Exhibit 10.27
[Execution Copy]
MANAGEMENT UNIT SUBSCRIPTION AGREEMENT
THIS MANAGEMENT UNIT SUBSCRIPTION AGREEMENT (this "Agreement") is made as
of April 10, 2001, by and among M-Foods Dairy Holdings, LLC, a Delaware limited
liability company ("Dairy Holdings"), Max R. Hoffmann (the "Executive"), and for
the purposes of Section 10.5 hereof, M-Foods Holdings, Inc., a Delaware
corporation ("Holdings").
WHEREAS, the Executive is an employee and shareholder of Michael
Foods, Inc., a Minnesota corporation (the "Company"), and one of several persons
who are or will be key employees of the Company or one or more of its
subsidiaries and who will hold interests in Dairy Holdings (collectively with
the Executive, the "Management Investors");
WHEREAS, the Company entered into an Agreement and Plan of Merger with
Holdings and Protein Acquisition Corp., a Minnesota corporation, and a wholly
owned subsidiary of Holdings (n/k/a Michael Foods Acquisition Corp.) ("Merger
Sub"), dated as of December 21, 2000, as amended from time to time in accordance
with its terms (the "Merger Agreement"), pursuant to which Merger Sub shall be
merged with and into the Company (the "Acquisition"), in accordance with the
terms and conditions of the Merger Agreement and the relevant provisions of the
MBCA (as defined in the Merger Agreement), and the surviving corporation shall
be the Company;
WHEREAS, on the terms and subject to the conditions hereof and
pursuant to Section 721(a) of the Internal Revenue Code, the Executive desires
to contribute cash in the amount set forth on Schedule I hereto in exchange for
Units of Dairy Holdings in the amounts set forth on Schedule I attached hereto;
and
WHEREAS, subsequent to (A) the Acquisition and the transactions
relating thereto and (B) the transactions set forth herein and the other
Management Unit Subscription Agreements entered into between Dairy Holdings and
the Management Investors, the Company shall be an affiliate of Dairy Holdings
and, therefore, as set forth herein, certain events occurring between the
Executive and the Company or its subsidiaries will create certain events between
the Executive and Dairy Holdings.
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
1. Definitions.
1.1 Acquisition. The term "Acquisition" shall have the meaning set forth
in the preface.
1.2 Agreement. The term "Agreement" shall have the meaning set forth in
the preface.
1.3 Applicable Percentage. Except as provided otherwise in the next
sentence, the term "Applicable Percentage" shall mean: (i) 0% during the
one-year period commencing on the Closing Date (ii) 20% during the one-year
period commencing on the first anniversary of the Closing Date; (iii) 40% during
the one-year period commencing on the second anniversary of the Closing Date;
(iv) 60% during the one-year period commencing on the third anniversary of the
Closing Date; (v) 80% during the one-year period commencing on the fourth
anniversary of the Closing Date; and (vi) 100% on and after the fifth
anniversary of the Closing Date. Notwithstanding the foregoing, (A) immediately
prior to and after the occurrence of a Sale of the Company, such Applicable
Percentage shall mean 100%, and (B) in the case of a termination of employment
described in Section 7.2(a)(iii)(B), such Applicable Percentage in clauses (i),
(ii) and (iii) shall be 0%, and in clauses (iv) and (v) and (vi) shall be 40%,
75% and 100%, respectively.
1.4 Board. The "Board" shall mean the Management Committee of Dairy
Holdings.
1.5 Cause. The term "Cause" used in connection with the termination of
employment of the Executive shall have the same meaning ascribed to such term in
any employment or severance agreement then in effect between Executive and the
Company or one of its subsidiaries or, if no such agreement containing a
definition of "Cause" is then in effect, shall mean (i) the continued failure of
the Executive to perform substantially the Executive's duties with the Company
or one of its subsidiaries (other than any such failure resulting from
incapacity due to physical or mental illness), after a written demand for
substantial performance is delivered to the Executive by the Company which
specifically identifies the manner in which the Company believes that the
Executive has not substantially performed the Executive's duties; (ii) the
willful engaging by the Executive in illegal conduct or gross misconduct which
is materially and demonstrably injurious to the Company or one of its
subsidiaries; or (iii) conviction of a felony or guilty or nolo contendere plea
by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company or one
of its subsidiaries. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board of Directors of the Company
or upon the instructions of the Chief Executive Officer of the Company (while
the Executive does not serve as such) or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company and its
subsidiaries. The cessation of employment of the Executive shall not be deemed
to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than 75% of the entire membership of the Board of Directors of the Company
(excluding the Executive) at a meeting of the Board of Directors of the Company
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board of Directors of the Company) finding that, in the good
faith opinion of the Board of Directors of the Company, the
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Executive is guilty of the conduct described in (i), (ii) or (iii) above, and
specifying the particulars thereof in detail.
1.6 Change in Control. The term "Change in Control" means the consummation
of a transaction, whether in a single transaction or in a series of related
transactions that are consummated contemporaneously (or consummated pursuant to
contemporaneous agreements), with any other party or parties on an arm's-length
basis, pursuant to which (a) such party or parties, directly or indirectly,
acquire (whether by merger, stock purchase, recapitalization, reorganization,
redemption, issuance of capital stock or otherwise) more than 50% of the voting
stock of the Company, (b) such party or parties, directly or indirectly, acquire
assets constituting all or substantially all of the assets of the Company and
its subsidiaries on a consolidated basis, or (c) prior to an initial public
offering of the Company Common Stock pursuant to an offering registered under
the 1933 Act, Vestar and its affiliates cease to have the ability to elect,
directly or indirectly, a majority of the Board of Directors of the Company.
1.7 Class A Units. The term "Class A Units" means the Class A Units of
Dairy Holdings.
