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<SEC-DOCUMENT>0000950134-98-002785.txt : 19980401
<SEC-HEADER>0000950134-98-002785.hdr.sgml : 19980401
ACCESSION NUMBER: 0000950134-98-002785
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 19
CONFORMED PERIOD OF REPORT: 19971231
FILED AS OF DATE: 19980331
SROS: NONE

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: SUIZA FOODS CORP
CENTRAL INDEX KEY: 0000931336
STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024]
IRS NUMBER: 752559681
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231

FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-12755
FILM NUMBER: 98582429

BUSINESS ADDRESS:
STREET 1: 3811 TURTLE CREEK BLVD
STREET 2: STE 1300
CITY: DALLAS
STATE: TX
ZIP: 75219
BUSINESS PHONE: 2145289922

MAIL ADDRESS:
STREET 1: 3811 TURTLE CREEK BLVD
STREET 2: SUITE 1300
CITY: DALLAS
STATE: TX
ZIP: 75219
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<DESCRIPTION>FORM 10-K FOR YEAR ENDED DECEMBER 31, 1997
<TEXT>

<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-12755

SUIZA FOODS CORPORATION
(Exact name of Registrant as specified in its charter)
-----------

DELAWARE 75-2559681
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)

3811 TURTLE CREEK BLVD.
SUITE 1300
DALLAS, TEXAS 75219
(214) 528-0939
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
-----------
<TABLE>

<S> <C>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) NEW YORK STOCK EXCHANGE
OF THE ACT: COMMON STOCK, $.01 PAR VALUE (Name of each exchange on which registered)
(Title of class)
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [X]

The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at March 25, 1998, based on the $63.625 per
share closing price for the Company's common stock on the New York Stock
Exchange, was approximately $1.72 billion.

The number of shares of the Registrant's common stock outstanding as
of March 25, 1998 was 31,302,888.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 14, 1998 (to be filed) are
incorporated by reference into Part III of this Form 10-K.

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Item Page
---- ----
<S> <C>
PART I

1 Business 1

2 Properties 9

3 Legal Proceedings 10

4 Submission of Matters to a Vote of Stockholders 11

PART II

5 Market for Registrant's Common Equity
and Related Stockholder Matters 12

6 Selected Financial Data 13

7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14

8 Financial Statements and Supplementary Data 21

9 Changes in and Disagreements with Accountants 21
on Accounting and Financial Disclosure

PART III

10 Directors and Executive Officers of the Registrant 22

11 Executive Compensation 22

12 Security Ownership of Certain Beneficial Owners
and Management 22

13 Certain Relationships and Related Transactions 22

PART IV

14 Exhibits, Financial Statement Schedule
and Reports on Form 8-K 23
</TABLE>

(i)

<PAGE> 3

PART I

ITEM 1. BUSINESS.

GENERAL

Suiza Foods Corporation (the "Company" or "Suiza") is a leading
manufacturer and distributor of fresh milk and related dairy products, plastic
packaging and packaged ice in the United States. Suiza also manufactures,
distributes and markets refrigerated, shelf-stable and frozen food products.
Suiza has grown primarily through a successful acquisition strategy, having
consummated more than 40 acquisitions since its initial public offering in April
1996. Through these acquisitions, Suiza has realized economies of scale,
operating efficiencies and added complimentary product lines.

The Company conducts its dairy operations primarily through its Puerto
Rico subsidiaries ("Suiza-Puerto Rico"), Velda Farms, Inc. ("Velda Farms"),
Swiss Dairy Corporation ("Swiss Dairy"), Model Dairy, Inc. ("Model Dairy"),
Dairy Fresh, Inc. ("Dairy Fresh"), Garelick Farms, Inc. and certain related
dairy subsidiaries ("Garelick Farms"), Country Delite Farms Inc. ("Country
Delite"), Country Fresh, Inc. ("Country Fresh") and The Morningstar Group Inc.
("Morningstar"). The Company conducts its plastics operations through Franklin
Plastics, Inc. and subsidiaries ("Franklin Plastics" or "Plastics") and its ice
operations through Reddy Ice Corporation ("Reddy Ice"). Each of these operating
subsidiaries is a leading competitor in its market, with an established
reputation for customer service and product quality. The Company's dairy and ice
subsidiaries market their products through extensive distribution networks to a
diverse group of customers, including convenience stores, grocery stores,
schools and institutional food service customers. The Company's customers in the
plastic packaging business include regional dairy manufacturers, bottled water
processors, beverage manufacturers, and consumer and industrial products
companies.

BUSINESS STRATEGY

Management believes that the dairy, food distribution and plastic
packaging industries provide attractive acquisition and consolidation
opportunities. Suiza's acquisition strategy is to take advantage of industry
consolidation trends by acquiring strong regional operators in new markets and
consolidating within these markets with add-on acquisitions. Through
consolidating acquisitions in its existing markets, management believes that
Suiza should be able to continue to realize substantial operating efficiencies
and economies of scale.

Suiza's operating strategy for its dairy and related food businesses is
to build a nationwide network of strong regional dairies supported by a
cost-effective national network of dairy manufacturing and distribution
operations. Management believes that its combination of regional
direct-store-delivery and national warehouse distribution capabilities will
enable Suiza to provide cost-effectively the fullest range of high quality
branded, value-added and retailer branded products sold throughout the dairy
case. In addition, Suiza will continue to seek internal growth in its dairy and
related food businesses by adding new customers, extending its product lines and
securing distribution rights for additional branded products.

Similar to its dairy strategy, Suiza's operating strategy for its
plastic packaging business is to seek scale efficiencies in purchasing,
geographic manufacturing, research and development, and customer support. In
addition, Suiza intends to seek internal growth in its plastic packaging
business by adding new customers, and utilizing new packaging innovations.
Suiza's operating strategy for its packaged ice operations is to continue to
increase its market share by leveraging its size and geographic presence and to
serve national accounts.

ACQUISITIONS AND RECENT DEVELOPMENTS

In July 1997, the Company acquired substantially all the assets of
Dairy Fresh, a regional dairy based in North Carolina, for cash consideration of
approximately $106.3 million, including related acquisition costs, plus the
assumption of certain indebtedness. Dairy Fresh reported sales of approximately
$125 million in its 1996 fiscal year.

In July 1997, the Company acquired the outstanding equity interests of
Garelick Farms and Franklin Plastics. At the time of the acquisition, Garelick
Farms consisted of three dairies, located in Massachusetts, Vermont and Maine,
as well as the Miscoe Springs water bottling company in Massachusetts, and
Franklin Plastics consisted of 16 plastic bottle manufacturing operations
located primarily in the Eastern and Midwestern United States. The acquired
businesses had annual sales of approximately $370 million during their most
recent fiscal years completed prior to the acquisition. At the

1
<PAGE> 4
closing, the Company paid $299.6 million in cash, including related acquisition
costs, and issued 446,100 shares of its common stock having a value of $15.0
million as of the day prior to the date of execution of the acquisition
agreement.

On November 25, 1997 and November 26, 1997, Suiza completed the
acquisitions of Country Fresh and Morningstar, respectively. The purchase price
for Country Fresh consisted of approximately 1.9 million shares of common stock,
11,691 shares of Suiza's Series A Preferred Stock and the assumption of
outstanding options of Country Fresh, which became exercisable to purchase
approximately 0.2 million shares of common stock. Country Fresh is a leading
regional processor of milk, juice and ice cream products based in Grand Rapids,
Michigan and reported net sales of approximately $353 million during its fiscal
year ended March 1, 1997. The purchase price for Morningstar consisted of
approximately 12.6 million shares of common stock and the assumption of
outstanding options of Morningstar, which became exercisable to purchase
approximately 2.9 million shares of common stock. Morningstar is a national
manufacturer, distributor and marketer of refrigerated, shelf-stable and frozen
food products and reported pro forma net sales of approximately $528 million for
its fiscal year ended December 31, 1996. The acquisitions of Country Fresh and
Morningstar have been accounted for as poolings of interests. Accordingly, the
Company's consolidated financial statements give retroactive effect to the
mergers of Country Fresh and Morningstar.

On February 20, 1998, Suiza completed the acquisition of Land-O-Sun
Dairies, L.L.C., ("Land-O-Sun") for a purchase price of approximately $248
million, consisting of approximately $128 million in cash, the issuance of $100
million of company-obligated 5% mandatorily redeemable convertible preferred
securities of a Delaware business trust formed by Suiza, and the issuance of $20
million of preferred interests of Land-O-Sun. In addition, Suiza refinanced
Land-O-Sun's existing outstanding long-term indebtedness, which totaled
approximately $52 million as of the closing date. Suiza financed the cash
portion of the purchase price and refinanced the existing long-term indebtedness
with borrowings of $180 million under its senior credit facility. Land-O-Sun is
based in Johnson City, Tennessee and operates 13 fluid dairy and ice cream
processing facilities in Tennessee, North Carolina, South Carolina, Georgia,
Illinois, Kentucky and Virginia. Land-O-Sun reported net sales of approximately
$464 million for its fiscal year ended December 31, 1997. The Land-O-Sun
acquisition was accounted for using the purchase method of accounting.

On January 14, 1998, Suiza signed a definitive agreement to acquire
Continental Can Company, Inc. ("Continental Can"). The purchase price for
Continental Can is payable through the issuance by Suiza of approximately 2.1
million shares of common stock, the assumption by Suiza of outstanding options
of Continental Can, which will become exercisable to purchase approximately 0.4
million shares of common stock, and the assumption of Continental Can's
long-term indebtedness outstanding at closing. Continental Can is primarily
engaged in the packaging business through a number of operating subsidiaries in
the United States and in Europe, and reported net sales of approximately $546
million for the fiscal year ended December 31, 1997. The Continental Can merger,
which is subject to the approval of the stockholders of Continental Can and
customary closing conditions, is expected to close in the second quarter of
1998, and will be accounted for using the purchase method of accounting. There
can be no assurance, however, that the acquisition of Continental Can will be
completed as currently contemplated or at all.

Suiza has also recently acquired or agreed to acquire a number of
smaller dairy, plastic packaging and packaged ice businesses, including the
completed acquisition of Louis Trauth Dairy, Inc. ("Trauth Dairy"), a Newport,
Kentucky based manufacturer and distributor of fresh milk, ice cream and related
dairy products. Trauth Dairy recorded net sales of approximately $67 million for
the fiscal year ended September 30, 1997.

On March 24, 1998, the Company completed the sale of $600 million of
trust issued redeemable convertible preferred securities in a private placement
to "qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "144A Preferred Securities"). The 144A
Preferred Securities are convertible at the option of the holders into an
aggregate of approximately 7.7 million shares of the Company's common stock,
subject to adjustment in certain circumstances.

On March 27, 1998, the Company entered into an agreement with Packaged
Ice, Inc. ("Packaged Ice") pursuant to which the Company would sell all of the
outstanding capital stock of Reddy Ice to Packaged Ice for $172.5 million in
cash, subject to certain adjustments. The agreement is subject to a number of
conditions, including the expiration or termination of applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and certain financing contingencies. There can be no assurance that
the sale of Reddy Ice will be completed pursuant to this agreement.
Accordingly, the description of Suiza's business and properties below includes
a description of Reddy Ice, as it has been and currently is being operated by
the Company. If the sale of Reddy Ice to Packaged Ice is completed, the Company
will no longer have any packaged ice operations. The operations of Reddy Ice
are presented as discontinued operations in all of the financial statements and
other financial information presented in this Annual Report on Form 10-K.

INDUSTRY OVERVIEW

Dairy
According to published industry statistics, approximately $24.9 billion
of fresh milk products were sold in 1996 at the wholesale level in the United
States compared to $21.6 billion sold in 1989. Management believes that the
dairy industry is mature in both the mainland United States and Puerto Rico.

2
<PAGE> 5

The dairy industry has excess capacity and has been in the process of
consolidation for many years. Excess capacity has resulted from the development
of more efficient manufacturing techniques, the establishment of captive dairy
manufacturing operations by large grocery retailers and relatively little growth
in the demand for fresh milk products. As the industry has consolidated, many
smaller dairy processors have been eliminated and several large regional dairy
processors have emerged. According to published industry statistics, in 1996
there were approximately 622 fresh milk processing plants in the United States,
a decline of 569 from the 1,191 plants operating in 1982. The number of plants
with 20 or more manufacturing employees declined from 792 to 427 over the same
period. As a result of this consolidation trend, which management believes will
continue, the Company has had favorable opportunities to pursue its business
strategy.

Plastic Packaging

The segment of the plastic packaging industry in which the Company
competes is blow-molded plastic bottles. This segment is fragmented and regional
due to the high cost of transporting empty bottles. According to published
industry statistics there are approximately 200 plastic bottle manufacturers in
the continental United States with sales ranging from a few million to over $500
million in size. Consolidation of these manufacturers has been a recent
phenomena, with several transactions occurring within the past year. The Company
believes this consolidation to be founded in an industry-wide drive to remove
duplicative costs and increase efficiency.

Ice

The ice industry is highly fragmented and is regional because of the
relatively high cost of transporting ice. Demand for ice is seasonal, with peak
demand occurring in the second and third calendar quarters. The availability of
ice during periods of high demand is important to grocery retailers and
convenience stores. The ice industry has therefore emerged as a service-oriented
business requiring efficient manufacturing facilities and distribution systems
capable of accommodating peak demand levels. Management believes that the
Company is one of the largest manufacturers and distributors of ice in the
United States and that it has significant market share in each of the markets in
which it operates.

PRODUCTS AND SERVICES

The following table sets forth the total net sales of the Company's
product lines, dairy products and plastic packaging, in dollars and as a
percentage of consolidated total net sales in 1995, 1996 and 1997 (dollars in
millions):

1995 1996 1997
---- ---- ----
DOLLARS PERCENT DOLLARS PERCENT DOLLARS PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Dairy........................ $1,014.9 100% $1,207.6 100% $1,742.3 97.1%
Plastic packaging............ --- --- --- --- 52.6 2.9

</TABLE>

The change in the percentage of consolidated total net sales
represented by sales of dairy products and plastic packaging from
1995 to 1997 is the result of significant dairy acquisitions in 1996 and 1997,
and a plastic packaging acquisition in 1997. Information about the Company's
industry segments is contained in Note 18 to the Consolidated Financial
Statements.

Dairy
Suiza's regional dairy operations manufacture and distribute fresh
milk, fruit drinks, coffee, juices, yogurt, packaged ice cream, ice cream
novelties and water and related products under proprietary brand names and on a
private-label basis for large customers. Suiza's Morningstar subsidiary
manufactures and distributes refrigerated, non-refrigerated and frozen specialty
food products that include (i) Suiza brands such as International Delight (R),
Second Nature(R), Naturally Yours(TM) and Mocha Mix(R), (ii) retailer/wholesaler
brands such as Morningstar "house" brands and private label brands and (iii)
partner brands such as Lactaid(R) (manufactured under a licensing agreement with
McNeil Consumer Products, an affiliate of Johnson & Johnson).

Plastic Packaging

Suiza manufactures and distributes blow-molded plastic containers made
primarily from polyethylene and used to package food grade products such as
milk, water and other beverages. Suiza also produces plastic containers for use
in packaging consumer and industrial products. These plastic containers vary in
size from 8 ounces to 2 1/2 gallons.

3
<PAGE> 6

Ice

Suiza manufactures and distributes ice products for retail, commercial
and institutional markets. Suiza's principal product is cocktail ice in eight
pound bags, which it sells principally to convenience and grocery stores. Suiza
also sells cocktail ice in various bag sizes ranging from three pounds to 40
pounds to restaurants, stadiums, vendors and caterers. In addition, Suiza sells
block ice in ten and 300 pound sizes to commercial and industrial customers.

SALES AND DISTRIBUTION

Dairy

Suiza markets and sells its dairy products to a wide variety of retail
and food service outlets including grocery stores, club stores, convenience
stores, gas stores, schools, restaurants, hotels and cruise ships. Suiza's dairy
group serves over 30,000 customers in its markets utilizing a fleet of over
1,000 delivery vehicles. Suiza's Morningstar subsidiary markets and sells its
specialty food products on a national basis to a wide variety of retail, food
service and dairy outlets and in approximately 20 foreign countries, and serves
over 1,500 accounts through an internal sales force and independent brokers.

Plastic Packaging

Suiza's customers for plastic containers include regional dairy
manufacturers, bottled water processors and other beverage manufacturers. As of
December 31, 1997, Suiza operated 6 stand-alone manufacturing facilities, from
which it delivered plastic containers to its customers' facilities, and 11
on-site manufacturing facilities located on its customers' premises. Suiza's
on-site manufacturing facilities manufacture and convey plastic containers
directly to its customers' filling operations. At these on-site facilities,
Suiza also manufactures plastic containers for distribution to off-site
customers.

Ice

Suiza markets its ice products to convenience and grocery stores for
retail sales and, to a lesser extent, to business and institutional customers
that utilize Suiza's ice products in their operations. Suiza serves over 28,000
sites from 36 ice manufacturing facilities and 18 distribution centers. Suiza
provides ice merchandisers to a majority of those sites.

Suiza's ice distribution fleet consists of over 150 delivery vehicles,
the majority of which are owned. In order to meet peak demand, Suiza expands its
fleet during the summer season with short-term leased vehicles.

RAW MATERIALS AND SUPPLY

Dairy

The Company purchases milk, its primary raw material, from farmers and
farm co-operatives under contractual arrangements. Certain aspects of the
Company's milk supply arrangements are regulated by governmental authorities.
Fluid milk is generally readily available. The Company has traditionally
experienced slight shortages in its milk supply in Puerto Rico during the months
of September and October each year. Management estimates that these shortages,
when they occur, reduce its Puerto Rico dairy sales by less than 2% during these
months. Other raw materials, such as coffee, juice concentrates, sweeteners, and
packaging supplies are generally available from numerous suppliers and the
Company is not dependent on any single supplier for these materials. Certain of
these raw materials are purchased under long-term contracts in order to obtain
lower costs.

Plastics Packaging

The primary raw material for the Company's plastic packaging operations
is high density polyethylene ("HDPE"). HDPE is currently purchased from several
suppliers and has generally been available to the Company. During periods of
higher demand, which can result in part from unit growth of this industry, the
price of HDPE can be expected to rise until such time as new production capacity
is added, which has historically caused the price of HDPE to fluctuate widely.

Ice

Except with respect to its water supply and electricity, the Company is
not dependent upon any single supplier for materials used in the manufacturing
and packaging of its ice products. The Company has not experienced any material
supply problems in the past with respect to its ice business.

4
<PAGE> 7
COMPETITION

The Company's businesses are highly competitive. The Company has a
number of competitors in each of its major product, service and geographic
markets, and many of these competitors are larger, more established and better
capitalized than the Company.

Dairy

Suiza's dairy and food distribution businesses are subject to
significant competition from dairy operations and large national food service
distributors that operate in Suiza's markets. Competition in the dairy and food
distribution businesses is based primarily on service, price, brand recognition,
quality and breadth of product line. Certain of Suiza's competitors are large,
well capitalized and may have greater financial, operational and marketing
resources than Suiza.

Plastic Packaging

The plastic packaging industry is also subject to significant
competition. Suiza competes with larger independent manufacturing companies and
vertically integrated food and industrial companies that operate captive plastic
packaging manufacturing facilities. The primary competitive factors in the
plastic packaging industry are price, quality and service. Many of Suiza's
competitors in the plastics industry are larger and better capitalized than
Suiza, and have greater resources than Suiza.

Ice

The packaged ice business is also highly competitive. Suiza faces a
number of competitors in the packaged ice business, including smaller
independent ice manufacturers, convenience and grocery retailers that operate
captive commercial ice plants and retailers that manufacture and package ice at
store locations. Competition exists primarily on a regional basis, with service,
price and quality as the principal competitive factors. A significant increase
in the utilization of captive commercial ice plants or on-site manufacturing by
operators of large retail chains served by Suiza could have an adverse effect on
Suiza's ice business.

TRADEMARKS

The Company has developed or acquired a number of trademarks and brand
names, of which eight are registered, for use in its dairy and ice businesses,
and holds licenses for the use of several additional registered trademarks from
third parties. Although the Company's use of its trademarks has created goodwill
and results in product differentiation, management does not believe that the
loss of any of the Company's trademarks would have a material adverse effect on
its operations. The Company also holds a patent on an ice machine that
manufactures and packages ice at store locations.

GOVERNMENT REGULATION

Public Health

As a manufacturer and distributor of food products, the Company is
subject to the Federal Food, Drug and Cosmetic Act and regulations promulgated
thereunder by the Food and Drug Administration ("FDA"). This comprehensive
regulatory scheme governs the manufacture (including composition and
ingredients), labeling, packaging and safety of food. The FDA regulates
manufacturing practices for foods through its current good manufacturing
practices regulations, specifies the standards of identity for certain foods,
including many of the products sold by the Company, and prescribes the format
and content of certain information required to appear on food product labels.

In addition, the FDA enforces the Public Health Service Act and
regulations issued thereunder, which authorize regulatory activity necessary to
prevent the introduction, transmission or spread of communicable diseases. These
regulations require, for example, pasteurization of milk and milk products. The
Company and its products are also subject to state and local regulation through
such measures as the licensing of dairy manufacturing facilities, enforcement by
state and local health agencies of state standards for the Company's products,
inspection of the Company's facilities and regulation of the Company's trade
practices in connection with the sale of dairy products. Although the Company
maintains quality control programs designed to address food quality and safety
issues, an actual or perceived problem with the quality or safety of

5
<PAGE> 8

products at any of the Company's facilities could lead to product withdrawals,
product recalls, remediation expenses, temporary plant closings and related
negative publicity, any of which could have a material adverse effect on the
Company.

The Company utilizes quality control laboratories to test milk and
other ingredients and finished products. Product quality and freshness are
essential to the successful retail distribution of dairy and refrigerated
ready-to-serve fruit drinks. To monitor product quality at its facilities, the
Company maintains quality control programs to test products during various
processing stages. Management believes that the Company's dairy and ice
facilities and manufacturing practices comply with applicable government
regulations.

Employee Safety Regulations

The Company is subject to certain health and safety regulations
including regulations issued pursuant to the Occupational Safety and Health Act.
These regulations require the Company to comply with certain manufacturing,
health and safety standards to protect its employees from accidents.

Environmental Regulations

The Company is subject to certain federal, state and local
environmental regulations. Certain of the Company's dairy facilities discharge
biodegradable wastewater into municipal waste treatment facilities in excess of
levels permitted under local regulations. Because of this, certain of the
Company's operating subsidiaries are required to pay waste water surcharges or
to construct waste water pretreatment facilities. Velda Farms, Garelick Farms
and Country Fresh paid waste water surcharges aggregating approximately $1.3
million (on an annualized basis) during 1997. Morningstar expects to spend
approximately $500,000 to construct waste water pre-treatment facilities during
1998, and Garelick Farms expects to spend approximately $2,000,000 on such
facilities during 1998 and 1999.

The Company maintains above-ground or underground petroleum storage
tanks at many of its facilities. These tanks are periodically inspected to
determine compliance with applicable regulations. The Company may be required to
make expenditures from time to time in order to maintain compliance of these
tanks.

The federal government has banned the production of a refrigerant used
by the Company in its ice merchandisers. The continued use of this refrigerant,
however, is permitted and there are sufficient quantities of the refrigerant
available to meet the Company's needs for the next several years. The Company is
taking steps to facilitate its conversion to new, reformulated refrigerants.
Management does not anticipate that conversion costs will be material.

Management does not expect environmental compliance to have a material
impact on the Company's capital expenditures, earnings or competitive position
in the foreseeable future.

U.S. Milk Industry Regulation

The price of raw milk in the United States fluctuates based on supply
and demand, with minimum support prices established monthly on a regional basis
by the federal government, through Federal Milk Marketing Orders or state
government agencies. In 1996, Congress passed legislation to phase out support
prices over a specified period. There can be no assurance that a material
increase in milk prices in the United States will not occur, and such an
increase could reduce the profitability of the Company's operations and have a
material adverse effect on the Company. The United States Department of
Agriculture has recently proposed a number of changes to the Federal Milk
Marketing Order program, including changes in pricing classifications for
certain dairy products. It is uncertain whether these proposals will be adopted
in their current or another form or, if adopted, what the impact of any final
rules would have on the market for dairy products. There can be no assurance
that any changes in the current Federal Milk Marketing Order program would not
have a material adverse effect on the Company.

Puerto Rico Milk Industry Regulation

The milk industry in Puerto Rico is regulated under Puerto Rico Law
Number 34 of June 11, 1957. This statute establishes a production ceiling for
milk production by dairy farmers in order to manage the supply and demand of
milk products and to stabilize prices. In addition, the Puerto Rico statute
provides that the government will establish maximum prices for the dairy farm,
processor and retailer and that such prices be reviewed at least once a year.

The Office for the Regulation of the Milk Industry, an agency of the
Puerto Rico Department of Agriculture, is charged with: (i) ensuring the quality
of milk products; (ii) setting the price of milk at the dairy farm level and
maximum prices at the processor and retail levels; and (iii) administering and
managing licenses and other matters within the industry. As part of its review
and price setting process, this agency examines the financial condition of each
of the participants in the

6
<PAGE> 9

industry as well as overall economic trends within the industry. As a general
rule, pricing at each of the industry levels reflects an attempt to provide a
fair return to processors and farmers and maintain prices acceptable to
consumers. The latest price increase for dairy manufacturers in Puerto Rico was
in 1994 and, prior to that, in 1990.

EMPLOYEES

As of December 31, 1997 the Company employed approximately 7,050
employees in the following categories:

EXPIRATION OF
NON-UNION UNION TOTAL UNION CONTRACT
--------- ----- ----- --------------
<S> <C> <C> <C> <C>
Dairy
Alabama............................................ 1 --- 1
California......................................... 115 566 681 (1)
Connecticut........................................ 5 --- 5
Florida............................................ 689 --- 689
Georgia............................................ 1 --- 1
Indiana............................................ 28 82 110 (2)
Maine.............................................. --- 112 112 December 1998
Maryland........................................... 148 --- 148
Massachusetts...................................... 297 --- 297
Michigan........................................... 257 640 897 (3)
Nevada............................................. 45 121 166 June 2000
New Hampshire...................................... 10 --- 10
New York........................................... 34 --- 34
North Carolina..................................... 134 --- 134
Ohio............................................... 59 189 248 (4)
Puerto Rico........................................ 968 75 1,043 (5)
Rhode Island....................................... 283 --- 283
Tennessee.......................................... 139 102 241 July 1999
Texas.............................................. 211 76 287 June 1999
Vermont............................................ 65 --- 65
Wisconsin.......................................... 76 131 207 May 1998
----- ----- -----
Total Dairies.......................................... 3,565 2,094 5,659
Ice.................................................... 698 --- 698
Plastic Packaging...................................... 675 --- 675
Corporate.............................................. 18 --- 18
----- ----- -----
Total.............................................. 4,956 2,094 7,050
===== ===== =====
</TABLE>

- -------------------
(1) The Company is a party to six different union contracts covering
employees in California. These contracts expire at various times during
1998, 1999 and 2000.

(2) The Company is a party to two different union contracts covering
employees in Indiana. These contracts expire in March 1998 and January
2001.

(3) The Company is a party to eight different union contracts covering
employees in Michigan. These contracts expire at various times from
1998 through 2002.

(4) The Company is a party to two different union contracts covering
employees in Ohio. These contracts expire in April 1998 and November
1999.

(5) The Company is currently a party to two different union contracts
covering employees in Puerto Rico. These contracts expire in October
1998 and July 2001. In addition, approximately 338 additional employees
voted to unionize in February 1998, and the Company is currently
negotiating with the new union concerning a contract.

7
<PAGE> 10

OUTLOOK AND UNCERTAINTIES

Certain information in this Annual Report may contain "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of historical fact are
"forward-looking statements" for purposes of these provisions, including any
projections of earnings, revenues or other financial items, any statements of
the plans, strategies and objectives of management for future operations, any
statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. Such forward-looking statements may
be contained in the Company's business description and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, among
other places. Although the Company believes that the expectations reflected in
its forward-looking statements are reasonable, it can give no assurance that
such expectations or any of its forward-looking statements will prove to be
correct, and actual results could differ materially from those projected or
assumed in the Company's forward-looking statements. The Company's future
financial condition and results, as well as any forward-looking statements, are
subject to inherent risks and uncertainties, some of which are summarized in
this section.

Risks Associated with Acquisition Strategy. The Company's strategy is
to continue to expand its dairy, food distribution and plastic packaging
business primarily through acquisitions of strong regional operators in new
markets and consolidating or add-on acquisitions. The Company may encounter
increased competition for acquisitions in the future, which could result in
acquisition prices that the Company does not consider acceptable. There can be
no assurance that the Company will find suitable acquisition candidates at
acceptable prices or succeed in integrating acquired businesses into the
Company's existing business or in retaining key customers of acquired
businesses. There can also be no assurance that the Company will have sufficient
available capital resources to realize its acquisition strategy.

Although the Company often acquires operations in new markets requiring
minimal integration into its existing operations, the success of the Company's
acquisition strategy is also dependent on the ability of the Company to
integrate acquisitions into the Company's existing operations. In addition the
Company's recent growth has required, and is expected to continue to require, a
significant amount of management, operational and financial resources. There can
be no assurance that the integration of these operations and future acquired
operations will not result in unforeseen difficulties, or require the investment
of capital or absorb significant management resources at levels higher than that
anticipated by management, or that the Company will realize meaningful economies
of scale or operating efficiencies from its acquisitions. The failure of the
Company to successfully integrate acquired operations could have a material
adverse effect on the Company's operations.

Competition. The Company's dairy, plastic packaging and packaged ice
businesses are subject to significant competition. See "--Competition."

Substantial Indebtedness. On December 31, 1997, the Company had total
indebtedness of approximately $829.1 million. Under its senior credit facility,
the Company can incur substantial amounts of additional indebtedness in the
future, and additional indebtedness has been and, if the Company's acquisition
strategy is successful, will continue to be incurred in connection with
acquisitions by the Company. The Company's senior credit facility and related
debt service obligations may (i) limit Suiza's ability to obtain additional
financing in the future, (ii) require the Company to dedicate a significant
portion of its cash flow to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for other
purposes, (iii) limit the Company's flexibility in planning for, or reacting to,
changes in its business and market conditions, and (iv) impose additional
financial and operational restrictions on Suiza, including restrictions on
dividends.

The Company's ability to make scheduled payments on its indebtedness
depends on its financial and operating performance, which is subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond the Company's control. The Company has pledged the
stock of its subsidiaries (except for 35% of the capital stock of Garrido) to
secure its indebtedness under the senior credit facility. The failure of Suiza
to comply with the financial and other restrictive covenants under its senior
credit facility may result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company. The Company has entered
into various interest hedging agreements with respect to approximately $600
million of indebtedness under its senior credit facility to reduce its exposure
to interest rate fluctuations. To the extent indebtedness under the senior
credit facility exceeds this amount, Suiza will be subject to interest rate
risk.

8
<PAGE> 11

Government Regulation; Raw Material Costs. The Company's operations are
subject to numerous federal, Puerto Rico, state and local government
regulations. See "--Government Regulation."

Dependence on Key Personnel. The future success of the Company's
business operations is dependent in part on the efforts and skills of certain
key members of management. The loss of any of its key members of management
could have an adverse effect on the Company. The Company has not obtained key
man life insurance with respect to any of its key members of management.

Limitations on Favorable Tax Treatment. Under Section 936 of the
Internal Revenue Code of 1986, as amended, a portion of the Company's income
derived from its dairy, fruit drink and plastic bottle operations in Puerto Rico
qualifies for a tax credit that has the effect of reducing or eliminating United
States income taxes on income derived from these operations. In the Revenue
Reconciliation Act of 1993, the United States Congress imposed certain
limitations on the availability of the Section 936 credit. In August 1996,
Congress passed the Small Business Job Protection Act of 1996 which contains
further restrictions on the availability of Section 936 credits and eliminates
Section 936 altogether by December 31, 2005. These limitations, combined with
certain other provisions in the Internal Revenue Code that govern the allocation
among affiliated corporations of credits derived under Section 936, may limit
the amount of the tax credit available to the Company prior to the expiration of
Section 936. In such event, Suiza's effective tax rate could be increased
relative to historical rates, with a corresponding adverse effect on Suiza's net
income.

ITEM 2. PROPERTIES.

The Company conducts its manufacturing and distribution operations from
the following facilities:

MANUFACTURING
REGION & DISTRIBUTION DISTRIBUTION ONLY
------ -------------- -----------------
<S> <C> <C> <C>
Dairy: California City of Industry
Cypress
Fullerton
Gustine
Riverside
Santa Fe Springs
Tulare
Florida Miami Daytona Beach
St. Petersburg Fort Myers
Winterhaven Jacksonville
Naples
Orlando
Ocala
Riviera Beach
Sarasota
Tampa
Vero Beach
Indiana New Paris
Maine Bangor
Maryland Frederick
Massachusetts Franklin
Mendon
Michigan Detroit Alpena
Flint Lansing
Grand Rapids Sault Ste. Marie
Livonia Traverse City
Nevada Reno
North Carolina Winston-Salem
Ohio Toledo (2)
Puerto Rico Aguadilla Adjuntas
Caguas Arecibo
Lares Ponce
San Juan San Juan
Tennessee Arlington
Chattanooga
Nashville
Texas Sulphur Springs
Vermont Bennington
Wisconsin Bristol
Madison
</TABLE>

9
<PAGE> 12

MANUFACTURING
REGION & DISTRIBUTION DISTRIBUTION ONLY
------ -------------- -----------------
<S> <C> <C> <C>
Ice: Alabama Huntsville Dothan
Opelika Montgomery
Arizona Phoenix
Tucson
Yuma
California Riverside
Florida Auburndale Key West
Crescent City St. Petersburg
Davie Tallahassee
Jacksonville
MacClenny
New Smyrna Beach
Opa Locka
Rivera Beach
Tampa
Georgia Albany Athens
Atlanta Columbus
Louisiana Baton Rouge Alexandria
Monroe Shreveport
Mississippi Jackson Flowood
Nevada Las Vegas
New Mexico Albuquerque Las Cruses
Oklahoma Ardmore
Tennessee Knoxville
Nashville
Texas Austin Abiliene
Dallas Bryan
El Paso Galveston
Fort Worth Livingston
Harlingen Port Neches
Houston (2)
Killeen
Monahans
Pilot Point
Splendora
Waco
Utah Salt Lake City
Plastics: Connecticut New Britain
Florida St. Petersburg
Zephyrhills
Georgia McDonough
Illinois Caseyville
Louisiana Kentwood
Maine Poland Springs
Massachusetts Franklin
Marlborough
New Jersey Monroe Township
North Carolina Greensboro
Ohio Columbus
Pennsylvania Breinigsville
Kelton
York
Texas Sherman
Virginia Richmond
</TABLE>

The Company maintains three administrative offices located in leased
premises in Dallas, including its executive offices located at 3811 Turtle Creek
Boulevard, Suite 1300, Dallas, Texas 75219.

ITEM 3. LEGAL PROCEEDINGS.

The Company is from time to time a party to legal proceedings that
arise in the ordinary course of business. Management does not believe that the
resolution of any threatened or pending legal proceedings will have a material
adverse affect on the Company's financial position, results of operations or
liquidity.

10
<PAGE> 13

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.

On November 26, 1997 the Company held a special meeting of stockholders
at which a proposal was approved to issue Suiza common stock in connection
with the combination of Suiza and The Morningstar Group Inc. Stockholders
also approved a proposal to increase the number of authorized shares of common
stock reserved for issuance under the Suiza Foods Corporation 1997 Stock Option
and Restricted Stock Plan from 1,150,000 shares to 3,000,000 shares.

11
<PAGE> 14

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock (the "Common Stock") began trading in the
Nasdaq National Market on April 17, 1996. The Common Stock began trading on the
New York Stock Exchange on March 5, 1997. The following table sets forth, for
the periods from April 17, 1996 to December 31, 1997, the high and low sales
prices of the Common Stock as quoted on the Nasdaq National Market or the New
York Stock Exchange, as applicable. At March 16, 1998, there were approximately
296 record holders of the Common Stock.

High Low
---- ---
<S> <C> <C>
Year Ended December 31, 1996:
Second Quarter (from April 17, 1996).............................................. $18.75 $14.00
Third Quarter..................................................................... $17.75 $15.75
Fourth Quarter.................................................................... $20.75 $16.75

Fiscal Year Ended December 31, 1997:
First Quarter.................................................................... $29.25 $19.25
Second Quarter................................................................... $42.00 $24.75
Third Quarter.................................................................... $57.50 $39.12
Fourth Quarter................................................................... $62.50 $43.50
</TABLE>

The Company has never declared or paid a cash dividend on the Common
Stock. Management intends to retain all earnings to cover working capital
fluctuations and to fund capital expenditures, scheduled debt repayments and
acquisitions and does not anticipate paying cash dividends on the Common Stock
in the foreseeable future.

12
<PAGE> 15

ITEM 6. SELECTED FINANCIAL DATA.
(In thousands, except share data and ratios)

The following selected financial data of Suiza as of and for each of
the five years in the period ended December 31, 1997 have been derived from
Suiza's audited consolidated financial statements. The selected financial data
of Suiza give retroactive effect to Suiza's mergers with Country Fresh and
Morningstar on November 25, 1997 and November 26, 1997, respectively, which have
been accounted for as poolings of interests. The selected financial data do not
purport to indicate results of operations as of any future date or for any
future period. The selected financial data of Suiza should be read in
conjunction with the consolidated financial statements and related notes of
Suiza included in Item 8.

YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net Sales...................................... $1,794,876 $1,207,565 $1,014,926 $891,165 $579,276
Cost of Sales.................................. 1,392,216 970,796 813,091 710,175 471,622
---------- ---------- ---------- -------- --------
Gross profit................................... 402,660 236,769 201,835 180,990 107,654
Operating costs and expenses:
Selling and distribution................... 197,147 123,161 107,885 99,877 60,110
General and administrative................. 58,302 44,352 39,649 34,903 23,893
Amortization of intangibles................ 14,916 7,675 5,609 5,378 4,109
Restructuring charges...................... -- -- -- -- 7,100
Merger and other costs..................... 37,003 571 9,300 832 --
---------- ---------- ---------- -------- --------
Total operating costs and expenses............. 307,368 175,759 162,443 140,990 95,212
---------- ---------- ---------- -------- --------
Income from operations......................... 95,292 61,010 39,392 40,000 12,442
Other (income) expense:
Interest expense, net...................... 36,664 15,707 18,942 16,855 6,266
Other income net........................... (24,077) (4,499) (2,241) (1,422) (1,406)
---------- ---------- ---------- -------- --------
Total other expense ........................... 12,587 11,208 16,701 15,433 4,860
---------- ---------- ---------- -------- --------
Income from continuing operations before income
taxes...................................... 82,705 49,802 22,691 24,567 7,582
Income taxes................................... 43,375 2,939 10,003 7,452 2,185
---------- ---------- ---------- -------- --------
Income from continuing operations ............. 39,330 46,863 12,688 17,115 5,397
Income from discontinued operations............ 717 2,315 1,329 1,745 1,730
---------- ---------- ---------- -------- --------
Income before cumulative effect of change
In accounting and extraordinary loss....... 40,047 49,178 14,017 18,860 7,127
Cumulative effect of change in accounting...... -- -- -- (2,272) --
Extraordinary loss from early extinguishment
of debt........................................ (11,283) (2,215) (8,462) (197) (164)
---------- ---------- ---------- -------- --------
Net income..................................... $ 28,764 $ 46,963 $ 5,555 $ 16,391 $ 6,963
========== ========== ========== ======== ========
Net income applicable to common stock.......... $ 28,464 $ 46,661 $ 5,251 $ 16,391 $ 6,963
========== ========== ========== ======== ========
</TABLE>

13
<PAGE> 16

YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Basic earnings per common share:
Income from continuing operations.............. $ 1.32 $ 1.99 $ 0.60 $ 0.78 $ 0.30
Income from discontinued operations............ 0.02 0.10 0.06 0.08 0.09
Cumulative effect of accounting change......... --- --- --- (0.10) ---
Extraordinary loss............................. (0.38) (0.10) (0.41) (0.01) (0.01)
---------- ---------- ---------- ----------- -----------
Net income..................................... $ 0.96 $ 1.99 $ 0.25 $ 0.75 $ 0.38
========== ========== ========== =========== ===========
Diluted earnings per common share:
Income from continuing operations.............. $ 1.25 $ 1.90 $ 0.59 $ 0.75 $ 0.28
Income from discontinued operations............ 0.02 0.10 0.06 0.08 0.09
Cumulative effect of accounting change......... --- --- --- (0.10) ---
Extraordinary loss............................. (0.36) (0.09) (0.40) (0.01) (0.01)
---------- ---------- ---------- ----------- -----------
Net income..................................... $ 0.91 $ 1.91 $ 0.25 $ 0.72 $ 0.36
========== ========== ========== =========== ===========
Average common shares:
Basic.......................................... 29,508,791 23,424,322 20,708,467 21,844,157 18,312,371
========== ========== ========== =========== ===========
Diluted........................................ 31,348,591 24,491,899 20,935,161 22,761,925 19,321,127
========== ========== ========== =========== ===========

OTHER DATA:
Ratio of earnings to combined fixed charges and
Preferred stock dividends (1).............. 2.89x 3.38x 1.94x 2.22x 1.73x

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................... $1,403,462 $ 833,624 $ 484,852 $ 443,307 $ 417,641
Long-term debt, including current portion...... 828,659 455,880 265,749 209,355 227,084
Preferred stock................................ 3,741 3,741 3,800 --- ---
Total common stockholders' equity.............. 355,569 210,113 108,109 127,954 104,302
</TABLE>

- ------------------

(1) For purposes of calculating the ratio of earnings to combined fixed charges
and preferred stock dividends, "earnings" represent income before income
taxes plus fixed charges. "Fixed charges" consist of interest on all
indebtedness, amortization of deferred financing costs, the portion of
rental expense that management believes is a representative of the interest
component of rent expense. Preferred stock dividends consists of dividends,
adjusted to a pre-tax basis, on Suiza's Series A Preferred Stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

Suiza is a manufacturer and distributor of fresh milk and related dairy
products, plastic packaging and packaged ice in the United States. Suiza also
manufactures, distributes and markets refrigerated, shelf-stable and frozen food
products. The markets in which the Company operates tend to be relatively
mature. Because of this dynamic, the Company's strategy has been to grow
primarily through acquisitions and to realize economies of scale and operating
efficiencies by eliminating duplicative manufacturing, distribution, purchasing
and administrative operations.

RESULTS OF OPERATIONS

The results of operations give retroactive effect for all periods
presented to the mergers with Country Fresh and Morningstar on November 25, 1997
and November 26, 1997, respectively, which have been accounted for as poolings
of interest, whereby the assets acquired and liabilities assumed are reflected
in the consolidated financial statements of the Company at the historical
amounts for these entities. The results of operations also have been restated
for all periods to present the packaged ice business as a discontinued
operation. The following table presents certain information concerning the
Company's results of operations, including information presented as a percentage
of sales (dollars in thousands):

14
<PAGE> 17

Year Ended December 31, 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
Dollars Percent Dollars Percent Dollars Percent
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES
Dairy $1,742,248 $1,207,565 $1,014,926
Plastics 52,628 --- ---
-------------------------------------------------------------------------------
Net sales 1,794,876 100.0% 1,207,565 100.0% 1,014,926 100.0%
Cost of goods sold 1,392,216 77.6 970,796 80.4 813,091 80.1
-------------------------------------------------------------------------------
Gross profit 402,660 22.4 236,769 19.6 201,835 19.9

OPERATING EXPENSES
Selling and distribution 197,147 11.0 123,161 10.2 107,885 10.6
General and administrative 58,302 3.2 44,352 3.7 39,649 4.0
Amortization of intangibles 14,916 0.8 7,675 0.6 5,609 0.5
Merger costs 37,003 2.1 571 0.0 9,300 0.9
-------------------------------------------------------------------------------
Total operating expenses 307,368 17.1 175,759 14.5 162,443 16.0
-------------------------------------------------------------------------------

OPERATING INCOME
Dairy 134,402 64,770 50,631
Plastics 4,862 --- ---
Corporate office (43,972) (3,760) (11,239)
-------------------------------------------------------------------------------
Operating income $ 95,292 5.3% $61,010 5.1% $39,392 3.9%
===============================================================================
</TABLE>

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Net Sales. The Company's net sales increased 48.6% to $1.79 billion in
1997 from $1.21 billion in 1996. Net sales for the Company's dairy operations
increased by 44.3%, or $534.7 million to $1.74 billion in 1997 when compared to
1996 primarily due to the acquisitions of Garrido in July 1996, Swiss Dairy in
September 1996, Model Dairy and Presto in December 1996, and Dairy Fresh and
Garelick Farms in July 1997. The increased sales reported from these acquired
companies in 1997 over 1996 was $513.8 million. Net sales in the Company's
plastics operations of $52.6 million were reported by Franklin Plastics, which
was acquired along with Garelick Farms in July 1997. The Company owned no
plastics business during 1996.

Cost of Sales. The Company's cost of sales margin was 77.6% for 1997
compared to 80.4% for the same period in 1996. Cost of sales margins for the
Company's dairy operations decreased from 80.4% in 1996 to 77.6% in 1997
primarily due to (i) lower average milk costs in the Company's domestic milk
operations, which reduced sales and cost of sales by similar amounts as cost
decreases were passed through to customers, and (ii) increases in sales of
Morningstar's portfolio of higher margin branded and specialty dairy products.
The cost of sales margin for the Company's plastic operations was 77.6% in 1997
with no comparison to 1996 due to the recent acquisition of these operations.

Operating Expenses. The Company's operating expense ratio was 17.1% of
sales in 1997 compared to 14.5% in 1996. Operating expense increases were
experienced in both of the Company's operating groups reflecting the
aforementioned acquisition activity. Operating expenses also increased
significantly due to $37.0 million in merger and other costs recorded in the
fourth quarter of 1997 primarily related to the costs paid in connection with
Country Fresh and Morningstar mergers compared to $0.6 million in merger and
other costs recorded in 1996. The Company's operating expense ratio prior to the
recognition of these merger and other costs was 15.0% in 1997 compared to 14.5%
in 1996. This operating expense margin increase was primarily the result of
lower average milk costs in 1997 when compared to 1996. Operating expense
margins in the Company's plastics operation were 13.2% during the portion of
1997 they were owned.

15
<PAGE> 18
Operating Income. The Company's operating income in 1997 was $95.3
million, an increase of 56.2% from operating income of $61.0 million during
1996. The Company's operating income margin increased slightly from 5.1% in 1996
to 5.3% in 1997. When adjusted for merger and other costs, the operating income
margin increased from 5.1% in 1996 to 7.4% in 1997 primarily due to: (i) lower
average milk costs in the Company's domestic dairy operations; and (ii) higher
inherent margins at Morningstar in addition to improved Morningstar operating
margins as a result of cost improvements resulting from the Presto acquisition.

Other (Income) Expense. Interest expense increased from $15.7 million
in 1996 to $36.7 million in 1997 resulting from higher average outstanding debt
levels due to the acquisitions made during 1996 and 1997. While the Country
Fresh and Morningstar mergers were stock transactions, the remaining
acquisitions were primarily funded with debt. Morningstar also financed its
December 1996 acquisition of Presto Products with debt. The Company reported
$24.1 million in other income during 1997 compared to $4.5 million during 1996.
The increase in other income was primarily the result of gains of $21.8 million
in 1997 and $3.4 million in 1996 from the sale of tax credits as described in
"Tax Benefits."

Discontinued Operations and Extraordinary Items. Income from
discontinued operations was $.7 million (net of tax expense of $.4 million) in
1997 as compared to $2.3 million (net of tax expense of $1.5 million) in 1996.
In addition, during 1997, the Company incurred $11.3 million in extraordinary
costs (net of $7.0 million in tax benefits) as a result of the early
extinguishment of debt. Of this amount, $3.3 million (net of a related tax
benefit of $2.0 million) was related to the first quarter early extinguishment
of subordinated debt and $8.0 million (net of a related tax benefit of $5.0
million) was related to the refinancing accomplished during the fourth quarter
in connection with the Country Fresh and Morningstar mergers. Both of these
extraordinary items included the write-off of deferred financing costs. During
1996, the Company incurred $2.2 million in extraordinary costs (net of a related
tax benefit of $0.9 million) resulting from the early extinguishment of debt
from the net cash proceeds of the Company's initial public offering in April
1996. These costs included $1.3 million for the write-off of deferred financing
costs and $1.8 million in prepayment penalties.

Net Income. The Company reported net income of $28.8 million in 1997
compared to $47.0 million for 1996. Pretax income for 1997 was $82.7 million,
which includes merger and other costs of $37.0 million, compared to $49.8
million for 1996. Income tax expense increased from $2.9 million in 1996 to
$43.4 million in 1997. Income tax expense was lower than statutory rates at 5.9%
of pretax income in 1996 primarily as a result of the recognition of $11.75
million of deferred tax assets from Puerto Rico tax credits, as compared to
income tax expense as a percent of pretax income of 52.4% in 1997, which was
higher than statutory rates primarily as a result of the tax effect of
non-deductible merger costs in 1997. See "Tax Benefits." Net income declined
primarily due to the merger and other costs which were in large part not
deductible for tax purposes, only generating a tax benefit of approximately $2.0
million. Also the increased level of extraordinary items contributed to the
reduced reported income.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Net Sales. The Company's net sales increased 19.0% to $1.21 billion for
the year ended December 31, 1996 compared to $1.01 billion for the year ended
December 31, 1995. Net sales for the Company's dairy operations increased to
$1.21 billion in 1996, an increase of 19.0% when compared to 1995, primarily due
to (i) the acquisition of Garrido in July 1996, Swiss Dairy in September 1996
and Model Dairy and Presto in December 1996, which collectively reported net
sales of $73.1 million during 1996 for periods subsequent to their respective
acquisition dates, and (ii) an increase in selling prices to recoup increases in
raw milk costs in the Company's domestic dairy operations.

Cost of Sales. The Company's cost of sales margin was 80.4% for 1996
compared to 80.1% for the same period in 1995. Cost of sales margins increased
primarily due to higher raw milk costs.

Operating Expenses. Operating expenses increased by $13.3 million or
8.2% in 1996 compared to 1995. As a percentage of net sales, operating expenses
decreased to 14.5% in 1996 compared to 16.0% in 1995. The dollar increase is
primarily due to operating expenses associated with acquired businesses,
partially offset by a reduction in merger and other costs from $9.3 million in
1995 to $.6 million in 1996. The operating expense margin decreased in the
year-to-year comparison because of (i) reduced merger and other costs (ii)
increased dairy net sales due to higher milk costs (which had little impact on
operating expense levels) and (iii) the addition of Garrido, Swiss Dairy and
Model Dairy during 1996, which had lower operating expense margins than did the
other operations.

Operating Income. The Company's operating income in 1996 was $61.0
million, an increase of 54.9% from operating income in 1995 of $39.4 million,
which resulted in an increase in the operating income margin to 5.1% in 1996

16
<PAGE> 19

from 3.9% in 1995 due primarily to results of operations attributable to several
acquisitions consummated during 1996 and to lower merger and other costs.

Other (Income) Expense. Interest expense declined to $15.7 million
during 1996 from $18.9 million during 1995. The reduction in interest expense
resulted from a decrease in average interest rates from the repayment of certain
subordinated notes in April 1996 and lower average debt levels resulting
primarily from equity issuances during 1996. Other income rose to $4.5 million
in 1996 from $2.2 million in 1995 primarily as a result of a $3.4 million gain
realized during the third quarter of 1996 from the sale of tax credits
associated with the Company's Puerto Rico operations. See "-Tax Benefits."

Discontinued Operations and Extraordinary Items. Income from
discontinued operations was $2.3 million (net of income tax expense of $1.5
million) in 1996 as compared to $1.3 million (net of income tax expense of $0.8
million) in 1995. In addition, during 1996, the Company incurred $2.2 million in
extraordinary costs (net of a $0.9 million tax benefit) as a result of the early
extinguishment of debt using the net cash proceeds of the Company's initial
public offering. These costs included $1.3 million for the write-off of deferred
financing costs and $1.8 million in prepayment penalties. During 1995, the
Company incurred $8.5 million in extraordinary costs (net of $0.7 million tax
benefit) to refinance the Company's debt, which included the write-off of
deferred financing costs and certain prepayment penalties.

Net Income. The Company reported net income of $47.0 million in 1996
compared to net income of $5.6 million for 1995. The 1996 net income improved
due to (i) improved results of operations resulting primarily from several
acquisitions consummated during 1996; (ii) gains and tax benefits from the
recognition of tax credits in Puerto Rico; (iii) reduced interest expense; and
(iv) the reduction in merger and other costs.

SEASONALITY

The Company's dairy operations are not subject to large seasonal sales
fluctuations. The Company sells milk to schools, most of which are closed during
the summer months. Approximately 3.5% of the Company's dairy sales were made to
schools during 1997. In addition, the Company has traditionally experienced
slight shortages in its milk supply in Puerto Rico during the months of
September and October each year. Management estimates that these shortages
reduce dairy sales in Puerto Rico by less than 2% during these months.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 1997, the Company had total stockholders' equity of
$359.3 million and total indebtedness of $828.7 million (including long-term
debt and the current portion of long-term debt). The Company is currently in
compliance with all covenants and financial ratios in its debt agreements.

Cash Flow. The working capital needs of the Company historically have
been met with cash flow from operations along with borrowings under credit
facilities and proceeds of equity offerings. Net cash provided by operating
activities was $136.6 million for 1997 and $64.2 million for 1996. Investing
activities in 1997 included $62.1 million in capital expenditures, of which
$52.6 million was spent in the Company's dairy operations and $9.3 million in
its plastics operations. Investing activities in 1997 also included net cash
paid of $429.9 million for the acquisitions of Dairy Fresh, Garelick Farms,
Franklin Plastics and other small acquisitions. Financing activities for 1997
included cash provided of $95.1 million from proceeds from the issuance of
common stock and net proceeds of $373.6 million from a new senior lending
facility, the proceeds of which were utilized primarily for the purpose of
acquiring the aforementioned businesses, along with cash used of $54.4 million
for the payment of deferred financing and merger and other costs.

On January 28, 1997, the Company sold 4,270,000 shares of newly issued
common stock in a public offering (the "Secondary Offering") at a price to the
public of $22.00 per share. The Secondary Offering provided net cash proceeds to
the Company of approximately $89.0 million. Of this amount, $36.0 million was
used to repay subordinated notes and $4.3 million was used to pay prepayment
penalties related to the early extinguishment of the subordinated notes, which,
along

17
<PAGE> 20

with the remaining balance of unamortized deferred loan costs, was reported as
an extraordinary loss from the early extinguishment of debt. The remainder of
the net proceeds were used to reduce the outstanding balance of the Company's
acquisition loan facility.

In July 1997, the Company acquired substantially all the assets of
Dairy Fresh, a regional dairy based in North Carolina, for cash consideration of
approximately $106.3 million, including related acquisition costs, plus the
assumption of certain indebtedness. The purchase price for this acquisition was
funded from the acquisition facility of the senior credit facility.

In July 1997, the Company also acquired the outstanding equity
interests of The Garelick Companies. At closing, the Company paid $299.6 million
in cash, including related acquisition costs, and issued 446,100 shares of
common stock having a value of $15.0 million as of the day prior to the date of
execution of the acquisition agreement. Of these shares, 148,700 were issued
into escrow, subject to the satisfaction of an earnout provision related to the
future performance of the Garelick fluids business. The cash portion of the
purchase price was funded from the acquisition facility of the senior credit
facility.

On November 25, 1997, the Company acquired Country Fresh through a
merger transaction and on November 26, 1997, the Company acquired Morningstar
through a merger transaction. Under the terms of the merger agreements, Suiza
Foods issued 1.9 million and 12.6 million shares of common stock to the
shareholders of Country Fresh and Morningstar, respectively, for all of the
outstanding common stock of these companies, and assumed obligations to issue .2
million and 2.9 million shares, respectively, of Suiza Foods common stock in
connection with outstanding stock options of these companies. In connection with
these mergers, the Company entered into its $1.25 billion senior credit
facility, which is described in further detail under "Future Capital
Requirements - Senior Credit Facility". As a part of these transactions, the
Company refinanced almost all of the outstanding debt of Country Fresh and
Morningstar, which totaled $18.4 million and $191.0 million, respectively.

On February 20, 1998, the Company completed the acquisition of
Land-O-Sun for a purchase price of approximately $248 million, consisting of
approximately $128 million in cash, $100 million of company-obligated 5%
manditorily redeemable convertible preferred securities of a Delaware business
trust formed by the Company and $20 million of Land-O-Sun preferred interests.
In addition, the Company refinanced Land-O-Sun's existing outstanding long-term
indebtedness, which totaled approximately $52 million as of the closing date.
The Company financed the cash portion of the purchase price and the refinancing
of existing long-term indebtedness with borrowings under its senior credit
facility.

On March 27, 1998, the Company entered into an agreement with Packaged
Ice pursuant to which the Company would sell all of the outstanding capital
stock of Reddy Ice to Packaged Ice for $172.5 million in cash, subject to
certain adjustments. The agreement is subject to a number of conditions, and
there can be no assurance that the sale of Reddy Ice will be completed.

FUTURE CAPITAL REQUIREMENTS

Management expects that cash flow from operations along with additional
borrowings under existing and future credit facilities will be sufficient to
meet the Company's requirements for the remainder of 1998 and for the
foreseeable future. In the future, the Company intends to pursue additional
acquisitions that are compatible with its core businesses. The Company also
announced that it is pursuing a strategy that would provide a separate identity
for its plastics operations and that it may consider an initial public offering
of this business at some future time. There can be no assurance, however, that
the Company will have sufficient available capital resources to realize its
acquisition and consolidation strategy.

Senior Credit Facility. In November 1997, the Company entered into a
new $1.25 billion credit facility with a group of banks, including First Union
National Bank of North Carolina, as agent, and The First National Bank of
Chicago, as syndication agent ( the "Senior Credit Facility"). This facility is
comprised of: (i) a $700.0 million revolving credit facility; and a (ii) $550.0
million term loan. Under the terms of the Senior Credit Facility, the term loan
will be amortized over six years beginning March 31, 1998 and ending December
31, 2003 and the revolving credit facility expires on December 31, 2003. Amounts
outstanding under the Senior Credit Facility bear interest at a rate per annum
equal to one of the following rates, at the Company's option: (i) a base rate
equal to the Federal Funds rate; or (ii) The London Interbank Offering Rate
("LIBOR") plus a margin that varies from 40 to 100 basis points depending on the
Company's ratio of defined indebtedness to EBITDA. The Company pays a commitment
fee on unused amounts of the revolving facility that ranges from 15 to 25 basis
points, based on the Company's ratio of defined indebtedness to EBITDA.

The Company may repay loans outstanding under the Senior Credit
Facility at any time in increments of $100,000 or, in the case of a LIBOR loan,
$1.0 million (subject to a $500,000 minimum or, in the case of a LIBOR loan, a
$2.0 million minimum), in whole or in part, without penalty. In addition, the
Senior Credit Facility requires mandatory prepayments, subject to certain
limitations, from the defined net proceeds of certain casualty events, certain
sales of assets and equity issuances.

18
<PAGE> 21

The Company's Senior Credit Facility requires the Company to comply
with the following financial covenants at all times: (i) the leverage ratio
(defined as the ratio of aggregate debt to EBITDA) will not exceed 3.90 to 1
during 1998, 3.75 during 1999 and 3.50 thereafter; (ii) net worth will not be
less than $300.0 million after March 31, 1997, plus 50% of net income for each
quarter commencing on or after October 1, 1997, plus certain additional amounts
as a result of public or private offerings of Common Stock by the Company; (iii)
the fixed charges ratio will not be less than 1.00 to 1 during 1998 and 1.10 to
1 thereafter; and (iv) the interest coverage ratio will not be less than 3.0 to
1 at any time.

Without lender consent, the Senior Credit Facility also: (i) limits the
redemption of trust issued securities and common stock; (ii) requires consents
for acquisitions exceeding $50.0 million in a single transaction; (iii) limits
the incurrence of additional debt; and (iv) limits transactions with affiliates.

The Company has pledged all the capital stock of its subsidiaries
(except for 35% of the capital stock of Garrido) to secure the Senior Credit
Facility. A default with respect to any loan under the Senior Credit Facility is
a default with respect to all other loans under the Senior Credit Facility. The
Senior Credit Facility includes various events of default customary for similar
senior credit facilities, including defaults resulting from nonpayment of
principal when due, nonpayment of interest and fees, material
misrepresentations, default in the performance of any covenant and the
expiration of any applicable grace period, bankruptcy or insolvency, certain
judgments and a change in control of the Company (including certain changes in
the board of directors and certain acquisitions of Common Stock by third
parties).

Preferred Securities. On February 20, 1998, the Company issued $100 million
of company-obligated 5% mandatorily redeemable convertible preferred securities
of a subsidiary trust as part of the consideration paid to acquire Land-O-Sun
Dairies, and on March 24, 1998, the Company issued $600 million of
company-obligated 5.5% mandatorily redeemable convertible preferred securities
of a subsidiary trust in a private placement transaction, the proceeds of which
were primarily used to repay amounts outstanding under the Senior Credit
Facility. These redeemable convertible preferred securities are referred to as
"Preferred Securities" herein.

The Preferred Securities have quarterly distributions payable at their
respective stated rates per annum, and have a liquidation preference of $50 per
security. Distributions may be deferred for up to 20 consecutive quarters. The
Preferred Securities are convertible, at the option of the holder thereof, into
an aggregate of approximately 9.1 million shares of the Company's common stock.

The Preferred Securities are redeemable, at the Company's option, at any
time after three years from their respective issue dates at specified amounts
and are mandatorily redeemable at their liquidation preference amount of $50 per
share after 30 years from their respective issue dates or upon the occurrence of
certain specified events, as defined.

The Company entered into a guaranty agreement in favor of the holders of
the Preferred Securities whereby the Company has fully guaranteed all of the
respective subsidiary trusts obligations under the Preferred Securities, to the
extent the subsidiary trusts has funds on hand available therefor. The Company
also agreed to register the resale of the common stock issuable upon conversion
of the Preferred Securities under certain circumstances.

Interest Rate Agreements. The Company has interest rate derivative
agreements in place that have been designated as hedges against the Company's
variable interest rate exposure on its loans under the Senior Credit Facility.
At December 31, 1997, the Company had interest rate derivative agreements in
place, including interest rate caps and interest rate swaps, which have been
designated as hedges against the Company's variable interest rate exposure on
its loans under the Senior Credit Facility. The interest rate caps have
aggregate notional amounts of $60.0 million, which mature in March 2000, and
which cap interest on LIBOR loans at 8.0%, plus the applicable LIBOR margin. The
interest rate swaps have aggregate notional amounts of: (i) $55.0 million and
mature in June 1998, and fix the interest rates on LIBOR loans at approximately
6.0%, plus the applicable LIBOR margin; (ii) $100.0 million and mature in
December 2000, and fix the interest rates on LIBOR loans at approximately 6.03%,
plus the applicable LIBOR margin; (iii) $225.0 million and mature in December
2002, and fix the interest rates on LIBOR loans at approximately 6.12%, plus the
applicable LIBOR margin; (iv) $60.0 million and mature in September 2000, and
fix the interest rates on LIBOR loans at approximately 6.09%, plus the
applicable LIBOR margin; (v) $50.0 million and mature in December 2003, and fix
the interest rates on LIBOR loans at approximately 6.08%, plus the applicable
LIBOR margin. In addition, there are $100.0 million of interest rate collars
outstanding that will mature from December 2002 to June 2003 with a floor and
limit of approximately 6.11% to 7.50%. The original costs and premiums of these
derivative agreements are being amortized on a straight-line basis as a
component of interest expense. There was no material income or expense
attributable to the amortization or periodic settlements of the derivative
agreements in 1996 or 1997. These derivative agreements provide hedges for
Senior Credit Facility loans by limiting or fixing the

19
<PAGE> 22

LIBOR interest rates specified in the Senior Credit Facility (5.8% at December
31, 1997, excluding the LIBOR margin) at the above rates until the indicated
expiration dates of these interest-rate-derivative agreements.

TAX BENEFITS

Management believes that the Company's effective tax rate will range
from 35% to 40% for the next several years. The Company's effective tax rate is
affected by various tax advantages applicable to the Company's Puerto Rico based
operations. Any additional acquisitions could change this effective tax rate.

The Company's Puerto Rico operations are 90% exempt from Puerto Rico
income taxes and 100% exempt from property, municipal, certain excise and other
taxes and fees pursuant to the Puerto Rico Agricultural Tax Incentives Act of
1995. Dividends to the Company from Suiza-Puerto Rico will generally be subject
to a 10 percent "tollgate" tax in Puerto Rico.

The Company currently is able to maintain the tax benefits from its
Puerto Rico based dairy, fruit and plastics operations through U.S. tax credits
specified under Section 936 of the U.S. Internal Revenue Code of 1986, as
amended. The Section 936 credit eliminates or reduces United States income taxes
for certain income derived by U.S. corporations in Puerto Rico and is available
to certain domestic corporations that earn 80% or more of their gross income
from sources within Puerto Rico and earn 75% or more of their gross income from
the active conduct of a trade or business in Puerto Rico over a three-year
period (or such shorter period as may be applicable). Management believes that
each of its dairy, fruit and plastics operating subsidiaries based in Puerto
Rico satisfy these conditions. In the Revenue Reconciliation Act of 1993,
Congress imposed certain limitations on the availability of the Section 936
credit. Pursuant to these limitations, the Section 936 credit for each eligible
corporation generally cannot exceed the sum of 60% of certain wage and fringe
benefit expenses and a portion of depreciation allowances for a taxable year or,
if elected, a reduced credit computed without regard to these economic activity
limitations.

The Small Business Job Protection Act of 1996 (the "Job Protection
Act") eliminated the Section 936 credit for corporations other than "existing
credit claimants." As an existing credit claimant, the Company's Puerto
Rico-based dairy, fruit drink and plastic bottle operations will continue to
realize the benefits of Section 936 through December 31, 2005. Thereafter
Section 936 will be eliminated. However, for tax years beginning after December
31, 2001 and before January 1, 2006, the total amount of the Company's Puerto
Rico income that is eligible to be offset by the 936 credit cannot exceed the
"base period income" of the Company as determined under the Job Protection Act.
This limitation may reduce the amount of credits otherwise available to the
Company.

The Puerto Rico Agricultural Tax Incentives Act of 1995 also provides a
50% tax credit for certain "eligible investments" in qualified agricultural
businesses in Puerto Rico. These credits may be transferred to other taxpaying
entities. During 1996, the Company made investments in its Puerto Rico dairy,
fruit and plastics, all of which have been certified as qualified agricultural
businesses in Puerto Rico. During 1996, the Company recognized $15.75 million in
tax credits related to the qualifying investment in its Puerto Rico dairy
business. In September 1996, the Company sold $4.0 million of these tax credits
to third parties, resulting in net proceeds of $3.4 million before provision for
income taxes, and recognized a deferred tax asset for the remainder of the tax
credit in the amount of $11.75 million. During 1997, the Company obtained a
ruling from Puerto Rico confirming that its investments in its fruit and
plastics business also qualified for the tax credits. These tax credits were
subsequently sold to third parties for $18.1 million, net of discounts and
related expenses. In addition, during the fourth quarter of 1997, the Company
also sold $3.7 million, net of discounts and related expenses of the tax credits
recognized as deferred tax assets in 1996.

YEAR 2000 COMPLIANCE

The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.

As is the case with most other companies using computers in their
operations, Suiza is in the process of addressing the Year 2000 Compliance
issue. The Company is currently engaged in a comprehensive project to upgrade
its information, technology, manufacturing and facilities computer software to
programs that will consistently and properly recognize the Year 2000 and is in
the process of installing new hardware and packaged software at certain of its
locations. These systems were recently purchased from large vendors who have
represented that these systems are already Year 2000 compliant and the Company
is in the process of obtaining assurances from vendors that timely updates will
be made available to make all

20
<PAGE> 23

remaining purchased software Year 2000 compliant. Once the installation of these
new systems are completed and tested at these locations, the Company expects to
install similar systems at substantially all its remaining locations.

Suiza Foods will utilize both internal and external resources to
reprogram or replace and test all of its software for Year 2000 Compliance, and
the Company expects to complete the project in mid-1999. The total cost to the
Company of these Year 2000 Compliance activities has not been and is not
anticipated to be material to its financial position or results of operations in
any given year, excluding the cost of new systems, which will be capitalized.
These costs, which are being funded through operating cash flows, and the date
on which the Company plans to complete the Year 2000 modification and testing
processes are based on management's best estimates, which were derived utilizing
numerous assumptions regarding future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans.

Suiza Foods has initiated communications with its significant suppliers
and large customers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Compliance issues. There can be no guarantee that the systems of other
companies on which the Company's systems and operations rely will be timely
converted or that the failure of these systems would not have an adverse effect
on the Company's systems.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's consolidated financial statements are included as an
exhibit as described in Item 14(a)(1).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

21
<PAGE> 24

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Incorporated herein by reference to the Company's proxy statement for
the May 14, 1998 Annual Meeting of Stockholders under the caption "Executive
Officers and Directors."

ITEM 11. EXECUTIVE COMPENSATION.

Incorporated herein by reference to the Company's proxy statement for
the May 14, 1998 Annual Meeting of Stockholders under the caption "Executive
Compensation and Other Information," provided that the information under the
captions "Corporate Performance Graph" and "Compensation Committee's and Stock
Option Committee's Report on Executive Compensation" are expressly not
incorporated herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Incorporated herein by reference to the Company's proxy statement for
the May 14, 1998 Annual Meeting of Stockholders under the caption "Security
Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Incorporated herein by reference to the Company's proxy statement for
the May 14, 1998 Annual Meeting of Stockholders under the captions "Executive
Compensation and Other Information -- Certain Relationships and Related
Transactions."

22
<PAGE> 25

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) The following consolidated financial statements are incorporated by
reference to the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1997 attached hereto:

<TABLE>

<S> <C>
Independent Auditors' Report of Deloitte & Touche LLP..................... Page F1
Independent Auditors' Report of Arthur Andersen LLP....................... Page F2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. Page F3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.......................................... Page F4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995.................................... Page F5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................................... Page F6
Notes to Consolidated Financial Statements................................ Page F7
</TABLE>

(a)(2) Financial Statement Schedules

No financial statement schedules are required as all material
required information is disclosed in the Company's
Consolidated Financial Statements and the notes thereto.

(a)(3) Management Contract or Compensatory Plan

See Index to Exhibits on Page 25. Each of the following
Exhibits described on the Index to Exhibits is a management
contract or compensatory plan: Exhibits 10.1 through 10.19.

(b) Reports on Form 8-K

(1) Form 8-K filed on October 31, 1997 to report the proxy
solicitation for the Morningstar and Country Fresh mergers.

(2) Form 8-K filed on December 10, 1997 to report the completion
of the Morningstar and Country Fresh mergers.

See Index to Exhibits on Page 25.

(d) Financial Statement Schedules

No financial statement schedules are required as all material
required information is disclosed in the notes to the
Company's Consolidated Financial Statements.

23
<PAGE> 26

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Suiza Foods Corporation
Dallas, Texas

We have audited the accompanying consolidated balance sheets of Suiza Foods
Corporation and subsidiaries (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. The
consolidated financial statements give retroactive effect to the Company's
mergers with Country Fresh, Inc. and The Morningstar Group Inc. on November 25,
1997, and November 26, 1997, respectively, which have been accounted for as
poolings of interests as described in Notes 1 and 2 to the consolidated
financial statements. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the consolidated balance sheet of The Morningstar Group Inc. as of
December 31, 1996, or the related consolidated statements of income,
stockholders' equity and cash flows of The Morningstar Group Inc., for the years
ended December 31, 1996 and 1995, which consolidated statements reflect total
assets of $356.0 million as of December 31, 1996, and total revenues of $394.3
million and $304.7 million for the years ended December 31, 1996 and 1995,
respectively. Those consolidated statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for The Morningstar Group Inc. for such periods, is based
solely on the report of such other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Suiza Foods
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP
Dallas, Texas
March 27, 1998

F-1
<PAGE> 27

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
The Morningstar Group Inc.
Dallas, Texas

We have audited the consolidated balance sheets of The Morningstar Group Inc.
(a Delaware corporation) and subsidiaries ("Morningstar") as of December 31,
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1996
prior to the restatement (and, therefore, are not presented herein) for the
merger of Suiza Foods Corporation ("Suiza") with Morningstar on November 26,
1997, which has been accounted for as a pooling of interests as described in
Notes 1 and 2 to the Suiza consolidated financial statements. These consolidated
financial statements are the responsibility of Morningstar's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Morningstar Group Inc. and subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP
Dallas, Texas
November 26, 1997

F-2
<PAGE> 28

SUIZA FOODS CORPORATION

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

DECEMBER 31,
-----------------------------
ASSETS 1997 1996

CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 24,388 $ 23,823
Receivables, net of allowance for doubtful
accounts of $3,589 and $2,943, respectively 164,284 129,602
Inventories 76,087 57,193
Prepaid expenses and other current assets 7,978 7,015
Refundable income taxes 19,836 2,312
Deferred income taxes 2,718 11,582
Net assets of discontinued operations 100,785 42,268
----------- --------

Total current assets 396,076 273,795

PROPERTY, PLANT AND EQUIPMENT 363,649 214,316

DEFERRED INCOME TAXES 4,484 11,198

INTANGIBLE AND OTHER ASSETS 639,253 334,315
------------ ---------

TOTAL $ 1,403,462 $ 833,624
============ =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 178,021 $ 133,409
Income taxes payable 4,006 8,115
Current portion of long-term debt 50,846 23,508
--------- ---------

Total current liabilities 232,873 165,032

LONG-TERM DEBT 777,813 432,372

OTHER LONG-TERM LIABILITIES 13,230 13,394

DEFERRED INCOME TAXES 20,236 8,972

COMMITMENTS AND CONTINGENCIES (Note 15)

STOCKHOLDERS' EQUITY:
Preferred stock, 11,691 shares of Series A preferred stock issued and
outstanding, with a stated value of $320 per share 3,741 3,741
Common stock, 30,463,312 and 25,002,823 shares issued and outstanding 305 250
Additional paid-in capital 281,774 164,390
Retained earnings 73,490 45,473
----------- ---------

Total stockholders' equity 359,310 213,854
----------- ---------

TOTAL $ 1,403,462 $ 833,624
=========== =========

</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 29

SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995

<S> <C> <C> <C>
NET SALES $ 1,794,876 $ 1,207,565 $ 1,014,926

COST OF SALES 1,392,216 970,796 813,091
----------- ----------- -----------

GROSS PROFIT 402,660 236,769 201,835

OPERATING COSTS AND EXPENSES:
Selling and distribution 197,147 123,161 107,885
General and administrative 58,302 44,352 39,649
Amortization of intangibles 14,916 7,675 5,609
Merger and other costs 37,003 571 9,300
----------- ----------- -----------

Total operating costs and expenses 307,368 175,759 162,443
----------- ----------- -----------

INCOME FROM OPERATIONS 95,292 61,010 39,392

OTHER (INCOME) EXPENSE:
Interest expense, net 36,664 15,707 18,942
Other income, net (24,077) (4,499) (2,241)
----------- ----------- -----------

Total other expense 12,587 11,208 16,701
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 82,705 49,802 22,691

INCOME TAXES 43,375 2,939 10,003
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS 39,330 46,863 12,688

INCOME FROM DISCONTINUED OPERATIONS 717 2,315 1,329
----------- ----------- -----------

INCOME BEFORE EXTRAORDINARY LOSS 40,047 49,178 14,017

EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT 11,283 2,215 8,462
----------- ----------- -----------

NET INCOME $ 28,764 $ 46,963 $ 5,555
=========== =========== ===========

NET INCOME APPLICABLE TO COMMON STOCK $ 28,464 $ 46,661 $ 5,251
=========== =========== ===========

BASIC EARNINGS PER COMMON SHARE:
Income from continuing operations $ 1.32 $ 1.99 $ 0.60
Discontinued operations 0.02 0.10 0.06
Extraordinary loss (0.38) (0.10) (0.41)
----------- ----------- -----------

Net income $ 0.96 $ 1.99 $ 0.25
=========== =========== ===========

DILUTED EARNINGS PER COMMON SHARE:
Income from continuing operations $ 1.25 $ 1.90 $ 0.59
Discontinued operations 0.02 0.10 0.06
Extraordinary loss (0.36) (0.09) (0.40)
----------- ----------- -----------

Net income $ 0.91 $ 1.91 $ 0.25
=========== =========== ===========

AVERAGE COMMON SHARES - BASIC 29,508,791 23,424,322 20,708,467
=========== =========== ===========

AVERAGE COMMON SHARES - DILUTED 31,348,591 24,491,899 20,935,161
=========== =========== ===========

</TABLE>

See notes to consolidated financial statements.

