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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
SEPTEMBER 30, 1999 (SEPTEMBER 21, 1999)
Date of Report (Date of earliest event reported)
SOUTHERN FOODS GROUP, L.P.
(Exact name of registrant as specified in its charter)
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DELAWARE 333-49289 75-2571364
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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3114 SOUTH HASKELL
DALLAS, TEXAS 75223
(Address of principal executive offices and zip code)
(214) 824-8163
(Registrant's telephone number,
including area code)
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ITEM 5. OTHER EVENTS
(a) PROPOSED TRANSACTION WITH SUIZA FOODS CORPORATION
On September 21, 1999, Southern Foods Group, L.P. (the "Partnership")
issued a press release, a copy of which is filed as Exhibit 99.1, announcing a
proposed transaction which, if consummated, will result in the Partnership being
owned by a joint venture to be formed between Dairy Farmers of America, Inc.,
one of the current owners of the Partnership, and Suiza Foods Corporation
("Suiza").
(b) AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
Effective September 19, 1999, the Partnership entered into an Amended
and Restated Executive Employment Agreement with Pete Schenkel (the "Amended
Schenkel Employment Agreement"). Pursuant to the Amended Schenkel Employment
Agreement, Mr. Schenkel agreed to continue to serve as the President and Chief
Executive Officer of the Partnership. The Amended Schenkel Employment Agreement
contains substantially similar terms to the employment agreement previously
entered into between the Partnership and Mr. Schenkel except that certain
revisions have been made to guarantee that a minimum annual bonus be paid to Mr.
Schenkel and to delete certain non-competition provisions.
(c) RETENTION AGREEMENTS
The Partnership contemplates entering into change of control retention
agreements with certain of its employees, including certain executive officers.
To date the Partnership has only entered into a Retention Agreement (the
"Retention Agreement") with Patrick K. Ford, the Chief Financial Officer,
Secretary and Treasurer of the Partnership. Under the terms of the Retention
Agreement, if Mr. Ford is terminated without cause, has good reason for
resigning his employment at the end of two years, or if the Partnership elects
to have the term of the Retention Agreement expire at the end of two years, Mr.
Ford is entitled to receive a cash payment and certain other employee benefits.
Among these benefits are the right to receive a cash payment in the amount equal
to two times the sum of the base salary and annual bonus then in effect for Mr.
Ford. The term of the Retention Agreement runs for a period of two years after a
change of control. During the term of Mr. Ford's employment and for a period of
two years after termination of employment with the Partnership, Mr. Ford may not
engage in any business or render services to any business that is in competition
with the Partnership's business in Texas, Louisiana, Oklahoma or Arkansas as
long as the Partnership continues to conduct business in those geographic areas.
Mr. Ford has also agreed to be bound by certain other restrictions relating to
not soliciting customers and employees of the Partnership and to not interfering
with other relationships between the Partnership and other third parties.
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ITEM 7. FINANCIAL STATEMENTS, PRO FINANCIAL INFORMATION AND
EXHIBITS
(c) Exhibits
Exhibit No. Description
10.1 Amended and Restated Executive Employment
Agreement dated September 19, 1999 between
the Partnership and Pete Schenkel.
10.2 Retention Agreement effective September 19,
1999, between the Partnership and Patrick K.
Ford.
99.1 Press Release
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, General Manager
Dated: September 30, 1999 By: /s/ PATRICK K. FORD
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Patrick K. Ford
Chief Financial Officer, Secretary
and Treasurer
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INDEX TO EXHIBITS
Exhibits
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Exhibit No. Description
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10.1 Amended and Restated Executive Employment Agreement effective
September 19, 1999, between the Partnership and Pete Schenkel.
10.2 Retention Agreement effective September 19, 1999, between the
Partnership and Patrick K. Ford.
99.1 Press Release
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EXHIBIT 10.1
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the
"AGREEMENT") is made and entered into as of the 19th day of September, 1999, by
and between SOUTHERN FOODS GROUP, L.P., a Delaware limited partnership (the
"EMPLOYER"), and PETE SCHENKEL (the "EMPLOYEE").
Recitals
WHEREAS, Southern Foods Group, Inc., a Delaware corporation ("SFG
INC."), and Employee entered into that certain Executive Employment and Stock
Agreement, dated as of February 18, 1994 (the "FIRST EMPLOYMENT AGREEMENT");
WHEREAS, Employer succeeded to the assets and liabilities of SFG Inc.
on December 31, 1994;
WHEREAS, the parties terminated the First Employment Agreement and
entered into an Executive Employment Agreement dated September 4, 1997 (the
"SECOND EMPLOYMENT AGREEMENT");
WHEREAS, the parties desire to amend and restate in its entirety the
Second Employment Agreement as hereinafter provided;
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as follows:
1. Employment. Employer hereby employs Employee and Employee hereby
accepts the employment, on the terms and conditions hereinafter set forth. This
Agreement supersedes and terminates the First Employment Agreement and the
Second Employment Agreement, and the First Employment Agreement and the Second
Employment Agreement are now of no further force or effect.
2. Duties. During the term of this Agreement, Employee will serve as
the President and Chief Executive Officer of Employer and will render such
services to Employer and its Affiliates of an executive and administrative
character as the general partner of Employer may from time to time reasonably
direct. Employee will devote his best efforts and substantially all of his
business time and attention (except for vacation periods and reasonable periods
of illness or other incapacity) to the business of Employer and its Affiliates;
provided, however, that Employee may devote a reasonable amount of time
(consistent with Employee's past practices) to civic, charitable, political and
passive investment endeavors.
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3. Employment Term. The employment term shall begin on the date hereof
and continue until the first to occur of:
(a) The fifth anniversary of the date hereof; provided,
however, that the term shall be automatically extended for one or more
one (1) year periods unless Employer or Employee, not less than ninety
(90) days prior to the commencement of any such one (1) year period,
notifies the other party in writing that this Agreement shall expire
rather than be extended for additional one (1) year periods; or
(b) The date on which the employment period is terminated
pursuant to Section 12 hereof.
4. Salary and Other Compensation. As compensation for the services to
be rendered by Employee to Employer pursuant to this Agreement and as
consideration for Employee's obligations under Sections 6 through 10 hereof,
Employee shall be paid the following compensation and other benefits:
(a) Salary. Employer shall pay Employee an annual salary of
$360,000, or such higher compensation as may be established by
Employer from time to time (the "BASE SALARY").
(b) Annual Bonus. Employer shall pay Employee an annual bonus
(each, an "ANNUAL BONUS") with respect to each Fiscal Year (as defined
in Section 5) fully completed during the term of Employee's employment
of an amount equal to not less than 1% of Employer's Operating Profit
(as defined in Section 5) for such Fiscal Year, but in no event less
than $640,000.
(c) Disability. Should Employee become disabled, which for
purposes of this subsection 4(c) means Employee's inability because of
any physical or emotional illness to perform Employee's assigned
duties under this Agreement more than 30 hours per week, Employee's
Base Salary shall nevertheless be paid at its full rate prior to the
Employee's termination pursuant to Section 12(b); provided, however,
that if Employee receives any periodic payments representing lost
compensation under any health, disability, or accident insurance
policy or under any salary continuation insurance policy, the premiums
for which have been paid by Employer or paid for by Employee but
reimbursed by Employer, the amount of salary that Employee will be
entitled to receive from Employer during the disability shall be
decreased by the gross amount of such payments (before any withholding
for taxes).
(d) Employee Benefit Plans. Employee shall be eligible to
participate, to the extent Employee may be eligible, in any profit
sharing, retirement, insurance, health coverage or other employee
benefit plan maintained by Employer or in which the other employees of
Employer participate.
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(e) Fringe Benefits. Except as provided otherwise in this
Agreement, Employee shall be entitled to the fringe benefits available
to the other employees of Employer, as such benefits may be revised
from time to time.
