SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
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DEAN FOODS COMPANY
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[DEAN FOODS LOGO]
DEAN FOODS COMPANY
2515 McKinney Avenue
Suite 1200
Dallas, Texas 75201
Telephone: 214.303.3400
Facsimile: 214.303.3499
www.deanfoods.com
[DEAN FOODS LOGO]
2002 PROXY STATEMENT
& NOTICE OF ANNUAL MEETING
DEAN FOODS COMPANY
TABLE OF CONTENTS
YOU ARE INVITED 2
NOTICE OF STOCKHOLDERS' MEETING 3
QUESTIONS AND ANSWERS:
Why did I receive this proxy statement? 4
I received more than one proxy
statement. Why? 4
What will occur at the annual meeting? 4
How many votes are necessary
to re-elect the nominees for director? 5
What if a nominee for director is unwilling
or unable to stand for re-election? 5
How many votes are necessary to ratify
the selection of Deloitte & Touche LLP
as independent auditor? 5
How do I vote? 5
Where can I find the voting results
of the meeting? 6
What if I want to change my vote? 6
What if I do not vote? 6
How do I raise an issue for discussion
or vote at the annual meeting? 7
How much will this solicitation
cost and who will pay for it? 7
MORE ABOUT THE PROPOSALS:
Proposal One: Re-Election of Directors 8
Proposal Two: Ratification of
Selection of Independent Auditor 10
OTHER INFORMATION YOU NEED
TO MAKE AN INFORMED DECISION:
Who is on our Board of Directors? 11
What are the Committees of our Board
of Directors and who serves on
those Committees? 13
Reports to You From Our
Board Committees
Report of the Audit Committee 15
Report of the Compensation and
Stock Option Committee 16
How are Board members paid? 17
Who are our executives? 18
How are our executives paid? 20
What contracts do we have with the
Named Executives? 21
What other relationships do we
have with our officers and directors? 22
How much stock do our officers and
directors own? 24
How has our stock performed? 25
APPENDIX A:
Audit Committee Charter A-1
1
[DEAN FOODS LOGO]
2001 HIGHLIGHTS:
o EFFECTIVE DECEMBER 21, 2001, COMPLETED THE ACQUISITION OF DEAN FOODS
COMPANY, THE SECOND LARGEST DAIRY PROCESSOR IN THE UNITED STATES,* AND
CHANGED OUR NAME FROM SUIZA FOODS CORPORATION TO DEAN FOODS COMPANY (AND
OUR NYSE TRADING SYMBOL FROM "SZA" TO "DF")
o ALSO ON DECEMBER 21, 2001, IN CONNECTION WITH OUR ACQUISITION OF LEGACY
DEAN, PURCHASED THE MINORITY INTEREST IN OUR DAIRY GROUP PREVIOUSLY HELD BY
DAIRY FARMERS OF AMERICA
o REPLACED OUR FORMER CREDIT FACILITIES WITH A NEW $2.7 BILLION CREDIT
FACILITY
o ADDED CERTAIN OF LEGACY DEAN'S BOARD MEMBERS TO OUR BOARD OF DIRECTORS
o LAUNCHED FOLGERS(R) JAKADA(TM) SINGLE-SERVE COFFEE BEVERAGES AND
HERSHEY'S(R) MILKS AND MILKSHAKES IN PLASTIC SINGLE-SERVE BOTTLES
o PURCHASED 25% MINORITY INTEREST IN OUR SPANISH SUBSIDIARY
* The acquired company is referred to in this proxy statement as "Legacy Dean."
[PHOTO]
YOU ARE INVITED
April 24, 2002
DEAR FELLOW STOCKHOLDERS,
We hope that you will come to our annual stockholders' meeting on Thursday, May
30, 2002.
As you will see in the accompanying Annual Report, 2001 was a significant year
for our company. At the annual meeting, after we vote on the proposals described
in this proxy statement, we will present a brief report on our accomplishments
during 2001, as well as an overview of our plans for the rest of this year and
beyond.
As always, we will conclude the meeting by inviting you to ask questions and
make comments.
We look forward to seeing you at this year's meeting.
Sincerely,
/s/ GREGG L. ENGLES
Gregg L. Engles
Chairman of the Board and
Chief Executive Officer
2
NOTICE OF STOCKHOLDERS' MEETING
We will hold this year's annual stockholders' meeting on Thursday, May 30, 2002
at 10:00 a.m. at the Hotel Crescent Court, 400 Crescent Court, Dallas, Texas
75201.
At the meeting, we will ask you to consider and vote on the following proposals
recently adopted by our Board of Directors:
- A proposal to re-elect Tom C. Davis, Stephen L. Green, John R. Muse, P.
Eugene Pender and J. Christopher Reyes as members of our Board of
Directors, and
- A proposal to ratify our Board of Directors' selection of Deloitte & Touche
LLP as our independent auditor for 2002.
We will also discuss and take action on any other business that is properly
brought before the meeting.
If you were a stockholder on April 18, 2002, you are entitled to vote on the
proposals to be considered at this year's meeting.
By order of the Board of Directors,
Sincerely,
/s/ MICHELLE P. GOOLSBY
Michelle P. Goolsby
Executive Vice President,
Chief Administrative Officer,
General Counsel and Corporate Secretary
3
QUESTIONS AND ANSWERS
WHY DID I RECEIVE THIS PROXY STATEMENT?
On April 29, 2002, we began mailing this proxy statement to everyone who was a
stockholder of our company on April 18, 2002. One purpose of this proxy
statement is to let our stockholders know when and where we will hold our annual
stockholders' meeting.
More importantly, this proxy statement:
o Includes detailed information about the matters that will be discussed and
voted on at the meeting, and
o Provides updated information about our company that you should consider in
order to make an informed decision at the meeting.
I RECEIVED MORE THAN ONE PROXY STATEMENT. WHY?
If you received more than one proxy statement, your shares are probably
registered differently or are in more than one account. Please vote each proxy
that you received.
WHAT WILL OCCUR AT THE ANNUAL MEETING?
First we will determine whether enough stockholders are present at the meeting
to conduct business. A stockholder will be deemed to be present at the meeting
if the stockholder:
o Is present in person, or
o Is not present in person but has voted by telephone, internet or mail prior
to the meeting.
According to our bylaws, holders of at least 44,952,279 shares (which is a
majority of the shares of our common stock outstanding on April 18, 2002,
adjusted to reflect the two-for-one stock split effected April 23, 2002) must
be present at this year's meeting in order to conduct the meeting.
If holders of fewer than 44,952,279 shares are present at the meeting, we will
reschedule the meeting. The new meeting date will be announced at the meeting.
If enough stockholders are present at the meeting to conduct business, then we
will vote on:
o A proposal to re-elect Tom C. Davis, Stephen L. Green, John R. Muse, P.
Eugene Pender and J. Christopher Reyes as members of our Board of
Directors, and
o A proposal to ratify our Board of Directors' selection of Deloitte & Touche
LLP as our independent auditor for 2002.
On each proposal, you are entitled to one vote for each share of stock that you
owned on April 18, 2002. Cumulative voting is not permitted.
Each of the proposals has been approved by our Board of Directors. The Board of
Directors is now soliciting your vote on the proposals and recommends that you
vote FOR each of the proposals.
[DEAN FOODS LOGO]
OUR COMMON STOCK WAS THE ONLY CLASS OF STOCK OUTSTANDING ON APRIL 18, 2002. AS
OF THAT DATE, THERE WERE 89,904,556 SHARES OF COMMON STOCK OUTSTANDING (ADJUSTED
TO REFLECT THE TWO-FOR-ONE STOCK SPLIT EFFECTED APRIL 23, 2002, AS IF IT HAD
ALREADY OCCURRED).
4
QUESTIONS AND ANSWERS
AFTER EACH PROPOSAL HAS BEEN VOTED ON AT THE MEETING WE WILL DISCUSS AND TAKE
ACTION ON ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE MEETING. ALSO,
SOME OF OUR OFFICERS WILL REPORT ON OUR RECENT FINANCIAL RESULTS AND OUR CURRENT
OPERATIONS.
HOW MANY VOTES ARE NECESSARY TO RE-ELECT THE NOMINEES FOR DIRECTOR?
The five nominees receiving the highest number of "yes" votes will be elected
as directors. This number is called a plurality.
WHAT IF A NOMINEE FOR DIRECTOR IS UNWILLING OR UNABLE TO STAND FOR RE-ELECTION?
Each of the persons nominated for re-election has agreed to stand for
re-election. However, if unexpected events arise which cause one or more of them
to be unable to stand for re-election, then either:
o The Board of Directors can vote at the meeting to reduce the size of the
Board of Directors, or
o The Board of Directors may, during the meeting, nominate another person for
director.
