10-K

UNITED STATES

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, 2004

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 or organization)	(I.R.S. employer 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 April 8, 2005 was $2,581,360.

The number of shares of Provena Foods Inc. Common Stock outstanding on April 8, 2005 was 3,441,814.

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

PROVENA FOODS INC.

2004 FORM 10-K ANNUAL REPORT

Table of Contents

Item		Page
	PART I
1.	Business	1
2.	Properties	5
3.	Legal Proceedings	6
4.	Submission of Matters to a Vote of Security Holders	6
	PART II
5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	6
6.	Selected Financial Data	8
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	9
7A.	Quantitative and Qualitative Disclosure About Market Risk	15
8.	Financial Statements and Supplementary Data	15
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	15
9A.	Controls and Procedures	15
9B.	Other Information	15
	PART III
10.	Directors and Executive Officers of the Registrant	15
11.	Executive Compensation	16
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	18
13.	Certain Relationships and Related Transactions	19
14.	Principal Accountant Fees and Services	19
	PART IV
15.	Exhibits and Financial Statement Schedules	19
	Signatures	21

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PART I

ITEM 1. BUSINESS

Forward-Looking Statements

The discussions throughout this report contain “forward-looking statements” which express or imply expectations of future performance, developments or occurrences. There can be no assurance that these expectations will be fulfilled, since actual events may differ materially due to uncertainties relating to the Company’s performance, the economy, competition, demand, commodities, credit markets, energy supplies and other factors.

Risk Factors

Among the factors that could materially adversely affect the business, financial condition or results of operations of Provena Foods Inc. (the “Company”) are the following:

Ability to Obtain Financing. The Company has recorded a material operating loss and negative operating cash flow for 2004, which raises substantial doubt about the Company’s ability to fund its reasonably foreseeable working capital requirements and to continue as a going concern. The Company has a credit facility with Comerica Bank which includes a line of credit, loans and letters of credit aggregating over $12,000,000. Because of the Company’s poor operating results, Comerica demanded to be replaced, the Company commenced seeking a new lender for the credit facility, and on March 28, 2005, Comerica demanded payment of the obligations under the credit facility and agreed to a forbearance from judicial action to collect the obligations which forbearance expires no later than December 15, 2005. On April 12, 2005, the Company accepted a preliminary proposal from a new lender to refinance the credit facility, but the preliminary proposal is not a commitment and the Company may be unable find a new lender to refinance the credit facility. See Credit Facility under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Workers’ Compensation Claims. Beginning in 2003, the annual cost of being fully insured against workers’ compensation claims approximately tripled from $700,000 to $2,000,000. To reduce costs, the Company elected to purchase modified workers’ compensation insurance under which the insurance company administers the claims and the Company bears the total cost of the claims. Under the modified insurance, each year the Company records as workers’ compensation expense an estimate of the future cost of settling claims for that year. The Company remains at risk that the cost of settlement of all claims for any year in which the Company had modified insurance may materially exceed the Company’s estimate. See Workers’ Compensation below.

Inability to Recover Costs of Sales. The Company operates two food divisions, the Swiss meat division and the Royal pasta division, each of which must maintain a level of sales adequate to absorb the fixed costs of large plant investments. Recently there have been increases in the costs of meat and flour, in production labor costs, in workers’ compensation costs, in utilities, and in health insurance costs. Both divisions have experienced material reductions in their gross profits resulting both from their inability to increase their selling prices sufficiently to recover these increased costs and from cost increases outpacing selling price increases. The inability to increase selling prices is caused by customer resistance to price increases and intense competition. Since the products of both divisions are ultimately sold to consumers, the divisions’ customers resist price increases which if passed on to consumers would reduce consumption of the ultimate products. Each division has a few large customers which account for a substantial portion of its sales. See Dependency on a Limited Number of Large Customers below. The principal constraint on Swiss’s pricing is the resistance of its customers, many of which are pizza chains, to price increases. The principal constraint on Royal is intense competition in an industry with excess capacity which has experienced a decrease in demand. Raising prices to increase gross profits risks losing customers, having sales fall to a level inadequate to absorb fixed costs and failing to make substantial sales at the higher prices.

Financial Deterioration. Because the Company’s poor operating results and the resulting defaults under its credit facility permitted its term debts to be declared due and payable, since June 30, 2004 the Company has recorded its term debts as current liabilities. See Liquidity and Capital Resources and Credit Facility under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. As a result, the Company’s balance sheets show current liabilities substantially exceeding current assets, which might cause a Company’s supplier to decline to sell to the Company on normal credit terms, further adversely affecting the Company’s cash flow. If the Company’s operating performance shows no signs of improving or the Company is unable to find a new lender for its credit facility, doubts about its ability to continue as a going concern could give rise to an impairment charge against its fixed assets, further weakening its balance sheet. See

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies,

Impairment of Long-Lived Assets.

General

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 11 of Notes to Financial Statements.

Swiss American Sausage Co. Meat Division

During the years ended December 31, 2004 and 2003, sales by Swiss accounted for 87.15% and 86.79%, respectively, of the Company’s net sales. Swiss’s slightly higher proportion of Company sales in 2004 resulted from sales at Swiss increasing proportionately more than sales at Royal. 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 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 are conducted at its meat plant in Lathrop, California. The meat plant has an estimated theoretical production capacity of 46,000,000 pounds per year. The Company also owns 2 acres of land adjacent to the plant to ensure a capability of expansion. 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.

In addition to pepperoni and sausage, the Company processes moderate amounts of other meat products, including meatballs, breaded meat patties and crumbles. Crumbles are quick-frozen nuggets of a pre-cooked meat product, such as the

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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. Breaded meat patties are produced on a line added in 2002, which forms, breads and cooks the patties.

Royal-Angelus Macaroni Company Pasta Division

During the years ended December 31, 2004 and 2003, sales by Royal-Angelus accounted for 12.85% and 13.21%, respectively, of the Company’s net sales. Royal’s lower proportion of Company sales in 2004 resulted from sales at Swiss increasing proportionately more than sales at Royal. 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.

The Company’s pasta products are produced at its plant in Chino, California. The plant comprises two buildings, one occupied 100% by the Company and a second currently occupied 40% by the Company and leased 60% to a tenant through March 2007. The pasta plant has a theoretical production capacity estimated at 50,000,000 pounds per year. On April 13, 2005 the Company completed a sale and leaseback of the buildings to improve the Company’s liquidity. See Liquidity and Capital Resources under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In the basic pasta production process, durum semolina flour is mixed with water and the mixture is extruded into one of many shapes, cut to the proper length, dried, packaged and shipped to the Company’s customers. If required by the particular variety of pasta, a different flour is used or flour is blended with egg powder, vegetable powder or other ingredients before the water is added. No preservatives are used in making pasta.

Royal-Angelus competes with several national and regional pasta manufacturers, many of which have greater financial resources than the Company. The Company competes in the pasta business by emphasizing predictable quality and consistency and by its capability of producing a larger variety of pastas with shorter lead times and production runs than most of its larger competitors.

Suppliers

The primary ingredients used by the Company in processed meat products are beef, pork, spices and casings and in pasta products are flour, egg powder and vegetable powder. The ingredients are purchased from suppliers at prevailing market prices. The Company has not recently experienced any shortages in the supply of ingredients and generally expects the ingredients to continue to be available for the foreseeable future.

Patents, Trademarks and Licenses

The Company owns no patents. It owns the United States registered trademarks “Royal” with the crown design, “Vegeroni” and “Fortune” 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. These trademarks are used primarily on products intended for processors and restaurant chains rather than consumers. No substantial portion of the Company’s sales is dependent upon any Company trademark.

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.

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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 net sales has in recent years resulted from sales to a few customers. See Note 11 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, 2004:

Division	Number of Customers	Division Sales %		Company Sales %
Swiss American	3	52	%	46	%
Royal-Angelus	3	26	%	3	%
Totals	6			49	%

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.

Employees

As of December 31, 2004, the Company employed 247 full-time employees, 182 in production at Swiss in Lathrop, California, 47 in production at Royal-Angelus in Chino, California, 8 in clerical and office functions, 5 in sales activities, and 5 in management activities.

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Swiss’s plant employees are represented by the United Food and Commercial Workers Union, Local 588, AFL-CIO, CLC under a collective bargaining agreement dated April 1, 2002 which expires April 2, 2006. Royal’s plant employees are represented by United Food and Commercial Workers Union, Local 1428, AFL-CIO, CLC under a collective bargaining agreement dated October 2, 2002 which expires September 30, 2006. 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 all of its employees and their dependents. Its union and non-union employees are covered by a union-sponsored health insurance plan.

Workers’ Compensation

In 2002, the Company’s workers’ compensation cost was $710,277, and the Company was fully insured. Since 2002, the Company has purchased modified workers’ compensation insurance because the cost to be fully insured had approximately tripled. Under the modified workers’ compensation insurance, the insurance company administers the claims for a fee and the Company bears the total costs of settling claims. The administrative fee was $609,012 for 2003 and $704,460 for 2004 and is $661,948 for 2005. In addition, the insurance company requires either the payment of a premium to cover the estimated costs of settling claims or a letter of credit and a cash deposit to ensure the Company’s payment of the costs. Currently all but $219,094 of the original $715,461 premium for 2003 has been used to pay costs, and the Company has a $593,000 (originally $775,000) letter of credit and a cash deposit of $50,000 for 2004 and a $775,000 letter of credit and $50,000 cash deposit requirement for 2005.

Comerica Bank issued the original $775,000 letter of credit for 2004 and is expected to issue the letter of credit required for 2005, and charges 2% per annum on the amounts of the letters of credit. The Company’s workers’ compensation expense for each year under the modified insurance is the sum of the administrative fee, the costs of settling claims for the year and an estimate of the future costs of settling claims for the year, adjusted for any increase or decrease in the estimated future costs of settling claims for any prior year.

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 meat processing plant is an approximately 85,000 square foot facility located in Lathrop, California, constructed by the Company in 1999. The estimated theoretical production capacity of the meat plant is 46,000,000 pounds per year. The Company purchased an additional 2 acres of land adjacent to the new plant in 1999 to ensure a capability of expansion.

The Company’s pasta production plant is an approximately 44,000 square foot facility located in Chino, California, occupied by the Company since 1987 and an adjacent approximately 44,000 square foot building purchased by the Company in 1995 and occupied 40% by the Company and leased 60% to a cold storage manufacturer through March 2007. The Chino plant has a theoretical production capacity estimated at 50,000,000 pounds annually. On April 13, 2005, the Company completed a sale and leaseback of the pasta plant. See Liquidity and Capital Resources under Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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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, financial condition or liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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:

	Quarter of Fiscal Year Ended December 31
	First		Second	Third	Fourth
2003
High	$	1.24	1.35	1.55	1.45
Low		1.01	1.10	1.23	1.25
2004
High		1.53	1.54	1.14	1.05
Low		1.24	1.15	0.40	0.57

The closing price on December 31, 2004 was $0.90.

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, 2004 the Company had issued and outstanding 3,441,814 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 paid a dividend every quarter through the second quarter of 2001. A covenant under the Company’s credit facility with Comerica Bank-California currently prohibits dividends without the bank’s consent. The declaration and timing of future dividends, if any, will depend on the Company’s financial condition and results of operations, the bank’s consent 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, Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016-3572, (800) 368-5948, www.rtco.com.

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Common Stock Repurchase and Sales

The Company has had a program since January 11, 1988 authorizing the repurchase of shares of its common stock up to the number of shares issued under the Company’s 1988 employee stock purchase plan, but the Company has not repurchased any shares under this program since 1995.

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. The Company has received no shares in payment of the exercise price of options since 1998.

Under the 1988 employee stock purchase plan, in 2004 employees purchased 82,108 newly issued shares at an average price of $0.96 per share. Employees have purchased a total of 813,360 shares under the plan through December 31, 2004, at an average price of $2.42 per share. Under the plan, non-union employees employed at least 6 months, 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. Under the plan, employee contributions plus Company matching funds are used monthly to purchase shares at the market price under the plan and accumulate at a rate of about $80,000 per year.

See Stock Grant Plan under Item 11. Executive Compensation for information on the Company’s Stock Grant Plan.

No shares were purchased by exercise of Incentive Stock Options in 2004.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below under the headings Statement of operations data and Balance sheet data as of and for each of the years in the five-year period ended December 31, 2004 is derived from the financial statements of the Company, which financial statements have been audited by KPMG LLP, independent registered public accounting firm, through December 31, 2003 and by Cacciamatta Accountancy Corporation, independent registered public accounting firm, for the year ended December 31, 2004. 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 balance sheets as of December 31, 2004 and 2003 and the statements of operations, shareholder’s equity and cash flows for each of the years in the three-year period ended December 31, 2004, included in a separate section at the end of this report beginning on Page F-1. Financial reports are the responsibility of management, and are based on corporate records maintained by management, which maintains an internal control system, the sophistication of which is considered in relation to the benefits received.

	Year Ended December 31,
	2004			2003		2002		2001		2000
	(Amounts in thousands except per share data)
Statement of operations data:
Net Sales	$	51,810		43,188		37,977		36,007		27,309
Cost of sales		49,818		39,348		33,571		33,295		25,535
Gross profit		1,992		3,840		4,406		2,712		1,774
Distribution, general and administrative expenses		3,676		3,463		3,239		2,897		2,638
Operating income (loss)		(1,684	)	377		1,167		(185	)	(864	)
Interest income (expense), net		(564	)	(618	)	(522	)	(690	)	(746	)
Other income, net		261		258		266		292		155
Earnings (loss) before income taxes		(1,987	)	17		911		(583	)	(1,455	)
Income tax expense (benefit)		(757	)	(1	)	353		(313	)	(577	)
Net earnings (loss)	$	(1,230	)	18		558		(270	)	(878	)
Earnings (loss) per share:
Basic	$	(.38	)	.01		.18		(.09	)	(.29	)
Diluted	$	(.38	)	.01		.18		(.09	)	(.29	)
Cash dividends paid per share	$	—		—		—		.06		.12
Weighted average number of shares outstanding (1):
Basic		3,262		3,184		3,120		3,064		3,006
Diluted		3,262		3,184		3,120		3,064		3,006
Balance sheet data (end of period):
Working capital (deficit)	$	(7,126	)	2,115		253		(491	)	307
Property and equipment (net)		15,972		16,464		15,587		16,129		16,101
Total assets		26,350		25,187		22,021		22,394		22,357
Long-term debt and capital lease obligation, including current portion		9,089		9,715		6,885		6,850		6,885
Shareholders’ equity		8,496		9,613		9,515		8,881		9,238

(1) The Company sold shares under its employee stock purchase plan in the years as shown:

2004	2003	2002	2001	2000
82,108	62,619	57,571	54,507	62,980

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The Company is a specialty food processor operating two well-established divisions, the Swiss meat division and the Royal pasta division. Both divisions have their operations in California. Both operate Company-owned plants that are capital intensive, requiring heavy investments in property and equipment. Both are in competitive industries, often experiencing long periods of intense competition when their industry develops an over-capacity. Both have many competitors that are larger and have greater financial resources than the Company. Both can be affected by contemporary health considerations, such as mad cow disease and the Atkins diet.

Company sales increased 20% in 2004 from 2003 but the Company suffered a material net loss in 2004 after only nominal net income in 2003. The loss resulted from substantial operating losses at both divisions. Swiss’s operating loss resulted from its inability to increase its selling prices sufficiently to compensate for increased costs, primarily meat costs, in spite of increasing its average selling price from $1.53 per pound in 2003 to $1.75 per pound in 2004. Royal has been experiencing a long period of operating losses from intense competition, but until 2004 its annual losses had been decreasing and there were indications that the over-capacity and intense competition in the pasta industry might begin to diminish. However, Royal’s operating loss in 2004 exceeded its operating loss in 2003, primarily because of increased flour costs and because its second long-goods line, acquired in 2003, became operational and depreciated in 2004. The new long goods line is expected to enhance Royal’s ability to compete but has not yet been fully utilized. Contributing to the losses of both divisions is an significant increase in workers’ compensation costs which began in 2003 and continued in 2004.

Because of the loss, Comerica Bank, the Company’s primary lender, has demanded to be replaced and the Company is seeking a new lender. The Company has also sold and leased back its pasta buildings in order to increase its liquidity. See Liquidity and Capital Resources and Credit Facility below.

Results of Operations

The following table sets forth operating data for the years ended December 31, 2004, 2003 and 2002:

	Year Ended December 31,
	2004					2003					2002
	(Dollars in thousands)
Net sales	$	51,810		100.0	%	$	43,188		100.0	%	$	37,977		100.0	%
Cost of sales		49,818		96.2			39,348		91.1			33,571		88.4
Gross profit		1,992		3.8			3,840		8.9			4,406		11.6
Distribution, general and administrative expenses		3,676		7.1			3,463		8.0			3,239		8.5
Operating income (loss)		(1,684	)	(3.3	)		377		0.9			1,167		3.1
Interest expense, net		(564	)	(1.1	)		(618	)	(1.4	)		(522	)	(1.4	)
Other income, net		261		0.5			258		0.6			266		0.7
Earnings (loss) before income taxes		(1,987	)	(3.8	)		17		0.0			911		2.4
Income tax expense (benefit)		(757	)	(1.5	)		(1	)	(0.0	)		353		0.9
Net earnings (loss)	$	(1,230	)	(2.4	)%	$	18		0.0	%	$	558		1.5	%
Sales in thousands of pounds by division
Swiss American		25,798					24,461					22,257
Royal-Angelus		12,634					10,898					11,052

Comparison of Years Ended December 31, 2004 and 2003

In 2004, Company net sales of $51,810,000 were up 20% from 2003 sales of $43,188,000. Both divisions contributed to the increase in sales. The Company recorded a net loss of $1,230,000 for 2004 compared to net income of $18,000 for 2003. The net loss resulted from a decline at Swiss from an operating profit to an operating loss and an increased operating loss at Royal, caused by increased costs, primarily meat costs at Swiss.

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The meat division’s sales were up about 20% in dollars and 5% in pounds and it operated at a $1,120,000 loss for 2004 compared to a $680,000 profit for 2003. Swiss’s sales for the 4th quarter of 2004 were up 2% in dollars but down 12% in pounds from the 4th quarter of 2003. The percentages in dollars increased despite a smaller increase or a decrease in the percentage in pounds because of higher selling prices reflecting higher meat costs.

