<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission file number: 333-49289
SOUTHERN FOODS GROUP, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2571364
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3114 SOUTH HASKELL, DALLAS, TEXAS 75223
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(214) 824-8163
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
---------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
----- -----
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN FOODS GROUP, L.P.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 4,708 $ 8,827
Accounts receivable, net .......................... 106,469 92,209
Inventories ....................................... 33,804 34,205
Prepaid expenses and other assets ................. 3,742 4,846
------------ ------------
Total current assets .................... 148,723 140,087
------------ ------------
Property, plant and equipment, at cost ................. 219,859 213,597
Less: accumulated depreciation and amortization .. (41,892) (37,312)
------------ ------------
177,967 176,285
------------ ------------
Goodwill, net of accumulated amortization .............. 231,323 229,512
Trademarks and licenses, net ........................... 101,004 101,529
Deferred financing costs, net .......................... 11,612 11,929
Other assets ........................................... 5,049 2,066
------------ ------------
Total assets ............................ $ 675,678 $ 661,408
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Raw milk accrual .................................. $ 42,239 $ 32,035
Accounts payable .................................. 46,735 46,464
Accrued expenses .................................. 48,396 47,845
Current portion of long-term debt ................. 1,209 600
------------ ------------
Total current liabilities ............... 138,579 126,944
Long-term debt ......................................... 310,803 313,608
Other long-term liabilities ............................ 11,849 10,784
Commitments and contingencies .......................... -- --
Partners' equity ....................................... 214,447 210,072
------------ ------------
Total liabilities and partners' equity .. $ 675,678 $ 661,408
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF INCOME
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the three months
ended March 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net sales ................................... $ 330,604 $ 272,025
Cost of sales ............................... 258,074 205,751
------------ ------------
72,530 66,274
------------ ------------
Selling, distribution and general
and administrative expenses .............. 54,214 49,932
Amortization of goodwill and other
intangible assets ........................ 3,763 3,685
------------ ------------
Income from operations ...................... 14,553 12,657
Interest expense ......................... 7,327 8,124
Other (income) expense, net .............. (284) (370)
------------ ------------
Net income .................................. $ 7,510 $ 4,903
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF PARTNERS' EQUITY
(unaudited - in thousands)
<TABLE>
<CAPTION>
Preferred Common
------------ ---------------------------
Limited General Limited
Partner Partner Partner Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' equity, December 31, 1998 ......... $ 201,514 $ 419 $ 8,139 $ 210,072
Conversion of common equity
to preferred ....................... 1,700 -- (1,700) --
Distributions .......................... (1,437) -- (1,698) (3,135)
Net income ............................. 6,474 10 1,026 7,510
------------ ------------ ------------ ------------
Partners' equity, March 31, 1999 ............ $ 208,251 $ 429 $ 5,767 $ 214,447
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
STATEMENTS OF CASH FLOWS
(unaudited - in thousands)
<TABLE>
<CAPTION>
For the three months ended
----------------------------
March 31, March 31,
1999 1998
------------ ------------
<S> <C> <C>
Net cash provided by operating activities ........ $ 12,669 $ 13,452
------------ ------------
Cash flows from investing activities:
Acquisitions, net of cash acquired ............... (4,800) --
Additions to property, plant and equipment ....... (6,657) (2,239)
Decrease in other assets ......................... -- 381
------------ ------------
Net cash used in investing activities ............ (11,457) (1,858)
------------ ------------
Cash flows from financing activities:
Repayments - long-term debt ...................... (196) (596)
Net repayments - revolving credit facility ....... (2,000) (13,500)
Partner distributions - preferred equity ......... (1,437) --
Partner contributions - common equity ............ -- 119
Partner distributions - common equity ............ (1,698) (362)
------------ ------------
Net cash used in financing activities ............ (5,331) (14,339)
------------ ------------
Net decrease in cash ............................. (4,119) (2,745)
Cash at beginning of period ...................... 8,827 4,747
------------ ------------
Cash at end of period ............................ $ 4,708 $ 2,002
============ ============
Cash paid during the period for interest ......... $ 9,374 $ 11,145
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOUTHERN FOODS GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements of Southern Foods Group, L.P. ("SFG"
or the "Partnership") included herein have been prepared by the Partnership,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, the information
furnished reflects all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the results of the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC's rules
and regulations. However, management believes that the disclosures contained
herein are adequate to make the information presented not misleading. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year. These consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the Partnership's 1998 Annual Report on Form 10-K. No
significant accounting changes have occurred during the three months ended March
31, 1999.
2. INVENTORIES
A summary of inventories is as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
Finished goods................. $ 17,731 $ 16,551
Packaging and supplies......... 1,358 4,709
Raw materials.................. 13,682 11,896
Truck parts.................... 1,033 1,049
-------------- -------------
$ 33,804 $ 34,205
============== =============
</TABLE>
3. EQUITY TRANSACTIONS
In accordance with SFG's partnership agreement, the Partnership made tax
payment distributions to the management owner totalling $1.7 million for the
three months ended March 31, 1999. As also required by the partnership
agreement, the Partnership converted equal amounts of DFA's limited partner
common equity to Series E Preferred Interests with a cumulative return of 10%.
In January 1999, the Partnership distributed $1.4 million in payment of
preferred return on the Series D Preferred Interests. The total stated value of
Preferred Interests outstanding at March 31, 1999 was $270.8 million, including
unpaid preferred returns.
4. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This new standard is effective for fiscal
years beginning after June 15, 1999 (January 1, 2000 for the Partnership). SFAS
133 requires that all derivative financial instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. The Partnership has not yet
adopted this new standard or completed its evaluation of the impact of such
adoption.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Partnership owns 27 facilities which process and distribute fluid milk
products, cultured products, ice cream products, fruit juices and drinks and
other dairy related products. The majority of the Partnership's sales are from
fluid milk products, which include fresh packaged milk and chocolate milk in
whole, reduced fat and fat-free varieties, whipping cream, half-and-half and
buttermilk. These products are produced and marketed primarily under the
Schepps, Oak Farms, Meadow Gold, Mountain High, Viva, Foremost, Flav-O-Rich,
Borden, Barbe's Dairy and Brown's Velvet Dairy brand names, as well as various
private labels. The Partnership produces cultured products, such as sour cream,
cottage cheese and yogurt, as well as ice cream and fruit juices and drinks
under its brand names, various private labels and third-party labels. The
Partnership also distributes cultured products, fruit juices and drinks, ice
cream products and other dairy related products such as cheese, eggs, butter and
non-dairy creamers purchased from third parties.
The comparability of sales and gross profit between the quarters ended
March 31, 1999 and 1998 are significantly impacted by an increase in raw milk
costs. The average federal market order price of Class I fluid milk (raw milk)
increased over 20% in the first quarter of 1999 as compared to the same quarter
of the prior year. The Partnership experienced higher sales as the higher raw
milk costs are generally passed on to customers. However, the corresponding
increase in cost of sales results in a decrease in the gross profit percentage.
The comparability of results between quarters is also impacted by the
acquisitions of the dairy and juice processing operations of Excelsior Dairy in
Hawaii in July 1998, the acquisition of the dairy processing plant and
distribution operations in Huntsville, Alabama from Dean Foods Company in August
1998, and the acquisition of the dairy operations of Haleakala Dairy in Hawaii
in January 1999.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 Compared to the Quarter Ended March 31, 1998
The Partnership's net sales were $330.6 million for the quarter ended March
31, 1999, an increase of $58.6 million, or 22%, over the first quarter of 1998.
This increase is due primarily to the increase in raw milk cost which resulted
in higher average product prices. Net sales also increased due to additional
sales volumes from the acquired businesses, and growth in the Partnership's
existing and new customer base.
The Partnership's gross profit was $72.5 million for the quarter ended
March 31, 1999, an increase of $6.3 million, or 9%, over the quarter ended March
31, 1998. The increase in gross margin is attributable to the increase in sales
volume. The decrease in the gross profit percentage is due to the increase in
raw milk costs.
The Partnership's selling, general and administrative expenses of $54.2
million for the quarter ended March 31, 1999 were $4.3 million, or 9%, higher
than the same quarter of 1998. The increase is attributable primarily to the
acquired businesses, along with the general increase in selling activity.
Interest expense during the first quarter of 1999 decreased $.8 million, or
10%, from the first quarter of 1998 due to lower average interest rates and a
decline in average debt outstanding.
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LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of $12.7 million for the quarter
ended March 31, 1999 was $.8 million lower than the quarter ended March 31,
1998, due primarily to decreased cash provided by working capital changes. Cash
and cash equivalents on hand at March 31, 1999 were $4.7 million compared to
$8.8 million at December 31, 1998.
Cash used in investing activities for the quarter ended March 31, 1999 of
$11.5 million was $9.6 million higher than the quarter ended March 31, 1998 due
to the acquisition of Haleakala Dairy for $4.8 million in January 1999 and an
increase in capital expenditures of $4.4 million.
Cash used in financing activities was $5.3 million for the quarter ended
March 31, 1999, primarily as a result of the net repayment of revolving loans of
$2.0 million and distributions to partners of $3.1 million. Cash used in
financing activities of $14.3 million for the quarter ended March 31, 1998 was
primarily a result of net repayments of revolving loans of $13.5 million.
