SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
KAHIKI FOODS, INC.
------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
_________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
____________________________________________________________________
2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
____________________________________________________________________
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
KAHIKI FOODS, INC.
1100 MORRISON ROAD
GAHANNA, OH 43230
Notice of Annual Meeting of Shareholders
to be held August 8, 2005
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Kahiki Foods, Inc. ("Kahiki" or the "Company") will be held at the offices of
the Company, 1100 Morrison Road, Gahanna, Ohio on August 8, 2005, at 10:00 a.m.
(local time) for the following purposes:
1. To set the number of Directors of the Company at six and to elect
Directors, each Director to hold office until the next Annual
Meeting of the Shareholders and until his successor shall be elected
and shall qualify.
2. To amend Article Four of the Company's Amended and Restated Articles
of Incorporation to authorize the issuance of preferred shares.
3. To ratify the action of the Board of Directors in the selection of
Plante & Moran, PLLC as independent auditors for the year ending
March 31, 2006.
4. To consider any other matters which may properly come before the
meeting or any adjournment thereof.
Accompanying this Notice of Annual Meeting is a form of Proxy, a Proxy
Statement and a copy of the Company's Annual Report for the year ended March 31,
2005, all to be mailed on or about July 18, 2005.
The stock transfer books for the Company will not be closed, but only
Shareholders of record as of the close of business on July 12, 2005 will be
entitled to notice of and to vote at the Meeting.
Columbus, Ohio By Order of the Board of Directors
July 18, 2005 Michael C. Tsao, President
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MAIL YOUR PROXY AT ONCE.
IF YOU ATTEND THE MEETING YOU MAY REVOKE YOUR PROXY AND VOTE. A RETURN ENVELOPE
REQUIRING NO POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR YOUR
CONVENIENCE IN MAILING YOUR PROXY. PROMPT RETURN OF THE PROXY WILL ASSURE A
QUORUM AND SAVE THE COMPANY UNNECESSARY EXPENSE.
KAHIKI FOODS, INC.
1100 Morrison Road
Gahanna, Ohio 43230
PROXY STATEMENT
This Proxy Statement is furnished to the Shareholders of Kahiki Foods,
Inc., an Ohio corporation ("Kahiki" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors for use at the Annual Meeting
of Shareholders of the Company to be held on August 8, 2005, and any adjournment
thereof. A copy of the Notice of Meeting accompanies this Proxy Statement. It is
anticipated that the mailing of this Proxy Statement will commence on July 18,
2005.
Only the Shareholders of record at the close of business on July 12, 2005
the record date for the Meeting, will be entitled to notice of and to vote at
the Meeting. On the record date the Company had outstanding 3,670,848 Common
Shares, which are the only securities of the Company entitled to vote at the
Meeting, each share being entitled to one vote. The holders of a majority of the
Common Shares, present in person or by proxy, will constitute a quorum at the
Meeting.
Directors of the Company will be elected by a plurality vote of the
outstanding Common Shares present and entitled to vote at the Meeting. The
affirmative vote of the holders of at least a majority of the outstanding Common
Shares is required to amend the Amended and Restated Articles of Incorporation
and to ratify the selection of independent public accountants.
Shareholders who execute proxies may revoke them by giving notice to the
Secretary of the Company at any time before such proxies are voted. Attendance
at the Meeting shall not have the effect of revoking a proxy unless the
Shareholder so attending shall so notify the Secretary of the Meeting at any
time prior to the voting of the proxy.
Kahiki will bear the cost of the Meeting and the cost of soliciting
proxies, including the cost of mailing and proxy material. In addition to
solicitation by mail, Directors, officers and employees of the Company (who will
not be specifically compensated for such services) may solicit proxies by
telephone or otherwise.
All proxies received pursuant to this solicitation will be voted except as
to matters where authority to vote is specifically withheld and, where a choice
is specific as to the proposal, they will be voted in accordance with such
specification. If no instructions are given, the persons named in the proxy
intend to vote FOR the nominees for election as Directors of the Company listed
below and in favor of the amendment to the Amended and Restated Articles of
Incorporation and the ratification of the selection of independent public
accountants of the Company. The officers, Directors, and nominees for Directors
of the Company are the beneficial owners of 49.38% of the Company's issued and
outstanding Common Shares. Michael and Alice Tsao, who hold an aggregate of
47.28% of the Company's outstanding Common Shares, have entered into an
agreement to vote their shares for the election of Charles Dix (who is a
1
representative of Townsends, Inc.). The officers, Directors, and nominees for
Directors of the Company have indicated that they will vote in favor of each
nominee for director and in favor of the amendment to the Amended and Restated
Articles of Incorporation and the ratification of the selection of independent
public accountants of the Company. Therefore, there is a substantial probability
that each nominee will be elected and the amendment and ratification approved.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement, and if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute the solicitation of a proxy
in any jurisdiction from any person to whom it is unlawful to make such proxy
solicitation in such jurisdiction. The delivery of this Proxy Statement shall
not, under any circumstances, imply that there has not been any change in the
information set forth herein since the date of this Proxy Statement.
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table sets forth as of July 12, 2005, certain information
concerning stock ownership of all persons known by the Company to own
beneficially five percent (5%) or more of the Company's outstanding Common
Shares, and each director or nominees and all officers and directors as a group:
Number of Common Percent of
Name of Beneficial Owner Shares Owned (1) Class (1)
- ---------------------------- ---------------- ----------
Michael C. Tsao
1100 Morrison Road
Gahanna, Ohio 43230 1,735,660(2) 28.75%
Alice W. Tsao
1100 Morrison Road
Gahanna, Ohio 43230 1,735,660(2) 28.75%
Bob Binsky
20185 E. County Club Dr.
North Miami Beach, FL 33180 450,392 7.46%
Alan Hoover
1100 Morrison Road
Gahanna, Ohio 43230 296,666 4.91%
Bradford M. Sprague
1636 Sherborne Lane
Powell, OH 43085 5,400 0.09%
2
Charles Dix
30098 Southampton Bridge Road
Salisbury, Maryland 21804 890,889(4) 14.75%
John Dix
1550 Old Henderson Rd, Suite 202
Columbus, OH 43220 0 0.00%
Allen J. Proctor
471 Highgate Avenue
Worthington, Ohio 43085 11,500 0.19%
R. L. Richards
5598 Preston Mill Way
Dublin, OH 43017 3,500 0.06%
Barron Partners LP
730 Fifth Ave., 9th Floor
New York, New York 10019 1,176,468(3) 19.49%
Townsends, Inc.
Suite 420
919 North Market Street
Wilmington, Delaware 18801 888,889 14.72%
Officers and Directors as a Group
(11 persons) 2,981,948 49.39%
(1) Unless otherwise provided, the stated number of shares are owned directly
by the person named. Shares shown include the following shares subject to
options currently exercisable: Mr. Tsao, 12,000 shares; Ms. Tsao, 12,000
shares; Mr. Binsky, 200,600 shares; Mr. Hoover, 240,666 shares; Mr.
Sprague, 3,000 shares; Mr. Dix, 2,000 shares; Mr. Proctor, 4,000 shares;
and Mr. Richards, 3,000 shares.
(2) Michael C. Tsao and Alice W. Tsao are husband and wife. The listed shares
include 700,660 shares owned directly by Alice W. Tsao with respect to
which Michael C. Tsao disclaims beneficial ownership and 1,035,000 shares
owned by Michael C. Tsao with respect to which Alice W. Tsao disclaims
beneficial ownership.
(3) Includes shares issuable upon the exercise of 294,117 $2.25 Warrants and
294,117 $3.00 Warrants.
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(4) Includes 888,889 shares issuable to Townsends, Inc. upon conversion of a
$2,000,000 Convertible Note. Mr. Dix is President of Townsends, Inc.
1. Election of Directors
Under the Code of Regulations of the Company, the shareholders are to fix
the number of Directors and elect Directors at the Annual Meeting of
Shareholders to hold office until the next Annual Meeting or until their
successors shall be elected and qualify. Proxies solicited by the Board of
Directors, if properly signed and returned, will be voted in favor of fixing the
number of Directors at six, and for the election of the six nominees listed
below as Directors of the Company.
The Board of Directors has no reason to believe that any nominee will
become unavailable. However, in the event that any of the nominees should become
unavailable, proxies solicited by the Board of Directors will be voted either
for the election of substitute nominees designated by the Board of Directors or
to fix the number of Directors at a number less than six (subject to the Code of
Regulations of the Company) which will be equal to the number of nominees
available for election.
The names of, and certain information with respect to, the persons nominated by
the Board of Directors for election as Directors are as follows:
Number of Percentage of
Common Shares outstanding
Director Beneficially Owned Common
Name Age Since (1) Shares (1)
Michael C. Tsao 55 1982 1,735,660(2) 28.75%
Bradford M. Sprague 54 2004 5,400 0.09%
Charles Dix 42 2004 890,889(3) 14.75%
Allen Proctor 53 2004 11,500 0.19%
R.L. Richards 56 2004 3,500 0.06%
John Dix 63 - 0 0.00%
(1) Shares shown include the following shares subject to options exercisable
on July 12, 2005: Mr. Tsao, 12,000; Mr. Sprague, 3,000; Mr. Dix, 2,000;
Mr. Proctor, 4,000; and Mr. Richards, 3,000.
(2) Michael C. Tsao and Alice W. Tsao are husband and wife. The listed shares
include 700,600 shares owned directly by Alice W. Tsao with respect to
which Michael C. Tsao disclaims beneficial ownership and 1,035,000 shares
owned directly by Michael C. Tsao with respect to which Alice W. Tsao
disclaims beneficial ownership.
