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EXHIBIT 10.38
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement") is made as of January 1,
1999, by and between SUIZA FOODS CORPORATION, a Delaware corporation (together
with its subsidiaries, the "Company"), and ((Executive)) (the "Executive").
RECITALS
A. The Board of Directors of the Company (the "Board") has determined
that the interests of the Company will be advanced by providing the key
executives of the Company with certain benefits in the event of the termination
of employment of any such executive in connection with or following a Change in
Control (as hereinafter defined).
B. The Board believes that such benefits will enable the Company to
continue to attract and retain competent and qualified executives, will assure
continuity and cooperation of management and will encourage such executives to
diligently perform their duties without personal financial concerns, thereby
enhancing shareholder value and ensuring a smooth transition.
C. The Executive is a key executive of the Company.
AGREEMENTS
NOW, THEREFORE, for good and valuable consideration, including the
mutual covenants set forth herein, the parties hereto agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings
for purposes of this Agreement.
"AFFILIATE" means any entity controlled by, controlling or under
common control with, a person or entity.
"ANNUAL PAY" means the sum of (i) an amount equal to the annual base
salary rate payable to the Executive by the Company at the time of termination
of his or her employment plus (ii) an amount equal to the target bonus
established for the Executive for the Company's fiscal year in which his or her
termination of employment occurs.
"CAUSE" means the Executive's (i) willful and intentional material
breach of this Agreement, (ii) willful and intentional misconduct or gross
negligence in the performance of, or willful neglect of, the Executive's
duties, which has caused material injury (monetary or otherwise) to the
Company, or (iii) conviction of, or plea of nolo contendere to, a felony;
provided, however, that no act or omission shall constitute "Cause" for
purposes of this Agreement unless the Board or the Chairman of the Board
provides to the Executive (a) written notice clearly and fully describing the
particular acts or omissions which the Board or the
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Chairman of the Board reasonably believes in good faith constitutes "Cause" and
(b) an opportunity, within thirty (30) days following his or her receipt of
such notice, to meet in person with the Board or the Chairman of the Board to
explain or defend the alleged acts or omissions relied upon by the Board and,
to the extent practicable, to cure such acts or omissions. Further, no act or
omission shall be considered as "willful" or "intentional" if the Executive
reasonably believed such acts or omissions were in the best interests of the
Company.
"CHANGE IN CONTROL" means (1) any "person" (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) becomes the "beneficial owner" (as determined pursuant to Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities; or (2) individuals who currently serve
on the Board, or whose election to the Board or nomination for election to the
Board was approved by a vote of at least two-thirds (2/3) of the directors who
either currently serve on the Board, or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority of the Board; or (3) the Company or any subsidiary of the Company
shall merge with or consolidate into any other corporation, other than a merger
or consolidation which would result in the holders of the voting securities of
the Company outstanding immediately prior thereto holding immediately
thereafter securities representing more than sixty percent (60%) of the
combined voting power of the voting securities of the Company or such surviving
entity (or its ultimate parent, if applicable) outstanding immediately after
such merger or consolidation; or (4) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's assets,
or such a plan is commenced.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means all information, whether oral or
written, previously or hereafter developed, acquired or used by the Company or
its subsidiaries and relating to the business of the Company and its
subsidiaries that is not generally known to others in the Company's area of
business, including without limitation trade secrets, methods or practices
developed by the Company or any of its subsidiaries, financial results or
plans, customer or client lists, personnel information, information relating to
negotiations with clients or prospective clients, proprietary software,
databases, programming or data transmission methods, or copyrighted materials
(including without limitation, brochures, layouts, letters, art work, copy,
photographs or illustrations). It is expressly understood that the foregoing
list shall be illustrative only and is not intended to be an exclusive or
exhaustive list of "Confidential Information."
"GOOD REASON" means any of the following events occurring, without the
Executive's prior written consent specifically referring to this Agreement,
within two (2) years following a Change in Control:
(1) (A) Any reduction in the amount of the Executive's Annual
Pay, (B) any reduction in the amount of Executive's other long-term
aggregate incentive compensation opportunities, or (C) any significant
reduction in the aggregate value of the Executive's
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benefits as in effect from time to time (unless in the case of either
B or C, such reduction is pursuant to a general change in compensation
or benefits applicable to all similarly situated employees of the
Company and its Affiliates);
(2) (A) the removal of the Executive from the Executive's
position as ((Position)) of the ultimate parent of the business of the
Company or (B) any other significant reduction in the nature or status
of the Executive's duties or responsibilities;
(3) transfer of the Executive's principal place of employment
to a metropolitan area other than that of the Executive's place of
employment immediately prior to the Change in Control without the
Executive's consent; or
(4) failure by the Company to obtain the assumption agreement
referred to in Section 7 of this Agreement prior to the effectiveness
of any succession referred to therein, unless the purchaser, successor
or assignee referred to therein is bound to perform this Agreement by
operation of law.
"TERMINATION PAY" means a payment made by the Company to the Executive
pursuant to Section 2(a)(ii) or Section 2(b)(ii) hereof.
