<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 001-12755
SUIZA FOODS CORPORATION
(Exact name of the registrant as specified in its charter)
[SUIZA FOOD LOGO]
---------------
DELAWARE 75-2559681
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
2515 MCKINNEY AVENUE, SUITE 1200
DALLAS, TEXAS 75201
(214) 303-3400
(Address, including zip code, and telephone number, including
area code, of the registrant's principal executive offices)
---------------
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 [ ]
As of November 10, 1999 the number of shares outstanding of each class
of common stock was:
Common Stock, par value $.01 31,200,565
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements........................................................................... 1
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 12
Item 3 - Quantitative and Qualitative Disclosures About Market Risk..................................... 21
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K............................................................... 22
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUIZA FOODS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- --------------
(unaudited)
(Dollars in thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................................ $ 62,184 $ 54,922
Temporary investments ............................................................ 9,216
Accounts receivable, net ......................................................... 413,493 452,185
Inventories ...................................................................... 208,765 223,338
Prepaid expenses and other current assets ........................................ 15,530 25,924
Net assets held for sale ......................................................... 10,000
Refundable income taxes .......................................................... 1,673 24,455
Deferred income taxes ............................................................ 23,295 23,859
-------------- --------------
Total current assets ............................................................. 734,940 813,899
Property, plant and equipment, net .................................................. 743,282 846,956
Deferred income taxes ............................................................... 1,156 2,528
Intangible and other assets ......................................................... 1,286,865 1,350,400
-------------- --------------
Total ............................................................................... $ 2,766,243 $ 3,013,783
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses ............................................ $ 520,049 $ 500,303
Income taxes payable ............................................................. 33,949 18,876
Current portion of long-term debt and subsidiary lines of credit ................. 49,573 39,892
-------------- --------------
Total current liabilities ........................................................ 603,571 559,071
Long-term debt ...................................................................... 573,130 893,077
Other long-term liabilities ......................................................... 40,237 64,449
Deferred income taxes ............................................................... 37,142 28,702
Mandatorily redeemable convertible trust issued preferred securities ................ 683,359 682,938
Minority interest in subsidiaries ................................................... 153,606 129,775
Commitments and contingencies .......................................................
Stockholders' equity:
Common stock, 33,768,100 and 33,598,074 shares issued and outstanding ............ 338 336
Additional paid-in capital ....................................................... 452,041 446,230
Retained earnings ................................................................ 288,327 204,859
Accumulated other comprehensive income ........................................... 1,198 4,346
Treasury stock ................................................................... (66,706)
-------------- --------------
Total stockholders' equity ....................................................... 675,198 655,771
-------------- --------------
Total ............................................................................... $ 2,766,243 $ 3,013,783
============== ==============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 4
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales ....................................... $ 1,082,060 $ 968,104 $ 3,354,090 $ 2,329,345
Cost of sales ................................... 834,410 747,309 2,610,932 1,785,670
------------ ------------ ------------ ------------
Gross profit .................................... 247,650 220,795 743,158 543,675
Operating costs and expenses:
Selling and distribution ..................... 134,257 108,019 380,445 267,347
General and administrative ................... 34,411 34,846 115,248 78,967
Amortization of intangibles .................. 8,732 9,143 28,709 22,129
Plant closing and other costs ................ 3,520 8,191
------------ ------------ ------------ ------------
Total operating costs and expenses ........... 180,920 152,008 532,593 368,443
------------ ------------ ------------ ------------
Operating income ................................ 66,730 68,787 210,565 175,232
Other (income) expense:
Interest expense, net ........................ 8,434 14,104 39,612 35,951
Financing charges on preferred securities .... 9,645 9,646 28,939 20,541
Earnings from equity investments, net
of $1.6 million nonrecurring charges .... (4,692) (4,692)
Other (income) expense, net .................. 384 (921) 283 (2,362)
------------ ------------ ------------ ------------
Total other (income) expense ................. 13,771 22,829 64,142 54,130
------------ ------------ ------------ ------------
Income from continuing operations before
income taxes and minority interests ........... 52,959 45,958 146,423 121,102
Income taxes .................................... 20,359 17,066 56,462 43,978
Minority interest in earnings ................... 2,151 579 6,493 1,128
------------ ------------ ------------ ------------
Income from continuing operations ............... 30,449 28,313 83,468 75,996
Loss from discontinued operations ............... (3,161)
------------ ------------ ------------ ------------
Income before extraordinary items ............... 30,449 28,313 83,468 72,835
Extraordinary gain .............................. 31,698
------------ ------------ ------------ ------------
Net income ...................................... $ 30,449 $ 28,313 $ 83,468 $ 104,533
============ ============ ============ ============
Net income applicable to common stock ........... $ 30,449 $ 28,238 $ 83,468 $ 104,296
============ ============ ============ ============
Average common shares: Basic ................... 33,665,778 34,638,425 33,679,515 32,752,669
Average common shares: Diluted ................. 43,641,789 45,183,512 43,771,536 41,242,617
Basic earnings per common share:
Income from continuing operations ............ $ 0.90 $ 0.82 $ 2.48 $ 2.31
Loss from discontinued operations ............ (0.10)
Extraordinary gain ........................... 0.97
------------ ------------ ------------ ------------
Net income ................................... $ 0.90 $ 0.82 $ 2.48 $ 3.18
============ ============ ============ ============
Diluted earnings per common share:
Income from continuing operations ............ $ 0.83 $ 0.76 $ 2.32 $ 2.15
Loss from discontinued operations ............ (0.08)
Extraordinary gain ........................... 0.77
------------ ------------ ------------ ------------
Net income ................................... $ 0.83 $ 0.76 $ 2.32 $ 2.84
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
SUIZA FOODS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
------------ -------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................................ $ 83,468 $ 104,533
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations ..................................................... 3,161
Depreciation and amortization ......................................................... 89,371 64,209
Minority interest ..................................................................... 6,493 1,128
Undistributed earnings of affiliates .................................................. (4,692)
Extraordinary gain .................................................................... (31,698)
Deferred income taxes ................................................................. 15,220 17,904
(Gain) loss on disposition of assets .................................................. 3,675 (125)
Other, net ............................................................................ 1,929 1,229
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable ................................................................ 8,423 (88,778)
Inventories ........................................................................ (3,709) (12,367)
Prepaid expenses and other assets .................................................. (13,885) (3,919)
Accounts payable, accrued expenses and other liabilities ........................... 27,274 47,555
Income taxes ....................................................................... 40,203 17,103
---------- ----------
Net cash provided by continuing operations ....................................... 253,770 119,935
Net cash used by discontinued operations ......................................... (2,068)
---------- ----------
Net cash provided by operating activities ........................................ 253,770 117,867
Cash flows from investing activities:
Additions to property, plant and equipment ................................................. (143,208) (113,655)
Cash outflows for acquisitions ............................................................. (226,405) (566,782)
Net proceeds from the sale of discontinued operations ...................................... 172,732
Net proceeds from divestitures ............................................................. 373,768
Additions to equity investments ............................................................ (3,726)
Other, net ................................................................................. 2,044 (12)
---------- ----------
Net cash provided (used) by continuing operations ................................ 2,473 (507,717)
Net cash used by discontinued operations ......................................... (14,022)
---------- ----------
Net cash provided (used) by investing activities ................................. 2,473 (521,739)
Cash flows from financing activities:
Repayment of debt .......................................................................... (181,435) (171,330)
Payment of deferred financing and debt restructuring ....................................... (1,256)
Issuance of common stock, net of expenses ................................................. 3,273 36,069
Issuance of trust issued preferred securities, net of expenses ............................. 582,500
Redemption of preferred stock .............................................................. (3,741)
Redemption of common stock ................................................................. (69,680) (30,388)
Proceeds from issuance of minority interest ................................................ 8,983
Distributions to minority interests ........................................................ (10,122)
Other ...................................................................................... (297)
---------- ----------
Net cash provided (used) by financing activities ................................. (248,981) 411,557
---------- ----------
Increase in cash and cash equivalents ......................................................... 7,262 7,685
Cash and cash equivalents, beginning of period ................................................ 54,922 24,388
---------- ----------
Cash and cash equivalents, end of period ...................................................... $ 62,184 $ 32,073
========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 6
SUIZA FOODS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. GENERAL
The unaudited consolidated financial statements contained in this
report have been prepared on the same basis as the financial statements in our
Annual Report on Form 10-K for the year ended December 31, 1998, and in our
opinion, we have made all necessary adjustments (which include only normal
recurring adjustments) in order to present fairly, in all material respects, our
consolidated financial position, results of operations and cash flows as of the
dates and for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. Our results of
operations for the period ended September 30, 1999 may not be indicative of our
operating results for the full year. The financial statements contained in this
report should be read in conjunction with our 1998 consolidated financial
statements contained in our Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 29, 1999.
2. SALE OF U.S. PACKAGING OPERATIONS AND INVESTMENT IN CONSOLIDATED
CONTAINER COMPANY LLC
On July 2, 1999, we sold a majority interest in our U.S. plastic
packaging operations to Consolidated Container Company LLC, a newly formed
company which owns Reid Plastics Holdings, Inc. and is controlled by Vestar
Capital Partners III, L.P. Pursuant to this transaction, we received a 43%
common equity interest in Consolidated Container Company LLC in exchange for our
existing common equity interest in our U.S. plastic packaging operations, along
with cash of approximately $364 million in connection with Consolidated
Container Company LLC's refinancing of the intercompany debt and preferred stock
investment that our U.S. plastic packaging operations owed us.
Effective on July 2, 1999, with the consummation of this transaction,
the assets and liabilities and results of operations of our formerly
consolidated U.S. plastic packaging operations were combined with those of
Consolidated Container Company LLC and were eliminated from our consolidated
financial statements. For all periods prior to this date, our U.S. plastic
packaging operations continue to be included in our consolidated financial
statements. The consolidated balance sheet at December 31, 1998 included current
assets of approximately $80 million, total assets of approximately $566 million
and total liabilities of approximately $218 million (excluding intercompany debt
and preferred stock investment balances) related to our U.S. plastic packaging
operations, which are no longer reflected in the consolidated balance sheet at
September 30, 1999.
The following table summarizes our net sales and operating income had
we not consolidated our U.S. plastic packaging operations in our financial
statements; however, there would have been no changes in our reported earnings
for these periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(in 000's) 1999 1998 1999 1998
------------- ------------- ------------ -------------
Net sales:
<S> <C> <C> <C> <C>
As reported ................ $ 1,082,060 $ 968,104 $ 3,354,090 $ 2,329,345
Packaging elimination ...... (117,151) (244,866) (221,560)
------------ ------------ ------------ ------------
As adjusted .......... $ 1,082,060 $ 850,953 $ 3,109,224 $ 2,107,785
============ ============ ============ ============
Operating income:
As reported ................ $ 66,730 $ 68,787 $ 210,565 $ 175,232
Packaging elimination ...... (15,072) (34,685) (27,379)
------------ ------------ ------------ ------------
As adjusted .......... $ 66,730 $ 53,715 $ 175,880 $ 147,853
============ ============ ============ ============
</TABLE>
4
<PAGE> 7
Our 43% investment in Consolidated Container Company LLC after July 2,
1999 is accounted for under the equity method of accounting and is reported as a
single amount in non-current assets in our consolidated balance sheet and other
income in our consolidated statements of income. As of the transaction date,
Consolidated Container Company LLC had current assets of approximately $145
million, total assets of approximately $984 million, total liabilities,
including debt, of approximately $728 million and total equity of approximately
$256 million, along with annual net sales and operating income of $687 million
and $64 million, respectively, on a pro forma basis for the combination of our
U.S. plastic packaging operations with those of Reid Plastics Holdings, Inc.
Earnings from equity investments in our consolidated statements of income
represent our 43% interest in the pretax earnings of Consolidated Container
Company LLC for the three month period since July 2, 1999, which reflects an
increase in our earnings from equity investments of $0.7 million for the
amortization of the difference between the carrying amount of our investment and
our proportional share of our underlying equity interest in the net assets of
Consolidated Container Company LLC.
3. TEMPORARY INVESTMENTS
Temporary investments as of December 31, 1998, which were recorded at a
carrying value approximating market value, consisted of U.S. government
obligations due within one year, certificates of deposit or Eurodollar deposits
due within one year and highly rated commercial paper. These temporary
investments were eliminated during the third quarter of 1999 in connection with
the sale of our U.S. plastic packaging operations discussed in Note 2 above.
4. INVENTORIES
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1999 1998
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies ..... $ 114,585 $ 113,118
Finished goods ................. 94,180 110,220
------------ ------------
Total ..................... $ 208,765 $ 223,338
============ ============
</TABLE>
5. DEBT
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
1999 1998
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Senior credit facility ...................... $ 515,000 $ 719,500
Subsidiary debt obligations:
Lines of credit ......................... 54,356 46,160
Industrial development revenue bonds .... 9,815 12,635
Capital lease obligations and other ..... 43,532 23,596
Senior secured notes .................... 131,078
------------ ------------
622,703 932,969
Less current portion ........................ (49,573) (39,892)
------------ ------------
Total ................................... $ 573,130 $ 893,077
============ ============
</TABLE>
Senior Credit Facility -- Our senior credit facility provides us with a
line of credit of up to $1 billion to be used for general corporate and working
capital purposes, including the financing of acquisitions. Our senior credit
facility expires March 31, 2003, unless extended in accordance with its terms.
Amounts outstanding under our senior credit facility bear interest at a
rate per annum equal to one of the following rates, at our option: (i) a "base
rate" equal to the higher of the Federal Funds rate plus 50 basis points or a
prime rate, or (ii) the London Interbank Offering Rate ("LIBOR") plus a margin
that varies from 50 to 75 basis points depending on our ratio of debt (as
defined in the credit agreement) to our
5
<PAGE> 8
net earnings, before deductions for interest, taxes, depreciation and
amortization ("EBITDA"). We pay a commitment fee for unused credit under our
senior credit facility that ranges from 15 to 23 basis points, based on our
ratio of debt to EBITDA. Interest is payable quarterly or at the end of the
applicable interest period. The interest rate in effect on our senior credit
facility, including the applicable interest rate margin, was 6% at September 30,
1999.
Our senior credit facility contains various financial and other
restrictive covenants and requires that we maintain certain financial ratios,
including a leverage ratio (computed as the ratio of the aggregate outstanding
principal amount of debt to EBITDA) and an interest coverage ratio (computed as
the ratio of EBITDA to interest expense). In addition, the senior credit
facility requires that we maintain a minimum level of net worth. The senior
credit facility also contains limitations on liens, investments, the incurrence
of additional debt and acquisitions, and prohibits certain property sales. Our
senior credit facility is secured by the stock of certain of our subsidiaries.
In connection with our proposed acquisition of Southern Foods Groups,
L.P., we intend to repay our existing senior credit facility and replace it with
two new facilities with an aggregate availability of up to $2.25 billion. For
more information, please see Note 6 below.
Subsidiary Debt Obligations -- During the quarter, the debt obligations
of our subsidiaries included lines of credit, industrial development revenue
bonds and other obligations.
Borrowings under our subsidiaries' lines of credit are generally
subject to limitations based on a borrowing base and bear interest generally at
floating interest rates. Of the outstanding borrowings under these lines of
credit, which at September 30, 1999 included only foreign subsidiary borrowings,
$42.7 million is classified as a current liability since such borrowings are
expected to be repaid within one year; the remaining $11.7 million is classified
as long term and will be repaid at various dates through 2003.
Certain of our subsidiaries have revenue bonds outstanding, certain of
which require aggregate annual sinking fund redemptions aggregating $0.7 million
and are secured by irrevocable letters of credit issued by financial
institutions, along with first mortgages on certain real property and equipment.
Interest on these bonds is due semiannually at interest rates that vary based on
market conditions which, at September 30, 1999, ranged from 3.95% to 4.15%.
Other subsidiary debt includes various promissory notes for the
purchase of property, plant and equipment and capital lease obligations. The
promissory notes payable provide for interest at varying rates and are payable
in monthly installments of principal and interest until maturity, when the
remaining principal balances are due. Capital lease obligations represent
machinery and equipment financing obligations which are payable in monthly
installments of principal and interest and are collateralized by the related
assets financed.
Plastic Containers, Inc., which was part of our U.S. plastic packaging
operations that we sold to Consolidated Container Company LLC on July 2, 1999,
issued senior secured notes in December 1996. These notes remained outstanding
until they were fully redeemed by Consolidated Container Company, LLC in
connection with their purchase of our U.S. plastic packaging operations. Please
see Note 2 above for more information.
Interest Rate Agreements -- We have interest rate derivative agreements
in place, including interest rate caps, swaps and collars.
6
<PAGE> 9
The following table summarizes our various interest rate agreements as
of September 30, 1999:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
Interest rate caps with an interest rate limit of 8% expiring March 2000 .... $ 60,000
Interest rate swaps with interest rates ranging from 6.03% to
6.14% expiring between September 2000 and December 2002 ..................... 435,000
Interest rate collars with an interest rate range of 6.08% to
7.5% expiring between December 2002 and June 2003 ........................... 100,000
</TABLE>
All of these derivative agreements were entered into for the purpose of
providing hedges for loans under our senior credit facility by limiting or
fixing the LIBOR interest rates specified in the senior credit facility at the
interest rates noted above until the indicated expiration dates of these
interest rate derivative agreements. We used the cash proceeds that we received
from the sale of our U.S. plastic packaging operations on July 2, 1999 to reduce
outstanding debt under our senior credit facility, and as a result, certain of
our existing interest rate agreements no longer qualify for accounting purposes
as hedges and have been marked to market. There was no material gain or loss
related to these unmatched derivative agreements.
We are exposed to market risk under interest rate derivative
agreements. Credit risk under these agreements is remote, however, since the
counterparties to our interest rate derivative agreements are major financial
institutions.
6. ACQUISITIONS
Proposed Acquisition of Southern Foods Group -- On September 21, 1999,
we announced that we have signed a definitive agreement to acquire Southern
Foods Group, L.P. pursuant to a new joint venture with Dairy Farmers of America,
currently the majority owner of Southern Foods Group, L.P. Southern Foods Group,
L.P., currently the third largest dairy processor in the United States, had net
sales of approximately $1.2 billion during the twelve-month period ended June
30, 1999. The new joint venture, which will include all of our domestic fluid
dairy operations (including our interests in our two existing joint ventures
with Dairy Farmers of America) and Southern Foods, will be owned 66.2% by us and
33.8% by Dairy Farmers of America. The joint venture will not include our
Morningstar division, our Puerto Rican operations, or our remaining packaging
operations. We will manage the joint venture and receive a quarterly management
fee. The transaction has been approved by our Board of Directors and by the
Board of Directors of Dairy Farmers of America. Closing of the transaction,
which is expected to occur by December 31, 1999, is subject to customary closing
conditions, and the approval of the U.S. Department of Justice. In connection
with this transaction, we anticipate replacing our existing $1 billion credit
facility with a new credit facility in the amount of approximately $300 million
to $500 million. The joint venture will also obtain a new credit facility at
closing in the amount of approximately $1.5 billion to $1.75 billion, the
proceeds of which will be used to refinance existing debt of both companies, for
future acquisitions and for general corporate purposes. We are currently in the
process of negotiating these two facilities, and expect to enter into definitive
agreements simultaneously with the closing of the acquisition of Southern Foods
Group, L.P. Also in connection with the transaction, Southern Foods Group, L.P.
will redeem the interest of its minority holder, and we will redeem $100 million
of our trust issued preferred securities held by Dairy Farmers of America.
Acquisition of Robinson Dairy -- On August 16, 1999, we completed the
acquisition of all of the outstanding stock of Robinson Dairy, Inc., a full-line
manufacturer and distributor of dairy products based in Denver, Colorado.
Robinson Dairy had sales of approximately $45 million during the twelve month
period ended March 31, 1999.
7
<PAGE> 10
Acquisition of the Fluid Milk Business of Adohr Farms -- On August 2,
1999, we announced the formation of another joint venture with Dairy Farmers of
America pursuant to which our southern California dairy operations were combined
with Dairy Farmers of America's southern California dairy operations. The joint
venture includes our Swiss Dairy business, based in Riverside and the fluid milk
business of Adohr Farms, based in Southgate, California, which had annual
revenues of approximately $148 million during the twelve month period ended
December 31, 1998. We own a 75% interest in the venture and Dairy Farmers of
America owns the remaining 25%. We manage the venture. In connection with the
transaction, we and Dairy Farmers of America acquired the interests of two
minority holders of Adohr's milk business. In connection with our proposed
acquisition of Southern Foods Group, L.P., we will contribute our interest in
this venture to our most recent joint venture with Dairy Farmers of America.
Proposed Acquisition of Valley of Virginia Cooperative Milk Producers
Association -- On July 23, 1999, we announced that we have signed a definitive
agreement to acquire Valley of Virginia Cooperative Milk Producers Association,
an agricultural marketing cooperative with dairy processing plants in
Springfield, Virginia and Mt. Crawford, Virginia. Valley of Virginia, which had
net sales of approximately $209 million during the 12 months ended April 30,
1999, sells milk and ice cream products in Virginia, Maryland, Pennsylvania,
Delaware and the District of Columbia, and ultra-high temperature, dairy
products across the eastern half of the United States, primarily under the
Shenandoah's Pride(R) brand. The acquisition has been approved by our Board of
Directors, the Board of Directors of Valley of Virginia and the members of
Valley of Virginia. The applicable waiting period under the Hart Scott Rodino
Antitrust Improvements Act of 1976 has expired, and all other necessary
approvals have been obtained. However, Valley of Virginia has conditioned its
obligation to close upon receipt of certain tax rulings by the Internal Revenue
Service. These rulings are expected to be received, and the transaction is
expected to close, during the fourth quarter of 1999. Valley of Virginia will
sell its interest in Valley Rich Dairy based in Roanoke, Virginia to another
purchaser prior to the closing of the transaction.
Acquisition of Broughton Foods -- On June 22, 1999, we
completed our previously announced acquisition of Broughton Foods Company.
Broughton Foods Company, which had sales of approximately $179 million in 1998
(or $202 million on a pro forma basis for completed acquisitions), is a
manufacturer and distributor of fresh and ultra high temperature milk, ice cream
and other ultra high temperature dairy products in Michigan, Ohio, West
Virginia, Kentucky, Tennessee and parts of the eastern United States. Pursuant
to an agreement with the U.S. Department of Justice Antitrust Division, we must
sell Broughton Foods Company's Southern Belle operations in Pulaski County,
Kentucky by December 3, 1999. As a result, the portion of the purchase price
allocable to Southern Belle has been classified as assets held for sale.
Other -- During the first quarter of 1999, we completed the
acquisitions of three small businesses in our dairy segment including:
o Ultra Products, L.L.C., a manufacturer of shelf-stable coffee
creamers that has become part of our Morningstar division,
o New England Dairies, located in our Northeast region, and
o Thompson Beverage Systems, L.P., a beverage packaging design
company.
All of our acquisitions in 1999 have been funded primarily through
borrowings under our senior credit facility with the exception of the
acquisition of Thompson Beverage Systems, L.P. Our acquisition of Thompson
Beverage Systems, L.P. was funded at closing through the issuance of 77,233
shares of our common stock.
8
<PAGE> 11
All of our acquisitions have been accounted for using the purchase
method of accounting. The purchase price of each of the acquisitions was
allocated to assets acquired, including identifiable intangibles, and
liabilities assumed based on their estimated fair market values. The excess of
the total purchase prices over the estimated fair values of the net assets
represented goodwill. These allocations are tentative and subject to change.
7. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS
Reportable segments are defined by applicable accounting rules as
strategic business units offering different products and services that are
managed separately because each business requires different technology and
marketing strategies. In all periods shown in the consolidated financial
statements contained in this report prior to the third quarter of 1999, we had
two reportable segments, including "dairy" and "packaging." As a result of the
sale of a majority interest in our domestic packaging operations effective July
2, 1999, we no longer have a reportable packaging segment according to
accounting rules. (See Note 2 above for more information about such sale.) Our
remaining packaging operations, which consist of only our European metal can and
flexible film businesses, are now included in "Other" in the reconciliation
section of this Note; all periods presented have been restated to conform with
this change.
The accounting policies of our reportable segments were the same as
those described in the summary of significant accounting policies set forth in
Note 1 to our 1998 consolidated financial statements, contained in our 1998
Annual Report on Form 10-K. The amounts in the following tables were derived
from reports used by our executive management team:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ----------------------------------------
SEGMENT SEGMENT
(in 000's) DAIRY PACKAGING TOTAL DAIRY PACKAGING TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers .... $1,006,741 $1,006,741 $ 764,741 $ 117,151 $ 881,892
Intersegment revenues ............... 6,828 5,077 11,905
Segment operating income ............ 69,550(1) 69,550 50,498 15,072 65,570
Total segment assets ................ 2,424,489 2,424,489 1,888,060 558,005 2,446,065
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ----------------------------------------
SEGMENT SEGMENT
(in 000's) DAIRY PACKAGING TOTAL DAIRY PACKAGING TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers ..... $2,919,200 $ 244,866 $3,164,066 $1,995,213 $ 221,560 $2,216,773
Intersegment revenues ................ 16,036 18,674 34,710 12,428 15,295 27,723
Segment operating income ............. 187,228(2) 34,685 221,913 149,555 27,379 176,934
</TABLE>
- --------------------------
(1) Includes a pre-tax charge for plant closing and other costs of $1.5
million.
(2) Includes a pre-tax charge for plant closing and other costs of $6.2
million.
The following are reconciliations of reportable segment amounts to our
consolidated totals:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------------------
1999 1998
----------------------------------------- ----------------------------------------
(in 000's) SEGMENT OTHER TOTAL SEGMENT OTHER TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers ..... $1,006,741 $ 75,319 $1,082,060 $ 881,892 $ 86,212 $ 968,104
Segment operating income (loss) ...... 69,550 (2,820) 66,730 65,570 3,217 68,787
Total segment assets ................. 2,424,489 341,754 2,766,243 2,446,065 320,102 2,766,167
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1999 1998
----------------------------------------- -----------------------------------------
(in 000's) SEGMENT OTHER TOTAL SEGMENT OTHER TOTAL
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external customers ..... $3,164,066 $ 190,024 $3,354,090 $2,216,773 $ 112,572 $2,329,345
Segment operating income(loss) ....... 221,913 (11,348) 210,565 176,934 (1,702) $ 175,232
</TABLE>
9
<PAGE> 12
Geographic information for 1999 and 1998:
<TABLE>
<CAPTION>
REVENUES
------------------------------------------------------------ LONG-LIVED ASSETS
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30, AT SEPTEMBER 30,
---------------------------- --------------------------- -------------------------
(in 000's) 1999 1998 1999 1998 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States ...... $ 946,990 $ 826,017 $2,984,250 $2,037,370 $1,817,400 $1,823,539
Puerto Rico ........ 59,751 59,017 180,135 183,791 124,033 122,620
Europe ............. 75,319 83,070 189,705 108,184 89,870 84,916
---------- ---------- ---------- ---------- ---------- ----------
Total .............. $1,082,060 $ 968,104 $3,354,090 $2,329,345 $2,031,303 $2,031,075
========== ========== ========== ========== ========== ==========
</TABLE>
8. COMPREHENSIVE INCOME
During 1998 we adopted Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income," issued in June 1997. For
interim periods, SFAS 130 requires disclosure of comprehensive income, which is
composed of net income and other comprehensive income items. Other comprehensive
income items are revenues, expenses, gains and losses that under generally
accepted accounting principles are excluded from net income and reflected as a
component of equity. Consolidated comprehensive income was $33.4 million and
$80.3 million for the three- and nine-month periods ended September 30, 1999,
respectively, which included net income as reported and comprehensive income
adjustments primarily for a foreign currency gain of $4.8 million ($3.0 million
net of taxes) for the three-month period ended September 30, 1999 and a foreign
currency loss of $5.2 million ($3.2 million net of taxes) for the nine-month
period ended September 30, 1999. Consolidated comprehensive income was $35.0
million and $110.4 million for the three- and nine-month periods ended September
30, 1998, respectively, ($35.0 million and $81.9 million before discontinued
operations and an extraordinary gain) which includes foreign currency gains of
$6.7 million and $5.9 million, net of taxes.
9. STOCKHOLDERS' EQUITY
On September 15, 1998, our Board of Directors authorized an open market
share repurchase program of up to $100 million of our common stock. On September
28, 1999, we announced that our Board had increased the program by$100 million
to $200 million. Set forth in the chart below is a summary of the stock we have
repurchased pursuant to this program through November 10, 1999.
<TABLE>
<CAPTION>
NO. OF SHARES PURCHASE
PERIOD REPURCHASED PRICE
- ------ --------------- ---------------
<S> <C> <C>
Third Quarter 1998 1,000,000 $ 30.4 million
Fourth Quarter 1998 510,400 15.6 million
Second Quarter 1999 79,700 3.0 million
Third Quarter 1999 1,850,515 66.7 million
Fourth Quarter 1999 through November 10, 1,644,300 60.7 million
--------------- ---------------
Total 5,084,915 $ 176.4 million
=============== ===============
</TABLE>
After November 10, 1999, $23.6 million remains available for spending
under this program.
