<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, 1999
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 26, 2000 was $8,199,397.
The number of shares of Provena Foods Inc. Common Stock outstanding on
February 20, 1999 was 2,981,599.
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.
1999 FORM 10-K ANNUAL REPORT
Table of Contents
<TABLE>
<CAPTION>
Item PART I Page
- ---- ------ ----
<S> <C>
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
7A Quantitative and Qualitative Disclosure About Market Risk................11
8. Financial Statements and Supplementary Data..............................11
9. Changes in and Disagreements with Accountants 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
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.........15
_______________
Signatures..............................................................164
</TABLE>
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<PAGE>
ITEM 1. BUSINESS
General
- -------
Provena Foods Inc. (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" or "Swiss"), and its pasta
business is conducted through the Royal-Angelus Macaroni Company Division
("Royal Angelus" or "Royal"). The Company acquired its present businesses
between 1972 and 1975. The predecessor of Swiss was founded in 1922 and the two
predecessors to Royal, 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 approximately $12,000.
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 Sausage Co. Meat Division
- ----------------------------------------
During the years ended December 31, 1999 and 1998, sales by Swiss accounted
for 64.3% and 62.7%, 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 competes with numerous producers of processed meats, many of which
are larger and have greater financial resources than the Company. Swiss's
competitors include large national meat packers such as Hormel Foods
Corporation, as well as smaller regional meat processors. Pizza processors that
manufacture their own meat products diminish the market for Swiss's products.
The Company competes in the meat processing business by emphasizing predictable
quality and consistency.
The meat processing activities of the Company were conducted at its
facilities in San Francisco, California, until the main plant was destroyed by a
fire on August 1, 1998. The San Francisco plant had an estimated theoretical
production capacity of 27,000,000 pounds per year. In 1999, the Company
completed construction of a new meat plant in Lathrop, California. Installation
of equipment at the new meat plant is substantially completed, operations have
commenced, and the inefficiencies of starting up a new plant are diminishing.
The new meat plant will have a preliminary estimated theoretical production
capacity of 46,000,000 pounds per year when fully equipped. The Company
purchased an additional 2 acres of land adjacent to the new plant in 1999 to
ensure a capability of expansion which the old meat plant did not have. See ITEM
2. PROPERTIES.
The meat processing activities of Swiss are typified by its processing of
pepperoni, its principal product, which consists of the following steps: (i) the
purchase of beef and pork trimmings with a guaranteed lean content; (ii) the
blending of the meat into the Company's meat product while carefully controlling
the consistency and content of the product; (iii) the addition of spices and
preservatives to the product; (iv) the extrusion of the product into sausage
casings; (v) the oven cooking of the product in the casings; and (vi) the drying
of the cooked product. Throughout the production process, the Company subjects
its meat products to quality control inspection for the purposes of satisfying
U. S. Department of Agriculture regulations, meeting customer specifications and
assuring a consistent quality of the products to the Company's customers.
-1-
<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 crumbles line extrudes the ground and blended ingredients into nuggets which
are cooked and quick-frozen in one continuous operation.
Royal-Angelus Macaroni Company Pasta Division
- ---------------------------------------------
During the years ended December 31, 1999 and 1998, sales by Royal-Angelus
accounted for 35.7% and 37.3%, 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's 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's 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's 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. In April
1995, the Company purchased a building adjacent to the pasta plant and currently
occupies 40% of the building as part of its pasta plant and leases 60% to a
tenant through February 2001. The pasta plant has a theoretical production
capacity estimated at 30,000,000 pounds per year, with adequate short-goods
capacity for the foreseeable production needs of Royal, but with limited long-
goods capacity from its single line. The Company has ordered a second 17,000,000
pounds per year capacity long-goods line, subject to obtaining financing.
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.
During 1999, when the new meat plant was not operational and the old meat
plant had been destroyed by fire, the meat division attempted to maintain volume
by purchasing processed products from other suppliers for its customers, but the
meat division's sales were almost $1,000,000 per month lower than before the
fire. Business interruption insurance covered most of the increased cost of
purchasing from suppliers.
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, Vegeroni and Capo di Monte are used on consumer products in limited
distribution. 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 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 four full-
time salaried sales people. 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,
1999:
<TABLE>
<CAPTION>
Number of Division Company
Division Customers Sales % Sales %
-------- --------- -------- --------
<S> <C> <C> <C>
Swiss American 3 53% 35%
Royal-Angelus 2 25% 9%
--- ---
Totals 5 44%
</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 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.
-3-
<PAGE>
Employees
- ---------
As of December 31, 1999, the Company employed 149 full-time employees, 91
in production at Swiss in Lathrop, California, 42 in production at Royal-Angelus
in Chino, California, 7 in clerical and office functions, 4 in sales activities,
and 5 in management activities.
Swiss's plant employees are represented by the United Food and Commercial
Workers Union Local 588, AFL-CIO, CLC under a collective bargaining agreement
renewed April 1, 1998 to expire March 31, 2002. In September 1999, Royal's plant
employees elected United Food and Commercial Workers Union Local 1428, AFL-CIO,
CLC as their collective bargaining representative and negotiations of a
collective bargaining agreement are in progress. 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
- ---------------
The Company provides health insurance benefits to its non-union employees
and their dependents on a self-funded basis. The Company is insured for the
excess over $40,000 of claims of any covered person incurred and paid during the
year, but is 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 January
25, 1999, the Company has complied with the U. S. Department of Agriculture's
Hazardous and Analysis Critical Control Points 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
plant to inspect meat products processed by the Company and to review the
Company's compliance with the program. 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 Lathrop 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 original 48,000 square foot meat processing plant located in
San Francisco was destroyed by fire on August 1, 1998. The lease of a nearby
45,000 square foot facility used for drying and slicing operations was
terminated in 1999 with no payment for early termination. In 1999, the Company
completed construction of a new approximately 85,000 square foot meat plant in
Lathrop, California, installed most of the equipment and commenced operations.
The preliminary estimated theoretical production capacity of the new meat plant,
when current installation of equipment is completed, is 46,000,000 pounds per
year, compared to 27,000,000 pounds per year for the old plant. The Company
purchased an additional 2 acres of land adjacent to the new plant in 1999 to
ensure a capability of expansion which the old meat plant did not have. See
Liquidity and Capital Resources under Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The Company's pasta production plant is an approximately 41,000 square foot
facility located in Chino, California, occupied by the Company since 1987. In
April 1995, the Company purchased an approximately 44,000 square foot building
adjacent to the pasta plant and currently occupies 40% of the building for pasta
warehousing and leases 60% to a cold storage manufacturer through February 2001.
The Chino plant, after the addition of a third short-goods production line in
1996, has a theoretical production capacity estimated at 30,000,000 pounds
annually, with adequate short-goods capacity to fulfill foreseeable needs of the
pasta division, but with limited long-goods capacity from its single line. The
Company has ordered a second 17,000,000 pounds per year capacity long-goods
line, subject to obtaining financing. After installation of a second long-goods
line, the pasta plant will still have capability of further expansion.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company, from time to time, 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 27,
1999, at 11:00 a.m. at the Company's principal office. Shareholders representing
2,392,465 or 81.7% of the 2,927,353 shares entitled to vote were present in
person or by proxy, with 419,131 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 2,384,465 7,000 1,000
Theodore L. Arena 2,391,465 -0- 1,000
Ronald A. Provera 2,389,865 1,600 1,000
Santo Zito 2,391,465 -0- 1,000
Thomas J. Mulroney 2,391,465 -0- 1,000
Louis A. Arena 2,389,865 1,600 1,000
Joseph W. Wolbers 2,391,265 200 1,000
John M. Boukather 2,382,865 8,600 1,000
</TABLE>
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded 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> <C>
1997 High 3-1/8 2-13/16 2-5/8 3
Low 2-1/2 2-1/4 2-1/8 2-3/8
1998 High 5-7/16 5-1/16 4 3-1/2
Low 2-5/8 3-3/4 2-5/16 2-7/16
1999 High 3-1/16 3-3/4 3-9/16 3-1/8
Low 2-1/2 2-11/16 2-15/16 2-1/2
</TABLE>
The closing price on December 31, 1999 was $2-3/4.
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, 1999 the Company had issued and outstanding 2,972,029
shares held by approximately 240 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:
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<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends $0.12 $0.12 $0.12 $0.10 $0.18 $0.1725 $0.1625 $0.16 $0.14 $0.125 $0.11 $0.10
</TABLE>
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.
Shareholder communications regarding transfers, changes of address, missing
dividends, lost certificates or similar matters should be directed to the
Company's transfer agent and registrar, ChaseMellon Shareholder Services, Stock
Transfer Department, Washington Bridge Station, P.O. Box 469, New York, NY
10033, (800)522-6645, www. chasemellon.com.
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 1999, the Company purchased no shares under its stock repurchase
program, and received no shares in payment of the exercise price of options.
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 1999 employees purchased 56,293
newly issued shares at an average price of $2.98 per share. Employees have
purchased a total of 493,575 shares under the plan through December 31, 1999,
at an average price of $3.03 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 $160,000 per year.
An employee exercised Incentive Stock Options in 1999 to purchase 2,638
shares at an exercise price of $2-9/16 per share.
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<PAGE>
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, 1999 is derived from the
financial statements of the Company, which financial statements have been
audited by KPMG 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, 1999, included in a separate section at the end
of this report beginning on Page F-l. 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>
Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of operations data: (Amounts in thousands except per share data)
Net Sales $20,628 24,503 30,966 28,895 23,424
Cost of sales 20,371 21,794 27,103 26,037 21,348
------ ------ ------ ------ ------
Gross profit 257 2,709 3,863 2,858 2,076
Distribution, general and administrative expenses 2,651 2,253 2,066 2,002 2,021
------- ------- ------- ------- --------
Operating income (loss) (2,394) 456 1,797 856 55
Interest income (expense), net (175) 18 (58) (75) (66)
Other income, net 2,637 3,326 279 113 184
------- ------- ------- ------- --------
Earnings before income taxes 68 3,800 2,018 894 173
Income taxes 30 1,558 764 332 84
------- ------- ------- ------- --------
Net earnings $ 38 2,242 1,254 562 89
======= ======= ======= ======= ========
Earnings per share: Basic $ .01 .78 .44 .20 .03
======= ======= ======= ======= ========
Diluted $ .01 .77 .44 .20 .03
======= ======= ======= ======= ========
Cash dividends paid per share $ .12 .12 .12 .10 .18
Weighted average number
of shares outstanding (1): Basic 2,946 2,891 2,836 2,767 2,705
Diluted 2,961 2,924 2,855 2,775 2,750
Balance sheet data (end of period):
Working capital $ 1,878 3,261 4,574 3,564 2,832
Property and equipment (net) 16,119 7,602 4,468 4,705 5,083
Total assets 22,745 17,280 11,539 10,414 10,050
Long-term debt 7,330 4,000 752 960 969
Shareholders'equity 10,338 10,479 8,435 7,357 6,915
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)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>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Purchase Plan Shares Sold 56,293 42,959 55,355 51,990 57,223
Incentive Option Shares Sold 2,638 10,000 20,400 16,000 53,555
Received in Exercise of Options -- 5,842 7,795 8,600 18,500
Outstanding Shares Repurchased -- -- -- -- 52,289
</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, 1999, 1998 and 1997:
<TABLE>
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $20,628 100.0% $ 24,503 100.0% $ 30,966 100.0%
Cost of sales 20,371 98.8 21,794 88.9 27,103 87.5
------ ---- ------ ----- ------ -----
Gross profit 257 1.2 2,709 11.1 3,863 12.5
Distribution, general and administrative expenses 2,651 12.9 2,253 9.2 2,066 6.7
----- ---- ----- ----- ----- ----
Operating income (loss) (2,394) (11.6) 456 1.9 1,797 5.8
Interest income (expense), net (175) (.8) 18 .1 (58) (.2)
Other income, net 2,637 12.8 3,326 13.6 279 .9
------- ---- -------- ----- --------- ----
Earnings before income taxes 68 .3 3,800 15.5 2,018 6.5
Income taxes 30 .1 1,558 6.4 764 2.5
------- ---- -------- ----- --------- ----
Net earnings $ 38 .2% $ 2,242 9.2% $ 1,254 4.0%
======= ==== ======= ==== ====== ====
Sales in thousands of pounds by division
Swiss American 9,152 10,473 13,903
Royal-Angelus 14,913 18,762 21,284
</TABLE>
Comparison of Years Ended December 31, 1999 and 1998
- ----------------------------------------------------
In 1999, sales of $20,628,000 were down 16% from 1998 sales of $24,503,000.
