UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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KAHIKI FOODS, INC.
(Name of Registrant as Specified in Its Charter)
______________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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KAHIKI FOODS, INC.
1100 MORRISON ROAD
GAHANNA, OH 43230
Notice of Annual Meeting of Shareholders
to be held August 23, 2006
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 23, 2006, at 10:00 a.m.
(local time) for the following purposes:
1. To elect six 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 ratify the action of the Board of Directors in the selection of
Plante & Moran, PLLC as independent auditors for the year ending March
31, 2007.
3. 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 Form 10-KSB Annual Report for the year
ended March 31, 2006, all to be mailed on or about August 1, 2006.
The stock transfer books for the Company will not be closed, but only
Shareholders of record as of the close of business on July 21, 2006 will be
entitled to notice of and to vote at the Meeting.
Columbus, Ohio By Order of the Board of Directors
August 1, 2006 Alan L. Hoover, 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 23, 2006, 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 August 1, 2006.
Only the Shareholders of record at the close of business on July 21, 2006,
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 3,831,698 Shares of
Common Stock and 930,741 Shares of Series A Convertible Preferred Stock
(collectively, the "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 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 Shares present and entitled to vote at the Meeting. The affirmative
vote of the holders of at least a majority of the outstanding Shares is required
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 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 58.37% of the Company's issued and
outstanding Shares. Alice Tsao, who holds an aggregate of 44.67% of the
Company's outstanding Common Shares, (35.94% of the Shares), has entered into an
agreement to vote her shares for the election of Charles Dix (who is a
representative of Townsends, Inc.). The officers, Directors, and nominees for
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Directors of the Company have indicated that they will vote in favor of each
nominee for director and in favor of 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 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 21, 2006, 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)
- ------------------------ ---------------- ---------
Estate of Michael C. Tsao
c/o Alice W. Tsao
1100 Morrison Road
Gahanna, Ohio 43230 1,735,660(2) 29.30%
Alice W. Tsao
1100 Morrison Road
Gahanna, Ohio 43230 1,735,660(2) 29.30%
Alan Hoover
1100 Morrison Road
Gahanna, Ohio 43230 296,666 5.01%
Bradford M. Sprague
1636 Sherborne Lane
Powell, OH 43085 5,400 0.09%
Charles Dix
30098 Southampton Bridge Road
Salisbury, Maryland 21804 932,741(4) 15.75%
John Dix
1550 Old Henderson Rd, Suite 202
Columbus, OH 43220 0 0.00%
2
Allen J. Proctor
471 Highgate Avenue
Worthington, Ohio 43085 11,500 0.19%
R. L. Richards
5598 Preston Mill Way
Dublin, OH 43017 4,500 0.08%
Barron Partners LP
730 Fifth Ave., 9th Floor
New York, New York 10019 1,176,469(3) 19.86%
Townsends, Inc.
Suite 420
919 North Market Street
Wilmington, Delaware 18801 930,741(4) 15.71%
Officers and Directors as a Group
(12 persons) 3,109,909 52.50%
(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: Ms. Tsao, 24,000 shares; Mr. Hoover, 180,666
shares; Mr. Sprague, 3,000 shares; Mr. Charles Dix, 2,000 shares; Mr.
Proctor, 4,000 shares; and Mr. Richards, 3,000 shares.
(2) Michael C. Tsao and Alice W. Tsao were husband and wife. The listed shares
include 700,660 shares owned directly by Alice W. Tsao and 1,035,000 shares
owned by the Estate of Michael C. Tsao with respect to which Alice W. Tsao,
as Executor, has the sole power to vote and dispose of such shares.
(3) Includes shares issuable upon the exercise of 294,117 $2.25 Warrants and
294,117 $3.00 Warrants.
(4) Includes 930,741 shares of Common Stock issuable to Townsends, Inc. upon
conversion of a Series A Convertible Preferred Stock. Mr. Charles Dix is
President of Townsends, Inc.
