**FY 2003 VARIABLE COMPENSATION PLAN**

**(SEPTEMBER 1, 2002 - AUGUST 31, 2003)**

 

 

 

 

**OBJECTIVE**

To pay additional cash compensation based on operational performance within theMarketing (Foods), Inputs (Crop Production/Transportation and Petroleum) andAdministrative Groups of Farmland.   

 

This plan includes four exhibits which are part of the plan structure.  Pleasereview them.  They include the following:

 

ExhibitA                     Financial performance criteria and levels for each group

 

ExhibitB                     A summary schedule of payout opportunities by                                    earnings level

 

ExhibitC                     Additional detail on determination of payout

 

ExhibitD                     Descriptions and definitions of accounting terms and methodologies relevant to this plan

 

**PLAN STRUCTURE**

 

The plan provides the opportunity for a cash payment following the conclusion of FY2003 to eligible employees for the attainment of operational performance objectives. Thefinancial measure for each group is identified on Exhibit A.  **Pro-rata paymentswould occur earlier in the event of job elimination resulting from restructuring or costreduction activities.**  Each group must conform to this Plan, unless an exceptionis made by the President and CEO or his designee.   

 -      **ELIGIBILITY**     The following types of employees are not eligible for payout under this Plan:   -         Employees whose terms and conditions of        employment are subject to collective bargaining.
-         Employees hired after June 1, 2003 (waived if        the employee is a former regular full time employee during FY                   2003; payout is prorated).
-         Regular part time employees with less than        500 hours of service during FY 2003.
-         Temporary employees with less than 1000 hours        of service during FY 2003.
-         Employees terminated for cause prior to        8/31/2003.
-         Employees who terminate voluntarily prior to        8/31/2003 (employees who terminate to accept a position with                  a member cooperative may be        eligible for a prorated payout).
-         Employees who are not employed on the date        triggering eligibility for a payout (e.g., failing to remain through                  the date of an asset sale)
-         Employees with Employment Agreements        providing for variable, incentive or other compensation outside this                  Plan.

 

Certain classes of employees who terminate prior to 8/31/2003 will receive payout based    on their eligible earnings during the year:

 

Death/Disability

Retirement

Layoff

Leave of Absence

Hired after 9/1/2002 but on or before 6/1/2003

Reduction in Force (as described below under "Impact of Reorganization")

 

Involuntary separations, other than for reasons included in the list above, which are    not for performance or for cause, may result in prorated payout.

 

Employees who voluntarily terminate prior to 8/31/2003 for the purpose of assuming a    position with a system member cooperative may be eligible to receive a payout.  To    secure eligibility, the employee must notify Corporate Human Resources, in writing, at the    time of separation and ensure that the system member cooperative notifies Farmland's    Corporate Human Resources Department, in writing, to verify employment from the point of    separation through the conclusion of the plan year.

 

Employees on formal disciplinary or performance probation are ineligible for that    portion of the fiscal year.

**DETERMINATION    OF PAYOUT**

Payout is determined as a percentage of eligible gross wages or salary paid during the    fiscal year, as shown in Exhibits B and C.  Corporate performance measurements are    labeled "threshold", "target", and "maximum".  Earnings    before interest, tax, depreciation and amortization expenses (EBITDA) is the operational    cash flow performance measure for each group (excluding joint venture operations,    extraordinary items and unallocated corporate expenses; except that performance criteria    for the Corporate Group do include unallocated corporate expenses).

 

Threshold - The performance level at budgeted EBITDA required for the plan to    pay out. 

 

Target  - Identifies performance objectives as an enhancement to the    budgeted EBITDA level.  

 

Maximum - A performance level exceeding target..  Opportunity above maximum    under the performance enhancement multiplier is described on Exhibit A. 

 

Payout for performance between threshold and target or target and maximum is prorated.

 

 

**IMPACT OF     REORGANIZATION**

 

In the event of a reduction in force, including those resulting from an asset sale or    other major organizational change (including a change of control) during the course of the    plan year which results in termination of employment from Farmland, eligible employees    shall be entitled to receive a payment the greater of: (1) his/her eligible payout based    on a prorated amount to Plan (e.g. if asset sale occurs at 6th month of Plan    Year, financial criteria for each level would be calculated at the 6th month    goal under the FY 2003 business plan); or (2) an amount calculated at threshold and    prorated to the date of the sale.  Payout would be made as soon as possible after    separation from employment.  