Both divisions contributed to the decline in sales.
The meat division's sales were down about 14% in dollars and 9% in pounds
and it operated at a $2,837,000 loss for 1999 compared to a $556,000 loss for
1998. Swiss's sales for the 4th quarter of 1999 were up 46% in dollars and 44%
in pounds from the 4th quarter of 1998. Sales in dollars changed proportionately
more than in pounds because selling prices were lower during most of 1999, but
increased in the 4th quarter, reflecting meat costs. Swiss was experiencing
modest growth and increased profits when the August 1, 1998 fire destroyed its
main meat plant. Swiss attempted to maintain volume by purchasing processed
products from other suppliers for its customers, but after the fire until the
new plant commenced operations, Swiss's sales were down almost $1,000,000 per
month. Most of Swiss's $2,837,000 operating loss in 1999 was offset by
$2,613,000 of business interruption insurance proceeds included in other income.
Installation of equipment at the new plant is almost complete, and during the
4th quarter of 1999, sales of product produced at the new plant increased and
Swiss operated at a modest profit.
The pasta division's sales decreased about 19% in dollars and 21% in pounds
and its operating income decreased 52% in 1999 from 1998. The pasta division's
sales for the 4th quarter of 1999 were down 16% in dollars and 11% in pounds
from the same quarter of 1998. The sales decreases in dollars compared to pounds
were proportionately less for the year but more for the 4th quarter because
average selling prices were higher for most of 1999 but decreased in the 4th
quarter, corresponding to changes in the proportion of lower volume-higher
priced sales. The decreases in sales reflect competition resulting from
increased industry capacity.
The Company's gross profit for 1999 was $257,000 or 1.2% of net sales
compared to $2,709,000 or 11.1% of net sales for 1998. Gross profit decreased
absolutely and as a percent of sales because of the higher costs incurred at
Swiss as a result of purchasing processed products from other suppliers.
Distribution, general and administrative expenses for 1999 were up about 18%
from 1998. Distribution expenses were up about $182,000 because of increased
freight and sales-person payroll and expense at Swiss and increased truck-rental
expense at Royal. Administrative expenses were up about $216,000 primarily due
to increased outside services, bank charges, clerical payroll, depreciation,
printing and travel. Increased outside services resulted in part from the union
election at Royal. Printing reflects new stationery and advertising for the new
meat plant and additional travel costs were incurred between the old and the new
meat plant sites.
-8-
<PAGE>
Net interest changed from income in 1998 to an expense in 1999 because of
additional interest on the industrial development bonds and equipment loans and
borrowings under the bank line. Other income for both 1999 and 1998 included
insurance proceeds relating to the meat plant fire and decreased in 1999 from
1998 because more insurance proceeds were recognized as income in 1998.
Comparison of Years Ended December 31, 1998 and 1997
- ----------------------------------------------------
In 1998, sales of $24,503,000 were down 21% from 1997 sales of $30,966,000,
primarily because of decreased sales at the meat division following the August
1, 1998 fire which destroyed its main meat plant.
The meat division's sales were down about 28% in dollars and 25% in pounds
and its operating income was down 152% in 1998 from 1997. Swiss's sales for the
4th quarter of 1998 were down 57% in dollars and 54% in pounds from the 4th
quarter of 1997. Sales in dollars decreased proportionately more than in pounds
because of lower selling prices reflecting lower meat costs. Swiss was
experiencing modest growth and increased profits until the August 1, 1998 fire
destroyed its main meat plant. Swiss attempted to maintain volume until its new
meat plant was operational by purchasing products from other suppliers for its
customers, but after the fire, Swiss's sales were almost $1,000,000 per month
lower and Swiss has operated at a loss, realizing a pre-tax profit only after
taking into account the benefits of business interruption insurance.
The pasta division's sales decreased about 4% in dollars and 12% in pounds
but its operating income increased 40% in 1998 from 1997. The pasta division's
sales for the 4th quarter of 1998 were down 35% in dollars and 45% in pounds
from the same quarter of 1997. The sales decreases in pounds did not result in
proportionate decreases in dollars because of higher average selling prices from
a lower proportion of high volume-lower priced sales. The decreases in sales in
pounds reflected competition resulting from increasing industry capacity. The
large decrease in the 4th quarter of 1998 partly reflected a surge in sales a
year ago, when sales for the 4th quarter of 1997 were up 44% in dollars and
62% in pounds over the 4th quarter of 1996.
Royal's increased operating income resulted from high production labor
efficiency, a lower proportion of high-volume sales and lower flour costs. The
cost of semolina flour was near pre-1993 levels after an increase of about 50%
in 1993.
The Company's gross profit for 1998 was $2,709,000 or 11.1% of net sales
compared to $3,863,000 or 12.5% of net sales for 1997. Gross profit decreased
absolutely and as a percent of sales because of the higher costs incurred at
Swiss as a result of purchasing processed products from other suppliers after
the fire. Distribution, general and administrative expenses for 1998 were up
about 9% from 1997. Distribution expenses were up about $67,000 because of
increased sales person payroll and expense, increased officer payroll and
commissions at Royal, and increased promotional expense at Swiss, partially
offset by lower freight on lower sales at Swiss. Administrative expenses were up
about $119,000 primarily due to increased officer payroll, health care costs and
outside services, partially offset by lower bad debt expense.
Net interest changed from an expense in 1997 to income in 1998 because of
the absence of borrowings under the bank line, a lower balance on the term loan,
prepayment of the term loan and interest income on higher cash balances. Other
income increased because of recognition of $1,747,000 of business interruption
insurance proceeds.
Liquidity and Capital Resources
- -------------------------------
The August 1, 1998 fire at the Company's main meat plant destroyed $1,112,435
net book value of inventory and $474,835 net book value of equipment and
leasehold improvements. The Company and the insurance company have settled
claims arising from the fire for $8,011,000, including $1,189,000 for inventory,
$2,022,000 for equipment and leasehold improvements and $4,800,000 for business
interruption. The Company recognized $5,204,738 of the insurance claim proceeds
in 1998 and the balance in 1999, including $2,613,000 for business interruption
in 1999.
The Company has generally satisfied its normal working capital requirements
with funds derived from operations and borrowings under its $2,000,000 bank line
of credit with Comerica Bank-California. At December 31, 1999, the Company had
$2,000,000 of borrowings under the bank line of credit. The line is payable on
demand, is subject to annual review, and bears interest at a variable annual
rate, at the Company's option, of either 1.75% over the bank's cost of funds or
0.25% under its "Base Rate."
The bank line of credit is part of a credit facility under which the bank
has issued a $4,060,000 letter of credit to support $4,000,000 of industrial
development bonds issued in 1998 for costs of the Company's new meat plant. The
bonds mature October 1, 2023 and the letter of credit expires October 15, 2003.
The bank is not obligated to renew the letter of credit, but the Company is
obligated to maintain a like letter of credit until the bonds mature. The bonds
bear a variable rate of interest payable monthly and set weekly at a market
rate, initially 3.15% per annum, 5.3% at December 31, 1999 and 2.9% at
January 31, 2000. The Company pays a 1.5% per annum commitment fee on the
amount of the letter of credit and fees of the bond trustee estimated at 0.5% of
the bond principal per year. Monthly payments of bond principal begin May 1,
2000, total $76,700 the first year and increase about 5.6% each year until May
1, 2022, when $813,500 of remaining principal is payable in 18 equal monthly
payments.
-9-
<PAGE>
Also as part of the credit facility, the bank has made four loans to the
Company to finance the new meat plant, a $1,280,000 real estate loan in December
1999 with a 25 year term bearing interest at the rate of 9.1% per annum and
three equipment loans, a $1,000,000 loan in July 1999 with a 7 year term bearing
interest at the bank's "Base Rate," a $1,200,000 loan in September 1999 with a
seven year term bearing interest at the bank's "Base Rate" plus 0.25% and a
$414,788 loan in December 1999 with a five year term bearing interest at the
bank's "Base Rate" plus 0.75%. The real estate loan bears a fixed rate of
interest and is payable in equal monthly payments of principal and interest over
its term.
All parts of the credit facility are secured by substantially all of the
Company's assets, including acccounts receivable, inventory, equipment and
fixtures, the Company's two Chino buildings and the new meat plant, none of
which is otherwise encumbered. The credit facility prohibits mergers,
acquisitions, disposal of assets, borrowing, granting security interests, and
changes of management and requires a tangible net worth greater than $7,500,000,
a debt to tangible net worth ratio less than 2, a quick ratio greater than 0.90,
and cash flow coverage greater than 1.30. The Company was in default under the
quick-asset-ratio covenant at December 31, 1999 and the bank has waived the
default.
In 1999, the Company completed the construction of a 85,000 square foot
meat plant on a 5.3 acre parcel of land in Lathrop, California, for a total cost
for land, building, improvements and equipment through December 31, 1999 of
$12,511,000. The cost includes the cost replacing equipment lost in the fire
for which insurance proceeds of $1,856,000 were received. In December 1999, the
Company purchased an additional 2 acres of land adjacent to the meat plant for
$205,000, to be used for possible future expansion of the meat plant. The
installation of equipment at the meat plant is substantially complete and is
expected to be completed in the 1st quarter of 2000 at an estimated additional
cost of $204,000.
The pasta division has three short-good lines but only one long-goods line.
The division's short-goods production capacity is more than adequate to meet
foreseeable demand, but the division has recently had opportunities for the sale
of long-goods which exceeded the division's production capabilities.
Consequently, the Company has ordered a second long-goods line with a 17,000,000
pound per year capacity, subject to obtaining financing. The cost of
purchase and installation of the line is estimated at $2,300,000. General
Electric Capital Corporation has agreed to make a fixed-rate 7 year equipment
loan for the line at a rate to be determined and Comerica has consented to the
loan. The purchase also requires a letter of credit which has not yet been
obtained.