2. CHANGE IN CONTROL TERMINATION PAYMENT AND BENEFITS.
(a) Involuntary or Constructive Termination. In the event
that the Executive's employment with the Company or its successor is terminated
by the Company or its successor without Cause or by the Executive for Good
Reason in connection with or within two years after a Change in Control, the
Executive shall be entitled to the following payments and other benefits:
(i) A cash payment in an amount equal to the sum of
(A) the Executive's accrued and unpaid salary as of his or her date of
termination of employment, plus (B) his or her accrued and unpaid
bonus, if any, for the Company's prior fiscal year. This amount shall
be paid on the date of the Executive's termination of employment.
(ii) A cash payment in an amount equal to three (3)
times the Executive's Annual Pay. This amount shall be paid by the
Company in accordance with Section 2(d) hereof.
(iii) A cash payment in an amount equal to the
Executive's unvested account balance under the Company's 401(k) plan.
(iv) The Executive and his or her eligible
dependents shall be entitled for a period of two (2) years following
his or her date of termination of employment to continued coverage, on
the same basis as similarly situated active employees, under the
Company's group health, dental, long-term disability and life
insurance plans as in effect from time to time (but not any other
welfare benefit plans or any retirement plans); provided that coverage
under any particular benefit plan shall expire with respect to the
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period after the Executive becomes covered under another employer's
plan providing for a similar type of benefit. In the event the Company
is unable to provide such coverage on account of any limitations under
the terms of any applicable contract with an insurance carrier or
third party administrator, the Company shall pay the Executive an
amount equal to the cost of such coverage.
(v) All of the Executive's unvested options to
purchase shares of the Company's common stock shall be automatically
vested and shall remain exercisable by the Executive on the same terms
(other than vesting provisions) and for the same periods as were in
effect prior to termination of the Executive's employment. In the
event of any conflict between this provision and the provisions of any
stock option award agreements entered into before or after the
effective date of this Agreement, the foregoing provision shall
control.
(b) Voluntary Termination. If, at any time during the period
beginning 12 months after a Change in Control and ending 24 months after a
Change in Control, the Executive voluntarily terminates his or her employment
with the Company for any reason (other than for Good Reason), the Executive
shall be entitled to receive the following payments and benefits:
(i) A cash payment in an amount equal to the sum of
(A) the Executive's accrued and unpaid salary as of his or her date of
termination of employment, plus (B) his or her accrued and unpaid
bonus, if any, for the Company's prior fiscal year. This amount shall
be paid on the date of the Executive's termination of employment.
(ii) A cash payment in an amount equal to one and
one-half (11/2) times the Executive's Annual Pay. This amount shall be
paid by the Company in accordance with Section 2(d) hereof.
(c) No Duplication; Other Severance Pay. There shall be no
duplication of severance pay in any manner. In this regard, the Executive shall
not be entitled to Termination Pay hereunder for more than one position with
the Company and its Affiliates. If the Executive is entitled to any notice or
payment in lieu of any notice of termination of employment required by Federal,
state or local law, including but not limited to the Worker Adjustment and
Retraining Notification Act, the severance compensation to which the Executive
would otherwise be entitled under this Agreement shall be reduced by the amount
of any such payment, in lieu of notice. If Executive is entitled to any
severance or termination payments under any employment or other agreement with
the Company or any of its Affiliates, the severance compensation to which
Executive would otherwise be entitled under this Agreement shall be reduced by
the amount of such payment. Except as set forth above, the foregoing payments
and benefits shall be in addition to and not in lieu of any payments or
benefits to which the Executive and his or her dependents may otherwise be
entitled to under the Company's compensation and employee benefit plans.
Nothing herein shall be deemed to restrict the right of the Company from
amending or terminating any such plan in a manner generally applicable to
similarly situated active employees of the Company and its Affiliates, in which
event the Executive shall be entitled to participate on the
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same basis (including payment of applicable contributions) as similarly
situated active executives of the Company and its Affiliates.
(d) Mutual Release. Termination Pay shall be conditioned upon
the execution by the Executive and the Company of a valid mutual release to be
prepared by the Company pursuant to which the Executive and the Company shall
each mutually release each other, to the maximum extent permitted by law, from
any and all claims either party may have against the other that relate to or
arise out of the employment or termination of employment of the Executive,
except such claims arising under this Agreement, any employee benefit plan, or
any other written plan or agreement (a "Mutual Release"). The full amount of
Termination Pay shall be paid in a lump sum in cash to the Executive within ten
(10) days following receipt by the Company of a Mutual Release which is
properly executed by the Executive; provided, however, that in the event
applicable law allows the Executive to revoke the Mutual Release for a period
of time, and the Mutual Release is not revoked during such period, the full
amount of Termination Pay shall be paid to the Executive following the
expiration of such period.
3. EXCISE TAXES.
(a) Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding and except as set forth below, if it is determined
that any payment or distribution (a "Payment") by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 3) including, without limitation, vesting of options, would be subject
to the excise tax imposed by Section 4999 of the Code, or if any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, being hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
sufficient to pay all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment.
