EXHIBIT 10.15 EMPLOYMENT AGREEMENT

 

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                                                                   EXHIBIT 10.15

 

                            EMPLOYMENT AGREEMENT

 

      EMPLOYMENT AGREEMENT (this "AGREEMENT"), dated as of January 27, 2005, by

and between Dean Specialty Foods Holdings, Inc., a Delaware corporation (the

"COMPANY"), and E. Nichol McCully (the "EXECUTIVE").

 

                              W I T N E S S E T H:

 

      WHEREAS, the Company's parent corporation, Dean Foods Company ("DEAN"),

intends, subject to certain conditions, to distribute the common stock, par

value $.01 per share, of the Company (the "COMMON STOCK") owned by Dean to its

shareholders, whereby the Company would become a stand-alone publicly traded

corporation;

 

      WHEREAS, Executive is willing to enter into this Agreement in anticipation

of the Company becoming a stand-alone publicly traded corporation through the

distribution of the Common Stock to Dean's shareholders;

 

      WHEREAS, to effect such a spin-off and to position the Company to maximize

its value for Dean's shareholders, it is necessary that the Company have a

strong and experienced management team with a proven track record in developing

and growing a company in the consumer packaged goods industry;

 

      WHEREAS, Executive is one of several members of a management team (the

"TEAM") that possesses the skills and experience necessary to undertake the

challenges of developing the Company, including through acquisitions;

 

      WHEREAS, in light of these skills and experience, the Company desires to

secure the services of Executive and the other members of the Team, and is

willing to enter into this Agreement embodying the terms of the employment of

Executive by the Company, which terms include one or more substantial

equity-based compensation awards; and

 

      WHEREAS, Executive is willing to accept such employment and enter into

such Agreement, subject to Dean making available to Executive and to the other

members of the Team the opportunity to invest in the common stock of the Company

and making the undertakings regarding the governance and management of the

Company set forth in the in the stockholders agreement (the "STOCKHOLDERS

AGREEMENT") to be entered into by the Company, Dean, Executive, other members of

the Team, and certain other investors who are affiliates of the Team

contemporaneously with this Agreement; and

 

      WHEREAS, in order to give Executive and the Team the opportunity to

acquire an equity interest in the Company and as an incentive for Executive to

participate in the affairs of the Company, the Company is willing to sell to

Executive, and Executive

 

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desires to purchase, shares of common stock (the "COMMON STOCK"), subject to the

terms and conditions set forth in the Subscription Agreement (the "SUBSCRIPTION

AGREEMENT") to be entered into contemporaneously with this Agreement and in the

Stockholders Agreement.

 

            NOW, THEREFORE, in consideration of the mutual covenants herein

contained, the Company and Executive hereby agree as follows:

 

      1. Employment. Upon the terms and subject to the conditions of this

Agreement and, unless earlier terminated as provided in Section 8, the Company

hereby employs Executive and Executive hereby accepts employment by the Company

for the period (i) commencing on the date hereof (the "COMMENCEMENT DATE") and

(ii) ending on the third anniversary of (A) the Commencement Date or, (B) if the

Common Stock shall become registered under Section 12(g) of the Securities

Exchange Act of 1934, as amended (the "EXCHANGE ACT"), during the term hereof,

the third anniversary of the date of such registration shall have become

effective and trading of Common Stock on a registered national securities

exchange or automated quotation system (including, but not limited to, NASDAQ)

shall have commenced (the "REGISTRATION DATE"); provided, however, that the term

of this Agreement shall automatically be extended for one additional year on the

third anniversary of the Registration Date and each subsequent anniversary

thereof unless not less than 90 days prior to such anniversary date either party

shall give the other written notice that he or it does not want the term to

extend as of such anniversary date. The period during which Executive is

employed pursuant to this Agreement (including pursuant to any extension of the

term hereof pursuant to the proviso in the immediately preceding sentence) shall

be referred to herein as the "EMPLOYMENT PERIOD."

 

      2. Position and Duties. Executive shall serve as a Senior Vice President

and the Chief Financial Officer of the Company until the first anniversary of

the Commencement Date or such later date as shall be mutually agreed by the

parties (the "CFO PERIOD"), and shall serve as the Vice President of Strategic

Planning and Business Development for the remainder of the Employment Period.