Additions to property and equipment of about $100,000 are anticipated for
2000, plus the cost of the long-goods line and completing the new meat plant.
In 1999 cash increased about $718,000. Operating activities produced about
$319,000, primarily from depreciation and a decrease in the insurance recovery
receivable, offset by increased inventories. The decrease in the insurance
recovery receivable reflects payment of insurance proceeds from the fire.
Inventories increased because of commencement of operations at the new meat
plant. Investing activities used about $9,173,000, primarily for the new plant.
Financing activities produced about $9,573,000 from meat plant loan proceeds,
borrowings under the bank line and a decrease in restricted cash, reduced by the
excess of cash dividends paid over net stock proceeds. The restricted cash was
industrial development bond loan proceeds disbursed for meat plant construction
costs.
In 1998 cash, including restricted cash, increased about $2,987,000. The
restricted cash is industrial development bond proceeds disbursable for
construction costs. Operating activities produced about $3,523,000, primarily
from earnings, depreciation, large decreases in accounts receivable and
inventories, and an increase in deferred taxes, partially offset by an increase
in other receivables. Investing activities used about $3,587,000, primarily for
land purchase, progress payments and other capitalized costs of a new plant at
Swiss. Financing activities produced about $3,051,000 from the proceeds of the
industrial development bonds, reduced by prepayment of the term loan and by the
excess of cash dividends paid over net stock proceeds. Accounts receivable and
inventories decreased because of the fire and subsequent reduced sales at Swiss.
The deferred taxes arose from a gain of insurance proceeds exceeding the net
book value of leasehold improvements and equipment lost in the fire. The gain is
not currently taxable but reduces future tax deductions for depreciation on the
replacement improvements and equipment. The other receivables are unpaid
insurance proceeds relating to the fire.
In 1997 cash increased about $824,000. Operating activities produced about
$1,508,000 primarily from earnings, depreciation, a decrease in inventories and
an increase in accounts payable, partially offset by an increase in accounts
receivable and a decrease in accrued liabilities. Investing activities used
about $299,000 of cash for property and equipment at both divisions, including
retail packaging and faster sausage linking machines at Swiss. Financing
activities used about $385,000 for dividends and the term loan pre-payment,
offset by net stock proceeds. Inventories were down and accounts receivabe up
because the surge of sales in the 4th quarter depleted inventories and generated
accounts receivable.
In 2000 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 $167,474 in 1999.
The Company believes that its operations and bank line of credit will
provide adequate working capital to satisfy the normal needs of its operations
for the foreseeable future, including cash flow to service the debt incurred to
finance the new meat plant and to service an equipment lease of the new long-
goods line.
New Accounting Standards
- ------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities" in June 1998. SFAS No. 133, as amended by SFAS No. 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. Application of this Standard, in the opinion of management, will not have
a material effect on the information presented.
Y2K
- ---
Many computer programs used only the last two digits of a year to store or
process dates or did not provide for incrementing the first two digits of a
year. This is the Y2K defect and was expected to cause computers to malfunction,
if not corrected. The company has experienced no material Y2K-related problems
in 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The $4,000,000 industrial development bonds, the $2,000,000 bank line of credit,
and the $2,614,788 of equipment loans bear variable rates of interest (see
Liquidity and Capital Resources under Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations and see Note 5 of
Notes to Financial Statements) which tend to follow market interest rates and
increase the interest expense to the Company if interest rates increase. A 1%
per annum increase in the rate born by the industrial development bonds would
increase annual interest expense by almost $40,000. Assuming an average bank
line of credit balance of $1,OOO,OOO plus the $2,614,000 of equipment loans, a
1% per annum increase in the rate born by those borrowings would increase annual
interest expense by almost $36,000.
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. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 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 67, has been a vice president and director of the
Company since its formation in 1972, General Counsel from 1986 to 1992, Chief
Executive Officer from 1992 to February 21, 1998 and Chairman of the Board since
1992. He is a member of the audit and option committees.
-11-
<PAGE>
Theodore L. Arena, age 57, has been the General Manager of Swiss since
1976, and the President and a director of the Company since 1985. He has been
the Chief Executive Officer since 1998. He is the nephew of Louis A. Arena, a
director of the Company.
Ronald A. Provera, age 62, has been the secretary and a director of the
Company since its formation in 1972 and was the General Manager of Sav-On Food
Co., the Company's distribution business, 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 63, 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 the General Manager of the pasta division. He is a member of the
option committee.
Thomas J. Mulroney, age 54, 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.
Louis A. Arena, age 77, 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.
Joseph W. Wolbers, age 70, 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 63, 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, 1999, 1998
and 1997, all compensation of all executive officers of the Company serving at
December 31, 1999.
<TABLE>
Annual Restricted SEP/IRA
Name and Position Year Salary Option Award Contributions
----------------- ---- ------ ------------ -------------
Shares
<S> <C> <C> <C> <C>
John D. Determan, 1999 $80,637 $12,096
Chairman of the Board 1998 80,771 12,116
1997 65,658 9,849
Theodore L. Arena, 1999 127,344 19,102
President and 1998 133,749 20,062
Chief Executive Officer 1997 110,790 91,458 16,618
Ronald A. Provera, 1999 127,536 19,130
Secretary 1998 129,641 19,466
1997 105,414 15,812
Santo Zito, 1999 129,640 19,446
Vice President 1998 132,806 19,921
1997 108,195 16,229
Thomas J. Mulroney, 1999 127,757 19,164
Chief Financial Officer 1998 129,793 19,469
1997 105,552 18,291 15,833
</TABLE>
-12-
<PAGE>
The Company does not currently pay bonuses or deferred compensation to any
executive officer and does nor provide them with automobiles, other perquisites,
employment contracts or "golden parachute" arrangements. Effective November 1,
1997, Mr. Determan's basic annual salary was raised from $60,000 to $75,000 and
the basic annual salary of each of the other four officers was raised from
$100,000 to $125,000. 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.
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-l/2 may be subject to tax penalties.
For 1999, the Company contributed $419,340 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 1992, options were granted to purchase 260,000 shares at a price of
$2-1/4 per share, 150,000 to Theodore L. Arena, 30,000 to Thomas J. Mulroney,
and the balance to four other employees. In April 1997, outstanding options of
Messrs. Arena and Mulroney to purchase 60,000 and 12,000 shares, respectively,
were terminated and options were granted to Messrs. Arena and Mulroney to
purchase 91,458 and 18,291 shares, respectively, at a price of $2-9/16 per
share.
In 1997 and 1998, options were exercised to purchase 20,400 and 10,000
shares, respectively, none by executive officers. In 1999, Mr. Mulroney
exercised options to purchase 2,638 shares. The following table shows, for the
two executive officers, the number of shares acquired on exercise of options in
1999, the value realized on exercise of options based on the year end closing
price of $2-3/4, the number of unexercised options held on January 1, 2000, and
their aggregate value based on the year end closing price. All unexercised
options are exercisable.
Aggregate Option Exercises in 1999 and Option Values at January 1, 2000
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Acquired Value Number of Unexercised Value of Unexercised In-the-
Name on Exercise Realized Options at 1/1/00 Money Options at 1/1/00
- ---- --------------- -------- --------------------- ---------------------------
<S> <C> <C> <C> <C>
Theodore L. Arena -0- -0- 91,458 $ 17,148
Thomas J. Mulroney 2,638 $ 495 15,653 $ 2,935
</TABLE>
-13-
<PAGE>
Compensation of Directors
- -------------------------
Directors who are not officers or employees are paid a fee of $1,000 for
each board meeting or board committee meeting attended.
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 (8
persons), the number and percent of outstanding shares of common stock of the
Company owned on December 31, 1999.
<TABLE>
<CAPTION>
Shares Beneficially Owned
------------------------------------------------------
Without Options(5) Options Exercised(6)
--------------- -----------------
Name or Category Number Percent Number Percent
---------------- ------ ------- ------ ---------
<S> <C> <C> <C> <C>
John D. Determan 335,327 11.3% 335,327 10.9%
Penny S. Bolton (2) 378,463 12.7% 378,463 12.3%
Theodore L. Arena 140,994 4.7% 232,452 7.5%
Ronald A. Provera (3) 322,330 10.8% 322,330 10.5%
Santo Zito 352,330 11.9% 352,330 11.4%
Thomas J. Mulroney (4) 18,338 .6% 33,991 1.1%
Louis A. Arena 288,030 9.7% 288,030 9.4%
John M. Boukather 2,868 .l% 2,868 .l%
Joseph W. Wolbers 12,250 .4% 12,250 .4%
Officers and Directors 1,472,467 49.5% 1,579,578 51.3%
Shares Outstanding 2,972,029 100% 3,079,140 100%
- -------------------------------------------------------------------------------------------------------------------
</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) Includes 320,930 shares held by the family trust of Ronald A. Provera
and his wife, Madelyn M. Provera.
(4) Includes 3,800 shares owned by Marsha Mulroney, wife of Thomas J.
Mulroney.
(5) Excludes options under the Company's Incentive Stock Option Plan to
Theodore L. Arena to purchase 91,458 shares, to Thomas J. Mulroney to
purchase 15,653 shares and to all officers and directors as a group to
purchase 107,111 shares.
(6) The options of Messrs. Arena, Mulroney 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 1999, officers and directors purchased the
following numbers of shares of the Company's common stock: 1st quarter, John M.
Boukather - 18 shares; 2nd quarter, Mr. Boukather - 1,019, Thomas J. Mulroney -
2,638; 3rd quarter, Mr. Boukather - 25; 4th quarter, Mr. Boukather - 28, Marsha
Mulroney, wife of Mr. Mulroney- 1,800. No sales and no other purchases of the
Company's common stock by officers or directors were reported during the year.