It is important for you to understand that if our Board of Directors nominates
someone at the meeting, the person to whom you have given your proxy will be
able to use his or her discretion to vote on your behalf for the candidate of
his or her choice.
HOW MANY VOTES ARE NECESSARY TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITOR?
The Board of Directors has responsibility for selection of our independent
auditor. Stockholder ratification is not required. However, the Board of
Directors is soliciting your opinion regarding the selection of Deloitte &
Touche LLP. The Board of Directors plans to take your opinion into account in
selecting our independent auditor for 2003.
HOW DO I VOTE?
To vote, follow the instructions on the enclosed proxy card or voting card.
If you are a registered stockholder, you can also vote at the meeting. If your
shares are in a brokerage account, you might not be a registered stockholder. In
this case, your shares would not be officially registered in your name but,
rather, would be registered in your broker's name (which is sometimes called
"street name"). If your shares are in street name, you cannot vote in person at
the meeting unless you have a proper power of attorney from your broker. You
should, therefore, vote by telephone, internet or mail according to the
instructions on the enclosed voting card in order to ensure that your vote is
counted.
WE ENCOURAGE YOU TO VOTE NOW (BY TELEPHONE, INTERNET OR MAIL) EVEN IF YOU PLAN
TO ATTEND THE MEETING IN PERSON.
Please understand that voting by any means other than voting in person at the
meeting has the effect of appointing Gregg Engles, our Chairman of the Board and
Chief Executive Officer, and Michelle Goolsby, our
5
QUESTIONS AND ANSWERS
Executive Vice President, Chief Administrative Officer, General Counsel and
Corporate Secretary, as your proxies. They will be required to vote on the two
proposals described in this proxy statement exactly as you have voted.
However, if any other matter requiring a stockholder vote is properly raised at
the meeting, then Mr. Engles and Ms. Goolsby will be authorized to use their
discretion to vote on such issues on your behalf.
If you sign your proxy card, but do not specify how you want to vote on a
proposal, then your shares will be voted FOR that proposal.
WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?
We will announce preliminary voting results at the meeting. We will publish the
final results in our quarterly report on Form 10-Q for the second quarter of
2002. We will file that report with the Securities and Exchange Commission in
mid-August of this year, and you can obtain a copy by contacting either our
Investor Relations office (214/303-3400) or the Securities and Exchange
Commission at 800/SEC-0330 or www.sec.gov.
WHAT IF I WANT TO CHANGE MY VOTE?
You can revoke your vote on a proposal at any time before the meeting for any
reason. To revoke your proxy before the meeting, either:
o Write to our Corporate Secretary at 2515 McKinney Avenue, Suite 1200, LB
30, Dallas, Texas 75201, or
o Vote again, either by telephone or internet (the last vote before the
meeting begins will be counted).
If you are a registered stockholder, you may also come to the meeting and change
your vote in writing or orally.
WHAT IF I DO NOT VOTE?
If you do not vote, your failure to vote could affect whether there are enough
stockholders present (in person or by proxy) at the meeting to hold the meeting.
Holders of a majority of the outstanding shares must be present in order to
conduct the meeting. If there are enough stockholders present to conduct the
meeting, your failure to vote will not affect the outcome of either proposal.
If your shares are held in "street name" and you do not vote, your brokerage
firm could:
o Vote for you, if it is permitted by the New York Stock Exchange, or
o Leave your shares unvoted.
Generally, New York Stock Exchange rules will permit your broker to vote for you
on the proposals regarding the election of directors and the ratification of
Deloitte & Touche LLP.
6
QUESTIONS AND ANSWERS
HOW DO I RAISE AN ISSUE FOR DISCUSSION OR VOTE AT THE ANNUAL MEETING?
According to our bylaws, if a stockholder wishes to present a proposal for
consideration at an annual meeting, he or she must send written notice of the
proposal by certified mail to our Corporate Secretary by no later than March 1
of the year of the meeting. We have not received notice of any stockholder
proposals to be presented at this year's meeting.
[DEAN FOODS LOGO]
IF A STOCKHOLDER RAISES A MATTER AT THE MEETING THAT REQUIRES A STOCKHOLDER
VOTE, THE PERSON TO WHOM YOU HAVE GIVEN YOUR PROXY WILL USE HIS OR HER
DISCRETION TO VOTE ON THE MATTER ON YOUR BEHALF.
If you would like your proposal to be included in next year's proxy statement,
you must submit it to our Corporate Secretary in writing by no later than
December 31, 2002. We will include your proposal in our next annual proxy
statement if it is a proposal that we would be required to include in our proxy
statement pursuant to the rules of the Securities and Exchange Commission.
You may write to our Corporate Secretary at 2515 McKinney Avenue, Suite 1200, LB
30, Dallas, TX 75201.
According to our bylaws, any proposal properly raised at the meeting by a
stockholder will require the affirmative vote of a majority of the shares deemed
present at the meeting (whether in person or by proxy).
HOW MUCH WILL THIS SOLICITATION COST, AND WHO WILL PAY FOR IT?
We have engaged Georgeson Shareholder to assist in the distribution of proxy
materials and, if necessary, the solicitation of votes. In addition, certain of
our officers may solicit proxies by mail, telephone, fax or e-mail. We will pay
Georgeson Shareholder a fee of up to $6,000, plus certain expenses. We will also
pay all other costs associated with this proxy statement and the solicitation of
proxies. Upon request, we will reimburse stockbrokers, dealers, banks and
trustees, or their nominees, for reasonable expenses incurred by them in
forwarding proxy materials to beneficial owners of shares of our common stock.
OUR TRANSFER AGENT, THE BANK OF NEW YORK, WILL COUNT THE VOTES AND ACT AS
INSPECTOR OF ELECTION.
7
MORE ABOUT THE PROPOSALS
PROPOSAL ONE: RE-ELECTION OF DIRECTORS
This year's nominees for re-election to the Board of Directors are:
[PHOTO]
TOM C. DAVIS - Director since March 2001
Mr. Davis, age 53, has served as Chief Executive Officer of The Concorde Group,
a private investment firm, since March 2001. He was the managing partner and
head of banking and corporate finance for the Southwest division of Credit
Suisse First Boston (formerly DLJ) from March 1984 to February 2001. In this
position, he worked with several large private equity firms, in addition to a
variety of public and private companies, including companies in the broadcast
and telecommunications, energy, food service and processing and retailing
industries.
[PHOTO]
STEPHEN L. GREEN - Director since October 1994
Mr. Green, age 51, has served as a general partner of Canaan Capital Partners,
L.P., the general partner of Canaan Capital Limited Partnership and Canaan
Capital Offshore Limited Partnership, C.V., one of our former principal
stockholders, since November 1991. From October 1985 until November 1991, Mr.
Green served as Managing Director of GE Capital's Corporate Finance Group. Mr.
Green also serves on the Board of Directors of Advance PCS, a healthcare
resource provider and a publicly-held company.
[PHOTO]
JOHN R. MUSE - Director since November 1997
Mr. Muse, age 51, is co-founder, Chief Operating Officer and a partner of Hicks,
Muse, Tate & Furst Incorporated. Prior to the formation of Hicks, Muse, Tate &
Furst in 1989, Mr. Muse headed the investment/merchant banking activities of
Prudential Securities for the southwest region of the United States from 1984 to
1989. In addition to serving on our Board of Directors, he also serves on the
Boards of LIN Television Corporation, Hillsdown Holdings Limited and Viatel,
each of which has issued publicly-traded securities. Mr. Muse was a member of
the Board of Directors of The Morningstar Group Inc. prior to our acquisition
of that company in November 1997.
[PHOTO]
P. EUGENE PENDER - Director since October 1994
Mr. Pender, age 71, served as Vice President and Controller of The Southland
Corporation until his retirement in December 1987. After his retirement, he
served as a consultant to The Southland Corporation until March 1991. Mr.
Pender, who serves as Chairman of the Audit, Compensation and Stock Option, and
Nominating Committees of our Board of Directors, was re-elected to our Board of
Directors last year for a three-year term, along with the other directors in his
class. However, in December 2001, when we added several new directors in
connection with our acquisition of Legacy Dean, we were required to shift one
director from one class to another in order to comply with our bylaws and our
merger agreement with Legacy Dean. Mr. Pender agreed to switch classes and, as a
result, he must run for re-election again this year.
