EXHIBIT 10.65

 

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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 18th 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.

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“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

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  By:  

/s/ Stephen Moore

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    Thomas J. Mulroney       Stephen Moore Title:   Chief Financial Officer    
  Vice President

 

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