(f) Vacations and Leave. Employee shall be entitled to the
same vacation and leave time as the other executive officers of
Employer.
5. Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "AFFILIATE" with respect to any person or entity means
any person or entity that directly or indirectly controls, is
controlled by, or is under common control with such person or entity.
(b) "CONFIDENTIAL CUSTOMER INFORMATION" means any technical
or accounting data or proprietary information or confidential business
information of any of Employer's customers.
(c) "CONFIDENTIAL INFORMATION" means any data or information
and documentation, other than Trade Secrets, that is valuable to
Employer and not generally known to the public. To the fullest extent
consistent with the foregoing and otherwise lawful, Confidential
Information shall include, without limitation, Employer's marketing
techniques, pricing information, business plans and opportunities,
bids in process or under consideration (regardless of whether Employer
has entered into any agreement, made any commitment, or issued any bid
or offer), financial statements and projections, specialized customer
information concerning unique or novel marketing habits, customer or
client lists, personnel information, information relating to
negotiations with customers or prospective customers, proprietary
software, databases, programming or data transmission methods, or
copyrighted materials (including without limitation, brochures,
layouts, letters, artwork, copying, photographs or illustrations) and
the special products and services Employer may offer or provide to its
customers from time to time. It is expressly understood that the
foregoing list shall be illustrative only and is not intended to be an
exclusive or exhaustive list of "Confidential Information."
(d) "FISCAL YEAR" shall mean Employer's fiscal year for
accounting and tax purposes, and shall include any fiscal year that is
shorter or longer than twelve (12) months due to a change in the date
Employer's fiscal year ends.
(e) "GOOD REASON" means any of the following events
occurring, without Employee's prior written consent specifically
referring to this Agreement:
(i) Any reduction in the amount of Employee's
compensation or benefits provided for in Section 4;
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(ii) Any significant reduction in the nature or
status of Employee's duties or responsibilities for Employer;
(iii) Transfer of Employee's principal place of
employment to a location other than Dallas, Texas;
(iv) Failure by Employer to obtain the assumption
agreement referred to in Section 19 of this Agreement prior
to the effectiveness of any Transfer (as defined in Section
19); or
(v) Any other material breach by Employer of the
terms and conditions of this Agreement which is not cured
within 30 days after written notice thereof from Employee.
(f) "OPERATING PROFIT" shall mean the net income of Employer
determined in accordance with generally accepted accounting principles
consistently applied plus the interest expense, the income taxes and
the amortization of intangible assets of Employer, determined in
accordance with generally accepted accounting principles consistently
applied.
(g) "TRADE SECRETS" means any scientific or technical
information, formula, design, process, procedure or improvement that
is valuable to Employer and not generally known to the competitors of
Employer. To the fullest extent consistent with the foregoing and
otherwise lawful, Trade Secrets shall include, without limitations,
all information and documentation pertaining to the invention,
development, nature, design and specifications of and the production,
application and processing techniques and procedures relating to
Employer's present and future products and processes.
6. Employer Property. With respect to any and all Trade Secrets,
Confidential Information and other processes, formulae, inventions and works
made or conceived by Employee during his employment, whether (i) solely or
jointly with any other person, firm, organization or employee, (ii) during or
after his regular hours of employment, or (iii) with or without the use of
Employer's facilities, materials or personnel:
(a) Employee will disclose promptly to Employer all such
Trade Secrets, Confidential Information and other processes, formulae,
inventions and works.
(b) Employee will execute and promptly deliver to Employer
such written instruments, and, upon the request of Employer, do such
other acts, as may be required to patent, copyright or otherwise
protect such Trade Secrets, Confidential Information and other
processes, formulae, inventions and works, and any documentation or
other materials pertaining thereto, and to vest all rights, title and
interest therein in Employer. All such Trade Secrets, Confidential
Information and other processes, formulae, inventions and works,
together with any documentation or other materials pertaining thereto,
shall be
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considered work made for hire and prepared by Employee as an employee
within the scope of his employment by Employer.
(c) Employer shall have the perpetual and unlimited right,
without cost, to make, use and sell, in whole or in part, any of such
Trade Secrets, Confidential Information or other processes, formulae,
inventions or works, and to make, use and sell any and all products,
processes and services derived from any of such Trade Secrets,
Confidential Information or other processes, formulae, inventions or
works.
7. Confidentiality. Except as required by law, during the term of
employment by Employer, Employee shall not, without the prior written consent
of Employer, directly or indirectly use, disclose or disseminate to any other
person, firm, organization or employee, or otherwise employ any Trade Secrets,
Confidential Information or Confidential Customer Information. This obligation
shall not apply to any Trade Secrets or Confidential Information (I) that shall
have become generally known to competitors of Employer (in the case of Trade
Secrets) or to the public (in the case of Confidential Information) through no
act or omission of Employee, or (ii) that shall have been disclosed to Employee
by a person or entity unaffiliated with Employer that has legitimate possession
thereof in its entirety, and possesses the unrestricted right to make such
disclosure. Employee acknowledges that Employer may be bound by contract with
Employer's customers not to disclose any Confidential Customer Information.
Accordingly, Employee agrees to indemnify and hold Employer harmless from and
against any claim for damages, including attorneys' fees and court costs,
brought by Employer's customers or any other interested party, and against any
other claim based on contract, tort or common law indemnity arising out of his
unauthorized disclosure of Confidential Customer Information in violation of
this Section 7.
8. Return of Material to Employer. Employee will deliver to Employer,
upon termination of Employee's employment with Employer and at any other time
upon Employer's request, all memoranda, notes, records, drawings or other
documentation, whether made or compiled by him alone or with others or made
available to him while employed by Employer, pertaining to Confidential
Customer Information, Trade Secrets, Confidential Information or other
inventions and works of Employer, and all Confidential Customer Information,
Trade Secrets, Confidential Information and other inventions and works of
Employer in his possession.
9. Noncompetition. [Intentionally Omitted]
10. Notice of Employment. [Intentionally Omitted]
11. Injunctive Relief. The parties recognize that irreparable damage
will result to Employer from any violation of this Agreement by Employee. The
parties expressly agree that, in addition to any and all other remedies
available to Employer for any such violation, Employer shall have the remedies
of restraining order and injunction, and any such other equitable relief as may
be declared or issued by a court to enforce the provisions of Sections 6
through 8 above, without posting any bond that might be required, and Employee
agrees not to claim in any such equitable proceedings that a remedy at law is
available to Employer. The existence of any claim
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or cause of action by Employee against Employer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Employer of any provision hereof. Notwithstanding anything contained herein to
the contrary, and if and only if a provision of this type contained in this
Section is enforceable in the jurisdiction in question, if any one or more of
the provisions contained in Sections 6 through 8 shall for any reason be held
to be excessively broad as to duration, geographical scope, activity or
subject, such provisions shall be construed by limiting and reducing them so as
to be enforceable to the extent compatible with the applicable law in such
jurisdiction as it shall then appear. Employee agrees to reimburse Employer for
any and all expenses incurred, including attorneys' fees, expenses, court costs
and settlement costs, in connection with the enforcement of its rights and
Employee's obligations under this Agreement.
12. Termination. Employment of Employee under this Agreement may be
terminated:
(a) By Employee's voluntary resignation after giving at least
60 days' written notice.
(b) By Employer With Cause. For purposes of this Agreement
"WITH CAUSE" shall mean:
(i) Employee's becoming Totally Disabled. For the
purposes of this Agreement, Employee will be "TOTALLY
DISABLED" if he is "totally disabled" as defined in and for
the period necessary to qualify for benefits under any
long-term disability income insurance policy then in effect
that is applicable to executive employees of Employer;
(ii) the dissolution and liquidation of Employer, other
than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of Employer
whereby Employer's business is continued;
(iii) a conviction of or a plea of guilty or nolo
contendere by Employee to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct;
(iv) habitual neglect of Employee's duties or failure by
Employee to perform or observe any substantial obligation of
such employment that is not remedied within thirty (30) days
after written notice thereof from Employer; or
(v) any material breach by Employee of this Agreement
which is not cured within thirty (30) days after written
notice thereof from Employer.
