UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------------------
KAHIKI FOODS, INC.
(Name of Small Business Issuer in its charter)
Ohio 2038
---- ----
(State or jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
31-1056793
----------
(I.R.S. Employer Identification Number)
3004 East 14th Avenue
Columbus, Ohio 43219
(614) 253-3040
(Address and telephone number
of principal executive offices)
-----------------------------------
Michael C. Tsao
3004 East 14th Ave.
Columbus, Ohio 43219
(614) 253-3040
(Name, address and telephone number of agent for service)
------------------------------------
Copies of all communications, including copies of all
communications sent to agent for service, should
be sent to:
Andrew J. Federico, Esq.
Carlile Patchen & Murphy LLP
Columbus, Ohio 43215
(614) 628-0801
Approximate date of commencement of proposed sale to public: From time to time
commencing as soon as practicable after the effective date of this Registration
Statement
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If this Form is a post-effective amendment filed pursuant to rule
462(d) under the securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
1
If delivery of the prospectus is expected to be made pursuant to rule
434, check the following box.
CALCULATION OF REGISTRATION FEE
Proposed
Title of Each Proposed Maximum Maximum Amount of
Class of Amount to be Offering Price Per Aggregate Registration
Securities to be Registered Share (a) Offering Price Fee
Registered (a)
- ---------------------- ------------------ ------------------------- -------------------- -----------------
Common Shares,
no par value 602,940 $1.70 $1,025,000 $129.87
- ---------------------- ------------------ ------------------------- -------------------- -----------------
Common Shares, 294,117 $2.25
no par value (b) 294,117 $3.00 $1,688,094 $214.39
80,000 $1.80
- ---------------------- ------------------ ------------------------- -------------------- -----------------
Common Share
Warrants (c) 588,234 $0 $0 $0
- ---------------------- ------------------ ------------------------- -------------------- -----------------
Common Share
Options (c) 80,000 $0 $0 $0
- ---------------------- ------------------ ------------------------- -------------------- -----------------
Total Amount of Registration Fees $344.26
- ---------------------- ------------------ ------------------------- -------------------- -----------------
a Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457 under the securities Act of 1933.
b Issuable upon exercise of Common Share Warrants and Common Share
Options.
c No registration fee required pursuant to Rule 457 of Securities Act of
1933.
----------------------------------
Pursuant to Rule 416, this registration statement also covers an
undetermined number of additional Common Shares that may be issuable upon
the exercise of the Warrants registered hereunder in accordance with the
anti-dilution provisions of the Warrants.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a) may determine.
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KAHIKI FOODS, INC.
602,940 Common Shares, no par value
294,117 $2.25 Common Share Purchase Warrants
294,117 $3.00 Common Share Purchase Warrants
80,000 Common Share Purchase Options
This Registration Statement relates to 602,940 Common Shares, no
par value ("Common Shares"), 294,117 $2.25 Common Share Purchase Warrants
("2.25 Warrants"), 294,117 $3.00 Common Share Purchase Warrants ("3.00
Warrants") and 80,000 Common Share Purchase Options ("Options") of Kahiki
Foods, Inc. (the "Company"). Each $2.25 Warrant entitles the holder to
purchase one Common Share prior to February 27, 2009 at a purchase price of
$2.25 per share. Each $3.00 Warrant entitles the holder to purchase one
Common Share prior to February 27, 2009 at a purchase price of $3.00 per
share. The exercise prices of the $2.25 Warrants and $3.00 Warrants
(collectively, the "Warrants") are subject to adjustment under certain
circumstances. Each Option entitles the holder to purchase one Common Share
prior to January 24, 2009, at purchase price of $1.80 per share. See
"Description of Securities".
The Common Shares, the Warrants and the Options may be offered to
the public by the holders thereof (the "Selling shareholders") and the
Company will not receive any proceeds from the sale of the Common Shares,
the Warrants or the Options. The Company will receive $2.25 per share upon
the exercise of each $2.25 Warrant, $3.00 per share upon the exercise of
each $3.00 Warrant and $1.80 per share upon the exercise of each Option.
See "Certain Transactions" and "Plan of Distribution".
The Common Shares, the Warrants and the Options offered by the
Selling Shareholders may be sold from time to time by the Selling
Shareholders or their transferees. No underwriting arrangements have been
entered by the Selling Shareholders. The potential distribution of Common
Shares, Warrants and the Options by the Selling Shareholders may be
effected in one or more transactions that may take place on the
over-the-counter market, including ordinary broker's transactions, or
through sales to one or more dealers for resale as principals, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commission may be paid by the Selling
Shareholders in conjunction with such sales of Common Shares, Warrants or
Options.
The Selling Shareholders reserve the sole right to accept, and
together with their agents from time to time, to reject, in whole or in
part, any proposed purchase of Common Shares, Warrants and Options. The
Selling Shareholders and any brokers, dealers, agents or underwriters that
participate with the Selling Shareholders in the distribution of the Common
Shares, the Warrants and Options may be deemed "underwriters" within the
meaning of the Securities Act of 1933 (the "Securities Act"), and
commissions received by them may be deemed to be underwriting commissions
or discounts under the Securities Act. See the "Plan of Distribution."
THE SECURITIES OFFERED HEREBY INVOLVE A CERTAIN DEGREE OF RISK.
SEE 'RISK FACTORS." on page 5
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Registration Statement is March 24, 2004.
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TABLE OF CONTENTS
Reports to Shareholders 5
Additional Information 5
Summary 5
About Us 5
Terms of Offering 5
Risk Factors 5
Dividend Policy 6
Use of Proceeds 6
Selling Shareholders 6
Plan of Distribution 7
Directors and Executive Officers 8
Security Ownership of certain Beneficial Owners and Management 9
Description of Securities 10
Common Shares 10
Warrants 10
Options 11
Certain Statutory Provisions 11
Legal Proceedings 11
Legal Matters 11
Business 11
Property 14
Management Discussion and Analysis or Plan of Operations 14
Overview 14
Result of Operations 17
Nine Months Ended December 31, 2003 17
Revenues 17
Cost of Goods 17
Operating Expenses 17
Research and Development 17
Liquidity and Capital Resource 17
Net Income 17
Conclusions 17
Year End March 31, 2003 18
Revenues 18
Cost of Goods 18
Operating Expenses 18
Research and Development 18
Liquidity and Capital Resource 19
Net Income 19
Conclusions 19
Certain Relationships and Related Transactions 19
Market For Common Equity and Related Stockholders Matters 19
Executive Compensation 20
Financial Statements 21
Changes in Registrant's Certifying Accountant 51
Indemnification of Directors and Officers 51
Other Expenses of Issuance and Distribution 52
Recent sales of Unregistered Securities 52
Index to Exhibits 52
Undertakings 52
Signatures 53
Exhibits 54
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REPORTS TO SHAREHOLDERS
The Company is not a reporting company as defined by the Securities and
Exchange Commission (the "SEC"). The Company will furnish its shareholders with
annual reports containing audited financial information for each fiscal year and
will distribute quarterly reports for the first three quarters of each fiscal
year containing unaudited summary financial information. The Company's fiscal
year ends on March 31.
ADDITIONAL INFORMATION
The Company is filing with the SEC a Registration Statement under the
Securities Act of 1933 with respect to the Common Shares, Warrants and Options
offered hereby. For further information with respect to the Company and the
Common Shares, Warrants and Options, please see the Registration Statement and
the exhibits thereto. The Registration Statement may be examined at, and copies
of the Registration Statement may be obtained at prescribed rates from, the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
SUMMARY
The following summary is qualified in its entirety by th more detailed
information appearing elsewhere in this Registration Statement. This Offering
contains certain forward-looking statements that involve risks and
uncertainities. Our actual results could differ materially from the results
anticipated in those forward-looking statements as a result of certain of the
factors discussed in this statement, including those set forth under "Risk
Factors." Prospective investors should read the entire Prospectus before making
an investment decision.
About Us
Kahiki Foods, Inc. develops, manufactures and markets frozen and other
finished Asian food products. Foods sold by the Company are packaged in bulk
and/or frozen containers and include a wide variety of products, including egg
rolls, appetizers, fried rice, sauces, meal kits, single serve entrees and
family meal entrees. The Company's products are distributed to foodservice
companies and institutions, retail grocery store chains and warehouse club
stores. The Company's principal executive offices are located at 3004 East 14th
Avenue, Columbus, Ohio 43219 and its telephone number is (614) 253-3040.
Terms of Offering
Securities Offered: Common Shares, Common Share Purchase Warrants and
Common Share Purchase Options.
Offering Period: The Common Shares,Warrants an Options are being offered on
a "best efforts" basis by the Selling Shareholders from time to time. Common
Shares Outstanding 3,582,848 Common Shares.
RISK FACTORS
This Registration Statement contains certain forward-looking statements
including without limitation, statements concerning our operations, economic
performance, financial condition and prospects, including in particular
statements relating to our growth strategy. The words "estimate," "project,"
"intent," "believe," "expect," "anticipate," and other similar expressions
generally identify forward- looking statements. Investors are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date of this statement. These forward-looking statements are based largely
on our current expectations and are subject to a number of risks and
uncertainties, including, without limitation, those risk factors identified
below and elsewhere in this statement. In addition, important factors to
consider in evaluating such forward-looking statements include changes in
external market factors, changes in our business or growth strategy or an
inability to execute our strategy due to changes in our industry or the economy
generally, the emergence of new or growing competitors and various competitive
factors. Our actual results could differ materially from the results anticipated
in these forward-looking statements as a result of the risk factors described
below and elsewhere in this statement. In light of these risks and
uncertainties, there can be no assurance that the matters referred to in the
forward-looking statements contained in this statement will in fact occur. We
disclaim any obligation to update or revise any of these forward-looking
statements.
In addition to the other information in this statement, the following risk
factors should be carefully considered by purchasers in evaluating us, our
business and our prospects before purchasing any Common Shares or Warrants. The
material below summarizes certain risks and is not intended to be exhaustive.
Key Personnel
The applied talent and experience of the Company's President, Michael C.
Tsao, provides the critical management skills necessary to guide and protect the
financial and operational well being of the Company. The Company's prospects
would be severely affected if Mr. Tsao, for any reason, were unable to continue
to perform his duties.
Dividends
We have never paid any cash dividends and there is no assurance that the
Company will desire to pay dividends in the future or, if dividends are paid, in
what amount. We may decide not to pay dividends in the near future, even if
funds are legally available therefore, in order to provide the Company with more
funds for operations. See "DIVIDEND POLICY".
Competition
Many of our competitors have far greater financial, distribution and
marketing resources than the Company. There can be no assurance that we will be
able to compete effectively.
Control by Current Management
Assuming no exercise of Warrants or Options, current management of the
Company owns approximately 57.50% of the Company's outstanding Common Shares. As
a result, current management is in a position to effectively elect all of the
Directors of the Company and control its affairs and policies.
Limitation on Liability
As permitted by Ohio law, the Company limits the liability of officers,
directors, and employees of the Company from monetary damages from a breach of a
such persons' fiduciary duty except for liability in certain circumstances. As a
result of the Company's charter provision and Ohio law, Shareholders may have
limited rights to recover against officers, directors and employees for breach
of fiduciary duty.
Our business could be adversely affected if we are unable to adequately
protect our proprietary technology - The proprietary technology we own or intend
to acquire or develop will be one of the keys to our performance and ability to
remain competitive. We may rely on a combination of patent, trademark, copyright
and trade secret laws to establish and protect our proprietary rights. We will
also use technical measures, confidentiality agreements and non-compete
agreements to protect our proprietary rights. We may however not be able to
secure significant protection for service marks or trademarks we obtain. Our
competitors or others could adopt product names similar to ours. Any of these
actions by others might impede our ability to build brand identity and could
lead to consumer confusion. Our inability to protect our brand name adequately
could adversely affect our business and financial condition.
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The steps we take to protect our proprietary information may not prevent
misappropriation of our technology, and the agreements we enter into for that
purpose might not be enforceable. The laws of other countries may not provide us
with adequate or effective protection of our intellectual property.
We may infringe the proprietary rights of other - Although we believe that
our products and technology related to our business do not and will not infringe
upon the proprietary rights of any third parties, there can be no assurance that
third parties will not assert infringement claims against us. Similarly,
infringement claims could be asserted against products and technology that we
license, or have the right to use, from third parties. Although any of these
claims may ultimately prove to be without merit, the time our management spends
addressing those claims and the legal costs associated with those claims could
materially and adversely affect our business and results of operations. We may
license technology from third parties and it is possible that we could become a
party to infringement actions based upon the licenses from those third parties.
We will generally obtain representations as to the origin and ownership of such
licensed technology and content; however, this may not adequately protect us.
Any of those claims, with or without merit, could subject us to costly
litigation and the diversion of our management personnel.
Note: In addition to the above risks, businesses are often subject to risks
not foreseen or fully appreciated by management. In reviewing this statement,
potential investors should keep in mind other possible risks that could be
important.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Shares. Holders of
the Common Shares are entitled to receive dividends when, as and if declared by
our Board of Directors out of funds legally available therefore. The ability of
the Company to pay dividends will depend upon the future earnings and net worth
of the Company. We are restricted by Ohio law from paying dividends on any of
our outstanding shares if the Company is insolvent or would result in a
reduction of its stated capital below the required amount. Moreover, any debt
financing which the Company obtains in the future could also contain provisions
preventing or restricting the payment of dividends.
It is the intention of the Board periodically to consider the payment of
dividends, based on future earnings, operating and financial condition, capital
requirements and other factors deemed relevant by the Board. There is no
assurance that the Company will be able or will desire to pay dividends in the
near future or, if dividends are paid, in what amount. The Board may decide not
to pay dividends in the near future, even if funds are legally available
therefore, in order to provide the Company with more funds for operations. See
"DESCRIPTION OF SECURITIES - Common Shares".
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Shares, Warrants or Options by the Selling Shareholders. Any proceeds to be
received by the Company upon the exercise of the Warrants or the Options will be
added to working capital and used for general corporate purposes.
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling Shareholders, their
positions with the Company, if any, and the number of Common Shares, Warrants
and Options owned by each of them. The number of Common Shares and Warrants
being registered are all of the Common Shares and Warrants owned by such
persons.
6
The number of Common Shares and Warrants which may actually be sold by the
Selling Shareholders will be determined from time to time by them, and will
depend upon a number of factors, including the price of the Company's Common
Shares from time to time. Because the Selling Shareholders may offer all, some
or none of the Common Shares, Warrants or Options that they hold, and because
any potential offering by the Selling Shareholders is not being underwritten, no
estimate can be given as to the number of Common Shares or Warrants that will be
held by the Selling Shareholders upon termination of such offering. See "Plan of
Distribution." The table sets forth such information as of March 18, 2004,
concerning the beneficial ownership of the Common Shares, Warrants and Options,
or Options by the Selling Shareholders. All information as to beneficial
ownership has been furnished by the respective Selling Shareholders.
Name and Address Number of Number of $2.25 Number of $3.00 Number of
of Shareholder Common Shares Warrants Owned Warrants Owned Options
(Position with the Owned and and Available for and Available for Owned and
Company) Available for sale prior to sale prior to Available for
sale prior to Offering Offering sale prior to
Offering Offering
- ------------------ -------- ----------------- ----------------- ---------------
Barron Partners LP 588,235 294,117 294,117 None
730 Fifth Avenue
9th Floor
New York, N.Y.
(None)
William Velmer 14,705 None None None
2274 Arbor Lane
#3
Salt Lake City,
Utah
(None)
Bob Binsky 299,792 None None 80,000
20185 E. Country
Club Drive
North Miami
Beach, Fl
(Director)
PLAN OF DISTRIBUTION
The Company will receive no proceeds from the sale of 602,940 Common
Shares, 294,117 $2.25 Warrants, 294,117 $3.00 Warrants or Options by the Selling
Shareholders but will receive funds upon the exercise of the Warrants or
Options. The Common Shares, the Warrants and the Options may be sold from time
to time to purchasers directly by any of the Selling Shareholders. None of the
Selling Shareholders have indicated any current plan to distribute the Common
Shares, Warrants or Options and it is anticipated that they will either offer
the Common Shares, Warrants and the Options for sale for their own account or
retain them for investment. Alternatively, the Selling Shareholders may from
time to time offer the Common Shares or the Warrants through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions, or commissions from the Selling Shareholders and/or the
purchasers of the Common Shares or the Warrants for whom they may act as agent.
The Selling Shareholders and any underwriters, dealers or agents that
participate in a distribution of Common Shares, Warrants or Options may be
deemed underwriters, and any profit on the sale of the Common Shares, Warrants
7
or Options by them or any discounts, commissions or concessions received by such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
The Common Shares, the Warrants and the Options may be sold from time to
time in one or more transactions at a fixed offering price or at varying prices
determined at the time of sale, or at negotiated prices.
DIRECTORS AND EXECUTIVE OFFICERS
The names of, and certain information with respect to, each officer and
Director of the Company are as follows:
Michael C. Tsao 53 Chairman of the Board, President and chief 1982
Executive Officer
Alice W. Tsao 53 Vice President, Secretary and Director 1982
Dr. Winston Bash 67 Director 1993
Alan Hoover 49 Senior Vice President-Sales and Marketing, 1999
Director
Bob Binsky 63 Director 1995
Kenneth H. Kisner 64 Treasurer N/A
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.
Officers serve at the pleasure of the Board of Directors.
The following is a brief summary of the business experience of the
Directors and executive officers of the Company:
Michael C. Tsao is President and Chairman of the Board of the Company. 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.
During his career 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 profitability managed and operated the Kahiki
Restaurant for more than twenty years. Mr. Tsao is a graduate of Pasadena City
College (Business Administration).
Alice W. Tsao is Vice-President, Secretary and a Director of the Company.
She has an Associates Degree from the Los Angeles Business College, with a major
in computer science. Mrs. Tsao has been active in the Company's business with
her husband Michael C. Tsao for the past twenty years.
Dr. Winston Bash has been a member of the Board of Directors since 1993. He
currently is the Director of Food Industries Center (College of Agriculture) at
The Ohio State University and is also instructor of several departments with
most of the classes majoring in Food Process and Technology. He has received his
Ph.D., M.S. and B.S., from The Ohio State University. Dr. Bash's past experience
includes owning and operating the Rockford Meat Processing Company in Rockford,
Ohio. He also was Vice-President and Production Manager of Friday Canning
Corporation in New Richmond, Wisconsin and the General Sales Manager of the FMC
Corporation, in the Eastern Operation Food Processing Machinery Division,
located in Hoopeston, Illinois. Dr. Bash is also the co-inventor on a patent
issued in 1972 on Forced Draft Evaporative Cooling for Hydroflex Sterilizers
assigned to FMC Corporation. He also holds positions on major committees,
societies, and boards of directors. Dr. Bash is also accredited for many
publications on food processing procedures.
8
Alan L. Hoover became a Director of the Company in September, 1999. Mr.
Hoover joined the Company in May, 1999 as Senior Vice President, Sales and
Marketing. Prior to joining the Company, 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.
Bob Binsky has been a member of the Board of Directors since 1995. He was a
Director and Executive Vice President of Cable Link Inc. (nka A Novo Broadband
Incorporated), a major supplier of new and used cable tv equipment, from 1994 to
August 2000. From August, 2000 to September, 2002, Mr. Binsky had been a
Director and Manager of New Business Development of A Novo Broadband,
Incorporated. Since October 2002, Mr. Binsky has been a business consultant to
various companies.
Kenneth H. Kisner is Treasurer of the Company and is a graduate of Griswold
Business College, with a major in Accounting. Mr. Kisner has been with the
Company for the past fourteen years and prior to that he was controller for the
Columbus Sheraton for approximately five years. Mr. Kisner is in charge of all
management support, payrolls, accounts receivable and payable, and maintaining
and updating of all Company records.
The Board of Directors has one committee, the Compensation Committee, which
is charged with setting the compensation of the Company's executive officers.
The Compensation Committee consists of Bob Binsky, Dr. Winston Nash and Andrew
Federico, counsel to the Company. The Company is currently conducting a search
for additional Directors. The Company anticipates forming an audit committee
after the Board of Directors is increased.
All Directors are elected at the Annual Meeting of the Shareholder to serve
for one year or until their successors are duly elected and qualified. Officers
serve at the pleasure of the Board of Directors.
Outside Directors of the Company are paid $500 for each Board of Director's
meeting personally attended. No fees are paid to directors for participation in
telephonic meetings of the board or actions taken in writing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 15, 2004, 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 officer and all officers and directors as a group:
Name and Address of Number of Common Percent of
Beneficial Owner Shares Owned(1) Class
- ------------------- ------------ -----
Michael C. Tsao 1,023,000(2) 28.55%
3004 East 14th Ave.
Columbus, Ohio 43219
Alice W. Tsao 688,600(2) 19.22%
3004 East 14th Ave.
Columbus, Ohio 43219
Dr. Winston Bash 12,372 .35%
4093 Roselea Place
Columbus, Ohio 43214
9
Name and Address of Number of Common Percent of
Beneficial Owner Shares Owned(1) Class
- ------------------- ------------ -----
Bob Binsky 299,792 8.37%
20185 E. County Club Dr.
North Miami Beach, Fl 33180
Alan Hoover 26,000 .73%
3004 E. 14th Ave.
Columbus, Ohio 43219
Kenneth H. Kisner 10,250 .29%
3004 E. 14th Ave.
Columbus, Ohio 43219
Barron Partners LP
730 Fifth Ave., 9th Floor 588,235(3) 16.42%
New York, New York 10019
Officers and Directors as a Group (6 2,060,014 57.50%
Persons)
(1) Unless otherwise provided, the stated number of shares are owned
directly by the person named. Shares shown does not include the
following shares subject to options exercisable on December 31, 2003
Mr. Tsao, 12,000 shares; Ms. Tsao, 12,000 shares; Dr. Bash, 52,600
shares; Mr. Binsky, 198,600 shares; Mr. Hoover, 270,666 shares; and
Mr. Kisner, 28,000 shares.
(2) Michael C. Tsao and Alice W. Tsao are husband and wife.
(3) Does not include 294,117 $2.25 Warrants and 294,117 $3.00 Warrants.
DESCRIPTION OF SECURITIES
Common Shares
The authorized capital of the Company consists of 10,000,000 Common Shares,
without par value. As of the date hereof, 3,582,848 Common Shares are
outstanding. In addition, 668,234 Common Shares are reserved for issuance upon
exercise of the Warrants and Options.
Each holder of Common Shares is entitled to one vote for each share held on
any matter properly submitted to the shareholders for a vote but is not entitled
to vote cumulatively in the election of directors. The holders of Common Shares
do not have any preemptive, subscription or redemption rights. All Common Shares
now outstanding are, and any Common Shares purchased in the offering or issued
upon the exercise of Warrants will be, fully paid and non-assessable. The
holders of Common Shares are entitled to receive dividends if, as and when
declared by the Board of Directors. See "DIVIDEND POLICY".
Warrants
The Company has authorized the issuance of 294,117 $2.25 Warrants, each
$2.25 Warrant entitling the holder thereof to purchase one fully paid and
non-assessable Common Share at an exercise price of $2.25 per share until
February 27, 2009. Additionally, the Company has authorized the issuance of
294,117 $3.00 Warrants, each $3.00 Warrant entitling the holder thereof to
purchase one fully paid and non-assessable Common Share at an exercise price of
$3.00 per share until February 27, 2009. The number of shares to be received
upon exercise, and the exercise price, are subject to adjustment in the event of
a corporate reorganization, restructuring, share dividend or other corporate
action, to maintain the rights of the Warrant holders substantially as if such
action had not occurred. The Company has reserved 588,234 Common Shares for
issuance upon the exercise of the Warrants.
The Company has the right to require the exercise of the $2.25 Warrants at
any time until February 27, 2005 if the market price of the Company's Common
Shares equals or exceeds $3.50 per share for 20 consecutive days. The Company
has the right to require the exercise of the $3.00 Warrants at any time until
February 27, 2005 if the market price of the Company's Common Shares equals or
exceeds $5.50 per share for 20 consecutive days. In both cases, the holder must
either exercise or transfer the Warrant within 10 days (and such transferee
exercise the Warrant within 30 days) or the Warrant will expire.
10
Options
The Company has authorized the issuance of 80,000 Common Share Purchase
Options, each Option entitling the holder thereof to purchase one fully paid and
non-assessable Common Share at an exercise price of $1.80 per share until
January 24, 2006. The number of shares to be received upon exercise, and the
exercise price, are subject to adjustment in the event of a corporate
reorganization, restructuring, share dividend or other corporate actions, to
maintain the rights of the Option holders substantially as if such action had
not occurred. The Company has reserved 80,000 Common Shares for issuance upon
the exercise of the Options.
Certain Statutory Provisions
Section 1701.831 of the Ohio Revised Code generally provides that certain
"control share acquisitions" of shares of an "issuing public corporation" may be
made only with the prior authorization of the shareholders of the corporation,
unless the articles or code of regulations of the corporation otherwise provide.
In addition, Chapter 1704 of the Ohio Revised Code, known as the "merger
moratorium" chapter, generally prohibits a wide range of business combinations
and transactions between or involving an issuing public corporation that is a
reporting company under the Securities Exchange Act of 1934 and a person who,
alone or with others, beneficially owns 10% or more of the voting power of the
corporation (an "interested shareholder"). A corporation may provide in its
Articles of Incorporation that Chapter 1704 shall not apply to the corporation.
In addition, if the corporation's board of directors has approved the interested
shareholder's acquisition of his shares or has approved the specific business
combination or transaction in question, the general prohibitions of Chapter 1704
do not apply.
The Company's Amended Articles of Incorporation and Code of Regulations do
not contain any language excepting the Company from the provisions of Section
1701.831 or Chapter 1704 of the Ohio Revised code, and therefore both are
applicable to the Company.
LEGAL PROCEEDINGS
The Company is not currently engaged in any material legal proceedings.
LEGAL MATTERS
The validity of the Common Shares and Warrants offered hereby will be
passed upon for the Company by Carlile Patchen & Murphy LLP, Columbus, Ohio.
Andrew J. Federico, of counsel to Carlile Patchen & Murphy LLP, holds options to
purchase 52,600 Common Shares of the Company.
BUSINESS
Kahiki Foods, Inc. (the "Company" or "Kahiki") was incorporated under the
laws of the State of Ohio in June 1982 for the primary purpose of acquiring a
full-service restaurant in Columbus, Ohio known as the Kahiki Restaurant. The
restaurant was founded in 1961 as a theme based Polynesian restaurant. The
exterior roof resembled a massive Polynesian war canoe and the interior ceilings
reached 60 feet in height. The restaurant's decor included authentic Polynesian
artifacts, stone tiki gods and an authentic outrigger canoe. The restaurant was
recognized as one of the Top 10, Five Star Diamond restaurants in the
Asian-Pacific category. It won the Millennium Award as one of the Top 100
restaurants of the 20th Century and was named the top Polynesian restaurant in
America in the 20th Century.
We began a food processing operation in December of 1988 to manufacture and
process frozen and other finished Chinese/Polynesian foods for wholesale
distribution. Initially, production facilities consisted of part of the basement
and food preparation areas of the Kahiki Restaurant. No automation was used in
the production process, meaning all of the products distributed were processed
completely by hand. In 1995, we opened an approximately 7,000 square foot
automated food processing facility that received FDA approval.
In the summer of 2000, the Company sold the land that the restaurant was
located on, closing the restaurant on August 26, 2000. In September 2000, a
medium sized (22,000 square feet) USDA approved food processing facility was
opened.
In December 2002, we acquired an existing approximately 119,000 square foot
building on approximately 14.1 acres of land in Gahanna, Ohio a suburb of
Columbus. The Company is currently renovating and equipping this facility to
meet FDA regulations for the manufacture of food products. Upon completion, the
facility will be used to prepare, freeze, package, store and ship our products,
and house our administrative offices.
Foods sold by the Company are oriental foods packaged in bulk and frozen
containers. We have a wide variety of offerings which include: Egg Rolls,
Appetizers, Fried Rice, Sauces, Stir-fry Meal Kits,
11
Single Serve Entrees, and Family Meal Entrees. All of the foregoing
products are marketed at the retail and bulk institutional levels.
In March 2001, Kahiki was named "Best Asian Handheld Foods" by the American
Tasting Institute during their "Awards of the Americas" ceremony at Carnegie
Hall. Kahiki was awarded their prestigious "Best of Show" and "Gold Medal Taste"
awards for several entrees, including egg roll and potsticker frozen food
products.
Our products are produced and distributed to three broad market segments:
foodservice, retail and warehouse clubs. Product mix and packaging is directed
to each of those segments.
The Foodservice segment entails the distribution of bulk institutional
products to wholesale distributors, academic and governmental institutions and
restaurants. Products in this category may also be redistributed by wholesale
distributors to their own retail accounts. Our major customers in this segment
include Gordon Food Service, Best Express, Abbott Foods/Sysco, Magic Wok,
Orlando Foodservice, and U.S. Foodservice. The foodservice segment represented
approximately 9.27% of the Company's revenues in fiscal year 2003 and
approximately 9.25% of the Company's revenues in the nine months ended December
31, 2003.
The Retail segment entails the distribution of both bulk institutional
products and individually packaged products to grocery store chains for sale to
consumers. These products are generally sold in the delicatessen or frozen food
sections of the grocery store. We may call directly on the grocery store chain
or utilize a food broker. Our major customers in this segment include The Kroger
Company, Albertson's, C&S Wholesale, H.E. Butt, Publix, Meijer, Smart & Final,
SuperValu, Wakefern and Wal- Mart Supercenters. The retail segment represented
approximately 51.28% of the Company's revenues in fiscal year 2003 and
approximately 70.73% of the Company's revenues in the nine months ended December
31, 2003.
The Warehouse Clubs segment entails the distribution of bulk retail
products to warehouse clubs for sale to consumers and small businesses. These
products are generally in larger servings and are sold in the delicatessen or
frozen food sections of the store. We may call directly on the chain or utilize
a food broker. Our major customers in this segment included Sam's Club and
Costco. The warehouse club segment represented approximately 39.45% of the
Company's revenues in fiscal year 2003 and approximately 20.02% of the Company's
revenues in the nine months ended December 31, 2003.
Products
Kahiki segments its products into three main categories. They are as
follows:
o CONVENIENCE MEALS. Includes 11 oz. single serv entrees, 11 oz. "Deli
Entrees", 12 oz. "Bowl & Roll Combos", 24oz "Meals for Two" entrees,
32 oz. "Twin Packs" 40 oz "Asian In Minutes" kits, and 48 oz. "Family
Meals".
o HAND-HELD PRODUCTS. Includes egg rolls, potstickers, and other
appetizers.
o FOODSERVICE PRODUCTS. Includes meal components such as fried rice,
marinated meats, tempura meats, and Pacific Rim sauces.
Convenience meals currently account for 56.64% of sales, hand-held
products 34.11%, and foodservice products 9.25%.
The Kahiki retail, deli and warehouse club product lines include:
o ENTREES: 11 oz. single serve, 11 oz. "Deli Entrees", 12oz. Bowl & Roll
combos, 24 oz. "Meals for Two" entrees, 32 oz."Twin Packs" 40 oz.
"Asian In Minutes" kits, and 48 oz. "Family Meals"
o EGG ROLLs: 3 oz. Egg rolls, 1 oz. Minis, and individually wrapped 3
oz. Egg rolls using a suscepter sleeve.
o APPETIZERS: Potstickers, Tempura Chicken, and Tiki Bites.
o PLATTERS: 28.5 oz. "Aloha Party Platters" and 37.5 oz. "PuPu Platter."
The Kahiki foodservice product line includes:
o EGG ROLLS: Bulk packed 3 oz. Egg rolls, 1 oz. Minis and individually
wrapped 3 oz. Egg rolls "To-Go!" using a suscepter sleeve.
o APPETIZERS: Bulk packed potstickers, Tempura Chicken and Tiki Bites
plus the "Appetizers To-Go Line"[for vending and C-Stores]
o STIR-FRY MEAL KITS: 3-component system that can feed 9-12 people.
o PACIFIC RIM SAUCES: Eight varities of institutional size stir-fry
sauces packed frozen and five shelf stable bottled sauces.
o MEATS: Bulk packed meat components (cooked, sliced and marinated, or
tempura style)
o RICES: Premium fried rice and steamed white rice.
12
Key Product Attributes
o CONVENIENCE. Ease of use through the microwav oven is a significant
factor for consumers and institutional foodservice operators. Our
product line requires simple preparation and heating steps. Virtually
every product is ready-to-serve within 20 minutes, providing quick and
easy meal solutions for our customers.
o AUTHENTIC TASTE AND STRONG FLAVOR PROFILES: We employ recipes and
sauces used in the award- winning Kahiki restaurant to enhance the
authenticity of our products. This allows us to achieve the best
aroma, appearance, and flavor profile for our products.
o HEALTH: Health conscious consumers generally recognize Pan Asian foods
as offering health benefits. Kahiki does not use preservatives such as
MSG and we only use the highest quality ingredients.
o PACKAGING: Our products are enhanced through th use of modern
packaging innovations, techniques, and graphics designs. We also
utilize packaging that is environmentally responsible. Kahiki products
incorporate bold, colorful graphics that command shelf attention.
Pricing
The Company's pricing strategy focuses on avoiding price competition; this
is accomplished in three ways. First, since the products are positioned in the
gourmet and specialty food category, the shopper is conditioned not to make
direct price comparisons with ordinary Asian foods. Second, by providing
shoppers with a superior quality product, not only is the specialty status
reinforced but consumers expect to pay a premium price if they are convinced
that they are receiving far greater value than is available in the rest of the
market. Finally, the Company focuses its efforts on non-price competition, such
as packaging and promotional activities, as a means of boosting sales revenue.
Even though retail outlets are free to choose their own policies, this non-price
competition is essential in encouraging them not to engage in price competition.
This pricing strategy also provides greater long term flexibility through
the growth curve of the Company's products. As changes occur in customer demand,
the market supply pricing policies will require revision. There is usually less
customer resistance in starting with a premium price and revising it downward
than by starting with a low price and attempting to increase it.
Regulations
Our food processing facilities are subject to various federal, state and
local regulations and inspection, and to extensive regulations and inspections,
regarding sanitation, quality, packaging and labeling. In order to distribute
and sell its products outside the State of Ohio, the Company's food processing
facilities must meet the standards promulgated by the U.S. Department of
Agriculture.
Competition
The Company operates in a competitive environment and many of its
competitors have greater financial, distribution and marketing resources than
the Company. The oriental frozen food business is currently dominated by a
select number of competitors of considerable size and financial resources,
including Tyson Foods, Nestle, ConAgra Chung's, Schwan's Pillsbury, Hormel,
Windsor Foods, and Kikkoman. All of these competitors have strong brand name
recognition in the markets they serve. The Company believes that its quality
products, pricing and niche marketing strategies will permit it to maintain a
strong competitive position in its market.
Suppliers
Perishable food items, including meat, sea food, dairy and produce, are
purchased locally or regionally by the Company. We have not experienced any
material shortages of food or other products necessary to our operations and do
not anticipate such shortages in the foreseeable future. We are not dependent
upon any particular supplier or suppliers as a source for ingredients used in
our products or for other items used in our operations.
Employees
As of December 31, 2003, the Company had approximately 108 full-time
employees. Of these, 96 were involved in food processing operations and 12 in
management and administrative capacities. The Company considers its employee
relations to be good, and to date the Company has not experienced a work
stoppage due to a labor dispute. None of the Company's employees is represented
by a labor union.
13
Trademarks
The Company currently has four active registered trademarks including its
logo KAHIKI in three different classifications and the phrase "ASIAN IN MINUTES"
with respect to prepared foods. The Company also has a pending active
registrations for "BOWL & ROLL" and "IT'S ASIAN TONIGHT" both of which the
Company expects to have finalized in the very near future.
Research and Development
The Company maintains a continuing research and development program to
improve existing products and to develop new products. At the present time, 2
employees of the Company are directly involved in research and development.
During fiscal years 2001, 2002 and 2003, the Company estimates that it spent
$73,673, $100,666, and $81,652 respectively, on research and development
activities.
PROPERTY
We currently lease an approximately 22,000 square foot facility at 3004
East 14th Avenue, Columbus, Ohio. The structure currently meets FDA regulations
for the manufacture of food products. The building houses equipment for
preparing, freezing, packaging and storing the Company's products, and the
Company's administrative offices. Upon moving to the Gahanna, Ohio facility,
described below, we will attempt to sub-lease the Columbus, Ohio facility. There
can be no assurance that the Company will be successful in attracting a tenant
for the remaining term of its lease.
In December 2002, we acquired an existing approximately 119,000 square foot
building on approximately 14.1 acres of land in Gahanna, Ohio. The Company is
currently renovating and equipping this facility to meet FDA regulations for the
manufacture of food products. The State of Ohio holds a first mortgage and
security interest in the land and equipment of the facility.
Upon completion, the facility will be used to prepare, freeze, package,
store and ship the Company's products, and house the Company's administrative
offices. The Company expects to commence operations in the new facility in June,
2004. Upon completion, the facility is expected to meet the Company's needs for
the foreseeable future.
Management of the Company believes that the Company's properties are
adequately covered by insurance.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Overview
Kahiki was founded in 1961 as a theme based Polynesian restaurant. It was
recognized as one of the top restaurants in Asian-Pacific category. In 1995, the
Company built a small (7,000 sq ft) USDA approved food-manufacturing facility on
the restaurant site and began to market frozen Polynesian/Asian foods for
wholesale distribution under the Kahiki(R) brand for retail and foodservice
markets.
In 2000, the Kahiki was named "The Coolest Bar in the World" by Food & Wine
Magazine and "The Best Polynesian Restaurant in the World" by Restaurant &
Hospitality Rating Bureau. In June 2000, the Company sold the land that the
restaurant was located on to Walgreen's, and the Company closed the restaurant
on August 26, 2000. In September 2000, the Company concentrated on manufacturing
of frozen foods and a medium sized (22,000 square foot) USDA approved facility
was opened.
For the year ended March 31, 2001, the Company's highlights were disposing
of assets like equipment, land, and building where the restaurant and plant were
located, ceased its restaurant operation, declared stock dividends of 3 for 1 to
all shareholders, opened a new processing plant, established a new corporate
office, assembled a strong sales team, invested over $1,479,728 into leasehold
improvements, processing equipment, and research and development.
In December 2002, the Company arranged a state economic development bond
with the State of Ohio for 4.18 million dollars. The proceeds were used to
purchase a large production facility in the form of a 117,000 square foot food
processing plant for 2.25 million dollars. The balance of the bond was used for
leasehold improvements and equipment which sum had to be supplemented by
additional funds from the Company in order to continue the project to
completion. The Company has, or will have spent an additional $1.5 million on
leasehold and expenses and expects to be open for operation in June of this
year. The Company believes that this facility will enable the Company to grow to
a volume of 100 million dollars in sales without having to expand the facility.
If necessary, the property has an additional 17 acres for possible sale or
expansion. The lease on the Company's present 22,000 square foot facility will
terminate in December of 2004. The Company expects it will run somewhat parallel
in operations until it is confident that all systems in the new facility are
operating properly.
In May of 2003, the Company delivered a two-for-one split for all
shareholders.
14
In March of 2004, the Company arranged the sale of 588,235 ($1,000,000) of
its Common Shares to Barron Partners LP of New York and 14,705 ($25,000) to Bill
Velmer of Salt Lake City, Utah at $1.70 per share.
The transaction also included 294,117 Warrants at exercise prices from
$2.25 to $2.75 depending on Kahiki EBITDA from January 1, 2004 to September 30,
2004 and for 294,117 Warrants at exercise prices from $3.25 to $3.75 depending
on the Company's EBITDA from January 1, 2004 to December 31, 2004. In certain
circumstances, the Warrants could be exchanged at $.25 if the Company's EBITDA
falls below certain criteria. The expenses associated with this offering
included $70,000 to Laconia Capital and 30,000 Warrants to Laconia Capital. The
Company is required to keep the Shares Warrants registered for a period of two
years. Under certain conditions, the Company may require Barron Partners to
exercise the Warrants or lose them.
In March of 2004, the Company sold a small warehouse it owned for $110,000
and realized a gain of $75,271 on the sale.
Currently, the Company has three marketing segments throughout the country;
retail, foodservices, and warehouse clubs. Key customers in retail supermarket
segments are:Wal-Mart Supercenters, The Kroger Co., Albertson's , C & S
Wholesale, H.E. Butt, Publix, Meijer, Smart & Final, SuperValu, and Wakefern; in
foodservice segments are: Gordon Food Service, Best Express, Abbott Foods/Sysco,
Magic Wok, Orlando Food Service, and U.S. Food Service, in warehouse clubs
segments are: Sam's Club and Costco.
The Company's current activities include:
o Product research and development o Development of markets and
distribution o Market search of strategic alliances o Negotiating with its
Bank for a larger working capital facility. o Development of corporate
infrastructur o Production of high quality Asian products under USDA
guidelines
DISCUSSION OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenues are recognized when the goods are delivered.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from these
estimates.
Cash
For purposes of the statements of cash flows, cash includes cash on hand
and demand deposits held by banks.
The Company maintains its cash in three accounts with one financial
institution. The carrying value is a reasonable estimate of the fair value.
Marketable Trading Securities
Management determines the appropriate classification of marketable
securities at the time they are acquired and evaluates the appropriateness of
such classification at each balance sheet date. The Company's marketable
securities are classified as trading. Trading securities are held for resale in
anticipation of short-term fluctuations in market prices and are held at market
value. Realized and unrealized gains and losses on the marketable securities are
included in income.
Marketable securities, consist an equity mutual fund with a cost basis of
$529,236 as of December 31, 2003. The unrealized loss as of December 31, 2003
was $14,773.
15
Accounts Receivable - Trade
Accounts receivable are uncollateralized customer obligations due under
normal trade terms requiring payment within 15 days of the invoice date.
Accounts receivable are stated at the amount billed to the customer. Customer
account balances 60 days past the invoice date are considered delinquent.
Payments received for accounts receivable are allocated to the specific invoices
identified on the customer remittance advice or, if unspecified, are applied to
the earliest unpaid invoices. The Company does not charge interest on past due
account balances.
The carrying amount of accounts receivable is reduced when necessary, by a
valuation allowance that reflects management's best estimate of the amount that
will not be collected. Management individually reviews all customer account
balances on a weekly basis, and based on an assessment of current credit
worthiness, estimates the portion, if any, of the balance that will not be
collected. After management's review of all accounts receivable balances,
management believes all amounts are collectible and a valuation allowance is not
necessary.
Inventories
Inventories consist of perishable food products and paper supplies. The
inventories are valued at the lower of cost (first-in, first-out method) or
market. Impairment and changes in market value are evaluated on a per item
basis.
If the cost of the inventory exceeds the market value evaluation based on
total inventory, provisions are made for the difference between the cost and the
market value. Provision for potential obsolete or slow moving inventory is made
based on analysis of inventory levels, age of inventory and future sales
forecasts.
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation
computed using the straight-line method. Major renewals and betterments are
capitalized and depreciated; maintenance and repairs that do not extend the life
of the respective assets are charged to expense as incurred. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in income. Property and equipment are
depreciated over their estimated useful lives of 5 to 39 years.
Earnings Per Share
Earnings per share are computed on the weighted average number of common
shares outstanding including any dilutive options.