(b) Calculation of Gross-Up Payment. Subject to the
provisions of paragraph (c) of this Section 3, all determinations required to
be made under this Section 3, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be used
in arriving at such determination, shall be made by a certified public
accounting firm selected by the Company and reasonably acceptable to the
Executive (the "Accounting Firm"), which shall be retained to provide detailed
supporting calculations both to the Company and the Executive. If the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, the Executive shall have the right to
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be paid solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 3, shall be paid by the Company to the Executive
within five (5) days of the receipt of the Accounting Firm's determination. Any
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determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which should have been made
will not have been made by the Company ("Underpayment"), consistent with the
calculations required to be made hereunder. If the Company exhausts its
remedies pursuant to paragraph (c) of this Section 3 and the Executive
thereafter is required to pay an Excise Tax in an amount that exceeds the
Gross-Up Payment received by the Executive the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit of the Executive.
(c) Contested Taxes. The Executive shall notify the Company
in writing of any claim by the Internal Revenue Service that, if successful,
would result in an Underpayment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid or
appealed. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting
such claims as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in
order to effectively contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph (c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and xxx for a
refund or to contest the claim in any permissible manner, and the Executive
agrees to prosecute such contest
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to a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to the amount of the Gross-Up
Payment, and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) Refunds. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to this Section 3, the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
4. CERTAIN COVENANTS BY THE EXECUTIVE.
(a) Covenant Not to Compete. In consideration of the payments
made to the Executive pursuant to this Agreement, the Executive shall not
during the term of his or her employment with the Company and for a period of
two years after termination of the Executive's employment with the Company,
directly or indirectly, engage (whether as owner, partner, stockholder, joint
venturer, manager, investor, employee, consultant, independent contractor or
agent) in any business that competes, directly or indirectly, with the Company
in any jurisdiction in which the Company is conducting business at the time
(provided that the Executive shall not be restricted hereby from owning or
acquiring 5% or less of the outstanding voting securities of a public company),
provided that, the foregoing restriction will terminate immediately if the
Executive's employment with the Company is terminated by the Company without
Cause or by the Executive for Good Reason. The foregoing provision is not
intended to override, supercede, reduce, modify or affect in any manner any
other noncompetition covenant or agreement entered into between Executive and
the Company or any of its Affiliates. Any such covenant or agreement shall
remain in full force and effect in accordance with its terms.
(b) Protection of Confidential Information. The Executive
agrees that he or she will not at any time during or following his or her
employment by the Company, without the Company's prior written consent, divulge
any Confidential Information to any other person or entity or use any
Confidential Information for his or her own benefit. Upon termination of
employment, for any reason whatsoever, regardless of whether either party may
be at fault, the Executive will return to the Company all physical Confidential
Information in the Executive's possession.
(c) Nondisclosure of Agreement. The Executive agrees, at all
times during his or her employment by the Company, not to disclose or discuss
in any manner (whether to
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individuals inside or outside the Company), the existence or terms of, this
Agreement without the prior written consent of the Company, except to the extent
required by law.
(d) Non-Solicitation of Employees. The Executive agrees, for
so long as the Executive remains employed by the Company, and for a period of
two years following the termination of the Executive's employment, that the
Executive shall not, either for the Executive's own account, or on behalf of
any other person or entity, solicit, suggest or request that any other person
employed by the Company or one of its Affiliates leave such employment for the
purpose of becoming employed by the Executive or any other person or entity.
(e) Extent of Restrictions. The Executive acknowledges that
the restrictions contained in this Section 4 correctly set forth the
understanding of the parties at the time this Agreement is entered into, are
reasonable and necessary to protect the legitimate interests of the Company,
and that any violation will cause substantial injury to the Company. In the
event of any such violation, the Company shall be entitled, in addition to any
other remedy, to preliminary or permanent injunctive relief. If any court
having jurisdiction shall find that any part of the restrictions set forth in
this Agreement are unreasonable in any respect, it is the intent of the parties
that the restrictions set forth herein shall not be terminated, but that this
Agreement shall remain in full force and effect to the extent (as to time
periods and other relevant factors) that the court shall find reasonable.
5. TAX WITHHOLDING. All payments to the Executive under this Agreement
will be subject to the withholding of all applicable employment and income
taxes.
6. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect.
7. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the Company and any successor of the Company. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform if no succession had taken place.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. This
Agreement may not be modified in any manner except by a written instrument
signed by both the Company and the Executive.
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9. NOTICES. Any notice required under this Agreement shall be in
writing and shall be delivered by certified mail return receipt requested to
each of the parties as follows:
To the Executive:
((Executive))
((Company))
((Address1))
((Address2))
To the Company:
SUIZA FOODS CORPORATION
0000 XxXxxxxx Xxxxxx, Xxxxx 0000, XX 00
Xxxxxx, Xxxxx 00000
Attn.: General Counsel
Tel.: 000-000-0000
Fax: 000-000-0000
10. GOVERNING LAW. The provisions of this Agreement shall be construed
in accordance of the laws of the State of Delaware, except to the extent
preempted by ERISA or other federal laws, as applicable, without reference to
the conflicts of laws provisions thereof.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the date and year first above written.
SUIZA FOODS CORPORATION
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((SuizaSignature))
((SuizaTitle))
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((Executive))
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