-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EMmLBRJCsTFgQm3BQOnvX1WRxaTL0GAq505Wrm0rTp4u4Yd4k3EnHXQ5J6blWikR /MmuxB9lY0ryLIC/OFrNWw== 0000088121-05-000013.txt : 20050811 0000088121-05-000013.hdr.sgml : 20050811 20050811161325 ACCESSION NUMBER: 0000088121-05-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20050702 FILED AS OF DATE: 20050811 DATE AS OF CHANGE: 20050811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEABOARD CORP /DE/ CENTRAL INDEX KEY: 0000088121 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 042260388 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03390 FILM NUMBER: 051017310 BUSINESS ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 BUSINESS PHONE: 9136768800 MAIL ADDRESS: STREET 1: 9000 W. 67TH STREET CITY: SHAWNEE MISSION STATE: KS ZIP: 66202 FORMER COMPANY: FORMER CONFORMED NAME: SEABOARD ALLIED MILLING CORP DATE OF NAME CHANGE: 19820328 FORMER COMPANY: FORMER CONFORMED NAME: HATHAWAY BAKERIES INC DATE OF NAME CHANGE: 19710315 10-Q 1 q10-2q.txt SEABOARD CORPORATION 2005 2ND QTR 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) { X } QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2005 OR { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-3390 Seaboard Corporation (Exact name of registrant as specified in its charter) Delaware 04-2260388 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 9000 W. 67th Street, Shawnee Mission, Kansas 66202 (Address of principal executive offices) (Zip Code) (913) 676-8800 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes X . No . There were 1,255,053.90 shares of common stock, $1.00 par value per share, outstanding on July 25, 2005. Total pages in filing - 22 pages PART I - FINANCIAL INFORMATION Item 1. Financial Statements SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Thousands of dollars) (Unaudited) July 2, December 31, 2005 2004 Assets Current assets: Cash and cash equivalents $ 46,559 $ 14,620 Short-term investments 238,562 119,259 Receivables, net 241,684 246,129 Inventories 264,491 301,049 Deferred income taxes 15,382 14,341 Other current assets 46,506 48,040 Total current assets 853,184 743,438 Investments in and advances to foreign affiliates 36,004 38,001 Net property, plant and equipment 605,132 603,382 Other assets 42,968 51,873 Total assets $1,537,288 $1,436,694 Liabilities and Stockholders' Equity Current liabilities: Notes payable to banks $ 1,385 $ 1,789 Current maturities of long-term debt 60,932 60,756 Accounts payable 90,053 83,506 Other current liabilities 153,089 162,855 Total current liabilities 305,459 308,906 Long-term debt, less current maturities 232,205 262,544 Deferred income taxes 125,105 125,559 Other liabilities 47,698 44,865 Total non-current and deferred liabilities 405,008 432,968 Minority and other noncontrolling interests 2,225 2,138 Stockholders' equity: Common stock of $1 par value, Authorized 4,000,000 shares; issued and outstanding 1,255,054 shares 1,255 1,255 Accumulated other comprehensive loss (51,205) (53,741) Retained earnings 874,546 745,168 Total stockholders' equity 824,596 692,682 Total liabilities and stockholders' equity $1,537,288 $1,436,694 See notes to condensed consolidated financial statements. 1 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Thousands of dollars except per share amounts) (Unaudited) Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, 2005 2004 2005 2004 Net sales: Products $ 547,689 $ 562,688 $1,090,952 $1,040,755 Services 168,475 134,022 323,756 256,103 Other 20,798 15,597 35,581 31,124 Total net sales 736,962 712,307 1,450,289 1,327,982 Cost of sales and operating expenses: Products 475,454 511,147 929,861 943,608 Services 130,697 102,042 248,072 200,405 Other 16,311 11,978 29,295 23,257 Total cost of sales and operating expenses 622,462 625,167 1,207,228 1,167,270 Gross income 114,500 87,140 243,061 160,712 Selling, general and administrative expenses 32,352 31,613 63,833 62,423 Operating income 82,148 55,527 179,228 98,289 Other income (expense): Interest expense (5,611) (6,679) (11,604) (14,418) Interest income 2,752 1,810 6,256 3,565 Loss from foreign affiliates (1,223) (94) (1,744) (231) Minority and other noncontrolling interests (40) (312) (472) (394) Foreign currency gain (loss), net (623) 157 59 (1,504) Loss from the sale of a portion of operations (1,773) - (1,773) - Miscellaneous, net (2,701) 533 306 2,873 Total other income (expense), net (9,219) (4,585) (8,972) (10,109) Earnings before income taxes 72,929 50,942 170,256 88,180 Income tax expense (10,345) (16,686) (38,995) (26,547) Net earnings $ 62,584 $ 34,256 $ 131,261 $ 61,633 Earnings per common share $ 49.87 $ 27.29 $ 104.59 $ 49.11 Dividends declared per common share $ 0.75 $ 0.75 $ 1.50 $ 1.50 Average number of shares outstanding 1,255,054 1,255,054 1,255,054 1,255,054 See notes to condensed consolidated financial statements. 2 SEABOARD CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Thousands of dollars) (Unaudited) Six Months Ended July 2, July 3, 2005 2004 Cash flows from operating activities: Net earnings $ 131,261 $ 61,633 Adjustments to reconcile net earnings to cash from operating activities: Depreciation and amortization 30,943 32,619 Loss from foreign affiliates 1,744 231 Foreign currency exchange gains (29) (221) Loss from the sale of a portion of operations 1,773 - Deferred income taxes (2,101) 20,672 Changes in current assets and liabilities, net of portion of operations sold: Receivables, net of allowance 7,525 (41,408) Inventories 16,420 (11,433) Other current assets (2,447) (7,257) Current liabilities exclusive of debt 186 28,177 Other, net 2,165 514 Net cash from operating activities 187,440 83,527 Cash flows from investing activities: Purchase of short-term investments (381,475) (46,257) Proceeds from the sale or maturity of short-term investments 262,172 65,899 Investments in and advances to foreign affiliates, net 1,590 1,342 Proceeds from the sale of a portion of operations 23,633 - Capital expenditures (33,082) (12,425) Other, net 4,346 2,249 Net cash from investing activities (122,816) 10,808 Cash flows from financing activities: Notes payable to banks, net (404) (74,404) Principal payments of long-term debt (30,084) (30,443) Repurchase of minority interest in a controlled subsidiary - (5,000) Dividends paid (1,883) (1,883) Other, net (436) 1,063 Net cash from financing activities (32,807) (110,667) Effect of exchange rate change on cash 122 1,363 Net change in cash and cash equivalents 31,939 (14,969) Cash and cash equivalents at beginning of year 14,620 37,377 Cash and cash equivalents at end of period $ 46,559 $ 22,408 See notes to condensed consolidated financial statements. 3 SEABOARD CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Accounting Policies and Basis of Presentation The condensed consolidated financial statements include the accounts of Seaboard Corporation and its domestic and foreign subsidiaries ("Seaboard"). All significant intercompany balances and transactions have been eliminated in consolidation. Seaboard's investments in non- controlled affiliates are accounted for by the equity method. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of Seaboard for the year ended December 31, 2004 as filed in its Annual Report on Form 10-K. Seaboard's first three quarterly periods include approximately 13 weekly periods ending on the Saturday closest to the end of March, June and September. Seaboard's year-end is December 31. The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. Derivative Instruments As of January 1, 2005, Seaboard discontinued accounting for its foreign currency exchange agreements as hedges for all new agreements entered into by the commodity trading business. In addition, as of January 1, 2005, Seaboard de-designated all then outstanding hedges with a value of $5,558,000, effectively fixing the asset resulting from the mark-to-market gain on the firm sales commitment recorded in other current assets on the Consolidated Balance Sheets as of December 31, 2004, until such time as the firm sales commitments mature. Beginning January 1, 2005, the mark-to-market changes in the foreign exchange agreements were no longer offset with the mark-to-market changes of the underlying firm sales commitment. While $1,249,000 and $4,191,000 of the related sales were consummated during the three and six months ended July 2, 2005, respectively, $1,317,000 of the firm sales commitments were also sold as part of the sale of a portion of the third party trading operations as discussed in Note 2. The remaining net asset value as of July 2, 2005 related to those retained open firm sales commitments totaled $50,000. Although management believes all of these instruments effectively manage market risks, the growth of Seaboard's commodity trading business increased the ongoing costs to maintain the extensive record-keeping requirements to qualify these instruments as hedges for accounting purposes. Seaboard's interest rate exchange agreements do not qualify as hedges for accounting purposes. During the three and six months ended July 2, 2005 Seaboard recorded losses of $4,365,000 and $1,387,000, respectively, related to these agreements compared to gains of $2,899,000 and $156,000 during the same periods of 2004. The gains and losses are included in miscellaneous, net on the Condensed Consolidated Statements of Earnings and reflect changes in fair market value, net of interest paid or received. During the 2005 three and six month periods, Seaboard made net payments of $733,000 and $2,422,000 respectively, compared to payments made of $1,055,000 and $3,267,000 during the same periods of 2004 resulting from the difference between the fixed rate paid and variable rate received on these agreements. The nature of Seaboard's market risk exposure related to its derivative instruments has not changed materially since December 31, 2004 although the amount of commodity futures and option contracts and foreign exchange contracts decreased considerably with the sale of a portion of the third party trading operations as discussed in Note 2. Asset Retirement Obligations Seaboard has recorded a long-lived asset and related liability for asset retirement obligation costs associated with the closure of the hog lagoons it is legally obligated to close. The following table shows the changes in the asset retirement obligation during the three and six month periods of each year. Three Months Ended Six Months Ended Thousands of dollars July 2, 2005 July 3, 2004 July 2, 2005 July 3, 2004 Beginning balance $6,382 $6,333 $6,266 $6,086 Accretion expense 116 116 232 229 Liability for additional lagoons placed in service - - - 134 Ending balance $6,498 $6,449 $6,498 $6,449 4 New Accounting Standards On December 21, 2004, the FASB issued FASB Staff Position 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" (FSP 109-2). FSP 109-2, which was effective upon issuance, allows companies time beyond the financial reporting period of enactment to evaluate the effect of the earnings repatriation provision on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. Additionally, FSP 109-2 provides guidance regarding the required disclosures surrounding a company's reinvestment or repatriation of foreign earnings. See Note 4 for further discussion. Note 2 - Acquisitions, Dispositions and Repurchase of Minority Interest Effective May 9, 2005 Seaboard's Commodity Trading and Milling segment agreed to sell some components of its third party commodity trading operations, consisting primarily of certain forward sales contracts, certain grain inventory and all related contracts to support such sales contracts, including commodity futures and options, foreign exchange agreements, purchase contracts and charter agreements for $23,633,000, subject to final adjustments. This transaction closed on May 27, 2005. As a result of the sale, Seaboard intends to focus on the supply of raw materials to its core milling operations and the transaction of third party commodity trades in support of these operations. In addition, Seaboard intends to continue competing in many of the markets and routes associated with the sale transaction, although at a much reduced level. The counterparty to this transaction is a South African multi-national shipping company, Grindrod Limited. Since Seaboard does not use hedge accounting for its commodity and foreign exchange derivative instruments, these derivative instruments were marked to market through the effective date of the sale while the change in value of the related commodity forward purchase and sale agreements were not. As a result, derivative gains relating to derivative instruments sold totaling $2,161,000 were included in operating income prior to the sale of a portion of the operations resulting in a loss on the sale transaction totaling $1,773,000, subject to final adjustments. Seaboard's revenues from the portion of the operations sold for the three and six months ended July 2, 2005 totaled approximately $162,787,000 and $317,291,000, respectively, compared to $168,465,000 and $311,952,000 for the three and six months ended July 3, 2004, respectively. Since Seaboard has conducted its commodity trading business with third parties, its consolidated subsidiaries, and foreign affiliates on an interrelated basis and intends to continue trading with third parties in certain markets, operating income from the business sold cannot be clearly distinguished from the remaining operations of Seaboard's Commodity Trading and Milling segment without making numerous subjective assumptions primarily with respect to mark- to-market accounting. For the three and six months ended July 2, 2005, this transaction did not have a material effect on net sales, net earnings or earnings per common share as transactions in process at the date of sale were completed by and the responsibility of Seaboard after the date of sale. Net sales for the Commodity Trading and Milling segment for the second half of 2005 will decrease significantly as a result of this transaction; however, the extent of the decrease beyond 2005 will depend on the ability to effectively compete in the markets. In connection with the December 2001 sale of a 10% minority interest in one of the two power barges in the Dominican Republic, the buyer was given a three-year option to sell the interest back to Seaboard for the book value at the time of sale, pending collections of outstanding receivables. During January 2004, the buyer provided notice to exercise the option valued at $5,709,000. An initial payment of $5,000,000 was paid during the second quarter of 2004 to reacquire this interest with the remaining balance payable upon collection of the remaining outstanding receivables. In addition, Seaboard has historically paid commissions to a related entity of the above party relative to the performance of the other power barge. During the second quarter of 2004 Seaboard agreed to terminate that relationship by making a one-time payment of $2,000,000, included in selling, general and administrative expenses. 5 Subsequent to the end of the second quarter, on July 5, 2005, Seaboard completed the acquisition effective July 3, 2005 of Daily's, a bacon processor located in the western United States, for approximately $45 million in cash, subject to final adjustments related to working capital, a 4.74% equity interest in Seaboard Foods LLC (previously Seaboard Farms, Inc.) with a preliminary estimated value of approximately $45 million and a put option estimated to have a fair value of approximately $6.7 million, as discussed below. The acquisition includes Daily's two bacon processing plants located in Salt Lake City, Utah and Missoula, Montana. Daily's produces premium sliced and pre-cooked bacon primarily for food service. This acquisition continues Seaboard's expansion of its integrated pork model into value-added products and is expected to enhance Seaboard's ability to venture into other processed pork products. The Sellers have an option to put their 4.74% equity interest back to Seaboard after two years for the greater of $40 million or a formula determined value, as defined, as of the put date. The minimum put option value of $40 million expires after five years. Likewise, Seaboard has a call provision after five years of operations whereby Seaboard could reacquire the 4.74% equity interest for the greater of $45 million or a formula determined value. The percentage ownership interest issued to the Sellers was based on an earnings multiple of the business which approximates fair value. Seaboard is in the process of finalizing its estimates of working capital acquired and obtaining third-party valuations of the real estate and certain intangible assets acquired; accordingly the purchase price allocation may be revised when final information is received from the appraisers. The following table summarizes the preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the effective acquisition date of July 3, 2005. (Thousands of dollars) July 3, 2005 Net working capital $ 6,700,000 Net property, plant and equipment 27,800,000 Intangible assets 30,800,000 Goodwill 31,400,000 Estimated Purchase Price $96,700,000 The intangible assets acquired include approximately $24.0 million of trade names and registered trademarks which are not subject to amortization. The remaining intangible asset balance consists primarily of contractual and direct customer relationships, and covenants not to compete and will be amortized over five to six years. Note 3 - Inventories The following is a summary of inventories at July 2, 2005 and December 31, 2004: July 2, December 31, (Thousands of dollars) 2005 2004 At lower of LIFO cost or market: Live hogs & materials $142,266 $141,126 Dressed pork & materials 16,541 20,334 158,807 161,460 LIFO allowance 1,597 461 Total inventories at lower of LIFO cost or market 160,404 161,921 At lower of FIFO cost or market: Grain, flour and feed 58,944 98,699 Sugar produced & in process 18,875 20,006 Other 26,268 20,423 Total inventories at lower of FIFO cost or market 104,087 139,128 Total inventories $264,491 $301,049 6 Note 4 - Income Taxes During the fourth quarter of 2004, President Bush signed into law H.R. 4520, the American Jobs Creation Act ("Act"). The Act is a significant and complicated reform of U.S. income tax law. Management is currently reviewing the new law to determine the impact on Seaboard. The Act contains several provisions which will be favorable for Seaboard. Of particular note, the Act repealed the prior law treatment of shipping income as a component of subpart F income. This change allows Seaboard to avoid current U.S. taxation on its post-2004 shipping income and has a material impact on Seaboard's 2005 and future effective tax rate and cash tax payments. Originally there was ambiguity with the application of Treasury Department Regulations resulting in Seaboard accruing $7,490,000 of tax expense on shipping income in the first quarter of 2005. Ambiguity with this portion of the Act was favorably resolved by a Notice from the Treasury Department subsequent to July 2, 2005. Accordingly, Seaboard reversed the previously accrued $7,490,000 as a reduction of income tax expense in the second quarter of 2005. The Act would also allow Seaboard a one-time election to repatriate permanently invested foreign earnings at a 5.25% effective U.S. income tax rate rather than the statutory 35% rate, if certain domestic reinvestment requirements are met. Management is currently evaluating this provision of the Act and expects to complete its evaluation in the fourth quarter of 2005. Factors in Seaboard's decision to utilize this provision include its ability to economically borrow at the foreign subsidiary level to allow for the payment of a qualifying dividend, the recent disposition of a portion of the third party commodity trading operations discussed in Note 2 above, and Seaboard's planned domestic and international cash needs. Because Seaboard's borrowing capacity at this level is unknown, the range of potential dividend amounts and corresponding taxes cannot be reasonably estimated at this time. As of July 2, 2005, no provision has been made in the accounts for Federal income taxes which would be payable if the undistributed earnings of certain foreign subsidiaries were distributed to Seaboard Corporation since management has currently determined that the earnings are permanently invested in these foreign operations. Should such accumulated earnings be distributed, ignoring the one-time election to repatriate foreign earnings at a reduced rate, the resulting Federal income taxes applicable to earnings through July 2, 2005 assuming a 35% federal income tax rate would have amounted to approximately $85,000,000. Seaboard is regularly audited by federal, state and foreign tax authorities, which may result in adjustments. Among current audits, the IRS is examining Seaboard's federal income tax returns for 2000 through 2002 and is evaluating certain of Seaboard's tax positions for the years under examination. Management believes that its tax positions comply with applicable tax law and that it has adequately provided for any reasonably foreseeable outcome of the matters. Accordingly, Seaboard does not anticipate any material negative earnings impact from their ultimate resolution. If a favorable outcome is reached, Seaboard will record the earnings impact at the time of resolution. Note 5 - Employee Benefits Seaboard maintains a defined benefit pension plan (the Plan) for its domestic salaried and clerical employees. While Seaboard's policy has historically been to provide funding to the Plan in order to meet the minimum funding standards to avoid the Pension Benefit Guaranty Corporation variable rate premiums established by the Employee Retirement Income Security Act of 1974, Seaboard made a special contribution equal to the maximum deductible amount in the fourth quarter of 2004 resulting in an over-funding of the Plan. As a result, management does not expect to make any contributions to the Plan during 2005. Additionally, Seaboard also sponsors non-qualified, unfunded supplemental executive plans, and unfunded supplemental retirement agreements with certain executive employees. Management currently has no plans to provide funding for these supplemental plans. The net periodic benefit cost of these plans was as follows: Three months ended Six months ended (Thousands of dollars) July 2, 2005 July 3, 2004 July 2, 2005 July3, 2004 Components of net periodic benefit cost: Service cost $ 952 $ 742 $ 1,858 $ 1,614 Interest cost 1,097 881 2,204 1,855 Expected return on plan assets (1,129) (775) (2,264) (1,567) Amortization and other 293 182 590 395 Net periodic benefit cost $ 1,213 $1,030 $ 2,388 $ 2,297 7 Note 6 - Commitments and Contingencies Seaboard reached an agreement in 2002 to settle litigation brought by the Sierra Club. Under the terms of the settlement, Seaboard conducted an investigation at three farms. Based on the investigation, it has been determined that two farms do not require any corrective action. The investigation is ongoing at the remaining farm, and Seaboard will potentially be required to take remedial actions at the farm if conditions so warrant. The costs of conducting the monitoring and the investigation are not material. Seaboard is subject to regulatory actions and an investigation by the United States Environmental Protection Agency (EPA) and the State of Oklahoma. One such action involves five properties utilized in Seaboard's hog production operations which were purchased from PIC International Group, Inc. (PIC). Seaboard has undertaken an extensive