The Partnership's total debt at March 31, 1999 was $312.0 million. The
$130.8 million of the Partnership's senior subordinated notes (the "Notes")
which remain outstanding bear interest at a rate of 9 7/8%, payable
semi-annually each March 1 and September 1, and mature September 1, 2007. The
term loan portions of the Partnership's Senior Bank Facilities consist of
borrowings under two tranches, Tranche A for $73.2 million and Tranche B for
$87.3 million. Both tranches bear interest at variable rates, which weighted
average rates were 7.03% and 8.03% for Tranche A and Tranche B, respectively, at
March 31, 1999. At March 31, 1999, $20.0 million of revolving loans and $0.1
million of letters of credit were outstanding under the Partnership's $60
million revolving credit facility.
Interest payments on the Notes and on the Senior Bank Facilities represent
significant liquidity requirements for the Partnership. The Partnership
anticipates that the Notes will require annual interest payments of
approximately $12.9 million and the Senior Bank Facilities will require
substantial interest payments based on the unamortized loan balance and variable
interest rates in effect (approximately $13.6 million annually based on March
31, 1999 balances and applicable interest rates). In addition to its debt
service obligations, the Partnership will require liquidity for capital
expenditures and working capital needs. Management believes that the cash flow
generated from its operations, together with amounts available under the
revolving credit facility, should be sufficient to fund its debt service
requirements, working capital needs, anticipated capital expenditures and other
operating expenses. The Partnership's future operating performance and ability
to service or refinance the Notes and to extend or refinance the Senior Bank
Facilities will be subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Partnership's control.
The Senior Bank Facilities and the Notes impose restrictions on the
Partnership's ability to make capital expenditures and limit the Partnership's
ability to incur additional indebtedness. Such restrictions, together with the
highly leveraged nature of the Partnership, could limit the Partnership's
ability to respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business or acquisition opportunities. The
covenants contained in the Senior Bank Facilities and the Notes also, among
other things, limit the ability of the Partnership to dispose of assets, repay
indebtedness or amend other debt instruments, pay distributions, create liens on
assets, enter into sale and leaseback transactions, make investments, loans or
advances and make acquisitions.
In 1997 and 1998, the Partnership began to utilize interest rate collars
and swaps to manage interest rate exposures. The principal objective of such
contracts is to reduce the impact of changes in interest rates on its variable
rate debt. The Partnership does not utilize financial instruments for trading or
other speculative purposes. Swap agreements are contracts to exchange variable
rates for fixed rate payments periodically over the life of the agreements
without the exchange of the underlying notional amounts. The notional amounts of
interest rate agreements are used to measure interest to be paid or received.
The Partnership makes interest payments on the Senior Bank Facilities based on
the floating rate plus the
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applicable margin, and then either makes a payment to or receives a payment from
the counterparty to the swap agreement based on the related notional amount and
the difference between the fixed swap rate and the applicable floating rate.
In January 1998, in order to fix the interest rates on the majority of the
Partnership's bank debt, the Partnership entered into various interest rate swap
agreements. The fixed LIBOR rate under these agreements ranges between 5.565%
and 5.63%. These agreements have an aggregate initial notional amount of $127
million, which declines annually over a five-year period to a final aggregate
notional amount of $23 million, and are cancellable at the counterparty's option
at the end of three or four years, based on the individual agreement. The
Partnership also has an interest rate collar with a notional amount of $28.0
million and a LIBOR rate cap of 7% and a floor of 5.65%. This agreement expires
in October 2000.
The Partnership is involved in certain threatened and pending legal matters
in the ordinary course of business. Although neither the outcome of these
proceedings nor the effect of such outcome can be predicted with certainty, in
the opinion of management, the outcome of these matters should not have a
material adverse effect on the financial condition or results of operations of
the Partnership.
YEAR 2000 ISSUES
The information provided below constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
The Partnership is continuing the process of conducting an internal review
of its computer systems to identify systems that could be affected by the "Year
2000" issue. The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Partnership's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a major system failure or miscalculations.
The Partnership's initiatives to minimize failures of its electronic
systems to process date sensitive information in the Year 2000 and beyond
include efforts to identify all mission critical information technology (IT)
systems, such as financial and distribution applications, and non-IT systems
such as plant production systems, and remediate those systems which are
non-compliant. Identification of IT systems includes taking an inventory of all
mission critical computer hardware and software and testing these systems for
Year 2000 compatability. Those systems that are not Year 2000 compliant will be
repaired or replaced as necessary. The Partnership's Year 2000 initiatives also
include identifying critical vendors and communicating with those vendors
regarding their Year 2000 readiness. These initiatives are underway.
Additionally, remediation efforts have been undertaken on systems that have been
identified as non-compliant. Utilizing internal resources to identify and assess
needed Year 2000 remediation, the Partnership currently anticipates that its
Year 2000 identification, assessment, remediation and testing efforts will be
completed by December 31, 1999.
The Partnership has begun, but not yet completed, a comprehensive analysis
of the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Partnership and certain
third parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Partnership faces the risk that third-parties which the
Partnership relies upon for products or services will not be Year 2000 ready.
Services provided by these parties include power, telecommunications and public
utilities. Products include raw materials used in the processing or distribution
of the Partnership's products. The Partnership will also be reliant upon the
proper functioning of its banks for cash management services, and customers must
be able to receive products and process information for invoicing and payment. A
failure in any of these areas by third parties could result in the Partnership's
inability to process and deliver its products to customers, or to exchange
information required for the Partnership to receive or make payments. The
Partnership also faces the risk that third parties could confirm their systems
or products as being Year 2000 ready when they actually are not. The Partnership
continues the process of identifying these risks and will include, where
possible, mitigation of these risks in its contingency plan, which should be
substantially completed by the end of the third quarter of 1999.
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The Partnership does not anticipate that the total costs related to its
Year 2000 compliance efforts will be material to its financial position.
However, given the complexity of the Year 2000 issue, the impact on business
operations due to failure by the Partnership to achieve compliance or failure by
third parties to achieve compliance, which the Partnership cannot control, could
adversely affect the Partnership's results of operations.
Even if the Partnership acts in a timely manner to complete all of its
assessments and identify, develop and implement remediation plans believed to be
adequate, some problems may not be identified or corrected in time to prevent
material adverse consequences to the Partnership. The discussion above regarding
estimated completion dates, costs, risks and other forward looking statements
regarding Year 2000 is based on the Partnership's best estimates given
information that is currently available, and is subject to change. As the
Partnership continues to progress with its Year 2000 initiatives, it may
discover that actual results will differ materially from these estimates.
Uncertainties and Disclosure Regarding Forward-Looking Statements
Certain statements in this report are "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Forward
looking statements include all statements other than those of historical fact.
Those statements may be found in Management's Discussion and Analysis of
Financial Condition and Results of Operations. These statements involve risks
and uncertainties which may cause actual results to differ materially from the
forward looking statements. Among the risks or uncertainties faced by the
Partnership 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 the Partnership 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 the
Partnership; the ability to attract and retain qualified personnel; and other
statements made in this report may include additional factors which could
adversely impact the Partnership's business and financial performance. Moreover,
the Partnership operates in a very competitive and rapidly changing environment.
New risk factors emerge from time to time and it is not possible for management
to predict all such risk factors, nor can it assess the impact of all such risk
factors on the Partnership's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward looking statements. Given these risks and
uncertainties, undue reliance should not be placed on forward looking statements
as a prediction of actual results.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.42 Release of Claims, Confidentiality and Non-Competition
Agreement
10.43 Change in Control Agreement
10.44 1998 Unit Appreciation Rights Plan
10.45 Executive Medical Agreement
27.1 Article 5 Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
-----------------------------------
(Registrant)
Date: May 14, 1999 By: /s/ PATRICK K. FORD
-----------------------------------
Patrick K. Ford
Chief Financial Officer, Secretary
and Treasurer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.42 Release of Claims, Confidentiality and Non-Competition Agreement
10.43 Change in Control Agreement
10.44 1998 Unit Appreciation Rights Plan
10.45 Executive Medical Agreement
27.1 Article 5 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.42
EXECUTION COPY
RELEASE OF CLAIMS, CONFIDENTIALITY
AND NON-COMPETITION AGREEMENT
This Release of Claims, Confidentiality and Non-Competition Agreement
("Agreement") is made and entered into as of April 6, 1999, by and between
Southern Foods Group, L.P., a Delaware limited partnership (the "Partnership"),
and Anthony R. Ward ("Ward").
WHEREAS, Ward is a party to that certain Executive Employment Agreement
dated as of the 4th day September, 1997 between the Partnership and Ward (the
"Existing Employment Agreement"); and
WHEREAS, Ward is presently the Vice Chairman of the Partnership, and
the parties desire to enter into this agreement (i) to further protect and
maintain the trade secrets and confidential proprietary information of the
Partnership, (ii) to prohibit Ward from competing with the Partnership as
described herein, and (iii) to release the Partnership from the claims specified
herein;
NOW, THEREFORE, in consideration of the premises and the mutual terms
and conditions herein contained, the Partnership and Ward hereby agree as
follows:
1. Release of Claims by Ward. Effective as of the Calculation Date
(hereinafter defined), Ward hereby releases and discharges the Partnership, its
partners, officers, employees and agents, and the heirs, successors, assigns and
legal representatives of each such party, of and from any and all claims, causes
of action, suits, liabilities, damages, losses and expenses of any and every
nature whatsoever arising out of, or in connection with, (i) his employment with
the Partnership from the beginning of such employment to the date of the payment
in Paragraph 5 hereof, (ii) the determination and payment of compensation to him
by the Partnership with respect to all time periods up to and including the
Calculation Date, or (iii) any rights which he might claim to receive any
interest in the Partnership, or to receive payment for any such interest;
provided, however, that the foregoing shall not constitute a release of any
claims, causes of action, suits, liabilities, damages, losses and expenses
arising under this Agreement.