(c) By Employer Without Cause. For purposes of this
Agreement, "WITHOUT CAUSE" shall mean Employee's termination by
Employer for any reason other than (I) those set forth in subsections
12(a) and 12(b), or (ii) the termination of this Agreement due to the
expiration of the term set forth in Section 3(a).
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(d) By Employee for Good Reason.
In the event of termination of this Agreement other than for death, Employee
shall resign from all positions held in Employer, including without limitation
any position as a director, officer, agent, trustee or consultant of Employer
or any Affiliate of Employer. Termination of the employment of Employee shall
not terminate or otherwise affect the parties respective obligations under
Sections 6 through 14 of this Agreement.
13. Severance Benefits.
(a) Voluntary Resignation. In the event this Agreement is
terminated due to Employee's voluntary resignation, Employee shall not
be entitled to any severance benefits whatsoever.
(b) Death. In the event this Agreement is terminated because
of Employee's death, Employer shall continue to pay to Employee's
estate or his heirs, as applicable,
(i) his full Base Salary through the first
anniversary of the date of Employee's death; and
(ii) one-half of his full Base Salary for the period
commencing on the first anniversary of the date of his death
and continuing to the second anniversary of the date of his
death.
Except as otherwise provided for in this Section 13(b), Employer shall
have no further obligations to Employee's estate or his heirs, as
applicable, pursuant to the terms of this Agreement following the
death of Employee.
(c) Termination With Cause. In the event this Agreement is
terminated With Cause, Employee shall be entitled to (i) his full Base
Salary through his date of termination (ii) any benefits or awards
which pursuant to the terms of any compensation or benefit plan have
been earned or become payable as of Employee's date of termination,
but which have not yet been paid to Employee, and (iii) the amount due
to Employee for any expenses for which Employee shall not yet have
been reimbursed by Employer as of Employee's date of termination.
Except as otherwise provided for in the immediately preceding
sentence, Employee shall not be entitled to further compensation as of
the date of termination of this Agreement With Cause (specifically
including, but not limited to, any unearned bonuses). Any termination
of this Agreement With Cause shall be without prejudice to any right
or remedy to which Employee may be entitled either at law, in equity
or under this Agreement.
(d) Termination Without Cause or for Good Reason. (i) In the
event this Agreement is terminated prior to the fifth anniversary of
the date hereof by Employer Without Cause or by Employee for Good
Reason, Employee shall be entitled to receive the following payments
and other benefits:
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(A) A cash payment in an amount equal to the sum of the
Base Salary and Annual Bonus then in effect for Employee
determined in accordance with Section 3(a) for the remaining
period prior to the fifth anniversary of the date of this
Agreement, which amount shall be paid by Employer in
accordance with Section 13(e); and
(B) A cash payment in an amount equal to Employee's
unvested account balance under Employer's 401(k) plan.
(ii) in the event this Agreement is terminated after the fifth anniversary of
the date hereof by Employer Without Cause or by Employee for Good Reason,
Employee shall be entitled to receive the following payments and other
benefits:
(A) A cash payment in an amount equal to the sum of the
Base Salary and Annual Bonus then in effect for Employee
determined in accordance with Section 3(a) for the remainder
of the year in which the termination of Employee's employment
occurs, which amount shall be paid by Employer in accordance
with Section 13(e); and
(B) A cash payment in an amount equal to Employee's
unvested account balance under Employer's 401(k) plan.
(e) No Duplication; Other Severance Pay. There shall be no
duplication of severance benefits in any manner. In this regard,
Employee shall not be entitled to the benefits provided under this
Section 13 for more than one position with Employer and its
Affiliates. If Employee is entitled to any notice or payment in lieu
of any notice of termination of employment required by federal, state
or local law, including but not limited to the Worker Adjustment and
Retraining Notification Act, the severance benefits to which Employee
would otherwise be entitled under this Agreement shall be reduced by
the amount of any such payment, in lieu of notice. If Employee is
entitled to any severance or termination payments under any employment
or other agreement with Employer or any of its Affiliates, the
severance compensation to which Employee would otherwise be entitled
under this Agreement shall be reduced by the amount of such payment.
Except as set forth above, the foregoing payments and benefits shall
be in addition to and not in lieu of any payments or benefits to which
Employee and his dependents may otherwise be entitled under Employer's
compensation and employee benefit plans. Nothing herein shall be
deemed to restrict the right of Employer to amend or terminate any
such plan in a manner generally applicable to similarly situated
active employees of Employer and its Affiliates, in which event
Employee shall be entitled to participate on the same basis (including
payment of applicable contributions) as similarly situated active
executives of Employer and its Affiliates.
(f) Mutual Release. The payments to be made to Employee
pursuant to Section 13(c) shall be conditioned upon the execution by
Employee and Employer of a valid mutual release to be prepared by
Employer pursuant to which Employee and
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Employer shall each mutually release each other, to the maximum extent
permitted by law, from any and all claims either party may have
against the other that relate to or arise out of the employment or
termination of employment of Employee, except such claims arising
under this Agreement, any employee benefit plan, or any other written
plan or agreement (a "MUTUAL RELEASE"). The payments to be made to
Employee pursuant to Section 13(c) shall commence within ten (10) days
following receipt by Employer of a Mutual Release which is properly
executed by Employee; provided, however, that in the event applicable
law allows Employee to revoke the Mutual Release for a period of time,
and the Mutual Release is not revoked during such period, the payments
shall be paid to Employee following the expiration of such period.
14. Excise Taxes.
(a) Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding and except as set forth below, if it is
determined that any payment or distribution (a "PAYMENT") by Employer
to or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments
required under this Section 14) including, without limitation, vesting
of options, would be subject to the excise tax imposed by Section 4999
of the Code, or if any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together with any
such interest and penalties, being hereinafter collectively referred
to as the "EXCISE TAX"), then Employee shall be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an amount sufficient to
pay all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment.
(b) Calculation of Gross-Up Payment. Subject to the
provisions of paragraph (c) of this Section 14, all determinations
required to be made under this Section 14, including whether and when
a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be used in arriving at such determination,
shall be made by a certified public accounting firm selected by
Employer and reasonably acceptable to Employee (the "ACCOUNTING
FIRM"), which shall be retained to provide detailed supporting
calculations both to Employer and Employee. If the Accounting Firm is
serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, Employee shall have the right to
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be paid solely by Employer. Any Gross-Up
Payment, as determined pursuant to this Section 14, shall be paid by
Employer to Employee within five (5) days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting
Firm shall be binding upon Employer and Employee. As a result of the
uncertainty in the application of Section 4999 of the Code at the time
of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which should have been made will not
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have been made by Employer ("UNDERPAYMENT"), consistent with the
calculations required to be made hereunder. If Employer exhausts its
remedies pursuant to paragraph (c) of this Section 14 and Employee
thereafter is required to pay an Excise Tax in an amount that exceeds
the Gross-Up Payment received by Employee the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by Employer to or for the
benefit of Employee.