8
MORE ABOUT THE PROPOSALS
[PHOTO]
J. CHRISTOPHER REYES - Director since December 2001
Mr. Reyes, age 48, is Chairman of the Board of Reyes Holdings, L.L.C., a private
food and beverage distribution company. He has served in that position, or in
equivalent capacities, with Reyes Holdings and its predecessor entities since
1976. He was elected to our Board of Directors in connection with our
acquisition of Legacy Dean on December 21, 2001. Mr. Reyes had served on the
Board of Directors of Legacy Dean since 1999 and was a member of its Audit
Committee.
Messrs. Davis, Green, Muse, Pender and Reyes were unanimously nominated for
re-election by our Board of Directors. They have each consented to be re-elected
as members of our Board of Directors.
[DEAN FOODS LOGO]
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR MR. DAVIS, MR. GREEN, MR.
MUSE, MR. PENDER AND MR. REYES.
9
MORE ABOUT THE PROPOSALS
PROPOSAL TWO: RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
Our Board of Directors, upon the recommendation of the Audit Committee of our
Board of Directors, has selected Deloitte & Touche LLP to serve as our
independent auditor for the 2002 fiscal year and is soliciting your ratification
of that selection.
Your ratification of our Board of Directors' selection of Deloitte & Touche LLP
is not necessary because our Board of Directors has responsibility for selection
of our independent auditor. However, the Board of Directors will take your vote
on this proposal into consideration when selecting our independent auditor in
the future.
THE AUDIT COMMITTEE OF OUR BOARD OF DIRECTORS HAS RESPONSIBILITY FOR OVERSEEING
OUR FINANCIAL REPORTING AND AUDIT PROCESS. SEE PAGE 14 OF THIS PROXY STATEMENT
FOR FURTHER INFORMATION ABOUT THE RESPONSIBILITIES OF OUR AUDIT COMMITTEE, AND
PAGE 15 FOR AN IMPORTANT REPORT BY THE AUDIT COMMITTEE.
[DEAN FOODS LOGO]
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO RATIFY THE
SELECTION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT AUDITOR FOR 2002.
10
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
WHO IS ON OUR BOARD OF DIRECTORS?
In addition to the five directors proposed for re-election, the following
persons currently serve on our Board of Directors:
[PHOTO]
GREGG L. ENGLES - Chairman of the Board, Director since October 1994
Mr. Engles, age 44, has served as our Chief Executive Officer and as a director
since the formation of our company in October 1994. From October 1994 until
December 21, 2001, he served as Chairman of the Board. When we acquired Legacy
Dean on December 21, 2001, Mr. Howard Dean was named Chairman of the Board,
pursuant to our merger agreement with Legacy Dean, and Mr. Engles was named Vice
Chairman of the Board. In April 2002, Mr. Dean retired, and Mr. Engles resumed
his position as Chairman of the Board. Prior to the formation of our company, he
served as Chairman of the Board and Chief Executive Officer of certain
predecessors to our company. He currently serves on the Board of Directors of
Evercom, Inc., an independent provider of inmate telecommunications services
which has issued publicly-traded notes. His term will expire in 2004.
[PHOTO]
ALAN J. BERNON - Director since August 1997
Mr. Bernon, age 47, serves as Chief Operating Officer of the Northeast Region of
our Dairy Group. He was elected to our Board of Directors in connection with our
acquisition of Garelick Farms in 1997. From September 1985 until July 1997, he
served as President of The Garelick Companies. His term will expire in 2004.
[PHOTO]
LEWIS M. COLLENS - Director since December 2001
Mr. Collens, age 64, has served as the President of Illinois Institute of
Technology ("IIT") and Chairman of IIT Research Institute since 1990. From 1974
to 1990, he served as Dean of IIT Chicago-Kent College of Law. Mr. Collens was
elected to our Board of Directors in connection with our acquisition of Legacy
Dean on December 21, 2001. Mr. Collens had served on the Board of Directors of
Legacy Dean since 1991 and was Chairman of its Audit Committee and a member of
its Corporate Governance Committee. His term will expire in 2003.
[PHOTO]
JOSEPH S. HARDIN, JR. - Director since May 1998
Mr. Hardin, age 56, served as Chief Executive Officer of Kinko's, Inc. from May
1997 until January 2001. Currently retired, Mr. Hardin held a variety of
positions from 1986 to April 1997 with increasing responsibility at Wal-Mart
Stores, Inc., ultimately as an Executive Vice President and as the President and
Chief Executive Officer of SAM's Club, the wholesale division of Wal-Mart
Stores, Inc. His term will expire in 2004.
11
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
[PHOTO]
JANET HILL - Director since December 2001
Mrs. Hill, age 54, has served as Vice President of Alexander & Associates, a
corporate consulting firm, since 1981. She was elected to our Board of
Directors in connection with our acquisition of Legacy Dean on December 21,
2001. Mrs. Hill had served on the Board of Directors of Legacy Dean since 1997
and was a member of its Audit and Corporate Governance Committees. In addition
to ours, she serves on the Boards of four other public companies including
Progressive Insurance, Wendy's International, Nextel Communications and Security
Capital Group, a real estate operating company. Her term will expire in 2003.
[PHOTO]
JOHN S. LLEWELLYN, JR. - Director since December 2001
Mr. Llewellyn, age 67, served as President and Chief Executive Officer of Ocean
Spray Cranberries, Inc. from 1988 until his retirement in 1997. He was elected
to our Board of Directors in connection with our acquisition of Legacy Dean on
December 21, 2001. Mr. Llewellyn had served on the Board of Directors of Legacy
Dean since 1994 and was a member of its Compensation and Corporate Governance
Committees. His term will expire in 2004.
[PHOTO]
HECTOR M. NEVARES - Director since October 1994
Mr. Nevares, age 51, was President of Suiza Dairy, our Puerto Rico dairy, from
June 1983 until September 1996, having served in additional executive capacities
at Suiza Dairy since June 1974. From March 1998 until April 2000, he served as a
consultant for us. Mr. Nevares also sits on the Board of Directors of First Bank
P.R. (FBP) in San Juan, Puerto Rico. His term will expire in 2003.
[PHOTO]
PETE SCHENKEL - Director since January 2000
Mr. Schenkel, age 66, joined our company in January 2000 as President of our
Dairy Group and a member of our Board of Directors. From 1959 to December 31,
1999, he served in various capacities at Southern Foods Group (now a part of our
Dairy Group), including Chairman of the Board and Chief Executive Officer from
1994 through 1999, and President from 1987 to 1994. He was elected to our Board
of Directors in connection with our acquisition of Southern Foods Group in
January 2000. His term will expire in 2003.
[PHOTO]
JIM L. TURNER - Director since November 1997
Mr. Turner, age 56, has served as President and Chief Executive Officer of Dr.
Pepper /Seven-Up Bottling Group, Inc. since its formation in 1999. Prior to
that, since 1985, he held similar positions with various predecessors to Dr.
Pepper/Seven-Up Bottling Group, Inc. Mr. Turner was a member of the Board of
Directors of The Morningstar Group Inc. prior to our acquisition of that company
in November 1997. His term will expire in 2003.
12
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
WHAT ARE THE COMMITTEES OF OUR BOARD OF DIRECTORS AND WHO SERVES ON THOSE
COMMITTEES?
The chart below lists all of the Committees of our Board of Directors, and
indicates who serves on those Committees and how many times each Committee met
during 2001.
COMPENSATION STRATEGIC
BOARD MEMBER AUDIT & STOCK OPTION EXECUTIVE NOMINATING PLANNING(1)
------------ ----- -------------- --------- ---------- -----------
Bernon *
Collens *
Davis *
Engles *(2) *
Green * * *
Hardin * * *(2)
Hill *
Llewellyn * *
Nevares *
Pender *(2) *(2) *(2)
Reyes *
Turner * * *
Meetings in 2001 8 1 0 0 0(1)
(1) The Strategic Planning Committee was formed in late 2001. It held its first
meeting in February 2002.
(2) Chairman of the Committee.
13
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
Set forth below are brief descriptions of the responsibilities of our Board
Committees.
AUDIT COMMITTEE: Our Audit Committee, which is composed entirely of non-employee
directors (who meet the standard of independence required by Sections 303.01 (B)
(2) (a) and (3) of the New York Stock Exchange's listing standards), is charged
with the duties of, among other things, assuring that proper guidelines are
established for the dissemination of financial information; meeting periodically
with, and reviewing recommendations of, our independent and internal auditors;
meeting periodically with management with respect to our system of internal
controls and accounting systems; determining that no restrictions are placed on
the scope of the examination of the financial statements by the independent
auditor; reviewing consolidated financial statements; reviewing with our legal
counsel compliance with our Code of Business Conduct; and performing any other
duties or functions deemed appropriate by the Board of Directors. The Committee
also recommends to the Board of Directors the appointment of our independent
auditor. The independent auditor has direct access to the Audit Committee and
may discuss any matters that arise in connection with its audit, the maintenance
of internal controls and any other matters relating to our financial affairs.