(a) The foregoing release by Ward includes, but is not limited
to, all "Employment Related Claims," which for purposes of this
Agreement means claims arising out of or related to Ward's employment
as an officer and employee of the Partnership, including without
limitation, claims for constructive discharge, unlawful employment
discrimination on the basis of age or any other form of unlawful
employment discrimination, retaliation, breach of contract (express or
implied), intentional or negligent infliction of emotional distress,
invasion of privacy, defamation of character, duress, fraud or
misrepresentation or any violation of Title VII of the Civil Rights Act
of 1964, as amended, the Americans with Disabilities Act (42 U.S.C.
12101 et seq.), as amended, the Family and Medical Leave Act, the Age
Discrimination in Employment Act of 1967 (29 U.S.C. 62, et seq)., as
amended, or the Texas Commission on Human Rights Act, as amended.
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<PAGE> 2
(b) Ward agrees that he has been given a reasonable period of
time within which to review and consider this Agreement.
(c) In recognition of its statutory duty as an employer, the
Partnership advises Ward that this Agreement is an important legal
document and that he should consult with an attorney before executing
it. The Partnership also advises Ward that he has twenty-one (21) days
to consider whether to sign this Agreement and that he has eight (8)
days after this Agreement is fully executed to revoke his acceptance of
its terms. In the event of revocation by Ward (i) this Agreement shall
be revoked and shall be of no force and effect whatsoever except as
necessary to enforce the provisions of this subparagraph (c), and (ii)
Ward and the Partnership shall each immediately return to the other all
consideration received pursuant to this Agreement.
(d) This Paragraph 1 shall not apply to any liabilities or
obligations that the Partnership may have to Ward for compensation or
benefits due to Ward under (i) the Existing Employment Agreement, (ii)
that certain Consulting Agreement dated as of September 5, 1997 between
Mid-America Dairymen, Inc. and Ward, as may be amended from time to
time (the "Consulting Agreement"), (iii) any pension plan, 401(k) plan,
management security plan, supplemental executive retirement plan or any
other similar plan in which Ward is a participant as of the Calculation
Date or (iv) any employee benefit plan maintained by the Partnership
that provides medical benefits of any kind, including without
limitation hospitalization, dental or other health benefits of any kind
(all of such plans referred to in clauses (iii) and (iv) of this
sentence, the "Partnership Benefit Plans"). Ward reserves all rights
and remedies with respect to compensation and benefits due to him under
the Existing Employment Agreement, the Consulting Agreement and the
Partnership Benefit Plans.
2. Confidentiality/Trade Secrets. Ward acknowledges that his position
with the Partnership is one of trust and confidence both by reason of his
position and by reason of his access to and contact with the trade secrets and
confidential and proprietary business information of the Partnership. Both
during the term of this Agreement and thereafter, Ward covenants and agrees as
follows:
(a) that he will exercise diligence to protect and safeguard
the trade secrets and confidential and proprietary information of the
Partnership including but not limited to the identity of its customers
and suppliers, the identity of its officers and other key employees and
their areas of expertise, its marketing and expansion plans, its
arrangements with customers and suppliers, and its technical data,
records, compilations of information, processes, and specifications
relating to its customers, suppliers, products and services;
(b) that he shall not disclose any of such trade secrets and
confidential and proprietary information, except as may be required in
the course of his employment; and
(c) that he shall not use, directly or indirectly, for his own
benefit or for the benefit of another, any of such trade secrets and
confidential and proprietary information.
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<PAGE> 3
All files, records, documents, drawings, specifications, memoranda,
notes, or other documents relating to the business of the Partnership, whether
prepared by Ward or otherwise coming into his possession shall be the exclusive
property of the Partnership and shall be delivered to the Partnership and not
retained by Ward upon termination of his employment with the Partnership for any
reason whatsoever.
Ward shall not be required to keep confidential or restrict the use of
any trade secrets or confidential and proprietary data and information of the
Partnership (i) which he may be required to disclose at the express direction of
any authorized government agency, pursuant to a subpoena or other court process,
or as otherwise required by any law, rule, regulation or order of any regulatory
body, (ii) which has become generally available to the public by means other
than a breach of this Agreement by Ward, or (iii) as to which disclosure or use
the Partnership consents in writing in its sole and absolute discretion.
3. Non-Competition. Ward covenants and agrees that during the term of
this Agreement and after termination of this Agreement for a period of three (3)
years, (i) he shall not without the prior written consent of the Partnership, in
its sole discretion, directly or indirectly, as an employee, employer,
consultant, agent, principal, partner, shareholder, corporate officer, director
or through any kind of ownership or investment (other than ownership of
securities of publicly held corporations of which Ward owns less than five
percent (5%) of any class of outstanding securities) or in any other
representative or individual capacity, engage in any business or render any
services to any business that is in competition with the business of the
Partnership in any state in which the Partnership is conducting business at the
time of the Calculation Date, and (ii) he shall not encourage, solicit or
induce, directly or indirectly, any employee, manager, supervisor or officer of
the Partnership to terminate his or her employment with the Partnership or any
affiliate of the Partnership.
4. Remedies for Breach of Covenants of Ward. The covenants set forth in
Paragraphs 2 and 3 of this Agreement shall continue to be binding upon Ward,
notwithstanding Ward's termination of employment with the Partnership. It is
expressly agreed that the remedy at law for the breach of any such covenant is
inadequate and that injunctive relief, in addition to any other remedies that
may be available to the Partnership at law or in equity, shall be available to
the Partnership to prevent to the breach or any threatened breach thereof.
5. Consideration.
(a) Amount of Aggregate Consideration. Subject to the terms of
Paragraphs 6 and 7 hereof, as consideration for the covenants and
agreements of Ward set forth in this Agreement, Ward shall, immediately
upon his termination of employment with the Partnership for any reason
whatsoever, including his death, be entitled to receive the sum of (i)
the Consideration Amount (calculated as set forth below), plus (ii) the
Gross-Up Payment (calculated as set forth below). In the event of
Ward's death, Ward's legal representatives will be entitled to payment
of the Consideration Amount and the Gross-Up Payment provided for under
the terms of this Agreement.
The "Consideration Amount" that Ward shall receive upon the
termination of Ward's employment with the Partnership shall be
calculated as of the date of such termination (the
- 3 -
<PAGE> 4
"Calculation Date") and shall be a sum equal to the excess of (i) the
Formula Put Price (as defined and calculated in accordance with the
provisions of Section 8.11(c) of the Second Amended and Restated
Agreement of Limited Partnership of the Partnership, as amended and in
effect on the date of this Agreement (the "SFG Partnership Agreement"),
except that for the purposes of this Agreement, subparagraph (C) of the
SFG Partnership Agreement shall be modified so that the result obtained
after making the calculations provided for in subparagraph (B) of the
SFG Partnership Agreement would be multiplied by the percentage equal
to the Ward Deemed Partnership Interest (defined below) measured as of
the Calculation Date, rather than by Schenkel's percentage ownership of
the Partnership), calculated as of the Calculation Date over (ii)
$1,000,000. In other words, the Consideration Amount shall be
determined in accordance with the following formula:
Consideration Amount = (Formula Put Price x .02) - $1,000,000,
assuming that the Ward Deemed Partnership Interest remains at
2% as of the relevant Calculation Date
For purposes of this Agreement, the "Ward Deemed Partnership Interest"
at the time of the Calculation Date shall mean such Common Partner
Interest as would be held by Ward at such time if, as of the date
hereof, Ward held a two percent (2%) Common Partner Interest and the
actual holders of Common Partner Interests held, instead of the Common
Partner Interests actually held, the Common Partner Interests shown
below for such Partners:
<TABLE>
<S> <C>
SFG Management Limited Liability Company .98%
Pete Schenkel 48.51%
Dairy Farmers of America, Inc. 48.51%
Anthony R. Ward 2.00%
------
100.00%
======
</TABLE>
The Consideration Amount shall be increased by an additional
payment (the "Gross-Up Payment") which will be in an amount such that,
after payment by Ward of all applicable federal income taxes, Medicare
taxes and Utah state taxes on the Consideration Amount and on the
Gross-Up Payment, Ward is in substantially the same position as if the
Consideration Amount were treated as a gain recognized on a sale by
Ward of a common limited partnership interest in the Partnership, the
gain from which would be taxed for applicable federal and state tax
purposes as long term capital gains taxed at the applicable federal and
state tax rates for long term capital gains in effect as of the
Calculation Date.