1.8 Class B Units. The term "Class B Units" means the Class B Units of
Dairy Holdings.
1.9 Class C Units. The term "Class C Units" means the Class C Units of
Dairy Holdings.
1.10 Closing. The "Closing" for the contribution of cash in exchange for
Units hereunder shall occur immediately prior to the consummation of the
Acquisition.
1.11 Closing Date. The term "Closing Date" shall mean the date on which
the Closing occurs.
1.12 Closing Transactions. The term "Closing Transactions" shall have the
meaning set forth in Section 2.4.
1.13 Company. The term "Company" shall have the meaning set forth in the
preface.
1.14 Intentionally Omitted.
1.15 Cost. The term "Cost" shall mean, with respect to Units, the cash or
fair market value of property per unit contributed by the Executive (as
proportionately adjusted for all subsequent distributions of units and other
recapitalizations).
1.16 Disability. The term "Disability" used in connection with the
termination of employment of the Executive shall have the same meaning ascribed
to such term in any employment or severance agreement then in effect between
Executive and the Company or one of its subsidiaries or, if no such agreement
containing a definition of "Disability" is then in effect, shall mean a
determination by the Company in its sole discretion that Executive is unable to
perform his job
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responsibilities as a result of chronic illness, physical, mental or any other
disability for a period of six months or more.
1.17 Employee and Employment. The term "employee" shall mean any employee
(as defined in accordance with the regulations and revenue rulings then
applicable under Section 3401(c) of the Internal Revenue Code of 1986, as
amended) of the Company or any of its subsidiaries, and the term "employment"
shall include service as a part- or full-time employee to the Company or any of
its subsidiaries.
1.18 Executive. The term "Executive" shall have the meaning set forth in
the preface.
1.19 Executive Group. The term "Executive Group" shall have the meaning
set forth in Section 7.2(a).
1.20 Fair Market Value. The term "Fair Market Value" used in connection
with the value of Units shall mean the fair value of the Units determined in
good faith by the Board (without taking into account the effect of any
contemporaneous repurchase of Units at less than Fair Market Value under Section
7); provided that, with respect its calculation of the Fair Market Value of any
class of Units, the Board shall assume, as of such calculation date, the sale of
all of the assets of Dairy Holdings at fair value and the distribution of the
proceeds resulting therefrom in accordance with the distribution provisions set
forth in the LLC Agreement; provided further that if the Executive disagrees in
good faith with the Board's determination, the Executive shall promptly notify
Dairy Holdings in writing of such disagreement, in which event an independent
appraiser, accountant or investment banking firm (the "Arbiter") selected by
mutual agreement of the Executive and the Board shall make a determination of
the fair market value thereof (disregarding any discount for minority interest
or marketability of units and assuming the prior conversion, exercise or
exchange of all securities convertible into or exchangeable or exercisable for
Units) solely by (i) reviewing a single written presentation timely made by each
of Dairy Holdings and the Executive setting forth their respective resolutions
of the dispute and the bases therefor and (ii) accepting either the Executive's
or Dairy Holding's proposed resolution of the dispute. Promptly following Dairy
Holdings' receipt of Executive's written notice of disagreement, Dairy Holdings
shall make available to Executive all data (including reports of employees and
outside advisors) relied upon by the Board in making its determination. The
Executive's and Dairy Holdings' written presentations must be submitted to the
Arbiter within 30 days of the Arbiter's engagement. The Arbiter shall notify the
Executive and Dairy Holdings of its decision within 40 days of its engagement.
The party whose proposed resolution is not accepted shall pay all of the
Arbiter's fees and expenses. If the Executive's proposed resolution is accepted,
Dairy Holdings also shall pay all of the Executive's reasonable out-of-pocket
fees and expenses (including reasonable fees and expenses of counsel and one
appraiser, accountant or investment banking firm) incurred in connection with
the arbitration. Each of Dairy Holdings and the Executive agrees to execute, if
requested by the Arbiter, a reasonable engagement letter with the Arbiter.
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1.21 Financing Default. The term "Financing Default" shall mean an event
which would constitute (or with notice or lapse of time or both would
constitute) an event of default under any of the following as they may be
amended from time to time: (i) (A) one or more debt facilities or commercial
paper facilities of the Company, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
or credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time (the "Senior
Secured Credit Facilities") or (B) those certain 11-3/4% Senior Subordinated
Notes due 2011 in an aggregate principal amount of $200,000,000, issued by
Merger Sub on or about March 27, 2001, or any other similar notes or instruments
that the Company or its subsidiaries may issue from time to time (the "Senior
Subordinated Notes" and, together with the Senior Secured Credit Facilities, the
"Senior Financing Agreements"); (ii) any other agreement (other than an
agreement relating to the payment of trade payables in the ordinary course of
business and consistent with industry custom) under which an amount of
indebtedness of the Company or any of its subsidiaries in excess of $1,000,000
is outstanding as of the time of the aforementioned event, and any extensions,
renewals, refinancings or refundings thereof in whole or in part; (iii) any
provisions of the LLC Agreement (but not including amendments thereto after the
Closing Date) designating the terms of the Company's units or capital stock or
setting forth restrictive financial covenants; (iv) any amendment of, supplement
to or other modification of any of the instruments referred to in clauses (i)
through (iii) above; and (v) any of the securities issued pursuant to or whose
terms are governed by the terms of any of the agreements set forth in clauses
(i) through (iv) above, and any extensions, renewals, refinancings or refundings
thereof in whole or in part.
