NOTICE OF STOCKHOLDERS’ MEETING

 

We will hold this year’s annual stockholders’ meeting on Thursday, May 22, 2008, at 10:00 a.m. at the Dallas Museum of Art, 1717 North Harwood, 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:

 

 

We will also discuss and take action on any other business that is properly brought before the meeting.

 

If you were a stockholder of record on March 25, 2008, you are entitled to vote on the proposals to be considered at this year’s meeting.

 

This Notice and the accompanying Proxy Statement are first being mailed to stockholders on or about April 21, 2008.

 

By order of the Board of Directors,

 

Sincerely,

 

 

Steven J. Kemps

Senior Vice President, General Counsel and
Corporate Secretary

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL STOCKHOLDERS’ MEETING TO BE HELD ON MAY 22, 2008

 

 

The Company’s Proxy Statement and Annual Report to Security Holders for the fiscal
year ended December 31, 2007 are available at http://bnymellon.mobular.net/bnymellon/df

TABLE OF CONTENTS

 

 

April 21, 2008

 

Dear Fellow Stockholders,

 

We hope that you will come to our annual stockholders’ meeting on Thursday, May 22, 2008. At the annual meeting, after we vote on the proposals described in this Proxy Statement, we will present a brief report on our 2007 results and an update on our business. As always, we will conclude the meeting by inviting you to ask questions and make comments. For your convenience, we will present a live webcast of the annual meeting, which you can access through our corporate website at www.deanfoods.com.

 

If you have questions regarding any of the matters contained in this Proxy Statement, please contact our Investor Relations Department at 800.431.9214. We look forward to seeing you at this year’s meeting.

 

Sincerely,

 

 

Gregg L. Engles

Chairman of the Board and

Chief Executive Officer

 

On April 21, 2008, we began mailing this Proxy Statement to everyone who was a stockholder of record of our Company on March 25, 2008. 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:

 

 

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 card or voting card that you received.

 

Family members who are registered owners of our stock and who live in the same household generally receive only one copy of the Annual Report, Proxy Statement, and most other mailings per household. The only item which is separately mailed for each registered stockholder or account is a proxy card. If you would like to start receiving separate copies in your name, apart from others in your household, please contact our Investor Relations Department at 800.431.9214 and request that action. Within 30 days after your request is received we will start sending you separate mailings. If for any reason you and members of your household are receiving multiple copies and you want to eliminate duplications, please contact our Investor Relations Department at 800.431.9214 and request that action. That request must be made by each person in the household.

 

For multiple stockholders who live in the same household and want separate copies of the Annual Report and Proxy Statement, you may pick up copies in person at the meeting in May or download them from
http://bnymellon.mobular.net/bnymellon/df. If you want copies mailed to you and you are a beneficial owner, you must request them from your broker, bank, or other nominee. If you would like copies mailed to you and you are a registered stockholder, we will mail them promptly if you request them from our transfer agent. We cannot guarantee you will receive mailed copies before the 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:

 

 

According to our bylaws, holders of at least 75,708,275 shares of our common stock (which is a majority of the shares of our common stock that were outstanding on March 25, 2008) must be present at this year’s meeting in order to conduct the meeting. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining if enough stockholders are present (in person or by proxy) to conduct the meeting. A “broker non-vote” occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

If holders of fewer than 75,708,275 shares are present at the meeting, we will adjourn the meeting and reschedule it. 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:

 

 

Proposals One and Two have been approved by our Board of Directors. The Board of Directors is now soliciting your vote on these proposals and recommends that you vote FOR each of Proposals One and Two.

 

On each proposal, you are entitled to one vote for each share of stock that you owned on March 25, 2008. Cumulative voting is not permitted.

 

 

 

 

The four nominees receiving the highest number of “yes” votes will be elected as directors. This number is called a plurality.

 

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:

 

 

If our Board of Directors nominates someone at the meeting, the person(s) to whom you have given your proxy will be able to use his or her discretion to vote on your behalf.

 

The Audit Committee of our 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 Audit Committee of the Board of Directors plans to take your opinion into account in selecting our independent auditor for 2009. The proposal will pass if a majority of shares present and entitled to vote at the annual meeting are voted in favor of it.

 

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 held in a brokerage account, you might not be a registered stockholder. In this case, your shares would not be officially registered in your name; rather, they 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, online or mail according to the instructions on the enclosed voting card in order to ensure that your vote is counted.

 

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 Steven J. Kemps, our Senior Vice President, General Counsel and Corporate Secretary, as your proxies. They will be required to vote on the 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 Mr. Kemps 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, your shares will be voted FOR Proposals One and Two.

 

 

 

No. Dean Foods Company delivered its proxy materials in the same manner as it has in the past. However, many stockholders have previously consented to receive electronic delivery of proxy materials and therefore did not receive hard copies of the proxy materials.

 

This Proxy Statement and the 2007 Annual Report are available online at
http://bnymellon.mobular.net/bnymellon/df. Most stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving hard copies in the mail. You can choose this option by following the instructions when you vote over the Internet.

 

For stockholders of record:  We will deliver promptly, upon written or oral request, a separate copy of these proxy materials. Contact our transfer agent either by writing BNY Mellon Shareowner Services, P.O. Box 358015, Pittsburgh, PA 15252-8015, or by telephoning 866.557.8698.

 

For holders in street name:  You must contact your bank, broker or other intermediary to receive copies of these materials.

 

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 2008. We will file that report with the Securities and Exchange Commission (“SEC”) in August of this year, and you can obtain a copy on our website at www.deanfoods.com, on the SEC’s website at www.sec.gov, or by contacting our Investor Relations Department at 800.431.9214 or the SEC at 800.SEC.0330.

 

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:

 

 

If you are a registered stockholder (or if you hold your shares in “street name” and have a proper power of attorney from your broker), you may also come to the meeting and change your vote in writing or orally.

 

If you do not vote, your failure to vote could affect whether there are enough stockholders present at the meeting to hold the meeting. Holders of a majority of the outstanding shares of our common stock must be present (in person or by proxy) in order to conduct the meeting. Proxies received but marked as abstentions, if any, will be included in the calculation of the number of shares considered to be present at the meeting for quorum purposes. Because abstentions represent shares entitled to vote, the effect of an abstention will be the same as a vote against a proposal. However, abstentions will have no effect on Proposal One regarding the election of directors.

 

“Broker non-votes” will be considered present for quorum purposes but will not be considered present and entitled to vote on any matter for which a broker does not have authority. Accordingly, “broker non-votes” will not have any impact on the outcome of any proposal.

 

If your shares are held in “street name” and you do not vote, your brokerage firm could:

 

 

Your broker will be permitted to vote for you on Proposals One and Two regarding the election of directors and the ratification of Deloitte & Touche LLP.

 

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.

 

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 no later than December 22, 2008. We will include your proposal in our next annual proxy statement if it is a proposal that we are required to include in our Proxy Statement pursuant to the rules of the SEC.

 

You may write to our Corporate Secretary at 2515 McKinney Avenue, Suite 1200, Dallas, Texas 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).

 

We will pay all 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 Board of Directors is divided into three classes serving three-year terms. This year’s nominees for re-election to the Board of Directors for a three-year term are the following Class I directors:

 

Tom C. Davis
Director since March 2001
Mr. Davis, age 59, has served as Managing Partner of Gryphon Special Situations Fund L.P. since July 2004. He also 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 from March 1984 to February 2001. In this position, Mr. Davis 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, foodservice, food processing and retailing industries. In addition to ours, Mr. Davis also serves on the Boards of Directors of Affirmative Insurance Holdings, Inc., an insurance holding company, where he serves on the Audit Committee, and Westwood Holdings Group, an investment management and trust services company, where he serves on the Audit and Compensation Committees.

 

Stephen L. Green
Director since October 1994
Mr. Green, age 57, 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., since November 1991. From October 1985 until November 1991, Mr. Green served as Managing Director of GE Capital’s Corporate Finance Group.

