-----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, UlyMFEMgm0ZUlVquDTRE8MPhuPJt0AtVD23luqp9t77orgvOav1MNFqvAyvnJ4hN GYODixotksRb1OmhSNrztw== 0000930661-99-002671.txt : 19991117 0000930661-99-002671.hdr.sgml : 19991117 ACCESSION NUMBER: 0000930661-99-002671 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-23478 FILM NUMBER: 99754553 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-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________ Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Quarter ended September 30, 1999 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 _________________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practicable date. Number of Shares Outstanding Title of Each Class at November 5, 1999 ------------------- ------------------- Common Stock, $0.01 Par Value 15,090,373 ================================================================================ TURBOCHEF TECHNOLOGIES, INC. TABLE OF CONTENTS
Form 10-Q Item Page - -------------- ---- Part I. Financial Information Item 1. Financial Statements Condensed Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998................................................ 3 Unaudited Interim Condensed Statements of Operations for the three and nine months ended September 30, 1999 and 1998.......... 4 Unaudited Interim Condensed Statements of Cash Flows for the nine months ended September 30, 1999 and 1998.................... 5 Notes to the Interim Condensed Financial Statements.............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 18 Part II. Other Information Item 1. Legal Proceedings................................................ 19 Item 2. Changes in Securities and Use of Proceeds........................ 19 Item 3. Defaults Upon Senior Securities.................................. 19 Item 4. Submission of Matters to a Vote of Security Holders.............. 19 Item 5. Other Information................................................ 19 Item 6. Exhibits and Reports on Form 8-K................................. 19 Signatures....................................................... 20
2 TurboChef Technologies, Inc. Condensed Balance Sheets (Amounts in Thousands, Except Share Data)
September 30, December 31, ------------- ------------ 1999 1998 ---- ---- (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 2,473 $ 164 Marketable securities available for sale, at fair value 5,340 18,292 Marketable securities - pledged, at fair value 6,852 - Accounts receivable, net of allowance for doubtful accounts of $79 and $92 at September 30, 1999 and December 31, 1998, respectively 883 914 Inventories, net 121 762 Prepaid expenses 212 41 ------------- ------------ Total current assets 15,881 20,173 ------------- ------------ Property and equipment: Leasehold improvements 288 130 Furniture and fixtures 661 475 Equipment 507 456 1,456 1,061 Less accumulated depreciation and amortization (728) (563) ------------- ------------ Net property and equipment 728 498 ------------- ------------ Investment in derivatives 1,457 - Other assets 122 129 Total assets $ 18,188 $ 20,800 ============= ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 842 $ 571 Accrued payroll 670 223 Accrued upgrade & warranty costs 1,168 259 Accrued expenses 412 474 Deferred revenue 4 49 Other 21 31 ------------- ------------ Total current liabilities 3,117 1,607 Long-term liabilities: Long-term debt 5,314 - Accrued interest 256 - ------------- ------------ Total long-term liabilities 5,570 - Total liabilities 8,687 1,607 Commitments and contingencies - - Stockholders' equity Common stock, $.01 par value. Authorized 50,000,000 shares. Issued 15,090,373 and 14,654,134 shares at September 30, 1999 and December 31, 1998, respectively 151 147 Additional paid-in capital 33,772 32,436 Accumulated deficit (28,521) (21,231) Accumulated other comprehensive income 5,269 8,292 Notes receivable from employees (719) - Treasury stock - at cost 32,130 shares in 1999 and 1998 (451) (451) ------------- ------------ Total stockholders' equity 9,501 19,193 ------------- ------------ Total liabilities and stockholders' equity $ 18,188 $ 20,800 ============= ============
3 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Operations (Amounts in Thousands, Except Share Data)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ---- ---- ---- ---- Product sales $ 540 $ 841 $ 2,566 $ 2,544 Research and development fees - 1,150 1,025 2,800 ----------- ----------- ------------ ----------- Total revenues 540 1,991 3,591 5,344 Costs and expenses: Cost of goods sold 392 590 2,002 2,056 Research and development expenses 940 503 2,633 1,347 Selling, general and administrative expenses 1,962 1,603 5,647 4,304 ----------- ----------- ------------ ----------- Total costs and expenses 3,294 2,696 10,282 7,707 ----------- ----------- ------------ ----------- Operating loss (2,754) (705) (6,691) (2,363) ----------- ----------- ------------ ----------- Other income (expense): Interest income 15 20 38 85 Interest expense (126) - (256) - Dividend income 50 53 155 147 Equity in loss of joint venture - - - (180) Amortization of derivatives (162) - (486) - Other income (expense) (38) 2 (50) 16 ----------- ----------- ------------ ----------- (261) 75 (599) 68 ----------- ----------- ------------ ----------- Net loss $ (3,015) $ (630) $ (7,290) $ (2,295) =========== =========== ============ =========== Loss per common share - basic and diluted $(0.20) $(0.04) $ (0.49) $ (0.16) =========== =========== ============ =========== Weighted average number of common shares outstanding 15,090,373 14,653,986 14,947,465 14,597,413 =========== =========== ============ ===========
4 TurboChef Technologies, Inc. Unaudited Interim Condensed Statements of Cash Flows (Amounts in Thousands)
Nine Month Ended September 30, 1999 1998 ---- ---- Cash flows from operating activities: Net loss $ (7,290) $ (2,295) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 411 136 Amortization of investment in derivatives 486 - Non-cash compensation expense 26 - Provision for doubtful accounts 54 - Increase in accounts receivable (23) (401) Decrease in inventories 405 146 (Increase) decrease in other assets (174) 51 Increase (decrease) in accounts payable 271 (5) Increase (decrease) in accrued expenses 1,550 14 (Decrease) increase in other liabilities (55) 232 Net cash used in operating activities (4,339) (2,122) ----------- ----------- Cash flows from investing activities: Sales/(purchase) of marketable securities - 1,056 Investment in derivatives (1,943) - Equipment and leasehold improvements (395) (97) Investment in TurboChef Europe - (40) Net cash provided by (used in) investing (2,338) 919 activities ----------- ----------- Cash flows from financing activities: Borrowings under long-term debt 8,392 - Exercise of stock options 768 12 Issuance of stock warrants 153 - Exercise of stock warrants 392 166 Notes receivable (719) - Net cash provided by financing activities 8,986 178 ----------- ----------- Net increase (decrease) in cash and cash equivalents 2,309 (1,025) Cash and cash equivalents at beginning of period 164 1,397 Cash and cash equivalents at end of period $ 2,473 $ 372 =========== ===========
5 TURBOCHEF TECHNOLOGIES, INC. Notes to Interim Condensed Financial Statements (Information relating to the three and nine month periods ended September 30, 1999 are unaudited) September 30, 1999 1) General TurboChef Technologies, Inc. ("the Company") is a technology development firm that focuses on residential and commercial appliances. Currently, it is engaged in designing, developing, marketing and licensing its proprietary rapid cook systems and technology. 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. Management believes that the Company operates in one primary business segment. The Company's commercial products and technologies have been validated through utilization and testing by both the Company and a variety of foodservice operators around the world. The Company is in the process of bringing 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 plans 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 has completed the transition of its North American Sales and Marketing responsibilities to G.S. Blodgett Corporation ("Blodgett"), a wholly owned subsidiary of Maytag, engaging in the manufacturing and sales of commercial foodservice equipment. In addition, Blodgett has also adopted the responsibility of manufacturing of the Company's commercial products. 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. Upon its successful implementation, this alliance, and others like it, will provide the Company with royalties from the sale of products utilizing its patented technologies and allow the Company to focus its financial resources on the development of new products as well as new markets. 2) Interim Condensed Financial Statements -------------------------------------- The financial statements of TurboChef Technologies, Inc. included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and have not been audited by independent public accountants. In the opinion of management, all adjustments (which consisted only of normal recurring accruals) necessary to present fairly the financial position and results of operations have been made. Pursuant to SEC rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these statements unless significant changes 6 have taken place since the end of the most recent fiscal year. The December 31, 1998 balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles ("GAAP"). The Company believes that other disclosures contained herein, when read in conjunction with the financial statements and notes included in the Company's Annual Report for the fiscal year ended December 31, 1998 on Form 10- K, are adequate to make the information presented not misleading. It is suggested, therefore, that these statements be read in conjunction with the statements and notes included in the aforementioned Form 10-K. The results of operations for the three months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. Basic net loss per common share is based on 15,090,373 and 14,653,986 weighted average shares outstanding for the three months ended September 30, 1999 and 1998, respectively. For the nine months ended September 30, 1999 and 1998 basic net loss per common share is based on 14,947,465 and 14,597,413 weighted average shares outstanding, respectively. For both the three and nine month periods ended September 30, 1999 and 1998, the Company did not report any incremental shares of potentially dilutive stock as their effect was antidilutive. The Company adopted the provisions of Statement of Financial Accounting Standards No. 130, Comprehensive Income, on January 1, 1998. This statement requires the Company to report comprehensive income and its components with the same prominence as other financial statements in its December 31, 1998 financial statements. Comprehensive income describes the total of all components of comprehensive income, including net income and other comprehensive income. Other comprehensive income refers to all revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. For the nine month period ended September 30, 1999, comprehensive income was ($10,313,000) of which ($7,290,000) was net loss and of which ($3,023,000) was the change in net unrealized gain on marketable securities. For the nine-month period September 30, 1998, comprehensive income was $772,000 of which ($2,295,000) was net loss and of which $3,067,000 was the change in net unrealized gain on marketable securities. Investments in marketable securities at September 30, 1999 and December 31, 1998 consisted of 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. 3) Notes Receivable from Employees ------------------------------- In February, March and April 1999, the Company loaned an aggregate of $37,500, $72,500 and $600,000, respectively, to three of its employees and two of the Company's directors. The loaned amounts were used by such employees and directors to exercise 284,000 (15,000 in February 1999, 29,000 in March 1999 and 240,000 in April 1999) stock options at an exercise price of $2.50 per share. All such loans are full-recourse and are secured by the underlying securities and the general assets of the respective borrower. Each loan has a term of five years and is payable, along with accrued interest, in February, March and April 2004. The notes are recorded as a reduction to Stockholders' Equity. The notes bear interest at a rate of 4.8%. The market rate of interest on March 31, 1999 was 7.0%, based upon margin rates obtained through various discount brokers. The difference between interest earned by the Company 7 on the notes and the market rate of interest is recorded as compensation expense. Total compensation expense related to notes receivable from such employees and directors was $8,000 for the nine months ended September 30, 1999. 4) Derivative Financial Instruments -------------------------------- As part of its strategic alliance efforts, the Company invested in equity securities of Maytag Corporation. These securities are subject to fluctuations from market value changes in stock prices. To mitigate this risk, the Company hedged its investment in Maytag securities by purchasing, on January 14, 1999, put options to sell the 293,846 shares of Maytag common stock owned by the Company. The purchase of the put options required an initial cash outlay (the "premium" amount) of $1.9 million. The premium is amortized over three years, the life of the investment. The purchased put options protect the Company from a decline in the market value of the security below a minimum level of approximately $57.00 per share (the put "strike" price) on January 14, 2002. The total value of the put options at risk is equal to the unamortized premium, which was $1,457,000 as of September 30, 1999. The Company's purchased put options are accounted for as a hedge of its investment in the Company's Maytag stock in accordance with GAAP. Hedge accounting under GAAP requires the following criteria to be met: (i) the item to be hedged is exposed to price risk (ii) the options position reduces the price exposure and (iii) the options position is designated as a hedge. No options have been purchased to cover the Company's investment in Maytag stock after January 14, 2002. At September 30, 1999, the per share market value of the Company's Maytag stock was less than the per share strike price of the purchased put options. The gain on the put options is equal to the difference between the strike price of the options and the market value of the Maytag stock (approximately $5.5 million). This gain on the pledged shares (approximately $3.1 million) has been recorded as a reduction to the Company's long term debt and can be found in the Liabilities section of the Company's 1999 Condensed Balance Sheet. The gain on the available for sale shares (approximately $2.4 million) has been recorded as an increase in Accumulated Other Comprehensive Income and can be found in the Stockholders' Equity section of the Company's 1999 Condensed Balance Sheet. The Company could be exposed to losses related to the above financial instrument should its counterparty default. This risk is mitigated through credit monitoring procedures. 5) Accrued Expenses ---------------- On September 1, 1999, the Company entered into an agreement to upgrade and warranty 262 cooking systems installed with Whitbread PLC. The Company received approximately $1.4 million from Whitbread PLC to complete the upgrade and warranty the cooking systems for a three-year period, beginning in September 1999. The cooking system upgrades will include design changes that should substantially increase the life and durability of the cooking systems. The cooking system upgrades are expected to be complete by January 2000. The $1.4 million has been recorded as an accrued liability and is being reduced as expenses relating to the upgrade and warranty are incurred. At this time, the Company believes that the fees charged to Whitbread PLC will be sufficient to cover the total cost of the upgrades and any charges arising during the three- year warranty period. 8 6) Secured Borrowings ------------------ On January 14, 1999, the Company established a revolving credit facility with Banque AIG, London Branch (an affiliate of American International Group, Inc. ("AIG Facility")). 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. In January 1999, the Company pledged 72,000 shares of its Maytag stock and received advances from its credit facility in the amount of $3.4 million. This advance bears an imputed interest rate of 5.8% and is due in January 2002. In April, June and September 1999, the Company pledged 35,000, 33,000 and 25,000 shares, respectively, and received additional advances of $1.7 million, $1.6 million and $1.2 million, respectively. These advances bear imputed interest rates of 6.3%, 6.9% and 7.4%, respectively, and are due in January 2002. AIG has received a first priority secured interest in the pledged shares of the Company's Maytag stock. As of November 5, 1999, the Company was in compliance with all of its debt covenants. As of May 14, 1999, Maytag has granted the Company the ability to sell or pledge 100% of the Maytag shares. Previously, 50% of the shares were not available until September 26, 1999. Accordingly, the Company has up to $6.1 million in advances available through the AIG Facility as of November 5, 1999. In addition, the Company has established a letter of credit through its bank to borrow up to the lesser of $315,000 or 75% of the market value of the Company's 6,923 pledged shares of Maytag stock at market rates of interest. Interest expense relating to its secured borrowings was $111,000 for the quarter ended September 30, 1999. 