PLANT CLOSING AND OTHER NON-RECURRING COSTS
During the second quarter of 1999, as part of an overall integration
and cost reduction strategy, we recorded plant closing and other non-recurring
costs of $4.7 million. The impact of the charge was to reduce second quarter
earnings from $.94 per diluted share to $.87 per share. The costs included the
following:
o Closing of one dairy plant and consolidation of production into an
expanded plant,
o Disposition of a small cheese processing plant, and
o Consolidation of administrative offices in one of our regions.
10
<PAGE> 13
The costs included non-cash losses on asset and plant dispositions of $3.6
million as well as other related accrued costs of $1.1 million associated with
the plan.
During the third quarter of 1999, we recorded additional plant closing
and other non-recurring costs of $5.1 million. The impact of these charges was
to reduce third quarter earnings from $0.91 per diluted share to $0.83 per
share. We included $1.6 million representing our share of Consolidated Container
Company's restructuring and unusual charges. These were reported as a reduction
of equity in earnings. The remaining charges of $3.5 million, which were
reported as plant closing and other non-recurring costs in the third quarter,
including primarily the following:
o Closing of an ice cream plant and consolidation of production into
another plant, and
o Corporate administrative severance costs.
The third quarter plant closing and non-recurring charge of $3.5 million
included non-cash charges of $0.5 million as well as other related accrued costs
of $3.0 million.
Plant closing and other non-recurring costs charged to operations in
connection with the second quarter 1999 and third quarter 1999 plans are
summarized in the following chart:
<TABLE>
<CAPTION>
SECOND THIRD
QUARTER QUARTER
1999 1999 TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
(in 000's)
Write-downs of property, plant and equipment associated
with facility closings and dispositions $ 3,548 $ 538 $ 4,086
Workforce severance obligations 628 2,004 2,632
Lease and other facility closing obligations 495 1,458 1,953
Gain on disposal of facility (480) (480)
---------- ---------- ----------
Charges to operating income 4,671 3,520 8,191
Share of Consolidated Container charges 1,556 1,556
---------- ---------- ----------
Total $ 4,671 $ 5,076 $ 9,747
========== ========== ==========
</TABLE>
Set forth in the following chart are the types and amounts of charges
that were recognized as accrued expenses, along with cash payments made against
such accruals during 1999:
<TABLE>
<CAPTION>
ACCRUED SECOND THIRD BALANCE AS OF
CHARGES QUARTER QUARTER SEPTEMBER 30, 1999
---------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
(in 000's)
Workforce severance obligations $ 2,632 $ (460) $ (187) $ 1,985
Lease and other facility closing obligations 1,953 (46) (406) 1,501
---------- ---------- ---------- ------------------
Total $ 4,585 $ (506) $ (593) $ 3,486
========== ========== ========== ==================
</TABLE>
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the nation's leading dairy processor and distributor, producing
a full line of company-branded and customer-branded products such as fluid milk,
ice cream and novelties, coffee creamers, half-and-half, whipping cream, sour
cream, cottage cheese and yogurt. We also manufacture and distribute fruit
juices and other flavored drinks, bottled water and coffee. We sell our dairy
products under various brands including national brands (such as International
Delight(R), Second Nature(R), Naturally Yours(R) and Mocha Mix(R)), strong
regional brands (such as Broughton(R), Country Fresh(R), Dairymens(R), Lehigh
Valley Farms(R) , Model(TM), Natural by Garelick Farms(R), Suiza(TM), Louis
Trauth(TM), Tuscan(R), Velda Farms(R) and West Lynn Creamery(R)) and partner or
licensed brands in certain regions (including Lactaid(R), Flav-O-Rich(R) and
Pet(R)). We also have holdings in the consumer goods packaging industry.
RESULTS OF OPERATIONS
The following table presents certain information concerning our results
of operations during the three- and nine-month periods ended September 30, 1999
and 1998, including information presented as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------- -----------------------------------------------
1999 1998 1999 1998
-------------------- -------------------- -------------------- ---------------------
% OF % OF % OF % OF
NET NET NET NET
DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in 000's)
Net sales .................. $1,082,060 100% $ 968,104 100% $3,354,090 100% $2,329,345 100%
Cost of sales .............. 834,410 77.1 747,309 77.2 2,610,932 77.8 1,785,670 76.7
---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross profit ............... 247,650 22.9 220,795 22.8 743,158 22.2 543,675 23.3
Operating expenses:
Selling and distrib....... 134,257 12.4 108,019 11.2 380,445 11.4 267,347 11.4
G&A ...................... 34,411 3.2 34,846 3.6 115,248 3.4 78,967 3.4
Amortization ............. 8,732 0.8 9,143 0.9 28,709 0.9 22,129 1.0
Plant closing & other .... 3,520 0.3 0 0.0 8,191 0.2 0 0.0
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total ................. 180,920 16.7 152,008 15.7 532,593 15.9 368,443 15.8
---------- ----- ---------- ----- ---------- ----- ---------- -----
Operating income .......... $ 66,730 6.2% $ 68,787 7.1% $ 210,565 6.3% $ 175,232 7.5%
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
On July 2, 1999 we sold our U.S. plastic packaging operations to
Consolidated Container Company LLC. We own a 43% interest in Consolidated
Container Company LLC, which we account for under the equity method of
accounting. As a result, the sales and operating expenses of Consolidated
Container Company LLC are not included in the table presented above, but are
instead condensed onto a single line below operating income (see discussion
below under "Other (Income) Expense"). Please see Note 2 above for more
information.
Third Quarter and Year-to-date 1999 Compared to Third Quarter and
Year-to-date 1998
Net Sales. Net sales increased 11.8% to $1.08 billion in the third
quarter of 1999 from $968.1 million in the third quarter of 1998. For the nine
month period ended September 30, net sales increased 44.0% to $3.35 billion in
1999 from $2.33 billion in 1998. Excluding $117.2 million in revenues recorded
by our U.S. packaging operations in the third quarter of 1998, sales increased
by $231.1 million or 27.2% in the third quarter of 1999. This increase was
primarily due to acquisitions.
12
<PAGE> 15
Cost of Sales. Our cost of sales ratio was 77.1% in the third quarter
of 1999 compared to 77.2% in the third quarter of 1998, and 77.8 % for the first
nine months of 1999 compared to 76.7% for the same period of 1998. The cost of
sales ratio in the third quarter of 1999 reflects improvements in dairies owned
for more than twelve months, offset by the sale of our U.S. packaging operations
which had a lower cost of sales ratio. For the first nine months of 1999, the
cost of sales ratio increased primarily due to a higher basic formula price for
milk during the first quarter of 1999, along with the effect of lower profit
margins from newly acquired businesses.
Operating Expenses. Our operating expense ratio was 16.7% in the third
quarter of 1999 compared to 15.7% in the third quarter of 1998, and 15.9% for
the first nine months of 1999 compared to 15.8% for the same period of 1998. The
operating expense ratio increased in the third quarter of 1999 due to
o $3.5 million in plant closing and other non-recurring charges.
These charges include the costs of closing plants and severance
payments,
o Lower profit margins on newly acquired businesses, and
o The effect of the sale of our U.S. packaging operations, which
had a lower operating expense ratio.
The operating expense ratio for the first nine months of 1999 increased
due to $8.2 million in plant closing and other non-recurring costs. Excluding
these charges our operating expense ratio was comparable to 1998 levels.
Operating Income. Operating income decreased 3.0% to $66.7 million in
the third quarter of 1999 from $68.8 million in the third quarter of 1998. For
the nine-month period ended September 30, operating income increased 20.2% to
$210.6 million in 1999 from $175.2 million in 1998. Excluding plant closing and
other non-recurring costs of $3.5 million and the operating income of our U.S.
plastic packaging operations of $15.0 million in the third quarter of 1998
(which is no longer part of operating income in the third quarter of 1999),
operating income increased 30.7% to $70.3 million in the third quarter of 1999.
Similarly, excluding plant closing and other non-recurring costs of $8.2 million
during the nine-month period in 1999 and excluding U.S. packaging operations in
the third quarter of 1998, operating income increased 36.6% to $218.8 in the
first nine months of 1999, compared to the same periods in 1998. However,
operating income margin decreased to 6.2% in the third quarter of 1999 from 7.1%
in the same period of 1998, and decreased to 6.3% for the first nine months of
1999 from 7.5% in 1998. This decline is primarily due to plant closing and other
non-recurring charges, the sale of our higher margin U.S. packaging operations,
and lower margins for newly acquired companies, partly offset by improved
operating efficiencies in our dairy operations held for more than one year.
Other (Income) Expense. Interest expense decreased to $8.4 million in
the third quarter of 1999 from $14.1 million in 1998, but increased to $39.6
million in the first nine months of 1999 from $36.0 million in the same period
of 1998. The decrease in the third quarter of 1999 reflects the elimination of
approximately $500 million of debt following the sale of our U.S. packaging
operations, partly offset by additional debt incurred to pay for acquisitions.
The increased interest in the first nine months of 1999 is primarily due to the
increased levels of debt used to finance acquisitions. Financing charges on
preferred securities increased to $28.9 million in the first nine months of 1999
from $20.5 million in 1998, reflecting
o the issuance on February 20, 1998 of $100 million of 5.0% preferred
securities related to our acquisition of Land-O-Sun, and
o the issuance on March 24, 1998 of $600 million of 5.5% preferred
securities.
13
<PAGE> 16
Earnings from equity investments, which are primarily related to our
minority interest in Consolidated Container Company LLC amounted to $4.7 million
in the third quarter of 1999. These earnings were net of $1.6 million
representing our proportional share of restructuring and other non-recurring
charges related to the integration of Consolidated Container Company's
operations.
Discontinued Operations and Extraordinary Items. In the nine months
ended September 30, 1998, we reported a loss from discontinued operations of
$3.2 million, net of an income tax benefit of $2.1 million. Extraordinary items
in 1998 were
o a $35.5 million extraordinary gain, net of income tax expense of $22.0
million, resulting from the April 1998 sale of our packaged ice
business, and
o a $3.8 million loss, net of an income tax benefit of $2.3 million,
from the write-off of deferred financing costs and the recognition of
interest rate swap losses in connection with our May 1998
early-extinguishment of the term portion of our credit facility.
Net Income. We reported net income of $30.4 million in the third
quarter of 1999 compared to $28.3 million in the third quarter of 1998. For the
first nine months, we reported net income of $83.5 million in 1999 compared to
$104.5 million in 1998. Income from continuing operations for the same period
was $83.5 million in 1999 compared to $76.0 million in 1998.
RECENT DEVELOPMENTS
Sale of our U.S. Plastic Packaging Operations
On July 2, 1999, we sold our U.S. plastic packaging operations
(Franklin Plastics, Inc. and Plastic Containers, Inc.) to Consolidated Container
Company LLC, a newly formed company which owns Reid Plastics Holdings, Inc., for
cash and a 43% minority interest in this new company. For more information about
this transaction, see Note 2 to our Consolidated Financial Statements contained
in this report.
Completed Acquisitions
On August 16, 1999, we completed the acquisition of Robinson Dairy,
Inc., a full-line manufacturer and distributor of dairy products in Denver,
Colorado. Robinson Dairy had sales of approximately $45 million during the
twelve month period ended March 31, 1999.
On August 2, 1999, we announced the formation of a new joint venture
with Dairy Farmers of America pursuant to which our southern California dairy
operations were combined with the fluid milk business of Dairy Farmers of
America's Adohr Farms. We own 75% of the venture and Dairy Farmers of America
owns the remaining 25%. We manage the entity. For more information about this
transaction and about acquisitions completed during the first and second
quarters of 1999, see Note 6 to our Consolidated Financial Statements contained
in this report.
Proposed Acquisitions and Related Events
On September 21, 1999, we announced that we have signed a definitive
agreement to acquire Southern Foods Group, L.P. pursuant to a new joint venture
with Dairy Farmers of America, currently the principal owner of Southern Foods
Group, L.P. Our acquisition of Southern Foods Group, L.P., the third largest
dairy processor in the United States whose brands include Meadow Gold(R),
Borden(R) and Elsie(R), will expand our geographic reach to 46 states. In
connection with this transaction, Pete Schenkel, president and chief executive
officer of Southern Foods Group, L.P. will become president of our domestic
fluid milk operations, and vice chairman of our Board of Directors. For more
information about the proposed transaction, see Note 6 to our Consolidated
Financial Statements contained in this report.
14
<PAGE> 17
On July 23, 1999, we announced that we have signed a definitive
agreement to acquire Valley of Virginia Cooperative Milk Producers Association,
an agricultural marketing cooperative with dairy processing plants in
Springfield, Virginia and Mt. Crawford, Virginia. For more information about
this transaction, see Note 6 to our Consolidated Financial Statements contained
in this report.
Stock Repurchase
Our Board of Directors has authorized an open market share repurchase
program of up to $200 million of our common stock. During the third quarter of
1999, we repurchased 1,850,515 shares of common stock for a total purchase price
of approximately $66.7 million pursuant to this Board authorization. During the
fourth quarter of 1999 through November 10, 1999, we have repurchased an
additional 1,644,300 shares for a total purchase price of $60.7 million. For
more information about our stock repurchase program, please see Note 9 to our
Consolidated Financial Statements contained in this report.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had total stockholders' equity of $675.2
million, total debt of $622.7 million (including long-term debt and the current
portion of long-term debt) and $683.4 million of mandatorily redeemable
convertible trust issued preferred securities.
Cash Flow
Historically, we have met our working capital needs with cash flow from
operations along with borrowings under our senior credit facility. Net cash
provided by continuing operations was $253.8 million for the first nine months
of 1999 as contrasted to $119.9 million for the first nine months of 1998.
Investing activities in the first nine months of 1999 included approximately
$143.2 million in capital expenditures and $226.4 million for acquisitions, as
compared to $113.7 million and $566.8 million for 1998. These expenditures were
offset by cash proceeds from divestitures of $373.8 million in 1999 and $172.7
million in 1998. Financing activities during the first nine months of 1999
included approximately $69.7 million of cash spent to repurchase shares of our
common stock in the open market, as compared to $30.4 million in 1998, along
with proceeds and repayments of debt from operating cash flows and investing
activities.
Current Debt Obligations
At September 30, 1999, approximately $456.8 million was available under
our senior credit facility. On July 2, 1999, we sold our U.S. plastic packaging
operations to Consolidated Container Company LLC, in which we own a 43% minority
interest. Pursuant to that transaction, Consolidated Container Company LLC
assumed approximately $135 million of our debt (which consisted of senior
secured notes issued by a subsidiary). Consolidated Container Company LLC also
paid to us at closing our intercompany debt and preferred stock investment,
including interest and dividends, of approximately $364 million; all of which
was used to pay down outstanding debt under our senior credit facility. For more
information regarding our debt obligations, see Note 5 to our Consolidated
Financial Statements contained in this report. We are currently in compliance
with all covenants and financial ratios contained in our debt agreements.
In connection with our proposed acquisition of Southern Foods Group,
L.P., we expect to replace our existing senior credit facility with a reduced
facility, and to obtain a new credit facility for the dairy joint venture. For
more information, see Note 6 to our Consolidated Financial Statements contained
in this report.
15
<PAGE> 18
Future Capital Requirements
We expect to spend a total of approximately $165 million for capital
expenditures during 1999, of which approximately $143 million has been spent to
date.
We have a current commitment to expend approximately $88 million in
cash on our currently proposed acquisition of Valley of Virginia Cooperative
Milk Producers Association. We expect to fund this acquisition out of cash flow
from operations and/or borrowings under our senior credit facility.
We expect that cash flow from operations will be sufficient to meet our
requirements for our existing businesses for the remainder of 1999 and for the
foreseeable future. In the future, we intend to pursue additional acquisitions
in our existing regional markets as well as new markets, and to seek strategic
acquisition opportunities that are compatible with our core business. We expect
to fund future acquisitions out of cash flow from operations and/or from
borrowings under our senior credit facility or the credit facility to be
obtained for our new dairy joint venture in connection with the proposed
acquisition of Southern Foods Group. If necessary, we believe that we also have
the ability to secure additional financing to pursue this strategy.
KNOWN TRENDS AND UNCERTAINTIES
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000, or Y2K, problem. The
Year 2000 problem arises from the way dates are recorded and computed in most
applications, operating systems, hardware and embedded chips. If the problem is
not corrected, systems that use a date in its prescribed function may fail or
produce erroneous results before, on and after the year 2000.
We have substantially completed work on our comprehensive project to
address Year 2000 issues that may adversely impact our business. Our only
unfinished tasks are a few remaining vendor supplied software updates, which are
underway, some personal computer replacements and completion of our contingency
plans.
A critical step in our strategic plan is the coordination of Year 2000
readiness with third parties. We have received confirmation from over 95% of our
regular suppliers and vendors that their systems are Year 2000 compliant. We
have continual contact with our remaining suppliers and vendors in an effort to
ensure that they are pursuing acceptable compliance efforts so that they will
have minimal impact on our business. Contingency plans are being developed in
any areas that pose a possible threat.
Should any critical service providers, suppliers (including utility
suppliers) or customers fail to achieve compliance, there may be an adverse
impact on our operation. We believe the most reasonably likely worst case
scenario to be temporary interruptions in production as a result of failure of
utility suppliers to provide adequate power, which could result in potential
lost sales and profits. Our current assessment of risks, based on the most
reasonable worst case scenario, is that there will be no significant adverse
impact on our operations or financial performance. We believe that if any
disruption to operations does occur, it will be isolated and/or short-term in
duration.
We have incurred and expensed approximately $4.8 million through
September 30, 1999 for remediation costs associated with our Year 2000
compliance activities and we expect to incur and expense an additional $0.5
million in the future to complete the remediation of our information systems
16
<PAGE> 19
and to write off unamortized costs for systems replaced. In addition to these
remediation costs expensed, we have also capitalized approximately $8.6 million
of capital expenditures through September 30, 1999 for the replacement and
upgrading of purchased software and hardware for both existing systems and the
systems of acquired businesses pursuant to our Year 2000 compliance activities
and our on-going information systems development plan and we expect to incur an
additional $0.5 million of capital expenditures for the remainder of 1999 for
the purchase of additional replacement systems. Budgeted amounts are based on
our conservative estimates and actual results could differ; however, we do not
expect to incur any material additional costs.
Euro Currency Conversion
Companies conducting business in or having transactions denominated in
certain European currencies are facing the European Union's pending conversion
to a new common currency, the "euro." This conversion is expected to be
implemented over a three-year period. On January 1, 1999, the euro became the
official currency for accounting and tax purposes of several countries of the
European Union and the exchange rate between the euro and local currencies was
fixed. In 2002, the euro will replace the individual nation's currencies. Since
we have packaging operations in Europe, the conversion to the euro will have an
effect on us. We are currently considering the specific nature of the impact of
the conversion on our operations, but we currently believe that there will be no
material adverse impact of the conversion on our operations or financial
performance.
Trends in Tax Rates
Our 1998 tax rate was approximately 36.4%. We believe that our
effective tax rate will range from 37% to 40% for the next several years. Our
effective tax rate is affected by various tax advantages applicable to our
Puerto Rico based operations. Any additional acquisitions could change this
effective tax rate.
Rationalization Activities
As a result of our rapid growth in recent years, we have many
opportunities to lower costs and become more efficient in our operations by
rationalizing our assets and work force. During 1998, we closed 8 dairy plants,
and in 1999 to date, we have closed an additional 6. During the fourth quarter
of 1999, we have identified an additional 3 dairy facilities which we expect to
close, and during 2000, we intend to place an increased emphasis on our
rationalization activities. As we continue to close facilities and eliminate
duplicative administrative activities, we may incur costs or other charges
related to these rationalization activities. Although we cannot estimate the
amount of these costs or other charges at this time, we do not expect that these
costs will have a material adverse impact on our earnings or results of
operations. We also expect that our earnings from our 43% equity investment in
Consolidated Container Company LLC will continue to be reduced by our share of
restructuring charges recognized by Consolidated Container Company LLC as they
continue to integrate the operations of our former U.S. plastic packaging
business, and the business of Reid Plastics. Although we cannot estimate the
effect of these charges on our earnings at this time, we do not expect that
these costs will have a material adverse impact on our earnings or results of
operations.
RISK FACTORS
This report contains certain statements about our future that are not
statements of historical fact, such as statements about our proposed
acquisitions, our expected liquidity, capital requirements and capital
availability, and our predictions about Year 2000 issues and certain trends
affecting our business. These statements are only predictions, and in evaluating
those statements, you should carefully consider the risks outlined below. Actual
performance or results may differ materially and adversely.
If we fail to effectively manage our growth, our business could be
adversely affected.
We have expanded our operations rapidly in recent years and plan to
continue this expansion. This rapid growth places a significant demand on our
management and our financial and operational resources. Our growth strategy is
subject to various risks, including
o inability on our part to successfully integrate or operate
acquired businesses,
o inability to retain key customers of acquired businesses or to
obtain new customers, and
o inability to realize or delays in realizing expected benefits
from our increased size.
The integration of businesses we have acquired or may acquire in the future may
also require us to invest more capital than we expected or require more time and
effort by management than we expected. If we fail to effectively manage the size
and growth of our business, our operations and financial results could be
affected, both materially and adversely.
17
<PAGE> 20
Our failure to successfully compete could adversely affect our
prospects and financial results.
Our businesses are subject to intense competition. We have many
competitors in each of our product, service and geographic markets. If we fail
to successfully compete against our competitors, our business will be adversely
affected. Competition in the dairy business is based primarily on
o service,
o price,
o brand recognition,
o quality, and
o breadth of product line.
The dairy industry has excess production capacity and has been
consolidating for many years. This excess production capacity is the result of
o improved manufacturing techniques,
o the establishment of captive dairy operations by large grocer
retailers, and
o limited growth in the demand for fresh milk products.
We could be adversely affected by any expansion of capacity by our
existing competitors or by new entrants in our markets.
Our substantial debt and other financial obligations expose us to risks
that could adversely affect our financial condition.
As of September 30, 1999, we had substantial debt and other financial
obligations, including
o approximately $623 million of borrowings (including $515 million
under our senior credit facility, $54 million under our
subsidiary lines of credit and $54 million of subsidiary debt
obligations), and
o $683 million of 5.0% preferred securities and 5.5% preferred
securities.
Those amounts compare to our stockholders' equity of $675 million as of
September 30, 1999.
Our senior credit facility provides us with a line of credit of up to
$1 billion to be used for general corporate and working capital purposes. As of
September 30, 1999, we would have been able to borrow an additional $457 million
under our senior credit facility. We have pledged the stock of some of our
subsidiaries to secure this facility and the assets of other subsidiaries to
secure other indebtedness. Our senior credit facility and related debt service
obligations
o limit our ability to obtain additional financing in the future without
obtaining prior consent,
o require us to dedicate a significant portion of our cash flow to the
payment of interest on our debt, which reduces the funds we have
available for other purposes,
o limit our flexibility in planning for, or reacting to, changes in our
business and market conditions, and
o impose on us additional financial and operational restrictions.
Our ability to make scheduled payments on our debt and other financial
obligations depends on our financial and operating performance. Our financial
and operating performance is subject to prevailing economic conditions and to
financial, business and other factors, some of which are beyond our control. If
we do not comply with the financial and other restrictive covenants under our
senior credit facility, we
18
<PAGE> 21
may default under this facility. Upon default, our lenders could accelerate the
indebtedness under this facility, foreclose against their collateral or seek
other remedies.
Increases in our raw material costs could adversely affect our
profitability.
The most important raw materials that we use in our operations are raw
milk and cream (including butterfat). The prices of these materials increase and
decrease depending on supply and demand and, in some cases, governmental
regulation. In some cases, we are not able to pass on the increased price of raw
materials to our customers due primarily to timing problems. Therefore,
volatility in the cost of our raw materials can adversely affect our
profitability and financial performance.
Changes in regulations could adversely affect many aspects of our
business.
Under the Federal Milk Marketing Order program, the federal government
and several state agencies establish minimum regional prices paid to producers
for raw milk. In 1996, the U.S. Congress passed legislation to phase out the
Federal Milk Marketing Order program. This program was scheduled to be phased
out by October 1999. The U.S. Department of Agriculture ("USDA") issued final
rules (the "USDA Final Rules") which would implement changes to this program,
including changes in pricing classifications for certain dairy products. The
USDA Final Rules have been challenged in various court proceedings brought by
certain producers and producer cooperatives. As a result of these court
proceedings, the USDA Final Rules have not been implemented. We do not know what
the outcome of these proceedings will be or whether the USDA Final Rules will be
implemented. In addition, legislation has been introduced in Congress to modify
the USDA's final rules and implement other proposed pricing changes. We do not
know which, if any, of the various proposed changes will be adopted, and we do
not know what effect any final legislation or the termination of this federal
program will have on the prices we pay for raw milk. In addition, various states
have adopted or are considering adopting compacts among milk producers, which
would establish minimum prices paid by milk processors, including us, to raw
milk producers. Legislation has also been proposed to extend the existing
Northeast Dairy Compact. We do not know whether new compacts will be authorized
or the extent to which these compacts would increase the prices we pay for milk.
As a manufacturer and distributor of food products, we are subject to
federal, state and local laws and regulations relating to
o food quality,
o manufacturing standards,
o labeling, and
o packaging.
Our operations are subject to other federal, foreign, state and local
governmental regulation, including laws and regulations relating to occupational
health and safety, labor, discrimination and other matters. Material changes in
these laws and regulations could have positive or adverse effects on our
business.
Our business involves risks of product liability claims which could
result in significant costs.
We sell food products for human consumption, which involves risks such
as
o product contamination or spoilage,
o product tampering, and
o other adulteration of food products.
19
<PAGE> 22
Consumption of an adulterated, contaminated or spoiled product may
result in personal illness or injury. We could be subject to claims or lawsuits
relating to an actual or alleged illness or injury, and we could incur
liabilities that are not insured or that exceed our insurance coverages.
An actual or alleged problem with the quality or safety of products at
any of our facilities could result in
o product withdrawals,
o product recalls,
o negative publicity,
o temporary plant closings, and
o substantial costs of compliance.
Any of these events could have a material and adverse effect on our
financial condition.
Loss of key personnel could adversely affect our business.
Our success depends to a large extent on the skills, experience and
performance of our executive management. The loss of one or more of these
persons could hurt our business. We do not maintain key man life insurance on
any of our executive officers or directors.
Year 2000 problems for us or our suppliers or customers could increase
our liabilities or expenses and impact our profitability.
We believe that we have addressed the Year 2000 computer issues in all
material respects. However, if we have not properly completed the necessary
systems modifications or if important service providers, suppliers or customers
do not properly resolve their Year 2000 issues in a timely manner, our
operations could be adversely affected and we could experience increased
liabilities and expenses as a result.
Provisions of our certificate of incorporation, bylaws and Delaware law
could deter takeover attempts.
Some provisions in our certificate of incorporation and bylaws could
delay, prevent or make more difficult a merger, tender offer, proxy contest or
change of control. Our stockholders might view any such transaction as being in
their best interests since the transaction could result in a higher stock price
than the current market price for our common stock. Among other things, our
certificate of incorporation and bylaws
o authorize our board of directors to issue preferred stock in
series with the terms of each series to be fixed by our board of
directors,
o divide our board of directors into three classes so that only
approximately one-third of the total number of directors is
elected each year,
o permit directors to be removed only for cause, and
o specify advance notice requirements for stockholder proposals and
director nominations.
In addition, with some exceptions, the Delaware General Corporation Law
restricts mergers and other business combinations between us and any stockholder
that acquires 15% or more of our voting stock.
We also have a stockholder rights plan. Under this plan, after the
occurrence of specified events, our stockholders will be able to buy stock from
us or our successor at reduced prices. These rights do not
20
<PAGE> 23
extend, however, to persons participating in takeover attempts without the
consent of our board of directors. Accordingly, this plan could delay, defer,
make more difficult or prevent a change of control.
Environmental regulations could result in charges or increase our costs
of doing business.
We, like others in similar businesses, are subject to a variety of
federal, foreign, state and local environmental laws and regulations including,
but not limited to, those regulating waste water and stormwater, air emissions,
storage tanks and hazardous materials. We believe that we are in material
compliance with these laws and regulations. Future developments, however,
including increasingly stringent regulations, could require us to make currently
unforeseen environmental expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE AGREEMENTS
At September 30, 1999, we had interest rate derivative agreements in
place, including interest rate caps, swaps and collars. The following table
summarizes our various interest rate agreements:
<TABLE>
<CAPTION>
TYPE INTEREST RATE LIMITS NOTIONAL AMOUNTS EXPIRATION DATE
- ---- -------------------- ------------------- ---------------
<S> <C> <C> <C>
Caps.......... 8.0% $60.0 million March 2000
Swaps......... 6.03% to 6.14% 60.0 million September 2000
100.0 million December 2000
275.0 million December 2002
Collars....... 6.08% to 7.5% 100.0 million December 2002
to June 2003
</TABLE>
All of these derivative agreements were entered into for the purpose of
providing hedges for loans under our senior credit facility by limiting or
fixing the LIBOR interest rates specified in the senior credit facility at the
interest rates noted above until the indicated expiration dates of these
interest rate derivative agreements. We used the cash proceeds that we received
from the sale of our U.S. plastic packaging operations on July 2, 1999 to reduce
outstanding debt under our senior credit facility, and as a result, certain of
our existing interest rate agreements no longer qualify for accounting purposes
as hedges and have been marked to market. There was no material gain or loss
related to these unmatched derivative agreements.