(3) Includes 888,889 shares issuable to Townsends, Inc. upon conversion of a
Convertible Note. Mr. Dix is President of Townsends, Inc.
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MICHAEL C. TSAO is our President and Chairman and has served in those
capacities since 1982. Mr. Tsao has over thirty years of experience in the
restaurant industry. He has served in an executive capacity for both full
service and fast food restaurants. Prior to 1982, he served as President and
General Manager of The Columbus Sheraton Plaza, a 400 room hotel. His experience
in the food processing industry includes finance, operations, marketing
analysis, purchasing, food preparation and facility management. Mr. Tsao managed
and operated the Kahiki restaurant for more than twenty years. From 1995 to
2000, Mr. Tsao was a director of Cable Link, Inc. (nka A Novo Broadband) a major
supplier of new and used cable tv equipment. Mr. Tsao is a graduate of Pasadena
City College (Business Administration).
BRADFORD M. SPRAGUE became a member of our Board of Directors in August,
2004. Since 2001, Mr. Sprague has been the owner/manager of Prism Municipal
Advisors, a financial advisory firm located in Columbus, Ohio. For ten years
prior to forming Prism Municipal Advisors, Mr. Sprague was the manager of A.G.
Edwards & Sons, Inc.'s Columbus, Ohio public finance office. Mr. Sprague is
chairman of our Board's Compensation Committee. Mr. Sprague earned an
undergraduate degree from Miami University and a Masters of Public
Administrative from the Ohio State University.
CHARLES DIX became a member of our Board of Directors in August, 2004.
Since 1989, Mr. Dix has held various positions with Townsends, Inc., a Delaware
based family-owned poultry corporation, currently as the President and Chief
Operating Officer. Townsends, Inc. supplies chicken products to Kahiki at
competitive prices. Mr. Dix received his BSBA in Management degree from
Shippensburg University.
ALLEN J. PROCTOR became a member of our Board of Directors in August,
2004. Since 2001, Dr. Proctor has been the principal of Allen Proctor
Consulting, LLC, a Columbus Ohio based advisor to CEO's on strategic planning,
financial reporting and investment oversight. Prior to forming Allen Proctor
Consulting, LLC, Dr. Proctor was the Executive Director of the Ohio Police &
Fire Pension Fund (1997-2001) and Vice President of Finance of Harvard
University (1994-1997). Dr. Proctor's prior experience includes stints with the
New York State Financial Control Board; Columbia University Graduate School of
Business; Office of Management and Budget, City of New York; the Federal Reserve
Bank of New York; and the International Bank for Reconstruction and Development.
Dr. Proctor is a member of various non profit boards. Dr. Proctor is the
chairman of our Board's Audit Committee. He received his A.B. degree from
Harvard University and PhD in international trade and finance from the
University of Wisconsin-Madison.
R.L. RICHARDS became a member of our Board of Directors in August, 2004.
Since 1978, Mr. Richards has been Trustee of the R. David Thomas Trust, in
Dublin, Ohio. Mr. Richards also serves on the boards of Acceptance Insurance
Companies, Inc., Fifth Third Bank, Columbus, Ohio Division and Stanley Steemer
International, Inc. Mr. Richards is the chairman of our Board's Strategy
Committee. Mr. Richards received a
5
B.A., Economics and Political Science from Wittenberg University and J.D. from
The Ohio State University - - Michael E. Moritz College of Law.
JOHN F. DIX is the founder and President of Business Development Index
Limited, Inc. Mr. Dix has over 30 years of industry leadership experience. Prior
to founding Business Development Index Limited, Inc. in 1994, Mr. Dix served as
Group Vice President of Borden Foods Corporation from 1977 to 1994. Since 1985
Mr. Dix has taught strategic planning in the MBA program at The Ohio State
University. Also at The Ohio State University, Mr. Dix is the co-director of the
Center for Excellence in Manufacturing Management. Mr. Dix has served on the
board of directors of Acordia McElroy/Minister, Co., Lord, Sullivan & Yoder,
Inc., Fiesta Salons, Inc., Excel Management Systems, Inc., Shared Resources,
Inc., Trillium Health Care Products, Inc., and New Products Innovations, Inc.
Mr. Dix graduated in 1963 from John Carroll University with a Bachelor of
Science in Business Administration. He also completed the Harvard Business
School, Program for Management Development in 1975.
All Directors are elected at the Annual Meeting of the Shareholders to
serve for one year or until their successors are duly elected and qualified.
Security holders may send communications to our Directors in care of the
Secretary at our corporate offices. All communications will be relayed to the
Directors. Officers serve at the pleasure of the Board of Directors
Outside Directors of the Company are paid $1,000 for each Board of
Directors meeting personally attended and $500 for each committee meeting
attended. No fees are paid to directors for participation in telephonic meetings
of the Board or actions taken in writing. The Board of Directors met 6 times
during the fiscal year ended March 31, 2005. Each Director attended at least 75
percent of the meetings held. It is the Company's policy that all Directors
attend the Annual Meeting. All Directors attended the last Annual Meeting.
Audit Committee
The Audit Committee has the responsibility of reviewing our financial
statements, evaluating internal accounting controls, reviewing reports of
regulatory authorities, and determining that all audits and examinations
required by law are performed. The Audit Committee also approves the appointment
of the independent auditors for the next fiscal year, approves the services to
be provided by the independent auditors and the fees for such services, reviews
and approves the auditor's audit plans, reviews and reports upon various matters
affecting the independence of the independent auditors, and reviews with the
independent auditors the results of the audit and management's responses. Our
Board of Directors has adopted a written charter for our Audit Committee which
is attached to this Proxy Statement as Appendix A.
The Audit Committee is composed of Dr. Proctor, Mr. Richards and Mr.
Sprague. All of the members of the Audit Committee are considered "independent"
as independence for Audit Committee members is defined in applicable rules of
the
6
National Association of Securities Dealers' listing standards. The Board of
Directors has determined that Allen Proctor is an audit committee financial
expert as defined by Item 401(e) of Regulation S-B of the Securities Exchange
Act of 1934, as amended, and is independent within the meaning of Item
7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act of 1934. The Audit
Committee met three times during the year ended March 31, 2005.
Audit Committee Report
The Audit Committee has reviewed and discussed with management the audited
financial statements for the year ended March 31, 2005. The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
the Statement on Auditing Standards No. 61. The Audit Committee has also
received from the independent auditors the written disclosures and the letter
required by Independence Standards Board Standard No. 1 and has discussed with
the independent auditors the independent auditors' independence from our Company
and its management. The Audit Committee reported its findings to our Board of
Directors. The Audit Committee's report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that we specifically incorporate the
information contained in the report by reference, and shall not be deemed filed
under such acts.
Based on the foregoing review and discussions and relying thereon, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in our Annual Report on SEC Form 10-KSB for the fiscal
year ended March 31, 2005 for filing with the SEC.
Audit Committee
Allen Proctor
R.L. Richards
Bradford Sprague
Other Committees
The Compensation Committee is composed of Mr. Sprague, Dr. Bash and Mr.
Dix. Our Compensation Committee is responsible for establishing our compensation
plans. Its duties include the development with management of all benefit plans
for our employees, the formulation of bonus plans, incentive compensation
packages, and medical and other benefit plans. The Compensation Committee met
one time in the fiscal year ended March 31, 2005.
The Board of Directors has no standing nominating committee. The Company
believes that, as a result of the role of the independent directors, as
described below, it is not necessary to have a separate nominating committee at
this time. Currently, four
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of our eight Directors and four of our six nominees are independent as
determined utilizing the standards for director "independence" set forth in
applicable rules of the National Association of Securities Dealers' listing
standards. The entire Board selects nominees for election as Directors by
majority vote, thus ensuring approval of all Director nominees by a majority of
the Company's independent Directors. In selecting nominees for Director, the
Board does not operate pursuant to a charter.
In selecting Director nominees, the Board will consider, among other
factors, the existing composition of the Board and their evaluation of the mix
of Board members appropriate for the perceived needs of the Company. The Board
believes that continuity in leadership and Board tenure maximizes the Board's
ability to exercise meaningful Board oversight. Because qualified incumbent
Directors are generally uniquely positioned to provide shareholders the benefit
of continuity of leadership and seasoned judgment gained through experience as a
Director of the Company, the Board will generally consider as potential
candidates those incumbent Directors interested in standing for re-election who
they believe have satisfied Director performance expectations, including regular
attendance at, preparation for and meaningful participation in Board and
committee meetings.
Generally, the Board will consider shareholder recommendations of proposed
Director nominees if such recommendations are serious and timely received. To be
timely, recommendations must be received in writing at the principal executive
offices of the Company at least 120 days prior to the anniversary date of
mailing of the Company's proxy statement for the prior year's annual meeting. In
addition, any shareholder Director nominee recommendation must include the
following information:
- the proposed nominee's name and qualifications and the reason for
such recommendation;
- the name and record address of the shareholder(s) proposing such
nominee;
- the number of shares of stock of the Company which are beneficially
owned by such shareholder(s); and
- a description of any financial or other relationship between the
shareholder(s) and such nominee or between the nominee and the
Company.
In order to be considered by the Board, any candidate proposed by one or more
shareholders will be required to submit appropriate biographical and other
information equivalent to that required of all other Director candidates.
Compensation Committee Interlocks and Insider Participation
None of our executive officers has served:
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- as a member of the compensation committee of another entity which
has had an executive officer who has served on our compensation
committee;
- as a director of another entity which has had an executive officer
who has served on our compensation committee; or
- as a member of the compensation committee of another entity which
has had an executive officer who has served as one of our directors.
