Dean Foods Co – ‘S-4/A’ on 10/28/97

As of:  Tuesday, 10/28/97   ·   Accession #:  1047469-97-1838   ·   File #:  333-37869

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Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction   —   Form S-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: S-4/A       Pre-Effective Amendment to Registration of           210   1.22M 
                          Securities Issued in a                                 
                          Business-Combination Transaction                       
 2: EX-5.1      Opinion re: Legality                                   1     10K 
 3: EX-8.1      Opinion re: Tax Matters                                2     13K 
11: EX-23.10    Consent of Donaldson, Lufkin & Jenrette                1      9K 
12: EX-23.11    Consent of Goldman, Sachs & Co.                        2±    11K 
13: EX-23.12    Consent of John R. Muse                                1      7K 
14: EX-23.13    Consent of Jim L. Turner                               1      7K 
 4: EX-23.2     Consent of Experts or Counsel                          1      9K 
 5: EX-23.3     Consent of Experts or Counsel                          1      9K 
 6: EX-23.4     Consent of Experts or Counsel                          1      8K 
 7: EX-23.5     Consent of Experts or Counsel                          1      8K 
 8: EX-23.6     Consent of Experts or Counsel                          1      8K 
 9: EX-23.7     Consent of Experts or Counsel                          1      8K 
10: EX-23.8     Consent of Experts or Counsel                          1      8K 
15: EX-99.1     Form of Suiza Foods Proxy                              2     12K 
16: EX-99.2     Form of Morningstar Proxy                              2     11K 

S-4/A   —   Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents

S-4/A
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997

                                                      REGISTRATION NO. 333-37869

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1 TO

FORM S-4

REGISTRATION STATEMENT

UNDER 

THE SECURITIES ACT OF 1933
--------------------------

SUIZA FOODS CORPORATION 

(Exact name of registrant as specified in its charter)

                                                                [Download Table]
                                                                               
          DELAWARE                          2026                  75-2559681   
(State or other jurisdiction    (Primary Standard Industrial   (I.R.S. Employer
    of incorporation or         Classification Code Number)     Identification 
       organization)                                               Number)     

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) 

GREGG L. ENGLES 
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER 
3811 TURTLE CREEK BLVD. 
SUITE 1300
DALLAS, TEXAS 75219 
(214) 528-0939

(Name, address, including zip code, and telephone number, 
including area code, of agent for service)
--------------------------

COPIES TO:

WILLIAM A. MCCORMACK                         R. SCOTT COHEN   
  Hughes & Luce, L.L.P.                   Weil, Gotshal & Manges LLP
 1717 Main Street                         100 Crescent Court
Suite 2800                                Suite 1300
Dallas, Texas 75201                       Dallas, Texas 75201 
(214) 939-5500                            (214) 746-7700

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: 
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVENESS OF THIS REGISTRATION 
STATEMENT.
--------------------------

If the securities being registered on this Form are being offered in    
connection with the formation of a holding company and there is compliance with 
General Instruction G, check the following box.  / /                            

If this form is filed to register additional securities for an offering 
pursuant to Rule 462(b) under the Securities Act, check the following box and   
list the Securities Act registration statement number of the earlier effective  
registration statement for the same offering.  / /                              
-------------                                                                   

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act   
registration statement number of the earlier effective registration statement   
for the same offering.  / /                                                     

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

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION       
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF  
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT    
BECOMES EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID       
SECTION 8(A), MAY DETERMINE.                                                    

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

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CROSS REFERENCE SHEET 

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S-4 ITEM                                                               PROSPECTUS CAPTION OR LOCATION             
--------------------------------------------------------  --------------------------------------------------------
                                                                                                                  
            Part I                                                                                                

            A.  Information About the Transaction                                                                 

 Item 1.    Forepart of Registration Statement and        Forepart of Registration Statement and Outside Front    
            Outside Front Cover Page of Prospectus          Cover Page of Prospectus                              

 Item 2.    Inside Front and Outside Back Cover Pages of  Inside Front and Outside Back Cover Pages of Prospectus;
            Prospectus                                      Available Information; Incorporation of Certain       
                                                            Information by Reference; Table of Contents           

 Item 3.    Risk Factors, Ratio of Earnings to Fixed      Summary; Risk Factors                                   
            Charges, and Other Information                                                                        

 Item 4.    Terms of the Transaction                      The Merger--Reasons for the Merger; Recommendations of  
                                                            the Boards; The Merger-- Anticipated Accounting       
                                                            Treatment; The Merger Agreement; Certain U.S. Federal 
                                                            Income Tax Consequences of the Merger; Comparison of  
                                                            the Rights of Suiza Stockholders and Morningstar      
                                                            Stockholders                                          

 Item 5.    Pro Forma Financial Information               Summary; Pro Forma Financial Data                       

 Item 6.    Material Contacts with the Company Being      The Merger--Background of the Merger                    
            Acquired                                                                                              

 Item 7.    Additional Information Required for           Not Applicable                                          
            Reoffering by Persons and Parties Deemed to                                                           
            be Underwriters                                                                                       

 Item 8.    Interests of Named Experts and Counsel        Legal Matters; Experts                                  

 Item 9.    Disclosure of Commission Position on          Comparison of the Rights of Suiza Stockholders and      
            Indemnification for Securities Act              Morningstar Stockholders--Indemnification of Directors
            Liabilities                                     and Officers                                          

            B.  Information About the Registrant                                                                  

Item 10.    Information with Respect to S-3 Registrants   Summary; Incorporation of Certain Information by        
                                                            Reference; Selected Financial Data of Suiza Foods; Pro
                                                            Forma Financial Data; The Companies--Recent           
                                                            Developments                                          

Item 11.    Incorporation of Certain Information by       Incorporation of Certain Information by Reference       
            Reference                                                                                             

Item 12.    Information with Respect to S-2 or S-3        Not Applicable                                          
            Registrants                                                                                           

Item 13.    Incorporation of Certain Information by       Not Applicable                                          
            Reference                                                                                             

Item 14.    Information with Respect to Registrants       Not Applicable                                          
            Other Than S-3 or S-2 Registrants                                                                     

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S-4 ITEM                                                               PROSPECTUS CAPTION OR LOCATION             
--------------------------------------------------------  --------------------------------------------------------
                                                                                                                  
            C.  Information About the Company Being                                                               
            Acquired                                                                                              

Item 15.    Information with Respect to S-3 Companies     Summary; Incorporation of Certain Information by        
                                                            Reference; Selected Financial Data of Morningstar; Pro
                                                            Forma Financial Data                                  

Item 16.    Information with Respect to S-2 or S-3        Not Applicable                                          
            Companies                                                                                             

Item 17.    Information with Respect to Companies Other   Not Applicable                                          
            Than S-2 or S-3 Companies                                                                             

            D.  Voting and Management Information                                                                 

Item 18.    Information if Proxies, Consents or           Forepart of Registration Statement and Outside Front    
            Authorizations Are to be Solicited              Cover Page of Prospectus; The Special                 
                                                            Meetings--General; The Special Meetings-- Voting      
                                                            Securities and Record Dates; The Special              
                                                            Meetings--Proxies; The Merger-- Interests of Certain  
                                                            Persons in the Merger; The Merger--Absence of         
                                                            Appraisal Rights                                      

Item 19.    Information if Proxies, Consents or           Not Applicable                                          
            Authorizations Are Not to be Solicited, or                                                            
            in an Exchange Offer                                                                                  

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SUIZA FOODS CORPORATION 

3811 TURTLE CREEK BOULEVARD 
SUITE 1300
DALLAS, TEXAS 75219 

                                                                OCTOBER 28, 1997

Dear Fellow Stockholders:                                                       

You are cordially invited to attend a special meeting (the "Special     
Meeting") of the stockholders (the "Stockholders") of Suiza Foods Corporation   
("Suiza Foods"), to be held on Wednesday, November 26, 1997, at 9:00 a.m., local
time, at the Hotel Crescent Court, 400 Crescent Court, 2200 Cedar Springs,      
Dallas, Texas 75201.                                                            

  At the Special Meeting, Stockholders will be asked to vote upon a proposal
to approve the issuance of Suiza Foods common stock in connection with the      
combination of Suiza Foods and The Morningstar Group Inc. ("Morningstar") as    
contemplated by the Agreement and Plan of Merger dated as of September 28, 1997 
(the "Merger Agreement"). Subject to the terms and conditions of the Merger     
Agreement, SF Acquisition Corporation, a wholly owned subsidiary of Suiza Foods 
("Sub"), will be merged (the "Merger") with and into Morningstar, and           
Morningstar will become a wholly owned subsidiary of Suiza Foods. Pursuant to   
the Merger, each share of Morningstar common stock outstanding immediately prior
to the effective time of the Merger will be converted (the "Share Conversion")  
into the right to receive 0.85 shares (the "Exchange Ratio") of Suiza Foods     
common stock (with cash being paid in lieu of any fractional shares of Suiza    
Foods common stock). In addition, Suiza Foods will assume each of Morningstar's 
stock option plans and each option to acquire shares of Morningstar common stock
outstanding thereunder, and each such option will become an option to acquire   
Suiza Foods common stock (the "Option Conversion" and, together with the Share  
Conversion, the "Stock Issuance").                                              

    AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER
AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT BY A UNANIMOUS VOTE   
AND HAS CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST     
INTERESTS OF, THE STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS RECOMMENDS 
A VOTE "FOR" THE STOCK ISSUANCE.                                                

   Your Board of Directors has retained as financial advisor Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ"), which has delivered to the Board of  
Directors its written opinion dated as of September 28, 1997, to the effect that
the Exchange Ratio is fair from a financial point of view to the holders of     
Suiza Foods common stock. A copy of the DLJ opinion letter, which sets forth the
assumptions made, matters considered and the scope of review undertaken in      
connection therewith, is attached as Appendix B to the accompanying Joint Proxy 
Statement/Prospectus and should be read carefully in its entirety.              

At the Special Meeting, Stockholders will also be asked to vote upon 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 (the "1997 Plan") from 1,150,000 shares to 3,000,000 shares (the     
"Plan Amendment").                                                              

  In the material accompanying this letter, you will find a formal Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to 
the actions to be taken by Stockholders at the Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the proposed Merger   
and includes information about Suiza Foods and Morningstar and the reasons for  
the Merger.                                                                     

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    Your vote is important, regardless of the number of shares you own. Approval
of the Stock Issuance and the Plan Amendment requires an affirmative vote of    
holders of a majority of the shares of Suiza Foods common stock present and     
entitled to vote at the Special Meeting (assuming a quorum is present). I       
RESPECTFULLY URGE YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. This will not prevent 
you from attending the Special Meeting or voting in person, but will assure that
your vote is counted if you are unable to attend the Special Meeting.           

   If you have any questions or require additional information with respect to
the proposed business combination or the Plan Amendment, please contact Tracy L.
Noll at (214) 528-0939.                                                         

   On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Stock Issuance and the Plan Amendment.          

              Sincerely,

                       /s/ Gregg L. Engles

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

                   Gregg L. Engles

                                   CHAIRMAN OF THE BOARD AND CHIEF
                     EXECUTIVE OFFICER

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THE MORNINGSTAR GROUP INC.

5956 SHERRY LANE, SUITE 1500
DALLAS, TEXAS 75225 

                                                                OCTOBER 28, 1997

Dear Fellow Stockholders:                                                       

You are cordially invited to attend a special meeting (the "Special     
Meeting") of the stockholders (the "Stockholders") of The Morningstar Group Inc.
("Morningstar") to be held on Wednesday, November 26, 1997 at 9:00 a.m., local  
time, at the Hotel Crescent Court, 400 Crescent Court, 2200 Cedar Springs,      
Dallas, Texas 75201.                                                            

  At the Special Meeting, Stockholders will be asked to vote upon a proposal
to combine Morningstar and Suiza Foods Corporation ("Suiza Foods") as           
contemplated by the Agreement and Plan of Merger dated as of September 28, 1997 
(the "Merger Agreement"). Subject to the terms and conditions of the Merger     
Agreement, SF Acquisition Corporation, a wholly owned subsidiary of Suiza Foods 
("Sub"), will be merged (the "Merger") with and into Morningstar, and           
Morningstar will become a wholly owned subsidiary of Suiza Foods. Pursuant to   
the Merger, each share of Morningstar common stock outstanding immediately prior
to the effective time of the Merger will be converted into 0.85 shares (the     
"Exchange Ratio") of Suiza Foods common stock (with cash being paid in lieu of  
any fractional shares of Suiza Foods common stock). In addition, Suiza Foods    
will assume each of Morningstar's stock option plans and each option to acquire 
shares of Morningstar common stock outstanding thereunder, and each such option 
will become an option to acquire Suiza Foods common stock.                      

AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY    
APPROVED THE MERGER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT   
AND HAS CONCLUDED THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST     
INTERESTS OF, THE STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE MERGER, THE MERGER AGREEMENT AND TRANSACTIONS       
CONTEMPLATED THEREBY.                                                           

  Your Board of Directors retained as financial advisor Goldman, Sachs & Co.
("Goldman Sachs"), which has delivered to the Board of Directors its written    
opinion, dated as of September 28, 1997, to the effect that as of such date the 
Exchange Ratio pursuant to the Merger Agreement was fair from a financial point 
of view to the holders of Morningstar common stock. A copy of the Goldman Sachs 
opinion letter, which sets forth the assumptions made, matters considered and   
the scope of the review undertaken in connection therewith, is attached as      
Appendix C to the accompanying Joint Proxy Statement/Prospectus and should be   
read carefully in its entirety.                                                 

  In the material accompanying this letter, you will find a formal Notice of
Special Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to 
the actions to be taken by Stockholders at the Special Meeting and a proxy card.
The Joint Proxy Statement/Prospectus more fully describes the proposed Merger   
and includes information about Suiza Foods and Morningstar and the reasons for  
the Merger.                                                                     

    Your vote is important, regardless of the number of shares you own. Approval
of the Merger, the Merger Agreement and transactions contemplated thereby       
requires an affirmative vote of holders of a majority of the authorized and     
outstanding shares of Morningstar common stock entitled to vote thereon. I      
RESPECTFULLY URGE YOU TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. This will not prevent 
you from attending the Special Meeting or voting in person, but will assure that
your vote is counted if you are unable to attend the Special Meeting.           

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  PLEASE DO NOT SEND YOUR SHARE CERTIFICATES WITH THE ENCLOSED PROXY CARD AT
THIS TIME. Promptly after the Merger is consummated, you will be sent a letter  
of transmittal which will include instructions as to the procedures to be used  
in exchanging your certificates representing shares of Morningstar common stock 
for certificates representing shares of Suiza Foods common stock.               

   If you have any questions or require additional information with respect to
the proposed business combination, please contact Darron K. Ash at (214)        
360-4700.                                                                       

   On behalf of your Board of Directors, I thank you for your support and urge
you to vote FOR approval of the Merger, the Merger Agreement and transactions   
contemplated thereby.                                                           

              Sincerely,

                           /s/ C. Dean Metropoulos

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

                       C. Dean Metropoulos

                                   CHAIRMAN OF THE BOARD AND CHIEF
                     EXECUTIVE OFFICER

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SUIZA FOODS CORPORATION 

3811 TURTLE CREEK BLVD. 
SUITE 1300
DALLAS, TEXAS 75219 

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

NOTICE OF SPECIAL MEETING OF THE STOCKHOLDERS 

TO BE HELD ON NOVEMBER 26, 1997 

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

To the Stockholders of                                                          
Suiza Foods Corporation                                                         

    NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Suiza Foods
Corporation, a Delaware corporation ("Suiza Foods"), will be held on Wednesday, 
November 26, 1997 at 9:00 a.m. local time, at the Hotel Crescent Court, 400     
Crescent Court, 2200 Cedar Springs, Dallas, Texas 75201 (the "Special Meeting") 
for the following purposes:                                                     

  1. To consider and vote upon a proposal to approve the issuance of
shares of Suiza Foods common stock in connection with the merger (the   
  "Merger") of SF Acquisition Corporation, a Delaware corporation and wholly
    owned subsidiary of Suiza Foods ("Sub"), with and into The Morningstar Group
  Inc. ("Morningstar"), in accordance with the Agreement and Plan of Merger,
   dated as of September 28, 1997, among Suiza Foods, Sub and Morningstar (the
"Merger Agreement"). Pursuant to the Merger Agreement (a) each share of 
Morningstar common stock issued and outstanding immediately prior to the
Merger will be converted into the right to receive 0.85 shares of Suiza 
Foods common stock and (b) Suiza Foods will assume each of Morningstar's
  stock option plans and each option to acquire shares of Morningstar common
   stock outstanding thereunder, and each such option will become an option to
acquire Suiza Foods common stock (collectively, the "Stock Issuance").  

     2. To consider and vote upon a proposal to approve an increase in the
  number of shares of Suiza Foods common stock authorized for issuance under
    the Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan from
1,150,000 shares to 3,000,000 shares (the "Plan Amendment").            

  3. To transact such other business as may properly come before the
Special Meeting and any and all adjournments or postponements thereof.  

   The close of business on October 27, 1997 has been fixed as the record date
for the determination of the stockholders entitled to notice of and to vote at  
the Special Meeting.                                                            

 The affirmative vote of the holders of Suiza Foods common stock holding a
majority of the shares of Suiza Foods common stock present and entitled to vote 
at the Special Meeting is required to approve the Stock Issuance and the Plan   
Amendment. Holders of Suiza Foods common stock will not have rights of appraisal
in connection with the Merger.                                                  

  Stockholders are invited to attend the Special Meeting. Whether or not you
expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED    
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the meeting, you
may vote your shares in person, and thereby revoke any previously executed      
proxy.                                                                          

  If your shares of Suiza Foods common stock are held of record by a broker,
bank or other nominee and you wish to attend the Special Meeting, you must      
obtain a letter from the broker, bank or other nominee confirming your          
beneficial ownership of the shares and bring it to the Special Meeting. In order
to vote your shares at the Special Meeting, you must obtain from the record     
holder a proxy issued in your name.                                             

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  Regardless of how many shares you own, your vote is very important. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.                            

                                      By Order of the Board of Directors

                     /s/ Tracy L. Noll

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

                 Tracy L. Noll

             SECRETARY

Dallas, Texas                                                                   

October 28, 1997                                                                

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THE MORNINGSTAR GROUP INC.

5956 SHERRY LANE, SUITE 1500
DALLAS, TEXAS 75225-6522

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD ON NOVEMBER 26, 1997 

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

To the Stockholders of                                                          
The Morningstar Group Inc.                                                      

NOTICE IS HEREBY GIVEN that a special meeting of stockholders of The    
Morningstar Group Inc., a Delaware corporation ("Morningstar"), will be held on 
Wednesday, November 26, 1997 at 9:00 a.m. local time, at the Hotel Crescent     
Court, 400 Crescent Court, 2200 Cedar Springs, Dallas, Texas 75201 (the "Special
Meeting") for the following purposes:                                           

  1. To consider and vote upon a proposal to approve and adopt the
 Agreement and Plan of Merger, dated as of September 28, 1997 (the "Merger
  Agreement"), by and among Morningstar, Suiza Foods Corporation, a Delaware
corporation ("Suiza Foods"), and SF Acquisition Corporation, a Delaware 
  corporation and wholly owned subsidiary of Suiza Foods ("Sub"), the Merger
(as hereinafter defined) and the other transactions contemplated by the 
    Merger Agreement. Upon the terms and subject to the conditions of the Merger
  Agreement, Sub will be merged (the "Merger") with and into Morningstar and
Morningstar will become a wholly owned subsidiary of Suiza Foods. At the
effective time of the Merger, and as more fully described in the        
accompanying Joint Proxy Statement and Prospectus and in the Merger     
 Agreement included as Appendix A thereto, each share of common stock, par
 value $0.01 per share, of Morningstar ("Morningstar Common Stock") issued
  and outstanding immediately prior to the effective time of the Merger will
   be converted into the right to receive 0.85 shares of common stock of Suiza
Foods.                                                                  

    2. To transact such other business as may properly come before the
Special Meeting and any and all adjournments or postponements thereof.  

   The close of business on October 27, 1997 has been fixed as the record date
for the determination of the stockholders entitled to notice of and to vote at  
the Special Meeting.                                                            

   The affirmative vote of a majority of the outstanding shares of Morningstar
Common Stock entitled to vote at the Special Meeting is required to approve the 
Merger, the Merger Agreement and the transactions contemplated thereby. Holders 
of Morningstar Common Stock will not have rights of appraisal in connection with
the Merger.                                                                     

  Stockholders are invited to attend the Special Meeting. Whether or not you
expect to attend, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED    
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. If you attend the meeting, you
may vote your shares in person, and thereby revoke any previously executed      
proxy.                                                                          

  If your shares of Morningstar Common Stock are held of record by a broker,
bank or other nominee and you wish to attend the Special Meeting, you must      
obtain a letter from the broker, bank or other nominee confirming your          
beneficial ownership of the shares and bring it to the Special Meeting. In order
to vote your shares at the Special Meeting, you must obtain from the record     
holder a proxy issued in your name.                                             

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  Regardless of how many shares you own, your vote is very important. PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.                            

                                      By Order of the Board of Directors

                         /s/ Michael J. Cramer

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

                     Michael J. Cramer

             SECRETARY

Dallas, Texas                                                                   

October 28, 1997                                                                

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SUIZA FOODS CORPORATION 
AND 
THE MORNINGSTAR GROUP INC.
------------------

JOINT PROXY STATEMENT 
------------------

PROSPECTUS OF 
SUIZA FOODS CORPORATION 

This Joint Proxy Statement/Prospectus constitutes the proxy statement of
each of Suiza Foods Corporation, a Delaware corporation ("Suiza Foods"), and The
Morningstar Group Inc., a Delaware corporation ("Morningstar"), relating to the 
solicitation of proxies for use at the special meetings of stockholders of each 
of Suiza Foods ("Suiza Stockholders") and Morningstar ("Morningstar             
Stockholders"), each of which is scheduled to be held on Wednesday, November 26,
1997, and at any adjournments or postponements thereof (respectively, the "Suiza
Special Meeting" and the "Morningstar Special Meeting" and, collectively, the   
"Special Meetings"). This Joint Proxy Statement/Prospectus relates to the       
Agreement and Plan of Merger (the "Merger Agreement"), dated as of September 28,
1997, among Suiza Foods, SF Acquisition Corporation, a Delaware corporation and 
wholly owned subsidiary of Suiza Foods ("Sub"), and Morningstar, pursuant to    
which Sub will merge (the "Merger") with and into Morningstar (such combined    
company after the Merger is referred to herein as "New Morningstar") and each   
outstanding share of the common stock, $0.01 par value per share, of Morningstar
("Morningstar Common Stock") will be converted into the right to receive 0.85   
shares (the "Exchange Ratio") of common stock, par value $0.01 per share, of    
Suiza Foods ("Suiza Common Stock"). Cash will be paid in lieu of any fractional 
shares of Suiza Common Stock. As a result of the Merger, Morningstar will become
a wholly owned subsidiary of Suiza Foods.                                       

The consummation of the Merger is subject to (i) the approval of the    
issuance in the Merger of shares of Suiza Common Stock upon conversion of       
outstanding shares of Morningstar Common Stock (the "Stock Conversion") and of  
the assumption by Suiza Foods of Morningstar's stock option plans and each      
option to purchase shares of Morningstar Common Stock (each a "Morningstar      
Option") outstanding thereunder and the conversion of each Morningstar Option   
into a Substitute Option (as hereinafter defined) (the "Option Conversion" and, 
collectively with the Stock Conversion, the "Stock Issuance") by the affirmative
vote of Suiza Stockholders holding a majority of the shares of Suiza Common     
Stock present and entitled to vote at the Suiza Special Meeting; (ii) the       
approval of the Merger, the Merger Agreement and the transactions contemplated  
thereby by the affirmative vote of Morningstar Stockholders holding a majority  
of the shares of Morningstar Common Stock outstanding and entitled to vote at   
the Morningstar Special Meeting; and (iii) certain other conditions set forth in
the Merger Agreement. A copy of the Merger Agreement is attached to this Joint  
Proxy Statement/Prospectus as Appendix A and is incorporated herein by          
reference.                                                                      

This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Suiza Foods with respect to the shares of Suiza Common Stock to be issued to    
Morningstar Stockholders in connection with the Stock Conversion, which         
prospectus is a part of the registration statement on Form S-4 (the "Suiza      
Registration Statement") that has been filed with the Securities and Exchange   
Commission (the "Commission") under the Securities Act of 1933, as amended (the 
"Securities Act"), with respect to the shares of Suiza Common Stock to be issued
in the Stock Conversion. Based on the number of shares of Morningstar Common    
Stock outstanding on October 27, 1997, Suiza Foods will issue approximately     
12,562,096 shares of Suiza Common Stock in the aggregate to the Morningstar     
Stockholders in connection with the Stock Conversion, and as a result of the    
Stock Conversion, Morningstar Stockholders will hold approximately 44.3% of the 
shares of Suiza Common Stock outstanding after the Merger. In addition, each    
Morningstar Option will be assumed by Suiza Foods and converted into an option  
(a "Substitute Option") to purchase a number of shares of Suiza Common Stock    
equal to the number of shares of Morningstar Common Stock subject to such       
Morningstar Option multiplied by the Exchange Ratio (rounded down to the nearest
whole share) at a per share price equal to the per share exercise price of the  
Morningstar Option immediately prior to the Merger divided by the Exchange Ratio
(rounded up to the nearest full cent). As of October 27, 1997, there were       
outstanding Morningstar Options to purchase approximately 3,479,985 shares of   
Morningstar Common Stock, which options will be converted into Substitute       
Options to purchase an aggregate of approximately 2,957,987 shares of Suiza     
Common Stock. Any shares of Suiza Common Stock that may be issued pursuant to   
the Stock Conversion or upon exercise of Substitute Options will be authorized  
for listing, subject to official notice of issuance, on the New York Stock      
Exchange (the "NYSE") prior to the effective time of the Merger.                

SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS JOINT PROXY             
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS WITH RESPECT TO AN     
INVESTMENT IN SUIZA COMMON STOCK UPON CONSUMMATION OF THE MERGER.               

    This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to Suiza Stockholders and Morningstar Stockholders on or     
about October 28, 1997.                                                         

THE SHARES OF SUIZA COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR   
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE   
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY  
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY   
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY          
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/ PROSPECTUS, AND, IF 
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS    
HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT          
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE     
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR A SOLICITATION  
OF A PROXY FROM ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE 
SUCH AN OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE      
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY                       
DISTRIBUTION OF THE SECURITIES MADE UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS 
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO    
CHANGE IN THE AFFAIRS OF SUIZA FOODS OR MORNINGSTAR AT ANY TIME SUBSEQUENT TO   
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.                              

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

THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS OCTOBER 28, 1997.

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AVAILABLE INFORMATION 

    Suiza Foods and Morningstar are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in   
accordance therewith, file reports, proxy statements and other information with 
the Commission. Such reports, proxy statements and other information filed by   
Suiza Foods and Morningstar with the Commission can be inspected and copied at  
the public reference facilities maintained by the Commission at Room 1024,      
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the     
Regional Offices of the Commission located at Northwestern Atrium Center, 500   
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade      
Center, 13th Floor, New York, New York 10048. Copies of such material can also  
be obtained from the Public Reference Section of the Commission at 450 Fifth    
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission also   
maintains a site on the World Wide Web at http://www.sec.gov that contains      
reports, proxy statements and other information regarding registrants that file 
electronically with the Commission. Suiza Common Stock is listed on the NYSE and
traded under the symbol "SZA" and Morningstar Common Stock is authorized for    
trading on the Nasdaq Stock Market, National Market System ("Nasdaq") and traded
under the symbol "MSTR". Reports and other information concerning Suiza Foods   
can also be inspected at the offices of the New York Stock Exchange, 30 Broad   
Street, New York, New York 10005 and reports and other information concerning   
Morningstar can also be inspected at the offices of the Nasdaq Stock Market,    
1735 K Street, N.W., Washington, D.C. 20006. Upon consummation of the Merger,   
the Morningstar Common Stock will cease to be authorized for trading on Nasdaq. 

    This Joint Proxy Statement/Prospectus, which constitutes a part of the Suiza
Registration Statement, does not contain all of the information set forth in the
Suiza Registration Statement, certain items of which are contained in schedules 
and exhibits to the Suiza Registration Statement as permitted by the rules and  
regulations of the Commission. For further information, reference is made to the
Suiza Registration Statement, including the schedules and exhibits filed as a   
part thereof or incorporated by reference therein. Statements contained herein  
concerning the provisions of documents are necessarily summaries of such        
documents, and each such statement is qualified in its entirety by reference to 
the copy of the applicable document filed as an appendix hereto or as otherwise 
filed with the Commission. The Suiza Registration Statement and the exhibits and
schedules thereto may be inspected, and copies thereof may be obtained, as set  
forth above.                                                                    

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 

    The following documents previously filed with the Commission pursuant to the
Securities Act and the Exchange Act are incorporated herein by reference and    
shall be deemed a part hereof:                                                  

SUIZA FOODS CORPORATION FILINGS                                                 

1.  The audited financial statements of Garrido & Compania, Inc. and            
  subsidiaries, Swiss Dairy, a Corporation and Model Dairy, Inc. included in
  the Suiza Foods Final Prospectus dated January 22, 1997 and filed with the
    Commission pursuant to Rule 424(b) on January 23, 1997 (File No. 333-18263).

2.  Suiza Foods' Annual Report on Form 10-K for the fiscal year ended December  
31, 1996 (File No. 1-12755).                                            

3.  Suiza Foods' Quarterly Report on Form 10-Q for the quarter ended March 31,  
 1997 and Suiza Foods' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (as amended on October 24, 1997) (File No. 1-12755).      

4.  Suiza Foods' Current Reports on Form 8-K filed July 14, 1997 (as amended on 
  August 22, 1997), which includes the audited financial statements of Dairy
 Fresh L.P. and The Garelick Companies, and Suiza Foods' Current Report on
Form 8-K filed September 29, 1997 (File No. 1-12755).                   

5.  The description of the Suiza Common Stock contained in Suiza Foods'         
Registration Statement on Form 8-A filed on February 19, 1997 (File No. 
1-12755).                                                               

THE MORNINGSTAR GROUP INC. FILINGS                                              

1.  Morningstar's Annual Report on Form 10-K for the fiscal year ended December 
31, 1996 (File No. 0-19075).                                            

2.  Morningstar's Quarterly Reports on Form 10-Q for the quarters ended March   
31, 1997 and June 30, 1997 (File No. 0-19934).                          

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3.  Morningstar's Current Report on Form 8-K filed September 29, 1997 (File No. 
0-19075).                                                               

4.  Morningstar's Current Report on Form 8-K filed December 3, 1996 (as amended 
February 18, 1997), which includes the audited financial statements of  
 Presto Foods Products, Inc. ("Presto") and affiliates (File No. 0-19075).

  All reports and other documents filed by either Suiza Foods or Morningstar
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Joint Proxy Statement/Prospectus and prior to the date of its  
Special Meeting shall be deemed to be incorporated by reference herein and to be
a part hereof from the dates of filing of such reports and documents. Any       
statement contained in a document incorporated or deemed to be incorporated by  
reference herein shall be deemed to be modified or superseded for purposes of   
this Joint Proxy Statement/Prospectus to the extent that a statement contained  
herein, or in any other subsequently filed document that also is incorporated or
deemed to be incorporated by reference herein, modifies or supersedes the       
earlier statement. Any statement so modified or superseded shall not be deemed, 
except as so modified or superseded, to constitute a part of this Joint Proxy   
Statement/Prospectus.                                                           

 THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS   
(OTHER THAN EXHIBITS THERETO WHICH ARE NOT SPECIFICALLY INCORPORATED BY         
REFERENCE HEREIN) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY   
BENEFICIAL OWNER OF SHARES OF SUIZA COMMON STOCK OR MORNINGSTAR COMMON STOCK TO 
WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS SENT, UPON WRITTEN OR ORAL        
REQUEST, IN THE CASE OF DOCUMENTS RELATING TO SUIZA FOODS, TO THE CORPORATE     
SECRETARY OF SUIZA FOODS AT 3811 TURTLE CREEK BLVD., SUITE 1300, DALLAS, TEXAS  
75219, TELEPHONE (214) 528-0939 AND, IN THE CASE OF DOCUMENTS RELATING TO       
MORNINGSTAR, TO THE GENERAL COUNSEL OF MORNINGSTAR AT 5956 SHERRY LANE, SUITE   
1500, DALLAS, TEXAS 75225-6522, TELEPHONE (214) 360-4700. IN ORDER TO ENSURE    
DELIVERY OF DOCUMENTS PRIOR TO THE APPLICABLE SPECIAL MEETING, ANY SUCH REQUEST 
SHOULD BE MADE NOT LATER THAN WEDNESDAY, NOVEMBER 19, 1997.                     

   All information contained in this Joint Proxy Statement/Prospectus relating
to Suiza Foods and its subsidiaries has been supplied by Suiza Foods and all    
information relating to Morningstar and its subsidiaries has been supplied by   
Morningstar.                                                                    

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                                              PAGE   
                                                                                                            ---------
                                                                                                                     
AVAILABLE INFORMATION......................................................................................        ii

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..........................................................        ii

SUMMARY....................................................................................................         1
  The Companies............................................................................................         1
  Recent Developments......................................................................................         1
  The Special Meetings.....................................................................................         2
  The Merger and the Merger Agreement......................................................................         3
  Risk Factors.............................................................................................         7
  Cautionary Statement Concerning Forward-Looking Statements...............................................         7
  Market Price and Dividend Information....................................................................         8
  Comparative Per Share Data...............................................................................        10
  Summary Pro Forma Financial Data.........................................................................        11
  Summary Financial Data of Suiza Foods....................................................................        12
  Summary Financial Data of Morningstar....................................................................        13
  Summary Financial Data of Country Fresh..................................................................        14

RISK FACTORS...............................................................................................        15
  Risks Associated with Acquisition Strategy...............................................................        15
  Competition..............................................................................................        15
  Substantial Indebtedness.................................................................................        16
  Government Regulation; Raw Material Costs................................................................        16
  Dependence on Key Personnel..............................................................................        17
  Limitations on Favorable Tax Treatment...................................................................        17
  Antitakeover Provisions..................................................................................        17
  Expected Benefits of Combined Business May Not Be Achieved...............................................        17
  Anticipated Accounting Treatment.........................................................................        17

THE COMPANIES..............................................................................................        18
  General..................................................................................................        18
  Recent Developments......................................................................................        18

PRO FORMA FINANCIAL DATA...................................................................................        20

SELECTED FINANCIAL DATA OF SUIZA FOODS.....................................................................        30

SELECTED FINANCIAL DATA OF MORNINGSTAR.....................................................................        32

SELECTED FINANCIAL DATA OF COUNTRY FRESH...................................................................        33

THE SPECIAL MEETINGS.......................................................................................        34
  General..................................................................................................        34
  Voting Securities and Record Dates.......................................................................        34
  Purpose of Special Meetings..............................................................................        34
  Proxies..................................................................................................        35

THE MERGER.................................................................................................        36
  General..................................................................................................        36
  Background of the Merger.................................................................................        36
  Reasons for the Merger; Recommendations of the Boards....................................................        37
  Opinion of Suiza Foods' Financial Advisor................................................................        40
  Opinion of Morningstar's Financial Advisor...............................................................        43
  Anticipated Accounting Treatment.........................................................................        48
  Restrictions on Resale by Affiliates.....................................................................        48
  New Morningstar Board and Management Following the Merger................................................        49
  Board of Directors of Suiza Foods Following the Merger...................................................        49
  Governmental Approvals...................................................................................        49

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  Interests of Certain Persons in the Merger...............................................................        50
                                                                                                                     
  Absence of Appraisal Rights..............................................................................        52
  Stock Exchange Listing...................................................................................        52
  Treatment of Stock Certificates..........................................................................        52

THE MERGER AGREEMENT.......................................................................................        53
  General..................................................................................................        53
  Consideration to Be Received in the Merger...............................................................        53
  Effective Time of the Merger.............................................................................        53
  Exchange of Shares.......................................................................................        53
  Corporate Organization and Governance....................................................................        54
  Stockholders' Meetings...................................................................................        54
  Representations and Warranties...........................................................................        55
  Conduct of Business Pending the Merger...................................................................        55
  Additional Agreements....................................................................................        57
  Employee Matters.........................................................................................        58
  Indemnification..........................................................................................        58
  No Shop..................................................................................................        59
  Conditions Precedent.....................................................................................        60
  Termination..............................................................................................        61
  Fees and Expenses........................................................................................        62

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.................................................        62
  General..................................................................................................        62
  Tax Consequences to Suiza Foods, Sub and Morningstar.....................................................        63
  Tax Consequences to Morningstar Stockholders.............................................................        63

COMPARISON OF THE RIGHTS OF SUIZA STOCKHOLDERS AND MORNINGSTAR STOCKHOLDERS................................        63
  Authorized Capital.......................................................................................        64
  Number of Directors; Election of Directors; Removal; Vacancies...........................................        64
  Charter Amendments.......................................................................................        64
  Bylaw Amendments.........................................................................................        65
  Special Stockholder Meetings.............................................................................        65
  Business Combinations....................................................................................        65
  State Takeover Legislation...............................................................................        65
  Indemnification of Directors and Officers................................................................        66
  Limitation of Personal Liability of Directors............................................................        66
  Suiza Preferred Stock....................................................................................        67

STOCK OPTION INCREASE......................................................................................        68
  The 1997 Plan............................................................................................        68
  Federal Income Tax Consequences..........................................................................        69
  Reasons for Proposal.....................................................................................        70
  Interests of Certain Persons in Matters to be Acted Upon.................................................        70

LEGAL MATTERS..............................................................................................        71

EXPERTS....................................................................................................        71

INDEX TO FINANCIAL STATEMENTS..............................................................................       F-1

APPENDICES:................................................................................................          

A--Merger Agreement                                                                                                  
B--Fairness Opinion of Donaldson, Lufkin & Jenrette Securities Corporation                                           
C--Fairness Opinion of Goldman, Sachs & Co.                                                                          

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SUMMARY 

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/ PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY  
IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN OR  
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND IN THE   
APPENDICES HERETO INCLUDING, BUT NOT LIMITED TO, THE MERGER AGREEMENT SET FORTH 
AS APPENDIX A HERETO. CAPITALIZED TERMS WHICH ARE USED BUT NOT DEFINED IN THIS  
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS JOINT   
PROXY STATEMENT/PROSPECTUS. STOCKHOLDERS OF SUIZA FOODS AND MORNINGSTAR ARE     
URGED TO READ CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE APPENDICES
HERETO, AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, IN THEIR ENTIRETY.  
UNLESS THE CONTEXT OTHERWISE REQUIRES, AS USED HEREIN REFERENCES TO "SUIZA      
FOODS" MEAN SUIZA FOODS AND ITS SUBSIDIARIES, ON A CONSOLIDATED BASIS,          
REFERENCES TO "MORNINGSTAR" MEAN MORNINGSTAR AND ITS SUBSIDIARIES, ON A         
CONSOLIDATED BASIS, AND REFERENCES TO "COUNTRY FRESH" MEAN COUNTRY FRESH, INC.  
AND ITS SUBSIDIARIES, ON A CONSOLIDATED BASIS.                                  

THE COMPANIES 

SUIZA FOODS AND SUB                                                             

Suiza Foods is a leading manufacturer and distributor of fresh milk and 
related dairy products, plastic containers and packaged ice in the United       
States. Each of Suiza Foods' operating subsidiaries is a strong competitor with 
an established reputation for customer service and product quality. Suiza Foods'
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. Suiza Foods' customers
in the plastic container business include regional dairy manufacturers, bottled 
water processors and other beverage manufacturers. Suiza Foods has grown        
primarily through a successful acquisition strategy, having consummated 54      
acquisitions since its inception in 1988, including 27 acquisitions since its   
initial public offering in April 1996. See "The Companies--General--Suiza       
Foods."                                                                         

   Sub is a newly formed Delaware corporation and a wholly owned subsidiary of
Suiza Foods. Sub was organized for the purpose of effecting the Merger pursuant 
to the Merger Agreement. Sub has no material assets and has not engaged in any  
activities except in connection with the Merger. The principal executive offices
of Suiza Foods and Sub are located at 3811 Turtle Creek Blvd., Suite 1300,      
Dallas, Texas 75219, telephone number (214) 528-0939.                           

MORNINGSTAR                                                                     

    Morningstar is a nationally prominent manufacturer, distributor and marketer
of refrigerated, shelf-stable and frozen food products. Its established branded 
products include: International Delight-Registered Trademark-, a                
gourmet-flavored and non-flavored coffee creamer; Second                        
Nature-Registered Trademark-, a refrigerated no-cholesterol egg substitute;     
Mocha Mix-Registered Trademark-, non-dairy coffee creamers; Naturally Yours-TM-,
fat-free and regular, real dairy sour cream; Jon Donaire-Registered Trademark-, 
cheesecakes and desserts; Wacky Willie-TM-, flavored shakes; and, in the western
two-thirds of the United States, Lactaid-Registered Trademark-, lactose-free and
lactose-reduced milks produced under license from McNeil Consumer Products      
Company, a subsidiary of Johnson & Johnson. Morningstar also specializes in     
providing private label refrigerated, shelf-stable and frozen products to       
grocery warehouses, bakery/ industrial companies, club stores and dairy         
companies. Branded products are sold primarily to grocery warehouses serving the
major supermarket chains through Morningstar's network of independent food      
brokers and nationwide sales force. Morningstar's other specialty products are  
marketed directly to dairy companies, supermarket wholesalers, grocery          
warehouses, food service outlets and food manufacturers. Morningstar's products 
are distributed to more than 3,200 customers in fifty states and to more than   
twenty foreign countries. The principal executive offices of Morningstar are    
located at 5956 Sherry Lane, Suite 1500, Dallas, Texas 75225, telephone number  
(214) 360-4700.                                                                 

RECENT DEVELOPMENTS 

SUIZA FOODS.  On September 18, 1997, Suiza Foods entered into a merger  
agreement with Country Fresh, Inc. ("Country Fresh"). Pursuant to the merger    
agreement, upon satisfaction of certain closing                                 

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conditions, Country Fresh stockholders would receive approximately 1.9 million  
shares of Suiza Common Stock upon conversion of their common stock in Country   
Fresh, and Country Fresh would become a wholly owned subsidiary of Suiza Foods  
(the "Country Fresh Merger"). Country Fresh recorded net sales of approximately 
$353 million during its fiscal year ended March 1, 1997. Country Fresh has      
called a special meeting of its shareholders for November 25, 1997 at which     
approval of the Country Fresh Merger will be considered.                        

CONSUMMATION OF THE MERGER IS NOT CONDITIONED UPON OR SUBJECT TO THE    
CONSUMMATION OF THE COUNTRY FRESH MERGER.                                       

   In connection with the Merger, Suiza Foods has received a commitment letter
from its senior lenders to enter into new credit facilities that would increase 
Suiza Foods' total borrowing capacity to approximately $1.25 billion. See "The  
Companies--Recent Developments--Suiza Foods."                                   

THE SPECIAL MEETINGS

DATE, TIME AND PLACE                                                            

SUIZA FOODS.  The Suiza Foods Special Meeting will be held on Wednesday,
November 26, 1997, at the Hotel Crescent Court, 400 Crescent Court, 2200 Cedar  
Springs, Dallas, Texas, 75201, commencing at 9:00 a.m. local time. See "The     
Special Meetings--General."                                                     

MORNINGSTAR.  The Morningstar Special Meeting will be held on Wednesday,
November 26, 1997, at the Hotel Crescent Court, 400 Crescent Court, 2200 Cedar  
Springs, Dallas, Texas, 75201, commencing at 9:00 a.m. local time. See "The     
Special Meetings--General."                                                     

PURPOSE OF THE SPECIAL MEETINGS                                                 

SUIZA FOODS.  The purpose of the Suiza Foods Special Meeting is to (i)  
consider and vote upon a proposal to approve the Stock Issuance in accordance   
with the Merger Agreement, (ii) consider and vote upon a proposal to increase   
the number of authorized shares of Suiza Common Stock reserved for issuance     
under the Suiza Foods Corporation 1997 Stock Option and Restricted Stock Plan   
(the "1997 Plan") from 1,150,000 shares to 3,000,000 shares (the "Plan          
Amendment" and, together with the Stock Issuance, the "Suiza Proposals") and    
(iii) transact such other business as may properly come before the Suiza Special
Meeting and at any and all adjournments or postponements thereof. See "The      
Special Meetings--Purpose of Special Meetings--Suiza Foods."                    

MORNINGSTAR.  The purpose of the Morningstar Special Meeting is to (i)  
consider and vote upon a proposal (the "Morningstar Proposal") to approve the   
Merger, the Merger Agreement and the transactions contemplated thereby and (ii) 
transact such other business as may properly come before the Morningstar Special
Meeting and at any and all adjournments or postponements thereof. See "The      
Special Meetings--Purpose of Special Meetings--Morningstar."                    

RECORD DATES; SHARES ENTITLED TO VOTE                                           

   SUIZA FOODS.  Only holders of record of shares of Suiza Common Stock at the
close of business on October 27, 1997 (the "Suiza Record Date") are entitled to 
notice of and to vote at the Suiza Special Meeting. On such date, there were    
15,810,800 shares of Suiza Common Stock outstanding. Each share of Suiza Common 
Stock will be entitled to one vote on each matter to be acted upon at the Suiza 
Special Meeting. See "The Special Meetings--Voting Securities and Record        
Dates--Suiza Foods."                                                            

  MORNINGSTAR.  Only holders of record of shares of Morningstar Common Stock
at the close of business on October 27, 1997 (the "Morningstar Record Date") are
entitled to notice of and to vote at the Morningstar Special Meeting. On such   
date, there were 14,778,936 shares of Morningstar Common Stock outstanding. Each
share of Morningstar Common Stock will be entitled to one vote on each matter to
be acted upon at the Morningstar Special Meeting. See "The Special              
Meetings--Voting Securities and Record Dates--Morningstar."                     

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VOTE REQUIRED                                                                   

SUIZA FOODS.  The affirmative vote of the holders of a majority of the  
shares of Suiza Common Stock present at the Suiza Special Meeting and entitled  
to vote is required to approve the Suiza Proposals; provided, however, that the 
total number of votes cast on the Suiza Proposals represents more than 50% of   
the outstanding shares of Suiza Common Stock. Brokers who hold shares of Suiza  
Common Stock as nominees will not have discretionary authority to vote such     
shares in the absence of instructions from the beneficial owners thereof.       
Abstentions and broker non-votes are counted for purposes of determining the    
presence or absence of a quorum for transaction of business. Otherwise,         
abstention and broker non-votes will have no effect on the outcome of the vote  
on the Suiza Proposals. See "The Special Meetings--Voting Securities and Record 
Dates--Suiza Foods" and "--Proxies."                                            

MORNINGSTAR.  The affirmative vote of the holders of a majority of the  
shares of Morningstar Common Stock outstanding and entitled to vote is required 
to approve the Morningstar Proposal. Accordingly, an abstention with respect to 
the Morningstar Proposal will have the same effect as a vote cast against the   
Morningstar Proposal. Brokers who hold shares of Morningstar Common Stock as    
nominees will not have discretionary authority to vote such shares in the       
absence of instructions from the beneficial owners thereof. Any votes which are 
not cast by a nominee-broker will have the same effect as votes cast against the
Morningstar Proposal. See "The Special Meetings--Voting Securities and Record   
Dates-- Morningstar" and "--Proxies."                                           

SECURITY OWNERSHIP OF MANAGEMENT                                                

SUIZA FOODS.  As of the close of business on the Suiza Record Date, the 
directors and executive officers of Suiza Foods owned approximately 15.2% of the
outstanding shares of Suiza Common Stock entitled to be voted at the Suiza      
Special Meeting. Each of the directors and executive officers of Suiza Foods are
expected to vote, or cause to be voted, all shares of Suiza Common Stock over   
which they exercise voting control "FOR" the approval and adoption of the Stock 
Issuance and the Plan Amendment. See "The Special Meetings--Voting Securities   
and Record Dates--Suiza Foods."                                                 

 MORNINGSTAR.  As of the close of business on the Morningstar Record Date,
the directors and executive officers of Morningstar owned approximately 1.7% of 
the shares of Morningstar Common Stock outstanding and entitled to be voted at  
the Morningstar Special Meeting. All directors and executive officers of        
Morningstar are expected to vote, or cause to be voted, all shares of           
Morningstar Common Stock over which they exercise voting control "FOR" the      
approval and adoption of the Merger, the Merger Agreement and the transactions  
contemplated thereby. See "The Special Meetings--Voting Securities and Record   
Dates--Morningstar."                                                            

THE MERGER AND THE MERGER AGREEMENT 

GENERAL                                                                         

 Upon the terms and subject to the conditions of the Merger Agreement, Sub
will be merged with and into Morningstar, and Morningstar will become a wholly  
owned subsidiary of Suiza Foods. See "The Merger--General."                     

    A copy of the Merger Agreement is attached as Appendix A to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.                   

EFFECTIVE TIME                                                                  

    The Merger will become effective at the date and time (the "Effective Time")
when a properly executed certificate of merger (the "Certificate of Merger") is 
filed with the Secretary of State of the State of Delaware in accordance with   
applicable provisions of the Delaware General Corporation Law (the "DGCL"). The 
Certificate of Merger will be filed as soon as practicable following the        
fulfillment of the conditions set forth in the Merger Agreement. See "The       
Merger--General."                                                               

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CONVERSION OF SHARES                                                            

    In the Merger, each share of Morningstar Common Stock issued and outstanding
immediately prior to the Effective Time (excluding those held in the treasury of
Morningstar and those owned by Suiza Foods, Sub or any other subsidiary of Suiza
Foods), without any action on the part of the holder thereof, will be converted 
into the right to receive 0.85 shares of Suiza Common Stock. Cash will be paid  
in lieu of any fractional share of Suiza Common Stock. See "The Merger          
Agreement--Consideration to be Received in the Merger."                         

OPTION CONVERSION                                                               

  In the Merger, each outstanding and unexercised Morningstar Option will be
assumed by Suiza Foods and converted into a Substitute Option to purchase a     
number of shares of Suiza Common Stock equal to the number of shares of         
Morningstar Common Stock subject to such Morningstar Option multiplied by the   
Exchange Ratio (rounded down to the nearest whole share) at a per share price   
equal to the per share exercise price of the Morningstar Option immediately     
prior to the Merger divided by the Exchange Ratio (rounded up to the nearest    
full cent).                                                                     

BACKGROUND AND REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARDS             

   SUIZA FOODS.  The Board of Directors of Suiza Foods (the "Suiza Board") has
reviewed the Merger Agreement and the transactions contemplated thereby, and has
considered, among other things, that Donaldson, Lufkin & Jenrette Securities    
Corporation ("DLJ") has delivered its written opinion, dated September 28, 1997 
(the "DLJ Opinion"), to the Suiza Board to the effect that, based upon and      
subject to certain matters stated therein, as of the date of such opinion, the  
Exchange Ratio pursuant to the Merger Agreement is fair to Suiza Stockholders   
from a financial point of view. The full text of the DLJ Opinion, which sets    
forth a description of the assumptions made, matters considered and limitations 
on the review undertaken, is attached to this Joint Proxy Statement/Prospectus  
as Appendix B and should be read carefully in its entirety. The Suiza Board has 
reviewed the terms and conditions of the Merger Agreement and considered a range
of factors, including the opinion of DLJ. After consideration of these factors  
the Suiza Board concluded that the Merger is in the best interests of Suiza     
Stockholders. THE SUIZA BOARD UNANIMOUSLY RECOMMENDS THAT THE SUIZA STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE STOCK ISSUANCE. For a more detailed discussion of the
factors considered by the Suiza Board in reaching its decision and the          
background and reasons for the Merger, see "The Merger--Background of the       
Merger" and "--Reasons for the Merger; Recommendations of the Boards--Suiza     
Foods."                                                                         

MORNINGSTAR.  The Board of Directors of Morningstar (the "Morningstar   
Board") has reviewed the Merger Agreement and the transactions contemplated     
thereby, and has considered, among other things, that Goldman, Sachs & Co.      
("Goldman Sachs") has delivered its written opinion, dated as of September 28,  
1997 (the "Goldman Sachs Opinion"), to the Morningstar Board to the effect that 
as of such date, the Exchange Ratio pursuant to the Merger Agreement was fair   
from a financial point of view to the holders of Morningstar Common Stock. The  
Morningstar Board has reviewed the terms and conditions of the Merger Agreement 
and considered a range of factors. After consideration of these factors, the    
Morningstar Board unanimously concluded that the Merger is fair to and in the   
best interests of the Morningstar Stockholders and unanimously approved the     
Merger Agreement. THE MORNINGSTAR BOARD UNANIMOUSLY RECOMMENDS THAT THE         
MORNINGSTAR STOCKHOLDERS VOTE IN FAVOR OF THE APPROVAL AND ADOPTION OF THE      
MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. See "The
Merger--Background of the Merger" and "--Reasons for the Merger; Recommendations
of the Boards--Morningstar."                                                    

OPINIONS OF FINANCIAL ADVISORS                                                  

In deciding to approve the Merger, each of the Suiza Board and the      
Morningstar Board (together, the "Boards") considered opinions from their       
respective financial advisors as to the fairness of the Exchange Ratio from a   
financial point of view.                                                        

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DLJ has delivered to the Suiza Board the DLJ Opinion to the effect that,
based upon and subject to certain matters stated therein, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to the Suiza 
Stockholders. The full text of the DLJ Opinion which sets forth assumptions     
made, matters considered and limitations on the review undertaken in connection 
with the opinion is attached to this Joint Proxy Statement/Prospectus as        
Appendix B and is incorporated herein by reference. The DLJ Opinion was provided
for the information and assistance of the Suiza Board in connection with its    
consideration of the transactions contemplated by the Merger Agreement, and such
opinion does not constitute a recommendation as to how any Suiza Stockholder    
should vote with respect to such transaction. SUIZA STOCKHOLDERS ARE URGED TO,  
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.                                  

 Goldman Sachs delivered its oral opinion on September 28, 1997, which was
subsequently confirmed in writing, to the Morningstar Board to the effect that  
as of the date of such opinion the Exchange Ratio pursuant to the Merger        
Agreement was fair from a financial point of view to the holders of Morningstar 
Common Stock. The full text of the Goldman Sachs Opinion, which sets forth      
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion is attached to this Joint Proxy Statement/Prospectus
as Appendix C and is incorporated herein by reference. The Goldman Sachs Opinion
was provided for the information and assistance of the Morningstar Board in     
connection with its consideration of the transactions contemplated by the Merger
Agreement, and such opinion does not constitute a recommendation as to how any  
holder of Morningstar Common Stock should vote with respect to such transaction.
MORNINGSTAR STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS     
ENTIRETY. See "The Merger--Opinion of Suiza Foods' Financial Advisor" and       
"--Opinion of Morningstar's Financial Advisor."                                 

OWNERSHIP OF SUIZA FOODS FOLLOWING THE MERGER                                   

  Based on the number of shares of Suiza Common Stock and Morningstar Common
Stock outstanding on October 27, 1997, the shares of Suiza Common Stock issued  
to Morningstar Stockholders in the Merger will constitute approximately 44.3% of
the Suiza Common Stock outstanding after the Merger. On the same basis but also 
assuming that 1,911,075 additional shares of Suiza Common Stock are issued in   
the Country Fresh Merger, Morningstar Stockholders will hold approximately 41.5%
of the Suiza Common Stock outstanding after the Merger.                         

    Each outstanding and unexercised Morningstar Option will be assumed by Suiza
Foods in the Merger and converted into a Substitute Option. Following the       
Merger, approximately 2,957,987 shares of Suiza Common Stock will be issuable   
upon the exercise of Substitute Options, based on the number of shares of       
Morningstar Common Stock subject to Morningstar Options as of October 27, 1997, 
multiplied by the Exchange Ratio. The per share exercise price of the Substitute
Options will equal the per share exercise price of the Morningstar Options      
divided by the Exchange Ratio.                                                  

ANTICIPATED ACCOUNTING TREATMENT                                                

The Merger is intended to qualify for "pooling of interests" accounting 
treatment under generally accepted accounting principles. Receipt by Suiza Foods
and Sub of advice in writing from Deloitte & Touche, LLP, and receipt by        
Morningstar of advice in writing from Arthur Andersen LLP, in each case, that   
the merger will qualify for pooling of interests accounting treatment is a      
condition to the consummation of the Merger. See "Risk Factors--Anticipated     
Accounting Treatment" and "The Merger--Anticipated Accounting Treatment."       

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CERTAIN TAX CONSEQUENCES                                                        

   Consummation of the Merger is conditioned upon, among other things, receipt
by Morningstar of an opinion of its tax counsel, Weil, Gotshal & Manges LLP, and
by Suiza Foods of an opinion of its tax counsel, Hughes & Luce, L.L.P, in each  
case, that the Merger will qualify as a reorganization within the meaning of    
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").   
Accordingly, Morningstar Stockholders are not expected to recognize any gain or 
loss on the exchange of shares of Morningstar Common Stock for shares of Suiza  
Common Stock pursuant to the Merger, except to the extent that any Morningstar  
Stockholder receives cash in lieu of fractional shares of Suiza Common Stock.   

All stockholders should read carefully the discussion under the caption 
"Certain U.S. Federal Income Tax Consequences of the Merger" and other sections 
of this Joint Proxy Statement/Prospectus. Stockholders are also urged to consult
their own tax advisors as to the specific consequences to them of the Merger    
under U.S. federal, state, local or any other applicable tax laws. See "Certain 
U.S. Federal Income Tax Consequences of the Merger."                            

NEW MORNINGSTAR BOARD AND MANAGEMENT FOLLOWING THE MERGER                       

    If the proposed Merger is approved and consummated, Morningstar Stockholders
will become stockholders of Suiza Foods, which will conduct its business under  
the direction of the Board of Directors and management of Suiza Foods. The      
directors of Sub immediately prior to the Effective Time will be the initial    
directors of New Morningstar and the officers of Sub immediately prior to the   
Effective Time will be the initial officers of New Morningstar.                 

BOARD OF DIRECTORS OF SUIZA FOODS FOLLOWING THE MERGER                          

   Following the Merger, the Board of Directors of Suiza Foods (the "New Suiza
Board") will consist of 12 members. Two members of the New Suiza Board will be  
present members of the Morningstar Board, and the remainder of the New Suiza    
Board will be Suiza Foods' current directors. For information about the two     
nominees, see "The Merger--Board of Directors of Suiza Foods Following the      
Merger." Suiza Foods has also agreed to add a thirteenth member to its Board of 
Directors upon completion of the Country Fresh Merger.                          

GOVERNMENTAL APPROVALS                                                          

Pursuant to the Merger Agreement, on October 21, 1997 Suiza Foods and   
Morningstar each filed with the Federal Trade Commission (the "FTC") and the    
Antitrust Division of the Department of Justice (the "DOJ") a notification and  
report, together with requests for early termination of the applicable waiting  
period, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as      
amended (the "HSR Act"), with respect to the Merger. Expiration or early        
termination of the applicable waiting period under the HSR Act is a condition to
the obligations of Suiza Foods and Morningstar to consummate the Merger. The    
applicable waiting period under the HSR Act is scheduled to expire at 11:59 p.m.
on November 20, 1997. Neither Suiza Foods nor Morningstar is aware of any other 
governmental or regulatory approval required for consummation of the Merger,    
other than compliance with applicable securities laws. See "The                 
Merger--Governmental Approvals."                                                

ABSENCE OF APPRAISAL RIGHTS                                                     

   Under the DGCL, the Suiza Stockholders are not entitled to appraisal rights
with respect to the Stock Issuance and the Morningstar Stockholders are not     
entitled to appraisal rights with respect to the Merger. See "The               
Merger--Absence of Appraisal Rights."                                           

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CONDITIONS PRECEDENT TO THE MERGER                                              

    The obligations of Suiza Foods, Morningstar and Sub to effect the Merger are
subject, among other things, to the fulfillment or, where permissible, waiver of
certain conditions, including without limitation: (i) the approval of the       
Merger, the Merger Agreement and the transactions contemplated thereby by the   
requisite vote of the Morningstar Stockholders and the approval of the Stock    
Issuance by the requisite vote of the Suiza Stockholders; (ii) the expiration or
termination of any waiting period applicable to the consummation of the Merger  
under the HSR Act; (iii) the effectiveness of the Registration Statement and the
absence of a stop order suspending such effectiveness; (iv) there not having    
been issued or in effect any preliminary or permanent injunction or order by any
federal or state court in the United States of competent jurisdiction           
prohibiting the consummation of the Merger; (v) the listing on the NYSE, subject
only to official notice of issuance, of the shares of Suiza Common Stock to be  
issued pursuant to the Stock Issuance; (vi) Morningstar having received an      
opinion of Weil, Gotshal & Manges LLP, and Suiza Foods having received an       
opinion of Hughes & Luce, L.L.P, in each case, that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and (vii)       
Morningstar having received a letter from Arthur Andersen LLP, and Suiza Foods  
and Sub having received a letter from Deloitte & Touche LLP, in each case, dated
as of the closing date, to the effect that the Merger will qualify for pooling  
of interest accounting treatment if consummated in accordance with the Merger   
Agreement. See "Risk Factors--Anticipated Accounting Treatment" and "The Merger 
Agreement--Conditions Precedent."                                               

TERMINATION OF THE MERGER                                                       

  Under certain circumstances the Merger Agreement may be terminated and the
Merger abandoned prior to the Effective Time. Under certain circumstances in    
connection with the termination of the Merger Agreement, one party may be       
required to reimburse the other party for its expenses up to $2,000,000 and to  
pay the other party a termination fee of $20,000,000. See "The Merger           
Agreement--Termination."                                                        

COMPARATIVE RIGHTS OF HOLDERS OF SUIZA COMMON STOCK AND MORNINGSTAR COMMON STOCK

   The rights of holders of Morningstar Common Stock are currently governed by
Delaware law and by Morningstar's Restated Certificate of Incorporation (the    
"Morningstar Charter") and Bylaws (the "Morningstar Bylaws"). If the Merger is  
consummated, the rights of former Morningstar Stockholders who become Suiza     
Stockholders pursuant to the Merger will thereafter be governed by Delaware law 
and by Suiza Foods' Certificate of Incorporation (the "Suiza Charter") and      
Bylaws (the "Suiza Bylaws"). The rights of Suiza Stockholders differ in certain 
respects from those of the Morningstar Stockholders. See "Comparison of the     
Rights of Suiza Stockholders and Morningstar Stockholders" for a description of 
such differences.                                                               

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

For information regarding interests of certain officers and directors of
Morningstar separate from and in addition to their interests as stockholders of 
Morningstar generally, see "The Merger--Interests of Certain Persons in the     
Merger."                                                                        

RISK FACTORS

SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE   
CONSIDERED BY THE MORNINGSTAR STOCKHOLDERS IN CONNECTION WITH AN INVESTMENT IN  
SUIZA FOODS UPON CONSUMMATION OF THE MERGER.                                    

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

   This Joint Proxy Statement/Prospectus contains or incorporates by reference
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act that are subject to risks and           
uncertainties. All statements other than statements of historical fact included 
in                                                                              

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this Joint Proxy Statement/Prospectus, including, without limitation, statements
under "The Merger-- Background of the Merger," "--Reasons for the Merger;       
Recommendations of the Boards," "--Opinion of Suiza Foods' Financial Advisor"   
and "--Opinion of Morningstar's Financial Advisor" regarding the financial      
position, business strategy and plans and objectives of management of Suiza     
Foods and Morningstar are forward-looking statements. Although Suiza Foods and  
Morningstar believe that the expectations reflected in such forward-looking     
statements, to the extent applicable to each of them, are reasonable, neither   
can give any assurance that such expectations will prove to be correct.         
Important factors that could cause actual results to differ materially from     
expectations ("Cautionary Statements") are disclosed under "Risk Factors" and   
elsewhere in this Joint Proxy Statement/Prospectus, including, without          
limitation, in conjunction with the forward-looking statements included herein. 
All subsequent written and oral forward-looking statements attributable to Suiza
Foods, Morningstar or persons acting on their behalf are expressly qualified in 
their entirety by the Cautionary Statements.                                    

MARKET PRICE AND DIVIDEND INFORMATION 

MARKET PRICE                                                                    

   The Suiza Common Stock began trading on Nasdaq on April 17, 1996. Effective
March 5, 1997, the Suiza Common Stock began trading on the NYSE. The Morningstar
Common Stock began trading on Nasdaq on April 24, 1992. The following table sets
forth, for the periods from April 17, 1996 to October 27, 1997, the high and low
sales prices of the Suiza Common Stock as quoted on Nasdaq and the NYSE, as     
applicable, and for the periods from January 1, 1995 to October 27, 1997, the   
high and low sales price of the Morningstar Common Stock as quoted on Nasdaq. On
October 27, 1997, the last reported sales price of the Suiza Common Stock on the
NYSE was $47.00 per share and the last reported sales price of the Morningstar  
Common Stock on Nasdaq was $38.50 per share. At September 30, 1997, there were  
approximately 77 record holders of Suiza Common Stock and 124 record holders of 
Morningstar Common Stock.                                                       

                                                        [Enlarge/Download Table]

                                                              SUIZA              MORNINGSTAR     
                                                           COMMON STOCK          COMMON STOCK    
                                                              PRICES                PRICES       
                                                       --------------------  --------------------
                                                         HIGH        LOW       HIGH        LOW   
                                                       ---------  ---------  ---------  ---------
                                                                                                 
1995                                                                                             
  First Quarter.......................................    N/A        N/A     $    7.50  $    5.50
  Second Quarter......................................    N/A        N/A          8.00       6.38
  Third Quarter.......................................    N/A        N/A          9.25       6.38
  Fourth Quarter......................................    N/A        N/A          9.00       7.50

1996                                                                                             
  First Quarter.......................................    N/A        N/A         10.00       7.88
  Second Quarter...................................... $   18.75  $   14.00      12.25       9.13
  Third Quarter.......................................     17.75      15.75      11.88      10.25
  Fourth Quarter......................................     20.75      16.75      20.00      11.88

1997                                                                                             
  First Quarter.......................................     29.25      19.50      25.50      17.25
  Second Quarter......................................     42.00      24.75      29.50      19.00
  Third Quarter.......................................     57.50      39.13      45.00      27.13
  Fourth Quarter (through October 27, 1997)...........     55.00      46.88      44.38      38.50

  On September 26, 1997, the last full trading day prior to the first public
announcement of the execution of the Merger Agreement, and on October 27, 1997, 
the last full trading day prior to the date of                                  

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this Joint Proxy Statement/Prospectus, the reported high and low sale prices per
share and closing price per share of Suiza Common Stock on the NYSE and         
Morningstar Common Stock on Nasdaq were as follows:                             

                                                        [Enlarge/Download Table]

                                          SEPTEMBER 26, 1997                OCTOBER 27, 1997        
                                    -------------------------------  -------------------------------
                                      HIGH        LOW       CLOSE      HIGH        LOW       CLOSE  
                                    ---------  ---------  ---------  ---------  ---------  ---------
                                                                                                    
Suiza Foods........................ $   54.63  $   53.50  $   53.94  $   50.13  $   46.88  $   47.00
Morningstar........................     41.00      39.75      40.00      41.44      37.13      38.50

EQUIVALENT PER SHARE PRICES                                                     

The following table sets forth the last reported sale price of the Suiza
Common Stock on September 26, 1997, the last full trading day prior to the first
public announcement of the execution of the Merger Agreement, and on October 27,
1997, the last practicable day prior to the mailing of this Joint Proxy         
Statement/Prospectus. The equivalent per share price of the Morningstar Common  
Stock was determined by multiplying the last reported sale price of a share of  
Suiza Common Stock at each specified date by the Exchange Ratio. These          
assumptions are made solely for the purpose of calculating the pro forma data   
presented below and are not intended to be, nor should they be, interpreted as a
representation or an approximation of the actual value of the Suiza Common Stock
to be issued in the Merger. For a discussion of the terms upon which Morningstar
Common Stock will be converted into Suiza Common Stock in the Merger, see "The  
Merger--General."                                                               

                                                        [Enlarge/Download Table]

                                                                          EQUIVALENT PRICE PER 
                                                         PRICE OF SUIZA   SHARE OF MORNINGSTAR 
                                                          COMMON STOCK        COMMON STOCK     
                                                         ---------------  ---------------------
                                                                                               
September 26, 1997......................................    $   53.94           $   45.85      
October 27, 1997........................................        47.00               39.95      

    THE MARKET PRICE OF THE SUIZA COMMON STOCK AND MORNINGSTAR COMMON STOCK WILL
FLUCTUATE BETWEEN THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE     
EFFECTIVE DATE. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR  
SHARES OF SUIZA COMMON STOCK AND MORNINGSTAR COMMON STOCK.                      

DIVIDENDS                                                                       

   SUIZA FOODS.  Suiza Foods has never declared or paid a cash dividend on the
Suiza 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 Suiza    
Common Stock in the foreseeable future. In addition, Suiza Foods' senior credit 
facilities prohibit the payment of dividends by Suiza Foods on any shares of    
Suiza Common Stock, other than dividends payable solely in shares of Suiza      
Common Stock.                                                                   

MORNINGSTAR.  Morningstar last declared and paid a cash dividend on the 
Morningstar Common Stock in the first quarter of 1994 to holders of record as of
December 31, 1993. 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          
Morningstar Common Stock in the foreseeable future. In addition, Morningstar's  
senior credit facilities prohibit the payment of dividends by Morningstar on any
shares of Morningstar Common Stock, other than dividends payable solely in      
shares of Morningstar Common Stock.                                             

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COMPARATIVE PER SHARE DATA

  The following table sets forth certain historical per share data for Suiza
Foods and Morningstar and unaudited pro forma and equivalent pro forma per share
data. See "Pro Forma Financial Data." Earnings (loss) per common share are      
presented for the six months ended June 30, 1997 and for each of the three years
in the period ended December 31, 1996. Book value per share is presented as of  
June 30, 1997 and December 31, 1996. These data should be read in conjunction   
with the selected financial data and the pro forma financial data included in   
this Joint Proxy Statement/Prospectus and the separate financial statements of  
Suiza Foods, Morningstar and Country Fresh and the respective notes thereto. The
pro forma financial data is not necessarily indicative of the operating results 
or financial position that would have occurred had the mergers been consummated 
at the beginning of the earliest period presented and should not be construed as
indicative of future operations.                                                

                                                        [Enlarge/Download Table]

                                                                                                             UNAUDITED   
                                                                                                            SIX MONTHS   
                                                                            YEARS ENDED DECEMBER 31,      ENDED JUNE 30, 
                                                                         -------------------------------  ---------------
                                                                           1994       1995       1996          1997      
                                                                         ---------  ---------  ---------  ---------------
                                                                                                                         
HISTORICAL--SUIZA FOODS                                                                                                  
  Earnings (loss) per common share(a)................................... $    0.66  $   (1.64) $    2.59     $    1.36   
  Book value per common share at the end of period(b)...................      1.80       1.50       8.71         13.65   

HISTORICAL--MORNINGSTAR                                                                                                  
  Earnings per common share(a).......................................... $    0.71  $    0.76  $    0.96     $    0.64   
  Book value per common share at the end of period(b)...................      4.48       5.07       5.80          6.46   

UNAUDITED PRO FORMA DATA PER SHARE OF SUIZA COMMON STOCK                                                                 
  Earnings per share(c)................................................. $    0.76  $    0.64  $    2.45     $    1.48   
  Book value per share at the end of period.............................       N/A        N/A       7.59         10.76   

UNAUDITED EQUIVALENT PRO FORMA DATA PER SHARE OF MORNINGSTAR COMMON                                                      
STOCK(D)                                                                                                                 
  Earnings per share.................................................... $    0.65  $    0.54  $    2.08     $    1.26   
  Book value per share at the end of period.............................    N/A        N/A          6.45          9.15   

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

(a) The historical earnings per common share are based upon the weighted average
   number of common shares outstanding, as adjusted for the Suiza Foods' stock
split, for each period indicated.                                       

(b) The historical book value per common share is computed by dividing          
   stockholders' equity by the number of shares of common stock outstanding at
the end of each period indicated.                                       

(c) The unaudited pro forma earnings per common share is based upon the pro     
  forma weighted average number of common shares outstanding for each period
indicated.                                                              

(d) The unaudited equivalent pro forma per common share data is calculated by   
multiplying the unaudited pro forma per common share data by 0.85.      

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SUMMARY PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA) 

  The following summary pro forma financial data are based on adjustments to
the historical consolidated balance sheets and related consolidated statements  
of income of Suiza Foods to give effect to the Merger and the Country Fresh     
Merger using the pooling of interests method of accounting and, for the year    
ended December 31, 1996 and the six-month period ended June 30, 1997, the       
business combinations completed by Suiza Foods and Morningstar during 1996 and  
1997 on a purchase accounting basis.                                            

    Country Fresh's consolidated financial statements are based on a fiscal year
ending on the Saturday nearest to the end of February, while the fiscal years of
Suiza Foods and Morningstar end on December 31. As a result, the unaudited pro  
forma financial information combines different fiscal periods. The unaudited pro
forma balance sheet as of June 30, 1997 assumes that the above described        
transactions occurred as of such date and reflects the combination of the       
historical balance sheets of Suiza Foods and Morningstar as of June 30, 1997    
with the historical balance sheet of Country Fresh as of July 19, 1997.         

 The pro forma statements of income for the years ended December 31, 1994,
1995 and 1996 and the six month period ended June 30, 1997 (i) assume that the  
merger with Country Fresh and the merger with Morningstar had been consummated  
as of January 1, 1994, and combine the historical results of operations of Suiza
Foods and Morningstar for those periods with the historical results of          
operations of Country Fresh for the fiscal years ended February 25, 1995, March 
2, 1996 and March 1, 1997, and the six-month period (26 weeks) ended July 19,   
1997, respectively and (ii) assume that the business combinations completed by  
Suiza Foods and Morningstar in 1996 and 1997 on a purchase accounting basis had 
been consummated as of January 1, 1996. For ease of reference, all column       
headings used in the table below refer to the period-ended dates for Suiza      
Foods.                                                                          

The summary pro forma data presented below should be read in conjunction
with the selected financial data of Suiza Foods, Country Fresh and Morningstar, 
the unaudited pro forma financial data and notes thereto, "Recent Developments" 
and the financial statements and other financial information included elsewhere 
in this Joint Proxy Statement/Prospectus and in the documents incorporated      
herein by reference. The unaudited pro forma income statement data are not      
necessarily indicative of the operating results that would have occurred had the
Merger and the Country Fresh Merger occurred on January 1, 1994, nor are they   
necessarily indicative of future operating results of the combined companies.   

                                                        [Enlarge/Download Table]

                                                                                                  UNAUDITED SIX
                                                                      UNAUDITED                   MONTHS ENDED 
                                                              YEARS ENDED DECEMBER 31,              JUNE 30,   
                                                     -------------------------------------------  -------------
                                                         1994           1995           1996           1997     
                                                     -------------  -------------  -------------  -------------
                                                                                                               
PRO FORMA INCOME STATEMENT DATA:                                                                               
  Net Sales......................................... $     938,866  $   1,065,433  $   2,014,626  $   1,022,064
  Operating income..................................        49,470         57,910        135,171         80,118
  Interest expense, net.............................        23,817         25,615         66,439         28,579
  Net income from continuing operations.............        17,534         13,833         61,607         46,196
  Net income from continuing operations applicable                                                             
    to common shares................................        17,534         13,529         61,308         46,046
  Net earnings per common share.....................           .76            .64           2.45           1.48
  Weighted average common shares outstanding........    23,106,841     21,036,608     25,066,383     31,113,819

                                                                [Download Table]
                                                                                 
PRO FORMA BALANCE SHEET DATA (AT END OF PERIOD):                                 
  Total assets........................................................ $1,312,265
  Long term debt, excluding current portion...........................    729,825
  Preferred Stock.....................................................      3,741
  Total common stockholders' equity...................................    321,851

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SUMMARY FINANCIAL DATA OF SUIZA FOODS 
(IN THOUSANDS, EXCEPT SHARE DATA) 

 The following table sets forth selected historical consolidated financial
data for Suiza Foods for each of the three years in the period ended December   
31, 1996 and for the unaudited six-month periods ended June 30, 1996 and 1997.  
Such data have been derived from, and should be read in conjunction with, the   
audited consolidated financial statements and unaudited interim financial       
statements and other financial information contained elsewhere in this Joint    
Proxy Statement/Prospectus or incorporated by reference herein. See "Available  
Information" and "Incorporation of Certain Information by Reference."           