Executive shall also serve in such other position or positions with the Company

and its majority-owned subsidiaries consistent with the foregoing position as

the Board of Directors of the Company (the "BOARD") may specify or the Company

and Executive may mutually agree upon from time to time. During the Employment

Period, Executive shall have the duties, responsibilities and obligations

customarily assigned to individuals at comparable publicly traded companies

serving in the position or positions in which Executive serves hereunder.

Executive shall devote substantially all his business time to the services

required of him hereunder, except for vacation time and reasonable periods of

absence due to sickness, personal injury or other disability, and shall perform

such services to the best of his abilities. Subject to the provisions of Section

9, nothing herein shall preclude Executive from (i) engaging in charitable

activities and community affairs, (ii) managing his personal investments and

affairs or (iii) serving on the board of directors or other governing body

 

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of any corporate or other business entity, so long as such service is not in

violation of the covenants contained in Section 9 or the governance principles

established for the Company by the Board, as in effect from time to time,

provided that in no event may such activities, either individually or in the

aggregate, materially interfere with the proper performance of Executive's

duties and responsibilities hereunder.

 

      3. Place of Performance. The Company shall establish its headquarters

office in Chicago, Illinois metropolitan area at which Executive shall perform

services on such basis as Executive deems necessary or appropriate for the

performance of his duties. Executive shall also have perform services at the

Company's offices in Green Bay, Wisconsin, on such basis as Executive deems

necessary or appropriate for the performance of his duties.

 

      4. Compensation.

 

            (a) Base Salary. During the CFO Period, the Company shall pay

Executive a base salary at the annual rate of $400,000. Following the CFO

Period, the Company shall reduce Executive's base salary in good faith in an

amount commensurate with the reduction of his responsibilities hereunder.

Beginning in 2006, the Board shall review Executive's base salary no less

frequently than annually and may increase such base salary in its discretion.

The amount of annual base salary payable under this Section 4(a) shall be

reduced, however, to the extent Executive elects to defer such salary under the

terms of any deferred compensation or savings plan or arrangement maintained or

established by the Company or any of its subsidiaries. Executive's annual base

salary payable hereunder, including any increases or decreases thereto, without

reduction for any amounts deferred as described above, is referred to herein as

"BASE SALARY". The Company shall pay Executive the portion of his Base Salary

not deferred in accordance with its standard payroll practices, but no less

frequently than in equal monthly installments.

 

            (b) Incentive Compensation. For each full calendar year during the

Employment Period, Executive shall be eligible to receive an annual incentive

bonus from the Company, with a target bonus opportunity of not less than 60% of

his Base Salary, which will be payable, if at all, upon the achievement by

Executive and/or the Company of performance objectives to be established by the

Board in consultation with the Company's Chief Executive Officer and

communicated to Executive during the first quarter of such year (the "INCENTIVE

COMPENSATION"). Without limiting the generality of the foregoing, the actual

amount payable to Executive in respect of the Incentive Compensation may be more

or less than the targeted opportunity (including zero) based on the actual

results against the pre-established performance objectives.

 

      5. Stock Purchase. Substantially contemporaneously with the Commencement

Date, Executive shall purchase the number of shares of Common Stock of the

Company specified in the Subscription Agreement related to the purchase of such

shares, to be entered into by Executive and the Company (the "SUBSCRIPTION

AGREEMENT"). The

 

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terms and conditions of such purchase shall be as set forth in the Subscription

Agreement, and such shares shall be subject to the limitations and restrictions,

including, without limitation, the restrictions on transfer and the put and call

rights set forth in the Stockholders Agreement.