F-4

<PAGE> 30

SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------

PREFERRED STOCK
SERIES A
8% CUMULATIVE COMMON STOCK ADDITIONAL
------------------ ----------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL

<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 - $ - 12,866,894 $ 129 $ 103,178 $ 24,647 $ 127,954

Issuance of common stock 289,208 3 5,370 5,373

Capital contribution 5,111 5,111

Stock splits 10,286,455 103 (103) -

Redemption of common stock and
the exchange of preferred stock 11,875 3,800 (2,463,544) (25) (8,765) (26,790) (31,780)

Dividends on preferred stock (304) (304)

Net income 5,555 5,555

------- -------- ---------- --------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1995 11,875 3,800 20,979,013 210 104,791 3,108 111,909

Issuance of common stock 4,480,369 45 59,599 59,644

Redemption of common and preferred stock (184) (59) (456,559) (5) (4,296) (4,360)

Dividends on preferred stock (302) (302)

Net income 46,963 46,963
------- -------- ---------- --------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1996 11,691 3,741 25,002,823 250 164,390 45,473 213,854

Issuance of common stock 5,460,489 55 117,384 117,439

Dividends on preferred stock (300) (300)

Adjustment for conforming the year-end
of Country Fresh (447) (447)

Net income 28,764 28,764
------- -------- ---------- --------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1997 11,691 $ 3,741 30,463,312 $ 305 $ 281,774 $ 73,490 $ 359,310
======= ======== ========== ========= ========== ========= =========
</TABLE>

F-5

<PAGE> 31

SUIZA FOODS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,764 $ 46,963 $ 5,555
Adjustments to reconcile net income to net cash provided
by operating activities:
Income from discontinued operations (717) (2,315) (1,329)
Depreciation and amortization 44,607 28,003 25,347
Extraordinary loss from early extinguishment of debt 11,283 2,215 8,462
Merger and other costs 37,003 571 9,300
Other 462 (178) 1,408
Deferred income taxes 27,355 (14,511) 1,716
Changes in operating assets and liabilities, net of acquisitions:
Receivables 6,685 (10,740) (994)
Inventories (5,259) (6,084) (1,354)
Prepaid expenses and other assets (3,284) (778) 5,113
Accounts payable and accrued expenses (12,667) 13,913 1,308
Income taxes payable (5,189) (325) 336
------------ ------------ ------------

Net cash provided by continuing operations 129,043 56,734 54,868

Net cash provided by discontinued operations 7,578 7,449 11,828
------------ ------------ ------------

Net cash provided by operating activities 136,621 64,183 66,696
------------ ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property, plant, and equipment (62,120) (30,079) (24,045)
Cash outflows for acquisitions (429,898) (251,961) --
Other -- (477) 3,162
------------ ------------ ------------

Net cash used in continuing operations (492,018) (282,517) (20,883)

Net cash used in discontinued operations (58,028) (8,330) (5,746)
------------ ------------ ------------

Net cash used in investing activities (550,046) (290,847) (26,629)
------------ ------------ ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,230,604 270,550 181,505
Repayment of debt (856,980) (92,164) (177,511)
Payments of deferred financing, debt restructuring and merger costs (54,410) (3,520) (9,376)
Issuance of common stock, net of expenses 95,076 59,644 5,373
Redemption of common and preferred stock -- (4,360) (31,780)
Redemption of subsidiary preferred stock and minority interests -- -- (7,124)
Dividends on preferred stock (300) (302) (304)
------------ ------------ ------------

Net cash provided by (used in) financing activities 413,990 229,848 (39,217)
------------ ------------ ------------

INCREASE IN CASH AND CASH EQUIVALENTS 565 3,184 850

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,823 20,639 19,789
------------ ------------ ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,388 $ 23,823 $ 20,639
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

F-6

<PAGE> 32

SUIZA FOODS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS - Suiza Foods Corporation (the "Company" or "Suiza Foods") is a
manufacturer and distributor of fresh milk and related dairy products,
refrigerated ready-to-serve fruit drinks and coffee, refrigerated, shelf
stable and frozen food products, plastic containers and packaged ice in
the United States and Puerto Rico. The Company and its subsidiaries
provide credit terms to customers generally ranging up to 30 days, perform
ongoing credit evaluation of their customers and maintain allowances for
potential credit losses based on historical experience.

USE OF ESTIMATES - The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

BASIS OF PRESENTATION - The consolidated financial statements of Suiza
Foods have been prepared to give retroactive effect for all periods
presented to the mergers with Country Fresh, Inc. ("Country Fresh") and
The Morningstar Group, Inc. ("Morningstar") on November 25, 1997 and
November 26, 1997, respectively, which have been accounted for as poolings
of interests, whereby the assets acquired and liabilities assumed are
reflected in the consolidated financial statements of the Company at the
historical amounts of these entities. (See Note 2).

FISCAL YEAR - The fiscal year of the Company ends on December 31 for all
of the Company's subsidiaries except for Country Fresh, whose fiscal year
for 1996 and 1995 ended on the Saturday closest to the end of February.
During 1997, Country Fresh changed its year end to conform to the
Company's December 31 year-end date. Accordingly, the financial data
related to Country Fresh for the year ended December 31, 1997, reflects
the conversion of Country Fresh's financial information to the same period
as the rest of the Company, which has resulted in nine weeks of operations
of Country Fresh being included in the Company's operating results for
both the year ended December 31, 1997, and the year ended December 31,
1996.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances and transactions are eliminated in
consolidation.

INVENTORIES - Inventories are stated at the lower of cost, the majority of
which is determined using the first-in, first-out ("FIFO") method, or
market. At December 31, 1997 and 1996, the cost of approximately 23% and
25%, respectively, of inventories was determined using the last-in,
first-out ("LIFO") method, however, there were no material differences
between the LIFO and FIFO costs of these inventories. The costs of
finished goods inventories include raw materials, direct labor and
indirect production and overhead costs.

F-7
<PAGE> 33

PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated
at cost. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets, as
follows:

ASSET USEFUL LIFE
Buildings and improvements Ten to 40 years
Machinery and equipment Three to 20 years

Capitalized lease assets are amortized over the shorter of their lease
term or their estimated useful lives. Expenditures for repairs and
maintenance which do not improve or extend the life of the assets are
expensed as incurred.

INTANGIBLE ASSETS - Intangible assets include the following intangibles
which are amortized over their related useful lives:
<TABLE>
<CAPTION>

INTANGIBLE ASSET USEFUL LIFE

<S> <C>
Goodwill Straight-line method over 25 to 40 years
Identifiable intangible assets:
Customer list Straight-line method over seven to ten years
Trademarks/trade names Straight-line method over ten to 40 years
Noncompetition agreements Straight-line method over the terms of the agreements
Deferred financing costs Interest method over the terms of the related debt
Organization costs Straight-line method over five years
</TABLE>

The Company periodically assesses the net realizable value of its
intangible assets, as well as all other assets, by comparing the expected
future net operating cash flows, undiscounted and without interest
charges, to the carrying amount of the underlying assets. The Company
would evaluate a potential impairment if the recorded value of these
assets exceeded the associated future net operating cash flows. Any
potential impairment loss would be measured as the amount by which the
carrying value exceeds the fair value of the asset. Fair value of assets
would be measured by market value, if an active market exists, or by a
forecast of expected future net operating cash flows, discounted at a rate
commensurate with the risk involved.

INTEREST RATE AGREEMENTS - Interest rate swaps, caps and floors are
entered into as a hedge against interest exposure of variable rate debt.
Differences between amounts to be paid or received on these interest rate
agreements designated as hedges are included in interest expense as
payments are made or received. Gains or losses on other agreements not
designated as hedges are included in income as incurred. Amounts paid to
acquire interest rate caps and amounts received for interest rate floors
are amortized as an adjustment to interest expense over the life of the
related agreement.

REVENUE - Revenue is recognized when the product is shipped to the
customer.

INCOME TAXES - All of Suiza Foods' U.S. operating subsidiaries and Country
Fresh's and Morningstar's subsidiaries have been included in their
respective consolidated tax returns. The Company's Suiza Dairy, Suiza
Fruit and Neva Plastics subsidiaries are organized as Delaware companies
and are required to file separate U.S. and Puerto Rico income tax returns;
however, since their operations are in Puerto Rico, they are eligible for
Section 936 tax credits which may reduce or eliminate U.S. income taxes
due. The Company's Garrido and Company, Inc. ("Garrido") subsidiary is
organized under the laws of the Commonwealth of Puerto Rico and is only
required to file a separate tax return in Puerto Rico.

F-8
<PAGE> 34

Effective January 1, 1996, substantially all of the Company's Puerto Rico
operations became 90% exempt from Puerto Rico income taxes and 100% exempt
from property, municipal, certain excise and other taxes, and fees
pursuant to the Puerto Rico Agricultural Tax Incentives Act of 1995. Prior
to this date, only the Company's Suiza Fruit and Neva Plastics
subsidiaries had similar exemptions through separate tax grants in Puerto
Rico. These operations are, however, subject to a 10% withholding tax on
distributions from Puerto Rico to the United States.

Prior to March 31, 1995, Suiza-Puerto Rico, Velda and Reddy Ice were
separate taxpayers and income taxes were provided for in the consolidated
financial statements, where applicable, based on each company's separate
income tax return and tax status. As a result, since certain of
Suiza-Puerto Rico's operations were organized as a partnership and Reddy
Ice's operations were organized as a small business corporation under
Subchapter S, no income taxes were provided in the financial statements.
However, had these operations been subject to corporate income taxes,
available net operating losses would have been sufficient to eliminate any
corporate income taxes due.

Deferred income taxes are provided for temporary differences in the
financial statement and tax bases of assets and liabilities using current
tax rates. Deferred tax assets, including the benefit of net operating
loss carryforwards, are evaluated based on the guidelines for realization
and may be reduced by a valuation allowance.

CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with a remaining maturity of three months or less to be cash
equivalents.

EARNINGS PER SHARE - During 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share,"
which requires dual presentation of basic and diluted earnings per share
("EPS") on the face of the consolidated income statement and requires a
reconciliation of the numerators and denominators of the basic and diluted
EPS calculations. Accordingly, all EPS information for all periods
presented have been restated to present basic and diluted EPS under the
provisions of SFAS No. 128.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting
Comprehensive Income," was issued in June 1997, and establishes standards
for reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 is effective for the Company's year ending
December 31, 1998.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997, and establishes new standards
for reporting information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," but retains the requirement to report information about major
customers. SFAS No. 131 is effective for the Company's year ending
December 31, 1998. The Company expects that the adoption of SFAS No. 131
will have no material effect on its existing segment information
disclosures.

F-9
<PAGE> 35

2. MERGERS

During October 1997, the Company entered into definitive agreements to
merge with Country Fresh and Morningstar. On November 25, 1997, Country
Fresh was merged with and into the Company, and on November 26, 1997,
Morningstar was merged with and into the Company. Under the terms of the
merger agreements, Suiza Foods issued 1.9 million and 12.6 million shares
of common stock to the shareholders of Country Fresh and Morningstar,
respectively, for all of the outstanding common stock of these companies,
and issued .2 million and 2.9 million, respectively, of Suiza Foods
replacement stock options for all of the outstanding stock options of
these companies.

These mergers have been accounted for as poolings of interest, whereby the
assets acquired and liabilities assumed are reflected in the consolidated
financial statements of the Company at the historical amounts of these
entities. The table below presents a reconciliation of revenues and net
income, as reported in the consolidated statement of income with those
previously reported by the Company. The references to Suiza Foods in this
table are to the Company's historical consolidated operating results prior
to the mergers with Country Fresh and Morningstar, along with the post
merger combined results of operations for December 1997. The information
for Country Fresh and Morningstar for 1997 includes the separate
historical information of these companies through their respective merger
dates in November 1997.

YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
(IN THOUSANDS)

Revenues:
<S> <C> <C> <C>
Suiza Foods $ 987,064 $ 468,132 $ 379,959
Country Fresh 307,821 353,037 336,055
Morningstar 514,671 394,306 304,730
Eliminations (14,680) (7,910) (5,818)
----------- ----------- -----------

Total $ 1,794,876 $ 1,207,565 $ 1,014,926
=========== =========== ===========

Net income (loss):
Suiza Foods (1,459) 25,714 (10,038)
Country Fresh 7,096 6,673 4,069
Morningstar 23,127 14,576 11,524
----------- ----------- -----------

Total $ 28,764 $ 46,963 $ 5,555
=========== =========== ===========

</TABLE>

Included in net income of Suiza Foods are pre-tax merger and other costs
of $37.0 million in 1997, $.6 million in 1996 and $9.3 million in 1995,
extraordinary losses from the early extinguishment of debt of $11.3
million (net of income tax benefit of $7.0 million) in 1997, $2.2 million
(net of income tax benefit of $.9 million) in 1996 and $8.5 million (net
of income tax benefit of $.7 million) in 1995.

3. ACQUISITIONS

In July 1996, Suiza Foods acquired all of the outstanding common stock of
Garrido for approximately $35.8 million, including related acquisition and
financing costs, which was funded primarily by additional term loan
borrowings under the Senior Credit Facility. As a result of the adoption
of the Puerto Rico Agricultural Tax Incentives Act of 1995, the Company
may be eligible for tax credits on a portion of its investment in Garrido
of between $6.2 million and $8.8 million, which are dependent on

F-10
<PAGE> 36

the receipt of a favorable ruling on the availability of such tax credits
from the Treasury Department in Puerto Rico. Should a favorable ruling on
these tax credits be received, the Company will account for these tax
benefits as an adjustment of the purchase price, which would result in a
reduction of goodwill.

In September 1996, Suiza Foods acquired all of the net assets of Swiss
Dairy for approximately $55.1 million, including related acquisition
costs, which was funded primarily by borrowings under the revolving credit
and acquisition facilities of the Senior Credit Facility.

On December 3, 1996, Morningstar acquired all of the outstanding stock of
Presto Food Products, Inc. The Company paid approximately $123.5 million
in cash for the stock acquired and assumed approximately $37.4 million in
related liabilities. Included in the assumed liabilities were
approximately $3.2 million related to costs associated with the
involuntary termination and/or relocation of certain employees of the
acquired company. The terminated employees represent redundant and excess
personnel in the operations, marketing, selling, and general and
administrative areas.

In December 1996, Suiza Foods acquired all of the net assets of Model
Dairy, along with certain assets held by affiliates of the seller, for
approximately $27.0 million, including related acquisition costs, which
was funded primarily by borrowings under the acquisition facility of the
Senior Credit Facility.

On July 1, 1997, Suiza Foods completed the acquisition of substantially
all the assets of Dairy Fresh L.P., a Delaware limited partnership, for
approximately $106.3 million, including related acquisition costs. Suiza
Foods financed the acquisition with borrowings under its Senior Credit
Facility.

On July 31, 1997, Suiza Foods completed the purchase of all the
outstanding stock of three affiliated dairy manufacturing and distribution
companies, as well as an affiliated water bottling and distribution
company, and 16 affiliated plastic manufacturing companies headquartered
in Franklin, Massachusetts (collectively, the "Garelick Companies"). In
connection with this acquisition, the Company paid aggregate cash
consideration of approximately $299.6 million, including related
acquisition costs, and issued 297,400 shares of common stock with a market
value of $10.0 million to acquire the outstanding stock and repay existing
indebtedness of the Garelick Companies. In connection with the
acquisition, the purchase agreement requires the payment of a contingent
purchase price based on the future performance of this operation over the
next five years. At the acquisition date, Suiza Foods issued 148,700
shares of common stock into escrow for this contingent purchase price
obligation, which will be subject to release to the sellers upon
satisfaction of these future performance requirements and will be
accounted for as an adjustment to the purchase price when this contingency
is resolved. Suiza Foods financed the acquisition with borrowings under
its Senior Credit Facility.

In addition to the above acquisitions, during 1997 and 1996, Suiza Foods,
Morningstar and Country Fresh acquired certain net assets of and entered
into noncompetition arrangements with seven dairies and six food products
companies for approximately $28.2 million in 1997 and $25.7 million in
1996, including costs and expenses, all of which were funded by Senior
Credit Facility borrowings.

The above acquisitions were accounted for using the purchase method of
accounting as of their respective acquisition dates, and accordingly, only
the results of operations of the acquired companies subsequent to their
respective acquisition dates are included in the consolidated financial
statements of the Company. At the acquisition date, the purchase price was
allocated to assets acquired, including identifiable intangibles, and
liabilities assumed based on their fair market values. The excess of the

F-11
<PAGE> 37
total purchase prices over the fair values of the net assets acquired
represented goodwill. In connection with the acquisitions, assets were
acquired and liabilities were assumed as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996
Purchase prices:
<S> <C> <C>
Net cash paid $ 429,898 $ 251,961
Common stock issued 10,000
Notes payable and preferred stock issued 173
Cash acquired in acquisitions 4,202 14,937
--------- ---------
Total purchase prices 444,100 267,071

Fair values of net assets acquired:
Fair values of assets acquired 194,437 209,508
Liabilities assumed (55,350) (56,676)
--------- ---------

Total net assets acquired 139,087 152,832
--------- ---------

Goodwill $ 305,013 $ 114,239
========= =========

</TABLE>

The following table presents unaudited pro forma results of operations of
the Company as if the above described acquisitions had occurred at the
beginning of 1996 (in thousands, except per share data):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996

<S> <C> <C>
Net sales $ 2,079,161 $ 1,961,842
=========== ===========

Income from continuing operations $ 48,292 $ 60,466
=========== ===========

Net income $ 37,726 $ 60,566
=========== ===========

Earnings per share:
Basic $ 1.26 $ 2.55
=========== ===========

Diluted $ 1.19 $ 2.44
=========== ===========

</TABLE>

The unaudited pro forma results of operations are not necessarily
indicative of what the actual results of operations of the Company would
have been had the acquisitions occurred at the beginning of 1996, nor do
they purport to be indicative of the future results of operations of the
Company.

4. DISCONTINUED OPERATIONS

On March 27, 1998, the Company entered into an agreement to sell its
packaged ice business for $172.5 million in cash, subject to adjustment.
The Company expects the sale to be completed in the second quarter of 1998
and to result in the recognition of a gain on sale, however, there are no
assurances that this transaction will be completed. The consolidated
financial statements for all periods have been restated to present the
packaged ice business as a discontinued operation in accordance with
Accounting Principles Board Opinion No. 30.

Net sales of the packaged ice business were $66.3 million, $52.8 million
and $50.5 million in 1997, 1996 and 1995, respectively. Interest expense
of $7.1 million, $7.0 million and $6.7 million was charged to the
discontinued operation during 1997, 1996 and 1995, respectively, based on
debt specifically attributed to the packaged ice business. Income from
discontinued operations as reported in the consolidated statements of
income are presented net of the related income tax expense of $0.4
million, $1.5 million and $0.8 million in 1997, 1996 and 1995,
respectively.

5. INVENTORIES

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Raw materials and supplies $ 43,764 $ 30,463
Finished goods 32,323 26,730
-------- --------
$ 76,087 $ 57,193
======== ========
</TABLE>

F-12
<PAGE> 38

6. PROPERTY, PLANT AND EQUIPMENT

DECEMBER 31,
------------------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Land $ 35,944 $ 25,439
Buildings and improvements 149,717 87,314
Machinery and equipment 310,716 217,509
-------- --------

496,377 330,262

Less accumulated depreciation (132,728) (115,946)
-------- --------

$363,649 $214,316
======== ========

</TABLE>

7. INTANGIBLE AND OTHER ASSETS

DECEMBER 31,
--------------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Goodwill $ 559,750 $ 254,634
Identifiable intangibles 97,114 85,778
Deferred financing costs 4,600 8,933
Deposits and other 1,761 2,452
--------- ---------

663,225 351,797

Less accumulated amortization (23,972) (17,482)
--------- ---------

$ 639,253 $ 334,315
========= =========

</TABLE>

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

DECEMBER 31,
--------------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Accounts payable $ 117,131 $ 80,285
Accrued payroll and benefits 19,523 18,980
Other 41,367 34,144
--------- --------

$ 178,021 $133,409
========= ========

</TABLE>

F-13

<PAGE> 39

9. LONG-TERM DEBT

DECEMBER 31,
--------------------------
1997 1996
(IN THOUSANDS)

Senior Credit Facilities:
<S> <C> <C>
Revolving loan facilities $ 265,500 $ 38,949
Acquisition facilities 69,100
Term loans 550,000 295,000
Industrial development revenue bonds 12,660 13,355
Subordinated notes 36,000
Capital lease obligations and other 499 3,476
--------- --------

828,659 455,880

Less current portion (50,846) (23,508)
--------- --------

$ 777,813 $432,372
========= ========

</TABLE>

SENIOR CREDIT FACILITIES - Prior to the mergers discussed in Note 2, Suiza
Foods, Morningstar and Country Fresh each maintained separate senior
credit facilities with separate bank groups. These senior credit
facilities provided for aggregate borrowings of $500.0 million, comprising
(i) $300.0 million in term loan facilities, (ii) $110.0 million in
revolving credit facilities and (iii) a $90.0 million acquisition
facility.

On November 26, 1997, the Company entered into a new credit facility with
a group of lenders, including First Union National Bank of North Carolina,
as administrative agent, and The First National Bank of Chicago, as
syndication agent, which provide for an aggregate senior credit facility
(the "Senior Credit Facility") of $1.25 billion comprised of a $550.0
million term loan facility and a $700.0 million revolving credit facility.
The proceeds from this new facility were used to repay all amounts due
under the separate Suiza Foods, Morningstar and Country Fresh senior
credit facilities. Under the terms of the Senior Credit Facility, the term
loan is amortized, on a quarterly basis, over six years in increasing
amounts beginning March 31, 1998, and the revolving credit facility
expires on December 31, 2003. Amounts outstanding under the Senior Credit
Facility bear interest at a rate per annum equal to one of the following
rates, at the Company's option: (i) a base rate equal to the higher of the
Federal Funds rate plus 50 basis points or the prime rate or (ii) The
London Interbank Offering Rate ("LIBOR") plus a margin that varies from 40
to 100 basis points depending on the Company's ratio of defined
indebtedness to EBITDA (as defined in the Senior Credit Facility). The
Company pays a commitment fee on unused amounts of the revolving credit
facility that ranges from 15 to 25 basis points, based on the Company's
ratio of defined indebtedness to EBITDA. The blended interest rate in
effect at December 31, 1997, on the Senior Credit Facility was 6.7%.

Interest is payable quarterly, and scheduled principal installments on the
term loan facilities are due in quarterly installments of approximately
$12.5 million through December 1998, increasing to $18.75 million on
March 31, 1999, $25.0 million on March 31, 2001, $28.125 million on
March 31, 2002, and $34.375 million on March 31, 2003, with the balance
maturing on December 31, 2003. Loans under the Senior Credit Facility are
collateralized by substantially all the Company's assets.

F-14
<PAGE> 40

INDUSTRIAL DEVELOPMENT REVENUE BONDS - Country Fresh and Morningstar each
have revenue bonds outstanding, certain of which require aggregate annual
sinking fund redemptions aggregating $.7 million and are secured by
irrevocable letters of credit issued by financial institutions, along with
first mortgages on certain real property and equipment. Interest on the
revenue bonds is due semiannually at interest rates that vary based on
market conditions. At December 31, 1997, the interest rates on the revenue
bonds ranged from 3.7% to 4.3%.

SUBORDINATED NOTES - On March 31, 1995, the Company issued subordinated
notes, which carried interest rates ranging from 12% to 15%, to replace
certain existing subordinated notes. On April 22, 1996, the Company used
$15.7 million of the net proceeds from its initial public offering to
repay all the outstanding principal balances of the 15% subordinated
notes, and on January 28, 1997, the Company repaid the remaining
outstanding principal balances of these subordinated notes with a portion
of the proceeds from the sale of common stock.

OTHER DEBT - Other debt includes various promissory notes for the purchase
of property, plant and equipment and capital lease obligations. The
various promissory notes payable provide for interest at rates ranging
from 6% to 12% and are payable in monthly installments of principal and
interest until maturity, when the remaining principal balances are due.
Capital lease obligations represent machinery and equipment financing
obligations which are payable in monthly installments of principal and
interest and are collateralized by the related assets financed.

INTEREST RATE AGREEMENTS - The Company has interest rate derivative
agreements in place, including interest rate caps and interest rate swaps,
that have been designated as hedges against the Company's variable
interest rate exposure on its loans under the Senior Credit Facility. At
December 31, 1997, the interest rate caps have aggregate notional amounts
of $60 million, which mature in March 2000, and caps interest on LIBOR
loans at 8.0%, plus the applicable LIBOR margin. The interest rate swaps
have aggregate notional amounts of $490 million at interest rates ranging
from 6.0% to 6.14%, plus the applicable LIBOR margin, and include $55
million of swaps that mature in June 1998; $60 million of swaps that
mature in September 2000; $100 million of swaps that mature in December
2000; $225 million of swaps that mature in December 2002; and $50 million
of swaps that mature in December 2003. In addition, the Company has
entered into $100 million of interest rate collars, which mature from
December 2002 to June 2003, and provide for an interest rate floor and
limit of approximately 6.11% and 7.5%, respectively, plus the applicable
LIBOR margin. These derivative agreements provide hedges for senior
credit facility loans by limiting or fixing the LIBOR interest rates
specified in the senior credit facilities (5.8% at December 31, 1997,
excluding the LIBOR margin) at the above rates until the indicated
expiration dates of these interest-rate-derivative agreements. The
original costs and premiums of these derivative agreements are being
amortized on a straight-line basis as a component of interest expense.

The Company is exposed to market risk under these arrangements due to the
possibility of exchanging a lower interest rate for a higher interest
rate. The counterparties are major financial institutions and the risk of
incurring losses related to credit risk is considered by the Company to be
remote.

DEBT COVENANTS - The Company's Senior Credit Facility contains various
financial and other restrictive covenants and requirements that the
Company maintain certain financial ratios, including a leverage ratio
(computed as the ratio of the aggregate outstanding principal amount of
defined indebtedness to EBITDA, as defined), a fixed charges ratio
(computed as the ratio of EBITDA to defined fixed charges) and an interest
coverage ratio (computed as the ratio of EBITDA to interest expense), and
requires the Company to maintain a minimum level of net worth. The Senior
Credit Facility also

F-15
<PAGE> 41

contains limitations on capital expenditures, investments and the
incurrence of additional indebtedness and requires certain mandatory
prepayments from the proceeds of certain dispositions of property.

SCHEDULED MATURITIES - The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 1997, were as
follows (in thousands):

<TABLE>

<S> <C>
1998 $ 50,846
1999 75,967
2000 75,703
2001 100,714
2002 113,205
Thereafter 412,224
---------
$ 828,659
=========
</TABLE>

10. INCOME TAXES

The provisions for income taxes, excluding income tax expense of $.4
million in 1997, $1.5 million in 1996 and $.8 million in 1995 applicable
to discontinued operations and the tax benefits of $7.0 million in 1997,
$.9 million in 1996 and $.5 million in 1995 applicable to extraordinary
losses, are as follows (in thousands):

YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995

Current taxes payable:
<S> <C> <C> <C>
Federal $13,419 $ 11,559 $ 7,571
State 2,601 1,981 903
Deferred income taxes 27,355 (10,601) 1,529
-------- -------- --------

$ 43,375 $ 2,939 $ 10,003
======== ======== ========
</TABLE>

The following is a reconciliation of income taxes reported in the
consolidated statements of income:

YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
(IN THOUSANDS)

<S> <C> <C> <C>
Tax expense at statutory rates $ 28,946 $ 17,431 $ 7,942
State income taxes 1,710 1,330 1,091
Tax effect of tax-exempt (earnings) losses (4,429) (2,711) 268
Puerto Rico tax credits 4,350 (11,750)
Utilization of previously unrecognized deferred tax assets (2,265) (1,405)
Nondeductible merger and other expenses 11,832 486 2,161
Other 966 418 (54)
-------- -------- --------

$ 43,375 $ 2,939 $ 10,003
======== ======== ========

</TABLE>
F-16

<PAGE> 42

The tax effects of temporary differences giving rise to deferred income
tax assets and liabilities were:

DECEMBER 31,
---------------------------
1997 1996
(IN THOUSANDS)

Deferred income tax assets:
<S> <C> <C>
Asset valuation reserves $ 1,055 $ 2,891
Nondeductible accruals 11,073 9,804
Puerto Rico tax credits 4,484 10,076
Other 15 91
--------- ---------

16,627 22,862

Deferred income tax liabilities:
Depreciation and amortization (22,654) (8,917)
Tax credit basis differences (6,991)
Other (16) (137)
--------- ---------

(29,661) (9,054)

Net deferred income tax asset (liability) $ (13,034) $ 13,808
========= =========
</TABLE>

These net deferred income tax assets (liabilities) are classified in the
consolidated balance sheet as follows:

DECEMBER 31,
-------------------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Current assets $ 2,718 $ 11,582
Noncurrent assets 4,484 11,198
Noncurrent liabilities (20,236) (8,972)
--------- ----------

$ (13,034) $ 13,808
========= ==========
</TABLE>

In prior years, the Company had established valuation allowances for
certain deferred tax assets related to net operating loss carryforwards of
Morningstar created prior to its financial restructuring and net operating
loss carryforwards of the Company's Suiza Dairy subsidiary in Puerto Rico,
which under Puerto Rico law were only available for utilization against
future taxable income of this subsidiary. Because of the continuing
operating losses, the Company was unable to determine in those years that
it was more likely than not that these net deferred tax assets would be
realized. During 1995, Morningstar realized $5.6 million of these deferred
tax assets, which was treated as an adjustment to its purchase price
related to a prior restructuring, and thus reduced goodwill. During 1996,
the deferred tax asset related to the Puerto Rico net operating loss
carryforwards and the related valuation allowance was substantially
eliminated as a result of the reduction in tax rates in Puerto Rico from
the Puerto Rico Agricultural Tax Incentives Act of 1995.

In December 1995, the Commonwealth of Puerto Rico adopted the Puerto Rico
Agricultural Tax Incentives Act of 1995 (the "Act"), which reduced the
effective income tax rate for qualified agricultural business from 39% to
3.9% and provided for a 50% tax credit for certain "eligible investments"
in qualified agricultural businesses in Puerto Rico. During 1996, the
Company made

F-17
<PAGE> 43

investments in its Puerto Rico dairy, fruit, plastics and Garrido
operations, all of which were certified as qualified agricultural
businesses in Puerto Rico during 1996.

During 1996, the Company recognized $15.75 million in tax credits related
to qualifying investments in its Puerto Rico dairy subsidiary. Of this
amount, the Company (i) sold $4.0 million of tax credits to third parties,
resulting in a gain of $3.4 million, net of a discount and related
expenses, ($2.2 million after income tax) which is recorded in other
income, and (ii) recognized a deferred tax asset for the remainder of the
tax credit in the amount of $11.75 million, resulting in a corresponding
credit to tax expense. These tax credits can be used by the Company to
eliminate both Puerto Rico income taxes and the 10% Puerto Rico
withholding tax on distributions from the Company's Puerto Rico
operations.

In 1996, the Company did not recognize any of the potential tax credits
related to its investments in its Puerto Rico fruit, plastics and coffee
operations since certain rulings in 1996 by Puerto Rico tax authorities
created uncertainty as to whether these investments met the eligible
investment criteria of the Act and whether these additional tax credits
had been earned. During the first quarter of 1997, the Company obtained a
ruling from the Commonwealth of Puerto Rico confirming that these
investments qualified for the 50% tax credit. Accordingly, in March 1997,
the Company recognized in other income a nonrecurring gain of $18.1
million, net of discounts and related expenses ($11.5 million after income
taxes), for earned tax credits it sold to third parties during the second
quarter of 1997. In addition, during the fourth quarter of 1997, the
Company sold $4.4 million of previously recognized tax credits for cash
proceeds of $3.7 million, net of discounts and related expenses, which is
recorded in other income. However, since these tax credits had been
previously recognized, this sale resulted in income tax expense of $5.6
million for an after tax loss of $1.9 million.

11. STOCKHOLDERS' EQUITY

CAPITAL SHARES - Authorized capital shares of the Company include
1,000,000 shares of preferred stock and 100,000,000 shares of common stock
with a par value of $.01 per share.

The rights and preferences of preferred stock are established by the
Company's Board of Directors upon issuance. In connection with the Country
Fresh merger, the Company issued 11,691 shares of Series A preferred stock
in exchange for all the outstanding shares of Country Fresh preferred
stock. The Series A preferred stock has a stated and redemption value of
$320 per share, bears a cumulative dividend rate of 8% and is redeemable
only at the Company's option.

On March 31, 1995, the Company issued 6,313,479 shares of common stock in
exchange for all of the outstanding equity interests of Suiza-Puerto Rico,
Velda and Reddy Ice, including profits interests that were granted to
certain individuals as compensation for services in identifying,
structuring and negotiating certain acquisitions. Immediately prior to the
combination date, the existing investors fixed this profits interest by
mutual agreement and exchanged equity interests among investors and these
individuals. In connection with this exchange, the Company recorded a
compensation expense charge to merger expense of $5.1 million, which
approximated the fair value of these interests, and resulted in a capital
contribution in the same amount.

STOCK SPLITS - On February 21, 1995, the Country Fresh shareholders
approved a recapitalization plan in which it converted its existing common
shares into 40 shares of no par value voting common stock, redeemed
3,682,520 of these shares of common stock and converted 475,000 shares of
common stock into 11,875 shares of Series A preferred stock. On February
28, 1996, Suiza Foods' Board of Directors authorized a 69 for 1 stock
split in the form of a common stock dividend payable to stockholders of
record on February 29, 1996. All references in the consolidated financial
statements to number of common shares outstanding and per share amounts,
and all references to common stock issued, stock

F-18
<PAGE> 44

options and related prices in the notes to the consolidated financial
statements have been restated to reflect the Country Fresh
recapitalization plan and Suiza Foods' stock split.

STOCK OFFERINGS - On April 22, 1996, Suiza Foods sold 3,795,000 shares of
common stock, $.01 par value per share, in an initial public offering at a
price to the public of $14.00 per share. The public offering provided net
cash proceeds to the Company of approximately $48.6 million which was used
to repay senior and subordinated debt and prepayment penalties related to
the early extinguishment of the subordinated notes. On August 7, 1996, the
Company sold 625,000 shares of its common stock at a price of $16.00 per
share in a private placement to a single investor and on January 28, 1997,
the Company sold 4,270,000 shares of common stock in a public offering at
a price to the public of $22.00 per share. The public offering provided
net cash proceeds to the Company of approximately $89.0 million which was
used to repay senior and subordinated debt and prepayment penalties
related to the early extinguishment of the subordinated notes.

STOCK OPTION AND RESTRICTED STOCK PLANS - On March 31, 1995, Suiza Foods
adopted an exchange option and restricted stock plan, whereby the
outstanding stock options previously granted were converted into options
to acquire 586,523 shares of common stock on substantially the same terms
as the prior options. These options are exercisable at prices ranging from
$.03 to $6.79 per share, which approximated the fair market value of such
shares at the date of original grant and vest ratably in five annual
increments and may be exercised, to the extent vested, over the ten-year
period following the award date.

Effective March 31, 1995, Suiza Foods also adopted the Option and
Restricted Stock Plan, which provided for grants of incentive and
nonqualified stock options and awards of restricted stock to directors and
key employees of the Company or its subsidiaries of up to 1,069,500
shares. Under the terms of this plan, the options granted will vest
ratably over a three-year period, except for options granted to outside
directors, which vest immediately. This plan also provides that the
exercise price of stock options will not be less than the fair market
value on the date of grant, and in the case of an incentive stock option
granted to an employee owning more than 10% of the common stock on the
date of grant, not less than 110% of the fair market value.

Effective February 24, 1997, Suiza Foods adopted the 1997 Stock Option and
Restricted Stock Plan, which, as amended, provides for grants of incentive
and nonqualified stock options and awards of restricted stock to certain
directors, officers, consultants and key employees of the Company or its
subsidiaries of up to 3,000,000 shares. Under the terms of this plan,
options granted will vest in accordance with the provisions set forth in
the applicable option agreement. This plan stipulates that the exercise
price of stock options will not be less than the fair market value on the
date of grant, and in the case of an option granted to an employee owning
more than 10% of the common stock on the date of grant, not less than 110%
of the fair market value.

Morningstar also had several stock-based compensation plans for its key
employees and directors which provided for grants of incentive and
nonqualified stock options. In connection with the merger discussed in
Note 2, all the outstanding Morningstar options became exercisable
pursuant to the change in control provisions of such options and were
exchanged for Suiza Foods stock options at an exchange ratio of .85 Suiza
Foods stock options for each Morningstar stock option, with the exercise
prices adjusted for such exchange ratios. These replacement options, as
adjusted for the exchange ratio, were exercisable at prices ranging from
$3.01 to $34.12 per share, which approximated the fair market value of
such shares at the date of grant and expired ten years from the date of
grant.

F-19
<PAGE> 45

Country Fresh also had a stock option plan that provided for the grant of
stock options to acquire common stock to officers and key employees, at an
exercise price equal to the fair market value of such shares at the date
of grant. The options vest ratably over seven years from the date of grant
and expire 12 years from the date of grant. In connection with the merger
discussed in Note 2, all the outstanding Country Fresh options became
exercisable pursuant to the change in control provisions of such options
and were exchanged for Suiza Foods stock options at an exchange ratio of
.5454 Suiza Foods stock options for each Country Fresh stock option, with
the exercise price adjusted for such exchange ratio.

