-----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, EVVg//bk1xdJBp+toudgVoUM0/ECaaZWmj5BoKJAUX6W/LqpSPqaXUdXIwSlJjry RRUR1YzjCBZbkkJpjK1MjQ== 0000898430-96-000743.txt : 19960305 0000898430-96-000743.hdr.sgml : 19960305 ACCESSION NUMBER: 0000898430-96-000743 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960304 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVENA FOODS INC CENTRAL INDEX KEY: 0000814139 STANDARD INDUSTRIAL CLASSIFICATION: SAUSAGE, OTHER PREPARED MEAT PRODUCTS [2013] IRS NUMBER: 952782215 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-10741 FILM NUMBER: 96530993 BUSINESS ADDRESS: STREET 1: 5010 EUCALYPTUS AVE CITY: CHINO STATE: CA ZIP: 91710 BUSINESS PHONE: 7146271082 MAIL ADDRESS: STREET 1: 5010 EUCALYPTUS AVENUE CITY: CHINO STATE: CA ZIP: 91710 10-K405 1 FORM 10-K DATED 12-31-95 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ________________________________________________________________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ________________________________________________________________________________ FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 Commission File Number 1-10741 PROVENA FOODS INC. (Exact name of registrant as specified in its charter) CALIFORNIA 95-2782215 - ----------------------------------------------- ------------------------------- (State or other jurisdiction of incorporation (I.R.S. employer or organization) identification number) 5010 EUCALYPTUS AVENUE, CHINO, CALIFORNIA 91710 - ----------------------------------------------- ------------------------------- (Address of principal executive offices) (ZIP Code) (909) 627-1082 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- COMMON STOCK AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the act: None ________________________________________________________________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The aggregate market value of Provena Foods Inc. Common Stock held by non- affiliates as of February 27, 1996 was $8,236,707. The number of shares of Provena Foods Inc. Common Stock outstanding on February 27, 1996 was 2,745,569. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] PROVENA FOODS INC. 1995 FORM 10-K ANNUAL REPORT Table of Contents
Item Page - ---- ---- PART I ------ 1. Business............................................................ 1 2. Properties.......................................................... 4 3. Legal Proceedings................................................... 5 4. Submission of Matters to a Vote of Security Holders................. 5 PART II ------- 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................................................ 5 6. Selected Financial Data............................................. 7 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 8 8. Financial Statements and Supplementary Data......................... 11 9. Disagreements on Accounting and Financial Disclosure................ 11 PART III -------- 10. Directors and Executive Officers of the Registrant.................. 11 11. Executive Compensation.............................................. 12 12. Security Ownership of Certain Beneficial Owners and Management...... 14 13. Certain Relationships and Related Transactions...................... 14 PART IV ------- 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 15 ________________ Signatures.......................................................... 16
-ii- PART I ------ ITEM 1. BUSINESS General - ------- Registrant (the "Company") is a California-based specialty food processor engaged in the supply of food products to other food processors, distributors and canners. Its primary products are pepperoni and Italian-style sausage sold to frozen pizza processors, pizza restaurant chains and food distributors and dry pasta sold to food processors and canners, private label producers and food distributors. The Company's products are sold throughout the United States but primarily in the Western United States. The Company's meat processing business is conducted through the Swiss American Sausage Co. Division ("Swiss American"), and its pasta business is conducted through the Royal-Angelus Macaroni Company Division ("Royal-Angelus"). The Company acquired its present businesses between 1972 and 1975. The predecessor of Swiss-American was founded in 1922 and the two predecessors to Royal-Angelus, Royal Macaroni Company and Angelus Macaroni Mfg. Co., were founded in 1878 and 1946, respectively. The Company was incorporated in 1972 in California with an initial capitalization of about $12,000. In 1991 the Company discontinued and sold certain assets of its Sav-On Food Co. Division ("Sav-On") food product distribution business, acquired in 1973. Historical financial information in this report reflects Sav-On as a discontinued operation. The Company's competitive strategy is to emphasize providing products of predictable quality and consistency at competitive prices as well as prompt and reliable service. The Company attempts to establish, refine and maintain procedures to assure that the Company's products comply with its customers' specifications and are delivered in a manner that will satisfy their delivery and production requirements. For financial information about each of the Company's two divisions, see the segment data contained in Note 12 of Notes to Financial Statements. Swiss American - -------------- During the years ended December 31, 1995 and 1994, sales by Swiss American accounted for 58.3% and 66.2%, respectively, of the Company's net sales. The Company's processed meat products are sold primarily to pizza restaurant chains, pizza processors and food service distributors. Pizza processors produce prepared pizza which is sold primarily as frozen pizza in food markets. Food service distributors supply food to delicatessens, restaurants and other retail businesses offering prepared food. The Company's meat products are sold nationally, but most of its sales are made to customers located in the Western United States. The Company also sells processed meat products to the U. S. Government. The Company does not have supply agreements with its major customers, many of whom purchase some of their meat products from other suppliers. Swiss American competes with numerous producers of processed meats, many of which are larger and have greater financial resources than the Company. Swiss American's competitors include large national meat packers such as Geo. A. Hormel & Co., as well as smaller regional meat processors. Pizza processors that manufacture their own meat products diminish the market for Swiss American's products. The Company competes in the meat processing business by emphasizing predictable quality and consistency. The meat processing activities of the Company are conducted in its plants located in San Francisco, California. The meat processing activities of Swiss American are typified by its processing of pepperoni, its principal product, which consists of the following steps: (i) the purchase of frozen beef and pork trimmings with a guaranteed lean content; (ii) the blending of the meat into the Company's meat product while carefully controlling the consistency and content of the product; (iii) the addition of spices and preservatives to the product; (iv) the extrusion of the product into sausage casings; (v) the oven cooking of the product in the casings; and (vi) the drying of the cooked product. Throughout the production process, the Company subjects its meat products to quality control inspection for the purposes of satisfying U.S. Department of Agriculture regulations, meeting customer specifications and assuring a consistent quality of the products to the Company's customers. -1- In addition to pepperoni and sausage, the Company processes a relatively small amount of other meat products, including crumbles which are quick-frozen nuggets of a pre-cooked meat product, such as the sausage on a sausage pizza. The Company's crumbles line, which became operational in 1993, extrudes the ground and blended ingredients into nuggets which are cooked and quick-frozen in one continuous operation. The Company estimates its processing capacity in its San Francisco plants to be 27,000,000 pounds per year. Although the Company does not have space within its San Francisco plants to further increase its capacity to produce its processed meat products, the plants' capacity is adequate for the currently contemplated needs of the Company. Royal-Angelus - ------------- During the years ended December 31, 1995 and 1994, sales by Royal-Angelus accounted for 41.7% and 33.8%, respectively, of the Company's net sales. The Company sells its pasta products primarily to food processors and canners, private label customers, food service distributors, and specialty food distributors. Royal-Angelus' food processor and canner customers use the Company's pasta to produce retail products in which pasta is an ingredient, such as pasta salads, soups and entrees. Royal-Angelus' private label customers are regional and national food suppliers that sell pasta under their own labels, purchased in bulk from the Company or packaged by the Company. Royal-Angelus' food service distributor customers supply pasta to restaurants, institutional purchasers, and some retail establishments. The Company also sells its pasta products to government agencies, the military, schools and other pasta manufacturers. Beginning in the latter part of 1987, the Company's pasta products have been produced at Royal-Angelus' production plant in Chino, California. The Company purchased the new plant in October, 1987 using proceeds from the Company's initial public offering of its shares. The plant has production capacity estimated at 25,000,000 pounds per year, adequate for current production needs. Additional space will eventually be required if pasta sales continue to increase. In the basic pasta production process, durum semolina flour is mixed with water and the mixture is extruded into one of many shapes, cut to the proper length, dried, packaged and shipped to the Company's customers. If required by the particular variety of pasta, a different flour is used or flour is blended with egg powder, vegetable powder or other ingredients before the water is added. No preservatives are used in making pasta. Royal-Angelus competes with several national and regional pasta manufacturers, many of which have greater financial resources than the Company. The Company competes in the pasta business by emphasizing predictable quality and consistency and by its capability of producing a larger variety of pastas with shorter lead times and production runs than most of its larger competitors. Suppliers - --------- The primary ingredients used by the Company in processed meat products are beef, pork, spices and casings and in pasta products are flour, egg powder and vegetable powder. The ingredients are purchased from suppliers at prevailing market prices. The Company has not recently experienced any shortages in the supply of ingredients and generally expects the ingredients to continue to be available for the foreseeable future. Patents, Trademarks and Licenses - -------------------------------- The Company owns no patents. It owns the United States registered trademarks "Royal" with the crown design and "Vegeroni" for use on pasta products and licenses from the Del Monte Company until 2009 the United States registered trademark "Capo di Monte" for use on meat products. Registrations of the trademarks owned by the Company must be and are renewed from time to time. Royal and Vegeroni are used on consumer products in limited distribution. Capo di Monte is not used on consumer products. No substantial portion of the Company's sales is dependent upon any trademark. -2- Commodity Price Fluctuations and Availability - --------------------------------------------- The Company contracts to sell its products at a fixed price for production and delivery in the future (generally four to six months or less). The Company is, therefore, subject to the risk of price fluctuations with respect to its product ingredients from the time the Company contracts with its customers until the time the Company purchases the commodities used to fill the orders. Prices for meat and flour, the Company's major product ingredients, fluctuate widely based upon supply, market speculation, governmental trade and agricultural policies, and other unpredictable factors. The price of durum semolina flour, the pasta division's primary ingredient, increased about 50% following the storms in the Midwest in 1993 and remained up during 1994 and 1995. The Company is able to contract at fixed prices for delivery of domestic beef and pork up to 30 days in advance, imported beef and sometimes pork up to 90 days in advance, and flour up to 90 days or more in advance. The Company generally covers its committed sales by purchasing commodities at fixed prices for future delivery, but is subject to the risk of commodity price fluctuations when it contracts for sales beyond the period it can cover or when it orders commodities in anticipation of sales. Effects of Inflation - -------------------- It is the Company's general policy, subject to current competitive conditions, to pass on increases in costs of commodities used in production by increasing prices of the products it sells to its customers. However, because the Company agrees on the price of its products to its customers in advance of purchasing the product ingredients, there may be a delay in passing on increasing commodity costs to customers, temporarily decreasing profit margins. Competitive conditions may limit the Company's ability to pass on commodity price increases to its customers, prolonging or increasing the adverse effect on profit margins. Marketing and Distribution - -------------------------- The Company's processed meat and pasta products have been marketed primarily by the Company's management personnel, food brokers, and three full-time salaried salesmen. Because the Company sells most of its processed meat and pasta products to customers who either further process the products before they reach the consumer or sell the products under private labels, the Company does not advertise its products in a manner designed to reach the ultimate consumer. Dependency on a Limited Number of Large Customers - ------------------------------------------------- A substantial portion of the Company's revenues has in recent years resulted from sales to a few customers. See Note 12 of Notes to Financial Statements. The Company does not enter into continuing sales contracts with its customers, and has different major customers from time to time. The following table shows, by division and for the Company, the percentage of sales represented by the Company's largest customers for the year ended December 31, 1995:
Number of Division Company Division Customers Sales % Sales % - -------- --------- --------- -------- Swiss American 3 52% 30% Royal-Angelus 3 27% 12% - -- Totals 6 42%
The Company fills orders as they are received from its customers, normally within a few weeks or less, and does not have a meaningful backlog of orders for its products. The Company carries significant inventories of its products for only a few major customers, and does not provide extended payment terms to customers. Food Industry Risks - ------------------- The business of the Company is subject to the risks inherent in the food industry, including the risk that a food product or ingredient may be banned or its use limited or declared unhealthful, that product tampering or contamination will require -3- a recall or reduce sales of a product, or that a product's acceptability will diminish because of generally perceived health concerns or changes in consumer tastes. Employees - --------- As of December 31, 1995, the Company employed 131 full-time employees, 67 in production at Swiss American in San Francisco, California, 52 in production at Royal-Angelus in Chino, California, 4 in clerical and office functions, 2 in sales activities, and 6 in management activities. The Company's San Francisco plant employees are represented by the United Food and Commercial Workers Union Local 101, AFL-CIO, under a collective bargaining agreement renewed July 10, 1995 to expire March 31, 1998. There has been no significant labor unrest at the division's plants and the Company believes it has a satisfactory relationship with its employees. Health Benefits - --------------- From April 1, 1991 to December 31, 1993, the Company was totally self- funded for Company provided health insurance benefits for its non-union employees. On January 1, 1994, the Company became partially insured for the excess over $30,000 of claims of any covered person incurred and paid during the year, increased to $40,000 for 1996, but remains self-funded for claims up to $40,000. The Company is exposed to the risk of an extraordinary number of significant claims but not one or more very large claims. Regulation - ---------- Food products purchased, processed and sold by the Company are subject to various federal, state and local laws and regulations, including the federal Meat Inspection Act and the Federal Food, Drug and Cosmetic Act. Since 1984, the Company has qualified for the U. S. Department of Agriculture's Total Quality Control System Program which enables the Company to self-inspect its meat products and production conditions and techniques. As required by law, U.S. Department of Agriculture employees visit the Company's plants in San Francisco to inspect meat products processed by the Company and to review the Company's self-inspection records. The Company is also subject to various federal, state and local regulations regarding workplace health and safety, environmental protection, equal employment opportunity and other matters. The Company maintains quality control departments at both its San Francisco and Chino facilities for purposes of testing product ingredients and finished products to ensure the production of products of predictable quality and consistency, as well as compliance with applicable regulations and standards. ITEM 2. PROPERTIES The Company's main meat processing plant is an approximately 48,000 square foot facility located in San Francisco occupied under a lease which expires in 1998. In 1990 the Company occupied under a lease expiring in 2001, an approximately 45,000 square foot facility nearby its main plant which it improved by building a dryer and relocating its slicing operations. The 1990 expansion increased the annual capacity of the division from an estimated 16,000,000 pounds per year to 20,000,000 pounds. In 1993 the Company added a new crumbles line at its original facility, increasing the estimated capacity of the division to 27,000,000 pounds per year, adequate for the currently contemplated needs of the division. The Company's pasta production plant is an approximately 41,000 square foot facility located in Chino, California, occupied by the Company since 1987. The plant was built for lease to the Company, but was purchased by the Company in October 1987. During 1990 the Company added a second short goods production line, raising the capacity of the plant from about 14,000,000 pounds to about 25,000,000 pounds annually. In January 1996, the Company began the installation of a third short goods production line expected to be completed by mid-year at a cost of about $100,000, adding about 5,000,000 pounds of annual capacity. The Chino plant has capacity to fulfill the Company's near term production needs, but additional space would currently be useful and will become essential if pasta sales continue to increase. In April 1995, the Company purchased an approximately 44,000 square foot building adjacent to the pasta plant at a cost of $1,283,000, using funds from working capital and a $975,000 term loan. The building was purchased subject to an -4- existing lease to a tenant extending to October 31, 1998. In December 1995, the Company and the tenant agreed to terminate the lease effective February 29, 1996. The Company has leased 60% of the building to a cold storage manufacturer for 3 years beginning March 1, 1996 and intends to occupy the remaining 40% as part of its pasta plant. The Company has not carried earthquake insurance on any of its properties, except its original pasta plant building beginning in 1993. ITEM 3. LEGAL PROCEEDINGS The Company is involved in routine claims and litigation incidental to its business. Management believes that none will have a material adverse effect on the Company's business or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of shareholders on Tuesday, April 25, 1995, at 11:00 a.m. at the Company's principal office. Shareholders representing 2,554,500 or 94.7% of the 2,698,696 shares entitled to vote were present in person or by proxy, with 27,327 broker non-votes. The following persons were nominated and elected directors, with votes for, withheld from specified nominees, or without authority to vote for directors, as indicated:
Without Nominee For Withheld Authority ------- --- -------- --------- John D. Determan 2,547,792 -0- 6,708 Theodore L. Arena 2,547,792 -0- 6,708 Ronald A. Provera 2,547,192 600 6,708 Santo Zito 2,547,792 -0- 6,708 Thomas J. Mulroney 2,547,792 -0- 6,708 James P. McClune 2,546,492 1,300 6,708 Louis A. Arena 2,545,692 100 6,708 Joseph W. Wolbers 2,547,792 -0- 6,708 John M. Boukather 2,547,792 -0- 6,708
PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock was traded on the over-the-counter market and was reported on The National Market System of the National Association of Securities Dealers Automated Quotation System ("NASDAQ") from January 19, 1988 through May 9, 1991, when the Company's common stock was admitted to trading on the American Stock Exchange under the symbol "PZA". The following table sets forth high and low prices as traded on the American Stock Exchange:
Quarter of Fiscal Year Ended December 31 First Second Third Fourth ------- ------- ------- ------ 1993 High 2-7/16 2-5/8 3-11/16 3-3/8 Low 1-3/4 2 2-1/2 2-7/8 1994 High 3-1/4 2-15/16 3 3 Low 2-13/16 2-11/16 2-3/8 2-1/4 1995 High 2-13/16 2-3/4 3-1/16 5-3/8 Low 2-3/8 2-1/4 2-5/16 2-7/16
The closing price on December 31, 1995 was $3-1/2. -5- Common Stock - ------------ The Company's Articles of Incorporation as amended authorize the Company to issue up to 10,000,000 shares of common stock, without par value. The Company is not authorized to issue any class or series of shares except shares of common stock. At December 31, 1995 the Company had issued and outstanding 2,738,631 shares held by 248 shareholders of record. In addition, the Company estimates that there are approximately 800 shareholders holding shares in street or nominee names. Holders of the Company's common stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor. The Company commenced paying quarterly cash dividends in March 1988, and has paid the following annual amounts per share: 1995 1994 1993 1992 1991 1990 1989 1988 DIVIDENDS $0.18 $0.1725 $0.1625 $0.16 $0.14 $0.125 $0.11 $0.10 The declaration and timing of future dividends, if any, will depend on the Company's financial condition and results of operations and other factors deemed relevant by the Board. All outstanding shares of common stock are fully paid and nonassessable and are not subject to redemption. Holders of common stock are entitled to one vote for each share held of record and have cumulative voting rights in the election of directors. Holders of common stock do not have preemptive rights and have no right to convert their shares into any other security. Upon liquidation of the Company, the holders of common stock would share ratably in all assets of the Company after the payment of all liabilities. The transfer agent and registrar for the Company is First Interstate Bank of California, 707 Wilshire Boulevard W11-2, Los Angeles, CA 90017, (800) 522-6645, with mailing addresses for: transfers - P.O. Box 54261, Los Angeles, CA 90054; change of address - P.O. Box 54263, Los Angeles, CA 90054; general, missing dividends and lost certificates - P.O. Box 30609, Los Angeles, CA 90030. Common Stock Repurchase and Sales - --------------------------------- The Company has had an announced intention to repurchase shares of its common stock since January 11, 1988. Currently, purchases are authorized up to the number of shares issued under the Company's 1988 Employee Stock Purchase Plan. Purchases are made from time to time on the open market or in privately negotiated transactions. In addition, the Company must accept outstanding shares at fair market value in payment of the exercise price of options under the Company's 1987 Incentive Stock Option Plan. In 1995, the Company received 18,500 shares in payment of the exercise price of options at an average fair market value of $3.84. In addition, in 1995 the Company purchased 52,289 shares of its common stock at an average cost of $2.71 per share. Since January 1988 the Company has repurchased 220,985 shares at an average cost of $3.14 per share, excluding shares used to exercise options. Under the Employee Stock Purchase Plan, in 1995 employees purchased 57,223 newly issued shares at an average price of $2.70 per share. Employees have purchased a total of 286,978 shares under the plan through December 31, 1995, at an average price of $3.12 per share. Employee contributions plus Company matching funds are used monthly to purchase shares at the market price under the plan and are accumulating at a rate of about $140,000 per year. Employees exercised Incentive Stock Options in 1995 to purchase 53,555 shares at an exercise price of $2.25 per share. -6- ITEM 6. SELECTED FINANCIAL DATA The selected financial data presented below under the headings STATEMENT OF OPERATIONS DATA and BALANCE SHEET DATA for, and as of the end of, each of the years in the five-year period ended December 31, 1995 is derived from the financial statements of the Company, which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The selected financial data should be read in conjunction with ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and the financial statements for, and as of the end of, each of the years in the three- year period ended December 31, 1995, and the report thereon, included in a separate section at the end of this report beginning on Page F-1. Financial reports are the responsibility of management, and are based on corporate records maintained by management, which maintains an internal control system, the sophistication of which is considered in relation to the benefits received.