7) Unsecured Borrowings -------------------- On July 23, 1999, the Company entered into an agreement with the Gas Research Institute (GRI) to develop natural gas-fueled versions of the Company's commercial and residential cooking systems. The agreement with GRI calls for the Company to receive $2 million in funding over a six-month period, beginning in July 1999. In addition to the funding, the Company is allowed access to GRI's extensive patent portfolio and years of experience with natural gas related products. In return, GRI will receive a royalty ranging from .0625% to .125% on sales of the Company's commercial and residential cooking systems, up to a maximum of $4 million. GRI has also received 50,000 warrants to purchase the Company's common stock at $13.87 per share. The estimated fair market value of the warrants is $153,000 and has been included in the Additional Paid In Capital section of the Company's 1999 Condensed Balance Sheet. In accordance with SFAS No. 68, "Research and Development Arrangements" (FAS 68), funding received pursuant to this agreement will be accounted for as unsecured debt. Payments under this obligation total $4 million and interest is imputed, based on the estimated repayment period of the debt. Royalty payments made to GRI will be applied to the imputed interest and principal balances. According to the current sales and associated royalty repayment forecasts, the Company will have paid GRI a total of $4 million within the next seven years. Based upon these forecasts, the imputed interest rate of this debt is approximately 20.57%. Interest expense relating to this unsecured borrowing agreement was $15,000 for the quarter ended September 30, 1999. The agreement grants GRI the option to provide the Company with an additional $2 million in funding. The additional funding would effectively double the percentage of royalties and maximum royalty that GRI is currently scheduled to receive as well as provide them with an additional 50,000 warrants. This option must be exercised prior to December 31, 1999. 9 8) Authoritative Pronouncements ---------------------------- In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is now effective for fiscal years beginning after June 15, 2000. Previously, the Company would have had to adopt the Statement no later than January 1, 2000. Under the new guidelines, the Company will be required to adopt this Statement no later than January 1, 2001. 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. Under FASB 133, the Company's derivative investments would be marked to market on a quarterly basis and any gain or loss would be recorded within the Company's Condensed Statements of Operations. On September 30, 1999, the fair market value of the Company's derivative instruments was $5,634,000. 9) Subsequent Events ----------------- In October 1999, the Company entered into a Commercial License Agreement with Maytag Corporation ("Maytag") that broadens Maytag's distribution rights with respect to commercial cooking products utilizing the Company's rapid cook technologies. Pursuant to the terms of the agreement, Maytag now has exclusive rights to market and sell throughout North America and certain worldwide rights to sell to North American based chains with international locations. This exclusivity extends until March 2002, with certain applications extending until March 2003. In consideration for these rights, Maytag has agreed to pay the Company per unit royalties in the 10% range of targeted wholesale prices. In the event that actual gross margins exceed target levels, the Company will share equally in the incremental margin. Maytag has also agreed to establish $5.75 million as the minimum royalty threshold over the first two years of exclusivity and provide the Company with up to $5.5 million in funding over the next eight months, for the development of prototype units relating to this agreement. Item 2: Management Discussion and Analysis of Financial Condition and Results --------------------------------------------------------------------- of Operations ------------- General TurboChef Technologies, Inc. ("the Company") was incorporated on April 3, 1991. The Company is a technology development firm that intends to be the recognized leader in innovation for residential and commercial appliances. Currently, it is engaged in designing, developing and marketing proprietary "rapid-cook" systems. Prior to its name change in July 1998, the Company operated under the name TurboChef, Inc. 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 10 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 the Company 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, the Company and G.S. Blodgett Corporation ("Blodgett"), a wholly owned subsidiary of Maytag, engaging 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. This transition was completed during the third quarter of 1999. In addition to Blodgett's role as a manufacturer of the Company's commercial products, Blodgett has now begun to market and distribute the Company's commercial cooking systems throughout North America. In October 1999, the Company expanded its Strategic Alliance with Maytag and entered into a Commercial License Agreement that broadens Maytag's distribution rights with respect to commercial cooking products utilizing the Company's rapid cook technologies. Pursuant to the terms of the agreement, Maytag now has exclusive rights to market and sell throughout North America and certain worldwide rights to sell to North American based chains with international locations. This exclusivity extends until March 2002, with certain applications extending until March 2003. In consideration for these rights, Maytag has agreed to pay the Company per unit royalties in the 10% range of targeted wholesale prices. In the event that actual gross margins exceed target levels, the Company will share equally in the incremental margin. Maytag has also agreed to establish $5.75 million as the minimum royalty threshold over the first two years of exclusivity and provide the Company with up to $5.5 million in funding over the next eight months, for the development of prototype units relating to this agreement. 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. In July 1999, the Company entered into an agreement with the Gas Research Institute (GRI) to develop natural gas-fueled versions of the Company's commercial and residential cooking systems. GRI, established in 1976, manages cooperative research and development programs for its 327 members and the natural gas industry. GRI conducts research and development that benefits the entire industry and its customers; and targeted initiatives in which consortia and individual organizations partner with GRI to develop or apply technologies to improve their competitiveness and benefits to customers. Over 400 gas- related products and 600 patents have come from GRI-led initiatives. 11 The agreement with GRI calls for the Company to receive $2 million in funding over a six-month period, beginning in July 1999. In addition to the funding, the Company is allowed access to GRI's extensive patent portfolio and years of experience with natural gas related products. In return, GRI will receive a royalty ranging from .0625% to .125% on sales of the Company's commercial and residential cooking systems, up to a maximum of $4 million. In addition, GRI has been granted 50,000 warrants to purchase the Company's common stock at $13.87 per share. For additional information regarding the accounting treatment of this agreement, please refer to the "Notes to Interim Condensed Financial Statements" section of this document. The Company will continue to pursue business growth through implementation of the following strategies: (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, (iv) continued development of new hardware, software and food solutions for residential and commercial applications utilizing the Company's patented technologies 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 Quarter Ended September 30, 1999 Compared to the Quarter Ended September 30, 1998 Revenues for the quarter ended September 30, 1999 were $540,000, compared to revenues of $1,991,000 for the quarter ended September 30, 1998. This decrease is primarily attributable to the completion of the first phase of research and development projects and expiration of the related fees received pursuant to the Maytag Alliance. Revenues from the direct sales of commercial cooking systems also declined, even though actual unit sales increased in the quarter ended September 30, 1999. This is a result of the transition of the North American Sales & Marketing responsibilities to Maytag. Cost of sales for the quarter ended September 30, 1999 were $392,000, a decrease of $198,000 when compared to $590,000 for cost of sales in the quarter ended September 30, 1998. This decrease is principally due to the transition from the direct sales of commercial cooking systems to a licensing arrangement with Maytag, resulting in the elimination of cost of sales for such units, and a decrease in the costs associated with the Company's extended warranty program. Gross profit on direct cooking system sales for the quarter ended September 30, 1999 decreased $188,000 to $136,000 when compared to gross profit on direct cooking system sales of $324,000 during the quarter ended September 30, 1998. The decrease is due the transition of the North American Sales & Marketing responsibilities to Maytag, resulting in royalty income to the Company. Research and development expenses for the quarter ended September 30, 1999 increased $437,000, to $940,000, as compared to $503,000 for the quarter ended September 30, 1998. The increase is due to significant additions of engineering and technical personnel to support the Company's product development requirements primarily associated with Maytag Alliance projects, the enhancement of the Company's core technology and the development of the commercial counter top platforms. Furthermore, the Company established an accelerated life cycle testing facility for the durability and reliability testing of the Company's products. 12 Selling, general and administrative expenses for the quarter ended September 30, 1999 increased $359,000, to $1,962,000 from comparable expenses of $1,603,000 for the quarter ended September 30, 1998. The increase over the third quarter of 1998 is due to additions to the Company's senior management team, the expansion of the European Sales and Marketing Division, costs incurred in the establishment of the Lloyds of London offensive and defensive patent insurance policies and costs associated with the Company's ongoing efforts to develop international alliances. Other expense was $261,000 for the quarter ended September 30, 1999, compared to other income of $75,000 for the quarter ended September 30, 1998. The increase in expense is primarily due to the amortization of the derivative investment in a "put-option" on the Maytag stock owned by the Company ($162,000) and accrued interest on the Company's long-term credit facility ($111,000). For additional information regarding the Company's derivative securities and credit facility, refer to the "Liquidity and Capital Resources" and "Authoritative Pronouncements" sections of this document. Results of Operations for the Nine Months Ended September 30, 1999 Compared to the Nine Months Ended September 30, 1998 Revenues for the nine months ended September 30, 1999 were $3,591,000, compared to revenues of $5,344,000 for the nine months ended September 30, 1998. This decrease is primarily attributable to the completion of the first phase of research and development projects and expiration of the related fees received pursuant to the Maytag Alliance. Revenues from the direct sales of commercial cooking systems also declined, even though actual unit sales increased in the nine months ended September 30, 1999. This is a result of the transition of the North American Sales & Marketing responsibilities to Maytag under a license agreement resulting in royalty income to the Company. Cost of sales for the nine months ended September 30, 1999 was $2,002,000, a decrease of $54,000 when compared to $2,056,000 for the cost of sales in the nine months ended September 30, 1998. The decrease is principally due a decrease in the costs associated with the Company's extended warranty program and the transition from the direct sales of commercial cooking systems to a licensing arrangement with Maytag, resulting in the elimination of cost of sales for such units. These decreases were partially offset by an increase in the per unit manufacturing and related costs associated with direct sales of the Company's cooking systems. Gross profit on direct cooking system sales for the nine months ended September 30, 1999 decreased $180,000 to $673,000, when compared to gross profit on product sales of $853,000 during the nine months ended September 30, 1998. The decrease is due the per unit increase in manufacturing and related costs associated with direct sales of the Company's cooking systems and the transition of the North American Sales & Marketing responsibilities to Maytag, resulting in royalty income to the Company. Research and development expenses for the nine months ended September 30, 1999 increased $1,286,000, to $2,633,000, as compared to $1,347,000 for the nine months ended September 30, 1998. The increase is due to significant additions of engineering and technical personnel to support the Company's product development requirements associated primarily with the Maytag Alliance projects, the enhancement of the Company's core technology and the development of the commercial counter top platforms. 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 nine months ended September 30, 1999 increased $1,343,000, to $5,647,000 from comparable expenses of $4,304,000 for the nine months ended September 30, 1998. The increase over the first nine months of 1998 is due to additions to the Company's senior management team, the expansion of the European Sales and Marketing Division, costs incurred in the establishment of the Lloyds of London offensive and defensive patent insurance policies and the costs associated with the Company's ongoing efforts to develop international alliances. Other expense was $599,000 for the nine months ended September 30, 1999, compared to other income of $68,000 for the nine months ended September 30, 1998. The increase in expense is primarily 13 due to the amortization of the derivative investment in a "put-option" on the Maytag stock owned by the Company ($486,000) and accrued interest on the Company's long-term credit facility ($241,000). This was partially offset by a decrease in equity losses from the Company's former European joint venture, TurboChef Europe ($180,000). For additional information regarding the Company's derivative securities and credit facility, refer to the "Liquidity and Capital Resources" and "Authoritative Pronouncements" sections of this document. 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 aggregate research and development fees 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 nine months. The increase to $425,000 ended in January 1999. The remaining monthly payments of $300,000 ended in March 1999. In October 1999, the Company entered into a Commercial License Agreement that broadens Maytag's distribution rights with respect to commercial cooking products utilizing the Company's rapid cook technologies. Pursuant to the terms of the agreement, Maytag now has exclusive rights to market and sell throughout North America and certain worldwide rights to sell to North American based chains with international locations. This exclusivity extends until March 2002, with certain applications extending until March 2003. In consideration for these rights, Maytag has agreed to pay the Company per unit royalties in the 10% range of targeted wholesale prices. In the event that actual gross margins exceed target levels, the Company will share equally in the incremental margin. Maytag has also agreed to establish $5.75 million as the minimum royalty threshold over the first two years of exclusivity and provide the Company with up to $5.5 million in funding over the next eight months, for the development of prototype units relating to this agreement. The Maytag Alliance 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. 14 In July 1999, the Company entered into an agreement with the Gas Research Institute (GRI) to develop natural gas-fueled versions of the Company's commercial and residential cooking systems. GRI, established in 1976, manages cooperative research and development programs for its 327 members and the natural gas industry. GRI conducts research and development that benefits the entire industry and its customers; and targeted initiatives in which consortia and individual organizations partner with GRI to develop or apply technologies to improve their competitiveness and benefits to customers. Over 400 gas- related products and 600 patents have come from GRI-led initiatives. In January 1999, the Company terminated an existing revolving credit agreement with its bank and entered into an agreement with Banque AIG, London Branch (an affiliate of American International Group, Inc. ("AIG Facility")). 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%, on the date of the advance. 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 all appreciation 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 on January 14, 2002. As of November 5, 1999, the Company had pledged 165,000 shares of the Maytag stock in connection with the AIG Facility and received advances totaling $7.9 million. In addition, Maytag has granted the Company the ability to sell or pledge 100% of the Maytag shares, effective May 14, 1999. Previously, 50% of the shares were not to be available until September 26, 1999. Consequently, the Company has up to $6.1 million in advances available through the AIG Facility as of November 5, 1999. 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 September 30, 1999, the Company had working capital of $12,764,000 as compared to working capital of $18,566,000 at December 31, 1998. Of the $12,764,000 in working capital, $6,530,000 has been pledged to secure the Company's long term debt obligations. The $5,802,000 working capital decrease is primarily due to a decrease in the value of the Company's Maytag stock and an increase in cash and cash equivalents provided by the AIG Facility. Cash used in operating activities was $4,339,000 for the nine months ended September 30, 1999 as compared to cash used in operating activities of $2,122,000 for the nine months ended September 30, 1998. The net loss in the first nine months of 1999 included $977,000 of non-cash charges, as compared to $136,000 in 1998. Cash used in investing activities for the nine months ended September 30, 1999 was $2,338,000, consisting of an investment in derivatives of $1,943,000 and equipment purchases & leasehold improvements of $395,000. Cash provided by financing activities was $8,986,000 for the nine months ended September 30, 1999, of which $7,878,000 was obtained through advances from the Company's credit facility, $667,000 was obtained through an unsecured financing agreement with GRI and $441,000 was obtained through the exercise of stock options and warrants. At September 30, 1999, the Company had cash and cash equivalents of $2,473,000, compared to cash and cash equivalents of 15 $164,000 at December 31, 1998. Year 2000 Issues The Company, 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, its products will be unaffected by Year 2000 issues. Through November 5, 1999, the Company has had all of its internal software and hardware tested. At this time, all of the Company's software and hardware is Year 2000 compliant or has been made compliant. 