Long-Term Debt
Long-term debt is subject to certain covenants and restrictions including
maintenance of certain financial requirements. Rates currently available from
the bank for debt with similar terms and remaining maturities are used to
estimate the fair value of the debt. The Company's carrying value approximates
the fair value of the debt.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan for employees,
consultants and the outside directors. The vesting period of the options granted
range from immediately exercisable to four years. Accordingly, no compensation
cost has been recognized in the accompanying financial statements for options
issued under the plan since the exercise price of the options was equal to the
market value of the shares at the date of grant.
Lease Commitments
The Company leases a facility used for its wholesaling operations under an
agreement that is accounted for as an operating lease. This lease requires
monthly payments of $6,400 through January 2005. The Company has the option to
renew for two additional three-year terms.
The Company also leases manufacturing equipment under operating lease
agreements. These leases expire at various dates through 2008 and require total
monthly payments of $18,621.
16
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2003
The following table contains certain amounts, expressed as a percentage of
net revenues, reflected in our statements of income for the nine months ended
December 31, 2003 and 2002:
(in %)
2003 2002
-------- -------
Revenues 100 100
Cost of revenues 71 73
-------- -------
Gross profit 29 27
Operating Espenses 23 25
-------- -------
Income from operations 6 2
Interest expense (1) (1)
Interest nd dividend income 1 1
-------- -------
Income from continuingoperations before
income tax 6 2
Income tax 2 1
-------- -------
Net income 4 1
======== =======
Revenues
Revenues for the 9 months ended December 31, 2003 were $8,788,864 compared
to 6,951,397 revenues for the comparable 9 months of 2002. The increase is
primarily due to food manufacturing sales efforts with the increase of new
accounts, both retail and club stores, and due to the introduction of new items.
Cost of Goods
The gross margin on sales of products was $2,550,678 for the 9 months ended
December 31, 2003 were compared to $1,887,596 for comparable 9 months ending
December 31, 2002. Gross margins vary widely depending on factors such as the
product commodity prices and labor costs for the item produced. The mass
production of product line to club markets resulted in high efficiency, the
higher volume of business also resulted in greater efficiencies, consequently a
higher margin was achieved in 2004. The Company expects that the gross margins
of the last 9 months reflect fairly its present volume and could improve as
revenues continue to grow.
Operating Expenses
Operating expenses for the 9 months ending December 31, 2003 were
$2,078,561 compared to 1,765,605 for the comparable period in 2002. which is an
increase of $ 312,956 or 17.7%. Most of the increase was attributable to
increase in volume.
Research and Development
Expenditures of $20,283 for the 9 months ended December 31, 2003 compared
to 73,713 for the 9 months ended December 31, 2002, a decrease of 62%.
Liquidity and Capital Resource
The Company has spent $928,242 in leasehold improvements and equipment and
anticipates an additional $900,000 to complete the new plant for occupancy. The
Company has raised approximately $1,000,000 in equity in March of 2004 and is in
the process of negotiating a higher working capital line with its bank over and
above the $1,100,000 it has available presently.
The Company's receivables as of December 31, 2003 were $1,290,817 compared
to $573,422 for the same period ended December 31, 2002. The Company's payables
for December 31, 2003 were $1,440,843 compared to $561,617 for the same period
ended December 31, 2002. The increases were the result of a drastic increase in
sales in the marketing of its products.
Net Income
The Company's net income for the 9 months ending December 31, 2003 was
$323,225, as compared to $78,309 profit for the same period ending December 31,
2002, an increase of $244,916 or 313% and $0.08 per share.
Conclusions
Management believes that the nine months ended December 31, 2003 shows the
Company's trend is up and the company expects this to continue with its recent
introduction of its new items; and the improved results from its expanded
marketing team.
17
YEAR ENDED MARCH 31, 2003
The following table contains certain amounts, expressed as a percentage of
net revenues, reflected in our statements of income for the years ended March
31, 2003 and 2002:
(in %)
2003 2002
------------- ------------
Revenues................................... 100 100
Cost of revenues........................... 72 68
------------- ------------
Gross profit............................... 28 32
Operating expenses ........................ 29 30
------------- ------------
Income (loss) from operations.............. (1) 2
Interest expense........................... (1) (1)
Other Income............................... 0 0
------------- ------------
Income (loss) before income tax............ (2) 1
Income tax................................. 1 0
------------- ------------
Net income (loss) (1) 1
============= ============
Revenues
Revenues for the year ended March 31, 2003 were $9,204,684, a 2% decrease
from the previous year when revenues totaled $9,374,914. The Company stopped
selling to one of its major club stores, but generated enough new business among
many smaller accounts to keep its sales almost level.
Cost of Goods
The gross margin on sales of products was 28% for the year ended March 31,
2003 compared to 32% for the same period ended in 2002. Gross margins on the
Company's various products vary widely and is affected by both commodity prices
and labor supply for the period. The Company expects gross margin will improve
as revenues grow.
Operating Expenses
Operating expenses for the year ending March 31, 2003 were $2,679,362
compared to $2,834,939 for the same period ended March 31, 2002 and decreased by
5%.
Research and Development
Expenditures for research and development of $82,000 for the year ended
March 31, 2003 were down 19% compared to 101,000 for the same period ended March
31, 2002. The decrease was due to increased set offs in the department.
18
Liquidity and Capital Resource
The Company has a line of credit from various banks totaling $1,200,000
compared to $1,200,000 for the same period in 2002. As of March 31, 2003
$1,037,396 was used. The Company's receivables for period ending March 31, 20032
were $607,248 compared to $957,030 for the year ending March 31, 2002. The
Company's payables were $785,198 for year ending March 31, 2003 compared to
$763,376 for the comparable period in 2002.
Net Income
The Company's net loss for the year ended March 31, 2003 was $(85,923)
compared to net income of $77,541 for the same period ending December 31, 2002.
Conclusions
The Company believes that the year was relatively normal and used this
period to enhance the variety of its products.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 24, 2004, the Board of Directors authorized the issuance of
options to purchase 80,000 Common Shares at an exercise price of $1.80 per share
(the then-current market price) to Bob Binsky (a Director) for consulting
services rendered to the Company. Each option is exercisable through January 23,
2006.
On April 18, 2003, the 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 (counsel to the Company). Each option is
exercisable through April 18, 2008.
On April 18, 2003, the 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, the 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 (counsel to the Company). Each option is
exercisable through August 12, 2007.
The options were all issued at market price, and no compensation was
recorded.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Shares are currently traded on the OTC Bulletin Board.
The range of high and low bids for the Company's Common Shares for each quarter
of the last two fiscal years is as follows:
Bid(1)(2)
Quarter Ending High Low
- -------------- ---- ---
December 31,2003 $1.01 $0.40
September 30, 2003 $0.60 $0.40
June 30, 2003 $1.00 $0.50
March 31, 2003 $0.65 $0.63
December 31, 2002 $0.68 $0.63
September 30, 2002 $0.83 $0.63
June 30, 2002 $1.25 $0.80
March 31, 2002 $1.25 $0.63
December 31, 2001 $1.07 $0.63
September 30, 2001 $1.00 $0.57
June 30, 2001 $0.56 $0.50
March 31, 2001 $1.50 $0.50
19
(1) As adjusted for a share dividend issued on May 1, 2003. (2) Source,
Reuters.data
The high and low bids listed above reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions.
At March 18, 2004, there were approximately 170 holders of record of the
Company's Common Shares. No cash dividends have been declared or paid on the
Company's Common Shares during the last two fiscal years.
EXECUTIVE COMPENSATION
The following table sets forth the amount accrued by the Company during
Fiscal Years 2001, 2002 and 2003 for services rendered to the Company by the
officers of the Company:
Name and Awards
Position Year Salary Bonus Other Stock Options(1) Total
-------- ---- ------ ----- ----- ------------- -----
Michael C. Tsao 2003 $135,000 $0 $0 0 0 $135,000
Chairman, President 2002 $136,792 $5,000 $0 0 0 $141,792
and CEO 2001 $118,245 $50,000 $1,725 0 0 $169,970
Alice W. Tsao 2003 $55,000 $0 $0 0 0 $55,000
Vice President and 2002 $49,537 $3,000 $0 0 0 $52,537
Secretary 2001 $47,557 $15,000 $1,376 0 0 $63,933
Alan Hoover 2003 $135,000 $5,000 $0 0 1,000 $140,000
Senior Vice President 2002 $140,144 $5,000 $0 0 0 $145,144
2001 $122,884 $25,000 $7,990 0 0 $155,874
Kenneth H. Kisner 2003 $51,000 $3,000 $1,000 0 1,000 $54,000
Treasurer 2002 $48,577 $3,000 $0 0 0 $51,577
2001 $47,192 $5,000 $1,481 0 0 $53,673
(1) Number of shares issuable upon exercise of options granted during the
fiscal year, adjusted for share dividends.
20
Financial Statements.
Child, Sullivan & Company
Certified Public Accountants
4764 South 900 East, Suite1
Salt Lake City, Utah 84117-4977
(801) 281-4700
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Kahiki Foods, Inc.
Columbus, Ohio
We have reviewed the accompanying balance sheet of Kahiki Foods, Inc. as of
December 31, 2003, and the related statements of income and cash flows for the
nine months ended December 31, 2003 and 2002, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of the management Kahiki Foods, Inc.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Child, Sullivan & Company
Certified Public Accountants
March 12, 2004
21
KAHIKI FOODS, INC.
BALANCE SHEET
(Unaudited)
December 31, 2003
ASSETS
CURRENT ASSETS
Cash $ 138,903
Marketable trading securities (Note 2) 544,009
Accounts receivable - trade (Note 2) 1,290,817
Inventories (Note 2) 1,258,000
Prepaid expenses 29,544
Deferred income taxes (Note 6) 25,000
------------------
Total Current Assets 3,286,273
------------------
PROPERTY AND EQUIPMENT
Land 119,685
Building and improvements 2,546,062
Machinery and equipment 2,216,562
Furniture and fixtures 45,605
Vehicles 170,069
Construction in progress - new facility 3,183,241
------------------
8,281,224
Accumulated depreciation (1,379,497)
------------------
Net Property and Equipment 6,901,727
------------------
OTHER ASSETS
Restricted cash 446,183
Deferred bond fees 150,496
Deposits 21,490
------------------
Total Other Assets 618,169
------------------
TOTAL ASSETS $ 10,806,169
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (Note 5) $ 388,763
Current portion of the bond obligation (Note 5) 140,000
Note payable - stockholder (Note 5) 150,000
Lines of credit (Note 4) 1,016,000
Accounts payable - trade 1,440,843
Accrued expenses 166,434
Accrued income taxes (Note 6) 111,000
------------------
Total Current Liabilities 3,413,040
Deferred income taxes 19,000
Bond obligation (Note 5) 4,037,546
Long-term debt (Note 5) 1,232,569
------------------
Total Liabilities 8,702,155
------------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized; 2,964,888 shares issued and outstanding 1,393,868
Additional paid-in capital 485,565
Retained earnings 224,581
------------------
2,104,014
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,806,169
==================
See Accountants' Review Report and Notes to Financial Statements.
22
KAHIKI FOODS, INC.
STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended December 31, 2003 and 2002
2003 2002
---------------- ---------------
Sales $ 8,788,864 $ 6,951,397
Cost of sales:
Costs of sales 6,238,186 5,063,801
---------------- ---------------
Gross margin 2,550,678 1,887,596
Operating expenses:
Research and development 20,283 73,713
General and administrative expenses 2,058,278 1,691,892
---------------- ---------------
Income From Operations 472,117 121,991
Other Income (Expenses):
Interest expense (102,331) (85,460)
Interest and dividend income 120,439 81,778
---------------- ---------------
Income before income taxes 490,225 118,309
Income tax expense 167,000 40,000
---------------- ---------------
Net Income $ 323,225 $ 78,309
================ ===============
Basic earnings per share:
Net income per share $ 0.11 $ 0.03
================ ===============
Diluted earnings per share:
Net income per share $ 0.10 $ 0.02
================ ===============
Weighted average shares outstanding
Basic 2,964,888 2,964,888
================ ===============
Diluted 3,165,273 3,166,179
================ ===============
See Accountants' Review Report and Notes to Financial Statements.
23
KAHIKI FOODS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended December 31, 2003 and 2002
2003 2002
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 323,225 $ 78,309
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 227,247 235,500
Unrealized (gain) loss on marketable securities (15,086) 26,996
(Increase) decrease in operating assets:
Accounts receivable - trade (683,569) 383,608
Inventories (435,245) (42,242)
Refundable income taxes 56,000 0
Prepaid expenses (14,948) (13,012)
Increase (decrease) in operating liabilities:
Accounts payable - trade 655,645 (201,759)
Accrued expenses 52,930 (61,785)
Income taxes payable 111,000 (36,612)
---------------- ---------------
Net Cash Provided by Operating Activities 277,199 369,003
---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (57,970) (454,961)
Purchase of new facility improvements (2,515,041) (634,317)
Net sales of marketable securities 516,298 0
---------------- ---------------
Net Cash Used in Investing Activities (2,056,713) (1,089,278)
---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) draws on lines of credit (21,397) 449,349
Proceeds from long-term debt 433,236 640,706
Proceeds from stockholder note 150,000 0
Proceeds from issuance of bond obligation 1,850,282 0
Payments on long-term debt (259,693) (373,139)
Cash restricted for bond redemption (416,183) 0
Payment of bond fees (500) 0
---------------- ---------------
Net Cash Provided by Financing Activities 1,735,745 716,916
---------------- ---------------
Net increase (decrease) in cash (43,769) (3,359)
Cash - beginning of period 182,672 98,853
---------------- ---------------
Cash - end of period $ 138,903 $ 95,494
================ ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Cash paid during the year for:
Interest $ 102,331 $ 85,460
Income taxes 146 2,048
See Accountants' Review Report and Notes to Financial Statements.
24
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
NOTE 1 Nature and Scope of Business
Kahiki Foods, Inc. was formed in 1988 to manufacture and process frozen and
other finished Chinese and Polynesian foods for wholesale distribution.
NOTE 2 Summary of Significant Accounting Policies
In the opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations and financial position have
been included and all such adjustments are of a normal recurring nature.
Revenue Recognition
Revenues are recognized when the goods are delivered.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
Cash
For purposes of the statements of cash flows, cash includes cash on hand
and demand deposits held by banks.
The Company maintains its cash in three accounts with one financial
institution. The carrying value is a reasonable estimate of the fair value.
Marketable Trading Securities
Management determines the appropriate classification of marketable
securities at the time they are acquired and evaluates the appropriateness
of such classification at each balance sheet date. The Company's marketable
securities are classified as trading. Trading securities are held for
resale in anticipation of short-term fluctuations in market prices and are
held at market value. Realized and unrealized gains and losses on the
marketable securities are included in income.
Marketable securities, consist an equity mutual fund with a cost basis of
$529,236 as of December 31, 2003. The unrealized loss as of December 31,
2003 was $14,773.
Accounts Receivable - Trade
Accounts receivable are uncollateralized customer obligations due under
normal trade terms requiring payment within 15 days of the invoice date.
Accounts receivable are stated at the amount billed to the customer.
Customer account balances 60 days past the invoice date are considered
delinquent. Payments received for accounts receivable are allocated to the
specific invoices identified on the customer remittance advice or, if
unspecified, are applied to the earliest unpaid invoices. The Company does
not charge interest on past due account balances.
The carrying amount of accounts receivable is reduced when necessary, by a
valuation allowance that reflects management's best estimate of the amount
that will not be collected. Management individually reviews all customer
account balances on a weekly basis, and based on an assessment of current
credit worthiness, estimates the portion, if any, of the balance that will
not be collected. After management's review of all accounts receivable
balances, management believes all amounts are collectible and a valuation
allowance is not necessary.
Inventories
Inventories consist of perishable food products and paper supplies. The
inventories are valued at the lower of cost (first-in, first-out method) or
market. Impairment and changes in market value are evaluated on a per item
basis.
If the cost of the inventory exceeds the market value evaluation based on
total inventory, provisions are made for the difference between the cost
and the market value. Provision for potential obsolete or slow moving
inventory is made based on analysis of inventory levels, age of inventory
and future sales forecasts.
25
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 2 Summary of Significant Accounting Policies (continued)
Inventories (continued)
Inventories consisted of the following at December 31:
2003
--------------
Raw food products $ 136,493
Finished goods 643,618
Supplies 477,889
--------------
$ 1,258,000
==============
Property and Equipment
Property and equipment is carried at cost, less accumulated depreciation
computed using the straight-line method. Major renewals and betterments are
capitalized and depreciated; maintenance and repairs that do not extend the
life of the respective assets are charged to expense as incurred. Upon
disposal of assets, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
Property and equipment are depreciated over their estimated useful lives as
follows:
Building and improvements 5 - 39 years
Machinery and equipment 5 - 9 years
Furniture and fixtures 5 - 7 years
Vehicles 5 years
During 2003, the Company capitalized interest related to the acquisition
and renovation of the new facility totaling approximately $246,000. The
capitalized interest is included in construction in progress on the balance
sheet.
Deferred Bond Costs
Included in other assets are deferred bond costs of $149,996, which have no
residual value. The deferred bond costs will be amortized on a
straight-line basis over 22 years, the life of the bond obligation.
Advertising Expense
Advertising costs are expensed as incurred. Advertising expense amounted to
$444,228 for the nine months ended December 31, 2003.
Research and Development
The Company expenses research and development costs as incurred. Research
and development expenses were approximately 21,000 as of December 31, 2003.
26
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 3 Earnings Per Share (EPS)
December 31, 2003 December 31, 2002
----------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
Income from continuing operations
available to common stockholders $ 323,225 2,964,888 $ 0.11 $ 78,309 2,964,888 $ 0.03
Effect of dilutive options - 200,385 (0.01) - 201,291 (0.01)
----------- ------------- --------- ----------- ------------- ---------
Diluted EPS
(Loss) income from continuing operations available to common
stock $ 323,225 3,165,273 $ 0.10 $ 78,309 3,166,179 $ 0.02
=========== ============= ========= =========== ============= =========
Earnings per share are computed on the weighted average number of
common shares outstanding including any dilutive options.
NOTE 4 Lines of Credit
The Company has available a $100,000 line of credit with a bank. The
line of credit is due on demand and is secured by receivables,
inventories and property and equipment. Interest is payable monthly at
the prime rate plus 1 1/2%. The balance due on the line of credit was
$16,000 at December 31, 2003.
The Company has available a line of credit with another bank for
$1,100,000. The credit line is due on demand and is secured by all
assets of the Company. Principal payments of $1,980 plus interest are
payable monthly at the prime rate. The balance due on the line of
credit was $1,000,000 at December 31, 2003.
27
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 5 Long-Term Debt
Long-term debt consisted of the following at December 31, 2003:
Shareholder Note
Note payable to a shareholder, due in February 2005, with interest
only payments at prime plus 2%. $ 150,000
Mortgage Note
Term note due to an investment company, payable in monthly installments of
$4,853 including interest at 8.0%, due October 2007. The note is unsecured. 198,807
Equipment Notes
Term note to a bank payable in monthly installments of $6,102, including
interest at 6.24%, secured by equipment and due December 2007. 258,593
Term notes due to a bank, payable in monthly installments of $9,343 including
interest at rates ranging from 7.0% to 10.5%. These notes are secured by all
assets of the Company and due through various dates through September 2005. 170,287
Term note due to a bank, with monthly interest payments at prime plus 1.00%
until June 2002. Monthly payments of $4,606 including interest at 7.63%, secured
by equipment and due June 2007. 169,316
Term note due to a financing company, payable in monthly
installments of $2,682, including interest at 5.25%, due in October 2013. 246,816
Term note due to a financing company, payable in monthly installments of $1,982
including interest at 3.0%, due in October
2009. The note is secured by equipment. 125,469
Term note due to a bank, payable in monthly installments of $854, including
interest at 7.05%, secured by equipment and due in
November 2006. 27,557
Term note due to a financing company, payable in monthly installments of $549,
including interest at 0%, secured by equipment
and due in June 2008. 29,672
Term note due to Community Capital Development Corporation, payable in monthly
installments of $2,711 including interest at 5.0%, due January 2007. The note is
secured by all business assets. 92,430
Term note due to the City of Columbus, payable in monthly installments of $1,393
including interest at 7.0%, secured by equipment and due January 2011. 92,316
Term note due to Community Capital Development Corporation, payable in monthly
installments of $2,161, including interest at
2.83%, due in June 2008. 108,813
Term notes due to a bank, payable in monthly installments of $1,305 including
interest at rates ranging from 9.3% to 10.52%, secured by vehicles. These notes
are due at various dates through March 2004. 2,722
Capital Lease
Capital lease due to the City of Gahanna, payable in monthly installments of
$1,698 including interest at 4.30%, secured by land
and due June 2009. 98,534
28
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 5 Long-Term Debt (continued)
Bond Obligation
Bond obligation payable to the State of Ohio with interest only payments
at 4.55% due through November 2003. Principal and interest payments ranging
from $19,519 to $31,239 from December 2003 through December 2022 with
interest ranging from 4.55% to 5.85%, secured by substantially all assets of
the Company. The obligation is personally guaranteed
by the President of the Company. $4,177,546
----------
5,948,878
Less: current portion 678,763
----------
$5,270,115
==========
Long-term debt for the years ended December 31 matures as follows:
2004 $ 678,763
2005 656,383
2006 463,434
2007 453,508
2008 228,916
Thereafter 3,467,874
-------------
$ 5,948,878
==============
The bond obligation's face amount is $4,180,000. As of December 31, 2003,
the Company had only drawn $4,177,546. The remaining funds will be drawn to
fund the renovations and equipment purchases for the Company's new
facility.
The above long-term debt is subject to certain covenants and restrictions
including maintenance of certain financial requirements. Rates currently
available from the bank for debt with similar terms and remaining
maturities are used to estimate the fair value of the debt. The Company's
carrying value approximates the fair value of the debt.
NOTE 6 Income Taxes
The provision (benefit) for income taxes consists of the following:
2003 2002
---------------- ---------------
Current (benefit) expense:
Federal $ 153,000 $ (1,000)
State 30,000 4,000
Deferred (benefit) expense (16,000) 37,000
---------------- ---------------
$ 167,000 $ 40,000
================ ===============
The components of the net deferred tax asset is as follows:
2003 2002
---------------- ---------------
Assets:
Inventories $ 3,000 $ 23,000
Accrued vacation 20,000 17,000
Unrealized loss on marketable securities 3,000 48,000
Capital loss carry forward 57,000 -
Other 20,000 8,000
---------------- ---------------
Gross deferred tax assets 103,000 96,000
---------------- ---------------
Liabilities:
Depreciation on property and equipment 97,000 106,000
---------------- ---------------
Total net deferred tax asset (liability) $ 6,000 $ (10,000)
================ ===============
A reconciliation of the Company's effective tax (benefit) provision is as
follows:
2003 2002
---------------- ---------------
Income tax at statutory rates $ 166,000 $ 40,000
State and local taxes, net of federal benefit 19,000 5,000
Permanent differences (14,000) (6,000)
Surtax and other rate differences (4,000) 1,000
---------------- ---------------
Total provision $ 167,000 $ 40,000
================ ===============
29
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 7 Stockholders' Equity and Stock Options The Company adopted the 1995 Stock
Option Plan effective May 1, 1995. The 1995 Plan authorizes the Company to
grant options to purchase shares of common stock to directors, employees
and consultants of the Company. The maximum number of common shares that
may be issued under the 1995 Plan is 600,000. The Company also has
outstanding 270,666 options for common shares under a contractual agreement
with an employee. These shares are considered to be outside of the plan,
but have been included in the disclosures for employee options.
As of December 31, 2003, three outside consultants held options to purchase
72,600 shares of common stock, with exercise prices ranging from $.22 to
$.65. The options were issued at their fair market value, and as such, no
compensation expense has been granted. At December 31, 2003, only 406,966
options, were vested and the remaining options vest at various times over
the next four years. These options expire at various dates through 2008.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan for employees,
consultants and the outside directors. The vesting period of the options
granted range from immediately exercisable to four years. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements for options issued under the plan since the exercise price of
the options was equal to the market value of the shares at the date of
grant. Had compensation costs for the Company's stock option plan been
determined based on the fair value at the grant dates for awards under the
plan consistent with the methodology of Financial Accounting Standards
Board Statement No. 123, Accounting For Stock - Based Compensation, the
Company's net income and net income per share would change as indicated
below.
2003 2002
---------------- ---------------
Net income:
As reported $ 323,225 $ 78,309
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (18,634) (24,181)
---------------- ---------------
Pro forma $ 304,591 $ 54,128
================ ===============
Basic earnings per share:
As reported $ 0.11 $ 0.03
Pro forma $ 0.10 $ 0.02
Diluted earnings per share:
As reported $ 0.10 $ 0.03
Pro forma $ 0.10 $ 0.02
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted-average
assumptions.
2003 2002
---------------- ---------------
Dividend yield 0% 0%
Expected volatility 218.0% 200.1%
Risk-free interest rates 1.88% and 2.63% 3.00% and 3.25%
Expected lives 5 Years 5 Years
A summary of the status of the Company's employee stock option plan as of
December 31, 2003 and 2002 and changes for the nine months then ended are
presented below:
2003 2002
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercised
Shares Price Shares Price
April 1 606,466 $ 0.34 534,468 $ 0.40
Granted 55,333 $ 0.56 172,000 $ 0.59
Exercised 0 $ 0.00 (102,000) $ 1.08
------------ ---------
December 31 661,799 $ 0.36 604,466 $ 0.34
============ =========
2003 2002
-------- -------
Options exercisable at year-end 406,966 248,516
======= =======
Weighted-average fair value of options
granted during the year $ 0.62 $ 0.62
======= =======
30
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 2003
NOTE 7 Stockholders' Equity and Stock Options (continued)
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Outstanding Average
Exercise December 31, Contractual Life Exercise March 31, Exercise
Prices 2003 (In Years) Price 2002 Price
- -------------- -------------- ------------------ ------------- -------------- ---------
$0.17 - $0.85 661,799 4.9 $0.36 604,466 $0.34
NOTE 8 Lease Commitments
The Company leases a facility used for its wholesaling operations under an
agreement that is accounted for as an operating lease. This lease requires
monthly payments of $6,400 through January 2005. The Company has the option
to renew for two additional three-year terms.
The Company also leases manufacturing equipment under operating lease
agreements. These leases expire at various dates through 2008 and require
total monthly payments of $18,621.
Future annual minimum lease commitments as of December 31 are as follows:
2004 $ 315,511
2005 205,583
2006 53,841
2007 33,000
2008 24,126
-----------
Total $ 632,061
===========
The Company's lease expense for the nine months ended December 31, 2003 was
$193,438.
NOTE 9 Concentrations
Sales to three customers amounted to approximately 44% of total revenue in
the nine months ended December 31, 2003. Accounts receivable from two
customers accounted for 48% of total accounts receivable as of December 31,
2003
NOTE 10 Commitments
In December 2002, the Company purchased a new operating facility for
$2,254,999. The Company committed to pay approximately $1,000,000 to
upgrade the facility. As of December 31, 2003, the Company has spent an
additional $928,242, which is reflected as construction in progress.
31
KAHIKI FOODS, INC.
FINANCIAL STATEMENTS
* * * * * *
March 31, 2003 and 2002
32
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT 34
BALANCE SHEETS 35
STATEMENTS OF OPERATIONS 36
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 37
STATEMENTS OF CASH FLOWS 38
NOTES TO FINANCIAL STATEMENTS 39
33
To the Stockholders
Kahiki Foods, Inc.
Columbus, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Kahiki Foods, Inc.
as of March 31, 2003 and 2002, and the related statements of operations, changes
in stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosure in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present
fairly, in all material respects, the financial position of Kahiki Foods, Inc.
as of March 31, 2003 and 2002, and the results of its operations and cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ GBQ Partners, LLC
Columbus, Ohio
May 6, 2003
34
KAHIKI FOODS, INC.
BALANCE SHEETS
March 31, 2003 and 2002
- --------------------------------------------------------------------------------
ASSETS
2003 2002
----------------- -----------------
CURRENT ASSETS
Cash $ 182,672 $ 98,853
Marketable securities 1,075,221 1,048,311
Accounts receivable - trade 607,248 957,030
Inventories 822,755 775,335
Refundable income taxes 56,000 33,000
Deferred income taxes 25,000 90,000
----------------- -----------------
Total current assets 2,768,896 3,002,529
----------------- -----------------
PROPERTY AND EQUIPMENT
Land 119,685 5,200
Building and improvements 291,063 291,063
Machinery and equipment 2,214,907 1,673,443
Furniture and fixtures 49,816 38,106
Vehicles 109,543 106,899
Construction in progress - new facility 2,254,999 -
Construction in progress - new facility improvements 668,200 -
----------------- -----------------
5,708,213 2,114,711
Less: accumulated depreciation (1,152,250) (615,020)
----------------- -----------------
Net property and equipment 4,555,963 1,499,691
----------------- -----------------
OTHER ASSETS
Deferred bond fees 149,996 -
Other 36,086 36,365
----------------- -----------------
Total other assets 186,082 36,365
----------------- -----------------
TOTAL ASSETS $ 7,510,941 $ 4,538,585
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 327,666 $ 221,697
Current portion of the bond obligation 46,667 -
Notes payable - lines of credit 1,037,396 495,651
Accounts payable - trade 785,198 763,376
Accrued expenses 113,504 113,149
Income taxes payable - 16,000
----------------- -----------------
Total current liabilities 2,310,431 1,609,873
DEFERRED INCOME TAXES 19,000 100,000
BOND OBLIGATION 2,280,597 -
LONG-TERM DEBT 1,120,124 962,000
----------------- -----------------
Total liabilities 5,730,152 2,671,873
----------------- -----------------
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized; 2,964,888 and 2,966,328 shares issued;
2,964,888 shares outstanding, respectively 1,393,868 1,479,868
Additional paid-in capital 485,565 485,565
Retained deficit (98,644) (12,721)
----------------- -----------------
1,780,789 1,952,712
Less: Treasury stock, 0 and 1,440 shares at cost
in 2003 and 2002, respectively 0 (86,000)
----------------- -----------------
Total stockholders' equity 1,780,789 1,866,712
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,510,941 $ 4,538,585
================= =================
The accompanying notes are an integral part of the financial statements.
35
KAHIKI FOODS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended March 31, 2003 and 2002
- --------------------------------------------------------------------------------
2003 2002
----------------- -----------------
Sales $ 9,204,684 $ 9,374,917
----------------- -----------------
Cost of sales:
Cost of sales 6,096,808 6,123,826
Depreciation and amortization expense 537,230 270,409
----------------- -----------------
Total cost of sales 6,634,038 6,394,235
----------------- -----------------
Gross margin 2,570,646 2,980,682
Operating expenses:
General and administrative expenses 2,622,214 2,834,939
New facility expenses 57,148 -
----------------- -----------------
Total operating expenses 2,679,362 2,834,939
----------------- -----------------
(Loss) income from operations (108,716) 145,743
----------------- -----------------
Other income (expense):
Interest expense (120,854) (115,428)
Interest and dividend income 61,951 86,424
Net loss on marketable securities (30,662) (79,478)
Other 30,746 57,336
----------------- -----------------
Total other income (expense) (58,819) (51,146)
----------------- -----------------
(Loss) income before income taxes (167,535) 94,597
Income tax (benefit) expense (81,612) 17,056
----------------- -----------------
Net (Loss) Income $ (85,923) $ 77,541
================= =================
Basic (loss) earnings per share:
Net (loss) income per share $ (.03) $ .03
================= =================
Weighted average shares outstanding for 2003 and 2002:
2,964,888 and 2,946,484, respectively
Diluted (loss) earnings per share:
Net (loss) income per share $ (.03) $ .02
================= =================
Weighted average shares outstanding for 2003 and 2002:
2,964,888 and 3,136,310, respectively
The accompanying notes are an integral part of the financial statements.
36
KAHIKI FOODS, INC.
SHATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended March 31, 2003 and 2002
- --------------------------------------------------------------------------------
Additional
Common Paid-In Retained Treasury
Stock Capital (Deficit) Stock Total
--------------- ---------------- --------------- ---------------- ---------------
BALANCE - MARCH 31, 2001 $ 1,474,977 $ 485,565 $ (90,262) $ (86,000) $ 1,784,280
Exercise of stock options for
29,334 shares of common
stock at $0.33 per share on
November 13, 2001 4,891 - - - 4,891
Net income - - 77,541 - 77,541
--------------- ---------------- --------------- ---------------- ---------------
BALANCE - MARCH 31, 2002 1,479,868 485,565 (12,721) (86,000) 1,866,712
Purchase of 16,500 shares
treasury stock at cost - - - (16,500) (16,500)
Reissued 16,500 shares
treasury stock at cost - - - 16,500 16,500
Retirement of 1,440 shares
of treasury stock (86,000) - - 86,000 -
Net loss - - (85,923) - (85,923)
--------------- ---------------- --------------- ---------------- ---------------
BALANCE - MARCH 31, 2003 $ 1,393,868 $ 485,565 $ (98,644) $ - $ 1,780,789
=============== ================ =============== ================ ===============
The accompanying notes are an integral part of the financial statements.
37
KAHIKI FOODS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended March 31, 2003 and 2002
- --------------------------------------------------------------------------------
2003 2002
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (85,923) $ 77,541
----------------- -----------------
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization 285,449 270,409
Accelerated depreciation on assets to be abandoned 251,781 -
Unrealized (gain) loss on marketable securities (111,457) 79,478
Realized loss on sale of marketable securities 142,119 -
Treasury stock issued for compensation 10,000 -
Loss on disposal of property and equipment - 7,270
Deferred income tax (benefit) expense (16,000) 37,000
(Increase) decrease in operating assets:
Accounts receivable - trade 349,782 (20,992)
Inventories (47,420) (161,428)
Refundable income taxes (23,000) (33,000)
Other assets 279 8,288
Increase (decrease) in operating liabilities:
Accounts payable - trade 21,822 205,183
Accrued expenses 355 (109,746)
Income taxes payable (16,000) (238,804)
----------------- -----------------
Net cash provided by operating activities 761,787 121,199
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (670,303) (286,702)
Purchase of new facility (2,254,999) -
Purchase of new facility improvements (668,200) -
Proceeds from disposal of property and equipment - 11,000
Net purchases of marketable securities (57,572) (108,852)
----------------- -----------------
Net cash used in investing activities (3,651,074) (384,554)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on lines of credit 541,745 186,824
Proceeds from long-term debt 498,273 292,800
Proceeds from issuance of bond obligation 2,327,264 -
Payments on long-term debt (234,180) (296,679)
Proceeds from stock issuance - 4,891
Payment of bond fees (149,996) -
Payment for repurchase of treasury stock (16,500) -
Proceeds from sales of treasury stock 6,500 -
----------------- -----------------
Net cash provided by financing activities 2,973,106 187,836
----------------- -----------------
Net increase (decrease) in cash 83,819 (75,519)
Cash - beginning of year 98,853 174,372
----------------- -----------------
Cash - end of year $ 182,672 $ 98,853
================= =================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 120,854 $ 115,428
Income taxes - 242,723
The accompanying notes are an integral part of the financial statements.
38
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
NATURE AND SCOPE OF BUSINESS
The Kahiki was founded in 1961 as a theme based, full-service Polynesian
restaurant. Kahiki Foods, Inc. was formed in 1988 to acquire and operate
the restaurant and to manufacture and process frozen and other finished
Chinese and Polynesian foods for wholesale distribution. The restaurant
was closed in August 2000 and the restaurant assets and land were sold.
After August 2000, the Company became completely concentrated on its
manufacturing and processing of frozen food.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from these estimates.
CASH
For purposes of the statements of cash flows, cash includes cash on hand
and demand deposits held by banks.
MARKETABLE SECURITIES
Management determines the appropriate classification of marketable
securities at the time they are acquired and evaluates the appropriateness
of such classification at each balance sheet date. The Company's
marketable securities are classified as trading. Trading securities are
held for resale in anticipation of short-term fluctuations in market
prices and are held at market value. Realized and unrealized gains and
losses on the marketable securities are included in income.
ACCOUNTS RECEIVABLE - TRADE
Accounts receivable are uncollateralized customer obligations due under
normal trade terms requiring payment within 15 days of the invoice date.
Accounts receivable are stated at the amount billed to the customer.
Customer account balances 60 days past the invoice date are considered
delinquent. Payments received for accounts receivable are allocated to the
specific invoices identified on the customer remittance advice or, if
unspecified, are applied to the earliest unpaid invoices. The Company does
not charge interest on past due account balances.
39
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTS RECEIVABLE - TRADE (CONTINUED)
The carrying amount of accounts receivable is reduced by a valuation
allowance that reflects management's best estimate of the amount that will
not be collected. Management individually reviews all customer account
balances on a weekly basis, and based on an assessment of current credit
worthiness, estimates the portion, if any, of the balance that will not be
collected. After management's review of all accounts receivable balances,
management believes all amounts are collectible and a valuation allowance
is not necessary.
INVENTORIES
Inventories consist of perishable food products and paper supplies. The
inventories are valued at the lower of cost (first-in, first-out method)
or market. Impairment and changes in market value are evaluated on a per
item basis.
If the cost of the inventory exceeds the market value evaluation based on
total inventory, provisions are made for the difference between the cost
and the market value. Provision for potential obsolete or slow moving
inventory is made based on analysis of inventory levels, age of inventory
and future sales forecasts.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
computed using the straight-line method. Major renewals and betterments
are capitalized and depreciated; maintenance and repairs that do not
extend the life of the respective assets are charged to expense as
incurred. Upon disposal of assets, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is
included in income. Property and equipment are depreciated over their
estimated useful lives as follows:
Building and improvements 5 - 39 years
Machinery and equipment 5 - 9 years
Furniture and fixtures 5 - 7 years
Vehicles 5 years
During 2003, the Company capitalized interest related to the acquisition
and renovation of the new facility totaling approximately $65,000. The
capitalized interest is included in construction in progress on the
balance sheet.
40
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT (continued)
During December 2002 and in anticipation of a move to a new operating
facility, management revised the estimated useful life of certain assets
located at the manufacturing facility classified as building and
improvements, furniture and fixtures and machinery and equipment. The
lives of these assets ranged from five to thirty-nine years and were
reduced to nine months. The effect of this change is recognized over the
remaining useful life of the respective assets. The total cost and
accumulated depreciation of the assets at December 31, 2002 was $1,004,891
and $358,058, respectively. Accordingly, depreciation expense for 2003 was
$251,781 more than it would have been had the estimated lives not been
revised. The remaining net book value of these assets was $395,052, which
will be depreciated fully in 2004.
DEFERRED BOND COSTS
Included in other assets are deferred bond costs of $149,996, which have
no residual value. The deferred bond costs will be amortized on a
straight-line basis over 22 years, the life of the bond obligation.
REVENUE RECOGNITION
Revenues are recognized when the goods are delivered.
Earnings Per Share (EPS)
December 31, 2003 December 31, 2002
----------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS
(Loss) income from continuing operations
available to common stockholders $ (85,923) 2,964,888 $ (0.03) $ 77,541 2,946,484 $ 0.03
Effect of dilutive options - - - - 189,826 (0.01)
----------- ------------- --------- ----------- ------------- ---------
Diluted EPS
(Loss) income from continuing operations available to common
stock $ (85,923) 2,964,888 $ (0.03) $ 77,541 3,136,310 $ 0.02
=========== ============= ========= =========== ============= =========
41
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
EARNINGS PER SHARE (EPS) (continued)
Earnings per share are computed on the weighted average number of common
shares outstanding including any dilutive options.
Options to purchase 606,466 shares for the year ended March 31, 2003 were
not included in the computation of diluted EPS because they would be
anti-dilutive. Options to purchase 104,000 shares for the year ended March
31, 2002 were not included in the computation of diluted EPS because the
exercise price of the options is greater than the average market price of
common shares.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense amounted
to $573,885 and $863,804 for the years ended March 31, 2003 and 2002,
respectively.
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs as incurred. Research
and development expenses were approximately $82,000 and $101,000 as of
March 31, 2003 and 2002, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 balances in order to
conform to 2003 classifications.
CASH
The Company maintains its cash in three accounts with one financial
institution. The carrying value is a reasonable estimate of the fair
value.
MARKETABLE SECURITIES
Marketable securities, which are classified as trading securities, consist
of two equity mutual funds with a cost basis of $1,083,389 and $1,167,937
as of March 31, 2003 and 2002, respectively. The unrealized loss as of
March 31, 2003 and 2002 was $8,168 and $119,626, respectively. Included in
the above amounts at March 31, 2003 and 2002, is a $30,000 certificate of
deposit that is restricted until 2007. The certificate of deposit is
restricted based on debt covenants.
42
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
INVENTORIES
Inventories consisted of the following at March 31:
2003 2002
------------- ------------
Raw food products $ 73,480 $ 124,736
Finished goods 401,787 369,384
Supplies 347,488 281,215
------------- ------------
$ 822,755 $ 775,335
============= ============
NOTES PAYABLE - LINES OF CREDIT
The Company has available a $100,000 line of credit with a bank. The line
of credit is due on demand and is secured by receivables, inventories and
property and equipment. Interest is payable monthly at the prime rate plus
1 1/2% (5.75% and 5.25% at March 31, 2003 and 2002, respectively). The
balance due on the line of credit was $29,000 and $50,651 at March 31,
2003 and 2002, respectively.
The Company has available a line of credit with another bank for
$1,100,000. The credit line is due on demand and is secured by all assets
of the Company. Principal payments of $1,980 plus interest are payable
monthly at the prime rate (4.25% and 4.75% at March 31, 2003 and 2002,
respectively). The balance due on the line of credit was $1,008,396 and
$445,000 at March 31, 2003 and 2002, respectively.
The Company's carrying value approximates the fair value of the notes as
of March 31, 2003.