(c) Contested Taxes. Employee shall notify Employer in
writing of any claim by the Internal Revenue Service that, if
successful, would result in an Underpayment. Such notification shall
be given as soon as practicable but no later than ten (10) business
days after Employee is informed in writing of such claim and shall
apprise Employer of the nature of such claim and the date on which
such claim is requested to be paid or appealed. Employee shall not pay
such claim prior to the expiration of the 30-day period following the
date on which it gives such notice to Employer (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If Employer notifies Employee in writing prior to the
expiration of such period that it desires to contest such claim,
Employee shall:
(i) give Employer any information reasonably
requested by Employer relating to such claim;
(ii) take such action in connection with contesting
such claims as Employer shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney reasonably selected by Employer;
(iii) cooperate with Employer in good faith in order
to effectively contest such claim; and
(iv) permit Employer to participate in any
proceedings relating to such claim; provided, however, that
Employer shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold
Employee harmless, on an after-tax basis, for any Excise Tax
or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph (c), Employer shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may,
at its sole option, either direct Employee to pay the tax
claimed and sue for a refund or to contest the claim in any
permissible manner, and Employee agrees to prosecute such
contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as Employer shall determine; provided,
however, that if Employer directs Employee to pay such claim
and sue for a refund, Employer shall advance
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the amount of such payment to Employee, on an interest-free
basis, and shall indemnify and hold Employee harmless, on an
after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income
with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment
of taxes for the taxable year of Employee with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, Employer's
control of the contest shall be limited to issues with
respect to the amount of the Gross-Up Payment, and Employee
shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any
other taxing authority.
(d) Refunds. If, after the receipt by Employee of an amount
advanced by Employer pursuant to this Section 14, Employee becomes
entitled to receive any refund with respect to such claim, Employee
shall promptly pay to Employer the amount of such refund (together
with any interest paid or credited thereon after taxes applicable
thereto).
15. Waiver. A party's failure to insist on compliance or enforcement
of any provision of this Agreement shall not affect the validity or
enforceability or constitute a waiver of future enforcement of that provision
or of any other provision of this Agreement by that party or any other party.
16. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS.
EXCEPT TO THE EXTENT PREEMPTED BY ERISA OR OTHER FEDERAL LAWS, AS APPLICABLE.
17. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
18. Notice. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or
certified mail to such party at the address hereinafter set forth following
such party's signature, or at such other address or addresses as either party
may hereafter designate in writing to the other.
19. Assignment. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs and personal representatives,
except that the rights, benefits and obligations of Employee under this
Agreement are personal in nature and may not be assigned without the prior
written consent of Employer. In the event of the transfer, sale, assignment or
other disposition (collectively, a "TRANSFER") of all or substantially all of
the assets of Employer to any entity or person (whether direct or indirect, by
purchase, merger, consolidation or otherwise), Employer shall cause such entity
or person, by agreement in form and substance satisfactory to Employee,
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to expressly assume and agree to perform all of Employer's obligations and
liabilities under this Agreement.
20. Amendments. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing, signed by the parties.
21. Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the parties to the employment of Employee, and no
representations, promises, agreements, or understandings, written or oral,
relating to the employment of Employee by Employer not contained herein shall
be of any force or effect.
22. Nondisclosure of Agreement. Employee agrees at all times during
his employment by Employer not to disclose or discuss in any manner (whether to
individuals or outside Employer) the existence or terms of this Agreement
without the prior written consent of Employer, except to the extent required by
law.
23. Tax Withholding. All payments to Employee under this Agreement
will be subject to the withholding of all applicable employment and income
taxes.
24. References and Headings. In construing this Agreement, feminine or
neuter pronouns shall be substituted for those masculine in form and vice
versa, and plural terms shall be substituted for singular and singular for
plural in any place in which the context so requires. The various headings in
this Agreement are inserted for convenience only and are not part of the
Agreement.
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IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, sole general partner
By: /s/ Patrick K. Ford
----------------------------------
Patrick K. Ford, Assistant Secretary
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
EMPLOYEE:
/s/ Pete Schenkel
------------------------------------------
Pete Schenkel
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
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EXHIBIT 10.2
RETENTION AGREEMENT
This Retention Agreement (this "AGREEMENT") is made and entered into as
of the 19th day of September, 1999, by and between Southern Foods Group, L.P., a
Delaware limited partnership (the "EMPLOYER"), and Patrick K. Ford (the
"EMPLOYEE").
RECITALS
WHEREAS, Employee is currently serving as the Chief Financial Officer
of Employer;
WHEREAS, Employer has determined that the interest of Employer will be
advanced by providing Employee with certain benefits in the event of the
termination of Employee's employment with Employer in connection with or
following a Change in Control (as hereinafter defined); and
WHEREAS, Employer believes that such benefits will enable Employer to
continue to attract and retain competent and qualified executives, will assure
continuity and cooperation of management and will encourage Employee to
diligently perform his duties without personal financial concerns, thereby
enhancing the value of Employer and insuring a smooth transition in the event of
a Change in Control.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants and promises hereinafter contained, do hereby agree as follows:
1. Employment. Employer hereby employees Employee for the term set
forth in Section 3 and Employee hereby accepts the employment, on the terms and
conditions hereinafter set forth.
2. Duties. During the term of this Agreement provided for in Section 3,
Employee will continue to have the duties and render financial services to
Employer or its successor of an executive and administrative character that are
substantially similar to the duties and services which Employee is currently
providing to Employer in his capacity as Chief Financial Officer. Employee will
devote his best efforts and substantially all of his business time and attention
(except for vacation periods or reasonable periods of illness or other
incapacity) to the business of Employer and its Affiliates; provided, however,
that Employee may devote a reasonable amount of time (consistent with Employee's
past practices) to civic, charitable, political and passive investment
endeavors. The services to be provided by Employee to Employer and its
Affiliates shall be rendered to Employer in Dallas, Texas and Employee shall not
be required to relocate from Dallas, Texas during the term of this Agreement.
3. Retention Period. Although this Agreement is effective as of the
date first written above, the term of Employee's employment pursuant to this
Agreement shall begin on the date
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which is five (5) days prior to the date on which a Change in Control occurs and
shall continue until the first to occur of:
(a) The second anniversary of the date of a Change of Control;
provided, however, that the term shall be extended automatically for
one or more one (1) year periods unless Employer or Employee, not less
than sixty (60) days prior to the commencement of any such one (1) year
period, notifies the other party in writing that this Agreement shall
expire rather than be extended for additional one (1) year periods; or
(b) The date on which Agreement is terminated pursuant to
Section 12 hereof.
If a Change in Control does not occur, the terms and conditions relating to
Employee's employment under this Agreement shall be of no force or effect.
4. Salary and Other Compensation. As compensation for the services to
be rendered by Employee to Employer pursuant to this Agreement and as
consideration for Employee's obligations under Sections 6 through 10 hereof,
Employee shall be paid the following compensation and other benefits:
(a) Salary. Employer shall pay Employee an annual salary of
not less than the annual salary which Employee was being paid by
Employer immediately prior to the Change in Control (the "BASE
SALARY").
(b) Annual Bonus. Employer shall pay Employee an annual bonus
(each, an "ANNUAL BONUS") with respect to each Fiscal Year (as defined
in Section 5) during the term of Employee's employment of such amount
as may be from time to time be determined by Employer, but in no event
less than the amount of the annual bonus received by Employee from
Employer for the Fiscal Year ended December 31, 1998. The Annual Bonus
shall be prorated for any portion of a Fiscal Year that this Agreement
is in effect which is less than twelve (12) months, based on the number
of months during such Fiscal Year that this Agreement is in effect.
(c) Disability. Should Employee become disabled, which for
purposes of this Section 4(c) means Employee's inability because of any
physical or emotional illness to perform Employee's assigned duties
under this Agreement more than 30 hours per week, Employee's Base
Salary shall nevertheless be paid at its full rate prior to the
Employee's termination pursuant to Section 12(b); provided, however,
that if Employee receives any periodic payments representing lost
compensation under any health, disability, or accident insurance policy
or under any salary continuation insurance policy, the premiums for
which have been paid by Employer or paid for by Employee but reimbursed
by Employer, the amount of salary that Employee will be entitled to
receive from Employer during the disability shall be decreased by the
gross amount of such payments (before any withholding for taxes).
