CEO Employment Agreement

CEO Employment Agreement
Between
U.S. Premium Beef, LLC
And
Steven D. Hunt
Employment Years   2010 - 2015

THIS EMPLOYMENT AGREEMENT (“Agreement”) made effective as of the 1st day of September, 2009, is made by and between U.S. Premium Beef, LLC, a Delaware limited liability company (“USPB”), and Steven D. Hunt (“Chief Executive Officer” or “CEO”).

1.         Employment and Term of Agreement.  

(a)          Employment.   USPB will employ CEO as the chief executive officer of USPB under this Agreement from September 1, 2009 (the “Effective Date”) until August 29, 2015 (the “Expiration Date”) or the date the employment is otherwise terminated as provided in this Agreement (“Termination Date”). 

(b)          Term of Agreement.   Employment under this Agreement starts on September 1, 2009 and continues until the Expiration Date or the Termination Date, whichever is earlier.  This Agreement is effective September 1, 2009 and continues until the payments under this Agreement have been made and the obligations have been discharged or fulfilled.  For clarity: CEO’s employment terminates on the Expiration Date or the Termination Date, whichever is earlier; the compensation provisions under Section 3(a) through Section 3(e) terminate when the compensation has been paid; CEO’s rights to exercise phantom units and purchase phantom units under Section 3(f) continue for 18 months after the Expiration Date or Termination Date, whichever is earlier, and if not exercised or purchased by that time, those rights are then terminated; Section 5 continues until the payments under that section have been made which include payments under Section 5(b) continuing for 18 months after termination of CEO’s employment with USPB; Section 6(a) continues until 18 months after termination of CEO’s employment with USPB; Sections 6(b) through Section 6(e), Section 7 and Section 8 survive termination of this Agreement.

2.          Location of Employment.   CEO’s principal place of employment shall be at the principal offices of USPB located in Kansas City, Missouri, or at another location as mutually agreed by USPB and CEO.

3.          Compensation.   CEO shall be paid compensation for services as provided in this Section 3.  All compensation paid under this Agreement will be paid to CEO less necessary deductions and withholdings.

SIGNATURE COPY

June 15, 2009

(a)          Annual Salary.   CEO shall be paid by USPB a base annual salary of $775,000 for employment years September 1, 2009 through August 28, 2010 (“YR 2010”), August 29, 2010 through August 27, 2011(“YR 2011”), and August 28, 2011 through August 25, 2012 (“YR 2012”); and $825,000 for employment years August 26, 2012 through August 31, 2013 (“YR 2013”), September 1, 2013 through August 30, 2014 (“YR 2014”), and August 31, 2014 through August 29, 2015 (“YR 2015”) during the term of CEO’s employment under this Agreement, pro-rated for partial years, payable on USPB’s normal payroll dates.

(b)          Incentive Cap.   The compensation provided in Sections 3(c) (Annual Incentive), 3(d) (Long-Term Incentive), and 3(e) (Full-Term Incentive), and including any incentive compensation under Section 5 (Compensation Upon Termination) as it pertains to incentive compensation, specifically Section 5(a), clauses (2), (3), and (4) and Section 5 (c), clauses (3), (4), and (5); shall be subject to a cumulative annual cap (referred to as “Incentive Cap”) pro-rated over the term of this Agreement not to exceed $2,000,000 per year averaged over the term (whether the term extends to the Expiration Date or through an earlier Termination Date),  provided, however, that for purposes of Section 5(c) (Termination By USPB For Other Than Cause, Death or Disability or By CEO For Good Reason), the proration term shall extend through the Expiration Date.  For example, other than an earlier termination under Section 5(c), if this Agreement is earlier terminated after four (4) years the Incentive Cap would be $2,000,000 per year averaged over four (4) years or $8,000,000).  An example of the incentive compensation under Sections 3(c), 3(d), and 3(e) is provided on Exhibit A.  For employment years YR 2010, YR 2011, YR 2013 and YR 2014 the Incentive Cap for those years will be $2,000,000.  For YR 2012, any incentive compensation that exceeded the Incentive Cap in the prior two years and the incentive compensation for the year ending YR 2012 will be paid to CEO providing the amount does not exceed the Incentive Cap of $2,000,000 per year averaged over the first three years of YR 2010, YR 2011, and YR 2012.  For the year YR 2015, any incentive compensation that exceeded the Incentive Cap in prior years plus the incentive compensation for the year YR 2015 shall be paid to CEO subject to an Incentive Cap of $2,000,000 per year averaged over the six years of the term, YR 2010, YR 2011, YR 2012, YR 2013, YR 2014, and YR 2015.