Swiss’s sales in dollars and in pounds have increased each year since its meat plant was completed in 1999. Its loss in 2004 compared to a profit 2003 was caused primarily by increased plant labor, health insurance, utility and meat costs. Swiss’s margins decreased from 8.8% to 3.6% for the year and 7.0% to 4.0% for the 4th quarter. The principal causes of Swiss’s decreased margins were increased plant labor, health insurance, utility and meat costs, the continuing high level of workers’ compensation cost increase and the inability to increase selling prices to recover the increased costs.

The pasta division’s sales increased about 17% in dollars and 16% in pounds and it operated at a $738,000 loss in 2004 compared to a $512,000 loss in 2003. The pasta division’s sales for the 4th quarter of 2004 were up 27% in dollars and 15% in pounds from the same quarter of 2003. The higher increases in sales in dollars than in pounds reflect the production of a higher proportion of premium packaged goods. Royal’s margins for the year and 4th quarter of 2004 were 5.8% and 15.7%, respectively, compared to 9.6% and 12.6% a year ago. Royal margins were down for the year because of increased plant labor, flour, health insurance and utility costs and because of depreciation in 2004 of its second long-goods line acquired in 2003, but were up for the 4th quarter because of the elimination of contributions to the SEP-IRA plan for 2004 and improved plant utilization on higher sales. Royal’s losses also reflect the increase in Royal’s workers’ compensation expense of about $100,000 per year continuing from 2003. Royal’s second long-goods line produces high quality goods faster and more efficiently than Royal’s original line and should contribute to the improvement of Royal’s operating results if Royal can obtain sales that fully utilize the line.

The Company’s gross profit for 2004 was $1,992,000 or 3.8% of net sales compared to $3,840,000 or 8.9% of net sales in 2003. Gross profit decreased in dollars and as a percent of net sales primarily because of higher production and ingredient costs at Swiss. Gross profit decreased at both divisions, despite increased sales, because of the inability to increase selling prices to recover increasing costs of sales, at Swiss because of customer resistance to price increases and at Royal because of intense competition in an industry with excess capacity experiencing a decrease in demand. Distribution, general and administrative expenses for 2004 were up about 6% from 2003 on a 20% increase in sales. Distribution expenses were up about $66,000, or 4%, due to increased freight costs at Swiss and an additional sales person at Royal. General and administrative expenses were up about $147,000 primarily due accrual of a cash bonus under the Company’s Stock Grant Plan, fees of an outside consultant required by Comerica Bank and increased bank charges, partially offset by the elimination of the contribution to the SEP-IRA plan.

Net interest expense decreased in 2004 from 2003 because unamortized bond fees were expensed in 2003. Otherwise net interest expense would have increased because of increased bond principal, the equipment loan for the second long-goods line, increased borrowings under the line of credit and higher interest rates. Other income increased slightly in 2004 from 2003 because of increases in waste sales at Swiss and rental income exceeded insurance proceeds received in 2003. The income tax benefit increased because of the loss before income taxes.

Comparison of Years Ended December 31, 2003 and 2002

In 2003, Company net sales of $43,188,000 were up 13.7% from 2002 sales of $37,977,000. The increase in sales was attributable to the meat division, with pasta division sales essentially unchanged. The trend of increased Company sales, caused by demand for Swiss products, was expected to continue with smaller sales increases at Swiss augmented by sales increases at Royal. Net income of $18,000 for 2003 was down materially from 2002 net income of $558,000. The decline in net income resulted from a reduced operating profit at Swiss and the failure of Royal to significantly reduce its operating loss. The single most significant cause of the decline in net earnings was an over $600,000 increase in workers’ compensation expense.

The meat division’s sales were up about 16% in dollars and 10% in pounds and it operated at a $680,000 profit for 2003 compared to a $1,547,000 profit for 2002. Swiss’s sales for the 4th quarter of 2003 were up 45% in dollars and 28% in pounds from the 4th quarter of 2002. The percentage increases were greater in dollars than in pounds because of increases in selling prices reflecting higher meat costs. The 4th quarter increases in part reflect an abnormal decrease in sales in the 4th quarter of 2002.

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Swiss’s sales in dollars and in pounds have increased each year since its meat plant was completed in 1999. Its reduced profits in 2003 compared to 2002 were caused primarily by increased plant labor costs, higher workers’ compensation costs, increased health insurance costs, higher freight costs from greater shipping volume and distances, and meat cost increases outpacing increases in selling prices. Swiss’s margins decreased from 11.8% to 8.8% for the year and 12.0% to 7.0% for the 4th quarter. The principal causes of Swiss’s decreased margins were the workers’ compensation cost increase and the lag of price increases as meat costs increased. No further decline in Swiss margins was expected because workers’ compensation costs were not expected to increase and Swiss would endeavor to adjust selling prices to more accurately reflect meat costs. Although the decline in operating profit at Swiss is disappointing, Swiss operated at a substantial profit in 2003 despite an approximately $500,000 increase in workers’ compensation expense and continued its trend of increasing sales.

The pasta division’s sales increased about 0.6% in dollars but decreased 1.4% in pounds and it operated at a $512,000 loss in 2003 compared to a $525,000 loss in 2002. The pasta division’s sales for the 4th quarter of 2003 were up 7% in dollars but down 12% in pounds from the same quarter of 2002. The declines in sales in pounds reflect continued intense competition resulting from excess industry capacity. Sales in dollars increased in spite of decreased sales in pounds because of the production of a much higher proportion of premium packaged goods in the 4th quarter of 2003. Royal’s margins for the year and 4th quarter of 2003 were 9.6% and 12.6%, respectively, compared to 10.4% and 10.0% a year ago. Royal continued its trend of decreasing operating losses despite an increase of about $100,000 in workers’ compensation expense, and that trend was expected to continue because Royal’s second long-goods line was expected to become operational in the 1st quarter of 2004 and to produce high quality goods faster and more efficiently than Royal’s existing line.

The Company’s gross profit for 2003 was $3,840,000 or 8.9% of net sales compared to $4,406,000 or 11.6% of net sales in 2002. Gross profit decreased in dollars and as a percent of net sales primarily because of higher production costs, principally plant labor at Swiss, and workers’ compensation expense. These decreases in gross profit in dollars and as a percent of net sales were not expected to continue as workers’ compensation expense was expected to remain at present levels, Swiss intended to more accurately prices its sales and Royal continued the trend of increased margins that began in the 4th quarter of 2003. Distribution, general and administrative expenses for 2003 were up about 7% from 2002 on a 13.7% increase in sales. Distribution expenses were up about $332,000, or 26%, due to increased freight costs at Swiss and increased workers’ compensation costs. General and administrative expenses were down about $107,000 primarily due to decreased bad debt expense, health insurance cost and officer compensation, partially offset by increased legal expense. Further increases in distribution expenses were not expected because workers’ compensation expense was not expected to increase and Swiss intended to remedy the increased freight costs by avoiding the sales that were causing them.

Net interest expense increased in 2003 from 2002 because the pre-payment of the industrial development bonds required that unamortized bond fees be expensed. Otherwise net interest expense was lower in 2003 because of lower interest rates. The $866,750 new equipment loan for the second long-goods line will increase interest expense in 2004, but the additional borrowing of about $2,000,000 under the new bonds will bear a lower interest rate than the same amount of borrowing would bear under the bank line of credit. Other income decreased slightly in 2003 from 2002 because of reduced waste product sales at Swiss. Income tax expense decreased because of the reduced earnings before income taxes and was changed from an expense to a benefit primarily because of a state income tax credit.

Liquidity and Capital Resources

The Company has previously satisfied its normal working capital requirements with funds derived from operations and borrowings under its bank line of credit, which is part of a credit facility with Comerica Bank. The Company’s material operating loss and negative operating cash flow for 2004 raise substantial doubt about the Company’s ability to fund its reasonably foreseeable working capital requirements and to continue as a going concern. Because of the Company’s poor operating results, Comerica demanded to be replaced, the Company commenced seeking a new lender for the credit facility, and on March 28, 2005, Comerica demanded payment of the obligations under the credit facility and agreed to a conditional forbearance until December 15, 2005. See Credit Facility below.

The Company purchased a second long-goods line for the pasta plant in 2003 and financed part of the cost on October 28, 2003 by an $866,750 five-year term equipment loan from General Electric Capital Corporation bearing interest at 3.65% over a Federal Reserve rate - 3.65% + 2.16% = 5.81% at December 31, 2004 - - and payable in equal monthly payments of principal plus interest. The second line became operational in the 1st quarter of 2004 and is more modern and expected to produce high quality goods faster and more efficiently than Royal’s other line. With the second long-goods line, the plant has adequate production capacity to meet the foreseeable demand for its products. The two pasta buildings provide ample capacity for possible future expansion. Because a cross-default provision in the loan results in the loan being in default when the credit facility is in default, it is reflected as a current liability rather than as long-term debt in the December 31, 2004 financial statements.

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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, and purchased an adjacent 2 acres for possible future expansion, for a total cost of about $13,225,000. The meat plant has adequate production capacity to meet the foreseeable demand for its products.

Additions to property and equipment were about $411,000 in 2004. No capital budget has been adopted for 2005 pending the availability of funds to be used for capital expenditures.

In 2004, cash increased about $37,000. Net cash used by operating activities was about $1,847,000 consisting of the net loss, deferred income taxes, increases in accounts receivable, inventories and income taxes receivable, partially offset by depreciation and amortization, decreases in prepaid expenses and other assets and an increase in accrued liabilities. Accounts receivable and inventories increased from December 31, 2003 because of increased sales. Investing activities used about $411,000 for additions to property and equipment, primarily the second long-goods line. Financing activities provided about $2,296,000, primarily from borrowings under the bank line of credit, reduced by repayments of long-term debt.

In 2003, cash decreased about $267,000. Net cash provided by operating activities was about $1,285,000 consisting of net income, depreciation and amortization and increases in accounts payable and accrued liabilities, partially offset by increases in accounts receivable and inventories. Accounts receivable and inventories increased from December 31, 2002 but did not increase from September 30, 2003. Accounts receivable increased because of the increase in sales and customers taking slightly longer to pay, without a material change in the aging of accounts receivable. Inventories increased because of increased sales, because both meat and flour costs are up, and because Swiss has increased the inventories it carries in anticipation of customers’ needs. Investing activities used about $1,694,000 for additions to property and equipment, primarily the second long-goods line. Financing activities provided about $141,000, primarily from net proceeds from the bond refinancing, reduced by repayments of the bank line of credit.

No quarterly dividends were paid in 2003 or 2004. The declaration and timing of future dividends, if any, will depend on the Company’s financial condition and results of operations, compliance with the provisions of its loan agreements, cash flow adequate to satisfy the Company’s obligations and working capital requirements and other factors deemed relevant by the Board.

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 $78,798 in 2004. Under the plan, employee contributions plus Company matching funds are used monthly to purchase shares at the market price under the plan and accumulate at a rate of about $80,000 per year.

On April 13, 2005, the Company completed the sale of its two pasta buildings for a gross price of $6,113,776 and the leaseback of the buildings for ten years, with two 5 year options to renew, at $39,543 per month, increasing annually by 3% compounded. Net proceeds of the transaction of $5,554,246 were applied to the credit facility. See Credit Facility below.

The Company believes that improvements in the Company’s cash flow and operating results are crucial to the Company’s financial stability and is aggressively pursuing these objectives. To improve cash flow, the Company is directing its efforts toward minimizing inventories, accounts receivable and capital expenditures. To improve operating results which also improve cash flow, Swiss has implemented price increases at the risk of losing sales and Royal has pursued high volume sales to utilize its excess capacity. The Company is attempting to minimize the number of its employees in spite of increasing sales and is reducing the number of its workers compensation claims through injury prevention programs, which should reduce future workers compensation costs. The Company has eliminated the contribution to its SEP-IRA plan for 2004 at a savings of about $400,000. The Company is considering requiring that non-union employees contribute to the cost of health insurance.

Credit Facility

The line of credit under the Comerica credit facility was payable on demand, was subject to annual review, and bears interest at a variable annual rate which is 1.25% over the bank’s “Base Rate.” At December 31, 2004 the Base Rate was 5.25% per annum. The maximum amount of the line of credit was the lesser of $4,000,000, or 30% of eligible inventories plus 80%

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of eligible receivables, with a limit of $1,500,000 for inventories, determined monthly. The amounts of the letters of credit from Comerica supporting the Company’s obligations to pay workers’ compensation claims are applied in reduction of the borrowings available under the line of credit (see Workers’ Compensation under Item 1. Business). At December 31, 2004, the maximum amount of the line of credit was $4,000,000 less a $775,000 workers’ compensation letter of credit and the Company had $3,225,000 of borrowings outstanding under the line of credit, resulting in no borrowings available. In January 2005 the bank authorized a $500,000 Overformula Amount effectively increasing the maximum amount of the line of credit to $4,500,000.

As part of the credit facility, on December 30, 2003, the Company borrowed $6,300,000 by the issuance of variable rate demand bonds under an indenture supported by a $6,378,750 letter of credit issued by Comerica. The bonds are demand obligations remarketed upon repayment and bear a variable rate of interest payable monthly and set weekly at a market rate — 2.47% per annum at December 31, 2004. The Company must make monthly interest payments on the new bonds and monthly principal payments into a sinking fund used annually to reduce the aggregate outstanding principal of the new bonds. The principal payments for the first 5 years are about $12,900 per month with annual increases calculated to amortize the new bonds over 20 years. The monthly principal payments and amortization after the first 5 years are subject to agreement between the Company and Comerica. The Company pays a 1.25% per annum fee on the amount of the letter of credit and fees of the bond indenture trustee estimated at 0.5% of the bond principal per year. Bonds may be issued under the indenture for 30 years. The $6,378,750 letter of credit expires December 30, 2008 and Comerica is not obligated to renew it. If an agreement to renew a letter of credit is not reached prior to expiration, the Company is obligated to pay all outstanding bonds.

Also as part of the credit facility, the bank made four loans to the Company in 1999 for the meat plant, a $1,280,000 real estate loan and three equipment loans totalling $2,614,788. The real estate loan was made in December 1999, bears a fixed rate of interest of 9.1% per annum and is payable in equal monthly payments of principal and interest over its 25 year term. Each equipment loan bore a variable rate of interest and was payable in equal monthly payments of principal plus interest over its term, with issue date, initial amount, term and rate as follows: July 1999, $1,000,000, 7 year, bank’s “Base Rate”; September 1999, $1,200,000, 7 year, bank’s “Base Rate” plus 0.25%; and December 1999, $414,788, 5 year, bank’s “Base Rate” plus 0.75%. The December 1999 equipment loan was repaid in 2004.

All parts of the credit facility are secured by substantially all of the Company’s assets, including accounts receivable, inventory, equipment and fixtures, the Company’s two pasta buildings and the meat plant, none of which is otherwise encumbered. The credit facility prohibits, without the bank’s consent, dividends, mergers, acquisitions, purchase or disposal of assets, borrowing, granting security interests, and changes of management and contains financial covenants requiring, at the end of each month, a tangible net worth greater than $9,300,000; a debt to tangible net worth ratio of not more than 2 to 1; cash flow coverage not less than 1.06 to 1; and a quick ratio of cash and account receivables to current liabilities of 0.5 to 1. The Company was in default under all of the financial covenants except the debt to tangible net worth covenant at December 31, 2004 and the bank has waived the financial covenants through May 31, 2005. Although the bank has the right to terminate the forbearance described below upon any new defaults under the credit facility or defaults under the terms of the forbearance, management believes no such defaults will occur and that Comerica will not exercise any right to terminate the forbearance before the Company can secure a new lender. On April 12, 2005, the Company accepted a preliminary proposal from a new lender to refinance the credit facility, but the preliminary proposal is not a commitment.

Because of the Company’s poor operating results, in 2004 the bank increased the interest rate on the line of credit by 0.50% on the basis that the Company is less credit worthy, and required that the Company engage an outside consultant to propose changes in its operations directed at improving the Company’s cash flow and results of operations. In early 2005, the bank demanded that the Company refinance the credit facility with another lender. On March 28, 2005, the bank demanded payment of all of the obligations under the credit facility and agreed to a conditional forbearance from judicial action to collect the obligations until December 15, 2005. The bank has the right to terminate the forbearance upon any new defaults under the credit facility or defaults under the terms of the forbearance, upon further deterioration in the Company’s financial condition or the bank’s collateral position or if the bank believes that its prospect of payment is impaired. Under the terms of the forbearance, the net proceeds from the sale of the two pasta buildings of $5,554,246 (after applying $23,726 to pro-rated rent and $120,000 to a security deposit under the lease) are to be applied to retire the real estate and two equipment loans, reduce the balance of the line of credit by $500,000, deposit with the bank $2,865,000 cash collateral to secure liabilities under the credit facility, primarily the Company’s liabilities with respect to the outstanding letters of credit, and any remaining proceeds to further reduce the balance under the line of credit. The forbearance provides that on the close of the sale of the two pasta buildings, the limit for inventories under the line of credit is reduced from $1,500,000 to $1,000,000, the $500,000 Overformula Amount is eliminated and the maximum amount of the line of credit is reduced to $3,500,000. During the forbearance, the Company is to make payments of principal, interest and letter of credit fees in the amounts and on the dates specified in the credit facility documents. The Company must pay a forbearance fee of $100,000 plus $15,000 per month beginning July 1, 2005 and continuing until the credit facility is refinanced. Upon any new default under the credit facility or default under the

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terms of the forbearance, the interest rates of all obligations under the credit facility are increased by 3%. The bank agrees to issue the $775,000 workers’ compensation letter of credit for 2005. Because the bank’s forbearance expires no later than December 15, 2005, the Company’s real estate and equipment loans from the bank and the variable rate demand bonds are reflected as current liabilities rather than long-term debt in the December 31, 2004 financial statements.

Critical Accounting Policies

The Securities and Exchange Commission defines a critical accounting policy as one which is both important to the portrayal of the registrant’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical for the Company are determining the allowance for doubtful accounts, valuing inventory and determining whether there is impairment of long-lived assets.