 

 

**ADJUSTMENTS TO    PERFORMANCE    CRITERIA AND GOALS**

 

In the event of an asset sale or other significant organizational change (including a    change of control), Performance Criteria and Goals may be adjusted at the discretion of    the President and CEO or his designee.

 

 

**MODIFICATION     OF THE PLAN**

 

The President and CEO and/or the Board of Directors reserve the right to modify this    plan with or without notice, including changing details, temporarily suspending the plan,    or terminating the plan altogether prior to the conclusion of the fiscal year.  

 

 

APPROVED:

 

                           ________________________________________

                                       Robert B. Terry

                                       President and CEO

 

 

**EXHIBIT A**

 

 

**FY 2003 PERFORMANCE CRITERIA AND GOALS**

**FOR CORPORATE GROUP**

 

 

EBITDA measure for Corporate (Company consolidated EBITDA excluding joint ventures)    (full fiscal year):

 

 

Threshold                        $66 million                          

 

 

Target                             $97 million

 

 

Maximum                        $136 million

 

Performance Enhancement Multiplier

 

For EBITDA above the annual maximum, the percentage that EBITDA is greater than maximum    will be used as a multiplier.  The multiplier would be applied to the employee    maximum opportunity.  For example, if actual performance is 10% greater than the    maximum goal, opportunity would be calculated as follows:   

 

For employee at 3/5/8 opportunity    level:                           8 X 1.10 = 8.8% opportunity

 

For employee at 8/18/33 opportunity    level:                       33 X 1.10 = 36.3% opportunity

 

 

**EXHIBIT A**

 

**FY 2003 PERFORMANCE CRITERIA AND GOALS**

**FOR FOODS GROUP**

 

 

EBITDA measure for Pork Processing and Marketing (including Livestock Production)    before allocation of corporate expenses (full fiscal year):  

 

Threshold         $63 million

 

 

Target              $76    million

 

 

Maximum         $93 million

 

 

Performance Enhancement Multiplier

 

For EBITDA above the annual maximum, the percentage that EBTIDA is greater than maximum    will be used as a multiplier.  The multiplier would be applied to the employee    maximum opportunity.  For example, if actual performance is 10% greater than the    maximum goal, opportunity would be calculated as follows:   

 

For employee at 3/5/8 opportunity    level:                           8 X 1.10 = 8.8% opportunity

 

For employee at 8/18/33 opportunity    level:                       33 X 1.10 = 36.3% opportunity

 

 

**EXHIBIT A**

 

**FY 2003 PERFORMANCE CRITERIA AND GOALS**

**FOR INPUTS GROUP (CROP PRODUCTION, TRANSPORTATION AND PETROLEUM)**

 

 

EBITDA measure for Inputs Group before allocation of corporate expenses (full fiscal    year):  

 

 

Threshold         $63 million

 

 

Target              $81    million

 

 

Maximum         $103 million

 

 

Performance Enhancement Multiplier

 

For EBITDA above the annual maximum, the percentage that EBITDA is greater than maximum    will be used as a multiplier.  The multiplier would be applied to the employee    maximum opportunity.  For example, if actual performance is 10% greater than the    maximum goal, opportunity would be calculated as follows:   

 

For employee at 3/5/8 opportunity    level:                           8 X 1.10 = 8.8% opportunity

 

For employee at 8/18/33 opportunity    level:                       33 X 1.10 = 36.3% opportunity

 

 

 

 

 

**EXHIBIT A**

 

**FY 2003 PERFORMANCE CRITERIA AND GOALS**

**FOR SENIOR MANAGEMENT**

 

All members of Senior Management (except President of Crop Production and President of    Foods) shall participate as follows:

 -         40% opportunity based on Farmland's EBITDA        (as described above).  The President of Crop Production                  and President of Foods shall have        their 40% opportunity tied to their Group's Goals and Criteria.

 -         20% opportunity based on filing a Plan and        Disclosure Statement in the Chapter 11 proceeding:

 

Maximum         - on or before    February 1, 2003

 

 

Target                 - on or before April 1, 2003 

 

 

Threshold         - on or before    June 1, 2003

 -         40% opportunity based on the value of        consideration (in cash, debt and equity) delivered to secured and                 unsecured creditors through the Plan        of Reorganization.

 

Maximum         Pay full value to secured and    unsecured creditors

 

 

Target                 $1.0 billion

 

 

Threshold         $900 million

 

Members of Foods Senior Management's (6 employees excluding the President of Foods)    Variable Compensation will be tied 100% to Foods' EBITDA and the payout matrix shall be at    the 18-40-70% levels for Threshold, Target and Maximum, respectively.

