-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P0e+oE1+iIEHsJM0UwFU0N+y+lxf3oN5dEFhSP7GGPoJpVhY4b9iQZPJscjLHwVM NHwfdPMHZxZqgZ2uWDyPtw== /in/edgar/work/0000891092-00-000969/0000891092-00-000969.txt : 20001030 0000891092-00-000969.hdr.sgml : 20001030 ACCESSION NUMBER: 0000891092-00-000969 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COFFEE HOLDING CO INC CENTRAL INDEX KEY: 0001007019 STANDARD INDUSTRIAL CLASSIFICATION: [6770 ] IRS NUMBER: 113860760 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-00588-NY FILM NUMBER: 748015 BUSINESS ADDRESS: STREET 1: 4401 FIRST AVENUE CITY: BROOKLYN STATE: NY ZIP: 11232 BUSINESS PHONE: 7188320800 MAIL ADDRESS: STREET 1: 4401 FIRST AVENUE CITY: BROOKLYN STATE: NY ZIP: 11232 FORMER COMPANY: FORMER CONFORMED NAME: TRANSPACIFIC INTERNATIONAL GROUP CORP DATE OF NAME CHANGE: 19960201 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549-1004 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _______________. Commission file No. _______ COFFEE HOLDING CO., INC. (Exact name of registrant as specified in its charter) Nevada 11-2238111 (state or other jurisdiction of (IRS employer incorporation or organization) identification number) 4401 First Avenue, Brooklyn, New York 11232 (address of principal executive offices) (zip code) Registrant's telephone number, including area code (718) 832-0800 Securities registered pursuant to Section 12(b) of the Act: None ---- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: None ---- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X . As of September 30, 2000, the Registrant had 3,999,650 shares of common stock, par value $.001 per share, outstanding. PART I COFFEE HOLDING CO., INC. ITEM 1. FINANCIAL STATEMENTS COFFEE HOLDING CO., INC. INDEX TO UNAUDITED FINANCIAL STATEMENTS PAGE ------ BALANCE SHEETS APRIL 30, 1998 AND OCTOBER 31, 1997 F-2 STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997 F-3 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED APRIL 30, 1998 F-4 STATEMENTS OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 1998 AND 1997 F-5 NOTES TO FINANCIAL STATEMENTS F-6/17 * * * F-1 COFFEE HOLDING CO., INC. BALANCE SHEETS APRIL 30, 1998 AND OCTOBER 31, 1997
April October ASSETS 30, 1998 31, 1997 ------ ----------- ------------ (Unaudited) (See Note 1) Current assets: Cash $ 70,314 $ 198,679 Due from broker 199,588 423,899 Accounts receivable, net of allowance for doubtful accounts of $215,000 and $254,317 2,335,113 2,858,201 Inventories 1,831,898 1,379,383 Cash and cash equivalents restricted under mortgage note 370,237 66,070 Prepaid expenses and other current assets 27,756 27,066 ---------- ---------- Total current assets 4,834,906 4,953,298 Property and equipment, at cost, net of accumulated depreciation of $1,521,164 and $1,422,651 2,166,427 1,722,194 Deferred mortgage costs, net of accumulated amortization of $46,029 and $43,449 59,366 61,946 Deposits and other assets 133,826 57,191 ---------- ---------- Totals $7,194,525 $6,794,629 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Due factor $2,503,228 Mortgage note payable $ 625,000 650,000 Current portion of term loan 87,312 Current portion of obligations under capital leases 235,479 127,524 Accounts payable and accrued expenses 1,971,520 2,209,420 ---------- ---------- Total current liabilities 2,919,311 5,490,172 Term loan, net of current portion 273,498 Line of credit borrowings 2,587,095 Obligations under capital leases, net of current portion 367,872 233,810 Loans from related parties 75,492 475,215 ---------- ---------- Total liabilities 6,223,268 6,199,197 ---------- ---------- Commitments and contingencies Stockholders' equity: Preferred stock, par value $.001 per share; 10,000,000 shares authorized; none issued -- -- Common stock, par value $.001 per share; 30,000,000 shares authorized, 3,999,650 shares issued and outstanding 4,000 Common stock, no par value; 200 shares authorized; 100 shares issued and outstanding 460,000 Additional paid-in capital 480,997 Retained earnings 486,260 135,432 ---------- ---------- Total stockholders' equity 971,257 595,432 ---------- ---------- Totals $7,194,525 $6,794,629 ========== ==========
See Notes to Financial Statements. F-2 COFFEE HOLDINGS CO., INC. STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited)
Six Months Three Months Ended April 30, Ended April 30, ------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Net sales $13,181,142 $11,537,024 $ 6,324,247 $ 6,531,390 Cost of sales 11,329,593 9,166,989 6,181,727 4,826,402 ----------- ----------- ----------- ----------- Gross profit 1,851,549 2,370,035 142,520 1,704,988 ----------- ----------- ----------- ----------- Operating expenses: Selling and administrative 900,919 877,064 407,752 561,844 Officers' salaries 163,175 117,802 72,500 56,545 ----------- ----------- ----------- ----------- Totals 1,064,094 994,866 480,252 618,389 ----------- ----------- ----------- ----------- Income (loss) from operations 787,455 1,375,169 (337,732) 1,086,599 ----------- ----------- ----------- ----------- Other expenses: Interest expense 186,403 165,424 89,501 79,890 Expenses in connection with reverse acquisition 180,000 180,000 ----------- ----------- ----------- ----------- Totals 366,403 165,424 269,501 79,890 ----------- ----------- ----------- ----------- Income (loss) before income taxes 421,052 1,209,745 (607,233) 1,006,709 Provision (credit) for state and local income taxes 46,000 142,534 (67,000) 116,648 ----------- ----------- ----------- ----------- Net income (loss) $ 375,052 $ 1,067,211 $ (540,233) $ 890,061 =========== =========== =========== =========== Unaudited: Historical income (loss) before income taxes $ 421,052 $ 1,209,745 $ (607,233) $ 1,006,709 Pro forma: Provision (credit) for income taxes 191,000 544,000 (273,000) 453,000 ----------- ----------- ----------- ----------- Net income (loss) $ 230,052 $ 665,745 $ (334,233) $ 553,709 =========== =========== =========== =========== Basic earnings (loss) per share $ .06 $ .17 $ (.08) $ .14 =========== =========== =========== =========== Basic weighted average common shares outstanding 3,999,650 3,999,650 3,999,650 3,999,650 =========== =========== =========== ===========
See Notes to Financial Statements. F-3 COFFEE HOLDING CO., INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY SIX MONTHS ENDED APRIL 30, 1998 (Unaudited)
Common Stock -------------------------------------------- No Par Value $.001 Par Value -------------------- --------------------- Additional Number of Number of Paid-in Retained Shares Amount Shares Amount Capital Earnings Total -------- --------- ---------- -------- -------- -------- -------- Balance, November 1, 1997, as adjusted 100 $ 460,000 $135,432 $595,432 Effect of reverse acquisition (100) (460,000) 3,999,650 $ 4,000 $480,997 (24,224) 773 Net income 375,052 375,052 ------ --------- ---------- -------- -------- -------- -------- Balance, April 30, 1998 -- $ -- 3,999,650 $ 4,000 $480,997 $486,260 $971,257 ====== ========= ========== ======== ======== ======== ========
See Notes to Financial Statements. F-4 COFFEE HOLDING CO., INC. STATEMENTS OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 1998 AND 1997 (Unaudited)
1998 1997 --------- ---------- Operating activities: Net income $ 375,052 $1,067,211 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 101,472 106,501 Changes in operating assets and liabilities: Due from broker 224,311 (50,533) Accounts receivable 523,088 (405,397) Inventories (452,515) (405,347) Prepaid expenses and other current assets (690) 691 Deposits and other assets (76,635) Accounts payable and accrued expenses (237,127) 251,762 --------- ---------- Net cash provided by operating activities 456,956 564,888 --------- ---------- Investing activities - purchases of property and equipment (254,625) (138,855) --------- ---------- Financing activities: Net repayments of amounts due factor (99,913) Principal payments on mortgage note payable (25,000) (25,000) Increase in cash and cash equivalents restricted under mortgage note (304,167) Principal payments on term loan (43,656) Net advances under bank line of credit 488,333 Principal payments of obligations under capital leases (46,483) Repayments of loans from related parties (399,723) (151,612) --------- ---------- Net cash used in financing activities (330,696) (276,525) --------- ---------- Net increase (decrease) in cash (128,365) 149,508 Cash, beginning of period 198,679 11,090 --------- ---------- Cash, end of period $ 70,314 $ 160,598 ========= ========== Supplemental disclosure of cash flow data: Interest paid $ 186,403 $ 165,424 ========= ========== Income taxes paid $ 104,664 =========
Supplemental schedule of noncash investing and financing activities: During the six months ended April 30, 1998, the Company purchased equipment at a cost of $288,500 by incurring capital lease obligations. During the six months ended April 30, 1998, the Company increased its obligations under the credit facility that provides it with the line of credit and term loan and decreased the balance payable to its factor through a direct transfer of $2,503,288 from the bank to the factor. See Notes to Financial Statements. F-5 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 1 - Business activities and reverse acquisition: Coffee Holding Co., Inc. ("Coffee"), which was incorporated in New York on January 22, 1971, conducts wholesale coffee operations, including manufacturing, roasting, packaging, marketing and distributing roasted and blended coffees for private labeled accounts and its own brands, and sells green coffees. The Company's sales are primarily to customers that are located throughout the United States. On February 10, 1998, the holders of all of the shares of Coffee's common stock consummated an exchange (the "Exchange") of their shares for shares of common stock of Transpacific International Group Corp. ("Transpacific"). Transpacific was incorporated in Nevada on October 9, 1995 and organized originally as a "blind pool" or "blank check" company for the purpose of either merging with or acquiring an operating company. It had been a development stage company with no significant operating activities or assets and liabilities prior to the Exchange. Transpacific, which had, effectively, 999,650 outstanding shares of common stock (with a par value of $.001 per share) prior to the Exchange, issued 3,000,000 shares of common stock in exchange for all of the 100 issued and outstanding shares of common stock (no par value) of Coffee. Concurrently, Coffee was merged into Transpacific (the "Merger") and Transpacific changed its name to Coffee Holding Co., Inc. Coffee Holding Co., Inc. after the Exchange, the Merger and the name change is referred to below as the "Company" or the "Combined Company." The "Company" is also used to refer to Coffee Holding Co., Inc. prior to the Exchange, the Merger and the name change. The stockholders of Coffee also owned 540,040 shares of common stock of Transpacific prior to the Exchange and, accordingly, they owned a total of 3,540,400 or 88.5% of the outstanding shares of the Combined Company immediately after the Exchange. Therefore, the Merger was treated, effective as of February 10, 1998, as a "purchase business combination" and a "reverse acquisition" for accounting purposes in which Transpacific was the "legal acquirer" and Coffee was the "accounting acquirer." The carrying values of the assets and liabilities of Transpacific, which were immaterial, were recorded at their historical carrying values as of February 10, 1998. Accordingly, the historical financial statements included herein only reflect the operations of Coffee for the period prior to February 10, 1998. All references to numbers of shares of common stock as of the dates or for periods prior to the Exchange have been restated to reflect the ratio of the number of common shares of Transpacific effectively exchanged for common shares of Coffee. Consulting and professional fees and other costs incurred in connection with the reverse acquisition totaling $180,000 were charged to expense during the six months ended April 30, 1998. Information as to the unaudited pro forma results of operations of the Company assuming the Merger had been consummated as of, and the results of operations of Transpacific had been included from, November 1, 1996 has not been presented because such pro forma results would not differ materially from the historical results of operations for the six months ended April 30, 1998 and 1997 reflected in the accompanying historical statements of operations. F-6 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies: Basis of presentation: In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company as of April 30, 1998, its results of operations for the six and three months ended April 30, 1998 and 1997, its changes in stockholders' equity for the six months ended April 30, 1998 and its cash flows for the six months ended April 30, 1998 and 1997. Information included in the balance sheet as of October 31, 1997 has been derived from the Company's audited financial statements. Pursuant to generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission for interim financial statements, certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from these financial statements. Operating results for the six and three month periods ended April 30, 1998 and 1997 are not necessarily indicative of the results that may be expected for the years ending October 31, 1998 and 1997. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash equivalents: Cash equivalents represent highly liquid investments with maturities of three months or less at the date of purchase. Inventories: Inventories are valued at the lower of cost (first-in, first-out basis) or market. Property and equipment: Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Hedging: The Company uses futures and options contracts to hedge the effects of fluctuations in the price of green coffee beans. These transactions meet the requirements for hedge accounting, including designation and correlation. To obtain a proper matching of revenues and expenses, gains or losses arising from open and closed hedging transactions are included in inventory as a cost of the commodity and reflected in the statement of operations when the product is sold. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in the price of green coffee. Management believes that the overall exposure to credit risk is minimal. At April 30, 1998, the Company held options covering an aggregate of 2,927,000 pounds of green coffee beans which are exercisable in fiscal 1998 at prices ranging from $1.35 to $1.45 per pound. The fair market value of these options, which was obtained from a major financial institution, was approximately $322,000 at April 30, 1998. Due from broker includes the effects of unrealized hedging losses of $296,789 and $299,934 at April 30, 1998 and October 31, 1997, respectively. F-7 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Deferred mortgage costs: Costs incurred in connection with obtaining mortgage financing have been capitalized and are being amortized over the term of the mortgage using a method that approximates the interest method. Amortization of deferred mortgage costs was not material for the six and three months ended April 30, 1998 and 1997. Advertising: The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations totaled $89,006 and $50,116 for the six months ended April 30, 1998 and 1997, respectively, and $61,943 and $25,320 for the three months ended April 30, 1998 and 1997, respectively. Income taxes: Prior to the Merger on February 10, 1998, Coffee, with the consent of its stockholders, had elected to be treated as an "S" Corporation under the Internal Revenue Code. Accordingly, the Company's income or loss prior to that date was allocated to Coffee's stockholders for inclusion in their personal Federal income tax returns. Therefore, the Company was not required to record any historical provision or credit for Federal income taxes for the period prior to February 10, 1998. The Company had also elected to be treated as an "S" Corporation for New York state income tax purposes. However, New York imposes a tax on "S" Corporation income at a reduced rate and New York City does not recognize "S" Corporations. Therefore, the Company was required to record appropriate historical provisions and credits for state and local income taxes in periods prior and subsequent to February 10, 1998. The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. F-8 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (continued): Stock options: In accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," the Company will recognize compensation costs as a result of the issuance of stock options to employees based on the excess, if any, of the fair value of the underlying stock at the date of grant or award (or at an appropriate subsequent measurement date) over the amount the employees must pay to acquire the stock. Therefore, the Company will not be required to recognize compensation expense as a result of any grants of stock options to employees at an exercise price that is equivalent to or greater than fair value. The Company will also make pro forma disclosures, as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), of net income or loss as if a fair value based method of accounting for stock options had been applied, if such amounts differ materially from the historical amounts. Earnings (loss) per share: The Company presents "basic" and, if applicable, "diluted" earnings per common share pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") and certain other financial accounting pronouncements. Basic earnings (loss) per common share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per common share is similar to that of basic earnings per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options, were issued during the period. Since the Company had elected to be taxed as an "S" Corporation, it was not required to provide for Federal income taxes and it was only required to provide for state income taxes at a reduced rate prior to the date of the Exchange. SEC rules and regulations prohibit the presentation of earnings (loss) per common share amounts on a historical basis for the periods during which the "S" Corporation elections were in effect; instead, they require the presentation of basic and, if applicable, diluted unaudited pro forma earnings (loss) per common share amounts in the statements of operations for such periods assuming that the Company had been subject to Federal and state income taxes at statutory rates applicable to those companies that had not made "S" Corporation elections. Since the Company had elected to be taxed as an "S" Corporation for part of the six and three months ended April 30, 1998 and all of six and three months ended April 30, 1997 and it had no potentially dilutive securities outstanding during the six months ended April 30, 1998 and 1997, unaudited pro forma earnings (loss) per share is presented in the accompanying statements of operations for the six and three months ended April 30, 1998 and 1997. F-9 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 2 - Summary of significant accounting policies (concluded): Earnings (loss) per share (concluded): The weighted average common shares outstanding used in the computation of unaudited pro forma basic earnings (loss) per share for the six and three months ended April 30, 1998 and 1997 was 3,999,650, which reflects the retroactive adjustment of the number of common shares of Transpacific actually outstanding to include only the 999,650 shares effectively outstanding as of the date of the Exchange and the 3,000,000 shares of common stock issued to the stockholders of Coffee in connection with the Exchange (see Note 1). Recent accounting pronouncements: The Financial Accounting Standards Board and the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants had issued certain other accounting pronouncements as of April 30, 1998 that will become effective in subsequent periods; however, management of the Company does not believe that any of those pronouncements would have significantly affected the Company's financial accounting measurements or disclosures had they been in effect during the six months ended April 30, 1998 and 1997. Note 3 - Inventories: Inventories at April 30, 1998 and October 31, 1997 consisted of the following: April October 30, 1998 31, 1997 ---------- ----------- Packed coffee $ 660,115 $ 389,796 Green coffee 950,287 805,780 Packaging supplies 221,496 183,807 ---------- ---------- Totals $1,831,898 $1,379,383 ========== ========== Note 4 - Property and equipment: Property and equipment at April 30, 1998 and October 31, 1997 consisted of the following:
Estimated April October Useful Life 30, 1998 31, 1997 ----------- ---------- ---------- Building and improvements 30 years $1,128,182 $1,109,696 Machinery and equipment 7 years 1,621,798 1,399,084 Machinery and equipment under capital leases 7 years 694,609 406,109 Furniture and fixtures 7 years 102,002 88,956 ---------- ---------- 3,546,591 3,003,845 Less accumulated depreciation 1,521,164 1,422,651 ---------- ---------- 2,025,427 1,581,194 Land 141,000 141,000 ------------ ---------- Totals $2,166,427 $1,722,194 ========== ==========
F-10 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 4 - Property and equipment (concluded): Depreciation totaled $98,892 and $103,920 for the six months ended April 30, 1998 and 1997, respectively, and $50,946 and $51,960 for the three months ended April 30, 1998 and 1997, respectively. Note 5 - Cash and cash equivalents restricted under mortgage note: Restricted cash and cash equivalents at April 30, 1998 and October 31, 1997 consisted of investments in the following interest-bearing accounts: April October 30, 1998 31, 1997 -------- -------- Cash in escrow $ 20,237 $66,070 Certificate of deposit 350,000 -------- ------- Totals $370,237 $66,070 ======== ======= Cash in escrow represents amounts held in accounts for the payment of principal, interest and various fees in connection with the New York City Industrial Development Agency ("NYCIDA") mortgage note payable (see Note 6). The Company did not comply with certain covenants, as defined, under the NYCIDA agreement at April 30, 1998 and October 31, 1997. As a result of its noncompliance at October 31, 1997, it was required to obtain an irrevocable letter of credit from ABN Amro Bank to secure the mortgage note and to pledge a $350,000 certificate of deposit to secure the letter of credit during the six months ended April 30, 1998. Note 6 - Mortgage note payable: On June 1, 1989, the Company financed the purchase of land and building through the issuance of a mortgage note payable in the principal amount of $1,050,000 to the NYCIDA. The mortgage note, which had an outstanding balance of $625,000 and $650,000 at April 30, 1998 and October 31, 1997, respectively, requires monthly payments of $4,167 plus interest based on a variable rate set weekly by Bear Stearns & Co. The final payment is due November 1, 2009. The payment of the note is secured by a first mortgage on the Company's land and building. The NYCIDA agreement contains certain financial covenants. At April 30, 1998 and October 31, 1997, the Company was not in compliance with the covenants. Accordingly, the mortgage note payable was due on demand and classified as a current liability, and the restricted investments securing the mortgage note (see Note 5) were classified as current assets, in the accompanying April 30, 1998 and October 31, 1997 balance sheets. F-11 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 7 - Credit facility borrowings: The Company was obligated for borrowings under a factoring agreement until November 21, 1997 when it obtained a credit facility from Nationscredit Commercial Corp. consisting of a revolving line of credit and a term loan. The factoring agreement provided for borrowings of up to (i) 80% of the Company's eligible trade accounts receivable and (ii) 50% of its eligible inventories up to a maximum of $400,000. The outstanding balance of $2,503,228 at October 31, 1997 approximated the maximum amount that the Company could borrow based on its eligible trade accounts receivable and inventories as of that date. Interest was payable monthly at the prime rate plus 2% and borrowings up to $200,000, plus interest and other costs and expenses as defined, were guaranteed by a stockholder. The Company incurred costs of approximately $113,000 in connection with the cancellation of the factoring agreement that were charged to interest expense during the six months ended April 30, 1998. The line of credit provides for borrowings of up to 85% of the Company's eligible trade accounts receivable and 60% of its eligible inventories up to a maximum of $5,000,000 through November 20, 2000 when the line of credit expires and any outstanding balance must be repaid. The outstanding balance of $2,587,095 at April 30, 1998 approximated the maximum amount that the Company could borrow based on its eligible trade accounts receivable and inventories as of that date. Interest is payable monthly at the prime rate plus 1% (an effective rate of 9.5% at April 30, 1998). The term loan, which had an outstanding balance of $360,810 (including a current portion of $87,312) at April 30, 1998, provides for borrowings of up to the greater of 80% of the cost of eligible equipment or $500,000. Principal is payable in monthly installments of $7,276 plus interest which is also at the prime rate plus 1% until November 20, 2000 at which time the outstanding balance must also be repaid. Two of the Company's stockholders have each guaranteed outstanding borrowings under the credit facility of up to $100,000, plus interest and other costs and expenses as defined. Note 8 - Loans from related parties: The Company had loans payable to its stockholders of $75,492 and $475,215 at April 30, 1998 and October 31, 1997, respectively. The loans are due on demand, bear interest at 10% and are subordinated to the balance outstanding under the mortgage note payable. Interest expense was not material for the six and three months ended April 30, 1998 and 1997. F-12 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 9 - Income taxes: As shown in the accompanying statements of operations, the Company had historical provisions and credits for income taxes for the six and three months ended April 30, 1998 and 1997 that were attributable to state and local income taxes as set forth below: Six Months Three Months Ended April 30, Ended April 30, -------------------- -------------------- 1998 1997 1998 1997 ------- -------- --------- -------- State $ 8,000 $ 33,534 $(15,000) $ 26,048 Local 38,000 109,000 (52,000) 90,600 ------- -------- -------- --------- Total historical $46,000 $142,534 $(67,000) $116,648 ======= ======== ======== ======== As explained in Note 2, prior to February 10, 1998, the date of the Exchange, the Company had elected to be taxed as an "S" Corporation and, accordingly, it was not required to record a provision (credit) for Federal income taxes on its historical income before income taxes of approximately $1,028,000, $1,210,000 and $1,007,000 for the period from November 1, 1997 to February 10, 1998 and the six and three months ended April 30, 1997, respectively; however, it was required to provide for state income taxes at a reduced rate and New York City income taxes at the same rates as companies that had not made such an election during those periods. Although the Company became subject to Federal, state and local income taxes at full statutory rates for periods subsequent to the date of the Exchange, it had a historical loss before income taxes of approximately $607,000 for the period from February 11, 1998 to April 30, 1998, and it was not required to record any historical provision or credit for Federal income taxes during that period as further explained below. As a result of the loss for the period from February 11, 1998 to April 30, 1998 and certain other elections related to the termination of its "S" Corporation election, the Company had net operating loss carryforwards as of April 30, 1998 of approximately $227,000 available to reduce future Federal, state and local taxable income which, if not used, will expire in 2012. There were no other material temporary differences as of April 30, 1998. Due to the uncertainties related to the extent and timing of the Company's future taxable income, the Company offset the deferred tax assets of approximately $102,000 attributable to the potential benefits from the net operating loss carryforwards as of April 30, 1998 by an equivalent valuation allowance and, accordingly, it did not recognize a credit for Federal income taxes for the period from February 11, 1998 to April 30, 1998. As a result of recording the valuation allowance for the period after February 10, 1998, and the "S" Corporation election for the period through February 10, 1998, the Company did not recognize any provision or credit for Federal income taxes for the six and three months ended April 30, 1998. The differences between the tax provision or credit computed based on the Company's historical pre-tax income or loss and the applicable statutory income tax rate and the Company's historical provisions and credits for Federal, state and local income taxes for the six and three months ended April 30, 1998 and 1997 are set forth below: F-13 COFFEE HOLDING CO., INC. NOTES TO FINANCIAL STATEMENTS Note 9 - Income taxes (concluded):
Six Months Three Months Ended April 30, Ended April 30, --------------------- --------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Tax provision (credit) at statutory rate of 34% $ 143,000 $ 411,000 $(206,000) $342,000 Adjustments for effects of: State income taxes, net of Federal benefit 46,000 142,534 (67,000) 116,648 "S" Corporation election and termination of "S" Corporation election (245,000) (411,000) 104,000 (342,000) Change in valuation allowance 102,000 102,000 ---------- --------- --------- -------- Historical provision $ 46,000 $ 142,534 $ (67,000) $116,648 ========== ========= ========= ========
The Company's "S" Corporation election was in effect for part or all of the six and three months ended April 30, 1998 and 1997. Unaudited pro forma historical provisions and credits for income taxes assuming the Exchange had occurred on November 1, 1996 and the Company was subject to Federal, state and local income taxes at full statutory rates for all of the six and three months ended April 30, 1998 and 1997 are set forth below:
Six Months Three Months Ended April 30, Ended April 30, -------------------- --------------------- 1998 1997 1998 1997 -------- -------- --------- -------- Federal $119,000 $336,000 $(168,000) $280,000 State 34,000 99,000 (50,000) 82,000 Local 38,000 109,000 (55,000) 91,000 -------- --------- --------- -------- Total pro forma (unaudited) $191,000 $544,000 $(273,000) $453,000 ======== ======== ========= ========
The unaudited pro forma provisions and credits for income taxes reflect an effective rate of approximately 45% for each period comprised of an 11% rate for state and local income taxes, net of the related Federal income tax effect, and a statutory Federal income tax rate of 34%. F-14 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 10- Lease commitments: Operating lease: The Company occupies warehouse facilities under an operating lease which expires on August 31, 2002 unless renewed at the option of the Company for an additional two years. The lease requires the Company to pay utilities and other maintenance expenses. Rent charged to operations amounted to $23,400 and $11,700 for the six and three months ended April 30, 1998, respectively. The Company had no obligations under noncancelable operating leases during the six months ended April 30, 1997. Future minimum rental payments under the noncancelable operating lease in years subsequent to April 30, 1998 were as follows: Year Ending April 30, Amount ----------- --------- 1999 $ 46,800 2000 46,800 2001 46,800 2002 46,800 2003 15,600 -------- Total $202,800 ======== Capital leases: As of April 30, 1998, the Company was obligated under various capital leases for machinery and equipment that expire at various dates through February 2001. Assets under capital leases are amortized over their estimated useful lives of seven years. Amortization of $28,388 and $14,194 was charged to operations in the six and three months ended April 30, 1998, respectively. The Company had no capital lease obligations during the six months ended April 30, 1997. The future minimum lease payments under capital leases and the net present value of the future minimum lease payments at April 30, 1998 were as follows: Total minimum lease payments $706,363 Less amount representing interest 103,012 -------- Present value of net minimum lease payments 603,351 Less current portion 235,479 -------- Long-term portion $367,872 ======== F-15 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 11- Concentrations of credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, amounts due from broker and trade accounts receivable. The Company maintains its cash and cash equivalents in bank and brokerage accounts the balances of which, at times, may exceed Federal insurance limits. At April 30, 1998, the Company had cash balances that exceeded Federal insurance limits by $250,000. The net balance of the Company's investments in derivative financial instruments also represents an amount due from a broker. Exposure to credit risk is reduced by placing such deposits and investments with major financial institutions and monitoring their credit ratings. Approximately 19% of the Company's sales were derived from one customer during the six months ended April 30, 1998. That customer also accounted for approximately $282,000 of the Company's accounts receivable balance at April 30, 1998. Concentrations of credit risk with respect to other trade receivables are limited due to the short payment terms generally extended by the Company; by ongoing credit evaluations of customers; and by maintaining an allowance for doubtful accounts that management believes will adequately provide for credit losses. Management does not believe that credit risk was significant at April 30, 1998 and October 31, 1997. Note 12- Stock option plan: On February 10, 1998, the Company's stockholders consented to the adoption of the Company's stock option plan (the "Plan") whereby incentive and/or nonincentive stock options for the purchase of up to 2,000,000 shares of the Company's common stock may be granted to the Company's directors, officers, other key employees and consultants. Under the Plan, the exercise price of all options must be at least 100% of the fair market value of the common stock on the date of grant (the exercise price of an incentive stock option for an optionee that holds more than 10% of the combined voting power of all classes of stock of the Company must be at least 110% of the fair market value on the date of grant). As of April 30, 1998, no options had been granted under the Plan. Note 13- Major vendors: During the six months ended April 30, 1998, substantially all of the Company's purchases were from nine vendors that also accounted for substantially all of the Company's accounts payable at April 30, 1998. Management does not believe that the loss of any one vendor would have a material adverse effect on the Company's operations due to the availability of alternate suppliers. F-16 COFFEE HOLDING CO., INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Note 14- Prior period adjustments: The Company's retained earnings balance as of November 1, 1997 has been retroactively adjusted to reflect prior period adjustments to annual financial statements it had previously issued that were attributable to the net effects of the unrecorded losses and income described below: Retained earnings, November 1, 1997, as previously reported $1,044,786 ---------- Increase (decrease) from prior period adjustments: Write-off of uncollectible accounts receivable (268,182) Unrecorded unrealized losses on coffee futures (664,069) Unrecorded interest income on restricted cash 22,897 ---------- Total adjustments (909,354) ---------- Retained earnings, November 1, 1997, as adjusted $ 135,432 ==========
The accompanying financial statements also reflect adjustments to previously reported amounts of net income for the six and three months ended April 30, 1997. The components of the adjustments and their effect on net income follow:
Six Months Three Months Ended April Ended April 30, 1997 30, 1997 ----------- ------------ Unrecorded unrealized losses on coffee futures $ (150,809) $(61,349) Net income, as previously reported 1,218,020 951,410 ---------- -------- Net income, as adjusted $1,067,211 $890,061 ========== ========
