EXHIBIT 10.(iii)B
Farmland Industries, Inc.
Management Long Term Incentive Plan
A. EFFECTIVE DATE AND PLAN PURPOSE
1. The Management Long Term Incentive Plan (the Plan) is effective
September 1, 1993.
a. The Plan provides incentive compensation opportunities for
designated management employees of Farmland Industries, Inc. (the
Company) based on the attainment of highly focused multi-year
performance goals. (See Exhibit A for performance criteria and
goals.)
b. The Plan's initial performance and reward cycle covers fiscal
years 1994 through 1996, inclusive, the period from September 1,
1993 through August 31, 1996.
c. The Plan's subsequent performance and reward cycles will begin
each subsequent year thereafter for a three year time span. The
Plan's second performance and reward cycle covers fiscal years
1995 through 1997, the Plan's third performance and reward cycle
covers fiscal years 1996 through 1998, etc.
d. It is the Company's intent to continue this Plan indefinitely,
but the Company reserves the right to amend or discontinue the
Plan at any time if such action is deemed in the best interests
of the Company and the Membership.
2. The key purposes of the Plan are set forth below.
a. To attract and retain high quality management personnel that can
produce the level of sustained results needed to allow the
Company to attain its mission on a continuous basis for the
immediate and ongoing benefit of its Membership. (See Exhibit B
for a list of participants.)
b. To provide a long term incentive element which includes
"ownership type" motivation for those employees most responsible
for strategic results.
c. To provide a competitive program of total cash compensation in
appropriate marketplaces with an emphasis on variable, pay-for-
performance opportunities linked to the accomplishment of
demonstrated results.
d. To focus key employees on key strategic results and motivate
those actions which reinforce the attainment of the Company's
business plan over a sustained period of time.
B. DESCRIPTION OF PLAN IN OPERATION
1. The Plan shall establish multi-year performance and award cycles
(Plan cycle).
a. The initial cycle is from 9/1/93 through 8/31/96.
b. Subsequent plan cycles shall commence each year thereafter and
contain a three year performance cycle., e.g.
9/1/94 through 8/31/97
9/1/95 through 8/31/98
To continue as management determines valid.
2. Participation shall be as designated by the CEO for each cycle
(except that the CEO's participation shall be approved by the Board
of Directors), and shall be limited to management positions which
have a significant impact on long term, strategic results. Position
and/or individuals participate at the discretion of the CEO.
3. Multi-year performance goals shall be established each cycle which
shall focus on one, or a very few, key, measurable results of
strategic financial importance to the Company.
4. An incentive pool from which participant awards can be paid shall be
created each cycle based on results achieved against goals. The pool
shall be equal to an increasing percentage share of Company gains as
results improve. For results above the maximum goal level, the
percentage share shall remain fixed at the maximum level, but the
incentive pool shall be an open-ended, uncapped amount to provide
participants with an "ownership interest" in maximizing results.
5. Performance goals and the share of results used to produce the
incentive pool can vary from cycle to cycle, but generally be
established under the following criteria:
Level Share of Awards Payable - Approximate
Achieved Results To Resulting Compensation Odds of
Pool Level in Marketplace Attainment
< Threshold None None - Uncompetitive -
Threshold Small Meaningful - Below Average 8 in 10
Target More Significant - Desired (Average) 5 in 10
Maximum Maximum Large - Very Competitive 2 in 10
> Maximum Same, set share Open-ended "ownership" share of -
outstanding results
6. Each cycle the Company shall establish a Basic Award Percentage (pool
portion) for each participant in the Plan. Such Basic Award
Percentages shall:
a. be communicated to participants by the Company;
b. remain unchanged during a cycle unless a participant's status
shall significantly change; and
c. in total, be approximately 10-15% less than the total incentive
pool.
The remaining 10-15% portion of the incentive pool for each Part of
the Plan shall be a Reserve Incentive Pool available for
discretionary use by the CEO and/or for allocation for new
participants as selected by the CEO.
7. Each cycle, the CEO may distribute all or some portion of the Plan's
Reserve Incentive Pool to participants for any of these reasons:
a. to recognize outstanding individual performance or contributions
to overall Company results;
b. to recognize changes in status during a cycle where a
participant's position is significantly increased; or
c. to permit participation by a person hired or promoted into a
participating position during a cycle.
If additional participants caused the incentive pool to be more than
100% allocated, the CEO would determine the amount of reduction to
each participant's pool portion.
