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Exhibit 10.2
[PREMIUM STANDARD FARMS LOGO]
PREMIUM STANDARD FARMS
LONG TERM INCENTIVE PROGRAM
APRIL 1998 - MARCH 2001
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PREMIUM STANDARD FARMS
LONG TERM INCENTIVE PLAN
SUMMARY
PURPOSE: Encourage Sustained Growth of Company
Provide Key Executives with Capital Accumulation
Opportunity
Encourage Retention & Commitment of Key PSF Executives
PERFORMANCE MEASURE: EBITDA
PERFORMANCE PERIOD: 3 Years - 4/1/98 through 3/31/01
PERFORMANCE Targeted Earnings of $206M
THRESHOLDS:
ELIGIBILITY: Senior Managers of PSF who are Responsible for the
Leadership & Accountability of the Long Term
Growth and Earnings of PSF as determined by PSF
Compensation Committee
INCENTIVE POOL: 2.6% of Earnings over Incentive Threshold of $103M
DISCRETIONARY AWARDS: 1.3% of Earnings over Discretionary Threshold of $103M
PARTICIPANT AWARDS: Incentive Pool Award Determined at Plan Inception
Discretionary Award Determined at end of Performance
Period
VESTING: 50% of Incentive Pool at end of 2nd Year (3/31/00)
50% of Incentive Pool at end of 3rd Year (3/31/01)
100% of Discretionary Pool at end of Performance Period
(3/31/01)
DEFERMENT: At end of Performance Period (3/31/01)
Participants have Option to Defer into Deferred
Compensation Plan (TBD)
ADMINISTRATION: Compensation Committee of PSF shall be Responsible
for the Administration & Interpretation of All
Plan Provisions
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PREMIUM STANDARD FARMS
LONG TERM INCENTIVE PLAN
Targeted Earnings $206,000,000 EBITDA
Accrual Rate-Incentive Pool 2.6%
Accrual Rate-Discretionary Pool 1.3%
Targeted Pool
Incentive $ 2,660,966
Discretionary $ 1,330,683
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Total $ 3,991,250
Incentive Pool/
Thresholds Discretionary Pool
$ 000
Cumulative 3 Years $ 103,000
Annualized $ 34,333
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POOL ACCRUAL AT 2.0% INCENTIVE POOL DISCRETIONARY TOTAL POOL MEMO: POOL AS % OF
BASED ON EARNINGS OF: (000) POOL (000) (000) EARNINGS
- ---------------------------------------------------------------------------------------------
$ 0M $0 $0 $0 0.0%
25M 0 0 0 0.0%
50M 0 0 0 0.0%
75M 0 0 0 0.0%
103M 0 0 0 0.0%
104M 26 13 39 .03%
125M 568 284 853 .7%
150M 1,214 607 1,821 1.2%
175M 1,860 930 2,790 1.6%
206M 2,661 1,331 3,991 1.9%
225M 3,152 1,576 4,728 2.1%
250M 3,798 1,899 5,696 2.3%
275M 4,443 2,222 6,665 2.4%
300M 5,089 2,545 7,634 2.5%
325M 5,735 2,868 8,603 2.6%
350M 6,381 3,191 9,571 2.7%
375M 7,027 3,514 10,540 2.8%
400M 7,673 3,837 11,509 2.9%
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PREMIUM STANDARD FARMS
PLAN DESCRIPTION
- - The Long Term Incentive Program is proposed for selected Premium Standard
Farms executives, effective April 1, 1998 through March 31, 2001.
- - The new program will encourage the long-term growth of Premium Standard
Farms.
- The performance focus in the new plan relates to the performance
executives can best influence and control; i.e., the Executive's
long-term reward opportunity is exclusively based on the earnings growth
of the Company.
- The size of the long-term reward opportunity has been designed to be
competitive with long-term plans offered by both public and private
companies.
- The Plan has been designed to maximize business teamwork ("I only win if
my business wins") while still providing an opportunity for strong
individual efforts to be recognized and specifically rewarded.
- Finally, the Plan has been designed to require long-term executive
commitment as a condition to receiving the substantial long-term
opportunity the Plan offers.
- - The Performance Thresholds in the Plan have been designed so that:
- Some benefits can be earned for performing above a relatively low
threshold (generally one half of expected performance).
- Market competitive rewards, however, will not be available unless
reasonably expected performance objectives are achieved over the course
of the long-term performance period.
- Superior benefits can be earned by exceeding the performance
expectations.
- - The chart at the beginning of this booklet illustrates the new long-term
model for Premium Standard Farms.
- The Incentive Pool rewards the management team as a whole for exceeding
their earnings threshold over the performance period.
- The Discretionary Pool is a supplemental pool designed to reward
individual members of the management team based upon their individual
performance during the performance period.
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PURPOSE OF THE NEW LONG TERM PROGRAM
- - Provide key executives a capital accumulation opportunity.
- - Provide market competitive long-term incentive rewards for attaining
performance objectives, i.e., the long-term earnings growth of the Company.
- - Encourage the retention and commitment of key executives.
WHO IS ELIGIBLE TO PARTICIPATE IN THE NEW PROGRAM?
- - The senior management charged with the leadership and accountability for
long-term earnings growth. Executives will be selected for participation in
the program by the Premium Standard Farms Compensation Committee.
PERFORMANCE MEASURE AND PERFORMANCE PERIOD
- - The Long Term Incentive Plan will use one performance measure "EBITDA" and
will have a three-year performance period (FY 1998-2001).
- - "EBITDA" as a performance measure will consist of the cumulative performance
period earnings for the Company as a whole.
- The use of a multi-year cumulative measure will moderate the impact of
volatile earnings over the course of the cycles of our business.