                                                        [Enlarge/Download Table]

                                                                                                       UNAUDITED SIX       
                                                                                                       MONTHS ENDED        
                                                                 YEAR ENDED DECEMBER 31,                 JUNE 30,          
                                                           ------------------------------------  ------------------------- 
                                                              1994         1995        1996         1996          1997     
                                                           -----------  ----------  -----------  -----------  ------------ 
                                                                                                                           
INCOME STATEMENT DATA:                                                                                                     
  Net sales............................................... $   341,108  $  430,466  $   520,916  $   225,307  $    336,819 
  Income from operations..................................      25,760      30,564       35,122       14,943        23,149 
  Interest expense, net...................................      19,279      19,921       17,470        8,488         6,580 
  Income (loss) before extraordinary losses...............       4,245      (1,576)      27,929        4,936        24,399 
  Net income (loss)(1)....................................       4,048     (10,038)      25,714        2,721        21,129 
  Earnings (loss) per share:                                                                                               
    Income (loss) before extraordinary loss...............         .69        (.26)        2.81          .58          1.57 
    Extraordinary loss....................................        (.03)      (1.38)        (.22)        (.26)         (.21)
    Net income (loss)(1)..................................         .66       (1.64)        2.59          .32          1.36 

  Weighted average shares outstanding.....................   6,156,387   6,109,398    9,921,822    8,455,332    15,509,388 
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                     
  Total assets............................................ $   238,952  $  232,522  $   384,148  $   237,973  $    402,306 
  Long term debt, excluding current portion...............     173,327     171,745      226,693      134,334       128,150 
  Total stockholders' equity..............................       9,887       9,460       93,532       60,789       208,633 

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

(1) Net income (loss) and related per share amounts include the following       
nonrecurring and extraordinary charges and benefits:                    

                                                        [Enlarge/Download Table]

                                                                                             SIX MONTHS ENDED   
                                                              YEAR ENDED DECEMBER 31,            JUNE 30,       
                                                          -------------------------------  -------------------- 
                                                            1994       1995       1996       1996       1997    
                                                          ---------  ---------  ---------  ---------  --------- 
                                                                                                                
Merger, financing and other costs (a).................... $  (1,602) $  (9,554) $    (354) $      --  $      -- 
Tax benefits (b).........................................        --         --     13,950         --     11,500 
Extraordinary loss from early extinguishment of debt                                                            
  (c)....................................................      (197)    (8,462)    (2,215)    (2,215)    (3,270)
                                                          ---------  ---------  ---------  ---------  --------- 
                                                          $  (1,799) $ (18,016) $  11,381  $  (2,215)     8,230 
                                                          ---------  ---------  ---------  ---------  --------- 
                                                          ---------  ---------  ---------  ---------  --------- 

   (a) Consists of costs incurred in connection with the corporate combination
       pursuant to which Suiza Foods was formed as a holding company for certain
  pre-existing operations, an uncompleted public offering of shares of
Suiza Common Stock, an uncompleted debt offering, uncompleted     
     acquisitions and debt refinancing costs, net of associated income taxes
of $58 in 1994, $684 in 1995 and $217 in 1996.                    

    (b) For 1996, includes the sale of Puerto Rico tax credits of $3,400 (net of
  related expenses), reflected in other income, and the recognition of
 $11,750 in deferred income tax benefits recorded as a credit to tax
    expense, both effects related to tax credits generated by Suiza-Puerto
       Rico, partially offset by additional income tax expense of $1,200 related
     to the sale of the tax credits. For the six months ended June 30, 1997,
   includes a nonrecurring gain of $18,100, net of discounts and related
       expenses, resulting from additional tax credits generated by Suiza-Puerto
 Rico that Suiza Foods subsequently sold to third parties, partially
      offset by additional income tax expense of $6,600 related to the sale of
tax credits.                                                      

 (c) Net of associated income taxes of approximately $700 in 1995, $900 in
1996 and $2,000 for the six months ended June 30, 1997.           

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SUMMARY FINANCIAL DATA OF MORNINGSTAR 
(IN THOUSANDS, EXCEPT SHARE DATA) 

 The following table sets forth selected historical consolidated financial
data for Morningstar for each of the three years in the period ended December   
31, 1996 and for the unaudited six-month periods ended June 30, 1996 and 1997.  
Such data have been derived from, and should be read in conjunction with, the   
audited consolidated financial statements and unaudited interim financial       
statement and other financial information contained elsewhere in this Joint     
Proxy Statement/Prospectus or incorporated by reference herein. See "Available  
Information" and "Incorporation of Certain Information by Reference."           

                                                        [Enlarge/Download Table]

                                                                                                         UNAUDITED        
                                                                                                      SIX MONTHS ENDED    
                                                                  YEAR ENDED DECEMBER 31,                 JUNE 30,        
                                                           -------------------------------------  ------------------------
                                                              1994         1995         1996         1996         1997    
                                                           -----------  -----------  -----------  -----------  -----------
                                                                                                                          
INCOME STATEMENT DATA:                                                                                                    
  Net Sales............................................... $   292,314  $   304,730  $   394,306  $   167,417  $   270,672
  Income from operations..................................      18,407       20,428       26,160       10,644       23,427
  Interest expense, net...................................       4,797        4,302        4,026        1,532        6,798
  Income from continuing operations (1)...................       9,321       11,340       14,576        6,294        9,961
  Net income..............................................      10,647       11,524       14,576        6,294        9,961
  Earnings per share:                                                                                                     
    Income from continuing operations (1).................         .62          .74          .96          .42          .64
    Income from discontinued operations...................         .09          .02      --           --           --     
    Net Income............................................         .71          .76          .96          .42          .64

  Weighted average shares outstanding.....................  15,050,538   15,245,562   15,133,887   14,778,316   15,643,651
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                    
    Total assets.......................................... $   165,265  $   162,709  $   355,991  $   170,042  $   352,323
    Long-term debt, excluding current portion.............      53,892       36,000      177,349       30,463      169,200
    Total common stockholders' equity.....................      66,802       77,323       88,788       79,748       99,443

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

(1) Represents income before income from discontinued operations of $1,326 in   
1994 and $184 in 1995.                                                  

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SUMMARY FINANCIAL DATA OF COUNTRY FRESH 
(IN THOUSANDS, EXCEPT SHARE DATA) 

 The following table sets forth selected historical consolidated financial
data for Country Fresh for each of the three years in the period ended March 1, 
1997 and for the unaudited 20 weeks ended June 20, 1996 and July 19, 1997. Such 
data has been derived from, and should be read in conjunction with, the audited 
and unaudited consolidated financial statements and financial information       
contained elsewhere in this Joint Proxy Statement/Prospectus.                   

                                                        [Enlarge/Download Table]

                                                                                                         UNAUDITED        
                                                                       YEARS ENDED                     20 WEEKS ENDED     
                                                          --------------------------------------  ------------------------
                                                          FEBRUARY 25,   MARCH 2,     MARCH 1,     JULY 20,     JULY 19,  
                                                              1995         1996         1997         1996         1997    
                                                          ------------  -----------  -----------  -----------  -----------
                                                                                                                          
INCOME STATEMENT DATA:                                                                                                    
  Net sales..............................................  $  310,164   $   336,055  $   353,037  $   135,328  $   136,154
  Operating income.......................................       5,303         6,918       10,841        6,028        6,451
  Interest expense (income), net.........................        (259)        1,392        1,219          613          597
  Earnings from continuing operations (1)................       3,968         4,069        6,673        3,642        4,029
  Net earnings...........................................       1,696         4,069        6,673        3,642        4,029
  Net earnings applicable to common shares...............       1,696         3,765        6,371        3,566        3,954
  Net earnings per common share:                                                                                          
    Earnings from continuing operations..................         .52          1.04         1.75          .97         1.07
    Cumulative effect of change in accounting............        (.30)      --           --           --           --     
    Net earnings.........................................         .22          1.04         1.75          .97         1.07

  Weighted average common shares outstanding.............   7,622,840     3,609,245    3,636,519    3,631,758    3,685,236
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                    
  Total assets...........................................  $   98,870   $    94,765  $    99,206  $   105,565  $   101,942
  Long term debt, excluding current portion..............      14,217        32,152       28,571       36,318       26,523
  Preferred stock........................................      --             3,800        3,741        3,800        3,741
  Total common stockholders' equity......................      51,265        21,326       27,793       25,002       31,775

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

(1) Represents earnings before cumulative effect of change in accounting for    
post-retirement benefits other than pensions.                           

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RISK FACTORS

IN CONSIDERING THE MATTERS SET FORTH IN THIS JOINT PROXY                
STATEMENT/PROSPECTUS, MORNINGSTAR STOCKHOLDERS SHOULD CAREFULLY CONSIDER, AMONG 
OTHER THINGS, THE SIGNIFICANT RISKS AND SPECULATIVE FACTORS DESCRIBED BELOW,    
WHICH ARE ASSOCIATED WITH AN INVESTMENT IN SUIZA COMMON STOCK UPON CONSUMMATION 
OF THE MERGER.                                                                  

RISKS ASSOCIATED WITH ACQUISITION STRATEGY                                      

Suiza Foods' strategy is to continue to expand its dairy, ice, food     
distribution and related food businesses primarily through acquisitions of      
strong regional operators in new markets and consolidating or add-on            
acquisitions in its existing markets. Suiza Foods will evaluate specific        
acquisition opportunities based on market conditions and economic factors       
existing at the time and intends to pursue favorable opportunities as they      
arise. Suiza Foods may encounter increased competition for acquisitions in the  
future, which could result in acquisition prices Suiza Foods does not consider  
acceptable. There can be no assurance that Suiza Foods will find suitable       
acquisition candidates at acceptable prices or succeed in integrating acquired  
businesses into Suiza Foods' existing business or in retaining key customers of 
acquired businesses. There can also be no assurance that Suiza Foods will have  
sufficient available capital resources to realize its acquisition strategy. See 
"--Substantial Indebtedness."                                                   

Although Suiza Foods often acquires operations in new markets requiring 
minimal integration, the success of Suiza Foods' acquisition strategy is also   
dependent on the ability of Suiza Foods to integrate add-on acquisitions into   
Suiza Foods' existing operations in established markets. In addition, Suiza     
Food's recent growth has placed, and is expected to continue to place, a        
significant strain on its management, operational and financial resources. The  
Merger will significantly expand, and will require integration of Morningstar's 
operations into, Suiza Foods' operations. There can be no assurance that the    
integration and management of Morningstar's 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 Suiza Foods will realize meaningful economies
of scale or operating efficiencies from its acquisitions. The failure of Suiza  
Foods to successfully integrate and manage acquired operations (including,      
without limitation, Morningstar's operations) could have a material adverse     
effect on Suiza Foods.                                                          

COMPETITION                                                                     

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

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. Any expansion of production capacity in  
one of Suiza Foods' regional markets could have an adverse effect on Suiza      
Foods' operations.                                                              

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

 The packaged ice business is also highly competitive. Suiza Foods 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                                              

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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 Foods could have an adverse effect on Suiza Foods'       
operations.                                                                     

SUBSTANTIAL INDEBTEDNESS                                                        

    On June 30, 1997 (as adjusted to reflect the July 1997 acquisitions of Dairy
Fresh, Garelick Dairy and Franklin Plastics), Suiza Foods' total indebtedness   
and long-term debt (excluding current portion) were $551.4 million and $534.1   
million, respectively, with long-term indebtedness (excluding current portion)  
representing 71% of total capitalization. In connection with its acquisition of 
Garelick Dairy and Franklin Plastics in July 1997, Suiza Foods increased the    
size of its existing senior credit facilities from $300.0 million to $700.0     
million in the aggregate. Suiza Foods' total indebtedness and long-term debt    
(excluding current portion), on a pro forma basis as of June 30, 1997, after    
giving effect to the Merger and the Country Fresh Merger would be $762.4 million
and $729.8 million, respectively, with long-term indebtedness (excluding current
portion) representing 69% of total capitalization.                              

Prior to the Effective Date, Suiza Foods intends to enter into the New  
Credit Facility (as defined), in order to increase its total borrowing capacity 
to approximately $1.25 billion. For a description of the New Credit Facility see
"The Companies--Recent Developments--Suiza Foods." As a result, Suiza Foods     
would be able to incur substantial amounts of additional indebtedness in the    
future. The New Credit Facility and related debt service obligations are        
expected to (i) limit Suiza Foods' ability to obtain additional financing in the
future; (ii) require Suiza Foods 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 Suiza Foods for other purposes; (iii) limit     
Suiza Foods' flexibility in planning for, or reacting to, changes in its        
business and market conditions; and (iv) impose additional financial and        
operational restrictions on Suiza Foods, including restrictions on dividends.   
See "The Companies--Recent Developments--Suiza Foods" and "Pro Forma Financial  
Data."                                                                          

   Suiza Foods' 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 Suiza Foods' control. Under its existing senior credit facilities,   
Suiza Foods has pledged substantially all of its assets to secure its           
indebtedness. Although the lenders would release such security interests under  
the proposed terms of the New Credit Facility, Suiza Foods would pledge the     
stock of most of its direct and indirect subsidiaries. The failure of Suiza     
Foods to comply with the financial and other restrictive covenants under its    
existing senior credit facilities or the New Credit Facility may result in an   
event of default which, if not cured or waived, could have a material adverse   
effect on Suiza Foods. Suiza Foods has entered into various interest rate       
agreements to reduce its exposure to interest rate fluctuations under the senior
credit facilities, which agreements have the effect of fixing Suiza Foods'      
interest rate with respect to a portion of its indebtedness under the senior    
credit facilities. Suiza Foods remains subject to interest rate risk, however,  
with respect to a substantial portion of its indebtedness.                      

GOVERNMENT REGULATION; RAW MATERIAL COSTS                                       

   The supply and price of milk in Puerto Rico are regulated under Puerto Rico
law. The government of Puerto Rico establishes an industry-wide production      
ceiling and sets the prices that may be charged for milk at the dairy farm level
and the maximum prices that may be charged at the processor and retail levels.  
These prices are reviewed, typically on an annual basis, and remain fixed unless
changed by the government. The price controls in Puerto Rico make Suiza Foods   
vulnerable to increases in the costs of manufacturing, packaging and            
distributing its products. There can be no assurance that Suiza Foods' operating
results will not be adversely affected by price levels set by the government of 
Puerto Rico.                                                                    

 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  
federal or state government agencies. In 1996, Congress passed legislation to   
phase out support prices over a specified period. There can be no assurance     

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that a material increase in milk prices in the United States will not occur or  
that any such increase would not reduce the profitability of Suiza Foods'       
operations.                                                                     

  As a manufacturer and distributor of food products, Suiza Foods is subject
to federal, state and local laws and regulations governing the manufacture      
(including composition and ingredients), labeling, packaging and safety of food.
The Federal Food and Drug Administration and various state and local agencies   
are authorized to enforce these laws and regulations by inspecting Suiza Foods' 
facilities and requiring remedial action where necessary. Although Suiza Foods  
maintains quality control programs designed to address these issues, an actual  
or perceived problem with the quality or safety of products at any of Suiza     
Foods' 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 Suiza Foods. Suiza Foods'  
operations are also subject to other federal, Puerto Rico, state and local      
governmental regulation.                                                        

DEPENDENCE ON KEY PERSONNEL                                                     

   The future success of Suiza Foods' business operations is dependent in part
on the efforts and skills of certain key members of management, including Gregg 
L. Engles, Chairman and Chief Executive Officer of Suiza Foods. The loss of any 
of its key members of management could have an adverse effect on Suiza Foods.   

LIMITATIONS ON FAVORABLE TAX TREATMENT                                          

    Under Section 936 of the Code, a portion of Suiza Foods' income derived from
its dairy, fruit drink and plastic container manufacturing 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 Code that govern the allocation among affiliated
corporations of credits under Section 936, may limit the amount of tax credits  
available to Suiza Foods prior to the expiration of Section 936.                

ANTITAKEOVER PROVISIONS                                                         

   The Suiza Charter and Suiza Bylaws contain provisions that may delay, defer
or prevent a change in control of Suiza Foods. Among other things, these        
provisions: (i) authorize the Suiza Board to issue preferred stock in series    
with the terms of each series to be fixed by the Suiza Board; (ii) divide the   
Suiza Board into three classes so that only approximately one-third of the total
number of directors will be elected each year; (iii) permit directors to be     
removed only for cause; and (iv) specify advance notice requirements for        
stockholder proposals and director nominations. See "Comparison of the Rights of
Suiza Stockholders and Morningstar Stockholders."                               

EXPECTED BENEFITS OF COMBINED BUSINESS MAY NOT BE ACHIEVED                      

There can be no assurance that the expected benefits of the Merger as   
described under "The Merger--Reasons for the Merger; Recommendations of the     
Boards" will be achieved. The integration of departments, systems and procedures
will present significant management challenges and there can be no assurance    
that such actions will be successfully accomplished within a specified time     
period or at all. For additional information concerning the risks associated    
with Morningstar's business, see Morningstar's Annual Report on Form 10-K for   
the fiscal year ended December 31, 1996, which report is incorporated by        
reference herein.                                                               

ANTICIPATED ACCOUNTING TREATMENT                                                

    Suiza Foods and Morningstar anticipate that the Merger will be accounted for
using the "pooling of interests" method of accounting pursuant to Opinion No. 16
of the Accounting Principles Board. The pooling of interests method of          
accounting assumes that the combining companies have been merged from           

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inception, and the historical consolidated financial statements for periods     
prior to consummation of the Merger are restated as though the companies had    
been combined from inception. One of the conditions to the Merger is that Suiza 
Foods and Sub will have been advised in writing by Deloitte & Touche, LLP, on   
the closing date of the Merger, and Morningstar will have been advised in       
writing by Arthur Andersen LLP on the closing date of the Merger, in each case, 
that the Merger will be treated as a pooling of interests for accounting        
purposes. However, such opinions will not be binding on the Commission.         

THE COMPANIES 

GENERAL                                                                         

    SUIZA FOODS.  Suiza Foods is a leading manufacturer and distributor of fresh
milk and related dairy products, plastic containers and packaged ice in the     
United States. Each of Suiza Foods' operating subsidiaries is a strong          
competitor with an established reputation for customer service and product      
quality. Suiza Foods' 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. Suiza Foods' customers in the plastic container business include     
regional dairy manufacturers, bottled water processors and other beverage       
manufacturers. Suiza Foods has grown primarily through a successful acquisition 
strategy, having consummated 54 acquisitions since its inception in 1988,       
including 27 acquisitions since its initial public offering in April 1996.      

    This Joint Proxy Statement/Prospectus should be read in conjunction with the
more detailed information on Suiza Foods and its business contained in Suiza    
Foods' Annual Report on Form 10-K for the fiscal year ended December 31, 1996,  
which Annual Report is incorporated herein by reference.                        

   SUB.  Sub is a wholly owned subsidiary of Suiza Foods that was incorporated
in Delaware on September 25, 1997 for the purpose of effectuating the Merger and
the other transactions contemplated by the Merger Agreement. Prior to the       
consummation of the Merger, Sub will not engage in any activity other than      
activities related to the transactions contemplated by the Merger Agreement.    

MORNINGSTAR.  Morningstar is a nationally prominent manufacturer,       
distributor and marketer of refrigerated, shelf-stable and frozen food products.
Its established branded products include: International                         
Delight-Registered Trademark-, a gourmet-flavored and non-flavored coffee       
creamer; Second Nature-Registered Trademark-, a refrigerated no-cholesterol egg 
substitute; Mocha Mix-Registered Trademark-, non-dairy coffee creamers;         
Naturally Yours-TM-, fat-free and regular, real dairy sour cream; Jon           
Donaire-Registered Trademark-, cheesecakes and desserts; Wacky Willie-TM-,      
flavored shakes; and, in the western two-thirds of the United States,           
Lactaid-Registered Trademark-, lactose-free and lactose-reduced milks produced  
under license from McNeil Consumer Products Company, a subsidiary of Johnson &  
Johnson. Morningstar also specializes in providing private label refrigerated,  
shelf-stable and frozen products to grocery warehouses, bakery/industrial       
companies, club stores and dairy companies. Branded products are sold primarily 
to grocery warehouses serving the major supermarket chains through Morningstar's
network of independent food brokers and nationwide sales force. Morningstar's   
other specialty products are marketed directly to dairy companies, supermarket  
wholesalers, grocery warehouses, food service outlets and food manufacturers.   
Morningstar's products are distributed to more than 3,200 customers in fifty    
states and to more than twenty foreign countries.                               

    This Joint Proxy Statement/Prospectus should be read in conjunction with the
more detailed information on Morningstar and its business contained in          
Morningstar's Annual Report on Form 10-K for the fiscal year ended December 31, 
1996, which Annual Report is incorporated herein by reference.                  

RECENT DEVELOPMENTS                                                             

SUIZA FOODS.  On September 18, 1997, Suiza Foods entered into a merger  
agreement with Country Fresh, a processor of milk, juice and ice cream products 
based in Grand Rapids, Michigan. Upon consummation of the proposed Country Fresh
Merger, (i) Country Fresh stockholders would receive approximately 1.9 million  
shares of Suiza Common Stock upon conversion of their shares of Country Fresh   
common stock, and Country Fresh would become a wholly owned subsidiary of Suiza 
Foods, (ii) Suiza Foods would assume all of the outstanding options to purchase 
shares of Country Fresh common stock,                                           

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which would be converted into options to purchase a total of 229,068 shares of  
Suiza Common Stock, and (iii) holders of Country Fresh's outstanding preferred  
stock would receive shares of a new series of Suiza Foods preferred stock with  
an aggregate stated value (on a pro forma basis, as of June 30, 1997) of        
approximately $3.7 million. As of June 30, 1997, Country Fresh had approximately
$30.3 million of indebtedness, which Suiza Foods would either assume or         
refinance in connection with the Country Fresh Merger. Country Fresh reported   
net sales of approximately $353 million in its fiscal year ended March 1, 1997. 
The Country Fresh Merger is subject to approval by holders of a majority of     
Country Fresh's outstanding common stock and preferred stock, as well as certain
regulatory approvals and other closing conditions. Country Fresh has called a   
special meeting of its shareholders for November 25, 1997 at which approval of  
the Country Fresh Merger will be considered. There can be no assurance that the 
Country Fresh Merger will be completed as currently contemplated or at all. The 
Merger and the Country Fresh Merger are separate transactions and the closing of
one merger is not in any way contingent on the closing of the other. For        
additional information regarding the pro forma effect of the Country Fresh      
Merger, see "Pro Forma Financial Data."                                         

   In connection with the Merger, Suiza Foods has received a commitment letter
from its senior lenders to replace its existing $700 million senior credit      
facilities with replacement facilities in the aggregate amount of $1.25 billion,
consisting of a $550 million term loan and a $700 million revolving credit      
facility (collectively, the "New Credit Facility"). The term loan would be      
amortized over six years beginning in 1998, and the revolving credit facility   
would expire on December 31, 2003. Amounts outstanding under the New Credit     
Facility would bear interest at a rate per annum equal to one of the following  
rates, at Suiza Foods' option: (i) a specified base rate or (ii) The London     
Interbank Offered Rate ("LIBOR") plus a margin that would vary from 40 to 100   
basis points depending on Suiza Foods' leverage ratio (defined as the ratio of  
aggregate funded debt to EBITDA). Suiza Foods would pay a commitment fee on     
unused amounts of the revolving facility that ranges from 15 to 25 basis points 
depending on the leverage ratio.                                                

The New Credit Facility would require Suiza Foods to comply with certain
financial covenants, including the following: (i) the leverage ratio will not   
exceed 3.90 to 1 during 1998, 3.75 to 1 during 1999 and 3.50 to 1 thereafter;   
(ii) net worth will not be less than $300 million, plus 50% of positive net     
income, plus 75% of the proceeds of new equity offerings; (iii) the interest    
coverage ratio (defined as the ratio of EBITDA to interest expense) will not be 
less than 3.00 to 1; and (iv) the fixed charge coverage ratio (defined as the   
ratio of EBITDA to the sum of scheduled principal repayments, interest, taxes,  
capital expenditures and dividends) will not be less than 1.00 to 1 during 1998 
and 1.10 to 1 thereafter.                                                       

 The New Credit Facility would also include usual and customary covenants,
including limitations on material acquisitions or dispositions of assets, lines 
of business, the incurrence of additional indebtedness and transactions with    
affiliates, subject to specified exceptions. Suiza Foods would pledge all of the
capital stock of its direct and indirect subsidiaries (except for 35% of the    
capital stock of Garrido) to secure the New Credit Facility, and Suiza Foods    
would agree not to grant a security interest in its remaining assets to any     
other person (subject to certain exceptions). In addition, each of Suiza Foods' 
direct and indirect subsidiaries (other than Garrido) would guarantee the debt  
incurred under the New Credit Facility. The New Credit Facility would include   
various events of default customary for similar senior credit facilities,       
including defaults resulting from a change in control of Suiza Foods (including 
certain changes in the Suiza Board and certain acquisitions of Suiza Common     
Stock by third parties).                                                        

  Suiza Foods currently anticipates that it will be able to finalize the New
Credit Facility prior to completion of the Merger. There can be no assurance,   
however, that the New Credit Facility will be finalized on the terms contained  
in the commitment letter or that Suiza Foods will ultimately be able to amend or
replace its existing senior credit facilities.                                  

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PRO FORMA FINANCIAL DATA

   The following unaudited pro forma financial data is based on adjustments to
the historical consolidated balance sheet and related consolidated statements of
income of Suiza Foods to give effect to (i) the Merger and the Country Fresh    
Merger, expected to be accounted for using the pooling of interests method of   
accounting (the "Combined Companies") and (ii) the completed acquisitions by    
Suiza Foods of Garrido on July 1, 1996, Swiss Dairy on September 9, 1996, Model 
Dairy on December 16, 1996, Dairy Fresh on July 1, 1997 and Garelick Farms and  
Franklin Plastics on July 31, 1997 and the completed acquisition by Morningstar 
of Presto on December 3, 1996, all of which have been accounted for using the   
purchase method of accounting (the "Acquired Businesses").                      

 The unaudited pro forma consolidated statements of earnings for the years
ended December 31, 1994, 1995 and 1996 and the six month period ended June 30,  
1997 give effect to (i) the proposed mergers of the Combined Companies as if    
they had been consummated on January 1, 1994 and (ii) the completed acquisitions
of the Acquired Businesses as if they had been consummated on January 1, 1996.  
There is no unaudited pro forma consolidated statement of earnings effect during
the six month period ended June 30, 1997 of the acquisitions by Suiza Foods of  
Garrido, Swiss Dairy and Model Dairy or of the acquisition by Morningstar of    
Presto since these acquisitions were completed prior to January 1, 1997 and, as 
a result, their results of operations are already included in the historical    
consolidated results of operations of Suiza Foods or Morningstar. The unaudited 
pro forma consolidated balance sheet as of June 30, 1997 gives effect to (i) the
proposed mergers of the Combined Companies and (ii) the completed acquisitions  
by Suiza Foods of Dairy Fresh, Garelick Farms and Franklin Plastics, as if they 
had all been consummated on June 30, 1997. There is no pro forma consolidated   
balance sheet effect of the acquisitions by Suiza Foods of Garrido, Swiss Dairy 
and Model Dairy or of the acquisition by Morningstar of Presto since these      
acquisitions were completed prior to December 31, 1996 and, as a result, their  
balance sheets are already included in the historical consolidated balance      
sheets of Suiza Foods or Morningstar.                                           

 Country Fresh's consolidated financial statements are based on its fiscal
year which ends on the Saturday nearest to February 28, as compared to Suiza    
Foods' and Morningstars' fiscal year ends of December 31. As a result, the      
unaudited pro forma consolidated financial data for the years ended December 31,
1994, 1995 and 1996 combines the different fiscal year end of Country Fresh with
the calendar year ends of Suiza Foods and Morningstar. Similarly, the unaudited 
pro forma consolidated financial data as of and for the six month period ended  
June 30, 1997, combines the six month information as of and for the period ended
June 30, 1997 for Suiza Foods and Morningstar with the financial information for
Country Fresh as of the end of its four week period ended July 19, 1997 and for 
the 26 weeks ended July 19, 1997, which includes 6 weeks of operations already  
included in the Country Fresh financial statements for the year ended March 1,  
1997. For ease of reference, all headings used in the unaudited pro forma       
consolidated financial data refer to the period ended date of Suiza Foods.      

In connection with the Merger and the Country Fresh Merger, Suiza Foods 
expects to expense approximately $28 million as merger costs, which represent   
transaction related expenses that are expected to be incurred on the consumation
dates of the mergers. These transaction related costs include approximately $16 
million of investment banking fees, legal fees, accounting fees, and filing and 
printing fees, along with approximately $12 million of employee costs related to
the payments of retention bonuses and excise and other taxes to certain Country 
Fresh and Morningstar employees pursuant to existing contractual agreements and 
the payments pursuant to existing contractual agreements of severance costs and 
excise and other taxes for certain Morningstar employees whose employment will  
be terminated at the Effective Time of the Merger.                              

After the consummation of the Merger and the Country Fresh Merger, Suiza
expects to achieve at least $10 million of savings from eliminating redundant   
administrative and financial aspects of the Combined Companies, including the   
elimination of certain Morningstar employee costs related to employees          
terminated at the consummation date and reduced interest costs from the lower   
interest rates on the                                                           

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new credit facility for the Combined Company currently being negotiated. In     
addition, Suiza expects to realize significant additional annual cost savings   
within the first year from combined purchasing and rationalized manufacturing   
and distribution.                                                               

 The unaudited pro forma financial data should be read in conjunction with
the separate audited and unaudited financial statements of the Combined         
Companies and of the Acquired Businesses, including the notes thereto, either   
included elsewhere or incorporated by reference in this Joint Proxy Statement/  
Prospectus. The unaudited pro forma consolidated income statement data are not  
necessarily indicative of the operating results that would have occurred had the
proposed mergers of the Combined Companies and the completed acquisitions of the
Acquired Businesses occurred on the pro forma dates indicated, nor are they     
necessarily indicative of the future operating results of the Combined          
Companies.                                                                      

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                 HISTORICAL COMBINED COMPANIES                                
                                                             --------------------------------------                           
                                                               SUIZA                                   COMBINING    COMBINED  
                                                               FOODS    COUNTRY FRESH   MORNINGSTAR   ADJUSTMENTS  COMPANIES  
                                                             ---------  -------------   -----------   -----------  ---------- 
                                                                                                                              
NET SALES................................................... $ 341,108    $ 310,164     $   292,314   $(4,720)(a)  $  938,866 

COST OF SALES...............................................   240,468      268,500         222,145    (4,720)(a)     726,393 
                                                             ---------  -------------   -----------                ---------- 

  Gross profit..............................................   100,640       41,664          70,169                   212,473 

OPERATING EXPENSES:                                                                                                           
  Selling and distribution..................................    54,248       21,225          39,984                   115,457 
  General and administrative................................    16,935       15,036           9,497                    41,468 
  Amortization of intangibles...............................     3,697          100           2,281                     6,078 
                                                             ---------  -------------   -----------                ---------- 

    Total operating expenses................................    74,880       36,361          51,762                   163,003 
                                                             ---------  -------------   -----------                ---------- 

OPERATING INCOME............................................    25,760        5,303          18,407                    49,470 

OTHER:                                                                                                                        
  Interest expense, net.....................................    19,279         (259)          4,797                    23,817 
  Merger and other costs....................................     1,660      --              --                          1,660 
  Other (income) expense....................................      (268)        (551)         (1,244)                   (2,063)
                                                             ---------  -------------   -----------                ---------- 

    Total other.............................................    20,671         (810)          3,553                    23,414 
                                                             ---------  -------------   -----------                ---------- 

INCOME BEFORE INCOME TAXES..................................     5,089        6,113          14,854                    26,056 

INCOME TAXES................................................       844        2,145           5,533                     8,522 
                                                             ---------  -------------   -----------                ---------- 

INCOME FROM CONTINUING OPERATIONS........................... $   4,245    $   3,968     $     9,321                $   17,534 
                                                             ---------  -------------   -----------                ---------- 
                                                             ---------  -------------   -----------                ---------- 

INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS.......... $    0.69    $    0.52     $      0.62                $     0.76 
                                                             ---------  -------------   -----------                ---------- 
                                                             ---------  -------------   -----------                ---------- 

WEIGHTED AVERAGE SHARES                                                                                                       
 OUTSTANDING................................................ 6,156,387    7,622,840      15,050,538                23,106,841 
                                                             ---------  -------------   -----------                ---------- 
                                                             ---------  -------------   -----------                ---------- 

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

(a) Elimination of sales and cost of sales for transactions between Morningstar 
and Suiza Foods.                                                        

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                                   HISTORICAL COMBINED COMPANIES                                 
                                                             -----------------------------------------    COMBINING    COMBINED  
                                                             SUIZA FOODS   COUNTRY FRESH   MORNINGSTAR   ADJUSTMENTS  COMPANIES  
                                                             -----------   -------------   -----------   -----------  ---------- 
                                                                                                                                 
NET SALES...................................................  $ 430,466      $ 336,055     $   304,730   $(5,818)(a)  $1,065,433 

COST OF SALES...............................................    312,633        291,722         232,948    (5,818)(a)     831,485 
                                                             -----------   -------------   -----------                ---------- 

  Gross profit..............................................    117,833         44,333          71,782                   233,948 

OPERATING EXPENSES:                                                                                                              
  Selling and distribution..................................     64,289         21,633          38,353                   124,275 
  General and administrative................................     19,277         15,700          10,682                    45,659 
  Amortization of intangibles...............................      3,703             82           2,319                     6,104 
                                                             -----------   -------------   -----------                ---------- 

    Total operating expenses................................     87,269         37,415          51,354                   176,038 
                                                             -----------   -------------   -----------                ---------- 

OPERATING INCOME............................................     30,564          6,918          20,428                    57,910 

OTHER:                                                                                                                           
  Interest expense, net.....................................     19,921          1,392           4,302                    25,615 
  Merger and other costs....................................     10,238        --              --                         10,238 
  Other (income) expense....................................       (469)          (633)         (1,276)                   (2,378)
                                                             -----------   -------------   -----------                ---------- 

    Total other.............................................     29,690            759           3,026                    33,475 
                                                             -----------   -------------   -----------                ---------- 

INCOME BEFORE                                                                                                                    
 INCOME TAXES...............................................        874          6,159          17,402                    24,435 

INCOME TAXES................................................      2,450          2,090           6,062                    10,602 
                                                             -----------   -------------   -----------                ---------- 

INCOME FROM CONTINUING OPERATIONS...........................  $  (1,576)     $   4,069     $    11,340                $   13,833 
                                                             -----------   -------------   -----------                ---------- 
                                                             -----------   -------------   -----------                ---------- 

INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS..........  $   (0.26)     $    1.04     $      0.74                $     0.64 
                                                             -----------   -------------   -----------                ---------- 
                                                             -----------   -------------   -----------                ---------- 

WEIGHTED AVERAGE SHARES                                                                                                          
 OUTSTANDING................................................  6,109,398      3,609,245      15,245,562                21,036,608 
                                                             -----------   -------------   -----------                ---------- 
                                                             -----------   -------------   -----------                ---------- 

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

(a) Elimination of sales and cost of sales for transactions between Morningstar 
and Suiza Foods.                                                        

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                           HISTORICAL COMBINED COMPANIES                                                                       
                          --------------------------------                            HISTORICAL      ACQUIRED                 
                            SUIZA     COUNTRY    MORNING-    COMBINING    COMBINED     ACQUIRED      BUSINESSES                
                            FOODS      FRESH       STAR     ADJUSTMENTS  COMPANIES   BUSINESSES(A)   ADJUSTMENTS     PRO FORMA 
                          ---------  ---------  ----------  -----------  ----------  -------------  -------------   -----------
                                                                                                                               
NET SALES................ $ 520,916  $ 353,037  $  394,306  $(7,910)(b)  $1,260,349    $754,277     $ --            $2,014,626 
COST OF SALES............   388,548    305,614     302,801   (7,910)(b)    989,053      586,167      (2,624)(c)(d)   1,572,596 
                          ---------  ---------  ----------               ----------  -------------                  -----------
  Gross profit...........   132,368     47,423      91,505                 271,296      168,110                        442,030 
OPERATING EXPENSES:                                                                                                            
  Selling and                                                                                                                  
    distribution.........    70,709     19,916      49,895                 140,520       79,847      (4,202)(c)(d)     216,165 
  General and                                                                                                                  
    administrative.......    21,913     16,010      12,538                  50,461       29,693      (9,411)(c)(d)      70,743 
  Amortization of                                                                                                              
    intangibles..........     4,624        656       2,912                   8,192        2,217       9,542(e)          19,951 
                          ---------  ---------  ----------               ----------  -------------                  -----------
    Total operating                                                                                                            
      expenses...........    97,246     36,582      65,345                 199,173      111,757                        306,859 
                          ---------  ---------  ----------               ----------  -------------                  -----------
OPERATING INCOME.........    35,122     10,841      26,160                  72,123       56,353                        135,171 
OTHER:                                                                                                                         
  Interest expense,                                                                                                            
    net..................    17,470      1,219       4,026                  22,715        5,600      38,124(f)          66,439 
  Merger and other                                                                                                             
    costs................       571     --          --                         571       --                                571 
  Other (income)                                                                                                               
    expense..............    (4,012)      (436)       (286)                 (4,734 )       (495)                        (5,229)
                          ---------  ---------  ----------               ----------  -------------                  -----------
    Total other..........    14,029        783       3,740                  18,552        5,105                         61,781 
                          ---------  ---------  ----------               ----------  -------------                  -----------
INCOME BEFORE                                                                                                                  
  INCOME TAXES...........    21,093     10,058      22,420                  53,571       51,248                         73,390 
INCOME TAXES.............    (6,836)     3,385       7,844                   4,393        1,280       6,110(g)          11,783 
                          ---------  ---------  ----------               ----------  -------------                  -----------
INCOME FROM                                                                                                                    
  CONTINUING                                                                                                                   
    OPERATIONS........... $  27,929  $   6,673  $   14,576               $  49,178     $ 49,968                     $   61,607 
                          ---------  ---------  ----------               ----------  -------------                  -----------
                          ---------  ---------  ----------               ----------  -------------                  -----------
INCOME PER COMMON SHARE                                                                                                        
  FROM CONTINUING                                                                                                              
  OPERATIONS............. $    2.81  $    1.75  $     0.96               $    1.97                                  $     2.45 
                          ---------  ---------  ----------               ----------                                 -----------
                          ---------  ---------  ----------               ----------                                 -----------
WEIGHTED AVERAGE SHARES                                                                                                        
  OUTSTANDING............ 9,921,822  3,636,519  15,133,887               24,768,983                                 25,066,383 
                          ---------  ---------  ----------               ----------                                 -----------
                          ---------  ---------  ----------               ----------                                 -----------

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

(a) Includes the pre-acquisition results of operations of Suiza Foods' 1996     
 acquisitions of Garrido through June 30, 1996, Swiss Dairy through August
31, 1996 and Model Dairy through November 30, 1996; the pre-acquisition 
 results of operations of Morningstars' 1996 acquisition of Presto through
 November 30, 1996; and the pre-acquisition results of operations of Suiza
Foods' 1997 acquisitions of Dairy Fresh for the year ended December 31, 
    1996, and Garelick for its most recent fiscal year ended September 30, 1996.

(b) Elimination of sales and cost of sales for transactions between Morningstar 
and Suiza Foods.                                                        

(c) Excess of historical depreciation expense over the depreciation of the fair 
 value of property and equipment acquired in the Suiza Foods acquisitions,
   which resulted in a decrease of $2,107, $708 and $121 in amounts charged to
cost of sales, selling and distribution expense and general and         
administrative expense, respectively. There was no material difference  
    between the historical depreciation expense and the depreciation of the fair
value of property and equipment acquired in the Morningstar acquisition.

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(d) Elimination of salaries and benefits paid primarily to former shareholders  
of the acquired businesses whose employment was either terminated or    
salaries were reduced as part of the purchase agreement, along with the 
 elimination of certain related party expenses of the acquired businesses,
pursuant to an agreement with such related parties at acquisition date, 
resulting in a reduction of historical costs of sales, selling and      
distribution and general administrative costs, as follows:              

                                                        [Enlarge/Download Table]

                                                                   SUIZA       MORNING-              
                                                                   FOODS         STAR                
                                                               ACQUISITIONS   ACQUISITION    TOTAL   
                                                               -------------  -----------  --------- 
                                                                                                     
Cost of sales.................................................   $    (517)    $  --       $    (517)
Selling and distribution......................................        (968)       (2,526)       (968)
General and administration....................................      (4,816)       (4,474)    (11,816)
                                                               -------------  -----------  --------- 
                                                                 $  (6,301)    $  (7,000)  $ (13,301)
                                                               -------------  -----------  --------- 
                                                               -------------  -----------  --------- 

(e) Amortization of goodwill and other intangibles, over the following          
amortization periods, in excess of historical amounts, as follows:      

                                                        [Enlarge/Download Table]

                                                                     SUIZA       MORNING-             
                                                                     FOODS         STAR               
                                                        LIFE     ACQUISITIONS   ACQUISITION    TOTAL  
                                                      ---------  -------------  -----------  ---------
                                                                                                      
Organization costs...................................     5        $      22     $  --       $      22
Tradenames...........................................   25-40            510         1,833       2,343
Customer list........................................    10              367        --             367
Goodwill.............................................    40            6,069           741       6,810
                                                                 -------------  -----------  ---------
                                                                   $   6,968     $   2,574   $   9,542
                                                                 -------------  -----------  ---------
                                                                 -------------  -----------  ---------

(f) Pro forma interest expense on the average outstanding balance of new        
variable rate borrowings used to fund the Suiza Foods and Morningstar   
acquisitions at an assumed interest rate of 7.75%, including the        
    amortization of deferred financing costs, net of the reduction of historical
interest expense related to the historical debt repaid as follows:      

                                                                [Download Table]

                                                                              
Suiza Foods acquisitions......................................   $  31,346    
Morningstar acquisition.......................................       6,778    
                                                               -------------  
Total.........................................................   $  38,124    
                                                               -------------  
                                                               -------------  

The effect of a .125% change in the interest rate on the new variable rate
   borrowings to fund the Suiza Foods and Morningstar acquisitions, would have
 resulted in a change in the proforma interest expense adjustment of $615.

(g) Estimated pro forma adjustment to reflect income taxes at the estimated     
  effective tax rate for the Suiza Foods acquisitions of 4% for Garrido, 35%
  for Model Dairy and 40% for Swiss Dairy, Dairy Fresh and Garelick, and for
Morningstar's Presto acquisition of 42%.                                

                                                                [Download Table]

                                                                              
Suiza Foods acquisitions......................................   $   3,995    
Morningstar acquisition.......................................       2,115    
                                                               -------------  
Total.........................................................   $   6,110    
                                                               -------------  
                                                               -------------  

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA) 

                                                        [Enlarge/Download Table]

                            HISTORICAL COMBINED COMPANIES                                                                       
                          ---------------------------------                            HISTORICAL      ACQUIRED                 
                            SUIZA      COUNTRY    MORNING-    COMBINING    COMBINED     ACQUIRED      BUSINESSES         PRO    
                            FOODS       FRESH       STAR     ADJUSTMENTS  COMPANIES   BUSINESSES(A)   ADJUSTMENTS       FORMA   
                          ----------  ---------  ----------  -----------  ----------  -------------  -------------   -----------
                                                                                                                                
NET SALES................ $  336,819  $ 172,295  $  270,672  $(4,699)(b)  $ 775,087     $246,977     $ --            $1,022,064 
COST OF SALES............    252,047    147,711     196,022   (4,699)(b)    591,081      192,812      (1,995)(c)        781,898 
                          ----------  ---------  ----------               ----------  -------------                  -----------
  Gross profit...........     84,772     24,584      74,650                 184,006       54,165                        240,166 
OPERATING EXPENSES:                                                                                                             
  Selling and                                                                                                                   
    distribution.........     42,244      9,497      41,785                  93,526       22,073        (473)(c)        115,126 
  General and                                                                                                                   
    administrative.......     16,397      7,775       6,685                  30,857        5,674      (1,243)(c)(d)      35,288 
  Amortization of                                                                                                               
    intangibles..........      2,982         25       2,753                   5,760        1,251       2,623(e)           9,634 
                          ----------  ---------  ----------               ----------  -------------                  -----------

    Total operating                                                                                                             
      expenses...........     61,623     17,297      51,223                 130,143       28,998                        160,048 
                          ----------  ---------  ----------               ----------  -------------                  -----------
OPERATING INCOME.........     23,149      7,287      23,427                  53,863       25,167                         80,118 
OTHER:                                                                                                                          
  Interest expense,                                                                                                             
    net..................      6,580        803       6,798                  14,181        3,410      10,988(f)          28,579 
  Other (income)                                                                                                                
    expense..............    (18,575)      (230)       (249)                (19,054 )        (18)                       (19,072)
                          ----------  ---------  ----------               ----------  -------------                  -----------
    Total other..........    (11,995)       573       6,549                  (4,873 )      3,392                          9,507 
                          ----------  ---------  ----------               ----------  -------------                  -----------
INCOME BEFORE                                                                                                                   
INCOME TAXES.............     35,144      6,714      16,878                  58,736       21,775                         70,611 
INCOME TAXES.............     10,745      2,303       6,917                  19,965          715       3,735(g)          24,415 
                          ----------  ---------  ----------               ----------  -------------                  -----------
INCOME FROM                                                                                                                     
CONTINUING OPERATIONS.... $   24,399  $   4,411  $    9,961               $  38,771     $ 21,060                     $   46,196 
                          ----------  ---------  ----------               ----------  -------------                  -----------
                          ----------  ---------  ----------               ----------  -------------                  -----------
INCOME PER COMMON SHARE                                                                                                         
  FROM                                                                                                                          
CONTINUING OPERATIONS.... $     1.57  $    1.16  $     0.64               $    1.25                                  $     1.48 
                          ----------  ---------  ----------               ----------                                 -----------
                          ----------  ---------  ----------               ----------                                 -----------
WEIGHTED AVERAGE SHARES                                                                                                         
  OUTSTANDING............ 15,509,388  3,685,236  15,643,651               30,816,419                                 31,113,819 
                          ----------  ---------  ----------               ----------                                 -----------
                          ----------  ---------  ----------               ----------                                 -----------

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

(a) Includes the pre-acquisition results of operations Suiza Foods' 1997        
  acquisitions of Dairy Fresh and Garelick for the six months ended June 30,
1997.                                                                   

(b) Elimination of sales and cost of sales for transactions between Morningstar 
and Suiza Foods.                                                        

(c) Excess of historical depreciation expense over the depreciation of the fair 
 value of property and equipment acquired in the Suiza Foods acquisitions,
  which resulted in a decrease of $1,995, $473 and $71 in amounts charged to
cost of sales, selling and distribution expense and general and         
administrative expense, respectively.                                   

(d) Elimination of salaries and benefits paid primarily to former shareholders  
of the Suiza Foods acquired businesses whose employment was either      
    terminated or salaries were reduced as part of the purchase agreement, along
with the elimination of certain related party expenses of the acquired  
businesses, pursuant to an agreement with such related parties at       
acquisition date, resulting in a reduction of historical general        
administrative costs of $1,172.                                         

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(e) Amortization of goodwill and other intangibles for the Suiza Foods          
acquisitions, over the following amortization periods, in excess of     
historical amounts, as follows:                                         

                                                                [Download Table]

                                              LIFE              
                                               ---              
                                                                
Organization costs...........................       5  $       5
Tradename....................................      25        200
Goodwill.....................................      40      2,418
                                                          ------
                                                       $   2,623
                                                          ------
                                                          ------

(f) Pro forma interest expense to reflect additional interest expense of $10,988
  on the average outstanding balance of new variable rate borrowings used to
fund the Suiza Foods acquisitions at an assumed interest rate of 7.75%, 
    including the amortization of deferred financing costs, net of the reduction
 of historical interest expense related to the historical debt repaid. The
effect of a .125% change in the interest rate on the new variable rate  
 borrowings to fund the Suiza Foods acquisitions, would have resulted in a
change in the proforma interest expense adjustment of $177.             

(g) Estimated pro forma adjustment to reflect increased income taxes for the    
 Suiza Foods acquisitions of $3,735 at the estimated effective tax rate of
40% for Dairy Fresh and Garelick.                                       

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                 HISTORICAL COMBINED COMPANIES                                                                 
                                --------------------------------                           HISTORICAL   ACQUIRED               
                                 SUIZA     COUNTRY     MORNING-    COMBINING    COMBINED    ACQUIRED   BUSINESSES              
                                 FOODS      FRESH        STAR     ADJUSTMENTS   COMPANIES  BUSINESSES  ADJUSTMENTS   PRO FORMA 
                                --------  ---------   ----------  -----------   ---------  ----------  -----------   ----------
                                                                                              (A)                              
                                                                                                                               
CURRENT ASSETS:                                                                                                                
  Cash........................  $ 7,130   $  6,697     $  2,167   $             $ 15,994    $    291   $    (68)(e)  $   16,217
  Accounts receivable.........   50,784     26,084       48,038                  124,906      32,948                    157,854
  Inventories.................   21,536     18,846       25,689                   66,071       6,882                     72,953
  Prepaid expenses and                                                                                                         
    other.....................    3,369        241        3,229                    6,839       2,299        (75)(e)       9,063
  Deferred income taxes.......    3,796      1,186        7,339                   12,321      --                         12,321
                                --------  ---------   ----------                ---------  ----------                ----------
    Total current assets......   86,615     53,054       86,462                  226,131      42,420                    268,408
PROPERTY AND EQUIPMENT........  136,281     43,476      100,708                  280,465      85,199     26,862(e)      392,526
DEFERRED INCOME TAXES.........    8,319      3,059       --                       11,378      --                         11,378
INTANGIBLE AND OTHER ASSETS...  171,091      2,353      165,153                  338,597      42,219    259,137(e)      639,953
                                --------  ---------   ----------                ---------  ----------                ----------
TOTAL ASSETS..................  $402,306  $101,942     $352,323                 $856,571    $169,838                 $1,312,265
                                --------  ---------   ----------                ---------  ----------                ----------
                                --------  ---------   ----------                ---------  ----------                ----------
CURRENT LIABILITIES:                                                                                                           
  Accounts payable and accrued                                                                                                 
    expenses..................  $42,118   $ 30,316     $ 63,466   $ 28,000(c)   $163,900    $ 40,122   $   (380)(d)  $  203,642
  Income taxes payable........    1,154      2,262       --                        3,416      --                          3,416
  Current portion of long-term                                                                                                 
    debt......................   17,323      3,767       11,500                   32,590      57,762    (57,762)(d)      32,590
                                --------  ---------   ----------                ---------  ----------                ----------
    Total current                                                                                                              
      liabilities.............   60,595     36,345       74,966                  199,906      97,884                    239,648
LONG-TERM DEBT................  128,150     26,523      169,200                  323,873      32,436    373,516(c)      729,825
OTHER LIABILITIES.............    --         3,558        3,020                    6,578      --                          6,578
DEFERRED INCOME TAXES.........    4,928      --           5,694                   10,622      --                         10,622
STOCKHOLDERS' EQUITY:                                                                                                          
  Preferred stock.............    --         3,741       --                        3,741                                  3,741
  Common stock................      153      1,898          153     (1,908)(b)       296                      3(d)          299
  Additional paid-in                                                                                                           
    capital...................  183,263      --          67,733      1,908(b)    252,904                  9,997(c)      262,901
  Retained earnings...........   25,217     29,877       31,557    (28,000)(c)    58,651                                 58,651
  Equity of acquired                                                                                                           
    businesses................    --         --          --                        --         39,518    (39,518)(e)      --    
                                --------  ---------   ----------                ---------  ----------                ----------
    Total stockholders'                                                                                                        
      equity..................  208,633     35,516       99,443                  315,592      39,518                    325,592
                                --------  ---------   ----------                ---------  ----------                ----------
TOTAL LIABILITIES AND                                                                                                          
  STOCKHOLDERS' EQUITY........  $402,306  $101,942     $352,323                 $856,571    $169,838                 $1,312,265
                                --------  ---------   ----------                ---------  ----------                ----------
                                --------  ---------   ----------                ---------  ----------                ----------

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

(a) Includes the pre-acquisition balance sheets of Suiza Foods' 1997            
acquisitions of Dairy Fresh and Garelick as of June 30, 1997.           

(b) Pro forma adjustment to common stock and additional paid-in capital to      
reflect the par value of the common stock issued to affect the mergers. 

(c) Pro forma adjustment to expense $28 million of estimated merger costs which 
 are expected to be incurred on the consumation date of the mergers. These
estimated transaction related costs include approximately $16 million of
investment banking fees, legal fees, accounting fees, and filing and    
printing fees, along with approximately $12 million of employee costs   
  related to the payments of retention bonuses and excise and other taxes to
certain Country Fresh and Morningstar employees pursuant to existing    
contractual agreements and the payments pursuant to existing contractual
agreements of severance costs and excise and other taxes for certain    
  Morningstar employees whose employment will be terminated at the Effective
Time of the Merger.                                                     

(d) On July 1, 1997, Suiza Foods completed the acquisition of substantially all 
   the net assets of Dairy Fresh and, on July 31, 1997, the acquisition of all
  of the outstanding common stock of Garelick. The purchase prices for these
acquisitions were approximately $104.5 million and $306.6 million,      
    respectively, including acquired cash and including expenses of $1.8 million
   and $3.0 million, respectively, which were used to acquired Dairy Fresh and
Garelick and to repay their existing debt. The total purchase prices    

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were funded primarily with borrowings under Suiza Foods' senior credit  
   facility and the issuance of 297,400 shares of Suiza Common Stock for $10.0
million to Garelick shareholders, as follows:                           

                                                        [Enlarge/Download Table]

                                                                                                   
Credit agreement borrowings............................................................. $ 405,952 
Issuance of common stock................................................................    10,000 
                                                                                         --------- 
Total purchase prices...................................................................   415,952 
Repayment of existing indebtedness:                                                                

  Accrued interest......................................................................      (380)
  Current portion of long-term debt.....................................................   (57,762)
  Long-term debt........................................................................   (32,436)
                                                                                         --------- 
Net purchase price...................................................................... $ 325,374 
                                                                                         --------- 
                                                                                         --------- 

(e) The above acquisitions resulted in an excess of the purchase prices over the
historical net assets acquired, which were allocated to the net assets  
acquired, as follows:                                                   

                                                        [Enlarge/Download Table]

                                                                                                   
Net purchase prices..................................................................... $ 325,374 
Historical carrying value of net assets:                                                           
  Total net assets......................................................................    39,518 
  Less net assets not assumed:                                                                     
    Cash................................................................................       (68)
    Prepaid expenses....................................................................       (75)
    Intangible and other assets.........................................................   (38,693)
                                                                                         --------- 
Historical carrying values of net assets acquired.......................................       682 
                                                                                         --------- 
Excess of net purchase prices over historical carrying values........................... $ 324,692 
                                                                                         --------- 
Allocation of excess purchase price:                                                               
  Excess fair value of property and equipment........................................... $  26,862 
  Intangible assets.....................................................................   297,830 
                                                                                         --------- 
                                                                                         $ 324,692 
                                                                                         --------- 
                                                                                         --------- 

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SELECTED FINANCIAL DATA OF SUIZA FOODS
(IN THOUSANDS, EXCEPT SHARE DATA) 

 The following selected financial data of Suiza Foods for each of the five
years in the period ended December 31, 1996 have been derived from Suiza Foods' 
audited consolidated financial statements. The selected consolidated financial  
data for the six months ended June 30, 1996 and 1997 are unaudited, and in the  
opinion of management, reflect all adjustments (consisting only of normal       
recurring accruals) that are necessary to present fairly the financial results  
for such periods. 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 Foods should be read in conjunction with the            
Consolidated Financial Statements and related notes of Suiza Foods incorporated 
by reference into or included elsewhere in this Joint Proxy                     
Statement/Prospectus.                                                           

                                                        [Enlarge/Download Table]

                                                                                                                  UNAUDITED       
                                                                                                              SIX MONTHS ENDED    
                                                                    YEAR ENDED DECEMBER 31,                       JUNE 30,        
                                                     -----------------------------------------------------  --------------------- 
                                                       1992       1993       1994       1995       1996       1996        1997    
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
                                                                                                                                  
OPERATING DATA:                                                                                                                   
  Net sales......................................... $  44,452  $  51,675  $ 341,108  $ 430,466  $ 520,916  $ 225,307  $  336,819 
  Cost of sales.....................................    14,586     20,412    240,468    312,633    388,548    165,917     252,047 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Gross profit......................................    29,866     31,263    100,640    117,833    132,368     59,390      84,772 
  Operating costs and expenses:                                                                                                   
    Selling and distribution........................    14,483     15,434     54,248     64,289     70,709     32,682      42,244 
    General and administrative......................     6,110      6,305     16,935     19,277     21,913      9,805      16,397 
    Amortization of intangibles and other...........     1,911        822      3,697      3,703      4,624      1,960       2,982 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
    Total operating costs and expenses..............    22,504     22,561     74,880     87,269     97,246     44,447      61,623 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Income from operations............................     7,362      8,702     25,760     30,564     35,122     14,943      23,149 
  Other (income) expense:                                                                                                         
    Interest expense, net...........................     8,495      7,697     19,279     19,921     17,470      8,488       6,580 
    Merger and other costs..........................     1,199     --          1,660     10,238        571     --          --     
    Other income, net...............................      (408)      (419)      (268)      (469)    (4,012)      (252)    (18,575)
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
    Total other (income) expense....................     9,286      7,278     20,671     29,690     14,029      8,236     (11,995)
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Income (loss) before income taxes and                                                                                           
    extraordinary loss..............................    (1,924)     1,424      5,089        874     21,093      6,707      35,144 
  Income taxes (benefit)............................    --              4        844      2,450     (6,836)     1,771      10,745 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Income (loss) before extraordinary loss...........    (1,924)     1,420      4,245     (1,576)    27,929      4,936      24,399 
  Extraordinary loss from early extinguishment of                                                                                 
    debt............................................     2,491     --            197      8,462      2,215      2,215       3,270 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Net income (loss) (1)............................. $  (4,415) $   1,420  $   4,048  $ (10,038) $  25,714  $   2,721  $   21,129 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
  Weighted average shares outstanding............... 1,763,502  2,487,174  6,156,387  6,109,398  9,921,822  8,455,332  15,509,388 

  Earnings (loss) per share:                                                                                                      
    Income (loss) before extraordinary loss......... $   (1.09) $     .57  $     .69  $    (.26) $    2.81  $     .58  $     1.57 
    Extraordinary loss..............................     (1.41)    --           (.03)     (1.38)      (.22)      (.26)       (.21)
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
    Net income (loss)(1)............................ $   (2.50) $     .57  $     .66  $   (1.64) $    2.59  $     .32  $     1.36 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 
                                                     ---------  ---------  ---------  ---------  ---------  ---------  ---------- 

BALANCE SHEET DATA (AT END OF PERIOD):                                                                                            
  Total assets...................................... $  46,991  $ 167,948  $ 238,952  $ 232,522  $ 384,148  $ 237,973  $  402,306 
  Long-term debt, net of current portion............    54,739    132,123    173,327    171,745    226,693    134,334     128,150 
  Total stockholders' equity (deficit)..............   (15,408)       162      9,887      9,460     93,532     60,789     208,633 

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

(1) Net income (loss) and related per share amounts include the following       
nonrecurring and extraordinary charges and benefits:                    

                                                        [Enlarge/Download Table]

                                                                                                           SIX MONTHS ENDED   
                                                                 YEAR ENDED DECEMBER 31,                       JUNE 30,       
                                                  -----------------------------------------------------  -------------------- 
                                                    1992       1993       1994       1995       1996       1996       1997    
                                                  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                                                                                                              
Merger, financing and other costs (a)............ $  (1,199) $      --  $  (1,602) $  (9,554) $    (354) $      --  $      -- 
Tax benefits (b).................................        --         --         --         --     13,950         --     11,500 
Extraordinary loss from early extinguishment of                                                                               
  debt (c).......................................    (2,491)        --       (197)    (8,462)    (2,215)    (2,215)    (3,270)
                                                  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                                  $  (3,690) $      --  $  (1,799) $ (18,016) $  11,381  $  (2,215)     8,230 
                                                  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
                                                  ---------  ---------  ---------  ---------  ---------  ---------  --------- 

   (a) Consists of costs incurred in connection with the corporate combination
       pursuant to which Suiza Foods was formed as a holding company for certain
  pre-existing operations, an uncompleted public offering of shares of
Suiza Common Stock, an uncompleted debt offering, uncompleted     
     acquisitions and debt refinancing costs, net of associated income taxes
of $58 in 1994, $684 in 1995 and $217 in 1996.                    

    (b) For 1996, includes the sale of Puerto Rico tax credits of $3,400 (net of
  related expenses), reflected in other income, and the recognition of
 $11,750 in deferred income tax benefits recorded as a credit to tax
    expense, both effects related to tax credits generated by Suiza-Puerto
       Rico, partially offset by additional income tax expense of $1,200 related
     to the sale of the tax credits. For the six months ended June 30, 1997,
   includes a nonrecurring gain of $18,100, net of discounts and related
       expenses, resulting from additional tax credits generated by Suiza-Puerto
 Rico that Suiza Foods subsequently sold to third parties, partially
      offset by additional income tax expense of $6,600 related to the sale of
tax credits.                                                      

 (c) Net of associated income taxes of approximately $700 in 1995, $900 in
1996 and $2,000 for the six months ended June 30, 1997.           

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SELECTED FINANCIAL DATA OF MORNINGSTAR
(IN THOUSANDS, EXCEPT SHARE DATA) 

 The following selected financial data of Morningstar for each of the five
years in the period ended December 31, 1996 have been derived from Morningstar's
audited consolidated financial statements. The selected consolidated financial  
data for the six months ended June 30, 1996 and 1997 are unaudited, and in the  
opinion of management, reflect all adjustments (consisting only of normal       
recurring accruals) that are necessary to present fairly the financial results  
for such periods. 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 Morningstar should be read in conjunction with the            
Consolidated Financial Statements and related notes of Morningstar incorporated 
by reference into or included elsewhere in this Joint Proxy                     
Statement/Prospectus.                                                           

                                                        [Enlarge/Download Table]

                                                                                                               UNAUDITED  
                                                                                                               SIX MONTHS 
                                                                                                               ENDED JUNE 
                                                                    YEAR ENDED DECEMBER 31,                       30,     
                                                   ----------------------------------------------------------  ---------- 
                                                      1992        1993        1994        1995        1996        1996    
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                          
OPERATING DATA:                                                                                                           
  Net sales....................................... $  230,220  $  273,949  $  292,314  $  304,730  $  394,306  $  167,417 
  Cost of sales...................................    174,130     211,418     222,145     232,948     302,801     128,036 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Gross profit....................................     56,090      62,531      70,169      71,782      91,505      39,381 
  Operating costs and expenses:                                                                                           
    Selling and distribution......................     27,100      36,669      39,984      38,353      49,895      22,316 
    General and administrative....................      7,579       9,432       9,497      10,682      12,538       5,259 
    Amortization of intangibles...................      4,825       3,995       2,281       2,319       2,912       1,162 
    Restructuring and other charges...............      1,093       7,100      --          --          --          --     
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
    Total operating costs and expenses............     40,597      57,196      51,762      51,354      65,345      28,737 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Income from operations..........................     15,493       5,335      18,407      20,428      26,160      10,644 
  Other (income) expenses:                                                                                                
    Interest expense, net.........................      7,875       5,477       4,797       4,302       4,026       1,532 
    Refinancing charges...........................      9,584      --          --          --          --          --     
    Other income, net.............................       (424)       (726)     (1,244)     (1,276)       (286)       (382)
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
    Total other (income) expense..................     17,035       4,751       3,553       3,026       3,740       1,150 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Income (loss) before income taxes, discontinued                                                                         
    operations and extraordinary loss.............     (1,542)        584      14,854      17,402      22,420       9,494 
  Income taxes....................................         98         841       5,533       6,062       7,844       3,200 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Income (loss) from continuing operations........     (1,640)       (257)      9,321      11,340      14,576       6,294 
  Income (loss) from discontinued operations......     (3,359)      1,241       1,326         184      --          --     
  Extraordinary loss from early extinguishment of                                                                         
    debt..........................................     (5,676 (1)       (164 (2)     --     --         --          --     
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Net income (loss)...............................    (10,675)        820      10,647      11,524      14,576       6,294 
  Dividends on Preferred Stock....................        939      --          --          --          --          --     
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Net Income (loss) to Common..................... $  (11,614) $      820  $   10,647  $   11,524  $   14,576  $    6,294 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 

  Weighted average common shares outstanding...... 12,128,343  15,011,607  15,050,538  15,245,562  15,133,887  14,778,316 

  Earnings (loss) per common share:                                                                                       
    Income (loss) from continuing operations...... $    (0.21) $    (0.02) $     0.62  $     0.74  $     0.96  $     0.42 
    Income (loss) from discontinued operations....      (0.28)       0.08        0.09        0.02      --          --     
    Extraordinary loss............................      (0.47)      (0.01)     --          --          --          --     
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
    Net Income (loss)............................. $    (0.96) $     0.05  $     0.71  $     0.76  $     0.96  $     0.42 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
  Dividends declared per common share............. $     .075  $      .15  $   --      $   --      $   --      $   --     
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
                                                   ----------  ----------  ----------  ----------  ----------  ---------- 
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                    
  Total assets.................................... $  180,786  $  212,134  $  165,265  $  162,709  $  355,991  $  170,042 
  Long-term debt, net of current portion..........     86,329     105,425      53,892      36,000     177,349      30,463 
  Total stockholders' equity......................     55,779      54,533      66,802      77,323      88,788      79,748 



                                                      1997                                                                
                                                   ----------                                                             
                                                                                                                          
OPERATING DATA:                                                                                                           
  Net sales....................................... $  270,672                                                             
  Cost of sales...................................    196,022                                                             
                                                   ----------                                                             
  Gross profit....................................     74,650                                                             
  Operating costs and expenses:                                                                                           
    Selling and distribution......................     41,785                                                             
    General and administrative....................      6,685                                                             
    Amortization of intangibles...................      2,753                                                             
    Restructuring and other charges...............     --                                                                 
                                                   ----------                                                             
    Total operating costs and expenses............     51,223                                                             
                                                   ----------                                                             
  Income from operations..........................     23,427                                                             
  Other (income) expenses:                                                                                                
    Interest expense, net.........................      6,798                                                             
    Refinancing charges...........................     --                                                                 
    Other income, net.............................       (249)                                                            
                                                   ----------                                                             
    Total other (income) expense..................      6,549                                                             
                                                   ----------                                                             
  Income (loss) before income taxes, discontinued                                                                         
    operations and extraordinary loss.............     16,878                                                             
  Income taxes....................................      6,917                                                             
                                                   ----------                                                             
  Income (loss) from continuing operations........      9,961                                                             
  Income (loss) from discontinued operations......     --                                                                 
  Extraordinary loss from early extinguishment of                                                                         
    debt..........................................     --                                                                 
                                                   ----------                                                             
  Net income (loss)...............................      9,961                                                             
  Dividends on Preferred Stock....................     --                                                                 
                                                   ----------                                                             
  Net Income (loss) to Common..................... $    9,961                                                             
                                                   ----------                                                             
                                                   ----------                                                             
  Weighted average common shares outstanding...... 15,643,651                                                             
  Earnings (loss) per common share:                                                                                       
    Income (loss) from continuing operations...... $     0.64                                                             
    Income (loss) from discontinued operations....     --                                                                 
    Extraordinary loss............................     --                                                                 
                                                   ----------                                                             
    Net Income (loss)............................. $     0.64                                                             
                                                   ----------                                                             
                                                   ----------                                                             
  Dividends declared per common share............. $   --                                                                 
                                                   ----------                                                             
                                                   ----------                                                             
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                    
  Total assets.................................... $  352,323                                                             
  Long-term debt, net of current portion..........    169,200                                                             
  Total stockholders' equity......................     99,443                                                             

----------------------------------                                              
(1) Morningstar reported a net loss of $5,676 on the purchase of approximately  
$34,000 in subordinated debt at a premium.                              

(2) Loss on purchase of senior subordinated debentures, net of applicable tax   
benefit of $71.                                                         

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SELECTED FINANCIAL DATA OF COUNTRY FRESH
(IN THOUSANDS, EXCEPT SHARE DATA) 

   The following selected financial data of Country Fresh for each of the five
fiscal years in the period ended March 1, 1997 have been derived from Country   
Fresh's audited consolidated financial statements. The selected consolidated    
financial data for the 20 weeks ended July 20, 1996 and July 19, 1997 are       
unaudited, and in the opinion of management, reflect all adjustments (consisting
only of normal recurring accruals) that are necessary to present fairly the     
financial results for such periods. 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 Country Fresh should be read in          
conjunction with the Consolidated Financial Statements and related notes of     
Country Fresh included elsewhere in this Joint Proxy Statement/ Prospectus.     

                                                        [Enlarge/Download Table]

                                                                                                                 UNAUDITED       
                                                                                                             TWENTY WEEKS ENDED  
                                                                    YEAR ENDED                                                   
                                        ------------------------------------------------------------------  -------------------- 
                                        FEBRUARY 27,  FEBRUARY 26,  FEBRUARY 25,   MARCH 2,     MARCH 1,    JULY 20,   JULY 19,  
                                            1993          1994          1995         1996         1997        1996       1997    
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
                                                                                                                                 
OPERATING DATA:                                                                                                                  
  Net sales...........................   $  294,305    $  298,739    $  310,164    $ 336,055    $ 353,037   $ 135,328  $ 136,154 
  Cost of sales.......................      248,081       254,927       268,500      291,722      305,614     115,963    116,233 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Gross profit........................       46,224        43,812        41,664       44,333       47,423      19,365     19,921 
  Operating costs and expenses:                                                                                                  
    Selling and distribution..........       24,202        22,638        21,225       21,633       19,916       7,397      7,217 
    General and administrative........       12,705        14,123        15,036       15,700       16,010       5,907      6,234 
    Amortization of intangibles.......            9            37           100           82          656          33         19 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
    Total operating costs and                                                                                                    
      expenses........................       36,916        36,798        36,361       37,415       36,582      13,337     13,470 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Income from operations..............        9,308         7,014         5,303        6,918       10,841       6,028      6,451 
  Other (income) expenses:                                                                                                       
    Interest expense, net.............          319           463          (259)       1,392        1,219         613        597 
    Other income, net.................         (411)         (572)         (551)        (633)        (436)       (111)      (254)
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
    Total other (income) expense......          (92)         (109)         (810)         759          783         502        343 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Income before income taxes and                                                                                                 
    cumulative effect of accounting                                                                                              
    change............................        9,400         7,123         6,113        6,159       10,058       5,526      6,108 
  Income taxes........................        3,347         2,400         2,145        2,090        3,385       1,884      2,079 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Income before cumulative effect of                                                                                             
    accounting change.................        6,053         4,723         3,968        4,069        6,673       3,642      4,029 
  Cumulative effect of change in                                                                                                 
    accounting for post-retirement                                                                                               
    benefits other than pensions......       --            --             2,272       --           --          --         --     
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Net income..........................   $    6,053    $    4,723    $    1,696    $   4,069    $   6,673   $   3,642  $   4,029 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Net income applicable to common                                                                                                
    shares............................   $    6,053    $    4,723    $    1,696    $   3,765    $   6,371   $   3,566  $   3,954 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
  Weighted average shares                                                                                                        
    outstanding.......................    7,905,400     7,865,120     7,622,840    3,609,245    3,636,519   3,631,758  3,685,236 

  Net earnings per common share:                                                                                                 
    Income before cumulative effect of                                                                                           
      accounting change...............   $     0.77    $     0.60    $     0.52    $    1.04    $    1.75   $    0.97  $    1.07 
    Cumulative effect of change in                                                                                               
      accounting for post-retirement                                                                                             
      benefits other than pensions....       --            --             (0.30)      --           --          --         --     
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
    Net income........................   $     0.77    $     0.60    $     0.22    $    1.04    $    1.75   $    0.97  $    1.07 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
                                        ------------  ------------  ------------  -----------  -----------  ---------  --------- 
Balance sheet data (at end of period):                                                                                           
  Total assets........................   $   93,629    $   95,089    $   98,870    $  94,765    $  99,206   $ 105,565  $ 101,942 
  Long-term debt, net of current                                                                                                 
    portion...........................       14,777        13,832        14,217       32,152       28,571      36,318     26,523 
  Preferred stock.....................       --            --            --            3,800        3,741       3,800      3,741 
  Total common stockholders' equity...       47,168        49,606        51,265       21,326       27,793      25,002     31,775 

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THE SPECIAL MEETINGS

GENERAL                                                                         

The Suiza Special Meeting will be held at 9:00 a.m., local time, on     
Wednesday, November 26, 1997, at the Hotel Crescent Court, 400 Crescent Court,  
2200 Cedar Springs, Dallas, Texas 75201 for the purpose set forth in the Notice 
of Suiza Special Meeting and as described below. The Morningstar Special Meeting
will be held at 9:00 a.m. local time, on Wednesday, November 26, 1997, at the   
Hotel Crescent Court, 400 Crescent Court, 2200 Cedar Springs, Dallas, Texas     
75201 for the purpose set forth in the Notice of Morningstar Special Meeting and
as described below. This Joint Proxy Statement/Prospectus is furnished in       
connection with the solicitation by the Suiza Board and Morningstar Board of    
proxies to be used at their respective Special Meetings and at any and all      
adjournments or postponements of such Special Meetings. Any person executing a  
proxy card may revoke it prior to its exercise by filing with the Corporate     
Secretary of Suiza Foods or the General Counsel of Morningstar, as the case may 
be, prior to or at the applicable Special Meeting, at the address specified     
under the caption "Incorporation of Certain Information by Reference" in this   
Joint Proxy Statement/Prospectus, either an instrument revoking the proxy or a  
duly executed proxy bearing a later date.                                       

VOTING SECURITIES AND RECORD DATES                                              

SUIZA FOODS.  Suiza Stockholders of record at the close of business on  
October 27, 1997 are entitled to notice of and to vote at the Suiza Special     
Meeting. On October 27, 1997, there were 15,810,800 outstanding shares of Suiza 
Common Stock. Each share of Suiza Common Stock is entitled to one vote on each  
matter to be acted upon at the Suiza Special Meeting. No other shares of Suiza  
common stock or preferred stock were outstanding as of the Suiza Record Date.   
The presence, in person or by proxy, at the Suiza Special Meeting of the holders
of a majority of the shares of Suiza Common Stock outstanding and entitled to   
vote at the Suiza Special Meeting is necessary to constitute a quorum at the    
Suiza Special Meeting. In addition, applicable NYSE rules require that the total
vote cast with respect to the Stock Issuance and the Plan Amendment represent   
over 50% in interest of all securities entitled to vote on each proposal.       
Assuming that these quorum requirements are satisfied, the affirmative vote of  
the holders of a majority of the shares of Suiza Common Stock present and       
entitled to vote at the Suiza Special Meeting is required to approve each Suiza 
Proposal.                                                                       

    MORNINGSTAR.  Morningstar Stockholders of record at the close of business on
October 27, 1997 are entitled to notice of and to vote at the Morningstar       
Special Meeting. On October 27, 1997, there were 14,778,936 outstanding shares  
of Morningstar Common Stock. Each share of Morningstar Common Stock is entitled 
to one vote on each matter to be acted upon at the Morningstar Special Meeting. 
No other shares of Morningstar common stock or preferred stock were outstanding 
as of the record date. The presence, in person or by proxy, at the Morningstar  
Special Meeting of the holders of a majority of the shares of Morningstar Common
Stock outstanding and entitled to vote at the Morningstar Special Meeting is    
necessary to constitute a quorum at the Morningstar Special Meeting. The        
affirmative vote of a majority of the shares of Morningstar Common Stock        
outstanding and entitled to vote at the Morningstar Special Meeting is required 
to approve the Morningstar Proposal.                                            

PURPOSE OF SPECIAL MEETINGS                                                     

 SUIZA FOODS.  The purpose of the Suiza Special Meeting is to (i) consider
and vote upon the proposal to approve the Stock Issuance, (ii) consider and vote
upon the proposal to approve the Plan Amendment and (iii) transact such other   
business as may properly come before the Suiza Special Meeting and at any and   
all adjournments or postponements thereof.                                      

MORNINGSTAR.  The purpose of the Morningstar Special Meeting is to (i)  
consider and vote upon the proposal to approve the Merger Agreement, the Merger 
and the transactions contemplated thereby and (ii) transact such other business 
as may properly come before the Morningstar Special Meeting and at any          

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and all adjournments or postponements thereof. A copy of the Merger Agreement is
attached hereto as Appendix A.                                                  

PROXIES                                                                         

    All shares of Suiza Common Stock and Morningstar Common Stock represented by
properly executed proxies received prior to or at the Suiza Special Meeting or  
Morningstar Special Meeting, as the case may be, and not duly and timely        
revoked, will be voted in accordance with the instructions indicated on such    
proxies. If no instructions are indicated on a properly executed and returned   
proxy, such proxy will be voted "FOR" the approval of the Suiza Proposals or the
Morningstar Proposal, as the case may be. A properly executed proxy marked      
"ABSTAIN," although counted for purposes of determining whether there is a      
quorum and for purposes of determining the aggregate voting power and number of 
shares represented and entitled to vote at the applicable Special Meeting, will 
not be voted. Shares represented by "broker non-votes" (i.e., shares held by    
brokers or nominees which are represented at a meeting but with respect to which
the broker or nominee is not empowered to vote) will be counted for purposes of 
determining whether there is a quorum at a Special Meeting. In accordance with  
NYSE and Nasdaq rules, brokers and nominees are precluded from exercising their 
voting discretion with respect to the approval and adoption of the Suiza        
Proposals and the Morningstar Proposal and thus, absent specific instructions   
from the beneficial owner of such shares, are not empowered to vote such shares 
with respect to the approval and adoption of the Suiza Proposals or the         
Morningstar Proposal. Because the affirmative vote of a majority of the Suiza   
Common Stock present and entitled to vote is required to approve the Suiza      
Proposals, an abstention, a "broker non-vote" or the failure to be present in   
person or by proxy at the Suiza Special Meeting will have no effect upon the    
outcome of the vote with respect to the Suiza Proposals, assuming a quorum is   
present. Because the affirmative vote of a majority of the Morningstar Common   
Stock outstanding and entitled to vote is required to approve the Morningstar   
Proposal, an abstention, a "broker non-vote" or the failure to be present in    
person or by proxy at the Morningstar Special Meeting will have the same effect 
as a vote against the Morningstar Proposal.                                     