Year Ended December 31, ------------------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- ------ ------- ------- (Amounts in thousands except per share data) STATEMENT OF OPERATIONS DATA: Net Sales $23,424 26,265 22,924 22,570 30,080 Cost of sales 21,348 23,812 21,155 20,743 27,505 ------- ------ ------ ------ ------ Gross profit 2,076 2,453 1,769 1,827 2,575 Distribution, general and administrative expenses 2,021 2,082 1,954 1,984 1,980 ------- ------ ------ ------ ------ Operating income (loss) 55 371 (185) (157) 595 Interest income (expense), net (66) (7) 3 (7) (163) Other income, net 184 156 161 80 64 ------- ------ ------ ------ ------ Earnings (loss) before income tax expense (benefit) 173 520 (21) (84) 496 Income tax expense (benefit) 84 200 (5) (24) 182 ------- ------ ------ ------ ------ Earnings (loss) from continuing operations 89 320 (16) (60) 314 Earnings from discontinued operations (1) - - - - 476 ------- ------ ------ ------ ------ Net earnings (loss) $ 89 320 (16) (60) 790 ======= ====== ====== ====== ====== Earnings (loss) per share: From continuing operations $.03 .12 (.01) (.02) .12 From discontinued operations - - - - .18 ------- ------ ------ ------ ------ Total earnings (loss) per share $.03 .12 (.01) (.02) .30 ======= ====== ====== ====== ====== Cash dividends paid per common share $.18 .1725 .1625 .16 .145 Weighted average number of common shares outstanding (2) 2,705 2,669 2,653 2,628 2,598 BALANCE SHEET DATA (end of period): Working capital $ 2,832 3,180 3,029 3,438 3,450 Property and equipment (net) 5,083 4,070 4,258 4,276 4,668 Total assets 10,050 9,036 9,126 9,238 10,293 Shareholders' equity 6,915 7,245 7,274 7,694 8,098 - --------------------------------------------------------------------------------------------------------
(1) The Sav-On Food Co. division was sold September 30, 1991, is shown as a discontinued operation net of applicable income taxes, and includes sale of the Sav-On warehouse on December 27, 1991 for an after tax gain of $475,056. (2) The Company sold shares under its employee stock purchase plan, sold shares under its incentive stock option plan, received shares in exercise of incentive stock options and repurchased outstanding shares in the years as shown:
1995 1994 1993 1992 1991 ------- ------ ------ ------ ------ Purchase Plan Shares Sold 57,223 54,461 46,485 41,201 34,722 Incentive Option Shares Sold 53,555 52,000 - - - Received in Exercise of Options 18,500 31,457 - - - Outstanding Shares Repurchased 52,289 28,757 32,736 16,692 6,387
-7- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The following table sets forth operating data for the years ended December 31, 1995, 1994 and 1993:
Year Ended December 31, --------------------------------------------------------- 1995 1994 1993 ----------------- ----------------- ----------------- (Dollars in thousands) Net sales $23,424 100.0% $26,265 100.0% $22,924 100.0% Cost of sales 21,348 91.1 23,812 90.7 21,155 92.3 ------- ----- ------- ----- ------- ----- Gross profit 2,076 8.9 2,453 9.3 1,769 7.7 Distribution, general and administrative expenses 2,021 8.7 2,082 7.9 1,954 8.5 ------- ----- ------- ----- ------- ----- Operating income (loss) 55 .2 371 1.4 (185) (.8) Interest income (expense), net (66) (.3) (7) - 3 - Other income, net 184 .8 156 .6 161 .7 ------- ----- ------- ----- ------- ----- Earnings (loss) before income tax expense (benefit) 173 .7 520 2.0 (21) (.1) Income tax expense (benefit) 84 .3 200 .8 (5) - ------- ----- ------- ----- ------- ----- Net earnings (loss) $ 89 .4% $ 320 1.2% $ (16) (.1)% ======= ===== ======= ===== ======= ===== Sales in thousands of pounds by division SWISS AMERICAN 9,990 11,753 10,691 ROYAL-ANGELUS 18,825 16,688 14,850
Comparison of Years Ended December 31, 1995 and 1994 - ---------------------------------------------------- 1995 sales of $23,424,000 were down 11% from 1994 sales of $26,265,000, despite record sales by the Royal-Angelus pasta division. The Swiss American meat division's sales were down about 21% in dollars and 8.5% in pounds in 1995 versus 1994 and Swiss had an operating loss in 1995 substantially greater than in 1994. Swiss's sales for the 4th quarter of 1995 were down 1.4% in dollars but up 6.2% in pounds compared to the 4th quarter of 1994. Sales decreased proportionately more in dollars than in pounds because of a combination of lower meat costs and intense competition. The decrease in sales and profitability at Swiss is a continuation of a long term erosion in sales and profitability which began in 1991 and is attributed to over-capacity to produce pepperoni for pizza, reduced growth in pizza consumption and intense competition. The most likely way to improve Swiss's performance would be to increase its sales. Management has concluded that there is no reasonable prospect of growing Swiss back to profitability and has engaged a consultant to seek a specialty meat processing business complementary to Swiss which could be combined with Swiss to result in a profitable meat business by having a meat plant operating near capacity. The Company plans to adopt an accounting standard in 1996 which requires a review of the carrying amount of an operating asset when events indicate the carrying amount may not be recoverable. Swiss has about $1,000,000 of fixed assets which may not be considered fully recoverable if Swiss's operating losses are not reduced. The Company believes that its bank would waive a failure to maintain the minimum tangible net worth required under the Company's bank line of credit caused by a write-down of Swiss assets. The Royal-Angelus pasta division's sales increased about 10% in dollars and 13% in pounds in 1995 over 1994, record annual sales in both dollars and pounds for Royal. The pasta division's sales for the 4th quarter of 1995 were up 4.2% in dollars and 22% in pounds over the same quarter of 1994. The percent increases were lower in dollars than in pounds because of sales of a higher proportion of high volume rather than specialty products and the continuing effect of the high cost of flour. -8- The cost of semolina flour began rising in 1993 and has been up about 50% from pre-1993 levels since then. This cost increase puts pressure on margins and prices, because if the full increase is passed on to the consumer, less consumption may result and if it is passed on to the Company's customers, they may seek a cheaper supplier. This pressure on margins and prices caused Royal's operating profit to be 6% lower in 1995 than 1994, despite increased sales. The Company's gross profit for 1995 was $2,076,000 or 8.9% of net sales compared to $2,453,000 or 9.3% of net sales for 1994. Gross profit decreased absolutely and as a percent of sales because of continuing pressure on margins at both divisions and the inefficiency of operating at low volumes at Swiss. Distribution, general and administrative expenses for 1995 were down about 3% from 1994. Distribution expense was down about $76,000 or 8% compared to an 11% decrease in sales, because salesmen payroll did not decrease and the Company bore the freight on a higher proportion of sales at both divisions. Administrative expense was up about $15,000 primarily because of an increase in bad debt expense. Other income increased about $27,000 and net interest expense increased about $60,000 primarily because of rent from the building adjacent to the pasta plant purchased in 1995 and interest on the term loan used to purchase it. Comparison of Years Ended December 31, 1994 and 1993 - ---------------------------------------------------- 1994 sales of $26,265,000 were up 14.6% from 1993 as the result of increased sales of the Swiss American meat division and record sales of the Royal-Angelus pasta division. The meat division's sales were up 9.3% in dollars and 9.9% in pounds in 1994 versus 1993 and Swiss's increased sales resulted in the improved performance of the Company in 1994. However, Swiss's sales declined in dollars and pounds in each quarter of 1994 compared to the preceding quarter, primarily as a result of a general decline in purchases by Swiss's customers. Swiss's 4th quarter sales were down 20% in dollars and 18% in pounds compared to the 4th quarter of 1993. Swiss added discrete new sales which resulted in increasing sales in the 3rd and 4th quarters of 1993 and the 1st quarter of 1994. But sales declined during 1994 because of an underlying long term erosion in sales attributed to an over-capacity to produce pepperoni for pizza, reduced growth in pizza consumption and intense price competition. The pasta division sales increased about 27% in dollars and 12% in pounds in 1994 over 1993, record annual sales in both dollars and pounds for Royal. The higher percentage increase in dollars reflects increased flour costs and a higher proportion of sales of specialty rather than bulk products. During the latter part of the 3rd quarter of 1993, following the storms in the Midwest, the price of durum semolina flour, the pasta division's primary ingredient, increased and remained up about 50% during all of 1994. The pasta division's sales for the 4th quarter of 1994 were up 19% in dollars but down 21% in pounds over the same quarter of 1993, the increase in dollars despite a decrease in pounds resulting from the increased sale of specialty items with higher average selling prices. Gross profit for 1994 was $2,453,000 or 9.3% of net sales compared to $1,769,000 or 7.7% of net sales for 1993. Gross profit increased absolutely and as a percent of sales because of increased margins at Swiss on higher sales. Royal's gross profit was up slightly in 1994, but down as a percent of sales because of increased flour costs. Distribution, general and administrative expenses for 1994 were up about 6.5% from 1993. Distribution expense was up about $100,000 or 11% compared to a 15% increase in sales, because Royal's higher prices did not produce higher shipping costs. Administrative expense was up about $30,000 for 1994 compared with 1993, mainly due to a $60,000 increase in officer payroll and a $40,000 increase in health care expense, offset by a $60,000 reduction in bad debt expense. Other income decreased slightly because of reduced royalties associated with the discontinued Sav-On distribution division. Net interest declined $10,000 from income in 1993 to an expense in 1994 due to higher bank borrowings, but the Company had no borrowings under its bank line from October 26, 1994 to December 31, 1994. Liquidity and Capital Resources - ------------------------------- The Company has generally satisfied its normal working capital requirements with funds derived from operations and borrowings under its bank line of credit. At December 31, 1995 the Company had no borrowings under its $2,000,000 unsecured bank line of credit with Wells Fargo Bank, NA. The line was renewed in May 1995 to expire June 1, 1996, and bears interest at a variable rate of 3/8% over prime. The line as renewed prohibits mergers, acquisitions, lending, borrowing, guaranteeing, annual capital expenditures over $500,000 and new annual lease obligations over $100,000 and requires a -9- minimum tangible net worth of $6,890,000, a maximum debt to tangible net worth ratio of 0.75, a minimum debt coverage ratio of 1.75, a minimum current ratio of 2, profitable operations on a cumulative quarterly basis and a zero balance for 30 days during the term. The last requirement was fulfilled during the 3rd quarter of 1995. On April 7, 1995, the Company purchased an approximately 44,000 square foot building adjacent to the Company's pasta plant at a cost of $1,283,000, using funds from working capital and $975,000 borrowed from Wells Fargo Bank, NA, under a 5 year term loan bearing interest at 2% over the bank's "LIBOR" rate. The loan is secured by the property, is payable in monthly payments of $705 principal plus accrued interest and will have a $932,700 principal balance payable at the end of the term. At December 31, 1995 the loan had a $968,655 balance, including the $8,460 current portion. The building was purchased subject to an existing lease to a tenant extending to October 31, 1998. In December 1995, the Company and the tenant agreed to terminate the lease effective February 29, 1996. The Company has leased 60% of the building to a cold storage manufacturer for 3 years beginning March 1, 1996 and intends to occupy the remaining 40% as part of its pasta plant. The Company's pasta plant in Chino, California has an estimated production capacity of 25,000,000 pounds per year compared to about 18,825,000 pounds sold in 1995. The plant's excess capacity has varied between short goods (e.g., macaroni) and long goods (e.g., spaghetti). The Company has from time to time increased whichever capacity appeared most likely to become deficient. In January 1996, the Company began the installation of a third short goods production line expected to be completed by mid-year at a cost of $100,000, adding about 5,000,000 pounds of annual capacity. There is space in the plant to expand the long goods capacity at the sacrifice of needed warehouse space. The plant has the capacity to fulfil the Company's near term production needs, but additional space would currently be useful and will become essential if pasta sales continue to increase. The building adjacent to the pasta plant was purchased to provide this additional space. Swiss American Sausage division's San Francisco meat processing plant has an estimated production capacity of 27,000,000 pounds per year, including about 7,000,000 per year of crumbles and 20,000,000 of sausage and other meat products, compared to about 9,990,000 pounds sold in 1995. The meat plant's present capacity is adequate for the currently contemplated needs of the division. Additions to property and equipment of about $300,000 are anticipated for 1996, including the pasta plant short goods line. In 1993 cash decreased about $534,000. Operating activities produced about $207,000, essentially depreciation plus the small decreases in inventories and prepaid expenses less the loss and less the excess of the increase in receivables over the increases in payables and accrued expenses. Investing activities used $437,000 for capital improvements and financing activities used $304,000 for dividends less net stock proceeds and less $100,000 borrowed under the bank line. In 1994 cash decreased about $51,000. Operating activities produced about $700,000 of cash from earnings, depreciation, reduced receivables and increased accrued expenses, offset by higher inventories and lower accounts payable. Investing activities used $302,000 for net capital expenditures and financing activities used $450,000 for dividends and reduction of bank debt, less net stock proceeds. In 1995 cash increased about $294,000. Operating activities produced about $1,297,000 primarily from earnings, depreciation, a decrease in inventories and increases in accounts payable and accrued expenses. Investing activities used $578,000 for net capital expenditures and financing activities used $425,000 for dividends offset by net stock proceeds. In the latter part of 1993, especially the 4th quarter, the Company's business expanded, and accounts receivable increased with increasing sales, offset by a smaller increase in payables from increased purchases of raw materials. Inventories did not increase because production did not keep up with increased sales. The Company also made substantial capital improvements in 1993 at both plants, including the new crumbles line at Swiss. In 1994, for the first 3 quarters, both divisions had higher sales in dollars and pounds than in the same quarter of 1993, but in the 4th quarter of 1994 Swiss's sales declined compared with the 4th quarter of 1993, resulting in higher inventories at year end than desired. During 1995 Company sales decreased and inventories were reduced by over $500,000. The Company purchased the building adjacent to the pasta plant in 1995, incurring $975,000 of long term debt and using about $300,000 of cash. In 1996 quarterly cash dividends will continue to be paid if the Board believes that earnings and cash flow are adequate. -10- The Company adopted an employee stock purchase plan in 1988 to provide employees with the incentive of participation in the performance of the Company and to retain their services. Under the plan, employees other than officers and directors may authorize weekly payroll deductions which are matched by the Company and used monthly to purchase shares from the Company at the market price. The weekly payroll deduction is from $5 to $50 for each participant. The matching funds are an expense incurred by the Company, but the plan results in net cash flow to the Company because amounts equal to twice the matching funds are used to purchase shares from the Company. Cash flow to the Company from the plan was $154,630 in 1995 and may be as much as $140,000 or more in 1996. The Company believes that its operations and bank line of credit will provide adequate working capital to satisfy the needs of its operations for the foreseeable future. The Company has no long term debt other than the $968,655 secured by the land and building adjacent to the pasta plant. All of its other assets, including inventories, receivables, equipment and its original Chino pasta plant are unencumbered, and could be borrowed against as a source of liquidity if an unforeseen need arises. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Supplementary Data are submitted in a separate section at the end of this report beginning with the Index to Financial Statements and Schedule on Page F-1. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The name, age, principal position for the past five years and other relevant information for each of the current directors and executive officers of the Company is as follows: JOHN D. DETERMAN, age 63, has been a vice president and director of the Company since its formation in 1972, General Counsel from 1986 to 1992, and Chairman and Chief Executive Officer since 1992. He is a member of the audit and option committees. THEODORE L. ARENA, age 53, has been the General Manager of Swiss American since 1976 and has been the President and a director of the Company since 1985. He is the nephew of Louis A. Arena, a director of the Company. RONALD A. PROVERA, age 58, has been the secretary and a director of the Company since its formation in 1972 and was the General Manager of Sav-On from its formation in 1960 until its liquidation in 1991. He is currently providing sales support to Royal-Angelus. He is a member of the option committee. SANTO ZITO, age 59, has been the Company's plant engineer since 1976, and a vice president and director of the Company since its formation in 1972. He is currently providing engineering support to Royal-Angelus. He is a member of the option committee. THOMAS J. MULRONEY, age 50, has been the Company's chief accountant since 1976, the Chief Financial Officer since 1987, a vice president since 1991, and a director since 1992. JAMES P. MCCLUNE, age 45, has been the General Manager of the pasta division since 1989, its operations manager from 1987 to 1989, a vice president since 1991, and a director since 1992. LOUIS A. ARENA, age 73, has been a director of the Company since 1972, a vice president from 1972 to 1989, and General Manager of the Royal-Angelus Macaroni Co. division from 1975 until his retirement in 1989. -11- JOSEPH W. WOLBERS, age 66, has been a director of the Company and Chairman of the audit committee since 1990. He retired in 1989 as a vice president of First Interstate Bank where he had been employed since 1950. JOHN M. BOUKATHER, age 59, is a management consultant. He was the Director of Operations of PW Supermarkets from 1993 to 1994, Vice President, Retail Sales, of Certified Grocers of California, Ltd. from 1992 to 1993 and president of Pantry Food Markets from 1983 to 1987. He has been a director of the Company and member of the audit committee since 1987. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth for the years ended December 31, 1995, 1994 and 1993, all compensation of all executive officers of the Company serving at December 31, 1995.
Annual SEP/IRA Name and Position Year Salary Contributions - ----------------- ----- -------- ------------- John D. Determan, 1995 $ 63,098 $ 9,465 Chief Executive Officer 1994 100,686 15,103 1993 61,263 9,189 Theodore L. Arena, 1995 105,887 15,883 President 1994 104,973 15,745 1993 102,842 15,426 Ronald A. Provera, 1995 103,338 15,501 Secretary 1994 102,474 15,371 1993 102,242 15,336 Santo Zito, 1995 111,586 16,738 Vice President 1994 104,548 15,682 1993 103,220 15,483 James P. McClune, 1995 100,484 15,073 Vice President 1994 100,413 15,062 1993 87,516 13,127 Thomas J. Mulroney, 1995 101,693 15,254 Chief Financial Officer 1994 101,262 15,189 1993 88,460 13,269
See Incentive Stock Option Plan below for information on Incentive --------------------------- Stock Options. See Simplified Employee Pension Plan below for more information -------------------------------- on SEP/IRA Contributions. The Company does not currently pay bonuses or deferred compensation to any executive officer and does not provide them with automobiles, other perquisites, employment contracts or "golden parachute" arrangements. Officers who are over 5% shareholders have not received an increase in their basic weekly wage since 1986, except that the compensation of John D. Determan, currently at the same basic wage as it had been since 1986, was increased only for the year 1994 to $100,000. The annual salary is as reported on Form W-2 and includes the cost of life insurance and other costs taxable to the officer. Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- The Company has no compensation committee. All executive officers are members of the Board and participate in the Board's deliberations concerning executive compensation. -12- Simplified Employee Pension Plan - -------------------------------- In 1988, the Company adopted a Simplified Employee Pension-Individual Retirement Accounts ("SEP-IRA") plan and executed SEP-IRA Agreements with Wells Fargo Bank, N.A. and Dean Witter Reynolds Inc., covering all employees at least 18 years old who have worked at least six months and earned at least $300 during the year, except certain union employees. The Company makes contributions under the plan at the discretion of the Board, allocated in proportion to compensation, to an Individual Retirement Account ("IRA") established by each eligible employee. Contributions, up to 15% of eligible compensation, are deductible by the Company and not taxable to the employee. An employee may withdraw SEP-IRA funds from the employee's IRA. Withdrawals are taxable as ordinary income, and withdrawals before age 59-1/2 may be subject to tax penalties. For 1995, the Company contributed $393,196 to IRA's under the plan. Incentive Stock Option Plan - --------------------------- In April 1987, the Company adopted an Incentive Stock Option Plan under Section 422A of the Internal Revenue Code of 1986. Under the plan, as amended in 1988, for a period of 10 years from the date of adoption, an Option Committee appointed by the Board of Directors is authorized in its discretion to grant to key management employees options to purchase up to an aggregate of 261,704 shares of common stock of the Company. The options may become exercisable in such installments as may be established by the Option Committee. The purchase price of shares covered by an option may not be less than the market value of the shares on the date of grant. The term of an option may not exceed 10 years and an option may not become exercisable in any year with respect to the purchase of more than $100,000 worth of shares based on the market value on the date of grant. In August 1987, options were granted under the plan to purchase 185,000 shares at a price of $7.00 per share, 125,000 to Theodore L. Arena, 30,000 to Thomas J. Mulroney and 30,000 to another employee. In June 1988, those options were terminated and options were granted to purchase 230,000 shares at a price of $3-5/8 per share, 155,000 to Mr. Arena, 30,000 to Mr. Mulroney, 10,000 to James P. McClune and the balance to two other employees. In December 1992, the outstanding options were terminated and options were granted to purchase 260,000 shares at a price of $2-1/4 per share, 150,000 to Mr. Arena, 30,000 to Mr. Mulroney, 30,000 to Mr. McClune and the balance to three other employees. No options were exercised prior to 1994. In 1994, options were exercised to purchase 52,000 shares, including 30,000 by Mr. Arena, 6,000 by Mr. Mulroney and 6,000 by Mr. McClune. In 1995, options were exercised to purchase 53,555 shares. The following table shows, for the three executive officers, the number of shares acquired on exercise of options in 1995, the value realized on exercise of the options based on the year end closing price of $3-1/2, the number of unexercised options held on January 1, 1996, the number exercisable and unexercisable and their aggregate value based on the year end closing price. Aggregate Option Exercises in 1995 and Option Values at January 1, 1996 -----------------------------------------------------------------------
Number of Unexercised Value of Unexercised In-the- Shares Acquired Value Options at 1/1/96 Money Options at 1/1/96 Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable - --------------------- --------------- -------- ------------------------- ---------------------------- Theodore L. Arena 30,000 $37,500 90,000/ -0- $112,500/ -0- Thomas J. Mulroney 6,000 $ 7,500 18,000/ -0- $ 22,500/ -0- James P. McClune 7,555 $ 9,444 16,445/ -0- $ 20,556/ -0-
Compensation of Directors - ------------------------- Directors who are not officers or employees are paid a fee of $500 for each board meeting or board committee meeting attended. -13- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Management Stock Ownership - -------------------------- The following table sets forth, for each officer, director and 5% shareholder of the Company and for all officers and directors as a group (9 persons), the number and percent of outstanding shares of common stock of the Company owned on December 31, 1995.
Shares Beneficially Owned -------------------------------------------- Without Options(3) Options Exercised(4) -------------------- --------------------- Name or Category(1) Number Percent Number Percent ------------------ --------- -------- ---------- -------- John D. Determan 335,327 12.2% 335,327 11.7% Penny S. Bolton (2) 378,463 13.8% 378,463 13.2% Theodore L. Arena 140,994 5.2% 230,994 8.1% Ronald A. Provera 322,330 11.8% 322,330 11.3% Santo Zito 342,530 12.5% 342,530 12.0% Thomas J. Mulroney 20,900 .8% 38,900 1.4% James P. McClune 15,711 .6% 32,156 1.1% Louis A. Arena 288,030 10.5% 288,030 10.1% John M. Boukather 1,500 .1% 1,500 .1% Joseph W. Wolbers 6,650 .2% 6,650 .2% Officers and Directors 1,473,972 53.8% 1,598,417 55.8% Shares Outstanding 2,738,631 100% 2,863,076 100% - -------------------------------------------------------------------------------------
(1) The address for each person is c/o Provena Foods Inc., 5010 Eucalyptus Avenue, Chino, Ca. 91710. (2) Penny S. Bolton is the widow of James H. Bolton, former chairman of the Company. Her shares are not included in the group's shares. (3) Excludes options under the Company's Incentive Stock Option Plan to Theodore L. Arena to purchase 90,000 shares, to Thomas J. Mulroney to purchase 18,000 shares, to James P. McClune to purchase 16,445 shares and to all officers and directors as a group to purchase 124,445 shares. (4) The options of Messrs. Arena, Mulroney, McClune and the group are deemed exercised. No other person is known to the Company to own beneficially more than 5% of the outstanding shares of the Company. Management Stock Transactions - ----------------------------- During the specified quarter of 1995, officers and directors purchased the following numbers of shares of the Company's common stock: 1st quarter, none; 2nd quarter, Santo Zito, vice president and director - 4,600 shares, Thomas J. Mulroney, Chief Financial Officer and director - 4,000 by exercise of incentive stock options; 3rd quarter, James P. McClune, General Manager of the pasta division and director - 5,000, including 4,000 by exercise of options, Mr. Mulroney - 1,440 by exercise of options; 4th quarter, Theodore L. Arena, President, General Manager of the meat division and director - 30,000 by exercise of options, Mr. McClune - 3,555 by exercise of options, Mr. Mulroney - 1,820 by exercise of options. Officers and directors reported sales during the year of the following numbers of shares of the Company's common stock: Louis A. Arena, director - 18,900 shares; a corporation 50% owned by Mr. Zito - 4,900; and Theodore L. Arena - 500. Also Theodore L. Arena used 11,250 shares and Mr. McClune used 5,000 shares to pay the exercise price of incentive stock options. Based on copies of filed forms and written representations, the Company believes that all officers, directors and 10% shareholders have timely filed all Forms 3, 4 and 5 required for 1995 and (except as previously disclosed) prior years by Section 16(a) of the Securities Exchange Act. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There are no transactions with related parties required to be disclosed under the above caption in this report. -14- PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K Financial Statements and Schedules - ---------------------------------- The Financial Statements and Schedule filed with this report are in a separate section at the end of this report beginning with the Index to Financial Statements and Schedule on page F-1.