The Committee may authorize the independent auditor to investigate any matters
that the Committee deems appropriate and may present its recommendations and
conclusions to the Board of Directors. The Audit Committee operates under a
written charter adopted by the Board of Directors, a copy of which is appended
to this proxy statement as Appendix A.
COMPENSATION AND STOCK OPTION COMMITTEE: Our Compensation and Stock Option
Committee, which is also comprised entirely of non-employee directors, is
responsible for recommending to the full Board the salary amounts for our Chief
Executive Officer and each of our other executive officers and making the final
determination regarding bonus arrangements to such persons. The Committee also
acts in an advisory role on non-executive employee compensation. The Committee
administers our stock option and restricted stock plans and makes final
determinations regarding awards of stock options and restricted stock to our
executive officers. It acts in an advisory role in determining stock option
grants to other officers and employees.
EXECUTIVE COMMITTEE: The Executive Committee has limited powers to act on behalf
of the Board of Directors when the Board of Directors is not in session. This
Committee meets only as needed.
NOMINATING COMMITTEE: The Nominating Committee determines qualifications for
directors, and considers and recommends nominees for election as directors. The
Nominating Committee will consider stockholder recommendations submitted in
writing and addressed to our Corporate Secretary.
STRATEGIC PLANNING COMMITTEE: The Strategic Planning Committee, formed during
the pendency of our acquisition of Legacy Dean, has been assigned the task of
working with our executives to chart the strategic course of our company, with
the goal of maximizing shareholder returns over the medium to long term.
Specific areas being addressed by the Committee include business mix, capital
and other resource allocation and earnings growth.
14
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
REPORTS TO YOU FROM OUR BOARD COMMITTEES
REPORT OF THE AUDIT COMMITTEE
Management of the company has primary responsibility for the company's financial
statements and the reporting process, including the system of internal controls.
The company's independent auditor has responsibility for performing an
independent audit of the company's consolidated financial statements in
accordance with generally accepted auditing standards in the United States and
to issue a report thereon. The Audit Committee has general oversight
responsibility to monitor and oversee these processes.
We have met with representatives of Deloitte & Touche and company management to
review and discuss the company's audited consolidated financial statements for
the year ended December 31, 2001. We have also discussed with Deloitte & Touche,
and they have provided written disclosures to us, regarding (1) the matters
required to be communicated under generally accepted auditing standards
(Standard No. 61, Communication with Audit Committees), and (2) Deloitte &
Touche's independence, as required by the Independence Standards Board (Standard
No. 1, Independence Discussions with Audit Committees).
Deloitte & Touche has served as independent auditor for the company since its
formation. Deloitte & Touche periodically changes the personnel who work on the
audit. In addition to performing the audit of the company's consolidated
financial statements, Deloitte & Touche also provides various other services to
the company. The aggregate fees and reimbursable expenses billed to the company
and its subsidiaries by Deloitte & Touche for 2001 are:
Audit Fees $ 2,819,000
Financial Information Systems
Design & Implementation Fees $ 221,000
All Other Fees* $10,780,000
-----------
$13,820,000
* All Other Fees includes fees billed for audit-related services of $6.4
million and non-audit services of $4.4 million. In 2001, audit-related
services included fees for employee benefit plan audits, due diligence and
related services on acquisitions and divestitures, accounting
consultations, internal audit consultations and work on SEC filings.
Non-audit services included fees for tax consultations, tax preparation and
other consulting on benefit plans and cash management systems.
The Audit Committee has reviewed summaries of the services provided by Deloitte
& Touche and the related fees and has considered whether the provision of
non-audit services is compatible with maintaining the independence of Deloitte &
Touche. Based on our review of these summaries, our discussions with management
and the independent auditor, as described above, and the representations of
management and the independent auditor, we have recommended to the Board of
Directors that the audited consolidated financial statements be included in the
company's annual report on Form 10-K for the year ended December 31, 2001, for
filing with the Securities and Exchange Commission.
We have also recommended that Deloitte & Touche be selected as the company's
independent auditor for 2002.
Representatives of Deloitte & Touche will be present at the annual meeting to
make a statement, if they choose, and to answer any questions you have.
THIS REPORT IS PRESENTED BY:
Lewis M. Collens
Stephen L. Green
P. Eugene Pender
J. Christopher Reyes
Jim L. Turner
Members of the Audit Committee
15
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
Our goals in setting compensation for our executives are:
o To attract and retain highly capable executives,
o To motivate the performance of executives in support of achievement of the
company's strategic financial and operating performance objectives, and
o To reward performance that meets this standard.
In order to ensure that we are able to attract and retain the highest caliber
management, we endeavor to ensure that total compensation is comparable to that
offered by competitors for the company's management talent. In order to ensure
that management's interests are aligned with those of shareholders and to
motivate and reward individual initiative and effort, we have put an emphasis on
performance-based compensation so that contribution to the company (or
individual business units) as a whole, as well as the attainment of individual
performance goals in some cases, is rewarded. Through the use of
performance-based plans that emphasize attainment of company or business-unit
goals, we seek to foster an attitude of teamwork, and the use of tools such as
equity ownership is important to ensure that the efforts of management are
consistent with the objectives of shareholders.
At present, the compensation of our chief executive officer and other executive
officers consists of the following:
BASE SALARY: The recommended base salary for Gregg Engles, the Chief Executive
Officer, and for each of the other executive officers was determined after
review of:
o Publicly available information concerning the base salaries of executives
with similar responsibilities in companies of comparable size in general
industry and in the food industry,
o The responsibilities of each executive officer, and
o The subjective evaluation of such officer's overall performance and
contribution to the company.
ANNUAL INCENTIVE COMPENSATION: Year-end cash bonuses are designed to motivate
Mr. Engles and the other executive officers to achieve annual financial and
other goals based on the strategic, financial and operating performance
objectives of the company. In conjunction with our review of the strategic and
operating plans of the company, each year we establish target performance levels
for the executive officers based either on the company's earnings per share, the
performance of particular operating units over which the executive has control
or on individual goals, or some combination thereof. Bonus amounts were paid to
the executive officers for 2001 based on target performance levels reached.
STOCK OPTIONS: We believe that a significant portion of executive compensation
should be dependent on value created for stockholders. Stock options are
generally granted annually, with an exercise price of fair market value on the
date of the grant. In selecting recipients for option grants and in determining
the size of such grants, we consider various factors such as the long term
incentives granted to executive officers in companies of comparable size in
general industry and in the food industry, the earnings level of the company (or
individual business units) and the contributions of the individual recipient to
the company.
BENEFITS: Executive officers also receive benefits typically offered to
executives by companies engaged in businesses similar to the company's and
various benefits generally available to all employees of the company (such as
health insurance).
16
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
Mr. Engles' base salary for 2001 was $880,000, which was the same as his base
salary for 2000. Based on our review of the criteria described above under the
heading "Base Salary," we determined that Mr. Engles' base salary was in line
with market levels. Therefore, his base salary was not increased in 2001.
Mr. Engles' target bonus for 2001 was 100% of his base salary, with a potential
range of 0% to 200% of his base salary, depending on the degree of attainment of
budgeted earnings per share for 2001. Mr. Engles' actual bonus earned for 2001
was $976,800, which reflects the fact that in 2001 the company's earnings per
share were slightly higher than the budgeted target.
In 2001, Mr. Engles received options to purchase 400,000 shares (on a post-split
basis) of common stock. In making this option grant, we considered the factors
described in this report under the heading "Stock Options."
THIS REPORT BY:
Stephen L. Green
Joseph S. Hardin, Jr.
John S. Llewellyn, Jr.
P. Eugene Pender
Members of the Compensation and Stock Option Committee
IN SETTING COMPENSATION FOR 2001 AND 2002, THE COMPENSATION AND STOCK OPTION
COMMITTEE ENGAGED TOWERS PERRIN, AN INDEPENDENT COMPENSATION CONSULTING FIRM, TO
PROVIDE INFORMATION CONCERNING COMPARABLE COMPENSATION LEVELS AT OTHER
PUBLICLY-HELD COMPANIES AND OTHER RELEVANT INFORMATION.
HOW ARE BOARD MEMBERS PAID?
Employee directors receive no compensation for serving on the Board of Directors
or its Committees other than their normal salaries. In 2002, non-employee
directors will receive:
o An annual grant of 7,500 immediately exercisable stock options,
o A $15,000 annual fee, payable quarterly in arrears,
o $1,500 for each meeting attended in person and $750 for each meeting
attended by telephone,
o $1,000 per year for each committee served on,
o $2,000 per year for chairing a committee, and
o Reimbursement of travel expenses for attending meetings.