Allowance for Doubtful Accounts. The Company sells to its customers on credit and grants credit to those who are deemed credit worthy based on the Company’s analysis of their credit history. The Company’s standard payment terms are net 30 days. The Company reviews its accounts receivable balances and the collectibility of those balances on a periodic basis. Based on the Company’s analysis of the length of time that the balances have been outstanding, the pattern of customer payments, its understanding of the general business conditions of its customers and its communications with its customers, the Company estimates the recoverability of those balances. When recoverability is uncertain and the unrecoverable amounts can be reasonably estimated, the Company records bad debt expense and increases the allowance for doubtful accounts by the amounts estimated to be unrecoverable. If the data the Company uses to assist in the calculation of the allowance for doubtful accounts does not reflect its future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the Company’s future results of operations could be materially affected. At December 31, 2004, the Company had no allowance for doubtful accounts based on the factors stated above. Additionally, based on the Company’s analysis, there is no indication that a material amount of receivables is uncollectible.

Inventory. Inventory is valued at the lower of cost or market, where market is generally the fair value less the cost to sell. The Company reviews the carrying value of its inventory on a periodic basis by determining the market value for the items in inventory and comparing the market value to the carrying value. In instances where the market value is lower than the carrying value, the Company writes down the inventory accordingly. If circumstances change (e.g. unexpected shifts in market demand) there could be a material impact on the net realizable value of the inventory.

Impairment of Long-Lived Assets. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets such as property and equipment, 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 estimated fair value. The Company determines fair value using estimates of undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

The Company’s evaluation of the recoverability of property and equipment includes estimates of future cash flows that are expected to arise as a direct result of the use and eventual disposition of the assets. A significant part of the estimation process involves estimating future operating cash flows and the fair value of the property and equipment at the eventual disposition date. The Company has recently incurred operating losses and the return to profitability may depend in part on factors outside the Company’s control. Future property and equipment impairment charges may result if actual cash flows, or changes in estimates of cash flows, from the use and eventual disposition of the property and equipment vary from the estimates used to support the value of the assets at each reporting date.

Use of Estimates. The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the 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. Significant items subject to such estimates and assumptions include the carrying amounts of property and equipment, determining the allowance for doubtful accounts and valuing inventory and deferred tax assets. Actual results could differ from those estimates and assumptions.

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New Accounting Standards

New accounting standards and interpretations are adopted by the Company as they become effective. In the opinion of management, recently released standards and interpretations not effective at December 31, 2004, will not have a material effect on the Company’s financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The variable rate demand bonds, the bank line of credit, and the 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 4 of Notes to Financial Statements) which tend to follow market interest rates and change the Company’s interest expense in the same direction as changes in interest rates. A 1% per annum change in the rate borne by the variable rate demand bonds would change annual interest expense by almost $62,000. Assuming an average bank line of credit balance of $3,000,000 plus $1,000,000 average of equipment loans, a 1% per annum change in the rate borne by those borrowings would change annual interest expense by $40,000. The Company believes that the carrying values of the amounts owed under the variable rate demand bonds, the bank line of credit and the equipment loans approximate the fair values, due to the associated variable rates.

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.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and l5d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that there have been no such changes during the Company’s fourth fiscal quarter.

ITEM 9B. OTHER INFORMATION

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:

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Theodore L. Arena, age 62, has been the General Manager of the Company’s Swiss American Sausage Co. meat division since 1976, the President and a director of the Company since 1985, the Chief Executive Officer since 1998 and Chairman of the Board since 2004. He is the nephew of Louis A. Arena, a director of the Company.

Ronald A. Provera, age 67, has been the secretary of the Company since 1972, was a director from 1972 to 2004 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 the Company’s Royal-Angelus Macaroni Company pasta division.

Santo Zito, age 68, has been the Company’s plant engineer since 1976, and a vice president and director of the Company since 1972. He is currently the General Manager of the pasta division. He is a member of the option committee.

Thomas J. Mulroney, age 60, has been the Company’s chief accountant since 1976, the Chief Financial Officer since 1987, a vice president since 1991, and was a director from 1992 to 2004.

Louis A. Arena, age 82, has been a director of the Company since 1972, a vice president from 1972 to 1989, and General Manager of the pasta division from 1975 until his retirement in 1989. He is Chairman of the audit committee.

Joseph W. Wolbers, age 75, has been a director of the Company since 1990. He retired in 1989 as a vice president of First Interstate Bank where he had been employed since 1950. He is a member of the audit committee.

John M. Boukather, age 68, 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 since 1987. He is a member of the audit committee.

Section 16(a) Beneficial Ownership Reporting Compliance. Based on copies of filed forms and written representations, the Company believes that all officers, directors and 10% shareholders have timely filed all Forms 3, 4 and 5 required for 2004 and (except as previously disclosed) prior years by Section 16(a) of the Securities Exchange Act.

Code of Ethics. The Company adopted a code of ethics applicable to all directors, officers and employees in 1989, a copy of which was Exhibit 14.1 to the Company’s 2003 Form 10-K Annual Report and a Code of Conduct and Ethics applicable to all directors, officers and employees in 2004 which was Exhibit 14.2 to the Company’s June 30, 2004 Form 10-Q Quarterly Report.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth for the years ended December 31, 2004, 2003 and 2002, all compensation of all executive officers of the Company serving at December 31, 2004.

Name and Position	Year	Annual Salary	SEP-IRA Contributions	Cash Bonus
Theodore L. Arena, Chief Executive Officer	2004 2003 2002	128,115 129,628 125,961	—   25,076 27,579	$	37,542 57,900
Ronald A. Provera, Secretary	2004 2003 2002	128,737 130,536 127,832	—   19,500 19,175
Santo Zito, Vice President	2004 2003 2002	131,263 133,415 130,188	—   20,012 19,528
Thomas J. Mulroney, Chief Financial Officer	2004 2003 2002	125,403 127,807 125,000	—   19,171 23,526		31,838

See Incentive Stock Option Plan below for information on Incentive Stock Options. See Simplified Employee Pension Plan below for information on SEP-IRA Contributions. The cash bonuses were paid in anticipation of the adoption of a Stock Grant Plan. See Stock Grant Plan below for information on the Stock Grant Plan.

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Except as authorized by the approval of the Stock Grant Plan, the Company does not currently pay bonuses or deferred compensation to executive officers. The Company does not provide executive officers with automobiles, employment contracts or “golden parachute” arrangements.

Compensation Committee Interlocks and Insider Participation

The Company has no formal compensation committee, but the compensation of every officer is determined by the Board based on the recommendation of a majority of the directors who are independent. The chief executive officer is not present during deliberations regarding his 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. Union plant employees at both divisions do not participate in the SEP-IRA plan under the terms of their current collective bargaining agreements.

The Company makes contributions under the plan in the discretion of the Board, allocated in proportion to compensation, to an Individual Retirement Account (“IRA”) established by each eligible employee.

Contributions, up to 15% of eligible compensation, are deductible by the Company and not taxable to the employee. An employee may withdraw SEP-IRA funds from the employee’s IRA. Withdrawals are taxable as ordinary income, and withdrawals before age 59 ¹/2 may be subject to tax penalties.

For 2003, the Company contributed $405,151 to IRA’s under the plan, but made no contribution for 2004.

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 was 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 purchase price of shares covered by an option could not be less than the market value of the shares on the date of grant and the term of an option could not exceed 10 years.

Options may no longer be granted under the plan. No options were exercised in 2004. At December 31, 2004, outstanding options to purchase shares at $2 ⁹/16 per share were held 91,458 by Theodore L. Arena and 15,653 by Thomas J. Mulroney. All outstanding options are exercisable at a price which exceeds the 2004 year end stock market closing price of $0.90 per share.

Stock Grant Plan

In 2002, the Board of Directors of the Company conditionally authorized the adoption of a Stock Grant Plan to grant shares of the Company’s common stock to two executive officers of the Company, 180,000 shares to Theodore L. Arena and 100,000 shares to Thomas J. Mulroney and to pay them cash bonuses over three years beginning in 2002 to cover the income taxes they incur from receipt of the grants. In October 2003, the Board of Directors revised the Plan to limit the stock grant to 150,000 shares to Mr. Arena and to provide for only cash bonuses to Mr. Mulroney.

On February 26, 2004, the Company granted and issued the 150,000 shares to Mr. Arena when the market price of the Company’s shares was $1.36 per share. The shares have full voting power and participate in dividends, but only 1/6 of the shares vested immediately and the balance will vest ratably over the next five years, contingent on Mr. Arena’s continued

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employment with the Company. The shares have been listed on the American Stock Exchange but have not been registered under the Securities Act of 1933, relying on the exemption under Section 4(2) of the act for transactions not involving any public offering. The $204,000 market value of the 150,000 shares on the date of grant is taxable income to Mr. Arena and an income tax deduction to the Company in 2004 and will be compensation expense recognized by the Company ratably over the vesting period. Mr. Arena was paid $57,900 in 2002 and $37,542 in 2003 and will be paid $64,844 on or before April 15, 2005 as cash bonuses to cover the income taxes he incurs from receipt of the shares.

Compensation of Directors

Directors who are not officers or employees are paid a fee of $1,000 for each board meeting, shareholders’ meeting or board committee meeting attended in person and $250 for each meeting other than a shareholders’ meeting attended by telephonic conference call. In addition, the Chairman of the Audit Committee is paid a retainer of $1,000 per month.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 (7 persons), the number and percent of outstanding shares of common stock of the Company owned on December 31, 2004.

	Shares Beneficially Owned
	Without Options(5)			Options Exercised(6)
Name or Category(1)	Number	Percent		Number	Percent
John D. Determan (2)	335,327	9.7	%	335,327	9.4	%
The Salvation Army (2)	189,231	5.5	%	189,231	5.3	%
Orangewood Children’s Foundation (2)	189,232	5.5	%	189,232	5.3	%
Theodore L. Arena	298,990	8.7	%	390,452	11.0	%
Ronald A. Provera (3)	322,330	9.40	%	322,330	9.17	%
Santo Zito	386,130	11.2	%	386,130	10.2	%
Thomas J. Mulroney (4)	28,338	.8	%	43,991	1.2	%
Louis A. Arena	288,030	8.4	%	288,030	8.1	%
John M. Boukather	3,173	.1	%	3,173	.1	%
Joseph W. Wolbers	12,250	.4	%	12,250	.3	%
Officers and Directors	1,339,245	38.9	%	1,449,356	40.8	%
Shares Outstanding	3,441,814	100	%	3,548,925	100	%

(1) The address for each person is c/o Provena Foods Inc., 5010 Eucalyptus Avenue, Chino, Ca. 91710.

(2) Shares not included in the shares of all officers and directors as a group.

(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

No purchases or sales of the Company’s common stock by officers or directors were reported during the year 2004, except 8,000 shares purchased by Theodore A. Arena, the Company’s Chief Executive Officer, 16,300 shares purchased by

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Santo Zito, Vice President and General Manager and director and 10,000 shares purchased by Thomas J. Mulroney, Vice President and Chief Financial Officer. In addition, on February 26, 2004, a grant of 150,000 shares was made to Mr. Arena under the Company’s Stock Grant Plan.

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.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

KPMG LLP was the Company’s independent registered public accounting firm for 2002 and 2003 and through September 20, 2004. The aggregate fees billed for services rendered by KPMG LLP to the Company for 2003 and 2004 are as follows:

Audit Fees. KPMG LLP’s audit and quarterly review fees for 2003 were $114,000 and for 2004 were $27,800.

Audit-Related Fees. No audit-related fees were billed by KPMG LLP for 2003 or 2004.

Tax Fees. No fees for tax advice were billed by KPMG LLP for 2003 or 2004.

All Other Fees. No other fees were billed by KPMG LLP for 2003 or 2004 for products or services.

Cacciamatta Accountancy Corporation has been the Company’s independent registered public accounting firm since September 30, 2004 and is expected to continue in this capacity for the current year. The aggregate fees billed for services rendered by Cacciamatta Accountancy Corporation to the Company for 2004 are as follows:

Audit Fees. Cacciamatta Accountancy Corporation’s audit and quarterly review fees for 2004 were $78,000.

Audit-Related Fees. No audit-related fees were billed by Cacciamatta Accountancy Corporation for 2004.

Tax Fees. No fees for tax advice were billed by Cacciamatta Accountancy Corporation for 2004.

All Other Fees. No other fees were billed by Cacciamatta Accountancy Corporation for 2004 for products or services.

The policies and procedures of the Audit Committee with respect to the engagement of the Company’s independent auditors to render audit or non-audit services are that the services are not performed until after the Audit Committee has discussed with the auditors the services to be rendered, received estimates of the fees for the services and approved the engagement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements and Schedules

The Financial Statements and Schedule filed with this report are in a separate section at the end of this report beginning with the Index to Financial Statements and Schedule on page F-1.

Exhibits

3.7	Bylaws of the Company, as in effect on January 16, 1989 (1), (3)
3.8	Amended and restated Articles of Incorporation of the Company as filed with the California Secretary of State on June 17, 1987 (2)
3.9	Amendment to Articles of Incorporation of the Company re Liability of Directors and Indemnification as filed with the California Secretary of State on January 17, 1989 (6)

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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)
10.48	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%, 10/1/06; and 12/6/99, $414,788, “Base Rate” + 0.75%, 12/6/04 (11)
10.54	Collective Bargaining Agreement dated April 1, 2002 between Swiss and United Food and Commercial Workers Union, Local 588, AFL-CIO, CLC (12)
10.55	Collective Bargaining Agreement dated October 2, 2002 between Royal and United Food and Commercial Workers Union, Local 1428, AFL-CIO, CLC (12)
10.57	Loan and Security Agreement dated August 5, 2003 between the Company and Comerica Bank-California (13)
10.58	Promissory Note for $866,750 dated October 28, 2003 between the Company and General Electric Capital Corporation (13)
10.59	Fifth Amendment to Lease dated December 18, 1995 between Company and R-Cold, Inc. and Therma-Lok, Inc. (13)
10.60	Indenture of Trust dated December 1, 2003 between the Company and U.S. Bank National Association (13)
10.61	Series 2003A Supplement dated December 1, 2003 between the Company and U.S. Bank National Association (13)
10.62	Offering and Remarketing Agreement dated December 1, 2003 between the Company and RBC Dain Rauscher, Inc. (13)
10.63	Reimbursement Agreement dated December 1, 2003 between the Company and Comerica Bank (13)
10.64	Notice of Restricted Stock Award and Restricted Stock Agreement dated February 26, 2004 between the Company and Theodore L. Arena (13)
10.65	Loan and Security Agreement dated June 18, 2004 between the Company and Comerica Bank
10.66	Letter Agreement dated March 28, 2005 between the Company and Comerica Bank re acceleration and forbearance
10.67	Standard Industrial/Commercial Single-Tenant Lease - Net dated March 11, 2005 between the Company and Eucalyptus Avenue, LLC, a California Limited Liability Company and the John M. Meindl and Suzanne S. Meindl Trust Dated September 29, 1997
10.68	Standard Sublease dated March 18, 2005 between the Company and R-Cold, Inc.
14.1	1989 Ethics Policy (13)
14.2	2004 Code of Conduct and Ethics (14)
23.1	Consent of Independent Registered Public Accounting Firm - Cacciamatta Accountancy Corporation
23.2	Consent of Independent Registered Public Accounting Firm - KPMG LLP
31	Section 302 Certifications
32	Section 906 Certifications

(1) Exhibit to Form S-1 Registration Statement filed May 11, 1987

(2) Exhibit to Amendment No. 2 to Form S-1 Registration Statement filed June 17, 1987

(3) Exhibit to Amendment No. 3 to Form S-1 Registration Statement filed July 29, 1987

(4) Exhibit to 1987 Form 10-K Annual Report

(5) Exhibit to 1988 Form 10-K Annual Report

(6) Exhibit to 1989 Form 10-K Annual Report

(7) Exhibit to 1990 Form 10-K Annual Report

(8) Exhibit to 1991 Form 10-K Annual Report

(9) Exhibit to 1995 Form 10-K Annual Report

(10) Exhibit to 1998 Form 10-K Annual Report

(11) Exhibit to 1999 Form 10-K Annual Report

(12) Exhibit to 2002 Form 10-K Annual Report

(13) Exhibit to 2003 Form 10-K Annual Report

(14) Exhibit to June 30, 2004 Form 10-Q Quarterly Report

-20-

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: April 15, 2005	PROVENA FOODS INC.
	By	/s/ Theodore L. Arena
		Theodore L. Arena
		Chairman of the Board

Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Theodore L. Arena       Theodore L. Arena	Chairman of the Board, President (Principal Executive Officer) and Director	April 15, 2005
/s/ Ronald A. Provera       Ronald A. Provera	Vice President, Sales, and Secretary	April 15, 2005
/s/ Santo Zito       Santo Zito	Vice President and Director	April 15, 2005
/s/ Thomas J. Mulroney       Thomas J. Mulroney	Chief Financial Officer (Principal Financial and Accounting Officer)	April 15, 2005
/s/ Louis A. Arena       Louis A. Arena	Director	April 15, 2005
/s/ Joseph W. Wolbers       Joseph W. Wolbers	Director	April 15, 2005
/s/ John M. Boukather       John M. Boukather	Director	April 15, 2005

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PROVENA FOODS INC.

Index to Financial Statements and Schedule

	Page
Financial Statements
Report of Independent Registered Public Accounting Firm – Cacciamatta Accountancy Corporation	F-2
Report of Independent Registered Public Accounting Firm – KPMG LLP	F-3
Balance Sheets – December 31, 2004 and 2003	F-4
Statements of Operations – Years ended December 31, 2004, 2003, and 2002	F-5
Statements of Shareholders’ Equity – Years ended December 31, 2004, 2003, and 2002	F-6
Statements of Cash Flows – Years ended December 31, 2004, 2003, and 2002	F-7
Notes to Financial Statements	F-8
Schedule
II – Valuation and Qualifying Accounts and Reserves	F-23

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Provena Foods Inc.:

We have audited the accompanying balance sheet of Provena Foods Inc. (the “Company”) as of December 31, 2004, and the related statements of operations, shareholders’ equity, and cash flows for the year then ended. In connection with our audit of the financial statements, we also audited the financial statement schedule 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides 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 the Company as of December 31, 2004, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 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.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2004, the Company has negative working capital of approximately $7,126,000, is operating under an onerous forbearance agreement imposed by its Bank, and must secure a new lender by December 15, 2005 to refinance its credit facility. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding this matter are described in Note 1 (b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California

March 29, 2005, except as to Note

1 (b), which is as of April 13, 2005

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Provena Foods Inc.:

We have audited the accompanying balance sheet of Provena Foods Inc. as of December 31, 2003, and the related statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2003. In connection with our audits of the financial statements, we also have audited the accompanying financial statement schedule of valuation and qualifying accounts and reserves for each of the years in the two-year ended December 31, 2003. 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. as of December 31, 2003, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2003, in conformity with U.S. 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

Costa Mesa, California

February 6, 2004, except as to the second paragraph of Note 6,

which is as of February 26, 2004

F-3

PROVENA FOODS INC.