Exhibits - -------- 3.7 Bylaws of the Company, as in effect on January 16, 1989 (1), (3) 3.8 Amended and restated Articles of Incorporation of the Company as filed with the California Secretary of State on June 17, 1987 (2) 3.9 Amendment to Articles of Incorporation of the Company re Liability of Directors and Indemnification as filed with the California Secretary of State on January 17, 1989 (6) 3.10 Amendment to Bylaws of the Company re Liability of Directors and Indemnification effective January 17, 1989 (6) 3.11 Amendment to Bylaws of the Company re Annual Meeting in April (7) 3.12 Amendment to Bylaws of the Company re relocating Principal Executive Office to Chino, California (8) 4.3 Form of Certificate evidencing common stock (8) 10.2 1987 Incentive Stock Option Plan, as amended to date (1) 10.4 Lease Agreement dated October 27, 1978 between the Company, as the successor in interest to the Lessee, Swiss-American Sausage Co., and Alfredo L. Caceres and Doris Caceres, as Lessor, of the first Swiss American San Francisco Plant (1) 10.20 1988 Stock Purchase Plan of the Company (4) 10.22 Dean Witter Simplified Employee Pension Plan Employer Agreement dated August 8, 1988 (5) 10.23 Wells Fargo Bank Simplified Employee Pension Plan Adoption Agreement dated July 18, 1988 (5) 10.26 Lease Agreement dated May 28, 1990 between the Company and Alexander M. and June L. Maisin, as Lessor, of the second Swiss American San Francisco Plant (7) 10.35 Credit Agreement dated February 1, 1995 between the Company and Wells Fargo Bank, National Association and First Amendment thereto dated April 10, 1995 10.36 Standard Industrial/Commercial Single-Tenant Lease - Gross dated December 18, 1995 between the Company, as Lessor, and R-Cold, Inc. and Therma-Lok, Inc., as Lessee of a portion of 5060 Eucalyptus Avenue, Chino, CA 10.37 Consultant Agreement dated December 4, 1995 between the Company and Stephen Horowitz & Associates, Inc. to find a business to be combined with Swiss American 10.38 Collective Bargaining Agreement dated December 6, 1995, between the Company and United Food and Commercial Workers Union Local 101, AFL-CIO 24.1 Report and Consent of KPMG Peat Marwick LLP 27 EDGAR Financial Data Schedule ________________________________________________________________________________
(1) Exhibit to Form S-1 Registration Statement filed May 11, 1987 (2) Exhibit to Amendment No. 2 to Form S-1 Registration Statement filed June 17, 1987 (3) Exhibit to Amendment No. 3 to Form S-1 Registration Statement filed July 29, 1987 (4) Exhibit to 1987 Form 10-K Annual Report (5) Exhibit to 1988 Form 10-K Annual Report (6) Exhibit to 1989 Form 10-K Annual Report (7) Exhibit to 1990 Form 10-K Annual Report (8) Exhibit to 1991 Form 10-K Annual Report Reports on Form 8-K - ------------------- During the year ended December 31, 1995 the Company filed one report on Form 8-K in April 1995 for the April 7, 1995 purchase of the building adjacent to the pasta plant. -15- SIGNATURES Pursuant to the requirements of section 13 or 15 (d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 27, 1996 PROVENA FOODS INC. By /s/ John D. Determan -------------------------------- John D. Determan Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ------- ------ /s/ John D. Dterman Chairman of the Board (Principal February 27, 1996 - ----------------------------- Executive Officer) and Director John D. Determan /s/ Theodore L. Arena President and Director February 27, 1996 - ----------------------------- Theodore L. Arena /s/ Ronald A. Provera Vice President, Sales, Secretary and February 27, 1996 - ----------------------------- Director Ronald A. Provera /s/ Santo Zito Vice President and Director February 27, 1996 - ----------------------------- Santa Zito /s/ Thomas J. Mulroney Chief Financial Officer (Principal February 27, 1996 - ----------------------------- Financial and Accounting Officer) Thomas J. Mulroney /s/ James P. McClune Vice President and Director February 27, 1996 - ----------------------------- James P. McClune /s/ Louis A. Arena Director February 27, 1996 - ----------------------------- Louis A. Arena /s/ Joseph W. Wolbers Director February 27, 1996 - ----------------------------- Joseph W. Wolbers /s/ John M. Boukather Director February 27, 1996 - ----------------------------- John M. Boukather
-16- PROVENA FOODS INC. SEC Form 10-K Items 8 and 14 (a)(1) Financial Statements and Schedule December 31, 1995, 1994 and 1993 (With Independent Auditors' Report Thereon) -17- PROVENA FOODS INC. Items 8 and 14(a)(1) Index to Financial Statements and Schedule ------------------------------------------
Page ---- Independent Auditors' Report F-2 Balance Sheets - December 31, 1995 and 1994 F-3 Statements of Operations - Years ended December 31, 1995, 1994 and 1993 F-4 Statements of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993 F-5 Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 F-6 Notes to Financial Statements F-8 Schedule - -------- II--Valuation and Qualifying Accounts and Reserves F-16
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors Provena Foods Inc.: We have audited the accompanying balance sheets of Provena Foods Inc. as of December 31, 1995 and 1994, and the related statements of operations, shareholders equity, and cash flows for each of the years in the three-year period ended December 31, 1995. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial statement schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Provena Foods Inc. at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Orange County, California February 6, 1996 F-2 PROVENA FOODS INC. Balance Sheets -------------- December 31, 1995 and 1994
ASSETS 1995 1994 ----------- ---------- Current assets: Cash and cash equivalents $ 350,843 56,593 Accounts receivable, less allowance for doubtful accounts of $54,700 in 1995 and $17,000 in 1994 (note 12) 2,199,671 2,021,095 Inventories (note 2) 2,297,322 2,799,819 Prepaid expenses (note 9) 67,053 58,347 Income taxes receivable (note 9) 2,342 -- ----------- --------- Total current assets 4,917,231 4,935,854 ----------- --------- Property and equipment, net (notes 3 and 6) 5,082,899 4,070,035 Other assets (note 9) 49,384 30,412 ----------- --------- $10,049,514 9,036,301 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 8,460 -- Accounts payable 793,755 669,725 Accrued expenses (note 7) 1,283,026 1,086,040 ----------- --------- Total current liabilities 2,085,241 1,755,765 ----------- --------- Deferred income (note 4) 89,004 35,667 Long-term debt, net of current portion (note 6) 960,195 -- Shareholders' equity (notes 8 and 11): Capital stock, no par value; authorized 10,000,000 shares; 2,738,631 and 2,698,642 shares issued and outstanding at December 31, 1995 and 1994, respectively 4,104,173 4,041,695 Retained earnings 2,814,169 3,212,912 Note receivable from shareholder (note 8) (3,268) (9,738) ----------- --------- Total shareholders' equity 6,915,074 7,244,869 Commitments and contingencies (notes 5, 10, 13 and 14) ----------- --------- $10,049,514 9,036,301 =========== =========
See accompanying notes to financial statements. F-3 PROVENA FOODS INC. Statements of Operations Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 ----------- ---------- ---------- Net sales (note 12) $23,424,677 26,265,478 22,924,100 Cost of sales 21,348,187 23,812,347 21,154,612 ----------- ---------- ---------- Gross profit 2,076,490 2,453,131 1,769,488 ----------- ---------- ---------- Operating expenses: Distribution 880,316 956,399 857,941 General and administrative (note 10) 1,140,709 1,125,395 1,096,491 ----------- ---------- ---------- 2,021,025 2,081,794 1,954,432 ----------- ---------- ---------- Operating income (loss) 55,465 371,337 (184,944) Interest expense, net (66,089) (7,408) 2,773 Other income, net (note 3) 183,640 156,499 160,989 ----------- ---------- ---------- Earnings (loss) from operations before income tax expense (benefit) 173,016 520,428 (21,182) Income tax expense (benefit) (note 9) 84,224 200,200 (4,700) ----------- ---------- ---------- Net earnings (loss) $ 88,792 320,228 (16,482) =========== ========== ========== Net earnings (loss) per share $ .03 .12 (.01) =========== ========== ========== Weighted average number of shares outstanding $ 2,705,398 2,669,336 2,652,522 =========== ========== ==========
See accompanying notes to financial statements. F-4 PROVENA FOODS INC. Statements of Shareholders' Equity Years ended December 31, 1995, 1994 and 1993
Capital stock Note ------------------------- receivable Total Shares Retained from shareholders' issued Amount earnings shareholder equity ----------- ----------- ---------- ------------ ------------- Balance at December 31, 1992 $2,638,646 3,913,803 3,802,007 (21,443) 7,694,367 Repurchase of capital stock (32,736) (95,199) -- -- (95,199) Sale of capital stock 46,485 117,034 -- -- 117,034 Cash dividends paid, $.1625 per share -- -- (431,140) -- (431,140) Payment on shareholder note receivable (note 8) -- -- -- 5,655 5,655 Net loss -- -- (16,482) -- (16,482) ----------- ----------- ---------- ------------ ------------- Balance at December 31, 1994 2,652,395 3,935,638 3,354,385 (15,788) 7,274,235 Repurchase of capital stock (60,214) (167,577) -- -- (167,577) Sale of capital stock 54,461 156,634 -- -- 156,634 Exercise of shares under stock option plan (note 11) 52,000 117,000 -- -- 117,000 Cash dividends paid, $.1725 per share -- -- (461,701) -- (461,701) Payment on shareholder note receivable (note 8) -- -- -- 6,050 6,050 Net earnings -- -- 320,228 -- 320,228 ----------- ----------- ---------- ------------ ------------- Balance at December 31, 1994 2,698,642 4,041,695 3,212,912 (9,738) 7,244,869 Repurchase of capital stock (70,789) (212,651) -- -- (212,651) Sale of capital stock 57,223 154,630 -- -- 154,630 Exercise of shares under stock option plan (note 11) 53,555 120,499 -- -- 120,499 Cash dividends paid, $.18 per share -- -- (487,535) -- (487,535) Payment on shareholder note receivable (note 8) -- -- -- 6,470 6,470 Net earnings -- -- 88,792 -- 88,792 ----------- ----------- ---------- ------------ ------------- Balance at December 31, 1995 $ 2,738,631 4,104,173 2,814,169 (3,268) 6,915,074 =========== =========== ========== ============ =============
See accompanying notes to financial statements. F-5 PROVENA FOODS INC. Statements of Cash Flows Years ended December 31, 1995, 1994 and 1993
1995 1994 1993 --------- ---------- --------- Cash flows from operating activities: Net earnings (loss) $ 88,792 320,228 (16,482) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 539,796 490,469 455,352 Provision for bad debts 91,212 -- 52,611 Decrease (increase) in accounts receivable (269,788) 133,579 (573,367) Decrease (increase) in inventories 502,497 (308,766) 25,389 Decrease (increase) in prepaid expenses (8,706) 10,703 32,127 (Increase) decrease in income taxes receivable (2,342) 9,164 17,874 Decrease (increase) in other assets (18,972) 1,732 1,732 Increase (decrease) in accounts payable 124,030 (202,907) 162,955 Increase in accrued expenses 196,986 252,264 54,538 Increase (decrease) in deferred income 53,337 (5,569) (5,569) ---------- -------- -------- Net cash provided by operating activities 1,296,842 700,897 207,160 ---------- -------- -------- Cash flows from investing activities: Proceeds from sale of property and equipment 4,900 19,041 -- Additions to property and equipment (582,560) (321,084) (437,499) ---------- -------- -------- Net cash used in investing activities (577,660) (302,043) (437,499) ---------- -------- -------- Cash flows from financing activities: Net borrowings (payments) on bank credit line -- (100,000) 100,000 Payments on note payable to bank (6,345) -- -- Repurchase of capital stock (212,651) (167,577) (95,199) Proceeds from sale of capital stock 154,630 156,634 117,034 Exercise of stock options 120,499 117,000 -- Payments received on note from shareholder 6,470 6,050 5,655 Cash dividends paid (487,535) (461,701) (431,140) ---------- -------- -------- Net cash used in financing activities (424,932) (449,594) (303,650) ---------- -------- -------- Net increase (decrease) in cash and cash equivalents 294,250 (50,740) (533,989) Cash and cash equivalents at beginning of period 56,593 107,333 641,322 ---------- -------- -------- Cash and cash equivalents at end of period $ 350,843 56,593 107,333 ========== ======== ========
(Continued) F-6 PROVENA FOODS INC. Statements of Cash Flows, Continued
1995 1994 1993 -------- ------- ------- Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 67,747 11,147 -- Income taxes 150,083 136,800 800 ======== ======= === Supplemental disclosure of non-cash investing and financing activities-- building acquired for debt $975,000 -- -- ======== ======= ===
See accompanying notes to financial statements. F-7 PROVENA FOODS INC. Notes to Financial Statements December 31, 1995, 1994 and 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Provena Foods Inc. (the Company) is a California-based specialty food processor. The Company grants credit to its customers in the normal course of business. The Company's meat processing business is conducted through its Swiss American Sausage Division (the Swiss American Division), and the Company's pasta business is conducted through its Royal-Angelus Macaroni Division (the Royal-Angelus Division). INVENTORIES Inventories consist principally of food products and are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Assets acquired prior to 1981 and subsequent to 1986 are depreciated on the straight-line method. For assets acquired during the period from 1981 through 1986, accelerated methods of depreciation are used. Estimated useful lives are as follows: Buildings and improvements 31.5-39 years Machinery and equipment 10 years Delivery equipment 5 years Office equipment 7 years
COMMODITY FUTURES In 1993 and prior years, the Company engaged in limited commodity futures trading. This activity was discontinued in 1994. For the years ended December 31, 1994 and 1993, the Company recognized gains and (losses) of approximately $(4,200) and $55,000, respectively, related to this activity. CASH AND CASH EQUIVALENTS For purposes of the Statements of Cash Flows, the Company considers excess cash invested in highly liquid money market funds to be cash equivalents. EARNINGS (LOSS) PER SHARE Earnings (loss) per share are based on the weighted average number of common shares outstanding during the year. Common equivalent shares (stock options) are not included in the computation of earnings per share as their effect would be immaterial. Fully diluted earnings per share approximate primary earnings per share. F-8 PROVENA FOODS INC. Notes to Financial Statements, Continued INCOME TAXES The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ACCOUNTING PRONOUNCEMENT TO BE ADOPTED In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective for financial statements for fiscal years beginning after December 15, 1995. SFAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company plans to adopt SFAS 121 in 1996. The Company has incurred operating losses at its Swiss American division and is attempting to locate a potential acquisition candidate to combine with the operations of Swiss. The Company is currently evaluating the impact of SFASE 121 in light of the operating losses of the Swiss American division and the plan for supplementing Swiss' operations. Management believes that, should it be successful in obtaining an acquisition to combine with the operations of Swiss, the carrying amounts of Swiss' assets would be recoverable. RECLASSIFICATIONS Certain prior years' amounts have been reclassified to conform to the current year presentation. (2) INVENTORIES A summary of inventories follows:
1995 1994 ---------- ---------- Raw materials $ 797,990 866,608 Work in process 575,957 507,127 Finished goods 923,375 1,426,084 ---------- ---------- $2,297,322 2,799,819 ========== ==========
F-9 PROVENA FOODS INC. Notes to Financial Statements, Continued (3) PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of the following:
1995 1994 ---------- ---------- Land $ 551,985 297,343 Buildings and improvements 3,265,644 2,237,076 Machinery and equipment 5,042,767 4,846,657 Delivery equipment 28,599 28,599 Office equipment 113,712 97,694 Construction in progress 86,132 30,671 ---------- --------- 9,088,839 7,538,040 Less accumulated depreciation 4,005,940 3,468,005 ---------- --------- $5,082,899 4,070,035 ========== =========
The Company leases certain real property to outside parties under noncancelable operating leases. Rental income, included in other income, totaled approximately $129,112, $75,000 and $73,000 in 1995, 1994 and 1993, respectively. (4) DEFERRED INCOME In 1978, the Company sold real property and certain machinery to an unrelated third party and simultaneously entered into a 20-year noncancelable operating lease (note 13). The sale resulted in a gain of $186,098 which has been deferred and is being amortized on the straight- line method over the term of the lease as an adjustment to rental expense. (5) LINE OF CREDIT The Company has a $2,000,000 unsecured bank line of credit, at an interest rate of bank prime (8.5% at December 31, 1995) plus .375%, which expires on June 1, 1996. Following is a summary of activity under the line of credit:
1995 1994 1993 -------- -------- -------- Note payable balance at December 31 $ -- -- 100,000 Maximum amount outstanding at any month-end 550,000 700,000 100,000 Average amount of month-end borrowings 142,000 170,050 8,333 Weighted average interest rate during the year 9.359% 7.513% 6.375%
F-10 PROVENA FOODS INC. Notes to Financial Statements, Continued The bank line of credit agreement includes covenants limiting certain activities of the Company. Among these covenants are restrictions as to mergers and expenditures for capital assets in excess of $500,000 per year. In addition, the loan agreement requires that the Company maintain minimum tangible net worth and total debt to tangible net worth ratios. The Company was in compliance with all such covenants at December 31, 1995. (6) LONG-TERM DEBT Long-term debt consists of a mortgage note payable secured by a deed of trust on land and building, bearing interest at 2% over the Bank's LIBOR rate (8.03% at December 31, 1995); payable in monthly installments of principal and interest ($7,408 at December 31, 1995) through February 1, 2000, when a balloon payment of all unpaid principal and interest is due and payable. (7) ACCRUED LIABILITIES A summary of accrued liabilities at December 31 follows:
1995 1994 --------- -------- Accrued profit sharing (note 10) $ 393,196 365,934 Accrued retirement 137,342 141,621 Accrued compensation 164,472 158,138 Other 588,016 420,347 ---------- --------- $1,283,026 1,086,040 ========== =========
(8) SHAREHOLDERS' EQUITY In 1976, the Company sold 105 shares of stock of a predecessor company to two employees in exchange for cash and notes receivable. These shares were exchanged for 214,200 shares of Provena Foods Inc. when the predecessor merged into the Company in 1985. One note remains, and is shown as a reduction to shareholders' equity, bears interest at 6.75% annually, provides for monthly principal and interest payments of $578 and is secured by capital stock. In 1995, 1994 and 1993, the Company repurchased shares in negotiated transactions and retired the shares purchased. The Company sold shares to employees under its 1988 employee stock purchase plan in 1995, 1994 and 1993. F-11 PROVENA FOODS INC. Notes to Financial Statements, Continued (9) INCOME TAXES Income tax expense (benefit) consists of the following:
1995 1994 1993 ------- -------- ------- Current: Federal $73,043 158,940 (13,435) State 20,245 27,324 800 Deferred (9,064) 13,936 7,935 ------- -------- ------- $84,224 200,200 (4,700) ======= ======== =======
The tax effects of temporary differences that give rise to significant portions of the net deferred tax asset and deferred income tax expense are presented below:
Deferred income tax Deferred December 31, expense December 31, income tax December 31, 1995 (benefit) 1994 expense 1993 ------------ ----------- ------------ ---------- ------------ Allowance for doubtful accounts $ 25,976 18,615 7,361 13,131 20,492 Deferred income (note 4) 10,581 (4,863) 15,444 4,163 19,607 Depreciation 33,358 12,466 20,892 421 21,313 State taxes 6,883 6,883 -- -- -- --------- ------- ------- ------- ------- 76,798 33,101 43,697 17,715 61,412 Valuation allowance (47,613) (24,037) (23,576) 3,779 (27,355) --------- ------- ------- ------- ------- Net deferred tax asset $ 29,185 (9,064) 20,121 13,936 34,057 ========= ======= ======= ======= =======
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. Based on the Company's historical results of operations, a valuation allowance has been established. Included in other assets are net deferred tax assets of $10,535 and $14,321 at December 31, 1995 and 1994, respectively. The balance of net deferred tax assets is included in prepaid expenses. F-12 PROVENA FOODS INC. Notes to Financial Statements, Continued Actual income tax expense (benefit) differs from the "expected" tax amount, computed by applying the U.S. Federal corporate tax rate of 34% to earnings (loss) from operations before income tax expense (benefit), as follows:
1995 1994 1993 --------------- ---------------- ----------------- Amount % Amount % Amount % --------- ----- --------- ----- --------- ----- Computed "expected" tax expense (benefit) $ 58,825 34.0 176,945 34.0 (7,202) (34.0) State income taxes, net of Federal income tax benefit 13,362 7.7 31,746 6.1 800 3.7 State N.O.L. carryforward -- -- (4,422) (.8) -- -- Change in valuation allowance 24,037 13.9 (3,779) (.7) (653) 3.1 Other (12,000) (6.9) (290) (.1) 2,355 11.1 -------- ---- ------- ---- ------ ----- $ 84,224 48.7 200,200 38.5 (4,700) (22.3) ======== ==== ======= ==== ====== =====
The Company utilized a California state net operating loss carryforward of $72,491 in 1994. (10) EMPLOYEE BENEFIT PLANS In 1988, the Company adopted a Simplified Employee Pension - Individual Retirement Account (SEP IRA) plan covering all full-time, nonunion employees. The Company makes contributions under the plan at the discretion of the Board of Directors. The Company's contributions to the SEP IRA for 1995, 1994 and 1993 were $393,196, $365,934 and $318,704, respectively. In 1988, the Company adopted a stock purchase plan, enabling substantially all nonunion employees except officers and directors to purchase shares of the Company's capital stock through periodic payroll deductions. Employees may contribute up to $50 per week and all contributions are 100% matched by the Company; the combined funds are used in the subsequent month to purchase whole shares of capital stock at current market prices. Stock purchases under this Plan result in net cash flow to the Company as the contributions and employer matching contributions are used to purchase stock from the Company. The Company provides partial coverage for medical costs to its employees under a self-insured plan. Additionally, the Company carries a catastrophic policy that covers claims in excess of $40,000 for any covered individual. The Company has accrued the estimated liability for its self-funded costs (see note 14). (11) INCENTIVE STOCK OPTION PLAN Under a stock option plan adopted in 1987, the Company has awarded options to certain of its key employees to purchase common stock at prices which approximate the fair market value of the stock at the date of grant. The plan provides for a maximum grant of 261,704 shares. In F-13 PROVENA FOODS INC. Notes to Financial Statements, Continued December 1993, options were issued to purchase 260,000 shares at $2.25 per share, of which 124,445 were exercisable at December 31, 1995. 53,555 and 52,000 options were exercised in 1995 and 1994, respectively, at $2.25 per share. Therefore, at December 31, 1995, options to purchase 154,445 shares remained outstanding. (12) SEGMENT DATA AND MAJOR CUSTOMERS The following table represents financial information about the Company's business segments for the three years ended December 31, 1995.