1.22 Good Reason. The term "Good Reason" shall have the same meaning
ascribed to such term in any employment or severance agreement then in effect
between Executive and the Company or one of its subsidiaries or, if no such
agreement containing a definition of "Good Reason" is then in effect, shall mean
(i) upon a Change in Control, the assignment to the Executive of any duties
inconsistent with the Executive's title and position (including status, offices
and reporting requirements), authority, duties or responsibilities, or any other
action by the Company or one of its subsidiaries (as applicable) which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by The Company or one of its
subsidiaries promptly after receipt of notice thereof given by the Executive;
provided that after a Change in Control, the Company or one of its subsidiaries
(as applicable) shall have the flexibility to appoint the Executive to a
reporting relationship different from that which existed prior to the Change in
Control, to make an immaterial change in Executive's duties, or to change the
Executive's title provided; (ii) any failure by the Company or one of its
subsidiaries (as applicable) to provide Executive with the annual base salary
Executive had previously received or the failure by The Company or one of its
subsidiaries (as applicable) to increase such annual each year after a Change in
Control by an amount which at least equals on a percentage basis, the mean
average percentage increase in base salary for all employees similarly situated
during the two full calendar years immediately preceding a Change in Control,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and
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which is remedied by the Company or one of its subsidiaries (as applicable)
promptly after receipt of notice thereof given by the Executive; (iii) the
failure of the Company or one of its subsidiaries (as applicable) upon a Change
in Control to (A) continue in effect any employee benefit plan, compensation
plan, welfare benefit plan or material fringe benefit plan in which Executive is
participating immediately prior to such Change in Control or the taking of any
action by the Company or one of its subsidiaries which would adversely affect
Executive's participation in or reduce Executive's benefits under any such plan,
unless Executive is permitted to participate in other plans providing Executive
with substantially equivalent benefits, or (B) provide Executive with paid
vacation in accordance with the most favorable past practice of the Company or
one of its subsidiaries as in effect for Executive immediately prior to such
Change in Control; (iv) after a Change in Control, any purported termination by
the Company or one of its subsidiaries of the Executive's employment otherwise
than for Cause, death or Disability; or (v) after a Change in Control, any
requirement that the Executive (A) be based anywhere more than 50 miles from the
office where the Executive is currently located or (B) travel on the Company's
or its subsidiaries' business to an extent substantially greater than the
Executive's current travel obligations.
1.23 Holdings. The term "Holdings" shall have the meaning set forth in the
preface.
1.24 Intentionally Omitted.
1.25 LLC Agreement. The term "LLC Agreement" shall mean the Limited
Liability Company Agreement of Dairy Holdings, dated as of April 10, 2001,
entered into by and among the members of Dairy Holdings, as amended from time to
time in accordance with its terms.
1.26 Management Investors. The term "Management Investors" shall have the
meaning set forth in the preface.
1.27 Merger Agreement. The term "Merger Agreement" shall have the meaning
set forth in the preface.
1.28 Merger Sub. The term "Merger Sub" shall have the meaning set forth in
the preface.
1.29 Permitted Transferee. The term "Permitted Transferee" means any
transferee of Units pursuant to clauses (e) or (f) of the definition of "Exempt
Transfer" as defined in the Securityholders Agreement.
1.30 Person. The term "Person" shall mean any individual, corporation,
partnership, limited liability company, trust, joint stock company, business
trust, unincorporated association, joint venture, governmental authority or
other entity of any nature whatsoever.
1.31 Public Offering. The term "Public Offering" shall have the meaning
set forth in the Securityholders Agreement.
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1.32 Intentionally Omitted.
1.33 Retirement. The term "Retirement" shall mean, with respect to the
Executive, the Executive's retirement as an employee of the Company or any of
its subsidiaries on or after reaching age 65, or such earlier age as may be
otherwise determined by the Board of Directors of the Company, after at least
three years employment with the Company or any of its subsidiaries after the
Closing Date.
1.34 Sale of the Company. The term "Sale of the Company" shall have the
meaning set forth in the Securityholders Agreement.
1.35 Securities Act. The term "Securities Act" shall mean the Securities
Act of 1933, as amended, and all rules and regulations promulgated thereunder,
as the same may be amended from time to time.
1.36 Securityholders Agreement. The term "Securityholders Agreement" shall
mean the Securityholders Agreement dated as of the Closing Date, among Dairy
Holdings, Vestar, the Management Investors, and the other securityholders a
party thereto, as it may be amended or supplemented thereafter from time to
time.
1.37 Intentionally Omitted.
1.38 Intentionally Omitted.
1.39 Termination Date. The term "Termination Date" means the date upon
which Executive's employment with the Company and its subsidiaries is
terminated.
1.40 Transaction Documents. The term "Transaction Documents" means,
collectively, the LLC Agreement, (ii) the Securityholders Agreement and (iii)
each of the other agreements, documents and instruments executed in connection
with the Merger Agreement and the transactions contemplated thereby.
1.41 Units. The term "Units" shall mean the Class A Units, Class B Units,
Class C Units and any other class of equity securities issued by Dairy Holdings,
whether pursuant to this Agreement or any other arrangement.
1.42 Unvested Percentage. The term "Unvested Percentage" shall mean the
result of one minus the Applicable Percentage.
1.43 Vestar. The term "Vestar" means, collectively, Vestar Capital
Partners IV, L.P., a Delaware limited partnership, and Vestar/Michael, LLC, a
Delaware limited liability company.
2. Purchase and Sale of Units.
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2.1 Intentionally Omitted.
2.2 Intentionally Omitted.
2.3 Contribution of Cash. Pursuant to the terms and subject to the
conditions set forth in this Agreement, the Executive hereby agrees to
contribute, and Dairy Holdings hereby agrees to receive, cash in an amount set
forth on Schedule I attached hereto in exchange for the number of Units set
forth on Schedule I.