FOREIGN CURRENCY
We are exposed to foreign currency risk due to operating cash flows and
various financial instruments that are denominated in foreign currencies. Our
most significant foreign currency exposures relate to the French franc and the
German mark. Potential losses due to foreign currency fluctuations would not
have a material impact on our consolidated financial position, results of
operations or operating cash flow.
21
<PAGE> 24
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
2.1 Amended and Restated Contribution Agreement, Plan of Merger
and Purchase Agreement dated September 20, 1999 by and among
Suiza Foods Corporation, Suiza SoCal Holdings, Inc., Suiza GTL
Holdings, Inc., LOS Holdings, Inc., Suiza Fluid Diary Group
Holdings, Inc., Suiza Management Corporation, the Suiza
Companies identified therein, Suiza GTL, LLC, Suiza SoCal,
LLC, Robinson Dairy, Inc., Dairy Farmers of America, Inc., DFA
Investment Company, Southern Foods Group, L.P., SFG Management
Limited Liability Company, SFG Capital Corporation, Suiza
Fluid Diary Group, L.C., Pete Schenkel and Mid-Am Capital,
L.L.C.
2.2 Contribution and Merger Agreement by and among Suiza Foods
Corporation, Franklin Plastics, Inc. and affiliates, Vestar
Packaging LLC, Reid Plastics Holdings, Inc. and affiliates,
Consolidated Container Holdings LLC, Consolidated Container
Company LLC and Reid Plastics Group LLC dated as of April 29,
1999, as amended (incorporated by reference from our Current
Report on Form 8-K dated July 19, 1999 (File No. 1-12755))
10 Amended and Restated Credit Agreement dated May 22, 1998
between Suiza Foods Corporation, each of the lenders
identified therein, and First Union National Bank, as
administrative agent for the lenders (incorporated by
reference from our Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (File No. 1-12755))
11 Statement re computation of per share earnings
27 Financial Data Schedules
Reports on Form 8-K
o We filed a Current Report on Form 8-K on July 2, 1999 in
connection with the completion of our acquisition of Broughton
Foods Company.
o We filed a Current Report on Form 8-K on July 19, 1999 in
connection with the completion of the sale of our U.S. plastic
packaging operations.
o We filed a Current Report on Form 8-K on September 23, 1999, in
connection with our proposed acquisition of Southern Foods Group,
L.P., and the resignation of Irwin Gordon as President and Chief
Operating Officer.
SIGNATURES
Pursuant to the requirement 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.
SUIZA FOODS CORPORATION
/s/ Barry A. Fromberg
----------------------------------
Barry A. Fromberg Executive Vice
President, Chief Financial Officer
(Principal Accounting Officer)
Date: November 15, 1999
22
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
2.1 Amended and Restated Contribution Agreement, Plan of Merger and
Purchase Agreement dated September 20, 1999 by and among Suiza
Foods Corporation, Suiza SoCal Holdings, Inc., Suiza GTL Holdings,
Inc., LOS Holdings, Inc., Suiza Fluid Diary Group Holdings, Inc.,
Suiza Management Corporation, the Suiza Companies identified
therein, Suiza GTL, LLC, Suiza SoCal, LLC, Robinson Dairy, Inc.,
Dairy Farmers of America, Inc., DFA Investment Company, Southern
Foods Group, L.P., SFG Management Limited Liability Company, SFG
Capital Corporation, Suiza Fluid Diary Group, L.C., Pete Schenkel
and Mid-Am Capital, L.L.C.
2.2 Contribution and Merger Agreement by and among Suiza Foods
Corporation, Franklin Plastics, Inc. and affiliates, Vestar
Packaging LLC, Reid Plastics Holdings, Inc. and affiliates,
Consolidated Container Holdings LLC, Consolidated Container
Company LLC and Reid Plastics Group LLC dated as of April 29,
1999, as amended (incorporated by reference from our Current
Report on Form 8-K dated July 19, 1999 (File No. 1-12755)) Amended
and Restated Credit Agreement dated May 22, 1998 between Suiza
Foods
10 Amended and Restated Credit Agreement dated May 22, 1998 between
Suiza Foods Corporation, each of the lenders identified therein,
and First Union National Bank, as administrative agent for the
lenders (incorporated by reference from our Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 (File No. 1-12755))
11 Statement re computation of per share earnings
27 Financial Data Schedules
</TABLE>
23
<PAGE> 1
AMENDED AND RESTATED CONTRIBUTION AGREEMENT,
PLAN OF MERGER AND PURCHASE AGREEMENT
AMONG
SUIZA FOODS CORPORATION,
SUIZA SOCAL HOLDINGS, INC.,
SUIZA GTL HOLDINGS, INC.,
LOS HOLDINGS, INC.,
SUIZA FLUID DAIRY GROUP HOLDINGS, INC.,
SUIZA MANAGEMENT CORPORATION,
SUIZA FLUID DAIRY GROUP GP, LLC,
THE SUIZA COMPANIES IDENTIFIED HEREIN,
SUIZA GTL, LLC,
SUIZA SOCAL, LLC,
ROBINSON DAIRY, INC.,
DAIRY FARMERS OF AMERICA, INC.,
DFA INVESTMENT COMPANY,
SOUTHERN FOODS GROUP, L.P.,
SFG MANAGEMENT LIMITED LIABILITY COMPANY,
SFG CAPITAL CORPORATION,
SUIZA FLUID DAIRY GROUP, L.P.,
PETE SCHENKEL
AND, FOR CERTAIN LIMITED PURPOSES,
MID-AM CAPITAL, L.L.C.,
DATED AS OF NOVEMBER 12, 1999
<PAGE> 2
AMENDED AND RESTATED CONTRIBUTION AGREEMENT,
PLAN OF MERGER AND PURCHASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1 DEFINITIONS.....................................................................................2
SECTION 2 PURCHASES, CONTRIBUTIONS AND MERGERS...........................................................13
2.1 Purchase of SFG Common Interests from Schenkel.................................................13
2.2 Purchase of SFG Management Member Interests from Schenkel......................................13
2.3 Contributions by DFA...........................................................................13
2.4 Contributions by Mid-Am........................................................................13
2.5 Contributions by the Suiza Parents and Suiza Management........................................14
2.6 Distributions..................................................................................15
2.7 Closing........................................................................................16
2.8 Closing Obligations............................................................................16
SECTION 3 REPRESENTATIONS AND WARRANTIES OF DFA AND SCHENKEL.............................................18
3.1 Organization and Good Standing.................................................................18
3.2 Authority; No Conflict; Consents...............................................................19
3.3 Capitalization.................................................................................21
3.4 Financial Statements...........................................................................22
3.5 Books and Records..............................................................................23
3.6 Title to Properties; Encumbrances..............................................................23
3.7 No Undisclosed Liabilities.....................................................................24
3.8 Taxes..........................................................................................24
3.9 No Material Adverse Change.....................................................................25
3.10 Employee Benefits..............................................................................25
3.11 Compliance with Legal Requirements; Governmental Authorizations................................26
3.12 Legal Proceedings; Orders......................................................................28
3.13 Absence of Certain Changes and Events..........................................................29
3.14 Contracts; No Defaults.........................................................................30
3.15 Insurance......................................................................................31
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
3.16 Environmental Matters..........................................................................32
3.17 Labor Relations; Compliance....................................................................32
3.18 Intellectual Property..........................................................................33
3.19 Year 2000 Compliance...........................................................................33
3.20 Brokers or Finders.............................................................................34
3.21 Competing Interests............................................................................34
3.22 Investment Intent..............................................................................35
3.23 No Misrepresentations..........................................................................35
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SUIZA FOODS..................................................35
4.1 Organization and Good Standing.................................................................35
4.2 Authority; No Conflict; Consents...............................................................35
4.3 Capitalization.................................................................................36
4.4 Financial Statements...........................................................................37
4.5 Books and Records..............................................................................37
4.6 Title to Properties; Encumbrances..............................................................38
4.7 No Undisclosed Liabilities.....................................................................39
4.8 Taxes..........................................................................................39
4.9 No Material Adverse Change.....................................................................40
4.10 Employee Benefits..............................................................................40
4.11 Compliance with Legal Requirements; Governmental Authorizations................................41
4.12 Legal Proceedings; Orders......................................................................43
4.13 Absence of Certain Changes and Events..........................................................43
4.14 Contracts; No Defaults.........................................................................44
4.15 Insurance......................................................................................46
4.16 Environmental Matters..........................................................................47
4.17 Labor Relations; Compliance....................................................................47
4.18 Intellectual Property..........................................................................48
4.19 Year 2000 Compliance...........................................................................48
4.20 Brokers or Finders.............................................................................49
4.21 Competing Interests............................................................................49
4.22 Investment Intent..............................................................................49
4.23 No Misrepresentations..........................................................................49
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
SECTION 5 COVENANTS OF DFA PARTIES AND SCHENKEL PRIOR TO CLOSING DATE....................................49
5.1 Access and Investigation.......................................................................49
5.2 Operation of the Business of the DFA Companies.................................................49
5.3 Negative Covenant..............................................................................50
5.4 Notification...................................................................................50
5.5 Distributions and Certain Other Restricted Payments............................................50
5.6 Discharge of Indebtedness......................................................................50
5.7 No Negotiation.................................................................................51
5.8 Reasonable Efforts.............................................................................51
5.9 Assistance with Permits and Filings............................................................51
5.10 Confidentiality................................................................................51
5.11 License Agreement..............................................................................51
5.12 Termination of Certain Employee Benefits.......................................................51
5.13 Satisfaction of Certain Change of Control Obligations..........................................52
5.14 Agreement on Asset Values......................................................................52
SECTION 6 COVENANTS OF SUIZA PARTIES PRIOR TO CLOSING DATE...............................................52
6.1 Access and Investigation.......................................................................52
6.2 Operation of the Business of the Suiza Companies...............................................52
6.3 Negative Covenant..............................................................................52
6.4 Notification...................................................................................53
6.5 Distributions and Certain Other Restricted Payments............................................53
6.6 Discharge of Indebtedness......................................................................53
6.7 No Negotiation.................................................................................53
6.8 Reasonable Efforts.............................................................................54
6.9 Assistance with Permits and Filings............................................................54
6.10 Confidentiality................................................................................54
6.11 License Agreement..............................................................................54
6.12 Agreement on Asset Values......................................................................54
SECTION 7 CONDITIONS PRECEDENT TO SUIZA'S OBLIGATION TO CLOSE............................................54
7.1 Accuracy of Representations....................................................................55
7.2 DFA's or Schenkel's Performance................................................................55
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
7.3 Absence of Material Adverse Effects............................................................55
7.4 Consents.......................................................................................55
7.5 No Proceedings.................................................................................55
7.6 Discharge of Indebtedness......................................................................55
7.7 No Prohibition.................................................................................55
7.8 Certificates...................................................................................55
7.9 Legal Opinion..................................................................................56
SECTION 8 CONDITIONS PRECEDENT TO DFA'S OBLIGATION TO CLOSE..............................................56
8.1 Accuracy of Representations....................................................................56
8.2 Suiza's Performance............................................................................56
8.3 Absence of Material Adverse Effects............................................................56
8.4 Consents.......................................................................................56
8.5 No Proceedings.................................................................................56
8.6 Discharge of Indebtedness......................................................................56
8.7 No Prohibition.................................................................................57
8.8 Certificates...................................................................................57
8.9 Legal Opinion..................................................................................57
SECTION 9 CONDITIONS PRECEDENT TO SCHENKEL'S OBLIGATION TO CLOSE.................................................57
SECTION 10 TERMINATION....................................................................................58
10.1 Termination Events.............................................................................58
10.2 Effect of Termination..........................................................................58
SECTION 11 INDEMNIFICATION; REMEDIES......................................................................59
11.1 Representations; Survival......................................................................59
11.2 Indemnification and Payment of Damages by DFA and Schenkel.....................................59
11.3 Indemnification and Payment of Damages by DFA..................................................60
11.4 Indemnification and Payment of Damages by Schenkel.............................................60
11.5 Indemnification and Payment of Damages by Suiza Parents........................................61
11.6 Indemnification and Payment of Damages by Venture..............................................61
11.7 Limitations on Amount..........................................................................62
11.8 Procedure for Indemnification - Third Party Claims.............................................62
11.9 Procedure for Indemnification - Other Claims...................................................63
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
11.10 Mitigation.....................................................................................63
11.11 Exclusive Remedy...............................................................................64
SECTION 12 POST CLOSING COVENANTS.........................................................................64
12.1 Nondisclosure..................................................................................64
12.2 Records Retention..............................................................................64
12.3 SFG Subordinated Notes.........................................................................65
12.4 Purchase Allocation............................................................................65
12.5 Final SFG Tax Returns..........................................................................65
SECTION 13 INTERIM ACQUISITIONS...........................................................................65
13.1 Interim Acquisitions...........................................................................65
13.2 DFA Venture Interests..........................................................................65
13.3 Supplements and Amendments.....................................................................66
SECTION 14 GENERAL PROVISIONS.............................................................................66
14.1 Suiza GTL and Suiza SoCal......................................................................66
14.2 Expenses.......................................................................................66
14.3 Public Announcements...........................................................................66
14.4 Notices........................................................................................67
14.5 Attorney's Fees and Costs......................................................................67
14.6 Further Assurances.............................................................................67
14.7 Waiver.........................................................................................68
14.8 Entire Agreement and Modification..............................................................68
14.9 Assignments, Successors and No Third Party Rights..............................................68
14.10 Severability...................................................................................68
14.11 Section Headings, Construction.................................................................68
14.12 Time of Essence................................................................................69
14.13 Governing Law..................................................................................69
14.14 Counterparts...................................................................................69
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS
Exhibit A Limited Partnership Agreement (Venture)
Exhibit B Form of Assignment of Interests
Exhibit C Assignment and Assumption Agreement
Exhibit D Registration Rights Agreement (Venture Interests)
Exhibit E Registration Rights Agreement (Suiza Foods Common Stock)
Exhibit F DFA's and Schenkel's Closing Certificate
Exhibit G Form of Secretary's Certificate for DFA Parties
Exhibit H Suiza Foods' Closing Certificate
Exhibit I Form of Secretary's Certificate for Suiza Parties
SCHEDULES
Schedule 2.1...............Purchase Price for SFG Common Interests
Schedule 2.2...............Purchase Price for SFG Management Member Interests
Schedule 2.6...............Distributions
Schedule 13.2..............Contribution/Adjustment for Additional Dairy Operations
</TABLE>
vi
<PAGE> 8
AMENDED AND RESTATED CONTRIBUTION AGREEMENT,
PLAN OF MERGER AND PURCHASE AGREEMENT
This Amended and Restated Contribution Agreement, Plan of Merger and
Purchase Agreement ("AGREEMENT") is made as of November 12, 1999, by and among
Suiza Foods Corporation, a Delaware corporation ("SUIZA FOODS"), Suiza SoCal
Holdings, Inc., a Nevada corporation ("SUIZA SOCAL HOLDINGS"), Suiza GTL
Holdings, Inc., a Delaware corporation ("SUIZA GTL HOLDINGS"), LOS Holdings,
Inc., a Delaware corporation ("LOS HOLDINGS"), Suiza Fluid Dairy Group Holdings,
Inc., a Nevada corporation ("SUIZA SUB" and, together with Suiza SoCal Holdings,
Suiza GTL Holdings, LOS Holdings and Suiza Foods, the "SUIZA PARENTS"), Suiza
Management Corporation, a Delaware corporation ("SUIZA MANAGEMENT"), Suiza Fluid
Dairy Group GP, LLC, a Delaware limited liability company ("VENTURE GP"), the
Suiza Companies identified below, Suiza GTL, LLC, a Delaware limited liability
company ("SUIZA GTL"), Suiza SoCal, LLC, a Delaware limited liability company
("SUIZA SOCAL"), Robinson Dairy, Inc., a Colorado corporation ("ROBINSON
DAIRY"), Dairy Farmers of America, Inc., a Kansas cooperative marketing
association ("DFA"), DFA Investment Company, a Kansas cooperative marketing
association ("DFA INVESTMENT"), Southern Foods Group, L.P., a Delaware limited
partnership ("SFG"), SFG Management Limited Liability Company, a Delaware
limited liability company and the sole general partner of SFG ("SFG
MANAGEMENT"), SFG Capital Corporation, a Delaware corporation and wholly-owned
subsidiary of SFG ("SFG CAPITAL"), Suiza Fluid Dairy Group, L.P., a Delaware
limited partnership ("VENTURE"), Pete Schenkel ("SCHENKEL"), and, for the
limited purposes indicated on the signature pages hereto, Mid-Am Capital,
L.L.C., a Delaware limited liability company ("MID-AM" and, together with DFA
and DFA Investment, the "DFA PARENTS").
RECITALS
A. The parties hereto, other than Venture GP, have previously entered into that
certain Contribution Agreement, Plan of Merger and Purchase Agreement dated
September 20, 1999 (the "PRIOR AGREEMENT").
B. The parties hereto desire to amend and restate the Prior Agreement to, among
other things, provide that Venture GP will be the sole general partner of the
Venture.
C. The Suiza Parents own, directly or indirectly, all of the outstanding equity
interests in each of the Suiza Companies (except Land-O-Sun Dairies, LLC) and
Robinson Dairy, 75% of the outstanding common member interests and $120 million
aggregate stated amount of preferred member interests in Suiza GTL, 75% of the
outstanding common member interests and $95 million aggregate stated amount of
preferred member interests in Suiza SoCal, and, together with DFA Investment,
all of the outstanding equity interests in Land-O-Sun Dairies, LLC. The DFA
Parents own, directly or indirectly, all of the outstanding limited partner
interests in Venture, 25% of the outstanding common member interests and $40
million aggregate stated amount of preferred member interests in Suiza GTL, 25%
of the outstanding common member interests and $21 million aggregate stated
amount of preferred member interests in Suiza SoCal, and $20 million stated
amount of preferred interests in Land-O-Sun Dairies, LLC. DFA is the sole
limited partner of Venture, and Suiza Management is the sole general partner of
Venture.
1
<PAGE> 9
Suiza Management owns all of the outstanding equity interests in Venture GP. The
DFA Parents and Schenkel own, directly or indirectly, all of the outstanding
equity interests in SFG, SFG Management and SFG Capital. Pursuant to this
Agreement, (i) Venture will purchase from Schenkel the entire equity interests
in SFG held by Schenkel for the cash consideration set forth herein; (ii) Suiza
Management will purchase from Schenkel all of the member interests in SFG
Management owned by Schenkel for the cash consideration set forth herein; (iii)
DFA will contribute its member interest in SFG Management to Venture; (iv) the
DFA Parents will contribute, or cause the contribution of, their equity
interests in SFG, their membership interests in Suiza GTL and in Suiza SoCal,
the SFG Subordinated Notes held by them, and their preferred interests in
Land-O-Sun Dairies, LLC to Venture in exchange for common and preferred limited
partner interests in Venture; (v) the Suiza Parents will contribute or merge the
Suiza Companies and Robinson Dairy into, and shall contribute their membership
interests in Suiza GTL and Suiza SoCal to, Venture in exchange for common and
preferred limited partner interests in Venture; (vi) Suiza Management will
contribute 90% of the member interests in SFG Management purchased from Schenkel
to Venture in respect of its .1% general partner interest in Venture; (vii)
Suiza Management will contribute its .1% general partner interest in Venture to
Venture GP; and (viii) DFA will make an additional cash contribution to, or
Suiza Foods will receive an additional cash distribution from, a loan from, or
additional preferred interests in, Venture in respect of certain additional
fluid dairy operations to be contributed by the Suiza Parents as contemplated
herein, including, without limitation, the operations of Robinson Dairy. As a
result of such purchases, contributions, and mergers, but without giving effect
to any Additional Dairy Operations contributed by the Suiza Parents to Venture,
Suiza Sub will own a 66.1% common limited partner interest and $176.272 million
stated amount of preferred partner interests in Venture, Venture GP will own a
.1% general partner interest in Venture, DFA will own a 33.8% common limited
partner interest in Venture and Mid-Am will own $90 million stated amount of
preferred partner interests in Venture.
The parties, intending to be legally bound, agree as follows:
SECTION 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ADDITIONAL DAIRY OPERATIONS" - the additional fluid dairy operations
that may be acquired by the Suiza Parents and contributed to Venture, as
contemplated by Section 13. For purposes of this Agreement, Robinson Dairy shall
be deemed to be an Additional Dairy Operation.
"AFFILIATE" - any director or executive officer (or person performing
similar functions) of a DFA Company or a Suiza Company (as applicable) and any
executive officer of any Person that controls a DFA Company or a Suiza Company
(as applicable).
"CLOSING" - as defined in Section 2.7.
2
<PAGE> 10
"CLOSING DATE" - the date and time as of which the Closing actually
takes place.
"CONFIDENTIAL INFORMATION" - as defined in Section 12.1.
"CONSENT" - any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" - all of the transactions contemplated by
this Agreement, including the Contributions, Mergers and the Purchases.
"CONTRACT" - any agreement, contract, obligation, promise, or
undertaking that is legally binding.
"CONTRIBUTIONS" - (a) the contribution by DFA (or DFA Investment, as
applicable) of SFG Management Member Interests, SFG Common Interests, SFG
Preferred Interests, Suiza GTL Common Interests, Suiza SoCal Common Interests
and LOS Preferred Interests, pursuant to Section 2.3; (b) the contribution by
Mid-Am of the SFG Preferred Interests, SFG Subordinated Notes, Suiza GTL
Preferred Interests and Suiza SoCal Preferred Interests to Venture, pursuant to
Section 2.4; (c) the contribution by the Suiza Parents of Suiza GTL Common
Interests, Suiza GTL Preferred Interests, Suiza SoCal Common Interests and Suiza
SoCal Preferred Interests to Venture, pursuant to Section 2.5; (d) the
assignment by Suiza Foods of certain assets and liabilities to Venture, pursuant
to Section 2.5; (e) the contribution by Suiza Management of 90% of the SFG
Management Member Interests owned by Suiza Management to Venture, pursuant to
Section 2.5; and (f) the contribution by Suiza Management of its .1% general
partner interest in Venture to Venture GP pursuant to Section 2.5.
"DAMAGES" - as defined in Section 11.2.
"DEFINED BENEFIT PLAN" - with the meaning of ERISA Section 3(35).
"DFA" - Dairy Farmers of America, Inc., a Kansas cooperative marketing
association.
"DFA BONUS PLAN" - any plan, scheme or arrangement, written or
otherwise, pursuant to which any DFA Company may be required to make a payment
or other transfer to any of its Affiliates, employees, or independent
contractors of cash or property the amount or value of which is in any way
contingent on the objectively or subjectively determined attainment of any
individual or group performance goals.
"DFA COMPANIES" - SFG, SFG Management and SFG Capital.
"DFA CONTROLLED GROUP PLANS" - as defined in Section 3.10(b)(ix).
"DFA ERISA PLAN" - any DFA Pension Plan or DFA Welfare Plan.
3
<PAGE> 11
"DFA FACILITIES" - any real property, leaseholds, or other interests in
real property owned or operated by any DFA Company and any buildings, plants,
structures, or fixtures owned or operated by any DFA Company.
"DFA FINANCIAL STATEMENTS" - as defined in Section 3.4.
"DFA FRINGE BENEFIT PLAN" - any plan, scheme, or arrangement currently
maintained by any DFA Company for the provision of "fringe benefits" to current
or former employees within the meaning of IRC Sections 61(a) or 132(a).
"DFA INTELLECTUAL PROPERTY ASSETS" - as defined in Section 3.18(a).
"DFA INVESTMENT" - DFA Investment Company, a Kansas cooperative
marketing association.
"DFA MARKS" - as defined in Section 3.18(a)(i).
"DFA MATERIAL ADVERSE EFFECT" - any material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities or
results of operation of the DFA Companies, taken as a whole, other than any
effects arising out of or resulting from (a) changes affecting the economy or
financial conditions generally or the dairy industry generally, (b) any DFA
Material Customer notifying any DFA Company or any DFA Parent after the date of
this Agreement that such DFA Material Customer intends to terminate or
materially alter its relationship with any DFA Company (including as a result of
or relating to a transaction involving a DFA Material Customer that occurs or is
announced prior to Closing) other than as a result of a dispute with, or that
arises out of the actions or activities of, any such DFA Company, or (c) any
transaction that is announced after the date of this Agreement, or that occurs
after the date of this Agreement (but was not announced prior to the date of
this Agreement) involving any DFA Material Customer which results or could
result in such DFA Material Customer terminating or materially altering its
relationship with any DFA Company, other than a transaction in which any DFA
Parent or DFA Company is a party and other than any such termination or
alteration that arises as a result of a dispute with, or out of the actions or
activities of, any such DFA Company.
"DFA MATERIAL CUSTOMERS" - as defined in Section 3.14(c).
"DFA PARENTS" - DFA, DFA Investment and Mid-Am.
"DFA PAYROLL POLICY" - any policy of making payments or other awards to
employees of any DFA Company other than a DFA Bonus Plan, a DFA Fringe Benefit
Plan, a DFA Pension Plan, a DFA Stock Plan, or a DFA Welfare Plan. DFA Payroll
Policies include, but are not limited to, paid sick days, vacation days, and
personal time off.
"DFA PENSION PLAN" - any Pension Plan maintained by any DFA Company or
to which any DFA Company is required to contribute for any current or former
employee.
4
<PAGE> 12
"DFA PERMITTED OBLIGATIONS" - as defined in Section 5.6.
"DFA PLAN" - each DFA Bonus Plan, DFA ERISA Plan, DFA Fringe Benefit
Plan, DFA Payroll Policy, DFA Pension Plan, DFA Stock Plan and DFA Welfare Plan.
"DFA STOCK PLAN" - any compensatory interest, option, restricted
interest, interest appreciation right, phantom interest, or similar plan,
program, or arrangement maintained by any DFA Company for the current, deferred,
or contingent compensation of any of its employees, Affiliates or independent
contractors with an interest in or other equity security of any DFA Company, a
discount on the purchase price of any interest in or other equity security of
any DFA Company, or a payment or other transfer of cash or property the amount
or value of which is in any way contingent on any change in value of any
interest in or other equity security of any DFA Company.
"DFA TRADE SECRETS" - as defined in Section 3.18(a)(ii).
"DFA WELFARE PLAN" - any Welfare Plan (as defined in Section 3(1) of
ERISA) maintained by any DFA Company or to which any DFA Company is required to
contribute for any current or former employees.
"DFA'S ADVISORS" - as defined in Section 6.1.
"DFA'S KNOWLEDGE" - DFA will be deemed to have "Knowledge" of a
particular fact or other matter for purposes of any representation or warranty
if any individual who is serving as an executive officer of DFA or any DFA
Company (or in any similar capacity), including, without limitation, Schenkel,
has actual knowledge of or should have known of such fact or other matter on the
date such representation or warranty is made or deemed to be made.
"DISCLOSURE LETTER" - the disclosure letter executed by DFA and
Schenkel and Suiza Foods, as applicable, concurrently with the execution and
delivery of this Agreement.
"DOL" - the United States Department of Labor.
"EFFECTIVE TIME" - the date and time at which a certificate of merger
with respect to a Merger is filed with the Secretary of State of Delaware
pursuant to Section 2.8 or, if different, the effective time for such Merger set
forth in the applicable certificate of merger.
"EMPLOYEE BENEFIT PLAN" - as defined in ERISA.
"ENCUMBRANCE" - any lien, mortgage, easement, servitude, right of way,
charge, pledge, security interest, or other encumbrance.
"ENVIRONMENT" - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air,
plant and animal life, and any other environmental medium.
5
<PAGE> 13
"ENVIRONMENTAL LAW" - any Legal Requirement that relates to the
Environment.
"ERISA" - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ERISA AFFILIATE" - each corporation, partnership or other trade or
business, whether or not incorporated, which is or has been treated as a single
employer or a controlled group member with a Person pursuant to IRC Section 414
or Section 4001 of ERISA.
"GOVERNMENTAL AUTHORIZATION" - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" - any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any
nature; or
(d) other body exercising any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or
power.
"HAZARDOUS ACTIVITY" - the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
release, storage, transfer, transportation, treatment, or use of Hazardous
Materials from the DFA Facilities or the Suiza Facilities, as applicable, into
the Environment that is not in compliance with Environmental Law.
"HAZARDOUS MATERIALS" - any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law.
"INDEMNIFIED PERSON" - any Person that is entitled to indemnification
under Section 11.