 

Joseph S. Hardin, Jr.
Director since May 1998
Mr. Hardin, age 62, 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. In addition to our Board, Mr. Hardin also serves on the Boards of Directors of American Greetings Corporation, where he serves on the Nominating and Governance Committee and the Compensation and Management Development Committee, and Petsmart, Inc., where he serves on the Corporate Governance Committee.

 

John R. Muse
Director since November 1997
Mr. Muse, age 57, is Chairman of HM Capital Partners LLC (formerly known as Hicks, Muse, Tate & Furst Incorporated), a private equity firm, which he co-founded in 1989. Mr. Muse also serves on the Board of Visitors of the UCLA Anderson School of Management. 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.

 

Mr. Davis, Mr. Green, Mr. Hardin and Mr. Muse were each unanimously nominated for re-election by our Board of Directors following the recommendation of the Governance Committee of our Board of Directors. They have each consented to be re-elected as members of our Board of Directors.

 

 

The Audit Committee of our Board of Directors has selected Deloitte & Touche LLP to serve as our independent auditor for the 2008 fiscal year and is soliciting your ratification of that selection.

Your ratification of the Audit Committee’s selection of Deloitte & Touche LLP is not necessary because the Audit Committee has responsibility for selection of our independent auditor. However, the Audit Committee 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 various other matters. See page 13 of this Proxy Statement for further information about the responsibilities of our Audit Committee and page 18 for an important report by the Audit Committee.

 

 

Our Board of Directors is authorized to have between ten and fifteen members. The Board of Directors has the ability to determine the appropriate number of members within that range in order to maximize the Board of Directors’ effectiveness and efficiency. Our Board of Directors has set the number of directors constituting the full board at twelve and we currently have twelve directors. The Board of Directors is divided into three classes, each of whose members serve for staggered three-year terms.

 

In addition to the four directors nominated for re-election, the following persons currently serve on our Board of Directors:

 

Alan J. Bernon
Director since August 1997
Mr. Bernon, age 53, served as President of our Dairy Group from January 1, 2006 to August 31, 2007. From 1997 through the end of 2005, he served as Chief Operating Officer of the Northeast Region of our Dairy Group. He was originally elected to our Board of Directors in connection with our acquisition of The Garelick Companies in 1997. From September 1985 until July 1997, Mr. Bernon served as President of The Garelick Companies. His term will expire in 2010.

 

Lewis M. Collens
Director since December 2001
Mr. Collens, age 70, is Professor of Law and President Emeritus at Illinois Institute of Technology (“IIT”). He served as the President of IIT and Chairman of IIT Research Institute from 1990 to 2007. From 1974 to 1990, he served as Dean of IIT Chicago-Kent College of Law. Mr. Collens was originally elected to our Board of Directors in connection with our acquisition of the former Dean Foods Company (“Legacy Dean”) on December 21, 2001. Mr. Collens 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 2009.

 

Gregg L. Engles
Chairman of the Board,
Director since October 1994
Mr. Engles, age 50, 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, Mr. Howard Dean was named Chairman of the Board pursuant to the merger agreement concerning our acquisition of 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. His term on our Board of Directors will expire in 2010. In addition to ours, Mr. Engles also serves on the Board of Directors of TreeHouse Foods, Inc.; however, Mr. Engles will retire from the TreeHouse Foods, Inc. Board when his term expires in May of 2008.

 

Janet Hill
Director since December 2001
Mrs. Hill, age 60, has served as Vice President of Alexander & Associates, a corporate consulting firm, since 1981. She was originally elected to our Board of Directors in connection with our acquisition of Legacy Dean in December 2001. Mrs. Hill had served on the Board of Directors of Legacy Dean since 1997. In addition to our Board, Mrs. Hill also serves on the Boards of Directors of Wendy’s International, Inc., where she serves on the Compensation Committee, and Sprint Nextel Corporation, where she serves on the Human Capital and Compensation Committee, and the Nominating and Corporate Governance Committee. She also serves as a trustee of Duke University. Her term will expire in 2009.

 

Ronald Kirk
Director since February 2003
Mr. Kirk, age 53, has been a partner with the law firm of Vinson & Elkins L.L.P. since February 2005. He was a partner with the law firm of Gardere Wynne Sewell LLP from 1994 through January 2005. From June 1995 to November 2001, he also served as Mayor of the City of Dallas, Texas. In addition to ours, Mr. Kirk also serves on the

Boards of Directors of Brinker International, Inc., a restaurant operator, where he serves on the Governance and Executive Committees, and Petsmart Inc., where he serves on the Corporate Governance Committee. His term will expire in 2010.

 

Hector M. Nevares
Director since October 1994
Mr. Nevares, age 57, currently serves as Managing Partner of Suiza Realty SE. He was formerly President of Suiza Dairy, a Puerto Rico dairy processor, from June 1983 until September 1996, having served in additional executive capacities at Suiza Dairy since June 1974. Mr. Nevares served as a consultant for us from March 1998 until April 2000. In addition to ours, Mr. Nevares also serves on the Board of Directors of FirstBank Puerto Rico, where he serves on the Audit and Asset, Liability and Risk Management Committees. His term will expire in 2009.

 

Pete Schenkel
Director since January 2000
Mr. Schenkel, age 72, joined our Company in January 2000 as President of our Dairy Group and a member of our Board of Directors. Effective December 31, 2005, Mr. Schenkel retired as President of our Dairy Group. He now serves as a consultant to our Company. 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 originally elected to our Board of Directors in connection with our acquisition of Southern Foods Group in January 2000. His term will expire in 2009.

 

Jim L. Turner
Director since November 1997
Mr. Turner, age 62, currently serves as Principal of JLT Beverages. In June 2005, Mr. Turner retired from Dr Pepper/Seven Up Bottling Group, Inc., where he had served as President and Chief Executive Officer since its formation in 1999. Prior to that, since 1985, he was the Owner/Chairman of the Board and Chief Executive Officer of the Turner Beverage Group, the largest privately owned independent bottler in the United States. 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. Mr. Turner also serves on the Board of Directors of Crown Holdings, Inc., a manufacturer of consumer packaging products, where he serves on the Compensation Committee, and is a member of Baylor University’s Board of Regents. His term will expire in 2009.

 

Under applicable New York Stock Exchange rules, a director qualifies as “independent” only if the Board of Directors affirmatively determines that he or she has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a material relationship with the Company). Our Board of Directors conducts an annual assessment of the independence of each member of our Board of Directors, taking into consideration all relationships between our Company and/or our officers, on the one hand, and each director on the other, including the director’s commercial, economic, charitable and family relationships, and such other criteria as our Board of Directors may determine from time to time. The guidelines established by our Board of Directors to determine director independence are available on our website at www.deanfoods.com.

 

In making its independence determinations, the Board considered the following relationships and transactions in addition to those described under “Related Party Transaction Policy” on page 45 of this Proxy Statement. In 2007, our Board determined that the following members of our Board of Directors are “independent,” as that term is used in the New York Stock Exchange rules and our Corporate Governance Principles: Lewis Collens, Tom Davis, Stephen Green, Joseph Hardin, Janet Hill, Ron Kirk, John Muse, Hector Nevares and Jim Turner. Mr. Engles, Mr. Bernon and Mr. Schenkel were not determined to be independent directors in 2007. Mr. Engles is currently the Chief Executive Officer of our Company. Mr. Bernon served as President of our Dairy Group until September 1, 2007, and Mr. Schenkel was employed as Vice Chairman of our Company through December 31, 2007.