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<PAGE> 3
(d) Employee Benefit Plans. Employee shall be eligible to
participate, to the extent Employee may be eligible, in any profit
sharing, retirement, insurance, health coverage or other employee
benefit plan maintained by Employer.
(e) Fringe Benefits. Except as provided otherwise in this
Agreement, Employee shall be entitled to the fringe benefits available
to the other employees of Employer, as such benefits may be revised
from time to time.
(f) Vacations and Leave. Employee shall be entitled to the
same vacation and leave time as the other executive officers of
Employer.
5. Definitions. As used in this Agreement, the following terms shall
have the meanings set forth below:
(a) "AFFILIATE" with respect to any person or entity means any
person or entity that directly or indirectly controls, is controlled
by, or is under common control with such person or entity.
(b) "CHANGE IN CONTROL" means (I) the redemption by Employer
or the transfer or sale to DFA of all or substantially all of Pete
Schenkel's limited partnership interest in Employer (but only if such
redemption or transfer or sale is in connection with any of the events
described in clauses (iii), (iv) or (v) of this definition), (ii) the
transfer or sale to an Outside Party of all or substantially all of
Pete Schenkel's limited partnership interest in Employer; (iii) the
transfer or sale to an Outside Party of 50% or more of the limited
partnership interests in Employer; (iv) the merger, consolidation or
other combination of Employer with one or more unaffiliated
partnerships, corporations or other entities, in which Employer is not
the surviving entity (or survives only as a subsidiary of another
entity); or (v) the transfer, sale, assignment or other disposition of
all or substantially all of the assets of Employer to an Outside Party.
(c) "CONFIDENTIAL CUSTOMER INFORMATION" means any technical or
accounting data or proprietary information or confidential business
information of any of Employer's customers.
(d) "CONFIDENTIAL INFORMATION" means any data or information
and documentation, other than Trade Secrets, that is valuable to
Employer and not generally known to the public. To the fullest extent
consistent with the foregoing and otherwise lawful, Confidential
Information shall include, without limitation, Employer's marketing
techniques, pricing information, business plans and opportunities, bids
in process or under consideration (regardless of whether Employer has
entered into any agreement, made any commitment, or issued any bid or
offer), financial statements and projections, specialized customer
information concerning unique or novel marketing habits, customer or
client lists, personnel information, information relating to
negotiations with customers or prospective customers, proprietary
software, databases, programming or data transmission methods, or
copyrighted materials (including without limitation, brochures,
layouts,
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letters, artwork, copying, photographs or illustrations) and the
special products and services Employer may offer or provide to its
customers from time to time. It is expressly understood that the
foregoing list shall be illustrative only and is not intended to be an
exclusive or exhaustive list of "Confidential Information."
(e) "DFA" means Dairy Farmers of America, Inc., a Kansas
cooperative marketing association.
(f) "FISCAL YEAR" shall mean Employer's fiscal year for
accounting and tax purposes, and shall include any fiscal year that is
shorter or longer than twelve (12) months due to a change in the date
Employer's fiscal year ends.
(g) "GOOD REASON" means any of the following events occurring,
without Employee's prior written consent specifically referring to this
Agreement:
(i) Any reduction in the amount of Employee's compensation
or benefits provided for in Section 4;
(ii) The removal of Employee from the position held by him
immediately prior to the Change in Control;
(iii) Any other significant reduction in the nature or
status of Employee's duties or responsibilities for Employer;
(iv) Transfer of Employee's principal place of employment
to a location other than Dallas, Texas;
(v) Failure by Employer to obtain the assumption agreement
referred to in Section 19 of this Agreement prior to the
effectiveness of any Transfer (as defined in Section 19); or
(vi) Any other material breach by Employer of the terms
and conditions of this Agreement which is not cured within 30
days after written notice thereof from Employee.
(h) "OUTSIDE PARTY" means any entity or person other than Pete
Schenkel or DFA or any entity or person that directly or indirectly
controls, is controlled by or is under common control with, either Pete
Schenkel or DFA.
(i) "TRADE SECRETS" means any scientific or technical
information, formula, design, process, procedure or improvement that is
valuable to Employer and not generally known to the competitors of
Employer. To the fullest extent consistent with the foregoing and
otherwise lawful, Trade Secrets shall include, without limitations, all
information and documentation pertaining to the invention, development,
nature, design and specifications
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<PAGE> 5
of and the production, application and processing techniques and
procedures relating to Employer's present and future products and
processes.
6. Employer Property. With respect to any and all Trade Secrets,
Confidential Information and other processes, formulae, inventions and works
made or conceived by Employee during his employment, whether (a) solely or
jointly with any other person, firm, organization or employee, (b) during or
after his regular hours of employment, or (c) with or without the use of
Employer's facilities, materials or personnel:
(i) Employee will disclose promptly to Employer all such
Trade Secrets, Confidential Information and other processes,
formulae, inventions and works.
(ii) Employee will execute and promptly deliver to
Employer such written instruments, and, upon the request of
Employer, do such other acts, as may be required to patent,
copyright or otherwise protect such Trade Secrets,
Confidential Information and other processes, formulae,
inventions and works, and any documentation or other materials
pertaining thereto, and to vest all rights, title and interest
therein in Employer. All such Trade Secrets, Confidential
Information and other processes, formulae, inventions and
works, together with any documentation or other materials
pertaining thereto, shall be considered work made for hire and
prepared by Employee as an employee within the scope of his
employment by Employer.
(iii) Employer shall have the perpetual and unlimited
right, without cost, to make, use and sell, in whole or in
part, any of such Trade Secrets, Confidential Information or
other processes, formulae, inventions or works, and to make,
use and sell any and all products, processes and services
derived from any of such Trade Secrets, Confidential
Information or other processes, formulae, inventions or works.
7. Confidentiality. Except as required by law, during the term of
employment by Employer and thereafter, Employee shall not, without the prior
written consent of Employer, directly or indirectly use, disclose or disseminate
to any other person, firm, organization or employee, or otherwise employ any
Trade Secrets, Confidential Information or Confidential Customer Information.
This obligation shall not apply to any Trade Secrets or Confidential Information
(a) that shall have become generally known to competitors of Employer (in the
case of Trade Secrets) or to the public (in the case of Confidential
Information) through no act or omission of Employee, or (b) that shall have been
disclosed to Employee by a person or entity unaffiliated with Employer that has
legitimate possession thereof in its entirety, and possesses the unrestricted
right to make such disclosure. Employee acknowledges that Employer may be bound
by contract with Employer's customers not to disclose any Confidential Customer
Information. Accordingly, Employee agrees to indemnify and hold Employer
harmless from and against any claim for damages, including attorneys' fees and
court costs, brought by Employer's customers or any other interested party, and
against any other claim based on contract, tort or common law
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<PAGE> 6
indemnity arising out of his unauthorized disclosure of Confidential Customer
Information in violation of this Section 7.
8. Return of Material to Employer. Employee will deliver to Employer,
upon termination of Employee's employment with Employer and at any other time
upon Employer's request, all memoranda, notes, records, drawings or other
documentation, whether made or compiled by him alone or with others or made
available to him while employed by Employer, pertaining to Confidential Customer
Information, Trade Secrets, Confidential Information or other inventions and
works of Employer, and all Confidential Customer Information, Trade Secrets,
Confidential Information and other inventions and works of Employer in his
possession.