1995 1994 1993 ----------- ---------- ---------- Sales to unaffiliated customers: Swiss American Division $13,654,028 17,392,931 15,911,626 Royal-Angelus Division 9,770,649 8,872,547 7,012,474 ----------- ---------- ---------- Total sales $23,424,677 26,265,478 22,924,100 =========== ========== ========== Operating income (loss): Swiss American Division $ (682,899) (381,820) (924,270) Royal-Angelus Division 775,855 825,953 954,007 Corporate (37,491) (72,796) (214,681) ----------- ---------- ---------- Operating income (loss) $ 55,465 371,337 (184,944) =========== ========== ========== Identifiable assets: Swiss American Division $ 4,394,837 4,891,700 5,024,773 Royal-Angelus Division 5,249,632 4,039,621 3,944,379 Corporate 405,045 104,980 156,463 ----------- ---------- ---------- Total assets $10,049,514 9,036,301 9,125,615 =========== ========== ========== Capital expenditures: Swiss American Division $ 42,558 155,411 212,136 Royal-Angelus Division 1,501,562 149,232 224,447 Corporate 13,440 16,441 916 ----------- ---------- ---------- Total capital expenditures $ 1,557,560 321,084 437,499 =========== ========== ========== Depreciation and amortization: Swiss American Division $ 210,766 200,994 183,688 Royal-Angelus Division 323,925 286,374 269,686 Corporate 5,105 3,101 1,978 ----------- ---------- ---------- Total depreciation and amortization $ 539,796 490,469 455,352 =========== ========== ==========
F-14 PROVENA FOODS INC. Notes to Financial Statements, Continued The Company had major customers during 1995 and 1994 that accounted for a significant portion of net sales. Each accounted for more than 10% of sales and purchased products from Swiss American.
Accounts receivable balance at 1995 1994 December 31 -------------- ---------------- ------------------ Customer Sales % Sales % 1995 1994 ------- ------- ---- ---------- ----- --------- ------ A 3,093,216 13% 3,350,109 13% 419,625 303,785 B 2,673,067 11% 2,938,731 11% 205,104 174,454 C 1,341,681 6% 2,815,861 11% 140,284 168,361
In 1993, no one customer accounted for 10% of net sales. (13) COMMITMENTS The following table summarizes future minimum lease commitments required under the lease described in note 3 and other noncancelable operating leases:
Amount ---------- Year ending December 31: 1996 $ 386,370 1997 395,619 1998 379,384 1999 260,114 2000 270,519 Thereafter 114,552 ---------- $1,806,558 ==========
Rent expense for all leases was approximately $388,000, $380,000 and $354,000 in the years ended December 31, 1995, 1994 and 1993, respectively. As of December 31, 1995, 48% of the Company's employees are covered by a collective bargaining agreement which expires March 31, 1998. (14) SELF-INSURED HEALTH BENEFITS The Company is totally self-funded for Company provided health insurance benefits for its non-union employees. The profit or loss effects of self-insuring cannot be foreseen and may be adverse. As of January 1, 1994, the Company purchased a reinsurance policy which covers claims in excess of $30,000 for any covered individual, increasing to $40,000 January 1, 1996. F-15 Schedule II PROVENA FOODS INC. Valuation and Qualifying Accounts and Reserves Years ended December 31, 1995, 1994 and 1993
Charged to ----------------------- Balance Other Deductions: Balance at beginning costs and Accounts: uncollectible at end Description of period expenses recoveries accounts of period ----------- ------------ ---------- ----------- ------------- --------- Allowance for doubtful receivables: Year ended December 31: 1995 $ 17,000 91,454 242 53,512 54,700 =========== ====== === ====== ====== 1994 $ 47,000 62 426 29,636 17,000 =========== ====== === ====== ====== 1993 $ 59,400 52,611 -- 65,011 47,000 =========== ====== === ====== ======
F-16 EX-10.35 2 CREDIT AGREEMENT DATED 4-10-95 EXHIBIT 10.35 CREDIT AGREEMENT THIS AGREEMENT is entered into as of the first day of February, 1995, by and between PROVENA FOODS INC., a California corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITAL ------- Borrower has requested from Bank the credit accommodations described below (collectively the "Credits"), and Bank has agreed to provide the Credits to Borrower on the terms and conditions contained herein. NOW, THEREFORE, Bank and Borrower hereby agree as follows: ARTICLE I --------- THE CREDITS ----------- SECTION 1.1. LINE OF CREDIT. (a) Line of Credit. Subject to the terms and conditions of this Agreement, -------------- Bank hereby agrees to make advances to Borrower from time to time up to and including June 1, 1995, not to exceed at any time the aggregate principal amount of TWO MILLION DOLLARS ($2,000,000.00) ("Line of Credit"), the proceeds of which shall be used for Borrower's working capital purposes. Borrower's obligation to repay advances under the Line of Credit shall be evidenced by a promissory note substantially in the form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which are incorporated herein by this reference. Notwithstanding any other provision of this Agreement, the aggregate amount of all outstanding borrowings under the Line of Credit shall not at any time exceed a maximum of TWO MILLION DOLLARS ($2,000,000.00). (b) Borrowing and Repayment. Borrower may from time to time during the ----------------------- term of the Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all the limitations, terms and conditions contained herein or in the Line of Credit Note; provided however, that the total outstanding borrowings under the Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. Notwithstanding the foregoing, Borrower shall maintain a zero balance on the Line of Credit for a period of at least thirty (30) consecutive days during each fiscal year. SECTION 1.2. TERM LOAN. (a) Term Loan. Subject to the terms and conditions of this Agreement, --------- Bank hereby agrees to make a loan to Borrower in the principal amount of NINE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($975,000.00) ("Term Loan"), the proceeds of which shall be used to provide financing for an industrial building located at 5060 Eucalyptus Avenue, Chino, California 91710. Borrower's obligation to repay the Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit B attached hereto ("Term Note"), all terms of which are incorporated herein by this reference. Bank's commitment to grant the Term Loan shall terminate on February 15, 1995. -2- (b) Repayment. The principal amount of the Term Loan shall be repaid in --------- accordance with the provisions of the Term Note. (c) Prepayment. Borrower may prepay principal on the Term Loan solely in ---------- accordance with the provisions of the Term Note. SECTION 1.3. INTEREST/FEES. (a) Interest. The outstanding principal balances of the Line of Credit and --------- the Term Loan shall bear interest at the rates of interest set forth in the Line of Credit Note and the Term Note, respectively. (b) Computation and Payment. Interest shall be computed on the basis of a ----------------------- 360-day year, actual days elapsed. Interest shall be payable at the times and place set forth in the Line of Credit Note and the Term Note (collectively, the "Notes"). SECTION 1.4. PAYMENT OF PRINCIPAL/INTEREST/FEES. Bank shall, and Borrower hereby authorizes Bank to, debit any demand deposit account of Borrower with Bank for all payments of principal, interest and fees as they become due on any of the Credits. Should, for any reason whatsoever, the funds in any such demand deposit account be insufficient to pay all interest and/or fees when due, Borrower shall immediately upon demand remit to Bank the full amount of any such deficiency. SECTION 1.5. COLLATERAL. As security for the Term Loan, Borrower grants to Bank a lien of not less than first priority on that certain real property located at 5060 Eucalyptus Avenue, Chino, California 91710. All of the foregoing shall be evidenced by and subject to the terms of such documents as Bank shall reasonably require, all -3- in form and substance satisfactory to Bank. Borrower shall reimburse Bank, immediately upon demand, for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation filing and recording fees and costs of appraisals, audits and title insurance. ARTICLE II ---------- REPRESENTATIONS AND WARRANTIES ------------------------------ Borrower makes the following representations and warranties to Bank, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Bank subject to this Agreement. SECTION 2.1. LEGAL STATUS. Borrower is a corporation duly organized and existing and in good standing under the laws of the State of California, and is qualified or licensed to do business, and is in good standing as a foreign corporation, if applicable, in all jurisdictions in which such qualification or licensing is required or in which the failure to so qualify or to be so licensed could have a material adverse effect on Borrower. SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes, and each other document, contract and instrument required by or at any time delivered to Bank in connection with this Agreement (with all of the foregoing referred to herein collectively as the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the -4- provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms. SECTION 2.3. NO VIOLATION. The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-laws of Borrower, or result in a breach of or constitute a default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound. SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings before any governmental authority, arbitrator, court or administrative agency which may adversely affect the financial condition or operation of Borrower other than those disclosed by Borrower to Bank in writing prior to the date hereof. SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of Borrower dated June 30, 1994, heretofore delivered by Borrower to Bank is complete and correct and presents fairly the financial condition of Borrower; discloses all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent; and has been prepared in accordance with generally accepted accounting principles consistently applied. Since the date of such -5- financial statement there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged or granted a security interest or encumbered any of its assets or properties except as disclosed by Borrower to Bank in writing prior to the date hereof or as permitted by this Agreement. SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year. SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower. SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess, all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade names, trade name rights, patents, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged without conflict with the rights of others. SECTION 2.9. ERISA. Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended from time to time (ERISA); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no -6- Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles. SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in writing prior to the date hereof, Borrower is in compliance in all material respects with all applicable environmental, hazardous waste, health and safety statutes and regulations governing its operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Superfund Amendments and Reauthorization Act of 1986 (SARA), the Federal Resource Conservation and Recovery Act of 1976, the Federal Toxic Substances Control Act and the California Health and Safety Code. None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment. Borrower has no material contingent liability in -7- connection with any release of any toxic or hazardous waste or substance into the environment. ARTICLE III ----------- CONDITIONS ---------- SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to grant any of the Credits is subject to the fulfillment to Bank's satisfaction of all of the following conditions: (a) Approval of Bank Counsel. All legal matters incidental to the granting ------------------------ of each of the Credits shall be satisfactory to counsel of Bank. (b) Documentation. Bank shall have received, in form and substance ------------- satisfactory to Bank, each of the following, duly executed: (i) This Agreement and the Notes; (ii) Loan Disbursement Order; (iii) Corporate Borrowing Resolution; (iv) Deed of Trust; (v) Automatic Transfer Authorization; (vi) Such other documents as Bank may require under any other Section of this Agreement. (c) Insurance. Borrower shall have delivered to Bank evidence of insurance --------- coverage on all Borrower's property, covering risks, in amounts, issued by companies and in form and substance satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. (d) Financial Condition. There shall have been no material adverse change, ------------------- as determined by Bank, in the financial condition -8- or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction of each of the following conditions: (a) Compliance. The representations and warranties contained herein shall ---------- be true on and as of the date of the signing of this Agreement and on the date of each extension of credit by Bank pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist. (b) Documentation. Bank shall have received all additional documents ------------- which may be required in connection with such extension of credit. ARTICLE IV ---------- AFFIRMATIVE COVENANTS --------------------- Borrower covenants that so long as any of the Credits remain available or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the -9- Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall: SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay the interest and principal on each of the Loan Documents requiring any such payments at the times and place and in the manner specified therein, and any fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Bank, the amount by which the outstanding principal balance of any of the Credits is at any time in excess of any limitation on borrowings hereunder. SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Bank, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower. SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in form and detail satisfactory to Bank: (a) not later than ninety (90) days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by an independent certified public accountant acceptable to Bank, to include balance sheet, income statement, statement of cash flow and complete copy of Borrower's 10-K report as filed with the Securities and Exchange Commission; -10- (b) not later than forty-five (45) days after and as of the end of each quarter, Borrower's 10Q report as filed with the Securities and Exchange Commission; (c) from time to time such other information as Bank may reasonably request. SECTION 4.4. COMPLIANCE. Maintain all licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; conduct its business in an orderly and regular manner; and comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower or its business. SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to Borrower's, including but not limited to fire, extended coverage, public liability, property damage and workers' compensation, carried with companies and in amounts satisfactory to Bank, and deliver to Bank from time to time at Bank's request schedules setting forth all insurance then in effect. SECTION 4.6. FACILITIES. Keep all Borrower's properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that Borrower's properties shall be fully and efficiently preserved and maintained. -11- SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal and including federal and state income taxes, except such as Borrower may in good faith contest or as to which a bona fide dispute may arise, provided provision is made to the satisfaction of Bank for eventual payment thereof in the event that it is found that the same is an obligation of Borrower. SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any litigation pending or threatened against Borrower in excess of $100,000.00. SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's financial condition as follows using generally accepted accounting principles consistently applied and used consistently with prior practices, except to the extent modified by the following definitions: (a) Current Ratio not at any time less than 2.0 to 1.0, with "Current Ratio" defined as total current assets divided by total current liabilities. (b) Tangible Net Worth not at any time less than SIX MILLION EIGHT HUNDRED NINETY THOUSAND DOLLARS ($6,890,000.00), with "Tangible Net Worth" defined as the aggregate of total stockholders' equity plus subordinated debt less any intangible assets. (c) Total Liabilities divided by Tangible Net Worth not at any time greater than .75 to 1.0, with "Total Liabilities" defined as the aggregate of current liabilities and non-current -12- liabilities less subordinated debt, and with "Tangible Net Worth" as defined above. (d) Profitable operations on a rolling four quarter historical basis, determined quarterly. SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of $100,000.00. ARTICLE V --------- NEGATIVE COVENANTS ------------------ Borrower further covenants that so long as any of the Credits remains available or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents remain outstanding, and until payment -13- *in full of all obligations of Borrower subject hereto, Borrower will not without the prior written consent of Bank: SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the Credits except for the purposes stated in Article I hereof. SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in fixed assets in any fiscal year in excess of an aggregate of $500,000.00. SECTION 5.3. LEASE EXPENDITURES. Incur new obligations for the lease or hire of real or personal property requiring payments in any fiscal year in excess of an aggregate of $100,000.00. SECTION 5.4. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except the liabilities of Borrower to Bank and any other liabilities of Borrower existing as of, and disclosed to Bank prior to, the date hereof. SECTION 5.5. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate with any corporation or other entity; make any substantial change in the nature of Borrower's business; acquire all or substantially all of the assets of any corporation or other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material part of its assets except in the ordinary course of business. -14- SECTION 5.6. GUARANTIES. Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity. SECTION 5.7. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or investments in any person or entity. SECTION 5.8. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, any of its assets of any kind, now owned or hereafter acquired, except any of the foregoing in favor of Bank. ARTICLE VI ---------- EVENTS OF DEFAULT ----------------- SECTION 6.1. The occurrence of any of the following shall constitute an "Event of Default" under this Agreement: (a) Borrower shall fail to pay when due any principal, interest, fees or ether amounts payable under any of the Loan Documents. (b) Any financial statement or certificate furnished to Bank in connection with this Agreement or any representation or warranty made by Borrower hereunder shall prove to be false, incorrect or incomplete in any material respect when furnished or made. (c) Any default in the performance of or compliance with any obligation, agreement or other provision contained herein -15- (other than those referred to in subsections (a) and (b) above), and with respect to any such default which by its nature can be cured, such default shall continue for a period of twenty (20) days from its occurrence. (d) Any default in the payment or performance of any obligation, or any defined event of default, under the terms of any contract or instrument (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability to any person or entity, including Bank. (e) Any default in the payment or performance of any obligation, or any defined event of default, under any of the Loan Documents other than this Agreement. (f) The filing of a notice of judgment lien against Borrower; or the recording of any abstract of judgment against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower. (g) Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as -16- amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or any involuntary petition or proceeding pursuant to said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, or Borrower shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered by any court of competent jurisdiction under said Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors. (h) There shall exist or occur any event or condition which Bank in good faith believes impairs, or is substantially likely to impair, the prospect of payment or performance by Borrower of its obligations under any of the Loan Documents. (i) The dissolution or liquidation of Borrower; or Borrower, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. (j) Any change in ownership during the term of this Agreement of an aggregate of twenty-five percent (25%) or more of the common stock of Borrower. SECTION 6.2. REMEDIES. If an Event of Default shall occur, (a) any indebtedness of Borrower under any of the Loan Documents, any term thereof to the contrary notwithstanding, -17- shall at Bank's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Bank to permit further borrowings hereunder shall immediately cease and terminate; and (c) Bank shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any of the Credits and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law. All rights, powers and remedies of Bank in connection with each of the Loan Documents may be exercised at any time by Bank and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity. ARTICLE VII ----------- MISCELLANEOUS ------------- SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver, permit, consent or approval of any kind by Bank of any breach of -18- or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing. SECTION 7.2. NOTICES. All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address: BORROWER: PROVENA FOODS INC. 5010 Eucalyptus Avenue Chino, CA 91710 BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION Orange Coast Regional Commercial Banking Office 2030 Main Street, Suite 900 Irvine, CA 92714 or to such other address as any party may designate by written notice to all other parties. Each such notice, request and demand shall be deemed given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days' after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt. SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank immediately upon demand the full amount of all costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), incurred by Bank in connection with (a) the negotiation and preparation of this Agreement and each other of the Loan Documents, Bank's continued administration hereof and thereof, and the preparation of amendments and waivers -19- hereto and thereto, (b) the enforcement of Bank's rights and/or the collection of any amounts which become due to Bank under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation any action for declaratory relief. SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interest hereunder without the prior written consent of Bank. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and benefits under each of the Loan Documents. In connection therewith, Bank may disclose all documents and information which Bank now has or may hereafter acquire relating to any of the Credits, Borrower or its business, any Guarantor or the business of any Guarantor, or any collateral required hereunder. SECTION 7.5. ENTIRE AGREEMENT, AMENDMENT. This Agreement and each other of the Loan Documents constitute the entire agreement between Borrower and Bank with respect to the Credits and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof. This Agreement may be amended or modified only by a written instrument executed by each party hereto. SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and benefit of -20- the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party. SECTION 7.7. TIME. Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents. SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement. SECTION 7.9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, except to the extent that Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of such rights and remedies as may be available under Federal law. -21- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. WELLS FARGO BANK, PROVENA FOODS INC. NATIONAL ASSOCIATION By: _____________________ By: _____________________ John D. Determan Debbie Swift Chairman Vice President -22- WELLS FARGO BANK EXHIBIT "A" PROMISSORY NOTE - -------------------------------------------------------------------------------- $2,000,000.00 Irvine, California May 11, 1994 FOR VALUE RECEIVED, the undersigned PROVENA FOODS INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at ORANGE COAST RCBO, 2030 MAIN STREET SUITE 900, IRVINE, CA 92714, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of $2,000,000.00, or so much thereof as may be advanced and be outstanding, with interest thereon, to be computed on each advance from the date of its disbursement at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) .37500% ABOVE the Prime Rate in effect from time to time. The "Prime Rate" is a base rate that Bank from time to time establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Bank. The unpaid principal balance of this obligation at any time shall be the total amounts advanced hereunder by the holder hereof less the amount of any principal payments made hereon by or for any Borrower, which balance may be endorsed hereon from time to time by the holder. Interest accrued on this Note shall be payable on the 1ST day of each MONTH, commencing JUNE 1, 1994. The outstanding principal balance of this Note shall be due and payable in full on JUNE 1, 1995. Each payment made on this Note shall be credited first, to any interest then due and second, to the outstanding principal balance hereof. From and after the maturity date of this Note, or such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of interest from time to time applicable to this Note. Borrower may from time to time during the term of this Note borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions of this Note and of that certain Credit Agreement between Borrower and Bank defined below; provided however, that the total outstanding borrowings under this Note shall not at any time exceed the principal amount stated above. Advances hereunder, to the total amount of the principal sum available hereunder, may be made by the holder at the oral or written request of (i) THOMAS J. MULRONEY OR JOHN D. DETERMAN, any one acting alone, who are authorized to request advances and direct the disposition of any advances until written notice of the revocation of such authority is received by the holder at the office designated above, or (ii) any person, with respect to advances deposited to the credit of any account of any Borrower with the holder, which advances, when so deposited, shall be conclusively presumed to have been made to or for the benefit of each Borrower regardless of the fact that persons other than those authorized to request advances may have authority to draw against such account. The holder shall have no obligation to determine whether any person requesting an advance is or has been authorized by any Borrower. This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of August 11, 1993, as amended from time to time. Upon the occurrence of any Event of Default as defined in said Credit Agreement, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are expressly waived by each Borrower, and the obligation, if any, of the holder to extend any further credit hereunder shall immediately cease and terminate. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to any Borrower. Should more than one person or entity sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. This Note shall be governed by and construed in accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first written above. PROVENA FOODS INC. By: /s/ John D. Determan _____________________________ Title: Chairman & CEO _________________________ EXHIBIT "B" TERM NOTE $975,000.00 San Francisco, California February 1, 1995 FOR VALUE RECEIVED, the undersigned PROVENA FOODS INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its office at 2030 Main Street, Suite 900, Irvine, California, or at such other place as the holder hereof may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Nine Hundred Seventy-Five Thousand Dollars ($975,000.00), with interest thereon (computed on the basis of a 360-day year, actual days elapsed) at a fixed rate per annum determined by Bank to be two percent (2%) above Bank's LIBOR in effect on the first day of each Fixed Rate Term. Bank is hereby authorized to note the date, interest rate, length of each Fixed Rate Term and any payments made hereunder on Bank's books and records (either manually or by electronic entry) and/or on any schedule attached to this Note, which notations shall be prima facie evidence of the accuracy of the information noted. A. DEFINITIONS: As used herein, the following terms shall have the meanings set forth after each: 1. "Business Day" means any day except a Saturday, Sunday or any other day designated as a holiday under Federal or California statute or regulation. 2. "Fixed Rate Term" means a period commencing on the date of funding and continuing for three (3) months thereafter and each consecutive three (3) month period thereafter; provided however, that no Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would end on a day which is not a Business Day, then such Fixed Rate Term shall be extended to the next succeeding Business Day. 3. "LIBOR" means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined pursuant to the following formula: LIBOR = Base LIBOR ------------------------------- 100% - LIBOR Reserve Percentage (a) "Base LIBOR" means the rate per annum for United States dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of a Fixed Rate Term for delivery of funds on said date for a period of time approximately equal to the number of days in such Fixed Rate Term and in an amount approximately equal to the principal amount to which such Fixed Rate Term applies. Borrower understands and agrees that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Bank in its discretion deems appropriate including, but not limited to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market. (b) "LIBOR Reserve Percentage" means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Bank for expected changes in such reserve percentage during the applicable Fixed Rate Term. 4. "Successor Rate" means a rate of interest determined by Bank, in its sole discretion, such that Bank shall receive an equivalent financial return had the rate of interest originally applicable to this Note remained in effect throughout the term of this Note. B. INTEREST: 1. Monthly Payments. Interest accrued on this Note shall be payable on ---------------- the 1st day of each month, commencing March 1, 1995. 