 

Mr. Kirk serves on the Board of Directors of Brinker International, Inc. and Mrs. Hill serves on the Boards of Directors of Wendy’s International, Inc. and Sprint Nextel Corporation. We sell products to Brinker International, Inc. and Wendy’s International, Inc., and we purchase products and services from Sprint Nextel Corporation, all in the ordinary course of our business. In 2007, Wendy’s International, Inc. paid approximately $53.3 million and

Brinker International, Inc. paid approximately $9 million for purchases of our products. We paid approximately $1.8 million for products and services purchased from Sprint Nextel Corporation in 2007. In addition, we made employee tuition payments of approximately $60,000 to Duke University. Ms. Hill serves as a trustee of Duke University. These amounts are not material either to us or to the other parties. Our Board of Directors has determined, considering all relevant facts and circumstances, that these relationships are not material and do not impact Mr. Kirk’s or Mrs. Hill’s status as independent directors, as defined by the rules of the New York Stock Exchange and our Corporate Governance Principles.

 

Our Board of Directors is responsible for overseeing and interacting with senior management with respect to key aspects of our business, including strategic planning, management development and succession, operating performance, compliance and stockholder returns. It is the responsibility of the Board of Directors to select and evaluate a well-qualified Chief Executive Officer of high integrity, and to approve the appointment of other members of the senior management team. The Board of Directors provides general advice and counsel to our Chief Executive Officer and other senior executives.

 

All directors are expected to avoid conflicts of interest and to represent the best interests of our stockholders in maintaining and enhancing the success of our business. The Board conducts a self-evaluation annually to ensure that it is functioning effectively.

 

Members of our Board of Directors are required to regularly attend Board meetings and to attend our Annual Meeting of Stockholders, unless unforeseen circumstances prevent them from doing so. Mr. Muse was unable to attend our 2007 Annual Meeting of Stockholders.

 

Our Board of Directors meets according to a set schedule and also holds special meetings and acts by unanimous written consent from time to time as appropriate. The Board met eleven times during 2007, including four regular meetings and seven special meetings. In 2007, all directors attended at least 75% of the meetings of the Board of Directors and the Board Committees on which they served.

 

The Board of Directors has adopted a set of Corporate Governance Principles for our Company, a copy of which is accessible through our corporate website at www.deanfoods.com. You may also receive a printed copy of our Corporate Governance Principles by writing to us at the following address: Dean Foods Company, Attention: Corporate Secretary, 2515 McKinney Avenue, Suite 1200, Dallas, TX 75201.

 

According to our Corporate Governance Principles, the Lead Director, who must be an independent director, is elected annually by the Board of Directors. The Lead Director: (1) calls all Board meetings; (2) approves the schedule and agenda for all Board meetings; (3) presides at executive sessions of the Board; and (4) acts as a liaison between the non-employee directors and our Chief Executive Officer. The independent directors on our Board meet in executive session at the end of each regularly scheduled Board meeting and following special meetings from time to time. Our Board of Directors has elected Mr. Hardin to serve as our Lead Director.

 

Our objectives for non-employee director compensation are to remain competitive with the compensation paid to non-employee directors of comparable companies so that we may attract and retain qualified candidates for Board service and to reinforce our practice of encouraging stock ownership by our directors. For the fiscal year ended December 31, 2007, non-employee directors were entitled to receive the following cash compensation:

 

 

 

Directors may elect to receive their fees in restricted 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, determined as of the last day of the quarter based on the average closing price of our common stock over the last 30 trading days of the quarter. One-third of the restricted shares vest on the grant date; one-third vest on the first anniversary of the grant date; and the final one-third vest on the second anniversary of the grant date. In 2007, Mrs. Hill elected to receive all of her fees in cash, and Mr. Kirk elected to receive one-half of his fees in cash. All other directors elected to receive their fees in shares of restricted stock.

 

In addition to cash compensation, on June 30^th of each year, each non-employee director receives a grant of 7,500 immediately exercisable stock options and 2,550 restricted stock units that vest over a three-year period and which may be accelerated upon the occurrence of certain events, such as a change in control, and in the event of death, disability or retirement for grants under the 2007 Stock Incentive Plan.

 

The following table summarizes the compensation paid to non-employee directors for the fiscal year ended December 31, 2007. Pete Schenkel is not included in the table as he was an employee of the Company through December 31, 2007, and received no additional compensation for his services as a director.

 

Director Compensation Table for Fiscal Year 2007

 

 

 

 

 

 

Per our Corporate Governance Principles, our directors are encouraged to own stock of the Company. As a general rule, each director is expected, over time, to own Company stock having a value of at least three times the director’s annual retainer paid for service on our Board of Directors.

 

Our Board of Directors has established certain committees to assist in the performance of its various functions.

The chart below lists the standing Committees of our Board of Directors and indicates who currently serves on those committees and how many times each Board Committee met during 2007.

 

 

 

Audit Committee.  The Audit Committee’s responsibilities include:

 

 

 

The Audit Committee has authority to retain independent legal, accounting or other advisors, at our expense.

 

The Audit Committee makes regular reports to the Board of Directors and reviews its own performance annually. The Audit Committee is required to meet at least quarterly and operates under a charter. In November of 2007, the Audit Committee amended its charter to include the responsibility to provide oversight of the Company’s policies and practices with respect to corporate social responsibility, including environmentally sustainable solutions, ethics and compliance and the management of reputation risk. The revised charter is attached as Appendix A to this Proxy Statement and is also accessible on our corporate website at www.deanfoods.com. Stockholders may also contact our Investor Relations Department at 800.431.9214 to obtain a free copy.

 

Compensation Committee.  The Compensation Committee’s responsibilities include:

 

 

Additional information regarding the processes and procedures followed by the Compensation Committee in considering and determining executive and director compensation is provided below under the heading “Executive Compensation — Compensation Discussion and Analysis.”

 

The Compensation Committee operates under a charter, a copy of which is accessible on our corporate website at www.deanfoods.com. Stockholders may also contact our Investor Relations Department at 800.431.9214 to obtain a free copy. The Compensation Committee also performs annual self-evaluations.

 

The Compensation Committee reviews and approves the compensation for our executive officers, including the Chief Executive Officer. Our Chief Executive Officer makes recommendations to the Compensation Committee each year on the appropriate compensation to be paid to our executive officers, excluding himself. The Compensation Committee makes the final determination of the amount of compensation to be awarded to each executive officer, including the Chief Executive Officer, based on the Compensation Committee’s determination of how that compensation achieves the objectives of our compensation policies. The Compensation Committee has delegated limited authority to the Chief Executive Officer and two designated Executive Vice Presidents to grant stock options and restricted stock units in connection with the hiring of new employees or the promotion or special recognition of selected employees.

 

The Compensation Committee meets several times each year to discuss setting individual compensation levels, and it adjusts the initial recommendations based on its assessments of the personal attributes and achievements of the individual officers. The Compensation Committee goes through a similar process in considering and establishing our short-term and long-term incentive plans and other executive benefits. For more information

regarding the actions of our Compensation Committee, see the Compensation Discussion and Analysis section of this Proxy Statement.

 

The Compensation Committee has the authority to retain compensation consultants and other outside advisors to assist in the evaluation of executive officer compensation. The Compensation Committee uses a compensation consultant, Mercer Human Resource Consulting, Inc., to assist in connection with setting compensation. For more information on the Compensation Committee’s relationship with Mercer, see “Compensation Methodology — Role of Compensation Consultant” in the Compensation Discussion and Analysis section of this Proxy Statement.

 

Compensation Committee Interlocks and Insider Participation.  The Compensation Committee is comprised entirely of independent directors. None of our executive officers has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as a director or member of the Compensation Committee.

 

Executive Committee.  The Executive Committee may act on behalf of the Board of Directors when the Board of Directors is not in session on a limited basis, as to matters specifically delegated to the Executive Committee from time to time. The Executive Committee meets only as needed.

 

Governance Committee.  The purpose of the Governance Committee is to consider, develop and make recommendations to the Board of Directors regarding corporate governance principles generally and the appropriate size, function and operation of the Board and its committees to optimize the effectiveness of the Board. The Governance Committee also performs the functions of a nominating committee. The Governance Committee’s responsibilities include:

 

 

The processes and procedures followed by the Governance Committee in identifying and evaluating director candidates are described below under the heading “What is the process for nominating directors?”