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's commercial oven manufacturer, G S Blodgett, has completed its Year 2000 assessments and has informed the Company that all of its systems are fully Year 200 compliant. The Company does not believe that any Year 2000 issue, outside of their control, will cause any significant delays in the manufacturing of the Company's commercial cooking system. Authoritative Pronouncements In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective and will be adopted by the Company on January 1, 2001. 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. Under FASB 133, the Company's derivative investments would be marked to market on a quarterly basis and any gain or loss would be recorded within the Company's Condensed Statements of Operations. On September 30, 1999, the fair market value of the Company's derivative instruments was $5,634,000. Forward Looking Statements The Company has utilized the proceeds from the June 1996 Offering, and has used the 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. Future revenues from the Maytag Alliance 16 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 efforts and to establish additional strategic alliances and license agreements outside North America. To ensure financing for corporate activities, in January 1999 the Company entered into the AIG Facility. 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%, on the date of the advance. 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 all appreciation 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. As of November 5, 1999, the Company had pledged 165,000 shares of the Maytag stock and received advances totaling $7.9 million. The Company has up to $6.1 million in additional advances available on November 5, 1999. In addition, in February 1999 the Company entered into an agreement with its bank to support general corporate requirements. This credit agreement is set to expire in February 2000 and 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 Company's 6,923 pledged shares of Maytag stock at market rates of interest. 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. 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, market acceptance of the Company's products, the performance and needs of the segments of the foodservice industry served by the Company, the costs 17 of product development, the ability to successfully establish additional alliances and other risks and uncertainties, in addition to any uncertainties specifically identified in the text surrounding such statements, uncertainties with respect to changes or developments in social, economic, business, industry, market, legal, and regulatory circumstances and conditions and actions taken or omitted to be taken by third parties, including the Company's stockholders, customers, suppliers, business partners, and competitors, legislative, regulatory, judicial and other governmental authorities and officials. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary significantly from those anticipated, believed, estimated, expected, intended or planned. Item 3: Quantitative and Qualitative Disclosures about Market Risk ---------------------------------------------------------- In January 1999, the Company invested approximately $1.9 million to purchase a "put option" that covered all of the Company's Maytag stock. The function of the put option is to guarantee a minimum value of the Company's Maytag stock for a three-year period. This put option is an integral part of the AIG credit facility as it established a minimum borrowing base from which the Company could draw upon from time to time. The market value of the put option will be based upon the current price of Maytag stock and the amount of time remaining on the option. The Company is currently amortizing this investment on a straight-line basis, over a three-year period. The maximum potential exposure that the Company has, with respect to the put option, is $1.9 million, the initial cost of the investment. For further information regarding the Company's credit facility see the "Liquidity and Capital Resources" and "Notes to Condensed Financial Statements" sections of this document. 18 Part II. Other Information Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds. None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.36 Research and Development Contract dated July 29, 1999 by and between Gas Research Institute and TurboChef Technologies, Inc. (1) 10.37 Commercial License Agreement dated October 28, 1999 by and between Maytag Corporation and TurboChef Technologies, Inc. (1) (1) Filed herewith in redacted form pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"). Filed separately in unredacted form subject to a request for confidential treatment pursuant to Rule 24b-2 under the Act. (b) Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TURBOCHEF TECHNOLOGIES, INC. By:/s/ Dennis J. Jameson --------------------- Dennis J. Jameson Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated November 12, 1999 20 EX-10.36 2 RESEARCH AND DEVELOPMENT CONTRACT EXHIBIT 10.36 RESEARCH AND DEVELOPMENT CONTRACT --------------------------------- AGREEMENT between GAS RESEARCH INSTITUTE ("GRI"), an Illinois not-for-profit corporation, and TURBOCHEF TECHNOLOGIES ,INC., ("TURBOCHEF") a Delaware corporation. W I T N E S S E T H: - - - - - - - - - - WHEREAS, GRI is organized for scientific and educational purposes in the field of natural gas energy; and WHEREAS, TURBOCHEF has represented that it is equipped and qualified to perform research and development of cooking appliances that incorporate proprietary technologies of heat transfer, thermodynamics and controls; and WHEREAS, GRI desires to contribute to the funding of research and development performed by TURBOCHEF, and to disseminate, according to the terms and conditions hereof, the results thereof to the public. NOW, THEREFORE, the parties agree that TURBOCHEF shall furnish the materials, facilities, equipment, personnel, services, and all other necessary and related items for the research, development and commercialization of the proprietary technologies, pursuant to the following terms and conditions: 1 SCOPE OF WORK. ------------- 1.1 TURBOCHEF agrees to work toward the further development and expansion of the application of TURBOCHEF'S proprietary technologies of heat transfer, thermodynamics and controls applied to cooking appliances, which is more fully described in its Work Statement entitled "WORK STATEMENT FOR TURBOCHEF TECHNOLOGIES, INC./GRI PROGRAM", dated July 23, 1999, attached hereto as Schedule B and incorporated herein by reference. 1.2 TURBOCHEF agrees that the performance of the Work described in this Contract and pursuant to this Contract shall be done in a proficient and professional manner and shall conform to the highest professional standards. 1.3 TURBOCHEF hereby warrants that it has the legal right to conduct the Work hereunder and has acquired, or will acquire before proceeding, all necessary licenses and permits. 1.4 TURBOCHEF shall have access to GRI's inventory of patents, licenses or know-how to evaluate the potential application of such patents, licenses or know-how to TURBOCHEF's development or augmentation of residential or commercial cooking appliances. GRI will make available during regular business hours such patents, licenses or know-how to TURBOCHEF for review at GRI's offices. Subject to the existing rights of or ongoing negotiations with third parties, TURBOCHEF shall have the option to acquire a license to such patents, licenses or know-how under terms which are satisfactory and agreeable to both TURBOCHEF and GRI. 2 COSTS AND PAYMENTS. ------------------ 2.1 The initial funding from GRI is Two Million Dollars ($2,000,000.00) which shall be the "Fixed Price." GRI shall not be obligated to pay TURBOCHEF for an aggregate amount in excess of the Fixed Price. 2.1.1 GRI shall have the option to provide an additional Two Million Dollars ($2,000,000.00) by giving notice of the exercise of such option prior to December 31, 1999, to be paid in similar installments as set forth in paragraph 2.2 hereof, beginning January 10, 2000 (the "Option"). 2.2 GRI shall make payment of the Fixed Price in six (6) monthly installments of Three Hundred Thirty-three Thousand Three Hundred Thirty-three Dollars ($333,333), beginning ten days after the execution of this Research and Development Contract, and continuing on the tenth of each subsequent month for five (5) months upon satisfaction by TURBOCHEF of the following conditions: (a) Execution and delivery of this Contract; and (b) Execution and delivery of 50,000 Common Stock Warrants. 3 WARRANTS AND ROYALTY. -------------------- 3.1.1 "Net Sales Revenue" means the wholesale sales price determined in accordance with TURBOCHEF's agreements with TURBOCHEF's licensees for each model of cooking appliance employing TURBOCHEF's technology times the number of units sold during the quarter. 3.1.2 "Product" shall mean the Products described on Schedule A attached hereto and made a part hereof, as amended from time to time. This Schedule is to include all cooking products which employ TURBOCHEF's rapid cook technology, whether using natural gas or electric power, and shall be updated during the term of this Contract to include any new products. 3.2.1 The Common Stock Warrants to be delivered to GRI shall have an exercise price of $13.87 per share to be exercised at anytime before five (5) years after the sale of the fifty thousandth (50,000) gas or electric residential cooking range or wall oven upon which TURBOCHEF has paid a royalty to GRI. 3.2.2 If GRI exercises the Option set forth in paragraph 2.1.1 above, GRI shall receive 50,000 additional Common Stock Warrants with identical terms to the Warrants in paragraph 2.3, except that the exercise price shall be One hundred fifty percent (150%) of the average closing price as reported in the Wall Street Journal for the three days prior to GRI's exercise of the Option set forth in paragraph 2.1.1 hereof. 3.3.1 Royalty Rate. In consideration of the payment made hereunder by GRI, ------------ TURBOCHEF shall pay GRI a royalty, the amount of which shall be * of Net Sales Revenue from the sale, lease or other transfer of all Products, both natural gas and electric, until GRI has * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 2 received an Internal Rate of Return ("IRR Hurdle") equal to * on its payments made hereunder. After achieving the IRR Hurdle, GRI's royalty shall be reduced to * paid on the Net Sales Revenue from the sale, lease or other transfer of only natural gas Products as listed on Schedule A. The royalty shall begin on all sales of Products as of January 1, 2000 and shall continue throughout the Term of this Contract. 3.3.2 The Royalty Rate shall be doubled if GRI exercises the Option set forth in paragraph 2.1.1 above. 3.4 All royalty payments hereunder shall be made in U.S. dollars quarterly: on May 20 for sales other transfers made during the previous January through March, on August 20 for sales, leases or other transfers made during the previous April through June, on November 20 for sales, leases or other transfers made during the previous July through September, and on February 20 for sales, leases or other transfers made during the previous October through December. TURBOCHEF shall attach a statement indicating the number of Products sold during that period, the applicable royalty per unit, the total royalty for that period, the total aggregate royalty paid to GRI, and such other information as GRI may reasonably request from time to time. 3.5 Any royalty payments which are not made by TURBOCHEF on or before its due date shall be subject to an interest charge equal to the prime rate of interest plus two percent (2%) per annum, such prime rate of interest being that which is quoted by Citibank of New York, on the due date for such payment. Such interest charge shall commence on the day after such payment is due and shall continue until the day such payment is made in full. The foregoing notwithstanding, TURBOCHEF shall be deemed to be in breach of a material provision of this Contract if its royalty payments to GRI are more than sixty (60) days past due. 3.6 TURBOCHEF shall maintain books and records for a period of three (3) years sufficient to determine royalty payments hereunder, and shall, at the reasonable request of GRI but at TURBOCHEF's expense, have the independent public accounting firm that regularly audits its books and records furnish GRI with an auditor's certificate as to the accuracy of royalty payments made hereunder. At the reasonable request and expense of GRI, TURBOCHEF shall also allow GRI, or at GRI's option, its independent public accounting firm, to verify the accuracy of royalty payments made hereunder. 4. DELIVERABLES. ------------ 4.1 Reports. TURBOCHEF shall provide GRI with copies of the following ------- reports: (1) quarterly and annual financial reports, including 10K and 10Q; (2) annual sales projections by distributor for all cooking appliances manufactured with TURBOCHEF's technology; and (3) quarterly sales by model; and (4) wholesale prices charged by each licensee by model. * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 3 5 PROPRIETARY INFORMATION. ----------------------- The parties contemplate that, in the performance of the Work, either party may furnish the other confidential information which is generally related to the subject matter of this Contract, but was developed apart from this Contract. Such confidential information shall be held in confidence by the receiving party, shall not be published in any form, shall not be used, and shall not be discussed with or disseminated to any individual or organization other than the parties. The receiving party shall treat the disclosing party's information with the same care as it would use for its own confidential information, but in no circumstance to a standard or degree lesser than reasonable care. Such terms shall apply for a period commencing upon the execution of this Contract and extending five (5) years after the Work Completion Date of this Contract and shall not apply to information: (a) which is not in writing and clearly marked `Confidential'. Information transmitted orally or visually may be classified as information pursuant to this provision by so designating at the time of disclosure, followed by a subsequent reduction to writing and submission to the receiving party within thirty (30) days from the date of initial disclosure; (b) which is already in the possession of the receiving party or its employees at the time of disclosure as evidenced by prior written documentation; (c) which now or hereinafter comes into the public domain without breach of this Contract; (d) which the receiving party rightfully receives from third parties without obligation of confidentiality; (e) which is approved by the disclosing party's written authorization for use or release by the receiving party." 6 INDEMNIFICATION AND INSURANCE. ----------------------------- 6.1 Indemnification. --------------- TURBOCHEF and GRI agree to and hereby indemnify and save the other harmless from and against claims arising out of their own willful, wanton or negligent acts including but not limited to liability for injury to persons or damage to property arising out of the work done under this Contract including any and all expenses, costs, attorneys' fees, settlements, judgments or awards incurred in the defense of any claim or lawsuit. 6.2 Insurance. --------- 6.2.1 TURBOCHEF shall carry all necessary insurance in accordance with the statutory requirements of the jurisdiction in which the work will be performed. 4 6.2.2 TURBOCHEF, through its designee or subcontractor, shall have Comprehensive General Liability and (if applicable) Professional Liability insurance coverage in place, and shall maintain such insurance coverage during the term of this Contract. 7 NOTICE AND NOTICE ADDRESSES. --------------------------- 7.1 All notices to the parties under this Contract shall be in writing and sent to the names and addresses as set forth below. 7.2 Either party may change such name and address by notice to the other party in accordance herewith, and any such change shall take effect immediately upon receipt of such notice. 7.3 Gas Research Institute 8600 West Bryn Mawr Avenue Chicago, Illinois 60631 Attn: Contract and License Management Representative 7.4 TURBOCHEF Turbochef, Inc., 10500 Metric Drive, Suite 128 Dallas, Texas 75243 Attn: Dennis J. Jameson, Executive Vice President 8 PUBLICATION AND PUBLICITY RELEASES. ---------------------------------- 8.1 Any inquiry TURBOCHEF receives from news media concerning GRI's involvement in this Contract must be referred to the GRI Project Manager for coordination prior to response. The foregoing notwithstanding, both parties shall have the right to issue announcements and/or news releases regarding its participation in this Contract provided the content of such publication and/or news release is limited to identifying the parties involved in the Contract and the type of Work to be conducted and is not released without the prior written consent of the other party. 9 ASSIGNMENT AND SUBCONTRACTING. ----------------------------- 9.1 Except for an assignment to a wholly owned subsidiary, this Contract, including the rights and duties contained herein, may not be assigned, in whole or in part, by either party without the prior written consent of the other party. 10 TERM. ---- 10.1 This Contract shall continue for as long as TURBOCHEF receives royalties from the sales of Products by its licensees or until such time as the total Royalty paid to GRI has reached Four Million Dollars ($4,000,000.00) (or Eight Million Dollars ($8,000,000.00) if GRI exercises the Option set forth in paragraph 2.1.1 above). 11 GOVERNING LAW. ------------- 11.1 This Contract is offered by GRI and shall be governed by and construed in accordance with the laws of the State of Illinois excluding its conflict of law principles. 