Document:

Exhibit 10.01

 

 

USPB PHANTOM UNIT BONUS 

COMPENSATION POLICY

 

Scope and Administration.  This Phantom Unit Bonus Compensation Policy (“Phantom Unit Policy”) of
U.S. Premium Beef (“USPB”) is a policy for compensating USPB employees
(“Employees” and each individual an “Employee”) by granting rights to share in
appreciation of Class A and Class B Units.  This Phantom Unit Policy has been
approved by the Board of Directors and shall be administered by the chief
executive officer of USPB (“CEO”).  Each Phantom Unit constitutes a unit
appreciation right under which the Employee is entitled, on exercise, to
payment of the difference between the Market Value and the Strike Price of a
Phantom Unit.  The CEO shall be responsible for maintaining documentation and
the Strike Price and Market Price of the Phantom Units awarded to each Employee
and for the determination of all adjustments and payments.  As part of the
annual budgeting process, the CEO shall propose and the Board of Directors
shall approve, the number of Phantom Units (Class A and Class B Units)
available for awards under the Phantom Unit Policy.  The Phantom Class A and
Phantom Class B Units subject to this Phantom Unit Policy are referred to as
the “Phantom Units.” The Board of Directors may terminate the USPB Phantom Unit
Policy prospectively at any time but may not terminate any previously awarded
Phantom Units.

Guidelines.  The
CEO shall administer this Phantom Unit Policy under the following guidelines.

1.          Award of Awardable Phantom Units.  From the total Phantom Unit amount approved by the Board of Directors,
the CEO shall award Phantom Units (including an award of Phantom Class A Units
and Phantom Class B Units) to the Employees in amounts as determined by the
CEO.  Each Employee’s Phantom Unit award shall vest at the rate of one-fifth of
the award (rounded to a whole number as determined by the CEO) for each full
fiscal year of employment that the Employee completes after the award is made,
unless the Board of Directors approves a different vesting schedule at the time
of award.

2.         Payment on Exercise.  

(a)           Amount Paid on Exercise.  When an Employee exercises a Phantom Unit, USPB
will pay the Employee an amount equal to: the number of vested Phantom Units
exercised times the difference in the “Market Price” for the Class A Units and
Class B Units and the “Strike Price” for the Phantom Class A and Phantom Class
B Units.  The “Market Price” is the weighted average price for the immediately
preceding fiscal year of the non- conditional unit transaction prices of
corresponding USPB Class A Units and Class B Units by Unitholders of USPB to
unaffiliated third parties.  If USPB Class A Units and Class B Units are sold
in the same transaction without designating separate prices for Class A Units
and Class B Units, the price shall be allocated to Class A Units and Class B
Units according to the percentage of profits and losses allocated by USPB to
Class A Units and Class B Units respectively, under the USPB LLC Agreement,
Section 3.6(b).  The “Strike Price” for the Phantom Units is the greater of the
Market Price for the corresponding Phantom Units determined for the fiscal year
prior to award of the Phantom Units or the fair market value of the Phantom
Units on the date of the award determined using a reasonable valuation method
that would satisfy the requirements of Treasury Regulation section
1.409A-1((b)(5)(iv), and adjusted, as required, under Section 3(c).  To
determine the Market Price corresponding to a fiscal year there must be a
number of qualifying transactions for both Class A Units and Class B Units
equal to or greater than the total number of outstanding designated Phantom
Units of the same classes.  If there are less than the required number of
transactions in the prior fiscal year, then the weighted transactions from
earlier fiscal years shall be used so that the Market Price is determined from
a number of transactions consisting of the same number of units for each class
as the total number of outstanding designated Phantom Units.

 

 

 

 

 

 

 

(b)          Exercise.  After an award of Phantom Units is fully vested (i.e. after completion of
five fiscal years of employment after the date of the award), the Employee, by
written notice to the CEO, may elect to exercise up to one-fifth of the
Employee’s fully vested Phantom Units in a fiscal year.  The Employee may
likewise exercise up to one-fifth of the original award in any subsequent
fiscal year.  The number of Phantom Units awarded to the Employee shall be
reduced by the number of Phantom Units that the Employee has exercised. 
Payment of the amount under paragraph 2(a) shall be made no later than 30 days
after the Employee notifies USPB of the number of Phantom Units being
exercised.