Based on copies of filed forms and written representations, the Company
believes that all officers, directors and l0'% shareholders have timely filed
all Forms 3, 4 and 5 required for 1999 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 FORM 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 (l), (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)
3.13 Amendment to Bylaws of the Company re President as Chief Executive
Officer (10)
4.3 Form of Certificate evidencing common stock (8)
10.2 1987 Incentive Stock Option Plan, as amended to date (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)
10.36 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 (9)
10.37 First Amendment to Lease dated December 18, 1995 between Company and
R-Cold, Inc. and Therma-Lok, Inc. (10)
10.38 Construction/Development Agreement Between Owner, Contractor and
Developer dated June 19, 1998 among Swiss as owner, A. P. Thomas
Construction Inc. as contractor and Catlin Properties, Inc., as
developer (10)
10.39 Master Revolving Note and Security Agreement, both dated July 14,
1998 between the Company and Comerica Bank-California, relating to
the Company's $2,000,000 line of credit (10)
10.40 Collective Bargaining Agreement dated April 1, 1998 between Swiss and
United Food and Commercial Workers Union Local 101, AFL-CIO (10)
10.41 Loan Agreement dated October 1, 1998 between the California Economic
Development Financing Authority and the Company (10)
10.42 Remarketing Agreement dated October 1, 1998 between the Company and
Dain Rauscher Incorporated (10)
10.43 Purchase Contract among the California Economic Development Financing
Authority, the Treasurer of the State of California and Dain Rauscher
Incorporated (10)
10.44 Tax Regulatory Agreement dated October 1, 1998 among the California
Economic Development Financing Authority, U. S. Bank Trust National
Association, as trustee, and the Company (10)
10.45 Building Loan Agreement dated October 1, 1998 between the Company and
Comerica Bank-California (10)
10.46 Reimbursement Agreement dated October 1, 1998 between the Company and
Comerica Bank-California (10)
10.47 Loan Modification Agreement dated December 29, 1999 between the
Company and Comerica Bank-California
10.48 Variable Rate-Installment Note for $1,000,000 dated July 28, 1999
between the Company and Comerica Bank-California for equipment - two
other notes differ only as to date, amount, rate and maturity as
follows: 9/29/99, $1,200,000, "Base Rate" + 0.25%, 10/l/06; and
12/6/99, $414,788, "Base Rate" + 0.75%, 12/6/04
23.1 Consent of KPMG LLP
27 EDGAR Financial Data Schedule
</TABLE>
- --------------------------------------------------------------------------------
(1) Exhibit to Form S-l Registration Statement filed May 11, 1987
(2) Exhibit to Amendment No. 2 to Form S-l Registration Statement filed June
17, 1987
(3) Exhibit to Amendment No. 3 to Form S-l 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
(9) Exhibit to 1995 Form 10-K Annual Report
(10) Exhibit to 1998 Form 10-K Annual Report
-15-
<PAGE>
Reports on Form 8-K
- -------------------
During the year ended December 31, 1999 the Company filed no reports on
Form 8-K.
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 26, 2000 PROVENA FOODS INC.
By:
-----------------------------
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>
Chairman of the Board and Director February 26, 2000
- ---------------------
John D. Determan
President (Principal Executive February 26, 2000
- --------------------- Officer) and Director
Theodore L. Arena
Vice President, Sales, Secretary February 26, 2000
- --------------------- and Director
Ronald A. Provera
Vice President and Director February 26, 2000
- ---------------------
Santo Zito
Chief Financial Officer (Principal February 26, 2000
- --------------------- Financial and Accounting Officer)
Thomas J. Mulroney
Director February 26, 2000
- ---------------------
Louis A. Arena
Director February 26, 2000
- ---------------------
Joseph W. Wolbers
Director February 26, 2000
- ---------------------
John M. Boukather
</TABLE>
-16-
<PAGE>
[LOGO OF KPMG]
PROVENA FOODS INC.
Financial Statements and Schedule
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE>
Provena Foods Inc.
Index to Financial Statements and Schedule
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Balance Sheets - December 31, 1999 and 1998 F-3
Statements of Earnings - Years ended December 31, 1999, 1998 and 1997 F-4
Statements of Shareholders' Equity - Years ended December 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997 F-6
Notes to Financial Statements F-7
Schedule
II - Valuation and Qualifying Accounts and Reserves F-18
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF KPMG]
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, 1999 and 1998 and the related statements of earnings, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1999. In connection with our audits of the financial statements,
we also have audited the accompanying 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 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, 1999 and 1998 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1999 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.
/s/ KPMG LLP
Orange County, California
January 29, 2000
F-2
<PAGE>
PROVENA FOODS INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets (Note 5) 1999 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 834,154 116,306
Accounts receivable, net of allowance for doubtful accounts of
$32,166 and $0 at December 31, 1999 and 1998,
respectively (notes 4 and 12) 2,316,771 1,638,022
Insurance recovery receivable (note 15) -- 2,204,738
Inventories (notes 2 and 4) 2,852,657 1,458,369
Prepaid expenses 61,409 59,118
Income taxes receivable (note 8) 318,353 --
----------- ----------
Total current assets 6,383,344 5,476,553
Restricted cash (note 5) -- 3,960,224
Deferred tax assets (note 8) 43,481 73,504
Property and equipment, net (notes 3 and 4) 16,118,648 7,602,040
Other assets 199,052 167,342
----------- ----------
$22,744,525 17,279,663
=========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Line of credit (note 4) $ 2,000,000 --
Current portion of long-term debt (note 5) 462,418 --
Accounts payable 1,122,394 1,118,294
Accrued liabilities (note 6) 920,075 989,443
Income taxes payable (note 8) -- 107,960
----------- ----------
Total current liabilities 4,504,887 2,215,697
----------- ----------
Long-term debt, net of current portion (note 5) 7,329,991 4,000,000
Deferred tax liability (note 8) 571,916 584,519
Shareholders' equity (notes 7, 9 and 10):
Common stock, no par value; authorized 10,000,000 shares;
2,972,029 and 2,913,098 shares issued and outstanding at
December 31, 1999 and 1998, respectively 4,746,716 4,572,482
Retained earnings 5,591,015 5,906,965
----------- ----------
Total shareholders' equity 10,337,731 10,479,447
Commitments and contingencies (notes 5, 9, 13 and 14)
----------- ----------
$22,744,525 17,279,663
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PROVENA FOODS INC.
Statements of Earnings
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net sales (note 12) $20,627,542 24,502,571 30,966,339
Cost of sales 20,370,542 21,794,109 27,103,198
----------- ---------- ----------
Gross profit 257,000 2,708,462 3,863,141
----------- ---------- ----------
Operating expenses:
Distribution 1,237,224 1,055,130 987,948
General and administrative (note 9) 1,413,659 1,197,643 1,078,225
----------- ---------- ----------
2,650,883 2,252,773 2,066,173
----------- ---------- ----------
Operating income (loss) (2,393,883) 455,689 1,796,968
Other income (expense):
Interest income 55,684 105,790 18,155
Interest expense (notes 4 and 5) (231,041) (87,348) (75,985)
Other, net (note 15) 2,637,233 3,325,831 279,257
----------- ---------- ----------
Earnings before income taxes 67,993 3,799,962 2,018,395
Income taxes (note 8) 29,897 1,558,183 763,776
----------- ---------- ----------
Net earnings $ 38,096 2,241,779 1,254,619
=========== ========== ==========
Earnings per common share (note 11):
Basic $ .01 .78 .44
=========== ========== ==========
Diluted $ .01 .77 .44
=========== ========== ==========
Shares used in computing per common share amounts (note 11):
Basic 2,946,138 2,890,516 2,836,434
=========== ========== ==========
Diluted 2,961,364 2,923,868 2,854,939
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PROVENA FOODS INC.
Statements of Shareholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common stock Total
----------------------------------- Retained shareholders'
Shares issued Amount earnings equity
--------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 2,798,021 $4,257,760 3,098,855 7,356,615
Repurchase of common stock (7,795) (22,498) -- (22,498)
Sale of common stock (note 9) 55,355 141,485 -- 141,485
Exercise of shares under
stock option plan (note 10) 20,400 45,900 -- 45,900
Cash dividends paid, $.12 per
share -- -- (340,983) (340,983)
Net earnings -- -- 1,254,619 1,254,619
--------- ---------- --------- ----------
Balance at December 31, 1997 2,865,981 4,422,647 4,012,491 8,435,138
Repurchase of common stock (5,842) (22,500) -- (22,500)
Sale of common stock (note 9) 42,959 149,835 -- 149,835
Exercise of shares under
stock option plan (note 10) 10,000 22,500 -- 22,500
Cash dividends paid, $.12 per
share -- -- (347,305) (347,305)
Net earnings -- -- 2,241,779 2,241,779
--------- ---------- --------- ----------
Balance at December 31, 1998 2,913,098 4,572,482 5,906,965 10,479,447
Sale of common stock (note 9) 56,293 167,474 -- 167,474
Exercise of shares under
stock option plan (note 10) 2,638 6,760 -- 6,760
Cash dividends paid, $.12 per
share -- -- (354,046) (354,046)
Net earnings -- -- 38,096 38,096
--------- ---------- --------- ----------
Balance at December 31, 1999 2,972,029 $4,746,716 5,591,015 10,337,731
========= ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PROVENA FOODS INC.
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 38,096 2,241,779 1,254,619
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 565,124 452,848 535,119
Loss on disposal of fixed assets 91,761 -- 803
Provision for bad debts 32,166 -- 36,241
Deferred income taxes 17,420 612,294 (94,430)
Changes in assets and liabilities:
Accounts receivable (710,915) 1,474,498 (740,464)
Insurance recovery receivable 2,204,738 (2,204,738) --
Inventories (1,394,288) 1,220,749 249,560
Prepaid expenses (2,291) (13,658) 4,850
Income taxes receivable (318,353) -- --
Other assets (31,710) (124,139) 6,378
Accounts payable 4,100 (5,526) 453,226
Accrued liabilities (69,368) (132,625) (262,857)
Income taxes payable (107,960) 9,415 74,085
Deferred income -- (7,752) (9,305)
----------- ---------- ----------
Net cash provided by operating
activities 318,520 3,523,145 1,507,825
----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of property and equipment 16,408 -- 3,655
Additions to property and equipment (9,189,901) (3,587,367) (302,496)
----------- ---------- ----------
Net cash used in investing activities (9,173,493) (3,587,367) (298,841)
----------- ---------- ----------
Cash flows from financing activities:
Payments on note payable to bank (102,379) (751,735) (208,460)
Proceeds from line of credit 2,000,000 -- --
Issuance of long-term debt 3,894,788 4,000,000 --
Decrease (increase) in restricted cash 3,960,224 (3,960,224) --
Repurchase of common stock -- (22,500) (22,498)
Proceeds from sale of common stock 167,474 149,835 141,485
Exercise of stock options 6,760 22,500 45,900
Cash dividends paid (354,046) (347,305) (340,983)
----------- ---------- ----------
Net cash provided by (used in)
financing activities 9,572,821 (909,429) (384,556)
----------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 717,848 (973,651) 824,428
Cash and cash equivalents at beginning of period 116,306 1,089,957 265,529
----------- ---------- ----------
Cash and cash equivalents at end of period $ 834,154 116,306 1,089,957
=========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 305,453 78,484 73,511
Income taxes 426,048 939,589 787,855
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(1) Summary of Significant Accounting Policies
(a) 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).
(b) Inventories
Inventories consist principally of food products and are stated at the
lower of cost (first-in, first-out) or market.
(c) Property and Equipment
Property and equipment are stated at cost. Assets acquired prior to
1981 and subsequent to 1986 are depreciated on the straight-line
method. For assets acquired during the period from 1981 through 1986,
accelerated methods of depreciation are used. Estimated useful lives
are as follows:
Buildings and improvements 31.5 to 39 years
Machinery and equipment 10 years
Delivery equipment 5 years
Office equipment 7 years
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
investments with maturities of three months or less at date of purchase
to be cash equivalents.
(e) Earnings per Share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share" (SFAS No.
128). This statement replaces the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
All earnings per share amounts have been restated to conform to the
SFAS No. 128 requirements (see note 11).
(f) Income Taxes
Income taxes are accounted for 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
F-7
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
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.
(g) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(h) Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities are measured at cost which
approximates their fair value because of the short maturity of these
instruments. The carrying amount of the Company's borrowings under the
line of credit and long-term debt approximates its fair value because the
interest rate on the instrument fluctuates with market interest rates.
(i) Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
or fair value less costs to sell.