* * * F-17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by or on behalf of Coffee Holding Co., Inc. (the "Company" or "Coffee"). Coffee and its representatives may from time to time make written or oral forward-looking statements, including statements contained in this report and in our other filings with the Securities and Exchange Commission "SEC." These statements use words such as "believes", "expects", "intends", "plans", "may", "will", "should", "anticipates" and other similar expressions. All statements which address operating performance, events or developments that the Company expects or anticipates will occur in the future, including statements relating to volume growth, share of sales or statements expressing general optimism about future operating results, are forward-looking statements within the meaning of the Act. The forward-looking statements are and will be based on management's then current views and assumptions regarding future events and operating performance. We cannot assure that anticipated results will be achieved since actual results may differ materially because of risks and uncertainties. We do not undertake to revise these statements to reflect subsequent developments. The following are some of the factors that could cause actual results to differ materially from in our forward-looking statements: o the impact of rapid or persistent fluctuations in the price of coffee beans; o fluctuations in the supply of coffee beans; o general economic conditions and conditions which affect the market for coffee; o the effects of any loss of major customers; o the effects of competition from other coffee manufacturers and other beverage alternatives; o changes in consumption of coffee; and o other risks which we identify in future filings with the SEC. You are strongly encouraged to consider these factors when evaluating forward looking statements in this report. We undertake no responsibility to update any forward-looking statements contained in this report. Six Months Ended April 30, 1998 Compared to Six Months Ended April 30, 1997 Net sales totaled $13,181,142 in the six months ended April 30, 1998, an increase of $1,644,118 or 14% from $11,537,024 in the six months ended April 30, 1997. Net sales were higher in the six months ended April 30, 1998 due to higher coffee selling prices in early fiscal 1998. Cost of sales in the six months ended April 30, 1998 was $11,329,593, or 86% of net sales, as compared to $9,166,989, or 79% of net sales in the six months ended April 30, 1997. Cost of sales was higher in the six months ended April 30, 1998 due to higher green coffee purchase prices. The Company's gross profit in the six months ended April 30, 1998 was $1,851,549, a decrease of $518,486 or 22% from $2,370,035 in the six months ended April 30, 1997. Gross profit as a percentage of net sales decreased by 7% to 14% in the six months ended April 30, 1998 from 21% in the six months ended April 30, 1997. The Company's gross profits were lower for the six months ended April 30, 1998 due to declining retail prices and higher cost green coffee inventories as well as due to a management decision to reduce prices further on certain products to attract larger customers. Retail selling prices, which were generally higher in the beginning of fiscal 1998, declined in the three months ended April 30, 1998. Selling and administrative expenses were $900,919 in the six months ended April 30, 1998, an increase of $23,855 or 3% from $877,064 in the six months ended April 30, 1997. The Company's interest expense increased $20,979 or approximately 13% from $165,424 in the six months ended April 30, 1997 to $186,403 in the six months ended April 30, 1998. Interest costs increased due to increased borrowings needed to purchase higher cost green coffee. Other expenses in the six months ended April 30, 1998 also included $180,000 of consulting and professional fees and other costs incurred in connection with the reverse acquisition (the "Reverse Acquisition") by Transpacific International Group Corp. that was effectively completed on February 10, 1998. 1 Primarily as a result of the decrease in gross profit, the increase in operating expenses and the charge for costs incurred in connection with the Reverse Acquisition, the Company had income of $421,052 before income taxes in the six months ended April 30, 1998 compared to $1,209,745 in the six months ended April 30, 1997. As further explained in Notes 2 and 9 of the notes to the financial statements elsewhere herein, the Company was not required to record a provision for Federal income taxes in the six months ended April 30, 1998 and 1997 because it had elected to be taxed as an "S" Corporation during the period from November 1, 1997 to February 10, 1998 (the date of the Reverse Acquisition) and the six months ended April 30, 1997 and it had a pre-tax loss during the period from February 11, 1998 to April 30, 1998. Although the Company had potential benefits of approximately $102,000 from net operating loss carryforwards as of April 30, 1998, it did not record a credit for income taxes in the six months ended April 30, 1998 due to the uncertainties related to the extent and timing of its future taxable income. The Company had a historical provision for state and local income taxes of $46,000 in the six months ended April 30, 1998 compared to $142,534 in the six months ended April 30, 1997 primarily as a result of the decrease in pre-tax income. Accordingly, the Company had historical net income of $375,052 in the six months ended April 30, 1998 compared to $1,067,211 in the six months ended April 30, 1997. The statement of operations included in the financial statements elsewhere herein presents unaudited pro forma provisions for income taxes, net income and related earnings per share information assuming the Company had not elected to be taxed as an "S" Corporation during any portion of the six months ended April 30, 1998 and 1997. The Company would have had a provision for income taxes of approximately $191,000 in the six months ended April 30, 1998 compared to $544,000 in the six months ended April 30, 1997 assuming the "S" Corporation elections had not been made primarily as a result of the decrease in pro forma pre-tax income. The unaudited pro forma provisions for income taxes reflect an effective rate of approximately 45% for each period comprised of an 11% rate for state and local income taxes, net of the related Federal income tax effect, and a statutory Federal income tax rate of 34%. On an unaudited pro forma basis, the Company would have had net income of $230,052, or $.06 per share, in the six months ended April 30, 1998 compared to $665,745, or $.17 per share, in the six months ended April 30, 1997. Three Months Ended April 30, 1998 Compared to Three Months Ended April 30, 1997 Net sales totaled $6,324,247 in the three months ended April 30, 1998, a decrease of $207,143 or 3% from $6,531,390 in the three months ended April 30, 1997. Net sales were down in the three months ended April 30, 1998 because some of the Company's customers were slow in liquidating excess inventory and therefore bought less product from the Company. Cost of sales in the three months ended April 30, 1998 was $6,181,727, or 98% of net sales, as compared to $4,826,402, or 74% of net sales in the three months ended April 30, 1997. Cost of sales was increased due to the liquidation of higher cost green coffee inventory. The Company's gross profit in the three months ended April 30, 1998 was $142,520, a decrease of $1,562,468 or 92% from $1,704,988 in the three months ended April 30, 1997. Gross profit as a percentage of net sales decreased by approximately 24% to 2% in the three months ended April 30, 1998 from 26% in the three months ended April 30, 1997 due to relatively high purchase prices for green coffee as compared to lower retail and wholesale selling prices. Selling and administrative expenses were $407,752 in the three months ended April 30, 1998, a decrease of $154,092 or 27% from $561,844 in the three months ended April 30, 1997. As a percentage of net sales, this change represented a 3% decrease from 9% in the three months ended April 30, 1997 to 6% in the three months ended April 30, 1998. Interest expense increased $9,611 or 12% from $79,890 in the three months ended April 30, 1997 to $89,501 in the three months ended April 30, 1998. The increase was due to higher average balances which were partially offset by lower interest rates on the Company's line of credit. Other expenses in the three months ended April 30, 1998 also included $180,000 of expenses consisting of consulting and professional fees and other costs incurred in connection with the Reverse Acquisition. Primarily as a result of the decrease in gross profit, the decrease in operating expenses and the charge for costs incurred in connection with the Reverse Acquisition, the Company had a loss of $607,233 before income taxes in the three months ended April 30, 1998 compared to income of $1,006,709 before income taxes in the three months ended April 30, 1997. 2 The Company was not required to record a provision for Federal income taxes in the three months ended April 30, 1998 and 1997 primarily because it had a pre-tax loss during the three months ended April 30, 1998 and it had elected to be taxed as an "S" Corporation during the three months ended April 30, 1997. Although the Company had potential benefits of approximately $102,000 from net operating loss carryforwards as of April 30, 1998, it did not record a credit for income taxes in the three months ended April 30, 1998 due to the uncertainties related to the extent and timing of its future taxable income. The Company had a historical credit for state and local income taxes of $67,000 in the three months ended April 30, 1998 compared to a historical provision of $116,648 in the three months ended April 30, 1997 primarily as a result of the decrease in pre-tax income. Accordingly, the Company had a historical net loss of $540,233 in the three months ended April 30, 1998 compared to historical net income of $890,061 in the three months ended April 30, 1997. Assuming the "S" Corporation election had not been made and an effective income tax rate of approximately 45% for each period, as explained above, the Company would have had a credit for income taxes of approximately $273,000 in the three months ended April 30, 1998 compared to a provision for income taxes of $453,000 in the three months ended April 30, 1997. On an unaudited pro forma basis, the Company would have had a net loss of $334,233 or $.08 per share, in the three months ended April 30, 1998 compared to net income of $553,709, or $.14 per share, in the three months ended April 30, 1997. Liquidity and Capital Resources As of April 30, 1998, the Company had working capital of approximately $1,916,000, an increase of $2,453,000 from its working capital deficiency of approximately $537,000 as of October 31, 1997. The Company's cash balance decreased by approximately $129,000 to $70,000 as of April 30, 1998 from $199,000 as of October 31, 1997. The working capital balance increased primarily as a result of the replacement of borrowings obtained under a factoring agreement that were payable on a short-term basis with borrowings obtained under a credit facility from Nationscredit Commercial Corp. that provides for a revolving line of credit of up to $5,000,000 based on eligible trade accounts receivable and inventories and a term loan for equipment purchases of up to $500,000. The line of credit provides for borrowings of up to 85% of the Company's eligible trade accounts receivable and 60% of its eligible inventories. The outstanding balance of approximately $2,587,000 as of April 30, 1998 approximated the maximum amount that the Company could borrow based on its eligible trade accounts receivable and inventories as of that date. Interest is payable monthly at the prime rate plus 1% (an effective rate of 9.5% at April 30, 1998). Assuming the Company has sufficient collateral, substantially all of the balances outstanding under the credit facility will not have to be repaid until November 20, 2000. The Company's current liabilities as of April 30, 1998 included a mortgage note payable with a balance of $625,000 that was due on demand as a result of a violation of certain covenants. The note was collateralized by restricted cash investments with an approximate balance of $370,000. The Company repaid the mortgage note in full on March 3, 1999, and generated a portion of the funds required for the payment by liquidating the restricted investments. During the six months ended April 30, 1998, net cash provided by operating activities totaled approximately $457,000 primarily as a result of the net income generated during that period, adjusted to eliminate the effects of charges for depreciation and amortization, and decreases in amounts receivable from the Company's broker and customers that were partially offset by an increase in inventories and a decrease in accounts payable. In addition to repaying the outstanding balance under the factoring agreement through borrowings under the line of credit, the Company also borrowed approximately $488,000 under the line of credit for working capital purposes. During the six months ended April 30, 1998, the Company used approximately $255,000 of its cash resources to purchase property and equipment and added property and equipment totaling $288,500 by entering into capital leases. The capital expenditures were made primarily to refurbish equipment, upgrade capacity and purchase and install new manufacturing and other equipment associated with production. Management expects that the Company's capital expenditures will be made at a reduced rate over at least the next twelve months. The Company also placed approximately $304,000 in restricted cash investments to secure the mortgage note, as explained above, and made payments aggregating approximately $115,000 to reduce its mortgage note, term loan and capital lease obligations. Management believes, but cannot assure, that the Company will be able to finance its operations, including increases in accounts receivable and inventories, capital expenditures and debt repayments, over the next twelve months through its existing cash resources, cash provided by operating activities and/or borrowings under its credit facility. 3 Year 2000 The Year 2000 problem concerns the inability of information systems and systems with embedded chip technology to properly recognize and process data-sensitive information beyond December 31, 1999. In the fall of 1997, the Company and its information technology consultant assessed the Company's personal computer hardware and its accounting software (which included accounts receivable and payroll and inventory management) for Year 2000 readiness. The Company concluded that its then accounting software and computer hardware and system were not Year 2000 compliant. The Company installed software modifications and upgrades to its accounting software in November 1997 at an approximate cost of $4,300. In April and August 1999, the Company replaced its computer hardware and operating systems including its server and three workstations. The Company also added an additional workstation. The total cost of the equipment, installation and follow-up support was approximately $18,800. The Company also paid its consultant $1,400 to oversee installation of the operating system. As of June 30, 2000, with regard to Year 2000, the Company had not experienced any disruptions in its internal information systems or its business activities with its suppliers and customers. 4 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Market risks relating to the Company's operations result primarily from changes in interest rates and commodity prices as further described below. Interest Rate Risks The Company is subject to market risk from exposure to fluctuations in interest rates. At April 30, 1998, the Company's long-term debt, other than capitalized leases, consisted of approximately $75,000 of fixed rate debt and approximately $3,600,000 of variable rate debt under its revolving line of credit, term loan and mortgage note payable. Interest on the variable rate debt was payable primarily at 1% above a specified prime rate. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 1998, although there can be no assurance that interest rates will not significantly change. Commodity Price Risks See Note 2 to the financial statements, Summary of Significant Accounting Policies - "Hedging" for additional information regarding the Company's hedging program. The supply and price of coffee beans are subject to volatility and are influenced by numerous factors which are beyond the Company's control. The Company uses coffee futures and options contracts for hedging purposes to minimize the effect of changing green coffee prices and, if needed, to supplement its supply. At April 30, 1998, the Company held options covering an aggregate of 2,927,000 pounds of green coffee beans, which are exercisable in fiscal 1998 at prices ranging from $1.35 to $1.45 per pound. The price per pound of green coffee on the close of business on April 30, 1998 was $1.34. The Company generally has been able to pass green coffee price increases through to its customers, thereby maintaining its gross profits. However, the Company cannot predict whether it will be able to pass inventory price increases through to its customers in the future. 5 PART II ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On February 10, 1998, Coffee Holding Co., Inc., a New York corporation, merged with Transpacific International Group Corp. See Note 1 to Unaudited Financial Statements. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Exhibit Name - ------- ------------ 3.1 Articles of Incorporation of Coffee Holding Co., Inc. 3.2 Certificate of Amendment of Articles of Incorporation of Coffee Holding Co., Inc. 3.3 By-Laws of Coffee Holding Co., Inc. 10.1 Lease with T&O Management Corp. dated August 15, 1997. 10.2 1998 Stock Option Plan 27 Financial Data Schedule (b) There were no reports on Form 8-K filed during the period covered by this report. 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. COFFEE HOLDING CO., INC. Signature Title Date --------- ----- ---- /s/ Andrew Gordon Chief Executive Officer, President October 25, 2000 - ----------------- and Treasurer Andrew Gordon (principal executive officer and principal financial officer) 7 INDEX TO EXHIBITS 3.1 Articles of Incorporation of Coffee Holding Co., Inc. 3.2 Certificate of Amendment of Articles of Incorporation of Coffee Holding Co., Inc. 3.3 By-Laws of Coffee Holding Co., Inc. 10.1 Lease with T&O Management Corp. dated August 15, 1997. 