The Suiza Board and the Morningstar Board are not currently aware of any
business to be acted upon at their respective Special Meeting other than as     
described herein. If, however, other matters are properly brought before either 
Special Meeting, or any adjournments or postponements thereof, the persons      
appointed as proxies will have discretion to vote or act thereon according to   
their judgment. Such adjournments may be for the purpose of soliciting          
additional proxies. Neither Suiza Foods nor Morningstar currently intends to    
seek an adjournment of its Special Meeting.                                     

Any proxy given pursuant to this solicitation may be revoked at any time
before such proxy is voted. Attendance at the Suiza Special Meeting or the      
Morningstar Special Meeting will not in and of itself constitute a revocation of
a proxy.                                                                        

   The cost of soliciting proxies will be borne by Suiza Foods for Suiza Foods
proxies and by Morningstar for Morningstar proxies. In addition to the use of   
the mail, arrangements will be made with brokerage houses and other custodians, 
nominees and fiduciaries to send proxy material to beneficial owners and Suiza  
Foods or Morningstar, as the case may be, will, upon request, reimburse them for
their reasonable expenses. Suiza Foods and Morningstar have retained a proxy    
solicitation firm to aid in the solicitation of proxies and to verify certain   
records related to the solicitation for a fee of approximately $9,000 plus      
expenses. To the extent necessary in order to ensure sufficient representation  
at its Special Meeting, Suiza Foods or Morningstar may request by telephone,    
telegram or in person the return of proxy cards. The extent to which this will  
be necessary depends entirely upon how promptly proxy cards are returned.       
Stockholders are urged to send in their proxies without delay.                  

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MORNINGSTAR STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH 
THEIR PROXY CARDS. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER  
OF CERTIFICATES FOR SHARES OF MORNINGSTAR COMMON STOCK WILL BE MAILED TO        
MORNINGSTAR STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME.       

THE MERGER

GENERAL                                                                         

At the Effective Time of the Merger, Sub will be merged with and into   
Morningstar, with Morningstar surviving the Merger as a wholly owned subsidiary 
of Suiza Foods. In the Merger, each share of Morningstar Common Stock issued and
outstanding immediately before the Effective Time (excluding those held in the  
treasury of Morningstar and those owned by Suiza Foods, Sub or any other        
subsidiary of Suiza Foods), without any action on the part of the holder        
thereof, will be converted into the right to receive 0.85 shares of Suiza Common
Stock. Cash will be paid in lieu of fractional shares of Suiza Common Stock. The
Merger will become effective at the date and time the Certificate of Merger is  
filed with the Secretary of State of the State of Delaware, which will occur as 
soon as practicable after receipt of requisite regulatory and stockholder       
approvals and fulfillment of the other conditions set forth in the Merger       
Agreement.                                                                      

  Based on the number of shares of Suiza Common Stock and Morningstar Common
Stock outstanding on October 27, 1997, the shares of Suiza Common Stock issued  
to Morningstar Stockholders in the Merger will constitute approximately 44.3% of
the Suiza Common Stock outstanding after the Merger and the current Suiza       
Stockholders will hold approximately 55.7% of the Suiza Common Stock outstanding
after the Merger. On the same basis, but also assuming that 1,911,075 additional
shares of Suiza Common Stock are issued in the Country Fresh Merger, Morningstar
Stockholders will hold approximately 41.5% of the Suiza Common Stock outstanding
after the Merger.                                                               

    Each outstanding and unexercised Morningstar Option will be assumed by Suiza
Foods in the Merger and converted into a Substitute Option. Approximately       
2,957,987 shares of Suiza Common Stock will be subject to Substitute Options,   
based on the number of shares of Morningstar Common Stock subject to the        
Morningstar Options as of October 27, 1997. The per share exercise price with   
respect to the Substitute Options will equal the exercise price with respect to 
the Morningstar Options divided by the Exchange Ratio.                          

   The Exchange Ratio is expressed in the Merger Agreement as a fixed ratio of
0.85 shares of Suiza Common Stock for each share of Morningstar Common Stock.   
Accordingly, the Exchange Ratio will not be adjusted in the event of any        
increase or decrease in the price of Suiza Common Stock or Morningstar Common   
Stock. The price of Suiza Common Stock at the Effective Time may vary from its  
price at the date of the Special Meetings. These variations may be the result of
changes in the business, operations, or prospects of Suiza Foods or Morningstar,
market assessments of the likelihood that the Merger will be consummated and the
timing thereof, general market and economic conditions, and other factors.      

BACKGROUND OF THE MERGER                                                        

In April 1994, Morningstar sold its Florida-based fluid milk operation, 
Velda Farms Inc., to a predecessor of Suiza Foods for approximately $48 million 
in cash (after working capital adjustments) and $3 million in preferred stock   
issued by such predecessor of Suiza Foods. This sale concluded the divestiture  
of Morningstar's regional dairies, which were considered a distinct segment of  
its business. In March 1995, Suiza Foods redeemed the preferred stock issued in 
this transaction for its stated value plus accrued dividends.                   

During the spring of 1995, representatives of Morningstar and           
representatives of Hicks, Muse & Co. Incorporated, now known as Hicks, Muse,    
Tate & Furst Incorporated ("Hicks Muse"), met with representatives of Suiza     
Foods and one other bidder to discuss a possible sale of Morningstar. At that   
time, Hicks                                                                     

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Muse controlled a majority of the voting stock of Morningstar through an        
investment partnership. In May 1995, Suiza Foods and the other bidder submitted 
acquisition proposals to the Morningstar Board. The Morningstar Board rejected  
both of these proposals and determined not to pursue a sale of Morningstar.     
Following this determination in July 1995, Hicks Muse caused the investment     
partnership which held shares in Morningstar to distribute these shares to the  
individual partners of the partnership, thereby relinquishing voting control of 
Morningstar and terminating any further discussions or activities, with Suiza   
Foods or other bidders, related to a possible sale of Morningstar.              

 In early August of 1997, representatives of the management of Suiza Foods
met with representatives of the management of Morningstar. At that meeting, the 
possibility was raised of a business combination between Morningstar and Suiza  
Foods in which Morningstar Stockholders would receive Suiza Common Stock having 
a current market value representing a significant premium to the then current   
market price of the Morningstar Common Stock. On August 14, 1997, the           
Morningstar Board authorized Morningstar management to pursue a possible        
transaction with Suiza Foods.                                                   

From August 15 through September 26, representatives of Morningstar and 
Suiza Foods, including their respective legal and financial advisors, conducted 
a mutual exchange of business and financial information pursuant to             
confidentiality agreements executed on August 18, 1997 and negotiated the terms 
and conditions of a possible transaction. The Suiza Board discussed the possible
transaction at a meeting held on August 29, 1997, and the Morningstar Board     
again discussed the possible transaction at a meeting held on September 26,     
1997. During this time, Suiza Foods was also negotiating a merger transaction   
with Country Fresh. Suiza Foods and Country Fresh signed a merger agreement with
respect to the Country Fresh Merger on September 18, 1997.                      

The discussions and negotiations between Morningstar and Suiza Foods    
representatives were centered around the appropriate exchange ratios and        
possible "collar" mechanisms for an exchange ratio, the synergies and other     
benefits that could arise from a combination of Suiza Foods and Morningstar, and
the terms of the Merger Agreement. Final negotiations were conducted from       
September 24 through 26, with agreement being reach on the Exchange Ratio of    
0.85 on September 26, 1997, subject to approval by the respective Boards of     
Directors of Suiza Foods and Morningstar. On September 27, 1997 the legal       
advisors to Suiza Foods and Morningstar met and resolved outstanding issues on  
the Merger Agreement.                                                           

   On September 28, 1997, the respective boards of Suiza Foods and Morningstar
separately met to consider the Merger and the Merger Agreement, and after       
receiving fairness opinions from DLJ and Goldman Sachs, respectively, both the  
Suiza Board and the Morningstar Board approved the Merger and the Merger        
Agreement. Later that day, the parties executed the Merger Agreement, which was 
publicly announced on the morning of September 29, 1997 through a joint press   
release before the opening of trading of the NYSE and Nasdaq.                   

REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS                           

SUIZA FOODS.  The Suiza Board, based upon certain factors listed below, 
including the DLJ Opinion, concluded that the Merger is fair to and in the best 
interests of Suiza Foods and the Suiza Stockholders and unanimously approved the
Merger and resolved to recommend that the Suiza Stockholders approve the Stock  
Issuance. It should be noted that one of the ten members of the Suiza Board was 
unable to attend the meeting at which the Suiza Board voted to recommend        
approval of the Stock Issuance. Accordingly, all references in this Joint Proxy 
Statement/Prospectus to the unanimous approval or recommendation of the Suiza   
Board shall mean that all members of the Suiza Board other than such one absent 
member concurred in such approval or recommendation.                            

 The Suiza Board believes that the merger will benefit Suiza Foods and the
Suiza Stockholders in a number of respects, including the following: (i) the    
combined company will be the largest dairy company in the United States, and its
size, geographic reach and breadth of product offerings will allow it to offer  
its customers more products, and to manufacture and deliver such products more  
efficiently, than Suiza Foods or Morningstar could independently; (ii) the      
branded character of Morningstar's product offerings will                       

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improve the gross margin of Suiza Foods' product offerings; (iii) growth in     
sales of Morningstar's branded and value-added product lines complement Suiza   
Foods' strategy of growing through acquisition; (iv) Morningstar's national     
infrastructure for manufacturing and distributing value-added dairy and         
non-dairy products should afford Suiza Foods greater synergies from             
rationalizing the manufacturing and distribution of value-added products of     
regional dairies acquired in the future; (v) Morningstar's existing corporate   
infrastructure should allow Suiza Foods to avoid creating a duplicative         
infrastructure of its own to manage its rapidly expanding business; (vi) the    
additional cash flow from Morningstar's operations should reduce Suiza Foods'   
leverage, expand its borrowing capacity and reduce its borrowing costs and (vii)
the issuance of Suiza Common Stock in the Merger should materially increase the 
float and liquidity of the Suiza Common Stock.                                  

In reaching its determination to recommend the Stock Issuance to Suiza  
Stockholders, the Suiza Board considered, among other things, the following     
factors and information:                                                        

1. the judgment, advice and analyses of its management with respect to the  
 strategic rationale behind the Merger and the financial and operational
benefits and challenges of the Merger, based in part on the business, 
 financial, accounting and legal due diligence performed with respect to
Morningstar;                                                          

2. the financial condition, results of operations, business, operations and 
assets of each of Suiza Foods and Morningstar and other financial     
information;                                                          

 3. the operational opportunities and challenges of operating Morningstar as a
 subsidiary of Suiza Foods and the management challenges associated with
    successfully integrating the businesses of two public companies as well as
   the many companies that have been acquired by Suiza Foods and Morningstar
over the last several years;                                          

4. the strategic and competitive benefits of combining the two companies in 
the respective markets that Suiza Foods and Morningstar serve;        

5. current industry, economic and market conditions;                        

6. the terms and conditions of the Merger Agreement;                        

7. the DLJ Opinion (see "The Merger--Opinion of Suiza Foods' Financial      
Advisor" and Appendix B);                                             

8. historical market prices and trading information with respect to Suiza   
Foods and Morningstar;                                                

9. the advice of Suiza Foods' independent accountants concerning the ability
  of Suiza Foods and Morningstar to account for the Merger as a pooling of
interests for accounting purposes; and                                

10. the advice of Suiza Foods' counsel that the Merger should be treated as a 
tax-free reorganization for federal income tax purposes.              

 The foregoing discussion of the factors and information considered by the
Suiza Board is not intended to be exhaustive. In view of the variety of factors 
and information considered by the Suiza Board in connection with its evaluation 
of the Merger, the Suiza Board did not find it practicable to assign, and did   
not assign, relative weights to the specific factors and information considered 
in reaching its conclusion that the Merger is in the best interests of Suiza    
Foods and the Suiza Stockholders or its recommendation that the Suiza           
Stockholders vote "FOR" the Stock Issuance. In addition, individual members of  
the Suiza Board may have given or assigned different weight to the factors and  
information listed above as well as any other factors and information considered
in reaching their respective decisions. There can be no assurance that the      
expected benefits of the Merger will be achieved. See "Risk Factors--Risks      
Associated with Acquisition Strategy" and "--Expected Benefits of the Merger May
Not Be Achieved."                                                               

THE SUIZA BOARD UNANIMOUSLY RECOMMENDS THAT THE SUIZA STOCKHOLDERS VOTE 
"FOR" APPROVAL OF THE STOCK ISSUANCE.                                           

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MORNINGSTAR.  The Morningstar Board, based upon, among other things, the
factors listed below concluded that the Merger is fair to, and in the best      
interests of, Morningstar and the Morningstar Stockholders, unanimously approved
the Merger, the Merger Agreement and the transactions contemplated thereby, and 
resolved to recommend that the Morningstar Stockholders approve the Morningstar 
Proposal. It should be noted that two members of the Morningstar Board were     
unable to attend the meetings of the Morningstar Board at which the Merger      
Agreement was discussed. Accordingly, all references in this Joint Proxy        
Statement/Prospectus to the unanimous approval or recommendation of the         
Morningstar Board with respect to the Merger, the Merger Agreement and the      
transactions contemplated thereby shall mean that all members of the Morningstar
Board other than the two absent members concurred in such approval or           
recommendation.                                                                 

In determining to approve the Merger Agreement and to recommend that the
Morningstar Stockholders approve the Morningstar Proposal, the Morningstar Board
based its opinion as to the transactions contemplated in the Merger Agreement   
upon many different factors, including the following:                           

(i) the judgment, advice and analyses of its management with respect to the   
 strategic rationale behind the Merger and the financial and operational
benefits and challenges of the Merger, based in part on the business, 
 financial, accounting and legal due diligence performed with respect to
Suiza Foods;                                                          

(ii) current industry, economic, and market conditions;                       

(iii) the financial condition, results of operations and cash flows of        
   Morningstar and Suiza Foods on a historical basis and other financial
information;                                                      

(iv) the Goldman Sachs Opinion, to the effect that, as of the date of such    
     opinion the Exchange Ratio pursuant to the Merger Agreement was fair from
     a financial point of view to the holders of Morningstar Common Stock. See
    "The Merger--Opinion of Morningstar's Financial Advisor" and Appendix C;

(v) the historical market prices and trading information in respect of        
Morningstar Common Stock and Suiza Common Stock;                      

(vi) the terms and conditions of the Merger Agreement, including, without     
   limitation, the requirement of Morningstar Stockholder approval and the
    fees that would be payable upon termination under certain circumstances;
and                                                                 

(vii) the ability to consummate the Merger as a pooling-of-interests under    
       generally accepted accounting principles and as a tax-free reorganization
under Section 368(a) of the Code.                                 

    The Morningstar Board believes the Merger offers Morningstar Stockholders an
opportunity to participate in an entity that, following the Merger, will have a 
greater financial flexibility, better opportunities for growth and better       
financial outlook than Morningstar would have if it were to continue on a stand-
alone basis. There can be no assurances, however, that the expected benefits of 
the Merger will be realized. See "Risk Factors--Risks Associated with           
Acquisition Strategy" and "--Expected Benefits of the Merger May Not Be         
Achieved."                                                                      

 The foregoing discussion of the factors and information considered by the
Morningstar Board is not intended to be exhaustive. In view of the variety of   
factors considered in connection with its evaluation of the Merger, the         
Morningstar Board did not find it practicable to and did not quantify or        
otherwise assign relative weights to the specific factors considered in reaching
its determination, and individual directors may have given differing weights to 
different factors.                                                              

THE MORNINGSTAR BOARD UNANIMOUSLY RECOMMENDS THAT THE MORNINGSTAR       
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER, THE MERGER         
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.                            

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OPINION OF SUIZA FOODS' FINANCIAL ADVISOR                                       

Suiza Foods retained DLJ in connection with the Merger based upon DLJ's 
qualifications, expertise and reputation, including the fact that DLJ, as part  
of its investment banking business, is regularly engaged in the valuation of    
businesses and their securities in connection with mergers and acquisitions,    
underwritings, sales and distributions of listed and unlisted securities,       
private placements and valuations for corporate and other purposes.             

 THE FULL TEXT OF THE DLJ OPINION IS SET FORTH AS APPENDIX B TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. SUIZA       
STOCKHOLDERS SHOULD READ THE DLJ OPINION CAREFULLY IN ITS ENTIRETY FOR          
INFORMATION CONCERNING THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS 
CONSIDERED AND LIMITS OF THE REVIEW BY DLJ.                                     

The DLJ Opinion was prepared for the Suiza Board and addresses only the 
fairness of the Exchange Ratio to the Suiza Stockholders from a financial point 
of view and does not constitute a recommendation to any Suiza Stockholder as to 
how such stockholder should vote at the Suiza Special Meeting. The DLJ Opinion  
does not constitute an opinion as to the price at which Suiza Common Stock will 
actually trade at any time. The type and amount of consideration was determined 
in arm's length negotiations between Suiza Foods and Morningstar. No            
restrictions or limitations were imposed upon DLJ with respect to the           
investigations made or procedures followed by DLJ in rendering its opinion.     

In arriving at the DLJ Opinion, DLJ reviewed a draft of the Merger      
Agreement, as well as financial and other information that was publicly         
available or furnished to it by Suiza Foods and Morningstar, including          
information provided during discussions with their respective managements.      
Included in the information provided to DLJ were various financial projections  
for Suiza Foods and Morningstar for various time periods. In addition, DLJ      
compared certain financial and securities data of Suiza Foods and Morningstar   
with that of various other companies whose securities are traded in public      
markets, reviewed the historical stock prices and trading volumes of the        
Morningstar Common Stock and Suiza Common Stock, reviewed prices and premiums   
paid in certain other business combinations and conducted such other financial  
studies, analyses and investigations as DLJ deemed appropriate for purposes of  
rendering its opinions.                                                         

    In rendering its opinion, DLJ relied upon, without independent investigation
and assumed the accuracy and completeness of, all of the financial and other    
information that was available to it from public sources or that was provided to
it by Suiza Foods and Morningstar or their respective representatives. In       
particular, DLJ relied upon the estimates of the management of Suiza Foods of   
the operating synergies (the "Synergies") achievable as a result of the Merger  
and upon its discussions of the Synergies with the managements of Suiza Foods   
and Morningstar. DLJ also assumed that the financial projections regarding Suiza
Foods and Morningstar supplied to DLJ were reasonably prepared on a basis       
reflecting the best currently available estimates and judgments of the          
managements of Suiza Foods and Morningstar as to the future operating and       
financial performance of Suiza Foods and Morningstar, respectively. DLJ did not 
assume any responsibility for making any independent evaluation of any assets or
liabilities, or for making any independent verification of any of the           
information that it reviewed.                                                   

The DLJ Opinion is necessarily based on economic, market, financial and 
other conditions as they exist on, and on information made available to DLJ as  
of, the date of the DLJ Opinion. DLJ does not have any obligation to update,    
revise or reaffirm the DLJ Opinion.                                             

   The following is a summary of the material analyses presented by DLJ to the
Suiza Board at its September 28, 1997 meeting. All analyses discussed below,    
unless otherwise indicated, (i) exclude the Synergies estimated by Suiza Foods  
management and (ii) assume the Exchange Ratio is calculated using a Suiza Common
Stock price of $53.94, based on the closing price on September 26, 1997.        

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COMMON STOCK PERFORMANCE ANALYSES.  DLJ's analysis of the performance of
Suiza Common Stock consisted of an historical analysis of closing prices and    
trading volumes for the period from September 26, 1996 through September 26,    
1997. During this time period, Suiza Common Stock outperformed the S&P 500 and a
comparable company index comprised of Dean Foods Co., Michael Foods, Inc.,      
Dreyer's Grand Ice Cream, Inc., Flowers Industries, Inc., Hormel Foods          
Corporation, International Multifoods Corporation, Lance, Inc., Riviana Foods,  
Inc. and J.M. Smucker Company (the "Comparable Companies"). During the above    
period, Suiza Common Stock reached a high of $56.00 per share and a low of      
$16.75 per share. On September 26, 1997, the closing price of Suiza Common Stock
was $53.94 per share.                                                           

  DLJ's analysis of the performance of Morningstar Common Stock consisted of
an historical analysis of closing prices and trading volumes for the period from
September 26, 1996 through September 26, 1997. During this time period,         
Morningstar Common Stock outperformed the S&P 500 and a comparable company index
comprised of the Comparable Companies. During the above period, Morningstar     
Common Stock reached a high of $41.50 per share and a low of $11.25 per share.  
On September 26, 1997, the closing price of Morningstar Common Stock was $40.00 
per share.                                                                      

COMPARABLE COMPANY ANALYSIS.  To provide contextual data and comparative
market information, DLJ analyzed the operating performance of Morningstar       
relative to the Comparable Companies. Historical financial information used in  
connection with the ratios provided below with respect to the Comparable        
Companies is as of the most recent financial statements publicly available for  
each company as of September 26, 1997. DLJ also analyzed pro forma financial    
information for Morningstar giving effect to the acquisition of Presto which was
completed on December 3, 1996.                                                  

    DLJ performed a valuation analysis of Morningstar by applying certain market
trading statistics for the Comparable Companies to Morningstar's historical and 
estimated financial results. DLJ examined certain publicly available financial  
data of the Comparable Companies, including enterprise value (defined as market 
value of common equity plus book value of total debt and preferred stock less   
cash) as a multiple of: (a) latest 12 months ("LTM") revenues, earnings before  
interest, taxes, depreciation and amortization ("EBITDA") and earnings before   
interest and taxes ("EBIT") and (b) price to earnings ratios based on: (x) LTM  
earnings per share ("EPS"); and (y) estimated calendar year 1997 EPS and        
estimated calendar year 1998 EPS. Based on these valuation multiples for the    
Comparable Companies, DLJ derived a summary valuation range for Morningstar     
Common Stock of $31.18 to $46.05 per share. Calendar year 1997 and 1998 EPS     
estimates for the Comparable Companies were based on estimates provided by First
Call Research Direct. EPS calendar year 1997 and 1998 estimates for Morningstar 
were based on estimates developed by Morningstar.                               

No company utilized in the comparable company analysis is identical to  
Morningstar. Accordingly, an analysis of the results of the foregoing           
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of the Comparable Companies and      
Morningstar and other factors that could affect the public trading value of the 
Comparable Companies. Mathematical analysis such as determining the median is   
not in itself a meaningful method of using comparable company data.             

COMPARABLE TRANSACTION ANALYSIS.  DLJ also performed an analysis of the 
implied purchase price and adjusted transaction value multiples of selected     
merger and acquisition transactions (the "Comparable Transactions") in the dairy
and broader food industry. Multiples reviewed in the Comparable Transactions    
consisted of (i) enterprise value to (where available) LTM revenues, LTM EBITDA,
LTM EBIT, and (ii) equity value of the offer to (where available) LTM net       
income. The Comparable Transactions were comprised of eight transactions        
announced during the period 1991 to 1997. DLJ noted that the implied multiples  
of enterprise value and equity value, as the case may be, for these transactions
were in (i) a range of 0.3x to 1.0x (with a median of 0.4x) LTM revenues; (ii) a
range of 6.6x to 10.5x (with a median of 8.8x) LTM EBITDA; (iii) a range of 8.3x
to 30.9x (with a median of 15.0x) LTM EBIT; and (iv) a range of 14.0x to 27.8x  
(with a median of 19.5x) LTM net income. Based on the multiples paid in the     
Comparable                                                                      

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Transactions discussed above, DLJ derived a summary valuation range for         
Morningstar Common Stock of $29.16 to $42.86 per share. LTM pro forma revenue,  
EBITDA, EBIT and net income for Morningstar were based on information provided  
by Morningstar.                                                                 

   No transaction utilized in the comparable transaction analysis is identical
to the Merger. Accordingly, an analysis of the results of the foregoing         
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of Morningstar and other factors that
could affect the acquisition value of the companies to which it is being        
compared. Mathematical analysis such as determining the average is not itself a 
meaningful method of using comparable transaction data.                         

PREMIUM ANALYSIS.  DLJ derived an acquisition valuation for Morningstar 
based on premiums offered in stock for stock merger and acquisition transactions
ranging from $700 million to $1.0 billion in size and announced between January 
1994 and September 1997. DLJ's analysis indicated that, for the transactions    
reviewed, the median premiums offered to the market price of the acquired       
company one day, one week and one month prior to announcement were 20.6%, 23.3% 
and 34.4%, respectively, and the mean premiums were 25.7%, 30.9% and 40.9%,     
respectively. Applying the above premiums to Morningstar's closing stock price  
one day, one week and one month prior to September 25, 1997 implies an          
acquisition valuation range of approximately $42.10 to $53.84 per share of      
Morningstar Common Stock. This analysis did not take into account differing     
market and other conditions occurring during the January 1994 to September 1997 
period during which these transactions occurred, and no further material        
assessments were made by DLJ in respect of such analysis.                       

    DISCOUNTED CASH FLOW ANALYSIS.  In addition, DLJ performed a discounted cash
flow ("DCF") analysis for the five-year period commencing January 1, 1998 and   
ending December 31, 2002 based on the stand-alone unlevered free cash flows of  
Morningstar, without giving effect to the Synergies. Unlevered free cash flows  
were calculated as the after-tax operating earnings of Morningstar, plus        
depreciation and amortization, plus (or minus) net changes in working capital,  
minus projected capital expenditures. DLJ calculated terminal values by applying
a range of estimated EBITDA multiples of 8.0x to 10.0x to the projected EBITDA  
of Morningstar in 2002. The unlevered free cash flows and terminal values were  
then discounted to the present using a range of discount rates of 9.0% to 11.0% 
representing an estimated range of the weighted average cost of capital of      
Morningstar. Based on this analysis, DLJ calculated per share equity values of  
Morningstar ranging from $40.74 to $55.82.                                      

EPS IMPACT ANALYSIS.  DLJ also analyzed the pro forma effects on the    
projected EPS of Suiza Foods resulting from the Merger, including, without      
independent verification, the Synergies projected by the management of Suiza    
Foods, for each of the years ending December 31, 1998, 1999, 2000 and 2001 and  
assuming an exchange ratio of 0.85. This analysis was based on a number of      
assumptions, including, among other things, estimated amounts and timing of the 
Synergies and the projected financial performance of Suiza Foods and            
Morningstar. The analysis indicated that the Merger, accounted for as a         
pooling-of-interests transaction, with the benefit of the Synergies, would be   
accretive to Suiza Foods' stand-alone EPS estimates in 1998, 1999, 2000 and     
2001.                                                                           

   RELATIVE CONTRIBUTION ANALYSIS.  DLJ analyzed the relative contributions of
Suiza Foods and Morningstar to the revenues, EBITDA, EBIT, pre-tax income and   
net income of the pro forma combined entity for the projected calendar years    
1997 and 1998, excluding Synergies and transaction adjustments. Based on the    
projected financial information for the calendar year 1997, Morningstar's       
revenues, EBITDA, EBIT, pre-tax income and net income would represent 31.9%,    
40.7%, 42.8%, 46.3% and 42.6%, respectively, of the pro forma combined entity,  
assuming the transaction occurred at January 1, 1997. Based on the projected    
financial information for the calendar year 1998, Morningstar's net sales,      
EBITDA, EBIT, pre-tax income and net income would represent 29.0%, 36.5%, 38.9%,
45.8% and 42.6%, respectively, of the pro forma combined entity. The shares of  
Suiza Common Stock to be issued to the holders of Morningstar Common Stock on a 
fully diluted basis would represent approximately 42.4% of the outstanding      
shares of Suiza Common Stock after giving effect to the Merger at an exchange   
ratio of 0.85.                                                                  

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    The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ, but describes, in summary form, the principal    
elements of the analyses contained in the materials presented by DLJ to the     
Suiza Board in connection with DLJ rendering its opinion. The preparation of a  
fairness opinion involves various determinations as to the most appropriate and 
relevant methods of financial analysis and the application of these methods to  
the particular circumstances and, therefore, such an opinion is not readily     
susceptible to summary description. Each of the analyses conducted by DLJ was   
carried out in order to provide a different perspective on the transaction and  
add to the total mix of information available. DLJ did not form a conclusion as 
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness from a financial point of view. Rather, in 
reaching its conclusion, DLJ considered the results of each analysis in light of
each other and ultimately reached its opinion based on the results of the       
analyses taken as a whole. DLJ did not place particular reliance or weight on   
any individual factor, but instead concluded that its analyses, taken as a      
whole, supported its determination. Accordingly, notwithstanding the separate   
factors summarized above, DLJ believes that its analyses must be considered as a
whole and that selecting portions of its analysis and the factors considered by 
it, without considering all analyses and factors, could create an incomplete or 
misleading view of the evaluation process underlying its opinion. In performing 
its analyses, DLJ made numerous assumptions with respect to industry            
performance, business and economic conditions and other matters. The analyses   
performed by DLJ are not necessarily indicative of actual values or future      
results, which may be significantly more or less favorable than suggested by    
such analyses.                                                                  

  Pursuant to a letter agreement between Suiza Foods and DLJ dated September
10, 1997 (the "DLJ Engagement Letter"), DLJ is entitled to a fee of $500,000 in 
connection with the delivery of the DLJ Opinion, irrespective of the conclusion 
reached therein, and is entitled to an additional fee of $2,250,000 upon        
consummation of the Merger. In addition, Suiza Foods has agreed to reimburse DLJ
for all out-of-pocket expenses (including the reasonable fees and expenses of   
its counsel) incurred by DLJ in connection with its engagement thereunder,      
whether or not the Merger is consummated, and to indemnify DLJ for certain      
liabilities and expenses arising out of the Merger or the transactions in       
connection therewith, including liabilities under federal securities laws. The  
terms of the fee arrangement with DLJ, which DLJ and Suiza Foods believe are    
customary in transactions of this nature, were negotiated at arm's length       
between Suiza Foods and DLJ and the Suiza Board was aware of such arrangement.  

    DLJ provides a full range of financial, advisory and brokerage services and,
in the course of its normal trading activities, may from time to time effect    
transactions and hold positions in the securities or options on the securities  
of Morningstar and/or Suiza Foods for its own account and for the account of    
customers. In addition, DLJ has performed investment banking services for       
Morningstar and its affiliates, including Hicks Muse, in the past and has       
received usual and customary compensation for such services.                    

OPINION OF MORNINGSTAR'S FINANCIAL ADVISOR                                      

  On September 28, 1997, Goldman Sachs delivered its oral opinion, which was
subsequently confirmed in writing, to the Morningstar Board to the effect that, 
as of the date of such opinion, the Exchange Ratio pursuant to the Merger       
Agreement was fair from a financial point of view to the holders of shares of   
Morningstar Common Stock.                                                       

    THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AS OF SEPTEMBER
28, 1997, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS 
ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX
C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY        
REFERENCE. SHAREHOLDERS OF MORNINGSTAR ARE URGED TO, AND SHOULD, READ SUCH      
OPINION IN ITS ENTIRETY.                                                        

   In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) Annual Reports to Stockholders and Annual Reports
on Form 10-K for the five years ended December 31, 1996 of Morningstar and for  
the year ended December 31, 1996 of Suiza Foods; (iii) the initial public       
offering Prospectus of Suiza Foods, dated April 17, 1996; (iv) certain interim  
reports                                                                         

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to stockholders and Quarterly Reports on Form 10-Q of Morningstar and Suiza     
Foods; (v) certain other communications from Morningstar and Suiza Foods to     
their respective stockholders; (vi) certain internal financial analyses and     
forecasts for Morningstar and Suiza Foods that were prepared by their respective
managements. Goldman Sachs held discussions with members of the senior          
managements of Morningstar and Suiza Foods regarding the strategic rationale    
for, and the potential benefits of, the transaction contemplated by the Merger  
Agreement and the past and current business operations, financial condition, and
future prospects of their respective companies. In addition, Goldman Sachs      
reviewed the reported price and trading activity for the Morningstar Common     
Stock and Suiza Common Stock, compared certain financial and stock market       
information for Morningstar and Suiza Foods with similar information for certain
other companies the securities of which are publicly traded, reviewed the       
financial terms of certain recent business combinations in the dairy and branded
foods industries specifically and in other industries generally and performed   
such other studies and analyses as it considered appropriate. Goldman Sachs     
relied upon the accuracy and completeness of all of the financial and other     
information reviewed by it and Goldman Sachs assumed such accuracy and          
completeness for purposes of rendering its opinion. In addition, Goldman Sachs  
did not make any independent evaluation or appraisal of the assets and          
liabilities of Morningstar or Suiza Foods or any of their subsidiaries and      
Goldman Sachs was not furnished with any such evaluation or appraisal. Goldman  
Sachs assumed, with Morningstar's consent, that the transaction contemplated by 
the Merger Agreement will be accounted for as a pooling of interests under GAAP.
Goldman Sachs' opinion was provided for the information and assistance of the   
Board of Directors of Morningstar in connection with its consideration of the   
transaction contemplated by the Merger Agreement, and such opinion does not     
constitute a recommendation as to how any holder of shares of Morningstar Common
Stock should vote with respect to such transaction.                             

The following is a summary of certain of the financial analyses used by 
Goldman Sachs in connection with providing its opinion to the Morningstar Board 
on September 28, 1997.                                                          

(i)  HISTORICAL STOCK TRADING ANALYSIS.                                 

(A)  MORNINGSTAR.  Goldman Sachs reviewed the daily and monthly 
    historical price and trading volume history for Morningstar Common Stock for
    the periods from September 26, 1996 to September 26, 1997 and from September
 30, 1992 to September 26, 1997, respectively. Goldman Sachs also reviewed
    the volume of shares of Morningstar Common Stock traded at a range of prices
for the three month, six month, one year and two year periods ended     
    September 26, 1997. Such review indicated weighted average trading prices of
shares of Morningstar Common Stock of $33.45, $29.90, $24.05 and $19.74,
respectively, for the periods reviewed.                                 

    (B)  SUIZA FOODS.  Goldman Sachs reviewed the daily historical stock
   price and trading volume history for Suiza Common Stock for the period from
April 17, 1996 (the date of Suiza Foods' initial public offering) to    
September 26, 1997. Goldman Sachs also reviewed the volume of shares of 
Suiza Common Stock traded at a range of prices for the three month, six 
    month and one year periods ended September 26, 1997, and for the period from
    April 17, 1996 to September 26, 1997. Such review indicated weighted average
    trading prices of shares of Suiza Common Stock of $42.46, $36.81, $31.19 and
$28.15, respectively, for the periods reviewed.                         

(ii)  INDEXED STOCK PRICE HISTORIES.  Goldman Sachs reviewed the daily  
indexed historical prices for shares of Morningstar Common Stock during the     
period from April 17, 1996 to September 26, 1997, as compared to Suiza Common   
Stock, the S&P 500 and the S&P Foods index (the "S&P Foods"). The S&P Foods is  
comprised of the following companies: Archer Daniels Midland, Campbell, Conagra,
CPC International, General Mills, H.J. Heinz, Hershey, Kellogg, Quaker Oats,    
Ralston Purina, Sara Lee, Unilever and Wrigley.                                 

(iii)  SELECTED COMPANIES ANALYSIS.  Goldman Sachs reviewed and compared
certain financial information, ratios and public market multiples relating to   
Morningstar and Suiza Foods to corresponding financial information, ratios and  
public market multiples for (a) Dean Foods, (b) certain small- and mid-         

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capitalization food companies comprised of Flowers Industries, Hormel,          
International Multifoods, Lance, Riviana Foods and J.M. Smucker (the "Small/Mid 
Cap Food Companies"), (c) certain large-capitalization food companies comprised 
of Campbell, CPC, General Mills, H.J. Heinz, Hershey, Kellogg and Nabisco (the  
"Large Cap Food Companies" and, together with the Small/Mid Cap Food Companies  
and Dean Foods, the "Selected Companies"), and (d) in certain circumstances, the
S&P 500 and the S&P Foods. The multiples for Morningstar and Suiza Foods were   
calculated using a price of $40.00 per share of Morningstar Common Stock and a  
price of $53.94 per share of Suiza Common Stock, the closing prices of such     
shares on Nasdaq and the NYSE, respectively, on September 26, 1997. Goldman     
Sachs reviewed the following: (i) enterprise value as a multiple of last 12     
month ("LTM") (x) sales, (y) earnings before interest, taxes, depreciation and  
amortization ("EBITDA") and (z) earnings before interest and taxes ("EBIT");    
(ii) price-to-earnings ("P/E") multiples based on 1997 and 1998 Institutional   
Brokers Estimate System ("IBES") earnings estimates as of September 26, 1997;   
(iii) IBES estimated five year earnings growth rates; and (iv) the P/E multiple 
based on 1998 IBES earnings estimates, as a multiple of the IBES estimated five 
year earnings growth rate (the "1998 P/E to Five Year Earnings Growth           
Multiple").                                                                     

    Goldman Sachs' analyses indicated that (a) enterprise value as a multiple of
LTM sales was .70x for Dean Foods, and a median of 1.01x for the Small/Mid Cap  
Food Companies, 2.32x for the Large Cap Food Companies and 1.55x for the        
Selected Companies, as compared with 1.71x for Morningstar and 2.62x for Suiza  
Foods, (b) enterprise value as a multiple of LTM EBITDA was 8.5x for Dean Foods,
and a median of 10.5x for the Small/Mid Cap Food Companies, 13.0x for the Large 
Cap Food Companies and 10.9x for the Selected Companies, as compared with 16.3x 
for Morningstar and 26.8x for Suiza Foods, (c) enterprise value as a multiple of
LTM EBIT was 12.4x for Dean Foods, and a median of 16.8x for the Small/Mid Cap  
Food Companies, 16.5x for the Large Cap Food Companies and 16.4x for the        
Selected Companies, as compared with 22.0x for Morningstar and 38.3x for Suiza  
Foods, (d) the P/E multiple based on 1997 IBES earnings estimates was 19.7x for 
Dean Foods, a median of 22.5x for the Small/Mid Cap Food Companies, 25.1x for   
the Large Cap Food Companies, 22.7x for the Selected Companies, and 22.2x for   
the S&P 500 and 23.5x for the S&P Foods, as compared with 27.8x for Morningstar 
and 27.2x for Suiza Foods, (e) the                                              
P/E multiple based on 1998 IBES earnings estimates was 17.4x for Dean Foods, a  
median of 19.7x for the Small/Mid Cap Companies, 22.1x for the Large Cap Food   
Companies, 19.7x for the Selected Companies, and 20.8x for the S&P 500 and 20.7x
for the S&P Foods, as compared with 22.6x for Morningstar and 21.0x for Suiza   
Foods, (f) the IBES estimated five year earnings growth rate was 12.0% for Dean 
Foods, and a median of 10.5% for the Small/Mid Cap Food Companies, 11.0% for the
Large Cap Food Companies and 11.0% for the Selected Companies, as compared with 
17.5% for Morningstar and 23.0% for Suiza Foods, and (g) the 1998 P/E to Five   
Year Earnings Growth Multiple was 1.4x for Dean Foods, and a median of 1.7x for 
the Small Cap Food Companies, 1.9x for the Large Cap Food Companies and 1.8x for
the Selected Companies, as compared with 1.3x for Morningstar and .9x for Suiza 
Foods.                                                                          

  (iv)  DISCOUNTED CASH FLOW ANALYSIS--MORNINGSTAR.  Goldman Sachs performed
discounted cash flow analyses based on projected unlevered free cash flows from 
1998-2002. Goldman Sachs assumed that EBITDA terminal multiples were applied to 
trailing 2002 EBITDA and that cash flows were discounted to December 31, 1997 to
arrive at a net present value per share of Morningstar Common Stock.            

   (A)  OPERATING SENSITIVITIES.  Goldman Sachs calculated net present
values per share of Morningstar Common Stock based on a range of assumed
  average operating margins and average sales growth rates, in each case for
the years 1998-2002 (based on discussions with the management of        
Morningstar), assuming a 12.0% discount rate and 9.0x EBITDA terminal   
   multiple. Goldman Sachs applied such operating margin and sales growth rate
assumptions to a 1997 base case provided by Morningstar management. Such
 analysis indicated a range of net present values per share of Morningstar
Common Stock of $24.73 to $58.61.                                       

      (B)  DISCOUNT RATE AND TERMINAL MULTIPLE SENSITIVITIES.  Goldman Sachs
    calculated net present values per share of Morningstar Common Stock based on
    discount rates of 10% to 15% and EBITDA terminal multiples of 7.0x to 11.0x,
assuming a 1997 base case provided by Morningstar management            

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and, for the years 1998-2002, an assumed average sales growth rate and  
average operating margin (based on discussions with the management of   
Morningstar). Such analysis indicated a range of net present values per 
share of Morningstar Common Stock of $28.34 to $54.06.                  

   (v)  DISCOUNTED CASH FLOW ANALYSIS--SUIZA FOODS.  Goldman Sachs performed a
discounted cash flow analysis based on projected unlevered free cash flows from 
1998-2006, excluding the impact of any potential acquisitions during such       
period. Goldman Sachs assumed that EBITDA terminal multiples were applied to    
trailing 2006 EBITDA and that cash flows were discounted to December 31, 1997 to
arrive at a net present value per share of Suiza Common Stock. Goldman Sachs'   
analysis was based on various projections prepared by Suiza Foods' management,  
which included acquisitions announced through September 26, 1997. Goldman Sachs 
calculated net present values per share of Suiza Common Stock based on discount 
rates of 10% to 14% and EBITDA terminal multiples of 7.0x to 11.0x. Such        
analysis indicated a range of net present values per share of Suiza Common Stock
of $31.22 to $74.40.                                                            

(vi)  SELECTED TRANSACTIONS ANALYSIS.  Goldman Sachs analyzed certain   
information relating to 16 selected transactions in the dairy (the "Selected    
Dairy Transactions") and 120 selected transactions in the branded foods (the    
"Selected Branded Foods Transactions" and, together with the Selected Dairy     
Transactions, the "Selected Transactions") industries consummated or announced  
since 1990, in the case of the Selected Dairy Transactions, and since 1988, in  
the case of the Selected Branded Foods Transactions. Such analyses indicated    
that for the Selected Transactions, with certain data points not being publicly 
available, levered consideration as a multiple of LTM (a) sales was a median of 
.46x for the Dairy Transactions with a mean of .52x, and a median of 1.10x for
the Branded Foods Transactions with a mean of 1.22x, (b) EBITDA was a median of 
7.5x for the Dairy Transactions with a mean of 7.8x, and a median of 8.9x for   
the Branded Foods Transactions with a mean of 10.1x, and (c) EBIT was a median  
of 12.5x for the Dairy Transactions with a mean of 11.6x, and a median of 12.1x 
for the Branded Foods Transactions with a mean of 15.8x.                        

   (vii)  REVIEW OF IMPLIED TRANSACTION PREMIUMS AND MULTIPLES.  Goldman Sachs
reviewed certain implied transaction premiums and multiples, based on the       
Exchange Ratio, at a range of prices per share of Suiza Common Stock of $45.00  
to $62.50. Goldman Sachs noted that based on a price per share of Suiza Common  
Stock of $53.94 (the closing price on September 26, 1997), and a corresponding  
implied value of $45.85 per share of Morningstar Common Stock (applying the     
Exchange Ratio), the implied premiums per share of Morningstar Common Stock     
resulting from the Merger were 14.6%, 55.4%, 37.1% and 57.0%, as compared with  
the closing prices of Morningstar Common Stock on September 26, 1997 and August 
26, 1997, and the weighted average prices for the three-month and six-months    
periods ended September 26, 1997, respectively. Goldman Sachs also noted that,  
based on a price per share of Suiza Common Stock of $53.94, and a corresponding 
implied value of $45.85 per share of Morningstar Common Stock (applying the     
Exchange Ratio), the Merger implies multiples of LTM sales, EBITDA and EBIT of  
1.92x, 18.3x and 24.7x, respectively.                                           

 (viii)  CONTRIBUTION ANALYSIS.  Goldman Sachs reviewed certain historical
and estimated future operating and financial information (including, among other
things, sales, EBITDA, EBIT, net income, assets, shareholders' equity, levered  
market capitalization and equity market capitalization) for Morningstar, Suiza  
Foods and the pro forma combined entity resulting from the Merger, based on     
publicly available information and various estimates provided to Goldman Sachs  
by management of each of Morningstar and Suiza Foods. Goldman Sachs also        
analyzed the relative income statement and balance sheet contribution of        
Morningstar and Suiza Foods to the combined entity on a pro forma basis. Such   
analysis indicated the following contribution by Morningstar to the combined    
entity for the following figures and periods: (a) sales (management estimates): 
31.7% and 29.0% in 1997 and 1998, respectively; (b) EBITDA (management          
estimates): 39.8% and 36.5% in 1997 and 1998, respectively; (c) EBIT (management
estimates): 41.5% and 38.9% in 1997 and 1998, respectively; (d) net income      
(management estimates): 42.1% and 42.6% in 1997 and 1998, respectively; (e) net 
income (IBES estimates): 39.3% and 37.3% in 1997 and 1998, respectively; (f)    
total assets based on balance sheets as of June 30, 1997: 26.4%;                

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(g) shareholders' equity based on balance sheets as of June 30, 1997: 29.9%; (h)
levered market capitalization as of September 26, 1997: 33.9%; and (i) equity   
market capitalization as of September 26, 1997: 38.9%. Goldman Sachs also       
calculated that based on the Exchange Ratio Morningstar stockholders would own  
42.4% of the fully diluted outstanding shares of the combined entity after the  
Merger.                                                                         

(ix)  HISTORICAL EXCHANGE RATIO ANALYSIS.  Goldman Sachs analyzed the   
implied historical exchange ratios of Morningstar Common Stock and Suiza Common 
Stock (calculated by dividing the price, or weighted average price, of          
Morningstar Common Stock by the price, or weighted average price, of Suiza      
Common Stock) for the following periods: closing stock prices on September 26,  
1997, and weighted average prices for the one week, two weeks, one month, two   
months, three months, six months and one year prior to September 26, 1997. Such 
analysis indicated implied exchange ratios of .74x, .76x, .78x, .79x, .79x,     
.79x, .79x, and .77x, respectively, for the periods reviewed.                 

  (x)  PRO FORMA MERGER ANALYSIS.  Goldman Sachs prepared pro forma analyses
of the financial impact of the Merger on an earnings-per-share ("EPS") basis to 
holders of Suiza Common Stock, based on a price per share of Suiza Common Stock 
of $53.94 and the Exchange Ratio, and assuming a range of pre-tax synergies     
resulting from the Merger of $0.0 to $16.0 million. Goldman Sachs noted that    
based on 1998 (a) earnings estimates provided to Goldman Sachs by the           
managements of Suiza Foods and Morningstar, the EPS impact per share of Suiza   
Common Stock ranged from 0.1% dilution to 9.6% accretion, and (b) IBES median   
EPS estimates the EPS impact per share of Suiza Common Stock ranged from 8.5%   
dilution to 2.5% accretion.                                                     

(xi)  IMPLIED MARKET TRADING PRICES AND IMPLIED PRICES TO HOLDERS OF    
MORNINGSTAR COMMON STOCK. Goldman Sachs analyzed implied per share market       
trading prices for the common stock of the combined company and implied prices  
to holders of Morningstar Common Stock. Goldman Sachs multiplied a range of     
potential 1998 P/E multiples for the common stock of the combined company by    
estimated pro forma 1998 EPS for the combined company (a) with and without an   
assumption of $14.1 million of net synergies and (b) based on 1998 EPS estimates
provided to Goldman Sachs by the managements of Suiza Foods and Morningstar and 
based on 1998 IBES median EPS estimates. Based on such assumptions, Goldman     
Sachs noted that implied prices ranged from $39.97 to $76.01. Such range of     
implied prices indicated a range of values per share of Morningstar Common Stock
(applying the Exchange Ratio) of $33.97 to $64.61.                              

The preparation of a fairness opinion is a complex process and is not   
necessarily susceptible to partial analysis or summary description. Selecting   
portions of the analyses or of the summary set forth above, without considering 
the analyses as a whole, could create an incomplete view of the processes       
underlying Goldman Sachs' opinion. In arriving at its fairness determination,   
Goldman Sachs considered the results of all such analyses. No company or        
transaction used in the above analyses as a comparison is directly comparable to
Morningstar or Suiza Foods or the contemplated transaction. The analyses were   
prepared solely for purposes of Goldman Sachs providing its opinion to the      
Morningstar Board as to the fairness of the Exchange Ratio pursuant to the      
Merger Agreement and do not purport to be appraisals or necessarily reflect the 
prices at which businesses or securities actually may be sold. Analyses based   
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by    
such analyses. Because such analyses are inherently subject to uncertainty,     
being based upon numerous factors or events beyond the control of the parties or
their respective advisors, none of Morningstar, Suiza Foods, Goldman Sachs or   
any other person assumes responsibility if future results are materially        
different from those forecast.                                                  

   As described above, Goldman Sachs' opinion to the Morningstar Board was one
of many factors taken into consideration by the Morningstar Board in making its 
determination to approve the Merger Agreement. The foregoing summary does not   
purport to be a complete description of the analyses performed by Goldman Sachs 
and is qualified by reference to the written opinion of Goldman Sachs set forth 
in Appendix C hereto.                                                           

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 Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with  
mergers and acquisitions, negotiated underwritings, competitive biddings,       
secondary distributions of listed and unlisted securities, private placements,  
and valuations for estate, corporate and other purposes. Goldman Sachs is       
familiar with Morningstar, having acted as its financial advisor in connection  
with, and having participated in certain of the negotiations leading to, the    
Merger Agreement. Morningstar selected Goldman Sachs as its financial advisor   
because it is a nationally recognized investment banking firm that has          
substantial experience in transactions similar to the Merger. Goldman Sachs     
provides a full range of financial, advisory and brokerage services and in the  
course of its normal trading activities may from time to time effect            
transactions and hold positions in the securities or options on securities of   
Morningstar and/or Suiza Foods for its own account and for the accounts of      
customers.                                                                      

    Pursuant to a letter agreement dated May 22, 1997 (the "Engagement Letter"),
Morningstar engaged Goldman Sachs to act as its financial advisor in connection 
with the Merger. Pursuant to the terms of the Engagement Letter, Morningstar has
agreed to pay Goldman Sachs, upon consummation of the Merger, a transaction fee 
of .51% of the levered consideration paid in the Merger. Morningstar has agreed 
to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including 
attorney's fees, and to indemnify Goldman Sachs against certain liabilities,    
including certain liabilities under the federal securities laws.                

ANTICIPATED ACCOUNTING TREATMENT                                                

 The Merger is expected to be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles. Under this accounting 
method, the historical financial information of Suiza Foods and Morningstar will
be restated to reflect the combined financial position and operations of both   
companies. The combined financial position and operations may be adjusted to    
conform the accounting practices of the companies. Pursuant to the Merger       
Agreement, each of Suiza Foods and Morningstar has agreed to use its            
commercially reasonable efforts to cause the Merger to qualify for "pooling of  
interests" accounting treatment. Suiza Foods has agreed to use commercially     
reasonable efforts to obtain a letter from Deloitte & Touche LLP and Morningstar
has agreed to use commercially reasonable efforts to obtain a letter from Arthur
Andersen LLP, in each case, stating that the Merger will qualify for "pooling of
interests" accounting treatment if consummated in accordance with the Merger    
Agreement. Receipt of such written opinions is a condition to the consummation  
of the Merger. However, such opinions will not be binding on the Commission.    

RESTRICTIONS ON RESALE BY AFFILIATES                                            

   The shares of Suiza Common Stock to be received by Morningstar Stockholders
in connection with the Merger will be registered under the Securities Act and,  
except as set forth in this paragraph, may be traded without restriction. The   
shares of Suiza Common Stock to be issued in connection with the Merger and     
received by persons who are deemed to be "affiliates" (as that term is defined  
in Rule 145 under the Securities Act) of Morningstar prior to the Merger may be 
resold by them only in transactions permitted by the resale provisions of Rule  
145 under the Securities Act (or, in the case of such persons who become        
affiliates of Suiza Foods, Rule 144 under the Securities Act) or as otherwise   
permitted under the Securities Act. Under guidelines published by the           
Commission, the sale or other disposition of Suiza Common Stock or Morningstar  
Common Stock by an affiliate of either Suiza Foods or Morningstar, as the case  
may be, during the period commencing 30 days prior to the Effective Time and    
ending upon the publication of financial results that include at least 30 days  
of post-Merger combined operations of Suiza Foods and Morningstar (the "Pooling 
Period") could preclude pooling of interests accounting treatment of the Merger.
Suiza Foods agreed in the Merger Agreement to use its best efforts to publish,  
by public filing or announcement, the results of at least 30 days of post-merger
combined operations of Suiza Foods and Morningstar as soon after the Effective  
Time as is commercially practicable and thereby minimize the                    

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duration of the Pooling Period. Each of Morningstar and Suiza Foods agreed in   
the Merger Agreement to use its reasonable efforts to deliver or cause to be    
delivered written agreements of each such "affiliate" to the effect that such   
person will not sell, transfer or otherwise dispose of any shares of Morningstar
Common Stock or Suiza Common Stock, as the case may be, during the Pooling      
Period and that such person will not sell, transfer or otherwise dispose of     
Suiza Common Stock at any time in violation of the Securities Act or the rules  
and regulations promulgated thereunder, including Rule 145.                     

NEW MORNINGSTAR BOARD AND MANAGEMENT FOLLOWING THE MERGER                       

    If the proposed Merger is approved and consummated, Morningstar Stockholders
will become stockholders of Suiza Foods, which will be under the direction of   
the Board of Directors and management of Suiza Foods. The directors of Sub      
immediately prior to the Effective Time will be the directors of New            
Morningstar, and the officers of Sub immediately prior to the Effective Time    
will be the officers of New Morningstar.                                        

BOARD OF DIRECTORS OF SUIZA FOODS FOLLOWING THE MERGER                          

 Following the Merger, the New Suiza Board will consist of 12 members. Two
members of the New Suiza Board will be present members of the Morningstar Board,
and the remainder of the New Suiza Board will be Suiza Foods' current directors.
Information about the two Morningstar Board members selected to serve on the New
Suiza Board is set forth below:                                                 

  JOHN R. MUSE co-founded Hicks, Muse, Tate & Furst Incorporated in 1989 and
has recently been named Chief Operating Officer. Prior to the formation of Hicks
Muse, Mr. Muse headed the investment/ merchant banking activities of Prudential 
Securities for the southwestern region of the United States from 1984 to 1989.  
Prior to joining Prudential Securities, Mr. Muse served as senior vice president
and a director of Schneider, Bernet & Hickman, Inc. in Dallas from 1979 to 1983 
and was responsible for the company's investment banking activities. Prior to   
Schneider, Bernet, he was employed by Bateman, Eichler, Hill Richards in Los    
Angeles. Mr. Muse is Chairman of Atrium Companies, Inc. and Hat Brands, Inc. and
serves as a director of Morningstar, Crain Holdings Corp., Ghirardelli Chocolate
Company, Olympus Real Estate Corporation, Arnold Palmer Golf Management Co. and 
Sunrise Television Corp.                                                        

  JIM L. TURNER is the Chairman, President and Chief Executive Officer of Dr
Pepper Bottling Holdings, Inc. and Dr Pepper Bottling Company of Texas, and has 
served in such capacities since March 1985. Dr Pepper Bottling Company of Texas 
is one of the largest independent companies in the United States. Mr. Turner is 
a director of Morningstar and All American Bottling Corporation.                

Suiza Foods has also agreed to add a thirteenth member to its Board of Directors
upon completion of the Country Fresh Merger.                                    

GOVERNMENTAL APPROVALS                                                          

Under the HSR Act, and the rules promulgated thereunder by the FTC, the 
Merger may not be consummated until the following steps have been taken: (1)    
Premerger Notification and Report Forms have been submitted and certain         
information has been furnished to the FTC and the DOJ; and (2) applicable       
waiting periods have expired or been terminated.                                

    Suiza Foods and Morningstar agreed, pursuant to the Merger Agreement, to use
their respective best efforts to file or cause to be filed with the FTC and the 
DOJ such notifications as are required to be filed under the HSR Act and the    
rules and regulations promulgated thereunder, and to respond as promptly as     
practicable to any requests for additional information made by either the FTC or
the DOJ. Pursuant to such agreement, on October 21, 1997 Suiza Foods and        
Morningstar each filed Premerger Notification and Report Forms with the FTC and 
the Antitrust Division. The statutory waiting period under the HSR Act is       
scheduled to expire at 11:59 p.m. on November 20, 1997.                         

At any time before or after the consummation of the Merger and          
notwithstanding the expiration or termination of the applicable HSR Act waiting 
period, any federal or state antitrust authorities could take action under the  
antitrust laws as they deem necessary or desirable in the public interest. Such 
action could include seeking to enjoin the consummation of the Merger or seeking
divestiture of all or part of the assets                                        

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of Suiza Foods or Morningstar. Private parties may also seek to take legal      
action under the antitrust laws, if circumstances permit.                       

    If the FTC, the DOJ, or any other federal or state antitrust authority, were
to challenge the Merger, the consummation of the Merger could be postponed      
beyond February 28, 1998, in which event either Suiza Foods or Morningstar would
be entitled to terminate the Merger Agreement. See "The Merger                  
Agreement--Termination."                                                        

INTERESTS OF CERTAIN PERSONS IN THE MERGER                                      

  In considering the recommendation of the Morningstar Board with respect to
the Merger, Morningstar Stockholders should be aware that certain officers and  
directors of Morningstar have the following interests in the Merger separate    
from and in addition to their interests as Morningstar Stockholders generally.  
The Morningstar Board was aware of these interests and took them into account in
approving the Merger, the Merger Agreement and the transactions contemplated    
thereby.                                                                        

    COMPOSITION OF NEW SUIZA BOARD.  Immediately after the Effective Time, Suiza
Foods will take action necessary to create two additional seats on the Suiza    
Board and to cause two of the current directors of Morningstar to be elected to 
the Suiza Board. See "The Merger--Board of Directors of Suiza Foods Following   
the Merger."                                                                    

  STOCK OPTIONS.  The Merger Agreement provides that, at the Effective Time,
each outstanding and unexercised Morningstar Option, including those held by    
directors and executive officers, will be converted into and become a Substitute
Option to acquire shares of Suiza Common Stock as described under "The Merger   
Agreement--Consideration to be Received in the Merger." Pursuant to the terms of
the applicable Morningstar option plans, each of the outstanding and unexercised
Morningstar Options will become fully vested upon the consummation of the       
Merger.                                                                         

 The following table sets forth, in respect of the directors and executive
officers of Morningstar, (i) the number of shares of Morningstar Common Stock   
subject to the Morningstar Options held by such persons as of October 27, 1997, 
(ii) the weighted average per share exercise price of the Morningstar Options   
held by such persons and (iii) the aggregate value of the Morningstar Options   
(i.e., the aggregate market value of the shares of Morningstar Common Stock     
underlying the Morningstar Options less the aggregate exercise price with       
respect thereto) held by such persons based upon the $38.50 closing price of    
Morningstar Common Stock on October 27, 1997.                                   

                                                        [Enlarge/Download Table]

                                                             NUMBER OF OPTION  WEIGHTED AVERAGE   AGGREGATE VALUE 
                       OPTION HOLDER                            SHARES(1)       EXERCISE PRICE    OF OPTION SHARES
-----------------------------------------------------------  ----------------  -----------------  ----------------
                                                                                                                  
C. Dean Metropolous........................................       1,750,000        $   14.94      $  41,230,000.00
John R. Muse...............................................          25,000            17.90            515,000.00
Charles W. Tate............................................          25,000            17.90            515,000.00
Jim L. Turner..............................................          44,531            11.17          1,217,032.23
Ray Caldiero...............................................          16,000            23.00            248,000.00
L. Hollis Jones............................................         360,000            15.47          8,290,800.00
Darron K. Ash..............................................         116,000            15.69          2,645,960.00
Joseph B. Armes............................................          65,000            20.06          1,198,600.00
Michael J. Cramer..........................................          79,000            19.45          1,504,950.00
All directors and executive officers as a group............       2,480,531            15.37         57,365,342.23

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

(1) The option shares included in the table underlie Morningstar Options that 
are presently exercisable or will become immediately exercisable upon 
consummation of the Merger.                                           

RETENTION AND EMPLOYMENT AGREEMENTS.  Morningstar is party to executive 
retention agreements with each of Messrs. Armes, Ash and Jones that require     
Morningstar to provide certain severance benefits in the event any of these     
executives is terminated by Morningstar without "cause" (as defined in the      
applicable executive retention agreement) or voluntarily terminates his         
employment with Morningstar for "good reason" (as defined in the applicable     
executive retention agreement) in contemplation of or within                    

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180 days preceding a "change of control" (as defined in the applicable executive
retention agreement) or within three years after a change of control. The Merger
will constitute a change in control for purposes of each of the executive       
retention agreements.                                                           

    The value of the severance benefits to be paid to Mr. Armes (in the event he
is terminated or voluntarily terminates his employment under the circumstances  
described above) under his executive retention agreement is estimated to be     
approximately $330,000. The value of the severance benefits to be paid to Mr.   
Ash (in the event he is terminated or voluntarily terminates his employment     
under the circumstances described above) under his executive retention agreement
is estimated to be approximately $330,000. The value of the severance benefits  
to be paid to Mr. Jones (in the event he is terminated or voluntarily terminates
his employment under the circumstances described above) under his executive     
retention agreement is estimated to be approximately $650,000.                  

In addition to the foregoing severance benefits, the executive retention
agreements for each of Messrs. Armes and Ash provide for the payment of a       
retention bonus in the event that such executive remains employed by Morningstar
on the date of the change of control or is terminated by Morningstar without    
cause in contemplation of and within 180 days preceding the change of control.  
In each case, the amount of such retention bonus is equal to the executive's    
highest annual base salary rate plus an amount equal to the higher of the       
executive's target bonus for the fiscal year in which the termination occurs or 
the immediately preceding fiscal year. The retention bonuses are payable not    
later than three days following a change of control. As a result of the         
consummation of the Merger, each of Messrs. Armes and Ash will be entitled to   
receive a retention bonus in the amount of $217,500.                            

Each of the aforementioned executive retention agreements requires that 
Morningstar "gross-up" the applicable executive with respect to any federal     
taxes payable by such executive as a result of the payment to such executive of 
the benefits contemplated by his executive retention agreement and with respect 
to any excise taxes that become payable by such executive in respect of his     
Morningstar Options.                                                            

    Morningstar is a party to employment agreements with C. Dean Metropolous and
Michael J. Cramer (respectively, the "Metropolous Employment Agreement" and the 
"Cramer Employment Agreement") which require Morningstar to provide certain     
severance benefits to such executives. Under the Cramer Employment Agreement,   
severance benefits in an amount equal to 1.5 times Mr. Cramer's annual          
compensation (including salary, bonuses and allowances) for the last full year  
of employment, but in no event less than $200,000 shall be payable by           
Morningstar in the event Mr. Cramer is terminated by Morningstar "without cause"
(as defined in the Cramer Employment Agreement) or voluntarily terminates his   
employment with Morningstar in the event of a "change in control" (as defined in
the Cramer Employment Agreement). The Merger will constitute a change in control
for purposes of the Cramer Employment Agreement. The value of the severance     
benefits to be paid to Mr. Cramer under the Cramer Employment Agreement is      
estimated to be approximately $200,000, plus the amount of the tax gross-up     
required by such agreement. The severance benefits are payable within seven days
of any termination of Mr. Cramer by Morningstar without cause, or on the closing
date of a change in control.                                                    

   Under the Metropolous Employment Agreement, severance benefits in an amount
equal to Mr. Metropolous' aggregate compensation (current salary and bonus based
on prior year's payment) for the balance of the then existing three-year term   
shall be payable by Morningstar in the event of a "triggering event" (as defined
in the Metropolous Employment Agreement) or Mr. Metropolous terminates his      
employment with Morningstar for "good reason" (as defined in the Metropolous    
Employment Agreement) or Mr. Metropolous' employment is terminated by           
Morningstar for any reason other than for "cause" (as defined in the Metropolous
Employment Agreement) or by Mr. Metropolous' resignation or retirement. The     
value of the severance payment to be paid to Mr. Metropolous under the          
Metropolous Employment Agreement is estimated to be approximately $2,525,000,   
plus the amount of the tax gross-up required by such agreement. The severance   
benefits are payable by Morningstar on the 14th day following the termination.  

 REGISTRATION RIGHTS.  Suiza Foods has agreed to grant C. Dean Metropoulos
registration rights for a period of one year following the Effective Time with  
respect to the shares of Suiza Common Stock to be                               

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received by Mr. Metropoulos in connection with the Stock Issuance. Such         
registration rights will be subject to customary terms and conditions.          

  FINANCIAL ADVISORY FEES.  Two of Morningstar's existing directors, Charles
W. Tate and John R. Muse, are principals of Hicks Muse. Pursuant to a letter    
agreement dated June 10, 1997, Morningstar engaged Hicks Muse to provide        
financial advisory services in connection with the Merger. Pursuant to the terms
of this letter agreement, Morningstar has agreed to pay Hicks Muse, upon        
consummation of the Merger, a transaction fee of .34% of the levered            
consideration paid in the Merger. Morningstar has agreed to reimburse Hicks Muse
for its reasonable out-of-pocket expenses, including attorney's fees, and to    
indemnify Hicks Muse against certain liabilities, including certain liabilities 
under the federal securities laws.                                              

DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.  Pursuant to the
Merger Agreement, New Morningstar and Suiza Foods are obligated to indemnify,   
defend and hold harmless officers, directors and employees of Morningstar and   
its subsidiaries who were such at any time prior to the Effective Time from and 
against all losses, expenses, claims, damages or liabilities arising out of the 
transactions contemplated by the Merger Agreement to the fullest extent         
permitted or required under applicable law, and advance expenses to such        
indemnified parties subject to a customary reimbursement agreement. All         
indemnification rights of such officers, directors and employees which exist    
prior to the Effective Time will survive the Merger and New Morningstar will    
maintain in effect for not less than three years after the Effective Time, the  
current policies of directors' and officers' liability insurance with respect to
matters occurring on or prior to the Effective Time. In addition, the Merger    
Agreement provides that New Morningstar or Suiza Foods may provide substitute   
policies of at least the same coverage, provided that New Morningstar (or Suiza 
Foods, if Suiza Foods provides substitute policies) will be required to obtain  
only as much coverage as can be obtained by paying an annual premium not in     
excess of 200% of the current annual premium paid by Morningstar for its        
existing coverage. See "The Merger Agreement--Indemnification."                 

ABSENCE OF APPRAISAL RIGHTS                                                     

   Under the DGCL, the Suiza Stockholders are not entitled to appraisal rights
with respect to the Stock Issuance and the Morningstar Stockholders are not     
entitled to appraisal rights with respect to the Merger.                        

STOCK EXCHANGE LISTING                                                          

   It is a condition to the Merger that the shares of Suiza Common Stock to be
issued by Suiza Foods in connection with the Merger will have been authorized   
for listing on the NYSE, subject only to official notice of issuance. Upon      
completion of the Merger, the Morningstar Common Stock will cease to be         
authorized for trading on Nasdaq.                                               

TREATMENT OF STOCK CERTIFICATES                                                 

    After the Effective Time, each certificate previously representing shares of
Morningstar Common Stock will automatically represent, with no further action by
the holder thereof, the right to receive 0.85 shares of Suiza Common Stock for  
each share of Morningstar Common Stock represented thereby. Harris Trust &      
Savings Bank is the transfer agent and registrar (the "Exchange Agent") for the 
Suiza Common Stock. As soon as practicable after the Effective Time, the        
Exchange Agent will mail a letter of transmittal with instructions to each      
holder of record of Morningstar Common Stock outstanding immediately prior to   
the Effective Time for use in exchanging certificates formerly representing     
shares of Morningstar Common Stock for certificates representing shares of Suiza
Common Stock. Certificates should not be surrendered by any holders of          
Morningstar Common Stock until they have received the letter of transmittal from
the Exchange Agent.                                                             

    THE SUIZA BOARD AND THE MORNINGSTAR BOARD UNANIMOUSLY RECOMMEND A VOTE "FOR"
THE APPROVAL OF THE STOCK ISSUANCE AND THE MORNINGSTAR PROPOSAL, RESPECTIVELY.  

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THE MERGER AGREEMENT

  The following summary of the terms of the Merger Agreement is qualified in
its entirety by reference to the Merger Agreement, which is incorporated by     
reference herein and attached as Appendix A to this Joint Proxy                 
Statement/Prospectus.                                                           

GENERAL                                                                         

The Merger Agreement contemplates the Merger of Sub with and into       
Morningstar, with Morningstar surviving the Merger as a wholly owned subsidiary 
of Suiza Foods. The Merger will become effective when the Certificate of Merger 
is filed with the Secretary of State of the State of Delaware. It is anticipated
that such filing will be made promptly after the closing under the Merger       
Agreement, which closing, in turn, should occur as soon as practicable after the
last of the conditions precedent to the Merger set forth in the Merger Agreement
has been satisfied or waived. The Merger Agreement obligates Suiza Foods to have
the shares of Suiza Common Stock to be issued in connection with the Merger     
approved for listing on the NYSE, subject only to official notice of issuance,  
prior to the Effective Time.                                                    

CONSIDERATION TO BE RECEIVED IN THE MERGER                                      

   At the Effective Time, (a) each issued and outstanding share of Morningstar
Common Stock (excluding shares held in the treasury of Morningstar or shares    
owned by Suiza Foods, Sub or any other subsidiary of Suiza Foods) will be       
converted into the right to receive 0.85 shares of Suiza Common Stock, (b) each 
share of Morningstar Common Stock held in the treasury of Morningstar or owned  
by Suiza Foods, Sub or any other subsidiary of Suiza Foods will be canceled and 
retired, (c) all of the issued and outstanding shares of common stock of Sub    
will be converted into and become, in the aggregate, 10,000 fully paid and      
nonassessable shares of common stock of New Morningstar and (d) each outstanding
and unexercised Morningstar Option will be assumed by Suiza Foods and converted 
into a Substitute Option. The number of shares of Suiza Common Stock to be      
subject to a Substitute Option will be determined by multiplying the number of  
shares of Morningstar Common Stock subject to the related Morningstar Option by 
the Exchange Ratio (rounded down to the nearest whole share), and the per share 
exercise price with respect thereto will equal the per share exercise price of  
the related Morningstar Option divided by the Exchange Ratio (rounded up to the 
nearest full cent). Each Substitute Option will be subject to all of the other  
terms and conditions of the Morningstar Option to which it relates. No          
Morningstar Option will be accelerated by reason of the Merger to the extent the
Morningstar Board has discretion to make a determination to cause such          
acceleration.                                                                   

  As soon as practicable after the Effective Time, Suiza Foods will cause to
be included under a registration statement on Form S-8 of Suiza Foods all shares
of Suiza Common Stock that are subject to Substitute Options and will maintain  
the effectiveness of such registration statement until all Substitute Options   
have been exercised, expired or forfeited.                                      

  For a further discussion of the treatment of Morningstar Options and other
employee benefit plans of Morningstar under the Merger Agreement, see "The      
Merger--Interests of Certain Persons in the Merger."                            

EFFECTIVE TIME OF THE MERGER                                                    

    Subject to the terms and conditions of the Merger Agreement, the Merger will
become effective at the date and time when the Certificate of Merger is filed   
with the Secretary of State of the State of Delaware. The Certificate of Merger 
will be filed as soon as practicable following fulfillment of the conditions    
precedent of the Merger Agreement. See "--Conditions Precedent."                