Long-Term Debt
Long-term debt consisted of the following at March 31:
2003 2002
------------ ------------
Mortgage Note
Term note due to an investment company, payable in monthly installments of
$4,853 including interest at 8.0%, due October 2007. The note is unsecured. $ 229,523 $ 267,721
43
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
Long-Term Debt (continued)
2003 2002
------------ ------------
Equipment Notes
TERM NOTE TO A BANK PAYABLE IN MONTHLY INSTALLMENTS OF $6,102, INCLUDING
INTEREST AT 6.24%, SECURED BY EQUIPMENT AND DUE DECEMBER 2007. 300,310 -
TERM NOTES DUE TO A BANK, PAYABLE IN MONTHLY INSTALLMENTS OF $9,343 INCLUDING
INTEREST AT RATES RANGING FROM 7.0% TO 10.5%. THESE NOTES ARE SECURED BY ALL
ASSETS OF THE COMPANY AND DUE THROUGH VARIOUS DATES THROUGH SEPTEMBER 2005. 242,077 331,637
TERM NOTE DUE TO A BANK, WITH MONTHLY INTEREST PAYMENTS AT PRIME PLUS 1.00%
UNTIL JUNE 2002. MONTHLY PAYMENTS OF $4,606 INCLUDING INTEREST AT 7.63%, SECURED
BY EQUIPMENT AND DUE JUNE 2007. 200,098 159,173
TERM NOTE DUE TO A FINANCING COMPANY, PAYABLE IN MONTHLY INSTALLMENTS OF $1,982
INCLUDING INTEREST AT 3.0%, DUE IN OCTOBER 2009. THE NOTE IS SECURED BY
EQUIPMENT. 140,298 150,000
TERM NOTE DUE TO COMMUNITY CAPITAL DEVELOPMENT CORPORATION, PAYABLE IN MONTHLY
INSTALLMENTS OF $2,711 INCLUDING INTEREST AT 5.0%, DUE JANUARY 2007. THE NOTE IS
SECURED BY ALL BUSINESS ASSETS. 112,744 138,618
TERM NOTE DUE TO THE CITY OF COLUMBUS, PAYABLE IN MONTHLY INSTALLMENTS OF $1,393
INCLUDING INTEREST AT 7.0%, SECURED BY EQUIPMENT AND DUE JANUARY 2011. 99,790 109,165
44
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
LONG-TERM DEBT (CONTINUED)
2003 2002
------------ ------------
TERM NOTES DUE TO A BANK, PAYABLE IN MONTHLY INSTALLMENTS OF $1,305 INCLUDING
INTEREST AT RATES RANGING FROM 9.3% TO 10.52%, SECURED BY VEHICLES. THESE NOTES
ARE DUE AT VARIOUS DATES THROUGH MARCH 2004. 12,483 27,383
CAPITAL LEASE
CAPITAL LEASE DUE TO THE CITY OF GAHANNA, PAYABLE IN MONTHLY INSTALLMENTS OF
$1,698 INCLUDING INTEREST AT 4.30%, SECURED BY LAND AND DUE JUNE 2009. 110,467 -
BOND OBLIGATION
BOND OBLIGATION PAYABLE TO THE STATE OF OHIO WITH INTEREST ONLY PAYMENTS AT
4.55% DUE THROUGH NOVEMBER 2003. PRINCIPAL, INTEREST PAYMENTS RANGING FROM
$19,519 TO $31,239 FROM DECEMBER 2003 THROUGH DECEMBER 2022 WITH INTEREST
RANGING FROM 4.55% TO 5.85%, SECURED BY SUBSTANTIALLY ALL ASSETS OF THE COMPANY.
THE OBLIGATION IS PERSONALLY GUARANTEED BY THE PRESIDENT OF THE COMPANY. 2,327,264 -
------------ ------------
3,775,054 1,183,697
LESS: CURRENT PORTION (374,333) (221,697)
------------ ------------
$ 3,400,721 $ 962,000
============ ============
45
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
LONG-TERM DEBT (continued)
Long-term debt for the years ended March 31 matures as follows:
2004 $ 374,333
2005 478,763
2006 428,057
2007 404,618
2008 325,760
Thereafter 1,763,523
------------
$ 3,775,054
===========
The bond obligation's face amount is $4,180,000. As of March 31, 2003,
the Company had only drawn $2,327,264. The remaining funds will be drawn
to fund the renovations and equipment purchases for the Company's new
facility.
The above long-term debt is subject to certain covenants and restrictions
including maintenance of certain financial requirements. Rates currently
available from the bank for debt with similar terms and remaining
maturities are used to estimate the fair value of the debt. The Company's
carrying value approximates the fair value of the debt.
INCOME TAXES
The provision (benefit) for income taxes consists of the following:
2003 2002
---------- -----------
Current (benefit) expense:
Federal $ (67,894) $ (20,067)
State 2,282 123
Deferred (benefit) expense (16,000) 37,000
---------- -----------
$( 81,612) $ 17,056
========== ===========
46
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
INCOME TAXES (continued)
The components of the net deferred tax asset is as follows:
2003 2002
---------------- ---------------
Assets:
Inventories $ 3,000 $ 23,000
Accrued vacation 20,000 17,000
Unrealized loss on marketable securities 3,000 48,000
Capital loss carry forward 57,000 -
Other 20,000 8,000
---------------- ---------------
Gross deferred tax assets 103,000 96,000
---------------- ---------------
Liabilities:
Depreciation on property and equipment 97,000 106,000
---------------- ---------------
Total net deferred tax asset (liability) $ 6,000 $ (10,000)
================ ===============
A reconciliation of the Company's effective tax (benefit) provision is as
follows:
2003 2002
---------------- ---------------
Income (benefit) tax at statutory rates $ (56,962) $ 32,163
State and local (benefit) taxes, net of federal benefit (8,935) 3,070
Permanent differences (13,217) (17,298)
Surtax and other rate differences (2,498) (879)
---------------- ---------------
Total (benefit) provision $ (81,612) $ 17,056
================ ===============
STOCKHOLDERS' EQUITY AND STOCK OPTIONS
The Company adopted the 1995 Stock Option Plan effective May 1, 1995. The
1995 Plan authorizes the Company to grant options to purchase shares of
common stock to directors, employees and consultants of the Company. The
maximum number of common shares that may be issued under the 1995 Plan is
600,000. The Company also has outstanding 270,666 options for common
shares under a contractual agreement with an employee. These shares are
considered to be outside of the plan, but have been included in the
disclosures for employee options.
47
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
STOCKHOLDERS' EQUITY AND STOCK OPTIONS (continued)
As of March 31, 2003 and 2002, outside consultants held options to purchase
66,600 and 46,600 shares of common stock, respectively, with exercise
prices ranging from $.22 to $.63. The options were issued at their fair
market value, and as such, no compensation expense has been granted. At
March 31, 2003 and 2002, only 206,683 and 92,133 options, respectively,
were vested and the remaining options vest at various times over the next
four years. These options expire at various dates through 2006.
The Company applies Accounting Principles Board Opinion No. 2 and related
interpretations in accounting for its stock option plan for employees,
consultants and the outside directors. The vesting period of the options
granted range from immediately exercisable to four years. Accordingly, no
compensation cost has been recognized in the accompanying financial
statements for options issued under the plan since the exercise price of
the options was equal to the market value of the shares at the date of
grant. Had compensation costs for the Company's stock option plan been
determined based on the fair value at the grant dates for awards under the
plan consistent with the methodology of Financial Accounting Standards
Board Statement No. 123, Accounting For Stock - Based Compensation, the
Company's net income and net income per share would change as indicated
below.
2003 2002
---------------- ---------------
Net (loss) income:
As reported $ (85,923) $ 77,541
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (21,983) (23,648)
---------------- ---------------
Pro forma $ (107,906) $ 53,893
================ ===============
Basic (loss) earnings per share:
As reported $ (0.03) $ 0.03
Pro forma $ (0.04) $ 0.02
Diluted (loss) earnings per share:
As reported $ (0.03) $ 0.02
Pro forma $ (0.04) $ 0.02
48
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
STOCKHOLDERS' EQUITY AND STOCK OPTIONS (continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option- pricing model with the following weighted-average
assumptions.
2003 2002
------------ ------------
Dividend yield 0% 0%
Expected Volatility 200.1% 229.5%
Risk-free interest rates 3.25% and 3.00% 3.50% and 3.25%
Expected lives 5 years 5 years
A summary of the status of the Company's employee stock optio plan as of
March 31, 2003 and 2002 and changes for the years then ended are presented
below:
2003 2002
------------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercised
Shares Price Shares Price
April 1 534,466 $ 0.38 529,800 $ 0.36
Granted 174,000 $ 0.63 34,000 $ 0.59
Exercised - $ 0.00 (29,334) $ 0.17
Canceled (102,000) $ 1.08 - $ 0.00
------------ ---------
March 31 606,466 $ 0.34 534,466 $ 0.38
============ =========
2003 2002
-------- -------
Options exercisable at year-end 206,683 313,566
======= =======
Weighted-average fair value of options
granted during the year $ 0.62 $ 0.62
======= =======
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Outstanding Average
Exercise March 31, Contractual Life Exercise March 31, Exercise
Prices 2003 (In Years) Price 2002 Price
- -------------- -------------- ------------------ ------------- -------------- ---------
$0.17 - $0.85 606,466 6.16 $0.34 534,466 $0.38
49
KAHIKI FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2003 and 2002
LEASE COMMITMENTS
The Company leases a facility used for its wholesaling operations under an
agreement that is accounted for as an operating lease. This lease requires
monthly payments of $6,400 through January 2005. The Company has the
option to renew for two additional three-year terms.
The Company also leases manufacturing equipment under operating lease
agreements. These leases expire at various dates through 2008 and require
total monthly payments of $18,621.
Future annual minimum lease commitments as of March 31 are as follows:
2004 $ 300,783
2005 174,040
2006 24,126
2007 24,126
2008 24,126
--------------
Total $ 547,201
============
The Company's lease expense for the years ended March 31, 2003 and 2002
was $334,943 and $328,871, respectively.
CONCENTRATIONS
Sales to three customers amounted to approximately 43% in 2003 and one
customer accounted for 53% in 2002 of total revenue. Accounts receivable
from one customer accounted for approximately 15% and from two customers
accounted for 59% of total accounts receivable as of March 31, 2003 and
2002, respectively.
COMMITMENTS
In December 2002, the Company purchased a new operating facility for
$2,254,999. The Company committed to pay approximately $1,000,000 to
upgrade the facility. As of March 31, 2003, the Company has spent an
additional $668,200, which is reflected as construction in progress.
SUBSEQUENT EVENTS
On April 18, 2003, the Company declared a 2 for 1 stock split for
stockholders of record as of May 1, 2003. All per share amounts in the
accompanying financial statements have been restated to reflect the stock
split.
50
Changes in Registrant's Certifying Accountant
On March 4, 2004, Kahiki Foods, Inc. (Kahiki) engaged the accounting firm of
Child, Sullivan & Company (Child) as the independent public accountants to audit
Kahiki's financial statements for the fiscal year ended March 31, 2004, to
replace the firm of GBQ Partners, LLC (GBQ), which was the principal independent
public accountant forKahiki's most recent certified financial statements.
During the two fiscal years ended March 31, 2003, and the subsequent interim
period preceding the engagement of Child, there were no disagreements with GBQ
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure. However, GBQ advised Kahiki it would
be unable to accept the appointment to audit Kahiki's financial statements for
the fiscal year ended March 31, 2004, because GBQ has elected not to perform
audits of public companies. Kahiki selected Child as the auditor for its
financial statements for the fiscal year ending March 31, 2004.
GBQ's report on the financial statements for the past two years contained no
adverse opinion or disclaimer of opinion and was not qualified as to
uncertainty, audit scope or accounting principles. Kahiki has requested that GBQ
furnish it with a letter addressed to the SEC stating whether it agrees with the
above statements. A copy of GBQ's letter to the SEC, dated March 22, 2004, is
filed as Exhibit 14.1 to this Form SB-2.
PART II
Indemnification of Directors and Officers
The Company's Amended Articles of Incorporation provides that the Company
shall indemnify any Director or Officer (and may indemnify any other employee or
agent of the Company or of another 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 the Company or is or was serving at the request of the Company 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 the
Company, 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 the Company.
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.
The Company 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 the Company under these indemnification provisions.
The indemnification provided hereunder 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 Revise 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 the Company 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 the
Company 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 Act may be
permitted to directors, officers, and controlling persons of the Company
pursuant to the Articles of Incorporation, or otherwise, the Company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
51
Other Expenses of Issuance and Distribution.
Filing Fee - Securities and Exchange Commission $ 275
Accounting Fees and expenses $ 5,000
Legal Fees and Expenses $ 15,000
Blue Sky Fees and expenses $ 10,000
Transfer Agent Fees and Expenses $ 0
Printing and Engraving $ 0
Miscellaneous Expenses $ 10,000
---------
TOTAL $ 40,275
========
Expenses other than filing fees are estimated. The Company will pay all
fees, disbursements and expenses in connection with the proposed offering.
Recent Sales of Unregistered Securities.
In February, 2004, the Company closed a private offering of 588,235
Units at a price of $1.70 per Unit for a total of $1,000,000. Each Unit
consisted of one Common Share, one-half $2.25 Warrant and one-half $3.00
Warrant. The Company also sold 14,705 Common Shares at a price of $1.70 per
share.
In January, 2004, the Company issued 80,000 Options to a Director of
the Company in exchange for continuing consulting services.
The Company believes that the foregoing transactions were exempt from
registration under Sections 4(2) and 4(6) of the Securities Act of 1933. All
purchasers received written information about the Company and the Company
believes that all such purchasers were qualified investors. All such purchasers
have executed and delivered to the Company investment representations and
appropriate restrictive legends have been placed on the stock and warrant
certificates issued.
Index to Exhibits
3.1 Amended and Restated Articles of Incorporation of the Registrant
3.2 Code of Regulations of the Registrant
4.1 Specimen Common Share certificate
4.2 $2.25 Common Share Purchase Warrant
4.3 $3.00 Common Share Purchase Warrant
4.4 Common Share Purchase Option
5.1 Opinion re: legality
10.1 Lease between Kahiki Foods, Inc. and Simon Grou Limited Partnership dated
December 27, 1999 relating to property located at 3004 East 14th Avenue,
Columbus, Ohio.
10.2 Loan Agreement between Kahiki Foods, Inc. and The Director of Development
of the State of Ohio dated as of December 1, 2002.
16.1 Letter on change in certifying accountant.
23.1 Consent of GBQ Partners LLP
23.2 Consent of Child, Sullivan & Company
23.3 Consent of Carlile Patchen & Murphy LLP (contained in Opinion of counsel
filed as Exhibit 5.1 hereto).
24.1 Power of Attorney
Undertakings.
The undersigned Registrant hereby untertakes (1) to file during any period in
which offers or sales are being made, a post-effective amendment to the
Registration Statement (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) to reflect in the
prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement; (2) that, for the purpose of
determining any liability under the act, each post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities of that time shall be deemed to be
the initial bona fide offering thereof; and (3) to
52
remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Act, the information omitted from the
form of prospectus filed as part of a Registration Statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall
be deemed to be a part of the Registration Statement as of the time it was
declared effective, and (2) for the purpose of determining any liability
under the Act, each post-effective amendment that contains a form or
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
In accordance with the requirements of the Securities Ac of 1933, the
Registrant certifies that it has reasonable knowledge to believe that it
meets the requirements of filing Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Columbus, State of Ohio on March 22, 2004.
KAHIKI FOODS INC.
By:
----------------------------------
Michael C. Tsao, President
In accordance with the requirements of the Securities Ac of 1933, this
registration statement was signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
/s/ Michael C. Tsao President, Director and
Michael C. Tsao Chief Executive Officer
/s/ Alice W. Tsao Vice President, Secretary
Alice W. Tsao and Director
/s/ Kenneth H. Kisner Treasurer and Chief Financial
Kenneth H. Kisner Officer
/s/ Alan Hoover Director
Alan Hoover
/s/ Winston Bash Director
Winston Bash
/s/ Bob Binsky Director
53
EXHIBIT 3.1
Doc ID 2002016001714
- --------------------------------------------------------------------------------
Bar Code Inserted Here.
DATE: DOCUMENT ID DESCRIPTION FILING EXPED PENALTY CERT COPY
01/16/2002 200201600174 DOMESTIC/AMENDMENT TO ****** .00 .00 .00 .00
ARTICLES (AMD)
Receipt
This is not a bill. Please do not remit payment.
CARLILE, PATCHEN & MURPHY
366 E. BROAD STREET
ATTN: PAM GEISER
COLUMBUS, OH 43215
STATE OF OHIO
Ohio Secretary of State, J. Kenneth Blackwell
596891
It is hereby certified that the Secretary of State of Ohio has custody of the
business records for
KAHIKI FOODS, INC.
and, that said business records show the filing and recording of:
Document(s) Document No(s): DOMESTIC/AMENDMENT TO ARTICLES 20021600174
The Seal of the Secretary of State of Ohio Witness my hand and the seal
of the Secretary of State at
Columbus, Ohio this 15th day
of January, A.D. 2002
United States of America
State of Ohio /s/ J Kenneth Blackwell
Office of the Secretary of State Ohio Secretary of State
54
THE SEAL OF THE Prescribed by J. KENNETH BLACKWELL
SECRETARY OF Please obtain fee amount and mailing instructions from the
STATE Filing OF OHIO Reference Guide (using the 3 digit
form # located at the bottom of thisExpedite is an additional
fee form). To obtain the Filing Reference Guide or for
assistance, please of $100.00 call Customer Service; []
Expedite Central Ohio: (614) 466-3910 Toll Free:
1-877-SOS-File(1-877-767-3453)
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO ARTICLES OF
Kahiki Foods, Inc.
--------------------------------------------
(Name of Corporation)
596891
--------------------------
(charter number)
Michael C. Tsao , who is the President
- ---------------------------------------- ---------------------------
(Name) (Title) of the above named Ohio corporation organized for
profit, does hereby certify that: (Please check the appropriate box and complete
the appropriate statements.)
[X] a meeting of the shareholders was duly called and held on 7/16/01
, at which meeting a quorum the shareholders was present in person
or by proxy, and that the affirmative vote of the holders of
shares entitling them to exercise 80.02% of the voting power of
the corporation, the following resolution to amend the articles
was adopted :
[] in a writing signed by all the shareholders who would be entitled
to notice of a meeting held for that purpose, the following
resolution to amend the articles was adopted:
FOURTH: The number of shares which the corporation is authorized
to have outstanding is Ten Million (10,000,000), all of which
shall be shares of common stock with no par value.
[] Please check box if additional provision are attached.
Provisions attached hereto are incorporated herein and made a part of these
articles of incorporation.
IN WITNESS WHEREOF, the above name officer, acting for and on behalf of the
corporation, has hereunto subscribed his name on Jan 14, 2002
(his/her) (date)
Signature: /s/ Michael C. Tsao
------------------------
Michael C. Tsao
Title: President
-----------------------
125-AMDS Page 1 of 1 Version: 7/1/01
55
06015-1015
The State of Ohio
Bob Taft
Secretary of State
596891
Certificate
it is hereby certified that the Secretary of State of Ohio has custody of the
Records of Incorporation and Miscellaneous Filings, that said records show the
filing and recording of: AMD INC
KAHIKI FOODS, INC.
United States of America Recorded on Roll 6015 at Frame 1016 of
State of Ohio the Records of Incorporation and
Office of the Secretary of State Miscellaneous Filings.
Official Seal of Witness my hand and the seal of the
Secretary of State at
the Secretary of State Columbus, Ohio, this 31st day of July,
of Ohio A.D. 1997.
/s/ Bob Taft
Bob Taft
Secretary of State
56
596891
06015-1016 Approved
By: /s/ JMR
CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION Date 7-31-97
OF KAHIKI FOODS, INC. Amount: $3,535-
97080145301
Michael Tsao, President and Alice Tsao, Secretary, of Kahiki Foods, Inc.,
an Ohio corporation with its principal office located in Columbus, Franklin
County, Ohio, do hereby certify that at a meeting of the Shareholders duly
called on July 14, 1997 for the purpose of adopting this amendment, a quorum of
the shareholders was present in person or by proxy, and by the affirmative vote
of the holders of shares entitling them to exercise 77.75% of the voting power
of the corporation. The following resolution to amend the articles was adopted:
RESOLVED that ARTICLE FOURTH of the Company's Amended and Restated
Articles of Incorporation is hereby deleted in its entirety and replace
by the following:
FOURTH: The number is shares which the Corporation is authorized
to have outstanding is Two Million (2,000,000), all of which shall be
shares of common stock with no par value.
IN WITNESS WHEREOF, said Michael Tsao, President, and Alice Tsao, Secretary
of Kahiki Foods, Inc., acting for and on behalf of said Corporation, have
hereunto subscribed their names this 28 day of July, 1997.
KAHIKI FOODS, INC.
By: /s/ Michael Tsao
Michael Tsao, President
By: /s/ Alice Tsao
Alice Tsao, Secretary
RECEIVED
JUL 31 1997
BOB TAFT
Secretary of State
LRA/LRA/258295
002261.001
57
Doc ID 5309_0069
06015-1015
The State of Ohio
Bob Taft
Secretary of State
596891
Certificate
it is hereby certified that the Secretary of State of Ohio has custody of the
Records of Incorporation and Miscellaneous Filings, that said records show the
filing and recording of: AMD CHN
of:
KAHIKI FOODS, INC. FORMERLY KAHIKI SUPPER CLUB, INC.
United States of America Recorded on Roll 5309 at Frame 0071 of
State of Ohio the Records of Incorporation and
Office of the Secretary of State Miscellaneous Filings.
Official Seal of Witness my hand and the seal of the
Secretary of State at
the Secretary of State Columbus, Ohio, this 1st day of SEP,
of Ohio A.D. 1995.
/s/ Bob Taft
Bob Taft
Secretary of State
58
Doc ID 5309_0069
596891
06015-1016 Approved
By: /s/ RB
ERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION Date 9/1/95
OF KAHIKI SUPPER CLUB INC. Amount: $35.00-
95090525001
Michael Tsao, President and Alice Tsao, Secretary, of Kahiki Supper Club,
Inc., an Ohio corporation with its principal office located in Columbus,
Franklin County, Ohio, do hereby certify that at a meeting duly called on July
12, 1995 of the Shareholders of the Corporation the following resolution was
adopted by 72.02% of the Shareholders to amend the Amended and Restated Articles
of Incorporation:
ARTICLE FIRST of the Company's Amended and Restated Articles of
Incorporation is hereby amended to read as follows:
FIRST: The name of the Corporation hereinafter the "Corporation is
: Kahiki Foods, Inc."
IN WITNESS WHEREOF, said Michael Tsao, President, and Alice Tsao,
Secretary, of Kahiki Supper Club, Inc. acting for and on behalf of said
Corporation, have hereunto subscribed their names this 31st day of July, 1995.
KAHIKI SUPPER CLUB, INC.
By: /s/ Michael Tsao
Michael Tsao, President
By: /s/ Alice Tsao
Alice Tsao, Secretary
RECEIVED
SEP 1 1995
BOB TAFT
Secretary of State
AJF/SPB/160040
002261.001
59
Doc ID H572_1974
H0572-1976
The State of Ohio
Bob Taft
Secretary of State
596891
Certificate
it is hereby certified that the Secretary of State of Ohio has custody of the
Records of Incorporation and Miscellaneous Filings, that said records show the
filing and recording of: AMD INC
of:
KAHIKI SUPPER CLUB, INC.
United States of America Recorded on Roll H572 at Frame 1976 of
State of Ohio the Records of Incorporation and
Office of the Secretary of State Miscellaneous Filings.
Official Seal of Witness my hand and the seal of the Secretary
of State at
the Secretary of State Columbus, Ohio, this 5th day of APRIL
of Ohio A.D. 1993.
/s/ Bob Taft
Bob Taft
Secretary of State
60
Doc ID H572_1974
596891
H0572-1976 Approved
By: /s/ CR
CERTIFICATE OF AMENDED Date 4/5/93
ARTICLES OF INCORPORATION Amount: $1035.00
OF 93041514***
KAHIKI SUPPER CLUB INC.
Michael Tsao, President and Alice Tsao, Secretary, of Kahiki Supper Club,
Inc., an Ohio corporation with its principal office located in Columbus,
Franklin County, Ohio, do hereby certify that in a writing signed pursuant to
the provisions of Section 1701.54 of the Ohio Revised Code by all of the
Shareholders of the Corporation, the following resolution was adopted to amend
the Articles of Incorporation:
The Articles of Incorporation of the Corporation are hereby amended by
deleting the existing Articles of Incorporation and substituting therefore
the Amended and Restated Articles of Incorporation attached hereto as
Exhibit A.
IN WITNESS WHEREOF, said Michael Tsao, President, and Alice Tsao,
Secretary, of Kahiki Supper Club, Inc. acting for and on behalf of said
Corporation, have hereunto subscribed their names this 19th day of March, 1993.
KAHIKI SUPPER CLUB, INC.
By: /s/ Michael Tsao
Michael Tsao, President
By: /s/ Alice Tsao
Alice Tsao, Secretary
61
Doc ID H572_1974
H0572-1977
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
KAHIKI SUPPER CLUB, 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 SUPPER CLUB, INC.
SECOND: The place in the State of Ohio where the principal office of the
Corporation is to be located is City of Columbus, County of Franklin.
THIRD: The purpose for which the Corporation is formed shall be in the
authority to engage in an lawful act or activity for which corporation may be
formed under Chapter 1701 of the Revised Code of Ohio.
FOURTH: The number of shares which the Corporation is authorized to have
outstanding is Six Hundred Thousand (600,000) all of which shall be shares of
common stock with no par value of which Five Hundred Fifty Thousand (550,000)
shall be designated Class A Common and Fifty Thousand (50,000) shall be
designated Class B Common.
EXPRESS TERMS OF THE COMMON STOCK
Each holder of Class A or Class B Common Shares is entitled to on vote for
each share held on any matter properly submitted to the shareholders for a vote
but is not entitled to vote cumulatively in the election of directors. The
holders of subscription or redemption rights. The holder of Class a and Class B
Common Shares are entitled to receive dividends if, as and when declared by the
Board of Directors.
Upon voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, holders of the Class A and Class B Common Shares of the
Company are entitled to share ratably in all assets remaining after payment of
liabilities. However, until June 30, 1994, the holders of Class A Shares shall
first be entitled to receive up to $10.00 per share upon any voluntary and
involuntary liquidation, dissolution or winding up prior to any payment to
holders of Class B Shares. Any balance shall be distributed among the holders of
Class A and Class B Common Shares in proportion to the number of shares which
they hold. On June 30, 1994, there will no longer by a distinction between Class
A Shares and Class B Shares and the liquidation preference previously enjoyed by
the holders of Class A Shares will cease.
The rights, preferences and privileges of the Class A and Class B Common
Shares are identical, except for the liquidation preference described in the
immediately preceding paragraph.
All or any part of said common shares may be issued by the Corporation from
time to time and for such consideration as may be determined upon and fixed by
the Board of Directors, as provided by law. Any and all such shares issued, for
which the full consideration has been paid or delivered, shall be deemed fully
paid shares and the holder of such shares shall not be liable for any further
call or assessment or any other payment thereon.
62
H0572-1979
FIFTH: The period of existence of the Corporation is perpetual.
SIXTH: 1. Notwithstanding any provision is 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.
SEVENTH: The Corporation shall, to the fullest extend permitted by Section
1701.13 of the Revised Code of Ohio, as the same may be amended and
supplemented, indemnity 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 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 surplus, however created or arising, shall be disposed of or declared in
dividends, or aid to shareholders, and without input 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 Capital Code of Ohio, or any statute of like tenor or effect which is
hereafter inacted, 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, obligation, evidences 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 the 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.
63
Doc ID H299_1056
H299-0157
The State of Ohio
Bob Taft
Secretary of State
596891
Certificate
it is hereby certified that the Secretary of State of Ohio has custody of the
Records of Incorporation and Miscellaneous Filings, that said records show the
filing and recording of: AMD INC
of:
KAHIKI SUPPER CLUB, INC.
United States of America Recorded on Roll H299 at Frame 0156 of
State of Ohio the Records of Incorporation and
Office of the Secretary of State Miscellaneous Filings.
Official Seal of Witness my hand and the seal of the
Secretary of State at
the Secretary of State Columbus, Ohio, this 5th day of FEB
of Ohio A.D. 1992.
/s/ Bob Taft
Bob Taft
Secretary of State
64
Doc ID H299_0156
92020511501
Official Seal of Charter No. 586891 H0299-0158
The Secretary of State Presented by Approved: CK
Of Ohio Bob Taft, Secretary of State Date 2-5-92
Columbus, Ohio 48266-0418 Fee: 3,055.00
Form 8H-AMD (January 1991)
CERTIFICATE OF AMENDMENT
by Shareholders to the Articles of Incorporation of
Kahiki Supper Club, Inc.
(Name of Corporation)
Michael C. Tsao , who is
- --------------------------------------------
[] Chairman of the Board [X] President [] Vice President (check one) and
Alice W. Tsao , who is [X] Secretary [] Assistant Secretary (Check one) of the
above named Ohio corporation for profit do hereby certify that: (check the
appropriate box and complete the appropriate statements). [] a meeting, of the
shareholders was duly called for the purpose of
adopting this amendment and held on January 30 , 19 92 at which meeting
a quorum of the shareholders was present in person or by proxy, and by
the affirmative vote of the holders of shares entitling them to
exercise 100% % of the voting power of the corporation.
[X] In a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for that purpose, the following resolution to
amend the articles was adopted:
As of the 30th day of January, 1992, the Board of Directors and
the shareholders owning 100% of the outstanding shares of Kahiki Supper
Club, Inc. resolve to increase the number of authorized shares of the
corporation as follows: 2000,000 Class A Common No Par and 150,000
Class B Common, No Par; the Class B share shall possess no voting
rights except as otherwise required by law.
IN WITNESS WHEREOF, the above named officers, acting for and on the behalf
of the corporation, have hereto subscribed their names this 30th day of January,
1992.
RECEIVED By: /s/ Michael C. Tsal
--------------------------------------------
FEB (Chairman, President, Vice President)
Bob Taft
By: /s/ Alice W. Tsao
--------------------------------------------
(Secretary, Assistant Secretary)
NOTE: Ohio law does not permit one officer to sign two capacities, Two separate
signatures are required, even if this necessitates the election of a second
officer before the filing can be made.
65
F095-0526
The State of Ohio
Anthony J. Celebrezze, Jr.
Secretary of State
596891
Certificate
it is hereby certified that the Secretary of State of Ohio has custody of the
Records of Incorporation and Miscellaneous Filings, that said records show the
filing and recording of: ARF of:
KAHIKI SUPPER CLUB, INC.
United States of America Recorded on Roll F095 at Frame 0526 of
State of Ohio the Records of Incorporation and
Miscellaneous Filings.
Office of the Secretary of State
Official Seal of Witness my hand and the seal of the
Secretary of State at
the Secretary of State Columbus, Ohio, this 30th day of JUNE
of Ohio A.D. 1982.
/s/ Anthony J. Celebrezze, Jr.
Anthony J. Celebrezze, Jr.
Secretary of State
66
F0095-0526
ARTICLES OF INCORPORATION
MGK
-of- 6 -30-82
100.00
KAHIKI SUPPER CLUB, INC.
The undersigned, desiring to form a corporation for profit under the
General Corporation Law of Ohio, do hereby certify:
FIRST: The name of the corporation is Kahiki Supper Club, Inc.
SECOND: The place in Ohio where its principal office is located is the City
of Columbus, Franklin County, Ohio.
THIRD: The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under Section
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized number of shares of the corporation is One Thousand
(1,000), all of which shall be designated Common Shares and shall be without par
value.
FIFTH: The amount of stated capital with which the corporation will begin
business is Five Hundred Dollars ($500.00).
SIXTH: When authorized by the affirmative vote of the Board of Directors,
without the action or approval of the shareholders of the corporation, the
corporation may purchase, or contract to purchase, at any time and from time to
time, shares of any class issued by the corporation, voting trust certificates
for shares, bonds, debentures, notes, scrip, warrants, obligations, evidences of
indebtedness or any other securities of the corporation, for such prices and
upon and subject to such terms and conditions as the Board of Directors may
determine, provided that no such purchase shall be made, pursuant to any such
contract or otherwise, if after such purchase the assets of the corporation
would be less than its liabilities plus stated capital or if it is insolvent as
defined in the General Corporation Law of Ohio or if there is reasonable ground
to believe that by such purchase it would be rendered insolvent.
SEVENTH: Notwithstanding any provision of the General Corporation Law of
Ohio, now or hereafter in force, designating for any purpose the vote or consent
of the holders of the shares entitling them to exercise in excess of a majority
of the voting power of the corporation or of any class or classes of shares
thereof, such action, unless otherwise expressly required by statute, may be
taken by the vote of the holders of shares entitling them to exercise a majority
of the voting power of the corporation or of such class or classes.
EIGHTH: No shareholder of this corporation shall be entitled, as such, as a
matter of right to subscribe for or purchase shares of any class now or
hereafter authorized, or to purchase or subscribe for securities convertible
into or exchangeable for shares of the corporation or to which shall be attached
or appertain any warrants or rights entitling the holder thereof to subscribe
for or purchase shares except such rights of subscription or purchase, if any,
at such price or prices and upon such terms and conditions as the Board of
Directors, in its discretion, from time to time may determine.
NINTH: No contract or transaction shall be void or voidable with respect to
the corporation for the reason that it is between the corporation and one or
more of its directors or officers, or between
67
the corporation and any other person in which one or more of its directors or
officers are directors, trustees, or officers, or have a financial or personal
interest, or for the reason that one or more interestd directors or officers
participate in or vote at the meeting of the directors or a committee thereof
which authorizes such contract or transaction, if in any such case (a) the
material facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the directors or the
committee and the directors or committee, in good faith reasonably justified by
such facts, authorize the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested directors
constitute less than a quorum or (b) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the shareholders entitled to vote thereon and the contract or
transaction is specifically approved at a meeting of the shareholders held for
such purpose by the affirmative vote of the holders of shares entitling them to
exercise a majority of the voting power of the corporation held by persons not
interested in the contract or transaction; or (c) the contract or transaction is
fair as to the corporation as of the time it is authorized or approved by the
directors, a committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the directors, or of a committee thereof which authorizes the contract or
transaction.
IN WITNESS WHEREOF, the undersigned have executed this intrument this 30th
day of June, 1982.
/s/ John W. Edwards
John W. Edwards
/s/ Donald A. Antrim
Donald A. Antrim
68
F0095-0528
CONSENT FOR USE OF SIMILAR NAME
On the 28th day of June, 1982, the Board of Directors of Boich Lime and
Coal Company, Charter No. 388524, passed the following resolution:
RESOLVED that Boich Lime and Coal Company gives its consent to Kahiki
Supper Club, Inc. to use the name of Kahiki Supper Club, Inc.
DATED: June 28, 1982
BOICH LIME AND COAL COMPANY
/s/ George Morrison
George Morrison, Secretary
69
F0095-0529
Official Seal of the
Secretary of State
of Ohio
Original Appointment of Statutory Agent
The undersigned, being at least a majority of the
incorporators of KAHIKI SUPPER CLUB, INC.
(Name of Corporation)
, hereby appoint Michael C. Tsao to be statutory agent
- ---------- ---------------------------
(Name of Agent)
upon whom any process, notices or demand required or permitted by statute
to be served upon the corporation.
The complete address of the agent is: 3583 East Broad Street .
--------------------------------
(Street)
Columbus , Franklin County, Ohio 43213 .
- ----------------------- ------------- ----------------
(City or Village) (Zip Code)
Date: June 29, 1982 /s/ John W. Edwards
------------------ -------------------------------------------
John W. Edwards
/s/ Donald A. Antrim
-------------------------------------------
Donald A. Antrim
70
EXHIBIT 3.2
EXHIBIT B
CODE OF REGULATIONS
- of -
KAHIKI SUPPER CLUB, INC.
ARTICLE I
Office
The principal office of the Corporation shall be at such place within
the city, village, or township specified in the Articles of Incorporation as may
be determined and designated from time to time by the Board of Directors.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of shareholders for the
purpose of electing directors and for the transaction of such other business as
may properly come before the meeting shall be held on the second Tuesday of the
fourth month after the close of the fiscal year of the Corporation or at such
other date as may be determined by the Board of Directors.
Section 2. Special Meetings. Special meetings of the shareholders may
be called by the Chairman of the Board, by the President, or in the case of the
President's absence, death, or disability, by the Vice President authorized to
exercise the authority of the President, or by the Board of Directors by action
at a meeting, or by a majority of the directors then in office acting without a
meeting, and shall be called by the President or the Secretary upon written
request of shareholders holding of record fifty percent or more of all shares
outstanding and entitled to vote thereat. No business other than that specified
in the notice shall be considered at any special meeting except with the
unanimous consent of all shareholders entitled to receive notice of such
meeting.
Section 3. Place of Meetings. Meetings of shareholders shall be held at
the principal office of the Corporation, unless the Board of Directors
determines that a
71
meeting shall be held at some other place within or without the State of Ohio
and causes the notice thereof to so state.
Section 4. Notice of Meeting. Except as otherwise permitted by law, a
written notice of each annual or special meeting stating the time and place and
the purpose or purposes thereof shall be personally delivered or mailed postage
prepaid to each shareholder of record entitled to notice of such meeting, not
more than sixty days nor less than seven days before such meeting. If mailed,
such notice shall be addressed to the shareholder at his address as it appears
upon the records of the Corporation. Notice of adjournment of a meeting need not
be given if the time and place to which it is adjourned are fixed and announced
at such meeting.
Notice of the time, place, and purposes of any meeting of shareholders,
whether required by law, the Articles of Incorporation, or this Code of
Regulations, may be waived in writing, either before or after the holding of
such meeting, by any shareholder, which writing shall be filed with or entered
upon the records of the meeting. The attendance of any shareholder at any such
meeting without protesting, prior to or at the commencement of the meeting, the
lack of proper notice shall be deemed to be a waiver by him of notice of such
meeting; provided, however, that such waiver shall not be deemed to permit
consideration at a special meeting of any business not specified in the notice.
Section 5. Quorum. The holders of shares entitling them to exercise a
majority of the voting power of the Corporation, present in person or by proxy,
shall constitute a quorum for all purposes, except when a greater proportion is
required by law. At any meeting at which a quorum is present, all questions and
business which shall come before the meeting shall be determined by the vote of
the holders of a majority of the voting shares held by shareholders present in
person or by proxy at the meeting, except when a different proportion is
required by law, by the Articles of Incorporation, or by this Code of
Regulations.
At any meeting, whether a quorum is present or not, the holders of a
majority of the voting shares held by shareholders present in person or by proxy
may adjourn from time to time and from place to place without notice other than
by announcement at the meeting. At any such adjourned meeting at which a quorum
is present, any business may be transacted which could have been transacted at
the meeting as originally noticed or held.
Section 6. Proxies. The instrument appointing a proxy shall be in
writing and subscribed by the person making the appointment. The person so
appointed need not be a shareholder. A vote in accordance with the terms of a
proxy shall be valid
72
notwithstanding the previous death or incapacity of the principal or revocation
of the appointment unless notice in writing of such death, incapacity or
revocation shall have been given to the Corporation before such vote is taken.
The presence of a shareholder at a meeting shall not operate to revoke a proxy
unless and until notice of such revocation is given to the Corporation in
writing or in open meeting.
Section 7. Financial Report. At the annual meeting of shareholders, or
the meeting held in lieu thereof, there shall be laid before the shareholders a
financial statement consisting of a balance sheet containing a summary of the
assets, liabilities, stated capital, and surplus (showing separately any capital
surplus arising from unrealized appreciation of assets, other capital surplus,
and earned surplus) of the Corporation as of a date not more than four months
before such meeting (except that if such meeting is an adjourned meeting, such
balance sheet may be as of a date not more than four months before the date of
the meeting as originally convened), and a statement of profit and loss and
surplus, including a summary of profits, dividends paid, and other changes in
the surplus accounts of the Corporation for the period commencing with the date
marking the end of the period for which the last preceding statement of profit
and loss was made as required hereby and ending with the date of such balance
sheet.
The financial statement shall have appended thereto a certificate
signed by the President or a Vice President or the Treasurer or an Assistant
Treasurer of the Corporation or by a public accountant or firm of public
accountants to the effect that the financial statement presents fairly the
position of the Corporation and the results of its operations in conformity with
generally accepted accounting principles applied on a basis consistent with that
of the preceding period, or such other certificate as in accordance with sound
accounting practice.
Section 8. Action Without a Meeting. Any action which may be authorized
or taken at a meeting of shareholders of the Corporation may be authorized or
taken without a meeting with the affirmative vote or approval of, and in a
writing or writings signed by, all the shareholders who would be entitled to
notice of a meeting of the shareholders held for such purpose, which writing or
writings shall be filed with or entered upon the records of the Corporation.
ARTICLE III
Directors
Section 1. Number of Directors. Until changed in accordance with the
provisions of this Section, there shall be three (3) directors of the
Corporation. The
73
number of directors of the Corporation may be increased or reduced (I) at any
meeting of shareholders called for the purpose of electing directors, at which a
quorum is present, by the affirmative vote of the holders of a majority of the
voting shares held by shareholders present in person or by proxy at the meeting,
or (ii) at any meeting of directors at which a quorum is present, by the
affirmative vote of a majority of the directors present. No reduction in the
number of directors shall of itself have the effect of shortening the term of
any incumbent director.
Section 2. Election and Term of Office. At all elections of directors
the candidates receiving the greatest number of votes shall be elected. Each
director shall hold office until the annual meeting of shareholders next
succeeding his election and until his successor is elected, or until his earlier
resignation, removal from office, or death.
Section 3. Qualification of Directors. Directors of the Corporation
need not be shareholders of the Corporation.
Section 4. Vacancies. The directors then in office though less than a
majority of the whole authorized number of directors, may by the vote of a
majority of their number, fill, for the unexpired term, any vacancy in the Board
of Directors or any director's office that is created by an increase in the
authorized number of directors. If any vacancy in the Board of Directors or any
director's office that is created by an increase in the authorized number of
directors is not filled in accordance with this Section by the directors then in
office, shareholders entitled to elect directors shall have the right to fill
the same at any meeting of the shareholders called for that purpose, and any
director elected at any such meeting of shareholders shall serve until the next
annual election of directors and until his successor is elected, or until his
earlier resignation, removal from office, or death.
Section 5. Performance of Duties. A director shall perform his duties
as a director, including his duties as a member of any committee of directors
appointed by the Board as hereinafter provided, in a manner and with the care
required of a director under Ohio law. In performing his duties, a director is
entitled to rely on information, opinions, reports, or statements, including
financial statements and other financial data, that are prepared or presented by
(I) one or more directors, officers, or employees of the Corporation whom the
director reasonably believes are reliable and competent in the matters prepared
or presented; (ii) counsel, public accountants, or other persons as to matters
that the director reasonably believes are within the person's professional or
expert competence; or (iii) a committee of directors upon which the director
does not serve, duly established as hereinafter provided as to
74
matters within its designated authority, which committee the director reasonably
believes to merit confidence.
ARTICLE IV
Powers, Meetings and Committees of the Board of Directors
Section 1. Powers of the Board. Except in those instances in which the
law, the Articles of Incorporation, or this Code of Regulations requires action
to be authorized or taken by the shareholders, all of the authority or the
Corporation shall be exercised by or under the direction of the Board of
Directors.
Section 2. Meetings of the Board. An annual meeting of the Board of
Directors shall be held immediately following the adjournment of each annual
meeting of shareholders of the Corporation, and notice of such meeting need not
be given.
The Board of Directors may, by by-law or resolution, provide for other
meetings of the Board. Meetings of the Board may also be held at any time upon
call of the Chairman of the Board, the President, or any two members of the
Board.
Meetings of the Board of Directors shall be held at the principal
office of the Corporation (I) unless held in accordance with Section 5 of this
Article IV, or (ii) unless the Board of Directors determines that a meeting
shall be held at some other place within or without the State of Ohio and causes
the notice thereof to so state. Written notice of the time and place of each
meeting of the Board of Directors other than the annual meeting shall be given
to each director, either by personal delivery or by mail, telegram, or
cablegram, at least two days prior to the date of such meeting. Such notice may
be waived in writing, either before or after the holding of such meeting, any
director, which writing shall be filed with or entered upon the records of the
meeting. The attendance of any director at any such meeting without protesting,
prior to or at the commencement of the meeting, the lack of proper notice shall
be deemed to be a waiver by him of notice of such meeting.