Indemnification of Directors and Officers
Our Amended Articles of Incorporation provide that Kahiki shall indemnify
any Director or Officer (and may indemnify any other employee or agent of Kahiki
or of any entity) who was or is a party or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, by reason of the fact that he
is or was a director, officer, employee, or agent of Kahiki or is or was serving
at the request of Kahiki as a director, officer, trustee, employee or agent of
another company, domestic or foreign, non-profit or for-profit, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys'
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of Kahiki, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of Kahiki.
Determination of rights to indemnification shall be made by a majority
vote of a quorum of the directors, or by the court in which such action, suit or
proceeding was brought.
We may obtain and maintain liability insurance against liabilities of its
directors, officers, employees and agents, sufficient to cover its obligations
under these indemnification provisions, and may obtain such liability insurance
for liabilities of such persons not subject to any obligations of Kahiki under
these indemnification provisions.
The indemnification provided thereunder shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
any agreement or vote of shareholders or disinterested directors. In addition,
if at any time the Ohio Revised Code ("Code") shall have been amended to
authorize further elimination or limitation of the liability of directors or
officers, then the liability of each director and officer of Kahiki shall be
eliminated or limited to the fullest extent permitted by such provisions, as so
amended, without further action by the
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shareholders, unless the provisions of the code require such action. The
provision does not limit the right of Kahiki or its shareholders to seek
injunctive or other equitable relief not involving payments in the nature of
monetary damages.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of Kahiki
pursuant to the Articles of Incorporation, or otherwise, Kahiki has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
Executive Officers
The following table provides information regarding each executive officer of the
Company:
Name Age Position
---- --- --------
Michael C. Tsao(1) 55 Chairman of the Board, President and Chief Executive Officer
Alice W. Tsao 54 Vice President and Secretary
Alan L. Hoover 50 Senior Vice President, Sales and Marketing
Julia A. Fratianne 42 Chief Financial Officer and Treasurer
Alfred Cheung 50 Vice President, Operations
(1) Certain information concerning Michael Tsao is contained on the
immediately preceding pages of this Proxy Statement.
ALICE W. TSAO is our Vice-President, Secretary and has served in those
capacities since 1982. She has an Associates Degree from Los Angeles Business
College, with a major in computer science. Mrs. Tsao has been active in Kahiki's
business with her husband Michael C. Tsao for the past twenty years.
ALAN L. HOOVER joined us in May, 1999 as Senior Vice President, Sales and
Marketing. Prior to joining us, Mr. Hoover was Vice President, National Accounts
for Tenneco Packaging/Pressware in Columbus, Ohio. Mr. Hoover received his B.S.
(Administrative Management) from Clemson University and his M.B.A. (Financial
Management) from Benedictine University.
JULIA A. FRATIANNE joined us in March, 2004 as our Chief Financial
Officer, and became our Treasurer in August, 2004. From 1987 to 2003, Ms.
Fratianne held various finance positions with Metatec, Inc. (nka Inoveris, LLC),
a Dublin, Ohio manufacturer of CD-ROMs, including as Vice President, Finance,
Secretary and Treasurer from May, 1997 to October, 1998, and as Vice President,
Finance and Administration from October, 1998 to December 2003. Ms. Fratianne
received her B.S. (Accounting) from Miami University and is a certified public
accountant.
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ALFRED CHEUNG joined us in 2003 as our Vice President, Operations. Mr.
Cheung has over 25 years of experience in the food industry in research and
development, quality management and food processing. From 1998 to 2003, Mr.
Cheung was a lecturer with the University of Hong Kong, Graduate School, Food
Industry Management and Marketing. Additionally, from 2001-2002, Mr. Cheung was
a consultant to a franchisee of Yum! Brands (the parent company of KFC, Pizza
Hut and Taco Bell), Hong Kong, and from 1998-2001, a consultant and director,
Technical & Engineering Services of Tung Chun Company, Hong Kong. Mr. Cheung
received his B.S. in food science degree from the University of Minnesota and
his masters degree in food science from the University of Illinois.
EXECUTIVE COMPENSATION
The following table sets forth the amount accrued by the Company during Fiscal
Years 2003, 2004 and 2005 for services rendered by our officers. This includes
all compensation awarded to, earned by or accrued for the executive officers
listed below during the periods in question.
Name and Awards
Position Year Salary Bonus (2) Other (3) Stock Options(1) Total
-------- ---- -------- --------- --------- ----- ---------- -----
Michael C. Tsao 2005 $153,577 $ 0 $ 9,340 0 0 $162,917
Chairman, President and CEO 2004 $135,000 $ 23,107 $ 9,318 0 0 $167,425
2003 $135,000 $ 0 $ 0 0 0 $135,000
Alice W. Tsao 2005 $ 50,481 $ 0 $ 12,265 0 0 $ 62,746
Vice President and Secretary 2004 $ 55,000 $ 14,600 $ 12,381 0 0 $ 81,981
2003 $ 55,000 $ 0 $ 0 0 0 $ 55,000
Alan Hoover 2005 $155,176 $ 3,000 $ 7,453 0 0 $165,629
Senior Vice President 2004 $135,000 $ 23,107 $ 7,965 0 0 $166,072
2003 $135,000 $ 5,000 $ 0 0 1,000 $140,000
Alfred Cheung 2005 $111,662 $ 3,000 $ 7,965 0 0 $122,627
Vice President, Operations 2004 $ 60,288 $ 20,100 $ 20,920 0 100,000 $101,308
2003 N/A N/A N/A N/A N/A N/A
Julia Fratianne 2005 $110,538 $ 3,000 $ 7,847 0 25,000 $121,385
CFO and Treasurer 2004 N/A N/A N/A N/A N/A N/A
2003 N/A N/A N/A N/A N/A N/A
(1) Number of shares issuable upon exercise of options granted during the
fiscal year, adjusted for share dividends.
(2) 2004 bonus paid in 2005. 2005 bonus paid in 2006.
(3) includes car allowance, relocation bonus, and 401k match
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Number of Securities
Underlying Unexercised Value of Unexercised in the
Shares Acquired Option at FY-End money options at FY-End
Name on Exercise Value Realized Exerciseable/Unexercisable Exercisable/Unexercisable
---- --------------- -------------- -------------------------- ---------------------------
Michael C. Tsao - $ 0 12,000/0 $8,040/$0
Alan Hoover 44,667 $ 56,994 240,666/0 $272,675/$0
Julia A. Fratianne - $ 0 0/25,000 $0/$0
Alfred Cheung - $ 0 33,333/66,666 $26,666/$53,333
Alice Tsao - $ 0 12,000/0 $8,040/$0
Incentive Stock Option Plan
In July, 2001, the Shareholders adopted and approved Kahiki's 2001 Non
qualified and Incentive Stock Option Plan ("Plan"). Pursuant to the Plan,
600,000 common shares have been reserved for issuance upon the exercise of
options. Options granted under the Plan may be either (1) options intended to
constitute incentive stock options ("ISO's") under the Internal Revenue code of
1986 or (2) non qualified options. ISO's may be granted under the Plan to
employees and officers of Kahiki. Non qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of Kahiki. The Plan is administered by the Board of Directors. The
board, within the limitation of the Plan, determines the persons to whom options
and awards may be granted, the number of shares to be covered by each option,
the option purchase price per share and the manner of exercise.
ISO's granted under the Plan may not be granted at a price of less than
the fair market value of common shares on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
Kahiki). The aggregate fair market value of shares for which ISO's granted to
any employee are exercisable for the first time by such employee during any
calendar year may not exceed $100,000. Non qualified options granted under the
plan may not be granted at a price less than the lesser of (1) the book value of
share of common stock as of the end of the fiscal year immediately preceding the
date of such grant, or (2) 80% of the fair market value of the common shares on
the date of grant. Options granted under the Plan will expire not more than 10
years from the date of grant (5 years in the case of ISO's granted to persons
holding 10% or more of the voting securities of Kahiki).
All options granted under the Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution. Options granted terminate within a specified period of
time following termination of an optionee's employment or position as a director
or consultant.
We will not grant options and warrants in excess of 15% of the outstanding
shares to officers, directors, employees, 5% shareholders or affiliates for a
one year period following the date of this proxy statement.
Compensation of Directors
In January, 2004, we engaged Bob Binsky, then a member of our Board of
Directors, as a consultant. Mr. Binsky's duties included advising Kahiki on cost
12
containment planning, assisting in raising capital and public relations. For his
services, Mr. Binsky was paid $25,000 and was issued options to purchase 80,000
common shares at $1.80 per share (the fair market value of the common shares on
the date of grant).
Outside Directors of the Company are paid $1,000 for each Board of
Director's meeting personally attended and $500 for each committee meeting. No
fees are paid to directors for participation in telephonic meetings of the board
or actions taken in writing.
Certain Relationships and Related Transactions
As described below under "Amendment of Amended and Restated Articles of
Incorporation," we have entered into various agreements with Townsends, Inc.
Charles Dix, one of our Directors, is President and Chief Operating Officer of
Townsends, Inc. Mr. Dix abstained from voting on the agreements. We believe that
each of the agreements with Townsends, Inc. are on commercially reasonable terms
and are beneficial to the Company.
On August 9, 2004, our Board of Directors authorized the issuance of
options to purchase 2,000 common shares each at an exercise price of $3.40 per
share (the then current market price) to Dr. Winston Bash, Bob Binsky, and
Charles Dix (each a director) 3,000 common shares each at an exercise price of
$3.40 per share to Bradford Sprague and R.L. Richards (each a director and the
chairman of the Compensation Committee and Strategy Committee, respectively);
and 4,000 common shares at an exercise price of $3.40 per share to Allen Proctor
(a director and chairman of the Audit Committee). Each option is exercisable
through August 8, 2009.