(b) Payment of Consideration. The Consideration Amount plus
the Gross-Up Payment shall be payable in cash by the Partnership as
soon as practicable following the end of the 30-day period described in
Paragraph 6 below, but in no event later than sixty (60) days following
the Calculation Date, unless the Partnership is unable to make such
payments because of any contractual restriction with any lenders of the
Partnership limiting the amount or timing of such payments that can be
made during any fiscal year of the Partnership (a "Payment
Restriction"), in which case the Partnership shall make such payments
as are permitted under the terms of such Payment Restriction. Any such
payments that are postponed because of Payment Restrictions shall be
paid to Ward as soon as, and to the
- 4 -
<PAGE> 5
extent, permitted by the Payment Restrictions. Any portion of the
Consideration Amount and the Gross-Up Payment which are not made within
one year of the Calculation Date shall bear interest at a floating rate
equal to the prime rate in effect from time to time as published in the
Southwest Edition of the Wall Street Journal. Such accrued interest
shall be paid to Ward as soon as, and to the extent, permitted by the
Payment Restrictions.
(c) Allocation of Consideration. The parties agree that, of
the aggregate consideration paid under this Agreement, $10,000 is paid
for the release of claims in Paragraph 1 and the remainder is paid for
the promises and covenants made by Ward in Paragraphs 2 and 3 hereof.
6. Limited Termination Rights. Notwithstanding Paragraph 5 above, in
the event that Ward's employment with the Partnership is terminated either (i)
involuntarily by the Partnership, with or without cause, or (ii) by Ward
resigning with good reason, then Ward shall have the right to terminate this
Agreement by delivering to the Partnership written notice of such termination
within 30 days following the Calculation Date. As a result of any such
termination of this Agreement, Ward would no longer be bound by the covenants or
agreements set forth herein and would not be entitled to receive any payments
hereunder, and the Partnership would not be obligated to pay the Consideration
Amount, the Gross-Up Payment or any other amounts hereunder. For the purposes of
this Agreement, Ward shall be deemed to have resigned for good reason if the
Partnership assigns to Ward any duties inconsistent in any material respect with
Ward's position (including status, office, title, and reporting requirements),
authority, duties or responsibilities or any other action by the Partnership
which results in material diminution in such position, authority, duties or
responsibilities of Ward.
7. Coordination with Change in Control Agreement. In the event, as a
result of or in connection with a Change in Control (as defined in that certain
Change in Control Agreement of even date herewith between the Partnership and
Ward (the "Change in Control Agreement")), Ward becomes entitled to receive the
consideration set forth in such agreement, then this Agreement shall terminate
and Ward shall not be entitled to receive any payments whatsoever under this
Agreement and the Partnership shall not be obligated to pay the Consideration
Amount, the Gross-Up Payment or any other amounts hereunder. In the event that a
Change of Control occurs within one year following the Calculation Date,
regardless of whether Ward's termination of employment with the Partnership was
voluntary or involuntary and whether all or any portion of the Consideration
Amount and Gross-Up Payment have been paid hereunder, Ward shall be entitled to
receive the consideration set forth in the Change in Control Agreement, subject
to the terms and conditions thereof; provided, however that such consideration
shall be reduced by the amount of any payments made by the Partnership to Ward
hereunder.
8. Third Party Consents. This Agreement is subject to obtaining all
necessary third party consents to the actions set forth above, including but not
limited to obtaining all necessary consents under the terms of the Partnership's
credit agreement and the indenture executed in connection with the Meadow
Gold/Borden transactions.
- 5 -
<PAGE> 6
9. Miscellaneous.
(a) Waivers Applicable to Covenants Not to Compete. In its
sole discretion, the Partnership shall have the right at any time and
from time to time, upon written approval of the Partnership's general
partner, to waive all or any portion of the Partnership's rights under
the covenants not to compete contained in Paragraph 3 of this Agreement
as applicable to Ward, including, without limitation, reducing the
scope of such covenants not to compete applicable to Ward or reducing
the time period or the geographical area of such covenants not to
compete applicable to Ward; provided that any such covenants not to
compete as effected by such waiver shall remain fully in effect. In
order to be effective, any such waiver must be in writing, approved by
the Partnership's general partner as provided above, and executed by an
authorized officer of the Partnership.
(b) Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with
this Agreement shall be in writing, and shall be given by addressing
the same to such other party(ies) at the address set forth below, and
by (i) depositing the same so addressed, postage prepaid, first class,
certified or registered, in the United States mail (herein referred to
as "Mailing"), (ii) overnight delivery by a nationally recognized
overnight courier service (e.g. UPS, Federal Express), (iii) delivering
the same personally to such other party(ies), or (iv) if a fax number
is listed below, transmitting by facsimile and Mailing the original.
Any notice shall be deemed to have been given five (5) U.S. Post Office
delivery days following the date of Mailing; one business day after
timely delivery to an overnight courier; if by personal delivery, upon
such delivery; or if by facsimile, the day of transmitter's
confirmation of receipt of a facsimile transmission if transmitted
within customary business hours, or if not transmitted within customary
business hours, the following business day.
If to the Partnership:
Southern Foods Group, L.P.
3114 South Haskell
Dallas, Texas 75223
Attention: Mr. Pete Schenkel
Fax No.: (214) 821-1686
If to Ward:
Mr. Anthony R. Ward
3184 East 4100 North
Liberty, Utah 84310
Fax No.:
----------------
Any party may change its address for notice by giving notice in
accordance with the terms of this Paragraph 9(b).
- 6 -
<PAGE> 7
(c) Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.
(d) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future
laws effective during the term hereof, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance therefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be
added automatically as part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be
possible and still be legal, valid or enforceable.
(e) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions or warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
(f) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their
respective heirs, representatives, successors and assigns. Since the
duties and services of Ward hereunder are special, personal and unique
in nature, Ward may not transfer, sell or otherwise assign his rights,
obligations or benefits under this Agreement.
(g) Remedies. If Ward or the Partnership shall file any
judicial action for enforcement of this Agreement and successfully
recover compensation or damages, the successful party shall be entitled
to recover in such proceeding an additional amount equal to interest at
ten percent (10%) per annum on the amount recovered from the date such
amount was due and payable together with all expenses and reasonable
attorneys' fees incurred in obtaining legal advice and counseling
respecting his or its rights under this Agreement and in prosecuting
and disposing of such action. The provisions of this subparagraph shall
be cumulative and without prejudice to any other right or remedy to
which Ward or the Partnership may be entitled either at law, in equity
or under this Agreement and shall not constitute the exclusive remedy
of Ward or the Partnership for breach of this Agreement.
(h) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be
construed as a waiver of a subsequent breach of the same provisions by
either party or of the breach of any other term or provision of this
Agreement.
(i) Titles. Titles of the paragraphs herein are used solely
for convenience and shall not be used for interpretation or construing
any word, clause, paragraph or provision of this Agreement.
- 7 -
<PAGE> 8
(j) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but which
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
WARD: THE PARTNERSHIP:
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company
By:
- -------------------------------- ------------------------------
Anthony R. Ward Its:
-----------------------------
- 8 -
<PAGE> 1
EXHIBIT 10.43
EXECUTION COPY
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (this "Agreement") is made and entered
into as of April 6, 1999, by and between Southern Foods Group, L.P., a Delaware
limited partnership (the "Partnership"), Dairy Farmers of America, Inc., a
Kansas cooperative marketing association ("DFA"), Pete Schenkel ("Schenkel"),
and Anthony R. Ward ("Ward").
WHEREAS, Ward has made substantial contributions to the increase that
has occurred in the value of the Partnership and its business operations, and
the Partnership desires to reward Ward and align his personal financial
interests with those of the Partnership and its partners by entering into this
Agreement; and
WHEREAS, Schenkel and DFA are hereinafter referred to collectively as
the "Partners"; and
WHEREAS, capitalized terms that are not otherwise defined herein shall
have the meanings ascribed to such terms in the Second Amended and Restated
Agreement of Limited Partnership of the Partnership, as amended (the
"Partnership Agreement");
NOW, THEREFORE, in consideration of the premises, the mutual terms and
conditions herein contained and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Definition of Change in Control. For the purposes of this Agreement,
"Change in Control" means (a) the redemption by the Partnership or the transfer
or sale to DFA of all or substantially all of Schenkel's Common Partner
Interests in the Partnership (but only if such redemption or transfer or sale is
in connection with any of the events described in subsections (c), (d) and (e)
of this Paragraph 1); (b) the transfer or sale to an Outside Party (as
hereinafter defined) of all or substantially all of Schenkel's Common Partner
Interests in the Partnership; (c) the transfer or sale to an Outside Party of
all or substantially all of the Common Partner Interests in the Partnership; (d)
the merger, consolidation or other combination of the Partnership with one or
more unaffiliated partnerships, corporations or other entities, in which the
Partnership is not the surviving entity (or survives only as the subsidiary of
another entity); or (e) the transfer, sale, assignment or other disposition of
all or substantially all of the assets of the Partnership to an Outside Party.
As used herein, "Outside Party" means any entity or person other than the
Partners or any entity or person that directly or indirectly controls, is
controlled by, or is under common control with, either of the Partners.