2.4 Closing Events. At the Closing, subject to the terms and conditions
set forth in this Agreement, the parties hereto shall consummate the following
"Closing Transactions":
(a) The Executive shall deliver to Dairy Holdings the amount of cash
set forth in Schedule I attached hereto by check or wire transfer of immediately
available funds; and
(b) Dairy Holdings shall deliver to the Executive unit certificates
representing the number of Units set forth on Schedule I attached hereto.
2.5 Section 83(b) Election. With respect to the Units received by
Executive, within 30 days after the Closing, Executive shall make a timely
election with the Internal Revenue Service under Section 83(b) of the Internal
Revenue Code of 1986, as amended, and the regulations promulgated thereunder in
the form of Exhibit A attached hereto.
3. [Reserved]
4. Representations and Warranties of the Executive and Dairy Holdings.
4.1 Representations of the Executive. The Executive represents and
warrants to Dairy Holdings that the statements contained in this Section 4.1 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date, with respect to himself:
(a) Power and Authority. The Executive has full power and authority to
execute and deliver this Agreement and perform his obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Executive,
enforceable in accordance with its terms and conditions. To the best of his
knowledge, the Executive need not give any notice to, make any filing with, or
obtain any authorization, consent or approval of any government or governmental
agency in order to consummate the transactions contemplated by this Agreement.
(b) Noncontravention. To the best of his knowledge, neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which the
Executive is
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subject or conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Executive is a party or by which he is bound or to which any of his assets is
subject.
(c) Brokers' Fees. The Executive has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Dairy Holdings could
become liable or obligated.
4.2 Units Unregistered. The Executive acknowledges and represents that
Executive has been advised by Dairy Holdings that:
(a) the offer and sale of the Units have not been registered under
the Securities Act;
(b) the Units must be held indefinitely and the Executive must
continue to bear the economic risk of the investment in the Units unless
the offer and sale of such Units are subsequently registered under the
Securities Act and all applicable state securities laws or an exemption
from such registration is available;
(c) there is no established market for the Units and it is not
anticipated that there will be any public market for the Units in the
foreseeable future;
(d) a restrictive legend in the form set forth below and the legends
set forth in Section 8.2(a) and (b) of the Securityholders Agreement shall
be placed on the certificates representing the Units:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN REPURCHASE OPTIONS AND OTHER PROVISIONS SET FORTH IN A
MANAGEMENT UNIT SUBSCRIPTION AGREEMENT BETWEEN THE ISSUER AND THE
EXECUTIVE DATED AS OF APRIL 10, 2001, AS AMENDED AND MODIFIED FROM
TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF
AT THE ISSUER'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE"; and
(e) a notation shall be made in the appropriate records of Dairy
Holdings indicating that the Units are subject to restrictions on transfer
and, if Dairy Holdings should at some time in the future engage the
services of a securities transfer agent, appropriate stop-transfer
instructions will be issued to such transfer agent with respect to the
Units.
4.3 [Reserved]
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4.4 Representations of Dairy Holdings. Dairy Holdings represents to the
Executive that the statements contained in this Section 4.4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date, with respect to itself:
(a) Organization and Power. Dairy Holdings is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Delaware with full power and authority to enter into this Agreement
and perform its obligations hereunder.
(b) Authorization. The execution, delivery and performance of this
Agreement by Dairy Holdings and the consummation of the transactions
contemplated hereby by Dairy Holdings have been duly and validly authorized by
all requisite limited liability company action on the part of Dairy Holdings,
and no other proceedings on its part are necessary to authorize the execution,
delivery or performance of this Agreement. This Agreement has been duly executed
and delivered by Dairy Holdings, and this Agreement constitutes a valid and
binding obligation of Dairy Holdings, enforceable in accordance with its terms
and conditions. Dairy Holdings need not give any notice to, make any filing
with, or obtain any authorization, consent or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Dairy Holdings is subject or any
provision of its charter or bylaws or conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which Dairy Holdings is a party or by which it is bound or to which any of
its assets is subject.
(d) Intentionally Omitted.
(e) Capitalization. All of the issued and outstanding Units have been
duly authorized and are validly issued. Except as set forth in the Transaction
Documents, there are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require Dairy Holdings to issue, sell, or
otherwise cause to become outstanding any of its Units. Except as set forth in
the Transaction Documents, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to Dairy Holdings. Except as set forth in the Transaction Documents,
there are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of Dairy Holdings.
5. Covenants of the Executive and Dairy Holdings
5.1 Covenants. The Executive and/or Dairy Holdings each agree as follows
with respect to the period between the execution of this Agreement and the
Closing:
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(a) General. The Executive and Dairy Holdings each will use his or its
commercially reasonable efforts to take all action and to do all things
necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement.
(b) Notification. Each of the parties hereto shall disclose to the
other parties hereto in writing any material breach by such party of the
representations and warranties of such party contained in Section 4 hereof
promptly upon discovery thereof.
6. [Reserved]
7. Certain Sales Upon Termination of Employment.
7.1 Put Option.
(a) If the Executive's employment with the Company and its
subsidiaries terminates due to the Disability, death or Retirement of the
Executive prior to the earlier of (i) a Public Offering or (ii) a Sale of the
Company, for any Units issued 181 days or more prior to the date of termination
of employment of the Executive, within 120 days after such date of termination
of employment (or in the case of Units issued 180 days or less prior to such
date of termination or at any time after such date of termination of employment,
no earlier than 181 days and no later than 271 days after the date of issuance
of such Units), the Executive shall have the right, subject to the provisions of
Section 8 hereof, to sell to Dairy Holdings, and Dairy Holdings shall be
required to purchase (subject to the provisions of Section 8 hereof), on one
occasion from the Executive and his Permitted Transferees, if applicable, all
(but not less than all) of the number of Units then held by the Executive and
such other number of Units held by the Executive's Permitted Transferees as the
Executive may request provided that in the aggregate such number does not exceed
the product of (x) the total number of Units (by class) collectively held by the
Executive and all of his Permitted Transferees and (y) the Applicable Percentage
(measured as of the Termination Date), at a price per unit equal to the Fair
Market Value of such unit (measured as of the delivery of the notice referred to
in Section 7.1(b)).