Such distribution can consist of an additional dollar award at cycle
end, or a new or increased Base Share Award determined during the
cycle.
8. Total awards can not exceed the size of the incentive pool generated
each cycle. No awards are payable if no money has been generated
based on plan formulas.
9. A participant's total award shall be the sum of his (or her) Basic
Award Percentage plus any additional amount awarded by the CEO from
the Reserve Incentive Pool. Total awards shall be payable as soon as
practical at the end of the cycle subject to (10) and (11) below.
a. About mid-December, 1996 for the initial cycle.
b. About mid-December, following the end of each successive cycle.
10. Awards shall be payable in cash and subject to all applicable
withholding.
11. Participants may voluntarily elect to irrevocably defer receipt of
awards otherwise payable in accordance with rules and procedures
established by the Company in the Farmland Industries, Inc. Executive
Deferred Compensation Plan.
12. Exhibit A lists the Performance criteria and Goals, and the amount
by which the pool is to be funded for each level of performance.
Exhibit B lists participants and their Basic Award Percentage
assigned.
C. VESTING AND FORFEITURE OF AWARDS
1. A participant must be an active employee of the Company at the end of
each cycle in order to receive an award for such cycle unless active
employment ceased for reasons of death, total disability, or
retirement.
2. In the event of a participant's death, total disability, or
retirement during a cycle, awards otherwise payable shall be prorated
on the basis of full months of active participation in relation to
the length of the cycle.
3. In the event of a participant's change of status to a non-
participating position during a cycle, awards otherwise payable shall
be prorated and/or adjusted depending upon the reason for the change,
but generally on the basis of full months participation in relation
to the length of the cycle.
4. If a participant's employment is terminated with the Company for
reasons other than death, total disability or retirement during a
cycle, such participant shall forfeit all rights to any award
otherwise payable.
5. Decisions regarding proration and award adjustment shall be made by
the CEO and, barring highly unusual circumstances, on the basis of
full months of active participation in relation to the months within
the cycle. The Board and CEO authorities and guidelines for specific
situations are set for in Section D.
D. APPROVAL AUTHORITY FOR KEY ACTIONS
1. The Plan was approved by the Board in August 1993. The Board, in its
sole judgement, has the authority for all the following actions.
a. Amendment or discontinuance of the Plan.
b. Adjustment or cancellation of any awards otherwise payable should
the Company suffer an operating loss in the final fiscal year of
any performance cycle.
c. Approval for any cycle for all the following:
(i) performance goals; and
(ii) award payout procedures which are not specifically
delegated to the Compensation Committee of the Board
(the Committee), the CEO or the Company.
d. Approval of all of the following with respect to the CEO for any
given Plan cycle:
(i) The CEO's portion of any incentive award pool generated
by the Plan;
(ii) An appropriate prorata portion of any award otherwise
payable in the event of termination of employment by
the CEO during a cycle due to death, total disability,
or retirement;
(iii) An appropriate prorata award for a CEO hired or
promoted into such position during a cycle; and
(iv) A determination of the CEO's personal performance
during a cycle, with authority to deny, or adjust, any
award otherwise payable should such performance be
deemed, in the Board's majority judgement, wholly
unsatisfactory.
e. Approval for the inclusion or exclusion of major, extraordinary
financial results or transactions occurring during the cycle in
the calculation of performance results impacting Plan goals and
awards. Such decisions will be made on a case-by-case basis with
the basic standard of judgement being the best interests of the
company and its Membership and the purposes of the Plan.
f. Delegation to the Committee of the power to review or decide any
issue relative to the Plan.
2. The Committee shall be responsible for monitoring the Plan, reviewing
all major aspects in detail, analyzing Company requests for Plan
actions or approvals, recommending Plan amendments or actions to the
Board, and reporting to the Board such information as it may
reasonably request.
3. The Company shall be responsible for administering the Plan,
establishing appropriate accounting reserves to recognize award
liabilities, communicating all appropriate details to participants in
a timely manner, recommending necessary plan amendments or actions to
the Committee, and reporting such information to the Committee and
the Board as they may request.
4. The CEO is specifically authorized to take the following actions with
respect to all other participants.
a. Approval for any cycle for the following:
(i) participants
(ii) levels of opportunity and incentive pool calculations
b. Distribution on a subjective, discretionary basis of the Plan's
Reserve Incentive Pool, if any.