9. Noncompetition. During Employee's employment by Employer and for a
period of two (2) years after Employee's termination of employment with
Employer, Employee shall not, directly or indirectly, either individually or
jointly or on behalf of or in concert with any other person or entity, as a
proprietor, partner, shareholder, member, director, officer, employee, agent,
consultant or through any other kind of ownership (other than ownership of less
than five percent (5%) of any class of outstanding securities of any company
listed on any national securities exchange or traded in the over-the-counter
market) or in any other representative or individual capacity (a) engage in any
business or render any services to any business that is in competition with the
business of Employer in Texas, Louisiana, Oklahoma or Arkansas (the "RESTRICTIVE
AREA") so long as Employer continues to conduct business in the Restrictive Area
during such two (2) year period, (b) engage in any business which calls upon,
solicits, diverts, or takes away any customer or customers of Employer in the
Restrictive Area for the purpose of selling or attempting to sell to any of such
customers any products similar to any products theretofore sold or provided to
any of such customers by Employer so long as Employer continues to conduct
business in the Restrictive Area during such two (2) year period, (c) solicit
any present or future employee of Employer, or discuss with any such employee
termination or resignation from employment with Employer, so that such employee
may accept employment with, or engagement as a partner, investor, shareholder or
consultant with, Employee, directly or indirectly as specified above, or (d)
otherwise interfere with, disrupt or attempt to disrupt relationships,
contractual or otherwise, between Employer and any of its lenders, customers,
employees or suppliers.
10. Notice of Employment. So long as Employee is subject to the
Noncompetition provisions of Section 9, Employee shall notify Employer in
writing, within five (5) days after accepting employment with any other person,
firm or organization of the name and address of such employer and his employment
capacity with such employer.
11. Injunctive Relief. The parties recognize that irreparable damage
will result to Employer from any violation of this Agreement by Employee. The
parties expressly agree that, in addition to any and all other remedies
available to Employer for any such violation, Employer shall have the remedies
of restraining order and injunction, and any such other equitable relief as may
be declared or issued by a court to enforce the provisions of Sections 6 through
10 above, without posting any bond that might be required, and Employee agrees
not to claim in any such equitable proceedings that a remedy at law is available
to Employer. The existence of any claim
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or cause of action by Employee against Employer, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Employer of any provision hereof. Notwithstanding anything contained herein to
the contrary, and if and only if a provision of this type contained in this
Section is enforceable in the jurisdiction in question, if any one or more of
the provisions contained in Sections 6 through 10 shall for any reason be held
to be excessively broad as to duration, geographical scope, activity or subject,
such provisions shall be construed by limiting and reducing them so as to be
enforceable to the extent compatible with the applicable law in such
jurisdiction as it shall then appear. Employee agrees to reimburse Employer for
any and all expenses incurred, including attorneys' fees, expenses, court costs
and settlement costs, in connection with the enforcement of its rights and
Employee's obligations under this Agreement.
12. Termination. Employment of Employee under this Agreement may be
terminated for any of the following reasons:
(a) By Employee's voluntary resignation after giving at least
60 days' written notice.
(b) By Employer With Cause. For purposes of this Agreement
"WITH CAUSE" shall mean:
(i) Employee's becoming Totally Disabled. For the purposes
of this Agreement, Employee will be "TOTALLY DISABLED" if he
is "totally disabled" as defined in and for the period
necessary to qualify for benefits under any long-term
disability income insurance policy then in effect that is
applicable to executive employees of Employer;
(ii) the dissolution and liquidation of Employer, other
than as part of a reorganization, merger, consolidation or
sale of all or substantially all of the assets of Employer
whereby Employer's business is continued;
(iii) a conviction of or a plea of guilty or nolo
contendere by Employee to a felony involving fraud,
embezzlement, theft, or dishonesty or other criminal conduct;
(iv) habitual neglect of Employee's duties or failure by
Employee to perform or observe any substantial obligation of
such employment that is not remedied within thirty (30) days
after written notice thereof from Employer; or
(v) any material breach by Employee of this Agreement
which is not cured within thirty (30) days after written
notice thereof from Employer.
(c) By Employer Without Cause. For purposes of this Agreement,
"WITHOUT CAUSE" shall mean Employee's termination by Employer for any
reason other than (i) those set forth in clauses (a) and (b) of this
Section 12, or (ii) the termination of this Agreement due to the
expiration of the term set forth in Section 3(a).
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(d) By Employee for Good Reason.
In the event of termination of this Agreement other than for death, Employee
shall resign from all positions held in Employer, including without limitation
any position as a director, officer, agent, trustee or consultant of Employer or
any Affiliate of Employer. The termination of the employment of Employee shall
not terminate or otherwise affect Employer's or Employee's respective
obligations under Sections 6 through 15 of this Agreement.
13. Severance Benefits.
(a) Voluntary Resignation or Death. In the event this
Agreement is terminated due to Employee's voluntary resignation or
death, Employee shall not be entitled to any severance benefits
whatsoever.
(b) Termination With Cause. In the event this Agreement is
terminated With Cause, Employee shall be entitled to (I) his full Base
Salary through his date of termination (ii) any benefits or awards
which pursuant to the terms of any compensation or benefit plan have
been earned or become payable as of Employee's date of termination, but
which have not yet been paid to Employee, and (iii) the amount due to
Employee for any expenses for which Employee shall not yet have been
reimbursed by Employer as of Employee's date of termination. Except as
otherwise provided for in the immediately preceding sentence, Employee
shall not be entitled to further compensation as of the date of
termination of this Agreement With Cause (specifically including, but
not limited to, any unearned bonuses). Any termination of this
Agreement With Cause shall be without prejudice to any right or remedy
to which Employee may be entitled either at law, in equity or under
this Agreement.
(c) Termination Without Cause, for Good Reason or Upon
Expiration of Agreement. In the event this Agreement is terminated (I)
by Employer Without Cause, or (ii) by Employee for Good Reason or (iii)
by Employer by notifying Employee pursuant to Section 3(a) that
Employer elects to have the term of this Agreement expire, Employee
shall be entitled to receive the following payments and other benefits:
(A) A cash payment in an amount equal to two (2) times the
sum of the Base Salary and Annual Bonus then in effect for
Employee determined in accordance with Section 3(a) which
amount shall be paid by Employer in accordance with Section
13(e);
(B) a cash payment in an amount equal to Employee's
unvested account balance under Employer's 401(k) plan; and
(C) Employee and his eligible dependents shall be entitled
for a period of two (2) years following his date of
termination of employment to continued coverage, on the same
basis as similarly situated active employees, under Employer's
group health, dental, long-term disability and life insurance
plans as
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in effect from time to time (but not any other welfare benefit
plans or any retirement plans); provided that coverage under
any particular benefits plan shall expire with respect to the
period after Employee becomes covered under another employer's
plan providing for a similar type of benefit. In the event
Employer is unable to provide such coverage on account of any
limitations under the terms of any applicable contract with an
insurance carrier or third party administrator, Employer shall
pay Employee an amount equal to the cost of such coverage. The
medical coverage provided under this clause (c) shall precede
any period of coverage for which Employee or any qualified
beneficiary (as such term is defined in Section 4980B(g)(1) of
the Code) is entitled under the "COBRA" rules of Section 601
et seq. of ERISA and Section 4980B of the Code, consistent
with the principles of Section 4980B(f)(8) of the Code.
(d) No Duplication; Other Severance Pay. There shall be no
duplication of severance benefits in any manner. In this
regard, Employee shall not be entitled to the benefits
provided under this Section 13 for more than one position with
Employer and its Affiliates. If Employee is entitled to any
notice or payment in lieu of any notice of termination of
employment required by federal, state or local law, including
but not limited to the Worker Adjustment and Retraining
Notification Act, the severance benefits to which Employee
would otherwise be entitled under this Agreement shall be
reduced by the amount of any such payment, in lieu of notice.
If Employee is entitled to any severance or termination
payments under any employment or other agreement with Employer
or any of its Affiliates, the severance compensation to which
Employee would otherwise be entitled under this Agreement
shall be reduced by the amount of such payment. Except as set
forth above, the foregoing payments and benefits shall be in
addition to and not in lieu of any payments or benefits to
which Employee and his dependents may otherwise be entitled
under Employer's compensation and employee benefit plans.