investigation, and has had significant discussions with the EPA and the State of Oklahoma, proposing to undertake continued monitoring and take a number of corrective actions with respect to the farms, and one additional farm, in order to attempt to settle the action. EPA, Seaboard and PIC have also engaged in settlement negotiations regarding civil penalty. Originally, EPA stated that any settlement must include a civil fine of $1,200,000, but EPA has since reduced the amount of its demand for a civil penalty to $345,000. Seaboard believes that the EPA has no authority to impose a civil fine, but settlement discussions are continuing. If the matter is not settled, the EPA could bring an action against Seaboard, although Seaboard believes it has meritorious defenses to any such action, or the EPA could determine to take no further action. A tentative verbal settlement has been reached with the State of Oklahoma to resolve the State's notice of violation regarding the same farms and allegations of violations of State law based on the same facts as those alleged by EPA. The settlement with the State of Oklahoma would require Seaboard to pay a fine of $100,000 and to undertake agreed upon supplemental environmental projects at a cost of $80,000. The settlement is subject to the final terms of the settlement being agreed to and the approval of the Oklahoma Board of Agriculture. Irrespective of the settlement, Seaboard intends to proceed with its proposed corrective actions with respect to the farms. PIC is indemnifying Seaboard with respect to the action pursuant to an indemnification agreement which has a $5 million limit. To date, the $5 million limit has not been exceeded. If the tentative settlement with the State of Oklahoma is agreed to, the estimated cumulative costs which will be expended will total approximately $6.9 million, not including the additional legal costs required to negotiate the settlement or the penalties demanded by EPA and tentatively agreed to with the State of Oklahoma. If the measures taken pursuant to the settlement are not effective, other measures with additional costs may be required. PIC has advised Seaboard that it is not responsible for the costs in excess of $5 million. Seaboard disputes PIC's determination of the costs to be included in the calculation to determine whether the $5 million limit will be exceeded and believes that the costs to be considered are less than $5 million, such that PIC is responsible for all such costs and penalties, except for approximately $180,000 of estimated costs that would be incurred over 5 years subsequent to the settlement for certain testing and sampling. Seaboard has agreed to conduct such testing and sampling as a part of the sampling it conducts in the normal course of operations and believes that the incremental costs incurred to conduct such testing and sampling will be less than $180,000. Seaboard also believes that a more general indemnity agreement would require indemnification of liability in excess of $5 million (excluding the estimated $180,000 cost for testing and sampling), although PIC disputes this. Seaboard is subject to various other legal proceedings related to the normal conduct of its business, including various environmental related actions. In the opinion of management, none of these actions is expected to result in a judgment having a materially adverse effect on the consolidated financial statements. From time to time bills have been introduced in the United States Senate and House of Representatives which included provisions to prohibit meat packers, such as Seaboard, from owning or controlling livestock intended for slaughter. Such bills could have prohibited Seaboard from owning or controlling hogs, and thus would have required divestiture of our operations, or otherwise a restructuring of the ownership and operation. In April of 2005, such a bill was again introduced in the Senate, although Seaboard does not expect any such action to be passed in 2005. Contingent Obligations Certain of the non-consolidated affiliates and third party contractors who perform services for Seaboard have bank debt supporting their underlying operations. From time to time, Seaboard will provide guarantees of that debt allowing a lower borrowing rate or facilitating third party financing in order to further Seaboard's business objectives. Seaboard does not issue guarantees of third parties for compensation. The following table sets forth the terms of guarantees as of July 2, 2005. 8 Guarantee beneficiary Maximum exposure Maturity Foreign non-consolidated affiliate grain $ 712,000 Annual renewal processor - Uganda Foreign non-consolidated affiliate food $ 400,000 August 2005 product distributor - Ecuador Various hog contract growers $1,529,000 Annual renewal Seaboard guaranteed a bank borrowing for a subsidiary of a foreign affiliate grain processor in Kenya, Unga Holdings Limited (Unga), a nonconsolidated milling affiliate, to facilitate bank financing used for the rehabilitation and expansion of a milling facility in Uganda. This guarantee was a part of the original purchase agreement with Unga when Seaboard first invested in this company in 2000. The guarantee can be drawn upon in the event of non-payment of a bank borrowing by Unga. While the guarantee may be cancelled by Seaboard annually, the bank has the right to draw on the guarantee in the event it is advised that the guarantee will be cancelled. The guarantee renews annually until the debt expires in 2007. Unga Holdings has provided a reciprocal guarantee to Seaboard. As of July 2, 2005, $688,000 of borrowings was outstanding related to this guarantee. The non-consolidated affiliate food product distributor in Ecuador purchases certain products from a U.S. domiciled vendor. Seaboard has guaranteed the payments for these purchases in order to secure normal credit terms for this affiliate. Seaboard has guaranteed a portion of the bank debt for certain farmers, which debt proceeds were used to construct facilities to raise hogs for Seaboard's Pork segment. The guarantees enabled the farmers to obtain favorable financing terms. These bank guarantees renew annually until the underlying debt is fully repaid in 2013-2014. The maximum exposure to Seaboard from these guarantees is $1,529,000. Seaboard has not accrued a liability for any of the third party or affiliate guarantees as management considered the likelihood of loss to be remote. As of July 2, 2005, Seaboard had outstanding $52,900,000 of letters of credit (LCs) with various banks that reduced Seaboard's borrowing capacity under its committed credit facility. Included in this amount are LCs totaling $42,688,000 which support the Industrial Development Revenue Bonds included as long-term debt and $9,458,000 of LCs related to insurances coverages. Note 7 - Stockholders' Equity and Accumulated Other Comprehensive Income (Loss) In conjunction with a 2002 transaction (the Transaction) between Seaboard and its parent company, Seaboard Flour LLC (the Parent Company), whereby Seaboard effectively repurchased shares of its common stock owned by the Parent Company in return for repayment of all indebtedness owed by the Parent Company to Seaboard, the Parent Company also transferred to Seaboard rights to receive possible future cash payments from a subsidiary of the Parent Company and the benefit of other assets owned by that subsidiary. Seaboard also received tax net operating losses ("NOLs") which may allow Seaboard to reduce the amount of future income taxes it otherwise would pay. To the extent Seaboard receives cash payments in the future as a result of the transferred rights or reduces its federal income taxes payable by utilizing the NOLs, Seaboard will issue to the Parent Company new shares of common stock with a value equal to the cash received and/or the NOL utilized. For these purposes, the value of the common stock issued will be equal to the ten day rolling average closing price, determined as of the twentieth day prior to the issue date. The maximum number of shares of common stock which may be issued to the Parent Company under the Transaction is capped at 232,414.85, the number of shares which were originally purchased from the Parent Company. As of July 2, 2005, Seaboard had not received any cash payments from the subsidiary of its Parent Company and had not filed a tax return utilizing any NOLs. The right to receive such payments expires September 17, 2007. If on September 17, 2007 there are remaining NOLs that have not been used, then Seaboard is to issue shares based on the present value of such NOLs projected to be used in the future. 9 As noted above, Seaboard has available NOLs from the Parent Company totaling $23,764,000. These NOLs may be utilized in Seaboard's 2004 tax return pending finalization of the audits of Seaboard's prior years' income tax returns currently being conducted by the Internal Revenue Service as discussed in Note 4. If these NOLs are not utilized in the 2004 tax return, they will be carried forward. If these NOLs are utilized in the 2004 tax return (anticipated to be filed September 15, 2005) or in subsequent tax returns, generating a tax benefit of $8,317,000, Seaboard will issue additional shares of its common stock to the Parent Company for the tax benefit received in accordance with the terms of the Transaction, as described above. Components of total comprehensive income, net of related taxes, are summarized as follows: Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Thousands of dollars) 2005 2004 2005 2004 Net earnings $62,584 $34,256 $131,261 $61,633 Other comprehensive income (loss) net of applicable taxes: Foreign currency translation adjustment 711 (317) 2,434 1,927 Unrealized gains (losses) on investments (127) (16) 47 74 Unrealized gains (losses) on cash flow hedges - (10) 155 (62) Amortization of deferred gain on interest rate swaps (50) (50) (100) (100) Total comprehensive income $63,118 $33,863 $133,797 $63,472 The components of and changes in accumulated other comprehensive loss for the three months ended July 2, 2005 are as follows: Balance Balance December 31, Period July 2, (Thousands of dollars) 2004 Change 2005 Foreign currency translation adjustment $(53,986) $2,434 $(51,552) Unrealized gain on investments 257 47 304 Unrecognized pension cost (375) - (375) Net unrealized loss on cash flow hedges (188) 155 (33) Deferred gain on interest rate swaps 551 (100) 451 Accumulated other comprehensive loss $(53,741) $2,536 $(51,205) The unrecognized pension cost is calculated and adjusted annually during the fourth quarter. With the exception of the foreign currency translation loss to which a 35% federal tax rate is applied, income taxes for components of accumulated other comprehensive loss were recorded using a 39% effective tax rate. 10 Note 8 - Segment Information As a result of sustained losses from an investment in a Bulgarian wine business (the Business) and recognition in 2004 of a decline in value considered other than temporary, Seaboard's common stock investment and subordinated debt in the Business were reduced to zero. During 2005, Seaboard began applying losses from the Business against its remaining investment in preferred stock, based on the change in Seaboard's claim on the Business' book value. As a result, Seaboard increased its share of losses to 100%. In February 2005, the Board of Directors of the Business, and the majority of the owners of the Business, including Seaboard, agreed to pursue the sale of the entire Business or all of its assets. Based on current negotiations to sell a substantial portion of the Business and all related wine labels, and other information on the fair value for the sale of all other assets of this Business, management believes if negotiations are successful the remaining carrying value of its investment at the time of disposition will be recoverable from sales proceeds. Seaboard does anticipate incurring additional operating losses until the sale of this Business is completed. However, if the Business is not successful in selling a substantial portion of the Business during the third quarter of 2005, the Business will not be able to fulfill the terms of its debt covenants or make principal payments to it banks; resulting in, barring any additional support from the existing shareholders, including Seaboard, probable bankruptcy. If the business is forced into bankruptcy, this would eliminate the value of the Business to Seaboard and thus result in a decline in value considered other than temporary in its investment in the Business as a charge to losses from foreign affiliates in the All Other segment during the third quarter of 2005. As of July 2, 2005, the remaining carrying value of Seaboard's investments in and advances to this business total $4,536,000, including $3,293,000 of foreign currency translation gains recorded in other comprehensive income from this business which will be recognized in earnings upon completion of the sale. The investment and losses from the Business are included in the All Other segment. Effective May 9, 2005, Seaboard's Commodity Trading and Milling segment sold certain of its third party commodity trading operations as discussed in Note 2. The following tables set forth specific financial information about each segment as reviewed by Seaboard's management. Operating income for segment reporting is prepared on the same basis as that used for consolidated operating income. Operating income, along with income or losses from foreign affiliates for the Commodity Trading and Milling segment, is used as the measure of evaluating segment performance because management does not consider interest and income tax expense on a segment basis. Sales to External Customers: Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Thousands of dollars) 2005 2004 2005 2004 Pork $255,031 $263,407 $ 497,467 $ 475,129 Commodity Trading and Milling 272,764 293,375 558,912 550,051 Marine 161,246 118,231 309,581 229,149 Sugar and Citrus 18,303 15,132 32,610 28,851 Power 20,798 15,597 35,581 31,124 All Other 8,820 6,565 16,138 13,678 Segment/Consolidated Totals $736,962 $712,307 $1,450,289 $1,327,982 11 Operating Income: Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Thousands of dollars) 2005 2004 2005 2004 Pork $ 46,856 $ 38,020 $ 96,497 $ 59,354 Commodity Trading and Milling 7,072 (2,253) 26,892 6,460 Marine 22,375 16,632 44,860 24,049 Sugar and Citrus 2,140 2,561 5,112 6,119 Power 3,412 (298) 4,407 1,227 All Other 1,208 870 1,766 1,395 Segment Totals 83,063 55,532 179,534 98,604 Corporate Items (915) (5) (306) (315) Consolidated Totals $ 82,148 $ 55,527 $ 179,228 $ 98,289 Income (Loss) from Foreign Affiliates: Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Thousands of dollars) 2005 2004 2005 2004 Commodity Trading and Milling $ 1,366 $ 1,921 $ 3,478 $ 2,588 Sugar and Citrus 15 175 213 176 All Other (2,604) (2,190) (5,435) (2,995) Segment/Consolidated Totals $ (1,223) $ (94) $ (1,744) $ (231) Investments in and Advances to Foreign Affiliates: July 2, December 31, (Thousands of dollars) 2005 2004 Commodity Trading and Milling $ 29,238 $ 26,762 Sugar and Citrus 2,230 2,050 All Other 4,536 9,189 Segment/Consolidated Totals $ 36,004 $ 38,001 Total Assets: July 2, December 31, (Thousands of dollars) 2005 2004 Pork $ 637,804 $ 655,551 Commodity Trading and Milling 250,785 278,324 Marine 207,789 138,238 Sugar and Citrus 103,225 90,035 Power 91,097 77,978 All Other 12,397 13,924 Segment Totals 1,303,097 1,254,050 Corporate Items 234,191 182,644 Consolidated Totals $1,537,288 $1,436,694 12 Administrative services provided by the corporate office are primarily allocated to the individual segments based on the size and nature of their operations. Corporate assets include short-term investments, certain investments in and advances to foreign affiliates, fixed assets, deferred tax amounts and other miscellaneous items. Corporate operating loss represents certain operating items not specifically allocated to individual segments. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES Summary of Sources and Uses of Cash Cash and short-term investments increased $151.2 million from December 31, 2004 reflecting the cash generated from operations and proceeds of $23.6 million from the sale of a portion of the commodity trading operations as noted below. Cash from operating activities totaled $187.4 million during the first half of 2005, of which $33.1 million was used for capital expenditures and $30.1 million was used to pay scheduled maturities on long-term debt. Cash from 2005 operating activities increased over the 2004 six month period primarily reflecting the increased earnings of the Pork, Commodity Trading and Milling, and Marine segments without corresponding increases in working capital needs as experienced in the prior year. In addition, ongoing inventory levels have decreased for the Commodity Trading and Milling segment with the sale of some components of the commodity trading operations as noted below. Acquisitions, Capital Expenditures and Other Investing Activities As discussed in Note 2 to the Condensed Consolidated Financial Statements, effective May 9, 2005 Seaboard's Commodity Trading and Milling segment sold some components of its third party commodity trading operations for $23.6 million, subject to final adjustments. Transactions in process at the date of sale were completed by and the responsibility of Seaboard after the date of sale and thus the effects on the second quarter of 2005 were minimal with the exception of decreased inventory levels as of July 2, 2005 compared to historical levels. Although Seaboard intends to continue competing in many of the markets of the sold operations, the volume of business will be less and thus the overall working capital requirements will be less in the future periods than periods prior to the sale. During the six months ended July 2, 2005, Seaboard invested $33.1 million in property, plant and equipment, of which $4.2 million was expended in the Pork segment, $9.0 milling was expended in the Commodity Trading and Milling segment, $12.6 million in the Marine segment, and $6.3 million in the Sugar and Citrus segment. For the Commodity Trading and Milling segment, $7.1 million was spent to purchase a used bulk vessel. For the Marine segment, $4.1 million was spent to purchase a crane and a previously chartered containerized cargo vessel, with the remaining expenditures primarily used to purchase cargo carrying equipment. In the Sugar and Citrus segment, the capital expenditures were primarily used for mill expansion, plantation development and harvesting equipment. All other capital expenditures are of a normal recurring nature and primarily include replacements of machinery and equipment, and general facility modernizations and upgrades. For the remainder of 2005 management has budgeted additional capital expenditures totaling $28.6 million, including $7.6 million for the Pork segment, $5.6 million for the Commodity Trading and Milling segment, $8.8 million in the Marine segment, and $5.4 million in the Sugar and Citrus segment. These budgeted expenditures are primarily of a normal recurring nature and include replacements of equipment and general facility upgrades and improvements with the exception of $2.8 million to make improvements to the vessel recently purchased for the Commodity Trading and Milling segment. Management anticipates funding these capital expenditures from internally generated cash, the use of available short-term investments or existing borrowing capacity. During the fourth quarter of 2004, Seaboard placed $0.7 million in escrow for a potential investment in an electricity generating company in the Dominican Republic. Initially, Seaboard's investment commitment was for a total of $3.4 million, or a 12.9% investment in this company, but during the second quarter of 2005, Seaboard increased its commitment to approximately $5.5 million for a total investment of less than 20% in this company. The remaining portion of the investment will be made as soon as the local government, regulatory and banking approvals are received. As discussed in Note 2 to the Condensed Consolidated Financial Statements, subsequent to July 2, 2005, Seaboard completed the acquisition of a bacon processing company (Daily's) in exchange for $45.0 million in cash, subject to final adjustments related to working capital, and an equity interest in Seaboard Foods LLC (formerly Seaboard Farms, Inc.). The cash payment was funded with proceeds from the sale of short-term investments. Financing Activities and Debt During the second quarter of 2005, Seaboard allowed a $20.0 million committed line of credit to expire and also cancelled its $95.0 million subsidiary credit facility, leaving its $200.0 million five- year committed credit facility, and uncommitted lines totaling $29.6 million as of July 2, 2005. The borrowings outstanding as of July 2, 2005 of $1.4 million were under uncommitted lines. Outstanding standby letters of credit totaling $52.9 million reduced Seaboard's borrowing capacity under its committed credit line, primarily representing $42.7 million for Seaboard's outstanding Industrial Development Revenue Bonds and $9.5 million related to insurance coverages. 