"INTERIM DFA BALANCE SHEET" - the most recent consolidated balance
sheet for the DFA Companies (excluding SFG Management) included within the DFA
Financial Statements.
"INTERIM SUIZA BALANCE SHEET" - as defined in Section 4.4.
"IRC" - the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
6
<PAGE> 14
"IRS" - the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"LEGAL REQUIREMENT" - any administrative order, constitution, law,
ordinance, principle of common law, regulation, rule or statute of any
Governmental Body, including without limitation all federal, state and local
laws related to Taxes, ERISA, Hazardous Materials and the Environment, zoning
and land use, occupational safety and health, product quality and safety,
employment and labor matters.
"LOS COMMON INTERESTS" - the outstanding common member interests in
Land-O-Sun Dairies, which, prior to the completion of the Contemplated
Transactions, are owned 100% by LOS Holdings.
"LOS HOLDINGS" - LOS Holdings, Inc., a Delaware corporation.
"LOS PREFERRED INTERESTS" - the outstanding preferred member interests
in Land-O-Sun Dairies, LLC, of which, prior to the completion of the
Contemplated Transactions, LOS Holdings owns $91,000,000 aggregate stated amount
and DFA Investment owns $20,000,000 aggregate stated amount.
"LOS TIPES" - the 2,000,000 units of 5% Trust Convertible Preferred
Securities (liquidation amount $50 per trust Convertible Preferred Security)
issued by Suiza Capital Trust and held by DFA Investment.
"MERGERS" - the mergers of the Suiza Companies (including any
Additional Dairy Operation) into Venture, or the applicable limited liability
company subsidiary of Venture, at the Closing pursuant to Section 2.5 and the
other provisions of this Agreement.
"MID-AM" - Mid-Am Capital, L.L.C., a Delaware limited liability
company.
"ORDER" - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" - an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; and
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority).
"ORGANIZATIONAL DOCUMENTS" - the constituent and organizational
documents of a Person, as amended to date, and any organizational minutes or
resolutions, including (a) with respect to a limited liability company, its
certificate of formation and operating agreement, (b)
7
<PAGE> 15
with respect to a corporation, its articles or certificate of incorporation and
its bylaws, (c) with respect to a limited partnership, its certificate of
limited partnership and agreement of limited partnership, and (d) with respect
to a cooperative marketing association, its articles of incorporation.
"PARTNERSHIP AGREEMENT" - the Limited Partnership Agreement of Venture
to be executed at the Closing pursuant to Section 2.8(a).
"PENSION PLAN" - any pension plan within the meaning of ERISA Section
3(2).
"PERMITTED ENCUMBRANCES" - as to any Person, (a) liens for current
Taxes not yet due and liens for Taxes being contested in good faith, as to which
appropriate reserves have been established by such Person; (b) liens for
obligations not yet due that arise as a matter of law in the Ordinary Course of
Business of such Person; and (c) imperfections of title and encumbrances on real
property that do not materially interfere with the present use or value of such
real property.
"PERSON" - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company,
cooperative marketing association, joint venture, estate, trust, association or
other entity.
"PRIOR AGREEMENT" - the Contribution Agreement, Plan of Merger and
Purchase Agreement dated September 20, 1999.
"PROCEEDING" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, any Governmental
Body or arbitrator.
"PURCHASES" - (i) the purchase from Schenkel by Venture of the SFG
Common Interests owned by Schenkel, pursuant to Section 2.1, and (ii) the
purchase from Schenkel by Suiza Management of the SFG Management Member
Interests owned by Schenkel, pursuant to Section 2.2.
"RELEASE" - any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment.
"REPORTABLE EVENT" - as defined in Section 4043 of ERISA.
"REPRESENTATIVE" - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"ROBINSON BALANCE SHEET" - the balance sheet of Robinson Dairy included
in the Robinson Financial Statements.
"ROBINSON DAIRY" - Robinson Dairy, Inc., a Colorado corporation.
8
<PAGE> 16
"ROBINSON FINANCIAL STATEMENTS" - as defined in Section 4.4.
"SCHENKEL" - Pete Schenkel, an individual.
"SCHENKEL'S KNOWLEDGE" - Schenkel will be deemed to have "Knowledge" of
a particular fact or other matter for purposes of any representation or warranty
if he has actual knowledge of or should have known of such fact or other matter
on the date such representation or warranty is made or deemed to be made.
"SECURITIES ACT" - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SFG CAPITAL" - SFG Capital Corporation, a Delaware corporation.
"SFG COMMON INTERESTS" - the outstanding common limited partner
interests in SFG, which, prior to the completion of the Contemplated
Transactions, are owned 49.5% by DFA, 49.5% by Schenkel and 1% by SFG
Management.
"SFG MANAGEMENT" - SFG Management Limited Liability Company, a Delaware
limited liability company.
"SFG MANAGEMENT MEMBER INTERESTS" - the outstanding member interests in
SFG Management, which, prior to the completion of the Contemplated Transactions,
are owned 50% by DFA and 50% by Schenkel.
"SFG PREFERRED INTERESTS" - the outstanding preferred limited partner
interests in SFG, which, prior to the completion of the Contemplated
Transactions, are owned by DFA and by Mid-Am.
"SFG SUBORDINATED NOTES" - the 9 7/8% Senior Subordinated Series A
Notes Due 2007 issued by SFG, which notes will be subject to an offer to
repurchase by SFG after the Closing as a result of a change of control of SFG.
"SUIZA BONUS PLAN" - any plan, scheme or arrangement, written or
otherwise, pursuant to which any Suiza Company may be required to make a payment
or other transfer to any of its Affiliates, employees, or independent
contractors of cash or property the amount or value of which is in any way
contingent on the objectively or subjectively determined attainment of any
individual or group performance goals.
"SUIZA CAPITAL TRUST" - Suiza Capital Trust, a Delaware business trust.
"SUIZA COMPANIES" - the following companies (or their successors) and
any Additional Dairy Operations: Broughton Foods Company, an Ohio corporation;
Burger Dairy Company, an Indiana corporation; CFI-TMP, Inc., a Michigan
corporation; Country Delite Farms, Inc., a Delaware corporation; Country Fresh,
Inc., a Michigan corporation; Country Fresh Wesley, Inc.,
9
<PAGE> 17
a Michigan corporation; Dairy Fresh, Inc., a Delaware corporation; Dairy
Products of Michigan, Inc., a Michigan corporation; East Coast Ice Cream, LLC, a
Michigan limited liability company; Frostbite Brands, Inc., a Michigan
corporation; Land-O-Sun Dairies, LLC, a Delaware limited liability company
("LAND-O-SUN DAIRIES"); LFD Holding Company, a Delaware corporation; London
Farms Dairy, Inc., a Delaware corporation; Louis Trauth Dairy, Inc., a Delaware
corporation; Model Dairy, Inc., a Delaware corporation; Northern Falls Water
Company, Inc., a Delaware corporation; Oberlin Farms Dairy, Inc., an Ohio
corporation; Southeastern Juice Packers, Inc., a Michigan corporation; and Velda
Farms, Inc., a Delaware corporation ("VELDA FARMS").
"SUIZA CONTROLLED GROUP PLANS" - as defined in Section 4.10(b)(ix).
"SUIZA ERISA PLAN" - any Suiza Pension Plan or Suiza Welfare Plan.
"SUIZA FACILITIES" - any real property, leaseholds, or other interests
in real property owned or operated by any Suiza Company and any buildings,
plants, structures, or fixtures owned or operated by any Suiza Company.
"SUIZA FINANCIAL STATEMENTS" - as defined in Section 4.4.
"SUIZA FOODS" - Suiza Foods Corporation, a Delaware corporation.
"SUIZA FRINGE BENEFIT PLAN" - any plan, scheme, or arrangement
currently maintained by any Suiza Company for the provision of "fringe benefits"
to current or former employees within the meaning of IRC Sections 61(a) or
132(a).
"SUIZA GTL" - Suiza GTL, LLC, a Delaware limited liability company.
"SUIZA GTL COMMON INTERESTS" - the outstanding common member interests
in Suiza GTL, which, prior to the completion of the Contemplated Transactions,
are owned 75% by Suiza GTL Holdings and 25% by DFA.
"SUIZA GTL HOLDINGS" - Suiza GTL Holdings, Inc., a Delaware
corporation.
"SUIZA GTL PREFERRED INTERESTS" - the outstanding preferred member
interests in Suiza GTL, of which, prior to the completion of the Contemplated
Transactions, Suiza GTL Holdings owns $120,000,000 aggregate stated amount and
Mid-Am owns $40,000,000 aggregate stated amount.
"SUIZA INTELLECTUAL PROPERTY ASSETS" - as defined in Section 4.18(a).
"SUIZA MANAGEMENT" - Suiza Management Corporation, a Delaware
corporation.
"SUIZA MARKS" - as defined in Section 4.18(a)(i).
10
<PAGE> 18
"SUIZA MATERIAL ADVERSE EFFECT" - any material adverse effect on the
business, properties, assets, condition (financial or otherwise), liabilities or
results of operations of the Suiza Companies, Suiza SoCal and Suiza GTL, taken
as a whole, other than any effects arising out of or resulting from (a) changes
affecting the economy or financial conditions generally or the dairy industry
generally, (b) any Suiza Material Customer notifying any Suiza Company or any
Suiza Parent after the date of this Agreement that such Suiza Material Customer
intends to terminate or materially alter its relationship with any Suiza Company
(including as a result of or relating to a transaction involving a Suiza
Material Customer that occurs or is announced prior to Closing) other than as a
result of a dispute with, or that arises out of the actions or activities of,
any such Suiza Parent or Suiza Company, or (c) any transaction that is announced
after the date of this Agreement, or that occurs after the date of this
Agreement (but was not announced prior to the date of this Agreement) involving
any Suiza Material Customer which results or could result in such Suiza Material
Customer terminating or materially altering its relationship with any Suiza
Company, other than a transaction in which any Suiza Parent or Suiza Company is
a party and other than any such termination or alteration that arises as a
result of a dispute with, or out of the actions or activities of, any such Suiza
Parent or Suiza Company.
"SUIZA MATERIAL CUSTOMERS" - as defined in Section 4.14(c).
"SUIZA PARENTS" - Suiza Foods, Suiza Sub, Suiza GTL Holdings, Suiza
SoCal Holdings and LOS Holdings.
"SUIZA PAYROLL POLICY" - any policy of making payments or other awards
to employees of any Suiza Company other than a Suiza Bonus Plan, a Suiza Fringe
Benefit Plan, a Suiza Pension Plan, a Suiza Stock Plan, or a Suiza Welfare Plan.
Suiza Payroll Policies include, but are not limited to, paid sick days, vacation
days, and personal time off.
"SUIZA PENSION PLAN" - any Pension Plan maintained by any Suiza Company
or to which any Suiza Company is required to contribute for any current or
former employee.
"SUIZA PERMITTED OBLIGATIONS" - as defined in Section 6.6.
"SUIZA PLAN" - each Suiza Bonus Plan, Suiza ERISA Plan, Suiza Fringe
Benefit Plan, Suiza Payroll Policy, Suiza Pension Plan, Suiza Stock Plan and
Suiza Welfare Plan.
"SUIZA SOCAL" - Suiza SoCal, LLC, a Delaware limited liability company.
"SUIZA SOCAL COMMON INTERESTS" - the outstanding common member
interests in SoCal, which, prior to the completion of the Contemplated
Transactions, are owned 75% by Suiza SoCal Holdings and 25% by DFA.
"SUIZA SOCAL HOLDINGS" - Suiza SoCal Holdings, Inc., a Nevada
corporation.
"SUIZA SOCAL PREFERRED INTERESTS" - the outstanding preferred member
interests in Suiza SoCal of which, prior to the completion of the Contemplated
Transactions, $95 million
11
<PAGE> 19
stated amount are owned by Suiza SoCal Holdings and $21 million stated amount
are owned by Mid-Am.
"SUIZA STOCK PLAN" - any compensatory interest, option, restricted
interest, interest appreciation right, phantom interest, or similar plan,
program, or arrangement maintained by any Suiza Company for the current,
deferred, or contingent compensation of any of its employees, Affiliates or
independent contractors with an interest in or other equity security of any
Suiza Company, a discount on the purchase price of any interest in or other
equity security of any Suiza Company, or a payment or other transfer of cash or
property the amount or value of which is in any way contingent on any change in
value of any interest in or other equity security of any Suiza Company.
"SUIZA SUB" - Suiza Fluid Dairy Group Holdings, Inc., a Nevada
corporation.
"SUIZA TRADE SECRETS" - as defined in Section 4.18(a)(ii).
"SUIZA WELFARE PLAN" - any Welfare Plan (as defined in Section 3(1) of
ERISA) maintained by any Suiza Company or to which any Suiza Company is required
to contribute for any current or former employees.
"SUIZA'S ADVISORS" - as defined in Section 5.1.
"SUIZA'S KNOWLEDGE" - Suiza will be deemed to have "Knowledge" of a
particular fact or other matter for purposes of any representation or warranty
if any individual who is serving as an executive officer of any Suiza Parent or
any Suiza Company (or in any similar capacity) has actual knowledge of or should
have known of such fact or other matter on the date such representation or
warranty is made or deemed to be made.
"TAXES" - all taxes, charges, fees, duties, levies or other
assessments, including, without limitation, income, gross receipts, net
proceeds, ad valorem, real and personal property (tangible and intangible),
sales, use, franchise, user, transfer, fuel, excess profits, occupational,
employees' income withholding, unemployment and Social Security taxes, which are
imposed by any Governmental Body.
"TAX RETURN" - any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax.
"TERRITORY" - continental United States, Alaska and Hawaii.
"VENTURE" - Suiza Fluid Dairy Group, L.P., a Delaware limited
partnership.
"VENTURE CREDIT FACILITY" - the credit facility to be dated as of the
Closing among Venture, SFG and the lenders under such credit facility.
12
<PAGE> 20
"VENTURE INTERESTS" - the common and preferred limited partner
interests in Venture to be issued at the Closing.
"VENTURE GP" - Suiza Fluid Dairy Group GP, LLC, a Delaware limited
liability company.
SECTION 2
PURCHASES, CONTRIBUTIONS AND MERGERS
The following Contemplated Transactions will occur in connection with
the Closing, in the same order chronologically as set forth in this Section 2,
except where specifically indicated otherwise.
2.1 PURCHASE OF SFG COMMON INTERESTS FROM SCHENKEL. On the terms
and subject to the conditions set forth in this Agreement, at the Closing
Venture will purchase from Schenkel, all SFG Common Interests owned by Schenkel,
in exchange for a cash payment to Schenkel by Venture in the amount set forth on
Schedule 2.1 hereto. The SFG Common Interests will be conveyed to Venture, free
and clear of any Encumbrances, pursuant to an assignment of interests in form
and substance reasonably satisfactory to Suiza Foods and DFA.
2.2 PURCHASE OF SFG MANAGEMENT MEMBER INTERESTS FROM SCHENKEL. On
the terms and subject to the conditions set forth in this Agreement, at the
Closing Suiza Management will purchase from Schenkel all of the SFG Management
Member Interests owned by Schenkel for a cash payment to Schenkel by Suiza
Management in the amount set forth on Schedule 2.2 hereto, which interests will
be conveyed to Suiza Management, free and clear of any Encumbrances, pursuant to
an assignment of interests in form and substance reasonably satisfactory to
Suiza Management.
2.3 CONTRIBUTIONS BY DFA. On the terms and subject to the
conditions set forth in this Agreement, at the Closing DFA will (a) transfer to
Venture, free and clear of any Encumbrances, all of its SFG Common Interests,
SFG Preferred Interests, Suiza GTL Common Interests, Suiza SoCal Common
Interests and SFG Management Member Interests, pursuant to an assignment of
interests in form and substance reasonably satisfactory to Suiza Foods, and (b)
contribute to Venture such additional cash, if any, as may be required to avoid
the dilution of its common Venture Interests in respect of Additional Dairy
Operations to be contributed by the Suiza Parents, as contemplated by Section
13. In addition, DFA shall contribute, or cause the contribution of, the LOS
Preferred Interests owned by DFA Investment to Venture, free and clear of any
Encumbrances, pursuant to an assignment of interests in form and substance
reasonably satisfactory to Suiza Foods. In exchange for such contributions,
Venture will issue Venture Interests to DFA as set forth in the Partnership
Agreement.
2.4 CONTRIBUTIONS BY MID-AM. On the terms and subject to the
conditions set forth in this Agreement, at the Closing Mid-Am will transfer to
Venture, free and clear of any Encumbrances, all of its SFG Preferred Interests,
Suiza GTL Preferred Interests, Suiza SoCal Preferred Interests and all of its
SFG Subordinated Notes, pursuant to an assignment of interests
13
<PAGE> 21
in form and substance reasonably satisfactory to Suiza Foods. In exchange for
such contributions, Venture will issue preferred Venture Interests to Mid-Am as
set forth in the Partnership Agreement.
2.5 CONTRIBUTIONS BY THE SUIZA PARENTS AND SUIZA MANAGEMENT.
(a) Prior to the Closing, (i) Suiza Foods, LOS Holdings, Suiza
GTL Holdings and Suiza SoCal Holdings, as applicable, will contribute
or cause to be contributed all of the outstanding equity capital of the
Suiza Companies (except for the LOS Preferred Interests owned by DFA
Investment), the Suiza GTL Common Interests, Suiza GTL Preferred
Interests, Suiza SoCal Common Interests and Suiza SoCal Preferred
Interests owned by them, to Suiza Sub, with the result that all of the
Suiza Companies, Suiza GTL and Suiza SoCal become direct or indirect
subsidiaries of Suiza Sub.
(b) On the terms and subject to the conditions set forth in
this Agreement, and in accordance with applicable Legal Requirements,
at the Closing each Suiza Company (other than Land-O-Sun Dairies) shall
be merged, directly or indirectly through one or more preliminary
mergers with other Suiza Companies, as may be determined by Suiza
Foods, with and into Venture, or into one or more wholly-owned limited
liability company subsidiaries of Venture as may be designated by Suiza
Foods. As a result of such mergers, the separate corporate existence of
such Suiza Companies shall cease, and Venture, or the applicable
limited liability company subsidiary, shall continue as the surviving
entity of such mergers, governed by the certificate of formation of
Venture, or the applicable limited liability company subsidiary, and
the Partnership Agreement. At the Effective Time of such mergers, the
effect of such mergers shall be as provided in the applicable
provisions of the Delaware General Corporation Law or other applicable
law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time of each merger, all of the properties,
assets, rights, privileges, powers and licenses (including without
limitation all milk dealers licenses and other dairy-related licenses)
of each such Suiza Company will vest in Venture, or the applicable
limited liability company subsidiary, and all debts, liabilities and
duties of each such Suiza Company will become the debts, liabilities
and duties of Venture, or the applicable limited liability company
subsidiary. At the Effective Time of each merger, by virtue of such
merger and without any action on the part of any party to this
Agreement or any other Person, all of the outstanding equity interests
of such Suiza Companies (except for the LOS Preferred Interests which
are contributed by DFA pursuant to Section 2.3), which shall be free
and clear of any Encumbrances, shall be converted into Venture
Interests as set forth in the Partnership Agreement.
(c) On the terms and subject to the conditions set forth in
this Agreement, at the Closing Suiza Sub will transfer to Venture, free
and clear of any Encumbrances, all of its LOS Common Interests, LOS
Preferred Interests, Suiza GTL Common Interests, Suiza GTL Preferred
Interests, Suiza SoCal Common Interests and Suiza SoCal Preferred
Interests pursuant to an Assignment of Interests substantially in the
form attached hereto as Exhibit B. On the terms and subject to the
conditions set forth in this Agreement, at the Closing Suiza Management
will transfer to Venture, free and clear of any
14
<PAGE> 22
Encumbrances, 90% of the SFG Management Member Interests purchased by
Suiza Management from Schenkel in respect of its .1% general partner
interest in Venture pursuant to an Assignment of Interests
substantially in the form attached hereto as Exhibit B.
(d) On the terms and subject to the conditions set forth in
this Agreement, at the Closing Suiza Foods will transfer to Venture,
pursuant to an Assignment and Assumption Agreement substantially in the
form attached hereto as Exhibit C, certain assets, free and clear of
any Encumbrances, and assign to Venture, and Venture shall assume,
certain liabilities held by Suiza Foods that directly relate to the
operations of the Suiza Companies, Suiza GTL and Suiza SoCal.
(e) In exchange for the contributions and assignments set
forth in this Section 2.5 and as contemplated in Section 13, Venture
will issue Venture Interests to Suiza Sub and to Suiza Management as
set forth in the Partnership Agreement.
(f) On the terms and subject to the conditions set forth in
this Agreement, at the Closing Suiza Management will transfer to
Venture GP, free and clear of any Encumbrances, its .1% general partner
interest in Venture pursuant to an Assignment of Interests
substantially in the form attached hereto as Exhibit B.
2.6 DISTRIBUTIONS.
(a) On the terms and subject to the conditions set forth in
this Agreement, at the Closing Venture will distribute to DFA and to
Suiza Sub, pro rata based on such parties' respective ownership of
common Venture Interests in Venture, cash, including the proceeds from
the borrowings by Venture under Venture Credit Facility, as mutually
determined by DFA and Suiza Foods. The amount so distributed to DFA and
Suiza Sub will be determined in accordance with Schedule 2.6 hereto,
which schedule contemplates reductions on a dollar-for-dollar basis for
the amount of DFA Permitted Obligations and Suiza Permitted
Obligations, respectively, and for certain other items set forth in
such schedule, including any indebtedness relating to Suiza GTL and
Suiza SoCal. DFA and Suiza Foods will update Schedule 2.6 prior to the
Closing to reflect any changes in the amounts set forth therein since
the date that such amounts were originally determined.
(b) Suiza Sub shall use the amount it receives in such
distribution to, among other things, redeem at par, plus accrued and
unpaid interest to the date of such redemption, the LOS TIPES, and to
cause the repayment of other indebtedness relating to the Suiza
Companies required to be repaid pursuant to this Agreement, if any.
(c) In addition to the offset against the amount to be
distributed to DFA pursuant to this Section 2.6 for DFA Permitted
Obligations, Schedule 2.6 will provide, among other things, that
Venture shall offset and withhold against the amount otherwise to be
distributed to DFA (a) an amount equal to the amount paid to the
holders of the SFG Subordinated Notes in connection with obtaining the
consent of such holders to the Contemplated Transactions, if any, and
(b) an amount sufficient for Venture to fund the
15
<PAGE> 23
repurchase of all outstanding SFG Subordinated Notes (other than the
SFG Subordinated Notes that were contributed to Venture by Mid-Am and
that are owned by SFG), at a purchase price of 101% of the principal
amount thereof plus accrued and unpaid interest, (and pay all expenses
associated therewith) pursuant to the offer to repurchase required to
be made by SFG after the Closing under the terms of the SFG
Subordinated Notes as a result of the change of control of SFG. DFA
shall promptly reimburse Venture to the extent the amount so withheld
for the repurchase offer is insufficient to complete such repurchase
(and pay related expenses). After consummation of the repurchase,
Venture will distribute to DFA the portion of the funds originally
withheld from DFA that represents the 1% premium on the SFG
Subordinated Notes that were not redeemed. DFA shall use the amount it
receives to, among other things, repay other indebtedness relating to
SFG required to be repaid pursuant to this Agreement, if any.
(d) DFA and Suiza Foods, as applicable, will make an
additional cash contribution to Venture in the event that the aggregate
amount of the offsets attributable to each such party as set forth in
Schedule 2.6 exceeds the amount of cash to be otherwise distributed to
each such party pursuant to this Section 2.6. The amount of the
additional cash contribution, if any, will be equal to the amount by
which the aggregate amount of such offsets exceeds the amount of the
cash to be otherwise distributed to such party.
2.7 CLOSING. The closing of the Purchases, the Mergers and the
Contributions (the "CLOSING") will take place at the offices of Suiza Foods'
counsel at 1717 Main Street, Suite 2800, Dallas, Texas, at 10:00 a.m. (local
time) on the third business day following the satisfaction or waiver of all
conditions precedent set forth in Sections 7, 8, and 9 or at such other time and
place as Suiza Foods and DFA agree. Subject to the provisions of Section 10,
failure to consummate the transactions provided for in this Agreement on the
date and time and at the place determined pursuant to this Section 2.7 will not
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement. As promptly as practicable on the Closing
Date, the parties hereto shall cause each of the Mergers to be consummated by
filing the certificates of merger referenced in Section 2.8(h) with the
Secretary of State of the State of Delaware and with the Secretary of State of
each other state of formation of any Suiza Company.
2.8 CLOSING OBLIGATIONS. At the Closing:
(a) DFA, Mid-Am, Suiza Sub and Venture GP will execute and
deliver the Partnership Agreement of Venture, substantially in the form
attached hereto as Exhibit A, which will provide (among other things)
for the issuance of Venture Interests in respect of the Contributions
and the Mergers, as applicable.
(b) DFA will contribute to Venture such funds as may be
required pursuant to the provisions of Section 13, by wire transfer of
immediately available funds.
(c) SFG will pay the amount set forth on Schedule 2.1 hereto
to Schenkel by wire transfer of immediately available funds, and
Schenkel will execute and deliver an
16
<PAGE> 24
Assignment of Interests transferring all of the SFG Common Interests
that he owns to Venture, substantially in the form attached hereto as
Exhibit B.
(d) Suiza Management will pay the amount set forth on Schedule
2.2 hereto to Schenkel by wire transfer of immediately available funds,
and Schenkel will execute and deliver an Assignment of Interests
transferring all of the SFG Management Member Interests that he owns to
Suiza Management, substantially in the form attached hereto as Exhibit
B.
(e) Schenkel will execute and deliver a non-competition
agreement, in form and substance reasonably satisfactory to Schenkel,
DFA, Suiza Foods and Venture.
(f) DFA, Mid-Am and the Suiza Parents will surrender for
cancellation any stock certificates or other certificates evidencing
their ownership interests to be transferred at Closing in any DFA
Company, SFG Management, SFG Subordinated Notes, any Suiza Company,
Suiza GTL and Suiza SoCal (as applicable), if any, duly endorsed for
transfer by the record holder thereof (or, if applicable, accompanied
by stock powers duly executed in blank), and such certificates will be
marked "cancelled," as applicable.
(g) DFA, Mid-Am and Suiza Sub will each execute and deliver an
Assignment of Interests transferring all of the LOS Common Interests,
LOS Preferred Interests, SFG Management Member Interests, Suiza GTL
Common Interests, Suiza GTL Preferred Interests, Suiza SoCal Common
Interests and Suiza SoCal Preferred Interests (as applicable) that each
owns to Venture, substantially in the form attached hereto as Exhibit
B.
(h) Each Suiza Company that is a party to any Merger will
execute certificates of merger in the form required by the relevant
provisions of the applicable Legal Requirements of Delaware and each
other state in which any Suiza Company is domiciled.
(i) Suiza Management will execute and deliver an Assignment of
Interests transferring 90% of the SFG Management Member Interests it
purchased from Schenkel to Venture, substantially in the form attached
hereto as Exhibit B.
(j) Suiza Foods and Venture will execute and deliver an
Assignment and Assumption Agreement evidencing the assumption by
Venture of certain liabilities of Suiza Foods directly relating to the
operations of the Suiza Companies, Suiza GTL and Suiza SoCal,
substantially in the form attached hereto as Exhibit C.
(k) Suiza Management will execute and deliver an Assignment of
Interests transferring its .1% general partner interest in Venture to
Venture GP, substantially in the form attached hereto as Exhibit B.
17
<PAGE> 25
(l) DFA and Venture will execute and deliver one or more milk
supply agreement(s), in form and substance mutually acceptable to such
parties.
(m) Venture and DFA will execute and deliver a Registration
Rights Agreement, substantially in the form attached hereto as Exhibit
D, covering Venture Interests held by DFA.
(n) Suiza Foods and the DFA Parents will execute and deliver a
Registration Rights Agreement, substantially in the form attached
hereto as Exhibit E, covering shares of Suiza Foods common stock that
may be issued to the DFA Parents upon purchase of their Venture
Interests pursuant to the Partnership Agreement.
(o) Venture and The Morningstar Group, Inc., or its designee,
will execute and deliver a supply agreement, in form and substance
mutually acceptable to such parties.
(p) Venture and SFG Management will execute and deliver an
Amended and Restated Limited Partnership Agreement of SFG, in form and
substance mutually satisfactory to DFA and Suiza Foods.
(q) DFA and Schenkel will execute and deliver an indemnity
agreement concerning tax distributions by SFG during the period prior
to the Closing and other indemnification matters, in form and substance
mutually satisfactory to DFA and Schenkel.
(r) Venture and Suiza Management will execute and deliver an
Amended and Restated Limited Liability Company Agreement of SFG
Management, in form and substance mutually satisfactory to DFA and
Suiza Foods.
