THE CORPORATE LIBRARY

Related Party Transactions and Outside Related Director Information

Premium Standard Farms, Inc. (PORK)

5/10/2006 S-1/A Information

Agreements with ContiGroup

We have contracted with ContiGroup to provide certain services pursuant to a hog contract grower agreement and a services agreement. The Company also was party to a consulting agreement with ContiGroup, pursuant to which ContiGroup provided consulting services relating to the negotiation of an environmental consent judgment and compliance therewith, various other environmental matters and strategic services. The Company accrued the entire obligation under the consulting agreement in fiscal year 2000 and made its last payment thereunder in December 2003, at which time the agreement terminated. For the fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004, the total amount of these expenses and other related-party expenses with ContiGroup were approximately $5.3 million, $4.9 million and $5.4 million, respectively. At March 25, 2006, March 26, 2005 and March 27, 2004, we recorded amounts due to ContiGroup for these items of approximately $22,000, $29,000 and $56,000, respectively, on our consolidated balance sheets.

The grower agreement relates to approximately 6,200 acres of farms used in our Missouri operations. Under that agreement, ContiGroup owns the real property on which the farms are located. ContiGroup serves as an independent contractor in breeding and growing our hogs to market weight. In exchange, we pay to ContiGroup a fee for labor and services incurred by ContiGroup in performing its obligations under the agreement. In addition, under the grower agreement, we have agreed to indemnify ContiGroup against any and all claims and expenses incurred in connection with the agreement, the performance by ContiGroup of its obligations thereunder or ContiGroupÕs ownership of the real property on which the farms are located. During the fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004, the amount paid for obligations under the grower agreement was approximately $3.9 million, $4.0 million and $4.4 million, respectively. The agreement will generally continue in effect so long as ContiGroup continues to own an equity interest in our Company. Upon termination of the agreement, we have an option to acquire the real property farmland from ContiGroup for $1.00, which option may be assigned to third parties.

Under the services agreement, ContiGroup provides purchasing assistance, legal services, employee benefits and payroll, including the services of Mr. Gerard Schulte, our General Counsel and Secretary, and other personnel. Mr. Schulte, as well as other personnel, are employees of ContiGroup but provide services to us as well as other affiliates of ContiGroup. Other services from ContiGroup include the assistance of purchasing and risk management staff, environmental consulting and purchasing of certain liability insurance policies. We pay ContiGroup a monthly fee for these services, which amount is negotiated on an annual basis. In addition, we reimburse ContiGroup for a portion of Mr. SchulteÕs annual bonus and long-term incentive plan payment. Pursuant to the terms of the services agreement, we and ContiGroup have agreed to indemnify each other against any and all claims and expenses incurred in connection with or arising out of the performance of this agreement. For the fiscal years ended March 25, 2006, March 26, 2005 and March 27, 2004, the amount paid for all services was $1.4 million, $0.9 million and $1.0 million, respectively. In addition to these amounts, we provide Mr. Schulte with an annual allowance of approximately $27,000 for automobile, travel and housing. We believe that the terms of these arrangements are at least as favorable to the Company as those available from third parties.

Lundy Acquisition

In connection with our acquisition of The Lundy Packing Company on August 25, 2000, we assumed a lease agreement pursuant to which we lease farmland and hog production buildings from Goshen Ridge Farms, LLC, a company owned by Annabelle Lundy Fetterman, who served as one of our directors until she resigned in September 2003, and members of her family, under a capital lease agreement. The capital lease obligation as of March 25, 2006, March 26, 2005 and March 27, 2004 was $1.0 million, $1.4 million and $1.7 million, respectively. We believe that the terms of this arrangement are at least as favorable to the Company as those available from third parties.

Relationship with Morgan Stanley

Prior to our initial public offering, affiliates of Morgan Stanley & Co. Incorporated held 3,445,798 shares of our common stock and warrants to purchase 1,090,223 shares of our common stock, which collectively represented approximately 14.0% of our common stock on a fully diluted basis. These affiliates sold 3,186,020 shares of our common stock in that offering. In addition, Michael A. Petrick, a Managing Director of Morgan Stanley & Co. Incorporated, served as one of our directors from May 1998 until June 2005. Morgan Stanley & Co. Incorporated is expected to serve as the underwriter with respect to the sale of shares by the selling shareholders and has served as one of the managing underwriters in our initial public offering, served as the dealer manager and solicitation agent in the tender offer for our 91/4 % senior notes in fiscal 2006 and has provided other investment banking services to us from time to time for which it has received customary compensation.