14 In addition to funding Seaboard's planned capital expenditures as discussed above, Seaboard's remaining 2005 scheduled long-term debt maturities total $30.8 million. Management believes that Seaboard's current combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate to make these scheduled debt payments and support existing operations during fiscal 2005. While management does periodically review various alternatives for future financings to provide additional liquidity for future operating plans, and intends to continue seeking opportunities for expansion in the industries in which Seaboard operates, management currently has no plans to pursue other financing alternatives at this time. See Note 6 to the Condensed Consolidated Financial Statements for a summary of Seaboard's contingent obligations, including guarantees issued to support certain activities of non-consolidated affiliates or third parties who provide services for Seaboard. RESULTS OF OPERATIONS Net sales for the three and six month periods of 2005 increased by $24.7 million and $122.3 million over the same periods in 2004, primarily reflecting improved average rates and volumes for marine cargo service. Sales for the six months ended July 2, 2005 also reflect improved international markets for the Pork segment. Operating income for the three and six month periods of 2005 increased $26.6 million and $80.9 million compared to the same periods of 2004. These increases are primarily the result of the improved rates and volumes in the Marine segment, lower feed costs and improved international markets in the Pork segment and the significant losses recorded in 2004 from the mark-to-market of commodity futures and options in the Commodity Trading and Milling segment. Seaboard's operations primarily involve commodity based industries, which typically have cyclical upswings and downswings. For the past several quarters, Seaboard has experienced the positive effects from favorable pricing conditions in the Pork and Marine segments, while other segments have not experienced material negative conditions. If there is a cyclical downswing in the Pork or Marine industries or other industries in which Seaboard operates, Seaboard's results from operations will be adversely affected. Pork Segment Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $255.0 $263.4 $497.5 $475.1 Operating income $ 46.9 $ 38.0 $ 96.5 $ 59.4 Net sales for the Pork segment decreased $8.4 million for the quarter while increasing $22.4 million for the first six months of 2005 as compared to 2004. For the quarter, the decrease was primarily the result of lower domestic prices partially offset by improved international volumes and, to a lesser degree, improved product mix for the international markets. For the six months, the increase is primarily the result of improved volumes and product mix for the international markets. The demand for pork products remained strong in the international markets, while domestic markets are beginning to weaken. Management expects the second half prices overall for 2005 to be lower than the second half prices of 2004. Operating income for the Pork segment increased $8.9 million and $37.1 million for the three and six month periods of 2005, respectively, compared to the same periods of 2004. For the quarter, the increase was primarily related to lower feed costs and costs of third party hogs, partially offset by the lower net sales discussed above. For the six months, the increase is primarily a result of the improved international markets for the six month period as discussed above and lower feed costs. In addition, Seaboard processed a higher percentage of Seaboard-raised hogs which cost less than third party hogs. These improvements were partially offset by an increase in cost of third party hogs for the six months. During the past several quarters, market prices for pork products were high relative to historic norms. Historically high market prices have not been sustained over long periods of time. Although management is unable to predict future market prices for pork products, feed costs and third party hogs, there are indications that the pork industry may be at the beginning stages of a cyclical downturn in prices which could negatively impact operating results for the remainder of 2005. As discussed in Note 2 to the Condensed Consolidated Financial Statements, on July 5, 2005 Seaboard completed the acquisition of Daily's, a processor of premium sliced and pre-cooked bacon. Accordingly, sales and operating income for the last half of 2005 will include the operations of Daily's. 15 Commodity Trading and Milling Segment Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $272.8 $293.4 $558.9 $550.1 Operating income (loss) $ 7.1 $ (2.3) $ 26.9 $ 6.5 Income from foreign affiliates $ 1.4 $ 1.9 $ 3.5 $ 2.6 As discussed in Note 2 to the Condensed Consolidated Financial Statements, effective May 9, 2005, Seaboard sold some components of its third party commodity trading operations. Included in operating income for the 2005 three and six month periods are $2.2 million of derivative gains related to derivative instruments sold as a result of mark to market accounting discussed below. Seaboard's revenues from the portion of the operations sold for the three and six months ended July 2, 2005 totaled approximately $162.8 million and $317.3 million, respectively, compared to $168.5 million and $312.0 million for the three and six months ended July 3, 2004, respectively. Seaboard intends to continue competing in many of the markets and routes associated with the sale transaction, although at a much reduced level. Since Seaboard has conducted its commodity trading business with third parties, its consolidated subsidiaries, and foreign affiliates on an interrelated basis and intends to continue trading to third parties in certain markets, operating income from the business sold cannot be clearly distinguished from the remaining operations of Seaboard's Commodity Trading and Milling segment without making numerous subjective assumptions primarily with respect to mark-to- market accounting. For the three and six months ended July 2, 2005, this transaction did not have a material effect on net sales, net earnings or earnings per common share as transactions in process at the date of sale were completed by and the responsibility of Seaboard after the date of sale. Net sales for this segment for the second half of 2005 will decrease significantly as a result of this transaction; however, the extent of the decrease beyond 2005 will depend on the ability to effectively compete in the markets. Net sales for the Commodity Trading and Milling segment decreased $20.6 million and increased $8.8 million for the three and six month periods of 2005, respectively, compared to the same periods of 2004. The decrease for the quarter primarily is the result of lower commodity prices compared to 2004 partially offset by increased trading volumes to third parties, primarily for corn and wheat. The increase for the six months is primarily the result of increased trading volumes to third parties, primarily for wheat and corn. During the first half of 2004, world-wide commodity prices increased significantly before declining in the latter half of the year. Operating income for this segment increased $9.4 million and $20.4 million for the three and six month periods of 2005, respectively, compared to the same periods of 2004, primarily reflecting the significant impact of marking to market the derivative contracts as discussed below. Additionally, both periods reflect improved margins on sales to certain affiliates, and improved operations for certain milling locations. These improvements were partially offset by higher selling, general and administrative costs in 2005 primarily as a result of higher bad debt expenses and the growth of the business prior to the sale of certain third party trading activities. Due to the uncertain political and economic conditions in the countries in which Seaboard operates, management is unable to predict future sales and operating results, but anticipates positive operating income, excluding the potential effects of derivative gains or losses, to continue in 2005. Had Seaboard applied hedge accounting to its derivative instruments, operating income would have been higher by $4.9 million and lower by $4.9 million for the three and six months of 2005, respectively, whereas operating income for the three and six months of 2004 would have been higher by $11.8 million and $10.5 million, respectively. While management believes its foreign exchange contracts and commodity futures and options are economic hedges of its firm purchase and sales contracts, Seaboard does not perform the extensive record-keeping required to account for either type of derivative as hedges for accounting purposes. Accordingly, while the changes in value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As a result, operating income for the three and six months of 2005 includes commodity derivative losses of $3.5 million and gains of $3.0 million, respectively, compared to gains of $11.8 million and $10.5 million for the same 2004 periods related to these mark-to-market adjustments. In addition, operating income for the three and six months of 2005 includes foreign exchange contract losses of $1.4 million and gains of $1.9 million, respectively. During 2004, the foreign exchange contracts were accounted for as hedges. Seaboard's market risk exposure related to its derivative instruments has been reduced with the sale of the third party commodity trading business as discussed below. 16 Income from foreign affiliates for the three and six months of 2005 decreased $0.5 million and increased $0.9 million, respectively, from the same 2004 periods. Based on current political and economic situations in the countries in which the flour and feed mills operate, management cannot predict whether the foreign affiliates will remain profitable for the remainder of 2005. Marine Segment Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $161.2 $118.2 $309.6 $229.1 Operating income $ 22.4 $ 16.6 $ 44.9 $ 24.0 Net sales for the Marine segment increased $43.0 million and $80.5 million for the three and six month periods of 2005, respectively, compared to the same periods of 2004, reflecting higher average cargo rates and higher cargo volumes in most markets. Average cargo rates for 2005 increased over those for 2004 reflecting the continuation of improved market conditions since the second half of 2004 and better cargo mixes in certain markets. Management cannot predict whether rates will continue to increase or be in an amount sufficient to cover increasing charter hire and fuel related expenses. Operating income for the Marine segment increased $5.8 million and $20.9 million for the three and six months of 2005, respectively, compared to the same periods of 2004, primarily reflecting the increased rates and volumes discussed above, partially offset by higher charter hire expenses and fuel costs. Although management cannot predict changes in future cargo rates, fuel related costs, charter hire expenses or to what extent changes in economic conditions will impact cargo volumes, it does expect this segment to remain profitable for the remainder of 2005. Sugar and Citrus Segment Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $ 18.3 $15.1 $ 32.6 $ 28.9 Operating income $ 2.1 $ 2.6 $ 5.1 $ 6.1 Income from foreign affiliates $ 0.0 $ 0.2 $ 0.2 $ 0.2 Net sales for the Sugar and Citrus segment increased $3.2 million and $3.7 million, respectively, for the three and six months of 2005 compared to the same periods of 2004 primarily from higher citrus trading volumes. Operating income decreased $0.5 million and $1.0 million, respectively, for the three and six month periods of 2005 compared to the prior year primarily from higher sugar production costs. Management expects operating income will remain positive for 2005. Power Segment Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $ 20.8 $ 15.6 $ 35.6 $ 31.1 Operating income (loss) $ 3.4 $ (0.3) $ 4.4 $ 1.2 Net sales for the Power segment increased $5.2 million and $4.5 million for the three and six month periods of 2005, respectively, compared to the same periods of 2004 primarily reflecting higher sales prices. Sales prices have increased during 2005 reflecting the increased cost of fuel. While Seaboard has entered into short-term and long-term sales contracts for most of its production capacity, management continues to curtail production to avoid selling power on the spot market to certain customers about whom management has collectibility concerns. Management will continue to impose further curtailments to avoid sales to these certain spot market customers. Operating income increased $3.7 million and $3.2 million for the three and six month periods of 2005 compared to the same periods of 2004 primarily reflecting lower commission and bad debt expenses, partially offset by higher fuel costs and the impact of the strengthening peso on local expenses. During 2004, Seaboard terminated a business relationship with a one-time commission payment of $2.0 million during the second quarter of 2004. Management expects the economic problems in the Dominican Republic to remain relatively stable for the near term. Based on this stability, management expects to remain profitable for the remainder of 2005. 17 All Other Three Months Ended Six Months Ended July 2, July 3, July 2, July 3, (Dollars in millions) 2005 2004 2005 2004 Net sales $ 8.8 $ 6.6 $ 16.1 $ 13.7 Operating income $ 1.2 $ 0.9 $ 1.8 $ 1.4 Loss from foreign affiliate $ (2.6) $(2.2) $ (5.4) $ (3.0) The loss from foreign affiliate reflects Seaboard's share of losses from its equity method investment in a Bulgarian wine business. In 2005 Seaboard recorded 100% of the losses from this business compared to 37% in 2004. In 2004, this business recorded a provision for inventory write-downs of which Seaboard recorded its share, $0.8 million during the second quarter of 2004. Management expects additional losses for this business for the remainder of 2005. See Note 8 to the Condensed Consolidated Financial Statements for further discussion of this business and plans to sell the business. Selling, General and Administrative Expenses Selling, general and administrative (SG&A) expenses increased by $0.7 million and $1.4 million during the three and six months of 2005 compared to the same periods of 2004 primarily due to increases in the Marine and Commodity Trading and Milling segments reflecting increased selling costs related to the volume growth of these businesses. Lower commission expenses and bad debt expense for the Power segment partially offset these increases. As a percentage of revenues, SG&A was 4.4% in the 2005 three and six month periods, respectively, compared to 4.4% and 4.7%, respectively, for the same periods of 2004. Interest Expense Interest expense decreased $1.1 million and $2.8 million in the 2005 three and six month periods, respectively, compared to the same periods of 2004 primarily reflecting the lower average level of short- term and long-term borrowings outstanding during 2005. During the second quarter of 2004, Seaboard repaid a significant portion of its short-term notes payable to banks with operating cash flows and there has been no need for additional borrowings. Interest Income Interest income increased $0.9 million and $2.7 million in the three and six month periods of 2005, respectively, compared to the same periods of 2004, primarily reflecting interest received on outstanding customer receivable balances in the Power segment, and the higher level of average funds invested during 2005. Loss from the Sale of a Portion of Operations As discussed in Note 2 to the Condensed Consolidated Financial Statements, Seaboard sold some components of its third party commodity trading operations in May 2005. Because Seaboard does not use hedge accounting for its commodity and foreign exchange agreements, gains of $2.2 million from the mark to market of the sold derivative instruments were recorded in cost of sales prior to the date of the sale while the change in value of the related firm sales commitment was not, resulting in a loss on the sale from this transaction totaling $1.8 million, subject to final adjustments. Miscellaneous, Net Miscellaneous, net for the three and six months of 2005 includes $4.4 million and $1.4 million, respectively, of losses from the mark to market of interest rate swap agreements compared to losses of $2.9 million and gains of $0.2 million, respectively for the same periods in 2004. These swap agreements do not qualify as hedges for accounting purposes and accordingly, changes in the market value are recorded to earnings as interest rates change. Miscellaneous, net for the 2004 second quarter includes losses of $2.9 million from the mark to market of commodity futures and options contracts that management doesn't view as direct economic hedges of its operations. Income Tax Expense The effective tax rate decreased during 2005 compared to 2004 primarily as a result of changes to the treatment of shipping income by the U.S. taxing authorities as further discussed in Note 4 of Condensed Consolidated Financial Statements. In addition, see Note 4 to the Condensed Consolidated Financial Statements for a discussion of the reversal of $7.5 million of tax expense in the second quarter of 2005 and the Internal Revenue Service's examination of Seaboard's federal income tax returns for 2000 through 2002. 18 Other Financial Information On December 21, 2004, the Financial Accounting Standards Board (FASB) issued FASB Staff Position 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" (FSP109-2). FSP 109-2, which was effective upon issuance, allows companies time beyond the financial reporting period of enactment to evaluate the effect of the earnings repatriation provision on its plan for reinvestment or repatriation of foreign earnings for purposes of applying Statement of Financial Accounting Standards (SFAS) No. 109. Additionally, FSP 109-2 provides guidance regarding the required disclosures surrounding a company's reinvestment or repatriation of foreign earnings. Seaboard continues to evaluate this provision of the Act to determine the amount of foreign earnings to repatriate and expects to complete its evaluation by the fourth quarter of 2005. In November 2004, FASB issued SFAS No. 151, "Inventory Costs". This statement amends Accounting Research Board No. 43 to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of "so abnormal". In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Any costs outside the normal range would be considered a period expense instead of an inventoried cost. For Seaboard, this standard is effective for the fiscal year beginning January 1, 2006. The adoption of SFAS No. 151 is not expected to have a material impact on Seaboard's financial position or net earnings. Item 3. Quantitative and Qualitative Disclosures About Market Risk Seaboard is exposed to various types of market risks from its day-to- day operations. Primary market risk exposures result from changing commodity prices, foreign currency exchange rates and interest rates. Changes in commodity prices impact the cost of necessary raw materials, finished product sales and firm sales commitments. Seaboard uses various grain and meal futures and options purchase contracts to manage certain risks of increasing prices of raw materials and firm sales commitments. Short sales contracts may then be used to offset any open purchase derivatives when the related commodity inventory is purchased in advance of the derivative maturity, effectively canceling the initial futures or option purchase contract. From time to time, hog futures are used to manage risks of increasing prices of live hogs acquired for processing. Because changes in foreign currency exchange rates impact the cash paid or received on foreign currency denominated receivables and payables, Seaboard manages certain of these risks through the use of foreign currency forward exchange agreements. Changes in interest rates impact the cash required to service variable rate debt. From time to time, Seaboard uses interest rate swaps to manage risks of increasing interest rates. The nature of Seaboard's market risk exposure related to these items has not changed materially since December 31, 2004, although the amount of commodity futures and option contracts and foreign exchange contracts decreased considerably with the sale of a portion of the third party trading operations as discussed in Note 2 to the Condensed Consolidated Financial Statements. At July 2, 2005, Seaboard had net trading contracts to purchase 4,893,000 bushels of grain (fair value of negative $273,000) and to sell 13,000 tons of meal (fair value of $6,000). At December 31, 2004, Seaboard had net trading contracts to purchase 7,626,000 bushels of grain (fair value of negative $304,000) and 81,000 tons of meal (fair value of negative $1,492,000). At July 2, 2005, Seaboard had net agreements to exchange the equivalent of $33,129,000 of South African rand at an average contractual exchange rate of 6.66 ZAR to one U.S. dollar. At December 31, 2004, Seaboard had net agreements to exchange the equivalent of $98,476,000 of South African rand at an average contractual exchange rate of 6.14 ZAR to one U.S. dollar. 19 Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures - Seaboard's management evaluated, under the direction of our chief executive and chief financial officers, the effectiveness of Seaboard's disclosure controls and procedures as defined in Exchange Act 15(d) - 15(e) as of July 2, 2005. Based upon and as of the date of that evaluation, Seaboard's chief executive and chief financial officers concluded that Seaboard's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports it files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required. It should be noted that any system of disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any system of disclosure controls and procedures is based in part upon assumptions about the likelihood of future events. Because of these and other inherent limitations of any such system, there can be no assurance that any design will always succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Change in Internal Controls - There has been no change in Seaboard's internal control over financial reporting that occurred during the fiscal quarter ended July 2, 2005 that has materially affected, or is reasonably likely to materially affect, Seaboard's internal control over financial reporting. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of stockholders, held on April 25, 2005, included three items submitted to a vote of stockholders. Item 4 of the Form 10-Q for the first quarter ended April 2, 2005, which was filed on May 4, 2005 discloses the results of the shareholder's vote, which disclosure is incorporated herein by reference. Item 6. Exhibits 4.1 Amendment No. 1 to Seaboard Corporation Credit Agreement dated December 3, 2004 ($200,000,000 revolving credit facility expiring on December 2, 2009). 10.1 Employment Agreement between Seaboard Corporation and Steven J. Bresky dated July 1, 2005. 10.2 Employment Agreement between Seaboard Corporation and Robert L. Steer dated July 1, 2005. 10.3 Employment Agreement between Seaboard Farms, Inc. and Rodney K. Brenneman dated July 1, 2005. 31.1 Certification of the Chief Executive Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer Pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 20 This Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of Seaboard Corporation and its subsidiaries (Seaboard). Forward-looking statements generally may be identified as: statements that are not historical in nature; and statements preceded by, followed by or that include the words "believes," "expects," "may," "will," "should," "could," "anticipates," "estimates," "intends," or similar expressions. In more specific terms, forward-looking statements, include, without limitation: statements concerning projection of revenues, income or loss, capital expenditures, capital structure or other financial items; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements regarding the intent, belief or current expectations of Seaboard and its management with respect to: (i) Seaboard's ability to obtain adequate financing and liquidity, (ii) the price of feed stocks and other materials used by Seaboard, (iii) the sale price or market conditions for pork products from such operations, (iv) the price or market conditions for other products and services, (v) the ability of Seaboard's Commodity Trading and Milling segment to successfully continue competing in the markets and routes associated with the assets sold to Grindrod Limited, (vi) the charter hire rates and fuel prices for vessels, (vii) the demand for power, related spot market prices and collectibility of receivables in the Dominican Republic, (viii) the effect of the fluctuation in exchange rates for the Dominican Republic pesos, (ix) the potential effect of Seaboard's investment in a wine business on the consolidated financial statements, (x) the potential impact of various environmental actions pending or threatened against Seaboard, (xi) the potential impact of the American Jobs Creation Act, (xii) the potential impact of the current IRS audit, (xiii) statements concerning profitability of any of Seaboard's segments or (xiv) other trends affecting Seaboard's financial condition or results of operations, and statements of the assumptions underlying or relating to any of the foregoing statements. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward- looking statements due to a variety of factors. The information contained in this report, including without limitation the information under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations," identifies important factors which could cause such differences. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: August 11, 2005 Seaboard Corporation by: /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer (principal financial officer) by: /s/ John A. Virgo John A. Virgo, Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) 22 EX-4.1 2 ex4-1.txt AMENDMENT NO. 1 TO SEABOARD CORPORATION CREDIT AGREEMENT DATED DECEMBER 3, 2004 Exhibit 4.1 AMENDMENT NO. 1 TO CREDIT AGREEMENT This Amendment No. 1 to Credit Agreement (this "Agreement") dated as of May 23, 2005 is made by and among SEABOARD CORPORATION, a Delaware corporation having its principal place of business in Shawnee Mission, Kansas (the "Borrower"), BANK OF AMERICA, N.A., a national banking association organized and existing under the laws of the United States ("Bank of America"), in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement (as defined below)) (in such capacity, the "Administrative Agent"), and each of the Lenders signatory hereto. W I T N E S S E T H: WHEREAS, the Borrower, the Administrative Agent and the Lenders have entered into that certain Credit Agreement dated as of December 3, 2004 (as hereby amended and as from time to time hereafter further amended, modified, supplemented, restated, or amended and restated, the "Credit Agreement"; capitalized terms used in this Agreement not otherwise defined herein shall have the respective meanings given thereto in the Credit Agreement), pursuant to which the Lenders have made available to the Borrower various revolving credit facilities, including a letter of credit facility and a swing line facility; and WHEREAS, the Borrower has (i) advised the Administrative Agent and the Lenders that its Subsidiaries, Seaboard Overseas Limited ("SOL") and Seaboard Overseas Trading and Shipping (Pty.) Ltd. ("SOTS"), desire to enter into transactions whereby SOL would sell inventory, futures contracts and hedging contracts relating to its grain trading business, its equity interest in Seaboard Overseas Peru S.R.L. and other assets and SOTS would sell substantially all of its assets (excluding accounts receivable) (such sale, as further described on Exhibit A hereto, the "Grindrod Disposition") and (ii) requested that the Lenders amend certain provisions of the Credit Agreement as set forth below, and the Administrative Agent and the Lenders signatory hereto are willing to effect such amendment on the terms and conditions contained in this Agreement; NOW, THEREFORE, in consideration of the premises and further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Amendments to Credit Agreement. Subject to the terms and conditions set forth herein, the Credit Agreement is hereby amended as follows: A. Section 1.01 is amended to add the definition of "Grindrod Disposition" thereto in alphabetical order to read as follows: "Grindrod Disposition" has the meaning set forth in Amendment No. 1 to the Credit Agreement dated as of May 23, 2005. B. Section 7.04 is amended to restate clause (b) thereof in its entirety to read as follows: (b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) (i) to the Borrower or to another Subsidiary; provided that if the transferor in such a transaction is a wholly-owned Subsidiary, then the transferree must either be the Borrower or a wholly- owned Subsidiary or (ii) pursuant to a Disposition permitted under Sections 7.05(a)-(d) and (g); and C. Section 7.05 is amended to restate clause (g) thereof in its entirety to read as follows: (g) Dispositions by the Borrower and its Subsidiaries not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition and (ii) the aggregate book value of all property Disposed of in reliance on this clause (g) (excluding property Disposed of in connection with the Grindrod Disposition) shall not exceed 25% of Consolidated Tangible Net Worth as of the Closing Date; 2. Effectiveness; Conditions Precedent. The effectiveness of this Agreement and the amendments to the Credit Agreement herein provided are subject to the satisfaction of the following conditions precedent: (a) the Administrative Agent shall have received each of the following documents or instruments in form and substance reasonably acceptable to the Administrative Agent: (i) ten (10) original counterparts of this Agreement, duly executed by the Borrower, the Administrative Agent and the Required Lenders, together with all schedules and exhibits thereto duly completed; (ii) such other documents, instruments, opinions, certifications, undertakings, further assurances and other matters as the Administrative Agent shall reasonably request; and (b) all fees and expenses payable to the Administrative Agent and the Lenders (including the fees and expenses of counsel to the Administrative Agent) estimated to date shall have been paid in full (without prejudice to final settling of accounts for such fees and expenses). 3. Representations and Warranties. In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Borrower represents and warrants to the Administrative Agent and the Lenders as follows: (a) The representations and warranties made by the Borrower in Article V of the Credit Agreement and in each of the other Loan Documents to which it is a party are true and correct on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date; 2 (b) Since the date of the most recent financial reports of the Borrower delivered pursuant to Section 6.01 of the Credit Agreement, no act, event, condition or circumstance has occurred or arisen which, singly or in the aggregate with one or more other acts, events, occurrences or conditions (whenever occurring or arising), has had or could reasonably be expected to have a Material Adverse Effect; (c) This Agreement has been duly authorized, executed and delivered by the Borrower and Guarantors party hereto and constitutes a legal, valid and binding obligation of such parties, except as may be limited by general principles of equity or by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally; and (d) No Default or Event of Default has occurred and is continuing. 3 4. Entire Agreement. This Agreement, together with all the Loan Documents (collectively, the "Relevant Documents"), sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to the other in relation to the subject matter hereof or thereof. None of the terms or conditions of this Agreement may be changed, modified, waived or canceled orally or otherwise, except in writing and in accordance with Section 10.01 of the Credit Agreement. 5. Full Force and Effect of Agreement. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all other Loan Documents are hereby confirmed and ratified in all respects and shall be and remain in full force and effect according to their respective terms. 6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 7. Governing Law. This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed and to be performed entirely within such State, and shall be further subject to the provisions of Section 10.14 of the Credit Agreement. 8. Enforceability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 9. References. All references in any of the Loan Documents to the "Credit Agreement" shall mean the Credit Agreement, as amended hereby. 10. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each of the Guarantors and Lenders, and their respective successors, legal representatives, and assignees to the extent such assignees are permitted assignees as provided in Section 10.06 of the Credit Agreement. [Signature pages follow.] 4 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. BORROWER: SEABOARD CORPORATION By: /s/Robert L. Steer Name: Robert L. Steer Title: Senior Vice President, Treasurer and CFO ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as Administrative Agent By: /s/Anthea Del Bianco Name: Anthea Del Bianco Title: Vice President LENDERS: BANK OF AMERICA, N.A. By: /s/David L. Catherall Name: David L. Catherall Title: Vice President THE BANK OF NOVA SCOTIA By: /s/N. Bell Name: N. Bell Title: Senior Manager HARRIS TRUST AND SAVINGS BANK By: /s/John R. Carley Name: John R. Carley Title: Vice President THE BANK OF NEW YORK By: /s/Mark Wrigley Name: Mark Wrigley Title: Vice President SUNTRUST BANK By: /s/Hugh E. Brown Name: Hugh E. Brown Title: Vice President RABOBANK INTERNATIONAL By: /s/James V. Kenwood Name: James V. Kenwood Title: Executive Director By: /s/Rebecca O. Morrow Name: Rebecca O. Morrow Title: Executive Director US AGANK FCB By: /s/Travis W. Ball Name: Travis W. Ball Title: Vice President EX-10.1 3 ex10-1.txt EMPLOYMENT AGREEMENT BETWEEN SEABOARD CORPORATION AND STEVEN J. BRESKY Exhibit 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July 1, 2005 by and between SEABOARD CORPORATION, a Delaware corporation (together with any Successor thereto, the "Company"), and Steven J. Bresky ("Executive"). WITNESSETH: WHEREAS, the Company desires to employ and secure the exclusive services of Executive on the terms and conditions set forth in this Agreement; WHEREAS, Executive desires to accept such employment on such terms and conditions; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows: 1. Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to continue to employ Executive, and Executive hereby accepts such continued employment with the Company. 2. Term; Position and Responsibilities; and Location. (a) Term of Employment. Unless Executive's employment shall sooner terminate pursuant to Section 8, the Company shall continue to employ Executive on the terms and subject to the conditions of this Agreement for a term commencing on July 1, 2005 (the "Commencement Date") and ending on the date which is five years after the Commencement Date, provided, however, on each annual anniversary date of the Commencement Date (an "Annual Anniversary Date"), Executive's employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions for five years after such Annual Anniversary Date, unless the Company shall have given written notice to Executive, at least thirty (30) days prior to the expiration of such Annual Anniversary Date, of its intention not to extend the Employment Period (as defined below) hereunder. Notwithstanding the foregoing, unless mutually agreed to by the Company and the Executive, Executive's employment hereunder shall under no circumstances extend beyond December 31, 2024. The period during which Executive is employed by the Company pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the "Employment Period." (b) Position and Responsibilities. During the Employment Period, Executive shall serve as Senior Vice President, International Operations and shall have such duties and responsibilities as are customarily assigned to individuals serving in such position and such other duties consistent with Executive's title and position as the Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board") specifies from time to time. Executive shall devote all of his skill, knowledge, commercial efforts and business time to the conscientious and good faith performance of his duties and responsibilities for the Company to the best of his ability. (c) Location. During the Employment Period, Executive's services shall be performed primarily in the Kansas City metropolitan area. However, Executive may be required to travel in and outside of Kansas City as the needs of the Company's business dictate. 3. Base Salary. During the Employment Period, the Company shall pay Executive a base salary at an annualized rate of four hundred forty thousand dollars ($440,000), payable in installments on the Company's regular payroll dates. The Board shall review Executive's base salary annually during the Employment Period and may increase (but not decrease) such base salary from time to time, based on its periodic review of Executive's performance in accordance with the Company's regular policies and procedures. The annual base salary payable to Executive from time to time under this Section 3 shall hereinafter be referred to as the "Base Salary." 4. Annual Bonus Compensation. Executive shall be eligible to receive an annual bonus ("Annual Bonus") with respect to each calendar year ending during the Employment Period. The Annual Bonus shall be determined under the Company's Executive Officers' Bonus Plan or such other annual bonus plan maintained by the Company for similarly situated Executives that the Company designates, in its sole discretion (any such plan, the "Bonus Plan"), in accordance with the terms of such plan as in effect from time to time. Executive's Annual Bonus shall not be less than four hundred fifty thousand dollars ($450,000) for any calendar year during the Employment Period. The Annual Bonus is earned pro-rata throughout each year. The Annual Bonus for each year shall be payable in cash on or before March 1 of the following year. 5. Car Allowance. During Executive's Employment Period, Executive will be entitled to receive an annual car allowance and gasoline charge privileges in accordance with the Company's car allowance policy. 6. Executive Benefits. During the Employment Period, Executive will be eligible to participate in the employee and executive benefit plans and programs maintained by the Company from time to time in which executives of the Company at Executive's grade level are eligible to participate, including medical, dental, disability, hospitalization, life insurance, and retirement (i.e., 401K, pension and executive retirement plans), deferred compensation and savings plans, on the terms and subject to the conditions set forth in such plans; as may be amended from time to time; provided, however, the benefits provided by the Company will not be amended to provide for any benefits which are materially less than the current benefits provided to Executive at the Commencement Date. 7. Indemnification; Expenses; Paid Time Off. (a) Indemnification. Except to the extent, if any, prohibited by law, the Company shall indemnify Executive against expenses (including attorneys' fees of counsel selected by Executive), judgments, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which Executive was, is, or is threatened 2 to be, made a party by reason of facts which include Executive's being or having been an employee, officer, director or agent of the Company or any Affiliates. Except to the extent, if any, prohibited by law, the Company shall pay expenses (including attorneys' fees of counsel selected by Executive) actually and reasonably incurred by Executive in defending any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by Executive to repay such amounts so paid on Executive's behalf if it shall ultimately be determined that Executive is not entitled to be indemnified by the Company for such expenses under applicable law. The provisions of this Section 7(a) shall (i) survive termination of this Agreement; and (ii) not be deemed exclusive of any other indemnification or expense rights to which Executive may be entitled. (b) Business Expenses. During the Employment Period, the Company will reimburse Executive for all reasonable and necessary business- related expenses incurred by Executive at the request of and on behalf of the Company in accordance with The Company's normal expense reimbursement policies. (c) Paid Time Off. During the Employment Period, Executive shall be entitled to paid time off on an annualized basis in accordance with the Company's paid time off policy. Executive shall also be entitled to Company-designated holidays. 8. Termination of Employment. (a) Termination Due to Death or Disability. Executive's employment shall automatically terminate upon Executive's death and may be terminated by the Company due to Executive's Disability (as defined below in this subsection (a)). In the event that Executive's employment is terminated due to his Disability or death, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii). For purposes of this Agreement, "Disability" means a physical or mental disability that prevents or would prevent the performance by Executive of his duties hereunder for a continuous period of six months or longer. The determination of Executive's Disability will be made by an independent physician agreed to by the parties. If the parties are unable to agree within ten (10) days after a request for designation by a party, then the Company and the Executive shall each select a physician, and the two (2) physicians selected shall select a third physician. The three (3) physicians so selected shall make a determination of the Executive's Disability, as determined by at least two (2) of the three (3) physicians selected. Such determination shall be final and binding on the parties hereto, and shall be based on such competent medical evidence as shall be presented to such physicians by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such physicians. (b) Termination by the Company for Cause. Executive's employment may be terminated by the Company for Cause (as defined below in this subsection (b)). In the event of a termination of Executive's employment by the Company for Cause, Executive shall be paid the termination benefits as provided in Section 8(f)(ii). For purposes of this Agreement, "Cause" means (i) a material breach by Executive of any provision of this Agreement; (ii) a material violation by Executive of any Policy (as defined in Section 14), resulting in material injury to the Company; (iii) Executive's willful misconduct or gross negligence that has caused or is reasonably expected to 3 result in material injury to the business, reputation or prospects of the Company or any of its Affiliates; (iv) Executive's material fraud or misappropriation of funds; or (v) the commission by Executive of a felony involving moral turpitude; provided that no termination under clauses (i) or (ii) shall be effective unless Company shall have given Executive notice of the event or events constituting Cause and Executive shall have failed to cure such event or events within thirty (30) business days after receipt of such notice. (c) Termination Without Cause. Executive's employment may be terminated by the Company Without Cause (as defined below in this subsection (c)) at any time. In the event of a termination of Executive's employment by the Company Without Cause, the Executive shall be paid the termination benefits as provided in Section 8(f)(i). For purposes of this Agreement, a termination "Without Cause" shall mean a termination of Executive's employment by the Company other than due to Executive's death or Disability as described in Section 8(a) and other than for Cause as described in Section 8(b). (d) Termination by Executive. Executive may resign from his employment for any reason, including for Good Reason (as defined below in this subsection (d)). In the event of a termination of Executive's employment by Executive's resignation other than for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii) and in the event of a termination of Executive's employment by Executive for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(i). For purposes of this Agreement, a termination of employment by Executive for "Good Reason" shall mean a resignation by Executive from his employment with the Company within one hundred eighty (180) days following the occurrence, without Executive's consent, of any of the following events: (i) a material diminution in the Executive's position, authority or responsibilities; (ii) any involuntary relocation of the location where Executive primarily performs his services; or (iii) any other material breach by the Company of any material provision of this Agreement; provided that the Executive shall have given the Company notice of the event or events constituting Good Reason and the Company shall have failed to cure such event or events (to the extent capable of being cured) within thirty (30) business days after receipt of such notice. (e) Notice of Termination; Date of Termination. (i) Notice of Termination. Any termination of Executive's employment by the Company or by Executive (other than as a result of Executive's death) shall be communicated by a written Notice of Termination addressed to the other party to this Agreement. A "Notice of Termination" shall mean a notice stating that Executive or the Company, as the case may be, is electing to terminate Executive's employment with the Company (and thereby terminating the Employment Period), stating the proposed effective date of such termination, indicating the specific provision of this Section 8 under which such termination is being effected and, if applicable, setting forth in reasonable detail the circumstances claimed to provide the basis for such termination. Any Notice of Termination given by an Executive must specify an effective date of termination which is at least thirty (30) days after the giving of the Notice of Termination. 4 (ii) Date of Termination. The term "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death; and (ii) if Executive's employment is terminated for any other reason, the effective date of termination specified in such Notice of Termination. The Employment Period shall expire on the Date of Termination. (f) Payments Upon Certain Terminations. (i) In the event of a termination of Executive's employment by the Company Without Cause or by Executive's resignation from employment for Good Reason during the Employment Period, the Company shall pay to Executive (or, following his death, to Executive's estate), within thirty (30) days of the Date of Termination, (x) his Base Salary through the Date of Termination, to the extent not previously paid; (y) the pro-rata amount of the Annual Bonus (based on the amount paid for the previous year) which is accrued through the date of termination; and (z) reimbursement for any unreimbursed business expenses incurred by Executive prior to the Date of Termination that are subject to reimbursement pursuant to the terms hereof, and payment for paid time off accrued as of the Date of Termination but unused (such amounts under clauses (x), (y) and (z), collectively the "Accrued Obligations"). In addition, in the event of any such termination of Executive's employment, if Executive executes and delivers to the Company a Release and Discharge of All Claims substantially in the form approved by the Company, Executive (or, following his death, Executive's estate) shall be entitled to the following payments and benefits: (A) the Executive's Base Salary (at the Base Salary being paid on the Date of Termination), for the longer of: (x) the remaining Employment Period or (y) one (1) year (the "Severance Period"), payable in installments in accordance with the Company's regular payroll policies for one year after the Date of Termination, with the balance, if any, being paid pursuant to a lump sum payment on the one year anniversary date of the Date of Termination; and (B) the Executive's Annual Bonus (at the amount of the Annual Bonus paid to the Executive for the year prior to the Date of Termination) which would have been paid to the Executive had Executive's employment continued for the Severance Period, duly apportioned for any partial year, such amount to be payable to Executive on the one year anniversary date of the Date of Termination; and (C) the Executive shall receive "Years of Service" credit for the number of years comprising the Severance Period for purposes of accruing the Executive's benefit under the Company's Executive Retirement Plan and the Final Average Earnings thereunder for the Severance Period shall be determined based on the Base Salary being paid on the Date of Termination and the Annual Bonus paid to the Executive for the year prior to the Date of Termination; (D) the Executive shall automatically vest in all employee welfare and benefit plans in which the Executive was participating as of the Date of 5 Termination and such benefits shall be paid to Executive in accordance with the terms of such plans; and (E) the Company shall provide outplacement services to Executive for up to ninety (90) days. Executive shall not have a duty to mitigate the costs to the Company under this Section 8(f)(i), nor shall any payments from the Company to Executive hereunder be reduced, offset or canceled by any compensation or fees earned by (whether or not paid currently) or offered to Executive during the remainder of the fiscal year of the Company that includes the Date of Termination by a subsequent employer or other Person (as defined below in Section 18(k) below) for which Executive performs services, including, but not limited to, consulting services. (ii) If Executive's employment shall terminate upon his death or if the Company shall terminate Executive's employment for Cause or due to Executive's Disability or Executive shall resign from his employment without Good Reason, in any such case during the Employment Period, the Company shall pay to Executive (or, in the event of Executive's death, to his estate) the Accrued Obligations within thirty (30) days following the Date of Termination. (iii) Except as specifically set forth in this Section 8(f), no termination benefits shall be payable to or in respect of Executive's employment with the Company or its Affiliates. (iv) The Company shall have the right to apply and set off against the Accrued Obligations or any other amounts owing to Executive hereunder, any amounts owing by the Executive to the Company, whether pursuant to this Agreement or otherwise. (g) Resignation upon Termination. Effective as of any Date of Termination under this Section 8 or otherwise as of the date of Executive's termination of employment with the Company, Executive shall resign, in writing, from all Board memberships and other positions then held by him, or to which he has been appointed, designated or nominated, with the Company and its Affiliates. 