(j) Stock Option Plan
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," establishing accounting and disclosure requirements using
a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected
to continue to apply the intrinsic value-based method of accounting in
accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
The Company follows the disclosure requirements of SFAS No. 123.
(k) Segment Information
In June 1997, the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which the Company adopted in 1998. The Company has two
reportable segments.
(l) Reclassifications
Certain amounts in the prior year's financial statements have been
reclassified to conform with the 1999 presentation.
F-8
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(m) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes rules for the reporting and display of comprehensive
income and its components. The Company does not have any components of
other comprehensive income, and accordingly, the Company's comprehensive
income is the same as its net income.
(n) Revenue Recognition
Revenue is recognized upon shipment of goods to customers.
(2) Inventories
<TABLE>
<CAPTION>
A summary of inventories follows:
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 1,108,731 335,725
Work in process 660,204 115,034
Finished goods 1,083,722 1,007,610
------------ ------------
$ 2,852,657 1,458,369
============ ============
</TABLE>
(3) Property and Equipment
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land $ 1,296,803 1,091,706
Buildings and improvements 13,130,402 2,728,087
Machinery and equipment 5,068,969 4,151,622
Delivery equipment 6,700 28,599
Office equipment 168,616 118,338
Construction in progress 59,329 3,225,797
------------ ------------
19,730,819 11,344,149
Less accumulated depreciation and
amortization (3,612,171) (3,742,109)
------------ -------------
$ 16,118,648 7,602,040
============ =============
</TABLE>
The Company leases certain real property to outside parties under
noncancelable operating leases. Rental income, included in other income,
totaled approximately $101,000, $99,000 and $106,000 in 1999, 1998 and
1997, respectively.
F-9
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(4) Line of Credit
The Company has a $2,000,000 secured bank line of credit, due on demand
with no stated expiration date, at an interest rate of bank prime (8.5%
at December 31, 1999) minus .25%. The line of credit is secured by
accounts receivable, inventory and equipment. At December 31, 1999 the
Company had borrowings under this line of credit of $2,000,000. There
were no borrowings outstanding under this line of credit at December 31,
1998. The bank line of credit agreement is subject to certain covenants
for which the Company was in default under the quick ratio covenant at
December 31, 1999. The bank has waived the default through March 31,
2000. The Company will be subject to the same covenant at March 31, 2000
and the Company believes they will be in compliance at that time.
(5) Long-Term Debt
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Equipment loans at variable interest rates from prime (8.5% at
December 31, 1999) to prime plus .75%, secured by all Company
assets. Maturity dates range from 2004 through 2006
$ 2,512,409 --
Real estate loan at fixed rate of 9.1%, secured by all Company
assets, monthly principal and interest payments of $10,830,
due and payable in 2004 1,280,000 --
Industrial Development Revenue Bonds (IDRB) at variable interest
rate (5.3% at December 31, 1999), secured by an irrevocable
letter of credit, and requiring monthly principal and interest
payments ranging from $6,400 to $45,200 beginning in 2000
through the year 2023 4,000,000 4,000,000
--------------- -------------
7,792,409 4,000,000
Less current portion 462,418 --
--------------- -------------
$ 7,329,991 4,000,000
=============== =============
</TABLE>
The $4,060,000 irrevocable letter of credit securing the IDRB, is
collateralized by accounts receivable, inventories, equipment and certain
real property. The commitment fee is 1.5% per annum, due at the beginning
of each quarter.
The proceeds from the IDRB issued in 1998 were held in trust and released
as qualified capital expenditures were made. At December 31, 1998,
$3,960,224, was held in trust and classified as "restricted cash" in the
Company's 1998 balance sheet.
The installments of long-term debt maturing in each of the next five
years and thereafter are: 2000 - $462,418, 2001 - $492,185, 2002 -
$498,078, 2003- $504,443, 2004 - $511,226 and thereafter - 5,324,059.
F-10
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(6) Accrued Liabilities
<TABLE>
<CAPTION>
A summary of accrued liabilities follows:
1999 1998
---- ----
<S> <C> <C>
Accrued profit sharing (note 9) $419,340 424,327
Accrued retirement 83,722 147,444
Accrued compensation 132,825 137,224
Other 284,188 280,448
-------- -------
$920,075 989,443
======= =======
</TABLE>
(7) Shareholders' Equity
In 1998 and 1997, the Company repurchased shares of its common stock in
negotiated transactions and retired the shares purchased. The Company
sold shares to employees under its stock purchase plan (note 9) in 1999,
1998 and 1997.
(8) Income Taxes
Income taxes (benefit) for the years ended December 31, 1999, 1998 and
1997 consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
------- ------- -------
Current:
Federal $ -- 611,799 680,035
State 12,477 334,090 178,171
Deferred:
Federal 23,422 577,374 (56,366)
State (6,002) 34,920 (38,064)
------ --------- -------
$29,897 1,558,183 763,776
====== ========= =======
</TABLE>
The sources and tax effects of temporary differences between the financial
statement carrying amounts and tax basis of assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory $ 26,328 --
Accounts receivable 12,911 --
Depreciation 1,396 3,146
State taxes 2,846 70,358
------ ------
Total deferred tax assets $ 43,481 73,504
====== ======
Deferred tax liability - gain on destroyed equipment $571,916 584,519
======= =======
</TABLE>
F-11
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
Based on the Company's historical pretax earnings, adjusted for significant
items such as nonrecurring charges, management believes it is more likely
than not that the Company will realize the benefit of deferred tax assets
existing at December 31, 1999. Management believes the existing deductible
temporary differences will reverse during periods in which the Company
generates net taxable income. Nevertheless, certain tax planning or other
strategies will be implemented, if necessary, to supplement income from
operations to fully realize recorded tax benefits.
Actual income taxes differ from "expected" income taxes, computed by applying
the U.S. Federal corporate tax rate of 34% to earnings from operations before
income taxes, as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- -------------------------- ------------------------
Amount % Amount % Amount %
------------ ----------- -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" income taxes
$ 23,117 34.0% $ 1,291,987 34.0% $ 686,254 34.0%
State income taxes, net of Federal
income tax
benefit 4,208 6.2 221,705 5.8 117,593 5.8
Change in valuation
allowance -- -- -- -- (28,545) (1.4)
Other 2,572 3.8 44,491 1.2 (11,526) (.6)
------------ ------------ -------------- ------------ ------------ ------------
$ 29,897 44.0% $ 1,558,183 41.0% $ 763,776 37.8%
============ ============ ============== ============ ============ ============
</TABLE>
(9) 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 1999, 1998 and 1997 were approximately $419,000, $424,000 and
$392,000, 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 common 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 common 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
matching contributions to the stock purchase plan for 1999, 1998 and 1997
were $83,737, $74,918 and $70,743, respectively.
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).
(10) Incentive Stock Option Plan
Under a stock option plan (the Plan) adopted in 1987, the Company has
awarded options to certain of its key employees to purchase common stock
at prices which approximate fair market value of the stock at the date of
grant. The Plan provides for a maximum grant of 261,704 shares. All stock
options have a maximum ten-year term and become fully exercisable in
accordance with a predetermined vesting schedule that varies by employee.
F-12
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
There were no options granted in 1999 or 1998. The per share weighted-
average fair value of stock options granted during 1997 was $0.95 on the
date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield of 1%,
risk-free interest rate of 6.7%, volatility of 35% and an expected life
of 8 years.
The Company applies the intrinsic-value based method of APB Opinion No.
25 in accounting for its Plan and, accordingly, no compensation cost has
been recognized for its stock options in the financial statements. Had
the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net
earnings would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings As reported $ 38,096 2,241,779 1,254,619
Pro forma 29,673 2,217,369 1,218,761
============== ========= =========
Net earnings per share As reported:
Basic $ .01 .78 .44
Diluted .01 .77 .44
=============== =============== ===============
Pro forma:
Basic $ .01 .77 .43
Diluted .01 .76 .43
=============== =============== ===============
</TABLE>
Pro forma net earnings reflect only options granted since December 31,
1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected
over the options' vesting period and compensation cost for options
granted prior to January 1, 1996 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted-average
Number of shares exercise price
-------------------- --------------------
<S> <C> <C>
Balance at December 31, 1996 102,445 $ 2.25
Granted 109,749 2.56
Exercised (20,400) 2.25
Terminated (72,045) 2.25
--------------- ----------------
Balance at December 31, 1997 119,749 2.54
Exercised (10,000) 2.25
--------------- ---------------
Balance at December 31, 1998 109,749 2.56
Exercised (2,638) 2.56
--------------- ---------------
Balance at December 31, 1999 107,111 $ 2.56
=============== ===============
</TABLE>
F-13
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
At December 31, 1999, the exercise price and remaining contractual life of
outstanding options was $2.56 and 7 years, respectively.
At December 31, 1999 and 1998, the number of options exercisable was 107,103
and 96,291, respectively, and the weighted-average exercise price of those
options was $2.56.
(11) Earnings Per Share
The following table illustrates the computation of basic and diluted earnings
per share under the provisions of SFAS No. 128:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Numerator:
<S> <C> <C> <C>
Numerator for basic and diluted earnings
per share - net earnings $ 38,096 2,241,779 1,254,619
============== ============== ==============
Denominator:
Denominator for basic earnings per
share - weighted average number of
common shares outstanding during the
period 2,946,138 2,890,516 2,836,434
Incremental common shares attributable
to exercise of outstanding options 15,226 33,352 18,505
------------- ------------- -------------
Denominator for diluted earnings per share 2,961,364 2,923,868 2,854,939
============== ============== ==============
Basic earnings per share $ .01 .78 .44
============== ============== ==============
Diluted earnings per share $ .01 .77 .44
============== ============== ==============
</TABLE>
Substantially all options were included in the computation of diluted
earnings per share for 1999, 1998 and 1997.
(12) Segment Data and Major Customers
The Company's reportable business segments are strategic business units
that offer distinctive products that are marketed through different
channels. The Company has two reportable segments; the meat processing
division (Swiss American) and the pasta division (Royal-Angelus). The
Swiss American Division produces meat products that are sold primarily to
pizza restaurant chains, pizza processors and food service distributors.
The Royal-Angelus Division produces pasta that is sold primarily to food
processors, private label customers, food service distributors and
specialty food distributors.