10.2 1998 Stock Option Plan 27 Financial Data Schedule EX-3.1 2 0002.txt ARTICLES OF INCORPORATION ARTICLES OF INCORPORATION OF TRANSPACIFIC INTERNATIONAL GROUP CORP. ------------------------------------------------------- FIRST: The name of this corporation is: TRANSPACIFIC INTERNATIONAL GROUP CORP. SECOND: Its principal office in the State of Nevada is located at 502 East John Street, Carson City, Nevada, 89706. The name and address of its resident agent is CSC Services of Nevada, Inc., at the above address. THIRD: The nature of the business or objects or purposes proposed may be organized under the General Corporation Law of the State of Nevada; To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Nevada. FOURTH: The total authorized capital stock of the corporation is Twenty Million (20,000,000) Shares With A Par Value of $0.0001 Per Share. FIFTH: The governing board of this corporation shall be known as directors and the number of directors may from time to time be increased or decreased in such manner as shall be provided in the by-laws of this corporation, provided that the number of directors shall not be reduced less than one unless there is less than one stockholder. The name and post office address of the first board of directors, which shall be three in number, is as follows: NAME POST OFFICE ADDRESS Hong Cao 203 Howard St., Waverly, NY 14892 David Chang 401 Broadway, Ste 1207, NY, NY 10013 Tommy Chio Bank of China Bldg., 27/F A D Avenida, Doutor Mario, Soares, Macao SIXTH: The capital stock, after the amount of the subscription price, or par value, has been paid in, shall not be subject to assessment to pay the debts of the corporation. SEVENTH: The name and post office address of the incorporator signing the articles of incorporation is as follows: NAME POST OFFICE ADDRESS Sharon Branscome 1013 Centre Road Wilmington, DE 19805 EIGHTH: The corporation is to have perpetual existence. NINTH: In furtherance and not in limitation of the powers conferred by statue, the board of directors is expressly authorized, subject to the by-laws, if any, adopted by the shareholders, to make, alter or amend the by-laws of the corporation. TENTH: Meetings of stockholders may be held outside of the State of Nevada at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. ELEVENTH: This corporation reserves the right to amend, alter, change or repeal any provision contained in the articles of incorporation, in the manner now or hereafter prescribed, and all rights conferred upon stockholders herein are granted subject to this reservation. I, THE UNDERSIGNED, being the sole incorporator herein before named for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Nevada, do make and file these articles of incorporation, hereby declaring and certifying that the facts herein stated are true, and accordingly have hereunto set my hand this sixth day of October, A.D. 1995. /s/ Sharon Branscome ----------------------------- Sharon Branscome, Incorporator EX-3.2 3 0003.txt CERTIFICATE OF AMENDMENT OF ART. OF INCORPORATION CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF COFFEE HOLDING CO., INC. Pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78, it is hereby certified that: FIRST: The name of the corporation (the "corporation") is Coffee Holding Co., Inc. The corporation's articles or incorporation were filed on October 9, 1995. The original name of the corporation was Transpacific International Group Corp. The name was changed on May 27, 1998. SECOND: The Board of Directors of the corporation duly adopted the following resolutions on February 10, 1998: "RESOLVED, that it is advisable in the judgment of the Board of Directors of the corporation that the number of authorized shares of the corporation be increased and the corporation be authorized to issue preferred stock with par value of $0.001 per share, and that, in order to accomplish the same, Article "FOURTH" of the Articles of Incorporation be amended to read as follows: 'FOURTH: (i) The aggregate number of shares which the Corporation shall have authority to issue is 40,000,000, divided into 30,000,000 shares of common stock of the par value of $0.001 per share and 10,000,000 shares of preferred stock of the par value of $0.001 per share. (ii) The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article "FOURTH," to provide for the issuance of the shares of preferred stock in series, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The divided rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or date, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights or priority, if any, of payment of shares of that series; (h) Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of preferred stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the common shares with respect to the same dividend period. If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of preferred stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of preferred stock in accordance with the respective preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto.' FURTHER RESOLVED, that a special meeting of stockholders having voting power be and it is hereby called and that notice be given in the manner prescribed by the Bylaws of the corporation and Nevada Revised Statutes, Title 7, Chapter 78, unless the said stockholders shall waive the notice of meetings in writing or unless -2- all of said stockholders shall dispense with the holding of a meeting and shall take action upon the proposed amendments by a consent in writing signed by them; and FURTHER RESOLVED, that, in the event that the said stockholders shall adopt for the aforesaid proposed amendments by a vote in favor thereof by at least a majority of the voting power or by a written consent in favor thereof signed by all of them without a meeting, the corporation is hereby authorized to make by the hands of its President or a Vice President and by its Secretary or an Assistant Secretary a certificate setting forth the said amendments and to cause the same to be filed pursuant to the provisions of Nevada Revised Statutes, Title 7, Chapter 78." THIRD: The total number of outstanding shares having voting power of the corporation is 3,999,650, and the total number of votes entitled to be cast by the holders of all of said outstanding shares is 3,999,650. FOURTH: The holders of all of the aforesaid total number of outstanding shares having voting power, to wit, 3,999,650 shares, dispensed with the holding of a meeting of stockholders and adopted the amendments herein certified by a consent in writing signed by all of them in accordance with the provisions of Nevada Revised Statutes, Title 7, Section 78.320. Signed on August 11, 1998 /s/ Andrew Gordon ------------------------ Andrew Gordon, President /s/ David Gordon ----------------------- David Gordon, Secretary -3- EX-3.3 4 0004.txt BY-LAWS BY-LAWS ------- OF -- TRANSPACIFIC INTERNATIONAL GROUP CORP. -------------------------------------- -------------------------------------- ARTICLE I - OFFICES ------------------- The office of the Corporation shall be located in the City and State designated in the Articles of Incorporation. The Corporation may also maintain offices at such other places within or without the United States as the Board of Directors may, from time to time, determine. ARTICLE II - MEETING OF SHAREHOLDERS ------------------------------------ Section 1 - Annual Meetings: - ---------------------------- The annual meeting of the shareholders of the Corporation shall be held within five months after the close of the fiscal year of the Corporation, for the purpose of electing directors, and transacting such other business as may properly come before the meeting. Section 2 - Special Meetings: - ----------------------------- Special meetings of the shareholders may be called at any time by the Board of Directors or by the President, and shall be called by the President or the Secretary at the written request of the holders of ten percent (10%) of the shares then outstanding and entitled to vote thereat, or as otherwise required under the provisions of the Law of the State of Nevada ("Corporation Law"). Section 3 - Place of Meetings: - ------------------------------ All meetings of shareholders shall be held at the principal office of the Corporation, or at such other places as shall be designated in the notices or waivers of notice of such meetings. Section 4 - Notice of Meetings: - ------------------------------- (a) Written notice of each meeting of shareholders, whether annual or special, stating the time when and place where it is to be held, shall be served either personally or by mail, not less than ten or more than fifty days before the meeting, upon each shareholder of record entitled to vote at such meeting, and to any other shareholder to whom the giving of notice may be required by law. Notice of a special meeting shall also state the purpose or purposes for which the meeting is called, and shall indicate that it is being issued by, or at the direction of, the person or persons calling the meeting. If, at any meeting, action is proposed to be taken that would, if taken, entitle shareholders to receive payment for their shares pursuant to the Business Corporation Act, the notice of such meeting shall include a statement of that purpose and to that effect. If mailed, such notice shall be directed to each such shareholder at his address, as it appears on the records of the shareholders of the Corporation, unless he shall have previously filed with the Secretary of the Corporation a written request that notices intended for him be mailed to some other address, in which case, it shall be mailed to the address designated in such request. (b) Notice of any meeting need not be given to any person who may become a shareholder of record after the mailing of such notice and prior to the meeting, or to any shareholder who attends such meeting, in person or by proxy, or to any shareholder who, in person or by proxy, submits a signed waiver of notice either before or after such meeting. Notice of any adjourned meeting of shareholders need not be given, unless otherwise required by statute. Section 5 - Quorum: - ------------------- (a) Except as otherwise provided herein, or by statute, or in the Articles of Incorporation (such Articles and any amendments thereof being hereinafter collectively referred to as the "Articles of Incorporation"), at all meetings of shareholders of the Corporation, the presence at the commencement of such meetings in person or by proxy of shareholders holding of record a majority of the total number of shares of the Corporation then issued and outstanding and entitled to vote, shall be necessary and sufficient to constitute a quorum for the transaction of any business. The withdrawal of any shareholder after the commencement of a meeting shall have no effect on the existence of a quorum, after a quorum has been established at such meeting. (b) Despite the absence of a quorum at any annual or special meeting of shareholders, the shareholders, by a majority of the votes cast by the holders of shares entitled to vote thereon, may adjourn the meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called if a quorum had been present. Section 6 - Voting: - ------------------- (a) Except as otherwise provided by statute or by the Articles of Incorporation, any corporate action, other than the election of directors to be taken by vote of the shareholders, shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon. (b) Except as otherwise provided by statute or by the Articles of Incorporation, at each meeting of shareholders, each holder of record of shares of the Corporation entitled to vote thereat, shall be entitled to one vote for each share registered in his name on the books of the Corporation. (c) Each shareholder entitled to vote or to express consent for dissent without a meeting, may do so by proxy; provided, however, that the instrument authorizing such proxy to act shall have been executed in writing by the shareholder himself, or by his attorney-in-fact thereunto duly authorized in writing. No proxy shall be valid after the expiration of eleven months from the date of its execution, unless the persons executing it shall have specified therein the length of 2 time it is to continue in force. Such instrument shall be exhibited to the Secretary at the meeting and shall be filed with the records of the Corporation. (d) Any resolution in writing, signed by all of the shareholders entitled to vote thereon, shall be and constitute action by such shareholders to the effect therein expressed, with the same force and effect as if the same had been duly passed by unanimous vote at a duly called meeting of shareholders and such resolution so signed shall be inserted in the Minute Book of the Corporation under its proper date. ARTICLE III - BOARD OF DIRECTORS -------------------------------- Section 1 -Number, Election and Term of Office: - ----------------------------------------------- (a) The number of the directors of the Corporation shall be three (3), unless and until otherwise determined by vote of a majority of the entire Board of Directors. The number of Directors shall not be less than three, unless all of the outstanding shares are owned beneficially and of record by less than three shareholders, in which event the number of directors shall not be less than the number of shareholders. (b) Except as may otherwise be provided herein or in the Articles of Incorporation, the members of the Board of Directors of the Corporation, who need not be shareholder, shall be elected by a majority of the votes cast at a meeting of shareholder, by the holders of shares entitled to vote in the election. (c) Each director shall hold office until the annual meeting of the shareholders next succeeding his election, and until his successor is elected and qualified, or until his prior death, resignation or removal. Section 2 - Duties and Powers: - ------------------------------ The Board of Directors shall be responsible for the control and management of the affairs, property and interests of the Corporation, and may exercise all powers of the Corporation, except as are in the Articles of Incorporation or by statute expressly conferred upon or reserved to the shareholders. Section 3 - Annual and Regular Meetings: Notice: - ---------------------------------------- ------- (a) A regular annual meeting of the Board of Directors shall be held immediately following the annual meeting of the shareholders at the place of such annual meeting of shareholders. (b) The Board of Directors, from time to time, may provide by resolution for the holding of other regular meetings of the Board of Directors, and may fix the time and place thereof. (c) Notice of any regular meeting of the Board of Directors shall not be required to be given and, if given, need not specify the purpose of the meeting; provided, however, that in case the 3 Board of Directors shall fix or change the time or place of any regular meeting, notice of such action shall be given to each director who shall not have been present at the meeting at which such action was taken within the time limited, and in the manner set forth in paragraph (b) of Section 4 of this Article III, with respect to special meetings, unless such notice shall be waived in the manner set forth in paragraph (c) of such Section 4. Section 4 - Special Meetings: Notice: - ----------------------------- ------- (a) Special Meetings of the Board of Directors shall be held whenever called by the President or by one of the directors, at such time and place as may be specified in the respective notices or waivers of notice thereof. (b) Notice of special meetings shall be mailed directly to each director, addressed to him at his residence or usual place of business, at least two (2) days before the day on which the meeting is to be held, or shall be sent to him at such place by telegram, radio or cable, or shall be delivered to him personally or given to him orally, not later than the day before the day on which the meeting is to be held. A notice, or waiver of notice, except as required by Section 8 of this Article III, need not specify the purpose of the meeting. (c) Notice of any special meeting shall not be required to be given to any director who shall attend such meeting without protesting prior thereto or at its commencement, the lack of notice to him, or who submits a signed waiver of notice, whether before or after the meeting. Notice of any adjourned meeting shall not be required to be given. Section 5 - Chairman: - --------------------- At all meetings of the Board of Directors the Chairman of the Board, if any and if present, shall preside. If there shall be no Chairman, or he shall be absent, then the President shall preside, and in his absence, a Chairman chosen by the Directors shall preside. Section 6 - Quorum and Adjournments: - ------------------------------------ (a) At all meetings of the Board of Directors, the presence of a majority of the entire Board shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided by law, by the Articles of Incorporation, or by these By-Laws. (b) A majority of the directors present at the time and place of any regular or special meeting, although less than a quorum, may adjourn the same from time to time without notice, until a quorum shall be present. Section 7 - Manner of Acting: - ----------------------------- (a) At all meetings of the Board of Directors, each director present shall have one vote, irrespective of the number of shares of stock, if any, which he may hold. 4 (b) Except as otherwise provided by statute, by the Articles of Incorporation, or these By-Laws, the action of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Any action authorized in writing, by all of the directors entitled to vote thereon and filed with the minutes of the Corporation shall be the act of the Board of Directors with the same force and effect as if the same had been passed by unanimous vote at a duly called meeting of the Board. Section 8 - Vacancies: - ---------------------- Any vacancy in the Board of Directors occurring by reason of an increase in the number of directors, or by reason of the death, resignation, disqualification, removal (unless a vacancy created by the removal of a director by the shareholders shall be filled by the shareholders at the meeting at which the removal was effected) or inability to act of any director, or otherwise, shall be filled for the unexpired portion of the term by a majority vote of the remaining directors, though less than a quorum, at any regular meeting or special meeting of the Board of Directors called for that purpose. Section 9 - Resignation: - ------------------------ Any director may resign at any time by giving written notice of the Board of Directors, the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or such officer, and the acceptance of such resignation shall not be necessary to make it effective. Section 10 - Removal: - --------------------- Any director may be removed with or without cause at any time by the shareholders, at a special meeting of the shareholders called for that purpose, and may be removed for cause by action of the Board. Section 11 - Salary: - -------------------- No stated salary shall be paid to directors, as such, for their services, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board; provided, however, that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 12 - Contracts: - ----------------------- (a) No contract or other transaction between this Corporation and any other Corporation shall be impaired, affected or invalidated nor shall any director be liable in any way by reason of the fact that any one or more of the directors of this Corporation is or are interested in, or is a director or officer, or are directors or officers of such other Corporation, provided that such facts are disclosed or made known to the Board of Directors. 