1. Election of Directors
Under the Code of Regulations of the Company, the shareholders are to
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 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
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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 Common Percentage of
Shares Beneficially outstanding Common
Name Age Director Since Owned (1) Shares (1)
- ---- --- -------------- ------------------- ------------------
Alice W. Tsao 55 1982 1,735,660(2) 29.30%
Bradford M. Sprague 55 2004 5,400 0.09%
Charles Dix 43 2004 932,741(3) 15.75%
Allen Proctor 54 2004 11,500 0.19%
R.L. Richards 57 2004 4,500 0.08%
John Dix 64 2005 0 0.00%
(1) Shares shown include the following shares subject to options exercisable
on July 21, 2006: Ms. Tsao, 24,000; Mr. Sprague, 3,000; Mr. Charles Dix,
2,000; Mr. Proctor, 4,000; and Mr. Richards, 3,000.
(2) The listed shares include 700,600 shares owned directly by Alice W. Tsao
and 1,035,000 shares owned directly by the Estate of Michael C. Tsao with
respect to which Alice W. Tsao as Executor, has the sole power to vote and
dispose of such shares. Michael C. Tsao and Alice W. Tsao were husband and
wife.
(3) Includes 930,741 shares of Common Stock issuable to Townsends, Inc. upon
conversion of 930,741 shares of Series A Convertible Preferred Stock. Mr.
Charles Dix is President of Townsends, Inc.
ALICE W. TSAO has been our Vice-President, Secretary and a Director 1982.
In August, 2005, Mrs. Tsao was named Chairman of the Board of Directors. She has
an Associates Degree from Los Angeles Business College, with a major in computer
science. Mrs. Tsao founded Kahiki with her deceased husband, Michael C. Tsao,
and has been active in Kahiki's business for the past twenty years.
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.
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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 Steamer
International, Inc. Mr. Richards is the chairman of our Board's Strategy
Committee. Mr. Richards received a 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 became a member of our Board of Directors in August, 2005. Mr.
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 $2,000 for each Board of
Directors meeting personally attended and $1,000 for each committee meeting
attended. No fees are paid to directors for actions taken in writing. The Board
of Directors met five times during the fiscal year ended March 31, 2006. 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.
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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.
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 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 eight times during the year ended March 31, 2006.
Audit Committee Report
The Audit Committee has reviewed and discussed with management the audited
financial statements for the year ended March 31, 2006. 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, 2006 for filing with the SEC.
Audit Committee
Allen Proctor
R.L. Richards
Bradford Sprague
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Other Committees
The Compensation Committee is composed of Mr. Sprague, Mr. John Dix and Mr.
Charles 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 two times in the fiscal year ended March 31, 2006.
In July, 2005, the Board of Directors named an Executive Committee
consisting of Alice Tsao, R.L. Richards, Allen Proctor and Charles Dix. The
Executive Committee was established to assist the Company's management team in
the transition period following the sudden death of the Company's President and
Chief Executive Officer, Michael Tsao. The Executive Committee met nine times in
the fiscal year ended March 31, 2006.
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 of our six Directors 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:
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- 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:
- 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.
8
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 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
---- --- --------
Alice W. Tsao(1) 55 Vice President, Secretary and Chairman of the Board
Alan L. Hoover 51 President and Chief Executive Officer
Frederick A. Niebauer 56 Chief Financial Officer and Treasurer
Alfred Cheung 51 Vice President, Science & Technology
(1) Certain information concerning Alice Tsao is contained on the immediately
preceding pages of this Proxy Statement.
9
ALAN L. HOOVER joined us in May, 1999 as Senior Vice President, Sales and
Marketing. Mr. Hoover became Acting President in July, 2005 upon the death of
our founder and president, Michael Tsao, and was named President and Chief
Executive Officer in November, 2005. Mr. Hoover was a Director from September,
1999 to August, 2005. 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.
FREDERICK A. NIEBAUER joined us in January, 2006 as our Chief Financial
Officer and Treasurer. From 1997 to 2005, Mr. Niebauer was Vice
President-Finance, CFO, Treasurer and Secretary of Halcore Group, Inc., a Grove
City, Ohio manufacturer of ambulances. Mr. Niebauer received his BSBA
(accounting) from Gannon University and MBA from the University of Dayton. Mr.