Section 3. Quorum. A majority of the whole authorized number of
directors shall constitute a quorum for the transaction of business, except that
a majority of the directors then in office shall constitute a quorum for filling
a vacancy in the Board of Directors. Whenever less than a quorum is present at
any time and place appointed for a meeting of the Board, a majority of those
present may adjourn the meeting from time to time without notice, other than by
announcement at the meeting, until a quorum shall be present. The act of a
majority of directors present at a meeting
75
at which a quorum is present shall be the act of the Board of Directors unless
the act of a greater number is required by the Articles of Incorporation or this
Code of Regulations.
Section 4. Action Without a Meeting. Any action which may be authorized
or taken at a meeting of the Board of Directors may be authorized or taken
without a meeting with the affirmative vote or approval of, and in a writing or
writings signed by, all the directors, which writing or writings shall be filed
with or entered upon the records of the Corporation.
Section 5. Action by Communications Equipment.
Directors may participate in a meeting of the Board or any committee of
directors appointed by the Board as hereinafter provided by means of conference
telephone or other communications equipment if all persons participating can
hear each other. Participation in a meeting pursuant to this Section shall
constitute presence at such meeting.
Section 6. By-Laws of the Board. The Board of Directors may adopt
by-laws for the government of its actions consistent with the Articles of
Incorporation and this Code of Regulations.
Section 7. Committees. The Board of Directors may create one or more
committees of directors, each of which shall be comprised of three or more
directors. The resolution establishing each such committee shall specify a
designation by which it shall be known and shall fix its powers and authority.
The Board of Directors may delegate to any such committee any of the authority
of the Board of Directors, however conferred, other than the authority of
filling vacancies among the directors or in any committee of the directors.
The Board of Directors may likewise appoint one or more directors as
alternate members of any such committee, who may take the place of any absent
member or members at any meeting of the particular committee.
Each such committee shall serve at the pleasure of Board of Directors,
shall act only in the intervals between meetings of the Board of Directors, and
shall be subject to the control and direction of the Board of Directors.
An act or authorization of an act by any such committee within the
authority delegated to it by the resolution establishing it shall be as
effective for all purposes as the act or authorization of the Board of
Directors.
76
Any such committee may act by a majority of its members at meeting or
by a writing or writings signed by all of its members, which writing or writings
shall be filed with or entered upon the records of the Corporation.
The Board of Directors may likewise appoint other individuals who are
not members of the Board of Directors to act as members of any committee;
provided, however, that any such individual shall only act in an advisory
capacity and shall not have any vote upon any matter of business before the
committee.
ARTICLE V
Officers
Section l. Officers. The officers of the Corporation shall be a
President, a Secretary, and a Treasurer, and such ether officers (including,
without limitation, a Chairman of the Board) and assistant officers as the Board
of Directors may from time to time determine.
Section 2. Election and Term of Office. Each officer of the Corporation
shall be elected by the Board of Directors, and shall hold office until the
annual meeting of the Board of Directors following his election or until his
earlier resignation, removal from office, or death. The Board of Directors may
remove any officer at any time, with or without cause. The Board of Directors
may fill any vacancy in any office occurring from whatever cause.
Section 3. Duties of Officers. Each officer and assistant officer shall
have such duties, responsibilities, powers and authority as may be prescribed by
law or assigned to him by the Board of Directors from time to time.
ARTICLE VI
Indemnification of Directors and Other Persons
The Corporation shall, and does hereby, indemnify any person who served
or serves as a director, officer, employee or agent of the Corporation, or who
served or serves at the request of the Corporation as a director, trustee,
officer, employee or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against any and all losses, liabilities, damages, and expenses, including
attorneys' fees, judgments, fines, and amounts paid in settlement, incurred by
such person, in connection with any claim, action, suit, or proceeding, whether
civil, criminal, administrative, or investigative, including any
77
action by or in the right of the Corporation, by reason of any act or omission
to act as such director, trustee, officer, employee or agent, to the full extent
permitted by Ohio law including, without limitation, the provisions of Section
1701.13 of the Ohio Revised code.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which any person seeking indemnification may be
entitled under the Articles of Incorporation, this Code of Regulations or any
agreement, vote of shareholders or disinterested directors, or otherwise, both
as to action in such person's 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.
ARTICLE VII
Certificates for Shares of Stock
Section 1. The interest of each shareholder of the Corporation shall be
evidenced by a certificate or certificates for shares in such form as the Board
of Directors may from time to time prescribe. The shares of the Corporation
shall be transferable on the books of the Corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of a certificate or
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agent may
reasonably require.
Section 2. The certificates for shares shall be signed by the Chairman
of the Board or the President or a Vice President and by the Secretary or the
Treasurer or an Assistant Secretary or an Assistant Treasurer, and shall be
countersigned and registered in such manner, if any, as the Board of Directors
may by resolution prescribe.
Section 3. No certificate for shares shall be delivered in place of any
certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of such loss, theft or destruction and Upon delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors in its discretion may require.
The Board of Directors may, in its discretion, waive the requirement of a bond
of indemnity.
78
ARTICLE VIII
Seal
The Corporation may, by action of the Board of Directors, adopt a
corporate seal. Failure to affix the corporate seal shall not affect the
validity of any instrument.
ARTICLE IX
Amendments
This Code of Regulations may be amended or repealed (I) at any meeting
of shareholders called for that purpose by the affirmative vote of the holders
of record of shares entitling them to exercise a majority of the voting power of
the corporation on such proposal, or (ii) Section 8 of Article II
notwithstanding, without a meeting, by the written consent of the holders of
record of shares entitling them to exercise a majority of the voting power of
the Corporation on such proposal.
79
EXHIBIT 4.1
Specimen Common Share Certificate
CLASS A COMMON STOCK CLASS A COMMON STOCK
NUMBER SHARES
KA-1282 SPECIMEN
KAHIKI
This Certifies that
SPECIMEN
is the owner of
FULLY PAID AND NON-ASSESSABLE CLASS A COMMON SHARES, NO PAR VALUE, OF
KAHIKI FOODS, INC. FKA KAHIKI SUPPER CLUB, INC.
transferrable only in the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, KAHIKI SUPPER CLUB, INC. has caused Certificate to be
executed by the facsimile signatures of its duly authorized officers.
Dated:
Secretary President
80
KAHIKI FOODS, INC.
FKA KAHIKI SUPPER CLUB, INC.
THE CORPORATION WILL MAIL TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE WITHIN FIVE DAYS AFTER RECEIPT OF WRITTEN REQUEST THEREFOR, A COPY OF THE
EXPRESS TERMS OF THE SHARES REPRESENTED BY THIS CERTIFICATE AND OF OTHER CLASSES
AND SERIES OF SHARES WHICH THE CORPORATION IS AUTHORIZED TO ISSUE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they are written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common UNIF TRANS MIN
ACT-___________Custodian_______ TEN ENT- as tenants by the entireties
(Cust) (Minor) JT TEN- as joint tenants with under Uniform Transfers to
Minors
right of survivorship and
not as tenants in common Act____________________
(State)
Additional abbreviations may also be used though not in
the above list.
For Value received,____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
---------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
================================================================
----------------------------------------------------------------
shares
of the common stock represented by the within Certificate, and do hereby
irravocably constitute and appoint _____________________________
_________________________________Attorney to transfer the said stock on the
books of the within Corporation with full power of substitution in premiss
Dated X
X___________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER
SIGNATURE GUARANTEED:__________________________________________
THE SIGNATURE SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO SEC RULE 17ACT-17
81
EXHIBIT 4.2
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDE THE
SECURITIES ACT OF 1933 ACT, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE BENEFIT OF
THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT, OR (C) IF REGISTERED UNDER THE 1933 ACT
AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES
PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED THE DATE HEREOF, A COPY OF
WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE,
CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING,
WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE EXERCISE RIGHTS OF THE
HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS OF THE COMPANY.
---------------------------------------
KAHIKI FOODS, INC.
COMMON STOCK PURCHASE WARRANT
Number of shares: 294,117
Holder: Barron Partners LP
c/o Andrew Barron Worden
Managing Partner
730 Fifth Avenue, 9th Floor
New York NY 10019
tel 212-659-7790
fax 646-607-2223
cell 917-854-0036
abw@barronpartners.com
Expiration Date: February 27, 2009
Exercise Price per Share: $2.25
Kahiki Foods, Inc. Inc, a company organized and existing under the laws of the
State of Ohio (the "Company"), hereby certifies that, for value received, Barron
Partners LP, or its registered assigns (the "Warrant Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company 294,117
shares (the "Warrant Shares") of common stock, no par value (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") in exchange for (a) one (1) Warrant and (b) $2.25 per
share (as adjusted from time to time as provided in Section 7, per Warrant Share
(the "Exercise Price"), at any time and from time to time from and after the
date thereof and through and including 5:00 p.m. New York City time on February
27, 2009 (or eighteen months of effectiveness of a Registration Statement
subsequent to the issuance herein, whichever is longer)(the "Expiration Date"),
and subject to the following terms and conditions:
a Registration of Warrant. The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time
to time. The Company may deem and treat the registered Warrant Holder
of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or nay distribution to the Warrant Holder, and for all
other purposes, and the Company shall not be affected by notice to the
contrary.
b Investment Representation. The Warrant Holder by accepting this
Warrant represents that the Warrant Holder is acquiring this Warrant
for its own account or the account of an affiliate for investment
purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this
Warrant or the underlying Warrant Shares in violation of applicable
securities laws. The Warrant Holder acknowledges that the certificates
representing any Warrant Shares will bear a legend indicating that
they have not been registered under the United States Securities Act
of 1933, as amended (the "1933 Act") and may not be sold by the
Warrant Holder except pursuant to an effective registration statement
or pursuant to an exemption from registration requirements of the 1933
Act and in accordance with federal and state securities laws. If this
Warrant was acquired by the Warrant Holder pursuant to the exemption
from the registration requirements of the 1933 Act afforded by
Regulation S thereunder, the Warrant Holder acknowledges and covenants
that this Warrant may not be exercised by or on behalf of a Person
during the one year distribution compliance period (as defined in
Regulation S) following the date hereof. "Person" means an individual,
partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
82
c Validity of Warrant and Issue of Shares. The Company represents and
warrants that this Warrant has been duly authorized and validly issued
and warrants and agrees that all of Common Stock that may be issued
upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. The Company further warrants and agrees
that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of Common Stock to provide
for the exercise of the rights represented by this Warrant.
d Registration of Transfers and Exchange of Warrants.
a. Subject to compliance with the legend set forth on the face of
this Warrant, the Company shall register the transfer of any
portion of this Warrant in the Warrant in the Warrant Register,
upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 9. Upon any such
registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant,
a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Warrant
Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a Warrant Holder of a Warrant.
b. This Warrant is exchangeable, upon the surrender hereof by the
Warrant Holder to the office of the Company specified in or
pursuant to Section 9 for one or more New Warrants, evidencing in
the aggregate the right to purchase the number of Warrant Shares
which may then be purchased hereunder. Any such New Warrant will
be dated the date of such exchange.
e Exercise of Warrants.
a. Upon surrender of this Warrant with the Form of Election to
Purchase attached hereto duly completed and signed to the
Company, at its address set forth in Section 9, and upon payment
and delivery of the Exercise Price per Warrant Share multiplied
by the number of Warrant Shares that the Warrant Holder intends
to purchase hereunder, in lawful money of the United States of
America, in cash or by certified or official bank check or
checks, to the Company, all as specified by the Warrant Holder in
the Form of Election to Purchase, the Company shall promptly (but
in no event later than 7 business days after the Date of Exercise
[as defined herein]) issue or cause to be issued and cause to be
delivered to or upon the written order of the Warrant Holder and
in such name or names as the Warrant Holder may designate
(subject to the restrictions on transfer described in the legend
set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive
legend as required by the 1933 Act. Any person so designated by
the Warrant Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
b. A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached
hereto (or attached to such New Warrant) appropriately completed
and duly signed, and (ii) payment of the Exercise Price for the
number of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c. This Warrant shall be exercisable at any time and from time to
time for such number of Warrant Shares as is indicated in the
attached Form of Election To Purchase. If less than all of the
Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no
exercise has been evidenced by this Warrant.
d. (i) Notwithstanding anything contained herein to the contrary,
the holder of this Warrant may, at its election exercised in its
sole discretion, exercise this Warrant in whole or in part and,
in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless Exercise"): Net
Number = (A x (B - C))/B
(ii) For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by
Bloomberg) of the Common Stock on immediately
preceding the date of the Exercise Notice.
C= the Warrant Exercise Price then in effect at the
time of such exercise.
83
e. The holder of this Warrant agrees not to elect for a period of
one (1) year a Cashless Exercise. The holder of this Warrant also
agrees not to elect a Cashless Exercise so long as there is an
effective registration statement for the shares underlying this
Warrant.
f Call by the Company. This Warrant contains a callable feature until
February 27, 2005 requiring the automatic exercise at any time prior
to the Expiration Date if the closing public market price of the
Company's common stock is equal to or in excess of the callable price
of $3.50 for a period of twenty (20) consecutive days and there is an
effective Registration Statement covering the shares of Common Stock
underlying this Warrant ("Automatic Exercise")during such twenty (20)
consecutive day period. Upon occurrence of the Automatic Exercise, the
Company shall provide the Holder with notice of such Automatic
Conversion ("Automatic Exercise Notice"). Upon receipt of the
Automatic Exercise Notice, the Holder must (i) exercise, in whole or
in part, this Warrant within ten (10) days; or (ii) notify the Company
of its intent to transfer this Warrant pursuant to Section 4 of this
Warrant. In the event that the Holder elects to transfer this Warrant
pursuant to Section 4 of this Warrant, then the subsequent holder of
this Warrant must exercise this Warrant on or before the thirtieth
(30) day after notification of intent to transfer this Warrant. In the
event that this Warrant is exercised, the Holder must deliver to the
Company at its office at 3004 East 14th Avenue, Columbus, Ohio
Attention: President, on or before 5:00 p.m., Eastern Time, on the
required date, (i) Form of Election to Purchase properly executed and
completed by Holder or an authorized officer thereof, (ii) a check
payable to the order of the Company, in an amount equal to the product
of the Exercise Price multiplied by the number of Warrant Shares
specified in the Exercise Notice, and (iii) this Warrant. If the
Holder does not exercise this Warrant within ten (10) days from
receipt of the Automatic Exercise Notice or, in the event that this
Warrant has been transferred pursuant to Section 4 of this Warrant,
the subsequent holder of this Warrant does not exercise this Warrant
within thirty (30) days after notification of intent to transfer this
Warrant, then this Warrant will expire.
g Adjustment of Exercise Price and Number of Shares. The character of
the shares of stock or other securities at the time issuable upon
exercise of this Warrant and the Exercise Price therefor, are subject
to adjustment upon the occurrence of the following events:
a. Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
Etc. The Exercise Price of this Warrant and the number of shares
of Common Stock or other securities at the time issuable upon
exercise of this Warrant shall be appropriately adjusted to
reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization or other similar event
affecting the number of outstanding shares of stock or
securities.
b. Adjustment for Reorganization, Consolidation, Merger, Etc. In
case of any consolidation or merger of the Company with or into
any other corporation, entity or person, or any other corporate
reorganization, in which the Company shall not be the continuing
or surviving entity of such consolidation, merger or
reorganization (any such transaction being hereinafter referred
to as a "Reorganization"), then, in each case, the holder of this
Warrant, on exercise hereof at any time after the consummation or
effective date of such Reorganization (the "Effective Date"),
shall receive, in lieu of the shares of stock or other securities
at any time issuable upon the exercise of the Warrant issuable on
such exercise prior to the Effective Date, the stock and other
securities and property (including cash) to which such holder
would have been entitled upon the Effective Date if such holder
had exercised this Warrant immediately prior thereto (all subject
to further adjustment as provided in this Warrant).
c. Certificate as to Adjustments. In case of any adjustment or
readjustment in the price or kind of securities issuable on the
exercise of this Warrant, the Company will promptly give written
notice thereof to the holder of this Warrant in the form of a
certificate, certified and confirmed by the Board of Directors of
the Company, setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment
or readjustment is based.
d. Adjustment for Earnings. For any unexecuted Warrants, based on
the Company's 9 month earnings for the period ended September 30,
2004, the exercise price of this Warrant shall be adjusted upon
release of such unaudited numbers for that period, which release
should be by November 30, 2004, based on the Company's 9 month
earnings from recurring operations, before any one non-recurring
income or loss, and before income tax, depreciation and
amortization ("EBITDA") in a straight line in accordance with the
following formula:
$3.15 Million or $2.5395 $1.929 Million or
EBITDA More Million Less
Warrant Exercise Price $2.75 $1.50 $.25
For the purposes of this paragraph, the Company's EBITDA shall be
calculated without taking into account any discount caused by the sale of the
Shares or any outstanding unexercised Warrants.
84
h Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares that shall be issuable upon
the exercise of this Warrant shall be computed on the basis of the
aggregate number of Warrants Shares purchasable on exercise of this
Warrant so presented. If any fraction of a Warrant Share would, except
for the provisions of this Section 8, be issuable on the exercise of
this Warrant, the Company shall, at its option, (i) pay an amount in
cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole
number.
i Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they
are delivered if delivered in person; (ii) on the date initially
received if delivered by facsimile transmission followed by registered
or certified mail confirmation; (iii) on the date delivered by an
overnight courier service; or (iv) on the third business day after it
is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
If to the Company:
Kahiki Foods, Inc.
3004 East 14th Avenue
Columbus, Ohio 43215
Attn: Michael Tsao
Telephone: (614) 252-3040
If to the Warrant Holder:
Andrew Barron Worden
Managing Partner
Barron Partners LP
730 Fifth Avenue, 9th Floor
New York NY 10019
tel 212-659-7790
j Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing and signed
by the Company and the Warrant Holder.
b. Nothing in this Warrant shall be construed to give to any person
or corporation other than the Company and the Warrant Holder any
legal or equitable right, remedy or cause of action under this
Warrant; this Warrant shall be for the sole and exclusive benefit
of the Company and the Warrant Holder.
c. This Warrant shall be governed by, construed and enforced in
accordance with the internal laws of the State of Ohio without
regard to the principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
e. In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and
enforceablilty of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby and
the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate
such substitute provision in this Warrant.
f. The Warrant Holder shall not, by virtue hereof, be entitled to
any voting or other rights of a shareholder of the Company,
either at law or equity, and the rights of the Warrant Holder are
limited to those expressed in this Warrant.
85
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by the authorized officer as of the date first above stated.
Kahiki Foods, Inc.
By:
------------------------------------------------
Name:
----------------------------------------------
Title:
---------------------------------------------
86
FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To: Kahiki Foods, Inc.
In accordance with the Warrant enclosed with this Form of Election to Purchase,
the undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock ("Common Stock"), no par value, of Kahiki Foods, Inc. and encloses
one warrant and $2.25 for each Warrant Share being purchased or an aggregate of
$________________ in cash or certified or official bank check or checks, which
sum represents the aggregate Exercise Price (as defined in the Warrant) together
with any applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:
(Please print name and address)
(Please insert Social Security or Tax Identification Number)
If the number of shares of Common Stock issuable upon this exercise shall not be
all of the shares of Common Stock which the undersigned is entitled to purchase
in accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
(Please print name and address)
Dated: Name of Warrant Holder:
-------------------
(Print)
------------------------------------
(By:)
-------------------------------------
(Name:)
-----------------------------------
(Title:)
----------------------------------
Signature must conform in all respects to name of
Warrant Holder as specified on the face of the
Warrant
87
EXHIBIT 4.3
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 ACT, AS AMENDED (THE "1933 ACT"). THE HOLDER
HEREOF, BY PURCHASING THIS COMMON STOCK PURCHASE WARRANT, AGREES FOR THE
BENEFIT OF THE COMPANY THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT, OR (C) IF REGISTERED UNDER
THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A
SECURITIES PURCHASE AGREEMENT ("PURCHASE AGREEMENT"), DATED THE DATE
HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE
PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH LIMIT THE
EXERCISE RIGHTS OF THE HOLDER AND SPECIFY MANDATORY REDEMPTION OBLIGATIONS
OF THE COMPANY.
---------------------------------------
KAHIKI FOODS, INC.
COMMON STOCK PURCHASE WARRANT
Number of shares: 294,117
Holder: Barron Partners LP
c/o Andrew Barron Worden
Managing Partner
730 Fifth Avenue, 9th Floor
New York NY 10019
tel 212-659-7790
fax 646-607-2223
cell 917-854-0036
abw@barronpartners.com
----------------------
Expiration Date: February 27, 2009
Exercise Price per Share: $3.00
Kahiki Foods, Inc., a company organized and existing under the laws of the State
of Ohio (the "Company"), hereby certifies that, for value received, Barron
Partners LP, or its registered assigns (the "Warrant Holder"), is entitled,
subject to the terms set forth below, to purchase from the Company 294,117
shares (the "Warrant Shares") of common stock, no par value (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") in exchange for (a) one (1) Warrant and (b) $3.00 per
share (as adjusted from time to time as provided in Section 7, per Warrant Share
(the "Exercise Price"), at any time and from time to time from and after the
date thereof and through and including 5:00 p.m. New York City time on February
27, 2009 (or eighteen months of effectiveness of a Registration Statement
subsequent to the issuance herein, whichever is longer)(the "Expiration Date"),
and subject to the following terms and conditions:
a Registration of Warrant. The Company shall register this Warrant upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time
to time. The Company may deem and treat the registered Warrant Holder
of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or nay distribution to the Warrant Holder, and for all
other purposes, and the Company shall not be affected by notice to the
contrary.
a Investment Representation. The Warrant Holder by accepting this
Warrant represents that the Warrant Holder is acquiring this Warrant
for its own account or the account of an affiliate for investment
purposes and not with the view to any offering or distribution and
that the Warrant Holder will not sell or otherwise dispose of this
Warrant or the underlying Warrant Shares in violation of applicable
securities laws. The Warrant Holder acknowledges that the certificates
representing any Warrant Shares will bear a legend indicating that
they have not been registered under the United States Securities Act
of 1933, as amended (the "1933 Act") and may not be sold by the
Warrant Holder except pursuant to an effective registration statement
or pursuant to an exemption from registration requirements of the 1933
Act and in accordance with federal and state securities laws. If this
Warrant was acquired by the Warrant Holder pursuant to the exemption
from the registration requirements of the 1933 Act
88
afforded by Regulation S thereunder, the Warrant Holder acknowledges
and covenants that this Warrant may not be exercised by or on behalf of
a Person during the one year distribution compliance period (as defined
in Regulation S) following the date hereof. "Person" means an
individual, partnership, firm, limited liability company, trust, joint
venture, association, corporation, or any other legal entity.
a Validity of Warrant and Issue of Shares. The Company represents and
warrants that this Warrant has been duly authorized and validly issued
and warrants and agrees that all of Common Stock that may be issued
upon the exercise of the rights represented by this Warrant will, when
issued upon such exercise, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. The Company further warrants and agrees
that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of Common Stock to provide
for the exercise of the rights represented by this Warrant.
a Registration of Transfers and Exchange of Warrants.
a. Subject to compliance with the legend set forth on the face of
this Warrant, the Company shall register the transfer of any
portion of this Warrant in the Warrant in the Warrant Register,
upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 9. Upon any such
registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant,
a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Warrant
Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a Warrant Holder of a Warrant.
b. This Warrant is exchangeable, upon the surrender hereof by the
Warrant Holder to the office of the Company specified in or
pursuant to Section 9 for one or more New Warrants, evidencing in
the aggregate the right to purchase the number of Warrant Shares
which may then be purchased hereunder. Any such New Warrant will
be dated the date of such exchange.
a Exercise of Warrants.
a. Upon surrender of this Warrant with the Form of Election to
Purchase attached hereto duly completed and signed to the
Company, at its address set forth in Section 9, and upon payment
and delivery of the Exercise Price per Warrant Share multiplied
by the number of Warrant Shares that the Warrant Holder intends
to purchase hereunder, in lawful money of the United States of
America, in cash or by certified or official bank check or
checks, to the Company, all as specified by the Warrant Holder in
the Form of Election to Purchase, the Company shall promptly (but
in no event later than 7 business days after the Date of Exercise
[as defined herein]) issue or cause to be issued and cause to be
delivered to or upon the written order of the Warrant Holder and
in such name or names as the Warrant Holder may designate
(subject to the restrictions on transfer described in the legend
set forth on the face of this Warrant), a certificate for the
Warrant Shares issuable upon such exercise, with such restrictive
legend as required by the 1933 Act. Any person so designated by
the Warrant Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
b. A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached
hereto (or attached to such New Warrant) appropriately completed
and duly signed, and (ii) payment of the Exercise Price for the
number of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c. This Warrant shall be exercisable at any time and from time to
time for such number of Warrant Shares as is indicated in the
attached Form of Election To Purchase. If less than all of the
Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no
exercise has been evidenced by this Warrant.
d. (i) Notwithstanding anything contained herein to the contrary,
the holder of this Warrant may, at its election exercised in its
sole discretion, exercise this Warrant in whole or in part and,
in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the
Aggregate Exercise Price, elect instead to receive upon such
exercise the "Net Number" of shares of Common Stock determined
according to the following formula (a "Cashless Exercise"):
Net Number = (A x (B - C))/B
(ii) For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by Bloomberg)
of the Common Stock on immediately preceding the date
of the Exercise Notice.
89
C= the Warrant Exercise Price then in effect at the time
of such exercise.
e. The holder of this Warrant agrees not to elect for a period of
one (1) year a Cashless Exercise. The holder of this Warrant also
agrees not to elect a Cashless Exercise so long as there is an
effective registration statement for the shares underlying this
Warrant.
a Call by the Company. This Warrant contains a callable feature until
February 2717th, 2005 requiring the automatic exercise at any time
prior to the Expiration Date if the closing public market price of the
Company's common stock is equal to or in excess of the callable price
of $5.50 for a period of twenty (20) consecutive days and there is an
effective Registration Statement covering the shares of Common Stock
underlying this Warrant ("Automatic Exercise") during such twenty (20)
consecutive day period. Upon occurrence of the Automatic Exercise, the
Company shall provide the Holder with notice of such Automatic
Conversion ("Automatic Exercise Notice"). Upon receipt of the
Automatic Exercise Notice, the Holder must (i) exercise, in whole or
in part, this Warrant within ten (10) days; or (ii) notify the Company
of its intent to transfer this Warrant pursuant to Section 4 of this
Warrant. In the event that the Holder elects to transfer this Warrant
pursuant to Section 4 of this Warrant, then the subsequent holder of
this Warrant must exercise this Warrant on or before the thirtieth
(30) day after notification of intent to transfer this Warrant. In the
event that this Warrant is exercised, the Holder must deliver to the
Company at its office at 3004 East 14th Avenue, Columbus, Ohio
Attention: President, on or before 5:00 p.m., Eastern Time, on the
required date, (i) Form of Election to Purchase properly executed and
completed by Holder or an authorized officer thereof, (ii) a check
payable to the order of the Company, in an amount equal to the product
of the Exercise Price multiplied by the number of Warrant Shares
specified in the Exercise Notice, and (iii) this Warrant. If the
Holder does not exercise this Warrant within ten (10) days from
receipt of the Automatic Exercise Notice or, in the event that this
Warrant has been transferred pursuant to Section 4 of this Warrant,
the subsequent holder of this Warrant does not exercise this Warrant
within thirty (30) days after notification of intent to transfer this
Warrant, then this Warrant will expire.
a Adjustment of Exercise Price and Number of Shares. The character of
the shares of stock or other securities at the time issuable upon
exercise of this Warrant and the Exercise Price therefor, are subject
to adjustment upon the occurrence of the following events:
a. Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
Etc. The Exercise Price of this Warrant and the number of shares
of Common Stock or other securities at the time issuable upon
exercise of this Warrant shall be appropriately adjusted to
reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization or other similar event
affecting the number of outstanding shares of stock or
securities.
b. Adjustment for Reorganization, Consolidation, Merger, Etc. In
case of any consolidation or merger of the Company with or into
any other corporation, entity or person, or any other corporate
reorganization, in which the Company shall not be the continuing
or surviving entity of such consolidation, merger or
reorganization (any such transaction being hereinafter referred
to as a "Reorganization"), then, in each case, the holder of this
Warrant, on exercise hereof at any time after the consummation or
effective date of such Reorganization (the "Effective Date"),
shall receive, in lieu of the shares of stock or other securities
at any time issuable upon the exercise of the Warrant issuable on
such exercise prior to the Effective Date, the stock and other
securities and property (including cash) to which such holder
would have been entitled upon the Effective Date if such holder
had exercised this Warrant immediately prior thereto (all subject
to further adjustment as provided in this Warrant).
c. Certificate as to Adjustments. In case of any adjustment or
readjustment in the price or kind of securities issuable on the
exercise of this Warrant, the Company will promptly give written
notice thereof to the holder of this Warrant in the form of a
certificate, certified and confirmed by the Board of Directors of
the Company, setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment
or readjustment is based.
d. Adjustment for Earnings. For any Warrants that have not yet been
exercised, based on the Company's 12 months earnings for the
period ended March 31, 2005, the exercise price of this Warrant
shall be adjusted upon the release of the Company's audited
numbers for such period, based on the Company's 12 month earnings
from recurring operations, before any one non-recurring income or
loss, before income tax, depreciation and amortization ("EBITDA")
in a straight line in accordance with the following formula:
$4.2 Million or More $2.572 Million or
EBITDA $3.39 Million Less
Warrant Exercise $3.50 $1.88 $.25
Price
For the purposes of this paragraph, the Company's EBITDA shall
be calculated without taking into account any discount caused by the sale of the
Shares or any outstanding unexercised Warrants.
a Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares that shall be issuable upon
the exercise of this Warrant shall be computed on the basis of the
aggregate number of Warrants Shares purchasable
90
on exercise of this Warrant so presented. If any fraction of a Warrant
Share would, except for the provisions of this Section 8, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i)
pay an amount in cash equal to the Exercise Price multiplied by such
fraction or (ii) round the number of Warrant Shares issuable, up to the
next whole number.
a Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they
are delivered if delivered in person; (ii) on the date initially
received if delivered by facsimile transmission followed by registered
or certified mail confirmation; (iii) on the date delivered by an
overnight courier service; or (iv) on the third business day after it
is mailed by registered or certified mail, return receipt requested
with postage and other fees prepaid as follows:
If to the Company:
Kahiki Foods, Inc.
3004 East 14th Avenue
Columbus, Ohio 43215
Attn: Michael Tsao
Telephone: (614) 252-3040
If to the Warrant Holder:
Andrew Barron Worden
Managing Partner
Barron Partners LP
730 Fifth Avenue, 9th Floor
New York NY 10019
tel 212-659-7790
91
a Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing and signed
by the Company and the Warrant Holder.
b. Nothing in this Warrant shall be construed to give to any person
or corporation other than the Company and the Warrant Holder any
legal or equitable right, remedy or cause of action under this
Warrant; this Warrant shall be for the sole and exclusive benefit
of the Company and the Warrant Holder.
c. This Warrant shall be governed by, construed and enforced in
accordance with the internal laws of the State of Ohio without
regard to the principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
e. In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and
enforceablilty of the remaining terms and provisions of this
Warrant shall not in any way be affected or impaired thereby and
the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonably
substitute therefore, and upon so agreeing, shall incorporate
such substitute provision in this Warrant.
f. The Warrant Holder shall not, by virtue hereof, be entitled to
any voting or other rights of a shareholder of the Company,
either at law or equity, and the rights of the Warrant Holder are
limited to those expressed in this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
by the authorized officer as of the date first above stated.
Kahiki Foods, Inc.
By:
------------------------------------------------
Name:
-------------------------------------
Title:
---------------------------------------------
92
FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to purchase shares
of Common Stock under the foregoing Warrant)
To: Kahiki Foods, Inc.
In accordance with the Warrant enclosed with this Form of Election to Purchase,
the undersigned hereby irrevocably elects to purchase ______________ shares of
Common Stock ("Common Stock"), no par value, of Kahiki Foods, Inc.XYZ Inc and
encloses one warrant and $3.00 for each Warrant Share being purchased or an
aggregate of $________________ in cash or certified or official bank check or
checks, which sum represents the aggregate Exercise Price (as defined in the
Warrant) together with any applicable taxes payable by the undersigned pursuant
to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:
(Please print name and address)
(Please insert Social Security or Tax Identification Number)
If the number of shares of Common Stock issuable upon this exercise shall not be
all of the shares of Common Stock which the undersigned is entitled to purchase
in accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
(Please print name and address)
Dated: Name of Warrant Holder:
-------------------
(Print)
------------------------------------
(By:)
-------------------------------------
(Name:)
-----------------------------------
(Title:)
-----------------------------------
Signature must conform in all respects to name of
Warrant Holder as specified on the face of the
Warrant
93
EXHIBIT 4.4
KAHIKI FOODS, INC.
COMMON SHARE PURCHASE OPTION
Bob Binsky ("Optionee") is hereby granted this 24th day of January, 2004,
an Option to purchase 80,000 Common Shares ("Shares") of Kahiki Foods, Inc. (the
"Company"), subject to the terms and conditions hereof.
Section 1. Stock Purchase Price. The Option Price for purchase of such
Shares shall be One Dollar and Eighty Cents ($1.80) per share.
Section 2. Exercise of Option.
2.1. Time of Exercise. The Option must be exercised within two (2) years
from the date set forth above.
2.2. Method of Exercise of Option. The Optionee may exercise this
Option in whole or in part (but not as to a fractional share), by the surrender
of this Option, properly endorsed if required, at the office of the Company, or
such other address as the Company may designate by written notice to the
Optionee addressed to the Optionee at the Optionee's address appearing on the
records of the Company, accompanied by payment of the purchase price for such
shares by certified check or bank draft. Provided, however, that this Option may
not be exercised, to any extent by the Optionee after the expiration of the
Option.
2.3. Adjustment of Option Price. In the event any dividend upon the
Common Shares of the Company payable in Common Shares is declared by the
Company, or in case of any subdivision or combination of the outstanding Common
Shares of the Company, the number of shares shall be increased or decreased
proportionately so there shall be no change in the aggregate purchase price
payable upon the exercise of this Option. In the event of any other
recapitalization or any reorganization, merger, consolidation, or any other
change in the corporate structure or stock of the Company, the Board of
Directors of the Company shall make such adjustment, if any, as it may deem
appropriate, as to the number, kind and price of shares issuable pursuant to
this Option.
Upon the adjustment of the Option purchase price, or the number of
shares issuable pursuant to the Option, then, and in such cases, the Company
shall give written notice thereof by certified or registered mail, postage
prepaid, addressed to the Optionee at the address shown on the books of the
Company, which notice shall state the Option purchase price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable upon the exercise of this Option and setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
Section 3. Restrictions on Transferability of Shares Issuable Upon
Exercise of this Option.
3.1. Restricted Securities. This Option shall not be exercisable except
for a security which at the time of exercise (i) is exempt from registration
under the Securities Act of 1933, as amended, (ii) is exempt from registration
under applicable blue sky laws, and (iii) is exempt, is the subject matter of an
exempt transaction, or is registered under the Securities Act of 1933, as
amended. To this end, the Optionee may be required by the Company to give a
representation in writing that he is acquiring such shares for his own account
for investment and not with a view to, or for sale in connection with, the
distribution of any part thereof. If the Optionee is unwilling to give a
representation in writing that he is acquiring such shares for his own account
for investment as set forth herein, such Option shall immediately terminate and
the Optionee shall have no right to purchase any shares under such Option.
3.2. Share Restrictions. In addition to the restrictions relating to
unregistered securities set forth in this agreement, all shares issuable upon
exercise of this Option shall be subject to all other restrictions which may be
in effect, from time to time, as to the shares issued and outstanding of the
Company.
3.3. Legend. All share certificates issued pursuant to exercise of this
Option shall bear the following legend:
The securities represented by this Certificate have not been
registered under the Securities Act of 1993. These securities
may not be offered, sold, transferred, pledged or hypothecated
in the absence of registration under the Securities Act of
1933 or the
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availability of an exemption therefrom. Furthermore, no offer,
sale, pledge or hypothecation of the securities represented by
this Certificate is to take place without the prior written
consent of counsel of the issuer being affixed to this
Certificate. The Company's share transfer agent has been
ordered to effectuate transfers of this Certificate only in
accordance with the above instructions.
Section 4. Restriction of Issuing Shares. The exercise of the Option
hereunder shall be subject to the condition that if at any time the Company
shall determine in its discretion that the satisfaction of withholding tax or
other withholding liabilities, or that the listing, registration, or
qualification of any shares otherwise deliverable upon the Option exercise upon
any securities exchange or under any state or federal law, or that the consent
or approval of any regulatory body, is necessary or desirable as a condition, or
in connection with, such exercise or the delivery or purchase of shares pursuant
thereto, then in any such event, such exercise shall not be effective unless
such withholding, listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company.
Section 5. Investment Intent. Optionee may be required upon exercise of
this Option to give a representation in writing that he is acquiring purchased
shares for his own account for investment and not with a view to, or for sale in
connection with, the distribution of any part thereof.
Section 6. Claim to Stock Ownership. Optionee shall not be nor have any
rights or privileges of a shareholder of the Company in respect to the shares
transferable upon exercise of the Option granted hereunder, unless and until
certificates representing such shares shall have been endorsed, transferred and
delivered and Optionee has caused his name to be entered as the shareholder of
record on the books for the Company.
Section 7. No Obligation to Exercise an Option. There shall be no
obligation upon the Optionee to exercise the Option.
Section 8. Governing Law. The granting and exercise of the Option
hereunder, as well as the obligation of the Company to sell and deliver shares
under the Option, shall be construed under and governed by the laws of the State
of Ohio, and subject to all applicable laws, rules, and regulations and to such
approval by any governmental agencies and national securities exchanges as may
be required.
I hereby certify that this Option is granted to the above named
Optionee.
KAHIKI FOODS, INC.
By:____________________________
Michael C. Tsao, President
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Exhibit 5.1
Carlile Patchen & Murphy LLP
366 East Broad Street
Columbus, OH 43215
March 24, 2004
Kahiki Foods, Inc.
3004 East 14th Avenue
Columbus, Ohio 43219
Gentlemen:
As counsel for Kahiki Foods, Inc., an Ohio corporation (the "Company"), we
have had charge of all proceedings and actions taken in connection with the
Registration Statement on Form SB-2 under the Securities Act of 1933 (file No.
___________) filed on March 24, 2004 with the Securities and Exchange Commission
covering up to 1,271,174 Common Shares, 588,234 Common Share Purchase Warrants,
("Warrants") and 80,000 Common Share Options ("Options").
Based upon the foregoing and upon an investigation of such other matters as
in our judgment permit us to render an informed opinion, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Ohio.
2. The Common Shares currently outstanding are validly issued, fully paid
and non-assessable. The Warrants and Options have been duly authorized
by proper corporate action by the Company. Upon exercise and payment
of the exercise price of the Warrants and Options as described in the
Registration Statement, the Common Shares issued upon such exercise
will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an Exhibit to the Registration
Statement on Form SB-2, and we consent to the use of our firm name in, and the
statement with respect to us appearing under the heading "Legal Matters" in the
Prospectus forming a part of such Registration Statement.
Very truly yours,
/s/ Andrew J. Federico
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EXHIBIT 10.1
LEASE AGREEMENT
This LEASE AGREEMENT ("Lease") made effective the 27th day of December, 1999,
between Simon Group Limited Partnership, an Ohio limited partnership, having an
office at 3000 E. 14'h Avenue, Columbus, Ohio 43219, (hereinafter called
"Landlord") and Kahiki Foods, Inc., an Ohio corporation, having an office at
3583 E. Broad Street, Columbus, Ohio 43213 (hereinafter called "Tenant").
WITNESSETH: Landlord leases to Tenant and Tenant leases from Landlord office
space and warehouse/assembly space which combined area is commonly known as:
3004 E. 14th Avenue, Columbus, Ohio 43219, consisting of approximately 22,095
feet, (hereinafter called "the Demised Premises" or "the Premises") as more
particularly described in Exhibit "A" for the term and upon the payment of the
rents and the keeping, performance and observance of all other terms, covenants,
provisions, conditions and limitations hereinafter set forth, and each of the
parties covenants and agrees to keep, perform and observe all of the same on its
part to be kept, performed and observed.
1.TERM. The initial term of this Lease shall commence on February 1,2000, and
end on January 31, 2005, both dates inclusive. Provided Tenant is not in default
under this Lease, Tenant shall have the option to renew this Lease for two (2)
successive three (3) year renewal periods with the first beginning at the end of
the initial lease term and the second beginning at the end of the initial
renewal period. In order to exercise each renewal option hereunder, Tenant must
not be in default under this Lease and must provide Landlord with written notice
of its intention to do so 180 days prior to the end of the original term or any
renewal period under this Lease. All terms and conditions of any renewal period
shall remain the same as the initial lease term excepting the right of further
renewal and any other matter herein specifically mentioned. All parties to this
Lease and liable thereon by virtue of this Lease and any guaranty of same shall
be and remain bound and liable for any such renewal period to the same effect
and extent as though such renewal period had been part of the initial tenn.
2. RENT. Tenant covenants and agrees to pay Landlord the Base Rent and
Additional Rent (hereinafter Base Rent and Additional Rent shall be collectively
referred to as "Rent"), commencing on February 1,2000, for the Demised Premises.
As Base Rent, Tenant shall pay Landlord the sum of Fifty-Five Thousand Two
Hundred ThirtySeven and 50/100 Dollars ($55,237.50) per annum payable in equal
installments of Four Thousand Six Hundred Three and 13/100 Dollars ($4,603.13),
in advance, on the first day of each and every calendar month of the initial
tenn of this Lease, without any deduction or set-off whatsoever.
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As Additional Rent to reimburse Landlord for its payment of Taxes pursuant to
Paragraph 4, Common Area Maintenance Charges pursuant to Paragraph 7D, and
Insurance pursuant to Paragraph 8, Tenant shall pay Landlord the amount of
Twenty-Two Thousand Ninety-Five and 00/100 Dollars ($22,095.00) per annum ($1.00
per square foot of Demised Premises), payable in equal monthly installments of
One Thousand Eight Hundred Forty-One and 25/1 00 Dollars ($1,841.25) in advance
on the first day of each and every calendar month of the initial term of the
Lease without any deduction or set off whatsoever. Tenant covenants and agrees
that all Base Rent and Additional Rent hereunder shall be paid to Landlord in
legal tender of the United States of America without any demand therefor, at the
office herein above set forth, or at such other place as Landlord may from time
to time designate by notice in writing. All overdue installments of Rent or any
other amounts due to Landlord from Tenant under this Lease shall bear interest
at the rate of one and one-half percent (1-1/2 %) per month, for each month or
any part thereof during which there is any overdue installments.