Non-employee directors may elect to receive their fees in shares of restricted
common stock rather than in cash. If a director makes this election, he or she
will receive shares with a value equal to 150% of the cash amount owed to him or
her. 1/3 of the restricted shares vest on the date of grant; 1/3 vest on the
first anniversary of the grant date; and the final 1/3 vest on the second
anniversary of the grant date.
All of our non-employee directors elected to receive their fees earned during
2001 in shares of restricted stock rather than in cash.
OUR BOARD OF DIRECTORS HELD 4 REGULAR AND 8 SPECIAL MEETINGS IN 2001, AND ACTED
3 TIMES BY WRITTEN CONSENT.
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OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
WHO ARE OUR EXECUTIVES?
Our executive officers are:
MIGUEL CALADO - Executive Vice President and President of International
Mr. Calado, age 46, joined us in September 1998 as Executive Vice President and
President of International. Prior to joining us, he served in a number of senior
executive positions at PepsiCo from 1983 until September 1998, most recently as
Senior Vice President - Finance and Chief Financial Officer for Frito Lay
International. Prior to joining PepsiCo in 1983, he served in various capacities
at Samarco Mineracao, S.A. in Brazil.
GREGG L. ENGLES - Chairman of the Board and Chief Executive Officer
See Mr. Engles' biography on page 11.
BARRY A. FROMBERG - Executive Vice President and Chief Financial Officer
Mr. Fromberg, age 46, joined us in June 1998 as Executive Vice President and
Chief Financial Officer. Prior to joining us, he served as Chairman and Chief
Executive Officer of a subsidiary of Paging Network, Inc. from 1995 to 1998. He
was Senior Vice President and Chief Financial Officer of Paging Network, Inc.
from 1993 to 1995. He served as Executive Vice President and Chief Financial
Officer of Simmons Communications, Inc., a cable television operator from 1987
to 1993. From 1980 to 1987 he was Manager of Corporate Development for Comcast
Corporation. Mr. Fromberg was a Senior Accountant with Coopers and Lybrand from
1977 to 1980.
MICHELLE P. GOOLSBY - Executive Vice President, Chief Administrative Officer,
General Counsel and Corporate Secretary
Ms. Goolsby, age 44, joined us in July 1998 as Executive Vice President, General
Counsel and Corporate Secretary. In August 1999, she assumed the additional role
of Chief Administrative Officer. From September 1988 until July 1998, Ms.
Goolsby held various positions with the law firm of Winstead Sechrest & Minick.
Prior to joining Winstead Sechrest & Minick, she held various positions with the
Trammell Crow Company. Ms. Goolsby also serves on the Board of Directors of
Horizon Organic Holding Company, in which we own a minority interest.
HERMAN "BING" GRAFFUNDER - President, Morningstar/Specialty Group
Mr. Graffunder, age 56, has served as President of our Morningstar division
since February 1999. He is also responsible for our Puerto Rico dairy operations
and, upon completion of our acquisition of Legacy Dean, he assumed
responsibility for our new Specialty Foods segment. He joined us in February of
1998 as Senior Vice President, Operations. Prior to joining us, he was President
of Authentic Specialty Foods and Chief Executive Officer of Calidad Foods from
1993 to January 1998. From 1990 to 1993, he served as President and Chief
Operating Officer of Oak Farms Dairy and from 1984 to 1990, he served as
division manager for several of The Southland Corporation's and The Morningstar
Group. Inc.'s regional operations.
PETE SCHENKEL - President, Dairy Group
See Mr. Schenkel's biography on page 12.
The Chief Operating Officers for our Dairy Group operating regions, all of whom
report to the President of our Dairy Group, are:
RICK BEAMAN - Southwest region
Mr. Beaman, age 44, has served as Chief Operating Officer of our Southwest
region since January 2000, when we formed that region in connection with our
acquisition of Southern Foods. Prior to joining us, he worked in several
positions at Southern Foods, including
18
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
Executive Vice President during 1999, Vice President in 1997 and 1998, and
general manager of Southern Foods' Oak Farms Dairy from 1991 to 1997. Prior to
joining Southern Foods, he worked in various capacities at Borden, Inc. for 17
years.
ALAN J. BERNON - Northeast region
See Mr. Bernon's biography on page 11.
RICK FEHR - Southeast region
Mr. Fehr, age 50, has served as Chief Operating Officer of our Southeast region
since February 1998. He joined us in November 1996 as Vice President of
Operations. Prior to joining us, he served in various capacities with The
Morningstar Group Inc. from 1988, including most recently Vice President of
Operations.
JACKIE JACKSON - Midwest region
Mr. Jackson, age 63, was named Chief Operating Officer of our Midwest Region in
April 2002. From January 2000 to April 2002, he served as a Regional Vice
President of the Southwest Region of our Dairy Group and from 1990 to January
2000, he served as manager of Southern Foods' Oak Farms Dairy operations in
Houston, Texas. Prior to joining Southern Foods, he worked in various capacities
at Borden, Inc.
The President of our Specialty Foods Group, who reports to the President of the
Morningstar/Specialty Group, is:
JAMES R. GREISINGER - Specialty Foods
Mr. Greisinger, age 62, joined Legacy Dean in 1962, where he held various
positions before becoming President of the Specialty Foods group in 2000.
19
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
HOW ARE OUR EXECUTIVES PAID?
These were our most highly paid executives in 2001. These individuals are
referred to in this proxy statement as our "Named Executives".
SUMMARY COMPENSATION TABLE
Long Term
Compensation
---------------
Other Annual Options Granted
Name & Principal Position Year Salary Bonus Compensation (in shares)(1)
------------------------- ---- ------ ----- ------------ ---------------
GREGG L. ENGLES 2001 $880,000 $976,800(2) $169,869(3) 400,000
Chairman of the Board & 2000 $880,000 $945,384(2) $164,341(3) 330,000
Chief Executive Officer 1999 $800,000 $888,000(2) $100,289(3) 294,000
PETE SCHENKEL 2001 $575,000 $388,772 $812,057(4) 200,000
President
Dairy Group 2000 $575,000 $662,895 229,000
RICK FEHR 2001 $400,000 $385,440(5) $67,028(3) 80,000
Chief Operating Officer 2000 $380,000 $361,511(5) $62,868(3) 80,000
Dairy Group, Southeast Region 1999 $292,500 $234,900(5) $40,533(3) 72,000
RICK BEAMAN 2001 $350,000 $309,629 80,000
Chief Operating Officer 2000 $305,000 $260,672 $505,920(6) 55,000
Dairy Group, Southwest Region
HERMAN "BING" GRAFFUNDER 2001 $425,000 $203,873(7) $1,615(3) 90,000
President 2000 $400,000 $380,538(7) $3,017(3) 92,000
Morningstar/Specialty Group 1999 $334,615 $274,050(7) $1,812(3) 72,000
HOWARD DEAN(8) 2001 $756,437 $611,900
Retired Chairman of the Board
NOTES TO SUMMARY COMPENSATION TABLE:
1. All share numbers presented in this table, and in the footnotes to this
table, have been adjusted to reflect the two-for-one stock split effected
on April 23, 2002, as if it had already occurred.
2. Mr. Engles deferred 100% of his 2001 and 2000 bonuses pursuant to our
Deferred Compensation Plan and allocated the entire deferral toward
investment in shares of our common stock. He deferred $704,000 of his 1999
bonus and allocated $586,320 of that amount toward investment in shares of
our common stock. Shares of common stock purchased under the Deferred
Compensation Plan are purchased at a 15% discount.
3. Represents the discount on shares purchased with deferred bonus under the
Deferred Compensation Plan.
4. This represents the first of four annual distributions that Mr. Schenkel
will receive as a result of the termination of a non-qualified retirement
plan maintained by Southern Foods prior to our acquisition of that company
effective January 2000.
5. Mr. Fehr deferred 100% of his 2001, 2000 and 1999 bonuses pursuant to our
Deferred Compensation Plan and each year allocated the entire deferral
toward investment in shares of our common stock. Shares of common stock
purchased under the Deferred Compensation Plan are purchased at a 15%
discount.
6. Represents primarily a one-time lump sum payment of $505,920 made as a
result of the termination of a non-qualified retirement plan maintained by
Southern Foods prior to our acquisition of that company in January 2000.
7. Mr. Graffunder deferred $30,581 of his 2001 bonus pursuant to our Deferred
Compensation Plan, and allocated $9,174 of that amount toward investment in
shares of our common stock. He deferred $57,081 of his 2000 bonus and
allocated $17,124 of that amount toward investment in our common stock, and
he deferred $41,108 of his 1999 bonus and used $10,277 of that amount to
invest in our common stock. Shares of common stock purchased under the
Deferred Compensation Plan are purchased at a 15% discount.