2. Payment to Ward Upon Change in Control. As part of or in connection
with any Change in Control, the Partnership agrees to pay or the Partnership and
the Partners otherwise agree to cause Ward to receive, as compensation for
services rendered, the aggregate value set forth below, which, to the extent
possible, shall consist of consideration of the same type (cash, securities and
other property, rights or interests of any description) and be paid in the same
manner as is issued or
- 1 -
<PAGE> 2
issuable to the holders of Common Partner Interests in the Partnership in
exchange for such Common Partner Interests as part of or in connection with the
Change in Control, in accordance with the following terms and conditions:
(a) Amount of Consideration. The aggregate amount of such
consideration (the "Consideration Amount") shall be equal to the excess of (i)
the consideration which Ward would be entitled to receive in such Change in
Control as if he was the holder at the time of such Change in Control of the
Ward Deemed Partnership Interest (as hereinafter defined) and such interest was
subject to the same adjustments or special allocations (on a proportionate
basis) as Schenkel has at any time after the date hereof agreed would be
applicable to Schenkel's Common Partner Interest in the Partnership under the
Partnership Agreement or any other binding written agreement, over (ii)
$1,000,000 in value of such consideration (as determined in good faith by the
Partnership and allocated among cash and non-cash items in the same proportions
as the consideration that Schenkel receives in the Change in Control). The
payment to Ward of the Consideration Amount (as increased by the Gross-Up
Payment described below) shall proportionately reduce the amount of
consideration in the Change in Control that each of the Partners shall receive
in respect of their Common Partner Interests. For purposes of this Agreement,
the "Ward Deemed Partnership Interest" at the time of a Change in Control shall
mean such Common Partner Interest as would be held by Ward at such time if, as
of the date hereof, Ward held a two percent (2%) Common Partner Interest and the
actual holders of Common Partner Interests held, instead of the Common Partner
Interests actually held, the Common Partner Interests shown below for such
Partners:
<TABLE>
<S> <C>
SFG Management Limited Liability Company .98%
Pete Schenkel 48.51%
Dairy Farmers of America, Inc. 48.51%
Anthony R. Ward 2.00%
------
100.00%
======
</TABLE>
In addition, the Consideration Amount shall be increased by an
additional cash payment (the "Gross-Up Payment") which will be in an amount such
that, after payment by Ward of all applicable federal income taxes, Medicare
taxes and Utah state taxes on the Consideration Amount and on the Gross-Up
Payment, Ward is in substantially the same position as if the Consideration
Amount were treated as a gain recognized on a sale by Ward of a Common Partner
Interest in the Partnership, the gain from which would be taxed for applicable
federal and state tax purposes as long term capital gains taxed at the
applicable federal and state tax rates for long term capital gains in effect as
of the date of the Change in Control.
(b) Payment of Consideration. The Consideration Amount plus
the Gross-Up Payment shall be payable hereunder not later than the closing of
the Change in Control.
(c) No Amendment to Adversely Affect Ward's Rights. Each of
the Partners hereby agrees not to amend the Partnership Agreement in any manner
which would adversely affect Ward's rights hereunder, without the prior written
consent of Ward, except for (i) an amendment pursuant to which Schenkel agrees
to a special allocation or similar adjustment applicable to Schenkel's Common
Partner Interest in the Partnership, as contemplated in Paragraph 2(a) above, or
(ii) an amendment which generally applies to all holders of Common Partner
Interests. The
- 2 -
<PAGE> 3
Partnership shall promptly notify Ward of any such amendments or the entry into
any other binding agreement relating to special allocations or other adjustments
applicable to Schenkel's Common Partner Interest.
3. Coordination with Release of Claims, Confidentiality and
Non-Competition Agreement.
(a) Termination of this Agreement. In the event that (i)
Ward's employment with the Partnership terminates and he is entitled to receive
payments under that certain Release of Claims, Confidentiality and
Non-Competition Agreement of even date herewith between the Partnership and Ward
(the "Other Agreement"), and (ii) he does not elect to terminate the Other
Agreement pursuant to the applicable provisions of Paragraph 6 thereof, then
this Agreement shall terminate as of the close of the thirty (30) day period
following the Calculation Date described in Paragraph 6 of the Other Agreement,
subject to the provisions of Paragraph 7 thereof in the event a Change in
Control occurs within one year following the Calculation Date.
Upon such termination of this Agreement, Ward shall no longer
be entitled to receive any payments whatsoever under this Agreement and neither
the Partners nor the Partnership shall be obligated to pay or cause to be paid
the Consideration Amount, the Gross-Up Payment or any other amounts hereunder
should a Change in Control thereafter occur. In addition, notwithstanding
anything contained herein to the contrary, upon payment of the Consideration
Amount and the Gross-Up Payment hereunder, this Agreement shall thereupon
terminate and shall not be effective for any subsequent Change in Control.
(b) Offset of Previous Amounts Paid. In the event that a
Change in Control occurs within the 180 day period following the Calculation
Date under the Other Agreement, Ward shall nonetheless be entitled to receive
the Consideration Amount and the Gross-Up Payment as set forth herein; provided,
however, that the cash portion of the consideration due hereunder shall be
reduced by the aggregate amount of any payments made by the Partnership to Ward
under the Other Agreement.
4. Transferability: Rights of Ward's Heirs and Successors. This
Agreement is not transferable by Ward during his life. If any rights exercisable
by Ward or deliverable to Ward under this Agreement have not been exercised or
delivered, respectively, at the time of Ward's death, such rights shall be
exercisable by his estate or by the beneficiary or beneficiaries designated by
Ward in a writing filed with the Secretary of the Partnership prior to his
death.
5. No Rights As a Partner. This Agreement does not confer, and Ward
shall not have, any rights of a partner in the Partnership.
6. Application of Withholding Taxes. The parties agree that all
payments to Ward hereunder will constitute payment of compensation for services
rendered to the Partnership. Ward acknowledges that all such payments shall be
subject to applicable tax withholding and payroll taxes, including without
limitation state and federal income taxes and FICA and Medicare taxes. Ward
agrees that such required tax withholdings shall be a condition for receiving
the Consideration Amount and the Gross-Up Payment.
- 3 -
<PAGE> 4
7. Miscellaneous.
(a) Notices. Any notices, claims or demands which any party is
required or may desire to give to another under or in conjunction with this
Agreement shall be in writing, and shall be given by addressing the same to such
other party(ies) at the address set forth below, and by (i) depositing the same
so addressed, postage prepaid, first class, certified or registered, in the
United States mail (herein referred to as "Mailing"), (ii) overnight delivery by
a nationally recognized overnight courier service (e.g. UPS, Federal Express),
(iii) delivering the same personally to such other party(ies), or (iv) if a fax
number is listed below, transmitting by facsimile and Mailing the original. Any
notice shall be deemed to have been given five (5) U.S. Post Office delivery
days following the date of Mailing; one business day after timely delivery to an
overnight courier; if by personal delivery, upon such delivery; or if by
facsimile, the day of transmitter's confirmation of receipt of a facsimile
transmission if transmitted within customary business hours, or if not
transmitted within customary business hours, the following business day.
If to the Partnership or Schenkel:
Southern Foods Group, L.P.
3114 South Haskell
Dallas, Texas 75223
Attention: Mr. Pete Schenkel
Fax No.: (214) 821-1686
If to DFA:
Dairy Farmers of America, Inc.
Northpointe Tower
10220 North Executive Hills Blvd., Suite 1000
Kansas City, Missouri 64153
Attention: Mr. Jerry Bos
Fax No.: (816) 801-6593
If to Ward:
Mr. Anthony R. Ward
3184 East 4100 North
Liberty, Utah 84310
Fax No.:
-----------------
Any party may change its address for notice by giving notice in accordance with
the terms of this Section 7(a).
(b) Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
- 4 -
<PAGE> 5
(c) Invalid Provisions. If any provision of this Agreement is
held to be illegal, invalid or unenforceable under present or future laws
effective during the term hereof, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and still be legal, valid or enforceable.
(d) Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions or warranties, other than those contained herein,
and no amendments or modifications hereto shall be binding unless made in
writing and signed by the parties hereto.
(e) Binding Effect. This Agreement shall extend to and be
binding upon and inure to the benefit of the parties hereto, their respective
heirs, representatives, successors and assigns.
(f) Remedies. If Ward shall file any judicial action for
enforcement of this Agreement and successfully recover compensation or damages,
he shall be entitled to recover in such proceeding an additional amount equal to
interest at ten percent (10%) per annum on the amount recovered from the date
such amount was due and payable together with all expenses and reasonable
attorneys' fees incurred in obtaining legal advice and counseling respecting his
rights under this Agreement and in prosecuting and disposing of such action. The
provisions of this Section shall be cumulative and without prejudice to any
other right or remedy to which Ward may be entitled either at law, in equity or
under this Agreement and shall not constitute the exclusive remedy of Ward for
breach of this Agreement.
(g) Waiver. The waiver by either party hereto of a breach of
any term or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provisions by either party or of the
breach of any other term or provision of this Agreement.
(h) Titles. Titles of the paragraphs herein are used solely
for convenience and shall not be used for interpretation or construing any word,
clause, paragraph or provision of this Agreement.
(i) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be an original, but which together shall
constitute one and the same agreement.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
SOUTHERN FOODS GROUP, L.P.