(b) If the Executive desires to exercise its option to require Dairy
Holdings to repurchase Units pursuant to Section 7.1(a), the Executive shall
send one written notice to Dairy Holdings setting forth the intention of
Executive and Permitted Transferees, if applicable, to collectively sell all
Units pursuant to Section 7.1(a) within the period described above, which notice
shall specify the number of Units to be sold and shall include the signature of
the Executive and each Permitted Transferee desiring to sell Units. Subject to
the provisions of Section 8.1, the closing of the purchase shall take place at
the principal office of Dairy Holdings on the later of the 30th day after the
giving of such notice and the date that is 10 business days after the final
determination of Fair Market Value. Subject to the provisions of Section 8.1,
the Executive shall deliver to Dairy Holdings duly executed instruments
transferring title to units to Dairy Holdings, against payment of the
appropriate purchase price by cashier's or certified check payable to the
Executive or by wire transfer of immediately available funds to an account
designated by the Executive.
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7.2 Call Options.
(a) If the Executive's employment with the Company or any of its
subsidiaries terminates for any of the reasons set forth in clauses (i), (ii) or
(iii) below prior to a Sale of the Company, or if the Executive engages in
Competitive Activity (as defined in Section 9.1 of this Agreement), for any
Units issued 181 days or more prior to the date of Executive's termination of
employment or engagement in Competitive Activity, within 120 days after such
date (or in the case of Units issued 180 days or less prior to such date or at
any time after such date, no earlier than 181 days and no later than 271 days
after the date of issuance of such Units), Dairy Holdings shall have the right
and option to purchase, and the Executive and the Executive's Permitted
Transferees (hereinafter referred to as the "Executive Group") shall be required
to sell to Dairy Holdings, any or all of such Units then held by such member of
the Executive Group (it being understood that if Units of any class subject to
repurchase hereunder may be repurchased at different prices, Dairy Holdings may
elect to repurchase only the portion of the Units of such class subject to
repurchase hereunder at the lower price), at a price per unit equal to the
applicable purchase price determined pursuant to Section 7.2(c):
(i) if the Executive's active employment with the Company and its
subsidiaries is terminated due to the Disability, death or Retirement of
the Executive;
(ii) if the Executive's active employment with the Company and its
subsidiaries is terminated by the Company and its subsidiaries without
Cause or by the Executive for Good Reason;
(iii) if the Executive's active employment with the Company and its
subsidiaries is terminated (A) by the Company or any of its subsidiaries
for Cause or (B) by the Executive for any other reason not set forth in
Section 7.2(a)(i) or Section 7.2(a)(ii);
provided that Dairy Holdings' rights under this Section 7.2(a) shall not be
available in the event of the termination of Executive's employment by the
Company or its subsidiaries without Cause or by Executive for Good Reason, in
either case following a sale by the Company or its subsidiaries of substantially
all of the line of business in which Executive primarily performs his services.
(b) If Dairy Holdings desires to exercise one of its options to
purchase Units pursuant to this Section 7.2, Dairy Holdings shall, not later
than the expiration of the applicable period described for such purchase in
Section 7.2(a), send written notice to each member of the Executive Group of its
intention to purchase Units, specifying the number of Units to be purchased (the
"Call Notice"). Subject to the provisions of Section 8, the closing of the
purchase shall take place at the principal office of Dairy Holdings on the later
of the 30th day after the giving of the Call Notice and the date that is 10
business days after the final determination of Fair Market Value. Subject to the
provisions of Section 8.1, the Executive shall deliver to Dairy Holdings duly
executed instruments transferring title to Units to Dairy Holdings, against
payment of the appropriate purchase
12
price by cashier's or certified check payable to the Executive or by wire
transfer of immediately available funds to an account designated by the
Executive.
(c) In the event of a purchase by Dairy Holdings pursuant to Section
7.2(a), the purchase price shall be (in each case after taking account of any
prior purchases pursuant to Section 7.2(a)):
(i) if the Executive engages in any Competitive Activity (as defined
in Section 9.1 of this Agreement), a price per unit equal to the
lesser of (A) Fair Market Value (measured as of the Activity Date
(as defined in Section 9.2 of this Agreement)) and (B) Cost;
(ii) in the case of a termination of employment described in Section
7.2(a)(i), Section 7.2(a)(ii), or Section 7.2(a)(iii)(B), (i) if the
number of Units of any class to be purchased from the Executive
Group by Dairy Holdings is less than or equal to the Unvested
Percentage of such class, the purchase price for each Unit shall be
the lesser of (x) the Fair Market Value (measured as of the date of
the Call Notice) and (y) the Cost of such Unit (the "Unvested Unit
Purchase Price"), and (ii) if the number of such Units exceeds the
Unvested Percentage of such class, the purchase price for each Unit
shall be (A) for a number of Units of such class equal to the result
of (x) the Unvested Percentage and (y) the total number of Units of
such class held by the Executive Group, the Unvested Unit Purchase
Price, and (B) for the remainder of the Units of such class being
repurchased, the Fair Market Value of such Unit (measured as of the
date of the Call Notice); and
(iii) in the case of a termination of employment described in
Section 7.2(a)(iii)(A), a price per unit equal to the lesser of (A)
Fair Market Value (measured as of the date of the Call Notice) and
(B) Cost.