 

The Governance Committee operates under a charter, a copy of which is accessible on our corporate website at www.deanfoods.com. Stockholders also may contact our Investor Relations Department at 800.431.9214 to obtain a free copy. The Governance Committee also performs annual self-evaluations.

 

Committee Charters/Form 10-K.  In compliance with applicable corporate governance rules of the New York Stock Exchange, the Board has adopted charters for the Audit, Compensation and Governance Committees. These charters and a copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the SEC, are available on our Company website at www.deanfoods.com. Stockholders may also contact Investor Relations at 2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201 or at 800.431.9214 to obtain copies of the committee charters or Form 10-K without charge.

 

Should you wish to contact our Lead Director or any of the other members of our Board of Directors on a board-related issue, you may write to him or her in care of our Corporate Secretary at 2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201. Relevant communications will be distributed to the Board, or to any individual director or directors as appropriate, depending on the facts and circumstances outlined in the communication. Communications that are unrelated to the duties and responsibilities of the Board will not be forwarded, such as:

 

 

In addition, material that is threatening, illegal or similarly unsuitable will be excluded. Any communication that is filtered out will be made available to any director upon his or her request.

 

When searching for or considering a candidate for Board membership (including any candidate who may be recommended by a stockholder), the Governance Committee will require that the candidate have the highest ethical standards, integrity, sound business judgment and a willingness to devote adequate time to Board duties. Our Board of Directors seeks to ensure that the Board includes members with appropriately diverse backgrounds, skills and experience, including financial and other expertise relevant to the business of our Company. The Governance Committee has, as appropriate, retained search firms to assist in identifying qualified director candidates.

 

Stockholders may recommend individuals to the Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and the number of shares of our common stock beneficially owned by the director nominee to the Governance Committee, c/o Corporate Secretary, 2515 McKinney Avenue, Suite 1200, Dallas, Texas 75201. Assuming the appropriate information has been provided on a timely basis, the Governance Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. If the Board of Directors determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in the Proxy Statement for the next annual meeting of stockholders.

 

Stockholders also have the right under our bylaws to directly nominate candidates, without any action or recommendation on the part of the Governance Committee or the Board of Directors. Our bylaws require that the Company be given advance written notice of stockholder nominations for election to the Board of Directors. The Secretary must receive such notice at the address noted above no later than March 1^st of any calendar year; provided, however, that in the event that less than 35 days’ notice of a meeting called for the election of directors is given to stockholders, the Secretary must receive such notice not later than the close of business on the seventh day following the day on which the notice was mailed, and in the case of a special meeting of stockholders, not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or public disclosure of the date of the meeting was made, whichever occurs first.

 

We have adopted a Code of Ethics that applies to all of our directors, executive officers and employees, including the Chief Executive Officer, a copy of which is posted on our corporate website at www.deanfoods.com.

Any amendments to or waivers of our Code of Ethics also will be posted on our website. If you would like a copy of our Code of Ethics, please request one by writing or calling our Investor Relations Department at:

 

Dean Foods Company
Attention: Investor Relations
2515 McKinney Avenue, Suite 1200
Dallas, Texas 75201
800.431.9214

 

Mr. Hardin currently serves as Lead Director. The Lead Director is responsible for calling all meetings of our Board of Directors, approving the schedule and agenda for all meetings of our Board of Directors, and presiding at executive sessions of the Board of Directors. The Lead Director also serves as a liaison between the non-employee directors and our Chief Executive Officer.

 

We have appointed a Corporate Responsibility/Sustainability Officer who works to promote business activities that are socially responsible and environmentally sustainable. He also oversees our ethics and compliance program. He provides reports to the Audit Committee on the program’s effectiveness and works closely with various compliance functions to provide coordination and sharing of best practices across our Company.

 

We have established a Disclosure Committee composed of members of management to assist in fulfilling our obligations to maintain effective disclosure controls and procedures, and to coordinate and oversee the process of preparing our securities filings with the SEC.

 

Deloitte & Touche LLP 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. All of the services provided for the Company by Deloitte & Touche in 2007 were approved by the Audit Committee. The aggregate fees and reimbursable expenses billed to the Company and its subsidiaries by Deloitte & Touche for 2007 and 2006 were:

 

 

 

 

 

The Audit Committee has also recommended ratification of its engagement of Deloitte & Touche as the Company’s independent auditor for 2008.

 

The Audit Committee has sole authority to engage and determine the compensation of the Company’s independent auditor. The Audit Committee’s pre-approval is required for any engagement of Deloitte & Touche, and the Audit Committee has established the following pre-approval policies and procedures. Annually, the Audit Committee pre-approves services to be provided by Deloitte & Touche. The Audit Committee also considers the engagement of Deloitte & Touche for the provision of other services during the year. In addition to conducting the Company’s 2008 audit, the Audit Committee has pre-authorized Deloitte & Touche to provide services to the Company in connection with the following types of audit-related and tax matters:

 

Audit-Related Engagements

 

 

Tax Engagements

 

 

The pre-approval described above will expire in the first quarter of 2009. In the event a matter of a type listed above arises before the first quarter of 2009, the Audit Committee has authorized management, if necessary, to negotiate, for the Audit Committee’s approval and execution, an engagement agreement related to that matter. For each such matter, management is required to provide the Audit Committee, at its next regularly scheduled meeting, with detailed documentation about the services provided or to be provided. Any service that management requests Deloitte & Touche to provide that is of a type that has not been pre-approved must be considered at a meeting of the Audit Committee before the service is provided. In determining whether to approve the engagement of Deloitte & Touche, the Audit Committee considers whether such service is consistent with Deloitte & Touche’s independence. The Audit Committee also considers the amount of audit and audit-related fees in comparison to all other fees paid to Deloitte & Touche and the Audit Committee reviews such comparisons regularly.

 

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.

 

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, 2007, and the assessment of the Company’s internal control over financial reporting. We have discussed significant accounting policies applied by the Company in its financial statements, as well as alternative treatments. We discussed with the Company’s Chief Audit Executive and with Deloitte & Touche the overall scope and plans for their respective audits. We met with the Chief Audit Executive and with Deloitte & Touche, with and without management present, to discuss the results of their examinations, the evaluations of the Company’s internal controls and the overall quality of the

Company’s financial reporting. We also regularly review and discuss the Company’s activities with respect to risk assessment and risk management, and receive regular reports regarding the Company’s compliance program.

 

We regularly discuss 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, as amended, 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).

 

We have considered whether the services performed by Deloitte & Touche, other than audit services or services related to the audit, are compatible with maintaining the independence of Deloitte & Touche, and we have concluded that they are. Based on our reviews and discussions with management and Deloitte & Touche, as described above, we 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, 2007, for filing with the SEC.

 

This report is presented by:

The members of the Audit Committee

Stephen L. Green (Chairman)

Lewis M. Collens

Tom C. Davis

Hector M. Nevares

 

The term “executive officer” is defined by applicable securities law as the company’s president, any vice president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the public company. According to that definition, our Board of Directors has determined that at the end of 2007 our “executive officers” were:

 

Gregg L. Engles — Chairman of the Board and Chief Executive Officer
See Mr. Engles’ biography on page 8.

 

Jack F. Callahan, Jr. — Executive Vice President and Chief Financial Officer
Mr. Callahan, age 49, joined us in May 2006 as Executive Vice President and Chief Financial Officer. Prior to joining us, from 1996 to 2006 he held a number of positions at PepsiCo, Inc. including Senior Vice President of Corporate Strategy and Development for PepsiCo and Chief Financial Officer for Frito Lay International. Before joining PepsiCo, he held various positions at General Electric Company and McKinsey & Company.