On August 18, 2003, Alice Tsao, an officer and Director, loaned Kahiki
$150,000 pursuant to a Subordinated Promissory Note bearing interest at the
prime rate announced from time to time by Bank One, N.A., plus two percent. The
promissory note matures on February 1, 2005, and is subordinated to all
indebtedness of Kahiki to financial institutions.
On April 18, 2003, our Board of Directors authorized the issuance of
options to purchase 3000 common shares each at an exercise price of $1.30 per
share ( the then-current market price) to Dr. Winston Bash and Bob Binsky (each
a Director) and Andrew J. Federico (our counsel). Each option is exercisable
through April 18, 2008.
On April 18, 2003, our Board of Directors declared a share dividend of one
share for every share outstanding to shareholders of record as of May 1, 2003.
On August 12, 2002, our Board of Directors authorized the issuance of
options to purchase 3000 common shares each at an exercise price of $1.25 per
share (the then-current market price) to Dr. Winston Bash and Bob Binsky (each a
Director) and Andrew J. Federico (our counsel). Each option is exercisable
through August 12, 2007.
Options granted to Messrs. Binsky, Bash and Federico in 2003 and 2002 (as
noted above) were in recognition of their service to the Board of Directors and
on the Board's
13
Compensation Committee. Each of the options where issues at market price, and no
compensation was recorded.
2. Amendment of Amended and Restated Articles of Incorporation
On December 21, 2004, Kahiki entered into a Convertible Note Purchase
Agreement (the "Purchase Agreement") with Townsends, Inc. ("Townsends"),
pursuant to which Kahiki issued a $1,000,000 Convertible Promissory Note due
December 31, 2009 (the "Note") to Townsends. The Note bears interest at the rate
of 5% per annum, which accrues to maturity, and is convertible into Preferred
Shares, to be authorized, or Common Shares, at a conversion price of $2.25 per
share.
In connection with the Purchase Agreement, Kahiki and Townsends also
entered into (i) a Supply Agreement pursuant to which Kahiki will purchase a
minimum of 20,000 pounds and a maximum of 40,000 pounds per week of chicken
products from Townsends at current market prices less $0.09 per pound; and (ii)
a Co-pack and Storage Agreement pursuant to which Kahiki will manufacture
finished poultry products for Townsends on a cost plus 10% basis.
Under the Purchase Agreement, Townsends acquired a second $1,000,000 Note
under the same terms on June 3, 2005. Kahiki is obligated to seek shareholder
approval of an amendment to Kahiki's Articles of Incorporation to authorize
Convertible Preferred Shares at this meeting. It is anticipated that Townsends
will convert the Note(s) to Preferred Shares upon shareholder approval of the
amendment. The Preferred Shares will provide for cumulative annual dividends at
an annual rate of $.1125 per share, will be convertible into Common Shares on a
share for share basis (subject to anti-dilution rights), will have a liquidation
preference of 1.5 times the invested amount, and will entitle Townsends to
appoint up to 2 members of Kahiki's Board of Directors.
In connection with these transactions, Kahiki and Townsends entered into a
Registration Rights Agreement. Under this agreement, Kahiki is required to file
a registration statement with the U.S. Securities and Exchange Commission on
demand by Townsends between December 21, 2005 and December 20, 2009, for the
purpose of registering the resale of Common Shares into which the Notes and
Preferred Shares may be converted.
The Amended and Restated Articles of Incorporation of the Company (the
"Articles") currently authorize the Company to have outstanding 10,000,000
shares, all of which are to be Common Shares with no par value. The Board of
Directors is proposing to amend the Articles to designate 9,000,000 shares as
Common Shares and 1,000,000 shares as Preferred Shares, and to specify the terms
and preferences of the Preferred Shares. A copy of the proposed Amended and
Restated Articles of Incorporation of the Company, including the terms and
preferences of the Preferred Shares, is attached to this Proxy Statement as
Appendix B.
The Company utilized the proceeds raised in the transaction with Townsends
to complete construction of the Company's manufacturing facility in Gahanna,
Ohio. The
14
Board of Directors believes that the proposed amendment to the Company's Amended
and Restated Articles of Incorporation is beneficial to all shareholders and,
therefore, recommends its adoption.
3. Ratification of Selection of Auditors
The Board of Directors has selected Plante & Moran, PLLC as auditors of
the financial statements of the Company for its current fiscal year ending March
31, 2006. At the Meeting, the shareholders will vote upon a proposal to ratify
the selection of Plante & Moran, PLLC as auditors. It is anticipated that a
representative of Plante & Moran, PLLC will attend the meeting. No member of
such firm, or any associate thereof, has any financial interest in the Company.
At the last Annual Meeting, the shareholders ratified the selection of
Child, Sullivan & Company ("Child") as auditors of the financial statements of
the Company for the fiscal year ended March 31, 2005. On December 20, 2004, the
Company engaged Plante & Moran, PLLC to replace Child. There were no
disagreements with Child on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.
Audit Fees
For fiscal years 2004 and 2005, the Company was billed by GBQ Partners LLC
("GBQ") $2,734 (for fiscal year 2004), and by Child (for fiscal year 2004)
$28,000, and by Plante Moran $35,126 (for fiscal year 2005), for professional
services rendered for the audit of the Company's annual financial statements and
services provided in their engagements for those fiscal years.
Tax Fees
For fiscal years 2004 and 2005, the Company was billed by GBQ $3,103.00
and $25,774, respectively, for professional services rendered for tax
compliance, tax advise and tax planning.
All Other Fees
For fiscal years 2004 and 2005, the Company was billed by GBQ $1,678.00
and $8,975, respectively for business consulting services.
The Board of Directors of the Company recommends a vote for the
ratification of the selection of Plante & Moran, PLLC as auditors for the
current fiscal year. All proxies solicited by the Board of Directors will be
voted in accordance with the specifications on the term form of proxy. Where no
specification is made, proxies will be votes "FOR" the ratification of the
selection of Plante & Moran, PLLC as auditors of the Company for the current
fiscal year.
4. Other Business
15
The Board of Directors knows of no other business to be acted upon at the
Meeting. However, if any other business properly comes before the Meeting, it is
the intention of the persons named in the enclosed Proxy to vote on such matters
in accordance with their best judgment.
Shareholder Proposals for the 2006 Annual Meeting
Shareholder proposals to be presented at the 2006 Annual Meeting of
Shareholders of Kahiki must received at Kahiki's executive offices at 1100
Morrison Road, Gahanna, Ohio 43230, addressed to the attention of the Secretary,
by April 1, 2006, in order to be included in the proxy statement and form of
proxy relating to such meeting.
ANNUAL REPORT
Kahiki's 2005 Annual Report is currently being mailed to shareholders. The
Annual Report contains financial statements of Kahiki and the report thereon by
Plante & Moran, PLLC, independent public accountants.
The Prompt return of the Proxy will be appreciated and helpful in
obtaining the necessary vote. Therefore, whether or not you expect to attend the
meeting, please sign the Proxy and return it in the enclosed envelope.
By Order of the Board of Directors
Michael C. Tsao
President
16
APPENDIX A
KAHIKI FOODS, INC. BOARD OF DIRECTORS
AUDIT COMMITTEE CHARTER
I. THE COMMITTEE'S PURPOSE. The Committee is appointed by the Board of
Directors for the primary purposes of:
A. Assisting the Board in its oversight of:
1. the quality and integrity of the Corporation's financial
statements;
2. the Corporation's compliance with legal and regulatory
requirements;
3. the Corporation's overall risk management profile;
4. the independent auditor's qualifications and independence; and
5. the performance of the Corporation's internal audit function
and independent auditors.
B. Preparing the annual Audit Committee Report to be included in the
Corporation's proxy statement, if any.
II. COMMITTEE MEMBER QUALIFICATIONS. To be a member of the Audit Committee, a
Board member must meet the following requirements:
1. S/he and members of his/her immediate family and entities of
which s/he is a partner, member, officer, director or
significant (greater than 10%) shareholder must not receive
any compensation from the Corporation, except for his/her
director's fees (prohibited compensation includes fees paid
for accounting, consulting, legal, investment banking or
financial advisory services);
2. S/he must not be the beneficial owner, directly or indirectly;
of more than ten percent (10%) of any class of the
Corporation's voting equity securities, or be an executive
officer of the Corporation;
3. S/he must not be serving simultaneously on the audit
committees of more than two (2) other companies, unless the
Board determines that such service will not impair his/her
ability to serve on the Corporation's Audit Committee; and
4. S/he must be financially literate, as determined by the Board,
or must become financially literate.
III. THE COMMITTEE'S DUTIES AND RESPONSIBILITIES. Corporation management is
responsible for preparing financial statements; the Committee's primary
responsibility is oversight. To carry out this responsibility, the
Committee will undertake the following activities:
A. GENERAL.
1. To develop and maintain free and open means of communication
with the Board, the Corporation's independent auditors, the
Corporation's internal auditors, and the financial and general
management of the Corporation;
2. To perform any other activities as the Committee deems
appropriate, or as are requested by the Board, consistent with
this Charter, the Corporation's By Laws and applicable law;
3. To maintain and update, as appropriate, this Charter; and
4. To review with the Board any significant issues that arise
with respect to the items listed in I.A. 1 through 5 above.