(s) DFA, Suiza Foods and Schenkel will execute and deliver
such other documents and agreements required under Sections 7, 8 and 9,
as applicable.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF DFA AND SCHENKEL
DFA and Schenkel, jointly and severally (except where expressly stated
otherwise), represent and warrant to Venture and the Suiza Parents as follows
(provided, however, that the Disclosure Letter sets forth certain exceptions to
such representations and warranties or discloses certain matters in response to
such representations and warranties, in each case identified by the applicable
Section numbers below):
3.1 ORGANIZATION AND GOOD STANDING.
(a) Each DFA Company is a corporation, cooperative, limited
partnership or limited liability company duly organized, validly
existing, and in good standing under the
18
<PAGE> 26
laws of its state of formation, with full corporate, cooperative,
partnership or limited liability company power and authority to conduct
its business as it is now being conducted. Each DFA Company is duly
qualified to do business as a foreign corporation, cooperative, limited
partnership or foreign limited liability company and is in good
standing under the laws of each state or other jurisdiction in which
the nature of the activities conducted by it requires such
qualification, except where such failure to so qualify does not have a
DFA Material Adverse Effect.
(b) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that each DFA Parent is a
corporation, cooperative, limited partnership or limited liability
company duly organized, validly existing, and in good standing under
the laws of its state of formation, with full corporate, cooperative,
partnership or limited liability company power and authority to conduct
its business as it is now being conducted.
(c) The DFA Companies have delivered to Suiza Foods or Suiza's
Advisors copies of the Organizational Documents of each DFA Company, as
currently in effect.
(d) Except as disclosed in Section 3.1(d) of the Disclosure
Letter, no DFA Company owns any direct or indirect equity interest
(including any debt that is convertible into an equity interest) in any
other Person (except other DFA Companies), and no DFA Company is
obligated or committed to acquire any such interest.
3.2 AUTHORITY; NO CONFLICT; CONSENTS.
(a) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that this Agreement constitutes the
legal, valid, and binding obligation of each DFA Company and each DFA
Parent, enforceable against them in accordance with its terms except to
the extent that its enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other
laws relating or affecting creditors' rights generally and by general
equity principles.
(b) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that this Agreement constitutes the legal,
valid, and binding obligation of each DFA Company and Schenkel,
enforceable against them in accordance with its terms except to the
extent that its enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other
laws relating or affecting creditors' rights generally and by general
equity principles.
(c) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that each DFA Company and each DFA
Parent has the requisite corporate, cooperative, limited partnership or
limited liability company or other right, power, authority, and
capacity to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and
performance of this Agreement by each DFA Company and each DFA Parent
have been duly authorized by
19
<PAGE> 27
all necessary corporate, cooperative, limited partnership or limited
liability company action, as the case may be, on the part of such
entity and its owners.
(d) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that each of Schenkel and each DFA Company
has the requisite corporate, cooperative, limited partnership or
limited liability company or other right, power, authority, and
capacity to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and
performance of this Agreement by each DFA Company have been duly
authorized by all necessary corporate, cooperative, limited partnership
or limited liability company action, as the case may be, on the part of
such entity and its owners.
(e) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that except as disclosed in Section
3.2 of the Disclosure Letter, neither the execution and delivery of
this Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly:
(i) conflict with any provision of the
Organizational Documents of any DFA Company or any DFA Parent;
(ii) result in a violation of, or give any
Governmental Body or other Person the right to exercise any
remedy or obtain any relief under, any Legal Requirement or
any Order to which any DFA Company or DFA Parent is subject;
(iii) result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any DFA Company or
any DFA Parent;
(iv) result in a violation or breach of any provision
of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Contract of any DFA Company described in Section 3.14(a) of
the Agreement; or
(v) result in the imposition or creation of any
Encumbrance upon any of the assets owned or used by any DFA
Company or upon any equity interests in any DFA Company.
(f) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that except as disclosed in Section 3.2 of
the Disclosure Letter, neither the execution and delivery of this
Agreement nor the consummation or performance of any of the
Contemplated Transactions will, directly or indirectly:
(i) conflict with any provision of the
Organizational Documents of any DFA Company;
20
<PAGE> 28
(ii) result in a violation of, or give any
Governmental Body or other Person the right to exercise any
remedy or obtain any relief under, any Legal Requirement or
any Order to which any DFA Company is subject;
(iii) result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any DFA Company;
(iv) result in a violation or breach of any provision
of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Contract of any DFA Company described in Section 3.14(a); or
(v) result in the imposition or creation of any
Encumbrance upon any of the assets owned or used by any DFA
Company or upon any equity interests in any DFA Company.
(g) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that no DFA Company or DFA Parent is
or will be required to obtain any Consent from any Person or
Governmental Body in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions, except (i) Consents disclosed in Section 3.2 of the
Disclosure Letter, which will be obtained by Closing, or (ii) where the
failure to obtain such Consents will not have a DFA Material Adverse
Effect.
(h) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that neither Schenkel nor any DFA Company
is or will be required to obtain any Consent from any Person or
Governmental Body in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions, except (i) Consents disclosed in Section 3.2 of the
Disclosure Letter, which will be obtained by Closing, or (ii) where the
failure to obtain such Consent will not have a DFA Material Adverse
Effect.
3.3 CAPITALIZATION.
(a) The authorized and outstanding equity interests of each
DFA Company are listed in Section 3.3 of the Disclosure Letter. All of
the equity interests of each DFA Company have been duly authorized and
validly issued and are fully paid and nonassessable. None of the
outstanding equity interests in any DFA Company was issued in violation
of the Securities Act.
(b) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that:
21
<PAGE> 29
(i) except as set forth in Section 3.3 of the
Disclosure Letter, and except for the equity interest held by
Schenkel in SFG and SFG Management, the DFA Parents, or one of
the other DFA Companies, are the record and beneficial owners
and holders of all outstanding equity interests of each DFA
Company, free and clear of all Encumbrances;
(ii) DFA owns 25% of the Suiza GTL Common Interests
and 25% of the Suiza SoCal Common Interests, free and clear of
all Encumbrances;
(iii) Mid-Am owns $40 million aggregate stated amount
of Suiza GTL Preferred Interests and $21 million aggregate
stated amount of Suiza SoCal Preferred Interests, free and
clear of all Encumbrances; and
(iv) except for such Contracts, if any, as may have
been entered into by Schenkel with respect to Schenkel's
equity interests in such entities, and except as described in
Section 3.3 of the Disclosure Letter and as contemplated in
this Agreement, there are no Contracts relating to the
issuance, sale, or transfer of any equity interests in any DFA
Company, or any equity interest in Suiza GTL or Suiza SoCal
held by DFA or Mid-Am.
(c) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that:
(i) except for the equity interests held by the DFA
Parents in SFG and in SFG Management, and except as set forth
in Section 3.3 of the Disclosure Letter, Schenkel, or one of
the other DFA Companies, are the record and beneficial owners
and holders of all outstanding equity interests of each DFA
Company, free and clear of all Encumbrances; and
(ii) except for such Contracts, if any, as may have
been entered into by the DFA Parents with respect to their
equity interest in such entities, and except as described in
Section 3.3 of the Disclosure Letter and as contemplated in
this Agreement, there are no contracts relating to the
issuance, sale, or transfer of any equity interests in any DFA
Company.
3.4 FINANCIAL STATEMENTS.
(a) Included within Section 3.4 of the Disclosure Letter are
the consolidated financial statements of SFG as of and for the year
ended December 31, 1998 and as of and for the six month period ended
June 30, 1999 (collectively, the "DFA FINANCIAL STATEMENTS"). The DFA
Financial Statements fairly present in all material respects the assets
and liabilities, financial condition and the results of operations and
changes in stockholders' equity or membership equity, as applicable, of
SFG (excluding SFG Management) on a consolidated basis, as at the
respective dates of and for the periods referred to in such DFA
Financial Statements. The DFA Financial Statements have been prepared
in accordance with generally accepted accounting principles,
consistently
22
<PAGE> 30
applied, subject in the case of the unaudited statements to the absence
of footnote disclosure and other presentation items and to changes
resulting from normal period-end adjustments for recurring accruals,
which will not have a DFA Material Adverse Effect. Subject to the
limitations provided in the immediately preceding sentence, the DFA
Financial Statements have been prepared from the books and records of
SFG (excluding SFG Management), as applicable, which accurately and
fairly reflect in all material respects the transactions of,
acquisitions and dispositions of assets by, and incurrence of
liabilities by SFG (excluding SFG Management), as applicable. All
inventories and raw materials reflected in the Interim DFA Balance
Sheets or acquired since the date thereof are of good and merchantable
quality and are salable in the ordinary course of business (in the case
of inventory held for sale) or currently usable (in the case of other
inventory and raw materials) or adequate reserves have been established
with respect thereto. All accounts receivable reflected in the Interim
DFA Balance Sheet or acquired since the date thereof arose in the
Ordinary Course of Business of SFG (excluding SFG Management) and are
not subject to set-off, counterclaim or other reduction or adequate
reserves have been established with respect thereto.
(b) SFG Management has no assets, except cash and its general
partner interest in SFG, and has no liabilities or obligations of any
nature (whether known or unknown and whether absolute, accrued,
contingent or otherwise) except for such liabilities or obligations
arising solely from its status as the sole general partner of SFG
incurred in the Ordinary Course of Business, if any, which are not
material to SFG Management in the aggregate.
3.5 BOOKS AND RECORDS. The books of account, minute books, and
other records of each DFA Company, all of which have been made available to
Suiza Foods or Suiza's Advisors, are complete and correct in all material
respects. At the Closing, all of those books and records will be in the
possession of the applicable DFA Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Section 3.6(a) of the Disclosure Letter includes a
complete list (including the street address, where applicable) of each
DFA Facility. Promptly after the date hereof, the DFA Companies will
make available to Suiza Foods or Suiza's Advisors one or more recent
depreciation schedules listing tangible personal property owned by the
DFA Companies as of the dates indicated. The tangible personal property
of the DFA Companies listed in such depreciation schedules is in good
repair and operating condition in all material respects, normal wear
and tear excepted.
(b) Each DFA Company owns all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible)
that it purports to own located in the DFA Facilities owned or operated
by the DFA Companies or reflected as owned in the books and records of
the DFA Companies, including all of the properties and assets reflected
in the Interim DFA Balance Sheet (except for personal property sold
since the date of the Interim DFA Balance Sheet in the Ordinary Course
of Business of the DFA Companies), and all of the properties and assets
purchased or otherwise acquired by the
23
<PAGE> 31
DFA Companies since the date of the Interim DFA Balance Sheet (except
for personal property acquired and sold since the date of the Interim
DFA Balance Sheet in the Ordinary Course of Business of the DFA
Companies). Except as described in Section 3.6(b) of the Disclosure
Letter and except as would not reasonably be expected to have,
individually or in the aggregate, a DFA Material Adverse Effect, all
material properties and assets reflected in the Interim DFA Balance
Sheet and in the books and records of SFG Management are free and clear
of all Encumbrances except for Permitted Encumbrances.
(c) To DFA's Knowledge, there are no proceedings pending or
threatened that would alter the current zoning classification of the
DFA Facilities or alter any applicable laws, statutes, regulations,
codes, conditions or restrictions related to zoning or land use that
would have a material adverse affect on the existing use of the DFA
Facilities in the business of the DFA Companies. Except as described in
Section 3.6(c) of the Disclosure Letter, no DFA Company has received
any written notice from any insurance company of any defects or
inadequacies in the DFA Facilities that would, if not corrected, result
in the termination of existing insurance coverage or a material
increase in the present cost thereof. No DFA Company has received any
written notice providing for or threatening the discontinuation of
necessary utilities to the DFA Facilities. No DFA Parent is a "foreign
person" as that term is defined in Section 1445 of the IRC.
3.7 NO UNDISCLOSED LIABILITIES. The DFA Companies have no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for (a) liabilities or
obligations reflected or reserved against in the Interim DFA Balance Sheets, (b)
current liabilities incurred by the DFA Companies in the Ordinary Course of
Business since the date of its Interim DFA Balance Sheet, (c) performance
obligations under Contracts disclosed or not required to be disclosed pursuant
to Section 3.14, (d) liabilities or obligations of SFG Management arising solely
from its status as the general partner of SFG incurred in the Ordinary Course of
Business, if any, which are not material to SFG Management in the aggregate and
(e) matters disclosed in Section 3.7 of the Disclosure Letter.
3.8 TAXES. Except as set forth in Section 3.8 of the Disclosure
Letter:
(a) Each DFA Company has filed or caused to be filed on a
timely basis all Tax Returns that are or were required to be filed by
it pursuant to applicable Legal Requirements. Each DFA Company has
paid, or made provision for the payment of, all Taxes that have become
due and payable as Taxes imposed on such DFA Company pursuant to those
Tax Returns or otherwise, or pursuant to any assessment received by
such DFA Company, except such Taxes, if any, as are being contested in
good faith and as to which adequate reserves have been provided in the
applicable Interim DFA Balance Sheet.
(b) No DFA Company has been granted an extension of time for
filing any Tax Return that has not yet been filed.
24
<PAGE> 32
(c) The charges, accruals, and reserves with respect to Taxes
on the respective books of each DFA Company are adequate in all
material respects. To DFA's Knowledge, there exists no proposed tax
assessment against any DFA Company except as disclosed in the
applicable Interim DFA Balance Sheet. All Taxes that any DFA Company is
or was required by Legal Requirements to withhold or collect have been
duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Body.
(d) All Tax Returns filed by any DFA Company are true,
correct, and complete with respect to Taxes imposed on such DFA
Company. No DFA Company is, or within the five-year period preceding
the Closing Date has been, an "S" corporation.
(e) There are no outstanding agreements, waivers, or
arrangements extending the statutory period of limitation applicable to
any claim for, or the period for the collection or assessment of, Taxes
due from or with respect to any DFA Company for any taxable period.
(f) No Proceeding is pending or, to DFA's Knowledge,
threatened in regard to any Taxes due from or with respect to any DFA
Company or any Tax Return filed by or with respect to any DFA Company.
3.9 NO MATERIAL ADVERSE CHANGE. Since the date of the Interim
Balance Sheet, there has not been any DFA Material Adverse Effect.
3.10 EMPLOYEE BENEFITS.
(a) Section 3.10(a) of the Disclosure Letter lists each DFA
Plan.
(b) Except as set forth in Section 3.10(b) of the Disclosure
Letter:
(i) To DFA's Knowledge, the terms and operations of
each DFA Plan have at all times been in all material respects
in accordance with ERISA, the IRC and each other applicable
Legal Requirement.
(ii) All governmental reports and returns (including,
but not limited to, annual IRS/DOL 5500-series information
returns/reports) required to be filed in connection with all
DFA Plans have been timely filed, and were true and complete
in all material respects when filed.
(iii) No DFA Company has a contribution obligation to
a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA.
(iv) No DFA Company has participated in any
transaction that could reasonably be expected to result in a
DFA Material Adverse Effect under ERISA Section 4069.
25
<PAGE> 33
(v) All required contributions to all DFA Plans and
all premiums, fees, or other payments required to be made in
connection with any DFA Plan have either been timely made or
are reflected in the Financial Statements of such DFA Company
on an accrual basis.
(vi) No DFA Plan is currently under audit by the IRS
or the DOL.
(vii) Other than routine claims for benefits, there
are no actions, suits, claims or investigations pending, or to
DFA's Knowledge, threatened against or with respect to any of
the DFA Plans or their assets.
(viii) With respect to any Employee Benefit Plan of
any DFA Company that is a "Defined Benefit Plan" within the
meaning of ERISA Section 3(35), (A) such DFA Company has not
incurred and is not reasonably likely to incur any liability
under Title IV of ERISA (other than for the payment of
premiums, all of which have been paid when due), (B) such DFA
Company has not incurred any accumulated funding deficiency
within the meaning of IRC Section 412 and has not applied for
or obtained a waiver of any minimum funding standard or an
extension of any amortization period under IRC Section 412,
and (C) no Reportable Event has occurred or is expected to
occur.
(ix) With respect to each Employee Benefit Plan
maintained or contributed to, currently or in the past, by any
DFA Company or any ERISA Affiliate of a DFA Company, or with
respect to which any DFA Company or ERISA Affiliate of a DFA
Company has liability (the "DFA CONTROLLED GROUP PLANS"): (A)
there are no unfunded liabilities existing under any DFA
Control Group Plan; and (B) each such DFA Control Group Plan
has been operated in compliance with ERISA, applicable tax
qualification requirements and all other applicable Legal
Requirements.
(x) None of the DFA Companies, the DFA Parents, any
ERISA Affiliate of a DFA Company nor any plan fiduciary of any
DFA Plan has engaged in any transaction in violation of
Section 406(a) of ERISA or any "prohibited transaction" (as
defined in IRC Section 4975(c)(1) that would subject any DFA
Company, Venture, any Suiza Parent or any ERISA Affiliate of
the foregoing to any material taxes, penalties or other
liabilities resulting from such transaction.
(c) Except as set forth in Section 3.10(c) of the Disclosure
Letter, no DFA Company is a party to or subject to any collective
bargaining agreement, contract, commitment or arrangement, nor does any
other written agreement determine the terms and conditions of
employment of any employee of any DFA Company, nor will this Agreement
or the transactions contemplated hereby cause a termination or
renegotiation of, or trigger any rights or result in a default under,
any such agreement.
3.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS. Except as set forth in Section 3.11 of the Disclosure Letter:
26
<PAGE> 34
(a) Each DFA Company is in compliance with each Legal
Requirement that is applicable to it or to the conduct or operation of
its business, except for any such noncompliance as would not reasonably
be expected to have, individually or in the aggregate, a DFA Material
Adverse Effect.
(b) Except as would not reasonably be expected to have,
individually or in the aggregate, a DFA Material Adverse Effect, no
event has occurred or circumstance exists that (with or without notice
or lapse of time) (i) constitutes a violation by a DFA Company of, or a
failure on the part of a DFA Company to comply with, any Legal
Requirement, or (ii) may give rise to any obligation on the part of any
DFA Company to undertake, or to bear all or any portion of the cost of,
any remedial action.
(c) No DFA Company has received, within the last 12 months,
any outstanding notice from any Governmental Body or any other Person
regarding (i) any actual or alleged violation of any Legal Requirement,
or (ii) any actual or alleged obligation on the part of a DFA Company
to undertake, or to bear the cost of, any remedial action of any
nature.
(d) Each DFA Company holds all material Governmental
Authorizations that are required in connection with the business of
such DFA Company. Each such Governmental Authorization is valid and in
full force and effect except where the failure to keep such
authorization valid and in full force and effect will not have a DFA
Material Adverse Effect.
(e) Each DFA Company is in compliance with all of the terms
and requirements of each Governmental Authorization applicable to it,
except for any such noncompliance as would not reasonably be expected
to have, individually or in the aggregate, a DFA Material Adverse
Effect.
(f) No DFA Company has received, within the last 12 months,
any outstanding notice from any Governmental Body or any other Person
regarding (i) any actual or alleged violation of any term or
requirement of any Governmental Authorization, or (ii) any actual or
proposed revocation, withdrawal, suspension, cancellation, termination
of, or modification to any Governmental Authorization.
(g) All applications required to have been filed for the
renewal of the Governmental Authorizations of the DFA Companies have
been duly filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with respect
to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies, except where the
failure to so file would not reasonably be expected to have,
individually or in the aggregate, a DFA Material Adverse Effect.
(h) The Governmental Authorizations held by the DFA Companies
constitute all of the material Governmental Authorizations necessary to
permit each DFA Company
27
<PAGE> 35
to lawfully conduct and operate its business in the manner it currently
operates such business.
(i) To DFA's Knowledge, since January 1, 1998, none of the
officers, employees or agents of the DFA Companies, nor any other
Person acting on behalf of any of them or any DFA Company has, directly
or indirectly, given or agreed to give any gift or similar benefit to
any customer, supplier, governmental employee or other person in
violation of any Legal Requirement, including, without limitation, the
Foreign Corrupt Practices Act.
(j) Since January 1, 1998, no DFA Company has effected a
recall or withdrawal of any of its products for health reasons, and, to
DFA's Knowledge, no facts have existed that, if known by the applicable
Governmental Body, would have resulted in such a recall or withdrawal.
3.12 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Section 3.12(a) of the Disclosure
Letter, there is no Proceeding:
(i) pending or, to DFA's Knowledge, threatened
against any DFA Company that, alone or in the aggregate, has
had or would (if decided adversely) have, a DFA Material
Adverse Effect; or
(ii) that challenges, or that may have the effect of
preventing or making illegal, any of the Contemplated
Transactions.
To the extent requested by Suiza Foods, the DFA Companies have
delivered, or caused the delivery to Suiza Foods or Suiza's Advisors,
copies of all pleadings, correspondence, and other documents relating
to each pending Proceeding listed in Section 3.12(a) of the Disclosure
Letter related to any DFA Company.
(b) Except as set forth in Section 3.12(b) of the Disclosure
Letter:
(i) there is no Order to which any DFA Company is
subject;
(ii) no Affiliate, agent, or employee of any DFA
Company is subject to any Order that prohibits such Affiliate,
agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of such DFA
Company that would have a DFA Material Adverse Effect; and
(iii) no event has occurred or circumstance exists
that constitutes or results in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which any DFA Company is
subject.
28
<PAGE> 36
3.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Section 3.13 of the Disclosure Letter or as contemplated hereby, since the date
of the applicable Interim DFA Balance Sheet, each DFA Company has conducted its
businesses only in the Ordinary Course of Business and there has not been any
DFA Material Adverse Effect or any:
(a) change in the authorized or issued equity interests of any
DFA Company; grant of any option or right to purchase equity interests
in any DFA Company; issuance of any security convertible into equity
interests of any DFA Company; grant of any registration rights;
purchase, redemption, retirement, or other acquisition by such DFA
Company of any equity interests; or declaration or payment of any
dividend or other distribution or payment in respect of equity
interests;
(b) amendment to the Organizational Documents of any DFA
Company;
(c) payment or increase by any DFA Company of any bonuses,
salaries or other compensation to any Affiliate of such DFA Company, or
(except in the Ordinary Course of Business) any employee of any DFA
Company, or entry into any employment, severance or similar Contract
with any Affiliate or employee of any DFA Company, except in the
Ordinary Course of Business;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of any DFA Company;
(e) damage to or destruction or loss of any material asset or
property of any DFA Company that exceeds $500,000 in value,
individually or in the aggregate, and is not covered by insurance;
(f) entry into, termination of, or receipt of notice of
termination of any Contract or transaction involving a total remaining
commitment by or to any DFA Company that could exceed $500,000 or any
material breach or material default (or event that with notice or lapse
of time would constitute a material breach or material default) under
any such Contract;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property
valued in excess of $500,000, individually, or $1,000,000 in the
aggregate, of any DFA Company or any Encumbrance on any material asset
or property of any DFA Company;
(h) any incurrence of indebtedness for borrowed money, except
in the Ordinary Course of Business, in excess of $100,000;
(i) material change in the accounting methods used by any DFA
Company; or
(j) Contract, whether oral or written, by any DFA Company to
do any of the foregoing.
29
<PAGE> 37
3.14 CONTRACTS; NO DEFAULTS.
(a) Section 3.14(a) of the Disclosure Letter contains a
complete and accurate list of the following Contracts, excluding,
however, any such Contracts that are immediately terminable, or
terminable upon not more than 60 days notice, by the applicable DFA
Company without incurring any monetary or nonmonetary liability,
obligation or penalty of any nature:
(i) each Contract that involves performance of
services or delivery of goods or materials by or to any DFA
Company of an amount or value that could exceed $1,000,000 per
year;
(ii) each Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or
receipts of any DFA Company that could exceed $100,000 or that
is otherwise material to any DFA Company;
(iii) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or
personal property used by any DFA Company (except personal
property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $500,000);
(iv) each Contract containing covenants that
materially restrict the business activity of any DFA Company
or limit the freedom of any DFA Company to engage in any line
of business or to compete with any Person;
(v) each employment, consulting, noncompetition,
separation, collective bargaining, union or labor Contract
applicable to any DFA Company;
(vi) each Contract with or for the benefit of any DFA
Parent or Affiliate of any DFA Company or, to DFA's Knowledge,
any immediate family member of an Affiliate of a DFA Company;
(vii) each Contract under which any DFA Company is
obligated to indemnify, or entitled to indemnification from,
any third party, excluding any agreement that requires
indemnification solely for a breach of such agreement and
excluding any indemnification obligation or right that could
not reasonably be expected to involve more than $100,000;
(viii) each Contract for capital expenditures by any
DFA Company in excess of $500,000; and
(ix) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
30
<PAGE> 38
(b) With respect to the Contracts identified in Section
3.14(a) of the Disclosure Letter:
(i) each Contract is in full force and effect and is
valid and enforceable in accordance with its terms except to
the extent that its enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other laws relating or affecting creditors'
rights generally and by general equity principles;
(ii) the DFA Companies have made available to Suiza
Foods or Suiza's Advisors a copy of each such Contract that is
in writing and a written summary accurately describing the
material provisions of each such Contract that is not in
writing;
(iii) each DFA Company is in compliance with all
material terms and requirements of such Contracts; and
(iv) no DFA Company has given to or received from any
other Person any notice regarding any actual or alleged
violation of any such Contract.
(c) the DFA Companies have made available to Suiza Foods or
Suiza's Advisors a complete list of each customer of any DFA Company
that has accounted for more than $5,000,000 in gross sales of such DFA
Company for the year ended December 31, 1998 and for more than
$2,500,000 for the six months ended June 30, 1999 (the "DFA MATERIAL
CUSTOMERS") and indicating the amount of gross sales attributable to
each DFA Material Customer during such time periods. None of the DFA
Material Customers has notified any DFA Company or any DFA Parent of
any intention to, or to DFA's Knowledge, otherwise threatened to,
terminate or materially alter its relationship with any DFA Company,
and there has been no material dispute with a DFA Material Customer
since December 31, 1998.
3.15 INSURANCE.
(a) Section 3.15 of the Disclosure Letter contains a complete
list of all policies of insurance to which any DFA Company is a party
or under which any DFA Company, or any director (or similar Affiliate)
of a DFA Company, is covered. The DFA Companies have made available to
Suiza Foods or Suiza's Advisors true and complete copies of such
insurance policies.
(b) Section 3.15 of the Disclosure Letter describes any
self-insurance arrangement by any DFA Company, including any reserves
established thereunder.
(c) To DFA's Knowledge, all policies to which any DFA Company
is a party or that provide coverage to any DFA Company, taken together,
provide adequate insurance coverage for the assets and the operations
of the DFA Companies for all risks
31
<PAGE> 39
normally insured against by a Person carrying on the same business as
the DFA Companies.
(d) No DFA Company has received (i) any refusal of coverage or
(ii) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be
renewed or will be renewed only with a material increase in cost or
that the issuer of any policy is not willing or able to perform its
obligations thereunder.
3.16 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.16
of the Disclosure Letter:
(a) No DFA Company has materially violated or is in material
violation of any Environmental Law.
(b) None of the DFA Facilities contains any Hazardous
Materials in amounts exceeding the levels permitted by applicable
Environmental Law or under circumstances that would require remediation
or removal, at material expense, under Environmental Law.
(c) No DFA Company has engaged in any Hazardous Activities,
and no Hazardous Materials have been disposed of, released or
transported in material violation of any applicable Environmental Law
to or from any of the DFA Facilities.
(d) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses regarding compliance or
noncompliance with any Environmental Law conducted by or on behalf of
any DFA Company, or which are in the possession of any DFA Company,
relating to the activities of any DFA Company or any of the DFA
Facilities that have not been delivered to Suiza Foods or Suiza's
Advisors.
(e) No DFA Company or DFA Parent has received any actual or
threatened Order or notice from any Governmental Body or the current or
prior owner or operator of any DFA Facilities, of any actual or
potential material violation or material failure to comply with any
Environmental Law, or of any actual or, to DFA's Knowledge, threatened
obligation to undertake or bear any cost, damage, expense, liability,
or obligation arising from or under any Environmental Law.
3.17 LABOR RELATIONS; COMPLIANCE. The DFA Companies have made
available to Suiza Foods or Suiza's Advisors, a list of the top management of
the DFA Companies, including date of employment, current title and compensation.
Promptly after the date hereof, the DFA Companies will make available to Suiza
Foods or Suiza's Advisors a complete list of all current employees of each DFA
Company as of the date set forth therein, including date of employment, current
title and compensation. Except as disclosed in Section 3.17 of the Disclosure
Letter, there is not presently pending or existing (a) any strike, slowdown,
picketing or work stoppage, or (b) any material Proceeding against or affecting
any DFA Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters. To
32
<PAGE> 40
DFA's Knowledge, no event has occurred or circumstance exists that could provide
the basis for any work stoppage or other labor dispute. There is no lockout of
any employees by any DFA Company. Each DFA Company has complied in all material
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing.
3.18 INTELLECTUAL PROPERTY.
(a) The term "DFA INTELLECTUAL PROPERTY ASSETS" includes:
(i) all fictional business names, trading names,
registered and unregistered trademarks, service marks, and
applications (collectively, "DFA MARKS") owned, used, or
licensed by any DFA Company as licensee or licensor; and
(ii) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, blue prints and
patents (collectively, "DFA TRADE SECRETS") owned, used, or
licensed by any DFA Company as licensee or licensor.