 

      6. Public Equity Awards.

 

            (a) Basic Restricted Stock Grant. On the fourth trading day

following the Registration Date, the Company shall grant Executive an award of

that number of whole restricted shares of Common Stock (the "BASIC RESTRICTED

SHARES") as is equal to (or most closely approximates) 0.30% of the Outstanding

Common Stock on the date of grant. The Basic Restricted Shares shall vest and

become freely transferable in the proportions, and based upon achievement of the

total shareholder return objectives, determined pursuant to Schedule A hereto,

so long as Executive is continuously employed by the Company through the

applicable vesting date. Any Basic Restricted Shares that have not become vested

and freely transferable on or before the fifth anniversary of the grant date

shall be forfeited. For purposes of this Agreement, "OUTSTANDING COMMON STOCK"

shall mean the sum of (x) the number of shares Common Stock that are issued and

outstanding on the Registration Date and (y) the number of shares of Common

Stock issuable pursuant to any stock options granted by Dean prior to the

Registration Date in respect of its common stock and converted into the right to

purchase Common Stock in connection with or in contemplation of the Spin-Off.

 

            (b) Supplemental Restricted Stock Unit Grant. On the fourth trading

day following the Registration Date, Executive shall be granted, automatically

and without any further action on the part of the Company or the Board, an award

of restricted stock units, with each such unit representing a right to receive

one share of Common Stock on the terms and conditions set forth herein (the

"SUPPLEMENTAL RESTRICTED SHARE UNITS"). The number of Supplemental Restricted

Share Units subject to such grant shall be equal to the quotient (rounded up to

the nearest whole number) obtained by dividing (x) by (y), where (x) and (y)

are:

 

             (x) the product of (i) the excess, if any, of (A) the Initial Fair

Market Value over (B) the Adjusted Per Share Purchase Price and (ii) that number

of whole shares of Common Stock as is equal to (or most closely approximates)

0.60% of the Outstanding Common Stock on the date of grant; and

 

            (y) the Initial Fair Market Value.

 

      For purposes of this Agreement, "INITIAL FAIR MARKET VALUE" shall mean the

average of the closing values on the Registration Date and on each of the next

four trading days immediately following the Registration Date, as reported on

the principal exchange or automated quotation system on which the Common Stock

is traded or

 

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reported. "ADJUSTED PER SHARE PURCHASE PRICE" shall mean the $5,000 purchase

price per share of Common Stock, appropriately adjusted to reflect any stock

split or share combination involving the Common Stock, any recapitalization of

the Company, any adjustment pursuant to Section 4.3(b) of the Stockholders

Agreement, or any merger, consolidation, reorganization or similar corporate

event involving the Company occurring on or after the Commencement Date and on

or before the Registration Date.

 

      Except as otherwise provided in this Agreement, 50% of the Supplemental

Restricted Share Units shall vest on the first anniversary of the Registration

Date so long as Executive is continuously employed by the Company through the

first anniversary of the Commencement Date, and 25% of the Supplemental Share

Units shall vest on the second and third anniversaries of the Registration Date

so long as Executive is continuously employed by the Company through such second

and third anniversaries. Notwithstanding the foregoing, no Supplemental

Restricted Share Units shall become vested on any such anniversary date if, on

such date, the average of the closing prices of a share of Common Stock on the

principal trading market on which such shares are traded or reported for the 20

trading day period ended on such date (or, if such date is not a business day,

the 20 trading day period ended on the last trading day occurring immediately

prior thereto) does not exceed the Initial Fair Market Value (the "MINIMUM VALUE

REQUIREMENT"). In the event that the Minimum Value Requirement is not satisfied

on any applicable anniversary date, the Supplemental Restricted Share Units that

would otherwise have vested on such anniversary date shall vest on any

subsequent anniversary date or on any date after the third anniversary date

(treating each such date as an anniversary date for purposes of the 20 day

trading measurement period) on which both Executive is still an employee of the

Company (except with respect to the first installment) and the Minimum Value

Requirement is satisfied; provided that any such Supplemental Restricted Share

Units that have not become vested on or before the fifth anniversary of the

grant date shall be forfeited. The shares of Common Stock corresponding to any

vested Supplemental Restricted Share Units, if any, shall be distributed to

Executive as soon as practicable, but not later than five (5) business days

following the earlier to occur of (i) the fifth anniversary of the date of grant

or (ii) the sixth month anniversary of the date Executive's employment with the

Company terminates, unless the Executive elects (in a manner consistent with the

applicable requirements of Section 409A of the Internal Revenue Code (the

"CODE")) to defer the date upon which the shares of Common Stock corresponding

to the vested Supplement Restricted Share Units shall be distributed.