 

Joseph E. Scalzo — President and Chief Executive Officer, WhiteWave Foods Company and Morningstar Foods Mr. Scalzo, age 49, joined us in October 2005 as President and Chief Executive Officer of our WhiteWave Foods Company subsidiary. He was promoted to President and Chief Executive Officer of WhiteWave Foods Company and Morningstar Foods in February 2008. Prior to joining us, he was employed by The Gillette Company from 2001 to October 2005, serving most recently as Group President, Personal Care and Global Value Chain. Prior to joining The Gillette Company, Mr. Scalzo served in various capacities at the Coca-Cola Company from 1997 to 2001, including Senior Vice President and Chief Marketing Officer of The Minute Maid Company. He began his career at Procter & Gamble in 1985 where he held various leadership positions. Mr. Scalzo also serves on the Board of Directors of HNI Corporation, a leading office furniture and wood burning fireplace manufacturer, where he serves on the Audit Committee.

 

Michelle P. Goolsby — Executive Vice President, Development, Sustainability and Corporate Affairs
Ms. Goolsby, age 50, 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. In January of 2008, she was named Executive Vice President, Development, Sustainability and Corporate Affairs. 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 Trammel Crow Company.

Gregg A. Tanner — Executive Vice President and Chief Supply Chain Officer
Mr. Tanner, age 51, joined us in November 2007 as Executive Vice President and Chief Supply Chain Officer. Prior to joining us, Mr. Tanner spent the last year and a half at The Hershey Company where he was Senior Vice President, Global Operations. Before joining Hershey, Mr. Tanner was Senior Vice President, Retail Supply Chain at ConAgra Foods, Inc., where he directed the supply chain for retail products. Previously, Mr. Tanner held various positions at the Quaker Oats Company and Ralston Purina Company. Mr. Tanner also serves on the Board of Directors of The Boston Beer Company, Inc., where he serves on the Audit Committee.

 

Paul T. Moskowitz — Executive Vice President, Human Resources
Mr. Moskowitz, age 43, joined us in June 2007 as Executive Vice President, Human Resources. Prior to joining us, Mr. Moskowitz served as Chief People Officer of Pizza Hut, a division of Yum! Brands. Previously, Mr. Moskowitz directed the Human Resources activities for all of Pizza Hut’s field operations, and led the organization’s training function. Prior to joining Pizza Hut, Mr. Moskowitz served in various Human Resources roles, including senior positions with Brinker International, Inc. and Darden Restaurants, Inc.

 

This Compensation Discussion and Analysis is intended to provide investors with an understanding of our compensation policies and practices with respect to our Chief Executive Officer, Chief Financial Officer, our three other most highly compensated executive officers, and our former Dairy Group President. These individuals, referred to as Named Executive Officers or NEOs, are identified below:

 

 

Mr. Bernon left his position as President of the Company’s Dairy Group effective September 1, 2007; however, he remains a member of our Board of Directors. Mr. Bernon is included as an NEO because, but for the fact that he was not an executive officer of the Company at the end of the fiscal year, Mr. Bernon would have been one of the three other executive officers who were most highly compensated in fiscal 2007.

 

We will discuss and analyze the following topics in this Compensation Discussion and Analysis:

 

 

 

 

 

 

To further illustrate these concepts, we have included charts and tables where we believe appropriate to enhance our stockholders’ understanding of the compensation of our Named Executive Officers. These tables and charts are meant to be in addition to, and not an alternative to, the charts and tables provided under the heading “How much are our Named Executive Officers paid?” on page 32 of this Proxy Statement.

 

Executive Compensation Objectives and Policies

 

Our Compensation Committee is responsible for establishing and administering our policies governing the compensation of our senior executives, including our Named Executive Officers. For a description of the Compensation Committee’s charter and additional information regarding the processes and procedures it follows in determining executive compensation, see “Other Information — What are the responsibilities of our Board Committees?” The Compensation Committee is composed entirely of independent directors. In accordance with its charter, the Compensation Committee has adopted executive compensation policies that are designed to achieve the following four objectives:

 

 

Comparison Group for Executive Compensation Purposes

 

In order to ensure that we are able to attract and retain the highest caliber management, we analyze our total compensation to ensure that it is comparable to that offered by competitors for the Company’s management talent. Specifically for 2007, we considered the following companies, which we will refer to in this Proxy Statement as the Comparison Group:

 

 

The Comparison Group was selected based on analysis conducted by Mercer, with the approval of the Compensation Committee. The Compensation Committee believes this is the appropriate Comparison Group because it consists of consumer packaged goods companies against whom we compete for executive talent. The Comparison Group is reviewed at least annually by the Compensation Committee with input from its outside compensation consultant.

 

Elements of Compensation

 

The Company’s executive compensation program is composed of the following elements:

 

 

The Company does not maintain an ERISA qualified defined benefit pension plan for the Chief Executive Officer or for any of the other Named Executive Officers.

 

Agreements with Named Executive Officers

 

In general, we enter into letter agreements with our executive officers that govern his or her terms of employment. Such employment agreements generally state the executive’s base salary, signing bonus, if any, annual short-term incentive compensation opportunity, long-term incentive awards to be granted upon hire or in the future, if applicable, and any other benefits, such as relocation benefits, COBRA reimbursement, and eligibility for the Dean Foods Executive Severance Pay Plan. Neither Mr. Engles nor Ms. Goolsby has such an agreement with the Company.

 

Compensation Methodology

 

In order to ensure that management’s interests are aligned with those of stockholders and to motivate and reward individual initiative and effort, we emphasize a pay for performance compensation program so that

attainment of Company, business unit and individual performance goals are rewarded. Through the use of performance-based plans that emphasize attainment of Company and/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 our stakeholders.

 

Role of Compensation Consultant.  The Compensation Committee has engaged Mercer Human Resource Consulting, Inc. as its outside compensation consultant. The Compensation Committee relies on the compensation consultant to collect and analyze market compensation data. In addition, the compensation consultant assists the Compensation Committee in validating the Company’s performance relative to the awards made under our long-term incentive plans. The Compensation Committee works with the compensation consultant to ensure that position descriptions are appropriately comparable between our Company and those companies in our Comparison Group and to properly adjust the raw data so that it is appropriate for a company of our size. Using this data, the compensation consultant makes preliminary compensation recommendations based on our Compensation Committee’s compensation philosophy.

 

The compensation consultant was retained by the Compensation Committee and reports directly to the Compensation Committee chairman. Although the Compensation Committee approves the scope of the consultant’s work and its fees, the consultant works with management as well to ensure that the consultant’s advice and recommendations reinforce the Company’s business strategy and are consistent with the Company’s pay for performance philosophy.

 

Examples of services provided to the Compensation Committee by the compensation consultant include, but are not limited to, the following:

 

 

Mercer provides advice and assistance to the Company in several areas outside of executive compensation, including the following: retirement consulting, which includes actuarial valuations; consulting on multi-employer plans and bargaining agreements, plan consolidations and government forms; defined benefit outsourcing; internal job grading and benchmarking for non-executive employees; health and benefit outsourcing and consulting; and compensation software. Mercer operates its compensation practice as a separate business unit from its other services, and we have been advised that the compensation of its compensation consultants is based solely on the fees generated by the executive compensation practice. The Compensation Committee has reviewed the other services provided to the Company by Mercer and has determined that Mercer’s executive compensation consultants are sufficiently objective to provide executive compensation services to the Compensation Committee. In addition, the Compensation Committee adopted the following policy with respect to the compensation consultant:

 

 

To determine the 2007 compensation for our Named Executive Officers, the Compensation Committee directed Mercer to provide it with a compilation of base salary, short-term incentive compensation and long-term incentive compensation for senior executives with similar responsibilities, including positions within business groups, within the companies in the Comparison Group. The Compensation Committee also directed Mercer to rank our executive officers’ compensation by percentile as compared to those senior executives in the Comparison Group for base salary, short-term incentive compensation and long-term incentive compensation. The Compensation Committee used these rankings as a component in determining base salary, annual short-term incentive compensation and long-term incentive awards for the Named Executive Officers and other senior executives, in addition to the consideration of the achievement of performance targets and the subjective evaluation of such officer’s overall performance and contribution to the Company’s results as will be discussed in more detail below. In addition to the Comparison Group, the Compensation Committee may also consider general industry data where such additional information may be helpful.