F-14
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
The following table represents financial information about the Company's
business segments as of and for the three years ended December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Net sales to unaffiliated customers:
<S> <C> <C> <C>
Swiss American Division $ 13,254,827 15,358,867 21,460,415
Royal-Angelus Division 7,372,715 9,143,704 9,505,924
--------------- --------------- ---------------
Total sales $ 20,627,542 24,502,571 30,966,339
=============== =============== ===============
Operating income (loss):
Swiss American Division $ (2,836,568) (555,721) 1,072,749
Royal-Angelus Division 533,974 1,111,545 794,617
Corporate (91,289) (100,135) (70,398)
--------------- --------------- ---------------
Operating income (loss) $ (2,393,883) 455,689 1,796,968
=============== =============== ===============
Identifiable assets:
Swiss American Division $ 17,122,578 12,651,307 5,214,515
Royal-Angelus Division 4,286,900 4,405,736 5,098,629
Corporate 1,335,047 222,620 1,225,914
---------------- --------------- ---------------
Total assets $ 22,744,525 17,279,663 11,539,058
================ ================ ================
Capital expenditures:
Swiss American Division $ 8,984,911 3,288,356 241,686
Royal-Angelus Division 204,990 293,413 60,810
Corporate -- 5,598 --
---------------- ---------------- -----------------
Total capital expenditures $ 9,189,901 3,587,367 302,496
================ ================ ================
Depreciation and amortization:
Swiss American Division $ 268,256 155,742 201,537
Royal-Angelus Division 291,196 291,508 327,995
Corporate 5,672 5,598 5,587
---------------- ---------------- ----------------
Total depreciation and amortization
$ 565,124 452,848 535,119
================ ================ ================
</TABLE>
The Company had major customers during 1999, 1998 and 1997 that accounted for
more than 10% of consolidated sales and purchased products, as follows:
<TABLE>
<CAPTION>
Accounts receivable
1999 1998 1997 balance at December 31
---------------------------- ----------------------- ----------------------- --------------------------
Customer Sales % Sales % Sales % 1999 1998
- -------------- ------------- ---------- ------------- ------- ------------- ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A $ 1,397,090 7% $ 2,626,616 11% $ 7,356,414 24% $ 180,663 206,465
B 3,316,544 16 2,987,405 12 3,275,088 11 -- --
C 2,555,701 12 2,727,134 11 -- - 360,223 283,106
============= ========== ============= ====== ============== ======= ============= =========
</TABLE>
F-15
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(13) Commitments and Contingencies
Rent expense for all leases was approximately $197,000, $405,000 and
$396,000 in the years ended December 31, 1999, 1998 and 1997,
respectively.
As of December 31, 1999, approximately 54% of the Company's employees
are covered by a collective bargaining agreement which expires
March 31, 2002.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. Although occasional adverse decisions or
settlements may occur, the Company believes the final disposition of such
matters will not have a material adverse effect on its financial
position, results of operations or liquidity.
(14) Self-Insured Health Benefits
The Company is self-funded for Company provided health insurance benefits
for its nonunion employees. The profit or loss effects of self-insuring
cannot be foreseen and may be adverse. The Company has a reinsurance
policy which covers claims in excess of $40,000 for any covered
individual.
(15) Casualty Loss
On August 1, 1998, a fire destroyed one of the Company's two meat
processing facilities located in San Francisco, CA. The destroyed
facility was being leased under an operating lease that expired on
November 1, 1998. The fire destroyed inventory with a net book value of
$1,112,435 and certain equipment and leasehold improvements with a net
book value of $474,835. The inventory was insured at market value and the
equipment and leasehold improvement were insured at replacement cost. The
Company was also reimbursed for incremental operating costs under its
"Business Interruption & Extra Expense" coverage. Total insurance
proceeds recognized in 1999 and 1998 were $2,806,262 and $5,204,738
respectively, which resulted in gains of $2,806,262 and $3,204,342 which
are included in other income in the accompanying 1999 and 1998 statements
of earnings, respectively. The claim has been completely settled and all
amounts have been fully collected as of December 31, 1999.
F-16
<PAGE>
PROVENA FOODS INC.
Notes to Financial Statements
December 31, 1999 and 1998
(16) Selected Quarterly Financial Data (Unaudited)
The following summarizes certain unaudited quarterly financial
information for 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Quarter
-------------------------------------------------------------
Fiscal 1999 1st 2nd 3rd 4th Total
- ------------------------------------ ------------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 4,935,510 4,773,677 5,069,039 5,849,316 20,627,542
Operating income (loss) (654,068) (863,419) (1,103,399) 227,003 (2,393,883)
Net income (loss) 255,234 218,531 (513,197) 77,528 38,096
Net income (loss) per basic share 0.09 0.07 (0.17) 0.02 0.01
Net income (loss) per diluted share 0.09 0.07 (0.17) 0.02 0.01
============= =========== ============= =========== ==========
Fiscal 1998 1st 2nd 3rd 4th Total
- ------------------------------------ ------------- ----------- ------------ ----------- ----------
Net sales $ 7,353,290 6,407,691 5,867,974 4,873,616 24,502,571
Operating income (loss) 575,711 292,509 106,751 (519,282) 455,689
Net income 368,207 194,191 383,307 1,296,074 2,241,779
Net income per basic share 0.13 0.07 0.13 0.45 0.78
Net income per diluted share 0.13 0.07 0.13 0.44 0.77
============= =========== ============= =========== ==========
Fiscal 1997 1st 2nd 3rd 4th Total
- ------------------------------------ ------------- ----------- ------------ ----------- ----------
Net sales $ 6,554,377 6,517,624 8,126,492 9,767,846 30,966,339
Operating income 96,855 79,391 659,454 961,268 1,796,968
Net income 64,547 82,077 479,320 628,675 1,254,619
Net income per basic share 0.02 0.03 0.17 0.22 0.44
Net income per diluted share 0.02 0.03 0.17 0.22 0.44
==============================================================================
</TABLE>
F-17
<PAGE>
PROVENA FOODS INC.
Schedule II: Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Balance at Deductions -
beginning of Provision, net uncollectible Balance at end
Description period of recoveries accounts of period
- ------------------------------------ ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful
receivables:
1999 $ -- 32,166 -- 32,166
================== ================== ================== ==================
1998 $ 10,934 -- 10,934 --
================== ================== ================== ==================
1997 $ -- 36,241 25,307 10,934
================== ================== ================== ==================
</TABLE>
See accompanying independent auditors' report.
F-18
<PAGE>
EXHIBIT 10.47
LOAN MODIFICATION AGREEMENT
---------------------------
This Loan Modification Agreement ("Agreement") is made this 29th day of
December, 1999, by and between PROVENA FOODS INC., a California corporation
("Borrower"), and COMERICA BANK-CALIFORNIA, a California banking corporation
("Lender").
RECITALS
--------
This Agreement is entered into upon the basis of the following facts and
understandings of the parties, which facts and understandings are acknowledged
by the parties to be true and accurate:
A. Pursuant to a Reimbursement Agreement by and between Lender and
Borrower date October 1, 1998 (the "Reimbursement Agreement"), Lender issued a
letter of credit (the "Letter of Credit") for the account of Borrower in the
amount of Four Million Sixty Thousand Dollars ($4,060,000) to support an
issuance of tax exempt bonds used to finance the purchase and construction of a
manufacturing project located in the City of Lathrop, County of San Joaquin,
State of California (the "Project").
B. Borrower's obligations under the Reimbursement Agreement and all
documents, instruments and agreements executed in connection for the
Environmental Indemnity, defined in Recital C below, are secured by, among other
things, a Deed of Trust, Security Agreement and Fixture Filing (With Assignment
of Rents and Leases) dated October 1, 1998, encumbering the Project, which Deed
of Trust was recorded on October 19, 1998, in the Official Records, Office of
the County Recorder of San Joaquin County, State of California as Instrument
Number 98123385 (the "Project Deed of Trust") and a Deed of Trust, Security
Agreement and Fixture Filing (With Assignment of Rents and Leases) dated October
1, 1998, encumbering certain real property owned by Borrower which Deed of Trust
was recorded on October 7, 1998, in the Official Records, Office of the County
Recorder of San Bernardino County, State of California, as Instrument Number 98-
427954 (the "Chino Deed of Trust") (collectively, the "Deeds of Trust").
C. In addition, in connection with the issuance of the Letter of Credit,
Borrower executed an Environmental Indemnity dated October 1, 1998, in favor of
Lender (the "Environmental Indemnity dated October 1, 1998, in favor of Lender
(the "Environmental Indemnity"). The Environmental Indemnity is not secured by
either of the Deeds of Trust.
D. Borrower's obligations under the Reimbursement Agreement are further
secured by a Security Agreement dated October 1, 1998 (the "Security
Agreement"), perfected by a Financing Statement, UCC-1, filed in the Office of
the California Secretary of State on August 25, 1998, 1998, filing number
98-23860616. Lender's security interest in the personal property described in
the Deeds of Trust is perfected by a Financing Statement, UCC-1, recorded in the
Official Records of San Joaquin County on Instrument No. 98123386 on October 19,
1998 and by a Financing Statement UCC-1 recorded in the Official Records of San
Bernardino County as Instrument No. 19980454719 on October 26, 1998.
1
<PAGE>
E. The Reimbursement Agreement, the Deeds of Trust, the Security
Agreement and all other documents and instruments executed by Borrower in
connection with the issuance of the Letter of Credit (as amended by this
Agreement) are collectively referred to herein as the "Loan Documents". Unless
otherwise defined herein, the capitalized terms used herein shall have the
definitions set forth in the Loan Documents.
F. Borrower has requested that Lender make an additional loan to
Borrower in the principal amount of One Million Two Hundred Eighty Thousand
Dollars ($1,280,000)(the "New Loan").
G. Lender is willing to consent to make the New Loan on the terms and
conditions set forth herein, provided that on or before Effective Date (defined
below) Lender is in receipt of (i) the Recorded Notice of Completion for the
Project, (ii) the Certificate of Occupancy for the Project, issued by the City
of Lathrop, and (iii) all U.S. Department of Agriculture permits necessary for
the operation of the Project.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained in this Agreement, the parties hereto agree as follows:
1. Recitals. The foregoing recitals of facts and understandings of the
--------
parties are incorporated herein as the agreement of the parties.
2. New Loan. The New Loan shall be evidenced by a promissory note in
--------
the form attached hereto as Exhibit A executed by Borrower in favor of Lender
(the "New Note"). On or before the Effective Date, Borrower shall deliver to
Lender the New Note.
3. Interest Rate; Payment Terms. Subject to the occurrence of the
----------------------------
Effective Date, the terms of the New Note are as follows:
(a) Interest Rate. Commencing on the date of the initial advance
-------------
of the New Loan, amounts outstanding under the New Note shall accrue interest at
the rate of nine and 10/100 percent (9.10%) per annum.
Except as expressly set forth in this Agreement to the contrary, interest
shall be computed and shall be payable on the basis described in the New Note.
From and after the maturity date (whether by acceleration or otherwise,
and before as well as after judgment) amounts outstanding under the New Note
shall accrue interest at the default interest rate set forth in the New Note.
(b) Payments Terms. Principal and interest shall be payable as
--------------
follows:
(i) Commencing on the date of the initial advance of the
New Loan, and continuing thereafter on the first date of each month until the
principal and all accrued interest are fully paid, monthly installments of
principal and interest in the amount of Ten Thousand Eight Hundred Twenty-Nine
and 50/100 Dollars ($10,829.50), together with interest accrued on the principal
balance outstanding under the New Note from time to time at the rate set forth
above, except that the final payment of all outstanding principal and all
accrued interest, if not paid sooner, shall be due and payable on December 29,
2024.
2
<PAGE>
No partial payment shall affect the obligation of Borrower to pay the next and
subsequent regular installments payable thereunder until the entire balance of
principal and interest shall have been paid in full.
(c) Interest Accrual. From the date of the initial advance of the
----------------
New Loan, interest shall continue to accrue on amounts outstanding under the New
Note at the rate specified therein. All accrued interest shall be due and
payable on the maturity date.