Balance Sheets

December 31, 2004 and 2003

	2004			2003
Assets
Current assets
Cash and cash equivalents	$	120,446		83,094
Accounts receivable		4,224,481		4,002,477
Inventories		5,001,454		4,023,118
Prepaid expenses		55,585		157,795
Income taxes receivable		294,680		13,631
Deferred tax assets		457,534		148,486
Total current assets		10,154,180		8,428,601
Property and equipment, net		15,972,363		16,464,176
Other assets		223,559		294,682
	$	26,350,102		25,187,459
Liabilities and Shareholders’ Equity
Current liabilities
Line of credit	$	3,225,000		382,717
Current portion of long-term debt		8,716,562		726,628
Current portion of capital lease obligation		58,000		48,000
Accounts payable		3,299,310		3,798,481
Accrued liabilities		1,981,764		1,357,786
Total current liabilities		17,280,636		6,313,612
Long-term debt, net of current portion		—		8,553,803
Capital lease obligation, net of current portion		314,935		386,302
Deferred tax liabilities		258,647		320,801
Total liabilities		17,854,218		15,574,518
Commitments and contingencies		—		—
Shareholders’ equity
Common stock, no par value; authorized 10,000,000 shares; issued and outstanding 3,441,814 and 3,209,706 shares at December 31, 2004 and 2003, respectively		5,421,817		5,139,019
Retained earnings		3,244,067		4,473,922
Deferred compensation		(170,000	)	—
Total shareholders’ equity		8,495,884		9,612,941
	$	26,350,102		25,187,459

See accompanying notes to financial statements.

F-4

PROVENA FOODS INC.

Statements of Operations

Years ended December 31, 2004, 2003, and 2002

	2004			2003		2002
Net sales	$	51,809,941		43,188,367		37,976,958
Cost of sales		49,817,990		39,347,880		33,570,600
Gross profit		1,991,951		3,840,487		4,406,358
Operating expenses
Distribution		1,674,425		1,608,802		1,276,928
General and administrative		2,001,602		1,855,180		1,962,492
		3,676,027		3,463,982		3,239,420
Operating income (loss)		(1,684,076	)	376,505		1,166,938
Other income (expense)
Interest		(563,688	)	(618,263	)	(521,966	)
Other, net		261,237		258,487		266,479
		(302,451	)	(359,776	)	(255,487	)
Earnings (loss) before income tax expense (benefit)		(1,986,527	)	16,729		911,451
Income tax expense (benefit)		(756,672	)	(1,504	)	353,709
Net earnings (loss)	$	(1,229,855	)	18,233		557,742
Net earnings (loss) per common share - Basic and Diluted	$	(0.38	)	0.01		0.18
Weighted average shares outstanding - Basic and Diluted		3,262,055		3,183,842		3,120,380

See accompanying notes to financial statements.

F-5

PROVENA FOODS INC.

Statements of Shareholders’ Equity

Years ended December 31, 2004, 2003, and 2002

	Common stock			Retained earnings		Deferred compensation		Total shareholders’ equity
	Shares issued	Amount
Balance at December 31, 2001	3,089,516	$	4,983,339	3,897,947		—		8,881,286
Sale of common stock	57,571		75,895	—		—		75,895
Net earnings	—		—	557,742		—		557,742
Balance at December 31, 2002	3,147,087		5,059,234	4,455,689		—		9,514,923
Sale of common stock	62,619		79,785	—		—		79,785
Net earnings	—		—	18,233		—		18,233
Balance at December 31, 2003	3,209,706		5,139,019	4,473,922		—		9,612,941
Common stock grant	150,000		204,000	—		(170,000	)	34,000
Sale of common stock	82,108		78,798	—		—		78,798
Net loss	—		—	(1,229,855	)	—		(1,229,855	)
Balance at December 31, 2004	3,441,814	$	5,421,817	3,244,067		(170,000	)	8,495,884

See accompanying notes to financial statements.

F-6

PROVENA FOODS INC.

Statements of Cash Flows

Years ended December 31, 2004, 2003, and 2002

	2004			2003		2002
Cash flows from operating activities
Net earnings (loss)	$	(1,229,855	)	18,233		557,742
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		902,888		828,519		792,707
Provision for bad debts		30,537		15,163		82,224
Deferred income taxes		(371,201	)	(16,303	)	160,509
Write off of deferred financing fees		—		153,852		—
Common stock grant - vested		34,000		—		—
Changes in assets and liabilities
Accounts receivable		(252,541	)	(1,245,601	)	384,672
Inventories		(978,336	)	(1,078,995	)	246,537
Prepaid expenses		102,210		(115,966	)	(29,386	)
Income taxes receivable		(281,049	)	(13,631	)	—
Other assets		71,123		—		(50,827	)
Accounts payable		(499,171	)	2,505,000		(68,577	)
Accrued liabilities		623,977		234,648		(106,135	)
Net cash provided by (used in) operating activities		(1,847,418	)	1,284,919		1,969,466
Cash flows from investing activities
Proceeds from sale of property and equipment		—		—		76,679
Additions to property and equipment		(411,075	)	(1,693,971	)	(328,087	)
Net cash used in investing activities		(411,075	)	(1,693,971	)	(251,408	)
Cash flows from financing activities
Proceeds from issuance of long-term debt		—		7,139,711		—
Payments on long-term debt		(563,869	)	(4,258,448	)	(492,023	)
Proceeds (payments) under line of credit		2,842,283		(2,540,012	)	(1,077,271	)
Proceeds from sale of common stock		78,798		79,785		75,895
Payment of deferred financing fees		—		(227,800	)	—
Payments on capital lease		(61,367	)	(51,523	)	(81,003	)
Net cash provided by (used in) financing activities		2,295,845		141,713		(1,574,402	)
Net increase (decrease) in cash and cash equivalents		37,352		(267,339	)	143,656
Cash and cash equivalents at beginning of year		83,094		350,433		206,777
Cash and cash equivalents at end of year	$	120,446		83,094		350,433
Supplemental disclosures of cash flow information
Cash paid (received) during the year for
Interest	$	563,688		617,870		514,344
Income taxes		(81,222	)	60,600		161,030
Supplemental disclosure of noncash investing and financing activities
Common stock grant - non vested		170,000		—		—

See accompanying notes to financial statements.

F-7

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(1) Summary of Significant Accounting Policies

(a) Description of Business

Provena Foods Inc. (the “Company”) is a California-based specialty food processor. 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) Going Concern

Because of the Company’s poor operating results, in 2004 Comerica Bank increased the Company’s borrowing costs and required the Company to engage an outside consultant to propose changes in the Company’s operations directed at improving the Company’s cash flow and operating results. In early 2005, Comerica Bank demanded that the Company refinance the credit facility with another lender, demanded payment of all of the obligations under the credit facility, and agreed to a conditional forbearance from judicial action to collect the obligations until December 15, 2005. The forbearance is conditioned on no new defaults under the credit facility, no defaults under the terms of the forbearance, no deterioration in the Company’s financial condition or the Bank’s collateral position and no belief by the Bank that its prospect of payment is impaired. Under the terms of the forbearance, the net proceeds from the sale on April 13, 2005 of the Company’s two pasta buildings were applied to retire the real estate and two equipment loans, reduce the balance of the line of credit by $500,000, and deposit with the Bank $2,865,000 cash collateral to secure liabilities under the credit facility. In addition, the Company’s borrowing limits were reduced, borrowing costs increased, and would increase further upon any new default under the credit facility or the forbearance terms. Accordingly, the Bank’s credit line and debt are reflected as current liabilities at December 31, 2004.

The Company’s ability to continue as a going concern is contingent upon securing a new lender to replace Comerica Bank, achieving profitable operations, and generating sufficient cash flow to meet its obligations as they become due. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(c) Inventories

Inventories consist principally of food products and are stated at the lower of cost (first-in, first-out) or market.

(d) Property and Equipment

Property and equipment are stated at cost. Equipment acquired under capital lease is recorded at the present value of future minimum lease payments and amortized on a straight-line basis over the shorter of the lease term or the estimated useful life of the asset. Assets

F-8

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

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	5 to 10 years
Delivery equipment	5 years
Office equipment	7 years

(e) 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.

(f) Earnings (Loss) per Common Share

Earnings (loss) per common share are calculated under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings per Share. SFAS No. 128 requires the Company to report both basic earnings (loss) per share, which is based on the weighted average number of common shares outstanding, and diluted earnings (loss) per share, which is based on the weighted average number of common shares plus all potential dilutive common shares outstanding.

(g) 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 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.

(h) Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America 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.

(i) 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

F-9

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

borrowings under the line of credit and long-term debt approximates their fair value because the interest rate on the instruments fluctuate with market interest rates or represents borrowing rates available with similar terms.

(j) Impairment of Long-Lived Assets

The Company assesses the recoverability of long-lived assets by comparing the carrying amount of an asset to future net cash flows expected to be generated by that asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

(k) Stock Option Plan

The Company applies the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. SFAS No. 123, Accounting for Stock-Based Compensation, establishes 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 described above, and has adopted the disclosure requirements of SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.

The Company did not grant options in fiscal years 2004, 2003 and 2002.

(l) Segment Information

The Company operates two reportable segments under criteria established in SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

(m) Comprehensive Income (Loss)

The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which establishes rules for the reporting and display of comprehensive income (loss) and its components. The Company does not have any components of other comprehensive income (loss), and accordingly, the Company’s comprehensive income (loss) is the same as its net earnings (loss).

(n) Revenue Recognition

Revenue is recognized when the following criteria have been met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the seller’s price is fixed or determinable; and collectibility is reasonably assured. Generally, the revenue recognition criteria are met upon shipment of goods to customers.

F-10

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(o) Deferred Financing Fees

The Company defers certain fees relating to the obtaining of new financings and amortizes those deferred fees to interest expense over the life of the financing.

(p) Recent Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB Bo. 43, “Inventory Pricing,” for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) requiring that those items be recognized as current-period expenses regardless of whether they meet the criterion of “so abnormal.” This statement also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during the fiscal years beginning after June 15, 2005. The Company has always allocated production overheads to the costs of conversion based on the normal capacity of the production facilities; therefore, management does not expect this statement to have a material impact on the Company’s consolidated financial position or results of operations.

On December 16, 2004 the FASB issued SFAS No. 123R, “Share-Based Payment,” which is an amendment to SFAS No. 123, “Accounting for Stock-Based Compensation.” This new standard eliminates the ability to account for share-based compensation transactions using Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally requires such transactions to be accounted for using a fair-value-based method and the resulting cost recognized in our financial statements. This new standard is effective for awards that are granted, modified or settled in cash in interim and annual periods beginning after June 15, 2005, December 15, 2005 for small business issuers. In addition, this statement will apply to unvested options granted prior to the effective date. The Company will adopt this new standard effective for the first fiscal quarter of 2006 and it has not yet determined what impact this standard will have on its financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion 29 (“SFAS 153”). SFAS 153 requires that exchanges of nonmonetary assets be measured based on the fair values of the assets exchanged, and eliminates the exception to this principle under APB Opinion 29 for exchanges of similar productive assets. The Company is required to adopt the new standard in the first interim period beginning after June 15, 2005. The Company does not expect the adoption of SFAS 153 to have a material effect on its financial statements.

(q) Reclassifications

Certain amounts in prior years’ financial statements have been reclassified to conform to the 2004 presentation.

F-11

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(2) Inventories

	2004		2003
Raw materials	$	1,743,685	1,515,118
Work in process		1,340,801	951,388
Finished goods		1,916,968	1,556,612
	$	5,001,454	4,023,118

(3) Property and Equipment

	2004			2003
Land	$	1,296,803		1,296,803
Buildings and improvements		13,468,112		13,468,426
Machinery and equipment		8,557,575		7,007,360
Delivery equipment		3,500		3,500
Office equipment		208,803		193,585
Construction in progress		—		1,154,359
		23,534,793		23,124,033
Less accumulated depreciation and amortization		(7,562,430	)	(6,659,857	)
	$	15,972,363		16,464,176

The Company leases certain real property to outside parties under noncancelable operating leases. Rental income, included in other income, totaled approximately $147,590, $136,000, and $129,000 in 2004, 2003, and 2002, respectively.

(4) Credit Facility with Comerica Bank

All parts of the credit facility are secured by substantially all the assets of the Company and are subject to a number of financial covenants. The Company was in default of all but one such covenant at December 31, 2004. Accordingly, the Bank’s credit line and all long term debt are reflected as current liabilities at December 31, 2004.

The line of credit under the facility was payable on demand, was subject to annual review, and had a variable interest rate at 1.25% over Comerica’s “Base Rate” (5.25% at December 31, 2004). At December 31, 2004, the Company had fully drawn on the line of credit in the form of actual borrowings of $3,225,000 and a $775,000 letter of credit supporting the Company’s obligations to pay workers’ compensation claims. Amounts available under this line of credit are limited based on a formula that considers accounts receivable and inventory balances.

As part of the credit facility, on December 30, 2003, the Company borrowed $6,300,000 by the issuance of variable rate demand bonds under an indenture supported by $6,378,750 letter of credit issued by Comerica that expires December 30, 2008 and carries an annual commitment fee of 1.25%

Also as part of the credit facility, Comerica made real estate and equipment loans to the Company, as summarized in the table below.

F-12

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

In early 2005, Comerica demanded that the Company refinance the credit facility with another lender, demanded payment of all the obligations under the credit facility, and agreed to a conditional forbearance from judicial action to collect the obligations until December 15, 2005.

The forbearance is conditioned on no new defaults under the credit facility, no defaults under the terms of the forbearance, no deterioration in the Company’s financial condition or the Bank’s collateral position and no belief by the Bank that its prospect of payment is impaired. Management believes that the Company will not be in default of any new covenants and that Comerica will continue to waive financial default conditions until the Company is able to secure a new lender to assume Comerica’s credit facility. Under the terms of the forbearance, the net proceeds from the sale on April 13, 2005 of the Company’s two pasta buildings were applied to retire the real estate and two equipment loans, reduce the balance of the line of credit by $500,000, and deposit with the Bank $2,865,000 cash collateral to secure liabilities under the credit facility. In addition, the Company’s borrowing limits were reduced, borrowing costs increased, to be further increased upon any new default under the credit facility or the forbearance terms.

Long term debt is as follows:

	2004		2003
Equipment loan at federal reserve rate (2.16% at December 31, 2004) plus 3.65%, secured by certain equipment, monthly principal and interest payments of $16,222	$	683,603	839,711
Equipment loans at variable interest rates at prime (5.25% at December 31, 2004) and prime plus 0.75%, secured by all Company assets.		526,235	916,557
Real estate loan at 9.1%, secured by all Company assets, monthly principal and interest payments of $10,830.		1,206,724	1,224,163
Variable/Fixed Rate Demand Bonds Series 2003A at a variable rate (2.47% at December 31, 2004), secured by an irrevocable letter of credit, monthly principal payments ranging from $12,900 to $45,800. Variable rate interest payments are due monthly.		6,300,000	6,300,000
		8,716,562	9,280,431
Less current portion		8,716,562	726,628
	$	—	8,553,803

F-13

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(5) Accrued Liabilities

	2004		2003
Accrued profit sharing	$	—	406,045
Accrued retirement		371,353	345,662
Accrued compensation		64,844	194,303
Other		1,545,567	411,776
	$	1,981,764	1,357,786

(6) Shareholders’ Equity

The Company sold shares to employees under its stock purchase plan in 2004, 2003, and 2002.

On February 26, 2004, the Company issued 150,000 shares to an executive officer at the market price of $1.36 per share. One-sixth of the shares vested at the grant date and the remaining shares vest ratably over the next five years, contingent on the continued employment of the executive officer.

(7) Income Taxes

Income tax expense (benefit) for the years ended December 31, 2004, 2003, and 2002 follows:

	2004			2003		2002
Current:
Federal	$	(327,000	)	13,999		192,400
State		800		800		800
Deferred:
Federal		(345,982	)	(3,337	)	122,287
State		(84,490	)	(12,966	)	38,222
	$	(756,672	)	(1,504	)	353,709

F-14

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

Sources and tax effects of temporary differences between financial statement carrying amounts and tax bases of assets and liabilities:

	2004			2003
Deferred tax assets:
Inventory	$	178,097		168,616
Net operating loss		235,597		50,186
State tax credit carryforwards		44,330		40,730
Accruals not currently deductible		188,188		—
Total deferred tax assets	$	646,212		259,532
Deferred tax liabilities:
Gain on destroyed equipment	$	(324,016	)	(370,410	)
Property and equipment		(123,309	)	(61,437	)
Total deferred tax liabilities	$	(447,325	)	(431,847	)

The following table provides a reconciliation of the deferred tax assets and liabilities presented in the table above to the accompanying balance sheets at December 31, 2004 and 2003:

	2004 Current			2004 Noncurrent		2004 Total
Deferred tax assets:
Inventory	$	178,097		—		178,097
Net operating loss		137,643		97,954		235,597
State tax credit carryforwards		0		44,330		44,330
Accruals not currently deductible		188,188				188,188
Total deferred tax assets		503,928		142,284		646,212
Deferred tax liabilities:
Gain on destroyed equipment		(46,394	)	(277,622	)	(324,016	)
Property and equipment		—		(123,309	)	(123,309	)
Total deferred tax liabilities		(46,394	)	(400,931	)	(447,325	)
Net deferred tax asset (liability)	$	457,534		(258,647	)	198,887

F-15

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

	2003 Current			2003 Noncurrent		2003 Total
Deferred tax assets:
Inventory	$	168,616		—		168,616
Net operating loss		—		50,186		50,186
State taxes		26,264		14,466		40,730
Total deferred tax assets		194,880		64,652		259,532
Deferred tax liabilities:
Gain on destroyed equipment		(46,394	)	(324,016	)	(370,410	)
Property and equipment		—		(61,437	)	(61,437	)
Total deferred tax liabilities		(46,394	)	(385,453	)	(431,847	)
Net deferred tax asset (liability)	$	148,486		(320,801	)	(172,315	)

As of December 31, 2004, the Company had net operating loss (NOL) carryforwards of approximately $404,000 and $1,680,000 for federal and state tax purposes, respectively, that will begin to expire in 2024 and 2012, respectively. The utilization of these NOL carryforwards could be limited due to restrictions imposed under federal and state laws upon a change in ownership.