 

The Compensation Committee met throughout 2007 with Mercer, members of the management team and independently to keep apprised of compensation metrics with respect to the executive officers and other senior officers of the Company. In February 2007, the Compensation Committee met to approve short-term incentive payouts for fiscal 2006, to approve the long-term incentive grants for 2007 and to review the short-term incentive compensation plan for 2007. In April and May, the Compensation Committee met to further discuss and approve the short-term incentive compensation plan, and receive updates on performance to date compared to targets set forth in the plan. In August, the Compensation Committee met with Mercer to review market trends in executive compensation. In October, the Compensation Committee met with Mercer to review data comparing total stockholder return of the Company to that of the Comparison Group. In November, the Compensation Committee met to compare the Company’s preliminary performance overall and by business unit, and to review preliminary recommendations with respect to compensation. In January 2008, the Compensation Committee met to approve the long-term incentive grants. In February 2008, the Compensation Committee met to review and approve short-term incentive compensation payouts for the Named Executive Officers, which were paid in February of 2008. The Compensation Committee strives to keep an ongoing dialogue with management and its compensation consultant throughout the year with respect to executive compensation issues.

 

Compensation of the Chief Executive Officer.  At the beginning of each year, the Compensation Committee establishes specific objectives for the Chief Executive Officer for the upcoming year. In December of each year, the Chief Executive Officer completes a self evaluation in which he evaluates his performance against these goals. In addition, the Compensation Committee, along with the Chair of the Governance Committee, meets to review the Chief Executive Officer’s goals and to review his self evaluation. In January of the following year, the Compensation Committee and Governance Committee Chair prepare a draft Chief Executive Officer assessment and distribute the assessment to the full Board of Directors for further input and comments. In February, the Compensation Committee considers the results of this assessment in determining the Chief Executive Officer’s short-term incentive payout percentage. In March, the Chief Executive Officer assessment is finalized and communicated to the Chief Executive Officer. The objectives that were established for the Chief Executive Officer for 2007 are discussed below under the heading “Annual Cash Compensation — Short-Term Incentive Compensation.”

 

When considering Mr. Engles’ compensation, the Compensation Committee compares base salary, short-term incentive compensation, long-term incentive compensation and total compensation to that of each Chief Executive Officer in the Comparison Group. The Compensation Committee then uses this information to set Mr. Engles’ compensation using the measures described below under “Annual Cash Compensation — Base Salary” and “Short-Term Incentive Compensation,” and “Long-Term Equity Incentive Compensation.” Mr. Engles’ target total annual compensation is at or near the 65th percentile of total compensation for chief executive officers of companies included in the Comparison Group.

 

The difference between Mr. Engles’ compensation and the other Named Executive Officers reflects the significant difference in their responsibilities. In general, the Chief Executive Officer’s compensation is much higher than that of other executive officers of public companies. The Chief Executive Officer is directly responsible for driving the strategy of the Company, and for ensuring that the strategy is fully executed across the Company,

which encompasses all business units and functions across the Company. In addition, the Chief Executive Officer is directly responsible for selecting, retaining and coaching the executive team that will execute corporate strategy.

 

Role of Chief Executive Officer in Compensation of Other Executive Officers.  A similar process of setting objectives and reviewing performance against these objectives is used by the Chief Executive Officer for each member of his leadership team, which includes the other Named Executive Officers. At the beginning of the year, the Compensation Committee, with input from the Chief Executive Officer, establishes specific objectives for each executive officer, which are tracked throughout the year by the Compensation Committee. In December of each year, each executive officer completes a self evaluation and submits it to the Chief Executive Officer. The Chief Executive Officer then meets with each executive officer to review that officer’s self evaluation and to assess that officer’s performance. In February of the following year, the executive officers’ assessments and the Chief Executive Officer’s recommended pay-out percentages for short-term incentive compensation are presented to the Compensation Committee for further input and comments. Mr. Engles based his 2007 compensation recommendations on the same Comparison Group market data reviewed by the Compensation Committee and his subjective review of each executive officer’s overall performance and contribution to the Company. While the Compensation Committee considers the recommendations of the Chief Executive Officer with respect to these elements of compensation, the Compensation Committee independently evaluates the recommendations and makes all final compensation decisions.

 

Compensation Mix

 

Because of the ability of executive officers to directly influence the overall performance of the Company, and consistent with our philosophy of linking pay to performance, it is our goal to allocate a significant portion of compensation paid to our executive officers to performance-based, short- and long-term incentive programs. In addition, as an employee’s responsibility and ability to affect the financial results of the Company increases, base salary becomes a relatively smaller component of total compensation and long-term, equity-based compensation becomes a larger component of total compensation. For 2007, our Named Executive Officers received a payout of only a portion of their target short-term incentive compensation due to the Company’s financial performance. As a result, for 2007, each Named Executive Officer’s base salary and long-term incentive compensation represented a larger percentage of their total annual compensation than in previous years. See the Summary Compensation and Grants of Plan-Based Awards tables on pages 32 and 34 of this Proxy Statement.

 

Annual Cash Compensation

 

Base Salary.  The base salary component of our compensation program is intended to compensate our senior executives for their job responsibilities and the executive’s level of experience and allows us to attract and retain top talent, consistent with our objectives. It is our practice to set the base salary levels at approximately the 60th percentile of the Comparison Group and the overall general industry, adjusted to reflect each executive’s individual performance and contributions. In some cases, when an executive is recruited from another company, the base salary may exceed the levels indicated, which may be necessary in order to attract the executive.

 

Base salaries are reviewed annually by the Compensation Committee. Adjustments are made based on changes in the Comparison Group and on the performance of the executive, considering recommendations from the Chief Executive Officer for all executives except himself. The Compensation Committee separately reviews the performance of the Chief Executive Officer, as described above, and makes adjustments as warranted.

The table below discloses base salary for each NEO in fiscal years 2006 and 2007.

 

 

 

 

The merit increases were reviewed by the Compensation Committee in November and approved in December of 2006 and became effective January 1, 2007. Changes were made based largely on increases to the base salary of our Comparison Group, as well as individual performance of each of the NEOs.

 

Short-Term Incentive Compensation.  Short-term incentive compensation is designed to motivate our senior executives 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, we establish target short-term incentive pay-out levels for each executive tied to the Company’s performance, the performance of particular operating units over which an executive has control and on individual goals, or some combination thereof. It is our practice to set target bonus levels between the median and the 75th percentile of the Comparison Group.

 

For 2007, cash incentive payments were based on the 2007 Short-Term Incentive Compensation Plan approved by our Board of Directors. Our program places significant weight on the achievement of financial objectives. For 2007, we used achievement and growth in earnings per share for positions in our corporate office, a combination of achievement and growth in earnings per share and in operating income for our Dairy Group segment and achievement and growth in operating income of the Company and operating income and net sales for our WhiteWave segment as the key financial metrics, as we believe sustained performance in these areas is consistent with the expectations of our stockholders. The individual objectives for the Chief Executive Officer were set by the Compensation Committee, and for the executive officers by the Chief Executive Officer with review and input by the Compensation Committee.