4. Supplements to Deed of Trust. On or before the Effective Date,
----------------------------
Borrower shall deliver to Lender a duly executed and acknowledged supplement to
each Deed of Trust, which supplements shall be in the form attached hereto as
Exhibit B (each individually, an "Agreement Supplementing Deed of Trust," and
- ---------
collectively, the "Agreements Supplementing Deeds of Trusts"). The Agreement
Supplementing Deed of Trust relating to the Project property shall be recorded
on or before the Effective Date in the Official Records of San Joaquin County
and the Agreement Supplementing Deed of Trust relating to the property subject
to the Chino Deed of Trust (the "Chino Property") shall be recorded on or before
the Effective Date in the Official Records of San Bernardino County. Any
reference to the Deeds of Trust herein or in any other Loan Documents shall mean
the Deeds of Trust as supplemented by the Agreements Supplementing Deeds of
Trust.
5. Amendment of the Security Agreement and Environmental Agreement. The
---------------------------------------------------------------
Security Agreement and the Environmental Agreement are hereby supplemented and
amended to provide that such Security Agreement and Environmental Indemnity
secure the payment of all amounts due under the New Note.
6. Effective Date. For purposes of this Agreement, the term "Effective
--------------
Date" shall mean the date upon which all the following conditions have been
satisfied:
(a) there shall have been delivered to Lender each of the following,
in form and substance satisfactory to Lender and its outside counsel, duly
executed and acknowledged as appropriate:
(i) this Agreement;
(ii) the New Note;
(iii) the Agreements Supplementing Deeds of Trust;
(iv) a CLTA 108.8 and 110.5 endorsement on each of Lender's
existing title policies for the Project and the Chino Property;
(v) the Recorded Notice of Completion for the Project;
(vi) the Certificate of Occupancy for the Project, issued by
the City of Lathrop; and
(vii) all the U.S. Department of Agriculture permits necessary
for the operation of the Project.
3
<PAGE>
(b) Borrower shall have paid the fees and expenses of Lender's
outside counsel, as described in Section 7 below, as well as any title insurance
fees and escrow fees and other costs and expenses incurred or payable by Lender
or Borrower in connection herewith.
If the foregoing conditions and any other conditions set forth in this
Agreement shall not have been satisfied and all other covenants and agreements
by Borrower set forth herein shall not have been performed on or before January
31, 2000, Lender, in its sole discretion, shall have the right at any time
thereafter to terminate this Agreement by giving Borrower written notice of such
termination. Upon the giving of such notice, this Agreement shall terminate and
the agreements of Lender contained herein shall be null and void.
7. Payment of Expenses. Borrower shall pay all reasonable out-of-pocket
-------------------
expenses of Lender (including but not limited to fees and costs of Lender's
outside counsel) incident to the preparation, execution and delivery of this
Agreement (including work performed prior to the date hereof).
8. Events of Default. If one or more of the following described events
-----------------
shall occur, it shall be an "Event of Default" under this Agreement, the New
Note, the Reimbursement Agreement, the Deeds of Trust and the Loan Documents:
(a) Borrower shall fail to perform or observe any of the
provisions of this Agreement, the New Note, the Deeds of Trust or the Loan
Documents.
9. Representations and Warranties. As an inducement to Lender to enter
------------------------------
into this Agreement, Borrower hereby reaffirms as of the date hereof all
representations and warranties set forth in the Loan Documents and further
represents and warrants to Lender as follows:
(a) Borrower is a corporation duly organized, validly existing,
and in good standing under the laws of the State of California, and is
authorized to do business in each jurisdiction in which its ownership of
property or conduct of business legal requires such authorization, and has full
power, authority, and legal right to own its properties and assets and to
conduct its business as currently conducted.
(b) Borrower has full power, authority and legal right to execute
and deliver, and to perform and observe the provisions of, this Agreement and
any documents executed pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby.
(c) The execution, delivery, and performance by Borrower of its
obligations under this Agreement have been duly authorized by all necessary
action, and do not and will not require any registration with consent or
approval of, notice to, or any action by, any person. The documents specified
above constitute legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
(d) The execution and delivery of this Agreement and the documents
executed pursuant to this Agreement, and compliance with their respective terms
as contemplated herein, will not result in a breach of any of the terms or
conditions of, or result in the imposition of any lien, charge, or encumbrance
upon any properties of Borrower pursuant to, or constitute a default (or result
in an occurrence of any event for which any holder of holders of indebtedness
for
4
<PAGE>
money borrowed may declare the same due and payable) under any indenture,
agreement, order, judgment, or instrument under which Borrower is a party or by
which Borrower or its property may be bound or affected, and will not violate
any provision of applicable law.
(e) There are no actions, suits or proceedings pending, or to the
knowledge of Borrower threatened, against or affecting Borrower at law or in
equity, before or by any person, which, if adversely determined, would have a
material adverse effect on the business, properties, or condition (financial or
otherwise) of Borrower, nor is Borrower in violation or default with respect to
any order, writ, injunction, demand or decree of any court or any person or in
violation or default in any material respect under any indenture, agreement or
other instrument under which Borrower is a party or may be bound under which the
consequences of such default might materially and adversely affect the business,
properties or condition (financial or otherwise) of Borrower.
(f) Borrower has good and marketable title to the Project, and the
Project is not subject to any lien, claim or interest (including any
encumbrance, security interest or mechanics' or materialmen's lien), except for
those shown as Exceptions Nos. 1 through 13 of Lender's Preliminary Title Report
issued by Chicago Title Insurance Company under their Order No. 3019780-DK dated
May 28, 1999, and the Chino Property is not subject to any lien, claim or
interest (including any encumbrance, security interest or mechanics' or
materialmen's lien), except for those shown as Exceptions Nos. 1 through 6 of
Lender's Preliminary Title Report issued by Benefit Land Title Insurance Company
under their Order No. 5920135.12 dated June 3, 1999.
10. Release. Borrower does hereby release, discharge and acquit Lender,
-------
and its officers, directors, shareholders, agents and employees, and their
respective successors, heirs and assigns, (collectively, the "Release Parties")
of and from any and all rights, claims, demands, obligations, liabilities,
indebtedness, breaches of contract, breaches of duty or any relationship, acts,
omissions, misfeasance, malfeasance, causes of action, promises, damages, costs,
losses and expenses of every kind, nature, description or character, and
irrespective of how, why, or by reason of what facts, which could or may be
claimed to exist, whether known or unknown, suspected or unsuspected, liquidated
or unliquidated, claimed or unclaimed, whether based on contract, tort, breach
of any duty, or other legal or equitable theory of recovery, each as though
fully set forth herein at length, which in any way arise out of, are connected
with or relate to the Loan, as the same has been modified by this Agreement, or
the administration of the Loan, as well as any action or inaction of the
Released Parties or any of them with respect to the Loan or the administration
thereof. Notwithstanding the foregoing, this release shall not apply to the
extent of any such rights, claims or the like arising from any acts or omissions
of the Released Parties after the Effective Date.
As to all matters being released by Borrower pursuant to the provisions
hereof, Borrower waives any and all rights which it may have under the
provisions of California Civil Code section 1542 or under any comparable statute
or rule of law. California Civil Code section 1542 provides;
5
<PAGE>
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release which if known by him must have materially affected his
settlement with the debtor.
11. Relationship to Loan Documents. All terms and conditions of the Loan
------------------------------
Documents shall be and remain in full force and effect until the Note and all
other amounts secured by the Deeds of Trust or payable by Borrower to Lender
hereunder shall have been paid in full. Any reference to any of the Loan
Documents from and after the Effective Date shall mean the Loan Documents as
amended and modified by this Agreement. In the event of any inconsistency
between the provisions of this Agreement and the Loan Documents, the provisions
of this Agreement shall control.
12. Relationship of Lender and Borrower. Lender and Borrower intend that
-----------------------------------
the relationship between them shall be solely that of creditor and debtor.
13. Entire Agreement. This Agreement (together with its exhibits) and the
----------------
Loan Documents constitute the entire agreement between the parties with respect
to the subject matter hereof. This Agreement (together with its exhibits)
supersedes all previous negotiations, discussions and agreements between the
parties, and no parol evidence of any prior or other agreement shall be
permitted to contradict or vary the terms hereof.
14. Further Documents. The parties hereto agree to execute and
-----------------
acknowledge further documents, and to do such other acts as may be reasonably
necessary to carry out the terms, provisions and intent of this Agreement.
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California.
16. Successors and Assigns. This Agreement shall be binding on and inure
----------------------
to the benefit of the successors and assigns of the parties hereto.
17. Counterparts. This Agreement may be executed in counterparts which
------------
together shall constitute but one and the same original.
18. Attorneys' Fees. In the event that legal proceedings or actions,
---------------
whether legal or equitable (including a case or a proceeding under the
Bankruptcy Code, or any successor statute thereto), are initiated to enforce or
interpret any term or provision of this Agreement or to enforce payment of
Borrower's obligations to Lender, the prevailing party shall be entitled to
recover from the other party reasonable expenses, including attorneys' fees and
costs.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
BORROWER:
--------
PROVENA FOODS INC.,
a California corporation
By: Thomas J. Mulroney
----------------------------
Its: CFO
----------------------------
LENDER:
------
COMERICA BANK-CALIFORNIA,
a California Banking Corporation
By:
----------------------------
Its: ----------------------------
7
<PAGE>
NOTE SECURED BY DEED OF TRUST
(FIXED RATE, AMORTIZING)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BORROWER'S NAME AND ADDRESS OFFICER MATURITY
DATE
- --------------------------------------------------------------------------------
<S> <C> <C>
Provena Foods, Inc., David Jackson December 29,
5010 Eucalyptus Avenue 2024
Chino, California 91710
- --------------------------------------------------------------------------------
</TABLE>
$1,280,000 Chino, California December 29, 1999
FOR VALUE RECEIVED, PROVENA FOODS, INC., a California corporation ("Borrower"),
jointly and severally, promise(s) to pay to the order of COMERICA BANK-
CALIFORNIA, a California Banking Corporation ("Lender"), at its office at 333 W.
Santa Clara Street, 2nd Floor, San Jose, California 95113, or at such other
place as the holder of this Note may from time to time designate in writing, the
principal sum of One Million Two Hundred Eighty Thousand Dollars ($1,280,000),
or so much thereof as may be advanced from time to time, together with interest
from date hereof computed on the principal balances hereof from time to time
outstanding at the rate of nine and 10/100 percent (9.10%) per annum. Principal
and interest shall be payable in monthly installments of Ten Thousand Eight
Hundred Twenty-Nine and 50/100 Dollars ($10,829.50) each on the first day of
each calendar month commencing with the first day of February, 2000 and
continuing until December 29, 2024 (the "Maturity Date"), on which date the
entire balance of principal and interest then unpaid shall be due and payable.
Interest shall be computed daily based upon a three hundred sixty (360) day year
for the actual number of days elapsed. Should interest not be paid when due, it
shall become part of the principal and thereafter bear interest as herein
provided. Each payment shall be credited first to interest then due and the
remainder to principal. If, on the due date of the first installment of
principal and interest, interest is due and accrued for a period of more, or
less, than one month, the amount of said installment shall be increased or
decreased to the extent that the amount of interest due and accrued exceeds or
is less than one month's interest.