2. Additional LIBOR Provisions. --------------------------- (a) If Bank at any time shall determine that for any reason adequate and reasonable means do not exist for ascertaining Bank's LIBOR, then Bank shall promptly give notice thereof to Borrower. If such notice is given and until such notice has been withdrawn by Bank, than (i) no new LIBOR option may be selected by Borrower, and (ii) subsequent to the end of the Fixed Rate Term applicable thereto, shall bear interest at the Successor Rate. (b) If any law, treaty, rule, regulation or determination of a court or governmental authority or any change therein or in the interpretation or application thereof (each, a "Change in Law") shall make it unlawful for Bank (i) to make LIBOR options available hereunder, or (ii) to maintain interest rates based on Bank's LIBOR, then in the former event, any obligation of Bank to make available such unlawful LIBOR options shall immediately be cancelled, and in the latter event, any such unlawful LIBOR-based interest rates then outstanding shall be converted, at Bank's option, so that interest on the portion of the outstanding principal balance subject thereto is determined at the Successor Rate; provided however, that if any such Change in Law shall permit any LIBOR-based interest rates to remain in effect until the expiration of the Fixed Rate Term applicable thereto, then such permitted LIBOR-based interest rates shall continue in effect until the expiration of such Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower shall pay to -2- Bank immediately upon demand such amounts as may be necessary to compensate Bank for any fines, fees, charges, penalties or other costs incurred or payable by Bank as a result thereof and which are attributable to any LIBOR options made available to Borrower hereunder, and any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. (c) If any Change in Law or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other governmental authority shall: (i) subject Bank to any tax, duty or other charge with respect to any LIBOR options, or change the basis of taxation of payments to Bank of principal, interest, fees or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (ii) impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, or any other acquisition of funds by any office of Bank; or (iii) impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any LIBOR options hereunder and/or to reduce any amount receivable by Bank in connection therewith, then in any such case, Borrower shall pay to Bank immediately upon demand such amounts as may be necessary to compensate Bank for any additional costs incurred by Bank and/or reductions in amounts received by Bank which are attributable to such LIBOR options. In determining which costs incurred by Bank and/or reductions in amounts received by Bank are attributable to any LIBOR options made available to Borrower hereunder, any reasonable allocation made by Bank among its operations shall be conclusive and binding upon Borrower. 4. Default Interest. From and after the maturity date of this Note, or ---------------- such earlier date as all principal owing hereunder becomes due and payable by acceleration or otherwise, the outstanding principal balance of this Note shall bear interest until paid in full at an increased rate per annum (computed on the basis of a 360-day year, actual days elapsed) equal to four percent (4%) above the rate of interest from time to time applicable to this Note. C. REPAYMENT AND PREPAYMENT: 1. Repayment. Principal shall be repaid on the 1st day of each month in --------- 60 consecutive monthly installments in the amount of $705.00 each, commencing March 1, 1995. Any remaining unpaid principal shall be due and payable in full on February 1, 2000. -3- 2. Application of Payments. Each payment made on this Note shall be ----------------------- credited first, to any interest then due and second, to the outstanding principal balance hereof. 3. Prepayment. ---------- (a) Fee. Borrower may prepay principal on this Note at any time and in --- the minimum amount of One Hundred Thousand Dollars ($100,000.00) on the last day of each Fixed Rate Term without penalty and at any other time as set forth in this Section 3; provided however, that if the outstanding principal balance of this Note is less than said amount, the minimum prepayment amount shall be the entire outstanding principal balance thereof. In consideration of Bank providing this prepayment option to Borrower, or if this Note shall become due and payable at any time prior to the last day of the Fixed Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Fixed Rate Term matures, calculated as follows for each such month: (i) Determine the amount of interest which would have accrued each --------- month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the Fixed Rate Term applicable thereto. (ii) Subtract from the amount determined in (i) above the amount of -------- interest which would have accrued for the same month on the amount prepaid for the remaining term of such Fixed Rate Term at Bank's LIBOR in effect on the date of prepayment for new loans made for such term and in a principal amount equal to the amount prepaid. (iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by Bank's LIBOR used in (ii) above. Each Borrower acknowledges that prepayment of such amount will result in Bank incurring additional costs, expenses and/or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the above-described prepayment fee and agrees that said amount represents a reasonable estimate of the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the amount of such prepayment fee shall thereafter bear interest until paid at a rate per annum four percent (4%) above the rate of interest otherwise applicable to this Note. (b) Application of Prepayments. All prepayments of principal shall be -------------------------- applied on the most remote principal installment or installments then unpaid. -4- (b) Application of Prepayments. All prepayments of principal shall be -------------------------- applied on the most remote principal installment or installments then unpaid. D. EVENTS OF DEFAULT: This Note is made pursuant to and is subject to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 1, 195, as amended from time to time. Any default in the payment or performance of any obligation, or any defined event of default, under said Credit Agreement shall constitute an "Event of Default" under this Note. E. MISCELLANEOUS: 1. Remedies. Upon the sale, transfer, hypothecation, assignment or -------- encumbrance, whether voluntary, involuntary or by operation of law, of all or any interest in the property described in any deed of trust securing this Note, or upon the occurrence of any Event of Default, the holder of this Note, at the holder's option, may declare all sums of principal and interest outstanding hereunder to be immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are expressly waived by each Borrower. Each Borrower shall pay to the holder immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of the holder's in-house counsel), incurred by the holder in connection with the enforcement of the holder's rights and/or the collection of any amounts which become due to the holder under this Note, and the prosecution or defense of any action in any way related to this Note, including without limitation, any action for declaratory relief, and including any of the foregoing incurred in connection with any bankruptcy proceeding relating to any Borrower. 2. Obligations Joint and Several. Should more than one person or entity ----------------------------- sign this Note as a Borrower, the obligations of each such Borrower shall be joint and several. 3. Governing Law. This Note shall be governed by and construed in ------------- accordance with the laws of the State of California, except to the extent Bank has greater rights or remedies under Federal law, whether as a national bank or otherwise, in which case such choice of California law shall not be deemed to deprive Bank of any such rights and remedies as may be available under Federal law. -5- This Note is secured by a Deed of Trust dated February 1, 1995. PROVENA FOODS INC. By: _________________________ John D. Determan Chairman -6- FIRST AMENDMENT TO CREDIT AGREEMENT THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as of April 10, 1995, by and between PROVENA FOODS INC., a California corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"). RECITALS -------- WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and conditions of that certain Credit Agreement between Borrower and Bank dated as of February 1, 1995, as amended from time to time ("Credit Agreement"). WHEREAS, Bank and Borrower have agreed to certain changes in the terms and conditions set forth in the Credit Agreement and have agreed to amend the Credit Agreement to reflect said changes. NOW, THEREFORE, the Credit Agreement is hereby amended as follows: 1. The following shall be added to the Credit Agreement as Section 4.9 (e): "(e) EBITDA Coverage Ratio not less that 1.75 to 1.0 as of each fiscal year end, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt." 2. Except as specifically provided herein, all terms and conditions of the Credit Agreement remain in full force and effect, without waiver or modification. All terms defined in the Credit Agreement shall have the same meaning when used in this Amendment. This Amendment and the Credit Agreement shall be read together, as one document. 3. Borrower hereby remakes all representations and warranties contained in the Credit Agreement and reaffirms all covenants set forth therein. Borrower further certifies that as of the date of this Amendment there exists no Event of Default as defined in the Credit Agreement, nor any condition, act or event which with the giving of notice or the passage of time or both would constitute any such Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first written above. WELLS FARGO BANK, PROVENA FOODS INC. NATIONAL ASSOCIATION By: [SIGNATURE NOT LEGIBLE] By: /s/ Debbie Swift ------------------------- ------------------------- Debbie Swift Title: Chairman & CEO Vice President ---------------------- -2- EX-10.36 3 LEASE AGREEMENT DATED 12-18-95 EXHIBIT 10.36 [LOGO APPEARS HERE] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS (Do not use this form for Multi-Tenant Property) 1. BASIC PROVISIONS ("BASIC PROVISIONS") 1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, December 18, 1995, is made by and between Provena Foods, Inc., a California - ----------- -- --------------------------------- Corporation ("LESSOR") and R-Cold. Inc., a California Corporation and Therma- - ----------- -------------------------------------------------- Lok. Inc., a California Corporation ("LESSEE"), (collectively the "PARTIES," or - ----------------------------------- individually a "PARTY"). 1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of 5060 Eucalyptus Avenue, Chino located in the ----------------------------- County of San Bernardino , State of California and generally described as -------------- ---------- (describe briefly the nature of the property) Approximately 26,500 square feet -------------------------------- of a larger 43,838 square foot building. ("PREMISES"). (See Paragraph 2 for - --------------------------------------- further provisions.) 1.3 Term: three (3) years and 0 months ("ORIGINAL TERM") commencing March --------- - ----- 1, 1996 ("COMMENCEMENT DATE") and ending February 28, 1999 ("EXPIRATION DATE"). - ------- ----------------- (See Paragraph 3 for further provisions.) 1.4 EARLY POSSESSION: N/A ("Early Possession Date"). (See Paragraphs --- 3.2 and 3.3 for further provisions.) 1.5 BASE RENT: $ 7,950.00 per month ("BASE RENT"), payable on the First --------- ----- (1st) day of each month commencing April 1, 1996. (See Paragraph 4 for further - ----- ------------- provisions.) [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 BASE RENT PAID UPON EXECUTION: $ 7,950.00 as Base Rent for the period --------- March 1, 1996 to March 30, 1996. - -------------------------------- 1.7 SECURITY DEPOSIT: $ 8,347.50 ("SECURITY DEPOSIT"). (See Paragraph 5 for --------- further provisions.) 1.8 PERMITTED USE: Office and manufacturing of cold storage facilities --------------------------------------------------- (See Paragraph 6 for further provisions.) 1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $________ is the "BASE PREMIUM." (See Paragraph 8 for further provisions.) 1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction and are consented to by the Parties (check applicable boxes): Grubs & Ellis Company - Newport Beach represents [X] Lessor exclusively - ------------------------------------- ("LESSOR'S BROKER");[_] both Lessor and Lessee, and Grubb & Ellis Company - Ontario represents [X] Lessee exclusively ("LESSEE'S - ------------------------------- BROKER"); [_] both Lessee and Lessor. (See Paragraph 15 for further provisions.) 1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See Paragraph 37 for further provisions.) ---- 1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of Paragraphs 47.1 through 47.6 and Exhibits A & B all of which constitute a part ---- ---- ----- of this Lease. 2. PREMISES. 2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less. 2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of debris on the Commencement Date and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any, in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non- compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within sixty (60) days after the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor warrants to Lessee that the improvements on the Premises comply with all applicable covenants or restrictions of record and applicable building codes, regulations and ordinances in effect on the Commencement Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fire sprinkler systems, security, environmental aspects, compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use, (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor nor any of Lessor's agents, has made any oral or written representations or warranties with respect to the said matters other than as set forth in this Lease. 2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event, Lessee shall, at Lessee's sole cost and expense, correct any non- compliance of the Premises with said warranties. 3. TERM. 3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. Initials P.M. ---- R.M. ---- T.M. GROSS PAGE 1 (C) 1990 -- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date. If one is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessor delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. RENT. 4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated herein or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall; upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Basic Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. USE. 6.1 USE. Lessee shall use and occupy the Premises only for the purposes set forth in Paragraph 1.8, or any other use which is comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to, neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessee's assignees or subtenants, and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be used or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical systems therein, is not significantly more burdensome to the Premises and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within five (5) business days give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 HAZARDOUS SUBSTANCES. (a) Reportable Uses Require Consent. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3) "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use or presence of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom or therefor, including but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from same, has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor Lessee shall also immediately give Lessor a copy of any statement, rep ort, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release. discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole cost and expense. fully, diligently and in a timely manner, comply with all "APPLICABLE LAW," which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination, caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS. 7.1 LESSEE'S OBLIGATIONS. (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), Initials P.M. ---- R.M. T.M. GROSS PAGE 2 *EXCEPT REAR LOADING AREA 7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14 (condemnation), Lessee shall at Lessees sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, (whether or not such portion of the Premises requiring repair, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessees use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detection systems and equipment, fire hydrants, fixtures, walls (interior), ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, (*Except rear loading area) parking lots, fences, retaining walls, signs, sidewalks and parkways located in on, about, or adjacent to the Premises, but excluding foundations, the exterior roof and the structural aspects of the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of, the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any, located on the Premises: (*In the event the HVAC system requires repair or replacement representing a cost in excess of $1,500 per incident, Lessee shall be responsible for the prorated cost of this capital expense based on the life of the new or repaired system in relation to the remaining life of the lease. This provision is based on Lessee's compliance with paragraph 7.1(b).) (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense, keep the foundations, exterior roof and structural aspects of the Premises in good order, condition and repair. Lessor shall not, however, be obligated to paint the exterior surface of the exterior walls or to maintain the windows, doors or plate glass or the interior surface of exterior walls. Lessor shall not, in any event, have any obligation to make any repairs until Lessor receives written notice of the need for such repairs. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of, any needed repairs. 7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS. (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communication systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during the term of this Lease as extended does not exceed $25,000. (b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishing of copies of such permits together with a copy of the plans and specifications for the Alteration or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the term of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION. (a) OWNERSHIP. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4, all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to by Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. INSURANCE; INDEMNITY. 8.1 PAYMENT OF PREMIUM INCREASES. (a) Lessee shall pay to Lessor any insurance cost increase (Not to exceed a 3-1/2% increase per year, unless the increase is a direct result of Lessee's use.) ("INSURANCE COST INCREASE") occurring during the term of this Lease. "INSURANCE COST INCREASE" is defined as any increase in the actual cost of the insurance required under Paragraphs 8.2(b), 8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter defined, calculated on an annual basis. "INSURANCE COST INCREASE" shall include, but not be limited to, increases resulting from the nature of Lessee's occupancy, any act or omission of Lessee, requirements of the holder of a mortgage or deed of trust covering the Premises, increased valuation of the Premises, and/or a premium rate increase. If the parties insert a dollar amount in Paragraph 1.9, such amount shall be considered the "BASE PREMIUM." In lieu thereof, if the Premises have been previously occupied, the "BASE PREMIUM" shall be the annual premium applicable to the most recent occupancy. If the Premises have never been occupied, the "BASE PREMIUM" shall be the lowest annual premium reasonably obtainable for the Required Insurance as of the commencement of the Original Term, assuming the most nominal use possible of the Premises. In no event, however, shall Lessee be responsible for any portion of the premium cost attributable to liability insurance coverage in excess of $1,000.000 procured under Paragraph 8.2(b) (Liability Insurance Carried By Lessor). (b) Lessee shall pay any such Insurance Cost Increase to Lessor within thirty (30) days after receipt by Lessee of a copy of the premium statement or other reasonable evidence of the amount due. If the insurance policies maintained hereunder cover other property besides the Premises, Lessor shall also deliver to Lessee a statement of the amount of such Insurance Cost Increase attributable only to the Premises showing in reasonable detail the manner in which such amount was computed. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Commencement or Expiration of the Lease term. 8.2 LIABILITY INSURANCE. (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" *In the event the HVAC system requires repair or replacement representing a cost in excess of $1,5000 per incident, Lessee shall be responsible for the prorated cost of this capital expense based on the life of the new or repaird system in relation to the remaining life of the lease. This provision is baseed on Lessee's compliance with paragraph 7.1(b). PAGE 3 Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described In Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE. (a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or damage to the Premises. The amount of such Insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the Improvements involved, such latter amount is less than full replacement cost. Lessee Owned Alterations and Utility Installations shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause or loss, but not including plate glass insurance. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. (b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, it any. otherwise payable by Lessee, for the next twelve (12) month period. (c) ADJACENT PREMISES. If the Premises are part of a larger building, or if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises. (d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph 8.5, Lessee at its cost shall either by separate policy or, at Lessor's option, by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property, Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property or the restoration of Lessee Owned Alterations and Utility Installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a lien on the Premises, as set forth in the most current issue of "Bests Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate the insurance policies referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor certified copies of, or certificates evidencing the existence and amounts of, the insurance, and with the additional insureds, required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or insurance binders' evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. 8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other, and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waiving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 INDEMNITY. Except for Lessors negligence and/or breach of express warranties, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens, judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of, involving, or in dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents. contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam. electricity, gas, water or rain or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part. or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. DAMAGE OR DESTRUCTION. 9.1 DEFINITIONS. (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for any funds contributed by Lessee to repair Initial P.M. ---- R.M. T.M. PAGE 4 any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES. (a) In the event of damage described in Paragraph 9.2 (Partial Damage- Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessees election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "COMMENCE" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense and without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. 9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. REAL PROPERTY TAXES. 10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises; provided, however, that Lessee shall pay, in addition to rent, the amount, if any, by which Real Property Taxes applicable to the Premises increase over the fiscal tax year during which the Commencement Date occurs ("TAX INCREASE"). Subject to Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty (30) days after receipt of Lessor's written statement setting forth the amount due and the computation thereof. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. (b) ADVANCE PAYMENT. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Tax Increase to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated Tax Increase to be paid. When the actual amount of the applicable Tax Increase is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable Tax Increase before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligation. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. (c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any increase in Real Property Taxes assessed by reason of Alterations or Utility Installations placed upon the Premises by Lessee or at Lessee's request. 10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or other income therefrom, and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change in the ownership of the Premises or in the improvements thereon, the execution of this Lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. Pass through increases due to a change in ownership of the premises shall not be the responsibility of Lessee. PAGE 5 10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith shall be conclusive. 10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures. furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten 10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. UTILITIES. Lessee shall pay for all water gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered with other premises. 12. ASSIGNMENT AND SUBLETTING. 12.1 LESSOR'S CONSENT REQUIRED. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in the control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing transfer, leveraged buyout or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessors Notice"), increase the monthly Base Rent to fair market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new fair market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then fair market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be Effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented In writing. (g) (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment structure of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment structure for property similar to the Premises as then constituted. 12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shalt not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said sublessee to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. DEFAULT; BREACH; REMEDIES. 13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, Initial P.M. ---- R.M. T.M. GROSS PAGE 6 and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" is defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is specified herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13,3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with applicable law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a debtor as defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis, and Lessee's failure, within sixty (60) days following written notice by or on behalf of Lessor to Lessee of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 REMEDIES. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashiers check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided: and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for free or abated rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include. but are not limited to processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor s option, become due and payable quarterly in advance. 13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. Initials P.M. ---- R.M. T.M. GROSS PAGE 7 14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damages required to complete such repair. 15. BROKER'S FEE. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between Lessor and said Brokers, the sum of $ per agreement) for brokerage services -------------- rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that (a) if Lessee exercises any Option (as defined in Paragraph 39.1 or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or any adjacent property in which Lessor has an interest, or (e) if Base Rent is increased whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a third party beneficiary of the provisions of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers. if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. TENANCY STATEMENT. 16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's Interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty- first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Broker that it has made and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. NOTICES. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notice purposes. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivers date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service or courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. Initials P.M --- R.M. T.M. GROSS PAGE 8 26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or earlier termination of this Lease. 27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE. 30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before invoking any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. LESSOR'S ACCESS; SHOWING PREMISES; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Lease" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either voluntarily or involuntarily, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease, Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. CONSENTS. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' or other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. GUARANTOR. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term hereof subject to all of the provisions of this Lease. 39. OPTIONS. 39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor; (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntarily or involuntarily assigned or exercised by any person or entity other than said original Lessee while the original Lessee Initials P.M. ---- R.M. T.M. GROSS PAGE 9 is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease in any manner, by reservation or otherwise. 39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (i) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions. 43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. AUTHORITY. If either Party hereto is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership, Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. AMENDMENTS. This Lease may be modified only in writing, signed by the parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at Chino Executed at Pomona CA. ---------------------------- --------------------------- on 1/16/96 on 1-4-96 ------------------------------------- ----------------------------------- by LESSOR: by LESSEE: Provena Foods, Inc. R-Cold, Inc. - --------------------------------------- -------------------------------------- Therma-Lok, Inc. By /s/ Thomas J. Mulroney By /s/ Patrick Mulcahy --------------------------------- ----------------------------------- Name Printed: Thomas J. Mulroney Name Printed: Patrick Mulcahy -------------------------- ------------------------- Title: C.F.O. Title President - R-Cold, Inc. --------------------------------- --------------------------------- By By /s/ Richard T. Mulcahy ------------------------------------ ----------------------------------- Name Printed: Name Printed: Richard T. Mulcahy -------------------------- ------------------------- Title: Title: President - Therma-Lok, Inc. --------------------------------- -------------------------------- Address: 5010 Eucalyptus Ave. Address:______________________________ ----------------------------- Chino, California 91710 - --------------------------------------- ______________________________________ Tel. No.(909) 627-7312 Fax No.(909) Tel. No.(_____) ____________Fax No (_ --- -------- --- 627-7315 _____) _____________ PAGE 10 GROSS NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213) 687-8616. ADDENDUM TO LEASE Dated December 18, 1995 Between Provena Foods, Inc. (Lessor) and R-Cold, Inc./Therma-Lok, Inc. (Lessee) 47.1 TENANT IMPROVEMENTS: Lessor, at Lessor's sole cost and expense shall perform the following improvements: A.) Construct a demising wall in the warehouse area per Exhibit "A". B.) Clean and shampoo office carpeting. C.) General janitorial cleaning and broom sweep clean. These improvements shall commence immediately upon Lessor's possession of premises from the previous Tenant. Lessee, at Lessee's sole cost and expense, may cut and install one (l) additional truck door on the north side of the building. This improvement must be in accordance with Paragraph 7.3 and subject to Lessor's consent. 47.2 RENT ADJUSTMENTS: See attached Rider. 47.3 OPTION TO EXTEND: See attached Rider. 47.4 PRE-EXISTING CONDITIONS: Within one (1) month from Lessee's date of occupancy of the premises, Lessee shall submit to Lessor a list of pre-existing conditions on the premises of which Lessee shall not be responsible for remediation or repairs upon termination of this Lease. Such list shall be deemed Exhibit "B" and made a part of this Lease. 47.5 DELAY IN POSSESSION (REFERENCE PARAGRAPH 3.3) In the event Lessor is unable to deliver the premises to Lessee for occupancy on March 1, 1996, then Lessor shall credit Lessee $350.00 for each day of delinquency of occupancy commencing March 1, 1996. This rent credit shall be applied toward the month of April, 1996. Lessee acknowledges the completion of the improvements referenced in Paragraph 47.1 may extend beyond the lease commencement date, and that incomplete improvements will not be deemed "Delay in Possession". Furthermore, Lessee shall accommodate Lessor's contractors with any needed access to construct and effectuate said improvements. 47.6 Lessee shall be entitled to parking in all spaces on the south side of the subject building and partially on the north side of the building as detailed in Exhibit "A". AGREED AND ACCEPTED: LESSOR: LESSEE: /s/ Richard T. Mulcahy --------------------- BY: /s/ Thomas J. Mulroney BY /s/ Patrick Mulchay ----------------------------- ------------------------- DATE: 1/16/96 DATE: 1-4-96 --------------------------- ----------------------- [LOGO APPEARS HERE] RENT ADJUSTMENT(S) ADDENDUM TO STANDARD LEASE DATED December 18, 1995 -------------------------------------------------------- BY AND BETWEEN (LESSOR) Provena Foods, Inc. -------------------------------------- (LESSEE) R-Cold, Inc., and Therma-Lok Inc. -------------------------------------- PROPERTY ADDRESS: 5060 Eucalyptus Ave., Chino, California --------------------------------------------- Paragraph 47.2 ----- A. RENT ADJUSTMENTS: The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately) P.M. Initials: __________ Initials: ---------- R.M. __________ ---------- T.M. RENT ADJUSTMENT(S) Page 1 of 2 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777, Fax No. (213) 687-8616. (C) 1991 American Industrial Real Estate Association. [xx] III. Fixed Rental Adjustment(s) (FRA) The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be increased to the following amounts on the dates set forth below: On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be: ______________________________________ $ ____________________________ September 1, 1997 $ 8,347.50 -------------------------------------- ---------------------------- ______________________________________ $ ____________________________ ______________________________________ $ ____________________________ B. NOTICE: Unless specified otherwise herein notice of any escalations other than Fixed Rental Adjustment(s) shall be made as specified in paragraph 23 of the attached Lease. C. BROKER'S FEE: The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the attached Lease. PM Initials: ____________ Initials: ----------- RM ____________ ----------- TM RENT ADJUSTMENT(S) Page 2 of 2 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777, Fax No. (213) 687-8616. (C) 1991 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. [LOGO APPEARS HERE] OPTIONS TO EXTEND ADDENDUM TO STANDARD LEASE DATED December 18, 1995 ---------------------------------------------------------- BY AND BETWEEN (LESSOR) Provena Foods, Inc. ---------------------------------------- (LESSEE) R-Cold, Inc./Therma-Lok. Inc. ---------------------------------------- PROPERTY ADDRESS: 5060 Eucalyptus Ave., Chino ---------------------------------------------- Paragraph 47.3 ------ A. OPTION(S) TO EXTEND: Lessor hereby grants to Lessee the option to extend the term of this Lease for 1 additional 24 month period(s) commencing when the prior term expires - -- upon each and all of the following terms and conditions: (i) Lessee gives to Lessor, and Lessor actually receives on a date which is prior to the date that the option period would commence (if exercised) by at least 6 and not more than 9 months, a written notice of the exercise of the - - option(s) to extend this Lease for said additional term(s), time being of essence. If said notification of the exercise of said option(s) is (are) not so given and received, the option(s) shall automatically expire; said option(s) may (if more than one) only be exercised consecutively; (ii) The provisions of paragraph 39, including the provision relating to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of this Option; (iii) All of the terms and conditions of this Lease except where specifically modified by this option shall apply; (iv) The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately) P.M. Initials: __________ Initials: ---------- R.M. __________ ---------- T.M. OPTION(S) TO EXTEND Page 1 of 2 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777, Fax No. (213) 687-8616. [xx] III. FIXED RENTAL ADJUSTMENT(S) (FRA) The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be increased to the following amounts on the dates set forth below: On (Fill in FRA Adjustment Date(s)): The New Base Rental shall be: March 1, 1999 $ 9,010.00 ------------------------------------- --------------------------- March 1, 2000 $ 9,407.50 ------------------------------------- --------------------------- _____________________________________ $ ___________________________ _____________________________________ $ ___________________________ B. NOTICE: Unless specified otherwise herein, notice of any escalations other than Fixed Rental Adjustments shall be made as specified in paragraph 23 of the attached Lease. C. BROKER'S FEE: The Real Estate Brokers specified in paragraph 1.10 of the attached Lease shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the attached Lease. D. In the event Lessor has need of the premises for Lessor's business operation, then this option shall be deemed null and void. Lessor must notify Lessee within fifteen (15) business days of Lessee's written notice referenced in Paragraph 47.3A(i) in order to effectuate this option cancellation provision. Initials: __________ Initials: P.M. ---- __________ R.M. ---- T.M. OPTION(S) TO EXTEND Page 2 of 2 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071, (213) 687-8777. Fax No. (213) 687-8816. (C) 1991 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. EXHIBIT "A" [Here is a drawing showing a plot plan of the subject building, the leased premises and the demising wall dividing the building.] EXHIBIT "B" The following is a list of pre-existing conditions on the premises of which Lessee shall not be responsible for remediation or repairs upon termination of this Lease. AGREED AND APPROVED: Provena Foods, Inc. R-Cold, Inc. A California Corporation A California Corporation Therma Lok, Inc. A California Corporation ________________________________ _____________________________ ________________________________ _____________________________ Date:___________________________ Date:________________________ Grubb & Ellis Company Commercial Real Estate Services State of California SALE/LEASE AMERICANS WITH DISABILITIES ACT AND HAZARDOUS MATERIALS DISCLOSURE Property: 5060 Eucalyptus Avenue, Chino, CA. ----------------------------------------------------------------------- The United States Congress has enacted the Americans with Disabilities Act. Among other things, this act is intended to make many business establishments equally accessible to persons with a variety of disabilities: modifications to real property may be required. State and local laws also may mandate changes. The real estate brokers in this transaction are not qualified to advise you as to what, if any, changes may be required now, or in the future. Owners and tenants should consult the attorneys and qualified design professionals of their choice for information regarding these matters. Real estate brokers cannot determine which attorneys or design professionals have the appropriate expertise in this area. Various construction materials may contain items that have been or may in the future be determined to be hazardous (toxic), or undesirable and may need to be specifically treated/ handled or removed. For example, some transformers and other electrical components contain PCBs, and asbestos has been used in components such as fire-proofing, heating and cooling systems, air duct insulation, spray-on and tile acoustical materials, linoleum, floor tiles, roofing, dry wall and plaster. Due to prior or current uses of the Property or in the area, the Property may have hazardous or undesirable metals, minerals, chemicals, hydrocarbons, or biological or radioactive items (Including electric and magnetic fields) in soils, water, building components, above or below-ground containers or elsewhere in areas that may or may not be accessible or noticeable. Such items may leak or otherwise be released. Real estate agents have no expertise in the detection or correction of hazardous or undesirable items. Expert inspections are necessary. Current or future laws may require clean up by past, present and/or future owners and/or operators. It is the responsibility of the Seller/Lessor and Buyer/Tenant to retain qualified experts to detect and correct such matters and to consult with legal counsel of their choice to determine what provisions, if any, they may include in transaction documents regarding the Property. To the best of Seller/Lessor's knowledge, Seller/Lessor has attached to this Disclosure copies of all existing surveys and reports known to Seller/Lessor regarding asbestos and other hazardous materials and undesirable substances related to the Property. Seller/Lessors are required under California Health and Safety Code Section 25915 et seq. to disclose reports and surveys regarding asbestos to certain persons, including their employees, contractors, co-owners, purchasers and tenants. Buyers/Tenants have similar disclosure obligations. Sellers/Lessors and Buyers/Tenants have additional hazardous materials disclosure responsibilities to each other under California Health and Safety Code Section 25359.7 and other California laws. Consult your attorney regarding this matter. Grubb & Ellis Company is not qualified to assist you in this matter or provide you with other legal or tax advice. SELLER/LESSOR BUYER/TENANT /s/ Richard T. Mulcahy By: /s/ Thomas J. Mulroney By: /s/ Patrick Mulcahy ------------------------------- --------------------------- Title: CFO Title: President ---------------------------- ------------------------ Date: 1-16-96 Date: 1-4-96 ----------------------------- ------------------------- EX-10.37 4 CONSULTANT AGREEMENT DATED 12-4-95 EXHIBIT 10.37 CONSULTANT AGREEMENT This Agreement is made this 4th day of December, 1995 between Provena Foods Inc. ("Provena"), a California corporation, and Stephen Horowitz & Associates, Inc. ("Consultant"). RECITALS Provena's Swiss American Sausage Co. division ("Swiss") manufactures and distributes meat products. Provena wishes to have Consultant introduce Provena to a party (a "Prospect") with a business to be combined with Swiss either by a purchase by Swiss of the business or a sale of Swiss to the party, and agrees to pay Consultant a success fee if Provena consummates a purchase or sale (a "Transaction") with a Prospect, all on the terms of this Agreement. NOW, THEREFORE, the parties agree as follows: 1. Retainer of Consultant. Consultant for a term of 9 months from the ---------------------- date of this Agreement will use its best efforts to find Prospects and Provena grants to Consultant the exclusive right to do so during the term. Provena will pay Consultant a $25,000 retainer fee, payable in 6 equal installments of $4,166.67 per month beginning on the date of this Agreement. The retainer fee will be credited toward payment of any success fee payable. 2. Termination. Either party may terminate this Agreement at any time by ----------- written notice to the other and the term shall end upon such termination, but any balance of the $25,000 retainer fee shall be payable notwithstanding such termination 3. Terms of Transaction. Provena shall have no obligation to agree to or -------------------- negotiate for a Transaction with a Prospect on any particular terms or at all. The terms of any Transaction shall be negotiated between Provena and the Prospect with such assistance of Consultant as Provena may request. 4. Transaction Price. For purposes of determining the success fee, the ----------------- price for a Transaction shall be the price of the gross assets purchased, and the price shall include any interest bearing debt of the seller assumed by the purchaser. 5. Fee Payable on Sale. If a Transaction is consummated during the term ------------------- with a Prospect, whether or not introduced by Consultant, or is consummated within 12 months of the end of the term with a Prospect introduced by Consultant during the term, Provena shall pay to Consultant a success fee in cash at the closing of the Transaction in the amount hereinafter provided. 6. Amount of Fee. The amount of the success fee shall be the sum of the ------------- percents of the respective portions of the price, as set forth in the following table, but not less than $70,000. EXHIBIT 10.37 - Page 1
Portion of Price Percent ---------------- Over Up to for Fee ---- ----- ------- -0- $1,000,000 6% $1,000,000 2,000,000 5% 2,000,000 3,000,000 4% 3,000,000 4,000,000 3% 4,000,000 5,000,000 2% 5,000,000 unlimited 1%
7. John Taylor and Associates. Stephen Horowitz & Associates, Inc. will -------------------------- engage and bear all of the compensation of John Taylor and Associates to assist Stephen Horowitz & Associates, Inc. in finding a Prospect. References to the Consultant include John Taylor and Associates, who shall execute this Agreement. Sharing of the Consultant's compensation hereunder shall be pursuant to a separate agreement between Stephen Horowitz & Associates, Inc. and John Taylor and Associates. 8. No Other Fees. Consultant shall not receive any fee or other ------------- compensation from any Prospect for an introduction to Provena or a Transaction with Provena. 9. Consultant not Agent. Consultant is not an agent or representative of -------------------- Provena and shall have no power to bind Provena. 10. Expenses. Provena shall not be obligated to reimburse any expense of -------- Consultant, except travel expenses authorized in writing in advance by Provena. 11. Indemnity of Consultant. Provena shall indemnify Consultant against ----------------------- claims arising from Consultant's services hereunder by reason of the fault of Provena and not the fault of Consultant. 12. Exclusion of Alpine. Notwithstanding this Agreement, Consultant shall ------------------- not be entitled to a success fee with respect to a Transaction with Alpine Packing Company, Inc., ("Alpine), unless Provena and Consultant agree upon a reduced success fee for Consultant to assist Provena with a Transaction with Alpine. 13. Arbitration. Any dispute relating to this Agreement shall be settled ----------- by arbitration under the rules of the American Arbitration Association before 3 arbitrators in Los Angeles. Provena Foods Inc. Stephen Horowitz & Associates, Inc. By /s/ John D. Determan By /s/ Stephen Horowitz 12/5/95 ------------------------- --------------------------------- John D. Determan, CEO John Taylor and Associates By /s/ John Taylor ------------------------- EXHIBIT 10.37 - Page 2 EX-10.38 5 COLLECTIVE BARGAINING AGREEMENT DATED 12-6-95 EXHIBIT 10.38 COLLECTIVE BARGAINING AGREEMENT between SWISS AMERICAN SAUSAGE COMPANY and UFCW LOCAL 101 APRIL 1, 1995 THROUGH MARCH 31, 1998 THIS AGREEMENT is made and entered into by and between SWISS AMERICAN SAUSAGE CO., located at 35 Williams Avenue, San Francisco, hereinafter referred to as the "Employer" or "Company" and UNITED FOOD AND COMMERCIAL WORKERS UNION LOCAL 101, AFL-CIO, hereinafter referred to as the "Union". WITNESSETH ---------- In order to establish Working conditions which are fair and equitable to all Employers and Employees, the parties hereto agree to the following: The parties to this Agreement recognize the competitive nature of the industry and further agree that no Employee will be required to work hours in excess of the working hours established in this Agreement. SECTION 1. RECOGNITION, JURISDICTION ------------------------------------ 1.1 Union Recognition. The Employer recognizes the Union as the exclusive ------------------ bargaining agent for all Employees employed in the classification set forth in Section 10 working in the plant of the Employer located in the City of San Francisco or County of San Mateo. 1.2 Classification Definitions. It is understood and agreed that the --------------------------- following groups of Employees shall be recognized as: 1.2.1 Sausage Makers: This group shall consist of a minimum of seven (7) --------------- Journeymen and/or Apprentices engaged in processing and manufacturing specialty sausage items, smoked, cooked and cured meats and meat food products involving trimming and boning, grinding, formulating, and other preparation, chopping and mixing, hanging, tying and linking, stuffing casings, loaves and table work, cooking, smokehouse, steam cabinet, curing and other work incidental to the above. 1 1.2.2 Production Workers: This group shall consist of those Employees whose ------------------- job is primarily work other than that outlined above as the work of Jobbing Butchers and Sausage Makers requiring skills outlined above. It will include, but not be limited to, work in shipping, receiving, driving, driver sales, warehousing, slicing, packing, preparation for production and handling of finished meat cuts and sausage products. Production workers may be used to supplement the work of Sausage Makers performing the routine, less skilled tasks, such as, but not limited to, operation of automated stuffing devices, grinding, flushing casings, hanging product, opening boxes or similar duties which cannot be shown to require predominantly Journeymen Sausage Maker skills. It is agreed and understood that the use of Production Worker as herein described shall not result in the displacement of any current Employees from his/her current classification of work. It is further agreed that, in the event of a reduction in workforce involving or affecting the kitchen, Employees in the Production Worker classification shall be the first removed from the kitchen. 1.2.3 Maintenance Workers: Employees engaged primarily in the maintenance -------------------- and repair of the Employer's equipment. 1.2.4 Sanitation Workers: Employees engaged primarily in the sanitation and ------------------- cleaning of the work place. 1.2.5 Working Foreperson: A Working Foreperson shall not be disciplined by ------------------- the Union or discriminated against in any way for exercising discretionary duties on behalf of Management or effectively recommending courses of action to Management. 1.2.6 Supervisors ----------- Supervisors will not be a part of the bargaining unit, will not be required to join the Union, and will be permitted to perform whatever work the Company assigns; provided however that the number of supervisors shall be limited to a number equal to ten percent (10%) of the number of bargaining unit employees. 1.2.7 Owner's Family Members ---------------------- It is agreed and understood that officers and their immediate family may, is assigned to perform bargaining unit work, become members of the Union on the same terms and conditions membership is made available to all other bargaining unit employees provided that the officer is stationed in the 2 jurisdiction of this agreement and these family members do not cause the displacement of any current employee. 1.3 Performance of Bargaining Unit Work. The Employer agrees that only ------------------------------------ Employees included in the bargaining unit shall perform any of the work coming within the jurisdiction of this Agreement, provided however; that non-bargaining unit work may perform bargaining unit work where necessary for: emergencies beyond the control of the Employer, work in the instruction or training of Employees, and testing materials in production. 1.4 Definitions: ------------ 1.4.1 Regular Employees. A Regular Employee is one who has completed the ------------------ probationary period for all new Employees in accordance with Section 18 hereof. 1.4.2 Extra Employees. Any employee hired to either relieve a regular ---------------- employee or to supplement the existing work force. Extra Employee shall not be employed to displace Regular Employees. An Extra Employee who works forty-five (45) work days for the same Employer within a twelve (12) month period shall become a Regular Employee for the purposes of benefit eligibility. Extra Employees may be scheduled less than forty (40) hours per week. Regular Employees on layoff shall be called to hired. No Extra Employees will be hired when Regular Employees in the same classification are on layoff. It is agreed and understood that assignment of Employees to work less than forty (40) hours per week within the meaning of this provision, shall not operate to replace any existing Employees and, further, the hiring of Employees to work less than forty (40) hours per week shall not be done for the purpose of permanently replacing full-time positions. In the event of a reduction in force, those Employees regularly scheduled to work less than forty (40) hours per week shall be laid off prior to the layoff of any Regular Employees. 1.4.3 Probationary Employees: A Probationary Employee is one who has not ----------------------- yet completed the required forty-five (45) work days of trial employment with the current Employer, as specified in Section 18 (Seniority) herein. New Employees to the industry hired on or after April 1, 1988, shall not be entitled to health and welfare contributions, holidays, funeral leave, sick pay and jury duty pay during the probationary period. 1.5 Management Rights. The Employer shall have the right to the general ------------------ management of all operations and the direction of the workforce, including 3 but not limited to, the right to hire, transfer, promote, maintain discipline and efficiency, layoff, establish new processes or use new equipment, establish schedules of production, and to extend, limit or curtail its operations. Nothing in this Agreement shall be construed, by any manner or means, to preclude the subcontracting of work by the Company or to require the Company to perform work at this Plant rather than elsewhere so long as the rights specified herein are not exercised in a manner inconsistent with this Agreement. SECTION 2. UNION SECURITY ------------------------- 2.1 Local Union Membership. Every person performing work covered by this ----------------------- Agreement who is a member of the Union on the effective date of this Section shall, as a condition of employment or continued employment, remain a member of the Union. Every person employed to perform work covered by this Agreement shall, as a condition of employment, be a member of the Union, or shall, within a period of thirty-one (31) days after the effective or execution date of this Agreement, whichever is later, become a member of the Union. 2.2 Maintenance of Membership. The Employer shall discharge every person -------------------------- who has failed to comply with the provision of Section 2.1 at the end of the work day during which notice of such noncompliance is received. The Employer further agrees not to again employ or re-employ any person(s) so discharged until he or she is a member of the Union; provided, however, in the event that the Labor Management Relations Act, as amended, is applicable to this Agreement, the provisions of this sentence of this Section 2.2 shall not be applied until a final administrative or judicial decision has been rendered which would permit its application under the Act. 2.3 Applicants for Membership. Membership in the Union shall be available -------------------------- to person employed in work covered by this Agreement upon terms and qualifications not more burdensome than those applicable generally to other applicants for such membership. SECTION 3. EMPLOYMENT --------------------- 3.1 No Discrimination. The Employer shall have sole responsibility for ------------------ the full freedom in the selection and employment and discharge of persons employed or to be employed in work covered by this Agreement, subject to the provisions of this Agreement; provided, that there shall be no discrimination because of membership or non-membership in or participation or non-participation in the activities of the Union. The Employer will not discharge or discriminate against any Employee upholding lawful Union principles such 4 as serving as an officer or other representative of the Union, soliciting membership in the Union, wearing Union buttons, distributing Union literature or attending Union meetings provided that such activity does not interfere with his or her work. The Employer will not discharge or discriminate against any Employee for failing or refusing to purchase stock, bonds, securities, or any other interest in any corporation, partnership or company. 3.2 Hiring Notification. An Employer who desires to employ a person in -------------------- work covered under this Agreement shall inform the Union of the number and qualifications of persons desired, the location of the job site, in advance of the time that such perons are required. 3.3 Hiring Consideration. In the hiring of new Employees, the Employer --------------------- agrees that it will give equal consideration to all applicants, including those referred by the Union. The Employer and the Union will not discriminate compensation, terms or conditions of employment because of such individual's race, color, religion, sex, age (to the extent provided by law), or national origin; nor will they limit, segregate or classify Employees in any way to deprive any individual Employee of employment opportunities because of their race, color, religion, sex, age (to the extent provided by law), or national origin. Any reference to the male gender in this Contract shall be in the generic sense and it shall refer equally to either sex without discrimination, as provided above. 3.4 Union Notification. The Employer shall notify the Union within one ------------------- (1) week of the name, address, Social Security Account Number and classification of every such person employed in work covered by this Agreement, together with the date of such employment and location of the place or prospective place of employment. Whenever a person is rejected for or discharged for such work, the Employer shall, upon request of the Union, notify the Union of the reason or reasons therefor. The notice required by this Article shall be made in writing within forty-eight (48) hours after such request. Any Employees hired shall report to the Union within one (1) week after the date of employment to fill out and sign applications, forms and papers for health and welfare, dental and pension purposes. SECTION 4. DISCHARGE -------------------- 4.1 Prohibition Against Discharge. No Employee covered by this Agreement ------------------------------ shall be suspended, demoted or discharged without just and sufficient cause. Discharge for failure to comply with Section 2.2 of this Agreement shall be deemed a discharge for cause. Before an Employee is suspended for more than three (3) days or discharged, he or she shall receive written warning of 5 unsatisfactory conduct and a copy of such notice shall be sent to the Union. Such written warning shall not be effective for suspension actions for more than nine (9) months. The Employee receiving such warning shall be given reasonable opportunity to rectify or change such conduct. The notice and warning required by this section need not be given to Employees disciplined for, but not limited to any gross violation of reasonably acceptable conduct. 