 

Pursuant to our 2007 Short-Term Incentive Compensation Plan, the target cash incentive for our corporate executives consisted of two components: the Company’s performance against an adjusted earnings per share (EPS) target of $1.72 per share, and the individual participant’s performance against his or her individual objectives. Adjusted EPS consists of diluted net income per share, adjusted to eliminate the net gain or net expense from certain non-recurring items, consistent with the disclosures provided in our earnings releases. Each corporate executive was eligible for a maximum 200% payout on the adjusted EPS portion of the cash incentive if the Company attained an adjusted EPS of $1.81. Each corporate executive was eligible for a 20% payout of the adjusted EPS portion of the cash incentive if the Company attained an adjusted EPS of $1.65, or 96% of the target. If the Company attained an adjusted EPS of less than $1.65, corporate executives were not eligible for any payout of the adjusted EPS portion of the cash incentive. In addition, each corporate executive was eligible for a 120% payout on the individual objective portion of the cash incentive if the individual objectives were exceeded, which could have been multiplied by up to 200% had the adjusted EPS target been exceeded as described above.

 

For 2007, Mr. Engles’ individual objectives included performance in the following categories: development and execution of the Company’s strategic plan; certain organizational development initiatives; maintaining credibility with the investment community; development of the Company’s senior management; and leadership in establishing and maintaining a culture of compliance, ethical behavior and social responsibility throughout the Company.

Mr. Callahan’s individual objectives included performance in the following categories: the achievement of certain business and strategic objectives; and continuing progress in infrastructure initiatives.

 

Mr. Scalzo’s short-term cash incentive was subject to the criteria applicable to the senior leadership of our WhiteWave segment, including performance in the following categories: the achievement of financial goals of the WhiteWave segment of $1,370.9 million in net sales and $132.7 million in operating income for fiscal 2007; the achievement of $675.8 million of the Company’s overall operating income, adjusted to eliminate the net gain or net expense from certain non-recurring items, consistent with the disclosures provided in our earnings releases; and individual objectives. The individual objective payout percentages for WhiteWave could have been increased or decreased based on WhiteWave’s financial performance. Mr. Scalzo’s individual objectives included the achievement of certain business and strategic objectives, and building engagement, process and functional capabilities.

 

Ms. Goolsby’s individual objectives included performance in the following categories: corporate governance and compliance matters; organizational development; and the facilitation and support of other strategic initiatives.

 

Mr. Tanner joined us in November of 2007. Pursuant to his offer letter executed in connection with his employment, which was attached as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the period ended September 30, 2007, Mr. Tanner was guaranteed a bonus of the greater of 100% of his target cash incentive for 2007 or the actual calculated amount, prorated based on the number of months he worked in 2007.

 

Pursuant to the Separation and Release Agreement between Mr. Bernon and the Company, which was attached as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2007, Mr. Bernon received a bonus representing the individual objective component of his target bonus, prorated for eight months. His compensation is discussed further under the heading “Do we have agreements with our Named Executive Officers? — Separation and Release Agreement with Alan J. Bernon” on page 39 of this Proxy Statement.

 

The following table provides, for each Named Executive Officer serving as such at the end of the fiscal year, each element of cash incentive payment and the relative weight assigned to each of the elements described above:

 

 

 

 

In February 2008, the Compensation Committee assessed performance against the financial goals for corporate performance and business unit performance established at the beginning of 2007. The results of this assessment are set forth in the table below. In addition, the Compensation Committee assessed performance against the strategic performance goals that comprised the individual objective portion of the Named Executive Officers’ goals. With respect to these goals, the Committee determined that most were successfully achieved or exceeded, based on the Named Executive Officers’ leadership and execution of organizational objectives that furthered the Company’s long-term strategic plans. On balance, the Committee determined that the payout percentage for the individual objective portion of the goals should be at target for each of the Named Executive Officer’s respective individual objective percentage.

 

The chart below shows the eligible short-term cash incentive percentage payout possible based on our fiscal 2007 results, for each Named Executive Officer serving as such at the end of the fiscal year, for each of the stated

elements of annual cash incentive for Mr. Engles (Corporate — CEO), Ms. Goolsby, Mr. Callahan and Mr. Tanner (Corporate — Non CEO), and Mr. Scalzo (WhiteWave):

 

 

 

 

 

The table below shows the short-term incentive compensation payout opportunities for fiscal year 2007 and the actual payouts for the Named Executive Officers serving as such at the end of the fiscal year:

 

 

 

 

The incentive payments were paid to the Named Executive Officers in February 2008 and are included in the Summary Compensation Table.

 

Long-Term Equity Incentive Compensation

 

We believe that a significant portion of each senior executive’s compensation should be dependent on long-term value created for our stockholders. Our current program is designed to align the results achieved for stockholders with the rewards provided to our senior executives. Each year we compare our total stockholder return

(“TSR”) for the previous three years, which combines share price appreciation and dividends paid to show the total return to one stockholder over that period of time, to that of our Comparison Group. The value of the long-term incentive awards provided is based primarily on the results of this comparison. If our performance is at the 75th percentile or above, the awards are made at the 75th percentile of those provided to similar positions in the Comparison Group. If our performance is at the 25th percentile or below, the awards are made at levels equivalent to the 25th percentile within our Comparison Group. For results between the 25th and 75th percentiles, the value of the awards made is consistent with the level of performance within the Comparison Group. The value of the awards may be adjusted up or down by the Compensation Committee depending upon the performance of the individual executive officer; however, for awards granted in fiscal 2007, no material adjustments were made.

 

Our awards are currently provided in the form of stock options and restricted stock units, referred to as RSUs. Each award is weighted equally between stock options and RSUs with respect to dollar valuation, using the Black-Scholes valuation model for the stock options and the fair market value as of the determination date, discounted for the vesting period to reflect potential forfeiture risk, for the RSUs.

 

Stock options are used to motivate and reward our senior executives relative to value created for stockholders. RSUs are used to provide an ongoing retention element and a continuing link to stockholder value. In general, stock options vest over three years and RSUs vest over five years in equal portions following the grant. The vesting of RSUs may be accelerated to 30 months following the date of grant if certain share price targets are reached over a certain period of time, which for the outstanding grants is approximately 150% of our stock price on the date of grant. The Compensation Committee annually reviews both market practices and trends, and the availability of shares and units in our incentive program, in determining the mix of awards.

 

On April 2, 2007, we paid a special dividend of $15 to each stockholder of record on March 27, 2007. As a result, the amount of outstanding unvested RSUs and the amount and exercise prices of our outstanding unexercised stock options were adjusted in accordance with our stock option plan to reflect the adjustment in market value of our common stock as a result of the dividend. Such adjustments were made pro rata to all plan participants who had outstanding RSUs or stock options, including our NEOs.

 

Through November 30 of 2006, our three-year TSR was at the 90th percentile relative to the Comparison Group. As such, our long-term incentive awards, which were granted in February 2007, were set at the 75th percentile. For details regarding stock options and RSUs granted to the NEOs in fiscal 2007, see the table entitled “Grants of Plan-Based Awards During Fiscal Year 2007” in this Proxy Statement.

 

Timing of Long-Term Equity Grants

 

Our policies and stock option plans require that stock options have an exercise price equal to the closing price of the Company’s stock on the date of grant. In 2007, as required by our policy at the time, we granted long-term incentive compensation on February 12, 2007. Beginning in 2008, our policies require that annual stock option and RSU grants to senior executives and other employees be made by the Compensation Committee at a meeting held on January 15 of each year, or the next succeeding business day if January 15 is not a business day. The Compensation Committee has the ability to postpone the annual grant date if circumstances warrant such postponement.

 

Our Chief Executive Officer and two designated Executive Vice Presidents have limited authority to grant stock options and restricted stock units in connection with the hiring of new employees or the promotion or special recognition of selected employees. These recruiting and recognition grants may not exceed 400,000 shares in total annually and may not be made to any executive officer of the Company. In addition, no individual grant may exceed 50,000 shares without the Compensation Committee’s approval. These recruiting and recognition grants are made on the first business day of each month for all employees selected for awards in the preceding month or whose employment began during the preceding month.