B. THE CORPORATION'S FINANCIAL STATEMENTS AND PUBLISHED INFORMATION.
1. At least annually, to review:
a. major issues regarding accounting principles and
financial statement presentations including any
significant changes in the Corporation's selection or
application of accounting principles, as well as the
clarity and completeness of the Corporation's financial
statements and items that impact the representational
faithfulness, verifiability and neutrality of accounting
information;
b. analyses prepared by management and/or the independent
auditor setting forth significant financial reporting
issues and judgments made in connection with the
preparation of the financial statements, including
analyses of the effects of alternative GAAP methods on
the financial statements; and
c. the effect of regulatory and accounting initiatives, as
well as off-balance sheet structures, on the financial
statements of the Corporation.
2. To discuss the annual audited financial statements and
quarterly financial statements with Corporation management and
the independent auditors.
3. To discuss the Corporation's earnings press releases, if any,
as well as financial information and earnings guidance
provided to analysts and ratings agencies. These discussions
must occur in advance of any release or each provision of
guidance.
C. PERFORMANCE AND INDEPENDENCE OF THE CORPORATION'S INDEPENDENT
AUDITORS.
1. At least annually, to obtain and review a written report by
the independent auditors describing:
a. the independent auditing firm's internal quality control
procedures;
b. any material issues raised by the most recent internal
quality control review, or peer review, of the
independent auditing firm;
c. any material issues raised by any inquiry or
investigation by governmental or professional
authorities within the preceding five years respecting
one or more independent audits carried out by the
independent auditing firm;
d. any steps taken to deal with any issues raised in such
internal quality control reviews, peer reviews, or
governmental or professional authority inquiries or
investigations; and
e. all relationships between the independent auditor and
the Corporation.
2. To annually evaluate the independent auditor's qualifications,
performance and independence, including a review and
evaluation of the lead partner, taking into account the
opinions of Corporation management and the Corporation's
internal auditors, and to report its conclusions to the Board.
3. To assure regular rotation of the lead audit partner, as
required by law.
4. To periodically meet separately with independent auditors.
5. To set clear hiring policies for employees or former employees
of the independent auditors.
D. THE REVIEW OF SERVICES AND AUDIT BY INDEPENDENT AUDITOR.
1. To appoint, retain (with subsequent submission to the
Corporation's shareholders for ratification), compensate,
evaluate and terminate the Corporation's independent auditors,
with sole authority to approve all audit engagement fees and
terms, as well as all non-audit engagements with the
independent auditors (these responsibilities may not be
delegated to Corporation management).
2. At least annually, to pre-approve all audit and non-audit
services to be provided to the Corporation by its independent
auditors (this responsibility may not be delegated to
Corporation management and, to the extent that this
responsibility is delegated to one or more members of the
Committee, such member(s) must report such pre-approvals at
the next scheduled meeting of the Committee).
3. To ensure that the Corporation's independent auditors do not
perform any non-audit services that are prohibited by law or
regulation.
4. To review the scope of the annual audit to be performed by the
Corporation's independent auditors.
5. To review with the independent auditor any audit problems or
difficulties encountered in the course of the audit work, and
Corporation management's responses.
6. To review the audit report and recommendations submitted by
the Corporation's independent auditors.
7. To review the report required by the regulatory authorities
from the independent auditor concerning:
a. Critical accounting policies and practices to be used in
the audit;
b. Alternative treatments of financial information within
GAAP that have been discussed with Corporation
management, ramifications of the use of such alternative
disclosure and treatments, and the treatment preferred
by the independent auditor; and
c. Other material written communications between the
independent auditor and Corporation management, such as
any management letter or schedule of unadjusted
differences.
E. THE PERFORMANCE OF THE CORPORATION'S INTERNAL AUDIT FUNCTION.
1. To periodically meet separately with internal auditors.
2. To review and approve the annual internal audit plan.
3. To receive and review summaries and reports from the internal
auditor with respect to its review of the operations of the
Corporation and the systems of internal controls and, where
deemed appropriate, management's responses thereto.
F. CONTROLS WITHIN THE CORPORATION.
1. To periodically meet separately with Corporation management
including senior finance and accounting management.
2. To annually review major issues as to the adequacy of the
Corporation's internal controls and any special audit steps
adopted in light of material control deficiencies.
3. To receive quarterly a report from the Corporation's Chief
Executive and Chief Financial Officer describing:
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
issuer's ability to record, process, summarize, and
report financial data; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Corporation's internal controls.
4. To establish procedures for:
a. the receipt, retention, and treatment of complaints
received by the Corporation regarding accounting,
internal accounting controls, or auditing matters; and
b. the confidential, anonymous submission by employees of
the issuer of concerns regarding questionable accounting
or auditing matters.
G. REVIEW OF RISK MANAGEMENT.
To discuss:
1. guidelines and policies to govern risk assessment and risk
management;
2. the Corporation's major risk exposures and the steps
Corporation management has taken to monitor and control such
exposures;
3. to review the status of Corporate Security, the security for
the Corporation's electronic data processing information
systems, and the general security of the Corporation's people,
assets and information systems;
4. to review the status of the Corporation's financial
statements; and
5. to receive annual and as required reports from corporate
counsel regarding legal, regulatory and intellectual property
issues.
IV. AUTHORITY TO RETAIN EXPERTS. The Committee has the authority to select,
direct and, if appropriate, terminate such experts as it deems necessary
in the performance of its duties.
V. ANNUAL PERFORMANCE EVALUATION OF THE COMMITTEE. At least annually, the
Committee will evaluate how well it has fulfilled its purpose during the
previous year, and will report its findings to the full Board.
VI. AUDIT COMMITTEE FINANCIAL EXPERT. At least one member of the Committee
must have accounting or related financial management expertise as
determined by the Board in accordance with applicable listing standards.
At least one member of the Committee must be an "audit committee financial
expert" as defined by regulatory authorities. The person with accounting
or related financial management expertise and the "audit committee
financial expert" can be one and the same.
VII. ANNUAL BUDGET. The audit committee shall establish an annual budget
including reserves for audit contingencies. In the event the budget
exceeds two percent of gross revenues, the audit committee shall submit
the budget to the board of directors for approval.
APPENDIX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KAHIKI FOODS, INC.
This Corporation is organized under Section 1707.01, et seq., Revised Code
of Ohio, as amended.
FIRST: The name of the Corporation (hereinafter called the "Corporation")
is
KAHIKI FOODS, INC.
SECOND: The place in the State of Ohio where the principal office of the
Corporation is to be located is the City of Gahanna, County of Franklin.
THIRD: The purposes for which the Corporation is formed shall be in the
authority to engage in any lawful act or activity for which corporations may be
formed under Chapter 1701 of the Revised Code of Ohio.
FOURTH: The number of shares of capital stock which the Corporation is
authorized to have outstanding is Ten Million (10,000,000), Nine Million
(9,000,000) of which shall be designated Common Stock with no par value (the
"Common Stock"), and One Million (1,000,000) of which shall be designated Series
A Convertible Preferred Stock with no par value (the "Series A Preferred
Stock").
The Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Stock, shall obtain and keep in force such
authorizations as may be required, and shall comply with all requirements as to
registration or other qualification, in order to enable to Corporation lawfully
to issue and deliver solely for the purpose of effecting the conversion of the
Series A Preferred Stock and of any other securities of the Corporation which
may be convertible or exercisable into Common Stock, such number of shares of
Common Stock as shall from time to time be sufficient to effect such exercise
and conversion. The Corporation shall from time to time in accordance with the
laws of the State of Ohio increase the authorized amount of its shares of Common
Stock if at any time the number of shares of Common Stock remaining unissued and
available for issuance shall not be sufficient to permit conversion of the
Series A Preferred Stock and such other securities.
The rights and preferences of the Common Stock and the Series A Preferred
Stock shall be as follows:
COMMON STOCK
1. Parity. Each share of Common Stock shall be equal to each other share
of Common Stock in every respect.
2. Voting Rights. Each share of outstanding Common Stock shall entitle the
Holder thereof to one vote per share thereof upon all matters upon which
shareholders may have the right to vote, except as otherwise provided herein, in
the Code of Regulations of the Corporation, or by law.
3. Preemptive Rights. The holders of Common Stock shall not have any
preemptive or other preferential right to subscribe for, or to purchase any
shares of capital stock of the Corporation of any class, whether now or
hereinafter authorized, or any Securities exchangeable for or convertible into
such stock.
B. SERIES A PREFERRED STOCK
1. Preference. The Series A Preferred Stock shall rank senior to all other
classes of the Corporation's capital stock, including the Corporation's Common
Stock and all other classes of preferred stock (collectively, the "Junior
Stock") with respect to liquidation and dividend rights. The Series A Preferred
Stock shall have the powers, rights, preferences, qualifications, and
limitations set forth herein.
2. Dividends. The holders of record of Series A Preferred Stock shall each
be entitled to receive, when and as declared by the Board of Directors out of
funds legally available therefore, cumulative dividends, compounding annually,
at an annual rate equal to $0.1125 per share, respectively, adjusted for any
combinations, consolidations, subdivisions or stock splits with respect to such
shares (the "Preferred A Dividend Preference"), payable annually on each June 1
and December 1 of each year (or the next business day thereafter) when and as
declared by the Board of Directors, in preference and priority to any payment of
any dividend on any shares of Junior Stock (other than those payable solely in
Common Stock). The Preferred A Dividend Preference may be payable in-cash or in
additional shares of Series A Preferred Stock at the option of the Board of
Directors. If an "Event of Noncompliance" (as defined in Section 6 below)
occurs, then the Preferred A Dividend Preference shall be increased as provided
for in Section 6. No dividend shall be paid on or declared and set apart with
respect to the Common Stock or any other class of Junior Stock unless and until
cumulative dividends on the Series A Preferred Stock shall have been paid or
declared as set forth herein and set apart during that fiscal year and any prior
year in which dividends were not paid. Notwithstanding the foregoing, if during
any fiscal year of the Corporation, the Corporation pays dividends (cash or
otherwise) to the holders of the Corporation's Common Stock, then the holders of
record of the Series A Preferred Stock shall also be entitled to receive
dividends in an amount equal to the amount of any dividend declared payable with
respect to each share of Common Stock multiplied
2
by the number of shares of Common Stock into which each share of Series A
Preferred Stock is convertible pursuant to Section 5 hereof, as of the record
date for the determination of holders of Common Stock and Series A Preferred
Stock entitled to receive such dividend. No dividend shall be declared or paid
with respect to the Common Stock unless such a dividend is declared and paid
with respect to the Series A Preferred Stock (as provided above). The record
date with respect to the payment of dividends with respect to the Series A
Preferred Stock arising from such dividends paid on the Common Stock shall be
the same as the record dates with respect to the payment of dividends with
respect to the Common Stock. The right to such dividends shall be cumulative as
to the Series A Preferred Stock.