9. Confidentiality. (a) Executive acknowledges and agrees that the terms of this Agreement, including all addendums and attachments hereto, are confidential. Executive agrees not to disclose any information contained in this Agreement, or the fact of this Agreement, to anyone, other than to Executive's lawyer, financial advisor or immediate family members. If Executive discloses any information contained in this Agreement to his lawyer, financial advisor or immediate family members as permitted herein, Executive agrees to immediately tell each such individual that he or she must abide by the confidentiality restrictions contained herein and keep such information confidential as well. 6 (b) Executive agrees that during his employment with the Company and thereafter, Executive will not, directly or indirectly (i) disclose any Confidential Information to any Person (other than, only with respect to the period that Executive is employed by the Company, to an Executive of the Company who requires such information to perform his or her duties for the Company); or (ii) use any Confidential Information for Executive's own benefit or the benefit of any third party. "Confidential Information" means confidential, proprietary or commercially sensitive information relating to (i) the Company or its Affiliates, or members of their management or boards; or (ii) any third parties who do business with the Company or its Affiliates, including customers and suppliers. Confidential Information includes, without limitation, marketing plans, business plans, financial information and records, operation methods, personnel information, drawings, designs, information regarding product development, other commercial or business information and any other information not available to the public generally. The foregoing obligation shall not apply to any Confidential Information that has been previously disclosed to the public or is in the public domain (other than by reason of a breach of Executive's obligations to hold such Confidential Information confidential). If Executive is required or requested by a court or governmental agency to disclose Confidential Information, Executive must notify the General Counsel of the Company in writing of such disclosure obligation or request no later than three business days after Executive learns of such obligation or request, and permit the Company to take all lawful steps it deems appropriate to prevent or limit the required disclosure. 10. Partial Restraint on Post-termination Competition. (a) Definitions. For the purposes of this Section 10, the following definitions shall apply: "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, other than the Company and its affiliates, that is engaging or actively planning to engage, wholly or partly, in activities ("Competitive Activities") that directly compete or would compete with the Company or its affiliates in the Company Activities (as hereinafter defined) in the Territory (as hereinafter defined). "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) any employment or independent contractor arrangement with any Competitor whereby Executive will serve such Competitor in any managerial, sales, executive or consultant capacity with respect to Competitive Activities in the Territory. "The Company Activities" means the businesses of (i) animal production and processing, meat processing (including any further processed meats) and fast food restaurants; (ii) cargo transportation, whether over land or water, and all related business, including, without limitation, logistics, freight forwarding, agency representation and stevedoring; (iii) flour milling and commodity trading; and (iv) any business acquired or commenced by the Company after the Commencement Date which has sales in excess of $100 million. "Non-compete Period" or "Non-solicitation Period" means the period beginning with the Commencement Date and ending on: (x) the two year anniversary date of the Date of Termination with respect to any termination of employment by the Executive pursuant to 7 Section 8(d) above by Executive's resignation other than for Good Reason; or (y) the one (1) year anniversary date of the Date of Termination with respect to any other termination of employment hereunder. "Territory" means the United States of America with respect to the businesses of hog production and processing, and the United States of America, the Caribbean Basin, and Central and South America with respect to the business of marine transportation, and the United States of America, Africa, Haiti, and Ecuador with respect to the business of flour milling and commodity trading which Executive acknowledges and agrees are the geographic areas in which the Company engages in the Company Activities. (b) Non-competition. (i) The parties hereto acknowledge that Executive, by virtue of his position with and responsibilities to the Company, is engaging and is expected to continue to engage during the Term in the Company Activities throughout the Territory and has executive management responsibilities with respect to the Company responsibilities which extend throughout the Territory. Executive acknowledges that to protect adequately the interest of the Company in the business of the Company it is essential that any non-compete covenant with respect thereto cover all the Company Activities and the entire Territory. (ii) Executive hereby agrees that, during the Non-compete Period, Executive will not, either directly or indirectly, alone or in conjunction with any other party, accept or enter into a Competitive Position. Executive shall notify the Company promptly in writing if Executive receives an offer of a Competitive Position during the Non-compete Period, and such notice shall describe all material terms of such offer. Nothing contained in this Section 10 shall prohibit Executive from (i) acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securities exchange or in the over-the-counter market; or (ii) owning less than a controlling interest in any fast food restaurant or restaurants, so long as Executive does not participate in the management of the operation in any way. (c) Severability. If a judicial or arbitral determination is made that any of the provisions of this Section 10 constitutes an unreasonable or otherwise unenforceable restriction against Executive the provisions of this Section 10 shall be rendered void only to the extent that such judicial or arbitral determination finds such provisions to be unreasonable or otherwise unenforceable with respect to Executive. In this regard, Executive hereby agrees that any judicial or arbitral authority construing this Agreement shall sever or reform any portion of the Territory, any prohibited business activity or any time period from the coverage of this Agreement to allow the covenants in this Section 10 to be enforced to the maximum extent authorized by law, and shall then enforce the covenants in this Section 10 as so severed or reformed. (d) Reasonable Restrictions. Executive acknowledges that the restrictions and covenants contained in this Agreement are reasonably necessary to protect the goodwill and legitimate business interests of the Company, are not overbroad, overlong, or unfair (including in 8 duration and scope), and will not curtail Executive's ability to earn a livelihood upon Executive's termination of employment with the Company. 11. Non-Solicitation of Employees and Customers. During the period of Executive's employment with the Company and for the one- year period following the termination of his employment, Executive shall not, directly or indirectly, by himself or through any third party, whether on Executive's own behalf or on behalf of any other Person or entity, (i) solicit or endeavor to solicit, employ or retain; (ii) interfere with the relationship of the Company or any of its Affiliates with; or (iii) attempt to establish a business relationship with (A) any natural person who is or was (during Executive's employment with the Company) an employee or engaged by the Company or any Affiliate to provide services to it, or (B) any customer of the Company or any of its Affiliates who was a customer at any time during which Executive was an employee of the Company. 12. Work Product. Executive agrees that all of Executive's work product (created solely or jointly with others, and including any intellectual property or moral rights in such work product), given, disclosed, created, developed or prepared in connection with Executive's employment with the Company, whether ensuing during or after Executive's employment with the Company ("Work Product") shall exclusively vest in and be the sole and exclusive property of the Company and shall constitute "work made for hire" (as that term is defined under Section 101 of the U.S. Copyright Act, 17 U.S.C. section 101) with the Company being the person for whom the work was prepared. In the event that any such Work Product is deemed not to be a "work made for hire" or does not vest by operation of law in the Company, Executive hereby irrevocably assigns, transfers and conveys to the Company, exclusively and perpetually, all right, title and interest which Executive may have or acquire in and to such Work Product throughout the world, including without limitation any copyrights and patents, and the right to secure registrations, renewals, reissues, and extensions thereof. The Company and its Affiliates or their designees shall have the exclusive right to make full and complete use of, and make changes to all Work Product without restrictions or liabilities of any kind, and Executive shall not have the right to use any such materials, other than within the legitimate scope and purpose of Executive's employment with the Company. Executive shall promptly disclose to the Company the creation or existence of any Work Product and shall take whatever additional lawful action may be necessary, and sign whatever documents the Company may require, in order to secure and vest in the Company or its designee all right, title and interest in and to all Work Product and any intellectual property rights therein (including full cooperation in support of any Company applications for patents and copyright or trademark registrations). 13. Return of Company Property. In the event of termination of Executive's employment for any reason, Executive shall return to the Company all of the property of the Company and its Affiliates, including without limitation all materials or documents containing or pertaining to Confidential Information, and including without limitation, any company car, all computers (including laptops), cell phones, keys, PDAs, Blackberries, credit cards, facsimile machines, card access to any Company building, customer lists, computer disks, reports, files, e-mails, work papers, Work Product, documents, memoranda, records and software, computer access codes or disks and instructional manuals, internal policies, and other similar materials or documents which Executive used, received or prepared, helped prepare or supervised the preparation of in connection with Executive's employment with the Company. Executive agrees not to retain any copies, duplicates, reproductions or excerpts of such material or documents. 9 14. Compliance With Company Policies. During Executive's employment with the Company, Executive shall be governed by and be subject to, and Executive hereby agrees to comply with, all Company policies applicable to employees generally or to employees at Executive's grade level, including without limitation, the Company's Code of Business Ethics and Conduct, in each case, as any such policies may be amended from time to time in the Company's sole discretion (collectively, the "Policies"). 15. Injunctive Relief with Respect to Covenants; Forum, Venue and Jurisdiction. Executive acknowledges and agrees that a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14 is a material breach of this Agreement and that remedies at law may be inadequate to protect the Company and its Affiliates in the event of such breach, and, without prejudice to any other rights and remedies otherwise available to the Company, Executive agrees to the granting of injunctive relief in the Company's favor in connection with any such breach or violation without proof of irreparable harm, plus attorneys' fees and costs to enforce these provisions. Executive further acknowledges and agrees that the Company's obligations to pay Executive any amount or provide Executive with any benefit or right pursuant to Section 8 is subject to Executive's compliance with Executive's obligations under Sections 9 through 14 inclusive, and that in the event of a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14, the Company shall immediately cease paying such benefits and Executive shall be obligated to immediately repay to the Company all amounts theretofore paid to Executive pursuant to Section 8. In addition, if not repaid, the Company shall have the right to set off from any amounts otherwise due to Executive any amounts previously paid pursuant to Section 8(f) (other than the Accrued Obligations). Executive further agrees that the foregoing is appropriate for any such breach inasmuch as actual damages cannot be readily calculated, the amount is fair and reasonable under the circumstances, and the Company would suffer irreparable harm if any of these Sections were breached. All disputes not relating to any request or application for injunctive relief in accordance with this Section 15 shall be resolved by arbitration in accordance with Section 18(b). 16. Assumption of Agreement. The Company shall require any Successor thereto, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment Without Cause as described in Section 8, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including, but not limited to, summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby. 10 18. Miscellaneous. (a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company and its Successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. The Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means), provided that the Successor to the Company shall expressly assume and agree to perform this Agreement in accordance with the provisions of Section 16. (b) Arbitration. The Company and Executive agree that any dispute or controversy arising under or in connection with this Agreement shall be resolved by final and binding arbitration before the American Arbitration Association ("AAA"). The arbitration shall be conducted in accordance with AAA's National Rules for the Resolution of Employment Disputes then in effect at the time of the arbitration. The arbitration shall be held in the general Kansas City, Kansas metropolitan area. The dispute shall be heard and determined by one arbitrator selected from a list of arbitrators who are members of AAA's Regional Employment Dispute Resolution roster. If the parties cannot agree upon a mutually acceptable arbitrator from the list, each party shall number the names in order of preference and return the list to AAA within ten (10) days from the date of the list. A party may strike a name from the list only for good cause. The arbitrator receiving the highest ranking by the parties shall be selected. Depositions, if permitted by the arbitrator, shall be limited to a maximum of two (2) per party and to a maximum of four (4) hours in duration. The arbitration shall not impair either party's right to request injunctive or other equitable relief in accordance with Section 15 of this Agreement. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas without reference to principles of conflicts of laws. (d) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes, as shall be required by law. (e) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Company and is agreed to in writing by Executive. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions. (f) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 11 (g) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing; (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested; (iii) deemed to have been received on the date of delivery or, if mailed, on the third business day after the mailing thereof; and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): (i) If to the Company, to it at: Seaboard Corporation 9000 West 67th Street Shawnee Mission, Kansas 66202 Attention: General Counsel Telephone: (913) 676-8925 Facsimile: (913) 676-8978 (ii) if to Executive, to his residential address as currently on file with the Company. (h) Voluntary Agreement; No Conflicts. Executive represents that he is entering into this Agreement voluntarily and that Executive's employment hereunder and compliance with the terms and conditions of this Agreement will not conflict with or result in the breach by Executive of any agreement to which he is a party or by which he or his properties or assets may be bound. (i) Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (j) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof. (k) Certain other Definitions. "Affiliate" with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including, but not limited to, a Subsidiary of any such Person. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and "under common Control with"): with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Person" any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. 12 "Subsidiary" with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing fifty percent (50%) or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. "Successor" of a Person means a Person that succeeds to the first Person's assets and liabilities by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred. SIGNATURE PAGE FOLLOWS 13 IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives, and Executive has hereunto set his hand, in each case effective as of the date first above written. THIS AGREEMENT CONTAINS A PROVISION REQUIRING THAT ARBITRATION PURSUANT TO THE AMERICAN ARBITRATION ASSOCIATION NATIONAL RULES FOR THE RESILUTION OF EMPLOYMENT DISPUTES IS THE EXCLUSIVE MEANS FOR RESOLVING ANY DISPUTE BETWEEN THE PARTIES HERETO AS TO THIS AGREEMENT. SEABOARD CORPORATION By: /s/ H. H. Bresky Name: H. H. Bresky Title: President Executive: By: /s/ Steven J. Bresky Steven J. Bresky 14 EX-10.2 4 ex10-2.txt EMPLOYMENT AGREEMENT BETWEEN SEABOARD CORPORATION AND ROBERT L. STEER Exhibit 10.2 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July 1, 2005 by and between SEABOARD CORPORATION, a Delaware corporation (together with any Successor thereto, the "Company"), and Robert L. Steer ("Executive"). WITNESSETH: WHEREAS, the Company desires to employ and secure the exclusive services of Executive on the terms and conditions set forth in this Agreement; WHEREAS, Executive desires to accept such employment on such terms and conditions; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows: 1. Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to continue to employ Executive, and Executive hereby accepts such continued employment with the Company. 2. Term; Position and Responsibilities; and Location. (a) Term of Employment. Unless Executive's employment shall sooner terminate pursuant to Section 8, the Company shall continue to employ Executive on the terms and subject to the conditions of this Agreement for a term commencing on July 1, 2005 (the "Commencement Date") and ending on the date which is five years after the Commencement Date, provided, however, on each annual anniversary date of the Commencement Date (an "Annual Anniversary Date"), Executive's employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions for five years after such Annual Anniversary Date, unless the Company shall have given written notice to Executive, at least thirty (30) days prior to the expiration of such Annual Anniversary Date, of its intention not to extend the Employment Period (as defined below) hereunder. Notwithstanding the foregoing, unless mutually agreed to by the Company and the Executive, Executive's employment hereunder shall under no circumstances extend beyond December 31, 2024. The period during which Executive is employed by the Company pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the "Employment Period." (b) Position and Responsibilities. During the Employment Period, Executive shall serve as Senior Vice President, Treasurer and Chief Financial Officer, and shall have such duties and responsibilities as are customarily assigned to individuals serving in such position and such other duties consistent with Executive's title and position as the Chief Executive Officer of the Company and the Board of Directors of the Company (the "Board") specifies from time to time. Executive shall devote all of his skill, knowledge, commercial efforts and business time to the conscientious and good faith performance of his duties and responsibilities for the Company to the best of his ability. (c) Location. During the Employment Period, Executive's services shall be performed primarily in the Kansas City metropolitan area. However, Executive may be required to travel in and outside of Kansas City as the needs of the Company's business dictate. 