EXCHANGE OF SHARES                                                              

  Suiza Foods has selected Harris Trust & Savings Bank as the Exchange Agent
for the Merger. As soon as practicable after the Effective Time, Suiza Foods    
will make available, and each Morningstar Stockholder                           

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will be entitled to receive, upon surrender to the Exchange Agent of one or more
certificates ("Certificates") representing shares of Morningstar Common Stock   
for cancellation, certificates representing the number of shares of Suiza Common
Stock into which such shares were converted in the Merger and cash in           
consideration of fractional shares (the "Share Consideration"). Holders of      
unexchanged shares of Morningstar Common Stock will not be entitled to receive  
any dividends or other distributions payable by Suiza Foods until their         
Certificates are surrendered. Upon surrender, however, such holders will receive
accumulated dividends and distributions without interest, together with cash in 
lieu of fractional shares. Holders of unexchanged shares of Morningstar Common  
Stock will have no further claim upon the Exchange Agent twelve months after the
Effective Time and thereafter will look only to Suiza Foods and New Morningstar 
for payment of the Share Consideration in respect of their shares of Morningstar
Common Stock.                                                                   

Fractional shares of Suiza Common Stock will not be issued to holders of
Morningstar Common Stock. For each fractional share of Suiza Common Stock that  
would otherwise be issued, the holder will receive, in lieu thereof, cash in an 
amount equal to such fractional part of a share of Suiza Common Stock multiplied
by the average of the daily closing sale prices for the Suiza Common Stock for  
the twenty (20) consecutive trading days on which such shares are actually      
traded on the NYSE ending at the close of trading on the second trading day     
immediately preceding the Effective Date.                                       

CORPORATE ORGANIZATION AND GOVERNANCE                                           

  CERTIFICATE OF INCORPORATION.  The Morningstar Charter as in effect at the
Effective Time will be the Charter of New Morningstar, and thereafter may be    
amended in accordance with its terms and as provided by law and the Merger      
Agreement.                                                                      

  BYLAWS.  The Morningstar Bylaws as in effect at the Effective Time will be
the Bylaws of New Morningstar, and thereafter may be amended in accordance with 
their terms and as provided by law and the Merger Agreement.                    

    BOARD OF DIRECTORS; OFFICERS.  The directors of Sub immediately prior to the
Effective Time will be the directors of New Morningstar, and the officers of Sub
immediately prior to the Effective Time will be the officers of New Morningstar,
in each case, until their respective successors are duly elected and qualified. 

STOCKHOLDERS' MEETINGS                                                          

Each of Suiza Foods and Morningstar will take all action necessary in   
accordance with applicable law and its certificate of incorporation and bylaws  
to convene a meeting of its stockholders as promptly as practicable to consider 
and vote upon (i) in the case of Suiza Foods, the approval of the Stock Issuance
and (ii) in the case of Morningstar, the approval of the Merger, the Merger     
Agreement and the transactions contemplated thereby. Suiza Foods will take all  
action necessary to authorize Sub to consummate the Merger. Suiza Foods and     
Morningstar will coordinate and cooperate with respect to the timing of such    
meetings and will use their best efforts to hold such meetings on the same day. 
Each of the Suiza Board and the Morningstar Board recommends such approval and  
Suiza Foods and Morningstar will each take all lawful action to solicit such    
approval, including, without limitation, timely and promptly mailing this Joint 
Proxy Statement/Prospectus; provided, however, that such recommendation is      
subject to certain rights of the Suiza Board and the Morningstar Board under the
Merger Agreement to (i) withdraw or modify, or propose to modify or withdraw, in
a manner adverse to the other party, the approval or recommendation by such     
Board of the Merger Agreement or the Merger and (ii) approve or recommend, or   
propose to approve or recommend, an Alternative Proposal (as hereinafter        
defined). See "--No Shop" and                                                   
"--Termination."                                                                

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REPRESENTATIONS AND WARRANTIES                                                  

The Merger Agreement contains various representations and warranties of 
Suiza Foods, Morningstar and Sub, relating, among other things, to the          
following: (i) their incorporation, existence, good standing, corporate power   
and similar corporate matters; (ii) their capitalization; (iii) their           
authorization, execution, delivery and performance and the enforceability of the
Merger Agreement and related matters; (iv) the absence of conflicts, violations 
and defaults under their respective certificates of incorporation and bylaws and
certain other agreements and documents; (v) the documents and reports filed with
the Commission and the accuracy and completeness of the information contained   
therein; (vi) the absence of certain material changes or events since June 30,  
1997; (vii) pending or threatened investigations or litigation; (viii) employee 
benefit matters; (ix) the receipt of fairness opinions from their respective    
financial advisors; (x) compliance with applicable laws, ordinances and         
regulations; (xi) tax matters; (xii) accounting matters relating to the         
availability of "pooling of interests" accounting treatment; (xiii)             
relationships with their respective customers and suppliers and (xiv)           
intellectual property. Morningstar made additional representations and          
warranties as to the approval of the Merger by the Morningstar Board, its       
recommendation of the Merger and the Merger Agreement to the Morningstar        
Stockholders and its determination that the Merger is advisable and fair to and 
in the best interests of Morningstar and the Morningstar Stockholders.          

   All representations and warranties of Suiza Foods, Morningstar and Sub will
expire at the Effective Time.                                                   

CONDUCT OF BUSINESS PENDING THE MERGER                                          

SUIZA FOODS.  Suiza Foods has agreed that prior to the Effective Time,  
unless Morningstar otherwise agrees in writing or except as otherwise required  
by the Merger Agreement, it will, and will cause its subsidiaries to, carry on  
their respective businesses in the usual, regular and ordinary course in        
substantially the same manner as conducted prior to the date of the Merger      
Agreement and will, or will cause its subsidiaries to, use their reasonable     
efforts to preserve intact their present business organizations and preserve    
their relationships with customers, suppliers and others having business        
dealings with them to the end that their goodwill and ongoing businesses will be
unimpaired at the Effective Time, and not propose or agree to (i) sell or pledge
or agree to sell or pledge any capital stock owned by it in any of its          
subsidiaries or owned by any of its subsidiaries (except for certain stock      
pledged as collateral pursuant to Suiza Foods' existing credit facilities), (ii)
except as contemplated in the merger agreement for the Country Fresh Merger,    
amend the Suiza Charter or Suiza Bylaws, (iii) split, combine or reclassify its 
outstanding capital stock or issue or authorize or propose the issuance of any  
other securities in respect of, in lieu of or in substitution for shares of     
capital stock of Suiza Foods, or declare, set aside, authorize or pay any       
dividend or other distribution payable in cash, stock or property or (iv)       
directly or indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of Suiza Common Stock.                 

   Suiza Foods has also agreed that, except in connection with acquisitions of
assets or businesses that are primarily engaged in the same businesses as those 
conducted by Suiza Foods as of the date of the Merger Agreement and any         
financing transactions or issuances of securities related thereto which, in each
case, do not require the approval of Suiza Stockholders, it will not, and will  
not permit any of its subsidiaries to, (i) issue, deliver or sell or agree to   
issue, deliver or sell any additional shares of, or rights of any kind to       
acquire any shares of, its respective capital stock of any class, any           
indebtedness having the right to vote on any matter on which the Suiza          
Stockholders may vote or any options, rights or warrants to acquire, or         
securities convertible into, exercisable for or exchangeable for, shares of     
capital stock other than issuances, deliveries or sales of Suiza Foods' stock or
options, rights or warrants, to acquire Suiza Foods' stock under Suiza Foods'   
existing benefit plans; (ii) acquire, lease or dispose or agree to acquire,     
lease or dispose of any capital assets or any other assets other than in the    
ordinary course of business; (iii) incur additional indebtedness or encumber or 
grant a security interest in any asset or enter into any other material         
transaction other than in each case in the ordinary course of business; (iv)    
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any                                       

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other manner, any business or any corporation, partnership, association or other
business organization or division thereof; (v) incur any material transaction   
fees, costs or expenses in addition to those disclosed to Morningstar prior to  
the execution of the Merger Agreement or (vi) enter into any contract,          
agreement, commitment or arrangement with respect to any of the foregoing.      

  Suiza Foods has further agreed (i) to use its best efforts to not, and not
to permit any of its subsidiaries to, take or cause to be taken any action,     
whether before or after the Effective Time, which would disqualify the Merger as
a "pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code and (ii) not to, and not to permit any
of its subsidiaries to, amend, modify, terminate, waive or permit to lapse any  
material right of first refusal, preferential right, right of first offer, or   
any other material right of Suiza Foods, or any of its subsidiaries, except in  
the ordinary course of business. Suiza Foods has also agreed that following the 
Effective Time, it will file all tax returns on the basis that the Merger       
qualifies as a "reorganization" within the meaning of Section 368(a)(1)(A) and  
Section 368(a)(2)(E) of the Code and that it will not take any action which is  
inconsistent with or contrary to such classification of the Merger for tax      
purposes.                                                                       

  SUB.  Sub has agreed not to engage, during the period from the date of the
Merger Agreement to the Effective Time, in any activities of any nature except  
as provided in or contemplated by the Merger Agreement.                         

MORNINGSTAR.  Morningstar has agreed that prior to the Effective Time,  
unless Suiza Foods otherwise agrees in writing or except as otherwise required  
by the Merger Agreement, it will, and will cause its subsidiaries to, carry on  
their respective businesses in the usual, regular and ordinary course in        
substantially the same manner as conducted prior to the Merger Agreement and    
will, and will cause its subsidiaries to, use their reasonable efforts to       
preserve intact their present business organizations and preserve their         
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and on-going businesses will be unimpaired  
at the Effective Time, and not propose or agree to (i) sell or pledge or agree  
to sell or pledge any capital stock owned by it in any of its subsidiaries or   
owned by any of its subsidiaries, (ii) amend the Morningstar Charter or the     
Morningstar Bylaws, (iii) split, combine or reclassify its outstanding stock or 
issue or authorize or propose the issuance of any other securities in respect   
of, in lieu of or in substitution for shares of Morningstar Common Stock, or    
declare, set aside, authorize or pay any dividend or other distribution payable 
in cash, stock or property or (iv) directly or indirectly redeem, purchase or   
otherwise acquire or agree to redeem, purchase or otherwise acquire any shares  
of Morningstar Common Stock.                                                    

    Morningstar has also agreed that it will not, and will not permit any of its
subsidiaries to, (i) issue, deliver or sell or agree to issue, deliver or sell  
any additional shares of, or rights of any kind to acquire any shares of, its   
respective stock of any class, any indebtedness having the right to vote on any 
matter on which the Morningstar Stockholders may vote or any option, rights or  
warrants to acquire, or securities convertible into, exercisable for or         
exchangeable for, shares of stock other than issuances, deliveries or sales     
pursuant to existing obligations under its option plans; (ii) acquire, lease or 
dispose or agree to acquire, lease or dispose of any capital assets or any other
assets other than in the ordinary course of business; (iii) incur additional    
indebtedness or encumber or grant a security interest in any asset or enter into
any other material transaction other than in each case in the ordinary course of
business; (iv) acquire or agree to acquire by merging or consolidating with, or 
by purchasing a substantial equity interest in, or by any other manner, any     
business or any corporation, partnership, association or other business         
organization or division thereof; (v) incur any material transaction fees, costs
or expenses in addition to those disclosed to Suiza Foods prior to the execution
of the Merger Agreement or (vi) enter into any contract, agreement, commitment  
or arrangement with respect to any of the foregoing. Morningstar has also agreed
that except as required to comply with applicable law and except as provided in 
the provisions relating to employee matters (see "--Employee Matters"), it will 
not enter into any new (or amend any existing) employee benefit plan of         
Morningstar or any new (or amend any existing) employment, severance or         
consulting agreement, grant any general increase in the compensation of current 
or former directors, officers or                                                

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employees (including any such increase pursuant to any bonus, pension,          
profit-sharing or other plan or commitment) or grant any increase in the        
compensation payable or to become payable to any director, officer or employee, 
except in any of the foregoing cases in accordance with pre-existing contractual
provisions or in the ordinary course of business consistent with past practice. 

Morningstar has further agreed not to, and not to permit any of its     
subsidiaries to, take or cause to be taken any action, whether before or after  
the Effective Time, which would disqualify the Merger as a "pooling of          
interests" for accounting purposes or as a "reorganization" within the meaning  
of Section 368(a) of the Code, or amend, modify, terminate, waive or permit to  
lapse any material right of first refusal, preferential right, right of first   
offer, or any other material right of Morningstar or any of its subsidiaries,   
except in the ordinary course of business. Morningstar has also agreed that     
following the Effective Time, it will file all tax returns on the basis that the
Merger qualifies as a "reorganization" within the meaning of Section            
368(a)(1)(A) and Section 368(a)(2)(E) of the Code and that it will not take any 
action which is inconsistent with or contrary to such classification of the     
Merger for tax purposes.                                                        

ADDITIONAL AGREEMENTS                                                           

The Merger Agreement contains certain covenants and agreements of Suiza 
Foods and Morningstar customary for transactions such as those contemplated by  
the Merger Agreement. These relate to, among other things, (i) each party       
allowing the other access, during normal business hours, to its properties,     
books, contracts, commitments and records, documents filed pursuant to          
requirements of the Commission and such other information to which the other    
party may reasonably request access, subject to existing confidentiality        
obligations; (ii) the preparation of the Registration Statement and this Joint  
Proxy Statement/Prospectus; (iii) each party using its reasonable efforts to    
deliver an affiliate letter from each of its affiliates as to the matters       
described under the caption "The Merger--Restrictions on Resales by Affiliates" 
and using commercially reasonable efforts to cause the Merger to qualify for    
"pooling of interests" accounting treatment; (iv) listing of the shares of Suiza
Common Stock to be issued in connection with the Merger by Suiza Foods on the   
NYSE, upon official notice of issuance; (v) certain employee matters; (vi)      
filing of such notifications as are required to be filed under the HSR Act and  
responding to inquiries with respect thereto; (vii) using commercially          
reasonable efforts to consummate and make effective the transactions            
contemplated by the Merger Agreement, including the use of commercially         
reasonable efforts to obtain all necessary waivers, consents and approvals, to  
effect all necessary registrations and filings and to lift any injunction to the
Merger; (viii) conducting its business in a manner which would not disqualify   
the Merger as a "pooling of interests" for accounting purposes; (ix) filing tax 
returns on the basis that the Merger qualifies as a "reorganization" within the 
meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code and taking 
no actions inconsistent with or contrary to such classification of the Merger   
for tax purposes; (x) advising the other party orally and in writing of any     
change or event that has had, or could have, a material adverse effect on such  
party and providing copies of all filings made by such party with the Commission
or any court, administrative agency or commission or other governmental         
authority or instrumentality, domestic or foreign, in connection with the Merger
Agreement and other transactions contemplated thereby and (xi) the appointment  
of two of the current directors of Morningstar to the New Suiza Board.          

 Suiza Foods has agreed to use commercially reasonable efforts to obtain a
letter from Deloitte & Touche LLP and Morningstar has agreed to use commercially
reasonable efforts to obtain a letter from Arthur Andersen LLP, in each case,   
stating that the Merger qualifies for "pooling of interests" accounting         
treatment if consummated in accordance with the Merger Agreement.               

   Suiza Foods has agreed to use its best efforts to publish, by public filing
or announcement, the results of at least 30 days of combined operations of Suiza
Foods and Morningstar as soon after the Effective Time as is commercially       
practicable.                                                                    

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EMPLOYEE MATTERS                                                                

   The Merger Agreement provides that, as of the Effective Time, the employees
of Morningstar and each subsidiary will continue employment with New Morningstar
and its subsidiaries, respectively, in the same positions and at the same level 
of wages and/or salary and without having incurred a termination of employment  
or separation from service; provided, however, that except as may be            
specifically required by applicable law or any contract, New Morningstar and its
subsidiaries will not be obligated to continue any employment relationship with 
any employee for any specific period of time. Except with respect to the stock  
option plans to be assumed by Suiza Foods as provided in the Merger Agreement,  
as of the Effective Time, New Morningstar will be the sponsor of the employee   
benefit plans sponsored by Morningstar immediately prior to the Effective Time, 
and Suiza Foods will cause New Morningstar and its subsidiaries to satisfy all  
obligations and liabilities under such employee benefit plans; provided,        
however, that, except as contemplated by the Merger Agreement, nothing contained
in the Merger Agreement will limit or restrict New Morningstar's right on or    
after the Effective Time to amend, modify or terminate any of such employee     
benefit plans. To the extent any employee benefit plan, program or policy of    
Suiza Foods, New Morningstar, or their affiliates is made available to any      
person who is an employee of Morningstar or any of its subsidiaries immediately 
prior to the Effective Time: (i) service with Morningstar and its subsidiaries  
by any employee prior to the Effective Time will be credited for eligibility and
vesting purposes and for purposes of qualifying for any additional benefits tied
to periods of service (such as higher rates of matching contributions and       
eligibility for early retirement) under such plan, program or policy, but not   
for benefit accrual purposes (except for disability, vacation and severance,    
with respect to which service with Morningstar and its subsidiaries will be     
credited for benefit accrual purposes) and (ii) with respect to any benefit     
plans to which such employees may become eligible, Suiza Foods will cause such  
plans to provide credit for any co-payments or deductibles by such employees and
waive all pre-existing condition exclusions and waiting periods, other than     
limitations or waiting periods that have not been satisfied under any benefit   
plans maintained by Morningstar and its subsidiaries for their employees prior  
to the Effective Time.                                                          

INDEMNIFICATION                                                                 

  From and after the Effective Date, New Morningstar and Suiza Foods will be
required to indemnify, defend and hold harmless the officers, directors and     
employees of Morningstar and its subsidiaries who were such at any time prior to
the Effective Time (the "Indemnified Parties") from and against all losses,     
expenses, claims, damages or liabilities arising out of the transactions        
contemplated by the Merger Agreement to the fullest extent permitted or required
under applicable law, and the Indemnified Parties will be advanced expenses     
subject to a customary reimbursement agreement. All rights to indemnification   
existing in favor of the directors, officers or employees of Morningstar as     
provided in the Morningstar Charter or the Morningstar Bylaws, as in effect on  
the date of the Merger Agreement, with respect to matters occurring through the 
Effective Time, will survive the Merger and will continue in full force and     
effect thereafter. New Morningstar will maintain in effect for not less than    
three years after the Effective Time the current policies of directors' and     
officers' liability insurance maintained by Morningstar with respect to matters 
occurring on or prior to the Effective Time. The Merger Agreement further       
provides that New Morningstar or Suiza Foods may substitute therefor policies of
at least the same coverage (with carriers comparable to Morningstar's existing  
carriers) containing terms and conditions which are not materially less         
advantageous to the Indemnified Parties, that New Morningstar will not be       
required, in order to maintain or procure such coverage, to pay an annual       
premium in excess of 200% of the current annual premium paid by Morningstar for 
its existing coverage (the "Cap") and that if equivalent coverage cannot be     
obtained, or can be obtained only by paying an annual premium in excess of the  
Cap, New Morningstar will be required only to obtain as much coverage as can be 
obtained by paying an annual premium equal to the Cap.                          

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   In the event that any action, suit, proceeding or investigation relating to
the Merger Agreement or to the transactions contemplated by the Merger Agreement
is commenced, whether before or after the Effective Time, Suiza Foods,          
Morningstar and Sub agree to cooperate and use their respective reasonable      
efforts to vigorously defend against and respond to the same.                   

NO SHOP                                                                         

  Each of Suiza Foods and Morningstar has agreed (i) that neither it nor any
of its subsidiaries will, and it will direct and use its best efforts to cause  
its officers, directors, employees, agents and representatives (including,      
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or 
indirectly, any inquiries or the making or implementation of any proposal or    
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction     
(other than, in the case of Suiza Foods, any acquisitions of assets or          
businesses that are primarily engaged in the same business as that conducted by 
Suiza Foods and its subsidiaries as of the date of the Merger Agreement and any 
financing transactions or issuances of securities related thereto which, in each
case, do not require approval by the Suiza Stockholders), involving, or any     
purchase of all or any significant portion of the assets or any equity          
securities of, such party or any of its material subsidiaries (any such proposal
or offer being hereinafter referred to as an "Alternative Proposal"), or engage 
in any negotiations concerning, or provide any confidential information or data 
to, or have any discussions with, any person relating to an Alternative         
Proposal, or release any third party from any obligations under any existing    
standstill agreement or arrangement, or enter into any agreement with respect to
an Alternative Proposal, or otherwise facilitate any effort or attempt to make  
or implement an Alternative Proposal; (ii) that it will immediately cease and   
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted prior to the date of the Merger Agreement with respect to 
any of the foregoing and (iii) that it will notify the other party with         
reasonable promptness if any such inquiries or proposals are received by, any   
such information is requested from, or any such negotiations or discussions are 
sought to be initiated or continued with, it. Notwithstanding the foregoing, the
Merger Agreement provides that each of Suiza Foods and Morningstar may, directly
or indirectly, furnish information and access to, and may participate in        
discussions and negotiate with, any corporation, partnership, person or other   
entity, if such corporation, partnership, person or other entity has submitted a
written proposal to the Board of Directors of such party relating to an         
Alternative Proposal if (i) the Board of Directors of such party believes, in   
its good faith judgment, that such Alternative Proposal is more favorable to    
such party's stockholders than the Merger and is reasonably likely to be        
consummated or (ii) the Board of Directors of such party, following consultation
with its independent legal counsel relating thereto, determines in its good     
faith judgment that failing to take such action would constitute a breach of    
such Board of Directors' fiduciary duty to its stockholders imposed by law.     

   Neither the Morningstar Board nor any committee thereof may (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Suiza Foods,   
the approval or recommendation by the Morningstar Board of the Merger Agreement 
or the Merger or (ii) approve or recommend, or propose to approve or recommend, 
any Alternative Proposal, unless (x) the Morningstar Board believes, in its good
faith judgment, that such Alternative Proposal is more favorable to the         
Morningstar Stockholders than the Merger and is reasonably likely to be         
consummated or (y) the Morningstar Board, following consultation with its       
independent legal counsel relating thereto, determines in its good faith        
judgment that failing to take such action in connection with such Alternative   
Proposal would constitute a breach of the Morningstar Board's fiduciary duty to 
the Morningstar Stockholders imposed by law.                                    

Neither the Suiza Board nor any committee thereof may (i) withdraw or   
modify, or propose to withdraw or modify, in a manner adverse to Morningstar,   
the approval or recommendation by the Suiza Board of the Merger Agreement or the
issuance of Suiza Common Stock in connection with the Merger or (ii) approve or 
recommend, or propose to approve or recommend, any Alternative Proposal, unless 
(x) the Suiza Board believes, in its good faith judgment, that such Alternative 
Proposal is more favorable to Suiza                                             

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Stockholders than the Merger and is reasonably likely to be consummated or (y)  
the Suiza Board, following consultation with its independent legal counsel      
relating thereto, determines in its good faith judgment that failing to take    
such action in connection with such Alternative Proposal would constitute a     
breach of the Suiza Board's fiduciary duty to the Suiza Stockholders imposed by 
law.                                                                            

    The Merger Agreement provides that nothing contained in the Merger Agreement
will prevent either Board from taking, and disclosing to its stockholders, a    
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act,      
provided that such Board does not recommend that its stockholders tender their  
shares in connection with any such tender offer unless such recommendation is   
permitted as described above.                                                   

CONDITIONS PRECEDENT                                                            

    The obligations of Suiza Foods, Morningstar and Sub to effect the Merger are
subject, among other things, to the fulfillment or, where permissible, waiver,  
of certain conditions, including without limitation: (i) the approval of the    
Merger, the Merger Agreement and the transactions contemplated thereby by the   
requisite vote of the Morningstar Stockholders and the approval of the Stock    
Issuance by the requisite vote of the Suiza Stockholders; (ii) the expiration or
termination of any waiting period applicable to the consummation of the Merger  
under the HSR Act; (iii) the effectiveness of the Registration Statement, the   
absence of a stop order suspending such effectiveness and the receipt of all    
necessary approvals under state securities laws relating to the issuance of     
Suiza Common Stock to be issued to Morningstar Stockholders in connection with  
the Merger; (iv) there not having been issued and in effect any preliminary or  
permanent injunction or order by any federal or state court in the United States
of competent jurisdiction prohibiting the consummation of the Merger (each of   
the parties having agreed to use all commercially reasonable efforts to have any
such injunction lifted); (v) the listing on the NYSE, subject only to official  
notice of issuance, of the shares of Suiza Common Stock to be issued pursuant to
the Stock Issuance; (vi) Morningstar having received an opinion of Weil, Gotshal
& Manges LLP and Suiza Foods having received an opinion of Hughes & Luce,       
L.L.P., in each case, that the Merger will qualify as a reorganization within   
the meaning of Section 368(a) of the Code and (vii) Morningstar having received 
a letter from Arthur Andersen LLP, and Suiza Foods and Sub having received a    
letter from Deloitte & Touche LLP, in each case, dated as of the closing date,  
to the effect that the Merger will qualify for pooling of interest accounting   
treatment if consummated in accordance with the Merger Agreement.               

 The obligation of Morningstar to effect the Merger is also subject to the
fulfillment of certain additional conditions, including (i) the accuracy of the 
representations and warranties of Suiza Foods and Sub when made and on and as of
the Effective Time, except as expressly contemplated or permitted by the Merger 
Agreement and, with respect to representations and warranties that are not      
otherwise subject to a materiality qualifier, where the inaccuracy thereof would
not, alone or in the aggregate with all such inaccuracies, have a material      
adverse effect on the business, properties, assets, condition (financial or     
otherwise), liabilities or results of operation of Suiza Foods and its          
subsidiaries, (ii) the performance in all material respects of the obligations  
and covenants of Suiza Foods and Sub under the Merger Agreement and (iii) the   
receipt of a certificate of the President and Chief Executive Officer or a Vice 
President of each of Suiza Foods and Sub to such effect.                        

  The obligation of Suiza Foods and Sub to effect the Merger is also subject
to the fulfillment of certain additional conditions, including (i) the accuracy 
of the representations and warranties of Morningstar when made and on and as of 
the Effective Time, except as expressly contemplated or permitted by the Merger 
Agreement and, with respect to representations and warranties that are not      
otherwise subject to a materiality qualifier, where the inaccuracy thereof would
not, alone or in the aggregate with all such inaccuracies, have a material      
adverse effect on the business, properties, assets, condition (financial or     
otherwise), liabilities or results of operation of Morningstar and its          
subsidiaries, (ii) the performance in all material respects of the obligations  
and covenants of Morningstar under the Merger Agreement and (iii) the receipt of
a certificate of the President and Chief Executive Officer or a Vice President  
of Morningstar to such effect.                                                  

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Prior to the Effective Time, the parties to the Merger Agreement may (i)
extend the time for the performance of any of the obligations or other acts of  
the other parties thereto, (ii) waive any inaccuracies in the representations   
and warranties contained therein or in any documents delivered pursuant thereto 
and (iii) waive compliance with any of the agreements or conditions contained   
therein.                                                                        

TERMINATION                                                                     

  The Merger Agreement may be terminated by action of either the Suiza Board
or Morningstar Board and the Merger abandoned under certain circumstances,      
including, but not limited to, the occurrence of any of the following: (i) the  
Merger has not been consummated by February 28, 1998, provided that the         
terminating party has not breached in any material respect its obligations under
the Merger Agreement in any manner that would have proximately contributed to   
the failure to consummate the Merger; (ii) the requisite approval of the Merger,
the Merger Agreement and the transactions contemplated thereby by the           
Morningstar Stockholders is not obtained; (iii) the requisite approval of the   
Stock Issuance by the Suiza Stockholders is not obtained; or (iv) a United      
States federal or state court of competent jurisdiction or United States federal
or state governmental, regulatory or administrative agency or commission shall  
have issued an order, decree or ruling or taken any other action permanently    
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action has become  
final and non-appealable, provided that the party seeking to terminate the      
Merger Agreement has used all commercially reasonable efforts to remove such    
injunction, order or decree.                                                    

   The Merger Agreement may be also terminated and the Merger may be abandoned
at any time prior to the Effective Time, by action of (a) the Suiza Board, (i)  
if the Morningstar Board has withdrawn or modified in a manner adverse to Suiza 
Foods its approval or recommendation of the Merger Agreement or the Merger or   
has recommended an Alternative Proposal with respect to Morningstar to          
Morningstar's Stockholders or (ii) Suiza Foods shall have received an           
Alternative Proposal which the Suiza Board believes, in its good faith judgment,
is more favorable to Suiza Foods' stockholders than the Merger and is reasonably
likely to be consummated or (b) the Morningstar Board, (i) if the Suiza Board   
shall have withdrawn or modified in a manner adverse to Morningstar its approval
or recommendation of the Merger Agreement or the issuance of the Suiza Common   
Stock in connection with the Merger or shall have recommended an Alternative    
Proposal with respect to Suiza Foods to Suiza Stockholders or (ii) Morningstar  
shall have received an Alternative Proposal which the Morningstar Board         
believes, in its good faith judgment, is more favorable to Morningstar          
Stockholders than the Merger and is reasonably likely to be consummated.        

The Merger Agreement may also be terminated prior to the Effective Time,
before or after approval of the Suiza Stockholders or Morningstar Stockholders, 
by the mutual consent of Suiza Foods and Morningstar.                           

In the event that (x) Suiza Foods terminates the Merger Agreement as    
described in clause (a)(i) of the second preceding paragraph or (y) Morningstar 
terminates the Merger Agreement as described in clause (b)(ii) of the second    
preceding paragraph, then, in either such case, Morningstar shall concurrently  
with such termination pay Suiza Foods a fee of $20,000,000 (a "Termination      
Fee"), which amount shall be payable by wire transfer of same day funds, and    
shall promptly reimburse Suiza Foods for all substantiated out-of-pocket costs  
and expenses incurred by Suiza Foods in connection with the Merger Agreement and
the transactions contemplated thereby, including, without limitation, costs and 
expenses of accountants, attorneys and financial advisors, up to an aggregate of
$2,000,000.                                                                     

In the event that (x) Morningstar terminates the Merger Agreement as    
described in clause (b)(i) of the third preceding paragraph or (y) Suiza Foods  
terminates the Merger Agreement as described in clause (a)(ii) of the third     
preceding paragraph, then, in either such case, Suiza Foods shall concurrently  
with such termination pay Morningstar a fee of $20,000,000 (a "Suiza Termination
Fee"), which amount shall be                                                    

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payable by wire transfer of same day funds, and shall promptly reimburse        
Morningstar for all substantiated out-of-pocket costs and expenses incurred by  
Morningstar in connection with the Merger Agreement and the transactions        
contemplated thereby, including, without limitation, costs and expenses of      
accountants, attorneys and financial advisors, up to an aggregate of $2,000,000.

   The provisions in the Merger Agreement relating to, among other things, the
effect of termination and abandonment, fees and expenses, specific performance  
and assignment will survive the termination of the Merger Agreement.            

FEES AND EXPENSES                                                               

 Whether or not the Merger is consummated, except as otherwise provided in
the Merger Agreement following the exercise of certain termination rights, all  
costs and expenses incurred in connection with the Merger Agreement and the     
transactions contemplated by the Merger Agreement will be paid by the party     
incurring such expenses. Suiza Foods and Sub on the one hand and Morningstar on 
the other hand will each be responsible for one half of all expenses relating to
printing, filing and mailing this Joint Proxy Statement/Prospectus and the      
Registration Statement and all Commission and other regulatory filing fees      
incurred in connection with this Joint Proxy Statement/Prospectus and the       
Registration Statement.                                                         

CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

 The following is a general discussion of the material U.S. federal income
tax consequences of the Merger. The discussion below with respect to holders of 
Morningstar Common Stock does not deal with special classes of investors, such  
as insurance companies, tax-exempt organizations, financial institutions,       
dealers in securities, foreign persons, persons who acquired shares of          
Morningstar Common Stock pursuant to an exercise of employee stock options or   
rights or otherwise as compensation, persons that hold shares of Morningstar    
Common Stock as part of a position in a "straddle" or as part of a "hedging" or 
"conversion" transaction for U.S. federal income tax purposes, and persons with 
a "functional currency" other than the U.S. dollar. In addition, no information 
is provided herein with respect to the tax consequences of the Merger under     
applicable foreign, state or local laws.                                        

This discussion is based on current law. Future legislative, judicial or
administrative changes or interpretations, which may be retroactive, could alter
or modify the statements set forth herein. Neither Suiza Foods nor Morningstar  
will request any ruling from the Internal Revenue Service ("IRS") as to the U.S.
federal income tax consequences of the Merger. Opinions of counsel are not      
binding on the IRS or the courts, and the IRS and the courts are not precluded  
from taking contrary positions.                                                 

   EACH MORNINGSTAR STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE        
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY    
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.        

GENERAL                                                                         

    It is a condition to the consummation of the Merger that Morningstar receive
an opinion of its tax counsel, Weil, Gotshal & Manges LLP, and that Suiza Foods 
receive an opinion of its tax counsel, Hughes & Luce, L.L.P., in each case, that
the Merger will constitute a reorganization within the meaning of Section       
368(a)(1) of the Code. In rendering these opinions, each of Weil, Gotshal &     
Manges LLP and Hughes & Luce, L.L.P. will assume the accuracy of the facts and  
statements concerning the Merger set forth in this Joint Proxy                  
Statement/Prospectus, and will receive and will rely upon representations of    
fact contained in certificates of Suiza Foods and Morningstar, including that   
(i) neither Morningstar nor Suiza Foods is aware of any plan, intention or      
obligation or commitment on the part of any holder of five percent or more of   
the Morningstar Common Stock to sell, exchange or otherwise dispose of (or to   
reduce the risk of loss by short sale or otherwise, to enter into any contract  
or arrangement with respect to, or to consent to the                            

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sale, exchange or other disposition of) Suiza Common Stock received in the      
Merger by such holder in exchange for such Morningstar Common Stock, (ii) Suiza 
Foods intends to cause Morningstar to continue Morningstar's historic business  
and use a significant portion of Morningstar's historic business assets in a    
business and (iii) after the Merger, Morningstar will hold at least 90 percent  
of the fair market value of its net assets and at least 70 percent of the fair  
market value of its gross assets held immediately prior to the Merger.          

TAX CONSEQUENCES TO SUIZA FOODS, SUB AND MORNINGSTAR                            

Based on the assumption that, at the Effective Time, the Merger will    
constitute a reorganization within the meaning of section 368(a)(1) of the Code,
no gain or loss will be recognized by Suiza Foods, Sub or Morningstar as a      
result of the Merger.                                                           

TAX CONSEQUENCES TO MORNINGSTAR STOCKHOLDERS                                    

Based on the assumption that, at the Effective Time, the Merger will    
constitute a reorganization within the meaning of section 368(a)(1) of the Code,
a Morningstar Stockholder will not recognize gain or loss on the exchange of    
Morningstar Common Stock for Suiza Common Stock pursuant to the Merger, except  
for cash received in lieu of a fractional share interest in Suiza Common Stock. 
Such holder's aggregate adjusted tax basis in the shares of Suiza Common Stock  
received in the Merger (including any fractional shares deemed received and     
exchanged for cash) will equal such holder's adjusted tax basis in the shares of
Morningstar Common Stock surrendered in exchange therefor. The holding period of
the shares of Suiza Common Stock received by each holder of Morningstar Common  
Stock in the Merger (including any fractional share interest deemed received and
exchanged for a cash payment) will include the holding period of the Morningstar
Common Stock surrendered in exchange therefor.                                  

 No fractional shares of Suiza Common Stock will be issued pursuant to the
Merger. A holder of Morningstar Common Stock who, pursuant to the Merger,       
receives cash in lieu of fractional shares of Suiza Common Stock will be treated
as having received such fractional shares of Suiza Common Stock pursuant to the 
Merger and then as having received such cash in a redemption of such fractional 
shares of Suiza Common Stock. Assuming the fractional shares of Suiza Common    
Stock are held as capital assets, the holder generally will recognize capital   
gain or loss on such deemed redemption of fractional shares equal to the        
difference between the amount of cash received and the holder's adjusted tax    
basis in the fractional shares of Suiza Common Stock deemed to have been issued.
In the case of non-corporate holders, capital gains will be mid-term gains      
subject to a maximum federal income tax rate of 28% if the holder's holding     
period is more than one year but not more than 18 months, and will be long-term 
gains subject to a maximum federal income tax rate of 20% if the holder's       
holding period is more than 18 months.                                          

COMPARISON OF THE RIGHTS OF SUIZA STOCKHOLDERS AND MORNINGSTAR STOCKHOLDERS 

If the Merger is consummated, Morningstar Stockholders will become Suiza
Stockholders, and the rights of the former Morningstar Stockholders will be     
governed by the laws of the State of Delaware (as is presently the case), the   
Suiza Charter and the Suiza Bylaws. The rights of Suiza Stockholders differ in  
certain respects from the rights of Morningstar Stockholders. The following is a
summary of the material differences between the rights of Suiza Stockholders and
Morningstar Stockholders. Because both Suiza Foods and Morningstar are organized
under the DGCL, such differences arise from differences between various         
provisions of the Suiza Charter and Suiza Bylaws, on the one hand, and the      
Morningstar Charter and Morningstar Bylaws, on the other hand. This summary does
not purport to be complete and is qualified in its entirety by reference to the 
relevant provisions of the DGCL, the Suiza Charter, the Suiza Bylaws, the       
Morningstar Charter and the Morningstar Bylaws. The Suiza Charter and the Suiza 
Bylaws are exhibits to the Registration Statement of which this Joint Proxy     
Statement/Prospectus is a part and are                                          

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incorporated herein by reference. Copies of the Morningstar Charter and the     
Morningstar Bylaws are available for inspection at its offices, and copies will 
be sent to Morningstar Stockholders upon request in the manner specified under  
the caption "Incorporation of Certain Information by Reference".                

AUTHORIZED CAPITAL                                                              

   The authorized capital stock of Suiza Foods consists of 101,000,000 shares,
of which 100,000,000 shares are Common Stock, par value $0.01 per share, and    
1,000,000 shares are Preferred Stock, par value $0.01 per share. The authorized 
capital stock of Morningstar consists of 50,000,000 shares of Common Stock, par 
value $0.01 per share, and 5,000,000 shares of Preferred Stock, par value $0.01 
per share.                                                                      

NUMBER OF DIRECTORS; ELECTION OF DIRECTORS; REMOVAL; VACANCIES                  

The DGCL permits the certificate of incorporation or the bylaws of a    
corporation to contain provisions governing the number and qualifications of    
directors. The Suiza Charter states that the number of directors shall be as set
forth in or pursuant to the Suiza Bylaws. The Suiza Bylaws state that the number
of directors shall be fixed from time to time by resolution of the board of     
directors. The Morningstar Charter provides that the number of directors        
constituting the board of directors shall be as specified in the Morningstar    
Bylaws from time to time. The Morningstar Bylaws state that the number of       
directors may be increased or decreased from time to time by resolution adopted 
by a majority of the board of directors.                                        

Under the DGCL, unless the board of directors is classified or the      
certificate of incorporation provides for cumulative voting, any director may be
removed with or without cause, by the holders of a majority of shares entitled  
to vote for the election of directors. Although the Suiza Charter does not      
permit cumulative voting, the Suiza Board is classified, being divided into     
three classes, each of which shall be as nearly equal in number as possible,    
with the directors of each class serving three year terms. Therefore, Suiza     
Stockholders may remove directors only for cause, as is provided in the Suiza   
Charter and the Suiza Bylaws. The Morningstar Board is not classified and the   
Morningstar Charter does not provide for cumulative voting. Therefore, directors
of Morningstar may be removed with or without cause by the holders of a majority
of shares entitled to vote for the election of directors.                       

    Under the DGCL, vacancies and newly created directorships may be filled by a
majority of the directors then in office or by a sole remaining director (even  
though less than a quorum) unless otherwise provided in the certificate of      
incorporation or bylaws. However, the DGCL also provides that if the directors  
then in office constitute less than a majority of the whole board, the Court of 
Chancery may, upon application of any stockholder or stockholders holding at    
least 10% of the total number of shares at the time outstanding entitled to vote
for directors, order an election of directors to be held. The Suiza Bylaws      
provide that vacancies and newly created directorships may be filled by a       
majority of the remaining or existing directors, though less than a quorum. The 
Morningstar Bylaws provide that vacancies and newly created directorships may be
filled by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director.                                                

CHARTER AMENDMENTS                                                              

Under the DGCL, a proposed amendment to the certificate of incorporation
requires a resolution adopted by the board of directors and, unless otherwise   
provided in the certificate of incorporation, the affirmative vote of the       
holders of a majority of the outstanding stock entitled to vote thereon and, if 
applicable, the affirmative vote of the holders of a majority of the outstanding
stock of each class entitled to vote thereon as a class. If any such amendment  
would adversely affect the rights of any holders of shares of a class or series 
of stock, the vote of the holders of a majority of all outstanding shares of the
class or series, voting as a class, is also necessary to authorize such         
amendment. The Suiza Charter, the Suiza Bylaws, the Morningstar Charter, and the
Morningstar Bylaws contain no provisions regarding the amendment of its         
corporation's respective certificate of incorporation.                          

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BYLAW AMENDMENTS                                                                

    Under the DGCL, the power to adopt, alter and repeal the bylaws is vested in
the stockholders, except to the extent that a corporation's certificate of      
incorporation vests it in the board of directors. However, the conferral of the 
power to adopt, alter and repeal the bylaws upon the directors does not divest  
the stockholders of their power to adopt, amend or repeal the bylaws. The Suiza 
Charter provides that the Suiza Board has authority to alter, amend or repeal   
the Suiza Bylaws or to adopt new bylaws. The Morningstar Charter grants         
authority to the Morningstar Board to adopt, amend, and repeal the Morningstar  
Bylaws.                                                                         

SPECIAL STOCKHOLDER MEETINGS                                                    

 The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by a   
corporation's certificate of incorporation or Bylaws. Both the Suiza Charter and
the Suiza Bylaws provide that special meetings of the stockholders may be called
by Suiza Foods' chief executive officer or by a majority of the members of the  
board of directors. The Morningstar Bylaws state that special meetings of       
stockholders may be called by the chairman of the board of directors (if there  
is one), the president, any vice president (if there is one), the secretary, or 
any assistant secretary (if there is one) and shall be called by any such       
officer at the request in writing of a majority of the board of directors or at 
the request in writing of stockholders owning a majority of the capital stock of
Morningstar issued and outstanding and entitled to vote.                        

BUSINESS COMBINATIONS                                                           

Under the DGCL, the approval by the affirmative vote of the holders of a
majority of the outstanding stock of a corporation entitled to vote on the      
matter generally is required for a merger, consolidation or sale, lease or      
exchange of all or substantially all the corporation's assets to be consummated.
The Suiza Charter, the Suiza Bylaws, the Morningstar Charter, and the           
Morningstar Bylaws do not provide for supermajority voting requirements relating
to business combinations.                                                       

STATE TAKEOVER LEGISLATION                                                      

Section 203 of the DGCL generally prohibits a Delaware corporation from 
engaging in a "Business Combination" (defined as a variety of transactions,     
including mergers, asset sales, issuance of stock and other transactions        
resulting in a financial benefit to the Interested Stockholder) with an         
"Interested Stockholder" (defined generally as a person that is the beneficial  
owner of 15% or more of a corporation's outstanding voting stock) for a period  
of three years following the date that such person became an Interested         
Stockholder unless:                                                             

       (i) prior to the date such person became an Interested Stockholder, the
board of directors of the corporation approved either the Business      
   Combination or the transaction that resulted in the stockholder becoming an
Interested Stockholder;                                                 

(ii) upon consummation of the transaction that resulted in the  
  stockholder becoming an Interested Stockholder, the Interested Stockholder
    owned at least 85% of the voting stock of the corporation outstanding at the
 time the transaction commenced, excluding stock held by directors who are
   also officers of the corporation and employee stock ownership plans that do
not provide employees with the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or                                                               

   (iii) on or subsequent to the date such person became an Interested
   Stockholder, the Business Combination is approved by the board of directors
  of the corporation and authorized at a meeting of stockholders, and not by
   written consent, by the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of the corporation not owned by the     
Interested Stockholder.                                                 

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   A corporation may adopt an amendment to its certificate of incorporation or
Bylaws expressly electing not to be governed by Section 203 of the DGCL if, in  
addition to any other vote required by law, such amendment is approved by the   
affirmative vote of a majority of the shares entitled to vote. However, such    
amendment generally will not be effective until 12 months after adoption of such
amendment and will not apply to a Business Combination with an Interested       
Stockholder who was such on or prior to the adoption of the amendment. The Suiza
Charter, the Suiza Bylaws, the Morningstar Charter, and the Morningstar Bylaws  
contain no provisions that exempt Suiza Foods or Morningstar from the           
prohibitions of Section 203.                                                    

INDEMNIFICATION OF DIRECTORS AND OFFICERS                                       

    Under the DGCL, a corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed     
action, suit or proceeding, whether civil, criminal, administrative or          
investigative (other than an action by or in the right of the corporation) by   
reason of the fact that such person is or was a director, officer, employee or  
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,  
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably  
incurred by such person in connection with such action, suit or proceeding if   
such person acted in good faith and in a manner he reasonably believed to be in 
or not opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct   
was unlawful.                                                                   

   The DGCL permits similar indemnification in the case of derivative actions,
except that no indemnification may be made in respect of any claim, issue or    
matter as to which such person shall have been adjudged to be liable to the     
corporation unless and only to the extent that the Court of Chancery or the     
court in which such action or suit was brought shall determine upon application 
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper. A   
director or officer who is successful, on the merits or otherwise, in defense of
any proceeding subject to the DGCL's indemnification provisions must be         
indemnified by the corporation for reasonable expenses incurred in connection   
therewith, including attorneys' fees. Both the Suiza Charter and the Morningstar
Charter provide that their corporation's respective directors and officers      
shall, and their respective employees and agents may, be indemnified to the     
fullest extent authorized by the DGCL. However, the Morningstar Bylaws provide  
that Morningstar shall indemnify its directors, officers, employees, and agents.

LIMITATION OF PERSONAL LIABILITY OF DIRECTORS                                   

The DGCL provides that a corporation's certificate of incorporation may 
include a provision limiting the personal liability of a director to the        
corporation or its stockholders for monetary damages for breach of fiduciary    
duty as a director. However, no such provision can limit the liability of a     
director for (i) any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) acts or omissions not in good faith or which involve  
intentional misconduct or a knowing violation of the law, (iii) violation of    
certain provisions of the DGCL, (iv) any transaction from which the director    
derived an improper personal benefit or (v) any act or omission prior to the    
adoption of such a provision in the certificate of incorporation. The Suiza     
Charter provides for the limitation of the personal liability of its directors  
in accordance with the provisions of the DGCL. However, such provisions do not  
limit the availability of equitable relief to Suiza Foods or Suiza Stockholders.
The Morningstar Charter also provides for limitation of the liability of        
Morningstar's directors in accordance with the provisions of the DGCL.          

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SUIZA PREFERRED STOCK                                                           

The Suiza Charter authorizes the Suiza Board to issue preferred stock in
classes or series and to establish the designations, preferences,               
qualifications, limitations or restrictions of any class or series. Suiza Foods 
may issue, without the approval of the holders of Suiza Common Stock, preferred 
stock that has voting, dividend or liquidation rights superior to the Suiza     
Common Stock and that may adversely affect the rights of holders of Suiza Common
Stock. The issuance of preferred stock, while providing flexibility in          
connection with possible acquisitions and for other corporate purposes, could,  
among other things, adversely affect the voting power of the holders of Suiza   
Common Stock and could have the effect of delaying, deferring or preventing a   
change in control of Suiza Foods.                                               

  If the Country Fresh Merger is completed, Suiza will authorize and issue a
total of 11,691 shares of Series A Preferred Stock (the "Suiza Preferred Stock")
to holders of Country Fresh's outstanding Series A 8% Preferred Stock. A        
description of the Suiza Preferred Stock follows:                               

 STATED VALUE.  The Suiza Preferred Stock will have a stated value of $320
per share.                                                                      

  DIVIDENDS.  The holders of Suiza Preferred Stock, in preference to holders
of the Suiza Common Stock, will be entitled to receive, when, as and if declared
by the Suiza Board out of funds legally available for distribution to           
stockholders, cumulative dividends of $25.60 per share per annum, and no more.  
So long as any shares of Suiza Preferred Stock are outstanding, no dividend will
be paid or declared, no funds will be set aside for payment of dividends, and no
distribution will be made on the Suiza Common Stock or other preferred stock of 
Suiza Foods ranking junior to the Suiza Preferred Stock until all dividends     
accrued on the Suiza Preferred Stock have been paid for the current and all     
prior dividend periods.                                                         

   LIQUIDATION PREFERENCE.  Upon the liquidation, dissolution or winding up of
the affairs of Suiza Foods, whether voluntary or involuntary, the holders of    
Suiza Preferred Stock will be entitled to receive in full out of the assets of  
Suiza Foods available for distribution to stockholders, including its capital,  
before any amount will be paid to, or distributed among, the holders of Suiza   
Common Stock or other preferred stock ranking junior to the Suiza Preferred     
Stock, the sum of $320 per share, plus all accrued and unpaid dividends to the  
time of payment.                                                                

   REDEMPTION.  Shares of Suiza Preferred Stock may be redeemed, as a whole or
in part, at the option of Suiza Foods by vote of the Suiza Board at any time or 
from time to time, upon no less than 30 or more than 120 days' notice. The      
redemption price for shares of the Suiza Preferred Stock will be $320 per share 
plus accrued and unpaid dividends to the date fixed for redemption. Pro rata    
dividends on any shares of Suiza Preferred Stock to be redeemed will be deemed  
to accrue as of the date fixed for redemption.                                  

VOTING.  Each share of Suiza Preferred Stock will have one vote on all  
matters upon which holders of Suiza Common Stock are entitled to vote. Shares of
Suiza Preferred Stock and shares of Suiza Common Stock will be treated as a     
single class or series of shares for all voting purposes except to the extent a 
class or series vote is provided by law.                                        

LIMITATIONS.  In addition to other rights as may be provided under      
applicable law, without the affirmative vote of the holders of a majority of the
outstanding Suiza Preferred Stock, Suiza Foods may not authorize or create any  
class or series of stock ranking prior to the Suiza Preferred Stock with respect
to dividends or the distribution of assets in liquidation.                      

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STOCK OPTION INCREASE 

THE 1997 PLAN                                                                   

 Effective as of February 24, 1997, the Suiza Board adopted the 1997 Plan,
subject to Suiza Stockholder approval. The Suiza Stockholders approved the plan 
at the annual meeting of Suiza Stockholders held May 13, 1997.                  

The 1997 Plan provides for grants of stock options ("Options") and      
restricted stock ("Restricted Stock") to certain directors and to officers, key 
employees and consultants of Suiza Foods and its subsidiaries. The 1997 Plan is 
administered by a committee of non-employee directors designated by the Suiza   
Board (the "Stock Option Committee") or by the Suiza Board as a whole.          

  SHARES ISSUABLE UNDER THE 1997 PLAN.  A total of 1,150,000 shares of Suiza
Common Stock are currently authorized and reserved for issuance under the 1997  
Plan upon the exercise of Options or grants of Restricted Stock. Proportionate  
adjustments will be made to the number of shares of Suiza Common Stock subject  
to the 1997 Plan in the event of any recapitalization, stock dividend, stock    
split, combination of shares or other change in Suiza Common Stock. The Suiza   
Board or the Stock Option Committee may also provide additional anti-dilution   
protection to a participant under the terms of such participant's Option or     
Restricted Stock agreement. Shares of Suiza Common Stock subject to Options or  
Restricted Stock grants that are canceled, terminated or forfeited will again be
available for issuance under the 1997 Plan.                                     

   The Stock Option Committee and the Suiza Board have granted 1,100,200 stock
options under the 1997 Plan as of October 27, 1997. Approval of the Plan        
Amendment will increase the number of shares of Suiza Common Stock authorized   
for issuance under the 1997 Plan from 1,150,000 shares to 3,000,000 shares.     

  SHARES ISSUABLE UNDER OTHER PLANS.  In addition to the shares reserved for
issuance under the 1997 Plan, as of October 27, 1997, a total of 1,021,748      
shares of Suiza Common Stock are reserved for issuance upon exercise of options 
previously granted or available for future grants under the Suiza Foods 1995    
Stock Option and Restricted Plan, and a total of 369,838 shares are reserved for
issuance upon exercise of options granted under the Suiza Foods Exchange Stock  
Option and Restricted Stock Plan in connection with Suiza Foods' corporate      
reorganization in 1995. Upon consummation of the Merger, Suiza Foods will assume
Morningstar's stock option plans and all of the Morningstar Options outstanding 
thereunder, which will be converted into Substitute Options to purchase         
2,957,987 shares of Suiza Common Stock, based on the number of Morningstar      
Options outstanding on October 27, 1997. In addition, if the Country Fresh      
Merger is completed, Suiza Foods will assume Country Fresh's stock option plans 
and all of the stock options outstanding thereunder, which will be converted    
into options to purchase additional 229,068 shares of Suiza Common Stock, based 
on the number of Country Fresh options outstanding on October 27, 1997.         

ADMINISTRATION OF THE 1997 PLAN.  The Suiza Board or the Stock Option   
Committee administers the 1997 Plan and has authority to select the participants
that will be granted Options and Restricted Stock, to terminate the plan or     
accelerate vesting of Options and Restricted Stock, to determine the nature,    
extent, timing, exercise price, vesting and duration of Options and Restricted  
Stock, to prescribe all other terms and conditions consistent with the 1997     
Plan, to interpret the 1997 Plan, to establish any rules or regulations relating
to the 1997 Plan that it determines to be appropriate, and to make any other    
determination that it believes necessary or advisable for the proper            
administration of the 1997 Plan.                                                

   STOCK OPTIONS AND RESTRICTED STOCK.  From time to time, the Chief Executive
Officer of Suiza Foods will recommend to the Suiza Board or the Stock Option    
Committee individuals he or she believes should receive Options or Restricted   
Stock grants, the amount of shares of Common Stock he or she believes           

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should be subject to such Option or Restricted Stock grant, and, with respect to
any recommended Option, whether the Option should be a qualified or nonqualified
option. The Suiza Board or the Stock Option Committee will consider, but need   
not accept, the Chief Executive Officer's grant recommendations. Each           
non-employee director of Suiza Foods or its subsidiaries will receive           
nonqualified options to purchase 7,500 shares of Common Stock on each June 30   
that such director serves on the Suiza Board; provided, that such number will be
reduced to the extent (if any) that such director receives options on such date 
under an automatic grant pursuant to Suiza Food's 1995 Stock Option and         
Restricted Stock Plan. All employees of Suiza Foods, including all officers, are
eligible to participate in the 1997 Plan.                                       

  The Suiza Board or the Stock Option Committee may grant nonqualified stock
options ("Nonqualified Options") or incentive stock options under Section 422 of
the Code ("Qualified Option") to purchase shares of Suiza Common Stock. The     
Suiza Board or the Stock Option Committee will determine the number and exercise
price of the Options, and the time or times that the Options become exercisable,
provided that an Option exercise price may not be less than the fair market     
value of the Suiza Common Stock on the date of grant. The Suiza Board or the    
Stock Option Committee may award shares of Restricted Stock without requiring   
the payment of cash consideration for such shares. The term of an Option will   
also be determined by the Suiza Board or the Stock Option Committee, provided   
that the term of a Qualified Option may not exceed 10 years. The 1997 Plan      
provides that each grant of Options or Restricted Stock will vest in accordance 
with the applicable Option or Restricted Stock agreement. The Option exercise   
price may be paid in cash, or, at Suiza Foods' option, in shares of Common      
Stock.                                                                          

  TERMINATION OF EMPLOYMENT.  If a participant dies or becomes disabled, all
vested Options may be exercised at any time within one year (or their remaining 
term of the Option, if less). If a participant ceases to be a Suiza Foods'      
employee for any other reason, he or she must exercise any vested Options within
ninety days.                                                                    

   AMENDMENTS TO THE 1997 PLAN.  The Suiza Board or the Stock Option Committee
may amend or discontinue the 1997 Plan at any time, subject to certain          
restrictions set forth in the 1997 Plan. Except in limited circumstances, no    
amendment or discontinuance may adversely affect any previously granted Option  
or Restricted Stock award without the consent of the recipient thereof.         

FEDERAL INCOME TAX CONSEQUENCES                                                 

The following general description of federal income tax consequences is 
based upon current statutes, regulations and interpretations and does not       
purport to be complete. Reference should be made to the applicable provisions of
the Code. There also may be state, local and foreign income tax consequences    
applicable to transactions involving Options or Restricted Stock. In addition,  
the following description does not address special rules that may be applicable 
to directors and officers.                                                      

   STOCK OPTIONS.  Under existing federal income tax provisions, a participant
who receives stock options will not normally realize any income, nor will Suiza 
Foods normally receive any deduction for federal income tax purposes, upon the  
grant of an Option.                                                             

  When a Nonqualified Option granted pursuant to the 1997 Plan is exercised,
the employee generally will realize ordinary income (compensation) measured by  
the difference between the aggregate purchase price of the Suiza Common Stock as
to which the option is exercised and the aggregate fair market value of the     
Suiza Common Stock on the exercise date, and Suiza Foods generally will be      
entitled to a deduction in the year the Option is exercised equal to the amount 
the employee is required to treat as ordinary income. Any taxable income        
recognized in connection with a Nonqualified Option exercised by an optionee who
is also an employee of Suiza Foods will be subject to tax withholding by Suiza  
Foods. The basis for determining gain or loss upon a subsequent disposition of  
Common Stock acquired upon the exercise of a Nonqualified Option will be the    
purchase price paid to Suiza Foods for the Suiza Common Stock increased by an   
amount included in the optionee's taxable income resulting from the exercise of 
such option. The                                                                

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holding period for determining whether gain or loss on such subsequent          
disposition is short-term or long-term generally begins on the date on which the
optionee acquires the Suiza Common Stock.                                       

  An employee generally will not recognize any income upon the exercise of a
Qualified Option, but the amount by which the fair market value of the Suiza    
Common Stock at the time of exercise exceeds the exercise price generally will  
be considered part of alternative minimum taxable income to the employee. An    
employee will recognize capital gain or loss in the amount of the difference    
between the exercise price and the sale price on the sale or exchange of stock  
acquired pursuant to the exercise of a Qualified Option, provided that the      
employee does not dispose of such stock within two years from the date of grant 
and one year from the date of exercise of the Qualified Option (the "Required   
Holding Periods"). An employee disposing of such shares before the expiration of
the Required Holding Periods will recognize ordinary income equal to the lesser 
of (i) the difference between the option price and the fair market value of the 
stock on the date of exercise, or (ii) the total amount of gain realized. The   
remaining gain or loss is generally treated as short term or long term gain or  
loss depending on how long the shares are held. Suiza Foods will not be entitled
to a federal income tax deduction in connection with the exercise of a Qualified
Option, except where the employee disposes of the shares of Suiza Common Stock  
received upon exercise before the expiration of the Required Holding Periods.   

   RESTRICTED STOCK.  A restricted stock award is not currently taxable income
to a participant for so long as the stock is subject to a substantial risk of   
forfeiture and cannot be transferred free of forfeiture. The participant will   
generally be taxed on compensation income equal to the fair market value of the 
stock on the date the restrictions on the shares lapse, i.e., the date the      
participant becomes vested with respect to such shares.                         

 The participant may elect under Section 83(b) of the Code, however, to be
taxed immediately on the value of the shares awarded as of the date of grant.   
Such an election must be made within 30 days after the award of shares and must 
be filed with the Internal Revenue Service. If the participant makes the Section
83(b) election and subsequently forfeits his or her shares, no deduction is     
permitted with respect to the forfeiture.                                       

   The participant's tax basis in shares acquired through a stock award equals
the amount of compensation income recognized upon vesting (or upon grant, in the
case of a Section 83(b) election). Generally, if the participant subsequently   
sells the shares, any gain or loss will be capital.                             

REASONS FOR PROPOSAL                                                            

    The 1997 Plan is designed to attract and retain the best available personnel
for positions of substantial responsibility and to provide incentives to such   
personnel to promote the success of the business of Suiza Foods.                

  The Suiza Board is recommending the Plan Amendment in order to ensure that
sufficient shares are available under the 1997 Plan to reward and motivate      
existing employees and to attract new employees in the future, particularly in  
light of the rapid growth experienced by Suiza Foods since the original adoption
of the 1997 Plan and the substantial additional growth contemplated by the      
Merger and the Country Fresh Merger.                                            

INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON                        

In considering whether to vote for approval of the 1997 Plan, Suiza     
Stockholders should be aware that each of the directors and executive officers  
of Suiza Foods will be eligible for Option grants and Restricted Stock awards   
under the 1997 Plan.                                                            

THE SUIZA BOARD UNANIMOUSLY RECOMMENDS THAT THE SUIZA STOCKHOLDERS VOTE 
"FOR" APPROVAL OF THE PLAN AMENDMENT.                                           

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LEGAL MATTERS 

   The validity of the Suiza Common Stock to be issued by Suiza Foods pursuant
to the Merger will be passed upon by Hughes & Luce, L.L.P. Certain tax matters  
will be passed upon by Weil, Gotshal & Manges LLP for Morningstar and by Hughes 
& Luce, L.L.P. for Suiza Foods. A partner with Hughes & Luce, L.L.P.,           
beneficially owns 41,795 shares of Suiza Common Stock.                          

EXPERTS 

The consolidated financial statements of Suiza Foods Corporation as of  
December 31, 1996 and 1995 and for each of the three years in the period ended  
December 31, 1996; the financial statements of Pre-Acquisition Velda Farms as of
April 9, 1994 and December 31, 1994 and for the period from January 1, 1994 to  
April 9, 1994 and for the year ended December 31, 1993; the financial statements
of Swiss Dairy, a Corporation, as of December 30, 1995 and December 31, 1994 and
for each of the three years in the period ended December 30, 1995; and the      
consolidated financial statements of Country Fresh, Inc. as of March 1, 1997 and
March 2, 1996 and for each of the three years in the period ended March 1, 1997,
included in or incorporated by reference into this Prospectus have been audited 
by Deloitte & Touche LLP, independent auditors, as stated in their reports      
either appearing herein or which are incorporated herein by reference. The      
consolidated financial statements of Garrido & Compania, Inc. as of June 30,    
1996 and 1995 and for each of the years in the three year period ended June 30, 
1996 incorporated by reference into this Prospectus have been audited by KPMG   
Peat Marwick LLP, independent auditors, as stated in their report which is      
incorporated herein by reference. The financial statements of Model Dairy, Inc. 
as of October 31, 1995 and 1994 and for the years then ended incorporated by    
reference into this Prospectus have been audited by Barnard, Vogler & Co.,      
independent auditors, as stated in their report which is incorporated herein by 
reference. The financial statements of Dairy Fresh, L.P., a Delaware limited    
partnership, as of December 31, 1996 and 1995 and for the years then ended and  
the period from July 1, 1994 (date of acquisition) to December 31, 1994,        
incorporated by reference into this Prospectus have been audited by McGladrey & 
Pullen, LLP, independent auditors, as stated in their report which is           
incorporated herein by reference. The combined financial statements of The      
Garelick Companies, as of September 30, 1996 and 1995 and for each of the three 
years in the period ended September 30, 1996, incorporated by reference into    
this Prospectus have been audited by Coopers & Lybrand L.L.P., independent      
accountants, as stated in their report which is incorporated herein by          
reference. The consolidated financial statements of Morningstar, as of December 
31, 1996 and 1995 and for each of the three years in the period ended December  
31, 1996 included in or incorporated by reference into this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in 
their report with respect thereto. The combined financial statements of Presto  
Food Products, Inc. and Affiliate, as of December 31, 1995 and 1994 and for each
of the three years in the period ended December 31, 1995 incorporated by        
reference into this Prospectus have been audited by Price Waterhouse LLP,       
independent auditors, as stated in their report incorporated herein by          
reference. Such financial statements are included herein or incorporated herein 
by reference in reliance upon the respective reports of such firms given upon   
their authority as experts in accounting and auditing.                          

Representatives of Deloitte & Touche LLP and Arthur Andersen LLP will be
present at the Suiza Special Meeting and the Morningstar Special Meeting,       
respectively, and will have the opportunity to make a statement if they desire  
to do so and to respond to appropriate questions.                               

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INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

SUIZA FOODS CORPORATION                                                                   
                                                                                          
  Independent Auditors' Report.......................................................  F-2
  Consolidated Balance Sheets........................................................  F-3
  Consolidated Statements of Operations..............................................  F-4
  Consolidated Statements of Stockholders' Equity....................................  F-5
  Consolidated Statements of Cash Flows..............................................  F-6
  Notes to Consolidated Financial Statements.........................................  F-7
  Condensed Consolidated Balance Sheets.............................................. F-26
  Condensed Consolidated Statements of Operations.................................... F-27
  Condensed Consolidated Statements of Cash Flows.................................... F-28
  Notes to Condensed Consolidated Financial Statements............................... F-29

THE MORNINGSTAR GROUP INC.                                                                
  Independent Auditors' Report....................................................... F-33
  Consolidated Balance Sheets........................................................ F-34
  Consolidated Statements of Operations.............................................. F-35
  Consolidated Statements of Stockholders' Equity.................................... F-36
  Consolidated Statements of Cash Flows.............................................. F-37
  Notes to Consolidated Financial Statements......................................... F-39
  Condensed Consolidated Balance Sheets.............................................. F-56
  Condensed Consolidated Statements of Operations.................................... F-57
  Condensed Consolidated Statements of Cash Flows.................................... F-58
  Notes to Condensed Consolidated Financial Statements............................... F-60

COUNTRY FRESH, INC.                                                                       
  Independent Auditors' Report....................................................... F-62
  Consolidated Balance Sheets........................................................ F-63
  Consolidated Statements of Earnings................................................ F-64
  Consolidated Statements of Shareholders' Equity.................................... F-65
  Consolidated Statements of Cash Flows.............................................. F-66
  Notes to Consolidated Financial Statements......................................... F-67

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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, 1996 and 1995,  
and the related consolidated statements of operations, stockholders' equity and 
cash flows for each of the three years in the period ended December 31, 1996.   
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 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Suiza Foods       
Corporation and subsidiaries at December 31, 1996 and 1995, and the results of  
their operations and their cash flows for each of the three years in the period 
ended December 31, 1996, in conformity with generally accepted accounting       
principles.                                                                     

                         DELOITTE & TOUCHE LLP

                         Deloitte & Touche LLP

Dallas, Texas                                                                   

February 18, 1997                                                               

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

DECEMBER 31, 1996 AND 1995

                                                        [Enlarge/Download Table]

                                                                                              1996        1995    
                                                                                           ----------  ---------- 
                                                                                               (IN THOUSANDS)     
                                                                                                                  
                                                      ASSETS                                                      

CURRENT ASSETS:                                                                                                   
  Cash and cash equivalents............................................................... $    8,951  $    3,177 
  Accounts receivable.....................................................................     50,608      31,045 
  Inventories.............................................................................     19,228      11,346 
  Prepaid expenses and other current assets...............................................      2,754       1,380 
  Refundable income taxes.................................................................      2,312             
  Deferred income taxes...................................................................      3,672       1,448 
                                                                                           ----------  ---------- 
    Total current assets..................................................................     87,525      48,396 

PROPERTY, PLANT AND EQUIPMENT.............................................................    123,260      92,715 
DEFERRED INCOME TAXES.....................................................................      8,524             
INTANGIBLE AND OTHER ASSETS...............................................................    164,839      91,411 
                                                                                           ----------  ---------- 

    TOTAL................................................................................. $  384,148  $  232,522 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

                                       LIABILITIES AND STOCKHOLDERS' EQUITY                                       

CURRENT LIABILITIES:                                                                                              
  Accounts payable and accrued expenses................................................... $   46,664  $   31,957 
  Income taxes payable....................................................................      1,105       2,415 
  Current portion of long-term debt.......................................................     12,876      15,578 
                                                                                           ----------  ---------- 
    Total current liabilities.............................................................     60,645      49,950 

LONG-TERM DEBT............................................................................    226,693     171,745 
DEFERRED INCOME TAXES.....................................................................      3,278       1,367 
COMMITMENTS AND CONTINGENCIES.............................................................                        
STOCKHOLDERS' EQUITY:                                                                                             
  Preferred stock.........................................................................                        
  Common stock, 10,741,729 and 6,313,479 shares issued and outstanding....................        107          63 
  Additional paid-in capital..............................................................     89,337      31,023 
  Retained earnings (deficit).............................................................      4,088     (21,626)
                                                                                           ----------  ---------- 
    Total stockholders' equity............................................................     93,532       9,460 
                                                                                           ----------  ---------- 
    TOTAL................................................................................. $  384,148  $  232,522 
                                                                                           ----------  ---------- 
                                                                                           ----------  ---------- 

See notes to consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS 

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                        [Enlarge/Download Table]

                                                                             1996          1995          1994     
                                                                         ------------  ------------  ------------ 
                                                                         (DOLLARS IN THOUSANDS EXCEPT SHARE DATA) 
                                                                                                                  
NET SALES............................................................... $    520,916  $    430,466  $    341,108 
COST OF SALES...........................................................      388,548       312,633       240,468 
                                                                         ------------  ------------  ------------ 
GROSS PROFIT............................................................      132,368       117,833       100,640 
OPERATING COSTS AND EXPENSES:                                                                                     
  Selling and distribution..............................................       70,709        64,289        54,248 
  General and administrative............................................       21,913        19,277        16,935 
  Amortization of intangibles...........................................        4,624         3,703         3,697 
                                                                         ------------  ------------  ------------ 
  Total operating costs and expenses....................................       97,246        87,269        74,880 
                                                                         ------------  ------------  ------------ 
INCOME FROM OPERATIONS..................................................       35,122        30,564        25,760 
OTHER (INCOME) EXPENSE:                                                                                           
  Interest expense, net.................................................       17,470        19,921        19,279 
  Merger and other costs................................................          571        10,238         1,660 
  Other income, net.....................................................       (4,012)         (469)         (268)
                                                                         ------------  ------------  ------------ 
  Total other (income) expense..........................................       14,029        29,690        20,671 
                                                                         ------------  ------------  ------------ 
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.......................       21,093           874         5,089 
INCOME TAXES (BENEFIT)..................................................       (6,836)        2,450           844 
                                                                         ------------  ------------  ------------ 
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.................................       27,929        (1,576)        4,245 
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT....................        2,215         8,462           197 
                                                                         ------------  ------------  ------------ 
NET INCOME (LOSS)....................................................... $     25,714  $    (10,038) $      4,048 
                                                                         ------------  ------------  ------------ 
                                                                         ------------  ------------  ------------ 
NET EARNINGS (LOSS) PER SHARE:                                                                                    
  Income (loss) before extraordinary loss............................... $       2.81  $      (0.26) $       0.69 
  Extraordinary loss....................................................        (0.22)        (1.38)        (0.03)
                                                                         ------------  ------------  ------------ 
  Net income (loss)..................................................... $       2.59  $      (1.64) $       0.66 
                                                                         ------------  ------------  ------------ 
                                                                         ------------  ------------  ------------ 
WEIGHTED AVERAGE SHARES OUTSTANDING.....................................    9,921,822     6,109,398     6,156,387 
                                                                         ------------  ------------  ------------ 
                                                                         ------------  ------------  ------------ 

See notes to consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                        [Enlarge/Download Table]

                                                  COMMON STOCK         ADDITIONAL                 RETAINED              
                                            -------------------------    PAID-IN                  EARNINGS              
                                               SHARES       AMOUNT       CAPITAL     WARRANTS    (DEFICIT)     TOTAL    
                                            ------------  -----------  -----------  -----------  ----------  ---------- 
                                                                      (DOLLARS IN THOUSANDS)                            
                                                                                                                        
BALANCE, JANUARY 1, 1994...................       67,708   $       1    $  15,217    $     523   $  (15,579) $      162 
  Issuance of common stock.................       11,960                    5,677                                 5,677 
  Increase in market value of warrants.....                                                 57          (57)     --     
  Net income...............................                                                           4,048       4,048 
                                            ------------       -----   -----------       -----   ----------  ---------- 
BALANCE, DECEMBER 31, 1994.................       79,668           1       20,894          580      (11,588)      9,887 
  Issuance of common stock.................       11,832                    5,080         (580)                   4,500 
  Capital contribution (Note 11)...........                                 5,111                                 5,111 
  Net loss.................................                                                         (10,038)    (10,038)
  69 for 1 stock split (Note 11)...........    6,221,979          62          (62)                               --     
                                            ------------       -----   -----------       -----   ----------  ---------- 
BALANCE, DECEMBER 31, 1995.................    6,313,479          63       31,023       --          (21,626)      9,460 
  Issuance of common stock.................    4,428,250          44       58,314                                58,358 
  Net income...............................                                                          25,714      25,714 
                                            ------------       -----   -----------       -----   ----------  ---------- 
BALANCE, DECEMBER 31, 1996.................   10,741,729   $     107    $  89,337    $  --       $    4,088  $   93,532 
                                            ------------       -----   -----------       -----   ----------  ---------- 
                                            ------------       -----   -----------       -----   ----------  ---------- 

See notes to consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

                                                        [Enlarge/Download Table]

                                                                                1996         1995         1994    
                                                                             -----------  -----------  ---------- 
                                                                                        (IN THOUSANDS)            
                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             
  Net income (loss)......................................................... $    25,714  $   (10,038) $    4,048 
  Adjustments to reconcile net income (loss) to net cash provided by                                              
    operating activities:                                                                                         
    Depreciation............................................................       9,930        9,258       8,244 
    Amortization of intangible assets, including deferred financing costs...       5,458        4,686       4,876 
    Gain on the sale of assets..............................................         (21)        (265)       (177)
    Extraordinary loss from early extinguishment of debt....................       2,215        8,462         197 
    Merger and other nonrecurring costs.....................................         571       10,238       1,660 
    Noncash and imputed interest............................................         236        1,087         483 
    Minority interests......................................................                      101         556 
    Deferred income taxes...................................................      (8,895)        (414)        333 
    Changes in operating assets and liabilities:                                                                  
      Accounts receivable...................................................      (5,187)      (1,881)       (108)
      Inventories...........................................................      (3,346)        (599)        (73)
      Prepaid expenses and other assets.....................................        (163)       1,007        (222)
      Refundable income taxes...............................................      (2,312)                         
      Accounts payable and accrued expenses.................................         967          716       4,862 
      Income tax payable....................................................      (1,575)         649         254 
                                                                             -----------  -----------  ---------- 
      Net cash provided by operating activities.............................      23,592       23,007      24,933 
                                                                             -----------  -----------  ---------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             
  Additions to property, plant and equipment................................     (14,022)     (10,392)     (4,784)
  Proceeds from sale of property, plant and equipment.......................         500          691         245 
  Purchases of investments and other assets.................................                               (1,608)
  Cash outflows for acquisitions............................................    (111,380)      (2,425)    (61,357)
                                                                             -----------  -----------  ---------- 
    Net cash used in investing activities...................................    (124,902)     (12,126)    (67,504)
                                                                             -----------  -----------  ---------- 
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                             
  Proceeds from the issuance of debt........................................     110,550      154,505      67,585 
  Repayment of debt.........................................................     (58,304)    (154,387)    (30,906)
  Payments of deferred financing, debt restructuring and merger costs.......      (3,520)      (8,972)     (1,660)
  Issuance of common stock, net of expenses                                       58,358        4,087       5,677 
  Purchase of subsidiary preferred stock and minority interests.............                   (8,332)        (61)
                                                                             -----------  -----------  ---------- 
    Net cash provided by (used in) financing activities.....................     107,084      (13,099)     40,635 
                                                                             -----------  -----------  ---------- 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................       5,774       (2,218)     (1,936)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..............................       3,177        5,395       7,331 
                                                                             -----------  -----------  ---------- 
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................... $     8,951  $     3,177  $    5,395 
                                                                             -----------  -----------  ---------- 
                                                                             -----------  -----------  ---------- 

See notes to consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

BUSINESS.  Suiza Foods Corporation (the "Company" or "Suiza Foods") is a
manufacturer and distributor of fresh milk products, refrigerated ready-to-serve
fruit drinks and coffee in Puerto Rico; fresh milk and related dairy products in
Florida, California and Nevada; and packaged ice in Florida and the southwestern
United States.                                                                  

    On March 31, 1995, the Company became the holding company for the operations
of Suiza Holdings, L.P. and subsidiaries; Velda Holdings, L.P.; Velda Holdings, 
Inc. and subsidiaries; and Reddy Ice Corporation (collectively, the "Combined   
Entities") through the issuance of 6,313,479 shares of its common stock in      
exchange for all of the outstanding equity interests of the Combined Entities.  
The Company accounted for this combination using the pooling of interests method
of accounting, whereby the assets acquired and liabilities assumed are reflected
in the consolidated financial statements of the Company at the historical       
amounts of the Combined Entities, which, in the case of Velda Farms, only       
includes the results of operations from April 10, 1994, the date it was acquired
in a purchase business combination.                                             

    The Company and its subsidiaries provide credit terms to customers generally
ranging up to 30 days, perform ongoing credit evaluations of their customers and
maintain allowances for potential credit losses based on historical experience. 
The preparation of financial statements requires the use of significant         
estimates and assumptions by management; actual results could differ from these 
estimates. Certain prior year amounts have been reclassified to conform to      
current year presentation.                                                      

   PRINCIPLES OF CONSOLIDATION.  The consolidated financial statements include
the accounts of the Company; its U.S. operating subsidiaries, Velda Farms, Inc. 
("Velda Farms"), Swiss Dairy Corporation ("Swiss Dairy"), Model Dairy, Inc.     
("Model Dairy") and Reddy Ice Corporation ("Reddy Ice"); and its Puerto Rico    
operating subsidiaries, Suiza Dairy Corporation ("Suiza Dairy"), Suiza Fruit    
Corporation ("Suiza Fruit"), Neva Plastics Manufacturing Corp. ("Neva Plastics")
and Garrido & Compania ("Garrido") (collectively, "Suiza-Puerto Rico"). All     
significant intercompany balances and transactions are eliminated in            
consolidation.                                                                  

  INVENTORIES.  Pasteurized and raw milk inventories are stated at the lower
of average cost or market. Raw materials, spare parts and supplies, and         
merchandise for resale inventories are stated at the lower of cost, using the   
first-in, first-out ("FIFO") method, or market. Manufactured finished goods     
inventories are stated at the lower of average production cost or market.       
Production costs include raw materials, direct labor and indirect production and
overhead costs.                                                                 

   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:                      

                                                        [Enlarge/Download Table]

ASSET                                                                    USEFUL LIFE          
--------------------------------------------------------------  ------------------------------
                                                                                              
Buildings and improvements....................................         Ten to 40 years        
Machinery and equipment.......................................         Five to 20 years       
Motor vehicles................................................         Five to 15 years       
Furniture and fixtures........................................        Three to ten 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.       