5 (b) Any director, personally and individually, may be a party to or may be interested in any contract or transaction of this Corporation, and no director shall be liable in any way by reason of such interest, provided that the fact of such interest be disclosed or made known to the Board of Directors, and provided that the Board of Directors shall authorize, approve or ratify such contract or transaction by the vote (not counting the vote of any such director) of a majority of a quorum, notwithstanding the presence of any such director at the meeting at which such action is taken. Such director or directors may be counted in determining the presence of a quorum at such meeting. This Section shall not be construed to impair or invalidate or in any way affect any contract or other transaction which would otherwise be valid under the law (common, statutory or otherwise) applicable thereto. Section 13 - Committees: - ------------------------ The Board of Directors, by resolution adopted by a majority of the entire Board, may from time to time designate from among its members an executive committee and such other committees, and alternate members thereof, as they deem desirable, each consisting of three or more members, with such powers and authority (to the extent permitted by law) as may be provided in such resolution. Each such committee shall serve at the pleasure of the Board. ARTICLE IV - OFFICERS --------------------- Section 1 - Number, Qualifications, Election and Term of Office: - ---------------------------------------------------------------- (a) The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and such other officers, including a Chairman of the Board of Directors, and one or more Vice Presidents, as the Board of Directors may from time to time deem advisable. Any officer other than the Chairman of the Board of Directors may be, but is not required to be, a director of the Corporation. Any two or more offices may be held by the same person, except the offices of President and Secretary. (b) The officers of the Corporation shall be elected by the Board of Directors at the regular annual meeting of the Board following the annual meeting of shareholders. (c) Each officer shall hold office until the annual meeting of the Board of Directors next succeeding his election, and until his successor shall have been elected and qualified, or until his death, resignation or removal. Section 2 - Resignation: - ------------------------ Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, or to the President or the Secretary of the Corporation. Unless otherwise specified in such written notice, such resignation shall take effect upon receipt thereof by the Board of Directors or by such officer, and the acceptance of such resignation shall not be necessary to make it effective. 6 Section 3 - Removal: - -------------------- Any officer may be removed, either with or without cause, and a successor elected by the Board at any time. Section 4 - Vacancies: - ---------------------- A vacancy in any office by reason of death, resignation, inability to act, disqualification, or any other cause, may at any time be filled for the unexpired portion of the term by the Board of Directors. Section 5 - Duties of Officers: - ------------------------------- Officers of the Corporation shall, unless otherwise provided by the Board of Directors, each have such powers and duties as generally pertain to their respective offices as well as such powers and duties as may be set forth in these By-laws, or may from time to time be specifically conferred or imposed by the Board of Directors. The President shall be the chief executive officer of the Corporation. Section 6 - Sureties and Bonds: - ------------------------------- In case the Board of Directors shall so require, any officer, employee or agent of the Corporation shall execute to the Corporation a bond in such sum, and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, funds or securities of the Corporation which may come into his hands. Section 7 - Shares of Other Corporation: - ---------------------------------------- Whenever the Corporation is the holder of shares of any other corporation, any right or power of the Corporation as such shareholder (including the attendance, acting and voting at shareholders' meetings and execution of waivers, consents, proxies or other instruments) may be exercised on behalf of the Corporation by the President, any Vice President, or such other person as the Board of Directors may authorize. ARTICLE V - SHARES OF STOCK --------------------------- Section 1 - Certificate of Stock: - --------------------------------- (a) The certificates representing shares of the Corporation shall be in such form as shall be adopted by the Board of Directors, and shall be numbered and registered in the order issued. They shall bear the holder's name and the number of shares, and shall be signed by (i) the Chairman of the Board or the President or a Vice President, and (ii) the Secretary or any Assistant Secretary, and may bear the corporate seal. 7 (b) No certificate representing shares shall be issued until the full amount of consideration therefor has been paid, except as otherwise permitted by law. (c) The Board of Directors may authorize the issuance of certificates for fractions of a share which shall entitle the holder to exercise voting rights, receive dividends and participate in liquidating distributions, in proportion to the fractional holdings; or it may authorize the payment in cash of the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined; or it may authorize the issuance, subject to such conditions as may be permitted by law, of scrip in registered or bearer form over the signature of an officer or agent of the Corporation, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a shareholder, except as therein provided. Section 2 - Lost or Destroyed Certificates: - ------------------------------------------- The holder of any certificate representing shares of the Corporation shall immediately notify the Corporation of any loss or destruction of the certificate representing the same. The Corporation may issue a new certificate in the place of any certificate theretofore issued by it, alleged to have been lost or destroyed. On production of such evidence of loss or destruction as the Board of Directors in its discretion may require, the board of Directors may, in its discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond in such sum as the Board may direct, and with such surety or sureties as may be satisfactory to the Board, to indemnify the Corporation against any claims, loss, liability or damage it may suffer on account of the issuance of the new certificate. A new certificate may be issued without requiring any such evidence or bond when, in the judgment of the Board of Directors, it is proper so to do. Section 3 - Transfers of Shares: - -------------------------------- (a) Transfers of shares of the Corporation shall be made on the share records of the Corporation only by the holder of record thereof, in person or by his duly authorized attorney, upon surrender for cancellation of the certificate or certificates representing such shares, with an assignment or power of transfer endorsed thereon or delivered therewith, duly executed, with such proof of the authenticity of the signature and of authority to transfer and of payment of transfer taxes as the Corporation or its agents may require. (b) The Corporation shall be entitled to treat the holder of record of any share or shares as the absolute owner thereof for all purposes and, accordingly, shall not be bound to recognize any legal, equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. Section 4 - Record Date: - ------------------------ In lieu of closing the share records of the Corporation, the Board of Directors may fix, in advance, a date not exceeding fifty days, nor less than ten days, as the record date for the determination of shareholders entitled to receive notice of, or to vote at, any meeting of 8 shareholders, or to consent to any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividends, or allotment of any rights, or for the purpose of any other action. If no record date is fixed, the record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if no notice is given, the day on which the meeting is held; the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the resolution of the directors relating thereto is adopted. When a determination of shareholders or record entitled to notice of or to vote at any meeting of shareholders has been made as provided for herein, such determination shall apply to any adjournment thereof, unless the directors fix a new record date for the adjourned meeting. ARTICLE VI - DIVIDENDS ---------------------- Subject to applicable law, dividends may be declared and paid out of any funds available therefor, as often, in such amounts, and at such time or times as the Board of Directors may determine. ARTICLE VII - FISCAL YEAR ------------------------- The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time, subject to applicable law. ARTICLE VIII - CORPORATE SEAL ----------------------------- The Corporate seal, if any, shall be in such form as shall be approved from time to time by the Board of Directors. ARTICLE IX - AMENDMENTS ----------------------- Section 1 - By Shareholders: - ---------------------------- All by-laws of the Corporation shall be subject to alteration or repeal, and new by-laws may be made, by a majority vote of the shareholders at the time entitled to vote in the election of directors. Section 2 - By Directors: - ------------------------- The Board of Directors shall have power to make, adopt, alter, amend and repeal, from time to time, by-laws of the Corporation; provided, however, that the shareholders entitled to vote with respect thereto as in this Article IX above-provided may alter, amend or repeal by-laws made by the Board of Directors, except that the Board of Directors shall have no power to change the quorum for meetings of shareholders or of the Board of Directors, or to change any provisions of the by-laws with respect to the removal of directors or the filling of vacancies in the Board resulting from the removal by the shareholders. If any by-law regulating an impending election of directors is adopted, amended or repealed by the Board of Directors, there shall be set forth in 9 the notice of the next meeting of shareholders for the election of directors, the by-law so adopted, amended or repealed, together with a concise statement of the changes made. The undersigned Incorporator certifies the foregoing by-laws have been adopted as the first by-laws of the Corporation, in accordance with the requirements of the Corporation Law. EX-10.1 5 0005.txt LEASE T & O MANAGEMENT CORP. - ---------------------- 215 51st Street (718) 745-4100 Brooklyn, NY 11220 RE: 4425A 1st Ave Brooklyn, N.Y. Dear Mr. Gordon, Please take this letter as part of the Lease dated October 1st, 1997 for the above listed address. Please note this letter is a Rider of the Lease. Rider as follows: On the first day dated October 1st, to the date of termination of the lease, we relieve all responsibilities to the Tenant for the balance of the years except the first twelve months. This Lease holds the Tenant responsible to remain in building for the first twelve months and shall require Tenant to give sixty (60) days notice prior to the completion of the twelfth month. Building shall not be subleased by any other company other than Coffee Holding. This rider is in the interest of maintain Tenants responsibility to a time limitation. /s/ Sterling Gordon, Pres. /s/ A. Gallina - -------------------------- ---------------- Coffee Holding T & O Management THIS LEASE made the 15 day of August, 1997 between T&O Management Corp. 215 51st Street, Brooklyn, NY 11220 hereinafter referred to as LANDLORD, and Coffee Holding Co., Inc. 4401 First Avenue, Brooklyn, NY 11232 hereinafter jointly, severally and collectively referred to as TENANT. Witnesseth, that the Landlord hereby leases to the Tenant, and the Tenant hereby hires and takes from the Landlord in the building known as 4425a First Avenue, Brooklyn, NY 11232 (7,500 sq. ft) to be used and occupied by the Tenant as Warehouse and for no other purpose, for a term to commence on September 1, 1997 and to end on August 31, 2002, unless sooner terminated as hereinafter provided, at the ANNUAL RENT of ($3,900.00 three thousand nine hundred dollars) per month all payable in equal monthly instalments in advance on the first day of each and every calendar month during said term, except the first instalment, which shall be paid upon the execution hereof, and the Tenant shall give to Landlord 2 months security deposit of Seven Thousand Eight Hundred Dollars ($7,800.00). THE TENANT JOINTLY AND SEVERALLY COVENANTS: FIRST: That the Tenant will pay the rent as above provided. SECOND: That, throughout said term the Tenant will take good care of the demised premises, fixtures and appurtenances, and all alterations, additions and improvements to either: make all repairs in and about the same necessary to preserve them in good order and condition, which repairs shall be, in quality and class, equal to the original work; promptly pay the expense of such repairs; suffer no waste or injury; give prompt notice to the Landlord of any fire that may occur; execute and comply with all laws, rules, orders, ordinances and regulations at any time issued or in force (except those requiring structural alterations), applicable to the demised premises or to the Tenant's occupation thereof, of the Federal, State and Local Governments, and of each and every department, bureau and official thereof, and of the New York Board of Fire Underwriters; permit at all times during usual business hours, the Landlord and representatives of the Landlord to enter the demised premises for the purpose of inspection, and to exhibit them for purposes of sale or rental; suffer the Landlord to make repairs and improvements to all parts of the building, and to comply with all orders and requirements of governmental authority applicable to said building or to any occupation thereof; suffer the Landlord to erect, use, maintain, repair and replace pipes and conduits in the demised premises and to the floors above and below; forever indemnify and save harmless the Landlord for and against any and all liability, penalties, damages, expenses and judgments arising from injury during said term to person or property of any nature, occasioned wholly or in part by any act or acts, omission or omissions of the Tenant, or of the employees, guests, agents, assigns or underTenants of the Tenant and also for any matter or thing growing out of the occupation of the demised premises or of the streets, sidewalks or vaults adjacent thereto; permit, during the six months next prior to the expiration of the term the usual notice "To Let" to be placed and to remain unmolested in a conspicuous place upon the exterior of the demised premises; repair, at or before the end of the term, all injury done by the installation or removal of furniture and property; and at the end of the term, to quit and surrender the demised premises with all alterations, additions and improvements in good order and condition. THIRD: That the Tenant will not disfigure or deface any part of the building, or suffer the same to be done, except so far as may be necessary to affix such trade fixtures as are herein consented to by the Landlord; the Tenant will not obstruct, or permit the obstruction of the street or the sidewalk adjacent thereto; will not do anything, or suffer anything to be done upon the demised premises which will increase the rate of fire insurance upon the building or any of its contents, or be liable to cause structural injury to said building; will not permit the accumulation of waste or refuse matter, and will not, without the written consent of the Landlord first obtained in each case, either sell, assign, mortgage or transfer this lease, underlet the demised premises or any part thereof, permit the same or any part thereof to be occupied by anybody other than the Tenant and the Tenant's employees, make any alterations in the demised premises, use the demised premises or any part thereof for any purpose other than the one first above stipulated, or for any purpose deemed extra hazardous on account of fire risk, nor in violation of any law or ordinance. That the Tenant will not obstruct or permit the obstruction of the light, halls, stairway or entrances to the building, and will not erect or inscribe any sign, signals or advertisements unless and until the style and location thereof have been approved by the Landlord; and if any be erected or inscribed without such approval, the Landlord may remove the same. No water cooler, air conditioning unit or system or other apparatus shall be installed or used without the prior written consent of Landlord. IT IS MUTUALLY COVENANTED AND AGREED, THAT FOURTH: If the demised premises shall be partially damaged by fire or other cause without the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors or licensees, the damages shall be repaired by and at the expense of Landlord and the rent until such repairs shall be made shall be apportioned according to the part of the demised premises which is usable by Tenant. But if such partial damage is due to the fault or neglect of Tenant, Tenant's servants, employees, agents, visitors or licensees, without prejudice to any other rights and remedies of Landlord and without prejudice to the rights of subrogation of Landlord's insurer, the damages shall be repaired by Landlord but there shall be no apportionment or abatement of rent. No penalty shall accrue for reasonable delay which may arise by reason of adjustment of insurance on the part of Landlord and/or Tenant and for reasonable delay on account of "labor troubles", or any other cause beyond Landlord's control. If the demised premises are totally damaged or are - 2 - rendered wholly unTenantable by fire or other cause, and if Landlord shall decide not to restore or not to rebuild the same, or if the building shall be so damaged that Landlord shall decide to demolish it or to rebuild it, then or in any of such events Landlord may, within ninety (90) days after such fire or other cause, give Tenant a notice in writing of such decision, which notice shall be given as in Paragraph Twelve hereof provided, and thereupon the term of this lease