3. RENEWAL RENT. Tenant covenants and agrees to pay Landlord, during any renewal
period(s), Base Rent as defined herein and Additional Rent. As Base Rent during
the first renewal period Tenant shall pay Landlord a sum equal to the greater of
One Hundred Six Thousand Nine Hundred Eighty-Five and 88/1 00 Dollars
($106,985.88) per annum or the annual sum determined by multiplying the sum of
One Hundred Six Thousand Nine Hundred Eighty-Five and 88/100 Dollars
($106,985.88) by a number equal to the CPI Index as of December 2005 divided by
the CPI Index of December 1999. The sum which represents the annual Base Rent
shall be paid in twelve (12) equal installments, in advance, on the first day of
each and every calendar month of the first renewal period of this Lease, without
any deduction or set-off. As Base Rent during the second renewal period Tenant
shall pay to Landlord a sum equal to the greater of the annual Base Rent for the
first renewal period or a sum determined by multiplying the annual Base Rent
during the first renewal period by a number equal to the CPI Index as of
December 2008 divided by the CPI Index of December 2005. The sum which is
determined to be the annual Base Rent for the second renewal period shan be paid
in twelve (12) equal installments, in advance, on the first day of each and
every calendar month of the second renewal period of this Lease without any
deduction or set-off whatsoever. "CPI" shall mean the Consumer Price Index, an
cities, an urban consumers, revised as published by the Bureau of Labor
Statistics, United States Department of Labor. If at any time during this Lease
the CPI shall cease to be published, there shall be substituted therefor the
most similar inflation indicator then published.
As Additional Rent during the first renewal period Tenant shall pay
Landlord a sum equal to the greater of Twenty- Two Thousand Ninety-Five and
00/100 Dollars
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($22,095.00) per annum or the annual sum determined by multiplying the sum of
Twenty-Two Thousand Ninety-Five and 00/100 Dollars ($22,095.00) by a number
equal to the CPI Index as of December 2005 divided by the CPI Index of December
1999. The sum which represents the annual Additional Rent shan be paid in twelve
(12) equal installments, in advance, on the first day of each and every calendar
month of the first renewal period of this Lease, without any deduction or
set-off. As Additional Rent during the second renewal period Tenant shall pay to
Landlord a sum equal to the greater of the annual Additional Rent for the first
renewal period or a sum determined by multiplying the annual Additional Rent
during the first renewal period by a number equal to the CPI Index as of
December 2008 divided by the CPI Index of December 2005. The sum which is
determined to be the annual Additional Rent for the second renewal period shall
be paid in twelve (12) equal installments, in advance, on the first day of each
and every calendar month of the second renewal period of this Lease without any
deduction or set-off whatsoever. "CPI" shan mean the Consumer Price Index, all
cities, all urban consumers, revised as published by the Bureau of Labor
Statistics, United States Department of Labor. If at any time during this Lease
the CPI shall cease to be published, there shall be substituted therefor the
most similar inflation indicator then published.
4. REAL ESTATE TAXES. "Taxes" shall be herein defined as all assessments, both
general and special, levies and governmental impositions and charges of every
kind and nature whatsoever assessed, imposed or levied upon the parcel of which
the Demised Premises is a part during the term of this Lease and any extension
or renewal thereof. Landlord shall pay and be responsible for payment of Taxes.
5. PROJECT SERVICES.
A. Provided Tenant is not in default under any of the covenants and
agreements of this Lease, Landlord shall furnish Tenant with electric current
used in connection with the parking area lighting. Any installation of special
equipment (such as intermittent operating equipment) must have the prior
approval of Landlord. Any new or additional electrical facilities in or
servicing the Premises required by Tenant (if permitted) shall be installed,
furnished or made by Landlord at Tenant's expense. All expense of maintenance
and cleaning of fluorescent lighting equipment located in the Premises shall be
borne by Tenant and all electricity used during cleaning services or alterations
and repairs in said Premises shall be paid by Tenant.
B. Landlord represents that portable water, sanitary sewer and
electricity is currently available to this site. Landlord, while not warranting
that any of the Project services stipulated in this Paragraph 5 will be free
from interruptions or suspensions caused by inspections, cleaning, repairs,
renewals, improvements, alterations, strikes,
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lockouts, accidents, inability of Landlord to procure such service, or to obtain
fuel or supplies, and for other causes or causes beyond Landlord's reasonable
control, or for emergency, will nevertheless diligently attempt to make such
repairs or renewals to building distributions lines and facilities as may be
required to restore any such service so interrupted or suspended. An
interruption or suspension of, or fluctuation in, any Project service (resulting
from any of said cause or causes) shall never be deemed an eviction or
disturbance of Tenant' s use and possession of the Premises, or any part
thereof, nor render Landlord liable to Tenant for damages, nor relieve Tenant
from performance of Tenant's covenants and agreements hereunder.
C. Landlord does hereby agree to provide space in the parking area
immediately adjacent to the Premises located on the north side of the building
for installation of a pad upon which to locate a 12' x 20' nitrogen tank
provided that adequate space is available. Tenant shall pay all costs, including
but not limited to cost of construction and installation, associated with said
pad and the installation of the nitrogen tank. Should Landlord incur any cost(s)
associated with the locating of this pad or the maintaining of a nitrogen tank
upon Landlord's property, including but not limited to increased insurance
premiums or permit fees, Tenant shall, immediately upon receipt from Landlord of
invoice for same, reimburse Landlord for such cost(s). At the conclusion of the
lease term, or any renewal period, Tenant, at its sole cost, shall remove the
nitrogen tank and pad and restore Landlord's property to the condition in which
it was originally in at the time the pad was installed or to such other
condition acceptable to Landlord and which is comparable with the condition of
Landlord's property at that time.
6. UTILITIES.
A. Tenant shall pay for all utilities serving, or used in connection
with, Tenant's occupancy of the Premises including, without limitation, water,
electricity, natural gas, sewer rental and telephone and shall sign all
application forms and other documents, if any, which may be necessary in order
to obtain separate meters for such utilities.
B. At all times, Tenant's use of any such services shall never exceed
the capacity of the mains, feeders, ducts and conduits bringing such service to
the Demised Premises or of the outlets, risers, wiring, piping, duct work or
other means of distribution of such service within the Demised Premises.
C. Tenant shall be responsible for and shall pay all cost(s) associated
with the removal of rubbish from the Premises.
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7. MAINTENANCE OF DEMISED PREMISES.
A. Landlord shall maintain at its cost: the roof and exterior walls,
excepting any doors or windows therein, common areas (including parking lots and
drives) and any structural portions of the Demised Premises; making repairs
thereto becoming necessary during the initial term and any renewal period unless
occasioned by any act or negligence of Tenant, its agents, contractors,
invitees, or employees in which event such damage shall be repaired by Landlord
at Tenant's sole cost and expense or in the event Landlord pays for such damage
then Landlord shall be entitled to reimbursement from the Tenant within fifteen
(15) days after Landlord invoices Tenant.
B. Tenant covenants and agrees to keep and maintain the Demised
Premises and the fixtures and improvements therein in good order, condition and
repair, and to make promptly all repairs or replacements becoming necessary
during the initial term and any renewal period as extended including, but
without limitations, repairs or replacements of windows, doors, glass ( which
shall be replaced with glass of the same size and quality), electrical, plumbing
and sewage lines and fixtures within the Demised Premises, and all heating, air
conditioning, ventilating and refrigeration equipment and ducts and vents
attached thereto within or which service the Demised Premises, interior walls,
floor covering and ceilings, and all elevators, docks, conveyors, fire
extinguishers and building appliances of every kind. All repairs and
replacements made by Tenant shall be equal in quality to the original work.
C. On default of Tenant in making any repairs or replacements required
to be made by Tenant hereunder or in maintaining the Demised Premises, Landlord
may, but shall not be required to, make such repairs or replacements or to
maintain the Demised Premises for Tenant's account, and the expenses thereof
shall be payable by Tenant on demand, or at Landlord's election, together with
the next installment of Rent due hereunder.
D. Landlord shall maintain at its cost the common areas including
without limitation, the cost of lighting, cleaning, repairing, striping, sealing
and snow plowing of the walkways, drives, parking lots, service areas and other
common areas; exterior repairs; roof maintenance; service contracts;
landscaping; and all other expenses paid in connection with the operation of the
Premises and property of which the Premises is a part.("Common Area Maintenance
Charges").
8. INSURANCE BY LESSOR. Landlord shall, during the term of this Lease, keep the
buildings and improvements compnsmg the Project, of which the Premises is a
part, adequately insured against loss or damage by fire and other casualties
covered by standard extended coverage insurance as issued in the State of Ohio,
and shall
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maintain public liability insurance in an amount not less than One Million and
00/1 00 Dollars ($1,000,000.00) per person and per occurrence ("Insurance").
9. RIGHTS RESERVED BY LANDLORD. Without abatement or diminution in Rent,
Landlord reserves and shall have the following rights:
A. To approve and install all signs with respect to Tenant's use of the
Premises (provided that such installment shall be at Tenant's sole expense); and
B. Upon reasonable notice to Tenant to enter the Premises at all
reasonable times (1) for the making of such inspections, repairs, renewals,
alterations, improvements or additions of, or to, the Premises or the building
as Landlord may deem necessary or desirable; (2) to exhibit the Premises to
others during the last six (6) months of the initial term or any renewal period
hereunder; and (3) for any purpose whatsoever related to the safety, protection,
preservation or improvement of the Demised Premises or of the building or of
Landlord's interest. Landlord shall take reasonable steps not to disrupt
Tenant's operations in Landlord's exercise of its rights to enter the Premises
or as provided hereunder.
10. ASSIGNMENT AND SUBLETTING.
A. Tenant shall not, without the prior written consent of Landlord in
each instance (which consent shall not be unreasonably or arbitrarily withheld),
(1) assign, mortgage, hypothecate or convey this Lease or any interest therein;
(2) allow any transfer hereof of any lien upon Tenant's interest by operation of
law; (3) sublet the Premises or any part thereof; or (4) permit the use or
occupancy of the Premises or any part thereof by anyone other than Tenant. The
consent of Landlord to any such assignment, conveyance or subletting by Tenant
shall not operate as a waiver of the necessity for a consent to any subsequent
assignment, conveyance or subletting, and the terms of such consent shall be
binding upon any person holding by, under or through Tenant. Such consent shall
not relieve Tenant from liability hereunder, past, present or future, for the
payment of Rent and any amounts due Landlord from Tenant under this Lease or the
performance or observance of any of the terms and conditions of this Lease
Agreement, and Tenant shall continue to be fully liable hereunder.
B. If Tenant is a corporation, then any transfer of this Lease
Agreement from Tenant by merger, consolidation or liquidation, or any change in
ownership or power to vote of a majority of Tenant's outstanding voting stock
shall constitute an assignment for the purpose of this Lease Agreement and shall
require the prior written consent of Landlord.
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11. USE.
A. Tenant shall use and occupy the Demised Premises as a business
office and/or a USDA approved food processing plant and/or warehouse and for no
other purpose.
B. Tenant shall not use or permit the Demised Premises to be used for
any unlawful or illegal business or purpose, nor sell or store on the Demised
Premises any spirituous, malt or vinous liquor or any narcotic drugs or any
explosives or inflammable materials. Tenant shall use, maintain and occupy the
Demised Premises in a careful, safe and proper manner and shall not permit waste
or the maintenance of a nuisance therein. Tenant will keep the Demised Premises
and appurtenances and the adjoining areas and sidewalks in a clean, safe and
healthy condition. Tenant, at its sole expense, shall comply promptly with all
laws, orders and regulations of federal, state, county and municipal authorities
and with any direction of any public officer or officers which shall impose any
liability, order or duty upon Landlord or Tenant with respect to Tenant's use or
occupancy of the Demised Premises. Tenant shall not permit the Demised Premises
to remain vacant and shall not do or permit to be done any act or thing upon the
Demised Premises which will invalidate or be in conflict with any fire or
casualty insurance policies or increase the rate for fire or casualty insurance
covering the building. If, by reason of failure of Tenant to comply with the
provisions hereof including, but not limited to, the use to which Tenant puts
the Premises, the fire and casualty insurance rate shall at the commencement of
the term or at any time thereafter be higher than it otherwise would be, then
Tenant shall reimburse Landlord for that part of all fire and casualty insurance
premiums thereafter paid by Landlord which shall have been charged because of
such failure or use by Tenant and shall make whatever changes are necessary to
comply with the requirements of the utility companies, insurance underwriters
and governmental authorities having jurisdiction thereof.
12. TENANT'S TAXES. Tenant covenants and agrees to pay promptly when due all
taxes assessed against Tenant's fixtures, furnishings, equipment and
stock-in-trade placed in or on the Demised Premises during the term of this
Lease.
13. POSSESSION.
A. If Landlord shall be unable to deliver possession of the Premises on
the date of the commencement of the term hereby created because of (1) the fact
that the Premises shall be in the course of construction on the date of
commencement of the term of this Lease, or (2) any other cause beyond Landlord's
reasonable control, the Rent reserved shall not commence until the date of
possession of the Premises is
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available to Tenant and, in the event such date shall be in the middle of the
month, then the Rent for such portion of a month shall be the product of the
number of days of actual occupancy and a fraction, the numerator of which is the
annual Rent hereunder and the denominator of which is 360. Tenant agrees to
accept such allowance and abatement of Rent as liquidated damages, in full
satisfaction for the failure of Landlord so to deliver possession on said date
of commencement, and to the exclusion of all claims and rights which Tenant
might otherwise have by reason of delivery of possession not being made on said
date except that Tenant shall also have the remedy of terminating this Lease if
the Premises cannot be delivered by June 1, 2000; and no failure so to deliver
possession on said date shall in any event extend, or be deemed to extend, the
term of this Lease. Nonstandard or additional work, if any, undertaken by
Landlord for Tenant shall not be considered in determining the date when
possession is available to Tenant.
B. In the event that Tenant enters into possession of the Premises and
uses and occupies the Premises for business purposes prior to the date of
commencement of the term of this Lease, Tenant agrees that such use and
occupancy shall be deemed to be under all of the terms, covenants, conditions
and provisions of this Lease, including the covenant to pay Rent except as
provided herein.
14. INDEMNITY AND INSURANCE BY TENANT.
A. All personal property belonging to Tenant or to any other person
located in or about the Premises, or the areas adjoining the Premises, including
the parking areas, shall be there at the sole risk of Tenant or such other
person, and neither Landlord nor Landlord's agents or employees shall be liable
for the theft, loss or misappropriation thereof, nor for any damage or injury
thereto, nor for death or injury of Tenant or any of its officers, agents or
employees or of any other person or damage to property caused by fire, water,
rain, sprinklers, snow, frost, ice, steam, heat, cold, dampness, falling
plaster, explosion, sewers, or sewerage, gas, odors, noise, the bursting or
leaking of pipes, plumbing, electrical wiring, and equipment and fixtures of all
kinds, or by any act or neglect of other tenants or occupants of the Project, or
of any other person, or caused in any other manner whatsoever, nor shall
Landlord be liable for any latent defect in the Premises or of any damage,
death, injury or defect therein. Tenant shall protect, indemnify and save
harmless Landlord from all losses, costs or damages sustained by reason of any
act or other occurrence or failure to act causing death or injury to any person
or damage to property whomsoever or whatsoever due directly or indirectly to the
use or occupancy of the Premises, or the areas adjoining the Premises, including
the parking areas, or any part thereof by Tenant, and Tenant shall indemnity and
save harmless Landlord against and from any and all claims arising from any act
of negligence of Tenant or any of its agents,
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contractors, servants, employees, licensees or invitees, and against and from
all costs, counsel fees, expenses and liabilities incurred with respect to any
such claim, action or proceeding brought thereon; and in case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord covenants to resist or defend at Tenant's expense such
action or proceeding by counsel reasonably satisfactory to Landlord. Nothing
herein contained shall be construed to relieve Landlord of the consequence of
its own negligence or the negligence of Landlord's agents or employees.
B. Tenant agrees that, at its own expense, it will procure and continue
in force, Comprehensive General Liability insurance insuring against personal
injury, bodily injury and property damage occurring in, upon or about the
Demised Premises, including all damage to or from sign, glass, awning, fixtures
or appurtenances now or hereinafter erected on the Demised Premises during the
term of this Lease, such insurance at all times to be in an amount of not less
than a combined single limit of One Million and 00/100 Dollars ($1,000,000.00).
Such insurance shall name Landlord and Landlord's mortgagee as "Additional Named
Insured" and shall be written with a company or companies authorized to engage
in the business of general liability insurance in the State of Ohio, and there
shall be delivered to landlord customary insurance certification evidence of
such paid-up insurance and copies of the policies. Such insurance shall further
provide that the same may not be cancelled, terminated or modified unless the
insurer gives Landlord and Landlord's mortgagee(s) at least fifteen (15) days
prior written notice thereof.
The above-mentioned insurance certifications and policies which are to
be provided by Tenant shall be for a period of not less than one (1) year, it
being understood and agreed that fifteen (15) days prior to the expiration of
any policy of insurance, Tenant will deliver to Landlord a renewal or new policy
to take the place of the policy expiring, with the further agreement that,
should Tenant fail to furnish policies as is provided in this Lease, and at the
time herein provided, Landlord may obtain such insurance and the premiums on
such insurance shall be paid by Tenant unto Landlord upon demand.
15. HOLDING OVER. Should Tenant remain in possession of the Premises after the
expiration of the initial term or any renewal penod ot this Lease without the
consent of Landlord, then, without diminishing in any respect Landlord's other
remedies with respect to Tenant's failure to vacate the Premises, Tenant shall
be on a month to month tenancy at one and one-half (1-1/2) times the Rent
otherwise due under this Lease and such tenancy shall otherwise be subject to
all of the covenants and agreements of this Lease.
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16. TAKING OF POSSESSION. Tenant takes possession of the Premises "As Is".
Landlord does not make any representation or warranty as to the condition of the
Premises including but not limited to the HV AC, electrical, plumbing, sewer and
refrigeration systems. Taking of possession of the Premises by Tenant shall be
conclusive evidence as against Tenant that the Premises was in good order and
satisfactory condition and/or acceptable to Tenant when Tenant so took
possession. No representation respecting the condition of the Premises or the
Project has been made by Landlord to Tenant unless contained herein; and no
promise of Landlord to prepare, alter or improve the Premises for Landlord's or
Tenant's use and occupancy shall be binding upon Landlord unless contained
herein. Landlord shall not be liable to Tenant for any expenses, injury, death,
loss or damages resulting from frame work done in or upon, or by reason of the
use of any adjacent or nearby building, land or public or private way, or
resulting from construction of any additional building, land or public or
private way, or resulting from construction of any additional buildings within
the Project; provided, however, that Landlord shall use its best efforts so as
to not unreasonably interfere with Tenant's use of the Premises and the adjacent
parking areas in connection with any construction by Landlord within the
Project.
17. AL TERA TION. It is understood, acknowledged and agreed that Tenant does
take and lease the Demised Premises "As Is" and no representations are made or
have been made by Landlord concerning the condition of the Premises and/or any
of the fixtures and/or trade fixtures contained therein, including but not
limited to the refrigeration equipment located in the premises, except as set
forth herein. Tenant shall be solely responsible for the renovating, remodeling
and or repair of the Premises and the fixtures and equipment contained therein.
All such renovation, remodeling and/or repair of the Premises and the fixtures
and equipment contained therein shall be at Tenant's sole cost and expense and
shall not be commenced without first obtaining Landlord's written consent for
same. Tenant shall not make any structural alterations, additions or
improvements or other changes in or to the structure of the Premises without
Landlord's prior written consent in each and every instance which shall not be
unreasonably withheld. Before any such work is commenced or any materials
therefor are delivered on the Premises, Tenant shall provide Landlord with
plans, specifications, names of contractors and necessary permits; shall
indemnify and hold harmless Landlord against and from liens, costs, damages, and
expenses of all kinds; and shall submit to Landlord's reasonable supervision of
said work.
18. SURRENDER AT END OF TERM. At the expiration, or earlier termination in any
manner, of the initial term or any renewal period hereof Tenant shall quit and
surrender the Premises, together with all installations, improvements, and
alterations, including but not limited to trade fixtures, which may have been
installed by Landlord or Tenant and which Landlord and Tenant agree shall become
the property of
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Landlord (it being understood and agreed that Tenant's furniture, movable
partitions and standard business office machines and equipment shall remain
Tenant's property and may be removed by Tenant), in as good condition and repair
as when possession was delivered, reasonable use and wear, loss or damage by
fire, the elements or other casualty not resulting from the willful or negligent
acts of Tenant, Tenant's agents, employees or invites excepted. Upon such
expiration or termination, should Landlord request Tenant to do so, Tenant
agrees to remove or cause the removal of, all at Tenant's cost for such removal,
all additions, installations, alterations, fixtures, and improvements made by
Tenant upon the Premises and Tenant shall repair at Tenant's expense any damage
to the Premises caused by such removal; any of the same not so removed, or
removed and not properly repaired, may be removed and repaired by Landlord, and
Tenant agrees to pay the cost thereof and to indemnify Landlord and hold
Landlord harmless therefore; and if Landlord does not remove and repair the
same, the same shall be deemed abandoned by Tenant and shall belong absolutely
to Landlord.
19. UNTENANTABILITY. If the Premises shall be partially damaged by rue or other
casualty, this Lease shall remain in full force and effect and the damage to the
Premises shall be repaired by Landlord, and the Rent until such repairs shall be
made shall be abated on a per diem basis proportionate to the extent and for the
period that the Premises is unfit for occupancy; provided, however, that there
shall be no abatement of Rent if the damage shall have been caused by the fault
or neglect of Tenant, or Tenant's agents, contractors, servants, employees,
licensees or invites, which shall be without prejudice to any other rights or
remedies of Landlord. Landlord shall incur no liability on account of any delay
in the completion of such repairs which may arise by reason of adjustment of
insurance, labor difficulties or any other cause beyond Landlord's control. If
all or substantially all of the Premises is wholly destroyed or is made unfit
for occupancy by rue or other casualty, acts of God or other cause, in
Landlord's reasonable judgment, Landlord may elect, by written notice to Tenant
within ninety (90) days after the casualty date, (1) to terminate this Lease as
of the date when the Premises or the building is so destroyed or made unfit for
occupancy, or (2) to repair, restore or rehabilitate the Premises or the
building at Landlord's expense within six (6) months after Landlord is able to
take possession of the damaged Premises and undertake construction of repairs;
and if Landlord elects to so repair, restore or rehabilitate the Premises or the
building, this Lease shall not terminate, but Rent shall be abated on a per diem
basis proportionate to the extent and for the period that the Premises is unfit
for occupancy. In the event Landlord shall proceed under (2) above and shall not
substantially complete the work within said six (6) month period (excluding from
such period loss of time resulting from delays beyond the reasonable control of
Landlord), either Landlord or Tenant may then terminate this Lease, as of the
date when the Premises or the building was so made unfit for occupancy, by
written
107
notice to the other not later than ten (10) days after the expiration of said
six (6) month period, computed as herein provided. In the event of termination
of this Lease pursuant to this paragraph, Rent shall be apportioned on a per
diem basis to and including the effective date of such termination, and Tenant
shall promptly vacate the Premises and surrender the same to Landlord. If the
damage or destruction be due to the fault or neglect of Tenant, or Tenant's
agents, contractors, servants, employees, licensees or invites, the debris shall
be removed at the expense of Tenant. Notwithstanding anything herein stated to
the contrary, Landlord shall in no event be obligated to repair or rebuild if
such damage or destruction shall occur during the last one (1) year term of this
Lease.
20. DEFAULT.
A. Tenant covenants and agrees that if:
1. Tenant shall fail, neglect or refuse to pay any installment of Base
Rent and/or Additional Rent at the time and in the amount as herein provided, or
to pay any other monies agreed by it to be paid promptly when and as the same
shall become due and payable under the terms hereof, and if any such default
should continue for a period of more than ten (10) days; or
2. Tenant shall make an assignment for the benefit of creditors or if
the interest of the Tenant in said Premises shall be sold under execution or
other legal process; or
3. Tenant shall be adjudged a bankrupt or if a receiver or trustee
shall be appointed for the Tenant by any court; or
4. Tenant shall abandon or vacate the premises or shall fail, neglect
or refuse to keep and perform any of the other covenants, conditions,
stipulations or agreements herein contained and covenanted and agreed to be kept
and performed by it, and in the event any such default shall continue for a
period of more than ten (10) days after notice thereof given in writing to
Tenant by Landlord, provided, however, that if the cause for giving such notice
involves the making of repairs or other matters reasonably requiring a longer
period of time than the period of such notice, Tenant shall be deemed to have
complied with such notice so long as it has commenced to comply with said notice
within the period set forth in the notice and is diligently prosecuting
compliance of said notice or has taken the proper steps or proceedings under the
circumstances to prevent the seizure, destruction, alteration or other
interference with said Premises by reason of non-compliance with the
requirements of any law or ordinance or with the rules, regulations, or
direction of any governmental authority as the case may be;
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Then the Tenant shall be deemed to be in default of this Lease and does
hereby authorize and fully empower Landlord or Landlord's agents, at Landlord's
sole option, to (1) re-enter into possession of the Demised Premises, with
process of law, and expel, remove or put out Tenant or any other person or
persons occupying said Premises, and to repossess said Premises, without being
deemed guilty of any manner of trespass and without prejudice to any remedies
which might otherwise be used by Landlord, and/or (2) sue for and recover all
Rent earned up to the date of such reentry; and/or (3) terminate the Tenant's
right of possession without terminating the Lease; and/or (4) terminate the
Tenant's right of possession, re-enter and resume possession of the Demised
Premises without such re-entry working in forfeiture of the Rents to be paid and
the covenants, agreements and conditions to be kept and performed by Tenant for
the initial term and any renewal periods of this Lease; and/or (5) remove all
property of Tenant from the Premises and such property may be removed and stored
in an appropriate warehouse or elsewhere at the cost of and for the account of
the Tenant, with evidence of notice and resort to legal process and without
being deemed guilty of trespass or becoming liable for loss or damage which may
be occasioned thereby; and/or (6) have the right but not the obligation to
divide or subdivide the Premises in any manner Landlord may determine and to
lease or let the same or portions thereof for such periods of time and at such
rentals and for such use and upon such covenants and conditions as Landlord may
elect, applying the net rentals for such letting first to the payment of
Landlord's expense incurred in repossessing the Premises and the cost and
expense of making such improvements in the Premises as may be necessary in order
to enable Landlord to re-Iet the same, and to the payment of any brokerage
commission, and reasonable attorneys' fees or other necessary expenses of
Landlord in connection with such repossession and re-Ietting with the balance,
if any, applied by Landlord from time to time on account of payments due or
payable by tenant hereunder, with the right reserved to Landlord to bring such
action or proceedings for the recovery of any deficits remaining unpaid as
Landlord may deem favorable from time to time, without being obligated to await
the end of the term hereof for the final determination of Tenant's account and
Tenant shall have no interest in any monies received upon re-Ietting.
B. Landlord may, at its option, while such default or violation of
covenant or condition continues, declare all or any portion of the Base Rent and
Additional Rent or other amounts due to Landlord from Tenant under this Lease,
and accrued and unpaid interest provided for in this Lease, for the full term of
this Lease remaining unpaid due and payable at once.
C. The various rights, remedies, powers and elections of Landlord,
reserved, expressed or contained in this Lease, are cumulative and no one of
them shall be deemed exclusive of the others or of such other rights, remedies,
powers, options or
109
elections which are now, or may hereafter be, conferred upon Landlord by law or
in equity. In addition to all other remedies, Landlord is entitled to the
restraint by injunction of all violations, actual, attempted or threatened of
any covenant, condition or provision of this Lease and it is specifically agreed
that Landlord shall not be required to prove irreparable harm, it being
stipulated by Tenant, or to post a bond in excess often Dollars ($10.00) in
connection with any injunction or restraining order pertaining to this Lease or
the Tenant's occupancy of the Premises.
D. Tenant agrees that Landlord shall retain a lien and have perfected
security interest in favor of Landlord for all improvements whether denominated
building, leasehold improvements or fixtures ("Improvements") constructed,
installed in or on the Premises and financed by Tenant as contemplated under
this Lease. The Tenant agrees upon the request of Landlord to execute financing
statements in favor of Landlord securing its interest in the Improvements, as
established hereunder. Tenant shall have the right to separately finance and
mortgage all leasehold improvements and equipment.
E. The parties hereto shall and they hereby do waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease Agreement, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the leased Premises, and/or any claim of injury or
damage.
F. In case suit shall be brought by Landlord for recovery of possession
of the leased Premises, for the recovery of Rent or any other amounts due to
Landlord from Tenant under the provisions of this Lease, or because of the
breach of any covenant herein contained on the part of Tenant to be performed,
and a breach shall be established, Landlord shall be entitled to receive as
additional damages all expenses incurred by Landlord in bringing such action,
including, but not limited to, reasonable attorneys' fees.
21. SUBORDINATION; ESTOPPEL CERTIFICATES.
A. Subordination. This Lease shall be subject and subordinate to each
mortgage, deed of trust, master lease, ground lease or other similar instrument
of encumbrance now or hereafter covering any or all of the Premises, (and each
renewal, modification, consolidation, replacement or extension thereof) (each of
which is herein referred to as a "Mortgage"), all automatically and without the
necessity of any action by either party hereto but only if holder of such
Mortgage agrees not to disturb Tenant's rights hereunder as provided herein.
110
B. Attornment and Non-Disturbance. Tenant shall promptly within ten
(10) days after the request of Landlord or the holder of any Mortgage
(hereinafter referred to as "Mortgagee"), execute, acknowledge and deliver such
further instrument or instruments evidencing such subordination as Landlord or
such Mortgagee deems necessary or desirable, and (at such Mortgagee's request)
attorning to such Mortgagee, provided that such Mortgagee agrees with Tenant
that such Mortgagee will, in the event of a foreclosure of any such Mortgage or
deed of trust (or termination of any such ground lease) take no action to
interfere with Tenant's rights hereunder, except on the occurrence of an event
of Default.
C. Subordination of Mortgage. Notwithstanding the foregoing
subparagraphs, any Mortgagee may at any time subordinate the lien of its
Mortgage to the operation and effect of this Lease without obtaining Tenant's,
or anyone claiming by, through or under Tenant, consent by giving Tenant written
notice thereof, in which event this Lease shall be deemed to be senior to such
Mortgage without regard to their respective dates of execution, delivery and/or
recordation, and thereafter such Mortgage shall have the same rights as to this
Lease as it would have had were this Lease executed and delivered before the
execution of such Mortgage.
D. Estoppel Certificates. Tenant shall from time to time within ten
(10) days after being requested to do so by Landlord or any Mortgagee, execute,
acknowledge and deliver to Landlord (or, at Landlord's request, to any existing
or prospective purchaser, transferee, assignee or Mortgagee) an instrument,
certifying (I) that this Lease is unmodified and in full force and effect (or,
if there has been any modification thereof, that it is in full force and effect
as so modified, stating therein the nature of such modification); (2) as to the
dates to which Rent and any other amounts due to Landlord from Tenant under this
Lease, and any other charges arising hereunder have been paid; (3) as to the
amount of any prepaid Rent or any credit due to the Tenant hereunder; (4) as to
the date that the Tenant has accepted possession of the Premises and the date on
which the Term commenced; (5) as to whether, to the best knowledge, information
and belief of the signer of such certificate, the Landlord or the Tenant is then
in default in performing any of its obligations hereunder (and, if so,
specifying the nature of each such default); and, (6) as to any other fact or
condition reasonably requested by Landlord or such other addressee; and
acknowledging and agreeing that any statement contained in such certificate may
be relied upon by Landlord and any other such addressee.
22. NOTICES. In every instance where it shall be necessary or desirable for
Landlord to serve any bill, notice or demand upon Tenant, such bill, notice or
demand shall be deemed sufficiently given or made if, in writing, mailed by
registered or certified, United States mail, postage prepaid, and addressed to
Tenant at the address indicated
111
on the first page of this Lease, and the time of giving or making such notice or
demand shall be deemed to be the time when the same is mailed as herein
provided. Any notice by Tenant to Landlord must be sent by registered, or
certified, United States mail, postage prepaid, addressed to the Landlord at the
address indicated on the first page of this Lease unless notified by Landlord,
in writing, of a different address to which notice is to be sent.
23. NO WAIVER.
A. No receipt of money by Landlord from Tenant with or without
knowledge of the breach of covenants of this Lease, or after the termination
hereof, or after the service of any notice, or after the commencement of any
suit, or after final judgment for possession of the Premises shall be deemed a
waiver of such breach, nor shall it reinstate, continue or extend the term or
any renewal period(s) of this Lease or affect any such notice, demand or suit.
B. No delay on the part of Landlord in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other, or
further, exercise thereof or the exercise of any other right, power or
privilege.
C. No act done or thing said by Landlord or Landlord's agents or
employees shall constitute a cancellation, termination or modification of, or
eviction or surrender under this Lease or a waiver of any covenant, agreement or
condition hereof, nor relieve Tenant from Tenant's obligation to pay the Rent
reserved or other charges to be paid hereunder. An acceptance of surrender,
waiver or release by Landlord and any cancellation, termination or modification
of this Lease must be in writing signed by Landlord. The delivery of keys to any
employee or agent of Landlord shall not operate as a surrender or as a
termination of the Lease, and no such employee or agent shall have any power to
accept such keys prior to the termination of this Lease.
D. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rent herein stipulated and reserved shall be deemed to be other than on
account of the earliest stipulated Rent then due and payable, nor shall any
endorsement or statement on any check, or letter accompanying any Rent check or
payment be deemed an accord and satisfaction, and Landlord may accept the same
without prejudice to Landlord's right to recover any balance due or to pursue
any other remedy in this Lease provided.
24. INABILITY TO PERFORM. This Lease and the obligation of Tenant to pay Rent
hereunder and perform all of the other covenants and agreements hereunder on
part
112
of Tenant to be performed shall in no wise be affected, impaired or excused
because Landlord is unable to fulfill any of its obligations under this Lease or
to supply or is delayed in supplying any service expressed or implied to be
supplied or is unable to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from doing so by reason of strike
or labor troubles or any outside cause whatsoever including, but not limited to,
governmental preemption in connection with a national emergency or by reason of
a rule, order or regulation of any department or subdivision thereof or of any
government agency or by reason of the conditions of supply and demand which have
been or are affected by war or other emergency, or by reason of any fire or
other casua.lty or act of God.
25. MECHANICS' LIENS. If, because of any act or omission of Tenant or anyone
claiming by, through or under Tenant, any mechamcs' or other lien or order for
payment of money shall be filed against the Premises, or against Landlord
(whether or not such lien or order is valid or enforceable as such). Tenant
shall, at Tenant's own cost and expense, cause the same to be cancelled and
discharged of record within thirty (30) days after the date of filing thereof,
and shall also indemnify and save harmless Landlord from and against any and all
costs, expenses, claims, losses or damages, including reasonable counsel fees,
resulting therefrom or by reason thereof.
26. PARKING. For the term of this Lease the Tenant and its agents, employees,
servants, contractors, licensees and invitees shall have the non-exclusive right
to park passenger motor vehicles in the parking areas adjoining the Premises. It
is understood that Tenant holds such right upon the terms and conditions herein;
and the further understanding that such areas shall not include any part
thereoflimited to and so designated by the Landlord solely for the use by
Landlord or its agents or for visitors to the Project. Also, Tenant agrees that
no vehicles will be parked or staged in the area that may be required from time
to time by Landlord for the free flow of traffic to and from the building.
Nothing contained herein shall act as a guarantee by Landlord of sufficient
space for parking nor shall Landlord be responsible for the safety of Tenant,
its employees, invitees, customers and/or agents and or the property of said
persons while in or located upon the parking areas.
27. SEPARABILITY. The holding of any court that any provision in this Lease is
invalid or unenforceable shall not atfect the remaining provisions of this Lease
which shall remain in full force and effect.
28. BROKER. Custom Cuts of St. Paul, Inc., Custom Cuts of Columbus, Inc. and
Brad Beckman, individually, jointly and severally shall be responsible for the
payment of all commissions due to Joe Polis of Polis & Simon, Inc., Realtors and
Michael C. Spencer Of Ruscilli Real Estate Services, Inc. Landlord hereby
represents and warrants to Tenant
113
and Tenant hereby represents and warrants to Landlord that no other real estate
brokers have been retained in connection with this Lease and each shall hold the
other harmless and indemnify the other for any such commission.
29. LEASE CONTINGENT UPON. It is agreed that this lease agreement is contingent
upon (I) Tenant obtaining, within ninety (90) days, after the date first above
set forth, USDA approval of the Premises and Tenant's use of same; (2) Tenant
obtaining necessary permits and approvals to complete all renovations and
remodeling of the Premises; and, (3) Tenant obtaining, within sixty (60) days,
after the date first above set forth, acceptable financing to complete all
renovations and remodeling of the Premises. Tenant shall use its best efforts to
obtain such approvals. In the event Tenant is unable, after making a
commercially reasonable and good faith effort to do so, to obtain any of the
approvals required herein, Tenant shall immediately notify Landlord in writing
of its failure to obtain the necessary approvals, and shall, within ten (10)
days of providing notice, vacate the Premise, and return the Premises to
Landlord in the same or similar condition as it was at the time Tenant took
possession of same and this Lease shall be deemed to be null and void and all
obligations and rights of Landlord and Tenant, except for Landlord's right to
retain all sums paid and to collect all sums due as of the date Tenant vacates
the Premises pursuant to this paragraph, shall terminate. One hundred (100) days
after the date first above written, should Tenant have failed to provide notice
as provided herein of its inability to obtain the approvals noted above, the
contingencies of this paragraph are deemed to have been waived by Tenant.
30. ENTIRE AGREEMENT. This Lease contains the entire agreement between the
parties hereto and shall not be modified in any manner except by an instrument
in writing executed by said parties or their respective successors in interest.
31. PARAGRAPH HEADINGS. The paragraph headings appearing in this Lease are
inserted only as a matter of convenience and for reference purposes, and in no
way define, limit or describe the scope and intent of this Lease, or any
paragraph hereof, nor in any way affect it.
32. QUIET ENJOYMENT. If Tenant shall (I) pay the Rent, the charges for services
stipulated herein and other amounts to be paId to Landlord by Tenant, and (2)
well and faithfully keep, perform and observe all of the covenants, agreements
and conditions herein stipulated be kept, performed and observed by Tenant,
Tenant shall at all times during the term of this Lease have the peaceable and
quiet enjoyment of the Premises without hindrance of Landlord or any person
lawfully claiming under Landlord, subject, however to the terms of this Lease
and any Mortgage against the Project, or any portion thereof.
114
33. ASSIGNS. The covenants, agreements and conditions contained in this Lease
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, legal representatives, successors and assigns, subject, however, to the
provisions hereof requiring the consent of Landlord to any assignment of this
Lease or subletting of the Premises.
34. SECURITY DEPOSIT. Upon the execution hereof, Tenant shall deliver to
Landlord an amount equal to Six Thousand Four Hundred Forty-Four and 38/100
($6,444.38) hereunder which shall serve as a security deposit (the "Security
Deposit") to secure the full and faithful performance by Tenant hereunder.
Landlord shall have the right, but not the obligation, to use all or any part of
the Security Deposit to satisfy any default by Tenant hereunder, and in the
event Landlord as aforesaid, Tenant agrees to deliver to Landlord, on demand, an
amount equal to the amount so expended by Landlord plus such additional amount
(if any) as may be necessary to restore the Security Deposit to its full amount.
Landlord's Security Deposit shall not bear interest. Upon the termination of the
term of this Lease (other than by reason of default of Tenant) the Security
Deposit shall be returned to Tenant by Landlord after deduction therefrom by
Landlord of Landlord's expenses, if any, in restoring the Premises to the
condition required herein. In the event of the termination of this Lease by
reason of default by Tenant, Landlord may retain any Security Deposit as minimum
stipulated damages, which shall not, however, preclude Landlord from asserting
any other claims against Tenant, or proving any additional damages or costs
suffered by Landlord (including reasonable attorney's fees) by reason of such
default, or pursuing any other remedies Landlord may have against Tenant.
35. MEMORANDUM OF LEASE. Landlord and Tenant agree not to record this Lease
Agreement but rather, upon request ot either party, agree to execute and record
a short form Memorandum of Lease complying with Revised Code ss.530 1.251.
36. CONSENT OF CUSTOM CUTS. Pursuant to a certain Settlement Agreement entered
into between the Landlord and Custom Cuts ot St. Paul, Inc., Custom Cuts of
Columbus, Inc. and Brad Beckman, individually (hereinafter collectively referred
to as "Custom Cuts") executed on or about March 25, 1999, Custom Cuts hereby
consents to Landlord entering into this Lease. Further, Landlord and Custom Cuts
agree that Custom Cuts shall be responsible for paying Landlord the amount of
Two Thousand Four Hundred Seventy-One and 111100 Dollars ($2,471.11) per month
on the first day of each and every month during the entire term of this Lease
pursuant to Paragraph 12(a) of the Settlement Agreement; provided, however, in
the event that Tenant terminates this Lease pursuant to Paragraphs 13 or 29 of
this Lease, then Custom Cuts shall be responsible for payment of Eight Thousand
Nine Hundred Fifteen and 49/100 Dollars ($8,915.49) per month from the date of
such termination
115
through January 31, 2005. In the event that Tenant does not terminate the Lease
pursuant to Paragraphs 13 or 29, then Custom Cuts' duties under Paragraphs 17
and 18 of the Settlement Agreement shall be deemed satisfied. Except as
expressly provided for in this Paragraph 36, all rights and duties of the
parties under the Settlement Agreement shall continue in full force and effect.
Notwithstanding any provision in this Paragraph 36 to the contrary, Tenant shall
continue to be fully liable for all amounts due pursuant to Paragraphs 7, 8 and
10 of the Settlement Agreement.
WITNESS WHEREOF, Landlord and Tenant have executed triplicate originals of this
Lease Agreement, effective as of the day, month and year first above written.
WITNESS: LANDLORD:
SIMON GROUP LIMITED PARTNERSHIP, an
Ohio limited Partnership
By: Simco Realty Ltd. An Ohio limited liability
company, its General Partner
_________________________ By:___________________________________
CHARLES M. SIMON, Managing Member
- -------------------------
WITNESS: TENANT:
Kahiki Foods, Inc., an Ohio corporation
By: _______________________________
Its_________________________________
WITNESS: AS TO PARAGRAPHS 28 and 36
CUSTOM CUTS OF ST. , INC., a Minnesota
corporation f/k/as BECKMAN PRODUCE,
INC.
_______________________ By:____________________________________
_______________________ Its:____________________________________
116
WITNESS: CUSTOM CUTS OF COLUMBUS, INC., a
Minnesota corp .
__________________________ By:__________________________
__________________________ Its:__________________________
ACKNOWLEDGMENT
STATE OF OHIO :
COUNTY OF FRANKLIN : ss
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Landlord, Simon Group Limited Partnership, by its
general partner Simco Realty Ltd, by Charles M. Simon, its managing member, who
acknowledged that he did sign the foregoing instrument on behalf of said limited
liability company, and that the same was his free act and deed personally and on
behalf of said limited liability company.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Columbus,
Ohio this 30th day of December, 1999.
----------------------------
Notary Public
LESLIE A WHITE
ACKNOWLEDGMENT
STATE OF OHIO :
COUNTY OF FRANKLIN : ss
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Tenant, Kahiki Foods, Inc., an Ohio corporation, by
______________,, its _____________, who acknowledged that he/she did sign the
foregoing instrument on behalf of said corporation, and that same was his/her
free act and deed personally and on behalf of said corporation.
117
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Columbus, Ohio this 4th day of January,2000.