Niebauer is a certified public accountant.
ALFRED CHEUNG joined us in 2003 as our Vice President, Operations and
became Vice President, Science & Technology in November 2005. 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 2004, 2005 and 2006 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.
10
Awards
------------------
Name and Position Year Salary Bonus(2) Other(3) Stock Options(1) Total
- ----------------- ---- -------- -------- -------- ----- ---------- --------
Michael C. Tsao 2006 $ 53,924 $ 0 $ 593 0 0 $ 54,517
Chairman, President and 2005 $153,577 $ 0 $ 9,340 0 0 $162,917
CEO 2004 $135,000 $23,107 $ 9,318 0 0 $167,425
Alice W. Tsao 2006 $ 97,769 $ 0 $ 4,157 0 0 $101,946
Chairman of Board, Vice 2005 $ 50,481 $ 0 $12,265 0 0 $ 62,746
President and Secretary 2004 $ 55,000 $14,600 $12,381 0 0 $ 81,981
Alan Hoover 2006 $167,236 $ 3,000 $ 1,789 0 0 $172,025
President, CEO and 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
Alfred Cheung 2006 $122,008 $ 3,000 $ 71 0 0 $125,079
Vice President, Operations 2005 $111,662 $ 3,000 $ 7,965 0 0 $122,627
2004 $ 60,288 $20,100 $20,920 0 100,000 $101,308
Julia A. Fratianne 2006 $ 90,578 $ 3,000 $ 1,358 0 0 $ 94,936
CFO and Treasurer 2005 $110,538 $ 3,000 $ 7,847 0 25,000 $121,385
2004 N/A N/A N/A 0 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.
Number of Securities Value of Unexercised in
Underlying Unexercised the money options at
Shares Acquired Option at FY-End FY-End Exercisable/
Name on Exercise Value Realized Exerciseable/Unexercisable Unexercisable
- ---- --------------- -------------- -------------------------- -----------------------
Michael C. Tsao $ 0 0/0 $0/$0
Alan Hoover 60,000 $78,798 180,666/0 $237,269/$0
Julia A. Fratianne $ 0 0/0 $0/$0
Alfred Cheung $ 0 66,667/33,333 $64,667/$32,333
Alice Tsao $ 0 24,000/0 $20,520/$0
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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.
Compensation of Directors
Outside Directors of the Company are paid $2,000 for each Board of
Director's meeting personally attended and $1,000 for each committee meeting. No
fees are paid to directors for actions taken in writing.
Effective April 1, 2006, the Company entered into an employment agreement
with Alan L. Hoover, President and Chief Executive Officer of the Company. The
agreement has a term of three years and provides for an annual salary of
$190,000. In the event Mr. Hoover's employment is terminated without cause prior
to the end of the term of the agreement, he will be entitled to continue to
receive his salary for a period of twelve months.
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Certain Relationships and Related Transactions
In December 2005, Kahiki wrote down the value of two company-owned vehicles
to their remaining market value. The combined market values were slightly less
than the remaining principal balance of the loans on the two vehicles. Kahiki
then transferred ownership of the two vehicles to Alice Tsao, Chairwoman of the
Board of Kahiki. Mrs. Tsao also took over the remaining principal balance on
loans on the two vehicles, and traded in both vehicles on a new personal
vehicle. Kahiki reimbursed Mrs. Tsao for the difference between the market value
and the amount of the remaining loans on the vehicles.
In 2002, Mrs. Tsao loaned Kahiki $150,000. It is unsecured, and was
originally due in February 2005. Mrs. Tsao extended the loan to February 2006.
It is now due. The loan is subordinated to some of Kahiki's other debt. We
reached an agreement with Mrs. Tsao under which Kahiki is making monthly
payments of principal of $10,000 on this loan. We expect to pay it off in March
2007.