(b) Each DFA Company has the right to use all of the DFA
Intellectual Property Assets owned, used or licensed by it without
infringing on or otherwise acting adversely to the rights or claimed
rights of any Person. Except as disclosed in Section 3.18(b) of the
Disclosure Letter, there are no Contracts relating to the DFA
Intellectual Property Assets, including royalties paid or received by
any DFA Company, to which any DFA Company is a party or by which any
DFA Company is bound, except for any license implied by the sale of a
product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $50,000 under which a DFA Company is
the licensee. Except as disclosed in Section 3.18(b) of the Disclosure
Letter, there are no outstanding disputes or disagreements with respect
to any such Contract.
(c) Section 3.18(c) of the Disclosure Letter contains a
complete and accurate list and summary description of all DFA Marks.
Except for DFA Marks used under licenses disclosed in Section 3.18(b)
of the Disclosure Letter, a DFA Company is the owner of all right,
title and interest in and to each of the DFA Marks, free and clear of
all Encumbrances. To DFA's Knowledge, there is no potentially
interfering trademark or trademark application of any third party, and
no DFA Mark is infringed or has been challenged or, to DFA's Knowledge,
threatened in any way. To DFA's Knowledge, none of the DFA Marks used
by any DFA Company infringes or is alleged to infringe any trade name,
trademark, or service mark of any third party.
3.19 YEAR 2000 COMPLIANCE. Except as set forth in Section 3.19 of
the Disclosure Letter, all hardware, firmware, software and computer systems of
the DFA Companies are, or will be by December 31, 1999, Year 2000 Compliant (as
defined below) and shall continue to function in accordance with their intended
purpose without material error or material interruption as
33
<PAGE> 41
a result of the transition to the year 2000. Neither any of the DFA Parents, the
DFA Companies, nor Schenkel has received notice or otherwise has reason to
believe that all hardware, firmware, software and computer systems of the
respective DFA Material Customers and suppliers of the DFA Companies are not, or
will not be by December 31, 1999, Year 2000 Compliant and that such will not
continue to function in accordance with their intended purpose without material
error or material interruption as a result of the transition to the year 2000.
Section 3.19 of the Disclosure Letter includes a reasonable estimate of the
additional costs, if any, that the DFA Companies will incur to become Year 2000
Compliant. As used herein, "Year 2000 Compliant" means, with respect to any
Person, that the hardware, firmware, software and computer systems of such
Person will completely and accurately address, produce, store and calculate data
involving dates before, on and after January 1, 2000 and will not produce
abnormally ending or incorrect results involving such dates as used in any
forward or regression dated based functions.
3.20 BROKERS OR FINDERS.
(a) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that none of the DFA Companies or the
DFA Parents or their agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement
for which any DFA Company, Venture or any Suiza Parent will be liable.
(b) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that none of the DFA Companies or Schenkel
or their agents have incurred any obligation or liability, contingent
or otherwise, for brokerage or finders' fees or agents' commissions or
other similar payment in connection with this Agreement for which any
DFA Company, Venture or any Suiza Parent will be liable.
3.21 COMPETING INTERESTS.
(a) DFA, severally and not jointly and severally with
Schenkel, represents and warrants that except as set forth in Section
3.21 of the Disclosure Letter, neither of the DFA Parents, any DFA
Company nor, to DFA's Knowledge (excluding, for purposes of this
Section 3.21(a), the Knowledge of Schenkel), any Affiliate of any DFA
Parent or DFA Company (excluding Schenkel) owns, directly or
indirectly, a material financial interest in any Person that is a
competitor, customer, supplier or vendor of any DFA Company that has
material business dealings with any DFA Company, other than ownership
of less than 1% of publicly traded securities of such Person.
(b) Schenkel, severally and not jointly and severally with
DFA, represents and warrants that except as set forth in Section 3.21
of the Disclosure Letter, neither Schenkel, any DFA Company nor, to
Schenkel's Knowledge, any Affiliate of Schenkel or any DFA Company
(excluding the DFA Parents) owns, directly or indirectly, a material
financial interest in any Person that is a competitor, customer,
supplier or vendor of any DFA Company that has material business
dealings with any DFA Company, other than ownership of less than 1% of
publicly traded securities of such Person.
34
<PAGE> 42
3.22 INVESTMENT INTENT. Each DFA Parent is acquiring its Venture
Interests pursuant to this Agreement and the Partnership Agreement for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
3.23 NO MISREPRESENTATIONS. The representations, warranties and
statements made by DFA in or pursuant to this Agreement are true, complete and
correct in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make any such
representation, warranty or statement, under the circumstances in which it is
made, not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF SUIZA FOODS
Suiza Foods represents and warrants to DFA as follows (provided,
however, that the Disclosure Letter sets forth certain exceptions to such
representations and warranties or discloses certain matters in response to such
representations and warranties, in each case identified by the applicable
Section numbers below). Except where expressly stated otherwise, for purposes of
this Section 4 (and all defined terms used in Section 4), the terms "Suiza
Company" and "Suiza Companies" shall be deemed to include Robinson Dairy, but
shall exclude any other Additional Dairy Operations.
4.1 ORGANIZATION AND GOOD STANDING.
(a) Each Suiza Company and each Suiza Parent is a corporation
or limited liability company duly organized, validly existing, and in
good standing under the laws of its state of formation, with full
corporate or limited liability company power and authority to conduct
its business as it is now being conducted. Each Suiza Company is duly
qualified to do business as a foreign corporation or foreign limited
liability company and is in good standing under the laws of each state
or other jurisdiction in which the nature of the activities conducted
by it requires such qualification, except where such failure to so
qualify does not have a Suiza Material Adverse Effect.
(b) Suiza has delivered to DFA or DFA's Advisors copies of the
Organizational Documents of each Suiza Company, as currently in effect.
(c) No Suiza Company owns any direct or indirect equity
interest (including any debt that is convertible into an equity
interest) in any other Person (except other Suiza Companies), and no
Suiza Company is obligated or committed to acquire any such interest.
4.2 AUTHORITY; NO CONFLICT; CONSENTS.
(a) This Agreement constitutes the legal, valid, and binding
obligation of each Suiza Company and each Suiza Parent, enforceable
against such entities in accordance
35
<PAGE> 43
with its terms except to the extent that its enforceability may be
limited by bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other laws relating or affecting creditors' rights
generally and by general equity principles.
(b) Each Suiza Company and each Suiza Parent has the requisite
corporate right, power, authority, and capacity to execute and deliver
this Agreement and to perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement by each Suiza
Company and each Suiza Parent have been duly authorized by all
necessary corporate action on the part of such entity and its owners.
(c) Except as disclosed in Section 4.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions
will, directly or indirectly:
(i) conflict with any provision of the
Organizational Documents of any Suiza Company or any Suiza
Parent;
(ii) result in a violation of, or give any
Governmental Body or other Person the right to exercise any
remedy or obtain any relief under, any Legal Requirement or
any Order to which any Suiza Company or any Suiza Parent is
subject;
(iii) result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by any Suiza Company
or any Suiza Parent;
(iv) result in a violation or breach of any provision
of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Contract of any Suiza Company described in Section 4.14(a); or
(v) result in the imposition or creation of any
Encumbrance upon any of the assets owned or used by any Suiza
Company or upon any of the equity interests in any Suiza
Company.
(d) No Suiza Company or Suiza Parent is or will be required to
obtain any Consent from any Person or Governmental Body in connection
with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions, except (i)
Consents disclosed in Section 4.2 of the Disclosure Letter, which will
be obtained by Closing, or (ii) where the failure to obtain such
Consents will not have a Suiza Material Adverse Effect.
4.3 CAPITALIZATION. The authorized and outstanding equity interests of
each Suiza Company are listed in Section 4.3 of the Disclosure Letter. Except
for the LOS Preferred Interests in Land-O-Sun Dairies held by DFA Investment and
except as set forth in Section 4.3
36
<PAGE> 44
of the Disclosure Letter, the Suiza Parents or one of the other Suiza Companies
are the record and beneficial owners and holders of all of the outstanding
equity interests in each Suiza Company, free and clear of all Encumbrances. All
of such equity interests have been duly authorized and validly issued and are
fully paid and nonassessable. Except as set forth in Section 4.3 of the
Disclosure Letter, (a) Suiza GTL Holdings owns 75% of the Suiza GTL Common
Interests and $120 million aggregate stated amount of Suiza GTL Preferred
Interests, free and clear of all Encumbrances and (b) Suiza SoCal owns 75% of
the Suiza SoCal Common Interests and $95 million aggregate stated amount of
Suiza SoCal Preferred Interests, free and clear of all Encumbrances. Except as
contemplated in this Agreement, there are no Contracts relating to the issuance,
sale, or transfer of any equity interests in any Suiza Company, or any equity
interest in Suiza GTL or Suiza SoCal held by any Suiza Parent. None of the
outstanding equity interests in any Suiza Company was issued in violation of the
Securities Act.
4.4 FINANCIAL STATEMENTS. Included within Section 4.4 of the
Disclosure Letter are the consolidated financial statements of the Suiza
Companies (excluding Robinson Dairy) as of and for the year ended December 31,
1998 and as of and for the six month period ended June 30, 1999 (collectively,
the "SUIZA FINANCIAL STATEMENTS") and recent financial statements of Robinson
Dairy (the "ROBINSON FINANCIAL STATEMENTS"). The Suiza Financial Statements and
the Robinson Financial Statements fairly present in all material respects the
assets and liabilities, financial condition and the results of operations of the
Suiza Companies on a consolidated basis and Robinson Dairy, respectively, as at
the respective dates of and for the periods referred to in such Suiza Financial
Statements and Robinson Financial Statements, as applicable. Except as set forth
in Section 4.4 of the Disclosure Letter, the Suiza Financial Statements and the
Robinson Financial Statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, subject in the case of the
unaudited statements to the absence of footnote disclosure and other
presentation items and to changes resulting from normal period-end adjustments
for recurring accruals, which will not have a Suiza Material Adverse Effect.
Subject to the limitations provided in the immediately preceding sentence, the
Suiza Financial Statements and the Robinson Financial Statements have been
prepared from the books and records of the Suiza Companies (excluding Robinson
Dairy), as applicable, and Robinson Dairy, respectively, which accurately and
fairly reflect in all material respects the transactions of, acquisitions and
dispositions of assets by, and incurrence of liabilities by the Suiza Companies
(excluding Robinson Dairy), as applicable, and Robinson Dairy, respectively. All
inventories and raw materials reflected in the June 30, 1999 balance sheet for
the Suiza Companies (other than Robinson Dairy) (the "Interim Suiza Balance
Sheet") and the Robinson Balance Sheet, or acquired since the respective dates
thereof are of good and merchantable quality and are salable in the ordinary
course of business (in the case of inventory held for sale) or currently usable
(in the case of other inventory and raw materials) or adequate reserves have
been established with respect thereto. All accounts receivable reflected in the
Interim Suiza Balance Sheet and the Robinson Balance Sheet or acquired since the
respective dates thereof arose in the Ordinary Course of Business of the Suiza
Companies (excluding Robinson Dairy) and Robinson Dairy and are not subject to
set-off, counterclaim or other reduction or adequate reserves have been
established with respect thereto.
4.5 BOOKS AND RECORDS. The books of account, minute books, and
other records of each Suiza Company, all of which have been made available to
DFA, are complete and correct in
37
<PAGE> 45
all material respects. At the Closing, all of those books and records will be in
the possession of the applicable Suiza Company.
4.6 TITLE TO PROPERTIES; ENCUMBRANCES.
(a) Section 4.6(a) of the Disclosure Letter includes a
complete list (including the street address, where applicable) of each
Suiza Facility. The Suiza Parents have made available to DFA or DFA's
Advisors one or more recent depreciation schedules listing tangible
personal property owned by the Suiza Companies as of the dates
indicated. The tangible personal property of the Suiza Companies listed
in such depreciation schedules is in good repair and operating
condition in all material respects, normal wear and tear excepted.
(b) Each Suiza Company owns all the properties and assets
(whether real, personal, or mixed and whether tangible or intangible)
that it purports to own located in the Suiza Facilities owned or
operated by the Suiza Companies or reflected as owned in the books and
records of the Suiza Companies, including all of the properties and
assets reflected in the Interim Suiza Balance Sheet and the Robinson
Balance Sheet (except for real and personal property sold since the
dates of the Interim Suiza Balance Sheet and the Robinson Balance Sheet
in the Ordinary Course of Business of the Suiza Companies (excluding
Robinson Dairy) and Robinson Dairy, respectively), and all of the
properties and assets purchased or otherwise acquired by the Suiza
Companies since the date of the Interim Suiza Balance Sheet and the
Robinson Balance Sheet (except for real and personal property acquired
and sold since the dates of the Interim Suiza Balance Sheet and the
Robinson Balance Sheet in the Ordinary Course of Business of the Suiza
Companies (excluding Robinson Dairy) and Robinson Dairy, respectively).
Except as described in Section 4.6(b) of the Disclosure Letter and
except as would not reasonably be expected to have, individually or in
the aggregate, a Suiza Material Adverse Effect, all material properties
and assets reflected in the Interim Suiza Balance Sheet and the
Robinson Balance Sheet are free and clear of all Encumbrances except
for Permitted Encumbrances.
(c) To Suiza's Knowledge, there are no proceedings pending or
threatened that would alter the current zoning classification of the
Suiza Facilities or alter any applicable laws, statutes, regulations,
codes, conditions or restrictions related to zoning or land use that
would have a material adverse affect on the existing use of the Suiza
Facilities in the business of the Suiza Companies. Except as described
in Section 4.6(c) of the Disclosure Letter, no Suiza Company has
received any written notice from any insurance company of any defects
or inadequacies in the Suiza Facilities that would, if not corrected,
result in the termination of existing insurance coverage or a material
increase in the present cost thereof. No Suiza Company has received any
written notice providing for or threatening the discontinuation of
necessary utilities to the Suiza Facilities. No Suiza Parent is a
"foreign person" as that term is defined in Section 1445 of the IRC.
38
<PAGE> 46
4.7 NO UNDISCLOSED LIABILITIES. The Suiza Companies have no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent or otherwise) except for (a) liabilities or
obligations reflected or reserved against in the Interim Suiza Balance Sheet and
the Robinson Balance Sheet, (b) current liabilities incurred by the Suiza
Companies (excluding Robinson Dairy) and Robinson Dairy in the Ordinary Course
of Business since the date of the Interim Suiza Balance Sheet and the Robinson
Balance Sheet, respectively, (c) performance Obligations under Contracts
disclosed or not required to be disclosed pursuant to Section 4.14, and (d)
matters disclosed in Section 4.7 of the Disclosure Letter.
4.8 TAXES. Except as set forth in Section 4.8 of the Disclosure
Letter:
(a) Each Suiza Company or the Suiza Parents have filed or
caused to be filed on a timely basis all Tax Returns that are or were
required to be filed with respect to any Suiza Company pursuant to
applicable Legal Requirements. Each Suiza Company or Suiza Parent has
paid, or made provision for the payment of, all Taxes that have become
due and payable as Taxes imposed on or with respect to such Suiza
Company pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by such Suiza Company or Suiza Parent, except such
Taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided by the Suiza Parents or in the
Interim Suiza Balance Sheet and the Robinson Balance Sheet.
(b) No Suiza Company or Suiza Parent has been granted an
extension of time for filing any Tax Return that has not yet been
filed.
(c) The charges, accruals, and reserves with respect to Taxes
on the respective books of each Suiza Company or Suiza Parent are
adequate in all material respects. To Suiza's Knowledge, there exists
no proposed tax assessment against any Suiza Company (excluding
Robinson Dairy) or Robinson Dairy or Suiza Parent, with respect to any
Suiza Company, except as disclosed in the Interim Suiza Balance Sheet
and the Robinson Balance Sheet, respectively, or in the Suiza Financial
Statement. All Taxes that any Suiza Company or Suiza Parent is or was
required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to
the proper Governmental Body.
(d) All Tax Returns filed by any Suiza Company or Suiza Parent
are true, correct, and complete with respect to Taxes imposed on or
with respect to the respective Suiza Companies. No Suiza Company is, or
within the five-year period preceding the Closing Date has been, an "S"
corporation.
(e) There are no outstanding agreements, waivers, or
arrangements extending the statutory period of limitation applicable to
any claim for, or the period for the collection or assessment of, Taxes
due from or with respect to any Suiza Company for any taxable period.
39
<PAGE> 47
(f) No Proceeding is pending or, to Suiza's Knowledge,
threatened in regard to any Taxes due from or with respect to any Suiza
Company or any Tax Return filed by or with respect to any Suiza
Company.
4.9 NO MATERIAL ADVERSE CHANGE. Since the date of the Interim
Balance Sheet, there has not been any Suiza Material Adverse Effect.
4.10 EMPLOYEE BENEFITS.
(a) Section 4.10(a) of the Disclosure Letter lists each Suiza
Plan.
(b) Except as set forth in Section 4.10(b) of the Disclosure
Letter:
(i) To Suiza's Knowledge, the terms and operations of
each Suiza Plan have at all times been in all material
respects in accordance with ERISA, the IRC and each other
applicable Legal Requirement.
(ii) All governmental reports and returns (including,
but not limited to, annual IRS/DOL 5500-series information
returns/reports) required to be filed in connection with all
Suiza Plans have been timely filed, and were true and complete
in all material respects when filed.
(iii) No Suiza Company has a contribution obligation
to a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA.
(iv) No Suiza Company has participated in any
transaction that could reasonably be expected to result in a
Suiza Material Adverse Effect under ERISA Section 4069.
(v) All required contributions to all Suiza Plans and
all premiums, fees, or other payments required to be made in
connection with any Suiza Plan have either been timely made or
are reflected in the Financial Statements of such Suiza
Company on an accrual basis.
(vi) No Suiza Plan is currently under audit by the
IRS or the DOL.
(vii) Other than routine claims for benefits, there
are no actions, suits, claims or investigations pending, or to
Suiza's Knowledge, threatened against or with respect to any
of the Suiza Plans or their assets.
(viii) With respect to any Employee Benefit Plan of
any Suiza Company that is a "Defined Benefit Plan" within the
meaning of ERISA Section 3(35), (A) such Suiza Company has not
incurred and is not reasonably likely to incur any liability
under Title IV of ERISA (other than for the payment of
premiums, all of which have been paid when due), (B) such
Suiza Company has not incurred any accumulated funding
deficiency within the meaning of IRC Section 412 and has
40
<PAGE> 48
not applied for or obtained a waiver of any minimum funding
standard or an extension of any amortization period under IRC
Section 412, and (C) no "Reportable Event" (as defined in
Section 4043 of ERISA) has occurred or is expected to occur.
(ix) With respect to each Employee Benefit Plan
maintained or contributed to, currently or in the past, by any
Suiza Company or any ERISA Affiliate of a Suiza Company, or
with respect to which any Suiza Company or ERISA Affiliate of
a Suiza Company has liability (the "SUIZA CONTROLLED GROUP
PLANS"); (A) there are no unfunded liabilities existing under
any Suiza Control Group Plan; and (B) each such Suiza Control
Group Plan has been operated in material compliance with
ERISA, applicable tax qualification requirements and all other
applicable Legal Requirements.
(x) None of the Suiza Companies, Suiza Parents, any
ERISA Affiliate of a Suiza Company nor any plan fiduciary of
any Suiza Plan has engaged in any transaction in violation of
Section 406(a) of ERISA or any "prohibited transaction" (as
defined in IRC Section 4975(c)(1) that would subject any Suiza
Company, Venture, any DFA Parent or any ERISA Affiliate of the
foregoing to any material taxes, penalties or other
liabilities resulting from such transaction.
(c) Except as set forth in Section 4.10(c) of the Disclosure
Letter, no Suiza Company is a party to or subject to any collective
bargaining agreement, contract, commitment or arrangement, nor does any
other written agreement determine the terms and conditions of
employment of any employee of any Suiza Company, nor will this
Agreement or the transactions contemplated hereby cause a termination
or renegotiation of, or trigger any rights or result in a default
under, any such agreement.
4.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS. Except as set forth in Section 4.11 of the Disclosure Letter:
(a) Each Suiza Company is in compliance with each Legal
Requirement that is applicable to it or to the conduct or operation of
its business, except for any such noncompliance as would not reasonably
be expected to have, individually or in the aggregate, a Suiza Material
Adverse Effect.
(b) Except as would not reasonably be expected to have,
individually or in the aggregate, a Suiza Material Adverse Effect, no
event has occurred or circumstance exists that (with or without notice
or lapse of time) (i) constitutes a violation by a Suiza Company of, or
a failure on the part of a Suiza Company to comply with, any Legal
Requirement, or (ii) may give rise to any obligation on the part of any
Suiza Company to undertake, or to bear all or any portion of the cost
of, any remedial action.
(c) No Suiza Company has received, within the last 12 months,
any outstanding notice from any Governmental Body or any other Person
regarding (i) any actual or alleged violation of any Legal Requirement,
or (ii) any actual or alleged
41
<PAGE> 49
obligation on the part of a Suiza Company to undertake, or to bear the
cost of, any remedial action of any nature.
(d) Each Suiza Company holds all material Governmental
Authorizations that are required in connection with the business of
such Suiza Company. Each such Governmental Authorization is valid and
in full force and effect, except where the failure to keep such
authorization valid and in full force and effect will not have a Suiza
Material Adverse Effect.
(e) Each Suiza Company is in compliance with all of the terms
and requirements of each Governmental Authorization applicable to it,
except for any such noncompliance as would not reasonably be expected
to have, individually or in the aggregate, a Suiza Material Adverse
Effect.
(f) No Suiza Company has received any outstanding notice,
within the last 12 months, from any Governmental Body or any other
Person regarding (i) any actual or alleged violation of any term or
requirement of any Governmental Authorization, or (ii) any actual or
proposed revocation, withdrawal, suspension, cancellation, termination
of, or modification to any Governmental Authorization.
(g) All applications required to have been filed for the
renewal of the Governmental Authorizations of the Suiza Companies have
been duly filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made with respect
to such Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies, except where the
failure to so file would not reasonably be expected to have,
individually or in the aggregate, a Suiza Material Adverse Effect.
(h) The Governmental Authorizations held by the Suiza
Companies constitute all of the material Governmental Authorizations
necessary to permit each Suiza Company to lawfully conduct and operate
its business in the manner it currently operates such business.
(i) To Suiza's Knowledge, since January 1, 1998, none of the
officers, employees or agents of the Suiza Companies, nor any other
Person acting on behalf of any of them or any Suiza Company has,
directly or indirectly, given or agreed to give any gift or similar
benefit to any customer, supplier, governmental employee or other
person in violation of any Legal Requirement, including, without
limitation, the Foreign Corrupt Practices Act.
(j) Since January 1, 1998, no Suiza Company has effected a
recall or withdrawal of any of its products for health reasons, and, to
Suiza's Knowledge, no facts have existed that, if known by the
applicable Governmental Body, would have resulted in such a recall or
withdrawal.
42
<PAGE> 50
4.12 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Section 4.12(a) of the Disclosure
Letter, there is no Proceeding:
(i) pending or, to Suiza's Knowledge, threatened
against any Suiza Company that, alone or in the aggregate, has
had or would (if decided adversely) have, a Suiza Material
Adverse Effect; or
(ii) that challenges, or that may have the effect of
preventing or making illegal, any of the Contemplated
Transactions.
To the extent requested by DFA, Suiza has delivered, or has
caused the applicable Suiza Company to deliver, to DFA or DFA's
Advisors copies of all pleadings, correspondence, and other documents
relating to each pending Proceeding listed in Section 4.12(a) of the
Disclosure Letter related to any Suiza Company.
(b) Except as set forth in Section 4.12(b) of the Disclosure
Letter:
(i) there is no Order to which any Suiza Company is
subject;
(ii) no Affiliate, agent, or employee of any Suiza
Company is subject to any Order that prohibits such Affiliate,
agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of such Suiza
Company that would have a Suiza Material Adverse Effect; and
(iii) no event has occurred or circumstance exists
that constitutes or results in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which any Suiza Company is
subject.
4.13 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in
Section 4.13 of the Disclosure Letter or as contemplated hereby, since the dates
of the Interim Suiza Balance Sheet and the Robinson Balance Sheet, each Suiza
Company (excluding Robinson Dairy) and Robinson Dairy, respectively, has
conducted its businesses only in the Ordinary Course of Business and there has
not been any Suiza Material Adverse Effect or any:
(a) change in the authorized or issued equity interests of any
Suiza Company; grant of any option or right to purchase equity
interests in any Suiza Company; issuance of any security convertible
into equity interests of any Suiza Company; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by such
Suiza Company of any equity interests; or declaration or payment of any
dividend or other distribution or payment in respect of equity
interests (except for borrowings and repayments of intercompany
accounts and balances in the Ordinary Course of Business);
(b) amendment to the Organizational Documents of any Suiza
Company;
43
<PAGE> 51
(c) payment or increase by any Suiza Company of any bonuses,
salaries or other compensation to any Affiliate of such Suiza Company,
or (except in the Ordinary Course of Business) any employee of any
Suiza Company, or entry into any employment, severance or similar
Contract with any Affiliate or employee of any Suiza Company, except in
the Ordinary Course of Business;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or
with any employees of any Suiza Company;
(e) damage to or destruction or loss of any material asset or
property of any Suiza Company that exceeds $500,000 in value, and is
not covered by insurance;
(f) entry into, termination of, or receipt of notice of
termination of any Contract or transaction involving a total remaining
commitment by or to any Suiza Company that could exceed $500,000 or any
material breach or material default (or event that with notice or lapse
of time would constitute a material breach or material default) under
any such Contract;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property
valued in excess of $500,000 of any Suiza Company or any Encumbrance on
any material asset or property of any Suiza Company;
(h) any incurrence of indebtedness for borrowed money, except
in the Ordinary Course of Business, in excess of $100,000 (except for
borrowings and repayments of intercompany accounts and balances in the
Ordinary Course of Business);
(i) material change in the accounting methods used by any
Suiza Company; or
(j) Contract, whether oral or written, by any Suiza Company to
do any of the foregoing.
4.14 CONTRACTS; NO DEFAULTS.
(a) Section 4.14(a) of the Disclosure Letter contains a
complete and accurate list of the following Contracts, excluding,
however, any such Contracts that are immediately terminable, or
terminable upon not more than 60 days notice, by the applicable Suiza
Company without incurring any monetary or nonmonetary liability,
obligation or penalty of any nature:
(i) each Contract that involves performance of
services or delivery of goods or materials by or to any Suiza
Company of an amount or value that could exceed $1,000,000 per
year;
44
<PAGE> 52
(ii) each Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or
receipts of any Suiza Company that could exceed $100,000 or
that is otherwise material to any Suiza Company;
(iii) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or
personal property used by any Suiza Company (except personal
property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $500,000);
(iv) each Contract containing covenants that
materially restrict the business activity of any Suiza Company
or limit the freedom of any Suiza Company to engage in any
line of business or to compete with any Person;
(v) each employment, consulting, noncompetition,
separation, collective bargaining, union or labor Contract
applicable to any Suiza Company;
(vi) each Contract with or for the benefit of any
Suiza Parent or any Affiliate of any Suiza Company or, to
Suiza's Knowledge, any immediate family member of an Affiliate
of a Suiza Company;
(vii) each Contract under which any Suiza Company is
obligated to indemnify, or entitled to indemnification from,
any third party, excluding any agreement that requires
indemnification solely for a breach of such agreement and
excluding any indemnification obligation or right that could
not reasonably be expected to involve more than $100,000;
(viii) each Contract for capital expenditures by any
Suiza Company in excess of $500,000; and
(ix) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
(b) With respect to the Contracts identified in Section
4.14(a) of the Disclosure Letter:
(i) each Contract is in full force and effect and is
valid and enforceable in accordance with its terms except to
the extent that its enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other laws relating or affecting creditors'
rights generally and by general equity principles;
45
<PAGE> 53
(ii) Suiza has made available to DFA or DFA's
Advisors a copy of each such Contract that is in writing and a
written summary accurately describing the material provisions
of each such Contract that is not in writing;
(iii) each Suiza Company is in compliance with all
material terms and requirements of such Contracts; and
(iv) no Suiza Company has given to or received from
any other Person any notice regarding any actual or alleged
violation of any such Contract.
(c) Suiza Foods has made available to DFA or DFA's Advisors a
complete list of each customer of any Suiza Company that has accounted
for more than $5,000,000 in gross sales of such Suiza Company for the
year ended December 31, 1998 and for more than $2,500,000 for the six
months ended June 30, 1999 (the "SUIZA MATERIAL CUSTOMERS") and
indicating the amount of gross sales attributable to each Suiza
Material Customer during such time periods. None of the Suiza Material
Customers has notified any Suiza Company or Suiza Parent of any
intention to, or to Suiza's Knowledge, otherwise threatened to,
terminate or materially alter its relationship with any Suiza Company,
and there has been no material dispute with a Suiza Material Customer
since December 31, 1998.