shall expire by lapse of time upon the third day after such notice is given, and Tenant shall vacate the demised premises and surrender the same to Landlord. If Tenant shall not be in default under this lease then, upon the termination of this lease under the conditions provided for in the sentence immediately preceding. Tenant's liability for rent shall cease as of the day following the casualty. Tenant hereby expressly waives the provisions of Section 227 of the Real Property Law and agrees that the foregoing provisions of this Article shall govern and control in lieu thereof. If the damage or destruction be due to the fault or neglect of Tenant the debris shall be removed by, and at the expense of, Tenant. FIFTH: If the whole or any part of the premises hereby demised shall be taken or condemned by any competent authority for any public use or purpose then the term hereby granted shall cease from the time when possession of the part so taken shall be required for such public purpose and without apportionment of award, the Tenant hereby assigning to the Landlord all right and claim to any such award, the current rent, however, in such case to be apportioned. SIXTH: If, before the commencement of the term, the Tenant be adjudicated a bankrupt, or make a "general assignment," or take the benefit of any insolvent act, or if a Receiver or Trustee be appointed for the Tenant's property, or if this lease or the estate of the Tenant hereunder be transferred or pass to or devolve upon any other person or corporation, or if the Tenant shall default in the performance of any agreement by the Tenant contained in any other lease to the Tenant by the Landlord or by any corporation of which an officer of the Landlord is a Director, this lease shall thereby, at the option of the Landlord, be terminated and in that case, neither the Tenant nor anybody claiming under the Tenant shall be entitled to go into possession of the demised premises. If after the commencement of the term, any of the events mentioned above in this subdivision shall occur, or if Tenant shall make default in fulfilling any of the covenants of this lease, other than the covenants for the payment of rent or "additional rent" or if the demised premises become vacant or deserted, the Landlord may give to the Tenant ten days' notice of intention to end the term of this lease, and thereupon at the expiration of said ten days' (if said condition which was the basis of said notice shall continue to exist) the term under this lease shall expire as fully and completely as if that day were the date herein definitely fixed for the expiration of the term and the Tenant will then quit and surrender the demised premises to the Landlord, but the Tenant shall remain liable as hereinafter provided. If the Tenant shall make default in the payment of the rent reserved hereunder, or any item of "additional rent" herein mentioned, or any part of either or in making any other payment herein provided for, or if the notice last above provided for shall have been given and if the condition which was the basis of said notice shall exist at the expiration of said ten days' period, the Landlord may immediately, or at any time thereafter, re-enter the demised premises and remove all persons and all or any property therefrom, either by summary dispossess proceedings, or by any suitable action or proceeding at law, or by force or otherwise, without being liable to indictment, prosecution or damages therefor, and re-possess and enjoy said premise together with - 3 - all additions, alterations and improvements. In any such case or in the event that this lease be "terminated" before the commencement of the term, as above provided, the Landlord may either re-let the demised premises or any part or parts thereof for the Landlord's own account, or may, at the Landlord's option, re-let the demised premises or any part or parts thereof as the agent of the Tenant, and receive the rents therefor, applying the same first to the payment of such expenses as the Landlord may have incurred, and then to the fulfillment of the covenants of the Tenant herein, and the balance, if any, at the expiration of the term first above provided for, shall be paid to the Tenant. Landlord may rent the premises for a term extending beyond the term hereby granted without releasing Tenant from any liability. In the event that the term of this lease shall expire as above in this subdivision "Sixth" provided, or terminate by summary proceedings or otherwise, and if the Landlord shall not re-let the demised premises for the Landlord's own account, then, whether or not the premises be re-let, the Tenant shall remain liable for, and the Tenant hereby agrees to pay to the Landlord, until the time when this lease would have expired but for such termination or expiration, the equivalent of the amount of all of the rent and "additional rent" reserved herein, less the avails of reletting, if any, and the same shall be due and payable by the Tenant to the Landlord on the several rent days above specified, that is, upon each of such rent days the Tenant shall pay to the Landlord the amount of deficiency then existing. The Tenant hereby expressly waives any and all right of redemption in case the Tenant shall be dispossessed by judgment or warrant of any court or judge, and the Tenant waives and will waive all right to trial by jury in any summary proceedings hereafter instituted by the Landlord against the Tenant in respect to the demised premises. The words "re-enter" and "re-entry" as used in this lease are not restricted to their technical legal meaning. In the event of a breach of threatened breach by the Tenant of any of the covenants or provisions hereof, the Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity, as if re-entry, summary proceedings and other remedies were not herein provided for. SEVENTH: If the Tenant shall make default in the performance of any covenant herein contained, the Landlord may immediately, or at any time thereafter, without notice, perform the same for the account of the Tenant. If a notice of mechanic's lien be filed against the demised premises or against premises of which the demised premises are part, for, or purporting to be for, labor or material alleged to have been furnished, or to be furnished to or for the Tenant at the demised premises, and if the Tenant shall fail to take such action as shall cause such lien to be discharged within fifteen days after the filing of such notice, the Landlord may pay the amount of such lien or discharge the same by deposit or by bonding proceedings, and in the event of such deposit or bonding proceedings, the Landlord may require the lienor to prosecute an appropriate action to enforce the lienor's claim. In such case, the Landlord may pay any judgment recovered on such claim. Any amount paid or expense incurred by the Landlord as in this subdivision of this lease provided, and any amount as to which the Tenant shall at any time be in default for or in respect to the use of water, electric current or sprinkler supervisory service, and any expense incurred or sum of money paid by the Landlord by reason of the failure of the Tenant to comply with any provision hereof, or in defending any such action, shall be deemed to be "additional rent" for the demised premises, and shall be due and payable by the Tenant to the Landlord on the first day of the next following month, or, at the option of the Landlord, on the first day of any succeeding month. The receipt by the Landlord of any instalment of the regular stipulated rent - 4 - hereunder or any of said "additional rent" shall not be a waiver of any other "additional rent" then due. EIGHTH: the failure of the Landlord to insist, in any one or more instances upon a strict performance of any of the covenants of this lease, or to exercise any option herein contained, shall not be construed as a waiver or a relinquishment for the future of such covenant or option, but the same shall continue and remain in full force and effect. The receipt by the Landlord of rent, with knowledge of the breach of any covenant hereof, shall not be deemed a waiver of such breach and no waiver by the Landlord of any provision hereof shall be deemed to have been made unless expressed in writing and signed by the Landlord. Even though the Landlord shall consent to an assignment hereof no further assignment shall be made without express consent in writing by the Landlord. NINTH: If this lease be assigned, or if the demised premises or any part thereof be underlet or occupied by anybody other than the Tenant the Landlord may collect rent from the assignee, under-Tenant or occupant, and apply the net amount collected to the rent herein reserved, and no such collection shall be deemed a waiver of the covenant herein against assignment and underletting, or the acceptance of the assignee, under-Tenant or occupant as Tenant, or a release of the Tenant from the further performance by the Tenant of the covenants herein contained on the part of the Tenant. TENTH: This lease shall be subject and subordinate at all times, to the lien of the mortgages now on the demised premises, and to all advances made or hereafter to be made upon the security thereof, and subject and subordinate to the lien of any mortgage or mortgages which at any time may be made a lien upon the premises. The Tenant will execute and deliver such further instrument or instruments subordinating this lease to the lien of any such mortgage or mortgages as shall be desired by any mortgagee or proposed mortgagee. The Tenant hereby appoints the Landlord the attorney-in-fact of the Tenant, irrevocable, to execute and deliver any such instrument or instruments for the Tenant. ELEVENTH: All improvements made by the Tenant to or upon the demised premises, except said trade fixtures, shall when made, at once be deemed to be attached to the freehold, and become the property of the Landlord, and at the end or other expiration of the term, shall be surrendered to the Landlord in as good order and condition as they were when installed, reasonable wear and damages by the elements excepted. TWELFTH: Any notice or demand which under the terms of this lease or under any statute must or may be given or made by the parties hereto shall be in writing and shall be given or made by mailing the same by certified or registered mail addressed to the respective parties at the addresses set forth in this lease. THIRTEENTH: The Landlord shall not be liable for any failure of water supply or electrical current, sprinkler damage, or failure of sprinkler service, nor for injury or damage to person or property caused by the elements or by other Tenants or persons in said building, or resulting from steam, gas, electricity, water, rain or snow, which may leak or flow from any part of said buildings, or from the pipes, appliances or plumbing works of the same, or from the street - 5 - or sub-surface, or from any other place, nor for interference with light or other incorporeal hereditaments by anybody other than the Landlord, or caused by operations by or for a governmental authority in construction of any public or quasi-public work, neither shall the Landlord be liable for any latent defect in the building. FOURTEENTH: No diminution or abatement of rent, or other compensation shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the building or to its appliances, nor for any space taken to comply with any law, ordinance or order of a governmental authority. In respect to the various "services," if any, herein expressly or impliedly agreed to be furnished by the Landlord to the Tenant, it is agreed that there shall be no diminution or abatement of the rent, or any other compensation, for interruption or curtailment of such "service" when such interruption or curtailment shall be due to accident, alterations or repairs desirable or necessary to be made or to inability or difficulty in securing supplies or labor for the maintenance of such "service" or to some other cause, not gross negligence on the pat of the Landlord. No such interruption or curtailment of any such "service" shall be deemed a constructive eviction. The Landlord shall not be required to furnish, and the Tenant shall not be entitled to receive, any of such "services" during any period wherein the Tenant shall be in default in respect to the payment of rent. Neither shall there be any abatement or diminution of rent because of making of repairs, improvements or decorations to the demised premises after the date above fixed for the commencement of the term, it being understood that rent shall, in any event, commence to run at such date so above fixed. FIFTEENTH: The Landlord may prescribe and regulate the placing of safes, machinery, quantities of merchandise and other things. The Landlord may also prescribe and regulate which elevator and entrances shall be used by the Tenant's employees, and for the Tenant's shipping. The Landlord may make such other and further rules and regulations as, in the Landlord's judgment, may from time to time be needful for the safety, care or cleanliness of the building, and for the preservation of good order therein. The Tenant and the employees and agents of the Tenant will observe and conform to all such rules and regulations. SIXTEENTH: In the event that an excavation shall be made for building or other purposes upon land adjacent to the demised premises or shall be contemplated to be made, the Tenant shall afford to the person or persons causing or to cause such excavation, license to enter upon the demised premises for the purpose of doing such work as said person or persons shall deem to be necessary to preserve the wall or walls, structure or structures upon the demised premises from injury and to support the same by proper foundations. SEVENTEENTH: No vaults or space not within the property line of the building are leased hereunder. Landlord makes no representation as to the location of the property line of the building. Such vaults or space as Tenant may be permitted to use or occupy are to be used or occupied under a revocable license and if such license be revoked by the Landlord as to the use of part or all of the vaults or space Landlord shall not be subject to any liability; Tenant shall not be entitled to any compensation or reduction in rent nor shall this be deemed constructive or actual eviction. Any tax, fee or charge of municipal or other authorities for such vaults or space shall be paid by the Tenant for the period of the Tenant's use or occupancy thereof. - 6 - EIGHTEENTH: That during seven months prior to the expiration of the term hereby granted, applicants shall be admitted at all reasonable hours of the day to view the premises until rented; and the Landlord and the Landlord's agents shall be permitted at any time during the term to visit and examine them at any reasonable hour of the day, and workmen may enter at any time, when authorized by the Landlord or the Landlord's agents, to make or facilitate repairs in any part of the building; and if the said Tenant shall not be personally present to open and permit an entry into said premises, at any time, when for any reason an entry therein shall be necessary or permissible hereunder, the Landlord or the Landlord's agents may forcibly enter the same without rendering the Landlord or such agents liable to any claim or cause of action for damages by reason thereof (if during such entry the Landlord shall accord reasonable care to the Tenant's property) and without in any manner affecting the obligations and covenants of this lease; it is, however, expressly understood that the right and authority hereby reserved, does not impose, nor does the Landlord assume, by reason thereof, any responsibility or liability whatsoever for the care or supervision of said premises, or any of the pipes, fixtures, appliances or appurtenances therein contained or therewith in any manner connected. NINETEENTH: The Landlord has made no representations or promises in respect to said building or to the demised premises except those contained herein, and those, if any, contained in some written communication to the Tenant, signed by the Landlord. This instrument may not be changed, modified, discharged or terminated orally. TWENTIETH: If the Tenant shall at any time be in default hereunder, and if the Landlord shall institute an action or summary proceeding against the Tenant based upon such default, then the Tenant will reimburse the Landlord for the expense of attorneys' fees and disbursements thereby incurred by the Landlord, so far as the same are reasonable in amount. Also so long as the Tenant shall be a Tenant hereunder the amount of such expenses shall be deemed to be "additional rent" hereunder and shall be due from the Tenant to the Landlord on the first day of the month following the incurring of such respective expenses. TWENTY-FIRST: Landlord shall not be liable for failure to give possession of the premises upon commencement date by reason of the fact that premises are not ready for occupancy, or due to a prior Tenant wrongfully holding over or any other person wrongfully in possession or for any other reason: in such event the rent shall not commence until possession is given or is available, but the term herein shall not be extended. THE TENANT FURTHER COVENANTS: TWENTY-SECOND: If the demised premises or any part thereof, consist of a store, or of a first floor, or of any part thereof, the Tenant will keep the sidewalk and curb in front thereof clean at all times and free from snow and ice, and will keep insured in favor of the Landlord, all plate glass therein and furnish the Landlord with policies of insurance covering the same. TWENTY-THIRD: If by reason of the conduct upon the demised premises of a business not herein permitted, or if by reason of the improper or careless conduct of any business upon or use of the demised premises, the fire insurance rate shall at any time be higher than it otherwise would be, then the Tenant will reimburse the Landlord, as additional rent hereunder, for that part - 7 - of all fire insurance premiums hereafter paid out by the Landlord which shall have been charged because of the conduct of such business not so permitted, or because of the improper or careless conduct of any business upon or use of the demised premises, and will make such reimbursement upon the first day of the month following such outlay by the Landlord; but this covenant shall not apply to a premium for any period beyond the expiration date of this lease, first above specified. In any action or proceeding wherein the Landlord and Tenant are parties, a schedule or "make up" of rate for the building on the demised premises, purporting to have been issued by New York Fire Insurance Exchange, or other body making fire insurance rates for the demised