5 12 AMENDMENTS. ---------- 12.1 All matters affecting the terms of this Contract shall be referred to GRI's Contract and license Management Representative who shall be the only individual within GRI authorized on behalf of GRI to make changes in or amendments to this Contract, including but not limited to, changes in the scope of work, cost and deliverables. 13 BENEFIT: ENTIRE AGREEMENTS. -------------------------- 13.1 This Contract is binding upon and shall inure to the benefit of the parties hereto, their representatives, successors and assigns. No failure or successive failures on the part of GRI, its successors or assigns, to enforce any covenant or agreement, and no waiver or successive waivers on its or their part of any condition of this Contract shall operate as a discharge of such covenant, agreement, or condition, or render the same invalid, or impair the right of GRI, its successors and assigns, to enforce the same in the event of any subsequent breach or breaches by TURBOCHEF, its successors or assigns. 13.2 This Contract, and the Exhibits hereto, constitutes the entire agreement between the parties and supersedes all previous agreements and understandings, whether oral or written, express or implied, relating to the Work. This Contract may not be altered, amended, or modified except by written instrument signed by the duly authorized representatives of both parties. 14 INTELLECTUAL PROPERTY. --------------------- 14.1 Funding by GRI of the herein described research and development work, or any proposed extensions thereof, shall not alter or otherwise modify any of TURBOCHEF's rights concerning intellectual property. IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed by their duly authorized representatives as of the last date and year written below. TURBOCHEF TECHNOLOGIES, INC. GAS RESEARCH INSTITUTE By: /s/ Dennis J. Jameson By: /s/ Thomas O'Laughlin ---------------------- ---------------------- Dennis J. Jameson Thomas O'Laughlin Executive Vice President Associate General Counsel and Secretary July 29, 1999 July 29, 1999 --------------- --------------- Date Signed Date Signed 6 Schedule A. ---------- TurboChef Technologies, Inc./Gas Research Institute Gas Technology Funding Project Under the terms of the TurboChef/GRI Research and Development Contract, the payment of royalties by TurboChef to GRI for its receipt of royalties on certain products will result in a royalty earned by GRI as follows: 1. Royalties to be paid on the following products until GRI has received a * rate of return (IRR) on the total funds provided to TurboChef: . Gas/Electric - Residential ranges and wall ovens sold in North combination & America Electric only - Residential counter top ovens sold in North America - Residential counter top ovens sold in Europe . Gas/Electric - Residential ranges and wall ovens sold in Europe combination - Commercial counter top ovens sold in North America - Commercial `D'/'G' series ovens sold in North America - Commercial conveyor ovens sold in North America - Commercial counter top ovens sold in Europe - Commercial `D'/'G' series ovens sold in Europe - Commercial conveyor ovens sold in Europe 2. Royalties to be paid on the following products after GRI has received a * rate of return on the total funds provided to TurboChef: . Gas/Electric - Residential ranges and wall ovens sold in North combination America - Residential counter top ovens sold in North America - Residential ranges and wall ovens sold in Europe - Residential counter top ovens sold in Europe - Commercial counter top ovens sold in North America - Commercial `D'/'G' series ovens sold in North America - Commercial conveyor ovens sold in North America - Commercial counter top ovens sold in Europe - Commercial `D'/'G' series ovens sold in Europe - Commercial conveyor ovens sold in Europe 1 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Schedule B. ---------- WORK STATEMENT FOR TURBOCHEF TECHNOLOGIES, INC./GRI PROGRAM As of July 23, 1999 GAS TECHNOLOGY PLATFORM DEVELOPMENT: For both the commercial and residential markets, gas appliances are major segments. For example, 40% of the residential range market and 60% of the large commercial appliance market are gas. The projects associated with the development of this Platform are to enable shared gas technology for both residential and commercial applications. The program/project overviews are as follows: A. RESIDENTIAL GAS TECHNOLOGY PLATFORM: ----------------------------------- This Technology Platform will include a gas combustion system that will permit Maytag to access the residential (40%) gas market. It will be designed to be compatible with the large cavity electric unit, be compact with rapid recovery, and provide good efficiency without compromising the food quality. The gas oven platform project will have the following features: . 7X to 10X speed (compared to conventional ovens) . Compatible with a 30 inch wall oven, free standing range, and slide-in products . Wire rack (in place of the current ceramic platter) . Rapid defrost and self clean functions . Improved cleaning/wipe out (compared to the Hera) . Sound level comparable to an over the range microwave oven/hood . Optimized food quality . Unified control for double wall oven and f/s range products . Warming drawer on the f/s range B. COMMERCIAL GAS TECHNOLOGY PLATFORM: ---------------------------------- This Technology Platform will include a gas combustion system that will permit Blodgett to access the commercial (60%) gas market. It will be designed to be compatible with the electric unit, be compact with rapid recovery, and provide good efficiency without compromising the food quality. The gas technology will be applied to our new main commercial JIT product. This development has just begun with a planned introduction of * for the electric unit and * for the proposed gas configuration. * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 1 The commercial JIT gas oven system will have the following features: . 6X to 8X cooking speeds as compared to a commercial convection oven . common cavity design with electric unit sharing microwave and convection blower sections . Edge-to-edge platter heat transfer (maximum capacity design) . Front access for service of major elements . Improved cleaning characteristics (as compared to `D' model) . Recipe and controls settings for "gold standard" food quality production . Unified controls for both gas and electric ovens . System that does not require ventilation of cooking effluent (gas venting may be necessary depending on firing rate). . Compatible with counter format . Robust user interface PROJECT PLAN The projects will be executed in three phases, which have significant overlap: . Phase 1: Conception Through Initial Prototype: Development of the "proof of concept" and "works like" prototypes. Will last * . Phase 2: Works and Made Like and Reliability Testing: Execution of the accelerated life testing and field testing, and detail design/build of units. Will last * with testing continuing to product launch. . Phase 3: Final Design Through Production Ramp-Up: Development of the "looks like" and "made like" prototypes. Will last * with support continuing into production. Given the time to market considerations, a concurrent engineering approach to product development is being proposed. TurboChef will accelerate the project, by creating a joint Maytag, Blodgett, and TurboChef design/review team. This will reduce program risk, complexity, and development time as "hand-offs" or "over- the-wall" actions are eliminated. Phase I -- Product Development ------------------------------ Goal: Develop four "works like" prototype units that will demonstrate the gas technological capabilities that will be inherent in the new gas oven. Exterior design and desired service features would be incorporated into the unit designs as much as possible. Task 1: Develop design specifications for the gas oven cavity TC will: . Review countertop performance to date and identify design improvements. * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 2 . Set cavity size and heating needs based on product and through put . Assess components and elements of the latest countertop unit that can be carried over (e.g.: key elements of the microwave circuit). . Establish performance goals for cooking, cleaning, installation needs, etc. . Assess installation requirements (e.g.: size, available power, door swing/crew clearance) . Set reliability goals by subsystem and oven (identify need for redundant components and manual operation) . Define interface options. . Set manufacturing cost targets for key subsystems and overall product. Task 2: Develop/refine the "proof-of-concept" unit for the TurboChef gas system TC will: . Model key energy systems (microwave, air delivery, and gas combustion). . Model the catalyst system (main and vent catalyst). . Develop initial product design for grease management and ease of cleaning and service. The self-clean option will be reviewed. . Develop electronics and controls design and transform this into functional specifications for the control supplier. . Conduct team design reviews. . Develop engineering drawings (starting point will be the electric designs). . Fabricate 3 proof of concept units . Review POC units against specifications. In particular, conduct preliminary cooking and through put tests. . Finalize product specifications and set design direction. Task 3: Develop interface/controls for the gas oven. This task will be largely outsourced and managed by TurboChef TC will: . Qualify and select potential supplier(s) for the interface/controls. TC will work with two suppliers in order to reduce risk . Build and transfer one unit for each supplier (i.e., 2 units in total) to the selected suppliers to assist in their development work . Oversee development activity. (Note: To meet the schedule, interface/controls designs will be based on the electric controls). Task 4: Develop "works-like" and preliminary "made-like" units. TurboChef and our OEM partner will: . Build/upgrade works-like units . Incorporate all major manufacturability issues . Re-test design through formal design reviews (Product and Process FEMA's) . Define test protocols for food product tests and evaluate units . Refine models in process (See task 2) . Subject microwave system to initial certification testing and initial NSF review 3 . Begin certification effort (requirements, schedules,) . Major design review. Phase II-- Detailed Design/Reliability -------------------------------------- Goal: Develop "works like/looks like" units that will have the attributes that are required for finished products. A final round of design fine-tuning will be needed to incorporate the feedback that is received through the testing process in Phase III. Task 5: Create units for Life Cycle Testing, Field Test (of complete systems) and Recipe Development TC will: . Conduct value engineering exercise on the unit . Finalize detailed product designs for full systems . Build 3 units to this design and conduct a design review . Build Beta, ALCT, and Engineering units Task 6: Develop and Execute Accelerated Life Cycle Testing TC will: . Design statistically valid test and data analysis procedures . Set up testing facility and install the units . Update test units as new components become available . Analyze data and feedback design improvements to the design team Task 7: Develop and Execute Field Study (with our market partners) TC will: . Identify possible users for lead user tests around the country . Develop data collection protocol and ethnography analyses. . Execute usage and data collection agreements. . Collect and analyze data Task 8: Develop cook settings and evaluate products relative to product standards TC will: . Complete cooking tests and develops oven settings for gas version (number of events, microwave power cycle, convection cycle, time per event) . Validate that the ovens produce high quality foods at the desired speeds. 4 Phase III -- Transfer to Manufacturing and Ramp-up -------------------------------------------------- Goal: Develop final designs, transfer technology to the manufacturer and assist with ramping up manufacturing. TurboChef's market/manufacturing partners will undertake much of the work as we transition into manufacturing. Task 9: Develop Final Design (last task in program) TC will: . Incorporate findings from Accelerated Life Cycle Testing and Field Testing . Incorporate new interface and controls . Review value engineering study an FEMA results and incorporate as required . Assess final manufacturability issues . Develop final engineering drawings . Build units for final review and testing Task 10: Build "made-like" units and obtain certification (continuing support provided by TurboChef) TC will assist in: . Building units for certification, and for additional lifecycle testing and partner review . Obtaining certification Task 11: Production Ramp-Up and Quality Assurance (continuing support) TC will: . Base staff at manufacturing plant to ensure smooth technology transfer, quality assurance and address any last-minute engineering issues. 5 WARRANT AGREEMENT ----------------- THIS WARRANT AGREEMENT (Agreement) is made and entered into as of July 29, 1999 by and between TURBOCHEF TECHNOLOGIES, INC., a Delaware Corporation (the "Company") and GAS RESEARCH INSTITUTE (hereinafter referred to as "GRI"). WITNESSETH: ---------- WHEREAS, the Company proposes to issue to GRI warrants ("Warrants") to purchase up to 50,000 shares (the "Shares") of common stock of the Company, $.O1 par value per share (the "Common Stock"); and WHEREAS, GRI has agreed, pursuant to that certain Research and Development Agreement (the R & D Agreement") dated as of July 30, 1999 between GRI and the Company, to provide the Company with funding for certain rapid cook product development; and WHEREAS, the Warrants issued pursuant to this Agreement are being issued by the Company to GRI in consideration for, and as part of GRI's compensation in connection with the R & D Agreement. NOW, THEREFORE, in consideration of the premises, the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. ----- GRI is hereby granted the right to purchase, at any time before five (5) years after the sale of the fifty thousandth (50,000) gas or electric residential cooking range or wall oven upon which TURBOCHEF has paid a royalty to GRI.(the "Warrant Exercise Term"), up to 50,000 Shares of Common Stock at an initial exercise price (subject to adjustment as provided in Section 8 hereof) of $13.87 per Share. 2. Warrant Certificates. -------------------- The warrant certificates (the "Warrant Certificates") delivered and to be delivered pursuant to this Agreement shall be in the form set forth as Exhibit A, attached hereto and made a part hereof, with such appropriate - --------- insertions, omissions, substitutions and other variations as required or permitted by this Agreement. 1 3. Exercise of Warrants. -------------------- The Warrants initially are exercisable at a price of $13.87 per Share, payable in cash or by check to the order of the Company, or any combination of cash or check, subject to adjustment as provided in Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares purchased, at the Company's principal offices in Dallas, Texas (presently located at 10500 Metric Drive, Suite 128, Dallas, Texas 75243) GRI shall be entitled to receive a certificate or certificates for the Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of GRI hereof, in whole or in part (but not as to fractional shares of the Common Stock). In the case of the purchase of less than all the Shares purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares purchasable thereunder. 4. Issuance of Certificates ------------------------ Upon the exercise of the Warrants, the issuance of certificates for the Shares shall be made forthwith (and in any event within five (5) business days thereafter) without charge to GRI thereof and such certificates shall (subject to the provisions of Section 5 hereof) be issued in the name of GRI thereof. The Warrant Certificates and the certificates representing the Shares shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrant Certificates shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. The Warrant Certificates and, upon exercise of the Warrants, in part or in whole, certificates representing the Shares shall bear a legend substantially similar to the following: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the Company of an opinion of counsel, reasonably satisfactory to counsel to the issuer, stating that an exemption from registration under such Act is available." 5. Restriction on Transfer of Warrants. ----------------------------------- 2 GRI, by its acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof, and that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof. 6. Price. ----- 6.1 Initial and Adjusted Exercise Price. The initial exercise price of each ----------------------------------- Warrant shall be $13.87 per Share. The adjusted exercise price shall be the price, which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Article 8 hereof. 6.2 Exercise Price. The term "Exercise Price" herein shall mean the initial -------------- exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. ------------------- 7.1 Registration Under the Securities Act of 1933. The Warrants and the --------------------------------------------- Shares have not been registered for purposes of public distribution under the Securities Act of 1933, as amended ("the Act"). 