4.2 Notice From Insurance Carrier. When an insurance carrier notifies the ------------------------------ Employer that the Firm's vehicle insurance is being cancelled because of a driver's record of on-the-job driving on file with the California Department of Motor Vehicles, that driver may be transferred to another job, if available, where he or she shall have seniority as a new Employee or, if no job is available, he or she may be laid-off pending the results of the grievance procedure. 4.3 Right of Appeal. Any Employee claiming unjust dismissal, demotion or ---------------- suspension shall make his or her claim therefor to the Union within ten (10) working days of such dismissal, demotion or suspension and the Union will that day notify the Employer by telephone and confirm in writing, otherwise, no action shall be taken by the Union. If, after proper investigation by the Union and the Employer, it has been found that an Employee has been disciplined unjustly, he or she shall be reinstated with full rights and shall be paid his or her wages for the period he or she was suspended, demoted or dismissed. Investigation of any claims shall be rode within ten (10) days of the making of such complaint by the Employee. Any dispute arising out of such suspension, demotion, or discharge shall be processed under Section 19 (Grievance and Arbitration) of this Agreement. 4.4 Notification of Discharge. When an Employee is discharged, the -------------------------- Employer must give written notice to the Employee, stating the reasons for such discharge, and the Union shall receive a copy of said notice. Upon written notification by the Union of an Employee holding a second job, the Employer will either terminate the employment of the Employee or require that he or she resign his or her second job. Where an Employee is holding a full-time second job, the Employer, five (5) working days after written notice to the Employee requesting he or she resign his or her second job, may terminate him or her if he or she does not do so. SECTION 5. HOURS ---------------- 5.1 Hours of Operation. The hours of operation of the Employer's facility ------------------- shall be as hereunder provided and shall apply to all Employees of the Employer covered herein. Hours worked in excess of eight (8) straight- time hours in a day or in excess of forty (40) straight-time hours in any week shall be paid 6 at one and one-half (1 1/2%) times the straight-time rate. 5.2 Posting Requirement. All regular Employees shall have their schedule -------------------- posed by Friday noon for the following work week. It shall not be changed except by reason of an Act of God or other reason beyond the reasonable control of the Employer. The schedule shall show the full name of the Employee, the starting times and the days scheduled for him or her during the following week in ink or typewritten. 5.3 Schedule of Shift. All first shift hours shall be regularly scheduled ------------------ to commence no earlier than 5:00 a.m. and no later than 10:00 a.m. The second shift hours shall commence on or after 10:00 a.m. and no later than 5:00 p.m. The third shift hours shall commence on or after 5:00 p.m. and before 5:00 a.m. All work commenced on or after 10:00 a.m. but no later than 5:00 p.m. shall be paid for at the rate of the second shift premium for all hours worked. All work commenced on or after 5:00 p.m. and before 5:00 a.m. shall be paid at the third shift premium for all hours worked. 5.4 Guaranteed Work Week. Regular Employees shall be guaranteed payment --------------------- for and expected to work eight (8) hours each day, forty (40) hours for each week subject to the addition of all premium and overtime provisions, unless such work ceases to be available by reason of an Act of God, or other reason beyond the control of the Employer. Employees unable to work eight (8) hours a day, forty (40) hours a week shall provide a reasonable explanation and verification of the reason of absence where appropriate and in compliance with the provisions of this Agreement. 5.5 Extra Employees Work Week. Extra Employees may be scheduled to work -------------------------- less than forty (40) hours per week. Extra Employees shall be scheduled to work in accordance with their seniority. Extra Employees scheduled to work less than forty (40) hours shall be scheduled as work is available. 5.6 Regular Work Week. The regular work day shall consist of eight (8) ------------------ hours within nine (9) hours, Monday through Friday, inclusive, provided however, it is agreed and understood that the Employer may, during the course of this Agreement, with seven (7) calendar days notice to the Union, institute a Tuesday through Saturday work week. This work week shall be comprised of a regular crew and established only for the purpose of expanding production capability. This work week shall be offered on a voluntary basis to existing Employees and shall not be used to reduce existing Saturday overtime opportunities. 5.7 Minimums. Five (5) days consisting of eight (8) working hours per --------- day, forty (40) hours, Monday through Friday, inclusive, except as otherwise herein 7 provided, shall constitute a work week for all eligible Employees except that during a week in which a holiday falls, the work week shall consist of thirty-two (32) hours. Employees called to work will be provided with a minimum of eight (8) hours work or pay in lieu of work, such pay to start from the hour the Employee is required to report for work, except in case of matters beyond the control of the Employer. Employees doing security inspection or quality control shall be guaranteed a minimum of one (1) hour work or pay in lieu thereof. 5.8 Bid on Job Shifts. Employees shall have the right to bid on job shift ------------------ assignments in the order of their seniority except that no Employee shall have this opportunity more often than once in every six-month period, except when a shift is re-established Within the six (6) months. It is understood that this privilege shall not result in chain bumping. When a shift is discontinued, the senior Employee shall have the right to bid on the job classification in the existing shift. 5.9 Call Back. An Employee called back to work within twelve (12) hours ---------- from the end of his or her shift shall be paid one and one-half (1 1/2%) his or her applicable rate for the hours worked prior to the expiration of such hours. 5.10 Meal Periods. All Employees shall receive one (1) full uninterrupted ------------- hour for a meal period or by mutual agreement between the Employees, the Employer and the Union one-half (1/2) hour, approximately in the middle of the working day, and in no event shall an Employee work more than five (5) hours before any meal period. In agreeing on lunch periods, the parties will consider the requirement set by the USDA for meat inspectors. 5.11 Rest Periods. All Employees shall receive two (2), fifteen (15) ------------- minute rest period in an eight (8) hour day. Employees working beyond nine (9) hours in a day shall receive an additional ten (10) minute rest period. 5.12 Clean Up. Sufficient time shall be allowed to clean up the Plant in --------- order that the Employees may leave by their regular quitting time. SECTION 6. OVERTIME ------------------- 6.1 Overtime Pay. All work in excess of eight (8) hours in one (1) day ------------- and all work in excess of forty (40) hours in one (1) week shall be paid for at the overtime rate of one and one-half (l 1/2) time the Employee's regular straight time rate of pay. Employees shall be paid at one and one-half (1 1/2) for all work performed on the sixth (6th) day of the Employee's work week. All work performed in excess of ten (10) hours in any one (1) day shall be paid for at the overtime rate of two (2) times the Employee's regular straight time 8 rate of pay. When overtime work is scheduled for Sundays and Holidays, such work shall be paid for at the overtime rate of (2) times the Employee's regular straight time rate of pay (double time). All work performed either before the Employee's scheduled eight (8) hour shift or after the completion of his or her scheduled eight (8) hour shift, except as provided above, shall be paid for at the rate of one and one-half (1 1/2%) times the Employee's regular straight time rate of pay. In the event an Employee is required to report for work earlier than his scheduled shift starting time, the Employer shall schedule a minimum thirty (30) minutes of work time in this period. There shall be no pyramiding of overtime under this Agreement. Extra Employees will be given the preference whenever possible to avert overtime. 6.2 Daily Overtime. Preference for overtime work shall be given to --------------- Employees performing the work prior to the expiration of the shift. If additional Employees are required such overtime work shall be offered to Employees by classification seniority within the department, then plantwide. 6.3 Weekend/Holiday Overtime. Preference for overtime work on a weekend ------------------------- or holiday shall be offered to Employees performing the work during the regular work week first, next by classification seniority within the department, then plantwide as per current practice. 6.4 Reporting Pay. When an Employee is sent out from the Union to a -------------- position at the request of the Employer, or is requested by the Employer to report to work arriving there on time is not permitted to work, the Employee reporting to work shall be given a day's pay. If an Employee arrives late, then he or she may be sent home and the Employer shall not be obligated to pay him or her for that day; however, if the Employee is allowed to work any part of that day, he or she shall be paid only for the hours actually worked on that day and his or her guarantee shall be proportionately reduced by the hours not worked on that day. SECTION 7. HOLIDAYS ------------------- 7.1 Recognized Holidays. The following holidays shall be recognized and -------------------- observed annually under this Agreement and eligible Employees as set forth in Section 7.4 shall receive pay for said holidays as if worked. 1. New Year's Day 6. Labor Day 2. Martin Luther King's 7. Thanksgiving Day Birthday 8. Day after Thanksgiving 3. Presidents Day 9. Christmas Day 4. Memorial Day 10. Employee Birthday 5. Fourth of July 9 7.2 Employee's Birthday. Each Employee shall give his or her Employer -------------------- notice of his or her birthday at least two (2) weeks prior to the week in which the birthday occurs. When the necessities of the Employer's business preclude the granting of the Holiday on such birthday of the Employee, the Employer shall notify the Employee during the week in which the Employee gave notice of the birthday to the Employer and a change shall be scheduled by mutual agreement in the week preceding or in the week following the week of the Employee's birthday. The Birthday holiday shall apply only to Regular Employees who have been employed by the Company for one (1) one full year. If an Employee's birthday falls on a day which is otherwise considered as the Holiday, or on a Saturday or Sunday, he or she shall receive an additional day off for the birthday in addition to the Holiday on which it falls or may receive pay (eight (8) hours at the straight time rate of pay) by mutual agreement with the Employer. The Birthday Holiday must be taken within each contract year or it shall be lost. 7.3 Holiday Pay Eligibility. Non-probationary Employees working their ------------------------ scheduled work day before and their scheduled work day after the Holiday shall receive pay for the Holiday, except that an Employee who is absent due to illness or injury for a period not in excess of thirty (30) days, or death in the immediate family and is, therefore, unable to work the scheduled work day before and the scheduled work day after the Holiday shall receive pay for the Holiday. If a Regular Employee worked in the week before Christmas Week or in the week following New Year's Day Week, he or she shall be paid for both Holidays. Any Regular Employee or temporary layoff who worked any portion of the week preceding, the week of, or the week following the Holiday week shall be paid for the Holiday if temporary layoff has not and does not exceed three (3) weeks. Extra Employees working the work days in the week of the Holiday shall be paid for the Holiday. 7.4 Holidays Falling on Saturday/Sunday. When one of the above enumerated ------------------------------------ Holidays falls on a Sunday, then Monday shall be considered as the Holiday. When one of the above enumerated Holidays falls on a Saturday, then Friday shall be considered as the Holiday. SECTION 8. VACATIONS -------------------- 8.1 Vacation Benefits. All Regular Employees who have been in the employ ------------------ of the Employer for at least one (1) year shall be entitled to receive vacation benefits as specified below. Employees going on vacation shall receive pay for said vacation period prior to leaving on vacation. 8.1.1 One (1) week's (five (5) days) vacation with pay after completion of the first year of service. 10 8.1.2 Two (2) week's (ten (10) days) vacation with pay after completion of the second year of service. 8.1.3 Three (3) week's (fifteen (15) days) vacation with pay after completion of the sixth year of service. 8.1.4 Four (4) week's (twenty (20) days) vacation with pay after completion of the fifteenth year of service. Employees with seniority dates prior to October 1, 1982 who are entitled to four (4) or more weeks of vacation with pay shall be frozen at their current entitlement and shall not accrue further additional vacation benefits by virtue of additional years of Company service or otherwise. 8.2 Multiple Week Vacation Schedules. Where an Employee is entitled to --------------------------------- three (3) or more weeks of vacation the Employee and Employer may, if they mutually agree, provide that two (2) weeks be taken at one time and the balance taken at one other time during the year, or that two (2) weeks may be taken at one time together with payment in lieu of the balance thereof. 8.3 Vacation Schedule. The principle of seniority shall be observed in ------------------ the choice of vacation period. The Vacation Schedule for the period March 15 of the current year to March 15 of the following year shall be posted by February 1 and selection of the first increment of vacation shall be completed by all Employees by March 1. Selection of the second increment of vacation shall be completed by all Employees by March 15. After this, there shall be no changes in the schedule except in case of severe personal hardship. The Employer shall have the right to designate the number of Employees that may be off at any given time, but in no event less than one (1) Employee in any one (1) week except for five (5) weeks out of the year marked out by the Employer in consideration of his business needs. If an Employee who is entitled to more than three (3) weeks of vacation does not select dates for additional weeks by March 15, he or she may subsequently select dates after September 30, upon mutual arrangement with the Employer, so long as such selection would not require a change in another Employee's scheduled vacation. 8.4 Pro-Rated Vacation Pay Upon Separation From Employment. Upon ------------------------------------------------------- termination of employment or change of ownership of a plant, Employees shall receive pro-rated vacation pay based on each full month worked since the Employee's last anniversary date of employment; provided, however, vacation pay shall not be paid during the first year of employment in cases of discharge for cause or voluntary quit, except that on voluntary quits where one week's notice has been given to the Employer, the Employee shall receive 11 pro-rated vacation pay. Employment period Rate of Accrual --------------------------------- First 6 months none After 6 months 1/6 weeks(s) owed per month After 4 years 1/4 week per month 8.5 Pro-Rated Vacation Formula for Employees Working Less Than a Full ----------------------------------------------------------------- Year. An Employee shall receive full vacation pay at his or her ----- regular weekly rate of pay if he or she works one hundred and eighty (180) days or more during his or her anniversary year. If an Employee works less than one hundred and eighty (180) days during his or her anniversary year, he or she shall receive pro-rated vacation pay. Such pro-rated vacation pay shall be computed by taking his or her gross earnings during his or her anniversary year, divided by fifty-two (52) and multiplied by the number of weeks vacation to which the Employee is entitled according to his or her length of service. Calculation of vacation under this Article is permitted only on an Employee's anniversary date and is not to be used for incomplete years. 8.6 Holiday During Vacation. When a Holiday falls within the Employee's ------------------------ vacation period, he or she shall be eligible for a paid day off at a time mutually agreeable to the Employee and the Employer, except that, if the Employee and the Employer mutually agree, the Employee may receive pay in lieu of the Holiday. 8.7 Estate Benefit. In the event of the death of an Employee who is --------------- eligible for sick leave and vacation pay, his or her estate, or the person legally entitled thereto, shall receive pro-rated vacation and sick pay computed under the provisions of Section 8.4 and 14.1 of this Agreement. 8.8 Vacation Mobility. The Employer agrees to consider vacation benefits ------------------ earned with a previous industry Employer when hiring Employees. SECTION 9. LEAVES OF ABSENCE ---------------------------- 9.1 Approved Leave of Absence. The Employer may grant leaves to Employees -------------------------- based on merit of the leave. Request and permission must be in writing. An Employee who fails to report for work at the end of a Leave of Absence shall terminate seniority rights except where the Employer has agreed to extend the Leave of Absence. A thirty (30) days Leave of Absence without pay shall be allowed where necessary in order to care for necessary details resulting from the death of a member of his or her immediate family as defined below. All Leaves of Absence granted in this Agreement shall be considered as part 12 of the continuous service with the Employer subject to the limitation outlined in Section 18.3. When a personal Leave of Absence is granted to an Employee by an Employer, a written notice shall be given to evidence such an arrangement. Employees shall use all vacation time and Floating Holidays prior to the start of any leave of absence. 9.2 Union Business. Employees chosen by the Union to attend Union --------------- business outside the Plant shall, with permission of the Employer, be granted leave of absence without pay, not exceeding thirty (30) days. A request for such leave of absence shall be made at least seven (7) working days prior to the first (1st) day of absence, except that such notice need not be provided for absences to attend collective bargaining negotiations. 9.3 Non-Paid Funeral Leave. In the event of a death of a person other ----------------------- than those identified in this Section the employee shall be given one (1) day off upon request, without pay, for the purpose of attending the funeral unless the number of requests for attendance at the funeral would unduly hamper the operation of the Employer's business during the time of the funeral, in which case attendance at the funeral shall be granted on the basis of the order in which the requests were made. 9.4.1 Funeral Leave. When a Regular Full-Time Employee on the active payroll -------------- is absent from work for the purpose of arranging for or attending the funeral of a member of his or her immediate family as defined below, the Employer shall pay him or her for eight (8) hours at his or her regular rate of pay for each day of such absence up to a maximum of three (3) days provided: 9.4.2 The Employee notifies the Employer of the purpose of his or her absence on the first day of such absence; 9.4.3 The absence occurs on the day during which the Employee would have worked but for the absence; 9.4.4 The day of absence is not later than the day of such funeral except where substantial travel time is required. 9.5 Proof of Relationship. The Employee, when requested, furnish proof ---------------------- satisfactory to the Employer of the death, his or her relationship to the deceased, the date of the funeral, and the Employee's actual attendance at such funeral. For the purpose of this Agreement, a member of the immediate family means the Employee's spouse, child, mother, father, sister, brother, mother-in-law, father-in-law, grandparents, grandchildren, step-parents and step-children. 13 SECTION 10. WAGES ----------------- 10.1 SAUSAGE MAKERS 4/01/95 4/01/96 4/01/97 -------------- ------- ------- ------- $13.25 $13.40 $13.55 10.2 APPRENTICES ----------- First Six Months 65% of Journeymen Rate Second Six Months 70% of Journeymen Rate Third Six Months 85% of Journeymen Rate Fourth Six Months 90% of Journeymen Rate Thereafter 100% Journeymen Rate 10.3.1 Production Workers "A" 4/01/95 04/01/96 4/01/97 ---------------------- ------- -------- ------- Hired before 1982 $12.25 $12.40 $12.55 Production Workers ------------------ Hired after 10-1-82 1st 6 months - $7.00 per hour 5th 6 months - $8.25 per hour 2nd 6 months - $7.50 per hour 6th 6 months - $8.50 per hour 3rd 6 months - $7.75 per hour 7th 6 months - $8.75 per hour 4th 6 months - $8.00 per hour 8th 6 months - $9.00 per hour Thereafter 1st 12 months - $9.25 per hour 2nd 12 months - $9.40 per hour 3rd 12 months - $9.55 per hour Foreperson 75 cents per hour above Classification Rate Second Shift 25 cents per hour above Classification Rate Third Shift 30 cents per hour above Classification Rate Leadperson 50 cents per hour above Classification Rate It is also specifically agreed that all employees receiving above scale rates will maintain such rates and also be eligible for any scheduled wage increase. 14 10.3.2 Merit Pay Increases ------------------- The Employer shall have the right to grant individual Employees merit pay increases above the contract pay rates without evaluation and not subject to objection or grievance by the Union. 10.3.3 "Workshare" Program ------------------- The Employer agrees to provide for continued participation by the Employer in the California Economic Development Department "Workshare" program. 10.4 Records. The Employer agrees to keep records of time worked by all ------- Employees in such a manner as is prescribed by the applicable provisions of the Fair Labor Standards Act, whether or not that Act actually applies to the Employer. Every Employer shall install a time clock for the purpose of keeping accurate records of the hours worked by each Employee. Upon request, the Employer shall permit the Union to examine the payroll records of the Employees in the bargaining unit at reasonable times during the regular scheduled working hours. 10.5 Bonus Payments. The Employer shall pay to each Regular Employee on --------------- the first pay period following April 1, 1995, a Bonus not to exceed 35c per hour of all straight time hours compensated in addition to wages but subject to payroll taxes. Effective April 1, 1996 the Bonus compensation shall be increased to 45c per hour. The schedule for the payment of such bonuses is as follows: July 1995 January 1997 October 1995 April 1997 January 1996 July 1997 April 1996 October 1997 July 1996 January 1998 October 1996
10.5.1 In all cases the bonuses will be prorated at $14.00 or $18.00 for each week, or portion thereof, worked for the 13 week period preceding the payments except for the provision in Section 13.1.2. SECTION 11. APPRENTICES ----------------------- 11.1 Apprentice to Journeyman Ratio. Each establishment employing one (1) ------------------------------ or more Journeymen shall be entitled to one (1) apprentice and the employment of five (5) or more Journeymen entitles the establishment of two (2) apprentices and one (1) additional apprentice shall be allowed for each four 15 (4) additional Journeymen employed. 11.2 Training. On-the-Job Training Apprentices shall be in accordance with -------- the California Apprentice Law (Shelly-Maloney Act) as set forth in the California Labor Code. 11.3 Promotion of Journeymen. After two (2) years Apprentices shall ----------------------- advance to Journeymen, except that all Apprentices employed as of the date of this completion of the two (2) years training period, there is a reasonable doubt of the Apprentice's competency to be classified as a Journeyman, such Apprentice shall be given an examination to test his or her Journeyman competency. An Apprentice failing such examination shall be required to work as an Apprentice for three (3) additional months before being eligible for re-examination. Failure to pass this second examination shall restrict the employment of an Apprentice to three (3) additional months, at the end of which time he or she shall have been allocated to Journeyman's status, or employment shall be terminated. 11.4 Transfer. An Apprentice from another Union or Plant shall not lose -------- his or her apprenticeship standing when transferring into this Union or hiring out to another Plant. 11.5 Examination. Applicants or members of this Union who have served ----------- their Apprenticeship elsewhere may take their examination upon a proper showing of experience. 11.6 Apprentice Seniority. Apprentices who complete their training and -------------------- become Journeymen shall have a seniority date for layoff purposes of their first date of apprenticeship. SECTION 12. SUPERANNUATED EMPLOYEES ----------------------------------- 12.1 Any Employee whose earning capacity is limited because of advance age or other handicaps that may interfere with his or her normal employment activities may be employed on suitable work at a wage agreed upon by the Employee, the Employer and the Union. SECTION 13. HEALTH AND WELFARE ------------------------------ 13.1 Health Benefits. The Employer agrees to continue to make payments to --------------- the Northern California Butcher Unions and Employers Health Trust Fund for the purpose of paying health and welfare benefits for Employees, their families and dependents and agrees to be subject to and entitled to the 16 benefits of all the provisions of the Trust Agreement dated March 19, 1962, establishing said Fund, including specifically the requirement to pay liquidated damages as set forth in Article III, Section 8 of the Trust Agreement creating such Fund. 13.1.2 Contribution Rate. During the term of this agreement the Employer ----------------- agrees on behalf of each non-probationary and "not-new-to-the- industry" Employee except as prescribed in Section 1 to contribute for each hour worked and/or paid for (exclusive of overtime hours) the following: Effective for hours worked in April 1995 and thereafter, payable in May 1995, the employer will pay up to Two dollars and Forty-five cents ($2.45) per hour for all straight time hours worked or paid for each eligible employee. Effective April 1, 1997 the Employer agrees to increase his contribution to the Trust Fund up to a maximum of Two dollars and Fifty-five per hour ($2.55) if required by the Trustees. It is agreed by the parties that in the event the additional ten cents (10c) is not required by the Trustees, that five cents (5c) shall be used to increase the bonus from forty-five cents (45c) to fifty cents (50c) for the third year of this Agreement. The Employer agrees to be signatory to the terms and conditions, including contributions rate, set forth in the Plan W of the UFCW Wholesale Health and Welfare Trustee Fund for the terms of this Agreement. 13.2 In the event of legislation providing health and welfare or sick leave benefits which are also provided for under this Agreement, the Trustees are directed to immediately amend the Plan Document deleting duplicated benefits. 13.3 Contribution shall be made on all straight-line hours worked and/or compensated for. It is understood that the contributions required on behalf of any employee shall not exceed forty (40) hours per week or two thousand eighty (2080) hours in any calendar year. In order to qualify for health and welfare coverage, employees must work or be compensated for a minimum of eighty (80) straight-time hours per month in addition to meeting other eligibility requirements as established by the current plan of benefits. 13.4 The parties recognize and acknowledge that the regular and prompt payment of Employer contributions to the Fund is essential to the maintenance of the Health and Welfare Plan, and inasmuch as beneficiaries under this Plan are entitled to health and welfare benefits for the period of time that they may have worked while covered by the Plan even though contributions have not been paid on their behalf by the Employer, that it would be extremely difficult, if not impractical, to fix the actual expense and damage to the Fund and to the Health and Welfare Plan which would result from the failure of an individual Employer to pay such monthly contribution in full within the 17 time period provided. Therefore, the amount of damage to the Fund and Health and Welfare Plan resulting from such failure shall be presumed to be the sum of twenty dollars ($20.00) per delinquency, or ten percent (10%) of the amount of the contribution or contributions due whichever is greater, not to exceed the sum of one hundred dollars ($100.00) per delinquency, which amount shall become due and payable to the Fund as liquidated damages and not as a penalty, upon the day immediately following the date upon which the contribution became delinquent contribution or contributions, as well as any further sums permitted by law. SECTION 14. SICK LEAVE ---------------------- 14.1 Annual Allowance. ---------------- Effective April 1, 1988 ----------------------- All Regular Employees shall be entitled to two-thirds (2/3) of one (1) day of leave for every ninth in which eighty (80) hours (or more) are worked. Employees who work forty (40) or more hours per month, but less than eighty (80) hours per month, shall be given one-third (1/3) day credit for each such month. Unused sick and accident leave shall be cumulative to twenty (20) days on each anniversary year. 14.2 Sick Leave Pay. Sick leave shall commence with the first (1st) day of -------------- absence for sickness or accident except as prescribed in Section 14.2.1. Sick leave shall always be paid for the first (1st) day of absence when the employee is hospitalized or when the first day of absence is the day following an injury incurred on the job for which the Employee required medical treatment. A day's sick and accident benefits shall mean a day's pay at the rate in effect at the time the Employee qualifies to receive the sick and accident benefits, and may actually be spread over more than one (1) day to integrate with other payments contemplated in Section 14.3. 