premises, shall be prima facie evidence of the facts therein stated and of the several items and charges included in the fire insurance rate then applicable to the demised premises. TWENTY-FOURTH: If a separate water meter be installed for the demised premises, or any part thereof, the Tenant will keep the same in repair and pay the charges made by the municipality or water supply company for or in respect to the consumption of water, as and when bills therefor are rendered. If the demised premises, or any part thereof, be supplied with water through a meter which supplies other premises, the Tenant will pay to the Landlord, as and when bills are rendered therefor, the Tenant's proportionate part of all charges which the municipality or water supply company shall make for all water consumed through said meter, as indicated by said meter. Such proportionate part shall be fixed by apportioning the respective charge according to said meter, as indicated by said meter. Such proportionate part shall be fixed by apportioning the respective charge according to floor area against all of the rentable floor area in the building (exclusive of the basement) which shall have been occupied during the period of the respective charges, taking into account the period that each part of such area was occupied. Tenant agrees to pay as additional rent the Tenant's proportionate part, determined as aforesaid, of the sewer rent or charge imposed or assessed upon the building of which the premises are a part. TWENTY-FIFTH: That the Tenant will purchase from the Landlord, if the Landlord shall so desire, all electric current that the Tenant requires at the demised premises, and will pay the Landlord for the same, as the amount of consumption shall be indicated by the meter furnished therefor. The price of said current shall be the same as that charged for consumption similar to that of the Tenant by the company supplying electricity in the same community. Payments shall be due as and when bills shall be rendered. The Tenant shall comply with like rules, regulations and contract provisions as those prescribed by said company for a consumption similar to that of the Tenant. TWENTY-SIXTH: If there now is or shall be installed in said building a "sprinkler system" the Tenant agrees to keep the appliances thereto in the demised premises in repair and good working condition, and if the New York Board of Fire Underwriters or the New York Fire Insurance Exchange or any bureau, department or official of the State or local government requires or recommends that any changes, modifications, alterations or additional sprinkler heads or other equipment be made or supplied by reason of the Tenant's business, or the location of partitions, trade fixtures, or other contents of the demised premises, or if such changes, modifications, alterations, additional sprinkler heads or other equipment in the demised premises are necessary to prevent the imposition of a penalty or charge against the full allowance for a sprinkler system in the fire insurance rate as fixed by said Exchange, or by any Fire Insurance - 8 - Company, the Tenant will at the Tenant's own expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. As additional rent hereunder the Tenant will pay to the Landlord, annually in advance, throughout the term $ toward the contract price for sprinkler supervisory service. TWENTY-SEVENTH: The sum of Dollars is deposited by the Tenant herein with the Landlord herein as security for the faithful performance of all the covenants and conditions of the lease by the said Tenant. If the Tenant faithfully performs all the covenants and conditions on his part to be performed, then the sum deposited shall be returned to said Tenant. TWENTY-EIGHTH: This lease is granted and accepted on the especially understood and agreed condition that the Tenant will conduct his business in such a manner, both as regards noise and kindred nuisances, as will in no wise interfere with, annoy, or disturb any other Tenants, in the conduct of their several businesses, or the Landlord in the management of the building; under penalty of forfeiture of this lease and consequential damages. TWENTY-NINTH: The Landlord hereby recognizes as the broker who negotiated and consummated this lease with the Tenant herein, and agrees that if, as, and when the Tenant exercises the option, if any, contained herein to renew this lease, or fails to exercise the option, if any, contained therein to cancel this lease, the Landlord will pay to said broker a further commission in accordance with the rules and commission rates of the Real Estate Board in the community. A sale, transfer, or other disposition of the Landlord's interest in said lease shall not operate to defeat the Landlord's obligation to pay the said commission to the said broker. The Tenant herein hereby represents to the Landlord that the said broker is the sole and only broker who negotiated and consummated this lease with the Tenant. THIRTIETH: The Tenant agrees that it will not require, permit, suffer, nor allow the cleaning of any window, or windows, in the demised premises from the outside (within the meaning of Section 202 of the Labor Law) unless the equipment and safety devices required by law, ordinance, regulation or rule, including, without limitation, Section 202 of the New York Labor Law, are provided and used, and unless the rules, or any supplemental rules of the Industrial Board of the State of New York are fully complied with; and the Tenant hereby agrees to indemnify the Landlord, Owner, Agent, Manager and/or Superintendent, as a result of the Tenant's requiring, permitting, suffering, or allowing any window, or windows in the demised premises to be cleaned from the outside in violation of the requirements of the aforesaid laws, ordinances, regulations and/or rules. THIRTY-FIRST: The invalidity or unenforceability of any provision of this lease shall in no way affect the validity or enforceability of any other provision hereof. THIRTY-SECOND: In order to avoid delay, this lease has been prepared and submitted to the Tenant for signature with the understanding that it shall not bind the Landlord unless and until it is executed and delivered by the Landlord. - 9 - THIRTY-THIRD: The Tenant will keep clean and polished all metal, trim, marble and stonework which are a part of the exterior of the premises, using such materials and methods as the Landlord may direct, and if the Tenant shall fail to comply with the provisions of this paragraph, the Landlord may cause such work to be done at the expense of the Tenant. THIRTY-FOURTH: The Landlord shall replace at the expense of the Tenant any and all broken glass in the skylights, doors and walls in and about the demised premises. The Landlord may insure and keep insured all plate glass in the skylights, doors and walls in the demised premises, for and in the name of the Landlord and bills for the premiums therefor shall be rendered by the Landlord to the Tenant at such times as the Landlord may elect, and shall be due from and payable by the Tenant when rendered, and the amount thereof shall be deemed to be, and shall be paid as, additional rent. THIRTY-FIFTH: This lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on part of Tenant to be performed shall in nowise be affected, impaired or excused because Landlord is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repairs, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of governmental preemption in connection with a National Emergency declared by the President of the United States or in connection with any rule, order or regulation of any department or subdivision thereof 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. THE LANDLORD COVENANTS FIRST: That if and so long as the Tenant pays the rent and "additional rent" reserved hereby, and performs and observes the covenants and provisions hereof, the Tenant shall quietly enjoy the demised premises, subject, however, to the terms of this lease, and to the mortgages above mentioned, provided however, that this covenant shall be conditioned upon the retention of title to the premises by Landlord. SECOND: Subject to the provisions of Paragraph "Fourteenth" above the Landlord will furnish the following respective serves: (a) Elevator service, if the building shall contain an elevator or elevators, on all days except Sundays and holidays, from A.M. to P.M.; (b) Heat, during the same hours on the same days in the cold season in each year. And it is mutually understood and agreed that the covenants and agreements contained in the within lease shall be binding upon the parties hereto and upon their respective successors, heirs, executors and administrators. - 10 - IN WITNESS WHEREOF, the Landlord and Tenant have respectively signed and sealed these presents the day and year first above written. /s/ Anthony Gallina [L.S.] -------------------------------------------- T&O Management Corp. Anthony Gallina, Pres. IN PRESENCE OF: /s/ Sterling Gordon [L.S.] -------------------------------------------- Coffee Holding Co., Inc. Tenant Sterling Gordon, Pres. - 11 - RIDER TO LEASE FOR 4425a First Avenue ------------------------------------- THIRTY-SIXTH: The Tenant shall neither encumber nor obstruct the sidewalk in front of, entrance to, or halls and stairs of said premise, nor allow the same to be obstructed or encumbered in any manner. The Tenant shall not place any vehicles, trucks, equipment etc. on the sidewalk premise or any adjacent sidewalk or facade of adjacent premises. THIRTY-SEVENTH: The Tenant shall keep the sidewalk free and clear of ice, snow, debris, garbage, automotive parts, oil, lubricants, etc. The Tenant shall keep the sidewalk broom swept. THIRTY-EIGHTH: The Tenant shall be solely responsible and liable for all tickets and violations from all City, State and Federal agencies. THIRTY-NINTH: The Tenant's sign for the outside of the building shall be at the Landlord's discretion with regards to size and color and must be approved by Landlord prior to installation. FORTIETH: The Tenant shall provide gas and electricity for the leased premises at his own cost and expense. Water usage will be metered and Landlord will pay for "normal" usage only (toilets, sinks), Tenant is responsible for any other usage. Tenant will notify Landlord immediately if any leaks are discovered. FORTY-FIRST: Should there be an increase in the New York City Real Estate tax after the inception date within the lease, then the Tenant shall pay such increase to the Landlord after due notice and demand. FORTY-SECOND: The Tenant shall provide public liability and property damage insurance for the leased premises with minimum limits of Five Hundred Thousand Dollars ($500,000.00) CSL with the Landlord named as an insured and with the premium paid by the Tenant. FORTY-THIRD: It is understood that the Tenant became aware of the availability of the leased premises through direct contact with the Landlord and that no broker was involved. FORTY-FIFTH: The Tenant shall be responsible for all overhead doors, doors, hardware, glass, & plumbing fixtures. Any damage shall be replaced/repaired immediately or owner will make necessary repairs and bill Tenant. FORTY-SIXTH: The Tenant shall be responsible for any/all costs for architectural fees, permits, inspections, city/state agencies fees, etc. to obtain a Certificate of Occupancy to conduct business for the lease and rider for the above listed premise. FORTY-SEVENTH: It is understood that the Tenant is leasing the premise "as is." If there are any Governmental Agencies' requirements such as: Oil Separators, Freon collectors, Fire extinguishing systems, Back flow preventors, etc. It will be the Tenants sole responsibility to file, approve, and at Tenants own cost to include into the building known as 4425a First Avenue. FORTY-EIGHTH: Tenant understands that building will be leased "as is" upon commencement of lease. There are no additional work orders to be done by Landlord in conjunction with the premise 4425a First Avenue, Brooklyn, NY 11232. FORTY-NINTH: Tenant shall have the right to extend this lease for an additional two year renewal term through September 1, 2002, upon written notice given not less than ninety days prior to the expiration of the term of this lease. The annual rent for each year of the renewal term shall be subject to a seven percent (7%) increase over the prior year. /s/ Sterling Gordon /s/ Anthony Gallina - --------------------------------- ------------------------------ Tenant - Coffee Holding Co., Inc. T&O Management Corp., Landlord Anthony Gallina, Pres. - 2 - EX-10.2 6 0006.txt STOCK OPTION PLAN COFFEE HOLDING CO., INC. 1998 STOCK OPTION PLAN The purpose of the 1998 Stock Option Plan (the "Plan") is to assist COFFEE HOLDING CO., INC. (the "Company") to attract and retain qualified officers, employees, directors and consultants of the Company, a Subsidiary, or a Parent of the Company, by enabling them to acquire common stock of the Company and thus providing incentive for them to expend maximum effort for the success of the Company's business. The Plan provides for the issuance of incentive stock options ("Incentive Stock Options') pursuant to Section 5(a) and of non-qualified options ("Non-Qualified Options") pursuant to Section 5(b). The Incentive Stock Options granted under Section 5(a) are intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Non-Qualified Options granted pursuant to Section 5(b) are intended to be options which do not satisfy the requirements of Section 422 of the Code. All references to "options" in the Plan shall include Incentive Stock Options and Non-Qualified Options. The options offered pursuant to the Plan are a matter of separate inducement to the persons who receive them and are not in lieu of any salary or other compensation for the services of such persons. The Company by means of the Plan seeks to retain the services of persons now serving the Company or any Subsidiary or Parent of the Company and to secure the services of additional persons capable of providing services important to the welfare of the Company or any Subsidiary or Parent of the Company. To assist in meeting the objectives described above, the Company hereby adopts the Plan. 1. Amount and Source of Stock. The aggregate number and class of shares which may be the subject of options granted pursuant to the Plan is 2,000,000 shares of common stock of the Company, par value $.0001 per share, subject to adjustment as provided in Section 9 of the Plan. Such shares may be authorized but unissued shares of common stock of the Company or may be shares held in or acquired for the treasury of the Company. Any shares of common stock reserved for issuance or transfer under an option which for any reason terminates, expires or is canceled unexercised as to such shares, may be reserved for issuance or transfer under another option granted under the Plan. The aggregate fair market value (determined at the time the option is granted) of the shares as to which Incentive Stock Options may be granted to any option holder ("Optionee") under this Plan or any other plan of the Company or any Subsidiary or Parent of the Company which are exercisable for the first time by such Optionee during any calendar year shall not exceed $100,000. 2. Administration of the Plan. (a) The Plan shall be administered by the Board of Directors of the Company, which, to the extent it shall determine, may delegate its powers with respect to administration of the Plan to a committee (the "Committee") consisting of not less than three members. The Board of Directors shall determine, within the limits of the express provisions of the Plan, those directors, employees, and officers who are to receive options under the Plan and the number of shares of common stock to be subject to such options. Options granted under the Plan shall, subject to the provisions of Section 5 and 11 hereof and the following sentence, be in such form as determined and approved by the Board of Directors. The Board of Directors shall interpret the Plan, prescribe, amend and rescind rules and regulations, forms, notices and agreements relating to it and make all determinations necessary or advisable for its administration, all such actions as approved by the Board of Directors to be final and conclusive. (b) The Board of Directors may from time to time appoint members of the Committee in addition to or in substitution for members previously appointed and may fill any vacancies in the Committee. The Committee shall elect one of its members as Chairman, and may appoint a secretary, who need not be a member of the Committee or a director of the Company, to keep minutes of its meetings. Meetings of the Committee shall be held at such times and places as it shall deem advisable. A majority of the members of the Committee shall constitute a quorum. All action of the Committee shall be by a majority of its members. Any action may be taken by unanimous written consent setting forth the action taken, signed by all of the members of the Committee, and action so taken shall have the same effect as if it had been taken by unanimous vote at a meeting duly held and called. The Committee shall report its action at meetings or by unanimous written consent to the Board of Directors. (c) At any time prior to the appointment of the Committee and at any time thereafter when the Committee shall not be duly constituted and subject to all eligibility limitations which would otherwise apply to the Plan, the Board of Directors shall exercise all the functions of the Committee under the Plan. 3. Effective Date and Term of Plan. The Plan as originally adopted shall become effective when adopted by the Board of Directors of the Company, except that unless the Plan is authorized by the affirmative vote of the holders of a majority of the outstanding shares of common stock of the Company within 12 months after its adoption by the Board of Directors, the Plan and all options outstanding under the Plan shall terminate at the expiration of such 12 month period. The solicitation of such approval shall be in accordance with the laws of the State of Nevada and, if applicable, in accordance with Section 14(a) of the Securities Exchange Act of 1934. Options may be granted under the Plan within 10 years from the date of its adoption by the Board of Directors, but not thereafter. 