The following table summarizes the status of the Company's stock-based
compensation programs:

WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
<S> <C> <C>
Outstanding at January 1, 1995 1,385,472 $ 7.25

Granted 1,158,698 5.71
Canceled (96,942) 8.28
Exercised (266,444) 3.05
----------

Outstanding at December 31, 1995 2,180,784 6.90

Granted 1,474,519 12.89
Canceled (8,143) 5.78
Exercised (39,273) 7.87
----------

Outstanding at December 31, 1996 3,607,887 9.34

Granted 2,798,958 30.40
Canceled (96,738) 13.89
Exercised (621,866) 8.66
---------

Outstanding at December 31, 1997 5,688,241 19.70
=========

Exercisable at December 31, 1995 1,204,860 $ 5.28
Exercisable at December 31, 1996 2,201,785 7.73
Exercisable at December 31, 1997 4,423,601 17.49

</TABLE>

The following table summarizes information about options outstanding at
December 31, 1997:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- ---------------------------------
WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .03 to $15.15 2,752,742 7.21 $ 9.26 2,454,889 $ 9.07
16.00 to 34.50 2,599,899 9.09 27.29 1,946,212 27.87
39.62 to 58.68 335,600 9.71 46.55 22,500 39.63

</TABLE>

F-20
<PAGE> 46

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans, and accordingly, no compensation
has been recognized since stock options granted under these plans were at
exercise prices which approximated market value at the grant date. Had
compensation expense been determined for current period stock option
grants using fair value methods provided for in SFAS No. 123, the
Company's pro forma net income and net earnings per common share would
have been the amounts indicated below:

YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
(IN THOUSANDS,
EXCEPT SHARE DATA)

<S> <C> <C> <C>
Compensation cost $ 21,706 $ 7,886 $ 869
Net income:
As reported 28,764 46,963 5,555
Pro forma 15,415 42,113 5,021
Net income per share:
As reported - basic 0.96 1.99 0.25
As reported - diluted 0.91 1.91 0.25
Pro forma - basic 0.52 1.80 0.24
Pro forma - diluted 0.49 1.72 0.24
Stock option share data:
Stock options granted during period 2,798,958 1,474,519 572,175
Weighted average option fair value (a) $ 7.75 $ 10.64 $ 6.70

</TABLE>

(a) Calculated in accordance with the Black-Scholes option pricing
model, using the following assumptions: expected volatility of
40%; expected dividend yield of 0%; expected option term of four
to ten years and risk-free rates of return as of the date of grant
which ranged from 5.38% to 7.15% based on the yield of ten-year U.S.
treasury securities.

EARNINGS PER SHARE - During 1997, the Company adopted SFAS No. 128,
"Earnings per Share." As a result of the adoption of SFAS No. 128, all
earnings per share ("EPS") amounts have been restated to the basic and
diluted presentations required by this pronouncement. The following table
reconciles the numerators and denominators used in the computations of
both basic and diluted EPS:

YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

Basic EPS computation:
Numerator:
<S> <C> <C> <C>
Income from continuing operations $ 39,330 $ 46,863 $ 12,688
Less preferred stock dividends (300) (302) (304)
----------- ----------- -----------

Income applicable to common stock $ 39,030 $ 46,561 $ 12,384
=========== =========== ===========

Denominator:
Average common shares 29,508,791 23,424,322 20,708,467
=========== =========== ===========

Basic EPS $ 1.32 $ 1.99 $ 0.60
=========== =========== ===========

</TABLE>

F-21

<PAGE> 47

YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
(IN THOUSANDS, EXCEPT SHARE DATA)

Diluted EPS computation:
Numerator:
<S> <C> <C> <C>
Income from continuing operations $ 39,330 $ 46,863 $ 12,688
Less preferred stock dividends (300) (302) (304)
----------- ----------- -----------

Income applicable to common stock $ 39,030 $ 46,561 $ 12,384
=========== =========== ===========

Denominator:
Average common shares--basic 29,508,791 23,424,322 20,708,467
Stock option conversion 1,815,017 1,067,577 226,694
Earnings contingency 24,783
----------- ----------- -----------
Average common shares--diluted 31,348,591 24,491,899 20,935,161
=========== =========== ===========

Diluted EPS $ 1.25 $ 1.90 $ 0.59
=========== =========== ===========

</TABLE>

STOCK REDEMPTIONS - During 1996 and 1995, Country Fresh made incidental
repurchases of 109 and 532 shares, as adjusted for the exchange ratio,
respectively, of its common stock in addition to the 2,267,512 shares of
common stock repurchased or exchanged in 1995 pursuant to the February 21,
1995, recapitalization plan discussed above. In addition, during 1996 and
1995, Morningstar repurchased, through open market or negotiated
transactions, 456,450 shares and 195,500 shares, as adjusted for the
exchange ratio, respectively, of its common stock at a cost of $4.3
million and $1.8 million, respectively. These repurchased shares have been
treated as effectively retired in the consolidated financial statements.

12. EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

The Company sponsors various defined benefit and defined contribution
retirement plans, as well as various employee savings and profit sharing
plans and contributes to various multi-employer pension plans on behalf of
its employees. Substantially all full-time union and non-union employees
who have completed one or more years of service and have met other
requirements pursuant to the plans are eligible to participate in these
plans. During 1997, 1996 and 1995, the Company's retirement and profit
sharing plan expenses were as follows:

YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
(IN THOUSANDS)

<S> <C> <C> <C>
Defined benefit plans $ 1,061 $ 1,136 $ 887
Defined contribution plans 2,232 1,677 1,497
Multi-employer pension plans 2,715 2,493 1,991
-------- -------- -------
$ 6,008 $ 5,306 $ 4,375
======== ======== ========
</TABLE>

DEFINED BENEFIT PLANS - The benefits under the Company's defined benefit
plans are based on years of service and employee compensation. The
Company's funding policy is to contribute annually the

F-22
<PAGE> 48
minimum amount required under ERISA regulations. Plan assets consist
principally of investments made with insurance companies under a group
annuity contract.

The following table sets forth the funded status of the Company's defined
benefit plans and the amounts recognized in its supplemental consolidated
balance sheets:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
(IN THOUSANDS)

<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested benefit
obligations of $14,747 in 1997 and $11,973 in 1996 $ 15,198 $ 12,508
======== ========
Projected benefit obligation for service rendered to date $ 18,083 $ 14,980
Plan assets, at estimated fair value 16,616 14,056
-------- --------

Projected benefit obligation in excess of the plan assets 1,467 924

Unrecognized net gain from past experience and the effect of
changes in assumptions 1,519 1,361
Unrecognized prior service cost (1,428) (874)
Unrecognized initial net obligation (667) (735)
-------- --------

Accrued pension costs 891 676

Less current portion (312) (200)
-------- --------

Long-term $ 579 $ 476
======== ========
</TABLE>

Net periodic pension costs for 1997, 1996 and 1995 included the following
components (in thousands):

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 982 $ 1,023 $ 748
Interest cost on projected benefit obligation 959 979 890
Actual return on plan assets (2,326) (1,673) (1,824)
Net amortization and deferral 1,446 807 1,073
------- ------- -------
$ 1,061 $ 1,136 $ 887
======= ======= =======
</TABLE>

Assumptions used in the actuarial valuations were

<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Discount rates 6.80% 7.50% 7.25%
Rates of increase in compensation levels 3.50 4.00 3.75
Expected long-term rate of return on assets 9.00 9.00 9.00
</TABLE>

DEFINED CONTRIBUTION PLANS - Certain of the Company's non-union personnel
may elect to participate in savings and profit sharing plans sponsored by
the Company. These plans generally provide for salary reduction
contributions to the plans on behalf of the participants of between 6% and
8% of a

F-23
<PAGE> 49

participant's annual compensation and provide for employer matching and
profit sharing contributions as determined by the Board of Directors. In
addition, certain union hourly employees are participants in
Company-sponsored defined contribution plans which provide for employer
contributions in various amounts ranging from $19 to $35 per pay period
per participant.

MULTI-EMPLOYER PENSION PLANS - Certain of the Company's subsidiaries
contribute to various multi-employer union pension plans, which are
administered jointly by management and union representatives and cover
substantially all full-time and certain part-time union employees who are
not covered by the Company's other plans. The Multi-Employer Pension Plan
Amendments Act of 1980 amended ERISA to establish funding requirements and
obligations for employers participating in multi-employer plans,
principally related to employer withdrawal from or termination of such
plans. The Company could, under certain circumstances, be liable for
unfunded vested benefits or other expenses of jointly administered
union/management plans. At this time, the Company has not established any
liabilities because withdrawal from these plans is not probable or
reasonably possible.

13. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

One of the Company's subsidiaries provides health care benefits to certain
retirees who are covered under specific group contracts. Postretirement
health care coverage on subsequent employment contracts has been
eliminated; therefore, no additional employees will be eligible under
current agreements for such benefits. As defined by the specific group
contract, qualified covered associates may be eligible to receive major
medical insurance with deductible and coinsurance provisions subject to
certain lifetime maximums.

The accumulated postretirement benefit obligation amounted to $3.5 million
at both December 31, 1997 and 1996, respectively, of which $3.3 million
and $3.2 million, respectively, were considered long-term liabilities.
Postretirement health care expense for 1997, 1996 and 1995 consisted of
interest cost on the accumulated postretirement benefit obligation of $.2
million, $.2 million and $.3 million, respectively. The Company continues
to fund the cost of these benefits as incurred, which required payments of
$.2 million, $.3 million and $.2 million in 1997, 1996 and 1995,
respectively.

The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.17% for the year ended December
31, 1997, gradually declining at a rate of approximately 1% per year to 5%
in 2005 and remaining at that level thereafter. The assumed discount rate
in determining the accumulated postretirement benefit obligation was 6.8%
for 1997 and 7.5% in 1996. A one-percentage-point increase in the assumed
health care cost trend rate for each year would increase the accumulated
postretirement benefit cost and the service cost plus interest cost by
between 8% and 9%.

F-24
<PAGE> 50

14. MERGER AND OTHER COSTS

MERGER AND OTHER COSTS - During 1997, 1996 and 1995, the Company incurred
merger and other costs of $37.0 million, $.6 million and $9.3 million,
respectively. The following table summarizes the nature and amount of the
costs recorded in merger and other costs:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Merger fees and expenses $17,766 $ -- $2,710
Severance and employment costs 17,555 5,111
Costs of uncompleted transactions 505 786
Other costs 1,177 571 693
------- ------- ------
$37,003 $ 571 $9,300
======= ======= ======
</TABLE>

Merger fees and expenses include primarily fees paid to investment
bankers and investment advisors, professional fees and various
merger-related filing fees. Severance and employment costs include
primarily payments to employees terminated at the merger date and
payments for retention bonuses and excise taxes, pursuant to preexisting
employment agreements, along with compensation expense in 1995 related to
the issuance of common stock in exchange for a negotiated profits
interest. Costs of uncompleted transactions include the costs and
expenses related to abandoned acquisitions in 1997 and 1995, along with
costs and expenses associated with an abandoned debt offering in 1995.
Other costs include primarily certain bank fees and bridge loan fees paid
in 1996 and 1995 and, in 1997, includes the cost of the consolidation of
the Company's corporate offices in connection with the Morningstar
merger.

EXTRAORDINARY LOSS - During 1997, 1996 and 1995, as a result of the
repayment of outstanding indebtedness, the Company expensed approximately
$11.3 million (net of income tax benefit of $7.0 million), $2.2 million
(net of income tax benefit of $.9 million) and $8.5 million (net of
income tax benefit of $.7 million), respectively, of debt issuance, legal
and other costs associated with extinguishment of prior credit
facilities. These amounts have been classified as an extraordinary loss
in accordance with the provisions of SFAS No. 4, "Reporting Gains and
Losses From the Extinguishment of Debt."

F-25
<PAGE> 51

15. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest $43,386 $21,896 $23,719
Cash paid for taxes 23,668 10,477 3,199

Noncash transactions:
Issuance of notes payable and common and preferred
stock in connection with business and property
acquisitions 17,049 1,993 2,301
Distribution of investment and related debt in a bread
bag manufacturer to shareholders of Reddy Ice 1,534
Compensation expense recorded as a capital contribution 5,111
Subordinated notes and preferred stock issued in lieu of
interest and dividends 236 671
Collection of receivable through redemption of common
stock in recapitalization 1,217
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

LEASES - The Company leases certain property, plant and equipment used in
its operations under both capital and operating lease agreements. Such
leases, which are primarily for machinery and equipment and vehicles,
have lease terms ranging from one to nine years. Certain of the operating
lease agreements require the payment of additional rentals for
maintenance, along with additional rentals, based on miles driven or
units produced. Rent expense, including additional rent, was $18.5
million, $14.2 million, and $11.9 million for the years ended December
31, 1997, 1996 and 1995, respectively.

The composition of capital leases which are reflected as property, plant
and equipment in the balance sheets is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Machinery and equipment $ 713 $ 771
Less accumulated amortization (437) (355)
----- -----
$ 276 $ 416
===== =====
</TABLE>

F-26
<PAGE> 52

Future minimum payments at December 31, 1997, under noncancelable capital
and operating leases with terms in excess of one year are summarized below
(in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1998 $ 152 $ 18,066
1999 112 15,611
2000 -- 13,625
2001 -- 11,035
2002 -- 7,678
Thereafter 8,210
----- --------
Total minimum lease payments 264 $ 74,225
========
Less amount representing interest (10)
-----
Present value of capital lease obligations $ 254
=====
</TABLE>

LITIGATION - The Company and its subsidiaries are parties, in the
ordinary course of business, to certain claims and litigation. In
management's opinion, the settlement of such matters is not expected to
have a material impact on the consolidated financial statements.

EMPLOYMENT AGREEMENTS - As of December 31, 1997, the Company had entered
into employment agreements with certain key management personnel which
provided for minimum compensation levels and incentive bonuses along with
provisions for termination of benefits in certain circumstances and for
certain severance payments in the event of a change in control (as
defined).

RELATED PARTY TRANSACTIONS - Prior to March 31, 1995, the Company had
consulting agreements with certain stockholders and affiliates requiring
the payment of monthly consulting fees, plus expenses, in consideration
for financial advisory and oversight services provided to it by such
stockholders. These consulting agreements, which were cancelable only at
the option of such stockholders over their term, were canceled in 1995.

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

Pursuant to SFAS No. 107, "Disclosure About Fair Value of Financial
Instruments," the Company is required to disclose an estimate of the fair
value of the Company's financial instruments as of December 31, 1997 and
1996. Differences between the historical presentation and estimated fair
values can occur for many reasons, including taxes, commissions,
prepayment penalties, make-whole provisions and other restrictions as
well as the inherent limitations in any estimation technique.

Due to their near-term maturities, the carrying amounts of accounts
receivable and accounts payable are considered equivalent to fair value.
In addition, because the interest rates on the Company's revolving credit
and term loan facilities and certain other debt are variable, their fair
values approximate their carrying values.

Certain of the Company's long-term debt which totaled approximately $.5
million and $39.5 million at December 31, 1997 and 1996, respectively,
bears fixed interest rates and is privately placed with unique terms and
no active market. The fair value of such long-term debt was determined by
discounting future cash flows at current market yields and approximated
$.5 million and $36.9 million at December 31, 1997, and 1996,
respectively. In addition, the Company has entered into various interest

F-27
<PAGE> 53

rate agreements to reduce the Company's sensitivity to changes in
interest rates on its variable rate debt. The fair values of these
instruments were determined based on current values for similar
instruments with similar terms and approximated their carrying values.

18. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS

Information about the Company's operations in the Dairy and Plastic
Containers businesses and in different geographic areas for the years
ended December 31, 1997, 1996 and 1995, is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Dairy:
United States $ 1,493,282 $ 992,259 $ 810,520
Puerto Rico 248,966 215,306 204,406
----------- ----------- -----------
1,742,248 1,207,565 1,014,926

Plastic containers - United States 52,628
----------- ----------- -----------
Total $ 1,794,876 $ 1,207,565 $ 1,014,926
=========== =========== ===========

Operating income:
Dairy:
United States $ 112,849 $ 48,340 $ 36,471
Puerto Rico 21,553 16,430 14,160
----------- ----------- -----------

134,402 64,770 50,631

Plastic containers - United States 4,862
Corporate, including merger and other costs (43,972) (3,760) (11,239)
----------- ----------- -----------

Total $ 95,292 $ 61,010 $ 39,392
=========== =========== ===========
Identifiable assets (at end of period):
Dairy:
United States $ 952,290 $ 622,376 $ 326,326
Puerto Rico 169,501 152,198 119,977
----------- ----------- -----------
1,121,791 774,574 446,303

Plastic containers - United States 156,351
Corporate, and other 125,320 59,050 38,549
----------- ----------- -----------

Total $ 1,403,462 $ 833,624 $ 484,852
=========== =========== ===========
Capital expenditures:
Dairy $ 52,642 $ 30,001 $ 23,902
Plastic containers 9,313
Corporate 165 78 143
----------- ----------- -----------

Total $ 62,120 $ 30,079 $ 24,045
=========== =========== ===========
</TABLE>

F-28
<PAGE> 54

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and amortization expense:
Dairy $41,162 $27,160 $25,347
Plastic containers 2,233
Corporate 1,212 843
------- ------- -------
Total $44,607 $28,003 $25,347
======= ======= =======
</TABLE>

19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of the unaudited quarterly results of
operations for 1997 and 1996 (dollars in thousands, except per share
data):

<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------
1997 FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Net sales $ 365,584 $ 381,383 $ 499,518 $ 548,391
Gross profit 79,581 86,825 111,508 124,746
Income (loss) from continuing operations 22,405 16,263 16,937 (16,275)
Income (loss) before extraordinary loss 20,739 17,577 19,711 (17,980)
Net income (loss) 17,469 17,577 19,711 (25,993)
Basic earnings (loss) per common share:
Income (loss) before extraordinary loss 0.74 0.59 0.65 (0.60)
Net income (loss) 0.62 0.59 0.65 (0.86)
Diluted earnings (loss) per common share:
Income (loss) before extraordinary loss 0.70 0.56 0.61 (0.60)
Net income (loss) 0.59 0.56 0.61 (0.86)

1996

Net sales $ 268,276 $ 273,398 $ 302,257 $ 363,634
Gross profit 53,909 55,045 55,927 71,888
Income from continuing operations 6,557 8,851 20,666 10,789
Income before extraordinary loss 5,144 10,756 23,215 10,063
Net income 5,144 8,541 23,215 10,063
Basic earnings per common share:
Income before extraordinary loss 0.25 0.46 0.94 0.40
Net income 0.25 0.36 0.94 0.40
Diluted earnings per common share:
Income before extraordinary loss 0.24 0.44 0.91 0.37
Net income 0.24 0.35 0.91 0.37
</TABLE>

Earnings per common share calculations for each of the quarters were
based on the basic and diluted weighted average number of shares
outstanding for each quarter, and the sum of the quarters may not
necessarily be equal to the full year earnings per common share amount.

The difference between income (loss) from continuing operations and income
(loss) before extraordinary loss represents the results of the
discontinued operations of the packaged ice business, net of income taxes.

The results for the second quarter of 1996 include $2.2 million, net of
tax, of extraordinary losses from the early extinguishment of debt repaid
with the proceeds of the Company's initial public offering.

The results for the third quarter of 1996 include a gain on the sale of
Puerto Rico tax credits of $3.4 million ($2.2 million after income taxes)
and a tax benefit related to the recognition of the remaining amount of
such credits of $11.8 million, partially offset by $.6 million in
financing costs ($.4 million after income tax benefits) related to the
amendment of the Company's Senior Credit Facility.

F-29
<PAGE> 55

The results for the first quarter of 1997 include a gain on the sale of
Puerto Rico tax credits of $18.1 million ($11.5 million after income
taxes), partially offset by $3.3 million, net of tax, of extraordinary
losses from early extinguishment of debt repaid with the proceeds of the
Company's January 1997 equity offering.

The results for the fourth quarter of 1997 include merger and other costs
of $37.0 million ($34.7 million after income tax benefits) and $8.0
million, net of tax, of extraordinary losses from early extinguishment of
debt repaid with the proceeds of the Company's new Senior Credit Facility
in November 1997, along with a gain of $3.7 million from the sale of
previously recognized tax credits which resulted in an after tax loss of
$1.9 million.

20. SUBSEQUENT EVENTS

On February 20, 1998, the Company completed the acquisition of Land-O-Sun
Dairies, L.L.C. ("Land-O-Sun") for approximately $248 million (subject to
adjustment and excluding transaction costs). This purchase price, along
with the repayment of approximately $52 million of Land-O-Sun's existing
indebtedness, was funded with borrowings under the Senior Credit
Facility, the issuance of $100 million of trust-issued 5% redeemable
convertible preferred securities and $20 million of preferred interests
of Land-O-Sun to one of Land-O-Sun's former shareholders. The aggregate
revenues of Land-O-Sun for its most recent year approximated $464
million.

Subsequent to December 31, 1997, the Company has also entered into a
definitive agreement to acquire certain assets and assume certain
liabilities of one other dairy and entered into an Agreement and Plan of
Merger, dated January 14, 1998, to acquire Continental Can Company, Inc.
("Continental Can") in exchange for the issuance of .629 shares of Suiza
Foods common stock or Suiza Foods stock options for each outstanding
common share or stock option of Continental Can. The Continental Can
acquisition is subject to an affirmative vote of stockholders holding a
majority of Continental Can's outstanding common shares, and, if
approved, is expected to result in the issuance of approximately 2.1
million shares of Suiza Foods common stock. There are no assurances that
the above-described dairy acquisition or the Continental Can acquisition
will be consummated. The aggregate revenues of these to be acquired
businesses for their most recent year approximated $622 million.

Between January 1, 1998, and March 2, 1998, the Company also acquired
certain assets and assumed certain liabilities of two small plastics
business, a number of small ice businesses and a dairy business.

On March 24, 1998, the Company formed a trust and issued $600 million of
5.5% redeemable convertible preferred securities of this subsidiary for
net proceeds of $583 million, which were used to repay a portion of the
amounts outstanding under the Company's Senior Credit Facility. These
preferred securities, along with the preferred securities issued in the
Land-O-Sun acquisition, have quarterly distributions payable at their
respective stated rates per annum, have a liquidation preference of $50
per security and are convertible, at the option of the holder thereof,
into an aggregate of approximately 9.1 million shares of the Company's
common stock. These preferred securities are also redeemable, at the
Company's option, at any time after three years from their respective
issue dates at specified amounts and are mandatorily redeemable at their
liquidation preference amount of $50 per share after 30 years from their
respective issue dates or upon the occurrence of certain specified events,
as defined.

******

F-30

<PAGE> 56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

SUIZA FOODS CORPORATION

By: /s/ Gregg L. Engles
--------------------------------------------
Gregg L. Engles
Chairman of the Board and
Chief Executive Officer

By: /s/ Tracy L. Noll
--------------------------------------------
Tracy L. Noll
Executive Vice President, Chief Financial Officer and
Principal Accounting Officer
Dated March 25, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the capacities and
on the dates indicated.

NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Gregg L. Engles Director March 30, 1998
---------------------------
Gregg L. Engles

Director
---------------------------
Alan Bernon

/s/ Cletes O. Beshears Director March 30, 1998
---------------------------
Cletes O. Beshears

/s/ Hector M. Nevares Director March 30, 1998
---------------------------
Hector M. Nevares

/s/ Stephen L. Green Director March 30, 1998
---------------------------
Stephen L. Green

/s/ Robert L. Kaminski Director March 30, 1998
---------------------------
Robert L. Kaminski

/S/ David F. Miller Director March 30, 1998
---------------------------
David F. Miller

/s/ John Muse Director March 30, 1998
---------------------------
John Muse

/s/ Delton Parks Director March 30, 1998
---------------------------
Delton Parks

/s/ P. Eugene Pender Director March 30, 1998
---------------------------
P. Eugene Pender

/s/ Robert Piccinini Director March 30, 1998
---------------------------
Robert Piccinini

/s/ Jim Turner Director March 30, 1998
---------------------------
Jim Turner
</TABLE>

24
<PAGE> 57

INDEX TO EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
2.1 -- Amended and Restated Reorganization Agreement (incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-12755)).

3.1 -- Certificate of Incorporation of the Company dated September 19, 1994 (incorporated by reference from
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File No. 1-12755)).

3.2 -- Certificate of Amendment to the Company's Certificate of Incorporation dated March 27, 1995
(incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (File No. 1-12755)).

3.3 -- Certificate of Correction of Certificate of Amendment to the Company's Certificate of Incorporation
dated June 6, 1995 (incorporated by reference from the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 1-12755)).

3.4 -- Certificate of Amendment to the Company's Certificate of Incorporation dated February 29, 1996
(incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (File No. 1-12755)).

3.5 -- Certificate of Amendment to the Company's Certificate of Incorporation dated May 15, 1997 (incorporated
by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (File
No. 1-12755)).

3.6 -- Bylaws of the Company (incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-1858)).

4.1 -- Specimen of Common Stock Certificate (incorporated by reference to the Company's Registration Statement
on Form S-1 (File No. 333-1858)).

4.2 -- Registration Rights Agreement (incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-1858)).

4.3 -- Suiza Foods Corporation Certificate of Designation of Preferences of Series A Preferred Stock
(incorporated by reference from the Company's Current Report on Form 8-K filed on December 10, 1997
(File No. 1-12755)).

4.4 -- Rights Agreement dated March 6, 1998 among the Company and Harris Trust & Savings Bank, as rights agent,
which includes as Exhibit A the Form of Rights Certificate (incorporated by reference from the Company's
Registration Statement on Form 8-A filed on March 10, 1998 (File No. 1-12755)).

10.1 -- Suiza Foods Corporation Exchange Stock Option and Restricted Stock Plan (incorporated by reference to
the Company's Registration Statement on Form S-1 (File No. 333-1858)).

10.2 -- Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan (incorporated by reference to the
Company's Registration Statement on Form S-1 (File No. 333-18263)).

10.3 -- Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October 24,
1997 (File No. 1-12755)).

10.4 -- First Amendment to Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan (filed herewith).
</TABLE>

25
<PAGE> 58

<TABLE>

<S> <C> <C>
10.5 -- 1997 Employee Stock Purchase Plan of Suiza Foods Corporation (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October 24,
1997 (File No. 1-12755)).

10.6 -- First Amendment to the 1997 Employee Stock Purchase Plan of Suiza Foods Corporation (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as
amended on October 24, 1997 (File No. 1-12755)).

10.7 -- Second Amendment to the 1997 Employee Stock Purchase Plan of Suiza Foods Corporation (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as
amended on October 24, 1997 (File No. 1-12755)).

10.8 -- Exchange Stock Option and Restricted Stock Agreement between the Company and Cletes O. Beshears
(incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-1858)).

10.9 -- 1991 Incentive and Nonstatutory Stock Option Plan of Morningstar (incorporated by reference from
Morningstar's Registration Statement on Form S-1 (No. 33-45805) filed on February 19, 1992).

10.10 -- 1992 Incentive and Nonstatutory Stock Option Plan (incorporated by reference from Morningstar's
Registration Statement on Form S-1 (No. 33-45805) filed on February 19, 1992).

10.11 -- 1994 Incentive and Nonstatutory Stock Option Plan (incorporated by reference from Morningstar's
Registration Statement on Form S-8 (No. 33-53975) filed on June 6, 1994).

10.12 -- 1996 Director Stock Option Plan (incorporated by reference from Morningstar's Annual Report on Form 10-K
(No. 0-19075) for the year ended December 31, 1996).

10.13 -- Country Fresh, Inc. 1989 Stock Option Plan (filed herewith).

10.14 -- Form of Stock Option Agreement for Messrs. Gregg L. Engles, C.O. Beshears, William P. Brick, Hector M.
Nevares and Tracy L. Noll under the Suiza Foods Corporation 1995 Stock Option and Restricted Stock Plan
(incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, as amended on October 24, 1997 (File No. 1-12755)).

10.15 -- Form of Stock Option Agreement for Messrs. P. Eugene Pender and Robert Piccinini under the Suiza Foods
Corporation 1995 Stock Option and Restricted Stock Plan (incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October 24, 1997 (File
No. 1-12755)).

10.16 -- Form of Restricted Stock Agreement for Messrs. C.O. Beshears and William P. Brick under the Suiza Foods
Corporation 1995 Stock Option and Restricted Stock Plan (incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October 24, 1997 (File
No. 1-12755)).

10.17 -- Form of Stock Option Agreement for Messrs. Gregg L. Engles, William P. Brick, Hector M. Nevares and
Tracy L. Noll under the Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan
(incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, as amended on October 24, 1997 (File No. 1-12755)).

10.18 -- Form of Stock Option Agreement for Messrs. P. Eugene Pender, Robert Piccinini and Stephen Green under
the Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan (incorporated by reference from
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October
24, 1997 (File No. 1-12755)).

10.19 -- Stock Option Agreement dated as of October 13, 1994 among Country Fresh, Inc. and Delton C. Parks under
the Country Fresh, Inc. 1989 Stock Option Plan (filed herewith).
</TABLE>

26
<PAGE> 59

<TABLE>

<S> <C> <C>
10.20 -- Asset Purchase Agreement, dated as of June 11, 1997, by and among DF Acquisition Corp., Dairy Fresh L.
P., and the Company (incorporated by reference from the Company's Current Report on Form 8-K filed July
14, 1997, as amended on August 22, 1997 (File No. 1-12755)).

10.21 -- Stock Purchase Agreement dated June 20, 1997 among the Company, Peter M. Bernon, Alan J. Bernon, and the
other stockholders named therein and the Garelick Companies (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as amended on October 24,
1997 (File No. 1-12755)).

10.22 -- Amendment No. 1 to the Stock Purchase Agreement dated July 30, 1997 among the Company, Peter M. Bernon,
Alan J. Bernon, and the other stockholders named therein and the Garelick Companies (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, as
amended on October 24, 1997 (File No. 1-12755)).

10.23 -- Stockholders Agreement dated July 31, 1997 among the Company, Franklin Plastics, Peter M. Bernon and
Alan J. Bernon (incorporated by reference from the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, as amended on October 24, 1997 (File No. 1-12755)).

10.24 -- Agreement and Plan of Merger dated as of September 18, 1997 by and among Suiza Foods Corporation, CF
Acquisition Corp. and Country Fresh, Inc. (incorporated by reference from the Company's Registration
Statement on Form S-4 (File No. 333-37861)).

10.25 -- Agreement and Plan of Merger dated as of September 28, 1997 by and among Suiza Foods Corporation, SF
Acquisition Corp. and The Morningstar Group Inc. (incorporated by reference from the Company's
Registration Statement on Form S-4 (File No. 333-37869)).

10.26 -- Agreement and Plan of Merger dated as of January 14, 1998 by and among Suiza Foods Corporation, CC
Acquisition Corp. and Continental Can Company, Inc. (incorporated by reference from the Company's
Registration Statement on Form S-4 (File No. 333-46519)).

10.27 -- Membership Interest Purchase Agreement and Recapitalization Agreement, dated as of January 31, 1998, by
and among Suiza Foods Corporation, Dairy Farmers of America, Inc., DFA Investment Company and Land-O-Sun
Dairies, Inc. (incorporated by reference from the Company's Current Report on Form 8-K filed on March 9,
1998 (File No. 1-12755)).

10.28 -- First Amendment to Membership Interest Purchase Agreement and Recapitalization Agreement, dated as of
February 20, 1998, by and among LOS Holdings, Inc. (as assignee of Suiza Foods Corporation), Dairy
Farmers of America, Inc., DFA Investment Company and LOS Dairies, Inc. (as assignee of Land-O-Sun
Dairies, Inc.) (incorporated by reference from the Company's Current Report on Form 8-K filed on March
9, 1998 (File No. 1-12755)).

10.29 -- Amended and Restated Declaration of Trust of Suiza Capital Trust, dated as of February 20, 1998
(incorporated by reference from the Company's Current Report on Form 8-K filed on March 9, 1998 (File
No. 1-12755)).

10.30 -- Preferred Securities Guarantee Agreement of Suiza Foods Corporation, dated as of February 20, 1998
(incorporated by reference from the Company's Current Report on Form 8-K filed on March 9, 1998 (File
No. 1-12755)).

10.31 -- Registration Rights Agreement, dated as of February 20, 1998, between DFA Investment Company and Suiza
Foods Corporation (incorporated by reference from the Company's Current Report on Form 8-K filed on
March 9, 1998 (File No. 1-12755)).

10.32 -- Indenture, dated as of February 20, 1998, between Suiza Foods Corporation, as Issuer, and Wilmington
Trust Company, as Trustee (incorporated by reference from the Company's Current Report on Form 8-K filed
on March 9, 1998 (File No. 1-12755)).
</TABLE>

27
<PAGE> 60

<TABLE>

<S> <C> <C>
10.33 -- 5% Convertible Subordinated Debenture due 2018, issued by Suiza Foods Corporation to Suiza Capital Trust
on February 20, 1998 (incorporated by reference from the Company's Current Report on Form 8-K filed on
March 9, 1998 (File No. 1-12755)).

10.34 -- Credit Agreement, dated as of November 26, 1997, among the Company, First Union National Bank, as
Administrative Agent, and The First National Bank of Chicago, as Syndication Agent (filed herewith).

11.1 -- Computation of Per Share Earnings (filed herewith)

12.1 -- Statement re computation of ratios (filed herewith)

21.1 -- List of Subsidiaries (filed herewith)

23.1 -- Consent of Deloitte & Touche LLP (filed herewith)

23.2 -- Consent of Arthur Andersen LLP (filed herewith)

27.1 -- Financial Data Schedule (filed herewith)

27.2 -- Restated Financial Data Schedule (filed herewith)

27.3 -- Restated Financial Data Schedule (filed herewith)

27.4 -- Restated Financial Data Schedule (filed herewith)

27.5 -- Restated Financial Data Schedule (filed herewith)

27.6 -- Restated Financial Data Schedule (filed herewith)

27.7 -- Restated Financial Data Schedule (filed herewith)

27.8 -- Restated Financial Data Schedule (filed herewith)

27.9 -- Restated Financial Data Schedule (filed herewith)

</TABLE>

28
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>2
<DESCRIPTION>1ST AMENDMENT TO 1997 STOCK OPTION/RESTRICTED PLAN
<TEXT>

<PAGE> 1

EXHIBIT 10.4

FIRST AMENDMENT TO
1997 STOCK OPTION AND RESTRICTED STOCK PLAN OF
SUIZA FOODS CORPORATION

WHEREAS, the board of directors (the "Board") of Suiza Foods
Corporation (the "Company") has adopted an amendment (the "Plan Amendment") to
the Company's 1997 Stock Option and Restricted Stock Plan (the "Plan");

WHEREAS, at a special meeting held on November 26, 1997, stockholders
of the Company holding a majority of the Company's outstanding common stock
approved the Plan Amendment;

NOW, THEREFORE, in accordance with Section 19 of the Plan, Section 4 of
the Plan is hereby amended by replacing the reference therein to "1,150,000
shares" with a reference to "3,000,000 shares."

Except as amended by this instrument, the Plan shall remain in full
force and effect.

IN WITNESS WHEREOF, the Company has caused this instrument to be
executed effective as of November 26, 1997.

SUIZA FOODS CORPORATION

By: /s/ Tracy L. Noll
---------------------------------
Tracy L. Noll,
Executive Vice President

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>3
<DESCRIPTION>1989 STOCK OPTION PLAN FOR COUNTRY FRESH, INC.
<TEXT>

<PAGE> 1

EXHIBIT 10.13

COUNTRY FRESH, INC.

1989 STOCK OPTION PLAN (RESTATED)

1. Establishment of Plan. Country Fresh, Inc., a Michigan corporation
("Country Fresh"), proposes to grant to its corporate officers and other key
employees, options to purchase shares of Country Fresh's Common Stock ("Common
Stock"). The options will be granted pursuant to the plan set forth herein which
shall be known as the COUNTRY FRESH, INC. 1989 STOCK OPTION PLAN (the "Plan").

2. Purpose of the Plan. The purpose of the Plan is to provide officers
and key employees of Country Fresh and its subsidiaries with an increased
incentive to make significant and extraordinary contributions to the long-term
performance and growth of Country Fresh and its subsidiaries, to join the
interests of employees and officers with the interests of Country Fresh
stockholders through the opportunity for increased stock ownership, and to
attract and retain employees and officers of exceptional ability. It is intended
that options to be granted to employees under the plan will not qualify as
incentive stock options as defined in Section 422A(b) of the Internal Revenue
Code of 1986, as amended (the "Code").

3. Shares Subject to Plan. A maximum of 1,000,000 shares of Common
Stock (subject to adjustment in accordance with Paragraph 12 below) may be
subject to the exercise of options granted under the Plan. Such shares shall be
authorized shares and may be either unissued or treasury shares. If an option is
canceled, surrendered, modified, exchanged for a substitute option, or expires
or terminates during the term of the Plan but prior to the exercise of the
option in full, the shares subject to but not delivered under such option shall
be available for options subsequently granted.

4. Administration by Committee. The Plan shall be administered by a
stock option committee (the "Committee"), consisting of two Board members who
are not employees of the Company. In the absence of designation of such
Committee, the Board of Directors shall act as the Committee, except that any
employee members of the Board shall have no vote as to the administration of the
Stock Option Plan. The Committee shall recommend to the Board of Directors the
persons to be granted options, the amount of stock to be optioned to each such
person, and the terms of the options to be granted. Options shall be granted by
the Company or the Committee consistent with the Plan, provided that no such
amendment may become effective without the consent of the optionee except to the
extent that such amendment operates solely to the benefit of the optionee. The
Committee shall have full power and authority to interpret the provisions of the
Plan and to supervise the administration of the Plan. The Committee shall hold
its meetings at such times and places as it shall deem advisable. Action may be
taken by a written instrument signed by all the members of the Committee, and
any action so taken shall be fully as

<PAGE> 2

effective as if it had been taken at a meeting duly called and held. The
Committee may designate one of its members to sign options on behalf of the
Committee and may appoint a secretary to keep minutes of its meetings. The
Committee shall make such rules and regulations for the conduct of its business
as it shall deem advisable. The members of the Committee shall be paid
reasonable fees for their services.

5. Indemnification of Committee Members. Each person who is or shall
have been a member of the Committee shall be indemnified and held harmless by
Country Fresh from and against any cost, liability or expense imposed or
incurred in connection with such person's or the Committee's taking or failing
to take any action under the Plan. Each such person shall be justified in
relying on information furnished in connection with the Plan's administration by
any appropriate person or persons.

6. Eligibility. Only corporate officers and other key employees of
Country Fresh or a subsidiary corporation of Country Fresh shall be eligible to
participate in the Plan. The Committee shall determine whether or not a given
individual is eligible to participate in the Plan. The term subsidiary
corporation shall, for purposes of this Plan, be define in the same manner as
such term is defined in Section 425(f) of the Code.