14.2.1 Employees who receive a written warning because of six (6) absences shall lose the right to sick leave on the first day of absence and shall only be able to collect sick leave on the second day of absence. The collection of sick leave on the second day shall stay in effect until the employees have maintained their record at 5 or less absences in a 12 month period at which time the Employee shall then be eligible for first (1st) day absence sick leave. 14.3 Integration with Worker's Compensation or Unemployment Disability ----------------------------------------------------------------- Insurance. An Employee who is collecting unemployment compensation ---------- disability benefits, or workers' compensation temporary disability benefits, or both, shall not receive sick and accident benefits as provided herein; 18 provided, however, if such unemployment compensation disability benefits or workmen's compensation temporary disability benefits, or both are less than the amount of the sick and accident benefits provided herein for such period, such Employee shall receive sick and accident benefits in addition to such unemployment compensation disability benefits or workers' compensation temporary disability, or both, in an amount sufficient to equal the amount of sick and accident benefits he or she would have otherwise received as provided herein. All sickness and accident benefit payments due under this Article shall be payable on the Employee's regular pay period. 14.4 Proof of Illness. The Employer shall reserve the right to request the ---------------- Employee to produce a medical doctor's certificate verifying the fact of such illness. An Employee may be excused from the requirement to provide medical verification of illness provided the following criteria are met: 14.4.1 The absence does not exceed two (2) days including any Holiday which is the day before or after the day of absence. 14.4.2 Upon request, the Employee signs a statement stating he or she was unable to work because of illness which did not require medical attention and that any false statement will be grounds for disciplinary action. The Employee and/or doctor must check in at not more than two (2) week intervals with the Company when an Employee is out on an illness in order to protect his or her rights under Section 18. 14.4.3 The Employee calls his or her supervisor no later than the regular starting time on the day of each such absence stating the reasons for the absence. 14.5 Job Injury. An Employee who is injured on the job and does not ----------- complete that day's work or is otherwise not permitted to return to work, shall receive pay for the entire work day and such pay shall not be charged against sick leave or accident leave; provided, the Employee is sent home or is otherwise not permitted to work by a medical doctor, chiropractor or osteopath on the approved list of the insurance carrier of the individual company. 14.6 Medical Appointments. Visits to the doctor or dentist shall not -------------------- qualify the Employee for sick leave pay. Whenever possible, appointments by reason of illness or non-compensable injury shall be made outside of working hours. Where such appointments must be made during working hours, the Employee shall apply to the Employer, in writing, at least two (2) working days prior to his or her appointment date for unpaid time off to keep such an appointment. Time not worked by an Employee became of visits to a doctor for an industrial injury shall be paid by the Employer at the Employee's applicable rate to pay. Emergency appointments shall not be subject to the 19 two (2) day rule. 14.7 Accumulation. An Employee who has accumulated twenty (20) days sick ------------- leave with his current Employer shall be paid in cash by the Employer the amount of any unused sick leave accumulated over twenty (20) days on each anniversary year. On termination of employment, an Employee may apply to his or her last Employer for cash payout of all unused sick leave accumulated with that Employer. No Employee who has begun a scheduled vacation, may convert the time off to sick leave instead of vacation because of illness incurred after the vacation began. 14.8 Bonus Payment on Worker's Compensation. The Employer will agree that --------------------------------------- employees off the job due to a bona fide industrial injury shall have such time off considered as credited straight-time hours for the purpose of the Bonus calculation under the Collective Bargaining Agreement. SECTION 15. PENSIONS, RETIREMENT BENEFITS ----------------------------------------- 15.1.1 Contributions. Effective for April 1, 1995, the Company will -------------- contribute the sum of One Dollar and Twenty-five cents ($1.25) per hour worked or paid for, exclusive of overtime hours, for each individual employed under this Agreement to an I.R.A. (Simplified Employee Pension). Contributions will be made at year end. The parties agree that the contributions to the I.R.A. shall be made no later than January 31, of the year following the earned credit. 15.1.2 The Employer agrees that in the event that an Employee terminates anytime prior to year end they shall be eligible for pension contribution earned and payable at year end as per Section 15.1.1. For the purpose of this Section, each hour, other than overtime hours, for which payment is made to an Employee, shall be deemed to be an hour worked. 15.2 Waiting Period. Effective April 1, 1988, Pensions/Retirement Benefits --------------- contributions shall commence after six (6) months of employment for new Employees in the industry. For the purpose of this Section, each hour, other than overtime hours, for which payment is made to an Employee, shall be deemed to be an hour worked. SECTION 16. JURY DUTY --------------------- 16.1 Benefit. An Employee who is summoned and reports for jury duty shall -------- receive the difference between jury pay and his or her regular daily rate of 20 pay for each day for which he or she reported for jury duty and/or orientation and on which he or she would normally have worked. 16.2 Return to Work. Day shift Employees called for jury duty or --------------- examination and excused by the court prior to 12:00 noon shall return to work for the balance of their day shift and shall be paid for the difference between jury pay or examination pay, if any, and their straight-time lost. Night or swing shift Employees called for jury duty or examination and excused by the court prior to noon shall report for their regular night shift or swing shift work and shall not be eligible for any jury pay under this Section. Night or swing shift Employees shall not be required to serve on jury duty in the same day time and work night shift or swing shift on the same calendar day, but shall receive the difference between their jury pay and their regular shift pay lost. 16.3 Proof of Attendance. Employees will present proof of service, -------------------- including time served and amount of pay received. SECTION 17. GENERAL BENEFITS ---------------------------- 17.1 Uniforms. All uniforms, caps, gowns, aprons, and reasonable limited --------- laundry service of same shall be furnished free of cost to all Employees, plus Two Dollars and Fifty Cents ($2.50) weekly allowance to cover cost of oilskin, aprons, rubber aprons, rubber boots, knives, steels, wetstones and hooks and other tools to those Employees who use them in the performance of their work and the Employer shall keep the same dressed, sharpened and otherwise in proper order without cost to the Employee. The Employer may at his option provide free of cost oilskin aprons, rubber aprons and rubber boots to those Employees who use them in lien of the weekly allowance. 17.2 Computing Overtime. Paid absences from work, such as vacations, ------------------- Holidays and sick leave, shall be considered as time worked for the purpose of this Agreement but shall not be deemed as time worked for the purpose of computing overtime. 17.3 Company Meetings. Time spent in mandatory company meetings called by ----------------- the Employer, before or after the day's work, shall be considered as time worked and shall be paid for in accordance with the provisions of this Agreement. 17.4 Minimum Wages/Benefits. No Employee receiving wages, other benefits ----------------------- or privileges either above the minimum herein or not provided for herein shall have such benefits or privileges taken away by reason of any provisions of this Agreement. The Employer agrees that no Employee shall be compelled or allowed to enter into any individual contract or agreement with his or her 21 Employer concerning wages, hours or work and/or working conditions that provide benefits less than the terms and provision of this Agreement. Where the basis for amounts paid over the wage rated provided for in Article 10 have specifically set forth in writing to the Employee, they my be discontinued when the reason for their payment ceases to exist and the Employee has been so advised in writing with a copy to the Union. 17.5 Hand Trucks. The Employer shall provide hand trucks and hooks to ------------ those Employees who use them in the performance of their work. Where the Employer provides facilities to lock up the hand truck, the Employee shall be held responsible for it. SECTION 18. SENIORITY --------------------- 18.1 Posting. Where a higher wage rate position becomes open, the Employer -------- agrees to post notice of such job opening and further agrees to consider (up to three (3) qualifying) Employees who apply for such opening, based upon their seniority, attendance, attitude and work performance. However, in order for an Employee to be eligible for the job, application must be made in writing within two (2) working days following posting of the notice. Jobs will be posted according to job title and as commonly known. Employees shall be given a fair trial for all jobs open in the unit. The Employer may promote Employees to Working Forepersons without jeopardizing their former rating. 18.2 Acquisition of Seniority. There shall be a forty-five (45) work day ------------------------- probationary period for all new Employees, during which time they may be discharged for any reason. Following completion of such period the Employee shall become a Regular Employee for all purposes under this Agreement and his or her seniority shall date from the first (1st) day of employment. Seniority shall be applicable among probationary Employees as a group when an issue of seniority arises between two (2) or more probationary Employees. 18.3 Termination of Seniority. Subject to the provision of this Agreement ------------------------- seniority shall be based upon continuous service with the Employer but no Employee shall suffer loss of seniority unless he or she: 18.3.1 is discharged for cause, 18.3.2 resigns or voluntarily quits, 18.3.3 is absent from work for six (6) consecutive months, except in cases of approved leaves of absence, 22 18.3.4 is absent from work for twenty-four (24) consecutive months due to injury or illness on or off the job, 18.3.5 is absent from work for more than thirty (30) days due to death in the immediate family (as defined in Section 9) or otherwise, 18.3.6 fails to return to work within three (3) days after receipt of notice of recall from layoff as provided in Section 18.7 hereof. 18.4 Application of Seniority. Seniority shall be by classification ------------------------ throughout the Employer's plant, unless the Employer and the Union agree that seniority is by classification within designated departments of the Employer's plant. 18.5 Layoff/Recall. In the reduction of the number of Employees due to ------------- lack of work, the last Employee hired in the classification shall be the first to be laid off and, in recalling, the last Employee laid off in that classification shall be the first recalled until the list of Employees previously laid off has been exhausted. The Employer shall give written notice of layoff to the Employee and the Employee shall provide the Employer with his or her current address and telephone number at the time of layoffs, and the Employee is to keep the Employer advised of any change in address. The Employer agrees that Regular Employees laid off and not terminated for cause, as defined in Section 4, shall have seniority rights on layoffs, rehiring for extra and/or steady jobs subsequently available with the Employer prior to the hiring of any new Employees. 18.6 Notification of Recall. When an Employee is recalled to return to ----------------------- work after layoff and he or she cannot be reached by telephone, the Employer shall notify the Employee of such recall either by telegram or certified letter addressed to his or her last known address appearing in the Employer's records and a copy of such communication shall be sent to the Union. 18.7 Reporting After Recall. When an Employee is recalled after layoff, he ---------------------- or she shall have three (3) business days to report after receipt of such recall. If after three (3) such telegram or certified letter is returned to the Employer unclaimed or undeliverable, such Employee's seniority shall be considered broken and all rights forfeited three (3) business days after the date such telegram or certified letter would have been received. An Employee who is recalled from layoff and who, at the time of recall, is working for another Employer in the meat industry, shall have sufficient time to complete the work week in his or her other employment before reporting on the recall so long as he or she so informs the Employer who is calling him or her. 18.8 Notice of Return. Employees who are absent from work over forty-eight ---------------- (48) 23 hours shall be required to give the Employer twenty-four (24) hours notice of their intention to work. 18.9 Seniority List. A seniority list of all Employees in the bargaining -------------- until will be posted in the Plant and a copy will be given to the Union. Such seniority list shall be revised and brought up-to-date every six (6) months and a revised copy shall be furnished to the Union. 18.10 Effect of Leave on Seniority. An Employee who accepts employment ---------------------------- elsewhere while on personal leave of absence from his or her Employer shall forfeit his or her seniority rights and he or she shall be considered as a voluntary quit. When a personal leave of absence is granted to an Employee by the Employer, a written notice shall be given to evidence such an arrangement. The Employer will abide by the provisions of the Selective Service Act as amended and interpreted or other applicable legislation governing reinstatement rights of Employees entering service under such legislation. SECTION 19. GRIEVANCE AND ARBITRATION ------------------------------------- 19.1 Grievances. A grievance shall be defined as a matter of dispute ---------- which arises over the interpretation and application of any of the Articles of this Agreement. 19.1.1 Any matter of dispute shall be addressed directly by the Union with the Employer or by the Employer with the Union and a settlement attempted. 19.1.2 If the dispute is not settled directly, the grievance shall be referred to the other party, in writing, specifying the complaint and setting forth the facts on which the grievance is based and the Contract provision violated. The written grievance must by filed by certified mail or in person within ten (10) calendar days of the date of the occurrence of the dispute, or knowledge thereof, whichever is later. 19.1.3 Unless extended by mutual agreement, an Adjustment Board Hearing shall be held within ten (10) calendar days of the date the grievance was filed, provided however, the parties must have met and attempted to resolve the grievance before any hearing can be convened. The right to an Adjustment Board Hearing or arbitration is lost if the grieving party fails to follow these steps. 19.1.4 An Adjustment Board shall be established and convened for the purpose of hearing and deciding grievances. The Adjustment Board (Board) shall 24 consist of two (2) representatives of the Union and two (2) representatives of the Employer. The Board shall meet within two (2) weeks of such notification and requests, unless the time is mutually extended. In any proceeding before the Adjustment Board, the Employer shall be represented by an Employer representative and the Union member involved shall be represented by the Union. Proceedings before the Board shall be conducted in accordance with the rules of procedure adapted by the Union and the Employer. A majority decision reached by the Board shall be final and binding on all parties. In the event that any matter submitted to the Board cannot be settled within five (5) business days, excluding Saturday, Sunday and Holidays, (unless the time is mutually extended) the parties may choose an impartial arbitrator, and the grievance shall be submitted for disposition to the Arbitrator, whose decision shall be final and binding on all parties, provided the moving party requests arbitration within ten (10) business days from the date the Adjustment Board met, otherwise the right to arbitration is lost. The parties will request a bench decision from the arbitrator at the close of the arbitration hearing. In the event that the parties cannot agree upon the selection of the impartial arbitrator within five (5) business days, exclusive of Saturday, Sunday and holidays, the matter is submitted shall then be referred to the Federal Mediation and Conciliation Service for a list of arbitrators. 19.2 Authority. Neither the Adjustment Board nor an Arbitrator shall have --------- the authority or power to add to, alter or amend the terms and provisions of this Agreement. 19.3 Expenses. The compensation of the Arbitrator and all expenses -------- incurred by the Arbitrator and any expense incidental to the work of the Adjustment Board and authorized it, shall be borne one-half (1/2) by the Union and one-half (1/2) by the Employer, provided, however, that this shall not be deemed to include any cost or expense of presentation by either of the parties to the dispute. 19.4 Money Claims. A claim of any Employee for payment of any additional ------------ compensation or sum due under the terms of this Agreement shall not go beyond a thirty (30) day period, unless notified within ten (10) days of the pay period when such claimed sums should have been paid. SECTION 20. UNION AFFAIRS ------------------------- 20.1 Union Visitation. Only authorized representative of the Union shall ---------------- be allowed to visit the places of business of the Employer which are covered by the Agreement for the purpose of observing working condition and to confirm that the Agreement is being followed, so long as the representative 25 has first informed management that he/she is on the premises. The visitation right shall be exercised so that Employees are not interrupted. 20.2 Union Activity. No Employee shall be discriminated against for -------------- membership in or legal activity on behalf of the Union. 20.3 Union Shop Card. The Union Shop Card is the property of the United --------------- Food and Commercial Workers, AFL-CIO & CLC and is loaned for display to the Employer who signs and abides by this Agreement. The Union Shop Card can and may be removed from any establishment by the Secretary or Union Representatives of the Union for any violation of this Agreement. The Union Shop Card shall be displayed prominently and visible to the public. 20.4 Check-Off. The Company, for its Employees shall for the duration of --------- this Agreement between the parties deduct from the first pay of each month union dues for the current month, and promptly remit same to the Union. The initiation fees of the union shall be deducted by the Company and remitted to the Union in the same manner as dues collections. No deduction, either for dues or initiation fees, shall be made by the Employer unless specifically authorized by the individual Employee by signed authorization card. 20.5 Stewards. Stewards may be designated by the Union. -------- 20.6 Bulletin Boards. The Employer and the Union shall jointly provide and --------------- share a glassed in and lockable bulletin board in the employee's lunch room for the purpose of posting notices of official Union business and other information, such as times and places of meetings. SECTION 21. WORKING CONDITIONS AND SAFETY ----------------------------------------- 21.1 First Aid Equipment. The Employer shall be responsible for the ------------------- installation and maintenance of first aid equipment, and it shall be kept throughout the Plant in places readily and conveniently accessible to the Employees. 21.2 Floor Covering/Protective Clothing. A suitable floor covering shall ---------------------------------- be provided so that no Employee shall need to stand or traverse any limited work area on concrete or concrete substitute flooring. The Employer shall furnish mesh gloves and protective aprons for all Employees who use a knife in the performance of their work. Such equipment and hard hats where furnished by the Employer, shall be worn by the Employees. Where the Employees wear cotton gloves on the job, the Employer will provide them at no expense to the Employees so long as they are treated with care and benefit is not abused. 26 21.3 Governmental Regulations. All sanitary and safety regulations of ------------------------ Federal, State and Local governments shall prevail in all departments. Failure to follow such regulations shall be considered insubordination subject to disciplinary action. 21.4 Injurious Working Conditions. Pasteur-Ray lamps or other working ---------------------------- conditions which are injurious to the health and safety of the Employees shall be directed to the attention of the Employer at which time the Employer shall immediately investigate the alleged condition, shall meet with representatives of the Union to discuss the alleged condition and shall immediately take the necessary steps and measures to correct such condition if found to be injurious. 21.5 Efficient Operations. Policy regarding speed of operation shall be -------------------- made on the basis of fairness and equity, consistent with quality of workmanship, efficiency of operations, and the reasonable working capacity of normal operation. Any dispute which my arise with respect to work loans shall be subject to the Grievance Procedure under Section 19 of this Agreement. SECTION 22. JOB SECURITY ------------------------ 22.1 New Methods of Operation. The parties to the Agreement have discussed ------------------------ new methods of operation and subcontracting of work being performed by bargaining unit Employees and agree that both parties shall discuss the effects of additional new methods of operation and subcontracting on job security of the Employees and will work at that end. When additional subcontracting of any existing operation or new method of operation becomes necessary or desirable the Employer will notify the Union. The Union shall discuss the effects on the job security of the Employees and the parties will meet for the purpose. The Employer agrees to delay layoffs caused by subcontracting or new method of operation until at least thirty (30) days subsequent to its notice to the union of its intention so that the parties have ample time to suggest methods of solving layoff problems. The Employer shall furnish the Union facts and suggestions with request to jobs available in the Employer's Plant and methods of solving layoff problems. SECTION 23. SEPARABILITY ------------------------ 23.1 The provisions of the Agreement are deemed to be separable to the extent that if and when a court of last resort adjudges any provisions of this Agreement in its application between the Union and the undersigned Employer to be in conflict with any law, such decision shall not affect the 27 validity of the remaining provisions of this Agreement, but such remaining provisions shall continue in full force and effect, provided further, that in the event any provision or provisions are so declared to be in conflict with law, both parties shall meet within thirty (30) days for the purpose of re-negotiation and agreement on provision or provisions so invalidated. SECTION 24. TRANSFER OF OWNERSHIP --------------------------------- 24.1 In the event of change of ownership of the operation, whether it be voluntary, involuntary, or by operation of law, the Employer will immediately pay off all obligations, including accumulated wages, pro rata of earned vacations, sick and accident contributions, accumulated prior to the date of the change of ownership. If any Owner or Employer hereunder sells, leases or transfers his or her business or any part thereof, whether voluntary, involuntary or by operation of law, it shall be his or her obligation to advise the successor, lessee or transferee of the existence of this Agreement and such successor, lessee or transferee shall be bound fully by the terms of this Agreement and shall be obligated to pay the wages, vacations, sick and accident contributions and comply with all other conditions of this Agreement in effect at the time of the sale, lease or transfer; and in the event the seller or transferrer fails to pay his obligations hereunder, shall assume all obligations of this Agreement in the place and stead of the Employer signatory thereto the same as if her or she had been the Owner or Employer from the beginning. Before completion of any such transfer, the Employer shall give written notice to the buyer, with a copy to the Union, of the existence of this Agreement, furnishing him or her with a copy of this Agreement and call his or her attention particularly to this Article concerning Transfer of Ownership. SECTION 25. SAVINGS CLAUSE -------------------------- 25.1 If any contract provision may not be put into effect because of applicable legislation, Executive order, or Regulations dealing with wage or price stabilization, then such provisions, or any part thereof, shall become effective at such time, in such amounts and for such periods as will be permitted by law at any time during the life of this Agreement and any extension thereof with prospective effect. 28 SECTION 26. DRIVERS ------------------- 26.1 Protective Gowns. Drivers may be required to wear protective gowns ---------------- which will be provided by the Employer. A driver who is required to handle product which causes excessive soil on the gown my request and the Employer shall provide a second gown and/or oilskin apron to give adequate protection to his clothes. 26.2 Overnight Trips. Drivers who are required to be out of town overnight --------------- in the interest of the Employer shall be paid all reasonable actual expenses for meals and lodging as substantiated with vouchers. 26.3 Night Depository. The Employer will provide a night depository or ---------------- make other arrangements so that drivers will not be required to keep money collected overnight. SECTION 27. NO STRIKE OR LOCKOUT -------------------------------- 27.1 During the term of this Agreement there shall be no strikes, sympathy strikes, picketing or lockouts pending or following any decision by an Adjustment Board of Arbitrator, nor shall there be a stoppage of work in violation of any other provision of this Agreement. Nothing herein shall preclude the Union or its members from honoring lawful picket lines or strikes during the term of this Agreement. SECTION 28. EXTENSION AND SCOPE ------------------------------- 28.1 This Agreement shall be binding upon the heirs, executors and administrators and assignees of the parties hereto. This Agreement shall remain in full force and effect from April 1, 1995 to and including March 31, 1998 and shall be automatically renewed from year to year thereafter unless either party, at least sixty (60) days prior to April first (1st) of any succeeding term, shall notify the other party in writing of its intention and desire to change, modify or terminate this Agreement. In the event the Contract is reopened pursuant to the provision hereof, and no Agreement is reached within sixty (60) days of such reopening, then nothing herein contained shall be construed to 29 prevent the Union from taking strike action or other economic action desired by it, or the Employer the right to lock-out. In Witness Whereof, the parties hereto, have executed this AGREEMENT on the dates set forth below: SWISS AMERICAN SAUSAGE COMPANY UFCW LOCAL 101 /s/ Theodore A. Arena /s/ [SIGNATURE NOT LEGIBLE] ----------------------------- --------------------------- (Signature) (Signature) President Sec/Treas ----------------------------- --------------------------- (Title) (Title) 12/6/95 12/6/95 ----------------------------- --------------------------- (Date) (Date) 30 EX-24.1 6 REPORT & CONSENT OF KPMG PEAT MARWICK LLP EXHIBIT 24.1 Independent Accountants' Consent -------------------------------- The Board of Directors Provena Foods, Inc.: We consent to incorporation by reference in the registration statement (No. 33-23852) on Form S-8 of Provena Foods, Inc. of our report dated February 6, 1995, relating to the balance sheets of Provena Foods, Inc. as of December 31, 1995 and 1994, and the related statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, and related schedule, which report appears in the December 31, 1995 annual report on Form 10-K of Provena Foods, Inc. KPMG Peat Marwick LLP Orange County, California February 28, 1996 EX-27 7 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 330,519 20,324 2,254,371 54,700 2,297,322 4,917,231 9,088,839 4,005,940 10,049,514 2,085,241 960,195 0 0 4,104,173 2,810,901 10,049,514 23,424,677 23,542,228 21,348,187 2,021,025 10,248 51,970 70,702 173,016 84,224 88,792 0 0 0 88,792 .03 .03
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