 

Deferred Compensation Plan and Supplemental Employee Retirement Plan

 

Employees of the Company with a base compensation in excess of $150,000, including the Named Executive Officers, may defer a portion of their salary and bonus each year into the Dean Foods Deferred Compensation Plan,

which is a tax deferred plan. This program is intended to promote retention by providing a long-term savings opportunity on a tax-efficient basis. A deferred salary and bonus plan is a strong retention tool for our eligible executives. We believe this program is similar to that offered at most of the companies in our Comparison Group. Several Named Executive Officers have elected to defer both salary and bonus over their careers with us. The amounts deferred are partially funded and unsecured obligations of the Company, receive no preferential standing, and are subject to the same risks as any of the Company’s other unsecured obligations. The participants in this plan may choose from a number of externally managed mutual fund investments, and their investment balances track the rates of return for these accounts. For more information on amounts deferred pursuant to the Deferred Compensation Plan, see the table entitled “Nonqualified Deferred Compensation for Fiscal Year 2007” on page 36 of this Proxy Statement.

 

In addition, we maintain a Supplemental Executive Retirement Plan (SERP), which is a nonqualified deferred compensation arrangement for our executive officers and other employees earning compensation in excess of the maximum compensation that can be taken into account with respect to the Dean Foods 401(k) Plan, as set forth in the Internal Revenue Code. The SERP is designed to provide these employees with retirement benefits from the Company that are equivalent, as a percentage of total compensation, to the benefits provided to other employees. The Company credits to each eligible employee’s account an amount equal to 4% of his or her covered compensation in excess of the maximum described above, and credits interest on those balances at the mid-term applicable federal rate set by the Internal Revenue Service, plus 1%. Each employee’s plan balance will be paid to him or her upon termination of employment, a change in control or the employee’s death or qualifying disability.

 

Other Compensation

 

We provide our executive officers with a limited number of perquisites. These are designed to minimize the amount of time they devote to administrative matters other than Company business, promote a healthy work/life balance and provide opportunities for developing business relationships. For example, we make available to our executive officers a health screening program which helps to maintain their overall health. We encourage our officers to take advantage of this service. In addition, the Compensation Committee has approved club memberships for certain of our executive officers.

 

The Compensation Committee has also approved certain personal use of the corporate aircraft as described in the Summary Compensation Table. The Compensation Committee believes the enhanced security and efficiency this benefit provides is appropriate and is in the best interests of the Company and our stockholders. The incremental cost to us of providing personal travel on corporate aircraft is included in the Summary Compensation Table on page 32 of this Proxy Statement.

 

The Compensation Committee has also approved the payment of relocation costs when hiring or moving executive officers and other employees. The Compensation Committee believes it is appropriate and necessary to pay these costs in attracting and retaining top talent in the locations where we operate. The incremental cost to us of providing relocation benefits is included in the Summary Compensation Table on page 32 of this Proxy Statement.

 

We purchase tickets to various cultural, charitable, civic, entertainment and sporting events for business development and relationship building purposes, as well as to maintain our involvement in communities in which the Company operates and our employees live. Occasionally, our employees, including our executives, make personal use of tickets that would not otherwise be used for business purposes.

 

Our senior executives participate in the Company’s broad-based programs generally available to all employees, including our 401(k) retirement plan, health and dental and various other insurance plans, including disability and life insurance. For additional information regarding perquisites and other compensation, see the Summary Compensation Table on page 32 of this Proxy Statement.

 

Severance and Change in Control Benefits

 

We have entered into agreements with each of our executive officers pursuant to which we would provide certain payments in the event of a qualified termination as described under the heading “Executive Officer Severance — Potential Benefits Upon a Change in Control” following a change in control. A copy of the form of

these change in control agreements is filed with the SEC as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Generally, the executive officer would be paid a lump sum of cash equal to three times his or her base annual salary and his or her target bonus for the year, plus a gross-up payment for excise taxes, insurance benefits, outplacement services and certain other benefits.

 

The Compensation Committee believes that change in control benefits are important for attracting and retaining executive talent and help to ensure that executive officers can remain focused during periods of uncertainty. These are particularly important in an environment where merger and acquisition activity is high. We believe that our change in control benefits are consistent with those maintained by comparable companies. The change in control agreements also include provisions to lessen the impact of the federal excise tax on “excess parachute payments.” The so-called “golden parachute” tax rules subject “excess parachute payments” to a dual penalty: the imposition of a 20% excise tax upon the recipient and non-deductibility of such payments by the paying corporation. “Excess parachute payments” are those payments that exceed three times the individual’s “base amount” (generally an average of the individual’s W-2 compensation from the Company for the five years preceding the year in which the change in control occurs). Depending upon circumstances, the excise tax can effectively discriminate against new hires who have not received previous compensation from the Company, newly promoted employees depending on their historical compensation from the Company, individuals who have not exercised stock options and those who elect to defer compensation. For these reasons, we believe that the provision of the excise tax gross-up is appropriate. Estimated payments to the Named Executive Officers pursuant to the change in control agreements are summarized under the heading “Executive Officer Severance — Potential Benefits upon a Change in Control.”

 

We also maintain a severance plan for our executive officers, other than the Chief Executive Officer, which provides certain severance benefits in the event of a qualified termination defined as other than for “cause” or if the executive officer terminates his or her employment due to a reduction in compensation or scope of duties or relocation (as described under “Estimated Payments Upon a Qualified Termination”). A copy of the Company’s Executive Severance Pay Plan, which was approved by the Compensation Committee, is on file with the SEC as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. Generally, upon a qualified termination, an executive officer would receive a cash payment equal to two times his or her base annual salary plus his or her target bonus and a cash payment for the in-the-money value of stock options and restricted stock units that would vest during the two years following the date of severance and certain health benefits and outplacement services. We believe this plan helps create stability during periods of significant change and enables us to avoid negotiating individual severance arrangements with new hires. We also believe this plan reduces the likelihood and extent of litigation from executive severance. We believe that our severance benefits are consistent with those maintained by comparable companies. Estimated payments to the Named Executive Officers pursuant to the Executive Severance Pay Plan are summarized under the heading “Executive Officer Severance — Executive Severance Pay Plan.”

 

Tax Deductibility Policy

 

The United States income tax laws generally limit the deductibility of compensation paid to each Named Executive Officer to $1 million per year. An exception to this general rule exists for performance-based compensation that meets certain Internal Revenue Service requirements. Stock option awards under the Company’s stockholder approved long-term incentive plans qualify for the exemption offered by Section 162(m) of the U.S. tax code. Currently, all other compensation that we pay does not qualify for the Section 162(m) exemption.

 

Although deductibility of compensation is preferred, tax deductibility is not a primary objective of our compensation programs. We believe it is more important to retain the flexibility to compensate executive officers competitively. We will continue to monitor our compensation practices, however, and consider future opportunities to take advantage of the Section 162(m) exemption when we believe it is in the best interest of the Company and its stockholders.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with our management. Based on this review and discussion, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.

 

This report is presented by:
The members of the Compensation Committee
Joseph S. Hardin, Jr. (Chairman)
Stephen L. Green
John R. Muse
Jim L. Turner

 

The charts presented below should be read in conjunction with the Compensation Discussion and Analysis set forth above. In addition, on April 2, 2007, we paid to stockholders of record as of March 27, 2007, a $15 per share special cash dividend. As a result of the payment of the special cash dividend, the number of shares subject to options, the exercise prices of outstanding options and the number of unvested restricted stock units were adjusted effective as of March 27, 2007, in accordance with the terms of the plans under which they were issued. The information concerning options and restricted stock units in this Proxy Statement is presented on a post-adjustment basis for all periods presented.

 

The following chart shows the compensation paid during fiscal 2006 and 2007 to our Named Executive Officers.

 

Summary Compensation Table for Fiscal Year 2007

 

 

 

 

 

 

Grants of Plan-Based Awards in Fiscal Year 2007

 

 

 

 

Outstanding Equity Awards at 2007 Fiscal Year-End⁽¹⁾⁽²⁾