(c)           Termination.  The number of vested Phantom Units remaining unexercised at the time of
an Employee’s termination of employment with USPB shall be treated as exercised
under (b) as follows: one-third shall be treated as exercised on the
termination of employment; one-third on the first anniversary of the
termination of employment; and one- third on the second anniversary of the
termination of employment.  Phantom Units that are not vested on termination of
employment shall lapse.

(d)          Liquidation.  If all or substantially all of the assets of USPB
or the ownership interests of USPB are transferred to another party and the
proceeds are distributed to USPB Unitholders or if ownership interests of USPB
are transferred to another party in exchange for a distribution to USPB
Unitholders, all Phantom Units shall immediately vest and Employees shall be
treated as having exercised all of the Phantom Units awarded to them.  The
amount paid on exercise shall be the difference between the Strike Price and an
amount equal to the distribution to Unitholders of Class A Units and Class B
Units on a per unit basis for the number of Phantom Units awarded to the
Employee.  The amount shall be paid at the time distributions are made
to the Unitholders.  

3.          Anti-dilution.  

(a)          Compensation For Dilution.  The
Employees’ designated and vested Phantom Unit rights under the Phantom Unit
Policy shall not be diluted by actions of USPB (other than certain events of
Distribution Dilution during the fiscal year in which the Phantom Units are
designated as described below), including transfer of assets to another entity
or issuance of units such that the designated and vested Phantom Unit rights at
the time of a dilution event shall be adjusted so that the Employee’s Phantom
Unit rights are not diluted, provided, however, there will be USPB’s issuance
of Units or distributions under the CEO Employment Agreement to CEO, issuance
of additional Units at or above the Market Price, or the issuance of debt
instruments or preferred units with fixed (interest like) returns shall not be
considered dilution of the designated and vested Employee Phantom Unit rights.

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(b)         Distribution Dilution.  If
there is dilution by action of USPB that results in a cash distribution to
Unitholders (other than an event described in Section 2(d), a “Distribution
Dilution” shall be deemed to have occurred and each Employee with outstanding
Phantom Units shall be entitled to a payment, subject to clause (iv) below, as
follows:

(i)             A “Distribution
Dilution” means the excess of the total amount distributed in any tax year with
respect to outstanding Units (including a distribution of ownership rights in
another entity) over the product of the total maximum tax rate times USPB’s
income less deductions (“taxable income”) for the tax year.  The maximum tax
rate will be equal to the maximum federal income tax rate plus a weighted
average state income tax rate,
which will be computed by multiplying the state income tax rates for each of
the states in which USPB has nexus by an apportionment rate.  The apportionment
rate will be calculated by dividing each state’s apportionment factor,
determined by USPB’s tax advisor, by the total of the apportionment factors. 
The determination of any Distribution Dilution will be made within 60 days
after the taxable income for the tax year for USPB is determined in a
reportable manner for USPB.

(ii)           If a Distribution
Dilution occurs, each Employee shall be paid an amount with respect to the
Employee’s awarded Phantom Units.  Payment shall be made within 60 days after
the date of the Distribution Dilution and, with respect to unvested Phantom
Units within 60 days after the unvested Phantom Units become vested Phantom
Units.  The amount payable to an Employee with respect to each Phantom Unit is
equal to the amount determined by subtracting the total maximum tax rate
distributions from the total cash distributions made by USPB to Unitholders (“Total
Dilution Amount”); then the Total Dilution Amount shall be multiplied by the
percentage of profits and losses allocated to the corresponding Class A Units
and Class B Units (“Unit Dilution”); then Unit Dilution shall be divided by the
corresponding outstanding Class A Units and Class B Units.