Management’s assessment is that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. Management’s conclusion is based principally on the taxable gain of approximately $3,600,000 generated by the sale of the Company’s two pasta buildings, which sale was consummated on April 13, 2005.

F-16

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

Actual income tax expense (benefit) differs from “expected” income tax, computed by applying the U.S. federal corporate tax rate of 34% to earnings (loss) from operations before income taxes, as follows:

	2004					2003					2002
	Amount			%		Amount			%		Amount			%
Computed “expected” income taxes	$	(675,419	)	(34.0	)	$	5,688		34.0		$	309,893		34.0
State income taxes, net of federal income tax benefit		(67,754	)	(3.4	)		970		5.8			42,166		4.6
State manufacturing investment credit		(3,603	)	(0.2	)		(13,358	)	(79.9	)		—		—
Non deductible expenses		(2,700	)	(0.1	)		5,237		31.3			5,066		0.6
Other		(7,196	)	(0.4	)		(41	)	(0.2	)		(3,416	)	(0.4	)
	$	(756,672	)	(38.1	)	$	(1,504	)	(9.0	)	$	353,709		38.8

(8) 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 2004, 2003, and 2002 were approximately $0, $406,000 and $364,000, 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 acquire newly issued common shares from the Company. The Company matching contributions to the stock purchase plan for 2004, 2003, and 2002 were $36,846, $42,981, and $37,569, respectively.

(9) 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. Options may no longer be granted under the Plan.

F-17

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

Stock option activity under the Plan during the periods indicated is as follows:

	Number of shares	Weighted average exercise price
Balance at December 31, 2001	107,111	$	2.56
Exercised	—		—
Balance at December 31, 2002	107,111		2.56
Exercised	—		—
Balance at December 31, 2003	107,111		2.56
Exercised	—		—
Balance at December 31, 2004	107,111		2.56

At December 31, 2004 all outstanding options were exercisable and their remaining contractual life was three years.

F-18

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(10) Earnings (Loss) Per Share

The following table illustrates the computation of basic and diluted earnings (loss) per common share:

	2004			2003	2002
Numerator:
Numerator for basic and diluted earnings (loss) per share – net earnings (loss)	$	(1,229,855	)	18,233	557,742
Denominator:
Denominator for basic earnings (loss) per share – weighted average number of common shares outstanding during the period		3,262,055		3,183,482	3,120,380
Incremental common shares attributable to exercise of outstanding options		—		—	—
Denominator for diluted earnings (loss) per share		3,262,055		3,183,482	3,120,380
Basic earnings (loss) per share	$	(0.38	)	0.01	0.18
Diluted earnings (loss) per share	$	(0.38	)	0.01	0.18

In 2004, 2003, and 2002, all 107,111 stock options outstanding were excluded from the computation of diluted earnings (loss) per share due to their antidilutive effect.

(11) 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-19

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

The following table represents financial information about the Company’s business segments as of and for the three years ended December 31, 2004:

	2004			2003		2002
Net sales to unaffiliated customers:
Swiss American Division	$	45,150,639		37,483,300		32,308,055
Royal-Angelus Division		6,659,302		5,705,067		5,668,903
Total sales	$	51,809,941		43,188,367		37,976,958
Operating income (loss):
Swiss American Division	$	(1,119,739	)	679,703		1,546,685
Royal-Angelus Division		(737,857	)	(512,370	)	(525,248	)
Corporate		173,520		209,172		145,501
Operating income (loss)	$	(1,684,076	)	376,505		1,166,938
Identifiable assets:
Swiss American Division	$	20,570,546		19,901,183		17,709,638
Royal-Angelus Division		4,956,193		4,908,453		3,842,313
Corporate		823,363		377,823		468,667
Total assets	$	26,350,102		25,187,459		22,020,618
Capital expenditures:
Swiss American Division	$	273,308		520,884		287,018
Royal-Angelus Division		133,527		1,165,642		40,318
Corporate		4,240		7,445		751
Total capital expenditures	$	411,075		1,693,971		328,087
Depreciation and amortization:
Swiss American Division	$	647,665		618,299		575,364
Royal-Angelus Division		252,294		208,083		214,790
Corporate		2,929		2,137		2,553
Total depreciation and amortization	$	902,888		828,519		792,707

F-20

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

The Company had major customers during 2004, 2003, and 2002 as follows (dollars in thousands):

	2004			2003			2002			Accounts receivable balance at December 31
Customer	Sales		%	Sales		%	Sales		%	2004		2003
A	$	14,330	28	$	9,813	23	$	6,334	17	$	909	1,174
B		5,408	10		5,399	13		4,721	12		0	0
C		3,902	8		3,897	9		3,305	9		445	384

(12) Commitments and Contingencies

In 2001, the Company entered into a capital lease for certain production equipment totaling $566,828, which is included in property and equipment in the accompanying balance sheets. The lease has a term of six years, as amended, and requires minimum payments based on certain production volumes. Future minimum lease payments on the capital lease at December 31, 2004 are as follows:

2005	$	69,638
2006		69,638
2007		275,167
Total minimum lease payments		414,443
Less amount representing interest		41,508
Present value of net minimum lease payments		372,935
Less current portion		58,000
Long-term portion	$	314,935

As of December 31, 2004 approximately 67% of the Company’s employees are covered by a collective bargaining agreement which expires in 2006. In addition, another 12% of the Company’s employees are covered by another collective bargaining agreement which expires in 2006.

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.

F-21

PROVENA FOODS INC.

Notes to Financial Statements

December 31, 2004

(13) Selected Quarterly Financial Data (Unaudited)

The following summarizes certain unaudited quarterly financial information for 2004, 2003, and 2002:

Fiscal 2004	Quarter									Total
	1st			2nd		3rd		4th
Net sales	$	12,318,552		11,802,338		13,708,284		13,980,767		51,809,941
Operating income (loss)		(539,122	)	(368,221	)	(395,824	)	(380,909	)	(1,684,076	)
Net earnings (loss)		(360,697	)	(298,762	)	(545,091	)	(25,305	)	(1,229,855	)
Net earnings (loss) per basic share		(0.11	)	(0.09	)	(0.16	)	(0.01	)	(0.38	)
Net earnings (loss) per diluted share		(0.11	)	(0.09	)	(0.16	)	(0.01	)	(0.38	)
Fiscal 2003	1st			2nd		3rd		4th		Total
Net sales	$	9,082,341		9,228,643		11,636,275		13,241,108		43,188,367
Operating income		132,894		64,333		46,717		132,561		376,505
Net earnings		66,682		7,883		(13,560	)	(42,722	)	18,233
Net earnings (loss) per basic share		0.02		0.00		(0.00	)	(0.01	)	0.01
Net earnings ( loss) per diluted share		0.02		0.00		(0.00	)	(0.01	)	0.01
Fiscal 2002	1st			2nd		3rd		4th		Total
Net sales	$	9,772,060		8,903,207		9,725,909		9,575,782		37,976,958
Operating income		159,163		228,493		474,767		304,515		1,166,938
Net earnings		55,706		92,767		228,666		180,603		557,742
Net earnings per basic share		0.02		0.03		0.07		0.06		0.18
Net earnings per diluted share		0.02		0.03		0.07		0.06		0.18

F-22

PROVENA FOODS INC.

Schedule II – Valuation and Qualifying Accounts and Reserves

Years ended December 31, 2004, 2003, and 2002

Description	Balance at beginning of Period		Provision, net of recoveries	Deductions – uncollectible accounts	Balance at end of period
Allowance for doubtful receivables:
2004	$	—	30,537	30,537	—
2003	$	—	15,163	15,163	—
2002	$	—	82,224	82,224	—

See accompanying Report of Independent Registered Public Accounting Firm

F-23

EX-10.65

EXHIBIT 10.65

SECOND MODIFICATION TO LOAN AND SECURITY AGREEMENT

This Second Modification to Loan and Security Agreement (this “Modification”) is entered into by and between PROVENA FOODS, INC. (“Borrower”) and COMERICA BANK (“Bank”) as of this 18^th day of June, 2004, at San Jose, California.

RECITALS

This Modification 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:

Bank and Borrower previously entered into a Loan and Security Agreement (Accounts and Inventory) dated August 5, 2003, which was subsequently amended pursuant to a First Modification to Loan and Security Agreement dated as of March 8, 2004. The Loan and Security Agreement as modified by each such and each modification shall collectively be referred to herein as the “Agreement.”

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as set forth below.

AGREEMENT

1. Incorporation by Reference. The Recitals and the documents referred to therein are incorporated herein by this reference. Except as otherwise noted, the terms not defined herein shall have the meaning set forth in the Agreement.

2. Modification to the Agreement. Subject to the satisfaction of the conditions precedent as set forth in Section 3 hereof, the Agreement is hereby modified as set forth below.

A. Subsection 1.6 of the Agreement is hereby restated and replaced, in its entirety, as follows:

“ 1.6 ‘Borrowing Base’ shall mean the sum of: (1) eighty percent (80%) of the net amount of Eligible Accounts after deducting therefrom all payments, adjustments and credits applicable thereto, (2) the amount, if any, of the advances against Inventory agreed to be made pursuant to any Inventory Rider or other amendment or modification of this Agreement now or hereafter entered between Bank and Borrower, and (3) from June 15, 2004 to August 1, 2004 only Six Hundred Thousand Dollars ($600,000), minus a reserve in an amount determined in Bank’s discretion, up to Five Hundred Thousand Dollars ($500,000) until Borrower shall acquire a Cash Flow Coverage Ratio of at least 1.25:1.00. Anything in the foregoing to the contrary notwithstanding, Bank may adjust Borrowing Base percentage(s) and the definition of Eligible Accounts and Eligible Inventory, in each case as provided for under subsection 6.7 hereof.”

B. Section 2.2 of the Agreement is hereby restated and replaced in its entirety as follows:

“2.2 Except as hereinbelow provided, the Credit shall bear interest, on the Daily Balance owing, at a fluctuating rate of interest equal to the Base Rate plus one and one-quarter percent (1.25%) per annum.

“All interest chargeable under this Agreement that is based upon a per annum calculation shall be computed on the basis of a three hundred sixty (360) day year for actual days elapsed. The Base Rate as of the date of this Agreement (i.e., august 5, 2003) is four percent (4%) per annum. In the event that the Base Rate announced is, from time to time hereafter, changed, adjustment in the Base Rate shall be made and based on the Base Rate in effect on the date of such change. The Base Rate, as adjusted, shall apply to the Credit until the Base Rate is adjusted again.

“All interest payable by Borrower under the Credit shall be due and payable on the first day of each calendar month during the term of this Agreement. A late payment charge equal to five percent (5%) of each late payment may be charged on any payment not received by Bank within ten (10) calendar days after the payment due date, but acceptance of payment of this charge shall not waive any Event of Default under this Agreement. Upon the occurrence of an Event of Default hereunder, and without constituting a waiver of any such Event of Default, then during the continuation thereof, at Bank’s option, the Credit shall bear interest, on the Daily Balance owing, at a rate equal to three percent (3%) per year in excess of the rate applicable immediately prior to the occurrence of the Event of Default, and such rate of interest shall fluctuate thereafter from time to time at the same time and in the same amount as any fluctuation in the date of interest applicable immediately prior to any such occurrence.”

C. Section 3.3 of the Agreement is hereby amended by replacing the words “Three Hundred Seventy Five Thousand and no/100 Dollars ($375,000)” with the words “One Million Two Hundred Thousand Dollars ($1,200,000).”

D. Section 6.7 of the Agreement is hereby restated in its entirety as follows:

“6.7 Borrower shall permit representatives of Bank to conduct audits of Borrower’s Books relating to the Accounts and other Collateral and make extracts therefrom, with results satisfactory to Bank, provided that Bank shall use its best efforts to not interfere with the conduct of Borrower’s business, and to the extent possible to arrange for verification of the Accounts directly with the account debtors obligated thereon or otherwise, all under reasonable procedures acceptable to Bank and at Borrower’s sole expense; provided, however, that, prior to an Event of Default, Borrower shall not be responsible for more than three (3) such audits in each calendar year. Notwithstanding any of the provisions contained in Section 2.1 of this Agreement or otherwise, Borrower hereby acknowledges and agrees that upon completion of any such audit Bank shall have the right to adjust the Borrowing Base percentage or the definition of Eligible Accounts and Eligible Inventory, in its sole and reasonable discretion, based on its review of the results of such audit.”

E. Subsection (c) of Section 6.16 of the Agreement is hereby restated in its entirety as follows:

“(c) In addition to the financial statements required above, Borrower agrees to provide Bank, in each case, in form and detail satisfactory to Bank:

• Accounts Receivable Aging on a monthly basis, within 20 days of each month end,

• Accounts Payable Aging on a monthly basis within 20 days of each month end,

• Inventory Report on a monthly basis, within 20 days of each month end, and

• Borrowing Base Certificate on a weekly basis, within 5 days of each month end.”

F. The following Section 6.27 is hereby added to the Agreement immediately after Section 6.26 thereof.

“On or before August 1, 2004 Borrower shall engage a third party cost consultant of recognized standing and otherwise satisfactory to Bank for the purpose of obtaining advise on the management of Borrowers costs, expenses and financial affairs and shall, as and when requested by Bank, make such consultant’s recommendations, reports and conclusions available to Bank for Bank’s review and for discussion with Borrower and/or such consultant.”

3. Waiver. Bank hereby waives defaults or events of default which may exist or have arisen by reason of Borrower’s failure to comply with the financial covenants set forth in Section 6.17 of the Agreement as of the months ended January 31, 2004, February 28, 2004, March 31, 2004 and April 30, 2004 only. Except to the extent specifically amended and or waived hereby, the terms of the Agreement (including without limitation, Section 6.17 thereof) remain in full force and effect.

4. Remittance Basis. Borrower agrees that the Indebtedness shall be on a remittance basis and that, in furtherance thereof, Borrower shall maintain with Bank a non-interest bearing deposit account to which Bank shall

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have exclusive access and control (“Cash Collateral Account”) Borrower agrees to notify all account debtors and other parties obligated to Borrower that all payments made to Borrower shall be remitted to the Cash Collateral Account, and Borrower, at Bank’s request, shall include a like statement on all invoices. Borrower shall execute all documents and authorizations as required by Bank to establish and maintain the Cash Collateral Account.

All items or amounts which are remitted to the Cash Collateral Account, or otherwise delivered by or for the benefit of Borrower to Bank on account of partial or full payment of, or with respect to, any Collateral shall, at Bank’s option, (a) be applied to the payment of the Indebtedness, whether then due or not, in such order or at such time of application as Bank may determine in its sole discretion, or, (b) be maintained on deposit in the Cash Collateral Account. Borrower agrees that Bank shall not be liable for any loss or damage which Borrower may suffer as a result of Bank’s processing of items or its exercise of any other rights or remedies under this Agreement, including without limitation indirect, special or consequential damages, loss of revenues or profits, or any claim, demand or action by any third party arising out of or in connection with the processing of items or the exercise of any other rights or remedies under this Agreement. Borrower agrees to indemnify and hold Bank harmless from and against all such third party claims, demands or actions, and all related expenses or liabilities, including, without limitation, attorney fees.”

5. Legal Effect. The effectiveness of this Modification is conditioned upon receipt by Bank of this Modification, and any other documents which Bank may require to carry out the terms hereof. Except as specifically set forth in this Modification, all of the terms and conditions of the Agreement remain in full force and effect.

6. Integration. This is an integrated Modification and supersedes all prior negotiations and agreements regarding the subject matter hereof. All amendments hereto must be in writing and signed by the parties.

7. Costs and Expense. Borrower shall pay all of Bank’s costs and expenses (including attorneys fees and expenses) incurred in connect with the preparation, negotiation and execution hereof immediately upon demand for such payment.

IN WITNESS WHEREOF, the parties have agreed as of the date first set forth above.

PROVENA FOODS INC.		COMERICA BANK
By:	/s/ Thomas J. Mulroney	By:	/s/ Stephen Moore
	Thomas J. Mulroney		Stephen Moore
Title:	Chief Financial Officer		Vice President

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EX-10.66

EXHIBIT 10.66

Comerica Bank

March 28, 2005

Mr. Thomas J. Mulroney

Vice President, Chief Financial Officer

Provena Foods Inc.

5010 Eucalyptus Ave.

Chino, CA 91710

Re: Financing Arrangements Between Comerica Bank (“Bank”) and Provena Foods Inc., a/k/a Provena Foods, Inc. (“Borrower”)

Dear Mr. Mulroney:

Please refer to the Loan and Security Agreement dated August 5, 2003, as subsequently modified, the Riders thereto, the Reimbursement Agreement dated December 1, 2003, the Irrevocable Direct Pay Letter of Credit No. 588233-43, Variable Rate Installment Note Dated December 6, 1999 in the amount of $414,788, Variable Rate Installment Note dated July 28, 1999 in the amount of $1,000,000, Variable Rate Installment Note dated September 29, 1999 in the amount of $1,200,000, Deed of Trust dated December 1, 2003 on Chino Property (the “Chino Deed of Trust”), Deed of Trust dated December 1, 2003 on Lathrop Property (the “Lathrop Deed of Trust”), Security Agreement dated December 1, 2003, and any and all documents, instruments and agreements executed in connection with the financing arrangements from Bank to Borrower (collectively, the “Loan Documents”). All amounts due from Borrower to Bank, whether now or in the future, contingent, fixed, primary and/or secondary, including, but not limited to, principal, interest, inside and outside counsel fees, audit fees, costs, expenses and any and all other charges provided for in the Loan Documents shall be known, in the aggregate, as the “Liabilities”. All capitalized terms not defined in this letter agreement (“Agreement”) shall have the meanings described in the Loan Documents.