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                       
INTANGIBLE ASSETS.  Intangible assets include the following intangibles 
which are amortized over their related useful lives:                            

                                                        [Enlarge/Download Table]

INTANGIBLE ASSET                                                USEFUL LIFE                   
-------------------------------------------  -------------------------------------------------
                                                                                              
Goodwill...................................  Straight-line method over 20 to 40 years         
Identifiable intangible assets:                                                               
  Customer list............................  Straight-line method over seven to ten years     
  Trademarks/trade names...................  Straight-line method over 30 years               
  Noncompetition agreements................  Straight-line method over the terms of the       
                                             agreements                                       
Deferred financing costs...................  Interest method over the terms of the related    
                                             debt (ranging from seven to 11 years)            
Organization costs.........................  Straight-line method over five years             

    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.  Since March 31, 1995, the Company's U.S. operating       
subsidiaries have been included in the consolidated tax return of the Company.  
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. Garrido is organized under the laws of the     
Commonwealth of Puerto Rico and is only required to file a separate tax return  
in Puerto Rico.                                                                 

 Effective January 1, 1996, substantially all of 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. 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.                                                                         

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                       
  Prior to March 31, 1995, the Combined Entities were separate taxpayers and
income taxes were provided for in the 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 (LOSS) PER SHARE.  The Company computes earnings per share based on
the weighted average number of common shares outstanding during the year, as    
adjusted for the stock split (Note 11), including common equivalent shares, when
dilutive.                                                                       

2. ACQUISITIONS                                                                 

  In April 1994, the Company acquired all of the outstanding common stock of
Velda Farms, Inc., a wholly owned subsidiary of The Morningstar Group, Inc. The 
total purchase price, including related acquisition and financing costs, was    
approximately $54.8 million, which was funded with the net proceeds from the    
issuance of common stock, the proceeds from the issuance of subordinated notes, 
term loan and revolving credit facility advances, and preferred stock issued to 
the seller. In connection with the refinancing of debt at the date of the       
combination, the term loan, revolving credit facility advances and preferred    
stock were repaid.                                                              

    In June 1994, the Company acquired Mayaguez Dairy, Inc. for a total purchase
price, including costs and expenses, of approximately $7.6 million, which was   
funded primarily by additional term loan borrowings of $7.0 million.            

   In November 1994, the Company acquired all of the net assets of the Florida
Division of Flav-O-Rich, Inc. The total purchase price, including related       
acquisition and financing costs, was approximately $5.9 million, which was      
funded with revolving credit agreement borrowings, along with a subordinated    
note payable to the seller and an amount payable to the seller upon the final   
purchase price settlement, which was paid subsequent to year-end.               

 In July 1996, the Company 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. In connection with this acquisition, the      
purchase agreement requires the payment of a contingent purchase price of up to 
$5.5 million based on the future performance of this operation, which will be   
accounted for as an adjustment to the purchase price when this contingency is   
resolved should a payment of all or a portion of this contingent purchase price 
be required. In addition, as a result of the adoption of the Puerto Rico        
Agricultural Tax Incentives Act of 1995, as discussed in more detail in Note 10,
the Company may be eligible for tax credits on a portion of its                 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

2. ACQUISITIONS (CONTINUED)                                                     
investment in Garrido of between $6.2 million and $8.8 million, which are       
dependent on 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, the Company 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.                                       

    In December 1996, the Company 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.     

In addition to the above acquisitions, during 1996, 1995 and 1994, the  
Company acquired certain net assets of and entered into noncompetition          
arrangements with 18 separate ice companies and two dairies for cash, including 
costs and expenses, of approximately $8.4 million in 1996, $2.4 million in 1995 
and $.3 million in 1994, along with the issuance of notes payable to the sellers
of approximately $.2 million in 1996, $.1 million in 1995 and $.4 million in    
1994, 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 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:     

                                                        [Enlarge/Download Table]

                                                                  YEAR ENDED DECEMBER 31,      
                                                             --------------------------------- 
                                                                1996       1995        1994    
                                                             ----------  ---------  ---------- 
                                                                      (IN THOUSANDS)           
                                                                                               
Purchase prices:                                                                               
  Net cash paid............................................. $  111,380  $   2,425  $   61,357 
  Subsidiary preferred stock issued                                                      3,000 
  Notes and amounts payable to seller.......................        173         91       4,495 
  Cash acquired in acquisitions.............................     14,937                    142 
                                                             ----------  ---------  ---------- 
Total purchase prices.......................................    126,490      2,516      68,994 
Fair values of net assets acquired:                                                            
  Fair values of assets acquired............................     63,598      2,317      53,590 
  Liabilities assumed.......................................    (14,076)               (10,924)
                                                             ----------  ---------  ---------- 
Total net assets acquired...................................     49,522      2,317      42,666 
                                                             ----------  ---------  ---------- 
Goodwill.................................................... $   76,968  $     199  $   26,328 
                                                             ----------  ---------  ---------- 
                                                             ----------  ---------  ---------- 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

2. ACQUISITIONS (CONTINUED)                                                     

 The following table presents unaudited pro forma results of operations of
the Company for the years ended December 31, 1995 and 1996, as if the above 1996
acquisitions had occurred at the beginning of 1995.                             

                                                        [Enlarge/Download Table]

                                                                        YEAR ENDED DECEMBER   
                                                                                31,           
                                                                       ---------------------- 
                                                                          1996        1995    
                                                                       ----------  ---------- 
                                                                       (IN THOUSANDS, EXCEPT  
                                                                          PER SHARE DATA)     
                                                                                              
Net sales............................................................. $  662,174  $  634,186 
Income before extraordinary loss......................................     30,634       2,008 
Net income (loss).....................................................     28,419      (6,454)
Earnings (loss) per share.............................................       2.86       (1.06)

    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 1995, nor do they purport to be       
indicative of the future results of operations of the Company.                  

3. ACCOUNTS RECEIVABLE                                                          

                                                        [Enlarge/Download Table]

                                                                             DECEMBER 31,     
                                                                         -------------------- 
                                                                           1996       1995    
                                                                         ---------  --------- 
                                                                            (IN THOUSANDS)    
                                                                                              
Trade customers, including route receivables............................ $  47,785  $  28,435 
Milk industry and milk price stabilization fund.........................       168      1,839 
Suppliers...............................................................       715        604 
Officers and employees..................................................       554        425 
Other...................................................................     2,594      1,090 
                                                                         ---------  --------- 
                                                                            51,816     32,393 
Less allowance for doubtful accounts....................................    (1,208)    (1,348)
                                                                         ---------  --------- 
                                                                         $  50,608  $  31,045 
                                                                         ---------  --------- 
                                                                         ---------  --------- 

4. INVENTORIES                                                                  

                                                        [Enlarge/Download Table]

                                                                             DECEMBER 31,    
                                                                         --------------------
                                                                           1996       1995   
                                                                         ---------  ---------
                                                                            (IN THOUSANDS)   
                                                                                             
Pasteurized and raw milk and raw materials.............................. $   7,693  $   4,278
Parts and supplies......................................................     5,584      3,105
Finished goods..........................................................     5,951      3,963
                                                                         ---------  ---------
                                                                         $  19,228  $  11,346
                                                                         ---------  ---------
                                                                         ---------  ---------

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

5. PROPERTY, PLANT AND EQUIPMENT                                                

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,      
                                                                       ---------------------- 
                                                                          1996        1995    
                                                                       ----------  ---------- 
                                                                           (IN THOUSANDS)     
                                                                                              
Land.................................................................. $   20,104  $   15,582 
Buildings and improvements............................................     45,016      33,264 
Machinery and equipment...............................................     63,614      47,119 
Motor vehicles........................................................     13,173       9,994 
Furniture and fixtures................................................     22,360      18,219 
                                                                       ----------  ---------- 
                                                                          164,267     124,178 
Less accumulated depreciation.........................................    (41,007)    (31,463)
                                                                       ----------  ---------- 
                                                                       $  123,260  $   92,715 
                                                                       ----------  ---------- 
                                                                       ----------  ---------- 

6. INTANGIBLE AND OTHER ASSETS                                                  

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,      
                                                                        --------------------- 
                                                                           1996       1995    
                                                                        ----------  --------- 
                                                                           (IN THOUSANDS)     
                                                                                              
Goodwill............................................................... $  155,242  $  78,503 
Identifiable intangibles...............................................     14,652     13,374 
Deferred financing costs...............................................      5,248      6,018 
Deposits and other.....................................................        724        994 
                                                                        ----------  --------- 
                                                                           175,866     98,889 
Less accumulated amortization..........................................    (11,027)    (7,478)
                                                                        ----------  --------- 
                                                                        $  164,839  $  91,411 
                                                                        ----------  --------- 
                                                                        ----------  --------- 

7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES                                        

                                                        [Enlarge/Download Table]

                                                                             DECEMBER 31,    
                                                                         --------------------
                                                                           1996       1995   
                                                                         ---------  ---------
                                                                            (IN THOUSANDS)   
                                                                                             
Accounts payable........................................................ $  31,005  $  21,689
Accrued payroll and benefits............................................     7,294      5,033
Accrued interest........................................................     1,413      1,845
Accrued insurance.......................................................     3,437      2,436
Other...................................................................     3,515        954
                                                                         ---------  ---------
                                                                         $  46,664  $  31,957
                                                                         ---------  ---------
                                                                         ---------  ---------

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

8. LONG-TERM DEBT                                                               

                                                        [Enlarge/Download Table]

                                                                            DECEMBER 31,      
                                                                       ---------------------- 
                                                                          1996        1995    
                                                                       ----------  ---------- 
                                                                           (IN THOUSANDS)     
                                                                                              
Senior Credit Facility:                                                                       
  Revolving loan facility............................................. $    8,600  $   10,900 
  Acquisition facility................................................     69,100             
  Term loans..........................................................    125,000     123,750 
Subordinated notes....................................................     36,000      51,101 
Capital lease obligations and other...................................        869       1,572 
                                                                       ----------  ---------- 
                                                                          239,569     187,323 
Less current portion..................................................    (12,876)    (15,578)
                                                                       ----------  ---------- 
                                                                       $  226,693  $  171,745 
                                                                       ----------  ---------- 
                                                                       ----------  ---------- 

    SENIOR CREDIT FACILITY.  In September 1996, the Company amended its existing
credit facility and entered into a supplemental credit facility with a group of 
lenders, including First Union National Bank of North Carolina, as agent, and   
The First National Bank of Chicago, as syndication agent, which provide for an  
aggregate senior credit facility (the "Senior Credit Facility") of $250.0       
million comprised of (i) a $130.0 million term loan facility; (ii) a $30.0      
million revolving credit facility and (iii) a $90.0 million acquisition         
facility. Under the terms of the Senior Credit Facility, the term loan is       
amortized over five and one-half years, and the revolving credit facility       
expires on March 31, 2000. Any amounts drawn under the acquisition facility that
are outstanding on September 30, 1998, will be amortized in fifteen quarterly   
installments. 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) the sum of a base rate equal to the higher of the Federal Funds rate
plus 50 basis points or First Union National Bank of North Carolina's prime     
commercial lending rate, plus a margin that varies from 0 to 75 basis points    
depending on the Company's ratio of defined indebtedness to EBITDA (as defined  
in the Senior Credit Facility); or (ii) The London Interbank Offering Rate      
("LIBOR") plus a margin that varies from 75 to 200 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 and the acquisition facility    
that ranges from 20 basis points to 37.5 basis points, based on the Company's   
ratio of defined indebtedness to EBITDA. The blended interest rate in effect at 
December 31, 1996, on the Senior Credit Facility was 7.2%.                      

  Interest is payable quarterly, and scheduled principal installments on the
term loan facilities are due in quarterly installments of approximately $2.5    
million through June 1997, increasing to $3.75 million on September 30, 1997,   
$5.0 million on September 30, 1998, $5.375 million on September 30, 1999, and   
$6.0 million on September 30, 2000, with the remaining unpaid balance due on    
March 31, 2002. Loans under the Senior Credit Facility are collateralized by    
substantially all assets.                                                       

SUBORDINATED NOTES.  On March 31, 1995, the Company issued subordinated 
notes, which carried interest rates ranging from 12% to 15%, to replace certain 
of the existing subordinated notes of the Combined Entities. 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. The remaining subordinated notes bear interest at rates ranging from 12% 
to 13.5% (12.5% on a weighted                                                   

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

8. LONG-TERM DEBT (CONTINUED)                                                   
average basis), payable on a semiannual basis in March and September of each    
year, with semiannual principal installments due in varying amounts commencing  
in 2001, with the remaining unpaid principal balances due at maturity on March  
31, 2004. The notes are subordinated to the loans under the Senior Credit       
Facility. As is discussed in Note 19, in January 1997, the Company repaid all of
the outstanding principal balances of these remaining 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 provided for interest at rates ranging from 10% to     
prime plus 1% and were payable in monthly installments of principal and interest
until maturity, when the remaining principal balance was 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 five interest rate derivative
agreements in place, which have been designated as hedges against the Company's 
variable interest rate exposure on its loans under the Senior Credit Facility.  
The first agreement, which has a notional amount of $14.0 million, matures in   
May 1997 and caps interest on LIBOR loans at 7.5%, plus the applicable LIBOR    
margin. The second and third agreements, each of which has a notional amount of 
$27.5 million and mature in June 1998, fix the interest rates on LIBOR loans at 
6.0%, plus the applicable LIBOR margin. The fourth and fifth agreements, which  
each have a notional amount of $25.0 million and mature in December 1997, fix   
the interest rates on LIBOR loans at 6.01%, plus the applicable LIBOR margin.   
These derivative agreements provide hedges for the Senior Credit Facility loans 
by limiting or fixing the LIBOR interest rates specified in the Senior Credit   
Facility (5.6% at December 31, 1996) 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 has         
designated these interest rate agreements as hedges against its interest rate   
exposure on its variable rate loans under the Senior Credit Facility.           

 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 leverage (computed as the ratio of 
the aggregate outstanding principal amount of defined indebtedness to EBITDA, as
defined), fixed charges (computed as the ratio of EBITDA to defined fixed       
charges), interest coverage (computed as the ratio of EBITDA to defined interest
expense) and minimum net worth. The Senior Credit Facility also contains        
limitations on capital expenditures, investments, the payment of dividends and  
the incurrence of additional indebtedness and requires certain mandatory        
prepayments from the proceeds of certain dispositions of property.              

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

8. LONG-TERM DEBT (CONTINUED)                                                   
SCHEDULED MATURITIES.  The scheduled maturities of long-term debt, which
include capitalized lease obligations, at December 31, 1996, were as follows (in
thousands):                                                                     

                                                                [Download Table]
                                                                             
1997..............................................................  $  12,876
1998..............................................................     19,544
1999..............................................................     24,348
2000..............................................................     34,826
2001..............................................................     29,206
Thereafter........................................................    118,769
                                                                    ---------
                                                                    $ 239,569
                                                                    ---------
                                                                    ---------

9. 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 two 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 $8.0 million, $6.3 million and $4.5 million for the years ended       
December 31, 1996, 1995 and 1994, respectively.                                 

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

                                                        [Enlarge/Download Table]

                                                                                 DECEMBER 31,     
                                                                             -------------------- 
                                                                               1996       1995    
                                                                             ---------  --------- 
                                                                                (IN THOUSANDS)    
                                                                                                  
Machinery and equipment..................................................... $     812  $   1,370 
Less accumulated amortization...............................................      (366)      (415)
                                                                             ---------  --------- 
                                                                             $     446  $     955 
                                                                             ---------  --------- 
                                                                             ---------  --------- 

 Future minimum payments at December 31, 1996, under noncancelable capital
and operating leases with terms in excess of one year are summarized below (in  
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                            CAPITAL     OPERATING 
                                                                            LEASES       LEASES   
                                                                          -----------  -----------
                                                                                                  
1997.....................................................................  $     185    $   4,539 
1998.....................................................................        152        4,006 
1999.....................................................................        112        3,188 
2000.....................................................................                   2,692 
2001.....................................................................                   2,216 
Thereafter...............................................................                   2,770 
                                                                               -----   -----------
Total minimum lease payments.............................................        449    $  19,411 
                                                                                       -----------
                                                                                       -----------
Less amount representing imputed interest................................        (27)             
                                                                               -----              
Present value of capitalized lease obligations...........................  $     422              
                                                                               -----              
                                                                               -----              

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10. INCOME TAXES                                                                

The provisions for income taxes (benefit), excluding the current tax    
benefits of $0.9 million and $0.7 million applicable to the extraordinary losses
during 1996 and 1995, respectively, are as follows:                             

                                                        [Enlarge/Download Table]

                                                                       YEAR ENDED DECEMBER 31,    
                                                                   -------------------------------
                                                                     1996       1995       1994   
                                                                   ---------  ---------  ---------
                                                                           (IN THOUSANDS)         
                                                                                                  
Current taxes payable:                                                                            
  Federal......................................................... $   1,925  $   2,763  $     491
  State...........................................................       134        101         20
Deferred income taxes.............................................    (8,895)      (414)       333
                                                                   ---------  ---------  ---------
                                                                   $  (6,836) $   2,450  $     844
                                                                   ---------  ---------  ---------
                                                                   ---------  ---------  ---------

    The following is a reconciliation of income taxes expense (benefit) reported
in the statements of operations:                                                

                                                        [Enlarge/Download Table]

                                                                   YEAR ENDED DECEMBER 31,      
                                                               -------------------------------- 
                                                                  1996       1995       1994    
                                                               ----------  ---------  --------- 
                                                                        (IN THOUSANDS)          
                                                                                                
Tax expense at statutory rates...............................  $    7,383  $     306  $   1,959 
Tax benefit from tax-exempt earnings.........................      (2,711)    (1,532)    (2,745)
Tax expense from losses not subject to taxes at the corporate                                   
  level......................................................                  1,612            
Puerto Rico tax credits......................................     (11,750)                      
Net operating loss carryforwards.............................                    188      1,344 
Nondeductible expenses.......................................                  1,841        202 
Other........................................................         242         35         84 
                                                               ----------  ---------  --------- 
                                                               $   (6,836) $   2,450  $     844 
                                                               ----------  ---------  --------- 
                                                               ----------  ---------  --------- 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10. INCOME TAXES (CONTINUED)                                                    
   The tax effects of temporary differences giving rise to deferred income tax
assets and liabilities were:                                                    

                                                        [Enlarge/Download Table]

                                                                               DECEMBER 31,     
                                                                           -------------------- 
                                                                             1996       1995    
                                                                           ---------  --------- 
                                                                              (IN THOUSANDS)    
                                                                                                
Deferred income tax assets:                                                                     
  Asset valuation reserves................................................ $     244  $     326 
  Nondeductible accruals..................................................     1,785      1,122 
  Puerto Rico tax credits.................................................    10,076            
  Net operating loss carryforwards........................................        91      1,989 
  Valuation allowance.....................................................               (1,989)
                                                                           ---------  --------- 
                                                                              12,196      1,448 
Deferred income tax liabilities:                                                                
  Depreciation............................................................    (1,174)       312 
  Amortization of intangibles.............................................    (2,177)    (1,185)
  Foreign distributions and other.........................................        73       (494)
                                                                           ---------  --------- 
                                                                              (3,278)    (1,367)
                                                                           ---------  --------- 
Net deferred income tax asset............................................. $   8,918  $      81 
                                                                           ---------  --------- 
                                                                           ---------  --------- 

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

                                                        [Enlarge/Download Table]

                                                                              DECEMBER 31,     
                                                                          -------------------- 
                                                                            1996       1995    
                                                                          ---------  --------- 
                                                                             (IN THOUSANDS)    
                                                                                               
Current assets........................................................... $   3,672  $   1,448 
Noncurrent assets........................................................     8,524            
Noncurrent liabilities...................................................    (3,278)    (1,367)
                                                                          ---------  --------- 
                                                                          $   8,918  $      81 
                                                                          ---------  --------- 
                                                                          ---------  --------- 

 The Company had established a valuation allowance for deferred tax assets
related to 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 of this subsidiary, the Company was unable to       
determine that it is more likely than not that the net deferred tax assets of   
this subsidiary would be realized. During 1996, the deferred tax asset related  
to these 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, 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 investments in its     
Puerto Rico dairy, fruit,                                                       

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

10. INCOME TAXES (CONTINUED)                                                    
plastics and Garrido operations, all of which were certified as qualified       
agricultural businesses in Puerto Rico during 1996.                             

  In connection with these investments, the Company believes that it has met
the eligible investment criteria of this act related to its investment in its   
Puerto Rico dairy subsidiary. Accordingly, in 1996, the Company recognized      
$15.75 million in tax credits related to this qualifying investment. Of this    
amount, the Company (i) sold $4.0 million of tax credits to third parties,      
resulting in a cash gain of $3.4 million (net of a discount and related         
expenses), 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.                                                                     

   The Company is currently investigating whether its $43.0 million investment
in its fruit and plastics operations will qualify for tax credits based on      
recent rulings by Puerto Rico tax authorities and has requested a formal ruling 
on the allowability of such tax credits from the Treasury Department in Puerto  
Rico. If a favorable ruling on the availability of these additional tax credits 
is obtained, the Company will recognize substantial additional tax benefits in  
the form of either a deferred tax asset or proceeds from the sale of such       
credits.                                                                        

11. STOCKHOLDERS' EQUITY                                                        

   CAPITAL SHARES.  Authorized capital shares of the Company include 1,000,000
shares of preferred stock with a par value of $.01 per share and 20,000,000     
shares of common stock with a par value of $.01 per share. There have been no   
shares of preferred stock issued by the Company. The rights and preferences of  
preferred stock are established by the Company's Board of Directors upon        
issuance. On March 31, 1995, the Company issued 6,313,479 shares of common stock
in exchange for all of the outstanding equity interests of the Combined         
Entities, 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.                                        

   COMMON STOCK SPLIT.  On February 28, 1996, the Company's 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 options and     
related prices in the notes to the consolidated financial statements have been  
restated to reflect the split.                                                  

 STOCK OFFERINGS.  On April 22, 1996, the Company 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. Following this offering, the Company had     
10,108,479 shares of common stock issued and outstanding. The public offering   
provided net cash proceeds to the Company of approximately $48.6 million. Of    
this amount, $31.1 million was used to repay senior debt, $15.7 million was used
to repay the Company's 15% subordinated notes, and $1.8 million was used to pay 
prepayment penalties related to the early extinguishment of the 15% subordinated
notes. As a result of these transactions, the Company recorded a $2.2 million   
extraordinary                                                                   

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. STOCKHOLDERS' EQUITY (CONTINUED)                                            
loss from extinguishment of debt which included $1.8 million in prepayment      
penalties and $1.3 million for the write-off of deferred financing costs related
to the repaid debt, net of a tax benefit of $0.9 million. In addition, 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. Following the     
private sale, the Company had 10,739,729 shares of common stock issued and      
outstanding. As is discussed in more detail in Note 19, in January 1997, the    
Company completed the sale of additional shares of its common stock.            

STOCK OPTION AND RESTRICTED STOCK PLANS.  In connection with the        
combination, the Company adopted an exchange option and restricted stock plan,  
whereby the outstanding stock options granted by the Combined Entities 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. At December 31, 1996,
577,760 of such options were outstanding, of which 480,450 were exercisable at  
prices ranging from $.03 to $6.79 per share. The options 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, the Company also adopted the Option and Restricted
Stock Plan (the "Plan"), which provides 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, provided that no more
than 379,500 shares may be awarded as restricted stock. Under the terms of the  
Plan, the options vest ratably over a three-year period, except for options     
granted to outside directors, which vest immediately. The 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 of the Company on the   
date of grant, not less than 110% of the fair market value. On March 31, 1995,  
the Company's Board of Directors granted 474,375 options pursuant to the Plan at
an exercise price per share of $10.51. In addition, during the remainder of     
1995, the Company granted options for an additional 3,450 shares at the same    
exercise price per share. At December 31, 1995, 477,825 options were outstanding
at an exercise price of $10.51 per share, of which 3,450 shares were            
exercisable.                                                                    

   In 1996, the Company granted options to purchase 398,153 shares at exercise
prices ranging from $12.32 to $17.50 per share. At December 31, 1996, 873,978   
options were outstanding at exercise prices ranging from $10.51 to $17.50 per   
share, of which 739,035 shares were exercisable.                                

 Effective January 1, 1997, the Board of Directors authorized the grant of
options for 141,500 shares at an exercise price of $20.25 per share.            

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                                                                 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. STOCKHOLDERS' EQUITY (CONTINUED)                                            
SFAS 123, the Company's pro forma net income (loss) and net earnings (loss) per 
common share would have been the amounts indicated below:                       

                                                        [Enlarge/Download Table]

                                                                                            YEAR ENDED DECEMBER   
                                                                                                    31,           
                                                                                           ---------------------- 
                                                                                              1996        1995    
                                                                                           ----------  ---------- 
                                                                                           (IN THOUSANDS, EXCEPT  
                                                                                                SHARE DATA)       
                                                                                                                  
Compensation cost......................................................................... $    1,697  $      765 
Net income (loss):                                                                                                
  As reported............................................................................. $   25,714  $  (10,038)
  Pro forma...............................................................................     24,611     (10,543)
Net earnings (loss) per share:                                                                                    
  As reported............................................................................. $     2.59  $    (1.64)
  Pro forma...............................................................................       2.48       (1.73)
Stock option share data:                                                                                          
  Stock options granted during period.....................................................    398,153     477,825 
  Weighted average exercise price......................................................... $    14.87  $    10.51 
  Average option compensation value (a)...................................................       8.86        6.41 

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

(a) Calculated in accordance with the Black-Scholes option pricing model, using 
the following assumptions: expected volatility of 30% to 35%; expected  
  dividend yield of 0%; expected option term of ten years and risk-free rate
   of return as of the date of grant which ranged from 5.64% to 7.15% based on
the yield of ten-year U.S. treasury securities.                         

WARRANTS.  Prior to March 31, 1995, each of the Combined Entities had   
entered into various warrant agreements with their subordinated and junior      
subordinated noteholders which granted such holders the right to purchase equity
interests in each of the companies. These warrants were exercisable, in whole or
in part, at various dates through December 31, 2005. Immediately prior to the   
combination, all warrant holders exercised their warrants to acquire equity     
interests in the Combined Entities in consideration for aggregate proceeds of   
$4.1 million and received shares of the Company's common stock in the           
combination.                                                                    

12. PENSION AND PROFIT SHARING PLANS                                            

The Company's subsidiaries each sponsor an employees savings and profit 
sharing plan. 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 the plans. The employees participating in the plans can generally
make contributions to the plans of between 6% and 8% of their annual            
compensation, and each of the subsidiaries can elect to match such              
contributions. During each of the years ended December 31, 1996, 1995 and 1994, 
the Company expensed contributions to the plans of approximately $0.8 million.  

Certain of the Company's recently acquired subsidiaries participate in  
various multiemployer union pension plans, which are administered jointly by    
management and union representatives and which sponsor most full-time and       
certain part-time union employees who are not covered by the Company's other    
plans. The pension expense for these plans approximated $0.2 million during     
1996. The Company                                                               

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

12. PENSION AND PROFIT SHARING PLANS (CONTINUED)                                
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. MERGER AND OTHER COSTS                                                      

  MERGER AND OTHER COSTS.  During 1995 and 1994, the Company incurred merger
and other costs of $10.2 million and $1.7 million, respectively, which consisted
of the costs associated with the negotiation of the merger and preparation of   
related merger documents and agreements, financial consulting costs and other   
costs related to the combination of $8.8 million and $1.4 million in 1995 and   
1994, respectively; and other non-operating costs of $1.4 million and $0.3      
million, respectively. During 1995, these other merger costs included a one-time
$0.5 million payment to cancel an existing management consulting agreement; a   
one-time tax cost of $1.5 million to convert the Company's Puerto Rico operating
subsidiaries to United States corporations; the write-off of $0.4 million in    
unamortized organization costs; and $5.1 million to recognize compensation      
expense related to the issuance of common stock in exchange for a negotiated    
profits interest (Note 12), which resulted in a capital contribution in the same
amount. Other non-operating costs included $0.3 million of bank fees in 1994    
related to the funding of bridge loans to repay certain indebtedness, and during
1995, $0.7 million of costs associated with several uncompleted acquisitions and
$0.7 million of costs associated with an uncompleted debt offering.             

During 1996, the Company expensed non-operating costs of $0.6 million in
connection with fees and expenses paid to amend its Senior Credit Facility.     

EXTRAORDINARY LOSS.  During 1996, 1995 and 1994, as a result of the     
repayment of the outstanding indebtedness, the Company expensed approximately   
$2.2 million (net of income tax benefit of $0.9 million), $8.5 million (net of  
income tax benefit of $0.7 million) and $0.2 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 Statement of Financial Accounting Standards   
No. 4, "Reporting Gains and Losses From the Extinguishment of Debt."            

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

14. SUPPLEMENTAL CASH FLOW INFORMATION                                          

                                                        [Enlarge/Download Table]

                                                                                      YEAR ENDED DECEMBER 31,    
                                                                                  -------------------------------
                                                                                    1996       1995       1994   
                                                                                  ---------  ---------  ---------
                                                                                          (IN THOUSANDS)         
                                                                                                                 
Cash paid for interest........................................................... $  16,932  $  17,226  $  16,929
Cash paid for taxes..............................................................     4,662      1,432        362
Noncash transactions:                                                                                            
  Issuance of subsidiary preferred stock in connection with acquisitions.........                           3,000
  Issuance of subordinated notes and amounts payable to the seller in connection                                 
    with acquisitions............................................................       173         91      4,495
Dividends payable or paid in additional preferred stock on subsidiary stock......                             197
  Distribution of investment and related debt in a bread bag manufacturer to                                     
    shareholders of Reddy Ice....................................................                1,534           
  Acquisition of minority interest common stock and exercise of warrants                           993           
  Compensation expense recorded as a capital contribution........................                5,111           
Subordinated notes issued in lieu of interest....................................       236        671        430

15. COMMITMENTS AND CONTINGENCIES                                               

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.                                              

 In addition, the Company is a party to employment agreements with certain
officers which provided for minimum compensation levels and incentive bonuses   
along with provisions for termination of benefits in certain circumstances. The 
Company also entered into a consulting and noncompetition arrangement with a    
former officer providing for monthly payments of $12,500 for services to be     
rendered in the future, which expires in March 1998.                            

16. 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 the combination. During the years ended December 31, 1995 and 1994, 
the Company expensed $0.2 million and $0.9 million, respectively, plus expenses 
under the provisions of these agreements, which are included in general and     
administrative expenses. In addition, the Company paid an affiliate of one of   
its stockholders investment banking fees of $1.1 million, along with related    
expenses, during the year ended December 31, 1994, for acquisition and financing
services, which were included as part of the costs and expenses of the          
acquisition.                                                                    

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

17. BUSINESS AND GEOGRAPHIC INFORMATION AND MAJOR CUSTOMERS                     

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

                                                        [Enlarge/Download Table]

                                                               YEAR ENDED DECEMBER 31,      
                                                          ----------------------------------
                                                             1996        1995        1994   
                                                          ----------  ----------  ----------
                                                                    (IN THOUSANDS)          
                                                                                            
Net sales to unaffiliated customers:                                                        
  Dairy:                                                                                    
    United States........................................ $  252,826  $  175,553  $  102,073
    Puerto Rico..........................................    215,306     204,406     191,334
                                                          ----------  ----------  ----------
                                                             468,132     379,959     293,407
  Ice--United States.....................................     52,784      50,507      47,701
                                                          ----------  ----------  ----------
  Total.................................................. $  520,916  $  430,466  $  341,108
                                                          ----------  ----------  ----------
                                                          ----------  ----------  ----------
Operating income:                                                                           
  Dairy:                                                                                    
    United States........................................ $   11,339  $    9,125  $    4,848
    Puerto Rico..........................................     16,430      14,160      12,274
                                                          ----------  ----------  ----------
                                                              27,769      23,285      17,122
  Ice--United States.....................................     11,022      10,116       8,638
  Corporate..............................................     (3,669)     (2,837)           
                                                          ----------  ----------  ----------
  Total.................................................. $   35,122  $   30,564  $   25,760
                                                          ----------  ----------  ----------
                                                          ----------  ----------  ----------
Identifiable assets (at end of period):                                                     
  Dairy:                                                                                    
    United States........................................ $  167,179  $   68,852  $   68,781
    Puerto Rico..........................................    152,198     119,977     125,207
                                                          ----------  ----------  ----------
                                                             319,377     188,829     193,988
  Ice--United States.....................................     47,096      40,519      44,964
  Corporate..............................................     17,675       3,174            
                                                          ----------  ----------  ----------
  Total.................................................. $  384,148  $  232,522  $  238,952
                                                          ----------  ----------  ----------
                                                          ----------  ----------  ----------
Capital expenditures:                                                                       
  Dairy.................................................. $   10,229  $    6,676  $    3,364
  Ice....................................................      3,715       3,573       1,420
  Corporate..............................................         78         143            
                                                          ----------  ----------  ----------
  Total.................................................. $   14,022  $   10,392  $    4,784
                                                          ----------  ----------  ----------
                                                          ----------  ----------  ----------
Depreciation expense:                                                                       
  Dairy.................................................. $    6,786  $    5,995  $    4,943
  Ice....................................................      3,115       3,263       3,301
  Corporate..............................................         29                        
                                                          ----------  ----------  ----------
  Total.................................................. $    9,930  $    9,258  $    8,244
                                                          ----------  ----------  ----------
                                                          ----------  ----------  ----------

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

18. 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, 1996 and 1995.        
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 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. In addition, the Company has entered into various interest 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. The         
following is a summary of the asset (liability) values for both the carrying    
values and fair values of such instruments:                                     

                                                        [Enlarge/Download Table]

                                                                DECEMBER 31,                  
                                               ---------------------------------------------- 
                                                        1996                    1995          
                                               ----------------------  ---------------------- 
                                               HISTORICAL              HISTORICAL             
                                                CARRYING                CARRYING              
                                                 AMOUNT    FAIR VALUE    AMOUNT    FAIR VALUE 
                                               ----------  ----------  ----------  ---------- 
                                                               (IN THOUSANDS)                 
                                                                                              
Fixed rate debt............................... $  (36,696) $  (34,036) $  (52,472) $  (53,621)
Interest rate agreements......................                   (143)                 (1,220)

19. SUBSEQUENT EVENTS                                                           

    On January 28, 1997, the Company sold 4,270,000 shares of common stock, $.01
par value per share, in a public offering at a price to the public of $22.00 per
share. Following this offering, the Company had 15,011,729 shares of common     
stock issued and outstanding. The public offering provided net cash proceeds to 
the Company of approximately $89.0 million. Of this amount, $36 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 with the remaining balance of unamortized deferred loan costs, will be    
reported as an extraordinary loss from the early extinguishment of debt in 1997.
The remainder of the net proceeds were used to repay a portion of the           
outstanding balance of the acquisition facility of the Company's Senior Credit  
Facility.                                                                       

   As discussed in Note 11, on April 22, 1996, and August 7, 1996, the Company
sold 3,795,000 shares and 625,000 shares, respectively, of its common stock,    
which provided net cash proceeds to the Company of approximately $58.4 million, 
which was used to repay existing debt. In addition, as discussed above, on      
January 28, 1997, the Company sold an additional 4,270,000 shares of its common 
stock, which provided net cash proceeds to the Company of approximately $89.0   
million, which was used to repay debt. Had these sales of common stock occurred 
on January 1, 1996, the supplemental pro forma net earnings per                 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

19. SUBSEQUENT EVENTS (CONTINUED)                                               
share before extraordinary losses from the early extinguishment of debt for the 
year ended December 31, 1996, would have decreased by $.47 to $2.34.            

20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)                                 

   The following is a summary of the unaudited quarterly results of operations
for 1996 and 1995 (dollars in thousands, except per share data):                

                                                        [Enlarge/Download Table]

                                                                                QUARTER                          
                                                       ----------------------------------------------------------
1996                                                     FIRST       SECOND      THIRD       FOURTH    FULL YEAR 
-----------------------------------------------------  ----------  ----------  ----------  ----------  ----------
                                                                                                                 
Net sales............................................  $  109,035  $  116,272  $  139,304  $  156,305  $  520,916
Gross profit.........................................      26,420      32,970      38,090      34,888     132,368
Income before extraordinary loss.....................         383       4,553      18,937       4,056      27,929
Net income...........................................         383       2,338      18,937       4,056      25,714
Earnings per common share:                                                                                       
  Income before extraordinary loss...................        0.06        0.46        1.68        0.35        2.81
  Net income.........................................        0.06        0.24        1.68        0.35        2.59

                                                        [Enlarge/Download Table]

1995                                                     FIRST       SECOND      THIRD       FOURTH    FULL YEAR  
-----------------------------------------------------  ----------  ----------  ----------  ----------  ---------- 
                                                                                                                  
Net sales............................................  $  104,876  $  110,029  $  110,549  $  105,012  $  430,466 
Gross profit.........................................      26,207      31,046      33,439      27,141     117,833 
Income (loss) before extraordinary loss..............      (9,889)      2,332       4,711       1,270      (1,576)
Net income (loss)....................................     (18,351)      2,332       4,711       1,270     (10,038)
Earnings per common share:                                                                                        
  Income (loss) before extraordinary loss............       (1.80)       0.37        0.75        0.20       (0.26)
  Net income (loss)..................................       (3.34)       0.37        0.75        0.20       (1.64)

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

 The results for the first quarter of 1995 included $8.8 million of merger
costs related to the combination along with $8.5 million of extraordinary losses
from the early extinguishment of debt repaid at the combination date.           

The results for the second quarter of 1996 include $2.2 million 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 and a tax benefit related to the        
recognition of the remaining amount of such credits of $11.8 million, partially 
offset by $0.6 million in financing costs related to the amendment of the       
Company's Senior Credit Facility.                                               

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                                 DECEMBER 31,    JUNE 30,  
                                                                                     1996          1997    
                                                                                 ------------   -----------
                                                                                                (UNAUDITED)
                                                                                       (IN THOUSANDS)      
                                                                                                           
                                                   ASSETS                                                  

CURRENT ASSETS:                                                                                            
  Cash and cash equivalents.....................................................   $  8,951      $  7,130  
  Accounts receivable...........................................................     50,608        50,784  
  Inventories...................................................................     19,228        21,536  
  Prepaid expenses and other current assets.....................................      2,754         3,369  
  Refundable income taxes.......................................................      2,312        --      
  Deferred income taxes.........................................................      3,672         3,796  
                                                                                 ------------   -----------
    Total current assets........................................................     87,525        86,615  
PROPERTY, PLANT AND EQUIPMENT...................................................    123,260       136,281  
DEFERRED INCOME TAXES...........................................................      8,524         8,319  
INTANGIBLE AND OTHER ASSETS.....................................................    164,839       171,091  
                                                                                 ------------   -----------
    TOTAL.......................................................................   $384,148      $402,306  
                                                                                 ------------   -----------
                                                                                 ------------   -----------

                                    LIABILITIES AND STOCKHOLDERS' EQUITY                                   

CURRENT LIABILITIES:                                                                                       
  Accounts payable and accrued expenses.........................................   $ 46,664      $ 42,118  
  Income taxes payable..........................................................      1,105         1,154  
  Current portion of long-term debt.............................................     12,876        17,323  
                                                                                 ------------   -----------
    Total current liabilities...................................................     60,645        60,595  
LONG-TERM DEBT..................................................................    226,693       128,150  
DEFERRED INCOME TAXES...........................................................      3,278         4,928  
COMMITMENTS AND CONTINGENCIES...................................................                           
STOCKHOLDERS' EQUITY:                                                                                      
  Common stock, par value $.01 per share; 100,000,000 shares authorized,                                   
    10,741,729 and 15,286,968 shares issued and outstanding.....................        107           153  
  Additional paid-in capital....................................................     89,337       183,263  
  Retained earnings.............................................................      4,088        25,217  
                                                                                 ------------   -----------
    Total stockholders' equity..................................................     93,532       208,633  
                                                                                 ------------   -----------
    TOTAL.......................................................................   $384,148      $402,306  
                                                                                 ------------   -----------
                                                                                 ------------   -----------

See notes to condensed consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                          THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,  
                                                          ---------------------------  --------------------------- 
                                                              1996          1997           1996          1997      
                                                          ------------  -------------  ------------  ------------- 
                                                                 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)         

                                                                                                                   
NET SALES................................................ $    116,272  $     171,694  $    225,307  $     336,819 
COST OF SALES............................................       83,302        125,478       165,917        252,047 
                                                          ------------  -------------  ------------  ------------- 
GROSS PROFIT.............................................       32,970         46,216        59,390         84,772 
OPERATING COSTS AND EXPENSES:                                                                                      
  Selling and distribution...............................       17,180         22,102        32,682         42,244 
  General and administrative.............................        4,884          7,583         9,805         16,397 
  Amortization of intangibles............................        1,023          1,510         1,960          2,982 
                                                          ------------  -------------  ------------  ------------- 
    Total operating costs and expenses...................       23,087         31,195        44,447         61,623 
                                                          ------------  -------------  ------------  ------------- 
  INCOME FROM OPERATIONS.................................        9,883         15,021        14,943         23,149 
OTHER (INCOME) EXPENSE:                                                                                            
  Interest expense, net..................................        3,872          2,910         8,488          6,580 
  Other income, net......................................         (172)          (222)         (252)       (18,575)
                                                          ------------  -------------  ------------  ------------- 
    Total other (income) expense.........................        3,700          2,688         8,236        (11,995)
                                                          ------------  -------------  ------------  ------------- 
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS........        6,183         12,333         6,707         35,144 
INCOME TAXES.............................................        1,630          3,376         1,771         10,745 
                                                          ------------  -------------  ------------  ------------- 
INCOME BEFORE EXTRAORDINARY LOSS.........................        4,553          8,957         4,936         24,399 
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT.....       (2,215)      --              (2,215)        (3,270)
                                                          ------------  -------------  ------------  ------------- 
NET INCOME............................................... $      2,338  $       8,957  $      2,721  $      21,129 
                                                          ------------  -------------  ------------  ------------- 
                                                          ------------  -------------  ------------  ------------- 
NET EARNINGS (LOSS) PER SHARE:                                                                                     
  Income before extraordinary loss....................... $       0.46  $        0.55  $       0.58  $        1.57 
  Extraordinary loss.....................................        (0.22)      --               (0.26)         (0.21)
                                                          ------------  -------------  ------------  ------------- 
    Net income........................................... $       0.24  $        0.55  $       0.32  $        1.36 
                                                          ------------  -------------  ------------  ------------- 
                                                          ------------  -------------  ------------  ------------- 
WEIGHTED AVERAGE SHARES OUTSTANDING......................    9,921,715     16,342,250     8,455,332     15,509,388 
                                                          ------------  -------------  ------------  ------------- 
                                                          ------------  -------------  ------------  ------------- 

See notes to condensed consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED) 

                                                        [Enlarge/Download Table]

                                                                                          SIX MONTHS ENDED JUNE  
                                                                                                   30,           
                                                                                         ----------------------- 
                                                                                            1996        1997     
                                                                                         ----------  ----------- 
                                                                                         (DOLLARS IN THOUSANDS)  
                                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                            
Net income.............................................................................. $    2,721  $    21,129 
  Adjustments to reconcile net income to net cash provided by operating activities:                              
    Depreciation and amortization.......................................................      4,479        6,512 
    Amortization of intangible assets, including deferred financing costs...............      2,297        3,401 
    Loss on the sales of assets.........................................................         20           38 
    Extraordinary loss from early extinguishment of debt................................      2,215        3,270 
    Noncash and imputed interest........................................................        236      --      
    Deferred income taxes...............................................................        767        1,731 
    Changes in operating assets and liabilities:                                                                 
      Accounts and notes receivable.....................................................     (2,625)         104 
      Inventories.......................................................................       (899)      (2,082)
      Prepaid expenses and other assets.................................................         37       (1,676)
      Accounts payable and other accrued expenses.......................................     (1,959)      (4,465)
      Income taxes payable..............................................................       (511)       5,535 
                                                                                         ----------  ----------- 
        Net cash provided by operating activities.......................................      6,778       33,497 
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                            
    Additions to property, plant and equipment..........................................     (7,984)      (9,067)
    Proceeds from the sale of property, plant and equipment.............................        245           67 
    Cash outflows for acquisitions......................................................     (4,176)     (16,278)
                                                                                         ----------  ----------- 
      Net cash used in investing activities.............................................    (11,915)     (25,278)
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                            
    Proceeds from the issuance of debt..................................................      8,653       28,000 
    Repayment of debt...................................................................    (52,322)    (122,096)
    Payment of deferred financing costs and debt prepayment penalties...................     (1,800)      (4,970)
    Issuance of common stock, net of expenses...........................................     48,608       89,026 
                                                                                         ----------  ----------- 
    Net cash provided by (used in) financing activities.................................      3,139      (10,040)
                                                                                         ----------  ----------- 
DECREASE IN CASH AND CASH EQUIVALENTS...................................................     (1,998)      (1,821)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..........................................      3,177        8,951 
                                                                                         ----------  ----------- 
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $    1,179  $     7,130 
                                                                                         ----------  ----------- 
                                                                                         ----------  ----------- 

See notes to condensed consolidated financial statements. 

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1997 

1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                  

   The condensed consolidated financial statements as of June 30, 1997 and for
the three month and six month periods ended June 30, 1997 and 1996 have been    
prepared by Suiza Foods Corporation (the "Company" or "Suiza Foods") without    
audit. In the opinion of management, all necessary adjustments (which include   
only normal recurring adjustments) to present fairly, in all material respects, 
the consolidated financial position, results of operations and cash flows of the
Company as of June 30, 1997 and for the three month and six month periods ended 
June 30, 1997 and 1996 have been made. Certain information and footnote         
disclosures normally included in financial statements prepared in accordance    
with generally accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the Company's 1996 financial      
statements contained in its Annual Report on Form 10-K as filed with the        
Securities and Exchange Commission on March 29, 1997.                           

2. INVENTORIES                                                                  

                                                        [Enlarge/Download Table]

                                                                 AT DECEMBER 31,  AT JUNE 30,
                                                                      1996           1997    
                                                                 ---------------  -----------
                                                                                             
Pasteurized and raw milk and raw materials......................    $   7,693      $   9,795 
Parts and supplies..............................................        5,584          6,067 
Finished goods..................................................        5,951          5,674 
                                                                      -------     -----------
                                                                    $  19,228      $  21,536 
                                                                      -------     -----------
                                                                      -------     -----------

3. LONG-TERM DEBT                                                               

                                                        [Enlarge/Download Table]

                                                                 AT DECEMBER 31,  AT JUNE 30,
                                                                      1996           1997    
                                                                 ---------------  -----------
                                                                                             
Senior credit facility:                                                                      
  Revolving loan facility.......................................   $     8,600     $   2,800 
  Acquisition loan facility.....................................        69,100        --     
  Term loan facility............................................       125,000       142,000 
  Subordinated notes............................................        36,000        --     
Capital lease obligations and other debt........................           869           673 
                                                                 ---------------  -----------
                                                                       239,569       145,473 
Less: current portion...........................................       (12,876)      (17,323)
                                                                 ---------------  -----------
                                                                   $   226,693     $ 128,150 
                                                                 ---------------  -----------
                                                                 ---------------  -----------

    On January 28, 1997, the Company sold 4,270,000 shares of common stock, $.01
par value per share, in a public offering (the "Offering") at a price to the    
public of $22.00 per share. The 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 with the related balance of unamortized deferred loan costs and net of    
related income tax benefits, was reported as an extraordinary loss from the     
early extinguishment of debt. The remainder of the net proceeds were used to    
repay a portion of the outstanding balance of the acquisition loan facility of  
the Company's Senior Credit Facility.                                           

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 

3. LONG-TERM DEBT (CONTINUED)                                                   
  On March 5, 1997, the Company amended its Senior Credit Facility. Pursuant
to this amendment, the Company's term loans were expanded from a $130.0 million 
facility into a $150.0 million facility. Quarterly amortization payments        
beginning March 31, 1997 on this facility are $4.0 million, increasing to: 1)   
$4.5 million on March 31, 1998; 2) $5.0 million on March 31, 1999; 3) $5.5      
million on March 31, 2000; 4) $6.0 million on March 31, 2001; 5) $6.5 million on
March 31, 2002, with a final installment of $24.0 million due on March 31, 2003.
The Company further amended its Senior Credit Facility to increase the          
acquisition loan facility from $90.0 million to $100.0 million. The Company is  
required to pay interest only on amounts drawn under the acquisition loan       
facility until June 30, 1999, at which time any outstanding balance will convert
into a term loan facility with scheduled amortization.                          

   On July 31, 1997, the Company amended its Senior Credit Facility to provide
for an aggregate of $700.0 million comprised of: (i) a $150.0 million term loan;
(ii) a $50.0 million revolving credit facility; (iii) a $325.0 million revolving
acquisition facility, and (iv) a $175.0 million acquisition term loan. Under the
terms of the Senior Credit Facility, the $150.0 million term loan will be       
amortized over six years beginning September 30, 1997 and the revolving credit  
facility expires on September 30, 2003. The availability under the revolving    
acquisition facility will decrease at the end of each calendar quarter beginning
December 31, 2000 by $20.3 million until December 31, 2002, when it begins      
reducing by $40.6 million each quarter until maturity on September 30, 2003. The
$175.0 million acquisition term loan will be amortized over five years beginning
December 31, 1999. Amounts outstanding under the Senior Credit Facility will    
bear interest at a rate per annum equal to one of the following rates, at the   
Company's option: (i) the sum of a base rate equal to the higher of the Federal 
Funds rates plus 50 basis points or First Union National Bank's prime commercial
lending rate, plus a margin that varies from 0 to 50 basis points depending on  
the Company's ratio of defined indebtedness to EBITDA (as defined in the Senior 
Credit Facility); or (ii) The London Interbank Offered Rate ("LIBOR") plus a    
margin that varies from 75 to 150 basis points depending on the Company's ratio 
of defined indebtedness to EBITDA. The Company will pay a commitment fee on     
unused amounts of the revolving facility and the revolving acquisition facility 
that ranges from 20 to 37.5 basis points, based on the Company's ratio of       
defined indebtedness to EBITDA.                                                 

4. TAXES                                                                        

 In December 1995, the Commonwealth of Puerto Rico adopted the Puerto Rico
Agricultural Tax Incentives Act of 1995, which reduced the effective income tax 
rate for qualified agricultural businesses 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 investments in its     
Suiza-Puerto Rico dairy, fruit, plastics and coffee 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 investment made in its Puerto Rico dairy subsidiary which met the    
eligible investment criteria of this act. However, 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 its investments in its Suiza-Puerto 
Rico fruit and plastics subsidiaries qualified for the                          

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 

4. TAXES (CONTINUED)                                                            
50% tax credit. Accordingly, in March 1997, the Company recognized a            
nonrecurring gain of $18.1 million, net of discounts and related expenses ($11.5
million after income taxes) for earned tax credits which at March 31, 1997, it  
had agreed to sell to third parties. During the second quarter of 1997, the     
Company completed the sale of substantially all of these tax credits to the     
third parties.                                                                  

   The Company is currently investigating whether its investment in its coffee
business will qualify for additional tax credits based on recent rulings by     
Puerto Rico tax authorities and is awaiting a ruling from the Treasury          
Department in Puerto Rico on the availability of such tax credits. If the       
Company ultimately qualifies for such credits, the Company will account for     
these tax benefits as an adjustment of the purchase price of the coffee         
business, which would result in a reduction of goodwill.                        

5. ACQUISITIONS                                                                 

    During the quarter, the Company acquired four small ice businesses for total
consideration of approximately $10.7 million. Estimated annual sales of these   
ice companies are $8.3 million. Since June 30, 1997, the Company has acquired   
three ice companies for approximately $5.9 million, bringing the total number of
acquired ice companies in 1997 to ten, with estimated aggregate annual sales of 
$15.8 million.                                                                  

   On July 1, 1997, the Company completed the acquisition of substantially all
the assets of Dairy Fresh L.P., a Delaware limited partnership ("Dairy Fresh"), 
for approximately $104.5 million in cash (subject to adjustment and excluding   
transaction costs), plus the assumption of certain current liabilities. Dairy   
Fresh is a manufacturer of fresh milk and ice cream products based in           
Winston-Salem, North Carolina. During its fiscal year ended December 31, 1996,  
Dairy Fresh reported net sales of approximately $117.0 million throughout the   
southeastern United States. The Company will use the acquired assets to continue
operating the business previously operated by Dairy Fresh. The Company financed 
the acquisition with borrowings under its Senior Credit Facility.               

  On July 31, 1997 the Company 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 $293.7 million   
(subject to adjustment and excluding transaction costs) and issued 446,100      
shares of common stock to acquire the outstanding stock and repay existing      
indebtedness of the Garelick Companies. The combined businesses operated by the 
Garelick Companies reported net sales of approximately $363 million during the  
fiscal year ended September 30, 1996. The dairy operations of the Garelick      
Companies are operated through Garelick Farms in Franklin, Massachusetts,       
Fairdale Farms in Bennington, Vermont, and Grant's Dairy in Bangor, Maine. The  
Garelick Companies also operate the Miscoe Springs water bottling company in    
Mendon, Massachusetts and 16 plastic bottle manufacturing operations located in 
Connecticut, Florida, Georgia, Illinois, Louisiana, Maine, Massachusetts, New   
Jersey, North Carolina, Ohio, Pennsylvania, Texas and Virginia. The acquisition 
of the Garelick Companies expands the geographic presence of the Company's dairy
operations into the northeastern United States and expands the Company's        
operations into the related business of plastic container manufacturing.        

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SUIZA FOODS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 

5. ACQUISITIONS (CONTINUED)                                                     
 In connection with the acquisition of the Garelick Companies, the Company
increased the size of its Senior Credit Facility from $300.0 million to $700.0  
million in the aggregate (see footnote 3--Long-Term Debt).                      

6. STOCKHOLDERS' EQUITY                                                         

    On January 28, 1997, the Company sold 4,270,000 shares of common stock, $.01
par value per share, in a public offering at a price to the public of $22.00 per
share. On March 12, 1997, the Company issued 133,000 shares of its common stock 
in partial consideration of the purchase of an ice company. As of June 30, 1997 
the Company had 15,286,968 shares of common stock issued and outstanding.       

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and                                                         
Board of Directors of                                                           
The Morningstar Group Inc.:                                                     

We have audited the accompanying consolidated balance sheets of The     
Morningstar Group Inc. (a Delaware corporation) and subsidiaries as of December 
31, 1996 and 1995, and the related consolidated statements of operations,       
stockholders' equity and cash flows for each of the three years in the period   
ended December 31, 1996. These financial statements are the responsibility of   
the Company's management. Our responsibility is to express an opinion on these  
financial statements based on our audits.                                       

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, the financial statements referred to above present fairly,
in all material respects, the financial position of The Morningstar Group Inc.  
and subsidiaries as of December 31, 1996 and 1995, and the results of their     
operations and their cash flows for each of the three years in the period ended 
December 31, 1996, in conformity with generally accepted accounting principles. 

                           /s/ ARTHUR ANDERSEN LLP

Dallas, Texas,                                                                  
February 10, 1997                                                               

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                                      DECEMBER 31,  DECEMBER 31,
                                                                                          1996          1995    
                                                                                      ------------  ------------
                                                                                        (DOLLARS IN THOUSANDS)  
                                                                                                                
                                                     ASSETS                                                     

CURRENT ASSETS:                                                                                                 
  Cash...............................................................................  $    4,786    $    5,811 
  Receivables, net of allowance for doubtful accounts of $6,676 and $1,595,                                     
    respectively.....................................................................      57,802        28,043 
  Inventories........................................................................      25,400        11,123 
  Prepaids and other.................................................................       3,015         1,597 
  Deferred tax assets................................................................       7,339         3,089 
  Net assets held for sale...........................................................         676           836 
                                                                                      ------------  ------------
    Total current assets.............................................................      99,018        50,499 

PROPERTY, PLANT AND EQUIPMENT:                                                                                  
  Land...............................................................................       7,843         5,713 
  Buildings and improvements.........................................................      29,507        18,804 
  Machinery and equipment............................................................      70,239        43,552 
                                                                                      ------------  ------------
    Gross property, plant and equipment..............................................     107,589        68,069 
  Less: Accumulated depreciation.....................................................     (22,807)      (17,748)
                                                                                      ------------  ------------
    Net property, plant and equipment................................................      84,782        50,321 

INTANGIBLE AND OTHER ASSETS:                                                                                    
  Identifiable intangible assets.....................................................      73,146         1,847 
  Goodwill...........................................................................      96,175        58,671 
  Deferred financing costs...........................................................       2,731         1,259 
  Other assets.......................................................................         139           112 
                                                                                      ------------  ------------
    Total intangible and other assets................................................     172,191        61,889 
                                                                                      ------------  ------------
    Total assets.....................................................................  $  355,991    $  162,709 
                                                                                      ------------  ------------
                                                                                      ------------  ------------

                                      LIABILITIES AND STOCKHOLDERS' EQUITY                                      

CURRENT LIABILITIES:                                                                                            
  Accounts payable...................................................................  $   32,968    $   21,488 
  Accrued liabilities................................................................      39,923        15,869 
  Current maturities of long-term debt...............................................       8,000         8,000 
                                                                                      ------------  ------------
    Total current liabilities........................................................      80,891        45,357 

LONG-TERM DEBT (net of current maturities)...........................................     177,349        36,000 
OTHER LONG-TERM LIABILITIES..........................................................       3,269         1,959 
DEFERRED TAX LIABILITIES.............................................................       5,694         2,070 
COMMITMENTS AND CONTINGENCIES........................................................                           
STOCKHOLDERS' EQUITY:                                                                                           
  Common stock, $.01 par value, 50,000,000 shares authorized; 15,298,111 shares in                              
    1996 and 15,244,261 shares in 1995 issued........................................         153           152 
  Additional paid-in capital.........................................................      73,179        71,991 
  Treasury stock, at cost (767,000 shares in 1996 and 230,000 shares in 1995)........      (6,140)       (1,840)
  Retained earnings..................................................................      21,596         7,020 
                                                                                      ------------  ------------
    Total stockholders' equity.......................................................      88,788        77,323 
                                                                                      ------------  ------------
    Total liabilities and stockholders' equity.......................................  $  355,991    $  162,709 
                                                                                      ------------  ------------
                                                                                      ------------  ------------

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS 

                                                        [Enlarge/Download Table]

                                                                                           YEAR ENDED DECEMBER 31,           
                                                                                 --------------------------------------------
                                                                                    1996           1995             1994     
                                                                                 -----------  --------------   --------------
                                                                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND 
                                                                                                SHARE AMOUNTS)               
                                                                                                                             
NET SALES....................................................................... $   394,306  $   304,730      $   292,314   
COST OF GOODS SOLD..............................................................     302,801      232,948          222,145   
                                                                                 -----------  --------------   --------------
GROSS PROFIT....................................................................      91,505       71,782           70,169   

OPERATING COSTS AND EXPENSES:                                                                                                
  Distribution..................................................................      17,056       16,120           18,689   
  Selling and marketing.........................................................      32,839       22,233           21,295   
  General and administrative....................................................      15,450       13,001           11,778   
                                                                                 -----------  --------------   --------------
    Total operating costs and expenses..........................................      65,345       51,354           51,762   
                                                                                 -----------  --------------   --------------
OPERATING INCOME................................................................      26,160       20,428           18,407   

INTEREST EXPENSE................................................................       3,647        3,921            4,446   
AMORTIZATION OF DEFERRED FINANCING COSTS........................................         379          381              351   
DIVIDEND INCOME.................................................................     --              (268)         --        
OTHER INCOME, NET...............................................................        (286)      (1,008)          (1,244)  
                                                                                 -----------  --------------   --------------
INCOME BEFORE INCOME TAXES......................................................      22,420       17,402           14,854   
PROVISION FOR INCOME TAXES......................................................       7,844        6,062            5,533   
                                                                                 -----------  --------------   --------------
INCOME FROM CONTINUING OPERATIONS...............................................      14,576       11,340            9,321   

DISCONTINUED OPERATIONS:                                                                                                     
  Income from discontinued operations...........................................     --           --                   903(a)
  Gain on disposal..............................................................     --               184(b)           423(b)
                                                                                 -----------  --------------   --------------
INCOME FROM DISCONTINUED OPERATIONS.............................................     --               184            1,326   
NET INCOME...................................................................... $    14,576  $    11,524      $    10,647   
                                                                                 -----------  --------------   --------------
                                                                                 -----------  --------------   --------------
EARNINGS PER COMMON SHARE:                                                                                                   
  Continuing operations......................................................... $       .96  $       .74      $       .62   
  Discontinued operations.......................................................     --               .02              .09   
                                                                                 -----------  --------------   --------------
  Earnings per common share..................................................... $       .96  $       .76      $       .71   
                                                                                 -----------  --------------   --------------
                                                                                 -----------  --------------   --------------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING................  15,133,887   15,245,562       15,050,538   

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

(a) Net of applicable tax provision of $507.                                    

(b) Net of applicable tax provision of $216 and $2,865.                         

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 

                                                        [Enlarge/Download Table]

                                                                 COMMON STOCK                                     
                                                     COMMON     AND ADDITIONAL   TREASURY    RETAINED             
                                                     SHARES        PAID-IN       STOCK AT    EARNINGS             
                                                     ISSUED        CAPITAL         COST     (DEFICIT)     TOTAL   
                                                  ------------  --------------  ----------  ----------  --------- 
                                                                      (DOLLARS IN THOUSANDS)                      
                                                                                                                  
Balance, December 31, 1993.......................   14,287,212    $   69,684    $   --      $  (15,151) $  54,533 
Exercise of stock options........................      633,585         1,622        --          --          1,622 
Net income.......................................      --             --            --          10,647     10,647 
                                                  ------------       -------    ----------  ----------  --------- 

Balance, December 31, 1994.......................   14,920,797        71,306        --          (4,504)    66,802 
Exercise of stock options........................      323,464           837        --          --            837 
Purchase of treasury stock.......................      --             --            (1,840)     --         (1,840)
Net income.......................................      --             --            --          11,524     11,524 
                                                  ------------       -------    ----------  ----------  --------- 

Balance, December 31, 1995.......................   15,244,261        72,143        (1,840)      7,020     77,323 
Exercise of stock options........................       53,850           381        --          --            381 
Income tax benefits of stock options.............      --                808        --          --            808 
Purchase of treasury stock.......................      --             --            (4,300)     --         (4,300)
Net income.......................................      --             --            --          14,576     14,576 
                                                  ------------       -------    ----------  ----------  --------- 

Balance, December 31, 1996.......................   15,298,111    $   73,332    $   (6,140) $   21,596  $  88,788 
                                                  ------------       -------    ----------  ----------  --------- 
                                                  ------------       -------    ----------  ----------  --------- 

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                                  YEAR ENDED DECEMBER 31,       
                                                                             ---------------------------------- 
                                                                                1996        1995        1994    
                                                                             ----------  ----------  ---------- 
                                                                                   (DOLLARS IN THOUSANDS)       
                                                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                           
  Cash received from customers.............................................. $  389,101  $  306,918  $  284,605 
  Interest received.........................................................        129         224         134 
  Income tax refund.........................................................        156      --          --     
  Cash paid to suppliers and employees......................................   (354,037)   (272,992)   (259,147)
  Interest paid.............................................................     (2,971)     (4,220)     (4,395)
  Income taxes paid.........................................................     (4,171)     (3,199)     (2,663)
                                                                             ----------  ----------  ---------- 
  Net cash provided by Continuing Operations................................     28,207      26,731      18,534 
  Net cash used by Discontinued Operations..................................     --          --          (3,403)
                                                                             ----------  ----------  ---------- 
  Net cash provided by operating activities.................................     28,207      26,731      15,131 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                           
  Acquisition of subsidiaries:                                                                                  
  Working capital...........................................................     (3,268)     --          --     
  Property, plant and equipment.............................................    (29,926)     --          --     
  Other assets..............................................................   (111,809)     --          --     
  Other long-term (assets) liabilities......................................       (311)     --          --     
                                                                             ----------  ----------  ---------- 
                                                                               (145,314)     --          --     
                                                                             ----------  ----------  ---------- 
  Capital expenditures......................................................    (11,462)    (10,705)     (7,622)
  Proceeds from sale of assets..............................................     --               2          32 
  Dividends received from Preferred Stock...................................     --             268      --     
  Other.....................................................................        (52)      1,258         682 
                                                                             ----------  ----------  ---------- 
  Net cash used by Continuing Operations....................................   (156,828)     (9,177)     (6,908)

  Discontinued Operations:                                                                                      
  Sale of Discontinued Operations...........................................     --          --          50,237 
  Sale of Preferred Stock...................................................     --           3,000      --     
  Capital and other expenditures............................................     --          --            (482)
                                                                             ----------  ----------  ---------- 
  Net cash provided by Discontinued Operations..............................     --           3,000      49,755 
                                                                             ----------  ----------  ---------- 
  Net cash provided (used) by investing activities..........................   (156,828)     (6,177)     42,847 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                           
  Proceeds from issuance of common stock....................................        381         837       1,622 
  Purchase of treasury stock................................................     (4,300)     (1,840)     --     
  Proceeds from issuance of long-term debt..................................    160,000      --          --     
  Net borrowings (repayments) under revolving credit facility...............     22,349      (1,892)    (14,783)
  Principal payments on long-term debt......................................    (50,834)    (14,000)    (45,470)
  Dividends paid............................................................     --          --            (535)
                                                                             ----------  ----------  ---------- 
  Net cash provided (used) by financing activities..........................    127,596     (16,895)    (59,166)

NET INCREASE (DECREASE) IN CASH.............................................     (1,025)      3,659      (1,188)

CASH, BEGINNING OF PERIOD...................................................      5,811       2,152       3,340 
                                                                             ----------  ----------  ---------- 
CASH, END OF PERIOD......................................................... $    4,786  $    5,811  $    2,152 
                                                                             ----------  ----------  ---------- 
                                                                             ----------  ----------  ---------- 

The accompanying notes are an integral part of these consolidated statements. 

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CONSOLIDATED STATEMENTS OF CASH FLOWS 

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES 

                                                        [Enlarge/Download Table]

                                                                                    YEAR ENDED DECEMBER 31,       
                                                                               ---------------------------------- 
                                                                                  1996        1995        1994    
                                                                               ----------  ----------  ---------- 
                                                                                     (DOLLARS IN THOUSANDS)       
                                                                                                                  
NET INCOME.................................................................... $   14,576  $   11,524  $   10,647 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATIONS:                                           
    Discontinued Operations net income........................................     --            (184)     (1,326)
    Depreciation..............................................................      6,378       5,122       4,344 
    Amortization of intangibles...............................................      3,291       2,700       2,632 
    (Gain) loss on fixed asset retirements....................................     --          --            (243)
    Increase in deferred tax assets...........................................     (4,250)      3,635       4,222 
      Change in assets and liabilities net of effects from acquisitions and                                       
        divestitures of subsidiaries:                                                                             
    Accounts receivable.......................................................     (5,205)      2,426      (3,707)
    Inventories...............................................................     (1,243)       (583)        987 
    Prepaids and other........................................................      1,493         151       3,569 
    Accounts payable..........................................................      1,747       4,225        (655)
    Accrued liabilities.......................................................      8,011      (4,076)     (1,986)
    Other long-term liabilities...............................................      3,409       1,791          50 
                                                                               ----------  ----------  ---------- 
    Total adjustments.........................................................     13,631      15,207       7,887 
                                                                               ----------  ----------  ---------- 
    Net cash provided by Continuing Operations................................     28,207      26,731      18,534 
      Discontinued Operations:                                                                                    
    Discontinued Operations net income........................................     --             184       1,326 
    Gain on disposal..........................................................     --            (184)       (423)
    Change in working capital.................................................     --          --          (4,914)
    Depreciation and amortization.............................................     --          --             608 
                                                                               ----------  ----------  ---------- 
    Net cash used by Discontinued Operations..................................     --          --          (3,403)
                                                                               ----------  ----------  ---------- 
NET CASH PROVIDED BY OPERATING ACTIVITIES..................................... $   28,207  $   26,731  $   15,131 
                                                                               ----------  ----------  ---------- 
                                                                               ----------  ----------  ---------- 

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1. ORGANIZATION AND BUSINESS                                                    

BACKGROUND                                                              

The Morningstar Group Inc., a Delaware corporation (together with its   
subsidiaries, the "Company" or "Morningstar") was formed in March 1991. On April
1, 1988, the Company's predecessor, MorningStar Foods Inc., acquired            
substantially all of the net assets and operations of the Dairy Group of The    
Southland Corporation.                                                          

BUSINESS                                                                

  The Company's Continuing Operations include its specialty operations which
manufacture and market shelf stable, refrigerated and frozen food products      
including nationally branded products, other specialty, dairy-based cultured and
ultra-pasteurized products and non-dairy based food products. Discontinued      
Operations include all previously divested regional dairy operations and other  
divested operations.                                                            

2. PRESTO FOOD PRODUCTS, INC. ACQUISITION                                       

   On December 3, 1996, the Company acquired all of the issued and outstanding
shares of capital stock of Presto Food Products, Inc. ("Presto"), a California  
corporation, from the shareholders of Presto pursuant to a stock purchase       
agreement dated as of October 20, 1996, by and among the Company, Presto and the
Presto shareholders. Presto's sales for the year ended December 31, 1995, were  
approximately $139.5 million. Presto is a national manufacturer, marketer and   
distributor of non-dairy and dairy products, such as Mocha Mix non-dairy coffee 
creamers, Jon Donaire desserts and ice cream cakes, aerosols, bakery toppings   
and icings, frozen pre-whipped toppings and creamers, serving customers         
throughout the United States since 1937. The Company paid approximately $123.5  
million in cash for the stock acquired and assumed approximately $37.4 million  
in related liabilities. The allocation of the purchase price was based on       
preliminary estimates of fair value. The final allocation may be revised if the 
appraised values are significantly different from the preliminary estimates.    
Included in the assumed liabilities is 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. This termination plan will likely be completed by the     
second quarter of 1997. In conjunction with the consummation of the Presto      
acquisition, the Company renegotiated its credit agreement. Funds provided by   
the renegotiated Senior Credit Agreement ("Senior Credit Agreement") were       
utilized to pay off existing senior debt of approximately $44.8 million, to     
acquire the capital stock of Presto for $123.5 million and to pay approximately 
$2.1 million in fees and expenses associated with the Presto acquisition. The   
Company accounted for the acquisition as a purchase and accordingly, Presto's   
results are included in the 1996 Consolidated Statement of Operations for the   
period December 3, 1996, through December 31, 1996.                             

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

2. PRESTO FOOD PRODUCTS, INC. ACQUISITION (CONTINUED)                           
Unaudited pro forma operating results of the Company, assuming the      
acquisition had been made as of January 1, 1995, follow. Such information       
includes adjustments to reflect additional goodwill and intangible amortization,
a reduction in redundant and excess personnel related costs, additional interest
expense, additional amortization of deferred financing costs and additional     
income tax expense.                                                             

                                                        [Enlarge/Download Table]

                                                                             YEAR ENDED      
                                                                            DECEMBER 31,     
                                                                       ----------------------
                                                                          1996        1995   
                                                                       ----------  ----------
                                                                            (UNAUDITED)      
                                                                       (DOLLARS IN THOUSANDS,
                                                                          EXCEPT PER SHARE   
                                                                              AMOUNTS)       
                                                                                             
Pro forma net sales................................................... $  528,056  $  444,202
                                                                       ----------  ----------
                                                                       ----------  ----------

Pro forma net income from Continuing Operations....................... $   18,325  $   13,799
                                                                       ----------  ----------
                                                                       ----------  ----------

Pro forma net income.................................................. $   18,325  $   13,983
                                                                       ----------  ----------
                                                                       ----------  ----------

Pro forma earnings per share from Continuing Operations............... $     1.21  $     0.91
                                                                       ----------  ----------
                                                                       ----------  ----------

Pro forma earnings per share.......................................... $     1.21  $     0.92
                                                                       ----------  ----------
                                                                       ----------  ----------

3. OTHER ACQUISITIONS                                                           

WACKY WILLIE ACQUISITION                                                

  On October 1, 1996, the Company completed the acquisition of the rights to
the Wacky Willie and Killer Shake trademarks for $300,000 in cash from Killer   
Productions Company. There were no liabilities associated with the acquisition, 
nor were there any other assets included in the transaction. The Company may at 
its sole option, before August 1999, pay an additional $700,000 to Killer       
Productions representing the final portion of the purchase price. In addition,  
in the event net sales reach $5.0 million in any consecutive twelve-month period
ending on or before August 1999, the Company will be required to pay the        
additional $700,000 representing the final portion of the purchase price. The   
funding for this purchase was provided by the Company's operations. Sales of    
Killer Shake are included in the 1996 Consolidated Statement of Operations for  
the period January 1, 1996, through December 31, 1996. The Company manufactured 
and sold this product under a license arrangement for the period January 1,     
1996, through September 30, 1996.                                               

CREAM PRODUCTS ACQUISITION                                              

  On August 1, 1996, the Company completed the purchase of substantially all
of the assets of Cream Products Company ("Cream Products"), located in Chicago, 
Illinois. Cream Products' sales for the year ended December 31, 1995, were      
approximately $24.6 million. Cream Products is a manufacturer and distributor of
dairy and non-dairy products primarily supplying food makers and food service   
customers throughout the United States since 1938. The Company paid             
approximately $5.9 million in cash for the assets acquired, and assumed         
approximately $2.3 million in related liabilities. Funds for this acquisition   
were provided by the Company's operations in conjunction with its revolving     
credit facility. The Company                                                    

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

3. OTHER ACQUISITIONS (CONTINUED)                                               
accounted for the acquisition as a purchase and accordingly, Cream Products'    
results are included in the 1996 Consolidated Statement of Operations for the   
period August 1, 1996, through December 31, 1996.                               