 

      (c) Stock Option. On the fourth trading day following the Registration

Date, the Company shall automatically and without any further action on the part

of the Company or the Board grant to Executive a non-qualified stock option to

purchase the number of shares of Common Stock equal to the remainder of (i) the

number of whole shares of Common Stock specified in Section 6(b)(x)(ii) minus

(ii) the number of Supplemental Restricted Share Units awarded pursuant to

Section 6(b) (the "OPTION"). The exercise price per share with respect to the

Option shall be equal to the Initial Fair

 

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Market Value. The Option shall become vested and exercisable in three

installments, the first of which shall be equal to 50% of the number of shares

covered by the Option and the second and third of which shall each be 25% of

such number of shares. The first installment shall become vested and exercisable

on the first anniversary of the Commencement Date and the second and third

installments shall become vested and exercisable on each of the second and third

anniversaries of the grant date of such Option, so long as Executive is

continuously employed by the Company through the applicable anniversary date.

 

            (d) Stock Incentive Plan. Each of the Basic Restricted Shares, the

Supplemental Restricted Shares and the Option shall be granted pursuant to a

stock incentive plan (the "INCENTIVE PLAN") to be adopted by the Company prior

to the Registration Date that will authorize for issuance thereunder at least

(i) 13% of the Outstanding Common Stock plus (ii) the number of shares of Common

Stock issuable pursuant to any stock options granted by Dean prior to the

Registration Date in respect of its common stock and converted into the right to

purchase Common Stock in connection with or in contemplation of the Spin-Off as

provided in the Stockholders Agreement. Such Incentive Plan shall have terms and

conditions which will permit the issuance of the awards to the Executive

specified in this Section 6 and shall not contain any other term or condition

that has an adverse effect on any award to be made to Executive pursuant to this

Section 6.

 

            (e) Award Agreements. Each of the Basic Restricted Shares,

Supplemental Restricted Shares and the Option shall be subject to an award

agreement having the terms and conditions specified in the preceding

subparagraphs of this Section 6 and otherwise consistent with the terms and

conditions of the Incentive Plan. Each such agreement shall provide for full

vesting of such awards upon a Change of Control and shall provide that Executive

shall have the right to elect that any applicable tax withholding requirements

with respect to the vesting, exercise or distribution of Common Stock be

satisfied by having the Company withhold shares of Common Stock subject to such

award having a value equal to the minimum required applicable tax withholding,

and that Executive may exercise the Option using previously owned shares of

Common Stock, including Basic Restricted Shares that are still subject to

forfeiture, provided that that number of shares deliverable upon exercise of the

Option that corresponds to the number of unvested Basic Restricted Shares

surrendered will be subject to the same forfeiture provisions and restrictions

on transfer as the Basic Restricted Shares surrendered to exercise such Option,

in whole or in part. In addition, the Option award agreement shall provide that

so long as Executive remains continuously employed by the Company through the

first anniversary of the Commencement Date, the first installment of such Option

shall remain exercisable for the remainder of the term of such Option.

 

            (f) Capital Adjustments. Notwithstanding anything to the contrary

contained in Section 5 or this Section 6, the exercise price of, and the number

of Shares subject to, the Option, the number of Units subject to the

Supplemental Restricted Share Units, and

 

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the Minimum Value Requirement shall be appropriately adjusted, by the Board in

its sole discretion, to reflect any extraordinary dividend, any dividend payable

in shares of capital stock, any stock split or share combination involving the

Common Stock, any recapitalization of the Company, any merger, consolidation,

reorganization or similar corporate event involving the Company occurring after

the Registration Date.

 

            (g) Impact on Future Grants. Unless following the Registration Date

the Board shall determine that special circumstances warrant the grant of such

additional awards as it or any duly authorized committee thereof shall, in its

sole discretion, determine, it is the intent and expectation of the parties that

Executive will not receive any further grants of equity-based compensation prior

to the third anniversary of the Commencement Date. Following such third

anniversary, Executive shall be eligible to receive equity-based compensation

awards in accordance the Company's generally applicable compensation practices,

as then in effect.