7.2 Piggyback Registration Rights. ----------------------------- If, at any time prior to July 31, 2005, the Company shall file a registration statement (other than on Form S-4 or Form S-8, or any successor form) with respect to its Common Stock with the Securities and Exchange Commission while Shares are available for purchase pursuant to exercise of a Warrant or while any Shares issued upon the exercise of a Warrant (which have not been so registered) are outstanding, the Company shall give GRI at least fifteen (15) days prior written notice of the filing of the proposed registration statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered. If requested by GRI in writing within seven (7) days after receipt of any such notice, the Company shall use its best efforts to register or qualify the Shares of GRI that the Shares of Common Stock be registered concurrently with the registration of such other securities, all of the extent required to permit the public offering or sale of the Shares through the facilities of the over-the-counter or appropriate stock exchange market. Notwithstanding the foregoing, if, in the case of an underwritten offering by the Company, the managing underwriter of such offering shall advise the Company in writing that, in its opinion, the distribution of all or a portion of the Shares requested to be included in the registration concurrently with the securities being registered by the Company would materially adversely affect the distribution of such securities by the Company, then the Company shall promptly furnish GRI with a copy of such opinion and may require, by written notice to GRI accompanying such opinion, that the distribution of all or a specified portion of such Shares be excluded from such distribution. The Company shall pay all costs of any registration of Shares under this Section 7.2, except that fees and disbursements to GRI's counsel and the underwriting discounts payable in respect of the 3 Shares held by GRI shall be borne entirely by GRI. In connection with any registration of Shares pursuant to this Section 7.2, GRI shall furnish the Company with such information concerning GRI in the proposed sale or distribution as shall, in the opinion of counsel for the Company, be required for use in the preparation of the registration statement or any amendment (including post-effective amendments) thereto. Notwithstanding the provisions of this Section 7.2, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.2 (irrespective of whether any written request for inclusion of such securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof. 8. Adjustments of Exercise Price and Number of Shares. -------------------------------------------------- 8.1 Computation of Adjusted Price. In case the Company shall at any time ----------------------------- after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Exercise Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) An amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution, by (b) The total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this Section 8.1, the following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. 8.2 Subdivision and Combination. In case the Company shall at any time --------------------------- subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased the case of combination. 8.3 Adjustment in Number of Shares. Upon each adjustment of the Exercise ------------------------------ Price pursuant to the provisions of this Section 8, the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full Share by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 4 8.4 Reclassification, Consolidation, Merger, etc, In case of any -------------------------------------------- reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, GRI shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if GRI were the owners of the shares of Common Stock underlying the Warrants immediately prior to any such events at a price equal to the product of (x) the number of shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if GRI had exercised the Warrants. 9. Exchange and Replacement of Warrant Certificates. ------------------------------------------------ Each Warrant Certificate is exchangeable without expense, upon the surrender hereof by GRI at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Shares in such denominations as shall be designated by GRI thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the warrants, if mutilated, the Company will make and deliver a new warrant Certificate of like tenor, in lieu thereof. 10. Payment of Taxes ---------------- The Company shall not be required to pay any transfer, documentary, stamp or other taxes imposed under any federal, state or local laws on Warrant Certificates issued pursuant to transfers or exchanges or under any other circumstances. The Company shall not be required to pay any tax or taxes or government charges of any kind that may be payable in respect of any issuance of any stock certificates for Shares, any certificates or other instruments for any other securities, or any other property purchased upon exercise of a Warrant. The Company shall not be required to issue or deliver such stock certificates, certificates or other instruments for other securities, or other property unless or until the person 5 requesting the issuance thereof shall have paid to the Company the amount of any such tax or government charge or shall have established to the satisfaction of the Company that such tax or government charge has been paid. 11. Elimination of Fractional Interests. ----------------------------------- The Company shall not be required to issue certificates representing fractions of shares of Common Stock and shall not be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. 12. Reservation of Securities ------------------------- The Company covenants to at all times keep reserved and available, for the purpose of effecting the exercise of the Warrants, free from preemptive rights, out of its authorized but unissued Common Stock the full number of shares of Common Stock sufficient to provide for the exercise of all rights of purchase represented by all outstanding Warrants; and upon issuance and delivery of such shares to GRI when exercising the Warrant and upon payment of the Exercise Price, good and valid title to such shares for which the Warrant is exercised, free and clear of all liens, encumbrances, equities or claims will pass to GRI. The registrar for the Common Stock will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be requisite for such purpose. The Company will keep a copy of this Agreement on file with the registrar for the Common Stock. 13. Notices to Warrant Holder. ------------------------- Nothing contained in this Agreement shall be construed as conferring upon GRI the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or 6 (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 14. No Rights as Shareholders. ------------------------- Except as otherwise provided in Section 13 hereof, nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon GRI the right to vote, receive dividends or to be deemed for any purpose the holder of Shares or of any other securities of the Company that may at any time be issuable on the exercise of the Warrant Certificates, nor shall anything contained herein or in the Warrant Certificates be construed to confer upon the GRI, as such, any of the rights of a Shareholder of the Company or any right to vote on matters submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or, without limitation, otherwise) or, except as provided in Section 13, to receive notice of meetings, or to receive subscription rights or otherwise, until the Warrants evidenced by the Warrant Certificates shall have been exercised as provided herein. 15. Notices. ------- All instructions, notices and other communications to be given to any party hereto shall be in writing and shall be personally delivered or sent by first class or certified mail, postage prepaid and return receipt requested, and shall be deemed to be given for purposes of this Agreement on the day when delivered to the intended party at its address specified below: (a) If to the Company: TurboChef Technologies, Inc. 10500 Metric Drive, Suite 128 Dallas, TX 75243 Attn: Chief Financial Officer 7 or such other address as the Company may designate from time to time by written notice to the registered Holder. (b) If to the registered Holder: Gas Research Institute 3600 Bryn Mawr Chicago, IL 60631-3562 Attn: Contract and License Management Department 16. Successors. ---------- All the covenants and provisions of this Agreement by or for the benefit of the Company and GRI inure to the benefit of their respective successors and permitted assigns hereunder. 17. Termination. ----------- This Agreement shall terminate at the close of business on July 31, 2005. Notwithstanding the foregoing, this Agreement will terminate on any earlier date when all Warrants have been exercised and all the Shares issuable upon exercise of the Warrants have been resold to the public. 18. Governing Law. ------------- This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the substantive laws of the State of Texas and for all purposes shall be construed in accordance with the laws of said State. 19. Jurisdiction and Venue. ---------------------- Any judicial proceedings brought by or against any party on any dispute arising out of this Agreement or the Warrants or any matter related thereto shall be brought in the state or federal courts of Dallas County, Texas and, by execution and delivery of this Agreement, each of the parties accepts for itself the exclusive jurisdiction and venue of the aforesaid courts as trial courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement and the Warrants after exhaustion of all appeals taken (or by the appropriate appellate court if such appellate court renders judgment). 20. Benefits of This Agreement. -------------------------- Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and GRI, Warrants or the Shares any legal or equitable right, remedy or claim 8 under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and GRI. 21. Counterparts. ------------ This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. THE COMPANY: GRI: TURBOCHEF TECHNOLOGIES, INC. GAS RESEARCH INSTITUTE By: /s/ Dennis J. Jameson By: /s/ Thomas C. O'Laughlin -------------------------- ---------------------------- Name: Dennis J. Jameson Name: Thomas C. O'Laughlin Title: Executive Vice President and Title: Associate General Counsel & Chief Financial Officer Secretary 9 EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE PURSUANT TO THAT WARRANT AGREEMENT DATED JULY 29, 1999 No. W-1 50,000 Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that Gas Research Institute ("GRI") is the registered holder of 50,000 Warrants to purchase at any before five (5) years after the sale of the fifty thousandth (50,000) gas or electric residential cooking range or wall oven upon which Company has paid a royalty to GRI ("Expiration Date") up to 50,000 shares ("Shares") of fully-paid and non-assessable common stock, $.01 par value ("Common Stock"), of TurboChef Technologies Inc., a Delaware corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $13.87 per Share upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of July 29, 1999 between the Company and GRI (the "Warrant Agreement"). Payment of the Exercise Price may be made in case, or by certified or official bank check in Dallas, Texas Clearing House funds payable to the order of the Company, or any combination of cash or check. No Warrant may be exercised after 5:00 P.M., Dallas, Texas time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the 10 Warrants The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of GRI, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to GRI a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the GRI as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to GRI, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate, which are defined in the Warrant Agreement, shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused the Warrant Certificate to be duly executed under its corporate seal. Dated: July 29, 1999 TURBOCHEF TECHNOLOGIES INC. [SEAL] Attest: By: /s/ Dennis J. Jameson ------------------------- Name: Dennis J. Jameson Title: Executive Vice President and Chief Financial Officer ________________________ 11 (FORM OF ELECTION TO PURCHASE) The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ________ Shares and herewith tenders in payment for such Shares cash or a certified or official bank check payable in Dallas, Texas Clearing House Funds to the order of _______________ in the amount of $ __________ all in accordance with the terms hereof. The undersigned requests that a certificate for such Shares be registered in the name of ________________, whose address is ______________, and that such Certificate be delivered to _________________, whose address is _________________. Dated: _________________ GAS RESEARCH INSTITUTE By:____________________________ Name:__________________________ Title:_________________________ (Signature must conform in all respects to GRI as specified on the face of the Warrant Certificate.) 12 [FORM OF ASSIGNMENT] (To be executed by GRI if GRI desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED _______________________________ hereby sells, assigns and transfers unto ______________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ______________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated:______________________ GAS RESEARCH INSTITUTE By:________________________ Name:______________________ Title:_____________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) 13 EX-10.37 3 LISCENSE AGREEMENT EXHIBIT 10.37 LICENSE AGREEMENT ----------------- THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of the 28th day of October, 1999, by and between TURBOCHEF TECHNOLOGIES, INC., a Delaware corporation, (hereinafter called "Licensor") and MAYTAG CORPORATION, a Delaware corporation (hereinafter called "Licensee"). WITNESSETH: ---------- WHEREAS, Licensor and Licensee have entered into that certain Strategic Alliance Agreement dated September 26, 1997 ("SAA"), pursuant to which the parties agreed to work together in the development and commercialization of highly innovative products based on leading edge technologies with respect to heat transfer, thermodynamics and controls; and WHEREAS, pursuant to the SAA, the parties have executed, among other documents, that certain Commercial Cooking Appliance Agreement dated July 29, 1998 ("CCAP") regarding the development of commercial cooking appliances and related technologies and software (collectively, "Commercial Cooking Systems"); and WHEREAS, Licensor is the sole and exclusive owner of Letters Patent of the U.S. No. 5,254,823 entitled QUICK COOKING OVEN, issued October 19, 1993 ("823 Patent") and No. 5,434,390 entitled QUICK COOKING OVEN, issued July 18, 1995 ("390 Patent") and No. 5,558,793 entitled QUICK COOKING OVEN, issued September 24, 1996 ("793 Patent"), and U.S. No. 5,927,265 entitled RECYCLING COOKING OVEN WITH CATALYTIC CONVERTER, issued July 27, 1999 ("265 Patent"); and WHEREAS, Licensor is the sole and exclusive owner of U.S. Patent Application No. 09/053/960 entitled APPARATUS FOR SUPPLYING MICROWAVE ENERGY TO A CAVITY, filed April 2, 1998, now allowed, and U.S. Patent Application No. 09/064/988 entitled SYSTEM FOR RAPID AIR TEMPERATURE MODIFICATION IN A RECIRCULATING OVEN, filed April 23, 1998, and U.S. Patent Application No. 09/169/523 entitled APPARATUS FOR SUPPLYING MICROWAVE ENERGY TO A CAVITY, filed October 9, 1998; now allowed, and U.S. Patent Application No. 09/199/902 entitled QUICK-COOKING RESIDENTIAL OVEN, filed November 24, 1998; and WHEREAS, Licensor has applied for patent coverage with regard to inventions which may be incorporated into the Commercial Cooking Systems in other parts of the world, including Canada; and WHEREAS, Licensor has other proprietary technology that Licensor intends to protect through patents and other forms of intellectual property protection; and WHEREAS, Licensee desires to obtain certain licenses to use the Licensed Patents (as hereinafter defined) and the Intellectual Property (as hereinafter defined) in the manufacture and sale of certain licensed products; and WHEREAS, Licensor has the power and authority to grant to Licensee such licenses. NOW, THEREFORE, in consideration of the premises and of the undertakings of the parties herein contained, the sufficiency whereof being hereby acknowledged by each of them, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS ----------- 1.01 Certain Definitions. The terms specified in this Section 1.01 shall, ------------------- for all purposes of this Agreement, have the meanings herein specified, unless the context expressly or by necessary implication otherwise requires. Affiliate. The term "Affiliate" shall mean, with respect to any Person, any --------- other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. Intellectual Property. The term "Intellectual Property" means any --------------------- copyrights, whether registered or unregistered, mask works, and other copyrightable works (the "Copyrights"); any computer software applications, software systems, tools, interfaces, in any form, including object code and source code, in any media, and related documentation (the "Software"); and any proprietary inventions, discoveries, improvements, know-how, show-how, works-in- progress, processes, designs, concepts, technologies, ideas, customer information, customer lists, marketing strategies, market research, industrial designs and any other trade secrets (collectively, the "Trade Secrets"). Licensed Products. The term "Licensed Products" means the dual cavity or ----------------- * and the single cavity counter top cooking unit and substantially similar commercial cooking products as to functionality, which are designed utilizing the Licensed Patents and/or the Intellectual Property. Licensed Patents. The term "Licensed Patents" means (i) the 823 Patent, the ---------------- 390 Patent, the 793 Patent and the 265 Patent (collectively, the "Basic Patents"), (ii) any patent issued on an application which has been or may be filed relating to the disclosure contained in the applications that led to any of the Basic Patents and any and all foreign counterparts of such Basic Patents, which may be filed in Canada or Mexico, all as the same may be amended, modified, reissued, reexamined or revised hereafter. * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 2 Person. The term "Person" means an individual, corporation, partnership, ------ trust, unincorporated organization or a government or any agency or political subdivision thereof. Sold. The term "Sold" shall mean the time at which Licensed Products are ----- first billed, shipped or delivered by Licensee to a customer other than any of Licensee's Affiliates. In the case of consignment transactions, Licensed Products shall be deemed to have been sold when Licensee has processed a withdrawal notice. A lease or other disposition of a Licensed Product by which a right of possession, sale and/or use (except non-commercial experimental use) of a Licensed Product is transferred by Licensee to a third party, shall be deemed to be a sale hereunder. For purposes of this Agreement, all Licensed Products shall be deemed to be Sold in the United States of America. Territory. The term "Territory" means the United States of America, Canada, --------- Mexico and the Caribbean Islands. Trademark. The term "Trademark" means Licensor's trademark --------- TurboChef/(R)/. 