As of March 25, 2005 the Liabilities include:

Loans (note amount and date)	Principal		Interest
Line of Credit 63002852773-141	$	3,725,000.00	$	14,498.89
Variable Rate Installment Note Dated December 6, 1999	$	1,203,051.75	$	7,298.51
Variable Rate Installment Note dated July 28, 1999	$	202,381.08	$	746.28
Variable Rate Installment Note dated September 29, 1999	$	271,475.00	$	1,046.31
TOTAL	$	5,401,907.83	$	23,589.99

-and-

Letters of Credit	Stated Amount
Standby Letter of Credit	$	775,000.00
Irrevocable Direct Pay Letter of Credit No. 588233-43	$	6,121,813.00

The amounts referenced above are exclusive of interest accruing after March 25, 2005, costs and expenses (including, but not limited to, inside and outside counsel fees).

Borrower has violated the financial covenants contained in Section 6.17 of the Loan and Security Agreement dated August 5, 2003, as subsequently modified (the “LSA”), in particular the Minimum Quick Ratio, the Effective Tangible Net Worth, the Debt to Effective Tangible Net Worth ratio, and Cash Flow, as set forth in the following chart:

Covenants	Required	Actual as of 11/30/04			Actual as of 12/31/04
Minimum Quick Ratio	>0.50:1.0		0.46			0.43
ETNW	>$9,300M	$	8,083	M	$	8,489	M
D/ETNW	< 2.00: 1.00		2.18			1.99
Cash Flow (measured quarterly)	>1.06X*		0.18			-0.45

* Requirement increases to 1.25:1 after 12/31/04 under existing covenants.

The Line of Credit is terminable after the giving of notice of same and the Installment Notes are term obligations. As a result of and for the reasons outlined above, Bank hereby accelerates the Line of Credit and the Installment Notes and demands payment in full of all of the Liabilities.

Subject to Borrower’s timely, written acceptance of the following conditions, Bank is willing to forbear until December 15, 2005 (the “Expiration Date”), subject to earlier termination as provided as below, from further judicial action to collect the Liabilities:

General Acknowledgements

1. Borrower acknowledges the Liabilities as set out in the Loan Documents, the amount of the Liabilities as stated above and the existence of the default.

2. Future administration of the Liabilities and the financing arrangements between Bank and Borrower shall continue to be governed by the covenants, terms and conditions of the Loan Documents, which are incorporated by this reference, except to the extent that the Loan Documents have been superseded, amended, modified or supplemented by this Agreement or are inconsistent with this Agreement, then this Agreement shall govern.

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3. Borrower acknowledges that Bank is under no obligation to advance funds or extend credit to Borrower pursuant to the Loan Documents, or otherwise.

Sale and Leaseback of Chino Property

4. Borrower has entered into an agreement with Eucalyptus Avenue, LLC, a California Limited Liability Company, and John M. Meindl and Suzanne S. Meindl, Trustees of the John M. Meindl and Suzanne S. Meindl Trust Dated September 29, 1997 (“Buyer”) for the sale and lease back of the land and two buildings located at 5010 and 5060 Eucalyptus Ave., Chino, California (the “Chino Property”). The gross sale price for the Chino Property is $6,113,776.00. The anticipated date to close the escrow is March 31, 2005.

5. Bank agrees to a partial discharge of the Deed of Trust on the Chino Property, only, which preserves the liens granted to Bank on Borrower’s machinery, equipment, trade fixtures, and other personal property, subject to satisfaction of the terms of the following paragraphs.

6. On or before execution of this Agreement, Borrower shall deliver to Bank a fully executed landlord waiver and subordination from Buyer for the Chino Property, in the form attached hereto as Exhibit A.

7. On or before execution of this Agreement, Borrower shall deliver to Bank an acknowledgement from Buyer that Buyer is not purchasing certain machinery, equipment, trade fixtures, in the from attached as Exhibit B. Borrower acknowledges that Bank has a valid, perfected security interest in those assets.

8. Bank shall receive all proceeds from the sale of the Chino Property, net of closing costs and expenses, including any broker fee, but not less than $5,658,000.00.

9. The escrow shall close, and the proceeds disbursed, on or before April 15, 2005.

Application of Net Proceeds From Sale of Chino Property

10. Bank shall apply the net proceeds from the sale of the Chino Property as follows: first to pay in full the three term notes, being Variable Rate Installment Note Dated December 6, 1999, Variable Rate Installment Note dated July 28, 1999, and Variable Rate Installment Note dated September 29, 1999; then $500,000 applied to the Line of Credit, which will eliminate the $500,000 Overformula Amount under the LSA; then $2,865,000.00 cash collateral (the “Additional Cash Collateral”) to secure the Liabilities, including without limitation the Irrevocable Direct Pay Letter of Credit No. 588233-43, the existing $775,000 standby letter of credit, the additional $775,000 standby letter of credit to be issued in accordance with the terms of this Agreement for Workmen’s Compensation, and for ACH authority; and the balance shall be applied to Line of Credit.

11. Upon execution of this Agreement, Borrower shall execute and deliver to Bank a pledge agreement evidencing the security interest in the Additional Cash Collateral, the form of which is attached as Exhibit C.

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The Line of Credit

12. Borrower acknowledges and agrees it shall hold in express trust for Bank and immediately surrender in the form received all of its cash inflows to Bank by depositing such inflows into account # 1892271428 maintained at Bank (the “DOF Account”).

13. Subject to the above application of the net proceeds from the sale of the Chino Property, Bank shall apply the funds received in the DOF Account to the Liabilities owed under the LSA.

14. The $500,000.00 Overformula Amount permitted in the LSA shall be terminated at the earlier of April 30, 2005, or the close of escrow of the sale of Chino Property.

15. Paragraph 1 of the Inventory Rider to the LSA is hereby amended and restated in its entirety, as follows:

“1. At the request of Borrower, made at any time and from time to time during the term of the Agreement, and so long as no Event of Default under the Agreement has occurred and Borrower is in full, faithful and timely compliance with each and all of the covenants, conditions, warranties and representations contained in the Agreement, this Rider and/or any other agreement between Bank and Borrower, Bank agrees to lend Borrower Thirty Percent (30%) of the lower of cost or market value of Borrower’s raw materials and finished goods Inventory, and as may be adjusted by Bank, in Bank’s discretion, for age and seasonality or other factors affecting the value of the Inventory, up to a maximum advance outstanding at any one time of One Million Five Hundred Thousand Dollars ($1,500,000.00) (the “Inventory Cap”), upon Borrower’s concurrent execution and delivery to Bank of a Designation of Inventory, or Certification of Borrowing Base, in form customarily used by Bank. All advances made and to be made pursuant to this Rider are solely and exclusively to enable Borrower to acquire rights in and purchase new Inventory, and Borrower represents and warrants that all advances by Bank pursuant to this Rider will be used solely and exclusively for such purpose; and since such advances will be used for the foregoing purposes, Bank’s security interest in Borrower’s Inventory is and shall be at all times a purchase money security interest as that term is described in Section 9107 of the California Uniform Commercial Code.”

16. At the earlier of April 30, 2005 or the close of escrow on the sale of the Chino Property, the Inventory Cap shall reduce to One Million Dollars ($1,000,000.00).

17. Upon the close of escrow for the sale of the Chino Property, the Credit Limit set forth in the LSA shall reduce from Four Million Dollars ($4,000,000.00) to Three Million Five Hundred Thousand ($3,500,000.00).

18. Interest on the LSA shall accrue at Bank’s “prime rate” (a variable rate of interest announced by Bank from time to time) plus one and a quarter percentage points ( 1.25 %)

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and shall be due and payable on the first (1st) day of each and every month, effective as of the date of this Agreement, and upon the occurrence of a default under the terms of this Agreement or any further defaults under the Loan Documents, then the Liabilities shall accrue interest at the rate otherwise provided in this Paragraph plus three percentage points (3%).

19. The financial ratios and covenants specified in Section 6.17 of the LSA are waived through and including May 31, 2005.

20. Borrower represents and warrants that it does not and will not purchase any goods, produce, commodities, meat, or other items from any party that may assert a trust fund claim under the Packers and Stockyard Act, 7 U.S.C. § 181, et seq, the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a, et seq, or other similar federal or state legislation or regulation.

21. Upon the close of the escrow of the sale of the Chino Property, and upon receipt of the cash collateral to secure the existing standby letter of credit in full and to secure the standby letter of credit to be issued in accordance with the terms of this Agreement, Section 2.1 of the LSA shall be deemed amended by deleting the phrase “, minus all Letter of Credit Obligations” from the first sentence of Section 2.1.

Standby Letters of Credit

22. Notwithstanding any provision in the Loan Documents, including without limitation Section 2.3 of the LSA, effective immediately Bank shall have no obligation to issue any further or additional letters of credit.

23. Bank agrees to issue an additional standby letter of credit to support Borrower’s workmen’s compensation insurance plan, in an amount not to exceed $250,000.00 on or before June 30, 2005, $500,000.00 from July 1, 2005 to September 30, 2005, and thereafter $775,000.00. The additional standby letter of credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form of standard Letter of Credit Application and Agreement.

24. The obligation of Borrower to immediately reimburse Bank for drawings made under letters of credit shall be absolute, unconditional and irrevocable in accordance with the terms of this Agreement, the LSA and the Letter of Credit Application and Agreement with respect to each such letter of credit. Borrower shall indemnify, defend, protect and hold Bank harmless from any loss, cost, expense, or liability, including, without limitation, reasonable attorney’s fees incurred by Bank, whether in-house or outside counsel is used, arising out of or in connection with any letters of credit.

25. The fee for renewing the existing letter of credit and for issuing the additional letter of credit shall be two percent ( 2.00 %) per annum of the amount of such letter of credit plus other service charges customarily charged, to be paid on or before renewal or issuance.

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26. Provided that there is no default under the terms of this Agreement and no new or further Event of Default under the Loan Documents, upon receipt of evidence satisfactory to Bank, in its sole discretion, from the beneficiary of the existing $775,000 standby letter of credit that the amount of this letter of credit can be reduced to $592,785, Bank shall release $182,215 of the Additional Cash Collateral, which will be applied to the Liabilities owed under the LSA.

27. Borrower shall obtain substitute letters of credit for the standby letters of credit on or before the Expiration Date, and deliver to Bank on or before the Expiration Date a release signed by the beneficiary(ies) of the standby letters of credit, in form and substance satisfactory to Bank, in its sole discretion, thereby permitting Bank to cancel the standby letters of credit.

Irrevocable Direct Pay Letter of Credit

28. Borrower shall obtain a substitute letter of credit for the Irrevocable Direct Pay Letter of Credit No. 588233-43, on or before the Expiration Date, and deliver to Bank on or before the Expiration Date a release signed by the Trustee, who is the beneficiary of the Irrevocable Direct Pay Letter of Credit No. 588233-43, in form and substance satisfactory to Bank, in its sole discretion, thereby permitting Bank to cancel the Irrevocable Direct Pay Letter of Credit No. 588233-43.

Forbearance Fee

29. Borrower shall pay Bank a forbearance fee of $100,000.00, which fee is deemed earned upon Borrower’s execution of this Agreement, and is not refundable. Borrower shall pay the forbearance fee to Bank upon the earlier of the Expiration Date or a refinancing of the Liabilities.

30. Borrower shall obtain a credit of $25,000.00 toward the forbearance fee if Borrower delivers to Bank on or before April 15, 2005, a letter of interest signed by a financially capable, reputable financial institution, stating an interest in, and a proposal for, the refinancing and payment in full of the Liabilities, including without limitation the substitution and cancellation of all existing letters of credit, with a closing date to occur on or before June 30, 2005.

31. Borrower shall obtain a credit of $25,000.00 toward the forbearance fee if Borrower delivers to Bank, on or before May 15, 2005, a firm, unconditional commitment letter issued by a financially capable, reputable financial institution in an amount sufficient to pay in full the Liabilities, including without limitation the substitution and cancellation of all existing letters of credit, with a closing date to occur on or before June 30, 2005.

32. Borrower shall obtain a credit of $25,000.00 toward the forbearance fee if Borrower pays in full the Liabilities, including without limitation the substitution and cancellation of all existing letters of credit, on or before June 30, 2005.

33. In the event Borrower has not paid in full the Liabilities, including without limitation the substitution and cancellation of all existing letters of credit, on or before June 30, 2005,

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Borrower shall pay Bank an additional monthly forbearance fee of $15,000.00, on the first of each and every month starting on July 1, 2005, through and including December 1, 2005. In the event Borrower pays the Liabilities, including without limitation the substitution and cancellation of all existing letters of credit, on or before November 30, 2005, the obligation to pay the monthly forbearance fee shall terminate effective upon the payment in full of the Liabilities.

Additional Terms and Conditions

34. Notwithstanding Bank’s demand of the Liabilities, Borrower shall make all monthly principal and interest payments on the term notes and shall make all quarterly payments of the fee for the Irrevocable Direct Pay Letter of Credit No. 588233-43, in the amounts and on the dates specified in the Loan Documents. Borrower shall continue to make all payments required under the Indenture of Trust dated as of December 1, 2003, and under all related documents, agreements and instruments related thereto.

35. Effective immediately, the ACH authorization shall be reduced from $850,000 to $40,000.

36. All security interests, pledges, and liens on any and all property of Borrower, including without limitation real property, granted to Bank shall secure all of the Liabilities, including without limitation the Liabilities evidenced by the LSA, the Riders thereto, the Reimbursement Agreement dated December 1, 2003, the Irrevocable Direct Pay Letter of Credit No. 588233-43, Variable Rate Installment Note Dated December 6, 1999, Variable Rate Installment Note dated July 28, 1999, Variable Rate Installment Note dated September 29, 1999, the existing $775,000 standby letter of credit, the standby letter of credit to be issued under this Agreement, this Agreement and any all other present or future Indebtedness of Borrower to Bank. Upon execution of this Agreement, Borrower shall execute and deliver to Bank an amendment to the Deed of Trust on the Lathrop Property and amendment to the Deed of Trust on the Chino Property, in the form attached as Exhibit D. At Borrower’s expense, Bank will obtain mortgage title insurance for both the Lahtrop Property and the Chino Property.

37. Any Event of Default or Default under any of the Loan Documents shall be a default under this Agreement and an Event of Default or a Default under all of the Loan Documents. Any default under this Agreement shall be an Event of Default or a Default under all of the Loan Documents.

38. Borrower shall not pay any dividends or bonuses to any shareholder, officer or director of Borrower without Bank’s prior written approval.

39. Borrower represents and warrants that it currently owes no money to any shareholder, officer, director, or to any company that is a subsidiary of, related to, affiliated or has common shareholders, officers or directors with Borrower.

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40. Borrower shall obtain at its sole cost and expense any approval or consent from any third party necessary to accomplish any of the terms or conditions of this Agreement, and shall deliver evidence of same to Bank.

41. Borrower acknowledges and agrees that the Loan Documents presently provide for and they shall reimburse for any and all costs and expenses of Bank, including, but not limited to, all inside and outside counsel fees of Bank whether in relation to drafting, negotiating or enforcement or defense of the Loan Documents or this Agreement, including any preference or disgorgement actions as defined in this Agreement and all of Bank’s audit fees, incurred by Bank in connection with the Liabilities, Bank’s administration of the Liabilities and/or any efforts of Bank to collect or satisfy all or any part of the Liabilities. Borrower shall immediately reimburse Bank for all of Bank’s costs and expenses upon Bank’s incurrence thereof or upon demand. Borrower acknowledges and agrees that the standard hourly rates of Miller, Canfield, Paddock and Stone, P.L.C. are reasonable.

42. Loan payments, interest on the Liabilities, loan administration expenses, including, but not limited to, all inside and outside counsel fees of Bank and Bank’s audit fees, may be charged directly to Borrower’s checking account maintained with Bank.

43. Borrower will maintain all commercial accounts with Bank.

44. Borrower has retained Kibel Green Inc. (“Consultant”) effective immediately and shall pay all costs and fees of Consultant, pursuant to a contract between Consultant and Borrower, the terms of which will be acceptable to Bank, for purposes of providing certain management and financial consulting services.

45. Borrower hereby authorizes Consultant to discuss with Bank the business of the Borrower and to provide to Bank a copy of any report requested by Borrower.

46. Borrower acknowledges and confirms that it voluntarily retained Consultant and that it remains in control of the business of Borrower.

47. If Borrower terminates the contract with Consultant, or if Consultant terminates the contract with Borrower, then there will be a default under this Agreement.

48. In addition to all reporting currently required by the Loan Documents:

a. Borrower shall provide Bank a summary of Borrower’s accounts payable and accounts receivable as of the last day of each month showing which accounts payable and accounts receivable are up to 30, 31 to 60, 61 to 90, and 91 days or more past the invoice date and listing the names and addresses of creditors and account debtors, as applicable. These summaries are due by the 20th of the following month.

b. Borrower shall deliver to Bank daily borrowing base certificates, utilizing Bank’s approved form, with Accounts Receivable balances updated daily and Inventory updated monthly.

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c. On or before April 5, 2005, Borrower shall deliver to Bank a 13 week financial projections for statement of income and expense, balance sheet and cash flow for Borrower. Borrower shall update and extend the 13 week financial projections on the 20^th of each month.

d. Borrower shall provide Bank with a monthly report of its actual performance to the projections, with an explanation of any weekly variance exceeding 10%. These monthly reports are due by the 20^th of the following month.

e. Borrower shall provide Bank with company prepared monthly financial statements on or before the 20^th of the following month.

f. Borrower shall provide to Bank with CPA audited financial statements for Borrower’s fiscal year within 90 days after Borrower’s fiscal year end.

49. Borrower acknowledges and agrees that the Loan Documents presently provide and they shall permit Bank to conduct such fair market value appraisals, collateral audits, inspections, surveys and/or testing, whether for environmental contamination or otherwise, that Bank deems necessary, on any and all real or personal property upon which Bank may possess a mortgage or security interest securing the Liabilities, and the cost of such appraisals, collateral audits, inspections, surveys and testing are part of the costs and expenses for which the Borrower must reimburse Bank. Borrower understands that Bank intends, as of the date of this Agreement, to have collateral audits of Borrower’s Accounts Receivable at least quarterly and collateral audits of Borrower’s Inventory at least semi- annually.