4.15 INSURANCE.
(a) Suiza has delivered to DFA or DFA's Advisors true and
complete copies of all policies of insurance to which any Suiza Company
is a party or under which any Suiza Company, or any director (or
similar Affiliate) of a Suiza Company, is covered.
(b) Section 4.15 of the Disclosure Letter describes any
self-insurance arrangement by any Suiza Company, including any reserves
established thereunder.
(c) To Suiza's Knowledge, all policies to which any Suiza
Company is a party or that provide coverage to any Suiza Company, taken
together, provide adequate insurance coverage for the assets and the
operations of the Suiza Companies for all risks normally insured
against by a Person carrying on the same business as the Suiza
Companies.
(d) No Suiza Company has received (i) any refusal of coverage
or (ii) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be
renewed or will be renewed only with a material increase in cost or
that the issuer of any policy is not willing or able to perform its
obligations thereunder.
46
<PAGE> 54
4.16 ENVIRONMENTAL MATTERS. Except as set forth in Section 4.16
of the Disclosure Letter:
(a) No Suiza Company has materially violated or is in material
violation of any Environmental Law.
(b) None of the Suiza Facilities contains any Hazardous
Materials in amounts exceeding the levels permitted by applicable
Environmental Law or under circumstances that would require remediation
or removal, at material expense, under Environmental Law.
(c) No Suiza Company has engaged in any Hazardous Activities,
and no Hazardous Materials have been disposed of, released or
transported in material violation of any applicable Environmental Law
to or from any of the Suiza Facilities.
(d) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses regarding compliance or
noncompliance with any Environmental Law conducted by or on behalf of
any Suiza Company, or which are in the possession of any Suiza Company,
relating to the activities of any Suiza Company or any of the Suiza
Facilities that have not been made available to DFA or to DFA's
Advisors.
(e) No Suiza Company or Suiza Parent has received any actual
or threatened Order or notice from any Governmental Body or the current
or prior owner or operator of any Suiza Facilities, of any actual or
potential material violation or material failure to comply with any
Environmental Law, or of any actual or, to Suiza's Knowledge,
threatened obligation to undertake or bear any cost, damage, expense,
liability, or obligation arising from or under any Environmental Law.
4.17 LABOR RELATIONS; COMPLIANCE. Suiza Foods has made available to
DFA or DFA's Advisors a complete list of all current employees of each Suiza
Company as of the date set forth therein, including date of employment, current
title and compensation. There is not presently pending or existing (a) any
strike, slowdown, picketing or work stoppage, or (b) any material Proceeding
against or affecting any Suiza Company relating to the alleged violation of any
Legal Requirement pertaining to labor relations or employment matters. To
Suiza's Knowledge, no event has occurred or circumstance exists that could
provide the basis for any work stoppage or other labor dispute. There is no
lockout of any employees by any Suiza Company. Each Suiza Company has complied
in all material respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing.
47
<PAGE> 55
4.18 INTELLECTUAL PROPERTY.
(a) The term "SUIZA INTELLECTUAL PROPERTY ASSETS" includes:
(i) all fictional business names, trading names,
registered and unregistered trademarks, service marks, and
applications (collectively, "SUIZA MARKS") owned, used, or
licensed by any Suiza Company as licensee or licensor; and
(ii) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, blue prints and
patents (collectively, "SUIZA TRADE SECRETS") owned, used, or
licensed by any Suiza Company as licensee or licensor.
(b) Each Suiza Company has the right to use all of the Suiza
Intellectual Property Assets owned, used or licensed by it without
infringing on or otherwise acting adversely to the rights or claimed
rights of any Person. Section 4.18(b) of the Disclosure Letter contains
a complete and accurate list and summary description, including any
royalties paid or received by any Suiza Company, of all Contracts
relating to the Suiza Intellectual Property Assets to which any Suiza
Company is a party or by which any Suiza Company is bound, except for
any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less
than $50,000 under which a Suiza Company is the licensee. There are no
outstanding disputes or disagreements with respect to any such
Contract.
(c) Section 4.18(c) of the Disclosure Letter contains a
complete and accurate list and summary description of all Suiza Marks.
Except for Suiza Marks used under licenses disclosed in Section 4.18(b)
of the Disclosure Letter, a Suiza Company is the owner of all right,
title and interest in and to each of the Suiza Marks, free and clear of
all Encumbrances. To Suiza's Knowledge, there is no potentially
interfering trademark or trademark application of any third party, and
no Suiza Mark is infringed or has been challenged or, to Suiza's
Knowledge, threatened in any way. To Suiza's Knowledge, none of the
Suiza Marks used by any Suiza Company infringes or is alleged to
infringe any trade name, trademark, or service mark of any third party.
4.19 YEAR 2000 COMPLIANCE. Except as set forth in Section 4.19 of
the Disclosure Letter, all hardware, firmware, software and computer systems of
the Suiza Companies are, or will be by December 31, 1999, Year 2000 Compliant
and shall continue to function in accordance with their intended purpose without
material error or material interruption as a result of the transition to the
year 2000. Neither any of the Suiza Parents nor any of the Suiza Companies has
received notice or otherwise has reason to believe that all hardware, firmware,
software and computer systems of the respective Suiza Material Customers and
suppliers of the Suiza Companies are not or will not be by December 31, 1999,
Year 2000 Compliant and that such will not continue to function in accordance
with their intended purpose without material error or material interruption as a
result of the transition of the year 2000. Section 4.19
48
<PAGE> 56
of the Disclosure Letter includes a reasonable estimate of the additional costs,
if any, that the Suiza Companies will incur to become Year 2000 Compliant.
4.20 BROKERS OR FINDERS. None of the Suiza Companies, the Suiza
Parents or their agents have incurred any obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement for which any Suiza Company,
Venture or any DFA Parent will be liable.
4.21 COMPETING INTERESTS. Except as set forth in Section 4.21 of
the Disclosure Letter, neither Suiza Parent nor, to Suiza's Knowledge, any
Affiliate of any Suiza Parent or Suiza Company owns, directly or indirectly, a
material financial interest in any Person that is a competitor, customer,
supplier or vendor of any Suiza Company that has material business dealings with
any Suiza Company, other than ownership of less than 1% of publicly traded
securities of such Person.
4.22 INVESTMENT INTENT. Suiza Sub is acquiring its Venture
Interests pursuant to this Agreement and the Partnership Agreement for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.23 NO MISREPRESENTATIONS. The representations, warranties and
statements made by Suiza Foods in or pursuant to this Agreement are true,
complete and correct in all material respects and do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make any such representation, warranty or statement, under the circumstances in
which it is made, not misleading.
SECTION 5
COVENANTS OF DFA PARTIES AND SCHENKEL PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION. Following the date of this
Agreement, DFA, Schenkel and the DFA Companies will (a) afford Suiza Foods and
its Representatives and its lenders and their Representatives (collectively,
"SUIZA'S ADVISORS") reasonable access during normal business hours to the
personnel, properties, contracts, books and records, and other documents and
data of the DFA Companies, (b) furnish Suiza Foods and Suiza's Advisors with
copies of all such contracts, books and records, and other existing documents
and data as Suiza Foods may reasonably request with respect to the DFA
Companies, and (c) furnish Suiza Foods and Suiza's Advisors with such additional
financial, operating, and other data and information with respect to the DFA
Companies as Suiza Foods may reasonably request.
5.2 OPERATION OF THE BUSINESS OF THE DFA COMPANIES. Between the
date of this Agreement and the Closing Date, each DFA Company will, and Schenkel
will cause the DFA Companies to:
(a) conduct the business of each DFA Company only in the
Ordinary Course of Business;
49
<PAGE> 57
(b) use their commercially reasonable efforts to maintain the
relations and goodwill with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with each
DFA Company; and
(c) otherwise report periodically to Suiza Foods concerning
the status of the business, operations, and finances of the DFA
Companies as may be reasonably requested by Suiza Foods.
5.3 NEGATIVE COVENANT. Except as set forth in Section 5.3 of the
Disclosure Letter and except as otherwise expressly permitted by this Agreement,
between the date of this Agreement and the Closing Date, the DFA Companies will
not, and Schenkel will cause the DFA Companies not to, without the prior consent
of Suiza Foods, which consent will not be unreasonably withheld, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.13 will occur.
5.4 NOTIFICATION. Between the date of this Agreement and the
Closing Date, DFA and Schenkel will promptly notify Suiza Foods in writing if
DFA, any DFA Company or Schenkel becomes aware of any fact or condition that
causes or constitutes a material breach of any of DFA's and Schenkel's
representations and warranties as of the date of this Agreement, or if DFA, any
DFA Company or Schenkel becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated
by this Agreement) cause or constitute a material breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. During the same
period, DFA and Schenkel will promptly notify Suiza Foods of the occurrence of
any material breach of any covenant of DFA, any DFA Company or Schenkel in this
Section 5 or of the occurrence of any event that may make the satisfaction of
the conditions in Sections 7 and 9 impossible.
5.5 DISTRIBUTIONS AND CERTAIN OTHER RESTRICTED PAYMENTS. Except
as set forth in Section 5.5 of the Disclosure Letter and as contemplated by this
Agreement, between the date of this Agreement and the Closing Date, the DFA
Companies will not, and Schenkel will cause each DFA Company not to, (a) declare
or pay any distributions in respect of any equity interests of any DFA Company
or (b) directly or indirectly purchase, redeem or otherwise acquire or retire
any equity interests of any DFA Company. Immediately prior to the Closing, each
of Suiza GTL and Suiza SoCal will pay the accumulated, unpaid preferred return
on their respective outstanding preferred interests to the holders of such
preferred interests.
5.6 DISCHARGE OF INDEBTEDNESS. At or prior to the Closing, each
DFA Company will discharge all indebtedness for borrowed money of such DFA
Company, and any guaranties of indebtedness for borrowed money by such DFA
Company, and use reasonable efforts to obtain a release of any Encumbrances on
the assets of such DFA Company (including without limitation the Encumbrances
identified in Section 3.6(b) of the Disclosure Letter), except for Permitted
Encumbrances, the SFG Subordinated Notes and except for the specific obligations
and Encumbrances identified in Section 5.6 of the Disclosure letter (the "DFA
PERMITTED OBLIGATIONS"). If any such Encumbrances (other than DFA Permitted
Obligations and the SFG
50
<PAGE> 58
Subordinated Notes) have not been released at the Closing, DFA and Schenkel will
obtain releases of such Encumbrances within 45 days after the Closing. The DFA
Parents and Schenkel will be responsible for (and will be entitled to any
benefits relating to) any state or federal income Taxes arising out of the
operations of the DFA Companies prior to the Closing.
5.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 10, DFA, the DFA Companies and Schenkel will not,
and will cause their Representatives not to, directly or indirectly solicit,
initiate, or encourage any inquiries or proposals from, discuss or negotiate
with, provide any non-public information to any Person (other than Suiza Foods
and Suiza's Advisors) relating to any transaction involving the sale of the
business or assets (other than in the Ordinary Course of Business) of any DFA
Company, or any of the equity interests of any DFA Company, or any merger,
consolidation, business combination, or similar transaction involving any DFA
Company.
5.8 REASONABLE EFFORTS. Between the date of this Agreement and the
Closing Date, DFA, each DFA Company and Schenkel will use commercially
reasonably efforts to cause the conditions in Sections 7, 8 and 9 to be
satisfied.
5.9 ASSISTANCE WITH PERMITS AND FILINGS. DFA, each DFA Company and
Schenkel will furnish Suiza Foods with all information that is required for
inclusion in any application or filing to be made by Suiza Foods or its
affiliates to any Governmental Body in connection with the Contemplated
Transactions. DFA, each DFA Company and Schenkel will use commercially
reasonable efforts to assist Suiza Foods in obtaining any Governmental
Authorizations, or any Consents related thereto, that any Suiza Parent or
Venture will require in connection with the Contemplated Transactions.
5.10 CONFIDENTIALITY. Schenkel, each DFA Parent and each DFA
Company will maintain in confidence, and will cause their respective
Representatives to maintain in confidence, any non-public information furnished
to them by any Suiza Parent, any Suiza Company, Suiza SoCal, Suiza GTL or
Suiza's Representatives in connection with this Agreement or the Contemplated
Transactions to the extent required by, and in accordance with, the provisions
of the Mutual Confidentiality Agreement dated April 30, 1999 executed by DFA,
Suiza Foods, SFG and Schenkel (as if each such DFA Parent and DFA Company were a
party thereto).
5.11 LICENSE AGREEMENT. Venture and Suiza Foods shall negotiate one
or more licensing arrangements pursuant to which Suiza Foods will receive
royalties for the use by Venture of any fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications or other
intellectual property owned by or licensed to (now or in the future) Suiza Foods
or its affiliates, which license arrangements shall be reasonably acceptable to
Venture, Suiza Foods and DFA.
5.12 TERMINATION OF CERTAIN EMPLOYEE BENEFITS. Prior to or at the
Closing, SFG shall, and Schenkel shall cause SFG to, terminate and fully
discharge, except as otherwise mutually agreed between DFA and Suiza Foods, all
liabilities associated with the DFA Plans set forth on Section 5.12 of the
Disclosure Letter, and such other plans as may be mutually agreed
51
<PAGE> 59
upon by DFA and Suiza Foods, and all unit appreciation rights issued by or that
otherwise constitute an obligation of SFG. DFA shall make an additional cash
capital contribution if and to the extent that there is a funding deficiency or
shortfall upon termination of any of such plans.
5.13 SATISFACTION OF CERTAIN CHANGE OF CONTROL OBLIGATIONS. Prior
to the Closing, DFA shall make a capital contribution to SFG sufficient to
satisfy in full, and SFG shall satisfy in full, all obligations under that
certain Change of Control Agreement dated April 6, 1999 between SFG and Anthony
R. Ward, and all other change of control obligations to key employees referenced
in Sections 3.2(a) and 5.3(a) of the Disclosure Letter.
5.14 AGREEMENT ON ASSET VALUES. DFA, Schenkel and Suiza Foods will
agree in good faith on the values of the assets of SFG that affect the amount of
ordinary income to be recognized by Schenkel for Tax purposes as a result of the
Contemplated Transactions.
SECTION 6
COVENANTS OF SUIZA PARTIES PRIOR TO CLOSING DATE
6.1 ACCESS AND INVESTIGATION. Following the date of this
Agreement, the Suiza Parents and the Suiza Companies will (a) afford DFA and its
Representatives and lenders and their Representatives (collectively, "DFA'S
ADVISORS") reasonable access during normal business hours to the personnel,
properties, contracts, books and records, and other documents and data of the
Suiza Companies, (b) furnish DFA and DFA's Advisors with copies of all such
contracts, books and records, and other existing documents and data as DFA may
reasonably request with respect to the Suiza Companies, and (c) furnish DFA and
DFA's Advisors with such additional financial, operating, and other data and
information with respect to the Suiza Companies as DFA may reasonably request.
6.2 OPERATION OF THE BUSINESS OF THE SUIZA COMPANIES. Between the
date of this Agreement and the Closing Date, each Suiza Company will, and the
Suiza Parents will cause the Suiza Companies to:
(a) conduct the business of each Suiza Company only in the
Ordinary Course of Business;
(b) use their commercially reasonable efforts to maintain the
relations and goodwill with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with each
Suiza Company; and
(c) otherwise report periodically to DFA concerning the status
of the business, operations, and finances of the Suiza Companies as may
be reasonably requested by DFA.
6.3 NEGATIVE COVENANT. Except as otherwise set forth in Section
6.3 of the Disclosure Letter and except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, the Suiza
Companies will not, and the Suiza
52
<PAGE> 60
Parents will cause the Suiza Companies not to, without the prior consent of DFA,
which consent will not be unreasonably withheld, take any affirmative action, or
fail to take any reasonable action within their or its control, as a result of
which any of the changes or events listed in Section 4.13 will occur.
6.4 NOTIFICATION. Between the date of this Agreement and the
Closing Date, Suiza Foods will promptly notify DFA in writing if any Suiza
Parent or any Suiza Company becomes aware of any fact or condition that causes
or constitutes a material breach of any of Suiza Foods' representations and
warranties as of the date of this Agreement, or if any Suiza Parent or any Suiza
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a material breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. During the same period, Suiza
Foods will promptly notify DFA of the occurrence of any material breach of any
covenant of any Suiza Parent or any Suiza Company in this Section 6 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 8 impossible.
6.5 DISTRIBUTIONS AND CERTAIN OTHER RESTRICTED PAYMENTS. Except as
otherwise set forth in Section 6.5 of the Disclosure Letter, between the date of
this Agreement and the Closing Date, the Suiza Companies will not, and the Suiza
Parents will cause the Suiza Companies not to, (a) declare or pay any
distributions in respect of any equity interests of any Suiza Company (except
for borrowings and repayments of intercompany accounts and balances in the
Ordinary Course of Business) or (b) directly or indirectly purchase, redeem or
otherwise acquire or retire any equity interests of any Suiza Company.
Immediately prior to the Closing, each of Land-O-Sun Dairies, Suiza GTL and
Suiza SoCal will pay the accumulated, unpaid preferred return on their
respective outstanding preferred interests to the holders of such preferred
interests.
6.6 DISCHARGE OF INDEBTEDNESS. At or prior to the Closing, each
Suiza Company, Suiza GTL and Suiza SoCal will, and the Suiza Parents will cause
each Suiza Company, Suiza GTL and Suiza SoCal to, discharge all indebtedness for
borrowed money of such Suiza Company, and any guaranties of indebtedness for
borrowed money by such Suiza Company, and will use reasonable efforts to obtain
a release of any Encumbrances on the assets of such Suiza Company (including
without limitation the Encumbrances identified in Section 4.6(b) of the
Disclosure Letter), except for liens for current Taxes not yet due and except
for the specific obligations and Encumbrances identified in Section 6.6 of the
Disclosure Letter (the "SUIZA PERMITTED OBLIGATIONS"). If any such Encumbrances
(other than Suiza Permitted Obligations) have not been released at the Closing,
the Suiza Parents will obtain releases of such Encumbrances within 45 days after
the Closing. The Suiza Parents will be responsible for (and will be entitled to
any benefits relating to) any state or federal income Taxes arising out of the
operations of the Suiza Companies prior to the Closing.
6.7 NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 10, the Suiza Parents and the Suiza Companies
will not, and will cause their Representatives not to, directly or indirectly
solicit, initiate, or encourage any inquiries or proposals from, discuss or
negotiate with, provide any non-public information to any Person (other than DFA
and DFA's Advisors) relating to any transaction involving the sale of the
53
<PAGE> 61
business or assets (other than in the Ordinary Course of Business) of any Suiza
Company, or any of the equity interests of any Suiza Company, or any merger,
consolidation, business combination, or similar transaction involving any Suiza
Company, except as otherwise set forth in Section 6.7 of the Disclosure Letter
and except as otherwise contemplated in Section 13.
6.8 REASONABLE EFFORTS. Between the date of this Agreement and the
Closing Date, each Suiza Parent and each Suiza Company will use commercially
reasonable efforts to cause the conditions in Sections 7 and 8 to be satisfied.
6.9 ASSISTANCE WITH PERMITS AND FILINGS. Each Suiza Parent and
each Suiza Company will furnish DFA with all information that is required for
inclusion in any application or filing to be made by DFA or its affiliates to
any Governmental Body in connection with the Contemplated Transactions. Each
Suiza Parent and each Suiza Company will use commercially reasonable efforts to
assist DFA in obtaining any Governmental Authorizations, or any Consents related
thereto, that DFA or Venture will require in connection with the Contemplated
Transactions.
6.10 CONFIDENTIALITY. Each Suiza Parent and each Suiza Company will
maintain in confidence, and will cause their respective Representatives to
maintain in confidence, any non-public information furnished to them by either
DFA Parent, any DFA Company or DFA's Representatives in connection with this
Agreement or the Contemplated Transactions to the extent required by, and in
accordance with, the provisions of the Mutual Confidentiality Agreement dated
April 30, 1999 executed by DFA, Suiza Foods, SFG and Schenkel (as if each Suiza
Parent and each Suiza Company were a party thereto).
6.11 LICENSE AGREEMENT. Venture and Suiza Foods shall negotiate one
or more licensing arrangements pursuant to which Suiza Foods will receive
royalties for the use by Venture of any fictional business names, trading names,
registered and unregistered trademarks, service marks, and applications or other
intellectual property owned by or licensed to (now or in the future) Suiza Foods
or its affiliates, which license arrangements shall be reasonably acceptable to
Venture, Suiza Foods and DFA.
6.12 AGREEMENT ON ASSET VALUES. DFA, Schenkel and Suiza Foods will
agree in good faith on the values of the assets of SFG that affect the amount of
ordinary income to be recognized by Schenkel for Tax purposes as a result of the
Contemplated Transactions.
SECTION 7
CONDITIONS PRECEDENT TO SUIZA'S OBLIGATION TO CLOSE
The obligation of the Suiza Parents and the Suiza Companies to complete
the Contemplated Transactions and take the other actions required to be taken by
them at the Closing is subject to the satisfaction, at or prior to the Closing,
of each of the following conditions (any of which may be waived by Suiza Foods,
in whole or in part):
54
<PAGE> 62
7.1 ACCURACY OF REPRESENTATIONS. All of DFA's and Schenkel's
representations and warranties in this Agreement must have been accurate in all
material respects as of the date of this Agreement and must be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
7.2 DFA'S OR SCHENKEL'S PERFORMANCE.
(a) All of the covenants and obligations that any DFA Parent,
any DFA Company or Schenkel is required to perform or to comply with
pursuant to this Agreement at or prior to the Closing must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered by any DFA Parent,
any DFA Company or Schenkel pursuant to Section 2.8 must have been
delivered.
7.3 ABSENCE OF MATERIAL ADVERSE EFFECTS. Since the date of this
Agreement, no DFA Material Adverse Effect shall have occurred that is
continuing.
7.4 CONSENTS. Any Consents that any Suiza Parent, Suiza GTL, Suiza
SoCal, any Suiza Company, any DFA Parent, any DFA Company or Venture may be
required to obtain to consummate the Contemplated Transactions must have been
obtained and must be in full force and effect, except where the failure to
obtain such Consent would only affect Venture and would not result in a DFA
Material Adverse Effect or a Suiza Material Adverse Effect.
7.5 NO PROCEEDINGS. Since the date of this Agreement, there must
not have been commenced or threatened against any Suiza Parent, or against any
Person affiliated with a Suiza Parent (including, without limitation, Suiza GTL
and Suiza SoCal), any Proceeding (a) involving any challenge to, or seeking
damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing or making illegal
any of the Contemplated Transactions.
7.6 DISCHARGE OF INDEBTEDNESS. Suiza Foods must have received
reasonably satisfactory evidence that all indebtedness for borrowed money of
each DFA Company and any guaranties of indebtedness by any DFA Company have been
fully discharged, except for the DFA Permitted Obligations and the SFG
Subordinated Notes.
7.7 NO PROHIBITION. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time) result in a material violation of any
applicable Legal Requirement or Order that would cause any Suiza Parent or any
Person affiliated with a Suiza Parent (including, without limitation, Suiza GTL
and Suiza SoCal) to suffer any material adverse effect.
7.8 CERTIFICATES. DFA and Schenkel shall have delivered to the
Suiza Parents a closing certificate, substantially in the form attached hereto
as Exhibit F, and each DFA Parent and each DFA Company shall have delivered to
the Suiza Parents a certificate of its secretary, substantially in the form
attached hereto as Exhibit G.
55
<PAGE> 63
7.9 LEGAL OPINION. DFA, SFG and Schenkel shall have each delivered
to the Suiza Parents a legal opinion of their respective counsel, which legal
opinion shall be in form and substance as is reasonable and customary for
transactions such as the Contemplated Transactions.
SECTION 8
CONDITIONS PRECEDENT TO DFA'S OBLIGATION TO CLOSE
The obligation of the DFA Parents and the DFA Companies to complete the
Contemplated Transactions and take the other actions required to be taken by
them at the Closing is subject to the satisfaction, at or prior to the Closing,
of each of the following conditions (any of which may be waived by DFA, in whole
or in part).
8.1 ACCURACY OF REPRESENTATIONS. All of Suiza Foods'
representations and warranties in this Agreement must have been accurate in all
material respects as of the date of this Agreement and must be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
8.2 SUIZA'S PERFORMANCE.
(a) All of the covenants and obligations that any Suiza Parent
and any Suiza Company is required to perform or to comply with pursuant
to this Agreement at or prior to the Closing must have been duly
performed and complied with in all material respects.
(b) Each document required to be delivered by any Suiza Parent
or any Suiza Company pursuant to Section 2.8 must have been delivered.
8.3 ABSENCE OF MATERIAL ADVERSE EFFECTS. Since the date of this
Agreement, no Suiza Material Adverse Effect shall have occurred that is
continuing.
8.4 CONSENTS. Any Consents that any DFA Parent, any Suiza Parent,
Suiza GTL, Suiza SoCal, any Suiza Company, any DFA Company or
Venture may be required to obtain to consummate the
Contemplated Transactions must have been obtained and must be
in full force and effect, except where the failure to obtain
such Consent would only affect Venture and would not result in
a DFA Material Adverse Effect or a Suiza Material Adverse
Effect.
8.5 NO PROCEEDINGS. Since the date of this Agreement, there must
not have been commenced or threatened against any DFA Parent,
or against any Person affiliated with a DFA Parent, any
Proceeding (a) involving any challenge to, or seeking damages
or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing or
making illegal any of the Contemplated Transactions.
8.6 DISCHARGE OF INDEBTEDNESS. DFA must have received reasonably
satisfactory evidence that all indebtedness for borrowed money
of each Suiza Company and any guaranties
56
<PAGE> 64
of indebtedness by any Suiza Company have been fully discharged, except for the
Suiza Permitted Obligations.
8.7 NO PROHIBITION. Neither the consummation nor the performance
of any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time) result in a material violation of any
applicable Legal Requirement or Order that would cause DFA Parent or any Person
affiliated with DFA Parent to suffer any material adverse effect.
8.8 CERTIFICATES. Suiza Foods shall have delivered to DFA a
closing certificate, substantially in the form attached hereto as Exhibit H, and
each Suiza Parent and each Suiza Company shall have delivered to DFA a
certificate of its secretary, substantially in the form attached hereto as
Exhibit I.
8.9 LEGAL OPINION. Suiza Foods shall have delivered to DFA a legal
opinion of Suiza Foods' counsel, which legal opinion shall be in form and
substance as is reasonable and customary for transactions such as the
Contemplated Transactions.
SECTION 9
CONDITIONS PRECEDENT TO SCHENKEL'S OBLIGATION TO CLOSE
The obligation of Schenkel to complete the Purchases and take the other
actions required to be taken by him at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Schenkel in whole or in part):
(a) Schenkel shall have received the cash set forth in Section
2.8 in respect of the Purchases;
(b) each document required to be delivered to Schenkel by any
DFA Parent, DFA Company, Suiza Parent or Suiza Company pursuant to
Section 2.8, if any, must have been delivered;
(c) Any Consents that Schenkel may be required to obtain, or
that may be required under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended, to consummate the Contemplated
Transactions must have been obtained and must be in full force and
effect, except where the failure to obtain such Consent would only
affect Venture and would not result in a material adverse effect to
Schenkel;
(d) Since the date of this Agreement, there must not have been
commenced or threatened against Schenkel any Proceeding (a) involving
any challenge to, or seeking damages or other relief in connection
with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing or making illegal any of the Contemplated
Transactions;
(e) Neither the consummation nor the performance of any of the
Contemplated Transactions will, directly or indirectly (with or without
notice or lapse of
57
<PAGE> 65
time) result in a material violation of any applicable Legal
Requirement or Order that would cause Schenkel to suffer any material
adverse effect; and
(f) The other Contemplated Transactions shall have been
consummated or be ready to be consummated without further condition.
SECTION 10
TERMINATION
10.1 TERMINATION EVENTS. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by either Suiza Foods or DFA if a material breach of any
provision of Section 5 or Section 6, respectively, has been committed
by the other party and such breach has not been waived;
(b) (i) by Suiza Foods if satisfaction of a condition in
Section 7 is or becomes impossible (other than through the failure of
any Suiza Parent or any Suiza Company to comply with its obligations
under this Agreement) and Suiza Foods has not waived such condition on
or before the Closing Date, or (ii) by DFA if satisfaction of a
condition in Section 8 is or becomes impossible (other than through the
failure of any DFA Parent or any DFA Company to comply with their
respective obligations under this Agreement) and DFA has not waived
such condition on or before the Closing Date;
(c) by mutual consent of Suiza Foods and DFA; or
(d) by either Suiza Foods or DFA if the Closing has not
occurred (other than through the failure of any party seeking to
terminate this Agreement or its affiliates to comply fully with its
obligations under this Agreement) on or before December 31, 1999 or
such later date as the parties may agree upon.