By: SFG Management Limited Liability
Company
By:
----------------------------
Its:
---------------------------
DAIRY FARMERS OF AMERICA, INC.
By:
--------------------------------
Its:
-------------------------------
-----------------------------------
PETE SCHENKEL
-----------------------------------
ANTHONY R. WARD
- 6 -
<PAGE> 1
EXHIBIT 10.44
SOUTHERN FOODS GROUP, L.P.
1998 UNIT APPRECIATION RIGHTS PLAN
1. PURPOSES. The purposes of this Southern Foods Group, L.P. 1998 Unit
Appreciation Rights Plan (the "GUARP") are to provide incentives and rewards to
certain key executive and other management employees of Southern Foods Group,
L.P. (the "Partnership") who materially contribute or are expected to materially
contribute to the growth and profitability of the Partnership, and also to
assist the Partnership in attracting and retaining employees with the ability to
make such contributions.
2. DEFINITIONS. As used in the UARP:
(a) "AWARD" means a particular award of UARs on a particular
Grant Date to a particular Participant.
(b) "REPRESENTATIVE COMMITTEE" means the Representative
Committee of the General Partner of the Partnership.
(c) "CHANGE IN CONTROL" means (i) if at any time Dairy Farmers
of America, Inc. and Mr. Pete Schenkel either individually or together shall
cease to own or control, directly or indirectly, beneficially or of record, at
least 51% of the aggregate voting equity ownership of the Partnership or the
General Partner of the Partnership or (b) if at any time Mr. Pete Schenkel fails
to own any of the aggregate voting equity ownership of the Partnership or the
General partner of the Partnership.
(d) "COMMITTEE" means the committee appointed by the
Representative Committee to (i) select the key executive or other management
employees who are to receive Awards, (ii) grant Awards, and (iii) otherwise
administer the UARP. Until changed by the Representative Committee, the
Committee shall be comprised of Pete Schenkel, President and Chief Executive
Officer of the Partnership, and Patrick K. Ford, Chief Financial Officer of the
Partnership.
(e) "DEEMED VALUE PER UNIT" means the Total Equity Value
divided by Total Deemed Units.
(f) "DETERMINATION PERIOD" means the latest rolling twelve
month period ending as of the Grant Determination Date or the Exercise
Determination Date.
(g) "EBITDA" means, for any Determination Period, the
Partnership's consolidated net income determined in accordance with generally
accepted accounting principles ("GAAP"), plus (i) consolidated interest expense,
(ii) consolidated federal, state, local and foreign income tax expense, (iii)
all depreciation and amortization of assets (including goodwill and other
intangible assets), (iv) all other non-cash charges which do not represent
future cash disbursements by the Partnership, and (v) extraordinary gains and
losses as determined under generally accepted
- 1 -
<PAGE> 2
accounting principles, but in the case of each of items (i) through (v), only to
the extent such items were included in the determination of the Partnership's
consolidated net income; provided, however, that in the event significant
acquisition(s) or disposition(s) of assets occurred during the Determination
Period, EBITDA will be calculated on a pro forma basis consistent with the rules
and regulations established by the Securities and Exchange Commission ("SEC").
The Committee in its sole discretion will determine whether any acquisitions or
dispositions are significant; provided, however, that acquisitions or
dispositions meeting SEC reporting requirements will be considered significant.
(h) "EXERCISE DATE" means the date as of which any vested UARs
are exercised, or deemed to be exercised, by a Participant.
(i) "EXERCISE DETERMINATION DATE" means the date as of which
the Deemed Value per Unit will be calculated based upon the Exercise Date.
Except in the cases of a Change in Control or an IPO causing value to be
determined under Section 10(a) or 10(b), respectively, the Exercise
Determination Date for any Award of UARs shall be the last day of the fiscal
quarter that ended immediately preceding the Exercise Date. In the case of a
Change in Control causing value to be determined under Section 10(a), the
Exercise Determination Date shall be the date of the Change in Control as
determined by the Committee. In the case of an IPO causing value to be
determined under Section 10(b), the Exercise Determination Date shall be the
next date on which the Partnership's common equity interests are actively traded
on a domestic securities exchange following the Exercise Date.
(j) "EXERCISE VALUE PER UNIT" means the Deemed Value per Unit
determined at the Exercise Determination Date.
(k) "GRANT DATE" means the date as of which an Award is made,
as specified by the Committee at the time of the Award.
(l) "GRANT DETERMINATION DATE" means the date as of which the
Deemed Value per Unit will be calculated based upon the Grant Date. The Grant
Determination Date for any Award of UARs shall be the last day of the fiscal
quarter that ended immediately preceding the Grant Date.
(m) "GRANT VALUE PER UNIT" means the Deemed Value per Unit
determined at the Grant Determination Date.
(n) "PARTICIPANT" means a key executive or other management
employee of the Partnership to whom the Committee grants an Award.
(o) "PREFERRED INTERESTS VALUE" means the total value of all
preferred equity interests in the Partnership calculated as follows: (i) in the
event of the sale of any preferred interests, the sales value of the preferred
interests sold divided by the percent of value of the preferred interests sold
to the total value of all preferred interests, or (ii) otherwise, as the
liquidation value of all preferred interests outstanding determined in
accordance with the Partnership Agreement.
- 2 -
<PAGE> 3
(p) "SPREAD" means an amount equal to the Exercise Value per
Unit minus the Grant Value per Unit times the number of Units exercised.
(q) "TOTAL DEEMED UNITS" means 2.5 million units, representing
the hypothetical ownership of all common and preferred equity interests of the
Partnership.
(r) "TOTAL EQUITY VALUE" means the calculated value of the
Total Deemed Units in accordance with Section 10 of this UARP.
(s) "UAR" means a Unit Appreciation Right under this UARP.
(t) "UAR AGREEMENT" means a written agreement to be entered
into between the Partnership and a Participant at the time an Award is granted
setting forth the specific terms of the Participant's Award, and setting forth
such other terms and conditions, consistent with the UARP, as the Committee may
approve.
(u) "UNIT" means a hypothetical ownership interest in the
Partnership, determined as if all of the Partnership's ownership interests
consisted of a single class of 2.5 million Units.
3. EFFECTIVE DATE. The Plan shall become effective upon approval by the
Representative Committee.
4. ELIGIBILITY AND PARTICIPATION. Participants shall be selected by the
Committee in its complete discretion from among those of the Partnership's key
executive and other management employees who, in the Committee's judgment,
materially contribute or are expected to materially contribute to the growth and
profitability of the Partnership's business.
5. UARS AVAILABLE UNDER UARP. The aggregate number of exercised and
outstanding unexercised UARs shall not exceed 100,000 UAR. Forfeited UARs do not
count against the 100,000 UAR limit, and may be granted again after forfeiture.
6. AWARDS OF UARS. The Committee may grant Awards at any time after the
UARP becomes effective. A UAR shall be the right of the Participant to receive
from the Partnership, upon the UAR's exercise, an amount of cash equal to the
UAR's Spread. A Participant may receive as many Awards, and at such time or
times, as may be determined by the Committee in its complete discretion.
7. EXERCISES OF UARS.
(a) Prior to termination of employment, a Participant may not
exercise any UARs covered by any Award until he or she is at least 60% vested in
the Award. Once a Participant is 60% vested in an Award, the Participant may
elect at any time to exercise all or any portion of the vested UARs covered by
the Award by providing a written notice to the Partnership that identifies the
Award and the number of vested UARs that the Participant is exercising. Any such
exercise shall be deemed to occur as of the date when the Participant 's written
notice of exercise is delivered to the
- 3 -
<PAGE> 4
Partnership. If a Participant elects to exercise less than all of the vested
UARs covered by an Award, the remaining vested UARs may be exercised at any
time, unless they are called or forfeited as provided in other provisions of the
UARP.
(b) Upon a Participant's death or termination of employment
with the Partnership (other than termination for cause, as hereinafter defined),
the unexercised vested UARs covered by any Award to the Participant shall be
deemed to have been exercised by the Participant as of the date of the
Participant's death or termination of employment. In the event a Participant's
employment terminates by reason of the Participant's death, the Spread otherwise
payable to the Participant on account of such deemed exercise shall be paid to
the Participant's estate. Nonvested UARs shall become permanently unexercisable
upon a Participant's death or termination of employment for any reason
(including disability) and shall be forfeited.
(c) Promptly following a Participant's exercise of UARs, the
Committee shall determine the Spread with respect to such UARs and direct the
Partnership to pay the amount of the Spread to the Participant in cash within
sixty (60) days following the Exercise Date, subject to such other terms and
conditions of the UARP as may be applicable.
(d) Notwithstanding any other provision of the UARP regarding
the payment of Spread, any portion of the Spread (up to 100%) with respect to
any UARs exercised or deemed exercised at any time after the 60th day preceding
the date as of which any common equity interests in the Partnership become
publicly traded on any national securities exchange or in the over-the-counter
market, may, in the Representative Committee's sole discretion, be paid, instead
of in cash, in the form of an amount of publicly traded common equity interests
the fair market value of which, as determined as of the close of trading in such
common equity interests on the last trading day preceding the date of payment,
shall be equal to the amount of such Spread.
(e) This Section 7 provides the exclusive means under which
Participants shall be entitled to payment with respect to UARs.