(c)           Annual Incentive Plan. In addition to CEO’s base Annual Salary, if CEO is employed by USPB on the last day of any employment year (except as otherwise provided in this Agreement), CEO shall be paid an annual incentive compensation, (“Annual Incentive”) equal to two percent (2.0%) of the sum of the total financial benefits to USPB (“USPB Total Benefits”) that exceed $25,000,000.  USPB Total Benefits are: (1) audited fiscal year-end USPB earnings before tax; and (2) two times the fiscal year USPB grid premiums which is the net sum of all USPB member grid premiums and discounts calculated through all USPB grids at all plants, taking into account all calculators including, but not limited to, base price, dressing percent, quality grade, outlier cattle, A/V, Natural, per head category premiums, and other specific categories, less the base price calculator excluding any set base price premium.  (Example, if 25 cents per cwt. is paid to a member for one head of cattle over the western Kansas reported USDA average, then 25 cents per cwt. times the weight of the head of cattle would be added to the net grid premium.)  This calculation shall be based on the actual cattle delivered by USPB members to National Beef Packing Company, LLC or its successor under the Cattle Purchase and Sale Agreement unless one of the following two events occur:  (1) the member cattle delivery requirements are reduced below the fiscal year requirements of 98% delivery; or (2) the penalties for nondelivery are reduced below fiscal year 2009 levels.  If either member delivery requirements are reduced below 98% or the penalties for nondelivery are reduced below the fiscal year 2009 levels, then the fiscal year grid premiums under clause (2) above shall be adjusted to reflect the grid premium per head of cattle actually delivered multiplied times the number of USPB delivery rights held by members.  In no event shall the nondelivery penalties paid by members be included in the net sum of all USPB member grid premiums under clause (2) above.  The Annual Incentive is subject to the following:

(1)               Any Annual Incentive accruing with respect to an employment year shall be payable, on or before the date (the “Annual Incentive Payment Date”) that is sixty (60) days following the end of the employment year or, if later, ten (10) days following receipt by the USPB Board of Directors, of all completed financial statements that are relevant to the calculation of the Annual Incentive, but in no event later than March 15th of the calendar year first occurring after the end of the employment year to which the Annual Incentive relates.

(2)               For purposes of calculating any Annual Incentive under this Section 3(c), or any Long-Term Incentive under Section 3(d), USPB’s Total Benefits shall be determined by USPB’s accountants using generally accepted accounting principles consistently applied to the fiscal year.

(d)        Long-Term Incentive Plan.  In addition to CEO’s base Annual Salary and Annual Incentive, CEO shall, (except as otherwise provided in this Agreement), if CEO is employed by USPB through the end of YR 2012, be paid long-term incentive compensation calculated as described in clause (1) below, and if CEO is employed by USPB as of the end of YR 2015 be paid an additional long-term incentive compensation, calculated as described in clause (2) below (in both cases referred to as “Long-Term Incentive”):

(1)               the Long-Term Incentive to be paid as a result of CEO’s employment on August 25, 2012 shall be equal to one and one-quarter percent (1.25%) of the amount by which USPB’s Total Benefits from YR 2010, YR 2011, and YR 2012, exceed $100,000,000 but are equal to or less than $130,000,000; plus seventy-five one hundredths of a percent (0.75%) of the amount by which USPB’s Total Benefits from YR 2010, YR 2011, and YR 2012 exceed $130,000,000, subject to clause (3) below; and

(2)               the Long-Term Incentive to be paid as a result of CEO’s employment on August 29, 2015 shall be equal to one and one-quarter percent (1.25%) of the amount by which USPB’s Total Benefits from YR 2013, YR 2014, and YR 2015, exceed $100,000,000 but are equal to or less than $130,000,000; plus seventy-five one hundredths of a percent (0.75%) of the amount by which USPB’s Total Benefits from YR 2013, YR 2014, and YR 2015 exceed $130,000,000, subject to clause (3) below; and

(3)               any Long-Term Incentive accruing under this Agreement shall be payable, on or before the date (“Long-Term Incentive Payment Date”) that is sixty (60) days following the last day of YR 2012 or YR 2015, respectively, or, if later, ten (10) days following receipt by USPB’s Board of Directors, of all completed financial statements that are relevant to the calculation of the applicable Long-Term Incentive, but in no event later than March 15th of the calendar year first occurring after the end of the respective employment year.

(e)           Full-Term Incentive Plan.  In addition to any other payments paid under this agreement, CEO shall be paid full-term incentive compensation (“Full-Term Incentive”) in the amount of $775,000 if CEO is employed under this Agreement through the end of YR 2012, and additionally, $825,000 if CEO is employed under this Agreement through the end of YR 2015, except as otherwise provided in this Agreement.  Any Full-Term Incentive accruing under this Agreement shall be payable, on or before the date that is sixty (60) days following the last day of YR 2012 or YR 2015, respectively, or if agreed to by CEO, a later date coinciding with payments under Section 3(c) (Annual Incentive) or Section 3(d) (Long-Term Incentive) for employment through the end of YR 2012, and employment through the end of YR 2015, but in no event later than March 15 of the calendar year first occurring after the end of the respective employment year.