(iii)          The amount
payable to an Employee under this paragraph (b) shall be paid to Employee with
respect to vested Phantom Units within 75 days after the taxable income of USPB
for the tax year in which the Distribution Dilution occurred is determined, but
in no event later than March 15 following the calendar year in which the
Distribution Dilution occurred.  The amount payable to the Employee under this
paragraph (b) shall be made within 60 days after the end of the calendar year
in which the Phantom Units that were not vested in the year of the Distribution
Dilution vest.

 

 

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(iv)             
There shall be no payment to Employees for a Distribution
Dilution as a result of a leveraged distribution from which the proceeds are
paid to Class A Unitholders and Class B Unitholders in fiscal year 2011.

(c)          Unit Dilution.  If there is
dilution by action of USPB that results in the Phantom Units being diluted
(other than Distribution Dilution and after taking into an account any
compensation for dilution under paragraph (b) above), such as a split of USPB
Units or actions that reduce the proportion of ownership of USPB that the
Phantom Units would represent if the Phantom Units were Class A Units and Class
B Units before and after the action, taking into account capital contributions
made corresponding to the action (“Unit Dilution”); then designated and vested
Phantom Units shall be increased in proportion to the amount of dilution (the
increase referred to as the “Additional Units”).  If there is Unit Dilution,
the “Strike Price” for all designated and vested Phantom Units shall be
adjusted to be equal to the number of corresponding Phantom Units of each class
prior to the Unit Dilution divided by the total number of corresponding Phantom
Units after the Unit Dilution times the Strike Price prior to the Unit
Dilution.  Any adjustments under this paragraph (c) shall be made in accordance
with the rules under Treasury regulation section 1.409A-1(b)(5)(v)(D).

4.     Withholding. 
Upon exercise of a Phantom Unit or payment under section 3 or 4(b), USPB shall
withhold from the amount otherwise payable, an amount necessary to satisfy any
applicable federal, state and local withholding tax requirements. 

 

 

 

 

 

 

 

 

 

 

4Exhibit10.02

 

 

 

 

 

 

First Amendment

To

CEO Employment Agreement

Between

U.S. Premium Beef, LLC

And

Steven D. Hunt

Employment Years   2010 - 2015

 

            The parties hereby agree to amend the CEO
Employment Agreement between U.S. Premium Beef, LLC and Steven D. Hunt for the
employment years 2010 – 2015 by substituting the following provisions for the
originals and for which an Amended and Restated CEO Employment Agreement may be
prepared and substituted for the original CEO Employment Agreement upon
adoption of this First Amendment:  

 

Section 3. (f)  Phantom Units
Plan.  Effective as of the date of this Agreement, CEO’s existing grant of
20,000 phantom unit rights to Phantom Class A Units of USPB and options to buy
20,000 Class A Units of USPB, both with an Exercise price or Purchase price of
$55 per unit subject to adjustment as provided in Section 3(f)(5) is cancelled
and replaced by a new grant of 20,000 phantom unit rights to Phantom Class A
Units of USPB and options to buy 20,000 Class A Units of USPB, both with an
Exercise or Purchase price of $55 per unit, which is an amount no greater than
the fair market value of a Class A Unit, determined under the regulations under
Section 409A of the Internal Revenue Code, as of the date of this First
Amendment subject to adjustment as provided in Section 3(f)(5).  The $55 per
Class A Unit is referred to as the “Exercise Price” or “Purchase Price.” The
replacement grant to CEO of 20,000 Phantom Class A Units and options to buy
Class A Units shall be reduced by any Phantom Class A Unit Appreciation Rights
or Class A Unit options exercised or purchased under this Agreement, and
increased by any additional Phantom Class A Units and Class A Unit options
under Section 3(f)(5), and after the adjustments, are the “Available Phantom
Class A Units.”  The rights of exercise and purchase of the phantom unit rights
are:

 

(1)              
Appreciation Rights.  CEO shall exercise any of the
phantom units by written notice to the Chair of the Board of Directors of
USPB.  Upon exercise of such phantom units, CEO shall be paid the amount that
the weighted average trading price of the units (“Market Unit Price”) exceeds
the Exercise Price per unit times the number of phantom units exercised, not to
exceed the number of Available Phantom Class A Units.   