3. Liquidation, Dissolution, or Winding Up.
In the event of a "Liquidation Event" (as defined below), each
holder of Series A Preferred Stock shall be entitled to be paid out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock, before any payment or declaration and setting apart
for payment of any amount shall be made in respect of the Corporation's Junior
Stock, an amount equal to the greater of (a) if the Liquidation Event occurs (i)
prior to December 21, 2006, $2.8125 per share, respectively (as adjusted to
reflect any share split, combination, reclassification, or similar event
involving the Series A Preferred Stock), plus all accrued but unpaid dividends
thereon (whether or not declared), up to and including the date when full
payment shall be tendered to the holders of the Series A Preferred Stock with
respect to such Liquidation Event or (ii) on or after December 21, 2006, $3.375
per share, respectively (as adjusted to reflect any share split, combination,
reclassification, or similar event involving the Series A Preferred Stock), plus
all accrued but unpaid dividends thereon (whether or not declared), up to and
including the date when full payment shall be tendered to the holders of the
Series A Preferred Stock with respect to such Liquidation Event (either (i) or
(ii), the "Liquidation Preference") and (b) the amount per share that the
holders of Series A Preferred Stock would have been entitled to receive if each
share of Series A Preferred Stock held by such holders had been converted into
Common Stock, pursuant to Section 5 hereof, immediately prior to the Liquidation
Event. If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Series A Preferred Stock of the
Liquidation Preference, then the entire assets of the Corporation available for
such distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the Liquidation Preference that each such
holder is otherwise entitled to receive based upon the aggregate Liquidation
Preference of the Series A Preferred Stock held by each such holder and the
aggregate Liquidation Preference of all Series A Preferred Stock. After such
payment shall have been made in full to the holders of the Series A Preferred
Stock or funds necessary for such payment shall have been set aside by the
Corporation in trust for the account of holders of the Series A Preferred Stock
so as to be available for such payment, distributions may be made on the Junior
Stock. For purposes of this Section 3, a
3
"Liquidation Event" of this Corporation shall be deemed to be occasioned by, or
to include, by means of any transaction or series of related transactions, any
of the following: (A) any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary; (B) the acquisition of the stock
of the Corporation by another entity or person (including, without limitation,
any reorganization, merger, or consolidation but, excluding any merger effected
exclusively for the purpose of changing the domicile of the Corporation), unless
the Corporation's stockholders of record, as constituted immediately prior to
such acquisition will, immediately after such acquisition (by virtue of
securities issued or sold as consideration for the Corporation's acquisition or
otherwise), hold at least 50% of the voting power of the surviving or acquiring
entity; (C) the sale of all or substantially all of the assets of the
Corporation, unless the Corporation's stockholders of record, as constituted
immediately prior to such acquisition or sale will, immediately after such
acquisition or sale (by virtue of securities issued as consideration for the
Corporation's acquisition or sale or otherwise), hold at least 50% of the voting
power of the surviving or acquiring entity; or (D) the Corporation's making an
assignment for the benefit of creditors or commencing any bankruptcy,
dissolution, termination of corporate existence, or any similar action.
Notwithstanding the foregoing, the holders of at least fifty-one percent (51%)
of the outstanding Series A Preferred Stock voting together as a single-class
(based on the number of shares held by the holders on an as-converted to Common
Stock basis) (the "Convertible Preferred Majority"), may waive any Liquidation
Event for purposes of the distributions set forth in this Section 3.
4. Voting Rights.
(a) Except as otherwise expressly required by law, each holder of
Series A Preferred Stock shall be entitled to vote on all matters submitted to a
vote of the holders of Common Stock and shall be entitled to that number of
votes equal to the maximum whole number of Common Stock into which such holder's
Series A Preferred Stock, as applicable, is convertible pursuant to the
provisions of Section 5 on the record date for the determination of stockholders
entitled to vote on such matter or, if no record date is established, on the
date such vote is taken or any written consent of stockholders is first
executed. Except as otherwise expressly provided below in this Section 4 or as
required by law and except for the voting rights of the holders of the Series A
Preferred Stock to elect a director of the Corporation pursuant to the Voting
Agreement dated as of the Closing Date, the holders of Series A Preferred Stock
and Common Stock shall vote together as a single class on all matters, and
neither the Common Stock nor any of the Series A Preferred Stock shall be
entitled to vote as a separate class on any matter to be voted on by
stockholders of the Corporation.
(b) The Corporation shall not take any of the following actions
without the affirmative vote (in writing or at a meeting of holders of Series A
Preferred Stock) of the holders of at least the Convertible Preferred Majority:
4
(i) The Corporation shall not amend, alter, waive, or repeal
the preferences, privileges, special rights, or other powers of the Series
A Preferred Stock, as set forth herein;
(ii) The Corporation shall not increase or decrease (other
than by conversion in accordance with these Amended and Restated Articles
of Incorporation) the authorized number of shares of Series A Preferred
Stock;
(iii) The Corporation shall not amend, waive or repeal any
provisions of or add any provisions to, the Corporation's Amended and
Restated Articles of Incorporation or Code of Regulations;
(iv) Declare or pay any dividend or other distribution upon
any class of the Junior Stock;
(v) Authorize or designate, whether by reclassification or
otherwise, any new class or series of shares or any other securities
convertible into equity securities of the Corporation that has rights,
preferences, or privileges senior to or pari passu with the Series A
Preferred Stock; or
(vi) Increase the size of the Corporation's Board of
Directors.
(c) Notwithstanding the provisions of paragraph (b) above, the
actions of the Corporation specified therein shall not require the separate
affirmative vote of Convertible Preferred Majority, if less than twenty-five
percent (25%) of the aggregate number of shares of Series A Preferred Stock
theretofore issued by the Corporation are at the time outstanding.
5. Conversion.
(a) Optional Conversion.
(i) Each holder of the Series A Preferred Stock may at any
time, upon surrender of the certificates therefore, convert all or any
portion of his or its Series A Preferred Stock into fully paid and
nonassessable Common Stock of the Corporation, at the Series A Conversion
Price set forth below, plus declared and unpaid dividends thereon.
(ii) Before any holder of Series A Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, such holder
shall surrender the certificate or certificates therefore, endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or
by his, her or its attorney duly authorized in writing, at the office of
the Corporation or of any transfer agent for the Series A Preferred Stock,
and shall give written notice to the
5
Corporation at its office that the holder elects to convert the same and
shall state therein the holder's name or the names of the nominees in
which the holder wishes the certificate or certificates for shares of
Common Stock to be issued. As soon as practicable thereafter, the
Corporation shall issue and deliver at its office to the holder of the
Series A Preferred Stock, or to the holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to
which the holder shall be entitled as aforesaid, together with cash in
lieu of any fraction of a share. A conversion shall be deemed to have been
made immediately prior to the close of business on the date of the
surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the record
holder or holders of the shares of Common Stock at the close of business
on that date. From and after that date, all rights of the holder with
respect to the Series A Preferred Stock so converted shall terminate,
except only the right of the holder to receive certificates for the number
of shares of Common Stock issuable-upon conversion thereof and cash for
fractional shares. No fractional shares of Common Stock shall be issued
upon conversion of the Series A Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation
shall pay cash equal to such fraction multiplied by the then-effective
Conversion Price.
(b) Automatic Conversion.
(i) All outstanding Series A Preferred Stock shall be (A)
converted automatically and without the need for any action by the holders
thereof, at the conversion ratio set forth below, plus declared and unpaid
dividends thereon, into fully paid and nonassessable shares of Common
Stock immediately upon and simultaneously with the achievement of the
"Minimum Common Price" (as defined below) at any time after the first
anniversary of the Closing Date or(B) converted automatically upon the
affirmative vote of at least the Convertible Preferred Majority. The
"Minimum Common Price" shall mean that the closing price of the
Corporation's Common Stock (exclusive of any trades by the Corporation's
officers, directors or five percent or greater stockholders) on any
trading exchange or market for which shares of Common Stock of the
Corporation are then primarily traded or sold, equals or exceeds $5.00 per
share (adjusted for any combinations, consolidations, subdivisions, or
stock splits with respect to such shares) for at least 180 consecutive
trading days.