---------------------------
Notary Public
KENNETH H. KlSNER
Notary Public, State of Ohio
My Commission Expires Sept. l,
2003
ACKNOWLEDGMENT
STATE OF ______________________ :
COUNTY OF____________________: ss
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Custom Cuts of St. Paul, Inc. f/k/a Beckman Produce, a
Minnesota corporation, by Brad Beckman, its CEO, who acknowledged that he/she
did sign the foregoing instrument on behalf of said' corporation, and that same
was his/her free act and deed personally and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
____________________________Milwaukee, Wisc. This 31st day of December, 1999.
--------------------------------------
--------------------------------
Notary Public
JEFFREY TENDLER
118
ACKNOWLEDGMENT
STATE OF Wisconsin :
COUNTY OF MILWAUKEE: ss
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Custom Cuts of Columbus, Inc., a Minnesota corporation,
by Brad Beckman, its CEO, who acknowledged that he/she did sign the foregoing
instrument on behalf of said corporation, and that same was hislher free act and
deed personally and on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
Milwaukee, Wisconsin, this 3lst day of December,' 1999.
-------------------------
Notary Public
JEFFREY TENDLER
ACKNOWLEDGMENT
STATE OF Wisconsin :
COUNTY OF Milwaukee : ss
BEFORE ME, a Notary Public in and for said County and State, personally
appeared the above-named Brad Beckman, Individually, who acknowledged that he
did sign the foregoing instrument, and that same was his free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Milwaukee,
Wisconsin, this 31st day of December, 1999.
---------------------------
Notary Public
JEFFREY TENDLER
119
EXHIBIT A
Description of Demised Premises
Description consists of a manual site plan showing the placement of the
buildings and parking spaces relative to Fourteenth Avenue.
120
UNCONDITIONAL GUARANTY
IN CONSIDERATION of the leasing by Simon Group Limited Partnership, an Ohio
limited partnership (hereinafter referred to as "Lessor") to Kahiki Foods, Inc.,
an Ohio corporation, (hereinafter referred to as "Guarantor"), by a Lease
Agreement dated the 27th day of December, 1999, to which this Unconditional
Guaranty is attached, of the Premises described in the Lease Agreement and in
consideration of other good and valuable consideration, the receipt and legal
sufficiency of all of which is hereby acknowledged, the undersigned
unconditionally guarantee to Lessor the due and punctual payment, to whomever
may be entitled thereto, of all monies payable by Lessee for and in respect of
the full term of the Lease Agreement and any assignment, extension, renewal, or
modification thereof including but not limited to any assignment, renewal or
modification beyond the expiration date of the original term, whether as base
rent, additional rent, damages, costs, expenses, or otherwise, and further
guarantee the performance of all the undertakings, covenants and obligations
imposed upon the Lessee by the Lease Agreement.
The undersigned expressly waive notice of the acceptance of this Unconditional
Guaranty and notice of any and all defaults under the Lease Agreement by the
Lessee, and waive any and all notices to which they might otherwise be entitled,
as Guarantor, under law. The undersigned hereby also agree and consent that
Lessor may, in its sole discretion, at any time without notice, and from time to
time: (a) grant any indulgence to Lessee with respect to the fulfillment and
performance by Lessee of any or all of their undertakings, covenants and
obligations of Lessee or under the Lease Agreement; and (b) adjust any dispute
with Lessee in connection with the Lease Agreement.
The obligations of this Guaranty shall be binding upon the undersigned, its
successors and assigns.
Executed this 4th day of January, 2000.
WITNESSES: GUARANTORS:
- ----------------------------- --------------------------
MICHAEL TSAO
__________________________ ALICE TSAO
Sworn to and subscribed in my Presence this 4th day of January, 2000.
121
[SEAL]
- -----------------------
Notary Public
KENNETH H. KISNER
NOTARY PUBLIC, STATE Of OHIO
MY COMMISSION EXPIRES SEPT l,2003
122
EXHIBIT 10.2
LOAN AGREEMENT
between
THE DIRECTOR OF DEVELOPMENT OF THE STATE OF OHIO
and
KAHIKI FOODS, INC.
Dated
as of
December 1, 2002
(OHIO ENTERPRISE BOND FUND PROGRAM)
123
INDEX
(The Index is not a part of this Loan
Agreement and is only for convenience of
reference).
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Use of Defined Terms. . . . . . . . . . . . . . . . . . . . . . ...2
Section 1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Certain Words and References. . . . . . . . . . . . . . . . . . .. 8
ARTICLE II. DETERMINATION AND REPRESENTATIONS. . . . . . . . . . . . . . . . 10
Section 2.1 Determinations of the Director. . . . . . . . . . . . . . . . . . 10
Section 2.2 Representations and Warranties of the Company. . . . . . . . . . .10
ARTICLE ill COMMENCEMENT AND COMPLETION OF THE PROJECT. . . . . . . . . . . . 13
Section 3.1 Provision of the Project. . . . . . . . . . . . . . . . . . . . . 13
Section 3.2 Deposits to the Project Fund. . . . . . . . . . . . . . . . . . . 13
Section 3.3 Disbursements from the Project Fund. . . . . . . . . . . . . . . 13
Section 3.4 Establishment of Completion Date. . . . . . . . . . . .. . . . . 14
Section 3.5 Company Required to Pay Costs in Event Project Fund Insufficient. 14
Section 3.6 Plans and Specifications: Inspections. . . . . . . . . . . . . . 15
Section 3.7 Investment of Project Fund, Primary Reserve Account
or Collateral Proceeds Account. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.8 Conditions to Deposit of the State Assistance. . . . . . . . . . 15
ARTICLE IV STATE ASSISTANCE AND REPAYMENT . . . . . . . . . . . . . . . . . . 18
Section 4.1 State Assistance. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.2 Company Payments for the State Assistance. . . . . . . . . . . . 18
Section 4.3 Place of Payments . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.4 Primary Reserve Account. . . . . . . . . . . . . . . . . . . . . 19
Section 4.5 Obligation of the Company Hereunder Unconditional. . . . . . . . 20
ARTICLE V MAINTENANCE, TAXES AND INSURANCE . . . . . . . . . . . . . . . . . 21
Section 5.1 Maintenance and Modifications of Project by the Company. . . . . 21
Section 5.2 Removal of Project Equipment. . . . . . . . . . . . . . . . . . . 21
Section 5.3 Indemnification by the Company. . . . . . . . . . . . . . . . . . 21
Section 5.4 Taxes, Other Governmental Charges and Utility Charges. . . . . . 22
Section 5.5 Insurance Required. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.6 Additional Provisions Respecting Insurance. . . . . . . . . . . . 23
Section 5.7 Application of Net Proceeds of Insurance .... . . . . . . . . . . 23
Section 5.8 Public Liability Insurance. . . . . . . . . . . . . . . . . . . . 23
Section 5.9 Advances. . . . . . . .. . . . . . . . . . . . . . . . . . . . . .24
Section 5.1 0 Environmental Matters. . . . . . . . . . . . . . . . . . . . . .24
124
ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION. . . . . . . . . . . . . . . .27
Section 6.1 Damage and Destruction. . . . . . . . . . . . . . . . . . . . . . 27
Section 6.2 Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII SPECIAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 29
Section 7.1 No Warranty of Condition or Suitability. . . . . . . . . . . . . 29
Section 7.2 Right of Access to the Project. . . . . . . . . . . . . . . . . . 29
Section 7.3 Information Concerning Operations. . . . . . . . . . . . . . . . 29
Section 7.4 Affirmative Covenants of the Company. . . . . . . . . . . . . . . 29
(a)Taxes and Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . ..29
(b) Maintain Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(c) Maintain Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(d) Maintain Insurance. . . . . . . . . . . . . . . . . .. . . . . . . . . . 30
(e) Furnish Information. .. . . . . . . . . . . . . . . . . . . . . . . . . . 30
(f) Deliver Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(g) Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(h) Zoning Planning and Environmental Regulations. . . . . . . . . . . . . . 31
(i) Use of Project Fund Moneys. . . . . . . . . . . . . . . . . . . . . . . . 32
(j) Job Creation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..32
(k) Preference for Ohio Goods and Services. . . . . . . . . . . . . . . . . . 32
Section 7.5 Negative Covenants of the Company. . . . . . . . . . . . . . . . 32
(a) Maintain Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Transfer of Interests in the Company. . . . . . . . . . . . . . . . . . 32
(c) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(e) Sale and Encumbrance of Assets. . . . . . . . . . . . . . . . . . . . . 34
(f) Removal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .34
(g) Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(h) Suspension of Operation. . . . . . . . . . . . . . . . . . . . . . . . . 34
(i) Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.6 Mechanics' and Other Liens. . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII ASSIGNMENT, SELLING AND LEASING. . . . . . . . . . . . . . . . 35
Section 8.1 Assignment Sale or Lease by the Company. . . . . . . . . . . . . 35
Section 8.2 Pledge by the Director. . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . 36
Section 9.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.2 Remedies. . . . . . . . .. . .. . . . . . . . . . . . . . . . . . 37
Section 9.3 No Remedy Exclusive. . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.4 Agreement to Pay Reasonable Attorneys' Fees and Expenses. . . . . 38
Section 9.5 No Additional Waiver Implied by One Waiver. . . . . . . . . . . . 39
Section 9.6 Waiver of Appraisement, Valuation, Etc. . . . . . . . . . . . . . 39
125
ARTICLE X REDEMPTION OF BONDS, PREPAYMENT OF LOAN. . . . . . . . . . . . . .. 40
Section 10.1 Redemption of Bonds . . . . . . . . . . . . . . . . . . . . . . 40
Section 10.2 Prepayment of Loan . . . . . . . . . . . . . . . . . . . . . . 40
Section 10.3 Option to Defease Bonds. . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.1 Termination of Agreement. .. . . . . . . . . . . . . . . . . . . 42
Section 11.2 Amounts Remaining in Collateral Proceeds Account
and Primary Reserve Account. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.5 Extent of Covenants of the Director: No Personal Liability. . . 42
Section 11.6 Amendments, Chances and Modifications. . . . . . . . . . . . . . 42
Section 11.7 Execution Counterparts. . . . . . . . . . . . . . . . . . . . . 43
Section 11.8 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.9 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .. . 43
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 44
EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-I
EXHIBIT B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
126
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of December 1,2002 between the
Director of Development (the "Director") of the State of Ohio (the "State"),
acting on behalf of the State, and Kahiki Foods, Inc., a corporation organized
and existing under the laws of the State of Ohio (the "Company"), under the
circumstances summarized in the following recitals (the capitalized terms used
in the recitals being used therein as defined in Article I hereof):
A. After making certain determinations pursuant to the Act, the Director is
authorized, among other things, to lend money in the Facilities Establishment
Fund to persons for the purpose of paying Allowable Costs of an Eligible
Project.
B. The Company has requested that the Director provide financial assistance
for the Provision of the Project by providing the State Assistance to the
Company subject to and in accordance with the terms' of this Loan Agreement.
C. The Director has determined that the Project constitutes an Eligible
Project and that the State Assistance to be provided pursuant to this Loan
Agreement is appropriate under the Act and will be in furtherance and in
implementation of the public policy set forth in the Act.
D. The State Assistance to be provided pursuant to this Loan Agreement has
been reviewed and approved by the Development Financing Advisory Council and the
Controlling Board, pursuant to the Act.
NOW, THEREFORE, in consideration of the premises and the representations
and agreements hereinafter contained, the Director and the Company agree as
follows (provided, that any obligation of the Director created by or arising out
of this Loan Agreement shall not be a general debt on the part of the Director
or the State but shall be payable solely out of the loan payments, revenues and
other income, charges and moneys realized from this Loan Agreement):
[Balance of page intentionally left blank]
1
127
ARTICLE I
DEF1NITIONS
Section 1.1 Use of Defined Terms. In addition to the words and tenns
elsewhere defined in this Loan Agreement or by reference to the Security
Documents or other instruments, the words and tenns set forth in Section 1.2
hereof shall have the meanings therein set forth unless the context or use
expressly indicates a different meaning or intent Such definitions shall be
equally applicable to both the singular and plural forms of any of the words and
terms therein defined.
Section 1.2 Definitions. As used herein:
"Acquisition Date" means December 12, 2002.
"Act" means Chapter 166, Ohio Revised Code, as from time to time amended.
"Additional Payments" means the additional payments specified in Section
4.2 of this Loan Agreement.
"Allowable Costs" means "allowable costs" of the Project within the meaning
of the Act.
"Application" means the Application of the Company submitted to the
Director requesting the State Assistance.
"Authorized Company Representative" means the person at the time designated
to act on behalf of the Company by written certificate furnished to the Director
and the Trustee, containing the specimen signature of such person and signed on
behalf of the Company by an officer of the Company. Such certificate may
designate an alternate or alternates.
"Bonds" means the State Economic Development Revenue Bonds (Ohio Enterprise
Bond Fund), Series 2002-7 (Kahiki Foods, Inc. Project) (Tax-Exempt Bonds)
authorized by the General Bond Order and the Series Bond Order.
"Closing Date" means December 5, 2002, the date of execution and delivery
of the Loan Documents.
"Code" means the Internal Revenue Code of 1986, as amended, and references
to the Code and Sections of the Code shall include relevant regulations and
proposed regulations thereunder or under the Internal Revenue Code of 1954, as
amended, and any successor provisions to such Sections, regulations or proposed
regulations.
"Collateral Proceeds Account" means the Series 2002-7 Collateral Proceeds
Account, established pursuant to the General Bond Order and the Series Bond
Order, in the Economic Development Bond Service Fund.
2
128
"Commitment" means the letter from Director to the Company, dated October
28,2002, pursuant to which the Director, on behalf of the State, agrees to
provide the State Assistance for the Project.
"Company" means Kahiki Foods, Inc., a corporation organized and existing
under the laws of the State of Ohio, and its successors and assigns.
"Completion Date" means the date of completion of the Provision of the
Project, as certified by the Company pursuant to Section 3.4 hereof.
"Construction Period" means the period between the beginning of the
Provision of the Project or the date on which this Loan Agreement is delivered
to the Director, whichever is earlier, and the Completion Date.
"Controlling Board" means the Controlling Board of the State.
"Cost Certification" means a certification of the Company, as of a
specified date, setting forth in reasonable detail the costs incurred and, if
appropriate, to be incurred by the Company in completing the Provision of the
Project, including a detail, by category, of all Allowable Costs.
"Debt Service Account" means the Debt Service Account, established pursuant
to the General Bond Order, in the Economic Development Bond Service Fund.
"Determination of Taxability" shall have the meaning set forth in the
Series Bond Order.
"Development Financing Advisory Council" means the Development Financing
Advisory Council of the State.
"Director" means the officer of the State, appointed pursuant to Section
121.03 of the Ohio Revised Code, who administers and is the executive head of
the Department of Development, the officer who by law performs the functions of
that office, and any person acting on behalf of the Director of Development
pursuant to any delegation permitted by law.
"Economic Development Bond Service Fund" means the Economic Development
Bond Service Fund created by Section 166.08(S) of the Act.
"Eligible Investments" means Eligible Investments as defined in the Trust
Agreement.
"Eligible Project" means an "eligible project" within the meaning of the
Act and, with respect to the State Assistance, means the Project.
"Environmental Complaint" has the meaning set forth in Section 5.10(c)
hereof.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwater, drinking water
supply, stream sediments, ambient
3
129
air (including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Law" means any federal, state, local, municipal, foreign,
international, multinational, or other constitutions, laws, ordinances,
principles of common law, regulations, statutes or1reaties designed to minimize,
prevent, punish, or remedy the consequences of actions that damage or threaten
the Environment or human health.
"ERlSA" means the Employee Retirement Income Security Act of 1974, as from
time to time amended.
"Event of Default" means any of the events described as an Event of Default
in Section 9.1 hereof.
"Facilities Establishment Fund" means the Facilities Establishment Fund
created by Section 166.03 of the Act.
"Federal Income Tax Compliance Agreement" means the Federal Income Tax
Compliance Agreement by and among the Treasurer, the Trustee and the Company
relating to the Bonds.
"Final Cost Certification" means the Cost Certification dated as of the
Completion Date.
"First Half Account" shall have the meaning set forth in the General Bond
Order.
"Force Majeure" means, without limitation, (i) acts of God; strikes,
lockouts or other industrial disturbances; acts of public enemies; orders or
res1raints of any kind of the government of the United States or of the State or
any of their departments, agencies, political subdivisions or officials, or any
civil or military authority; insurrections; civil disturbances; riots;
epidemics; landslides; nuclear accidents; lightning; earthquakes; fires,
hurricanes; tornadoes; storms, droughts; floods; arrests; restraint of
government and people; explosions, breakage, malfunction or accident to
facilities, machinery, transmission pipes or canals; partial or entire failure
of utilities; shortages of labor, materials, supplies or 1ransportation; or (ii)
any cause, circumstances or event not reasonably within the con1rol of the
Company.
"General Bond Order" means the General Bond Order of the Treasurer, dated
April!!, 1988, as the same may be amended from time to time in accordance with
its provisions or the provisions of the Trust Agreement.
"Governing Ins1ruments" means the Articles of Incorporation and the Code of
Regulations of the Company.
"Governmental Authority" means, collectively, the State, any political
subdivision thereof, any municipality, and any agency, department, commission,
board or bureau of any of the foregoing having jurisdiction over the Project.
"Guarantor" means Michael C. Tsao, a natural person and resident of the
State.
4
130
"Guaranty" mean the Guaranty Agreement, dated as of December 1,2002, of the
Guarantor given in favor of the Director, which unconditionally guarantees
(subject to the terms therein) the obligations of the Company under this Loan
Agreement.
"Hazardous Discharge" has the meaning set forth in Section 5.10(c) hereof.
"Hazardous Substance" means a hazardous substance as defined under the
Comprehensive Emergency Response Compensation and Liability Act of 1980,42
D.S.C. ss.6901, as from time to time amended.
"Hazardous Waste" means a hazardous waste as defined under the Resource
Conservation and Recovery Act of 1976,42 D.S.C. ss.6901, as from time to time
amended.
"Independent Engineer" means an engineer or engineering firm or an
architect or architectural firm qualified to practice the profession of
engineering or architecture under the laws of the State and who or which is not
an officer or a full time employee of the Company or any lessee of the Project.
"Interest Rate For Advances" means (a) the interest rate borne by the
Bonds; or (b) a rate which is one percent in excess of the prime or base
interest rate then charged by the Trustee in its lending capacity as a bank,
whichever is greater and lawfully chargeable.
"Issuance Expense Account" means the Series 2002-7 Issuance Expense Account
created in the Series Bond Order.
"Loan Agreement" means this Loan Agreement, as from time to time amended or
supplemented.
"Loan Approval Documents" means, with respect to this Loan Agreement, the
Resolution of the Development Financing Advisory Council dated September 30,
2002, the Approval of the Controlling Board dated October 28, 2002, and the
Commitment.
"Loan Documents" means this Loan Agreement and the Security Documents
delivered to or required by the Director to evidence or secure the State
Assistance.
"Loan Term" or "Term" means the period commencing upon the date of this
Loan Agreement and ending on the date on which all obligations of the Company
he~eunder have been paid.
"Market Conditions" means those conditions determined by the Director, with
advice from the Federal Reserve Bank of Cleveland, that the Director shall
consider, including the following:
1. Two consecutive quarters of decline in manufacturing employment in the
State as a whole or when possible by relevant manufacturing sector
(employmentfigures will be those reported by the Ohio Bureau of Employment
Services);
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131
2. A decline, as a whole or by relevant sector, in twelve (12) of the last
thirty-six (36) months as detailed in the Federal Reserve's national industrial
production index.
3. A decline within the relevant sector of Standard and Poor's "Industrial
outlook".
"Mortgage" means the Open-End Leasehold Mortgage, Assignment of Rents and
Leases and Security Agreement, of even date herewith, between the Company and
the Director, pursuant to which the Company grants a first mortgage and security
interest in the Project, and assigns any rents and leases to be derived
therefrom to the Director to secure repayment of the State Assistance.
"Net Proceeds," when used with respect to any insurance or condemnation
award, means the gross proceeds from the insurance or condemnation award with
respect to which that term is used remaining after payment of all expenses
incurred in the collection of such gross proceeds.
"Notice Address" means:
(a) As to the Director: Department of
Development Economic Development Finance
Division P. O. Box 1001 28th Floor, 77
South High Street Columbus, OH
43216-1001 Attn: Office of Financial
Incentives
and
Hemmer Spoor Pangburn DeFrank PLLC
8044 Montgomery Road, Suite 624
Cincinnati, OH 45246
Attn: Richard D. Spoor, Esq.
(b) As to the Company: Kahiki Foods, Inc.
3004 E. 14th Avenue Columbus, OH 43219 .
Attn: Mr. Michael C. Tsao
With a copy to: Carlile, Patchen & Murphy LLP
366 E. Broad Street
Columbus, OH 43219
Attn: Andrew Federico, Esq
(c) As to the Trustee: The Provident Bank
Corporate Trust Dept. M.S. 654D
Cincinnati, OH 45202
6
132
or such additional or different address, notice of which is given under Section
11.3 hereof.
"Original Deposit" means $418,000, which amount (or the Reserve Letter of
Credit in such amount) is to be delivered to the Trustee to become the Primary
Reserve Account upon delivery of this Loan Agreement, in accordance with Section
4.4 hereof.
"Permitted Encumbrances" means Permitted Encumbrances as defined in the
Mortgage.
"Petroleum" means petroleum as defined under the Resource Conservation and
Recovery Act of 1976,42 U.S.C. ss.6901, as from time to time amended.
"Plans and Specifications" means the plans and specifications or other
appropriate documents describing the Project prepared by or at the direction of
the Company.
"Primary Reserve Account" means the Series 2002-7 Primary Reserve Account,
established pursuant to the General Bond Order and the Series Bond Order, in the
Economic Development Bond Service Fund.
"Project" means, collectively, the Project Site, the Project Facilities and
the Project Equipment, constituting an Eligible Project.
"Project Equipment" means the equipment, machinery and other personal
property described in Exhibit B hereto.
"Project Facilities" means all buildings, structures, additions,
improvements, appurtenances and hereditaments upon the Project Site.
"Project Fund" means the Series 2002-7 Project Fund, established pursuant
to the Series Bond Order.
"Project Purposes" means the Provision of the Project Equipment and Project
Facilities at the Project Site for use as a facility for the processing of
frozen food products.
"Project Site" means the real property described in Exhibit A attached
hereto.
"Provision" means, as applicable, the acquiring, constructing,
reconstructing, rehabilitating, renovating, enlarging, installing, improving,
equipping or furnishing of the Project.
"Required Equity Contribution" means the contribution by the Company of
$465,000.
"Reserve Letter of Credit" means an irrevocable letter of credit, in form
satisfactory to the Trustee, issued by a commercial bank organized under the
laws of the United States of America or any state thereof and acceptable to the
Director, which letter of credit may be drawn upon by the Trustee to provide
funds for the Primary Reserve Account pursuant to Section 4.4 of this Loan
Agreement. The Reserve Letter of Credit must permit drawings thereunder for a
period of not less
7
133
than one (1) year or until fifteen (15) days after the final maturity of the
Bonds, whichever comes first.
"Second Half Account" shall have the meaning set forth in the General Bond
Order.
"Security Documents" means, collectively, the Mortgage, the Guaranty, and
any collateral documents, as from time to time amended or supplemented.
"Series Bond Order" means Series Bond Order No. R7-02 of the Treasurer,
dated November __, 2002 as the same day be amended from time to time in
accordance with its provisions or the provisions of the Trust Agreement.
"State" means the State of Ohio.
"State Assistance" means the loan by the Director to the Company under the
Ohio Enterprise Bond Program established pursuant to Section 166.08 of the Act
in the total sum of the State Assistance Amount, to be disbursed pursuant to the
Terms and Conditions to Disbursement.
"State Assistance Amount" means the lesser of $4,180,000 or 90% of the
total Allowable Costs of the Project, as determined by the Director in the
Director's sole discretion pursuant to this Loan Agreement.
"Supplement" means the Seventieth Supplemental Trust Agreement, dated as of
December 1, 2002, between the Treasurer and the Trustee, of which the Series
Bond Order is a part.
"Terms and Conditions to Disbursement" means the terms and conditions which
must be satisfied by the Company with respect to each request for disbursement
of moneys from the Project Fund in order to obtain the Director's approval of
such request for disbursement, which terms and conditions are set forth on
Exhibit C attached hereto.
"Toxic Chemicals" means toxic chemicals as defined under Title ill of the
Superfund Amendments and Reauthorization Act of 1986 (Also cited as the
Emergency Planning and Community Right-to-Know Act) 42 V.S.C. ss. 11001, as from
time to time amended.
"Treasurer" means the Treasurer of State of the State, or the officer who
by law performs the functions of that office.
"Trustee" means the trustee at the time serving as such under the Trust
Agreement, initially The Provident Bank, Cincinnati, Ohio.
"Trust Agreement" means the Trust Agreement, dated as of April 1, 1988,
between the Treasurer and the Trustee, of which the General Bond Order is a
part, as the same may be amended, modified or supplemented by any amendments or
modifications thereof and any supplements thereto (including, but not limited
to, the Supplement) entered into in accordance with the provisions thereof.
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Section 1.3 Certain Words and References. Any reference herein to the
Director shall include those succeeding to the Director's functions, duties or
responsibilities pursuant to or by operation of law or lawfully perfonning such
functions. Any reference to a section or provision of the Constitution of the
State or to the Act or to a section, provision or chapter of the Ohio Revised
Code shall include such section, provision or chapter as from time to time
amended, modified, revised, supplemented or superseded, provided that no such
amendment, modification,. supplementation, revision or supersession shall alter
the obligation of the Company to pay all the amounts payable hereunder on the
terms provided herein. Except as it relates to the Guarantor, all references to
"generally accepted accounting principles" shall have the meaning set forth in
Statement on Auditing Standards No. 69 or any predecessor or successor
pronouncement of the American Institute of Certified Public Accountants in
effect for any applicable fiscal period.
The terms "hereof," "hereby," "herein," "hereto," "hereunder" and similar
terms refer to this Loan Agreement; and the term "heretofore" means before, and
the term "hereafter" means after, the date of delivery of this Loan Agreement
Words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender.
[End of Article I]
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ARTICLE II
DETERMINATION AND REPRESENTATIONS
Section 2.1 Detenninations of the Director. Pursuant to the Act and on the
basis of the representations and other information provided by the Company, the
Director has heretofore made certain determinations, including without
limitation those set forth in the Loan Approval Documents, which are hereby
confirmed and the Director hereby detennines that the financial assistance to be
provided by the State pursuant to this Loan Agreement will conform to the
requirements of the Act, including Sections 166.07 thereof, and will further
implement the purposes of the Act by creating new jobs or preserving existing
jobs and employment opportunities and improving the economic welfare of the
people of the State.
Section 2.2 Representations and Warranties of the Companv. The Company
hereby represents and warrants that:
(a) The Company is a corporation du1y organized and validly existing under
the laws of the State and is qualified to do business in the State, and has all
requisite power, as a corporation, to conduct the Company's business, as
currently conducted, to own, or hold under lease, the Company's assets and
properties and is du1y qualified to do business in all other jurisdictions in
which the Company owns property and will remain so qualified and in good
standing during the Loan Term.
(b) The Company has full power and authority as a corporation to execute,
deliver and perform the Loan Documents to which the Company is a party and to
enter into and carry out the transactions contemplated hereby and thereby. Such
execution, delivery and performance do not, and will not, violate any provision
of current law applicable to the Company or the Governing Instruments of the
Company and do not, and will not, conflict with or resu1t in a defau1t under any
agreement or instrument to which the Company is a party or by which it or any
property or assets of the Company is bound, except where the violation of
current law or the conflict with or default under such agreement or instrument
wou1d not materially impair the ability of the Company to perform its
obligations under the Loan Documents or materially adversely affect the fmandal
condition of the Company or the abilities of the parties to consummate the
transactions contemplated by this Loan Agreement. The Loan Documents to which
the Company is a party have, by proper action, been du1y authorized, executed
and delivered and all necessary actions have been taken in order for the Loan
Documents to constitute legal, valid and binding obligations of the Company.
(c) The provision of financial assistance pursuant to the Loan Approval
Documents and this Loan Agreement induced the Company to provide the Project,
thereby, to the knowledge of the Company, creating new jobs and preserving
existing jobs and employment opportunities and improving the economic welfare of
the people of the State.
(d) The Provision of the Project will be completed by the Company, and the
Project will be operated and maintained by the Company in the City of Gahanna
and in the County of Franklin, Ohio in such a manner as to conform with all
applicable Environmental Laws and zoning, planning, building and other
governmental regulations imposed by any Governmental Authority and as to be
consistent with the purpose of the Act, except where such nonconfonnity or
inconsistency would not
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materially impair the ability of the Company to perform its obligations under
the Loan Documents or materially adversely affect the financial condition of the
Company or the ability of the parties to consummate the transactions
contemplated by this Loan Agreement.
(e) The Company presently intends that the Project will be used and
operated in a manner consistent with the Project Purposes in the City of Gahanna
and the County of Franklin, Ohio until the end of the Loan Term, and the Company
knows of no reason why the Project will not be so operated.
(f) There are no actions, suits or proceedings pending or, to the Company's
knowledge, threatened against or affecting the Company or the Project which, if
adversely detennined, would individually or in the aggregate materially impair
the ability of the Company to perform any of its obligations under the Loan
Documents or materially adversely affect the financial condition of the Company.
(g) The Company is not in default under any of the Loan Documents or in the
payment of any indebtedness for borrowed money or under any agreement or
instrument evidencing any such indebtedness, and no event has occurred which by
notice, the passage or both would constitute any such event of default, except
for such defaults that do not materially impair the ability of the Company to
perform its obligations under the Loan Documents or materially adversely affect
the financial condition of the Company or the abilities of the parties to
consummate the transactions contemplated by this Loan Agreement.
(h) The Project Site is zoned by the City of Gahanna, in the County of
Franklin, Ohio under zoning regulations which permit the Provision of the
Project thereon in accordance with the Plans and Specifications and the
operation of the Company's business thereon; and all utilities, including water,
storm and sanitary sewer, gas, electric and telephone, and rights of access to
public ways are available or will be provided to the Project Site in sufficient
locations and capacities to meet the requirements of operating the Project and
of any applicable Governmental Authority.
(i) The Company has made no contract or arrangement of any kind, other than
the Loan Documents, which has given rise to, or the performance of which by the
other party thereto would give rise to, a lien or claim oflien on the Project or
other collateral covered by the Loan Documents, except Permitted Encumbrances.
(j) No representation or warranty made by the Company contained in any of
the Loan Approval Documents or the Loan Documents, and no statement contained in
any certificate, schedule, financial statement or other instrument furnished to
the Director by or on behalf of the Company including, without limitation, the
Application; contains as of the date thereof any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
(k) All proceeds of the State Assistance shall be used for the payment of
Allowable Costs relating to Provision of the Project. No part of any such
proceeds shall be knowingly paid to or retained by the Company or any partner,
officer, shareholder, director or employee of the Company as a fee, kick-back or
consideration of any type. The Company has no identity of interest with any
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supplier, contractor, architect, subcontractor, laborer or materialman
performing work or services or supplying materials in connection with the
Provision of the Project.
(l) The Company shall provide the Required Equity Contribution by the
Closing Date.
(m) No Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum
has been discharged, dispersed, released, stored or treated at the Project Site.
No Hazardous Waste, Toxic Chemical or Petroleum will be discharged, dispersed,
released, stored or treated at the Project Site, except for such use and storage
of any Hazardous Substance, Hazardous W aste, Toxic Chemical or Petroleum which
may be utilized and stored on the Project Site by the Company in the ordinary
course of its business operations in compliance with Environmental Laws. No
asbestos or asbestoscontaining materials have been or will be installed, used or
incorporated into any buildings, structures, additions, improvements,
facilities, fixtures or installations at the Project Site, or disposed of on or
otherwise released at or from the Project Site. No underground storage tanks are
located at the Project Site. No investigation, administrative order, consent
order and agreement, litigation or settlement under any Environmental Law with
respect to any Hazardous Substance, Hazardous Waste, Toxic Chemical, Petroleum,
asbestos or asbestos-containing material is in existence, or, to the best of the
Company's knowledge, is proposed, threatened or anticipated with respect to the
Eligible Project. The Eligible Project is in compliance with all applicable
Environmental Laws, and the Company has not received any notice from any entity,
Governmental Authority, or individual claiming any violation of, or requiring
compliance with any Environmental Law. The Company has not received any request
for information, notice of claim, demand or other notification that the Company
may be responsible for a threatened or actual release of any Toxic Chemical,
Hazardous Substance, Hazardous Waste, Petroleum, asbestos or asbestos-containing
material or for any damage to the environment or to natural resources. No
"clean-up" of the Project has occurred pursuant to any applicable Environmental
Laws which would give rise to (i) liability on the part of any person, entity or
association to reimburse any Governmental Authority for the costs of any such"
clean-up," or (ii) a lien or encumbrance on the Project.
(n) Upon completion of the Provision of the Project, the Company will have
good and marketable title to the Project, subject in all cases to no lien,
charge, condition, restriction, encumbrance, easement or agreement, including,
without limitation, parking agreements, encroachment agreements, access
easements, service agreements or other similar agreements affecting the Project,
except as created by or otherwise permitted by the Loan Documents.
[End of Article II]
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ARTICLE III
COMMENCEMENT AND COMPLETION OF THE PROJECT
Section 3.1 Provision of the Proiect The Company (a) has commenced or shall
promptly hereafter cause the Provision of the Project; (b) shall pay all
expenses incurred in the Provision of the Project from funds made available
therefor in accordance with this Loan Agreement or from other sources; and (c)
shall demand, sue for, levy and recover all sums of money and debts which may be
due and payable under the terms of any contract, order, receipt, guaranty,
warranty, writing or instruction in connection with the Provision of the Project
and will enforce the terms of any contract, agreement, obligation, bond or other
performance security with respect thereto.
The Company confirms the Company's agreement in the Commitment that all
wages paid to laborers and mechanics employed on the Provision of the Project
shall be paid, as required by Chapter 4115 of the Ohio Revised Code at the
prevailing rates of wages of laborers and mechanics for the classes of work
called for by the Project, which wages shall be determined in accordance with
the requirements of Chapter 4115 of the Ohio Revised Code for determination of
prevailing wage rates; provided, that if the Company undertakes, as part of the
Project, work to be performed by the Company's regular bargaining unit employees
who are covered under collective bargaining agreements, which were in existence
prior to the date of the Commitment, the rate of pay provided under the
applicable collective bargaining agreement may be paid to such employees.
Section 3.2 Deposits to the Proiect Fund. In order to provide funds for
payment of a portion ofthe Allowable Costs of the Project, the Director, upon
delivery of this Loan Agreement and satisfaction of the conditions set forth in
Section 3.8 hereof, shall cause to be deposited to the Project Fund the sum of
$4,103,244.10.
Section 3.3 Disbursements fTom the ProiectFund. The Treasurer has, in the
Supplement, authorized and directed the Trustee to disburse the moneys in the
Project Fund for Allowable Costs of the Project. Except as otherwise provided in
this Loan Agreement, each payment from the Project Fund shall be made only upon
(A) the written direction of the Authorized Company Representative who shall
certify with respect to each such payment: (i) that each item for which payment
is requested is an Allowable Cost properly payable out. of the Project Fund in
accordance with the terms and conditions of this Loan Agreement and none of the
items for which the payment is proposed to be made has formed the basis for
early payment theretofore made from the Project Fund, (ii) that each item for
which payment is proposed to be made is or was necessary in connection with the
Project and (iii) that, if applicable, the Company has received from each payee
appropriate waivers of any mechanics' or other liens (or has provided
indemnification in lieu thereof satisfactory to the Director) and (B) the
written approval of the Director and the Director's inspector of the Project
appointed by the Director in accordance with Section 3.6 hereof, which approval
shall not be unreasonably withheld. The Director shall not be required to
approve any request for disbursement of moneys from the Project Fund unless the
Company has complied with all of the Terms and Conditions to Disbursement and
this Agreement. Except for the disbursements to be made on the Closing Date, the
Trustee shall be allowed a reasonable time, not to exceed fifteen (15) days, in
view of the character of any installment or investments required to be
liquidated for the purpose, for the making of any disbursement from the Project
Fund authorized by this Section.
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Section 3.4 Establishment of Completion Date. The Provision of the Project
involves the acquisition of an existing building on leased land and the
renovation and equipping of said building. If applicable as hereinafter
provided, the Completion Date shall occur not later than one (1) year after any
damage or destruction to the Project if the Project is to be restored or
rebuilt, and shall be evidenced to the Director and to the Trustee by a
certificate signed by the Authorized Company Representative stating (i) the
Completion Date, (ii) that all licenses and approvals, including a certificate
of occupancy, for the Project required by any Governmental Authority have been
obtained, (iii) that, except for amounts retained by the Trustee in the Project
Fund for Allowable Costs of the Project not then due and payable, Provision of
the Project has been completed in accordance with the Plans and Specifications
and all labor, services, materials and supplies used in Provision of the Project
have been paid for, (iv) all other facilities necessary in connection with the
Project have been constructed, acquired and installed in accordance with the
plans and specifications therefor and all costs and expenses incurred in
connection therewith have been paid, (v) the Project Facilities and all other
facilities necessary in connection with the Project have been constructed,
acquired or installed, as the case may be, in such manner as to conform to all
applicable zoning, planning, building, environmental and other regulations of
the Governmental Authorities; provided that if any part of the construction or
installation does not conform to such regulation, the certificate shall describe
any such non-conformities and the actions being taken to remedy them, (vi) the
Project Equipment, if any, (which shall be described in an exhibit attached to
said certificate) has been installed to the Company's satisfaction, and as so
installed is suitable and sufficient for the efficient operation of the Project
for the Project Purposes, and (vii) all materially significant disputes,
controversies or claims arising out of or in connection with the Provision of
the Project have been resolved, satisfied or paid in full, as the case may be,
except as otherwise disclosed in the certificate. Notwithstanding the foregoing,
such certificate shall state that it is given without prejudice to any rights
against third parties which exist at the date of such certificate or which may
subsequently come into being. The Company shall also deliver to the Director and
to the Trustee a Final Cost Certification and completed forms AIA-G-702 and
AIA-G-703. Any amount remaining in the Project Fund on the Completion Date,
except for amounts which the Authorized Company Representative certifies to the
Trustee as being required to pay Allowable Costs of the Project not then due and
payable, shall be transferred by the Trustee to the Collateral Proceeds Account.
Section 3.5 Company Required to Pav Costs in Event Proiect Fund
Insufficient. If the Project is destroyed by fire or other casualty and is to be
restored or rebuilt, in the event the moneys in the Project Fund available for
payment of costs of the Project are not sufficient to pay the portion of the
Allowable Costs contemplated by this Loan Agreement to be paid therefrom or if
any other costs of the Project remain unpaid, the Company shall, nonetheless and
irrespective of the cause of the insufficiency, for the benefit of the Director,
complete the Project in accordance with the Plans and Specifications and pay all
costs of such completion in full. The Director does not make any warranty,
either express or implied, that the moneys which will be paid into the Project
Fund which under the provisions of this Loan Agreement will be available for
payment of the Allowable Costs of the Project will be sufficient to pay the
portion of the Allowable Costs contemplated to be paid therefrom. The Company
agrees that if after exhaustion of the moneys in the Project Fund the Company
should pay any portion of the said costs of the Project pursuant to the
provisions of this Section, it shall not be entitled to any reimbursement
therefor from the Director or the Trustee, nor shall it be entitled to any
diminution in or postponement of the loan payments payable under Section 4.2 or
Section 4.3 hereof. The Company shall also pay all costs incident to the State
Assistance, including insurance premiums and escrow fees. The Company shall
defend, indemnify and hold the
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Director and any officials, employees, agents or representatives of the Director
or the State harmless against any and all loss, cost, expense, claims or actions
arising out of or connected with the execution and delivery of the Loan
Documents and the preparation of documents relating to the disbursement of the
State Assistance, including all aforementioned costs and expenses, regardless of
whether or not the disbursement of the State Assistance shall actually occur.
The provisions of this Section shall survive the termination of this Loan
Agreement until the expiration of the Loan Term.
Section 3.6 Plans and Specifications: Inspections. If the Project is to be
rebuilt or restored after damage, at the Director's option, the Director may
designate an employee or officer of the State or may retain, at the Company's
expense and with the Company's prior approval, an architect, engineer, appraiser
or other consultant for the purpose of approving the Plans and Specifications,
verifying costs and performing inspections of the Project as Provision of the
Project progresses or reviewing any construction contracts and payment or
performance bonds or other forms of assurance of completion of the Project. Such
inspections, reviews or approvals. shall not impose any responsibility or
liability of any nature upon the Director, the State or officers, employees,
agents, representatives or designees of the Director or the State, or, without
limitation, make or cause to be made any warranty or representation as to the
adequacy or safety of the structures or any of their component parts or any
other physical condition or feature pertaining to the Project. The Company
shall, at the written request of the Director, make periodic reports (including,
if required, submission of updated Cost Certifications) to the Director within
45 days after receipt of such written request concerning the status of
completion and the expenditures for costs in respect thereof.
The Company may revise the Plans and Specifications from time to time;
provided, that no revision shall be made (a) which would change the Project
Purposes to purposes other than those permitted by the Act, (b) without
obtaining, to the extent required by law, the approval of any applicable
Governmental Authority, and (c) without the written approval of the Director if
such revision would change the amounts set forth in the most recently furnished
Cost Certification. In any event, all revisions to the Plans and Specifications
shall be promptly filed with the Director, upon request. Except as provided in
the allowable amendments and revisions, the Company shall complete the Provision
of the Project in accordance with the Plans and Specifications.
Section 3.7 Investment ofProiect Fund. Primary Reserve Account or
Collateral Proceeds Account. Any moneys held as part of the Project Fund, the
Primary Reserve Account or the Collateral Proceeds Account shall be invested by
the Trustee, upon the written or oral direction (but if oral, confirmed promptly
in writing) of the Authorized Company Representative, in Eligible Investments.