 

      7. Benefits, Perquisites and Expenses.

 

            (a) Benefits. During the Employment Period, Executive shall be

eligible to participate in (i) each welfare benefit plan sponsored or maintained

by the Company for its senior executive officers, including, without limitation,

each group life, hospitalization, medical, dental, health, accident or

disability insurance or similar plan or program of the Company, and (ii) each

pension, profit sharing, retirement, deferred compensation or savings plan

sponsored or maintained by the Company for its senior executive officers, in

each case, whether now existing or established hereafter, in accordance with the

generally applicable provisions thereof, as the same may be amended from time to

time.

 

            (b) Perquisites. During the Employment Period, Executive shall be

entitled to receive such perquisites as are generally provided to other senior

executive officers of the Company in accordance with the then current policies

and practices of the Company.

 

            (c) Business Expenses. During the Employment Period, the Company

shall pay or reimburse Executive for all reasonable expenses incurred or paid by

Executive in the performance of Executive's duties hereunder, upon presentation

of expense statements or vouchers and such other information as the Company may

require and in accordance with the generally applicable policies and procedures

of the Company.

 

            (d) Indemnification. The Company agrees that if Executive is made a

party, or is threatened to be made a party, to any action, suit or proceeding,

whether civil, criminal, administrative or investigative (a "PROCEEDING"), by

reason of the fact that he is or was a director, officer or employee of the

Company or any subsidiary or affiliate thereof, or is or was serving at the

request of the Company as a director, officer, member, employee or agent of

another corporation, partnership, joint venture, trust or other enterprise,

including, in each case, service with respect to employee benefit plans, whether

or not the basis of such Proceeding is Executive's alleged action in an official

 

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capacity while serving as a director, officer, member, employee or agent,

Executive shall be indemnified and held harmless by the Company to the fullest

extent legally permitted or authorized by the Company's certificate of

incorporation or by-laws or resolutions of the Board or, if greater, by the laws

of the State of Delaware, against all cost, expense, liability and loss

(including, without limitation, attorney's fees, judgments, fines or penalties

and amounts paid or to be paid in settlement) reasonably incurred or suffered by

Executive in connection therewith, and such indemnification shall continue as to

Executive even if he has ceased to be a director, officer, member, employee or

agent of the Company or other entity and shall inure to the benefit of

Executive's heirs, executors and administrators. If Executive serves as a

director, officer, member, partner, employee or agent of another corporation,

partnership, joint venture, limited liability company, trust or other enterprise

(including, in each case, service with respect to employee benefit plans) which

is a subsidiary or affiliate of the Company, it shall be presumed for purposes

of this Section 7(d) that Executive serves or served in such capacity at the

request of the Company. The Company shall advance to Executive all reasonable

costs and expenses incurred by him in connection with a Proceeding within 30

days after receipt by the Company of a written request for such advance. Such

request shall include an undertaking by Executive to repay the amount of such

advance, if it shall ultimately be determined that he is not entitled to be

indemnified against such costs and expenses. The Company agrees to continue and

maintain a directors' and officers' liability insurance policy covering

Executive to the extent the Company provides such coverage for its other

executive officers or directors.

 

      8. Termination of Employment.

 

            (a) Early Termination of the Employment Period. Notwithstanding

Section 1, the Employment Period shall end upon the earliest to occur of (i) a

termination of Executive's employment on account of Executive's death, (ii) a

Termination due to Disability, (iii) a Termination for Cause, (iv) a Termination

Without Cause, (v) a Termination for Good Reason, (vi) a Termination due to

Retirement or (vii) a Voluntary Termination.

 

             (b) Termination Due to Death or Disability. In the event that

Executive's employment hereunder terminates due to his death or as a result of a

Termination due to Disability (as defined below), no termination benefits shall

be payable to or in respect of Executive except as provided in Section 8(e). For

purposes of this Agreement, "TERMINATION DUE TO DISABILITY" means a termination

of Executive's employment upon written notice from the Company because Executive

has been incapable, regardless of any reasonable accommodation by the Company,

of subs