(2)              
Market Unit Price.  The “Market Unit Price” shall equal
the weighted average price of the previous 20,000 non-conditional unit
transaction prices of the prior sales of USPB Class A Units, from Unitholders
to unaffiliated third parties.  The weighted average price shall be for the
unit transactions of 20,000 units of USPB Class A occurring immediately prior
to the CEO’s notice of exercise.  

 

 

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If the transactions of the Class A
and Class B Units are linked, then the transaction price shall be based on the
linked Class A and Class B Unit Price allocated to the Class A Units and Class
B Units according to the percentage of profits and losses allocated by USPB to
Class A Units and Class B Units, respectively, under the USPB LLC Agreement,
Section 3.6(b).  

 

If the Market Unit Price is based
in part or in whole on sales of linked USPB Class A Units and Class B Units,
then the Market Unit Price for phantom Class A Units is the percentage of the
linked Market Unit Price that is the same as the percentage of profits and
losses allocated to the Class A Units at the time of exercise. 

 

If the CEO is exercising Phantom
Class A Units, and 20,000 separate Class A Units for which the Market Unit
Price will be determined have not transferred, then the Market Unit Price shall
be established first, from the appropriate separate Class A Units transactions,
and then, from the number of linked Class A Unit and Class B Unit transactions
so that in combination 20,000 unit transactions are utilized to determine the
Market Unit Price.

 

(3)              
Exercise.  CEO shall be entitled to exercise Phantom Class
A Units at CEO’s election, at the time and under the conditions set out in
Section 3(f)(4).  In either case, payment shall be made to CEO by 90 days after
the notice of exercise of the phantom unit rights, but in no event later than
March 15th of the calendar year first occurring after the end of the calendar
year in which the notice is given.  

(4)              
Purchase and Exercise Rights.  CEO may exercise the
Phantom Class A Units or the options to purchase the number of USPB Class A Units
for $55 per Class A Unit subject to adjustment under Section 3(f)(5) during a
period that starts on termination of this Agreement under Agreement Section
1(b) and ends 18 months after termination of this Agreement, or, if earlier,
within 10 days prior to an event that is a liquidation to Class A Unitholders,
or at any earlier date, upon mutual agreement of CEO and USPB.  CEO shall
exercise by giving written notice to the chair of the Board of USPB, which
notice shall specify the number of Phantom Class A Units and/or Class A Unit
options being exercised and shall be accompanied, in the case of exercise of
Class A Unit options, by payment in full to USPB of the purchase price for the
Class A Units to be purchased plus payment in full of such amount as USPB
determines sufficient to satisfy any liability it may have for any withholding
of federal, state, local or foreign income, social insurance or other taxes
incurred by reason of exercise of the Class A Unit options.  USPB shall pay the
costs of appraisal of USPB Class A Units, if CEO purchases all Available
Phantom Class A Units.  Upon exercise and payment of the purchase price for
Class A Unit options, USPB will grant CEO the same rights, privileges,
allocations, distributions, liquidating distributions, and transferability of
the Class A Units purchased by CEO as other holders of Class A Units, which may
require special allocations as provided in the USPB LLC Agreement, Section
3.3(h).  CEO may designate the purchased Class A Units to be held by CEO’s Designated
Beneficiary identified under Section 3(h), providing CEO retains control over
voting rights and any right to transfer the Class A Units during the time CEO
is employed by USPB.  The purchase of Class A Units under this Section 3(f)(6)
shall reduce the corresponding number of Available Phantom Class A Units held
by CEO.  Likewise, the exercise of Phantom Class A Units shall reduce the
corresponding number of Class A Unit options held by CEO.

 

 

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(5)        Anti-dilution. 

 

(A)       Compensation
For Dilution.  If USPB dilutes CEO’s phantom unit rights under this
Subsection (f) with respect to Phantom Class A units, including by transfer of
assets to another entity or issuance of units, the number of unexercised
phantom unit rights and the number of options to purchase Class A Units held by
CEO at the time of a dilution event under this Section 3(f) shall be increased
so that CEO’s phantom unit rights and Class A Unit options are not diluted and
the rules in Section 3(f)(5)(C) shall apply in determining the exercise and
purchase price.  For purposes of this Section 3(f)(5), USPB’s issuance to
CEO under this Section 3(f), issuance of additional units at or above the
Market Unit Price, or the issuance of debt instruments or preferred units with
fixed (interest like) returns shall not be considered dilution of CEO’s phantom
unit rights.