Section 3.8 Conditions to Deposit of the State Assistance. On the Closing
Date the Director shall deposit the State Assistance to the Project Fund in
accordance with Section 3.2 hereof, provided the Director shall have received
the following on or before the Closing Date:
(a) the Series Bond Order, duly executed;
(b) the Supplement, duly executed;
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(c) the Bond purchase Agreement dated -,2002, among the Treasurer, the
Director, the Company and the Underwriter relating to the sale of the Bonds,
du1yexecuted;
(d) a specimen of the dilly executed and authenticated Bonds;
(e) such certificates, opinions and other documents as the Director shall
reasonably request in connection with the issuance of the Bonds, including a
Certificate of the Trustee acknowledging receipt of the State Assistance Amount;
(f) this Loan Agreement, du1y executed;
(g) the du1y executed and recorded Security Documents;
(h) the Guaranty du1y executed;
(i) A du1y executed Power of Attorney to effect wire transfers, if
applicable;
(j) evidence of the Required Equity Contribution and the Reserve Letter of
Credit;
(k) an environmental audit of the Project Site, in form and substance
satisfactory to the Director and upon which the Director is entitled to rely;
(l) if applicable, the prevailing wage rates for all laborers and
mechanics, the name and identity of the prevailing wage coordinator and a list
of all contractors and subcontractors, including their names and addresses,
certified as true, correct and complete by the Company, and a Certificate of
Compliance, certifying as to full compliance with Chapter 4115, Ohio Revised
Code;
(m) certification by the Company that (i) the Company's representations and
warranties made in the Loan Approval Documents and Loan Documents remain true,
accurate and complete as of the Closing Date in all material respects, (ii) no
defaillt or event which, by notice, the passage of time or otherwise, wou1d
constitute adefau1t, exists under the Loan Documents, (iii) that the value of
the Project is, or upon completion will be, equal to or greater than the total
amount of money expended in the Provision of the Project, and (iv) the aggregate
amount of the State Assistance will not exceed 90% of the total Allowable Costs
of the Project;
(n) evidence of the liability and property insurance required by the Loan
Documents;
(o) evidence of availability and adequacy of utilities for the Project;
(p) a Cost Certification of the Project as of the Closing Date;
(q) certification by the Company that the Plans and Specifications, any
construction contracts for the Project, and any payment and performance bonds or
other forms of assurance of completion of the Project are available for review
in accordance with Section 3.6 of this Loan Agreement;
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(r) the Company's Certificate of Good Standing as a corporation from the
Secretary of State of the State dated within ten (10) days prior to the Closing
Date;
(s) certified copies of the resolutions of the Company authorizing
execution and delivery of all documents with respect to the State Assistance and
performance thereunder;
(t) copies, certified by the Company to be true, correct and complete, of
the Governing Instruments of the Company;
(u) a commitment for title insurance payable to the Director as mortgagee
in the amount of $2,300,000 (with mechanics lien and survey exceptions deleted)
reasonably satisfactory to the Director;
(v) a Key-Man Life Insurance Policy assigned to the Director in the amount
of$750,000 insuring the life of Mr. Michael C. Tsao, the Guarantor;
(w) evidence satisfactory to the Director that the Project Site is not
located in a "Flood Hazard Area" as defined by the United States Department of
Housing and Urban Development in the Flood Disaster Protection Act of 1973, as
amended, or if the Project Site is located in a such flood-prone area, that
appropriate flood insurance or other satisfactory measures have been taken to
protect the Project from flood damage;
(x) all licenses and permits required by any Governmental Authority with
respect to the operation of the Project;
(y) an opinion of the Company's counsel in form and substance reasonably
satisfactory to counsel for the Director; and
(z) a certificate of the Guarantor in form and substance reasonably
satisfactory to the Director.
[End of Article III]
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ARTICLE IV
STATE ASSISTANCE AND REPAYMENT
Section 4.1 State Assistance. The Director hereby lends to the Company the
moneys transferred from the Facilities Establishment Fund to the Project Fund
pursuant to the Supplement as the State Assistance for the purposes of financing
a portion of the Allowable Costs of the Project. The Company hereby agrees to
repay the State Assistance by making all of the payments provided for in Section
4.2 of this Loan Agreement.
Section 4.2 Company Payments for the State Assistance. On the 15th of each
month from December 15, 2003 through June 15, 2003, both inclusive, the Trustee
will draw from the appropriate accounts funded from Bond proceeds, the sum of
(i) one-sixth (1/6) of the amount of interest on the Bonds which will be payable
by the State on the next succeeding date on which such interest is due to be
paid, (ii) one-twelfth (1/12) of the Trustees annual administration fee (as
hereinbelow described), and (iii) one-twelfth (1/12) of the Director's annual
administrative fees (as hereinbelow described). The Company shall make such loan
payments on the 15th of each month from July 15,2003 through November 15, 2003,
both inclusive.
Not later than the fifteenth day of each month commencing December 15, 2003
and continuing thereafter until the principal and interest on the Bonds shall
have been fully paid or provision for the payment thereof shall have been made
in accordance with the Trust Agreement, the Company shall pay as loan payments
for the State Assistance (A) the sum of (i) one-sixth (1/6) of the amount of
interest on the Bonds which will be payable by the State on the next succeeding
date on which such interest is due to be paid, and (ii) one-sixth (1/6) of the
amount of principal of the Bonds which will be payable (whether at stated
maturity or by redemption) by the State on the next succeeding date on which
such principal is due to be paid. If the Company fails to make any payment
required by this paragraph on the due date thereof with respect to the Bonds,
the Trustee shall, to the extent that funds are available therefor, transfer to
the Debt Service Account an amount equal to such payment from the Collateral
Proceeds Account and, if the balance in the Collateral Proceeds Account is
insufficient, from the Primary Reserve Account.
If moneys are transferred from the Primary Reserve Account or the
Collateral Proceeds Account to the Debt Service Account pursuant to the
provisions of Section 14 of the General Bond Order, and if no Event of Default
is then existing, the Company shall receive a credit against loan payments
payable hereunder with respect to the Bonds, in inverse order of their maturity,
in an amount equal to the amount so transferred.
If no Event of Default is then existing and if the balance in the Primary
Reserve Account is greater than or equal to the aggregate amount ofloan payments
relating to the Bonds to become due and payable during the remaining Term of
this Loan Agreement, the Company may direct the Trustee to apply moneys in the
Primary Reserve Account to monthly Bond loan payments as they become due and, in
such case and notwithstanding the provisions of Section 4.4 hereof, the Company
shall not be required to deliver moneys to the Trustee to restore the balance in
the Primary Reserve Account to an amount equal to the Original Deposit.
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Not later than the fifteenth day of each month, commencing July 15, 2003,
the Company shall pay to the Trustee (i) an amount equal to one-twelfth (1/12)
of the Trustee's annual administrative fee (which annual administrative fee
shall be calculated at a rate of .12% of the principal amount of Bonds
outstanding), constituting the fee of the Trustee in connection with its
administration of the Project Fund, the Primary Reserve Account and the
Collateral Proceeds Account, and (ii) to the Director an amount equal to
one-twelfth (1/12) of the Director's annual administrative fee (which annual
administrative fee shall be calculated at the rate of .125% of the outstanding
principal amount of the Bonds) ("Additional Payments"). The Company and the
Director acknowledge and agree that the Additional Payments are intended to
reimburse the Department of Development for a portion of the cost of
administering the Ohio Enterprise Bond Fund.
Except for costs associated with the negligence or willful misconduct of
the Director, the Company also agrees to pay to the Director reasonable expenses
of the Director related to the Project and requested by the Company or required
by this Loan Agreement or the Trust Agreement, or incurred in enforcing the
provisions of this Loan Agreement or the Trust Agreement and which are not
otherwise required to be paid by the Company under the terms of this Loan
Agreement.
In the event Company should fail to make any of the payments required in
this Section 4.2, the item or installment so in default shall continue as an
obligation of the Company until the amount in default shall have been fully
paid, and the Company agrees to pay the same with interest thereon at the rate
of the Interest Rate for Advances. If any payment required by the first
paragraph of this Section 4.2 or of Section 4.4 hereof is not made by the first
day of the month following the month in which such payment is due, the Company
shall pay, in addition to such payment, a late payment charge of five percent
(5%) of the amount of such payment.
Section 4.3 Place of Payments. The loan payments provided for in the first
paragraph of Section 4.2 hereof and the late payment charge provided for in the
last paragraph of Section 4.2 hereof shall be paid directly to the Trustee at
its principal corporate trust office for the account of the Director, and the
Trustee shall deposit such payments in the Debt Service Account. Additional
Payments shall be paid to the Trustee, who shall pay such amounts to the
Director, not less frequently than monthly, for deposit in the First Half
Account (if received by the Director between January 1 and June 30) or the
Second Half Account (if received by the Director between July 1 and December 31)
created in the Trust Agreement. The Additional Payments to be made to the
Director under Section 4.2 hereof shall be paid directly to the Director for use
as provided in such Section.
Section 4.4 Primary Reserve Account. Upon delivery of this Loan Agreement
and in accordance with the General Bond Order and the Series Bond Order, the
Company shall deliver or cause to be delivered to the Trustee for deposit or
credit to the Primary Reserve Account a sum of money equal to the Original
Deposit (which sum may, to the extent provided for in the Series Bond Order, be
derived from proceeds of the sale of the Bonds) or the Reserve Letter of Credit
in the amount of the Original Deposit. In accordance with the provisions of the
General Bond Order and the Series Bond Order, the Trustee shall transfer moneys
from the Primary Reserve Account to the Debt Service Account (and shall draw on
the Reserve Letter of Credit, if necessary in order to obtain such moneys) if
(a) the Company shall have failed to make a loan payment required by the first
paragraph of Section 4.2 hereof, and (b) the balance in the Collateral Proceeds
Account is insufficient to provide funds for such transfer.
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If, as a result of a transfer described in the immediately preceding
paragraph, the balance in the Primary Reserve Account is less than the Original
Deposit, the Trustee shall promptly notify the Company, by telephone and
confirmed in writing, of the amount of such deficiency, and the Company shall,
not later than ten (10) days after receipt of such notice, deliver to the
Trustee for deposit or credit to the Primary Reserve Account moneys or the
Reserve Letter of Credit in the amount of such deficiency.
Pursuant to the Supplement, the Trustee is directed to draw on the Reserve
Letter of Credit prior to its expiration for the full amount thereof and deposit
the proceeds of such drawing in the Primary Reserve Account unless, not later
than thirty (30) days prior to the expiration of the Reserve Letter of Credit,
the Company shall have delivered to the Trustee a replacement Reserve Letter of
Credit in the same amount as the expiring Reserve Letter of Credit, or evidence
that the issuer of the Reserve Letter of Credit has extended the maturity
thereof for a period of not less than one year (or to the final maturity date of
the Bonds, if earlier).
Pursuant to Section 14 of the General Bond Order, the Trustee shall, under
the circumstances described in said Section 14, transfer moneys from the Primary
Reserve Account to the Debt Service Account, and the Trustee shall draw on the
Reserve Letter of Credit, if necessary, in order to obtain moneys to make such
transfer.
Section 4.5 Oblieation of the Company Hereunder Unconditional. The
obligations of the Company to make the payments required in Sections 4.2 and 4.4
hereof and to perform and observe the other agreements on its part contained
herein shall be absolute and unconditional until such time as the principal of
and interest and premium, if any, on the Bonds shall have been fully paid or
provision for the payment thereof shall have been made in accordance with the
Trust Agreement and shall not be affected by any circumstances, including, but
not limited to, any set off, counterclaim, recoupment, defense (other than
payment itself) or other right which the Company may have against the Director
or anyone else for any reason whatsoever or the failure to complete the
Provision of the Project. The Company hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which at any time
hereafter may be conferred upon it, by statute or otherwise, to terminate or
cancel this Loan Agreement except in accordance with the express terms hereof.
Nothing contained in this Section shall be construed to .release the Director
from the performance of any of the agreements on Director's part contained in
this Loan Agreement; and in the event Director should fail to perform any such
agreement on its part, the Company may institute such action against the
Director as the Company may deem necessary to compel performance or recover the
Company's damages for nonperformance so long as such action shall not impair the
agreements on the part of the Company contained in this Section.
[End of Article IV]
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ARTICLE V
MAINTENANCE, TAXES AND INSURANCE
Section 5.1 Maintenance anq Modifications of Project bv the Company. The
Company agrees that during the Loan Term it will keep the Project including all
appurtenances thereto and the equipment and machinery therein in good repair and
good operating condition at the Company's own cost.
The Company shall have the privilege of remodeling or making additions,
modifications or improvements to the Project from time to time as it, in the
Company's discretion, may deem to be desirable for its uses and purposes;
provided, the Project is still used for the Project Purposes upon completion of
remodeling, additions, modifications or improvements. The cost of such
remodeling, additions, modifications and improvements shall be paid by the
Company.
Section 5.2 Removal of Project Equipment. The Company shall have the
privilege from time to time of substituting machinery, equipment and related
property for any Project Equipment, if any; provided that the machinery and
equipment so substituted shall be of a value not materially less than the value
of the machinery or equipment replaced and shall not make the Project unsuitable
for the Project Purposes. Any such substitute machinery and equipment shall
become part of the Project Equipment for purposes of the Mortgage. The Company
shall promptly notify the Director and the Trustee of any substitutions of
machinery or equipment, which notice shall include a description of the
substituted machinery or equipment. The Company shall also have the privilege of
removing any Project Equipment, without substitution therefor; provided, that
the Company pays to the Director a sum equal to the then value of said Project
Equipment, as determined by an Independent Engineer selected by the Company, and
so long as any of the Bonds remain outstanding, the Company shall pay such
amounts directly to the Trustee for deposit in the Collateral Proceeds Account
and shall deliver to the Director and the Trustee a certificate signed by said
Independent Engineer setting forth the value of said Project Equipment and
stating that the removal of such equipment will not make the Project unsuitable
for the Project Purposes.
The Company may at any time while it is not in default under this Loan
Agreement remove from the Project any machinery or equipment purchased and
installed by it at the Project Site and not included as Project Equipment. In
the event any such removal causes damage to existing buildings or structures,
the Company shall restore the same or repair such damage at its sole expense.
The Director agrees to execute and deliver such documents as the Company
may properly request in connection with any action taken by the Company in
conformity with this Section 5.2. The removal from the Project of any portion of
the Project Equipment pursuant to the provisions of this Section shall not
entitle the Company to any abatement or diminution of the amounts payable under
Sections 4.2 or 4.4 hereof.
Section 5.3 Indemnification by the Com{Janv. The Company shall indemnify
and hold the Director, the Treasurer and the Trustee (including any member,
officer, director or employee thereof) (collectively, the "Indemnified Parties")
harmless against any and all claims, asserted by or on behalf of any person,
firm or corporation, private or public, arising or resulting from, or in any way
connected with (i) financing, acquisition, construction, installation,
operation, use or maintenance
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of the Project (including, but not limited to, claims relating to compliance
with Chapter 4115, Ohio Revised Code), (ii) any act, failure to act or
misrepresentation by any person, finn, corporation or governmental authority in
connection with the issuance, sale or delivery of the Bonds and (iii) any act,
failure to act or misrepresentation by any other Indemnified Party in connection
with, or in the performance of any obligation related to the issuance, sale and
delivery of the Bonds or under this Loan Agreement, including all liabilities,
costs and expenses, including reasonable counsel fees, incurred in any action or
proceeding brought by reason of any such claim. In the event any action or
proceeding is brought against any Indemnified Party by reason of any such claim,
such Indemnified Party will promptly give written notice thereof to the Company.
In case such notice shall be so given, the Company shall be entitled to
participate at its own expense in the defense or, if it so elects, to assume at
its own expense the defense of such claim, suit, action or proceeding, in which
event such defense shall be conducted by counsel chosen by the Company and
reasonably satisfactory to such Indemnified Party against whom such action or
proceeding is pending; but if the Company shall elect not to assume such
defense, it shall reimburse such Indemnified Party for the reasonable fees and
expenses of any counsel retained by such Indemnified Party. If at any time the
Indemnified Party becomes dissatisfied with the selection of counsel by the
Company, a new mutually agreeable counsel shall be retained at the expense of
the Company. Each Indemnified Party agrees that the Company shall have the sole
right to compromise, settle or conclude any claim, suit, action or proceeding
against any of the Indemnified Parties. Notwithstanding the foregoing, each
Indemnified Party shall have the right to employ counsel in any such action at
its own expense; and provided further that such Indemnified Party shall have the
right to employ counsel in any such action and the fees and expenses of such
counsel shall be at the expense of the Company if: (i) the employment of counsel
by such Indemnified Party has been authorized by the Company, (ii) there
reasonably appears that there is a conflict of interest between the Company and
the Indemnified Party in the conduct of the defense of such action (in which
case the Company shall not have the right to direct the defense of such action
on behalf of the Indemnified Party) or (iii) the Company shall not in fact have
employed counsel to assume the defense of such action. The Company shall also
indemnify the Indemnified Parties ITom and against all costs and expenses,
including reasonable counsel fees, lawfully incurred in enforcing any
obligations of the Company under this Loan Agreement or any of the Security
Documents. Anything herein to the contrary notwithstanding, the foregoing
agreements by the Company to indemnify any Indemnified Party shall not apply to
grossly negligent acts or acts of willful misconduct on the part of such
Indemnified Party. The obligations of the Company under this Section shall
survive the termination of this Loan Agreement and the Security Documents until
the expiration of the Loan Term and shall be in addition to any other rights,
including without limitation, rights to indemnity which any Indemnified Party
may have at law, in equity, by contract or otherwise.
Section 5.4 Taxes. Other Governmental Charges and Utility Charges. The
Company shall pay, as the same respectively become due, all taxes, assessments,
whether general or special, and governmental charges of any kind whatsoever that
may at any time be lawfully assessed or levied against or with respect to the
Project or any machinery, equipment or other property installed or brought by
the Company therein or thereon (including, without limiting the generality of
the foregoing, any taxes levied upon or with respect to the receipts, income or
profits of the Director from the Project which, if not paid, may become or be
made a lien on the Project or a charge on the revenues and receipts therefrom),
and all utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Project.
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Section 5.5 Insurance Required. The Company shall insure the Project in an
aggregate amount equal to the replacement cost of the Project, but in any event
not less than 110% of the aggregate principal amount of Bonds outstanding from
time to time, against loss or damage by fire, boiler explosion, as well as such
other risks as are covered by the endorsement commonly known as "extended
coverage", plus vandalism and malicious mischief, in insurance companies
authorized to issue such policies in the State. Any insurance policy maintained
by the Company pursuant to this Section may provide that the policy does not
cover the first $25,000 or less ofloss, or such greater amount as may (with due
regard to insurance practices from time to time current with respect to
buildings and equipment similar to the Project Facilities and the Project
Equipment) be approved in writing by the Director, with the result that the
Company is its own insurer to that extent. Any return of insurance premium or
dividends based upon such premium shall be due and payable solely to the Company
unless such premium shall have been paid by the Director or Trustee.
As an alternative to the above, the Company may insure such property under
a blanket insurance policy or policies which cover not only such property but
other properties of the Company or its affiliates.
During any Construction Period, the Company shall carry, or cause the
contractor or contractors for the Project to carry, builders' risk insurance of
such character and in such amount as is customarily carried on similar projects
in the State.
Section 5.6 Additional Provisions Respecting Insurance. Any insurance
policy issued pursuant to Section 5.5 hereof shall be so written or endorsed as
to make losses, if any, adjustable by the Company and payable to the Company and
the Trustee, for the account of the Director; provided, any such insurance
policy may be so written or endorsed as to make losses not in excess of$ 1
00,000 for each occurrence payable directly to the Company as hereinafter
provided in Section 6.1. Each insurance policy provided for in Section 5.5 and
Section 5.8 hereof shall contain a provision to the effect that the insurance
company shall not cancel the same without first giving written notice thereof to
the Director and the Trustee at least thirty (30) days in advance of such
cancellation, and the Company shall deliver to the Director and the Trustee
duplicate copies or certificates of insurance pertaining to each such policy of
insurance procured by the Company and shall keep such duplicate copies or
certificates up to date.
Section 5.7 Application oiNet Proceeds of Insurance. The Net Proceeds of
the insurance carried pursuant to the provisions of this Loan Agreement shall be
applied as follows: (i) the Net Proceeds of the insurance required in Section
5.5 hereof shall be applied as provided in Section 6.1 hereof, and (ii) the Net
Proceeds of the insurance required in Section 5.8 hereof shall be applied toward
extinguishment or satisfaction of the liability with respect to which such
insurance proceeds may be paid.
Section 5.8 Public Liabilitv Insurance. The Company agrees that it will
carry public liability insurance with reference to its operations at the Project
with one or more reputable insurance companies duly qualified to do business in
the State, in minimum amounts of $1,000,000 for the death of or personal injury
to one person and $3,000,000 for personal injury or death for each occurrence in
connection with the Project and $500,000 for property damage of any occurrence
in connection with the Project, with a deductible not to exceed $50,000. The
Director and the Trustee
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shall be made additional insureds under such policies. The insurance provided by
this Section 5.8 may be by blanket insurance policy or policies.
Section 5.9 Advances. In the event the Company shall fail to maintain the
full insurance coverage required by this Loan Agreement or shall fail to keep
the Project in good repair and operating condition, the Director or the Trustee
may (but shall be under no obligation to) take out the required policies of
insurance and pay the premiums on the same or may make such repairs or
replacements as are necessary and provide for payment thereof; and all amounts
so advanced therefor by the Director shall become an additional obligation of
the Company to the Director, which amounts, together with interest thereon at
the Interest Rate for Advances from the date thereof, the Company agrees to pay
on demand.
Section 5.10 Environmental Matters. Throughout the Loan T enn, the Company
agrees that the Company shall:
(a) (i) ensure that the Project Site remains in compliance with all
Environmental Laws; and (ii) shall not place or permit to be placed any asbestos
or asbestos-containing material, Hazardous Substance, Hazardous Waste, Toxic
Chemical or Petroleum on the Project Site except as not prohibited by applicable
law or appropriate Governmental Authorities;
(b) maintain a system to assure and monitor continued compliance with all
applicable Environmental Laws which system shall include periodic reviews of
such compliance;
(c) (i) employ in connection with the Company's use of the Project Site
appropriate technology necessary to maintain compliance with any applicable
Environmental Laws and (ii) dispose of any and all Hazardous Waste generated at
the Project Site only at facilities and with carriers that maintain valid
permits under any applicable Environmental Laws; and (iii) use the Company's
best efforts to obtain certificates of disposal, such as hazardous waste
manifest receipts, :trom all treatment, transport, storage or disposal
facilities or operators employed by the Company in connection with the transport
or disposal of any Hazardous Waste generated at the Project Site; in the event
the Company obtains, gives or receives notice of any release or threat of
release of a reportable quantity of any asbestos or asbestos-containing
material, Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum at
the Project Site (any such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for infonnation or
notification that the Company is potentially responsible for investigation or
cleanup of environmental conditions at the Project Site, demand letter or
complaint, order, citation, or other written notice with regard to any Hazardous
Discharge or violation of Environmental Laws affecting the Project Site or the
Company's or Director's respective interests therein (any of the foregoing being
hereinafter referred to as an "Environmental Complaint") from any person or
entity, including the Ohio Environmental Protection Agency or the United States
Environmental Protection Agency (any such person or entity being hereinafter
referred to as the "Authority"), within five (5) business days, give written
notice of same to the Director detailing facts and circumstances of which the
Company is aware giving rise to the Hazardous Discharge or Environmental
Complaint. Such infonnation is to be provided solely to allow the Director to
protect the Director's security interest in the Project Site and is not intended
to create nor shall it create any obligation, responsibility or liability on the
part of the Director with respect thereto.
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(d) promptly forward to the Director copies of any request for information,
notification of potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of any asbestos or
asbestos-containing material, Hazardous Substance, Hazardous Waste, Toxic
Chemical or Petroleum at any other site owned, operated or used by Company to
dispose of any asbestos or asbestos-containing material, Hazardous Substance,
Hazardous Waste, Toxic Chemical or Petroleum and shall continue to forward
copies of correspondence between the Company and the Governmental Authority
regarding such claims to the Director until the claim is settled. The Company
shall promptly forward to the Director copies of all documents and reports
concerning a Hazardous Discharge at the Project Site that the Company is
required to file under any Environment Laws. Such information is to be provided
solely to allow the Director to protect Director's security interest in the
Project Site and is not intended to create nor shall it create any obligation,
responsibility or liability on the part of the Director with respect thereto.
(e) respond promptly to any Hazardous Discharge or Environmental Complaint
and take all necessary action in order to safeguard the health of any person and
to avoid subjecting the Project Site to any lien. If the Company shall fail to
respond promptly to any Hazardous Discharge or Environmental Complaint or the
Company shall fail to comply with any of the requirements of any Environment
Laws, the Director may, but without the obligation to do so, for the sole
purpose of protecting the Director's security interest in the Project Site: (A)
give such notices or (B) enter onto the Project Site (or authorize third parties
to enter onto the Project Site) and take such actions as the Director (or such
third parties as directed by the Director) deems reasonably necessary or
advisable, to clean up, remove, mitigate or otherwise deal with any such
Hazardous Discharge or Environmental Complaint. All reasonable costs and
expenses incurred by the Director (or such third parties) in the exercise of any
such rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Interest Rate for Advances shall
be paid upon demand by the Company and until paid shall be added to and become a
part of the indebtedness created by the terms of this Loan Agreement and any
other agreement between Director and Company;
(f) promptly upon the written request of the Director from time to time,
provide to the Director, at the Company's expense, an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable in the reasonable opinion of the Director, to assess
with a reasonable degree of certainty the existence of a Hazardous Discharge and
the potential cost in connection with abatement, cleanup and removal of any
asbestos, asbestos-containing material, Hazardous Substance, Hazardous W aste,
Toxic Chemical or Petroleum found on, under, at or within the Project Site. Any
report or investigation of such Hazardous Discharge proposed and acceptable to
an appropriate Authority that is charged to oversee the clean-up of such
Hazardous Discharge shall be acceptable to the Director. If such estimates,
individually or in the aggregate, exceed $25,000, the Director shall have the
right to require the Company to post a bond, letter of credit or other security
reasonably satisfactory to the Director to secure payment of these costs and
expenses.
(g) defend and indemnify the Director and hold the Director hannless from
and against all loss, liability, damage and expense, claims, costs, fines and
penalties, including reasonable attorney's fees, suffered or incurred by the
Director under or on account of any Environmental Laws, including, without
limitation, the assertion of any lien thereunder, with respect to any Hazardous
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Discharge, the presence of any asbestos, asbestos-containing materials,
Hazardous Substance, Hazardous Waste, Toxic Chemical or Petroleum affecting any
of the Project Site, whether or not the same originates or emerges from the
Project Site or any contiguous real estate, including any loss of value of the
Project Site as a result of the foregoing.
The Company's obligations described above in subsection (g) of this Section
shall arise upon the discovery of the presence of any asbestos,
asbestos-containing material, Hazardous Substance, Hazardous W aste, Toxic
Chemical or Petroleum at the Project Site, whether or not any federal, state, or
local environmental agency has taken or threatened any action in connection with
the presence of any asbestos, asbestos-containing material, Hazardous Substance,
Hazardous Waste, Toxic Chemical or Petroleum.
The Company's obligations and the indemnifications hereunder shall survive
the termination of this Loan Agreement until the expiration of the Loan Term.
Each lease of the Project entered into by the Company shall impose on the lessee
thereunder the covenants set forth in this Section 5.10 with respect to such
lessee's use of the Project.
The Company further acknowledges and agrees that the Director may retain,
at the Company's expense, an independent consultant to perform an overall
environmental assessment and to prepare a report certifying that (a) the Project
Site is not being used for, or threatened by, nor has ever been used for, or
threatened by, the use, generation, treatment, storage or disposal of any
asbestos or asbestos-containing material, petroleum or any hazardous or toxic
chemical, material, substance or waste to which exposure is prohibited, limited
or regulated by any Environmental Laws or which, even if not so regulated, is
known to pose a hazard to the health or safety of the occupants of the Project
Site or of property adjacent thereto, (b) if the Project Site has ever been used
for or threatened by any such condition, the condition has been fully remedied
in compliance with all Environmental Laws and, (c) the Company's environmental
management practices are in compliance with all Environmental Laws. The overall
environmental assessment may be done in three phases. The Company represents and
warrants that the Company has the authority to grant, and hereby does grant, to
the Director, the Director's agents, representatives, employees, consultants and
contractors the right to enter the Project Site after the Company's acquisition
of the Project and to perform such acts as are necessary to conduct such
assessment.
[End of Article V]
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ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 6.1 Damage and Destruction. If prior to full payment of the Bonds
(or provision for payment thereof having been made in accordance with the
provisions of the Trust Agreement), the Project Facilities or Project Equipment
shall be damaged or partially or totally destroyed by fire, floo~ windstorm, or
other casualty, there shall be no abatement or reduction in the amounts payable
by the Company under this Loan Agreement, an~ to the extent that the claim for
loss resulting from such damage or destruction is not greater than $100,000, the
Company (i) will promptly repair, rebuild or restore the property damaged or
destroyed with such changes, alterations and modifications (including the
substitution and addition of other property) as may be desired by the Company
and as will not make the Project unsuitable for the Project Purposes, and (ii)
will apply for such purpose so much as may be necessary of any Net Proceeds of
insurance policies resulting from claims for such losses not in excess of
$100,000 as well as any additional moneys of the Company necessary therefor. All
Net Proceeds of insurance resulting from claims for any such loss not in excess
of $100,000 shall be paid to the Company.
If prior to full payment of the Bonds (or provision for payment thereof
having been made in accordance with the provisions of the Trust Agreement), the
Project Facilities or the Project Equipment shall be destroyed (in whole or in
part) or damaged by fire, flood, windstorm or other casualty to such extent that
the claim for loss resulting from such destruction or damage is in excess of
$100,000, the Company shall promptly give written notice thereofto the Director
and the Trustee. All Net Proceeds ofinsurance policies resulting from claims for
such losses in excess of $100,000 shall be paid to and held by the Trustee in
the Collateral Proceeds Account, whereupon, unless the Company shall have
elected to exercise its option to prepay all amounts due under this Loan
Agreement pursuant to the provisions of Section 1O.2(a) of this Loan Agreement,
(i) the Company will proceed to repair, rebuild or restore the property damaged
or destroyed with such changes, alterations and modifications (including the
substitution and addition of other property) as may be desired by the Company
and as will not make the Project unsuitable for the Project Purposes, and (ii)
the Trustee will disburse moneys in the Collateral Proceeds Account to or upon
the direction of the Company for payment of the costs of such repair, rebuilding
or restoration, either on completion thereof or, if the Company shall so
request, as the work progresses. Any such disbursements shall be made pursuant
to the procedures set forth in Section 3.3 of this Loan Agreement for
disbursement of moneys in the Project Fun, including, but not limited to, the
requirement that the Company obtain the written approval of the Director with
respect to each disbursement. In the event the moneys in the Collateral Proceeds
Account are not sufficient to pay in full the costs of such repair, rebuilding
or restoration, the Company nonetheless will complete the work and pay the costs
thereof from its own resources. The Company shall not, by reason of the payment
of such excess costs, be entitled to any reimbursement from the Director or any
diminution in or postponement of the amounts payable under Section 4.2 or 4.4 of
this Loan Agreement.
Section 6.2 Eminent Domain. In the event that title to or the temporary use
of the Project, or any part thereof, shall be taken under the exercise of the
power of eminent domain by any Governmental Authority or by any person, firm or
corporation acting under Governmental Authority, there shall be no abatement or
reduction in the amounts payable by the Company under this Loan Agreement, and
any Net Proceeds received from any award made in such eminent domain
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proceedings shall be paid to and deposited by the Trustee in the Collateral
Proceeds Account and shall be applied by the Director or the Company in one or
more of the following ways as shall be directed in writing by the Authorized
Company Representative:
(a) to the restoration of the improvements located on the Project Site to
substantially the same condition as they existed prior to the exercise of said
power of eminent domain;
(b) to the acquisition, by construction or otherwise, by the Company of
other improvements suitable for the Company's operation at the Project (which
improvements shall be deemed a part of the Project); or
(c) to the redemption of all of the Bonds pursuant to the Trust Agreement,
together with accrued interest thereon to the date of redemption upon exercise
of the option to prepay authorized by Section 1 0.2(b) of this Loan Agreement.
Within ninety (90) days from the date of entry of a final order in an
eminent domain proceeding granting condemnation, the Authorized Company
Representative shall direct the Director and the Trustee in writing as to which
of the ways specified in this Section the Company elects to have the Net
Proceeds of the condemnation award applied. Any balance of the Net Proceeds
remaining after such application shall be retained in the Collateral Proceeds
Account.
[End of Article VI]
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ARTICLE VII
SPECIAL COVENANTS
Section 7.1 No Warranty of Condition or Suitability. The Director does not
make any warranty, either express or implied, as to the condition, workmanship,
merchantability or capacity of the Project or any part thereof or as to its or
any part's suitability or operation for the Project Purposes.
Section 7.2 Right of Access to the Pr01ect. During the Loan Term, the
Company agrees that the Director and any of the Director's duly authorized
agents shall, upon reasonable prior notice, have the right during regular
business hours and without interruption of daily business activities to enter
upon the Project and to examine and inspect the same. The Company further agrees
that the Director and the Director's duly authorized agents shall have such
rights of access to the Project as may be reasonably necessary to cause to be
completed the construction and installation provided for in Section 3.1 hereof,
and thereafter for the proper maintenance of the Project in the event of failure
by the Company to perform its obligations under Sections 3.1 or 5.1 hereof.
Notwithstanding anything in this Section to the contrary, the Company shall not
be obligated to provide access to any information that it reasonably considers
to be a trade secret or similar confidential information.
Section 7.3 Information Concerning Operations. During the Loan Term, at the
request of the Director and, in any event, within seventy-five (75) days after
the last day of each fiscal year of the Company begjnning with the fiscal year
in which the Completion Date occurs, the Company shall furnish to the Director a
report on Project operations setting forth the total number of employees then
employed on the Project and such other employment, economic and statistical data
concerning the Project as may reasonably be requested by the Director.
Section 7.4 Affirmative Covenants of the Comvanv. Throughout the Term of
this Loan Agreement, the Company shall:
(a) Taxes and Assessments. Pay and discharge promptly, or cause to be paid
and discharged promptly, when due and payable, all taxes, assessments and
governmental charges or levies imposed upon the Company, the Company's income or
any of the Company's property, or upon any part thereof, as well as all claims
of any kind (including claims for labor, materials and supplies) which, if
unpaid, might by law become a lien or charge upon the Company's property.
Notwithstanding the preceding sentence, the Company may, at the Company's
expense and after prior notice to the Director, by appropriate proceedings
diligently prosecuted, contest in good faith the validity or amount of any such
taxes, assessments, governmental charges, levies and claims and during the
period of contest, and after notice to the Director, may permit the items so
contested to remain unpaid. However, if at any time the Director shall notify
the Company that, in the opinion oflegal counsel satisfactory to the Director,
by nonpayment of any such items the lien and security interest created by the
Security Documents as to any part of the Project will be materially affected or
the Project or any part thereof will be subject to imminent loss or forfeiture,
the Company shall promptly pay such taxes, assessments, charges, levies or
claims or make appropriate provisions to place sufficient funds in escrow or
other arrangement approved by a court of competent jurisdiction so that such
lien and security interest will not be adversely affected in any material way.
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(b) Maintain Existence. Do or cause to be done all things necessary to
preserve and keep in full force and effect the Company's existence, except as
provided in subsection (a) of Section 7.5 hereof, the Company's current
ownership and the Company's material rights and franchises.
(c) Maintain Property. Maintain and keep the Company's property in good
repair, working order and condition, and from time to time make all repairs,
renewals and replacements which, in the opinion of the Company, are necessary
and proper so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this subsection shall prevent the Company from selling or otherwise
disposing of any property whenever, in the good faith judgment of the Company,
such property is obsolete, worn out, without economic value or unnecessary for
the conduct of the business of the Company and provided, further that the
Company shall comply with the Security Documents.
(d) Maintain Insurance. Keep all of the Company's insurable property
insured against loss or damage by fire and other risks, maintain public
liability insurance against claims for personal injury, death, or property
damage suffered by others upon, in or about any premises occupied by the
Company; and maintali1 all such workers' compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which the Company
may be engaged in business. All insurance for which provision has been made in
this subsection shall be maintained against such risks and in at least such
amounts as such insurance is usually carried by persons engaged in the same or
similar businesses, and, as applicable, with full replacement cost coverage, and
all insurance herein provided for shall be effected and maintali1ed in force
under a policy or policies issued by insurers of recognized responsibility,
except that the Company may effect worker's compensation or similar insurance in
respect of operations in any state or other jurisdiction either through an
insurance fund operated by such state or other jurisdiction or by causing to be
maintained a system or systems of self-insurance which is in accordance with
applicable law.
(e) Furnish Information. Furnish to the Director:
(i) Ouarterlv Reports. Within forty-five (45) days after the end
of each quarterly period of each fiscal year of the Company, the internally
compiled financial statements of the Company, including the balance sheet
of the Company as at the end of such quarterly period, together with
related statements of income and retained earnings (oraccumulated deficit)
and changes in financial position for such quarterly period, setting forth
in comparative form the corresponding figures as at the end of or for the
corresponding quarter of the previous fiscal year, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles applied on a consistent basis, subject to usual year-end audit
adjustments, except that such financial statements need not contain the
notes required by generally accepted accounting principles.
(ii)Annual Financial Statements. Within one hundred twenty (120)
days after the last day of each fiscal year of the Company (beginning with
fiscal year 2003), the compiled annual audited financial statements of the
Company, including the balance sheet of the Company as at the end of such
fiscal year, together with related statements of income and retained
earnings (or accumulated deficit) and changes in financial position for
such fiscal year, setting forth in comparative form the corresponding
figures as at the end of or for the previous fiscal year, all in reasonable
detail and all audited by and accompanied by a
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certificate of, the Company's independent certified public accountants to the
effect that such financial statements were prepared in accordance with generally
accepted accounting principles consistently applied, and present fairly the
Company's financial position at the close of such period and the results of its
operations for such period.
(iii) Certificate: No Default. With each of the financial
statements required to be furnished pursuant to this Section, a certificate
of the Company's chief executive officer or chief financial officer stating
that (a) no Event of Default has occurred and is continuing and no event or
circumstance which would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both, has occurred and
is continuing, or, if such an Event of Default or such event or
circumstance has occurred and is continuing, a statement as to the nature
thereof and the action which the Company proposes to take with respect
thereto, and that (b) no action, suit or proceeding by the Company or
against the Company at law or in equity, or before any Governmental
Authority, is pending or, to the Company's knowledge, threatened, which, if
adversely determined, would materially impair the right or ability of the
Company to carry on the business which is contemplated in connection with
the Project or would materially impair the right or ability of the Company
to perform the transactions contemplated by this Loan Agreement or would
materially and adversely affect the Company's business, operations,
properties, assets or condition, all as of the date of such certificate,
except as disclosed in such certificate.
(iv) Other Information. Such other information respecting the
business, properties or the condition or operations, financial or
otherwise, of the Company as the Director may reasonably request, except
that the Company shall not be obligated to provide access to any
infonnation that it reasonably considers to be a trade secret or similar
confidential information.
(f) Deliver Notice. Forthwith upon learning of any of the following,
deliver written notice thereof to the Director, describing the same and the
steps being taken by the Company with respect thereto:
(i) the occurrence of an Event of Default or an event or
circumstance which would constitute an Event of Default, but for the
requirement that notice be given or time elapse or both, or
(ii)any action, suit or proceeding by the Company or against the
Company at law or in equity, or before any Governmental Authority,
instituted or, to the knowledge of the Company, threatened which, if
adversely determined, would materially impair the right or ability of the
Company to carry on the business which is contemplated in connection with
the Project or would materially impair the right or ability of the Company
to perform the transactions contemplated by this Loan Agreement, or would
materially and adversely affect the Company's business, operations,
properties, assets or condition, or
(iii) the occurrence of a Reportable Event, as defined in ERISA,
under, or the institution of steps by the Company to withdraw from, or the
institution of any steps to terminate, any Plan, as defined Section 7.5(c)
hereof, as to which the Company may have liability.
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(g) Inspection Rights. Permit the Director, or any agents orrepresentatives
thereof, upon reasonable prior notice, during regular business hours and without
interruption of daily business activities to examine and make copies of and
abstract ITom the records and books of account of, the Company visit the
properties of the Company, and discuss the general business affairs of the
Company with any of its officers or shareholders. Notwithstanding anything in
this Section to the contrary, the Company shall not be obligated to provide
access to any information that it reasonable considers to be a trade secret or
similar confidential information.
(h) Zoning, Planning and Environmental Regulations. The Provision of the
Project will be completed and the Project will be operated and maintained in
such manner as to conform with all applicable zoning, planning, building,
environmental and other applicable governmental regulations (orvariances
thereITom) imposed by any Governmental Authority and as to be consistent with
the purposes of the Act, except where such nonconformity or inconsistency would
not materially impair the ability of the Company to perform its obligations
under the Loan Documents or materially adversely affect the financial condition
of the Company or the abilities of the parties to consummate the transactions
contemplated by this Loan Agreement.
(i) Use of Project Fund Moneys. All moneys disbursed ITom the Project Fund
(except for any amounts transferred to the Collateral Proceeds Account pursuant
to the terms of this Loan Agreement) shall be used for the payment of Allowable
Costs relating to Provision of the Project. No part of any such moneys shall be
knowingly paid to or retained by the Company or any partner, officer,
shareholder, director or employee of the Company as a fee, kick-back or
consideration of any type, except for compensation for services rendered and
expenses incurred otherwise included in Allowable Costs.
(j) Job Creation. The Company reasonably believes that the State Assistance
will permit the Company to retain an estimated 70 jobs and employment
opportunities and create an estimated 80 jobs and employment opportunities in
the City ofGahanna in the County of Franklin, Ohio during the three-year period
after the Acquisition Date.
(k) Preference for Ohio Goods and Services. The Company will use its best
efforts to purchase goods and services with respect to the Project from persons,
partnerships and corporations located in the State.
Section 7.5 Negative Covenants of the Company. Throughout the Term of this
Loan Agreement, the Company shall not without the prior written consent of the
Director:
(a) Maintain Existence. Sell, transfer or otherwise dispose of all, or
substantially all, of the Company's assets, consolidate with or merge into any
other entity, or permit one or more entities to consolidate with or merge into
the Company; provided, however, that the Company may, without violating the
agreement contained in this subsection, consolidate with or merge into another
entity, or permit one or more other entities to consolidate with or merge into
the Company, or sell, transfer or otherwise dispose of all, or substantially
all, of the Company's assets and thereafter dissolve if: (i) the written consent
of the Director is obtained (which consent shall not be unreasonably withheld);
(ii) the surviving, resulting or transferee entity, as the case may be, assumes
in writing all of the obligations of the Company hereunder (if such surviving,
resulting or transferee entity is other
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than the Company); and (iii) the surviving, resulting or transferee entity, as
the case may be, is a corporation or limited liability company duly organized
and validly existing under the laws of the State or duly qualified to do
business therein, and has a net worth of not less than that of the Company
immediately prior to such disposition, consolidation or merger, transfer or
change ofform.
(b) Transfer of Interests in the Comuany. Permit or cause any transfer,
issuance or retirement of, or other transaction changing the ownership interest
in the Company unless following such transfer, issuance or retirement the
Guarantor retains directly or indirectly not less than 34.5% of the voting
shares of the Company.
(c) ERISA. Voluntarily terminate any employee benefit plan or other plan (a
"Plan") maintained for employees of the Company and covered by Title IV of
ERISA, so as to result in any material liability of the Company to the Pension
Benefit Guaranty Corporation ("PBGC"), enter into any Prohibited Transaction (as
defined in Section 4975 of the Internal Revenue Code of 1986, as amended, and in
ERISA) involving any Plan which results in any material liability of the Company
to the PBGC, cause any occurrence of any Reportable Event (as defined in Title
IV of ERISA ) which results in any material liability of the Company to the
PBGC, or allow or suffer to exist any other event or condition which results in
any material liability of the Company to the PBGC.
(d) Agreements. Enter into any agreement containing any provision which
would be violated or breached by the performance of the Company's obligations
hereunder or under any instrument or document delivered or to be delivered by
the Company hereunder or in connection herewith.
