, postage prepaid, by
registered or certified mail, return receipt requested, or if delivered, to the
Pledgor at the address specified below, or at such other address as the Pledgor
may theretofore have designated in writing and given in like manner to the Bank.
Any such notice shall be effective when so mailed or delivered.
21. Any waiver, permit, consent or approval of any kind or character
on the part of the Bank of any breach or default under this Agreement or any
such waiver of any provision or condition of this Agreement must be in a writing
duly executed by the Bank and shall be effective only to the extent specifically
set forth in such writing.
22. This Agreement may not be assigned, nor may any obligation
hereunder be delegated, by the Pledgor without the prior written consent of the
Bank, and any purported assignment, or delegation, without such consent shall be
null and void. The Bank may in its discretion transfer its rights and
obligations hereunder to any person to whom the Bank transfers its interest and
obligations under the Stock Agreement or the Master Agreement and may transfer
its rights in the Collateral as provided in Section 9. This Agreement and the
rights and obligations of the Bank and the Pledgor hereunder cannot be changed
orally and shall bind and inure to the benefit of the Pledgor and the Bank and
their respective heirs, distributees,
-10-
<PAGE>
executors, personal representatives and administrators and permitted successors
and assigns, and all subsequent holders of the Secured Obligations. THIS
AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
23. This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which taken together shall
constitute but one and the same instrument.
24. The Pledgor agrees to pay the Bank on demand all costs and
expenses, including legal fees, incurred by the Bank in connection with the
enforcement of this Agreement, all of which costs and expenses shall form part
of the Secured Obligations as provided above.
25. The Pledgor expressly acknowledges and agrees that the Lien
created by this Agreement shall apply equally for the benefit of any affiliate
(each, an "Affiliate") of the Bank that enters into Secured Transactions with
the Pledgor. Each Secured Transaction so extended by an Affiliate shall be
deemed to be a Secured Obligation hereunder; each such Affiliate shall have the
same rights as the Bank in relation to the Pledgor hereunder; the Bank's and
each Affiliate's security interest in the Collateral shall rank equally with one
another (except, in each such case, as the Bank and such Affiliate may otherwise
agree), and the Pledgor's obligations to each Affiliate hereunder shall be the
same as his obligations to the Bank. As used herein, the term "Affiliate"
includes American International Group, Inc. and its direct and indirect wholly-
owned subsidiaries and any other person identified by the Bank to the Pledgor in
writing as an "Affiliate".
26. With respect to any suit, action or proceeding relating to this
Agreement ("Proceedings"), each of the Bank and the Pledgor irrevocably submits
to the non-exclusive jurisdiction of the courts of the State of New York and the
United States District Court located in the Borough of Manhattan in New York
City, waives any objection which it may have at any time to the laying of venue
of any Proceedings brought in any such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such
-11-
<PAGE>
Proceedings, that such court does not have any jurisdiction over such party.
IN WITNESS WHEREOF, the Pledgor and the Bank have caused this Pledge
Agreement to be duly executed and, in the case of the Pledgor, notarized, as of
the day and year first above written.
TURBOCHEF TECHNOLOGIES, INC.
/s/ Dennis J. Jameson
-------------------------
Address: 10500 Metric Drive, Suite 128
Dallas, Texas 75243
Attn: Chief Financial Officer
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS)
On the 5th day of February, 1999, before me personally came Dennis J.
Jameson, who, being by me duly sworn, did depose and say that he is the CFO of
TurboChef Technologies, Inc., the corporation described in and which executed
the above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was affixed by
authority of the Board of Directors of said corporation; and that he signed his
name thereto by like authority.
/s/ Matilda R. Dunn
-------------------------
Notary Public
[STAMP APPEARS HERE]
BANQUE AIG, LONDON BRANCH
By: /s/ Kristofer Mansson
---------------------
Kristofer Mansson
Managing Director
Address: 4 Broadgate
7th Floor
London EC2M 7LE
United Kingdom
-12-
<PAGE>
with a copy to:
AIG Financial Products Corp.
100 Nyala Farm
Westport, CT 06880
Attn: Chief Financial Officer
(with a copy to the
General Counsel)
-13-
<PAGE>
EXHIBIT A
---------
THE COLLATERAL
--------------
Name of Issuer of
Pledged Shares No. of
(the "Corporation") Shares Class of Shares
- ------------------- ------ ---------------
Maytag Corporation 140,000 Common Stock, $1.25 per
value per share
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 164,174 1,396,641
<SECURITIES> 18,291,914 7,277,395
<RECEIVABLES> 914,360 625,000
<ALLOWANCES> 0 0
<INVENTORY> 761,993 934,690
<CURRENT-ASSETS> 20,173,864 10,338,000
<PP&E> 1,060,445 874,911
<DEPRECIATION> 563,175 383,948
<TOTAL-ASSETS> 20,800,319 16,439,765
<CURRENT-LIABILITIES> 1,607,000 811,000
<BONDS> 0 0
0 0
0 0
<COMMON> 146,591 145,513
<OTHER-SE> 19,046,648 15,482,955
<TOTAL-LIABILITY-AND-EQUITY> 20,800,319 16,439,765
<SALES> 3,062,319 3,462,072
<TOTAL-REVENUES> 7,137,319 4,222,486
<CGS> 2,676,896 2,842,833
<TOTAL-COSTS> 11,288,522 9,044,533
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,953,801) (4,662,302)
<EPS-PRIMARY> (.27) (.33)
<EPS-DILUTED> (.27) (.33)
</TABLE>