50. To the extent any payment received by Bank is deemed a preference, fraudulent transfer or otherwise by a court of competent jurisdiction which requires the Bank to disgorge such payment, then such payment will be deemed to have never occurred and the Liabilities will be adjusted accordingly.

51. Borrower waives after default, pursuant to Section 9-624 of the Uniform Commercial Code as adopted by the governing state (“UCC”), Borrower’s right to require disposition of collateral under subdivision (e) of Section 9-620 of the UCC, Borrower’s right to receive notification of any liquidation, settlement or other disposition of collateral pursuant to Section 9-611 of the UCC and provided this is not a consumer-goods transaction, Borrower’s right to redeem collateral pursuant to Section 9-623 of the UCC.

52. This Agreement shall be governed and controlled in all respects by the laws of the State of California, without reference to its conflict of law provisions, including interpretation, enforceability, validity and construction.

53. Bank expressly reserves the right to exercise any or all rights and remedies provided under the Loan Documents and applicable law except as modified herein. Bank’s failure to immediately exercise such rights and remedies shall not be construed as a waiver or modification of those rights or an offer of forbearance.

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54. This Agreement will inure to the benefit of Bank and all its past, present and future parents, subsidiaries, affiliates, predecessors and successor corporations and all of their subsidiaries and affiliates.

55. Bank anticipates that discussions addressing the Liabilities may take place in the future. During the course of such discussions, Bank and Borrower may touch upon and possibly reach a preliminary understanding on one or more issues prior to concluding negotiations. Notwithstanding this fact and absent an express written waiver by Bank, Bank will not be bound by an agreement on any individual issues unless and until an agreement is reached on all issues and such agreement is reduced to writing and signed by Borrower and Bank.

56. As of the date hereof, there are no offers outstanding from Bank to Borrower. Any prior offer by Bank, whether oral or written, is hereby rescinded in full.

57. The Loan Documents, as amended hereby, the Agreement, and the agreements to be executed in connection with the Agreement constitute the entire agreement of the parties. There are no other agreements, written or oral, between Bank and Borrower, and all prior negotiations of the parties are merged herein. The agreement, covenants and provisions contained herein shall constitute the only evidence of Bank’s consent to modify the terms and provisions of the Loan Documents. Any agreements concerning the Liabilities are expressed only in the existing Loan Documents. The duties and obligations of Borrower and Bank shall be only as set forth in the Loan Documents and this Agreement when executed by all parties.

58. The terms of this Agreement can be waived, modified or amended solely by a writing signed by the parties to this Agreement. Because this Agreement can be amended, modified or amended solely by a writing that is signed by all parties, each party hereto expressly agrees that it will not rely upon any oral or other non-written waiver, modification or amendment.

59. Borrower has not relied upon any statement, representation or promise of the Bank or other person or entity in executing this Agreement and the documents and instruments executed in connection herewith, except as expressly stated in this Agreement or in the documents and instruments executed in connection herewith. Nothing contained in this Agreement is intended, nor shall it be construed or deem to confer any rights, powers or privileges on any person, firm partnership corporation or other entity, including any trustee in bankruptcy, not an express party hereto, or a successor or assign or any heir or personal representative.

60. Notwithstanding this or any prior forbearance, actual or implied of any nature by the Bank, time is hereby declared to be of the essence of the Agreement and the Loan Documents, and Bank requires, and Borrower agrees to, strict performance of each and every covenant, condition, provision and agreement of the Agreement and the Loan Documents.

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61. Borrower agrees to execute any and all additional or supplemental documentation, and provide such further assistance and assurances as Bank may require, in Bank’s sole and absolute discretion, to give full effect of the terms, conditions and intentions of this Agreement.

62. This Agreement may be executed in counterparts and facsimiles and the counterpart, when properly executed and delivered by the signing deadline, will constitute a fully executed complete agreement.

63. Borrower and Bank acknowledge and agree that there is currently a dispute between them. Borrower and Bank acknowledge and agree 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 agreement, the loan documents or the liabilities. If the foregoing waiver of the right to trial by jury shall for any reason be declared unenforceable or ineffective, than the parties agree that any of the disputes otherwise subject to that waiver will be litigated under the reference provisions of California code of civil procedure section 638 et seq.

64. Borrower shall deliver to Bank upon execution of this Agreement the executed judicial reference letter, the form of which is attached as Exhibit E.

65. Releases.

(a) Effective upon the execution hereof, and notwithstanding any failure of Borrower to satisfy any of the conditions set forth above, Borrower hereby agrees that, without any further act, Comerica is fully and forever released and discharged from any and all claims for damages or losses to Borrower’s property or person (whether theses damages or losses are known or unknown, foreseen or unforeseen, or patent or latent and except with respect to disputing the accuracy of the principal, interest, late fees, and charges which are owed under the Loan Documents) including, without limitation, tort claims, demands, actions and causes of action of any nature, whatsoever arising under or relating to the Loan Documents or any of the transactions related thereto, prior to the date hereof, and Borrower waives application of California Civil Code Section 1542.

(b) Borrower certifies that it has read the following provisions of California Civil Code Section 1542:

“A general release does not extend to claims which 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.”

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(c) Borrower understands and acknowledges that the significance and consequence of this waiver of California Civil Code Section 1542 is that even if it should eventually suffer additional damages arising out of the facts referred to above, it will not be able to make any claim for those damages. Furthermore, Borrower acknowledges that it intends these consequences even as to claims for damages that may exist as of the date of this release but which it does not know exist, and which, if known, would materially affect its decision to execute this Forbearance Agreement regardless of whether its lack of knowledge is the result of ignorance, oversight, error, negligence, or any other cause.

66. Borrower shall properly execute this Agreement and the other documents referenced herein and hand deliver same to the undersigned by no later than 5:00 p.m. on March 30, 2005.

Bank reserves the right to terminate its forbearance prior to the Expiration Date, in the event of any new defaults under the Loan Documents, defaults under this Agreement, in the event of further deterioration in the financial condition of Borrower or further deterioration in Bank’s collateral position, and/or in the event Bank, for any reason, believes that the prospect of payment or performance is impaired.

Very truly yours,

Garylrick

Vice President

Comerica Bank – Western Division

Special Assets Group, MC 4605

2321 Rosecrans Ave., Suite 5000

El Segundo, CA 90245

(310)297-3017

fax: 297-3039

Borrower’s signature is on next page.

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ACKNOWLEDGED AND AGREED:

“BORROWER”

Provena Foods Inc.
By		Date
	Its

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EX-10.67

EXHIBIT 10.67

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE — NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. Basic Provisions (“Basic Provisions”)

1.1 Parties: This Lease (“Lease”), dated for reference purposes only, March 11, 2005, is made by and between Eucalyptus Avenue LLC, a California Limited Liability Co. & John M. & Suzanne S. Meindl, trustees of the John M. & Suzanne S. Meindl Trust dated September 22, 1997 (“Lessor”) and Provena Foods, Inc., a California Corporation (“Lessee”), (collectively the “Parties,” or individualy a “Party”).

1.2 Premises: That certain real property including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 5010 and 5060 Eucalyptus Avenue, Chino located in the County of San Bernardino, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the “Project”, if the property is located within a Project) Two (2) buildings totaling approximately 87,874 square feet on two separate parcels. 5010 Eucalyptus Ave. is approximately 44,036 SF, 5060 Eucalyptus Ave. is approximately 43,838 SF (“Premises”) (See also Paragraph 2)

1.3 Term: ten (10) years and 0 months (“Original Term”) Commencing April 1, 2005 (“Commencement Date”) and ending March 31, 2015 (“Expiration Date”). (See also Paragraph 3)

1.4 Early Possession: N/A (“Early Possession Date”). (See also Paragraphs 3.2 and 3.3)

1.5 Base Rent: $39,543 per month (“Base Rent”), payable on the first day of each month commencing April 1, 2005. (See also Paragraph 4)

x    If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6 Base Rent and Other Monies Paid Upon Execution:

(a) Base Rent: $39,543 for the period April 1-30, 2005

(b) Security Deposit: $120,000 (“Security Deposit”). (See also Paragraph 5)

(c) Association Fees: $              for the period                     

(d) Other: $             for                     

(e) Total Due Upon Execution of this Lease: $159,543

1.7 Agreed Use: mfg., storage & distribution of food products & other lawful, compatible uses subject to Landlord’s approval which shall not be unreasonably withheld (See also Paragraph 6)

1.8 Insuring Party: Lessee. Lessor is the “Insuring Party” unless otherwise stated herein (See also Paragraph 8)

1.10 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by                                          (“Guarantor”). (See also Paragraph 37)

1.11 Attachments: Attached hereto are the following, all of which constitute a part of this Lease:

x    an Addendum consisting of Paragraphs 1, 5 through 1, 7

x    a plot plan depicting the Premises;

¨    a current set of the Rules and Regulations;

¨    a Work Letter;

¨    other (specify):                                         

2. Premises.

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.

2.2 Condition. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date whichever first occurs (“Start Date”), and so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air

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within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“HVAC”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “Building”) shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period. Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to be remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

2.3 Compliance. Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions or record, regulations, and ordinances (“Applicable Requirements”) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“Capital Expenditure”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent. Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof. Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not however, have any right to terminate this Lease.

2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations, or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

3. Term.

3.1 Term. The commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3 Delay in Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4 Lessee Compliance. Lessor shall not be required to deliver possession of the Premises to Lessee until complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. Rent.

4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease), Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.

4.3 Association Fees. In addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner’s association of condominium fees levied or assessed against the Premises. Said monies shall be paid at the same time and in the same manner as the Base Rent.

5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced. Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this

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result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced. Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration of termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lesser shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. However, provided Lessee faithfully performs its obligations under the lease without default, any interest earned from the security deposit shall inure to the benefit of Lessee.

6. Use.

6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “Hazardous Substance” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises. (ii) regulated or monitored by any governmental authority or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor in any liability therefor. In addition, Lessor may condition its consent in any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor. Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease by or for Lessee, or any third party.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee’s occupancy of which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees, Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to the cost of investigation removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1 (e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2 (d) and Paragraph 13). Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, the cost of remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect and Lessor shall proceed to make such remediation as soon as reasonable possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3 Lessee’s Compliance With Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 Inspection; Compliance. Lessor and Lessor’s “Lender” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligation.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), (6.3) (Lessee’s Compliance with Applicable Requirements), 7.2 ( Lessor’s Obligations), 9 (Damage or Destruction) and 14 (Condemnation) Lessee shall, at lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the

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(b) Service Contracts. Lessee shall at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises. (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed in the perimeter of the Building, and (vii) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform. If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement. Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices. If an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants. Lessee may, however prepay its obligation at any time.

7.2 Lessor’s obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly walve the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term “Utility Installations” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “Trade Fixtures” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “Alterations” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “Lessee Owned Alterations and/or Utility Installations” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the Interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and /or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor of materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity.

8.1 Payment For Insurance. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an “Additional insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value.

(a) Building and Improvements. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the insuring Party, however, Lessee Owned Alterations and Utility Installations. Trade Fixtures, and Lessee’s, personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

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(b) Rental Value. The insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value Insurance”) Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

(c) Adjacent Premises. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

8.4 Lessee’s Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property. Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance polices. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrotation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated hereby.

8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee, if any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee. Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

8.9 Failure to Provide Insurance. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction.

9.1 Definitions.

(a) “Premises Partial Damage” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b) “Premises Total Destruction” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) “Insured Loss” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “Replacement Cost” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “Hazardous Substance Condition” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either party.

9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an insured loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either; (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease. Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee. Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

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9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss. Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds. Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value Insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes.

10.1 Definition. As used herein, the term “Real Property Taxes” shall include any form of assessment: real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project. Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2 Payment of Taxes. In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

10.3 Joint Assessment. If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and subletting.

12.1 Lessor’s Consent Required.

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent, which shall not be unreasonably withheld.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent than in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operating responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested (See also Paragraph 35).

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed.

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to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, not by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

13.1 Default; Breach. A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of the Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises, or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. §101 or any successor statue thereto (unless, in the case of petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 11.5% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 Inducement Recapture. Any Agreement for free or abaled rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount of $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not

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collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, the in Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefore. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees.

15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9,15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that is has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

(a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential Lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor. The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises of this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers of shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23. Notices.

23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

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23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail, if notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor’s Agent. A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor; A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor; a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee’s Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor; a Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices ( in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lesses, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lesssor’s obligations hereunder, except that such new owner shall not; (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents, provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. Attorneys’ Fees. If any Party or Broker brings an action of proceeding involving the Premises whether founded in fort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term “Prevailing Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal

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action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation)

32. Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies, Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) Incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, Including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefore. Lessor’s consent to any act assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify therein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor.

37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails/or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof

39. Options. If Lessee is granted an Option, as defined below, then the following provisions shall apply:

39.1 Definition. “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property or Lessor, (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the premises or other property of Lessor.

39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting

39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee’s in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40. Multiple Buildings. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

41. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interface with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. Authority; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict. Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

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46. Offer. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease  ¨ is  ¨  is not attached to this Lease.

50. Americans with Disabilities Act. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises. Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:	[ILLEGIBLE]	Executed at:	5010 Eucalyptus Avenue, Chino, CA
on:	3/25/05	on:	MARCH 23, 2005
By LESSOR:		By LESSEE:
Eucalyptus Avenue LLC, a California Limited Liability Company		Provena Foods, Inc., a California Corporation
By:		By:	/s/ Thomas J. Mulrovey
Name Printed :		Name Printed:	THOMAS J. MULROVEY
Title:	Manager	Title:	CFO
By:	JOHN M. SUZANNG S. MEINDL TRUST	By:
Name Printed:	DATED SEPT. 27, 1977	Name Printed:
Title:	Trustee	Title:
Address:		Address:
Telephone/Facsimile:		Telephone/Facsimile:
Federal ID No.		Federal ID No.
BROKER:		BROKER:
Attn:		Attn:
Title:		Title:
Address:		Address:
Telephone/Facsimile:		Telephone/Facsimile:
Federal ID No.		Federal ID No.

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213) 687-8616.

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^© Copyright 1997 - By AIR Commercial Real Estate Association. All rights reserved.

No Part of these works may be reproduced in any form without permission in writing.

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ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL

SINGLE TENANT LEASE-NET DATED FEBRUARY 18, 2005 BETWEEN

EUCALYPTUS AVENUE LLC AND JOHN M. AND SUZANNE S. MEINDL, TRUSTEES OF THE

JOHN M. AND SUZANNE S. MEINDL TRUST DATED SEPTEMBER 22, 1997 (“LESSOR”) AND

PROVENA FOODS, INC.

A CALIFORNIA CORPORATION (“LESSEE”)

FOR THE PROPERTY LOCATED AT

5010 AND 5060 EUCALYPTUS AVENUE, CHINO

1.5 Rental Increases

The base rental for the subject premises for each month during the term of the lease shall be as follows:

Months 1-12 (April 1, 2005-March 31, 2006);	$	39,543.00
Months 13-24 (April 1, 2006-March 31, 2007);	$	40,729.00
Months 25-36 (April 1, 2007-March 31, 2008);	$	41,951.00
Months 37-48 (April 1, 2008-March 31, 2009);	$	43,210.00
Months 49-60 (April 1, 2009-March 31, 2010);	$	44,506.00
Months 61-72 (April 1, 2010-March 31, 2011);	$	45,841.00
Months 73-84 (April 1, 2011-March 31, 2012);	$	47,216.00
Months 85-96 (April 1, 2012-March 31, 2013);	$	48,633.00
Months 97-108 (April 1, 2013-March 31, 2014);	$	50,092.00
Months 109-120 (April 1, 2014-March 31, 2015);	$	51,595.00

1.6 Management Expense

Lessee agrees to pay a property management fee to cover landlord’s management, overhead and administration expenses (provided such management fee shall not exceed two (2%) percent of rent payable under the lease as long as landlord manages the property). Provided further, however, if landlord elects to delegate its duties hereunder to a professional property manager, then there shall be no management fee paid to landlord except that Tenant shall pay the professional property manager’s fee, which shall not exceed two (2%) percent of rent payable under the lease. Additionally, any management fee shall be waived for the first six (6) months from the lease commencement.

1.7 Option to Renew

Provided Lessee faithfully performs its obligations under the lease without default, Lessee shall have option to renew the lease for two (2) five (5) year terms. Lessee shall give written notice no sooner than nine (9) months nor less than six (6) months prior to the expiration of the original term (or first option period) of its intention to renew the lease. The rental rate and annual increases shall be based on then fair market value. However, in no event shall the rental rate and annual increases be less than an increase of two (2%) percent nor greater than five (5%) percent over the prior month’s rent.

AGREED AND ACCEPTED:

Eucalyptus Avenue LLC and John M. and Suzanne S. Meindl, trustees of the John M. and Suzanne S. Meindl Trust dated September 22, 1997		Provena Foods, Inc., a California Corporation
(“Lessor”)		(“Lessee”)
By:	[ILLEGIBLE]	By:	[ILLEGIBLE]
Date:	3/25/05	Date:	MARCH 23, 2005
By:	[ILLEGIBLE]	By:
Date:	3/25/05	Date:

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Subject Property

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EX-10.68

EXHIBIT 10.68

AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD SUBLEASE

(Short-form to be used with post 1995 AIREA leases)

(NOTE: DO NOT USE IF LESS THAN ENTIRE PREMISES ARE BEING SUBLET. FOR SITUATIONS WHERE

THE PREMISES ARE TO BE OCCUPIED BY MORE THAN ONE TENANT OR SUBTENANT USE THE

“STANDARD SUBLEASE—MULTI-TENANT” FORM)

1. Basic Provisions (“Basic Provisions”).

1.1 Parties: This Sublease (“Sublease”) dated for reference purposes only March 18, 2005, is made by and between Provena Foods, Inc., a California Corporation (“Sublessor”) and R-Cold, Inc., a California Corporation (“Sublessee”), (collectively the “Parties”, or individual, “Party”).

1.2 Premises: That certain real property including all improvements therein, and commonly known by the street address of 5060 Eucalyptus Avenue located in the County of San Bernardino, State of CA and generally described as (describe briefly the nature of the property) that certain 26, 490 sq. ft. portion of a larger 43,838 sq. Ft., free standing industrial zoned building (“Premises”).