(ii) All holders of record of shares of Series A Preferred
Stock will be given written notice of the date of any automatic conversion
referenced in this Section 5(b). That notice will be sent by mail, first
class, postage prepaid, to each record holder of Series A Preferred Stock
at each holder's address appearing on the stock register. Promptly after
receiving the notice, each holder of shares of Series A Preferred Stock
shall surrender the holder's certificate or certificates for
6
all affected shares to the Corporation at the place designated in the
notice, and thereafter shall receive certificates for the number of shares
of Common Stock or other securities to which the holder is entitled. Upon
the date of any automatic conversion, all rights with respect to the
Series A Preferred Stock will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock
or other securities into which their Series A Preferred Stock has been
converted and cash for fractional shares. From and after the date of the
automatic conversion, all certificates evidencing shares of Series A
Preferred Stock automatically converted in accordance with these
provisions shall be deemed to have been retired and canceled and the
shares of Series A Preferred Stock represented thereby converted into
Common Stock for all purposes, notwithstanding the failure of the holder
or holders thereof to surrender his, her or its certificates. As soon as
practicable after the date of any automatic conversion and the surrender
of the certificate or certificates for Series A Preferred Stock as
aforesaid, the Corporation shall cause to be issued and delivered to the
holder, or pursuant to the holder's written order, a certificate or
certificates for the number of full shares of Common Stock or other
securities issuable on the conversion in accordance with the provisions
hereof and cash as provided herein in respect of any fraction of a share
of Common Stock otherwise issuable upon the conversion. No fractional
shares of Common Stock shall be issued upon conversion of the Series A
Preferred Stock. In lieu of any fractional shares to which the holder
would otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the then-effective Conversion Price.
(c) Conversion Ratio. Subject to adjustment in the event of certain
capital transactions including, without limitation, stock splits, stock
dividends, recapitalization and reorganizations, each share of the Series A
Preferred Stock may be converted into such number of shares of Common Stock as
is obtained by dividing $2.25 by the initial conversion price of $2.25 per share
or, in case any adjustment of such conversion price has taken place pursuant to
the provisions of this Section 5, by the conversion price as last adjusted and
in effect on the date any shares of Series A Preferred Stock are surrendered for
conversion (such conversion price, or such conversion price as last adjusted,
being referred to herein as the "Series A Conversion Price").
(d) Adjustments. The Series A Conversion Price at which the Series A
Preferred Stock may or shall be converted into Common Stock shall be subject to
adjustment from time to time in certain cases as follows:
(i) In case the Corporation shall (A) pay a dividend on its
Common Stock in shares of its capital stock, (B) subdivide its outstanding
Common Stock, (C) combine its outstanding Common Stock into a smaller
number of shares, or (D) issue in any recapitalization, reorganization or
7
reclassification of its Common Stock (including any such reclassification
in connection with a consolidation or merger in which the Corporation is
the continuing corporation) any shares of its capital stock, the
Conversion Price in effect immediately prior thereto shall be adjusted
proportionately so that the holder of any Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the
number and kind of shares of capital stock of the Corporation which such
holder would have owed or have been entitled to receive after the
happening of such event, had such Series A Preferred Stock been converted
immediately prior to the happening of such event. Such adjustment shall be
made whenever any of such events shall occur. An adjustment made pursuant
to this paragraph (i) shall become effective, retroactively to the record
date, immediately after the payment date in the case of a stock dividend
and shall become effective immediately after the effective date in the
case of a subdivision, combination, recapitalization, reorganization, or
reclassification.
(ii) In the event that, at any time, as a result of an
adjustment made pursuant to paragraph (i) above, the holder of any Series
A Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of capital stock of the Corporation other
than its Common Stock, thereafter the number of such other shares so
receivable upon conversion shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in paragraph (i)
above.
(iii) Whenever the amount of Common Stock or other securities
deliverable upon the conversion of the Series A Preferred Stock shall be
adjusted pursuant to the provisions hereof, the Corporation shall
forthwith file, at its principal office and with any transfer agent or
agents for the Series A and for Common Stock, and with any stock exchange
on which such Series A or Common Stock are listed, a statement, signed by
its President or one of its Vice Presidents or its Secretary or Treasurer,
stating the adjusted number of Common Stock or other securities
deliverable per share of Series A Preferred Stock, upon conversion thereof
calculated to the nearest share and setting forth in reasonable detail the
method of calculation and the facts requiring such adjustment and upon
which such calculation is based, and shall give notice thereof by mail,
postage prepaid, to the holders of record of the Series A Preferred Stock,
as applicable. Each adjustment shall remain in effect until a subsequent
adjustment hereunder is required.
(iv) At all times, the Corporation shall reserve and keep
available unto its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the conversion of all the
then-outstanding Series A Preferred Stock and shall take all such action
and obtain all such permits
8
or orders as may be necessary to enable the Corporation lawfully to issue
such Common Stock upon the conversion of such Series A Preferred Stock.
(v) No fractional Common Stock shall be issued upon a
conversion of the Series A Preferred Stock. If any fractional interest in
a Common Stock share would be deliverable upon the conversion of any
Series A Preferred Stock, the Corporation shall round such fractional
interest to the nearest whole share, in lieu of delivering the fractional
share therefor.
(e) Adjustment of Conversion Price Upon Issuance of Common Stock.
(i) Mechanics of Adjustment. Except as provided in Subsection
5(e)(vii), if and whenever the Corporation shall issue or sell, or under
any of Subsections 5(e)(ii) through 5(e)(vi) is deemed to have issued or
sold, any shares of its Common Stock without consideration or for a
consideration per share less than the Series A Conversion Price for the
shares of its Series A Preferred Stock in effect immediately prior to the
time of such issuance or sale (the "Dilutive Price"), then such Series A
Conversion Price at such time shall be reduced to an amount (calculated to
the sixth decimal point) equal to (x) the Dilutive Price if such issuance
or sale occurs on or prior to December 21, 2006 and (y) if such issuance
or sale occurs after December 21, 2006, the price determined by dividing
(1) an amount equal to the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale (including as
outstanding all Common Stock issuable upon conversion of outstanding
Preferred Stock and all Common Stock issuable upon the exercise of Options
or the conversion of Convertible Securities, as such terms are defined in
Subsection 5(e)(ii)), multiplied by such Conversion Price at such time and
(B) the consideration, if any, received and/or receivable by the
Corporation in connection with such issuance or sale, by (2) the total
number of shares of Common Stock outstanding immediately after such
issuance or sale, including as outstanding all Common Stock issuable upon
conversion of outstanding Preferred Stock and all Common Stock issuable
upon the exercise of Options or the conversion of Convertible Securities.
The Dilutive Price shall be determined by the consideration, if any,
received and/or receivable by the Corporation in connection with such
dilutive issuance or sale as determined by the Board of Directors in good
faith.
(ii) Issuance of Rights or Options. Except as provided in
Subsection 5(e)(vii), in case at any time the Corporation shall in any
manner grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for the
purchase of, shares of Common Stock or any stock or securities convertible
into or exchangeable for Common Stock (such rights or options being
hereinafter referred to as "Options" and such Convertible or exchangeable
stock or securities being hereinafter referred to as "Convertible
Securities"), whether or not such Options or the right
9
to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which a share of Common Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (A) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the aggregate amount
of additional consideration payable to the Corporation upon the exercise
of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the aggregate amount of additional consideration,
if any, payable upon the issuance or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (B) the maximum number of
shares of Common Stock issuable upon the full exercise of such Option or
upon the full conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than such Series
A Conversion Price, as applicable, in effect immediately prior to the time
of the granting of such Options, then the maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of the maximum number of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to
have been issued for such price per share as of the date such Options were
granted and thereafter shall be deemed to be outstanding. Except as
otherwise provided in Subsection 5(e)(iv), no adjustment of such Series A
Conversion Price, as applicable, shall be made upon the actual issuance of
such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities if an appropriate adjustment
was previously made pursuant to this Subsection 5(e)(ii) upon the issuance
of such Options.
(iii) Issuance of Convertible Securities. Except as provided
in Subsection 5(e)(vii), in case the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
any such Convertible Securities are exercisable immediately, and the price
per share for which a share of Common Stock is issuable upon such
conversion or exchange (determined by dividing (A) the total amount, if
any, received or receivable by the Corporation as consideration for the
issuance or sale of such Convertible Securities, plus the aggregate amount
of additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than such Series A Conversion Price
in effect immediately prior to the time of such issuance or sale, then the
maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issuance or sale of
10
such Convertible Securities and thereafter shall be deemed to be
outstanding; provided that (a) except as otherwise provided in Subsection
5(e)(iv), no adjustment of such Series A Conversion Price shall be made
upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities if an appropriate adjustment was previously
made pursuant to this Subsection 5(e)(iii) upon the issuance of such
Convertible Securities, and (b) if any such issuance or sale of such
Convertible Securities is made upon the exercise of any Option to purchase
any such Convertible Securities for which adjustment of the Conversion
Price have been or are to be made pursuant to other provisions of this
Subsection 5(e), no further adjustment of such Series A Conversion Price
shall be made by reason of such issuance or sale.
(iv) Change in Option Price or Conversion Rate. In the event
that the purchase price provided for in any Option referred to in
Subsection 5(e)(ii), the additional consideration, if any, payable upon
the conversion or exchange of any Convertible Securities referred to in
Subsection 5(e)(ii) or 5(e)(iii), or the rate at which any Convertible
Securities referred to in Subsection 5(e)(ii) or 5(e)(iii) are convertible
into or exchangeable for shares of Common Stock, shall change at any time
(other than under or by reason of provisions designed to protect against
dilution), such Series A Conversion Price in effect at the time of such
event for any outstanding share of Series A Preferred Stock shall be
readjusted to the Conversion Price which would have been in effect at such
time had such Options or Convertible Securities still outstanding provided
for such purchase price, additional consideration, or conversion rate, as
the case may be, at the time such Options or Convertible Securities
initially were granted, issued or sold. In the event any Options or any
right to convert or exchange Convertible Securities shall expire or
terminate without being exercised, such Series A Conversion Price then in
effect hereunder for any outstanding shares of Series A Preferred Stock
shall be adjusted to the Series A which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued, and the shares of Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the purchase
price provided for in any Option referred to in Subsection 5(e)(ii) or the
rate at which any Convertible Securities referred to in Subsection
5(e)(ii) or 5(e)(iii) are convertible into or exchangeable for shares of
Common Stock shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then, in case
of the grant of any such, Option or upon conversion or exchange of any
such Convertible Securities, the Conversion Price then in effect hereunder
for any outstanding shares of Series A Preferred Stock shall be adjusted
to such respective amount as would have been obtained had such Option or
Convertible Securities never been issued as to such Common
11
Stock and had adjustments been made upon the issuance of the Common Stock
delivered as aforesaid, but only if, as a result of such adjustment, the
Conversion Price then in effect hereunder is hereby reduced.