10.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 10.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 10.1, all
further obligations of the parties under this Agreement will terminate and no
party will have any liability or obligation (for reimbursement of expenses or
otherwise) to any other party, except that the obligations in Sections 5.10 and
6.10 will survive and except that each party will remain liable to the other
parties for any breach of this Agreement by such party occurring prior to such
termination and all legal remedies of the other parties in respect of any such
breach will survive such termination unimpaired.
58
<PAGE> 66
SECTION 11
INDEMNIFICATION; REMEDIES
11.1 REPRESENTATIONS; SURVIVAL. Except for the express
representations and warranties contained in Section 3 and Section 4 and in any
certificate delivered pursuant to this Agreement, none of the parties to this
Agreement are making any representation or warranty whatsoever, express or
implied, including but not limited to any implied warranty or representation as
to condition, merchantability or suitability, as to any of the properties or
assets of the DFA Companies or the Suiza Companies, Suiza GTL or Suiza SoCal and
such assets are being taken "as is" and "where is." It is understood that,
except as otherwise specified in this Agreement and except to the extent
included within or incorporated into the Disclosure Letter, any cost estimates,
projections or other predictions, any data, any financial information or any
memoranda or offering materials or presentations provided or addressed to any
party to this Agreement or any other Person are not and shall not be deemed to
be or to include representations or warranties of any party to this Agreement.
Except as otherwise provided in this Section 11.1, all representations and
warranties in this Agreement and any other certificate or document delivered
pursuant to this Agreement will terminate twelve months after the Closing;
provided, however, that (a) if any breach of the representations and warranties
set forth in Sections 3.1, 3.2, 3.8, 3.10, 3.11, 3.12 or 3.16 or in Sections
4.1, 4.2, 4.8, 4.10, 4.11, 4.12 or 4.16 constitutes a violation of any Legal
Requirement, then such representations and warranties and any claim for
indemnification applicable to such a violation shall survive for the applicable
statute of limitation with respect thereto; and (b) with respect to the
representations and warranties set forth in Section 3.3 and Section 4.3, such
representations and warranties and any claim for indemnification with respect
thereto shall survive indefinitely.
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY DFA AND SCHENKEL. In
addition to the obligations of DFA and Schenkel pursuant to Sections 11.3 and
11.4, respectively, notwithstanding any investigation by Suiza Foods or its
Representatives, DFA and Schenkel, jointly and severally, will indemnify, defend
and hold harmless Venture for, and will pay to Venture the amount of, any loss,
liability, claim, damage (including incidental and consequential damages),
expense (including costs of investigation and defense and reasonable attorneys'
fees) or diminution of value, whether or not involving a third-party claim
(collectively, "DAMAGES"), arising, directly or indirectly, from or in
connection with:
(a) any breach of any representation or warranty made jointly
and severally by DFA and Schenkel in this Agreement or in any
certificate delivered by DFA and Schenkel pursuant to this Agreement
that survives the Closing in accordance with Section 11.1 or any
allegation by a third party that, if true, would constitute such a
breach; provided that any claim for indemnification pursuant to this
subparagraph (a) is made within the time period specified in Section
11.1 for the survival of the applicable representation or warranty that
has been breached or is the subject of the third party claim; or
(b) any claim by any Person, including, without limitation,
for brokerage or finder's fees or commissions or similar payments based
upon any agreement or
59
<PAGE> 67
understanding alleged to have been made by any such Person with any
DFA Company (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY DFA. In addition to
DFA's obligations pursuant to Section 11.2, notwithstanding any investigation by
Suiza Foods or its Representatives, DFA will indemnify, defend and hold harmless
Venture for, and will pay to Venture the amount of, any Damages arising,
directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made
severally by DFA in this Agreement or in any certificate delivered by
DFA pursuant to this Agreement that survives the Closing in accordance
with Section 11.1 or any allegation by a third party that, if true,
would constitute such a breach; provided that any claim for
indemnification pursuant to this subparagraph (a) is made within the
time period specified in Section 11.1 for the survival of the
applicable representation or warranty that has been breached or is the
subject of the third party claim;
(b) any breach by any DFA Parent or any DFA Company of any
covenant or obligation of such Person in this Agreement;
(c) any claim by any Person, including, without limitation,
for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any
such Person with any DFA Parent (or any Person acting on their behalf)
in connection with any of the Contemplated Transactions; or
(d) any matter for which Suiza Foods and its Affiliates are
entitled to be indemnified, defended, held harmless or paid under the
certain Membership Interest Purchase Agreement and Recapitalization
Agreements dated January 31, 1998 among Suiza Foods, the holders of the
limited liability company interests of Land-O-Sun Dairies identified
therein and DFA (the "LAND-O-SUN PURCHASE AGREEMENT").
11.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SCHENKEL. In
addition to Schenkel's obligations pursuant to Section 11.2, notwithstanding any
investigation by Suiza Foods or its Representatives, Schenkel will indemnify,
defend and hold harmless Venture for, and will pay to Venture the amount of, any
Damages arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made
severally by Schenkel in this Agreement or in any certificate delivered
by Schenkel pursuant to this Agreement that survives the Closing in
accordance with Section 11.1 or any allegation by a third party that,
if true, would constitute such a breach; provided that any claim for
indemnification pursuant to this subparagraph (a) is made within the
time period specified in Section 11.1 for the survival of the
applicable representation or warranty that has been breached or is the
subject of the third party claim;
60
<PAGE> 68
(b) any breach by any DFA Company or Schenkel of any covenant
or obligation of such Person in this Agreement; or
(c) any claim by any Person, including, without limitation,
for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any
such Person with Schenkel (or any Person acting on his behalf) in
connection with any of the Contemplated Transactions.
11.5 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SUIZA PARENTS.
Notwithstanding any investigation by either DFA Parent or its Representatives,
the Suiza Parents, jointly and severally, will indemnify, defend and hold
harmless Venture for, and will pay to Venture the amount of, any Damages
arising, directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made by Suiza
Foods in this Agreement or in any certificate delivered by any Suiza
Parent pursuant to this Agreement that survives the Closing in
accordance with Section 11.1 or any allegation by a third party that,
if true, would constitute such a breach; provided that any claim for
indemnification pursuant to this subparagraph (a) is made within the
time period specified in Section 11.1 for the survival of the
applicable representation or warranty that has been breached or is the
subject of the third party claim;
(b) any breach by any Suiza Parent or any Suiza Company of any
covenant or obligation of such Person in this Agreement; or
(c) any claim by any Person, including, without limitation,
for brokerage or finder's fees or commissions or similar payments based
upon any agreement or understanding alleged to have been made by any
such Person with any Suiza Parent or any Suiza Company (or any Person
acting on their behalf) in connection with any of the Contemplated
Transactions.
; provided, that the Suiza Parents shall have no obligation to indemnify, defend
or hold harmless Venture for, or to pay to Venture the amount of, any Damages
arising, directly or indirectly, from or in connection with, any matters for
which Suiza Foods and its Affiliates are entitled to be indemnified, defended,
held harmless or paid under the Land-O-Sun Purchase Agreement.
11.6 INDEMNIFICATION AND PAYMENT OF DAMAGES BY VENTURE. Venture will
indemnify, defend and hold harmless the DFA Parents and the Suiza Parents for,
and will pay to the DFA Parents and the Suiza Parents the amount of, any Damages
arising, directly or indirectly, from or in connection with the operation of the
business of Venture following the Closing and from the failure of Venture to
satisfy any obligations of Suiza Foods assigned hereunder; provided that (a) the
DFA Parents will not be entitled to indemnification under this paragraph for any
Damages for which Venture is entitled to indemnification under Section 11.2 or
11.3, and (b) the Suiza Parents will not be entitled to indemnification under
this paragraph for any Damages for which Venture is entitled to indemnification
under Section 11.5.
61
<PAGE> 69
11.7 LIMITATIONS ON AMOUNT.
(a) In determining the amount of Damages for which an
Indemnified Person is entitled to indemnification under Section 11.2,
11.3, 11.4, 11.5 or 11.6, any insurance proceeds or tax benefits that
are realized or that could reasonably be expected to be realized by
such Indemnified Person (if a claim were properly pursued under the
relevant insurance arrangements or Legal Requirements), as well as any
costs associated with obtaining such insurance proceeds or tax
benefits, will be considered.
(b) Venture will be entitled to indemnification (i) from DFA
and Schenkel under paragraph (a) of Section 11.2, from DFA under
paragraph (a) of Section 11.3, and from Schenkel under paragraph (a) of
Section 11.4, and (ii) from the Suiza Parents under paragraph (a) of
Section 11.5, only to the extent and in the amount that the aggregate
amount of indemnifiable Damages incurred by Venture under such clauses
(i) and (ii) of this Section 11.7(b), respectively, exceeds $5,000,000.
(c) The maximum aggregate amount to which Venture will be
entitled to indemnification (i) under paragraph (a) of Sections 11.2,
11.3 and 11.4, and (ii) under paragraph (a) of Section 11.5, is limited
to $25,000,000 for each such clause (i) and (ii) of this Section
11.7(c).
(d) Notwithstanding the foregoing, the limitations set forth
in Section 11.7(b) and (c) will not apply to Damages arising from or in
connection with a breach or alleged breach of the representations and
warranties of DFA and Schenkel, whether made severally or jointly and
severally, set forth in Section 3.3, or the representations and
warranties of Suiza Foods set forth in Section 4.3.
11.8 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS.
(a) Promptly after receipt by an Indemnified Person under
Section 11.2, 11.3, 11.4, 11.5 or 11.6 of notice of the commencement of
any Proceeding against it, such Indemnified Person will, if a claim is
to be made against an indemnifying party under such Section, give
notice to the indemnifying party of the commencement of such claim, but
the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any Indemnified
Person, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the Indemnified
Person's failure to give such notice.
(b) If any Proceeding referred to in Section 11.8(a) is
brought against an Indemnified Person and it gives notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the
Indemnified Person determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the Indemnified Person of its financial
capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), assume the defense of such Proceeding with
counsel satisfactory to the
62
<PAGE> 70
Indemnified Person and, after notice from the indemnifying party to the
Indemnified Person of its election to assume the defense of such
Proceeding and an acknowledgment of its indemnification obligation with
respect thereto, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the Indemnified Person
under this Section 11 for any fees of other counsel or any other
expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the Indemnified Person in connection with the
defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a
Proceeding in accordance with the preceding sentence, (i) no compromise
or settlement of such claims may be effected by the indemnifying party
without the Indemnified Person's consent unless (A) there is no finding
or admission of any violation of Legal Requirements or any violation of
the rights of any Person and no effect on any other claims that may be
made against the Indemnified Person, and (B) the sole relief provided
is monetary damages that are paid in full by the indemnifying party and
(ii) the Indemnified Person will have no liability with respect to any
compromise or settlement of such claims effected without its consent.
If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten days after
the Indemnified Person's notice is given, give notice to the
Indemnified Person of its election to assume the defense of such
Proceeding, the indemnifying party will be bound by any determination
made in such Proceeding or any compromise or settlement reasonably
effected by the Indemnified Person prior to notification by the
indemnifying party, after such ten day period, if any, of its election
to assume the defense thereof.
(c) Notwithstanding the foregoing, if an Indemnified Person
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a
result of monetary damages for which it would be entitled to
indemnification under this Agreement, the Indemnified Person may, by
notice to the indemnifying party, assume the exclusive right to defend,
compromise, or settle such Proceeding, but the indemnifying party will
not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) To the extent that Venture is entitled to indemnification
from any Suiza Parent pursuant to this Section 11, Venture may offset
such claim against distributions otherwise payable to either Suiza
Parent under the Partnership Agreement. To the extent that Venture is
entitled to indemnification from DFA and Schenkel pursuant to this
Section 11, Venture may offset such claim against distributions
otherwise payable to DFA under the Partnership Agreement.
11.9 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
11.10 MITIGATION. Upon and after becoming aware of any event that
could reasonably be expected to give rise to any Damages that are indemnifiable
under this Section 11, the Indemnified Party shall make reasonable efforts to
mitigate such Damages.
63
<PAGE> 71
11.11 EXCLUSIVE REMEDY. The parties acknowledge and agree that, upon
and following the Closing, the indemnification rights provided in this Section
11 shall be the sole and exclusive remedy available to the parties for any claim
or cause of action arising out of any breach of this Agreement. Notwithstanding
the foregoing, Venture, DFA and Suiza Foods acknowledge and agree that the
indemnification rights and obligations of (a) DFA, Suiza Foods and Suiza GTL
under that certain Contribution Agreement and Plan of Merger dated December 17,
1998 among Suiza Foods, Suiza GTL Holdings, the Suiza companies identified
therein, DFA, Suiza GTL and for certain limited purposes, Mid-Am and Timothy A.
Natole and (b) DFA, Suiza Foods and Suiza SoCal under that certain Contribution
Agreement, Plan of Merger and Purchase Agreement dated July 30, 1999 among Suiza
Foods, Suiza SoCal Holdings, Swiss Dairy Corporation, DFA, Adohr Farms, LLC,
Suiza SoCal and for certain limited purposes, Mid-Am, Louis J. Stremick and
Michael W. Malone, continue in full force and effect after the Closing and
constitute additional remedies available to DFA, Suiza Foods, Suiza GTL and
Suiza SoCal, as applicable, in respect of Suiza GTL and Suiza SoCal.
SECTION 12
POST CLOSING COVENANTS
12.1 NONDISCLOSURE. The DFA Parents acknowledge and agree that all
customer, prospect and marketing lists, sales data, intellectual property,
proprietary information, trade secrets and other confidential information of the
DFA Companies (collectively, "CONFIDENTIAL INFORMATION") are valuable assets of
the DFA Companies and will be owned exclusively by Venture following the
Closing. The DFA Parents agree to, and agree to cause their respective
Representatives to, treat the Confidential Information as confidential and not
to disclose such information or make use of such information for their own
purposes or for the benefit of any other Person (other than the DFA Companies
or, after the Closing, Venture). The foregoing confidentiality obligations will
not apply to information that (a) is at the time of receipt or thereafter
becomes publicly known through no wrongful act of any DFA Parent, (b) is
received from a third party not under an obligation to keep such information
confidential and without breach of this Agreement or (c) is required to be
disclosed pursuant to any Proceedings or an Order.
12.2 RECORDS RETENTION. The Suiza Parents, Venture and the DFA
Parents agree that so long as any books, records and files, including Tax
Records (as defined below) relating to the DFA Companies or Venture that are
retained by the DFA Parents, or Business Records of the DFA Companies that are
delivered to the control of Venture pursuant to this Agreement (collectively,
"Business Records"), remain in existence and available, each of the parties
hereto, including Schenkel, (at its expense) shall have the right upon prior
notice to inspect and make copies of the same at any time during business hours
for any proper purpose. Each party hereto shall undertake reasonable measures
(a) to preserve in good order to the extent required by law the Business Records
relating to the DFA Companies and Venture, (b) not destroy or allow the
destruction of any such Business Records without first offering in writing to
deliver them to the other party, (c) retain to the extent required by law and
provide the other parties with any records or other information relating to
liability for Taxes, and (d) provide the other parties with any
64
<PAGE> 72
final determination of any such amount required to be shown on any Tax Return of
the other parties for any period. Without limiting the generality of the
foregoing, each of the parties hereto shall retain until the expiration of the
applicable statutory period of limitations (including any extensions), complete
copies of all returns, supporting work schedules and other records or
information (collectively, "Tax Records"), delivered to such party, or retained
by such party, pursuant to this Agreement, which are relevant to such Return for
all tax periods or portions thereof ending before or including the Closing Date.
12.3 SFG SUBORDINATED NOTES. If at any time Venture decides to
redeem, acquire or otherwise purchase or defease, or to cause the redemption,
acquisition, purchase or defeasance, of the SFG Subordinated Notes, DFA will
make a capital contribution to Venture sufficient to pay the premium, if any,
and the expenses associated with such redemption, acquisition, purchase or
defeasance.
12.4 PURCHASE ALLOCATION. DFA, Suiza Foods and Schenkel shall agree
in good faith on the allocation of the purchase price among the assets to be
contributed to Venture.
12.5 FINAL SFG TAX RETURNS. DFA and Schenkel shall prepare and
file, or cause the filing, of the final federal and state income tax returns for
SFG applicable to and arising from the termination, for tax purposes, of the
existing SFG partnership that will occur upon the Closing; provided, that Suiza
Foods shall have the right to review such return(s), and provide reasonable
comment thereto, a reasonable amount of time prior to the filing thereof.
SECTION 13
INTERIM ACQUISITIONS
13.1 INTERIM ACQUISITIONS. The parties hereto acknowledge and agree
that Suiza Foods will continue to pursue acquisitions of fluid dairy operations
prior to the Closing. For purposes of this Agreement and the Contemplated
Transactions, any Additional Dairy Operation in the Territory acquired by Suiza
Foods prior to the Closing will, except where otherwise specifically set forth
herein, for all purposes be deemed to be, and will be included within the
definition of, "Suiza Company" and "Suiza Companies", and will be contributed to
or merged with and into Venture, or into one or more wholly-owned limited
liability company subsidiaries of Venture as may be designated by Suiza Foods,
at the Closing in accordance with the terms of this Agreement. In addition to
the contribution of such Additional Dairy Operations, the Suiza Parents shall
contribute all rights and obligations of the Suiza Parents under the applicable
acquisition documents, including any rights and obligations relating to
indemnification.
13.2 DFA VENTURE INTERESTS. At the Closing, it is contemplated that
either (i) DFA will make an additional cash contribution to Venture sufficient
to avoid the dilution of DFA's common Venture Interest set forth in the recitals
to this Agreement, or (ii) Suiza Sub will receive an additional cash
distribution from Venture, a loan from Venture or additional preferred Venture
Interests, or some combination thereof, as a result of the contribution by the
Suiza Parents of any Additional Dairy Operation acquired by Suiza Foods prior to
the Closing as contemplated by Section 13.1. The amount of the cash contribution
to be made by DFA, or the
65
<PAGE> 73
amount of the additional preferred Venture Interests to be issued to Suiza Sub,
as applicable, will be determined using the same methodology set forth in
Section 4.3 of the Partnership Agreement, and will be set forth in a schedule
("SCHEDULE 13.2") to this Agreement to be prepared by DFA and Suiza Foods prior
to the Closing based on the mutual agreement of such parties concerning this
issue. In the event that DFA does not make any additional cash contribution set
forth in Schedule 13.2, the amount of DFA's common Venture Interest received
upon consummation of the Contemplated Transactions will be reduced to reflect
the dilution of such interest as a result of the failure to make such
contribution, such dilution to be determined using the same methodology set
forth in Section 4.3 of the Partnership Agreement.
13.3 SUPPLEMENTS AND AMENDMENTS. The parties hereto agree to
supplement and amend this Agreement, including the Disclosure Letter of Suiza
Foods, to the extent deemed necessary to reflect the agreement of the parties
with respect to any acquisitions of fluid dairy operations contemplated by this
Section 13.
SECTION 14
GENERAL PROVISIONS
14.1 SUIZA GTL AND SUIZA SOCAL. The DFA Parents, Suiza Parents and
Venture hereby acknowledge that in addition to the contribution of the DFA
Companies and the Suiza Companies to Venture, the DFA Parents and the Suiza
Parents will also contribute Suiza GTL and Suiza SoCal to Venture. For purposes
of this Agreement, however, the DFA Parents, the Suiza Parents and Venture
hereby acknowledge and agree that neither Suiza GTL nor Suiza SoCal is included
within the definitions of "DFA Companies" or "Suiza Companies", and that, except
for the representations and warranties concerning title to the equity interests
therein set forth in Sections 3.3 and 4.3, no representation or warranty
whatsoever is made herein with respect to Suiza GTL or Suiza SoCal, or their
respective businesses, assets or liabilities.
14.2 EXPENSES. Promptly after the Closing, Venture will reimburse
DFA for all expenses incurred by any DFA Parent in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of their Representatives. Promptly
after the Closing, Venture will reimburse Suiza Foods for all expenses incurred
by any Suiza Parent in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions, including all
fees and expenses of their Representatives. A party requesting reimbursement of
expenses under this paragraph will provide to Venture any documentation with
respect to such expenses reasonably requested by Venture.
14.3 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
Suiza Foods and DFA agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of the parties to this
Agreement will issue any press release or make any public statement prior to
such consultation, except as may be required by Legal Requirements.
66
<PAGE> 74
14.4 NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt), or (c)
when received by the addressee, if sent by a nationally recognized overnight
delivery service, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
If to any DFA Parent: with a copy to:
Dairy Farmers of America, Inc. McDermott, Will & Emery
Northpointe Tower, Suite 1000 227 West Monroe Street
10220 N. Executive Hills B-1 Chicago, Illinois 60606-5096
Kansas City, MO 64153 Attention: Michael R. Fayhee
Attention: President and General Counsel Telecopy: (312) 984-7700
Telecopy: 816-801-6593
If to any Suiza Parent: with a copy to:
Suiza Foods Corporation Hughes & Luce, L.L.P.
2515 McKinney Ave., LB 30, Suite 1200 1717 Main Street, Suite 2800
Dallas, Texas 75201 Dallas, Texas 75201
Attention: Chief Executive Officer Attention: William A. McCormack
and General Counsel
Telecopy: (214) 303-3851 Telecopy: (214) 939-5849
If to Schenkel: with a copy to:
Southern Foods Group, L.P. Strasburger & Price, L.L.P.
3114 South Haskell 901 Main Street, Suite 4300
Dallas, Texas 75223 Dallas, Texas 75202
Attention: Frederick J. Fowler
Telecopy: (214) 659-4040
14.5 ATTORNEY'S FEES AND COSTS. In the event of a breach by any
party to this Agreement and commencement of a subsequent legal action in a court
of law or forum of arbitration, or in the event legal counsel is consulted in
the event of any such breach or in anticipation of any such prospective legal
action, the prevailing party in any such dispute shall be entitled to
reimbursement of reasonable attorney's fees and expenses.
14.6 FURTHER ASSURANCES. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
67
<PAGE> 75
14.7 WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in a writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
14.8 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes
all prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
Notwithstanding the foregoing, the schedules and the Disclosure Letters
delivered by DFA and Schenkel and by Suiza Foods in connection with the Prior
Agreement shall be deemed for all purposes to have been delivered as part of
this Agreement and shall constitute the schedules and the respective Disclosure
Letters of DFA and Schenkel and of Suiza Foods for purposes of this Agreement.
14.9 ASSIGNMENTS, SUCCESSORS AND NO THIRD PARTY RIGHTS. No party
may assign any of its rights under this Agreement or its Interests without the
prior consent of the other parties. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the parties to this Agreement any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement and their successors
and assigns.
14.10 SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
14.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections" refer
to the corresponding Section or Sections of this Agreement. All words used in
this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
68
<PAGE> 76
14.12 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
14.13 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE SUBSTANTIVE LAWS
OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY CHOICE-OF-LAW RULES THAT
MAY REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
14.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
69
<PAGE> 77
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SUIZA FLUID DAIRY GROUP, L.P.
By: SUIZA MANAGEMENT CORPORATION,
the sole general partner
By: /s/ Michelle P. Goolsby
-------------------------------------
Name: Michelle P. Goolsby
-------------------------------------
Title: Executive Vice President and
-------------------------------------
Secretary
-------------------------------------
SUIZA FLUID DAIRY GROUP HOLDINGS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
SUIZA FOODS CORPORATION
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Executive Vice President, Chief
---------------------------------------------
Administrative Officer and Secretary
---------------------------------------------
SUIZA SOCAL HOLDINGS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
SUIZA GTL HOLDINGS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
LOS HOLDINGS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
70
<PAGE> 78
SUIZA MANAGEMENT CORPORATION
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Executive Vice President and Secretary
---------------------------------------------
SUIZA FLUID DAIRY GROUP GP, LLC
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
BROUGHTON FOODS COMPANY
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
BURGER DAIRY COMPANY
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
CFI-TMP, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
COUNTRY DELITE FARMS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
COUNTRY FRESH, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
71
<PAGE> 79
COUNTRY FRESH WESLEY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
DAIRY FRESH, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
DAIRY PRODUCTS OF MICHIGAN, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
EAST COAST ICE CREAM, LLC
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
FROSTBITE BRANDS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
LAND-O-SUN DAIRIES, LLC
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
LFD HOLDING COMPANY
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
72
<PAGE> 80
LONDON FARMS DAIRY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
LOUIS TRAUTH DAIRY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
MODEL DAIRY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
NORTHERN FALLS WATER COMPANY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
OBERLIN FARMS DAIRY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
ROBINSON DAIRY, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
SOUTHEASTERN JUICE PACKERS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
73
<PAGE> 81
VELDA FARMS, INC.
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
SUIZA GTL, LLC
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
SUIZA SOCAL, LLC
By: /s/ Michelle P. Goolsby
---------------------------------------------
Name: Michelle P. Goolsby
---------------------------------------------
Title: Vice President and Secretary
---------------------------------------------
DAIRY FARMERS OF AMERICA, INC.
By: /s/ Gary E. Hanman
---------------------------------------------
Name: Gary E. Hanman
---------------------------------------------
Title: President and CEO
---------------------------------------------
DFA INVESTMENT COMPANY
By: /s/ Don Jensen
---------------------------------------------
Name: Don Jensen
---------------------------------------------
Title: President and Secretary
---------------------------------------------
SOUTHERN FOODS GROUP, L.P.
By: SFG MANAGEMENT LIMITED
LIABILITY COMPANY, the sole general partner
By: /s/ Pete Schenkel
-----------------------------------
Name: Pete Schenkel
-----------------------------------
Title: President and CEO
-----------------------------------
74
<PAGE> 82
SFG MANAGEMENT LIMITED
LIABILITY COMPANY
By: /s/ Pete Schenkel
-------------------------------------------
Name: Pete Schenkel
-------------------------------------------
Title: President and CEO
-------------------------------------------
SFG CAPITAL CORPORATION
By: /s/ Pete Schenkel
-------------------------------------------
Name: Pete Schenkel
-------------------------------------------
Title: President and CEO
-------------------------------------------
/s/ Pete Schenkel
--------------------------------------------
PETE SCHENKEL
Mid-Am is executing this Agreement solely to indicate its agreement to
be bound by the provisions of Sections 2.4, 2.8(a), (f) and (g), 5.10, 12.1,
12.2 and (to the extent applicable in interpreting or enforcing the foregoing
provisions) Section 14, and has no obligations under this Agreement except under
such Sections.
MID-AM CAPITAL, L.L.C.
By: /s/ David A Geisler
-------------------------------
Name: David A. Geisler
-------------------------------
Title: Vice President
-------------------------------
75
<PAGE> 1
EXHIBIT 11 - Statement re computation of per share earnings
SUIZA FOODS CORPORATION
(In thousands, except share and per-share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
Basic EPS computation: 1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations $ 30,449 $ 28,313 $ 83,468 $ 75,996
Less preferred stock dividends (75) (237)
------------ ------------ ------------ ------------
Income applicable to common stock $ 30,449 $ 28,238 $ 83,468 $ 75,759
============ ============ ============ ============
Denominator:
Average common shares 33,665,788 34,638,425 33,679,515 32,752,669
============ ============ ============ ============
Basic EPS from continuing operations $ 0.90 $ 0.82 $ 2.48 $ 2.31
============ ============ ============ ============
Diluted EPS calculation:
Numerator:
Income from continuing operations $ 30,449 $ 28,313 $ 83,468 $ 75,996
Less preferred stock dividends (75) (237)
Net effect on earnings from conversion of mandatorily
redeemable convertible preferred securities 5,980 5,981 17,942 12,735
------------ ------------ ------------ ------------
Income applicable to common stock $ 36,429 $ 34,219 $ 101,410 $ 88,494
============ ============ ============ ============
Denominator:
Average common shares - basic 33,665,788 34,638,425 33,679,515 32,752,669
Stock option conversion 879,896 1,448,784 995,898 1,963,650
Dilutive effect of conversion of manditorily
redeemable convertible preferred securities 9,096,105 9,096,303 9,096,123 6,526,298
------------ ------------ ------------ ------------
Average common shares - diluted 43,641,789 45,183,512 43,771,536 41,242,617
============ ============ ============ ============
Diluted EPS from continuing operations $ 0.83 $ 0.76 $ 2.32 $ 2.15
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
FINANCIAL STATEMENTS FOR THE 9-MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 62,184
<SECURITIES> 0
<RECEIVABLES> 413,493
<ALLOWANCES> 0
<INVENTORY> 208,765
<CURRENT-ASSETS> 734,940
<PP&E> 743,282
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,766,243
<CURRENT-LIABILITIES> 603,571
<BONDS> 573,130
683,359
0
<COMMON> 338
<OTHER-SE> 674,860
<TOTAL-LIABILITY-AND-EQUITY> 2,766,243
<SALES> 3,354,090
<TOTAL-REVENUES> 3,354,090
<CGS> 2,610,932
<TOTAL-COSTS> 532,593
<OTHER-EXPENSES> 283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68,551
<INCOME-PRETAX> 146,423
<INCOME-TAX> 56,462
<INCOME-CONTINUING> 83,468
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,468
<EPS-BASIC> 2.48
<EPS-DILUTED> 2.32
</TABLE>