LA CORONA ACQUISITION                                                   

   On May 28, 1996, the Company completed the purchase of substantially all of
the assets of La Corona Foods, Inc. ("La Corona"), located in Glendale, Arizona.
La Corona's sales for the fiscal year ended September 30, 1995, were            
approximately $6.9 million. The Company paid approximately $3.4 million in cash 
for the assets purchased, and assumed approximately $2.5 million in related     
liabilities. The funding for this acquisition was provided by the Company's     
operations. The Company accounted for the acquisition as a purchase and         
accordingly, La Corona's results are included in the 1996 Consolidated Statement
of Operations for the period May 29, 1996, through December 31, 1996.           

MERKTS CHEESE ACQUISITION                                               

 On March 19, 1996, the Company completed the acquisition of substantially
all of the assets of Merkts Cheese Company ("Merkts"), located in Bristol,      
Wisconsin. Merkts recorded approximately $10.3 million in sales for the fiscal  
year ending June 30, 1995. The Company paid approximately $3.6 million in cash  
for the assets purchased, and assumed approximately $0.4 million in liabilities.
The funding for this acquisition was provided by the Company's operations. The  
Company accounted for the acquisition as a purchase and accordingly, Merkts'    
results are included in the 1996 Consolidated Statement of Operations for the   
period March 20, 1996, through December 31, 1996.                               

4. DISCONTINUED OPERATIONS                                                      

  The Company has made significant divestitures since its inception and as a
result, the size and scope of the Company's operations have changed             
significantly. In 1991, the Company divested a novelty/ice cream operation in   
Texas and closed a novelty/ice cream operation in Missouri. In 1992, the Company
divested a regional dairy operation and a novelty/ice cream operation, both     
located in Maryland. On April 13, 1994, the Company completed the divestiture of
its Florida-based fluid milk operation Velda Farms Inc. ("Velda") for $51.0     
million, consisting of $48.0 million in cash after working capital adjustments  
and $3.0 million of 9% Series A Preferred Stock (the "Preferred Stock"). The    
Company deferred the gain on the Preferred Stock pending realization of the     
gain. The majority of the cash proceeds were used to pay down external bank debt
and to fund federal and state taxes generated by the gain on the sale. The sale 
of Velda concluded the divestiture of the Company's regional dairies which were 
considered a major and distinct segment of its business. As such, the operations
of the regional dairies and other divested operations have been restated and    
presented in the consolidated financial statements to conform with discontinued 
operations treatment ("Discontinued Operations").                               

 On March 31, 1995, the Preferred Stock was redeemed by its issuer at face
value plus accrued dividends. The $3.0 million gain on the stock, less          
applicable taxes and other reserves of $2.3 million, was reflected in           
Discontinued Operations in the Consolidated Statements of Operations during the 
first quarter of 1995. The Company also recognized $268,000 in dividends,       
related to the Preferred Stock, during the first quarter of 1995 which was      
recorded in Continuing Operations. The Company recorded an additional loss from 
Discontinued Operations of approximately $0.5 million, net of tax benefits,     
during the second quarter of 1995, related to Discontinued Operations reserves  
and other liabilities.                                                          

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

4. DISCONTINUED OPERATIONS (CONTINUED)                                          
Net sales of the Discontinued Operations were $38.6 million in 1994.    
Interest expense of $0.4 million was allocated to Discontinued Operations during
1994. The allocation method was based upon the ratio of net assets of           
Discontinued Operations to the sum of consolidated net assets plus consolidated 
debt, less debt specifically allocated to certain of the Company's subsidiaries.

5. SIGNIFICANT ACCOUNTING POLICIES                                              

PRINCIPLES OF CONSOLIDATION                                             

  The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intracompany     
transactions and balances have been eliminated.                                 

CONCENTRATIONS OF CREDIT RISK                                           

    Financial instruments which potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable. The Company sells
its products to supermarkets, convenience stores, dairies, food service and     
institutional organizations, club stores and private label suppliers located in 
all 50 states and over 20 foreign countries, with a concentration of customers  
located in California. The Company performs ongoing credit evaluations of its   
customers' financial condition. The Company establishes an allowance for        
doubtful accounts based upon factors surrounding the credit risk of specific    
customers, historical trends and other relevant information.                    

CASH AND CASH EQUIVALENTS                                               

The Company considers overnight investments to be cash.                 

INVENTORIES                                                             

 Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories are summarized as follows (in 
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                           AT DECEMBER 31,   
                                                                         --------------------
                                                                           1996       1995   
                                                                         ---------  ---------
                                                                                             
Raw materials and supplies.............................................. $  11,767  $   5,975
Finished goods..........................................................    13,633      5,148
                                                                         ---------  ---------
  Total................................................................. $  25,400  $  11,123
                                                                         ---------  ---------
                                                                         ---------  ---------

  Finished goods inventories include the costs of materials, labor and plant
overhead.                                                                       

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                  
PROPERTY, PLANT AND EQUIPMENT                                           

 Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of the assets, as follows:  

                                                        [Enlarge/Download Table]

                                                                                USEFUL LIFE   
ASSET CATEGORY                                                                    (YEARS)     
---------------------------------------------------------------------------  -----------------
                                                                                              
Machinery and equipment....................................................       3 - 10      
Buildings and improvements.................................................         25        

Property sold or retired is eliminated from the accounts in the year of 
disposition. Major expenditures for renewals and betterments are capitalized    
while maintenance and repairs are charged against income.                       

IDENTIFIABLE INTANGIBLE ASSETS                                          

  Identifiable intangible assets related to the acquisition of Favorite were
added in 1993, and are being amortized over their estimated useful lives which  
is generally five years. Identifiable intangible assets of approximately $72.3  
million were recorded in connection with the acquisitions consummated in 1996.  
These assets are being amortized on a straight-line basis over a range of 5-40  
years. Amortization costs totaled $1.0 million in 1996, $0.7 million in 1995,   
and $0.7 million in 1994. Accumulated amortization was $2.8 million and $1.8    
million at December 31, 1996 and 1995, respectively.                            

GOODWILL                                                                

  Goodwill is amortized on a straight-line basis over a range of 25-40 years
and is recorded at cost less accumulated amortization. Goodwill of approximately
$39.4 million was recorded in connection with the acquisitions consummated in   
1996. Amortization costs totaled $1.9 million in 1996, $1.7 million in 1995, and
$1.7 million in 1994. Accumulated amortization was $10.4 million and $8.5       
million at December 31, 1996 and 1995, respectively.                            

DEFERRED FINANCING COSTS                                                

Costs incurred that relate to the issuance of indebtedness and the      
corresponding accumulated amortization are included in deferred financing costs 
in the accompanying consolidated balance sheets. Deferred financing costs       
related to existing debt are amortized over the life of the related debt. In    
conjunction with renegotiating its Senior Credit Agreement in December 1996, the
Company incurred deferred financing costs of approximately $2.7 million.        
Accumulated amortization was $87,000 and $1.5 million at December 31, 1996 and  
1995, respectively.                                                             

ACCOUNTING FOR LONG-LIVED ASSETS                                        

 In March 1995, the Financial Accounting Standards Board issued "SFAS" No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of."    
This statement is effective for financial statements beginning after December   
15, 1995. The Company elected to adopt the statement effective December 31,     
1995. The adoption of SFAS No. 121 had no material effect on the Company's      
financial statements.                                                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                  
   The Company continually evaluates whether events and circumstances indicate
that the remaining carrying amount of an asset may not be recoverable or the    
remaining useful life may warrant revision. To make this evaluation, the Company
uses its estimate of undiscounted future cash flows (without interest charges)  
over the remaining life of the asset.                                           

ACCRUED LIABILITIES                                                     

Accrued liabilities consisted of the following (in thousands):          

                                                        [Enlarge/Download Table]

                                                                           AT DECEMBER 31,   
                                                                         --------------------
                                                                           1996       1995   
                                                                         ---------  ---------
                                                                                             
Accrued interest........................................................ $   1,140  $     407
Payroll and benefits (accrued wages, vacation and profit sharing).......     8,315      4,080
Restructuring accruals..................................................        60        230
Insurance accruals......................................................     5,527      5,195
Income and property taxes...............................................     5,791      1,491
Marketing and advertising...............................................     6,863      2,017
Acquisition related accruals............................................     6,290     --    
Other accrued liabilities...............................................     5,937      2,449
                                                                         ---------  ---------
  Total................................................................. $  39,923  $  15,869
                                                                         ---------  ---------
                                                                         ---------  ---------

FAIR VALUE OF FINANCIAL INSTRUMENTS                                     

The financial position of the Company at December 31, 1996 and 1995,    
includes certain financial instruments which may have a fair value that is      
different from that which is currently reflected in the financial statements.   
However, any variation in value is insignificant.                               

USE OF ESTIMATES                                                        

  The preparation of these 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      
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Actual results could differ from those estimates.             

REVENUE RECOGNITION                                                     

The Company recognizes revenue upon shipment to customers.              

DERIVATIVE FINANCIAL INSTRUMENTS                                        

The Company has not entered into any derivatives or other speculative   
financial instruments as of December 31, 1996.                                  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

5. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                  
INCOME TAXES                                                            

Deferred income taxes reflect the tax effect of temporary differences   
between the amount of assets and liabilities recognized for financial reporting 
and tax purposes and are measured by applying currently enacted tax laws. The   
effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.            

OTHER INCOME                                                            

Other income primarily consists of royalty revenue.                     

EARNINGS PER COMMON SHARE                                               

The earnings per common share is computed based on the fully diluted    
weighted average number of shares of the Company's common stock and common stock
equivalents outstanding during the period. Common stock equivalents represent   
the dilutive effect of the assumed exercise of certain outstanding stock        
options.                                                                        

FINANCIAL STATEMENT PRESENTATION                                        

    Certain prior year balances have been reclassified to conform to the current
year presentation.                                                              

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

6. INCOME TAXES                                                                 

   The components of the provision for income taxes from Continuing Operations
are as follows (in thousands):                                                  

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED DECEMBER 31,    
                                                                  -------------------------------
                                                                    1996       1995       1994   
                                                                  ---------  ---------  ---------
                                                                                                 
Current.......................................................... $   6,271  $   1,879  $     272
Deferred.........................................................      (340)     3,448      4,163
State............................................................     1,913        735      1,098
                                                                  ---------  ---------  ---------
Provision for income taxes....................................... $   7,844  $   6,062  $   5,533
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------

Temporary differences and carryforwards which give rise to a significant
portion of net deferred income tax assets are as follows (in thousands):        

                                                        [Enlarge/Download Table]

                                                                          YEAR ENDED DECEMBER  
                                                                                  31,          
                                                                          -------------------- 
                                                                            1996       1995    
                                                                          ---------  --------- 
                                                                                               
Deferred tax assets:  Net operating loss carryforward.................... $  --      $     385 
  Accrued vacation.......................................................       588        504 
  Accrued workers' compensation..........................................     1,671      1,397 
  Acquisition reserves...................................................     2,394     --     
  Other insurance reserves...............................................       666        657 
  Restructuring reserves.................................................       350        396 
  Other accrued expenses and reserves....................................     2,182      1,454 
  Other deferred tax assets..............................................       600      2,340 
                                                                          ---------  --------- 
    Total deferred tax assets............................................     8,451      7,133 
Deferred tax liabilities: Accelerated depreciation and amortization......     6,759      2,901 
  Other deferred tax liabilities.........................................        47        140 
                                                                          ---------  --------- 
    Total deferred tax liabilities.......................................     6,806      3,041 
Valuation allowance......................................................    --         (3,073)
                                                                          ---------  --------- 
  Net deferred tax assets................................................     1,645      1,019 
  Noncurrent deferred tax liabilities....................................    (5,694)    (2,070)
                                                                          ---------  --------- 
  Current deferred tax assets............................................ $   7,339  $   3,089 
                                                                          ---------  --------- 
                                                                          ---------  --------- 

    The Company reduced goodwill by approximately $21,000, $5.6 million and $4.2
million for the years ended December 31, 1996, 1995 and 1994, respectively,     
representing realization of deferred tax assets created prior to the Company's  
financial restructuring transaction.                                            

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

6. INCOME TAXES (CONTINUED)                                                     
   The provision for income taxes was different from the amount computed using
the statutory income tax rate for the reasons set forth in the following table  
(in thousands):                                                                 

                                                        [Enlarge/Download Table]

                                                                   YEAR ENDED DECEMBER 31,     
                                                               ------------------------------- 
                                                                 1996       1995       1994    
                                                               ---------  ---------  --------- 
                                                                                               
Provision computed at statutory rate.......................... $   7,846  $   5,917  $   5,050 
State income taxes............................................     1,243      1,025        905 
Tax on non-deductible goodwill amortization...................       486        473        516 
Utilization of previously unrecognized deferred tax assets....    (2,265)    (1,405)    (1,107)
Other.........................................................       534         52        169 
                                                               ---------  ---------  --------- 
Provision for income taxes.................................... $   7,844  $   6,062  $   5,533 
                                                               ---------  ---------  --------- 
                                                               ---------  ---------  --------- 

7. LONG-TERM DEBT                                                               

The Company's long-term debt consists of the following (in thousands):  

                                                        [Enlarge/Download Table]

                                                                           AT DECEMBER 31,    
                                                                        --------------------- 
                                                                           1996       1995    
                                                                        ----------  --------- 
                                                                                              
Senior term loan....................................................... $  160,000  $  41,000 
Revolving credit facility..............................................     22,349     --     
Industrial development revenue bonds...................................      3,000      3,000 
                                                                        ----------  --------- 
  Total long-term debt.................................................    185,349     44,000 
  Less: Current maturities.............................................     (8,000)    (8,000)
                                                                        ----------  --------- 
  Long-term debt, net of current maturities............................ $  177,349  $  36,000 
                                                                        ----------  --------- 
                                                                        ----------  --------- 

Maturities of long-term debt at December 31, 1996, are as follows (in   
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                                             
1997.............................................................................. $    8,000
1998..............................................................................     15,000
1999..............................................................................     20,000
2000..............................................................................     30,000
2001..............................................................................     35,000
Thereafter........................................................................     77,349
                                                                                   ----------
  Total maturities................................................................ $  185,349
                                                                                   ----------
                                                                                   ----------

SENIOR TERM LOAN AND REVOLVING CREDIT FACILITY                          

    On December 2, 1996, in conjunction with the Presto acquisition, the Company
renegotiated a $220.0 million credit agreement ("Senior Credit Agreement").     
Funding provided by the Senior Credit Agreement was utilized to acquire the     
capital stock of Presto for approximately $123.5 million, to pay off            

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

7. LONG-TERM DEBT (CONTINUED)                                                   
the existing senior debt of approximately $44.8 million and to pay $2.1 million 
in fees and expenses associated with the Presto acquisition.                    

  The base interest rate on the Term Loan and the Revolver is the prime rate
plus an applicable margin spread. Both facilities have alternative rate options 
based upon applicable margin spreads above the London Interbank Offered Rate    
("LIBOR"). At December 31, 1996, $160.0 million in borrowings under the Term    
Loan were outstanding at an interest rate of 6.95% and $22.4 million in         
borrowings were outstanding under the Revolver at an interest rate of 6.99%.    
Borrowings under these lending facilities are secured by virtually all of the   
assets of the Company. Up to $15.0 million in letters of credit may be issued   
under the Revolver, of which $8.8 million was issued and outstanding at December
31, 1996. As of December 31, 1996, approximately $28.8 million was additionally 
available to the Company under the $60.0 million Revolver. A fee of 1.5% per    
year is charged on outstanding letters of credit. A 0.42% per year commitment   
fee on uncommitted funds is payable quarterly. The Revolver matures on December 
1, 2002, coincident with the scheduled maturity of the Term Loan. The Senior    
Credit Agreement contains numerous covenants pertaining to management and       
operations of the Company including, among other restrictions, limitations on   
the amount of annual capital expenditures as well as specification of certain   
maximum leverage ratios, minimum fixed charge coverage ratios and minimum net   
worth. The Senior Credit Agreement also requires mandatory prepayment of the    
loans under certain conditions such as the sale of assets, excess cash flow, the
issuance of new debt or equity and the receipt of certain other cash proceeds.  

    During April 1994, the Company completed the sale of Velda for approximately
$51.0 million, consisting of $48.0 million in cash after working capital        
adjustments and $3.0 million in 9% Series A Preferred Stock. In conjunction with
the sale, the Company paid down approximately $36.7 million of its then existing
senior term loan and $11.8 million of its then existing revolver.               

 The Company was in compliance with all financial covenants as of December
31, 1996.                                                                       

INDUSTRIAL DEVELOPMENT REVENUE BONDS                                    

  The industrial development revenue bonds were issued on December 14, 1988,
to fund the construction of a waste water treatment facility at the Company's   
Frederick, Maryland, processing plant. The bonds mature on December 1, 2003, and
bear interest that fluctuates weekly based upon market factors. The interest    
rate in effect for these bonds on December 31, 1996, was 4.30%.                 

8. EMPLOYEE BENEFIT PLANS                                                       

RETIREMENT PLANS                                                        

  The Company has adopted a defined contribution profit sharing plan for the
purpose of providing retirement benefits for eligible non-union employees. At   
December 31, 1996, eligible employees totaled 363, of which 214 were            
participants in the plan. Contributions are made by the Company and by plan     
participants. Company contributions are allocated to the participants on the    
basis of individual contributions, the age of the participant and the number of 
years that the participant has been in the plan. During 1996 the Company also   
contributed to two single-employer and five multi-employer pension/retirement   

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

8. EMPLOYEE BENEFIT PLANS (CONTINUED)                                           
plans under the terms of various union contracts, which covered 778 of its 1,403
employees at December 31, 1996. The number of union pension plans and the       
portion of employees covered has varied from year to year. Contributions to     
these pension plans are as follows (in thousands):                              

                                                        [Enlarge/Download Table]

                                                                      YEAR ENDED DECEMBER 31,    
                                                                  -------------------------------
                                                                    1996       1995       1994   
                                                                  ---------  ---------  ---------
                                                                                                 
Defined contribution profit sharing plan......................... $     416  $     250  $     230
Union pension plans..............................................     1,445      1,182      1,122

POST-RETIREMENT BENEFIT PLANS                                           

In December 1990, the Financial Accounting Standards Board issued its   
standard on accounting for post retirement benefits other than pensions. This   
standard requires that the expected cost of these benefits must be charged to   
expense during the years that the employees render service. The cost of         
providing these benefits has been primarily paid by non-union retirees and the  
Company's calculation of its obligation is not material as of December 31, 1996.

 The Company's union employees participate in various defined contribution
union plans that provide health care and other welfare benefits during their    
employment and after retirement. Amounts charged to expense and contributed to  
these health and welfare plans totaled approximately $2.0 million in 1996, $2.0 
million in 1995, and $2.6 million in 1994. Having made these payments, no       
remaining obligations exist for these years under the union plans.              

9. COMMITMENTS AND CONTINGENCIES                                                

LEASES                                                                  

The Company leases certain plant facilities and related equipment and   
vehicles under operating lease arrangements. Lease expense pursuant to such     
arrangements was approximately $4.3 million in 1996, $3.2 million in 1995, and  
$3.0 million in 1994.                                                           

The following is a summary of future minimum annual lease payments under
noncancelable operating lease obligations as of December 31, 1996 (in           
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                                     YEAR ENDING DECEMBER 31,
                                                                     ------------------------
                                                                                             
1997................................................................        $    3,893       
1998................................................................             3,469       
1999................................................................             2,557       
2000................................................................             1,965       
2001................................................................               693       
Thereafter..........................................................             1,383       
                                                                               -------       
  Total.............................................................        $   13,960       
                                                                               -------       
                                                                               -------       

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)                                    
EMPLOYMENT AGREEMENTS                                                   

   As of December 31, 1996, the Company had entered into employment agreements
with certain key management personnel which provide for annual compensation and 
benefits and also provide for certain severance payments to be made to such     
individuals in the event of a change in control (as defined) of the Company or  
the involuntary termination of such individuals for reasons other than cause (as
defined). As of December 31, 1996, the maximum amount payable under these       
employment agreements was approximately $4.6 million in the aggregate.          

LITIGATION                                                              

From time to time the Company is subject to litigation in the ordinary  
course of its business. In connection with the divestitures of certain of the   
Company's operations, the Company assumed certain obligations of                
indemnification, none of which is believed to be material to the Company. The   
Company maintains insurance in respect of certain losses that may result from   
its current or future operations. The Company believes that the outcome of any  
existing litigation, after considering the indemnities and insurance related to 
such litigation, would not have a material impact on its business, financial    
condition or results of operations.                                             

10. RELATED PARTY TRANSACTIONS                                                  

HICKS MUSE                                                              

    The Company had previously entered into a financial advisory agreement dated
March 1, 1991, as amended, pursuant to which Hicks Muse provided financial      
advisory services to the Company. Effective September 30, 1995, this agreement  
was terminated. As compensation for such services, the Company paid Hicks Muse  
an advisory fee, together with all reasonable expenses incurred in connection   
therewith. The Company paid advisory fees of $150,000 and $114,000 in 1995 and  
1994, respectively, and reimbursed Hicks Muse approximately $28,000 and $37,000 
for expenses for each year, respectively. Hicks Muse was also paid a fee of     
$300,000 relating to the sale of Velda.                                         

11. EQUITY                                                                      

EMPLOYEE AND DIRECTOR STOCK OPTIONS                                     

   The Company has several stock-based compensation plans, which are described
below. The Company applies Accounting Principles Board ("APB") Opinion 25 and   
related Interpretations in accounting for its stock-based compensation plans. In
1995, the Financial Accounting Standards Board issued Statement of Financial    
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS  
123"), which, if fully adopted by the Company, would change the methods the     
Company applies in recognizing the cost of its stock-based compensation plans.  
Adoption of the cost recognition provisions of SFAS 123 is optional and the     
Company has decided not to elect these provisions. However, pro forma           
disclosures as if the Company had adopted these cost recognition provisions in  
1995 are required for fiscal years beginning after December 15, 1995. The       
Company has elected to provide these disclosures for its fiscal year which began
on January 1, 1996.                                                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. EQUITY (CONTINUED)                                                          
1991 STOCK OPTION PLAN                                                  

  In March 1991, the Company established the 1991 Incentive and Nonstatutory
Stock Option Plan which provides for the issuance of options to purchase 999,999
shares of common stock to key employees of the Company. At December 31, 1996,   
769,941 tenure options and 228,258 incentive options had been granted to        
employees. Upon completion of the common stock offering in 1992, the incentive  
options became vested, resulting in compensation expense of $1.1 million. The   
exercise price for all options granted was $2.56 per share, which was the fair  
market value of the options at the date of issuance. The options expire ten     
years after the date of their issuance.                                         

1992 STOCK OPTION PLAN                                                  

 In July 1992, the Company established the 1992 Incentive and Nonstatutory
Stock Option Plan which provides for the issuance of options to purchase 181,818
shares of common stock to key employees of the Company. At December 31, 1996,   
175,000 options had been granted to employees. The exercise price for 25,000 of 
the options granted in 1992 is $9.00 per share, which was the fair market value 
of the options at the date of issuance. The exercise price for 120,000 of the   
options granted in 1994 is $7.00 per share, which was the fair market value of  
the options at the date of issuance. The exercise price for 30,000 of the       
options granted in 1995 is $6.75 per share, which was the fair market value of  
the options at the date of issuance. The options granted in 1992 become         
exercisable over a three-year period and expire ten years after the date of     
their issuance. One-third of the options granted in 1994 became exercisable on  
the date of issuance, while the remaining options vest in equal amounts over two
years. The options granted in 1995 vest ratably over a three-year period. The   
options granted in 1994 and 1995 expire ten years after the date of their       
issuance. Under this plan, 14,000 options had been exercised as of December 31, 
1996.                                                                           

1992 DIRECTOR STOCK OPTION PLAN                                         

  In April 1992, the Company established the 1992 Director Stock Option Plan
which provides for the issuance of options to purchase 39,062 shares of common  
stock to non-employee directors of the Company. At December 31, 1996, 39,062    
options had been granted to non-employee directors. The exercise price for these
options is $2.56 per share, which was the fair market value of the options at   
the date of issuance. The options become exercisable over a three-year period   
and expire ten years after the date of their issuance. As of December 31, 1996, 
no options under this plan had been exercised.                                  

1994 STOCK OPTION PLAN                                                  

 In June 1994, the Company established the 1994 Incentive and Nonstatutory
Stock Option Plan which provides for the issuance of options to purchase 250,000
shares of common stock to key employees of the Company. At December 31, 1996,   
231,000 options had been granted to employees. The exercise price for 195,000 of
the options granted in 1994 is $7.00 per share, which was the fair market value 
of the options at the date of issuance. The exercise price for 24,000 of the    
options granted in 1995 is $8.00 per share, which was the fair market value of  
the options at the date of issuance. An additional 12,000 options were granted  
in 1996 under this plan at exercise prices of $9.50 (6,000 options) and $10.00  
(6,000 options), which were the fair market values of the options on each       
issuance date. These options become exercisable over a three-year period and    
expire ten years after the date of their issuance. Under this plan, 26,000      
options had been exercised as of December 31, 1996.                             

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. EQUITY (CONTINUED)                                                          
1996 STOCK OPTION PLAN                                                  

  In May 1996, the Company amended the 1994 Incentive and Nonstatutory Stock
Option Plan to provide for the issuance of options to purchase up to 1,440,000  
shares of common stock to key employees of the Company. At December 31, 1996,   
1,212,000 options had been granted to employees. The exercise price for these   
options is $10.25 per share, which was the fair market value of the options at  
the date of issuance. 387,000 of the options become exercisable over a          
three-year period and 825,000 of the options became exercisable on the date of  
issuance. These options expire ten years after the date of their issuance. As of
December 31, 1996, no options under this plan had been exercised.               

1996 DIRECTOR STOCK OPTION PLAN                                         

In May 1996, the Company established the 1996 Director Stock Option Plan
which provides for the issuance of options to purchase 50,000 shares of common  
stock to non-employee directors of the Company. At December 31, 1996, 40,000    
options had been granted to non-employee directors. The exercise price for these
options is $10.25 per share, which was the fair market value of the options at  
the date of issuance. The options become exercisable over a three-year period   
and expire ten years after the date of their issuance. As of December 31, 1996, 
no options under this plan had been exercised.                                  

CHAIRMAN OPTION PLAN                                                    

  On February 15, 1994, the Compensation Committee of the Company's Board of
Directors approved the issuance of options to purchase 600,000 shares of common 
stock of the Company to C. Dean Metropoulos, Chairman and CEO of the Company. As
of December 31, 1996, 600,000 options had been granted to Mr. Metropoulos. The  
exercise price for these options is $6.50 per share, which was the fair market  
value of the options at the date of issuance. One-third of these options became 
exercisable on the date of issuance, while the remaining options vested in equal
amounts over two years. The options expire ten years after the date of their    
issuance. As of December 31, 1996, no options under this plan had been          
exercised.                                                                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. EQUITY (CONTINUED)                                                          
SUMMARY OF OPTIONS (NUMBER OF OPTIONS)                                  

                                                        [Enlarge/Download Table]

                                                               1992                                                1996   
                                                             DIRECTOR                   CHAIRMAN                 DIRECTOR 
                                   1991 PLAN    1992 PLAN      PLAN       1994 PLAN       PLAN      1996 PLAN*     PLAN   
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
                                                                                                                          
Outstanding at December 31,                                                                                               
  1994...........................    335,413      176,000       39,062      210,000       600,000       --          --    
Granted in 1995..................     --           30,000       --           81,000        --           --          --    
Canceled in 1995.................    (13,049)     (31,000)      --          (70,000)       --           --          --    
Exercised in 1995................   (311,464)      --           --           (2,000)       --           --          --    
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------

Outstanding at December 31,                                                                                               
  1995...........................     10,900      175,000       39,062      219,000       600,000       --          --    
Granted in 1996..................     --           --           --           12,000        --        1,212,000      40,000
Canceled in 1996.................     --           --           --           --            --           --          --    
Exercised in 1996................     (5,850)     (14,000)      --          (24,000)       --           --          --    
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------

Outstanding at December 31,                                                                                               
  1996...........................      5,050      161,000       39,062      207,000       600,000    1,212,000      40,000
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
Exercisable at December 31,                                                                                               
  1995...........................     10,900      105,000       39,062       52,000       600,000       --          --    
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
Exercisable at December 31,                                                                                               
  1996...........................      5,050      141,000       39,062      119,000       600,000      825,000      --    
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------
                                  -----------  -----------  -----------  -----------  ------------  -----------  ---------

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

*   Granted under 1994 Stock Option Plan as amended.                            

PRO FORMA NET INCOME AND EARNINGS PER COMMON SHARE                      

  Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS 123, the Company's net income and earnings 
per common share for 1996 and 1995 would approximate the pro forma amounts below
(in thousands, except per share data):                                          

                                                        [Enlarge/Download Table]

                                    AS REPORTED    PRO FORMA    AS REPORTED    PRO FORMA  
                                    DECEMBER 31,  DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                        1996          1996          1995          1995    
                                    ------------  ------------  ------------  ------------
                                                                                          
Net income.........................  $   14,576    $   10,770    $   11,524    $   11,460 
Earnings per common share..........         .96           .72           .76           .75 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

11. EQUITY (CONTINUED)                                                          
Pro forma charges to expense for options granted in 1996 and 1995 are as
follows (in thousands):                                                         

                                                        [Enlarge/Download Table]

                                                      1996                     CHARGE               
                                                     ANNUAL    1995 ANNUAL  ALLOCABLE TO     TOTAL  
                                                     CHARGE      CHARGE     FUTURE YEARS    CHARGE  
                                                    ---------  -----------  -------------  ---------
                                                                                                    
1995 Stock options................................. $     104   $      64     $     144    $     312
1996 Stock options.................................     3,702      --             1,573        5,275
                                                    ---------         ---        ------    ---------
  Total............................................ $   3,806   $      64     $   1,717    $   5,587
                                                    ---------         ---        ------    ---------
                                                    ---------         ---        ------    ---------

   The fair value of each option grant is estimated on the date of grant using
the Modified Black-Scholes option pricing model with the following weighted     
average assumptions used for grants in 1996 and 1995, respectively: risk free   
interest rates of 6.47% and 6.65%; expected dividend yields of 0.00% and 0.00%; 
expected lives of 4.0 years and 4.0 years; expected volatility of 40.31% and    
39.86%. The weighted average fair value of options granted in 1996 and 1995 was 
$10.31 and $6.93, respectively. The effects of applying SFAS 123 in this pro    
forma disclosure are not indicative of future amounts. SFAS 123 does not apply  
to awards prior to 1995.                                                        

STOCK REPURCHASE PROGRAM                                                

On June 21, 1995, the Company's Board of Directors announced that it had
approved a plan pursuant to which the Company may repurchase up to $20.0 million
of its common stock. The purchases will be effected through open market         
transactions or negotiated transactions from time to time, depending on the     
market price of the stock and other factors. As of December 31, 1995, 230,000   
shares had been repurchased by the Company at a cost of $1.8 million. As of     
December 31, 1996, the Company had purchased an additional 537,000 shares at a  
cost of $4.3 million.                                                           

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)                                 

 Quarterly financial information for the years ended December 31, 1996 and
1995, is as follows:                                                            

                                                        [Enlarge/Download Table]

                                                  FIRST     SECOND      THIRD      FOURTH  
                                                 QUARTER    QUARTER    QUARTER    QUARTER  
                                                ---------  ---------  ---------  ----------
                                                                                           
DOLLARS IN THOUSANDS:                                                                      
  Net sales.............................. 1996  $  81,724  $  85,693  $  99,869  $  127,020
                                          1995     71,893     74,882     73,167      84,788

  Gross profit........................... 1996     19,386     19,996     20,588      31,535
                                          1995     17,269     17,718     16,295      20,500

  Income from Continuing Operations...... 1996      2,831      3,463      3,027       5,255
                                          1995      2,269      2,846      2,316       3,909

  Income (loss) from Discontinued                                                          
    Operations........................... 1996     --         --         --          --    
                                          1995        694       (510)    --          --    

  Net income............................. 1996      2,831      3,463      3,027       5,255
                                          1995      2,963      2,336      2,316       3,909

PER COMMON SHARE:                                                                          

  Income from Continuing Operations...... 1996  $    0.19  $    0.23  $    0.20  $     0.34
                                          1995       0.15       0.19       0.15        0.25

  Income (loss) from Discontinued                                                          
    Operations........................... 1996     --         --         --          --    
                                          1995       0.05      (0.03)    --          --    

Net income............................... 1996       0.19       0.23       0.20        0.34
                                          1995       0.20       0.16       0.15        0.25

Market price range:                                                                        

  High................................... 1996      10.00      12.25      11.88       20.00
  Low.................................... 1996       7.88       9.13      10.25       11.88

  High................................... 1995       7.50       8.00       9.25        9.00
  Low.................................... 1995       5.50       6.38       6.38        7.50

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS 

(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                                  JUNE 30,    DECEMBER 31,
                                                                                    1997          1996    
                                                                                 -----------  ------------
                                                                                 (UNAUDITED)              
                                                                                                          
                                                   ASSETS                                                 
CURRENT ASSETS:                                                                                           
  Cash..........................................................................  $  2,167      $  4,786  
  Receivables, net of allowance for doubtful accounts of $8,852 and $6,676......    48,038        57,802  
  Inventories...................................................................    25,689        25,400  
  Prepaids and other............................................................     2,599         3,015  
  Deferred tax assets...........................................................     7,339         7,339  
  Net assets held for sale......................................................       630           676  
                                                                                 -----------  ------------
    Total current assets........................................................    86,462        99,018  

PROPERTY, PLANT AND EQUIPMENT:                                                                            
  Land..........................................................................    12,551         7,843  
  Buildings.....................................................................    35,131        29,507  
  Machinery and equipment.......................................................    80,189        70,239  
                                                                                 -----------  ------------
    Gross property, plant and equipment.........................................   127,871       107,589  
  Less: Accumulated depreciation................................................   (27,163)      (22,807) 
                                                                                 -----------  ------------
    Net property, plant and equipment...........................................   100,708        84,782  

INTANGIBLE AND OTHER ASSETS:                                                                              
  Identifiable intangible assets................................................    71,808        73,146  
  Goodwill......................................................................    90,189        96,175  
  Deferred financing costs......................................................     2,495         2,731  
  Other assets..................................................................       661           139  
                                                                                 -----------  ------------
    Total intangible and other assets...........................................   165,153       172,191  
                                                                                 -----------  ------------
TOTAL ASSETS....................................................................  $352,323      $355,991  
                                                                                 -----------  ------------
                                                                                 -----------  ------------

                                    LIABILITIES AND STOCKHOLDERS' EQUITY                                  

CURRENT LIABILITIES:                                                                                      
  Accounts payable..............................................................  $ 27,102      $ 32,968  
  Accrued liabilities...........................................................    36,364        39,923  
  Current portion of long-term debt.............................................    11,500         8,000  
                                                                                 -----------  ------------
    Total current liabilities...................................................    74,966        80,891  

LONG-TERM DEBT (net of current maturities)......................................   169,200       177,349  

OTHER LONG-TERM LIABILITIES.....................................................     3,020         3,269  

DEFERRED TAX LIABILITIES........................................................     5,694         5,694  

STOCKHOLDERS' EQUITY:                                                                                     
  Common stock, $.01 par value, 50,000,000 shares authorized; 15,382,942 shares                           
    in 1997 and 15,261,061 shares issued in 1996................................       153           153  
  Additional paid-in capital....................................................    73,873        73,179  
  Treasury stock, at cost (767,000 shares in 1997 and 1996).....................    (6,140)       (6,140) 
  Retained earnings.............................................................    31,557        21,596  
                                                                                 -----------  ------------
    Total stockholders' equity..................................................    99,443        88,788  
                                                                                 -----------  ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................  $352,323      $355,991  
                                                                                 -----------  ------------
                                                                                 -----------  ------------

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

                                                        [Enlarge/Download Table]

                                                           THREE MONTHS ENDED             SIX MONTHS ENDED       
                                                                JUNE 30,                      JUNE 30,           
                                                      ----------------------------  ---------------------------- 
                                                          1997           1996           1997           1996      
                                                      -------------  -------------  -------------  ------------- 
                                                                                                                 
NET SALES...........................................  $     140,374  $      85,693  $     270,672  $     167,417 
  Cost of goods sold................................        100,953         65,698        196,022        128,036 
  Selling, distribution, and general and                                                                         
    administrative..................................         26,337         14,239         51,223         28,737 
                                                      -------------  -------------  -------------  ------------- 
OPERATING INCOME....................................         13,084          5,756         23,427         10,644 

OTHER (INCOME) AND EXPENSES:                                                                                     
  Interest expense..................................          3,310            645          6,562          1,342 
  Amortization of deferred financing costs..........            116             95            236            190 
  Other income, net.................................           (131)          (191)          (249)          (382)
                                                      -------------  -------------  -------------  ------------- 
INCOME BEFORE INCOME TAXES..........................          9,789          5,207         16,878          9,494 
  Provision for income taxes........................          4,012          1,744          6,917          3,200 
                                                      -------------  -------------  -------------  ------------- 
NET INCOME..........................................  $       5,777  $       3,463  $       9,961  $       6,294 
                                                      -------------  -------------  -------------  ------------- 
                                                      -------------  -------------  -------------  ------------- 
EARNINGS PER COMMON SHARE...........................  $         .37  $         .23  $         .64  $         .42 
                                                      -------------  -------------  -------------  ------------- 
                                                      -------------  -------------  -------------  ------------- 
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES                                                             
  OUTSTANDING.......................................     15,716,000     14,724,000     15,643,651     14,778,316 

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(UNAUDITED, DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                                                                             SIX MONTHS ENDED     
                                                                                                 JUNE 30,         
                                                                                          ----------------------- 
                                                                                             1997         1996    
                                                                                          -----------  ---------- 
                                                                                                                  
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                             
  Cash received from customers........................................................... $   280,622  $  169,021 
  Interest received......................................................................          35         127 
  Income tax refund......................................................................     --              156 
  Cash paid to suppliers and employees...................................................    (245,771)   (148,572)
  Interest paid..........................................................................      (7,415)     (1,617)
  Income taxes paid......................................................................      (7,773)     (2,807)
                                                                                          -----------  ---------- 

NET CASH PROVIDED BY OPERATING ACTIVITIES................................................      19,698      16,308 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                             
  Acquisition of subsidiary: Working capital.............................................      (1,290)       (125)
  Property, plant and equipment..........................................................      (1,559)     (3,613)
  Other assets...........................................................................      (4,151)     (3,315)
                                                                                          -----------  ---------- 

    Net cash used by acquisition of subsidiary...........................................      (7,000)     (7,053)

  Capital expenditures...................................................................     (10,121)     (4,455)
  Proceeds from sale of fixed assets.....................................................          19      --     
  Other..................................................................................      (1,260)      1,173 
                                                                                          -----------  ---------- 
NET CASH USED BY INVESTING ACTIVITIES....................................................     (18,362)    (10,335)

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                             
  Proceeds from issuance of common stock.................................................         694         118 
  Net payments under revolving credit facility...........................................        (649)     --     
  Payments on long-term debt.............................................................      (4,000)     (4,000)
  Purchase of treasury stock.............................................................     --           (4,300)
                                                                                          -----------  ---------- 

NET CASH USED BY FINANCING ACTIVITIES....................................................      (3,955)     (8,182)
                                                                                          -----------  ---------- 

NET DECREASE IN CASH.....................................................................      (2,619)     (2,209)

CASH, BEGINNING OF PERIOD................................................................       4,786       5,811 
                                                                                          -----------  ---------- 

CASH, END OF PERIOD...................................................................... $     2,167  $    3,602 
                                                                                          -----------  ---------- 
                                                                                          -----------  ---------- 

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATIONS 

(UNAUDITED, DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                                                                               SIX MONTHS ENDED   
                                                                                                   JUNE 30,       
                                                                                             -------------------- 
                                                                                               1997       1996    
                                                                                             ---------  --------- 
                                                                                                                  
NET INCOME.................................................................................. $   9,961  $   6,294 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FLOW FROM OPERATIONS:                                             
  Depreciation..............................................................................     5,243      2,938 
  Amortization of intangibles...............................................................     2,988      1,350 
  Increase in deferred taxes................................................................    --             21 

Change in assets and liabilities, net of effects from acquisition of subsidiary:                                  
  Accounts receivable.......................................................................    10,477      1,604 
  Inventories...............................................................................       398     (1,094)
  Prepaids and other........................................................................       416        (70)
  Accounts payable..........................................................................    (5,866)     2,384 
  Accrued liabilities.......................................................................    (3,670)     3,018 
  Long-term liabilities.....................................................................      (249)      (138)
                                                                                             ---------  --------- 
NET CASH PROVIDED BY OPERATIONS............................................................. $  19,698  $  16,308 
                                                                                             ---------  --------- 
                                                                                             ---------  --------- 

The accompanying notes are an integral part of these consolidated statements. 

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1997 

1. CONSOLIDATED FINANCIAL STATEMENTS                                            

  The consolidated financial statements as of June 30, 1997, and for the six
months then ended have been prepared by The Morningstar Group Inc. (the         
"Company" or "Morningstar") without audit. In the opinion of management, all    
necessary adjustments (which include only normal recurring adjustments) to      
present fairly, in all material respects, the consolidated financial position,  
results of operations and changes in cash flows at June 30, 1997, and for the   
six months then ended, have been made. Certain information and footnote         
disclosures normally included in financial statements prepared in accordance    
with generally accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the Company's 1996 financial      
statements contained in its most recent Annual Report on Form10-K. Certain prior
year balances have been reclassified to conform to the current year             
presentation.                                                                   

    On February 3, 1997, the Company completed the purchase of substantially all
of the assets of the frozen whipped toppings business of Van de Kamp's, Inc.    
("VDK"). VDK's sales for the year ended December 31, 1996 were approximately    
$13.1 million. VDK is a manufacturer and distributor of frozen whipped toppings 
primarily supplying retail customers throughout the United States. The Company  
paid approximately $7.0 million in cash for the assets acquired, and assumed    
approximately $.1 million in related liabilities. The source of funding was     
provided by the Company's operations in conjunction with its revolving credit   
facility.                                                                       

  During the first six months of 1997, the company received appraised values
on certain assets acquired in the Presto Food Products, Inc. acquisition. As a  
result, the allocation of the purchase price was revised resulting in a         
reclassification of $9.2 million from goodwill to property, plant and equipment.

2. INVENTORIES                                                                  

 Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out method. Inventories are summarized as follows (in 
thousands):                                                                     

                                                        [Enlarge/Download Table]

                                                          AT JUNE 30,                        
                                                             1997        AT DECEMBER 31, 1996
                                                        ---------------  --------------------
                                                                                             
Raw materials and supplies.............................    $  14,443          $   11,767     
Finished goods.........................................       11,246              13,633     
                                                             -------             -------     
  Total................................................    $  25,689          $   25,400     
                                                             -------             -------     
                                                             -------             -------     

  Finished goods inventories include the costs of materials, labor and plant
overhead.                                                                       

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THE MORNINGSTAR GROUP INC. AND SUBSIDIARIES 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 1997 

3. DEBT                                                                         

The Company's outstanding long-term debt and average interest rates in  
effect on June 30, 1997 were:                                                   

                                                        [Enlarge/Download Table]

                                                                                 AMOUNT OF DEBT  AVERAGE INTEREST RATE
                                                                                 --------------  ---------------------
                                                                                 (IN THOUSANDS)                       
                                                                                                                      
Senior term loan................................................................    $156,000            7.130%        
Revolving credit facility (a)...................................................      21,700            7.256%        
Industrial development revenue bonds............................................       3,000            4.080%        
                                                                                 --------------                       
  Total.........................................................................     180,700                          
Less: Current maturities........................................................      11,500                          
                                                                                 --------------                       
Long-term debt, net of current maturities.......................................    $169,200                          
                                                                                 --------------                       
                                                                                 --------------                       

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

(a) As of June 30, 1997, approximately $21,700,000 was outstanding under the    
revolving credit facility and letters of credit totaling $7,974,000 were
issued. As of June 30, 1997, the Company had $30,326,000 in additional  
borrowing capacity under the terms of its revolving credit facility.    

4. EARNINGS PER COMMON SHARE                                                    

The earnings per common share is computed based on the weighted average 
number of shares of the Company's common stock and common stock equivalents     
outstanding during the period. Common stock equivalents represent the dilutive  
effect of the assumed exercise of certain outstanding stock options.            

 The Company intends to adopt SFAS No. 128 "Earnings Per Share" "SFAS 128"
effective December 15, 1997 and present December 31, 1997 and prior periods     
earnings per share under SFAS128. Early adoption of the new statement is not    
permitted. The calculation of basic earnings per share under SFAS 128 will have 
a favorable impact as it excludes potentially dilutive options previously       
included in the calculation of primary earnings per share.                      

5. STOCK REPURCHASE PROGRAM                                                     

On June 21, 1995, the Company's Board of Directors announced that it had
approved a plan pursuant to which the Company may repurchase up to $20.0 million
of its common stock. The purchases will be effected through open market         
transactions or negotiated transactions from time to time, depending on the     
market price of the stock and other factors. As of December 31, 1996, 767,000   
shares had been repurchased by the Company at a cost of $6.1 million. As of June
30, 1997, the Company had not purchased any additional shares.                  

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INDEPENDENT AUDITORS' REPORT

Board of Directors                                                              
Country Fresh, Inc.                                                             
Grand Rapids, Michigan                                                          

We have audited the accompanying consolidated balance sheets of Country Fresh,  
Inc. and subsidiaries as of March 1, 1997 and March 2, 1996, and the related    
consolidated statements of earnings, shareholders' equity and cash flows for    
each of the three years in the period ended March 1, 1997. These financial      
statements are the responsibility of the Company's management. Our              
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

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, such financial statements present fairly, in all material respects,
the consolidated financial position of Country Fresh, Inc. and subsidiaries as  
of March 1, 1997 and March 2, 1996, and the consolidated results of their       
operations and their cash flows for each of the three years in the period ended 
March 1, 1997, in conformity with generally accepted accounting principles.     

  As discussed in Note 6 to the consolidated financial statements, in fiscal
year 1995 the Company changed its method of accounting for postretirement       
benefits other than pensions to conform with Statement of Financial Accounting  
Standards No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions."                                                                      

                       DELOITTE & TOUCHE LLP

Grand Rapids, Michigan                                                          
May 5, 1997                                                                     

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COUNTRY FRESH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 

                                                        [Enlarge/Download Table]

                                                                                    MARCH 2,      MARCH 1,      JULY 19,   
                                                                                      1996          1997          1997     
                                                                                  ------------  ------------  ------------ 
                                                                                                              (UNAUDITED)  
                                                                                                                           
                                                          ASSETS                                                           
CURRENT ASSETS:                                                                                                            
  Cash and cash equivalents.....................................................  $ 11,651,121  $ 10,524,048  $  6,697,162 
  Accounts receivable, net of the allowance for doubtful accounts of $1,227,000,                                           
    $670,000 and $672,000.......................................................    23,863,323    24,311,205    26,084,045 
  Inventories (Note 2)..........................................................    12,564,674    14,297,557    18,846,324 
  Deferred taxes on income (Note 7).............................................     1,122,000     1,168,000     1,186,000 
  Prepaid income taxes..........................................................        94,213                             
  Prepaid expenses and other....................................................     1,117,599       998,880       240,585 
                                                                                  ------------  ------------  ------------ 
    Total current assets........................................................    50,412,930    51,299,690    53,054,116 
DEFERRED TAXES ON INCOME (Note 7)...............................................     2,543,000     2,970,000     3,059,000 
PROPERTY, PLANT AND EQUIPMENT (Note 4):.........................................                                           
  Land and improvements.........................................................     2,852,510     3,124,502     3,224,502 
  Buildings.....................................................................    26,796,538    29,814,418    29,814,418 
  Machinery and equipment.......................................................    56,456,723    61,210,938    64,346,224 
  Shipping containers...........................................................     8,881,155     9,475,755     9,579,400 
  Transportation equipment......................................................    12,507,898    14,391,892    14,633,233 
                                                                                  ------------  ------------  ------------ 
                                                                                   107,494,824   118,017,505   121,597,777 
  Accumulated depreciation......................................................   (68,987,812)  (75,335,243)  (78,122,058)
                                                                                  ------------  ------------  ------------ 
                                                                                    38,507,012    42,682,262    43,475,719 
OTHER ASSETS....................................................................     3,302,314     2,254,340     2,352,934 
                                                                                  ------------  ------------  ------------ 
TOTAL ASSETS....................................................................  $ 94,765,256  $ 99,206,292  $101,941,769 
                                                                                  ------------  ------------  ------------ 
                                                                                  ------------  ------------  ------------ 

                                           LIABILITIES AND SHAREHOLDERS' EQUITY                                            
CURRENT LIABILITIES:                                                                                                       
  Trade accounts payable........................................................  $ 18,029,941  $ 18,973,756  $ 19,226,753 
  Accrued expenses (Note 3).....................................................    11,297,087    11,659,319    11,089,591 
  Income taxes payable..........................................................                   1,963,787     2,262,333 
  Current portion of long-term debt (Note 4)....................................     2,809,721     2,835,646     3,766,924 
                                                                                  ------------  ------------  ------------ 
    Total current liabilities...................................................    32,136,749    35,432,508    36,345,601 
LONG-TERM DEBT (Note 4).........................................................    32,152,297    28,571,200    26,522,684 
POST RETIREMENT BENEFITS (Notes 5 and 6)........................................     5,350,118     3,668,633     3,557,633 
COMMITMENTS AND CONTINGENCIES (Note 8)                                                                                     
SHAREHOLDERS' EQUITY (Note 98):                                                                                            
  Preferred stock, Series A, 8% cumulative, par value $320 a share; 31,250                                                 
    authorized shares...........................................................     3,800,000     3,741,120     3,741,120 
  Common stock, no par value; 15,000,000 authorized shares......................     1,774,092     1,869,950     1,897,660 
  Retained earnings.............................................................    19,552,000    25,922,881    29,877,071 
                                                                                  ------------  ------------  ------------ 
    Total shareholders' equity..................................................    25,126,092    31,533,951    35,515,851 
                                                                                  ------------  ------------  ------------ 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................................  $ 94,765,256  $ 99,206,292  $101,941,769 
                                                                                  ------------  ------------  ------------ 
                                                                                  ------------  ------------  ------------ 

See notes to consolidated financial statements. 

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COUNTRY FRESH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS 

                                                        [Enlarge/Download Table]

                                                                            YEARS ENDED                     TWENTY WEEKS ENDED     
                                                              ----------------------------------------  -------------------------- 
                                                              FEBRUARY 25,    MARCH 2,      MARCH 1,      JULY 20,      JULY 19,   
                                                                  1995          1996          1997          1996          1997     
                                                              ------------  ------------  ------------  ------------  ------------ 
                                                                                                        (UNAUDITED)   (UNAUDITED)  
                                                                                                                                   
NET SALES...................................................  $310,164,014  $336,054,590  $353,037,053  $135,327,698  $136,154,331 
COST OF GOODS SOLD..........................................   268,500,028   291,721,220   305,613,569   115,962,551   116,232,837 
                                                              ------------  ------------  ------------  ------------  ------------ 
  Gross profit..............................................    41,663,986    44,333,370    47,423,484    19,365,147    19,921,494 
OPERATING COSTS AND EXPENSES:                                                                                                      
  Selling and distribution..................................    21,224,430    21,632,703    19,916,061     7,396,735     7,216,944 
  General and administrative................................    15,036,712    15,699,730    16,009,777     5,907,043     6,234,400 
  Amortization of intangibles...............................        99,618        82,540       656,410        33,272        19,022 
                                                              ------------  ------------  ------------  ------------  ------------ 
    Total operating costs and expenses......................    36,360,760    37,414,973    36,582,248    13,337,050    13,470,366 
                                                              ------------  ------------  ------------  ------------  ------------ 
INCOME FROM OPERATIONS......................................     5,303,226     6,918,397    10,841,236     6,028,097     6,451,128 
OTHER (INCOME) EXPENSE:                                                                                                            
  Interest (income) expense, net............................      (258,505)    1,392,648     1,219,353       613,168       597,186 
  Miscellaneous income......................................      (551,116)     (633,310)     (435,642)     (111,535)     (254,070)
                                                              ------------  ------------  ------------  ------------  ------------ 
    Total other (income) expense............................      (809,621)      759,338       783,711       501,633       343,116 
                                                              ------------  ------------  ------------  ------------  ------------ 
EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE                                                                       
  IN ACCOUNTING.............................................     6,112,847     6,159,059    10,057,525     5,526,464     6,108,012 
INCOME TAXES (Note 7).......................................     2,145,000     2,090,000     3,385,000     1,884,000     2,079,000 
                                                              ------------  ------------  ------------  ------------  ------------ 
EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING...     3,967,847     4,069,059     6,672,525     3,642,464     4,029,012 
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR POSTRETIREMENT                                                                       
  BENEFITS OTHER THAN PENSIONS (NET OF INCOME TAX BENEFIT OF                                                                       
  $1,170,376) (Note 6)......................................     2,271,907                                                         
                                                              ------------  ------------  ------------  ------------  ------------ 
NET EARNINGS................................................  $  1,695,940  $  4,069,059  $  6,672,525  $  3,642,464  $  4,029,012 
                                                              ------------  ------------  ------------  ------------  ------------ 
                                                              ------------  ------------  ------------  ------------  ------------ 
NET EARNINGS PER COMMON SHARE:                                                                                                     
  Before cumulative effect of change in accounting..........  $       0.52  $       1.04  $       1.75  $       0.97  $       1.07 
  Cumulative effect of change in accounting.................         (0.30)                                                        
                                                              ------------  ------------  ------------  ------------  ------------ 
    Net earnings............................................  $       0.22  $       1.04  $       1.75  $       0.97  $       1.07 
                                                              ------------  ------------  ------------  ------------  ------------ 
                                                              ------------  ------------  ------------  ------------  ------------ 
WEIGHTED AVERAGE SHARES OUTSTANDING.........................     7,622,840     3,609,245     3,636,519     3,631,758     3,685,236 
                                                              ------------  ------------  ------------  ------------  ------------ 
                                                              ------------  ------------  ------------  ------------  ------------ 

See notes to consolidated financial statements. 

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COUNTRY FRESH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 

TWENTY WEEKS ENDED JULY 19, 1997 AND YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 
AND FEBRUARY 25, 1995 

                                                        [Enlarge/Download Table]

                                     PREFERRED STOCK SERIES                                                                     
                                        A 8% CUMULATIVE           COMMON STOCK        ADDITIONAL                                
                                     ----------------------  -----------------------    PAID-IN      RETAINED                   
                                      SHARES      AMOUNT       SHARES      AMOUNT       CAPTIAL      EARNINGS         TOTAL     
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
                                                                                                                                
BALANCE, February 27, 1994.........                             191,313  $ 3,884,020  $ 6,305,559  $  39,416,901  $  49,606,480 

  Net earnings.....................                                                                    1,695,940      1,695,940 
  Issuance of common stock.........                               2,669       56,900      462,532                       519,432 
  Redemption of common stock.......                              (2,291)     (48,220)     (48,530)      (373,966)      (470,716)
  Recapitalization expenses........                                                       (86,569)                      (86,569)
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
BALANCE, February 25, 1995.........     --          --          191,691    3,892,700    6,632,992     40,738,875     51,264,567 

  Net earnings.....................                                                                    4,069,059      4,069,059 
  Redemption of Class A common                                                                                                  
    stock and exchange of 40 shares                                                                                             
    of no par common stock for                                                                                                  
    Class B common stock...........                           7,451,549      (73,600)                                   (73,600)
  Redemption of common pursuant to                                                                                              
    the redemption and exchange                                                                                                 
    offer..........................     11,875    3,800,000  (4,157,520)  (2,078,760)  (6,632,992)   (24,548,365)   (29,460,117)
  Issuance of common stock.........                               4,459       35,672                                     35,672 
  Redemption of common stock.......                                (240)      (1,920)                                    (1,920)
  Recapitalization expenses........                                                                     (403,569)      (403,569)
  Preferred stock dividends........                                                                     (304,000)      (304,000)
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
BALANCE, March 2, 1996.............     11,875    3,800,000   3,489,939    1,774,092      --          19,552,000     25,126,092 

  Net earnings.....................                                                                    6,672,525      6,672,525 
  Issuance of common stock.........                              11,637       97,458                                     97,458 
  Redemption of common and                                                                                                      
    preferred stock................       (184)     (58,880)       (200)      (1,600)                                   (60,480)
  Preferred stock dividends........                                                                     (301,644)      (301,644)
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
BALANCE, March 1, 1997.............     11,691    3,741,120   3,501,376    1,869,950      --          25,922,881     31,533,951 

  Net earnings (Unaudited).........                                                                    4,029,012      4,029,012 
  Issuance of common stock                                                                                                      
    (Unaudited)....................                               2,611       27,710                                     27,710 
  Preferred stock dividends                                                                                                     
    (Unaudited)....................                                                                      (74,822)       (74,822)
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
BALANCE, July 19, 1997                                                                                                          
  (Unaudited)......................     11,691  $ 3,741,120   3,503,987  $ 1,897,660  $   --       $  29,877,071  $  35,515,851 
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 
                                     ---------  -----------  ----------  -----------  -----------  -------------  ------------- 

See notes to consolidated financial statements. 

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COUNTRY FRESH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS 

                                                        [Enlarge/Download Table]

                                                                            YEARS ENDED                    TWENTY WEEKS ENDED    
                                                              ----------------------------------------  ------------------------ 
                                                              FEBRUARY 25,     MARCH 2,     MARCH 1,     JULY 20,     JULY 19,   
                                                                  1995           1996         1997         1996         1997     
                                                              ------------   ------------  -----------  -----------  ----------- 
                                                                                                        (UNAUDITED)  (UNAUDITED) 
                                                                                                                                 
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                            
  Net earnings..............................................  $ 1,695,940    $  4,069,059  $ 6,672,525  $3,642,464   $4,029,012  
  Adjustments to reconcile net earnings to net cash provided                                                                     
    by operating activities:                                                                                                     
  Depreciation and amortization.............................    7,932,522       8,401,628    6,577,718   2,600,153    2,786,815  
  Deferred income taxes.....................................   (1,588,000)       (126,000)    (473,000)   (297,000 )   (107,000 )
  Post retirement benefits..................................    1,540,535         459,795     (410,845)   (158,018 )   (111,000 )
  Change in operating assets and liabilities, net of effect                                                                      
    of acquisitions:                                                                                                             
    Accounts receivable.....................................     (928,541)     (2,059,592)    (447,882) (4,991,501 ) (1,772,840 )
    Inventories.............................................   (1,064,010)       (363,904)  (1,732,883) (2,181,767 ) (2,279,467 )
    Prepaid expenses and other..............................      136,117          47,688      118,719     403,871      758,295  
    Accounts payable and accrued expenses...................    1,882,944       2,024,370    1,267,868   7,899,393     (316,731 )
    Income taxes............................................   (1,487,000)       (313,005)   2,058,000     864,000      298,546  
                                                              ------------   ------------  -----------  -----------  ----------- 
      Net cash provided by operating activities.............    8,120,507      12,140,039   13,630,220   7,781,595    3,285,630  
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                            
  Purchases of property, plant and equipment................   (5,817,122)     (7,213,562)  (8,810,163) (3,497,237 ) (2,380,272 )
  Cash paid for acquisitions (Note 10)......................   (3,862,913)                                           (3,469,300 )
  (Increase) decrease in other assets.......................    1,336,367      (1,112,394)    (307,292)    536,079      (98,594 )
                                                              ------------   ------------  -----------  -----------  ----------- 
      Net cash used in investing activities.................   (8,343,668)     (8,325,956)  (9,117,455) (2,961,158 ) (5,948,166 )

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                            
  Payments on long-term debt................................   (1,465,454)     (7,231,685)  (5,375,172) (1,183,941 ) (1,217,238 )
  Proceeds from long-term borrowings........................                   27,000,000                               100,000  
  Payments of recapitalization expenses.....................      (86,569)       (403,569)                                       
  Proceeds from issuance of common stock....................      519,432          35,672       97,458      93,426       27,710  
  Redemption of preferred and common stock..................     (470,716)    (28,319,096)     (60,480)                          
  Dividends paid on preferred stock.........................                     (304,000)    (301,644)    (60,480 )    (74,822 )
                                                              ------------   ------------  -----------  -----------  ----------- 
      Net cash used in financing activities.................   (1,503,307)     (9,222,678)  (5,639,838) (1,150,995 ) (1,164,350 )
                                                              ------------   ------------  -----------  -----------  ----------- 
NET DECREASE IN CASH AND CASH EQUIVALENTS...................   (1,726,468)     (5,408,595)  (1,127,073)  3,669,442   (3,826,886 )

CASH AND CASH EQUIVALENTS, BEGINNING........................   18,786,184      17,059,716   11,651,121  11,651,121   10,524,048  
                                                              ------------   ------------  -----------  -----------  ----------- 
CASH AND CASH EQUIVALENTS, ENDING...........................  $17,059,716    $ 11,651,121  $10,524,048  $15,320,563  $6,697,162  
                                                              ------------   ------------  -----------  -----------  ----------- 
                                                              ------------   ------------  -----------  -----------  ----------- 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                                                
  Interest paid.............................................  $   615,498    $  2,272,540  $ 1,993,371  $  947,085   $  629,580  
  Taxes on income paid......................................    4,050,000       2,500,000    1,800,000     600,000    2,300,000  

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING                                                                      
  ACTIVITIES:                                                                                                                    
  Issuance of installment notes for the purchase of                                                                              
    transportation equipment................................  $ 1,652,233    $    --       $ 1,820,000  $   --       $   --      
  Collection of note receivable through the redemption of                                                                        
    common stock in the recapitalization (Note 8)...........                    1,216,541                                        

See notes to consolidated financial statements. 

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COUNTRY FRESH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

  BUSINESS--Country Fresh, Inc. and its subsidiaries (the "Company") process
and market dairy and other related products to customers primarily located in   
Michigan, northern Indiana, and northern Ohio. The Company provides credit terms
to its customers generally ranging up to 30 days, perform ongoing credit        
evaluations of their customers and maintain allowances for potential credit     
losses and rebates and allowances based on historical experience.               

  PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Country Fresh, Inc. and its wholly owned subsidiaries. All      
significant intercompany profits, transactions and balances have been eliminated
in consolidation.                                                               

    USE OF ESTIMATES--The preparation of 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  
disclosure of contingent assets and liabilities at the date of the financial    
statements and the reported amounts of revenues and expenses during the         
reporting period. Although management believes the estimates are reasonable,    
actual results could differ from those estimates.                               

   FISCAL YEAR--The fiscal year of the Company ends on the Saturday closest to
the end of February. The fiscal years ended March 1, 1997 and February 25, 1995 
were comprised of fifty-two weeks, whereas the fiscal year ended March 2, 1996  
was comprised of fifty-three weeks. References to fiscal years 1995, 1996 and   
1997 represent the Company's fiscal years ended February 25, 1995, March 2, 1996
and March 1, 1997, respectively.                                                

CASH AND CASH EQUIVALENTS--Cash and cash equivalents consist of cash and
highly-liquid investments purchased with a remaining maturity at date of        
purchase of approximately three months or less.                                 

 INVENTORIES--Inventories are primarily stated at the lower of cost, using
the LIFO (last-in, first-out) method, or market. The cost of manufactured       
finished goods inventories include raw materials direct labor and indirect      
production and overhead costs.                                                  

PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment assets are 
recorded at cost. Depreciation is computed using both the straight-line and     
declining balance methods based on the estimated useful lives of the related    
assets.                                                                         

                                                        [Enlarge/Download Table]

                   ASSET                                      USEFUL LIFE                 
--------------------------------------------  --------------------------------------------
                                                                                          
Buildings and improvements                                  Ten to 20 years               
Machinery and equipment                                    Three to 12 years              
Shipping containers                                           Three years                 
Transportation equipment                                    Five to 12 years              

   Expenditures for maintenance and repairs are charged to expense as incurred
whereas major additions are capitalized.                                        

The Company periodically assesses the carrying values of its long lived 
assets, which primarily consists of its property, plant and equipment assets, by
comparing the expected undiscounted future cash flows to the carrying amount of 
the asset, and would evaluate a potential impairment if the recorded value of   
these                                                                           

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COUNTRY FRESH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                       
assets exceeded the associated future cash flows. Any adjustment to the carrying
value of long-lived assets is recognized on a current basis.                    

 DEFERRED INCOME TAXES--Deferred income taxes are computed for differences
between the financial statement and tax basis of assets and liabilities that    
will result in taxable or deductible amounts in the future. Such deferred income
tax asset and liability computations are based on enacted tax laws and rates    
applicable to periods in which the differences are expected to affect taxable   
income. Valuation allowances are established when necessary to reduce deferred  
tax assets to the amounts expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period 
in deferred tax assets and liabilities.                                         

  EARNINGS PER COMMON SHARE--The Company computes earnings per common shared
by dividing net earnings less dividends on preferred stock by the weighted      
average number of common shares outstanding, including common equivalent shares.

  UNAUDITED INTERIM FINANCIAL STATEMENTS--The Company's consolidated balance
sheet as of July 19, 1997 and the consolidated statements of earnings,          
shareholders' equity and of cash flows for the twenty weeks ended July 20, 1996 
and July 19, 1997, have been prepared by the Company without audit. In the      
opinion of management, all adjustments (which include only normal, recurring    
adjustments) necessary to present fairly the balance sheet of the Company at    
July 19, 1997, and the results of operations and cash flows of the Company for  
the twenty weeks ended July 20, 1996 and July 19, 1997, have been made. The     
results of operations for the interim periods are not necessarily indicative of 
the results to be expected for the full year.                                   

2. INVENTORIES                                                                  

Inventories consist of the following:                                   

                                                        [Enlarge/Download Table]

                                                              MARCH 2,     MARCH 1,     JULY 19,   
                                                                1996         1997         1997     
                                                             -----------  -----------  ----------- 
                                                                                       (UNAUDITED) 
                                                                                                   
Finished products........................................... $ 7,099,479  $ 8,135,843  $11,199,792 
Raw materials...............................................   3,010,340    5,498,844    7,054,746 
Containers..................................................   3,103,377    1,334,458    1,472,069 
                                                             -----------  -----------  ----------- 
                                                              13,213,196   14,969,145   19,726,607 
Less LIFO reserve...........................................    (648,522)    (671,588)    (880,283)
                                                             -----------  -----------  ----------- 
                                                             $12,564,674  $14,297,557  $18,846,324 
                                                             -----------  -----------  ----------- 
                                                             -----------  -----------  ----------- 

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COUNTRY FRESH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

3. ACCRUED EXPENSES                                                             

Accrued expenses consist of the following:                              

                                                                [Download Table]

                                         MARCH 2,    MARCH 1,    JULY 19,  
                                           1996        1997        1997    
                                        ----------  ----------  ---------- 
                                                                (UNAUDITED)
                                                                           
Payroll...............................  $3,305,793  $3,428,354  $2,871,207 
Discounts, rebates and allowances.....   2,837,837   2,982,688   1,625,292 
Insurance.............................   1,702,439   1,689,717   1,942,919 
Retirement and pension................     698,113     799,193   1,226,093 
Containers............................   2,752,905   2,759,367   3,424,080 
                                        ----------  ----------  ---------- 
                                        $11,297,087 11,659,319  11,089,591 
                                        ----------  ----------  ---------- 
                                        ----------  ----------  ---------- 

   The Company accrues customer discounts, rebates and allowances as earned by
its customers, which are generally paid either monthly, quarterly or annually   
pursuant to the terms of the arrangement with the specific customer.            

  The Company is self-insured in certain states, up to specified limits, for
workers' compensation claims. Individual workers' compensation claims in excess 
of $300,000 and aggregate workers' compensation claims between $2.2 million and 
$20 million are insured through an insurance carrier. In addition, the Company  
is self-insured, up to certain limits, for medical benefit claims. The estimated
cost of claims for workers' compensation and medical benefits are accrued as    
incurred in the consolidated financial statements.                              

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COUNTRY FRESH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

4. LONG-TERM DEBT                                                               

Long-term debt is summarized as follows:                                

                                                        [Enlarge/Download Table]

                                                               MARCH 2,     MARCH 1,     JULY 19,   
                                                                 1996         1997         1997     
                                                              -----------  -----------  ----------- 
                                                                                        (UNAUDITED) 
                                                                                                    
Credit agreement:                                                                                   
  Term loan facility........................................  $10,000,000  $ 8,000,000  $ 7,000,000 
  Revolving credit facility.................................   11,000,000   10,000,000   10,000,000 
Revenue bonds:                                                                                      
  Economic Development Corporation of the County of Elkhart,                                        
    Indiana.................................................    3,680,000    3,450,000    3,450,000 
  Economic Development Corporation of the City of Livonia,                                          
    Michigan................................................    2,780,000    2,570,000    2,570,000 
  Toledo-Lucas County Port Authority........................    4,590,000    4,335,000    4,335,000 
Installment loan............................................    1,512,262    1,809,968    1,758,816 
Promissory notes payable....................................    1,084,000    1,084,000    1,078,000 
Other notes payable.........................................      315,756      157,878       97,792 
                                                              -----------  -----------  ----------- 
                                                               34,962,018   31,406,846   30,289,608 
Less current portion........................................   (2,809,721)  (2,835,646)  (3,766,924)
                                                              -----------  -----------  ----------- 
Total long-term debt........................................  $32,152,297  $28,571,200  $26,552,684 
                                                              -----------  -----------  ----------- 
                                                              -----------  -----------  ----------- 

CREDIT AGREEMENT--The Company has a credit agreement with a syndicate of
banks which provides for both a term loan facility and a revolving credit       
facility, which are unsecured and mature on January 1, 2002. The term loan      
facility requires quarterly principal installments of $464,286 plus interest and
the revolving credit facility, which provides for maximum borrowings of up to   
$20 million, requires quarterly interest payments. The interest rate under the  
credit agreement is determined at the Company's option at either (i) the LIBOR  
rate (6.38% at March 1, 1997) plus between 1% and 1.5%, based on certain        
financial ratios of the Company, or (ii) the prime rate.                        

   In addition to amounts available under the revolving credit facility of the
credit agreement, the Company also has a $5 million unsecured line of credit    
with a bank, which expires in July 1998. No amounts are outstanding under this  
line of credit agreement,                                                       

REVENUE BONDS--The Company has three series of revenue bonds outstanding
which require aggregate annual sinking fund redemption installments of $695,000,
and are secured by irrevocable letters of credit issued by financial            
institutions, along with first mortgages on real property and equipment with an 
aggregate net book value of approximately $9,100,000 at March 1, 1997, for      
certain of the revenue bonds. Advances made, if any, under these letters of     
credit provide for repayment of such advances either ratably over the remaining 
life of the bond issue or within one year of such advance. Interest on the      
revenue bonds is due semi-annually at rates, determined by the remarketing      
agents (subject to certain maximums), which will approximate market conditions  
for tax exempt securities of the same stature. At March 1, 1997, the interest   
rates on the revenue bonds ranged from 3.4% to 3.75%. These revenues bonds are  
included in the accompanying schedule of maturities on long-term debt based on  
their mandatory sinking fund redemption installments.                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

4. LONG-TERM DEBT (CONTINUED)                                                   
  INSTALLMENT NOTE PAYABLE--The Company has an installment note payable with
monthly payments of principal and interest of $21,938, which bears interest at a
fixed rate of 7.85% through December 31, 2001 and a variable rate determined    
quarterly thereafter at the prime rate plus 1/2%. This installment note payable 
is collateralized by the Company's airplane.                                    

PROMISSORY NOTES PAYABLE--Between 1988 and 1993, the Company issued     
unsecured promissory notes in units of $1,000 pursuant to a Promissory Note     
Prospectus filed with the Corporation and Securities Bureau, Michigan Department
of Commerce. These promissory notes require quarterly interest payments at the  
prime rate less 1% (7.25% at March 1, 1997) with a minimum interest rate of 8%, 
which was reduced to 6% in 1993, and are repayable at the option of the Company 
on any quarterly interest payment date. At March 2, 1996 and March 1, 1997,     
$543,000 of these promissory notes were held by certain of the Company's        
shareholders.                                                                   

DEBT COVENANTS--The loans under the credit agreement and certain of the 
revenue bonds contain covenants which include restrictions on additional        
indebtedness and the payment of cash dividends in excess of prescribed amounts  
and require the Company to maintain certain minimum financial ratios, including:
a current ratio of 1.35 to 1.0; working capital of $18,500,000; tangible net    
worth of $21,500,000 at March 1, 1997, increasing $3,000,000 annually           
thereafter; a ratio of total liabilities to net worth of not more than 3.5 to   
1.0, decreasing .5 annually; and fixed charge coverage ratios (as defined) of   
2.0 to 1.0. The Company's working capital at March 1, 1997 and March 2, 1996 was
less than the required amounts, however, this covenant was waived by the        
respective lendors through February 1998.                                       

DEBT MATURITIES--At March 1, 1997, future annual maturities on long-term
debt are summarized as follows:                                                 

                                                                [Download Table]

YEAR ENDING                                                              
------------------------------------------------------------             
                                                                         
  1998......................................................  $ 2,835,646
  1999......................................................    2,687,992
  2000......................................................    2,699,049
  2001......................................................    2,711,005
  2002......................................................   11,438,220
  Thereafter................................................    9,034,934
                                                              -----------
  Total.....................................................  $31,406,846
                                                              -----------
                                                              -----------

At March 1, 1997 and March 2, 1996, the estimated fair value of the     
Company's long-term debt, including current maturities, approximated its        
carrying value. The estimated fair value was based on anticipated rates         
available to the Company for debt with similar terms and maturities.            