(v) Consideration for Stock. In case any shares of Common
Stock, Options, or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options, or Convertible Securities shall be issued or sold, in
whole or in part, for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be deemed
to be the fair market value of such consideration as determined in good
faith by a majority of the members of the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commission or concessions paid or allowed by the Corporation
in connection therewith.
(vi) Treasury Shares. The disposition of shares of Common
Stock owned or held by or for the account of the Corporation (other than a
result of a cancellation of treasury shares) shall be considered an issue
or sale of Common Stock for the purpose of this Subsection 5(e).
(vii) When Adjustment Is Not Required. Notwithstanding any
provision herein to the contrary, no adjustment shall be made in the
Conversion Price as a result of (1) the issuance of Common Stock upon
conversion of any shares of Series A Preferred Stock; (2) the issuance of
Series A Preferred Stock upon conversion of any outstanding convertible
notes in existence as of the Closing Date; (3) the issuance of dividends
or other distributions on the Series A Preferred Stock; (4) the issuance
of warrants or other securities to financial institutions or lenders in
connection with lease lines or loans approved by the Corporation's Board
of Directors; (5) the issuance of stock, warrants or options to employees,
directors or consultants of the Company as approved by the Corporation's
Board of Directors at a price not less than 85% of the then applicable
Series A Conversion Price; (6) the exercise of any warrants, options or
other convertible securities in existence as of the Closing Date for the
purchase of Common Stock; or (7) any subdivisions or combination affecting
the Common Stock or the issuance of shares of Common Stock pursuant to a
stock dividend or other distribution on Common Stock if an appropriate
adjustment to the Series A Conversion Price, is made pursuant to
Subsection 5(d).
(viii) Notices of Record Date. In the event of any taking by
this Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend (other
12
than a cash dividend) or other distribution, any right to subscribe for,
purchase, or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, this
Corporation shall send via certified or overnight mail to each holder of
Series A Preferred Stock, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution, or right.
(ix) Reservation of Stock Issuable Upon Conversion. At all
times, this Corporation shall reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Series A Preferred Stock,
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then-outstanding shares of the Series A Preferred Stock, in addition
to such other remedies as shall be available to the holder of such Series
A Preferred Stock, this Corporation will take such corporate actions as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation,
engaging in best efforts to obtain the requisite stockholder approval of
any necessary amendment to the Corporation's Amended and Restated
Certificate of Incorporation.
(x) Notices. Any notice required by the provisions of this
Certificate to be given to the holders of shares of Series A Preferred
Stock shall be deemed given if deposited in the United States mail,
certified mail postage prepaid, or overnight mail, and addressed to each
holder of record at his address appearing on the books of this
Corporation.
6. Events of Noncompliance.
(a) An "Event of Noncompliance" will be deemed to have occurred if
any of the following actions occur and remain uncured after 30 days following
written notice to, or discovery by, the Corporation:
(i) the Corporation's default under, or material breach of,
any of the provisions of the definitive investment agreements entered
between the Corporation and Townsends, Inc. on or around the Closing Date,
including without limitation the provisions of these Amended and Restated
Articles of Incorporation, the Voting Agreement, Convertible Note Purchase
Agreement and Registration Rights Agreement;
13
(ii) the Corporation's default under, or material breach of,
any of the provisions of the Corporation's Supply Agreement dated on or
around the Closing Date, as amended from time to time with Townsends,
Inc.; and
(iii) the Corporation's default under, or material breach of,
any of the provisions of the Corporation's Co-Packing Agreement dated on
or around the Closing Date, as amended from time to time with Townsends,
Inc.
(b) Upon the occurrence of an Event of Noncompliance, the dividends
payable on the then outstanding shares of Series A Preferred Stock shall
increase to $0.225 per share. The right to increased dividends pursuant to the
preceding sentence shall cease upon the earlier of (w) the conversion of all
outstanding shares of Series A Preferred Stock into Common Stock pursuant to
Section 5 of these Amended and Restated Articles of Incorporation; (x) the
payment in full of the Liquidation Preference (or such higher amount, as
applicable) on all outstanding shares of Series A Preferred Stock pursuant to
Section 3 of these Amended and Restated Articles of Incorporation; (y) the
Corporation's cure of the facts and circumstances resulting in the Event of
Noncompliance; or (z) the waiver of the Event of Noncompliance by the
Convertible Preferred Majority.
7. Reissuance of Preferred Stock. No shares of Series A Preferred Stock
redeemed, purchased, or acquired by the Corporation or converted into Common
Stock shall be reissued, and all such shares shall be cancelled and eliminated
from the shares of the Corporation shall be authorized to issue.
FIFTH: The period of existence of the Corporation is perpetual.
SIXTH: 1. Notwithstanding any provision in the Revised Code of Ohio
requiring for any purpose the vote, consent, waiver, or release of the holders
of a designated greater proration (but less than all) of the shares of any
particular class or of each class, if the shares are classified, the vote,
consent, waiver, or release of the holders of at least a majority of the voting
power or of at least a majority of the shares entitled to vote, as the case may
be, of such particular class or of each class, if the shares are classified,
shall be required in lieu of any such designated greater proportion otherwise
required by any provision of said Revised Code of Ohio.
2. Whenever the Revised Code of Ohio shall fail to prescribe a designated
proportion of voting power required for any purpose, the vote, consent, waiver,
or release of at least a majority of the voting power represented at a meeting
of shareholders at which a quorum is present shall be sufficient for any such
purpose; and at any such meeting the shareholders entitled to exercise at least
a majority of the voting power relating to any such purpose constitute a quorum.
14
SEVENTH: The Corporation shall, to the fullest extent permitted by Section
1701.13 of the Revised Code of Ohio, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those seeking indemnification may be entitled under the
Regulations, any agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, trustee, officer, employee, or agent, and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
EIGHTH. Subject to the provisions of Article FOURTH hereof, the Board of
Directors is hereby authorized to fix and determine, and to vary, the amount of
working capital of the Corporation, to determine whether any, and, if any, what
part of the surplus, however created or arising, shall be disposed of, or
declared in dividends, or paid to shareholders, and without action by the
shareholders, to use and apply such surplus, or any part thereof; or such part
of the stated capital of the Corporation as is permitted under the provision of
Section 1701.35 of the Revised Code of Ohio, or any statute of like tenor or
effect which is hereafter enacted, at any time or from time to time, in the
purchase or acquisition of shares of any class, voting trust, certificates for
shares, bonds, debentures, notes, script, warrants, obligations, evidence of
indebtedness of the Corporation, or other securities, evidences of indebtedness
of the Corporation, or other securities of the Corporation, to such extent or
amount and in such manner and upon such terms as the Board of Directors shall
deem expedient.
NINTH: From time to time any of the provisions of these Amended and
Restated Articles of Incorporation may be amended, altered, or repealed and
other provisions authorized by the Revised Code of Ohio and the laws of the
State of Ohio at the time in force may be added or inserted in the manner and at
the time prescribed by said laws, and all rights at any time conferred upon the
shareholders of the Corporation by the Articles of Incorporation are granted
subject to the provisions of this Article NINTH.
TENTH: These Amended and Restated Articles of Incorporation supersede the
existing Articles of Incorporation of the Corporation.
15
PROXY
KAHIKI FOODS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 8, 2005
The undersigned hereby appoints Michael C. Tsao and Alice W. Tsao and
either of them, proxies for the undersigned, with full power of substitution to
represent the undersigned and to vote all of the ____________ Common Shares of
Kahiki Foods, Inc. (the "Company") which the undersigned is entitled to vote at
the Annual Meeting of the Shareholders of the Company, to be held on August 8,
2005, and at any and all adjournments thereof, upon the matters set forth in the
Notice of such Meeting. In their discretion, the proxies are further authorized
to vote upon such business as may properly come before the Meeting.
ELECTION OF DIRECTORS
The nominees for the Board of Directors are:
Michael C. Tsao Bradford M. Sprague Charles Dix
John F. Dix R.L. Richards Allen Proctor
(Instruction: To withhold authority to vote for any individual nominee, write
the nominee's name on the space provided below.)
________________________________________________________________________________
____________________________________
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR THE PROPOSALS LISTED BELOW
1. Set the number of Directors at six 2. Adoption of Amendment to Amended
and election of Directors for nominees and Restated Articles of
(except as marked to the contrary above). Incorporation to authorize the
issuance of preferred shares.
FOR WITHHOLD AUTHORITY FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ]
3. Ratify the selection of Plante & Moran,
PLLC as auditors of the Company for the
current fiscal year ending March 31, 2006.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
This Proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR each of the proposals.
Date:_____________, 2005 _____________________________________
Signature
_____________________________________
Signature
Please sign here personally. If the shares are registered in more than one
name, each joint owner or each fiduciary should sign personally. Only authorized
officers should sign for a corporation.