8. VESTING OF UARS.
(a) Except as provided in Section 8(b) below, UARs covered by
an Award shall become exercisable (that is, shall "vest") according to the
following schedule. UARs that have not yet vested according to the following
schedule are not exercisable, and UARs that never vest according to the
following schedule shall never be exercisable. A Participant shall as of an
Award's Grant Date be 0% vested in all of the UARs covered by the Award and
thereafter shall vest in such UARs as follows:
- 4 -
<PAGE> 5
<TABLE>
<CAPTION>
If the Participant then the Participant's vested
remains employed by the percentage shall on, but not at any
Partnership continuously through time before, such anniversary increase to
-------------------------------- -----------------------------------------
<S> <C>
the first anniversary of the 20% of the number of UARs
Grant Date of the Award, originally covered by the Award
the second anniversary of the an additional 20% of the number of UARs
Grant Date of the Award, originally covered by the Award
the third anniversary of the an additional 20% of the number of UARs
Grant Date of the Award, originally covered by the Award, at which
time the Participant shall be 60% vested in
the UARs covered by the Award, and
thereafter the Participant may begin
exercising the UARs that have vested under
the Award
the fourth anniversary of the an additional 20% of the number of UARs
Grant Date of the Award, originally covered by the Award
the fifth anniversary of the the remaining 20% of the number of UARs
Grant Date of the Award, originally covered by the Award
</TABLE>
(b) All of a Participant's nonvested UARs shall immediately
become fully exercisable (that is, shall become 100% vested) in the event of a
Change in Control.
9. FORFEITURE OF ALL UARS, VESTED AND NONVESTED, UPON TERMINATION FOR
CAUSE; FORFEITURE OF SPREAD WITH RESPECT TO UARS EXERCISED DURING 60-DAY PERIOD
PRECEDING TERMINATION FOR CAUSE. In the event a Participant's employment with
the Partnership terminates for cause, all UARs of such Participant, whether or
not previously vested under the vesting schedule contained in Section 8, shall
become permanently unexercisable, and shall be forfeited. In addition, if the
Participant exercised any UARs within the 60 day period immediately preceding
the date on which his or her employment is terminated for cause, he or she shall
forfeit the Spread he or she was due to be paid by the Partnership with respect
to such exercise. A termination of employment with the Partnership shall be for
cause if it is because of the Participant's (i) conviction of, or plea of guilty
or nolo contendere to, a felony or misdemeanor involving fraud, embezzlement,
theft, or dishonesty or other criminal conduct; (ii) commission of an act of
fraud upon, or an act materially evidencing bad faith or dishonesty toward, the
Partnership; (iii) willful misconduct toward the Partnership; (iv) habitual
neglect of duties to the Partnership or failure to perform any substantial
obligation of employment with the Partnership that is not remedied within 30
days after written notice; or (v) absence from any duties of his or her
employment by the Partnership for more than five consecutive days without the
Participant's supervisor's consent for a reason other than jury duty or a
similar obligation, injury, illness, or vacation.
- 5 -
<PAGE> 6
10. VALUATION OF UARS.
(a) In the event any exercise of UARs occurs within the period
of time beginning 59 days before a Change in Control and ending six months after
the Change in Control, Total Equity Value will be calculated as (i) the sales
value of common equity sold divided by the percent of common equity sold to
total common equity, plus (ii) the Preferred Interests Value; provided however,
that the value determined in this Section 10(a) will not be less than the value
determined in Section 10(c).
(b) In the event an exercise of UARs occurs within the period
of time beginning 59 days before an initial public offering of common equity
interests in the Company (an "IPO"), and for so long as the Company shall have
equity interests outstanding that are actively traded on a domestic securities
exchange or in the over-the-counter market, the Total Equity Value will be
calculated as (i) the fair market value of all publicly traded common equity
interests divided by the percent of publicly traded common equity interests to
total common equity interests of the Company, plus (ii) the Preferred Interests
Value; provided, however, that in the case of an exercise of UARs occurring
within the period of time beginning on the 59th day before the day on which the
IPO occurs and ending on the 60th day following the day on which the IPO occurs,
the value determined in this Section 10(b) shall not be less than the value
determined in Section 10(c).
(c) In the event that Sections 10(a) or 10(b) above are not
applicable, the Total Equity Value will be calculated as (i) EBITDA multiplied
by 8, minus (ii) the sum of all long-term indebtedness of the Company, including
any current portions thereof.
(d) In its sole discretion, the Committee may determine the
value of UARs by any method determined by it in good faith to more accurately
reflect changes in value of the Partnership than the method set forth in Section
10.2(c) provided, however, that as of any Exercise Date the Deemed Value per
Unit of any unexercised UARs covered by an Award made before the effective date
of any change in the method of valuation (which effective date may not be before
the date on which the Committee issues a notification to Participants generally
of the change, whether or not such notice is received by all Participants before
the effective date of the change) may never be less than the lesser of (i) the
Deemed Value per Unit of such UARs determined under the valuation method in
Section 10.2(c), as if the effective date of the change were an Exercise Date,
or (ii) such UARs' Deemed Value per Unit as determined under the valuation
method set forth in Section 10.2(c) at the time of actual exercise.
11. ADMINISTRATION.
(a) The UARP shall be administered by the Committee. Any
vacancy occurring in the Committee (by death, resignation, retirement, expansion
or otherwise) shall be filled by designation of the replacement member or
members by the Representative Committee.
(b) The Committee shall have full and complete authority, in
its complete discretion, to (i) select the key executives or other management
employees of the Partnership who shall be Participants and (ii) determine the
number of UARs to be awarded to any Participant.
- 6 -
<PAGE> 7
Subject to the express provisions of the UARP, the Committee shall also have
complete authority and discretion to interpret the UARP, to prescribe, amend,
and rescind rules and regulations regarding the UARP, and to make all other
determinations necessary or advisable for the administration of the UARP.
(c) Each determination, interpretation, or other action made
or taken by the Committee pursuant to the provisions of the UARP shall be final,
binding, and conclusive for all purposes upon all Participants and any and all
persons or entities claiming under or through any Participant.
12. NATURE OF UARS. A UAR is only a hypothetical financial interest
used to determine the amount of spread to be paid to Participants as provided in
the UARP. UARs shall not confer on a Participant any of the rights or
obligations of a partner, nor shall they constitute interests in a trust or fund
of any kind. Each Participant's rights hereunder are no more than rights to
receive cash payments under certain circumstances, as herein provided.
13. NO IMPAIRMENT OF CONTRACTS OR VIOLATION OF LOAN COVENANTS. Neither
the existence of the UARP nor the award of UARs shall impair the right of the
Partnership or its partners to, among other things, conduct, make, or effect any
change in the Partnership's business, any issuance of debt obligations or other
securities by the Partnership, any grant of options with respect to an interest
in the Partnership, or any adjustment, recapitalization or other change in the
ownership interests of the Partnership (including, without limitation, any
distribution, subdivision, or combination of limited partnership interests), or
any incorporation of the Partnership, provided that any such action is not in
violation of the Partnership Agreement. If any payment of Spread otherwise due
to a Participant with respect to an exercise of UARs would violate the terms or
conditions of any agreement between the Partnership and a creditor of the
Partnership or any other third party, including an agreement entered into after
the Grant Date (but not after the Exercise Date) of the Award covering such
exercised UARs, payment of such Spread shall be deferred and bear interest at 6%
compounded monthly, and thereafter as much of any such deferred Spread as may be
paid by the Partnership without violating the terms or conditions of any
agreement between the Partnership and any creditor of the Partnership or any
other third party shall be paid as soon as such payment shall not violate any
such agreement; provided, however, that in lieu of deferring the payment of such
Spread, the Participant shall be permitted to rescind the exercise of the UARs
that gave rise to the obligation to pay such Spread if the Participant gives
written notice to the Committee of such rescission within 14 days of being
notified of the requirement to defer the payment of such Spread.
14. CALL RIGHTS. The Representative Committee may, in its complete
discretion, call any unexercised vested or nonvested UARs of any Participant
without prior notice to, or consent of, the Participant and with or without
calling any unexercised UARs of any other Participant. Upon such call, the
Participant shall, subject to the generally applicable terms and conditions of
the UARP, be paid the Spread with respect to the Participant's UARs so called,
whether vested or nonvested, determined as if any nonvested UARs so called were
vested and as if the Participant had elected to exercise such UARs on the date
notice of such call was given to the Participant.
- 7 -
<PAGE> 8
15. AMENDMENT AND TERMINATION. The Representative Committee may amend
or terminate the UARP at any time in any respect it deems advisable, provided
that, except as otherwise specifically provided in the UARP, no such action of
the Representative Committee (other than a call of a Participant's UARs pursuant
to Section 14, or a change in valuation method pursuant to Section 10) may in
any manner adversely affect any UARs which have been previously awarded under
the UARP without the consent of the affected Participant.
16. WITHHOLDING OF TAX. It is anticipated that payments under the UARP
by the Partnership will be considered payments of bonus wages for federal and
state income tax purposes. The Partnership shall deduct and withhold from all
payments of Spread all federal, state, and local taxes imposed on the
Participant or other recipient of such payments required by law to be withheld
from such payments.