Nothing herein shall be deemed to restrict the right of
Employer to amend or terminate any such plan in a manner
generally applicable to similarly situated active employees of
Employer and its Affiliates, in which event Employee shall be
entitled to participate on the same basis (including payment
of applicable contributions) as similarly situated active
executives of Employer and its Affiliates.
(e) Mutual Release. The payments to be made to Employee
pursuant to Section 13(c) shall be conditioned upon the
execution by Employee and Employer of a valid mutual release
to be prepared by Employer pursuant to which Employee and
Employer shall each mutually release each other, to the
maximum extent permitted by law, from any and all claims
either party may have against the other that relate to or
arise out of the employment or termination of employment of
Employee, except such claims arising under this Agreement, any
employee benefit plan, or any other written plan or agreement
(a "MUTUAL RELEASE"). The payments to be made to Employee
pursuant to Section 13(c) shall commence within ten (10) days
following receipt by Employer of a Mutual Release which is
properly executed by Employee; provided, however, that in the
event applicable law allows
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Employee to revoke the Mutual Release for a period of time,
and the Mutual Release is not revoked during such period, the
payments shall be paid to Employee following the expiration of
such period.
14. Excise Taxes.
(a) Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding and except as set forth below, if it is
determined that any payment or distribution (a "PAYMENT") by Employer
to or for the benefit of Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments
required under this Section 14) including, without limitation, vesting
of options, would be subject to the excise tax imposed by Section 4999
of the Code, or if any interest or penalties are incurred by Employee
with respect to such excise tax (such excise tax, together with any
such interest and penalties, being hereinafter collectively referred to
as the "EXCISE TAX"), then Employee shall be entitled to receive an
additional payment (a "GROSS-UP PAYMENT") in an amount sufficient to
pay all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment.
(b) Calculation of Gross-Up Payment. Subject to the provisions
of paragraph (c) of this Section 14, all determinations required to be
made under this Section 14, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be used in arriving at such determination, shall be made
by a certified public accounting firm selected by Employer and
reasonably acceptable to Employee (the "ACCOUNTING FIRM"), which shall
be retained to provide detailed supporting calculations both to
Employer and Employee. If the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in
Control, Employee shall have the right to appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be paid solely by Employer. Any Gross-Up Payment, as
determined pursuant to this Section 14, shall be paid by Employer to
Employee within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be
binding upon Employer and Employee. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which should have been made will not have been made
by Employer ("UNDERPAYMENT"), consistent with the calculations required
to be made hereunder. If Employer exhausts its remedies pursuant to
paragraph (c) of this Section 14 and Employee thereafter is required to
pay an Excise Tax in an amount that exceeds the Gross-Up Payment
received by Employee the Accounting Firm shall determine the amount of
the Underpayment that has occurred and any such Underpayment shall be
promptly paid by Employer to or for the benefit of Employee.
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(c) Contested Taxes. Employee shall notify Employer in writing
of any claim by the Internal Revenue Service that, if successful, would
result in an Underpayment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after Employee is
informed in writing of such claim and shall apprise Employer of the
nature of such claim and the date on which such claim is requested to
be paid or appealed. Employee shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives
such notice to Employer (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If Employer
notifies Employee in writing prior to the expiration of such period
that it desires to contest such claim, Employee shall:
(i) give Employer any information reasonably requested by
Employer relating to such claim;
(ii) take such action in connection with contesting such
claims as Employer shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer;
(iii) cooperate with Employer in good faith in order to
effectively contest such claim; and
(iv) permit Employer to participate in any proceedings
relating to such claim;
provided, however, that Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold Employee harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this paragraph (c), Employer shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
Employee to pay the tax claimed and sue for a refund or to contest the claim in
any permissible manner, and Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Employer shall determine;
provided, however, that if Employer directs Employee to pay such claim and sue
for a refund, Employer shall advance the amount of such payment to Employee, on
an interest-free basis, and shall indemnify and hold Employee harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
Employer's control of the contest shall be limited to issues with respect to the
amount of the Gross-Up Payment, and Employee shall be
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<PAGE> 12
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) Refunds. If, after the receipt by Employee of an amount
advanced by Employer pursuant to this Section 14, Employee becomes
entitled to receive any refund with respect to such claim, Employee
shall promptly pay to Employer the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto).
15. Waiver. A party's failure to insist on compliance or enforcement of
any provision of this Agreement shall not affect the validity or enforceability
or constitute a waiver of future enforcement of that provision or of any other
provision of this Agreement by that party or any other party.
16. CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
UNDER THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF TEXAS
EXCEPT TO THE EXTENT PREEMPTED BY ERISA OR OTHER FEDERAL LAWS, AS APPLICABLE.
17. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity or enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
18. Notice. Any and all notices required or permitted herein shall be
deemed delivered if delivered personally or if mailed by registered or certified
mail to such party at the address hereinafter set forth following such party's
signature, or at such other address or addresses as either party may hereafter
designate in writing to the other.
19. Assignment. This Agreement, together with any amendments hereto,
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, assigns, heirs and personal representatives, except
that the rights, benefits and obligations of Employee under this Agreement are
personal in nature and may not be assigned without the prior written consent of
Employer. In the event of the transfer, sale, assignment or other disposition
(collectively, a "TRANSFER") of all or substantially all of the assets of
Employer to any entity or person (whether direct or indirect, by purchase,
merger, consolidation or otherwise), Employer shall cause such entity or person,
by agreement in form and substance satisfactory to Employee, to expressly assume
and agree to perform all of Employer's obligations and liabilities under this
Agreement.
20. Amendments. This Agreement may be amended at any time by mutual
consent of the parties hereto, with any such amendment to be invalid unless in
writing, signed by the parties.
21. Entire Agreement. This Agreement contains the entire agreement and
understanding by and between the parties to the employment of Employee, and no
representations, promises, agreements, or understandings, written or oral,
relating to the employment of Employee by Employer not contained herein shall be
of any force or effect.
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<PAGE> 13
22. Nondisclosure of Agreement. Employee agrees at all times during his
employment by Employer not to disclose or discuss in any manner (whether to
individuals or outside Employer) the existence or terms of this Agreement
without the prior written consent of Employer, except to the extent required by
law.
23. Tax Withholding. All payments to Employee under this Agreement will
be subject to the withholding of all applicable employment and income taxes.
24. References and Headings. In construing this Agreement, feminine or
neuter pronouns shall be substituted for those masculine in form and vice versa,
and plural terms shall be substituted for singular and singular for plural in
any place in which the context so requires. The various headings in this
Agreement are inserted for convenience only and are not part of the Agreement.
IN WITNESS WHEREOF, Employer and Employee have duly executed this
Agreement as of the day and year first above written.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company, sole general partner
By: /s/ Pete Schenkel
----------------------------------
Pete Schenkel, President and
Chief Executive Officer
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
EMPLOYEE
/s/ Patrick K. Ford
---------------------------------------
Patrick K. Ford
Address for Notice Purposes:
3114 South Haskell
Dallas, Texas 75223
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<PAGE> 1
EXHIBIT 99.1
FINAL RELEASE
SEPTEMBER 20, 1999
CONTACT: PATRICK K. FORD
214.824.8163
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
SOUTHERN FOODS GROUP TO BECOME PART OF SUIZA FOODS
TO FORM $6 BILLION DAIRY INDUSTRY LEADER
DALLAS, SEPTEMBER 21, 1999 - SOUTHERN FOODS GROUP, L.P. TODAY ANNOUNCED
THAT IT WILL BE JOINING THE SUIZA FOODS CORPORATION (NYSE: SZA) FAMILY. THE
TRANSACTION, WHICH IS EXPECTED TO CLOSE AT THE END OF THIS YEAR, FORMS A NEW
JOINT VENTURE THAT WILL ENCOMPASS ALL THE DOMESTIC FLUID MILK PROCESSING
ACTIVITIES OF SUIZA FOODS AND SOUTHERN FOODS. SUIZA WILL HAVE 66.2 PERCENT
OWNERSHIP OF THE JOINT VENTURE, WHILE THE REMAINING 33.8 PERCENT MINORITY
INTEREST WILL BE HELD BY DAIRY FARMERS OF AMERICA, INC. (DFA). THE JOINT VENTURE
WILL INITIALLY BE KNOWN AS THE SUIZA FLUID DAIRY GROUP.