(e) Sale and Encumbrance of Assets. Sell, pledge, assign, hypothecate or in
any manner encumber any of the Company's assets, except purchase money security
interest and except as otherwise expressly permitted by the Loan Documents.
(f) Removal of Assets. Remove, transfer or transport any of the Company's
assets ITom the Project Site, except the operation of motor vehicles, the
shipment of goods in the ordinary course of business or as otherwise permitted
by the Loan Documents.
(g) Leasebacks. Enter into any arrangements, directly or indirectly, with
any person, whereby the Company shall sell or transfer any property, whether now
owned or hereafter acquired, used or useful in the Company's business, in
connection with the rental or lease of the property so sold or transferred or of
other property which the Company intends to use for substantially the same
purpose or purposes as the property so sold or transferred.
(h) Suspension of Operation. Suspend or discontinue operation of the
Project for a continuous period of ninety (90) days.
Section 7.6 Mechanics' and Other Liens. The Company shall not suffer or
permit any mechanics' or other liens to be filed or exist against the Project
nor any part thereof, nor against the Project Fund or the Collateral Proceeds
Account, by reason of work, labor, services, or materials supplied or claimed to
have been supplied to, for or in connection with the Project or any part thereof
or to the Company or anyone holding the Project or any part thereof through or
under the Company. If any such liens shall at any time be filed, the Company
shall, within one hundred twenty days (120)
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after notice of the filing thereofbut subject to the right to contest
hereinafter set forth, cause the same to be discharged of record by payment,
deposit, bond, order of a court of competent jurisdiction or otherwise. If the
Company shall fail to cause such lien to be discharged, or to contest the
validity or amount thereof, within the period aforesaid, then, in addition to
any other right or remedy of the Director, the Director may, but shall not be
obligated to, discharge the same either by paying the amount claimed to be due
or by procuring the discharge of such lien by deposit or by bonding. Any amount
paid by the Director shall be reimbursed by the Company to the Director on
demand, and if not so reimbursed on demand shall be paid by the Company with
interest thereof at the Interest Rate for Advances from the date of payment by
the Director, which amounts the Company agrees to pay. Nothing in this Section
shall require the Company to payor discharge any such lien so long as the
validity thereof shall be contested in good faith and by appropriate legal
proceedings, provided that the Company shall have delivered to the Director an
opinion of counsel, selected by the Company and reasonably acceptable to the
Director, to the effect that nonpayment of any such lien during the pendency of
such contest will not adversely affect the priority of the liens of the Security
Documents on right, title or interest in the Project.
[End of Article VII]
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ARTICLE VIII
ASSIGNMENT, SELLING AND LEASING
Section 8.1 Assignment Sale or Lease by the Company. Except as otherwise
permitted by Sections 5.2 or 7.5(a) hereof, the Company may not assign this Loan
Agreement in whole or in part, sell or lease the Project in whole or in part or
grant the right to occupy or use the Project, or any part thereof, to persons
other than the Company, without the prior written consent of the Director.
Section 8.2 Pledge by the Director. The Director has pledged any moneys
receivable under or pursuant to this Loan Agreement (except for reimbursement of
expenses and indemnification by the Company) to the Trustee pursuant to the
Trust Agreement. The Company hereby consents to such assignment and pledge.
[End of Article VIII]
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.1 Event of Default. Each of the following shall be an "Event of
Default":
(a) Failure by the Company to pay when due any installment of principal,
interest service fee, or any combination thereof under this Loan Agreement; or
(b) The occurrence and continuation of an Event of Default under any of the
other Loan Documents related to a failure in the payment of money; or
(c) Failure by the Company to pay within ten (10) days of demand any
amounts to be so paid to the Director under this Loan Agreement or the Loan
Documents; or
(d) Failure by the Company to observe and perform any term, covenant or
agreement of this Loan Agreement or any other Loan Documents (other than as
required pursuant to subsections (a), (b) and (c) above), and continuation of
such failure for sixty (60) days after written notice thereof shall have been
given to the Company by the Director, or for such longer period as the Director
may agree to in writing; or
(e) The occurrence and continuation of a default or event of default,
whether relating to nonpayment of money or otherwise, on the part of the Company
under any loan document or other debt instrument to which it is a party after
notice thereof and the expiration of any grace or cure period relating thereto.
(f) Any representation or warranty made by the Company or any of the
Company's officers, herein or in any of the other Loan Documents or in any of
the Loan Approval Document or in connection herewith or therewith shall prove to
have been incorrect in any material respect when made; or
(g) The Company shall fail to pay any indebtedness of the Company, or any
interest or premium thereon, in excess of $100,000 when due (whether at
scheduled maturity, by required prepayment, by acceleration, on demand or
otherwise) and such failure shall continue after the applicable grace period, if
any specified in the agreement or instrument relating to such indebtedness; or
any other default under any agreement or instrument, relating to any such
indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such indebtedness; or any such indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof; or
(h) The Company shall: (i) admit in writing the Company's inability to pay
the Company's debts generally as such debts become due; (ii) (A) commence a
voluntary case concerning the Company or (B) have an involuntary bankruptcy case
commenced against the Company and have an order entered in any such case or have
the case remain undismissed and unstayed for ninety (90) days; (iii) commence
any other proceeding under any reorganization, arrangement, readjustment of
debt, relief of debtors, dissolution, insolvency or liquidation or similar law
of any jurisdiction whether now
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or hereafter in effect and either have an order entered against the Company
thereunder or remain undismissed or unstayed for ninety (90) days or there is
commenced against the Company any such proceeding which remains undismissed or
unstayed for ninety (90) days; (iv) the Company is adjudicated insolvent or
bankrupt; (v) make a general assignment for the benefit of creditors; (vi) have
a receiver, trustee or custodian appointed for the Company or for the whole or
any substantial part of the Company's property or a receiver, trustee or
custodian or any other officer or representative of the court or of creditors,
or any court, government officer or agency shall take and hold possession of any
substantial part of the Company's property; or (vii) any other action for the
purpose of effecting the foregoing;
(i) A judgment or order for the payment of money in excess of $100,000
shall be rendered against the Company and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order or (ii)
there shall be any period of thirty (30) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(j) Failure by the Company to meet the Company's minimum funding
requirements under Section 301 et seq. of ERISA, with respect to any of its
Plans;
The foregoing provisions of subsection (d) only of this Section are subject
to the following limitations: ifby reason of Force Majeure the Company is unable
in whole or in part to perform or observe the Company's obligations under this
Loan Agreement, other than the Company's obligation to make payments required
hereunder, the Company shall not be deemed in default during the continuance of
such inability, including a reasonable time for the removal of the effect
thereof.
The Company shall promptly give notice to the Direccor of the existence of
an event ofF orce Majeure and shall use commercially reasonable efforts to
remove the effect thereof; provided, that the settlement of strikes or other
industrial disturbances shall be entirely within the reasonable business
discretion of the Company.
Section 9.2 Remedies. If an Event of Default shall have occurred and be
continuing, the Director, at any time, at the Director's election, may exercise
any or all or any combination of the remedies conferred upon or reserved to the
Director under this Loan Agreement, any of the other Loan Documents or any
instrument or document collateral thereto, or now or hereafter existing at law,
or in equity or by statute. Subject to the foregoing, any or all of the
following remedies may be exercised:
(a) If the State Assistance has not been disbursed, termination of any and
all of the Director's obligations under this Loan Agreement and the Commitment;
(b) Declaration that the entire unpaid balance of all amounts owed to the
Director are immediately due and payable, whereupon the same shall become
immediately due and payable, without notice or demand, such notice or demand
being expressly waived by the Company;
(c) Direction to the Trustee, in writing, to transfer any amounts remaining
in the Project Fund to the Collateral Proceeds Account;
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(d) Exercise of all or any rights and remedies as the Director may have
under this Loan Agreement, any of the other Loan Documents or any instrument or
document collateral thereto;
(e) Inspection, examination and copying of the books, records, accounts and
financial data of the Company, provided that the Company shall not be obligated
to provide access to any information that it reasonably considers to be a trade
secret or similar confidential information;
(f) Exercise of any rights, remedies and powers the Director may have at
law or in equity as may appear necessary or desirable to collect all amounts
then due and thereafter to become due under this Loan Agreement and the other
Loan Documents or any instrument or document collateral thereto or to enforce
the performance and observance of any other obligation, agreement or covenant of
the Company under the Loan Documents or any instrument or document collateral
thereto, including, without limitation, as a secured party under the Commercial
Code (as defined in the other Loan Documents) or other similar laws in effect;
and
(g) Take whatever action at law or in equity as may appear to the Director
to be necessary or desirable to collect the amounts then due and thereafter to
become due, or to enforce performance and observance of any obligation,
agreement or covenant of the Company under this Loan Agreement.
Any amounts collected pursuant to action taken under this Section shall be
paid first into the Collateral Proceeds Account and applied in accordance with
the provisions of the Trust Agreement or, if the Bonds have been fully paid (or
provision for payment thereof has been made in accordance with the provisions of
the Trust Agreement), then to all other amounts payable thereunder and under the
Loan Documents, and [mally, if all such amount have been fully paid, as directed
by the Company.
Section 9.3 No Remedy Exclusive. No remedy conferred upon or reserved to
the Director by this Loan Agreement is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Loan Agreement,
each other Loan Document and any instrument or document collateral thereto or
now or hereafter existing at law or in equity or by statute. No delay or
omission to exercise any right or power accruing upon any default shall impair
any such right or power or shall be construed to be a waiver thereof, but any
such right and power may be exercised from time to time and as often as may be
deemed expedient. In order to entitle the Director to exercise any remedy
reserved to it in this Article, it shall not be necessary to give any notice,
other than such notice as may be expressly provided for herein or required by
law.
Section 9.4 Agreement to Pay Reasonable Attorneys' Fees and Expenses. If an
Event of Default shall occur and the Director shall incur expenses, including
reasonable attorneys' fees, in connection with the enforcement of this Loan
Agreement, any of the other Loan Documents or any instrument or document
collateral thereto or the collection of sums due thereunder, the Company shall
reimburse the Director for the expenses so incurred upon demand. If any such
expenses are not so reimbursed, the amount thereof, together with interest
thereon from the date of demand for payment at the Interest Rate for Advances,
shall, to the extent permitted by law, constitute additional indebtedness
secured hereby and by the Trust Agreement and the Security Documents, and in any
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action brought to collect such indebtedness or enforce the Security Documents,
the Director shall be entitled to seek the recovery of such expenses in such
action.
Section 9.5 No Additional Waiver Implied by One Waiver. No failure by the
Director to insist upon the strict performance by the Company of any provision
hereof shall constitute a waiver of the Director's right to strict performance
and no express waiver shall be deemed to apply to any other existing or
subsequent right to remedy the failure by the Company to observe or comply with
any provision hereof.
Section 9.6 Waiver of Appraisement. Valuation. Etc. In the event the
Company should default under any of the provisions of this Loan Agreement
requiring payments by the Company, the Company agrees to waive, to the extent it
may lawfully do so, the benefit of all appraisement, valuation, stay, extension
or redemption laws now or hereafter in force, and all right of appraisement and
redemption to which it may be entitled.
[End of Article IX]
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ARTICLE X
REDEMPTION OF BONDS; PREPAYMENT OF LOAN
Section 10.1 Redemption of Bonds. The Director, at the written request at
any time of the Company if the Bonds are then callable, shall forthwith take all
steps that may be necessary under the applicable redemption provisions of the
Trust Agreement to effect redemption of all or part of the then outstanding
Bonds, as may be specified by the Company, on the earliest redemption date on
which such redemption may be made under such applicable provisions, if the
Company shall then have deposited with the Trustee moneys sufficient to pay the
principal of and premium, if any, and interest due or to become due on such
redemption date with respect to the Bonds as to which such request is made. In
addition, the Trustee may accelerate one Series 2002-7 Bonds (or shall
accelerate upon the request of the registered owners of not less than 25% in
aggregate principal amount of the outstanding Series 2002-7 Bonds) and shall
require the Company to prepay the Loan as provided in Section 10.2 of this Loan
Agreement.
Section 10.2 Prepavment of Loan. The Company shall have, and is hereby
granted, the option to prepay all amounts due hereunder prior to the expiration
of the Term and prior to the full payment of the Bonds (or provision for payment
thereof having been made in accordance with the provisions of the Trust
Agreement), if any of the following shall have occurred:
(a) The Project Facilities or the Project Equipment shall have been damaged
or destroyed as set forth in Section 6.1 hereof (i) to such extent that they
cannot be reasonably restored within a period of six (6) months to the condition
thereof immediately preceding such damage or destruction, or (ii) to such extent
that the Company is thereby prevented from carrying on its nonnal operations for
a period of six (6) consecutive months.
(b) Title to, or the temporary use of, all or substantially all of the
Project shall have been taken under the exercise of the power of eminent domain
by any Governmental Authority, or person, finn or corporation acting under
governmental authority (including such a taking or takings as results in the
Company being thereby prevented from carrying on its nonnal operations therein
for a period of six (6) consecutive months).
To exercise such option, the Company shall, within ninety (90) days
following the event authorizing the exercise of such option, give written notice
to the Director, and to the Trustee if any of the Bonds shall then be unpaid,
and shall specify therein the date of such prepayment, which date shall be not
less than forty-five (45) nor more than ninety (90) days from the date such
notice is mailed, and in case of a redemption of the Bonds in accordance with
the provisions of the Trust Agreement shall make arrangements satisfactory to
the Trustee for the giving of the required notice of redemption, in which
arrangements Director shall cooperate. The prepayment amount payable by the
Company, in the event of its exercise of the option granted in this Section or
in the event mandatory prepayment is required as provided hereinafter, shall be
the sum of the following:
(i) An amount of money which, when added to (i) the moneys and
investments held to the credit of the Collateral Proceeds Account and the
Primary Reserve Account and (ii) the aggregate loan payments made by the Company
and not theretofore applied to the payment of principal of or interest on the
Bonds, will be sufficient pursuant to the provisions of the Trust
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Agreement, to pay and discharge all then outstanding Bonds on the first possible
date for redemption, plus
(ii)An amount of money equal to the Trustee's fees and expenses,
to the extent payable by the Company pursuant to this Loan Agreement, accrued
and to accrue until such final payment and redemption of the Bonds, plus
(iii) The sum of One Dollar ($1.00) to the Director.
In the event of the exercise of the option granted in this Section, any Net
Proceeds of insurance or condemnation shall be paid to the Company,
notwithstanding any provision of Section 6.1 and 6.2 hereof.
The mutual agreements contained in this Section 10.2 are independent of,
and constitute an agreement separate and distinct from, any and all provisions
of this Loan Agreement and shall be unaffected by any fact or circumstance which
might impair or be alleged to impair the validity of any other provisions.
In addition, the Company shall be required to prepay the Loan in full, plus
a premium equal to 2% of the principal amount thereof. immediately in the event
that the Series 2002-7 Bonds are accelerated by the Trustee at the direction of
the Director as provided in the Supplement.
Section 10.3 Option to Defease Bonds. Provided no Event of Default has
occurred and is existing, the Company may instruct the Trustee to apply any
moneys on deposit in the Collateral Proceeds Account, together with any moneys
furnished to the Trustee by the Company but not constituting payments due under
Article IV of this Loan Agreement, to any of the following purposes:
(a) Purchase of Bonds in the open market at prices not greater than their
fair market value;
(b) Redemption of Bonds pursuant to the optional redemption provisions
thereof; or
(c) Defeasance of Bonds pursuant to Article IX of the Trust Agreement.
If the sum of the amounts in the Collateral Proceeds Account and the Primary
Reserve Account, when added to the amount delivered by the Company to the
Trustee for application in accordance with this Section, is sufficient to
purchase for cancellation, optionally redeem or defease all of the outstanding
Bonds, the Trustee shall, at the direction of the Company, apply moneys in the
Primary Reserve Account for any of such purposes.
[End of Article X]
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Termination of Agreement This Loan Agreement shall be in full
force and effect ITom the date hereof until the end of the Loan Term, at which
time the obligations of the Director and the Company hereunder shall terminate,
provided that any obligations of the Company with respect to the payment of
costs and expenses under this Loan Agreement shall survive such termination and
continue in effect until such costs and expenses are paid.
Section 11.2 Amounts Remaining in Collateral Proceeds Account and Primary
Reserve Account. It is agreed by the parties hereto that any amounts remaining
in the Collateral Proceeds Account or the Primary Reserve Account upon
expiration or sooner cancellation or termination of this Loan Agreement, after
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Trust Agreement) and the fees, charges
and expenses of the Trustee and all other amounts required to be paid hereunder,
shall belong to and be paid to the Company by the Trustee as overpayment of loan
payments.
Section 11.3 Notices. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed sufficiently
given when mailed by registered or certified mail, postage prepaid, addressed to
the recipient at the appropriate Notice Address. A duplicate copy of each
notice, certificate, request or other communication given hereunder to the
Director, the Company, or the Trustee shall also be given to the others. The
Company, the Director and the Trustee may, by notice given hereunder, change a
Notice Address or designate any further addresses to which subsequent notices,
certificates, requests or other communications shall be sent.
Section 11.4 Binding Effect. This Loan Agreement shall inure to the benefit
of and shall be binding upon the Director, the Company and their respective
successors and assigns, subject, however, to the limitations contained in
Section 8.1 hereof, and subject to the further limitation, as set forth on page
1 of this Loan Agreement, that any obligation of the Director created by or
arising out of this Loan Agreement shall not be a general debt of the Director
or the State but shall be payable solely out of the proceeds derived from this
Loan Agreement.
Section 11.5 Extent of Covenants of the Director: No Personal Liabilitv.
All covenants, stipulations, obligations and agreements of the Director
contained in this Loan Agreement shall be effective to the extent authorized and
permitted by applicable law. No such covenant, stipulation, obligation or
agreement shall be deemed to be a covenant, stipulation, obligation, or
agreement of any present or future Director in other than such Director's
official capacity acting pursuant to the Act.
Section 11.6 Amendments. Changes and Modifications. This Loan Agreement may
not be amended, or supplemented except by an instrument in writing executed by
the Director and the Company.
Section 11.7 Execution Counterparts. This Loan Agreement may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.
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168
Section 11.8 Severability. If any provision of this Loan Agreement, or any
covenant, obligation or agreement contained herein is determined by a court to
be invalid or unenforceable, such determination shall not affect any other,
provision, covenant, obligation or agreement, each of which shall be construed
and enforced as if such invalid or unenforceable, provision, covenant,
obligation or agreement were not contained herein. Such invalidity or
unenforceability shall not affect any valid or enforceable application thereof,
and each such provision, covenant, obligation or agreement shall be deemed to be
effective, operative, made, entered into or taken in the manner and to the full
extent permitted by law.
Section 11.9 Captions. The captions or headings in this Loan Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of any provisions or sections of this Loan Agreement.
Section 11.10 Governing Law. This Loan Agreement shall be deemed to be a
contract made under the laws of the State of Ohio and for all purposes shall be
governed by and construed in accordance with the laws of the State of Ohio.
[End of Article XI]
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169
IN WITNESS WHEREOF, the Director and the Company have caused this Loan Agreement
to be executed in their respective names by their duly authorized officers, all
as of the date first above written.
DIRECTOR OF DEVELOPMENT
OF THE STATE OF OHIO, ACTING ON
BEHALF OF THE STATE
By: /s/
KAHIKI FOODS, INC.
By: /s/
President (Title)
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170
EXHIBIT A
Project Site
Situate in the State of Ohio, County of Franklin, City of Gahanna and being
a part of Lot No.7 of David Taylor's Subdivision of the Third Quarter, Township
No.1, Range 16, United States Military Lands and being a part of that original
231.05 acre tract as conveyed to Elizabeth Pizzurro of record in Deed Book 1662,
Page 303 and a part of that 6.296 acre tract as conveyed to The Broad Street
Trading, Company of record in Deed Book 3018, Page 410 records of the Recorder's
Office, Franklin County, Ohio and being more particularly described as follows:
Beginning, for reference at a pointm the southerly line of Claycraft Road
(60 feet in width) said,' point being located 30.00 feet easterly of (as
measured at right angles) the centerline of Relocated Morrison Road as
established by a survey made in 1967, by the Ohio Department of Highways of
Relocated Morrison Road and Interstate Route No. 270 (FRA-270-28.30 N,
FRA-317-1617) said beginning point also being in the centerline of Old Morrison
Road;
Thence S. 03 22' 57" E, a distance of 380.79 feet, along the centerline of
Old Morris Road to the true point of beginning, said point being located N 03
22' 57" W, a distance of 70.31 feet, from the southwesterly corner of the
aforesaid 6.296 acre tract.
Thence N. 81 27' 08" E, a distance of 877.32 feet crossing the aforesaid
6.296 acre tract to a point in the easterly line of the aforesaid 6.296 acre
tract and in the westerly line of a 3.128 acre tract as conveyed to M.M. B.
Realty Company, of record in Deed Book 3444, page 172;
Thence S 08 49'35" E, a distance of 602.19feet along the easterly line of
the aforesaid 6.296 acre tract and the westerly line of the aforesaid 3.128 acre
tract and crossing the aforesaid original 231.05 acre tract to a point and
(passing the southeasterly corner of the aforesaid 6.296 acre tract and the
southwesterly corner of the aforesaid 3.128 acre tract at a distance of 70.00
feet);
Thence S 80 00'20" W, a distance of 1064.77 feet crossing the aforesaid
231.05 acre tract to a point in the proposed easterly right-of-way line of
Relocated Morrison Road; (passing an iron pin at 1046.01 feet);
Thence with a curve to the right having a radius of 614.42 feet, a central
angle of 12 44' 06", the chord to which bears N 01 45' 00" W, a distance 136.28
feet along said proposed line of Relocated Morrison, Road to a point of
tangency, said point being located 30.00 feet easterly of and at right angles to
the centerline of the aforesaid Relocated Morrison Road as established by a
Survey made in 1967, by the Ohio Department of Highways of Relocated Morrison
Road and Interstate Route No. 270 (FRA-270-28.30 N, FRA-317-16.67); , "
Thence N 04 37' 04" E, a distance, of 507.07 feet along the proposed
easterly right-of-way line of the aforesaid Relocated Morrison Road and being
30.00 feet easterly of and parallel to the aforesaid centerline of Relocated
Morrison Road to a point; " '
Thence N 81 27' 08" E, a distance of 52.56 feet to the true point of
beginning and containing 14.169 acres, more or less, subject to all easements,
restrictions and rights-of-way of record.
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171
EXHIBIT B
The fixtures and equipment located at 1100 Morrison Road, Gahanna,
Ohio, including but not limited to, build-in appliances, heating, ventilating,
airconditioning (HVAC) and humidifying equipment and their control apparatus;
stationary tubs; pumps; water softening equipment; roof antennae; attached
wall-to-wall carpeting and attached floor coverings, curtain rods and window
coverings including draperies and curtains; attached mirrors; light, bathroom
and lavatory fixtures; storm and screen doors and windows, awnings, blinds and
window air conditioners, whether now in or on the premises or in storage; garage
door openers and controls; attached fireplace equipment; security systems and
controls; smoke alarms; satellite TV reception system and components; all
exterior plants and trees; and pallet racks as installed or erected.
All other personal property, machinery, apparatus, furniture, equipment and
other property which will be financed from the proceeds of the Bonds, together
with all replacement, additions and renewals thereof, whether located at the
Project Site or otherwise.
46
172
EXHIBIT C
TERMS AND CONDITIONS TO DISBURSEMENT OF STATE ASSISTANCE
Part I - Disbursements of State Assistance for costs of construction of the
Project
No disbursement, be it the initial disbursement or any subsequent
disbursement, need be approved by the Director until the following conditions
have been fully performed to the satisfaction of the Director, and to the extent
that the Director shall, in its sole discretion, waive any of the following
conditions with regard to anyone or more disbursements, said conditions may be
reinstated as to any and all-subsequent disbursements:
(a) The Director shall be provided a "metes and bounds" survey of the
Property, certified to the Director and title insurance company by a licensed
surveyor acceptable to the Director with adequate errors and omissions
insurance, showing, through the use of course bearings and distances, the
boundaries of the Property and location of any improvements in relation thereto
and all dimensions thereof, and all easements, set-back lines, deviations
between survey lines and title lines, rights of way, encroachments, bench marks,
etc. The survey must contain a full legal description of the Property,
certification of square footage or acreage, certification of absence of flood
hazard and identification of adjacent and contiguous streets as well as
measurement to the nearest intersection or other adequate checkpoint.
(b) The Company shall submit evidence that the Project and all planned
imrrovements and intended uses will fully comply with all applicable deed
restrictions, laws, regulations, and zoning requirements. The Company covenants
that zoning at closing of the State Assistance may not be appealed, and that
there are no pending proceedings, either administrative, legislative, or
judicial, which would in any manner adversely affect that status of zoning with
respect to the Project or any part thereof. The Director shall also be provided
with copies of all building permits, operating permits, licenses, consents and
approvals, which building permits, operating permits, licenses, consents and
approvals shall be conditionally assigned to the Director. The Project and all
improvements shall thereafter be constructed in accordance with generally
accepted engineering and architectural principles and practices and in
compliance with all applicable deed restrictions, laws, and governmental
regulations including, without limitation, all federal, state, and local
environmental requirements specified by statute or impact study.
(c) The Director shall be provided with an AL T A loan title insurance
commitment prior to closing, and an AL T A loan title insurance policy upon
closing, in an amount satisfactory to the Director issued by a company
satisfactory to the Director and with such coinsurance as the Director may
require. Said policy shall insure the Mortgage as the first lien on the Project
subject only to Permitted Encumbrances and shall be issued without survey and
mechanics lien exceptions and containing only such other exceptions as the
Director shall approve. If the policy contains a pending disbursements clause,
such clause must be (degree)in a form acceptable to the Director. Should the
title insurance commitment contain exceptions for blanket easements which cannot
be located by the surveyor, the Company shall locate the easements through their
respective owners in order to have them plotted on the surveyor eliminated as
exceptions in the title insurance policy. Prior to closing, the Company shall
execute a no-lien affidavit in favor of the Director and title insurance
company.
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173
Prior to each disbursement, if applicable, the Company shall furnish the
Director and the title insurance company lien waivers of all contractors,
subcontractors and materialmen performing work on or furnishing materials to the
Project through the time of the disbursement.
Part IT - Disbursements of State Assistance for Project Equipment
(a) The Director shall have verified that the items of equipment for which
disbursement is being requested (a) conform, in description, to the Project
Equipment described in the Exhibit B hereof; and (b) have been installed at the
Project Site.
(b) If disbursement is requested to reimburse the Company for Allowable
Costs paid by the Company, the Company shall have furnished the Director with
evidence that such costs have been paid to the equipment suppliers.
(c) If disbursement is to be made directly to an equipment supplier, the
Company shall have furnished the Director with supplier invoices evidencing the
amount due.
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174
EXHIBIT 16.1
GBQ Partners LLC
500 South Front Street
Columbus, Ohio 43215
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
We were previously principal accountants for Kahiki Foods, Inc. and on May
6, 2003, we reported on the financial statements of Kahiki Foods,Inc. as of
and for the two years ended March 31, 2003. On March 4, 2004, we were
dismissed as principal accountants of Kahiki Foods, Inc. We have read
Kahiki's statements included under Item 23 of its Form SB-2 for March 22,
2004 and we agree with such statements.
Very truly yours,
/s/ GBQ Partners, LLC
Certified Public Accountants
Columbus, Ohio
March 22, 2004
175
EXHIBIT 23.1
GBQ Partners LLC
500 South Front Street
Columbus, Ohio 43215
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated May 6, 2003 on the financial statements of Kahiki Foods, Inc.
as of March 31, 2003 and for the two years then ended (and to all
references to our Firm) included in or made a part of this Registration
Statement Form SB-2.
/s/GBQ Partners, LLC
Certified Public Accountants
Columbus, Ohio
March 22, 2004
EXHIBIT 23.2
Child, Sullivan & Company
4764 South 900 East, Suite1
Salt Lake City, Utah 84117
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
review report dated March 12, 2004 on the financial statements of Kahiki
Foods, Inc. as of December 31, 2003 and for the nine months ended December
31, 2003 and 2002 (and to all references to our Firm) included in or made a
part of this Registration Statement Form SB-2.
/s/Child, Sullivan & Company
Certified Public Accountants
Salt Lake City, Utah
March 22, 2004
176
EXHIBIT 99.1
2001 NON-QUALIFIED AND
INCENTIVE STOCK OPTION PLAN
1. Purpose of the Plan. This 2001 Non-Qualified and Incentive Stock Option
Plan of KAHIKI FOODS, INC. adopted as of April 6, 2001 is intended to encourage
officers, directors and key employees and advisors of the Company to acquire or
increase their ownership of common stock of the Company on reasonable terms. The
opportunity so provided is intended to foster in participants a strong incentive
to put forth maximum effort for the continued success and growth of the Company
and its Subsidiaries, to aid in retaining individuals who put forth such
efforts, and to assist in attracting the best available individuals to the
Company and its Subsidiaries in the future.
2. Definitions. When used herein, the following terms shall have the
meaning set forth below:
2.1. "Affiliate" means, with respect to any specified person
or entity, a person or entity that directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person or entity specified.
2.2. "Award Agreement" means a written agreement in such form
as may be, from time to time, hereafter approved by the Committee, which shall
be duly executed by the Company and which shall set forth the terms and
conditions of an Option under the Plan.
2.3. "Board" means the Board of Directors of Kahiki Foods,
Inc. (or its successors).
2.4. "Code" unless otherwise provided means the Internal
Revenue Code of 1986, as in effect at the time of reference, or any successor
revenue code which may hereafter be adopted in lieu thereof, and reference to
any specific provisions of the Code shall refer to the corresponding provisions
of the Code as it may hereafter be amended or replaced.
2.5. "Committee" means the Stock Option Committee of the Board
or any other committee appointed by the Board whose members meet the
requirements for eligibility to serve set forth in Section 4 which is invested
by the Board with responsibility for the administration of the Plan.
2.6. "Company" means Kahiki Foods, Inc. (or its successor).
2.7. "Employee" means an officer (including an officer who is
a member of the Board) or other key employee or advisor of the Company or any of
its Subsidiaries.
2.8. "Fair Market Value" means, with respect to the Company's
Shares, the fair market value determined by the Committee in its discretion,
except as hereinafter set forth. In the event that Shares are then being traded
on a national securities exchange, the Fair Market Value shall be deemed to be
the mean between the high and low prices of the Shares on such securities
exchange on the day on which the Option shall be granted, and if the Shares are
then being traded on such an exchange, but there are no sales on such day, such
Fair Market Value shall be deemed to be the mean between the bid and asked
prices for the Shares on such date, and if the Shares are not then traded on
such an exchange, but are then traded on the over-the- counter market, then such
Fair Market Value shall be deemed to be the mean between the high and low bid
and asked prices for the Shares on the over-the-counter market on the day on
which the Option shall be granted (or the next preceding day on which sales
occurred if there were no sales on the date of grant).
2.9. "Incentive Stock Option" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422A of the Code; "incentive stock option" means any option meeting the
requirements and containing the limitations set forth in Section 422A of the
Code.
2.10. "Non-Qualified Stock Option" means an Option other than
an Incentive Stock Option.
2.11. "Option" means the right to purchase, at a price and for
a term fixed by the Committee in accordance with the Plan, and subject to such
other limitations and restrictions as the Plan and the Committee impose, the
number of Shares specified by the Committee.
177
2.12. "Parent" means any corporation, other than the Company,
in an unbroken chain of corporations ending with the Company if, at the time of
the granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations of the chain.
2.13. "Plan" means the Company's 2001 Non-Qualified and
Incentive Stock Option Plan.
2.14. "Shares" means the Company's no par value Common Shares
or, if by reason of the adjustment provisions hereof any rights under any Option
under the Plan pertain to any other security, such other security.
2.15. "Subsidiary" means any corporation other than the
Company in an unbroken chain of corporations beginning with the Company if each
of the corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
2.16. "Successor" means the legal representative of the estate
of a deceased Employee or the person or persons who shall acquire the right to
exercise an Option by bequest or inheritance or by reason of the death of an
Employee.
2.17. "Term" means the period during which a particular Option
may be exercised.
3. Stock Subject to the Plan. There will be reserved for use,
upon the exercise of Options to be granted from time to time under the Plan, an
aggregate of Three Hundred Thousand (300,000) Shares, which Shares may be in
whole or in part, as the Board shall from time to time determine, authorized but
unissued Shares, or issued Shares which shall have been reacquired by the
Company. Any Shares subject to issuance upon exercise of Options but which are
not issued because of a surrender, lapse, expiration or termination of any such
Option prior to issuance of the Shares shall once again be available for
issuance in satisfaction of Options.
4. Administration of the Plan. The Board may, in its
discretion, appoint a Committee, which shall consist of not less than three (3)
persons, not less than two (2) of whom shall be members of the Board. In the
event no Committee is appointed, the Board shall take all actions under the Plan
and any reference in the Plan to the Committee shall be deemed to be a reference
to the Board where appropriate. Subject to the provisions of the Plan, the
Committee shall have full authority, in its discretion, to determine the
Employees to whom Options shall be granted, the number of Shares to be covered
by each of the Options, and the provisions of any such Option; to amend or
cancel Options; to accelerate the vesting of Options; to require the
cancellation or surrender of any previously granted options under this Plan or
any other plans of the Company as a condition to the granting of an Option; to
interpret the Plan; and to prescribe, amend, and rescind rules and regulations
relating to it, and generally to interpret and determine any and all matters
whatsoever relating to the administration of the Plan and the granting of
Options hereunder. The Board may, from time to time, appoint members to the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however, caused, in the Committee. The Committee shall
select one of its members as its Chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members shall
constitute a quorum. Any action of the Committee may be taken by a written
instrument signed by all of the members, and any action so taken shall be fully
as effective as if it has been taken by a vote of a majority of the members at a
meeting duly called and held. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable and shall
appoint a Secretary who shall keep minutes of its meetings and records of all
action taken in writing without a meeting. No member of the Committee shall be
liable, in the absence of bad faith, for any act or omission with respect to his
service on the Committee.
5. Employees to Whom Options May Be Granted. Options may be
granted in each calendar year or portion thereof while the Plan is in effect to
such of the Employees as the Committee, in its discretion, shall determine.
In determining the Employees to whom Options shall be granted
and the number of Shares to be subject to purchase under such Options, the
Committee shall take into account the duties of the respective Employees, their
present and potential contributions to the success of the Company, and such
other factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
6. Stock Options.
6.1. Types of Options. Options granted under this Plan may be
(i) Incentive Stock Options, (ii) Non-Qualified Stock Options, or (iii) a
combination of the foregoing. The Award Agreement shall designate whether an
Option is an Incentive Stock Option or a Non-Qualified Stock Option.
178
6.2. Option Price. The option price per share of any Option
granted under the Plan shall not be less than the Fair Market Value of the
Shares covered by the Option on the date the Option in granted.
Notwithstanding anything herein to the contrary, in the event
an Incentive Stock Option is granted to an Employee who, at the time such
Incentive Stock Option in granted, owns, as defined in Section 425 of the Code,
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of:
(i) the Corporation; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, the Parent,
then the option price per share of any Incentive Stock Option granted to such
Employee shall not be less than one hundred ten percent (110%) of the Fair
Market Value of the Shares covered by the Option on the date the Option is
granted.
6.3. Term of Options. Options granted hereunder shall be
exercisable for a Term of not more than ten (10) years from the date of grant
hereof, but shall be subject to earlier termination as hereinafter provided.
Each Award Agreement issued hereunder shall specify the Term of the Option,
which Term shall be determined by the Committee in accordance with its
discretionary authority hereunder.
Notwithstanding anything herein to the contrary, in the event
any Incentive Stock Option in granted to any Employee who, at the time such
Incentive Stock Option is granted, owns, as defined in Section 425 of the Code,
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of:
(i) the Corporation; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, the Parent,
then such Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
7. Limit on Fair Market Value. In any calendar year, no
Employee may be granted an Incentive Stock Option hereunder to the extent that
the aggregate Fair Market Value (determined at the time the Option is granted)
of the stock with respect to which incentive stock options are exercisable for
the first time by such Employee during any calendar year (under all such plans
of the Employee's employer corporation, and, if any, its Parent and Subsidiary
Corporations) exceeds the sum of One Hundred Thousand Dollars ($100,000). For
purposes of the preceding sentence, Options shall be taken into account in the
order in which they were granted. Any Option granted under the Plan which is
intended to be an Incentive Stock Option, but which exceeds the limitations set
forth in this Section 7, shall be a Non-Qualified Stock Option.
8. Date of Grant. The date of grant of an Option granted
hereunder shall be the date on which the Committee acts in granting the Option.
9. Exercise of Rights Under Options. An Employee entitled to
exercise an Option may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is being
exercised and any other information the Committee may prescribe. The notice
shall be accompanied by payment in full of the purchase price of any Shares to
be purchased, which payment may be made (i) in cash or, (ii) with the
Committee's approval, in common stock of the Company valued at Fair Market Value
at the time of exercise, (iii) or, with the Committee's approval and to the
extent permitted by applicable state law, by a promissory note bearing interest
at no less than the minimum rate necessary to avoid imputed interest under the
Code, or (iv) a combination thereof. No Shares shall be issued upon exercise of
an Option until full payment has been made therefor. All notices or requests
provided for herein shall be delivered to the President of the Company.
10. Option Provisions and Conditions. Each Award Agreement
shall contain such other provisions and conditions not inconsistent herewith as
shall be approved by the Board or by the Committee.
11. Rights of Option Holder. The holder of an Option shall not
have any of the rights of a stockholder with respect to the Shares subject to
purchase under his Option, except to the extent that one or more certificates
for such Shares shall be delivered to him upon the due exercise of the Option.
179
12. Non-transferability of Options. An Option shall not
be transferable, other than by will or the laws of
descent and distribution, and an Option may be
exercised, during the lifetime of the holder of the
Option, only by him.
13. Adjustments Upon Changes in Capitalization. In the
event of changes in all of the outstanding Shares
by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations,
combinations, or exchanges of shares, separations,
reorganizations or liquidations, the number and
class of Shares available under the Plan in the
aggregate, the number and class of Shares subject
to Options theretofore granted, applicable purchase
prices and all other applicable provisions, shall,
subject to the provisions of the Plan, be equitably
adjusted by the Committee. The foregoing adjustment
and the manner of application of the foregoing
provisions shall be determined by the Committee in
its sole discretion. Any such adjustment may
provide for the elimination of any fractional Share
which might otherwise become subject to an Option.
14. Unusual Corporate Events. Notwithstanding anything
to the contrary, in the case of an unusual
corporate event such as liquidation, merger,
reorganization (other than a reorganization as
defined by Section 368(a)(1)(F) of the Code), or
other business combination, acquisition or change
in the control of the Company through a tender
offer or otherwise, the Board may, in its sole
discretion, determine, on a case by case basis,
that each Option granted under the Plan shall
terminate ninety (90) days after the occurrence of
such unusual corporate event, but, in the event of
any such termination the Option holder shall have
the right, commencing at least five (5) days prior
to such unusual corporate event and subject to any
other limitation on the exercise of such Option in
effect on the date of exercise to immediately
exercise any Options in full, without regard to any
vesting limitations, to the extent they shall not
have been exercised.
15. Form of Options. An Option shall be granted
hereunder only by action by the Board of the
Committee in granting an Option. Whenever the
Committee shall designate an Employee for the
receipt of an Option, the Secretary or the
President of the Company, or such other person as
the Committee shall appoint, shall forthwith send
notice thereof to the Employee, in such form as the
Committee shall approve, stating the number of
Shares subject to the Option, its Term, and the
other terms and conditions thereof. The notice
shall be accompanied by a written Award Agreement
in such form as may from time to time hereafter be
approved by the Committee, which shall have been
duly executed by or on behalf of the Company. If
the surrender of previously issued Options is made
a condition of the grant, the notice shall set
forth the pertinent details of such conditions and
the written Award Agreement executed by or on
behalf of the Company shall be delivered to the
Employee on the day such surrender is made, but it
shall be dated, as are all Award Agreements, as of
the date on which the Committee designated the
Employee to receive an Option hereunder. Execution
by the Employee to whom such Option is granted of
said Award Agreement in accordance with the
provisions set forth in this Plan shall be a
condition precedent to the exercise of any Option.
16. Taxes. The Company shall have the right to deduct
from any amounts due to the Employee pursuant to
the exercise of an Option any taxes required by law
to be withheld. Furthermore, the Company may elect
to deduct such taxes from any other amounts payable
then or any time thereafter in cash to the
Employee. The Company shall also have the right to
require a person entitled to receive Shares
pursuant to the exercise of an Option under the
Plan to pay the Company the amount of any taxes
which the Company is or will be required to
withhold with respect to such Shares before the
certificate for such Shares is delivered pursuant
to the Option. If the Employee disposes of Shares
acquired pursuant to an Incentive Stock Option in
any transaction considered to be a disqualifying
transaction under Section 421 and 422A of the Code,
the Company shall have the right to deduct any
taxes required by law to be withheld on account of
such disqualifying disposition from any for any
reason otherwise payable to the Employee in cash by
the Company.
17. Termination of Plan. The Plan shall terminate on
March 31, 2011, and an Option shall not be granted
under the Plan after that date. Any Options
outstanding at the time of termination of the Plan
shall continue in full force and effect according
to the terms and conditions of the Award Agreements
pursuant to which the Options were granted and this
Plan.
18. Amendment of the Plan. The Plan may be amended at
any time and from time to time by the Board, but no
amendment without the approval of the stockholder
of the Company shall:
(a) increase the maximum number of Shares as to which
Options may be granted under the Plan;
(b) expand or change the class of persons eligible to
receive Options;
(c) permit the purchase price of Shares subject to an
Incentive Stock Option granted under the Plan to be
less than the Fair Market Value of such Shares at
the time the Incentive Stock Option is granted;
(d) extend the term of the Plan; or
180
(e) materially increase the benefits to the Employees under
the Plan.
No amendment of the Plan or any Option granted under the Plan
shall alter or impair any of the rights or obligations of any person, without
his consent, under any Option theretofore granted under the Plan.
19. Delivery of Shares on Exercise. Delivery of certificates
for Shares pursuant to an Option exercise shall be postponed by the Company for
such period as may be required for it to comply with any applicable requirements
of any federal, state or local law or regulation or any administrative or quasi-
administrative requirement applicable to the sale, issuance, distribution or
delivery of such Shares.
20. Fees and Costs. The Company shall pay all original issue
taxes, if any, on the exercise of any Option granted under the Plan and all
other fees and expenses necessarily incurred by the Company in connection
therewith.
21. Effectiveness of the Plan. This 2001 Non-Qualified and
Incentive Stock Option Plan of Kahiki Foods, Inc. shall become effective when
approved by the shareholders. The Plan was approved by the Board as of April 6,
2001.
22. Other Provisions. As used in the Plan, and in Award
Agreements and other documents prepared in implementation of the Plan,
references to the masculine pronoun shall be deemed to refer to the feminine or
neuter, and references in the singular or the plural shall refer to the plural
or the singular, as the identity of the person or persons or entity or entities
being referred to may require. The captions used in the Plan and in such Award
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
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