8. Prior to our acquisition of Legacy Dean, Mr. Dean served as Chief Executive
Officer and Chairman of the Board of Legacy Dean. In connection with our
acquisition of Legacy Dean, Mr. Dean was named Chairman of our Board of
Directors on December 21, 2001. He retired effective April 12, 2002.
20
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
OPTION GRANTS IN 2001* (TO NAMED EXECUTIVES)
Potential Realizable
No. of Percentage of Value at Assumed
Shares Total Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees Price Expiration for Option Term
Granted(1) During 2001(1) ($/share) Date(2) 5%(3) 10%(3)
---------- -------------- --------- ---------- ---------- -----------
Gregg Engles 400,000 15.69% $21.5625 1/22/2011 $5,424,216 $13,746,029
Pete Schenkel 200,000 7.84% $21.5625 1/22/2011 $2,712,108 $ 6,873,014
Rick Fehr 80,000 3.14% $21.5625 1/22/2011 $1,084,843 $ 2,749,206
Rick Beaman 80,000 3.14% $21.5625 1/22/2011 $1,084,843 $ 2,749,206
Bing Graffunder 90,000 3.53% $21.5625 1/22/2011 $1,220,449 $ 3,092,856
* All amounts in the Option Grant table, and the notes hereto, have been
adjusted to reflect the two-for-one stock split effective April 23, 2002, as if
it had already occurred.
NOTES TO OPTION GRANT TABLE:
1. The total number of options granted during 2001 was 2,550,100.
2. All vest as follows: 1/3 on first anniversary of grant, 1/3 on second
anniversary of grant, and 1/3 on third anniversary of grant.
3. The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the Securities and Exchange Commission. The
actual value, if any, that an executive may realize will depend on the
excess of the stock price over the exercise price on the date the option is
exercised.
NONE OF THE NAMED EXECUTIVES EXERCISED ANY OPTIONS DURING 2001.
WHAT CONTRACTS DO WE HAVE WITH THE NAMED EXECUTIVES?
CHANGE IN CONTROL AGREEMENTS
We have entered into severance agreements with all of our Named Executives,
except Mr. Dean, pursuant to which we must
o pay each of the Named Executives a lump sum of cash equal to 2 to 3 times
his base annual salary plus his target bonus for the year in which the
termination occurs, in addition to a gross-up payment to pay for any
applicable excise taxes,
o continue the executive's insurance benefits for 2 years, and
o accelerate the vesting of all unvested options held by the executive
if, in connection with or within 2 years after a change in control (as defined
in the agreements) of our company
o the Named Executive officer's employment is terminated by us or any
successor of ours without cause (as defined in the agreements), or
o the Named Executive officer's employment is terminated by the executive for
good reason (as defined in the agreement).
Also, certain of these agreements provide that the officer has the right, at any
time beginning on the first anniversary of a change in control and ending on the
second anniversary of a change in control, to voluntarily terminate his
employment for any reason and receive a cash payment in an amount equal to
one-half of the executive's base annual salary plus one-half of his target bonus
for the year in which the termination occurs. The agreements also contain
o a covenant pursuant to which the executives have agreed not to compete with
us for 2 years after termination,
21
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
o a confidentiality provision pursuant to which the executives have agreed
not to divulge any of our confidential information, and
o agreements not to solicit any of our employees for 2 years after
termination.
RETIREMENT AND CONSULTING AGREEMENTS WITH MR. DEAN
On April 12, 2002, we entered into two agreements with Mr. Dean, including a
Retirement and Release Agreement and a Consulting and Noncompete Agreement. The
Retirement and Release Agreement confirms Mr. Dean's retirement from his
position as Chairman and director of our Board, contains his agreement to
remain as an employee through June 30, 2002 to provide such transition services
as we may reasonably request, and evidences certain payments to which he is
entitled including:
o continued salary at his annual rate of $771,800 through June 30, 2002,
o a cash lump sum amount equal to $395,000 in full settlement of his rights
under Legacy Dean's target annual bonus plan for 2002,
o a transition bonus in the amount of $600,000 for services provided during
the period from April 4, 2001 through March 31, 2002,
o a cash lump sum amount equal to approximately $1 million, which is his
target long-term incentive award for 2000 under Legacy Dean's 1989 Stock
Awards Plan,
o a cash lump sum amount equal to approximately $15 million in exchange for
his outstanding stock options, pursuant to certain surrender rights
contained in those agreements, and
o a cash lump sum of approximately $2.2 million in consideration for release
of his claim to a gross-up for taxes on the surrender of his nonqualified
stock options.
We also agreed to provide Mr. Dean and his wife with certain supplemental
medical insurance benefits for the remainder of their lives and certain normal
retirement benefits.
Under our Consulting and Noncompete Agreement with Mr. Dean, Mr. Dean has agreed
to render certain integration-related consulting services to us during the
12-month period beginning July 1, 2002. We will pay him a total of $875,000 for
those services. Also in the Consulting and Noncompete Agreement, Mr. Dean has
agreed that, during the term of the agreement, he will not compete with our
dairy business or solicit our dairy customers or employees.
WHAT OTHER RELATIONSHIPS DO WE HAVE WITH OUR OFFICERS AND DIRECTORS?
AIRCRAFT LEASES
On August 1, 2000, we entered into a five-year Aircraft Lease Agreement with
Neptune Colorado, LLC, a limited liability company owned by Gregg Engles and
Pete Schenkel. Pursuant to the lease agreement, we have agreed to lease an
airplane from Neptune Colorado at a rate of $1000 per hour for each hour of
flight with a minimum of 40 flight hours per month. We also pay a non-refundable
equipment reserve charge equal to $83.10 per engine hour used during the term of
the agreement. Reserve funds are used by the lessor for engine or propeller
overhauls, removal or replacement during the term of the agreement. We are
responsible for paying all taxes related to and insurance for the airplane, and
for all regular maintenance costs of the airplane, as well as all operating
costs, crew salaries, benefits, landing and customs fees, hangar and storage
charges and any
22
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
fines or penalties arising from our operation or use of the airplane. We paid an
aggregate amount of approximately $0.6 million to Neptune Colorado, LLC during
2001 under the lease.
In June 2001, we entered into a six-year aircraft lease agreement with Curan,
LLC, a limited liability company also owned by Gregg Engles and Pete Schenkel.
Pursuant to the lease agreement, we agreed to lease an airplane from Curan at a
rate of $122,000 per month. We also must set up a non-refundable equipment
reserve account, the amount of which will be determined periodically by a third
party. Reserve funds are used by the lessor for engine overhauls, removal or
replacement during the term of the agreement. We are responsible for paying all
taxes related to and insurance for the airplane, as well as all operating costs,
crew salaries and benefits, landing and customs fees, hangar and storage charges
and any fines or penalties arising from our operation or use of the airplane. We
paid an aggregate of $0.9 million to Curan, LLC during 2001 under the lease.
REAL PROPERTY LEASE
We lease the land for our Franklin, Massachusetts plant from a partnership
owned by Alan Bernon and his family. Our lease payments during 2001 totaled $.6
million.
MINORITY INTEREST IN CONSOLIDATED CONTAINER HOLDING COMPANY
Alan Bernon and his brother, Peter Bernon, own 12.0% of Franklin Plastics, Inc.,
which owns 49.1% of Consolidated Container Company ("CCC"). We own the remaining
88.0% of Franklin Plastics. In February 2002, we entered into an agreement with
Alan Bernon and Peter Bernon pursuant to which they have agreed to reimburse us,
collectively, for 12% of any amounts paid by us under our February 2002 guaranty
of up to $10 million of CCC's indebtedness.
ISSUANCE OF STOCK
In connection with our purchase of The Garelick Companies in July 1997, Alan
Bernon and Peter Bernon, former owners of The Garelick Companies, each received,
in addition to certain cash consideration, 74,350 restricted shares of our
common stock. The shares were placed in escrow, to be released in equal
installments over 5 years subject to the accomplishment of certain financial
objectives. The first shares were released to Mr. Bernon in 1998 and in each of
1999, 2000 and 2001. The price paid to Mr. Bernon for the business, and the
terms and conditions of the restrictions on the restricted stock, were
determined by negotiations between us and the former owners of The Garelick
Companies.
CERTAIN LEGAL FEES
During 2001, we paid fees and expenses of approximately $104,000 to Locke
Liddell & Sapp LLP for services rendered on various matters. Michelle Goolsby's
husband is a partner at Locke Liddell & Sapp LLP.