 

(B)       Distribution
Dilution.  For purposes of this Section 3(f)(5), if there is dilution by
action of USPB that results in a cash distribution to Class A Unitholders
(including a distribution of ownership rights in another entity), a
“Distribution Dilution” shall be deemed to have occurred and shall be
compensated for as follows:

 

(i)         A
“Distribution Dilution” shall be defined as and shall be deemed to occur if the
total amount distributed in any tax year with respect to outstanding Class A
units (including a distribution of ownership rights in another entity) exceeds
the product of the total maximum tax rate distributions times USPB’s income
less deductions (“taxable income”) for the tax year.  Such maximum tax rate
distributions will be equal to the maximum federal income tax rate plus a
weighted average state income tax rate, which will be computed by multiplying
the state income tax rates for each of the states in which USPB has nexus by an
apportionment rate.  The apportionment rate will be calculated by dividing each
state’s apportionment factor, determined by USPB’s tax advisor, by the total of
such apportionment factors. The determination of any Distribution Dilution will
be made within 60 days after the taxable income for the tax year for USPB is
determined in a reportable manner for USPB.

 

(ii)         CEO
shall be compensated for any Distribution Dilution by a payment to CEO.  The
amount to be paid to CEO is equal to the amount determined by subtracting the
total maximum tax rate distributions from the total distributions made by USPB
(Total Dilution Amount); the Total Dilution Amount shall then be multiplied by
the percentage of profits and losses allocated to the Class A units (Class A
Dilution); Class A Dilution shall then be divided by the outstanding Class A
units; the Class A Dilution per unit shall then be multiplied by the Available
Class A Phantom units (Class A Phantom Dilution).  

 

 

 

3

 

 

 

 

 

(iii)       The
amount payable to CEO under this paragraph (B) shall be paid to CEO within 75
days after the taxable income for the tax year for USPB is determined, but in
no event later than March 15 of the calendar year after the calendar year in
which the Distribution Dilution occurs.    

 

(C)       Class
A Unit Dilution.  If there is dilution by action of USPB that results in
the Class A Units being diluted (other than Distribution Dilution and after
taking into an account any compensation for dilution under Section 3(f)(5)(B)
above) such as a split of Class A Units or actions that reduce the proportion
of ownership of USPB that the Available Phantom Class A Units would represent
if the Available Phantom Class A Units were Class A Units before and after the
action, taking into account capital contributions made corresponding to the
action; then CEO shall be compensated by being granted additional Phantom Class
A Units and Class A Unit options in proportion to the amount of dilution (the
“Additional Units”).  The exercise and purchase price for the Available Phantom
Class A Units  (including the Additional Units granted under this Section
(f)(5)(C)) shall be equal to the product of the number of Available Phantom
Class A Units prior to the granting of the Additional Units times $55 and then
divided by the number of Available Phantom Class A Units after the granting of
the Additional Units.  A corresponding adjustment shall be made in the exercise
and purchase price for the Class A Unit options.  Any adjustments under this
paragraph (c) shall be made in accordance with the rules under Treasury
regulation section 1.409A-1(b)(5)(v)(D).

 

            This amendment is hereby approved to be
effective September 28, 2010 by the undersigned and shall be incorporated as
part of the CEO Employment Agreement between U.S. Premium Beef, LLC and Steven
D. Hunt for the period 2010 – 2015.

 

 

		

CEO

			
	

 

			
	

/s/ Steven D. Hunt                           

			
	

Steven D. Hunt

			
	

 

			
	

 

			
	

U.S. PREMIUM BEEF, LLC

			
	

 

			
	

 

			
	

By: /s/ Mark Gardiner                  

			
	

 

			
	

Its:      Chairman                          

			
	

 

			
	

Date:   September 28, 2010      

			

 

 

4

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