7. Option Price. The option price shall be the market value on the date
of grant. The date of grant of an option shall be the date as of which the
option is authorized by the Committee. Market value shall equal the price
determined by the Board of Directors from time to time.

8. Terms of Options Limits of Exercisability. Options shall be
evidenced by written agreements containing such terms and conditions, consistent
with the provisions of this Plan, as the Committee shall from time to time
determine. Options shall be exercisable for such periods as may be fixed by the
Committee, not to exceed twelve years from the grant thereof. At the time of the
exercise of an option, the option holder, if requested by the Committee, must
represent to Country Fresh that the shares are being acquired for investment and
not with a view to the distribution thereof. The Committee may in its discretion
require a participant to continue the participant's service with Country Fresh
and its subsidiaries for a certain length of time prior to the option becoming
exercisable, and may eliminate such delayed vesting provisions. The Committee
may also vary, among the participants and among options granted to the same
participant, any and all of the terms and conditions of options granted under
the Plan.

9. Medium and Time of Payment. The exercise price for each share
purchased pursuant to an option granted under the Plan shall be payable in cash
or, if the Committee consents, in shares of Common Stock. The time and terms of
payment may be amended with consent of the participant before or after exercise
of the option, but such amendment shall not reduce the option price. The
Committee may from time to time authorize payment of all or a portion of the
option price in the form of a promissory note or installments, with or without
interest or security, according to such terms as the Committee may approve. The
Board of Directors may restrict or suspend the power of the Committee to permit
such loans and may require that adequate security be provided.

<PAGE> 3

10. Transferability of Options. Options granted under this Plan may not
be transferred except by will or the laws of descent and distribution. During
the lifetime of the participant, options may be exercised only by that
participant or by his or her guardian or legal representative.

11. Termination of Employment or Officer Status. If a participant is no
longer employed by or an officer of Country Fresh or its subsidiaries for any
reason other than the participant's death, disability, or termination for cause,
the participant may exercise options granted under the Plan for a period of
three months after such termination of employment or officer status, but only to
the extent that participant was entitled to exercise the options on the date of
termination, unless the terms of such options provide otherwise. For purposes of
the Plan the following shall not be deemed a termination of employment or
officer status: (a) a transfer of an employee from Country Fresh to any
subsidiary of Country Fresh; (b) a leave of absence, duly authorized in writing
by Country Fresh, for military service or for any other purpose approved by
Country Fresh if the period of such leave does not exceed 90 days; and (c) a
leave of absence in excess of 90 days, duly authorized in writing by Country
Fresh, provided that the employee's right to reemployment is guaranteed either
by statute or contract; and (d) a termination of employment with continued
service as an officer.

If a participant ceases to be employed by or an officer of Country
Fresh or one of its subsidiaries due to the participant's disability, the
participant may exercise any option granted under the Plan during the remaining
term of the option, but only to the extent the participant was entitled to
exercise the option on the date of such event, unless the terms of such option
provide otherwise.

If a participant dies either while an employee or officer of Country
Fresh or after termination of employment or officer status other than for cause
during the time when the participant could have exercised an option under the
Plan, the option issued to such participant shall be exercisable by the personal
representative of the participant or other successor to the interest of the
participant for one year after the participant's death, to the extent that the
participant was entitled to exercise the option on the date of death or
termination of employment, whichever first occurred, unless the terms of the
option provide otherwise.

If a participant is terminated for cause, the participant shall have
no further right to exercise any option previously granted.

Nothing in the Plan or in any option shall interfere with or limit
in any way the right of Country Fresh or its subsidiaries to terminate a
participant's employment at any time, nor confer upon any participant any right
to continue in the employ of Country Fresh or any of its subsidiaries.

12. Adjustments. If the number of shares of Common Stock outstanding
changes by reason of a stock dividend, stock split, recapitalization, merger,
reorganization, consolidation, combination or exchange of shares, the aggregate
number and class of shares available under the Plan and subject to each option,
together with the option prices, shall be appropriately adjusted. No fractional
shares shall be issued pursuant to the Plan, and any fractional shares resulting
from

3
<PAGE> 4

adjustments shall be eliminated from the respective options. If Country Fresh is
acquired by another corporation, or is otherwise merged into or consolidated
with another corporation, all outstanding options shall become immediately
exercisable just prior to the effective date of the merger, combination,
consolidation or other corporate event, unless the option agreement provides
otherwise.

13. Tax Withholding. Country Fresh or a subsidiary shall make such
provisions as it shall deem appropriate for the withholding of any taxes
determined to be required to be withheld in connection with the grant or
exercise of options under the Plan.

14. Registration of Shares. Each option shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of the shares
covered thereby upon any securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such option
or the issue or purchase of shares thereunder, such option may not be exercised
in whole or in part unless and until such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Committee.

15. Effective Date of Plan. The Plan shall take effect on December 1,
1989. Unless earlier terminated by the Board of Directors, the Plan shall
terminate on December 1, 1999. No option shall be granted under the Plan after
such date.

16. Termination and Amendment. The Board of Directors may terminate the
Plan at any time, or may from time to time amend the Plan as it deems proper and
in the best interests of Country Fresh, provided that no such amendment may (i)
materially increase either the benefits to participants under the Plan or the
number of shares that may be issued under the Plan, (ii) materially modify the
eligibility requirements set forth in Paragraph 6, (iii) reduce the option price
(except pursuant to adjustments under Paragraph 12) or (iv) impair any
outstanding option without the consent of the participant, except according to
the terms of the option.

4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.19
<SEQUENCE>4
<DESCRIPTION>STOCK OPTION AGREEMENT DATED 10/13/94
<TEXT>

<PAGE> 1

EXHIBIT 10.19

OPTION NUMBER PRICE PER SHARE NUMBER OF SHARES
NQ-1 $220.00 10,500

COUNTRY FRESH, INC.

1989 STOCK OPTION PLAN

STOCK OPTION AGREEMENT

This Stock Option Agreement ("Agreement") is made as of October 13,
1994, between COUNTRY FRESH, INC., a Michigan corporation ("Country Fresh"), and
DELTON C. PARKS ("Grantee").

The Country Fresh, Inc. 1989 Stock Option Plan (the "Plan") is
administered by the Stock Option Committee (the "Committee").

The Committee has determined that Grantee is eligible to participate in
the Plan. The Committee has decided to grant stock options to Grantee, subject
to the terms and conditions contained in this Agreement and in the Plan, which
is incorporated herein by reference. In the event of any conflict between the
terms of this Agreement and the terms of the Plan, the provisions of the Plan
shall control.

Grantee acknowledges receipt of the Plan and accepts this option
subject to all of the terms, conditions and provisions of the Plan, and subject
to the following further provisions:

1. GRANT. Country Fresh grants to Grantee an option to purchase from
Country Fresh 10,500 shares of Country Fresh's Class B common stock, $20.00 par
value per share, to be issued upon exercise of this option in accordance with
the terms and conditions set forth herein. This option is not an incentive stock
option under Section 422 of the Internal Revenue Code.

2. TERM AND DELAYED VESTING. The right to exercise this option
according to its terms shall commence on the date of this Agreement, subject to
vesting provided below, and shall terminate ten (10) years after the date set
forth above, unless earlier terminated under the Plan by reason of termination
of employment. Grantee's right to exercise this option shall vest as follows:
1,500 shares on October 13, 1994, and a further 1,500 shares on October 13,
1995, October 13, 1996, October 13, 1997, October 13, 1998, October 13, 199, and
October 13, 2000. On and after October 13, 2000, this option shall be
exercisable in full for the remainder of its term. If the Grantee's employment
is terminated by reason of death or by Country Fresh other than for cause or by
Grantee for good reason, all unexercised options shall vest and be immediately
exercisable.

3. PURCHASE PRICE; PAYMENT. The purchase price shall be Two Hundred
Twenty and 00/100 Dollars ($220.00) per share, subject to adjustment as provided
herein. This purchase

<PAGE> 2

price shall apply to each portion of the option as it becomes vested and
exercisable. Grantee shall pay the purchase price in cash or, unless the
Committee revokes its Consent, in shares of Country Fresh's common stock. If
payment is made in the form of shares of common stock, such shares shall be
valued at their market value, as determined under the Plan, at the time of
delivery to Country Fresh.

4. EXERCISE OF OPTION. The vested and exercisable portion of this
option may be exercised, in whole or in part, by written notice delivered to
Country Fresh. The notice shall be effective upon receipt by Country Fresh of
the notice. The notice shall set forth the number of shares to be purchased and
shall indicate Grantee's wishes with respect to a reasonable time and place for
delivery of certificates for such shares. Upon payment of the purchase price and
any required withholding amount, Country Fresh shall deliver to Grantee a
certificate or certificates for such shares out of theretofore unissued shares
or reacquired shares of its common stock, as it may elect; provided, however,
that the time of such delivery shall be postponed for such period as may be
required for Country Fresh with reasonable diligence to comply with any law or
regulation applicable to the issuance or transfer of such shares. If Grantee
fails to accept delivery of and pay for all or any part of the number of shares
specified in the notice upon tender of delivery by Country Fresh, Grantee's
right to exercise the option with respect to such undelivered shares shall
thereupon terminate. In such event, Grantee's remaining options not yet
exercised or terminated shall continue in force. Unless waived by Country Fresh,
the exercise of this option shall be conditioned on an effective buy and sell
agreement covering the shares to be received on exercise of the option.

5. TERMINATION OF EMPLOYMENT OR COMPETITION. If Grantee's employment is
terminated for cause or if Grantee terminates his employment without good reason
or if he directly or indirectly competes with Country Fresh in any line of
business, none of the unexercised stock options outstanding shall be
exercisable. If Grantee's employment is terminated by the Board of Directors for
any other reason, including death or disability, Grantee's options shall be
immediately exercisable, and shall continue for their original term, subject to
termination in the event of competition as provided above.

For purposes of this Agreement: Grantee may terminate his employment
for "good reason" if he is assigned duties substantially inconsistent with his
office, his salary, bonus or other benefits are reduced or curtailed in any
material respect, the executive offices of Country Fresh are relocated outside
Kent County, Michigan, Country Fresh fails to obtain the agreement of any
successor to assume and perform this Agreement and any related employment
agreement with Grantee, or Country Fresh fails to fulfill any of its material
obligations under any such employment agreement after notice and a reasonable
opportunity to cure. "Disability" as used herein means the inability to fulfill
the duties assigned to Grantee for a period of nine consecutive months by reason
of illness or other similar incapacity.

6. ADJUSTMENT PROVISIONS. If the number of outstanding shares of common
stock of Country Fresh changes by reason of a stock dividend, stock split,
recapitalization, merger, consolidation, split-up, combination or exchange of
shares, the aggregate number and class of shares available under this Option
Agreement and subject to each option, together with the

<PAGE> 3

exercise price, shall be appropriately adjusted by the Committee, but any
fractional shares resulting from such adjustment shall be eliminated with
appropriate compensation to Grantee.

7. SHARES RESERVED. Country Fresh shall, at all times during the term
of this Agreement, reserve and keep available sufficient shares to satisfy the
requirements of this Agreement, and shall pay all fees and expenses incurred by
Country Fresh in connection therewith.

8. NON-TRANSFERABILITY OF OPTION AND SHARES. This option may not be
transferred or encumbered in whole or in part, except by will or the laws of
descent or distribution. If any assignment, pledge, or transfer of this option
shall be made or attempted, or if any attachment, execution, garnishment, or
lien shall be issued against or placed upon the same, this option shall be void
and of no further effect. The shares received shall not be sold until March 1,
2001, except for sales to cover tax liabilities, sales as a part of the
acquisition of Country Fresh as a going concern, and sales to Country Fresh as
permitted under the buy and sell agreement referenced above.

9. SHAREHOLDER RIGHTS. Grantee shall have no rights as a shareholder
with respect to any shares covered by this option until the issuance of a stock
certificate to him for such shares.

10. EMPLOYMENT. The grant of this option shall not impose upon Country
Fresh or any subsidiary any obligation to retain Grantee in its employ for any
given period or upon any specific terms of employment.

11. TAX WITHHOLDING. Grantee agrees to make provisions acceptable to
Country Fresh to satisfy any tax withholding obligations that arise in
connection with the grant or exercise of this option, including withholding of
shares to be received or exercise of the option.

12. BINDING EFFECT; AMENDMENT. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
heirs, successors and permitted assigns. This Agreement shall not be modified
except in a writing executed by the parties hereto.

This option has been issued by Country Fresh by authority of
its Stock Option Committee.

<PAGE> 4

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.

COUNTRY FRESH, INC.

By: /s/ RONALD A. DEYOUNG
----------------------------------
Ronald A. DeYoung
Chairman of the Board
"Company"

/s/ DELTON C. PARKS
--------------------------------------
Delton C. Parks
"Grantee"

4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.34
<SEQUENCE>5
<DESCRIPTION>CREDIT AGREEMENT DATED 11/26/97
<TEXT>

<PAGE> 1

EXHIBIT 10.34

================================================================================

SUIZA FOODS CORPORATION

------------------------------

CREDIT AGREEMENT

$1,250,000,000 Credit Facility

Dated as of November 26, 1997

------------------------------

FIRST UNION NATIONAL BANK,
as Administrative Agent

THE FIRST NATIONAL BANK OF CHICAGO,
as Syndication Agent

================================================================================

<PAGE> 2
TABLE OF CONTENTS

This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience of reference only.

<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
1.03 Classes and Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

SECTION 2. COMMITMENTS, LOANS, NOTES AND PREPAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.01 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.02 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.03 Changes of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.04 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.05 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.06 Several Obligations; Remedies Independent . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.07 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.08 Optional Prepayments and Conversions or Continuations of Loans . . . . . . . . . . . . . . . . 24
2.09 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3.01 Repayment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.02 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

SECTION 4. PAYMENTS; PRO RATA TREATMENT; COMPUTATIONS; ETC. . . . . . . . . . . . . . . . . . . . . . . . 31

4.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.02 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.03 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.04 Minimum Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.05 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.06 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.07 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

SECTION 5. YIELD PROTECTION, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.01 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.02 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.03 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>

i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.04 Treatment of Affected Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.05 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.06 Net Payments; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.07 Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.08 Additional Costs in Respect of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

6.01 Conditions to Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.02 Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.03 Conditions to all Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

SECTION 7. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

7.01 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.05 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.07 Use of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.08 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.10 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.11 Public Utility Holding Company act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.12 Material Agreements and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.14 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.15 Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.16 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.17 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.18 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

SECTION 8. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

8.01 Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.03 Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.04 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
8.05 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.06 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.07 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.08 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.09 Intentionally Left Blank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.10 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C> <C>
8.11 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.12 Fixed Charges Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.13 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.14 Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.15 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.17 Certain Obligations Respecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.18 Modifications of Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

SECTION 9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

SECTION 10. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

10.01 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.02 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
10.03 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.04 Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.06 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.07 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.08 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
10.09 Agency Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.10 Consents under Other Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
10.11 Syndication Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

SECTION 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

11.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.03 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
11.04 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
11.06 Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
11.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
11.10 Governing Law; Submission to Jurisdiction;
Service of Process and Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.12 Treatment of Certain Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>

iii
<PAGE> 5
<TABLE>
<S> <C>
SCHEDULE I - Existing Material Agreements and Liens
SCHEDULE II - Environmental Matters
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - Litigation

EXHIBIT A-1 - Form of Facility A Note
EXHIBIT A-2 - Form of Facility B Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C - Form of Subsidiary Guarantee and Security
Agreement and Supplemental Subsidiary
Guarantee and Security Agreement
EXHIBIT D - Form of Opinion of Counsel to the Obligors
EXHIBIT E - Form of Opinion of Puerto Rico Counsel to the
Obligors
EXHIBIT F - Form of Opinion of Special New York Counsel
to First Union
EXHIBIT G - Form of Confidentiality Agreement
EXHIBIT H - Form of Assignment and Acceptance
EXHIBIT I-1 - Form of Notice of Borrowing
EXHIBIT I-2 - Form of Notice of Prepayment
EXHIBIT I-3 - Form of Notice of Conversion/Continuation
EXHIBIT I-4 - Form of Notice of Account Designation
</TABLE>

iv
<PAGE> 6
CREDIT AGREEMENT dated as of November 26, 1997 between: SUIZA
FOODS CORPORATION, a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the lenders that is a
signatory hereto identified under the caption "LENDERS" on the signature pages
hereto or that, pursuant to Section 11.06(b) hereof, shall become a "Lender"
hereunder (individually, a "Lender" and, collectively, the "Lenders"); and
FIRST UNION NATIONAL BANK, a national banking association, as administrative
agent for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent").

WHEREAS, the Company has requested that the Lenders provide to
the Company a revolving credit facility of up to but not exceeding $700,000,000
in aggregate principal amount at any one time outstanding and a term loan
facility of up to $550,000,000 in aggregate principal amount in order to
refinance indebtedness under the Existing Credit Agreements (as hereinafter
defined), to finance acquisitions and for general corporate purposes, and the
Lenders are willing to provide such revolving credit and term loan facilities
on the terms and conditions of this Agreement.

WHEREAS, each of the Obligors (as hereinafter defined) expects to
derive benefit, directly or indirectly, from the credit facilities so made
available to the Company, both in its separate capacity and as a member of the
integrated group, since the successful operation of each of the Company and its
Subsidiaries is dependent on the continued successful performance of the
functions of the integrated group as a whole.

Accordingly, the parties hereto hereby agree as follows:

Section 1. Definitions and Accounting Matters.

1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Agreement in the singular to have the same
meanings when used in the plural and vice versa):

"Affiliate" shall mean any Person that directly or indirectly
controls, or is under common control with, or is controlled by, the Company
and, if such Person is an individual, any member of the immediate family
(including parents, spouse, children and siblings) of such individual and any
trust whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction
of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person that owns directly or indirectly securities
having 10% or more of the voting power for the election of directors or other
governing body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of
such other Person) will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely
by reason of his or her being a director, officer or employee

Credit Agreement 1
<PAGE> 7
of the Company or any of its Subsidiaries and (b) none of the Wholly Owned
Subsidiaries of the Company, nor Franklin Plastics, Inc., a Delaware
corporation, nor any of its Wholly-Owned Subsidiaries shall be Affiliates.

"Applicable Commitment Fee Rate" shall mean 0.20% per annum;
provided that if the Leverage Ratio as at the last day of any fiscal quarter of
the Company ending on or after the Effective Date shall fall within any of the
ranges set forth below then, upon the delivery to the Agent of a certificate of
a Responsible Financial Officer of the Company (which shall accompany the
financial statements for such fiscal quarter delivered under Section 8.01(a)
hereof on which the calculation of such Leverage Ratio is based) demonstrating
such fact prior to the end of the next succeeding fiscal quarter, the
"Applicable Commitment Fee Rate" shall be adjusted upwards or downwards, as the
case may be, to the rate per annum set forth below opposite such range during
the period commencing on the third Business Day following the date of receipt
of such certificate to but not including the date the next such certificate to
be delivered under this definition is delivered or due, whichever is earlier
(except that, notwithstanding the foregoing, the Applicable Commitment Fee Rate
shall not as a consequence of this proviso be so reduced for any period during
which an Event of Default shall have occurred and be continuing):

<TABLE>
<CAPTION>
Range Applicable Commitment Fee Rate
of ------------------------------
Leverage Ratio
--------------

<S> <C>
Less than or equal to 2.50:1 0.15%

Greater than 2.50:1 but less
than or equal to 3.50:1 0.20%

Greater than 3.50:1 0.25%
</TABLE>

; provided that in the event that there is an Equity Issuance by the Company
resulting in Net Available Proceeds to the Company of at least $50,000,000, and
the Company provides the Agent with written notice of such Equity Issuance and
applies all or part of the Net Available Proceeds thereof to the prepayment of
the Facility B Loans, the Applicable Commitment Fee Rate shall upon such
application be immediately adjusted to give effect to the change in the
Leverage Ratio resulting from such application.

"Applicable Lending Office" shall mean, for each Lender and for
each Type of Loan, the "Lending Office" of such Lender (or of an affiliate of
such Lender) designated for such Type of Loan on the signature pages hereof or
such other office of such Lender (or of an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Company as the office
by which its Loans of such Type are to be made and maintained.

"Applicable Margin" shall mean: with respect to Loans that are
Base Rate Loans, 0% and/or Eurodollar Loans, 0.75% per annum; provided that if
the Leverage Ratio as at the last day of any fiscal quarter of the Company
ending on or after the Effective Date shall fall within any

Credit Agreement 2
<PAGE> 8
of the ranges set forth below then, upon the delivery to the Agent of a
certificate of a Responsible Financial Officer of the Company (which shall
accompany the financial statements for such fiscal quarter delivered under
Section 8.01(a) hereof on which the calculation of such Leverage Ratio is
based) demonstrating such fact prior to the end of the next succeeding fiscal
quarter, the "Applicable Margin" for each Loan shall be adjusted upwards or
downwards, as the case may be, to the rate per annum for the respective Type
and Class of Loan set forth below opposite such range during the period
commencing on the third Business Day following the date of receipt of such
certificate to but not including the date the next succeeding such certificate
to be delivered hereunder is delivered or due, whichever is earlier (except
that, notwithstanding the foregoing, the Applicable Margin for any such Loan
shall not as a consequence of this proviso be so reduced for any period during
which an Event of Default shall have occurred and be continuing):

<TABLE>
<CAPTION>
Range Applicable Margin (% p.a.)
of --------------------------
Leverage Ratio Base Rate Loans Eurodollar Loans
-------------- --------------- ----------------

<S> <C> <C>
Less than or equal to 2.0:1 0% 0.40%

Greater than 2.0:1 but less
than or equal to 2.50:1 0% 0.50%

Greater than 2.50:1 but less
than or equal to 3.00:1 0% 0.625%

Greater than 3.00:1 but less
than or equal to 3.50:1 0% 0.75%

Greater than 3.50:1 0% 1.00%
</TABLE>

; provided that in the event that there is an Equity Issuance by the Company
resulting in Net Available Proceeds to the Company of at least $50,000,000, and
the Company provides the Agent with the written notice of such Equity Issuance
and applies all or part of the Net Available Proceeds thereof to the prepayment
of the Facility B Loans, the Applicable Margin shall upon such application be
immediately adjusted to give effect to the change in the Leverage Ratio
resulting from such application.

"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978,
as amended from time to time.

"Base Rate" shall mean, for any day, a rate per annum equal to
the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b)
the Prime Rate for such day. Each change in any interest rate provided for
herein based upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.

Credit Agreement 3
<PAGE> 9
"Base Rate Loans" shall mean Loans that bear interest at rates
based upon the Base Rate.

"Basic Documents" shall mean, collectively, the Loan Documents
and the Purchase Agreements.

"Business Day" shall mean any day on which (a) commercial banks
are not authorized or required to close in North Carolina and (b) if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a
notice by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, any day on which dealings in Dollar deposits are
carried out in the London interbank market.

"Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capital Lease
Obligations incurred during such period) made by the Company or any of its
Subsidiaries to acquire or construct fixed assets, plant and equipment
(including renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.

"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

"Class" shall have the meaning assigned to such term in Section
1.03 hereof.

"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.

"Collateral Account" shall mean with respect to the Company and
any of its Subsidiaries, the Collateral Account as defined in the Security
Agreement.

"Commission" shall mean the Securities and Exchange Commission or
any governmental agency substituted therefor.

"Commitments" shall mean the Facility A Commitments and the
Facility B Commitments.

"Commonwealth" shall mean the Commonwealth of Puerto Rico and its
political subdivisions, municipalities, agencies and instrumentalities.

"Company" shall have the meaning assigned to such term in the
preamble of this Agreement.

Credit Agreement 4
<PAGE> 10
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan from one
Interest Period to the next Interest Period.

"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 2.08 hereof of one Type of Loans into another
Type of Loans, which may be accompanied by the transfer by a Lender (at its
sole discretion) of a Loan from one Applicable Lending Office to another.

"Country Fresh" shall mean Country Fresh, Inc., a Michigan
corporation.

"Country Fresh Merger" shall mean the merger of CF Acquisition
Corp., a Michigan corporation and a Wholly Owned Subsidiary of the Company with
and into Country Fresh pursuant to which the issued and outstanding shares of
common stock of Country Fresh will be converted into the right to receive
shares of the common stock of the Company and the issued and outstanding shares
of preferred stock of Country Fresh will be converted into the right to receive
shares of the preferred stock of the Company, and Country Fresh will become a
Wholly Owned Subsidiary of the Company.

"Dairy Fresh" shall mean Dairy Fresh, Inc., a Delaware
corporation and a Wholly Owned Subsidiary of the Company.

"Debt Service" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all payments of
principal of Indebtedness (including, without limitation, the principal
component of any payments in respect of Capital Lease Obligations) scheduled to
be made during such period plus (b) all Interest Expense for such period, it
being understood that, if any installment of principal of the Facility B Loans
shall have been prepaid during or prior to such period, the amount of principal
of the Facility B Loans included in Debt Service for such period shall be equal
to the aggregate amount of principal of the Facility B Loans originally
scheduled to be paid hereunder during such period.

"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.

"Disposition" shall mean any sale, assignment, transfer or other
disposition of any Property (whether now owned or hereafter acquired) by the
Company or any of its Subsidiaries to any other Person, excluding any sale,
assignment, transfer or other disposition of any Property sold or disposed of
in the ordinary course of business and on ordinary business terms.

"Dividend Payment" shall mean dividends (in cash, Property or
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same

Credit Agreement 5
<PAGE> 11
(or to make any payments to any Person, such as "phantom stock" payments, where
the amount thereof is calculated with reference to the fair market or equity
value of the Company or any of its Subsidiaries), but excluding dividends
payable solely in shares of common stock of the Company.

"Dollars" and "$" shall mean lawful money of the United States.

"EBITDA" shall mean, for any period, the sum, for the Company and
its Subsidiaries (determined on a consolidated basis without duplication in
accordance with GAAP), of the following: (a) operating income (calculated
before income taxes, Interest Expense, extraordinary and unusual items and
income or loss attributable to equity in Affiliates) for such period plus (b)
depreciation and amortization (to the extent deducted in determining operating
income) for such period plus (c) other income not exceeding $5,000,000 for such
period.

"Effective Date" shall mean the date on which all of the
conditions to effectiveness of this Agreement set forth in Section 6.01 hereof
shall have been satisfied or waived.

"Environmental Claim" shall mean, with respect to any Person, any
written or oral notice, claim, demand or other communication (collectively, a
"claim") by any other Person alleging or asserting such Person's liability for
investigatory costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or penalties
arising out of, based on or resulting from (a) the presence, or Release into
the environment, of any Hazardous Material at any location, whether or not
owned by such Person, or (b) circumstances forming the basis of any violation,
or alleged violation, of any Environmental Law. The term "Environmental Claim"
shall include, without limitation, any claim by any governmental authority for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from the presence of Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.

"Environmental Laws" shall mean any and all present and future
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.

"Equity Issuance" shall mean (a) any issuance or sale by the
Company or any of its Subsidiaries after the Effective Date of (i) any capital
stock, (ii) any warrants or options exercisable in respect of capital stock
(other than any warrants or options issued to directors, officers or employees
of the Company or any of its Subsidiaries, pursuant to employee benefit plans
established in the ordinary course of business and any capital stock of the
Company or any

Credit Agreement 6
<PAGE> 12
of its Subsidiaries issued upon the exercise of such warrants or options) or
(iii) any other security or instrument representing an equity interest (or the
right to obtain any equity interest) in the Company or any of its Subsidiaries
or (b) the receipt by the Company or any of its Subsidiaries whether directly
(or indirectly through one or more of its Subsidiaries) after the Effective
Date of any capital contribution (whether or not evidenced by any equity
security issued by the recipient of such contribution); provided that Equity
Issuance shall not include (x) any such issuance or sale by any Subsidiary of
the Company to the Company or any Wholly Owned Subsidiary of the Company or (y)
any capital contribution by the Company or any Wholly Owned Subsidiary of the
Company to any Subsidiary of the Company.

"Equity Rights" shall mean, with respect to any Person, any
subscriptions, options, warrants, commitments, preemptive rights or agreements
of any kind (including, without limitation, any stockholders' or voting trust
agreements) for the issuance, sale, registration or voting of, or securities
convertible into, any additional shares of capital stock of any class, or
partnership or other ownership interests of any type in, such Person.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.

"ERISA Affiliate" shall mean any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which the Company is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which the Company is a member.

"Eurodollar Base Rate" shall mean, with respect to any Eurodollar
Loan for any Interest Period therefor, the rate per annum for deposits in
Dollars for a period comparable to such Interest Period which appears on
display page 3750 (British Bankers Association - LIBOR) of the Dow Jones
Markets Service as of 11:00 a.m. London time two Business Days preceding the
first day of such Interest Period or, if such display page 3750 is unavailable
at such time, the rate which appears on the Reuters Screen ISDA Page as of such
date and time; provided, however, that if the Agent determines that the
relevant foregoing source is unavailable for the relevant Interest Period,
Eurodollar Base Rate shall mean the rate of interest determined by the Agent to
be the average (rounded upward, if necessary, to the nearest 1/100th of 1%) of
the rates per annum at which deposits in Dollars in immediately available funds
are offered to the Agent or other money center banks two Business Days
preceding the first day of such Interest Period by leading banks in the London
interbank market as of 11:00 a.m. London time for delivery on the first day of
such Interest Period, for the number of days comprised therein and in an amount
comparable to the amount of the relevant Loan.

"Eurodollar Loans" shall mean Loans that bear interest at rates
based on rates referred to in the definition of "Eurodollar Base Rate" in this
Section 1.01.

Credit Agreement 7
<PAGE> 13
"Eurodollar Rate" shall mean, for any Eurodollar Loan for any
Interest Period therefor, a rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) determined by the Agent to be equal to the Eurodollar
Base Rate for such Loan for such Interest Period divided by 1 minus the Reserve
Requirement (if any) for such Loan for such Interest Period.

"Event of Default" shall have the meaning assigned to such term
in Section 9 hereof.

"Excluded Disposition" shall mean the Disposition of (i) an
Investment Tax Credit or (ii) any motor vehicles or other equipment no longer
used or useful in the business of the Company or any of its Subsidiaries to the
extent the proceeds thereof are used to acquire similar replacement Property.

"Existing Credit Agreements" shall mean, collectively, (i) the
Third Amended and Restated Credit Agreement dated as of July 31, 1997 (the
"Third Restated Agreement") between the Company, certain lenders named therein
and First Union as agent, and (ii) the Second Amended and Restated Supplemental
Credit Agreement dated as of July 31, 1997 (the "Restated Supplemental
Agreement") between the Company, certain lenders named therein and First Union
as agent.

"Facility A Commitment" shall mean, for each Facility A Lender,
the obligation of such Lender to make Facility A Loans to the Company in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount set opposite the name of such Lender on the signature pages hereof
under the caption "Facility A Commitment" (as the same may be reduced from time
to time pursuant to Section 2.03 hereof). The original aggregate principal
amount of the Facility A Commitments is $700,000,000.

"Facility A Commitment Percentage" shall mean, with respect to
any Facility A Lender, the ratio of (a) the amount of the Facility A Commitment
of such Lender to (b) the aggregate amount of the Facility A Commitments of all
of the Facility A Lenders.

"Facility A Lenders" shall mean the Lenders having Facility A
Commitments and/or holding Facility A Loans from time to time.

"Facility A Loans" shall mean the loans provided for by Section
2.01(a)(i) hereof, which may be Base Rate Loans and/or Eurodollar Loans.

"Facility A Notes" shall mean the promissory notes provided for
by Section 2.07(a) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.

"Facility B Commitment" shall mean, for each Facility B Lender,
the obligation of such Lender to make a Facility B Loan to the Company in a
principal amount up to but not exceeding the amount set opposite the name of
such Lender on the signature pages hereof under

Credit Agreement 8
<PAGE> 14
the caption "Facility B Commitment" (as the same may be reduced from time to
time pursuant to Section 2.03 hereof). The original aggregate principal amount
of the Facility B Commitments is $550,000,000.

"Facility B Commitment Percentage" shall mean, with respect to
any Facility B Lender, the ratio of (a) the amount of the Facility B Commitment
of such Lender to (b) the aggregate amount of the Facility B Commitments of all
of the Facility B Lenders.

"Facility B Lenders" shall mean the Lenders having Facility B
Commitments and/or holding Facility B Loans from time to time.

"Facility B Loans" shall mean the loans provided for by Section
2.01(b) hereof, which may be Base Rate Loans and/or Eurodollar Loans.

"Facility B Notes" shall mean the promissory notes provided for
by Section 2.07(b) hereof and all promissory notes delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time. The term "Facility B Notes" shall include any
Registered Notes evidencing Facility B Loans executed and delivered pursuant to
Section 2.07(e).

"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is
to be determined is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to First Union on such Business Day on such
transactions as determined by the Agent.

"First Union" shall mean First Union National Bank.

"Fixed Charges" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) the aggregate
amount of Debt Service for such period, plus (b) the aggregate amount of taxes
paid in respect of the income or profit of the Company and its Subsidiaries for
such period, plus (c) Capital Expenditures made during such period, plus (d)
any Dividend Payments made for such period; provided that Capital Expenditures
shall not include the following: (i) the acquisition of replacement Property
in respect of an Excluded Disposition, (ii) the purchase price paid by the
Company or any of its Subsidiaries in respect of any acquisition permitted
under Section 8.05(b)(iii) hereof, and (iii) Capital Expenditures made with the
proceeds of property or casualty insurance for the purposes of repairing or
replacing damaged or destroyed fixed or capital assets.

Credit Agreement 9
<PAGE> 15
"Fixed Charges Ratio" shall mean, as at any date, the ratio of
(a) EBITDA for the period of four consecutive fiscal quarters ending on or most
recently ended prior to such date to (b) Fixed Charges for such period.

"GAAP" shall mean generally accepted accounting principles
applied on a basis consistent with those that, in accordance with the last
sentence of Section 1.02(a) hereof, are to be used in making the calculations
for purposes of determining compliance with this Agreement.

"Garrido" shall mean Garrido y Compania, Inc., a Puerto Rico
corporation.

"Guarantee" shall mean a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb
shall have a correlative meaning.

"Hazardous Material" shall mean, collectively, (a) any petroleum
or petroleum products, flammable materials, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, and transformers or other
equipment that contain polychlorinated biphenyls ("PCB's"), (b) any chemicals
or other materials or substances that are now or hereafter become defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants"
or words of similar import under any Environmental Law and (c) any other
chemical or other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated under any Environmental Law.

"Indebtedness" shall mean, for any Person: (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable within 120 days of the date the respective
goods are delivered or the respective services are rendered; (c) Indebtedness
of others secured by a Lien on the Property of such Person, whether or not the
respective indebtedness so secured has been assumed by such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person; and (f)
Indebtedness of others Guaranteed by such Person.

Credit Agreement 10
<PAGE> 16
"Interest Coverage Ratio" shall mean, as at any date, the ratio
of (a) EBITDA for a period of four consecutive fiscal quarters ending on, or
most recently ended prior to, such date to (b) Interest Expense for such
period.

"Interest Expense" shall mean, for any period, the sum, for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication in accordance with GAAP), of the following: (a) all interest in
respect of Indebtedness (including, without limitation, the interest component
of any payments in respect of Capital Lease Obligations, but excluding
amortization of any deferred loan costs incurred in connection with the
transactions contemplated hereby and in connection with Indebtedness permitted
under Section 8.07 hereof) capitalized or expensed during such period (whether
or not actually paid during such period), but excluding any non-cash interest,
plus (b) the net amount payable (or minus the net amount receivable) under
Interest Rate Protection Agreements during such period (whether or not actually
paid or received during such period) minus (c) all interest income for such
period.

"Interest Period" shall mean with respect to any Eurodollar Loan,
each period commencing on the date such Eurodollar Loan is made or Converted
from a Base Rate Loan or the last day of the next preceding Interest Period for
such Loan and ending on the numerically corresponding day in the first, second,
third or sixth calendar month thereafter, as the Company may select as provided
in Section 4.05 hereof, except that each Interest Period for a Eurodollar Loan
that commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest
Period for any Facility A Loan would otherwise end after the Revolving Credit
Commitment Termination Date, such Interest Period shall end on the Revolving
Credit Commitment Termination Date; (ii) no Interest Period for any Facility B
Loan may commence before and end after any Principal Payment Date for such
Facility B Loan unless, after giving effect thereto, the aggregate principal
amount of the Facility B Loans having Interest Periods that end after such
Principal Payment Date shall be equal to or less than the aggregate principal
amount of such Facility B Loans scheduled to be outstanding after giving effect
to the payments of principal required to be made on such Principal Payment
Date; (iii) each Interest Period that would otherwise end on a day that is not
a Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the
next preceding Business Day); and (iv) notwithstanding clauses (i) through
(iii) above, no Interest Period shall have a duration of less than one month
for any Eurodollar Loan and, if the Interest Period for any such Loan would
otherwise be a shorter period, such Loan shall not be available as a Eurodollar
Loan hereunder for such period.

"Interest Rate Protection Agreement" shall mean, for any Person,
an interest rate swap, cap or collar agreement or similar arrangement between
such Person and one or more financial institutions providing for the transfer
or mitigation of interest risks either generally or under specific
contingencies.

Credit Agreement 11
<PAGE> 17
"Interest Rate Protection Obligations" shall mean the obligations
of any Obligor in respect of Interest Rate Protection Agreements permitted
under Section 8.08(d) hereof.

"Investment" shall mean, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of capital
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any sale of any
securities at a time when such securities are not owned by the Person entering
into such sale, but excluding any notes or other securities taken in
satisfaction of or in compromise of delinquent accounts or loans or advances);
(b) the making of any deposit with, or advance, loan or other extension of
credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person), but excluding any such advance, loan or
extension of credit having a term not exceeding 90 days representing the
purchase price of inventory or supplies sold by such Person in the ordinary
course of business); (c) the entering into of any Guarantee of, or other
contingent obligation with respect to, Indebtedness or other liability of any
other Person and (without duplication) any amount committed to be advanced,
lent or extended to such Person; or (d) the entering into of any Interest Rate
Protection Agreement.

"Investment Tax Credit" shall mean an investment tax credit to
which the Company or any of its Subsidiaries may be entitled pursuant to the
Puerto Rico Agricultural Tax Incentives Act of 1995.

"Issuing Bank" shall mean First Union, as the issuer of Letters
of Credit under Section 2.09 hereof, together with its successors and assigns
in such capacity.