Notwithstanding anything to the contrary contained in this Agreement, if
the Fair Market Value of Units subject to a Call Notice is finally determined to
be an amount at least 10% greater than the per Unit repurchase price for such
Unit in the Call Notice, Dairy Holdings shall have the right to revoke the
exercise of its option pursuant to this Section 7.2 for all or any portion of
the Units elected to be repurchased by it by delivering notice of such
revocation in writing to the Executive Group during the ten-day period beginning
on the date that Dairy Holdings is given written notice that the Fair Market
Value of a Unit was finally determined to be an amount at least 10% greater than
the per Unit repurchase price set forth in the Call Notice.
Notwithstanding anything in this Section 7.2 to the contrary, in the event
that Dairy Holdings purchases Units at Fair Market Value pursuant to the terms
of this Section 7.2 and within six months of the date of the determination of
such Fair Market Value both (A) a Sale of the Company or a Public Offering
occurs and (B) in connection with such transaction, the per share value of the
Units exceeds the per share purchase price paid by Dairy Holdings to Executive
under this Section 7.2, the
13
Executive shall be entitled to receive from Dairy Holdings the benefit of such
higher valuation for the Units purchased. The excess of (x) the net proceeds
which the Executive would have received in such Sale of the Company or Public
Offering from the sale in such transaction of all Units repurchased by Dairy
Holdings under this Section 7.2, less (y) the amount which the Executive
received from the purchase of such Units by Dairy Holdings, shall be paid by
certified or cashier's check or wire transfer of funds to Executive upon
consummation of such transaction; provided that, Executive shall have no rights
under this paragraph if, in connection with the determination of Fair Market
Value of the repurchased Units, the Arbiter was used.
7.3 Obligation to Sell Several. If there is more than one member of the
Executive Group, the failure of any one member thereof to perform its
obligations hereunder shall not excuse or affect the obligations of any other
member thereof, and the closing of the purchases from such other members by
Dairy Holdings shall not excuse, or constitute a waiver of its rights against,
the defaulting member.
8. Certain Limitations on Dairy Holdings's Obligations to Purchase Units.
8.1 Payment for Units. If at any time Dairy Holdings elects or is required
to purchase any Units pursuant to Section 7, Dairy Holdings shall pay the
purchase price for the Units it purchases (i) first, by offsetting indebtedness,
if any, owing from the Executive to Dairy Holdings (which indebtedness shall be
applied pro rata against the proceeds receivable by each member of the Executive
Group receiving consideration in such repurchase) and (ii) then, by Dairy
Holdings' delivery of a check or wire transfer of immediately available funds
for the remainder of the purchase price, if any, against delivery of the
certificates or other instruments representing the Units so purchased, duly
endorsed; provided that if such cash payment would result (A) in a violation of
any law, statute, rule, regulation, policy, order, writ, injunction, decree or
judgment promulgated or entered by any federal, state, local or foreign court or
governmental authority applicable to the Company or any of its subsidiaries or
any of its or their property or (B) after giving effect thereto, a Financing
Default, or (C) if the Board determines in good faith that immediately prior to
such purchase there shall exist a Financing Default which prohibits such
purchase, dividend or distribution ((A) through (C) collectively the "Cash
Deferral Conditions"), the portion of the cash payment so affected may be made
by Dairy Holdings' delivery of preferred units of Dairy Holdings with a
liquidation preference equal to the balance of the purchase price; which
preferred units shall accrue yield annually at the "prime rate" published in The
Wall Street Journal on the date of issuance, which yield shall be payable at
maturity or upon payment of distributions by Dairy Holdings (other than tax
distributions). Each such preferred unit shall as of its issuance be deemed to
have basic contributions made with respect to such unit equal to (A) the portion
of the cash payment paid by the issuance of such preferred units divided by (B)
the number of preferred units so issued in the repurchase. Any such preferred
units issued shall be promptly redeemed (i) when the Cash Deferral Condition
which prompted their issuance no longer exists, (ii) upon consummation of an IPO
of the Company or Holdings (or their successors) (to the extent allowed by the
underwriters of such IPO), or (iii) upon a Sale of the Company from net cash
proceeds, if any, payable to Dairy Holdings or its unitholders (other than
proceeds required to be paid to Holdings);
14
to the extent that sufficient net cash proceeds are not so payable, the
preferred units shall be cancelled in exchange for such non-cash consideration
received by unitholders in the Sale of the Company having a fair market value
equal to the principal of and accrued yield on the preferred units. If a yield
is required to be paid on any preferred units prior to maturity and any Cash
Deferral Conditions exist, such yield may be cumulated and accrued until and to
the extent that such prohibition no longer exists.
9. Noncompetition.
9.1 Competitive Activity. Executive shall be deemed to have engaged in
"Competitive Activity" if, during the period commencing on the date hereof and
ending on the second anniversary of the date Executive's employment with the
Company or its subsidiaries terminates, (i) Executive, for himself or on behalf
of any other person, firm, partnership, corporation, or other entity, engages,
directly or indirectly, as an executive, agent, representative, consultant,
partner, shareholder or holder of any other financial interest, in any business
that competes with the Company or its subsidiaries in the line of business
Executive is employed in by the Company or its subsidiaries (as applicable), as
such business is described in any employment or severance agreement then in
effect between Executive and the Company or one of its subsidiaries or, if no
such agreement is then in effect, as described on Schedule II attached hereto (a
"Competing Business"), it being understood and agreed that Executive's
activities shall not satisfy this clause (i) where Executive is employed by a
person, firm, partnership, corporation, or other entity engaged in a variety of
activities, including the Competing Business, and Executive is not engaged in or
responsible for the Competing Business of such entity. Executive may also,
without satisfying clause (i) be a passive owner of not more than 2% of the
outstanding publicly traded stock of any class of a Competing Business so long
as Executive has no active participation in the business of such entity, except
to the extent permitted above; or (ii) Executive (A) directly or indirectly
through another entity, induces or attempts to induce any employee of the
Company or its subsidiaries to leave the employ of the Company or its
subsidiaries, or in any way interfere with the relationship between the Company
or any of its subsidiaries and any employee thereof, (B) knowingly hires any
person who was an employee of the Company or any of its subsidiaries within 180
days prior to the time such employee was hired by Executive, (C) induces or
attempts to induce any customer, supplier, licensee or other business relation
of the Company or any of its subsidiaries to cease doing business with the
Company or its subsidiaries or in any way interfere with the relationship
between any such customer, supplier, licensee or business relation and the
Company or any subsidiary or (D) directly or indirectly acquires or attempt to
acquire an interest in any business relating to the business of the Company or
any of its subsidiaries and with which the Company or any of its subsidiaries
has entertained discussions or has requested and received information relating
to the acquisition of such business by the Company or its subsidiaries in the
one-year period immediately preceding Executive's termination of employment with
the Company.