1.3 Term: Two (2) years and Zero (0) months commencing April 1, 2005 (“Commencement Date”) and ending March 31, 2007 (“Expiration Date”).

1.4 Early Possession: Sublessee is currently in possession of property (“Early Possession Date”).

1.5 Base Rent: $ 12,530.00 per month (“Base Rent”), payable on the First (1st) day of each month commencing April 1, 2005.

¨  If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6 Base Rent and Other Monies Paid Upon Execution:

(a) Base Rent: $ 12,530.00 for the period.

(b) Security Deposit: $12,530.00 (“Security Deposit”).

(c) Association Fees: $ N/A for the period.

(d) Other: $N/A for                     .

(e) Total Due Upon Execution of this Lease: $13,060 which includes $530 for add. Sec. dep.

1.7 Agreed Use: Manufacture Warehouse and distribution of cold storage equipment.

1.8 Real Estate Brokers:

(a) Representation: The following real estate brokers ( the “Brokers”; and brokerage relationships exist in this transaction (check applicable boxes):

¨  N/A represents Sublessor exclusively (“Sublessor’s Broker”);

¨  N/A represents Sublessee exclusively (“Sublessee’s Broker”); or

¨  N/A represents both Sublessor and Sublessee (“Dual Agency”);

1.9 Guarantor. The obligations of the Sublessee under this Sublease shall be guaranteed by N/A (“Guarantor”).

1.10 Attachments: Attached hereto are the following, all of which constitute a part of this Sublease:

¨   an Addendum consisting of Paragraphs              through                     ;

¨  a plot plan depicting the Premises;

¨  a Work Letter;

¨  a copy of the Master Lease;

¨  other (specify):                                 

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2. Premises.

2.1 Letting. Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Sublease. Unless otherwise provided herein, any statement of size set forth in this Sublease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Sublessee is advised to verify the actual size prior to executing this Sublease.

2.2 Condition. Sublessor shall deliver the Premises to Sublessee broom clean and free of debris on the commencement Date or the Early possession Date, whichever first occurs (“Start Date”), and warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning system (“HVAC”), and any items which the Sublessor is obligated to construct pursuant to the Work Letter attached hereto, if any, other than those constructed by Sublessee, shall be in good operating condition on said date. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Sublessor shall, as Sublessor’s sole obligation with respect to such matter, except as otherwise provided in this Sublease, promptly after receipt of written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Sublessor’s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements. If Sublessee does not give Sublessor the required notice within the appropriate warranty period, connection of any such non-compliance, malfunction or failure shall be the obligation of Sublessee at Sublessee’s sole cost and expense.

2.3 Compliance. Sublessor warrants that any improvements, alterations or utility installations made or installed by or on behalf of sublessor to or on the Premises comply with all applicable convents or restrictions of record and applicable building codes, regulations and ordinances (“Applicable Requirements”) in effect on the date that they were made or installed. Sublessor makes no warranty as to the use to which sublessee will put the Premises or to modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Sublessee’s use NOTE: Sublessee is responsible for determining whether or not the zoning and other Applicable Requirements are appropriate for Sublessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Sublessor shall, except as otherwise provided, promptly after receipt of written notice from Sublessee setting forth with specificity the nature and extent of such non-compliance, rectify the same.

2.4 Acknowledgements. Sublessee acknowledges that: (a) it has been advised by Sublessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Sublessee’s intended use, (b) Sublessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Sublessor, Sublessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Sublease. In addition, Sublessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Sublessee’s ability to honor the Sublease or suitability to occupy the Premises, and (ii) it is Sublessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 Americans with Disabilities Act. In the event that as a result of Sublessee’s use, or intended use, of the Premises the Americans with Disabilities Act or any similar law requires modifications or the construction or installation of improvements in or to the Premises, Building, Project and/or Common Areas, the Parties agree that such modifications, construction or improvements shall be made at:  ¨  Sublessor’s expense  ¨  Sublessee’s expense.

3. Possession.

3.1. Early Possession. If Sublessee totally or partially occupies the Premises prior to the Commencement Date the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Sublease (including but not limited to the obligations to pay Sublessee’s Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.2. Delay in Commencement. Sublessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises by the Commencement Date. If, despite said efforts, Sublessor is unable to deliver possession as agreed, the rights and obligations of Sublessor and Sublessee shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by Paragraph 7.3 of this Sublease).

3.3. Sublessee Compliance. Sublessor shall not be required to tender possession of the Premises to Sublessee until Sublessee complies with its obligation to provide evidence of insurance. Pending delivery of such evidence, Sublessee shall be required to perform all of its obligations under this Sublease from and after the Start Date, including the payment of Rent, notwithstanding Sublessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Sublessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Sublessor may elect to withhold possession until such conditions are satisfied.

4. Rent and Other Charges.

4.1 Rent Defined. All monetary obligations of Sublessee to Sublessor under the terms of this Sublease (except for the Security Deposit) are deemed to be rent (“Rent”). Rent shall be payable in lawful money of the United States to Sublessor at the address stated herein or to such other persons or at such other places as Sublessor may designate in writing.

4.2 Utilities. Sublessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises together with any taxes thereon.

5. Security Deposit. The rights and obligations of Sublessor and Sublessee as to said Security Deposit shall be as set forth in Paragraph 5 of the Master Lease (as modified by Paragraph 7.3 of this Sublease).

6. Agreed Use. The Premises shall be used and occupied only for light manufacturing, warehouse and distribution and other related used subject to approval by lessor which shall not be unreasonably withheld and for no other purpose.

7. Master Lease.

7.1 Sublessor is the lessee of the Premises by virtue of a lease, hereinafter the “Master Lease”, wherein Eucalyptus LLC & John M. & Suzanne S. Meindl trustees for Meindl Trust dated 9-22-97 is the lessor, hereinafter the “Master Lessor”.

7.2 This Sublease is and shall be at all times subject and subordinate to the Master Lease.

7.3 The terms, conditions and respective obligations of Sublessor and Sublessee to each other under this Sublease shall be the terms and conditions of the Master Lease except for those provisions of the Master Lease which are directly contradicted by this Sublease in which event the terms of this Sublease document shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word “Lessor” is used it shall be deemed to mean the Sublessor herein and wherever in the Master Lease the word “Lessee” is used it shall be deemed to mean the Sublessee herein.

7.4 During the term of this Sublease and for all periods subsequent for obligations which have arisen prior to the termination of this Sublease, Sublessee does hereby expressly assume and agree to perform and comply with, for the benefit of Sublessor and Master

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Lessor, each and every obligation of Sublessor under the Master Lease except for the following paragraphs which are excluded therefrom:                                                                                                                                                                                                

___________________________________________________________________________________________________________________________

7.5 The obligations that Sublessee has assumed under paragraph 7.4 hereof are hereinafter referred to as the “Sublessee’s Assumed Obligations”. The obligations that sublessee has not assumed under paragraph 7.4 hereof are hereinafter referred to as the “Sublessor’s Remaining Obligations”.

7.6 Sublessee shall hold Sublessor free and harmless from all liability, judgments, costs, damages, claims or demands, including reasonable attorneys fees, arising out of Sublessee’s failure to comply with or perform Sublessee’s Assumed, Obligations.

7.7 Sublessor agrees to maintain the Master Lease during the entire term of this Sublease, subject, however, to any earlier termination of the Master Lease without the fault of the Sublessor, and to comply with or perform Sublessor’s Remaining Obligations and to hold Sublessee free and harmless from all liability, judgments, costs, damages, claims or demands arising out of Sublessor’s failure to comply with or perform Sublessor’s Remaining Obligations.

7.8 Sublessor represents to Sublessee that the Master Lease is in full force and effect and that no default exists on the part of any Party to the Master Lease.

8. Assignment of Sublease and Default.

8.1 Sublessor hereby assigns and transfers to Master Lessor Sublessor’s interest in this Sublease, subject however to the provisions of Paragraph 8.2 hereof.

8.2 Master Lessor, by executing this document, agrees that until a Default shall occur in the performance of Sublessor’s Obligations under the Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing under this Sublease. However, if Sublessor shall Default in the performance of its obligations to Master Lessor then Master Lessor may, at its option, receive and collect, directly from Sublessee, all Rent owing and to be owed under this Sublease. In the event, however, that the amount collected by Master Lessor exceeds Sublessor’s obligations any such excess shall be refunded to Sublessor. Master Lessor shall not, by reason of this assignment of the Sublease nor by reason of the collection of the Rent from the Sublessee, be deemed liable to Sublessee for any failure of the Sublessor to perform and comply with Sublessor’s Remaining Obligations.

8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon receipt of any written notice from the Master Lessor stating that a Default exists in the performance of Sublessor’s obligations under the Master Lease, to pay to Master Lessor the Rent due and to become due under the Sublease. Sublessor agrees that Sublessee shall have the right to rely upon any such statement and request from Master Lessor, and that Sublessee shall pay such Rent to Master Lessor without any obligation or right to inquire as to whether such Default exists and notwithstanding any notice from or claim from Sublessor to the contrary and Sublessor shall have no right or claim against Sublessee for any such Rent so paid by Sublessee.

8.4 No changes or modifications shall be made to this Sublease without the consent of Master Lessor.

9. Consent of Master Lessor.

9.1 In the event that the Master Lease requires that Sublessor obtain the consent of Master Lessor to any subletting by Sublessor then, this Sublease shall not be effective unless, within 10 days of the date hereof, Master Lessor signs this Sublease thereby giving its consent to this Subletting.

9.2 In the event that the obligations of the Sublessor under the Master Lease have been guaranteed by third parties then neither this Sublease, nor the Master Lessor’s consent, shall be effective unless, within 10 days of the date hereof, said guarantors sign this Sublease thereby giving their consent to this Sublease.

9.3 In the event that Master Lessor does give such consent then;

(a) Such consent shall not release Sublessor of its obligations or alter the primary liability of Sublessor to pay the Rent and perform and comply with all of the obligations of Sublessor to be performed under the Master Lease.

(b) The acceptance of Rent by Master Lessor from Sublessee or any one else liable under the Master Lease shall not be deemed a waiver by Master Lessor of any provisions of the Master Lease.

(c) The consent to this Sublease shall not constitute a consent to any subsequent subletting or assignment.

(d) In the event of any Default of Sublessor under the Master Lease, Master Lessor may proceed directly against Sublessor, any guarantors or any one else liable under the Master Lease or this Sublease without first exhausting Master Lessor’s remedies against any other person or entity liable thereon to Master Lessor.

(e) Master Lessor may consent to subsequent sublettings and assignments of the Master Lease or this Sublease or any amendments or modifications thereto without notifying Sublessor or any one else liable under the Master Lease and without obtaining their consent and such action shall not relieve such persons from liability.

(f) In the event that Sublessor shall Default in its obligations under the Master Lease, then Master Lessor, at its option and without being obligated to do so, may require Sublessee to attorn to Master Lessor in which event Master Lessor shall undertake the obligations of Sublessor under this Sublease from the time of the exercise of said option to termination of this Sublease but Master Lessor shall not be liable for any prepaid Rent nor any Security Deposit paid by Sublessee, nor shall Master Lessor be liable for any other Defaults of the Sublessor under the Sublease.

(g) Unless directly contradicted by other provisions of this Sublease, the consent of Master Lessor to this Sublease shall not constitute an agreement to allow Sublessee to exercise any options which may have been granted to Sublessor in the Master Lease (see Paragraph 39.2 of the Master Lease).

9.4 The signatures of the Master Lessor and any Guarantors of Sublessor at the end of this document shall constitute their consent to the terms of this Sublease.

9.5 Master Lessor acknowledges that, to the best of Master Lessor’s knowledge, no Default presently exists under the Master Lease of obligations to be performed by Sublessor and that the Master Lease is in full force and effect.

9.6 In the event that Sublessor Defaults under its obligations to be performed under the Master Lease by Sublessor. Master Lessor agrees to deliver to Sublessee a copy of any such notice of default. Sublessee shall have the right to cure any Default of Sublessor described in any notice of default within ten days after service of such notice of default on Sublessee. If such Default is cured by Sublessee then Sublessee shall have the right of reimbursement and offset from and against Sublessor.

10. Additional Brokers Commissions.

10.1 Sublessor agrees that if Sublessee exercises any option or right of first refusal as granted by Sublessor herein, or any option or right substantially similar thereto, either to extend the term of this Sublease, to renew this Sublease, to purchase the Premises, or to lease or purchase adjacent property which Sublessor may own or in which Sublessor has an interest then Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in effect at the time of the execution of this Sublease. Notwithstanding the foregoing, Sublessor’s obligation under this Paragraph is limited to a transaction in which Sublessor is acting as a Sublessor, lessor or seller.

10.2 Master Lessor agrees that if Sublessee shall exercise any option or right of first refusal granted to Sublessee by Master Lessor in connection with this Sublease, or any option or right substantially similar thereto, either to extend or renew the Master Lease, to purchase the Premises or any part thereof, or to lease or purchase adjacent property which Master Lessor may own or in which Master Lessor has an interest, or if Broker is the procuring cause of any other lease or sale entered into between Sublessee and Master Lessor pertaining to the Premises, any part thereof, or any adjacent property which Master Lessor owns or in which it has an interest, then as to any of said transactions, Master Lessor shall pay to Broker a fee, in cash, in accordance with the schedule of Broker in effect at the time of the execution of this Sublease.

10.3 Any fee due from Sublessor or Master Lessor hereunder shall be due and payable upon the exercise of any option to extend or renew, upon the execution of any new lease, or, in the event of a purchase, at the close of escrow.

10.4 Any transferee of Sublessor’s interest in this Sublease, or of Master Lessor’s interest in the Master Lease, by accepting an assignment thereof, shall be deemed to have assumed the respective obligations of Sublessor or Master Lessor under this Paragraph 10. Broker shall be deemed to be a third-party beneficiary of this paragraph 10.

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11. Representations and indemnities of Broker Relationships. The Parties each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Sublease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Sublessee and Sublessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

12. Attorney’s fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “Prevailing Party” shall include, without limitation a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Sublessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

13. No Prior or Other Agreements; Broker Disclaimer. This Sublease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Sublessor and Sublessee each represents and warrants to the Brokers that it has made, and is relying solely upon its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Sublease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Sublessor or Sublessee under this Sublease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Sublease provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS SUBLEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR SUBLESSEE’S INTENDED USE.

WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY WITH LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED

Executed at:	5010 EUCALYPTUS AVENUE , CHINO, CA	Executed at:	5060 EUCALYPTUS AVENUE, CHINO, CA
on:	4-8-05	on:	4-1-05
By Sublessor	Provena Foods, Inc.	By Sublessee:	R-Cold, Inc.
By:	/s/ [ILLEGIBLE]	By:	/s/ [ILLEGIBLE]
Name Printed:	[ILLEGIBLE]	Name Printed:	[ILLEGIBLE]
Title:	CFO	Title:	PRESIDENT
By:		By:
Name Printed:		Name Printed:
Title:		Title:
Address:		Address:
Telephone/Facsimile:		Telephone/Facsimile:
Federal ID No.		Federal ID No.
BROKER:		BROKER:
Attn:		Attn:
Title:		Title:
Address:		Address:
Telephone/Facsimile:		Telephone/Facsimile:
Federal ID No.		Federal ID No.
Consent to the above Sublease is hereby given
Executed at:	3200 [ILLEGIBLE] [ILLEGIBLE] CA 91764	Executed at:

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on:	4/8/05	on:
By Master Lessor:		By Guarantor(s)
	Eucalyptus Avenue, LLC and John M. and Suzanne S. Meindl as trustees for the John M. and Suzanne S. Meindl Flat dated 9-22-97
By:	[ILLEGIBLE]
Name Printed:	[ILLEGIBLE]
Title:	MANAGER	By:	/s/ Suzanne S. Meindl
		Name Printed:	SUZANNE S. MEINDL
		Address:	JOHN M. AND SUZANNE S. MEINDL TRUST
By:	/s/ John M. Meindl
Name Printed:	John M. Meindl
Title:	JOHN M. AND SUZANNE S. MEINDL	By:
Address:		Name Printed:
		Address:
Telephone/Facsimile:
Federal ID No:

NOTE: These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower St., Suite 600, Los Angeles, CA 90017. (213) 687-8777.

©Copyright 1997 By AIR Commercial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Provena Foods, Inc.

We consent to the incorporation by reference in the registration statement (No. 333-23852) on Form S-8 of Provena Foods Inc. of our report dated February 6, 2004, except as to the second paragraph of Note 6, which is as of February 26, 2004, with respect to the balance sheet of Provena Foods Inc. as of December 31, 2003, and the related statements of operations, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2003, and the related financial statement schedule, which report appears in the December 31, 2004, annual report on Form 10-K of Provena Foods Inc.

/s/ KPMG LLP

Costa Mesa, California

April 15, 2005

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Provena Foods, Inc.

We consent to the incorporation by reference in the registration statement (No. 333-23852) on Form S-8 of Provena Foods Inc. of our report dated March 29, 2005, except as to Note 1 (b), which is as of April 13, 2005, which report appears in the December 31, 2004 Annual Report on Form 10-K of Provena Foods Inc.

/s/ CACCIAMATTA ACCOUNTANCY CORPORATION

Irvine, California

April 15, 2005

EX-31

EXHIBIT 31

SECTION 302 CERTIFICATIONS

I, Theodore L. Arena, and I, Thomas J. Mulroney, each separately certify that:

1. I have reviewed this annual report on Form 10-K of Provena Foods Inc. (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and l5d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including any subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

b) Any fraud. whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: April 15, 2005

/s/ Theodore L. Arena

Theodore L. Arena, Chief Executive Officer

/s/ Thomas J. Mulroney

Thomas J. Mulroney, Chief Financial Officer

EXHIBIT 31

EX-32

EXHIBIT 32

SECTION 906 CERTIFICATIONS

Each of the undersigned hereby certifies, in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of Provena Foods Inc. (the “Company”), that, to his knowledge, the Annual Report of the Company on Form 10-K for the year ended December 31, 2004, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: April 15, 2005

/s/ Theodore L. Arena

Theodore L. Arena, Chief Executive Officer

/s/ Thomas J. Mulroney

Thomas J. Mulroney, Chief Financial Officer

EXHIBIT 32