<PAGE>
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]
<PAGE>
PROVENA FOODS INC.
1995 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C> <C>
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
</TABLE>
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<PAGE>
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.
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<PAGE>
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-
<PAGE>
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:
<TABLE>
<CAPTION>
Number of Division Company
Division Customers Sales % Sales %
- -------- --------- --------- --------
<S> <C> <C> <C>
Swiss American 3 52% 30%
Royal-Angelus 3 27% 12%
- --
Totals 6 42%
</TABLE>
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
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<PAGE>
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
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<PAGE>
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:
<TABLE>
<CAPTION>
Without
Nominee For Withheld Authority
------- --- -------- ---------
<S> <C> <C> <C>
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
</TABLE>
PART II
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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:
<TABLE>
<CAPTION>
Quarter of Fiscal Year Ended December 31
First Second Third Fourth
------- ------- ------- ------
<S> <C> <C> <C> <C>
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
</TABLE>
The closing price on December 31, 1995 was $3-1/2.
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<PAGE>
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.
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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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ------ ------- -------
(Amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------
</TABLE>
(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:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
<TABLE>
<CAPTION>
Annual SEP/IRA
Name and Position Year Salary Contributions
- ----------------- ----- -------- -------------
<S> <C> <C> <C>
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
</TABLE>
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-
<PAGE>
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
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
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
- --------------------- --------------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
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-
</TABLE>
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-
<PAGE>
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.
<TABLE>
<CAPTION>
Shares Beneficially Owned
--------------------------------------------
Without Options(3) Options Exercised(4)
-------------------- ---------------------
Name or Category(1) Number Percent Number Percent
------------------ --------- -------- ---------- --------
<S> <C> <C> <C> <C>
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%
- -------------------------------------------------------------------------------------
</TABLE>
(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-
<PAGE>
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.
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
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
________________________________________________________________________________
</TABLE>
(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-
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------- ------
<S> <C> <C>
/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
</TABLE>
-16-
<PAGE>
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-
<PAGE>
PROVENA FOODS INC.
Items 8 and 14(a)(1)
Index to Financial Statements and Schedule
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
F-1
<PAGE>
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
<PAGE>
PROVENA FOODS INC.
Balance Sheets
--------------
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
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
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PROVENA FOODS INC.
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
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
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PROVENA FOODS INC.
Statements of Shareholders' Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Capital stock Note
------------------------- receivable Total
Shares Retained from shareholders'
issued Amount earnings shareholder equity
----------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
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
=========== =========== ========== ============ =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PROVENA FOODS INC.
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
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
========== ======== ========
</TABLE>
(Continued)
F-6
<PAGE>
PROVENA FOODS INC.
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
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 -- --
======== ======= ===
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
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:
<TABLE>
<S> <C>
Buildings and improvements 31.5-39 years
Machinery and equipment 10 years
Delivery equipment 5 years
Office equipment 7 years
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
F-9
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements, Continued
(3) PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
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
========== =========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
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%
</TABLE>
F-10
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
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
========== =========
</TABLE>
(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
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements, Continued
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
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)
======= ======== =======
</TABLE>
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:
<TABLE>
<CAPTION>
Deferred
income tax Deferred
December 31, expense December 31, income tax December 31,
1995 (benefit) 1994 expense 1993
------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
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
========= ======= ======= ======= =======
</TABLE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- ---------------- -----------------
Amount % Amount % Amount %
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
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)
======== ==== ======= ==== ====== =====
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
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
=========== ========== ==========
</TABLE>
F-14
<PAGE>
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.
<TABLE>
<CAPTION>
Accounts receivable
balance at
1995 1994 December 31
-------------- ---------------- ------------------
Customer Sales % Sales % 1995 1994
------- ------- ---- ---------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
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
==========
</TABLE>
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
<PAGE>
Schedule II
PROVENA FOODS INC.
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Charged to
-----------------------
Balance Other Deductions: Balance
at beginning costs and Accounts: uncollectible at end
Description of period expenses recoveries accounts of period
----------- ------------ ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
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
=========== ====== === ====== ======
</TABLE>
F-16
<PAGE>
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.
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
*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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
_________________________
<PAGE>
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
<PAGE>
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-
<PAGE>
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-
<PAGE>
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-
<PAGE>
(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-
<PAGE>
This Note is secured by a Deed of Trust dated February 1, 1995.
PROVENA FOODS INC.
By: _________________________
John D. Determan
Chairman
-6-
<PAGE>
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."
<PAGE>
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-
<PAGE>
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
<PAGE>
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
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*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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
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R.M.
T.M.
GROSS PAGE 6
<PAGE>
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.
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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.
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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
<PAGE>
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.
<PAGE>
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
--------------------------- -----------------------
<PAGE>
[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.
<PAGE>
[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.
<PAGE>
[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.
<PAGE>
[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.
<PAGE>
EXHIBIT "A"
[Here is a drawing showing a plot plan of the subject building, the leased
premises and the demising wall dividing the building.]
<PAGE>
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:________________________
<PAGE>
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
----------------------------- -------------------------
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
Portion of Price Percent
----------------
Over Up to for Fee
---- ----- -------
<S> <C> <C>
-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%
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<S> <C> <C> <C>
July 1995 January 1997
October 1995 April 1997
January 1996 July 1997
April 1996 October 1997
July 1996 January 1998
October 1996
</TABLE>
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
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 330,519
<SECURITIES> 20,324
<RECEIVABLES> 2,254,371
<ALLOWANCES> 54,700
<INVENTORY> 2,297,322
<CURRENT-ASSETS> 4,917,231
<PP&E> 9,088,839
<DEPRECIATION> 4,005,940
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0
0
<COMMON> 4,104,173
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<TOTAL-LIABILITY-AND-EQUITY> 10,049,514
<SALES> 23,424,677
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<CGS> 21,348,187
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<INTEREST-EXPENSE> 70,702
<INCOME-PRETAX> 173,016
<INCOME-TAX> 84,224
<INCOME-CONTINUING> 88,792
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,792
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
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