1.02 Other Definitions. In addition to the terms defined in Section 1.01 ----------------- hereof, certain other terms are defined elsewhere in this Agreement, and whenever such terms are used in this Agreement, they shall have their respective defined meanings, unless the context expressly or by necessary implication otherwise requires. ARTICLE II SCOPE ----- 2.01 Grant of Exclusive Licenses. Licensor hereby grants to Licensee the --------------------------- necessary right, license and authority for the period commencing on the date hereof and ending on March 31, 2002, and subject to the provisions of this Agreement: A. To market, distribute, use and sell the Licensed Products on an exclusive basis in the Territory to commercial foodservice establishments, including, but not limited to, commercial food service businesses, restaurants, hotels and lodging businesses, supermarkets and convenience stores. B. To use the Trademark (i) on the Licensed Products manufactured or assembled in the Territory, and (ii) in connection with marketing, selling and distributing the Licensed Products in accordance with this Agreement. C. Licensee shall be permitted to export Licensed Products on an exclusive basis only in connection with the sale of Licensed Products to multi-national foodservice businesses which have their principal executive offices in the Territory pursuant to written sales agreements with such multi-national foodservice businesses which calls for the sale of the Licensed Products to 3 such businesses or any commercial foodservice Affiliate thereof outside of the Territory; provided, that no Licensed Product shall -------------- be exported to, or sold for installation or use in the United Kingdom, without the prior written consent of Licensor. 2.02 Grant of Non-Exclusive Licenses. -------------------------------- A. Licensor hereby grants to Licensee the necessary right, license and authority for the period commencing on the date hereof and ending on March 31, 2002, and subject to the provisions of this Agreement: (i) To manufacture and assemble, and to have manufactured and assembled, the Licensed Products on a non-exclusive basis in the Territory according to the Intellectual Property and Licensed Patents and the Intellectual Property furnished by Licensor; and (ii) Licensee shall be permitted to export Licensed Products outside of the Territory on a non-exclusive basis in connection with sales of Licensed Products to multi-national foodservice businesses and their commercial foodservice Affiliates, provided, that, Licensee establishes a -------------- relationship with such multi-national foodservice business and such business has its principal executive offices in the Territory. Notwithstanding the foregoing, Licensee shall not export any Licensed Product outside of the Territory if such exported Licensed Product is sold for installation or use in the United Kingdom, without the prior written consent of Licensor. B. Licensor hereby grants to Licensee the necessary right, license and authority for the period commencing on April 1, 2002 and ending upon the termination of this Agreement and subject to the provisions of this Agreement: (i) To manufacture and assemble, and to have manufactured and assembled, the Licensed Products on a non-exclusive basis in the Territory according to the Licensed Patents and the Intellectual Property furnished by Licensor; (ii) To market, distribute, use and sell the Licensed Products on a non-exclusive basis in the Territory to commercial foodservice establishments, including, but not limited to, commercial food service businesses, restaurants, hotels and lodging businesses, supermarkets and convenience stores; 4 (iii) To use the Trademark (i) on the Licensed Products manufactured or assembled in the Territory, and (ii) in connection with marketing, selling and distributing the Licensed Products in accordance with this Agreement; and (iv) Licensee shall be permitted to export Licensed Products outside of the Territory on a non-exclusive basis in connection with sales of Licensed Products to multi-national foodservice businesses and their commercial foodservice Affiliates, provided, that, Licensee establishes a -------- ---- relationship with such multi-national business and such business has its principal executive offices in the Territory. Notwithstanding the foregoing, Licensee shall not export any Licensed Product outside of the Territory if such exported Licensed Product is sold for installation or use in the United Kingdom, without the prior written consent of Licensor. 2.03 Grant of Exclusive Rights Regarding * . ------------------------------------------------------------- Licensor hereby grants to Licensee the exclusive right to market, distribute and sell the Licensed Products to * and its commercial foodservice Affiliates throughout the world during the period commencing on the date of this Agreement and ending on March 31, 2003 (the * Exclusivity Period"); provided, that, * approves -------------- Licensee as the single source of supply for the Licensed Products. In the event that during the * Exclusivity Period, * requests one or more additional sources of supply of the Licensed Products, then Licensor and Licensee shall mutually designate such additional sources of supply. In the event that within one hundred and twenty (120) days after the date that * requests one or more additional sources of supply of the Licensed Products, Licensor and Licensee are unable to agree as to the requested additional sources of supply, then * shall have the right to designate such additional sources of supply. 2.04 Extension of Exclusive Licenses and Rights. Licensor and Licensee ------------------------------------------ acknowledge and agree that the commercial launch of the Licensed Products currently under development (the single cavity counter top cooking unit and the dual cavity or * by * is critically important to the parties. Accordingly, the parties shall use their respective best efforts to achieve the commercial launch of such products prior to such date. However, in the event that the commercial launches for both of these products do not occur prior to * the Licensee may request that the respective exclusivity periods contemplated by Section 2.01 and Section 2.03 be extended for up to three (3) additional months and such requested extension shall be granted by Licensor; provided, that, at the time of -------------- such request Licensee is otherwise in compliance with the terms of this Agreement. 2.05 Early Termination of Exclusive Licenses and Rights. In the event -------------------------------------------------- that during the period commencing on April 1, 2000 and ending March 31, 2001, the cumulative actual royalties payable by Licensee to Licensor pursuant to Section 4.02 hereof are more than twenty percent (20%) less than the minimum royalty payment due from Licensee for such period, Licensor shall have the option to terminate the exclusive licenses and rights granted to Licensee pursuant to Section 2.01 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 5 hereof. Licensor shall exercise such option by (i) providing Licensee with written notice thereof, and (ii) no later than June 30, 2001, reimbursing Licensee an amount equal to fifty percent (50%) of the development fees paid to Licensor by Licensee with respect to the single cavity counter top cooking unit pursuant to Section 4.01 hereof. Provided that Licensor properly exercises such early termination option in accordance with the preceding sentence, all exclusive licenses and rights granted by Licensor to Licensee pursuant to section 2.01 hereof shall terminate on August 31, 2001. 2.06 Reasonable Efforts of License. During the term of this Agreement, ----------------------------- Licensee agrees to use all reasonable commercial efforts to promote the commercialization of the Licensed Patents and the Intellectual Property through Licensee's manufacturing, marketing and selling of the Licensed Products in the Territory and to * . 2.07 Reservation of Rights. Notwithstanding anything contained in this ---------------------- Article II to the contrary, all licenses and rights granted to Licensee hereunder shall be subject to a reserved, non-exclusive, non-assignable license in Licensor to manufacture, assemble, have manufactured and assembled, market, distribute, use and sell any apparatus embodying any of the Licensed Patents and/or the Intellectual Property anywhere in the world; provided, that neither -------------- Licensor nor any of its licensees shall have any license or right to distribute or sell any Licensed Products in the Territory during such period as the exclusive rights and licenses granted to Licensee pursuant to Section 2.01 are in effect. 2.08 Non-Exclusive Arrangement. Subject to the confidentiality ------------------------- provisions contained in Article VI hereof, Licensor and Licensee shall each have the right to participate in, propose, support or agree to participate in, propose or support, the development and/or commercialization of any commercial cooking system or appliance; provided, that, (i) Licensor shall not have the -------------- right to directly or indirectly market, distribute or sell any commercial cooking system or appliance in violation of the provisions of Sections 2.01 and 2.03, to the extent then in effect, (ii) Licensee shall not have the right to directly or indirectly market, distribute or sell any Rapid Cook Cooking Appliance in the Territory during the period that the exclusive licenses and rights granted to Licensee pursuant to Section 2.01 are in effect, and (iii) Licensee shall not have the right to directly or indirectly market, distribute or sell any Rapid Cook Cooking Appliance to * or any of its Affiliates anywhere in the world during the period that the exclusive licenses and rights granted to Licensee pursuant to Section 2.03 are in effect. For purposes of this Agreement, the term "Rapid Cook Cooking Appliance" shall mean any commercial cooking appliance or system which is designed to cook food at more than three (3) times the speed that the standard commercial convection oven in existence as of the date of this Agreement can cook food, excluding the Licensed Products. Notwithstanding the foregoing, Licensor and Licensee may mutually agree to work together in the development and/or commercialization of any Rapid Cook Cooking Appliance which utilizes intellectual property other than the Licensed Patents and Licensor's Intellectual Property. In the event that Licensor and Licensee mutually agree not to develop and/or commercialize a particular Rapid Cook Cooking Appliance, than Licensee may pursue alternative technologies to meet the customer's requirements. * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 6 ARTICLE III DEVELOPMENT OF LICENSED PRODUCTS -------------------------------- 3.01 Development of Licensed Products. During the period commencing on the -------------------------------- date of this Agreement and ending approximately on May 1, 2000, Licensor shall assist Licensee in developing the dual cavity or * proof of concept prototype, based upon specifications provided by Maytag. During the period commencing on the date of this Agreement and ending approximately on April 30, 2000, Licensor shall assist Licensee in developing the single cavity counter top cooking unit, based upon specifications provided by Maytag. 3.02 Termination of Development Arrangement. Licensee may terminate -------------------------------------- either development arrangement described in Section 3.01 upon providing thirty (30) days prior written notice to Licensor. In the event that Licensee provides such notice to Licensor, Licensee's obligation to pay the development fees set forth on Schedule A with respect to such Licensed Product shall terminate as of ---------- the effective date of the termination of development arrangement with respect to such Licensed Product. Under no circumstances shall Licensee be entitled to any refund of any development fees paid to Licensor. 3.03 Training at Licensee Facilities. At the written request of Licensee -------------------------------- and upon reasonable prior notice, Licensor will dispatch a reasonable number of qualified technical personnel to visit Licensee for such period of time as may be mutually agreed upon, to act as consultants to Licensee on matters pertaining to the manufacture, quality control, inspection and testing of the Licensed Products. Licensee agrees to reimburse Licensor for all costs and expenses for such training, including all traveling and reasonable living expenses incurred by Licensor's technical employees, and to pay Licensor such other fees as the parties may mutually agree upon. ARTICLE IV PAYMENTS -------- 4.01 Development Fees. In consideration of the assistance given and to be ---------------- given under the terms of this Agreement, Licensee shall pay to Licensor the development fees set forth on Schedule A hereto at the times and in the manner ---------- described therein. 4.02 Royalty Payments. In consideration of the licenses granted by ---------------- Licensor hereunder, during the term of this Agreement Licensee shall pay to Licensor, in respect of all Licensed Products, the royalties as set forth on Schedule B hereto. - ---------- 4.03 Payment of Royalties. The royalties due to Licensor under this -------------------- Agreement shall be remitted to Licensor promptly not later than forty-five (45) days after the end of every fiscal quarter of Licensee. Such amounts shall be payable in U.S. dollars. If Licensee issues partial invoices, such * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. 7 partial invoices shall cause payment of proportional royalties to Licensor. Any amount not paid when due shall bear interest at the lesser of (i) the rate of one percent (1%) per month, and (ii) highest rate per month permitted by applicable law, until the date of payment. 4.04 Periodic Statements. During the term of this Agreement, within forty- ------------------- five (45) days after the end of every fiscal quarter of Licensee, Licensee shall furnish to Licensor a written statement setting forth all calculations relating to the royalties, including, without limitation, the quantities, models, gross margins and net sales of the Licensed Products manufactured and/or Sold by Licensee during such quarter. Such written statements shall be furnished by Licensee to Licensor regardless of whether any Licensed Products were Sold during the fiscal quarter or whether any royalties were payable to Licensor. 4.05 Books and Records. Licensee shall keep at its usual place of business ----------------- all such proper books of account and records as may be necessary to enable the royalties hereunder to be accurately ascertained and shall permit Licensor's duly authorized representatives to audit and investigate the same during Licensee's regular business hours, at Licensor's own expense; provided, however, -------- ------- that if Licensor identifies any inaccuracies in such books of account and/or records to the detriment of Licensor which aggregate One Hundred Thousand Dollars ($100,000.00) or more then the costs of such audit and/or investigation shall be paid by Licensee. Licensee agrees that all books of account and records with respect to the Licensed Products and/or the royalties payable to Licensor under this Agreement shall be maintained by Licensee and made available for inspection by Licensor for a period of two (2) years after the termination of this Agreement. 4.06 Taxes. Should Licensee be required by any governmental authorities to ----- withhold or pay any amount of taxes on account of any payment due to Licensor hereunder, such amounts may be deducted from payments to Licensor. The proof that such payments have been made shall be timely furnished to Licensor for its use in obtaining tax credits. ARTICLE V ENHANCEMENTS ------------ 5.01 Ownership of Enhancements. Any improvement, modification, discovery, ------------------------- process, know-how, derivative work, or other enhancement ("Enhancement") based upon, or related to any Licensed Patent or any of Licensor's Intellectual Property that is created, invented or discovered in connection with this Agreement shall be owned exclusively by Licensor. 5.02 Limited License to Use Enhancements. During the period that the ----------------------------------- exclusive licenses and rights granted to Licensee pursuant to Section 2.01 hereof are in effect, if Licensee shall have contributed to the development, creation or discovery of an Enhancement based upon, or related to, any Licensed Patent or any of Licensor's Intellectual Property, upon Licensee's request, Licensor shall grant to Licensee a limited, exclusive, non-assignable license at a reasonable royalty rate to use such Enhancement in accordance with the terms and conditions of a license to be mutually agreed upon by the parties. Thereafter, during the term of this Agreement, if Licensee shall have contributed to the 8 development, creation or discovery of an Enhancement based upon, or related to, any Licensed Patent or any of Licensor's Intellectual Property, upon Licensee's request, Licensor shall grant to Licensee a limited, non-exclusive, non- assignable, revocable license at a reasonable royalty rate to use such Enhancement in accordance with the terms and conditions of a license agreement to be mutually agreed upon by the parties. 5.03 Prosecution of Patent Applications or Other Protection for ---------------------------------------------------------- Enhancements. Licensee will reasonably cooperate and execute all documents - ------------ reasonably required to assist Licensor to file and prosecute any patent application or obtain other protection for any Enhancement. ARTICLE VI CONFIDENTIALITY --------------- 6.01 Confidential Information. Information communicated by one party ------------------------ (the "Disclosing Party") to the other (the "Receiving Party") pursuant to this Agreement which the Disclosing Party considers confidential shall, when communicated in documentary form or on computer tape or disc or transmitted electronically, be marked, or designated, as "Confidential." In the event information is communicated orally or by transfer of non-documentary materials, the confidential nature of such information shall be confirmed to the Receiving Party in writing within twenty (20) days after such disclosure. "Confidential Information" shall mean any and all information in any form with respect to the Disclosing Party's technical or business matters which are designated by the Disclosing Party as "Confidential" in the manner set forth above. Notwithstanding the provisions of this Section 6.01, as to those subjects within Licensor, it is agreed that all disclosure of information with respect to said subjects shall be considered "Confidential Information," regardless of the form in which it is communicated and whether marked "confidential" or not, unless otherwise indicated in writing by the Disclosing Party. 