9.2 Activity Date. If Executive engages in Competitive Activity, the
"Activity Date" shall be the first date on which Executive engages in such
Competitive Activity.
15
9.3 Repayment of Proceeds. If Executive engages in Competitive Activity,
then Executive shall be required to pay to Dairy Holdings, within ten business
days following the Activity Date, an amount equal to the excess, if any, of (A)
the aggregate proceeds Executive received upon the sale or other disposition of
Executive's Units, over (B) the aggregate Cost of such Units.
10. Miscellaneous.
10.1 Transfers to Permitted Transferees. Prior to the transfer of Units to
a Permitted Transferee (other than a transfer in connection with or subsequent
to a Sale of the Company), the Executive shall deliver to Dairy Holdings a
written agreement of the proposed transferee (a) evidencing such Person's
undertaking to be bound by the terms of this Agreement and (b) acknowledging
that the Units transferred to such Person will continue to be Units for purposes
of this Agreement in the hands of such Person. Any transfer or attempted
transfer of Units in violation of any provision of this Agreement or the
Securityholders Agreement shall be void, and Dairy Holdings shall not record
such transfer on its books or treat any purported transferee of such Units as
the owner of such Units for any purpose.
10.2 Deemed Transfer of Units. If Dairy Holdings shall deliver, at the
time and place and in the amount and form provided in this Agreement, the
consideration for the Units to be repurchased in accordance with the provisions
of this Agreement, then from and after such time, the Person from whom such
units are to be repurchased shall no longer have any rights as a holder of such
units (other than the right to receive payment of such consideration in
accordance with this Agreement), and such Units shall be deemed purchased in
accordance with the applicable provisions hereof and Dairy Holdings shall be
deemed the owner and holder of such Units, whether or not certificates therefor
have been delivered as required by this Agreement.
10.3 Recapitalizations, Exchanges, Etc., Affecting Units. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect
to Units, to any and all securities of Dairy Holdings or any successor or assign
of Dairy Holdings (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Units, by reason of any dividend payable in units, issuance
of units, combination, recapitalization, reclassification, merger, consolidation
or otherwise.
10.4 Executive's Employment by the Company. Nothing contained in this
Agreement shall be deemed to obligate the Company or any subsidiary of the
Company to employ the Executive in any capacity whatsoever or to prohibit or
restrict the Company (or any such subsidiary) from terminating the employment of
the Executive at any time or for any reason whatsoever, with or without Cause.
10.5 Indemnification by Executive. Executive agrees to indemnify and hold
harmless Dairy Holdings against any and all losses, liabilities, damages,
judgments, fines, fees or expenses, including, without limitation, attorneys'
fees (for purposes of this Section 10.5, hereinafter "Losses"), incurred in
connection with any failure to withhold amounts relating to the Units acquired
herein by
16
the Management Investors. In the event there is a determination within the
meaning of Section 1313 of the Internal Revenue Code of 1986, as amended, that
Dairy Holdings properly failed to withhold amounts relating to the Units
acquired herein by Executive, Executive shall provide Dairy Holdings with a Form
4669 or other suitable evidence of payment of taxes (which will include a
cancelled check or a copy of the relevant signed tax return) with respect to the
receipt of any distributions relating to the Units acquired herein by Executive.
To the extent either Dairy Holdings and/or any of its affiliates is entitled to
any tax deduction with respect to the issuance of Units, (i) Dairy Holdings
shall specially allocate such deduction to the Executive and/or (ii) Holdings
shall pay, or cause any affiliate to pay, as the case may be, Executive an
amount equal to 40% of such deduction, such amount to be grossed up to reflect
any additional deduction to Holdings and/or any of its affiliates (as the case
may be) provided that if any Cash Deferral Condition exists at the time such
payment is required, such payment shall be deferred until no such Cash Deferral
Condition exists. Each of Executive and Dairy Holdings shall notify the other
(in a manner described in Section 10.10 of this Agreement) within 20 days of
first receiving notice of an audit or other proceeding being conducted by the
Internal Revenue Service or any state or local taxing authority relating to the
Units acquired herein by the Management Investors, and both Executive and Dairy
Holdings shall assist each other during the course of such audit or other
proceeding to the extent that such assistance is reasonably requested.
10.6 Binding Effect. The provisions of this Agreement shall be binding
upon and accrue to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that no
Permitted Transferee shall derive any rights under this Agreement unless and
until such Permitted Transferee has executed and delivered to Dairy Holdings a
valid undertaking and becomes bound by the terms of this Agreement.
10.7 Amendment; Waiver. This Agreement may be amended only by a written
instrument signed by the parties hereto. No waiver by any party hereto of any of
the provisions hereof shall be effective unless set forth in a writing executed
by the party so waiving.
10.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed therein.
