EXHIBIT 10.17 EMPLOYMENT AGREEMENT

 

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                                                                   EXHIBIT 10.17

 

                             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 Harry J. Walsh (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 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.   During the Employment Period, Executive shall

serve as the Senior Vice President of Operations of the Company and 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 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

 

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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 have his

principal office.   Executive shall also have an office, and 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 Employment Period, the Company shall pay

Executive a base salary at the annual rate of   $350,000.   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 increased annual base salary, 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 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.

 

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   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) 0.90% 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 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

 

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on or after the Commencement Date and on or before the Registration Date.

 

 

 

      The Supplemental Restricted Share Units shall vest in three equal annual

installments on the first three anniversaries of the Registration Date, so long

as (with respect to each installment) Executive is continuously employed by the

Company through the applicable anniversary date. 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 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 Market

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

equal annual installments on each of the first three 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

 

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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.

 

        (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 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.

 

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   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 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

 

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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 substantially fulfilling the positions,

duties, responsibilities and obligations set forth in this Agreement because of

physical, mental or emotional incapacity resulting from injury, sickness or

disease for a period of more than (i) four consecutive months or (ii) an

aggregate of six months in any twelve month period.   Any question as to the

existence or extent of Executive's disability upon which Executive and the

Company cannot agree shall be determined by a qualified, independent physician

jointly selected by the Company and Executive.   If the Company and Executive

cannot agree on the physician to make the determination, then the Company and

Executive shall each select a physician and those physicians shall jointly

select a third physician, who shall make the determination.   The