6.02 Maintenance of Confidentiality. During the term of this Agreement ------------------------------ and for a period of five (5) years thereafter, the Receiving Party shall maintain all Confidential Information of the Disclosing Party in strict confidence, shall not publish, disseminate, disclose or otherwise make such Confidential Information available to any third party, and shall not use such Confidential Information for any purpose other than for the benefit of the Disclosing Party in a manner approved by the Disclosing Party; provided, that as -------------- to documentation containing Confidential Information which is designated by a party as "Super Confidential," the obligations of this Section 6.02 shall remain in force beyond the period specified in this Section 6.02 for so long as such information remains confidential. The Receiving Party agrees to limit the dissemination of, and access to, the Confidential Information to employees of the Receiving Party (together with its legal advisors) who have a "need to know" such information, provided that such employees shall have entered into appropriate confidentiality relationships with the Receiving Party so as to ensure that the Receiving Party has the legal right to implement the terms and conditions of this Confidentiality Agreement. 9 6.03 Exceptions. Notwithstanding anything contained in Section 6.02 to ---------- the contrary, the obligations of confidentiality and non-use on the part of the Receiving party shall not apply to information which: (a) the Receiving Party can establish was publicly known or was known to the Receiving Party at the time of disclosure; (b) become publicly known subsequent to the time of disclosure, provided that such public knowledge is not the result of disclosure of Confidential Information by the Receiving Party; (c) is approved for release by prior written authorization of the Disclosing Party; or (d) is required to be disclosed by applicable law, regulation or legal process (whether by subpoena, civil investigative demand, or other similar process), provided that if the Receiving Party is so required to disclose any of the Confidential Information the Receiving Party will provide the Disclosing Party with prompt notice of any such request of which the Receiving Party has knowledge so that the Disclosing party may seek a protective order or other appropriate remedy or waive the Receiving Party's compliance with the provisions of this Confidentiality Agreement, as appropriate. Regardless of whether the Disclosing Party waives compliance with the terms hereof, or whether a protective order or other appropriate remedy is obtained, the Receiving Party will furnish only that portion of the Confidential Information which is required to be disclosed by such applicable law, regulation or legal process. 6.04 Remedies. The parties acknowledge and agree that a breach of this -------- Article VI by either of them would cause irreparable damage to the non-breaching party, that such damage would be difficult to measure, and that such damage may not be adequately compensated by monetary damages. Consequently, the parties agree that each shall be entitled to equitable relief, including injunction and specific performance, in the event of any breach of the provisions of this Article VI, in addition to all remedies available to the parties at law or in equity. ARTICLE VII MARKINGS; SAMPLES ----------------- 7.01 Patent Identification. Licensee shall affix, display or otherwise --------------------- conspicuously mark each Licensed Product to indicate any Licensed Patent, if any, applicable thereto, together with the number(s) of such patent(s) in accordance with applicable statutory patent marking requirements. Licensee shall indicate on each of the Licensed Products manufactured or assembled by the Licensee, in compliance with Licensor's instructions, that such Licensed Products were manufactured or assembled by Licensee, under the license of Licensor. 10 7.02 Use of Trademark on Licensed Products. Licensee shall affix, ------------------------------------- display or otherwise conspicuously mark the front of each Licensed Product with Licensor's Trademark. The specific details with respect to such marking, including, without limitation, the size and precise location thereof shall be mutually agreed upon from time to time by the parties. 7.03 Use of Corporate Name, Trademark in Marketing Activities. -------------------------------------------------------- Subject to the provisions of this Agreement, Licensor hereby grants Licensee the right and authority to use Licensor's corporate name and Trademark in connection with marketing and promoting the sale of the Licensed Products. Licensee shall include references to Licensor in its marketing material with respect to the Licensed Products, including, without limitation, materials distributed at trade shows and publications regarding the Licensed Products. The specific details with respect to the manner in which such marketing materials shall incorporate Licensor's corporate name and/or Trademark shall be mutually agreed upon from time to time by the parties. 7.04 Termination of Use of Licensor's Markings. Licensor reserves the ----------------------------------------- right to immediately terminate the rights granted to Licensee pursuant to Sections 7.01, 7.02 and 7.03 if at any time the quality of the Licensed Product does not conform to Licensor's standards; provided, that, Licensor shall have -------------- furnished Licensee with at least sixty (60) days prior written notice of such quality issues and Licensor shall have failed to address such issues to Licensor's satisfaction. 7.05 Use of Markings Upon Termination of Agreement. Any consent or --------------------------------------------- designation of any marking and any permission that may be granted hereunder by Licensor to Licensee to apply any Licensed Patent, Licensor's corporate name, or any of Licensor's trademarks or trade names to the Licensed Products terminates with the end of this Agreement or with the earlier cessation of royalty payments. Upon such termination, Licensee shall cease all use of such Licensed Patents, corporate name, trademarks or trade names in connection with its business; provided, that, Licensee shall be permitted a transition period of -------------- sixty (60) days subsequent to the termination of this Agreement in which to utilize and phase out all inventory of Licensed Products evidencing any Licensed Patent or the Trademark. 7.06 Licensee Rights. Licensee shall not make any claim that its use of --------------- any of the Licensed Patents, or any of Licensor's Intellectual Property, corporate name, trademarks or trade names or parts thereof gives or shall have given Licensee any rights to such Licensed Patents, Intellectual Property corporate name, trademarks, trade names, or parts thereof, except as specifically provided in this Agreement. Each party shall retain exclusive ownership of and rights to its own Intellectual Property. 7.07 Samples. From time to time during the term of this Agreement, ------- upon the written request of Licensor, Licensee shall provide Licensor with samples of product literature and marketing and promotional materials with respect to the Licensed Products. In addition, each calendar year that this Agreement is in effect, Licensee shall provide Licensor with two (2) samples of each Licensed Product, at no cost or expense to Licensor. 11 ARTICLE VIII PATENT INFRINGEMENT BY THIRD PARTIES ------------------------------------ In the event either party hereto has reason to believe that any Licensed Patent is being infringed upon by a Person in the Territory, such party shall promptly notify the other party in writing of such belief. The two parties shall then consult to examine the proper action to be taken, such as the negotiation of a settlement or the initiation and prosecution of a lawsuit, although Licensor alone shall be entitled to decide the appropriate action to take. Licensor shall have one hundred and twenty (120) days from said notification to decide whether it will take action to enforce said Licensed Patent. If Licensor decides to initiate a lawsuit, then Licensor shall be entitled to individually prosecute such infringement claim. In such case Licensor shall assume all of the risks and expenses arising therefrom and shall be entitled to receive all monies recovered therefrom. If no action has been taken to enforce said Licensed Patent within one hundred fifty (150) days of said notice of an infringement, Licensee may demand that Licensor initiate such suit, provided Licensee agrees to bear all risks and expenses with respect to such legal action. In such case, in the event that Licensor receives an award of damages or payment in settlement of such action, Licensee shall first be entitled to receive reimbursement for all costs and attorneys fees relating to such action. Thereafter, subject to the provisions of any intellectual property insurance policies of Licensor which are then in effect, Licensor and Licensee shall share equally in all amounts awarded as damages, profits or otherwise in connection with such action. In any suit covered by this Article, both parties shall cooperate in the conduct of such suit and shall take all steps reasonable and necessary to assist one another in its prosecution. ARTICLE IX REPRESENTATIONS AND WARRANTIES ------------------------------ 9.01 Licensor Representations and Warranties. In order to induce the --------------------------------------- Licensee to enter into this Agreement and to consummate the transactions contemplated hereby, Licensor hereby represents and warrants as of the date hereof as follows: (a) Organization; Power and Authority. Licensor is a corporation duly --------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware. Licensor has full corporate power and authority to execute and deliver this Agreement and to perform Licensor's obligations hereunder and to consummate the transactions contemplated hereby. (b) Authorization. The execution, delivery and performance of this ------------- Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Licensor. This Agreement has been duly executed and delivered by Licensor, and constitutes the valid, legal and 12 binding obligation of Licensor, enforceable against Licensor in accordance with its terms. (c) Conflicts; Defaults. The execution and delivery of this Agreement ------------------- does not, and the performance by Licensor of its obligations hereunder and the consummation by Licensor of the transactions contemplated hereby, will not (i) violate, conflict with, or constitute a breach or default under any of the terms of Licensor's Articles of Incorporation or Bylaws, as such documents have been amended, or (ii) conflict with or result in a breach of, create an event of default (or event that, with the giving of notice or lapse of time or both, would constitute an event of default) under, or give any third party the right to terminate, cancel or accelerate any obligation under, any contract, agreement, note, bond, guarantee, deed of trust, loan agreement, mortgage, license, lease, indenture, instrument, order, arbitration award, judgment or decree to which Licensor is a party or by which Licensor or any of its assets or properties are bound or affected. (d) Ownership of Licensed Patents. Licensor, either legally or ----------------------------- beneficially, owns or controls the entire right, title and interest in and to the Licensed Patents, including the right to (i) grant licenses with respect to any of the Licensed Patents, and (ii) enforce any issued patent or patents included among the Licensed Patents against any third party infringing any claim or claims thereof. To the actual knowledge of Licensor, there are no written claims, actions or lawsuits pending which could adversely affect the Licensed Patents or Licensor's rights thereto. (e) No Implied Warranties. The Licensed Patents and Intellectual Property --------------------- provided to Licensee by Licensor pursuant to this Agreement are provided as is and with all faults; that is, all implied warranties, including without limitation implied warranties of merchantability and fitness for a particular purpose, are excluded, and no express warranties are given by Licensor hereunder. 9.02 Licensee Representations and Warranties. In order to induce the --------------------------------------- Licensor to enter into this Agreement and to consummate the transactions contemplated hereby, Licensee hereby represents and warrants as of the date hereof as follows: (a) Organization and Good Standing; Power and Authority. Licensee is a --------------------------------------------------- corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Licensee has full corporate power and authority to execute and deliver this Agreement and to perform Licensee's obligations hereunder and to consummate the transactions contemplated hereby. (b) Authorization. The execution, delivery and performance of this ------------- Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Licensee. This Agreement has been duly executed and delivered by Licensee, and constitutes the valid, legal and binding obligation of Licensee, enforceable against Licensee in accordance with its terms. 13 (c) Conflicts; Defaults. The execution and delivery of this Agreement does not, and the performance by Licensee of its obligations hereunder and the consummation by Licensee of the transactions contemplated hereby, will not (i) violate, conflict with, or constitute a breach or default under any of the terms of Licensee's Articles of Incorporation or Bylaws, as such documents have been amended, or (ii) conflict with or result in a breach of, create an event of default (or event that, with the giving of notice or lapse of time or both, would constitute an event of default) under, or give any third party the right to terminate, cancel or accelerate any obligation under, any contract, agreement, note, bond, guarantee, deed of trust, loan agreement, mortgage, license, lease, indenture, instrument, order, arbitration award, judgment or decree to which Licensee is a party or by which Licensee or any of its assets or properties are bound or affected. ARTICLE X INDEMNIFICATION --------------- 10.01 Indemnification by Licensor. Licensor shall indemnify, defend and --------------------------- hold Licensee and its Affiliates harmless from and against and reimburse Licensee and its Affiliates for any and all claims, losses, liabilities, damages, and reasonable and necessary costs and expenses (collectively, "Liabilities") that may be incurred by, imposed upon or asserted against Licensee and/or its Affiliates arising from any inaccuracy in or breach of any representation, warranty, covenant, obligation or agreement of Licensor contained herein. 10.02 Indemnification by Licensee. Licensee shall indemnify, defend and --------------------------- hold Licensor and its Affiliates harmless from and against and reimburse Licensor and its Affiliates for any and all Liabilities that may be incurred by, imposed upon or asserted against Licensor and/or its Affiliates arising from or relating to: (i) any inaccuracy in or breach of any representation, warranty, covenant, obligation or agreement of Licensee contained herein; and (ii) manufacturing, assembling, marketing, distributing, selling or using any of the Licensed Products, including, without limitation, all Liabilities arising from claims founded upon product liability or product warranty. 10.03 Notification of Claim. Each indemnified party under this Article --------------------- X will promptly, and within ten (10) days after notice to such indemnified party of any claim as to which it asserts a claim for indemnification, notify the indemnifying party of such claim and the amount thereof; provided, however, that the failure to give such notification shall not relieve the indemnifying party from any liability which it may have pursuant to the provisions of this Article X as long as the failure to give such notice within such time is not prejudicial to the indemnifying party. Notice to an indemnified party for the purpose of the preceding sentence shall mean the filing of any legal action, receipt of any claim in writing or similar form of actual notice. 10.04 Defense of Claim. If any claim for indemnification by any ---------------- indemnified party arises out of a claim by a person other than such indemnified party, the indemnifying party may, by written notice to the indemnified party, undertake to conduct any proceedings or negotiations in connection 14 therewith or necessary to defend the indemnified party and take all other steps or proceedings to settle or contest such claim, including, but not limited to, the employment of counsel; provided, however, that the indemnifying party shall reasonably consider the advice of the indemnified party as to the defense and settlement of such claim and the indemnified party shall have the right to participate, at its own expense, in such defense, but control of such litigation and settlement shall remain with the indemnifying party. The indemnified party shall provide all reasonable cooperation in connection with any such defense by the indemnifying party. Counsel and auditor fees, filing fees and court fees of all proceedings, contests or lawsuits with respect to any such claim shall be borne by the indemnifying party. If any such claim is made hereunder and the indemnifying party elects not to undertake the defense thereof by written notice to the indemnified party, the indemnified party shall be entitled to indemnification with respect thereto pursuant to the terms of this Article X. To the extent that the indemnifying party undertakes the defense of such claim by written notice to the indemnified party and diligently pursues such defense at its expense, the indemnified party shall be entitled to indemnification hereunder only to the extent that such defense is unsuccessful as determined by a final judgment of a court of competent jurisdiction, or by written acknowledgment of the parties. ARTICLE XI SUB-LICENSING ------------- During the term of this Agreement, Licensee may not sublicense the Licensed Patents or the Intellectual Property to any third party, or utilize subcontractors in the performance of this Agreement, without the prior written consent of the Licensor, which consent shall not be unreasonably withheld or delayed. The terms of any such sublicensing will be as mutually agreed to by all the parties concerned, including Licensor. The termination of the licenses granted under this Agreement shall automatically terminate all sublicenses which may have been granted by Licensee in accordance with this Agreement. Any sublicense granted hereunder by Licensee shall refer to and incorporate by reference this Agreement and shall provide that Licensor shall be deemed a third party beneficiary of such sublicense. ARTICLE XII TERM AND TERMINATION -------------------- 12.01 Term. Unless earlier terminated as provided herein, this ---- Agreement shall remain in full force and effect until the expiration or termination of the last to expire of the Licensed Patents. 