23
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
HOW MUCH STOCK DO OUR OFFICERS AND DIRECTORS OWN?
On this page is information as of April 15, 2002 concerning:
o Each stockholder known by us to beneficially own more than 5% of our
outstanding common stock,
o Each director and each Named Executive, and
o All directors and executive officers as a group.
Number of Shares Percent of
Beneficial Owner of Common Stock* Class(1)*
---------------- ---------------- ----------
Beaman, Rick 29,126(2) **
Bernon, Alan J. 457,596(3) **
Collens, Lewis M. 2,000 **
Davis, Tom C. 16,138(4) **
Dean, Howard M. 315,000(5) **
Engles, Gregg L. 3,559,346(6) 3.7%
Fehr, Rick 375,352(7) **
Graffunder, Herman L. 171,088(8) **
Green, Stephen L. 91,846(9) **
Hardin, Jr., Joseph S. 69,404(10) **
Hill, Janet 13,966(11) **
Llewellyn, Jr., John S. 25,568(12) **
Muse, John R. 217,060(13) **
Nevares, Hector M. 660,192(14) **
Pender, P. Eugene 93,780(15) **
Reyes, J. Christopher 4,512(16) **
Schenkel, Pete 167,456(17) **
Turner, Jim L. 207,454(18) **
All executive officers
and directors as a group
(18 persons) 6,174,476(19) 6.4%
FMR Corp.(22) 8,433,576(20) 8.0%(20)
* All amounts shown in this chart reflect the two-for-one stock split effected
April 23, 2002, as if it had already occurred.
** = Less than 1%
Notes to Beneficial Ownership Table:
(1) Except for the percentage owned by FMR, all percentages are based on
102,061,492 shares of common stock outstanding as of April 15, 2002, minus
12,172,958 shares held in treasury as of that date, plus 7,151,324 shares,
which was the total number of outstanding options exercisable within 60
days.
(2) Beaman: Includes 26,668 exercisable options.
(3) Bernon: Includes 79,868 shares subject to exercisable options
(4) Davis: Includes 15,000 shares subject to exercisable options
(5) Dean: Includes 266,270 shares owned indirectly by Family Limited
Partnership
(6) Engles: Includes 1,602,534 shares subject to exercisable options
(7) Fehr: Includes 292,002 shares subject to exercisable options
(8) Graffunder: Includes 163,334 shares subject to exercisable options
(9) Green: Includes 75,000 shares subject to exercisable options
(10) Hardin: Includes 60,000 shares subject to exercisable options
(11) Hill: Includes 13,536 shares subject to exercisable options
(12) Llewellyn: Includes 25,568 shares subject to exercisable options
(13) Muse: Includes 60,000 shares subject to exercisable options and 2,300
shares owned by family members; Mr. Muse disclaims ownership of family
owned shares
(14) Nevares: Includes 259,350 shares subject to exercisable options and
(15) Pender: Includes 81,900 shares subject to exercisable options and 6,700
shares owned indirectly through entities controlled by Mr. Pender.
(16) Reyes: Includes 4,512 shares subject to exercisable options
(17) Schenkel: Includes 159,336 shares subject to exercisable options
(18) Turner: Includes 102,500 shares subject to exercisable options
(19) Includes a total of 3,094,312 shares subject to exercisable options held by
the executive officers and directors.
(20) As reported on Form 13G filed on February 14, 2002 by FMR Corp., 82
Devonshire Street, Boston, MA 02109. Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment
adviser registered under Section 203 of the Investment Advisers Act of
1940, is the beneficial owner of 7,538,238 shares of our common stock as a
result of acting as investment adviser to various investment companies
registered under Section 8 of the Investment Company Act of 1940. The
number of shares of our stock owned by the investment companies at December
31, 2001 included 653,698 shares of common stock resulting from the assumed
conversion of 511,500 shares of our convertible preferred stock. For
purposes of calculating the percentage owned by FMR, the total number of
shares of common stock into which our convertible preferred securities are
convertible has been added to the denominator, as required by Securities
Exchange Act Rule 13d-3(1). The convertible shares have not been added to
denominator for purposes of calculating the shares owned by any other
person named in the table. Edward C. Johnson III, FMR Corp., through its
control of Fidelity, and the Funds each has sole power to dispose of the
7,538,238 shares owned by the Funds. Neither FMR Corp. nor Edward C.
Johnson III, chairman of FMR, has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Boards of Trustees. Fidelity carries out the voting
of the shares under written guidelines established by the Funds' Boards of
Trustees. Fidelity Management Trust Company, 82 Devonshire Street, Boston,
MA -02109, a wholly-owned subsidiary of FMR Corp. and a bank as defined in
Section 3(a)(6) of the Securities Exchange Act, is the
24
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
beneficial owner of 801,938 shares of our common stock as a result of its
serving as investment manager of the institutional accounts. Edward C.
Johnson III and FMR Corp., through its control of Fidelity Management Trust
Company, each has sole dispositive power over 801,938 shares and sole power
to vote or to direct the voting of 781,732 shares, and no power to vote or
to direct the voting of 20,206 shares of our common stock owned by the
institutional accounts as reported above. Members of the Edward C. Johnson
III family are the predominant owners of Class B shares of common stock of
FMR Corp., representing approximately 49% of the voting power of FMR Corp.
Mr. Johnson III owns 12% and Abigail Johnson owns 24.5% of the aggregate
outstanding voting stock of FMR Corp. Mr. Johnson III is Chairman of FMR
Corp. and Abigail P. Johnson is a Director of FMR Corp. The Johnson family
group and all other Class B shareholders have entered into a shareholders'
voting agreement under which all Class B shares will be voted in accordance
with the majority vote of Class B shares. Accordingly, through their
ownership of voting common stock and the execution of the shareholders'
voting agreement, members of the Johnson family may be deemed, under the
Investment Company Act of 1940, to form a controlling group with respect to
FMR Corp. Fidelity International Limited, Pembroke Hall, 42 Crowlane,
Hamilton, Bermuda, and various foreign-based subsidiaries provide
investment advisory and management services to a number of non-U.S.
investment companies (the "International Funds") and certain institutional
investors. Fidelity International Limited is the beneficial owner of 93,400
shares of our common stock.
HOW HAS OUR STOCK PERFORMED?
The following graph compares
o the cumulative total return of our common stock since the date of our
initial public offering on April 17, 1996, with
o the Standard & Poor's 500 Stock Index, and
o a peer group index of United States dairy products companies,
assuming a $100 investment on April 17, 1996. Points plotted are as of December
31 of each year. We have never paid dividends.
[DEAN FOODS LOGO]
[LINE GRAPH]
12/1996 12/1997 12/1998 12/1999 12/2000 12/2001
Dean Foods Company $100.0 $294.1 $251.5 $195.7 $287.0 $336.8
S & P 500 Stocks $100.0 $133.5 $172.2 $208.5 $190.0 $167.6
NYSE/AMEX/NASDAQ/Stocks $100.0 $173.4 $152.0 $141.7 $163.5 $239.3
25
APPENDIX A
DEAN FOODS COMPANY AUDIT COMMITTEE CHARTER
The Board of Directors of Dean Foods Company hereby constitutes and establishes
an audit committee with authority, responsibility and specific duties as
described below. This Charter shall be reviewed, updated and approved annually
by the Board of Directors.
COMPOSITION
The committee shall be comprised of three or more directors who are generally
knowledgeable in financial and auditing matters, including at least one member
with accounting or related financial management expertise. Each member shall be
free of any relationship that, in the opinion of the Board, would interfere with
his or her individual exercise of independent judgement, and shall meet the
director independence requirements for serving on audit committees as set forth
in the corporate governance standards of the New York Stock Exchange. One of the
members shall be appointed committee chairperson by the chairman of the Board of
Directors. He or she shall be responsible for leadership of the committee,
including preparation of the agenda, presiding over meetings, and reporting to
the Board of Directors. The chairperson will also maintain regular liaison with
the CEO, CFO, the lead independent audit partner and the director of internal
audit.
AUTHORITY
The audit committee may be requested by the Board of Directors to investigate
any activity of the Company, and all employees are directed to cooperate as
requested by members of the committee. The committee is empowered to retain
persons having special competence as necessary to assist the committee in
fulfilling its responsibility.
RESPONSIBILITY
The audit committee is to serve as a focal point for communication between
noncommittee directors, the independent auditors, internal audit and Dean Foods
Company's management, as their duties relate to financial accounting, reporting
and controls. The audit committee is to assist the Board of Directors in
fulfilling its fiduciary responsibilities for oversight of the quality and
integrity of the accounting, auditing and reporting practices of the Company and
its subsidiaries and other such duties as directed by the Board. The committee
is to be the Board's principal agent in overseeing independence of the
corporation's independent auditors, the integrity of management and the adequacy
of disclosures to stockholders. However, the opportunity for the independent
auditors to meet with the entire Board of Directors as needed is not to be
restricted.