5. EMPLOYEE RETIREMENT PLANS                                                    

  The Company's retirement programs include both defined benefit and defined
contribution pension plans. Substantially all of the Company's supervisory and  
administrative personnel are covered by a non-contributory defined benefit      
pension plan and the employees of a subsidiary which are covered by a non-      
contributory defined benefit pension plan required by a collective bargaining   
agreement. The benefits                                                         

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

5. EMPLOYEE RETIREMENT PLANS (CONTINUED)                                        
under these defined benefit plans are based on years of service and, as to one  
of the plans, the employee's compensation. The Company's funding policy is to   
contribute annually the 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 defined benefit plans' funded status and
amounts recognized in the Company's balance sheets at March 1, 1997 and March 2,
1996, respectively:                                                             

                                                        [Enlarge/Download Table]

                                                                                      MARCH 2,       MARCH 1,    
                                                                                        1996           1997      
                                                                                    -------------  ------------- 
                                                                                                                 
Actuarial present value of benefit obligations:                                                                  
  Accumulated benefit obligation including vested benefit obligations of                                         
    $11,973,482 in 1997 and $10,462,548 in 1996.................................... $  10,943,674  $  12,508,894 
                                                                                    -------------  ------------- 
                                                                                    -------------  ------------- 
  Projected benefit obligation for service rendered to date........................ $  12,668,312  $  14,980,825 
Plan assets, at estimated fair value...............................................    11,624,776     14,056,504 
                                                                                    -------------  ------------- 
Projected benefit obligation in excess of the plan assets..........................     1,043,536        924,321 
Unrecognized net gain from past experience different from that assumed and effect                                
  of changes in assumptions........................................................     1,742,605      1,361,803 
Unrecognized prior service cost....................................................      (938,367)      (874,264)
Unrecognized initial net obligation at December 1, 1986 and March 1, 1987 being                                  
  amortized over 19 and 16 years, respectively.....................................      (823,258)      (735,027)
Adjustment required to reflect minimum liability...................................     1,232,462                
                                                                                    -------------  ------------- 
Accrued pension costs..............................................................     2,256,978        676,833 
Less current portion...............................................................      (250,000)      (200,000)
                                                                                    -------------  ------------- 
Long-term.......................................................................... $   2,006,978  $     476,833 
                                                                                    -------------  ------------- 
                                                                                    -------------  ------------- 

 Net periodic pension costs for the fiscal years ended 1995, 1996 and 1997
included the following components:                                              

                                                        [Enlarge/Download Table]

                                                                         1995           1996           1997      
                                                                     -------------  -------------  ------------- 
                                                                                                                 
Service cost-benefits earned during the year........................ $     724,759  $     748,726  $   1,023,899 
Interest cost on projected benefit obligation.......................       824,538        890,515        979,136 
Actual return on plan assets........................................      (316,919)    (1,824,261)    (1,673,896)
Net amortization and deferral.......................................      (385,888)     1,073,581        807,514 
                                                                     -------------  -------------  ------------- 
Net periodic pension costs.......................................... $     846,490  $     888,561  $   1,136,653 
                                                                     -------------  -------------  ------------- 
                                                                     -------------  -------------  ------------- 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

5. EMPLOYEE RETIREMENT PLANS (CONTINUED)                                        
Assumptions used in the actuarial valuations were:                      

                                                        [Enlarge/Download Table]

                                                                                              1995       1996       1997    
                                                                                            ---------  ---------  --------- 
                                                                                                                            
Discount rates.............................................................................      8.25%      7.25%      7.50%
Rates of increase in compensation levels...................................................      4.75%      3.75%      4.00%
Expected long-term rate of return on assets................................................      9.00%      9.00%      9.00%

   Substantially all of the Company's supervisory and administrative personnel
may elect coverage in a salary reduction defined contribution retirement plan.  
The plan provides for employer contributions as determined by the Board of      
Directors. The Company's matching contributions to this plan were approximately 
$110,000, $131,000 and $132,000 in 1995, 1996 and 1997, respectively.           

    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. Contributions to these  
plans amounted to approximately $245,000, $350,000 and $377,000 in 1995, 1996   
and 1997, respectively.                                                         

In addition to the plans described above, the Company participates in   
several multi-employer and other defined contribution plans covering            
substantially all union employees. The expense for these plans aggregated       
approximately $858,000, $809,000 and $848,000 in 1995, 1996 and 1997,           
respectively.                                                                   

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. Separate actuarial calculations of the Company's     
position are not available with respect to the multi-employer plans.            

6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS                                  

The Country Fresh, Inc. Employees' Retirement Health Care Plan provides 
health care benefits to certain retirees of one subsidiary, 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.                                

Effective February 27, 1994, the Company adopted Statement of Financial 
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits 
Other Than Pensions" (SFAS 106). Under SFAS 106, the Company is required to     
accrue the estimated cost of retiree benefit payments, other than pensions,     
during the employee's active service period. As permitted by SFAS 106, the      
Company elected to recognize immediately the cumulative effect of the change in 
accounting in the year ended February 25, 1995. The accumulated postretirement  
benefit obligation amounted to $3,543,140 and $3,479,979 at March 2, 1996 and   
March 1, 1997, respectively of which $3,343,140 and $3,191,800, respectively    
were considered long-term liabilities. Postretirement health care expense for   
1996 and 1997 consisted of interest cost on the accumulated postretirement      
benefit obligation of $280,547 and $225,018, respectively.                      

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)                      
   The Company continues to fund the cost of these benefits as incurred, which
required payments of $80,000, $180,000 and $287,000 in 1995, 1996 and 1997,     
respectively.                                                                   

 The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.58% for the fiscal year ended March 1,  
1997, gradually declining at a rate of approximately 1% per year to 5.25% in    
2005 and remaining at that level thereafter, and the assumed discount rate in   
determining the accumulated postretirement benefit obligation was 7.50%. 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 approximately 8% and 9%.             

7. TAXES ON INCOME                                                              

The Company and its subsidiaries file a consolidated federal income tax 
return. The provision for income taxes is comprised of the following:           

                                                        [Enlarge/Download Table]

                                                         1995          1996          1997     
                                                     ------------  ------------  ------------ 
                                                                                              
Currently payable................................... $  3,733,000  $  2,216,000  $  3,858,000 
Deferred............................................   (1,588,000)     (126,000)     (473,000)
                                                     ------------  ------------  ------------ 
Total............................................... $  2,145,000  $  2,090,000  $  3,385,000 
                                                     ------------  ------------  ------------ 
                                                     ------------  ------------  ------------ 

The effective income tax rates are different from the statutory federal 
income tax rates for the following reasons:                                     

                                                        [Enlarge/Download Table]

                                                                           1995       1996       1997    
                                                                         ---------  ---------  --------- 
                                                                                                         
Statutory federal income tax rate.......................................      34.0%      34.0%      34.0%
Other...................................................................       1.1       (0.1)      (0.3)
                                                                               ---        ---        --- 
Effective income tax rate...............................................      35.1%      33.9%      33.7%
                                                                               ---        ---        --- 
                                                                               ---        ---        --- 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

7. TAXES ON INCOME (CONTINUED)                                                  
    Deferred tax assets and liabilities resulting from temporary differences are
as follows at March 2, 1996 and March 1, 1997:                                  

                                                        [Enlarge/Download Table]

                                                                        1996                      1997           
                                                              ------------------------  ------------------------ 
                                                                                                                 
                                                                             DEFERRED                  DEFERRED  
                                                              DEFERRED TAX     TAX      DEFERRED TAX     TAX     
                                                                 ASSETS     LIABILITIES    ASSETS     LIABILITIES
                                                              ------------  ----------  ------------  ---------- 
Accounts receivable.......................................... $    415,000              $    235,000             
Inventory....................................................      180,000                   177,000             
Prepaid expenses.............................................               $  148,000                $  130,000 
Goodwill.....................................................                                195,000             
Depreciation.................................................      947,000                 1,399,000     105,000 
Employee benefits............................................    2,354,000                 2,281,000             
Other........................................................       68,000     151,000       119,000      33,000 
                                                              ------------  ----------  ------------  ---------- 
Total........................................................ $  3,964,000  $  299,000  $  4,406,000  $  268,000 
                                                              ------------  ----------  ------------  ---------- 
                                                              ------------  ----------  ------------  ---------- 

8. COMMITMENTS AND CONTINGENCIES                                                

  The Company leases a building, transportation equipment, certain packaging
equipment and computer equipment under operating lease agreements with terms    
ranging from 1 to 5 years. The transportation and packaging equipment leases    
provide for additional rentals based upon mileage and production, respectively, 
and the computer equipment lease agreements include an option to purchase the   
related equipment upon the expiration of the lease.                             

   As of March 1, 1997, future minimum rental commitments under non-cancelable
operating leases are as follows:                                                

                                                        [Enlarge/Download Table]

YEAR ENDING                                                                                   
--------------------------------------------------------------------------------              
                                                                                              
  1998..........................................................................  $  1,092,181
  1999..........................................................................       740,791
  2000..........................................................................       569,248
  2001..........................................................................       525,146
  2002..........................................................................        89,235
                                                                                  ------------
  Total.........................................................................  $  3,016,601
                                                                                  ------------
                                                                                  ------------

  Total rental expense for all non-cancelable operating leases was comprised
of the following:                                                               

                                                        [Enlarge/Download Table]

                                                         1995          1996          1997    
                                                     ------------  ------------  ------------
                                                                                             
Minimum rentals..................................... $  2,168,228  $  2,350,214  $  2,039,594
Contingent rentals..................................      855,658       654,063       692,726
                                                     ------------  ------------  ------------
Total............................................... $  3,023,886  $  3,004,277  $  2,732,320
                                                     ------------  ------------  ------------
                                                     ------------  ------------  ------------

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

9. SHAREHOLDERS' EQUITY                                                         

 Prior to February 21, 1995, the Company's common stock included shares of
both Class A and Class B common stock. On February 21, 1995, the Company's      
shareholders approved a Plan of Recapitalization which, effective February 26,  
1995, changed the Company's capital structure by redeeming all Class A common   
shares at $100 per share, converting each Class B common share into forty shares
of no par value voting common stock, and creating 800,000 shares of preferred   
stock of which 31,250 shares were designated as Series A, 8% cumulative with a  
par value of $320. In connection with this Plan of Recapitalization, the Company
also approved a Redemption and Exchange Offer (the "Offer"), whereby the Company
offered to redeem up to 4,293,400 shares of common stock at $8 per share and to 
convert up to 1,250,000 shares of common stock into Series A preferred stock at 
the rate of forty shares of common stock for each share of Series A preferred   
stock, par value $320 per share. As a result of the Offer, 3,682,520 shares of  
common stock were redeemed for cash and 475,000 shares of common stock were     
converted into 11,875 shares of Series A preferred stock. Payment for shares    
redeemed under the Offer was financed by borrowings of $27 million under a $35  
million credit facility. All per share and stock option data have been restated 
to reflect the recapitalization transaction.                                    

The Company's outstanding shares of common and preferred stock are held 
primarily by its customers. Net sales to customers who were also shareholders   
were approximately 43%, 41% and 35% of consolidated net sales in 1995, 1996 and 
1997, respectively.                                                             

Effective December 1, 1989, the Board of Directors established a stock  
option plan which provided for the grant of up to 1,000,000 stock options to    
acquire the Company's common stock to officers and key employees, at an exercise
price equal to market value on the date of grant. During 1994, the Board of     
Directors granted stock options to acquire 420,000 shares at $5.50 per share to 
one key employee. There have been no subsequent stock option grants since that  
date. As of March 2, 1996 and March 1, 1997, these options, covering 420,000    
shares, remained outstanding. The options vest ratably over seven years from the
grant date and must be exercised within twelve years of the date of grant. As of
March 1, 1997, options were exercisable for 120,000 shares.                     

Since the Company's stock options are granted at prices equal to market 
value, the Company does not recognize compensation expense for such options.    
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for     
Stock-Based Compensation," which became effective for the Company for the year  
ended March 1, 1997, establishes a fair value method and disclosure standards   
for stock-based employee compensation agreements. The Company intends to        
continue its current accounting for stock-based compensation as allowed by SFAS 
No. 123 and will disclose the pro forma effects of applying this new standard   
for all future stock option grants. However, since the Company has not made any 
grants since 1994, no pro forma disclosures are required.                       

10. ACQUISITIONS                                                                

On April 20, 1997, the Company acquired certain inventory and equipment 
assets of Wesley Ice Cream Company for $3.5 million, which approximated the fair
value of the assets acquired, and entered into a five-year lease for the plant's
real estate. The consolidated statements of earnings include the operations of  
this acquired business from the acquisition date.                               

In 1994, the Company paid $3.9 million to acquire certain assets of     
Southeastern Juice Packers, Inc. and Toledo Milk Processing, Inc., which have   
been accounted for as purchase business combinations.                           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 1, 1997, MARCH 2, 1996 AND FEBRUARY 25, 1995

10. ACQUISITIONS (CONTINUED)                                                    
Accordingly, the above purchase price has been allocated to the assets acquired 
at their fair values, which resulted in the allocation of $3.5 million of the   
purchase price to tangible assets, with the remaining excess of the purchase    
price over the fair value of tangible assets acquired recorded as goodwill. The 
consolidated statements of earnings include the operations of Southeastern Juice
Packers, Inc. and Toledo Milk Processing, Inc. from their respective dates of   
acquisition.                                                                    

* * * * * 

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                                                                      APPENDIX A

AGREEMENT AND PLAN

OF MERGER 

DATED AS OF 

SEPTEMBER 28, 1997

AMONG 

SUIZA FOODS CORPORATION 

SF ACQUISITION CORPORATION

AND 

THE MORNINGSTAR GROUP INC.

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TABLE OF CONTENTS 

                                                        [Enlarge/Download Table]

                                                                                                          PAGE   
                                                                                                        ---------
                                                                                                                 
                                                   ARTICLE I                                                     

                                                  THE MERGER                                                     
Section 1.1   THE MERGER...............................................................................       A-1
Section 1.2   EFFECTIVE TIME OF THE MERGER.............................................................       A-1

                                                  ARTICLE II                                                     

                                           THE SURVIVING CORPORATION                                             
Section 2.1   CERTIFICATE OF INCORPORATION.............................................................       A-1
Section 2.2   BY-LAWS..................................................................................       A-1
Section 2.3   BOARD OF DIRECTORS; OFFICERS.............................................................       A-1
Section 2.4   EFFECTS OF MERGER........................................................................       A-2

                                                  ARTICLE III                                                    

                                             CONVERSION OF SHARES                                                
Section 3.1   EXCHANGE RATIO...........................................................................       A-2
Section 3.2   PARENT TO MAKE CERTIFICATES AVAILABLE....................................................       A-2
Section 3.3   DIVIDENDS; STOCK TRANSFER TAXES..........................................................       A-2
Section 3.4   NO FRACTIONAL SHARES.....................................................................       A-3
Section 3.5   STOCK OPTIONS............................................................................       A-3
Section 3.6   STOCKHOLDERS' MEETINGS...................................................................       A-4
Section 3.7   CLOSING OF THE COMPANY'S TRANSFER BOOKS..................................................       A-4
Section 3.8   CLOSING..................................................................................       A-4
Section 3.9   TRANSFER TAXES...........................................................................       A-4

                                                  ARTICLE IV                                                     

                                   REPRESENTATIONS AND WARRANTIES OF PARENT                                      
Section 4.1   ORGANIZATION AND QUALIFICATION...........................................................       A-4
Section 4.2   CAPITALIZATION...........................................................................       A-5
Section 4.3   SUBSIDIARIES.............................................................................       A-5
Section 4.4   AUTHORITY RELATIVE TO THIS AGREEMENT.....................................................       A-6
Section 4.5   REPORTS AND FINANCIAL STATEMENTS.........................................................       A-6
Section 4.6   ABSENCE OF CERTAIN CHANGES OR EVENTS.....................................................       A-7
Section 4.7   LITIGATION...............................................................................       A-7
Section 4.8   EMPLOYEE BENEFIT PLANS...................................................................       A-8
Section 4.9   FINANCIAL ADVISOR........................................................................       A-9
Section 4.10  COMPLIANCE WITH APPLICABLE LAWS..........................................................       A-9
Section 4.11  TAXES....................................................................................      A-10
Section 4.12  CERTAIN AGREEMENTS.......................................................................      A-10
Section 4.13  TAX AND ACCOUNTING MATTERS...............................................................      A-11
Section 4.14  RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS................................................      A-11
Section 4.15  INTELLECTUAL PROPERTY....................................................................      A-11

                                                   ARTICLE V                                                     

                                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY                                   
Section 5.1   ORGANIZATION AND QUALIFICATION...........................................................      A-12
Section 5.2   CAPITALIZATION...........................................................................      A-12
Section 5.3   SUBSIDIARIES.............................................................................      A-12

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                                                                                                          PAGE   
                                                                                                        ---------
                                                                                                                 
Section 5.4   AUTHORITY RELATIVE TO THIS AGREEMENT.....................................................      A-13
Section 5.5   REPORTS AND FINANCIAL STATEMENTS.........................................................      A-13
Section 5.6   ABSENCE OF CERTAIN CHANGES OR EVENTS.....................................................      A-14
Section 5.7   LITIGATION...............................................................................      A-14
Section 5.8   EMPLOYEE BENEFIT PLANS...................................................................      A-15
Section 5.9   COMPANY ACTION...........................................................................      A-16
Section 5.10  FINANCIAL ADVISORS.......................................................................      A-16
Section 5.11  COMPLIANCE WITH APPLICABLE LAWS..........................................................      A-17
Section 5.12  TAXES....................................................................................      A-17
Section 5.13  CERTAIN AGREEMENTS.......................................................................      A-18
Section 5.14  TAX AND ACCOUNTING MATTERS...............................................................      A-18
Section 5.15  RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS................................................      A-18
Section 5.16  INTELLECTUAL PROPERTY....................................................................      A-18

                                                  ARTICLE VI                                                     

                                 REPRESENTATIONS AND WARRANTIES REGARDING SUB                                    
Section 6.1   ORGANIZATION.............................................................................      A-19
Section 6.2   CAPITALIZATION...........................................................................      A-19
Section 6.3   AUTHORITY RELATIVE TO THIS AGREEMENT.....................................................      A-19

                                                  ARTICLE VII                                                    

                                    CONDUCT OF BUSINESS PENDING THE MERGER                                       
Section 7.1   CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER....................................      A-19
Section 7.2   CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER.........................................      A-20
Section 7.3   CONDUCT OF BUSINESS OF SUB...............................................................      A-21

                                                 ARTICLE VIII                                                    

                                             ADDITIONAL AGREEMENTS                                               
Section 8.1   ACCESS AND INFORMATION...................................................................      A-21
Section 8.2   REGISTRATION STATEMENT/PROXY STATEMENT...................................................      A-22
Section 8.3   COMPLIANCE WITH THE SECURITIES ACT AND POOLING REQUIREMENTS..............................      A-22
Section 8.4   STOCK EXCHANGE LISTING...................................................................      A-23
Section 8.5   EMPLOYEE MATTERS.........................................................................      A-23
Section 8.6   INDEMNIFICATION..........................................................................      A-24
Section 8.7   HSR ACT..................................................................................      A-24
Section 8.8   ADDITIONAL AGREEMENTS....................................................................      A-24
Section 8.9   NO SHOP..................................................................................      A-25
Section 8.10  ADVICE OF CHANGES; SEC FILINGS...........................................................      A-26
Section 8.11  PARENT DIRECTORSHIPS.....................................................................      A-26

                                                  ARTICLE IX                                                     

                                             CONDITIONS PRECEDENT                                                
Section 9.1   CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER...............................      A-26
Section 9.2   CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.............................      A-27
Section 9.3   CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE MERGER.........................      A-27

                                                   ARTICLE X                                                     

                                       TERMINATION, AMENDMENT AND WAIVER                                         
Section 10.1  TERMINATION BY MUTUAL CONSENT............................................................      A-25
Section 10.2  TERMINATION BY EITHER PARENT OR THE COMPANY..............................................      A-25

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                                                                                                         ---------
                                                                                                                  
Section 10.3   OTHER TERMINATION RIGHTS.................................................................      A-28
Section 10.4   EFFECT OF TERMINATION AND ABANDONMENT....................................................      A-28

                                                   ARTICLE XI                                                     

                                                  MISCELLANEOUS                                                   
Section 11.1   NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...............................      A-29
Section 11.2   NOTICES..................................................................................      A-29
Section 11.3   FEES AND EXPENSES........................................................................      A-30
Section 11.4   PUBLICITY................................................................................      A-30
Section 11.5   SPECIFIC PERFORMANCE.....................................................................      A-30
Section 11.6   ASSIGNMENT; BINDING EFFECT...............................................................      A-30
Section 11.7   ENTIRE AGREEMENT.........................................................................      A-30
Section 11.8   AMENDMENT................................................................................      A-31
Section 11.9   GOVERNING LAW............................................................................      A-31
Section 11.10  COUNTERPARTS.............................................................................      A-31
Section 11.11  HEADINGS AND TABLE OF CONTENTS...........................................................      A-31
Section 11.12  INTERPRETATION...........................................................................      A-31
Section 11.13  WAIVERS..................................................................................      A-31
Section 11.14  SEVERABILITY.............................................................................      A-31
Section 11.15  SUBSIDIARIES.............................................................................      A-31

EXHIBITS                                                                        

                                                                [Download Table]
                                                                                  
A-1...... Form of Affiliate Letter Addressed to Suiza Foods Corporation           
A-2...... Form of Affiliate Letter Addressed to The Morningstar Group Inc.        
B-1...... Form of Tax Opinion of Weil, Gotshal & Manges LLP                       
B-2...... Form of Tax Opinion of Hughes & Luce, L.L.P.                            
C-1...... Certificate of the Company re: Tax Opinion of Weil, Gotshal & Manges LLP
C-2...... Certificate of the Company re: Tax Opinion of Hughes & Luce, L.L.P.     
D-1...... Certificate of Parent re: Tax Opinion of Weil, Gotshal & Manges LLP     
D-2...... Certificate of Parent re: Tax Opinion of Hughes & Luce, L.L.P.          

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AGREEMENT AND PLAN OF MERGER

   THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September
28, 1997, by and among Suiza Foods Corporation, a Delaware corporation          
("Parent"), SF Acquisition Corporation, a Delaware corporation and a wholly     
owned subsidiary of Parent ("Sub"), and The Morningstar Group Inc., a Delaware  
corporation (the "Company").                                                    

W I T N E S S E T H:

WHEREAS, each of Parent and the Company has concluded that a business   
combination between Parent and the Company represents a strategic combination of
their complementary businesses and operational and long term vision and is in   
the best interests of the stockholders of Parent and the Company, respectively, 
and accordingly, Parent and the Company desire to effect a business combination 
by means of the merger of Sub with and into the Company (the "Merger");         

WHEREAS, the Boards of Directors of Parent, Sub and the Company have    
unanimously approved the Merger, upon the terms and subject to the conditions   
set forth herein;                                                               

 WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests"; and                                  

WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the   
Internal Revenue Code of 1986, as amended (the "Code").                         

NOW, THEREFORE, in consideration of the foregoing premises and the      
representations, warranties and agreements contained herein the parties hereto  
agree as follows:                                                               

ARTICLE I 
THE MERGER

Section 1.1  THE MERGER.  Upon the terms and subject to the conditions  
hereof, at the Effective Time (as defined in Section 1.2), Sub shall be merged  
with and into the Company and the separate existence of Sub shall thereupon     
cease, and the Company, as the corporation surviving the Merger (the "Surviving 
Corporation"), shall by virtue of the Merger continue its corporate existence   
under the laws of the State of Delaware.                                        

Section 1.2  EFFECTIVE TIME OF THE MERGER.  The Merger shall become     
effective at the date and time (the "Effective Time") when a properly executed  
Certificate of Merger is filed with the Secretary of State of the State of      
Delaware, which Certificate shall be filed as soon as practicable following     
fulfillment of the conditions set forth in Article IX hereof.                   

ARTICLE II
THE SURVIVING CORPORATION 

    Section 2.1  CERTIFICATE OF INCORPORATION.  The Certificate of Incorporation
of the Company as in effect at the Effective Time shall be the Certificate of   
Incorporation of the Surviving Corporation, and thereafter may be amended in    
accordance with its terms and as provided by law and this Agreement.            

Section 2.2  BY-LAWS.  The By-laws of the Company as in effect at the   
Effective Time shall be the By-laws of the Surviving Corporation, and thereafter
may be amended in accordance with their terms and as provided by law and this   
Agreement.                                                                      

    Section 2.3  BOARD OF DIRECTORS; OFFICERS.  The directors of Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation,
and the officers of Sub immediately prior to the                                

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Effective Time shall be the officers of the Surviving Corporation, in each case 
until their respective successors are duly elected and qualified.               

    Section 2.4  EFFECTS OF MERGER.  The Merger shall have the effects set forth
in Section 259 of the Delaware General Corporation Law (the "DGCL").            

ARTICLE III 
CONVERSION OF SHARES

    Section 3.1  EXCHANGE RATIO.  At the Effective Time, by virtue of the Merger
and without any action on the part of any holder of any common stock, par value 
$.01 per share, of the Company ("Company Stock"):                               

(a) All shares of Company Stock which are held by the Company, and any  
shares of Company Stock owned by Parent, Sub or any other subsidiary of Parent, 
shall be canceled.                                                              

(b) Subject to Section 3.4, each remaining outstanding share of Company 
Stock shall be converted into the right to receive 0.85 (the "Exchange Ratio")  
fully paid and nonassessable shares of the common stock, par value $.01 per     
share, of Parent ("Parent Common Stock").                                       

(c) In the event of any dividend, stock split, reclassification,        
recapitalization, combination or exchange of shares or other similar transaction
with respect to the Parent Common Stock or Company Stock after the date of this 
Agreement and prior to the Effective Time, the Exchange Ratio shall be          
appropriately adjusted.                                                         

(d) All of the issued and outstanding shares of stock of Sub shall be   
converted into and become, in the aggregate, 10,000 fully paid and nonassessable
shares of capital stock of the Surviving Corporation.                           

Section 3.2  PARENT TO MAKE CERTIFICATES AVAILABLE.  (a) Prior to the   
Effective Time, Parent shall select an Exchange Agent, which shall be Parent's  
Transfer Agent or such other person or persons reasonably satisfactory to the   
Company, to act as Exchange Agent for the Merger (the "Exchange Agent"). As soon
as practicable after the Effective Time, Parent shall make available, and each  
holder of Company Stock will be entitled to receive, upon surrender to the      
Exchange Agent of one or more certificates ("Certificates") representing shares 
of Company Stock for cancellation, certificates representing the number of      
shares of Parent Common Stock into which such shares are converted in the Merger
and cash in consideration of fractional shares as provided in Section 3.4 (the  
"Share Consideration").                                                         

(b) Any holder of shares of Company Stock who has not exchanged his     
Certificates for Parent Common Stock in accordance with subsection (a) of this  
Section 3.2 within twelve months after the Effective Time shall have no further 
claim upon the Exchange Agent and shall thereafter look only to Parent and the  
Surviving Corporation for payment of the Share Consideration in respect of his  
shares of Company Stock. Until so surrendered, Certificates shall represent     
solely the right to receive the Share Consideration.                            

Section 3.3  DIVIDENDS; STOCK TRANSFER TAXES.  No dividends or other    
distributions that are declared or made on Parent Common Stock will be paid to  
persons entitled to receive certificates representing Parent Common Stock       
pursuant to this Agreement until such persons surrender their Certificates      
representing Company Stock. Upon such surrender, there shall be paid to the     
person in whose name the certificates representing such Parent Common Stock     
shall be issued (i) at the time of such surrender, the amount of dividends or   
other distributions with a record date after the Effective Time and a payment   
date prior to surrender with respect to such whole shares of Parent Common Stock
and which have not been paid, less the amount of any withholding taxes which may
be required thereon, and (ii) at the appropriate payment date, the amount of    
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with      
respect to such whole shares of Parent Common Stock, less the amount of any     
withholding taxes which may be required thereon. In no event shall              

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the person entitled to receive such dividends be entitled to receive interest on
such dividends. In the event that any certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the            
Certificates surrendered in exchange therefor are registered, it shall be a     
condition of such exchange that the Certificate or Certificates so surrendered  
shall be properly endorsed or be otherwise in proper form for transfer and that 
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of certificates for such      
shares of Parent Common Stock in a name other than that of the registered holder
of the Certificate or Certificates surrendered, or shall establish to the       
satisfaction of the Exchange Agent that such tax has been paid or is not        
applicable. Notwithstanding the foregoing, neither the Exchange Agent nor any   
party hereto shall be liable to a holder of shares of Company Stock for any     
shares of Parent Common Stock or dividends thereon delivered to a public        
official pursuant to any applicable abandoned property, escheat or similar laws.
In the event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to  
be lost, stolen or destroyed and, if required by Parent, the posting by such    
person of a bond in such reasonable amount as the Surviving Corporation may     
direct as indemnity against any claim that may be made against the Surviving    
Corporation or any other party hereto with respect to such Certificate, the     
Exchange Agent will issue in exchange for such lost, stolen or destroyed        
Certificate the shares of Parent Common Stock and cash in lieu of fractional    
shares, and unpaid dividends and distributions on shares of Parent Common Stock 
as provided in this Section 3.3, deliverable in respect thereof pursuant to this
Agreement.                                                                      

 Section 3.4  NO FRACTIONAL SHARES.  No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for 
exchange of Certificates pursuant to Section 3.1(b). Notwithstanding any other  
provision of this Agreement, each holder of Company Stock exchanged pursuant to 
the Merger who would otherwise be entitled to receive a fraction of a share of  
Parent Common Stock (after taking into account all Certificates delivered by    
such holder) shall receive, in lieu thereof, cash from Parent in an amount equal
to such fractional part of a share of Parent Common Stock multiplied by the     
Average Closing Price. For purposes of this Section 3.4, "Average Closing Price"
is defined to mean the average of the daily closing prices for the shares of    
Parent Common Stock for the twenty (20) consecutive trading days on which such  
shares are actually traded on the New York Stock Exchange ("NYSE") (as reported 
by the Wall Street Journal or, if not reported thereby, any other authoritative 
source selected by Parent) ending at the close of trading on the second trading 
day immediately preceding the Closing Date.                                     

  Section 3.5  STOCK OPTIONS.  (a)  Each of the Company's stock option plans
(the "Option Plans"), each of which is set forth in Section 5.2 of the Company  
Disclosure Schedule (as defined in Article V), and each option to acquire shares
of Company Stock outstanding thereunder immediately prior to the Effective Time,
whether vested or unvested (each, an "Option" and collectively, the "Options"), 
shall be assumed by Parent at the Effective Time, and each such Option shall    
become an option to purchase a number of shares of Parent Common Stock (a       
"Substitute Option") equal to the number of shares of Company Stock subject to  
such Option multiplied by the Exchange Ratio (rounded down to the nearest whole 
share). The per share exercise price for each Substitute Option shall be the    
current exercise price per share of Company Stock divided by the Exchange Ratio 
(rounded up to the nearest full cent), and each Substitute Option otherwise     
shall be subject to all of the other terms and conditions of the original option
to which it relates, including, without limitation, the provisions therein with 
respect to vesting and forfeiture. Prior to the Effective Time, the Company     
shall take such additional actions as are necessary under applicable law and the
applicable agreements and Option Plans to ensure that each outstanding Option   
shall, from and after the Effective Time, represent only the right to purchase, 
upon exercise, shares of Parent Common Stock. No Option shall be accelerated by 
reason of the Merger to the extent the Board of Directors of the Company has    
discretion to make a determination to cause such acceleration. It is the        
intention of the parties that, to the extent that any Option constitutes an     
"incentive stock option" (within the meaning of Section 422 of the Code)        
immediately prior to the Effective Time, that the Substitute Option relating    
thereto shall also qualify as an incentive stock option, and that the assumption
by Parent of such Option                                                        

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and the substitution of a Substitute Option therefor as provided by this Section
3.5(a) will satisfy each of the conditions of Section 422(a) of the Code with   
respect to such continued qualification.                                        

  (b) As soon as practicable after the Effective Time, Parent shall cause to
be included under a registration statement on Form S-8 of Parent all shares of  
Parent Common Stock which are subject to Substitute Options, and shall maintain 
the effectiveness of such registration statement until all Substitute Options   
have been exercised, expired or forfeited.                                      

 Section 3.6  STOCKHOLDERS' MEETINGS.  Each of Parent and the Company will
take all action necessary in accordance with applicable law and its Certificate 
of Incorporation or charter, as the case may be, and By-laws to convene a       
meeting of its stockholders as promptly as practicable to consider and vote upon
(i) in the case of Parent, the approval by the holders of a majority of the     
shares of Parent Common Stock present and voting of the issuance of the shares  
of Parent Common Stock contemplated by this Agreement and (ii) in the case of   
the Company, the approval by the holders of a majority of the shares of Company 
Stock outstanding and entitled to vote thereon of this Agreement and the        
transactions contemplated hereby. Parent shall take all action necessary to     
authorize Sub to consummate the Merger. The Board of Directors of each of Parent
and the Company shall recommend such approval and Parent and the Company shall  
each take all lawful action to solicit such approval, including, without        
limitation, timely and promptly mailing the Proxy Statement/Prospectus (as      
defined in Section 8.2); provided, however, that such recommendation is subject 
to any action permitted pursuant to Section 8.9. Parent and the Company shall   
coordinate and cooperate with respect to the timing of such meetings and shall  
use their best efforts to hold such meetings on the same day.                   

Section 3.7  CLOSING OF THE COMPANY'S TRANSFER BOOKS.  At the Effective 
Time, the stock transfer books of the Company shall be closed and no transfer of
shares of Company Stock shall be made thereafter. In the event that Certificates
are presented to the Surviving Corporation or Parent after the Effective Time,  
they shall be canceled and exchanged for Parent Common Stock and/or cash as     
provided in Sections 3.1(b) and 3.4.                                            

   Section 3.8  CLOSING.  The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Weil, Gotshal &    
Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas, at 9:00 a.m. local   
time on the day which is not more than one business day after the day on which  
the last of the conditions set forth in Article IX (other than those that can be
fulfilled only at the Effective Time) is fulfilled or waived or at such other   
time and place as Parent and the Company shall agree in writing.                

   Section 3.9  TRANSFER TAXES.  Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, applications or other         
documents regarding any real property transfer, stamp, recording, documentary or
other taxes and any other fees and similar taxes which become payable in        
connection with the Merger other than transfer or stamp taxes payable in respect
of transfers pursuant to the fourth sentence of Section 3.3 (collectively,      
"Transfer Taxes"). From and after the Effective Time, Parent shall pay or cause 
to be paid, without deduction or withholding from any amounts payable to the    
holders of Company Stock, all Transfer Taxes.                                   

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT

Parent represents and warrants to the Company as follows (such          
representations and warranties (as well as other provisions of this Agreement)  
are qualified by the matters identified (with references to the appropriate     
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Parent Disclosure Schedule") delivered by Parent to the Company prior to  
execution of this Agreement):                                                   

  Section 4.1  ORGANIZATION AND QUALIFICATION.  Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of 
Delaware and has the corporate power to carry on its                            

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business as it is now being conducted or currently proposed to be conducted.    
Parent is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or   
held under lease or the nature of its activities make such qualification        
necessary, except where the failure to be so qualified will not, alone or in the
aggregate, have a Parent Material Adverse Effect. For the purposes of this      
Agreement, a "Parent Material Adverse Effect" means any material adverse effect 
on the business, properties, assets, condition (financial or otherwise),        
liabilities or results of operations of Parent and its subsidiaries taken as a  
whole, other than any effects arising out of, resulting from or relating to     
changes in general economic or financial conditions. Complete and correct copies
as of the date hereof of the Certificate of Incorporation and By-laws of Parent 
have been delivered to the Company as part of the Parent Disclosure Schedule.   

Section 4.2  CAPITALIZATION.  The authorized capital stock of Parent    
consists of 100,000,000 shares of Parent Common Stock, and 1,000,000 shares of  
Preferred Stock, par value $.01 per share (the "Parent Preferred Stock"), of    
which 11,691 shares will be designated as Series A Preferred Stock ("Series A   
Preferred Stock") on or prior to the Effective Time and will be issuable under  
the terms of that certain Agreement and Plan of Merger dated September 18, 1997 
among Parent, CF Acquisition Corp. and Country Fresh, Inc. (the "CF Merger      
Agreement"), as more fully described in Section 4.2 of the Parent Disclosure    
Schedule. As of September 1, 1997, the issued and outstanding capital stock of  
Parent consisted solely of 15,804,545 shares of Parent Common Stock, all of     
which were validly issued and outstanding, fully paid, and nonassessable. There 
are no bonds, debentures, notes or other indebtedness issued or outstanding     
having the right to vote on any matters on which Parent's stockholders may vote.
There are no options, warrants, calls, convertible securities or other rights,  
agreements or commitments presently outstanding obligating Parent to issue,     
deliver or sell shares of its capital stock or debt securities, or obligating   
Parent to grant, extend or enter into any such option, warrant, call or other   
such right, agreement or commitment, other than as identified in Section 4.2 of 
the Parent Disclosure Schedule. Section 4.2 of the Parent Disclosure Schedule   
sets forth the name of each optionee, the number of options held by such        
optionee and the exercise price for such options under the Parent Stock Plans   
(as defined below). Since September 1, 1997, Parent has not issued any shares of
its capital stock except (i) shares of Parent Common Stock issued under, or     
issued upon exercise of options granted under, Parent's stock option, restricted
stock and stock purchase plans described in Section 4.2 of the Parent Disclosure
Schedule (the "Parent Stock Plans") and (ii) shares of Parent Common Stock and  
Series A Preferred Stock issuable under the terms of the CF Merger Agreement, as
more fully described in Section 4.2 of the Parent Disclosure Schedule. All of   
the shares of Parent Common Stock issuable in accordance with this Agreement in 
exchange for Company Stock at the Effective Time in accordance with this        
Agreement will be, when so issued, duly authorized, validly issued, fully paid, 
nonassessable and free of preemptive rights and shall be delivered free and     
clear of all liens, claims, charges and encumbrances of any kind or nature      
whatsoever.                                                                     

Section 4.3  SUBSIDIARIES.  Each subsidiary of Parent is a corporation, 
partnership or other entity duly organized, validly existing and in good        
standing under the laws of its jurisdiction of organization (except where the   
failure to be validly existing and in good standing would not be material to the
business of such subsidiary) and has the corporate or similar power to carry on 
its business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of Parent is duly qualified to do business, and is in good      
standing, in each jurisdiction where the character of its properties owned or   
held under lease or the nature of its activities makes such qualification       
necessary, except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not have, a Parent Material Adverse   
Effect. Section 4.3 of the Parent Disclosure Schedule contains, with respect to 
each subsidiary of Parent, its name and jurisdiction of organization and, with  
respect to each subsidiary that is not wholly owned, the number of issued and   
outstanding shares of capital stock or share capital and the number of shares of
capital stock or share capital owned by Parent or a subsidiary. All the         
outstanding shares of capital stock or share capital of each subsidiary of      
Parent are validly issued, fully paid and nonassessable, and except as set forth
in Section 4.3 of the Company Disclosure Schedule, those owned by Parent or by a
subsidiary of Parent are owned free and clear of any liens, claims or           
encumbrances. Except as described in Section 4.3 of the Parent                  

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Disclosure Schedule, there are no existing options, warrants, calls, convertible
securities or other rights, agreements or commitments of any character relating 
to the issued or unissued capital stock or other securities of any of the       
subsidiaries of Parent. Except as set forth in Parent's Annual Report on Form   
10-K for the fiscal year ended December 31, 1996, any Parent SEC Report (as     
hereinafter defined) filed subsequent to such date and prior to the date hereof,
or in Section 4.3 of the Parent Disclosure Schedule, and except for acquisitions
after the date hereof of assets or businesses primarily engaged in the same     
businesses as those conducted by Parent and its subsidiaries as of the date     
hereof (which acquisitions do not require any approval of the stockholders of   
Parent (including, without limitation, any approval of related financings by the
stockholders of Parent)), Parent does not directly or indirectly own any        
interest in any other corporation, partnership, joint venture or other business 
association or entity or have any obligation, commitment or undertaking to      
acquire any such interest.                                                      

    Section 4.4  AUTHORITY RELATIVE TO THIS AGREEMENT.  Parent has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.  
The execution and delivery of this Agreement and the consummation of the        
transactions contemplated hereby have been duly authorized by Parent's Board of 
Directors. This Agreement constitutes a valid and binding obligation of Parent  
enforceable in accordance with its terms, except as enforcement may be limited  
by bankruptcy, insolvency or other similar laws affecting the enforcement of    
creditors' rights generally and except that the availability of equitable       
remedies, including specific performance, is subject to the discretion of the   
court before which any proceeding therefor may be brought. Except for the       
approval of the issuance of the Parent Common Stock contemplated by this        
Agreement by the holders of the Parent Common Stock as described in Section 3.6,
no other corporate proceedings on the part of Parent are necessary to authorize 
this Agreement and the transactions contemplated hereby. Except as described in 
Section 4.4 of the Parent Disclosure Schedule, Parent is not subject to or      
obligated under (i) any charter or by-law provision or (ii) any contract,       
indenture, loan or credit document, license, franchise, permit, order, decree,  
concession, lease, instrument, judgment, statute, law, ordinance, rule or       
regulation applicable to Parent or any of its subsidiaries or their respective  
properties or assets, which would be breached or violated, or under which there 
would be a default (with or without notice or lapse of time, or both), or under 
which there would arise a right of termination, cancellation, modification or   
acceleration of any obligation, or any right to payment or compensation, or the 
loss of a material benefit, by its executing and carrying out this Agreement    
other than, in the case of this clause (ii) only, (A) any breaches, violations, 
defaults, terminations, cancellations, modifications, accelerations, rights to  
payment or compensation, or losses which, either alone or in the aggregate, have
not had, and would not have, a Parent Material Adverse Effect or would not      
prevent the consummation of the transactions contemplated hereby and (B) the    
laws and regulations referred to in the next sentence. Except as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR      
Act"), the Securities Act of 1933, as amended (the "Securities Act"), the       
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the       
corporation, securities or blue sky laws or regulations of the various states,  
no filing or registration with, or authorization, consent or approval of, any   
court, administrative agency or commission or other governmental authority or   
instrumentality, domestic or foreign (each, a "Governmental Entity"), is        
necessary for the consummation by Parent of the Merger or the other transactions
contemplated by this Agreement, other than filings, registrations,              
authorizations, consents or approvals the failure to make or obtain which has   
not had, and would not have, a Parent Material Adverse Effect or would not      
prevent the consummation of the transactions contemplated hereby.               

Section 4.5  REPORTS AND FINANCIAL STATEMENTS.  Parent has previously   
furnished the Company with true and complete copies of its (i) Annual Reports on
Form 10-K for the fiscal years ended December 31, 1995 and December 31, 1996, as
filed with the Securities and Exchange Commission (the "Commission"), (ii)      
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, and June  
30, 1997, as filed with the Commission, (iii) proxy statements related to all   
meetings of its stockholders (whether annual or special) since December 31,     
1995, and (iv) all other reports or registration statements filed by Parent with
the Commission since December 31, 1995, except for preliminary material (in the 
case of clauses (iii) and                                                       

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(iv) above) and except for registration statements on Form S-8 relating to      
employee benefit plans and annual reports on Form 11-K with respect to such     
plans, which are all the documents that Parent was required to file with the    
Commission since that date (the documents in clauses (i) through (iv) being     
referred to herein collectively as the "Parent SEC Reports"). As of their       
respective dates, the Parent SEC Reports complied as to form in all material    
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the Commission thereunder         
applicable to such Parent SEC Reports. As of their respective dates, the Parent 
SEC Reports did not contain any untrue statement of a material fact or omit to  
state a material fact required to be stated therein or necessary to make the    
statements therein, in light of the circumstances under which they were made,   
not misleading. The audited consolidated financial statements and unaudited     
interim financial statements of Parent included in the Parent SEC Reports comply
as to form in all material respects with applicable accounting requirements and 
with the published rules and regulations of the Commission with respect thereto.
The financial statements included in the Parent SEC Reports: (i) have been      
prepared in accordance with generally accepted accounting principles applied on 
a consistent basis, except as may be indicated therein or in the notes thereto  
and subject, in the case of the unaudited interim financial statements, to      
normal year-end adjustments, any other adjustments described therein and the    
fact that certain information and notes have been condensed or omitted in       
accordance with the Exchange Act and the rules promulgated thereunder; (ii)     
present fairly, in all material respects, the financial position of Parent and  
its subsidiaries as at the dates thereof and the results of their operations and
cash flows for the periods then ended; and (iii) are in all material respects in
accordance with the books of account and records of Parent and its subsidiaries.
As of June 30, 1997, there was no basis for any claim or liability of any nature
against Parent or its subsidiaries, whether absolute, accrued, contingent or    
otherwise, which, alone or in the aggregate, has had, or would have, a Parent   
Material Adverse Effect, other than as reflected in the Parent SEC Reports.     

  Section 4.6  ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
the Parent SEC Reports filed prior to the date of this Agreement or as set forth
in Section 4.6 of the Parent Disclosure Schedule, since June 30, 1997, Parent   
and its subsidiaries have operated their respective businesses in the ordinary  
course of business consistent with past practice and there has not been (i) any 
transaction, commitment, dispute or other event or condition (financial or      
otherwise) of any character (whether or not in the ordinary course of business) 
which, alone or in the aggregate, has had, or would have, a Parent Material     
Adverse Effect; (ii) any damage, destruction or loss, whether or not covered by 
insurance, which has had, or would have, a Parent Material Adverse Effect; (iii)
any declaration, setting aside or payment of any dividend or distribution       
(whether in cash, stock or property) with respect to the capital stock of the   
Company or any of its subsidiaries (other than dividends or distributions       
between Parent and its wholly owned subsidiaries); (iv) any material change in  
Parent's accounting principles, practices or methods; (v) any repurchase or     
redemption with respect to its capital stock; (vi) any stock split, combination 
or reclassification of any of Parent's capital stock or the issuance or         
authorization of any issuance of any other securities in respect of, in lieu of 
or in substitution for, shares of Parent's capital stock; (vii) any grant or    
amendment of the terms of any option to purchase shares of capital stock of     
Parent other than pursuant to the Parent Stock Plans; or (viii) any agreement   
(whether or not in writing), arrangement or understanding to do any of the      
foregoing.                                                                      

Section 4.7  LITIGATION.  Except as disclosed in the Parent SEC Reports 
filed prior to the date of this Agreement, there is no suit, action or          
proceeding pending or, to Parent's knowledge, threatened against Parent or any  
of its subsidiaries which, alone or in the aggregate, has had or would have, a  
Parent Material Adverse Effect, nor is there any judgment, decree, injunction,  
rule or order of any Governmental Entity or arbitrator outstanding against      
Parent or any of its subsidiaries which, alone or in the aggregate, has had, or 
would have, any such Parent Material Adverse Effect. For purposes of this       
Agreement, the phrases "Parent's knowledge," and "to the knowledge of Parent"   
and other phrases of like import shall mean the actual knowledge of any         
executive officer of Parent.                                                    

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Section 4.8  EMPLOYEE BENEFIT PLANS.  (a) Section 4.8 of the Parent     
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or    
compensation arrangements or payroll practices, including, without limitation,  
any such arrangements or payroll practices providing severance pay, sick leave, 
vacation pay, salary continuation for disability, retirement benefits, deferred 
compensation, bonus pay, incentive pay, stock options (including those held by  
directors, employees, and consultants), hospitalization insurance, medical      
insurance, life insurance, scholarships or tuition reimbursements, that are     
maintained by Parent, any subsidiary of Parent or any Parent ERISA Affiliate (as
defined below) or to which Parent, any subsidiary of Parent or any Parent ERISA 
Affiliate is obligated to contribute thereunder for current or former directors,
employees, independent contractors, consultants and leased employees of Parent, 
any subsidiary of Parent or any Parent ERISA Affiliate (the "Parent Employee    
Benefit Plans").                                                                

 (b) Except as set forth in Section 4.8 of the Parent Disclosure Schedule,
none of the Parent Employee Benefit Plans is a "multiemployer plan", as defined 
in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and since December 31, 
1995, neither Parent nor any Parent ERISA Affiliate has contributed or          
contributes, or has been or is required to contribute, to any such plan.        

 (c) Except as set forth in Section 4.8 of the Parent Disclosure Schedule,
Parent does not maintain or contribute to any plan or arrangement which provides
or has any liability to provide life insurance or medical or other employee     
welfare benefits to any employee, officer or director or former employee,       
officer or director upon his retirement or termination of employment, and Parent
has never represented, promised or contracted (whether in oral or written form) 
to any employee, officer or director or former employee, officer or director    
that such benefits would be provided.                                           

 (d) Except as set forth in Section 4.8 of the Parent Disclosure Schedule,
the execution of, and performance of the transactions contemplated in, this     
Agreement will not, either alone or upon the occurrence of subsequent events,   
result in any payment (whether of severance pay or otherwise), acceleration,    
forgiveness of indebtedness, vesting, distribution, increase in benefits or     
obligation to fund benefits with respect to any employee, officer or director.  
The only severance agreements or severance policies applicable to Parent or its 
subsidiaries in the event of a change of control of Parent are the agreements   
and policies specifically referred to in Section 4.8 of the Parent Disclosure   
Schedule. The Board of Directors of Parent has determined that the transactions 
contemplated hereby do not constitute a change of control for purposes of any   
such agreement, plan, policy or stock option plan or program to the extent      
Parent or its Board has discretion to make such determination under such        
agreement, plan or policy and such Board shall not change such determination.   
Such Board has also determined not to accelerate vesting of any stock options or
other benefits on account of the transactions contemplated hereby to the extent 
such Board has discretion to make such determination and such Board shall not   
change such determination.                                                      

(e) Each Parent Employee Benefit Plan that is intended to qualify under 
Section 401 of the Code, and each trust maintained pursuant thereto, has been   
determined to be exempt from federal income taxation under Section 501 of the   
Code by the Internal Revenue Service (the "IRS"), and, to Parent's knowledge,   
nothing has occurred with respect to the operation or organization of any such  
Parent Employee Benefit Plan that would cause the loss of such qualification or 
exemption or the imposition of any material liability, penalty or tax under     
ERISA or the Code. With respect to any Parent Employee Benefit Plan or other    
employee benefit plan which is a "defined benefit plan" within the meaning of   
Section 3(35) of ERISA, (i) Parent has not incurred and is not reasonably likely
to incur any material liability under Title IV of ERISA (other than for the     
payment of premiums, all of which have been paid when due), (ii) Parent has not 
incurred any material accumulated funding deficiency within the meaning of      
Section 412 of the Code and has not applied for or obtained a waiver of any     
minimum funding standard or an extension of any amortization period under       
Section 412 of the Code, (iii) no "reportable event" (as such term is defined in
Section 4043 of ERISA but excluding any event for which the provision for 30-day
notice to the Pension Benefit Guaranty Corporation has been waived by           
regulation) has occurred or is expected                                         

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to occur and (iv) since December 31, 1996, no material adverse change in the    
financial condition of any such plan has occurred.                              

    (f) (i) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the     
Parent Employee Benefit Plans to any funds or trusts established thereunder or  
in connection therewith have been made by the due date thereof, (ii) Parent has 
complied in all material respects with any notice, reporting and documentation  
requirements of ERISA and the Code, (iii) there are no pending actions, claims  
or lawsuits which have been asserted, instituted or, to Parent's knowledge,     
threatened, in connection with the Parent Employee Benefit Plans, and (iv) the  
Parent Employee Benefit Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA and the Code       
(including rules and regulations thereunder) and other applicable federal and   
state laws and regulations.                                                     

 (g) To Parent's knowledge, neither Parent nor any Parent ERISA Affiliate,
has engaged in any transaction in violation of Section 406(a) or (b) of ERISA or
any "prohibited transaction" (as defined in Section 4975(c)(1) of the Code),    
which would subject Parent or any Parent ERISA Affiliate to any taxes, penalties
or other liabilities resulting from such prohibited transaction, and no         
condition exists that would subject Parent or any Parent ERISA Affiliate to any 
excise tax, penalty tax or fine related to any Parent Employee Benefit Plans.   

   (h) With respect to each Parent Employee Benefit Plan, Parent has furnished
or made available to the Company true, correct and complete copies of (i) the   
plan documents and summary plan descriptions; (ii) the most recent determination
letter received from the Internal Revenue Service; (iii) the annual reports to  
be filed for the three most recent plan years of each such plan; (iv) all       
related trust agreements, insurance contracts or other funding agreements that  
implement such plans; and (v) all other documents, records or other materials   
related thereto reasonably requested by the Company.                            

   For purposes of this Agreement, "Parent ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"     
under "common control" or an "affiliated service group" with Parent within the  
meanings of Sections 414(b), (c) or (m) of the Code, or required to be          
aggregated with Parent under Section 414(o) of the Code, or is under "common    
control" with Parent, within the meaning of Section 4001(a)(14) of ERISA, or any
regulations promulgated or proposed under any of the foregoing Sections.        

Section 4.9  FINANCIAL ADVISOR.  Parent has received the opinion of     
Donaldson, Lufkin & Jenrette Securities Corp. ("DLJ"), dated as of the date of  
this Agreement, to the effect that the Exchange Ratio is fair from a financial  
point of view to the holders of Parent Common Stock. Except for DLJ, no broker, 
finder or investment banker is entitled to any brokerage, finder's or other fee 
or commission in connection with the Merger or the transactions contemplated by 
this Agreement based upon arrangements made by or on behalf of Parent. Parent   
has previously delivered to the Company a copy of the engagement letter executed
on September 10, 1997, between Parent and DLJ. In addition to any such fee and  
commission arrangements, Parent has previously delivered to the Company a good  
faith estimate of all additional fees, costs and expenses to be incurred by     
Parent and its subsidiaries in connection with this Agreement and the           
transactions contemplated by this Agreement (but not including any estimate of  
legal or accounting fees, costs and expenses).                                  

Section 4.10  COMPLIANCE WITH APPLICABLE LAWS.  Parent and each of its  
subsidiaries holds all permits, licenses, variances, exemptions, orders and     
approvals of all Governmental Entities necessary or appropriate for the         
operation of its respective business, except for such permits, licenses,        
variances, exemptions, orders and approvals the failure to hold which, alone or 
in the aggregate, has not had, and would not have, a Parent Material Adverse    
Effect (the "Parent Permits"). Parent and each of its subsidiaries is in        
compliance with the terms of the Parent Permits, except for any failure to      
comply which, alone or in the aggregate, has not had, and would not have, a     
Parent Material Adverse Effect. Except as disclosed in the Parent SEC Reports   
filed prior to the date of this Agreement, the businesses of Parent and its     
subsidiaries                                                                    

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are not being conducted in violation of any law, ordinance or regulation of any 
Governmental Entity, except for possible violations which, alone or in the      
aggregate, have not had, and would not have, a Parent Material Adverse Effect.  
To Parent's knowledge, during the past five years, none of Parent's or any of   
its subsidiaries' officers, employees or agents, nor any other person acting on 
behalf of any of them or Parent or any of its subsidiaries, has, directly or    
indirectly, given or agreed to give any gift or similar benefit to any customer,
supplier, governmental employee or other person in violation of any law,        
ordinance or regulation of any Governmental Entity, including, without          
limitation, the Foreign Corrupt Practices Act.                                  

    Section 4.11  TAXES.  Except to the extent that the inaccuracy of any of the
succeeding representations has not had, or would not have, a Parent Material    
Adverse Effect: (i) all Tax Returns required to be filed by or with respect to  
Parent and each of its subsidiaries have been filed; (ii) neither Parent nor any
of its subsidiaries has requested or been granted an extension of time for      
filing any Tax Return that has not yet been filed; (iii) Parent and each of its 
subsidiaries has paid all Taxes that are due from or with respect to it; (iv)   
Parent and each of its subsidiaries has withheld and paid all Taxes required by 
all applicable laws to be withheld or paid in connection with any amounts paid  
or owing to any employee, creditor, independent contractor or other third party;
(v) there are no outstanding agreements, waivers, or arrangements extending the 
statutory period of limitation applicable to any claim for, or the period for   
the collection or assessment of, Taxes due from or with respect to Parent or any
of its subsidiaries for any taxable period; (vi) no audit, action, proceeding,  
investigation, dispute or claim by any court, governmental or regulatory        
authority, or similar person is pending or, to Parent's knowledge, threatened in
regard to any Taxes due from or with respect to Parent or any of its            
subsidiaries or any Tax Return filed by or with respect to Parent or any of its 
subsidiaries; (vii) no claim has been made by a taxing authority in a           
jurisdiction in which Parent does not file Tax Returns that Parent is required  
to file Tax Returns in such jurisdiction, and, to Parent's knowledge, no taxing 
authority could reasonably make such a claim; (viii) no assessment of any       
deficiency for Taxes is proposed against Parent or any of its subsidiaries or   
any of their assets; (ix) there are no liens for Taxes (other than for current  
Taxes not yet due and payable) upon the assets of Parent; (x) Parent has not    
been a member of an affiliated group as defined in Section 1504 of the Code (or 
any analogous combined, consolidated or unitary group as defined under state,   
local or foreign income tax law) other than one of which Parent was the common  
parent; (xi) Parent has no obligation or liability for the payment of Taxes of  
any other person arising as a result of any obligation to indemnify another     
person or as a result of Parent assuming or succeeding to the tax liability of  
any other person as a successor, transferee or otherwise; (xii) Parent will not 
be required to include any amount in taxable income for any taxable period (or  
portion thereof) ending after the Effective Time as a result of (A) a change in 
method of accounting for a taxable period ending prior to the Effective Time,   
(B) any "closing agreement" as described in Section 7121 of the Code (or any    
corresponding provision of state, local or foreign income tax laws) entered into
prior to the Effective Time, (C) any sale reported on the installment method    
that occurred prior to the Effective Time or (D) any prepaid amount received    
prior to the Effective Time; (xiv) all Taxes accrued but not yet due and all    
contingent liabilities for Taxes are adequately reflected in the reserves for   
Taxes in the financial statements contained in the Parent SEC Reports; and (xv) 
there has been no "ownership change" as described in Section 382 of the Code    
that has resulted in any limitation on the Parent's ability to offset pre-change
losses against its taxable income. "Taxes" shall mean all taxes, charges, fees, 
levies, or other similar assessments or liabilities, including without          
limitation (a) income, gross receipts, ad valorem, premium, excise, real        
property, personal property, sales, use, transfer, withholding, employment,     
payroll, and franchise taxes imposed by the United States of America, or by any 
state, local, or foreign government, or any subdivision, agency, or other       
similar person of the United States or any such government; and (b) any         
interest, fines, penalties, assessments, or additions to taxes resulting from,  
attributable to, or incurred in connection with any Tax or any contest, dispute,
or refund thereof. "Tax Returns" shall mean any report, return, or statement    
required to be supplied to a taxing authority in connection with Taxes.         

Section 4.12  CERTAIN AGREEMENTS.  Neither Parent nor any of its        
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any indenture, note, credit agreement, loan                      

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document, lease, license, concession or other agreement, whether or not such    
default has been waived, which default, alone or in the aggregate with other    
such defaults, has had, or would have, a Parent Material Adverse Effect.        

    Section 4.13  TAX AND ACCOUNTING MATTERS.  To Parent's knowledge, Parent has
not taken any action which would prevent the Merger from constituting a         
reorganization within the meaning of Section 368(a) of the Code. Parent has     
received a letter from Deloitte & Touche LLP, a copy of which has previously    
been delivered to the Company, with respect to the eligibility of Parent for    
"pooling of interests" accounting treatment.                                    

 Section 4.14  RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS.  Parent has made
available to the Company a list of (i) the ten largest customers of Parent and  
its subsidiaries taken as a whole as determined by the dollar volume of sales   
for the year ended December 31, 1996, together with such sales volumes and (ii) 
the ten largest suppliers of Parent and its subsidiaries taken as a whole as    
determined by the dollar volume of purchases for the year ended December 31,    
1996, together with such purchase volumes. In the last 12 months, no such       
supplier or customer, and no licensor or licensee, of Parent or its subsidiaries
has notified Parent or its subsidiaries that it has canceled or otherwise       
terminated, or, to Parent's knowledge, threatened to cancel or otherwise        
terminate, its relationship with Parent or any of its subsidiaries which has    
had, or would have, either alone or in the aggregate, a Parent Material Adverse 
Effect. To Parent's knowledge, there has not been any dispute with any such     
customer or supplier which has had, or would have, either alone or in the       
aggregate, a Parent Material Adverse Effect.                                    

  Section 4.15  INTELLECTUAL PROPERTY.  (a) Parent has made available to the
Company a list of the following (collectively, the "Parent Intellectual         
Property"): (i) each trademark, trade name, brand name, service mark or other   
trade designation owned or licensed by or to Parent or any of its subsidiaries, 
each patent, copyright and similar intellectual property owned or licensed to or
by Parent and each license, royalty, assignment or other similar agreement and  
each registration and application relating to the foregoing that is material to 
the conduct of the business of Parent and its subsidiaries taken as a whole; and
(ii) each agreement relating to technology, know-how or processes that Parent or
its subsidiaries is licensed or authorized to use, or which it licenses or      
authorizes others to use, that is material to the conduct of the business of    
Parent and its subsidiaries taken as a whole.                                   

(b) Parent and its subsidiaries own the Parent Intellectual Property, or
have the right to use the same without infringing or violating the rights of any
third parties, except where such infringement or violation has not had, or would
not have, either alone or in the aggregate, a Parent Material Adverse Effect. No
consent of third parties will be required for the use of the Parent Intellectual
Property after the Effective Time, except where the failure to obtain such      
consent would not have, either alone or in the aggregate, a Parent Material     
Adverse Effect. No claim has been asserted by any person against Parent or any  
of its subsidiaries regarding the ownership of or the right to use any Parent   
Intellectual Property or challenging the rights of Parent or any of its         
subsidiaries with respect to any of the Parent Intellectual Property which, if  
adversely determined, would have, either alone or in the aggregate, a Parent    
Material Adverse Effect.                                                        

  (c) To Parent's knowledge, no person or entity has asserted any claim that
any product, activity or operation of Parent or any of its subsidiaries         
infringes upon or involves, or has resulted in the infringement of, any         
proprietary right of such person or entity, except for such infringement which  
has not had, or would not have, either alone or in the aggregate, a Parent      
Material Adverse Effect; and no proceedings have been instituted, are pending   
or, to Parent's knowledge, are threatened which challenge the rights of Parent  
or any of its subsidiaries with respect thereto, which, if adversely determined,
would have, either alone or in the aggregate, a Parent Material Adverse Effect. 

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ARTICLE V 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 

The Company represents and warrants to Parent and Sub as follows (such  
representations and warranties (as well as other provisions of this Agreement)  
are qualified by the matters identified (with references to the appropriate     
Section and, if applicable, subsection being qualified) on a disclosure schedule
(the "Company Disclosure Schedule") delivered by the Company to Parent prior to 
execution of this Agreement):                                                   

  Section 5.1  ORGANIZATION AND QUALIFICATION.  The Company is a corporation
duly organized, validly existing and in good standing under the laws of the     
State of Delaware and has the corporate power to carry on its business as it is 
now being conducted or currently proposed to be conducted. The Company is duly  
qualified as a foreign corporation to do business, and is in good standing, in  
each jurisdiction where the character of its properties owned or held under     
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified will not, alone or in the aggregate, have a
Company Material Adverse Effect. For the purposes of this Agreement, a "Company 
Material Adverse Effect" means a material adverse effect on the business,       
properties, assets, condition (financial or otherwise), liabilities or results  
of operations of the Company and its subsidiaries taken as a whole, other than  
any effects arising out of, resulting from or relating to changes in general    
economic or financial conditions. Complete and correct copies as of the date    
hereof of the Certificate of Incorporation and By-laws of the Company have been 
delivered to Parent as part of the Company Disclosure Schedule.                 

  Section 5.2  CAPITALIZATION.  The authorized stock of the Company consists
of 50,000,000 shares of Company Stock and 5,000,000 shares of preferred stock,  
par value $.01 per share, of the Company ("Company Preferred Stock"). As of     
September 22, 1997, the issued and outstanding capital stock of the Company     
consisted solely of 14,753,000 shares of Company Stock, all of which were       
validly issued and outstanding, fully paid and nonassessable. There are no      
bonds, debentures, notes or other indebtedness issued or outstanding having the 
right to vote on any matters on which the Company's stockholders may vote. There
are no options, warrants, calls, convertible securities or other rights,        
agreements or commitments presently outstanding obligating the Company to issue,
deliver or sell shares of its stock or debt securities, or obligating the       
Company to grant, extend or enter into any such option, warrant, call or other  
such right, agreement or commitment, other than as identified in Section 5.2 of 
the Company Disclosure Schedule. Section 5.2 of the Company Disclosure Schedule 
sets forth the name of each optionee, the number of Options held by such        
optionee and the exercise price for such Options under the Option Plans. Since  
September 22, 1997, the Company has not issued any shares of its capital stock  
except shares of Company Stock issued upon exercise of Options. After the       
Effective Time, the Surviving Corporation will have no obligation to issue,     
transfer or sell any shares of stock of the Company or the Surviving Corporation
pursuant to any Company Employee Benefit Plan (as defined in Section 5.8).      

    Section 5.3  SUBSIDIARIES.  Each subsidiary of the Company is a corporation,
partnership or other entity duly organized, validly existing and in good        
standing under the laws of its jurisdiction of organization (except where the   
failure to be validly existing and in good standing would not be material to the
business of such subsidiary) and has the corporate or similar power to carry on 
its business as it is now being conducted or currently proposed to be conducted.
Each subsidiary of the Company is duly qualified to do business, and is in good 
standing, in each jurisdiction where the character of its properties owned or   
held under lease or the nature of its activities makes such qualification       
necessary, except where the failure to be so qualified, when taken together with
all such failures, has not had, and would not have, a Company Material Adverse  
Effect. Section 5.3 of the Company Disclosure Schedule contains, with respect to
each subsidiary of the Company, its name and jurisdiction of organization and,  
with respect to each subsidiary that is not wholly owned, the number of issued  
and outstanding shares of capital stock or share capital and the number of      
shares of capital stock or share capital owned by the Company or a subsidiary.  
Except as described in Section 5.3 of the Company Disclosure Schedule, all the  
outstanding shares of capital stock or                                          

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share capital of each subsidiary of the Company are validly issued, fully paid  
and nonassessable, and those owned by the Company or by a subsidiary of the     
Company are owned free and clear of any liens, claims or encumbrances. There are
no existing options, warrants, calls, convertible securities or other rights,   
agreements or commitments of any character relating to the issued or unissued   
capital stock or other securities of any of the subsidiaries of the Company.    
Except as set forth in the Company's Annual Report on Form 10-K for the fiscal  
year ended December 31, 1996 or any Company SEC Report (as hereinafter defined) 
filed subsequent to such date and prior to the date hereof, the Company does not
directly or indirectly own any interest in any other corporation, partnership,  
joint venture or other business association or entity or have any obligation,   
commitment or undertaking to acquire any such interest.                         

Section 5.4  AUTHORITY RELATIVE TO THIS AGREEMENT.  The Company has the 
corporate power to enter into this Agreement and to carry out its obligations   
hereunder. The execution and delivery of this Agreement and the consummation of 
the transactions contemplated hereby have been duly authorized by the Company's 
Board of Directors. This Agreement constitutes a valid and binding obligation of
the Company enforceable in accordance with its terms except as enforcement may  
be limited by bankruptcy, insolvency or other similar laws affecting the        
enforcement of creditors rights generally and except that the availability of   
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought. Except for the
approval of this Agreement and the transactions contemplated hereby by the      
holders of a majority of the shares of Company Stock outstanding and entitled to
vote thereon as described in Section 3.6, no other corporate proceedings on the 
part of the Company are necessary to authorize this Agreement and the           
transactions contemplated hereby. Except as described in Section 5.4 of the     
Company Disclosure Schedule, the Company is not subject to or obligated under   
(i) any charter or by-law provision or (ii) any contract, indenture, loan or    
credit document, license, franchise, permit, order, decree, concession, lease,  
instrument, judgment, statute, law, ordinance, rule or regulation applicable to 
the Company or any of its subsidiaries or their respective properties or assets 
which would be breached or violated, or under which there would be a default    
(with or without notice or lapse of time, or both), or under which there would  
arise a right of termination, cancellation, modification or acceleration of any 
obligation, or any right to payment or compensation, or the loss of a material  
benefit, by its executing and carrying out this Agreement, other than, in the   
case of this clause (ii) only, (A) any breaches, violations, defaults,          
terminations, cancellations, modifications, accelerations, rights to payment or 
compensation, or losses which, either alone or in the aggregate, have not had,  
and would not have, a Company Material Adverse Effect or would not prevent the  
consummation of the transactions contemplated hereby and (B) the laws and       
regulations referred to in the next sentence. Except as required by the HSR Act,
the Securities Act, the Exchange Act, and the corporation, securities or blue   
sky laws or regulations of the various states, no filing or registration with,  
or authorization, consent or approval of, any Governmental Entity is necessary  
for the consummation by the Company of the Merger or the other transactions     
contemplated by this Agreement, other than filings, registrations,              
authorizations, consents or approvals the failure to make or obtain which has   
not had, and would not have, a Company Material Adverse Effect or would not     
prevent the consummation of the transactions contemplated hereby.               

  Section 5.5  REPORTS AND FINANCIAL STATEMENTS.  The Company has previously
furnished Parent with true and complete copies of its (i) Annual Reports on Form
10-K for the fiscal years ended December 31, 1995 and December 31, 1996, as     
filed with the Commission, (ii) Quarterly Reports on Form 10-Q for the quarters 
ended March 31, 1997 and June 30, 1997, as filed with the Commission, (iii)     
proxy statements related to all meetings of its stockholders (whether annual or 
special) since December 31, 1995 and (iv) all other reports or registration     
statements filed by the Company with the Commission since December 31, 1995,    
except for preliminary material (in the case of clauses (iii) and (iv) above)   
and except for registration statements on Form S-8 relating to employee benefit 
plans and annual reports on Form 11-K with respect to such plans, which are all 
the documents that the Company was required to file with the Commission since   
that date (the documents in clauses (i) through (iv) being referred to herein   
collectively as the "Company SEC Reports"). As of their respective dates, the   
Company SEC Reports complied as to form in all material respects with the       
requirements of the Securities Act or the Exchange Act, as the case may be,     

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and the rules and regulations of the Commission thereunder applicable to such   
Company SEC Reports. As of their respective dates, the Company SEC Reports did  
not contain any untrue statement of a material fact or omit to state a material 
fact required to be stated therein or necessary to make the statements therein, 
in light of the circumstances under which they were made, not misleading. The   
audited consolidated financial statements and unaudited interim financial       
statements of the Company included in the Company SEC Reports comply as to form 
in all material respects with applicable accounting requirements and with the   
published rules and regulations of the Commission with respect thereto. The     
financial statements included in the Company SEC Reports: (i) have been prepared
in accordance with generally accepted accounting principles applied on a        
consistent basis, except as may be indicated therein or in the notes thereto and
subject, in the case of the unaudited interim financial statements, to normal   
year-end adjustments and any other adjustments described therein and the fact   
that certain information and notes have been condensed or omitted in accordance 
with the Exchange Act and the rules promulgated thereunder; (ii) present fairly,
in all material respects, the financial position of the Company and its         
subsidiaries, as at the dates thereof and the results of their operations and   
cash flows for the periods then ended; and (iii) are in all material respects in
accordance with the books of account and records of the Company and its         
subsidiaries. As of June 30, 1997, there was no basis for any claim or liability
of any nature against the Company or any of its subsidiaries, whether absolute, 
accrued, contingent or otherwise, which, alone or in the aggregate, has had, or 
would have, a Company Material Adverse Effect, other than as reflected in the   
Company SEC Reports.                                                            

  Section 5.6  ABSENCE OF CERTAIN CHANGES OR EVENTS.  Except as disclosed in
the Company SEC Reports filed prior to the date of this Agreement or in Section 
5.6 of the Company Disclosure Schedule, since June 30, 1997, the Company and its
subsidiaries have operated their respective businesses in the ordinary course of
business consistent with past practice and there has not been (i) any           
transaction, commitment, dispute or other event or condition (financial or      
otherwise) of any character (whether or not in the ordinary course of business) 
which, alone or in the aggregate, has had, or would have, a Company Material    
Adverse Effect; (ii) any damage, destruction or loss, whether or not covered by 
insurance, which has had, or would have, a Company Material Adverse Effect;     
(iii) any declaration, setting aside or payment of any dividend or distribution 
(whether in cash, stock or property) with respect to the stock of the Company or
any of its subsidiaries (other than dividends or distributions between the      
Company and its wholly owned subsidiaries); (iv) any material change in the     
Company's accounting principles, practices or methods; (v) any repurchase or    
redemption with respect to its stock; (vi) any stock split, combination or      
reclassification of any of the Company's stock or the issuance or authorization 
of any issuance of any other securities in respect of, in lieu of or in         
substitution for, shares of the Company's stock; (vii) any grant or amendment of
the terms of any option to purchase shares of stock of the Company other than   
pursuant to the Option Plans; (viii) any granting by the Company or any of its  
subsidiaries to any director, officer or employee of the Company or any of its  
subsidiaries of (A) any increase in compensation (other than in the case of     
employees in the ordinary course of business consistent with past practice), (B)
any increase in severance or termination pay, or (C) acceleration of            
compensation or benefits; (ix) any entry by the Company or any of its           
subsidiaries into any employment, severance, bonus or termination agreement with
any director, officer or employee of the Company or any of its subsidiaries; or 
(x) any agreement (whether or not in writing), arrangement or understanding to  
do any of the foregoing.                                                        

Section 5.7  LITIGATION.  Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, there is no suit, action or          
proceeding pending or, to the Company's knowledge, threatened against the       
Company or any of its subsidiaries which, alone or in the aggregate, has had or 
would have, a Company Material Adverse Effect, nor is there any judgment,       
decree, injunction, rule or order of any Governmental Entity or arbitrator      
outstanding against the Company or any of its subsidiaries which, alone or in   
the aggregate, has had, or would have, any such Company Material Adverse Effect.
For purposes of this Agreement, the phrases "the Company's knowledge" and       
"knowledge of the Company" and other phrases of like import shall mean the      
actual knowledge of any executive officer of the Company.                       

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Section 5.8  EMPLOYEE BENEFIT PLANS.  (a) Section 5.8(a) of the Company 
Disclosure Schedule hereto sets forth a list of all "employee benefit plans," as
defined in Section 3(3) of ERISA, and all other material employee benefit or    
compensation arrangements or payroll practices, including, without limitation,  
any such arrangements or payroll practices providing severance pay, sick leave, 
vacation pay, salary continuation for disability, retirement benefits, deferred 
compensation, bonus pay, incentive pay, stock options (including those held by  
directors, employees, and consultants), hospitalization insurance, medical      
insurance, life insurance, scholarships or tuition reimbursements, that are     
maintained by the Company, any subsidiary of the Company or any Company ERISA   
Affiliate (as defined below) or to which the Company, any subsidiary of the     
Company or any Company ERISA Affiliate is obligated to contribute thereunder for
current or former directors, employees, independent contractors, consultants and
leased employees of the Company, any subsidiary of the Company or any Company   
ERISA Affiliate (the "Company Employee Benefit Plans").                         

(b) Except as set forth in Section 5.8(b) of the Company Disclosure     
Schedule, none of the Company Employee Benefit Plans is a "multiemployer plan", 
as defined in Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), and since   
December 31, 1995, neither the Company nor any Company ERISA Affiliate has      
contributed or contributes, or has been or is required to contribute, to any    
such plan.                                                                      

(c) Except as set forth in Section 5.8(c) of the Company Disclosure     
Schedule, the Company does not maintain or contribute to any plan or arrangement
which provides or has any liability to provide life insurance or medical or     
other employee welfare benefits to any employee, officer or director or former  
employee, officer or director upon his retirement or termination of employment, 
and the Company has never represented, promised or contracted (whether in oral  
or written form) to any employee, officer or director or former employee,       
officer or director that such benefits would be provided.                       

(d) Except as set forth in Section 5.8(d) of the Company Disclosure     
Schedule, the execution of, and performance of the transactions contemplated in,
this Agreement will not, either alone or upon the occurrence of subsequent      
events, result in any payment (whether of severance pay or otherwise),          
acceleration, forgiveness of indebtedness, vesting, distribution, increase in   
benefits or obligation to fund benefits with respect to any employee, officer or
director. The only severance agreements or severance policies applicable to the 
Company or its subsidiaries in the event of a change of control of the Company  
are the agreements and policies specifically referred to in Section 5.8 of the  
Company Disclosure Schedule. The Board of Directors of the Company has          
determined that the transactions contemplated hereby do not constitute a change 
of control for purposes of any such agreement, plan, policy or stock option plan
or program to the extent the Company or its Board has discretion to make such   
determination under such agreement, plan or policy and such Board shall not     
change such determination. Such Board has also determined not to accelerate     
vesting of any stock options or other benefits on account of the transactions   
contemplated hereby to the extent such Board has discretion to make such        
determination and such Board shall not change such determination.               