"Letter of Credit" shall have the meaning assigned to such term
in the first sentence of Section 2.09 hereof.

"Letter of Credit Documents" shall mean, with respect to any
Letter of Credit, collectively, any application therefor and any other
agreements, instruments, guarantees or other documents (whether general in
application or applicable only to such Letter of Credit) governing or providing
for (a) the rights and obligations of the parties concerned or at risk with
respect to such Letter of Credit or (b) any collateral security for any of such
obligations, each as the same shall be modified and supplemented and in effect
from time to time.

"Letter of Credit Interest" shall mean, for each Facility A
Lender, such Facility A Lender's participation interest in the Issuing Bank's
liability under Letters of Credit (or, in the case of the Issuing Bank, the
Issuing Bank's retained interest therein) and such Facility A Lender's rights
and interests in Reimbursement Obligations and fees, interest and other amounts
payable in connection with Letters of Credit and Reimbursement Obligations.

"Letter of Credit Liability" shall mean, without duplication, at
any time and in respect of any Letter of Credit, the sum of (a) the undrawn
face amount of such Letter of Credit plus (b) the aggregate unpaid principal
amount of all Reimbursement Obligations of the Company

Credit Agreement 12
<PAGE> 18
at such time due and payable in respect of all drawings made under such Letter
of Credit. For purposes of this Agreement, a Facility A Lender (other than the
Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount
equal to its participation interest in the related Letter of Credit under
Section 2.09 hereof, and the Issuing Bank shall be deemed to hold a Letter of
Credit Liability in an amount equal to its retained interest in such Letter of
Credit after giving effect to the acquisition by the Facility A Lenders other
than the Issuing Bank of their participation interests under said Section 2.09,
together with its successors and assigns in such capacity.

"Leverage Ratio" shall mean, as at any date, the ratio of (a) the
aggregate outstanding principal amount of Indebtedness of the Company and its
Subsidiaries, on a consolidated basis, at such date to (b) EBITDA for the
period of four consecutive fiscal quarters ending on, or most recently ended
prior to, such date; provided that if the Company or any of its Subsidiaries
shall have acquired any business, Property or Person during such period
(whether before, on or after the Effective Date), EBITDA shall, to the extent
the Company shall have delivered audited financial statements (or, if audited
financial statements are not available to the Company, unaudited financial
statements (i) reviewed by independent certified accountants of recognized
national standing and acceptable to the Agent and (ii) in form satisfactory to
the Agent) for the acquired business, Property or Person for such period, be
adjusted to reflect on a pro forma basis EBITDA for such business, Property or
Person as if such business, Property or Person had been acquired at the
beginning of such period.

"Lien" shall mean, with respect to any Property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such Property. For purposes of this Agreement and the other Loan Documents,
a Person shall be deemed to own, subject to a Lien, any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.

"Loans" shall mean the Facility A Loans and the Facility B Loans.

"Loan Documents" shall mean, collectively, this Agreement, the
Notes, the Letter of Credit Documents and the Security Documents.

"Majority Lenders" shall mean, as at any time, Facility A Lenders
and Facility B Lenders having at least a majority of the sum of (a) the
aggregate unused amount, if any, of the Facility A Commitments and the Facility
B Commitments as at such time plus (b) the aggregate outstanding principal
amount of the Facility A Loans and Facility B Loans at such time plus (c) the
aggregate amount of all Letter of Credit Liabilities at such time.

"Margin Stock" shall mean "margin stock" within the meaning of
Regulations U and X.

"Material Adverse Effect" shall mean a material adverse effect on
(a) the Property, business, operations, financial condition, prospects,
liabilities or capitalization of the Company

Credit Agreement 13
<PAGE> 19
and its Subsidiaries taken as a whole, (b) the ability of any Obligor to
perform its obligations under any of the Loan Documents to which it is a party,
(c) the validity or enforceability of any of the Loan Documents, (d) the rights
and remedies of the Lenders and the Agent under any of the Loan Documents or
(e) the timely payment of the principal of or interest on the Loans or the
Reimbursement Obligations or other amounts payable in connection therewith or
under the Loan Documents.

"Model Dairy" shall mean Model Dairy, Inc., a Delaware
corporation.

"Morningstar" shall mean The Morningstar Group, Inc., a Delaware
corporation.

"Morningstar Merger" shall mean the merger of SF Acquisition
Corporation, a Delaware corporation and a Wholly Owned Subsidiary of the
Company with and into Morningstar pursuant to which the issued and outstanding
shares of common stock of Morningstar will be converted into the right to
receive shares of the common stock of the Company and Morningstar will become a
Wholly Owned Subsidiary of the Company.

"Multiemployer Plan" shall mean a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by the
Company or any ERISA Affiliate and that is covered by Title IV of ERISA.

"Net Available Proceeds" shall mean, in the case of any Equity
Issuance, the aggregate amount of all cash received by the Company and its
Subsidiaries in respect of such Equity Issuance net of reasonable expenses
incurred by the Company and its Subsidiaries in connection therewith.

"Net Cash Payments" shall mean, with respect to any Disposition,
the aggregate amount of all cash payments, and the fair market value of any
non-cash consideration, received by the Company and its Subsidiaries directly
or indirectly in connection with such Disposition; provided that (a) Net Cash
Payments shall be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the Company and its
Subsidiaries in connection with such Disposition and (ii) any Federal, state
and local income or other taxes estimated to be payable by the Company and its
Subsidiaries as a result of such Disposition (but only to the extent that such
estimated taxes are in fact paid to the relevant Federal, state or local
governmental authority within six months of the date of such Disposition) and
(b) Net Cash Payments shall be net of any repayments by the Company or any of
its Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is
secured by a Lien on the Property that is the subject of such Disposition and
(ii) the transferee of (or holder of a Lien on) such Property requires that
such Indebtedness be repaid as a condition to the Disposition thereof.

"Net Purchase Price" shall mean 100% of the purchase price
(including noncash compensation) paid by the Company or any of its Subsidiaries
for any business, Property or Person in connection with a Permitted Acquisition
minus any cash on the balance sheet of the Person or included in the business
or Property being acquired pursuant to such Permitted Acquisition.

Credit Agreement 14
<PAGE> 20
"Net Worth" shall mean, as at any date, the sum for the Company
and its Subsidiaries (determined on a consolidated basis without duplication)
of (a) the amount of capital stock plus (b) the amount of additional paid-in
capital plus (c) the amount of retained earnings (or, in the case of any
retained earnings deficit, minus the amount of such deficit).

"Neva Plastics" shall mean Neva Plastics Manufacturing Corp., a
Delaware corporation.

"Notes" shall mean the Facility A Notes and the Facility B Notes.

"Obligor" shall mean the Company and each Subsidiary of the
Company party to any Security Document.

"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

"Permitted Acquisition" shall mean any acquisition by the Company
or any of its Subsidiaries of any business or Property from, or capital stock
of, any Person, provided that, (i) unless otherwise consented to in writing (a)
by the Majority Lenders, the Net Purchase Price of such acquisition shall not
equal or exceed $50,000,000, and (b) by the Supermajority Lenders, the Net
Purchase Price of such acquisition shall not equal or exceed $150,000,000
(except that the Country Fresh Merger and the Morningstar Merger shall not
require the consents set forth in sub-clauses (a) and (b) of this clause (i));
(ii) if the subject of such acquisition is a Person, the Company and/or its
Subsidiaries shall not acquire less than 90% of the issued and outstanding
ownership interests (including, without limitation, warrants, options or other
securities convertible into ownership interests) in such Person, (iii) if the
Net Purchase Price of such acquisition exceeds $15,000,000, prior to such
acquisition, the Company shall have delivered to the Agent for further
distribution to the Lenders copies of the proposed acquisition agreement
relating to such acquisition, all material documents related thereto and at the
reasonable request of the Agent, such other material information respecting
such business, Property or Person, as the case may be, obtained by the Company
in the exercise of its due diligence, (iv) at the time of such acquisition, the
Company or its Subsidiary, as the case may be, shall pledge any ownership
interests acquired to the Agent for the benefit of the Lenders, (v) such
business, Property or Persons shall be in the same line or lines of business
currently engaged in by the Company or any of its Subsidiaries, or as permitted
by Section 8.14 hereof, and (vi) on a pro forma basis, after giving effect to
such acquisition, the Company shall be in compliance with Sections 8.10, 8.11,
8.12 and 8.13 hereof.

"Permitted Investments" shall mean: (a) direct obligations of
the United States, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States, or of any agency thereof, in
either case maturing not more than one year from the date of acquisition
thereof; (b) direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of such acquisition, having the highest rating obtainable from either Standard
& Poor's Ratings Group, a division of McGraw-Hill, Inc.

Credit Agreement 15
<PAGE> 21
("S&P") or Moody's Investors Services, Inc. ("Moody's"); (c) certificates of
deposit issued by any bank or trust company organized under the laws of the
United States or any state thereof or the Commonwealth and having capital,
surplus and undivided profits of at least $500,000,000, maturing not more than
six months from the date of acquisition thereof; (d) commercial paper rated A-1
or better or P-1 by S&P or Moody's, respectively, maturing not more than six
months from the date of acquisition thereof; and (e) Eurodollar time deposits
having a maturity of less than six months purchased directly from any bank
meeting the criteria set forth in clause (c) above (whether such deposit is
with such bank or any other such bank).

"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust, unincorporated
organization or government (or any agency, instrumentality or political
subdivision thereof).

"Plan" shall mean an employee benefit or other plan established
or maintained by the Company or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.

"Post-Default Rate" shall mean, in respect of any principal of
any Loan, any Reimbursement Obligation or any other amount under this
Agreement, any Note or any other Loan Document that is not paid when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), and in respect of any principal of any Loan during any period
commencing upon the occurrence of any Event of Default and thereafter for so
long as any Event of Default shall be continuing, a rate per annum during the
period from and including the due date to but excluding the earlier of the date
on which such amount is paid in full or such Event of Default ceases to be
continuing equal to 2% plus the Base Rate as in effect from time to time plus
the Applicable Margin for Base Rate Loans (provided that, if the amount so in
default is principal of a Eurodollar Loan and the due date thereof is a day
other than the last day of the Interest Period therefor, the "Post-Default
Rate" for such principal shall be, for the period from and including such due
date to but excluding the last day of such Interest Period, 2% plus the
interest rate for such Loan as provided in Section 3.02(b) hereof and,
thereafter, the rate provided for above in this definition).

"Prime Rate" shall mean the rate of interest from time to time
announced by First Union at its principal office as its prime commercial
lending rate.

"Principal Payment Dates" shall mean the Quarterly Dates falling
on or nearest to March 31, June 30, September 30 and December 31 of each year,
commencing with March 31, 1998, through and including December 31, 2003.

"Property" shall mean any right or interest in or to property of
any kind whatsoever, whether real, personal (including, without limitation,
cash) or mixed and whether tangible or intangible.

"Purchase Agreements" shall mean, collectively, each Purchase
Agreement between the Company or any of its Subsidiaries and the seller of the
business, Property or Person

Credit Agreement 16
<PAGE> 22
purchased by the Company or such Subsidiary pursuant to a Permitted Acquisition
financed under this Agreement.

"Quarterly Dates" shall mean the last Business Day of March,
June, September and December in each year, the first of which shall be December
31, 1997.

"Register" shall have the meaning assigned to such term in
Section 11.06(g) hereof.

"Registered Holder" shall have the meaning assigned to such term
in Section 5.06(b)(ii) hereof.

"Registered Loans" shall have the meaning assigned to such term
in Section 2.07(e) hereof.

"Registered Note" shall have the meaning assigned to such term in
Section 2.07(e) hereof.

"Regulations A, D, U and X" shall mean, respectively, Regulations
A, D, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in effect from
time to time.

"Regulatory Change" shall mean, with respect to any Lender, any
change after the date of this Agreement in United States Federal, state or
foreign law or regulations or in the law or regulations of the Commonwealth
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Lender of or under any Federal, state or foreign law or
regulations or in the law or regulations of the Commonwealth (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.

"Reimbursement Obligations" shall mean, at any time, the
obligations of the Company then outstanding, or that may thereafter arise in
respect of all Letters of Credit then outstanding, to reimburse amounts paid by
the Issuing Bank in respect of any drawings under a Letter of Credit.

"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Materials through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.

"Reserve Requirement" shall mean, for any Interest Period for any
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to
be maintained during such Interest Period under Regulation D by member banks of
the Federal Reserve System in New York City with

Credit Agreement 17
<PAGE> 23
deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as
such term is used in Regulation D). Without limiting the effect of the
foregoing, the Reserve Requirement shall include any other reserves required to
be maintained by such member banks by reason of any Regulatory Change with
respect to (i) any category of liabilities that includes deposits by reference
to which the Eurodollar Base Rate is to be determined as provided in the
definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category
of extensions of credit or other assets that includes Eurodollar Loans.

"Responsible Financial Officer" shall mean, with respect to any
Person, the Chairman of the Board of Directors, the President, the Chief
Executive Officer, the Chief Financial Officer or the Treasurer of such Person.

"Revolving Credit Commitment Termination Date" shall mean the
Quarterly Date falling on or nearest to December 31, 2003.

"Security Agreement" shall mean a Security Agreement between the
Company and the Agent, substantially in the form of Exhibit B to this
Agreement, as the same may be amended, modified and supplemented and in effect
from time to time.

"Security Documents" shall mean, collectively, the Security
Agreement, each Supplemental Subsidiary Guarantee and Security Agreement, the
Subsidiary Guarantee and Security Agreement, and all Uniform Commercial Code
financing statements and/or other filings required hereby or thereby to be
filed with respect to the security interests in personal Property created
pursuant hereto or thereto.

"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries of such Person.

"Subsidiary Guarantee and Security Agreement" shall mean a
Subsidiary Guarantee and Security Agreement between the Subsidiaries of the
Company listed on Schedule III hereto as of the Effective Date (other than
Garrido) and the Agent, substantially in the form of Exhibit C to this
Agreement, as the same may be amended, modified and supplemented and in effect
from time to time.

"Subsidiary Guarantors" shall mean Suiza Dairy, Suiza Fruit,
Model Dairy, Neva Plastics, Reddy Ice Corporation, Swiss Dairy, Velda Farms,
Inc., Dairy Fresh and Suiza Management Corporation, each a Delaware
corporation, each of the other Subsidiaries of the

Credit Agreement 18
<PAGE> 24
Company listed on Schedule III hereto as of the Effective Date (other than
Garrido), and each Supplemental Guarantor.

"Suiza Dairy" shall mean Suiza Dairy Corporation, a Delaware
corporation.

"Suiza Fruit" shall mean Suiza Fruit Corporation, a Delaware
corporation.

"Supermajority Lenders" shall mean, as at any time, Facility A
Lenders and Facility B Lenders having at least 66 2/3% of the sum of (a) the
aggregate unused amount, if any, of the Facility A Commitments and the Facility
B Commitments as at such time plus (b) the aggregate outstanding principal
amount of the Facility A Loans and Facility B Loans at such time plus (c) the
aggregate amount of all Letter of Credit Liabilities at such time.

"Supplemental Guarantor" shall mean each Subsidiary of the
Company party to a Supplemental Subsidiary Guarantee and Security Agreement.

"Supplemental Security Documents" shall mean, collectively, each
Supplemental Subsidiary Guarantee and Security Agreement between a Supplemental
Guarantor and the Agent, each amendment to the Security Agreement and to the
Subsidiary Guarantee and Security Agreement and all Uniform Commercial Code
financing statements and/or other filings required hereby or thereby to be
filed with respect to the security interests in personal Property created
pursuant hereto or thereto.

"Supplemental Subsidiary Guarantee and Security Agreement" shall
mean, collectively, each Supplemental Subsidiary Guarantee and Security
Agreement, substantially in the form of Exhibit C to this Agreement, as the
same shall be amended, modified and supplemented and in effect from time to
time.

"Swiss Dairy" shall mean Swiss Dairy Corporation, a Delaware
corporation and a Wholly Owned Subsidiary of the Company.

"Taxes" shall have the meaning assigned to such term in Section
5.06(a) hereof.

"Term Loan Commitment Termination Date" shall mean December 31,
1997.

"Type" shall have the meaning assigned to such term in Section
1.03 hereof.

"United States" shall mean the United States of America.

"U.S. Taxes" shall have the meaning assigned to such term in
Section 5.06(b) hereof.

"Wholly Owned Subsidiary" shall mean, with respect to any Person,
any corporation, partnership or other entity of which all of the equity
securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are directly or

Credit Agreement 19
<PAGE> 25
indirectly owned or controlled by such Person or one or more Wholly Owned
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.

"Working Capital" shall mean, for any period, the excess of (a)
the aggregate amount of inventory, accounts receivable and prepaid expenses of
the Company and its Subsidiaries over (b) the aggregate amount of accounts
payable and current accrued expenses of the Company and its Subsidiaries.

1.02 Accounting Terms and Determinations.

(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all financial statements
and certificates and reports as to financial matters required to be delivered
to the Lenders hereunder shall (unless otherwise disclosed to the Lenders in
writing at the time of delivery thereof in the manner described in subsection
(b) below) be prepared, in accordance with generally accepted accounting
principles applied on a basis consistent with those used in the preparation of
the latest financial statements furnished to the Lenders hereunder. All
calculations made for the purposes of determining compliance with this
Agreement shall (except as otherwise expressly provided herein) be made by
application of generally accepted accounting principles applied on a basis
consistent with those used in the preparation of the latest annual or quarterly
financial statements furnished to the Lenders pursuant to Section 8.01 hereof
unless (i) the Company shall have objected to determining such compliance on
such basis at the time of delivery of such financial statements or (ii) the
Majority Lenders shall so object in writing within 30 days after delivery of
such financial statements, in either of which events such calculations shall be
made on a basis consistent with those used in the preparation of the latest
financial statements as to which such objection shall not have been made.

(b) The Company shall deliver to the Lenders at the same
time as the delivery of any annual or quarterly financial statement under
Section 8.01 hereof (i) a description in reasonable detail of any material
variation between the application of accounting principles employed in the
preparation of such statement and the application of accounting principles
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) above and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.

(c) To enable the ready and consistent determination of
compliance with the covenants set forth in Section 8 hereof, the Company will
not, without the prior consent of the Majority Lenders, change the last day of
its fiscal year from December 31 of each year, or the last days of the first
three fiscal quarters in each of its fiscal years from March 31, June 30 and
September 30 of each year, respectively.

1.03 Classes and Types of Loans. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan (or of a
Commitment to make a Loan or the related Note) refers to whether such Loan is a
Facility A Loan, or a Facility B Loan, each of which constitutes a

Credit Agreement 20
<PAGE> 26
Class. The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or
a Eurodollar Loan, each of which constitutes a Type. Loans may be identified
by both Class and Type.

Section 2. Commitments, Loans, Notes and Prepayments.

2.01 Loans.

(a) Facility A Loans. Each Facility A Lender severally
agrees, on the terms and conditions of this Agreement, to make loans to the
Company in Dollars during the period from and including the Effective Date to
but not including the Revolving Credit Commitment Termination Date in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount of the Facility A Commitment of such Lender as in effect from time
to time (such Loans being herein called "Facility A Loans"); provided that in
no event shall the aggregate principal amount of all Facility A Loans, together
with the aggregate amount of all Letter of Credit Liabilities, exceed the
aggregate amount of the Facility A Commitments as in effect from time to time.
Subject to the terms and conditions of this Agreement, during such period the
Company may borrow, repay and reborrow the amount of the Facility A Commitments
by means of Base Rate Loans and/or Eurodollar Loans and may Convert Facility A
Loans of one Type into Facility A Loans of another Type (as provided in Section
2.08 hereof) or Continue Facility A Loans of one Type as Facility A Loans of
the same Type (as provided in Section 2.08 hereof).

(b) Facility B Loans. Each Facility B Lender severally
agrees, on the terms and conditions of this Agreement, to make a single term
loan to the Company in Dollars on the Effective Date (provided that the same
shall occur no later than the Term Loan Commitment Termination Date) in a
principal amount up to but not exceeding the amount of the Facility B
Commitment of such Lender. Subject to the terms and conditions of this
Agreement, the Company may borrow the amount of the Facility B Commitments by
means of Base Rate Loans and/or Eurodollar Loans and thereafter may Convert
Facility B Loans of one Type into Facility B Loans of another Type (as provided
in Section 2.08 hereof) or Continue Facility B Loans of one Type as Facility B
Loans of the same Type (as provided in Section 2.08 hereof).

(c) Limit on Certain Loans. No more than six separate
Interest Periods in respect of Eurodollar Loans of any Class from each Lender
may be outstanding at any one time.

2.02 Borrowings.

(a) The Company shall give the Agent notice of each
borrowing hereunder as provided in Section 4.05 hereof.

(b) With respect to each borrowing, not later than 3:30
p.m. Charlotte, North Carolina time on the date specified for such borrowing,
each Lender shall make available the amount of the Loan or Loans to be made by
it to the Company on such date to the Agent at any account designated by the
Agent, in immediately available funds, for account of the Company. The amount
so received by the Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in the

Credit Agreement 21
<PAGE> 27
deposit account of the Company identified in the most recent Notice of Account
Designation substantially in the form of Exhibit I-4 hereto delivered by the
Company to the Agent or as may be otherwise agreed by the Company and the Agent
from time to time.

2.03 Changes of Commitments.

(a) The aggregate amount of each of the Facility A
Commitments shall be automatically reduced to zero on the Revolving Credit
Commitment Termination Date.

(b) The Company shall have the right at any time or from
time to time (i) to terminate or reduce the aggregate unused amount of any of
the Facility B Commitments, (ii) so long as no Facility A Loans or Letter of
Credit Liabilities in respect of Letters of Credit are outstanding, to
terminate the Facility A Commitments, and (iii) to reduce the aggregate unused
amount of any of the Facility A Commitments (for which purpose use of the
Facility A Commitments shall be deemed to include the aggregate amount of
Letter of Credit Liabilities); provided that (x) the Company shall give notice
of each such termination or reduction as provided in Section 4.05 hereof and
(y) each such partial reduction shall be in an aggregate amount at least equal
to $2,000,000 (or a larger multiple of $1,000,000).

(d) The Commitments once terminated or reduced may not be
reinstated.

2.04 Commitment Fee. The Company shall pay to the Agent for
account of each Facility A Lender a commitment fee on the daily average unused
amount of such Lender's Facility A Commitment (for which purpose the aggregate
amount of any Letter of Credit Liabilities in respect of Letters of Credit
shall be deemed to be a pro rata (based on the Facility A Commitments) use of
each Facility A Lender's Facility A Commitment), for the period from and
including the Effective Date to but not including the earlier of the date such
Commitment is terminated and the Revolving Credit Commitment Termination Date,
at a rate per annum equal to the Applicable Commitment Fee Rate. Accrued
commitment fees shall be payable in arrears on each Quarterly Date and on the
earlier of (i) the date the relevant Commitments are terminated and (ii) the
Revolving Credit Commitment Termination Date.

2.05 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.

2.06 Several Obligations; Remedies Independent. The failure
of any Lender to make any Loan to be made by it on the date specified therefor
shall not relieve any other Lender of its obligation to make its Loan on such
date, but neither any Lender nor the Agent shall be responsible for the failure
of any other Lender to make a Loan to be made by such other Lender, and no
Lender shall have any obligation to the Agent or any other Lender for the
failure by such Lender to make any Loan required to be made by such Lender.
The amounts payable by the Company at any time hereunder and under the Notes to
each Lender shall be a separate and

Credit Agreement 22
<PAGE> 28
independent debt and each Lender shall be entitled, subject to the prior
written consent of the Majority Lenders, to protect and enforce its rights
arising out of this Agreement and the Notes, and it shall not be necessary for
any other Lender or the Agent to be joined as an additional party in any
proceedings for such purposes.

2.07 Notes.

(a) The Facility A Loans made by each Lender shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-1 hereto, dated the Effective Date, payable to such Lender in a
principal amount equal to the amount of its Facility A Commitment as originally
in effect and otherwise duly completed.

(b) The Facility B Loan made by each Lender shall be
evidenced by a single promissory note of the Company substantially in the form
of Exhibit A-2 hereto, dated the Effective Date, payable to such Lender in a
principal amount equal to the amount of its Facility B Commitment as originally
in effect and otherwise duly completed.

(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan of each Class made by each Lender,
and each payment made on account of the principal thereof, shall be recorded by
such Lender on its books and, prior to any transfer of the Note evidencing the
Loans of such Class held by it, endorsed by such Lender on the schedule
attached to such Note or any continuation thereof; provided that the failure of
such Lender to make any such recordation or endorsement or an error therein
shall not affect the obligations of the Company to make a payment when due of
any amount owing hereunder or under such Note in respect of the Loans to be
evidenced by such Note.

(d) No Lender shall be entitled to have its Notes
subdivided, by exchange for promissory notes of lesser denominations or
otherwise, except in connection with a permitted assignment of all or any
portion of such Lender's relevant Commitments, Loans and Notes pursuant to
Section 11.06(b) hereof.

(e) Notwithstanding the foregoing, any Lender that is not a
U.S. Person and is not a "bank" within the meaning of Section 881(c)(3)(A) of
the Code may request the Company (through the Agent), and the Company agrees
thereupon, to record on the Register referred to in Section 11.06(g) hereof any
Facility B Loans held by such Lender under this Agreement. Loans recorded on
the Register ("Registered Loans") may not be evidenced by promissory notes
other than Registered Notes as defined below and, upon the registration of any
Facility B Loan, any promissory note (other than a Registered Note) evidencing
the same shall be null and void and shall be returned to the Company. The
Company agrees, at the request of any Lender that is the holder of Registered
Loans, to execute and deliver to such Lender a promissory note in registered
form to evidence such Registered Loans and registered as provided in Section
11.06(g) hereof (herein, a "Registered Note"), dated the Effective Date,
payable to such Lender and otherwise duly completed. A Facility B Loan once
recorded on the Register may not be removed from the Register so long as it
remains outstanding and a Registered Note may not be exchanged for a promissory
note that is not a Registered Note.

Credit Agreement 23
<PAGE> 29
2.08 Optional Prepayments and Conversions or Continuations
of Loans. Subject to Section 4.04 hereof, the Company shall have the right to
prepay Loans, or to Convert Loans of one Type into Loans of another Type or
Continue Loans of one Type as Loans of the same Type, at any time or from time
to time, provided that:

(a) the Company shall give the Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and,
upon the date specified in any such notice of prepayment, the amount to be
prepaid shall become due and payable hereunder);

(b) Eurodollar Loans may be prepaid or Converted on any
Business Day, provided that, if such prepayment or Conversion falls on a day
other than the last day of an Interest Period for such Loans, the Company shall
pay any and all amounts required by Section 5.05 hereof as a result thereof;
and

(c) prepayments of the Facility B Loans under this Section
2.08 shall be applied ratably as among the remaining installments of the
Facility B Loans.

Notwithstanding the foregoing, and without limiting the rights and remedies of
the Lenders under Section 9 hereof, in the event that any Event of Default
shall have occurred and be continuing, the Agent may (and at the request of the
Majority Lenders shall) suspend the right of the Company to borrow any Loan as
a Eurodollar Loan or to Convert any Loan into a Eurodollar Loan, or to Continue
any Loan as a Eurodollar Loan, in which event all Eurodollar Loans outstanding
shall be automatically Converted (on the last day(s) of the respective Interest
Periods therefor) to, or all Base Rate Loans shall be Continued, as the case
may be, as Base Rate Loans.

2.09 Letters of Credit. Subject to the terms and conditions
of this Agreement, the Facility A Commitments may be utilized, upon the request
of the Company, in addition to the Facility A Loans provided for by Section
2.01(a) hereof, by the issuance by the Issuing Bank of letters of credit
(collectively, "Letters of Credit") including (a) Letters of Credit issued
under the Existing Credit Agreements and outstanding on the Effective Date, for
account of any of the Subsidiaries of the Company, and (b) in respect of all
(1) Letters of Credit described in clause (a) above that are amended, renewed
or otherwise modified and (2) other Letters of Credit, for account of the
Company and any of its Subsidiaries provided that in no event shall (i) the
aggregate amount of all Letter of Credit Liabilities, together with the
aggregate principal amount of the Facility A Loans, exceed the aggregate amount
of the Facility A Commitments as in effect from time to time and (ii) the
expiration date of any Letter of Credit extend beyond the earlier of (A) the
Revolving Credit Commitment Termination Date and (B)(1) the date 12 months
following the issuance of such Letter of Credit or (2) such later date as may
be requested by a beneficiary and approved in advance by the Agent and the
Issuing Bank, such approval not to be unreasonably withheld. The following
additional provisions shall apply to Letters of Credit:

(a) The Company shall give the Agent at least three
Business Days' irrevocable prior notice (effective upon receipt) specifying the
Business Day (which shall be no later than 30

Credit Agreement 24
<PAGE> 30
days preceding the Revolving Credit Commitment Termination Date) each Letter of
Credit is to be issued and the account party or parties therefor and describing
in reasonable detail the proposed terms of such Letter of Credit (including the
beneficiary thereof) and the nature of the transactions or obligations proposed
to be supported thereby (including whether such Letter of Credit is to be a
commercial letter of credit or a standby letter of credit). Upon receipt of
any such notice, the Agent shall advise the Issuing Bank of the contents
thereof.

(b) On each day during the period commencing with the
issuance by the Issuing Bank of any Letter of Credit (from the Effective Date
in the case of outstanding Letters of Credit) and until such Letter of Credit
shall have expired or been terminated, the Facility A Commitment of each
Facility A Lender shall be deemed to be utilized for all purposes of this
Agreement in an amount equal to such Lender's Facility A Commitment Percentage
of the then undrawn face amount of such Letter of Credit. Each Facility A
Lender (other than the Issuing Bank) agrees that, upon the issuance of any
Letter of Credit hereunder (or on the Effective Date in the case of outstanding
Letters of Credit), it shall automatically acquire a participation in the
Issuing Bank's liability under such Letter of Credit in an amount equal to such
Lender's Facility A Commitment Percentage of such liability, and each Facility
A Lender (other than the Issuing Bank) thereby shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not as surety,
and shall be unconditionally obligated to the Issuing Bank to pay and discharge
when due, its Facility A Commitment Percentage of the Issuing Bank's liability
under such Letter of Credit.

(c) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment under such Letter of Credit, the Issuing Bank
shall promptly notify the Company (through the Agent) of the amount to be paid
by the Issuing Bank as a result of such demand and the date on which payment is
to be made by the Issuing Bank to such beneficiary in respect of such demand
(but the failure to give such notice shall not impair the Company's obligations
in respect of such Letter of Credit). Notwithstanding the identity of the
account party of any Letter of Credit, the Company hereby unconditionally
agrees to pay and reimburse the Agent for account of the Issuing Bank for the
amount of each demand for payment under such Letter of Credit that is in
substantial compliance with the provisions of such Letter of Credit at or prior
to the date on which payment is to be made by the Issuing Bank to the
beneficiary thereunder, without presentment, demand, protest or other
formalities of any kind and irrespective of any claim, set-off, defense or
other right which the Company or any of its Subsidiaries or Affiliates may have
at any time against such Issuing Bank or any other Person, under all
circumstances, including without limitation, any of the following
circumstances: (i) any lack of validity or enforceability of this Agreement or
any of the Loan Documents; (ii) the existence of any claim, set- off, defense
or other right which the Company or any of its Subsidiaries or Affiliates may
have at any time against a beneficiary named in any Letter of Credit or any
transferee thereof (or any Person for whom any such transferee may be acting),
the Issuing Bank, any Lender or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transactions between the
Company or any of its Subsidiaries or Affiliates and the beneficiary named in
any Letter of Credit); (iii) any draft, certificate or any other document
presented under a Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or

Credit Agreement 25
<PAGE> 31
inaccurate in any respect; (iv) the surrender or impairment of any security for
the performance or observance of any of the terms of any of the Loan Documents;
or (v) the existence of any Default.

(d) Forthwith upon its receipt of a notice referred to in
paragraph (c) of this Section 2.09, the Company shall advise the Agent whether
or not the Company intends to borrow hereunder to finance its obligation to
reimburse the Issuing Bank for the amount of the related demand for payment
and, if it does, submit a notice of such borrowing as provided in Section 4.05
hereof.

(e) Each Facility A Lender (other than the Issuing Bank)
shall pay to the Agent for account of the Issuing Bank at its principal office
in Dollars and in immediately available funds, the amount of such Lender's
Facility A Commitment Percentage of any payment under a Letter of Credit upon
notice by the Issuing Bank (through the Agent) to such Facility A Lender
requesting such payment and specifying such amount. Each such Facility A
Lender's obligation to make such payment to the Agent for account of the
Issuing Bank under this paragraph (e), and the Issuing Bank's right to receive
the same, shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever (except as provided in the proviso at the end of this
sentence), including, without limitation, the failure of any other Facility A
Lender to make its payment under this paragraph (e), the financial condition of
the Company (or any other account party), the existence of any Default or the
termination of the Commitments; provided that no Facility A Lender shall be
obligated to make any payment to the Agent for account of the Issuing Bank in
respect of any payment made by the Issuing Bank under a Letter of Credit where
such payment was made in respect of a demand for payment that was not in
substantial compliance with the provisions of such Letter of Credit or to the
extent that the Company shall not be required to indemnify any Lender or the
Agent in the circumstances provided in clause (x) of the penultimate sentence
of the last paragraph of this Section 2.09. Each such payment to the Issuing
Bank shall be made without any offset, abatement, withholding or reduction
whatsoever. If any Facility A Lender shall default in its obligation to make
any such payment to the Agent for account of the Issuing Bank, for so long as
such default shall continue the Agent may at the request of the Issuing Bank
withhold from any payments received by the Agent under this Agreement or any
Note for account of such Facility A Lender the amount so in default and, to the
extent so withheld, pay the same to the Issuing Bank in satisfaction of such
defaulted obligation.

(f) Upon the making of each payment by a Facility A Lender
to the Issuing Bank pursuant to paragraph (e) above in respect of any Letter of
Credit, such Lender shall, automatically and without any further action on the
part of the Agent, the Issuing Bank or such Lender, acquire (i) a participation
in an amount equal to such payment in the Reimbursement Obligation owing to the
Issuing Bank by the Company hereunder and under the Letter of Credit Documents
relating to such Letter of Credit and (ii) a participation in a percentage
equal to such Lender's Facility A Commitment Percentage in any interest or
other amounts payable by the Company hereunder and under such Letter of Credit
Documents in respect of such Reimbursement Obligation (other than the
commissions, charges, costs and expenses payable to the Issuing Bank pursuant
to paragraph (g) of this Section 2.09). Upon receipt by the Issuing Bank from
or for account of the Company of any payment in respect of any Reimbursement
Obligation or any such interest or other amount (including by way of setoff or
application of

Credit Agreement 26
<PAGE> 32
proceeds of any collateral security), the Issuing Bank shall promptly pay to
the Agent for account of each Facility A Lender entitled thereto, such Facility
A Lender's Facility A Commitment Percentage of such payment, each such payment
by the Issuing Bank to be made in the same money and funds in which received by
the Issuing Bank. In the event any payment received by the Issuing Bank and so
paid to the Facility A Lenders hereunder is rescinded or must otherwise be
returned by the Issuing Bank, each Facility A Lender shall, upon the request of
the Issuing Bank (through the Agent), repay to the Issuing Bank (through the
Agent) the amount of such payment paid to such Lender, with interest at the
rate specified in paragraph (j) of this Section 2.09.

(g) The Company shall pay to the Agent for account of each
Facility A Lender (ratably in accordance with their respective Commitment
Percentages) a letter of credit fee in respect of each Letter of Credit in an
amount equal to the percentage equivalent of the Applicable Margin for
Eurodollar Loans of the daily average undrawn face amount of such Letter of
Credit for the period from and including the date of issuance of such Letter of
Credit (i) in the case of a Letter of Credit that expires in accordance with
its terms, to and including such expiration date and (ii) in the case of a
Letter of Credit that is drawn in full or is otherwise terminated other than on
the stated expiration date of such Letter of Credit, to but excluding the date
such Letter of Credit is drawn in full or is terminated (such fee to be
non-refundable, to be paid in arrears on each Quarterly Date and on the
Revolving Credit Commitment Termination Date and to be calculated for any day
after giving effect to any payments made under such Letter of Credit on such
day). In addition, the Company shall pay to the Agent for account of the
Issuing Bank a fronting fee in respect of each Letter of Credit in an amount
equal to 0.125% per annum of the daily average undrawn face amount of such
Letter of Credit for the period from and including the date of issuance of such
Letter of Credit (i) in the case of a Letter of Credit that expires in
accordance with its terms, to and including such expiration date and (ii) in
the case of a Letter of Credit that is drawn in full or is otherwise terminated
other than on the stated expiration date of such Letter of Credit, to but
excluding the date such Letter of Credit is drawn in full or is terminated
(such fee to be non-refundable, to be paid in arrears on each Quarterly Date
and on the Revolving Credit Commitment Termination Date and to be calculated
for any day after giving effect to any payments made under such Letter of
Credit on such day) plus all commissions, charges, costs and expenses in the
amounts customarily charged by the Issuing Bank from time to time in like
circumstances with respect to the issuance of each Letter of Credit and
drawings and other transactions relating thereto.

(h) Promptly following the end of each fiscal quarter, the
Issuing Bank shall deliver (through the Agent) to each Facility A Lender and
the Company a notice describing the aggregate amount of all Letters of Credit
outstanding at the end of such quarter. Upon the request of any Facility A
Lender from time to time, the Issuing Bank shall deliver any other information
reasonably requested by such Lender with respect to each Letter of Credit then
outstanding.

(i) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set forth in Section 6
hereof, be subject to the conditions precedent that (i) such Letter of Credit
shall be in such form, contain such terms and support such

Credit Agreement 27
<PAGE> 33
transactions as shall be reasonably satisfactory to the Issuing Bank consistent
with its then current practices and procedures with respect to letters of
credit of the same type and (ii) the Company shall have executed and delivered
such applications, agreements and other instruments relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested consistent with its
then current practices and procedures with respect to letters of credit of the
same type, provided that in the event of any conflict between any such
application, agreement or other instrument and the provisions of this Agreement
or any Security Document, the provisions of this Agreement and the Security
Documents shall control.