(i) Distribution can be made in any amount the CEO shall
determine, and need not be consistent with the
distribution of Basic Award Percentages.
(ii) The total distribution cannot exceed the funds in the
Reserve Incentive Pools but the total Reserve need not
be spent and any unused funds shall not be carried over
to subsequent cycles but shall revert to the Company.
c. Approval of appropriate prorata awards and/or Basic Award
Percentages from the Incentive Pool to a participant in the event
of any of the following circumstances.
(i) A participant's death, total disability, or retirement
at any time during a Plan Cycle.
(ii) A participant's change of status during a Plan cycle
which is sufficiently significant to either (a) render
further participation inappropriate, or (b) render the
originally designated Basic Award Percentage
inappropriate relative to those applicable to other
participants in positions of similar responsibility and
impact.
(iii) The hiring, or promotion, of an employee during a cycle
into a position for which Plan participation is
appropriate.
Such decisions shall be subjective, discretionary judgements
made on a case-by-case basis, but the CEO shall generally
follow these guidelines:
(a) Prorata awards and prorata assignment of Basic Award
Percentages shall generally be mathematically determined
on the basis of full months of active participation in
the applicable position divided by the number of months
within the Plan cycle.
(b) If a participant's status is reduced to a position where
Plan participation is no longer appropriate, a prorata
award will generally be determined in accordance with
(ii) above if the change was due to reorganization or
similar Company instigated action. The CEO will
determine appropriate action if a participant leaves the
plan due to individual performance or personal choice.
E. ADMINISTRATIVE ISSUES
1. Participation in the Plan is not a guarantee of employment, nor does
participation in one cycle guarantee participation in subsequent
cycles.
2. Plan awards shall not be considered as compensation for any Company
benefit plan whatsoever.
3. For purposes of the Plan, the following definitions shall apply:
a. "Retirement" shall mean the cessation of Company employment at or
after age 55 and immediate retirement under the Company's primary
qualified retirement plan applicable to the participant whether
or not retirement benefits are then commenced. The CEO in his
sole discretion may make an exception for an individual over 55
who has not vested in the retirement plan.
b. "Total Disability" shall mean the cessation of Company employment
for reasons of physical or mental impairment which on the basis
of evidence provided to the CEO or Board (as appropriate) is, in
the CEO's or Board (as appropriate) sole judgement, expected to
last at least 12 months.
4. In the event of a substantial change of ownership in which the
Company, as constituted on the Effective Date, is not a surviving
entity, the Plan shall continue in effect and insure to the benefit
of the new entity.
5. The Basic Award Percentages originally assigned to any participant
but subsequently forfeited or otherwise reduced for such participant
during a Plan cycle may be reassigned to any other participant. The
Board may make such assignment with respect to the CEO, and the CEO
may make such assignment with respect to any other participant.
6. The total awards payable under the Plan for any cycle can not exceed
the total incentive pools generated by the Plan for such cycle, and
any unused incentive pool funds shall revert to the Company at cycle
end.
7. All participants shall designate a beneficiary under the Plan in
accordance with policies and procedures established by the Company
from time to times, and it is a participant's responsibility to keep
such designation up to date. In the event of a participant's death,
the Company shall pay any award payable on behalf of such participant
to such designated beneficiary or, if such beneficiary is no longer
living or can not be located, to the participant's estate.
EXHIBIT A
Performance criteria for FY 1994 - FY 1996 cycle include the following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items(1), for the entire three-year period, as shown in the
table below.
Performance goals and amounts funding the payout pool include the following:
Performance Level Aggregate Income % of Net Earnings to Pool
Below Target Below $192,810,000 0%
Target $192,810,000 2.5% of earnings
Above Target Above $192,810,000 2.5% of earnings
During the FY 94-96 cycle, Farmland Industries, Inc. must return to its members
at least $65,030,000 in cash(2), squared or no payout will occur under this
plan.
In order to ensure the integrity of Farmland's financial strength, a limit on
funded indebtedness as a percent of capitalization is incorporated into this
plan. In the event that a the indebtedness ratio is above the level which is
established by bank covenants at the end of the cycle, no payout will occur
under this plan.
(1) Guidelines for "Extraordinary" Designation were issued on September 1,
1990, and updated on September 1, 1992. These guidelines state that the
Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of income for
variable compensation include:
o Income or losses that pertain to discontinued operations or
activities which have been nonoperational through a fiscal year-end.
o The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan r a write-down of a
major fixed asset.
o The gain or loss on the disposal of a major asset or a group of
assets.
o Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative before
review by the Chief Financial Officer and the Chief Executive Officer.