In December 2004 ($1,000,000) and in June 2005 ($1,000,000), Kahiki
received loans from Townsends, Inc. "(Townsends") under a convertible promissory
note agreement. Mr. Charles Dix, a Director of Kahiki, is President of
Townsends. In February 2006, Townsends converted the $2,000,000 of principal and
$94,167 of accrued interest into 930,741 shares of Series A Convertible
Preferred Stock at conversion price of $2.25 per share.
In December 2004, Kahiki also entered into a poultry purchase agreement
with Townsends and a finished product co-pack and storage agreement with
Townsends. The poultry purchase agreement with Townsends requires Kahiki to
purchase chicken from Townsends each week at market prices less $0.09 per pound,
with a minimum price of $1.21 per pound and a maximum price of $1.81 per pound.
Kahiki's purchases can vary from 20,000 pounds per week to 40,000 pounds per
week but must average at least 30,000 pounds per week, measured quarterly. This
is a take-or-pay contract. Kahiki maintains average purchases at the required
level. We expect to be able to use the required average purchases in our weekly
production. The contract extends to December 2007. Either Kahiki or Townsends
may cancel the contract with one year's notice. Kahiki purchased $2,443,000 and
$1,856,000 of chicken from Townsends in the fiscal years ended March 31, 2006
and 2005, respectively. Kahiki had a payable to Townsends of $73,000 and $43,000
at March 31, 2006 and 2005, respectively.
Kahiki also maintains a co-pack agreement with Townsends. Under that
agreement, Townsends may order and Kahiki must supply certain levels of product,
made to Townsends' specifications and packaged under Townsends' private label
for sale to food service operations. Kahiki's selling price to Townsends is
limited by the contract to Kahiki's inventory cost plus a stated markup
percentage. The contract extends to December 2007. Either Townsends or Kahiki
may cancel the contract with thirteen months notice. Under this agreement,
Kahiki sold $577,000 and $0 of its products to Townsends in the fiscal years
ended March 31, 2006 and 2005, respectively. Kahiki had a receivable from
Townsends of $144,000 and $0 at March 31, 2006 and 2005, respectively.
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In April 2006, Kahiki purchased a fryer and related equipment from
Townsends for $100,000. Kahiki will use the fryer in its operations. Kahiki is
paying for the fryer at $20,000 per month from April through August 2006.
Kahiki's Board of Directors determined that the terms of the related party
transactions were commercially reasonable based on available data at the dates
of each of them. In particular, the Board of Directors considered the interest
rates and payment terms of the Notes, the discount from market prices on
chicken, and the then current market price of Kahiki's stock relating to the
conversion privilege on the debt with Townsends.
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.
2. 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,
2007. 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.
Audit Fees
For fiscal years 2005 and 2006, the Company was billed by Plante & Moran,
PLLC $35,126 (for fiscal year 2005) and $83,000 for fiscal year 2006), 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
The Company was billed by GBQ Partners LLC $8,975 and $14,229 for fiscal
years 2005 and 2006, respectively, and by Plante & Moran, PLLC $8,990 for fiscal
year 2006, for professional services rendered for tax compliance, tax advice and
tax planning.
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All Other Fees
For fiscal year 2005, the Company was billed by GBQ Partners LLC $8,975
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.
3. Other Business
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 2007 Annual Meeting
Shareholder proposals to be presented at the 2007 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, 2007, in order to be included in the proxy statement and form of
proxy relating to such meeting.
ANNUAL REPORT
Kahiki's 2006 Form 10-KSB Annual Report is currently being mailed to
shareholders. The Form 10-KSB 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
Alan L. Hoover
President
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PROXY
KAHIKI FOODS, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 23, 2006
The undersigned hereby appoints Frederick A. Niebauer 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 and Preferred 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 23, 2006, 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:
Alice W. 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. Election of nominees as Directors 2. Ratify the selection of Plante & Moran,
(except as marked to the contrary.) PLLC as auditors of the Company for the
current fiscal year ending March 31, 2007.
FOR WITHHOLD AUTHORITY 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: , 2006
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Signature
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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.
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