 

**EXHIBIT B**

**FY 2003 Variable Compensation Program Annual Payout Schedule**
Non-Sales Annual  
Threshold -- Target - Maximum
Earnings
V Comp Calculation Point
3 - 5 - 8
All Non - Exempt*
Any Earnings
3 - 5 - 8
Below $37,130 Exempt
Actual Earnings
3 - 6 - 10
$37,130 - $40,844
$38,990
4 - 7 - 12
$40,845 - $44,929
$42,890
     5 - 8 - 15**
$44,930 - $51,669
$48,300
5 -- 10 - 18
$51,670 - $59,419
$55,545
6 -- 12 - 22
$59,420 - $68,334
$63,880
7 -- 15 - 27
$68,335 - $78,584
$73,460
8 -- 18 - 33
$78,585 - $90,374
$84,480
10 - 22 - 40
$90,375 - $103,929
$97,155
12 - 25 - 46
$103,930 - $119,519
$111,725
12 - 25 - 46
$119,520 - $137,449
$128,485
12 - 25 - 46
$137,450 - $158,064
$147,760
14 - 28 - 52
$158,065 +
Actual Earnings

(Non - Executives)*               Includes Truck Drivers**             Production Supervisors identified with a v-comp code of --8 will be calculated **at      least** at the                  5-8-15 opportunity, using the calc point that corresponds with their earnings.
 **EXECUTIVES Annual** 
 
Threshold -- Target - Maximum
Earnings
V Comp Calculation Point
18 - 36 - 67
Designated Executives
 
22 - 45 - 83
Designated Executives
 
25 -- 50 - 92
President and CEO
 
 
$95,480 - $114,574
$105,030
 
$114,575 - $137,489
$126,035
 
$137,490 - $164,989
$151,240
 
$164,990 - $197,989
$181,490
 
$197,990 - $237,589
$217,790
 
$237,590 - $285,109
$261,350
 
$285,110 - $342,129
$313,620
 
$342,130 - $410,554
$376,345
 
$410,555 - $492,664
$451,610
 
$492,665 - $591,199
$541,935
 
$591,200 - $709,439
$650,320
 
$709,440 - $851,329
$780,385
 
$851,330 +
Actual Earnings    
 

 

 

**EXHIBIT C**

 

**DETAIL ON DETERMINATION OF PAYOUT**

 

**Non-Exempt Employees:**

Payout is determined as a percentage of eligible gross earnings paid during

fiscal year 2003.

 

Note:    Eligible gross wages may exclude some lump sums.

            

            **Exempt/Management  Employees:**

                         Payout is determined as a percentage of the Variable Comp Calculation Point                              based on eligible gross wages during fiscal year 2002.  Exhibit B grid lists the                                percentage opportunities assigned to each Variable Comp Calculation Point.

 

**NOTE:**            Lump Sum  amounts given during the fiscal year will not be

included in Eligible gross wages unless they were given in lieu of

merit increase.

 

**Eligible Earnings:**

Base earnings, merit increase pay, lump sum in lieu of a merit increase, shift

differential, bridge differential, and geographic differential.

Production supervisor flat rate overtime payments.

 

Non-exempt overtime payments.

 

**Non-eligible Earnings:**

The following is list of the most common items not included as earnings:

Vacation balance lump sum payments at termination

Previous FY variable compensation payment

Sales Commission, SPIFF payment, bonus, etc.

Severance pay

Relocation reimbursements

 

Exceptions to normal eligibility or ineligibility of earnings must be

approved in advance by the President and CEO or his designee.   

 

 

 

 

 

 
****EXHIBIT D**
 
DETERMINATION OF EXTRAORDINARY ITEM
 
If Farmland achieves its performance goals, but experiences a gain or loss year due to    extraordinary items, the President and CEO maintains the discretion to authorize, adjust,    or deny payout of any portion of the Variable Compensation Plan.  It is the intent of    this Plan to establish criteria and goals that measure company operating    performance.  
 
**GUIDELINES FOR "EXTRAORDINARY" DESIGNATION**
 
The President and CEO and Chief Financial Officer must approve the classification of    any item as "extraordinary."  Transactions deemed as    "extraordinary" include:
 -         The gains or losses associated with asset        sales.

 -         The results of litigation in favor of or        against Farmland.  

 -         The gain or loss generated from the        impairment of asset value of a major asset, group of assets, or investments.

 -         Other items as approved.  

 

The President and CEO and Chief Financial Officer will determine how individual    extraordinary items shall affect the final determination of variable    compensation.   

 

 

 **