- - "EBITDA" as a performance measure will include both operating and
non-operating earnings (before tax depreciation and amortization) and will
be determined after accruing for the cost of this long-term plan
(post-accrual earnings).
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FUNDING THE LT BONUS POOLS/PERFORMANCE OBJECTIVES
- - Average Annual Earnings (EBITDA) Expectation
- The Premium Standard Farms Compensation Committee established a
reasonable Average Annual EBITDA Expectation for the succeeding 3 years.
- The objective was to establish an expectation for the Company that was
reasonably assessed at a 75% chance to attain based upon presently
available resources.
- - Incentive Pool Earnings Threshold
- The Incentive Pool Threshold is set generally at 1/2 of the EBITDA
Expectation.
- - Discretionary Pool Earnings Threshold
- The Discretionary Pool Threshold is set generally at 1/2 of the EBITDA
Expectation.
FUNDING THE LT BONUS POOLS/PERFORMANCE OBJECTIVES
- - Long Term Profit-Sharing PercentAGE
- This percentage has been determined at a level that will yield a market
competitive long-term incentive fund for the eligible executives
assuming earnings expectations are attained, and will provide
substantial pay leverage for exceeding or falling short of that
expectation.
- - Modifying the Earnings Expectation and Thresholds during the Performance
Period
- Generally, the Earnings Expectation and Thresholds are expected to
remain in place for the full performance period without modification.
- However, modifications will be made where there are major capital
changes:
- A major capital infusion will generally result in an increase in
the Earnings Expectation and Thresholds.
- A major withdrawal of capital from the Company (e.g., a sale of
a business segment without reinvesting the sales proceeds in
Premium Standard Farms will generally result in a decrease in
the Earnings Expectation and Thresholds.
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- The Compensation Committee of the Board of Directors reserves
the right to modify either the earnings expectation or
thresholds in the event of an unforeseen and extraordinary
event.
INCENTIVE POOL
- - Each eligible executive is granted a percentage of the Incentive Pool.
- This percentage interest is generally granted at the beginning of the
performance period.
- Some percentage interests were reserved for subsequent grants to newly
eligible executives (e.g., newly hired or promoted executives).
- Percentage interest of the original pool participants may be reduced if
pool reserves are insufficient for subsequent grants to newly eligible
executives. Such reduced percentage interest, however, will not reduce
the original participant's bonus opportunity because corresponding
positive adjustments will be made to the pool's LT Profit-Sharing
Percentage.
- - The Value of an Incentive Pool equals:
- Actual Earnings for the performance period
IN EXCESS OF
- Incentive Pool Earnings Threshold
MULTIPLIED BY
- LT Profit-Sharing Percentage
- - The Value of an eligible Executive's Incentive Pool Interest equals:
- The Incentive Pool Value as determined above
MULTIPLIED BY
- The Executive's percentage interest in the Incentive Pool
DISCRETIONARY POOL
- - The Program will have a pool to fund discretionary, performance based,
individual bonus amounts.
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- Unlike the Incentive Pool, executives do not receive a percentage
interest in the Discretionary Pool at the beginning of the period.
Allocation of this pool will be made after FY2001 on a discretionary
basis taking into account individual performance during the period.
- - The Value of the Discretionary Pool equals:
- Actual Earnings for the Performance Period
IN EXCESS OF
- Discretionary Pool Earnings Threshold
MULTIPLIED BY
- LT Profit-Sharing Percentage
- - The Value of an Executive's interest in the Discretionary Pool equals:
- A portion of the Discretionary Pool value based upon an assessment by
the CEO and Compensation Committee of an Executive's individual
performance during the performance period.
- An executive might receive the same percentage interest in the
Discretionary Pool as he has in the Incentive Pool, or he might receive
more, less, or none. The allocation is totally at the discretion of the
CEO and Compensation Committee.
VESTING AND CASH-OUT OF INCENTIVE POOL
- - The payout of an Executive's interest in an Incentive Pool will be fully
distributed in cash shortly after the end of the performance period
(FY2001).
- - Vesting of an Executive's Incentive Pool interest is based on continued
employment with Premium Standard Farms:
- 50% of Incentive Pool at end of 2nd Year (3/31/00)
- 50% of Incentive Pool at end of 3rd Year (3/31/01)
- 100% of Discretionary Pool at end of Performance Period (3/31/01)
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- - Full vesting rights are accorded executives who leave the Company due to
death, disability or at normal retirement age during the performance period.
- Transfers to Continental Grain Company during the performance period:
- Retention of a pro-rata interest in the Premium Standard Farms Pool
- Grant of a pro-rata interest in the new business unit's Pool
- - Special vesting and funding rules apply if the Company is sold or in the
event of an initial public offering (IPO) during the performance period.*
VESTING AND CASH-OUT OF DISCRETIONARY POOL
- - An Executive's interest in the Discretionary Pool is determined after the
end of the performance period.
- - Payout of an Executive's interest in the Discretionary Pool, if any, will
occur the same date as Incentive Pool payout.
- - Vesting of an Executive's Discretionary Pool interest is based on current
active employment with the Company on the payout date.
- - Full vesting rights are accorded an executive who leaves the Company during
the performance period due to death, disability or at normal retirement age.
- - Special vesting and funding rules apply if the Company is sold or in the
event of an IPO during the performance period.*
ADMINISTRATION OF LONG TERM INCENTIVE PLANS
- - The Compensation Committee of the Board of Directors shall approve the
administration of the Long Term Incentive Plan.
- The Committee shall have sole responsibility for the interpretation of
all plan requirements and the payment of plan benefits.
* To be determined by the Premium Standard Farms Compensation Committee