-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eq5Uwr11fkh1F9MOVAv7XGKhPVXez2DD/d+2nXn4zf91LNqU2UaqcSUbP1JaEzSf TVFv26aIIrZ20Obl00lplg== 0000930661-99-000712.txt : 19990403 0000930661-99-000712.hdr.sgml : 19990403 ACCESSION NUMBER: 0000930661-99-000712 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURBOCHEF TECHNOLOGIES INC CENTRAL INDEX KEY: 0000916545 STANDARD INDUSTRIAL CLASSIFICATION: REFRIGERATION & SERVICE INDUSTRY MACHINERY [3580] IRS NUMBER: 481100390 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23478 FILM NUMBER: 99586183 BUSINESS ADDRESS: STREET 1: 10500 METRIC DRIVE SUITE 128 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2143419471 MAIL ADDRESS: STREET 1: 10500 NETRIC DRIVE STREET 2: SUITE 128 CITY: DALLAS STATE: TX ZIP: 75243 FORMER COMPANY: FORMER CONFORMED NAME: TURBOCHEF INC DATE OF NAME CHANGE: 19940207 10-K 1 FORM 10-K 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. ================================================================================ TURBOCHEF TECHNOLOGIES, INC. TABLE OF CONTENTS Form 10-K Item Page - -------------- ---- 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 Item 1. Business -------- 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 -2- 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. -3- . 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 -4- 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 -5- 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 -6- 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 -7- 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. -8- 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. -9- 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 -10- 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- 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- 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- 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. -14- 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. -15- 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.
Year Ended December 31, (Amounts in Thousands, Except Share Data) ----------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------------- -------------- -------------- -------------- --------------- 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
(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. -16- 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- 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- 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- 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 -20- 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- 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 -22- 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 -23- 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- 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- 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- 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- 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- 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- (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- 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- 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- 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 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 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 TurboChef Technologies, Inc. Balance Sheets (Amounts in Thousands, Except Share data)
At December 31, 1998 1997 ---- ---- Assets ------ 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 ======== ========
The accompanying notes are an integral part of these financial statements F-4 TurboChef Technologies, Inc. Statements of Operations (Amounts in Thousands, Except Share Data)
Years Ended December 31, 1998 1997 1996 ---- ---- ---- 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 ============ ============ ============
The accompanying notes are an integral part of these financial statements F-5 TurboChef Technologies, Inc. Statements of Stockholders' Equity (Amounts in Thousands, Except Share Data)
Accumulated ----------- other Total ----- ----- Common stock Additional paid- comprehensive Accumulated Treasury stockholders' ------------ ---------------- ------------- ----------- -------- ------------ Shares Amount in capital income deficit stock equity ------ ------ ---------- ------ ------- ----- ------ 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 ========== ===== ======== ======= ========= ====== ========
The accompanying notes are an integral part of these financial statements F-6 TurboChef Technologies, Inc. Statements of Cash Flows (Amounts in Thousands)
Years Ended December 31, 1998 1997 1996 ---- ---- ---- 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 ============== ============== ===============
The accompanying notes are an integral part of these financial statements F-7 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 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):
1998 1997 ----------- ------------ Cooking systems $ 633 $ 450 Parts, net 82 339 Demo systems, net 47 146 ----- ----- Total Inventory $ 762 $ 935 ===== =====
F-9 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 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 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 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):
Gross Gross unrealized unrealized holding holding Fair December 31, 1998: Cost gains losses value ------------------ ---------------- ------------- ------------ -------------- 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 ======= ===== ======= =======
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 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:
1998 1997 1996 ------------------ ------------------ ------------------ 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 $ -- $ -- $ -- ======= ======= =======
The components of the Company's net deferred tax asset were as follows:
December 31 ---------------------------------------- 1998 1997 -------------------- ------------------ Deferred tax assets: Accounts receivable $ 31 $ -- Accrued bonuses 36 -- Inventory reserves 150 -- Warranty reserves 39 -- Research and development credit carryforwards 245 158
F-14 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 $ -- $ -- ======= =======
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 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).
1998 1997 1996 ------------------ ------------------ ------------------ Net loss: 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)
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:
Weighted Number of Average Shares Exercise Price ------------------ ------------------ 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 ========= ======
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
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 ------------------------------------------------------------------------------------------------------------- 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
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 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 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 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 EX-10.33 2 MASTER AGREEMENT 1/11/1999 TURBOCHEF & AIG EXHIBIT 10.33 MASTER AGREEMENT DATED JANUARY 11, 1999 BY AND BETWEEN TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL SERVICES CORP. 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. (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. 2 (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)). 3 (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. 4 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 5 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 6 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 7 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 8 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 9 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. 10 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. 11 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 12 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 13 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. 14 "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 15 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. 16 "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 17 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 (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 (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 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 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 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 (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 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 (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 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 (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 (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 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 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. 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- 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- 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- 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. 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 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
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
4 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 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 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. 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- 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- 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- EX-10.34 3 VARIABLE STOCK AGREEMENT 1/14/1999 EXHIBIT 10.34 VARIABLE STOCK AGREEMENT DATED JANUARY 14, 1999 BY AND BETWEEN TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL SERVICES CORP. 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 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- "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- 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). -4- "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 -5- 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 -6- 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 ----- -7- 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. -8- (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 -9- 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 -10- 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: -11- (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 -12- 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 -13- 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 -14- (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; -15- (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 -16- 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 -17- 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. -18- 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 -19- EX-10.35 4 PLEDGE AGREEMENT 1/11/1999 EXHIBIT 10.35 PLEDGE AGREEMENT DATED JANUARY 11, 1999 BY AND BETWEEN TURBOCHE TECHNOLOGIES, INC. AND AIG FINANCIAL SERVICES CORP. 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 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- "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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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- 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 EX-27 5 FINANCIAL DATA SCHEDULE
5 YEAR YEAR DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 DEC-31-1998 DEC-31-1997 164,174 1,396,641 18,291,914 7,277,395 914,360 625,000 0 0 761,993 934,690 20,173,864 10,338,000 1,060,445 874,911 563,175 383,948 20,800,319 16,439,765 1,607,000 811,000 0 0 0 0 0 0 146,591 145,513 19,046,648 15,482,955 20,800,319 16,439,765 3,062,319 3,462,072 7,137,319 4,222,486 2,676,896 2,842,833 11,288,522 9,044,533 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (3,953,801) (4,662,302) (.27) (.33) (.27) (.33)
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