ADDITIONAL ITEM EXCLUDED FROM CALCULATION OF
VARIABLE COMPENSATION INCOME
o The impact of adjustments to income resulting form LIFO inventory
computations will not be included in income for variable
compensation purposes.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownership retirements, capital credits, preferred stock dividends
and preferred stock redemption and Cooperative Finance Company cash
patronage refund.
EXHIBIT B
TITLE OF PARTICIPANT
President and CEO
Executive Vice President, Inputs
Senior Vice President, Outputs
Executive Vice President and CFO
Executive Vice President and President Farmland, Mexico
Senior Vice President and Corporate Secretary
Vice President, Region 1
Vice President, Region 2
Vice President, Region 3
Vice President, Region 4
Vice President, Region 5
Vice President, Crop Production
Vice President, Feed
Vice President, Petroleum
Vice President, Farmland Foods
Vice President, Grain
Vice President, International/Transportation
Vice President, Transportation
Vice President, MFS/IS
Vice President, and Controller
Vice President and Treasurer
Vice President and General Counsel
Vice President, Human Resources
Vice President, Corporate Administrative Services
Director, Planning
EXHIBIT C
Performance criteria for FY 1995 - FY 1997 cycle include the following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items(1), for the entire three-year period, as shown in the
table below.
Performance goals and amounts funding the payout pool include the following:
Performance Level Aggregate Income % of Net Earnings to Pool
Below Target Below $235,043,000 0%
Target $235,043,000 .83% of earnings
Above Target Above $235,043,000 .83% of earnings
During the FY 95-97 cycle, Farmland Industries, Inc. must return to its members
at least $61,938,000 in cash (2), squared or no payout will occur under this
plan.
In order to ensure the integrity of Farmland's financial strength, a limit on
funded indebtedness as a percent of capitalization is incorporated into this
plan. In the event that a the indebtedness ratio is above the level which is
established by bank covenants at the end of the cycle, no payout will occur
under this plan.
(1) The Chief Financial Officer and the Chief Executive Officer must approve
the classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
o The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan. Any such items would
generally be reported as extraordinary items on Farmland financial
statements under generally accepted accounting principles.
o The gain or loss on the disposal of a major asset, group of assets,
or investments.
o The impact of adjustments resulting from LIFO inventory computations
or reserves.
o Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative
before review by the Chief Financial Officer and the Chief Executive
Officer.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownership retirements, capital credits, preferred stock dividends,
preferred stock redemptions, and estate settlements.
EXHIBIT D
Performance criteria for FY 1996 - FY 1998 cycle include the
following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items,(1) for the entire three-year period, as shown
in the table below.
Performance goals and amounts funding the payout pool include the
following:
Performance Level Aggregate Income % of Net Earnings
to Pool
Below Target Below $393,481,000 0%
Target $393,481,000 .83% of earnings
Above Target Above $393,481,000 .83% of earnings
During the FY 96 - 98 cycle, Farmland Industries, Inc. must return
to its members at least $90,000,000 in cash,(2) or no payout will
occur under this plan.
In order to ensure the integrity of Farmland's financial strength,
a limit on funded indebtedness as a percent of capitalization is
incorporated into this plan. In the event that the indebtedness
ratio is above the level which is established by bank covenants at
the end of the cycle, not payout will occur under this plan.
(1) The Chief Financial Officer and the Chief Executive Officer
must approve the classification of any item as
"extraordinary." Transaction deemed as "extraordinary" and
therefore excluded in the determination of Income for variable
compensation include:
o The punitive portion of litigation results in favor
of or against Farmland, excluding redemptive
payments on normal business matter where the intent
is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or
expense such as the gain from settlement of the
retirement plan. Any such items would generally be
reported as extraordinary items on Farmland
financial statements under generally accepted
accounting principles.
o The gain or loss on the disposal of a major asset,
group of assets, or investments.
o The impact of adjustments resulting from LIFO
inventory computations or reserves.
o Other items as approved.
Specific requests by an operating unit for treatment of
an item as "extraordinary" must be approved by the Senior
Management representative before review by the Chief
Financial Officer and Chief Executive Officer.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownerships retirements, capital credits, preferred stock dividends,
preferred stock redemptions, and estate settlements.