3. Base Salary. During the Employment Period, the Company shall pay Executive a base salary at an annualized rate of four hundred forty thousand dollars ($440,000), payable in installments on the Company's regular payroll dates. The Board shall review Executive's base salary annually during the Employment Period and may increase (but not decrease) such base salary from time to time, based on its periodic review of Executive's performance in accordance with the Company's regular policies and procedures. The annual base salary payable to Executive from time to time under this Section 3 shall hereinafter be referred to as the "Base Salary." 4. Annual Bonus Compensation. Executive shall be eligible to receive an annual bonus ("Annual Bonus") with respect to each calendar year ending during the Employment Period. The Annual Bonus shall be determined under the Company's Executive Officers' Bonus Plan or such other annual bonus plan maintained by the Company for similarly situated Executives that the Company designates, in its sole discretion (any such plan, the "Bonus Plan"), in accordance with the terms of such plan as in effect from time to time. Executive's Annual Bonus shall not be less than four hundred fifty thousand dollars ($450,000) for any calendar year during the Employment Period. The Annual Bonus is earned pro-rata throughout each year. The Annual Bonus for each year shall be payable in cash on or before March 1 of the following year. 5. Car Allowance. During Executive's Employment Period, Executive will be entitled to receive an annual car allowance and gasoline charge privileges in accordance with the Company's car allowance policy. 6. Executive Benefits. During the Employment Period, Executive will be eligible to participate in the employee and executive benefit plans and programs maintained by the Company from time to time in which executives of the Company at Executive's grade level are eligible to participate, including medical, dental, disability, hospitalization, life insurance, and retirement (i.e., 401K, pension and executive retirement plans), deferred compensation and savings plans, on the terms and subject to the conditions set forth in such plans; as may be amended from time to time; provided, however, the benefits provided by the Company will not be amended to provide for any benefits which are materially less than the current benefits provided to Executive at the Commencement Date. 7. Indemnification; Expenses; Paid Time Off. (a) Indemnification. Except to the extent, if any, prohibited by law, the Company shall indemnify Executive against expenses (including attorneys' fees of counsel selected by Executive), judgments, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which Executive was, is, or is threatened 2 to be, made a party by reason of facts which include Executive's being or having been an employee, officer, director or agent of the Company or any Affiliates. Except to the extent, if any, prohibited by law, the Company shall pay expenses (including attorneys' fees of counsel selected by Executive) actually and reasonably incurred by Executive in defending any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by Executive to repay such amounts so paid on Executive's behalf if it shall ultimately be determined that Executive is not entitled to be indemnified by the Company for such expenses under applicable law. The provisions of this Section 7(a) shall (i) survive termination of this Agreement; and (ii) not be deemed exclusive of any other indemnification or expense rights to which Executive may be entitled. (b) Business Expenses. During the Employment Period, the Company will reimburse Executive for all reasonable and necessary business- related expenses incurred by Executive at the request of and on behalf of the Company in accordance with The Company's normal expense reimbursement policies. (c) Paid Time Off. During the Employment Period, Executive shall be entitled to paid time off on an annualized basis in accordance with the Company's paid time off policy. Executive shall also be entitled to Company-designated holidays. 8. Termination of Employment. (a) Termination Due to Death or Disability. Executive's employment shall automatically terminate upon Executive's death and may be terminated by the Company due to Executive's Disability (as defined below in this subsection (a)). In the event that Executive's employment is terminated due to his Disability or death, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii). For purposes of this Agreement, "Disability" means a physical or mental disability that prevents or would prevent the performance by Executive of his duties hereunder for a continuous period of six months or longer. The determination of Executive's Disability will be made by an independent physician agreed to by the parties. If the parties are unable to agree within ten (10) days after a request for designation by a party, then the Company and the Executive shall each select a physician, and the two (2) physicians selected shall select a third physician. The three (3) physicians so selected shall make a determination of the Executive's Disability, as determined by at least two (2) of the three (3) physicians selected. Such determination shall be final and binding on the parties hereto, and shall be based on such competent medical evidence as shall be presented to such physicians by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such physicians. (b) Termination by the Company for Cause. Executive's employment may be terminated by the Company for Cause (as defined below in this subsection (b)). In the event of a termination of Executive's employment by the Company for Cause, Executive shall be paid the termination benefits as provided in Section 8(f)(ii). For purposes of this Agreement, "Cause" means (i) a material breach by Executive of any provision of this Agreement; (ii) a material violation by Executive of any Policy (as defined in Section 14), resulting in material injury to the Company; (iii) Executive's willful misconduct or gross negligence that has caused or is reasonably expected to 3 result in material injury to the business, reputation or prospects of the Company or any of its Affiliates; (iv) Executive's material fraud or misappropriation of funds; or (v) the commission by Executive of a felony involving moral turpitude; provided that no termination under clauses (i) or (ii) shall be effective unless Company shall have given Executive notice of the event or events constituting Cause and Executive shall have failed to cure such event or events within thirty (30) business days after receipt of such notice. (c) Termination Without Cause. Executive's employment may be terminated by the Company Without Cause (as defined below in this subsection (c)) at any time. In the event of a termination of Executive's employment by the Company Without Cause, the Executive shall be paid the termination benefits as provided in Section 8(f)(i). For purposes of this Agreement, a termination "Without Cause" shall mean a termination of Executive's employment by the Company other than due to Executive's death or Disability as described in Section 8(a) and other than for Cause as described in Section 8(b). (d) Termination by Executive. Executive may resign from his employment for any reason, including for Good Reason (as defined below in this subsection (d)). In the event of a termination of Executive's employment by Executive's resignation other than for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii) and in the event of a termination of Executive's employment by Executive for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(i). For purposes of this Agreement, a termination of employment by Executive for "Good Reason" shall mean a resignation by Executive from his employment with the Company within one hundred eighty (180) days following the occurrence, without Executive's consent, of any of the following events: (i) a material diminution in the Executive's position, authority or responsibilities; (ii) any involuntary relocation of the location where Executive primarily performs his services; or (iii) any other material breach by the Company of any material provision of this Agreement; provided that the Executive shall have given the Company notice of the event or events constituting Good Reason and the Company shall have failed to cure such event or events (to the extent capable of being cured) within thirty (30) business days after receipt of such notice. (e) Notice of Termination; Date of Termination. (i) Notice of Termination. Any termination of Executive's employment by the Company or by Executive (other than as a result of Executive's death) shall be communicated by a written Notice of Termination addressed to the other party to this Agreement. A "Notice of Termination" shall mean a notice stating that Executive or the Company, as the case may be, is electing to terminate Executive's employment with the Company (and thereby terminating the Employment Period), stating the proposed effective date of such termination, indicating the specific provision of this Section 8 under which such termination is being effected and, if applicable, setting forth in reasonable detail the circumstances claimed to provide the basis for such termination. Any Notice of Termination given by an Executive must specify an effective date of termination which is at least thirty (30) days after the giving of the Notice of Termination. 4 (ii) Date of Termination. The term "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death; and (ii) if Executive's employment is terminated for any other reason, the effective date of termination specified in such Notice of Termination. The Employment Period shall expire on the Date of Termination. (f) Payments Upon Certain Terminations. (i) In the event of a termination of Executive's employment by the Company Without Cause or by Executive's resignation from employment for Good Reason during the Employment Period, the Company shall pay to Executive (or, following his death, to Executive's estate), within thirty (30) days of the Date of Termination, (x) his Base Salary through the Date of Termination, to the extent not previously paid; (y) the pro-rata amount of the Annual Bonus (based on the amount paid for the previous year) which is accrued through the date of termination; and (z) reimbursement for any unreimbursed business expenses incurred by Executive prior to the Date of Termination that are subject to reimbursement pursuant to the terms hereof, and payment for paid time off accrued as of the Date of Termination but unused (such amounts under clauses (x), (y) and (z), collectively the "Accrued Obligations"). In addition, in the event of any such termination of Executive's employment, if Executive executes and delivers to the Company a Release and Discharge of All Claims substantially in the form approved by the Company, Executive (or, following his death, Executive's estate) shall be entitled to the following payments and benefits: (A) the Executive's Base Salary (at the Base Salary being paid on the Date of Termination), for the longer of: (x) the remaining Employment Period or (y) one (1) year (the "Severance Period"), payable in installments in accordance with the Company's regular payroll policies for one year after the Date of Termination, with the balance, if any, being paid pursuant to a lump sum payment on the one year anniversary date of the Date of Termination; and (B) the Executive's Annual Bonus (at the amount of the Annual Bonus paid to the Executive for the year prior to the Date of Termination) which would have been paid to the Executive had Executive's employment continued for the Severance Period, duly apportioned for any partial year, such amount to be payable to Executive on the one year anniversary date of the Date of Termination; and (C) the Executive shall receive "Years of Service" credit for the number of years comprising the Severance Period for purposes of accruing the Executive's benefit under the Company's Executive Retirement Plan and the Final Average Earnings thereunder for the Severance Period shall be determined based on the Base Salary being paid on the Date of Termination and the Annual Bonus paid to the Executive for the year prior to the Date of Termination; (D) the Executive shall automatically vest in all employee welfare and benefit plans in which the Executive was participating as of the Date of 5 Termination and such benefits shall be paid to Executive in accordance with the terms of such plans; (E) the Company shall provide outplacement services to Executive for up to ninety (90) days. Executive shall not have a duty to mitigate the costs to the Company under this Section 8(f)(i), nor shall any payments from the Company to Executive hereunder be reduced, offset or canceled by any compensation or fees earned by (whether or not paid currently) or offered to Executive during the remainder of the fiscal year of the Company that includes the Date of Termination by a subsequent employer or other Person (as defined below in Section 18(k) below) for which Executive performs services, including, but not limited to, consulting services. (ii) If Executive's employment shall terminate upon his death or if the Company shall terminate Executive's employment for Cause or due to Executive's Disability or Executive shall resign from his employment without Good Reason, in any such case during the Employment Period, the Company shall pay to Executive (or, in the event of Executive's death, to his estate) the Accrued Obligations within thirty (30) days following the Date of Termination. (iii) Except as specifically set forth in this Section 8(f), no termination benefits shall be payable to or in respect of Executive's employment with the Company or its Affiliates. (iv) The Company shall have the right to apply and set off against the Accrued Obligations or any other amounts owing to Executive hereunder, any amounts owing by the Executive to the Company, whether pursuant to this Agreement or otherwise. (g) Resignation upon Termination. Effective as of any Date of Termination under this Section 8 or otherwise as of the date of Executive's termination of employment with the Company, Executive shall resign, in writing, from all Board memberships and other positions then held by him, or to which he has been appointed, designated or nominated, with the Company and its Affiliates. 9. Confidentiality. (a) Executive acknowledges and agrees that the terms of this Agreement, including all addendums and attachments hereto, are confidential. Executive agrees not to disclose any information contained in this Agreement, or the fact of this Agreement, to anyone, other than to Executive's lawyer, financial advisor or immediate family members. If Executive discloses any information contained in this Agreement to his lawyer, financial advisor or immediate family members as permitted herein, Executive agrees to immediately tell each such individual that he or she must abide by the confidentiality restrictions contained herein and keep such information confidential as well. 6 (b) Executive agrees that during his employment with the Company and thereafter, Executive will not, directly or indirectly (i) disclose any Confidential Information to any Person (other than, only with respect to the period that Executive is employed by the Company, to an Executive of the Company who requires such information to perform his or her duties for the Company); or (ii) use any Confidential Information for Executive's own benefit or the benefit of any third party. "Confidential Information" means confidential, proprietary or commercially sensitive information relating to (i) the Company or its Affiliates, or members of their management or boards; or (ii) any third parties who do business with the Company or its Affiliates, including customers and suppliers. Confidential Information includes, without limitation, marketing plans, business plans, financial information and records, operation methods, personnel information, drawings, designs, information regarding product development, other commercial or business information and any other information not available to the public generally. The foregoing obligation shall not apply to any Confidential Information that has been previously disclosed to the public or is in the public domain (other than by reason of a breach of Executive's obligations to hold such Confidential Information confidential). If Executive is required or requested by a court or governmental agency to disclose Confidential Information, Executive must notify the General Counsel of the Company in writing of such disclosure obligation or request no later than three business days after Executive learns of such obligation or request, and permit the Company to take all lawful steps it deems appropriate to prevent or limit the required disclosure. 10. Partial Restraint on Post-termination Competition. (a) Definitions. For the purposes of this Section 10, the following definitions shall apply: "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, other than the Company and its affiliates, that is engaging or actively planning to engage, wholly or partly, in activities ("Competitive Activities") that directly compete or would compete with the Company or its affiliates in the Company Activities (as hereinafter defined) in the Territory (as hereinafter defined). "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) any employment or independent contractor arrangement with any Competitor whereby Executive will serve such Competitor in any managerial, sales, executive or consultant capacity with respect to Competitive Activities in the Territory. "The Company Activities" means the businesses of (i) animal production and processing, meat processing (including any further processed meats) and fast food restaurants; (ii) cargo transportation, whether over land or water, and all related business, including, without limitation, logistics, freight forwarding, agency representation and stevedoring; (iii) flour milling and commodity trading; and (iv) any business acquired or commenced by the Company after the Commencement Date which has sales in excess of $100 million. "Non-compete Period" or "Non-solicitation Period" means the period beginning with the Commencement Date and ending on: (x) the two year anniversary date of the Date of Termination with respect to any termination of employment by the Executive pursuant to 7 Section 8 (d) above by Executive's resignation other than for Good Reason; or (y) the one (1) year anniversary date of the Date of Termination with respect to any other termination of employment hereunder. "Territory" means the United States of America with respect to the businesses of hog production and processing, and the United States of America, the Caribbean Basin, and Central and South America with respect to the business of marine transportation, and the United States of America, Africa, Haiti, and Ecuador with respect to the business of flour milling and commodity trading which Executive acknowledges and agrees are the geographic areas in which the Company engages in the Company Activities. (b) Non-competition. (i) The parties hereto acknowledge that Executive, by virtue of his position with and responsibilities to the Company, is engaging and is expected to continue to engage during the Term in the Company Activities throughout the Territory and has executive management responsibilities with respect to the Company responsibilities which extend throughout the Territory. Executive acknowledges that to protect adequately the interest of the Company in the business of the Company it is essential that any non-compete covenant with respect thereto cover all the Company Activities and the entire Territory. (ii) Executive hereby agrees that, during the Non-compete Period, Executive will not, either directly or indirectly, alone or in conjunction with any other party, accept or enter into a Competitive Position. Executive shall notify the Company promptly in writing if Executive receives an offer of a Competitive Position during the Non-compete Period, and such notice shall describe all material terms of such offer. Nothing contained in this Section 10 shall prohibit Executive from (i) acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securities exchange or in the over-the-counter market; or (ii) owning less than a controlling interest in any fast food restaurant or restaurants, so long as Executive does not participate in the management of the operation in any way. (c) Severability. If a judicial or arbitral determination is made that any of the provisions of this Section 10 constitutes an unreasonable or otherwise unenforceable restriction against Executive the provisions of this Section 10 shall be rendered void only to the extent that such judicial or arbitral determination finds such provisions to be unreasonable or otherwise unenforceable with respect to Executive. In this regard, Executive hereby agrees that any judicial or arbitral authority construing this Agreement shall sever or reform any portion of the Territory, any prohibited business activity or any time period from the coverage of this Agreement to allow the covenants in this Section 10 to be enforced to the maximum extent authorized by law, and shall then enforce the covenants in this Section 10 as so severed or reformed. (d) Reasonable Restrictions. Executive acknowledges that the restrictions and covenants contained in this Agreement are reasonably necessary to protect the goodwill and legitimate business interests of the Company, are not overbroad, overlong, or unfair (including in 8 duration and scope), and will not curtail Executive's ability to earn a livelihood upon Executive's termination of employment with the Company. 11. Non-Solicitation of Employees and Customers. During the period of Executive's employment with the Company and for the one- year period following the termination of his employment, Executive shall not, directly or indirectly, by himself or through any third party, whether on Executive's own behalf or on behalf of any other Person or entity, (i) solicit or endeavor to solicit, employ or retain; (ii) interfere with the relationship of the Company or any of its Affiliates with; or (iii) attempt to establish a business relationship with (A) any natural person who is or was (during Executive's employment with the Company) an employee or engaged by the Company or any Affiliate to provide services to it, or (B) any customer of the Company or any of its Affiliates who was a customer at any time during which Executive was an employee of the Company. 12. Work Product. Executive agrees that all of Executive's work product (created solely or jointly with others, and including any intellectual property or moral rights in such work product), given, disclosed, created, developed or prepared in connection with Executive's employment with the Company, whether ensuing during or after Executive's employment with the Company ("Work Product") shall exclusively vest in and be the sole and exclusive property of the Company and shall constitute "work made for hire" (as that term is defined under Section 101 of the U.S. Copyright Act, 17 U.S.C. section 101) with the Company being the person for whom the work was prepared. In the event that any such Work Product is deemed not to be a "work made for hire" or does not vest by operation of law in the Company, Executive hereby irrevocably assigns, transfers and conveys to the Company, exclusively and perpetually, all right, title and interest which Executive may have or acquire in and to such Work Product throughout the world, including without limitation any copyrights and patents, and the right to secure registrations, renewals, reissues, and extensions thereof. The Company and its Affiliates or their designees shall have the exclusive right to make full and complete use of, and make changes to all Work Product without restrictions or liabilities of any kind, and Executive shall not have the right to use any such materials, other than within the legitimate scope and purpose of Executive's employment with the Company. Executive shall promptly disclose to the Company the creation or existence of any Work Product and shall take whatever additional lawful action may be necessary, and sign whatever documents the Company may require, in order to secure and vest in the Company or its designee all right, title and interest in and to all Work Product and any intellectual property rights therein (including full cooperation in support of any Company applications for patents and copyright or trademark registrations). 