(f)          Phantom Units Plan.   Effective as of the date of this Agreement, CEO is granted phantom unit rights to phantom Class A Units of USPB with an exercise price or purchase price of $55 per unit subject to reduction under clause (4) below, and phantom Class B Units of USPB with an exercise price or purchase price of $0 (the $55 per Class A Unit and $0 per Class B Unit referred to as the “Exercise Price” or “Unit Purchase Price”) as provided in this paragraph (f).  CEO has 20,000 phantom Class A Units minus any phantom Class A Units purchased or exercised prior to September 1, 2009, and 20,000 phantom Class B Units minus any phantom Class B Units exercised or purchased prior to September 1, 2009.  The phantom Class A Units granted under this Agreement less (any prior exercised or purchased phantom Class A Units and) any Class A Units exercised or purchased under this Agreement are the “Available Phantom Class A Units.”  The phantom Class B Units granted under this Agreement less (any prior exercised or purchase of Class B Units and) any Class B Units exercised or purchased under this Agreement are the “Available Class B Units.”  The rights of exercise and purchase of the phantom unit rights are:

(1)               Appreciation Rights.   CEO shall exercise the phantom units by written notice of the Chair of the Board of Directors of USPB.  Upon exercise of the 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 and the Available Phantom Class B 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 and/or Class B 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 and/or Class B Units occurring immediately prior to the CEO’s notice of exercise. 

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 number of exercised phantom Class A Units and phantom Class B Units are not equal and/or 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; and the Market Unit Price for phantom Class B 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 B Units at the time of exercise.

If the CEO is exercising an unequal number of phantom Class A Units and phantom Class B Units, whether only phantom Class A Units, only phantom Class B Units, or an unequal combination, and 20,000 separate Class A Units or Class B 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 Unit or Class B Unit 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 unit rights at CEO’s election, at the time and under the conditions, and with the same consequences as if CEO held similar unqualified options to purchase USPB Class A or Class B Units acquired at the same time as the phantom unit rights.  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)               Asset Sale Distribution Rights.   Should USPB liquidate some or all of USPB’s assets and distribute the proceeds to unitholders, CEO shall be paid an amount equal to the distribution to unitholders of Class A or Class B Units on a per unit basis for the number of CEO’s Available Phantom Class A Units and Available Phantom Class B Units without any deduction.  Of the distributions to Class A Unitholders, the first $55 per Class A Unit of such cumulative distributions shall not be paid to CEO per Available Phantom Class A Unit and cumulative distributions in excess of $55 per Class A Unit shall be paid to CEO without deduction.  The Exercise Price of phantom Class A Units under this Section 3(f) shall be reduced by the distributions to Class A Unitholders up to the cumulative first $55 per Class A Unit.  The amount under this clause (4) shall be paid at the time distributions are made to the unitholders.  If USPB Class A or Class B Units are redeemed as part of the distribution, the corresponding proportional number of Available Phantom Class A Units or Available Phantom Class B Units shall be deemed to be exercised as part of the distribution.

(5)               Ownership Interest Distribution Rights.   If USPB distributes ownership rights of another entity to its unitholders, CEO shall be granted phantom ownership rights in proportion to the Available Phantom Class A Units and Available Phantom Class B Units held by CEO to the total issued units or, at the election of CEO, actual ownership rights corresponding to the phantom units as if the Available Phantom Class A Units are Available Phantom Class B Units were purchased by CEO under clause (6) and were issued to CEO prior to the time of ownership right distribution.  If USPB units are redeemed as part of the distribution, the corresponding amount of Available Phantom Class A Units and Available Phantom Class B Units shall be deemed to be exercised as part of the distribution.

(6)               Purchase Rights.   Effective as of termination of this Agreement until 18 months after termination of this Agreement, or within 10 days prior to an event that is a liquidation or an event under which liquidation distributions would be made by USPB to Class A Unitholders, and at the election of CEO; or, upon mutual agreement of CEO and USPB; CEO may purchase the number of USPB Class A Units at the Unit Purchase Price corresponding to the Available Phantom Class A Units held by CEO.  At the election of CEO, CEO may purchase the number of USPB Class B Units at the Unit Purchase Price corresponding to the Available Phantom Class B Units held by CEO.  USPB shall pay the costs of appraisal of USPB Class A Units and USPB Class B Units, if CEO purchases all Available Phantom Class A Units or all Available Phantom Class B Units.  Upon purchase, USPB will grant CEO the same rights, privileges, allocations, distributions, l