10.9 Jurisdiction. Any suit, action or proceeding with respect to this
Agreement, or any judgment entered by any court in respect of any thereof, shall
be brought in any court of competent jurisdiction in the State of Delaware, and
each of Dairy Holdings and the members of the Executive Group hereby submits to
the exclusive jurisdiction of such courts for the purpose of any such suit,
action, proceeding or judgment. Each of the members of the Executive Group and
Dairy Holdings hereby irrevocably waives any objections which it may now or
hereafter have to the laying of the venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any court of competent
jurisdiction in the State of Delaware, and hereby further irrevocably waives any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum.
17
10.10 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when personally delivered,
telecopied (with confirmation of receipt), one day after deposit with a
reputable overnight delivery service (charges prepaid) and three days after
deposit in the U.S. Mail (postage prepaid and return receipt requested) to the
address set forth below or such other address as the recipient party has
previously delivered notice to the sending party.
(a) If to Dairy Holdings
M-Foods Dairy Holdings, LLC
c/o Vestar Capital Partners IV, L.P.
1225 Seventeenth Street
Suite 1660
Denver, CO 80202
Attention: James P. Kelley
Facsimile: (303) 292-6639
with copies to:
Vestar Capital Partners IV, L.P.
245 Park Avenue, 41st Floor
New York, NY 10167
Attention: General Counsel
Facsimile: (212) 808-4922
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Stephen L. Ritchie
Facsimile: (312) 861-2200
(b) If to the Executive, to the address as shown on the unit
register of Dairy Holdings.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036-6522
Attention: Eric L. Cochran
10.11 Integration. This Agreement and the documents referred to herein or
delivered pursuant hereto which form a part hereof contain the entire
understanding of the parties with respect to the subject matter hereof and
thereof. There are no restrictions, agreements, promises,
18
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth herein and therein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
10.12 Counterparts. This Agreement may be executed in separate
counterparts (including by means of telecopied signature pages), and by
different parties on separate counterparts each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
10.13 Rights Cumulative; Waiver. The rights and remedies of the Executive
and Dairy Holdings under this Agreement shall be cumulative and not exclusive of
any rights or remedies which either would otherwise have hereunder or at law or
in equity or by statute, and no failure or delay by either party in exercising
any right or remedy shall impair any such right or remedy or operate as a waiver
of such right or remedy, nor shall any single or partial exercise of any power
or right preclude such party's other or further exercise or the exercise of any
other power or right. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by either party to exercise any
right or privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
* * * * *
19
IN WITNESS WHEREOF, the parties have executed this Management Unit
Subscription Agreement as of the date first above written.
M-FOODS DAIRY HOLDINGS, LLC
By:
----------------------------------------
Its:
---------------------------------------
M-FOODS HOLDINGS, INC.
By:
----------------------------------------
Its:
---------------------------------------
Max R. Hoffmann
CONSENT OF SPOUSE
I, ____________, the undersigned spouse of Executive, hereby
acknowledge that I have read the foregoing Management Unit Subscription
Agreement (the "Agreement") and that I understand its contents. I am aware that
the Agreement provides for the repurchase of my spouse's Units (as defined in
the Agreement) under certain circumstances and imposes other restrictions on the
transfer of such Units. I agree that my spouse's interest in the Units is
subject to the Agreement and any interest I may have in such Units shall also be
irrevocably bound by the Agreement and, further, that my community property
interest in such Units, if any, shall be similarly bound by the Agreement.
I am aware that the legal, financial and other matters contained in
the Agreement are complex and I am encouraged to seek advice with respect
thereto from independent legal and/or financial counsel. I have either sought
such advice or determined after carefully reviewing the Agreement that I hereby
waive such right.
Acknowledged and agreed this ___ day
of _____________, 2001.
---------------------------------------
Name:
----------------------------------
---------------------------------------
Witness
SCHEDULE I
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Cash Units
-----------------------------------------------------------------
$236.18 921.83 Class A Units
3,078.17 Class B Units
4,000 Class C Units
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SCHEDULE II
Competing Business: Production, distribution or sale of refrigerated potato
products or specialty dairy products and mixes
EXHIBIT A
ELECTION TO INCLUDE UNITS IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased units (the "Units") of M-Foods Dairy Holdings,
LLC ("Dairy Holdings") on ________, 2001. The undersigned desires to make an
election to have the Units taxed under the provision of Section 83(b) of the
Internal Revenue Code of 1986, as amended ("Code ss.83(b)"), at the time the
undersigned purchased the Units.
Therefore, pursuant to Code ss.83(b) and Treasury Regulation ss.1.83-2
promulgated thereunder, the undersigned hereby makes an election, with respect
to the Units (described below), to report as taxable income for calendar year
2001 the excess, if any, of the Units' fair market value on ______, 2001 over
the purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation ss.1.83-2(e):
1. The name, address and social security number of the undersigned:
______________________________
______________________________
______________________________
SSN:__________________________
2. A description of the property with respect to which the election is
being made: ________ Class A Units ____ Class B Units ____ and Class C Units.
3. The date on which the property was transferred: _________, 2001.
The taxable year for which such election is made: calendar year 2001.
4. The restrictions to which the property is subject: The Units are
subject to a time-based vesting schedule. If the undersigned ceases to be
employed by The Company or any of its subsidiaries under certain circumstances,
all or a portion of the Units may be subject to repurchase by Dairy Holdings at
a price per Unit equal to the lesser of (x) fair market value (measured as of
the date of such repurchase) and (y) cost. The Units are also subject to
transfer restrictions.
5. The aggregate fair market value on ______ __, 2001 of the property
with respect to which the election is being made, determined without regard to
any lapse restrictions: $______.
6. The aggregate amount paid for such property: $_______.
A copy of this election has been furnished to the Secretary of Dairy
Holdings pursuant to Treasury Regulations ss.1.83-2(e)(7).
Dated: ________, 2001 _____________________________
[Name]