13. Return of Company Property. In the event of termination of Executive's employment for any reason, Executive shall return to the Company all of the property of the Company and its Affiliates, including without limitation all materials or documents containing or pertaining to Confidential Information, and including without limitation, any company car, all computers (including laptops), cell phones, keys, PDAs, Blackberries, credit cards, facsimile machines, card access to any Company building, customer lists, computer disks, reports, files, e-mails, work papers, Work Product, documents, memoranda, records and software, computer access codes or disks and instructional manuals, internal policies, and other similar materials or documents which Executive used, received or prepared, helped prepare or supervised the preparation of in connection with Executive's employment with the Company. Executive agrees not to retain any copies, duplicates, reproductions or excerpts of such material or documents. 9 14. Compliance With Company Policies. During Executive's employment with the Company, Executive shall be governed by and be subject to, and Executive hereby agrees to comply with, all Company policies applicable to employees generally or to employees at Executive's grade level, including without limitation, the Company's Code of Business Ethics and Conduct, in each case, as any such policies may be amended from time to time in the Company's sole discretion (collectively, the "Policies"). 15. Injunctive Relief with Respect to Covenants; Forum, Venue and Jurisdiction. Executive acknowledges and agrees that a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14 is a material breach of this Agreement and that remedies at law may be inadequate to protect the Company and its Affiliates in the event of such breach, and, without prejudice to any other rights and remedies otherwise available to the Company, Executive agrees to the granting of injunctive relief in the Company's favor in connection with any such breach or violation without proof of irreparable harm, plus attorneys' fees and costs to enforce these provisions. Executive further acknowledges and agrees that the Company's obligations to pay Executive any amount or provide Executive with any benefit or right pursuant to Section 8 is subject to Executive's compliance with Executive's obligations under Sections 9 through 14 inclusive, and that in the event of a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14, the Company shall immediately cease paying such benefits and Executive shall be obligated to immediately repay to the Company all amounts theretofore paid to Executive pursuant to Section 8. In addition, if not repaid, the Company shall have the right to set off from any amounts otherwise due to Executive any amounts previously paid pursuant to Section 8(f) (other than the Accrued Obligations). Executive further agrees that the foregoing is appropriate for any such breach inasmuch as actual damages cannot be readily calculated, the amount is fair and reasonable under the circumstances, and the Company would suffer irreparable harm if any of these Sections were breached. All disputes not relating to any request or application for injunctive relief in accordance with this Section 15 shall be resolved by arbitration in accordance with Section 18(b). 16. Assumption of Agreement. The Company shall require any Successor thereto, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment Without Cause as described in Section 8, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including, but not limited to, summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby. 10 18. Miscellaneous. (a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company and its Successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. The Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means), provided that the Successor to the Company shall expressly assume and agree to perform this Agreement in accordance with the provisions of Section 16. (b) Arbitration. The Company and Executive agree that any dispute or controversy arising under or in connection with this Agreement shall be resolved by final and binding arbitration before the American Arbitration Association ("AAA"). The arbitration shall be conducted in accordance with AAA's National Rules for the Resolution of Employment Disputes then in effect at the time of the arbitration. The arbitration shall be held in the general Kansas City, Kansas metropolitan area. The dispute shall be heard and determined by one arbitrator selected from a list of arbitrators who are members of AAA's Regional Employment Dispute Resolution roster. If the parties cannot agree upon a mutually acceptable arbitrator from the list, each party shall number the names in order of preference and return the list to AAA within ten (10) days from the date of the list. A party may strike a name from the list only for good cause. The arbitrator receiving the highest ranking by the parties shall be selected. Depositions, if permitted by the arbitrator, shall be limited to a maximum of two (2) per party and to a maximum of four (4) hours in duration. The arbitration shall not impair either party's right to request injunctive or other equitable relief in accordance with Section 15 of this Agreement. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas without reference to principles of conflicts of laws. (d) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes, as shall be required by law. (e) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Company and is agreed to in writing by Executive. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions. (f) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 11 (g) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing; (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested; (iii) deemed to have been received on the date of delivery or, if mailed, on the third business day after the mailing thereof; and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): (i) If to the Company, to it at: Seaboard Corporation 9000 West 67th Street Shawnee Mission, Kansas 66202 Attention: General Counsel Telephone: (913) 676-8925 Facsimile: (913) 676-8978 (ii) if to Executive, to his residential address as currently on file with the Company. (h) Voluntary Agreement; No Conflicts. Executive represents that he is entering into this Agreement voluntarily and that Executive's employment hereunder and compliance with the terms and conditions of this Agreement will not conflict with or result in the breach by Executive of any agreement to which he is a party or by which he or his properties or assets may be bound. (i) Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (j) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof. (k) Certain other Definitions. "Affiliate" with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including, but not limited to, a Subsidiary of any such Person. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and "under common Control with"): with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Person" any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. 12 "Subsidiary" with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing fifty percent (50%) or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. "Successor" of a Person means a Person that succeeds to the first Person's assets and liabilities by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred. SIGNATURE PAGE FOLLOWS 13 IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives, and Executive has hereunto set his hand, in each case effective as of the date first above written. THIS AGREEMENT CONTAINS A PROVISION REQUIRING THAT ARBITRATION PURSUANT TO THE AMERICAN ARBITRATION ASSOCIATION NATIONAL RULES FOR THE RESILUTION OF EMPLOYMENT DISPUTES IS THE EXCLUSIVE MEANS FOR RESOLVING ANY DISPUTE BETWEEN THE PARTIES HERETO AS TO THIS AGREEMENT. SEABOARD CORPORATION By: /s/ H. H. Bresky Name: H. H. Bresky Title: President Executive: By: /s/ Robert L. Steer Robert L. Steer 14 EX-10.3 5 ex10-3.txt EMPLOYMENT AGREEMENT BETWEEN SEABOARD FARMS, INC AND RODNEY K. BRENNEMAN Exhibit 10.3 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of July 1, 2005 by and between SEABOARD FARMS, INC., an Oklahoma corporation (together with any Successor thereto, the "Company"), and Rodney K. Brenneman ("Executive"). WITNESSETH: WHEREAS, the Company desires to employ and secure the exclusive services of Executive on the terms and conditions set forth in this Agreement; WHEREAS, Executive desires to accept such employment on such terms and conditions; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and Executive hereby agree as follows: 1. Agreement to Employ. Upon the terms and subject to the conditions of this Agreement, the Company hereby agrees to continue to employ Executive, and Executive hereby accepts such continued employment with the Company. 2. Term; Position and Responsibilities; and Location. (a) Term of Employment. Unless Executive's employment shall sooner terminate pursuant to Section 8, the Company shall continue to employ Executive on the terms and subject to the conditions of this Agreement for a term commencing on July 1, 2005 (the "Commencement Date") and ending on the date which is five years after the Commencement Date, provided, however, on each annual anniversary date of the Commencement Date (an "Annual Anniversary Date"), Executive's employment hereunder shall be deemed to be automatically extended, upon the same terms and conditions for five years after such Annual Anniversary Date, unless the Company shall have given written notice to Executive, at least thirty (30) days prior to the expiration of such Annual Anniversary Date, of its intention not to extend the Employment Period (as defined below) hereunder. Notwithstanding the foregoing, unless mutually agreed to by the Company and the Executive, Executive's employment hereunder shall under no circumstances extend beyond December 31, 2029. The period during which Executive is employed by the Company pursuant to this Agreement, including any extension thereof in accordance with the preceding sentence, shall be referred to as the "Employment Period." (b) Position and Responsibilities. During the Employment Period, Executive shall serve as President, and shall have such duties and responsibilities as are customarily assigned to individuals serving in such position and such other duties consistent with Executive's title and position as the Board of Directors of the Company (the "Board") specifies from time to time. Executive shall devote all of his skill, knowledge, commercial efforts and business time to the conscientious and good faith performance of his duties and responsibilities for the Company to the best of his ability. (c) Location. During the Employment Period, Executive's services shall be performed primarily in the Kansas City metropolitan area. However, Executive may be required to travel in and outside of Kansas City as the needs of the Company's business dictate. 3. Base Salary. During the Employment Period, the Company shall pay Executive a base salary at an annualized rate of Three Hundred Seventy thousand dollars ($370,000), payable in installments on the Company's regular payroll dates. The Board shall review Executive's base salary annually during the Employment Period and may increase (but not decrease) such base salary from time to time, based on its periodic review of Executive's performance in accordance with the Company's regular policies and procedures. The annual base salary payable to Executive from time to time under this Section 3 shall hereinafter be referred to as the "Base Salary." 4. Annual Bonus Compensation. Executive shall be eligible to receive an annual bonus ("Annual Bonus") with respect to each calendar year ending during the Employment Period. The Annual Bonus shall be determined by the Board of Directors, in its discretion. Executive's Annual Bonus shall not be less than four hundred thousand dollars ($400,000) for any calendar year during the Employment Period. The Annual Bonus is earned pro-rata throughout each year. The Annual Bonus for each year shall be payable in cash on or before March 1 of the following year. 5. Car Allowance. During Executive's Employment Period, Executive will be entitled to receive an annual car allowance and gasoline charge privileges in accordance with the Company's car allowance policy. 6. Executive Benefits. During the Employment Period, Executive will be eligible to participate in the employee and executive benefit plans and programs maintained by the Company from time to time in which executives of the Company at Executive's grade level are eligible to participate, including medical, dental, disability, hospitalization, life insurance, and retirement (i.e., 401K, pension and executive retirement plans), deferred compensation and savings plans, on the terms and subject to the conditions set forth in such plans; as may be amended from time to time; provided, however, the benefits provided by the Company will not be amended to provide for any benefits which are materially less than the current benefits provided to Executive at the Commencement Date. 7. Indemnification; Expenses; Paid Time Off. (a) Indemnification. Except to the extent, if any, prohibited by law, the Company shall indemnify Executive against expenses (including attorneys' fees of counsel selected by Executive), judgments, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which Executive was, is, or is threatened to be, made a party by reason of facts which include Executive's being or having 2 been an employee, officer, director or agent of the Company or any Affiliates. Except to the extent, if any, prohibited by law, the Company shall pay expenses (including attorneys' fees of counsel selected by Executive) actually and reasonably incurred by Executive in defending any such action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by Executive to repay such amounts so paid on Executive's behalf if it shall ultimately be determined that Executive is not entitled to be indemnified by the Company for such expenses under applicable law. The provisions of this Section 7(a) shall (i) survive termination of this Agreement; and (ii) not be deemed exclusive of any other indemnification or expense rights to which Executive may be entitled. (b) Business Expenses. During the Employment Period, the Company will reimburse Executive for all reasonable and necessary business-related expenses incurred by Executive at the request of and on behalf of the Company in accordance with The Company's normal expense reimbursement policies. (c) Paid Time Off. During the Employment Period, Executive shall be entitled to paid time off on an annualized basis in accordance with the Company's paid time off policy. Executive shall also be entitled to Company-designated holidays. 8. Termination of Employment. (a) Termination Due to Death or Disability. Executive's employment shall automatically terminate upon Executive's death and may be terminated by the Company due to Executive's Disability (as defined below in this subsection (a)). In the event that Executive's employment is terminated due to his Disability or death, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii). For purposes of this Agreement, "Disability" means a physical or mental disability that prevents or would prevent the performance by Executive of his duties hereunder for a continuous period of six months or longer. The determination of Executive's Disability will be made by an independent physician agreed to by the parties. If the parties are unable to agree within ten (10) days after a request for designation by a party, then the Company and the Executive shall each select a physician, and the two (2) physicians selected shall select a third physician. The three (3) physicians so selected shall make a determination of the Executive's Disability, as determined by at least two (2) of the three (3) physicians selected. Such determination shall be final and binding on the parties hereto, and shall be based on such competent medical evidence as shall be presented to such physicians by Executive and/or the Company or by any physician or group of physicians or other competent medical experts employed by Executive and/or the Company to advise such physicians. (b) Termination by the Company for Cause. Executive's employment may be terminated by the Company for Cause (as defined below in this subsection (b)). In the event of a termination of Executive's employment by the Company for Cause, Executive shall be paid the termination benefits as provided in Section 8(f)(ii). For purposes of this Agreement, "Cause" means (i) a material breach by Executive of any provision of this Agreement; (ii) a material violation by Executive of any Policy (as defined in Section 14), resulting in material injury to the Company; (iii) Executive's willful misconduct or gross negligence that has caused or is reasonably expected to result in material injury to the business, reputation or prospects of the 3 Company or any of its Affiliates; (iv) Executive's material fraud or misappropriation of funds; or (v) the commission by Executive of a felony involving moral turpitude; provided that no termination under clauses (i) or (ii) shall be effective unless Company shall have given Executive notice of the event or events constituting Cause and Executive shall have failed to cure such event or events within thirty (30) business days after receipt of such notice. (c) Termination Without Cause. Executive's employment may be terminated by the Company Without Cause (as defined below in this subsection (c)) at any time. In the event of a termination of Executive's employment by the Company Without Cause, the Executive shall be paid the termination benefits as provided in Section 8(f)(i). For purposes of this Agreement, a termination "Without Cause" shall mean a termination of Executive's employment by the Company other than due to Executive's death or Disability as described in Section 8(a) and other than for Cause as described in Section 8(b). (d) Termination by Executive. Executive may resign from his employment for any reason, including for Good Reason (as defined below in this subsection (d)). In the event of a termination of Executive's employment by Executive's resignation other than for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(ii) and in the event of a termination of Executive's employment by Executive for Good Reason, no termination benefits shall be payable to or in respect of Executive except as provided in Section 8(f)(i). For purposes of this Agreement, a termination of employment by Executive for "Good Reason" shall mean a resignation by Executive from his employment with the Company within one hundred eighty (180) days following the occurrence, without Executive's consent, of any of the following events: (i) a material diminution in the Executive's position, authority or responsibilities; (ii) any involuntary relocation of the location where Executive primarily performs his services; or (iii) any other material breach by the Company of any material provision of this Agreement; provided that the Executive shall have given the Company notice of the event or events constituting Good Reason and the Company shall have failed to cure such event or events (to the extent capable of being cured) within thirty (30) business days after receipt of such notice. (e) Notice of Termination; Date of Termination. (i) Notice of Termination. Any termination of Executive's employment by the Company or by Executive (other than as a result of Executive's death) shall be communicated by a written Notice of Termination addressed to the other party to this Agreement. A "Notice of Termination" shall mean a notice stating that Executive or the Company, as the case may be, is electing to terminate Executive's employment with the Company (and thereby terminating the Employment Period), stating the proposed effective date of such termination, indicating the specific provision of this Section 8 under which such termination is being effected and, if applicable, setting forth in reasonable detail the circumstances claimed to provide the basis for such termination. Any Notice of Termination given by an Executive must specify an effective date of termination which is at least thirty (30) days after the giving of the Notice of Termination. 