WITH THE CLOSING OF THE TRANSACTION, PETE SCHENKEL, A 41-YEAR-VETERAN
OF THE DAIRY INDUSTRY AND PRESIDENT AND CEO OF SOUTHERN FOODS, WILL BECOME
PRESIDENT OF SUIZA'S DOMESTIC FLUID MILK OPERATIONS. HE WILL ALSO BECOME VICE
CHAIRMAN OF SUIZA'S BOARD OF DIRECTORS.
"OUR EMPHASIS ON CUSTOMER SERVICE AND PROVIDING A QUALITY PRODUCT
THROUGH STRONG REGIONAL RELATIONSHIPS AND DAIRY CASE BRANDING IS A PERFECT MATCH
WITH THE SUIZA STRATEGY," SCHENKEL SAID. "THIS TRANSACTION WILL ACCELERATE OUR
ABILITY TO SERVE OUR CUSTOMERS WITH THE QUALITY AND VALUE THEY EXPECT AND
DESERVE ACROSS THEIR OPERATIONS. "OUR TWO ORGANIZATIONS HAVE VERY SIMILAR
CULTURES AND OPERATING PHILOSOPHIES. I LOOK FORWARD TO JOINING THE SUIZA SENIOR
MANAGEMENT TEAM WHICH HAS A REPUTATION FOR ACHIEVING STRONG OPERATING RESULTS,"
SCHENKEL ADDED.
"THE COMBINATION OF SUIZA FOODS, THE NUMBER ONE FLUID MILK PROCESSOR,
WITH SOUTHERN FOODS, THE NUMBER THREE PROCESSOR, FIRMLY ESTABLISHES OUR
LEADERSHIP POSITION," SAID SUIZA CHAIRMAN AND CHIEF EXECUTIVE OFFICER GREGG
ENGLES. "OUR COMBINED FLUID MILK PROCESSING AND DISTRIBUTION WILL NOW REACH INTO
46 STATES. TOGETHER WITH OUR LONG SHELF LIFE DAIRY OPERATIONS AT MORNINGSTAR WE
CAN PROVIDE OUR CUSTOMERS VIRTUALLY ANY PRODUCT IN THE DAIRY CASE NATIONWIDE."
THE BOARDS OF BOTH COMPANIES HAVE UNANIMOUSLY APPROVED THE TRANSACTION.
THE TRANSACTION IS SUBJECT TO CUSTOMARY CLOSING CONDITIONS AND APPROVAL OF THE
U.S. DEPARTMENT OF JUSTICE.
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BOTH SOUTHERN FOODS AND SUIZA BOAST STRONG REGIONAL BRANDS. SOUTHERN
FOODS' BRANDS INCLUDE MEADOW GOLD(R), RIGHTS TO BORDEN(R) AND ELSIE(R) IN
SEVERAL STATES, OAK FARMS(R), SCHEPPS(R), VIVA(R), FOREMOST(R), MOUNTAIN
HIGH(R), BARBE'S(R) AND BROWN'S VELVET DAIRY(R). SUIZA'S BRANDS INCLUDE NATURAL
BY GARELICK FARMS(R), COUNTRY FRESH(R), LEHIGH VALLEY FARMS(R), TUSCAN(R), LOUIS
TRAUTH DAIRY(TM), DAIRYMENS(R), MODEL DAIRY(TM), VELDA FARMS(R), PET(R),
FLAV-O-RICH(R), BROUGHTON(R), WEST LYNN CREAMERY(R), ROBINSON(R), SUIZA
DAIRY(R), AND ADOHR FARMS(R). THE COMPANIES ALSO HAVE COMPLEMENTARY GEOGRAPHIC
LOCATIONS, WITH SUIZA CONCENTRATED IN THE NORTHEAST, SOUTHEAST, MIDWEST AND MID-
ATLANTIC, AND SOUTHERN FOODS IN THE WEST, SOUTH, MOUNTAIN STATES AND HAWAII.
WITH THE ADDITION OF PETE SCHENKEL TO THE MANAGEMENT TEAM, SUIZA'S
SENIOR MANAGERS HAVE COMBINED INDUSTRY EXPERIENCE OF MORE THAN 200 YEARS.
"SIZE, GEOGRAPHICAL REACH, EXPERIENCE AND, MOST IMPORTANT,
UNDERSTANDING THE CUSTOMER ARE CRITICAL TO OUR SUCCESS. WITH THIS ACQUISITION,
WE HAVE FIRMLY ESTABLISHED OUR LEADERSHIP IN THESE AREAS," ENGLES SAID.
SOUTHERN FOODS GROUP, L.P. PROCESSES AND DISTRIBUTES FLUID MILK
PRODUCTS, CULTURED PRODUCTS, ICE CREAM PRODUCTS, FRUIT JUICES AND DRINKS AND
OTHER DAIRY RELATED PRODUCTS.
###
CERTAIN STATEMENTS AND INFORMATION IN THIS PRESS RELEASE CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. FORWARD-LOOKING STATEMENTS MAY BE INDICATED BY
PHRASES SUCH AS "BELIEVE," "ANTICIPATES," "EXPECTS," "INTENDS," "FORESEES,"
"PROJECTS," "FORECASTS" OR WORDS OF SIMILAR MEANING OR IMPORT. SUCH STATEMENTS
ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS. SHOULD ONE OR MORE
OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS
PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE SET FORTH IN THE
APPLICABLE FORWARD-LOOKING STATEMENT. AMONG THE KEY FACTORS THAT MAY HAVE A
DIRECT BEARING ON SFG'S RESULTS AND FINANCIAL CONDITION ARE HEIGHTENED
COMPETITION, INCLUDING SPECIFICALLY THE INTENSIFICATION OF PRICE COMPETITION;
ADVERSE STATE AND FEDERAL LEGISLATION AND REGULATION; LOSS OF KEY EXECUTIVES;
GENERAL ECONOMIC AND BUSINESS CONDITIONS IF THEY ARE LESS FAVORABLE THAN
EXPECTED; UNANTICIPATED CHANGES IN INDUSTRY TRENDS; THE ABILITY OF SFG TO
SUSTAIN, MANAGE OR FORECAST ITS GROWTH; THE ENTRY OF NEW COMPETITORS AND THE
DEVELOPMENT OF NEW PRODUCTS OR SERVICES BY NEW AND EXISTING COMPETITORS; FAILURE
TO OBTAIN NEW CUSTOMERS OR FAILURE TO RETAIN EXISTING CUSTOMERS; THE INABILITY
TO CARRY OUT MARKETING AND SALES PLANS; THE LOSS OF SIGNIFICANT SUPPLIERS;
BUSINESS DISRUPTIONS; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT PLANS;
LIABILITY AND OTHER CLAIMS ASSERTED AGAINST SFG; AND THE ABILITY TO ATTRACT AND
RETAIN QUALIFIED PERSONNEL. ANY FORWARD-LOOKING STATEMENTS MADE OR INCORPORATED
BY REFERENCE HEREIN SPEAK ONLY AS OF THE DATE OF THIS PRESS RELEASE. SOUTHERN
FOODS GROUP, L.P. EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE
PUBLICLY ANY UPDATES OR REVISIONS TO ANY SUCH STATEMENTS TO REFLECT ANY CHANGE
IN ITS EXPECTATIONS WITH REGARD THERETO OR ANY CHANGES IN THE EVENTS, CONDITIONS
OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
2