(j) To the extent that any Lender shall fail to pay any
amount required to be paid pursuant to paragraph (e) or (f) of this Section
2.09 on the due date therefor, such Lender shall pay interest to the Issuing
Bank (through the Agent) on such amount from and including such due date to but
excluding the date such payment is made at a rate per annum equal to the
Federal Funds Rate, provided that if such Lender shall fail to make such
payment to the Issuing Bank within three Business Days of such due date, then,
retroactively to the due date, such Lender shall be obligated to pay interest
on such amount at the Post-Default Rate.

(k) The issuance by the Issuing Bank of any modification or
supplement to any Letter of Credit hereunder shall be subject to the same
conditions applicable under this Section 2.09 to the issuance of new Letters of
Credit, and no such modification or supplement shall be issued hereunder unless
either (i) the respective Letter of Credit affected thereby would have complied
with such conditions had it originally been issued hereunder in such modified
or supplemented form or (ii) each Facility A Lender shall have consented
thereto.

The Company hereby indemnifies and holds harmless each Facility A Lender and
the Agent from and against any and all claims and damages, losses, liabilities,
costs or expenses that such Lender or the Agent may incur (or that may be
claimed against such Lender or the Agent by any Person whatsoever) by reason of
or in connection with the execution and delivery or transfer of or payment or
refusal to pay by the Issuing Bank under any Letter of Credit; provided that
the Company shall not be required to indemnify any Lender or the Agent for any
claims, damages, losses, liabilities, costs or expenses to the extent, but only
to the extent, caused by (x) the willful misconduct or gross negligence of the
Issuing Bank in determining whether a request presented under any Letter of
Credit complied with the terms of such Letter of Credit or (y) in the case of
the Issuing Bank, such Lender's failure to pay under any Letter of Credit after
the presentation to it of a request strictly complying with the terms and
conditions of such Letter of Credit. Nothing in this Section 2.09 is intended
to limit the other obligations of the Company, any Lender or the Agent under
this Agreement.

Section 3. Payments of Principal and Interest.

3.01 Repayment of Loans.

(a) The Company hereby promises to pay to the Agent for
account of each Facility A Lender the entire outstanding principal amount of
such Lender's Facility A Loans, and each such Facility A Loan shall mature, on
the Revolving Credit Commitment Termination Date.

Credit Agreement 28
<PAGE> 34
(b) The Company hereby promises to pay to the Agent for
account of each Facility B Lender the principal of such Lender's Facility B
Loan in 24 installments payable on the Principal Payment Dates falling on or
nearest to the dates specified below, each in an amount equal to such Lender's
ratable share of the aggregate amount set forth opposite such date, as follows:

<TABLE>
<CAPTION>
Date Amount of Installment ($)
---- -------------------------
<S> <C>
March 31, 1998 12,500,000
June 30, 1998 12,500,000
September 30, 1998 12,500,000
December 31, 1998 12,500,000
March 31, 1999 18,750,000
June 30, 1999 18,750,000
September 30, 1999 18,750,000
December 31, 1999 18,750,000
March 31, 2000 18,750,000
June 30, 2000 18,750,000
September 30, 2000 18,750,000
December 31, 2000 18,750,000
March 31, 2001 25,000,000
June 30, 2001 25,000,000
September 30, 2001 25,000,000
December 31, 2001 25,000,000
March 31, 2002 28,125,000
June 30, 2002 28,125,000
September 30, 2002 28,125,000
December 31, 2002 28,125,000
March 31, 2003 34,375,000
June 30, 2003 34,375,000
September 30, 2003 34,375,000
December 31, 2003 34,375,000
------------
$550,000,000
</TABLE>

If the Company does not borrow the full amount of the aggregate Facility B
Commitments on or before the Term Loan Commitment Termination Date, the
shortfall shall be applied to reduce the foregoing installments ratably.

3.02 Interest. The Company hereby promises to pay to the
Agent for account of each Lender interest on the unpaid principal amount of
each Loan for the period from and including the date of such Loan to but
excluding the date such Loan shall be paid in full, at the following rates per
annum:

Credit Agreement 29
<PAGE> 35
(a) during such periods as such Loan is a Base Rate Loan,
the Base Rate (as in effect from time to time) plus the Applicable Margin, and

(b) during such periods as such Loan is a Eurodollar Loan,
for each Interest Period relating thereto, the Eurodollar Rate for such Loan
for such Interest Period plus the Applicable Margin.

Notwithstanding the foregoing, the Company hereby promises to pay to the Agent
for account of each Lender interest at the applicable Post-Default Rate as
follows:

(i) on any principal of any Loan made by such Lender, on
any Reimbursement Obligation held by such Lender and on any other amount
payable by the Company hereunder or under the Notes held by such Lender to or
for account of such Lender that shall not be paid in full when due (whether at
stated maturity, by acceleration, or otherwise), for the period from and
including the due date thereof to but excluding the date the same is paid in
full; and

(ii) on the principal of all Loans made by such Lender
commencing upon the occurrence of any Event of Default, and thereafter for so
long as any Event of Default shall be continuing.

Accrued interest on each Loan shall be payable (i) in the case of a Base Rate
Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan,
on the last day of each Interest Period therefor and, if such Interest Period
is longer than three months, at three-month intervals following the first day
of such Interest Period, and (iii) at the option of the Agent, in the case of
any Loan upon the payment or prepayment thereof or the Conversion of such Loan
to a Loan of another Type (but only on the principal amount so paid, prepaid or
Converted) except that interest payable at the Post-Default Rate shall be
payable from time to time on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Agent shall give
notice thereof to the Lenders to which such interest is payable and to the
Company.

Section 4. Payments; Pro Rata Treatment; Computations; Etc.

4.01 Payments.

(a) Except to the extent otherwise provided herein, all
payments of principal, interest, Reimbursement Obligations and other amounts to
be made by the Company under this Agreement and the Notes of the Company, and,
except to the extent otherwise provided therein, all payments to be made by the
Obligors under any other Loan Document, shall be made in Dollars, in
immediately available funds, to the Agent at any account designated by the
Agent, not later than 2:00 p.m. Charlotte, North Carolina time on the date on
which such payment shall become due (each such payment made after such time on
such due date to be deemed to have been made on the next succeeding Business
Day).

(b) Any Lender for whose account any such payment is to be
made may (but shall not be obligated to) debit the amount of any such payment
that is not made by such time to

Credit Agreement 30
<PAGE> 36
any ordinary deposit account of the Company with such Lender (with notice to
the Company and the Agent).

(c) The Company shall, at the time of making each payment
under this Agreement or any Note for account of any Lender, specify to the
Agent (which shall so notify the intended recipient(s) thereof) the Loans,
Reimbursement Obligations or other amounts payable hereunder to which such
payment is to be applied (and in the event that the Company fails to so
specify, or if an Event of Default has occurred and is continuing, the Agent
may distribute such payment to the Lenders for application in such manner as it
or the Majority Lenders, subject to Section 4.02 hereof, may determine to be
appropriate).

(d) Except to the extent otherwise provided in the last
sentence of Section 2.09(e) hereof, each payment received by the Agent under
this Agreement or any Note for account of any Lender shall be paid by the Agent
promptly to such Lender, in immediately available funds, for account of such
Lender's Applicable Lending Office for the Loan or other obligation in respect
of which such payment is made.

(e) If the due date of any payment under this Agreement or
any Note would otherwise fall on a day that is not a Business Day, such date
shall be extended to the next succeeding Business Day, and interest shall be
payable for any principal so extended for the period of such extension.

4.02 Pro Rata Treatment. Except to the extent otherwise
provided herein: (a) each borrowing of Loans of a particular Class from the
Lenders under Section 2.01 hereof shall be made from the relevant Lenders, each
payment of commitment fee under Section 2.04 hereof in respect of Commitments
of a particular Class shall be made for account of the relevant Lenders, and
each termination or reduction of the amount of the Commitments of a particular
Class under Section 2.03 hereof shall be applied to the respective Commitments
of such Class of the relevant Lenders, pro rata according to the amounts of
their respective Commitments of such Class; (b) the making, Conversion and
Continuation of Loans of a particular Type and Class (other than Conversions
provided for by Section 5.04 hereof) shall be made pro rata among the relevant
Lenders according to the amounts of their respective Commitments (in the case
of making of Loans) or their respective Loans (in the case of Conversions and
Continuations of Loans); (c) each payment or prepayment of principal of Loans
of any Class by the Company shall be made for account of the relevant Lenders
pro rata in accordance with the respective unpaid principal amounts of the
Loans of such Class held by them; and (d) each payment of interest on any Loans
of any Class by the Company shall be made for account of the relevant Lenders
pro rata in accordance with the amounts of interest on such Loans then due and
payable to the respective Lenders.

4.03 Computations. Interest on Eurodollar Loans, commitment
fees and letter of credit fees shall be computed on the basis of a year of 360
days and actual days elapsed (including the first day but, except as otherwise
provided in Section 2.09(g) hereof, excluding the last day) occurring in the
period for which payable and interest on Base Rate Loans and Reimbursement
Obligations shall be computed on the basis of a year of 365 or 366 days, as the

Credit Agreement 31
<PAGE> 37
case may be, and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which payable.

4.04 Minimum Amounts. Except for Conversions or prepayments
made pursuant to Section 5.04 hereof, (a) each borrowing and Conversion of
principal of Base Rate Loans shall be in an aggregate amount at least equal to
$1,000,000 or a larger multiple of $500,000, (b) each borrowing and Conversion
of Eurodollar Loans shall be in an aggregate amount at least equal to
$5,000,000 or a larger multiple of $1,000,000, and (c) each partial prepayment
of principal of Eurodollar Loans shall be in an aggregate amount at least equal
to $5,000,000 or a larger multiple of $1,000,000 and each partial prepayment of
principal of Base Rate Loans shall be in an aggregate amount at least equal to
$1,000,000 or a larger multiple of $500,000 (borrowings, Conversions or
prepayments of or into Loans of different Types or, in the case of Eurodollar
Loans, having different Interest Periods at the same time hereunder are to be
deemed separate borrowings, Conversions and prepayments for purposes of the
foregoing, one for each Type or Interest Period).

4.05 Certain Notices. Notices by the Company to the Agent
of terminations or reductions of the Commitments, of Borrowings, Conversions,
Continuations and optional prepayments of Loans and of Classes of Loans, of
Types of Loans and of the duration of Interest Periods shall be irrevocable
(other than with respect to notices of optional prepayments, which shall be
revocable, provided that upon any such revocation the Company shall be
obligated to pay the Lenders any amounts payable under Section 5.05 hereof as a
consequence of such revocation) and shall be effective only if received by the
Agent not later than 1:30 p.m. Charlotte, North Carolina time on the number of
Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:

<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Termination or reduction
of Commitments 3

Borrowing or prepayment of,
or Conversions into,
Base Rate Loans Same Day

Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans 3
</TABLE>

Each such notice of termination or reduction shall specify the amount and the
Class of the Commitments to be terminated or reduced. Each such notice of
borrowing, Conversion,

Credit Agreement 32
<PAGE> 38
Continuation or optional prepayment shall specify the Class of Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or
prepaid and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration
of an Interest Period shall specify the Loans to which such Interest Period is
to relate. The Agent shall promptly notify the Lenders of the contents of each
such notice. In the event that the Company fails to select the Type of Loan,
or the duration of any Interest Period for any Eurodollar Loan, within the time
period and otherwise as provided in this Section 4.05, such Loan (if
outstanding as a Eurodollar Loan) will be automatically Converted into a Base
Rate Loan on the last day of the then current Interest Period for such Loan or
(if outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan. The Company agrees that each
notice of borrowing, each notice of prepayment and each notice of Conversion or
Continuation hereunder shall be substantially in the form of Exhibit I-1,
Exhibit I-2 and Exhibit I-3 hereto, respectively.

4.06 Non-Receipt of Funds by the Agent. Unless the Agent
shall have been notified by a Lender or the Company (the "Payor") prior to the
date on which the Payor is to make payment to the Agent of (in the case of a
Lender) the proceeds of a Loan to be made by such Lender hereunder or (in the
case of the Company) a payment to the Agent for account of one or more of the
Lenders hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt, that the Payor does not intend to
make the Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient(s)
on such date; and, if the Payor has not in fact made the Required Payment to
the Agent, the recipient(s) of such payment shall, on demand, repay to the
Agent the amount so made available together with interest thereon in respect of
each day during the period commencing on the date (the "Advance Date") such
amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to the Federal Funds Rate for such day
and, if such recipient(s) shall fail promptly to make such payment, the Agent
shall be entitled to recover such amount, on demand, from the Payor, together
with interest as aforesaid, provided that if neither the recipient(s) nor the
Payor shall return the Required Payment to the Agent within three Business Days
of the Advance Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the Required Payment as
follows:

(i) if the Required Payment shall represent a payment to be
made by the Company to the Lenders, the Company and the recipient(s)
shall each be obligated retroactively to the Advance Date to pay interest
in respect of the Required Payment at the Post-Default Rate (and, in case
the recipient(s) shall return the Required Payment to the Agent, without
limiting the obligation of the Company under Section 3.02 hereof to pay
interest to such recipient(s) at the Post-Default Rate in respect of the
Required Payment) and

(ii) if the Required Payment shall represent proceeds of a
Loan to be made by the Lenders to the Company, the Payor and the Company
shall each be obligated

Credit Agreement 33
<PAGE> 39
retroactively to the Advance Date to pay interest in respect of the
Required Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the Company shall
return the Required Payment to the Agent, without limiting any claim the
Company may have against the Payor in respect of the Required Payment).

4.07 Sharing of Payments, Etc.

(a) The Company agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option but with the prior
written consent of the Majority Lenders, to offset balances held by it for
account of the Company at any of its offices, in Dollars or in any other
currency, against any principal of or interest on any of such Lender's Loans,
Reimbursement Obligations or any other amount payable to such Lender hereunder,
that is not paid when due (regardless of whether such balances are then due to
the Company), in which case it shall promptly notify the Company and the Agent
thereof, provided that such Lender's failure to give such notice shall not
affect the validity thereof.

(b) If any Lender shall obtain from any Obligor payment of
any principal of or interest on any Loan of any Class or Letter of Credit
Liability owing to it or payment of any other amount under this Agreement or
any other Loan Document through the exercise of any right of set-off, banker's
lien or counterclaim or similar right or otherwise (other than from the Agent
as provided herein), and, as a result of such payment, such Lender shall have
received a greater percentage of the principal of or interest on the Loans of
such Class or Letter of Credit Liabilities or such other amounts then due
hereunder or thereunder by such Obligor to such Lender than the percentage
received by any other Lender, it shall promptly purchase from such other
Lenders participations in (or, if and to the extent specified by such Lender,
direct interests in) the Loans of such Class or such other amounts,
respectively, owing to such other Lenders (or in interest due thereon, as the
case may be) in such amounts, and make such other adjustments from time to time
as shall be equitable, to the end that all the Lenders shall share the benefit
of such excess payment (net of any expenses that may be incurred by such Lender
in obtaining or preserving such excess payment) pro rata in accordance with the
unpaid principal of and/or interest on the Loans of such Class or Letter of
Credit Liabilities or such other amounts, respectively, owing to each of the
Lenders. To such end all the Lenders shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored.

(c) The Company agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as
fully as if such Lender were a direct holder of Loans or other amounts (as the
case may be) owing to such Lender in the amount of such participation.

(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to exercise,
and retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of any Obligor. If, under any

Credit Agreement 34
<PAGE> 40
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this Section 4.07 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders entitled
under this Section 4.07 to share in the benefits of any recovery on such
secured claim.

Section 5. Yield Protection, Etc.

5.01 Additional Costs.

(a) The Company shall pay directly to each Lender from time
to time such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs that such Lender determines are attributable to its
making or maintaining of any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder or any reduction in any amount receivable by such
Lender hereunder in respect of any of such Loans or such obligation (such
increases in costs and reductions in amounts receivable being herein called
"Additional Costs"), resulting from any Regulatory Change that:

(i) shall subject any Lender (or its Applicable Lending
Office for any of such Loans) to any tax, duty or other charge in respect
of such Loans or its Notes or changes the basis of taxation of any
amounts payable to such Lender under this Agreement or its Notes in
respect of any of such Loans (excluding changes in the rate of tax on the
overall net income of such Lender or of its Applicable Lending Office by
the jurisdiction in which such Lender is organized or has its principal
office or in which its Applicable Lending Office is organized or located
or, in each case, any political subdivision or taxing authority thereof
or therein); or

(ii) imposes or modifies any reserve, special deposit or
similar requirements (other than the Reserve Requirement utilized in the
determination of the Eurodollar Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including, without limitation, any of such
Loans or any deposits referred to in the definition of "Eurodollar Base
Rate" in Section 1.01 hereof), or any commitment of such Lender
(including, without limitation, the Commitments of such Lender
hereunder); or

(iii) imposes any other condition affecting this Agreement or
its Notes (or any of such extensions of credit or liabilities) or its
Commitments.

If any Lender requests compensation from the Company under this Section
5.01(a), the Company may, by notice to such Lender (with a copy to the Agent),
suspend the obligation of such Lender thereafter to make or Continue Eurodollar
Loans, to Convert Loans of another Type into Eurodollar Loans or to Convert
Eurodollar Loans into Loans of another Type until the Regulatory Change giving
rise to such request ceases to be in effect (in which case the provisions of
Section 5.04 hereof shall be applicable), provided that such suspension shall
not affect the right of such Lender to receive the compensation so requested.

Credit Agreement 35
<PAGE> 41
(b) Without limiting the effect of the provisions of
paragraph (a) of this Section 5.01, in the event that, by reason of any
Regulatory Change, any Lender (i) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits
or other liabilities of such Lender that includes deposits by reference to
which the interest rate on Eurodollar Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
that includes Eurodollar Loans or (ii) becomes subject to restrictions on the
amount of such a category of liabilities or assets that it may hold then, if
such Lender so elects by notice to the Company (with a copy to the Agent), the
obligation of such Lender to make or Continue, or to Convert Loans of another
type into, Eurodollar Loans, hereunder (as the case may be) shall be suspended
until any such Regulatory Change ceases to be in effect (in which case the
provisions of Section 5.04 hereof shall be applicable).

(c) Without limiting the effect of the foregoing provisions
of this Section 5.01 (but without duplication), the Company shall pay directly
to each Lender from time to time on request such amounts as such Lender may
determine to be necessary to compensate such Lender (or, without duplication,
the bank holding company of which such Lender is a subsidiary) for any costs
that it determines are attributable to the maintenance by such Lender (or any
Applicable Lending Office or such bank holding company), pursuant to any law or
regulation or any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith would be
unlawful) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) hereafter implementing any risk-based capital
guideline or other requirement (whether or not having the force of law and
whether or not the failure to comply therewith would be unlawful) heretofore or
hereafter issued by any government or governmental or supervisory authority
implementing at the national level the Basle Accord (including, without
limitation, the Final Risk-Based Capital Guidelines of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part
225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of
the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in
respect of its Commitments or Loans (such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of such Lender (or any Applicable Lending Office or such bank holding
company) to a level below that which such Lender (or any Applicable Lending
Office or such bank holding company) could have achieved but for such law,
regulation, interpretation, directive or request). For purposes of this
Section 5.01(c) and Section 5.08 hereof, "Basle Accord" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to
time or any replacement thereof.

(d) Each Lender shall notify the Company of any event
occurring after the date of this Agreement entitling such Lender to
compensation under paragraph (a) or (c) of this Section 5.01 as promptly as
practicable, but in any event within 45 days, after such Lender obtains actual
knowledge thereof (unless such Lender decides not to seek compensation
hereunder); provided that (i) if any Lender fails to give such notice within 45
days after it obtains actual

Credit Agreement 36
<PAGE> 42
knowledge of such an event, such Lender shall, with respect to compensation
payable pursuant to this Section 5.01 in respect of any costs resulting from
such event, only be entitled to payment under this Section 5.01 for costs
incurred from and after the date 45 days prior to the date that such Lender
does give such notice and (ii) each Lender will designate a different
Applicable Lending Office for the Loans of such Lender affected by such event
if such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender, except that such Lender shall have no
obligation to designate an Applicable Lending Office located in the United
States. Each Lender will furnish to the Company a certificate setting forth
the basis and amount of each request by such Lender for compensation under
paragraph (a) or (c) of this Section 5.01. Determinations and allocations by
any Lender for purposes of this Section 5.01 of the effect of any Regulatory
Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect
of capital maintained pursuant to paragraph (c) of this Section 5.01, on its
costs or rate of return of maintaining Loans or its obligation to make Loans,
or on amounts receivable by it in respect of Loans, and of the amounts required
to compensate such Lender under this Section 5.01, shall be conclusive in the
absence of manifest error, provided that such determinations and allocations
are made on a reasonable basis.

5.02 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any
Eurodollar Base Rate for any Interest Period:

(a) the Agent determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar
Loans as provided herein; or

(b) The Majority Lenders determine, which determination
shall be conclusive, and notify the Agent that the relevant rates of
interest referred to in the definitions of "Eurodollar Base Rate" in
Section 1.01 hereof upon the basis of which the rate of interest for
Eurodollar Loans for such Interest Period is to be determined are not
likely adequately to cover the cost to such Lenders of making or
maintaining Eurodollar Loans for such Interest Period;

then the Agent shall give the Company and each Lender prompt notice thereof
(describing the circumstances giving rise to such event) and, so long as such
condition remains in effect, the Lenders shall be under no obligation to make
additional Eurodollar Loans, to Continue Eurodollar Loans, to Convert Loans of
another Type into Eurodollar Loans and the Company shall, on the last day(s) of
the then current Interest Period(s) for the outstanding Eurodollar Loans either
prepay such Loans or Convert such Loans into Loans of another Type in
accordance with Section 2.08 hereof.

5.03 Illegality. Notwithstanding any other provision of
this Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to honor its obligation to make or maintain
Eurodollar Loans hereunder, then such Lender shall promptly

Credit Agreement 37
<PAGE> 43
notify the Company thereof (with a copy to the Agent) and such Lender's
obligation to make or Continue, or to Convert Loans of any other Type into,
Eurodollar Loans shall be suspended until such time as such Lender may again
make and maintain Eurodollar Loans (in which case the provisions of Section
5.04 hereof shall be applicable).

5.04 Treatment of Affected Loans. If the obligation of any
Lender to make Eurodollar Loans ("Affected Loans"), or to Continue, or to
Convert Loans of another Type into Affected Loans shall be suspended pursuant
to Section 5.01 or 5.03 hereof, such Lender's Affected Loans shall be
automatically Converted into Base Rate Loans on the last day(s) of the then
current Interest Period(s) therefor (or, in the case of a Conversion required
by Section 5.01(b), 5.01(c) or 5.03 hereof, on such earlier date as such Lender
may specify to the Company with a copy to the Agent) and, unless and until such
Lender gives notice as provided below that the circumstances specified in
Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist:

(a) to the extent that such Lender's Affected Loans have
been so Converted, all payments and prepayments of principal that would
otherwise be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans; and

(b) all Loans that would otherwise be made or Continued by
such Lender as Affected Loans shall be made or Continued instead as Base
Rate Loans, and all Base Rate Loans of such Lender that would otherwise
be Converted into Affected Loans (as the case may be) shall remain as
Base Rate Loans.

If such Lender gives notice to the Company with a copy to the Agent that the
circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the
Conversion of such Lender's Affected Loans pursuant to this Section 5.04 no
longer exist (which such Lender agrees to do promptly upon such circumstances
ceasing to exist) at a time when Affected Loans made by other Lenders, and of
the same Class as such Lender's Loans are outstanding, such Lender's Base Rate
Loans of each Class (subject to Section 2.09 hereof) shall be automatically
Converted, on the first day(s) of the next succeeding Interest Period(s) for
such outstanding Affected Loans and of such Class, to the extent necessary so
that, after giving effect thereto, all Loans of such Class held by the Lenders
holding Affected Loans and by such Lender are held pro rata (as to principal
amounts, Types and Interest Periods) in accordance with their respective
Commitments.

5.05 Compensation. The Company shall pay to the Agent for
account of each Lender, upon the request of such Lender through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost or expense that such Lender
determines is attributable to:

(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by the Company for any reason
(including, without limitation, the acceleration of the Loans pursuant to
Section 9 hereof) on a date other than the last day of the Interest
Period for such Loan; or

Credit Agreement 38
<PAGE> 44
(b) any failure by the Company for any reason (including,
without limitation, the failure of any of the conditions precedent
specified in Section 6 hereof to be satisfied) to borrow a Eurodollar
Loan from such Lender on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02 hereof;

(c) any failure for any reason (including, without
limitation, as provided in Section 5.02 or 5.03 hereof) of a Loan of such
Lender to be Continued as or Converted into a Eurodollar Loan on the date
for such Continuation or Conversion specified in the relevant notice
given under Section 4.05 hereof; or

(d) the revocation of any notice of optional prepayment or
any failure for any reason to make any optional prepayment on the date
specified therefor in the relevant notice of prepayment given pursuant to
Section 4.05 hereof.

Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed or prepaid for the period from the date of such
payment, prepayment, Conversion or failure to borrow or prepay to the last day
of the then current Interest Period for such Loan (or, in the case of a failure
to borrow, the Interest Period for such Loan that would have commenced on the
date specified for such borrowing) at the applicable rate of interest for such
Loan (minus the Applicable Margin) provided for herein over (ii) the amount of
interest that otherwise would have accrued on such principal amount at a rate
per annum equal to the interest component of the amount such Lender would have
bid on the date of such payment, prepayment, Conversion or failure to borrow or
prepay in the London interbank market for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities comparable to
such period (as reasonably determined by such Lender).

5.06 Net Payments; Taxes.

(a) All payments to be made hereunder and under the Notes
and any other Loan Documents by the Company shall be made without setoff,
counterclaim or other defense. Subject to Section 5.06(b) hereof with respect
to U.S. Taxes, all such payments shall be made free and clear of and without
deduction for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
governmental authority (other than taxes imposed on the Agent, any Lender or
its Applicable Lending Office by the jurisdiction in which the Agent or such
Lender is organized or has its principal office or in which its Applicable
Lending Office is organized or located or, in each case, any political
subdivision or taxing authority thereof or therein) (collectively, "Taxes").
If any Taxes are imposed and required to be withheld from any amount payable by
the Company hereunder or under the Notes, the Company shall be obligated to (i)
pay such additional amount so that the Agent and the Lenders will receive a net
amount (after giving effect to the payment of such additional amount and to the
deduction of all Taxes) equal to the amount due hereunder, (ii) pay such Taxes
to the appropriate taxing authority for the account of the Agent, for the
benefit of the Lenders and (iii) as promptly as

Credit Agreement 39
<PAGE> 45
possible thereafter, sending the Agent a certified copy of any original
official receipt showing payment thereof, together with such additional
documentary evidence as the Agent may from time to time reasonably require. If
the Company fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Company shall be obligated to indemnify the Agent and
each Lender for any incremental taxes, interest or penalties that may become
payable by the Agent or such Lender as a result of such failure. The
obligations of the Company under this Section 5.06(a) shall survive the
repayment of the Loans and the termination of the Commitments.

(b) The Company agrees to pay to each Lender that is not a
U.S. Person such additional amounts as are necessary in order that the net
payment of any amount due to and received by such non-U.S. Person hereunder
after deduction for or withholding in respect of any U.S. Tax imposed with
respect to such payment (or in lieu thereof, payment of such U.S. Tax by such
non-U.S. Person), will not be less than the amount stated herein to be then due
and payable, provided that the foregoing obligation to pay such additional
amounts shall not apply:

(i) to any payment to a Lender (other than in respect of a
Registered Loan) hereunder unless such Lender is, on the date hereof (or
on the date it becomes a Lender as provided in Section 11.06(b) hereof)
and on the date of any change in the Applicable Lending Office of such
Lender, either entitled to submit a Form 1001 (relating to such Lender
and entitling it to a complete exemption from withholding on all interest
to be received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by such Lender hereunder in
respect of the Loans), or

(ii) to any payment to any Lender hereunder in respect of a
Registered Loan (a "Registered Holder"), unless such Registered Holder
(or, if such Registered Holder is not the beneficial owner of such
Registered Loan, the beneficial owner thereof) is, on the date hereof (or
on the date such Registered Holder becomes a Lender as provided in
Section 11.06(b) hereof) and on the date of any change in the Applicable
Lending Office of such Lender, entitled to submit a Form W-8, together
with an annual certificate stating that (x) such Registered Holder (or
beneficial owner, as the case may be) is not a "bank" within the meaning
of Section 881(c)(3)(A)of the Code, and (y) such Registered Holder (or
beneficial owner, as the case may be) shall promptly notify the Company
if at any time, such Registered Holder (or beneficial owner, as the case
may be) determines that it is no longer in a position to provide such
certificate to the Company (or any other form of certification adopted by
the relevant taxing authorities of the United States of America for such
purposes), or

(iii) to any U.S. Tax imposed solely by reason of the failure
by such non-U.S. Person (or, if such non- U.S. Person is not the
beneficial owner of the relevant Loan, such beneficial owner) to comply
with applicable certification, information, documentation or other
reporting requirements concerning the nationality, residence, identity or
connections with the United States of such non-U.S. Person (or such
beneficial owner, as the case may be) if such compliance is required by
statute or regulation of the United States as a precondition to relief or
exemption from such U.S. Tax.

Credit Agreement 40
<PAGE> 46
For the purposes of this Section 5.06(b), (v) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States, (w) "Form 4224" shall mean Form 4224 (Exemption
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) of the Department of the Treasury of
the United States, (x) "Form W-8" shall mean Form W-8 (Certificate of Foreign
Status of the Department of Treasury of the United States of America) (or in
relation to any of such Forms such successor and related forms as may from time
to time be adopted by the relevant taxing authorities of the United States to
document a claim to which such Form relates), (y) "U.S. Person" shall mean a
citizen, national or resident of the United States, a corporation, partnership
or other entity created or organized in or under any laws of the United States,
or any estate or trust that is subject to Federal income taxation regardless of
the source of its income and (z) "U.S. Taxes" shall mean any present or future
tax, assessment or other charge or levy imposed by or on behalf of the United
States or any taxing authority thereof or therein.

Within 30 days after paying any amount to the Agent or any Lender
from which it is required by law to make any deduction or withholding, and
within 30 days after it is required by law to remit such deduction or
withholding to any relevant taxing or other authority, the Company shall
deliver to the Agent for delivery to such non-U.S. Person evidence satisfactory
to such Person of such deduction, withholding or payment (as the case may be).

5.07 Replacement of Lenders. In the event that (x) any
Lender requests compensation pursuant to Section 5.01 or 5.06 hereof, or any
Lender's obligation to make or Continue, or to Convert Loans of any Type into,
any other Type of Loan shall be suspended pursuant to Section 5.01 or 5.03
hereof (any such Lender so requesting compensation, or whose obligations are so
suspended being herein called an "Additional Cost Lender") or (y) in connection
with any proposed modification, supplement or waiver pursuant to Section 11.04
hereof to which the Majority Lenders shall have consented, but to which one or
more of the Lenders shall not have consented (each such Lender a "Non-
Consenting Lender" and, collectively with each "Additional Cost Lender", a
"Relevant Lender"), the Company upon three Business Days notice may require
that any such Relevant Lender transfer all of its right, title and interest
under this Agreement and such Relevant Lender's Notes to any bank or other
financial institution identified by the Company that is reasonably satisfactory
to the Agent (i) if such bank or other financial institution (a "Proposed
Lender") agrees to assume all of the obligations of such Relevant Lender
hereunder, and to purchase all of such Relevant Lender's Loans hereunder for
consideration equal to the aggregate outstanding principal amount of such
Relevant Lender's Loans, together with accrued, but unpaid interest thereon to
the date of such purchase, and satisfactory arrangements are made for payment
to such Relevant Lender of all other amounts payable hereunder to such Relevant
Lender on or prior to the date of such transfer (including any fees accrued
hereunder and any amounts that would be payable under Section 5.05 hereof as if
all of such Relevant Lender's Loans were being prepaid in full on such date)
and (ii) if such Relevant Lender has requested compensation pursuant to Section
5.01 or 5.06 hereof, such Proposed Lender's aggregate requested compensation,
if any, pursuant to said Section 5.01 or 5.06 with respect to such Relevant
Lender's Loans is lower than that of the Relevant Lender. Subject to
compliance with the provisions of Section 11.06(b) hereof, such Proposed Lender
shall be a

Credit Agreement 41
<PAGE> 47
"Lender" for all purposes hereunder. Without prejudice to the survival of any
other agreement of the Company hereunder, the agreements of the Company
contained in Sections 5.01, 5.06 and 11.03 hereof (without duplication of any
payments made to such Relevant Lender by the Company or the Proposed Lender)
shall survive for the benefit of such Relevant Lender under this Section 5.07
with respect to the time prior to such replacement.

5.08 Additional Costs in Respect of Letters of Credit.
Without limiting the obligations of the Company under Section 5.01 hereof (but
without duplication), if as a result of any Regulatory Change or any risk-based
capital guideline or other requirement heretofore or hereafter issued by any
government or governmental or supervisory authority implementing at the
national level the Basle Accord there shall be hereafter imposed, modified or
deemed applicable any tax, reserve, special deposit, capital adequacy or
similar requirement against or with respect to or measured by reference to
Letters of Credit issued or to be issued hereunder and the result shall be to
increase the cost to any Lender or Lenders of issuing (or purchasing
participations in) or maintaining its obligation hereunder to issue (or
purchase participations in) any Letter of Credit hereunder or reduce any amount
receivable by any Lender hereunder in respect of any Letter of Credit (which
increases in cost, or reductions in amount receivable, shall be the result of
such Lender's or Lenders' reasonable allocation of the aggregate of such
increases or reductions resulting from such event), then, upon demand by such
Lender or Lenders (through the Agent), the Company shall pay immediately to the
Agent for account of such Lender or Lenders, from time to time as specified by
such Lender or Lenders (through the Agent), such additional amounts as shall be
sufficient to compensate such Lender or Lenders (through the Agent) for such
increased costs or reductions in amount. A statement as to such increased
costs or reductions in amount incurred by any such Lender or Lenders, submitted
by such Lender or Lenders to the Company shall be conclusive in the absence of
manifest error as to the amount thereof.

Section 6. Conditions Precedent.

6.01 Conditions to Effectiveness. The effectiveness of this
Agreement, and the obligation of any Lender to extend credit hereunder on the
Effective Date, are subject to (i) the condition precedent that the Effective
Date shall occur on or before December 31, 1997 and (ii) the receipt by the
Agent of the following documents, each of which shall be satisfactory to the
Agent (and to the extent specified below, to each Lender or the Majority
Lenders, as the case may be) in form and substance:

(a) Corporate Documents. Certified copies of the charter
and by-laws (or equivalent documents) of each Obligor and of all
corporate authority for each Obligor (including, without limitation,
board of director resolutions and evidence of the incumbency of officers,
together with specimen signatures of each such officer) with respect to
the execution, delivery and performance of such of the Basic Documents to
which such Obligor is intended to be a party and each other document to
be delivered by such Obligor from time to time in connection herewith and
the extensions of credit hereunder (and the Agent and each Lender may
conclusively rely on such certificate until it receives notice in writing
from such Obligor to the contrary).

Credit Agreement 42
<PAGE> 48
(b) Officer's Certificate. A certificate of a Responsible
Financial Officer of the Company, dated the Effective Date, to the effect
set forth in the first sentence of Section 6.03 hereof.

(c) Opinion of Counsel to the Obligors. Opinions, each
dated the Effective Date, of Hughes & Luce, L.L.P., counsel to the
Obligors, substantially in the form of Exhibit D hereto, and of Axtmayer
Adsuar Muniz & Goyco, special Puerto Rico counsel to the Subsidiary
Guarantors operating in the Commonwealth, substantially in the form of
Exhibit E hereto and, in each case, covering such other matters as the
Agent or any Lender may reasonably request (and each Obligor hereby
instructs such counsel to deliver such opinion to the Lenders and the
Agent).

(d) Opinion of Counsel to First Union. An opinion, dated
the Effective Date, of Milbank, Tweed, Hadley & McCloy, special New York
counsel to First Union, substantially in the form of Exhibit F hereto
(and First Union hereby instructs such counsel to deliver such opinion to
the Lenders).

(e) Notes. The Notes, duly completed and executed.

(f) Insurance. A certificate of a Responsible Financial
Officer of the Company setting forth the insurance obtained by it in
accordance with the requirements of Section 8.04 and stating that such
insurance is in full force and effect and that all premiums then due and
payable thereon have been paid.

(g) Solvency Analysis. A certificate from a Responsible
Financial Officer of the Company to the effect that, as of the Effective
Date and after giving effect to the initial extension of credit hereunder
and to the other transactions contemplated hereby, (i) the aggregate
value of all Properties of the Company and its Subsidiaries, at their
present fair saleable value (i.e., the amount that may be realized within
a reasonable time, considered to be six months to one year, either
through collection or sale at the regular market value, conceiving the
latter as the amount that could be obtained for the Property in question
within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary selling
conditions), exceeds the amount of all the debts and liabilities
(including contingent, subordinated, unmatured and unliquidated
liabilities) of the Company and its Subsidiaries, (ii) the Company and
its Subsidiaries will not have, on a consolidated basis, unreasonably
small capital with which to conduct their business operations as
heretofore conducted and (iii) the Company and its Subsidiaries will
have, on a consolidated basis, sufficient cash flow to enable them to pay
their debts as they mature. The Agent shall have also received (x) a
certificate from a Responsible Financial Officer of the Company
certifying that the financial projections and underlying assumptions
contained in such analyses were at the time made, and on the Effective
Date are, fair and reasonable and accurately computed and (y) appropriate
factual information supporting the conclusions of the solvency analyses
and the financial condition certificate required to be delivered as
provided above.

Credit Agreement 43
<PAGE> 49
(h) Security Agreement. The Security Agreement, duly
executed and delivered by the Company and the Agent and the certificates
representing the capital stock of each of the direct Subsidiaries of the
Company on the Effective Date (65% of the capital stock in the case of
Garrido), accompanied by undated stock powers executed in blank. In
addition, upon request of the Agent, the Company shall have taken such
other action (including, without limitation, delivering to the Agent, (i)
Uniform Commercial Code searches for each jurisdiction in which the
Company conducts its business or in which any of its Properties are
located (or otherwise as the Agent may reasonably request) and (ii) for
filing, appropriately completed and duly executed copies of Uniform
Commercial Code financing statements) as the Agent shall have requested
in order to perfect the security interests created pursuant to the
Security Agreement.