12.02 Termination of Agreement Due to Default. In the event that a --------------------------------------- party to this Agreement shall fail or refuse to fulfill or perform any material conditions of this Agreement, such party shall be considered to have breached this Agreement and such a breach shall entitle the other party to terminate this Agreement at any time solely in its judgment by giving sixty (60) days' written notice therefor to the party in breach. If the party in breach does not rectify the default within said sixty (60) day period, the termination shall become effective immediately upon the expiration of such period. 15 12.03 Termination of Agreement by Licensor. Licensor shall have the ------------------------------------ right to terminate this Agreement by giving written notice to that effect to Licensee upon the occurrence of any of the following events: (a) If Licensee should cease to function as a going concern or conduct its operations in the normal course of business; (b) If a voluntary or involuntary petition under the provisions of any federal or state bankruptcy law is filed with respect to Licensee, or any application for or appointment of a trustee or receiver for Licensee's property is filed, the filing of which remains unsatisfied and not discharged at the end of sixty (60) days after the occurrence of such event; (c) If Licensee defaults in the payment of any amount due pursuant to the provisions of this Agreement for a period of thirty (30) days; or (d) If Licensee wrongfully attempts to assign, transfer, sublicensee or otherwise encumber this Agreement or any of Licensee's rights or obligations hereunder. 12.04 Termination of Agreement by Licensee. Licensee may terminate this ------------------------------------ Agreement at any time by providing Licensor with at least one hundred eighty (180) days' prior written notice of Licensee's intention to terminate this Agreement. In the event that Licensee exercises its right to terminate this Agreement pursuant to this Section 12.04, the entire amount of the minimum royalties described on Schedule B hereto which have not previously been paid to ---------- Licensor shall immediately become due and payable. Such outstanding minimum royalties shall be paid by Licensee to Licensor in a single lump sum cash payment no later than thirty (30) days prior to the effective date of any termination hereunder. 12.05 Effect of Termination. The termination of this Agreement for any --------------------- cause whatsoever shall not affect or prevent payment of any and all royalties then due to Licensor from Licensee or any royalties which would become due thereafter under this Agreement. Furthermore, such termination shall not affect any obligation whatsoever stipulated in the individual provisions herein which bind the parties hereto even after termination hereof, including, without limitation, the indemnification provisions set forth in Article X hereof which shall survive indefinitely. 12.06 Return of Intellectual Property. In the event of the termination of ------------------------------- this Agreement, unless otherwise agreed by Licensor and Licensee, upon Licensor's written request, Licensee shall promptly return to Licensor at Licensee's expense all Intellectual Property supplied by Licensor under or in connection with this Agreement, together with any and all copies of all documents and materials containing any Intellectual Property, and shall immediately pay to Licensor all sums owing to Licensor. 12.07 Limited Liability. In the event that either party shall be held ----------------- liable to the other party on account of such party's performance or non- performance of its obligations under this Agreement, the 16 measure of damages shall not include any amounts for indirect or consequential damages of any party, including any third parties. ARTICLE XIII MISCELLANEOUS ------------- 13.01 Force Majeure. If the performance by either party of any of its ------------- obligations shall be in any way prevented, interrupted or hindered in consequence of an Act of God, war, civil disturbance, riots, strike, lockout, fire, earthquake or other natural calamities, legislation or restriction of any government or other authority, force majeure or any other circumstances beyond the reasonable control of such party, the obligations of the party concerned shall be wholly or partially suspended during the continuance and to the extent of such prevention of interruption or hindrance. 13.02 Notices. All notices, requests and other communications under ------- this Agreement shall be in writing (including a writing delivered by facsimile transmission) and shall be deemed to have been duly given if delivered personally, or sent by either certified or registered mail, return receipt requested, postage prepaid, or by overnight courier guaranteeing next day delivery, or by facsimile, addressed as follows: (a) If to Licensee: Maytag Corporation 403 West Fourth Street North P. O. Box 39 Newton, Iowa 50208 Attn: General Counsel Facsimile: (515) 791-8102 or at such other address or facsimile number as Licensee may have advised Licensor in writing; and (b) If to Licensor: TurboChef Technologies, Inc. 10500 Metric Drive Suite 128 Dallas, Texas 75243 Attn: President Facsimile No.: (214) 340-8477 or at such other address or facsimile number as Licensor may have advised Licensee in writing. All such notices, requests and other communications shall be deemed to have been received on the date of delivery thereof, if delivered by hand, on the fifth day after the mailing thereof, if 17 mailed, on the next day after the sending thereof, if by overnight courier, and when receipt is acknowledged, if faxed. 13.03 Waivers and Amendments. No amendment or waiver of any provision ---------------------- of this Agreement, nor consent to any departure therefrom, shall be effective unless the same shall be in writing and signed by an officer of each party hereto, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of a party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. 13.04 Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the parties hereto and their respective successors and permitted assigns. 13.05 Schedules. The Schedules attached hereto or referred to herein --------- are incorporated herein and made a part hereof for all purposes. As used herein, the expression "this Agreement" means this document and such Schedules. 13.06 Governing Law. THIS AGREEMENT, AND THE RIGHTS AND OBLIGATIONS OF ------------- THE PARTIES HERETO, SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF IOWA, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE. 13.07 Dispute Resolution. Any and all claims or controversies relating ------------------ to this Agreement shall be finally resolved by arbitration. Either of the parties to such claim or controversy shall have the right to submit the same to arbitration by delivery of a written dated notice (the "Arbitration Notice") for arbitration delivered to the other party to such claim or controversy. Upon receipt of such Arbitration Notice, the parties shall have ten (10) days to agree on a single arbitrator. If no such agreement is reached during such ten (10) day period, each party shall have ten (10) additional days to appoint one neutral and impartial individual to serve on the arbitration panel. Within ten (10) days after such two arbitrators are selected, a third arbitrator who shall preside shall be appointed by the two (2) arbitrators so selected. Any vacancy which is not filled within ten (10) days by the parties shall be filled with a neutral and impartial individual by the American Arbitration Association. Following designation and appointment of the three (3) arbitrators to serve on the arbitration panel, the parties to such claim or controversy shall undertake in good faith informal efforts to mediate and negotiate to resolve such claim or controversy. If a negotiated solution cannot be achieved within fifteen (15) days after the date such arbitration panel is constituted, then unless the parties to such claim or controversy agree otherwise to a reasonable extension of time in order to negotiate to resolve such claim or controversy, the arbitration proceeding shall commence. 18 The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") subject to the following modifications: (a) discovery shall be permitted under the same standards provided for in the Federal Rules of Civil Procedure; (b) the members of the arbitration panel shall interpret and apply the provisions of this Agreement; (c) the arbitration panel shall determine and award costs between the parties to the arbitration proceedings; (d) the proceedings will be held in Dallas, Texas, unless the parties otherwise agree in writing; (e) to the extent permissible under applicable law, the decisions and award of the arbitrators shall be final and conclusive, and may be enforced in any court having proper jurisdiction; and (f) it is not intended by the parties that the arbitrators shall be required to be members of the AAA's Panel of Commercial Arbitrators or that the arbitration be subject to the auspices of the AAA or subject to AAA administration. 13.08 Independent Contractor. Each party hereto is, and at all times ---------------------- will remain, an independent contractor and will not represent itself to be the agent, joint venturer, or partner of the other party hereto or to be related to such other party. No representations will be made or acts done by either party which would establish any apparent relationship of agency, joint venture, or partnership. 13.09 Number and Gender. Whenever herein the singular number is used, ----------------- the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 13.10 Captions. The captions, headings and arrangements used in this -------- Agreement are for convenience only and do not in any way affect, limit or amplify the provisions hereof. 13.11 Invalid Provisions. If any provision of this Agreement is held to ------------------ be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or its severance from this Agreement. 19 13.12 Entirety. This Agreement and the documents executed and delivered -------- pursuant hereto, executed on the date hereof or in connection herewith, contain the entire agreement among the parties with respect to the matters addressed herein and supersedes all prior representations, inducements, promises or agreements, oral or otherwise, which are not embodied herein or therein. 13.13 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original for all purposes and all of which shall be deemed collectively to be one agreement. 13.14 Assignment. It is mutually agreed that, except as otherwise ---------- herein provided, this Agreement shall be binding upon and inure to the benefit of the successors of the parties, but shall not be assigned by either party to third party without prior written consent of the other party. 13.15 Third Party Beneficiaries. Nothing contained herein, express or ------------------------- implied, is intended to confer upon any person or entity other than the parties hereto and their successors in interest and permitted assigns any rights or remedies under or by reason of this Agreement. 20 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement as of the day and year first above written. LICENSOR: TURBOCHEF TECHNOLOGIES, INC. By: -------------------------------------------- Printed Name: Richard N. Caron Title: President and Chief Executive Officer LICENSEE: MAYTAG CORPORATION By: -------------------------------------------- Printed Name: Glenn B. Kelsey Title: President, G. S. Blodgett Corporation By: -------------------------------------------- Printed Name: Jerome L. Davis Title: ------------------------------------- 21 SCHEDULE A ---------- DEVELOPMENT FEES 1. Single Cavity Counter Top Cooking Unit. Licensee shall pay to Licensor a development fee in the aggregate amount of Two Million Dollars (U.S. $2,000,000) with respect to the development of the commercial single cavity counter top cooking unit proof of concept prototype. Licensee shall pay such development fee as follows:
Development Period Payment Date Amount ------------------ ------------ ------ Up through October 31, 1999 November 1, 1999 $500,000 Nov. 1 through Nov. 30, 1999 November 1, 1999 $250,000 Dec. 1 through Dec. 31, 1999 December 1, 1999 $250,000 Jan. 1 through Jan. 31, 2000 January 1, 2000 $250,000 Feb. 1 through Feb. 29, 2000 February 1, 2000 $250,000 Mar. 1 through Mar. 31, 2000 March 1, 2000 $250,000 Apr. 1 through Apr. 30, 2000 April 1, 2000 $250,000 -------- $2,000,000 ==========
2. Dual Cavity or * Licensee shall pay to Licensor a development fee in the aggregate amount of Three Million Five Hundred Thousand Dollars (U.S. $3,500,000) with respect to development of the dual cavity or * proof of concept prototype. Licensee shall pay such development fee as follows:
Development Period Payment Date Amount ------------------ ------------ ------ Up through October 31, 1999 November 1, 1999 $500,000 Nov. 1 through Nov. 30, 1999 November 1, 1999 $500,000 Dec. 1 through Dec. 31, 1999 December 1, 1999 $500,000 Jan. 1 through Jan. 31, 2000 January 1, 2000 $500,000 Feb. 1 through Feb. 29, 2000 February 1, 2000 $300,000 Mar. 1 through Mar. 31, 2000 March 1, 2000 $300,000 Apr. 1 through Apr. 30, 2000 April 1, 2000 $300,000 May 1 through May 31, 2000 May 1, 2000 $300,000 June 1 through June 30, 2000 June 1, 2000 $300,000 ---------- Total $3,500,000 ==========
A-1 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. SCHEDULE B ---------- ROYALTIES 1. Royalty Rates. In consideration of the licenses granted pursuant to -------------- this Agreement, Licensee shall pay Licensor the following royalties: A. Single Cavity Counter Top Cooking Unit. Subject to adjustment as provided hereinbelow, Licensee shall pay Licensor a minimum royalty equal to Five Hundred Dollars (U.S. $500) per unit sold by Licensee, based upon * The "all-in" cost for the unit shall be derived from a manufacturer selected by Licensee with Licensor's prior advice and consent, which shall not be unreasonably withheld or delayed. * B. Dual Cavity or * Subject to adjustment as provided hereinbelow, Licensee shall pay Licensor a minimum royalty equal to Eight Hundred Dollars (U.S. $800) per unit sold by Licensee for installation anywhere other than the United Kingdom and a minimum royalty equal to One Thousand Dollars (U.S. $1,000) per unit sold by Licensee for installation in the United Kingdom, based upon * The "all-in" cost for the unit shall be derived from a manufacturer selected by Licensee with Licensor's prior advice and consent, which shall not be unreasonably withheld or delayed. * B-1 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. * 2. Minimum Royalties. As a material and additional consideration and ----------------- inducement to Licensor to execute this Agreement, Licensee shall pay to Licensor guaranteed minimum royalty payments in accordance with the following schedule:
Minimum Royalty Payments ---------------------------------------------- 1/st/ Qtr. 2/nd/ Qtr. 3/rd/ Qtr. 4/th/ Qtr. ---------- ---------- ---------- ---------- Payment Date: May 15 August 14 Nov. 14 Feb. 14 ---------- ---------- ---------- ---------- Year of Payment/ Guaranteed Minimum Royalty: 2000 -0- $500,000 $500,000 2001 $500,000 2001 $500,000 $937,500 $937,500 2002 $937,500 2002 $937,500
The minimum royalty payments shall be made in quarterly installments with the first such installment being payable on or before August 14, 2000, and each subsequent installment being payable on or before forty-five (45) days after the end of each calendar quarter, with the final minimum royalty payment due May 15, 2002. To the extent that the exclusivity periods contemplated by Section 2.01 and Section 2.03 are extended as contemplated by Section 2.04, then the payment dates of the minimum royalty payments shall be extended for the same period of any extension granted pursuant to Section 2.04. Notwithstanding anything contained in this Schedule B to the contrary, in the event that Licensor ---------- exercises its option to terminate Licensee's exclusive licenses and rights pursuant to Section 2.05 hereof, then the minimum royalty payable shall be prorated for the third quarter in 2001 to reflect the actual number of days which Licensee had exclusive licenses and rights with respect to the single cavity counter top cooking unit in such calendar quarter. B-2 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. Actual royalty fee payments made during a particular quarter pursuant to Section 1 of this Schedule B with respect to either the single cavity counter top ----------- cooking unit or the dual cavity or * shall be credited against the guaranteed minimum royalty payment due for that quarter with respect to such Licensed Products. In the event that the total actual royalty fee payment made during a particular quarter pursuant to Section 1 of this Schedule B exceeds the guaranteed minimum ---------- royalty amount for that quarter, such excess shall be credited against the guaranteed minimum royalty payment due for the following quarter with respect to such Licensed Products. B-3 * Language has been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. EX-27 4 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JUL-01-1999 SEP-30-1999 2,473,000 12,192,000 883,000 0 121,000 15,881,000 1,456,000 (728,000) 18,188,000 3,117,000 0 0 0 151,000 9,350,000 18,188,000 540,000 540,000 (392,000) (3,294,000) (261,000) 0 (126,000) (3,015,000) 0 0 0 0 0 (3,015,000) (0.20) (0.20)
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