4 (ii) Date of Termination. The term "Date of Termination" shall mean (i) if Executive's employment is terminated by his death, the date of his death; and (ii) if Executive's employment is terminated for any other reason, the effective date of termination specified in such Notice of Termination. The Employment Period shall expire on the Date of Termination. (f) Payments Upon Certain Terminations. (i) In the event of a termination of Executive's employment by the Company Without Cause or by Executive's resignation from employment for Good Reason during the Employment Period, the Company shall pay to Executive (or, following his death, to Executive's estate), within thirty (30) days of the Date of Termination, (x) his Base Salary through the Date of Termination, to the extent not previously paid; (y) the pro-rata amount of the Annual Bonus (based on the amount paid for the previous year) which is accrued through the date of termination; and (z) reimbursement for any unreimbursed business expenses incurred by Executive prior to the Date of Termination that are subject to reimbursement pursuant to the terms hereof, and payment for paid time off accrued as of the Date of Termination but unused (such amounts under clauses (x), (y) and (z), collectively the "Accrued Obligations"). In addition, in the event of any such termination of Executive's employment, if Executive executes and delivers to the Company a Release and Discharge of All Claims substantially in the form approved by the Company, Executive (or, following his death, Executive's estate) shall be entitled to the following payments and benefits: (A) the Executive's Base Salary (at the Base Salary being paid on the Date of Termination), for the longer of: (x) the remaining Employment Period or (y) one (1) year (the "Severance Period"), payable in installments in accordance with the Company's regular payroll policies for one year after the Date of Termination, with the balance, if any, being paid pursuant to a lump sum payment on the one year anniversary date of the Date of Termination; and (B) the Executive's Annual Bonus (at the amount of the Annual Bonus paid to the Executive for the year prior to the Date of Termination) which would have been paid to the Executive had Executive's employment continued for the Severance Period, duly apportioned for any partial year, such amount to be payable to Executive on the one year anniversary date of the Date of Termination; and (C) the Executive shall receive "Years of Service" credit for the number of years comprising the Severance Period for purposes of accruing the Executive's benefit under the Company's Executive Retirement Plan and the Final Average Earnings thereunder for the Severance Period shall be determined based on the Base Salary being paid on the Date of Termination and the Annual Bonus paid to the Executive for the year prior to the Date of Termination; 5 (D) the Executive shall automatically vest in all employee welfare and benefit plans in which the Executive was participating as of the Date of Termination and such benefits shall be paid to Executive in accordance with the terms of such plans; and (E) the Company shall provide outplacement services to Executive for up to ninety (90) days. Executive shall not have a duty to mitigate the costs to the Company under this Section 8(f)(i), nor shall any payments from the Company to Executive hereunder be reduced, offset or canceled by any compensation or fees earned by (whether or not paid currently) or offered to Executive during the remainder of the fiscal year of the Company that includes the Date of Termination by a subsequent employer or other Person (as defined below in Section 18(k) below) for which Executive performs services, including, but not limited to, consulting services. (ii) If Executive's employment shall terminate upon his death or if the Company shall terminate Executive's employment for Cause or due to Executive's Disability or Executive shall resign from his employment without Good Reason, in any such case during the Employment Period, the Company shall pay to Executive (or, in the event of Executive's death, to his estate) the Accrued Obligations within thirty (30) days following the Date of Termination. (iii) Except as specifically set forth in this Section 8(f), no termination benefits shall be payable to or in respect of Executive's employment with the Company or its Affiliates. (iv) The Company shall have the right to apply and set off against the Accrued Obligations or any other amounts owing to Executive hereunder, any amounts owing by the Executive to the Company, whether pursuant to this Agreement or otherwise. (g) Resignation upon Termination. Effective as of any Date of Termination under this Section 8 or otherwise as of the date of Executive's termination of employment with the Company, Executive shall resign, in writing, from all Board memberships and other positions then held by him, or to which he has been appointed, designated or nominated, with the Company and its Affiliates. 9. Confidentiality. (a) Executive acknowledges and agrees that the terms of this Agreement, including all addendums and attachments hereto, are confidential. Executive agrees not to disclose any information contained in this Agreement, or the fact of this Agreement, to anyone, other than to Executive's lawyer, financial advisor or immediate family members. If Executive discloses any information contained in this Agreement to his lawyer, financial advisor or immediate family members as permitted herein, Executive agrees to immediately tell each such 6 individual that he or she must abide by the confidentiality restrictions contained herein and keep such information confidential as well. (b) Executive agrees that during his employment with the Company and thereafter, Executive will not, directly or indirectly (i) disclose any Confidential Information to any Person (other than, only with respect to the period that Executive is employed by the Company, to an Executive of the Company who requires such information to perform his or her duties for the Company); or (ii) use any Confidential Information for Executive's own benefit or the benefit of any third party. "Confidential Information" means confidential, proprietary or commercially sensitive information relating to (i) the Company or its Affiliates, or members of their management or boards; or (ii) any third parties who do business with the Company or its Affiliates, including customers and suppliers. Confidential Information includes, without limitation, marketing plans, business plans, financial information and records, operation methods, personnel information, drawings, designs, information regarding product development, other commercial or business information and any other information not available to the public generally. The foregoing obligation shall not apply to any Confidential Information that has been previously disclosed to the public or is in the public domain (other than by reason of a breach of Executive's obligations to hold such Confidential Information confidential). If Executive is required or requested by a court or governmental agency to disclose Confidential Information, Executive must notify the General Counsel of the Company in writing of such disclosure obligation or request no later than three business days after Executive learns of such obligation or request, and permit the Company to take all lawful steps it deems appropriate to prevent or limit the required disclosure. 10. Partial Restraint on Post-termination Competition. (a) Definitions. For the purposes of this Section 10, the following definitions shall apply: "Competitor" means any business, individual, partnership, joint venture, association, firm, corporation or other entity, other than the Company and its affiliates, that is engaging or actively planning to engage, wholly or partly, in activities ("Competitive Activities") that directly compete or would compete with the Company or its affiliates in the Company Activities (as hereinafter defined) in the Territory (as hereinafter defined). "Competitive Position" means (i) the direct or indirect ownership or control of all or any portion of a Competitor; or (ii) any employment or independent contractor arrangement with any Competitor whereby Executive will serve such Competitor in any managerial, sales, executive or consultant capacity with respect to Competitive Activities in the Territory. "The Company Activities" means the businesses of animal production and processing, meat processing (including any further processed meats) and fast food restaurants and any business acquired or commenced by the Company after the Commencement Date which has sales in excess of $100 million. 7 "Non-compete Period" or "Non-solicitation Period" means the period beginning with the Commencement Date and ending on: (x) the two year anniversary date of the Date of Termination with respect to any termination of employment by the Executive pursuant to Section 8(d) above by Executive's resignation other than for Good Reason; or (y) the one (1) year anniversary date of the Date of Termination with respect to any other termination of employment hereunder. "Territory" means the entire United States of America, which Executive acknowledges and agrees are the geographic areas in which the Company engages in the Company Activities. (b) Non-competition. (i) The parties hereto acknowledge that Executive, by virtue of his position with and responsibilities to the Company, is engaging and is expected to continue to engage during the Term in the Company Activities throughout the Territory and has executive management responsibilities with respect to the Company responsibilities which extend throughout the Territory. Executive acknowledges that to protect adequately the interest of the Company in the business of the Company it is essential that any non-compete covenant with respect thereto cover all the Company Activities and the entire Territory. (ii) Executive hereby agrees that, during the Non-compete Period, Executive will not, either directly or indirectly, alone or in conjunction with any other party, accept or enter into a Competitive Position. Executive shall notify the Company promptly in writing if Executive receives an offer of a Competitive Position during the Non-compete Period, and such notice shall describe all material terms of such offer. Nothing contained in this Section 10 shall prohibit Executive from (i) acquiring not more than five percent (5%) of any company whose common stock is publicly traded on a national securities exchange or in the over-the-counter market; or (ii) owning less than a controlling interest in any fast food restaurant or restaurants, so long as Executive does not participate in the management of the operation in manner which materially detracts from his ability to perform his obligations hereunder. (c) Severability. If a judicial or arbitral determination is made that any of the provisions of this Section 10 constitutes an unreasonable or otherwise unenforceable restriction against Executive the provisions of this Section 10 shall be rendered void only to the extent that such judicial or arbitral determination finds such provisions to be unreasonable or otherwise unenforceable with respect to Executive. In this regard, Executive hereby agrees that any judicial or arbitral authority construing this Agreement shall sever or reform any portion of the Territory, any prohibited business activity or any time period from the coverage of this Agreement to allow the covenants in this Section 10 to be enforced to the maximum extent authorized by law, and shall then enforce the covenants in this Section 10 as so severed or reformed. 8 (d) Reasonable Restrictions. Executive acknowledges that the restrictions and covenants contained in this Agreement are reasonably necessary to protect the goodwill and legitimate business interests of the Company, are not overbroad, overlong, or unfair (including in duration and scope), and will not curtail Executive's ability to earn a livelihood upon Executive's termination of employment with the Company. 11. Non-Solicitation of Employees and Customers. During the period of Executive's employment with the Company and for the one- year period following the termination of his employment, Executive shall not, directly or indirectly, by himself or through any third party, whether on Executive's own behalf or on behalf of any other Person or entity, (i) solicit or endeavor to solicit, employ or retain; (ii) interfere with the relationship of the Company or any of its Affiliates with; or (iii) attempt to establish a business relationship with (A) any natural person who is or was (during Executive's employment with the Company) an employee or engaged by the Company or any Affiliate to provide services to it, or (B) any customer of the Company or any of its Affiliates who was a customer at any time during which Executive was an employee of the Company. 12. Work Product. Executive agrees that all of Executive's work product (created solely or jointly with others, and including any intellectual property or moral rights in such work product), given, disclosed, created, developed or prepared in connection with Executive's employment with the Company, whether ensuing during or after Executive's employment with the Company ("Work Product") shall exclusively vest in and be the sole and exclusive property of the Company and shall constitute "work made for hire" (as that term is defined under Section 101 of the U.S. Copyright Act, 17 U.S.C. section 101) with the Company being the person for whom the work was prepared. In the event that any such Work Product is deemed not to be a "work made for hire" or does not vest by operation of law in the Company, Executive hereby irrevocably assigns, transfers and conveys to the Company, exclusively and perpetually, all right, title and interest which Executive may have or acquire in and to such Work Product throughout the world, including without limitation any copyrights and patents, and the right to secure registrations, renewals, reissues, and extensions thereof. The Company and its Affiliates or their designees shall have the exclusive right to make full and complete use of, and make changes to all Work Product without restrictions or liabilities of any kind, and Executive shall not have the right to use any such materials, other than within the legitimate scope and purpose of Executive's employment with the Company. Executive shall promptly disclose to the Company the creation or existence of any Work Product and shall take whatever additional lawful action may be necessary, and sign whatever documents the Company may require, in order to secure and vest in the Company or its designee all right, title and interest in and to all Work Product and any intellectual property rights therein (including full cooperation in support of any Company applications for patents and copyright or trademark registrations). 13. Return of Company Property. In the event of termination of Executive's employment for any reason, Executive shall return to the Company all of the property of the Company and its Affiliates, including without limitation all materials or documents containing or pertaining to Confidential Information, and including without limitation, any company car, all computers (including laptops), cell phones, keys, PDAs, Blackberries, credit cards, facsimile machines, card access to any Company building, customer lists, computer disks, reports, files, e- 9 mails, work papers, Work Product, documents, memoranda, records and software, computer access codes or disks and instructional manuals, internal policies, and other similar materials or documents which Executive used, received or prepared, helped prepare or supervised the preparation of in connection with Executive's employment with the Company. Executive agrees not to retain any copies, duplicates, reproductions or excerpts of such material or documents. 14. Compliance With Company Policies. During Executive's employment with the Company, Executive shall be governed by and be subject to, and Executive hereby agrees to comply with, all Company policies applicable to employees generally or to employees at Executive's grade level, including without limitation, the Company's Code of Business Ethics and Conduct, in each case, as any such policies may be amended from time to time in the Company's sole discretion (collectively, the "Policies"). 15. Injunctive Relief with Respect to Covenants; Forum, Venue and Jurisdiction. Executive acknowledges and agrees that a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14 is a material breach of this Agreement and that remedies at law may be inadequate to protect the Company and its Affiliates in the event of such breach, and, without prejudice to any other rights and remedies otherwise available to the Company, Executive agrees to the granting of injunctive relief in the Company's favor in connection with any such breach or violation without proof of irreparable harm, plus attorneys' fees and costs to enforce these provisions. Executive further acknowledges and agrees that the Company's obligations to pay Executive any amount or provide Executive with any benefit or right pursuant to Section 8 is subject to Executive's compliance with Executive's obligations under Sections 9 through 14 inclusive, and that in the event of a breach by Executive of any of Section 9, 10, 11, 12, 13 or 14, the Company shall immediately cease paying such benefits and Executive shall be obligated to immediately repay to the Company all amounts theretofore paid to Executive pursuant to Section 8. In addition, if not repaid, the Company shall have the right to set off from any amounts otherwise due to Executive any amounts previously paid pursuant to Section 8(f) (other than the Accrued Obligations). Executive further agrees that the foregoing is appropriate for any such breach inasmuch as actual damages cannot be readily calculated, the amount is fair and reasonable under the circumstances, and the Company would suffer irreparable harm if any of these Sections were breached. All disputes not relating to any request or application for injunctive relief in accordance with this Section 15 shall be resolved by arbitration in accordance with Section 18(b). 16. Assumption of Agreement. The Company shall require any Successor thereto, by agreement in form and substance reasonably satisfactory to Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled hereunder if the Company had terminated Executive's employment Without Cause as described in Section 8, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. 10 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof. All prior correspondence and proposals (including, but not limited to, summaries of proposed terms) and all prior promises, representations, understandings, arrangements and agreements relating to such subject matter are merged herein and superseded hereby. 18. Miscellaneous. (a) Binding Effect; Assignment. This Agreement shall be binding on and inure to the benefit of the Company and its Successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto. The Company may effect such an assignment without prior written approval of Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means), provided that the Successor to the Company shall expressly assume and agree to perform this Agreement in accordance with the provisions of Section 16. (b) Arbitration. The Company and Executive agree that any dispute or controversy arising under or in connection with this Agreement shall be resolved by final and binding arbitration before the American Arbitration Association ("AAA"). The arbitration shall be conducted in accordance with AAA's National Rules for the Resolution of Employment Disputes then in effect at the time of the arbitration. The arbitration shall be held in the general Kansas City, Kansas metropolitan area. The dispute shall be heard and determined by one arbitrator selected from a list of arbitrators who are members of AAA's Regional Employment Dispute Resolution roster. If the parties cannot agree upon a mutually acceptable arbitrator from the list, each party shall number the names in order of preference and return the list to AAA within ten (10) days from the date of the list. A party may strike a name from the list only for good cause. The arbitrator receiving the highest ranking by the parties shall be selected. Depositions, if permitted by the arbitrator, shall be limited to a maximum of two (2) per party and to a maximum of four (4) hours in duration. The arbitration shall not impair either party's right to request injunctive or other equitable relief in accordance with Section 15 of this Agreement. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas without reference to principles of conflicts of laws. (d) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including, but not limited to, income, employment and social insurance taxes, as shall be required by law. (e) Amendments. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is approved by the Company and is agreed to in writing by Executive. No waiver by any party hereto at any time of any breach by any other party hereto of, or compliance with, any condition or provision of this Agreement to be 11 performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No waiver of any provision of this Agreement shall be implied from any course of dealing between or among the parties hereto or from any failure by any party hereto to assert its rights hereunder on any occasion or series of occasions. (f) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. (g) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing; (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested; (iii) deemed to have been received on the date of delivery or, if mailed, on the third business day after the mailing thereof; and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): (i) If to the Company, to it at: Seaboard Corporation 9000 West 67th Street Shawnee Mission, Kansas 66202 Attention: General Counsel Telephone: (913) 676-8925 Facsimile: (913) 676-8978 (ii) if to Executive, to his residential address as currently on file with the Company. (h) Voluntary Agreement; No Conflicts. Executive represents that he is entering into this Agreement voluntarily and that Executive's employment hereunder and compliance with the terms and conditions of this Agreement will not conflict with or result in the breach by Executive of any agreement to which he is a party or by which he or his properties or assets may be bound. (i) Counterparts/Facsimile. This Agreement may be executed in counterparts (including by facsimile), each of which shall be deemed an original and all of which together shall constitute one and the same instrument. (j) Headings. The section and other headings contained in this Agreement are for the convenience of the parties only and are not intended to be a part hereof or to affect the meaning or interpretation hereof. 12 (k) Certain other Definitions. "Affiliate" with respect to any Person, means any other Person that, directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with the first Person, including, but not limited to, a Subsidiary of any such Person. "Control" (including, with correlative meanings, the terms "Controlling," "Controlled by" and "under common Control with"): with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Person" any natural person, firm, partnership, limited liability company, association, corporation, company, trust, business trust, governmental authority or other entity. "Subsidiary" with respect to any Person, each corporation or other Person in which the first Person owns or Controls, directly or indirectly, capital stock or other ownership interests representing fifty percent (50%) or more of the combined voting power of the outstanding voting stock or other ownership interests of such corporation or other Person. "Successor" of a Person means a Person that succeeds to the first Person's assets and liabilities by merger, liquidation, dissolution or otherwise by operation of law, or a Person to which all or substantially all the assets and/or business of the first Person are transferred. SIGNATURE PAGE FOLLOWS 13 IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives, and Executive has hereunto set his hand, in each case effective as of the date first above written. THIS AGREEMENT CONTAINS A PROVISION REQUIRING THAT ARBITRATION PURSUANT TO THE AMERICAN ARBITRATION ASSOCIATION NATIONAL RULES FOR THE RESILUTION OF EMPLOYMENT DISPUTES IS THE EXCLUSIVE MEANS FOR RESOLVING ANY DISPUTE BETWEEN THE PARTIES HERETO AS TO THIS AGREEMENT. SEABOARD FARMS, INC. By: /s/ Robert L. Steer Robert L. Steer Vice President Executive: By: /s/ Rodney K. Brenneman Rodney K. Brenneman 14 EX-31.1 6 ex31-1.txt CERTIFICATION OF THE CHEIF EXECUTIVE OFFICER PURSUANT TO SECTION 302 Exhibit 31.1 CERTIFICATIONS I, H. H. Bresky, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 11, 2005 /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-31.2 7 ex31-2.txt CERTIFICAITON OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 Exhibit 31.2 CERTIFICATIONS I, Robert L. Steer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Seaboard Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 11, 2005 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer EX-32.1 8 ex32-1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 11, 2005 /s/ H. H. Bresky H. H. Bresky, Chairman of the Board, President and Chief Executive Officer EX-32.2 9 ex32-2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION. 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2005 (the Report) by Seaboard Corporation (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 11, 2005 /s/ Robert L. Steer Robert L. Steer, Senior Vice President, Treasurer and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----