Should default be made in the payment of principal or interest when due or in
the performance or observance when due of any term, covenant or condition of any
deed of trust, security agreement or other agreement (including amendments and
extensions thereof) securing or pertaining to this Note, then, at the option of
the holder hereof and without notice or demand, the entire balance of principal
and accrued interest then remaining unpaid shall become immediately due and
payable and thereafter bear interest, until paid in full, at the increased rate
of five percent (5%) per annum over and above the interest rate contracted for
herein as it may vary from time to time. Borrower acknowledges and agrees that
during the time that any payment or principal, interest or other amounts due
under this Note is delinquent, the holder will incur additional costs and
expenses attributable to its loss of use of the money due and to the adverse
impact on the holder's ability to avail itself of other opportunities.
Borrower acknowledges and agrees that it is extremely difficult and impractical
to ascertain the extent of such costs and expenses and that proof of actual
damages would be costly or inconvenient. Borrower therefore agrees that interest
at the increased rate of five percent (5%) per annum over and above the interest
rate contracted for in
1
<PAGE>
this Note represents a reasonable sum considering all the circumstances existing
on the date of this Note and represents a fair and reasonable estimate of such
costs and expenses. No delay or omission on the part of the holder hereof in
exercising any right hereunder, or under any such deed of trust, security
agreement or other agreement shall operate as a waiver of such right or of any
other right under this Note or under any such deed of trust, security agreement
or other agreement.
If any payment of principal or interest under this Note shall not be made within
ten (10) calendar days of the date due, a late charge of five percent (5%) of
the overdue amount may be charged by the holder for the purpose of defraying the
expenses incident to handling such delinquent payments. Borrower acknowledges
and agrees that it is extremely difficult and impractical to ascertain the
extent of such expenses and that proof of actual damages would be costly or
inconvenient. Borrower therefore agrees that such late charge represents a
reasonable sum considering all of the circumstances existing on the date of this
Note and represents a fair and reasonable estimate of the costs that will be
sustained by the holder due to the failure of Borrower to make timely payments.
Such late charge shall be paid without prejudice to the right of the holder to
collect any other amounts provided to be paid or to declare a default under this
Note or under the Deeds of Trust referred to in this Note or from exercising any
of the other rights and remedies of the holder, including, without limitation,
the right to declare the entire balance of principal and accrued interest then
remaining unpaid immediately due and payable.
In no event shall interest accrue or be payable hereon or under any such deed of
trust, security agreement or other agreement in excess of the maximum amount of
interest permitted on the date hereof by the laws of the State of California.
If this Note is not paid when due, whether at its specified or accelerated
maturity date, Borrower promises to pay all costs of collection and enforcement
of this Note, including, but not limited to, reasonable attorneys' fees and
costs, incurred by the holder hereof on account of such collection or
enforcement, whether or not suit is filed hereon.
Principal and interest shall be payable in lawful money of the United States
without setoff, demand or counterclaim. Borrower waives the defense of the
statute of limitations in any action on this Note. Presentment, notice of
dishonor, and protest are waived by all makers, sureties, guarantors and
endorsers of this Note. Such parties expressly consent to any extension of the
time of payment hereof or any installment hereof, to any renewal, and to the
release of any or all of the security given for the payment of this Note or the
release of any party liable for this obligation.
Borrower agrees that Lender may provide any financial or other information, data
or material in Lender's possession relating to Borrower, the Loan, this Note,
the property or the improvements, to Lender's parent, affiliate, subsidiary,
participants or service providers, without further notice to Borrower.
This Note is secured by, among other things, a deed of trust, dated as of
October 1, 1998, encumbering certain property located in the County of San
Joaquin, State of California and a deed of trust dated as of October 1, 1998,
encumbering certain property located in the County of
<PAGE>
San Bernardino, State of California (each individually, the "Deed of Trust" and
collectively, the "Deeds of Trust").
The Deeds of Trust securing the obligation evidenced hereby contain the
following provision: "That should Trustor sell, convey, transfer, dispose of or
further encumber said property or any part thereof or any interest therein or
enter into a lease covering all or any portion thereof or an undivided interest
therein, either voluntarily, involuntarily or otherwise, or enter into an
agreement so to do, without the prior written consent of Beneficiary being first
had and obtained, then Beneficiary may, at its option, declare all sums secured
hereby immediately due and payable. Consent to one such transaction shall not be
deemed to be a waiver of the right to require such consent to future or
successive transactions."
Borrower may prepay this Note in whole or in part on any interest payment date
without penalty upon thirty (30) days prior written notice to holder. No
partial prepayment shall affect the obligation of Borrower to pay the next and
subsequent regular installments payable hereunder until the entire balance of
principal and interest shall have been paid in full.
BORROWER:
--------
PROVENA FOODS, INC.
By: Thomas J. Mulroney
------------------------
Its: CFO
-----------------------
NOTICE: THIS NOTE CONTAINS PROVISIONS FOR A VARIABLE INTEREST RATE WHICH MAY
RESULT IN INCREASES IN THE INTEREST RATE AND IN MONTHLY INSTALLMENTS.
<PAGE>
[LOGO of Comerica]
EXHIBIT 10.48
VARIABLE RATE-INSTALLMENT NOTE
- --------------------------------------------------------------------------------
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION#
$1,000,000.00 July 28, 1999 July 01, 2006 95-2782215
- --------------------------------------------------------------------------------
For Value Received, the undersigned promise(s) to pay to the order of Comerica
---------
Bank-California ("Bank"), at any office of the Bank in the State of California
- ---------------- -----------
One Million and no/100 Dollars (U.S.) in
- ----------------------------------------------------------
installments of $ 11,904.76 each Plus interest on the unpaid
---------------- ----------
balance from the date of this Note at a per annum rate equal to the Bank's base
rate from time to time in effect plus 0.000% per annum until maturity,
--------- ------
whether by acceleration or otherwise, or until Default, as later defined, and
after that at a default rate equal to the rate of interest otherwise prevailing
under this Note plus 3% per annum (but in no event in excess of the maximum rate
permitted by law). Interest shall be calculated for the actual number of days
the principal is outstanding on the basis of a 360 day year if this Note
evidences a business or commercial loan or a 365 day year if a consumer loan.
The Bank's "base rate" is that annual rate of interest so designated by the Bank
and which is changed by the Bank from time to time. Interest rate changes will
be effective for interest computation purposes as and when the Bank's base rate
changes. Installments of principal and accrued interest due under this Note
shall be payable on the 1st day of each MONTH , commencing
----------- ---------------
September 01, 1999 , and the entire remaining unpaid balance of
- ---------------------------
principal and accrued interest shall be payable on the Maturity Date set forth
above. If the frequency of principal and interest installments is not
otherwise specified, installments of principal and interest due under this Note
shall be payable monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on July 01,
-----------
2006 . In the event this Note evidences a business or commercial loan and
- --------
the Bank's base rate changes, the Bank, at its sole option, may from time to
time recalculate the periodic installment amount so that the remaining periodic
installments will fully amortize the remaining loan balance within the remaining
amortization term in equal installments at the interest rate then being charged
under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS
THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO
TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE
OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment
under this Note shall become payable on a day other than a day on which the Bank
is open for business, this payment may be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by the Bank (except as
required under applicable law), but if accepted shall apply to the installments
last falling due. A late installment charge equal to 5% of each late
installment may be charged on any installment payment not received by the Bank
within 10 calendar days after the installment due date, but acceptance of
payment of this charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness" are secured by and the Bank is granted a security interest in all
items deposited in any account of any of the undersigned with the Bank and by
all proceeds of these items (cash or otherwise), all account balances of any of
the undersigned from time to time with the Bank, by all property of any of the
undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place, or (ii) if the undersigned (or any of them)
has (have) given or give(s) Bank a deed of trust or mortgage covering real
property, that deed of trust or mortgage shall not secure this Note or any other
indebtedness of the undersigned (or any of them), unless expressly provided to
the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s)
to pay any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation: or (d) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (e) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (f) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (g) if the Bank deems itself insecure, believing that the
prospect of payment of this Note or any of the Indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, it this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contact or other instrument, or (b) if the title to the mortgaged premises shall
become vested in any other person or party in any manner whatsoever, or (c) if
there is any disposition (through one or more transactions) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge
<PAGE>
available under Section 3-605 of the California Uniform Commercial Code and
waive(s) all other suretyship defenses or right to discharge. The undersigned
agree(s) that the Bank has the right to sell, assign, or grant participations,
or any interest, in any or all of the Indebtedness, and that, in connection with
this right, but without limiting its ability to make other disclosures to the
full extent allowable, the Bank may disclose all documents and information which
the Bank now or later has relating to the undersigned or the Indebtedness. The
undersigned agree(s) that the Bank may provide information relating to this Note
or to the undersigned to the Bank's parent, affiliates, subsidiaries and
service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, endorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall contine to be
effective. THIS NOTE IS MADE IN THE STATE OF California AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF California,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
The maximum interest rate shall not exceed the highest applicable usury ceiling.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
Provena Foods, Inc.
By: Thomas J. Mulroney Its: CFO
-----------------------------------------------------------------
Signature of Title
By: Its:
-----------------------------------------------------------------
Signature of Title
By: Its:
-----------------------------------------------------------------
Signature of Title
By: Its:
-----------------------------------------------------------------
Signature of Title
<TABLE>
<CAPTION>
5010 Eucalyptus Avenue Chino CA USA 91710
- --------------------------------------------------------------------------------------------------------------------------------
STREET ADDRESS CITY STATE COUNTRY ZIP CODE
- --------------------------------------------------------------------------------------------------------------------------------
For Bank Use Only
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name CCAR#
SM San Jose Corporate Provena Foods, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor# Note# Amount
48132 95938 6300285773 $1,000,000.00
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[KPMG LOGO] EXHIBIT 23.1
Center Tower
650 Town Center Drive
Costa Mesa, CA 92626
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
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 January 29, 2000,
relating to the balance sheets of Provena Foods Inc. as of December 31, 1999 and
1998, and the related statements of earnings, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1999,
and the related schedule, which report appears in the December 31, 1999 annual
report on Form 10-K of Provena Foods Inc.
KPMG LLP
Orange County, California
March 16, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 814,683
<SECURITIES> 19,471
<RECEIVABLES> 2,348,937
<ALLOWANCES> 32,166
<INVENTORY> 2,852,658
<CURRENT-ASSETS> 6,383,344
<PP&E> 19,730,819
<DEPRECIATION> 3,612,171
<TOTAL-ASSETS> 22,731,614
<CURRENT-LIABILITIES> 4,504,887
<BONDS> 7,329,991
0
0
<COMMON> 4,746,716
<OTHER-SE> 5,591,015
<TOTAL-LIABILITY-AND-EQUITY> 22,731,614
<SALES> 20,672,542
<TOTAL-REVENUES> 23,311,830
<CGS> 20,370,542
<TOTAL-COSTS> 2,650,883
<OTHER-EXPENSES> 13,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255,844
<INCOME-PRETAX> 67,993
<INCOME-TAX> 29,897
<INCOME-CONTINUING> 38,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,096
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