(c) Each Company Employee Benefit Plan that is intended to qualify under
Section 401 of the Code, and each trust maintained pursuant thereto, has been   
determined to be exempt from federal income taxation under Section 501 of the   
Code by the IRS, and, to the Company's knowledge, nothing has occurred with     
respect to the operation or organization of any such Company Employee Benefit   
Plan that would cause the loss of such qualification or exemption or the        
imposition of any material liability, penalty or tax under ERISA or the Code.   
With respect to any Company Employee Benefit Plan or other employee benefit plan
which is a "defined benefit plan" within the meaning of Section 3(35) of ERISA, 
(i) the Company has not incurred and is not reasonably likely to incur any      
material liability under Title IV of ERISA (other than for the payment of       
premiums, all of which have been paid when due), (ii) the Company has not       
incurred any material accumulated funding deficiency within the meaning of      
Section 412 of the Code and has not applied for or obtained a waiver of any     
minimum funding standard or an extension of any amortization period under       
Section 412 of the Code, (iii) no "reportable event" (as such term is defined in
Section 4043 of ERISA but excluding any event for which the provision for 30-day
notice to the Pension                                                           

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Benefit Guaranty Corporation has been waived by regulation) has occurred or is  
expected to occur and (iv) since December 31, 1996, no material adverse change  
in the financial condition of any such plan has occurred.                       

    (f) (i) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under any of the     
Company Employee Benefit Plans to any funds or trusts established thereunder or 
in connection therewith have been made by the due date thereof, (ii) the Company
has complied in all material respects with any notice, reporting and            
documentation requirements of ERISA and the Code, (iii) there are no pending    
actions, claims or lawsuits which have been asserted, instituted or, to the     
Company's knowledge, threatened, in connection with the Company Employee Benefit
Plans, and (iv) the Company Employee Benefit Plans have been maintained, in all 
material respects, in accordance with their terms and with all provisions of    
ERISA and the Code (including rules and regulations thereunder) and other       
applicable federal and state laws and regulations.                              

 (g) To the Company's knowledge, neither the Company nor any Company ERISA
Affiliate, has engaged in any transaction in violation of Section 406(a) or (b) 
of ERISA or any "prohibited transaction" (as defined in Section 4975(c)(1) of   
the Code), which would subject the Company or any Company ERISA Affiliate to any
taxes, penalties or other liabilities resulting from such prohibited            
transaction, and no condition exists that would subject the Company or any      
Company ERISA Affiliate to any excise tax, penalty tax or fine related to any   
Company Employee Benefit Plans.                                                 

(h) With respect to each Company Employee Benefit Plan, the Company has 
furnished or made available to Parent true, correct and complete copies of (i)  
the plan documents and summary plan descriptions; (ii) the most recent          
determination letter received from the Internal Revenue Service; (iii) the      
annual reports to be filed for the three most recent plan years of each such    
plan; (iv) all related trust agreements, insurance contracts or other funding   
agreements that implement such plans; and (v) all other documents, records or   
other materials related thereto reasonably requested by Parent.                 

    For purposes of this Agreement, "Company ERISA Affiliate" means any business
or entity which is a member of the same "controlled group of corporations,"     
under "common control" or an "affiliated service group" with the Company within 
the meanings of Sections 414 (b), (c) or (m) of the Code, or required to be     
aggregated with the Company under Section 414(o) of the Code, or is under       
"common control" with the Company, within the meaning of Section 4001(a)(14) of 
ERISA, or any regulations promulgated or proposed under any of the foregoing    
Sections.                                                                       

 Section 5.9  COMPANY ACTION.  The Board of Directors of the Company (at a
meeting duly called and held) has by the unanimous vote of all directors present
(a) determined that the Merger is advisable and fair to and in the best         
interests of the Company and its stockholders, (b) approved the Merger in       
accordance with the provisions of Section 251 of the DGCL, and (c) recommended  
the approval of this Agreement and the Merger by the holders of the Company     
Stock and directed that the Merger be submitted for consideration by the        
Company's stockholders at the meeting of stockholders contemplated by Section   
3.6.                                                                            

  Section 5.10  FINANCIAL ADVISORS.  The Company has received the opinion of
Goldman, Sachs & Co. ("Goldman Sachs") to the effect that, as of the date       
hereof, the Exchange Ratio is fair from a financial point of view to the holders
of Company Stock. Except for Goldman Sachs and Hicks, Muse, Tate & Furst        
Incorporated, no broker, finder or investment banker is entitled to any         
brokerage, finder's or other fee or commission in connection with the Merger or 
the transactions contemplated by this Agreement based upon arrangements made by 
or on behalf of the Company. The Company has previously delivered to Parent     
copies of the engagement letters, dated May 22, 1997 and June 10, 1997, from    
Goldman Sachs and Hicks, Muse, Tate & Furst Incorporated, respectively, to the  
Company. In addition to any such fee and commission arrangements, the Company   
has previously delivered to Parent a good faith estimate of all additional fees,
costs, and expenses to be incurred by the Company and its subsidiaries in       
connection with this Agreement (but not including any estimate of legal or      
accounting fees, costs and expenses).                                           

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   Section 5.11  COMPLIANCE WITH APPLICABLE LAWS.  The Company and each of its
subsidiaries holds all permits, licenses, variances, exemptions, orders and     
approvals of all Governmental Entities necessary or appropriate for the         
operation of its respective business, except for such permits, licenses,        
variances, exemptions, orders and approvals the failure to hold which, alone or 
in the aggregate, has not had, and would not have a Company Material Adverse    
Effect (the "Company Permits"). The Company and each of its subsidiaries is in  
compliance with the terms of the Company Permits, except for any failure to     
comply which, alone or in the aggregate, has not had, and would not have, a     
Company Material Adverse Effect. Except as disclosed in the Company SEC Reports 
filed prior to the date of this Agreement, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or      
regulation of any Governmental Entity, except for possible violations which     
alone or in the aggregate have not had, and would not have, a Company Material  
Adverse Effect. To the Company's knowledge, during the past five years, none of 
the Company's or any of its subsidiaries' officers, employees or agents, nor any
other person acting on behalf of any of them or the Company or any of its       
subsidiaries, has, directly or indirectly, given or agreed to give any gift or  
similar benefit to any customer, supplier, governmental employee or other person
in violation of any law, ordinance or regulation of any Governmental Entity,    
including, without limitation, the Foreign Corrupt Practices Act.               

    Section 5.12  TAXES.  Except to the extent that the inaccuracy of any of the
succeeding representations has not had, or would not have, a Company Material   
Adverse Effect: (i) all Tax Returns required to be filed by or with respect to  
the Company and each of its subsidiaries have been filed; (ii) neither the      
Company nor any of its subsidiaries has requested or been granted an extension  
of time for filing any Tax Return that has not yet been filed; (iii) the Company
and each of its subsidiaries has paid all Taxes that are due from or with       
respect to it; (iv) the Company and each of its subsidiaries has withheld and   
paid all Taxes required by all applicable laws to be withheld or paid in        
connection with any amounts paid or owing to any employee, creditor, independent
contractor or other third party; (v) there are no outstanding agreements,       
waivers, or arrangements extending the statutory period of limitation applicable
to any claim for, or the period for the collection or assessment of, Taxes due  
from or with respect to the Company or any of its subsidiaries for any taxable  
period; (vi) no audit, action, proceeding, investigation, dispute or claim by   
any court, governmental or regulatory authority, or similar person is pending   
or, to the Company's knowledge, threatened in regard to any Taxes due from or   
with respect to the Company or any of its subsidiaries or any Tax Return filed  
by or with respect to the Company or any of its subsidiaries; (vii) no claim has
been made by a taxing authority in a jurisdiction in which the Company does not 
file Tax Returns that the Company is required to file Tax Returns in such       
jurisdiction, and, to the Company's knowledge, no taxing authority could        
reasonably make such a claim; (viii) no assessment of any deficiency for Taxes  
is proposed against the Company or any of its subsidiaries or any of their      
assets; (ix) there are no liens for Taxes (other than for current Taxes not yet 
due and payable) upon the assets of the Company; (x) the Company has not been a 
member of an affiliated group as defined in Section 1504 of the Code (or any    
analogous combined, consolidated or unitary group as defined under state, local 
or foreign income tax law) other than one of which the Company was the common   
parent; (xi) the Company has no obligation or liability for the payment of Taxes
of any other person arising as a result of any obligation to indemnify another  
person or as a result of the Company assuming or succeeding to the tax liability
of any other person as a successor, transferee or otherwise; (xii) the Company  
will not be required to include any amount in taxable income for any taxable    
period (or portion thereof) ending after the Effective Time as a result of (A) a
change in method of accounting for a taxable period ending prior to the         
Effective Time, (B) any "closing agreement" as described in Section 7121 of the 
Code (or any corresponding provision of state, local or foreign income tax laws)
entered into prior to the Effective Time, (C) any sale reported on the          
installment method that occurred prior to the Effective Time or (D) any prepaid 
amount received prior to the Effective Time; (xiv) all Taxes accrued but not yet
due and all contingent liabilities for Taxes are adequately reflected in the    
reserves for Taxes in the financial statements contained in the Company SEC     
Reports; and (xv) there has been no "ownership change" as described in Section  
382 of the Code that has resulted in any limitation on the Company's ability to 
offset pre-change losses against its taxable income.                            

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Section 5.13  CERTAIN AGREEMENTS.  Neither the Company nor any of its   
subsidiaries is in default (or would be in default with notice or lapse of time,
or both) under any indenture, note, credit agreement, loan document, lease,     
license, concession or other agreement, whether or not such default has been    
waived, which default, alone or in the aggregate with other such defaults, has  
had, or would have, a Company Material Adverse Effect.                          

  Section 5.14  TAX AND ACCOUNTING MATTERS.  To the Company's knowledge, the
Company has not taken any action which would prevent the Merger from            
constituting a reorganization within the meaning of Section 368(a) of the Code. 
The Company has received a letter from Arthur Andersen LLP, a copy of which has 
previously been delivered to Parent, with respect to the eligibility of the     
Company for "pooling of interests" accounting treatment.                        

 Section 5.15  RELATIONSHIP WITH CUSTOMERS AND SUPPLIERS.  The Company has
made available to Parent a list of (i) the ten largest customers of the Company 
and its subsidiaries taken as a whole as determined by the dollar volume of     
sales for the year ended December 31, 1996, together with such sales volumes and
(ii) the ten largest suppliers of the Company and its subsidiaries taken as a   
whole as determined by the dollar volume of purchases for the year ended        
December 31, 1996, together with such purchase volumes. In the last 12 months,  
no such supplier or customer, and no licensor or licensee, of the Company or its
subsidiaries has notified the Company or its subsidiaries that it has canceled  
or otherwise terminated, or, to the Company's knowledge, threatened to cancel or
otherwise terminate, its relationship with the Company or any of its            
subsidiaries which has had, or would have, either alone or in the aggregate, a  
Company Material Adverse Effect. To the Company's knowledge, there has not been 
any dispute with any such customer or supplier which has had, or would have,    
either alone or in the aggregate, a Company Material Adverse Effect.            

   Section 5.16  INTELLECTUAL PROPERTY.  (a) The Company has made available to
Parent a list of the following (collectively, the "Company Intellectual         
Property"): (i) each trademark, trade name, brand name, service mark or other   
trade designation owned or licensed by or to the Company or any of its          
subsidiaries, each patent, copyright and similar intellectual property owned or 
licensed to or by the Company and each license, royalty, assignment or other    
similar agreement and each registration and application relating to the         
foregoing that is material to the conduct of the business of the Company and its
subsidiaries taken as a whole; and (ii) each agreement relating to technology,  
know-how or processes that the Company or its subsidiaries is licensed or       
authorized to use, or which it licenses or authorizes others to use, that is    
material to the conduct of the business of the Company and its subsidiaries     
taken as a whole.                                                               

   (b) The Company and its subsidiaries own the Company Intellectual Property,
or have the right to use the same without infringing or violating the rights of 
any third parties, except where such infringement or violation has not had, or  
would not have, either alone or in the aggregate, a Company Material Adverse    
Effect. No consent of third parties will be required for the use of the Company 
Intellectual Property after the Effective Time, except where the failure to     
obtain such consent would not have, either alone or in the aggregate, a Company 
Material Adverse Effect. No claim has been asserted by any person against the   
Company or any of its subsidiaries regarding the ownership of or the right to   
use any Company Intellectual Property or challenging the rights of the Company  
or any of its subsidiaries with respect to any of the Company Intellectual      
Property which, if adversely determined, would have, either alone or in the     
aggregate, a Company Material Adverse Effect.                                   

  (c) To the Company's knowledge, no person or entity has asserted any claim
that any product, activity or operation of the Company or any of its            
subsidiaries infringes upon or involves, or has resulted in the infringement of,
any proprietary right of such person or entity, except for such infringement    
which has not had, or would not have, either alone or in the aggregate, a       
Company Material Adverse Effect; and no proceedings have been instituted, are   
pending or, to the Company's knowledge, are threatened which challenge the      
rights of the Company or any of its subsidiaries with respect thereto, which, if
adversely determined, would have, either alone or in the aggregate, a Company   
Material Adverse Effect.                                                        

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ARTICLE VI
REPRESENTATIONS AND WARRANTIES REGARDING SUB

    Parent and Sub jointly and severally represent and warrant to the Company as
follows:                                                                        

Section 6.1  ORGANIZATION.  Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Sub has  
not engaged in any business since it was incorporated other than in connection  
with its organization and the transactions contemplated by this Agreement.      

  Section 6.2  CAPITALIZATION.  The authorized capital stock of Sub consists
of 1,000 shares of common stock, par value $.01 per share, all of which are     
validly issued and outstanding, fully paid and nonassessable and are directly   
owned by Parent free and clear of all liens, claims and encumbrances.           

 Section 6.3  AUTHORITY RELATIVE TO THIS AGREEMENT.  Sub has the corporate
power to enter into this Agreement and to carry out its obligations hereunder.  
The execution and delivery of this Agreement and the consummation of the        
transactions contemplated hereby have been duly authorized by its Board of      
Directors and sole stockholder, and no other corporate proceedings on the part  
of Sub are necessary to authorize this Agreement and the transactions           
contemplated hereby. Except as disclosed in Section 4.3 of the Parent Disclosure
Schedule or as required by the HSR Act, the Securities Act, the Exchange Act and
the corporation, securities or blue sky laws or regulations of the various      
states, no filing or registration with, or authorization, consent or approval   
of, any Governmental Entity is necessary for the consummation by Sub of the     
Merger or the transactions contemplated by this Agreement, other than filings,  
registrations, authorizations, consents or approvals the failure to make or     
obtain which would not prevent the consummation of the transactions contemplated
hereby.                                                                         

ARTICLE VII 
CONDUCT OF BUSINESS PENDING THE MERGER

  Section 7.1  CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.  After
the date of this Agreement and prior to the Effective Time, unless Parent shall 
otherwise agree in writing or except as otherwise required by this Agreement:   

    (i) the Company shall, and shall cause its subsidiaries to, carry on
their respective businesses in the usual, regular and ordinary course in
   substantially the same manner as heretofore conducted, and shall, and shall
  cause its subsidiaries to, use their reasonable efforts to preserve intact
  their present business organizations and preserve their relationships with
 customers, suppliers and others having business dealings with them to the
  end that their goodwill and on-going businesses shall be unimpaired at the
Effective Time;                                                         

(ii) the Company shall, and shall cause its subsidiaries to, (A)
 maintain insurance coverages and their books, accounts and records in the
usual manner consistent with past practice; (B) comply in all material  
   respects with all laws, ordinances and regulations of Governmental Entities
   applicable to the Company and its subsidiaries; (C) maintain and keep their
material properties and equipment in good repair, working order and     
   condition, ordinary wear and tear excepted; and (D) perform in all material
  respects their obligations under all material contracts and commitments to
which any of them is a party or by which any of them is bound;          

      (iii) the Company shall not and shall not propose or agree to (A) sell
    or pledge or agree to sell or pledge any capital stock owned by it in any of
its subsidiaries or owned by any of its subsidiaries, (B) amend its     
 Certificate of Incorporation or By-laws, (C) split, combine or reclassify
  its outstanding stock or issue or authorize or propose the issuance of any
   other securities in respect of, in lieu of or in substitution for shares of
  stock of the Company, or declare, set aside, authorize or pay any dividend
    or other distribution payable in cash, stock or property, or (D) directly or
indirectly redeem, purchase or otherwise acquire or agree to redeem,    
purchase or otherwise acquire any shares of Company stock;              

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       (iv) the Company shall not, nor shall it permit any of its subsidiaries
to, (A) issue, deliver or sell or agree to issue, deliver or sell any   
 additional shares of, or rights of any kind to acquire any shares of, its
   respective stock of any class, any indebtedness having the right to vote on
any matter on which the Company's stockholders may vote or any option,  
  rights or warrants to acquire, or securities convertible into, exercisable
    for or exchangeable for, shares of stock other than issuances, deliveries or
    sales of Company Stock pursuant to obligations outstanding as of the date of
this Agreement under the Option Plans; (B) acquire, lease or dispose or 
    agree to acquire, lease or dispose of any capital assets or any other assets
other than in the ordinary course of business; (C) incur additional     
   indebtedness or encumber or grant a security interest in any asset or enter
   into any other material transaction other than in each case in the ordinary
course of business; (D) acquire or agree to acquire by merging or       
    consolidating with, or by purchasing a substantial equity interest in, or by
   any other manner, any business or any corporation, partnership, association
  or other business organization or division thereof; (E) incur any material
transaction fees, costs or expenses in addition to those disclosed or   
referenced pursuant to Section 5.10; or (F) enter into any contract,    
  agreement, commitment or arrangement with respect to any of the foregoing;

      (v) the Company shall not, nor shall it permit any of its subsidiaries
   to, except as required to comply with applicable law and except as provided
 in Section 8.5 hereof, enter into any new (or amend any existing) Company
Employee Benefit Plan or any new (or amend any existing) employment,    
severance or consulting agreement, grant any general increase in the    
compensation of current or former directors, officers or employees      
   (including any such increase pursuant to any bonus, pension, profit-sharing
or other plan or commitment) or grant any increase in the compensation  
    payable or to become payable to any director, officer or employee, except in
any of the foregoing cases in accordance with pre-existing contractual  
provisions or in the ordinary course of business consistent with past   
practice;                                                               

       (vi) the Company shall not, nor shall it permit any of its subsidiaries
to, take or cause to be taken any action, whether before or after the   
Effective Time, which would disqualify the Merger as a "pooling of      
interests" for accounting purposes or as a "reorganization" within the  
meaning of Section 368(a) of the Code; and                              

        (vii) the Company shall not, nor shall it permit any of its subsidiaries
    to, amend, modify, terminate, waive or permit to lapse any material right of
first refusal, preferential right, right of first offer, or any other   
material right of the Company or any of its subsidiaries, except in the 
ordinary course of business.                                            

 Section 7.2  CONDUCT OF BUSINESS BY PARENT PENDING THE MERGER.  After the
date of this Agreement and prior to the Effective Time, unless the Company shall
otherwise agree in writing or except as otherwise required by this Agreement:   

     (i) Parent shall, and shall cause its subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in      
  substantially the same manner as heretofore conducted and shall, and shall
  cause its subsidiaries to, use their reasonable efforts to preserve intact
  their present business organizations and preserve their relationships with
 customers, suppliers and others having business dealings with them to the
 end that their goodwill and ongoing businesses shall be unimpaired at the
Effective Time;                                                         

    (ii) Parent shall, and shall cause its subsidiaries to, (A) maintain
insurance coverages and their books, accounts and records in the usual  
 manner consistent with past practice; (B) comply in all material respects
with all laws, ordinances and regulations of Governmental Entities      
applicable to Parent and its subsidiaries; (C) maintain and keep their  
material properties and equipment in good repair, working order and     
   condition, ordinary wear and tear expected; and (D) perform in all material
  respects their obligations under all material contracts and commitments to
which any of them is a party or by which any of them is bound;          

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    (iii) Parent shall not and shall not propose or agree to (A) sell or
 pledge or agree to sell or pledge any capital stock owned by it in any of
its subsidiaries or owned by any of its subsidiaries (except for capital
    stock acquired after the date hereof which is pledged as collateral pursuant
    to the terms of the credit agreements described in Section 4.4 of the Parent
    Disclosure Schedule), (B) except as contemplated by the CF Merger Agreement,
amend its Certificate of Incorporation or By-laws, (C) split, combine or
 reclassify its outstanding capital stock or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or in    
  substitution for shares of capital stock of Parent, or declare, set aside,
  authorize or pay any dividend or other distribution payable in cash, stock
or property, or (D) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares of 
Parent capital stock;                                                   

        (iv) except in connection with acquisitions of assets or businesses that
    are primarily engaged in the same businesses as that conducted by Parent and
its subsidiaries as of the date of this Agreement and any financing     
    transactions or issuances of securities related thereto which, in each case,
    do not require the approval of the stockholders of Parent, Parent shall not,
   and shall not permit any of its subsidiaries to, (A) issue, deliver or sell
 or agree to issue, deliver or sell any additional shares of, or rights of
any kind to acquire any shares of, its respective capital stock of any  
class, any indebtedness having the right to vote on any matter on which 
Parent's stockholders may vote or any options, rights or warrants to    
acquire, or securities convertible into, exercisable for or exchangeable
 for, shares of capital stock other than issuances, deliveries or sales of
Parent securities or options, rights or warrants, to acquire Parent     
securities under Parent Employee Benefit Plans; (B) acquire, lease or   
  dispose or agree to acquire, lease or dispose of any capital assets or any
other assets other than in the ordinary course of business; (C) incur   
additional indebtedness or encumber or grant a security interest in any 
  asset or enter into any other material transaction other than in each case
in the ordinary course of business; (D) acquire or agree to acquire by  
merging or consolidating with, or by purchasing a substantial equity    
interest in, or by any other manner, any business or any corporation,   
    partnership, association or other business organization or division thereof;
 (E) incur any material transaction fees, costs or expenses in addition to
    those disclosed or referenced pursuant to Section 4.9; or (F) enter into any
 contract, agreement, commitment or arrangement with respect to any of the
foregoing;                                                              

        (v) Parent shall use its best efforts to not, nor shall it permit any of
    its subsidiaries to, take or cause to be taken any action, whether before or
    after the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the  
meaning of Section 368(a) of the Code; and                              

      (vi) Parent shall not, nor shall it permit any of its subsidiaries to,
amend, modify, terminate, waive or permit to lapse any material right of
first refusal, preferential right, right of first offer, or any other   
   material right of Parent or any of its subsidiaries, except in the ordinary
course of business.                                                     

    Section 7.3  CONDUCT OF BUSINESS OF SUB.  During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities of 
any nature except as provided in or contemplated by this Agreement.             

ARTICLE VII 
ADDITIONAL AGREEMENTS 

Section 8.1  ACCESS AND INFORMATION.  Each of the Company and Parent and
their respective subsidiaries shall afford to the other and to the other's      
accountants, counsel and other representatives reasonable access during normal  
business hours (and at such other times as the parties may mutually agree)      
throughout the period prior to the Effective Time to all of its properties,     
books, contracts, commitments, records and personnel, subject to existing       
confidentiality obligations, and, during such period, each shall furnish        
promptly to the other (i) a copy of each report, schedule and other document    
filed or received by it pursuant to the requirements of federal or state        
securities laws and (ii) all other information concerning its                   

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business, properties and personnel as the other may reasonably request. Each of 
the Company and Parent shall hold, and shall cause their and their respective   
subsidiaries, respective employees, agents and representatives to hold, in      
confidence all such information in accordance with the terms of the             
Confidentiality Agreements dated August 18, 1997 between Parent and the Company.

    Section 8.2  REGISTRATION STATEMENT/PROXY STATEMENT.  Parent and the Company
shall cooperate and promptly prepare, and Parent shall file with the Commission 
as soon as practicable, a Registration Statement on Form S-4 (the "Form S-4")   
under the Securities Act, with respect to the Parent Common Stock issuable in   
the Merger, portions of which Registration Statement shall also serve as the    
joint proxy statement of Parent and Company with respect to the meetings of     
stockholders of Parent and the Company contemplated by Section 3.6 (the "Proxy  
Statement/Prospectus"). The respective parties will cause the Proxy             
Statement/Prospectus and the Form S-4 to comply as to form in all material      
respects with the applicable provisions of the Securities Act, the Exchange Act 
and the rules and regulations thereunder. Parent shall use all reasonable       
efforts, and the Company will cooperate with Parent, to have the Form S-4       
declared effective by the Commission as promptly as practicable after the filing
thereof (including without limitation, responding to any comments received from 
the Commission with respect thereto) and to keep the Form S-4 effective as long 
as is necessary to consummate the Merger. Each of Parent and the Company shall, 
as promptly as practicable, provide to the other copies of any written comments 
received from the Commission with respect to the Proxy Statement/Prospectus or  
the Form S-4 and advise the other of any oral comments with respect to the Proxy
Statement/Prospectus or the Form S-4 received from the Commission. Parent shall 
use its best efforts to obtain, prior to the effective date of the Form S-4, all
necessary state securities law or "Blue Sky" permits or approvals required to   
carry out the transactions contemplated by the Merger Agreement and will pay all
expenses incident thereto. Parent agrees that none of the information supplied  
or to be supplied by Parent for inclusion or incorporation by reference in the  
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy         
Statement/Prospectus and each amendment or supplement thereto, at the time of   
mailing thereof and at the time of the meetings of stockholders of Parent and   
the Company contemplated by Section 3.6, or (ii) in the case of the Form S-4 and
each amendment or supplement thereto, at the time it is filed or becomes        
effective, will contain an untrue statement of a material fact or omit to state 
a material fact required to be stated therein or necessary to make the          
statements therein, in light of the circumstances under which they were made,   
not misleading. The Company agrees that none of the information supplied or to  
be supplied by the Company for inclusion or incorporation by reference in the   
Form S-4 or the Proxy Statement/Prospectus (i) in the case of the Proxy         
Statement/Prospectus and each amendment or supplement thereto, at the time of   
mailing thereof and at the time of the meetings of stockholders of Parent and   
the Company contemplated by Section 3.6, or, (ii) in the case of the Form S-4 or
any amendment or supplement thereto, at the time it is filed or becomes         
effective, will contain an untrue statement of a material fact or omit to state 
a material fact required to be stated therein or necessary to make the          
statements therein, in light of the circumstances under which they were made,   
not misleading. For purposes of the foregoing, it is understood and agreed that 
information concerning or related to Parent will be deemed to have been supplied
by Parent and information concerning or related to the Company shall be deemed  
to have been supplied by the Company. No amendment or supplement to the Proxy   
Statement/Prospectus will be made by Parent or the Company without the approval 
of the other party. Parent will advise the Company, promptly after it receives  
notice thereof, of the time when the Form S-4 has become effective or any       
supplement or amendment has been filed, the issuance of any stop order, or the  
suspension of the qualification of Parent Common Stock issuable in connection   
with the Merger for offering or sale in any jurisdiction.                       

Section 8.3  COMPLIANCE WITH THE SECURITIES ACT AND POOLING             
REQUIREMENTS.  (a) At least 30 days prior to the Effective Time, the Company    
shall deliver to Parent a list of names and addresses of those persons who were,
in the Company's reasonable judgment, at the record date for the Company        
Meeting, "affiliates" (each such person, an "Affiliate") of the Company within  
the meaning of Rule 145 of the rules and regulations promulgated under the      
Securities Act. The Company shall use all reasonable efforts to deliver or cause
to be delivered to Parent, prior to the Effective Time, from each of the        
Affiliates of the                                                               

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Company identified in the foregoing list, an Affiliate Letter in the form       
attached hereto as Exhibit A-1 (an "Affiliate Letter"). Parent shall be entitled
to place legends as specified in such Affiliate Letters on the certificates     
evidencing any Parent Common Stock to be received by such Affiliates pursuant to
the terms of the Agreement, and to issue appropriate stop transfer instructions 
to the transfer agent for the Parent Common Stock, consistent with the terms of 
such Affiliate Letters.                                                         

 (b) At least 30 days prior to the Effective Time, Parent shall deliver to
the Company a list of names and addresses of those persons who were, in Parent's
reasonable judgment, at the record date for the Parent Meeting, "affiliates"    
(each such person, a "Parent Affiliate") of Parent within the meaning of Rule   
145 of the rules and regulations promulgated under the Securities Act. Parent   
shall use all reasonable efforts to deliver or cause to be delivered to the     
Company, prior to the Effective Time, from each of the Parent Affiliates        
identified in the foregoing list, an Affiliate Letter in the form attached      
hereto as Exhibit A-2.                                                          

    (c) Each of Parent and the Company shall use commercially reasonable efforts
to cause the Merger to qualify for "pooling of interests" accounting treatment. 
The Company shall request, and shall use commercially reasonable efforts to     
obtain, a letter from Arthur Andersen LLP, dated the date of Closing, to the    
effect that the Merger will qualify for "pooling of interests" accounting       
treatment if consummated in accordance with this Agreement. Parent shall        
request, and shall use commercially reasonable efforts to obtain, a letter from 
Deloitte & Touche LLP, dated the date of Closing, to the effect that the Merger 
will qualify for "pooling of interests" accounting treatment if consummated in  
accordance with this Agreement.                                                 

(d)  Parent shall use its best efforts to publish, by public filing or  
announcement, the results of at least 30 days of combined operations of Parent  
and the Company as soon after the Effective Time as is commercially practicable.

  Section 8.4  STOCK EXCHANGE LISTING.  Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the Parent Common Stock to  
be issued pursuant to the Merger.                                               

  Section 8.5  EMPLOYEE MATTERS.  As of the Effective Time, the employees of
the Company and each subsidiary shall continue employment with the Surviving    
Corporation and the subsidiaries, respectively, in the same positions and at the
same level of wages and/or salary and without having incurred a termination of  
employment or separation from service; provided, however, except as may be      
specifically required by applicable law or any contract, the Surviving          
Corporation and the subsidiaries shall not be obligated to continue any         
employment relationship with any employee for any specific period of time.      
Except with respect to the Option Plans to be assumed by the Parent as provided 
by Section 3.5(a) hereto, as of the Effective Time, the Surviving Corporation   
shall be the sponsor of the Company Employee Benefit Plans sponsored by the     
Company immediately prior to the Effective Time, and Parent shall cause the     
Surviving Corporation and the subsidiaries to satisfy all obligations and       
liabilities under such Company Employee Benefit Plans; provided, however, that, 
except as hereafter provided in this Section 8.5 or in the Company Disclosure   
Schedule, nothing contained in this Agreement shall limit or restrict the       
Surviving Corporation's right on or after the Effective Time to amend, modify or
terminate any of the Company Employee Benefit Plans. To the extent any employee 
benefit plan, program or policy of Parent, the Surviving Corporation, or their  
affiliates is made available to any person who is an employee of the Company or 
any of its subsidiaries immediately prior to the Effective Time: (i) service    
with the Company and the subsidiaries by any employee prior to the Effective    
Time shall be credited for eligibility and vesting purposes and for purposes of 
qualifying for any additional benefits tied to periods of service (such as      
higher rates of matching contributions and eligibility for early retirement)    
under such plan, program or policy, but not for benefit accrual purposes (except
for disability, vacation and severance, with respect to which service with the  
Company and the subsidiaries shall be credited for benefit accrual purposes);   
and (ii) with respect to any welfare benefit plans to which such employees may  
become eligible, Parent shall cause such plans to provide credit for any        
co-payments or deductibles by such employees and waive all pre-existing         
condition exclusions and waiting periods, other than limitations or waiting     
periods that have not                                                           

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been satisfied under any welfare plans maintained by the Company and the        
subsidiaries for their employees prior to the Effective Time.                   

 Section 8.6  INDEMNIFICATION.  (a) From and after the Effective Date, the
Surviving Corporation and Parent shall indemnify, defend and hold harmless the  
officers, directors and employees of the Company and its subsidiaries who were  
such at any time prior to the Effective Time (the "Indemnified Parties") from   
and against all losses, expenses, claims, damages or liabilities arising out of 
the transactions contemplated by this Agreement to the fullest extent permitted 
or required under applicable law, and the Indemnified Parties shall be advanced 
expenses subject to a customary reimbursement agreement. All rights to          
indemnification existing in favor of the directors, officers or employees of the
Company as provided in the Company's Certificate of Incorporation or By-laws, as
in effect as of the date hereof, with respect to matters occurring through the  
Effective Time, shall survive the Merger and shall continue in full force and   
effect thereafter. The Surviving Corporation shall maintain in effect for not   
less than three years after the Effective Time the current policies of          
directors' and officers' liability insurance maintained by the Company with     
respect to matters occurring on or prior to the Effective Time; provided,       
however, that the Surviving Corporation or Parent may substitute therefor       
policies of at least the same coverage (with carriers comparable to the         
Company's existing carriers) containing terms and conditions which are not      
materially less advantageous to the Indemnified Parties; and provided, further, 
that the Surviving Corporation (or Parent, if it shall substitute policies)     
shall not be required in order to maintain or procure such coverage to pay an   
annual premium in excess of 200% of the current annual premium paid by the      
Company for its existing coverage (the "Cap"); and provided, further, that if   
equivalent coverage cannot be obtained, or can be obtained only by paying an    
annual premium in excess of the Cap, the Surviving Corporation shall only be    
required to obtain as much coverage as can be obtained by paying an annual      
premium equal to the Cap.                                                       

(b)  In the event that any action, suit, proceeding or investigation    
relating hereto or to the transactions contemplated by this Agreement is        
commenced, whether before or after the Effective Time, the parties hereto agree 
to cooperate and use their respective reasonable efforts to vigorously defend   
against and respond to the same.                                                

  Section 8.7  HSR ACT.  The Company and Parent shall use their best efforts
to file as soon as practicable notifications under the HSR Act in connection    
with the Merger and the transactions contemplated hereby, and to respond as     
promptly as practicable to any inquiries received from the Federal Trade        
Commission (the "FTC") and the Antitrust Division of the Department of Justice  
(the "Antitrust Division") for additional information or documentation.         

    Section 8.8  ADDITIONAL AGREEMENTS.  (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all commercially      
reasonable efforts to take, or cause to be taken, all actions and to do, or     
cause to be done, all things necessary, proper or advisable under applicable    
laws and regulations to consummate and make effective the transactions          
contemplated by this Agreement, including using all commercially reasonable     
efforts to obtain all necessary waivers, consents and approvals, to effect all  
necessary registrations and filings and to lift any injunction to the Merger    
(and, in such case, to proceed with the Merger as expeditiously as possible).   

(b)  In case at any time after the Effective Time any further action is 
necessary or desirable to carry out the purposes of this Agreement, the proper  
officers and/or directors of Parent, the Company and the Surviving Corporation  
shall take all such necessary action.                                           

(c)  Following the Effective Time, Parent shall use its best efforts to 
conduct the business and otherwise act, and shall cause the Surviving           
Corporation to use its best efforts to conduct its business and otherwise act,  
in a manner which would not disqualify the Merger as a "pooling of interests"   
for accounting purposes.                                                        

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(d)  Following the Effective Time, Parent shall file all Tax Returns of 
Parent and the Company on the basis that the Merger qualifies as a              
"reorganization" within the meaning of Section 368(a)(1)(A) and Section         
368(a)(2)(E) of the Code and shall take no action which is inconsistent with or 
contrary to such classification of the Merger for Tax purposes.                 

 Section 8.9  NO SHOP.  (a) Each of Parent and the Company agrees (i) that
neither it nor any of its subsidiaries shall, and it shall direct and use its   
best efforts to cause its officers, directors, employees, agents and            
representatives (including, without limitation, any investment banker, attorney 
or accountant retained by it or any of its subsidiaries) not to, initiate,      
solicit or encourage, directly or indirectly, any inquiries or the making or    
implementation of any proposal or offer (including, without limitation, any     
proposal or offer to its stockholders) with respect to a merger, acquisition,   
consolidation or similar transaction (other than, in the case of Parent, any    
acquisitions of assets or businesses that are primarily engaged in the same     
business as that conducted by Parent and its subsidiaries as of the date of this
Agreement and any financing transactions or issuances of securities related     
thereto which, in each case, do not require approval by the stockholders of     
Parent) involving, or any purchase of all or any significant portion of the     
assets or any equity securities of, such party or any of its material           
subsidiaries (any such proposal or offer being hereinafter referred to as an    
"Alternative Proposal"), or engage in any negotiations concerning, or provide   
any confidential information or data to, or have any discussions with, any      
person relating to an Alternative Proposal, or release any third party from any 
obligations under any existing standstill agreement or arrangement, or enter    
into any agreement with respect to an Alternative Proposal; (ii) that it will   
immediately cease and cause to be terminated any existing activities,           
discussions or negotiations with any parties conducted heretofore with respect  
to any of the foregoing; and (iii) that it will notify the other party with     
reasonable promptness if any such inquiries or proposals are received by, any   
such information is requested from, or any such negotiations or discussions are 
sought to be initiated or continued with, it. Notwithstanding the foregoing,    
each of Parent and the Company may, directly or indirectly, furnish information 
and access to, and may participate in discussions and negotiate with, any       
corporation, partnership, person or other entity that has submitted a written   
proposal to the Board of Directors of such party relating to an Alternative     
Proposal if (i) the Board of Directors of such party believes, in its good faith
judgment, that such Alternative Proposal is more favorable to such party's      
stockholders than the Merger and is reasonably likely to be consummated or (ii) 
the Board of Directors of such party, following consultation with its           
independent legal counsel relating thereto, determines in its good faith        
judgment that failing to take such action would constitute a breach of such     
Board of Directors' fiduciary duty to its stockholders imposed by law.          

    (b)  Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner     
adverse to Parent, the approval or recommendation by such Board of Directors of 
this Agreement or the Merger or (ii) approve or recommend, or propose to approve
or recommend, any Alternative Proposal, unless (x) the Board of Directors of the
Company believes, in its good faith judgment, that such Alternative Proposal is 
more favorable to the Company's stockholders than the Merger and is reasonably  
likely to be consummated or (y) the Board of Directors of the Company, following
consultation with its independent legal counsel relating thereto, determines in 
its good faith judgment that failing to take such action in connection with such
Alternative Proposal would constitute a breach of such Board of Directors'      
fiduciary duty to its stockholders imposed by law.                              

   (c)  Neither the Board of Directors of the Parent nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner     
adverse to Company, the approval or recommendation by such Board of Directors of
this Agreement or the issuance of Parent Common Stock in connection with the    
Merger or (ii) approve or recommend, or propose to approve or recommend, any    
Alternative Proposal, unless (x) the Board of Directors of the Parent believes, 
in its good faith judgment, that such Alternative Proposal is more favorable to 
the Parent's stockholders than the Merger and is reasonably likely to be        
consummated or (y) the Board of Directors of the Parent, following consultation 
with its independent legal counsel relating thereto, determines in its good     
faith judgment that failing to take such                                        

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action in connection with such Alternative Proposal would constitute a breach of
such Board of Directors' fiduciary duty to its stockholders imposed by law.     

(d)  Nothing herein shall prevent the respective Boards of Directors of 
Parent or the Company from taking, and disclosing to its stockholders, a        
position contemplated by Rule 14e-2(a) promulgated under the Exchange Act,      
provided that the Board of Directors of such party shall not recommend that the 
stockholders of such party tender their shares in connection with any such      
tender offer unless such recommendation is permitted by Section 8.09(b) or (c), 
as applicable.                                                                  

    Section 8.10  ADVICE OF CHANGES; SEC FILINGS.  The Company shall confer on a
regular basis with Parent on operational matters. Parent and the Company shall  
promptly advise each other orally and in writing of any change or event that has
had, or could have, a Company Material Adverse Effect or a Parent Material      
Adverse Effect, as the case may be. The Company and Parent shall promptly       
provide each other (or their respective counsel) copies of all filings made by  
such party with the SEC or any other Governmental Entity in connection with this
Agreement and the transactions contemplated hereby other than any filing by the 
Company pursuant to the HSR Act.                                                

  Section 8.11  PARENT DIRECTORSHIPS.  Immediately after the Effective Time,
Parent shall take such action as may be necessary to create two additional seats
of the Board of Directors of Parent and to cause two of the current directors of
the Company as determined by mutual agreement of the Company and Parent (the    
"New Members") to be elected to the Parent Board of Directors. For a period of  
two years following the Effective Time, Parent shall take, or cause to be taken,
all action necessary to nominate the New Members for election to the Parent     
Board of Directors and, in accordance with its normal solicitation efforts,     
shall solicit proxies for their election to such Board of Directors.            

ARTICLE IX
CONDITIONS PRECEDENT

Section 9.1  CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE        
MERGER.  The respective obligations of each party to effect the Merger shall be 
subject to the fulfillment at or prior to the Effective Time of the following   
conditions:                                                                     

    (a)  This Agreement and the transactions contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the Company Stock  
and the issuance of the Parent Common Stock pursuant to this Agreement shall    
have been approved by the requisite vote of the holders of the Parent Common    
Stock, in each case as provided in Section 3.6.                                 

  (b)  The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.                              

(c)  The Form S-4 shall have become effective in accordance with the    
provisions of the Securities Act. No stop order suspending the effectiveness of 
the Form S-4 shall have been issued by the Commission and remain in effect and  
all necessary approvals under state securities laws relating to the issuance of 
the Parent Common Stock to be issued to stockholders of the Company in          
connection with the Merger shall have been obtained.                            

    (d)  No preliminary or permanent injunction or other order by any federal or
state court in the United States of competent jurisdiction which prevents the   
consummation of the Merger shall have been issued and remain in effect (each    
party agreeing to use all commercially reasonable efforts to have any such      
injunction lifted).                                                             

(e)  The Parent Common Stock to be issued to Company stockholders in    
connection with the Merger shall have been approved for listing on the NYSE,    
subject only to official notice of issuance.                                    

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Section 9.2  CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE      
MERGER.  The obligation of the Company to effect the Merger shall be subject to 
the fulfillment at or prior to the Effective Time of the additional following   
conditions, unless waived by the Company:                                       

(a)  Parent and Sub shall have performed in all material respects their 
agreements contained in this Agreement required to be performed on or prior to  
the Effective Time, and the representations and warranties of Parent and Sub    
contained in this Agreement shall be true and correct when made and on and as of
the Effective Time as if made on and as of such date (except to the extent they 
relate to a particular date), except (i) as expressly contemplated or permitted 
by this Agreement and (ii) with respect to representations and warranties of    
Parent and Sub that are not subject to a Parent Material Adverse Effect         
qualification, where the failure to be true and correct, has not, and would not 
have, either alone or in the aggregate with all such failures, a Parent Material
Adverse Effect. The Company shall have received a certificate of the President  
and Chief Executive Officer or a Vice President of each of Parent and Sub to    
that effect.                                                                    

 (b)  The Company shall have received an opinion substantially in the form
attached hereto as Exhibit B-1, dated the date of Closing, from Weil, Gotshal & 
Manges LLP, based upon certificates from the Company substantially in the form  
attached hereto as Exhibit C-1 and from Parent substantially in the form        
attached hereto as Exhibit D-1 (and such other assumptions, certificates, and   
certifications as are customary or reasonably necessary in connection           
therewith), to the effect that the Merger will qualify as a reorganization      
within the meaning of Section 368(a) of the Code. In rendering such opinion,    
such counsel may receive and rely upon representations of fact contained in     
certificates as specified in the preceding sentence.                            

(c)  The Company shall have received a letter from Arthur Andersen LLP, 
dated the date of Closing, to the effect that the Merger will qualify for       
"pooling of interests" accounting treatment if consummated in accordance with   
this Agreement.                                                                 

Section 9.3  CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE  
MERGER.  The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the additional following
conditions, unless waived by Parent:                                            

(a)  The Company shall have performed in all material respects its      
agreements contained in this Agreement required to be performed on or prior to  
the Effective Time, and the representations and warranties of the Company       
contained in this Agreement shall be true in all material respects when made and
on and as of the Effective Time as if made on and as of such date (except to the
extent they relate to a particular date), except (i) as expressly contemplated  
or permitted by this Agreement and (ii) with respect to representations and     
warranties of the Company that are not subject to a Company Adverse Material    
Effect qualification, where the failure to be true and correct has not, and     
would not have, either alone or in the aggregate with all such failures, a      
Company Material Adverse Effect. Parent and Sub shall have received a           
certificate of the President and Chief Executive Officer or a Vice President of 
the Company to that effect.                                                     

(b)  Parent shall have received an opinion substantially in the form    
attached hereto as Exhibit B-2, dated the date of Closing, from Hughes & Luce,  
L.L.P., based upon certificates from the Company substantially in the form      
attached hereto as Exhibit C-2 and from Parent substantially in the form        
attached hereto as Exhibit D-2 (and such other assumptions, certificates, and   
certifications as are customary or reasonably necessary in connection           
therewith), to the effect that the Merger will qualify as a reorganization      
within the meaning of Section 368(a) of the Code. In rendering such opinion,    
such counsel may receive and rely upon representations of fact contained in     
certificates as specified in the preceding sentence.                            

    (c)  Parent and Sub shall have received a letter from Deloitte & Touche LLP,
dated the date of Closing, to the effect that the Merger will qualify for       
"pooling of interests" accounting treatment if consummated in accordance with   
this Agreement.                                                                 

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ARTICLE X 
TERMINATION, AMENDMENT AND WAIVER 

Section 10.1  TERMINATION BY MUTUAL CONSENT.  This Agreement may be     
terminated and the Merger may be abandoned at any time prior to the Effective   
Time, before or after approval by the stockholders of the Company or Parent, by 
the mutual consent of Parent and the Company.                                   

  Section 10.2  TERMINATION BY EITHER PARENT OR THE COMPANY.  This Agreement
may be terminated and the Merger may be abandoned by action of the Board of     
Directors of either Parent or the Company if (a) the Merger shall not have been 
consummated by February 28, 1998, or (b) the approval of the Company's          
stockholders required by Section 3.6 shall not have been obtained at a meeting  
duly convened therefor or at any adjournment or postponement thereof, or (c) the
approval of Parent's stockholders required by Section 3.6 shall not have been   
obtained at a meeting duly convened therefor or at any adjournment or           
postponement thereof, or (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or      
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise       
prohibiting the transactions contemplated by this Agreement and such order,     
decree, ruling or other action shall have become final and non-appealable;      
provided, that the party seeking to terminate this Agreement pursuant to clause 
(d) above shall have used all commercially reasonable efforts to remove such    
injunction, order or decree; and provided, in the case of a termination pursuant
to clause (a) above, that the terminating party shall not have breached in any  
material respect its obligations under this Agreement in any manner that shall  
have proximately contributed to the failure to consummate the Merger.           

Section 10.3  OTHER TERMINATION RIGHTS.  (a) This Agreement may be      
terminated and the Merger may be abandoned at any time prior to the Effective   
Time, by action of the Board of Directors of Parent, (i) if the Board of        
Directors of the Company shall have withdrawn or modified in a manner adverse to
Parent its approval or recommendation of this Agreement or the Merger or shall  
have recommended an Alternative Proposal with respect to the Company to the     
Company's stockholders or (ii) Parent shall have received an Alternative        
Proposal which the Board of Directors of Parent believes, in its good faith     
judgment, is more favorable to the Parent's stockholders than the Merger and is 
reasonably likely to be consummated.                                            

    (b)  This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, by action of the Board of Directors of the    
Company, (i) if the Board of Directors of Parent shall have withdrawn or        
modified in a manner adverse to the Company its approval or recommendation of   
this Agreement or the issuance of Parent Common Stock in connection with the    
Merger or shall have recommended an Alternative Proposal with respect to Parent 
to Parent's stockholders or (ii) the Company shall have received an Alternative 
Proposal which the Board of Directors of the Company believes, in its good faith
judgment, is more favorable to the Company's stockholders than the Merger and is
reasonably likely to be consummated.                                            

   Section 10.4  EFFECT OF TERMINATION AND ABANDONMENT.  In the event that (x)
Parent shall have terminated this Agreement pursuant to Section 10.3(a)(i) or   
(y) the Company shall have terminated this Agreement pursuant to Section        
10.3(b)(ii), then, in either such case, the Company shall, concurrently with    
such termination, pay Parent a fee of $20,000,000 (a "Termination Fee"), which  
amount shall be payable by wire transfer of same day funds, and shall promptly  
reimburse Parent for all substantiated out-of-pocket costs and expenses incurred
by Parent in connection with this Agreement and the transactions contemplated   
hereby, including, without limitation, costs and expenses of accountants,       
attorneys and financial advisors, up to an aggregate of $2,000,000. The Company 
acknowledges that the agreements contained in this Section 10.4(a) are an       
integral part of the transactions contemplated in this Agreement, and that,     
without these agreements, Parent and Sub would not enter into this Agreement;   
accordingly, if the Company fails to promptly pay the amount due pursuant to    
this Section 10.4(a), and, in order to obtain                                   

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such payment, Parent or Sub commences a suit which results in a judgment against
the Company for the fee and expenses set forth in this Section 10.4(a), the     
Company shall pay to Parent its costs and expenses (including attorneys' fees)  
in connection with such suit.                                                   

   (b)  In the event that (x) the Company shall have terminated this Agreement
pursuant to Section 10.3(b)(i) or (y) Parent shall have terminated this         
Agreement pursuant to Section 10.3(a)(ii), then, in either such case, Parent    
shall concurrently with such termination, pay the Company a fee of $20,000,000  
(a "Parent Termination Fee"), which amount shall be payable by wire transfer of 
same day funds, and shall promptly reimburse the Company for all substantiated  
out-of-pocket costs and expenses incurred by the Company in connection with this
Agreement and the transactions contemplated hereby, including, without          
limitation, costs and expenses of accountants, attorneys and financial advisors,
up to an aggregate of $2,000,000. Parent acknowledges that the agreements       
contained in this Section 10.4(b) are an integral part of the transactions      
contemplated in this Agreement, and that, without these agreements, the Company 
would not enter into this Agreement; accordingly, if Parent fails to promptly   
pay the amount due pursuant to this Section 10.4(b), and, in order to obtain    
such payment, the Company commences a suit which results in a judgment against  
the Company for the fee and expenses set forth in this Section 10.4(b), Parent  
shall pay to the Company its costs and expenses (including attorneys' fees) in  
connection with such suit.                                                      

 (c)  In the event of termination of this Agreement and the abandonment of
the Merger pursuant to this Article X, all obligations of the parties hereto    
shall terminate, except the obligations of the parties pursuant to this Section 
10.4 and Section 11.3 and except for the provisions of Sections 11.5, 11.6,     
11.7, 11.8, 11.9, 11.10, 11.11, 11.12, 11.13 and 11.14. Moreover, in the event  
of termination of this Agreement pursuant to Section 10.2, nothing herein shall 
prejudice the ability of the non-breaching party from seeking damages from any  
other party for any breach of this Agreement, including without limitation,     
attorneys' fees and the right to pursue any remedy at law or in equity.         

ARTICLE XI
MISCELLANEOUS 

Section 11.1  NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND           
AGREEMENTS.  All representations and warranties set forth in this Agreement     
shall terminate at the Effective Time. All covenants and agreements set forth in
this Agreement shall survive in accordance with their terms.                    

Section 11.2  NOTICES.  All notices or other communications under this  
Agreement shall be in writing and shall be given by delivery (and shall be      
deemed to have been duly given upon delivery) in person, by cable, telegram,    
telex or other standard form of telecommunications, or by registered or         
certified mail, postage prepaid, return receipt requested, addressed as follows:

If to the Company:                                                      

The Morningstar Group Inc.                                        
5956 Sherry Lane                                                  
Suite 1500                                                        
Dallas, Texas 75225                                               
Attention: C. Dean Metropoulos                                    
Telecopy No.: (214) 360-0948                                      

With a copy to:                                                         

Weil, Gotshal & Manges LLP                                        
100 Crescent Court, Suite 1300                                    
Dallas, Texas 75201-6950                                          
Attention: R. Scott Cohen, Esq.                                   
Telecopy No.: (214) 746-7777                                      

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If to Parent or Sub:                                                    

Suiza Foods Corporation                                           
3811 Turtle Creek Boulevard                                       
Suite 1300                                                        
Dallas, Texas 75219                                               
Attention: Gregg L. Engles                                        
Telecopy No.: (214) 528-9929                                      

With a copy to:                                                         

Hughes & Luce, L.L.P.                                             
1717 Main Street, Suite 2800                                      
Dallas, Texas 75201                                               
Attention: William A. McCormack, Esq.                             
Telecopy No.: (214) 939-6100                                      

or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.                                        

   Section 11.3  FEES AND EXPENSES.  Whether or not the Merger is consummated,
except as provided in Section 10.4 and, all costs and expenses incurred in      
connection with this Agreement and the transactions contemplated by this        
Agreement shall be paid by the party incurring such expenses, whether or not the
Merger is consummated; provided, however, that the allocable share of Parent and
Sub on the one hand and the Company on the other hand for all expenses related  
to printing, filing and mailing the Form S-4 and the Proxy Statement/Prospectus 
and all Commission and other regulatory filing fees incurred in connection with 
the Form S-4 and the Proxy Statement/Prospectus shall be one-half each.         

 Section 11.4  PUBLICITY.  So long as this Agreement is in effect, Parent,
Sub and the Company agree to consult with each other in issuing any press       
release or otherwise making any public statement with respect to the            
transactions contemplated by this Agreement, and none of them shall issue any   
press release or make any public statement prior to such consultation, except as
may be required by law or by obligations pursuant to any listing agreement with 
the NYSE or The Nasdaq Stock Market.                                            

Section 11.5  SPECIFIC PERFORMANCE.  The parties hereto agree that      
irreparable damage would occur in the event that any of the provisions of this  
Agreement were not performed in accordance with their specific terms or were    
otherwise breached. It is accordingly agreed that the parties shall be entitled 
to an injunction or injunctions to prevent breaches of this Agreement and to    
enforce specifically the terms and provisions hereof in any court of the United 
States or any state having jurisdiction, this being in addition to any other    
remedy to which they are entitled at law or in equity.                          

    Section 11.6  ASSIGNMENT; BINDING EFFECT.  Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the  
parties hereto (whether by operation of law or otherwise) without the prior     
written consent of the other parties. Subject to the preceding sentence, this   
Agreement shall be binding upon and shall inure to the benefit of the parties   
hereto and their respective successors and assigns. Notwithstanding anything    
contained in this Agreement to the contrary, nothing in this Agreement,         
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and assigns any rights, remedies,         
obligations or liabilities under or by reason of this Agreement; provided that  
the third parties referenced in Sections 8.5 and 8.6 shall be third-party       
beneficiaries of Parent's agreement contained in such Sections.                 

  Section 11.7  ENTIRE AGREEMENT.  This Agreement, the Exhibits, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality        
Agreements dated August 18, 1997, between the Company and Parent and any        
documents delivered by the parties in connection herewith and therewith         
constitute the entire agreement among the parties with respect to the subject   
matter hereof and supersede                                                     

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all prior agreements and understandings among the parties with respect thereto. 
No addition to or modification of any provision of this Agreement shall be      
binding upon any party hereto unless made in writing and signed by all parties  
hereto.                                                                         

Section 11.8  AMENDMENT.  This Agreement may be amended by the parties  
hereto, by action taken by their respective Boards of Directors, at any time    
before or after approval of matters presented in connection with the Mergers by 
the stockholders of the Company and Parent, but after any such stockholder      
approval, no amendment shall be made which by law requires the further approval 
of stockholders without obtaining such further approval. This Agreement may not 
be amended except by an instrument in writing signed on behalf of each of the   
parties hereto.                                                                 

Section 11.9  GOVERNING LAW.  This Agreement shall be governed by and   
construed in accordance with the laws of the State of Delaware, without regard  
to its rules of conflict of laws.                                               

   Section 11.10  COUNTERPARTS.  This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered   
shall be an original, but all such counterparts shall together constitute one   
and the same instrument. Each counterpart may consist of a number of copies     
hereof each signed by less than all, but together signed by all of the parties  
hereto.                                                                         

    Section 11.11  HEADINGS AND TABLE OF CONTENTS.  Headings of the Articles and
Sections of this Agreement and the Table of Contents are for the convenience of 
the parties only, and shall be given no substantive or interpretive effect      
whatsoever.                                                                     

Section 11.12  INTERPRETATION.  In this Agreement, unless the context   
otherwise requires, words describing the singular number shall include the      
plural and vice versa, and words denoting any gender shall include all genders  
and words denoting natural persons shall include corporations and partnerships  
and vice versa.                                                                 

Section 11.13  WAIVERS.  At any time prior to the Effective Time, the   
parties hereto, by or pursuant to action taken by their respective Boards of    
Directors, may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the   
representations and warranties contained herein or in any documents delivered   
pursuant hereto and (iii) waive compliance with any of the agreements or        
conditions contained herein. Any agreement on the part of a party hereto to any 
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party. Except as provided in this Agreement, no action 
taken pursuant to this Agreement, including, without limitation, any            
investigation by or on behalf of any party, shall be deemed to constitute a     
waiver by the party taking such action of compliance with any representations,  
warranties, covenants or agreements contained in this Agreement. The waiver by  
any party hereto of a breach of any provision hereunder shall not operate or be 
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.                                                            

   Section 11.14  SEVERABILITY.  Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, 
be ineffective to the extent of such invalidity or unenforceability without     
rendering invalid or unenforceable the remaining terms and provisions of this   
Agreement or affecting the validity or enforceability of any of the terms or    
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.                                          

Section 11.15  SUBSIDIARIES.  As used in this Agreement, the word       
"subsidiary" when used with respect to any party means any corporation or other 
organization, whether incorporated or unincorporated, of which such party       
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority 
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party 
is a general partner.                                                           

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  IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunder duly authorized all as of  
the date first written above.                                                   

                           SUIZA FOODS CORPORATION

                                          By: /s/_GREGG L. ENGLES_______________
                               Name: Gregg L. Engles
                                    Title: PRESIDENT AND CHIEF
                     EXECUTIVE OFFICER

                              SF ACQUISITION CORPORATION

                                          By: /s/_GREGG L. ENGLES_______________
                               Name: Gregg L. Engles
                          Title: PRESIDENT

                              THE MORNINGSTAR GROUP INC.

                                          By: /s/_L. HOLLIS JONES_______________
                               Name: L. Hollis Jones
                                    Title: PRESIDENT AND CHIEF
                     OPERATING OFFICER

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PARENT DISCLOSURE SCHEDULE

                                                                [Download Table]
                                                 
Section 4.2  Capitalization                      

Section 4.3  Subsidiaries                        

Section 4.4  Authority                           

Section 4.6  Absence of Certain Changes or Events

Section 4.8  Employee Benefit Plans              

COMPANY DISCLOSURE SCHEDULE 

                                                                [Download Table]
                                                 
Section 5.2  Capitalization                      

Section 5.3  Subsidiaries                        

Section 5.4  Authority                           

Section 5.6  Absence of Certain Changes or Events

Section 5.8  Employee Benefit Plans              

Section      Taxes                               
5.12                                             

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                                                                      APPENDIX B

[DONALDSON, LUFKIN & JENRETTE LETTERHEAD] 

                                                              September 28, 1997

Board of Directors                                                              
Suiza Foods Corporation                                                         
3811 Turtle Creek Boulevard                                                     
Suite 1300                                                                      
Dallas, TX 75219                                                                

Gentlemen:                                                                      

   You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $.01 per share (the "Company     
Common Stock") of Suiza Foods Corporation (the "Company") of the Exchange Ratio 
(as defined below). Pursuant to the terms of the Agreement and Plan of Merger,  
to be dated as of September 28, 1997 (the "Agreement"), by and among the        
Company, The Morningstar Group Inc. ("Morningstar") and SF Acquisition          
Corporation, a wholly owned subsidiary of the Company ("Merger Sub"), whereby   
Merger Sub will be merged (the "Merger") with and into Morningstar.             

Pursuant to the Agreement, each share of common stock par value $.01 per
share, of Morningstar will be converted into the right to receive 0.85 shares   
(the "Exchange Ratio") of Company Common Stock.                                 

  In arriving at our opinion, we have reviewed the draft dated September 27,
1997 of the Agreement. We also have reviewed financial and other information    
that was publicly available or furnished to us by the Company and Morningstar   
including information provided during discussions with their respective         
managements. Included in the information provided during discussions with the   
respective managements were certain financial projections of Morningstar for the
period beginning January 1, 1997 and ending December 31, 2002 and certain       
financial projections of the Company for the period beginning January 1, 1997   
and ending December 31, 2002 prepared by the management of the Company. In      
addition, we have compared certain financial and securities data of the Company 
and Morningstar with various other companies whose securities are traded in     
public markets, reviewed the historical stock prices and trading volumes of the 
common stock of Morningstar and the Company Common Stock, reviewed prices and   
premiums paid in certain other business combinations and conducted such other   
financial studies, analyses and investigations as we deemed appropriate for     
purposes of this opinion.                                                       

  In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and Morningstar  
or their respective representatives, or that was otherwise reviewed by us. In   
particular, we have relied upon the estimates of the management of the Company  
of the operating synergies achievable as a result of the Merger and upon our    
discussion of such synergies with the management of the Company and the         
management of Morningstar. With respect to the financial projections supplied to
us, we have assumed with your consent that they have been reasonably prepared on
the basis reflecting the best currently available estimates and judgments of the
management of the Company and the management of Morningstar, respectively, as to
the future operating and financial performance of the Company and Morningstar,  
respectively. We have not assumed any responsibility for making any independent 
evaluation of any assets or liabilities or for making any independent           
verification of any of the information reviewed by us. We have relied as to     
certain legal matters on advice of counsel to the Company, including that the   
transactions contemplated under the Agreement will qualify as a tax-free        

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Suiza Foods Corporation                                                         

Page 2                                                        September 28, 1997

transaction under the Internal Revenue Code of 1986, as amended, to the Company 
and Morningstar and their respective shareholders.                              

 Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of, 
the date of this letter. It should be understood that, although subsequent      
developments may affect this opinion, we do not have any obligation to update,  
revise or reaffirm this opinion. We are expressing no opinion herein as to the  
prices at which the Company Common Stock will trade at any time. Our opinion    
does not address the relative merits of the Merger and the other business       
strategies being considered by the Company's Board of Directors, nor does it    
address the Company's Board of Directors' decision to proceed with the Merger.  
Our opinion does not constitute a recommendation to any shareholder as to how   
such shareholder should vote on the proposed transaction.                       

   Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales   
and distributions of listed and unlisted securities, private placements and     
valuations for corporate and other purposes. DLJ has performed investment       
banking and other services for Morningstar and its affiliates, including Hicks, 
Muse, Tate, & Furst, in the past and has been customarily compensated for such  
services.                                                                       

   Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to the holders of Company Common 
Stock from a financial point of view.                                           

                     Very truly yours,

                                DONALDSON, LUFKIN & JENRETTE
                          SECURITIES CORPORATION

                           By: /s/ JAMES M. NEISSA

                                               .................................

                         James M. Neissa

                           MANAGING DIRECTOR

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                                                                  APPENDIX C

 [Letterhead for Goldman, Sachs & Co.]

PERSONAL AND CONFIDENTIAL                                                       

September 28, 1997                                                              

Board of Directors                                                              
The Morningstar Group Inc.                                                      
5956 Sherry Lane                                                                
Suite 1500                                                                      
Dallas, TX 75225                                                                

Gentlemen:                                                                      

You have requested our opinion as to the fairness from a financial point        
of view to the holders of the outstanding shares of Common Stock, par value     
$0.01 per share (the "Shares"), of The Morningstar Group Inc. (the              
"Company") of the exchange ratio of 0.85 shares of Common Stock, par value      
$0.01 per share ("Suiza Common Stock"), of Suiza Foods Corporation              
("Suiza") to be received for each Share (the "Exchange Ratio") pursuant         
to the Agreement and Plan of Merger, dated as of September 28, 1997,            
among Suiza, SF Acquisition Corporation, a wholly-owned subsidiary of Suiza,    
and the Company (the "Agreement").                                              

Goldman, Sachs & Co., as part of its investment banking business, is            
continually engaged in the valuation of businesses and their securities in      
connection with mergers and acquisitions, negotiated underwritings,             
competitive biddings, secondary distributions of listed and unlisted            
securities, private placements and valuations for estate, corporate and other   
purposes. We are familiar with the Company having acted as its financial        
advisor in connection with, and having participated in certain of the           
negotiations leading to, the Agreement.                                         

In connection with this opinion, we have reviewed, among other things, the      
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of    
the Company for the five years ended December 31, 1996 and of Suiza for         
the year ended December 31, 1996; the Initial Public Offering Prospectus        
of Suiza dated April 17, 1996; certain interim reports to stockholders and      
Quarterly Reports on Form 10-Q of the Company and Suiza; certain other          
communications from the Company and Suiza to their respective stockholders;     
and certain internal financial analyses and forecasts for the Company and       
Suiza prepared by their respective managements. We also have held discussions   
with members of the senior management of the Company and Suiza regarding the    
strategic rationale for, and the potential benefits of, the transaction         
contemplated by the Agreement and the past and current business operations,     
financial condition and future prospects of their respective companies. In      
addition, we have reviewed the reported price and trading activity for the      
Shares and the Suiza Common Stock, compared certain financial and stock         
market information for the Company and Suiza with similar information for       
certain other companies the securities of which are publicly traded, reviewed   
the financial terms of certain recent business combinations in the dairy and    
branded foods                                                                   

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The Morningstar Group Inc.                                                      
September 28, 1997                                                              
Page Two                                                                        

industries specifically and in other industries generally and performed such    
other studies and analyses as we considered appropriate.                        

We have relied upon the accuracy and completeness of all of the financial       
and other information reviewed by us and have assumed such accuracy and         
completeness for purposes of rendering this opinion. In addition, we have not   
made an independent evaluation or appraisal of the assets and liabilities of    
the Company or Suiza or any of their subsidiaries and we have not been          
furnished with any such evaluation or appraisal. We have assumed, with your     
consent, that the transaction contemplated by the Agreement will be             
accounted for as a pooling of interests under generally accepted accounting     
principles. Our advisory services and the opinion expressed herein are          
provided for the information and assistance of the Board of Directors of the    
Company in connection with its consideration of the transaction contemplated    
by the Agreement and such opinion does not constitute a recommendation as to    
how any holder of Shares should vote with respect to such transaction.          

Based upon and subject to the foregoing and based upon such other matters       
as we consider relevant, it is our opinion that as of the date hereof the       
Exchange Ratio pursuant to the Agreement is fair from a financial point of      
view to the holders of Shares.                                                  

Very truly yours,                                                               

/s/ Goldman, Sachs & Co.                                                        
----------------------------------                                              
GOLDMAN, SACHS & CO.                                                            

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PART II 

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20.  INDEMNIFICATION OF DIRECTORS AND OFFICERS                             

  The Registrant's Certificate of Incorporation provides that no director of
the Registrant will be personally liable to the Registrant or any of its        
stockholders for monetary damages arising from the director's breach of         
fiduciary duty as a director, with certain limited exceptions.                  

Pursuant to the provisions of Section 145 of the Delaware General       
Corporation Law, every Delaware corporation has the power to indemnify any      
person who was or is a party or is threatened to be made a party to any         
threatened, pending or completed action, suit or proceeding (other than an      
action by or in the right of the corporation) by reason of the fact that such   
person is or was a director, officer, employee or agent of any corporation,     
partnership, joint venture, trust or other enterprise, against any and all      
expenses, judgments, fines and amounts paid in settlement and reasonably        
incurred in connection with such action, suit or proceeding. The power to       
indemnify applies only if such person acted in good faith and in a manner such  
person reasonably believed to be in the best interests, or not opposed to the   
best interests, of the corporation and, with respect to any criminal action or  
proceeding, had no reasonable cause to believe his or her conduct was unlawful. 

   The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses  
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification will be made
in the event of any adjudication of negligence or misconduct unless the court,  
in its discretion, believes that in light of all the circumstances              
indemnification should apply.                                                   

   The Registrant's Certificate of Incorporation contains provisions requiring
it to indemnify its officers and directors to the fullest extent permitted by   
the Delaware General Corporation Law.                                           

ITEM 21.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                            

(a) EXHIBITS:                                                           

See the Exhibit Index, beginning on page II-5.                          

(b) FINANCIAL STATEMENT SCHEDULES:                                      

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

ITEM 22.  UNDERTAKINGS.                                                         

The undersigned Registrant hereby undertakes:                           

       (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:              

         (i) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933;                                           

           (ii) To reflect in the prospectus any facts or events arising after
  the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the   
       aggregate, represent a fundamental change in the information set forth in
the Registration Statement;                                       

           (iii) To include any material information with respect to the plan of
    distribution not previously disclosed in the Registration Statement or
    any material change to such information in the Registration Statement;

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PROVIDED, HOWEVER, that paragraphs (1)(i) and     
(1)(ii) do not apply if the information required  
to be included in a post-effective amendment by   
those paragraphs is contained in periodic reports 
filed by the Registrant pursuant to section 13 or 
section 15(d) of the Securities Exchange Act of   
1934 that are incorporated by reference in the    
Registration Statement;                           

(2) That, for the purpose of determining any liability under the
  Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered   
    therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof;                              

      (3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the       
termination of the offering;                                            

        (4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to  
  section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
  is incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities offered   
    therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof;                              

  (5) To respond to requests for information that is incorporated by
  reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
 Form, within one business day of receipt of such request, and to send the
 incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
   effective date of the Registration Statement through the date of responding
to the request;                                                         

     (6) That, prior to any public reoffering of the securities registered
  hereunder through use of a prospectus which is a part of this Registration
   Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering  
prospectus will contain the information called for by the applicable    
  registration form with respect to reofferings by persons who may be deemed
  underwriters, in addition to the information called for by the other Items
of the applicable form;                                                 

 (7) That every prospectus (i) that is filed pursuant to paragraph

(6) immediately preceding, or (ii) that purports to meet the    
requirements of section 10(a)(3) of the Securities Act and is used in   
    connection with an offering of securities subject to Rule 415, will be filed
    as a part of an amendment to the registration statement and will not be used
    until such amendment is effective, and that, for purposes of determining any
    liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities 
  offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and                

    (8) To supply by means of a post-effective amendment all information
  concerning a transaction, and the company being acquired involved therein,
   that was not the subject of and included in the Registration Statement when
it became effective.                                                    

  Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and          
controlling persons of the Registrant pursuant to the provisions described under
Item 20 above, or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event   
that a claim for indemnification against such liabilities (other than the       
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,   
suit or proceeding) is asserted by such director, officer or controlling person 
in connection with the securities being registered, the Registrant will, unless 
in the opinion of its counsel the matter has been settled by controlling        
precedent, submit to a court of appropriate jurisdiction the question whether   
such indemnification by it is against public policy as expressed in the Act and 
will be governed by the final adjudication of such issue.                       

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SIGNATURES

   Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its   
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,    
State of Texas, on October 28, 1997.                                            

       SUIZA FOODS CORPORATION

                    By:             /s/ GREGG L. ENGLES,
                                   -----------------------------------------
                                    Gregg L. Engles,
                                   CHAIRMAN OF THE BOARD AND
                                   CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY 

We, the undersigned officers and directors of Suiza Foods Corporation,  
hereby severally constitute and appoint Gregg L. Engles and Tracy L. Noll, and  
each of them, our true and lawful attorneys-in-fact and agents, with full power 
of substitution and resubstitution, for each of us in our name, place and stead,
in any and all capacities, to sign Suiza Foods Corporation's Registration       
Statement on Form S-4, and any other Registration Statement relating to the same
offering, and any and all amendments thereto (including post-effective          
amendments), and to file the same, with all exhibits thereto, and other         
documents in connection therewith, with the Securities and Exchange Commission, 
and hereby grant to such attorneys-in-fact and agents, and each of them, full   
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as each of us might  
or could do in person, hereby ratifying and confirming all that said            
attorneys-in-fact and agents or any of them or his or their substitute or       
substitutes may lawfully do or cause to be done by virtue hereof.               

Pursuant to the requirements of the Securities Act, this Registration   
Statement has been signed below by the following persons in the capacities and  
on the dates indicated:                                                         

    NAME                         TITLE                    DATE
------------------------------  --------------------------  ------------------- 

/s/ GREGG L. ENGLES                                                   
------------------------------  Chairman of the Board and    October 28, 1997   
Gregg L. Engles            Chief Executive Officer                

*                                                   
------------------------------  Vice Chairman of the Board   October 28, 1997   
Cletes O. Beshears                                                  

*                                                   
------------------------------  Vice Chairman of the Board   October 28, 1997   
Hector M. Nevares                                                   

*                                                   
------------------------------  Principal financial and      October 28, 1997   
Tracy L. Noll             accounting officer                    

*                                                   
------------------------------  Director                     October 28, 1997   
Alan J. Bernon                                                  

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    NAME                         TITLE                    DATE
------------------------------  --------------------------  ------------------- 

*                                                   
------------------------------  Director                     October 28, 1997   
Gayle O. Beshears                                                   

*                                                   
------------------------------  Director                     October 28, 1997   
Stephen Green                                                   

*                                                   
------------------------------  Director                     October 28, 1997   
Robert L. Kaminski                                                  

*                                                   
------------------------------  Director                     October 28, 1997   
David F. Miller                                                   

*                                                   
------------------------------  Director                     October 28, 1997   
P. Eugene Pender                                                  

*                                                   
------------------------------  Director                     October 28, 1997   
Robert Piccinini                                                  

*By:       GREGG L. ENGLES                                                      
-------------------------                                           
Gregg L. Engles                                           
ATTORNEY-IN-FACT                                            

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INDEX TO EXHIBITS 

                                                        [Enlarge/Download Table]

  EXHIBIT                                                                                                      
  NUMBER                                               DESCRIPTION                                             
-----------  ------------------------------------------------------------------------------------------------  
                                                                                                               

       2.1   Amended and Restated Reorganization Agreement; filed as Exhibit 2.1 to Suiza Foods' Registration  
               Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by reference.         

       2.2   Agreement and Plan of Merger dated as of September 28, 1997 by and among Suiza Foods, Sub, and    
               Morningstar (attached as Appendix A to the Joint Proxy Statement/Prospectus).                   

       4.1   Specimen of Common Stock Certificate; filed as Exhibit 4.1 to Suiza Foods' Registration           
               Statement on Form S-1 (Registration No. 333-1858) and incorporated herein by reference.         

       4.2   Registrations Rights Agreement (Exhibit G-2 to Amended and Restated Reorganization Agreement);    
               filed as Exhibit 4.2 to Suiza Foods' Registration Statement on Form S-1 (Registration No.       
               333-1858) and incorporated herein by reference.                                                 

       5.1   Opinion of Hughes & Luce, L.L.P. regarding Legality of Securities being registered.               

       8.1   Opinion of Weil, Gotshal & Manges LLP regarding certain tax matters.                              

      23.1   Consent of Hughes & Luce, L.L.P. (contained in Exhibit 5.1).                                      

      23.2   Consent of Deloitte & Touche LLP.                                                                 

      23.3   Consent of KPMG Peat Marwick LLP.                                                                 

      23.4   Consent of Barnard, Vogler & Co.                                                                  

      23.5   Consent of McGladrey & Pullen, LLP.                                                               

      23.6   Consent of Coopers & Lybrand L.L.P.                                                               

      23.7   Consent of Arthur Andersen LLP.                                                                   

      23.8   Consent of Price Waterhouse LLP.                                                                  

      23.9   Consent of Weil, Gotshal & Manges LLP (contained in Exhibit 8.1).                                 

      23.10  Consent of Donaldson, Lufkin & Jenrette Securities Corporation.                                   

      23.11  Consent of Goldman, Sachs & Co.                                                                   

      23.12  Consent of John R. Muse.                                                                          

      23.13  Consent of Jim L. Turner.                                                                         

      24.1   Power of Attorney (contained in the signature pages hereto).                                      

      99.1   Form of Suiza Foods Proxy.                                                                        

      99.2   Form of Morningstar Proxy.                                                                        

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