4. Eligible Participants. Only officers, directors, employees and consultants of the Company or a Subsidiary or a Parent of the Company shall b eligible to receive options under the Plan. An employee who is also a director of the Company or a Subsidiary or a Parent of the Company shall be eligible to participate under the Plan. Except as provided in Section 5(a)(v) below, no Incentive Stock Option shall be granted to a non-employee director, consultant, or an individual who, immediately before the granting of the option, owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Parent or Subsidiary of the Company. - 2 - 5. Grant and Terms of Options. The Board of Directors may grant options at any time for from time to time prior to the termination of the Plan, and except as hereinafter provided, such options shall be subject to the following terms and conditions: (a) Incentive Stock Options. (i) Purchase Price. The purchase price provided for in each Incentive Stock Option granted pursuant to this Section 5(a) of the Plan shall be determined by the Board of Directors, provided that in no instance shall such price be less than the fair market value of the shares subject to such option on the date on which the Incentive Stock Option is granted. (ii) Duration of Option. Each Incentive Stock Option granted pursuant to the Plan will terminate no later than 10 years from the date on which it is granted, unless it is terminated earlier under Section 7 or 8. (iii) Transferability of Option. No Incentive Stock Option shall be transferable by the employee in whole or in part other than by will or the laws of descent and distribution, and each such option shall be exercisable, during the lifetime of the employee, only by him or her. (iv) Exercise of Option. Subject to the provisions of this Section 5(a), the Board of Directors shall have absolute discretion in determining whether any Incentive Stock Option granted hereunder shall be exercisable in whole at one time or in part from time to time and, if in part from time to time, the rate at which such option shall be exercisable on a cumulative or non-cumulative basis. Except as provided in Section 7 and 8, no Incentive Stock Option may be exercised at a time when the Optionee is not an employee of the Company or a Subsidiary or a Parent of the Company. (v) Special Ten Percent Shareholder Rule. Sections 4, 5(a)(i) and 5(a)(ii) notwithstanding, an Incentive Stock Option may be granted to an individual who immediately before the granting of such option owns (or is deemed to own) stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary or a Parent of the Company, if at the time such option is granted, (i) such option price is at least 110% of the fair market value of the stock subject to such option, and (ii) such option by its terms may not be exercised after the expiration of 5 years from the date on which it was granted. (b) Non-Qualified Stock Options. (i) Purchase Price. The purchase price provided for Non-Qualified Option granted pursuant to this Section 5(b) of the Plan shall be determined by the Board of Directors. (ii) Duration of Option. Each Non-Qualified Option granted pursuant to the Plan will terminate no later than 10 years from the date on which it is granted, unless it is terminated earlier under Section 7 or 8 hereof. - 3 - (iii) Transferability of Option. No Non-Qualified Option shall be transferable by the employee, director or consultant in whole or in part other than by will or the laws of descent or distribution, and each such option shall be exercisable, during the lifetime of the employee, director or consultant, only by him or her. (iv) Exercise of Option. Subject to the provisions of this Section 5(b), the Board of Directors shall have absolute discretion in determining whether any Non-Qualified Option granted hereunder shall be exercisable in whole at one time or in part from time to time and, if in part from time to time, the rate at which such option shall be exercisable on a cumulative or non-cumulative basis. Except as provided in Section 7 and 8, no Non-Qualified Option may be exercised at a time when the Optionee is not an employee or a director of the Company or a Subsidiary or a Parent of the Company. A Non-Qualified Option granted to a consultant may be exercised as the Board of Directors determines in its sole discretion. 6. Manner of Exercise of Options. (a) Unless the Board of Directors shall otherwise determine, an option, to the extent exercisable under the Plan, may be exercised by delivery to the Secretary of the Company, at its principal office, of a written notice, signed by the person entitled to exercise the option, specifying the number of shares purchasable under the option which the Optionee then wishes to purchase, together with a certified or bank cashier's check payable to the order of the Company, in the amount of the aggregate option price for such number of shares and any withholding tax due or such other consideration as the Board of Directors agrees to accept. (b) Unless the shares to be acquired upon exercise of an option may, at the time of such acquisition, be lawfully resold in accordance with a then currently effective registration statement or post-effective amendment under the Securities Act of 1933, as amended, the Board of Directors may provide, as a condition to the delivery of any shares to be purchased upon exercise of the option, that the Company receive appropriate evidence that the Optionee is acquiring the shares for investment and not with a view to the distribution or public offering of the shares, or any interest in the shares, and a representation to the effect that the Optionee shall make no sale or other disposition of the shares unless (a) the Company shall have received an opinion of counsel satisfactory to it in form and substance that the sale or other disposition may be made without registration under the then applicable provisions of the Securities Act of 1933, as amended, and the related rules and regulations of the Securities and Exchange Commissions, or (b) the shares shall be included in a currently effective registration statement or post-effective amendment under the Securities Act of 1933, as amended. In no event shall stock be issued or certificates be delivered until full payment as required by the Plan shall have been received by the Company, nor shall the Optionee have any right or status as a shareholder prior to such payment. In no event shall a fraction of a share be purchased or issued under the Plan. (c) If at any time the Board of Directors shall determine in its discretion that the listing, registration or qualification of the shares covered by the Plan upon any national securities exchange or under any state or federal law, or the consent or approval of any - 4 - governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the sale or purchase of shares subject to the Plan, no such shares shall be delivered unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Board of Directors. 7. Termination of Employment. In the event that the employment of any employee or tenure as a director of an Optionee shall be involuntarily terminated other than for cause or by reason of the death or permanent disability of the Optionee, the option may be exercised by the Optionee to the extent that he or she was entitled to do so at the termination of his or her employment or tenure, at any time within three months after such termination, but in no event may an option be exercised after the date on which it would otherwise terminate. In the event that the employment of any employee or the tenure of a director shall be voluntarily terminated or terminated for cause, any option held by the employee or a director under the Plan, to the extent not previously exercised, shall forthwith terminate. Normal retirement or early retirement with the consent of the Company or a Subsidiary or a Parent of the Company pursuant to any retirement plan shall not constitute a voluntary termination of employment or a termination of employment for cause, but shall be considered for this purpose to be an involuntary termination other than for cause. The Board of Directors shall determine, in its sole discretion, the terms of the exercise of an option granted to a consultant with respect to the termination of the consultant. Nothing in the Plan or in any option granted pursuant to the Plan shall confer on any individual any right to continue in the employ or as a director, or as a consultant of the Company or a Parent or a Subsidiary of the Company, or interfere in any way with the right of the Company or a Parent or a Subsidiary of the Company to terminate his or her employment, tenure as a director or engagement as a consultant. 8. Death or Disability of an Optionee. (a) If an Optionee shall die while employed by or serving as a director of the Company or a Subsidiary or a Parent of the Company, the option may be exercised (i) to the extent that the employee or director was entitled to do so at the date of his or her death, and (ii) to the additional extent that the employee or director would have been entitled to do so had the option been exercisable with respect to the number of shares covered by the next installment, if any, of the option, by a legatee or legatees of the Optionee under his or her last will or by his or her personal representatives or distributees at any time within one year after the date of death, but in no event may the option be exercised after the date on which it would otherwise terminate. (b) If an Optionee shall die within three months after the involuntary termination, other than for cause, of his or her employment by or of his or her service as a director of the Company or a Subsidiary or a Parent of the Company, the option may be exercised, to the extent that the employee or director was entitled to do so at the date of his or her death, by a legatee or legatees of the Optionee under his or her last will or by his or her personal representative or distributees at any time within one year after the date of death, but in no event may the option be exercised after the date on which it would otherwise expire. - 5 - (c) If an Optionee is a consultant and he or she shall die, the option may be exercised (i) to the extent that the consultant was entitled to do so at the date of his or her death, and (ii) to the additional extent that the consultant would have been entitled to do so had the option been exercisable with respect to the number of shares covered by the next installment, if any, of the option, by a legatee or legatees of the Optionee under his or her last will or by his or her personal representatives or distributees at any time within one year after the date of death, but in no event may the option be exercised after the date on which it would otherwise terminate. (d) If an Optionee shall become permanently disabled (within the meaning of Section 22(e)(3) of the Code) while employed by or serving as a director of the Company or a Subsidiary or a Parent of the Company, the option may be exercised by the Optionee to the extent that he or she was entitled to do so at the termination of his or her employment or tenure as a director, at any time within one year after such termination, but in no event may an option be exercised after the date on which it would otherwise expire. (e) If an Optionee is a consultant and he or she shall become permanently disabled (within the meaning of 22(e)(3) of the Code), the option may be exercised by the Optionee to the extent that he or she was entitled to do so upon the termination of his or her engagement, at any time within one year after such termination, but in no event may an option be exercised after the date on which it would otherwise expire. 9. Adjustment of Number and Price of Shares Subject to Options. (a) If the outstanding shares of the common stock of the Company are subdivided, consolidated, increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company through reorganization, merger, recapitalization, reclassification, capital adjustment or otherwise, or if the Company shall issue common stock as a dividend or upon a stock split, then the number and kind of shares available for purposes of the Plan and all shares subject to the unexercised portion of any options previously granted and the exercise price of those options shall be appropriately adjusted. However, no such adjustment shall change the total exercise price applicable to the unexercised portion of any outstanding option. (b) Adjustments under this Section 9 shall be made by the Board of Directors, whose determination as to what adjustments shall be made shall be final and binding. In computing any adjustment under this Section 9, any fractional share which might otherwise become subject to an option shall be eliminated. 10. Change of Control. (a) In no event of a Change of Control (as herein defined), unless otherwise determined by the Board of Directors or the Committee at the time of grant or by amendment (with the holder's consent) of such grant, all outstanding options awarded under the Plan shall become fully exercisable and vested. - 6 - (b) A "Change of Control" shall be deemed to occur on the date that any of the following events occur: (i) any person or persons acting together which would constitute a "group" for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), other than the Company and any subsidiary, shall beneficially own (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, at least 20% of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of the Board; (ii) either (A) Current Directors (as herein defined) shall cease for any reason to constitute at least a majority of the members of the Board (for these purposes, a "Current Director" shall mean any member of the Board as of the effective date of the Plan, and any successor of a Current Director whose election, or nomination for election by the Company's shareholders, was approved by at least two-thirds of the Current Directors then on the Board) or (B) at any meeting of the shareholders of the company called for the purpose of electing directors, a majority of the persons nominated by the Board for election as directors shall fail to be elected; (iii) the shareholders of the Company approve (A) a plan of complete liquidation of the Company, or (B) an agreement providing for the merger or consolidation of the Company (i) in which the Company is not the continuing or surviving corporation (other than a consolidation or merger with a wholly owned subsidiary of the Company in which all shares of common stock of the Company outstanding immediately prior to the effectiveness thereof are changed into or exchanged for the same consideration) or (ii) pursuant to which the shares of common stock of the Company are converted into cash, securities or other property, except as consolidation or merger of the Company in which the holders of the common stock of the Company immediately prior to the consolidation or merger have, directly or indirectly, at least a majority of the common stock of the continuing or surviving corporation immediately after such consolidation or merger or in which the Board immediately prior to the merger or consolidation would, immediately after the merger or consolidation, constitute a majority of the board of directors of the continuing or surviving corporations; or (iv) the shareholders of the Company approve an agreement (or agreements) providing for the sale or other disposition (in one transaction or a series of transactions) of all or substantially all of the assets of the Company. 11. Liquidation, Merger or Consolidation. In the event of the dissolution or liquidation of the Company, or in the event of a merger or consolidation in which (i) the Company is a party and (ii) the agreements governing such merger or consolidation do not provide for the issuance of substitute options or the assumption of the options issued hereunder (as issuing and assuming are defined in Code Section 424(a)), with substantially equivalent terms as determined by the Board of Directors in lieu of the options granted under the Plan or for the express assumption of such outstanding options by the surviving corporation, the Board of Directors shall declare that each option granted under the Plan shall terminate as of a date to be fixed by the Board of Directors (the "Termination Date"), provided that the Board of Directors - 7 - shall cause to be mailed thirty (30) days before the Termination Date written notice of the Termination Date to each Optionee, and each Optionee shall have the right, during the period between the receipt of the written notice and the Termination Date to exercise his option, in whole or in part, whether or not all or any part of such option would not otherwise be exercisable. The notice of exercise must be received by the Company on or prior to the Termination Date. Any then outstanding option not exercised in its entirety on or prior to the Termination Date specified by the Board of Directors and any and all rights thereunder shall terminate as of said date. 12. Amendment or Discontinuance of Plan. The Board of Directors may alter, suspend or discontinue the Plan at any time, except that no action of the Board may, without appropriate shareholder action, materially increase the benefits accruing to the participants under the Plan, materially increase the maximum number of shares subject to the Plan (except as provided in Section 9), materially modify the requirements for eligibility under the Plan, implement any change requiring shareholder approval under the Code or any other applicable law and, without the consent of the Optionee, no such action shall alter the terms of, or impair the rights of the Optionee under any option previously granted pursuant to the Plan. Unless sooner terminated, the Plan shall terminate as provided in Section 3. An option may not be granted while the Plan is suspended or after it is terminated. The rights and obligations under any option granted while the Plan is in effect may not be altered or impaired by suspension or termination of the Plan, except upon the consent of the person to whom the option was granted. The power of the Board of Directors to construe and administer any options granted prior to the termination or suspension of the Plan shall nevertheless continue after and survive such termination and continue during such suspension. 13. Miscellaneous Provisions. (a) Subsidiary. As used herein, the term "subsidiary" means any "subsidiary corporation" within the meaning of Section 424(f) of the Code. (b) Parent. As used herein, the term "parent" means any "parent corporation" within the meaning of Section 424(e) of the Code. (c) Permanently Disabled. As used herein, the term "permanently disabled" means "permanently disabled" within the meaning of Section 22(e)(3) of the Code. (d) Governing Law. The Plan shall be governed by the laws of the State of Nevada. - 8 - EX-27 7 0007.txt FDS --
5 6-MOS OCT-31-1998 NOV-01-1997 APR-30-1998 70,314 0 2,550,113 215,000 1,831,898 4,834,906 3,687,591 1,521,164 7,194,525 2,919,311 4,251,748 0 0 4,000 967,257 7,194,525 13,181,142 13,181,142 11,329,593 11,329,593 1,244,094 0 186,403 421,052 46,000 375,052 0 0 0 375,052 .06 0
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