17. SUBSIDIARIES OF PARTNERSHIP. For purposes of the UARP, employment
by a subsidiary of the Partnership shall be deemed to be employment by the
Partnership, and, unless the context otherwise requires, the term Partnership as
used herein shall include the Partnership and each of its subsidiaries. A
"subsidiary" of the Partnership shall for this purpose be any corporation or
other entity of which the Partnership and/or its subsidiaries (a) have
sufficient voting power (not depending on the occurrence of any contingency) to
elect at least a majority of its board of directors or other governing body, or
(b) otherwise have the power to direct or cause the direction of its management
and policies.
18. RIGHT TO TERMINATE EMPLOYMENT. Nothing contained in the UARP or any
Award shall confer upon a Participant a right to continue to be employed by the
Partnership, nor shall a Participant's participation in the UARP interfere in
any way with the Partnership's right to terminate the Participant's employment
at any time, with or without cause.
19. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The UARP and its
Participants shall be subject to all applicable federal and state laws, rules,
and regulations, and to such approvals by any government or regulatory agency as
may be required.
20. HEADINGS. Section headings are used herein for convenience of
reference only and shall not affect the meaning of any provision of the UARP.
21. RULES OF CONSTRUCTION. Whenever the context so requires, the use of
the masculine gender shall be deemed to include the feminine and vice versa, and
the use of the singular shall be deemed to include the plural and vice versa.
22. APPLICABLE LAW. As a plan of incentive compensation that does not
systematically defer the receipt of compensation until the termination of
covered employment or beyond, and that is not designed to provide retirement
income, it is not intended or anticipated that the UARP shall be subject to the
Employee Retirement Income Security Act of 1974, as amended. To the extent that
federal laws do not otherwise control, the UARP shall be governed by and
construed in accordance with the internal laws of the State of Texas.
- 8 -
<PAGE> 9
23. SURVIVAL OF PARTNERSHIP'S OBLIGATIONS. If the Partnership shall not
be the surviving or resulting entity in any incorporation, merger,
consolidation, or other reorganization (including a reorganization in which the
Partnership's owners receive securities of another entity), the rights and
obligations of the Partnership under the UARP shall survive and become rights
and obligations of the surviving entity. The Committee shall make such
appropriate determinations and adjustments as it deems necessary so as
substantially to preserve the rights and benefits, both as to number of UARs and
otherwise, of Participants.
24. NONTRANSFERABILITY. Except by the laws of descent and distribution,
UARs shall not be subject to alienation, assignment, transfer, pledge, or
hypothecation by a Participant, nor shall they be subject to attachment or other
legal process of whatever nature, and any attempted alienation, assignment,
attachment, transfer, pledge, or hypothecation shall be void and of no effect.
- 9 -
<PAGE> 10
APPENDIX
The key executive or other management employees of the Partnership whom
the Committee has designated as Participants eligible to receive UARs under the
UARP as of the UARP's Effective Date are:
Mr. Rick Beaman
Mr. Patrick J. Boyle
Mr. Steve Brewer
Mr. Patrick Ford
Mr. Dan Killingsworth
Mr. Mike Northrup
Mr. Shawn Pinon
Mr. Ernest Winfrey
<PAGE> 1
EXHIBIT 10.45
SOUTHERN FOODS GROUP, L.P.
EXECUTIVE MEDICAL AGREEMENT
THIS AGREEMENT is made this ___ day of March, 1999, by and between
Southern Foods Group, L.P., a Delaware limited partnership (the "Company"), and
Pete Schenkel (the "Executive").
WHEREAS, the Executive is a senior executive of the Company and has
made and is expected to continue to make major contributions to the
profitability, growth and financial strength of the Company;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
1. Executive Medical Coverage. Effective upon the Executive's
termination of employment (as defined in Section 2 below) for any reason, the
Company will arrange to provide the Executive and the Executive's spouse (the
"Executive's Spouse") with medical coverage for all reasonable and customary
necessary medical expenses incurred by the Executive or the Executive's Spouse,
and to the extent such benefits are not or cannot be paid or provided under any
medical plan of the Company or any affiliate of the Company, or under any
insurance policy owned by the Company or the Executive and paid for by the
Company, then the Company will reimburse the Executive, or the Executive's
Spouse in the event of Executive's death, fully for all such medical expenses
paid by the Executive or the Executive's Spouse.
2. Duration of Obligation. The Company's obligation under this
Agreement begins on the date of the Executive's termination of employment with
the Company for any reason, and ends on the later of (i) the date of the
Executive's death and (ii) the date of the Executive's Spouse's death. For
purposes of this Agreement, the term "termination of employment" includes, but
is not limited to, the Executive's ceasing to be an employee of the Company
whether as a result of retirement, voluntary resignation or involuntary
termination or ceasing to be an officer or director of the Company or an officer
or director of the general partner of the Company or any significant adverse
change in the nature or scope of the authorities, powers, functions,
responsibilities or duties attached to the Executive's position with the Company
or Executive's position with the general partner of the Company as of the date
of this Agreement, without regard to the nature of such position (e.g.,
employee, officer, director, shareholder, etc.).
3. Tax Related Payment. To the extent that any payments made under this
Agreement are included in the gross income of the Executive or the Executive's
Spouse for federal income tax purposes, the Company will pay the Executive or
the Executive's Spouse, as applicable, an additional payment (the "Gross-Up
Payment"). The Gross-Up Payment will be in an amount such that, after payment by
the Executive or the Executive's Spouse, as applicable, of all federal income
taxes, including any such taxes on the Gross-Up Payment, the Executive or the
Executive's Spouse, as applicable, is in substantially the same position as if
the initial payment under this Agreement were not included in his or her gross
income for federal income tax purposes.
- 1 -
<PAGE> 2
4. Coordination of Coverage. Any payments otherwise required under this
Agreement will be reduced to the extent the Executive or the Executive's Spouse
receives benefits under another employer's group health plan or any other health
plan covering Executive or Executive's Spouse, and any payments under this
Agreement will always be considered secondary to such other group health plan
coverage or such other health plan; provided, however, if the cost of such other
group health plan coverage or such other health plan is paid for by the
Executive or the Executive's Spouse, then the Company will reimburse the
Executive or the Executive's Spouse for such cost. In addition, any payments
under this Agreement will be secondary to Medicare, except to the extent that
Title XVIII of the Social Security Act expressly requires coverage under this
Agreement to be considered primary to Medicare.
5. Subrogation and Reimbursement. The Company's obligations under this
Agreement to the Executive and the Executive's Spouse will be reduced with
respect to any injury or illness caused by a third party to the extent that the
Executive or the Executive's Spouse recovers any amount from the third party or
the third party's insurance carrier, without regard to whether the third party
admits liability and without regard to whether such recovery specifically
mentions or otherwise relates to medical benefits or amounts paid under this
Agreement. The Executive or the Executive's Spouse, as applicable, will
reimburse the Company for any payment that is made by the Company which is not
required under the preceding sentence. In addition, in the event that the
Executive or the Executive's Spouse sustains an injury or illness caused by a
third party, the Company will be subrogated to the rights of the Executive or
the Executive's Spouse against the third party or the third party's insurance
carrier (including uninsured motorist coverage).
6. Employment Rights. Nothing expressed or implied in this Agreement
will create any right of the Executive to remain in the employment of the
Company.
7. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or regulation.
8. Assignment. This Agreement is personal in nature and the Executive
will have no right to assign this Agreement or to assign, anticipate, encumber
or dispose of any payment under this Agreement, which payments and the rights to
such payments are expressly declared nonassignable and nontransferable, except
as otherwise specifically provided in this Agreement.
9. Successors/Binding Effect. This Agreement will inure to the benefit
of and be binding upon the Company, its subsidiaries, and any successors and
assigns. The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive or the Executive's Spouse, as
applicable, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will inure to the benefit of and
be binding upon the Executive, the Executive's Spouse, their heirs, distributees
and personal representatives.
10. Entire Agreement/Modification. This Agreement supersedes all
previous agreements, negotiations, or communications between the Executive and
the Company and contains the complete and exclusive expression of the
understanding between the parties with respect to providing medical
- 2 -
<PAGE> 3
coverage to Executive and Executive's Spouse following Executive's termination
of employment. This Agreement cannot be amended, modified or supplemented in any
respect except by a subsequent written agreement entered into by both parties.
11. Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set forth above.
SOUTHERN FOODS GROUP, L.P.,
a Delaware limited partnership
By: SFG Management Limited
Liability Company, a Delaware
limited liability company,
its general partner
By:
----------------------------
Its:
------------------------
EXECUTIVE
-----------------------------------
Pete Schenkel
- 3 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,708
<SECURITIES> 0
<RECEIVABLES> 106,469
<ALLOWANCES> 0
<INVENTORY> 33,804
<CURRENT-ASSETS> 148,723
<PP&E> 219,859
<DEPRECIATION> 41,892
<TOTAL-ASSETS> 675,678
<CURRENT-LIABILITIES> 138,579
<BONDS> 312,012
0
208,251
<COMMON> 6,196
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 675,678
<SALES> 330,604
<TOTAL-REVENUES> 330,604
<CGS> 258,074
<TOTAL-COSTS> 258,074
<OTHER-EXPENSES> (284)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,327
<INCOME-PRETAX> 7,510
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,510
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