(i) Subsidiary Guarantee and Security Agreement. The
Subsidiary Guarantee and Security Agreement, duly executed and delivered
by each Subsidiary of the Company on the Effective Date (other than
Garrido) and the Agent and the certificates representing the capital
stock of each of the indirect Subsidiaries of the Company on the
Effective Date, accompanied by appropriate undated stock powers executed
in blank. In addition, upon request of the Agent, the Company shall have
taken such other action (including, without limitation, delivering to the
Agent, (i) Uniform Commercial Code searches for each such Subsidiary
Guarantor for each jurisdiction in which such Subsidiary Guarantor
conducts its business or in which any of its Properties are located (or
otherwise as the Agent may reasonably request) and (ii) for filing,
appropriately completed and duly executed copies of Uniform Commercial
Code financing statements), as the Agent shall have requested in order to
perfect the security interests created pursuant to the Subsidiary
Guarantee and Security Agreement.

(j) Payment of Fees and Expenses, Etc. Evidence that the
Company shall have paid such fees and expenses as the Company shall have
agreed to pay to the Agent in connection herewith, including, without
limitation, the reasonable fees and expenses of Milbank, Tweed, Hadley &
McCloy, special New York counsel to First Union, and Fiddler Gonzalez &
Rodriguez, special Puerto Rico counsel to First Union, in connection with
the negotiation, preparation, execution and delivery of this Agreement
and the Notes and the other Loan Documents and the making of the Loans
hereunder (to the extent that statements for such fees and expenses have
been delivered to the Company).

(k) Existing Credit Agreements. Evidence that (i) all
principal of and interest accrued on the outstanding "Facility A Loans"
and "Facility B Loans" under the Third Restated Agreement and all accrued
commitment and other fees thereunder to the Effective Date, (ii) all
principal of and interest accrued on the outstanding "Facility C Loans"
and "Facility D Loans" under the Restated Supplemental Agreement and all
accrued commitment and other fees thereunder to the Effective Date, (iii)
all other amounts (if any) payable by the Company under or in respect of
the Existing Credit Agreements have been paid in full, and (iv) the
"Commitments" (as defined in each of the Third Restated Agreement and the
Restated Supplemental Agreement) have terminated.

Credit Agreement 44
<PAGE> 50
(l) Other Documents. Such other documents as the Agent or
any Lender or special New York counsel to First Union may reasonably
request.

6.02 Conditions Precedent to Lending for Permitted
Acquisitions. The obligation of any Lender to make Loans hereunder to finance
any Permitted Acquisition (including the Country Fresh Merger and the
Morningstar Merger) is subject to the receipt by the Agent of the following
documents, each of which shall be satisfactory to the Agent (and to the extent
specified below, to each Lender, Majority Lenders, or Supermajority Lenders, as
the case may be) in form and substance:

(a) In connection with each Permitted Acquisition involving
the purchase of the capital stock or other ownership interests of a
Person (unless such Person is merged contemporaneously into the Company
or an existing Subsidiary of the Company) or the formation of a
corporation or other entity for the purpose of such Permitted
Acquisition:

(i) Corporate Documents. Certified copies of the
charter and by-laws (or equivalent documents) of the relevant
Person and of all corporate authority for such Person (including,
without limitation, board of directors resolutions and evidence
of the incumbency of officers, together with specimen signatures
of each such officer) with respect to the execution, delivery and
performance of such of the Basic Documents to which such Person
is intended to be a party and each other document to be delivered
by such Person from time to time in connection herewith and
therewith (and the Agent and each Lender may conclusively rely on
such certificate until it receives notice in writing from such
Person to the contrary).

(ii) Supplemental Subsidiary Guarantee and Security
Agreement. A Supplemental Subsidiary Guarantee and Security
Agreement, substantially in the form of Exhibit C hereto and duly
executed by the relevant Supplemental Guarantor, pursuant to
which such Supplemental Guarantor shall pledge all of its
ownership interests (including, without limitation, warrants,
options or other securities convertible into ownership interests)
in its Subsidiaries and Affiliates, if any, to the Agent for the
benefit of the Lenders, except as otherwise provided herein or
therein. In addition, upon the request of the Agent, the Company
shall have taken such other action (including, without
limitation, delivering to the Agent, (i) Uniform Commercial Code
searches for such Supplemental Guarantor for each jurisdiction in
which such Supplemental Guarantor conducts its business or in
which any of its Properties are located (or otherwise as the
Agent may reasonably request) and (ii) for filing, appropriately
completed and duly executed copies of Uniform Commercial Code
financing statements), as the Agent shall have requested in order
to perfect the security interest created pursuant to such
Supplemental Subsidiary Guarantee and Security Agreement.

(iii) Opinion of Counsel to the Supplemental
Guarantor. Opinions, appropriately dated, of counsel to the
relevant Supplemental Guarantor covering such matters as the
Agent or any Lender may reasonably request.

Credit Agreement 45
<PAGE> 51
(iv) Opinion of Counsel to First Union. An opinion,
appropriately dated, of Milbank, Tweed, Hadley & McCloy, special
New York counsel to First Union, substantially in the form of
Exhibit F hereto but as to the relevant Supplemental Subsidiary
Guarantee and Security Agreement (and First Union hereby
instructs such counsel to deliver such opinion to the Lenders).

(v) Amendment to Security Agreement; Filings. An
amendment to the Security Agreement (or, if applicable, the
Subsidiary Guarantee and Security Agreement or the relevant
Supplemental Subsidiary Guarantee and Security Agreement), duly
executed and delivered by the Company (or the appropriate
Subsidiary) and the Agent and the certificates identified in
Annex 1 thereto, accompanied by undated stock powers executed in
blank. In addition, upon the request of the Agent, the Company
shall have taken such other action (including, without
limitation, delivering to the Agent, (i) Uniform Commercial Code
searches for each Supplemental Guarantor for each jurisdiction in
which such Supplemental Guarantor conducts its respective
business or in which any of its respective Properties are located
(or otherwise as the Agent may reasonably request) and (ii) for
filing, appropriately completed and duly executed copies of
Uniform Commercial Code financing statements) as the Agent shall
have requested in order to perfect the security interests created
pursuant to such amendment to the Security Agreement, the
Subsidiary Guarantee and Security Agreement, and/or the relevant
Supplemental Subsidiary Guarantee and Security Agreement.

(vi) Insurance. Certificates of insurance evidencing
the existence of all insurance required to be maintained by the
relevant Supplemental Guarantor pursuant to Section 8.04 hereof
and a certificate of a Responsible Financial Officer of the
Company or such Supplemental Guarantor stating that such
insurance is in full force and effect and that all premiums then
due and payable thereon have been paid.

(b) In connection with all Permitted Acquisitions with
respect to which the Net Purchase Price exceeds $15,000,000 (including
the Country Fresh Merger and the Morningstar Merger) (as appropriate):

(i) Consummation of Permitted Acquisition. Evidence
that the relevant Permitted Acquisition shall have been
consummated in all material respects in accordance with the terms
of the relevant Purchase Agreement, and the Agent shall have
received a certificate of a Responsible Financial Officer of the
Company to that effect (and attaching thereto a true and complete
copy of the relevant Purchase Agreement).

(ii) Solvency Analysis. A certificate from a
Responsible Financial Officer of the Company to the effect that,
as of the date of the respective Permitted Acquisition and after
giving effect to the Loans in connection with the relevant

Credit Agreement 46
<PAGE> 52
Permitted Acquisition hereunder and to the other transactions
contemplated hereby in connection with such Permitted
Acquisition, (i) the aggregate value of all Properties of the
Company and its Subsidiaries at their present fair saleable value
(i.e., the amount that may be realized within a reasonable time,
considered to be six months to one year, either through
collection or sale at the regular market value, conceiving the
latter as the amount that could be obtained for the Property in
question within such period by a capable and diligent businessman
from an interested buyer who is willing to purchase under
ordinary selling conditions), exceeds the amount of all the debts
and liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities) of the Company and its
Subsidiaries, (ii) the Company and its Subsidiaries will not, on
a consolidated basis, have unreasonably small capital with which
to conduct their business operations as theretofore conducted and
(iii) the Company and its Subsidiaries will have, on a
consolidated basis, sufficient cash flow to enable them to pay
their debts as they mature. The Agent shall have also received
(x) a certificate from a Responsible Financial Officer of the
Company certifying that the financial projections and underlying
assumptions contained in such analyses were at the time made, and
on the date thereof are, fair and reasonable and accurately
computed and (y) appropriate factual information supporting the
conclusions of the solvency analyses and the financial condition
certificate required to be delivered as provided above.

(iii) Financial Information. (A) a certificate of
a Responsible Financial Officer of the Company to the effect that
on a pro forma basis after giving effect to the relevant
Permitted Acquisition, the Company shall remain in compliance
with Sections 8.10, 8.11, 8.12 and 8.13 hereof and (B) the most
recent audited consolidated balance sheet of the Person (if any)
to be acquired and its Subsidiaries and the related statement of
income, retained earnings and cash flow for the fiscal year ended
on said date, with opinions thereon of the auditors of such
Person(or, if audited financial statements are not available to
the Company, unaudited financial statements (i) reviewed by
independent certified accountants of recognized national standing
and acceptable to the Agent and (ii) in form satisfactory to the
Agent), and the most recent unaudited consolidated balance sheet
of such Person and its Subsidiaries and the related statements of
income and retained earnings for the period ended on the date of
such unaudited statements.

(iv) Payment of Fees and Expenses, Etc. Evidence that
the Company shall have paid such fees and expenses as the Company
shall have agreed to pay to the Agent in connection herewith,
including, without limitation, the reasonable fees and expenses
of Milbank, Tweed, Hadley & McCloy, special New York counsel to
First Union, and Fiddler Gonzalez & Rodriguez, special Puerto
Rico counsel to First Union, in connection with the satisfaction
of the conditions in this Section 6.02 and the making of the
Loans hereunder in connection with the relevant Permitted
Acquisition (to the extent that statements for such fees and
expenses have been delivered to the Company).

Credit Agreement 47
<PAGE> 53
(v) Other Documents. Such other documents as the
Agent or any Lender or special New York counsel to First Union
may reasonably request.

Environmental Matters. To the extent that a Permitted
Acquisition involves the direct or indirect acquisition of real
Property, upon the request of the Agent, environmental surveys
and assessments prepared by one or more firms of licensed
engineers (familiar with the identification of toxic and
hazardous substances) in form and substance satisfactory to the
Agent, such environmental survey and assessment to be based upon
physical on-site inspections by such firm of each of the existing
sites and facilities to be owned, operated or leased by the
Company or the relevant Supplemental Guarantor or any of its
Subsidiaries pursuant to such Permitted Acquisition as well as an
historical review of the uses of such sites and facilities and of
the business and operations of such Supplemental Guarantor or any
of its Subsidiaries (including any former Subsidiaries or
divisions thereof or any of its Subsidiaries that have been
disposed of prior to the date of such survey and assessment and
with respect to which such Supplemental Guarantor or any of its
Subsidiaries may have retained liability for Environmental
Claims), and if requested by the Agent, the Company shall have
agreed to take other reasonable steps after the date of such
Permitted Acquisition with respect to such matters as shall be
agreed in writing with the Agent.

6.03 Conditions to all Extensions of Credit. The
effectiveness of this Agreement and the obligation of the Lenders to make any
Loan or otherwise extend any credit to the Company upon the occasion of each
borrowing hereunder (including the borrowing on the Effective Date) are subject
to the further conditions precedent that, both immediately prior to such
effectiveness and to the making of such Loan or other extension of credit and
also after giving effect thereto and to the intended use thereof:

(i) no Default shall have occurred and be continuing;
and

(ii) the representations and warranties made by the
Company in Section 7 hereof, and by each Obligor in each of the
other Loan Documents to which it is a party, shall be true and
complete on and as of the date of such effectiveness or the date
of the making of such Loan or other extension of credit, as the
case may be, with the same force and effect as if made on and as
of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of
such specific date).

Each notice of borrowing or request for the issuance of a Letter of Credit by
the Company hereunder shall constitute a certification by the Company to the
effect set forth in the first sentence of this Section 6.03 (both as of the
date of such notice and, unless the Company otherwise notifies the Agent prior
to the date of such borrowing or issuance, as of the date of such borrowing or
issuance).

Credit Agreement 48
<PAGE> 54
Section 7. Representations and Warranties. The Company
represents and warrants to the Agent and the Lenders that (with respect to
matters pertaining to itself and each of its Subsidiaries):

7.01 Corporate Existence. Each of the Company and its
Subsidiaries: (a) is a corporation, partnership or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate or other
power, and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business and is in good
standing in all jurisdictions in which the nature of the business conducted by
it makes such qualification necessary and where failure so to qualify could
(either individually or in the aggregate) have a Material Adverse Effect.

7.02 Financial Condition. The Company has heretofore
furnished to each of the Lenders the following:

(a) unaudited consolidating balance sheets of the Company
and its Subsidiaries as at December 31, 1996, and the related
consolidating statements of income and operating cash flow for the
twelve-month period ended on said date; and

(b) an audited consolidated balance sheet of the Company
and its Subsidiaries as at December 31, 1996 and the related consolidated
statements of income, retained earnings and cash flow of the Company and
its Subsidiaries for the fiscal period ended on said date, with the
opinion thereon of Deloitte & Touche LLP.

All such financial statements fairly present the financial condition of the
respective entities as at the respective dates, and the respective results of
operations for the respective periods ended on said respective dates, all in
accordance with generally accepted accounting principles and practices applied
on a consistent basis. None of such respective entities has on the date hereof
any material contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the
respective balance sheets referred to above. Since December 31, 1996 (with
respect to the Company and each of its Subsidiaries), there has been no
material adverse change in the respective financial condition, operations,
business or prospects of each such entity from that set forth in the respective
financial statements as at such date.

7.03 Litigation. Except as disclosed in Schedule IV hereto,
there are no legal or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or (to the
knowledge of the Company) threatened against the Company or any of its
Subsidiaries that, if adversely determined could (either individually or in the
aggregate) have a Material Adverse Effect.

7.04 No Breach. None of the execution and delivery of this
Agreement and the Notes and the other Basic Documents, the consummation of the
transactions herein and therein

Credit Agreement 49
<PAGE> 55
contemplated or compliance with the terms and provisions hereof and thereof
will conflict with or result in a breach of, or require any consent under, the
charter or by-laws of any Obligor, or any applicable law or regulation, or any
order, writ, injunction or decree of any court or governmental authority or
agency, or any material agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or any of their Property is
bound or to which any of them is subject, or constitute a default under any
such agreement or instrument, or (except for the Liens created pursuant to the
Security Documents) result in the creation or imposition of any Lien upon any
Property of the Company or any of its Subsidiaries pursuant to the terms of any
such agreement or instrument.

7.05 Action. Each Obligor has all necessary corporate or
other power, authority and legal right to execute, deliver and perform its
obligations under each of the Basic Documents to which it is a party; the
execution, delivery and performance by each Obligor of each of the Basic
Documents to which it is a party have been duly authorized by all necessary
corporate or other action on its part (including, without limitation, any
required shareholder or member approvals); and this Agreement has been duly and
validly executed and delivered by each Obligor and constitutes, and each of the
Notes and the other Basic Documents to which it is a party when executed and
delivered by such Obligor (in the case of the Notes, for value) will
constitute, its legal, valid and binding obligation, enforceable against each
Obligor in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar
laws of general applicability affecting the enforcement of creditors' rights
and (b) the application of general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law). Each
Security Document is effective to create in favor of the Agent for the benefit
of the Lenders a legal, valid and enforceable first priority Lien upon all
right, title and interest of the Obligor or Obligors party thereto in the
Property described therein and such Lien has been perfected, except as
otherwise permitted under Section 8.06 hereof or in such Security Document.

7.06 Approvals. No authorizations, approvals or consents
of, and no filings or registrations with, any governmental or regulatory
authority or agency, or any securities exchange, are necessary for the
execution, delivery or performance by any Obligor of the Basic Documents to
which it is a party or for the legality, validity or enforceability hereof or
thereof, except for filings and recordings in respect of the Liens created
pursuant to the Security Documents.

7.07 Use of Credit. None of the Company nor any of its
Subsidiaries is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate, incidental
or ultimate, of buying or carrying Margin Stock, other than purchases of the
Company's capital stock from employees of the Company or its Subsidiaries, and
no part of the proceeds of the Loans hereunder will be used to buy or carry any
Margin Stock.

7.08 ERISA. Each Plan, and, to the knowledge of the
Company, each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with,
the applicable provisions of ERISA, the Code and any other Federal or State
law, and no event or condition has occurred and is continuing as to which the

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Company would be under an obligation to furnish a report to the Lenders under
Section 8.01(e) hereof.

7.09 Taxes. The Company and its Subsidiaries (other than
the Obligors operating in the Commonwealth and Garrido) are members of an
affiliated group of corporations filing consolidated returns for Federal income
tax purposes, of which the Company is the "common parent" (within the meaning
of Section 1504 of the Code) of such group. The Company and its Subsidiaries
have filed all Federal income tax returns and all other material tax returns
that are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by the Company or any of
its Subsidiaries. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of taxes and other governmental charges
are, in the opinion of the Company, adequate. The Company has not given or
been requested to give a waiver of the statute of limitations relating to the
payment of Federal, state, local and foreign taxes or other impositions. Neva
Plastics and Suiza Fruit each hold industrial tax exemption grants entitling
each of them to a 90% exemption from income and property taxes and a 60%
exemption from municipal license taxes. The grant held by Neva Plastics will
expire on August 31, 2000 for income tax purposes, on June 30, 2001 for
municipal tax purposes and on January 1, 2000 for property tax purposes. The
grant held by Suiza Fruit will expire on October 12, 2002 for income and
property tax purposes and on June 30, 2003 for municipal license tax purposes.

7.10 Investment Company Act. Neither the Company nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.

7.11 Public Utility Holding Company Act. Neither the
Company nor any of its Subsidiaries is a "holding company", or an "affiliate"
of a "holding company" or a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

7.12 Material Agreements and Liens.

(a) Part A of Schedule I hereto is a complete and correct
list, as of the Effective Date, and after giving effect to the transactions
contemplated hereunder to occur on such date, of each credit agreement, loan
agreement, indenture, purchase agreement, guarantee, letter of credit or other
arrangement providing for or otherwise relating to any Indebtedness or any
extension of credit (or commitment for any extension of credit) to, or
guarantee by, the Company or any of its Subsidiaries, and the aggregate
principal or face amount outstanding or that may become outstanding under each
such arrangement is correctly described in Part A of said Schedule I.

(b) Part B of Schedule I hereto is a complete and correct
list, as of the Effective Date (and after giving effect to the transactions
contemplated hereunder to occur on such date), of each Lien securing
Indebtedness of any Person and covering any Property of the Company or any of
its Subsidiaries that will continue after the Effective Date, and the aggregate

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Indebtedness secured (or that may be secured) by each such Lien and the
Property covered by each such Lien is correctly described in Part B of said
Schedule I.

7.13 Environmental Matters. Each of the Company and its
Subsidiaries has obtained all environmental, health and safety permits,
licenses and other authorizations required under all Environmental Laws to
carry on its business as now being or as proposed to be conducted, except to
the extent failure to have any such permit, license or authorization would not
(either individually or in the aggregate) have a Material Adverse Effect. Each
of such permits, licenses and authorizations is in full force and effect and
each of the Company and its Subsidiaries is in compliance with the terms and
conditions thereof, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, except to
the extent failure to comply therewith would not (either individually or in the
aggregate) have a Material Adverse Effect.

In addition, except as to matters with respect to which the
Company and its Subsidiaries could not reasonably be expected to incur
liabilities in excess of $5,000,000 in the aggregate:

(a) No notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has
been filed, no penalty has been assessed and no investigation or review
is pending or threatened by any governmental or other entity with respect
to any alleged failure by the Company or any of its Subsidiaries to have
any environmental, health or safety permit, license or other
authorization required under any Environmental Law in connection with the
conduct of the business of the Company or any of its Subsidiaries or with
respect to any generation, treatment, storage, recycling, transportation,
discharge or disposal, or any Release of any Hazardous Materials
generated by the Company or any of its Subsidiaries.

(b) Neither the Company nor any of its Subsidiaries owns,
operates or leases a treatment, storage or disposal facility requiring a
permit under the Resource Conservation and Recovery Act of 1976, as
amended, or under any comparable state or local statute; and

(i) no polychlorinated biphenyls (PCB's) is or has
been present at any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries;

(ii) no asbestos or asbestos-containing materials is or
has been present at any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries;

(iii) there are no underground storage tanks,
other than those disclosed in consultant reports provided to the
Agent by the Company or its Subsidiaries, or

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surface impoundments for Hazardous Materials, active or
abandoned, at any site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries;

(iv) no Hazardous Materials have been Released at, on
or under any site or facility now or previously owned, operated
or leased by the Company or any of its Subsidiaries in a
reportable quantity established by statute, ordinance, rule,
regulation or order; and

(v) no Hazardous Materials have been otherwise
Released at, on or under any site or facility now or previously
owned, operated or leased by the Company or any of its
Subsidiaries that would (either individually or in the aggregate)
have a Material Adverse Effect.

(c) Neither the Company nor any of its Subsidiaries has
transported or arranged for the transportation of any Hazardous Material
to any location that is listed on the National Priorities List ("NPL")
under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), listed for possible
inclusion on the NPL by the Environmental Protection Agency in the
Comprehensive Environmental Response and Liability Information System, as
provided for by 40 C.F.R. Section 300.5 ("CERCLIS"), or on any similar
state or local list or that is the subject of Federal, state or local
enforcement actions or other investigations that may lead to
Environmental Claims against the Company or any of its Subsidiaries.

(d) No Hazardous Material generated by the Company or any
of its Subsidiaries has been recycled, treated, stored, disposed of or
Released by the Company or any of its Subsidiaries at any location other
than those listed in Schedule II hereto.

(e) No oral or written notification of a Release of a
Hazardous Material has been filed by or on behalf of the Company or any
of its Subsidiaries and no site or facility now or previously owned,
operated or leased by the Company or any of its Subsidiaries is listed or
proposed for listing on the NPL, CERCLIS or any similar state list of
sites requiring investigation or clean-up.

(f) No Liens have arisen under or pursuant to any
Environmental Laws on any site or facility owned, operated or leased by
the Company or any of its Subsidiaries, and no government action has been
taken or is in process that could subject any such site or facility to
such Liens and neither the Company nor any of its Subsidiaries would be
required to place any notice or restriction relating to the presence of
Hazardous Materials at any site or facility owned by it in any deed to
the real property on which such site or facility is located.

(g) All environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or that are in the
possession of the Company or any of its Subsidiaries in relation to
facts, circumstances or conditions at or affecting any site or

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facility now or previously owned, operated or leased by the Company or
any of its Subsidiaries and that could result in a Material Adverse
Effect have been made available to the Lenders.

7.14 Capitalization.

(a) As of the Effective Date, the authorized capital stock
of the Company consists of 101,000,000 shares, consisting of 100,000,000 shares
of common stock, par value $0.01 per share, and 1,000,000 shares of preferred
stock, par value $0.01 per share;

(b) As of October 31, 1997, the Company has 15,810,800
shares of issued and outstanding common stock, and all of such issued shares
are duly and validly issued and outstanding and are not held in treasury;

(c) As of the Effective Date (after consummation of the
Country Fresh Merger), the Company has 11,691 shares of issued and outstanding
Series A preferred stock and all of such issued shares are duly and validly
authorized and outstanding and are not held in treasury; and

(d) As of the Effective Date, there are no outstanding
obligations of the Company or any of its Subsidiaries to repurchase, redeem, or
otherwise acquire any shares of capital stock of the Company or any of its
Subsidiaries or to make payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
market value or equity value of the Company or any of its Subsidiaries, except
for the right of the holders of certain warrants for the purchase of stock of
Franklin Plastics, Inc., a Delaware corporation and a Subsidiary of the
Company, to put such stock or warrants to the issuer thereof or the Company.

7.15 Subsidiaries, Etc.

(a) Set forth in Part A of Schedule III hereto is a
complete and correct list, as of the Effective Date after the consummation of
the Country Fresh Merger and the Morningstar Merger, of all of the Subsidiaries
of the Company, together with, for each such Subsidiary, (i) the jurisdiction
of organization of such Subsidiary, (ii) each Person holding ownership
interests in such Subsidiary and (iii) the nature of the ownership interests
held by each such Person and the percentage of ownership of such Subsidiary
represented by such ownership interests. Except as disclosed in Part A of
Schedule III hereto, (x) each of the Company and its Subsidiaries owns, free
and clear of Liens (other than Liens permitted by Section 8.06(c) hereof and
Liens created pursuant to the Security Documents), and has the unencumbered
right to vote, all outstanding ownership interests in each Person shown to be
held by it in Part A of Schedule III hereto, (y) all of the issued and
outstanding capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (z) except for warrants for
the purchase of stock of Franklin Plastics, Inc., a Delaware corporation, there
are no outstanding Equity Rights with respect to such Person.

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(b) Set forth in Part B of Schedule III hereto is a
complete and correct list, as of the Effective Date after the consummation of
the Country Fresh Merger and the Morningstar Merger, of all Investments (other
than Investments disclosed in Part A of said Schedule III hereto) held by the
Company or any of its Subsidiaries in any Person and, for each such Investment,
(x) the identity of the Person or Persons holding such Investment and (y) the
nature of such Investment. Except as disclosed in Part B of Schedule III
hereto, each of the Company and its Subsidiaries owns, free and clear of all
Liens (other than Liens permitted by Section 8.06(c) hereof and Liens created
pursuant to the Security Documents), all such Investments.

(c) None of the Subsidiaries of the Company is, on the
Effective Date, subject to any indenture, agreement, instrument or other
arrangement of the type described in Section 8.17(b) hereof, except as
permitted thereby.

7.16 Title to Assets. The Company owns and has on the date
hereof, and will own and have on the Effective Date, good and marketable title
(subject only to Liens permitted by Section 8.06 hereof) to the Properties
shown to be owned in the most recent financial statements referred to in
Section 7.02 hereof (other than Properties disposed of in the ordinary course
of business or otherwise permitted to be disposed of pursuant to Section 8.05
hereof). The Company owns and has on the date hereof, and will own and have on
the Effective Date, good and marketable title to, and enjoys on the date
hereof, and will enjoy on the Effective Date, peaceful and undisturbed
possession of, all Properties (subject only to Liens permitted by Section 8.06
hereof) that are necessary for the operation and conduct of its businesses.

7.17 True and Complete Disclosure. The information,
reports, financial statements, exhibits and schedules furnished in writing by
or on behalf of the Obligors to the Agent or any Lender in connection with the
negotiation, preparation or delivery of this Agreement and the other Loan
Documents or included herein or therein or delivered pursuant hereto or
thereto, when taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading. The pro forma projections of the Company and its Subsidiaries
dated October 2, 1997, assuming the completion of the Country Fresh Merger and
the Morningstar Merger, heretofore delivered to the Agent and the Lenders, are
made in good faith based on reasonable estimates and assumptions on the date
hereof. All written information furnished after the date hereof by the Company
and its Subsidiaries to the Agent and the Lenders in connection with this
Agreement and the other Loan Documents and the transactions contemplated hereby
and thereby will be true, complete and accurate in every material respect, or
(in the case of projections) based on reasonable estimates, on the date as of
which such information is stated or certified. There is no fact known to the
Company that could have a Material Adverse Effect that has not been disclosed
herein, in the other Loan Documents or in a report, financial statement,
exhibit, schedule, disclosure letter or other writing furnished to the Lenders
for use in connection with the transactions contemplated hereby or thereby.

7.18 Solvency. As of the Effective Date and after giving
effect to the initial extension of credit hereunder and the other transactions
contemplated hereby, (a) the aggregate value of all Properties of the Company
and its Subsidiaries at their present fair saleable value (i.e.,

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the amount that may be realized within a reasonable time, considered to be six
months to one year, either through collection or sale at the regular market
value, conceiving the latter as the amount that could be obtained for the
Property in question within such period by a capable and diligent businessman
from an interested buyer who is willing to purchase under ordinary selling
conditions), exceeds the amount of all the debts and liabilities (including
contingent, subordinated, unmatured and unliquidated liabilities) of the
Company and its Subsidiaries, (b) the Company and its Subsidiaries will not, on
a consolidated basis, have unreasonably small capital with which to conduct
their business operations as heretofore conducted and (c) the Company and its
Subsidiaries will have, on a consolidated basis, sufficient cash flow to enable
them to pay their debts as they mature.

Section 8. Covenants of the Company. The Company covenants
and agrees with the Lenders and the Agent that, so long as any Commitment or
Loan or Letter of Credit Liability is outstanding and until payment in full of
all amounts payable by the Company hereunder:

8.01 Financial Statements, Etc. The Company shall deliver,
or shall cause to be delivered, to each of the Lenders:

(a) as soon as available and in any event within 45 days
after the end of each quarterly fiscal period of each fiscal year of the
Company, consolidated statements of income, retained earnings and cash
flow of the Company and its Subsidiaries for such period and for the
period from the beginning of the respective fiscal year to the end of
such period, and the related consolidated balance sheet of the Company
and its Subsidiaries as at the end of such period, setting forth in each
case in comparative form the corresponding consolidated figures for the
corresponding periods in the preceding fiscal year, accompanied by a
certificate of a Responsible Financial Officer of the Company, which
certificate shall state that said consolidated financial statements
fairly present the consolidated financial condition and results of
operations of the Company and its Subsidiaries, in accordance with
generally accepted accounting principles, consistently applied, as at the
end of, and for, such period (subject to normal year-end audit
adjustments);

(b) as soon as available and in any event within 90 days
after the end of each fiscal year of the Company, consolidated statements
of income, retained earnings and cash flow of the Company and its
Subsidiaries for such fiscal year and the related consolidated balance
sheet of the Company and its Subsidiaries as at the end of such fiscal
year, setting forth in each case in comparative form the corresponding
consolidated figures for the preceding fiscal year, and accompanied by an
opinion thereon of independent certified public accountants of recognized
national standing, which opinion shall state that said consolidated
financial statements fairly present the consolidated financial condition
and results of operations of the Company and its Subsidiaries as at the
end of, and for, such fiscal year in accordance with generally accepted
accounting principles, and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default;

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(c) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Commission or any national securities
exchange;

(d) promptly upon mailing thereof to the shareholders of
the Company generally, copies of all financial statements, reports and
proxy statements so mailed;

(e) as soon as possible, and in any event within ten days
after the Company knows or has reason to believe that any of the events
or conditions specified below with respect to any Plan or Multiemployer
Plan has occurred or exists, a statement signed by a Responsible
Financial Officer of the Company setting forth details respecting such
event or condition and the action, if any, that the Company or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any report
or notice required to be filed with or given to PBGC by the Company or an
ERISA Affiliate with respect to such event or condition):

(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that a
failure to meet the minimum funding standard of Section 412 of
the Code or Section 302 of ERISA, including, without limitation,
the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of
ERISA, shall be a reportable event regardless of the issuance of
any waivers in accordance with Section 412(d) of the Code); and
any request for a waiver under Section 412(d) of the Code for any
Plan;

(ii) the distribution under Section 4041 of ERISA of a
notice of intent to terminate any Plan or any action taken by the
Company or an ERISA Affiliate to terminate any Plan;

(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by PBGC with respect to such
Multiemployer Plan;

(iv) the complete or partial withdrawal from a
Multiemployer Plan by the Company or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) or the receipt by the Company or
any ERISA Affiliate of notice from a Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or
4245 of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;

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(v) the institution of a proceeding by a fiduciary of
any Multiemployer Plan against the Company or any ERISA Affiliate
to enforce Section 515 of ERISA, which proceeding is not
dismissed within 30 days; and

(vi) the adoption of an amendment to any Plan that,
pursuant to Section 401(a)(29) of the Code or Section 307 of
ERISA, would result in the loss of tax-exempt status of the trust
of which such Plan is a part if the Company or an ERISA Affiliate
fails to timely provide security to the Plan in accordance with
the provisions of said Sections;

(f) promptly after the Company knows or has reason to
believe that any Default has occurred, a notice of such Default
describing the same in reasonable detail and, together with such notice
or as soon thereafter as possible, a description of the action that the
Company has taken or proposes to take with respect thereto;

(g) promptly upon receipt thereof, copies of all management
letters and other material reports which are submitted to the Board of
Directors of the Company or any of its Subsidiaries by their independent
certified public accountants in connection with any annual audit of the
Company and/or any such Subsidiary by such accountants;

(h) as soon as available and in any event on or before
December 31 of each fiscal year, a budget for the next following fiscal
year setting forth for each Subsidiary of the Company and for the Company
and its Subsidiaries as a whole, anticipated income, expense and capital
expenditure items for each quarter during such fiscal year, together with
pro forma unaudited balance sheets of the Company and its Subsidiaries
and the related pro forma statements of retained earnings, and quarterly,
concurrently with the delivery of the financial statements for such
fiscal year pursuant to clause (a) above, a report setting forth a
detailed comparison of actual performance to the budget referred to
above; and

(i) from time to time such other information regarding the
financial condition, operations, business or prospects of the Company or
any of its Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA) as any Lender or the Agent may reasonably request.

The Company will furnish to each Lender, at the time it furnishes each set of
financial statements pursuant to clause (a) above, a certificate of a
Responsible Financial Officer of the Company (i) to the effect that no Default
has occurred and is continuing (or, if any Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
that the Company has taken or proposes to take with respect thereto) and (ii)
setting forth in reasonable detail the computations necessary to determine
whether the Company is in compliance with Sections 8.10, 8.11, 8.12 and 8.13
hereof as of the end of the respective quarterly fiscal period or fiscal year.

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8.02 Litigation. The Company will promptly give to each
Lender notice of all legal or arbitral proceedings, and of all proceedings by
or before any governmental or regulatory authority or agency, and any material
development in respect of such legal or other proceedings, affecting the
Company or any of its Subsidiaries, except proceedings that, if adversely
determined, would not (either individually or in the aggregate) have a Material
Adverse Effect. Without limiting the generality of the foregoing, the Company
will give to each Lender notice of the assertion of any Environmental Claim by
any Person against, or with respect to the activities of, the Company or any of
its Subsidiaries and notice of any alleged violation of or non-compliance with
any Environmental Laws or any permits, licenses or authorizations, other than
any Environmental Claim or alleged violation that, if adversely determined,
would not (either individually or in the aggregate) have a Material Adverse
Effect.

8.03 Existence, Etc. The Company will, and will cause each
of its Subsidiaries to:

(a) preserve and maintain its legal existence and all of
its material rights, privileges, licenses and franchises (provided that
nothing in this Section 8.03 shall prohibit any transaction expressly
permitted under Section 8.05 hereof);

(b) comply with the requirements of all applicable laws,
rules, regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements could (either individually or
in the aggregate) have a Material Adverse Effect;

(c) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or profits
or on any of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;

(d) maintain all of its Properties used or useful in its
business in good working order and condition, ordinary wear and tear
excepted;

(e) keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied; and

(f) upon reasonable prior notice, permit representatives of
any Lender or the Agent, during normal business hours, to examine, copy
and make extracts from its books and records, to inspect any of its
Properties, and to discuss its business and affairs with its officers,
all to the extent reasonably requested by such Lender or the Agent (as
the case may be).

8.04 Insurance. The Company will, and will cause each of
its Subsidiaries to, maintain insurance with financially sound and reputable
insurance companies, and with respect to

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Property and risks of a character usually maintained by corporations engaged in
the same or similar business similarly situated, against loss, damage and
liability of the kinds and in the amounts customarily maintained by such
corporations.

On or before the Effective Date, the Company will deliver to the
Agent certificates of insurance satisfactory to the Agent evidencing the
existence of all insurance required to be maintained by the Company hereunder
setting forth the respective coverages, limits of liability, carrier, policy
number and period of coverage. Thereafter, each year the Company will deliver
to the Agent certificates of insurance evidencing that all insurance required
to be maintained by the Company hereunder will be in effect through the
calendar year following the date of such certificates, subject only to the
payment of premiums as they become due.

8.05 Prohibition of Fundamental Changes. (a) The Company
will not, nor will it permit any of its Subsidiaries to, enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution).

(b) The Company will not, nor will it permit any of its
Subsidiaries to, acquire any business or Property from, or capital stock of, or
be a party to any acquisition of, any Person except:

(i) for purchases of inventory and other Property to
be sold or used in the ordinary course of business;

(ii) Investments permitted under Section 8.08 hereof; and

(iii) Permitted Acquisitions.

(c) The Company will not, nor will it permit any of its
Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, any part of its business or Property,
whether now owned or hereafter acquired (including, without limitation,
receivables and leasehold interests), but excluding:

(i) any Excluded Disposition;

(ii) obsolete or worn-out Property, tools or equipment
no longer used or useful in its business (other than any Excluded
Disposition) or real Property no longer used or useful in its
business so long as the aggregate amount thereof sold in any
single fiscal year by the Company and its Subsidiaries shall not
have a fair market value in excess of $10,000,000;

(iii) any inventory or other Property sold or
disposed of in the ordinary course of business and on ordinary
business terms; and

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(iv) other Property so long as the aggregate amount
thereof sold or otherwise disposed of in any single fiscal year
by the Company and its Subsidiaries shall not have a fair market
value in excess of $25,000,000.

(d) Notwithstanding the foregoing provisions of this
Section 8.05, so long as no Default shall have occurred and be continuing, and
after giving effect to any of the succeeding transactions, no Default would
exist hereunder and so long as the Liens created under the Security Documents
continue to be in effect:

(i) any Subsidiary of the Company may be merged or
consolidated with or into: (x) the Company if the Company shall
be the continuing or surviving corporation or (y) any other such
Subsidiary; and

(ii) any Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its Property (upon
voluntary liquidation or otherwise) to the Company or a
Subsidiary of the Company.

8.06 Limitation on Liens. The Company will not, nor will it
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except:

(a) Liens created pursuant to the Security Documents;

(b) Liens in existence on the date hereof and listed in
Part B of Schedule I hereto;

(c) Liens imposed by any governmental authority for taxes,
assessments or charges not yet delinquent or that are being contested in
good faith and by appropriate proceedings if, unless the amount thereof
is not material with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of the Company
or the affected Subsidiaries, as the case may be, in accordance with
GAAP;

(d) carriers', warehousemen's, mechanics', materialmen's,
landlord's, repairmen's or other like Liens arisin