MEETINGS
The audit committee is to meet at least four times per year, and as many times
as the committee deems necessary.
ATTENDANCE
Members of the audit committee should be present at all meetings. Over 50% of
the members of the audit committee must be present for the committee to conduct
business. Directors who are not committee members will also be invited to
regularly scheduled meetings. The audit committee may from time to time meet in
executive sessions, with or without invitees. As necessary or desirable, the
chairperson may request that members of management, the Chief Financial Officer
and representatives of the independent auditors be present at meetings of the
committee.
MINUTES
Minutes of each meeting are to be prepared and sent to the committee members
and, upon request, the Dean
A-1
Foods Company directors who are not members of the committee. Copies are to be
provided to the independent auditors and Chief Financial Officer.
SPECIFIC DUTIES
(1) Since the independent auditor for the Company is ultimately accountable to
the Board and the audit committee, the audit committee will recommend to the
Board the independent auditor to be selected or retained to audit the financial
statements of the Company. In so doing, the committee will request from the
auditor a written affirmation that the auditor is in fact independent, discuss
with the auditor any relationships that may impact the auditor's independence,
and recommend to the Board any actions necessary to oversee the auditor's
independence.
(2) Inform the independent auditors and management that the independent
accountants and the committee may communicate with each other at all times; and
the committee chairperson may call a meeting whenever he or she deems it
necessary.
(3) Review with the Company's management, independent auditors and the Chief
Financial Officer, the Company's policies and procedures to reasonably ensure
the quality and adequacy of internal accounting and financial reporting
controls.
(4) Have familiarity, through the individual efforts of its members, with the
accounting and reporting principles and practices applied by the Company in
preparing its financial statements. Further, the committee is to make, or cause
to be made, all necessary inquiries of management and the independent
accountants concerning established standards of corporate conduct and
performance, and deviations therefrom.
(5) Review, prior to the annual audit, the scope and general extent of the
independent auditor's audit examination, including their engagement letter. The
auditor's fees are to be arranged with management and annually summarized for
committee review. The committee's review should entail an understanding from the
independent auditor of the factors considered by the auditor in determining the
audit scope, including:
o Industry and business risk characteristics of the Company
o External reporting requirements
o Materiality of the various segments of the Company's consolidated and
nonconsolidated activities
o Quality of internal control structure
o Extent of involvement of internal audit in the audit examination
o Other areas to be covered during the audit engagement.
(6) Review with management the extent of nonaudit services provided by the
independent auditors, in relation to the objectivity needed in the audit.
(7) Review with management and the independent auditors instances where
management has obtained second opinions from other accountants.
(8) Review with management and the independent auditor the quarterly financial
information prior to the Company's filing of Form 10-Q. This review may be
performed by the committee or its chairperson.
A-2
(9) Review with management and the independent auditor, upon completion of their
audit, financial results for the year prior to their release. This review is to
encompass:
o The Company's annual report, including the financial statements, and
financial statement and supplemental disclosures required by generally
accepted accounting principles
o Significant transactions not a normal part of the Company's operations
o Changes, if any, during the year in the Company's accounting principles or
their application as well as consideration of the quality of the Company's
accounting principles
o Review of estimates, reserves and accruals and judgmental areas
o Review of audit adjustments proposed by the independent auditor, whether or
not recorded.
Based on this review, the committee shall make its recommendation to the Board
as to the inclusion of the Company's audited financial statements in the
Company's annual report on Form 10-K.
(10) Evaluate management's cooperation with the independent auditors during
their audit examination, including their access to all requested records, data
and information. Also, elicit the comments of management regarding the
responsiveness of the independent auditors to the Company's needs. Inquire of
the independent auditors whether there have been any disagreements with
management, which if not satisfactorily resolved would have caused them to
modify their report on the Company's financial statements.
(11) Discuss with the independent auditors the quality of the Company's
financial and accounting personnel, and any relevant recommendations, which the
independent auditors may have identified during their audit (including those in
their letter of comments and recommendations). Topics to be considered during
this discussion include improving internal financial controls, the selection of
accounting principles and management reporting systems. Review written responses
of management to the letter of comments and recommendations from the independent
auditors.
(12) Provide guidance and oversight to the internal audit activities of the
Company, including reviewing the organization personnel, the audit plans, and
the results of the internal audit activities.
(13) Report audit committee activities to the full Board and issue annually a
report to be included in the proxy statement (including appropriate oversight
conclusions) for submission to the shareholders.
(14) Recommend to the Board of Directors any appropriate extensions or changes
in the duties of the committee.
(15) Review, with the Company's legal counsel and management, compliance with
policies relating to the Company's Code of Business Conduct.
(16) Review, with legal counsel, any legal matter that could have a significant
impact on the Company's financial statements.
(17) Review with management any material tax issues.
[DEAN FOODS LOGO]
YOUR VOTE IS IMPORTANT
PLEASE VOTE EARLY EVEN IF YOU PLAN TO ATTEND THE MEETING. SEE ENCLOSED PROXY OR
VOTING CARD FOR INSTRUCTIONS ON VOTING BY TELEPHONE, INTERNET OR MAIL.
A-3
Dear Stockholder:
On the reverse side of this card are instructions on how to
vote your shares for the election of directors and all other proposals
by telephone or over the Internet. Please consider voting by telephone
or over the Internet. Your vote will be recorded as if you mailed in
your proxy card.
Thank you for your attention to these matters.
Dean Foods Company
--------------------------------------------------------------------------------
PROXY DEAN FOODS COMPANY PROXY
ANNUAL MEETING OF STOCKHOLDERS - MAY 30, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gregg L. Engles and Michelle
P. Goolsby and each of them as proxies for the undersigned, with full
power of substitution, to act and to vote all the shares of common
stock of Dean Foods Company held of record by the undersigned on April
18, 2002, at the annual meeting of stockholders to be held on Thursday,
May 30, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED BY THE
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THE PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
IMPORTANT- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE
Comments:
DEAN FOODS COMPANY
P.O. BOX 11333
-------------------------------- NEW YORK, N.Y. 10203-0333
--------------------------------
--------------------------------
DEAN FOODS TWO ALTERNATE WAYS TO VOTE YOUR PROXY
COMPANY VOTE BY TELEPHONE OR INTERNET
24 HOURS A DAY - 7 DAYS A WEEK
SAVE YOUR COMPANY MONEY - IT'S FAST AND CONVENIENT
TELEPHONE INTERNET MAIL
1-866-564-2333 https://www.proxyvotenow.com/dfc o Mark, sign and date your Proxy
o Go to the website address Card.
o Use any touch-tone telephone. listed above.
OR OR o Detach card from Proxy Form.
o Have your Proxy Form in hand. o Have your Proxy Form in hand.
o Return the card in the postage-
o Enter the Control Number located o Enter the Control Number located paid envelope provided.
in the box below. in the box below.
o Follow the simple recorded o Follow the simple instructions.
instructions.
Your telephone or internet vote authorizes
the named proxies to vote your shares in the
same manner as if you marked, signed and
returned the proxy card. IF YOU HAVE
SUBMITTED YOUR PROXY BY TELEPHONE OR THE
INTERNET THERE IS NO NEED FOR YOU TO MAIL
BACK YOUR PROXY.
----------------------------------------
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
----------------------------------------
1-866-564-2333
CALL TOLL-FREE TO VOTE
o DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET o
---------------------------------------------------------------------------------------------------------------------------------
MARK, SIGN, DATE AND RETURN [X]
[ ] THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE. VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. In their discretion the proxies are authorized to
vote upon such other business as may properly come
before the meeting.
1. ELECTION OF DIRECTORS
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below
Nominees: 01 - Tom C. Davis, 02 - Stephen L. Green, I agree to access future proxy statements and
03 - John R. Muse, 04- P. Eugene Pender, Annual Reports over the Internet. [ ]
05 - J. Christopher Reyes
Plan to attend the Annual Meeting. [ ]
Have written comments on the reverse
side of card. [ ]
To change your address, please mark this box. [ ]
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE "EXCEPTIONS" BOX AND
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW).
*Exceptions
--------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to ratify Deloitte & Touche LLP as [ ] [ ] [ ]
independent auditor.
---------------------------------
SCAN LINE
---------------------------------
Please sign exactly as your name or names appear above. For
joint holders, both should sign. When signing as executor,
administrator, attorney, trustee or guardian, etc., please
give your title.
Date Share Owner sign here Co-Owner sign here
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